Morningstar® Document Research℠
`FORM 10-Q
`BIOGEN INC. - BIIB
`Filed: November 09, 2006 (period: September 30, 2006)
`
`
`
`Quarterly report with a continuing view of a company's financial position
`
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user
`assumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot be
`limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 1 of 87
`
`Biogen Exhibit 2089
`Coalition v. Biogen
`IPR2015-01993
`
`

`

`Table of Contents
`
`(Mark One)
`
`
`
`
`UNITED STATES SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`FORM 10-Q
`
`
`
`QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`For the quarterly period ended September 30, 2006
`
`
`
`
`
`
`o
`
`
`
`OR
`TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`
`Commission File Number 0-19311
`
`BIOGEN IDEC INC.
`
`(Exact name of registrant as specified in its cha ter)
`
`
`
`
`
`
`Delaware
`(State or other jurisdiction of
`incorporation or organization)
`
`33-0112644
`(I R S Employer
`Identification No )
`
`14 Cambridge Center, 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 ( ) has filed all reports required to be filed by Section 3 or 5(d) of the Securities Exchange Act of 934 during
`the preceding 2 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  No o
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non accelerated filer See definition of “accelerated filer and
`arge acce erated f e ” n Ru e 2b-2 of the Exchange Act (Check one)
`La ge Acce e ated F e  Acce erated F er o Non-Acce erated F er o
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 2b 2 of the Exchange Act): Yes o No 
`The number of shares of the registrant’s Common Stock, $0 0005 par value, outstanding as of November 3, 2006, was 337, 26,790 shares
`
`
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 2 of 87
`
`

`

`BIOGEN IDEC INC.
`FORM 10-Q
` Quarterly Report
`For the Quarterly Period Ended September 30, 2006
`TABLE OF CONTENTS
`
` FINANCIAL INFORMATION
`
` Financial Statements (unaudited)
`
`Consolidated Statements of Operations
`
` Three and nine months ended September 30, 2006 and 2005
`
`Consolidated Balance Sheets
`
` September 30, 2006 and December 3 , 2005
`
`Consolidated Statements of Cash Flows
`
` Nine months ended September 30, 2006 and 2005
`
`
`
`PART I
`
`Item
`
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`
`
`
`
`
`
`
`
`Notes to Consolidated Financial Statements
`
` OTHER INFORMATION
`
` Lega Proceed ngs
`
`
`Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
`
`Item 3 Quantitative and Qualitative Disclosures About Market Risk
`
`Item 4 Controls and Procedures
`
`PART II
`
`Item
`
`Item A Risk Factors
`
`Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
`
`Item 6 Exhibits
`
`Signatures
` Ex- 0 Letter Agreement regard ng emp oyment arrangement of Cec B P ckett
` Ex 3
` Section 302 Certification of the C E O
` Ex 3 2 Section 302 Certification of the C F O
` Ex 32 Section 906 Certification of the C E O and C F O
`
`2
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`Page
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`3
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`4
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`5
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`6
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`35
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`5 6
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`5 6
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`5 6
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`5 6
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`6 9
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`6 9
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`70
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 3 of 87
`
`

`

`PART I
`BIOGEN IDEC INC. AND SUBSIDIARIES
`CONSOLIDATED STATEMENTS OF OPERATIONS
`(in thousands, except per share amounts)
`(unaudited)
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Three Mon hs Ended
`September 30,
`
`
`
`$ 475,096
`
`203,820
`
`21,867
`
`2,709
` 703,492
`
`
`
`
`
`2005
`
`
`
`
`
`
`
`$ 391,366
` 181,597
`
`23,117
`
`3
` 596,211
`
`
`
`
`
`
`
`2006
`
`
`
`Nine Mon hs Ended
`September 30,
`
`
`
`$1,317,696
`
`593,296
`
`60,714
`
`3,002
` 1,974,708
`
`
`
`
`
`2005
`
`
`
`
`
`
`
`$ 1,187,773
`
`526,984
`
`71,600
`
`3,290
` 1,789,647
`
`
`
`
`
`2006
`
`Table of Contents
`
`
`
`
`
`Revenues
`Product
`Unconsolidated joint business
`Roya ty
`Corporate pa tner
`Total revenues
`
`
`Costs and expenses:
`Cost of product revenues, excluding amortization of acquired intangible
`assets
`Cost of royalty revenues
`Research and deve opment
`Selling, general and administrative
`Amortization of acquired intangible assets
`Acquired in process research and development
`Facility impairments and loss (gain) on sale
`Ga n on sett ement of cense agreement
`Total costs and expenses
`
`
`
`
`
`Income from operat ons
`Other ncome (expense), net
`Income before ncome tax expense and cumulative effect of accounting
`change
`Income tax expense
`
`Income before cumu at ve effect of accounting change
`Cumulative effect of accounting change, net of ncome tax
`Net ncome
`
`
`Basic earnings per share:
`Income before cumu at ve effect of accounting change
`Cumulative effect of accounting change, net of ncome tax
`Basic earnings per share
`
`
`Diluted earnings per share:
`Income before cumu at ve effect of accounting change
`Cumulative effect of accounting change, net of ncome tax
`Diluted earnings per share
`
`
`Shares used in calculating:
`Basic earnings per share
`Diluted earnings per share
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`65,742
`
`1,050
`
`2 ,033
`
` 168,153
`
`60,011
`
`
`
`175
`
`
` 506,164
`
`
` 197,328
`
`22,319
`
` 219,647
`
`63,048
`
`
` 156,599
`
`
`$156,599
`
`
`
`
`$
`0 46
`
`
`$
`0 46
`
`
`
`
`$
`0 45
`
`
`$
`0 45
`
`
`
`
`
`338,02
`
`344,754
`
`88,358
`
`,203
`
` 227,039
` 161,410
` 75,990
`
`
`
`21,046
`
`
` 575,046
`
`
` 21,165
`
`11,192
`
`32,357
`
`5,172
`
`
`
`27,185
`
`
`
`$ 27,185
`
`
`
`
`$
`0 08
`
`
`$
`0 08
`
`
`
`
`$
`0 08
`
`
`$
`0 08
`
`
`
`
` 336,536
` 340,859
`
`209,195
`
`3,085
`
`518,910
`
`492,833
`
`206,978
`
`330,520
`
`(923)
`
`(34,192)
`
` 1,726,406
`
`
`
`248,302
`
`62,790
`
`311,092
`
`205,916
`
`
`
`105,176
`
`3,779
`
`$ 108,955
`
`
`
`
`$
`0 3
`
`0 0
`$
`0 32
`
`
`
`
`$
`0 30
`
`0 0
`$
`0 3
`
`
`
`
`
`339,527
`
`345,999
`
`257,083
`
`3,179
`
`579,357
`
`475,637
`
`228,746
`
`
`
`102,904
`
`
`
` 1,646,906
`
`
`
`142,741
`
`8,318
`
`
`
`
`
`
`$
`
`
`$
`
`$
`
`
`$
`
`$
`
`
`
`
`
`151,059
`45,910
`
`105,149
`
`105,149
`
`
`0 3
`
`0 3
`
`
`0 3
`
`0 3
`
`
`334,819
`346,581
`
`See accompanying notes to the consolidated financial statements
`
`3
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 4 of 87
`
`

`

`Table of Contents
`
`
`
`
`
`Current assets:
`Cash and cash equivalents
`Marketable securities
`Accounts receivable, net
`Due from unconsolidated joint business
`Deferred tax assets
`Inventory
`Other current assets
`Assets held for sale
`Total current assets
`
`
`Marketable securities
`Property and equipment, net
`Intangible assets, net
`Goodw
`Investments and other assets
`
`
`
`Current liabilities:
`Accounts payable
`Defe ed evenue
`Taxes payable
`Acc ued expenses and other
`Total current liabilities
`
`BIOGEN IDEC INC. AND SUBSIDIARIES
`CONSOLIDATED BALANCE SHEETS
`(in thousands, except per share amounts)
`(unaudited)
`
`ASSETS
`
`LIABILITIES AND SHAREHOLDERS’ EQUITY
`
`
`Notes payable
`Long-term deferred tax ab ty
`Other ong-term ab t es
`
`Commitments and contingencies (Notes 7, 0 and 2)
`
`Shareholders’ equity:
`Convertible preferred stock, par value $0 00 per share
`Common stock, par value $0 0005 per share
`Additional paid in capital
`Accumulated other comprehensive loss
`Deferred stock based compensation
`Accumulated deficit
`
`
`
`
`
`Less treasury stock, at cost
`Total shareholders’ equity
`
`See accompanying notes to the consolidated financial statements
`
`4
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`September 30,
`
`2006
`
`
`
`414,594
`$
`246,425
`
`282,519
`
`157,319
`
`44,966
`
`155,119
`
`74,614
`
`9,601
`
` 1,385,157
`
`
` 1,372,772
` 1,246,116
` 2,795,620
` 1,153,980
`
`232,913
`$8,186,558
`
`
`
`
`
`62,822
`$
`6,730
`
`139,728
`
`285,730
`
`495,010
`
`
`
`45,074
`
`653,433
`
`98,167
`
`
`
`
`
`
`
`
`
`
`
`73
`
` 8,260,886
`
`(17,876)
`
`
`
`(954,991)
` 7,288,192
`
`393,318
` 6,894,874
`$8,186,558
`
`
`
`December 31,
`
`2005
`
`
`
`$ 568,168
`
`282,585
`
`265,742
`
`141,059
`
`41,242
`
`182,815
`
`78,054
`
`58,416
` 1,618,081
`
`
` 1,204,378
` 1,174,396
` 2,975,601
`
`, 30,430
`
`264,061
`$ 8,366,947
`
`
`
`
`
`99,780
`$
`16,928
`
`200,193
`
`266,135
`
`583,036
`
`
`
`43,444
`
`762,282
`
`72,309
`
`
`
`
`
`
`
`
`
`
`
`73
`
` 8,206,911
`
`(13,910)
`
`(42,894)
` (1,021,644)
` 7,128,636
`
`222,760
` 6,905,876
`$ 8,366,947
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 5 of 87
`
`

`

`Table of Contents
`
`BIOGEN IDEC INC. AND SUBSIDIARIES
`CONSOLIDATED STATEMENTS OF CASH FLOWS
`(in thousands)
`(unaudited)
`
`
`
`
`
`Cash flows from operating activities:
`Net ncome
`Adjustments to reconcile net income to net cash flows from operating activities
`Depreciation and amortization of fixed and intangible assets
`Acquisition of in process research and development
`Ga n on sett ement of cense agreement
`Stock based compensation
`Non cash interest expense and amortization of investment premium
`Deferred ncome taxes
`Realized loss on sale of marketable securities
`Write-down of inventory to net rea izab e va ue
`Facility impairments and (gain) loss on sale
`Impairment of property, plant and equipment
`Impairment of investments and other assets
`Tax benefit from stock options
`Changes in assets and liabilities, net:
`Accounts receivab e
`Due from unconsolidated joint business
`Invento y
`Other assets
`Accrued expenses and other current liabilities
`Defe ed evenue
`Other ong-term ab t es
`Net cash flows provided by operating activities
`Cash flows from investing activities:
`Purchases of marketable securities
`Proceeds from sales and maturities of marketable securities
`Proceeds from sale of AMEVIVE
`Payments for acquisition of Fumapharm, net of cash acquired
`Payments for acquisition of Conforma, net of cash acquired
`Acquisitions of property, plant and equipment
`Proceeds from sale of property, plant and equipment
`Purchases of other investments
`Net cash flows provided by (used in) investing activities
`Cash flows from financing activities:
`Purchase of treasury stock
`Issuance of treasury stock for stock based compensation arrangements
`Change in cash overdrafts
`Tax benefit from stock options
`Repurchase of senior notes
`Loan proceeds from joint venture partner
`Net cash flow used in financing activities
`Net increase (decrease) in cash and cash equivalents
`Effect of exchange rate changes on cash and cash equivalents
`Cash and cash equivalents, beginning of the period
`Cash and cash equivalents, end of the period
`
`Supplemental cash flow disclosures:
`Cash paid during the period for tax liabilities
`Cash paid during the period for interest
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`See accompanying notes to the consolidated financial statements
`
`5
`
`
`
`2006
`
`
`
`Nine Mon hs Ended
`September 30,
`
`
`
`108,955
`$
`
`
`288,653
`
`330,520
`
`(34,192)
`
`102,059
`
`623
`
`(79,777)
`
`2,420
`
`12,608
`
`(923)
`
`
`
`5,021
`
`(12,293)
`
`
`
`(18,845)
`
`(16,260)
`
`(22,973)
`
`3,527
`
`(64,871)
`
`(12,969)
`
`8,180
`
`599,463
`
`
`
` (1,597,263)
` 1,468,097
`
`59,800
`
`(215,468)
`
`( 47,783)
`
`( 33,840)
`
`35,942
`
`(5,580)
`
`(536,095)
`
`
`
`(320,268)
`
`86,838
`
`(11,145)
`
`12,293
`
`
`
`15,304
`
`(216,978)
`
`(153,610)
`
`36
`
`568,168
`$
`414,594
`
`2005
`
`
`
`
`
`
`
`105,149
`$
`
`
`304,684
`
`
`
`
`
`19,465
`
`26,728
`
`(132,211)
`
`2,983
`
`65,714
`
`102,904
`
`3,067
`
`32,124
`
`
`
`
`
`11,497
`
`(4,092)
`
`(42,167)
`
`11,166
`
`99,188
`
`4,908
`
`3,656
`
`614,763
`
`
`
` (1,122,712)
` 1,536,475
`
`
`
`
`
`
`
`(215,950)
`
`408, 30
`
`(117,258)
`
`488,685
`
`
`
`(322,590)
`
`88,041
`
`(35,439)
`
`
`
`(746,415)
`
`
` ( ,0 6,403)
`
`87,045
`
`
`
`209,447
`$
`296,492
`
`
`$
`$
`
`
`322,764
`
`
`
`$
`$
`
`
`57,112
`38,018
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 6 of 87
`
`

`

`Table of Contents
`
`BIOGEN IDEC INC. AND SUBSIDIARIES
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
`(unaudited)
`
`1. Business Overview and Summary of Significant Accounting Policies
` Overview
` Biogen Idec is an international biotechnology company that creates new standards of care in oncology, neurology, and immunology As a global leader in the
`development, manufacturing, and commercialization of novel therapies, we transform scientific discoveries into advances in human healthcare
` Basis of Presentation
` In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of only normal recurring
`accruals, necessary for a fair statement of our financial position, results of operations, and cash flows The information included in this quarterly report on
`Form 0 Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our Annual Report on Form 0
`K for the year ended December 3 , 2005 Our accounting policies are described in the Notes to the Consolidated Financial Statements in our 2005 Annual
`Report on Form 0 K and updated, as necessary, in this Form 0 Q The year end consolidated balance sheet data was derived from audited financial
`statements, but does not include all disclosures required by accounting principles generally accepted in the U S The results of operations for the three and
`nine months ended September 30, 2006 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period
` The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make
`estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
`statements, and the repo ted amounts of revenues and expenses during the repo ting period Actual results could differ from those estimates
` Principles of Consolidation
` The consolidated financial statements include our financial statements and those of our wholly owned subsidiaries, as well as joint ventures in Italy and
`Switzerland, in which we are the prima y beneficiary We also consolidate a limited pa tnership investment, in which we are the majority investor All material
`intercompany balances and transactions have been eliminated
` TYSABRI Status
` TYSABRI® (natalizumab) was initially approved by the U S Food and Drug Administration, or FDA, in November 2004 to treat relapsing forms of
`multiple sclerosis, or MS, to reduce the frequency of clinical relapses In February 2005, in consultation with the FDA, we and Elan Corporation plc, or Elan,
`voluntarily suspended the marketing and commercial distribution of TYSABRI, and we informed physicians that they should suspend dosing of TYSABRI
`until further notification In addition, we suspended dosing in clinical studies of TYSABRI in MS, Crohn’s disease, and rheumatoid arthritis, or RA These
`decisions were based on repo ts of cases of progressive multifocal leukoencephalopathy, or PML, a rare brain infection that usually causes death or severe
`disability, in patients treated with TYSABRI in clinical studies
` In March 2006, we and Elan began an open label, multi center safety extension study of TYSABRI monotherapy in the U S and internationally On
`June 5, 2006, we and Elan announced the FDA’s approval of the supplemental Biologics License Application, or sBLA, for the reintroduction of TYSABRI
`as a monotherapy treatment for relapsing forms of MS to slow the progression of disability and reduce the frequency of clinical relapses On June 29, 2006,
`we and Elan announced that the European Agency for the Evaluation of Medicinal Products, or EMEA, had approved TYSABRI as a similar treatment In
`July 2006, we began to ship TYSABRI in both the United States and Europe During the three months ended September 30, 2006, we recognized revenue of
`$ 8 7 million related to TYSABRI, of which $4 7 million related to product shipments during the period An additional $ 4 0 million of
`
`6
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
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`revenue was recognized during the period related to shipments made in 2005 and was recognized in accordance with our revenue recognition policy, as
`discussed below
` Inventory
` Inventories are stated at the lower of cost or market with cost determined under the first in, first out, or FIFO, method Included in inventory are raw
`materials used in the production of pre clinical and clinical products, which are charged to research and development expense when consumed
` The components of inventory are as follows (in thousands):
`
`
`
`Raw materials
`Work in process
`Finished goods
`Total inventory
`
`
`
`September 30,
`
`2006
`43,329
`$
`92,953
`
`18,837
`
`$ 155,119
`
`
`
`December 31,
`
`2005
`44,4 7
`$
`107,987
`
`30,4
`
`$ 182,815
`
` 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 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 product stands in relation to that
`approval process including any known constraints and impediments to approval, including safety, efficacy and potential labeling restrictions We evaluate our
`anticipated research and development initiatives and constraints relating to the particular 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 possibly 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 cause
`delay in commercialization We are sensitive to the significant commitment of capital to scale up production and to launch commercialization strategies 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 would be required to expense previously
`capitalized costs related to pre approval inventory upon a change in such judgment, due to, among other potential factors, a denial or delay of approval by
`necessary regulatory bodies
` As of September 30, 2006, the carrying value of our inventory did not include any costs associated with products that had not yet received regulatory
`approval
` TYSABRI
` We manufactured TYSABRI during the first and second quarter of 2005 and completed our scheduled production of TYSABRI during July 2005
`Because of the unce tain future commercial availability of TYSABRI at the time, and our inability to predict to the required degree of ce tainty that TYSABRI
`invento y would be realized in commercial sales prior to the expiration of its shelf life, we expensed $23 2 million of costs related to the manufacture of
`TYSABRI in the first quarter of 2005 to cost of product revenues At the time of production, the inventory was believed to be commercially saleable During
`2005, as we worked with clinical investigators to understand the possible risks of PML, we charged the costs related to the manufacture of TYSABRI to
`research and development expense As a result, we expensed $2 5 million related to the manufacture of TYSABRI to research and development expense
`during 2005 As of December 3 , 2005, there was no carrying value of TYSABRI inventory on our consolidated balance sheet
` In the first quarter of 2006, in light of expectations of the re introduction of TYSABRI, we began a new manufacturing campaign On June 5, 2006, the
`FDA approved the reintroduction of TYSABRI as a monotherapy treatment for relapsing forms of MS to slow the progression of disability and reduce the
`frequency of clinical relapses On June 29, 2006, we and Elan announced the EMEA’s approval of TYSABRI as a similar treatment In July 2006, we began
`to ship TYSABRI in both the United States and Europe
`
`7
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 8 of 87
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` As of September 30, 2006, $3 6 million and $0 3 million of TYSABRI inventory value is included in work in process and finished goods, respectively
`In addition, we have product on hand that was expensed due to the uncertainties described above but which is available to fill future orders The approximate
`cost of such product, based on its cost of manufacture, was $40 6 million As we sell TYSABRI we will recognize lower than normal cost of product revenues
`and, therefore, higher margins, in the near future as we ship the inventory that was written off
` TYSABRI currently has an approved shelf life of up to 48 months and, based on our sales forecasts for TYSABRI, we expect the carrying value of the
`TYSABRI inventory to be realized
` Valuation of Inventory
` We periodically review our inventories for excess or obsolete invento y and write down obsolete or othe wise unmarketable inventory to its estimated net
`realizable value If subsequent information indicates the actual realizable value is less than that estimated by us, or if there are any further determinations that
`inventory will not be marketable based on estimates of demand, additional inventory write downs may be required This periodic review may lead us to
`expense costs associated with the manufacture of TYSABRI or other inventory in subsequent periods
` Our products are subject to strict quality control and monitoring throughout the manufacturing process Periodically, certain batches or units of product
`may no longer meet quality specifications or may become unusable based on expiration date This would require write downs of commercial inventory that
`does not meet quality specifications or becomes obsolete In all cases this product inventory is written down to its net realizable value
` We have written down the following unmarketable inventory, which was charged to cost of product revenues (in thousands):
`
`
`
`
`
`
`
`
`
`
`Three mon hs ended Sep ember 30,
`
`
`
`
`
`
`
`2006
`2005
`
`630
`583
`AVONEX®
`
`
`9,059
`AMEVIVE®
`
`110
`6,460
`ZEVALIN®
`
`
`
`TYSABRI®
`
`
`740
`16,102
`
`
`
`
`
`Nine mon hs ended Sep ember 30,
`
`
`
`2006
`2005
`4,083
`10,128
`2,433
`23,346
`3,287
`9,040
`2,805
`23,200
`12,608
`65,714
`
`$
`
`
`
`$
`
`$
`
`
`
`$
`
`$
`
`
`
`$
`
`$
`
`
`
`$
`
` The write downs for the three and nine months ended September 30, 2006 and 2005, respectively, were the result of the following (in thousands):
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Three mon hs ended Sep ember 30,
`Nine mon hs ended Sep ember 30,
`
`
`
`
`
`
`
`
`
`
`2006
`2005
`2006
`2005
`
`
`
`
`8,417
`New components for alternative presentations
`
`384
`4,537
`11,113
`19,796
`Failed quality specifications
`
`356
`11,565
`1,495
`4,30
`Excess and/or obsolescence
`
`
`
`
`23,200
`Costs for voluntary suspension of TYSABRI
`
`
`740
`16,102
`12,608
`65,714
` Intangible Assets and Goodwill
` In connection with our merger with Biogen, Inc on November 2, 2003, or the Merger, we recorded intangible assets related to patents, trademarks, and
`core technology as part of the purchase price These intangible assets were recorded at fair value, and at September 30, 2006 and December 3 , 2005 are net of
`accumulated amortization and impairments Intangible assets related to out licensed patents and core technology are amortized over their estimated useful lives,
`ranging from 2 to 20 years, based on the greater of straight line method or economic consumption each period These amortization costs are included in
`“Amortization of acquired intangible assets” in the accompanying consolidated statements of income Intangible assets related to trademarks have indefinite
`lives, and as a result are not amortized, but are subject to review for impairment We review our intangible assets for impairment periodically and whenever
`events or changes in circumstances indicate that the carrying value of an asset may not be recoverable
`
`$
`
`
`
`$
`
`$
`
`
`
`$
`
`$
`
`
`
`$
`
`$
`
`
`
`$
`
`8
`
`Powered by Mornings ar® Documen Research℠
`Source BIOGEN INC , 10 Q, November 09, 2006
`The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
`except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
`
`Page 9 of 87
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`Table of Contents
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`
`
`Goodw
`
`
`December 31, 2005:
`Out licensed patents
`Co e/deve oped techno ogy
`Trademarks & tradenames
`In- censed patents
`Total
`
`
`Goodw
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Estimated
`Life
`
`
`12 years
`5 20 years
`
`Indef n te
`
`4 years
`
`
`
`
`
`
`Indef n te
`
` Goodwill associated with the Merger represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net
`assets when accounted for by the purchase method of accounting Goodwill is not amortized, but rather subject to periodic review for impairment Goodwill is
`reviewed annually and whenever events or changes in circumstances indicate that the carrying amount of the goodwill might not be recoverable
` During the three months ended September 30, 2006, we recognized $46 7 million of amo tization on core technology intangible assets The AVONEX
`component of this amount was computed on the straight line method as it was determined that, beginning in the three months ended September 30, 2006, the
`amortization of the intangible asset would be higher on the straight line method than on the economic consumption method that had been applied previously
` As of September 30, 2006 and December 3 , 2005, intangible assets and goodwill, net of accumulated amortization and impairment charges and
`adjustments, were as follows (in thousands):
`
`
`Sep ember 30, 2006:
`Out licensed patents
`Co e/deve oped techno ogy
`Trademarks & tradenames
`In- censed patents
`Assembled workforce
`Total
`
`
`
`
`
`Estimated
`Life
`
`
`12 years
`5 20 years
`
`Indef n te
`
`4 years
`
`4 years
`
`
`
`
`
`Indef n te
`
`
`
`Historical
`
`Cost
`578,000
`$
` 2,984,000
`
`64,000
`
`3,000
`$ 3,629,000
`
`
`$1,151,105
`
`
`
`
`
`Historical
`
`Cost
`578,000
`$
` 3,000,882
`
`64,000
`
`3,000
`
`,400
`$ 3,647,282
`
`
`$1,153,980
`
`
`Accumula ed
`Amortization
`$ 102,756
`
`542,407
`
`
`
`243
`$ 645,406
`
`
`$
`
`
`
`
`Accumula ed
`Amortization
`$ 138,880
` 712,254
`
`
`
`411
`
`117
`$ 851,662
`
`
`$
`
`
`
`
`
`Adjus men s
`$
`
`
`7,993
`
`
`
`
`$
`7,993
`
`
`$ 20,675
`
`
`
`
`
`
`Ne
`
`439,120
`$
` 2,288,628
`
`64,000
`
`2,589
`
`1,283
`$2,795,620
`
`
`$ 1,153,980
`
`
`
`
`Ne
`
`475,244
`$
` 2,433,600
`
`64,000
`
`2,757
`$2,975,601
`
`
`$
`, 30,430
`
` As discussed in Note 2, Acquisitions and Collaboration Agreements, core/developed technology, goodwill and assembled workforce increased by
`$26 4 million, $ 8 5 million, and $ 4 million, respectively, as a result of the acquisition of entities in the second quarter of 2006 During the three months
`ended June 30, 2006, we recorded an increase to goodwill of $5 4 million to increase rese ves for product returns at the time of our merger with Biogen Inc in
`2003 During the third quarter of 2006, in connection with the calculation of the purchase price allocation of Fumapharm, we reduced goodwill by
`approximately $2 0 million
` Revenue Recognition
` Product Revenues
` We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or se vices have been
`rendered; the seller’s price to the buyer is fixed or determinable; collectibility is reasonably assured; and title and the risks and rewards of ownership have
`transferred to the buyer
` Except for revenues from sales of TYSABRI in the U S , revenues from product sales are recognized when product is shipped and title and risk of loss
`has passed to the customer, typically upon delivery Sales of TYSABRI in the U S are recognized on the “sell through” model, that is, upon shipment of the
`product by Elan to the customer The timing of distributor orders and shipments can cause variability in earnings
` Revenues are recorded net of applicable allowances for returns, patient assistance, trade term discounts, Medicaid rebates, Veteran’s Administration
`rebates, managed care discounts and other applicable allowances Included in our consolidated balance sheets at September 30, 2006 and December 3 , 2005
`are allowances for returns, rebates,