filings.toolsItem 16. FORM 10-K SUMMARY
401K characters. Original on sec.gov · Markdown
Item 16. FORM 10-K SUMMARY
Not applicable.
EXHIBIT INDEX
| * | Management contract or compensatory plan or arrangement. |
| † | Confidential treatment has been granted or requested with respect to portions of this exhibit. |
| + | Filed herewith. |
| ++ | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIOGEN INC. | |||||
| By: | /S/ CHRISTOPHER A. VIEHBACHER | ||||
| Christopher A. Viehbacher | |||||
| Chief Executive Officer |
Date: February 15, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Capacity | Date | ||||||||||||
| /S/ CHRISTOPHER A. VIEHBACHER | Director and Chief Executive Officer (principal executive officer) | February 15, 2023 | ||||||||||||
| Christopher A. Viehbacher | ||||||||||||||
| /S/ MICHAEL R. MCDONNELL | Executive Vice President and Chief Financial Officer (principal financial officer) | February 15, 2023 | ||||||||||||
| Michael R. McDonnell | ||||||||||||||
| /S/ ROBIN C. KRAMER | Senior Vice President, Chief Accounting Officer (principal accounting officer) | February 15, 2023 | ||||||||||||
| Robin C. Kramer | ||||||||||||||
| /S/ STELIOS PAPADOPOULOS | Director and Chairman of the Board of Directors | February 15, 2023 | ||||||||||||
| Stelios Papadopoulos | ||||||||||||||
| /S/ ALEXANDER J. DENNER | Director | February 15, 2023 | ||||||||||||
| Alexander J. Denner | ||||||||||||||
| /S/ CAROLINE D. DORSA | Director | February 15, 2023 | ||||||||||||
| Caroline D. Dorsa | ||||||||||||||
| /S/ MARIA C. FREIRE | Director | February 15, 2023 | ||||||||||||
| Maria C. Freire | ||||||||||||||
| /S/ WILLIAM A. HAWKINS | Director | February 15, 2023 | ||||||||||||
| William A. Hawkins | ||||||||||||||
| /S/ WILLIAM D. JONES | Director | February 15, 2023 | ||||||||||||
| William D. Jones | ||||||||||||||
| /S/ JESUS B. MANTAS | Director | February 15, 2023 | ||||||||||||
| Jesus B. Mantas | ||||||||||||||
| /S/ RICHARD C. MULLIGAN | Director | February 15, 2023 | ||||||||||||
| Richard C. Mulligan | ||||||||||||||
| /S/ ERIC K. ROWINSKY | Director | February 15, 2023 | ||||||||||||
| Eric K. Rowinsky | ||||||||||||||
| /S/ STEPHEN A. SHERWIN | Director | February 15, 2023 | ||||||||||||
| Stephen A. Sherwin |
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
| Page Number | ||||||||
| Consolidated Statements of Income | F-2 | |||||||
| Consolidated Statements of Comprehensive Income | F-3 | |||||||
| Consolidated Balance Sheets | F-4 | |||||||
| Consolidated Statements of Cash Flow | F-5 | |||||||
| Consolidated Statements of Equity | F-6 | |||||||
| Notes to Consolidated Financial Statements | F-9 | |||||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID 238) | F-78 |
F-1
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
| For the Years Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Product, net | $ | 7,987.8 | $ | 8,846.9 | $ | 10,692.2 | ||||||||||||||
| Revenue from anti-CD20 therapeutic programs | 1,700.5 | 1,658.5 | 1,977.8 | |||||||||||||||||
| Other | 485.1 | 476.3 | 774.6 | |||||||||||||||||
| Total revenue | 10,173.4 | 10,981.7 | 13,444.6 | |||||||||||||||||
| Cost and expense: | ||||||||||||||||||||
| Cost of sales, excluding amortization and impairment of acquired intangible assets | 2,278.3 | 2,109.7 | 1,805.2 | |||||||||||||||||
| Research and development | 2,231.1 | 2,501.2 | 3,990.9 | |||||||||||||||||
| Selling, general and administrative | 2,403.6 | 2,674.3 | 2,504.5 | |||||||||||||||||
| Amortization and impairment of acquired intangible assets | 365.9 | 881.3 | 464.8 | |||||||||||||||||
| Collaboration profit (loss) sharing | (7.4) | 7.2 | 232.9 | |||||||||||||||||
| (Gain) loss on divestiture of Hillerød, Denmark manufacturing operations | — | — | (92.5) | |||||||||||||||||
| (Gain) loss on fair value remeasurement of contingent consideration | (209.1) | (50.7) | (86.3) | |||||||||||||||||
| Acquired in-process research and development | — | 18.0 | 75.0 | |||||||||||||||||
| Restructuring charges | 131.1 | — | — | |||||||||||||||||
| Gain on sale of building | (503.7) | — | — | |||||||||||||||||
| Other (income) expense, net | (108.2) | 1,095.5 | (497.4) | |||||||||||||||||
| Total cost and expense | 6,581.6 | 9,236.5 | 8,397.1 | |||||||||||||||||
| Income before income tax expense and equity in loss of investee, net of tax | 3,591.8 | 1,745.2 | 5,047.5 | |||||||||||||||||
| Income tax (benefit) expense | 632.8 | 52.5 | 992.3 | |||||||||||||||||
| Equity in (income) loss of investee, net of tax | (2.6) | (34.9) | (5.3) | |||||||||||||||||
| Net income | 2,961.6 | 1,727.6 | 4,060.5 | |||||||||||||||||
| Net income (loss) attributable to noncontrolling interests, net of tax | (85.3) | 171.5 | 59.9 | |||||||||||||||||
| Net income attributable to Biogen Inc. | $ | 3,046.9 | $ | 1,556.1 | $ | 4,000.6 | ||||||||||||||
| Net income per share: | ||||||||||||||||||||
| Basic earnings per share attributable to Biogen Inc. | $ | 20.96 | $ | 10.44 | $ | 24.86 | ||||||||||||||
| Diluted earnings per share attributable to Biogen Inc. | $ | 20.87 | $ | 10.40 | $ | 24.80 | ||||||||||||||
| Weighted-average shares used in calculating: | ||||||||||||||||||||
| Basic earnings per share attributable to Biogen Inc. | 145.3 | 149.1 | 160.9 | |||||||||||||||||
| Diluted earnings per share attributable to Biogen Inc. | 146.0 | 149.6 | 161.3 |
See accompanying notes to these consolidated financial statements.
F-2
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| For the Years Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Net income attributable to Biogen Inc. | $ | 3,046.9 | $ | 1,556.1 | $ | 4,000.6 | ||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||
| Unrealized gains (losses) on securities available for sale, net of tax | (13.5) | (3.6) | (2.8) | |||||||||||||||||
| Unrealized gains (losses) on cash flow hedges, net of tax | (38.7) | 232.8 | (186.8) | |||||||||||||||||
| Gains (losses) on net investment hedges, net of tax | (25.5) | 34.0 | (33.6) | |||||||||||||||||
| Unrealized gains (losses) on pension benefit obligation, net of tax | 43.7 | 21.5 | (33.5) | |||||||||||||||||
| Currency translation adjustment | (24.2) | (92.4) | 92.9 | |||||||||||||||||
| Total other comprehensive income (loss), net of tax | (58.2) | 192.3 | (163.8) | |||||||||||||||||
| Comprehensive income (loss) attributable to Biogen Inc. | 2,988.7 | 1,748.4 | 3,836.8 | |||||||||||||||||
| Comprehensive income (loss) attributable to noncontrolling interests, net of tax | (85.3) | 172.1 | 60.9 | |||||||||||||||||
| Comprehensive income (loss) | $ | 2,903.4 | $ | 1,920.5 | $ | 3,897.7 |
See accompanying notes to these consolidated financial statements.
F-3
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
| As of December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,419.3 | $ | 2,261.4 | |||||||
| Marketable securities | 1,473.5 | 1,541.1 | |||||||||
| Accounts receivable, net | 1,705.0 | 1,549.4 | |||||||||
| Due from anti-CD20 therapeutic programs | 431.4 | 412.3 | |||||||||
| Inventory | 1,344.4 | 1,351.5 | |||||||||
| Other current assets | 1,417.6 | 740.8 | |||||||||
| Total current assets | 9,791.2 | 7,856.5 | |||||||||
| Marketable securities | 705.7 | 892.0 | |||||||||
| Property, plant and equipment, net | 3,298.6 | 3,416.4 | |||||||||
| Operating lease assets | 403.9 | 375.4 | |||||||||
| Intangible assets, net | 1,850.1 | 2,221.3 | |||||||||
| Goodwill | 5,749.0 | 5,761.1 | |||||||||
| Deferred tax asset | 1,226.4 | 1,415.1 | |||||||||
| Investments and other assets | 1,529.2 | 1,939.5 | |||||||||
| Total assets | $ | 24,554.1 | $ | 23,877.3 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of notes payable | $ | — | $ | 999.1 | |||||||
| Taxes payable | 259.9 | 174.7 | |||||||||
| Accounts payable | 491.5 | 589.2 | |||||||||
| Accrued expense and other | 2,521.4 | 2,535.2 | |||||||||
| Total current liabilities | 3,272.8 | 4,298.2 | |||||||||
| Notes payable | 6,281.0 | 6,274.0 | |||||||||
| Deferred tax liability | 334.7 | 694.5 | |||||||||
| Long-term operating lease liabilities | 333.0 | 330.4 | |||||||||
| Other long-term liabilities | 944.2 | 1,320.5 | |||||||||
| Total liabilities | 11,165.7 | 12,917.6 | |||||||||
| Commitments, contingencies and guarantees (Notes 22 and 23) | |||||||||||
| Equity: | |||||||||||
| Biogen Inc. shareholders’ equity | |||||||||||
| Preferred stock, par value $0.001 per share | — | — | |||||||||
| Common stock, par value $0.0005 per share | 0.1 | 0.1 | |||||||||
| Additional paid-in capital | 73.3 | 68.2 | |||||||||
| Accumulated other comprehensive loss | (164.9) | (106.7) | |||||||||
| Retained earnings | 16,466.5 | 13,911.7 | |||||||||
| Treasury stock, at cost; 23.8 million and 23.8 million shares, respectively | (2,977.1) | (2,977.1) | |||||||||
| Total Biogen Inc. shareholders’ equity | 13,397.9 | 10,896.2 | |||||||||
| Noncontrolling interests | (9.5) | 63.5 | |||||||||
| Total equity | 13,388.4 | 10,959.7 | |||||||||
| Total liabilities and equity | $ | 24,554.1 | $ | 23,877.3 |
See accompanying notes to these consolidated financial statements.
F-4
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In millions)
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash flow from operating activities: | |||||||||||||||||
| Net income | $ | 2,961.6 | $ | 1,727.6 | $ | 4,060.5 | |||||||||||
| Adjustments to reconcile net income to net cash flow from operating activities: | |||||||||||||||||
| Depreciation and amortization | 518.4 | 487.7 | 457.2 | ||||||||||||||
| Impairment of intangible assets | 119.6 | 629.3 | 209.7 | ||||||||||||||
| Excess and obsolescence charges related to inventory | 336.2 | 167.6 | 26.6 | ||||||||||||||
| Acquired in-process research and development | — | 18.0 | 75.0 | ||||||||||||||
| Share-based compensation | 254.1 | 238.6 | 198.3 | ||||||||||||||
| Contingent consideration | (209.1) | (50.7) | (86.3) | ||||||||||||||
| (Gain)/loss on divestiture of Hillerød, Denmark manufacturing operations | — | — | (92.5) | ||||||||||||||
| Deferred income taxes | (168.6) | (426.8) | 149.0 | ||||||||||||||
| (Gain) loss on strategic investments | 265.9 | 826.8 | (681.8) | ||||||||||||||
| (Gain) loss on equity method investment | (2.6) | (34.9) | (3.3) | ||||||||||||||
| Gain on sale of equity interest in Samsung Bioepis | (1,505.4) | — | — | ||||||||||||||
| Gain on sale of building | (503.7) | — | — | ||||||||||||||
| Other | 208.2 | 202.2 | 104.6 | ||||||||||||||
| Changes in operating assets and liabilities, net: | |||||||||||||||||
| Accounts receivable | (203.4) | 324.8 | 2.8 | ||||||||||||||
| Due from anti-CD20 therapeutic programs | (19.0) | 1.2 | 176.7 | ||||||||||||||
| Inventory | (320.2) | (462.4) | (316.3) | ||||||||||||||
| Accrued expense and other current liabilities | (113.4) | (95.4) | 154.2 | ||||||||||||||
| Income tax assets and liabilities | (142.3) | 230.8 | (67.5) | ||||||||||||||
| Other changes in operating assets and liabilities, net | (92.0) | (144.5) | (137.1) | ||||||||||||||
| Net cash flow provided by (used in) operating activities | 1,384.3 | 3,639.9 | 4,229.8 | ||||||||||||||
| Cash flow from investing activities: | |||||||||||||||||
| Purchases of property, plant and equipment | (240.3) | (258.1) | (424.8) | ||||||||||||||
| Proceeds from sales and maturities of marketable securities | 3,671.0 | 3,405.4 | 7,299.4 | ||||||||||||||
| Purchases of marketable securities | (3,448.5) | (3,808.7) | (6,397.7) | ||||||||||||||
| Proceeds from sale of equity interest in Samsung Bioepis | 990.3 | — | — | ||||||||||||||
| Proceeds from sale of building | 582.6 | — | — | ||||||||||||||
| Purchase of Sangamo Therapeutics, Inc. stock | — | — | (141.8) | ||||||||||||||
| Purchase of Denali Therapeutics Inc. stock | — | — | (423.7) | ||||||||||||||
| Purchase of Sage Therapeutics, Inc. stock | — | — | (441.0) | ||||||||||||||
| Proceeds from divestiture of Hillerød, Denmark manufacturing operations | — | 28.1 | — | ||||||||||||||
| Acquired in-process research and development | — | (18.0) | (75.0) | ||||||||||||||
| Acquisitions of intangible assets | (2.9) | (18.8) | (52.0) | ||||||||||||||
| Proceeds from sales of strategic investments | — | 93.5 | 74.9 | ||||||||||||||
| Other | 24.4 | 12.9 | (26.9) | ||||||||||||||
| Net cash flow provided by (used in) investing activities | 1,576.6 | (563.7) | (608.6) | ||||||||||||||
| Cash flow from financing activities: | |||||||||||||||||
| Purchase of treasury stock | (750.0) | (1,800.0) | (6,679.1) | ||||||||||||||
| Payments related to issuance of stock for share-based compensation arrangements, net | (1.9) | (0.7) | (4.6) | ||||||||||||||
| Repayments of borrowings and premiums paid on debt exchange | (1,002.2) | (170.0) | — | ||||||||||||||
| Proceeds from borrowings | — | — | 2,967.4 | ||||||||||||||
| Repayments of borrowings | — | — | (1,500.0) | ||||||||||||||
| Net (distribution) contribution to noncontrolling interest | 12.4 | (94.4) | (71.0) | ||||||||||||||
| Other | (5.6) | (21.1) | 14.6 | ||||||||||||||
| Net cash flow provided by (used in) financing activities | (1,747.3) | (2,086.2) | (5,272.7) | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 1,213.6 | 990.0 | (1,651.5) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (55.7) | (59.8) | 69.0 | ||||||||||||||
| Cash and cash equivalents, beginning of the year | 2,261.4 | 1,331.2 | 2,913.7 | ||||||||||||||
| Cash and cash equivalents, end of the year | $ | 3,419.3 | $ | 2,261.4 | $ | 1,331.2 |
See accompanying notes to these consolidated financial statements.
F-5
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
| Preferred stock | Common stock | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Treasury stock | Total Biogen Inc. shareholders’ equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | — | $ | — | 170.8 | $ | 0.1 | $ | 68.2 | $ | (106.7) | $ | 13,911.7 | (23.8) | $ | (2,977.1) | $ | 10,896.2 | $ | 63.5 | $ | 10,959.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 3,046.9 | — | — | 3,046.9 | (85.3) | 2,961.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | (58.2) | — | — | — | (58.2) | — | (58.2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution from noncontrolling interest | — | — | — | — | — | — | — | — | — | — | 12.3 | 12.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock pursuant to the 2020 Share Repurchase Program, at cost | — | — | — | — | — | — | — | (3.6) | (750.0) | (750.0) | — | (750.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock pursuant to the 2020 Share Repurchase Program, at cost | — | — | (3.6) | — | (257.9) | — | (492.1) | 3.6 | 750.0 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under stock option and stock purchase plans | — | — | 0.2 | — | 44.2 | — | — | — | — | 44.2 | — | 44.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under stock award plan | — | — | 0.5 | — | (46.0) | — | — | — | — | (46.0) | — | (46.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation expense related to share-based payments | — | — | — | — | 263.5 | — | — | — | — | 263.5 | — | 263.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | 1.3 | — | — | — | — | 1.3 | — | 1.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | — | $ | — | 167.9 | $ | 0.1 | $ | 73.3 | $ | (164.9) | $ | 16,466.5 | (23.8) | $ | (2,977.1) | $ | 13,397.9 | $ | (9.5) | $ | 13,388.4 |
See accompanying notes to these consolidated financial statements.
F-6
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In millions)
| Preferred stock | Common stock | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Treasury stock | Total Biogen Inc. shareholders’ equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | — | $ | — | 176.2 | $ | 0.1 | $ | — | $ | (299.0) | $ | 13,976.3 | (23.8) | $ | (2,977.1) | $ | 10,700.3 | $ | (14.2) | $ | 10,686.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 1,556.1 | — | — | 1,556.1 | 171.5 | 1,727.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | 192.3 | — | — | — | 192.3 | 0.6 | 192.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | (100.0) | (100.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution from noncontrolling interest | — | — | — | — | — | — | — | — | — | — | 5.6 | 5.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock pursuant to the 2020 Share Repurchase Program, at cost | — | — | — | — | — | — | — | (6.0) | (1,800.0) | (1,800.0) | — | (1,800.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock pursuant to the 2020 Share Repurchase Program, at cost | — | — | (6.0) | — | (231.9) | — | (1,568.1) | 6.0 | 1,800.0 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under stock option and stock purchase plans | — | — | 0.2 | — | 54.4 | — | — | — | — | 54.4 | — | 54.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under stock award plan | — | — | 0.4 | — | (2.4) | — | (52.6) | — | — | (55.0) | — | (55.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation expense related to share-based payments | — | — | — | — | 246.6 | — | — | — | — | 246.6 | — | 246.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | 1.5 | — | — | — | — | 1.5 | — | 1.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | — | $ | — | 170.8 | $ | 0.1 | $ | 68.2 | $ | (106.7) | $ | 13,911.7 | (23.8) | $ | (2,977.1) | $ | 10,896.2 | $ | 63.5 | $ | 10,959.7 |
See accompanying notes to these consolidated financial statements.
F-7
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In millions)
| Preferred stock | Common stock | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Treasury stock | Total Biogen Inc. shareholders’ equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | — | $ | — | 198.0 | $ | 0.1 | $ | — | $ | (135.2) | $ | 16,455.4 | (23.8) | $ | (2,977.1) | $ | 13,343.2 | $ | (4.1) | $ | 13,339.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 4,000.6 | — | — | 4,000.6 | 59.9 | 4,060.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | (163.8) | — | — | — | (163.8) | 1.0 | (162.8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | (75.0) | (75.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution from noncontrolling interest | — | — | — | — | — | — | — | — | — | — | 4.0 | 4.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock pursuant to the 2020 Share Repurchase Program, at cost | — | — | — | — | — | — | — | (1.6) | (400.0) | (400.0) | — | (400.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock pursuant to the 2020 Share Repurchase Program, at cost | — | — | (1.6) | — | (60.8) | — | (339.2) | 1.6 | 400.0 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock pursuant to the December 2019 Share Repurchase Program, at cost | — | — | — | — | — | — | — | (16.7) | (5,000.0) | (5,000.0) | — | (5,000.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock pursuant to the December 2019 Share Repurchase Program, at cost | — | — | (16.7) | — | (121.3) | — | (4,878.7) | 16.7 | 5,000.0 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock pursuant to the March 2019 Share Repurchase Program, at cost | — | — | — | — | — | — | — | (4.1) | (1,279.1) | (1,279.1) | — | (1,279.1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock pursuant to the March 2019 Share Repurchase Program, at cost | — | — | (4.1) | — | (71.0) | — | (1,208.1) | 4.1 | 1,279.1 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under stock option and stock purchase plans | — | — | 0.2 | — | 49.3 | — | — | — | — | 49.3 | — | 49.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under stock award plan | — | — | 0.4 | — | — | — | (53.7) | — | — | (53.7) | — | (53.7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation expense related to share-based payments | — | — | — | — | 204.5 | — | — | — | — | 204.5 | — | 204.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | (0.7) | — | — | — | — | (0.7) | — | (0.7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | — | $ | — | 176.2 | $ | 0.1 | $ | — | $ | (299.0) | $ | 13,976.3 | (23.8) | $ | (2,977.1) | $ | 10,700.3 | $ | (14.2) | $ | 10,686.1 |
See accompanying notes to these consolidated financial statements.
F-8
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Note 1: | Summary of Significant Accounting Policies |
References in these notes to "Biogen," the "company," "we," "us" and "our" refer to Biogen Inc. and its consolidated subsidiaries.
Business Overview
Biogen is a global biopharmaceutical company focused on discovering, developing and delivering innovative therapies for people living with serious and complex diseases worldwide. We have a broad portfolio of medicines to treat multiple sclerosis (MS), have introduced the first approved treatment for spinal muscular atrophy (SMA) and co-developed two treatments to address a defining pathology of Alzheimer’s disease.We are focused on advancing our pipeline in neurology, neuropsychiatry, specialized immunology and rare diseases. We support our drug discovery and development efforts through internal research and development programs and external collaborations.
Our marketed products include TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; ADUHELM for the treatment of Alzheimer's disease; and FUMADERM for the treatment of severe plaque psoriasis. We also collaborate with Eisai Co., Ltd. (Eisai) on the commercialization of LEQEMBI for the treatment of Alzheimer's disease, which was granted accelerated approval by the U.S. Food and Drug Administration (FDA) in January 2023. We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (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 primary progressive MS (PPMS) and relapsing MS (RMS); LUNSUMIO (mosunetuzumab), which was granted accelerated approval in the U.S. during the fourth quarter of 2022 for the treatment of relapsed or refractory follicular lymphoma; glofitamab, an investigational bispecific antibody for the potential treatment of non-Hodgkin's lymphoma; and have the option to add other potential anti-CD20 therapies, pursuant to our collaboration arrangements with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group.
In addition to continuing to invest in new potential innovation in MS and SMA we are advancing our mid-to-late stage programs including zuranolone for major depressive disorder (MDD) and postpartum depression (PPD), BIIB080 for Alzheimer's disease, tofersen for amyotrophic lateral sclerosis (ALS) and both litifilimab and dapirolizumab pegol for certain forms of lupus.
We also commercialize biosimilars of advanced biologics including BENEPALI, an etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE, in certain countries in Europe, as well as BYOOVIZ, a ranibizumab biosimilar referencing LUCENTIS, in the U.S. We continue to develop potential biosimilar products including BIIB800, a proposed tocilizumab biosimilar referencing ACTEMRA, and SB15, a proposed aflibercept biosimilar referencing EYLEA.
For additional information on our collaboration arrangements, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Consolidation
Our consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100.0% of the economics, we record net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of a variable interest entity, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or more of our collaborators or partners.
F-9
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Use of Estimates
The preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenue and expense and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and assumptions. 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 revenue and expense. Actual results may differ from these estimates.
The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including sales, expense, reserves and allowances, the supply chain, manufacturing, clinical trials, research and development costs and employee-related costs, depends on future developments that are highly uncertain, subject to change and are difficult to predict, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 as well as the economic impact on local, regional, national and international customers and markets. Additionally, the ongoing geopolitical tensions related to the conflict in Ukraine, and the related sanctions and other penalties imposed, are creating substantial uncertainty in the global economy. The extent and duration of the conflict, sanctions and resulting market disruptions are highly unpredictable. We have made estimates of the impact of the COVID-19 pandemic and the ongoing geopolitical conflict in Ukraine within our consolidated financial statements and there may be changes to those estimates in future periods.
Revenue Recognition
We recognize revenue 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 revenue following the five-step model prescribed under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 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 revenue when (or as) we satisfy the performance obligations.
Product Revenue
In the U.S., we sell our products primarily to wholesale and specialty distributors and specialty pharmacies. 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 revenue is 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 revenue is 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.
Product revenue reserves, which are classified as a reduction in product revenue, 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 the cumulative revenue recognized will not occur in a future period. Actual amounts may ultimately differ from our
F-10
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.
Discounts include trade term discounts and wholesaler incentives. Trade term discounts and wholesaler incentives primarily relate to estimated obligations for credits to be granted to wholesalers for remitting payment on their purchases within established incentive periods and credits to be granted to wholesalers for compliance with various contractually-defined inventory management practices, respectively. We determine these reserves based on our historical experience, including the timing of customer payments.
Contractual adjustments primarily relate to Medicaid and managed care rebates in the U.S., pharmacy rebates, co-payment (copay) assistance, Veterans Administration (VA) and Public Health Service (PHS) discounts, specialty pharmacy program fees and other governmental rebates or applicable allowances.
-
Medicaid rebates: relate to our estimated obligations to states under established reimbursement arrangements. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities in our consolidated balance sheets. Our liability for Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoices received for claims from the prior quarters that have not been paid and an estimate of potential claims that will be made for inventory that exists in the distribution channel at period end.
-
Governmental rebates: or chargebacks, including VA and PHS discounts, represent our estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices we charge to wholesalers which provide those products. The wholesaler charges us for the difference between what the wholesaler pays for the products and the ultimate selling price to the qualified healthcare providers. Rebate and chargeback reserves are established in the same period as the related revenue is recognized, resulting in a reduction of product revenue and a reduction in the net accounts receivable. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider from the wholesaler, and we generally issue credits for such amounts within a few weeks of the wholesaler notifying us about the resale. Our reserves for VA, PHS and other chargebacks consist of amounts for inventory that exists at the wholesalers that we expect will be sold to qualified healthcare providers and chargebacks that wholesalers have claimed for which we have not issued a credit.
-
Managed care rebates: represent our estimated obligations to third-parties, primarily pharmacy benefit managers. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities in our consolidated balance sheets. These rebates result from performance-based goals, formulary position and price increase limit allowances (price protection). The calculation of the accrual for these rebates is based on an estimate of the coverage patterns and the resulting applicable contractual rebate rate(s) to be earned over a contractual period.
-
Copay assistance: represents financial assistance to qualified patients, assisting them with prescription drug co-payments required by insurance. The calculation of the accrual for copay is based on an estimate of claims and the cost per claim that we expect to receive associated with inventory that exists in the distribution channel at period end.
-
Pharmacy rebates: represent our estimated obligations resulting from contractual commitments to sell products to specific pharmacies. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities in our consolidated balance sheets. These rebates result from contracted discounts on product purchased or product dispensed. The calculation of the accrual for these rebates is based on an estimate of the pharmacy’s buying or dispensing patterns and the resulting applicable contractual rebate rate(s) to be earned over the contractual period.
-
Other governmental rebates: non-U.S. pharmaceutical taxes or applicable allowances primarily relate to mandatory rebates and discounts in international markets where government-sponsored healthcare systems are the primary payors for healthcare.
Product return reserves are established for returns made by wholesalers and are recorded in the period the related revenue is recognized, resulting in a reduction to product revenue. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of
F-11
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
wholesaler returns are due to product expiration. Expired product return reserves are estimated through a comparison of historical return data to their related sales on a production lot basis. Historical rates of return are determined for each product and are adjusted for known or expected changes in the marketplace specific to each product.
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 revenue. To the extent we can demonstrate a separable benefit and fair value for these services we classify these payments in selling, general and administrative expense in our consolidated statements of income.
Revenue from Anti-CD20 Therapeutic Programs
Our collaboration with Genentech is within the scope of ASC 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. For purposes of this footnote, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
Our share of the pre-tax co-promotion profits on RITUXAN and GAZYVA and royalty revenue on the sale of OCREVUS resulted from an exchange of a license. As we do not have future performance obligations under the license or collaboration agreement, revenue is recognized as the underlying sales occur.
Revenue from anti-CD20 therapeutic programs consist of:
(i) our share of pre-tax profits and losses in the U.S. for RITUXAN and GAZYVA;
(ii) royalty revenue on sales of OCREVUS; and
(ii) other revenue from anti-CD20 therapeutic programs, which consists of our share of pre-tax co-promotion profits on RITUXAN in Canada.
Pre-tax co-promotion profits on RITUXAN and GAZYVA are calculated and paid to us by Genentech and the Roche Group. Pre-tax co-promotion profits consist of net sales to third-party customers less applicable costs to manufacture, third-party royalty expense, distribution, selling and marketing expense and joint development expense incurred by Genentech and the Roche Group. Our share of the pre-tax profits on RITUXAN and GAZYVA include estimates that are based on information received from Genentech and the Roche Group. These estimates are subject to change and actual results may differ.
We recognize royalty revenue on sales of OCREVUS 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 revenue will be adjusted for in the period in which they become known, which is generally expected to be the following quarter.
In January 2022 we exercised our option with Genentech to participate in the joint development and commercialization of LUNSUMIO, which was later approved by the FDA in December 2022. Under our collaboration with Genentech, we will be entitled to co-promotion operating profits and losses in the U.S. for LUNSUMIO.
Prior to regulatory approval, we record our share of the expense incurred by the collaboration for the development of anti-CD20 products within research and development expense and pre-commercialization costs within selling, general and administrative expense in our consolidated statements of income. After an anti-CD20 product is approved, we record our share of the development and sales and marketing expense related to that product as a reduction of our share of pre-tax profits in revenue from anti-CD20 therapeutic programs.
Accordingly, Biogen recorded its share of the expense incurred in connection with the development of LUNSUMIO within research and development expense and its share of pre-commercialization costs within selling, general and administrative expense through December 2022, when regulatory approval was granted by the FDA. Beginning in January 2023, our share of any pre-tax profits and losses in the U.S. for LUNSUMIO will be reflected as a component of revenue from anti-CD20 therapeutic programs within our consolidated statements of income.
For additional information on our relationship with Genentech, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
F-12
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Revenue
Contract Manufacturing and Other Revenue
We record contract manufacturing and other revenue primarily from amounts earned under contract manufacturing agreements. Revenue under contract manufacturing agreements is recognized when the customer obtains control of the product, which may occur at a point in time or over time depending on the terms and conditions of the agreement.
Royalty Revenue
Royalty revenue reflects the royalties we receive from net sales on products related to patents that we have out-licensed, as well as royalty revenue on biosimilar products from our collaboration arrangements with Samsung Bioepis Co., Ltd. (Samsung Bioepis). These arrangements resulted from an exchange of a license and utilize the sales and usage based royalty exception. Therefore, royalties received are recognized as the underlying sales occur.
Collaborative and Other Relationships
We also have a number of significant collaborative and other third-party relationships for revenue and for the development, regulatory approval, commercialization and marketing of certain of our products and product candidates. Where we are the principal on sales transactions with third parties, we recognize revenue, cost of sales and operating expense on a gross basis in their respective lines in our consolidated statements of income. Where we are not the principal on sales transactions with third parties, our share of the revenue, cost of sales and operating expense is recorded as a component of other revenue in our consolidated statements of income.
Our development and commercialization arrangements with Genentech, Eisai and Samsung Bioepis represent collaborative arrangements as each party is an active participant in one or more joint operating activities and is exposed to significant risks and rewards of these arrangements. These arrangements resulted from an exchange of a license and utilize the sales and usage based royalty exception, as applicable. Therefore, revenue relating to royalties or profit-sharing amounts received is recognized as the underlying sales occur.
For additional information on our collaboration arrangements with Genentech, Eisai and Samsung Bioepis, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
Fair Value Measurements
We have certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
-
Level 1 — Fair values are determined utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access;
-
Level 2 — Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves, foreign currency spot rates and option pricing valuation models; and
-
Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The majority of our financial assets have been classified as Level 2. Our financial assets (which typically include our cash equivalents, marketable debt securities and certain of our marketable equity securities, derivative contracts and plan assets for deferred compensation) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third-party pricing services or option pricing valuation models. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.
We validate the prices provided by our third-party pricing services by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances. The option pricing valuation models use assumptions within the model, including the term, stock price volatility, constant maturity risk-free interest rate and dividend yield. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our pricing services as of December 31, 2022 and 2021.
F-13
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Assets and Liabilities
The carrying amounts reflected in our consolidated balance sheets for current accounts receivable, due from anti-CD20 therapeutic programs, other current assets, accounts payable and accrued expense and other, approximate fair value due to their short-term maturities.
Cash and Cash Equivalents
We consider only those investments that are highly liquid, readily convertible to cash and that mature within three months from date of purchase to be cash equivalents. As of December 31, 2022 and 2021, cash equivalents were comprised of money market funds, commercial paper, overnight reverse repurchase agreements and other debt securities with maturities less than three months from the date of purchase.
Accounts Receivable
The majority of our accounts receivable arise from product sales and primarily represent amounts due from our wholesale and other third-party distributors, public hospitals, pharmacies and other government entities and have standard payment terms that generally require payment within 30 to 90 days.
We do not adjust our receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale.
We provide reserves against accounts receivable for estimated losses that may result from a customer's inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve.
Receivables from Samsung BioLogics
In April 2022 we completed the sale of our 49.9% equity interest in Samsung Bioepis to Samsung BioLogics Co., Ltd (Samsung BioLogics), which resulted in a receivable of approximately $1.3 billion in cash to be deferred over two payments of approximately $812.5 million due at the first anniversary and approximately $437.5 million due at the second anniversary of the closing of this transaction. The payments due to us from Samsung BioLogics have been recorded at their estimated fair values through the use of risk-adjusted discount rates. For additional information on the accounting for the sale of our equity interest in Samsung Bioepis and these receivables, please read Note 3, Dispositions, to these consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, investments, derivatives and accounts receivable. We attempt to minimize the risks related to cash and cash equivalents and investments by investing in a broad and diverse range of financial instruments as previously defined by us. We have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. We minimize credit risk resulting from derivative instruments by choosing only highly rated financial institutions as counterparties.
Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these conditions and assess their possible impact on our business.
Marketable Securities and Other Investments
Marketable Debt Securities
Available-for-sale marketable debt securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensive income (loss) in equity, net of related tax effects, unless the security has experienced a credit loss, we have determined that we have the intent to sell the security or we have determined that it is more likely than not that we will have to sell the security before its expected recovery. Realized gains and losses are reported in other (income) expense, net on a specific identification basis.
F-14
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Marketable Equity Securities and Venture Capital Funds
Our marketable equity securities are recorded at fair market value and unrealized gains and losses are included in other (income) expense, net in our consolidated statements of income. Our marketable equity securities represent investments in publicly traded equity securities and are included in investments and other assets in our consolidated balance sheets.
Our investments in venture capital funds are recorded at net asset value, which approximates fair value, and unrealized gains and losses are included in other (income) expense, net in our consolidated statements of income. The underlying investments of the venture capital funds in which we invest are in equity securities of certain biotechnology companies and are included in investments and other assets in our consolidated balance sheets.
Non-Marketable Equity Securities
We also invest in equity securities of companies whose securities are not publicly traded and where fair value is not readily available. These investments are recorded using either the equity method of accounting or the cost minus impairment adjusted for observable price changes, depending on our ownership percentage and other factors that suggest we have significant influence. We monitor these investments to evaluate whether any increase or decline in their value has occurred, based on the implied value of recent company financings, public market prices of comparable companies and general market conditions. These investments are included in investments and other assets in our consolidated balance sheets.
Evaluating Marketable Debt Securities for Other-than-Temporary Impairments
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale debt securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income (loss).
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected in earnings as an impairment loss.
Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.
Equity Method of Accounting
In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, we utilize the equity method of accounting for recording investment activity. In assessing whether we exercise significant influence, we consider the nature and magnitude of our investment, the voting and protective rights we hold, any participation in the governance of the other company and other relevant factors such as the presence of a collaborative or other business relationship. Under the equity method of accounting, we record in our consolidated statements of income our share of income or loss of the other company. If our share of losses exceeds the carrying value of our investment, we will suspend recognizing additional losses and will continue to do so unless we commit to providing additional funding.
Inventory
Inventories are stated at the lower of cost or net realizable value with cost based on the first-in, first-out method. We classify our inventory costs as long-term when we expect to utilize the inventory beyond our normal operating cycle and include these costs in investments and other assets in our consolidated balance sheets. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical manufacturing campaign.
Capitalization of Inventory Costs
We capitalize inventory costs associated with our products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is
F-15
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expected to be realized. We consider numerous attributes in evaluating whether the costs to manufacture a particular product should be capitalized as an asset. We assess the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety or efficacy concerns, potential labeling restrictions and other impediments to approval. We evaluate our anticipated research and development initiatives and constraints relating to the product and the indication in which it will be used. We consider our manufacturing environment including our supply chain in determining logistical constraints that could hamper approval or commercialization. We consider the shelf life of the product in relation to the expected timeline for approval and we consider patent related or contract issues that may prevent or delay commercialization. We also base our judgment on the viability of commercialization, trends in the marketplace and market acceptance criteria. Finally, we consider the reimbursement strategies that may prevail with respect to the product and assess the economic benefit that we are likely to realize. We expense previously capitalized costs related to pre-approval inventory upon changes in such judgments, due to, among other potential factors, a denial or significant delay of approval by necessary regulatory bodies.
Obsolescence and Unmarketable Inventory
At each reporting period we review our inventories for excess or obsolescence and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than that estimated by us, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required. Additionally, our products are subject to strict quality control and monitoring that we perform throughout the manufacturing process. In the event that certain batches or units of product no longer meet quality specifications, we will record a charge to cost of sales to write-down any unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of cost or its estimated net realizable value. Amounts written-down due to unmarketable inventory are charged to cost of sales in our consolidated statements of income.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, subject to reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The cost of normal, recurring or periodic repairs and maintenance activities related to property, plant and equipment are expensed as incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if the repair will result in future economic benefits.
Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the interest costs are amortized as depreciation expense over the life of the underlying asset. We also capitalize certain direct and incremental costs associated with the validation effort required for licensing by regulatory agencies of new manufacturing equipment for the production of a commercially approved drug. These costs primarily include direct labor and material and are incurred in preparing the equipment for its intended use. The validation costs are either amortized over the life of the related equipment or expensed as cost of sales when the product produced in the validation process is sold.
In addition, we capitalize certain internal use computer software development costs. If the software is an integral part of production assets, these costs are included in machinery and equipment and are amortized on a straight-line basis over the estimated useful lives of the related software, which generally range from three to five years.
We generally depreciate or amortize the cost of our property, plant and equipment using the straight-line method over the estimated useful lives of the respective assets, which are summarized as follows:
| Asset Category | Useful Lives | ||||
| Land | Not depreciated | ||||
| Buildings | 15 to 40 years | ||||
| Leasehold Improvements | Lesser of the useful life or the term of the respective lease | ||||
| Furniture and Fixtures | 5 to 7 years | ||||
| Machinery and Equipment | 5 to 20 years | ||||
| Computer Software and Hardware | 3 to 5 years |
F-16
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
When we dispose of property, plant and equipment, we remove the associated cost and accumulated depreciation from the related accounts in our consolidated balance sheets and include any resulting gain or loss in our consolidated statements of income.
Leases
We determine if an arrangement is a lease at contract inception. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain that they will be exercised.
We use the implicit rate when readily determinable and use our incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments. Our incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease.
The lease payments used to determine our operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable and are recognized in our operating lease assets in our consolidated balance sheets. Our lease agreements may include both lease and non-lease components, which we account for as a single lease component when the payments are fixed. Variable payments included in the lease agreement are expensed as incurred. For certain equipment leases, such as vehicles, we apply a portfolio approach to effectively account for the operating lease assets and liabilities.
Our operating leases are reflected in operating lease assets, accrued expense and other and in long-term operating lease liabilities in our consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We also have real estate lease agreements which are subleased to third-parties. Operating leases for which we are the sublessor are included in accrued expense and other and other long-term liabilities in our consolidated balance sheets. We recognize sublease income on a straight-line basis over the lease term in our consolidated statements of income.
For additional information on our leases, please read Note 12, Leases, to these consolidated financial statements.
Intangible Assets
Our intangible assets consist of completed technology (comprised of acquired and in-licensed rights and patents, developed technology, out-licensed patents), in-process research and development (IPR&D) acquired after January 1, 2009, trademarks and trade names. Our intangible assets are recorded at fair value at the time of their acquisition and are stated in our consolidated balance sheets net of accumulated amortization and impairments, if applicable.
Intangible assets related to acquired and in-licensed rights and patents, developed technology and out-licensed patents are amortized over their estimated useful lives using the economic consumption method if anticipated future revenue can be reasonably estimated. The straight-line method is used when revenue cannot be reasonably estimated. Amortization is recorded within amortization and impairment of acquired intangible assets in our consolidated statements of income.
We amortize the intangible assets related to our marketed products using the economic consumption method based on revenue generated from the products underlying the related intangible assets. An analysis of the anticipated lifetime revenue of our marketed products is performed annually during our long-range planning cycle and whenever events or changes in circumstances would significantly affect anticipated lifetime revenue of the relevant products.
Intangible assets related to trademarks, trade names and IPR&D prior to commercialization are not amortized because they have indefinite lives; however, they are subject to review for impairment. 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.
F-17
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquired In-process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects and discounting the net cash flow to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing a new drug. Additionally, the projections consider the relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by us and our competitors. The rates utilized to discount the net cash flow to present value are commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections. Upon the acquisition of IPR&D, we complete an assessment of whether our acquisition constitutes the purchase of a single asset or a group of assets. We consider multiple factors in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flow, the development process and stage of completion, quantitative significance and our rationale for entering into the transaction.
If we acquire a business as defined under applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in our consolidated statements of income as they are incurred.
When performing our impairment assessment, we calculate the fair value using the same methodology as described above. 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 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.
Goodwill
Goodwill represents 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. Goodwill is not amortized, but is reviewed for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.
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. As described in Note 25, Segment Information, to these consolidated financial statements, we operate as one operating segment, which is our only reporting unit.
Impairment of Long-Lived Assets
Long-lived assets to be held and used, including property, plant and equipment, and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future cash flow resulting from the use of the asset and its eventual disposition. In the event that such cash flow is not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their fair values. Long-lived assets to be disposed of are carried at fair value less costs to sell.
Contingent Consideration
The consideration for our acquisitions often includes future payments that are contingent upon the occurrence of a particular event or events. We record an obligation for such contingent payments at fair value on the acquisition date. We estimate the fair value of contingent consideration obligations through valuation models that incorporate probability-adjusted assumptions related to the achievement of the milestones and thus likelihood of making related payments. We revalue our contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations are recognized in our consolidated statements of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flow and reserves associated with products upon
F-18
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
commercialization, changes in the assumed achievement or timing of any cumulative sales-based and development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval.
Discount rates in our valuation models represent a measure of the credit risk associated with settling the liability. The period over which we discount our contingent obligations is based on the current development stage of the product candidates, our specific development plan for that product candidate adjusted for the probability of completing the development step and when the contingent payments would be triggered. In estimating the probability of success, we utilize data regarding similar milestone events from several sources, including industry studies and our own experience. These fair value measurements 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.
Derivative Instruments and Hedging Activities
Cash Flow and Fair Value Derivative Instruments
We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. Changes in the fair value of our derivative instruments are recognized each period in current earnings or accumulated other comprehensive income (loss), depending on whether the derivative instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. We classify the cash flow from these instruments in the same category as the cash flow from the hedged items. We do not hold or issue derivative instruments for trading or speculative purposes.
We assess at inception and on an ongoing basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting the changes in cash flow or fair values of the hedged items. We exclude the forward points portion of the derivative instruments used in a hedging transaction from the effectiveness test and record the fair value gain or loss related to this portion each period in our consolidated statements of income in the same line as the underlying hedged item. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in current earnings.
Net Investment Derivative Instruments
Designated net investment hedges are recognized as either assets or liabilities, at fair value, in our consolidated balance sheets. We hedge the changes in the spot exchange rate in accumulated other comprehensive income (loss) and exclude changes to the forward rate and amortize the forward points in other (income) expense, net in our consolidated statements of income over the term of the contract. We classify the cash flow from these instruments in the same category as the cash flow from the hedged items.
Beginning in the second quarter of 2022 we no longer held net investment hedges as they were closed with the sale of our 49.9% equity interest in Samsung Bioepis in April 2022. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
For additional information on our derivative instruments and hedging activities, please read Note 10, Derivative Instruments, to these consolidated financial statements.
Translation of Foreign Currencies
The functional currency for most of our foreign subsidiaries is their local currency. For our non-U.S. subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign currency exchange rates for the period. Adjustments resulting from the translation of the financial statements of our foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income (loss), as a separate component of equity. For subsidiaries where the functional currency of the assets and liabilities differ from the local currency, non-monetary assets and liabilities are translated at the rate of exchange in effect on the date assets were acquired while monetary assets and liabilities are translated at current rates of exchange as of the balance sheet date. Income and expense items are translated at the average foreign currency rates for the period. Translation adjustments of these subsidiaries are included in other (income) expense, net in our consolidated statements of income.
F-19
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Royalty Cost of Sales
We make royalty payments to a number of third-parties under license or purchase agreements associated with our acquisition of intellectual property. These royalty payments are typically calculated as a percentage (royalty rate) of the sales of our products in a particular year. That royalty rate may remain constant, increase or decrease within each year based on the total amount of sales during the annual period. Each quarterly period, we estimate our total royalty obligation for the full year and recognize the proportional amount as cost of sales based on actual quarterly sales as a percentage of full year estimated sales. For example, if the level of net sales in any calendar year increases the royalty rate within the year, we will record our cost of sales at an even rate over the year, based on the estimated blended royalty rate.
Accounting for Share-Based Compensation
Our share-based compensation programs grant awards that have included stock options, restricted stock units that vest based on stock performance known as market stock units (MSUs), performance-vested restricted stock units that settle in cash (CSPUs), time-vested restricted stock units (RSUs), performance-vested restricted stock units that can be settled in cash or shares of our common stock (PUs) at the sole discretion of the Compensation and Management Development Committee of our Board of Directors, performance-vested stock units that settle in stock or cash (PSUs) and shares issued under our employee stock purchase plan (ESPP). Compensation expense is recognized based on the estimated fair value of the awards at grant date. We recognize compensation expense for the number of awards expected to vest after taking into consideration an estimate of award forfeitures over the requisite service period, which is generally the vesting period. Where awards are made with non-substantive vesting periods (for instance, where a portion of the award vests upon retirement eligibility), we estimate and recognize expense based on the period from the grant date to the date the employee becomes retirement eligible.
The fair values of our stock option grants are estimated as of the date of grant using a Black-Scholes option valuation model. The estimated fair values of the stock options are then expensed over the options' vesting periods.
The fair values of our MSUs are estimated using a lattice model with a Monte Carlo simulation. We apply an accelerated attribution method to recognize share-based compensation expense over the applicable service period for our MSUs. The probability of actual shares expected to be earned is considered in the grant date valuation, therefore the expense is not adjusted to reflect the actual units earned.
The fair values of our RSUs are based on the market value of our stock on the date of grant. Compensation expense for RSUs is recognized straight-line over the applicable service period.
We apply an accelerated attribution method to recognize share-based compensation expense when accounting for our CSPUs, PUs and PSUs that settle in cash, and the fair value of the liability is remeasured at the end of each reporting period through expected settlement. Compensation expense associated with CSPUs, PUs and PSUs that settle in cash are based upon the stock price and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the targeted payout level associated with the performance criteria expected to be achieved. Cumulative adjustments are recorded each quarter to reflect changes in the stock price and estimated outcome of the performance-related conditions until the date results are determined and settled. If performance criteria are not met or not expected to be met, any compensation expense previously recognized to date associated with the awards will be reversed.
The fair values of PSUs that settle in stock are based upon the stock price on the date of grant. Compensation expense is recognized for the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the targeted payout level associated with the performance criteria expected to be achieved. Cumulative adjustments are recorded each quarter to reflect the estimated outcome of the performance-related conditions until the date results are determined and settled. If performance criteria are not met or not expected to be met, any compensation expense previously recognized to date associated with the awards will be reversed.
Research and Development Expense
Research and development expense consists of expenses incurred in performing research and development activities, which include compensation and benefits, facilities and overhead expense, clinical trial expense and fees paid to contract research organizations (CROs), clinical supply and manufacturing expense, write-offs of inventory that was previously capitalized in anticipation of product launch and determined to no longer be realizable and other outside expense and upfront fees and milestones paid to third-party collaborators. Research and development
F-20
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expense is expensed as incurred. Upfront and milestone payments made to third-party collaborators are expensed as incurred up to the point of regulatory approval. Milestone payments made upon regulatory approval are capitalized and amortized over the remaining useful life of the related product. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets in our consolidated balance sheets and are expensed as the services are provided. We also accrue the costs of ongoing clinical trials associated with programs that have been terminated or discontinued for which there is no future economic benefit at the time the decision is made to terminate or discontinue the program.
From time to time, we enter into development agreements in which we share expenses with a collaborative partner. We record payments received from our collaborative partners for their share of the development costs as a reduction of research and development expense, except as discussed in Note 19, Collaborative and Other Relationships, to these consolidated financial statements. Expenses incurred by Genentech in the ongoing development of RITUXAN, GAZYVA and other products for which an initial indication has been approved are not recorded as research and development expense, but rather reduce our share of profits recorded as a component of revenue from anti-CD20 therapeutic programs.
For collaborations with commercialized products, if we are the principal, we record revenue and the corresponding operating costs in their respective line items in our consolidated statements of income. If we are not the principal, we record operating costs as a reduction of revenue.
Selling, General and Administrative Expense
Selling, general and administrative expense is primarily comprised of compensation and benefits associated with sales and marketing, finance, human resources, legal, information technology and other administrative personnel, outside marketing, advertising and legal expense and other general and administrative costs.
Advertising costs are expensed as incurred. For the years ended December 31, 2022, 2021 and 2020, advertising costs totaled $54.1 million, $98.7 million and $111.8 million, respectively.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. We recognize deferred taxes associated with our global intangible low-taxed income (GILTI) tax calculations.
The income tax consequences from the intra-entity transfers of inventory within our consolidated group, both current and deferred, are recorded as a prepaid tax or deferred charge and recognized through our consolidated statements of income when the inventory is sold to a third-party. The income tax consequences from the intra-entity transfer of assets other than inventory and associated changes to deferred taxes are recognized when the transfer occurs.
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 also accrue for potential interest and penalties related to unrecognized tax benefits in income tax (benefit) expense in our consolidated statements of income.
Contingencies
We are currently involved in various claims and legal proceedings. Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated or a range of loss can be determined. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. Significant judgment is
F-21
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
required in both the determination of probability and as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may change our estimates. Legal costs associated with legal proceedings are expensed when incurred.
Earnings per Share
Basic earnings per share is computed by dividing undistributed net income attributable to Biogen Inc. by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed based on the treasury method by dividing net income by the weighted-average number of common shares outstanding during the period plus potentially dilutive common equivalent shares outstanding.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed below, we do not believe that the adoption of recently issued standards have or may have a material impact on our consolidated financial statements or disclosures.
Fair Value Measurements
In June 2022 the FASB issued Accounting Standards Update (ASU) No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This standard clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This standard becomes effective for us on January 1, 2024. We elected to early adopt this standard on a prospective basis during the third quarter of 2022. Upon adoption, we recorded an immaterial amount in other (income) expense, net in our consolidated statements of income, as a result of removing the impact of the remaining contractual sale restrictions from the fair value measurement of certain shares in Sage Therapeutics, Inc. (Sage).
Income Taxes
In December 2019 the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard removes certain exceptions to the general principles in Topic 740 and simplifies certain other aspects of the accounting for income taxes. This standard became effective for us on January 1, 2021, and did not have a material impact on our consolidated financial statements and related disclosures.
| Note 2: | Acquisitions |
BIIB118 Acquisition
In March 2020 we acquired BIIB118 (CK1 inhibitor) for the potential treatment of patients with behavioral and neurological symptoms across various psychiatric and neurological diseases from Pfizer Inc. (Pfizer). In connection with this acquisition, we made an upfront payment of $75.0 million to Pfizer, which was accounted for as an asset acquisition and recorded as acquired IPR&D in our consolidated statements of income for the year ended December 31, 2020. In 2022 we discontinued further development of BIIB118 based on the decision by management as part of its strategic review process.
F-22
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 3: | Dispositions |
Sale of Joint Venture Equity Interest in Samsung Bioepis
In April 2022 we completed the sale of our 49.9% equity interest in Samsung Bioepis to Samsung BioLogics. Under the terms of this transaction, we received approximately $1.0 billion in cash at closing and expect to receive approximately $1.3 billion in cash to be deferred over two payments of approximately $812.5 million due at the first anniversary and approximately $437.5 million due at the second anniversary of the closing of this transaction.
Prior to the sale, the carrying value of our investment in Samsung Bioepis totaled $581.6 million. For the year ended December 31, 2022, we recognized a pre-tax gain of approximately $1.5 billion related to this transaction, which was recorded in other (income) expense, net in our consolidated statements of income. This pre-tax gain included reclassifications from accumulated other comprehensive income (loss) to net income of approximately $58.9 million in cumulative translation losses, partially offset by approximately $57.0 million in gains resulting from the termination of our net investment hedge.
We have concluded that the divestment of Samsung Bioepis does not meet the criteria to be reported as discontinued operations in our consolidated financial statements, as our decision to divest this business does not represent a strategic shift that will have a major effect on our operations and financial results.
We elected the fair value option and measured the payments due to us from Samsung BioLogics at fair value. As of December 31, 2022, the estimated fair values of the first and second payments using risk-adjusted discount rates of 5.7% and 5.9%, respectively, were approximately $798.8 million and $405.4 million, respectively. These payments have been classified as level 3 measurements and are reflected in other current assets and investments and other assets, respectively, in our consolidated balance sheets.
For the year ended December 31, 2022, we recognized a gain of approximately $10.7 million and a loss of approximately $1.4 million to reflect the changes in fair value related to our first and second payments, respectively. These changes were recorded in other (income) expense, net in our consolidated statements of income.
As part of this transaction, we are also eligible to receive up to an additional $50.0 million upon the achievement of certain commercial milestones. Our policy for contingent payments of this nature is to recognize the payments in the period that they become realizable, which is generally the same period in which the payments are earned.
If any payments due to us remain outstanding after the second anniversary of the closing of this transaction, we may elect to receive shares of Samsung BioLogics common stock at a 5.0% discount in lieu of a cash payment for the remaining amount due. Currently, we believe that the likelihood of Samsung BioLogics failing to make timely payments to us for the amounts due is remote.
Additionally, for the year ended December 31, 2022, we recorded a discrete tax expense of approximately $257.9 million related to this transaction, which is reflected in income tax (benefit) expense in our consolidated statements of income.
| Note 4: | Restructuring |
2022 Cost Saving Initiatives
In December 2021 and May 2022 we announced our plans to implement a series of cost-reduction measures during 2022. These savings are being achieved through a number of initiatives, including reductions to our workforce, the substantial elimination of our commercial ADUHELM infrastructure, the consolidation of certain real estate locations and operating efficiency gains across our selling, general and administrative and research and development functions.
Under these initiatives, we estimate we will incur total restructuring charges of approximately $131.0 million, primarily related to severance. These amounts were substantially incurred during 2022. As of December 31, 2022, approximately $35.9 million remained in our restructuring reserve and payments are expected to be made through 2026.
F-23
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the year ended December 31, 2022, we recognized approximately $131.1 million of net pre-tax restructuring charges related to our 2022 cost saving initiatives, of which approximately $112.6 million consisted of employee severance costs. These costs were recorded in restructuring charges in our consolidated statements of income. Our restructuring reserve is included in accrued expense and other in our consolidated balance sheets.
In September 2022 we entered into an agreement to partially terminate a portion of our lease located at 300 Binney Street, Cambridge, MA (300 Binney Street), as well as to reduce the lease term for the majority of the remaining space. This resulted in a gain of approximately $5.3 million, which was recorded within restructuring charges in our consolidated statements of income for the year ended December 31, 2022. For additional information on our 300 Binney Street lease modification, please read Note 12, Leases, to these consolidated financial statements.
Following an evaluation of our current capacity needs, in March 2022 we ceased using a patient services office space in Durham, NC. Our decision to cease use of the facility resulted in the immediate expense of certain leasehold improvements and other assets at this facility. As a result, we recognized approximately $10.4 million of accelerated depreciation expense, which was recorded in restructuring charges in our consolidated statements of income for the year ended December 31, 2022. In May 2022 we entered into a lease assignment agreement whereby we assigned our remaining lease obligations to an external third party. As a result of the lease assignment, we derecognized the related operating lease obligation and right-of-use asset during the second quarter of 2022.
For the year ended December 31, 2022, we recognized other restructuring costs of approximately $13.2 million, which were recorded in restructuring charges in our consolidated statements of income. Other restructuring costs include items such as facility closure costs, employee non-severance expense, asset write-offs and other costs.
The following table summarizes the charges and spending related to our 2022 workforce reductions for the year ended December 31, 2022:
| (In millions) | Total | |||||||||||||||||||
| Restructuring reserve, December 31, 2021 | $ | — | ||||||||||||||||||
| Expense | 112.6 | |||||||||||||||||||
| Payment | (78.0) | |||||||||||||||||||
| Foreign currency and other adjustments | 1.3 | |||||||||||||||||||
| Restructuring reserve, December 31, 2022 | $ | 35.9 |
F-24
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 5: | Revenue |
Product Revenue
Revenue by product are summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | United States | Rest of World | Total | United States | Rest of World | Total | United States | Rest of World | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Multiple Sclerosis (MS): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TECFIDERA | $ | 417.7 | $ | 1,026.2 | $ | 1,443.9 | $ | 680.6 | $ | 1,271.3 | $ | 1,951.9 | $ | 2,677.7 | $ | 1,163.4 | $ | 3,841.1 | ||||||||||||||||||||||||||||||||||||||
| VUMERITY(1) | 521.3 | 32.1 | 553.4 | 408.9 | 1.5 | 410.4 | 64.3 | — | 64.3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Fumarate | 939.0 | 1,058.3 | 1,997.3 | 1,089.5 | 1,272.8 | 2,362.3 | 2,742.0 | 1,163.4 | 3,905.4 | |||||||||||||||||||||||||||||||||||||||||||||||
| AVONEX | 649.2 | 324.3 | 973.5 | 830.2 | 378.5 | 1,208.7 | 1,083.4 | 408.5 | 1,491.9 | |||||||||||||||||||||||||||||||||||||||||||||||
| PLEGRIDY | 148.4 | 183.5 | 331.9 | 152.9 | 204.5 | 357.4 | 190.1 | 195.5 | 385.6 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Interferon | 797.6 | 507.8 | 1,305.4 | 983.1 | 583.0 | 1,566.1 | 1,273.5 | 604.0 | 1,877.5 | |||||||||||||||||||||||||||||||||||||||||||||||
| TYSABRI | 1,123.4 | 907.5 | 2,030.9 | 1,142.2 | 920.9 | 2,063.1 | 1,096.8 | 849.3 | 1,946.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| FAMPYRA | — | 96.6 | 96.6 | — | 105.2 | 105.2 | — | 103.1 | 103.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal: MS | 2,860.0 | 2,570.2 | 5,430.2 | 3,214.8 | 2,881.9 | 6,096.7 | 5,112.3 | 2,719.8 | 7,832.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Spinal Muscular Atrophy: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SPINRAZA | 600.2 | 1,193.3 | 1,793.5 | 587.9 | 1,317.2 | 1,905.1 | 787.8 | 1,264.3 | 2,052.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Biosimilars: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BENEPALI | — | 441.0 | 441.0 | — | 498.3 | 498.3 | — | 481.6 | 481.6 | |||||||||||||||||||||||||||||||||||||||||||||||
| IMRALDI | — | 224.5 | 224.5 | — | 233.4 | 233.4 | — | 216.3 | 216.3 | |||||||||||||||||||||||||||||||||||||||||||||||
| FLIXABI | — | 81.3 | 81.3 | — | 99.4 | 99.4 | — | 97.9 | 97.9 | |||||||||||||||||||||||||||||||||||||||||||||||
| BYOOVIZ(2) | 4.3 | — | 4.3 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal: Biosimilars | 4.3 | 746.8 | 751.1 | — | 831.1 | 831.1 | — | 795.8 | 795.8 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FUMADERM | — | 8.2 | 8.2 | — | 11.0 | 11.0 | — | 12.2 | 12.2 | |||||||||||||||||||||||||||||||||||||||||||||||
| ADUHELM | 4.8 | — | 4.8 | 3.0 | — | 3.0 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Total product revenue | $ | 3,469.3 | $ | 4,518.5 | $ | 7,987.8 | $ | 3,805.7 | $ | 5,041.2 | $ | 8,846.9 | $ | 5,900.1 | $ | 4,792.1 | $ | 10,692.2 |
(1) VUMERITY became commercially available in the E.U. during the fourth quarter of 2021.
(2) BYOOVIZ launched in the U.S. in June 2022 and became commercially available during the third quarter of 2022.
We recognized revenue from two wholesalers accounting for 26.8% and 11.1% of gross product revenue in 2022, 28.8% and 10.1% of gross product revenue in 2021 and 30.5% and 15.3% of gross product revenue in 2020, respectively.
As of December 31, 2022, two wholesale distributors individually accounted for approximately 22.7% and 10.9% of net accounts receivable associated with our product sales, as compared to 21.9% and 10.2% as of December 31, 2021, respectively.
F-25
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
An analysis of the change in reserves for discounts and allowances is summarized as follows:
| December 31, 2022 | ||||||||||||||||||||||||||
| (In millions) | Discounts | Contractual Adjustments | Returns | Total | ||||||||||||||||||||||
| Beginning balance | $ | 137.7 | $ | 759.6 | $ | 38.0 | $ | 935.3 | ||||||||||||||||||
| Current provisions relating to sales in current year | 666.6 | 2,715.5 | 12.3 | 3,394.4 | ||||||||||||||||||||||
| Adjustments relating to prior years | (2.8) | 1.4 | (7.2) | (8.6) | ||||||||||||||||||||||
| Payments/credits relating to sales in current year | (514.9) | (2,060.7) | (1.2) | (2,576.8) | ||||||||||||||||||||||
| Payments/credits relating to sales in prior years | (132.8) | (558.1) | (18.4) | (709.3) | ||||||||||||||||||||||
| Ending balance | $ | 153.8 | $ | 857.7 | $ | 23.5 | $ | 1,035.0 |
| December 31, 2021 | ||||||||||||||||||||||||||
| (In millions) | Discounts | Contractual Adjustments | Returns | Total | ||||||||||||||||||||||
| Beginning balance | $ | 141.4 | $ | 1,093.0 | $ | 41.6 | $ | 1,276.0 | ||||||||||||||||||
| Current provisions relating to sales in current year | 736.7 | 2,948.7 | 15.2 | 3,700.6 | ||||||||||||||||||||||
| Adjustments relating to prior years | (4.0) | (96.1) | (3.3) | (103.4) | ||||||||||||||||||||||
| Payments/credits relating to sales in current year | (599.3) | (2,283.1) | (0.4) | (2,882.8) | ||||||||||||||||||||||
| Payments/credits relating to sales in prior years | (137.1) | (902.9) | (15.1) | (1,055.1) | ||||||||||||||||||||||
| Ending balance | $ | 137.7 | $ | 759.6 | $ | 38.0 | $ | 935.3 |
| December 31, 2020 | ||||||||||||||||||||||||||
| (In millions) | Discounts | Contractual Adjustments | Returns | Total | ||||||||||||||||||||||
| Beginning balance | $ | 131.1 | $ | 1,027.3 | $ | 40.5 | $ | 1,198.9 | ||||||||||||||||||
| Current provisions relating to sales in current year | 774.7 | 3,308.8 | 19.0 | 4,102.5 | ||||||||||||||||||||||
| Adjustments relating to prior years | (1.0) | (54.0) | 1.3 | (53.7) | ||||||||||||||||||||||
| Payments/credits relating to sales in current year | (635.1) | (2,426.1) | — | (3,061.2) | ||||||||||||||||||||||
| Payments/credits relating to sales in prior years | (128.3) | (763.0) | (19.2) | (910.5) | ||||||||||||||||||||||
| Ending balance | $ | 141.4 | $ | 1,093.0 | $ | 41.6 | $ | 1,276.0 |
The total reserves above, which are included in our consolidated balance sheets, are summarized as follows:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Reduction of accounts receivable | $ | 143.4 | $ | 133.2 | ||||||||||
| Component of accrued expense and other | 891.6 | 802.1 | ||||||||||||
| Total revenue-related reserves | $ | 1,035.0 | $ | 935.3 |
Revenue from Anti-CD20 Therapeutic Programs
Revenue from anti-CD20 therapeutic programs is summarized in the table below. For purposes of this footnote, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Royalty revenue on sales of OCREVUS | $ | 1,136.3 | $ | 991.7 | $ | 845.4 | ||||||||||||||
| Biogen's share of pre-tax profits in the U.S. for RITUXAN and GAZYVA | 547.0 | 647.7 | 1,080.2 | |||||||||||||||||
| Other revenue from anti-CD20 therapeutic programs | 17.2 | 19.1 | 52.2 | |||||||||||||||||
| Total revenue from anti-CD20 therapeutic programs | $ | 1,700.5 | $ | 1,658.5 | $ | 1,977.8 |
Approximately 16.7%, 15.1% and 14.7% of our total revenue in 2022, 2021 and 2020, respectively, was derived from our collaboration arrangements with Genentech. For additional information on our collaboration
F-26
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
arrangements with Genentech, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
Other Revenue
Other revenue consists of royalty revenue and contract manufacturing and other revenue and is summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Contract manufacturing and other revenue | $ | 417.7 | $ | 427.7 | $ | 719.1 | ||||||||||||||
| Royalty revenue | 67.4 | 48.6 | 55.5 | |||||||||||||||||
| Total other revenue | $ | 485.1 | $ | 476.3 | $ | 774.6 |
Contract Manufacturing and Other Revenue
Contract manufacturing and other revenue primarily reflects amounts earned under contract manufacturing agreements with our strategic customers.
During the third quarter of 2019, we amended our agreement with a contract manufacturing customer pursuant to which we licensed certain of our manufacturing-related intellectual property to the customer. In the second quarter of 2020, the customer received regulatory approval for its product that is being manufactured using certain of our manufacturing-related intellectual property. As a result we were entitled to $500.0 million in a series of three payments. The first payment became due upon a regulatory approval of such product and was received during the second quarter of 2020. The second payment became due upon the first anniversary of the regulatory approval and was received during the second quarter of 2021. The third payment became due upon the second anniversary of the regulatory approval and was received during the second quarter of 2022.
Contract manufacturing and other revenue for the year ended December 31, 2020, reflects $346.2 million related to the delivery of the license for certain of our manufacturing-related intellectual property under the amended agreement, as discussed above, and the performance of manufacturing product supply services for such customer. We allocated the remaining $153.8 million of the $500.0 million transaction price to the performance of manufacturing product supply services for the customer, which we expect to perform through 2026. The value allocated to the manufacturing services was based on expected demand for supply and the fair value of comparable manufacturing and development services.
Royalty Revenue
Royalty revenue reflects the royalties we receive from net sales on products related to patents that we have out-licensed, as well as royalty revenue on biosimilar products from our collaboration arrangements with Samsung Bioepis.
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
F-27
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 6: | Inventory |
The components of inventory are summarized as follows:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Raw materials | $ | 413.2 | $ | 349.6 | ||||||||||
| Work in process(1) | 751.9 | 814.0 | ||||||||||||
| Finished goods | 200.4 | 187.9 | ||||||||||||
| Total inventory | $ | 1,365.5 | $ | 1,351.5 | ||||||||||
| Balance Sheet Classification: | ||||||||||||||
| Inventory | $ | 1,344.4 | $ | 1,351.5 | ||||||||||
| Investments and other assets | 21.1 | — | ||||||||||||
| Total inventory | $ | 1,365.5 | $ | 1,351.5 |
(1) Work in process inventory as of December 31, 2022, includes approximately $89.8 million related to LEQEMBI.
Long-term inventory is included in investments and other assets in our consolidated balance sheets.
Inventory amounts written down as a result of excess, obsolescence or unmarketability are charged to cost of sales, and totaled $336.2 million, $167.6 million and $26.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Inventory Write-Offs
In April 2022 the Centers for Medicare and Medicaid Services (CMS) released the final National Coverage Decision (NCD) for the class of anti-amyloid treatments in Alzheimer's disease, including ADUHELM. The final NCD confirmed coverage with evidence development, in which patients with Medicare can only access treatment if they are part of an approved clinical trial. We expect that this decision will reduce future demand for ADUHELM to a minimal level. During the first quarter of 2022 we wrote-off approximately $275.0 million of inventory related to ADUHELM, as a result of this CMS decision, which was recognized in cost of sales within our consolidated statements of income for the year ended December 31, 2022. We have recognized approximately $136.0 million related to Eisai's 45.0% share of these charges in collaboration profit (loss) sharing within our consolidated statements of income for the year ended December 31, 2022.
During the fourth quarter of 2021 we wrote-off approximately $120.0 million of inventory in excess of forecasted demand related to ADUHELM, which was recognized in cost of sales within our consolidated statements of income for the year ended December 31, 2021. We have recognized approximately $59.0 million related to Eisai's 45.0% share of these charges in collaboration profit (loss) sharing within our consolidated statements of income for the year ended December 31, 2021.
As of December 31, 2022, the carrying value of our ADUHELM inventory was immaterial. As of December 31, 2021, we had approximately $223.0 million of ADUHELM inventory. For additional information please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
F-28
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 7: | Intangible Assets and Goodwill |
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments are summarized as follows:
| As of December 31, 2022 | As of December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | Estimated Life | Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||||
| Completed technology | 4-28 years | $ | 7,415.3 | $ | (5,629.2) | $ | 1,786.1 | $ | 7,413.1 | $ | (5,388.5) | $ | 2,024.6 | ||||||||||||||||||||||||||||
| In-process research and development | Indefinite until commercialization | — | — | — | 132.7 | — | 132.7 | ||||||||||||||||||||||||||||||||||
| Trademarks and trade names | Indefinite | 64.0 | — | 64.0 | 64.0 | — | 64.0 | ||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 7,479.3 | $ | (5,629.2) | $ | 1,850.1 | $ | 7,609.8 | $ | (5,388.5) | $ | 2,221.3 |
Amortization and Impairments
Amortization and impairment of acquired intangible assets totaled $365.9 million, $881.3 million and $464.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Amortization of acquired intangible assets, excluding impairment charges, totaled $246.3 million, $252.0 million and $255.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. The decrease in amortization of acquired intangible assets, excluding impairment charges, over the three years was primarily due to a lower rate of amortization for acquired intangible assets.
For the year ended December 31, 2022, amortization and impairment of acquired intangible assets reflects the impact of a $119.6 million impairment charge related to vixotrigine (BIIB074) for the potential treatment of diabetic painful neuropathy (DPN).
For the year ended December 31, 2021, amortization and impairment of acquired intangible assets reflects the impact of a $365.0 million impairment charge related to BIIB111 (timrepigene emparvovec), a $220.0 million impairment charge related to BIIB112 (cotoretigene toliparvovec) and a $44.3 million impairment charge related to vixotrigine for the potential treatment of trigeminal neuralgia (TGN).
For the year ended December 31, 2020, amortization and impairment of acquired intangible assets reflects the impact of a $115.0 million impairment charge related to BIIB111, a $75.4 million impairment charge related to BIIB054 (cinpanemab) and a $19.3 million impairment charge related to one of our other IPR&D intangible assets.
Completed Technology
Completed technology primarily relates to our other marketed products and programs acquired through asset acquisitions, licenses and business combinations.
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. Included in IPR&D balances are adjustments related to foreign currency exchange rate fluctuations. 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. The carrying value associated with our IPR&D assets as of December 31, 2021, relates to the IPR&D programs we acquired in connection with our acquisition of Convergence Pharmaceuticals Holdings Ltd. (Convergence). As of December 31, 2022, as a result of our decision to discontinue development of vixotrigine, we recognized an impairment charge reducing the remaining book value to zero.
F-29
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Vixotrigine
In connection with our acquisition of Convergence, we recognized $424.6 million of acquired IPR&D intangible assets for vixotrigine. In the periods following our acquisition of vixotrigine, there were numerous delays in the initiation of Phase 3 studies for the potential treatment of TGN and for the potential treatment of DPN, another form of neuropathic pain. We engaged with the FDA regarding the design of the potential Phase 3 studies of vixotrigine for the potential treatment of TGN and DPN and performed an additional clinical trial of vixotrigine, which was completed during 2022.
The performance of this additional clinical trial delayed the initiation of the Phase 3 studies of vixotrigine for the potential treatment of TGN, and, as a result, we recognized an impairment charge of $44.3 million related to vixotrigine for the potential treatment of TGN during the first quarter of 2021.
During the fourth quarter of 2022 we discontinued further development of vixotrigine based on regulatory, development and commercialization challenges. For the year ended December 31, 2022, we recognized an impairment charge of approximately $119.6 million related to vixotrigine for the potential treatment of DPN, reducing the remaining book value of this IPR&D intangible asset to zero. We also adjusted the value of our contingent consideration obligations related to this asset resulting in a pre-tax gain of approximately $209.1 million, which was recognized in (gain) loss on fair value remeasurement of contingent consideration within our consolidated statements of income.
BIIB111 and BIIB112
In connection with our acquisition of Nightstar Therapeutics plc, we recognized $480.0 million and $220.0 million of acquired IPR&D intangible assets for BIIB111 and BIIB112, respectively. During the fourth quarter of 2020 we recognized an impairment charge of $115.0 million related to BIIB111 as a result of third-party manufacturing delays that impacted the timing and increased the costs associated with advancing BIIB111 through Phase 3 development.
During the second quarter of 2021 we announced that our Phase 3 STAR study of BIIB111 and our Phase 2/3 XIRIUS study of BIIB112 did not meet their primary endpoints. In the third quarter of 2021 we suspended further development on these programs based on the decision by management as part of its strategic review process. For the year ended December 31, 2021, we recognized an impairment charge of $365.0 million related to BIIB111 and an impairment charge of $220.0 million related to BIIB112, reducing the remaining book values of these IPR&D intangible assets to zero.
In addition, as a result of our decision to suspend further development of BIIB111 and BIIB112, we recorded charges of approximately $39.1 million during the third quarter of 2021 related to our manufacturing arrangements and other costs that we expect to incur as a result of suspending these programs. These charges were recognized in research and development expense in our consolidated statements of income for the year ended December 31, 2021.
BIIB054
In connection with our acquisition of Biogen International Neuroscience GmbH (BIN), we recognized a $110.9 million acquired IPR&D intangible asset. In February 2021 we announced that we discontinued development of BIIB054 as a potential treatment of Parkinson's disease as our Phase 2 SPARK study did not meet its primary or secondary endpoints. Although we made this determination in February 2021, it was based on conditions that existed as of December 31, 2020. As a result, we recognized an impairment charge of approximately $75.4 million during the fourth quarter of 2020 to reduce the fair value of the related IPR&D intangible asset to zero.
The IPR&D impairment charges were included in amortization and impairment of acquired intangible assets and the gain resulting from the remeasurement of our contingent consideration obligation was recorded in (gain) loss on fair value remeasurement of contingent consideration in our consolidated statements of income. The fair value of the intangible assets and contingent consideration obligations were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value measurements and inputs including estimated revenue, costs and probabilities of success.
F-30
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated Future Amortization of Intangible Assets
The estimated future amortization of finite-lived intangible assets for the next five years is expected to be as follows:
| (In millions) | As of December 31, 2022 | |||||||
| 2023 | $ | 215.0 | ||||||
| 2024 | 195.0 | |||||||
| 2025 | 190.0 | |||||||
| 2026 | 175.0 | |||||||
| 2027 | 165.0 |
Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Goodwill, beginning of year | $ | 5,761.1 | $ | 5,762.1 | ||||||||||
| Other | (12.1) | (1.0) | ||||||||||||
| Goodwill, end of year | $ | 5,749.0 | $ | 5,761.1 |
As of December 31, 2022, we had no accumulated impairment losses related to goodwill. Other includes adjustments related to foreign currency exchange rate fluctuations.
F-31
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 8: | Fair Value Measurements |
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
| As of December 31, 2022 | ||||||||||||||||||||||||||
| (In millions) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash equivalents | $ | 2,847.6 | $ | — | $ | 2,847.6 | $ | — | ||||||||||||||||||
| Marketable debt securities: | ||||||||||||||||||||||||||
| Corporate debt securities | 1,231.6 | — | 1,231.6 | — | ||||||||||||||||||||||
| Government securities | 810.3 | — | 810.3 | — | ||||||||||||||||||||||
| Mortgage and other asset backed securities | 137.3 | — | 137.3 | — | ||||||||||||||||||||||
| Marketable equity securities | 791.1 | 791.1 | — | — | ||||||||||||||||||||||
| Other current assets: | ||||||||||||||||||||||||||
| Receivable from Samsung BioLogics(1) | 798.8 | — | — | 798.8 | ||||||||||||||||||||||
| Other assets: | ||||||||||||||||||||||||||
| Derivative contracts | 63.0 | — | 63.0 | — | ||||||||||||||||||||||
| Plan assets for deferred compensation | 32.8 | — | 32.8 | — | ||||||||||||||||||||||
| Receivable from Samsung BioLogics(1) | 405.4 | — | — | 405.4 | ||||||||||||||||||||||
| Total | $ | 7,117.9 | $ | 791.1 | $ | 5,122.6 | $ | 1,204.2 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Derivative contracts | $ | 26.0 | $ | — | $ | 26.0 | $ | — | ||||||||||||||||||
| Total | $ | 26.0 | $ | — | $ | 26.0 | $ | — |
(1) Represents the fair value of the current and non-current payments due from Samsung BioLogics as a result of the sale of our 49.9% equity interest in Samsung Bioepis to Samsung BioLogics during the second quarter of 2022, for which we elected the fair value option. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
| As of December 31, 2021 | ||||||||||||||||||||||||||
| (In millions) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash equivalents | $ | 1,632.2 | $ | — | $ | 1,632.2 | $ | — | ||||||||||||||||||
| Marketable debt securities: | ||||||||||||||||||||||||||
| Corporate debt securities | 1,108.2 | — | 1,108.2 | — | ||||||||||||||||||||||
| Government securities | 1,192.7 | — | 1,192.7 | — | ||||||||||||||||||||||
| Mortgage and other asset backed securities | 132.2 | — | 132.2 | — | ||||||||||||||||||||||
| Marketable equity securities | 1,048.5 | 181.7 | 866.8 | — | ||||||||||||||||||||||
| Derivative contracts | 80.9 | — | 80.9 | — | ||||||||||||||||||||||
| Plan assets for deferred compensation | 33.4 | — | 33.4 | — | ||||||||||||||||||||||
| Total | $ | 5,228.1 | $ | 181.7 | $ | 5,046.4 | $ | — | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Derivative contracts | $ | 10.8 | $ | — | $ | 10.8 | $ | — | ||||||||||||||||||
| Contingent consideration obligations | 209.1 | — | — | 209.1 | ||||||||||||||||||||||
| Total | $ | 219.9 | $ | — | $ | 10.8 | $ | 209.1 |
F-32
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities was determined through third-party pricing services. In the third quarter of 2022 we elected to early adopt ASU 2022-03 on a prospective basis, which resulted in removing the impact of contractual sale restrictions from the fair value measurement of our remaining Sage common stock subject to certain holding period restrictions. As of December 31, 2022, our entire investment in the common stock of Sage was classified as a Level 1 measurement. Prior to the adoption of this standard, the fair value of Level 2 instruments classified as marketable equity securities represented a portion of our investment in the common stock of Sage and was valued using an option pricing valuation model.
Our investments in the common stock of Sangamo Therapeutics, Inc. (Sangamo) and Denali Therapeutics Inc. (Denali) had holding period restrictions that expired during 2022. As of December 31, 2022, the fair values of our investments in Sangamo and Denali common stock were classified as Level 1 measurements. Prior to the expiration of these holding period restrictions the investments were classified as Level 2 measurements.
Although the contractual holding period restrictions on our investments in Denali, Sage and Sangamo have expired, our ability to liquidate these investments may be limited by the size of our interest, the volume of market related activity, our concentrated level of ownership and potential restrictions resulting from our status as a collaborator. Therefore, we may realize significantly less than the current value of such investments.
For additional information on our investments in Denali, Sangamo and Sage common stock, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
There have been no material impairments of our assets measured and carried at fair value as of December 31, 2022 and 2021. In addition, there have been no changes in valuation techniques as of December 31, 2022 and 2021.
For a description of our validation procedures related to prices provided by third-party pricing services and our option pricing valuation model, please read the Fair Value Measurements section within Note 1, Summary of Significant Accounting Policies, to these consolidated financial statements.
Level 3 Assets and Liabilities Held at Fair Value
The following table presents quantitative information, as of the dates indicated, about the valuation techniques and significant unobservable inputs used in the valuation of our level 3 financial assets and liabilities measured at fair value on a recurring basis:
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||||||||||||||||||||||||||||||||
| Fair Value | Significant Unobservable Input(s) | Range | Weighted Average | |||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2022**(1)** | 2021 | Valuation Technique | 2021 | 2022**(1)** | 2021 | ||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration obligations | $ | — | $ | 209.1 | Discounted cash flow | Discount rate | 1.30% | — | % | 1.30 | % | |||||||||||||||||||||||||||||||||
| Expected timing of achievement of development milestones | 2023 to 2027 | — | — | |||||||||||||||||||||||||||||||||||||||||
(1) During the year ended December 31, 2022, we discontinued the development of vixotrigine and as a result we adjusted the fair value of our contingent consideration obligations to zero.
The weighted average discount rates were calculated based on the relative fair value of our contingent consideration obligations. In addition, we apply various probabilities of technological and regulatory success to the valuation models to estimate the fair values of our contingent consideration obligations, which ranged from 10.9% to certain probability as of December 31, 2021.
There were no transfers of assets or liabilities into or out of Level 3 as of December 31, 2022 and 2021.
F-33
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contingent Consideration Obligations
In connection with our acquisitions of Convergence and BIN, we agreed to make additional payments based upon the achievement of certain milestone events. The following table provides a roll forward of the fair values of our contingent consideration obligations, which are classified as Level 3 measurements:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Fair value, beginning of year | $ | 209.1 | $ | 259.8 | ||||||||||
| Changes in fair value | (209.1) | (50.7) | ||||||||||||
| Fair value, end of year | $ | — | $ | 209.1 |
As of December 31, 2021, approximately $209.1 million of the fair value of our total contingent consideration obligations was reflected as a component of other long-term liabilities in our consolidated balance sheets. Changes in the fair values of our contingent consideration obligations are recorded in (gain) loss on fair value remeasurement of contingent consideration in our consolidated statements of income.
For the year ended December 31, 2022, the changes in fair value of our contingent consideration obligations were primarily due to the discontinuation of further development efforts related to vixotrigine for the potential treatment of TGN and DPN, resulting in a reduction of our contingent consideration obligations of approximately $195.4 million, and changes in the interest rates used to revalue our contingent consideration liabilities.
For the year ended December 31, 2021, the changes in fair value of our contingent consideration obligations were primarily due to reductions in the probability of technical and regulatory success and delays in the expected timing of the achievement of certain remaining developmental milestones related to our vixotrigine programs.
The fair values of the contingent consideration liabilities were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value measurements and inputs. For additional information on the valuation techniques and inputs utilized in the valuation of our financial assets and liabilities, please read Note 1, Summary of Significant Accounting Policies, to these consolidated financial statements.
Convergence Pharmaceuticals Holdings Limited
In connection with our acquisition of Convergence in February 2015 we recorded a contingent consideration obligation of $274.5 million. As of December 31, 2021, the fair value of this contingent consideration obligation was $209.1 million. During the fourth quarter of 2022 we discontinued further development of vixotrigine based on regulatory, development and commercialization challenges. As a result, the fair value of the contingent consideration obligations related to Convergence has been adjusted to zero, resulting in a pre-tax gain of approximately $209.1 million for the year ended December 31, 2022. This pre-tax gain was recorded in (gain) loss on fair value remeasurement of contingent consideration within our consolidated statements of income.
Biogen International Neuroscience GmbH
In connection with our acquisition of BIN in December 2010 we recorded a contingent consideration obligation of $81.2 million. We discontinued further development of BIIB054 for the potential treatment of Parkinson's disease based on the results of a Phase 2 study of BIIB054. Additionally, during the third and fourth quarters of 2020 we discontinued other programs related to our acquisition of BIN for which we had immaterial contingent consideration obligations. As a result, the fair value of the contingent consideration obligations related to our acquisition of BIN was adjusted to zero, resulting in a gain of $101.5 million for the year ended December 31, 2020. This pre-tax gain was recorded in (gain) loss on fair value remeasurement of contingent consideration within our consolidated statements of income.
Nonrecurring Fair Value Measurements
For the year ended December 31, 2022, we recorded impairment charges of $119.6 million related to vixotrigine. As a result, the remaining book values associated with these programs were reduced to zero. For the year ended December 31, 2021, we recorded impairment charges of $365.0 million related to BIIB111 and $220.0 million related to BIIB112. As a result, the remaining book values associated with these programs were reduced to zero.
F-34
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For additional information on our impairments for intangible assets, please read Note 7, Intangible Assets and Goodwill, to these consolidated financial statements.
Financial Instruments Not Carried at Fair Value
Other Financial Instruments
Due to the short-term nature of certain financial instruments, the carrying value reflected in our consolidated balance sheets for current accounts receivable, due from anti-CD20 therapeutic programs, other current assets, accounts payable and accrued expense and other, approximates fair value.
Debt Instruments
The fair values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
| Fair Value As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| 3.625% Senior Notes due September 15, 2022(1) | $ | — | $ | 1,020.0 | ||||||||||
| 4.050% Senior Notes due September 15, 2025 | 1,699.9 | 1,895.2 | ||||||||||||
| 2.250% Senior Notes due May 1, 2030 | 1,219.0 | 1,475.9 | ||||||||||||
| 5.200% Senior Notes due September 15, 2045 | 1,033.2 | 1,463.0 | ||||||||||||
| 3.150% Senior Notes due May 1, 2050 | 989.0 | 1,457.7 | ||||||||||||
| 3.250% Senior Notes due February 15, 2051 | 469.1 | 692.9 | ||||||||||||
| Total | $ | 5,410.2 | $ | 8,004.7 |
(1) In July 2022 we redeemed our 3.625% Senior Notes due September 15, 2022 in full. For additional information on the redemption, please read Note 13, Indebtedness, to these consolidated financial statements.
The fair values of each of our series of Senior Notes were determined through market, observable and corroborated sources. The changes in the fair values of our Senior Notes as of December 31, 2022, compared to 2021, are primarily related to increases in U.S. treasury yields used to value our Senior Notes since December 31, 2021. For additional information related to our Senior Notes, please read Note 13, Indebtedness, to these consolidated financial statements.
| Note 9: | Financial Instruments |
The following table summarizes our financial assets with maturities of less than three months from the date of purchase included in cash and cash equivalents in our consolidated balance sheets:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Commercial paper | $ | 177.2 | $ | 247.6 | ||||||||||
| Overnight reverse repurchase agreements | 59.0 | 200.0 | ||||||||||||
| Money market funds | 2,581.5 | 901.6 | ||||||||||||
| Short-term debt securities | 29.9 | 283.0 | ||||||||||||
| Total | $ | 2,847.6 | $ | 1,632.2 |
The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, money market funds and short-term debt securities approximate fair value due to their short-term maturities.
F-35
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our marketable equity securities gains (losses) are recorded in other (income) expense, net in our consolidated statements of income. The following tables summarize our marketable debt and equity securities, classified as available for sale:
| As of December 31, 2022 | ||||||||||||||||||||||||||
| (In millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| Marketable debt securities: | ||||||||||||||||||||||||||
| Corporate debt securities: | ||||||||||||||||||||||||||
| Current | $ | 936.2 | $ | — | $ | (4.9) | $ | 931.3 | ||||||||||||||||||
| Non-current | 305.3 | 0.1 | (5.1) | 300.3 | ||||||||||||||||||||||
| Government securities: | ||||||||||||||||||||||||||
| Current | 547.1 | 0.1 | (5.0) | 542.2 | ||||||||||||||||||||||
| Non-current | 271.4 | — | (3.3) | 268.1 | ||||||||||||||||||||||
| Mortgage and other asset backed securities: | ||||||||||||||||||||||||||
| Current | — | — | — | — | ||||||||||||||||||||||
| Non-current | 139.1 | 0.1 | (1.9) | 137.3 | ||||||||||||||||||||||
| Total marketable debt securities | $ | 2,199.1 | $ | 0.3 | $ | (20.2) | $ | 2,179.2 | ||||||||||||||||||
| Marketable equity securities: | ||||||||||||||||||||||||||
| Marketable equity securities, current | $ | 1,133.8 | $ | — | $ | (342.7) | $ | 791.1 | ||||||||||||||||||
| Total marketable equity securities | $ | 1,133.8 | $ | — | $ | (342.7) | $ | 791.1 |
| As of December 31, 2021 | ||||||||||||||||||||||||||
| (In millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| Marketable debt securities: | ||||||||||||||||||||||||||
| Corporate debt securities: | ||||||||||||||||||||||||||
| Current | $ | 723.6 | $ | 0.1 | $ | (0.3) | $ | 723.4 | ||||||||||||||||||
| Non-current | 385.4 | 0.2 | (0.8) | 384.8 | ||||||||||||||||||||||
| Government securities: | ||||||||||||||||||||||||||
| Current | 817.0 | — | (0.4) | 816.6 | ||||||||||||||||||||||
| Non-current | 377.0 | 0.1 | (1.0) | 376.1 | ||||||||||||||||||||||
| Mortgage and other asset backed securities: | ||||||||||||||||||||||||||
| Current | 1.1 | — | — | 1.1 | ||||||||||||||||||||||
| Non-current | 131.8 | — | (0.7) | 131.1 | ||||||||||||||||||||||
| Total marketable debt securities | $ | 2,435.9 | $ | 0.4 | $ | (3.2) | $ | 2,433.1 | ||||||||||||||||||
| Marketable equity securities: | ||||||||||||||||||||||||||
| Marketable equity securities, current | $ | 33.9 | $ | 9.9 | $ | — | $ | 43.8 | ||||||||||||||||||
| Marketable equity securities, non-current | 1,133.1 | 151.0 | (279.4) | 1,004.7 | ||||||||||||||||||||||
| Total marketable equity securities | $ | 1,167.0 | $ | 160.9 | $ | (279.4) | $ | 1,048.5 |
F-36
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Summary of Contractual Maturities: Available-for-Sale Debt Securities
The estimated fair value and amortized cost of our marketable debt securities classified as available-for-sale by contractual maturity are summarized as follows:
| As of December 31, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| (In millions) | Estimated Fair Value | Amortized Cost | Estimated Fair Value | Amortized Cost | ||||||||||||||||||||||
| Due in one year or less | $ | 1,473.5 | $ | 1,483.3 | $ | 1,541.1 | $ | 1,541.7 | ||||||||||||||||||
| Due after one year through five years | 694.4 | 703.7 | 868.2 | 870.2 | ||||||||||||||||||||||
| Due after five years | 11.3 | 12.1 | 23.8 | 24.0 | ||||||||||||||||||||||
| Total marketable debt securities | $ | 2,179.2 | $ | 2,199.1 | $ | 2,433.1 | $ | 2,435.9 |
The average maturity of our marketable debt securities classified as available-for-sale as of December 31, 2022 and 2021, was approximately 8 months and 10 months, respectively.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Proceeds from maturities and sales | $ | 3,671.0 | $ | 3,405.4 | $ | 7,299.4 | ||||||||||||||
| Realized gains | — | 0.2 | 17.7 | |||||||||||||||||
| Realized losses | 12.6 | 4.0 | 26.0 |
Realized losses for the year ended December 31, 2022, 2021 and 2020, primarily relate to sales of corporate bonds, agency mortgage-backed securities and other asset-backed securities.
Strategic Investments
As of December 31, 2022, our strategic investment portfolio comprised of investments totaling $846.0 million which are included in investments and other assets in our consolidated balance sheets. As of December 31, 2021, our strategic investment portfolio comprised of investments totaling $1,110.3 million, which are included in other current assets and investments and other assets in our consolidated balance sheets.
Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies, which are reflected within our disclosures included in Note 8, Fair Value Measurements, to these consolidated financial statements, venture capital funds where the underlying investments are in equity securities of certain biotechnology companies and non-marketable equity securities.
The decrease in our strategic investment portfolio for the year ended December 31, 2022, was primarily due to a decrease in the fair value of our investments in Denali and Sangamo common stock.
For additional information on our investments in Denali, Sangamo, Sage and Ionis common stock, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
| Note 10: | Derivative Instruments |
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenue and operating expense are recorded in currencies other than the U.S. dollar. The value of revenue and operating expense measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. We enter into foreign currency forward contracts and foreign currency options with financial institutions with the primary objective to mitigate the impact of foreign currency exchange rate fluctuations on our international revenue and operating expense.
Foreign currency forward contracts and foreign currency options in effect as of December 31, 2022 and 2021, had durations of 1 to 12 months and 1 to 15 months, respectively. These contracts have been designated as cash
F-37
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
flow hedges and unrealized gains and losses on the portion of these foreign currency forward contracts and foreign currency options that are included in the effectiveness test are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the table below). Realized gains and losses of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized and in operating expense when the expense in the currency being hedged is recorded. We recognize all cash flow hedge reclassifications from accumulated other comprehensive income (loss) and fair value changes of excluded portions in the same line item in our consolidated statements of income that have been impacted by the hedged item.
The notional amount of foreign currency forward contracts and foreign currency options that were entered into to hedge forecasted revenue and operating expense is summarized as follows:
| Notional Amount As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Euro | $ | 1,495.5 | $ | 1,828.0 | ||||||||||
| British pound | 162.8 | 166.2 | ||||||||||||
| Japanese yen | — | 72.7 | ||||||||||||
| Canadian dollar | 57.2 | 59.9 | ||||||||||||
| Total foreign currency forward contracts | $ | 1,715.5 | $ | 2,126.8 |
The pre-tax portion of the fair value of these foreign currency forward contracts and foreign currency options that were included in accumulated other comprehensive income (loss) in total equity is summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Unrealized gains | $ | 29.9 | $ | 60.8 | $ | — | ||||||||||||||
| Unrealized (losses) | (21.3) | (7.0) | (212.5) | |||||||||||||||||
| Net unrealized gains (losses) | $ | 8.6 | $ | 53.8 | $ | (212.5) |
We expect the net unrealized gains of approximately $8.6 million to be settled over the next 12 months, with any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue or operating expense. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of December 31, 2022 and 2021, credit risk did not materially change the fair value of our foreign currency forward contracts.
The following table summarizes the effect of foreign currency forward contracts designated as hedging instruments in our consolidated statements of income:
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| Net Gains/(Losses) Reclassified from AOCI into Operating Income (in millions) | Net Gains/(Losses) Recognized in Operating Income (in millions) | |||||||||||||||||||||||||||||||||||||||||||
| Location | 2022 | 2021 | 2020 | Location | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||
| Revenue | $ | 201.6 | $ | (60.0) | $ | 18.3 | Revenue | $ | (8.6) | $ | (8.4) | $ | (9.9) | |||||||||||||||||||||||||||||||
| Operating expense | (5.5) | (0.8) | 3.3 | Operating expense | — | — | — |
Interest Rate Contracts - Hedging Instruments
We have entered into interest rate lock contracts or interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes and to reduce our overall cost of borrowing.
Interest Rate Swap Contracts
In connection with the issuance of our 2.90% Senior Notes due September 15, 2020, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which were originally set to expire on September 15, 2020. The interest rate swap contracts were designated as hedges of the fair value changes in our 2.90% Senior Notes attributable to changes in interest rates. In May 2020 we settled our interest rate swap contracts, in conjunction with our early redemption of our 2.90% Senior Notes, resulting in a gain of approximately $3.3 million, which was recorded as a component of interest expense in our consolidated statements of income during the year ended December 31, 2020.
F-38
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Investment Hedges - Hedging Instruments
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 5.0% 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. Our investment in the equity of Samsung Bioepis related to this transaction was exposed to the currency fluctuations in the South Korean won.
In order to mitigate these currency fluctuations between the U.S. dollar and South Korean won, we entered into foreign currency forward contracts. These contracts were designated as net investment hedges. In April 2022 we completed the sale of our 49.9% equity interest in Samsung Bioepis to Samsung BioLogics and closed these foreign currency forward contracts. Upon completing this sale, the cumulative gains on our net investment hedges of $57.0 million were reclassified from accumulated other comprehensive income (loss) and reflected within the total pre-tax gain recognized from the sale, which was recorded in other (income) expense, net in our consolidated statements of income. For additional information on the sale of our equity interest in Samsung Bioepis please read Note 3, Dispositions, to these consolidated financial statements.
Prior to the sale of our 49.9% equity interest in Samsung Bioepis, we recognized changes in the spot exchange rate of these foreign currency forward contracts in accumulated other comprehensive income (loss). The pre-tax portion of the fair value of these foreign currency forward contracts that were included in accumulated other comprehensive income (loss) in total equity reflected net gains of $10.6 million as of December 31, 2021. We excluded fair value changes related to the forward rate from our hedging relationship and amortized the forward points in other (income) expense, net in our consolidated statements of income over the term of the contract. The pre-tax portion of the fair value of the forward points that were included in accumulated other comprehensive income (loss) in total equity reflected net losses of $3.6 million as of December 31, 2021.
The following table summarizes the effect of our net investment hedges in our consolidated financial statements:
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Gains/(Losses) Recognized in Other Comprehensive Income (Effective Portion) (in millions) | Net Gains/(Losses) Recognized in Other Comprehensive Income (Amounts Excluded from Effectiveness Testing) (in millions) | Net Gains/(Losses) Recognized in Net Income (Amounts Excluded from Effectiveness Testing) (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Location | 2022 | 2021 | 2020 | Location | 2022 | 2021 | 2020 | Location | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gains (losses) on net investment hedge(1) | $ | 20.4 | $ | 46.0 | $ | (35.1) | Gains (losses) on net investment hedge(1) | $ | (3.2) | $ | (3.2) | $ | 4.5 | Other (income) expense(1) | $ | (4.6) | $ | (0.6) | $ | 2.9 |
(1) Beginning in the second quarter of 2022 we no longer held net investment hedges as they were closed with the sale of our 49.9% equity interest in Samsung Bioepis in April 2022. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
Foreign Currency Forward Contracts - Other Derivative Instruments
We also enter into other foreign currency forward contracts, usually with durations of one month or less, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
The aggregate notional amount of these outstanding foreign currency forward contracts was $1,238.8 million and $1,268.0 million as of December 31, 2022 and 2021, respectively. Net losses of $34.7 million, net losses of $43.3 million and net gains of $30.1 million related to these contracts were recorded as a component of other (income) expense, net for the years ended December 31, 2022, 2021 and 2020, respectively.
Summary of Derivative Instruments
While certain of our derivative instruments are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our consolidated balance sheets. The amounts in the table below would not be substantially different if the derivative assets and liabilities were offset.
F-39
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the fair value and presentation in our consolidated balance sheets of our outstanding derivative instruments, including those designated as hedging instruments:
| As of December 31, | ||||||||||||||||||||
| (In millions) | Balance Sheet Location | 2022 | 2021 | |||||||||||||||||
| Cash Flow Hedging Instruments: | ||||||||||||||||||||
| Asset derivative instruments | Other current assets | $ | 37.9 | $ | 66.2 | |||||||||||||||
| Investments and other assets | — | 5.5 | ||||||||||||||||||
| Liability derivative instruments | Accrued expense and other | 18.4 | 6.6 | |||||||||||||||||
| Net Investment Hedging Instruments:**(1) | ||||||||||||||||||||
| Asset derivative instruments | Other current assets | — | 4.1 | |||||||||||||||||
| Other Derivative Instruments: | ||||||||||||||||||||
| Asset derivative instruments | Other current assets | 25.1 | 5.1 | |||||||||||||||||
| Liability derivative instruments | Accrued expense and other | 7.6 | 4.2 |
(1) Beginning in the second quarter of 2022 we no longer held net investment hedges as they were closed with the sale of our 49.9% equity interest in Samsung Bioepis in April 2022. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
| Note 11: | Property, Plant and Equipment |
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Components of property, plant and equipment, net are summarized as follows:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Land | $ | 202.4 | $ | 207.5 | ||||||||||
| Buildings | 1,592.9 | 1,699.7 | ||||||||||||
| Leasehold improvements | 107.7 | 121.0 | ||||||||||||
| Machinery and equipment | 1,611.5 | 1,585.5 | ||||||||||||
| Computer software and hardware | 999.9 | 971.6 | ||||||||||||
| Furniture and fixtures | 61.1 | 67.4 | ||||||||||||
| Construction in progress | 888.8 | 770.3 | ||||||||||||
| Total cost | 5,464.3 | 5,423.0 | ||||||||||||
| Less: accumulated depreciation | (2,165.7) | (2,006.6) | ||||||||||||
| Total property, plant and equipment, net | $ | 3,298.6 | $ | 3,416.4 |
Depreciation expense totaled $272.4 million, $235.3 million and $201.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.
For the years ended December 31, 2022, 2021 and 2020, we capitalized interest costs related to construction in progress totaling approximately $17.1 million, $36.3 million and $65.2 million, respectively.
Solothurn, Switzerland Manufacturing Facility
In order to support our future growth and drug development pipeline, we are building a large-scale biologics manufacturing facility in Solothurn, Switzerland. Upon completion, this facility will include 393,000 square feet related to a large-scale biologics manufacturing facility, 290,000 square feet of warehouse, utilities and support space and 51,000 square feet of administrative space. As of December 31, 2022 and 2021, we had approximately $711.1 million and $677.0 million, respectively, capitalized as construction in progress related to this facility. In the second quarter of 2021 a portion of the facility received a Good Manufacturing Practice multi-product license from the Swiss Agency for Therapeutic Products, resulting in approximately $1.2 billion of fixed assets being placed in service during the second quarter of 2021. Solothurn has been approved for the manufacture of ADUHELM and
F-40
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
LEQEMBI by the FDA. We estimate the second manufacturing suite at the Solothurn facility will be operational by the end of 2023.
125 Broadway Building Sale
In September 2022 we completed the sale of our building and land parcel located at 125 Broadway for an aggregate sales price of approximately $603.0 million, which is inclusive of a $10.8 million tenant allowance. This sale resulted in a pre-tax gain on sale of approximately $503.7 million, net of transaction costs, which is reflected within gain on sale of building in our consolidated statements of income for the year ended December 31, 2022. This transaction included approximately $79.2 million of property, plant and equipment, net, which comprised of approximately $72.6 million for buildings, approximately $1.6 million for land and approximately $5.0 million for machinery and equipment.
| Note 12: | Leases |
We lease real estate, including laboratory and office space, and certain equipment.
Our leases have remaining lease terms ranging from less than one year to eight years. Certain leases include one or more options to renew, exercised at our sole discretion, with renewal terms that can extend the lease term from one year to six years.
In addition, we sublease certain real estate to third parties. Our sublease portfolio consists of operating leases, with remaining lease terms ranging from two years to six years. Our subleases do not include an option to renew as they are coterminous with our operating leases.
All of our leases qualify as operating leases. The following table summarizes the presentation in our consolidated balance sheets of our operating leases:
| As of December 31, | |||||||||||||||||
| (In millions) | Balance sheet location | 2022 | 2021 | ||||||||||||||
| Assets: | |||||||||||||||||
| Operating lease assets | Operating lease assets | $ | 403.9 | $ | 375.4 | ||||||||||||
| Liabilities | |||||||||||||||||
| Current operating lease liabilities | Accrued expense and other | $ | 97.2 | $ | 89.1 | ||||||||||||
| Non-current operating lease liabilities | Long-term operating lease liabilities | 333.0 | 330.4 | ||||||||||||||
| Total operating lease liabilities | $ | 430.2 | $ | 419.5 |
The following table summarizes the effect of lease costs in our consolidated statements of income:
| For the Years Ended December 31, | ||||||||||||||||||||||||||
| (In millions) | Income Statement Location | 2022 | 2021 | 2020 | ||||||||||||||||||||||
| Operating lease cost | Research and development | $ | 2.0 | $ | 3.4 | $ | 5.2 | |||||||||||||||||||
| Selling, general and administrative | 95.9 | 95.9 | 93.1 | |||||||||||||||||||||||
| Variable lease cost | Research and development | 0.4 | 0.8 | 1.1 | ||||||||||||||||||||||
| Selling, general and administrative | 25.4 | 25.7 | 21.1 | |||||||||||||||||||||||
| Sublease income | Selling, general and administrative | (24.0) | (23.9) | (24.2) | ||||||||||||||||||||||
| Other (income) expense, net | (4.1) | (4.0) | (3.9) | |||||||||||||||||||||||
| Net lease cost | $ | 95.6 | $ | 97.9 | $ | 92.4 |
F-41
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Variable lease cost primarily related to operating expense, taxes and insurance associated with our operating leases. As these costs are generally variable in nature, they are not included in the measurement of the operating lease asset and related lease liability.
The minimum lease payments for the next five years and thereafter is expected to be as follows:
| (In millions) | As of December 31, 2022 | |||||||
| 2023 | $ | 111.0 | ||||||
| 2024 | 107.0 | |||||||
| 2025 | 80.5 | |||||||
| 2026 | 65.7 | |||||||
| 2027 | 69.5 | |||||||
| Thereafter | 36.6 | |||||||
| Total lease payments | $ | 470.3 | ||||||
| Less: interest | 40.1 | |||||||
| Present value of operating lease liabilities | $ | 430.2 |
The weighted average remaining lease term and weighted average discount rate of our operating leases are as follows:
| As of December 31, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||
| Weighted average remaining lease term in years | 4.64 | 5.43 | ||||||||||||||||||
| Weighted average discount rate | 3.7 | % | 2.9 | % |
Supplemental disclosure of cash flow information related to our operating leases included in cash flow provided by operating activities in our consolidated statements of cash flow is as follows:
| As of December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 107.4 | $ | 105.8 | $ | 100.2 | ||||||||||||||
| Operating lease assets obtained in exchange for lease obligations | 108.3 | 18.1 | 59.0 |
125 Broadway Building Sale and Leaseback Transaction
In connection with the sale of our building at 125 Broadway, we simultaneously leased back the building for a term of approximately 5.5 years, which resulted in the recognition of approximately $168.2 million in new lease liabilities and right-of-use assets recorded within our consolidated balance sheets as of December 31, 2022. The sale and immediate leaseback of this building qualified for sale and leaseback treatment and is classified as an operating lease. For additional information on the sale of our building, please read Note 11, Property, Plant and Equipment, to these consolidated financial statements.
300 Binney Street Lease Modification
In September 2022 we entered into an agreement to partially terminate a portion of our lease located at 300 Binney Street, Cambridge MA, as well as to reduce the lease term for the majority of the remaining space. The agreement was driven by our 2022 efforts to reduce costs by consolidating real estate locations. The transaction was treated as a lease modification as of the effective date and resulted in the derecognition of right of use assets of approximately $47.4 million and lease liabilities of approximately $52.7 million, which resulted in a gain of approximately $5.3 million, which was recorded within restructuring charges in our consolidated statements of income for the year ended December 31, 2022.
F-42
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 13: | Indebtedness |
Our indebtedness is summarized as follows:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Current portion: | ||||||||||||||
| 3.625% Senior Notes due September 15, 2022(1) | $ | — | $ | 999.1 | ||||||||||
| Current portion of notes payable | $ | — | $ | 999.1 | ||||||||||
| Non-current portion: | ||||||||||||||
| 4.050% Senior Notes due September 15, 2025 | $ | 1,744.7 | $ | 1,742.9 | ||||||||||
| 2.250% Senior Notes due May 1, 2030 | 1,492.9 | 1,492.0 | ||||||||||||
| 5.200% Senior Notes due September 15, 2045 | 1,100.3 | 1,099.9 | ||||||||||||
| 3.150% Senior Notes due May 1, 2050 | 1,473.8 | 1,473.2 | ||||||||||||
| 3.250% Senior Notes due February 15, 2051 | 469.3 | 466.0 | ||||||||||||
| Non-current portion of notes payable | $ | 6,281.0 | $ | 6,274.0 |
(1) Our 3.625% Senior Notes due September 15, 2022, were redeemed in full in July 2022.
Exchange Offer
In February 2021 we completed our private offer to exchange (Exchange Offer) our tendered 5.200% Senior Notes due September 15, 2045 (2045 Senior Notes) for a new series of 3.250% Senior Notes due February 15, 2051 (2051 Senior Notes) and cash, and an offer to purchase our tendered 2045 Senior Notes for cash.
An aggregate principal amount of approximately $624.6 million of our 2045 Senior Notes was exchanged for an aggregate principal amount of approximately $700.7 million of our 2051 Senior Notes and aggregate cash payments of approximately $151.8 million. Our Exchange Offer has been accounted for as a debt modification; as such, the cash component has been reflected as additional debt discount and is amortized as an adjustment to interest expense over the term of our 2051 Senior Notes.
In addition, we redeemed an aggregate principal amount of approximately $8.9 million of our 2045 Senior Notes for aggregate cash payments of approximately $12.1 million, excluding accrued and unpaid interest. The redemption has been accounted for as a debt extinguishment; as such, we recognized a pre-tax charge of $3.2 million upon the extinguishment of such 2045 Senior Notes. This charge, which was recognized in interest expense in other (income) expense, net in our consolidated statements of income for the year ended December 31, 2021, reflects the payment of an early call premium and the write-off of the remaining unamortized original debt issuance costs and discount balances associated with such 2045 Senior Notes.
Upon settlement, we also made aggregate cash payments of approximately $13.8 million to settle all accrued and unpaid interest from the last interest payment date on our 2045 Senior Notes that were exchanged or redeemed. We incurred approximately $6.1 million of costs associated with our Exchange Offer, which was recognized in interest expense in other (income) expense, net in our consolidated statements of income for the year ended December 31, 2021.
F-43
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2020 Senior Notes
On April 30, 2020, we issued senior unsecured notes for an aggregate principal amount of $3.0 billion (2020 Senior Notes), consisting of the following:
-
$1.5 billion aggregate principal amount of 2.25% Senior Notes due May 1, 2030, valued at 99.973% of par; and
-
$1.5 billion aggregate principal amount of 3.15% Senior Notes due May 1, 2050, valued at 99.174% of par.
Our 2020 Senior Notes are senior unsecured obligations and may be redeemed at our option at any time at 100.0% of the principal amount plus accrued interest and, until a specified period before maturity, a specified make-whole amount. Our 2020 Senior Notes contain a change-of-control provision that, under certain circumstances, may require us to purchase our 2020 Senior Notes at a price equal to 101.0% of the principal amount plus accrued and unpaid interest to the date of repurchase.
We incurred approximately $24.4 million of costs associated with this offering, which have been recorded as a reduction to the carrying amount of the debt on our consolidated balance sheet. These costs will be amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. The discounts will be amortized as additional interest expense over the period from issuance through maturity using the effective interest rate method. Interest on our 2020 Senior Notes is payable May 1 and November 1 of each year, commencing November 1, 2020.
2015 Senior Notes
The following is a summary of our currently outstanding senior unsecured notes issued in 2015 (the 2015 Senior Notes), consisting of the following:
-
$1.75 billion aggregate principal amount of 4.05% Senior Notes due September 15, 2025, valued at 99.764% of par; and
-
$1.12 billion aggregate principal amount of 5.20% Senior Notes due September 15, 2045, valued at 99.294% of par.
The original costs associated with this offering of approximately $47.5 million have been recorded as a reduction to the carrying amount of the debt in our consolidated balance sheets. These costs along with the discounts will be amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity.
Our 2015 Senior Notes are senior unsecured obligations and may be redeemed at our option at any time at 100.0% of the principal amount plus accrued interest and a specified make-whole amount. Our 2015 Senior Notes contain a change of control provision that may require us to purchase the notes at a price equal to 101.0% of the principal amount plus accrued and unpaid interest to the date of purchase under certain circumstances.
On September 15, 2015, we issued $1.5 billion aggregate principal amount of 2.90% Senior Notes due September 15, 2020, at 99.792% of par. Our 2.90% Senior Notes were senior unsecured obligations. In connection with the 2.90% Senior Notes, we entered into interest rate swap contracts where we received a fixed rate and paid a variable rate. In May 2020 we used the net proceeds from the sale of our 2020 Senior Notes to redeem our 2.90% Senior Notes prior to their maturity and recognized a net pre-tax charge of $9.4 million upon the extinguishment of these notes. This charge, which was recognized in interest expense in other (income) expense, net in our consolidated statements of income for the year ended December 31, 2020, reflects the payment of a $12.7 million early call premium and the write off of remaining unamortized original debt issuance costs and discount balances, partially offset by a $3.3 million gain related to the settlement of the associated interest rate swap contracts. For additional information on our interest rate contracts, please read Note 10, Derivative Instruments, to these consolidated financial statements.
3.625% Senior Notes due September 15, 2022
On September 15, 2015, we issued $1.0 billion aggregate principal amount of our 3.625% Senior Notes due September 15, 2022, at 99.920% of par. Our 3.625% Senior Notes were senior unsecured obligations. In July 2022 we redeemed our 3.625% Senior Notes prior to their maturity and recognized a net pre-tax charge of approximately $2.4 million upon the extinguishment of these Senior Notes, which primarily reflects the payment of an early call premium as well as the write-off of remaining unamortized original debt issuance costs and discount balances.
F-44
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
These charges were recognized as interest expense in other (income) expense, net in our consolidated statements of income for the year ended December 31, 2022.
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 that we entered into in August 2015. As of December 31, 2022, we had no outstanding borrowings and were in compliance with all covenants under this facility.
Debt Maturity
The total gross payments due under our debt arrangements are as follows:
| (In millions) | As of December 31, 2022 | |||||||
| 2023 | $ | — | ||||||
| 2024 | — | |||||||
| 2025 | 1,750.0 | |||||||
| 2026 | — | |||||||
| 2027 | — | |||||||
| 2028 and thereafter | 4,817.3 | |||||||
| Total debt | $ | 6,567.3 | ||||||
| Less: debt discount and issuance fees | (286.3) | |||||||
| Total long-term debt | $ | 6,281.0 |
The fair value of our debt is disclosed in Note 8, Fair Value Measurements, to these consolidated financial statements.
| Note 14: | Equity |
Preferred Stock
We have 8.0 million shares of Preferred Stock authorized, of which 1.75 million shares are authorized as Series A, 1.0 million shares are authorized as Series X junior participating and 5.25 million shares are undesignated. Shares may be issued without a vote or action of shareholders from time to time in classes or series with the designations, powers, preferences and the relative, participating, optional or other special rights of the shares of each such class or series and any qualifications, limitations or restrictions thereon as set forth in the instruments governing such shares. Any such Preferred Stock may rank prior to common stock as to dividend rights, liquidation preference or both, and may have full or limited voting rights and may be convertible into shares of common stock. No shares of Preferred Stock were issued and outstanding during 2022, 2021 and 2020.
Common Stock
The following table describes the number of shares authorized, issued and outstanding of our common stock as of December 31, 2022, 2021 and 2020:
| As of December 31, 2022 | As of December 31, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Authorized | Issued | Outstanding | Authorized | Issued | Outstanding | Authorized | Issued | Outstanding | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock | 1,000.0 | 167.9 | 144.0 | 1,000.0 | 170.8 | 147.0 | 1,000.0 | 176.2 | 152.4 |
Share Repurchases
In October 2020 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2020 Share Repurchase Program). Our 2020 Share Repurchase Program does not have an expiration date. All share repurchases under our 2020 Share Repurchase Program will be retired. Under our 2020 Share Repurchase Program, we repurchased and retired approximately 3.6 million, 6.0 million and 1.6 million shares of our common stock at a cost of approximately $750.0 million, $1.8 billion and $400.0 million during the years ended December
F-45
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
31, 2022, 2021 and 2020, respectively. Approximately $2.1 billion remained available under our 2020 Share Repurchase Program as of December 31, 2022.
In December 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (December 2019 Share Repurchase Program), which was completed as of September 30, 2020. All shares repurchased under our December 2019 Share Repurchase Program were retired. Under our December 2019 Share Repurchase Program, we repurchased and retired approximately 16.7 million shares of our common stock at a cost of approximately $5.0 billion during the year ended December 31, 2020.
In March 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (March 2019 Share Repurchase Program), which was completed as of March 31, 2020. All shares repurchased under our March 2019 Share Repurchase Program were retired. Under our March 2019 Share Repurchase Program, we repurchased and retired approximately 4.1 million shares of our common stock at a cost of approximately $1.3 billion during the year ended December 31, 2020.
In August 2022 the Inflation Reduction Act of 2022 (the IRA) was signed into law. Among other things, the IRA levies a 1.0% excise tax on net stock repurchases after December 31, 2022. Historically, we have made discretionary share repurchases.
Amounts paid to repurchase shares in excess of their par value are allocated between additional paid-in capital and retained earnings, with payments in excess of our additional paid-in-capital balance recorded as a reduction to retained earnings.
Accumulated Other Comprehensive Income (Loss)
The following tables summarize the changes in accumulated other comprehensive income (loss), net of tax by component:
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| (In millions) | Unrealized Gains (Losses) on Securities Available for Sale, Net of Tax | Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax | Gains (Losses) on Net Investment Hedges, Net of Tax**(1)** | Unrealized Gains (Losses) on Pension Benefit Obligation, Net of Tax | Currency Translation Adjustments | Total | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | (2.2) | $ | 53.8 | $ | 25.5 | $ | (44.8) | $ | (139.0) | $ | (106.7) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (23.5) | 137.3 | 12.6 | 43.7 | (83.1) | 87.0 | ||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 10.0 | (176.0) | (38.1) | — | 58.9 | (145.2) | ||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | (13.5) | (38.7) | (25.5) | 43.7 | (24.2) | (58.2) | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | (15.7) | $ | 15.1 | $ | — | $ | (1.1) | $ | (163.2) | $ | (164.9) |
(1) Beginning in the second quarter of 2022 we no longer held net investment hedges as they were closed with the sale of our 49.9% equity interest in Samsung Bioepis in April 2022. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| (In millions) | Unrealized Gains (Losses) on Securities Available for Sale, Net of Tax | Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax | Gains (Losses) on Net Investment Hedges, Net of Tax | Unrealized Gains (Losses) on Pension Benefit Obligation, Net of Tax | Currency Translation Adjustments | Total | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 1.4 | $ | (179.0) | $ | (8.5) | $ | (66.3) | $ | (46.6) | $ | (299.0) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (6.6) | 178.2 | 33.4 | 21.5 | (92.4) | 134.1 | ||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 3.0 | 54.6 | 0.6 | — | — | 58.2 | ||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | (3.6) | 232.8 | 34.0 | 21.5 | (92.4) | 192.3 | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | (2.2) | $ | 53.8 | $ | 25.5 | $ | (44.8) | $ | (139.0) | $ | (106.7) |
F-46
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| (In millions) | Unrealized Gains (Losses) on Securities Available for Sale, Net of Tax | Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax | Gains (Losses) on Net Investment Hedges, Net of Tax | Unrealized Gains (Losses) on Pension Benefit Obligation, Net of Tax | Currency Translation Adjustments | Total | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 4.2 | $ | 7.8 | $ | 25.1 | $ | (32.8) | $ | (139.5) | $ | (135.2) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (9.3) | (165.0) | (30.7) | (33.5) | 92.9 | (145.6) | ||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 6.5 | (21.8) | (2.9) | — | — | (18.2) | ||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | (2.8) | (186.8) | (33.6) | (33.5) | 92.9 | (163.8) | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 1.4 | $ | (179.0) | $ | (8.5) | $ | (66.3) | $ | (46.6) | $ | (299.0) |
The following table summarizes the amounts reclassified from accumulated other comprehensive income (loss):
| (In millions) | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | Income Statement Location | ||||||||||||||||||||||||
| For the Years Ended December 31, | ||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||
| Gains (losses) on securities available for sale | $ | (12.6) | $ | (3.8) | $ | (8.2) | Other (income) expense | |||||||||||||||||||
| 2.6 | 0.8 | 1.7 | Income tax (benefit) expense | |||||||||||||||||||||||
| Gains (losses) on cash flow hedges | 201.6 | (60.0) | 18.3 | Revenue | ||||||||||||||||||||||
| (5.5) | (0.8) | 3.3 | Operating expense | |||||||||||||||||||||||
| (0.3) | 0.2 | 0.3 | Other (income) expense | |||||||||||||||||||||||
| (19.8) | 6.0 | (0.1) | Income tax (benefit) expense | |||||||||||||||||||||||
| Gains (losses) on net investment hedges(1) | 38.1 | (0.6) | 2.9 | Other (income) expense | ||||||||||||||||||||||
| Currency Translation Adjustments | (58.9) | — | — | Other (income) expense | ||||||||||||||||||||||
| Total reclassifications, net of tax | $ | 145.2 | $ | (58.2) | $ | 18.2 |
(1) Beginning in the second quarter of 2022 we no longer held net investment hedges as they were closed with the sale of our 49.9% equity interest in Samsung Bioepis in April 2022. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
| Note 15: | Earnings per Share |
Basic and diluted shares outstanding used in our earnings per share calculation are calculated as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Numerator: | ||||||||||||||||||||
| Net income attributable to Biogen Inc. | $ | 3,046.9 | $ | 1,556.1 | $ | 4,000.6 | ||||||||||||||
| Denominator: | ||||||||||||||||||||
| Weighted average number of common shares outstanding | 145.3 | 149.1 | 160.9 | |||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||
| Time-vested restricted stock units | 0.5 | 0.3 | 0.2 | |||||||||||||||||
| Market stock units | 0.1 | 0.1 | 0.1 | |||||||||||||||||
| Performance stock units settled in stock | 0.1 | 0.1 | 0.1 | |||||||||||||||||
| Dilutive potential common shares | 0.7 | 0.5 | 0.4 | |||||||||||||||||
| Shares used in calculating diluted earnings per share | 146.0 | 149.6 | 161.3 |
Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were insignificant.
F-47
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnings per share for the years ended December 31, 2022, 2021 and 2020, reflects the repurchase of approximately 3.6 million shares, 6.0 million shares and 22.4 million shares of our common stock, respectively, under our share repurchase programs. For additional information on our share repurchase programs, please read Note 14, Equity, to these consolidated financial statements.
| Note 16: | Share-Based Payments |
Share-Based Compensation Expense
The following table summarizes share-based compensation expense included in our consolidated statements of income:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Research and development | $ | 98.5 | $ | 89.3 | $ | 80.0 | ||||||||||||||
| Selling, general and administrative | 175.1 | 169.5 | 131.3 | |||||||||||||||||
| Subtotal | 273.6 | 258.8 | 211.3 | |||||||||||||||||
| Capitalized share-based compensation costs | (9.3) | (8.0) | (6.2) | |||||||||||||||||
| Share-based compensation expense included in total cost and expense | 264.3 | 250.8 | 205.1 | |||||||||||||||||
| Income tax effect | (49.2) | (46.7) | (33.5) | |||||||||||||||||
| Share-based compensation expense included in net income attributable to Biogen Inc. | $ | 215.1 | $ | 204.1 | $ | 171.6 |
The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Market stock units | $ | 13.2 | $ | 45.6 | $ | 40.5 | ||||||||||||||
| Time-vested restricted stock units | 202.3 | 159.8 | 142.6 | |||||||||||||||||
| Cash settled performance units | — | — | (1.7) | |||||||||||||||||
| Performance units | — | — | (0.1) | |||||||||||||||||
| Performance stock units settled in stock | 35.0 | 23.9 | 7.9 | |||||||||||||||||
| Performance stock units settled in cash | 10.1 | 12.2 | 8.6 | |||||||||||||||||
| Employee stock purchase plan | 12.7 | 17.3 | 13.5 | |||||||||||||||||
| Stock options | 0.3 | — | — | |||||||||||||||||
| Subtotal | 273.6 | 258.8 | 211.3 | |||||||||||||||||
| Capitalized share-based compensation costs | (9.3) | (8.0) | (6.2) | |||||||||||||||||
| Share-based compensation expense included in total cost and expense | $ | 264.3 | $ | 250.8 | $ | 205.1 |
As of December 31, 2022, unrecognized compensation cost related to unvested share-based compensation was approximately $290.5 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 2.0 years.
Share-Based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (i) the Biogen Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (ii) the Biogen Inc. 2017 Omnibus Equity Plan (2017 Omnibus Equity Plan); and (iii) the Biogen Inc. 2015 Employee Stock Purchase Plan (2015 ESPP).
Directors Plan
In May 2006 our shareholders approved the 2006 Directors Plan for share-based awards to our directors. Awards granted from the 2006 Directors Plan may include stock options, shares of restricted stock, RSUs, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by
F-48
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
a committee of our Board of Directors, subject to the provisions of the 2006 Directors Plan. We have reserved a total of 1.6 million shares of common stock for issuance under the 2006 Directors Plan. The 2006 Directors Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares reserved under the plan in a 1.5-to-1 ratio. In June 2015 our shareholders approved an amendment to extend the term of the 2006 Directors Plan until June 2025.
Omnibus Plan
In June 2017 our shareholders approved the 2017 Omnibus Equity Plan for share-based awards to our employees. Awards granted from the 2017 Omnibus Equity Plan may include stock options, shares of restricted stock, RSUs, performance shares, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the 2017 Omnibus Equity Plan. Shares of common stock available for grant under the 2017 Omnibus Equity Plan consist of 8.0 million shares reserved for this purpose, plus shares of common stock that remained available for grant under the Biogen Idec Inc. 2008 Omnibus Equity Plan (2008 Omnibus Equity Plan) as of June 7, 2017, or that could again become available for grant if outstanding awards under the 2008 Omnibus Equity Plan as of June 7, 2017, are cancelled, surrendered or terminated in whole or in part. The 2017 Omnibus Equity Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares available under the plan in a 1.5-to-1 ratio.
We have not made any awards pursuant to the 2008 Omnibus Equity Plan since our shareholders approved the 2017 Omnibus Equity Plan, and do not intend to make any awards pursuant to the 2008 Omnibus Equity Plan in the future, except that unused shares under the 2008 Omnibus Equity Plan have been carried over for use under the 2017 Omnibus Equity Plan.
Stock Options
During the year ended December 31, 2022, we granted approximately 81,000 stock options to our Chief Executive Officer (CEO) (2022 CEO Grant) under the 2017 Omnibus Plan with a grant date fair value of $139.10 per option for a total of approximately $11.2 million. The fair values of our stock option grants are estimated as of the date of grant using a Black-Scholes option valuation model. The estimated fair values of the stock options are then expensed over the options' vesting periods. The 2022 CEO Grant is eligible to vest in equal annual installments over a three-year period from the grant date, subject to the CEO’s continued employment. The outstanding stock options have a 10-year term and are exercisable at a price per share not less than the fair market value of the underlying common stock on the date of grant.
The total intrinsic value related to the remaining stock options previously granted in 2010 that were exercised in 2020 totaled $2.9 million.
The following table summarizes the amount of tax benefit realized for stock options and cash received from the exercise of the remaining stock options previously granted in 2010:
| For the year ended December 31, | ||||||||
| (In millions) | 2020 | |||||||
| Tax benefit realized for stock options | $ | 2.9 | ||||||
| Cash received from the exercise of stock options | 0.7 |
Market Stock Units (MSUs)
MSUs awarded to employees prior to 2014 vested in four equal annual increments beginning on the first anniversary of the grant date. Participants may ultimately earn between zero and 150.0% of the target number of units granted based on actual stock performance.
MSUs awarded to employees in 2014 and thereafter vest in three equal annual increments beginning on the first anniversary of the grant date, and participants may ultimately earn between zero and 200.0% of the target number of units granted based on actual stock performance.
The vesting of these awards is subject to the respective employee’s continued employment. The number of MSUs granted represents the target number of units that are eligible to be earned based on the attainment of certain market-based criteria involving our stock price. The number of MSUs earned is calculated at each annual anniversary from the date of grant over the respective vesting periods, resulting in multiple performance periods.
F-49
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accordingly, additional MSUs may be issued or currently outstanding MSUs may be cancelled upon final determination of the number of awards earned.
Beginning in 2022 we no longer grant MSUs as part of our long term incentive program and have replaced with granting performance-vested RSUs.
The following table summarizes our MSU activity:
| December 31, 2022 | |||||||||||
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at December 31, 2021 | 257,000 | $ | 372.08 | ||||||||
| Granted | — | — | |||||||||
| Vested | (87,000) | 369.22 | |||||||||
| Forfeited | (57,000) | 371.24 | |||||||||
| Unvested at December 31, 2022 | 113,000 | $ | 366.52 |
We value grants of MSUs using a lattice model with a Monte Carlo simulation. This valuation methodology utilizes several key assumptions, the 30 calendar day average closing stock price on the date of grant for MSUs, expected volatility of our stock price, risk-free rates of return and expected dividend yield.
The assumptions used in our valuation are summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||
| Expected dividend yield | —% | —% | ||||||||||||||||||
| Range of expected stock price volatility | 54.8% - 61.6% | 37.8% - 44.1% | ||||||||||||||||||
| Range of risk-free interest rates | 0.06% - 0.21% | 1.41% - 1.48% | ||||||||||||||||||
| 30 calendar day average stock price on grant date | $262.23 - $360.31 | $257.83 - $325.40 | ||||||||||||||||||
| Weighted-average per share grant date fair value | $358.77 | $398.61 |
The fair values of MSUs vested in 2022, 2021 and 2020 totaled $18.8 million, $22.5 million and $26.9 million, respectively.
Cash Settled Performance Units (CSPUs)
CSPUs awarded to employees vest in three equal annual increments beginning on the first anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment with such awards settled in cash. The number of CSPUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of each year. Participants may ultimately earn between zero and 200.0% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional CSPUs may be issued or currently outstanding CSPUs may be cancelled upon final determination of the number of units earned. CSPUs are classified as liability awards and will be settled in cash based on the 30 calendar day average closing stock price through each vesting date, once the actual vested and earned number of units is known. Since no shares are issued, these awards do not dilute equity. All remaining CSPUs were fully vested as of December 31, 2020.
The cash paid in settlement of CSPUs vested in 2020 totaled $3.8 million.
Performance-vested Restricted Stock Units (PUs)
PUs are granted to certain employees in the form of RSUs that may be settled in cash or shares of our common stock at the sole discretion of the Compensation and Management Development Committee of our Board of Directors. These awards are structured and accounted for the same way as the CSPUs, and vest in three equal annual increments beginning on the first anniversary of the grant date. The number of PUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of each year. Participants may ultimately earn between zero and 200.0% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional PUs may be issued or currently outstanding PUs may be cancelled upon final determination of the number of units earned. PUs settling in cash are based on the 30 calendar
F-50
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
day average closing stock price through each vesting date once the actual vested and earned number of units is known. All remaining PUs were fully vested as of December 31, 2020.
All PUs that vested in 2020 were settled in cash totaling $3.4 million.
Performance Stock Units (PSUs)
PSUs Settled in Stock
During the first quarter of 2018 we began granting awards for performance-vested RSUs that will settle in stock. PSUs awarded to employees have a three-year performance period and vest on the third anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment. The number of PSUs granted represents the target number of units that are eligible to be earned based on the achievement of cumulative three-year performance measures established at the beginning of the performance period, which ends on December 31 of the third year of the performance period.
Participants may ultimately earn between zero and 200.0% of the target number of PSUs granted based on the degree of achievement of the applicable performance metric. Accordingly, additional PSUs may be issued or currently outstanding PSUs may be cancelled upon final determination of the number of units earned.
Beginning in 2022 we no longer grant MSUs as part of long term incentive program and have replaced with granting PSUs with a performance metric based on a three-year cumulative relative total shareholder return (rTSR) metric. The PSUs will vest on the third anniversary of the date of grant, with the number of PSUs earned based on this cumulative rTSR metric.
The following table summarizes our PSUs that settle in stock activity:
| December 31, 2022 | |||||||||||
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at December 31, 2021 | 196,000 | $ | 289.94 | ||||||||
| Granted (1) | 270,000 | 294.43 | |||||||||
| Vested | (44,000) | 316.83 | |||||||||
| Forfeited | (86,000) | 279.09 | |||||||||
| Unvested at December 31, 2022 | 336,000 | $ | 292.95 |
(1) PSUs settled in stock granted in 2022 include awards granted in conjunction with our annual awards made in February 2022 and PSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.
We value grants of PSUs using a lattice model with a Monte Carlo simulation. This valuation methodology utilizes several key assumptions, the 30 calendar day average closing stock price on the date of grant for PSUs, expected volatility of our stock price, risk-free rates of return and expected dividend yield.
The assumptions used in our valuation are summarized as follows:
| December 31, 2022 | ||||||||||||||||||||
| Expected dividend yield | —% | |||||||||||||||||||
| Range of expected stock price volatility | 44.0% - 45.9% | |||||||||||||||||||
| Range of risk-free interest rates | 1.8% - 3.9% | |||||||||||||||||||
| 30 calendar day average stock price on grant date | $231.31 - $294.86 | |||||||||||||||||||
| Weighted-average per share grant date fair value | $294.43 |
The fair values of PSUs settled in stock that vested in 2022 and 2021 totaled $9.5 million and $15.5 million, respectively
PSUs Settled in Cash
During the first quarter of 2018 we began granting awards for performance-vested restricted stock units that will settle in cash. PSUs awarded to employees have three performance periods and vest on the third anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment. The number of PSUs granted represents the target number of units that are eligible to be earned based on the
F-51
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
achievement of three annual performance measures established when the performance objectives are defined, which will be at the beginning of each year and will end on December 31 of such year.
Participants may ultimately earn between zero and 200.0% of the target number of PSUs granted based on the degree of achievement of the applicable performance metric. Accordingly, additional PSUs may be issued or currently outstanding PSUs may be cancelled upon final determination of the number of units earned. PSUs are classified as liability awards and will be settled in cash based on the 30 calendar day average closing stock price through the vesting date, once the actual vested and earned number of PSUs is determined. Since no shares are issued, these awards do not dilute equity.
Beginning in 2022 we no longer grant this type of PSUs as part of our long term incentive program and have replaced with granting time-vested RSUs.
The following table summarizes our PSUs that settle in cash activity:
| December 31, 2022 | |||||
| Shares | |||||
| Unvested at December 31, 2021 | 134,000 | ||||
| Granted (1) | 24,000 | ||||
| Vested | (49,000) | ||||
| Forfeited | (26,000) | ||||
| Unvested at December 31, 2022 | 83,000 |
(1) PSUs settled in cash granted in 2022 include awards granted in conjunction with our annual awards made in February 2022 and PSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.
The fair values of PSUs settled in cash that vested in 2022 and 2021 totaled $11.0 million and $9.9 million, respectively.
Time-Vested Restricted Stock Units (RSUs)
RSUs awarded to employees generally vest no sooner than one-third per year over three years on the anniversary of the date of grant, or upon the third anniversary of the date of the grant, provided the employee remains continuously employed with us, except as otherwise provided in the plan. Shares of our common stock will be delivered to the employee upon vesting, subject to payment of applicable withholding taxes. RSUs awarded to directors for service on our Board of Directors vest on the first anniversary of the date of grant, provided in each case that the director continues to serve on our Board of Directors through the vesting date. Shares of our common stock will be delivered to the director upon vesting and are not subject to any withholding taxes.
The following table summarizes our RSU activity:
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at December 31, 2021 | 1,202,000 | $ | 291.54 | ||||||||
| Granted (1) | 1,751,000 | 221.28 | |||||||||
| Vested | (539,000) | 297.72 | |||||||||
| Forfeited | (468,000) | 244.03 | |||||||||
| Unvested at December 31, 2022 | 1,946,000 | $ | 237.90 |
(1) RSUs granted in 2022 primarily represent RSUs granted in conjunction with our annual awards made in February 2022 and awards made in conjunction with the hiring of new employees. RSUs granted in 2022 also include approximately 15,000 RSUs granted to our Board of Directors.
RSUs granted in 2021 and 2020 had weighted average grant date fair values of $276.90 and $318.87, respectively.
The fair values of RSUs vested in 2022, 2021 and 2020 totaled $116.3 million, $132.2 million and $140.5 million, respectively.
F-52
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Employee Stock Purchase Plan (ESPP)
In June 2015 our shareholders approved the 2015 ESPP. The maximum aggregate number of shares of our common stock that may be purchased under the 2015 ESPP is 6.2 million.
The following table summarizes our ESPP activity:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions, except share amounts) | 2022 | 2021 | 2020 | |||||||||||||||||
| Shares issued under the 2015 ESPP | 241,000 | 248,000 | 212,000 | |||||||||||||||||
| Cash received under the 2015 ESPP | $ | 44.2 | $ | 54.4 | $ | 48.6 |
| Note 17: | Income Taxes |
Income Tax Expense
Income before income tax expense and the income tax expense consist of the following:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Income before income tax (benefit) expense: | ||||||||||||||||||||
| Domestic | $ | 1,842.0 | $ | 448.3 | $ | 3,290.0 | ||||||||||||||
| Foreign | 1,749.8 | 1,296.9 | 1,757.5 | |||||||||||||||||
| Total income before income tax (benefit) expense | $ | 3,591.8 | $ | 1,745.2 | $ | 5,047.5 | ||||||||||||||
| Income tax (benefit) expense: | ||||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 694.5 | $ | 319.1 | $ | 647.0 | ||||||||||||||
| State | 39.0 | 23.1 | 41.2 | |||||||||||||||||
| Foreign | 67.9 | 137.1 | 155.1 | |||||||||||||||||
| Total current | 801.4 | 479.3 | 843.3 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (328.3) | (242.5) | (1,749.9) | |||||||||||||||||
| State | 2.5 | (11.9) | (6.8) | |||||||||||||||||
| Foreign | 157.2 | (172.4) | 1,905.7 | |||||||||||||||||
| Total deferred | (168.6) | (426.8) | 149.0 | |||||||||||||||||
| Total income tax (benefit) expense | $ | 632.8 | $ | 52.5 | $ | 992.3 |
Transition Toll Tax
The Tax Cuts and Jobs Act of 2017 eliminated the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax). The Transition Toll Tax was assessed on our share of our foreign corporations' accumulated foreign earnings that were not previously taxed. Earnings in the form of cash and cash equivalents were taxed at a rate of 15.5% and all other earnings were taxed at a rate of 8.0%.
As of December 31, 2022 and 2021, we have accrued income tax liabilities of $558.0 million and $633.0 million, respectively, under the Transition Toll Tax. Of the amounts accrued as of December 31, 2022, approximately $137.8 million is expected to be paid within one year. The Transition Toll Tax will be paid in installments over an eight--year period, which started in 2018, and will not accrue interest.
Unremitted Earnings
At December 31, 2022, we considered our earnings not to be permanently reinvested outside the U.S. and therefore recorded deferred tax liabilities associated with an estimate of the total withholding taxes expected as a result of our repatriation of earnings. Other than for earnings, we are permanently reinvested for book/tax basis differences of approximately $1.5 billion as of December 31, 2022, primarily arising through the impacts of
F-53
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
purchase accounting. These permanently reinvested basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which were considered probable as of December 31, 2022. The residual U.S. tax liability, if these differences reverse, would be between $300.0 million and $400.0 million as of December 31, 2022.
TECFIDERA
Multiple TECFIDERA generic entrants are now in North America, Brazil and certain E.U. countries and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA has significantly reduced our TECFIDERA revenue and we expect that TECFIDERA revenue will continue to decline in the future.
As of December 31, 2020, we assessed the realizability of our deferred tax assets that are dependent on future expected sales of TECFIDERA in the U.S. and reduced the net value of certain deferred tax assets by approximately $1.7 billion and reduced the net value of deferred tax liabilities associated with GILTI and tax credits by approximately $1.6 billion. For the year ended December 31, 2020, the income tax expense associated with these reductions was approximately $90.3 million. We continue to assess the realizability of these deferred tax assets. For the years ended December 31, 2022 and 2021, we recorded increases in these deferred tax assets of approximately $17.4 million and $108.5 million, respectively, and increases in these deferred tax liabilities of approximately $16.7 million and $103.9 million, respectively.
Deferred Tax Assets and Liabilities
Significant components of our deferred tax assets and liabilities are summarized as follows:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Tax credits | $ | 112.6 | $ | 121.0 | ||||||||||
| Inventory, other reserves and accruals | 202.8 | 199.4 | ||||||||||||
| Intangibles, net | 1,370.3 | 1,477.5 | ||||||||||||
| Neurimmune's tax basis in ADUHELM | 470.3 | 475.8 | ||||||||||||
| IRC Section 174 capitalized research and development | 271.8 | — | ||||||||||||
| Net operating loss | 1,845.9 | 1,973.0 | ||||||||||||
| Share-based compensation | 37.2 | 31.7 | ||||||||||||
| Other | 280.7 | 208.8 | ||||||||||||
| Valuation allowance | (2,003.3) | (1,961.3) | ||||||||||||
| Total deferred tax assets | $ | 2,588.3 | $ | 2,525.9 | ||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Purchased intangible assets | $ | (76.1) | $ | (256.6) | ||||||||||
| Samsung Bioepis investment installments | (138.0) | — | ||||||||||||
| GILTI | (1,002.0) | (1,037.6) | ||||||||||||
| Tax credits | (228.7) | (260.2) | ||||||||||||
| Depreciation, amortization and other | (251.8) | (250.9) | ||||||||||||
| Total deferred tax liabilities | $ | (1,696.6) | $ | (1,805.3) |
The change in the valuation allowance between December 31, 2022 and 2021, was primarily related to the establishment of a valuation allowance against the deferred tax asset related to Neurimmune SubOne AG's (Neurimmune) tax basis in ADUHELM, as discussed below, and the adjustment of a valuation against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S., as discussed above.
In addition to deferred tax assets and liabilities, we have recorded deferred charges related to intra-entity sales of inventory. As of December 31, 2022 and 2021, the total deferred charges were $56.6 million and $39.6 million, respectively.
F-54
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inflation Reduction Act
In August 2022 the IRA was signed into law in the U.S. The IRA introduced new tax provisions, including a 15.0% corporate alternative minimum tax and a 1.0% excise tax on stock repurchases. The provisions of the IRA will be effective for periods after December 31, 2022. The enactment of the IRA did not result in any material adjustments to our income tax provision or net deferred tax assets as of December 31, 2022.
Tax Rate
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
| State taxes | 1.1 | 0.8 | 0.7 | |||||||||||||||||
| Taxes on foreign earnings | (4.9) | (10.5) | (3.3) | |||||||||||||||||
| Tax credits | (1.7) | (3.8) | (1.2) | |||||||||||||||||
| Purchased intangible assets | 0.3 | (1.6) | 0.7 | |||||||||||||||||
| TECFIDERA impairment | — | — | 1.8 | |||||||||||||||||
| GILTI | 0.7 | 1.3 | 1.3 | |||||||||||||||||
| Sale of Samsung Bioepis | (1.6) | — | — | |||||||||||||||||
| Litigation settlement agreement | 2.6 | — | — | |||||||||||||||||
| Neurimmune tax impacts | 2.3 | (5.3) | (0.1) | |||||||||||||||||
| Internal reorganization | (1.4) | — | — | |||||||||||||||||
| Other | (0.8) | 1.1 | (1.2) | |||||||||||||||||
| Effective tax rate | 17.6 | % | 3.0 | % | 19.7 | % |
Changes in Tax Rate
For the year ended December 31, 2022, compared to 2021, the increase in our effective tax rate, excluding the impact of the net Neurimmune deferred tax asset, as discussed below, includes the tax impacts of the litigation settlement agreement and the sale of our building at 125 Broadway. These increases were partially offset by the impact of the current year tax benefits related to an international reorganization to align with global tax developments, the impacts of the sale of our equity interest in Samsung Bioepis and the tax impacts of the decision to discontinue development of vixotrigine. Further in 2021, our effective tax rate benefited from the tax effects of the BIIB111 and BIIB112 impairment charges and the non-cash tax effects of changes in the value of our equity instruments.
For the year ended December 31, 2021, compared to 2020, the decrease in our effective tax rate, excluding the impact of the Neurimmune deferred tax asset, as discussed below, was primarily due to the change in the territorial mix of our profitability, which included the adverse effect of generic competition for TECFIDERA in the U.S. market, the tax impacts of the BIIB111 and BIIB112 impairment charges and the impact of the non-cash tax effects of changes in the value of our equity investments, where we recorded net unrealized losses in 2021 and net unrealized gains in 2020. Our 2020 effective tax rate also reflected an income tax expense related to the establishment of a valuation allowance against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S.
For additional information on the litigation settlement agreement, please read Note 18, Other Consolidated Financial Statement Detail, to these consolidated financial statements.
Neurimmune Deferred Tax Asset
During 2021 we recorded a net deferred tax asset in Switzerland of approximately $100.0 million on Neurimmune's tax basis in ADUHELM, the realization of which was dependent on future sales of ADUHELM.
During the first quarter of 2022, upon issuance of the final NCD related to ADUHELM, we recorded an increase in a valuation allowance of approximately $85.0 million to reduce the net value of this deferred tax asset to zero.
F-55
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
These adjustments to our net deferred tax asset are each recorded with an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable to Biogen Inc.
For additional information on our collaboration arrangement with Neurimmune, please read Note 20, Investments in Variable Interest Entities, to these consolidated financial statements.
Tax Attributes
As of December 31, 2022, we had general business credit carry forwards for U.S. federal income tax purposes of approximately $8.1 million, which begin to expire in 2027. For U.S. state income tax purposes, we had research and investment credit carry forwards of approximately $132.7 million that begin to expire in 2023 and net operating losses of approximately $24.8 million that begin to expire in 2036. For foreign income tax purposes, we had $15.5 billion of federal net operating loss carryforwards that begin to expire in 2027 and $15.4 billion of Swiss cantonal net operating loss carryforwards that begin to expire in 2027.
In assessing the realizability of our deferred tax assets, we have considered 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 reporting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the net benefits of the deferred tax assets of our wholly owned subsidiaries, net of the recorded valuation allowance. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to adjust or establish a valuation allowance, which could materially impact our consolidated financial position and results of operations.
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Beginning balance | $ | 563.4 | $ | 75.7 | $ | 129.9 | ||||||||||||||
| Additions based on tax positions related to the current period | 36.3 | 4.2 | 1.5 | |||||||||||||||||
| Additions for tax positions of prior periods | 23.4 | 509.9 | 51.7 | |||||||||||||||||
| Reductions for tax positions of prior periods | (14.9) | (18.8) | (63.6) | |||||||||||||||||
| Statute expirations | (1.6) | (3.2) | (7.9) | |||||||||||||||||
| Settlement refund (payment) | (0.2) | (4.4) | (35.9) | |||||||||||||||||
| Ending balance | $ | 606.4 | $ | 563.4 | $ | 75.7 |
During the year ended December 31, 2021, we increased our gross unrecognized tax benefits by approximately $455.0 million, related to a deferred tax asset for Swiss tax purposes for Neurimmune's tax basis in ADUHELM. This unrecognized tax benefit was recorded as a reduction to the gross deferred tax asset, resulting in the net deferred tax asset, as discussed above, and not as a separate liability on our consolidated balance sheets. As of December 31, 2022, the unrecognized tax benefit related to Neurimmune was approximately $450.0 million, as a result of changes in exchange rates.
Our 2020 activity reflects the impact of the effective settlement of certain tax matters. We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in various U.S. states and in U.S. federal and other foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal tax examination for years before 2017 or state, local or non-U.S. income tax examinations for years before 2013.
The U.S. Internal Revenue Service and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.
F-56
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Included in the balance of unrecognized tax benefits as of December 31, 2022, 2021 and 2020, are $134.0 million, $87.5 million and $68.8 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods.
We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2022, 2021 and 2020, we recognized total interest and penalty expense of $0.7 million, $2.7 million and $1.0 million, respectively. We have accrued $25.2 million and $24.8 million for the payment of interest and penalties as of December 31, 2022 and 2021, respectively.
It is reasonably possible that we will adjust the value of our uncertain tax positions related to certain transfer pricing, collaboration matters and other issues as we receive additional information from various taxing authorities, including reaching settlements with such authorities.
We estimate that it is reasonably possible that our gross unrecognized tax benefits, exclusive of interest, could decrease by up to approximately $500.0 million, including approximately $450.0 million related to the unrecognized tax benefits related to Neurimmune's tax basis in ADUHELM, as discussed above, in the next 12 months as a result of various audit closures, settlements and expiration of the statute of limitations. Any changes to our gross unrecognized tax benefits related to Neurimmune's tax basis in ADUHELM would result in a zero net impact to net income attributable to Biogen, Inc., as we have recorded a full valuation allowance against the relevant deferred tax assets.
| Note 18: | Other Consolidated Financial Statement Detail |
Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the years ended December 31, 2022, 2021 and 2020, is as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Cash paid during the year for: | ||||||||||||||||||||
| Interest | $ | 262.5 | $ | 280.8 | $ | 272.7 | ||||||||||||||
| Income taxes | 932.9 | 247.9 | 906.7 |
Other (Income) Expense, Net
Components of other (income) expense, net, are summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Gain on sale of equity interest in Samsung Bioepis(1) | $ | (1,505.4) | $ | — | $ | — | ||||||||||||||
| Litigation settlement agreement and settlement fees | 917.0 | — | — | |||||||||||||||||
| Interest income | (89.3) | (11.0) | (42.0) | |||||||||||||||||
| Interest expense | 246.6 | 253.6 | 222.5 | |||||||||||||||||
| (Gains) losses on investments, net | 277.3 | 824.9 | (685.7) | |||||||||||||||||
| Foreign exchange (gains) losses, net | 35.5 | 22.4 | 10.7 | |||||||||||||||||
| Other, net | 10.1 | 5.6 | (2.9) | |||||||||||||||||
| Total other (income) expense, net | $ | (108.2) | $ | 1,095.5 | $ | (497.4) |
(1) Reflects the pre-tax gain, net of transaction costs, recognized from the sale of our 49.9% equity interest in Samsung Bioepis to Samsung BioLogics in April 2022. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
The (gains) losses on investments, net, as reflected in the table above, relate to debt securities, equity securities of certain biotechnology companies, venture capital funds where the underlying investments are in equity securities of certain biotechnology companies and non-marketable equity securities.
F-57
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the second quarter of 2022 we recorded a pre-tax charge of $900.0 million, plus settlement fees and expenses, related to a litigation settlement agreement to resolve a qui tam litigation relating to conduct prior to 2015. This charge is included within other (income) expense, net in our consolidated statements of income for the year ended December 31, 2022.
The following table summarizes our (gains) losses on investments, net that relates to our equity securities held as of December 31, 2022, 2021 and 2020:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Net (gains) losses recognized on equity securities | $ | 264.7 | $ | 821.1 | $ | (693.9) | ||||||||||||||
| Less: Net (gains) losses realized on equity securities | — | (10.3) | (12.1) | |||||||||||||||||
| Unrealized (gains) losses recognized on equity securities | $ | 264.7 | $ | 831.4 | $ | (681.8) |
The net unrealized losses recognized during the year ended December 31, 2022, primarily reflect a decrease in the aggregate fair value of our investments in Denali and Sangamo common stock of approximately $278.0 million. The net unrealized losses recognized during the year ended December 31, 2021, primarily reflect decreases in the aggregate fair value of our investments in Denali, Sage, Sangamo and Ionis common stock of approximately $819.6 million.
Accrued Expense and Other
Accrued expense and other consists of the following:
| As of December 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Revenue-related reserves for discounts and allowances | $ | 891.6 | $ | 802.1 | ||||||||||
| Employee compensation and benefits | 395.6 | 345.1 | ||||||||||||
| Collaboration expense | 277.9 | 324.7 | ||||||||||||
| Royalties and licensing fees | 209.4 | 234.7 | ||||||||||||
| Other | 746.9 | 828.6 | ||||||||||||
| Total accrued expense and other | $ | 2,521.4 | $ | 2,535.2 |
Other long-term liabilities were $944.2 million and $1,320.5 million as of December 31, 2022 and 2021, respectively, and included accrued income taxes totaling $541.7 million and $664.5 million, respectively.
| Note 19: | Collaborative and Other Relationships |
In connection with our business strategy, we have entered into various collaboration agreements that provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make milestone payments upon the achievement of certain product research and development objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration.
Depending on the collaborative arrangement, we may record funding receivable or payable balances with our collaboration partners, based on the nature of the cost-sharing mechanism and activity within the collaboration. Our significant collaborative arrangements are discussed below.
Genentech, Inc. (Roche Group)
We 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; LUNSUMIO (mosunetuzumab), which was granted accelerated approval in the U.S. during the fourth quarter of 2022 for the treatment of relapsed or refractory follicular lymphoma; glofitamab, an investigational bispecific antibody for the potential treatment of non-Hodgkin's lymphoma; and have the option to add other potential anti-CD20 therapies, pursuant to our collaboration arrangements with Genentech, a wholly-owned member of the Roche Group. For purposes of this footnote, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
F-58
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If we undergo a change in control, as defined in our collaboration agreement, Genentech has the right to present an offer to buy the rights to RITUXAN and we must either accept Genentech’s offer or purchase Genentech’s rights on the same terms as its offer. Genentech will also be deemed concurrently to have purchased our rights to the remaining products in the collaboration on the terms set forth below.
Our collaboration with Genentech was created through a contractual arrangement and not through a joint venture or other legal entity.
RITUXAN
Genentech and its affiliates are responsible for the worldwide manufacture of RITUXAN as well as all development and commercialization activities as follows:
*•*U.S.: We have co-exclusively licensed our rights to develop, commercialize and market RITUXAN in the U.S.
*•*Canada: We have co-exclusively licensed our rights to develop, commercialize and market RITUXAN in Canada.
GAZYVA
The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacture and commercialization of GAZYVA in the U.S. The level of gross sales of GAZYVA in the U.S. could impact our percentage of the co-promotion profits for RITUXAN and LUNSUMIO, as summarized in the table below.
OCREVUS
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 24.0% if annual net sales exceed $900.0 million. There will be a 50.0% reduction to these royalties if a biosimilar to OCREVUS is approved in the U.S.
In addition, we receive a gross 3.0% 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.
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.
OCREVUS royalty revenue is 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 revenue will be adjusted for in the period in which they become known, which is generally expected to be the following quarter.
If we undergo a change in control, as defined in our collaboration agreement, Genentech will be deemed to have purchased our rights to OCREVUS in exchange for the continued payment of the current royalties on net sales (as defined in our collaboration agreement and summarized above) in the U.S. only, until the 11 year anniversary of the first commercial sale of OCREVUS in the U.S.
LUNSUMIO (mosunetuzumab)
In January 2022 we exercised our option with Genentech to participate in the joint development and commercialization of LUNSUMIO. In connection with this exercise, we recorded a $30.0 million option exercise fee payable to Genentech in December 2021, which was recognized in research and development expense in our consolidated statements of income for the year ended December 31, 2021. We also recorded a charge of approximately $20.0 million to reimburse Genentech for our 30.0% share of the costs incurred in developing this product candidate during 2021, which was recognized in research and development expense in our consolidated statements of income for the year ended December 31, 2021. For the year ended December 31, 2022, we recorded approximately $28.4 million in research and development expense and approximately $13.0 million in sales and marketing expense in our consolidated statements of income related to this collaboration.
Under our collaboration with Genentech, we were responsible for 30.0% of development costs for LUNSUMIO prior to FDA approval and will be entitled to a tiered share of co-promotion operating profits and losses in the U.S., as summarized in the table below. In addition, we receive low single-digit royalties on sales of LUNSUMIO outside the U.S. In December 2022 LUNSUMIO was granted accelerated approval by the FDA for the treatment of relapsed or refractory follicular lymphoma.
F-59
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If we undergo a change in control, as defined in our collaboration agreement, Genentech will be deemed to have purchased our rights to LUNSUMIO in exchange for 30.0% of the U.S. co-promotion operating profits or losses until the 11 year anniversary of the first commercial sale of LUNSUMIO in the U.S.
Glofitamab
In December 2022 we entered into an agreement with Genentech related to the commercialization and sharing of economics for glofitamab, a late-stage bispecific antibody in development for B-cell non-Hodgkin's lymphoma and other blood cancers. Under the terms of this agreement, we will have no payment obligations and will receive tiered royalties on potential net sales of glofitamab in the U.S. Genentech will have sole decision-making rights on the commercialization of glofitamab within the U.S and, in the event of approval, we are eligible to receive tiered royalties in the mid-single digit range on potential net sales of glofitamab in the U.S.
If we undergo a change in control, as defined in our collaboration agreement, Genentech will be deemed to have purchased our rights to Glofitamab in exchange for a mid-single digit royalty on net sales (as defined in our collaboration agreement) in the U.S. only, until the 11 year anniversary of the first commercial sale of the product in the U.S.
Profit-sharing Formulas
RITUXAN and LUNSUMIO Profit Share
Our current pretax co-promotion profit-sharing formula for RITUXAN and LUNSUMIO in the U.S. provides for a 30.0% share on the first $50.0 million of combined co-promotion operating profits earned each calendar year. As a result of the FDA approval of LUNSUMIO our share of the combined annual co-promotion profits for RITUXAN and LUNSUMIO in excess of $50.0 million varies upon the following events, as summarized in the table below:
| After LUNSUMIO Approval until the First Threshold Date | 37.5 | % | |||
| After First Threshold Date until the Second Threshold Date | 35.0 | % | |||
| After Second Threshold Date | 30.0 | % |
First Threshold Date means the earlier of (i) the first day of the calendar quarter following the date U.S. gross sales of GAZYVA within any consecutive 12-month period have reached $500.0 million or (ii) the first date in any calendar year in which U.S. gross sales of LUNSUMIO have reached $150.0 million.
Second Threshold Date means the later of (i) the first date the gross sales in any calendar year in which U.S. gross sales of LUNSUMIO reach $350.0 million and (ii) January 1 of the calendar year following the calendar year in which the First Threshold Date occurs.
Our share of RITUXAN pre-tax profits in the U.S. in excess of $50.0 million for the years ended December 31, 2022, 2021 and 2020, was 37.5%.
GAZYVA Profit Share
Our current pretax profit-sharing formula for GAZYVA provides for a 35.0% share on the first $50.0 million of operating profits earned each calendar year. Our share of annual co-promotion profits in excess of $50.0 million varies upon the following events, as summarized in the table below:
| Until Second GAZYVA Threshold Date | 37.5 | % | |||
| After Second GAZYVA Threshold Date | 35.0 | % | |||
Second GAZYVA Threshold Date means the first day of the calendar quarter following the date U.S. gross sales of GAZYVA within any consecutive 12-month period have reached $500.0 million. The second GAZYVA threshold date can be achieved regardless of whether GAZYVA has been approved in a non-CLL indication.
Our share of GAZYVA pre-tax profits in excess of $50.0 million for the years ended December 31, 2022, 2021 and 2020, was 37.5%.
If we undergo a change in control, as defined in our collaboration agreement, Genentech will be deemed to have purchased our rights to GAZYVA in exchange for the continued payment of the compensation payable for GAZYVA under the collaboration arrangement (and set forth above) until the 11 year anniversary of the first commercial sale of GAZYVA in the U.S.
F-60
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue from Anti-CD20 Therapeutic Programs
Revenue from anti-CD20 therapeutic programs is summarized as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Royalty revenue on sales of OCREVUS | $ | 1,136.3 | $ | 991.7 | $ | 845.4 | ||||||||||||||
| Biogen's share of pre-tax profits in the U.S. for RITUXAN and GAZYVA | 547.0 | 647.7 | 1,080.2 | |||||||||||||||||
| Other revenue from anti-CD20 therapeutic programs | 17.2 | 19.1 | 52.2 | |||||||||||||||||
| Total revenue from anti-CD20 therapeutic programs | $ | 1,700.5 | $ | 1,658.5 | $ | 1,977.8 |
Prior to regulatory approval, we record our share of the expense incurred by the collaboration for the development of anti-CD20 products in research and development expense and pre-commercialization costs within selling, general and administrative expense in our consolidated statements of income. After an anti-CD20 product is approved, we record our share of the development and sales and marketing expense related to that product as a reduction of our share of pre-tax profits in revenue from anti-CD20 therapeutic programs.
Ionis Pharmaceuticals, Inc.
SPINRAZA
In January 2012 we entered into a collaboration and license agreement with Ionis Pharmaceuticals Inc. (Ionis) pursuant to which we have an exclusive, worldwide license to develop and commercialize SPINRAZA for the treatment of SMA.
Under our agreement with Ionis, we make royalty payments to Ionis on annual worldwide net sales of SPINRAZA using a tiered royalty rate between 11.0% and 15.0%, which are recognized in cost of sales within our consolidated statements of income. Royalty cost of sales related to sales of SPINRAZA for the years ended December 31, 2022, 2021 and 2020, totaled approximately $243.1 million, $267.1 million and $286.6 million, respectively.
2018 Ionis Agreement
In June 2018 we entered into a 10-year exclusive collaboration agreement with Ionis to develop novel antisense oligonucleotide (ASO) drug candidates for a broad range of neurological diseases for a total payment of $1.0 billion, consisting of an upfront payment of $375.0 million and the purchase of approximately 11.5 million shares of Ionis common stock at a cost of $625.0 million.
Upon closing, we recorded $50.9 million of the $375.0 million upfront payment as prepaid services in our consolidated balance sheets and recognized the remaining $324.1 million as research and development expense in our consolidated statements of income. The amount recorded as prepaid services represented the value of the employee resources committed to the arrangement to provide research and discovery services over the term of the agreement.
We have the option to license therapies arising out of this agreement and will be responsible for the development and commercialization of such therapies. We may pay development milestones to Ionis of up to $125.0 million or $270.0 million for each program, depending on the indication plus an annual license fee, as well as royalties on potential net commercial sales.
During the years ended December 31, 2022, 2021 and 2020, we incurred milestones of $10.0 million, $22.5 million and $11.3 million, respectively, related to the advancement of neurological targets identified under this agreement, which were recorded as research and development expense in our consolidated statements of income.
2017 SMA Collaboration Agreement
In December 2017 we entered into a collaboration agreement with Ionis to identify new ASO drug candidates for the potential treatment of SMA. Under this agreement, we have the option to license therapies arising out of this collaboration and will be responsible for their development and commercialization of such therapies.
Upon entering into this agreement, we made a $25.0 million upfront payment to Ionis and we may pay Ionis up to $260.0 million in additional development and regulatory milestone payments if new drug candidates advance to marketing approval. Upon commercialization, we may also pay Ionis up to $800.0 million in additional performance-based milestone payments and tiered royalties on potential net sales of such therapies.
F-61
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In December 2021 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB115, an investigational ASO in development for SMA. In connection with this option exercise, we made an opt-in payment of $60.0 million to Ionis, which was recorded as research and development expense in our consolidated statements of income for the year ended December 31, 2021.
2013 Long-term Strategic Research Agreement
In September 2013 we entered into a six-year research collaboration agreement with Ionis under which both companies collaborate to perform discovery level research and subsequent development and commercialization activities of antisense or other therapeutics for the potential treatment of neurological diseases. Under this agreement, Ionis performs research on a set of neurological targets identified within the agreement.
Ionis is eligible to receive milestone payments, license fees and royalty payments for all product candidates developed through this collaboration, with the specific amount dependent upon the modality of the product candidate advanced by us under the terms of the agreement.
For non-ALS antisense product candidates, Ionis is responsible for global development through the completion of a Phase 2 trial and we provide advice on the clinical trial design and regulatory strategy. For ALS antisense product candidates, we are responsible for global development, clinical trial design and regulatory strategy. We have an option to license a product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay Ionis up to a $70.0 million license fee and assume global development, regulatory and commercialization responsibilities. Ionis could receive additional milestone payments upon the achievement of certain regulatory milestones of up to $130.0 million, plus additional amounts related to the cost of clinical trials conducted by Ionis under the collaboration, and royalties on future sales if we successfully develop the product candidate after option exercise.
In December 2018 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize tofersen (BIIB067), an investigational treatment for ALS with superoxide dismutase 1 (SOD1) mutations. Potential post-licensing milestone payments may include up to $55.0 million and royalties in the low- to mid-teen percentages on potential annual worldwide net sales. We are solely responsible for the costs and expense related to the development, manufacturing and commercialization of tofersen following the option exercise.
During the years ending December 31, 2022, 2021 and 2020, we incurred milestones of $17.0 million, $10.0 million and $28.0 million, respectively, related to the advancement of programs under this agreement, which were recorded as research and development expense in our consolidated statements of income.
2012 Ionis Agreement
In December 2012 we entered into an agreement with Ionis for the development and commercialization of up to three gene targets.
Under this agreement, Ionis is responsible for global development of any product candidate through the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay a license fee of up to $70.0 million to Ionis and assume global development, regulatory and commercialization responsibilities. Ionis is eligible to receive up to $130.0 million in additional milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales if we successfully develop the product candidate after option exercise.
In December 2019 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB080 (tau ASO), which is currently in Phase 2 development for the potential treatment of Alzheimer's disease. In connection with the option exercise, we made a payment of $45.0 million to Ionis, which was recorded as research and development expense in our consolidated statements of income. Future payments may include additional milestone payments of up to $155.0 million and royalties on future sales in the low- to mid-teens if we successfully develop the product candidate after option exercise.
During the year ended December 31, 2022, we incurred a milestone payment of $10.0 million, related to the advancement of BIIB080 under this agreement, which was recorded within research and development expense in our consolidated statements of income.
F-62
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Eisai Co., Ltd.
LEQEMBI (lecanemab) Collaboration
We have a collaboration agreement with Eisai to jointly develop and commercialize LEQEMBI (lecanemab), an anti-amyloid antibody for the potential treatment of Alzheimer's disease (the LEQEMBI Collaboration).
Eisai serves as the lead of LEQEMBI development and regulatory submissions globally with both companies co-commercializing and co-promoting the product, and Eisai having final decision-making authority. All costs, including research, development, sales and marketing expense, are shared equally between us and Eisai. Upon LEQEMBI marketing approval, we and Eisai will co-promote LEQEMBI and share profits and losses equally. We currently manufacture LEQEMBI drug substance and drug product and in March 2022 we extended our supply agreement with Eisai related to LEQEMBI from five years to ten years for the manufacture of LEQEMBI drug substance.
The LEQEMBI Collaboration also provided Eisai with an option to jointly develop and commercialize ADUHELM (aducanumab) (ADUHELM Option), and an option to jointly develop and commercialize one of our anti-tau monoclonal antibodies (Anti-Tau Option). In October 2017 Eisai exercised its ADUHELM Option and we entered into a new collaboration agreement for the joint development and commercialization of ADUHELM (aducanumab) (the ADUHELM Collaboration Agreement).
On March 14, 2022, we amended our ADUHELM Collaboration Agreement with Eisai. As of the amendment date, we have sole decision making and commercialization rights worldwide on ADUHELM, and beginning January 1, 2023, Eisai receives only a tiered royalty based on net sales of ADUHELM, and no longer participates in sharing ADUHELM's global profits and losses. In March 2022 we also amended the LEQEMBI Collaboration Agreement with Eisai to eliminate the Anti-Tau Option.
If either company undergoes a change of control, as defined in our LEQEMBI Collaboration Agreement, the non-acquired party may elect to initiate an operational separation, as defined in the LEQEMBI Collaboration Agreement. In the event of an operational separation, we would work with Eisai to effect a timely transition of any development, manufacturing or commercial responsibilities regarding LEQEMBI from us to Eisai. In this scenario, as of six months following the change of control, our ongoing responsibility for LEQEMBI related cost-sharing would be reduced to an amount equal to 80.0% of what we would have owed prior to the operational separation, and all other economic rights would remain unchanged.
In addition, in the event either company undergoes a change of control in which the acquirer is engaged in commercialization of a competing product, as defined in the LEQEMBI Collaboration Agreement, the non-acquired party may also request that the acquired party cease commercializing the competing product. Should the acquired party elect to continue commercializing the competing product, the non-acquired party may terminate the LEQEMBI Collaboration Agreement. Furthermore, in the event we are the non-acquired party, we may choose either to sell our interest in LEQEMBI to Eisai or purchase Eisai's interest in LEQEMBI, subject to the parameters set forth in the LEQEMBI Collaboration Agreement.
A summary of development and sales and marketing expense related to the LEQEMBI Collaboration is as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Total development expense incurred by the collaboration related to the advancement of LEQEMBI | $ | 347.2 | $ | 323.0 | $ | 219.3 | ||||||||||||||
| Biogen's share of the LEQEMBI Collaboration development expense reflected in research and development expense in our consolidated statements of income | 173.6 | 161.5 | 109.6 | |||||||||||||||||
| Total sales and marketing expense incurred by the LEQEMBI Collaboration | 104.6 | 27.2 | 9.8 | |||||||||||||||||
| Biogen's share of the LEQEMBI Collaboration sales and marketing expense reflected in selling, general and administrative expense in our consolidated statements of income | 52.3 | 13.6 | 4.9 |
ADUHELM Collaboration Agreement
Under our initial ADUHELM Collaboration Agreement, we would lead the ongoing development of ADUHELM, and we and Eisai would co-promote ADUHELM with a region-based profit split. Beginning in 2019, Eisai was reimbursing us for 45.0% of development and sales and marketing expense incurred by the collaboration for the advancement of ADUHELM.
F-63
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On March 14, 2022, we amended our ADUHELM Collaboration Agreement with Eisai. As of the amendment date, we have sole decision making and commercialization rights worldwide on ADUHELM, and beginning January 1, 2023, Eisai receives only a tiered royalty based on net sales of ADUHELM, and no longer participates in sharing ADUHELM's global profits and losses. Eisai's share of development, commercialization and manufacturing expense was limited to $335.0 million for the period from January 1, 2022 to December 31, 2022, which was achieved as of December 31, 2022. Once this limit was achieved, we became responsible for all ADUHELM related costs.
A summary of development expense, sales and marketing expense and milestone payments related to the ADUHELM Collaboration Agreement is as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Total ADUHELM development expense | $ | 149.4 | $ | 183.7 | $ | 152.0 | ||||||||||||||
| Biogen's share of the ADUHELM Collaboration development expense reflected in research and development expense in our consolidated statements of income | 82.2 | 101.1 | 83.6 | |||||||||||||||||
| Total ADUHELM sales and marketing expense incurred by the ADUHELM Collaboration Agreement | 134.2 | 562.3 | 353.0 | |||||||||||||||||
| Biogen's share of the ADUHELM Collaboration sales and marketing expense reflected in selling, general and administrative expense and collaboration profit (loss) sharing in our consolidated statements of income | 71.5 | 301.4 | 193.7 | |||||||||||||||||
| Total ADUHELM Collaboration third party milestones | — | 100.0 | 75.0 | |||||||||||||||||
| Biogen's share of reimbursement from Eisai of ADUHELM milestone payments reflected in collaboration profit (loss) sharing in our consolidated statements of income | — | 45.0 | 33.8 |
ADUHELM Co-promotion Profits and Losses
In the U.S. we recognize revenue on sales of ADUHELM to third parties as a component of product revenue, net in our consolidated statements of income. We also record the related cost of revenue and sales and marketing expense in our consolidated statements of income as these costs are incurred. Payments made to and received from Eisai for its 45.0% share of the co-promotion profits or losses in the U.S. are recognized in collaboration profit (loss) sharing in our consolidated statements of income. For the years ended December 31, 2022 and 2021, we recognized net reductions to our operating expense of approximately $224.7 million and $233.2 million, respectively, to reflect Eisai's 45.0% share of net collaboration losses in the U.S.
For the year ended December 31, 2021, we recognized a net reduction to our operating expense of $45.0 million to reflect Eisai's 45.0% share of the $100.0 million milestone payment made to Neurimmune related to the launch of ADUHELM in the U.S., which was recorded in collaboration profit (loss) sharing in our consolidated statements of income.
For the year ended December 31, 2020, we recognized a net reduction to our operating expense of $33.8 million to reflect Eisai's 45.0% share of the $75.0 million milestone payment made to Neurimmune related to the submission of a Biologics License Application (BLA) to the FDA for the approval of ADUHELM, which was recorded in collaboration profit (loss) sharing in our consolidated statements of income.
During the fourth quarter of 2021 we recorded approximately $164.0 million of charges associated with the write-off of inventory and purchase commitments in excess of forecasted demand related to ADUHELM. During the first quarter of 2022, as a result of the final NCD, we recorded approximately $275.0 million of charges associated with the write-off of inventory and purchase commitments in excess of forecasted demand related to ADUHELM. Additionally, for the years ended December 31, 2022 and 2021, we recorded approximately $111.0 million and $30.0 million, respectively, of aggregate gross idle capacity charges related to ADUHELM. These charges were recorded in cost of sales within our consolidated statements of income for the years ended December 31, 2022 and 2021.
We have recognized approximately $197.0 million and $99.0 million related to Eisai's 45.0% share of inventory, idle capacity charges and contractual commitments in collaboration profit (loss) sharing within our consolidated statements of income for the years ended December 31, 2022 and 2021, respectively.
Amounts receivable from Eisai related to the agreements discussed above were approximately $88.0 million and $285.4 million as of December 31, 2022 and 2021, respectively. Amounts payable to Eisai related to the agreements discussed above were approximately $81.2 million and $46.5 million as of December 31, 2022 and 2021, respectively.
F-64
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition, we and Eisai co-promote AVONEX, TYSABRI and TECFIDERA in Japan in certain settings and Eisai distributes AVONEX, TYSABRI, TECFIDERA and PLEGRIDY in India and other Asia-Pacific markets, excluding China.
UCB
In November 2003 we entered into a collaboration agreement with UCB to jointly develop and commercialize dapirolizumab pegol, an anti-CD40L pegylated Fab, for the potential treatment of systemic lupus erythematosus and other future agreed indications. Either we or UCB may propose development of dapirolizumab pegol in additional indications. If the parties do not agree to add an indication as an agreed indication to the collaboration, we or UCB may, at the sole expense of the applicable party, pursue development in such excluded indication(s), subject to an opt-in right of the non-pursuing party after proof of clinical activity.
All costs incurred for agreed indications, including research, development, sales and marketing expense, are shared equally between us and UCB. If marketing approval is obtained, both companies will co-promote dapirolizumab pegol and share profits and losses equally.
A summary of development expense related to the UCB collaboration agreement is as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Total UCB collaboration development expense | $ | 68.0 | $ | 84.2 | $ | 58.3 | ||||||||||||||
| Biogen's share of the UCB collaboration development expense reflected in research and development expense in our consolidated statements of income | 34.0 | 42.1 | 29.2 |
Alkermes
In November 2017 we entered into an exclusive license and collaboration agreement with Alkermes Pharma Ireland Limited, a subsidiary of Alkermes plc (Alkermes), for VUMERITY, a novel fumarate for the treatment of RMS. In October 2019 the FDA approved VUMERITY in the U.S. for the treatment of RMS. During the fourth quarter of 2021 VUMERITY was approved for the treatment of relapsing-remitting MS (RRMS) in the E.U., Switzerland and the United Kingdom (U.K.).
Under this agreement, we received an exclusive, worldwide license to develop and commercialize VUMERITY and we pay Alkermes royalties of 15.0% on worldwide net commercial sales of VUMERITY, which are recognized in cost of sales within 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. Royalty cost of sales related to sales of VUMERITY for the years ended December 31, 2022, 2021 and 2020, totaled approximately $83.0 million, $61.6 million and $12.9 million, respectively.
Alkermes is eligible to receive royalties in the high-single digits to sub-teen double digits of annual net commercial sales upon successful development and commercialization of new product candidates, other than VUMERITY, developed under the exclusive license from Alkermes.
Alkermes currently supplies both VUMERITY and FAMPYRA to us pursuant to separate supply agreements. In October 2019 we entered into a new supply agreement and amended our license and collaboration agreement with Alkermes for VUMERITY. We have elected to initiate a technology transfer and, following a transition period, to manufacture VUMERITY or have VUMERITY manufactured by a third party we have engaged in exchange for paying an increased royalty rate to Alkermes on any portion of future worldwide net commercial sales of VUMERITY that is manufactured by us or our designee. In October 2022 we entered into a new supply agreement with Alkermes for FAMPYRA. Acorda previously supplied FAMPYRA to us pursuant to a sublicensing arrangement with Alkermes, which was terminated in October 2022 as a result of an arbitration outcome between Acorda and Alkermes.
Acorda Therapeutics, Inc.
In June 2009 we entered into a collaboration and license agreement with Acorda Therapeutics, Inc. (Acorda) to develop and commercialize products containing fampridine, such as FAMPYRA, in markets outside the U.S. We are responsible for all regulatory activities and the future clinical development of related products in those markets.
Under this agreement, we pay tiered royalties based on the level of ex-U.S. net sales and we may pay potential milestone payments based on the successful achievement of certain regulatory and commercial milestones, which would be capitalized as intangible assets upon achievement of the milestones and amortized utilizing an economic consumption model. During the third quarter of 2020 we recognized a milestone of $15.0 million, which became due
F-65
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
upon ex-U.S. net sales reaching $100.0 million over a period of four consecutive quarters, and was capitalized within intangible assets, net in our consolidated balance sheets.
In connection with the collaboration and license agreement, we also entered into a supply agreement with Acorda for the commercial supply of FAMPYRA. This agreement was a sublicense arrangement of an existing agreement between Acorda and Alkermes Inc., who acquired Elan Drug Technologies, the original party to the license with Acorda. In October 2022 we learned that, as a result of an arbitration filed by Acorda with the American Arbitration Association in July 2020 after Acorda and Alkermes were unable to resolve a dispute over license and supply royalties, Acorda no longer had to pay Alkermes any royalties on net sales for license and supply of FAMPYRA and Acorda was now free to use alternative sources for supply of FAMPYRA. Acorda notified us that as a result of it no longer obtaining FAMPYRA from Alkermes, that we would need to enter into a supply agreement to obtain FAMPYRA directly with Alkermes.
For the years ending December 31, 2022, 2021 and 2020, total cost of sales related to royalties and commercial supply of FAMPYRA reflected in our consolidated statements of income were approximately $46.1 million, $46.6 million and $44.5 million, respectively.
Sage Therapeutics, Inc.
In November 2020 we entered into a global collaboration and license agreement with Sage to jointly develop and commercialize zuranolone (BIIB125) for the potential treatment of MDD and PPD and BIIB124 (SAGE-324) for the potential treatment of essential tremor with potential in other neurological conditions such as epilepsy.
In connection with the closing of this transaction in December 2020 we purchased $650.0 million of Sage common stock, or approximately 6.2 million shares at approximately $104.14 per share, which were initially subject to transfer restrictions. We recorded an asset in investments and other assets in our consolidated balance sheets to reflect the initial fair value of the Sage common stock acquired and a charge of approximately $209.0 million to research and development expense in our consolidated statements of income to reflect the premium paid for the Sage common stock. We also made an upfront payment of $875.0 million that was recorded as research and development expense within our consolidated statements of income for the year ended December 31, 2020.
We may also pay Sage development and commercial milestone payments that could total up to approximately $1.6 billion if all the specified milestones set forth in this collaboration are achieved. Both companies will share equal responsibility and costs for development as well as profits and losses for commercialization in the U.S. Outside of the U.S., we are responsible for development and commercialization, excluding Japan, Taiwan and South Korea, with respect to zuranolone and may pay Sage potential tiered royalties in the high teens to low twenties. We may pay Sage milestones totaling $225.0 million upon the first commercial sale of zuranolone, for the potential treatment of MDD and PPD, in the U.S.
A summary of development and sales and marketing expense related to this collaboration is as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Total Sage collaboration development expense | $ | 173.3 | $ | 167.7 | $ | — | ||||||||||||||
| Biogen's share of the Sage collaboration development expense reflected in research and development expense in our consolidated statements of income | 86.7 | 83.8 | — | |||||||||||||||||
| Total Sage sales and marketing expense incurred by the collaboration | 109.9 | 36.4 | — | |||||||||||||||||
| Biogen's share of the Sage collaboration sales and marketing expense reflected in selling, general and administrative expense in our consolidated statements of income | 55.0 | 18.2 | — |
F-66
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Denali Therapeutics Inc.
In August 2020 we entered into a collaboration and license agreement with Denali to co-develop and co-commercialize Denali's small molecule inhibitors of leucine-rich repeat kinase 2 (LRRK2) for Parkinson's disease. In addition to the LRRK2 program, we also have an exclusive option to license two preclinical programs from Denali’s Transport Vehicle platform, including its Antibody Transport Vehicle (ATV): ATV enabled anti-amyloid beta program and a second program utilizing its Transport Vehicle technology. Further, we have a right of first negotiation on two additional ATV-enabled therapeutics for indications within specific neurodegenerative diseases, should Denali decide to seek a collaboration for such programs.
As part of this collaboration we purchased $465.0 million of Denali common stock in September 2020, or approximately 13 million shares at approximately $34.94 per share, which were initially subject to transfer restrictions. We recorded an asset in investments and other assets in our consolidated balance sheets to reflect the initial fair value of the Denali common stock acquired and a charge of approximately $41.3 million to research and development expense in our consolidated statements of income to reflect the premium paid for the Denali common stock. We also made an upfront payment of $560.0 million that was recorded as research and development expense within our consolidated statements of income for the year ended December 31, 2020.
We may also pay Denali development and commercial milestone payments that could total up to approximately $1.1 billion if the milestones related to the LRRK2 program are achieved. Under this collaboration, both companies share responsibility and costs for global development based on specified percentages as well as profits and losses for commercialization in the U.S. and China. Outside the U.S. and China we are responsible for commercialization and may pay Denali potential tiered royalties.
In October 2022 we and Denali announced the initiation of the Phase 3 LIGHTHOUSE study for BIIB122 (DNL151), a small molecule inhibitor of LRRK2 for the potential treatment of Parkinson's disease.
A summary of development expense related to this collaboration is as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Total Denali collaboration development expense | $ | 75.1 | $ | 42.5 | $ | 14.6 | ||||||||||||||
| Biogen's share of the Denali collaboration development expense reflected in research and development expense in our consolidated statements of income | 43.8 | 25.5 | 8.8 |
Sangamo Therapeutics, Inc.
In February 2020 we entered into a collaboration and license agreement with Sangamo to develop and commercialize ST-501 for tauopathies, including Alzheimer's disease; ST-502 for synucleinopathies, including Parkinson’s disease; a third neuromuscular disease target; and up to nine additional neurological disease targets to be identified and selected within a five-year period. The companies are leveraging Sangamo’s proprietary zinc finger protein technology delivered via adeno-associated virus to modulate the expression of key genes involved in neurological diseases.
In connection with the closing of this transaction in April 2020 we purchased $225.0 million of Sangamo common stock, or approximately 24 million shares at approximately $9.21 per share, which were initially subject to transfer restrictions. We recorded an asset in investments and other assets in our consolidated balance sheets to reflect the initial fair value of the Sangamo common stock acquired and a charge of approximately $83.0 million to research and development expense in our consolidated statements of income to reflect the premium paid for the Sangamo common stock. We also made an upfront payment of $125.0 million that was recorded as research and development expense within our consolidated statements of income for the year ended December 31, 2020.
We may also pay Sangamo research, development, regulatory and commercial milestone payments that could total up to approximately $2.4 billion if we select all of the targets allowed under this collaboration and all the specified milestones set forth in this collaboration are achieved. Of this amount, up to $80.0 million relates to the selection of targets, $1.9 billion relates to the achievement of specified research, clinical development, regulatory and first commercial sale milestones and $380.0 million relates to the achievement of specified sales-based milestones if annual worldwide net sales of licensed products reach specified levels. In addition, we may pay Sangamo tiered royalties on potential net sales of any products developed under this collaboration in the high single digit to sub-teen percentages.
F-67
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of development expense related to this collaboration is as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | |||||||||||||||||
| Total Sangamo collaboration development expense | $ | 19.1 | $ | 22.7 | $ | 10.1 | ||||||||||||||
| Biogen's share of the Sangamo collaboration development expense reflected in research and development expense in our consolidated statements of income | 12.1 | 14.6 | 6.4 |
InnoCare Pharma Limited
In July 2021 we entered into a collaboration and license agreement with InnoCare Pharma Limited (InnoCare) for orelabrutinib, an oral small molecule Bruton's tyrosine kinase inhibitor for the potential treatment of MS. Orelabrutinib is currently being studied in a multi-country, placebo-controlled Phase 2 trial in RRMS. Under the terms of this collaboration, we have exclusive rights to orelabrutinib in the field of MS worldwide and certain autoimmune diseases outside of China (including Hong Kong, Macau and Taiwan), while InnoCare retains exclusive worldwide rights to orelabrutinib in the field of oncology and certain autoimmune diseases in China (including Hong Kong, Macau and Taiwan).
In connection with the closing of this transaction in August 2021 we made an upfront payment of $125.0 million that was recorded as research and development expense within our consolidated statements of income for the year ended December 31, 2021. We may also pay InnoCare up to approximately $812.5 million in potential development milestones and potential commercial payments should this collaboration achieve certain development, commercial milestones and sales thresholds. In addition, we may pay InnoCare tiered royalties on potential net sales of any products developed under this collaboration in the low to high teen percentages.
In February 2023 we terminated our license and collaboration agreement with InnoCare for orelabrutinib, for the potential treatment of MS.
Other Research and Discovery Arrangements
These arrangements may include the potential for future milestone payments based on the achievement of certain clinical and commercial development payable over a period of several years.
Other
For the years ended December 31, 2022, 2021 and 2020, we recorded approximately $39.2 million, $89.1 million and $92.1 million, respectively, as research and development expense in our consolidated statements of income related to other research and discovery related arrangements.
Samsung Bioepis Co., Ltd.
Joint Venture Agreement
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. Samsung BioLogics contributed 280.5 billion South Korean won (approximately $250.0 million) for an 85.0% ownership interest in Samsung Bioepis and we contributed 49.5 billion South Korean won (approximately $45.0 million) for the remaining 15.0% ownership interest. In June 2018 we exercised our option under our joint venture agreement to increase our ownership percentage in Samsung Bioepis from approximately 5.0%, which reflected the effect of previous equity financings in which we did not participate, 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.
In April 2022 we completed the sale of our 49.9% equity interest in Samsung Bioepis to Samsung BioLogics. Under the terms of this transaction, we received approximately $1.0 billion in cash at closing and expect to receive approximately $1.3 billion in cash to be deferred over two payments of approximately $812.5 million due at the first anniversary and approximately $437.5 million due at the second anniversary of the closing of this transaction.
As part of this transaction, we are also eligible to receive up to an additional $50.0 million upon the achievement of certain commercial milestones. Our policy for contingent payments of this nature is to recognize the payments in the period that they become realizable, which is generally the same period in which the payments are earned.
F-68
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Prior to this sale, we recognized 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 became available, which was reflected as equity in (income) loss of investee, net of tax in our consolidated statements of income.
Upon our November 2018 investment, the equity method of accounting required us to identify and allocate differences between the fair value of our investment and the carrying value of our interest in the underlying net assets of the investee. These basis differences were being amortized over their economic life, until the completion of the sale in April 2022, as discussed above. The total basis difference was approximately $675.0 million and related to inventory, developed technology, IPR&D and deferred tax balances. The basis differences related to inventory were amortized, net of tax, over their estimated useful lives of 1.5 years, and the basis differences related to developed technology and IPR&D for marketed products were being amortized, net of tax, over their estimated useful lives of 15 years.
For the year ended December 31, 2022, we recognized net income on our investment of $2.6 million, reflecting our share of Samsung Bioepis' operating profits, net of tax, totaling $17.0 million offset by amortization of basis differences totaling $14.4 million. This amount reflects our share of results prior to the sale of Samsung Bioepis as the results are recognized one quarter in arrears. Following the sale of Samsung Bioepis we no longer recognize gains or losses associated with Samsung Bioepis' results of operations and amortization related to basis differences.
For the year ended December 31, 2021, we recognized net income on our investment of $34.9 million, reflecting our share of Samsung Bioepis' operating profits, net of tax, totaling $64.6 million offset by amortization of basis differences totaling $29.7 million.
Net income on our investment for the year ended December 31, 2021, reflects a $31.2 million benefit related to the release of a valuation allowance on deferred tax assets associated with Samsung Bioepis. The valuation allowance was released in the second quarter of 2021 based on a consideration of the positive and negative evidence, including the historic earnings of Samsung Bioepis.
As of December 31, 2021, the carrying value of our investment in Samsung Bioepis totaled 713.3 billion South Korean won ($599.9 million), which is classified as a component of investments and other assets within our consolidated balance sheets. In connection with the sale of Samsung Bioepis, the carrying value of our investment was reduced to zero.
For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 3, Dispositions, to these consolidated financial statements.
2019 Development and Commercialization Agreement
In December 2019 we completed a transaction with Samsung Bioepis and secured the exclusive rights to commercialize two potential ophthalmology biosimilar products, BYOOVIZ (ranibizumab-nuna), a ranibizumab biosimilar referencing LUCENTIS, and SB15, a proposed aflibercept biosimilar referencing EYLEA, in major markets worldwide, including the U.S., Canada, Europe, Japan and Australia. Samsung Bioepis will be responsible for development and will supply both products to us at a pre-specified gross margin of approximately 45.0%.
In connection with this transaction, we made an upfront payment of $100.0 million to Samsung Bioepis in January 2020, of which $63.0 million was recorded as research and development expense in our consolidated statements of income in 2019 and $37.0 million was recorded as an intangible assets, net in our consolidated balance sheets in 2019.
During the third quarter of 2020 we paid Samsung Bioepis a $15.0 million development milestone, which was included in research and development expense in our consolidated statements of income. During the third quarter of 2021 we accrued $15.0 million in milestone payments related to the approval of BYOOVIZ in the U.S., the E.U. and the U.K., that were capitalized within intangible assets, net in our consolidated balance sheets. We may also pay Samsung Bioepis up to approximately $180.0 million in additional development, regulatory and sales-based milestones.
We also acquired an option to extend the term of our 2013 commercial agreement for BENEPALI, IMRALDI and FLIXABI by an additional five years, subject to payment of an option exercise fee of $60.0 million, and obtained an option to acquire exclusive rights to commercialize these products in China.
F-69
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2013 Commercial Agreement
In December 2013 we entered into an agreement with Samsung Bioepis to commercialize, over a 10-year term, 3 anti-tumor necrosis factor (TNF) biosimilar product candidates in Europe and in the case of BENEPALI, Japan. As discussed above, we have an option to extend this agreement by an additional five years. Under this agreement, we have made upfront and clinical development milestone payments totaling $46.0 million, which were recorded as research and development expense in our consolidated statements of income as the programs they relate to had not achieved regulatory approval. We also agreed to make additional milestone payments of $25.0 million upon regulatory approval in the E.U. for each of the three anti-TNF biosimilar product candidates. IMRALDI, an adalimumab biosimilar referencing HUMIRA, FLIXABI, an infliximab biosimilar referencing REMICADE, and BENEPALI, an etanercept biosimilar referencing ENBREL, received regulatory approval in the E.U. in August 2017, May 2016 and January 2016, respectively, and we capitalized the related milestone payments totaling $75.0 million as intangible assets, net in our consolidated balance sheets.
We reflect revenue on sales of BENEPALI, IMRALDI and FLIXABI to third parties in product revenue, net in our consolidated statements of income and record the related cost of revenue and sales and marketing expense in our consolidated statements of income to their respective line items when these costs are incurred. Royalty payments to AbbVie Inc. (AbbVie) on sales of IMRALDI are recognized in cost of sales within our consolidated statements of income.
We share 50.0% of the profit or loss related to our commercial agreement with Samsung Bioepis, which is recognized in collaboration profit (loss) sharing in our consolidated statements of income. For the years ended December 31, 2022, 2021 and 2020, we recognized net profit-sharing expense of $217.4 million, $285.4 million and $266.5 million, respectively, to reflect Samsung Bioepis' 50.0% sharing of the net collaboration profits.
Other Services
Simultaneous with the formation of Samsung Bioepis, we also entered into a license agreement with Samsung Bioepis.
Under the license agreement, we granted Samsung Bioepis an exclusive license to use, develop, manufacture and commercialize biosimilar products created by Samsung Bioepis using Biogen product-specific technology. In exchange, we receive single digit royalties on biosimilar products developed and commercialized by Samsung Bioepis.
For the years ended December 31, 2022, 2021 and 2020, we recognized $20.6 million, $20.7 million and $20.9 million, respectively, in royalty revenue under the license agreement, as a component of other revenue in our consolidated statements of income.
Amounts receivable from Samsung Bioepis related to the agreements discussed above were $2.0 million and $4.1 million as of December 31, 2022 and 2021, respectively. Amounts payable to Samsung Bioepis related to the agreements discussed above were $40.5 million and $148.7 million as of December 31, 2022 and 2021, respectively.
| Note 20: | Investments in Variable Interest Entities |
Consolidated Variable Interest Entities
Our consolidated financial statements include the financial results of variable interest entities in which we are the primary beneficiary. The following are our significant variable interest entities.
Neurimmune SubOne AG
We have a collaboration and license agreement with Neurimmune for the development and commercialization of antibodies for the potential treatment of Alzheimer's disease, including ADUHELM (as amended, the Neurimmune Agreement). We are responsible for the development, manufacturing and commercialization of all collaboration products. The Neurimmune Agreement is effective for the longer of the duration of certain patents relating to a licensed product or 12 years from the first commercial sale of a licensed product.
We consolidate the results of Neurimmune as we determined that we are the primary beneficiary of Neurimmune because we have the power through the collaboration to direct the activities that most significantly impact the entity’s economic performance and we are required to fund 100.0% of the research and development costs incurred in support of the collaboration. Our royalty rates payable on products developed under the
F-70
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Neurimmune Agreement, including royalty rates payable on commercial sales of ADUHELM, range from the high single digits to sub-teens.
Under the terms of the Neurimmune Agreement, we were required to pay Neurimmune a milestone payment of $75.0 million upon the regulatory filing with the FDA for the approval of ADUHELM. During the second quarter of 2020 we paid Neurimmune $75.0 million upon the completed submission of the BLA for the approval of ADUHELM to the FDA, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income. In addition, during the second quarter of 2020 we recognized net profit-sharing income of $33.8 million to reflect Eisai's 45.0% share of the $75.0 million milestone payment, which was recognized in collaboration profit (loss) sharing in our consolidated statements of income.
In June 2021 ADUHELM was granted accelerated approval by the FDA. Under the terms of the Neurimmune Agreement, we were required to pay Neurimmune a milestone payment of $100.0 million related to the launch of ADUHELM in the U.S. During the second quarter of 2021 we made this $100.0 million payment, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income. In addition, during the second quarter of 2021 we recognized net profit-sharing income of $45.0 million to reflect Eisai's 45.0% share of the $100.0 million milestone payment, which was recognized in collaboration profit (loss) sharing in our consolidated statements of income.
During 2021 we recorded a net deferred tax asset in Switzerland of approximately $100.0 million on Neurimmune's tax basis in ADUHELM, the realization of which was dependent on future sales of ADUHELM. During the first quarter of 2022, upon issuance of the final NCD related to ADUHELM, we recorded an increase in a valuation allowance of approximately $85.0 million to reduce the net value of this deferred tax asset to zero. These adjustments to our net deferred tax asset are each recorded with an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable to Biogen Inc.
Excluding the impact of the Neurimmune deferred tax asset, the assets and liabilities of Neurimmune are not significant to our consolidated financial position or results of operations as it is a research and development organization. We have provided no financing to Neurimmune other than contractually required amounts.
Research and development costs for which we reimburse Neurimmune are reflected in research and development expense in our consolidated statements of income. During the years ending December 31, 2022, 2021 and 2020, amounts reimbursed were immaterial.
For additional information on our collaboration arrangements with Eisai, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
Unconsolidated Variable Interest Entities
We have relationships with various variable interest entities that we do not consolidate as we lack the power to direct the activities that significantly impact the economic success of these entities. These relationships include investments in certain biotechnology companies and research collaboration agreements.
As of December 31, 2022 and 2021, the carrying value of our investments in certain biotechnology companies representing potential unconsolidated variable interest entities totaled $27.8 million and $24.6 million, respectively. Our maximum exposure to loss related to these variable interest entities is limited to the carrying value of our investments.
We have also entered into research collaboration agreements with certain variable interest entities where we are required to fund certain development activities. These development activities are included in research and development expense in our consolidated statements of income as they are incurred. We have provided no financing to these variable interest entities other than previous contractually required amounts.
| Note 21: | Litigation |
We are currently involved in various claims and legal proceedings, including the matters described below. For information as to our accounting policies relating to claims and legal proceedings, including use of estimates and contingencies, please read Note 1, Summary of Significant Accounting Policies, to these consolidated financial statements.
F-71
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
With respect to some loss contingencies, an estimate of the possible loss or range of loss cannot be made until management has further information, including, for example, (i) which claims, if any, will survive dispositive motion practice; (ii) information to be obtained through discovery; (iii) information as to the parties' damages claims and supporting evidence; (iv) the parties’ legal theories; and (v) the parties' settlement positions. If an estimate of the possible loss or range of loss can be made at this time, it is included in the potential loss contingency description below.
The claims and legal proceedings in which we are involved also include challenges to the scope, validity or enforceability of the patents relating to our products, pipeline or processes and challenges to the scope, validity or enforceability of the patents held by others. These include claims by third-parties that we infringe their patents. An adverse outcome in any of these proceedings could result in one or more of the following and have a material impact on our business or consolidated results of operations and financial position: (i) loss of patent protection; (ii) inability to continue to engage in certain activities; and (iii) payment of significant damages, royalties, penalties and/or license fees to third parties.
Loss Contingencies
ADUHELM Securities Litigation
We and certain current and former officers are named as defendants in actions filed by shareholders in November 2020 (the November 2020 Securities Action) and February 2022 (the February 2022 Securities Action) and pending in the U.S. District Court for the District of Massachusetts. The actions allege violations of federal securities laws under 15 U.S.C §78j(b) and §78t(a) and 17 C.F.R. §240.10b-5 and seek declarations of the actions as class actions and monetary relief. In September 2022, the court dismissed the November 2020 Securities Action, and the plaintiff has appealed to the U.S. Court of Appeals for the First Circuit. Our motion to dismiss the February 2022 Securities Action is pending.
Shareholder Derivative Actions
We and members of the Board of Directors are named as defendants in derivative actions filed by shareholders on February 9 and July 21, 2022, in the U.S. District Court for the District of Massachusetts. The actions allege violations of federal securities laws under 15 U.S.C. §78n(a) and 17 C.F.R. §240 14.a-9, breaches of fiduciary duties and waste of corporate assets, and seek declaratory and injunctive relief, monetary relief payable to Biogen, and attorneys’ fees and costs payable to the plaintiffs. The court has stayed both cases.
IMRALDI Patent Litigation
In September 2018 Fresenius Kabi Deutschland GmbH (Fresenius Kabi) commenced proceedings for damages and injunctive relief against Biogen France SAS in the Tribunal de Grande Instance de Paris and proceedings against Biogen GmbH in the Düsseldorf Regional Court, alleging that IMRALDI, the adalimumab biosimilar product of Samsung Bioepis that Biogen commercializes in Europe, infringes national counterparts of European Patent No. 3 148 510 (the EP '510 Patent). In June 2022 Fresenius Kabi amended both actions to assert claims under European Patent 3 145 488 (the EP ‘488 Patent), which expires in May 2035. No hearing has been set in either action.
In June 2022 the Technical Boards of Appeal (TBA) of the European Patent Office (EPO) affirmed the revocation of the EP '510 Patent, which resolves all pending infringement claims under the EP '510 Patent. The EPO upheld the validity of the EP '488 Patent in October 2022.
In June 2020 Fresenius Kabi commenced preliminary injunction proceedings in Denmark's Maritime and Commercial High Court alleging that IMRALDI infringes the Danish counterpart of the EP '488 Patent and a corresponding Danish utility model, DK 2020 00038 Y3. In September 2021 the Court refused Fresenius Kabi's request for a preliminary injunction and Fresenius Kabi has withdrawn its appeal.
In July 2019 Gedeon Richter Nyrt commenced proceedings for damages and injunctive relief against Biogen GmbH in the Düsseldorf Regional Court, alleging infringement of the German counterpart of European Patent No. 3 212 667 (the EP '667 Patent), which expires in October 2035. The case has been stayed pending Gedeon Richter's appeal to the TBA of the revocation of the patent. A hearing has been set by the TBA for July 2023.
In November 2020 Gedeon Richter Nyrt commenced proceedings against Biogen GmbH in the Düsseldorf Regional Court alleging infringement of a German utility model corresponding to EP '667. The proceeding has been stayed pending the outcome of proceedings that Biogen has filed in the German Patent and Trademark Office to cancel the utility model, and in which a hearing has been set for March 2023.
F-72
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Dispute with Former Convergence Shareholders
In 2015 Biogen acquired Convergence, a UK company. In November and December 2019 Shareholder Representative Services LLC, on behalf of the former shareholders of Convergence, sent us correspondence asserting claims of $200.0 million for alleged breach of the contract under which we acquired Convergence. We dispute the claims.
ERISA Class Action Litigation
In September 2020 the U.S. District Court for the District of Massachusetts consolidated two cases filed against us in July and August 2020 by participants in the Biogen 401(k) Savings Plan, alleging breach of fiduciary duty under ERISA. Plaintiffs seek a declaration of the action as a class action and monetary and other relief.
Humana Patient Assistance Litigation
In September 2021 Humana Inc. (Humana) filed suit against us in the U.S. District Court for the District of Massachusetts, alleging damages related to our providing MS patients with free medications and making charitable contributions to non-profit organizations that assist MS patients. Humana alleges violation of the federal RICO Act and state laws and seeks statutory treble damages, attorneys' fees and costs. We filed a motion to dismiss, which is pending.
Distributor Matter
In December 2022 we terminated our distribution agreement with the distributor of products for Biogen in various countries in the Middle East and northern Africa. The former distributor has asserted breach of contract. No suit has been filed.
Other Matters
Government Investigations
The company has received subpoenas from the Securities and Exchange Commission seeking information relating to ADUHELM, including healthcare sites and ADUHELM's approval. In 2021 the U.S. House of Representatives Committees on Oversight and Reform and Energy (House Committees) and the Office of Inspector General (OIG) each announced investigations related to ADUHELM. In December 2022 the House Committees issued a report on their investigation.
TYSABRI Patent Matters
In September 2022 we filed an action in the U.S. District Court for the District of Delaware against Sandoz Inc. and Polpharma Biologics S.A. under the Biologics Price Competition and Innovation Act, 42 U.S.C. §262, seeking a declaratory judgment of patent infringement. No trial date has been set.
In December 2022 the TBA affirmed the revocation of our European Patent 2 676 967 (the EP '967 Patent), covering pre-treatment testing of patients using natalizumab (TYSABRI).
In September 2021 Polpharma Biologics S.A., Sandoz AG, Sandoz Limited and Sandoz GmbH filed an action in the English High Court to revoke the U.K. counterpart of the EP ‘967 Patent. No trial date has been set.
Annulment Proceedings in the General Court of the European Union relating to TECFIDERA
Pharmaceutical Works Polpharma SA (Polpharma) and Mylan Ireland Ltd. (Mylan Ireland) each filed actions in the General Court of the European Union (Polpharma in October 2018 and Mylan Ireland in November 2020) to annul the European Medicines Agency's (EMA) decision not to validate their applications to market generic versions of TECFIDERA on the grounds that TECFIDERA benefits from regulatory data protection. On May 5, 2021, the European General Court annulled the EMA's non-validation decision with respect to Polpharma. The European Court of Justice will announce its decision in our appeal of this decision on March 16, 2023. The case brought by Mylan Ireland has been stayed.
Product Liability and Other Legal Proceedings
We are also involved in product liability claims and other legal proceedings generally incidental to our normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, we do not believe
F-73
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the ultimate resolution of any of these existing matters would have a material adverse effect on our business or financial condition.
| Note 22: | Commitments and Contingencies |
Royalty Payments
TYSABRI
In 2013 we acquired from Elan 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 18.0% on annual worldwide net commercial sales up to $2.0 billion and 25.0% 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 11.0% and 15.0%, 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 19, Collaborative and Other Relationships, to these consolidated financial statements.
VUMERITY
Under our agreement with Alkermes, we make royalty payments to Alkermes on worldwide net commercial sales of VUMERITY using a royalty rate of 15.0%, 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 19, Collaborative and Other Relationships, to these consolidated financial statements.
Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2022, we could trigger potential future milestone payments to third parties of up to approximately $9.3 billion, including approximately $2.0 billion in development milestones, approximately $0.5 billion in regulatory milestones and approximately $6.8 billion in commercial milestones, as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones was not considered probable as of December 31, 2022, 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.
If certain clinical and commercial milestones are met, we may pay up to $356.2 million in milestones in 2023 under our current agreements. This includes milestones totaling $225.0 million due to Sage upon the first commercial sale of zuranolone, for the potential treatment of MDD and PPD, in the U.S.
During the second quarter of 2020 we paid Neurimmune $75.0 million upon the completed submission of the BLA for the approval of ADUHELM to the FDA, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income.
In June 2021 ADUHELM was granted accelerated approval by the FDA. Under the terms of the Neurimmune Agreement, we were required to pay Neurimmune a milestone payment of $100.0 million related to the launch of ADUHELM in the U.S. During the second quarter of 2021 we made this $100.0 million payment, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income.
F-74
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Funding Commitments
As of December 31, 2022, 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 expense of approximately $20.4 million in our consolidated balance sheets for expenditures incurred by CROs as of December 31, 2022. We have approximately $929.0 million in cancellable future commitments based on existing CRO contracts as of December 31, 2022.
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, 2022, we have approximately $154.6 million of liabilities associated with uncertain tax positions.
As of December 31, 2022 and 2021, we have accrued income tax liabilities of approximately $558.0 million and $633.0 million, respectively, under the Transition Toll Tax. Of the amounts accrued as of December 31, 2022, approximately $137.8 million is expected to be paid within one year. The Transition Toll Tax will be paid in installments 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 17, Income Taxes, to these consolidated financial statements.
| Note 23: | Guarantees |
As of December 31, 2022 and 2021, we did not have significant liabilities recorded for guarantees.
We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business partners, contractors, clinical sites and customers. Under these provisions, we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. However, to date we have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of December 31, 2022 and 2021.
| Note 24: | Employee Benefit Plans |
We sponsor various retirement and pension plans. Our estimates of liabilities and expense for these plans incorporate a number of assumptions, including expected rates of return on plan assets and interest rates used to discount future benefits.
401(k) Savings Plan
We maintain a 401(k) Savings Plan, which is available to substantially all regular employees in the U.S. over the age of 21. Participants may make voluntary contributions. We make matching contributions according to the 401(k) Savings Plan’s matching formula. All matching contributions and participant contributions vest immediately. The 401(k) Savings Plan also holds certain transition contributions on behalf of participants who previously participated in the Biogen, Inc. Retirement Plan. The expense related to our 401(k) Savings Plan primarily consists of our matching contributions.
Expense related to our 401(k) Savings Plan totaled approximately $56.0 million, $58.4 million and $44.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Deferred Compensation Plan
We maintain a non-qualified deferred compensation plan, known as the Supplemental Savings Plan (SSP), which allows a select group of management employees in the U.S. to defer a portion of their compensation. The SSP also provides certain credits to highly compensated U.S. employees that are paid by the company. These credits are known as the Restoration Match. The deferred compensation amounts are accrued when earned. Such deferred compensation is distributable in cash in accordance with the rules of the SSP. Deferred compensation amounts under such plan as of December 31, 2022 and 2021, totaled approximately $131.9 million and $131.4 million, respectively, and are included in other long-term liabilities in our consolidated balance sheets. The SSP also holds certain transition contributions on behalf of participants who previously participated in the Biogen, Inc. Retirement
F-75
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Plan. The Restoration Match and participant contributions vest immediately. Distributions to participants can be either in one lump sum payment or annual installments as elected by the participants.
Pension Plans
Our retiree benefit plans include defined benefit plans for employees in our affiliates in Switzerland and Germany as well as other insignificant defined benefit plans in certain other countries where we maintain an operating presence.
Our Swiss plan is a government-mandated retirement fund that provides employees with a minimum investment return. The minimum investment return is determined annually by the Swiss government and was 2.00% in 2022 and 1.00% in both 2021 and 2020. Under the Swiss plan, both we and certain of our employees with annual earnings in excess of government determined amounts are required to make contributions into a fund managed by an independent investment fiduciary. Employer contributions must be in an amount at least equal to the employee’s contribution. Minimum employee contributions are based on the respective employee’s age, salary and gender. As of December 31, 2022 and 2021, the Swiss plan had an unfunded net pension obligation of $49.9 million and $64.1 million, respectively, and plan assets that totaled $193.7 million and $200.1 million, respectively. In 2022, 2021 and 2020 we recognized net expense totaling $20.0 million, $21.5 million and $15.5 million, respectively, related to our Swiss plan, of which $5.3 million, $3.5 million and $2.6 million, respectively, was included in other (income) expense, net in our consolidated statements of income.
The obligations under the German plans are unfunded and totaled $40.9 million and $68.4 million as of December 31, 2022 and 2021, respectively. Net periodic pension cost related to the German plans totaled $5.9 million, $7.6 million and $6.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, of which $1.8 million, $2.1 million and $2.0 million, respectively, was included in other (income) expense, net in our consolidated statements of income.
| Note 25: | Segment Information |
We operate as one operating segment, 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 CEO, as the chief operating decision-maker, manages and allocates resources to the operations of our company on a total company basis. Our research and development organization is responsible for the research and discovery of new product candidates and supports development and registration efforts for potential future products. Our pharmaceutical, operations and technology organization manages the development of the manufacturing processes, clinical trial supply, commercial product supply, distribution, buildings and facilities. Our commercial organization is responsible for U.S. and international development of our commercial products. The company is also supported by corporate staff functions. Managing and allocating resources on a total company basis enables our CEO to assess the overall level of resources available and how to best deploy these resources across functions, therapeutic areas and research and development projects that are in line with our long-term company-wide strategic goals. Consistent with this decision-making process, our CEO uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets.
Enterprise-wide disclosures about product revenue, other revenue and long-lived assets by geographic area are presented below. Revenue is primarily attributed to individual countries based on location of the customer or licensee.
F-76
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Geographic Information
The following tables contain certain financial information by geographic area:
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| (In millions) | U.S. | Europe**(1)** | Germany | Asia | Other | Total | ||||||||||||||||||||||||||||||||
| Product revenue from external customers | $ | 3,469.3 | $ | 2,401.3 | $ | 926.2 | $ | 672.1 | $ | 518.9 | $ | 7,987.8 | ||||||||||||||||||||||||||
| Revenue from anti-CD20 therapeutic programs | 1,636.4 | 0.1 | — | — | 64.0 | 1,700.5 | ||||||||||||||||||||||||||||||||
| Other revenue from external customers | 425.8 | 11.7 | — | 47.6 | — | 485.1 | ||||||||||||||||||||||||||||||||
| Long-lived assets | 1,369.4 | 2,275.8 | 21.0 | 13.7 | 22.6 | 3,702.5 | ||||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| (In millions) | U.S. | Europe**(1)** | Germany | Asia | Other | Total | ||||||||||||||||||||||||||||||||
| Product revenue from external customers | $ | 3,805.7 | $ | 2,626.0 | $ | 1,162.4 | $ | 688.0 | $ | 564.8 | $ | 8,846.9 | ||||||||||||||||||||||||||
| Revenue from anti-CD20 therapeutic programs | 1,596.7 | — | — | — | 61.8 | 1,658.5 | ||||||||||||||||||||||||||||||||
| Other revenue from external customers | 429.9 | 9.7 | — | 36.7 | — | 476.3 | ||||||||||||||||||||||||||||||||
| Long-lived assets | 1,390.5 | 2,337.8 | 25.4 | 16.4 | 21.7 | 3,791.8 | ||||||||||||||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| (In millions) | U.S. | Europe**(1)** | Germany | Asia | Other | Total | ||||||||||||||||||||||||||||||||
| Product revenue from external customers | $ | 5,900.1 | $ | 2,495.3 | $ | 1,161.1 | $ | 596.7 | $ | 539.0 | $ | 10,692.2 | ||||||||||||||||||||||||||
| Revenue from anti-CD20 therapeutic programs | 1,897.4 | 0.1 | — | — | 80.3 | 1,977.8 | ||||||||||||||||||||||||||||||||
| Other revenue from external customers | 733.6 | 8.0 | 0.1 | 32.9 | — | 774.6 | ||||||||||||||||||||||||||||||||
| Long-lived assets | 1,496.3 | 2,290.2 | 31.2 | 16.2 | 10.9 | 3,844.8 |
(1) Represents amounts related to Europe less those attributable to Germany.
Long-Lived Assets
As of December 31, 2022, 2021 and 2020, approximately $2,198.5 million, $2,237.0 million and $2,180.6 million, respectively, of our long-lived assets were related to the construction of our large-scale biologics manufacturing facility in Solothurn, Switzerland.
For additional information on our Solothurn manufacturing facility, please read Note 11, Property, Plant and Equipment, to these consolidated financial statements.
F-77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Biogen Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Biogen Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of equity and of cash flow for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-78
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Reserves for Medicaid and Managed Care Rebates
As described in Notes 1 and 5 to the consolidated financial statements, the Company recognized revenue from product sales net of reserves, including Medicaid and managed care rebates. Within accrued expense and other, total contractual adjustments amounted to $868.1 million as of December 31, 2022. A portion of this balance includes provisions for Medicaid and managed care rebates in the US. Medicaid rebates relate to the Company’s estimated obligations to states under established reimbursement arrangements. The Company’s liability for Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoices received for claims from the prior quarters that have not been paid and an estimate of potential claims that will be made for inventory that exists in the distribution channel at period end. Managed care rebates represent the Company’s estimated obligations to third-parties, primarily pharmacy benefit managers. These rebates result from performance-based goals, formulary position and price increase limit allowances (price protection). The calculation of the accrual for these rebates is based on an estimate of the coverage patterns and the resulting applicable contractual rebate rate(s) to be earned over a contractual period. Rebate accruals for Medicaid and managed care are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities. The Medicaid and managed care estimates reflect historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.
The principal considerations for our determination that performing procedures relating to reserves for Medicaid and managed care rebates is a critical audit matter are the significant judgment by management due to the significant measurement uncertainty involved in developing these reserves, as the reserves are based on assumptions developed using historical experience, current contractual requirements, specific known market events and payment patterns, which in turn led to a high degree of auditor judgment, subjectivity, and effort in applying procedures and evaluating audit evidence related to these assumptions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the reserves for Medicaid and managed care rebates, including controls over the assumptions used to estimate these Medicaid and managed care rebate reserves. These procedures also included, among others (i) developing an independent estimate of the Medicaid and managed care rebate reserves by utilizing third-party data related to product demand, data related to price changes, the terms of the specific rebate programs, the historical trend of actual rebate claims paid and consideration of contractual requirement changes and market events; (ii) comparing the independent estimate to management’s estimate; and (iii) testing rebate claims paid by the Company, including evaluating the claims for consistency with the contractual terms of the Company’s rebate agreements.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2023
We have served as the Company's auditor since 2003.
F-79
Previous: Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES