Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19311
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12851770&doc=14
BIOGEN INC.
(Exact name of registrant as specified in its charter)
Delaware
 
33-0112644
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
225 Binney Street, Cambridge, MA 02142
(617) 679-2000
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer x
 
Accelerated filer  o
Non-accelerated filer o
 
Smaller reporting company  o
 
 
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of April 19, 2019, was 193,893,397 shares.
 


Table of Contents

BIOGEN INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended March 31, 2019
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II — OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 


2

Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the Act) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “potential,” “possible,” “will,” "would" and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
the anticipated amount, timing and accounting of revenues; contingent, milestone, royalty and other payments under licensing, collaboration, acquisition or divestiture agreements; tax positions and contingencies; collectability of receivables; pre-approval inventory; cost of sales; research and development costs; compensation and other selling, general and administrative expenses; amortization of intangible assets; foreign currency exchange risk; estimated fair value of assets and liabilities; and impairment assessments;
expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products;
the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters;
patent terms, patent term extensions, patent office actions and expected availability and period of regulatory exclusivity;
the potential impact of increased product competition in the markets in which we compete, including increased competition from generics, biosimilars, prodrugs and other products approved under abbreviated regulatory pathways;
our plans and investments in our core and emerging growth areas, as well as implementation of our 2017 corporate strategy;
the drivers for growing our business, including our plans and intention to commit resources relating to research and development programs and business development opportunities, as well as the potential benefits and results of, and the anticipated timing to complete, certain business development transactions, including acquisitions and divestitures;
our ability to finance our operations and business initiatives and obtain funding for such activities;
the costs and timing of potential clinical trials, filings and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products;
adverse safety events involving our marketed products or generic or biosimilar versions of our marketed products;
the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products;
our manufacturing capacity, use of third-party contract manufacturing organizations, plans and timing relating to changes in our manufacturing capabilities, including anticipated investments and divestitures, and activities in new or existing manufacturing facilities;
the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries;
the potential impact on our results of operations and liquidity of the United Kingdom's (U.K.) intent to voluntarily depart from the European Union (E.U.);
lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations;
the impact of new laws, regulatory requirements, judicial decisions and accounting standards; and
the anticipated costs and tax treatment of the spin-off of our hemophilia business.

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Table of Contents

These forward-looking statements involve risks and uncertainties, including those that are described in Item 1A. Risk Factors included in this report and elsewhere in this report that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. Except as required by law, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
References in this report to:
“Biogen,” the “company,” “we,” “us” and “our” refer to Biogen Inc. and its consolidated subsidiaries; and
“RITUXAN” refers to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera (the trade name for rituximab outside the U.S., Canada and Japan).
NOTE REGARDING TRADEMARKS
AVONEX®, PLEGRIDY®, RITUXAN®, RITUXAN HYCELA®, SPINRAZA®, TECFIDERA®, TYSABRI® and ZINBRYTA® are registered trademarks of Biogen.
BENEPALITM, FLIXABITM, FUMADERMTM and IMRALDITM are trademarks of Biogen.
ENBREL®, FAMPYRATM, GAZYVA®, HUMIRA®, OCREVUS®, REMICADE®, SkySTARTM and other trademarks referenced in this report are the property of their respective owners.

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Table of Contents

PART I FINANCIAL INFORMATION

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 
 
For the Three Months
Ended March 31,
 
2019
 
2018
Revenues:
 
 
 
Product, net
$
2,680.0

 
$
2,523.5

Revenues from anti-CD20 therapeutic programs
517.4

 
443.2

Other
292.4

 
164.4

Total revenues
3,489.8

 
3,131.1

Cost and expenses:
 
 
 
Cost of sales, excluding amortization and impairment of acquired intangible assets
602.0

 
446.0

Research and development
563.7

 
496.7

Selling, general and administrative
567.7

 
501.3

Loss on assets and liabilities held for sale
115.5

 

Amortization and impairment of acquired intangible assets
68.2

 
103.9

Collaboration profit (loss) sharing
58.1

 
42.5

Acquired in-process research and development

 
10.0

Loss (gain) on fair value remeasurement of contingent consideration
11.5

 
(5.6
)
Restructuring charges
0.4

 
1.6

Total cost and expenses
1,987.1

 
1,596.4

Income from operations
1,502.7

 
1,534.7

Other income (expense), net
357.3

 
(41.0
)
Income before income tax expense and equity in loss of investee, net of tax
1,860.0

 
1,493.7

Income tax expense
422.5

 
322.5

Equity in loss of investee, net of tax
28.7

 

Net income
1,408.8

 
1,171.2

Net income (loss) attributable to noncontrolling interests, net of tax

 
(1.7
)
Net income attributable to Biogen Inc.
$
1,408.8

 
$
1,172.9

 
 
 
 
Net income per share:
 
 
 
Basic earnings per share attributable to Biogen Inc.
$
7.17

 
$
5.55

Diluted earnings per share attributable to Biogen Inc.
$
7.15

 
$
5.54

 
 
 
 
Weighted-average shares used in calculating:
 
 
 
Basic earnings per share attributable to Biogen Inc.
196.6

 
211.4

Diluted earnings per share attributable to Biogen Inc.
197.0

 
211.7








See accompanying notes to these unaudited condensed consolidated financial statements.

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Table of Contents

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 
 
For the Three Months
Ended March 31,
 
2019
 
2018
Net income attributable to Biogen Inc.
$
1,408.8

 
$
1,172.9

Other comprehensive income:
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax
6.9

 
(2.2
)
Unrealized gains (losses) on cash flow hedges, net of tax
16.9

 
(29.0
)
Gains (losses) on net investment hedges
14.0

 

Unrealized gains (losses) on pension benefit obligation, net of tax
0.6

 
(0.5
)
Currency translation adjustment
(17.8
)
 
44.7

Total other comprehensive income (loss), net of tax
20.6

 
13.0

Comprehensive income attributable to Biogen Inc.
1,429.4

 
1,185.9

Comprehensive income (loss) attributable to noncontrolling interests, net of tax

 
(1.7
)
Comprehensive income
$
1,429.4

 
$
1,184.2


































See accompanying notes to these unaudited condensed consolidated financial statements.

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Table of Contents

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 
 
As of March 31,
2019
 
As of December 31,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,243.2

 
$
1,224.6

Marketable securities
1,665.8

 
2,313.4

Accounts receivable, net
2,088.9

 
1,958.5

Due from anti-CD20 therapeutic programs
527.1

 
526.9

Inventory
770.2

 
929.9

Assets held for sale
682.0

 

Other current assets
965.4

 
687.6

Total current assets
8,942.6

 
7,640.9

Marketable securities
1,372.7

 
1,375.9

Property, plant and equipment, net
3,013.8

 
3,601.2

Operating lease assets
447.8

 

Intangible assets, net
3,056.2

 
3,120.0

Goodwill
5,639.7

 
5,706.4

Deferred tax asset
2,074.4

 
2,153.9

Investments and other assets
1,898.3

 
1,690.6

Total assets
$
26,445.5

 
$
25,288.9

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Taxes payable
238.5

 
63.5

Accounts payable
378.0

 
370.5

Liabilities held for sale
97.2

 

Accrued expenses and other
2,435.0

 
2,861.2

Total current liabilities
3,148.7

 
3,295.2

Notes payable
5,943.2

 
5,936.5

Deferred tax liability
1,741.7

 
1,636.2

Long-term operating lease liabilities
436.1

 

Other long-term liabilities
1,353.8

 
1,389.4

Total liabilities
12,623.5

 
12,257.3

Commitments and contingencies


 


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

 

Common stock, par value $0.0005 per share
0.1

 
0.1

Additional paid-in capital

 

Accumulated other comprehensive loss
(219.8
)
 
(240.4
)
Retained earnings
17,026.7

 
16,257.0

Treasury stock, at cost
(2,977.1
)
 
(2,977.1
)
Total Biogen Inc. shareholders’ equity
13,829.9

 
13,039.6

Noncontrolling interests
(7.9
)
 
(8.0
)
Total equity
13,822.0

 
13,031.6

Total liabilities and equity
$
26,445.5

 
$
25,288.9

See accompanying notes to these unaudited condensed consolidated financial statements.

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Table of Contents

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 
 
For the Three Months
Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
1,408.8

 
$
1,171.2

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation, amortization and impairments
121.1

 
168.9

Acquired in-process research and development

 
10.0

Share-based compensation
45.7

 
43.4

Contingent consideration
11.5

 
(5.6
)
Loss on assets and liabilities held for sale
115.5

 

Deferred income taxes
228.0

 
53.1

Unrealized (gain) loss on strategic investments
(375.0
)
 

Other
50.7

 
31.7

Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(136.6
)
 
(134.0
)
Inventory
129.0

 
2.6

Accrued expenses and other current liabilities
(138.4
)
 
(121.8
)
Income tax assets and liabilities
170.3

 
257.6

Other changes in operating assets and liabilities, net
(171.1
)
 
(20.0
)
Net cash flows provided by operating activities
1,459.5

 
1,457.1

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
1,489.2

 
4,068.9

Purchases of marketable securities
(825.0
)
 
(1,919.2
)
Contingent consideration paid related to Fumapharm AG acquisition
(300.0
)
 
(600.0
)
Purchases of property, plant and equipment
(127.1
)
 
(194.7
)
Acquired in-process research and development

 
(10.0
)
Other
1.7

 
1.6

Net cash flows provided by investing activities
238.8

 
1,346.6

Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(655.8
)
 
(250.0
)
Payments related to issuance of stock for share-based compensation arrangements, net
(32.2
)
 
(21.2
)
Other
8.7

 
2.6

Net cash flows used in financing activities
(679.3
)
 
(268.6
)
Net increase (decrease) in cash and cash equivalents
1,019.0

 
2,535.1

Effect of exchange rate changes on cash and cash equivalents
(0.4
)
 
(0.9
)
Cash and cash equivalents, beginning of the period
1,224.6

 
1,573.8

Cash and cash equivalents, end of the period
$
2,243.2

 
$
4,108.0







See accompanying notes to these unaudited condensed consolidated financial statements.

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Table of Contents

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, 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, 2018

 
$

 
221.0

 
$
0.1

 
$

 
$
(240.4
)
 
$
16,257.0

 
(23.8
)
 
$
(2,977.1
)
 
$
13,039.6

 
$
(8.0
)
 
$
13,031.6

Net income
 
 
 
 
 
 
 
 
 
 
 
 
1,408.8

 
 
 
 
 
1,408.8

 

 
1,408.8

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
20.6

 
 
 
 
 
 
 
20.6

 

 
20.6

Capital contribution by noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
0.1

 
0.1

Repurchase of common stock pursuant to the 2018 Share Repurchase Program, at cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2.4
)
 
(655.8
)
 
(655.8
)
 
 
 
(655.8
)
Retirement of common stock pursuant to the 2018 Share Repurchase Program, at cost
 
 
 
 
(2.4
)
 

 
(65.6
)
 
 
 
(590.2
)
 
2.4

 
655.8

 

 
 
 

Issuance of common stock under stock option and stock purchase plans
 
 
 
 
0.1

 

 
16.6

 
 
 
 
 
 
 
 
 
16.6

 
 
 
16.6

Issuance of common stock under stock award plan
 
 
 
 
0.3

 

 

 
 
 
(48.9
)
 
 
 
 
 
(48.9
)
 
 
 
(48.9
)
Compensation related to share-based payments
 
 
 
 
 
 
 
 
49.0

 
 
 
 
 
 
 
 
 
49.0

 
 
 
49.0

Balance, March 31, 2019

 
$

 
219.0

 
$
0.1

 
$

 
$
(219.8
)
 
$
17,026.7

 
(23.8
)
 
$
(2,977.1
)
 
$
13,829.9

 
$
(7.9
)
 
$
13,822.0









See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, 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, 2017

 
$

 
235.3

 
$
0.1

 
$
97.8

 
$
(318.4
)
 
$
15,810.4

 
(23.8
)
 
$
(2,977.1
)
 
$
12,612.8

 
$
(14.7
)
 
$
12,598.1

Net income
 
 
 
 
 
 
 
 
 
 
 
 
1,172.9

 
 
 
 
 
1,172.9

 
(1.7
)
 
1,171.2

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
13.0

 
 
 
 
 
 
 
13.0

 
0.2

 
13.2

Repurchase of common stock pursuant to the 2016 Share Repurchase Program, at cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.9
)
 
(250.0
)
 
(250.0
)
 
 
 
(250.0
)
Retirement of common stock pursuant to the 2016 Share Repurchase Program, at cost
 
 
 
 
(0.9
)
 

 
(122.9
)
 
 
 
(127.1
)
 
0.9

 
250.0

 

 
 
 

Issuance of common stock under stock option and stock purchase plans
 
 
 
 
0.1

 

 
16.2

 
 
 
 
 
 
 
 
 
16.2

 
 
 
16.2

Issuance of common stock under stock award plan
 
 
 
 
0.3

 

 
(37.8
)
 
 
 
 
 
 
 
 
 
(37.8
)
 
 
 
(37.8
)
Compensation related to share-based payments
 
 
 
 
 
 
 
 
46.7

 
 
 
 
 
 
 
 
 
46.7

 
 
 
46.7

Adoption of new accounting guidance
 
 
 
 
 
 
 
 
 
 
1.5

 
478.4

 
 
 
 
 
479.9

 
 
 
479.9

Balance, March 31, 2018

 
$

 
234.8

 
$
0.1

 
$

 
$
(303.9
)
 
$
17,334.6

 
(23.8
)
 
$
(2,977.1
)
 
$
14,053.7

 
$
(16.2
)
 
$
14,037.5








See accompanying notes to these unaudited condensed consolidated financial statements.

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


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 worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. Our core growth areas include multiple sclerosis (MS) and neuroimmunology, Alzheimer's disease (AD) and dementia, movement disorders, including Parkinson's disease, and neuromuscular disorders, including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis (ALS). We are also focused on discovering, developing and delivering worldwide innovative therapies in our emerging growth areas of acute neurology, neurocognitive disorders, pain and ophthalmology. In addition, we are employing innovative technologies to discover potential treatments for rare and genetic disorders, including new ways of treating diseases through gene therapy in our core and emerging growth areas. We also commercialize biosimilars of advanced biologics.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS, SPINRAZA for the treatment of SMA and FUMADERM for the treatment of severe plaque psoriasis. We also have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, 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) and other potential anti-CD20 therapies pursuant to our collaboration arrangements with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group. For additional information on our collaboration arrangements with Genentech, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K).
We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities. For over two decades we have led in the research and development of new therapies to treat MS, resulting in our leading portfolio of MS treatments. Now our research is focused on additional improvements in the treatment of MS, such as the development of next generation therapies for MS, with a goal to reverse or possibly repair damage caused by the disease. We are also applying our scientific expertise to solve some of the most challenging and complex diseases, including Parkinson's disease, ALS, progressive supranuclear palsy, AD, stroke, epilepsy, cognitive impairment associated with schizophrenia and pain.
Our innovative drug development and commercialization activities are complemented by our biosimilar products that expand access to medicines and reduce the cost burden for healthcare systems. Through Samsung Bioepis Co., Ltd. (Samsung Bioepis), our joint venture with Samsung BioLogics Co., Ltd. (Samsung BioLogics), we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, FLIXABI, an infliximab biosimilar referencing REMICADE, and IMRALDI, an adalimumab biosimilar referencing HUMIRA, in the European Union (E.U.). For additional information on our collaboration arrangement with Samsung Bioepis, please read Note 17, Collaborative and Other Relationships, to these unaudited condensed consolidated financial statements (condensed consolidated financial statements).
Basis of Presentation
In the opinion of management, our condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this quarterly report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and the accompanying notes included in our 2018 Form 10-K. Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2018 Form 10-K and updated, as necessary, in this report. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2019, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

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

We operate as one operating segment, focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases.
Consolidation
Our condensed consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative relationships and other arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or more of our collaborators or partners.
Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from these estimates.
Assets and Liabilities Held For Sale
Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, we cease depreciation and separately present such assets and liabilities of the disposal group in our condensed consolidated balance sheet. We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held-for-sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group less any costs to sell each reporting period it remains classified as held for sale and recognize any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the remeasured carrying value does not exceed the carrying value less costs to sell of the asset or disposal group at the time it was initially classified as held for sale.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed below, we do not believe that the adoption of recently issued standards have or may have a material impact on our condensed consolidated financial statements or disclosures.
Leases
In February 2016 the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), a new standard issued to increase transparency and comparability among organizations related to their leasing activities. This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and lease liabilities on their balance sheet that arise from leases as well as provide disclosures with respect to certain qualitative and quantitative information related to a company's leasing arrangements to meet the objective of allowing users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

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

The FASB subsequently issued the following amendments to ASU 2016-02 that have the same effective date and transition date: ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvement for Lessors, and ASU No. 2019-01, Leases (Topic 842): Codification Improvements. We adopted these amendments with ASU 2016-02 (collectively, the new leasing standards) effective January 1, 2019.
We adopted the new leasing standards using the modified retrospective transition approach, as of January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings. Upon adoption, we elected the package of transition practical expedients, which allowed us to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. We also elected the practical expedient to not reassess certain land easements and made an accounting policy election to not recognize leases with an initial term of 12 months or less within our condensed consolidated balance sheets and to recognize those lease payments on a straight-line basis in our condensed consolidated statements of income over the lease term. Upon adoption of the new leasing standards we recognized an operating lease asset of approximately $463.0 million and a corresponding operating lease liability of approximately $526.0 million, which are included in our condensed consolidated balance sheet. The adoption of the new leasing standards did not have an impact on our condensed consolidated statements of income.
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 we will exercise that option. 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 condensed consolidated balance sheets. In addition, our contracts contain lease and non-lease components. We separate lease payments for the identified assets from any non-lease payments included in the contract. 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 expenses and other and in long-term operating lease liabilities in our condensed 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 expenses and other and other long-term liabilities in our condensed consolidated balance sheets. We recognize sublease income on a straight-line basis over the lease term in our condensed consolidated statements of income.
For additional information on the adoption of the new leasing standards, please read Note 11, Leases, to these condensed consolidated financial statements.
Credit Losses
In June 2016 the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

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

This standard will become effective for us on January 1, 2020, and requires adoption using a modified retrospective approach, with certain exceptions. Based on the composition of our investment portfolio, current market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on our consolidated financial position and results of operations and related disclosures.
Debt Securities
In March 2017 the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This standard amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period to the earliest call date. This standard became effective for us on January 1, 2019, and was adopted using a modified retrospective transition approach. The adoption of this standard did not result in a significant adjustment to our marketable debt securities.
Fair Value Measurements
In August 2018 the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements. This standard will become effective for us on January 1, 2020. We do not expect that the adoption of this standard will have a material impact on our disclosures.
Derivative Instruments and Hedging Activities
In October 2018 the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard permits the use of the OIS rate based on the SOFR as a United States (U.S.) benchmark interest rate for hedge accounting purposes under Accounting Standards Codification (ASC) 815, Derivative and Hedging. This standard became effective for us on January 1, 2019, and did not have an impact on our condensed consolidated results of operations or financial position.
Collaborative Arrangements
In November 2018 the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard makes targeted improvements for collaborative arrangements as follows:
Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in ASC 606 should be applied, including recognition, measurement, presentation and disclosure requirements;
Adds unit-of-account guidance to ASC 808, Collaborative Arrangements, to align with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606; and
Precludes a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.
This standard will become effective for us on January 1, 2020; however, early adoption is permitted. A retrospective transition approach is required for either all contracts or only for contracts that are not completed at the date of initial application of ASC 606, with a cumulative adjustment to opening retained earnings, as of January 1, 2018. We are currently evaluating the potential impact that this standard may have on our consolidated financial position, results of operations and related disclosures.

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

2.        Acquisitions
Proposed Acquisition of Nightstar Therapeutics plc
In March 2019 we entered into an agreement to acquire Nightstar Therapeutics plc (NST), a clinical-stage gene therapy company focused on adeno-associated virus treatments for inherited retinal disorders. NST's lead asset is NSR-REP1 for the potential treatment of choroideremia, a rare, degenerative, X-linked inherited retinal disorder, which leads to blindness and has no approved treatments. NST’s second clinical program is NSR-RPGR for the potential treatment of X-linked retinitis pigmentosa, which is a rare inherited retinal disease with no approved treatments.
Under the terms of the proposed acquisition, we would pay NST shareholders $25.50 in cash for each issued and outstanding NST share, which represents an expected total transaction value of approximately $800.0 million on a fully diluted basis, after expected transaction expenses and anticipated cash acquired at closing. We plan to fund the proposed acquisition of NST through available cash and to account for it as an acquisition of a business.
It is intended that the proposed acquisition will be implemented by means of a U.K. Court-sanctioned scheme of arrangement under Part 26 of the U.K. Companies Act 2006. The proposed acquisition remains subject to customary closing conditions, including the approval by NST shareholders and the issuance of an order by the U.K. Court. We expect to complete the proposed acquisition by mid-year 2019.
3.        Divestitures
Proposed Divestiture of Hillerød, Denmark Manufacturing Operations
In March 2019 we entered into a share purchase agreement with FUJIFILM Corporation (FUJIFILM) under which FUJIFILM will acquire all of the outstanding shares of our subsidiary that owns our biologics manufacturing operations in Hillerød, Denmark. Upon closing of the proposed transaction, we expect to receive up to $890.0 million in cash, subject to certain working capital adjustments and other contractual terms.
As part of the proposed transaction, we have provided FUJIFILM with certain minimum batch production commitment guarantees. There is a risk that the minimum contractual batch production commitments will not be met. Based upon current estimates we expect to incur an adverse commitment obligation of approximately $120.0 million associated with such guarantees. We may adjust this estimate based upon changes in business conditions, which may result in the recognition of additional losses. We are also obligated to indemnify FUJIFILM for liabilities that may exist relating to certain business activities incurred prior to the closing of the proposed transaction.
In addition, we may earn certain contingent payments based on future manufacturing activities at the Hillerød facility. For the disposition of a business, our policy is to recognize contingent consideration when the consideration is realizable. We currently believe the probability of earning these payments is remote and therefore we have not included these contingent payments in our estimate of the fair value of the operations.
As part of the proposed transaction, we also expect to enter into certain manufacturing services agreements with FUJIFILM pursuant to which FUJIFILM would use the Hillerød facility to produce commercial products for us, such as TYSABRI, as well as other third-party products.
We determined that the operations to be disposed of in the proposed transaction did not meet the criteria to be classified as discontinued operations under the applicable guidance.

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

In February 2019 the assets and liabilities related to our Hillerød, Denmark manufacturing operations met the criteria to be classified as held for sale. The following table presents information related to the carrying value of the major classes of assets and liabilities that were reclassified as held for sale in our condensed consolidated balance sheets:
(In millions)
As of March 31, 2019
Assets:
 
Inventory
$
27.0

Property, plant and equipment, net
629.7

Operating lease assets
2.5

Goodwill
69.5

Other assets
68.8

Valuation allowance on disposal group on assets held for sale
(115.5
)
Assets held for sale
$
682.0

 
 
Liabilities:
 
Accrued expenses and other liabilities
$
49.0

Long-term operating lease liabilities
1.7

Deferred tax liability
46.5

Liabilities held for sale
$
97.2

In the first quarter of 2019 we recorded a loss of approximately $174.6 million in our condensed consolidated statements of income. This estimated loss includes a pre-tax loss of $115.5 million reflecting our current estimated fair value of the assets and liabilities held for sale, adjusting for our expected costs to sell our Hillerød, Denmark manufacturing operations of approximately $10.0 million and our estimate of the fair value of an adverse commitment of approximately $120.0 million associated with the guarantee of future minimum batch production at the Hillerød facility. The value of this adverse commitment was determined using a probability-weighted estimate of future manufacturing activity. In addition, we recorded a tax expense of $59.1 million related to the proposed transaction. Our total estimated loss is based on current exchange rates and business conditions, and any changes to these factors through the closing date of the transaction will result in adjustments to the carrying values of the related assets and liabilities as well as a corresponding adjustment to the loss amount recognized on the sale.
Following the closing of the proposed transaction, the final purchase price will be adjusted by an amount equal to the difference between our current estimates of working capital and inventory balances that will be transferred to FUJIFILM and the amounts that are ultimately transferred.
Our estimate of the fair value of assets and liabilities expected to be sold to FUJIFILM is a Level 3 measurement and is based on the expected consideration from the sale, including the valuation of the adverse commitment, as discussed above.
The proposed transaction remains subject to customary closing conditions, including filings and clearances under the Danish Competition Act. We expect to complete the proposed transaction in the second half of 2019.
In addition, upon closing of the proposed transaction, we expect to separately sell certain raw materials remaining at the Hillerød facility to FUJIFILM at carrying value.

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

4.    Revenues
Product Revenues
Revenues by product are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2019
 
2018
 
United
States
 
Rest of
World
 
Total
 
United
States
 
Rest of
World
 
Total
Multiple Sclerosis (MS):
 
 
 
 
 
 
 
 
 
 
 
TECFIDERA
$
717.7

 
$
281.1

 
$
998.8

 
$
728.9

 
$
258.0

 
$
986.9

Interferon*
327.3

 
173.6

 
500.9

 
371.4

 
178.9

 
550.3

TYSABRI
245.0

 
215.4

 
460.4

 
249.7

 
212.4

 
462.1

FAMPYRA

 
22.9

 
22.9

 

 
24.4

 
24.4

ZINBRYTA

 

 

 

 
1.4

 
1.4

Subtotal: MS product revenues
1,290.0

 
693.0

 
1,983.0

 
1,350.0

 
675.1

 
2,025.1

 
 
 
 
 
 
 
 
 
 
 
 
Spinal Muscular Atrophy:
 
 
 
 

 
 
 
 
 

SPINRAZA
223.3

 
295.2

 
518.5

 
188.0

 
175.9

 
363.9

 
 
 
 
 
 
 
 
 
 
 
 
Biosimilars:
 
 
 
 

 
 
 
 
 

BENEPALI

 
124.0

 
124.0

 

 
120.9

 
120.9

FLIXABI

 
14.7

 
14.7

 

 
6.6

 
6.6

IMRALDI

 
35.7

 
35.7

 

 

 

Subtotal: Biosimilar product revenues

 
174.4

 
174.4

 

 
127.5

 
127.5

 
 
 
 
 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
 
 
 
 
FUMADERM

 
4.1

 
4.1

 

 
7.0

 
7.0

Total product revenues
$
1,513.3

 
$
1,166.7

 
$
2,680.0

 
$
1,538.0

 
$
985.5

 
$
2,523.5

*Interferon includes AVONEX and PLEGRIDY.
We recognized revenues from two wholesalers accounting for 31.3% and 14.2% of gross product revenues for the three months ended March 31, 2019, and 34.0% and 15.9% of gross product revenues for the three months ended March 31, 2018.
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
Discounts
 
Contractual
Adjustments
 
Returns
 
Total
Balance, as of December 31, 2018
$
127.8

 
$
888.8

 
$
34.7

 
$
1,051.3

Current provisions relating to sales in current year
141.2

 
680.3

 
4.7

 
826.2

Adjustments relating to prior years
0.3

 
(25.1
)
 
0.3

 
(24.5
)
Payments/credits relating to sales in current year
(60.8
)
 
(233.9
)
 
(0.1
)
 
(294.8
)
Payments/credits relating to sales in prior years
(92.1
)
 
(378.1
)
 
(4.6
)
 
(474.8
)
Balance, as of March 31, 2019
$
116.4

 
$
932.0

 
$
35.0

 
$
1,083.4


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

The total reserves above, which are included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of
March 31,
2019
 
As of
December 31,
2018
Reduction of accounts receivable, net
$
175.8

 
$
176.6

Component of accrued expenses and other
907.6

 
874.7

Total revenue-related reserves
$
1,083.4

 
$
1,051.3

Revenues from Anti-CD20 Therapeutic Programs
Revenues from anti-CD20 therapeutic programs are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2019
 
2018
Biogen’s share of pre-tax profits in the U.S. for RITUXAN, RITUXAN HYCELA and GAZYVA
$
390.8

 
$
349.6

Other revenues from anti-CD20 therapeutic programs
126.6

 
93.6

Total revenues from anti-CD20 therapeutic programs
$
517.4

 
$
443.2

For additional information on our collaboration arrangements with Genentech, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K.
Other Revenues
Other revenues are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2019
 
2018
Revenues from collaborative and other relationships:
 
 
 
(Loss) profit earned under our 50% share of the co-promotion losses on ZINBRYTA in the U.S. with AbbVie
$
(0.4
)
 
$
(4.7
)
Revenues earned under our technical development agreement, manufacturing services agreements and royalty revenues on biosimilar products with Samsung Bioepis
24.8

 
17.9

Other royalty and corporate revenues:
 
 
 
Royalty
3.9

 
10.6

Other corporate
264.1

 
140.6

Total other revenues
$
292.4

 
$
164.4

Other corporate revenues primarily reflect amounts earned under contract manufacturing agreements with our strategic partners, including Bioverativ Inc. (Bioverativ). During the three months ended March 31, 2019 and 2018, we recognized $206.8 million and $47.0 million, respectively, in revenues under the manufacturing and supply agreement with Bioverativ entered into in connection with the spin-off of our hemophilia business.
For additional information on our collaboration arrangement with Samsung Bioepis, please read Note 17, Collaborative and Other Relationships, to these condensed consolidated financial statements. For additional information on our collaboration arrangement with AbbVie Inc. (AbbVie), please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K. For additional information on our contract manufacturing agreements with Bioverativ, please read Note 3, Hemophilia Spin-Off, to our consolidated financial statements included in our 2018 Form 10-K.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

5.    Inventory
The components of inventory are summarized as follows:
(In millions)
As of
March 31,
2019
 
As of
December 31,
2018
Raw materials
$
199.7

 
$
196.3

Work in process
462.3

 
606.7

Finished goods
108.2

 
133.5

Total inventory
$
770.2

 
$
936.5

 
 
 
 
Balance Sheet Classification:
 
 
 
Inventory
$
770.2

 
$
929.9

Investments and other assets

 
6.6

Total inventory
$
770.2

 
$
936.5

During the three months ended March 31, 2019, we sold hemophilia related inventory to Bioverativ with a cost basis totaling $173.5 million pursuant to the terms of the manufacture and supply agreement with Bioverativ entered into in connection with the spin-off of our hemophilia business.
Long-term inventory, which primarily consists of work in process, is included in investments and other assets in our condensed consolidated balance sheets.
Proposed Divestiture of Hillerød, Denmark Manufacturing Operations
In March 2019 we entered into a share purchase agreement with FUJIFILM under which FUJIFILM will acquire all of the outstanding shares of our subsidiary that owns our biologics manufacturing operations in Hillerød, Denmark. Upon closing of the proposed transaction, we expect to receive up to $890.0 million in cash, subject to certain working capital adjustments and other contractual terms. As a result, $27.0 million of work in process inventory was reclassified to assets held for sale in our condensed consolidated balance sheets as of March 31, 2019. Following the closing of the proposed transaction, the final purchase price will be adjusted by an amount equal to the difference between our current estimates of working capital and inventory balances that will be transferred to FUJIFILM and the amounts that are ultimately transferred. In addition, upon closing of the proposed transaction, we expect to separately sell certain raw materials remaining at the Hillerød facility to FUJIFILM at carrying value.
For additional information on the proposed divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to these condensed consolidated financial statements.

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

6.    Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of March 31, 2019
 
As of December 31, 2018
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
543.3

 
$
(542.4
)
 
$
0.9

 
$
543.3

 
$
(542.3
)
 
$
1.0

Developed 
technology
15-23 years
 
3,005.3

 
(2,744.1
)
 
261.2

 
3,005.3

 
(2,734.8
)
 
270.5

In-process research and development
Indefinite until commercialization
 
480.5

 

 
480.5

 
476.0

 

 
476.0

Trademarks and 
tradenames
Indefinite
 
64.0

 

 
64.0

 
64.0

 

 
64.0

Acquired and in-licensed rights 
and patents
4-18 years
 
3,638.7

 
(1,389.1
)
 
2,249.6

 
3,638.7

 
(1,330.2
)
 
2,308.5

Total intangible assets
 
 
$
7,731.8

 
$
(4,675.6
)
 
$
3,056.2

 
$
7,727.3

 
$
(4,607.3
)
 
$
3,120.0

For the three months ended March 31, 2019, amortization and impairment of acquired intangible assets totaled $68.2 million, compared to $103.9 million in the prior year comparative period. The decrease in amortization and impairment of acquired intangible asset was primarily due to a net overall decrease in our expected rate of amortization for acquired intangible assets. This was primarily due to lower amortization subsequent to the impairment in the fourth quarter of 2018 of the U.S. license to Forward Pharma A/S' (Forward Pharma) intellectual property, including Forward Pharma's intellectual property related to TECFIDERA, and higher expected lifetime revenues of TYSABRI. For the three months ended March 31, 2019 and 2018, we had no impairment charges.
Developed Technology
Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. The net book value of this asset as of March 31, 2019, was $256.2 million.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan Pharma International Ltd., an affiliate of Elan Corporation plc. Acquired and in-licensed rights and patents also includes our rest of world license to Forward Pharma's intellectual property, including Forward Pharma's intellectual property related to TECFIDERA, and other amounts related to our other marketed products and other programs acquired through business combinations. The net book value of the TYSABRI asset as of March 31, 2019, was $1,980.8 million and the net book value of the TECFIDERA asset as of March 31, 2019, was $63.1 million. For additional information on our TECFIDERA license rights, please read Note 7, Intangible Assets and Goodwill, to our consolidated financial statements included in our 2018 Form 10-K.
Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption and impairment of intangible assets. Our most significant intangible assets are related to our TYSABRI, AVONEX, SPINRAZA and TECFIDERA products and other programs acquired through business combinations. Annually, during our long-range planning cycle, we perform an analysis of anticipated lifetime revenues of our TYSABRI, AVONEX, SPINRAZA and TECFIDERA products. This analysis is also updated whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of any of these products. Impairments are recorded in the period in which they are incurred.

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

Our most recent long-range planning cycle was completed in the third quarter of 2018. Based upon this most recent analysis, the estimated future amortization of acquired intangible assets for the next five years is expected to be as follows:
(In millions)
As of
March 31,
2019
2019 (remaining nine months)
$
200.0

2020
290.0

2021
250.0

2022
250.0

2023
230.0

2024
190.0

Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
As of
March 31,
2019
Goodwill, beginning of period
$
5,706.4

Reclassification of goodwill to assets held for sale
(69.5
)
Other
2.8

Goodwill, end of period
$
5,639.7

The reclassification of goodwill to assets held for sale relates to an allocation based upon the relative fair value of the proposed divestiture of our Hillerød, Denmark manufacturing operations.
During the three months ended March 31, 2019, goodwill was reviewed for impairment due to the proposed divestiture of our Hillerød, Denmark manufacturing operations, and based upon this review, no impairments were recognized. As of March 31, 2019, we had no accumulated impairment losses related to goodwill.
For additional information on the proposed divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to these condensed consolidated financial statements.
Other includes changes related to foreign currency exchange rate fluctuations.

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

7.    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 March 31, 2019 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
1,881.9

 
$

 
$
1,881.9

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
1,835.7

 

 
1,835.7

 

Government securities
921.3

 

 
921.3

 

Mortgage and other asset backed securities
281.5

 

 
281.5

 

Marketable equity securities
904.0

 
19.5

 
884.5

 

Derivative contracts
104.4

 

 
104.4

 

Plan assets for deferred compensation
29.4

 

 
29.4

 

Total
$
5,958.2

 
$
19.5

 
$
5,938.7

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
24.1

 
$

 
$
24.1

 
$

Contingent consideration obligations
421.3

 

 

 
421.3

Total
$
445.4

 
$

 
$
24.1

 
$
421.3

As of December 31, 2018 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
705.5

 
$

 
$
705.5

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
2,459.2

 

 
2,459.2

 

Government securities
969.6

 

 
969.6

 

Mortgage and other asset backed securities
260.5

 

 
260.5

 

Marketable equity securities
615.4

 
51.7

 
563.7

 

Derivative contracts
66.9

 

 
66.9

 

Plan assets for deferred compensation
25.4

 

 
25.4

 

Total
$
5,102.5

 
$
51.7

 
$
5,050.8

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
24.6

 
$

 
$
24.6

 
$

Contingent consideration obligations
409.8

 

 

 
409.8

Total
$
434.4

 
$

 
$
24.6

 
$
409.8

There have been no impairments of our assets measured and carried at fair value during the three months ended March 31, 2019. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three months ended March 31, 2019. The fair value of Level 2 instruments classified as cash equivalents, marketable debt securities and our marketable equity security investment in Ionis Pharmaceuticals, Inc. (Ionis) were determined through third-party pricing services or an option pricing valuation model. For additional information on our agreement with Ionis, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K. For a description of our validation procedures related to prices provided by third-party pricing services and our option pricing valuation

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

model, please read Note 1, Summary of Significant Accounting Policies - Fair Value Measurements, to our consolidated financial statements included in our 2018 Form 10-K.
Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of March 31, 2019
 
As of December 31, 2018
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
2.900% Senior Notes due September 15, 2020
$
1,500.7

 
$
1,486.6

 
$
1,489.5

 
$
1,480.8

3.625% Senior Notes due September 15, 2022
1,022.0

 
995.8

 
1,000.4

 
995.5

4.050% Senior Notes due September 15, 2025
1,795.1

 
1,738.2

 
1,745.1

 
1,737.8

5.200% Senior Notes due September 15, 2045
1,838.0

 
1,722.6

 
1,802.6

 
1,722.4

Total
$
6,155.8

 
$
5,943.2

 
$
6,037.6

 
$
5,936.5

The fair values of each of our series of Senior Notes were determined through market, observable and corroborated sources. For additional information on our debt instruments, please read Note 12, Indebtedness, to our consolidated financial statements included in our 2018 Form 10-K.
Contingent Consideration Obligations
In connection with our acquisitions of Convergence Pharmaceuticals Ltd., Stromedix Inc. and Biogen International Neuroscience GmbH in 2015, 2012 and 2010, respectively, 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 includes Level 3 measurements:
 
For the Three Months
Ended March 31,
(In millions)
2019
 
2018
Fair value, beginning of period
$
409.8

 
$
523.6

Changes in fair value
11.5

 
(5.6
)
Payments

 
(20.0
)
Fair value, end of period
$
421.3

 
$
498.0

As of March 31, 2019 and December 31, 2018, $274.0 million and $265.0 million, respectively, of the fair value of our total contingent consideration obligations was reflected as a component of other long-term liabilities in our condensed consolidated balance sheets with the remaining balance reflected as a component of accrued expenses and other.
For the three months ended March 31, 2019, changes in the fair value of our contingent consideration obligations were primarily due to changes in the expected timing of the achievement of certain remaining development milestones, a decrease in interest rates used to revalue our contingent consideration liabilities and the passage of time.
For the three months ended March 31, 2018, changes in the fair value of our contingent consideration obligations were primarily due to an increase in the interest rate used to revalue our contingent consideration liabilities during the period.

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

8.    Financial Instruments
The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included in cash and cash equivalents in our condensed consolidated balance sheets:
(In millions)
As of
March 31,
2019
 
As of
December 31,
2018
Commercial paper
$
446.0

 
$
231.2

Overnight reverse repurchase agreements
192.7

 

Money market funds
1,074.4

 
279.5

Short-term debt securities
168.8

 
194.8

Total
$
1,881.9

 
$
705.5

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.
Our marketable equity securities gains (losses) are recorded in other income (expense), net in our condensed consolidated statements of income. The following tables summarize our marketable debt and equity securities:
As of March 31, 2019 (In millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Corporate debt securities
 
 
 
 
 
 
 
Current
$
981.0

 
$
0.5

 
$
(0.1
)
 
$
981.4

Non-current
852.0

 
2.8

 
(0.5
)
 
854.3

Government securities
 
 
 
 
 
 
 
Current
683.6

 
0.2

 
(0.1
)
 
683.7

Non-current
237.5

 
0.3

 
(0.2
)
 
237.6

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.7

 

 

 
0.7

Non-current
280.3

 
0.8

 
(0.3
)
 
280.8

Total marketable debt securities
$
3,035.1

 
$
4.6

 
$
(1.2
)
 
$
3,038.5

Marketable equity securities, non-current
489.3

 
421.7

 
(7.0
)
 
904.0

As of December 31, 2018 (In millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Corporate debt securities
 
 
 
 
 
 
 
Current
$
1,608.4

 
$

 
$
(0.9
)
 
$
1,607.5

Non-current
854.9

 
0.7

 
(3.9
)
 
851.7

Government securities
 
 
 
 
 
 
 
Current
706.1

 
0.1

 
(0.4
)
 
705.8

Non-current
264.0

 
0.1

 
(0.3
)
 
263.8

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.1

 

 

 
0.1

Non-current
260.5

 
0.4

 
(0.5
)
 
260.4

Total marketable debt securities
$
3,694.0

 
$
1.3

 
$
(6.0
)
 
$
3,689.3

Marketable equity securities, non-current
496.2

 
127.7

 
(8.5
)
 
615.4


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

Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
 
As of March 31, 2019
 
As of December 31, 2018
(In millions)
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,665.3

 
$
1,665.8

 
$
2,314.6

 
$
2,313.4

Due after one year through five years
1,234.8

 
1,237.8

 
1,235.9

 
1,232.7

Due after five years
135.0

 
134.9

 
143.5

 
143.2

Total available-for-sale securities
$
3,035.1

 
$
3,038.5

 
$
3,694.0

 
$
3,689.3

The average maturity of our marketable debt securities available-for-sale as of March 31, 2019 and December 31, 2018, were approximately 12 months.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2019
 
2018
Proceeds from maturities and sales
$
1,489.2

 
$
4,068.9

Realized gains
$
0.6

 
$
1.8

Realized losses
$
(0.3
)
 
$
(9.4
)
Strategic Investments
As of March 31, 2019, our strategic investment portfolio was comprised of investments totaling $1,049.7 million, of which $90.1 million was reflected as a component of other current assets in our condensed consolidated balance sheet, with the remaining balance included in investments and other assets. As of December 31, 2018, our strategic investment portfolio was comprised of investments totaling $676.3 million, which is included in investments and other assets in our condensed consolidated balance sheet.
Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies, which are reflected within our disclosures included in Note 7, Fair Value Measurements, to these condensed consolidated financial statements, venture capital funds where the underlying investments are in equity securities of certain biotechnology companies and non-marketable equity securities.
Our investments in equity securities include approximately 11.5 million shares of Ionis' common stock, acquired in June 2018 at a cost of approximately $625.0 million, which is remeasured each reporting period and carried at fair value. This investment is classified as a Level 2 marketable security due to certain holding period restrictions. The remainder of our investments in equity securities of certain publicly-traded biotechnology companies are regularly measured and carried at fair value and classified as Level 1. The effect of the holding period restrictions on our Ionis stock valuation are estimated using an option pricing valuation model. The most significant assumptions within the model are the term of the restrictions and the stock price volatility, which is based upon historical volatility of similar companies. We also use a constant maturity risk-free interest rate to match the remaining term of the restrictions on our investment in Ionis' common stock and a dividend yield of zero based upon the fact that Ionis and similar companies generally have not historically granted cash dividends.
The increase in our strategic investment portfolio primarily reflects an increase in the fair value in our investment in Ionis' common stock as well as an increase in the value of a non-marketable equity security.
For additional information on our June 2018 investment in Ionis' common stock, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K.

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

9.    Derivative Instruments
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues and operating expenses are recorded in currencies other than the U.S. dollar. The value of revenues and operating expenses measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes, we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues and operating expenses.
Foreign currency forward contracts in effect as of March 31, 2019 and December 31, 2018, had durations of 1 to 12 months. These contracts have been designated as cash flow hedges and unrealized gains or losses on the portion of these foreign currency forward contracts that are included in the effectiveness test are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses of such contracts are recognized in revenues when the sale of product in the currency being hedged is recognized and in operating expenses when the expense in the currency being hedged is recorded. We recognize all cash flow hedge reclassifications from accumulated other comprehensive income and fair value changes of excluded portions in the same line item in our condensed consolidated statements of income that has been impacted by the hedged item.
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues and operating expenses is summarized as follows:
 
Notional Amount
(In millions)
As of
March 31,
2019
 
As of
December 31,
2018
Euro
$
1,722.2

 
$
1,701.4

British pound
170.9

 
215.3

Swiss franc
99.2

 
131.4

Japanese yen
79.5

 
98.8

Canadian dollar
72.2

 
92.2

Total foreign currency forward contracts
$
2,144.0

 
$
2,239.1

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 $44.3 million and $27.3 million as of March 31, 2019 and December 31, 2018, respectively. We expect the net gains of $44.3 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 revenues or operating expenses. 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 March 31, 2019 and December 31, 2018, credit risk did not 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 condensed consolidated statements of income:
For the Three Months Ended March 31,
Net Gains/(Losses)
Reclassified from AOCI into Operating Income (in millions)
 
Net Gains/(Losses)
Recognized in Operating Income (in millions)
Location
 
2019
 
2018
 
Location
 
2019
 
2018
Revenues
 
$
14.8

 
$
(32.9
)
 
Revenues
 
$
3.7

 
$
(0.9
)
Operating expenses
 
$
(0.5
)
 
$
1.3

 
Operating expenses
 
$
(0.9
)
 
$
(0.3
)
Interest Rate Contracts - Hedging Instruments
We have entered into interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes.

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

In connection with the issuance of our 2.90% Senior Notes, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020. The interest rate swap contracts are designated as hedges of the fair value changes in our 2.90% Senior Notes attributable to changes in interest rates. The carrying value of our 2.90% Senior Notes as of March 31 2019 and December 31, 2018, includes approximately $9.3 million and $14.5 million, respectively, related to changes in the fair value of these interest rate swap contracts. Since the specific terms and notional amount of the swaps match the debt being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are recorded as a component of our 2.90% Senior Notes with no net impact recorded in income. Any net interest payments made or received on the interest rate swap contracts are recorded as a component of interest expense in our condensed consolidated statements of income.
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% 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 is exposed to the currency fluctuations in the South Korean won.
In order to mitigate the currency fluctuations between the U.S. dollar and South Korean won, we have entered into foreign currency forward contracts. Foreign currency forward contracts in effect as of March 31, 2019, had remaining durations of seven months. These contracts have been designated as net investment hedges. We recognize changes in the spot exchange rate 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 $8.0 million and net losses of $3.8 million as of March 31, 2019 and December 31, 2018, respectively. We exclude fair value changes related to the forward rate from our hedging relationship and will amortize the forward points in other income (expense), net in our condensed 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 gains of $9.5 million and $7.3 million as of March 31, 2019 and December 31, 2018, respectively.
The following table summarizes the effect of our net investment hedge in our condensed consolidated financial statements:
For the Three Months Ended March 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
 
2019
 
2018
 
Location
 
2019
 
2018
 
Location
 
2019
 
2018
Gains (losses) on net investment hedge
 
$