Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page F-1 of this report.

For our discussion of the year ended December 31, 2018, compared to the year ended December 31, 2017, please read Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in our 2018 Form 10-K.

Executive Summary

Introduction

Biogen is a global biopharmaceutical company focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. Our core growth areas include MS and neuroimmunology; AD and dementia; neuromuscular disorders, including SMA and ALS; movement disorders, including Parkinson's disease; and ophthalmology. We are also focused on discovering, developing and delivering worldwide innovative therapies in our emerging growth areas of immunology; neurocognitive disorders; acute neurology; and pain. In addition, we commercialize biosimilars of advanced biologics. We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.

Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, VUMERITY and FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; and FUMADERM for the treatment of severe plaque psoriasis. We also have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, CLL and other conditions; RITUXAN HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular lymphoma; OCREVUS for the treatment of PPMS and RMS; and other potential anti-CD20 therapies pursuant to our collaboration arrangements with Genentech. For additional information on our collaboration arrangements with Genentech, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Our innovative drug development and commercialization activities are complemented by our biosimilar products that expand access to medicines

and reduce the cost burden for healthcare systems. Through Samsung Bioepis, our joint venture with Samsung BioLogics Co., Ltd., we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE, in certain countries in Europe and have exclusive rights to commercialize these products in China. Additionally, we have exclusive rights to commercialize two potential ophthalmology biosimilar products, SB11 referencing LUCENTIS and SB15 referencing EYLEA, in major markets worldwide, including the U.S., Canada, Europe, Japan and Australia. For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Our revenues depend upon continued sales of our products, as well as the financial rights we have in our anti-CD20 therapeutic programs, and, unless we develop, acquire rights to and/or commercialize new products and technologies, we will be substantially dependent on sales from our products and our financial rights in our anti-CD20 therapeutic programs for many years.

In the longer term, our revenue growth will depend upon the successful clinical development, regulatory approval and launch of new commercial products as well as additional indications for our existing products, our ability to obtain and maintain patents and other rights related to our marketed products, assets originating from our research and development efforts and/or successful execution of external business development opportunities.

Business Environment

The biopharmaceutical industry and the markets in which we operate are intensely competitive. Many of our competitors are working to develop or have commercialized products similar to those we market or are developing and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. In addition, the commercialization of certain of our own approved products, products of our collaborators and pipeline product candidates may negatively impact future sales of our existing products.

Our products continue to face increasing competitive pressures from the introduction of generic versions, prodrugs and biosimilars of existing products as well as products approved under abbreviated regulatory pathways. Such products are likely to be sold at substantially lower prices than branded products, which may significantly reduce both the price that we are able to charge for our products and the volume of products we sell. In addition, when

a generic version of one of our products is commercialized, it may, in some cases, be automatically substituted for our product and reduce our revenues in a short period of time.

Sales of our products depend, to a significant extent, on the availability and extent of adequate coverage, pricing and reimbursement from government health administration authorities, private health insurers and other organizations. When a new pharmaceutical product is approved, the availability of government and private reimbursement for that product may be uncertain, as is the pricing and amount for which that product will be reimbursed.

Drug prices are under significant scrutiny in the markets in which our products are prescribed. We expect drug pricing and other health care costs to continue to be subject to intense political and societal pressures on a global basis.

Our failure to obtain or maintain adequate coverage, pricing or reimbursement for our products could have an adverse effect on our business, reputation, revenues and results of operations, could curtail or eliminate our ability to adequately fund research and development programs for the discovery and commercialization of new products or could cause a decline or volatility in our stock price.

In addition to the impact of competition, pricing actions and other measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, our sales and operations could also be affected by other risks of doing business internationally, including the impact of foreign currency exchange fluctuations, changes in intellectual property legal protections and changes in trade regulations and procedures as well as the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe.

For additional information on our competition and pricing risks that could negatively impact our product sales, please read Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in this report.

Brexit

In June 2016 the U.K. electorate voted in a referendum to voluntarily depart from the E.U., known as Brexit. In March 2017 the U.K. government formally notified the European Council of its intention to leave the E.U. and began to negotiate the terms of its withdrawal and outline the future relationship between the U.K. and the E.U. upon exit, which occurred on January 31, 2020. Following the U.K.’s departure, there is now a transition period during which existing arrangements will remain in place until the end of 2020, allowing detailed discussions on the future relationship between the U.K. and the E.U. to take place.

The potential impact on our results of operations and liquidity resulting from Brexit remains unclear. The actual effects of Brexit will depend upon many factors and significant uncertainty remains with respect to the future relationship between the U.K. and the E.U. The final outcome of the discussions during the transition period may impact certain of our research, commercial and general business operations in the U.K. and the E.U., including the approval and supply of our products.

Compliance with any resulting regulatory mandates may prove challenging and the macroeconomic impact on our sales and consolidated results of operations from these developments remains unknown. We do not, however, expect Brexit to have a material impact on our consolidated results of operations as approximately 3.5%, 3.3% and 3.2% of our total product revenues in 2019, 2018 and 2017, respectively, were derived from U.K. sales.

We have implemented measures to meet E.U. legal and regulatory requirements and to continue to modify our business operations to prepare for the finalization of the terms of the U.K.'s separation from the E.U. However, we cannot predict the direction Brexit-related developments will take nor the impact of those developments on our European operations and the economies of the markets where we operate. Therefore, we will continue to monitor for developments in this area and assess any potential impact on our business and results of operations.

Financial Highlights

Diluted earnings per share attributable to Biogen Inc. were $31.42 for 2019, representing an increase of 45.6% over $21.58 in the same period in 2018.

As described below under Results of Operations, our net income and diluted earnings per share attributable to Biogen Inc. for the year ended December 31, 2019, compared to the year ended December 31, 2018, reflects the following:

•	Total revenues were $14,377.9 million for 2019, representing an increase of 6.9% over $13,452.9 million in 2018.

•

Product revenues, net totaled $11,379.8 million for 2019, representing an increase of 4.5% over $10,886.8 million in 2018. This increase was primarily due to a 21.6% increase in revenues from SPINRAZA and a 35.4% increase in revenues from our biosimilar business. Product revenues, net, compared to the same period in 2018, further reflects the unfavorable impact of foreign currency exchange of $53.0 million.

•	Revenues from anti-CD20 therapeutic programs totaled $2,290.4 million for 2019, representing an increase of 15.7% over $1,980.2 million in 2018. This increase was primarily due to an increase in royalty revenues on sales of OCREVUS.

•	Other revenues totaled $707.7 million for 2019, representing an increase of 20.8% over $585.9 million in 2018. This increase was primarily due to higher revenues from our manufacturing and supply agreement with Bioverativ, partially offset by lower revenues from other contract manufacturing agreements.

•	Total cost and expenses totaled $7,335.3 million for 2019, representing a decrease of 3.0% from $7,564.3 million in 2018. This decrease was primarily due to:

◦	a 12.2% decrease in research and development expense, primarily due to the $482.6 million net charge recognized in 2018 upon the closing of the 2018 Ionis Agreement;

◦	a 34.4% decrease in amortization and impairment of acquired intangible assets, primarily due to the $366.1 million impairment charges recognized in 2018, which lowered amortization expense in subsequent periods, partially offset by the $215.9 million impairment charges recognized in 2019; and

◦	a net change in (gain) loss on fair value remeasurement of contingent consideration, primarily due to the gain recognized on the remeasurement of our continent consideration obligation related to the Phase 2b study of BG00011 for the potential treatment of IPF.

This decrease was partially offset by:

◦	a 12.7% increase in selling, general and administrative expenses, primarily due to increased commercial and medical investments as well as the timing of spend on selling, general and administrative expense; and

◦	a 7.7% increase in cost of sales, primarily due to our sales in 2019 to Bioverativ of hemophilia-related inventory on hand as of December 31, 2018, and an increase in sales of products within our biosimilar business.

•	Net income attributable to Biogen Inc. was favorably impacted by a decrease in our effective tax rate to 16.3% for the year ended December 31, 2019, from 24.2% for 2018, due in part to an internal reorganization of certain intellectual property rights, the impact of Swiss Tax Reform and the 2018 unfavorable impacts of U.S. Tax Reform.

As described below under Financial Condition, Liquidity and Capital Resources:

•	We generated $7,078.6 million of net cash flows from operations for 2019, which were primarily driven by earnings.

•	Cash, cash equivalents and marketable securities totaled approximately $5,884.0 million as of December 31, 2019.

•	We repurchased and retired approximately 23.6 million shares of our common stock at a cost of approximately $5.8 billion during 2019 under our March 2019 Share Repurchase Program and our 2018 Share Repurchase Program.

Acquisitions, Collaborative and Other Relationships

For additional information on our acquisitions, collaborative and other relationships discussed below, please read Note 2, Acquisitions, Note 3, Divestitures, Note 18, Collaborative and Other Relationships, and Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report.

Skyhawk Therapeutics, Inc.

In January 2019 we entered into a collaboration and research and development services agreement with Skyhawk pursuant to which the companies are leveraging Skyhawk's SkySTAR technology platform with the goal of discovering innovative small molecule treatments for patients with neurological diseases, including MS and SMA. In connection with this agreement, we made an upfront payment of $74.0 million to Skyhawk. We are responsible for the development and potential commercialization of any therapies resulting from this collaboration. In October 2019 we amended this agreement to add an additional discovery program. In connection with this amendment, we made a payment to Skyhawk of $15.0 million.

Acquisition of Nightstar Therapeutics plc

In June 2019 we completed our acquisition of all of the outstanding shares of NST, a clinical-stage gene therapy company focused on AAV treatments for inherited retinal disorders. As a result of this acquisition, we added two mid- to late-stage clinical assets, as well as preclinical programs, in ophthalmology. These assets include BIIB111, which is in Phase 3 development for the potential treatment of CHM, a rare, degenerative, X-linked inherited retinal disorder that leads to blindness and currently has no approved treatments, and BIIB112 (RPGR gene therapy), which is in Phase 2/3 development for the potential treatment of XLRP, which is a rare inherited retinal disease with no currently approved treatments.

Under the terms of the acquisition, we paid NST shareholders $25.50 in cash for each issued and outstanding NST share, which totaled $847.6 million.

Divestiture of Hillerød, Denmark Manufacturing Operations

In August 2019 we completed the sale of all of the outstanding shares of our subsidiary that owned our biologics manufacturing operations in Hillerød, Denmark to FUJIFILM. Upon the closing of this transaction, we received approximately $881.9 million in cash, which may be adjusted based on other contractual terms. In addition, we sold to FUJIFILM $41.8 million of raw materials that were remaining at the Hillerød facility on the closing date of this transaction.

Samsung Bioepis

In December 2019 we completed a transaction with Samsung Bioepis and secured the exclusive rights to commercialize two potential ophthalmology biosimilar products, SB11 referencing LUCENTIS and SB15 referencing EYLEA, in major markets worldwide, including the U.S., Canada, Europe, Japan and Australia. We also acquired an option to extend our existing commercial agreement with Samsung Bioepis for BENEPALI, IMRALDI and FLIXABI in Europe and obtained exclusive rights to commercialize these products in China. In connection with this transaction, we made an upfront payment of $100.0 million to Samsung Bioepis.

BIIB080 Option Exercise

In December 2019 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB080, an investigational treatment for AD.

Pfizer Inc.

In January 2020 we entered into an agreement to acquire PF-05251749, a novel CNS-penetrant small molecule inhibitor of CK1, for the potential treatment of patients with behavioral and neurological symptoms across various psychiatric and neurological diseases from Pfizer. In particular, we plan to develop the Phase 1 asset for the treatment of sundowning in AD and ISWRD in Parkinson’s disease. This transaction is subject to customary closing conditions, including the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in the U.S. We expect this transaction to close in the first quarter of 2020.

Other Key Developments

VUMERITY

In October 2019 the FDA approved VUMERITY for the treatment of RMS. Under the terms of the license and collaboration agreement with Alkermes, we made milestone payments totaling $155.0 million to Alkermes following the FDA's approval of VUMERITY. In November 2019 VUMERITY became available in the U.S.

Aducanumab

In October 2019 we and our collaboration partner Eisai announced that we plan to pursue regulatory approval for aducanumab in the U.S. and that the Phase 3 EMERGE study met its primary endpoint showing a significant reduction in clinical decline. We believe that results from a subset of patients in the Phase 3 ENGAGE study who received sufficient exposure to high dose aducanumab support findings from EMERGE. The decision to file is based on a new analysis, conducted in consultation with the FDA, of a larger dataset from the Phase 3 EMERGE and ENGAGE trials that were discontinued in March 2019 following a futility analysis.

For additional information on our plans to file for regulatory approval for aducanumab, please read the

subsection entitled "Financial Condition, Liquidity and Capital Resources" included below.

Elenbecestat

In September 2019 we and our collaboration partner Eisai announced the decision to discontinue the global Phase 3 studies (MISSION AD1 and MISSION AD2) of the investigational oral BACE inhibitor elenbecestat in patients with early AD.

2019 Share Repurchase Programs

In March 2019 our Board of Directors authorized our March 2019 Share Repurchase Program, which is a program to repurchase up to $5.0 billion of our common stock. Our March 2019 Share Repurchase Program does not have an expiration date. All share repurchases under our March 2019 Share Repurchase Program will be retired.

In December 2019 our Board of Directors authorized our December 2019 Share Repurchase Program, which is a program to repurchase up to $5.0 billion of our common stock. Our December 2019 Share Repurchase Program does not have an expiration date. All share repurchases under our December 2019 Share Repurchase Program will be retired.

Results of Operations

Revenues

Revenues are summarized as follows:

	For the Years Ended December 31,												% Change
	2019 compared to 2018			2018 compared to 2017
(In millions, except percentages)	2019				2018				2017
Product revenues, net:
United States	$	6,713.8			$	6,800.5			$	7,017.1			(1.3	)%		(3.1	)%
Rest of world	4,666.0				4,086.3				3,337.6				14.2	%		22.4	%
Total product revenues, net	11,379.8				10,886.8				10,354.7				4.5	%		5.1	%
Revenues from anti-CD20 therapeutic programs	2,290.4				1,980.2				1,559.2				15.7	%		27.0	%
Other revenues	707.7				585.9				360.0				20.8	%		62.8	%
Total revenues	$	14,377.9			$	13,452.9			$	12,273.9			6.9	%		9.6	%

Product Revenues

Product revenues are summarized as follows:

	For the Years Ended December 31,												% Change
	2019 compared to 2018			2018 compared to 2017
(In millions, except percentages)	2019				2018				2017
Multiple Sclerosis (MS):
TECFIDERA	$	4,432.7			$	4,274.1			$	4,214.0			3.7	%		1.4	%
Interferon*	2,101.8				2,363.0				2,645.8				(11.1	)%		(10.7	)%
TYSABRI	1,892.2				1,864.0				1,973.1				1.5	%		(5.5	)%
VUMERITY	5.5				—				—				**			**
FAMPYRA	97.1				92.7				91.6				4.7	%		1.2	%
ZINBRYTA	—				1.4				52.7				(100.0	)%		(97.3	)%
Subtotal: MS product revenues	8,529.3				8,595.2				8,977.2				(0.8	)%		(4.3	)%
Spinal Muscular Atrophy:
SPINRAZA	2,097.0				1,724.2				883.7				21.6	%		95.1	%
Biosimilars:
BENEPALI	486.2				485.2				370.8				0.2	%		30.9	%
IMRALDI	184.0				16.7				—				1,001.8	%		**
FLIXABI	68.1				43.2				9.0				57.6	%		380.0	%
Subtotal: Biosimilar product revenues	738.3				545.1				379.8				35.4	%		43.5	%
Other:
FUMADERM	15.2				22.3				39.6				(31.8	)%		(43.7	)%
Hemophilia:
ELOCTATE	—				—				48.4				**			**
ALPROLIX	—				—				26.0				**			**
Subtotal: Hemophilia product revenues	—				—				74.4				**			**
Total product revenues, net	$	11,379.8			$	10,886.8			$	10,354.7			4.5	%		5.1	%

• Interferon includes AVONEX and PLEGRIDY.

** Percentage not meaningful.

Multiple Sclerosis

TECFIDERA

For 2019 compared to 2018, the 1.6% increase in U.S. TECFIDERA revenues was primarily due to a slight net price increase, offset by a small decrease in unit sales volume.

For 2019 compared to 2018, the 10.3% increase in rest of world TECFIDERA revenues was primarily due to increases in unit sales volume of 14%, primarily related to our European and Japanese markets, and the favorable impact of foreign currency exchange of $16.5 million, partially offset by pricing reductions in certain European countries.

In February 2020 the U.S. Patent Trial and Appeal Board (PTAB) decided that our U.S. Patent No. 8,399,514 (the ‘514 Patent) is patentable. The ‘514 Patent covers treatment of MS with 480 mg of dimethyl fumarate per day as provided for in our TECFIDERA label. This decision may be appealed.

The ‘514 Patent has also been challenged pursuant to the Hatch-Waxman Act in the U.S. District Courts of Delaware (the Delaware action) and West Virginia (the West Virginia action). We are awaiting a decision in the Delaware action and the trial in the West Virginia action is ongoing. If we receive an adverse judgment in either U.S. District Court action, we will appeal but we may face generic competition while our appeal is pending.

We will face TECFIDERA generic competition if an adverse PTAB or U.S. District Court decision is reached on appeal. In addition, we have entered into settlement agreements with some of the defendants in the Delaware action and we now anticipate TECFIDERA generic competition before the ‘514 Patent expires in February 2028. Generic competition

is expected to have an adverse impact on our TECFIDERA sales and our results of operations. For additional information, please read Note 20, Litigation, to our consolidated financial statements included in this report.

We anticipate an increase in TECFIDERA demand in rest of world in 2020, compared to 2019, notwithstanding the increasing competition from additional treatments for MS. We expect volume growth in our rest of world markets to offset volume declines in the U.S.

Interferon

AVONEX and PLEGRIDY

For 2019 compared to 2018, the 14.5% decrease in U.S. Interferon revenues was primarily due to a decrease in Interferon unit sales volumes of 13%, which was primarily attributable to patients transitioning to other MS therapies and a net price decrease.

For 2019 compared to 2018, the 2.8% decrease in rest of world Interferon revenues was primarily due to pricing reductions in certain European countries.

We expect that Interferon revenues will continue to decline in both the U.S. and rest of world markets in 2020, compared to 2019, as a result of increasing competition from our other MS products as well as other treatments for MS, including biosimilars, and pricing reductions in certain European markets.

AVONEX

For 2019, 2018 and 2017 U.S. AVONEX revenues totaled $1,202.1 million, $1,420.2 million and $1,593.6 million, respectively.

For 2019, 2018 and 2017 rest of world AVONEX revenues totaled $463.8 million, $495.3 million and $557.9 million, respectively.

PLEGRIDY

For 2019, 2018 and 2017 U.S. PLEGRIDY revenues totaled $224.5 million, $248.1 million and $295.5 million, respectively.

For 2019, 2018 and 2017 rest of world PLEGRIDY revenues totaled $211.4 million, $199.4 million and $198.8 million, respectively.

TYSABRI

For 2019 compared to 2018, the 1.6% increase in U.S. TYSABRI revenues was primarily due to price increases, partially offset by a decrease in unit sales volumes of 4%.

For 2019 compared to 2018, the 1.4% increase in rest of world TYSABRI revenues was primarily due to an increase in unit sales volumes of 3%.

We anticipate TYSABRI demand to be stable on a global basis in 2020, compared to 2019, with expected volume declines in the U.S. due to increasing competition from additional treatments for MS, including OCREVUS, offset by volume growth in our rest of world markets, net of price reductions in certain rest of world countries.

Spinal Muscular Atrophy

SPINRAZA

For 2019 compared to 2018, the 9.3% increase in U.S. SPINRAZA revenues was primarily due to increases in unit sales volume of 9%.

For 2019 compared to 2018, the 33.7% increase in rest of world SPINRAZA revenues was primarily due to an increase in unit sales volumes of 69%, partially offset by the unfavorable impact of foreign currency exchange of $43.5 million.

We expect that the rate at which SPINRAZA revenues will grow will moderate in 2020, compared to 2019, primarily due to a lower rate of new patient starts combined with the impact of loading dose dynamics as patients transition to dosing once every four months.

We face competition from a new gene therapy product that was approved in the U.S. in May 2019 for the treatment of SMA. Additionally, we are aware of other products in development that, if successfully developed and approved, may compete with SPINRAZA in the SMA market, including potential oral products. Future sales of SPINRAZA may be adversely affected by the commercialization of competing products.

For additional information on our collaboration arrangements with Ionis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Biosimilars

BENEPALI, IMRALDI and FLIXABI

For 2019 compared to 2018, the 35.4% increase in biosimilar revenues was primarily due to the launch of IMRALDI in the fourth quarter of 2018, partially offset by the unfavorable impact of foreign currency exchange of $27.8 million.

In 2020 we expect strong revenue growth for our biosimilars business, primarily driven by the continued launch of IMRALDI in Europe, partially offset by price reductions in certain European countries.

In December 2019 we completed a transaction with Samsung Bioepis and secured the exclusive rights to commercialize two potential ophthalmology biosimilars, SB11 referencing LUCENTIS and SB15 referencing EYLEA, in major markets worldwide, including the U.S., Canada, Europe, Japan and Australia. We also acquired an option to extend our existing commercial agreement with Samsung Bioepis for BENEPALI, IMRALDI and FLIXABI in Europe and obtained exclusive rights to commercialize these products in China.

For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Revenues from Anti-CD20 Therapeutic Programs

Genentech Inc. (Roche Group)

Our share of RITUXAN, including RITUXAN HYCELA, and GAZYVA collaboration operating profits in the U.S. and other revenues from anti-CD20 therapeutic programs are summarized in the table below. For purposes of this discussion we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.

Biogen’s Share of Pre-tax Profits in the U.S. for RITUXAN and GAZYVA

The following table provides a summary of amounts comprising our share of pre-tax profits in the U.S. for RITUXAN and GAZYVA:

	For the Years Ended December 31,
(In millions)	2019				2018				2017
Product revenues, net	$	4,747.4			$	4,484.3			$	4,206.9
Cost and expenses	622.7				669.6				755.2
Pre-tax profits in the U.S.	$	4,124.7			$	3,814.7			$	3,451.7
Biogen's share of pre-tax profits	$	1,542.4			$	1,431.9			$	1,316.4

Our share of RITUXAN annual pre-tax co-promotion profits in the U.S. in excess of $50.0 million decreased to 37.5% from 39% in the third quarter of 2017 as gross sales of GAZYVA in the U.S.

for the preceding 12-month period exceeded $150.0 million.

For 2019 compared to 2018, the increase in U.S. product revenues, net was primarily due to increased net sales of RITUXAN in the U.S. of 5.0%, which reflects an increase in unit sales volume of 3%, and selling price increases, partially offset by higher rates in discounts and allowances.

The increase in U.S. product revenues, net over 2018 also reflects an increase in GAZYVA unit sales volume of 21%.

For 2019 compared to 2018, the decrease in collaboration costs and expenses was primarily due to lower cost of sales and lower selling and marketing costs on RITUXAN and lower Branded Pharmaceutical Drug fee expenses for RITUXAN and GAZYVA.

We are aware of anti-CD20 molecules, including biosimilar products, in development that if successfully developed and approved, could compete with RITUXAN and GAZYVA in the oncology market. The introduction of a biosimilar product can result in a significant reduction in net sales for the relevant product, as other manufacturers typically offer their versions at lower prices. In November 2019 and January 2020 biosimilar products referencing RITUXAN were launched in the U.S. and this could adversely affect the pre-tax profits of our collaboration arrangements with Genentech, which could, in turn, adversely affect our co-promotion profits in the U.S. in future years.

Other Revenues from Anti-CD20 Therapeutic Programs

Other revenues from anti-CD20 therapeutic programs consist of royalty revenues on sales of OCREVUS and our share of pre-tax co-promotion profits from RITUXAN in Canada.

For 2019 compared to 2018, the increase in other revenues from anti-CD20 therapeutic programs was primarily due to the sales growth of OCREVUS. Royalty revenues recognized on sales of OCREVUS for the years ended December 31, 2019, 2018 and 2017, totaled $687.5 million, $478.3 million and $159.3 million, respectively.

OCREVUS royalty revenues are based on our estimates from third party and market research data of OCREVUS sales occurring during the corresponding period. Differences between actual and estimated royalty revenues will be adjusted for in the period in which they become known, which is expected to be the following quarter.

In March 2017 the FDA approved OCREVUS for the treatment of RMS and PPMS. Pursuant to the terms of our collaboration arrangements with Genentech, we receive a tiered royalty on U.S. net sales from 13.5% and increasing up to 24% if annual net sales exceed $900.0 million. There will be a 50% reduction to these royalties if a biosimilar to OCREVUS is approved in the U.S.

In addition, we receive a gross 3% royalty on net sales of OCREVUS outside the U.S., with the royalty period lasting 11 years from the first commercial sale of OCREVUS on a country-by-country basis. OCREVUS has been approved for the treatment of RMS and PPMS in the E.U. and certain other countries.

The commercialization of OCREVUS does not impact the percentage of the co-promotion profits we receive for RITUXAN or GAZYVA. Genentech is solely responsible for development and commercialization of OCREVUS and funding future costs. Genentech cannot develop OCREVUS in CLL, non-Hodgkin's lymphoma or rheumatoid arthritis.

For additional information on our relationship with Genentech, including information regarding the pre-tax profit-sharing formula and its impact on future revenues from anti-CD20 therapeutic programs, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Other Revenues

Other revenues are summarized as follows:

	For The Years Ended December 31,												% Change
		2019 compared to 2018			2018 compared to 2017
(In millions, except percentages)	2019				2018				2017
Revenues from collaborative and other relationships	$	106.2			$	87.8			$	36.5			21.0	%		140.5	%
Other royalty and corporate revenues	601.5				498.1				323.5				20.8	%		54.0	%
Total other revenues	$	707.7			$	585.9			$	360.0			20.8	%		62.8	%

Revenues from Collaborative and Other Relationships

Revenues from collaborative and other relationships primarily include revenues from our technical development services and manufacturing agreements with Samsung Bioepis and royalty revenues on biosimilar products from Samsung Bioepis.

Following the divestiture of our Hillerød, Denmark manufacturing operations in August 2019, FUJIFILM assumed responsibility for the manufacture of clinical and commercial quantities of bulk drug substance of biosimilar products for Samsung Bioepis. We no longer recognize revenues for the manufacturing completed after the divestiture date under our technical development services and manufacturing agreements with Samsung Bioepis.

For the years ended December 31, 2019 and 2018, we recognized $106.2 million and $96.4 million, respectively, related to the services described above provided to Samsung Bioepis.

For additional information on our collaborative and other relationships, including revenues recognized under our technical development services and manufacturing agreements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Other Royalty and Corporate Revenues

We receive royalties from net sales on products related to patents that we have out-licensed and we record other corporate revenues primarily from amounts earned under contract manufacturing agreements.

For 2019 compared to 2018, the increase in other royalty and corporate revenues was primarily due to $383.2 million in revenues recognized in 2019 under the manufacturing and supply agreement with Bioverativ entered into in connection with the spin-off of our hemophilia business, compared to $206.7 million recognized in 2018. The increase in Bioverativ revenues in 2019 over the prior year period was due to our sales in 2019 of hemophilia-related inventory on hand as of December 31, 2018. The increase in corporate revenues was partially offset by the reduction in royalty revenues due to the expiration of certain of our patents and a reduction in revenues from contract manufacturing agreements, other than Bioverativ, as discussed above.

Reserves for Discounts and Allowances

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances, including those associated with the implementation of pricing actions in certain international markets where we operate.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.

Reserves for discounts, contractual adjustments and returns that reduced gross product revenues are summarized as follows:

For the years ended December 31, 2019, 2018 and 2017, reserves for discounts and allowances as a percentage of gross product revenues were 24.3%, 23.7% and 22.0%, respectively.

Discounts

Discounts include trade term discounts and wholesaler incentives.

For 2019 compared to 2018, discounts were relatively consistent.

Contractual Adjustments

Contractual adjustments primarily relate to Medicaid and managed care rebates, co-payment assistance (copay), VA and PHS discounts, specialty pharmacy program fees and other government rebates or applicable allowances.

For 2019 compared to 2018, the increase in contractual adjustments was primarily due to higher managed care rebates and governmental rebates in the U.S. as well as higher governmental rebates and allowances in the rest of world, due in part to an increase in SPINRAZA sales volumes worldwide.

Returns

Product return reserves are established for returns made by wholesalers. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Provisions for product returns are recognized in the period the related revenue is recognized, resulting in a reduction to product sales.

For 2019 compared to 2018, return reserves were relatively consistent.

For additional information on our revenue reserves, please read Note 4, Revenues, to our consolidated financial statements included in this report.

Cost and Expenses

A summary of total cost and expenses is as follows:

	For the Years Ended December 31,												% Change
	2019 compared to 2018			2018 compared to 2017
(In millions, except percentages)	2019				2018				2017
Cost of sales, excluding amortization and impairment of acquired intangible assets	$	1,955.4			$	1,816.3			$	1,630.0			7.7	%		11.4	%
Research and development	2,280.6				2,597.2				2,253.6				(12.2	)%		15.2	%
Selling, general and administrative	2,374.7				2,106.3				1,933.9				12.7	%		8.9	%
Amortization and impairment of acquired intangible assets	489.9				747.3				814.7				(34.4	)%		(8.3	)%
Collaboration profit (loss) sharing	241.6				185.0				112.3				30.6	%		64.7	%
Loss on divestiture of Hillerød, Denmark manufacturing operations	55.3				—				—				**			**
(Gain) loss on fair value remeasurement of contingent consideration	(63.7		)		(12.3		)		62.7				417.9	%		(119.6	)%
Acquired in-process research and development	—				112.5				120.0				(100.0	)%		(6.3	)%
Restructuring charges	1.5				12.0				0.9				(87.5	)%		**
Total cost and expenses	$	7,335.3			$	7,564.3			$	6,928.1			(3.0	)%		9.2	%

** Percentage not meaningful.

Cost of Sales, Excluding Amortization and Impairment of Acquired Intangible Assets (Cost of Sales)

Cost of sales, as a percentage of total revenues, were 13.6%, 13.5% and 13.3% for the years ended December 31, 2019, 2018 and 2017, respectively.

Product Cost of Sales

For 2019 compared to 2018, the increase in product cost of sales was primarily due to our sale in 2019 to Bioverativ of hemophilia-related inventory on hand as of December 31, 2018, with a cost basis totaling $184.5 million pursuant to the terms of the manufacturing and supply agreement with Bioverativ

entered into in connection with the spin-off of our hemophilia business.

Additionally, the increase in product cost of sales was attributable to an increase in sales of products within our biosimilar business and an increase in inventory amounts written down as a result of excess, obsolescence, unmarketability or other reasons, partially offset by lower cost of sales from our contract manufacturing agreements, except Bioverativ, as discussed above.

Inventory amounts written down as a result of excess, obsolescence, unmarketability or other reasons totaled $52.2 million, $41.9 million and $76.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Royalty Cost of Sales

For 2019 compared to 2018, the decrease in royalty cost of sales was primarily due to a decrease in royalties payable on sales of TYSABRI resulting from the expiration of certain third party royalties, partially offset by increased royalties payable on higher sales of SPINRAZA and IMRALDI.

Research and Development

We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.

A significant amount of our research and development costs consist of indirect costs incurred in support of overall research and development activities and non-specific programs, including activities that benefit multiple programs, such as management costs, as well as depreciation, information technology and facility-based expenses. These costs are considered other research and development costs in the table above and are not allocated to a specific program or stage.

Research and development expense incurred in support of our marketed products includes costs associated with product lifecycle management activities including, if applicable, costs associated with the development of new indications for existing products. Late stage programs are programs in Phase 3 development or in registration stage. Early stage programs are programs in Phase 1 or Phase 2 development. Research and discovery represents costs incurred to support our discovery research and translational science efforts. Costs are reflected in the development stage based upon the program status when incurred. Therefore, the same program could be reflected in different development stages in the same year. For several of our programs, the research and development activities are part of our collaborative and other relationships. Our costs reflect our share of the total costs incurred.

For 2019 compared to 2018, the decrease in research and development expense was primarily due to a decrease in milestone and upfront expenses and a decrease in other research and development costs. These decreases were partially offset by increases in costs incurred in connection with our early stage programs and marketed products.

We intend to continue committing significant resources to targeted research and development opportunities where there is a significant unmet need and where a drug candidate has the potential to be highly differentiated.

Milestone and Upfront Expenses

Research and development expense for 2019 includes:

•	$63.0 million charge to research and development expense upon the completion of a transaction with Samsung Bioepis to secure the exclusive rights to commercialize two potential ophthalmology biosimilar products;

•	$45.0 million charge to research and development expense upon the exercise of our option to obtain a worldwide, exclusive, royalty-bearing license from Ionis to develop and commercialize BIIB080; and

•	$46.5 million charge to research and development expense consisting of a $38.5 million charge upon the entering into a collaboration and research and development services agreement with Skyhawk and an approximately $8.0 million charge upon entering into an amendment to this agreement to add an additional discovery program.

Research and development expense for 2018 includes:

•	$486.2 million net charge to research and development expense upon the closing of the 2018 Ionis Agreement; and

•	$35.0 million charge to research and development expense upon the exercise of our option to obtain a worldwide, exclusive, royalty-bearing license from Ionis to develop and commercialize tofersen in ALS.

These payments are classified as research and development expense as the programs they relate to had not achieved regulatory approval as of the payment date.

For additional information about these collaboration arrangements, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Early Stage Programs

For 2019 compared to 2018, the increase in spending related to our early stage programs was primarily due to an increase in costs associated with:

•	gosuranemab in PSP and AD pursuant to our license agreement with BMS;

•	cinpanemab in Parkinson's disease;

•	BIIB112 in XLRP;

•	BIIB104 in CIAS;

•	BIIB078 (IONIS-C9Rx) in ALS;

•	BIIB091 in MS;

•	BIIB110 (ActRIIA/B ligand trap) in SMA; and

•	our decision in September 2019 to discontinue the Phase 2b study of BG00011 for the potential treatment of IPF, for which we incurred a one-time close out charge of approximately $10.0 million.

These increases were partially offset by a decrease in costs associated with:

•	the development of vixotrigine (BIIB074) in trigeminal neuralgia (TGN);

•	tofersen in ALS, which was advanced to a late stage program in the first quarter of 2019;

•	our decision in December 2018 to discontinue development of BIIB087, an investigational AAV-based gene therapy for the potential treatment of X-linked retinoschisis, and BIIB088, an investigational AAV-based gene therapy for the potential treatment of XLRP, upon the termination of our collaboration agreement with Applied Genetic Technologies Corporation; and

•	BIIB093 in LHI, which was advanced to a late stage program in the third quarter of 2018.

Late Stage Programs

For 2019 compared to 2018, the decrease in spending associated with our late stage programs was primarily due to a decrease in spending related to the discontinuation of the global Phase 3 trials, ENGAGE and EMERGE, of aducanumab, net of Eisai reimbursement. This decrease was partially offset by increases in spending related to:

•	our share of the termination costs of approximately $48.0 million resulting from the decision to discontinue the global Phase 3 studies of elenbecestat in AD;

•	BAN2401 in early AD pursuant to our collaboration arrangement with Eisai, which was advanced to a late stage program in the first quarter of 2019;

•	tofersen in ALS, which was advanced to a late stage program in the first quarter of 2019;

•	BIIB093 in LHI, which was advanced to a late stage program in the third quarter of 2018; and

•	BIIB111 in CHM.

Selling, General and Administrative

For 2019 compared to 2018, the increase in selling, general and administrative expenses was primarily due to increased commercial and medical investments as well as the timing of spend on selling, general and administrative expense.

In 2020 we expect selling, general and administrative costs, including increases in headcount and other commercial infrastructure, to significantly increase as we support pre-launch activities associated with the potential regulatory approval of aducanumab.

Amortization and Impairment of Acquired Intangible Assets

Our amortization expense is based on the economic consumption and impairment of intangible assets. Our most significant intangible assets are related to our TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products

and other programs acquired through business combinations.

Amortization and impairment of acquired intangible assets for the year ended December 31, 2019, was impacted by the 2019 impairment charges of $215.9 million related to certain IPR&D assets associated with the Phase 2b study of BG00011 for the potential treatment of IPF, which was discontinued in the third quarter of 2019.

Amortization and impairment of acquired intangible assets for the year ended December 31, 2018, was impacted by the 2018 impairment charges of $189.3 million related to certain IPR&D assets associated with our vixotrigine program and $176.8 million related to our intangible assets associated with our U.S. license to Forward Pharma's intellectual property, including Forward Pharma's intellectual property related to TECFIDERA.

Amortization of acquired intangible assets, excluding impairment charges, totaled $274.0 million, $381.2 million and $455.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

For 2019 compared to 2018, the decrease in amortization of acquired intangible assets, excluding impairment charges, was primarily due to a lower rate of amortization for acquired intangible assets, primarily due to prior year impairments.

We monitor events and expectations regarding product performance. If new information indicates that the assumptions underlying our most recent analysis are substantially different than those utilized in our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenues of the relevant products. The occurrence of an adverse event could substantially increase the amount of amortization expense related to our acquired intangible assets as compared to previous periods or our current expectations, which may result in a significant negative impact on our future results of operations.

IPR&D related to Business Combinations

IPR&D represents the fair value assigned to research and development assets that we acquired as part of a business combination and had not yet reached technological feasibility at the date of acquisition. We review amounts capitalized as acquired IPR&D for impairment annually, as of October 31, and whenever events or changes in circumstances indicate to us that the carrying value of the assets might not be recoverable.

BG00011

During the third quarter of 2019 we discontinued the Phase 2b study of BG00011 for the potential treatment of IPF due to safety concerns. As a result, we recognized an impairment charge of approximately $215.9 million during the third quarter of 2019 to reduce the fair value of the IPR&D intangible asset to zero. We also adjusted the value of our contingent consideration obligations related to this asset resulting in a gain of $61.2 million in the third quarter of 2019.

Vixotrigine

During the third quarter of 2018 we completed a Phase 2b study of vixotrigine for the potential treatment of painful lumbosacral radiculopathy (PLSR). The study did not meet its primary or secondary efficacy endpoints and we discontinued development of vixotrigine for the potential treatment of PLSR. As a result, we recognized an impairment charge of approximately $60.0 million during the third quarter of 2018 to reduce the fair value of the related IPR&D intangible asset to zero.

In addition, we delayed the initiation of the Phase 3 studies of vixotrigine for the potential treatment of TGN as we awaited the outcome of ongoing interactions with the FDA regarding the design of the Phase 3 studies, a more detailed review of the data from the Phase 2b study of vixotrigine for the potential treatment of PLSR and insights from the Phase 2 study of vixotrigine for the potential treatment of small fiber neuropathy. We reassessed the fair value of the TGN program using reduced expected lifetime revenues, higher expected clinical development costs and lower cumulative probability of success. As a result of that reassessment, we recognized an impairment charge of $129.3 million during the third quarter of 2018 to reduce the fair value of the TGN IPR&D intangible asset to $41.8 million.

The TGN program has experienced numerous delays in development in the periods since we acquired the program and the fair value of this asset is not significantly in excess of carrying value. In addition, we are currently testing vixotrigine in another mid-stage clinical trial, in a different neuropathic pain indication, for which we also have an IPR&D asset. Data from that trial is expected in the first half of 2020. This data may affect the economic value of vixotrigine and the IPR&D assets for one or both programs could be impaired if assumptions used in determining their fair value change.

Overall, the value of our acquired IPR&D assets is dependent upon several variables, including estimates of future revenues and the effects of competition, our ability to secure sufficient pricing in a competitive market, our ability to confirm safety and

efficacy based on data from clinical trials and regulatory feedback, the level of anticipated development costs and the probability and timing of successfully advancing a particular research program from one clinical trial phase to the next. We are continually reevaluating our estimates concerning these and other variables, including our life cycle management strategies, research and development priorities and development risk, changes in program and portfolio economics and related impact of foreign currency exchange rates and economic trends and evaluating industry and company data regarding the productivity of clinical research and the development process. Changes in our estimates and prioritization of these programs may result in a significant change to our valuation of our IPR&D assets.

TECFIDERA License Rights

In January 2017 we entered into a settlement and license agreement among Biogen Swiss Manufacturing GmbH, Biogen International Holding Ltd., Forward Pharma and certain related parties, which was effective as of February 1, 2017. Pursuant to this agreement, we obtained U.S. and rest of world licenses to Forward Pharma's intellectual property, including Forward Pharma's intellectual property related to TECFIDERA. In exchange, we paid Forward Pharma $1.25 billion in cash, of which $795.2 million was recorded within intangible assets in the first quarter of 2017.

We had an intellectual property dispute with Forward Pharma in the U.S. concerning intellectual property related to TECFIDERA.

In March 2017 the U.S. intellectual property dispute was decided in our favor. Forward Pharma appealed to the U.S. Court of Appeals for the Federal Circuit. We evaluated the recoverability of the U.S. asset acquired from Forward Pharma and recorded a $328.2 million impairment charge in the first quarter of 2017 to adjust the carrying value of the acquired U.S. asset to fair value reflecting the impact of the developments in the U.S. legal dispute and continued to amortize the remaining net book value of the U.S. intangible asset in our consolidated statements of income utilizing an economic consumption model. The U.S. Court of Appeals for the Federal Circuit upheld the USPTO's March 2017 ruling and in January 2019 denied Forward Pharma’s petition for rehearing. We evaluated the recoverability of the U.S. asset based upon these most recent developments and recorded a $176.8 million impairment charge in the fourth quarter of 2018 to reduce the remaining net book value of the U.S. asset to zero.

We have an intellectual property dispute with Forward Pharma in the E.U. concerning intellectual property related to TECFIDERA.

In March 2018 the European Patent Office (EPO) revoked Forward Pharma’s European Patent No. 2 801 355. Forward Pharma has filed an appeal to the Technical Boards of Appeal of the EPO and a hearing has been set for June 2020. Based upon our assessment of this ruling, we continue to amortize the remaining net book value of the rest of world intangible asset in our consolidated statements of income utilizing an economic consumption model. The remaining net book value of the TECFIDERA rest of world intangible asset as of December 31, 2019, was $36.1 million.

For additional information on the dispute with Forward Pharma in the E.U., please read Note 20, Litigation, to our consolidated financial statements included in this report.

For additional information on the amortization and impairment of acquired intangible assets, please read Note 6, Intangible Assets and Goodwill, to our consolidated financial statements included in this report.

Collaboration Profit (Loss) Sharing

Collaboration profit (loss) sharing primarily includes Samsung Bioepis' 50% share of the profit or loss related to our biosimilars commercial agreement with Samsung Bioepis.

For 2019, 2018 and 2017 we recognized a net profit-sharing expense of $241.6 million, $187.4 million and $111.0 million, respectively, to reflect Samsung Bioepis’ 50% sharing of the net collaboration profits. The increases in profit-sharing expense for the comparative periods were primarily due to increased collaboration profits resulting from increased biosimilar sales.

For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Loss on Divestiture of Hillerød, Denmark Manufacturing Operations

Divestiture of Hillerød, Denmark Manufacturing Operations

In August 2019 we completed the sale of all of the outstanding shares of our subsidiary that owned our biologics manufacturing operations in Hillerød, Denmark to FUJIFILM. Upon the closing of this transaction, we received approximately $881.9 million in cash, which may be adjusted based on other contractual terms, which are discussed below. We determined that the operations disposed of in this transaction did not meet the criteria to be classified as discontinued operations under the applicable guidance.

As part of this transaction, we have provided FUJIFILM with certain minimum batch production commitment guarantees. There is a risk that the minimum contractual batch production commitments will not be met. Based upon current estimates we expect to incur an adverse commitment obligation of approximately $74.0 million associated with such guarantees and have accrued for this obligation. We may adjust this estimate based upon changes in business conditions, which may result in the increase or reduction of this adverse commitment obligation in subsequent periods. We also may be obligated to indemnify FUJIFILM for liabilities that existed relating to certain business activities incurred prior to the closing of this transaction.

In addition, we may earn certain contingent payments based on future manufacturing activities at the Hillerød facility. For the disposition of a business, our policy is to recognize contingent consideration when the consideration is realizable. We currently believe the probability of earning these payments is remote and therefore we did not include these contingent payments in our calculation of the fair value of the operations.

As part of this transaction, we entered into certain manufacturing services agreements with FUJIFILM pursuant to which FUJIFILM will use the Hillerød facility to produce commercial products for us, such as TYSABRI, as well as other third-party products.

In connection with this transaction, we recognized a total net loss of approximately $164.4 million in our consolidated statements of income. This loss included a pre-tax loss of $95.5 million, which was recorded in loss on divestiture of Hillerød, Denmark manufacturing operations. The loss recognized was based on exchange rates and business conditions on the closing date of this transaction, and included costs to sell our Hillerød, Denmark manufacturing operations of approximately $11.2 million and our estimate of the fair value of an adverse commitment of approximately $114.0 million associated with the guarantee of future minimum batch production at the Hillerød facility. The value of this adverse commitment was determined using a probability-weighted estimate of future manufacturing activity. We also recorded a tax expense of $68.9 million related to this transaction. During the fourth quarter of 2019 we recorded a $40.2 million reduction in our estimate of the future minimum batch commitment utilizing our current manufacturing forecast, which reflects the impact of forecasted aducanumab batches, resulting in a reduction in the pre-tax loss on divestiture from $95.5 million to $55.3 million.

Our estimate of the fair value of the adverse commitment is a Level 3 measurement and is based on forecasted batch production at the Hillerød facility.

For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report.

(Gain) Loss on Fair Value Remeasurement of Contingent Consideration

Consideration payable for certain of our business combinations includes future payments that are contingent upon the occurrence of a particular event or events. We record an obligation for such contingent consideration payments at fair value on the acquisition date. We then revalue our contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations, other than changes due to payments, are recognized as a (gain) loss on fair value remeasurement of contingent consideration in our consolidated statements of income.

The gain on fair value remeasurement of contingent consideration for 2019 was primarily due to the discontinuation of the Phase 2b study of BG00011 for the potential treatment of IPF, partially offset by changes in the probability and expected timing of achievement of certain developmental milestones, a decrease in interest rates used to revalue our contingent consideration liabilities and the passage of time.

The gain on fair value remeasurement of contingent consideration for 2018 was primarily due to delays in the expected timing of achievement of milestones related to our vixotrigine program for the potential treatment of TGN and an increase in discount rates used to revalue our contingent consideration liabilities, partially offset by the passage of time.

The loss on fair value remeasurement of contingent consideration for 2017 was primarily due to the increase in the probability of achieving certain developmental milestones based upon the progression of the underlying clinical programs.

For additional information on our IPR&D intangible assets related to our discontinued BG00011 program for the potential treatment of IPF and our vixotrigine program for the potential treatment of TGN, please read Note 6, Intangible Assets and Goodwill, to our consolidated financial statements included in this report.

Acquired In-Process Research and Development

BIIB110 Acquisition

In July 2018 we acquired BIIB110 and ALG-802 from AliveGen Inc. (AliveGen). BIIB110 and ALG-802 represent novel ways of targeting the myostatin pathway. In connection with the closing of this transaction, we made an upfront payment of $27.5 million to AliveGen, which was recorded as acquired IPR&D in our consolidated statements of income as BIIB110 has not yet reached technological feasibility.

BIIB104 Acquisition

In April 2018 we acquired BIIB104 from Pfizer. BIIB104 is a first-in-class, Phase 2b AMPA receptor potentiator for CIAS. In connection with the closing of this transaction, we made an upfront payment of $75.0 million to Pfizer, which was recorded as acquired IPR&D in our consolidated statements of income as BIIB104 has not yet reached technological feasibility.

BIIB100 Acquisition

In January 2018 we acquired BIIB100 from Kayropharm Therapeutics Inc. (Karyopharm). BIIB100 is a Phase 1 investigational oral compound for the treatment of certain neurological and neurodegenerative diseases, primarily in ALS. In connection with the closing of this transaction, we made an upfront payment of $10.0 million to Karyopharm, which was recorded as acquired IPR&D in our consolidated statements of income as BIIB100 has not yet reached technological feasibility.

BIIB093 Acquisition

In May 2017 we acquired BIIB093 from Remedy Pharmaceuticals Inc. (Remedy). In connection with the closing of this transaction, we made an upfront payment of $120.0 million to Remedy, which was

recorded as acquired IPR&D in our consolidated statements of income as BIIB093 had not yet reached technological feasibility.

For additional information on our acquisitions of BIIB110, BIIB104, BIIB100 and BIIB093, please read Note 2, Acquisitions, to our consolidated financial statements included in this report.

Other Income (Expense), Net

Effective January 1, 2018, other income (expense) reflects the recognition of net gains (losses) recorded in relation to changes in the fair value of our strategic investments following our adoption of Accounting Standards Update (ASU) No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Prior to the adoption of this standard, we recognized changes in fair value of our strategic investment in accumulated other comprehensive income (loss), net. Changes in the fair value of our strategic investments could have a significant impact on our results of operations in any given period.

For 2019 compared to 2018, the change in other income (expense), net primarily reflects net gains totaling $204.7 million recognized on our investments related to our holdings in equity and debt securities, compared to net gains totaling $119.5 million in 2018. The net gains recognized during the year ended December 31, 2019, primarily reflect an increase in the fair value in our investment in Ionis common stock from December 31, 2018, partially offset by the net loss recognized on our sale of a portion of our investment in Ionis common stock during the second and third quarters of 2019 reflecting the decrease in the fair value of the shares sold from March 31, 2019.

Proceeds from our sale of a portion of our investment in Ionis common stock during the year ended December 31, 2019, totaled approximately

$382.0 million. The original cost basis upon acquisition in June 2018 for the shares sold during the year ended December 31, 2019, totaled approximately $312.5 million.

Net gains recognized on our investments related to our holdings in equity and debt securities for the year ended December 31, 2019, also reflects an increase in the fair value of an investment in a non-marketable equity security from December 31, 2018, that was realized for a net gain of approximately $87.7 million upon sale in the second quarter of 2019.

Income Tax Provision

Our effective tax rate fluctuates from year to year due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expenses, the levels of certain deductions and credits, acquisitions and licensing transactions.

For the year ended December 31, 2019, as compared to 2018, the decrease in our effective tax rate was primarily due to the combination of the internal reorganization of certain intellectual property rights and the impact of Swiss Tax Reform. This decrease was partially offset by a $68.9 million tax expense related to the divestiture of our subsidiary that owned our Hillerød, Denmark manufacturing operations. We also had a higher effective tax rate in 2018 resulting from the unfavorable effects of the 2017 Tax Act and our sale of inventory, the tax effect of which had been included within prepaid taxes at

January 1, 2018, at a higher effective tax rate than the 2018 statutory tax rate.

For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report.

Accounting for Uncertainty in Income Taxes

For additional information on our uncertain tax positions and income tax rate reconciliation for 2019, 2018 and 2017, please read Note 16, Income Taxes, to our consolidated financial statements included in this report.

Equity in Loss of Investee, Net of Tax

In February 2012 we entered into a joint venture agreement with Samsung BioLogics, establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar products.

In June 2018 we exercised our option under our joint venture agreement to increase our ownership percentage in Samsung Bioepis from approximately 5% to approximately 49.9%. The share purchase transaction was completed in November 2018 and, upon closing, we paid 759.5 billion South Korean won ($676.6 million) to Samsung BioLogics. As of December 31, 2019, our ownership percentage remained at approximately 49.9%

We recognize our share of the results of operations related to our investment in Samsung Bioepis under the equity method of accounting one quarter in arrears when the results of the entity become available, which is reflected as equity in income (loss) of investee, net of tax in our consolidated statements of income. During 2015, as our share of losses exceeded the carrying value of our investment, we suspended recognizing additional losses. In the first quarter of 2019 we restarted recognizing our share of Samsung Bioepis' income (losses), and we began recognizing amortization on

certain basis differences resulting from our November 2018 investment.

Our joint venture partner, Samsung BioLogics, is currently subject to an ongoing criminal investigation that we continue to monitor. While this investigation could impact the operations of Samsung Bioepis and its business, we have assessed the value of our investment in Samsung Bioepis and continue to believe that the fair value of the investment is in excess of its net book value.

For the year ended December 31, 2019, equity in loss of investee, net of tax reflects our share of losses totaling $1.2 million and amortization of basis differences totaling $78.2 million.

For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Noncontrolling Interests, Net of Tax

For 2018 net income attributable to noncontrolling interests, net of tax, was primarily related to a $50.0 million pre-tax payment made to Neurimmune to reduce the previously negotiated royalty rates payable on products developed under the Neurimmune Agreement, including royalties payable on potential commercial sales of aducanumab, by 5%.

For 2017 net income attributable to noncontrolling interests, net of tax, was primarily related to a $150.0 million pre-tax payment made to Neurimmune to reduce the previously negotiated royalty rates payable on products developed under the Neurimmune Agreement, including royalties payable on potential commercial sales of aducanumab, by 15%.

For additional information on our collaboration arrangement with Neurimmune, please read Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report.

Financial Condition, Liquidity and Capital Resources

Our financial condition is summarized as follows:

	As of December 31,								% Change
(In millions, except percentages)	2019				2018				2019 compared to 2018
Financial assets:
Cash and cash equivalents	$	2,913.7			$	1,224.6			137.9	%
Marketable securities — current	1,562.2				2,313.4				(32.5	)%
Marketable securities — non-current	1,408.1				1,375.9				2.3	%
Total cash, cash equivalents and marketable securities	$	5,884.0			$	4,913.9			19.7	%
Borrowings:
Current portion of notes payable	$	1,495.8			$	—			**
Notes payable	4,459.0				5,936.5				(24.9	)%
Total borrowings	$	5,954.8			$	5,936.5			0.3	%
Working Capital:
Current assets	$	8,381.8			$	7,640.9			9.7	%
Current liabilities	(4,863.8		)		(3,295.2		)		47.6	%
Total working capital	$	3,518.0			$	4,345.7			(19.0	)%

** Percentage not meaningful.

For the year ended December 31, 2019, certain significant cash flows were as follows:

•	$7.1 billion in net cash flows provided by operating activities, net of:

◦	$1.1 billion in total net payments for income taxes; and

◦	$74.0 million upfront payment made to Skyhawk upon entering into a collaboration and research and development services agreement;

•	$5.9 billion used for share repurchases;

•	$923.7 million in proceeds received on the divestiture of our Hillerød, Denmark manufacturing operations, including the sale of raw materials that were remaining at the Hillerød facility on the closing date of this transaction;

•	$744.4 million payment made for our acquisition of NST, net of cash acquired;

•	$479.3 million in proceeds received on sales of strategic investments;

•	$514.5 million used for purchases of property, plant and equipment;

•	$300.0 million for the final contingent payment made to former shareholders of Fumapharm AG and holders of their rights; and

•	$155.0 million in payments made to Alkermes following the FDA's approval of VUMERITY.

For the year ended December 31, 2018, certain significant cash flows were as follows:

•	$6.2 billion in net cash flows provided by operating activities, net of:

◦	$1.0 billion in total net payments for income taxes; and

◦	$375.0 million in an upfront payment made to Ionis upon the closing of the 2018 Ionis Agreement and a $162.1 million expense reflecting the premium paid for the purchase of Ionis common stock;

•	$4.4 billion used for share repurchases;

•	$1.5 billion in contingent payments made to former shareholders of Fumapharm AG and holders of their rights;

•	$770.6 million used for purchases of property, plant and equipment;

•	$676.6 million payment made to Samsung BioLogics upon the closing of the share purchase transaction increasing our ownership percentage in Samsung Bioepis to approximately 49.9%;

•	$462.9 million payment made to Ionis reflecting the fair value of the Ionis common stock purchased upon the closing the 2018 Ionis Agreement; and

•	$112.5 million in payments made for the acquisitions of BIIB100, BIIB104 and BIIB110.

Overview

We have historically financed our operating and capital expenditures primarily through cash flows earned through our operations. We expect our operating expenditures, particularly those related to research and development, clinical trials, commercialization of new products and international expansion to continue to grow. However, we expect to continue funding our current and planned operating requirements principally through our cash flows from operations, as well as our existing cash resources. We believe that our existing funds, when combined with cash generated from operations and our access to additional financing resources, if needed, are sufficient to satisfy our operating, working capital, strategic alliance, milestone payment, capital expenditure and debt service requirements for the foreseeable future. In addition, we may choose to opportunistically return cash to shareholders and pursue other business initiatives, including acquisition and licensing activities. We may, from time to time, also seek additional funding through a combination of new collaborative agreements, strategic alliances and additional equity and debt financings or from other sources should we identify a significant new opportunity**.**

Aducanumab

In October 2019 we and our collaboration partner Eisai announced that we plan to pursue regulatory approval for aducanumab in the U.S. We plan to actively commit funds to developing our commercialization program for aducanumab so that we would be in a position to launch aducanumab if we receive regulatory approval. If we do not receive regulatory approval or are unable to successfully commercialize aducanumab, our financial condition, business and operations may be adversely affected.

For additional information on certain risks that could negatively impact our financial position or future results of operations, please read Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in this report.

Cash, Cash Equivalents and Marketable Securities

Until required for another use in our business, we typically invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes, U.S. and foreign government instruments, overnight reverse repurchase agreements and other interest-bearing marketable debt instruments in accordance with our investment policy. It is our policy to mitigate credit risk in our cash reserves and marketable securities by maintaining a well-diversified portfolio that limits the amount of exposure as to institution, maturity and investment type.

As of December 31, 2019, we had cash, cash equivalents and marketable securities totaling approximately $5.9 billion compared to approximately $4.9 billion as of December 31, 2018. The net increase in cash, cash equivalents and marketable securities at December 31, 2019, from December 31, 2018, was primarily due to cash flows from operations, cash received upon the divestiture of our Hillerød, Denmark manufacturing operations, net proceeds from marketable securities and proceeds from sales of strategic investments, partially offset by cash used for share repurchases, cash used for our acquisition of NST, net purchases of property, plant and equipment, contingent payments made to former shareholders of Fumapharm AG and holders of their rights and upfront and milestone payments made to Alkermes and Skyhawk.

Investments and other assets in our consolidated balance sheet as of December 31, 2019 and 2018, includes the carrying value of our investment in Samsung Bioepis of $580.2 million and $680.6 million, respectively. As Samsung Bioepis is a privately-held entity, our ability to liquidate our investment in Samsung Bioepis may be limited and we may realize significantly less than the value of such investment. Investments in other assets, as of December 31, 2019 and 2018, also includes the fair value of our investment in Ionis common stock of $329.6 million and $563.8 million, respectively, which is subject to certain holding period restrictions.

For additional information on our acquisition of NST, please read Note 2, Acquisitions, to our consolidated financial statements included in this report. For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report. For additional information on our collaboration arrangements with Ionis, Samsung Bioepis, Alkermes and Skyhawk, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Borrowings

The following is a summary of our principal indebtedness as of December 31, 2019:

•	$1.5 billion aggregate principal amount of 2.90% Senior Notes due September 15, 2020;

•	$1.0 billion aggregate principal amount of 3.625% Senior Notes due September 15, 2022;

•	$1.75 billion aggregate principal amount of 4.05% Senior Notes due September 15, 2025; and

•	$1.75 billion aggregate principal amount of 5.20% Senior Notes due September 15, 2045.

These Senior Notes were issued at discount and are amortized as additional interest expense over the period from issuance through maturity.

For a summary of the fair values of our outstanding borrowings as of December 31, 2019 and 2018, please read Note 7, Fair Value Measurements, to our consolidated financial statements included in this report.

2015 Credit Facility

In August 2015 we entered into a $1.0 billion, five-year senior unsecured revolving credit facility under which we were permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit facility included a financial covenant that required us not to exceed a maximum consolidated leverage ratio. As of December 31, 2019, we had no outstanding borrowings and were in compliance with all covenants under this facility. This credit facility was replaced with the new revolving credit facility entered into in January 2020, as discussed below.

2020 Credit Facility

In January 2020 we entered into a $1.0 billion, five-year senior unsecured revolving credit facility under which we are permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. This revolving credit facility replaced the revolving credit facility entered into in August 2015.

Working Capital

Working capital is defined as current assets less current liabilities. The change in working capital at December 31, 2019, from December 31, 2018, reflects an increase in total current assets of $740.9 million and an increase in total current liabilities of $1,568.6 million.

The net increase in total current assets was primarily driven by an increase in net cash, cash equivalents and marketable securities, as described above, offset by a decrease in inventory resulting from our sale of hemophilia-related inventory to Bioverativ.

The net increase in total current liabilities was primarily due to the reclassification of $1.5 billion of our Senior Notes to current liabilities from notes payable, as these Senior Notes are due within one year. This increase was partially offset by a reduction in accrued expenses and other.

The net decrease in accrued expenses and other was primarily related to a decrease in the accrual of contingent payments related to FUMADERM and TECFIDERA and a decrease in the accrual for construction in progress, partially offset by the accrual of the $100.0 million upfront payment to Samsung Bioepis, which was paid in January 2020.

Share Repurchase Programs

In December 2019 our Board of Directors authorized our December 2019 Share Repurchase Program, which is a program to repurchase up to $5.0 billion of our common stock. Our December 2019 Share Repurchase Program does not have an expiration date. All share repurchases under our December 2019 Share Repurchase Program will be retired. We did not repurchase shares of our common stock under our December 2019 Share Repurchase Program during the year ended December 31, 2019.

In March 2019 our Board of Directors authorized our March 2019 Share Repurchase Program, which is a program to repurchase up to $5.0 billion of our common stock. Our March 2019 Share Repurchase Program does not have an expiration date. All share repurchases under our March 2019 Share Repurchase Program will be retired. Under our March 2019 Share Repurchase Program, we repurchased and retired approximately 14.7 million shares of our common stock at a cost of approximately $3.7 billion during the year ended December 31, 2019.

In August 2018 our Board of Directors authorized our 2018 Share Repurchase Program, which was a program to repurchase up to $3.5 billion of our common stock. Our 2018 Share Repurchase Program was completed as of June 30, 2019. All share repurchases under our 2018 Share Repurchase Program were retired. Under our 2018 Share Repurchase Program, we repurchased and retired approximately 8.9 million and 4.3 million shares of our common stock at a cost of approximately $2.1 billion and $1.4 billion during the years ended December 31, 2019 and 2018, respectively.

In July 2016 our Board of Directors authorized our 2016 Share Repurchase Program, which was a program to repurchase up to $5.0 billion of our common stock. Our 2016 Share Repurchase Program was completed as of June 30, 2018. All share repurchases under our 2016 Share Repurchase Program were retired. Under our 2016 Share Repurchase Program, we repurchased and retired approximately 10.5 million and 3.7 million shares of our common stock at a cost of approximately $3.0 billion and $1.0 billion during the years ended December 31, 2018 and 2017, respectively.

Cash Flows

The following table summarizes our cash flow activity:

	For the Years Ended December 31,												% Change
	2019 compared to 2018			2018 compared to 2017
(In millions, except percentages)	2019				2018				2017
Net cash flows provided by operating activities	$	7,078.6			$	6,187.7			$	4,551.0			14.4	%		36.0	%
Net cash flows provided by (used in) investing activities	$	470.5			$	(2,046.3	)		$	(2,963.1	)		(123.0	)%		(30.9	)%
Net cash flows used in financing activities	$	(5,860.4	)		$	(4,472.0	)		$	(2,380.0	)		31.0	%		87.9	%

Operating Activities

Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. We expect cash provided from operating activities will continue to be our primary source of funds to finance operating needs and capital expenditures for the foreseeable future.

Operating cash flow is derived by adjusting our net income for:

•	non-cash operating items such as depreciation and amortization, impairment charges, unrealized gain (loss) on strategic investments, acquired IPR&D and share-based compensation;

•	changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations; and

•	changes in the fair value of contingent payments associated with our acquisitions of businesses and payments related to collaborations.

For 2019 compared to 2018, net cash flows provided by operating activities increased primarily due to higher net income.

Investing Activities

For 2019 compared to 2018, the increase in net cash flows provided by investing activities was primarily due to a decrease in contingent payments made to former shareholders of Fumapharm AG and holders of their rights, the proceeds received upon the divestiture of our Hillerød, Denmark manufacturing operations, the proceeds received on our sales of strategic investments and the $462.9 million payment made to Ionis reflecting the fair value of the Ionis common stock purchased upon the closing of the 2018 Ionis Agreement in the prior year comparative period. This increase was partially offset by a decrease in net proceeds related to marketable securities, the cash used for our acquisition of NST and $155.0 million in milestone payments made to Alkermes following the FDA's approval of VUMERITY, which was recorded as an intangible asset during the fourth quarter of 2019.

Financing Activities

For 2019 compared to 2018, the increase in net cash flows used in financing activities was primarily due to an increase in cash used for share repurchases.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019, excluding amounts related to uncertain tax positions, funding commitments, contingent development, regulatory and commercial milestone payments, contingent payments and contingent consideration related to our business combinations, as described below.

	Payments Due by Period
(In millions)	Total				Less than 1 Year				1 to 3 Years				3 to 5 Years				After 5 Years
Non-cancellable operating leases (1), (2)	$	372.3			$	60.6			$	105.9			$	89.3			$	116.5
Long-term debt obligations (3)	8,792.2				1,730.8				1,387.2				323.8				5,350.4
Purchase and other obligations (4)	1,013.6				266.1				183.0				329.4				235.1
Defined benefit obligation	102.5				—				—				—				102.5
Total contractual obligations	$	10,280.6			$	2,057.5			$	1,676.1			$	742.5			$	5,804.5

(1)	We lease properties and equipment for use in our operations. Amounts reflected within the table above detail future minimum rental commitments under non-cancelable operating leases as of December 31 for each of the periods presented. In addition to the minimum rental commitments, these leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses.

(2)	Obligations are presented net of sublease income expected to be received for the vacated small-scale biologics manufacturing facility in Cambridge, MA, the vacated portion of our Weston, MA facility and other facilities throughout the world.

(3)	Long-term debt obligations are related to our Senior Notes, including principal and interest payments.

(4)	Purchase and other obligations primarily include $697.0 million related to the remaining payments on the Transition Toll Tax, contractual commitments to our suppliers, $52.0 million in contractual commitments for the construction of our large-scale biologics manufacturing facility in Solothurn, Switzerland and $8.3 million related to the fair value of net liabilities on derivative contracts.

Royalty Payments

TYSABRI

In 2013 we acquired from Elan Pharma International Ltd. (Elan), an affiliate of Elan Corporation plc, full ownership of all remaining rights to TYSABRI that we did not already own or control. Under the acquisition agreement, we are obligated to make contingent payments to Elan of 18% on annual worldwide net commercial sales up to $2.0 billion and

25% on annual worldwide net commercial 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 and Perrigo subsequently sold its rights to these payments to a third-party effective January 2017.

SPINRAZA

In 2016 we exercised our option to develop and commercialize SPINRAZA from Ionis. Under our agreement with Ionis, we make royalty payments to Ionis on annual worldwide net commercial sales of SPINRAZA using a tiered royalty rate between 11% and 15%, which are recorded as cost of sales in our consolidated statements of income. For additional information on our collaboration arrangements with Ionis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

VUMERITY

In October 2019 the FDA approved VUMERITY for the treatment of RMS. Under our agreement with Alkermes, we make royalty payments to Alkermes on worldwide net commercial sales of VUMERITY using a royalty rate of 15%, which are recorded as cost of sales in our consolidated statements of income. Royalties payable on net commercial sales of VUMERITY are subject, under certain circumstances, to tiered minimum annual payment requirements for a period of five years following FDA approval. For additional information on our collaboration arrangement with Alkermes, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.

Contingent Consideration related to Business Combinations

In connection with our acquisitions of Convergence Pharmaceuticals Holdings Limited (Convergence) 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 and BIN occurred after January 1, 2009, we recognized the contingent consideration liabilities associated with these transactions at their fair value on the acquisition date and revalue the remaining obligations each reporting period. We may pay up to approximately $735.0 million in remaining milestones related to these acquisitions.

Fumapharm AG

In 2006 we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA (together, the Fumapharm Products). We were required to make contingent payments to former shareholders of Fumapharm AG and 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 12-month period, as defined in the acquisition agreement, until such time as the cumulative sales level reached $20.0 billion, at which time no further contingent payments were due. During the first quarter of 2019 we paid the final $300.0 million contingent payment as we achieved the $20.0 billion cumulative sales level related to the Fumapharm Products in the fourth quarter of 2018.

Contingent Development, Regulatory and Commercial Milestone Payments

Based on our development plans as of December 31, 2019, we could make potential future milestone payments to third parties of up to approximately $6.8 billion, including approximately $1.2 billion in development milestones, approximately $1.4 billion in regulatory milestones and approximately $4.2 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 was not considered probable as of December 31, 2019, 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 or commercial milestones.

Provided various development, regulatory or commercial milestones are achieved, we anticipate that we may pay approximately $430.0 million of milestone payments in 2020, including $75.0 million upon the regulatory filing with the FDA for approval of aducanumab and $100.0 million if aducanumab is launched in the U.S.

Other Funding Commitments

As of December 31, 2019, we have several ongoing clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to CROs. The contracts with CROs are generally cancellable, with notice, at our option. We recorded accrued expenses of approximately $24.0 million in our consolidated balance sheet for expenditures incurred by CROs as of December 31, 2019. We have approximately $514.0 million in cancellable future commitments based on existing CRO contracts as of December 31, 2019.

As part of the sale of our Hillerød, Denmark manufacturing operations to FUJIFILM, we have provided FUJIFILM with certain minimum batch production commitment guarantees. There is a risk that the minimum contractual batch production commitments will not be met. Based upon current estimates we expect to incur an adverse commitment obligation of approximately $74.0 million associated with such guarantees and have accrued for this obligation. We may adjust this estimate based upon changes in business conditions, which may result in the increase or reduction of this adverse commitment obligation in subsequent periods.

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, 2019, we have $136.9 million of net liabilities associated with uncertain tax positions.

As of December 31, 2019 and 2018, we have accrued income tax liabilities of $697.0 million under the Transition Toll Tax. Of the amounts accrued as of December 31, 2019, no amounts are expected to be paid within one year due to an approximately $87.0 million carryforward of taxes paid in relation to the company's 2017 tax return. The Transition Toll Tax will be paid over an eight-year period, which started in 2018, and will not accrue interest. For additional information on the Transition Toll Tax, please read Note 16, Income Taxes, to our consolidated financial statements included in this report.

Other Off-Balance Sheet Arrangements

We do not have any relationships with entities often referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We consolidate variable interest entities if we are the primary beneficiary.

New Accounting Standards

For a discussion of new accounting standards and their expected impact on our consolidated financial statements or disclosures, please read Note 1, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.

Legal Matters

For a discussion of legal matters as of December 31, 2019, please read Note 20, Litigation, to our consolidated financial statements included in this report.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP), 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 ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are 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. Other significant accounting policies are outlined in Note 1, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.

Revenue Recognition

We recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five-step model prescribed under Financial Accounting Standards Board (FASB) Accounting Standards Codification 606, Revenue from Contracts with

Customers: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Product Revenues

In the U.S., we sell our products primarily to wholesale distributors and specialty pharmacy providers. In other countries, we sell our products primarily to wholesale distributors, hospitals, pharmacies and other third-party distribution partners. These customers subsequently resell our products to health care providers and patients. In addition, we enter into arrangements with health care providers and payors that provide for government-mandated or privately-negotiated discounts and allowances related to our products.

Product revenues are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial.

Reserves for Discounts and Allowances

Product revenues are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payors, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. Our process for estimating reserves established for these variable consideration components do not differ materially from our historical practices.

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, contractual adjustments and returns.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). Our estimates of reserves established for variable consideration are calculated based upon a consistent application of our methodology utilizing the expected value method. These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The transaction price, which includes

variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.

In addition to discounts, rebates and product returns, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services, which are generally reflected as a reduction of revenues. To the extent we can demonstrate a separable benefit and fair value for these services we classify these payments in selling, general and administrative expenses.

For additional information on our revenues, please read Note 4, Revenues, to our consolidated financial statements included in this report.

Acquired Intangible Assets, including IPR&D

When we purchase a business, the acquired IPR&D is measured at fair value, capitalized as an intangible asset and tested for impairment at least annually, as of October 31, until commercialization, after which time the IPR&D is amortized over its estimated useful life. If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.

We have acquired, and expect to continue to acquire, intangible assets through the acquisition of biotechnology companies or through the consolidation of variable interest entities. These intangible assets primarily consist of technology associated with human therapeutic products and IPR&D product candidates. When significant identifiable intangible assets are acquired, we generally engage an independent third-party valuation firm to assist in determining the fair values of these assets as of the acquisition date. Management will determine the fair value of less significant identifiable intangible assets acquired. Discounted cash flow models are typically used in these valuations, and these models require the use of significant estimates and assumptions including but not limited to:

•	estimating the timing of and expected costs to complete the in-process projects;

•	projecting regulatory approvals;

•	estimating future cash flows from product sales resulting from completed products and in process projects; and

•	developing appropriate discount rates and probability rates by project.

We believe the fair values assigned to the intangible assets acquired are based upon reasonable estimates and assumptions given available facts and circumstances as of the acquisition dates.

If these projects are not successfully developed, the sales and profitability of the company may be adversely affected in future periods. Additionally, the value of the acquired intangible assets may become impaired. No assurance can be given that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated.

Impairment and Amortization of Long-lived Assets and Accounting for Goodwill

Long-lived Assets Other than Goodwill

Long-lived assets to be held and used include property, plant and equipment as well as intangible assets, including IPR&D and trademarks. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review our intangible assets with indefinite lives for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

When performing our impairment assessment, we calculate the fair value using the same methodology as described above under Acquired Intangible Assets, including IPR&D. If the carrying value of our acquired IPR&D exceeds its fair value, then the intangible asset is written down to its fair value. Changes in the estimates and assumptions used in determining the fair value of our acquired IPR&D could result in an impairment. Impairments are recorded within amortization and impairment of acquired intangible assets in our consolidated statements of income. Assets that have previously been impaired, including our vixotrigine program for the treatment of neuropathic pain, such as TGN, could become further impaired in the future.

Our most significant intangible assets are our 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 and obtaining the fair value of the U.S. and rest of world licenses to Forward Pharma’s intellectual property, including Forward Pharma’s intellectual property related to TECFIDERA. We amortize the intangible assets related to our TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products using the economic consumption method based on revenues generated from the products underlying the related intangible assets. An analysis of the anticipated lifetime revenues of TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) is performed annually during our long-range planning cycle and whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of our TYSABRI, AVONEX, SPINRAZA, VUMERITY or TECFIDERA (rest of world) products.

For additional information on the impairment charges related to our long-lived assets during 2019, 2018 and 2017, please read Note 6, Intangible Assets and Goodwill, to our consolidated financial statements included in this report.

Goodwill

Goodwill relates largely to amounts that arose in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003 and amounts that were paid in connection with the acquisition of Fumapharm AG. Our goodwill balances represent the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting.

We assess our goodwill balance within our single reporting unit annually, as of October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable to determine whether any impairment in this asset may exist and, if so, the extent of such impairment. We compare the fair value of our reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, we would record an impairment loss equal to the difference.

We completed our required annual impairment test in the fourth quarters of 2019, 2018 and 2017 and determined in each of those periods that the carrying value of goodwill was not impaired. In each year, the fair value of our reporting unit, which includes goodwill, was significantly in excess of the carrying value of our reporting unit.

Contingent Consideration

We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we

revalue the remaining obligations and record increases or decreases in their fair value as an adjustment to contingent consideration expense in our consolidated statements of income. Changes in the fair value of our contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates and achievement and timing of any cumulative sales-based and development milestones or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.

Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above, could have a material impact on the amount of contingent consideration expense we record in any given period.

Income Taxes

We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations. In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Upon our election in the fourth quarter of 2018 to record deferred taxes for GILTI, we have included amounts related to U.S. GILTI taxes within temporary difference. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income and the effects of tax planning strategies. In the event that actual results differ from our estimates, we adjust our estimates in future periods and we may need to establish a valuation allowance, which could materially impact our consolidated financial position and results of operations.

We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and

resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in process audit activities and changes in facts or circumstances related to a tax position. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished, through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews, we have no plans to appeal or litigate any aspect of the tax position and we believe that it is highly unlikely that the taxing authority would examine or re-examine the related tax position. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.