The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page F-1 of this report. For our discussion of the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 , please read Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Executive Summary Introduction Biogen is a global biopharmaceutical company focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. We have a leading portfolio of medicines to treat multiple sclerosis (MS), have introduced the first approved treatment for spinal muscular atrophy (SMA) and are providing the first and only approved treatment to address a defining pathology of Alzheimer's disease. We also commercialize biosimilars of advanced biologics and focus on advancing our pipeline in neuroscience and specialized immunology. Lastly, we are focused on accelerating our efforts in digital health to support our commercial and pipeline programs while also creating opportunities for potential digital therapeutics. We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities. Our marketed products include TECFIDERA, VUMERITY,AVONEX , PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; ADUHELM for the treatment of Alzheimer's disease; and FUMADERM for the treatment of severe plaque psoriasis. We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, CLL and other conditions; RITUXAN HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular lymphoma; OCREVUS for the treatment of PPMS and RMS; and other potential anti-CD20 therapies, including mosunetuzumab, pursuant to our collaboration arrangements withGenentech , a wholly- owned member of the Roche Group. For additional information on our collaboration arrangements withGenentech , please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Our innovative drug development and commercialization activities are complemented by our biosimilar business that expands access to medicines and reduces the cost burden for healthcare systems. Through our agreements withSamsung Bioepis , our joint venture with Samsung BioLogics, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE, in certain countries inEurope . We have also secured the exclusive rights to commercialize BYOOVIZ, a ranibizumab biosimilar referencing LUCENTIS, which was approved in theU.S. , the E.U. and theU.K. during the third quarter of 2021. For additional information on our collaboration arrangements withSamsung Bioepis , please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. We seek to ensure an uninterrupted supply of medicines to patients around the world. To that end, we continually review our manufacturing capacity, capabilities, processes and facilities. In order to support our future growth and drug development pipeline, we are expanding our large molecule production capacity by building a large-scale biologics manufacturing facility inSolothurn, Switzerland . In the second quarter of 2021 a portion of the facility received a GMP multi-product license fromSWISSMEDIC . We believe that theSolothurn facility will support our anticipated near-term needs for the manufacturing of ADUHELM and other biologic assets. In addition, we believe that theSolothurn site may provide us with the ability to further expand if we need additional large scale manufacturing capacity to support future clinical and commercial manufacturing requirements. If we are unable to fully utilize our manufacturing facilities, due to lower than forecasted demand for our products, we will incur excess capacity charges which will have a negative effect on our financial condition and results of operations. Our revenue depends upon continued sales of our products as well as the financial rights we have in our anti-CD20 therapeutic programs, and, unless we develop, acquire rights to and/or commercialize new products and technologies, we will be substantially dependent on sales from our products and our financial rights in our anti-CD20 therapeutic programs for many years. 56 -------------------------------------------------------------------------------- T a ble of Content s In the longer term, our revenue growth will depend upon the successful clinical development, regulatory approval and launch of new commercial products as well as additional indications for our existing products, our ability to obtain and maintain patents and other rights related to our marketed products, assets originating from our research and development efforts and/or successful execution of external business development opportunities. Business Environment For a detailed discussion on our business environment, please read Item 1. Business, included in this report. For additional information on our competition and pricing risks that could negatively impact our product sales, please read Item 1A. Risk Factors, included in this report. ADUHELM (aducanumab) U.S. InJune 2021 the FDA granted accelerated approval of ADUHELM, which we are developing and commercializing in collaboration with Eisai, based on reduction in amyloid beta plaques observed in patients treated with ADUHELM. As part of the accelerated approval, we will conduct a confirmatory trial to verify the clinical benefit of ADUHELM in patients with Alzheimer's disease. The FDA may withdraw approval if, among other things, the confirmatory trial fails to verify clinical benefit of ADUHELM, ADUHELM's benefit-risk is no longer positive or we fail to comply with the conditions of the accelerated approval. TheU.S. ADUHELM product label states that treatment with ADUHELM should be initiated in patients with mild cognitive impairment or mild dementia stage of disease, the population which was studied in clinical trials. We expect patient uptake will be gradual and we do not expect all eligible patients will be treated with ADUHELM for a variety of reasons, including appropriate patient selection criteria, a complex diagnostic and care pathway, the lack of readiness of healthcare providers and institutions to initiate treatment, concern regarding the accelerated approval of ADUHELM and its data and the ability to obtain and maintain adequate reimbursement for ADUHELM. InJanuary 2022 theCenters for Medicare and Medicaid Services (CMS) released a proposed NCD decision memorandum, stating the proposed NCD would cover FDA approved monoclonal antibodies that target amyloid for the treatment of Alzheimer's disease for people with Medicare only if they are enrolled in qualifying clinical trials. We expect a final Medicare NCD by the second quarter of 2022, which should clarify Medicare reimbursement for the class of antibodies directed against amyloid. If the final NCD is not broader than the proposed NCD, our future operating results may be negatively impacted. Under our collaboration agreement with Eisai (ADUHELM Collaboration Agreement), we and Eisai will co-promote ADUHELM with a region-based profit split, with Eisai reimbursing us for 45.0% of development and commercialization costs incurred by the collaboration for the advancement of ADUHELM in theU.S. Shipments of ADUHELM commenced during the second quarter of 2021. We have made, and may continue to make, commercial, medical and infrastructure investments in support of activities associated with the launch of ADUHELM in theU.S. Rest of World InOctober 2020 the EMA accepted for review the Marketing Authorization Application for aducanumab and inDecember 2020 the MHLW accepted for review the Japanese NDA for aducanumab. InDecember 2021 the CHMP of the EMA adopted a negative opinion on the MAA for aducanumab inEurope . We are seeking a re-examination of the opinion by the CHMP. If we do not receive regulatory approval or are unable to successfully commercialize aducanumab in other jurisdictions, our financial condition, business and operations may be adversely affected. TECFIDERA In 2020 U.S. federal courts inWest Virginia andDelaware entered judgments in favor of the defendants in patent infringement proceedings relating to TECFIDERA Orange-Book listed patents. We appealed both decisions. In late 2021 theU.S. Court of Appeals for the Federal Circuit (Federal Circuit) affirmed the judgment of theWest Virginia federal court. The appeals in theDelaware cases were stayed and we expect will remain so until the decision in theWest Virginia case becomes final. Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA has significantly reduced our TECFIDERA revenue and is expected to continue to have a substantial and increasing negative impact on ourU.S. TECFIDERA revenue in the future. InMay 2021 the European General Court annulled the EMA's decision not to validate applications for approval of TECFIDERA generics on the basis that the EMA conducted the wrong assessment when determining TECFIDERA's entitlement to regulatory data and marketing protection. Our Company, the EMA and the EC have each appealed the General Court's decision as wrongly decided and the appeal is pending. 57 -------------------------------------------------------------------------------- T a ble of Content s InNovember 2021 the CHMP of the EMA issued an ad hoc opinion referencing the General Court's decision which concluded that "the totality of the available data cannot establish that [monoethyl fumarate] exerts a clinically relevant therapeutic contribution within FUMADERM."The EC will decide TECFIDERA's entitlement to regulatory data and market protection. If data and market protection is not upheld, we could face generic competition in the E.U. as early as the first half of 2022, which would have an adverse impact on our TECFIDERA sales in the E.U. and our results of operations. For additional information, please read the discussion under Results of Operations - Product Revenue - Multiple Sclerosis (MS) - Fumarate below. Business Update Regarding COVID-19 The COVID-19 pandemic continues to present a substantial public health and economic challenge around the world. The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including sales, expense, reserves and allowances, the supply chain, manufacturing, clinical trials, research and development costs and employee-related costs, depends on future developments that are highly uncertain, subject to change and are difficult to predict, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 as well as the economic impact on local, regional, national and international customers and markets. We are monitoring the demand for our products, including the duration and degree to which we may see delays in starting new patients on a product due to hospitals diverting the resources that are necessary to administer certain of our products to care for COVID-19 patients, including products, such as TYSABRI and SPINRAZA, that are administered in a physician's office or hospital setting. We may also see reduced demand for immunosuppressant therapies during the COVID-19 pandemic. While we are currently continuing the clinical trials we have underway in sites across the globe, COVID-19 precautions have impacted the timeline for some of our clinical trials and these precautions may, directly or indirectly, have a further impact on timing in the future. To help mitigate the impact of the COVID-19 pandemic to our clinical trials, we are pursuing innovative approaches such as remote monitoring, remote patient visits and supporting home infusions. These alternative measures have resulted in an immaterial increase to the cost of the clinical trials underway. Factors such as the COVID-19 pandemic, adverse weather events, labor or raw material shortages and other supply chain disruptions could result in product shortages or other difficulties and delays in manufacturing our products. For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this report. 58 -------------------------------------------------------------------------------- T a ble of Content s Financial Highlights Diluted earnings per share attributable toBiogen Inc. were$10.40 for 2021, representing a decrease of 58.1% as compared to$24.80 in the same period in 2020. As described below under Results of Operations, our net income and diluted earnings per share attributable toBiogen Inc. for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , reflects the following: Revenue •Total revenue was$10,981.7 million for 2021, representing a$2,462.9 million , or 18.3%, decrease compared to$13,444.6 million in 2020. •Product revenue, net totaled$8,846.9 million for 2021, representing a$1,845.3 million , or 17.3%, decrease compared to$10,692.2 million in 2020. This decrease was primarily due to a$1,735.4 million , or 22.2%, decrease in MS product revenue and a$147.0 million , or 7.2%, decrease in SPINRAZA product revenue, partially offset by a$35.3 million , or 4.4%, increase in revenue from our biosimilar business. •The decrease in MS product revenue was primarily due to a decrease inU.S. TECFIDERA demand as a result of multiple TECFIDERA generic entrants in the U.S. market. •The decrease in SPINRAZA revenue was primarily due to a decrease in demand as a result of increased competition in theU.S. andGermany as well as a decrease in pricing in theU.S. and rest of world markets, partially offset by an increase in sales volumes inLatin America and certain distributor markets. •Revenue from anti-CD20 therapeutic programs totaled$1,658.5 million for 2021, representing a$319.3 million , or 16.1%, decrease compared to$1,977.8 million in 2020. This decrease was primarily due to a$480.2 million , or 45.5%, decrease in RITUXAN revenue, partially offset by a$146.3 million , or 17.3%, increase in royalty revenue on sales of OCREVUS. Sales of RITUXAN have been adversely affected by the onset of biosimilar competition. •Other revenue totaled$476.3 million for 2021, representing a$298.3 million , or 38.5%, decrease from$774.6 million in 2020. •The decrease in other revenue was primarily due to higher contract manufacturing revenue in 2020, resulting from$346.2 million in revenue related to the delivery of the license for certain of our manufacturing-related intellectual property to a contract manufacturing customer. Expense •Total cost and expense was$8,141.0 million for 2021, representing a$753.5 million , or 8.5%, decrease compared to$8,894.5 million in 2020. This decrease was primarily due to a$1,489.7 million , or 37.3%, decrease in research and development expense. •The decrease in research and development expense was primarily due to$1,893.3 million in upfront payments recognized in 2020 in connection with our collaborations with Sangamo, Denali and Sage, partially offset by a$125.0 million upfront payment recognized in connection with our collaboration with InnoCare in 2021. •The decrease was partially offset by a$304.5 million , or 16.9%, increase in cost of sales, which was primarily driven by$164.0 million of charges associated with inventory and purchase commitments in excess of forecasted demand related to ADUHELM during 2021 as well as higher impairment charges recorded during 2021 as compared to 2020. As described below under Financial Condition, Liquidity and Capital Resources: •We generated$3,639.9 million of net cash flow from operations for 2021. •Cash, cash equivalents and marketable securities totaled approximately$4,694.5 million as ofDecember 31, 2021 . •We repurchased and retired approximately 6.0 million shares of our common stock at a cost of approximately$1.8 billion during 2021 under our 2020 Share Repurchase Program. Approximately$2.8 billion remained available under our 2020 Share Repurchase Program as ofDecember 31, 2021 . Acquisitions, Collaborative and Other Relationships For additional information on our acquisitions, collaborative and other relationships discussed below, 59 -------------------------------------------------------------------------------- T a ble of Content s please read Note 2, Acquisitions, Note 18, Collaborative and Other Relationships, and Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report. Bio-Thera Solutions InApril 2021 we entered into a commercialization and license agreement to develop, manufacture and commercialize BAT1806, a Phase 3 clinical stage anti-interleukin-6 (IL-6) receptor monoclonal antibody that is a proposed biosimilar referencing ACTEMRA. In connection with this agreement, we made an upfront payment of$30.0 million to Bio-Thera Solutions. InnoCare Pharma Limited InJuly 2021 we entered into a collaboration and license agreement with InnoCare for orelabrutinib, an oral small molecule Bruton's tyrosine kinase inhibitor for the potential treatment of MS. In connection with this agreement, we made an upfront payment of$125.0 million to InnoCare. For additional information on our collaboration arrangement with InnoCare, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Mosunetuzumab InJanuary 2022 we exercised our option withGenentech to participate in the joint development and commercialization of mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin's lymphoma and other therapeutic areas. In connection with this exercise, we recorded a$30.0 million option exercise fee payable toGenentech inDecember 2021 . BIIB115 Option Exercise InDecember 2021 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB115, a preclinical investigational ASO in development for SMA. In connection with this option exercise, we made an opt-in payment of$60.0 million to Ionis.Samsung Bioepis - Biogen's Joint Venture with Samsung BioLogics InJanuary 2022 we entered into an agreement to sell to Samsung Biologics our equity inSamsung Bioepis . Under the terms of the proposed transaction, we would receive$1.0 billion in cash at closing and$1.3 billion to be deferred over two payments of$812.5 million due at the first anniversary and$437.5 million due at the second anniversary of the closing of the transaction. We would also be eligible to receive up to an additional$50.0 million upon the achievement of certain commercial milestones. Closing of the transaction is currently anticipated in mid-2022, contingent on the effectiveness of a securities registration statement filed by Samsung Biologics and satisfaction of certain regulatory and other customary closing conditions. For additional information on the proposed transaction and our collaboration arrangements withSamsung Bioepis , please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Other Key Developments Exchange Offer InFebruary 2021 we completed our Exchange Offer of our tendered 2045 Senior Notes for our 2051 Senior Notes and cash, and an offer to purchase our tendered 2045 Senior Notes for cash. For additional information on our Exchange Offer, please read Note 12, Indebtedness, to our consolidated financial statements included in this report. North Carolina Gene Therapy Manufacturing Facility InMarch 2021 we announced our plans to build a new gene therapy manufacturing facility in RTP, NC to support our gene therapy pipeline across multiple therapeutic areas. The new facility will be 175,000 square feet and is expected to be operational by the end of 2023, with an estimated total investment of approximately$200.0 million . Construction for this new facility began during the fourth quarter of 2021. Solothurn, Switzerland Manufacturing Facility InMay 2021 we announced that a portion of ourSolothurn manufacturing facility received a GMP multi-product license fromSWISSMEDIC . For additional information on ourSolothurn manufacturing facility, please read Note 10, Property, Plant and Equipment, to our consolidated financial statements included in this report. BIIB125 (zuranolone) InJune 2021 we and Sage announced positive Phase 3 results for BIIB125 (zuranolone) for the potential treatment of MDD and PPD. InOctober 2021 we and Sage announced our plan to submit an NDA to the FDA for zuranolone in the second half of 2022, with rolling submission expected to start in early 2022. The planned initial submission package will seek approval of zuranolone for MDD, and an additional filing for PPD is anticipated in the first half of 2023. 60 -------------------------------------------------------------------------------- T a ble of Content s For additional information on our collaboration arrangement with Sage, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Lecanemab (BAN2401) InJune 2021 the FDA granted Breakthrough Therapy designation for lecanemab, an anti-amyloid antibody for the potential treatment of Alzheimer's disease, which we are developing in collaboration with Eisai. InSeptember 2021 Eisai initiated a rolling submission to the FDA of a BLA for lecanemab. The BLA is being submitted under the accelerated approval pathway and is primarily based on clinical, biomarker and safety data from the Phase 2b clinical trial in people with early Alzheimer's disease and confirmed amyloid pathology. BYOOVIZ (ranibizumab-nuna) InSeptember 2021 we andSamsung Bioepis announced that the FDA has approved BYOOVIZ (ranibizumab-nuna), a biosimilar referencing LUCENTIS for the treatment of neovascular (wet) age-related macular degeneration, macular edema following retinal vein occlusion, and myopic choroidal neovascularization. In addition to theU.S. approval, BYOOVIZ was approved in the E.U. and theU.K. during the third quarter of 2021. BIIB067 (tofersen) InOctober 2021 we announced topline results from our pivotal Phase 3 VALOR study of BIIB067 (tofersen), an investigational antisense drug being evaluated for people with SOD1 ALS, indicating that the primary endpoint was not met. We are engaging with regulators and other key stakeholders to determine potential next steps. RESULTS OF OPERATIONS Revenue Revenue is summarized as follows: % Change $ Change For the Years Ended December 31, 2021 2020 2021 2020 vs. vs. vs. vs. (In millions, except percentages) 2021 2020 2019 2020 2019 2020 2019 Product revenue, net: United States$ 3,805.7 $ 5,900.1 $ 6,713.8 (35.5) % (12.1) %$ (2,094.4) $ (813.7) Rest of world 5,041.2 4,792.1 4,666.0 5.2 2.7 249.1 126.1 Total product revenue, net 8,846.9 10,692.2 11,379.8 (17.3) (6.0) (1,845.3) (687.6) Revenue from anti-CD20 therapeutic programs 1,658.5 1,977.8 2,290.4 (16.1) (13.6) (319.3) (312.6) Other revenue 476.3 774.6 707.7 (38.5) 9.5 (298.3) 66.9 Total revenue$ 10,981.7 $ 13,444.6 $ 14,377.9 (18.3) % (6.5) %$ (2,462.9) $ (933.3) 61
-------------------------------------------------------------------------------- T a ble of Content s Product Revenue Product revenue is summarized as follows: % Change $ Change For the Years Ended December 31, 2021 2020 2021 2019 vs. vs. vs. vs. (In millions, except percentages) 2021 2020 2019 2020 2019 2020 2018 Multiple Sclerosis (MS): Fumarate(1)$ 2,362.3 $ 3,905.4 $ 4,438.2 (39.5) % (12.0) %$ (1,543.1) $ (532.8) Interferon(2) 1,566.1 1,877.5 2,101.8 (16.6) (10.7) (311.4) (224.3) TYSABRI 2,063.1 1,946.1 1,892.2 6.0 2.8 117.0 53.9 FAMPYRA 105.2 103.1 97.1 2.0 6.2 2.1 6.0 Subtotal: MS 6,096.7 7,832.1 8,529.3 (22.2) (8.2) (1,735.4) (697.2) Spinal Muscular Atrophy: SPINRAZA 1,905.1 2,052.1 2,097.0 (7.2) (2.1) (147.0) (44.9) Alzheimer's disease: ADUHELM(3) 3.0 - - nm - 3.0 - Biosimilars: BENEPALI 498.3 481.6 486.2 3.5 (0.9) 16.7 (4.6) IMRALDI 233.4 216.3 184.0 7.9 17.6 17.1 32.3 FLIXABI 99.4 97.9 68.1 1.5 43.8 1.5 29.8 Subtotal: Biosimilars 831.1 795.8 738.3 4.4 7.8 35.3 57.5 Other: FUMADERM 11.0 12.2 15.2 (9.8) (19.7) (1.2) (3.0) Total product revenue, net$ 8,846.9 $ 10,692.2 $ 11,379.8 (17.3) % (6.0) %
$ (1,845.3) $ (687.6) (1) Fumarate includes TECFIDERA and VUMERITY. VUMERITY became commercially available in the E.U. during the fourth quarter of 2021. (2) Interferon includesAVONEX and PLEGRIDY. (3) InJune 2021 the FDA granted accelerated approval of ADUHELM, which became commercially available in theU.S. during the second quarter of 2021. For additional information, please read Note 18, Collaborative and Other Relationships - Eisai Co., Ltd. - ADUHELM Collaboration Agreement, to our consolidated financial statements included in this report. nm Not meaningful 62 -------------------------------------------------------------------------------- T a ble of Content s Multiple Sclerosis (MS) Fumarate [[Image Removed: biib-20211231_g20.jpg]] Fumarate revenue includes sales from TECFIDERA and VUMERITY. During the fourth quarter of 2021 VUMERITY was approved for the treatment of RRMS in the E.U.,Switzerland and theU.K. For 2021 compared to 2020, the 60.3% decrease inU.S. Fumarate revenue was primarily due to a decrease in TECFIDERA demand as a result of multiple TECFIDERA generic entrants entering the U.S. market. The decrease was partially offset by an increase in VUMERITY sales volumes in theU.S. For 2021 compared to 2020, the 9.4% increase in rest of world Fumarate revenue was primarily due to an increase in TECFIDERA sales volumes of 6.2%. In 2020 U.S. federal courts inWest Virginia andDelaware entered judgments in favor of the defendants in patent infringement proceedings relating to TECFIDERA Orange-Book listed patents. We appealed both decisions. In late 2021 the Federal Circuit affirmed the judgment of theWest Virginia federal court. The appeals in theDelaware cases were stayed and we expect will remain so until the decision in theWest Virginia case becomes final. Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA has significantly reduced our TECFIDERA revenue and is expected to continue to have a substantial and increasing negative impact on ourU.S. TECFIDERA revenue in the future. InMay 2021 the European General Court annulled the EMA's decision not to validate applications for approval of TECFIDERA generics on the basis that the EMA conducted the wrong assessment when determining TECFIDERA's entitlement to regulatory data and marketing protection. Our Company, the EMA and the EC have each appealed the General Court's decision as wrongly decided and the appeal is pending. InNovember 2021 the CHMP of the EMA issued an ad hoc opinion referencing the General Court's decision which concluded that "the totality of the available data cannot establish that [monoethyl fumarate] exerts a clinically relevant therapeutic contribution within FUMADERM."The EC will decide TECFIDERA's entitlement to regulatory data and market protection. If data and market protection is not upheld, we could face generic competition in the E.U. as early as the first half of 2022, which would have an adverse impact on our TECFIDERA sales in the E.U. and our results of operations. For additional information, please read Note 20, Litigation, to our consolidated financial statements included in this report. We expect that TECFIDERA revenue will continue to decline in 2022, compared to 2021, as a result of increasing generic competition. We expect an increase in VUMERITY sales volumes in 2022, compared to 2021, mostly driven by demand growth, including the continued launch of VUMERITY in the E.U. Interferon [[Image Removed: biib-20211231_g21.jpg]] For 2021 compared to 2020, the 22.8% decrease inU.S. Interferon revenue was primarily due to a decrease in Interferon sales volumes of 18.7%. The net decline in sales volumes reflects the continued decline of the Interferon market as patients transition to other higher efficacy and oral MS therapies. 63 -------------------------------------------------------------------------------- T a ble of Content s For 2021 compared to 2020, the 3.5% decrease in rest of world Interferon revenue was primarily due to a decrease in Interferon sales volumes of 3.8%. We expect that Interferon revenue will continue to decline in both theU.S. and rest of world markets in 2022, compared to 2021, as a result of increasing competition from other MS products, including biosimilars, and further pricing reductions in certain European markets. TYSABRI [[Image Removed: biib-20211231_g22.jpg]] For 2021 compared to 2020, the 4.1% increase inU.S. TYSABRI revenue was primarily due to an increase in pricing, partially offset by a decrease in sales volumes. For 2021 compared to 2020, the 8.4% increase in rest of world TYSABRI revenue was primarily due to favorable volume impacts, partially offset by decreases in pricing. We anticipate TYSABRI revenue to be relatively flat on a global basis in 2022, compared to 2021, despite increasing competition from additional treatments for MS. We expect to continue to face price reductions in certain European markets. Spinal Muscular Atrophy SPINRAZA [[Image Removed: biib-20211231_g23.jpg]] For 2021 compared to 2020, the 25.4% decrease inU.S. SPINRAZA revenue was primarily due to a decrease in sales volumes of 24.2%, resulting from increased competition. For 2021 compared to 2020, the 4.2% increase in rest of world SPINRAZA revenue was primarily due to an increase in sales volumes, particularly inLatin America and certain distributor markets. These increases were offset by lower volumes resulting from increased competition in certain established markets, particularlyGermany . We face competition from a gene therapy product and an oral product. In 2022 we expect that SPINRAZA revenue will be subject to increased competition, likely resulting in continued patient discontinuations and a lower rate of new patient starts, combined with the impact of loading dose dynamics, as patients transition to dosing once every four months, and lower prices in certain rest of world countries. For additional information on our collaboration arrangements with Ionis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. 64 -------------------------------------------------------------------------------- T a ble of Content s Alzheimer's Disease ADUHELM [[Image Removed: biib-20211231_g24.jpg]] InJune 2021 the FDA granted accelerated approval of ADUHELM, which became commercially available in theU.S. during the second quarter of 2021. We expect minimal sales of ADUHELM in 2022. For additional information on our collaboration arrangements with Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Biosimilars BENEPALI, IMRALDI and FLIXABI [[Image Removed: biib-20211231_g25.jpg]] During the third quarter of 2021 BYOOVIZ, a biosimilar referencing LUCENTIS, was approved in theU.S. , the E.U and theU.K. For 2021 compared to 2020, the 4.4% increase in biosimilar revenue was primarily due to the favorable impact of higher volumes and foreign currency exchange, partially offset by decreases in pricing in certain markets. We anticipate a slight decline in revenue from our biosimilars business in 2022 compared to 2021, despite the launch of BYOOVIZ in theU.S. and an anticipated modest increase in sales volume in 2022, as we continue to face price reductions in certain markets. For additional information on our collaboration arrangements withSamsung Bioepis , please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Revenue from Anti-CD20 Therapeutic ProgramsGenentech (Roche Group) Our share of RITUXAN, including RITUXAN HYCELA, and GAZYVA collaboration operating profits in theU.S. and other revenue from anti-CD20 therapeutic programs are summarized in the table below. For purposes of this discussion, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN. [[Image Removed: biib-20211231_g26.jpg]] 65
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T a ble of C on ten ts Share of Biogen’s pre-tax profits in the
For the Years Ended December 31, (In millions) 2021 2020 2019 Product revenue, net$ 2,032.0 $ 3,334.1 $ 4,747.4 Cost and expense 291.8 433.0 622.7 Pre-tax profits in the U.S.$ 1,740.2 $ 2,901.1 $ 4,124.7 Biogen's share of pre-tax profits$ 647.7 $ 1,080.2
For 2021 compared to 2020, the decrease inU.S. product revenue, net was primarily due to a decrease in sales volumes of RITUXAN in theU.S. of 38.8%, primarily due to the onset of competition from multiple biosimilar products. For 2021 compared to 2020, product revenue, net also reflects an increase in GAZYVA sales volumes of 8.5%. For 2021 compared to 2020, the decrease in collaboration cost and expense was primarily due to lower cost of sales, distribution costs and selling and marketing expense related to RITUXAN. We are aware of several other anti-CD20 molecules, including biosimilar products, that have been approved and are competing with RITUXAN and GAZYVA in the oncology and other markets. InNovember 2019 ,January 2020 andJanuary 2021 biosimilar products referencing RITUXAN were launched in theU.S. and are being offered at lower prices. This competition has had a significant adverse impact on the pre-tax profits of our collaboration arrangements withGenentech , as the sales of RITUXAN have decreased substantially compared to prior periods. We expect that biosimilar competition will continue to increase as these products capture additional market share and that this will have a significant adverse impact on our co-promotion profits in theU.S. in future years. Other Revenue from Anti-CD20 Therapeutic Programs Other revenue from anti-CD20 therapeutic programs consist of royalty revenue on sales of OCREVUS and our share of pre-tax co-promotion profits from RITUXAN inCanada . For 2021 compared to 2020, the increase in other revenue from anti-CD20 therapeutic programs was primarily due to sales growth of OCREVUS. Royalty revenue recognized on sales of OCREVUS for the years endedDecember 31, 2021 , 2020 and 2019, totaled$991.7 million ,$845.4 million and$687.5 million , respectively. OCREVUS royalty revenue is based on our estimates from third party and market research data of OCREVUS sales occurring during the corresponding period. Differences between actual and estimated royalty revenue will be adjusted for in the period in which they become known, which is generally expected to be the following quarter. For additional information on our collaboration arrangements withGenentech , including information regarding the pre-tax profit-sharing formula and its impact on future revenue from anti-CD20 therapeutic programs, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Other Revenue Other revenue is summarized as follows: % Change $ Change For the Years Ended December 31, 2021 2020 2021 2020 vs. vs. vs. vs. (In millions, except percentages) 2021 2020 2019 2020 2019 2020
2019
Revenue from collaborative and other relationships$ 20.7 $ 21.6 $ 106.2 (4.2) % (79.7) %$ (0.9) $ (84.6) Other royalty and corporate revenue 455.6 753.0 601.5 (39.5) 25.2 (297.4) 151.5 Total other revenue$ 476.3 $ 774.6 $ 707.7 (38.5) % 9.5 %$ (298.3) $ 66.9
Revenue from collaborative relationships and other Revenue from collaborative relationships and other primarily includes revenue from royalties on biosimilar products from
66 -------------------------------------------------------------------------------- T a ble of Content s Other Royalty and Corporate Revenue [[Image Removed: biib-20211231_g27.jpg]] We receive royalties from net sales on products related to patents that we have out-licensed and we record other corporate revenue primarily from amounts earned under contract manufacturing agreements. For 2021 compared to 2020, the decrease in other corporate revenue was primarily due to higher contract manufacturing revenue during the year endedDecember 31, 2020 , resulting from$346.2 million in revenue related to the delivery of the license for certain of our manufacturing-related intellectual property to a contract manufacturing customer. For additional information, please read Note 4, Revenue, to our consolidated financial statements included in this report. Reserves for Discounts and Allowances Revenue from product sales is recorded net of reserves established for applicable discounts and allowances, including those associated with the implementation of pricing actions in certain international markets where we operate. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment. Reserves for discounts, contractual adjustments and returns that reduced gross product revenue are summarized as follows: [[Image Removed: biib-20211231_g28.jpg]] For the years endedDecember 31, 2021 , 2020 and 2019, reserves for discounts and allowances as a percentage of gross product revenue were 28.6%, 27.1% and 24.3%, respectively. Discounts Discounts include trade term discounts and wholesaler incentives. For 2021 compared to 2020, the decrease in discounts was primarily driven by a decrease in gross sales. Contractual Adjustments Contractual adjustments primarily relate to Medicaid and managed care rebates in theU.S. , pharmacy rebates, co-payment (copay) assistance,Veterans Administration , 340B discounts, specialty pharmacy program fees and other government rebates or applicable allowances. For 2021 compared to 2020, the decrease in contractual adjustments was primarily driven by lower TECFIDERA sales in theU.S. , resulting in lower Medicaid, managed care and government rebates, partially offset by managed care rebates in theU.S. from VUMERITY sales. Returns Product return reserves are established for returns made by wholesalers. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Provisions for product returns are 67 -------------------------------------------------------------------------------- T a ble of Content s recognized in the period the related revenue is recognized, resulting in a reduction to product sales. For 2021 compared to 2020, return reserves were relatively consistent. For additional information on our revenue reserves, please read Note 4, Revenue, to our consolidated financial statements included in this report. Cost and Expense A summary of total cost and expense is as follows: % Change $ Change For the Years Ended December 31, 2021 2020 2021 2020 vs. vs. vs. vs. (In millions, except percentages) 2021 2020 2019 2020 2019 2020 2019 Cost of sales, excluding amortization and impairment of acquired intangible assets$ 2,109.7 $ 1,805.2 $ 1,955.4 16.9 % (7.7) %$ 304.5 $ (150.2) Research and development 2,501.2 3,990.9 2,280.6 (37.3) 75.0 (1,489.7) 1,710.3 Selling, general and administrative 2,674.3 2,504.5 2,374.7 6.8 5.5 169.8 129.8 Amortization and impairment of acquired intangible assets 881.3 464.8 489.9 89.6 (5.1) 416.5 (25.1) Collaboration profit (loss) sharing 7.2 232.9 241.6 (96.9) (3.6) (225.7) (8.7) (Gain) loss on divestiture of Hillerød, Denmark manufacturing operations - (92.5) 55.3 nm nm 92.5 (147.8) (Gain) loss on fair value remeasurement of contingent consideration (50.7) (86.3) (63.7) (41.3) 35.5 35.6 (22.6) Acquired in-process research and development 18.0 75.0 - (76.0) nm (57.0) 75.0 Restructuring charges - - 1.5 nm nm - (1.5) Total cost and expense$ 8,141.0 $ 8,894.5 $ 7,335.3 (8.5) % 21.3 %$ (753.5) $ 1,559.2 nm Not meaningful Cost of Sales, Excluding Amortization and Impairment of Acquired Intangible Assets [[Image Removed: biib-20211231_g29.jpg]] Cost of sales, as a percentage of total revenue, were 19.2%, 13.4% and 13.6% for the years endedDecember 31, 2021 , 2020 and 2019, respectively. Product Cost of Sales For 2021 compared to 2020, the increase in product cost of sales was primarily due to product mix and higher cost of sales associated with contract manufacturing agreements. The increase was also due to the write-off of ADUHELM inventory during the year endedDecember 31, 2021 , as discussed below. Inventory amounts written down as a result of excess, obsolescence or unmarketability totaled$167.6 million ,$26.6 million and$52.2 million for the years endedDecember 31, 2021 , 2020 and 2019, respectively. During the fourth quarter of 2021 we recorded approximately$164.0 million of charges associated with inventory and purchase commitments in excess of forecasted demand related to ADUHELM, which was recognized in cost of sales within our consolidated statements of income. In addition, we recognized the expected share of these charges from Eisai's 45.0% share in collaboration profit (loss) sharing within our consolidated statements of income. As ofDecember 31, 2021 , we had approximately$223.0 million of inventory related to ADUHELM. We may record additional write-downs of ADUHELM inventory if the final NCD is not broader than the proposed NCD. For additional information, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Royalty Cost of Sales For 2021 compared to 2020, the increase in royalty cost of sales was primarily due to higher 68 -------------------------------------------------------------------------------- T a ble of Content s royalties payable on higher sales of TYSABRI and VUMERITY. Research and Development[[Image Removed: biib-20211231_g30.jpg]] [[Image Removed: biib-20211231_g31.jpg]] We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities. A significant amount of our research and development costs consist of indirect costs incurred in support of overall research and development activities and non-specific programs, including activities that benefit multiple programs, such as management costs, as well as depreciation, information technology and facility-based expenses. These costs are considered other research and 69 -------------------------------------------------------------------------------- T a ble of Content s development costs in the table above and are not allocated to a specific program or stage. Research and development expense incurred in support of our marketed products includes costs associated with product lifecycle management activities including, if applicable, costs associated with the development of new indications for existing products. Late stage programs are programs in Phase 3 development or in registration stage. Early stage programs are programs in Phase 1 or Phase 2 development. Research and discovery represents costs incurred to support our discovery research and translational science efforts. Costs are reflected in the development stage based upon the program status when incurred. Therefore, the same program could be reflected in different development stages in the same year. For several of our programs, the research and development activities are part of our collaborative and other relationships. Our costs reflect our share of the total costs incurred. For 2021 compared to 2020, the decrease in research and development expense was primarily due to approximately$1,084.0 million ,$601.3 million and$208.0 million in upfront payments recognized upon the closing of our collaborations with Sage, Denali and Sangamo, respectively, in 2020. This decrease was partially offset by approximately$125.0 million in an upfront payment recognized upon the closing of our collaboration with InnoCare in the third quarter of 2021, the development of zuranolone for the potential treatment of MDD and PPD, the development of BIIB124 (SAGE-324) for the potential treatment of essential tremor, which we are developing in collaboration with Sage, and closeout costs associated with BIIB111 (timrepigene emparvovec) and BIIB112 (cotoretigene). In 2021 we recorded upfront payments related to our new collaborations as part of research and development expense. Excluding upfront payments, we expect our core research and development expense to increase in 2022, driven by continued investment in our pipeline. We intend to continue committing significant resources to targeted research and development opportunities where there is a significant unmet need and where a drug candidate has the potential to be highly differentiated. Milestone and Upfront Expense Research and development expense for 2021 includes: •$125.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with InnoCare in the third quarter of 2021; •$60.0 million charge to research and development expense upon the exercise of our option under our collaboration agreement with Ionis to develop and commercialize BIIB115, a preclinical investigational ASO in development for SMA; •$30.0 million charge to research and development expense related to the option exercise fee payable toGenentech to jointly develop and commercialize mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin's lymphoma and other therapeutic areas; and •$30.0 million charge to research and development expense in connection with the upfront payment associated with entering into a commercialization and license agreement with Bio-Thera to develop, manufacture and commercialize BAT1806, a proposed biosimilar referencing ACTEMRA. Research and development expense for 2020 includes: •$1,084.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Sage in the fourth quarter of 2020; •$601.3 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Denali in the third quarter of 2020; and •$208.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Sangamo in the second quarter of 2020. The upfront payments associated with these collaborations are classified as research and development expense as the programs they relate to had not achieved regulatory approval as of the payment date. For additional information about these collaboration arrangements, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Early Stage Programs For 2021 compared to 2020, the decrease in spending related to our early stage programs was primarily due to a decrease in costs associated with: •the discontinuation of opicinumab (anti-LINGO) in MS; 70 -------------------------------------------------------------------------------- T a ble of Content s •the discontinuation of BIIB054 (cinpanemab) in Parkinson's disease and the discontinuation of gosuranemab (BIIB092) in Alzheimer's disease; •the advancement of dapirolizumab pego, an anti-CD40L pegylated Fab that we are developing in collaboration with UCB, for the potential treatment of SLE into late stage; and •the advancement of BIIB059 (anti-BDCA2) for the potential treatment of SLE into late stage. These decreases were partially offset by an increase in costs associated with: •an increase in spending in the development of BIIB124 for the potential treatment of essential tremor; •an increase in spending in the development of BIIB122 (DNL151) for the potential treatment of Parkinson's disease, which we are developing in collaboration with Denali; and •an increase in spending in the development of BIIB135 (orelabrutinib) for the potential treatment of MS. Late Stage Programs For 2021 compared to 2020, the increase in spending associated with our late stage programs was primarily due to: •an increase in spending in the development of zuranolone for the potential treatment of MDD and PPD; •the advancement of dapirolizumab pegol for the potential treatment of SLE into late stage; •the advancement of BIIB059 for the potential treatment of SLE into late stage; •an increase in spending related to our option exercise withGenentech to jointly develop and commercialize mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin's lymphoma and other therapeutic areas; •an increase in spending related to lecanemab; and •close out costs related to BIIB111. These increases were partially offset by a decrease in costs associated with the advancement of ADUHELM from late stage to marketed. Marketed Programs For 2021 compared to 2020, the increase in spending associated with our marketed programs was primarily due to an increase in costs associated with: •the advancement of ADUHELM from late stage to marketed upon the accelerated approval of ADUHELM in theU.S. InMarch 2019 Eisai initiated a global Phase 3 trial for the development of lecanemab in early Alzheimer's disease. Under our collaboration arrangement, Eisai serves as the global operational and regulatory lead for lecanemab and all costs, including research, development, sales and marketing expense, are shared equally between us and Eisai. For additional information on our collaboration arrangements with Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Selling, General and Administrative [[Image Removed: biib-20211231_g32.jpg]] For 2021 compared to 2020, the increase in selling, general and administrative expense was primarily due to an increase in personnel in support of the launch of ADUHELM in theU.S. Beginning in the second quarter of 2021, reimbursement from Eisai for its share ofU.S. ADUHELM selling, general and administrative expense is recognized in collaboration profit (loss) sharing in our consolidated statements of income. In 2022 we expect selling, general and administrative costs to decrease as we plan to implement cost-reduction measures with a significant portion expected to be realized in 2022. 71 -------------------------------------------------------------------------------- T a ble of Content s Amortization and Impairment of Acquired Intangible Assets [[Image Removed: biib-20211231_g33.jpg]] Our amortization expense is based on the economic consumption and impairment of intangible assets. Our most significant amortizable intangible assets are related to our TYSABRI,AVONEX , SPINRAZA, VUMERITY and TECFIDERA (rest of world) products and other programs acquired through business combinations. For the year endedDecember 31, 2021 , amortization and impairment of acquired intangible assets reflects the impact of a$365.0 million impairment charge related to BIIB111, a$220.0 million impairment charge related to BIIB112 and a$44.3 million impairment charge related to vixotrigine (BIIB074) for the potential treatment of trigeminal neuralgia (TGN). For the year endedDecember 31, 2020 , amortization and impairment of acquired intangible assets reflects the impact of a$115.0 million impairment charge related to BIIB111, a$75.4 million impairment charge related to BIIB054 and a$19.3 million impairment charge related to one of our other IPR&D intangible assets. Amortization of acquired intangible assets, excluding impairment charges, totaled$252.0 million ,$255.1 million and$274.0 million for the years endedDecember 31, 2021 , 2020 and 2019, respectively. We monitor events and expectations regarding product performance. If new information indicates that the assumptions underlying our most recent analysis are substantially different than those utilized in our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenue of the relevant products. The occurrence of an adverse event could substantially increase the amount of amortization expense related to our acquired intangible assets as compared to previous periods or our current expectations, which may result in a significant negative impact on our future results of operations. IPR&D Related to Business Combinations IPR&D represents the fair value assigned to research and development assets that we acquired as part of a business combination and had not yet reached technological feasibility at the date of acquisition. We review amounts capitalized as acquired IPR&D for impairment annually, as ofOctober 31 , and whenever events or changes in circumstances indicate to us that the carrying value of the assets might not be recoverable. Overall, the value of our acquired IPR&D assets is dependent upon several variables, including estimates of future revenue and the effects of competition, our ability to secure sufficient pricing in a competitive market, our ability to confirm safety and efficacy based on data from clinical trials and regulatory feedback, the level of anticipated development costs and the probability and timing of successfully advancing a particular research program from one clinical trial phase to the next. We are continually reevaluating our estimates concerning these and other variables, including our life cycle management strategies, research and development priorities and development risk, changes in program and portfolio economics and related impact of foreign currency exchange rates and economic trends and evaluating industry and company data regarding the productivity of clinical research and the development process. Changes in our estimates may result in a significant change to our valuation of our IPR&D assets. Vixotrigine In the periods since we acquired vixotrigine, there have been numerous delays in the initiation of Phase 3 studies for the potential treatment of TGN and for the potential treatment of diabetic painful neuropathy (DPN), another form of neuropathic pain. We have engaged with the FDA regarding the design of the Phase 3 studies of vixotrigine for the potential treatment of TGN and DPN and are now performing an additional clinical trial of vixotrigine. The performance of this additional clinical trial delayed the initiation of the Phase 3 studies of vixotrigine for the potential treatment of TGN, and, as a result, we recognized an impairment charge of$44.3 million related to vixotrigine for the potential treatment of TGN during the first quarter of 2021. As ofDecember 31, 2021 , the carrying value associated with the remaining IPR&D asset for DPN was$132.7 million and the fair value of this asset was not significantly in excess of its carrying value. 72 -------------------------------------------------------------------------------- T a ble of Content s BIIB111 and BIIB112 During the fourth quarter of 2020 we recognized an impairment charge of$115.0 million related to BIIB111 as a result of third-party manufacturing delays that impacted the timing and increased the costs associated with advancing BIIB111 through Phase 3 development. During the second quarter of 2021 we announced that our Phase 3 STAR study of BIIB111 and our Phase 2/3 XIRIUS study of BIIB112 did not meet their primary endpoints. In the third quarter of 2021 we suspended further development on these programs based on the decision by management as part of its strategic review process. For the year endedDecember 31, 2021 , we recognized an impairment charge of$365.0 million related to BIIB111 and an impairment charge of$220.0 million related to BIIB112, reducing the remaining book values of these IPR&D intangible assets to zero. In addition, for the year endedDecember 31, 2021 , as a result of our decision to suspend further development of BIIB111 and BIIB112, we recognized charges of approximately$39.1 million related to our manufacturing arrangements and other costs that we expect to incur as a result of suspending these programs, which were recorded as research and development expense in our consolidated statements of income. For additional information on the amortization and impairment of our acquired intangible assets, please read Note 6, Intangible Assets andGoodwill , to our consolidated financial statements included in this report. Collaboration Profit (Loss) Sharing [[Image Removed: biib-20211231_g34.jpg]] Collaboration profit (loss) sharing primarily includes Samsung Bioepis' 50.0% share of the profit or loss related to our biosimilars commercial agreement withSamsung Bioepis and, beginning in the second quarter of 2021, Eisai's 45.0% share of income and expense in theU.S. related to the ADUHELM Collaboration Agreement. For the years endedDecember 31, 2021 , 2020 and 2019 we recognized net profit-sharing expense of$285.4 million ,$266.5 million and$241.6 million , respectively, to reflect Samsung Bioepis' 50.0% sharing of the net collaboration profits. For the year endedDecember 31, 2021 , we recognized net profit-sharing income of$233.2 million to reflect Eisai's 45.0% share of loss related to the ADUHELM Collaboration Agreement. We also recognized net profit-sharing income of$45.0 million to reflect Eisai's 45.0% share of the$100.0 million milestone payment made to Neurimmune related to the launch of ADUHELM in theU.S. For the year endedDecember 31, 2020 , we recognized net profit-sharing income of$33.8 million to reflect Eisai's 45.0% share of the$75.0 million milestone payment made to Neurimmune related to the completed submission of the BLA for the approval of ADUHELM to the FDA. For additional information on our collaboration arrangements withSamsung Bioepis and Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. 73 -------------------------------------------------------------------------------- T a ble of Content s (Gain) Loss on Divestiture of Hillerød, Denmark Manufacturing Operations [[Image Removed: biib-20211231_g35.jpg]] InMarch 2019 we entered into a share purchase agreement with FUJIFILM to sell all of the outstanding shares of our subsidiary that owned our biologics manufacturing operations in Hillerød,Denmark . The transaction closed inAugust 2019 . During the year endedDecember 31, 2020 , we reduced our estimate of the fair value of the adverse commitment associated with the guarantee of future batch production by approximately$62.0 million based on our current manufacturing forecasts. Additionally, we recorded a reduction to our pre-tax loss of approximately$30.5 million due to a refund of interest paid associated with a tax matter. For additional information on the divestiture of our Hillerød,Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report. (Gain) Loss on Fair Value Remeasurement of Contingent Consideration [[Image Removed: biib-20211231_g36.jpg]] Consideration payable for certain of our business combinations includes future payments that are contingent upon the occurrence of a particular event or events. We record an obligation for such contingent consideration payments at fair value on the acquisition date. We then revalue our contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations, other than changes due to payments, are recognized as a (gain) loss on fair value remeasurement of contingent consideration in our consolidated statements of income. The gain on fair value remeasurement of contingent consideration for 2021 was primarily due to reductions in the probability of technical and regulatory success and delays in the expected timing of the achievement of certain remaining developmental milestones related to our vixotrigine programs. The gain on fair value remeasurement of contingent consideration for 2020 was primarily due to the remeasurement of the contingent consideration associated with our BIIB054 program as well as changes in the probability and the expected timing of the achievement of certain remaining developmental milestones, changes in the interest rates used to revalue our contingent consideration liabilities and the passage of time. For additional information on our IPR&D intangible assets, please read Note 6, Intangible Assets andGoodwill , to our consolidated financial statements included in this report.Acquired In-Process Research and Development [[Image Removed: biib-20211231_g37.jpg]] BIIB118 Acquisition InMarch 2020 we acquired BIIB118 (CK1 inhibitor) for the potential treatment of patients with behavioral and neurological symptoms across various psychiatric and neurological diseases from Pfizer Inc. (Pfizer). In connection with this acquisition, we made an upfront payment of$75.0 million to Pfizer, which was accounted for as an asset acquisition and 74 -------------------------------------------------------------------------------- T a ble of Content s recorded as acquired IPR&D in our consolidated statements of income as BIIB118 has not yet reached technological feasibility. For additional information on our acquisition of BIIB118, please read Note 2, Acquisitions, to our consolidated financial statements included in this report. Other Income (Expense), Net [[Image Removed: biib-20211231_g38.jpg]] For 2021 compared to 2020, the change in other income (expense), net primarily reflects net unrealized losses on our holdings in equity securities. For the year endedDecember 31, 2021 , net unrealized losses and realized gains on our holdings in equity securities were approximately$831.4 million and$10.3 million , respectively, compared to net unrealized and realized gains of$681.8 million and$12.1 million , respectively, in 2020. The net unrealized losses recognized during the year endedDecember 31, 2021 , primarily reflect decreases in the aggregate fair value of our investments in Denali, Sage, Sangamo and Ionis common stock of approximately$819.6 million . For the year endedDecember 31, 2021 , net interest expense was$242.6 million , compared to$180.5 million in 2020. This increase was primarily due to a lower amount of interest being capitalized to capital projects in 2021, compared to 2020, due to a portion of ourSolothurn facility being placed in service in 2021 and lower interest income earned on our investments in 2021, compared to 2020. OnApril 30, 2020 , we issued our senior unsecured notes for an aggregate principal amount of$3.0 billion (2020 Senior Notes). We expect a moderate increase in interest expense in 2022, compared to 2021, primarily due to lower interest being capitalized as a result of assets being placed into service during 2021. For additional information on our 2020 Senior Notes, please read Note 12, Indebtedness, to our consolidated financial statements included in this report. Income Tax Provision [[Image Removed: biib-20211231_g39.jpg]] Our effective tax rate fluctuates from year to year due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expense, the levels of certain deductions and credits, acquisitions and licensing transactions. For the year endedDecember 31, 2021 , compared to 2020, the decrease in our effective tax rate, excluding the impact of the Neurimmune deferred tax asset, as discussed below, was primarily due to the change in the territorial mix of our profitability, which included the adverse effect of generic competition for TECFIDERA in the U.S. market, the tax impacts of the BIIB111 and BIIB112 impairment charges and the impact of the non-cash tax effects of changes in the value of our equity investments, where we recorded net unrealized losses in 2021 and net unrealized gains in 2020. Our 2020 effective tax rate also reflected an income tax expense related to the establishment of a valuation allowance against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in theU.S. In addition, for the year endedDecember 31, 2021 , compared to 2020, the decrease in our effective tax rate was significantly impacted by a current year deferred tax benefit inSwitzerland resulting from the accelerated approval of ADUHELM by the FDA in theU.S. , recognized during the second 75 -------------------------------------------------------------------------------- T a ble of Content s quarter of 2021. We recorded a net deferred tax asset of approximately$490.0 million during the second quarter of 2021. The net deferred tax asset is comprised of approximately$945.0 million of gross deferred tax asset, reduced by approximately$455.0 million of unrecognized tax benefit. During the fourth quarter of 2021 we recorded a valuation allowance of approximately$390.0 million related to this deferred tax asset. The deferred tax benefit relates to Neurimmune's tax basis in ADUHELM, the realization of which is dependent on future sales of ADUHELM and approval of the Swiss cantonal tax authorities, with an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable toBiogen Inc. For additional information on our collaboration arrangement with Neurimmune, please read Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report. For additional information on our income taxes please read Note 16, Income Taxes, to our consolidated financial statements included in this report. Accounting for Uncertainty in Income Taxes For additional information on our uncertain tax positions and income tax rate reconciliation for 2021, 2020 and 2019, please read Note 16, Income Taxes, to our consolidated financial statements included in this report. Equity in (Income) Loss of Investee, Net of Tax [[Image Removed: biib-20211231_g40.jpg]] InFebruary 2012 we entered into a joint venture agreement with Samsung BioLogics establishing an entity,Samsung Bioepis , to develop, manufacture and market biosimilar products. InJune 2018 we exercised our option under our joint venture agreement to increase our ownership percentage inSamsung Bioepis from approximately 5.0% to approximately 49.9%. The share purchase transaction was completed inNovember 2018 . As ofDecember 31, 2021 , our ownership percentage remained at approximately 49.9%. We recognize our share of the results of operations related to our investment inSamsung Bioepis under the equity method of accounting one quarter in arrears when the results of the entity become available, which is reflected as equity in (income) loss of investee, net of tax in our consolidated statements of income. We recognize amortization on certain basis differences resulting from ourNovember 2018 investment. Certain officers and affiliates of our joint venture partner, Samsung BioLogics, are currently subject to ongoing criminal proceedings that we continue to monitor. While these proceedings could impact the operations ofSamsung Bioepis and its business, we have assessed the value of our investment inSamsung Bioepis and continue to believe that the fair value of the investment is in excess of its net book value. For the year endedDecember 31, 2021 , we recognized net income on our investment of$34.9 million , reflecting our share of Samsung Bioepis' operating profits, net of tax totaling$64.6 million offset by amortization of basis differences totaling$29.7 million . For the year endedDecember 31, 2020 , we recognized net income on our investment of$5.3 million , reflecting our share of Samsung Bioepis' operating profits, net of tax totaling$45.3 million offset by amortization of basis differences totaling$40.0 million . Net income on our investment for the year endedDecember 31, 2021 , reflects a$31.2 million benefit related to the release of a valuation allowance on deferred tax assets associated withSamsung Bioepis . The valuation allowance was released in the second quarter of 2021 based on a consideration of the positive and negative evidence, including the historic earnings ofSamsung Bioepis . For additional information on our collaboration arrangements withSamsung Bioepis , please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. 76 -------------------------------------------------------------------------------- T a ble of Content s Noncontrolling Interests, Net of Tax [[Image Removed: biib-20211231_g41.jpg]] Our consolidated financial statements include the financial results of our variable interest entity, Neurimmune, as we determined that we are the primary beneficiary. For 2021 the change in net income (loss) attributable to noncontrolling interests, net of tax, was primarily due to the recognition of a current year deferred tax benefit associated with the accelerated approval of ADUHELM by the FDA in theU.S. During the second quarter of 2021 we recorded a net deferred tax asset of approximately$490.0 million related to Neurimmune's tax basis in ADUHELM, the realization of which is dependent on future sales of ADUHELM and approval of the Swiss cantonal tax authorities. During the fourth quarter of 2021 we recorded a valuation allowance of approximately$390.0 million related to this deferred tax asset. There is an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable toBiogen Inc. For 2021 the change in net income (loss) attributable to noncontrolling interests, net of tax, was also due to the$100.0 million milestone payment to Neurimmune related to the launch of ADUHELM in theU.S. during the second quarter of 2021. For 2020 the change in net income (loss) attributable to noncontrolling interests, net of tax, was primarily due to the$75.0 million milestone payment to Neurimmune related to the completed submission of the BLA for the approval of ADUHELM to the FDA. For additional information on our collaboration agreement with Neurimmune, please read Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report. For additional information on our income taxes please read Note 16, Income Taxes, to our consolidated financial statements included in this report. 77
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T a ble of CONTENTS FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Our financial position is summarized as follows:
As of December 31, % Change 2021 vs. (In millions, except percentages) 2021 2020 2020 Financial assets: Cash and cash equivalents$ 2,261.4 $ 1,331.2 69.9 % Marketable securities - current 1,541.1 1,278.9 20.5 Marketable securities - non-current 892.0 772.1 15.5
Total cash, cash equivalents and marketable securities
$ 3,382.2 38.8 %
Loans:
Current portion of notes payable$ 999.1 $ - nm Notes payable 6,274.0 7,426.2 (15.5) Total borrowings$ 7,273.1 $ 7,426.2 (2.1) % Working Capital: Current assets$ 7,856.5 $ 6,887.1 14.1 % Current liabilities (4,298.2) (3,742.2) 14.9 Total working capital$ 3,558.3 $ 3,144.9 13.1 % nm Not meaningful For the year endedDecember 31, 2021 , certain significant cash flows were as follows: •$3.6 billion in net cash flow provided by operating activities, which reflected an upfront payment of$125.0 million made in connection with entering into our collaboration with InnoCare and recognized as research and development expense; •$1.8 billion used for share repurchases; •$170.0 million used in connection with our Exchange Offer; •$258.1 million used for purchases of property, plant and equipment; •$247.9 million in total net payments for income taxes; and •$100.0 million milestone payment to Neurimmune. For the year endedDecember 31, 2020 , certain significant cash flows were as follows: •$4.2 billion in net cash flows provided by operating activities, which reflected$1.9 billion of upfront payments and the premium on stock purchases made in connection with entering into our collaborations with Sage, Denali and Sangamo and recognized as research and development expense; •$6.7 billion used for share repurchases; •$3.0 billion in proceeds received from the issuance of our 2020 Senior Notes; •$1.5 billion payment made for the redemption of our 2.90% Senior Notes dueSeptember 15, 2020 , prior to their maturity; •$906.7 million in total net payments for income taxes; •$441.0 million used to purchase Sage common stock; •$423.7 million used to purchase Denali common stock; •$141.8 million used to purchase Sangamo common stock; and •$424.8 million used for purchases of property, plant and equipment. Overview We have historically financed our operating and capital expenditures primarily through cash flow earned through our operations. We expect our operating expenditures, particularly those related to research and development, clinical trials, commercialization of new products and international expansion to continue to grow. However, we expect to continue funding our current and planned operating requirements primarily through our cash flow earned from our operations as well as our existing cash resources. We believe generic competition for TECFIDERA in theU.S. will continue to reduce our cash flow from operations in 2022 and will have a significant adverse impact on our future cash flow 78 -------------------------------------------------------------------------------- T a ble of Content s from operations. Additionally, in 2022 we will repay or refinance$1.0 billion related to our 3.625% Senior Note dueSeptember 15, 2022 . We believe that our existing funds, when combined with cash generated from operations and our access to additional financing resources, if needed, are sufficient to satisfy our operating, working capital, strategic alliance, milestone payment, capital expenditure and debt service requirements for the foreseeable future. In addition, we may choose to opportunistically return cash to shareholders and pursue other business initiatives, including acquisition and licensing activities. We may, from time to time, also seek additional funding through a combination of new collaborative agreements, strategic alliances and additional equity and debt financings or from other sources should we identify a significant new opportunity. For additional information on certain risks that could negatively impact our financial position or future results of operations, please read Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in this report. Cash,Cash Equivalents and Marketable Securities Until required for another use in our business, we typically invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes,U.S. and foreign government instruments, overnight reverse repurchase agreements and other interest-bearing marketable debt instruments in accordance with our investment policy. It is our policy to mitigate credit risk in our cash reserves and marketable securities by maintaining a well-diversified portfolio that limits the amount of exposure as to institution, maturity and investment type. As ofDecember 31, 2021 , we had cash, cash equivalents and marketable securities totaling approximately$4.7 billion compared to approximately$3.4 billion as ofDecember 31, 2020 . The change in cash, cash equivalents and marketable securities atDecember 31, 2021 , fromDecember 31, 2020 , was primarily due to net cash flow provided by operating activities, partially offset by cash used for share repurchases and capital expenditures, cash payments made in connection with our Exchange Offer and a milestone payment made to Neurimmune. Investments and other assets in our consolidated balance sheet as ofDecember 31, 2021 and 2020, include the carrying value of our investment inSamsung Bioepis of$599.9 million and$620.2 million , respectively. AsSamsung Bioepis is a privately-held entity, our ability to liquidate our investment inSamsung Bioepis may be limited and we may realize significantly less than the value of such investment. The investment is also subject to foreign currency exchange fluctuations. In connection with our collaboration with Sangamo, we purchased approximately 24 million shares of Sangamo common stock inApril 2020 . As ofDecember 31, 2021 and 2020, the fair value of this investment was$173.7 million and$333.7 million , respectively. In connection with our collaboration with Denali, we purchased approximately 13 million shares of Denali common stock inSeptember 2020 . As ofDecember 31, 2021 and 2020, the fair value of this investment was$550.7 million and$935.7 million , respectively. In connection with our collaboration with Sage, we purchased approximately 6.2 million shares of Sage common stock inDecember 2020 . As ofDecember 31, 2021 and 2020, the fair value of this investment was$231.9 million and$433.9 million , respectively. Our investment in Ionis common stock had a fair value of$87.5 million and$249.1 million as ofDecember 31, 2021 and 2020, respectively. The decrease was partially due to the sale of a portion of our investment in Ionis common stock during the first quarter of 2021. For additional information on our collaboration arrangements withSamsung Bioepis , Sangamo, Denali, Sage and Ionis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Borrowings InFebruary 2021 we completed our Exchange Offer, consisting of the following: •$624.6 million aggregate principal amount of our 2045 Senior Notes was exchanged for$700.7 million aggregate principal amount of our 2051 Senior Notes and approximately$151.8 million of aggregate cash payments; and •$8.9 million aggregate principal amount of our 2045 Senior Notes was redeemed for approximately$12.1 million of aggregate cash payments, excluding accrued and unpaid interest. InApril 2020 we issued our 2020 Senior Notes for an aggregate principal amount of$3.0 billion , consisting of the following: •$1.5 billion aggregate principal amount of 2.25% Senior Notes dueMay 1, 2030 ; and 79 -------------------------------------------------------------------------------- T a ble of Content s •$1.5 billion aggregate principal amount of 3.15% Senior Notes dueMay 1, 2050 . The following is a summary of our currently outstanding senior secured notes issued in 2015 (2015 Senior Notes): •$1.0 billion aggregate principal amount of 3.625% Senior Notes dueSeptember 15, 2022 ; •$1.75 billion aggregate principal amount of 4.05% Senior Notes dueSeptember 15, 2025 ; and •$1.12 billion aggregate principal amount of 5.20% Senior Notes dueSeptember 15, 2045 . Our 2020 Senior Notes and our 2015 Senior Notes were issued at a discount, which are amortized as additional interest expense over the period from issuance through maturity. For a summary of the fair values of our outstanding borrowings as ofDecember 31, 2021 and 2020, please read Note 7, Fair Value Measurements, to our consolidated financial statements included in this report. Credit Facility InJanuary 2020 we entered into a$1.0 billion , five-year senior unsecured revolving credit facility under which we are permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. As ofDecember 31, 2021 and 2020, we had no outstanding borrowings and were in compliance with all covenants under this facility. Working Capital Working capital is defined as current assets less current liabilities. Working capital was$3.6 billion and$3.1 billion as ofDecember 31, 2021 and 2020, respectively. The change in working capital reflects an increase in total current assets of approximately$969.4 million and an increase in total current liabilities of approximately$556.0 million . The increase in total current assets was primarily driven by an increase in net cash, cash equivalents and marketable securities, due to net cash flow provided by operating activities, partially offset by cash used for share repurchases and capital expenditures, cash payments made in connection with our Exchange Offer and a milestone payment made to Neurimmune. The increase in total current liabilities was primarily due to the reclassification of$1.0 billion of our Senior Notes dueSeptember 15, 2022 , to current liabilities from notes payable, as these Senior Notes are due within one year. This increase was partially offset by a reduction in accounts payable as well as accrued expense and other, which was primarily related to decreases in the accrual of contingent payments, the accrual for employee compensation and benefits and the fair values of derivative liabilities. Share Repurchase Programs InOctober 2020 our Board of Directors authorized our 2020 Share Repurchase Program, which is a program to repurchase up to$5.0 billion of our common stock. Our 2020 Share Repurchase Program does not have an expiration date. All share repurchases under our 2020 Share Repurchase Program will be retired. Under our 2020 Share Repurchase Program, we repurchased and retired approximately 6.0 million and 1.6 million shares of our common stock at a cost of approximately$1.8 billion and$400.0 million during the years endedDecember 31, 2021 and 2020, respectively. Approximately$2.8 billion remained available under our 2020 Share Repurchase Program as ofDecember 31, 2021 . InDecember 2019 our Board of Directors authorized ourDecember 2019 Share Repurchase Program, which was a program to repurchase up to$5.0 billion of our common stock that was completed as ofSeptember 30, 2020 . All shares repurchased under ourDecember 2019 Share Repurchase Program were retired. Under ourDecember 2019 Share Repurchase Program, we repurchased and retired approximately 16.7 million shares of our common stock at a cost of approximately$5.0 billion during the year endedDecember 31, 2020 . InMarch 2019 our Board of Directors authorized ourMarch 2019 Share Repurchase Program, which was a program to repurchase up to$5.0 billion of our common stock that was completed as ofMarch 31, 2020 . All shares repurchased under ourMarch 2019 Share Repurchase Program were retired. Under ourMarch 2019 Share Repurchase Program, we repurchased and retired approximately 4.1 million and 14.7 million shares of our common stock at a cost of approximately$1.3 billion and$3.7 billion during the years endedDecember 31, 2020 and 2019, respectively. InAugust 2018 our Board of Directors authorized our 2018 Share Repurchase Program, which was a program to repurchase up to$3.5 billion of our common stock that was completed as ofJune 30, 2019 . All share repurchases under our 2018 Share Repurchase Program were retired. Under our 2018 Share Repurchase Program, we repurchased and retired approximately 8.9 million shares of our common stock at a cost of approximately$2.1 billion during the year endedDecember 31, 2019 . 80 -------------------------------------------------------------------------------- T a ble of Content s Cash Flow The following table summarizes our cash flow activity: % Change For the Years Ended December 31, 2021 2020 vs. vs. (In millions, except percentages) 2021 2020 2019 2020 2019 Net cash flow provided by operating activities$ 3,639.9 $ 4,229.8 $ 7,078.6 (13.9) % (40.2) % Net cash flow provided by (used in) investing activities (563.7) (608.6) 470.5 7.4 (229.4) Net cash flow used in financing activities (2,086.2) (5,272.7) (5,860.4) 60.4 10.0 nm Not meaningful Operating Activities Cash flow from operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. We expect cash provided from operating activities will continue to be our primary source of funds to finance operating needs and capital expenditures for the foreseeable future. Operating cash flow is derived by adjusting our net income for: •non-cash operating items such as depreciation and amortization, impairment charges, unrealized gain (loss) on strategic investments, acquired IPR&D and share-based compensation; •changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations; and •changes in the fair value of contingent payments associated with our acquisitions of businesses and payments related to collaborations. For 2021 compared to 2020, the decrease in net cash flow provided by operating activities was primarily due to lower net income. Net income in 2020 reflected approximately$1,084.0 million ,$601.3 million and$208.0 million of upfront payments made in connection with entering into our collaborations with Sage, Denali and Sangamo, respectively. Investing Activities For 2021 compared to 2020, the decrease in net cash flow used in investing activities was primarily due to the purchases of the common stock of Sangamo, Denali and Sage totaling$1.0 billion during 2020 as well as higher capital expenditures and acquisitions of IPR&D and other intangible assets in 2020, partially offset by higher net proceeds received from the sale of marketable securities in 2020 as compared to the current year. Financing Activities For 2021 compared to 2020, the decrease in net cash flow used in financing activities was primarily due to the greater number of shares repurchased in 2020 as compared to the comparative period in 2021, partially offset by cash used in connection with our Exchange Offer and a milestone payment to Neurimmune in 2021. 81 -------------------------------------------------------------------------------- T a ble of Content s Contractual Obligations and Off-Balance Sheet Arrangements Contractual Obligations The following table summarizes our contractual obligations as ofDecember 31, 2021 , excluding amounts related to uncertain tax positions, funding commitments, contingent development, regulatory and commercial milestone payments, contingent payments and contingent consideration related to our business combinations, as described below. Payments Due by Period Less than 1 to 3 3 to 5 After (In millions) Total 1 Year Years Years 5 Years
Non-cancellable operating leases (1)(2)
Long-term debts (3)
11,580.3 1,259.9 465.4 2,126.8 7,728.2 Purchase and other obligations (4) 982.9 230.1 509.1 239.2 4.5 Defined benefit obligation 132.4 - - - 132.4 Total contractual obligations$ 13,016.7 $ 1,561.7 $ 1,087.3 $ 2,437.3 $ 7,930.4 (1) We lease properties and equipment for use in our operations. Amounts reflected within the table above detail future minimum rental commitments under non-cancelable operating leases as ofDecember 31 for each of the periods presented. In addition to the minimum rental commitments, these leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses. (2) Obligations are presented net of sublease income expected to be received for our vacated small-scale biologics manufacturing facility inCambridge, MA , the vacated portion of ourWeston, MA facility and other facilities throughout the world. (3) Long-term debt obligations are related to our 2015 Senior Notes and our 2020 Senior Notes, including principal and interest payments. (4) Purchase and other obligations include$633.0 million related to the remaining payments on a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax) and$10.8 million related to the fair value of net liabilities on derivative contracts. Royalty Payments TYSABRI We are obligated to make contingent payments of 18.0% on annual worldwide net sales of TYSABRI up to$2.0 billion and 25.0% on annual worldwide net sales of TYSABRI that exceed$2.0 billion . Royalty payments are recognized as cost of sales in our consolidated statements of income. SPINRAZA We make royalty payments on annual worldwide net sales of SPINRAZA using a tiered royalty rate between 11.0% and 15.0%, which are recognized as cost of sales in our consolidated statements of income. VUMERITY InOctober 2019 the FDA approved VUMERITY for the treatment of RMS. During the fourth quarter of 2021 VUMERITY was approved for the treatment of RRMS in the E.U.,Switzerland and theU.K. Under our agreement withAlkermes Pharma Ireland Limited , a subsidiary of Alkermes plc (Alkermes), we make royalty payments to Alkermes on worldwide net sales of VUMERITY using a royalty rate of 15.0%, which are recorded as cost of sales in our consolidated statements of income. InOctober 2019 we entered into a new supply agreement and amended our license and collaboration agreement with Alkermes. We have elected to initiate a technology transfer and, following a transition period, to manufacture VUMERITY or have VUMERITY manufactured by a third-party we have engaged in exchange for paying an increased royalty rate to Alkermes on any portion of future worldwide net sales of VUMERITY that is manufactured by us or our designee. For additional information on our collaboration arrangement with Alkermes, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. Contingent Consideration related to Business Combinations In connection with our acquisition ofConvergence Pharmaceuticals Ltd. we agreed to make additional payments based upon the achievement of certain milestone events. We recognized the contingent consideration liabilities associated with this acquisition at their fair value on the acquisition date and revalue these obligations each reporting period. We may pay up to approximately$400.0 million in remaining milestones related to this acquisition.Contingent Development , Regulatory and Commercial Milestone Payments Based on our development plans as ofDecember 31, 2021 , we could trigger potential future milestone payments to third-parties of up to approximately$10.0 billion , including approximately$2.0 billion in development milestones, approximately 82 -------------------------------------------------------------------------------- T a ble of Content s$900.0 million in regulatory milestones and approximately$7.1 billion in commercial milestones, as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones was not considered probable as ofDecember 31, 2021 , such contingencies have not been recorded in our financial statements. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory or commercial milestones. If certain clinical and commercial milestones are met, we may pay up to$133.9 million in milestones in 2022 under our current agreements. Additionally, if aducanumab receives regulatory approval in the jurisdictions where we have submitted filings, we may pay up to$100.0 million in additional milestones to Neurimmune, which includes$50.0 million if launched in three or more countries in the E.U. and$50.0 million if launched inJapan . Milestones payable to Neurimmune are shared expenses under the ADUHELM Collaboration Agreement. For additional information on our collaboration arrangements with Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report. For additional information on our collaboration arrangement with Neurimmune, please read Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report. Other Funding Commitments As ofDecember 31, 2021 , we have several ongoing clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to CROs. The contracts with CROs are generally cancellable, with notice, at our option. We recorded accrued expense of approximately$27.3 million in our consolidated balance sheets for expenditures incurred by CROs as ofDecember 31, 2021 . We have approximately$676.1 million in cancellable future commitments based on existing CRO contracts as ofDecember 31, 2021 . As part of the sale of our Hillerød,Denmark manufacturing operations to FUJIFILM, we 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 do not expect to incur an adverse commitment obligation associated with such guarantees. We developed this estimate using a probability-weighted estimate of future manufacturing activity and may further adjust this estimate based upon changes in business conditions, which may result in the increase or reduction of this adverse commitment obligation in subsequent periods. For additional information on the divestiture of our Hillerød,Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report. Tax Related Obligations We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As ofDecember 31, 2021 , we have approximately$106.8 million of liabilities associated with uncertain tax positions. As ofDecember 31, 2021 and 2020, we have accrued income tax liabilities of approximately$633.0 million and$697.0 million , respectively, under the Transition Toll Tax. Of the amounts accrued as ofDecember 31, 2021 , approximately$72.7 million is expected to be paid within one year. The Transition Toll Tax will be paid in installments over an eight--year period, which started in 2018, and will not accrue interest. Other Off-Balance Sheet Arrangements We do not have any relationships with entities often referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We consolidate variable interest entities if we are the primary beneficiary. New Accounting Standards For a discussion of new accounting standards please read Note 1, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report. Legal Matters For a discussion of legal matters as ofDecember 31, 2021 , please read Note 20, Litigation, to our consolidated financial statements included in this report. Critical Accounting Policies and Estimates The preparation of our consolidated financial statements, which have been prepared in accordance 83 -------------------------------------------------------------------------------- T a ble of Content s with accounting principles generally accepted in theU.S. (U.S. GAAP), requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenue and expense and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and assumptions. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenue and expense. Actual results may differ from these estimates. Other significant accounting policies are outlined in Note 1, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report. Revenue Recognition We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenue following the five-step model prescribed underFinancial Accounting Standards Board (FASB) Accounting Standards Codification 606, Revenue from Contracts with Customers: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligations. Product Revenue In theU.S. , we sell our products primarily to wholesale distributors and specialty pharmacy providers. In other countries, we sell our products primarily to wholesale distributors, hospitals, pharmacies and other third-party distribution partners. These customers subsequently resell our products to health care providers and patients. In addition, we enter into arrangements with health care providers and payors that provide for government-mandated or privately-negotiated discounts and allowances related to our products. Product revenue is recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. Reserves for Discounts and Allowances Product revenue is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payors, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. Our process for estimating reserve established for these variable consideration components do not differ materially fro our historical practices. Product revenue reserves, which are classified as a reduction in product revenue, are generally characterized in the following categories: discounts, contractual adjustments and returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). Our estimates of reserves established for variable consideration are calculated based upon a consistent application of our methodology utilizing the expected value method. These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment. As ofDecember 31, 2021 , a 10.0% change in our discounts, contractual adjustments and reserves would have resulted in a decrease of our pre-tax earnings by approximately$359.7 million . In addition to discounts, rebates and product returns, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services, which are generally reflected as a reduction of revenue. To the extent we can demonstrate a separable benefit and fair value for these services we classify these payments in selling, general and administrative expense in our consolidated statements of income. 84 -------------------------------------------------------------------------------- T a ble of Content s For additional information on our revenue, please read Note 4, Revenue, to our consolidated financial statements included in this report. Inventory At each reporting period we review our inventories for excess or obsolescence and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. The determination of obsolete or excess inventory, requires management to make estimates based on assumptions about the future demand of our products, product expiration dates, estimated future sales and our general future plans. If customer demand subsequently differs from our forecasts, requirements for inventory write-offs that differ from our estimates may become necessary. Although we believe that the assumptions we use in estimating inventory write-downs are reasonable, no assurance can be given that significant future changes in these assumptions or changes in future events and market conditions could result in different estimates. During the fourth quarter of 2021 we wrote-off approximately$120.0 million of inventory in excess of forecasted demand related to ADUHELM. As ofDecember 31, 2021 , we had approximately$223.0 million of inventory related to ADUHELM. We may record additional write-downs of ADUHELM inventory if the final NCD is not broader than the proposed NCD. Acquired Intangible Assets, including IPR&D When we purchase a business, the acquired IPR&D is measured at fair value, capitalized as an intangible asset and tested for impairment at least annually, as ofOctober 31 , until commercialization, after which time the IPR&D is amortized over its estimated useful life. If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred. We have acquired, and expect to continue to acquire, intangible assets through the acquisition of biotechnology companies or through the consolidation of variable interest entities. These intangible assets primarily consist of technology associated with human therapeutic products and IPR&D product candidates. When significant identifiable intangible assets are acquired, we generally engage an independent third-party valuation firm to assist in determining the fair values of these assets as of the acquisition date. Management will determine the fair value of less significant identifiable intangible assets acquired. Discounted cash flow models are typically used in these valuations, and these models require the use of significant estimates and assumptions including but not limited to: •estimating the timing of and expected costs to complete the in-process projects; •projecting regulatory approvals; •estimating future cash flow from product sales resulting from completed products and in process projects; and •developing appropriate discount rates and probability rates by project. We believe the fair values assigned to the intangible assets acquired are based upon reasonable estimates and assumptions given available facts and circumstances as of the acquisition dates. If these projects are not successfully developed, the sales and profitability of the company may be adversely affected in future periods. Additionally, the value of the acquired intangible assets may become impaired. No assurance can be given that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated. Impairment and Amortization of Long-lived Assets Long-lived assets to be held and used include property, plant and equipment as well as intangible assets, including IPR&D and trademarks. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review our intangible assets with indefinite lives for impairment annually, as ofOctober 31 , and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When performing our impairment assessment, we calculate the fair value using the same methodology as described above under Acquired Intangible Assets, including IPR&D. If the carrying value of our acquired IPR&D exceeds its fair value, then the intangible asset is written down to its fair value. Changes in estimates and assumptions used in determining the fair value of our acquired IPR&D could result in an impairment. Impairments are recorded within amortization and impairment of acquired intangible assets in our consolidated statements of income. Based on our most recent impairment assessment we incurred impairment charges of approximately$629.3 million for the year endedDecember 31, 2021 , mainly related to the discontinuation of IPR&D programs. For additional 85 -------------------------------------------------------------------------------- T a ble of Content s information on our impairments, Note 6, Intangible Assets andGoodwill , to our consolidated financial statements included in this report. Our most significant intangible assets are our acquired and in-licensed rights and patents. Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan. We amortize the intangible assets related to our TYSABRI,AVONEX , SPINRAZA, VUMERITY and TECFIDERA (rest of world) products using the economic consumption method based on revenue generated from the products underlying the related intangible assets. An analysis of the anticipated lifetime revenue of our TYSABRI,AVONEX , SPINRAZA, VUMERITY and TECFIDERA (rest of world) products is performed annually during our long-range planning cycle and whenever events or changes in circumstances would significantly affect the anticipated lifetime revenue of our TYSABRI,AVONEX , SPINRAZA, VUMERITY and TECFIDERA (rest of world) products. For additional information on the impairment charges related to our long-lived assets during 2021, 2020 and 2019, please read Note 6, Intangible Assets andGoodwill , to our consolidated financial statements included in this report. Contingent Consideration We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we revalue the remaining obligations and record increases or decreases in their fair value as an adjustment to contingent consideration expense in our consolidated statements of income. Changes in the fair value of our contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates and achievement and timing of any cumulative sales-based and development milestones or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above, could have a material impact on the amount of contingent consideration expense we record in any given period. Income Taxes We prepare and file income tax returns based on our interpretation of each jurisdiction's tax laws and regulations. In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Upon our election in the fourth quarter of 2018 to record deferred taxes for global intangible low-taxed income (GILTI), we have included amounts related to GILTI taxes within temporary difference. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income and the effects of tax planning strategies. In the event that actual results differ from our estimates, we adjust our estimates in future periods and we may need to establish a valuation allowance, which could materially impact our consolidated financial position and results of operations. We account for uncertain tax positions using a "more likely than not" threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in process audit activities and changes in facts or circumstances related to a tax position. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished, through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the "more likely than not" threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews, we have no plans to appeal or litigate any aspect of the tax position and we believe that it is highly unlikely that the taxing authority would examine or re-examine the related tax 86
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Position of the table of contents. We also recognize potential interest and penalties related to unrecognized tax benefits in income tax expense.
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