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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number: 0-19311
Biogen Idec Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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33-0112644 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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14 Cambridge Center, Cambridge,
Massachusetts
(Address of principal executive offices)
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02142
(Zip code) |
(Registrant’s telephone number, including area code)
(617) 679-2000
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.0005 par value and Series X Junior
Participating Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the
Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of the Registrant’s Common Stock
held by non-affiliates of the Registrant (without admitting that
any person whose shares are not included in such calculation is
an affiliate) computed by reference to the price at which the
common stock was last sold as of the last business day of the
Registrant’s most recently completed second fiscal quarter
was $21,197,833,965.
As of March 10, 2005, the Registrant had
344,027,240 shares of Common Stock, $0.0005 par value,
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for our 2005 Annual
Meeting of Stockholders are incorporated by reference into
Part III of this Report.
BIOGEN IDEC INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2004
TABLE OF CONTENTS
PART I
Overview
Biogen Idec creates new standards of care in oncology and
immunology. As a global leader in the development,
manufacturing, and commercialization of novel therapies, we
transform scientific discoveries into advances in human
healthcare. We currently have five products:
AVONEX® (interferon beta-1a). AVONEX is
approved for the treatment of relapsing forms of multiple
sclerosis, or MS, and is the most prescribed therapeutic product
in MS worldwide. Globally over 130,000 patients have chosen
AVONEX as their treatment of choice. In 2004, sales of AVONEX
generated worldwide revenues of $1.42 billion as compared
to worldwide sales of $1.17 billion in 2003.
RITUXAN® (rituximab). RITUXAN is approved
worldwide for the treatment of certain B-cell non-Hodgkin’s
lymphomas, or B-cell NHLs. We market RITUXAN in the U.S. in
collaboration with Genentech, Inc., or Genentech. All
U.S. sales of RITUXAN are recognized by Genentech and we
record our share of the pretax copromotion profits on a
quarterly basis. In 2004, RITUXAN generated U.S. net sales
of $1.57 billion of which we recorded $469.5 million
as our share of copromotion profits as compared to U.S. net
sales of $1.36 billion in 2003 of which we recorded
$419.2 million as our share of copromotion profits. F.
Hoffmann-La Roche Ltd., or Roche, sells rituximab outside
the U.S., except in Japan where it co-markets RITUXAN in
collaboration with Zenyaku Kogyo Co. Ltd., or Zenyaku. We
received royalties through Genentech on sales of rituximab
outside of the U.S. of $121.0 million in 2004 as
compared to $67.9 million in 2003. We are working with
Genentech and Roche on the development of RITUXAN in additional
oncology indications and rheumatoid arthritis, or RA. RITUXAN is
the trade name for the compound rituximab in the U.S., Canada
and Japan. MabThera is the tradename for rituximab in the EU. In
this Form 10-K, we refer to rituximab, RITUXAN, and
MabThera collectively as RITUXAN, except where we have otherwise
indicated.
TYSABRI® (natalizumab), formerly known as
ANTEGREN®. TYSABRI was approved by the United States
Food and Drug Administration, or FDA, in November 2004 to treat
relapsing forms of MS to reduce the frequency of clinical
relapses. In February 2005, in consultation with the FDA, we and
Elan Corporation, plc, or Elan, voluntarily suspended the
marketing and commercial distribution of TYSABRI, and informed
physicians that they should suspend dosing of TYSABRI until
further notification. In addition, we suspended dosing in
clinical studies of TYSABRI in MS, Crohn’s disease and RA.
These decisions were based on reports of two serious adverse
events that occurred in patients treated with TYSABRI in
combination with AVONEX in MS clinical studies. These events
involved two cases of progressive multifocal
leukoencephalopathy, or PML, a rare and frequently fatal,
demyelinating disease of the central nervous system. Both
patients received more than two years of TYSABRI in combination
with AVONEX. In light of the two reports of PML, the companies
initiated a systematic review of the TYSABRI safety database. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported by the investigator as malignant
astrocytoma in July 2003. The patient died in December 2003. The
patient had received 8 doses of TYSABRI over an
18 month period and prior medication history included
multiple courses of immunosuppressant agents. We and Elan are
working with clinical investigators to evaluate patients treated
with TYSABRI in clinical studies and are consulting with leading
experts to better understand the possible risk of PML. The
outcome of these evaluations will be used to determine possible
re-initiation of dosing in clinical studies and future
commercial availability.
ZEVALIN® (ibritumomab tiuxetan). ZEVALIN was
the first radioimmunotherapy approved by the FDA for the
treatment of cancer. ZEVALIN, as part of the ZEVALIN therapeutic
regimen, is approved in the U.S. as a treatment for
relapsed or refractory low-grade, follicular, or transformed
B-cell NHL including patients with RITUXAN refractory follicular
non-Hodgkin’s lymphoma. In 2004, sales of ZEVALIN in the
U.S. generated revenues of $18.7 million as compared
to revenues of $19.6 million in 2003. Outside the U.S., we
have licensed our marketing rights in ZEVALIN to Schering AG. In
January 2004, the European Medicines Agency, or EMEA, granted
marketing approval of ZEVALIN in the EU for the treatment of
adult
patients with CD20+ follicular B-cell NHL who are refractory to
or have relapsed following RITUXAN therapy. Rest of world
product sales for ZEVALIN for the year ended December 31,
2004 were $4.3 million. The $4.3 million relates to
ZEVALIN sold to Schering AG in 2003 and 2004, recognition of
which had been deferred.
AMEVIVE® (alefacept). AMEVIVE is approved in
the U.S. for the treatment of adult patients with
moderate-to-severe chronic plaque psoriasis who are candidates
for systemic therapy or phototherapy. In 2004, AMEVIVE was
approved for the same indication in Argentina, Australia,
Canada, Israel, Kuwait and Switzerland. In 2004, sales of
AMEVIVE generated worldwide revenues of $43.0 million,
substantially all of which were generated from sales in the
U.S., as compared to sales of $40.4 million in 2003.
We also receive royalty revenues on sales by our licensees of a
number of products covered under patents that we control. In
addition, we have a pipeline of research and development
products in our core therapeutic areas and in other areas of
interest.
We devote significant resources to research and development
programs. Our research and development efforts are primarily
focused on finding therapeutics in our focus areas of oncology,
neurobiology and immunology. These efforts include our
collaboration with Elan on the development of TYSABRI as a
potential treatment for Crohn’s disease and RA, our work
with Genentech and Roche on the development of RITUXAN in
additional oncology indications and RA, and our collaboration
with Fumapharm AG, or Fumapharm, on development of an oral
therapy as a potential treatment for psoriasis and MS. We
supplement our internal research efforts to find novel
therapeutics in these areas and in other areas of interest with
genomics tools and other innovative technologies. We also seek
to advance our research and development efforts through
collaborations.
Merger. On November 12, 2003, Bridges Merger
Corporation, a wholly owned subsidiary of IDEC Pharmaceuticals
Corporation, was merged with and into Biogen, Inc. with Biogen,
Inc. continuing as the surviving corporation and a wholly owned
subsidiary of IDEC Pharmaceuticals Corporation. At the same
time, IDEC Pharmaceuticals Corporation changed its name to
Biogen Idec Inc. The merger and name change were made under an
Agreement and Plan of Merger dated as of June 20, 2003. As
a result of the merger, each issued and outstanding share of
Biogen, Inc. common stock was converted into the right to
receive 1.15 shares of Biogen Idec common stock. Our stock
trades on the Nasdaq National Market under the symbol
“BIIB.” The results of Biogen, Inc.’s operations
from November 13, 2003, the day after the effective date of
the merger, to December 31, 2003 have been included in the
2003 consolidated financial statements filed in this Annual
Report on Form 10-K.
Available Information. We are a Delaware corporation with
principal executive offices located at 14 Cambridge Center,
Cambridge, Massachusetts 02142. Our telephone number is
(617) 679-2000 and our website address is
www.biogenidec.com. We make available free of charge through the
Investor Relations section of our website our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and all amendments to those reports as
soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and
Exchange Commission, or the SEC. We include our website address
in this Annual Report on Form 10-K only as an inactive
textual reference and do not intend it to be an active link to
our website.
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Our Products — Approved Indications and Ongoing
Development
Our products are targeted to address a variety of key medical
needs in the areas of oncology, neurology, dermatology and
rheumatology. They are as follows:
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Development and/or |
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Product Indications |
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Marketing Collaborators |
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AVONEX |
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Certain forms of MS |
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Approved worldwide |
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None |
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Chronic Inflammatory Demyelinating Polyradioneuropathy |
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Phase 2b — enrollment |
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RITUXAN |
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Certain B-cell NHLs |
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Approved worldwide |
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U.S. — Genentech
Outside U.S. and Japan — Roche
Japan — Roche and Zenyaku |
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Relapsed chronic lymphocytic leukemia |
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Phase 3 |
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U.S. — Genentech
Outside U.S. and Japan — Roche
Japan — Roche and Zenyaku |
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RA |
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Phase 3 — TNF failures
Phase 2b — DMARD failures |
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U.S. — Genentech
Outside U.S. and Japan — Roche
Japan — Roche and Zenyaku |
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Lupus/MS |
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Phase 2 |
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U.S. — Genentech
Outside U.S. and Japan — Roche
Japan — Roche and Zenyaku |
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ZEVALIN |
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Certain B-cell NHLs (radioimmunotherapy) |
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Approved — U.S. and EU |
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Outside U.S. — Schering AG |
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AMEVIVE |
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Moderate-to-severe chronic plaque psoriasis |
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Approved — U.S., Argentina, Australia, Canada, Israel,
Kuwait and Switzerland Under regulatory review — New
Zealand
Application withdrawn — EU |
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None |
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TYSABRI |
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MS |
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Approved — U.S.; marketing, commercial distribution
and dosing in clinical studies suspended in February 2005
Under regulatory review — EU |
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Elan |
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Crohn’s disease |
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Phase 3 — two Phase 3 trials completed;
dosing in all clinical studies, including additional Phase 3
induction trial, suspended in February 2005
Under regulatory review — EU |
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Elan |
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RA |
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Phase 2; dosing in all clinical studies suspended in
February 2005 |
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Elan |
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We currently market and sell AVONEX worldwide for the treatment
of relapsing MS. In 2004, sales of AVONEX generated worldwide
revenues of $1.42 billion as compared to worldwide sales of
$1.17 billion in 2003. AVONEX was sold by Biogen, Inc.
until November 12, 2003. Our consolidated financial
statements include only the results of operations of Biogen,
Inc. since November 13, 2003. Our revenues from AVONEX
during the period from November 13, 2003 to
December 31, 2003 were $142.6 million.
MS is a progressive neurological disease in which the body loses
the ability to transmit messages along nerve cells, leading to a
loss of muscle control, paralysis and, in some cases, death.
Patients with active relapsing MS experience an uneven pattern
of disease progression characterized by periods of stability
interrupted by flare-ups of the disease after which the patient
returns to a new baseline of functioning. AVONEX is a
recombinant form of a protein produced in the body by fibroblast
cells in response to viral infection. AVONEX has been shown in
clinical trials in relapsing forms of MS both to slow the
accumulation of disability and to reduce the frequency of
flare-ups. AVONEX is approved to treat relapsing forms of MS,
including MS patients with a first clinical episode and MRI
features consistent with MS. Biogen, Inc. began selling AVONEX
in the U.S. in 1996, and in the EU in 1997. AVONEX is on
the market in more than 60 countries. Based on data from an
independent third party research organization, information for
our distributors and internal analysis, we believe that AVONEX
is the most prescribed therapeutic product for the treatment of
MS worldwide. Globally, over 130,000 patients have selected
AVONEX as their treatment of choice.
As part of our commitment to AVONEX, we work to make treatment
and delivery more convenient. For example, AVONEX is now
available in a pre-filled syringe formulation as well as a dry
powder form. A syringe grip device to aid patients with
compromised manual dexterity in injecting AVONEX was approved by
the FDA in 2004.
We also continue to work to expand the data available about
AVONEX. We have extended the Controlled High Risk AVONEX
Multiple Sclerosis Prevention Study In Ongoing Neurological
Surveillance, or CHAMPIONS. CHAMPIONS was originally designed to
determine whether the effect of early treatment with AVONEX in
delaying relapses and reducing the accumulation of MS brain
lesions could be sustained for up to five years. The study
results showed that AVONEX altered the long-term course of MS in
patients who began treatment immediately after their initial MS
attack compared to initiation of treatment more than two years
after onset of symptoms. The five-year study extension is
intended to determine if the effects of early treatment with
AVONEX can be sustained for up to 10 years. We are
conducting a study with Surromed, Inc. to investigate the
biologic markers and phenotype of MS patients with and without
AVONEX treatment. We also continue to support Phase 4
investigator-run studies evaluating AVONEX in combination with
other therapies. In addition, we recently initiated enrollment
into a Phase 2b study of AVONEX as a treatment for Chronic
Inflammatory Demyelinating Polyradioneuropathy.
In February 2005, in consultation with the FDA, we and Elan
voluntarily suspended the marketing and commercial distribution
of our other MS drug TYSABRI and suspended dosing in all
clinical studies of TYSABRI, including clinical studies of
TYSABRI in combination with AVONEX. These decisions were based
on reports of two serious adverse events that have occurred in
patients treated with TYSABRI in combination with AVONEX. These
events involved two cases of PML, a rare and frequently fatal,
demyelinating disease of the central nervous system. Both
patients received more than two years of TYSABRI in combination
with AVONEX. For additional information related to TYSABRI and
PML, see “Our Products – Approved Indications
and Ongoing Development — TYSABRI.”
Overview. RITUXAN is approved worldwide for the treatment
of certain B-cell NHLs. We market RITUXAN in the U.S. in
collaboration with Genentech. All U.S. sales of RITUXAN are
recognized by Genentech and we record our share of the pretax
copromotion profits on a quarterly basis. In 2004, RITUXAN
generated U.S. net sales of $1.57 billion of which we
recorded $469.5 million as our share of copromotion profits
as compared to U.S. net sales of $1.36 billion in 2003
of which we recorded $419.2 million
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as our share of copromotion profits. Roche sells RITUXAN outside
the U.S., except in Japan where it co-markets RITUXAN in
collaboration with Zenyaku. We received royalties through
Genentech on sales of RITUXAN outside of the U.S. of
$121.0 million in 2004 as compared to $67.9 million in
2003.
In the U.S., we copromote RITUXAN with Genentech and share
responsibility with Genentech for continued development. Such
continued development includes conducting supportive research
and post-approval clinical studies and seeking potential
approval for additional indications. Genentech provides the
support functions for the commercialization of RITUXAN in the
U.S. and has worldwide manufacturing responsibilities. See
“Sales, Marketing and Distribution — RITUXAN and
ZEVALIN” and “Manufacturing and Raw Materials.”
We also have the right to collaborate with Genentech on the
development of other humanized anti-CD20 antibodies targeting
B-cell disorders for a broad range of indications, and to
copromote with Genentech any new products resulting from such
development in the U.S.
RITUXAN is approved in the U.S. for single agent use in
relapsed or refractory, low grade or follicular CD20-positive
B-cell NHL, which comprise approximately half of the B-cell NHLs
diagnosed in the U.S. RITUXAN is administered as outpatient
therapy by personnel trained in administering chemotherapies or
biologics. A standard course of RITUXAN therapy consists of four
intravenous infusions given on days one, eight, 15 and 22,
unlike chemotherapy which is given typically in repeating cycles
for up to four to eight months. RITUXAN is also approved to be
administered as an 8-dose regimen, for retreatment of patients
with B-cell NHL who have previously responded to RITUXAN and for
use in patients who have bulky tumors. RITUXAN is unique in the
treatment of B-cell NHLs due to its specificity for the antigen
CD20, which is expressed only on the surface of normal B cells
and malignant B cells. Stem cells (including B-cell progenitors
or precursor B-cells) in bone marrow lack the CD20 antigen. This
allows healthy B-cells to regenerate after treatment with
RITUXAN and to return to normal levels within several months.
RITUXAN’s mechanism of action utilizes the body’s own
immune system as compared to conventional lymphoma therapies.
RITUXAN in Oncology. In an effort to identify expanded
applications for RITUXAN, we, in conjunction with Genentech and
Roche, continue to support RITUXAN post-marketing studies.
Ongoing and completed Phase 2 and 3 studies suggest that
RITUXAN may have promise as a front-line therapy in combination
with various chemotherapies in indolent and aggressive
non-Hodgkin’s lymphoma, as a single agent in the treatment
of aggressive B-cell NHLs and relapsed chronic lymphocytic
leukemia, or CLL, and as maintenance therapy in indolent B-cell
NHLs. These studies include:
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A randomized Phase 3 study of the addition of RITUXAN to a
chemotherapy regimen of cyclophosphamide, vincristine and
prednisone, also known as CVP, in previously untreated, or front
line patients with indolent non- Hodgkin’s lymphoma. In
this investigator-run study, 321 patients who had not
received previous treatment for CD20 positive follicular or
indolent non-Hodgkin’s lymphoma were randomized to receive
either CVP alone or CVP with RITUXAN. The initial results of the
study indicated that the addition of RITUXAN to CVP prolonged
time to treatment failure, the primary endpoint of the study, to
26 months compared to seven months for patients treated
with CVP alone. Based on the results from this study, in August
2004, MabThera was approved by the EMEA as a first line
treatment for indolent non-Hodgkin’s lymphoma in
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A randomized Phase 3 study, known as E4494, of patients
age 60 or older with newly diagnosed, diffuse, large
B-cell, or aggressive non-Hodgkin’s lymphoma, comparing a
chemotherapy regimen consisting of cyclophosphamide,
doxorubicin, vincristine and prednisone, also known as CHOP,
alone to a regimen of RITUXAN plus CHOP, also known as R-CHOP,
as a front-line or induction therapy followed by RITUXAN
maintenance therapy or observation for those patients who
responded positively to either R-CHOP or CHOP alone. The study
is a U.S. Intergroup study led by the Eastern Cooperative
Oncology Group, or ECOG. The primary endpoint of the induction
and maintenance phases of the study was time to treatment
failure. Due to the observed interaction between RITUXAN
maintenance and induction therapy, additional analyses were
performed to compare induction therapy with R-CHOP versus CHOP
alone, removing the effects of subsequent RITUXAN maintenance
therapy. Based on these additional analyses, the investigators
concluded that patients who received R-CHOP induction therapy
experienced prolonged time to treatment failure and overall
survival |
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compared to patients who received induction therapy with CHOP
alone. In the maintenance phase of the study, patients treated
with RITUXAN maintenance therapy for up to an additional two
years after completing induction therapy had a statistically
significant delay in time to treatment failure compared to
patients who did not receive RITUXAN maintenance therapy
following induction. At the time of the interim analysis, this
advantage appears predominantly confined to patients who
received CHOP alone during the induction phase. |
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A multi-center, randomized Phase 2 study of
114 patients with relapsed indolent non-Hodgkin’s
lymphoma designed to compare the efficacy of RITUXAN maintenance
therapy to retreatment with RITUXAN. Maintenance therapy was
defined as treatment with RITUXAN every six months for two years
with the objective of keeping lymphoma from returning or
progressing. Retreatment was defined as waiting until the
disease progressed prior to administering another course of
RITUXAN. The initial results of this investigator-run study
showed that patients who received RITUXAN maintenance therapy
experienced 31 months of progression-free survival as
compared to eight months of progression-free survival for those
patients who received retreatment. |
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A large Phase 3 randomized study of 824 patients,
known as MinT, designed to evaluate RITUXAN in combination with
chemotherapy as a front-line treatment for aggressive large,
B-cell NHL in patients age 18 to 60. This study, which was
conducted by an international cooperative group and sponsored by
Roche, met its pre-specified primary efficacy endpoint early.
Positive results from the study were announced in June 2004. The
study authors concluded that data from the study demonstrated a
significant improvement in time to treatment failure, the
primary endpoint of the study. At two years, 81% of patients who
received RITUXAN and chemotherapy did not experience treatment
failure compared to 58% of patients who received chemotherapy
alone. |
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A Phase 3 study, known as E1496, designed to compare
RITUXAN maintenance therapy versus observation in patients with
previously untreated indolent non-Hodgkin’s lymphoma who
achieved stable disease or better after induction therapy with
CVP. The study, which was led by ECOG, met its pre-specified
primary efficacy endpoint early. Positive results from the study
were announced in June 2004. The study authors concluded that
there was a significant improvement in progression free
survival, the primary endpoint of the study. The authors
estimated that 73% of patients who received RITUXAN maintenance
therapy were free of disease progression and alive at two years
compared to 43% of patients who received no further treatment.
In this trial, maintenance therapy began four weeks after the
last cycle of chemotherapy and was defined as four doses of
RITUXAN every six months for two years. |
We, along with Genentech and Roche, are also conducting a
multi-center global Phase 3 registrational study in
patients with relapsed CLL comparing the use of fludarabine,
cyclophosphamide and RITUXAN together, known as FCR, versus
fludarabine and cyclophosphamide alone. This study is open at
multiple sites worldwide. Additional clinical studies are
ongoing in other B-cell malignancies such as lymphoproliferative
disorders associated with solid organ transplant therapies,
relapsed aggressive non-Hodgkin’s lymphoma and mantle cell
non-Hodgkin’s lymphoma.
RITUXAN in RA. The positive results from a Phase 2a
study of 161 patients with moderate-to-severe, active,
long-standing RA who had previously failed one to five
disease-modifying anti-rheumatic drugs (DMARDs) were announced
in October 2003 and published in the New England Journal of
Medicine in June 2004. The study was a four arm, placebo
controlled trial in which patients were randomized to receive
RITUXAN alone, RITUXAN in combination with cyclophosphamide,
RITUXAN in combination with methotrexate, or methotrexate alone.
All patients also received a brief course of corticosteroids.
The study showed that two doses of RITUXAN, administered two
weeks apart, improved symptoms for up to 48 weeks in all
arms in which it was administered. Investigators followed-up
with patients at 48 weeks in order to assess duration of
response beyond the primary endpoint of 24 weeks. At
24 weeks, investigators found that patients receiving the
combination of RITUXAN and methotrexate had the greatest
improvement in symptoms as assessed by the American College of
Rheumatology (ACR) response criteria: 73% of patients
showed at least a 20% improvement, 43% showed at least a 50%
improvement and 23% showed at least a 70% improvement.
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At 48 weeks, 65% of the patients in the RITUXAN and
methotrexate combination arm of the trial showed at least a 20%
improvement, 35% showed at least a 50% improvement and 15%
showed at least a 70% improvement.
Based on results from the Phase 2a study, we, along with
Genentech and Roche, initiated additional studies evaluating
RITUXAN in the treatment of RA. One of these studies is a
Phase 3 study known as REFLEX, studying the use of RITUXAN
in treating patients who have had an inadequate response to
tumor necrosis factor (TNF) inhibitor therapies. Data from
REFLEX is expected to be available in the first half of 2005.
The other study, a multi-center, randomized, double-blind,
placebo-controlled, Phase 2b dose optimization study, known
as DANCER, is evaluating the efficacy and safety of varying
doses of both RITUXAN and corticosteroids in combination with a
stable dose of methotrexate in patients who have failed one to
five DMARDs and are inadequately responding to methotrexate. In
DANCER, a total of 465 patients were randomized to receive
a stable dose of methotrexate and a varying dose of RITUXAN and
corticosteroids. In November 2004, we, along with Genentech and
Roche, announced that DANCER met its primary endpoint of a
greater proportion of RITUXAN-treated patients achieving an ACR
20 response at week 24, compared to placebo, in patients
who were also treated with methotrexate. Further analyses of the
data from DANCER are ongoing.
RITUXAN in Other Immunology Indications. Based on results
from the Phase 2a study of RITUXAN in RA, as well as other
small investigator-sponsored studies in various
autoimmune-mediated diseases, we, along with Genentech, have
initiated early-stage clinical trials studying RITUXAN in MS and
lupus.
Overview. The FDA granted accelerated approval for
TYSABRI in November 2004 to treat relapsing forms of MS to
reduce the frequency of clinical relapses. The approval was
based on one-year data from two Phase 3 clinical studies:
AFFIRM (natalizumab safety and efficacy in relapsing-remitting
MS) and SENTINEL (safety and efficacy of natalizumab in
combination with AVONEX), each a two-year, randomized
multi-center, placebo-controlled and double blinded study. In
February 2005, in consultation with the FDA, we and Elan
voluntarily suspended the marketing and commercial distribution
of TYSABRI, and informed physicians that they should suspend
dosing of TYSABRI until further notification. In addition, we
suspended dosing in clinical studies of TYSABRI in MS,
Crohn’s disease and RA. These decisions were based on
reports of two serious adverse events that occurred in patients
treated with TYSABRI in combination with AVONEX in MS clinical
studies. These events involved two cases (one confirmed and one
suspected at the time of the decisions) of PML, a rare and
frequently fatal, demyelinating disease of the central nervous
system. The suspected case of PML was subsequently confirmed.
Both patients received more than two years of TYSABRI therapy in
combination with AVONEX. In light of the two reports of PML, the
companies initiated a systematic review of the TYSABRI safety
database. On March 30, 2005, we and Elan announced that the
review of the safety database led a serious adverse event
previously reported by a clinical investigator in a clinical
study of TYSABRI in Crohn’s disease to be reassessed as
PML. The case was originally reported by the investigator as
malignant astrocytoma in July 2003. The patient died in December
2003. The patient had received 8 doses of TYSABRI over an
18 month period and prior medication history included
multiple courses of immunosuppressant agents. We and Elan are
working with clinical investigators to evaluate patients treated
with TYSABRI in clinical trials and are consulting with leading
experts to better understand the possible risk of PML. The
outcome of these evaluations will be used to determine possible
re-initiation of dosing in clinical studies and future
commercial availability. We cannot predict the outcome of these
evaluations. See “Forward-Looking Information and Risk
Factors That May Affect Future Results — Safety Issues
with TYSABRI Could Significantly Affect our Growth.”
In June 2004, Elan submitted a Marketing Authorisation
Application, or MAA, to the EMEA for approval of TYSABRI in MS.
We are working closely with the EMEA in order to provide them
with information regarding the status of our evaluation of the
possible risk of PML with TYSABRI and any additional information
that they may request so that they can conduct a risk/benefit
assessment in accordance with regulatory requirements. See
“Forward-Looking Information and Risk Factors That May
Affect Future Results — Safety Issues with TYSABRI
Could Significantly Affect our Growth.”
7
TYSABRI binds to adhesion molecules on the immune cell surface
known as alpha-4 integrin. Adhesion molecules on the surface of
the immune cells play an important role in the migration of the
immune cells in the inflammatory process. Research suggests that
by binding to alpha-4 integrin, TYSABRI prevents immune cells
from migrating from the bloodstream into tissue where they can
cause inflammation and potentially damage nerve fibers and their
insulation.
PHASE 3 Studies of TYSABRI in MS. Prior to the suspension
of dosing in clinical studies of TYSABRI we, along with Elan,
had completed the AFFIRM study and had substantially completed
the SENTINEL study. The AFFIRM study was designed to evaluate
the ability of natalizumab to slow the progression of disability
in MS and reduce the rate of clinical relapses. The SENTINEL
study was designed to evaluate the effect of the combination of
natalizumab and AVONEX compared to treatment with AVONEX alone
in slowing progression of disability and reducing the rate of
clinical relapses. Both studies have protocols that included a
one-year analysis of the data. The one-year data from the AFFIRM
study showed that TYSABRI reduced the rate of clinical relapses
by 66% relative to placebo, the primary endpoint at one year.
AFFIRM also met all one-year secondary endpoints, including MRI
measures. In the TYSABRI treated group, 60% of patients
developed no new or newly enlarging T2 hyperintense lesions
compared to 22% of placebo treated patients. On the one-year MRI
scan, 96% of TYSABRI treated patients had no gadolinium
enhancing lesions compared to 68% of placebo treated patients.
The proportion of patients who remained relapse free was 76% in
the TYSABRI treated group compared to 53% in the placebo treated
group. The one-year data from the SENTINEL combination study
also showed that the study achieved its one-year primary
endpoint. The addition of TYSABRI to AVONEX resulted in a 54%
reduction in the rate of clinical relapses over the effect of
AVONEX alone. The annualized relapse rate was 0.36 for patients
receiving TYSABRI when added to AVONEX versus 0.78 with AVONEX
plus placebo. SENTINEL also met all secondary endpoints,
including MRI measures. In the group treated with TYSABRI plus
AVONEX, 67% of the patients developed no new or newly enlarging
T2 hyperintense lesions compared to 40% in the AVONEX plus
placebo group. On the one-year MRI scan, 96% of TYSABRI plus
AVONEX treated patients had no gadolinium enhancing lesions
compared to 76% of AVONEX plus placebo treated patients. The
proportion of patients who remained relapse free was 67% in the
TYSABRI plus AVONEX treated group compared to 46% in the AVONEX
plus placebo treated group. In February 2005, we and Elan
announced that the AFFIRM study also achieved the two-year
primary endpoint of slowing the progression of disability in
patients with relapsing forms of MS. In the TYSABRI treated
group, there was a 42% reduction in the risk of disability
progression relative to placebo, and a 67% reduction in the rate
of clinical relapses over two years, which was sustained and
consistent with the one-year results.
TYSABRI in Crohn’s Disease. We, along with Elan,
have completed two Phase 3 studies of TYSABRI in
Crohn’s disease. In February 2005, we suspended dosing in
an additional fully enrolled Phase 3 induction study of
TYSABRI in Crohn’s disease until we complete our evaluation
of the possible risk of PML in patients treated with TYSABRI. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported as malignant astrocytoma. The two
completed Phase 3 studies are known as ENACT-2 (Evaluation
of Natalizumab as Continuous Therapy-2) and ENACT-1 (Evaluation
of Natalizumab as Continuous Therapy-1). In the double-blinded,
placebo controlled ENACT-2, 428 patients who were
responders in ENACT-1, the Phase 3 induction study, were
re-randomized to one of two treatment groups, TYSABRI or
placebo, both administered monthly for a total of
12 months. In ENACT-1, the primary endpoint of
“response,” as defined by a 70-point decrease in the
Crohn’s Disease Activity Index, or CDAI, at week 10,
was not met. In ENACT-2, the primary endpoint of
“maintenance of response,” as defined by a sustained
CDAI score of less than 220 as well as no use of rescue
intervention throughout six months of the study, was met. The
primary endpoint of ENACT-2 looked at results through month six.
Through month six, there was a significant treatment difference
of greater than 30% in favor of patients taking TYSABRI compared
to those taking placebo. In September 2004, we and Elan
announced new 12-month data from ENACT-2 showing a sustained and
clinically significant response throughout 12 months of
extended TYSABRI infusion therapy, confirming findings in
patients who had previously shown a sustained response
throughout six months. Maintenance of response was defined by a
CDAI score of less than 220, and less than 70-point increase
from baseline, in the
8
absence of rescue intervention throughout the study. Response
was maintained by 54% of patients treated with natalizumab
compared to 20% of those treated with placebo. In addition, 39%
of patients on TYSABRI maintained clinical remission during the
study period, versus 15% of those on placebo. By the end of
month 12, 49% of patients treated with TYSABRI who had
previously been treated with corticosteroids were able to
withdraw from steroid therapy compared to 20% of placebo-treated
patients. In September 2004, Elan submitted an MAA to the EMEA
for approval of TYSABRI as a treatment for Crohn’s disease.
This application is at an earlier stage than the MS application.
However, as with the MAA for MS, we are working closely with the
EMEA in order to provide them with information regarding the
status of our evaluation of the possible risk of PML with
TYSABRI and any additional information that they may request.
See “Forward-Looking Information and Risk Factors That May
Affect Future Results — Safety Issues with TYSABRI
Could Significantly Affect our Growth.”
TYSABRI in RA. In February 2005, we, along with Elan,
suspended dosing in a recently fully enrolled Phase 2 study
of TYSABRI in RA until we complete our evaluation of the
possible risk of PML in patients treated with TYSABRI. The study
is a multi-center, double-blind, placebo-controlled study of the
efficacy, safety and tolerability of intravenous TYSABRI in
patients with moderate-to-severe RA receiving concomitant
treatment with methotrexate.
ZEVALIN was the first radioimmunotherapy approved by the FDA for
the treatment of cancer. ZEVALIN, as part of the ZEVALIN
therapeutic regimen, is indicated for the treatment of patients
with relapsed or refractory low-grade, follicular, or
transformed B-cell non-Hodgkin’s lymphoma, including
patients with RITUXAN relapsed or refractory non-Hodgkin’s
lymphoma. In 2004, sales of ZEVALIN in the U.S. generated
revenues of $18.7 million as compared to revenues of
$19.6 million in 2003. In January 2004, the EMEA granted
marketing approval of ZEVALIN in the EU for the treatment of
adult patients with CD20+ follicular B-cell NHL who are
refractory to or have relapsed following RITUXAN therapy. We
sell ZEVALIN to Schering AG for distribution in the EU, and
receive royalty revenues from Schering AG on sales of ZEVALIN in
the EU. Rest of world product sales for ZEVALIN for the year
ended December 31, 2004 were $4.3 million. The
$4.3 million relates to ZEVALIN sold to Schering AG in 2003
and 2004, recognition of which had been deferred.
Radiation therapy plays an important role in the management of
B-cell lymphomas due to the sensitivity of B-cell tumors to
radiation. Traditional radiation therapy consists of an external
beam of radiation focused on isolated areas of the body or areas
with high tumor burden. The ZEVALIN therapeutic regimen combines
a monoclonal antibody with a radioisotope. Following intravenous
infusion, the monoclonal antibody recognizes and attaches to the
CD20 antigen. This allows ZEVALIN to specifically target
B-cells, destroying the malignant NHL B-cells and also normal
B-cells.
ZEVALIN therapy consists of two kits: an imaging kit for use
with indium-111 and a therapeutic kit for use with yttrium-90.
The ZEVALIN therapeutic regimen can be completed on an
outpatient basis in approximately 7 to 9 days and includes:
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administration of one dose of RITUXAN to deplete peripheral
blood B cells and improve ZEVALIN biodistribution; |
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imaging with the ZEVALIN imaging kit using indium-111, followed
by gamma camera images at two to 24 hours, 48 to
72 hours, and an optional image at 90 to 120 hours, to
confirm biodistribution of ZEVALIN; |
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if acceptable biodistribution of ZEVALIN is demonstrated,
another dose of RITUXAN is administered; and |
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infusion of the ZEVALIN therapeutic kit using yttrium-90. |
We are working with third party investigators to expand the
quality and quantity of data available about ZEVALIN. ZEVALIN is
being investigated in a variety of lymphoma subtypes including
diffuse B cell
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lymphoma. ZEVALIN is also being studied in a number of different
treatment strategies including combinations with front-line and
salvage chemotherapy regimens and as part of autologous and
allogeneic stem cell transplantation in both indolent and
aggressive lymphoma subtypes. For example, in June 2004, we
announced positive results from a Phase 2 study showing
that the ZEVALIN therapeutic regimen may produce high complete
remission rates in previously untreated patients with low-grade
follicular lymphoma when used following RITUXAN and a short
course of CHOP.
In February 2003, Biogen, Inc. began marketing and selling
AMEVIVE in the U.S. for the treatment of patients with
moderate-to-severe chronic plaque psoriasis who are candidates
for systemic therapy or phototherapy. In 2004, AMEVIVE was
approved for the same indication in Argentina, Australia,
Canada, Israel, Kuwait and Switzerland. Our filing for approval
in New Zealand is currently being reviewed. Our application for
approval in the EU was withdrawn in February 2003.
In 2004, sales of AMEVIVE generated worldwide revenues of
$43.0 million, substantially all of which were generated
from sales in the U.S., as compared to sales of
$40.4 million in 2003. AMEVIVE was sold by Biogen, Inc.
until November 12, 2003. Our consolidated financial
statements include only the results of operations of Biogen,
Inc. since November 13, 2003. Our revenues from AMEVIVE
during the period from November 13, 2003 to
December 13, 2003 were $9.4 million.
Psoriasis is an autoimmune skin disease in which skin cells
multiply 10 times faster than the normal rate. The excess cells
pile up on the skin’s surface, forming red, raised, scaly
plaques that can be painful and disfiguring. AMEVIVE is a
systemic therapy that works by helping to rebalance the
overactive cells in the immune system that cause psoriasis.
These cells, called T-cells, are central to the immune response
when working properly, but are directed inappropriately against
the body’s own tissues in psoriasis and other autoimmune
disorders. AMEVIVE has a dual mechanism of action that is
designed to interfere with T-cell activation and to reduce the
number of so-called memory T-cells.
We continue to conduct clinical studies of AMEVIVE. We are
investigating AMEVIVE in combination with other systemic
therapies. We are conducting open label studies of AMEVIVE in
combination with common psoriasis treatments, including topical
steroids, methotrexate, cyclosporine and phototherapy. Interim
analyses of these studies indicate that AMEVIVE in combination
with common psoriasis treatments is well tolerated for patients
with moderate-to-severe chronic plaque psoriasis. In February
2005, we announced preliminary results from a double-blind,
placebo-controlled Phase 2 study of 185 patients with
active psoriatic arthritis who were randomized to receive either
methotrexate and AMEVIVE or methotrexate. Patients in the
AMEVIVE group received 15 mg of AMEVIVE by intramuscular
injection once a week for 12 weeks, followed by a 12-week
observation period. In the study, 54% of patients who received
AMEVIVE for 12 weeks achieved an ACR 20 response, or at
least a 20 percent improvement in the signs and symptoms of
psoriatic arthritis, at 24 weeks, in contrast to 23% of
patients achieving at least a 20 percent improvement in the
methotrexate alone group. As part of our post marketing
commitments to the FDA, we have completed a Phase 3b
international study designed to provide further safety data
regarding the use of AMEVIVE and which also measured the
efficacy of AMEVIVE over multiple courses.
Our Other Research and Development Programs
We focus our research and development efforts on finding novel
therapeutics in areas of high unmet medical need. Our focus
areas are in oncology, neurobiology and autoimmune disease.
Below is a brief summary of some of our research and development
product candidates.
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an adenoviral vector encoding the human IFN-β gene,
designed to deliver high local concentrations of IFN-β to
tumors |
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an anti-lymphotoxin beta receptor monoclonal antibody, which has
shown activity in inhibiting tumor growth in animal models |
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an antibody to tumor antigen TAG72, designed to deliver
radioimmunotherapy to carcinomas that carry the antigen while
minimizing the radiation to normal tissues such as bone marrow |
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anti-CD80 and anti-CD23 antibodies using our Primatized®
antibody technology |
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a monoclonal antibody directed against Cripto, a novel cell
surface signaling molecule that is over-expressed in solid tumors |
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an oral fumarate that is a second-generation fumarate derivative
with an immunomodulatory mechanism of action which we licensed
from Fumapharm AG. A first-generation product is currently
marketed by Fumapharm as FUMADERM® in Germany, where it is
the most prescribed oral systemic treatment for severe
psoriasis. Fumapharm has completed a small Phase 3
double-blind, multi-center clinical study of the
second-generation product in psoriasis and plans to seek
approval in Germany based on the results of the Phase 3
study, and is currently conducting a safety extension study in
psoriasis in the EU. We began a Phase 2b clinical study of
the second generation product in patients with
relapsing-remitting MS in November 2004 |
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in separate collaborations with Genentech, a new humanized
anti-CD20 antibody targeting B-cell disorders for a broad range
of indications, and a BR3 protein therapeutic as a potential
treatment for disorders associated with abnormal B-lymphocyte
activity, such as RA and lupus |
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a monoclonal antibody directed against alpha-1/beta-1 integrin
(VLA-1). VLA-1 is found on a variety of cells associated with
tissue inflammation and fibrosis, including activated T-cells,
macrophages and myofibroblasts. Reduction of VLA-1 activity is
associated with sharply reduced inflammation and fibrosis in
experimental models of disease |
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in collaboration with Vernalis plc, V2006, the lead compound in
Vernalis’ adenosine A2A receptor antagonist program, which
targets Parkinson’s disease and other central nervous
system disorders |
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neublastin, a protein therapeutic that appears to maintains the
viability and physiology of peripheral sensory neurons.
Neublastin has shown activity in animal models of neuropathic
pain |
Except as otherwise noted, all of these product candidates are
in pre-clinical or earlier stage of development.
We supplement our internal research and development efforts to
find novel therapeutics in these areas and in other areas of
interest with genomics tools and other innovative technologies.
We also seek to advance our research and development efforts
through collaborations.
Research and Development Costs
For the years ended December 31, 2004, 2003 and 2002, our
research and development costs were approximately
$686.7 million, $233.3 million and
$100.9 million, respectively. Research and development
costs in 2003 include the results of operations of Biogen, Inc.
only for the period from November 13, 2003, the day after
the effective date of the merger, through December 31, 2003.
Principal Licensed Products
As described above, we receive royalties on sales of RITUXAN
outside the U.S. as part of our collaboration with
Genentech and royalties on sales of ZEVALIN in the EU from
Schering AG. We also
11
receive royalties from sales by our licensees of a number of
other products covered under patents that we control. For
example:
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We receive royalties from Schering-Plough Corporation on sales
of its alpha interferon products in the U.S. and Italy under an
exclusive license to our alpha interferon patents and patent
applications. Schering-Plough sells its INTRON® A
(interferon alfa-2b) brand of alpha interferon in the
U.S. for a number of indications, including the treatment
of chronic hepatitis B and hepatitis C. Schering-Plough
also sells other alpha interferon products for the treatment of
hepatitis C, including REBETRON® Combination Therapy
containing INTRON A and REBETOL® (ribavirin, USP),
PEG-INTRON® (peginterferon alfa-2b), a pegylated form of
alpha interferon, and PEG-INTRON in combination with REBETOL.
See “Patents and Other Proprietary Rights —
Recombinant Alpha Interferon.” |
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We hold several important patents related to hepatitis B
antigens produced by genetic engineering techniques. See
“Patents and Other Proprietary Rights —
Recombinant Hepatitis B Antigens.” These antigens are used
in recombinant hepatitis B vaccines and in diagnostic test kits
used to detect hepatitis B infection. We receive royalties from
sales of hepatitis B vaccines in several countries, including
the U.S., from GlaxoSmithKline plc and Merck and Co. Inc. We
have also licensed our proprietary hepatitis B rights, on an
antigen-by-antigen and nonexclusive basis, to several diagnostic
kit manufacturers, including Abbott Laboratories, the major
worldwide marketer of hepatitis B diagnostic kits. For a
discussion of the length of the royalty obligation of
GlaxoSmithKline and Merck on sales of hepatitis B vaccines and
the obligation of our other licensees on sales of hepatitis
B-related diagnostic products, see “Patents and Other
Proprietary Rights — Recombinant Hepatitis B
Antigens.” |
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We also receive ongoing royalties on sales of
ANGIOMAX®(bivalirudin) by The Medicines Company, also
known as TMC. TMC sells ANGIOMAX in the U.S., Europe, Canada and
Latin America for use as an anticoagulant in combination with
aspirin in patients with unstable angina undergoing percutaneous
transluminal coronary angioplasty. |
Patents and Other Proprietary Rights
We have filed numerous patent applications in the U.S. and
various other countries seeking protection of inventions
originating from our research and development, including a
number of our processes and products. Patents have been issued
on many of these applications. We have also obtained rights to
various patents and patent applications under licenses with
third parties, which provide for the payment of royalties by us.
The ultimate degree of patent protection that will be afforded
to biotechnology products and processes, including ours, in the
U.S. and in other important markets remains uncertain and is
dependent upon the scope of protection decided upon by the
patent offices, courts and lawmakers in these countries. There
is no certainty that our existing patents or others, if
obtained, will afford us substantial protection or commercial
benefit. Similarly, there is no assurance that our pending
patent applications or patent applications licensed from third
parties will ultimately be granted as patents or that those
patents that have been issued or are issued in the future will
prevail if they are challenged in court.
A substantial number of patents have already been issued to
other biotechnology and biopharmaceutical companies. Competitors
may have filed applications for, or have been issued patents and
may obtain additional patents and proprietary rights that may
relate to products or processes competitive with or similar to
our products and processes. Moreover, the patent laws of the
U.S. and foreign countries are distinct and decisions as to
patenting, validity of patents and infringement of patents may
be resolved differently in different countries. In general, we
try to obtain licenses to third party patents which we deem
necessary or desirable for the manufacture, use and sale of our
products. We are currently unable to assess the extent to which
we may wish to or may be required to acquire rights under such
patents and the availability and cost of acquiring such rights,
or whether a license to such patents will be available on
acceptable terms or at all. There may be patents in the
U.S. or in foreign countries or patents issued in the
future that are unavailable to license on acceptable terms. Our
inability to obtain such licenses may hinder our ability to
market our products.
We are aware that others, including various universities and
companies working in the biotechnology field, have filed patent
applications and have been granted patents in the U.S. and in
other countries claiming
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subject matter potentially useful to our business. Some of those
patents and patent applications claim only specific products or
methods of making such products, while others claim more general
processes or techniques useful or now used in the biotechnology
industry. There is considerable uncertainty within the
biotechnology industry about the validity, scope and
enforceability of many issued patents in the U.S. and elsewhere
in the world, and, to date, there is no consistent policy
regarding the breadth of claims allowed in biotechnology
patents. We cannot currently determine the ultimate scope and
validity of patents which may be granted to third parties in the
future or which patents might be asserted to be infringed by the
manufacture, use and sale of our products.
There has been, and we expect that there may continue to be,
significant litigation in the industry regarding patents and
other intellectual property rights. We expect that litigation
may be necessary in some instances to determine the validity and
scope of certain of our proprietary rights. Conversely,
litigation may be necessary in some instances to determine the
validity, scope and/or noninfringement of certain patent rights
claimed by third parties to be pertinent to the manufacture, use
or sale of our products. Intellectual property litigation could
therefore create business uncertainty and consume substantial
financial and human resources. Ultimately, the outcome of such
litigation could adversely affect the validity and scope of our
patent or other proprietary rights, or, conversely, hinder our
ability to market our products. See
“Item 3 — Legal Proceedings” for a
description of our patent litigation.
Our trademarks RITUXAN, AVONEX, AMEVIVE, ZEVALIN and TYSABRI are
important to us and are generally covered by trademark
applications or registrations owned or controlled by us in the
U.S. Patent and Trademark Office and in other countries.
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Recombinant Beta Interferon |
Third parties have pending patent applications or issued patents
in the U.S., Europe and other countries with claims to key
intermediates in the production of beta interferon. These are
known as the Taniguchi patents. Third parties also have pending
patent applications or issued patents with claims to beta
interferon itself. These are known as the Roche patents and the
Rentschler patents, respectively. We have obtained non-exclusive
rights in various countries of the world, including the U.S.,
Japan and Europe, to manufacture, use and sell AVONEX, our brand
of recombinant beta interferon, under the Taniguchi, Roche and
Rentschler issued patents. The last of the Taniguchi patents
expire in the U.S. in May, 2013 and have expired already in
other countries of the world. The Roche patents expire in the
U.S. in May, 2008 and also have generally expired elsewhere
in the world. The Rentschler EU patent expires in July, 2012.
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RITUXAN, ZEVALIN and Anti-CD20 Antibodies |
We have several issued U.S. patents and U.S. patent
applications, and numerous corresponding foreign counterparts
directed to anti-CD20 antibody technology, including RITUXAN and
ZEVALIN. We have also been granted patents covering RITUXAN and
ZEVALIN by the European and Japanese Patent Offices. In the
U.S. our principal patents covering the drugs or their uses
expire between 2015 and 2018. With regard to the rest of the
world, our principal patents covering the drug products expire
in 2013 subject to potential patent term extensions in countries
where such extensions are available. In addition Genentech, our
collaborative partner for RITUXAN, has secured an exclusive
license to five U.S. patents and counterpart U.S. and
foreign patent applications assigned to Xoma Corporation that
relate to chimeric antibodies against the CD20 antigen. These
patents expire between 2006 and 2014. Genentech has granted us a
non-exclusive sublicense to make, have made, use and sell
RITUXAN under these patents and patent applications. We, along
with Genentech, share the cost of any royalties due to Xoma in
the Genentech/ Biogen Idec copromotion territory on sales of
RITUXAN.
AMEVIVE is presently claimed in a number of patents granted in
the U.S. and the EU which cover LFA-3 polypeptides and DNA,
LFA-3 fusion proteins and DNA, host cells, manufacturing methods
and pharmaceutical compositions. We have obtained composition of
matter patent coverage for the commercial
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product and important intermediates in the manufacturing
process. Our patent portfolio also includes patents granted in
the U.S. and the EU, which cover the use of LFA-3 polypeptides
and LFA-3 fusion proteins in methods to inhibit T cell responses
and use of LFA-3 polypeptides and fusion proteins to treat skin
diseases, specifically including psoriasis. Our patent portfolio
further includes pending patent applications, which seek
coverage for the use of LFA-3 polypeptides and fusion proteins
in the treatment of other indications of possible future
interest as well for certain combination therapy treatments of
potential interest and utility. Patents issued or which may be
issued on these various patent applications expire between 2007
(for patents relating to manufacturing intermediates) and 2021
(in the case of recently filed patent applications). Our
principal patents covering the drug product expire in 2013
subject to potential patent term extensions in countries where
such extensions are available and by supplemental protection
certificates in countries of the EU where such certificates may
be obtained if and when approval of the product in the EU is
obtained. Method of use patent protection for the product to
treat skin diseases, including psoriasis, extends until 2017 in
the U.S. and generally until 2015 in the rest of the world.
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Recombinant Alpha Interferon |
In 1979, we granted an exclusive worldwide license to
Schering-Plough under our alpha interferon patents. Most of our
alpha interferon patents have since expired, including
expiration of patents in the U.S., Japan and all countries of
Europe other than Italy. We have obtained a supplementary
protection certificate in Italy extending the coverage until
2007, although the Italian Legislature intends to implement
legislation that may shorten this period to December 31,
2005. Schering-Plough pays us royalty payments on
U.S. sales of alpha interferon products under an
interference settlement entered into in 1998. Under the terms of
the interference settlement, Schering-Plough agreed to pay us
royalties under certain patents to be issued to Roche and
Genentech in consideration of our assignment to Schering-Plough
of the alpha interferon patent application that had been the
subject of a settled interference with respect to a Roche/
Genentech patent. Schering-Plough entered into an agreement with
Roche as part of settlement of the interference. The first of
the Roche/ Genentech patents was issued on November 19,
2002 and has a seventeen-year term.
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Recombinant Hepatitis B Antigens |
We have obtained numerous patents in countries around the world,
including in the U.S. and in European countries, covering the
recombinant production of hepatitis B surface, core and
“e” antigens. We have licensed our recombinant
hepatitis B antigen patent rights to manufacturers and marketers
of hepatitis B vaccines and diagnostic test kits, and receive
royalties on sales of the vaccines and test kits by our
licensees. See “Principal Licensed Products.” The
obligation of GlaxoSmithKline and Merck to pay royalties on
sales of hepatitis B vaccines and the obligation of our other
licensees under our hepatitis B patents to pay royalties on
sales of diagnostic products will terminate upon expiration of
our hepatitis B patents in each licensed country. Following the
conclusion of a successful interference proceeding in the U.S.,
we were granted patents in the U.S. expiring in 2018. These
patents claim hepatitis B virus polypeptides and vaccines and
diagnostics containing such polypeptides. Our European hepatitis
B patents expired at the end of 1999, except in those countries
in which we have obtained supplementary protection certificates.
Coverage under supplementary protection certificates still
exists in France, Italy and Sweden. The additional coverage
afforded by the supplementary protection certificates ranges
from one to five years. See “Item 3 — Legal
Proceedings” for a description of our litigation with
Classen Immunotherapies, Inc.
We are developing TYSABRI with Elan. TYSABRI is presently
claimed in a number of pending patent applications and issued
patents held by both companies in the U.S. and abroad. These
patent applications and patents cover the protein, DNA encoding
the protein, manufacturing methods and pharmaceutical
compositions, as well as various methods of treatment using the
product. In the U.S. the principal patents covering the
product and methods of manufacturing the product generally
expire between 2015 and 2020, subject to any available patent
term extensions. In the remainder of the world patents on the
product and methods of manufacturing the product generally
expire between 2014 and 2016, subject to any supplemental
protection
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certificates that may be obtained. Both companies have method of
treatment patents for a variety of indications including the
treatment of MS and Crohn’s disease and treatments of
inflammation. These patents expire in the U.S. generally
between 2012 and 2020 and outside the U.S. generally
between 2010 and 2016, subject to any available patent term
extensions and/or supplemental protection certificates extending
such terms.
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Trade Secrets and Confidential Know-How |
We also rely upon unpatented trade secrets, and we cannot assure
that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or disclose such technology, or
that we can meaningfully protect such rights. We require our
employees, consultants, outside scientific collaborators,
scientists whose research we sponsor and other advisers to
execute confidentiality agreements upon the commencement of
employment or consulting relationships with us. These agreements
provide that all confidential information developed or made
known to the individual during the course of the
individual’s relationship with us is to be kept
confidential and not disclosed to third parties except in
specific circumstances. In the case of our employees, the
agreement provides that all inventions conceived by such
employees shall be our exclusive property. These agreements may
not provide meaningful protection or adequate remedies for our
trade secrets in the event of unauthorized use or disclosure of
such information.
Sales, Marketing and Distribution
Our sales and marketing efforts are generally focused on
specialist physicians in private practice or at major medical
centers. We utilize common pharmaceutical company practices to
market our products and to educate physicians, including sales
representatives calling on individual physicians and
distributors, advertisements, professional symposia, direct
mail, selling initiatives, public relations and other methods.
We provide certain customer service and other related programs
for our products, such as disease and product-specific websites,
insurance research services and order, delivery and fulfillment
services. We have also established programs in the
U.S. which provide qualified uninsured or underinsured
patients with commercial products at no charge. Specifics
concerning the sales, marketing and distribution of each of our
commercialized products are as follows:
We continue to focus our marketing and sales activities on
maximizing the potential of AVONEX in the U.S. and the EU in the
face of increased competition. In the U.S., Canada, Australia
and most of the major countries of the EU, we use our own sales
forces and marketing groups to market and sell AVONEX. In these
countries, we distribute AVONEX principally through wholesale
distributors of pharmaceutical products, mail order specialty
distributors or shipping service providers. In countries outside
the U.S., Canada, Australia and the major countries of the EU,
we sell AVONEX to distribution partners who are then responsible
for most marketing and distribution activities.
In February 2005, in consultation with the FDA, we and Elan
voluntarily suspended the marketing and commercial distribution
of TYSABRI, and informed physicians that they should suspend
dosing of TYSABRI until further notification. See “Our
Products – Approved Indications and Ongoing
Development – TYSABRI.” Prior to suspension of
marketing and distribution of TYSABRI, we used our own sales
force and marketing group to market TYSABRI in the U.S., and
Elan distributed TYSABRI in the U.S.
RITUXAN and ZEVALIN are complementary products for the
management of B-cell NHLs. Most B-cell NHLs are treated today in
community-based group oncology practices. RITUXAN fits well into
the
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community practice, as generally no special equipment, training
or licensing is required for its administration or for
management of treatment-related side effects. By contrast,
ZEVALIN is administered by nuclear medicine specialists or
radiation oncologists at medical or cancer centers that are
licensed and equipped for the handling, administration and
disposal of radioisotopes.
RITUXAN. We market and sell RITUXAN in the U.S. in
collaboration with Genentech. Genentech has a sales and
marketing staff dedicated to RITUXAN. Beginning in 2004, we also
established a sales and marketing staff dedicated to RITUXAN.
Sales efforts are focused on hematologists and medical
oncologists in private practice, at community hospitals and at
major medical centers in the U.S. RITUXAN is generally sold
to wholesalers, specialty distributors and directly to hospital
pharmacies. We rely on Genentech to supply marketing support
services for RITUXAN including customer service, order entry,
shipping, billing, insurance verification assistance, managed
care sales support, medical information and sales training.
Under our agreement with Genentech, all U.S. sales of
RITUXAN are recognized by Genentech and we record our share of
the pretax copromotion profits on a quarterly basis.
ZEVALIN. We use our own sales force and marketing group
to market and sell ZEVALIN in the U.S. To date, we have
focused our sales and marketing activities on educating
physicians about ZEVALIN’s efficacy in relapsed indolent
lymphoma, its safety profile and patient tolerance. In the U.S.,
we sell ZEVALIN to radiopharmacies that radiolabel, or combine,
the ZEVALIN antibody with an indium-111 isotope or an yttrium-90
radioisotope and then distribute the finished product to
hospitals or licensed treatment facilities for administration.
In the EU, we sell ZEVALIN to Schering AG, our exclusive
licensee for ZEVALIN outside the U.S. Schering AG is
responsible for sales, marketing and distribution activities for
ZEVALIN in the EU. We have appointed MDS (Canada) Inc., or MDS
(Canada), as our exclusive supplier of the yttrium-90
radioisotope required for therapeutic use of ZEVALIN to
radiopharmacies. MDS (Canada) is the only supplier of the
yttrium-90 radioisotope that is approved by the FDA.
Radiopharmacies independently obtain the indium-111 isotope
required for the imaging use of ZEVALIN from one of the two
third party suppliers currently approved by the FDA to supply
the indium-111 isotope.
We use our own sales force and marketing group to market and
sell AMEVIVE in the U.S. To date, we have focused our sales
and marketing activities on physician education, payor coverage
and acceptance, and improving physician and patient access to
AMEVIVE through various initiatives including a sampling
program. We distribute AMEVIVE in the U.S. principally
through specialty distributors.
Competition
Competition in the biotechnology and pharmaceutical industries
is intense and comes from many and varied sources. We do not
believe that any of the industry leaders can be considered
dominant in view of the rapid technological change in the
industry. We experience significant competition from specialized
biotechnology firms in the U.S., the EU and elsewhere and from
many large pharmaceutical, chemical and other companies. Certain
of these companies have substantially greater financial,
marketing, research and development and human resources than us.
Most large pharmaceutical and biotechnology companies have
considerable experience in undertaking clinical trials and in
obtaining regulatory approval to market pharmaceutical products.
We believe that competition and leadership in the industry will
be based on managerial and technological superiority and
establishing proprietary positions through research and
development. Leadership in the industry may also be influenced
significantly by patents and other forms of protection of
proprietary information. A key aspect of such competition is
recruiting and retaining qualified scientists and technicians.
We believe that we have been successful in attracting skilled
and experienced scientific personnel. The achievement of a
leadership position also depends largely upon our ability to
identify and exploit commercially the products resulting from
research and the availability of adequate financial resources to
fund facilities, equipment, personnel, clinical testing,
manufacturing and marketing.
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Many of our competitors are working to develop products similar
to those that we are developing. The timing of the entry of a
new pharmaceutical product into the market can be an important
factor in determining the product’s eventual success and
profitability. Early entry may have important advantages in
gaining product acceptance and market share. Moreover, under the
Orphan Drug Act, the FDA is prevented for a period of seven
years from approving more than one application for the
“same” product for the same indication in certain
diseases with limited patient populations, unless a later
product is considered clinically superior. The EU has similar
laws and other jurisdictions have or are considering such laws.
Accordingly, the relative speed with which we can develop
products, complete the testing and approval process and supply
commercial quantities of the product to the market will have an
important impact on our competitive position. An abbreviated
process exists for approval of small molecule drugs in the
U.S. that are comparable to existing products. It is
possible that legislative bodies in the U.S. and the EU may
provide a similar abbreviated process for comparable biologic
products. Competition among products approved for sale may be
based, among other things, on patent position, product efficacy,
safety, convenience, reliability, availability and price.
AVONEX, which generated $1.42 billion of worldwide revenues
in 2004 competes primarily with three other products:
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REBIF® (interferon-beta 1a), which is co-promoted by
Serono, Inc. and Pfizer in the U.S. and sold by Serono AG in the
EU. REBIF generated worldwide revenues of approximately
$1.09 billion in 2004. |
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BETASERON® (interferon-beta 1a), sold by Berlex in the U.S.
and sold under the name BETAFERON® by Schering A.G. in the
EU. BETASERON and BETAFERON together generated worldwide
revenues of approximately $972 million in 2004. |
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COPAXONE® (glatiramer acetate injection), sold by Teva
Neuroscience, Inc. in the U.S. and co-promoted by Teva and
Aventis Pharma in the EU. COPAXONE generated worldwide revenues
of approximately $936 million in 2004. |
Along with us, a number of companies are working to develop
products to treat MS that may in the future compete with AVONEX.
For example, we are developing TYSABRI with Elan. TYSABRI was
approved by the FDA in November 2004 to treat relapsing forms of
MS to reduce the frequency of clinical relapses. In February
2005, in consultation with the FDA, we and Elan voluntarily
suspended the marketing and commercial distribution of TYSABRI,
and informed physicians that they should suspend dosing of
TYSABRI until further notification. These decisions were based
on reports of two serious adverse events that have occurred in
patients treated with TYSABRI in combination with AVONEX in MS
clinical studies. These events involved two cases of PML, a rare
and frequently fatal, demyelinating disease of the central
nervous system. Both patients received more than two years of
TYSABRI therapy in combination with AVONEX. In light of the two
reports of PML, the companies initiated a systematic review of
the TYSABRI safety database. On March 30, 2005, we and Elan
announced that the review of the safety database led a serious
adverse event previously reported by a clinical investigator in
a clinical study of TYSABRI in Crohn’s disease to be
reassessed as PML. The case was originally reported by the
investigator as malignant astrocytoma in July 2003. The patient
died in December 2003. The patient had received 8 doses of
TYSABRI over an 18 month period and prior medication
history included multiple courses of immunosuppressant agents.
We and Elan are working with clinical investigators to evaluate
patients treated with TYSABRI in clinical studies and are
consulting with leading experts to better understand the
possible risk of PML. The outcome of these evaluations will be
used to determine possible re-initiation of dosing in clinical
studies and future commercial availability. If we are able to
reintroduce TYSABRI to the market, it would compete with the
products listed above, including AVONEX. See “Our
Products — Approved Indications and Ongoing
Development — TYSABRI.”
AVONEX also faces competition from off-label uses of drugs
approved for other indications. Some of our current competitors
are also working to develop alternative formulations for
delivery of their products which may in the future compete with
AVONEX.
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RITUXAN received designation as an Orphan Drug from the FDA for
the treatment of relapsed or refractory low-grade or follicular,
CD20+ B-cell NHLs. Marketing exclusivity resulting from this
Orphan Drug designation expired in November 2004. ZEVALIN
received designation as an Orphan Drug from the FDA for the
treatment of relapsed or refractory low grade, follicular, or
transformed B-cell NHLs, including patients with RITUXAN
refractory follicular NHL. Marketing exclusivity resulting from
this Orphan Drug designation will expire in February 2009.
RITUXAN is typically used after patients fail to respond or
relapse after treatment with traditional radiation therapy or
standard chemotherapy regimes, such as CVP and CHOP. ZEVALIN is
typically used after patients fail to respond or relapse
following treatment with RITUXAN. ZEVALIN competes with
BEXXAR® (tositumomab, iodine I-131 tositumomab), a
radiolabeled molecule developed by Corixa Corporation which is
now being developed and commercialized by GlaxoSmithKline.
BEXXAR is approved to treat patients with CD20+, follicular,
non-Hodgkin’s lymphoma, with and without transformation,
whose disease is refractory to RITUXAN and has relapsed
following chemotherapy.
A number of other companies, including us, are working to
develop products to treat B-cell NHLs and other forms of
non-Hodgkin’s lymphoma that may ultimately compete with
RITUXAN and ZEVALIN.
AMEVIVE competes with several different types of therapies
including:
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traditional therapies for moderate-to-severe chronic plaque
psoriasis, such as oral retinoids, steroids, methotrexate,
cyclosporin, PUVA and UVB radiation. |
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RAPTIVA® (efalizumab), a drug co-developed by Genentech and
Xoma Corporation that was approved by the FDA in November 2003
to treat moderate-to-severe psoriasis. |
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ENBREL® (etanercept), a drug sold by Amgen, Inc. and Wyeth
Pharmaceuticals, Inc. that was approved by the FDA to treat
moderate-to-severe psoriasis in April 2004. |
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drugs approved for other indications that are used to treat
psoriasis. Among these drugs are REMICADE®
(infliximab) and HUMIRA® (adalimumab). REMICADE, which
is sold worldwide by Centocor, Inc., a subsidiary of
Johnson & Johnson, as a treatment for other
indications, including RA, is currently in clinical studies as a
potential treatment for psoriasis. HUMIRA, which is sold by
Abbott Laboratories, or Abbott, is approved to treat RA. Abbott
is undertaking clinical studies in psoriasis and psoriatic
arthritis. |
In addition, a number of other companies, including us, are
working to develop products to treat psoriasis that may
ultimately compete with AMEVIVE.
Regulatory
Our current and contemplated activities and the products and
processes that will result from such activities are subject to
substantial government regulation.
Before new pharmaceutical products may be sold in the U.S. and
other countries, clinical trials of the products must be
conducted and the results submitted to appropriate regulatory
agencies for approval. These clinical trial programs generally
involve a three-phase process. Typically, in Phase 1,
trials are conducted in volunteers or patients to determine the
early side effect profile and, perhaps, the pattern of drug
distribution and metabolism. In Phase 2, trials are
conducted in groups of patients with a specific disease in order
to determine appropriate dosages, expand evidence of the safety
profile and, perhaps, determine preliminary efficacy. In
Phase 3, large scale, comparative trials are conducted on
patients with a target disease in order to generate enough data
to provide the statistical proof of efficacy and safety required
by national regulatory agencies. The results of the preclinical
and clinical testing of a biologic product are then submitted to
the FDA in the form of a Biologics License Application, or BLA,
or a New Drug Approval Application, or NDA. In
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response to a BLA or NDA, the FDA may grant marketing approval,
request additional information or deny the application if it
determines the application does not provide adequate basis for
approval. The receipt of regulatory approval often takes a
number of years, involving the expenditure of substantial
resources and depends on a number of factors, including the
severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated
in clinical trials. On occasion, regulatory authorities may
require larger or additional studies, leading to unanticipated
delay or expense. Even after initial FDA approval has been
obtained, further clinical trials may be required to provide
additional data on safety and effectiveness and are required to
gain clearance for the use of a product as a treatment for
indications other than those initially approved. When approval
is granted under the “accelerated approval” provisions
of FDA’s regulations, the BLA or NDA holder must conduct
certain additional studies to verify the clinical benefit
attributable to the product. Failure to conduct the required
studies, or to comply with certain other conditions of
accelerated approvals, may result, following a hearing, in
FDA’s withdrawing or modifying that part of the approval
that was granted under the accelerated approval provisions.
Approval of ZEVALIN and TYSABRI was granted under the
accelerated approval provisions. If we fail to conduct the
required studies or otherwise fail to comply with the conditions
of accelerated approval, the FDA may take action to seek to
withdraw that approval.
Regulatory authorities track information on side effects and
adverse events reported during clinical studies and after
marketing approval. Side effects or adverse events that are
reported during clinical trials can delay, impede, or prevent
marketing approval. Similarly, adverse events that are reported
after marketing approval can result in additional limitations
being placed on the product’s use and, potentially,
withdrawal or suspension of the product from the market. For
example, in February 2005, in consultation with the FDA, we and
Elan voluntarily suspended the marketing and commercial
distribution of TYSABRI, and informed physicians that they
should suspend dosing of TYSABRI until further notification. In
addition, we suspended dosing in clinical studies of TYSABRI in
MS, Crohn’s disease and RA. These decisions were based on
reports of two serious adverse events that occurred in patients
treated with TYSABRI in clinical studies. These events involved
two cases of PML, a rare and frequently fatal, demyelinating
disease of the central nervous system. See “Our Products
–Approved Indications and Ongoing
Development — TYSABRI.” Any adverse event, either
before or after marketing approval, including the
TYSABRI-related events described above, could result in product
liability claims against us. Non-compliance with FDA safety
reporting requirements may result in FDA regulatory action that
may include civil action or criminal penalties.
If we seek to make certain changes to an approved product, such
as adding a new indication, making certain manufacturing
changes, or changing manufacturers or suppliers of certain
ingredients or components, we will need FDA review and approval
before the change can be implemented.
Under the Orphan Drug Act, the FDA may grant orphan drug
designation to drugs intended to treat a “rare disease or
condition,” which generally is a disease or condition that
affects fewer than 200,000 individuals in the U.S. Orphan
drug designation must be requested before submitting a BLA or
NDA. After the FDA grants orphan drug designation, the generic
identity of the therapeutic agent and its potential orphan use
are publicly disclosed by the FDA. Orphan drug designation does
not convey any advantage in, or shorten the duration of, the
regulatory review and approval process. If a product which has
an orphan drug designation subsequently receives the first FDA
approval for the indication for which it has such designation,
the product is entitled to orphan exclusivity, i.e., the FDA may
not approve any other applications to market the same drug for
the same indication for a period of seven years following
marketing approval, except in certain very limited
circumstances, including a showing of clinical superiority.
ZEVALIN received orphan drug exclusivity in the U.S. Orphan
Drug status for ZEVALIN will expire in February 2009.
The FDA, the EMEA and other regulatory agencies regulate and
inspect equipment, facilities, and processes used in the
manufacturing of pharmaceutical and biologic products prior to
providing approval to market a product. If after receiving
clearance from regulatory agencies, a material change is made in
manufacturing equipment, location, or process, additional
regulatory review and approval may be required. We also must
adhere to current Good Manufacturing Practices, or cGMP, and
product-specific regulations enforced by the FDA through its
facilities inspection program. The FDA, the EMEA and other
regulatory agencies also conduct regular, periodic visits to
re-inspect equipment, facilities, and processes following the
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initial approval. If, as a result of these inspections, it is
determined that our equipment, facilities, or processes do not
comply with applicable regulations and conditions of product
approval, regulatory agencies may seek civil, criminal, or
administrative sanctions and/or remedies against us, including
the suspension of our manufacturing operations. In addition, the
FDA regulates all advertising and promotion activities for
products under its jurisdiction both prior to and after
approval. Companies must comply with all applicable FDA
requirements. If they do not, they are subject to the full range
of civil and criminal penalties available to the FDA.
In the EU, Canada, and Australia, regulatory requirements and
approval processes are similar in principle to those in the
U.S. Depending on the type of drug for which approval is
sought, there are currently two potential tracks for marketing
approval in EU countries: mutual recognition and the centralized
procedure. These review mechanisms may ultimately lead to
approval in all EU countries, but each method grants all
participating countries some decision-making authority in
product approval.
In the U.S., the federal government regularly considers
reforming health care coverage and costs. For example, recent
reforms to Medicare have reduced the reimbursement rates for
many of our products and, beginning in 2006, added a
prescription drug benefit for all Medicare beneficiaries.
Resulting legislation or regulatory actions may have a
significant effect on our business. Our ability to successfully
commercialize products may depend in part on the extent to which
reimbursement for the costs of our products and related
treatments will be available in the U.S. and worldwide from
government health administration authorities, private health
insurers and other organizations. Substantial uncertainty exists
as to the reimbursement status of newly approved health care
products by third-party payors.
We are also subject to various federal and state laws pertaining
to health care “fraud and abuse,” including
anti-kickback laws and false claims laws. Anti-kickback laws
make it illegal for a prescription drug manufacturer to solicit,
offer, receive, or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase or
prescription of a particular drug. Due to the breadth of the
statutory provisions and the absence of guidance in the form of
regulations or court decisions addressing industry practices, it
is possible that our practices might be challenged under
anti-kickback or similar laws. False claims laws prohibit anyone
from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare
and Medicaid) claims for reimbursed drugs or services that are
false or fraudulent, claims for items or services not provided
as claimed, or claims for medically unnecessary items or
services. Our activities relating to the sale and marketing of
our products may be subject to scrutiny under these laws.
Violations of fraud and abuse laws may be punishable by criminal
and/or civil sanctions, including fines and civil monetary
penalties, as well as the possibility of exclusion from federal
health care programs (including Medicare and Medicaid). If the
government were to allege or convict us of violating these laws,
our business could be harmed. For a description of litigation in
this area in which we are currently involved, see
“Item 3 — Legal Proceedings.” Our
activities could be subject to challenge for the reasons
discussed above and due to the broad scope of these laws and the
increasing attention being given to them by law enforcement
authorities.
We also participate in the Medicaid rebate program established
by the Omnibus Budget Reconciliation Act of 1990, and under
amendments of that law that became effective in 1993. Under the
Medicaid rebate program, we pay a rebate for each unit of
product reimbursed by Medicaid. The amount of the rebate for
each product is set by law as a minimum 15.1% of the average
manufacturer price, or AMP, of that product, or if it is
greater, the difference between AMP and the best price available
from us to any commercial or non-governmental customer. The
rebate amount also includes an inflation adjustment if AMP
increases faster than inflation. The rebate amount is recomputed
each quarter based on our reports of current average
manufacturer price and best price for each of our products to
the Centers for Medicare and Medicaid Services. The terms of our
participation in the program impose an obligation to correct the
prices reported in previous quarters, as may be necessary for up
to three years. Any such corrections could result in an overage
or underage in our rebate liability for past quarters, depending
on the direction of the correction. In addition to retroactive
rebates, if we were found to have knowingly submitted false
information to the government, in addition to other penalties
available to the government, the statute provides for civil
monetary penalties in the amount of $100,000 per item of
false information. Participation in the Medicaid rebate program
includes extending
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discounts under the Public Health Service, or PHS,
pharmaceutical pricing program. The PHS pricing program extends
discounts to a variety of community health clinics and other
entities that receive health services grants from the PHS, as
well as hospitals that serve a disproportionate share of poor
Medicare beneficiaries.
We also make our products available for purchase by authorized
users off of our Federal Supply Schedule (FSS) contract
with the Department of Veterans Affairs. As a result of the
Veterans Health Care Act of 1992, or the VHC Act, federal law
requires that FSS contract prices for our products for purchases
by the Veterans Administration, the Department of Defense, Coast
Guard, and the PHS (including the Indian Health Service) be
capped at “federal ceiling prices,” or FCPs. FCPs are
computed by taking, at a minimum, a 24% reduction off the
“non-federal average manufacturer price,” or non-FAMP.
Our reported non-FAMPs and FCPs for our various products are
used in establishing the FSS prices available to these
government agencies. The accuracy of the reported non-FAMPs and
FCPs may be audited by the government under applicable federal
procurement laws. Among the remedies available to the government
for infractions of these laws is recoupment of any overages paid
by FSS users during the audited years. In addition, if we were
found to have knowingly reported a false non-FAMP or FCP, the
VHC Act provides for civil monetary penalties of
$100,000 per item of false information.
We are also subject to the U.S. Foreign Corrupt Practices
Act which prohibits corporations and individuals from paying,
offering to pay, or authorizing the payment of anything of value
to any foreign government official, government staff member,
political party, or political candidate in an attempt to obtain
or retain business or to otherwise influence a person working in
an official capacity.
We conduct relevant research at all of our research facilities
in the U.S. in compliance with the current
U.S. National Institutes of Health Guidelines for Research
Involving Recombinant DNA Molecules, or the NIH Guidelines, and
all other applicable federal and state regulations. By local
ordinance, we are required to, among other things, comply with
the NIH Guidelines in relation to our facilities in Cambridge,
Massachusetts, and are required to operate pursuant to certain
permits.
Our present and future business has been and will continue to be
subject to various other laws and regulations. Various laws,
regulations and recommendations relating to safe working
conditions, laboratory practices, the experimental use of
animals, and the purchase, storage, movement, import and export
and use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious
disease agents, used in connection with our research work are or
may be applicable to our activities. Certain agreements entered
into by us involving exclusive license rights may be subject to
national or supranational antitrust regulatory control, the
effect of which also cannot be predicted. The extent of
government regulation which might result from future legislation
or administrative action cannot accurately be predicted.
Manufacturing and Raw Materials
We currently produce all of our bulk AVONEX, AMEVIVE and TYSABRI
at our manufacturing facilities located in Research Triangle
Park, North Carolina and Cambridge, Massachusetts. We are in the
process of transferring the process for manufacturing the
commercial requirements of the antibody for ZEVALIN to
Cambridge, Massachusetts from our pilot manufacturing facility
in Oceanside, California. Genentech is responsible for all
worldwide manufacturing activities for bulk RITUXAN and has
sourced the manufacturing of certain bulk RITUXAN requirements
to an independent third party. We manufacture clinical products
in Cambridge. We are developing a large-scale manufacturing
facility in Oceanside, California. We completed construction of
this facility and obtained the certificate of occupancy in the
fourth quarter of 2004. Commissioning and validation is expected
to continue through 2005. We expect the facility to be licensed
in 2006. In addition, we recently re-started construction of a
large-scale manufacturing facility in Hillerod, Denmark which we
expect to be licensed in 2008. For a discussion of the potential
impact of the suspension of TYSABRI on our plans for these
facilities, see “Forward-Looking Information and Risk
Factors That May Affect Future Results — We are
Subject to Risks Related to the Products That We
Manufacture.”
We source all of our fill-finish and the majority of final
product storage operations for our products, along with a
substantial part of our packaging operations, to a concentrated
group of third party contractors. Raw
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materials and supplies required for the production of AVONEX,
ZEVALIN, AMEVIVE and TYSABRI, are generally available from
various suppliers in quantities adequate to meet our needs,
except for chelates and the radioisotope yttrium-90 used with
ZEVALIN which are available from a limited number of suppliers.
We source manufacturing of chelates to a concentrated group of
third party manufacturers. We made MDS (Canada) our exclusive
supplier of the radioisotope yttrium-90 used with ZEVALIN. If we
were to lose the services of MDS (Canada) or our third party
manufacturers of chelates, we would be forced to find other
providers, which could delay our ability to sell ZEVALIN. In
addition, radiopharmacies independently purchase the indium-111
isotope required for the imaging use of ZEVALIN. Currently, only
two suppliers are approved by the FDA to supply the indium-111
isotope. Each of our third-party service providers, suppliers
and manufacturers, along with the suppliers of the indium-111
isotopes, are subject to continuing inspection by the FDA or
comparable agencies in other jurisdictions. Any delay,
interruption or other issues that arise in the manufacture,
fill-finish, packaging, or storage of our products, including as
a result of a failure of our facilities or the facilities or
operations of third parties to pass any regulatory agency
inspection, could significantly impair our ability to sell our
products. See “Forward-Looking Information and Risk Factors
That May Affect Future Results — We are Subject to
Risks Related to the Products That We Manufacture,” and
“Forward-Looking Information and Risk Factors That May
Affect Future Results — We Rely to a Large Extent on
Third Parties in the Manufacturing of Our Products.”
We believe that our existing manufacturing facilities and
outside sources will allow us to meet our near-term and
long-term manufacturing needs for our current commercial
products and our other products currently in clinical trials.
Our existing licensed manufacturing facilities operate under
multiple licenses from the FDA, regulatory authorities in the EU
and other regulatory authorities. For a discussion of risks
related to our ability to meet our manufacturing needs for our
commercial products and our other products currently in clinical
trials, see “Forward-Looking Information and Risk Factors
That May Affect Future Results — We are Subject to
Risks Related to the Products That We Manufacture,” and
“Forward-Looking Information and Risk Factors That May
Affect Future Results — We Rely to a Large Extent on
Third Parties in the Manufacturing of Our Products.”
Additional manufacturing facilities and outside sources may be
required to meet our long term research, development and
commercial production needs.
Our Employees
As of December 31, 2004, we had 4,266 employees.
Our Executive Officers
The following is a list of our executive officers, their ages as
of March 10, 2005 and their principal positions. Executive
officers are appointed and may be removed by the Board of
Directors. We currently have employment agreements with
Dr. Rastetter and Mr. Mullen.
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
William H. Rastetter, Ph.D.
|
|
|
56 |
|
|
Executive Chairman |
|
James C. Mullen
|
|
|
46 |
|
|
Chief Executive Officer and President |
|
Burt A. Adelman, M.D.
|
|
|
52 |
|
|
Executive Vice President, Development |
|
Anne Marie Cook, Esq.
|
|
|
43 |
|
|
Acting General Counsel |
|
John M. Dunn, Esq.
|
|
|
53 |
|
|
Executive Vice President, New Ventures |
|
Michael Gilman, Ph.D.
|
|
|
49 |
|
|
Executive Vice President, Research |
|
Peter N. Kellogg
|
|
|
48 |
|
|
Executive Vice President, Finance and Chief Financial Officer |
|
Connie L. Matsui
|
|
|
51 |
|
|
Executive Vice President, Corporate Strategy and Communication |
|
Craig E. Schneier, Ph.D.
|
|
|
57 |
|
|
Executive Vice President, Human Resources |
|
Mark C. Wiggins
|
|
|
49 |
|
|
Executive Vice President, Business Development |
22
Reference to “our” or “us” in the following
descriptions of the background of our executive officers include
Biogen Idec and Idec Pharmaceuticals Corporation.
William H. Rastetter, Ph.D. is our Executive
Chairman and has served in that position since the merger in
November 2003. Dr. Rastetter was formerly our Chairman and
Chief Executive Officer. He was appointed Chairman of our Board
of Directors in May 1996. He served as our President and Chief
Executive Officer from December 1986 until January 2002 and
served as our Chief Executive Officer from January 2002 until
November 2003. Dr. Rastetter was also our Chief Financial
Officer from 1988 to 1993. He has served as one of our Directors
since 1986. From 1984 to 1986, Dr. Rastetter was Director
of Corporate Ventures at Genentech. From 1982 to 1984, he served
in a scientific capacity at Genentech, directing the
Biocatalysis and Chemical Sciences groups. From 1975 to 1982,
Dr. Rastetter held various faculty positions at the
Massachusetts Institute of Technology. He received his Ph.D. in
Chemistry from Harvard University in 1975. In addition to his
position at Biogen Idec, Dr. Rastetter serves as Chairman
of the Board of Directors of Illumina, Inc., a company that
develops parallel, miniaturized and flexible biosensors. He also
serves on board of the California Healthcare Institute (CHI),
and is an R. B. Woodward Visiting Scholar of the Department of
Chemistry and Chemical Biology at Harvard University.
James C. Mullen is our Chief Executive Officer and
President and has served in these positions since the merger in
November 2003. Mr. Mullen was formerly Chairman of the
Board and Chief Executive Officer of Biogen, Inc. He was named
Chairman of the Board of Directors of Biogen, Inc. in July 2002,
after being named President and Chief Executive Officer of
Biogen, Inc. in June 2000. Mr. Mullen joined Biogen, Inc.
in 1989 as Director, Facilities and Engineering. He was named
Biogen, Inc.’s Vice President, Operations, in 1992. From
1996 to 1999, Mr. Mullen served as Vice President,
International, with responsibility for building all Biogen, Inc.
operations outside North America. From 1984 to 1988,
Mr. Mullen held various positions at SmithKline Beckman
Corporation (now GlaxoSmithKline plc). He holds a B.S. in
Chemical Engineering from Rensselaer Polytechnic Institute and a
M.B.A. from Villanova University. Mr. Mullen is also a
director of PerkinElmer, Inc., serves on the Board of Directors
of the Biotechnology Industry Organization (BIO) and is
co-chair of Cambridge Family and Children’s Service Capital
Campaign Steering Committee.
Burt A. Adelman, M.D. is our Executive Vice
President, Development and has served in that position since the
merger in November 2003. Dr. Adelman was previously
Executive Vice President, Research and Development at Biogen,
Inc., a position he attained in October 2001. Prior to that, he
served as Vice President of Medical Research from January 1999
to October 2001 and Vice President of Development Operations
from August 1996 to January 1999. He began his career with
Biogen, Inc. in 1991, joining the company as Director of Medical
Research, and has held positions of increasing responsibility
including Vice President, Regulatory Affairs, and Vice
President, Development Operations. In that role he oversaw the
Preclinical Development, Medical Operations and Regulatory
Affairs groups. Since 1992, Dr. Adelman has served as a
lecturer at Harvard Medical School. He is a member of the Board
of Directors for the New England Healthcare Institute and a New
England Division Board of Directors member for the American
Cancer Society.
Anne Marie Cook is our Acting General Counsel.
Ms. Cook has served as Acting General Counsel since March
2005. From November 2003 to March 2005, Ms. Cook served as
our Vice President, Chief Corporate Counsel. Prior to the
merger, Ms. Cook was Vice President, Chief Corporate
Counsel of Biogen, Inc., a position she held from October 2001
to November 2003. Before that, she served as Associate General
Counsel, Chief Corporate Counsel of Biogen, Inc. from June 1999
to October 2001, Associate General Counsel of Biogen, Inc. from
December 1995 to June 1999, and Assistant General Counsel of
Biogen, Inc. from November 1992 to December 1995. Before joining
Biogen, Inc., Ms. Cook was an associate in the corporate
group of Testa, Hurwitz & Thibeault, LLP. She holds a
B.S. from Tufts University and a J.D. from Notre Dame Law School.
John M. Dunn is our Executive Vice President, New
Ventures and has served in that position since the merger in
November 2003. Mr. Dunn was our Senior Vice President,
Legal and Compliance, and General Counsel from January 2002 to
November 2003. Prior to that, he was a partner at the law firm
of Pillsbury Winthrop LLP specializing in corporate and business
representation of public and private companies. Mr. Dunn
received his B.S. and J.D. from the University of Wyoming.
23
Michael Gilman, Ph.D. is our Executive Vice
President, Research and has served in that position since July
2004. Prior to that, Dr. Gilman has been our Senior Vice
President, Research since the merger in November 2003 and served
in that same capacity for Biogen, Inc. from October 2001 until
November 2003. Dr. Gilman previously served as Vice
President — Research of Biogen, Inc. from April 2000
until October 2001. Dr. Gilman joined Biogen, Inc. as
Director of Molecular Biology in 1999 and served in that
capacity until April 2000. Dr. Gilman spent the previous
five years at ARIAD Pharmaceuticals in Cambridge, most recently
as Executive Vice President and Chief Scientific Officer. Prior
to that, Dr. Gilman spent eight years on the scientific
staff of Cold Spring Harbor Laboratory in New York, where his
research focused on mechanisms of signal transduction and gene
regulation. Dr. Gilman holds a Ph.D. in Biochemistry from
University of California, Berkeley, and a S.B. in Life Sciences
from Massachusetts Institute of Technology.
Peter N. Kellogg is our Executive Vice President, Finance
and Chief Financial Officer and has served in that position
since the merger in November 2003. Mr. Kellogg was formerly
Executive Vice President, Finance and Chief Financial Officer of
Biogen, Inc. after serving as Vice President — Finance
and Chief Financial Officer since July 2000. He joined Biogen,
Inc. in 2000 from PepsiCo Inc., where he most recently served as
Senior Vice President, PepsiCo E-Commerce from March to July
2000 and as Senior Vice President and Chief Financial Officer,
Frito-Lay International, from March 1998 to March 2000. From
1987 to 1998, he served in a variety of senior financial,
international and general management positions at PepsiCo and
the Pepsi-Cola International, Pepsi-Cola North America, and
Frito-Lay International divisions. Prior to joining PepsiCo,
Mr. Kellogg was a senior consultant with Arthur
Andersen & Co. and Booz Allen & Hamilton. He
received a B.S.E. from Princeton University and an M.B.A. from
The Wharton School.
Connie L. Matsui is our Executive Vice President,
Corporate Strategy and Communications and has served in that
position since the merger in November 2003. Ms. Matsui was
previously our Senior Vice President, Planning and Resource
Development. She joined us in November 1992 as Senior Director,
Planning and Resource Development with primary responsibility
for strategic planning and human resources. In December 1994,
Ms. Matsui was promoted to Vice President, Planning and
Resource Development. In 2000 Ms. Matsui was promoted to
Senior Vice President, overseeing investor relations, corporate
communications, human resources, project management and
strategic planning. From 1977 to 1991, she served in a variety
of marketing and general management positions at Wells Fargo
Bank, including Vice President and Manager responsible for
Consumer Retirement Programs and Vice President and Manager in
charge of company-wide Employee Relations and Communications.
Ms. Matsui has been active on a number of not-for-profit
boards and served as National President of the Girl Scouts of
the USA from 1999 to 2002. Ms. Matsui received her B.A. and
M.B.A. from Stanford University.
Craig E. Schneier, Ph.D. is our Executive Vice
President, Human Resources and has served in that position since
the merger in November 2003. Dr. Schneier was previously
Executive Vice President, Human Resources of Biogen, Inc., a
position he has held since January 2003. He joined Biogen, Inc.
in 2001 as Senior Vice President, Strategic Organization Design
and Effectiveness, after having served as an external consultant
to the company for eight years. Prior to joining Biogen, Inc.,
Dr. Schneier was president of his own management consulting
firm in Princeton, NJ, where he provided consulting services to
over 70 of the Fortune 100 companies, as well as several of
the largest European and Asian firms. Dr. Schneier held a
tenured professorship at the University of Maryland’s Smith
School of Business and has held teaching positions at the
business schools of the University of Michigan and Columbia
University. He currently teaches at the Tuck School of Business,
Dartmouth College. He holds a Ph.D. in psychology and business
strategy and an M.B.A. from the University of Colorado.
Mark C. Wiggins is our Executive Vice President, Business
Development and has served in that capacity since July 2004.
Prior to that, Mr. Wiggins served as our Senior Vice
President, Business Development from November 2003 to July 2004,
Vice President of Marketing and Business Development from
November 2000 to November 2003, and Vice President of Business
Development from May 1998 to November 2000. From 1986 to 1996 he
held various positions at Schering-Plough, including Director of
Business Development and from 1996 to 1998 he was Vice President
of Business Development and Marketing for Hybridon.
Mr. Wiggins received a B.S. from Syracuse University in
finance and received his M.B.A from the University of Arizona.
24
Forward-Looking Information and Risk Factors That May Affect
Future Results
The SEC encourages public companies to disclose
forward-looking information so that investors can better
understand a company’s future prospects and make informed
investment decisions. In addition to historical information,
this report contains forward-looking statements that involve
risks and uncertainties that could cause actual results to
differ materially from those reflected in such forward-looking
statements. Reference is made in particular to forward-looking
statements regarding the anticipated level of future product
sales, royalty revenues, expenses and profits, the timing of
clinical trials, the potential outcome of clinical programs,
regulatory approvals, our ability to continue development of
TYSABRI and reintroduce TYSABRI into the market, the marketing
of additional products, the impact of competitive products, the
anticipated outcome of pending or anticipated litigation and
patent-related proceedings, the completion and licensure of our
large-scale manufacturing facilities and our ability to meet our
manufacturing needs, and the value of investments in certain
marketable securities. These and all other forward-looking
statements are made based on our current belief as to the
outcome and timing of such future events. Risk factors which
could cause actual results to differ from our expectations and
which could negatively impact our financial condition and
results of operations are discussed below and elsewhere in this
report. Although we believe that the risks described below
represent all material risks currently applicable to our
business, additional risks and uncertainties not presently known
to us or that are currently not believed to be significant to
our business may also affect our actual results and could harm
our business, financial condition and results of operations.
Unless required by law, we do not undertake any obligation to
publicly update any forward-looking statements.
|
|
|
Our Revenues Rely Significantly on a Limited Number of
Products |
Our current and future revenues depend substantially upon
continued sales of our commercial products. Revenues related to
sales of two of our products, AVONEX and RITUXAN, represented
approximately 92% of our total revenues in 2004. See “Our
Products — Approved Indications and Ongoing
Development — AVONEX” and “Our
Products — Approved Indications and Ongoing
Development — RITUXAN.” We cannot assure you that
AVONEX or RITUXAN will continue to be accepted in the
U.S. or in any foreign markets or that sales of either of
these products will not decline in the future. A number of
factors may affect market acceptance of AVONEX, RITUXAN and our
other products, including:
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| |
• |
the perception of physicians and other members of the health
care community of their safety and efficacy relative to that of
competing products; |
| |
| |
• |
patient and physician satisfaction with these products; |
| |
| |
• |
the effectiveness of our sales and marketing efforts and those
of our marketing partners and licensees in the U.S., the EU and
other foreign markets; |
| |
| |
• |
the size of the markets for these products; |
| |
| |
• |
unfavorable publicity concerning these products or similar drugs; |
| |
| |
• |
the introduction, availability and acceptance of competing
treatments; |
| |
| |
• |
the availability and level of third-party reimbursement; |
| |
| |
• |
adverse event information relating to any of these products,
including additional reports or findings of progressive
multifocal leukoencephalopathy, or PML, in patients treated with
TYSABRI; |
| |
| |
• |
changes to product labels to add significant warnings or
restrictions on use; |
| |
| |
• |
the success of ongoing development work on RITUXAN; |
| |
| |
• |
the continued accessibility of third parties to vial, label, and
distribute these products on acceptable terms; |
| |
| |
• |
the unfavorable outcome of patent litigation related to any of
these products; |
| |
| |
• |
the ability to manufacture commercial lots of products
successfully and on a timely basis; and |
25
|
|
|
| |
• |
regulatory developments related to the manufacture or continued
use of these products. |
Any material adverse developments with respect to the
commercialization of these products may cause our revenue to
grow at a slower than expected rate, or even decrease, in the
future.
|
|
|
Safety Issues with TYSABRI Could Significantly Affect our
Growth |
TYSABRI was approved by the FDA in November 2004 to treat
relapsing forms of MS to reduce the frequency of clinical
relapses. In February 2005, in consultation with the FDA, we and
Elan voluntarily suspended the marketing and commercial
distribution of TYSABRI. We also suspended dosing in all
clinical trials of TYSABRI. These decisions were based on
reports of two serious adverse events that occurred in patients
treated with TYSABRI in combination with AVONEX in MS clinical
studies. These events involved two cases of PML, a rare and
frequently fatal, demyelinating disease of the central nervous
system. In light of the two reports of PML, the companies
initiated a systematic review of the TYSABRI safety database. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported by the investigator as malignant
astrocytoma in July 2003. This patient died in December 2003.
The patient had received 8 doses of TYSABRI over an
18 month period and prior medication history included
multiple courses of immunosuppressant agents. We and Elan are
working with clinical investigators to evaluate patients treated
with TYSABRI in clinical studies and consulting with leading
experts to better understand the possible risk of PML. At this
time, we cannot predict the outcome of these evaluations. The
outcome of these evaluations, if unfavorable or inconclusive,
could result in our permanently withdrawing TYSABRI from the
market and terminating clinical studies of TYSABRI or could
result in the need for additional testing, or, if, in
consultation with the FDA, we are allowed to reintroduce TYSABRI
to the market, could result in significantly restricted use with
an ongoing extensive patient risk management program, or with
blackbox or other significant safety warnings in the label. If
the outcome of our evaluations are not satisfactory to
regulatory authorities in the EU, we would likely be required to
withdraw our applications for approval of TYSABRI as a treatment
for MS and Crohn’s disease in the EU. If we are able to
reintroduce TYSABRI to the market, the success of such
reintroduction will depend upon its acceptance by the medical
community and patients, which cannot be certain given questions
regarding its safety raised by these adverse events. Our
inability to return TYSABRI to the market in the U.S. or to
get TYSABRI approved in the EU or any significant restrictions
or warnings on use or lack of acceptance of TYSABRI by the
medical community or patients would materially affect our growth
and impact various aspects of our business and our plans for the
future. This impact could include, among other things, material
write offs of inventory, intangible assets or goodwill,
impairment and sale of capital assets, and could affect our
workforce.
|
|
|
Our Long-Term Success Depends Upon the Successful
Development and Commercialization of Other Products from Our
Research and Development Activities and Collaborations |
Our long-term viability and growth will depend upon the
successful development and commercialization of other products
from our research and development activities and collaborations.
We continue to expand our development efforts related to RITUXAN
and other potential products in our pipeline. The expansion of
our pipeline may include increases in spending on internal
projects, the acquisition of third-party technologies or
products or other types of investments. Product development and
commercialization involve a high degree of risk. Only a small
number of research and development programs result in the
commercialization of a product. Many important factors affect
our ability to successfully develop and commercialize other
products, including the ability to:
|
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| |
• |
obtain and maintain necessary patents and licenses; |
| |
| |
• |
demonstrate safety and efficacy of drug candidates at each stage
of the clinical trial process; |
| |
| |
• |
enroll patients in our clinical trials and complete clinical
trials; |
| |
| |
• |
overcome technical hurdles that may arise; |
26
|
|
|
| |
• |
successful manufacture of products in sufficient quantities to
meet demand; |
| |
| |
• |
meet applicable regulatory standards; |
| |
| |
• |
obtain reimbursement coverage for the products; |
| |
| |
• |
receive required regulatory approvals; |
| |
| |
• |
produce drug candidates in commercial quantities at reasonable
costs; and |
| |
| |
• |
compete successfully against other products and to market
products successfully. |
Success in early stage clinical trials or preclinical work does
not ensure that later stage or larger scale clinical trials will
be successful. Even if later stage clinical trials are
successful, the risk exists that unexpected concerns may arise
from additional data or analysis or that obstacles may arise or
issues be identified in connection with review of clinical data
with regulatory authorities or that regulatory authorities may
disagree with our view of the data or require additional data or
information or additional studies.
|
|
|
Competition in Our Industry and in the Markets for Our
Products is Intensely Competitive |
The biotechnology industry is intensely competitive. We compete
in the marketing and sale of our products, the development of
new products and processes, the acquisition of rights to new
products with commercial potential and the hiring of personnel.
We compete with biotechnology and pharmaceutical companies that
have a greater number of products on the market, greater
financial and other resources and other technological or
competitive advantages. We cannot be certain that one or more of
our competitors will not receive patent protection that
dominates, blocks or adversely affects our product development
or business; will benefit from significantly greater sales and
marketing capabilities; or will not develop products that are
accepted more widely than ours.
AVONEX competes with three other products:
|
|
|
| |
• |
REBIF, which is co-promoted by Serono, Inc. and Pfizer Inc. in
the U.S. and sold by Serono AG in the EU; |
| |
| |
• |
BETASERON, sold by Berlex in the U.S. and sold under the name
BETAFERON by Schering A.G. in the EU; and |
| |
| |
• |
COPAXONE, sold by Teva Neuroscience, Inc. in the U.S. and
co-promoted by Teva and Aventis Pharma in the EU. |
In addition, a number of companies, including us, are working to
develop products to treat MS that may in the future compete with
AVONEX. If we are able to reintroduce TYSABRI to the market, it
would compete with the products listed above, including AVONEX.
AVONEX also faces competition from off-label uses of drugs
approved for other indications. Some of our current competitors
are also working to develop alternative formulations for
delivery of their products, which may in the future compete with
AVONEX
RITUXAN received designation as an Orphan Drug from the FDA for
the treatment of relapsed or refractory low-grade or follicular,
CD20+ B-cell NHLs. Marketing exclusivity resulting from this
Orphan Drug designation expired in November 2004. ZEVALIN
received designation as an Orphan Drug from the FDA for the
treatment of relapsed or refractory low grade, follicular, or
transformed B-cell non-Hodgkin’s lymphoma, including
patients with RITUXAN refractory follicular NHL. Marketing
exclusivity resulting from this Orphan Drug designation expires
in February 2009. RITUXAN is typically used after patients fail
to respond or relapse after treatment with traditional radiation
therapy or standard chemotherapy regimes, such as CVP and CHOP.
ZEVALIN is typically used after patients fail to respond or
relapse following treatment with RITUXAN. ZEVALIN competes with
BEXXAR, a radiolabeled molecule developed by Corixa Corporation
which is now being developed and commercialized by
GlaxoSmithKline. BEXXAR received FDA approval in June 2003 to
treat patients with CD20+, follicular, NHL, with and without
transformation, whose disease is refractory to RITUXAN and has
relapsed following chemotherapy. A number of other
27
companies, including us, are working to develop products to
treat B-cell NHLs and other forms of non-Hodgkin’s lymphoma
that may ultimately compete with RITUXAN and ZEVALIN.
AMEVIVE competes with several different types of therapies
including:
|
|
|
| |
• |
traditional therapies for moderate-to-severe chronic plaque
psoriasis, such as oral retinoids, steroids, methotrexate,
cyclosporin, PUVA and UVB radiation. |
| |
| |
• |
RAPTIVA, a drug co-developed by Genentech and Xoma Corporation
that was approved by the FDA in November 2003 to treat
moderate-to-severe psoriasis. |
| |
| |
• |
ENBREL, a drug sold by Amgen, Inc. and Wyeth Pharmaceuticals,
Inc. that was approved by the FDA to treat moderate-to-severe
psoriasis in April 2004. |
| |
| |
• |
drugs approved for other indications that are used to treat
psoriasis. Among these drugs are REMICADE and HUMIRA. REMICADE,
which is sold worldwide by Centocor, Inc., a subsidiary of
Johnson & Johnson, as a treatment for other
indications, including RA, is currently in clinical studies as a
potential treatment for psoriasis. HUMIRA, which is sold by
Abbott is approved to treat RA. Abbott is undertaking clinical
trials of HUMIRA in psoriasis and psoriatic arthritis. |
In addition, a number of other companies, including us, are
working to develop products to treat psoriasis that may
ultimately compete with AMEVIVE.
|
|
|
We are Subject to Risks Related to the Products that We
Manufacture |
We manufacture and expect to continue to manufacture our own
commercial requirements of bulk AVONEX, AMEVIVE, TYSABRI and the
ZEVALIN bulk antibody. Our inability to successfully manufacture
bulk product and to maintain regulatory approvals of our
manufacturing facilities would harm our ability to timely
produce sufficient quantities of commercial supplies of AVONEX,
AMEVIVE, TYSABRI and ZEVALIN to meet demand. Problems with
manufacturing processes could result in product defects or
manufacturing failures, which could require us to delay shipment
of products or recall products previously shipped, or could
impair our ability to expand into new markets or supply products
in existing markets. Any such problem would be exacerbated by
unexpected demand for our products. We anticipate commissioning
and validation of our large-scale manufacturing facility in
Oceanside, California to continue through 2005 and expect the
facility to be licensed for use in 2006. In addition, we
initiated construction of a large-scale manufacturing facility
in Hillerod, Denmark during 2004 and expect it to be licensed in
2008. The timing of the anticipated licensing of the Oceanside
facility and the Hillerod facility is dependent upon the
commercial availability and potential market acceptance of
TYSABRI. See “Our Products — Approved Indications
and Ongoing Development — TYSABRI,” and
“Forward-Looking Information and Risk Factors That May
Affect Future Results — Safety Issues with TYSABRI
Could Significantly Affect our Growth.” If TYSABRI is
permanently withdrawn from the market, we would need to evaluate
our long-term plans for these facilities. If we are able to
reintroduce TYSABRI to the market, we would need to evaluate our
requirements for existing inventory and additional manufacturing
capacity in light of the approved label and our judgment of the
potential U.S. market acceptance of TYSABRI in MS, the
probability of obtaining marketing approval of TYSABRI in MS in
the EU and other jurisdictions, and the probability of obtaining
marketing approval of TYSABRI in additional indications in the
U.S., EU and other jurisdictions.
If we cannot produce sufficient commercial requirements of bulk
product of our products to meet demand, we would need to rely on
third-party manufacturers, of which there are only a limited
number capable of manufacturing bulk products as contract
suppliers. We cannot be certain that we could reach agreement on
reasonable terms, if at all, with those manufacturers. Even if
we were to reach agreement, the transition of the manufacturing
process to a third party to enable commercial supplies could
take a significant amount of time. Our ability to supply
products in sufficient capacity to meet demand is also dependent
upon third party contractors to fill-finish, package and store
such products. For a discussion of the risks associated with
using third parties to perform manufacturing-related services
for our products, see “Forward-Looking Information and Risk
Factors That May Affect Future Results — We Rely to a
Large Extent on Third Parties in the Manufacturing of Our
Products.” In the past, we have had to write down and incur
other charges and
28
expenses for products that failed to meet specifications.
Similar charges may occur in the future. Any prolonged
interruption in the operations of our existing manufacturing
facilities could result in cancellations of shipments or loss of
product in the process of being manufactured. Because our
manufacturing processes are highly complex and are subject to a
lengthy FDA approval process, alternative qualified production
capacity may not be available on a timely basis or at all.
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We Rely to a Large Extent on Third Parties in the
Manufacturing of Our Products |
We rely on Genentech for all RITUXAN manufacturing. Genentech
relies on a third party to manufacture certain bulk RITUXAN
requirements. If Genentech or any third party upon which it
relies does not manufacture or fill/finish RITUXAN in sufficient
quantities and on a timely and cost-effective basis or if
Genentech or any third party does not obtain and maintain all
required manufacturing approvals, our business could be harmed.
We also rely heavily upon third-party manufacturers and
suppliers to manufacture and supply significant portions of the
product components of ZEVALIN other than the bulk antibody,
including chelates necessary for the ZEVALIN therapeutic regimen
and the radioisotope yttrium-90 and the indium-111 isotope used
with the therapeutic and imaging kits of ZEVALIN, respectively.
The radioisotope yttrium-90 is only available from a limited
number of suppliers. We made MDS (Canada) our exclusive supplier
of the radioisotope yttrium-90 used with ZEVALIN. MDS (Canada)
is the only manufacturer of the radioisotope yttrium-90 used
with ZEVALIN approved by the FDA. If we were to lose the
services of MDS (Canada) or our third party manufacturers of
chelates, we would be forced to find other third party
providers, which could delay our ability to manufacture and sell
ZEVALIN. In addition, radiopharmacies independently purchase the
indium-111 isotope required for the imaging use of ZEVALIN.
Currently, only two suppliers are approved by the FDA to supply
the indium-111 isotope. Our inability to find replacement
suppliers for materials used in our marketed products and our
primary product candidates that are available only from a single
supplier or a limited number of suppliers could significantly
impair our ability to sell our products.
We also source all of our fill-finish and the majority of our
final product storage operations, along with a substantial
portion of our packaging operations of the components used with
our products, to a concentrated group of third party
contractors. The manufacture of products and product components,
fill-finish, packaging and storage of our products require
successful coordination among ourselves and multiple third-party
providers. Our inability to coordinate these efforts, the lack
of capacity available at the third party contractor or any other
problems with the operations of these third party contractors
could require us to delay shipment of saleable products, recall
products previously shipped or could impair our ability to
supply products at all. This could increase our costs, cause us
to lose revenue or market share and damage our reputation. Any
third party we use to fill-finish, package or store our products
to be sold in the U.S. must be licensed by the FDA. As a
result, alternative third party providers may not be readily
available on a timely basis.
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The Manufacture of Our Products is Subject to Government
Regulation |
We and our third party providers are generally required to
maintain compliance with current Good Manufacturing Practice, or
cGMP, and are subject to inspections by the FDA or comparable
agencies in other jurisdictions to confirm this compliance. Any
changes of suppliers or modifications of methods of
manufacturing require amending our application to the FDA and
ultimate amendment acceptance by the FDA prior to release of
product to the market place. Our inability or the inability of
our third party service providers to demonstrate ongoing cGMP
compliance could require us to withdraw or recall product and
interrupt commercial supply of our products. Any delay,
interruption or other issues that arise in the manufacture,
fill-finish, packaging, or storage of our products as a result
of a failure of our facilities or the facilities or operations
of third parties to pass any regulatory agency inspection could
significantly impair our ability to develop and commercialize
our products. This could increase our costs, cause us to lose
revenue or market share and damage our reputation.
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Royalty Revenues Contribute to Our Overall Profitability
and Are Not Within Our Control |
Royalty revenues contribute to our overall profitability.
Royalty revenues may fluctuate as a result of disputes with
licensees, collaborators and partners, future patent expirations
and other factors such as pricing
29
reforms, health care reform initiatives, other legal and
regulatory developments and the introduction of competitive
products that may have an impact on product sales by our
licensees and partners. In addition, sales levels of products
sold by our licensees, collaborators and partners may fluctuate
from quarter to quarter due to the timing and extent of major
events such as new indication approvals or government-sponsored
programs. Since we are not involved in the development or sale
of products by our licensees, collaborators and partners, we
cannot be certain of the timing or potential impact of factors
which may affect their sales. In addition, the obligation of
licensees to pay us royalties generally terminates upon
expiration of the related patents. For a further discussion of
future patent expirations affecting certain royalty revenues,
see “Principal Licensed Products” and “Patents
and Other Proprietary Rights.”
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Our Operating Results Are Subject to Significant
Fluctuations |
Our quarterly revenues, expenses and operating results have
fluctuated in the past and are likely to fluctuate significantly
in the future. Fluctuation may result from a variety of factors,
including:
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demand and pricing for our products; |
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physician and patient acceptance of our products; |
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amount and timing of sales orders for our products; |
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our achievement of product development objectives and milestones; |
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research and development and manufacturing expenses; |
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clinical trial enrollment and expenses; |
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our manufacturing performance and capacity and that of our
partners; |
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percentage of time that our manufacturing facilities are
utilized for commercial versus clinical manufacturing; |
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rate and success of product approvals; |
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costs related to obtain product approvals, launching new
products and maintaining market acceptance for existing products; |
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timing of regulatory approval, if any, of competitive products
and the rate of market penetration of competing products; |
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new data or information, positive or negative, on the benefits
and risks of our products or products under development; |
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expenses related to protecting our intellectual property; |
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expenses related to litigation and settlement of litigation; |
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payments made to acquire new products or technology; |
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write-downs and write offs of inventories, intangible assets,
goodwill or investments; |
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impairment of assets, such as buildings and manufacturing
facilities; |
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government or private healthcare reimbursement policies; |
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collaboration obligations and copromotion payments we make or
receive; |
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timing and nature of contract manufacturing and contract
research and development payments and receipts; |
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interest rate fluctuations; |
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foreign currency exchange rates; and |
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overall economic conditions. |
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Our operating results during any one quarter do not necessarily
suggest the anticipated results of future quarters.
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Our Sales Depend on Payment and Reimbursement from
Third-Party Payors, and a Reduction in Payment Rate or
Reimbursement Could Result in Decreased Use or Sales of Our
Products. |
In both domestic and foreign markets, sales of our products are
dependent, in part, on the availability of reimbursement from
third-party payors such as state and federal governments, under
programs such as Medicare and Medicaid in the U.S., and private
insurance plans. In certain foreign markets, the pricing and
profitability of our products generally are subject to
government controls. In the U.S., there have been, there are,
and we expect there will continue to be, a number of state and
federal proposals that could limit the amount that state or
federal governments will pay to reimburse the cost of
pharmaceutical and biologic products. Recent Medicare reforms
have lowered the reimbursement rate for many of our products. We
are not able to predict the full impact of these reforms and its
regulatory requirements on our business. However, we believe
that legislation that reduces reimbursement for our products
could adversely impact our business. In addition, we believe
that private insurers, such as managed care organizations, may
adopt their own reimbursement reductions in response to such
legislation. Reduction in reimbursement for our products could
have a material adverse effect on our results of operations.
Also, we believe the increasing emphasis on managed care in the
U.S. has and will continue to put pressure on the price and
usage of our products, which may adversely impact product sales.
Further, when a new therapeutic product is approved, the
availability of governmental and/or private reimbursement for
that product is uncertain, as is the amount for which that
product will be reimbursed. We cannot predict the availability
or amount of reimbursement for our approved products or product
candidates, including those at a late stage of development, and
current reimbursement policies for marketed products may change
at any time.
Recent Medicare reforms also added a prescription drug
reimbursement beginning in 2006 for all Medicare beneficiaries.
In the meantime, a temporary drug discount card program is being
established for Medicare beneficiaries. The federal government,
through its purchasing power under these programs, is likely to
demand discounts from pharmaceutical and biotechnology companies
that may implicitly create price controls on prescription drugs.
On the other hand, the drug benefit may increase the volume of
pharmaceutical drug purchases, offsetting at least in part these
potential price discounts. In addition, Managed Care
Organizations, or MCOs, Health Maintenance Organizations, or
HMOs, Preferred Provider Organizations, or PPOs, institutions
and other government agencies continue to seek price discounts.
MCOs, HMOs and PPOs and private health plans will administer the
Medicare drug benefit, leading to managed care and private
health plans influencing prescription decisions for a larger
segment of the population. In addition, certain states have
proposed and certain other states have adopted various programs
to control prices for their seniors’ and low income drug
programs, including price or patient reimbursement constraints,
restrictions on access to certain products, importation from
other countries, such as Canada, and bulk purchasing of drugs.
If reimbursement for our marketed products changes adversely or
if we fail to obtain adequate reimbursement for our other
current or future products, health care providers may limit how
much or under what circumstances they will prescribe or
administer them, which could reduce the use of our products or
cause us to reduce the price of our products.
In 2003, Congress revised the statutory provisions governing
Medicare payment for drugs and biologicals furnished in hospital
outpatient departments, including many of our products. These
revisions included a transitional change to the payment
methodology in 2004 and 2005, which has lowered payment rates
for our products in these years. The methodology will change in
2006, when the statute provides that rates are to be set based
on hospital acquisition cost surveys, or some other means if
survey data are not available. Some of our products, such as
RITUXAN, are not frequently provided in hospital outpatient
departments such that the majority of patients receiving the
products should not be affected by the rates for 2005. Other
products, such as ZEVALIN, are used primarily in the hospital
outpatient setting and we are uncertain as to whether hospitals
will view the 2005 rates favorably and therefore choose to
provide ZEVALIN to their patients.
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We encounter similar regulatory and legislative issues in most
other countries. In the EU and some other international markets,
the government provides health care at low direct cost to
consumers and regulates pharmaceutical prices or patient
reimbursement levels to control costs for the
government-sponsored health care system. This international
patchwork of price regulation may lead to inconsistent prices
and some third-party trade in our products from markets with
lower prices. Such trade exploiting price differences between
countries could undermine our sales in markets with higher
prices.
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We May Be Unable to Adequately Protect or Enforce Our
Intellectual Property Rights or Secure Rights to Third-Party
Patents |
We have filed numerous patent applications in the U.S. and
various other countries seeking protection of inventions
originating from our research and development, including a
number of our processes and products. Patents have been issued
on many of these applications. We have also obtained rights to
various patents and patent applications under licenses with
third parties, which provide for the payment of royalties by us.
The ultimate degree of patent protection that will be afforded
to biotechnology products and processes, including ours, in the
U.S. and in other important markets remains uncertain and is
dependent upon the scope of protection decided upon by the
patent offices, courts and lawmakers in these countries. There
is no certainty that our existing patents or others, if
obtained, will afford us substantial protection or commercial
benefit. Similarly, there is no assurance that our pending
patent applications or patent applications licensed from third
parties will ultimately be granted as patents or that those
patents that have been issued or are issued in the future will
prevail if they are challenged in court.
A substantial number of patents have already been issued to
other biotechnology and biopharmaceutical companies. Competitors
may have filed applications for, or have been issued patents and
may obtain additional patents and proprietary rights that may
relate to products or processes competitive with or similar to
our products and processes. Moreover, the patent laws of the
U.S. and foreign countries are distinct and decisions as to
patenting, validity of patents and infringement of patents may
be resolved differently in different countries. In general, we
obtain licenses to third party patents, which we deem necessary
or desirable for the manufacture, use and sale of our products.
We are currently unable to assess the extent to which we may
wish or be required to acquire rights under such patents and the
availability and cost of acquiring such rights, or whether a
license to such patents will be available on acceptable terms or
at all. There may be patents in the U.S. or in foreign
countries or patents issued in the future that are unavailable
to license on acceptable terms. Our inability to obtain such
licenses may hinder our ability to market our products.
We are aware that others, including various universities and
companies working in the biotechnology field, have filed patent
applications and have been granted patents in the U.S. and in
other countries claiming subject matter potentially useful to
our business. Some of those patents and patent applications
claim only specific products or methods of making such products,
while others claim more general processes or techniques useful
or now used in the biotechnology industry. There is considerable
uncertainty within the biotechnology industry about the
validity, scope and enforceability of many issued patents in the
U.S. and elsewhere in the world, and, to date, there is no
consistent policy regarding the breadth of claims allowed in
biotechnology patents. We cannot currently determine the
ultimate scope and validity of patents which may be granted to
third parties in the future or which patents might be asserted
to be infringed by the manufacture, use and sale of our products
There has been, and we expect that there may continue to be
significant litigation in the industry regarding patents and
other intellectual property rights. Litigation, including our
current patent litigation with Columbia University and Classen
Immunotherapies, and other proceedings concerning patents and
other intellectual property rights may be protracted, expensive
and distracting to management. Competitors may sue us as a way
of delaying the introduction of our products. Any litigation,
including any interference proceedings to determine priority of
inventions, oppositions to patents in foreign countries or
litigation against our partners, may be costly and time
consuming and could harm our business. We expect that litigation
may be necessary in some instances to determine the validity and
scope of certain of our proprietary rights. Litigation may be
necessary in other instances to determine the validity, scope
and/or noninfringement of certain patent rights claimed by third
parties to be pertinent to the manufacture, use or sale of our
products. Ultimately, the
32
outcome of such litigation could adversely affect the validity
and scope of our patent or other proprietary rights, or,
conversely, hinder our ability to market our products. See
“Item 3 — Legal Proceedings” for a
description of litigation regarding our patents and other
proprietary rights.
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Legislative or Regulatory Changes Could Harm Our
Business |
Our business is subject to extensive government regulation and
oversight. As a result, we may become subject to governmental
actions which could adversely affect our business, operations or
financial condition, including:
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new laws, regulations or judicial decisions, or new
interpretations of existing laws, regulations or decisions,
related to health care availability, method of delivery and
payment for health care products and services; |
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changes in the FDA and foreign regulatory approval processes
that may delay or prevent the approval of new products and
result in lost market opportunity; |
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new laws, regulations and judicial decisions affecting pricing
or marketing; and |
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changes in the tax laws relating to our operations. |
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Failure to Comply with Government Regulations Regarding
Our Products Could Harm Our Business |
Our activities, including the sale and marketing of our
products, are subject to extensive government regulation and
oversight, including regulation under the federal Food, Drug and
Cosmetic Act and other federal and state statutes.
Pharmaceutical and biotechnology companies have been the target
of lawsuits and investigations alleging violations of government
regulation, including claims asserting antitrust violations,
violations of the Federal False Claim Act, Anti-Kickback Act,
the Prescription Drug Marketing Act or other violations in
connection with Medicare and/or Medicaid reimbursement or
related to environmental matters and claims under state laws,
including state anti-kickback and fraud laws. For example, we
and a number of other major pharmaceutical and biotechnology
companies are named defendants in certain Average Wholesale
Price litigation pending in the U.S. District Court for the
District of Massachusetts alleging, among other things,
violations in connection with Medicaid reimbursement. See
“Item 3 — Legal Proceedings” for a
description of this litigation.
Violations of governmental regulation may be punishable by
criminal and civil sanctions, including fines and civil monetary
penalties, as well as the possibility of exclusion from federal
healthcare programs (including Medicare and Medicaid). We cannot
predict with certainty the eventual outcome of any pending
litigation. If we were to be convicted of violating laws
regulating the sale and marketing of our products in the current
proceedings or in new lawsuits or claims brought against us, our
business could be materially harmed.
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Failure to Prevail in Litigation or Satisfactorily Resolve
a Third Party Investigation Could Harm Our Business |
Pharmaceutical and biotechnology companies have been the target
of lawsuits relating to product liability claims and disputes
over intellectual property rights (including patents). See
“Forward-Looking Information and Risk Factors That May
Affect Future Results — We May Be Unable to Adequately
Protect or Enforce Our Intellectual Property Rights or Secure
Rights to Third-Party Patents.” Additionally, the
administration of drugs in humans, whether in clinical studies
or commercially, can result in product liability claims whether
or not the drugs are actually at fault in causing an injury. Our
products or product candidates may cause, or may appear to have
caused, injury or dangerous drug interactions that we may not
learn about or understand until the product or product candidate
has been administered to patients for a prolonged period of
time. For example, we may face product liability claims by
patients treated with TYSABRI that have developed PML, a rare
and frequently fatal, demyelinating disease of the central
nervous system, while using TYSABRI, whether or not TYSABRI is
at fault in causing the disease.
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Public companies may also be the subject of certain other types
of claims, including those asserting violations of securities
laws and derivative actions. For example, we face several
stockholder-derivative actions and class action lawsuits related
to our announcement of the suspension of marketing and
commercial distribution of TYSABRI. See
“Item 3 — Legal Proceedings” for a
description of these matters. In addition, we are providing the
SEC with information in connection with the SEC’s informal
inquiry into the suspension of marketing and commercial
distribution of TYSABRI and trading in our securities by certain
of our directors, officers and employees.
We cannot predict with certainty the eventual outcome of any
pending litigation or third-party inquiry. We may not be
successful in defending ourselves or asserting our rights in the
litigation or informal inquiry to which we are currently
subject, or in new lawsuits, investigations or claims brought
against us, and, as a result, our business could be materially
harmed. These lawsuits, investigations or claims may result in
large judgments or settlements against us, any of which could
have a negative effect on our financial performance and
business. Additionally, lawsuits and investigations can be
expensive to defend, whether or not the lawsuit or investigation
has merit, and the defense of these actions may divert the
attention of our management and other resources that would
otherwise be engaged in running our business.
We maintain product liability and director and officer insurance
that we regard as reasonably adequate to protect us from
potential claims, however we cannot assure you that it will.
Also, the costs of insurance have increased dramatically in
recent years, and the availability of coverage has decreased. As
a result, we cannot assure you that we will be able to maintain
its current product liability insurance at a reasonable cost, or
at all.
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Our Business Involves Environmental Risks |
Our business and the business of several of our strategic
partners, including Genentech and Elan, involve the controlled
use of hazardous materials, chemicals, biologics and radioactive
compounds. Biologics manufacturing is extremely susceptible to
product loss due to microbial or viral contamination, material
equipment failure, or vendor or operator error. Although we
believe that our safety procedures for handling and disposing of
such materials comply with state and federal standards, there
will always be the risk of accidental contamination or injury.
In addition, microbial or viral contamination may cause the
closure of a manufacturing facility for an extended period of
time. By law, radioactive materials may only be disposed of at
state-approved facilities. We currently store radioactive
materials from our California operation on-site because the
approval of a disposal site in California for all
California-based companies has been delayed indefinitely. If and
when a disposal site is approved, we may incur substantial costs
related to the disposal of these materials. If we were to become
liable for an accident, or if we were to suffer an extended
facility shutdown, we could incur significant costs, damages and
penalties that could harm our business.
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We Rely Upon Key Personnel |
Our success will depend, to a great extent, upon the experience,
abilities and continued services of our executive officers and
key scientific personnel. If we lose the services of any of
these individuals, our business could be harmed. We currently
have employment agreements with William H.
Rastetter, Ph.D., our Executive Chairman, and James C.
Mullen, our Chief Executive Officer and President. Our success
also will depend upon our ability to attract and retain other
highly qualified scientific, managerial, sales and manufacturing
personnel and our ability to develop and maintain relationships
with qualified clinical researchers. Competition to obtain the
services of these personnel and relationships is intense and we
compete with numerous pharmaceutical and biotechnology companies
as well as with universities and non-profit research
organizations. We may not be able to continue to attract and
retain qualified personnel or develop and maintain relationships
with clinical researchers.
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Future Transactions May Harm Our Business or the Market
Price of Our Stock |
We regularly review potential transactions related to
technologies, products or product rights and businesses
complementary to our business. These transactions could include:
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mergers; |
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acquisitions; |
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strategic alliances; |
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licensing agreements; and |
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copromotion agreements. |
We may choose to enter into one or more of these transactions at
any time, which may cause substantial fluctuations to the market
price of our stock. Moreover, depending upon the nature of any
transaction, we may experience a charge to earnings, which could
also harm the market price of our stock.
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We are Subject to Market Risk |
We have exposure to financial risk in several areas including
changes in foreign exchange rates and interest rates. We attempt
to minimize our exposures by using certain financial
instruments, for purposes other than trading, in accordance with
our overall risk management guidelines. See “Critical
Accounting Estimates” in “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” for information regarding our accounting
policies for financial instruments and disclosures of financial
instruments.
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Our Financial Position, Results of Operations and Cash
Flows can be Affected by Fluctuations in Foreign Currency
Exchange Rates |
We have operations in Europe, Japan, Australia and Canada in
connection with the sale of AVONEX. We also receive royalty
revenues based on worldwide product sales by our licensees and
through Genentech on sales of RITUXAN outside of the U.S.. As a
result, our financial position, results of operations and cash
flows can be affected by fluctuations in foreign currency
exchange rates (primarily Euro, Swedish krona, British pound,
Japanese yen, Canadian dollar and Swiss franc).
We use foreign currency forward contracts to manage foreign
currency risk and do not engage in currency speculation. We use
these forward contracts to hedge certain forecasted transactions
denominated in foreign currencies. A hypothetical adverse 10%
movement in foreign exchange rates compared to the
U.S. dollar across all maturities (for example, a
strengthening of the Euro) would result in a hypothetical loss
in fair value of approximately $35 million. Our use of this
methodology to quantify the market risk of such instruments
should not be construed as an endorsement of its accuracy or the
accuracy of the related assumptions. The quantitative
information about market risk is necessarily limited because it
does not take into account operating transactions.
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We are Exposed to Risk of Interest Rate
Fluctuations |
The fair value of our cash, cash equivalents and marketable
securities are subject to change as a result of potential
changes in market interest rates. The potential change in fair
value for interest rate sensitive instruments has been assessed
on a hypothetical 100 basis point adverse movement across
all maturities. We estimate that such hypothetical adverse
100 basis point movement would not have materially impacted
net income or materially affected the fair value of interest
rate sensitive instruments.
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Volatility of Our Stock Price |
The market prices for our common stock and for securities of
other companies engaged primarily in biotechnology and
pharmaceutical development, manufacture and distribution are
highly volatile. For example, the closing selling price of our
common stock fluctuated between $36.94 per share and
$67.92 per share during 2004, and between $37.53 per
share and $67.80 per share from January 3, 2005 and
March 15,
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2005. The market price of our common stock likely will continue
to fluctuate due to a variety of factors, including:
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material public announcements; |
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the announcement and timing of new product introductions by us
or others; |
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material developments relating to TYSABRI, including the outcome
of our evaluations of the risk of PML in patients treated with
TYSABRI; |
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events related to our products or those of our competitors,
including the withdrawal or suspension of products from the
market; |
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technical innovations or product development by us or our
competitors; |
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regulatory approvals or regulatory issues; |
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availability and level of third-party reimbursement; |
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developments relating to patents, proprietary rights and orphan
drug status; |
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results of late-stage clinical trials with respect to our
products under development or those of our competitors; |
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new data or information, positive or negative, on the benefits
and risks of our products or products under development; |
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political developments or proposed legislation in the
pharmaceutical or healthcare industry; |
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economic and other external factors, disaster or crisis; |
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hedge and/or arbitrage activities by holders of our convertible
promissory notes; |
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period-to-period fluctuations in our financial results or
results which do not meet or exceed analyst
expectations; and |
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market trends relating to or affecting stock prices throughout
our industry, whether or not related to results or news
regarding us or our competitors. |
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Our Outstanding Convertible Promissory Notes Leverage
Us Considerably |
As a result of issuing our subordinated notes due 2019 in
February 1999 and issuing our senior notes due 2032 in April and
May 2002, we incurred indebtedness of approximately
$345.0 million at maturity in 2019 and approximately
$1.2 billion at maturity in 2032. As of December 31,
2004, our remaining indebtedness under the subordinated notes
was approximately $219.2 million at maturity, due to
conversion of subordinated notes into common stock in accordance
with the conversion features of the notes. Holders of the
subordinated notes may require us to purchase all or a portion
of the notes on February 16, 2009 and 2014 at a price equal
to the issue price plus the accrued original issue discount to
the date of purchase, payable at our option in cash, common
stock or a combination of cash and stock. Holders of the senior
notes may require us to purchase all or a portion of the notes
in cash on April 29, 2005, 2007, 2012 and 2017 at a price
equal to the issue price plus the accrued original issue
discount to the date of purchase. The aggregate purchase price
of our outstanding senior notes on April 29, 2005 is
approximately $753 million. Based on the range of stock
prices since the announcement of the suspension of the marketing
and commercial distribution of TYSABRI on February 28,
2005, it is highly probable that we will be required to
repurchase all or a substantial portion of the senior notes on
April 29, 2005.
The degree to which we are leveraged could harm our ability to
obtain future financing and could make us more vulnerable to
industry downturns and competitive pressures. Our ability to
meet our debt obligations will be dependent upon our future
performance, which will be subject to financial, business and
other factors affecting our operations, many of which are beyond
our control.
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We Have Adopted Several Anti-takeover Measures As Well As
Other Measures to Protect Certain Members of Our Management
Which May Discourage or Prevent a Third Party From Acquiring
Us |
A number of factors pertaining to our corporate governance
discourage a takeover attempt that might be viewed as beneficial
to stockholders who wish to receive a premium for their shares
from a potential bidder. For example:
|
|
|
| |
• |
we are subject to Section 203 of the Delaware General
Corporation Law, which provides that we may not enter into a
business combination with an interested stockholder for a period
of three years after the date of the transaction in which the
person became an interested stockholder, unless the business
combination is approved in the manner prescribed in
Section 203; |
| |
| |
• |
our stockholder rights plan is designed to cause substantial
dilution to a person who attempts to acquire us on terms not
approved by our board of directors; |
| |
| |
• |
our board of directors has the authority to issue, without vote
or action of stockholders, up to 8,000,000 shares of
preferred stock and to fix the price, rights, preferences and
privileges of those shares, each of which could be superior to
the rights of holders of common stock; |
| |
| |
• |
our collaboration agreement with Genentech provides Genentech
with the option to buy the rights to RITUXAN and retain control
of any additional anti-CD20 products developed under the
collaboration in the event that we undergo a change of control,
which may limit our attractiveness to potential acquirors; |
| |
| |
• |
our collaboration agreement with Elan provides Elan with the
option to buy the rights to TYSABRI in the event that we undergo
a change of control, which may limit our attractiveness to
potential acquirors; |
| |
| |
• |
under the terms of our senior notes we would be required to
repurchase the notes for cash if we undergo a change of control
before 2007; |
| |
| |
• |
our directors are elected to staggered terms, which prevents the
entire board from being replaced in any single year; and |
| |
| |
• |
our bylaws provide that, until November 12, 2006, the
affirmative vote of at least 80% of our board of directors
(excluding directors who are serving as an officer or employee)
will be required to remove William H. Rastetter, Ph.D. from
his position as our Executive Chairman and to remove James C.
Mullen as our Chief Executive Officer and President. |
Our principal executive offices are located in Cambridge,
Massachusetts. In Cambridge, we own approximately
537,292 square feet of real estate space, consisting of a
150,000 square foot building that houses laboratory and
office space; an approximately 259,000 square foot building
that primarily contains research and development and process
development operations; and two other buildings, consisting of
an aggregate of approximately 128,292 square feet, which
primarily contain laboratories, purification, aseptic bottling
facilities, office space, and 6,130 square feet which we
lease to a third party under a lease which expires in 2008. We
have also started construction of an approximately
96,500 square foot building that will primarily house
laboratory and office space. We also have development options
for additional property in Cambridge. We lease a total of
approximately 415,900 square feet, consisting of additional
office, manufacturing, and research and development space, in
all or part of five other buildings in Cambridge. One of the
leases expired on December 31, 2004. We are leasing this
space on a month-to-month basis while we negotiate a new lease.
The lease expiration dates for the other leased sites range from
2005 to 2015.
37
|
|
|
San Diego and Oceanside, California |
We also own approximately 42.6 acres of land in
San Diego, California. In September 2004, we opened our new
research and corporate campus on this property. The campus
consists of five interconnected buildings and substantially all
of our San Diego employees now work at this campus. The
transition of our San Diego employees from our four leased
sites in San Diego to this new campus was completed in
October 2004. We have sublet or are in the process of subletting
the vacated lease sites for which we have outstanding
obligations. We also own approximately 90 acres of land in
Oceanside, California where we have completed construction of a
large-scale manufacturing facility, and obtained the certificate
of occupancy in the fourth quarter of 2004. Commissioning and
validation is expected to continue through 2005. We expect the
facility to be licensed for use in 2006. We discontinued
operations at our Oceanside pilot manufacturing facility in July
2004. For a discussion of the potential impact of the suspension
of TYSABRI on our plans for the Oceanside large-scale
manufacturing facility and the Hillerod, Denmark large-scale
manufacturing facility discussed below, see
“Forward-Looking Information and Risk Factors That May
Affect Future Results — We are Subject to Risks
Related to the Products That We Manufacture.”
|
|
|
Research Triangle Park, North Carolina |
We own a 108,000 square foot biologics manufacturing
facility, a 232,000 square foot large scale manufacturing
plant and a second large scale purification facility of
42,000 square feet, and a 150,000 square foot
laboratory office building in Research Triangle Park, North
Carolina. We manufacture bulk AVONEX at the biologics
manufacturing facility. We manufacture bulk AMEVIVE and TYSABRI
at the large-scale manufacturing facility. We plan to use this
facility to manufacture other products in our pipeline. We are
continuing further expansion in Research Triangle Park with
ongoing construction of several projects to increase our
manufacturing flexibility, including the construction of a
clinical aseptic fill-finish facility.
We lease office space in Zug, Switzerland, our international
headquarters, the United Kingdom, Germany, Austria, France,
Belgium, Spain, Portugal, Denmark, Sweden, Finland, Norway,
Japan, Australia and Canada. In addition, we lease approximately
29,200 square feet of real estate in Hoopddorf, The
Netherlands, which consists of office space, a storage facility,
a packaging facility where we perform some of our AVONEX
packaging operations, and quality control operations. We also
lease 9,015 square meters of real estate space in Lijnden
in the Netherlands consisting of office space and warehouse
space. In addition, we own approximately 60 acres of
property in Hillerod, Denmark. We recently re-started
construction of a large-scale manufacturing facility at the
Hillerod site.
|
|
| Item 3. |
Legal Proceedings. |
On March 2, 2005, we, along with William H. Rastetter, our
Executive Chairman, and James C. Mullen, our Chief Executive
Officer, were named as defendants in a purported class action
lawsuit, captioned Brown v. Biogen Idec Inc., et al.,
filed in the U.S. District Court for the District of
Massachusetts. The complaint alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. The action is
purportedly brought on behalf of all purchasers of our
publicly-traded securities between February 18, 2004 and
February 25, 2005. The plaintiff alleges that the
defendants made materially false and misleading statements
regarding potentially serious side effects of TYSABRI in order
to gain accelerated approval from the FDA for the product’s
distribution and sale. The plaintiff alleges that these
materially false and misleading statements harmed the purported
class by artificially inflating our stock price during the
purported class period and that company insiders benefited
personally from the inflated price by selling our stock. The
plaintiff seeks unspecified damages, as well as interest, cost
and attorneys’ fees. A substantially similar action,
captioned Grill v. Biogen Idec Inc., et al., was filed
on March 10, 2005 in the same court by another purported
class representative. We believe that the actions are without
merit and intend to contest them vigorously. At this stage of
litigation, we cannot make any estimate of a potential loss or
range of loss.
38
On March 4, 2005, a purported shareholder derivative
action, captioned Halpern v. Rastetter, et al., was
filed in the Court of Chancery for the State of Delaware, in New
Castle County, on our behalf of Biogen Idec Inc., against us as
nominal defendant, our Board of Directors and our former general
counsel. The plaintiff derivatively claims breaches of fiduciary
duty by our Board of Directors for inadequate oversight of our
policies, practices, controls and assets, and for recklessly
awarding executive bonuses despite alleged awareness of
potentially serious side effects of TYSABRI and the potential
for related harm to our financial position. The plaintiff also
derivatively claims that our Executive Chairman, former general
counsel and a director misappropriated confidential company
information for personal profit by selling our stock while in
possession of material, non-public information regarding the
potentially serious side effects of TYSABRI, and alleges that
our Board of Directors did not ensure that appropriate policies
were in place regarding the control of confidential information
and personal trading in our securities by officers and
directors. The plaintiff seeks unspecified damages, profits, the
return of all bonuses paid by us, costs and attorneys’
fees. A substantially similar action, captioned Golaine v.
Rastetter, et al., was filed on March 14, 2005 in the
same court. Neither of the plaintiffs made presuit demand on our
Board of Directors prior to filing their respective actions. As
required by applicable law, we and our Board of Directors are
considering the derivative claims in the complaints and will
respond in a time and manner consistent with applicable Delaware
statutory and common law. These purported derivative actions do
not seek affirmative relief from the Company.
On March 9, 2005, two additional purported shareholder
derivative actions, captioned Carmona v. Mullen,
et al. and Fink v. Mullen, et al., were brought
in the Superior Court of the State of California, County of
San Diego, on our behalf, against us as nominal defendant,
our Board of Directors and our chief financial officer. The
plaintiffs derivatively claim breach of fiduciary duties, abuse
of control, gross mismanagement, waste of corporate assets and
unjust enrichment against all defendants. The plaintiffs also
derivatively claim insider selling in violation of California
Corporations Code § 25402 and breach of fiduciary duty
and misappropriation of information against certain defendants
who sold our securities during the period of February 18,
2004 to the date of the complaints. The plaintiffs allege that
the defendants caused and/or allowed us to issue, and conspired,
aided and abetted and acted in concert in concealing that we
were issuing, false and misleading press releases about the
safety of TYSABRI and its financial prospects which resulted in
legal claims being asserted against us, irreparable harm to our
corporate image, depression of our stock price and impairment of
our ability to raise capital. The plaintiffs also allege that
certain defendants sold personally owned shares of our stock
while in possession of material, undisclosed, adverse
information. The plaintiffs seek unspecified damages, treble
damages for the purported insider trading in violation of
California Corporate Code § 25402, equitable relief
including restriction of the defendants’ trading proceeds
or other assets, restitution, disgorgement and costs, including
attorneys’ fees and expenses. Neither of the plaintiffs
made presuit demand on the Board of Directors prior to filing
their respective actions. As required by applicable law, we and
our Board of Directors are considering the derivative claims in
the complaints and will respond in a time and manner consistent
with applicable statutory and common law. These purported
derivative actions do not seek affirmative relief from the
Company.
Our Board of Directors has received letters, dated March 1
and 15, 2005, respectively, on behalf of purported owners
of our securities purportedly constituting demands under
Delaware law. A supplement to the March 1 letter was
received on March 2, 2005. The letters generally allege
that certain of our officers and directors breached their
fiduciary duty to us by selling personally held shares our
securities while in possession of material, non-public
information about potential serious side effects of TYSABRI. The
letters generally request that our Board of Directors take
action on our behalf to recover compensation and profits from
the officers and directors, consider enhanced corporate
governance controls related to the sales of securities by
insiders, and pursue other such equitable relief, damages, and
other remedies as may be appropriate. As required by applicable
law, our Board of Directors is currently considering the letters
and will respond in a time and manner consistent with Delaware
law.
We are providing information to the SEC regarding the SEC’s
informal inquiry into the suspension of marketing and commercial
distribution of TYSABRI and trading in our securities by certain
of our directors, officers and employees.
39
On July 15, 2003, Biogen, Inc. (now Biogen Idec MA, Inc.,
one of our wholly-owned subsidiaries), along with Genzyme
Corporation and Abbott Bioresearch Center, Inc., filed suit
against The Trustees of Columbia University in the City of New
York, or Columbia, in the U.S. District Court for the
District of Massachusetts, contending that we no longer have any
obligation to pay royalties to Columbia on sales of our products
under a 1993 license agreement between us and Columbia related
to U.S. Patent Nos. 4,399,216, 4,634,665, and 5,179,017,
also referred to as the Original Patents, or under a newly
issued patent, U.S. Patent No. 6,455,275, also
referred to as the ‘275 patent (the 2003 action). Based, in
part, on the court’s subsequent finding that we had made a
strong showing that we might prevail in proving the ‘275
patent is invalid under the doctrine of non-statutory double
patenting, Columbia has since covenanted not to sue Biogen Idec
MA, Inc. on any claim of the ‘275 patent and any claim that
is the same or substantially the same as the claims of the
‘275 patent if such claim(s) emerge from the reexamination
or reissue proceedings currently pending before the
U.S. Patent and Trademark Office, or USPTO, with respect to
the ‘275 patent. As a result of Columbia’s covenant
not to sue, and Columbia’s assertion that Biogen Idec MA,
Inc. is a licensee in good standing, the court issued an order
on November 5, 2004, in which it dismissed Biogen Idec MA
Inc.’s claims for declaratory relief for lack of subject
matter jurisdiction. At this time, we are unable to predict
whether any claims will issue from the USPTO on the
reexamination or reissue proceedings concerning the ‘275
patent, or whether, if any claims do issue, such claims will
pose a risk of infringement with respect to our activities.
On September 17, 2004, Biogen Idec Inc., Biogen Idec MA,
Inc., and Genzyme Corporation, filed suit against Columbia in
the U.S. District Court for the District of Massachusetts
(the 2004 action). In the 2004 action we reasserted some of the
contentions made in our complaint in the action filed in 2003
action. For example, that we are seeking a declaratory judgment
that we have no obligation to pay any further royalties under
the license agreement because the Original Patents have expired
and the ‘275 patent is invalid and unenforceable; and that
Columbia should be permanently enjoined from demanding any
further royalties based on the ‘275 patent or on any
pending continuations, continuations-in-part, or divisional
applications of the Original Patents. We have also asserted
claims for relief based on abuse of process, breach of contract,
violation of Massachusetts laws concerning unfair and deceptive
trade practices, prosecution laches and inequitable conduct. To
date, Columbia has refused to extend its covenant not to sue on
the ‘275 patent to Biogen Idec Inc. In the event that we
are unsuccessful in the present litigation and Columbia asserts
a claim for infringement against Biogen Idec Inc., we may be
liable for damages suffered by Columbia with respect to unpaid
royalties and such other relief as Columbia may seek and be
granted by the Court. At this stage of the litigation, we cannot
make any estimate of a potential loss or range of loss.
On August 10, 2004, Classen Immunotherapies, Inc. filed
suit against us, GlaxoSmithKline, Chiron Corporation,
Merck & Co., Inc., and Kaiser-Permanente, Inc., in the
U.S. District Court for the District of Maryland,
contending that we induced infringement of U.S. patents
6,420,139, 6,638,739, 5,728,385, and 5,723,283, all of which are
directed to various methods of immunization or determination of
immunization schedules. The inducement of infringement claims
are based on allegations that we “provided instructions
and/or recommendations on a proper immunization schedule for
vaccines” to other defendants who are alleged to have
directly infringed the patents at issue. We are investigating
the allegations, however, we do not believe them to be based in
fact. Under our 1988 license agreement with GlaxoSmithKline,
GlaxoSmithKline is obligated to indemnify and defend us against
these claims. In the event that the nature of the claims change
such that GlaxoSmithKline is no longer obligated to indemnify
and defend us and we are unsuccessful in the present litigation
we may be liable for damages suffered by Classen and such other
relief as Classen may seek and be granted by the court. At this
stage of the litigation, we cannot make any estimate of a
potential loss or range of loss.
Along with several other major pharmaceutical and biotechnology
companies, Biogen, Inc. (now Biogen Idec MA, Inc., one of our
wholly-owned subsidiaries) or, in certain cases, Biogen Idec
Inc., was named as a defendant in lawsuits filed by the County
of Suffolk, New York, the County of Westchester, New York, the
County of Rockland, New York, the County of Nassau, New York,
the County of Onondaga, New York, the County of Chenango, New
York, the County of Erie, New York, the City of New York and the
County of Chautauqua, New York. All of the cases are pending in
the U.S. District Court for the District of Massachusetts,
with the exception of the Onondaga, Chenango and Chautauqua
lawsuits, which are expected
40
to be transferred to the U.S. District Court for the
District of Massachusetts, and the Erie lawsuit, which is
pending in the Supreme Court of the State of New York for the
County of Erie. The complaints allege that the defendants
fraudulently reported the Average Wholesale Price for certain
drugs for which Medicaid provides reimbursement, also referred
to as Covered Drugs; marketed and promoted the sale of Covered
Drugs to providers based on the providers’ ability to
collect inflated payments from the government and Medicaid
beneficiaries that exceeded payments possible for competing
drugs; provided financing incentives to providers to
over-prescribe Covered Drugs or to prescribe Covered Drugs in
place of competing drugs; and overcharged Medicaid for illegally
inflated Covered Drugs reimbursements. The complaints allege
violations of New York state law and advance common law claims
for unfair trade practices, fraud, and unjust enrichment. In
addition, all of the complaints, with the exception of the
County of Erie, allege that the defendants failed to accurately
report the “best price” on the Covered Drugs to the
Secretary of Health and Human Services pursuant to rebate
agreements entered into with the Secretary of Health and Human
Services, and excluded from their reporting certain drugs
offered at discounts and other rebates that would have reduced
the “best price.” The Suffolk, Westchester, Rockland,
and Nassau County complaints also claim that Biogen violated the
Racketeering Influence and Corrupt Organizations Act
(RICO) 18 U.S.C. § 1962(c). In September
2003, Biogen joined other named defendants in filing a motion to
dismiss the Suffolk County complaint. Biogen also separately
filed a motion on its own behalf arguing that the plaintiffs
made no specific factual allegations against Biogen to connect
it with the alleged scheme. In September 2004, the court, in
ruling on defendants’ joint motion to dismiss, allowed the
motion, in part, and dismissed the RICO claim, the Medicaid best
price claim, the breach of contract claim, and the common law
fraud claim. The court did not dismiss the claims brought under
the New York State Medicaid and Social Services statutes, the
unfair trade practices claim, or the claim for unjust
enrichment. In October 2004, the court issued a partial decision
on Biogen’s individual motion to dismiss. The court
dismissed all of the state law claims against Biogen based on
the alleged failure to report best price, but deferred ruling on
the fraud-based claims and ordered Suffolk County to produce all
documents in support of its fraud-based claims. Suffolk County
subsequently produced documents in response to the court’s
request and Biogen renewed its motion to dismiss. Neither Biogen
nor the other defendants have answered or responded to the other
complaints, as all of the plaintiffs except Erie County have
agreed to stay the time to respond until the resolution of the
pending motion to dismiss the Suffolk County complaint. Biogen
Idec intends to defend itself vigorously against all of the
allegations and claims in these lawsuits. At this stage of the
litigation, we cannot make any estimate of a potential loss or
range of loss.
In addition, we are involved in certain other legal proceedings
generally incidental to our normal business activities. While
the outcome of any of these proceedings cannot be accurately
predicted, we do not believe the ultimate resolution of any of
these existing matters would have a material adverse effect on
our business or financial condition.
|
|
| Item 4. |
Submission of Matters to a Vote of Security
Holders. |
Not Applicable.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Market Information
Our common stock trades on The Nasdaq Stock Market under the
symbol “BIIB.” Prior to changing our name to Biogen
Idec in November 2003, we traded on The Nasdaq Stock Market
under the symbol “IDPH.”
41
The following table shows the high and low sales price for our
common stock as reported by The Nasdaq Stock Market for each
quarter in the years ended December 31, 2004 and 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock Price | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
High | |
|
Low | |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
| |
|
| |
|
First Quarter
|
|
$ |
59.63 |
|
|
$ |
36.60 |
|
|
$ |
37.14 |
|
|
$ |
27.80 |
|
|
Second Quarter
|
|
|
64.00 |
|
|
|
54.56 |
|
|
|
42.15 |
|
|
|
30.01 |
|
|
Third Quarter
|
|
|
63.50 |
|
|
|
53.06 |
|
|
|
38.95 |
|
|
|
31.73 |
|
|
Fourth Quarter
|
|
|
68.13 |
|
|
|
54.30 |
|
|
|
39.41 |
|
|
|
31.63 |
|
Holders
As of March 10, 2005, there were approximately 4,158
stockholders of record of our common stock. In addition, 871
stockholders of record of Biogen, Inc. common stock have yet to
exchange their shares of Biogen common stock for our common
stock as contemplated by the merger.
Dividends
We have not paid cash dividends since our inception. We
currently intend to retain all earnings, if any, for use in the
expansion of our business and therefore do not anticipate paying
any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total Number of | |
|
|
| |
|
|
|
|
|
Shares Purchased as | |
|
Number of Shares | |
| |
|
Total Number of | |
|
|
|
Part of Publicly | |
|
that may yet be | |
| |
|
Shares Purchased | |
|
Average Price Paid | |
|
Announced Program | |
|
Purchased under Our | |
| Period |
|
(#)(a) | |
|
per Share ($) | |
|
(#)(a) | |
|
Program (#) | |
| |
|
| |
|
| |
|
| |
|
| |
|
October 1 — October 31, 2004
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
20,000,000 |
|
|
November 1 — November 30, 2004
|
|
|
200,582 |
|
|
|
58.66 |
|
|
|
200,000 |
|
|
|
19,800,000 |
|
|
December 1 — December 31, 2004
|
|
|
406,993 |
|
|
|
60.22 |
|
|
|
403,600 |
|
|
|
19,396,400 |
|
|
Total
|
|
|
607,575 |
(b) |
|
|
59.71 |
|
|
|
603,600 |
|
|
|
19,396,400 |
|
|
|
| (a) |
In October 2004, our Board of Directors authorized the
repurchase of up to 20 million shares of our common stock.
This repurchase program will expire no later than
October 4, 2006. We publicly announced the repurchase
program in our press release dated October 27, 2004 which
was furnished to (and not filed with) the SEC as
Exhibit 99.1 of our Current Report of Form 8-K filed
on October 27, 2004. |
|
|
|
|
(b) |
|
603,600 of these shares were repurchased as part our publicly
announced repurchase program. The remaining shares are shares
that were used by certain employees to pay the exercise price of
their stock options in lieu of paying cash or utilizing our
cashless option exercise program. In our Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
2004, we incorrectly reported that an aggregate of
11,199 shares were used by employees to pay the exercise
price of their stock options during the third quarter when only
370 shares were so used. |
42
|
|
| Item 6. |
Selected Consolidated Financial Data |
The following financial data should be read in conjunction with
our consolidated financial statements and related notes
appearing elsewhere in this Form 10-K, beginning on page
F-1.
BIOGEN IDEC INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003(2) | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Product revenues
|
|
$ |
1,486,344 |
|
|
$ |
171,561 |
|
|
$ |
13,711 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Revenues from unconsolidated joint business
|
|
|
615,743 |
|
|
|
493,049 |
|
|
|
385,809 |
|
|
|
251,428 |
|
|
|
132,782 |
|
|
Royalties
|
|
|
98,945 |
|
|
|
12,010 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Corporate partner revenue
|
|
|
10,530 |
|
|
|
2,563 |
|
|
|
4,702 |
|
|
|
21,249 |
|
|
|
21,900 |
|
|
Total revenues
|
|
|
2,211,562 |
|
|
|
679,183 |
|
|
|
404,222 |
|
|
|
272,677 |
|
|
|
154,682 |
|
|
Total costs and expenses(1)
|
|
|
2,168,146 |
|
|
|
1,548,852 |
|
|
|
190,346 |
|
|
|
141,540 |
|
|
|
98,823 |
|
|
Income (loss) before income taxes (benefit)
|
|
|
64,093 |
|
|
|
(880,624 |
) |
|
|
231,522 |
|
|
|
161,604 |
|
|
|
69,347 |
|
|
Net income (loss)
|
|
|
25,086 |
|
|
|
(875,097 |
) |
|
|
148,090 |
|
|
|
101,659 |
|
|
|
48,145 |
|
|
Diluted earnings (loss) per share
|
|
|
0.07 |
|
|
|
(4.92 |
) |
|
|
0.85 |
|
|
|
0.58 |
|
|
|
0.30 |
|
|
Shares used in calculating diluted earnings (loss) per share
|
|
|
343,475 |
|
|
|
177,982 |
|
|
|
176,805 |
|
|
|
178,117 |
|
|
|
152,616 |
|
|
Cash, cash equivalents and marketable securities
available-for-sale
|
|
|
2,167,566 |
|
|
|
2,338,286 |
|
|
|
1,447,865 |
|
|
|
866,607 |
|
|
|
750,526 |
|
|
Total assets
|
|
|
9,165,758 |
|
|
|
9,503,945 |
|
|
|
2,059,689 |
|
|
|
1,141,216 |
|
|
|
856,406 |
|
|
Notes payable, less current portion
|
|
|
101,879 |
|
|
|
887,270 |
|
|
|
866,205 |
|
|
|
135,977 |
|
|
|
128,888 |
|
|
Shareholders’ equity
|
|
|
6,826,401 |
|
|
|
7,053,328 |
|
|
|
1,109,690 |
|
|
|
956,479 |
|
|
|
694,619 |
|
|
|
| (1) |
Included in total costs and expenses in 2003 is a charge of
$823.0 million for in-process research and development. |
| |
| (2) |
Includes the impact of our Merger with Biogen, Inc. on
November 12, 2003. |
43
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations. |
The following discussion should be read in conjunction with our
consolidated financial statements and related notes appearing
elsewhere in this Form 10-K, beginning on page F-1.
Overview
Biogen Idec creates new standards of care in oncology and
immunology. As a global leader in the development,
manufacturing, and commercialization of novel therapies, we
transform scientific discoveries into advances in human
healthcare. We currently have five products:
|
|
|
| |
• |
AVONEX® (interferon beta-1a) for the treatment of relapsing
forms of multiple sclerosis, or MS. |
| |
| |
• |
RITUXAN® (rituximab) and ZEVALIN®(ibritumomab
tiuxetan), both of which treat certain B-cell non-Hodgkin’s
lymphomas, or B-cell NHLs. We collaborate with Genentech Inc.,
or Genentech, on the development and commercialization of
RITUXAN. RITUXAN is the trade name in the United States, or
U.S., Canada and Japan for the compound rituximab. MabThera is
the tradename for rituximab in the European Union, or EU. In
this Form 10-K, we refer to rituximab, RITUXAN and MabThera
collectively as RITUXAN, except where we have otherwise
indicated. |
| |
| |
• |
TYSABRI® (natalizumab), formerly known as ANTEGREN®,
which was approved by the U.S. Food and Drug
Administration, or FDA, in November 2004 to treat relapsing
forms of MS to reduce the frequency of clinical relapses. In
February 2005, in consultation with the FDA, we and Elan
Corporation plc, or Elan, voluntarily suspended the marketing
and commercial distribution of TYSABRI, and informed physicians
that they should suspend dosing of TYSABRI until further
notification. In addition, we suspended dosing in clinical
studies of TYSABRI in MS, Crohn’s disease and rheumatoid
arthritis, or RA. These decisions were based on reports of two
serious adverse events that have occurred in patients treated
with TYSABRI in combination with AVONEX in MS clinical
studies. These events involved two cases of progressive
multifocal leukoencephalopathy, or PML, a rare and frequently
fatal, demyelinating disease of the central nervous system. Both
patients received more than two years of TYSABRI in combination
with AVONEX. In light of the two reports of PML, the companies
initiated a systematic review of the TYSABRI safety database. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported by the investigator as malignant
astrocytoma in July 2003. The patient died in
December 2003. The patient had received 8 doses of TYSABRI
over an 18 month period and prior medication history
included multiple courses of immunosuppressant agents. We and
Elan are working with clinical investigators to evaluate
patients treated with TYSABRI in clinical studies and are
consulting with leading experts to better understand the
possible risk of PML. The outcome of these evaluations will be
used to determine possible re-initiation of dosing in clinical
studies and future commercial availability. See
“Forward-Looking Information and Risk Factors That May
Affect Future Results — Safety Issues with TYSABRI
Could Significantly Affect our Growth.” |
| |
| |
• |
AMEVIVE® (alefacept) for the treatment of adult
patients with moderate-to-severe chronic plaque psoriasis who
are candidates for systemic therapy or phototherapy. |
We also receive royalty revenues on sales by our licensees of a
number of products covered under patents that we control,
including on sales by Schering AG of ZEVALIN in the EU. In
addition, we have a number of ongoing research and development
programs in our core therapeutic areas and in other areas of
interest.
Merger
On November 12, 2003, IDEC Pharmaceuticals Corporation and
Biogen, Inc. completed a merger transaction, or the Merger,
resulting in Biogen, Inc. becoming a wholly owned subsidiary of
IDEC Pharmaceuticals Corporation. The business combination was
treated as an acquisition of Biogen, Inc. by IDEC
Pharmaceuticals Corporation for accounting purposes. In
connection with the Merger, IDEC Pharmaceuticals Corporation
changed its name to Biogen Idec Inc.
44
As a result of the Merger, Biogen, Inc. stockholders received
1.15 shares of Biogen Idec common stock for each share of
Biogen, Inc. common stock. As a result, Biogen Idec issued
approximately 171.9 million shares of common stock at a
fair value of approximately $6.48 billion (based on the
average of the closing price of IDEC Pharmaceuticals
Corporation’s common stock for the period from two days
before through two days after the public announcement of the
Merger on June 23, 2003). In addition, options to purchase
Biogen, Inc. common stock outstanding at November 12, 2003
were assumed by Biogen Idec and converted into options to
purchase approximately 20.7 million shares of Biogen Idec
common stock at a fair value of approximately $295 million
(based on the Black-Scholes option pricing model, as described
in more detail below). We paid approximately $19.9 million
in fees for banking, legal, accounting and tax related services
related to the Merger. Merger related fees of $21.5 million
paid by Biogen, Inc. prior to completion of the Merger are not
included in this amount as they were expensed as incurred. The
total Merger purchase price was approximately $6.8 billion.
The Merger qualified as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
The fair value of Biogen Idec’s shares used in determining
the purchase price was $37.69 per share based on the
average of the closing price of IDEC Pharmaceuticals
Corporation’s common stock for the period two days before
through two days after public announcement of the Merger on
June 23, 2003. The fair value of stock options assumed by
Biogen Idec in the Merger was determined using the Black-Scholes
option pricing model with the following assumptions: stock price
of $37.69, which is the value ascribed to IDEC shares in
determining the purchase price; volatility of 40%; risk-free
interest rate of 1.8%; and an expected life of 4.0 years.
The purchase price is as follows (table in thousands):
| |
|
|
|
|
|
|
Fair value of Biogen Idec common stock
|
|
$ |
6,480,339 |
|
|
Fair value of replacement stock options
|
|
|
295,399 |
|
|
Cash paid for fractional shares
|
|
|
27 |
|
|
Acquisition related costs
|
|
|
19,872 |
|
| |
|
|
|
| |
Total purchase price
|
|
$ |
6,795,637 |
|
| |
|
|
|
The purchase price has been allocated to the acquired tangible
and intangible assets and liabilities based on their fair values
as of November 12, 2003, the date that the Merger was
consummated (table in thousands):
| |
|
|
|
|
|
|
Inventory
|
|
$ |
706,957 |
|
|
Accounts receivable
|
|
|
216,221 |
|
|
Property, plant and equipment
|
|
|
713,719 |
|
|
Acquired identifiable intangible assets
|
|
|
3,664,000 |
|
|
Goodwill
|
|
|
1,151,105 |
|
|
In-process research and development
|
|
|
823,000 |
|
|
Deferred stock-based compensation
|
|
|
2,261 |
|
|
Other current and long-term assets
|
|
|
1,106,112 |
|
|
Assumed liabilities
|
|
|
(424,648 |
) |
|
Increase benefit plan liability to fair value
|
|
|
(26,650 |
) |
|
Deferred tax liabilities arising from fair value adjustments
|
|
|
(1,136,440 |
) |
| |
|
|
|
| |
Total purchase price
|
|
$ |
6,795,637 |
|
| |
|
|
|
The allocation of the purchase price was based, in part, on a
third-party valuation of the fair value of in-process research
and development, identifiable intangible assets, and certain
property, plant and equipment. The excess of the purchase price
over the fair value of assets and liabilities acquired is
allocated to goodwill. See “Biogen, Inc. Purchase Price
Allocation” under Critical Accounting Estimates.
45
The discussions for the year ended December 31, 2004 in
this Form 10-K represent our financial condition and
results of operations for the year ended December 31, 2004
and include the results of operations of the merged companies.
The discussions for the year ended December 31, 2003 in
this Form 10-K, unless indicated otherwise, represent
our financial condition and results of operations for the year
ended December 31, 2003 and include the results of
operations of Biogen, Inc. for the period commencing
November 13, 2003 through December 31, 2003 only. The
results of operations of Biogen, Inc. (revenues and expenses)
for the period commencing January 1, 2003 through
November 12, 2003, unless indicated otherwise, are excluded
from this Form 10-K. Comparisons are made to our results of
operations for the year ended December 31, 2002, which only
include the historical results of IDEC Pharmaceuticals
Corporation.
Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
986,050 |
|
|
$ |
121,589 |
|
|
$ |
13,711 |
|
| |
Rest of world
|
|
|
500,294 |
|
|
|
49,972 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total product sales
|
|
|
1,486,344 |
|
|
|
171,561 |
|
|
|
13,711 |
|
|
Revenues from unconsolidated joint business
|
|
|
615,743 |
|
|
|
493,049 |
|
|
|
385,809 |
|
|
Royalties
|
|
|
98,945 |
|
|
|
12,010 |
|
|
|
— |
|
|
Corporate partner revenue
|
|
|
10,530 |
|
|
|
2,563 |
|
|
|
4,702 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
$ |
2,211,562 |
|
|
$ |
679,183 |
|
|
$ |
404,222 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
AVONEX
|
|
$ |
1,417,157 |
|
|
$ |
142,603 |
|
|
$ |
— |
|
|
AMEVIVE
|
|
|
43,030 |
|
|
|
9,356 |
|
|
|
— |
|
|
ZEVALIN
|
|
|
23,036 |
|
|
|
19,602 |
|
|
|
13,711 |
|
|
TYSABRI
|
|
|
3,121 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total product sales
|
|
$ |
1,486,344 |
|
|
$ |
171,561 |
|
|
$ |
13,711 |
|
| |
|
|
|
|
|
|
|
|
|
AVONEX is the most prescribed therapeutic product in MS
worldwide. Globally over 130,000 patients have chosen
AVONEX as their treatment of choice. During 2004, sales of
AVONEX generated worldwide revenues of $1.4 billion, of
which $922.6 million was generated in the U.S. and
$494.6 million was generated outside the U.S., primarily in
the EU. Product sales from AVONEX represent approximately 64% of
our total revenues in 2004. Our results of operations for 2003
include sales of AVONEX for the period from November 13,
2003 through December 31, 2003. During that period, sales
of AVONEX generated worldwide revenues of $142.6 million,
of which $92.6 million was generated in the U.S. and
$50.0 million in the rest of the world, primarily the EU.
Product sales from AVONEX represented approximately 21% of our
total revenues in 2003. We expect to face increasing competition
in the MS marketplace in and outside the U.S. from existing
and new MS treatments, including TYSABRI if it is reintroduced
to the market, that may impact sales of AVONEX. We expect future
growth in AVONEX revenues to be dependent to a large extent on
our ability to compete successfully.
AMEVIVE was approved in the U.S. in 2003 for the treatment
of adult patients with moderate-to-severe chronic plaque
psoriasis who are candidates for systemic therapy or
phototherapy. During 2004, sales of AMEVIVE generated revenues
of $43.0 million, substantially all in the U.S. Our
results of operations for 2003 include sales of AMEVIVE for the
period from November 13, 2003 through December 31,
2003. During
46
that period, sales of AMEVIVE generated revenues of
$9.4 million, substantially all in the U.S. Product
sales from AMEVIVE represent approximately 2% and 1% of our
total revenues in 2004 and 2003, respectively.
In February 2002, ZEVALIN became the first radioimmunotherapy
approved by the FDA for the treatment of certain B-cell NHLs.
ZEVALIN, as part of the ZEVALIN therapeutic regimen, is approved
as a treatment for relapsed or refractory low-grade, follicular,
or transformed B-cell NHL including patients with RITUXAN
refractory follicular NHL. We launched ZEVALIN in the
U.S. in April 2002. In 2004, sales of ZEVALIN generated
revenues of $18.7 million in the U.S. as compared to
$19.6 million in 2003. Outside the U.S., we have licensed
our marketing rights in ZEVALIN to Schering AG. In January 2004,
the European Medicines Agency, or EMEA, the regulatory authority
in the EU, granted marketing approval of ZEVALIN in the EU for
the treatment of adult patients with CD20+ follicular B-cell NHL
who are refractory to or have relapsed following treatment with
RITUXAN. Rest of world product sales for ZEVALIN for the year
ended December 31, 2004 were $4.3 million. The
$4.3 million relates to ZEVALIN sold to Schering AG in 2003
and 2004, recognition of which had been deferred. The revenue
was recognized in the fourth quarter of 2004 when an amendment
to the license agreement was executed and the price of ZEVALIN
became determinable. Product sales from ZEVALIN represented
approximately 1% and 3% of our total revenues in 2004 and 2003,
respectively.
In November 2004, TYSABRI was approved by the FDA as treatment
for relapsing forms of MS to reduce the frequency of clinical
relapses. In the U.S., prior to the suspension, we sold TYSABRI
to Elan who then distributed TYSABRI to third party distributors
and other customers. In 2004, our revenue associated with sales
of TYSABRI was $3.1 million, which represents less than 1%
of our total revenues in 2004. In February 2005, in consultation
with the FDA, we and Elan voluntarily suspended the marketing
and commercial distribution of TYSABRI, and informed physicians
that they should suspend dosing of TYSABRI until further
notification. The voluntary suspension will not affect 2004
revenue. We and Elan are working with clinical investigators to
evaluate patients treated with TYSABRI in clinical studies and
are consulting with leading experts to better understand the
possible risk of PML. The outcome of these evaluations will be
used to determine the possibility of re-initiation of dosing in
clinical studies and future commercial availability. See also
“Revenue Recognition and Accounts Receivable” under
Critical Accounting Estimates for our method of recording
revenue from TYSABRI sales.
See also the risks affecting revenues described in
“Forward-Looking Information and Risk Factors That May
Affect Future Results — Our Revenues Rely
Significantly on a Limited Number of Products” and
“Forward-Looking Information and Risk Factors That May
Affect Future Results — Safety Issues with TYSABRI
Could Significantly Affect our Growth.”
Unconsolidated Joint Business Revenue
RITUXAN is currently marketed and sold worldwide for the
treatment of certain B-cell NHLs. We copromote RITUXAN in the
U.S. in collaboration with Genentech under a collaboration
agreement between the parties. Under the collaboration
agreement, we granted Genentech a worldwide license to develop,
commercialize and market RITUXAN in multiple indications. In
exchange for these worldwide rights, we have copromotion rights
in the U.S. and a contractual arrangement under which Genentech
shares a portion of the pretax U.S. copromotion profits of
RITUXAN with us. This collaboration was created through a
contractual arrangement not through a joint venture or other
legal entity. In June 2003, we amended and restated our
collaboration agreement with Genentech to include the
development and commercialization of one or more anti-CD20
antibodies targeting B-cell disorders, in addition to RITUXAN,
for a broad range of indications.
In the U.S., we contribute resources to selling and the
continued development of RITUXAN. Genentech is responsible for
worldwide manufacturing of RITUXAN. Genentech also is
responsible for the primary support functions for the
commercialization of RITUXAN in the U.S. including selling
and marketing, customer service, order entry, distribution,
shipping and billing. Genentech also incurs the majority of
47
continuing development costs for RITUXAN. Under the arrangement,
we have a limited sales force as well as limited development
activity.
Under the terms of separate sublicense agreements between
Genentech and Roche, commercialization of RITUXAN outside the
U.S. is the responsibility of Roche, except in Japan where
Roche copromotes RITUXAN in collaboration with Zenyaku. There is
no direct contractual arrangement between Biogen Idec and Roche
or Zenyaku.
Revenue from unconsolidated joint business consists of our share
of pretax copromotion profits which is calculated by Genentech,
and includes consideration of our RITUXAN-related sales force
and development expenses, and royalty revenue from sales of
RITUXAN outside the U.S. by Roche and Zenyaku. Copromotion
profit consists of U.S. sales of RITUXAN to third-party
customers net of discounts and allowances and less the cost to
manufacture RITUXAN, third-party royalty expenses, distribution,
selling and marketing expenses, and joint development expenses
incurred by Genentech and us.
Under the amended and restated collaboration agreement, our
current pretax copromotion profit-sharing formula has two tiers.
We earn a higher percentage of the pretax copromotion profits at
the upper tier once a fixed pretax copromotion profit level is
met. The profit-sharing formula resets annually at the beginning
of each year to the lower tier. We began recording our profit
share at the higher percentage during the first quarter of 2004,
2003 and 2002. Upon approval of the first new anti-CD20 product,
the pretax copromotion profit-sharing formula for RITUXAN and
other anti-CD20 products sold by us and Genentech will change
over a period of time to a fixed annual profit-sharing
percentage at the lower tier.
Copromotion profits for the years ended December 31, 2004,
2003 and 2002, consist of the following (table in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Product revenues, net
|
|
$ |
1,573,228 |
|
|
$ |
1,360,537 |
|
|
$ |
1,080,240 |
|
|
Costs and expenses
|
|
|
418,190 |
|
|
|
299,398 |
|
|
|
256,496 |
|
| |
|
|
|
|
|
|
|
|
|
|
Copromotion profits
|
|
$ |
1,155,038 |
|
|
$ |
1,061,139 |
|
|
$ |
823,744 |
|
| |
|
|
|
|
|
|
|
|
|
|
Biogen Idec’s share of copromotion profits
|
|
$ |
457,025 |
|
|
$ |
419,197 |
|
|
$ |
324,498 |
|
| |
|
|
|
|
|
|
|
|
|
Net sales of RITUXAN to third-party customers in the
U.S. recorded by Genentech for 2004 were $1.6 billion
compared to $1.4 billion in 2003 and $1.1 billion in
2002. The increase in 2004 from 2003 and 2002 was primarily due
to increased market penetration in treatments of B-cell NHLs and
chronic lymphocytic leukemia, and increases in the wholesale
price of RITUXAN effective September 2004, March 2003 and March
2002.
We received royalties on sales of RITUXAN outside of the
U.S. of $121.0 million in 2004 as compared to
$67.9 million in 2003 and $45.4 million in 2002, which
we include under “Revenue from unconsolidated joint
business” in our consolidated statements of income.
Revenues from unconsolidated joint business for the years ended
December 31, 2004, 2003 and 2002, consist of the following
(table in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Copromotion profits
|
|
$ |
457,025 |
|
|
$ |
419,197 |
|
|
$ |
324,498 |
|
|
Reimbursement of selling and development expenses
|
|
|
37,710 |
|
|
|
18,400 |
|
|
|
15,879 |
|
|
Royalty revenue on sales of RITUXAN outside the U.S.
|
|
|
121,008 |
|
|
|
67,869 |
|
|
|
45,432 |
|
|
RITUXAN clinical data purchased from Roche
|
|
|
— |
|
|
|
(9,353 |
) |
|
|
— |
|
|
Columbia patent royalty and interest payment
|
|
|
— |
|
|
|
(3,064 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
615,743 |
|
|
$ |
493,049 |
|
|
$ |
385,809 |
|
| |
|
|
|
|
|
|
|
|
|
48
Our royalty revenue on sales of RITUXAN outside the U.S. is
based on Roche and Zenyaku’s net sales to third-party
customers and is recorded on a cash basis. The increase in
royalty revenues in 2004 and 2003 is due to increased sales of
RITUXAN outside the U.S. Under the amended and restated
collaboration agreement, we will receive lower royalty revenue
from Genentech on sales by Roche and Zenyaku of new anti-CD20
products and will only receive such royalty revenues for the
first eleven years from the date of first commercial sale of
such new anti-CD20 products.
During 2003, Genentech purchased certain clinical data from
Roche that supported a potential label expansion of RITUXAN.
Additionally, in 2003, we, along with Genentech, agreed that
payments were owed to Columbia University for royalties related
to past sales of RITUXAN in the U.S. As a result, we
recognized $2.6 million in royalty payments and
$0.5 million in interest charges related to these royalties.
Revenues from unconsolidated joint business represented 28%, 73%
and 95% of our total revenues in 2004, 2003 and 2002,
respectively. The decreases in 2004 and 2003 are primarily due
to former Biogen, Inc. revenue included in our results of
operations for all of 2004 and for the period of
November 12, 2003 through December 31, 2003.
Royalty Revenue
We receive revenues from royalties on sales by our licensees of
a number of products covered under patents that we control.
During 2004 and 2003, we received approximately
$98.9 million and $12.0 million, respectively, in
royalty revenues representing 4% and 2% of total revenues. The
increase in royalty revenue is primarily due to a full year of
the former Biogen, Inc. royalty revenue being included in our
results of operations in 2004 compared to the period from
November 12, 2003 through December 31, 2003. Our
royalty revenues on sales of RITUXAN outside the U.S. are
included in “Revenue from unconsolidated joint
business.”
We receive royalties from Schering-Plough Corporation, or
Schering-Plough, on sales of its alpha interferon products in
the U.S. and Italy under an exclusive license to our alpha
interferon patents and patent applications. Schering-Plough
sells its INTRON® A (interferon alfa-2b) brand of alpha
interferon in the U.S. for a number of indications,
including the treatment of chronic hepatitis B and
hepatitis C. Schering-Plough also sells other alpha
interferon products for the treatment of hepatitis C,
including REBETRON® Combination Therapy containing INTRON A
and REBETOL® (ribavirin, USP), PEG-INTRON®
(peginterferon alfa-2b), a pegylated form of alpha interferon,
and PEG-INTRON in combination with REBETOL.
We hold several important patents related to hepatitis B
antigens produced by genetic engineering techniques. These
antigens are used in recombinant hepatitis B vaccines and
in diagnostic test kits used to detect hepatitis B
infection. We receive royalties from sales of hepatitis B
vaccines in several countries, including the U.S., from
GlaxoSmithKline plc and Merck and Co. Inc. We have also licensed
our proprietary hepatitis B rights, on an
antigen-by-antigen and nonexclusive basis, to several diagnostic
kit manufacturers, including Abbott Laboratories, the major
worldwide marketer of hepatitis B diagnostic kits.
We also receive ongoing royalties on sales of ANGIOMAX®
(bivalirudin) by The Medicines Company, or TMC. TMC sells
ANGIOMAX in the U.S. for use as an anticoagulant in
combination with aspirin in patients with unstable angina
undergoing percutaneous transluminal coronary angioplasty. TMC
sells ANGIOMAX through distributors in Europe, Canada and Latin
America.
We anticipate that total royalty revenues in 2005 will be
slightly higher as compared to our total royalty revenues in
2004. Royalty revenues may fluctuate as a result of fluctuations
in sales levels of products sold by our licensees from quarter
to quarter due to the timing and extent of major events such as
new indication approvals or government-sponsored programs.
Corporate Partner Revenues
Corporate partner revenues consist of contract revenues and
license fees. Corporate partner revenues totaled
$10.5 million in 2004 compared to $2.6 million in 2003
and $4.7 million in 2002. Corporate partner
49
revenues represented less than 1% of total revenues in 2004 and
2003 and approximately 1% of total revenues in 2002. In 2004, we
received a $10.0 million payment from Schering AG for the
EMEA grant of marketing approval of ZEVALIN in the EU. The
payment represented, in part, a milestone payment to compensate
us for preparing, generating, and collecting data that was
critical to the EMEA marketing approval process and, to which we
have no continuing involvement. The decrease in corporate
partner revenues in 2003 is primarily due to decreased research
and development funding in 2002 under our collaborations with
Taisho Pharmaceutical Co. Ltd. of Tokyo, or Taisho, as a result
of the termination of our collaboration with Taisho, and under
our collaborations with Seikagaku Corporation, or Seikagaku.
Contract revenues and license fees are, in part, dependent upon
the achievement of certain research and development and
commercialization objectives and, accordingly, may vary from
year to year.
Operating Costs and Expenses
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cost of product and royalty revenues
|
|
$ |
554,319 |
|
|
$ |
284,739 |
|
|
$ |
1,457 |
|
|
Research and development
|
|
|
687,663 |
|
|
|
233,337 |
|
|
|
100,868 |
|
|
Selling, general and administrative
|
|
|
578,487 |
|
|
|
174,596 |
|
|
|
88,021 |
|
|
Write-off of acquired in-process research and development
|
|
|
— |
|
|
|
823,000 |
|
|
|
— |
|
|
Amortization of acquired intangibles
|
|
|
347,677 |
|
|
|
33,180 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total operating costs and expenses
|
|
$ |
2,168,146 |
|
|
$ |
1,548,852 |
|
|
$ |
190,346 |
|
| |
|
|
|
|
|
|
|
|
|
Cost of Product and Royalty Revenues
In 2004, total cost of product and royalty revenues was
$554.3 million and consisted of product cost of revenues of
$548.7 million and cost of royalty revenues of
$5.6 million. Product cost of revenues consisted of
$480.0 million related to AVONEX, $27.8 million
related to AMEVIVE, $19.0 million related to ZEVALIN and
$17.3 million related to TYSABRI. Approximately
$295.1 million in cost of product revenues represents the
difference between the cost of AVONEX and AMEVIVE inventory
recorded at the Merger date and its historical manufacturing
cost, which was recognized as cost of product revenues when the
acquired inventory was sold or written-down in 2004. All AVONEX
inventory acquired in the Merger was sold or written off as of
December 31, 2004. We expect that product cost of revenues
in 2005 related to AMEVIVE will include approximately
$16 million related to the difference between the cost of
AMEVIVE inventory recorded at the Merger and its historical
manufacturing cost, as the acquired inventory is sold or
written-down.
In February 2005, we and Elan voluntarily suspended the
marketing and commercial distribution of TYSABRI based on
reports of two serious adverse events that occurred in patients
treated with TYSABRI in combination with AVONEX in MS clinical
studies. These events involved two cases, of PML, a rare and
frequently fatal, demyelinating disease of the central nervous
system. In light of the two reports of PML, the companies
initiated a systematic review of the TYSABRI safety database. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported by the investigator as malignant
astrocytoma in July 2003. The patient died in
December 2003. The patient had received 8 doses of
TYSABRI over an 18 month period and prior medication
history included multiple courses of immunosuppressant agents.
We and Elan are working with clinical investigators to evaluate
patients treated with TYSABRI in clinical studies and are
consulting with leading experts to better understand the
possible risk of PML. The outcome of these evaluations will be
used to determine future commercial availability. We cannot
predict the outcome of these evaluations. An unfavorable or
inconclusive outcome could result in the permanent withdrawal of
TYSABRI from the market and termination of clinical studies of
TYSABRI, or the re-introduction of TYSABRI to the market with
significant restrictions on its permissible uses, blackbox or
other significant safety warnings in its label and such other
restrictions, requirements and limitations as the FDA may
require. While we presently believe that we will be able to find
a path forward for TYSABRI, there are no assurances as to the
likelihood of success. In
50
light of our inability to predict to the required degree of
certainty that our TYSABRI inventory will be realized in
commercial sales prior to the expiration of its shelf life, we
have written down all of the $19.1 million of TYSABRI
inventory that had been included on the balance sheet as of
December 31, 2004, which was charged to cost of product
revenues. We are continuing to manufacture TYSABRI. Because of
the uncertainty described above, in the first quarter of 2005,
we also expect to expense between $22 million to
$25 million of TYSABRI that was manufactured in the first
quarter of 2005. In subsequent periods, we will continue to
assess TYSABRI to determine if it needs to be expensed in light
of existing information related to the potential future
commercial availability of TYSABRI and applicable accounting
standards. See “Forward Looking Information and Risk
Factors That May Affect Future Results — Safety Issues
with TYSABRI Could Significantly Affect Our Growth.”
We periodically review our inventories for excess or obsolete
inventory and write down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. If the actual
realizable value is less than that estimated by us, or if there
are further determinations that inventory will not be marketable
based on estimates of demand, additional inventory write-offs
may be required. This periodic review led to the write-downs of
TYSABRI inventory as of December 31, 2004 and the expensing
of TYSABRI expected to occur in the first quarter of 2005, as
described above, and may lead us to expense TYSABRI in
subsequent periods. Also included in product cost of revenues
were write-downs of commercial inventory that did not meet
quality specifications or became obsolete due to dating
expiration, in all cases this product inventory was written-down
to its net realizable value. In 2004, we wrote-down
$16.2 million, $9.7 million, $1.7 million and
$19.1 million of unmarketable inventory related to AVONEX,
ZEVALIN, AMEVIVE and TYSABRI, respectively, which was charged to
cost of product revenues. The AVONEX and AMEVIVE inventory was
written-down when it was determined that the inventory did not
meet quality specifications. The ZEVALIN inventory was
written-down when it was determined that the inventory did not
meet quality specifications and when it was determined to not be
marketable based on estimates of demand.
In 2003, total cost of revenues was $284.7 million and
consisted of product cost of revenues of $283.8 million and
cost of royalty revenues of $0.9 million. In November 2003,
we recorded the inventory that we acquired from Biogen, Inc. at
its estimated fair value. Product cost of revenues consisted of
$254.3 million related to AVONEX, $18.7 million
related to ZEVALIN and $8.7 million related to AMEVIVE. In
2003, included in product cost of revenues was approximately
$231.6 million in fair market value purchase accounting
adjustments related to AVONEX and AMEVIVE, which represents the
difference between the cost of inventory recorded at the
acquisition date and its historical manufacturing cost. The
increase to fair market value was recognized as cost of product
revenues when the acquired inventory was sold or written-down.
Included in product cost of revenues were write-downs of
commercial inventory that did not meet quality specifications or
became obsolete due to dating expiration. In all cases this
product inventory was written-down to its net realizable value.
In 2003, we wrote-down $160.8 million related to AVONEX,
$1.0 million related to AMEVIVE and $12.1 million
related to ZEVALIN. Of the $160.8 million write-down
related to AVONEX, $149.6 million represented the increase
to fair market value of inventory acquired at the Merger and
$11.2 million represented the historical manufacturing
costs.
The AVONEX inventory that was written-down had been assessed as
commercially viable and saleable and there were no known
contingent issues at the acquisition date. This inventory was
recorded at the estimated selling price less the costs to
complete, costs of disposal and a reasonable distribution profit
allowance. Our products are required to meet numerous stringent
quality specifications that are agreed upon with the FDA at
various times prior to and after approval. Based on quality
testing performed subsequent to the Merger date, we became aware
of certain lots of our pre-filled syringe formulation of AVONEX
that previously had been approved for sale, but after additional
testing no longer met the established quality specifications.
Substantially all of the AVONEX inventory write-down was related
to our pre-filled syringe formulation of AVONEX, in which
certain lots had aggregate levels that exceeded the approved
specifications. As a result of extensive discussions with the
FDA, a new set of testing protocols were agreed to and certain
lots were deemed unmarketable. Upon management’s
determination that the inventory was unmarketable, we wrote off
the carrying value of the inventory in the fourth quarter of
2003 because the cost of the inventory would not be recoverable.
In 2004, we developed a new pre-filled syringe formulation of
AVONEX,
51
which was approved by the EMEA in November 2004 and the FDA in
March 2005. We do not expect to experience interruption in the
supply of AVONEX. However, we expect to write-down between
$6 million and $8 million of the remaining supplies of
the older formulation in the first quarter of 2005, related to
the FDA approval.
Non-GAAP gross margin on product revenues, which includes
inventory written-down to its net realizable value, was
approximately 63% and (65)% in 2004 and 2003, respectively. The
large fluctuation of gross margin on product revenues is due
primarily to inventory acquired from Biogen, Inc. through the
Merger. During 2003, we recorded the inventory that we acquired
from Biogen, Inc. at its estimated fair value. The increase in
fair market value was recognized as cost of product revenues
when the acquired inventory was sold or written-down. During the
first half of 2004, we sold or wrote-down all remaining AVONEX
inventory acquired through the Merger. As a result, we expect
that gross margins will increase during 2005. Excluding the
increase in fair market value related to purchase accounting and
the effects of write-downs of commercial inventory to net
realizable value, gross margins of product revenues would have
been 86% and 84% in 2004 and 2003, respectively. We expect that
gross margins will fluctuate in the future based on changes in
product mix, write-downs of excess or obsolete inventories and
new product initiatives. Gross margin on royalty revenues were
approximately 94% and 92% in 2004 and 2003, respectively. We
expect that gross margins on royalty revenues will fluctuate in
the future based on changes in sales volumes for specific
products from which we receive royalties.
Research and Development Expenses
Research and development expenses totaled $687.7 million in
2004 compared to $233.3 million in 2003 and
$100.9 million in 2002. The increase in research and
development expenses in 2004 over 2003 primarily related to a
full year of the former Biogen, Inc. expenses in 2004 compared
to the period from November 12, 2003 through
December 31, 2003. The increase related to the former
Biogen, Inc. was $432.8 million and consisted primarily of
$74.3 million of expenses related to pre-clinical research
activities, $144.0 million of development research
activities, including clinical trials, related to TYSABRI and
AMEVIVE, $84.2 million of biopharmaceutical operations
expenses mainly attributable to manufacturing and supply chain
functions, $96.1 million of increased depreciation and
infrastructure costs related to the expansion of our
manufacturing and research facilities, and $17.5 million
for our joint development collaboration agreements.
The increase in research and development expenses in 2003 over
2002 primarily related to the acquisition of Biogen, Inc. which
contributed $63.6 million in research and development
expenses for the period from November 13, 2003 through
December 31, 2003, a $20 million payment to Genentech
in conjunction with entering into an amended and restated
collaboration agreement in June 2003, a $17.6 million
increase in personnel expenses resulting from the expansion of
our manufacturing and research functions, a $12.8 million
increase in contract research and manufacturing expenses
primarily related to oncology development and a
$22.8 million increase in manufacturing expenses recorded
as research and development.
Research and development expenses are expected to increase in
2005. We expect to continue incurring additional research and
development expenses due to: work with clinical investigators
and neurological experts related to our evaluations of TYSABRI
resulting from the suspension of TYSABRI from the market in
February 2005; preclinical and clinical testing of our various
products under development; the expansion or addition of
research and development programs and facilities; technology
in-licensing; and regulatory-related expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled
$578.5 million in 2004 compared to $174.6 million in
2003 and $88.0 million in 2002. The increase in selling,
general and administrative expenses for the year ended
December 31, 2004 primarily related to a full year of the
former Biogen, Inc. expenses in 2004 compared to the period from
November 12, 2003 through December 31, 2003. The
increase related to the former Biogen, Inc. was
$410.1 million and consisted primarily of
$192.9 million of expenses related to neurology and
dermatology sales and marketing activities, primarily due to the
launch of TYSABRI, $112.9 million of
52
expenses related to our international selling, general and
administrative initiatives, $64.2 million of expenses
related to our finance and information technology
infrastructure, and $34.6 million of expenses related to
the expansion of our global medical affairs Phase IV
initiatives.
The increase in selling, general and administrative expenses for
the year ended December 31, 2003 primarily related to the
acquisition of Biogen, Inc. which contributed $73.9 million
in selling, general and administrative expenses for the period
from November 13, 2003 through December 31, 2003,
including $10.2 million related to restructuring costs
associated with the relocation of our European headquarters, a
$4.5 million increase in personnel expenses resulting from
the expansion in sales and marketing expenses to support the
commercialization of ZEVALIN, a $2.5 million increase in
legal fees to protect our intellectual property rights, a
$2.2 million increase in insurance expenses due to higher
premiums, a $1.3 million increase in travel expenses
primarily related to integration efforts associated with the
Merger with Biogen, Inc., and a $1.3 million increase in
information technology expenses with the remaining increase due
to the expansion of our administrative function to support
growth in manufacturing and research.
In 2004, we recorded charges of $4.4 million related to
severance obligations for certain employees affected by the
Merger in our San Diego facilities. At December 31,
2004, we had a remaining accrual of approximately
$0.4 million related to the San Diego severance
obligations. In 2004, we accrued approximately $2.3 million
of restructuring costs related to the relocation of our European
headquarters. Our remaining liability related to these European
headquarters restructuring costs was $1.1 million at
December 31, 2004. In 2003, we accrued $2.1 million of
restructuring costs related to severance obligations for certain
employees affected by the Merger in our Cambridge facilities,
and accrued an additional $1.0 million of charges in 2004.
At December 31, 2004, our remaining liability related to
the Cambridge severance obligations was $0.2 million.
We anticipate that total selling, general, and administrative
expenses in 2005 will be higher than 2004 due to sales and
marketing and other general and administrative expenses to
primarily support AVONEX and TYSABRI, despite the voluntary
suspension of the marketing and commercial distribution of
TYSABRI in February 2005, and legal expenses related to
lawsuits, investigations and other matters resulting from the
suspension of TYSABRI.
Other Income (Expense), Net
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Interest income
|
|
$ |
57,225 |
|
|
$ |
33,610 |
|
|
$ |
34,528 |
|
|
Interest expense
|
|
|
(18,898 |
) |
|
|
(15,182 |
) |
|
|
(16,073 |
) |
|
Other expense
|
|
|
(17,650 |
) |
|
|
(29,383 |
) |
|
|
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total other income (expense), net
|
|
$ |
20,677 |
|
|
$ |
(10,955 |
) |
|
$ |
17,646 |
|
| |
|
|
|
|
|
|
|
|
|
Interest income totaled $57.2 million in 2004 compared to
$33.6 million in 2003 and $34.5 million in 2002. The
increase in interest income in 2004 as compared to 2003 is
primarily due to higher cash levels and higher yields on our
marketable securities portfolio. The decrease in interest income
in 2003 as compared to 2002 is primarily due to lower rates of
return on marketable securities available-for-sale on our
investments. Interest income levels that may be achieved in the
future are, in part, dependent upon market conditions.
Interest expense totaled $18.9 million in 2004 compared to
$15.2 million in 2003 and $16.1 million in 2002. The
increase in interest expense in 2004 compared to 2003 related to
an updated estimation of the life of the senior notes due in
2032, which we expect holders will require us to repurchase in
April 2005. As a result, amortization of the issuance costs
related to the senior notes increased $7.1 million. This
was offset by lower noncash interest expense due to conversions
throughout 2004 of our subordinated notes issued in February
1999, and higher capitalized interest expense in 2004. The
decrease in interest expense in 2003 compared to 2002 is due to
the capitalization of $6.8 million in 2003 and
$0.4 million in 2002 of interest costs largely related to
the development of a consolidated west coast research and
development and administration campus
53
in San Diego, California and our large-scale manufacturing
facility in Oceanside, California, offset by higher noncash
interest expense from our senior notes.
Other expense as set forth in the preceding table included the
following (table in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Impairments of marketable securities
|
|
$ |
(18,482 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
Foreign exchange remeasurement gains
|
|
|
5,353 |
|
|
|
1,319 |
|
|
|
— |
|
|
Loss on sale of marketable securities available-for-sale
|
|
|
(4,090 |
) |
|
|
— |
|
|
|
— |
|
|
Gain on investments in executive deferred compensation plan
|
|
|
1,029 |
|
|
|
— |
|
|
|
— |
|
|
Donation to Biogen Idec Foundation
|
|
|
— |
|
|
|
(10,000 |
) |
|
|
— |
|
|
Settlement of patent disputes
|
|
|
— |
|
|
|
(20,668 |
) |
|
|
— |
|
|
Miscellaneous
|
|
|
(1,460 |
) |
|
|
(34 |
) |
|
|
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total other expense
|
|
$ |
(17,650 |
) |
|
$ |
(29,383 |
) |
|
$ |
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
In 2004, we recorded charges totaling $18.5 million to
other expense when it was determined that certain marketable
securities were impaired on an other-than-temporary basis.
In October 2002, Biogen, Inc. established The Biogen Foundation,
a private, U.S. based, non-profit philanthropic
organization. In December 2002, Biogen, Inc. made a charitable
contribution of $15.0 million to fund the Biogen
Foundation. As a result of the Merger, we changed the name of
the foundation to The Biogen Idec Foundation and, in December
2003 contributed an additional $10.0 million. The
foundation is to operate exclusively for the benefit of
charitable, educational and scientific purposes. Certain
executive officers and other employees serve as directors and
officers of the foundation. We classify charitable contributions
to other income (expense).
In December 2003, we recorded charges of $2.5 million and
$18.2 million related to the final settlement of patent
infringement disputes with Apoxis S.A. and Corixa Corporation,
respectively. These payments were charged to other expense in
the fourth quarter of 2003.
Acquired In-Process Research and Development
In the fourth quarter of 2003, we incurred a charge of
$823.0 million related to the write-off of acquired
in-process research and development, or IPR&D, related to
the Merger. The amount expensed as IPR&D represents the
estimated fair value of purchased in-process technology for
projects that, as of the acquisition date, had not reached
technological feasibility and had no alternative future use. The
estimated fair value of these projects was determined based on
the use of a discounted cash flow model. For each project, the
estimated after-tax cash flows were probability weighted to take
into account the stage of completion and the risks surrounding
the successful development and commercialization. These cash
flows were then discounted to present value using a discount
rate of 16%.
As of December 31, 2004, we estimated future research and
development expenses of approximately $65 million,
$34 million, and $177 million, respectively, would be
incurred to complete the purchased neurology, dermatology, and
rheumatology research projects. Since the date of the Merger,
November 12, 2003, we have discontinued certain clinical
trials. Additionally, in connection with the voluntary
suspension of marketing and commercial distribution of TYSABRI
in February 2005, we suspended dosing in clinical trials of
TYSABRI in MS, Crohn’s disease and RA. Estimates of
expenses are net of any research and development expenses that
were shared under collaborations with corporate partners. The
projects, which were in various stages of development, from
preclinical through Phase III clinical trials, are, unless
they have been discontinued, expected to reach completion at
various dates ranging from 2005 through 2009.
The major risks and uncertainties associated with the timely and
successful completion of these projects are that we will not be
able to confirm the safety and efficacy of the technology with
data from clinical trials and that we will not be able to obtain
necessary regulatory approvals. No assurance can be given that
the
54
underlying assumptions used to forecast the cash flows or the
timely and successful completion of such projects will
materialize, as estimated. For these reasons, among others,
actual results may vary significantly from estimated results.
Amortization of Intangible Assets
In 2004 and 2003, we recorded amortization expense of
$347.7 million and $33.2 million, respectively,
related to the intangible assets of $3.7 billion acquired
in the Merger with Biogen, Inc. Intangible assets consist of
$3.0 billion in core technology, $578.0 million in
patents and $64.0 million in trademarks. Amortization of
the core technology is provided over the estimated useful lives
of the technology ranging from 15 to 20 years, based on the
greater of straight-line basis or economic consumption each
period. Amortization of the out-licensed patents for which we
receive royalties is provided over the remaining lives of the
patents of 11 years. Trademarks have an indefinite life
and, as such, are not amortized.
We review our intangible assets for impairment periodically and
whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. In the third
quarter of 2004, management determined that certain clinical
trials would not continue which indicated that the carrying
value of certain core technology intangible assets related to
AMEVIVE may not be recoverable. As a result, in the third
quarter of 2004, we recorded an impairment charge of
approximately $27.8 million to amortization of acquired
intangible assets, which reflects the adjustment to net
realizable value of core technology intangible assets related to
AMEVIVE. If future events or circumstances indicate that the
carrying value of these assets may not be recoverable, we may be
required to record additional charges to our results of
operations.
Income Tax Provision
Our effective tax rate in 2004 was approximately 61% compared to
1% in 2003 and 36% in 2002. Our effective tax rate for 2004
varied substantially from the U.S. federal statutory rate
and prior years primarily due to the IPR&D write-off in
2003, the acquisition-related intangible amortization and
inventory fair value adjustments arising from purchase
accounting related to foreign jurisdictions offset, in part, by
the effect of lower income tax rates (less than the 35%
U.S. statutory corporate rate) in certain
non-U.S. jurisdictions in which we operate and tax credits
allowed for research and experimentation expenditures in the
U.S. Excluding the effect of purchase accounting
adjustments, our adjusted 2004 effective tax rate would have
been approximately 32%. Our effective tax rate for 2003 varied
substantially from the U.S. federal statutory rate and
prior years primarily due to the pre-tax loss resulting from the
write-off of non-deductible IPR&D and other costs in
connection with the Merger with Biogen, Inc. which were not
deductible for income tax purposes. Excluding the effect of our
write-off of IPR&D, our 2003 effective tax rate would have
been approximately 35%. Our effective tax rate for 2002 was
higher than the federal statutory rate primarily because of
state taxes. We have tax credit carryforwards for federal and
state income tax purposes available to offset future taxable
income. The utilization of our tax credits may be subject to an
annual limitation under the Internal Revenue Code due to a
cumulative change of ownership of more than 50% in prior years.
However, we anticipate that this annual limitation will result
only in a slight deferral in the utilization of our net tax
credits. During 2002, we decreased our valuation allowance for
deferred tax assets to zero. Each reporting period we evaluate
the realizability of our deferred tax assets based upon the
level of historical taxable income and income tax liabilities
and projections for future taxable income over the periods that
our deferred tax assets are either tax deductible or to which
our tax credits may be carried. Based on the evaluation
performed as of December 31, 2004, we believe it is more
likely than not that we will realize the entire benefits of our
deferred tax assets. In the event that actual results differ
from our estimates of future taxable income or we adjust our
estimates in future periods, we may need to establish a
valuation allowance, which could materially impact our financial
position and results of operations.
Financial Condition
We have financed our operating and capital expenditures
principally through profits and other revenues from our joint
business arrangement with Genentech related to the sale of
RITUXAN, sales of AVONEX, AMEVIVE, and ZEVALIN, royalty
revenues, corporate partner revenues, debt financing
transactions and
55
interest income. We expect to finance our current and planned
operating requirements principally through cash on hand, which
includes the proceeds from the April and May 2002 issuance of
our senior notes, funds from our joint business arrangement with
Genentech related to the sale of RITUXAN, commercial sales of
AVONEX, AMEVIVE and ZEVALIN, royalties and existing
collaborative agreements and contracts, and sales of TYSABRI if
we are able to re-launch this product which is dependent on the
results of our evaluation of the risk of PML and discussions
with regulatory authorities. We believe that these funds will be
sufficient to meet our operating requirements for the
foreseeable future. However, we may, from time to time, seek
additional funding through a combination of new collaborative
agreements, strategic alliances and additional equity and debt
financings or from other sources. Our working capital and
capital requirements will depend upon numerous factors,
including: the continued commercial success of AVONEX and
RITUXAN and, to a lesser extent, AMEVIVE and ZEVALIN; the future
commercial availability of TYSABRI if we are able to re-launch
this product; the timing and expense of obtaining regulatory
approvals for products in development; the cost of launching new
products, and the success of those products; funding and timing
of payments related to several significant capital projects, the
progress of our preclinical and clinical testing; fluctuating or
increasing manufacturing requirements and research and
development programs; levels of resources that we need to devote
to the development of manufacturing, sales and marketing
capabilities, including resources devoted to the marketing of
AVONEX, RITUXAN, AMEVIVE, and ZEVALIN and future products, as
well as the future marketing and manufacturing of TYSABRI if we
are able to re-launch this product; technological advances;
status of products being developed by competitors; our ability
to establish collaborative arrangements with other
organizations; and working capital required to satisfy the
options of holders of our senior notes and subordinated notes to
require us to repurchase their notes on specified terms or upon
the occurrence of specified events.
Until required for operations, we invest our cash reserves in
bank deposits, certificates of deposit, commercial paper,
corporate notes, foreign and U.S. government instruments
and other readily marketable debt instruments in accordance with
our investment policy.
Cash, cash equivalents and marketable securities
available-for-sale decreased to $2.2 billion at
December 31, 2004 from $2.3 billion at
December 31, 2003. Our operating activities generated
$728.0 million of cash for the year ended December 31,
2004 as compared to $170.0 million for the year ended
December 31, 2003. Net cash from operating activities
includes our net income of $25.1 million, noncash charges
of $439.4 million for depreciation and amortization,
$289.5 million of impact on sales of stepped-up inventory,
and $144.6 million of tax benefits related to stock options
offset by $135.6 million for deferred income taxes. Our
investing activities utilized $382.4 million of cash in
2004 compared to $256.4 million in 2003, and included
$361.0 million to fund construction projects and purchase
real property and equipment, including our research and
development and administration campus in San Diego and
manufacturing facility in Oceanside. Cash generated from
financing activities included $273.5 million from the
issuance of common and treasury stock under employee stock
option and stock purchase plans offset by $734.4 million
used for the repurchase of shares under our repurchase programs
in 2004.
In April and May 2002, we raised through the issuance of our
senior notes, approximately $696 million, net of
underwriting commissions and expenses of $18.4 million.
Simultaneously with the issuance of the senior notes, we used a
portion of the proceeds to fund the repurchase of
$135.0 million of our outstanding common stock. The senior
notes are zero coupon and were priced with a yield to maturity
of 1.75% annually. We will pay contingent cash interest to the
holders of these senior notes during any nine-month period
commencing on or after April 30, 2007 if the average market
price of the senior notes for a five-trading-day measurement
period preceding such nine-month period equals 120% or more of
the sum of the issue price and accrued original issue discount
for such senior note. The contingent interest payable per senior
note with respect of any quarterly period within such nine-month
period where contingent interest is determined to be payable
will equal the greater of (1) the amount of regular cash
dividends paid by us per share on our common stock during that
quarterly period multiplied by the then applicable conversion
rate or (2) 0.0625% of the average market price of a senior
note for the five-trading-day measurement period preceding such
nine-month period, provided that if we do not pay regular cash
dividends during a semiannual period, we will pay contingent
56
interest semiannually at a rate of 0.125% of the average market
price of a senior note for the five-trading-day measurement
period immediately preceding such nine-month period.
Upon maturity, the senior notes will have an aggregate principal
face value of $1.2 billion. Each $1,000 aggregate principal
face value senior note is convertible at the holder’s
option at any time through maturity into 7.1881 shares of
our common stock at an initial conversion price of $82.49,
resulting in total potential common shares to be issued upon
conversion of 8.7 million shares. In addition, holders of
the senior notes may require us to purchase all or a portion of
the senior notes on April 29, 2005, 2007, 2012 and 2017 at
a price equal to the issue price plus the accrued original issue
discount to the date of purchase, payable in cash. We expect
that on April 29, 2005, holders of the senior notes will
require us to purchase all or a substantial portion of the notes
which could result in a cash outflow of up to approximately
$809 million. This outflow includes payment of the
aggregate purchase price of the notes of approximately
$753 million plus the payment of tax for which deferred tax
liabilities have been previously established related to
additional deductible interest expense. As a result, these
senior notes are included in notes payable under current
liabilities in our consolidated balance sheets. We would be
required to liquidate a portion of our marketable securities
portfolio to purchase the notes. In addition, if a change in
control in our company occurs on or before April 29, 2007,
holders may require us to purchase all or a portion of their
senior notes for cash. We have the right to redeem at a price
equal to the issue price plus the accrued original issue
discount to the date of redemption all or a portion of the
senior notes for cash at any time on or after April 29,
2007.
In February 1999, we raised through the issuance of our
subordinated notes, approximately $112.7 million, net of
underwriting commissions and expenses of $3.9 million. The
subordinated notes are zero coupon and were priced with a yield
to maturity of 5.5% annually. Upon maturity, the subordinated
notes will have an aggregate principal face value of
$345.0 million. As of December 31, 2004, our remaining
indebtedness under the subordinated notes was approximately
$219.2 million at maturity, due to conversion of
subordinated notes into common stock. Each $1,000 aggregate
principal face value subordinated note is convertible at the
holders’ option at any time through maturity into
40.404 shares of our common stock at an initial conversion
price of $8.36 per share. The holders of the subordinated notes
may require us to purchase the subordinated notes on
February 16, 2009 or 2014 at a price equal to the issue
price plus accrued original issue discount to the date of
purchase with us having the option to repay the subordinated
notes plus accrued original issue discount in cash, common stock
or a combination of cash and stock. We have the right to redeem
at a price equal to the issue price plus the accrued original
issue discount to the date of redemption all or a portion of the
subordinated notes for cash at any time. During 2004, holders of
subordinated notes with a face value of approximately
$125.7 million elected to convert their subordinated notes
to approximately 5.1 million shares of our common stock. To
date, in the first quarter of 2005, holders of subordinated
notes with a face value of approximately $18.1 million
elected to convert their subordinated notes to approximately
0.7 million shares of our common stock.
In August 2004, we restarted construction of our large-scale
biologic manufacturing facility in Hillerod, Denmark to be used
to manufacture TYSABRI and other products in our pipeline. The
cost of the project is estimated to be $372.0 million. As
of December 31, 2004, we had committed approximately
$129.0 million to the project, of which $17.3 million
has been paid. We expect this facility to be substantially
complete in 2007 and available for commercial production in
2008. As of March 31, 2005, we determined that we would no
longer proceed with the fill-finish component of our large-scale
biologic manufacturing facility in Hillerod. As a result, we
expect to write-off in the first quarter of 2005 to research and
development expense approximately $6.5 million of
engineering costs which had previously been capitalized.
In September 2000, we purchased a 60-acre site in Oceanside,
California for approximately $18.9 million in cash. In
December 2002, we purchased an additional 27 acres of land
at the Oceanside site for $7.9 million. We are building a
large-scale manufacturing facility at this location, which we
anticipate using to manufacture TYSABRI and other commercial
products. We have completed construction of this facility and
obtained the certificate of occupancy in the fourth quarter of
2004. Commissioning and validation is expected to continue
through 2005. We expect the facility to be licensed in 2006.
Including start-up costs, total costs of this facility upon
completion are estimated to be $480.0 million. As of
December 31, 2004, we have committed
57
approximately $413.0 million to the construction of this
large-scale manufacturing facility, of which $388.4 million
has been paid.
The timing of the anticipated completion, licensing and use of
the Oceanside facility and the Hillerod facility is dependent
upon the commercial availability and potential market acceptance
of TYSABRI. See “Forward-Looking Information and Risk
Factors That May Affect Future Results — Safety Issues
with TYSABRI Could Significantly Affect our Growth.” If
TYSABRI is permanently withdrawn from the market, we would need
to evaluate our long-term plans for these facilities. If we are
able to reintroduce TYSABRI to the market, we would need to
evaluate our requirements for TYSABRI inventory and additional
manufacturing capacity in light of the approved label and our
judgment of the potential U.S. market acceptance of TYSABRI
in MS, the probability of obtaining marketing approval of
TYSABRI in MS in the EU and other jurisdictions, and the
probability of obtaining marketing approval of TYSABRI in
additional indications in the U.S., EU and other jurisdictions.
In June 2004, we commenced construction to add additional
research facilities and administrative space to one of our
existing buildings in Cambridge, Massachusetts. The cost of the
project is estimated to be $65.0 million. As of
December 31, 2004, we had committed approximately
$29.0 million to the project, of which $18.5 million
had been paid. The project is expected to be substantially
complete in late 2005.
In September 2001, we purchased approximately 42.6 acres of
land in San Diego, California for approximately
$31.7 million in cash where we are building a consolidated
research and development and administration campus. We
substantially completed construction and took occupancy in the
building in the fourth quarter of 2004. The estimated total cost
of the project is $169.0 million. As of December 31,
2004, we have committed approximately $168.0 million to the
construction of this campus, of which $167.0 million has
been paid.
In February 2004, our Board of Directors authorized the
repurchase of up to 12.0 million shares of our common
stock. During 2004, we repurchased all 12.0 million shares
at a cost of $698.4 million, completing this program. The
repurchased stock provided us with treasury shares to be used
for general corporate purposes, such as common stock to be
issued under our employee equity and stock purchase plans.
In October 2004, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. The repurchased stock will provide us with treasury
shares for general corporate purposes, such as common stock to
be issued under our employee equity and stock purchase plans.
This repurchase program will expire no later than
October 4, 2006. During the fourth quarter of 2004, we
repurchased 0.6 million shares at a cost of
$36.0 million. Approximately 19.4 million shares
remain authorized for repurchase under this program at
December 31, 2004. To date, in the first quarter of 2005,
we repurchased approximately 3.5 million shares under this
program, at a cost of $168.5 million.
In May 1999, we entered into an arrangement with MDS (Canada)
Inc., MDS Nordion Division, successor to MDS Nordion, Inc., or
MDS (Canada), under which MDS (Canada) agreed to supply us
yttrium-90, a radioisotope used in connection with administering
ZEVALIN. MDS (Canada) initially supplied product for use in the
ZEVALIN clinical trials. In anticipation of commercial launch of
ZEVALIN, we subsequently determined that additional commercial
production capacity for yttrium-90 would be necessary. To obtain
a commitment from MDS (Canada) that sufficient commercial supply
would be available, we agreed to minimum purchase commitments of
$55.0 million, and to make periodic cash payments totaling
$25.0 million into an escrow account. The supply agreement
was amended in November 2001 to give effect to these mutual
commitments.
In December 2003, in light of the reduced expectations for
ZEVALIN sales levels, we agreed to release the
$25.0 million of escrowed funds to MDS (Canada), and MDS
(Canada) agreed to eliminate the minimum purchase commitments
from the supply arrangement. MDS (Canada)’s obligation to
supply yttrium-90 remains in effect. We are amortizing the
prepayment over the economic life of the agreement.
In connection with the Merger, we assumed Biogen, Inc.’s
Retirement Plan, a tax-qualified defined benefit pension plan.
Prior to November 13, 2003, we did not have a pension plan.
Prior to the Merger, the Retirement Plan covered substantially
all of Biogen, Inc.’s regular U.S. employees and
provided compensation
58
credits and interest credits to participants’ Retirement
Plan accounts using a cash balance method. We also assumed
Biogen, Inc.’s unfunded Supplemental Executive Retirement
Plan, or SERP, which covered a select group of highly
compensated U.S. employees. The plans are noncontributory.
The Retirement Plan’s benefit formula was based on employee
earnings and age. The SERP provided benefits for covered
executives in excess of those permitted under the tax-qualified
Retirement Plan. Biogen, Inc.’s funding policy for the
plans has been to contribute amounts deductible for federal
income tax purposes. Funds contributed to the plans have been
invested in fixed income and equity securities. At
October 31, 2003, Biogen, Inc. ceased allowing new
participants into the plans. Effective December 31, 2003,
Biogen, Inc. amended the plans so that no further benefits would
accrue to participants.
We credited participants’ cash balance accounts under the
Retirement Plan for compensation and interest earned through
December 31, 2003. After that date, no further compensation
credits will be made, but interest credits will be made until
the Retirement Plan benefits have been distributed to
participants.
We credited participants’ accounts under the SERP for
compensation and interest earned through December 31, 2003.
No further compensation credits will be made, but interest
credits will be made until the SERP is terminated.
In connection with the termination of the Retirement Plan, we
requested an Internal Revenue Service, or IRS, ruling that the
Plan’s termination did not adversely affect its
tax-qualified status. During 2004, our management decided to
accelerate the payment and to pay out participants’
benefits as soon as administratively possible. In December 2004,
we began distributing to employees their respective Retirement
Plan benefits. Participants had the following options with
respect to the value of their Plan distribution: (a) to
receive an immediate lump sum payment which may be rolled over
into the Biogen Idec 401(k) Savings Plan (401(k) plan) or other
designated qualified plan, or (b) to receive an annuity
that would begin either immediately or at a deferred date.
During 2004, we incurred charges of approximately
$2.1 million related to transition benefits associated with
the termination of the plans, and plan curtailment costs and
additional premium costs related to the annuity transfer of
approximately $3.0 million, which are included in our
results of operations for 2004. At December 31, 2004, we
had a liability of $14.1 million related to these plans,
including $7.7 million related to transition benefits
associated with the plan terminations. In January 2005, we
funded approximately $1.2 million to cover the remaining
lump sum benefit payments under the Retirement Plan.
Use of Non-GAAP Financial Measures
We use non-GAAP gross margin of product sales measure in the
“Cost of Product Revenues” section and non-GAAP
effective tax rate measures in the “Income Tax
Provision” section. These are non-GAAP financial measures.
The most directly comparable GAAP financial measures of each
non-GAAP financial measure as well as the reconciliation between
each non-GAAP financial measure and the GAAP financial measure
are presented in the discussions of the non-GAAP financial
measures. We believe that the non-GAAP financial measures
provide useful information to investors. In particular, we
believe that the non-GAAP financial measures allow investors to
monitor and evaluate our ongoing operating results and trends
and gain a better understanding of our past performance as well
as period-to-period performance.
Contractual Obligations and Off-Balance Sheet Arrangements
The following summarizes our contractual obligations (excluding
contingent milestone payments totaling $332.5 million under
our collaboration and license agreements, and construction
commitments disclosed
59
separately under “Financial Condition”) at
December 31, 2004, and the effects such obligations are
expected to have on our liquidity and cash flows in future
periods:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
Total | |
|
Less than | |
|
1-3 | |
|
4-5 | |
|
After | |
| |
|
Years | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Non-cancelable operating leases
|
|
$ |
133,626 |
|
|
$ |
28,112 |
|
|
$ |
40,123 |
|
|
$ |
27,814 |
|
|
$ |
37,577 |
|
|
Other long-term obligations
|
|
|
46,862 |
|
|
|
25,696 |
|
|
|
16,462 |
|
|
|
4,704 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
180,488 |
|
|
$ |
53,808 |
|
|
$ |
56,585 |
|
|
$ |
32,518 |
|
|
$ |
37,577 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All material intercompany balances and transactions have been
eliminated. We do not have any other relationships with
unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As such, we are not
exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in such relationships.
Collaboration and License Agreements
In connection with our research and development efforts, we have
entered into various collaboration arrangements which provide us
with rights to develop, produce and market products using
certain know-how, technology and patent rights maintained by the
parties. Terms of the various license agreements may require us
to make milestone payments upon the achievement of certain
product development objectives and pay royalties on future
sales, if any, of commercial products resulting from the
collaboration.
In October 2004, we entered into a development and license
agreement with ImmunoGen, Inc., or ImmunoGen, for a worldwide,
exclusive license to develop and commercialize anticancer
therapeutics that comprise an antibody that we have developed to
an undisclosed tumor cell target and ImmunoGen’s
proprietary Tumor-Activated Prodrug (TAP) technology. As part of
the agreement, we paid ImmunoGen an upfront fee of
$1.0 million, which was recorded as a research and
development expense. Upon the achievement of certain
predetermined milestones, we would be required to pay ImmunoGen
up to a total of $42.0 million plus royalties over the life
of the agreement. ImmunoGen will also receive compensation from
us for product development research done on its behalf, as well
as for the production of preclinical and initial clinical
materials.
In August 2004, we entered into a collaborative agreement with
Sunesis Pharmaceuticals, Inc., or Sunesis, to discover and
develop small molecule cancer therapeutics targeting primarily
kinases. Under the agreement, we acquired exclusive licenses to
develop and commercialize certain compounds resulting from the
collaboration. Upon signing the agreement, we paid Sunesis a
non-refundable upfront license fee of $7.0 million, which
was recorded in research and development expenses in the third
quarter of 2004. Under the terms of this agreement, we purchased
approximately 2.9 million shares of preferred stock of
Sunesis for $14.0 million, the fair value of the shares. In
December 2002, Biogen, Inc. entered into a collaboration
agreement with Sunesis related to the discovery and development
of oral therapeutics for the treatment of inflammatory and
autoimmune diseases. Under the terms of this agreement, we
purchased 1.25 million shares of preferred stock of Sunesis
for $6.0 million, the fair value of the shares. We acquired
certain exclusive licenses to develop and commercialize certain
compounds resulting from the collaboration. Our investments in
Sunesis are included in investments and other assets. We account
for our investments in Sunesis using the cost method of
accounting, subject to periodic review of impairment. Under the
terms of the December 2002 agreement, we will pay Sunesis a
quarterly license maintenance fee of $357,500 during the period
January 1, 2005 through July 1, 2005. Additionally, we
have a Credit Facility Agreement with Sunesis under which we are
obligated to loan Sunesis up to $4.0 million. At
December 31, 2004, there is $3.2 million of borrowings
outstanding. We have committed to paying Sunesis additional
amounts upon the completion of certain future research
milestones and first and second indication development
milestones. If all the milestones were to be achieved in both
agreements, we would be required to pay up to an additional
$121.0 million over the life of the agreements, excluding
royalties.
60
In July 2004, we and Elan entered into a patent license
agreement with Genentech for a non-exclusive license to certain
Genentech patents related to the manufacture of licensed
products, including TYSABRI. As a part of the agreement, we and
Elan paid a $1.0 million license grant fee upon execution
of the agreement, which was charged to research and development
expenses, and will pay an additional $1.0 million on the
first anniversary of the agreement. In addition, we and Elan
each have to pay a development milestone fee of
$2.5 million related to the approval of TYSABRI by the FDA
in November 2004, half of which was paid in 2004 upon approval
of TYSABRI and half of which is payable on the anniversary of
such approval. At December 31, 2004, our $2.5 million
total milestone fee is included in intangible assets, net on the
consolidated balance sheets and is being amortized to cost of
product revenues over the life of the patent. The agreement also
requires that we or Elan pay royalties on net sales of TYSABRI
and other licensed products.
In June 2004, we entered into a collaborative research and
development agreement with Vernalis plc, or Vernalis, aimed at
advancing research into Vernalis’ adenosine A2A receptor
antagonist program, which targets Parkinson’s disease and
other central nervous system disorders. Under the agreement, we
receive exclusive worldwide rights to develop and commercialize
Vernalis’ lead compound, V2006. We paid Vernalis an initial
license fee of $10.0 million in July 2004, which was
recorded in research and development expenses in the second
quarter of 2004. Terms of the collaborative agreement may
require us to make milestone payments upon the achievement of
certain program objectives and pay royalties on future sales, if
any, of commercial products resulting from the collaboration. We
made an immediate investment of $5.5 million through
subscription for approximately 6.2 million new Vernalis
common shares, representing 4.19 percent of Vernalis’
post-financing issued share capital, and committed to purchase
an additional $4.0 million in the event of future Vernalis
financing. Our investment in Vernalis is included in investments
and other assets. We account for our investment in Vernalis
using the cost method of accounting, subject to periodic review
of impairment. Excluding royalties, total potential payments to
Vernalis could exceed $100.0 million.
In June 2004, we entered into a license agreement with BioWa,
Inc., or BioWa, for a worldwide, non-exclusive license for
research purposes and a worldwide, exclusive license for
development and commercialization purposes to certain BioWa
intellectual property rights related to monoclonal antibodies.
As part of the agreement, we have committed to paying BioWa
certain amounts upon the achievement of certain research and
clinical milestones. If all the milestones were to be achieved,
we would be required to pay BioWa a total of $18.8 million
plus royalties over the life of the agreement.
In May 2004, we entered into a limited partnership agreement as
a limited partner with MPM Bioventures III GP, LP, to
create MPM Bioventures Strategic Fund, LP, or the Strategic
Fund. The purpose of the Strategic Fund is to make, manage, and
supervise investments in biotechnology companies with novel
products or technologies that fit strategically with Biogen
Idec. The Strategic Fund takes only minority positions in the
equity of its investments, and does not seek to engage in
day-to-day management of the entities. We have committed
$65.0 million to the Strategic Fund over a three-year
period. During 2004, we contributed $5.5 million to the
Strategic Fund.
In April 2004, we became a limited partner in MPM
Bioventures III-QP, LP, or the LP, a limited partnership
that invests in entities that are engaged in the research,
development, manufacture, marketing and/or sale of novel
biological products or technologies. We have committed to
contribute $4.0 million to the limited partnership. Through
December 31, 2004, we have contributed $1.8 million
into the LP, which is included in investments and other assets
in our consolidated balance sheets.
In September 2003, Biogen, Inc. entered into a license agreement
with Fumapharm AG, or Fumapharm, under which Biogen, Inc.
obtained exclusive rights to develop and market a
second-generation fumarate derivative with an immunomodulatory
mechanism of action, which is currently in clinical trials in
Europe. Under the terms of this agreement, we have an exclusive
worldwide marketing and distribution license for psoriasis, and
a production and exclusive marketing and distribution license
for the entire world for MS. During 2004, we made payments
totaling $4.2 million to Fumapharm for the achievement of
certain milestones, which were expensed to research and
development expense. We have committed to paying Fumapharm
additional amounts upon the completion of certain future
research milestones and first and
61
second indication development milestones. If all the milestones
were to be achieved, we would be required to pay up to an
additional 20.0 million Swiss francs plus royalties over
the remaining life of the agreement.
In August 2003, Biogen, Inc. entered into a collaboration
agreement with Vetter Pharma-Fertigung GmbH & Co. KG,
or Vetter, for the fill-finish of our products. Under the terms
of this agreement, we made a partial advance payment to Vetter
of 35.0 million Euros in return for reserving certain
capacity at Vetter’s fill-finish facility. As of
December 31, 2004, we have made payments totaling
$22.7 million to Vetter for the achievement of certain
milestones achieved under the terms of our supply agreement for
reserving certain capacity at Vetter’s fill-finish
facility. These payments are recorded in investments and other
assets on our consolidated balance sheets. The asset will be
amortized to cost of product revenues over the units produced
upon delivery to Biogen Idec. We have total potential milestone
payments of approximately 16.0 million euros remaining as
part of the agreement.
In September 2001, we entered into a collaborative development
agreement with Mitsubishi Pharma to support clinical development
of anti-CD80 (anti-B7.1) antibody products developed using our
Primatized® antibody technology. Under the terms of an
existing license agreement with Mitsubishi Pharma, entered into
in November 1993, Mitsubishi Pharma had an exclusive license in
Asia to develop and commercialize anti-CD80 (anti-B7.1) antibody
products. These agreements were terminated in December 2003. As
a result of the termination of these agreements, we have no
continuing financial obligations under these agreements. During
2003 and 2002, we recognized revenues from these agreements of
$1.5 million and $1.4 million, respectively, which are
included in corporate partner revenues. Under these agreements,
amounts earned by us and recognized as revenue for contract
research and development approximated the research and
development expenses incurred under the related agreement.
In August 2000, Biogen, Inc. entered into a development and
marketing collaboration agreement with Elan to collaborate in
the development, manufacture and commercialization of TYSABRI.
In November 2004, we received approval by the FDA to market
TYSABRI as a treatment for relapsing forms of MS to reduce
frequency of clinical relapses. We are also developing TYSABRI
as a potential treatment for Crohn’s disease and RA. In
February 2005, we and Elan voluntarily suspended the marketing
and commercial distribution of TYSABRI and suspended dosing in
clinical trials of TYSABRI. See “Overview” for a
description of the suspension and related events. Under the
terms of this agreement, we share costs with Elan for on-going
development activities. As of December 31, 2004, Elan owed
us $34.4 million, representing commercialization and
development expenses that we incurred, which is included in
other current assets on our consolidated balance sheets. We
received the entire $34.4 million from Elan in the first
quarter of 2005 related to the receivable.
In June 1999, we entered into a collaboration and license
agreement with Schering AG, or Schering, aimed at the
development and commercialization of ZEVALIN. Under the terms of
the agreement, we may receive milestone and research and
development support payments totaling up to $47.5 million,
subject to the attainment of product development objectives.
Schering received exclusive marketing and distribution rights to
ZEVALIN outside the U.S., and we will receive royalties on
product sales by Schering. Under the terms of a separate supply
agreement, we are obligated to meet Schering’s clinical and
commercial requirements for ZEVALIN. Schering may terminate
these agreements for any reason. During 2004, 2003 and 2002, we
recognized revenues from our agreements with Schering of
$10.0 million, $0.2 million and $0.3 million,
respectively, which are included in corporate partner revenues.
In the first quarter of 2004, we received a $10.0 million
payment from Schering for the EMEA grant of marketing approval
of ZEVALIN in the EU. The payment represented, in part, a
milestone payment to compensate us for preparing, generating,
and collecting data that was critical to the EMEA marketing
approval process, and to which we have no continuing
involvement. Under the above agreement, amounts earned by us and
recognized as revenue for contract research and development
approximate the research and development expenses incurred under
the related agreement.
In December 1994, we entered into a collaborative development
agreement and a license agreement with Seikagaku, aimed at the
development and commercialization of an anti-CD23 antibody using
Primatized antibody technology. During 2003 and 2002, we
recognized revenues from our agreement with Seikagaku of
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$0.6 million and $1.6 million, respectively, which are
included in corporate partner revenues. Although this agreement
was terminated effective January 17, 2004, we have certain
continuing obligations under the agreement that we expect to
fulfill in the first half of 2005 and for which we would receive
revenue from Seikagaku. Under the above agreement, amounts
earned by us and recognized as revenue for contract research and
development approximate the research and development expenses
incurred under the related agreement.
As part of previous agreements that Biogen, Inc. had with
Targeted Genetics Corporation, or Targeted, for gene therapy
research and development, we own approximately 12.1 million
shares of Targeted’s common stock with a fair value of
$18.8 million, which is included in investments and other
assets in our consolidated balance sheets. In the third quarter
of 2004, we recognized a $12.7 million charge for the
impairment of our Targeted investment that was determined to be
other than temporary. We have no remaining commitments or
obligations with Targeted.
Legal Matters
On March 2, 2005, we, along with William H. Rastetter, our
Executive Chairman, and James C. Mullen, our Chief Executive
Officer, were named as defendants in a purported class action
lawsuit, captioned Brown v. Biogen Idec Inc., et al.,
filed in the U.S. District Court for the District of
Massachusetts. The complaint alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. The action is
purportedly brought on behalf of all purchasers of our
publicly-traded securities between February 18, 2004 and
February 25, 2005. The plaintiff alleges that the
defendants made materially false and misleading statements
regarding potentially serious side effects of TYSABRI in order
to gain accelerated approval from the FDA for the product’s
distribution and sale. The plaintiff alleges that these
materially false and misleading statements harmed the purported
class by artificially inflating our stock price during the
purported class period and that company insiders benefited
personally from the inflated price by selling our stock. The
plaintiff seeks unspecified damages, as well as interest, cost
and attorneys’ fees. A substantially similar action,
captioned Grill v. Biogen Idec Inc., et al., was filed
on March 10, 2005 in the same court by another purported
class representative. We believe that the actions are without
merit and intend to contest them vigorously. At this stage of
litigation, we cannot make any estimate of a potential loss or
range of loss.
On March 4, 2005, a purported shareholder derivative
action, captioned Halpern v. Rastetter, et al., was
filed in the Court of Chancery for the State of Delaware, in New
Castle County, on our behalf of Biogen Idec Inc., against us as
nominal defendant, our Board of Directors and our former general
counsel. The plaintiff derivatively claims breaches of fiduciary
duty by the Board of Directors for inadequate oversight of our
policies, practices, controls and assets, and for recklessly
awarding executive bonuses despite alleged awareness of
potentially serious side effects of TYSABRI and the potential
for related harm to our financial position. The plaintiff also
derivatively claims that our Executive Chairman, former general
counsel and a director misappropriated confidential company
information for personal profit by selling our stock while in
possession of material, non-public information regarding the
potentially serious side effects of TYSABRI, and alleges that
our Board of Directors did not ensure that appropriate policies
were in place regarding the control of confidential information
and personal trading in our securities by officers and
directors. The plaintiff seeks unspecified damages, profits, the
return of all bonuses paid by us, costs and attorneys’
fees. A substantially similar action, captioned Golaine v.
Rastetter, et al., was filed on March 14, 2005 in the
same court. Neither of the plaintiffs made presuit demand on our
Board of Directors prior to filing their respective actions. As
required by applicable law, we and our Board of Directors are
considering the derivative claims in the complaints and will
respond in a time and manner consistent with applicable Delaware
statutory and common law. The purported derivative actions do
not seek affirmative relief from the company.
On March 9, 2005, two additional purported shareholder
derivative actions, captioned Carmona v. Mullen,
et al. and Fink v. Mullen, et al., were brought
in the Superior Court of the State of California, County of
San Diego, on our behalf, against us as nominal defendant,
our Board of Directors and our chief financial officer. The
plaintiffs derivatively claim breach of fiduciary duties, abuse
of control, gross mismanagement, waste of corporate assets and
unjust enrichment against all defendants. The plaintiffs also
derivatively claim insider selling in violation of California
Corporations Code § 25402 and breach of fiduciary duty
and
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misappropriation of information against certain defendants who
sold our securities during the period of February 18, 2004
to the date of the complaints. The plaintiffs allege that the
defendants caused and/or allowed us to issue, and conspired,
aided and abetted and acted in concert in concealing that we
were issuing, false and misleading press releases about the
safety of TYSABRI and its financial prospects which resulted in
legal claims being asserted against us, irreparable harm to our
corporate image, depression of our stock price and impairment of
our ability to raise capital. The plaintiffs also allege that
certain defendants sold personally owned shares of our stock
while in possession of material, undisclosed, adverse
information. The plaintiffs seek unspecified damages, treble
damages for the purported insider trading in violation of
California Corporate Code § 25402, equitable relief
including restriction of the defendants’ trading proceeds
or other assets, restitution, disgorgement and costs, including
attorneys’ fees and expenses. Neither of the plaintiffs
made presuit demand on our Board of Directors prior to filing
their respective actions. As required by applicable law, we and
our Board of Directors are considering the derivative claims in
the complaints and will respond in a time and manner consistent
with applicable statutory and common law. The purported
derivative actions do not seek affirmative relief from the
company.
Our Board of Directors has received letters, dated March 1
and 15, 2005, respectively, on behalf of purported owners
of our securities purportedly constituting demands under
Delaware law. A supplement to the March 1 letter was
received on March 2, 2005. The letters generally allege
that certain of our officers and directors breached their
fiduciary duty to us by selling personally held shares our
securities while in possession of material, non-public
information about potential serious side effects of TYSABRI. The
letters generally request that our Board of Directors take
action on our behalf to recover compensation and profits from
the officers and directors, consider enhanced corporate
governance controls related to the sales of securities by
insiders, and pursue other such equitable relief, damages, and
other remedies as may be appropriate. As required by applicable
law, our Board of Directors is currently considering the letters
and will respond in a time and manner consistent with Delaware
law.
We are providing information to the SEC regarding the SEC’s
informal inquiry into the suspension of marketing and commercial
distribution of TYSABRI and trading in our securities by certain
of our directors, officers and employees.
On July 15, 2003, Biogen, Inc. (now Biogen Idec MA, Inc.,
one of our wholly-owned subsidiaries), along with Genzyme
Corporation and Abbott Bioresearch Center, Inc., filed suit
against The Trustees of Columbia University in the City of New
York, or Columbia, in the U.S. District Court for the
District of Massachusetts, contending that we no longer have any
obligation to pay royalties to Columbia on sales of our products
under a 1993 license agreement between us and Columbia related
to U.S. Patent Nos. 4,399,216, 4,634,665, and 5,179,017,
also referred to as the Original Patents, or under a newly
issued patent, U.S. Patent No. 6,455,275, also
referred to as the ‘275 patent (the 2003 action). Based, in
part, on the court’s subsequent finding that we had made a
strong showing that we might prevail in proving the ‘275
patent is invalid under the doctrine of non-statutory double
patenting, Columbia has since covenanted not to sue Biogen Idec
MA, Inc. on any claim of the ‘275 patent and any claim that
is the same or substantially the same as the claims of the
‘275 patent if such claim(s) emerge from the reexamination
or reissue proceedings currently pending before the
U.S. Patent and Trademark Office, or USPTO, with respect to
the ‘275 patent. As a result of Columbia’s covenant
not to sue, and Columbia’s assertion that Biogen Idec MA,
Inc. is a licensee in good standing, the court issued an order
on November 5, 2004, in which it dismissed Biogen Idec MA
Inc.’s claims for declaratory relief for lack of subject
matter jurisdiction. At this time, we are unable to predict
whether any claims will issue from the USPTO on the
reexamination or reissue proceedings concerning the ‘275
patent, or whether, if any claims do issue, such claims will
pose a risk of infringement with respect to our activities.
On September 17, 2004, Biogen Idec Inc., Biogen Idec MA,
Inc., and Genzyme Corporation, filed suit against Columbia in
the U.S. District Court for the District of Massachusetts
(the 2004 action). In the 2004 action we reasserted some of the
contentions made in our complaint in the action filed in 2003
action. For example, that we are seeking a declaratory judgment
that we have no obligation to pay any further royalties under
the license agreement because the Original Patents have expired
and the ‘275 patent is invalid and unenforceable; and that
Columbia should be permanently enjoined from demanding any
further royalties based on the ‘275 patent or on any
pending continuations, continuations-in-part, or divisional
applications of
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the Original Patents. We have also asserted claims for relief
based on abuse of process, breach of contract, violation of
Massachusetts laws concerning unfair and deceptive trade
practices, prosecution laches and inequitable conduct. To date,
Columbia has refused to extend its covenant not to sue on the
‘275 patent to Biogen Idec Inc. In the event that we are
unsuccessful in the present litigation and Columbia asserts a
claim for infringement against Biogen Idec Inc., we may be
liable for damages suffered by Columbia with respect to unpaid
royalties and such other relief as Columbia may seek and be
granted by the Court. At this stage of the litigation, we cannot
make any estimate of a potential loss or range of loss.
On August 10, 2004, Classen Immunotherapies, Inc. filed
suit against us, GlaxoSmithKline, Chiron Corporation,
Merck & Co., Inc., and Kaiser-Permanente, Inc., in the
U.S. District Court for the District of Maryland,
contending that we induced infringement of U.S. patents
6,420,139, 6,638,739, 5,728,385, and 5,723,283, all of which are
directed to various methods of immunization or determination of
immunization schedules. The inducement of infringement claims
are based on allegations that we “provided instructions
and/or recommendations on a proper immunization schedule for
vaccines” to other defendants who are alleged to have
directly infringed the patents at issue. We are investigating
the allegations, however, we do not believe them to be based in
fact. Under our 1988 license agreement with GlaxoSmithKline,
GlaxoSmithKline is obligated to indemnify and defend us against
these claims. In the event that the nature of the claims change
such that GlaxoSmithKline is no longer obligated to indemnify
and defend us and we are unsuccessful in the present litigation
we may be liable for damages suffered by Classen and such other
relief as Classen may seek and be granted by the court. At this
stage of the litigation, we cannot make any estimate of a
potential loss or range of loss.
Along with several other major pharmaceutical and biotechnology
companies, Biogen, Inc. (now Biogen Idec MA, Inc., one of our
wholly-owned subsidiaries) or, in certain cases, Biogen Idec
Inc., was named as a defendant in lawsuits filed by the County
of Suffolk, New York, the County of Westchester, New York, the
County of Rockland, New York, the County of Nassau, New York,
the County of Onondaga, New York, the County of Chenango, New
York, the County of Erie, New York, the City of New York, and
the County of Chautauqua, New York. All of the cases are pending
in the U.S. District Court for the District of
Massachusetts, with the exception of the Onondaga, Chenango and
Chautauqua lawsuits, which are expected to be transferred to the
U.S. District Court for the District of Massachusetts, and the
Erie lawsuit, which is pending in the Supreme Court of the State
of New York for the County of Erie. The complaints allege that
the defendants fraudulently reported the Average Wholesale Price
for certain drugs for which Medicaid provides reimbursement,
also referred to as Covered Drugs; marketed and promoted the
sale of Covered Drugs to providers based on the providers’
ability to collect inflated payments from the government and
Medicaid beneficiaries that exceeded payments possible for
competing drugs; provided financing incentives to providers to
over-prescribe Covered Drugs or to prescribe Covered Drugs in
place of competing drugs,; and overcharged Medicaid for
illegally inflated Covered Drugs reimbursements. The complaints
allege violations of New York state law and advance common law
claims for unfair trade practices, fraud, and unjust enrichment.
In addition, all of the complaints, with the exception of the
County of Erie, allege that the defendants failed to accurately
report the “best price” on the Covered Drugs to the
Secretary of Health and Human Services pursuant to rebate
agreements entered into with the Secretary of Health and Human
Services, and excluded from their reporting certain drugs
offered at discounts and other rebates that would have reduced
the “best price.” The Suffolk, Westchester, Rockland,
and Nassau County complaints also claim that Biogen violated the
Racketeering Influence and Corrupt Organizations Act
(RICO) 18 U.S.C. § 1962(c). In September
2003, Biogen joined other named defendants in filing a motion to
dismiss the Suffolk County complaint. Biogen also separately
filed a motion on its own behalf arguing that the plaintiffs
made no specific factual allegations against Biogen to connect
it with the alleged scheme. In September 2004, the court, in
ruling on defendants’ joint motion to dismiss, allowed the
motion, in part, and dismissed the RICO claim, the Medicaid best
price claim, the breach of contract claim, and the common law
fraud claim. The court did not dismiss the claims brought under
the New York State Medicaid and Social Services statutes, the
unfair trade practices claim, or the claim for unjust
enrichment. In October 2004, the court issued a partial decision
on Biogen’s individual motion to dismiss. The court
dismissed all of the state law claims against Biogen based on
the alleged failure to report best price, but deferred ruling on
the fraud-based claims and ordered Suffolk County to produce all
documents in support of its fraud-based claims. Suffolk County
subsequently produced
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documents in response to the court’s request and Biogen
renewed its motion to dismiss. Neither Biogen nor the other
defendants have answered or responded to the other complaints,
as all of the plaintiffs except Erie County have agreed to stay
the time to respond until the resolution of the pending motion
to dismiss the Suffolk County complaints. Biogen Idec intends to
defend itself vigorously against all of the allegations and
claims in these lawsuits. At this stage of the litigation, we
cannot make any estimate of a potential loss or range of loss.
In addition, we are involved in certain other legal proceedings
generally incidental to our normal business activities. While
the outcome of any of these proceedings cannot be accurately
predicted, we do not believe the ultimate resolution of any of
these existing matters would have a material adverse effect on
our business or financial condition.
Critical Accounting Estimates
The preparation of consolidated financial statements requires us
to make estimates and judgments that may affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those
related to revenue recognition and related allowances,
marketable securities, derivative and hedging activities,
inventories, patents, income taxes including the valuation
allowance for deferred tax assets, impairment for intangible
assets and goodwill, valuation of long-lived assets and
investments, research and development, loans, pensions, retiree
medical plan, contingencies and litigation. We base our
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue Recognition and Accounts Receivable
SEC Staff Accounting Bulletin No. 101, or
SAB 101, superceded in part by SAB 104, provides
guidance on the recognition, presentation, and disclosure of
revenue in financial statements. SAB 104 establishes the
SEC’s view that it is not appropriate to recognize revenue
until all of the following criteria are met: persuasive evidence
of an arrangement exists; delivery has occurred or services have
been rendered; the seller’s price to the buyer is fixed or
determinable; and collectibility is reasonably assured.
SAB 104 also requires that both title and the risks and
rewards of ownership be transferred to the buyer before revenue
can be recognized. We believe that our revenue recognition
policies are in compliance with SAB 104.
Product revenue consists of sales from our four products:
AVONEX, AMEVIVE, ZEVALIN, and TYSABRI. The timing of distributor
orders and shipments can cause variability in earnings. Revenues
from product sales are recognized when product is shipped and
title and risk of loss has passed to the customer, typically
upon delivery. Revenues are recorded net of applicable
allowances for returns, patient assistance, trade term
discounts, Medicaid rebates, Veteran’s Administration
rebates, and managed care discounts and other applicable
allowances. Included in our consolidated balance sheets at
December 31, 2004 and 2003, are allowances for returns,
rebates, discounts and other allowances which totaled
$33.8 million and $20.8 million, respectively. At
December 31, 2004, our allowance for product returns was
$5.2 million. At December 31, 2004, total discounts
and allowances were approximately 1.8% of total current assets
and less than 1% of total assets. We prepare our estimates for
sales returns and allowances, discounts and rebates quarterly
based primarily on historical experience updated for changes in
facts and circumstances, as appropriate. If actual future
results vary, we may need to adjust our estimates, which could
have an impact on earnings in the period of adjustment. In the
past, our estimates based on historical experience have not
materially differed from actual results.
We closely monitor levels of inventory in the distribution
channel. At December 31, 2004, we had approximately, on
average, 1 to 3 weeks of inventory in the distribution
channel. The shelf life associated with
66
our products is long (15 to 30 months, depending on the
product); therefore obsolescence due to dating expiration has
not been a historical concern, given the rapidity in which our
products move through the channel. Changes due to our
competitors’ price movements have not adversely affected
us. We do not provide incentives to our distributors to assume
additional inventory levels beyond what is customary in their
ordinary course of business.
For the years ended December 31, 2004, 2003, and 2002, we
recorded $169.3 million, $13.9 million and
$0.7 million, respectively, in our consolidated statements
of income related to sales returns and allowances, discounts,
and rebates. Our sales returns and allowances, discounts, and
rebates in 2004 were substantially higher than 2003, since sales
returns and allowances, discounts, and rebates related to AVONEX
and AMEVIVE were included in our results of operations for all
of 2004 as opposed to 2003, when sales returns and allowances,
discounts, and rebates related to AVONEX and AMEVIVE were
included in our results of operations only for the period from
November 13, 2003 through December 31, 2003. In 2004,
the amount of product returns was approximately 1% of product
revenue for all our products. Product returns were
$17.4 million, $3.7 million and $0.5 million for
2004, 2003 and 2002, respectively. Product returns in 2004
included $3.2 million related to product sales made prior
to 2004. During 2004, we had encountered problems in
manufacturing our pre-filled syringe formulation of AVONEX. As a
result, we had an increase in our expected level of returns
related to batches that failed to meet specifications.
In November 2004, we received regulatory approval in the
U.S. of TYSABRI for the treatment of MS and paid a
$7.0 million approval-based milestone to Elan. Upon
approval, we also became obligated to provide Elan with
$5.3 million in credits for payments on certain purchases
of TYSABRI and for reimbursement of commercialization costs.
Elan can apply $1.5 million of the credits per year. The
approval and credit milestones were capitalized upon approval in
investments and other assets and are being amortized over the
remaining patent life of 15.7 years. The amortization of
the approval and credit milestones is being recorded as a
reduction of revenue. In February 2005, in consultation with the
FDA, we and Elan voluntarily suspended the marketing and
commercial distribution of TYSABRI, and informed physicians that
they should suspend dosing of TYSABRI until further notification.
Under our agreement with Elan, we manufacture TYSABRI and, in
the U.S. prior to the suspension, sold TYSABRI to Elan who
then distributed TYSABRI to third party distributors. In the
U.S., we record revenue when TYSABRI is shipped from Elan to
third party distributors. In December 2004, we recorded
$3.1 million of product revenues related to sales of
TYSABRI to Elan. Additionally, as of December 31, 2004, we
deferred $1.9 million in revenue related to sales of
TYSABRI, which had not yet been shipped by Elan. As of
December 31, 2004, Elan owed us $34.4 million,
representing commercialization and development expenses incurred
by us to be reimbursed by Elan, which we received from Elan in
the first quarter of 2005.
Revenues from unconsolidated joint business consist of our share
of the RITUXAN pretax copromotion profits generated from our
copromotion arrangement with Genentech, reimbursement from
Genentech of our RITUXAN-related sales force and development
expenses and royalties from Genentech for sales of RITUXAN
outside the U.S. by Roche and Zenyaku. Under the
copromotion arrangement, all U.S. sales of RITUXAN and
associated costs and expenses are recognized by Genentech and we
record our share of the pretax copromotion profits on a
quarterly basis, as defined in our amended and restated
collaboration agreement with Genentech. Pretax copromotion
profits under the copromotion arrangement are derived by taking
U.S. net sales of RITUXAN to third-party customers less
cost of sales, third-party royalty expenses, distribution,
selling and marketing expenses and joint development expenses
incurred by Genentech and us. Our profit-sharing formula with
Genentech has two tiers; we earn a higher percentage of the
pretax copromotion profits at the upper tier once a fixed pretax
copromotion profit level is met. The profit-sharing formula
resets annually at the beginning of each year to the lower tier.
In June 2003, we amended and restated our collaboration
agreement with Genentech to include the development and
commercialization of one or more anti-CD20 antibodies targeting
B-cell disorders, in addition to RITUXAN, for a broad range of
indications. Upon approval of the first new anti-CD20 product,
the pretax copromotion profit-sharing formula for RITUXAN and
other anti-CD20 products will change over a period of time to a
fixed annual profit-sharing percentage at the lower tier.
Currently, we record our share of expenses incurred for the
development of new anti-CD20 products in research and
development expense until such time as a new product is approved,
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at which time we will record our share of pretax copromotion
profits related to the new product in revenues from
unconsolidated joint business. We record our royalty revenues on
sales of RITUXAN outside the U.S. on a cash basis. Under
the amended and restated collaboration agreement, we will
receive lower royalty revenue from Genentech on sales by Roche
and Zenyaku of new anti-CD20 products and only for the first
eleven years from the date of first commercial sale of such new
anti-CD20 products.
In February 2002, the FASB Emerging Issues Task Force, or EITF,
released EITF Issue No. 01-09 or EITF 01-09,
“Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s
Products).” EITF 01-09 states that cash
consideration (including a sales incentive) given by a vendor to
a customer is presumed to be a reduction of the selling prices
of the vendor’s products or services and, therefore, should
be characterized as a reduction of revenue when recognized in
the vendor’s income statement, rather than a sales and
marketing expense. We have various contracts with distributors
that provide for discounts and rebates. These contracts are
classified as a reduction of revenue. We also maintain select
customer service contracts with distributors and other customers
in the distribution channel. In accordance with EITF 01-09,
we have established the fair value of these contracts and, as
provided by EITF 01-09, classified these customer service
contracts as sales and marketing expense. If we had concluded
that sufficient evidence of the fair value did not exist for
these contracts, we would have been required to classify these
costs as a reduction of revenue.
We receive royalty revenues under license agreements with a
number of third parties that sell products based on technology
developed by us or to which the we have rights. The license
agreements provide for the payment of royalties to us based on
sales of the licensed product. We record these revenues based on
estimates of the sales that occurred during the relevant period.
The relevant period estimates of sales are based on interim data
provided by licensees and analysis of historical royalties paid
to us (adjusted for any changes in facts and circumstances, as
appropriate). We maintain regular communication with our
licensees in order to gauge the reasonableness of our estimates.
Differences between actual royalty revenues and estimated
royalty revenues are reconciled and adjusted for in the period
which they become known, typically the following quarter.
Historically, adjustments have not been material based on actual
amounts paid by licensees. There are no future performance
obligations on our part under these license agreements. Under
this policy, revenue can vary due to factors such as resolution
of royalty disputes and arbitration.
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required, which
could affect future earnings.
Biogen, Inc. Purchase Price Allocation
The purchase price related to the Merger was allocated to
tangible and identifiable intangible assets acquired and
liabilities assumed based on the estimated fair market values as
of the acquisition date. An independent third party valuation
firm was engaged to assist in determining the fair values of
in-process research and development, identifiable intangible
assets, inventory and certain property, plant and equipment, and
in determining the useful lives of such tangible and
identifiable intangible assets acquired. Such a valuation
requires significant estimates and assumptions including but not
limited to: determining the timing and expected costs to
complete the in-process projects, determining the product life
and term of estimated future cash flows, and developing
appropriate costs, expenses, depreciation and amortization
assumptions, tax rates, discount rates and probability rates by
project. We believe the fair values assigned to the assets
acquired and liabilities assumed are based on reasonable
assumptions. These assumptions are based on the best available
information that we had at the time. Additionally, certain
estimates for the purchase price allocation related to income
taxes may change as subsequent information becomes available.
Marketable Securities
We invest our excess cash balances in short-term and long-term
marketable securities, principally corporate notes and
government securities. At December 31, 2004, substantially
all of our securities were
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classified as “available-for-sale”. All
available-for-sale securities are recorded at fair market value
and unrealized gains and losses are included in accumulated
other comprehensive (loss) income in shareholders’ equity,
net of related tax effects. Realized gains and losses and
declines in value, if any, judged to be other than temporary on
available-for-sale securities are reported in other expense. In
2004, we recognized a charge of approximately $5.7 million
for certain unrealized losses on available-for-sale securities
that were determined to be other-than-temporary, because we
believe the securities will be sold prior to a potential
recovery of their decline in value. Any future determinations
that unrealized losses are other than temporary could have an
impact on earnings. The cost of available-for-sale securities
sold is based on the specific identification method. We have
established guidelines that maintain safety and provide adequate
liquidity in our available-for-sale portfolio. These guidelines
are periodically reviewed and modified to take advantage of
trends in yields and interest rates.
As part of our strategic product development efforts, we invest
in equity securities of certain biotechnology companies with
which we have collaborative agreements. Statement of Financial
Accounting Standards No. 115, or SFAS 115,
“Accounting for Certain Investments in Debt and Equity
Securities,” addresses the accounting for investment in
marketable equity securities. As a matter of policy, we
determine on a quarterly basis whether any decline in the fair
value of a marketable security is temporary or other than
temporary. Unrealized gains and losses on marketable securities
are included in other comprehensive income in shareholders’
equity, net of related tax effects. If a decline in the fair
value of a marketable security below our cost basis is
determined to be other than temporary, such marketable security
is written down to its estimated fair value with a charge to
current earnings. The factors that we consider in our
assessments include the fair market value of the security, the
duration of the security’s decline, and prospects for the
company, including favorable clinical trial results, new product
initiatives and new collaborative agreements. In 2004, we
recognized a $12.7 million charge for the impairment of an
investment that was determined to be other than temporary. Any
future determinations that unrealized losses are other than
temporary could have an impact on earnings. At December 31,
2004, we had no unrealized losses related to these marketable
securities. The fair market value of these marketable securities
totaled $29.4 million at December 31, 2004.
We also invest in equity securities of certain companies whose
securities are not publicly traded and fair value is not readily
available. These investments are recorded using the cost method
of accounting and, as a matter of policy, we monitor these
investments in private securities on a quarterly basis, and
determine whether any impairment in their value would require a
charge to current earnings, based on the implied value from any
recent rounds of financing completed by the investee, market
prices of comparable public companies, and general market
conditions. At December 31, 2004, we included approximately
$33.9 million of investments in private securities in
investments and other assets. There were no significant charges
to current earnings in 2004, 2003 or 2002 for impairments of
these investments. Recognition of impairments for these
securities may cause variability in earnings.
Inventory
Inventories are stated at the lower of cost or market with cost
determined under the first-in, first-out (“FIFO”)
method. Included in inventory are raw materials used in the
production of pre-clinical and clinical products, which are
expensed as research and development costs when consumed.
Our policy is to capitalize inventory costs associated with our
products prior to regulatory approval, when, based on
management’s judgment, future commercialization is
considered probable and the future economic benefit is expected
to be realized. Our accounting policy addresses the attributes
that should be considered in evaluating whether the costs to
manufacture a product have met the definition of an asset as
stipulated in FASB Concepts Statement No. 6. We assess the
regulatory approval process and where the particular product
stands in relation to that approval process including any known
constraints and impediments to approval, including safety,
efficacy and potential labeling restrictions. We evaluate our
anticipated research and development initiatives and constraints
relating to the product and the indication in which it will be
used. We consider our manufacturing environment including our
supply chain in determining logistical constraints that could
possibly hamper approval or commercialization. We consider the
shelf life of the product in relation to the expected timeline
for approval and we consider patent related or contract issues
that may prevent or cause
69
delay in commercialization. We are sensitive to the significant
commitment of capital to scale up production and to launch
commercialization strategies. We also base our judgment on the
viability of commercialization, trends in the marketplace and
market acceptance criteria. Finally, we consider the
reimbursement strategies that may prevail with respect to the
product and assess the economic benefit that we are likely to
realize.
There is a risk inherent in these judgments, which is the reason
we disclose the risk and the potential for a change in judgment.
At December 31, 2004, all products included in inventory
have been approved for sale by either the EMEA or FDA.
In February 2005, we and Elan voluntarily suspended the
marketing and commercial distribution of TYSABRI based on
reports of two serious adverse events that occurred in patients
treated with TYSABRI in combination with AVONEX in MS clinical
studies. These events involved two cases, of PML, a rare and
frequently fatal, demyelinating disease of the central nervous
system. In light of the two reports of PML, the companies
initiated a systematic review of the TYSABRI safety database. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported by the investigator as malignant
astrocytoma in July 2003. The patient died in December 2003. The
patient had received 8 doses of TYSABRI over an
18 month period and prior medication history included
multiple courses of immunosuppressant agents. We and Elan are
working with clinical investigators to evaluate patients treated
with TYSABRI in clinical studies and are consulting with leading
experts to better understand the possible risk of PML. The
outcome of these evaluations will be used to determine future
commercial availability. We cannot predict the outcome of these
evaluations. An unfavorable or inconclusive outcome could result
in the permanent withdrawal of TYSABRI from the market and
termination of clinical studies of TYSABRI, or the
re-introduction of TYSABRI to the market with significant
restrictions on its permissible uses, blackbox or other
significant safety warnings in its label and such other
restrictions, requirements and limitations as the FDA may
require. While we presently believe that we will be able to find
a path forward for TYSABRI, there are no assurances as to the
likelihood of success. In light of our inability to predict to
the required degree of certainty that our TYSABRI inventory will
be realized in commercial sales prior to the expiration of its
shelf life, we have written down all of the $19.1 million
of TYSABRI inventory that had been included on the balance sheet
as of December 31, 2004, which was charged to cost of
product revenues. We are continuing to manufacture TYSABRI.
Because of the uncertainty described above, in the first quarter
of 2005, we also expect to expense between $22 million and
$25 million of TYSABRI that was manufactured in the first
quarter of 2005. In subsequent periods, we will continue to
assess TYSABRI to determine if it needs to be expensed in light
of existing information related to the potential future
commercial availability of TYSABRI and applicable accounting
standards. See “Forward Looking Information and Risk
Factors That May Affect Futures Results — Safety
Issues with TYSABRI Could Significantly Affect Our Growth.”
We periodically review our inventories for excess or obsolete
inventory and write down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. If the actual
realizable value is less than that estimated by us, or if there
are any further determinations that inventory will not be
marketable based on estimates of demand, additional inventory
write-offs may be required. This periodic review led to the
write-downs of TYSABRI inventory as of December 31, 2004
and the expensing of TYSABRI expected to occur in the first
quarter of 2005, as described above, and may lead us to expense
TYSABRI in subsequent periods. Also included in product cost of
revenues were write-downs of commercial inventory that did not
meet quality specifications or became obsolete due to dating
expiration, in all cases this product inventory was written-down
to its net realizable value. We wrote-down $46.7 million of
unmarketable inventory during 2004, which was charged to cost of
product revenues and consisted of $16.2 million related to
AVONEX, $9.7 million related to ZEVALIN, $1.7 million
related to AMEVIVE and $19.1 million to TYSABRI. The AVONEX
and AMEVIVE inventory was written-down to net realizable value
when it was determined that the inventory did not meet quality
specifications. The ZEVALIN inventory was written-down to net
realizable value when it was determined that the inventory did
not meet quality specifications as well as a determination that
certain of the inventory will not be marketable based on
estimates of demand.
70
Income Taxes
Income tax expense includes a provision for income tax
contingencies, which we believe is adequate and appropriate.
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.
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 viable tax planning
strategies. Our estimates of future taxable income include,
among other items, our estimates of future income tax deductions
related to the exercise of stock options. In the event that
actual results differ from our estimates or we adjust our
estimates in future periods, we may need to establish a
valuation allowance, which could materially impact our financial
position and results of operations.
Research and Development Expenses
Research and development expenses are comprised of costs
incurred in performing research and development activities
including salaries and benefits, facilities costs, overhead
costs, clinical trial and related clinical manufacturing costs,
contract services and other outside costs. Research and
development costs, including upfront fees and milestones paid to
collaborators, are expensed as incurred. The timing of upfront
fees and milestone payments in the future may cause variability
in future research and development expense. Clinical trial costs
include costs associated with contract research organizations,
or CROs. The invoicing from CROs for services rendered can lag
several months. We accrue the cost of services rendered in
connection with CRO activities based on our estimate of
management fees, site management and site monitoring costs, and
data management costs. We maintain regular communication with
our CRO vendors to gauge the reasonableness of our estimates.
Differences between actual clinical trial costs and estimated
clinical trial costs have not been material and are adjusted for
in the period which they become known. Under this policy,
research and development expense can vary due to accrual
adjustments related to clinical trials.
Derivatives and Hedging Activities
We have operations in Europe, Japan, Australia and Canada in
connection with the sale of AVONEX. We also receive royalty
revenues based on worldwide product sales by our licensees. As a
result, our financial position, results of operations and cash
flows can be affected by fluctuations in foreign currency
exchange rates (primarily Euro, Swedish krona, British pound,
Japanese yen, Swiss Franc and Canadian dollar).
We use foreign currency forward contracts to manage foreign
currency risk and do not engage in currency speculation. We use
these forward contracts to hedge certain forecasted transactions
denominated in foreign currencies. SFAS 133,
“Accounting for Derivative Instruments and Hedging
Activities”, or SFAS 133, requires that all
derivatives be recognized on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge transaction.
We assess, both at their inception and on an on-going basis,
whether the derivatives that are used in hedging transactions
are highly effective in offsetting the changes in cash flows of
hedged items. We assess hedge ineffectiveness on a quarterly
basis and record the gain or loss related to the ineffective
portion to current earnings to the extent significant. If we
determine that a forecasted transaction is no longer probable of
occurring, we discontinue hedge accounting for the affected
portion of the hedge instrument, and any related unrealized gain
or loss on the contract is recognized in current earnings. Under
this policy, and in accordance
71
with SFAS 133, earnings may vary if the forecasted
transaction does not occur, or if there is material hedge
ineffectiveness or if the hedge ceases to be highly effective.
Impairment of Long-Lived Assets
Long-lived assets to be held and used, including intangible
assets, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an
impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the
extent or manner in which an asset is used, or a significant
adverse change that would indicate that the carrying amount of
an asset or group of assets is not recoverable. Determination of
recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset and its eventual
disposition. In the event that such cash flows are not expected
to be sufficient to recover the carrying amount of the assets,
the assets are written down to their estimated fair values.
Long-lived assets to be disposed of are carried at fair value
less costs to sell.
In the third quarter of 2004, management determined that certain
clinical trials would be discontinued or would not be initiated
which indicated that the carrying value of certain core
technology intangible assets might not be recoverable. As a
result, in the third quarter of 2004, we recorded a charge of
approximately $27.8 million to amortization of intangible
assets, which reflects the adjustment to the valuation of
certain core technology intangible assets related to AMEVIVE to
its net realizable value. If future events or circumstances
indicate that the carrying value of certain of these remaining
assets may not be recoverable, we may be required to record
additional charges to our results of operations.
In February 2005, we and Elan voluntarily suspended the
marketing and commercial distribution of TYSABRI based on
reports of two serious adverse events that have occurred in
patients treated with TYSABRI in combination with AVONEX in MS
clinical studies. These events involved two cases of PML, a rare
and frequently fatal, demyelinating disease of the central
nervous system. In light of the two reports of PML, the
companies initiated a systemic review of the TYSABRI safety
database. On March 30, 2005, we and Elan announced that the
review of the safety database led a serious adverse event
previously reported by a clinical investigator in a clinical
study of TYSABRI in Crohn’s disease to be reassessed as
PML. The case was originally reported by the investigator as
malignant astrocytoma in July 2003. The patient died in December
2003. The patient had received 8 doses of TYSABRI over an
18 month period and prior medication history included
multiple courses of immunosuppressant agents. We and Elan are
working with clinical investigators to evaluate patients treated
with TYSABRI in clinical studies and are consulting with leading
experts to better understand the possible risk of PML. The
outcome of these evaluations will be used to determine possible
re-initiation of dosing in clinical studies and future
commercial availability. We cannot predict the outcome of these
evaluations. An unfavorable or inconclusive outcome could result
in the permanent withdrawal of TYSABRI from the market and
termination of clinical studies of TYSABRI, or the
re-introduction of TYSABRI to the market with significant
restrictions on its permissible uses, blackbox or other
significant safety warnings in its label and such other
restrictions, requirements and limitations as the FDA may
require. As a result of these events, we have assessed our
long-lived assets related to TYSABRI, which include intangible
assets and facilities, and have determined that there are no
impairments related to these assets as a result of the
suspension of the marketing of TYSABRI. However, should new
information arise, we may be required to take impairment charges
related to certain of our long-lived assets. See
“Forward-Looking Information and Risk Factors That May
Affect Future Results — Safety Issues with TYSABRI
Could Significantly Affect our Growth.”
Goodwill
Goodwill associated with the Merger represents the difference
between the purchase price and the fair value of the
identifiable tangible and intangible net assets when accounted
for by the purchase method of accounting. Goodwill is not
amortized, but rather subject to periodic review for impairment.
Goodwill is reviewed annually and whenever events or changes in
circumstances indicate that the carrying amount of the goodwill
might not be recoverable. In the fourth quarter of 2004, we
performed an assessment of our goodwill, and concluded that
goodwill was not impaired at October 31, 2004.
72
As a result of the voluntary suspension of TYSABRI in February
2005, we have performed an interim review for impairment. We
believe that the fair value of our legacy Biogen, Inc. reporting
unit exceeds its carrying value and therefore, we believe
goodwill is properly valued as of the date of the filing of our
2004 Form 10-K. However, should new information arise, we
may need to reassess goodwill for impairment in light of the new
information and we may be required to take impairment charges
related to goodwill. See “Forward-Looking Information and
Risk Factors That May Affect Future Results — Safety
Issues with TYSABRI Could Significantly Affect our Growth.”
Notes Payable
In connection with our senior and subordinated notes payable, we
capitalized certain issuance costs, which are being amortized to
interest expense over the estimated outstanding term of the
notes, according to EITF 86-15, “Increasing-Rate
Debt.” We currently expect that holders of the senior notes
due in 2032 will require us to purchase all or a portion of the
senior notes on April 29, 2005. As a result, we have
reassessed the estimated term of this debt, and recorded
additional interest expense of approximately $7.1 million
in the fourth quarter of 2004. We have also classified our
senior notes as current liabilities on the consolidated balance
sheet as of December 31, 2004. The remaining unamortized
issuance costs of approximately $9.7 million will be
amortized through April 29, 2005.
Contingencies and Litigation
There has been, and we expect there may be significant
litigation in the industry regarding commercial practices,
regulatory issues, pricing, and patents and other intellectual
property rights. Certain adverse unfavorable rulings or
decisions in the future, including in the litigation described
under “Legal Matters,” could create variability or
have a material adverse effect on our future results of
operations and financial position.
New Accounting Standards
EITF 03-01, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments,” was
issued in February 2004. EITF 03-01 stipulates disclosure
requirements for investments with unrealized losses that have
not been recognized as other-than-temporary impairments. We have
complied with the disclosure provisions of EITF 03-01. In
September 2004, the FASB staff issued two proposed FASB Staff
Positions: Proposed FSP EITF Issue 03-01-a, which provides
guidance for the application of paragraph 16 of EITF
Issue 03-01 to debt securities that are impaired because of
interest rate and/or sector spread increases, and Proposed FSP
EITF Issue 03-01-b, which delays the effective date of
Issue 03-01 for debt securities that are impaired because
of interests rate and/or sector spread increases. We are
currently monitoring these developments and assessing the impact
these will have on our results of operations.
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS 123(R), “Share-Based
Payments,” which replaces SFAS No. 123,
“Accounting for Stock-Based Compensation,” and
supercedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees.” SFAS 123(R) will require all
share-based payments to employees, including grants of employee
stock options, to be recognized in the statement of operations
based on their fair values. SFAS 123(R) will be effective
for public companies for fiscal periods beginning after
June 15, 2005 and offers alternative methods for
determining the fair value. We expect that SFAS 123(R) will
have a significant impact on our financial statements. At the
present time, we have not yet determined which valuation method
we will use.
The FASB has proposed amending SFAS 128, “Earnings per
Share,” to make it consistent with International Accounting
Standard 33, “Earnings per Share”, and make
earnings per share, or EPS, computations comparable on a global
basis. Under the proposed amendment, the year-to-date EPS
computation would be performed independently from the quarterly
computations. Additionally, for all contracts that may be
settled in either cash or shares of stock, companies must assume
that settlement will occur by the issuance of shares for
purposes of computing diluted EPS, even if they intend to settle
by paying cash or have a history of cash-only settlements,
regardless of who controls the means of settlement. Lastly,
73
under the proposed amendment, shares that will be issued upon
conversion of a mandatory convertible security must be included
in the weighted-average number of shares outstanding used in
computing basic EPS from the date that conversion becomes
mandatory, using the if-converted method, regardless of whether
the result is anti-dilutive. The proposed amended standard is
expected to be issued during the first quarter of 2005.
Retrospective application in all periods presented would be
required, and could require the conformance of previously
reported EPS. We do not expect the provisions of the amended
SFAS 128 will have a significant impact on our results of
operations.
In November 2004, the FASB issued SFAS 151, “Inventory
Costs, an amendment of ARB No. 43, Chapter 4,”
which amends the guidance in ARB No. 43, Chapter 4,
“Inventory Pricing,” to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). This Statement amends
ARB 43, Chapter 4, to clarify that abnormal amounts of
idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period
charges. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities. The
provisions of this Statement shall be effective for inventory
costs incurred during fiscal years beginning after June 15,
2005. We do not expect the provisions of SFAS 151 will have
a significant impact on our results of operations.
In December 2004, the FASB issued SFAS 153, “Exchanges
of Non-Monetary Assets, an amendment of APB Opinion
No. 29,” which eliminates the exception from fair
value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion
No. 29, “Accounting for Nonmonetary
Transactions,” and replaces it with an exception for
exchanges that do not have commercial substance. This Statement
specifies that a nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of
this Statement shall be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. We do not expect the provisions of
SFAS 153 will have a significant impact on our results of
operations.
In December 2004, the FASB reached consensus on EITF Issue
No. 02-14, “Whether an Investor Should Apply the
Equity Method of Accounting to Investments Other Than Common
Stock,” which requires an investor that has the ability to
exercise significant influence over the operating and financial
policies of the investee to apply the equity method of
accounting only when it has an investment(s) in common stock
and/or an investment that is in-substance common stock. The Task
Force also reached a consensus on the definition of in-substance
common stock and related guidance. The provisions of
EITF 02-14 are effective for reporting periods beginning
after September 15, 2004, and have not had any impact on
our accounting for investments as of December 31, 2004.
Under EITF No. 04-01, “Accounting for Preexisting
Relationships between the Parties to a Business
Combination,” the EITF reached a consensus that the
consummation of a business combination between parties with a
preexisting relationship should be evaluated to determine if a
settlement of a preexisting relationship exists, thus requiring
accounting separate from the business combination. Under
EITF 04-01, the acquisition of a right that the acquiring
entity had previously granted to the acquired entity to use the
acquirer’s recognized or unrecognized intangible assets
(for example, rights to the acquirer’s trade name under a
franchise agreement or rights to the acquirer’s technology
under a technology licensing agreement) should be included as
part of the business combination and recorded by the acquiring
entity as an intangible asset at fair value. If the contract
giving rise to the reacquired right includes terms that are
favorable or unfavorable when compared to pricing (for example,
royalty rates) for current market transactions for the same or
similar items, an entity should measure a settlement gain or
loss as the lesser of (a) the amount by which the contract
is favorable or unfavorable to market terms from the perspective
of the acquirer or (b) the stated settlement provisions of
the contract available to the counterparty to which the contract
is unfavorable. EITF 04-01 is effective for all business
combinations consummated and goodwill impairment tests (i.e., in
step 2 of the impairment test) performed in reporting
periods beginning after October 13, 2004. The provisions of
EITF 04-01 have not had any significant impact on our
results of operations in 2004.
74
Disclosure Controls and Procedures and Internal Control over
Financial Reporting
We have carried out an evaluation, under the supervision and the
participation of our management, including our principal
executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended,
or the Securities Exchange Act), as of December 31, 2004.
Based upon that evaluation, our principal executive officer and
principal financial officer concluded that, as of the end of
that period, our disclosure controls and procedures are
effective in providing reasonable assurance that (a) the
information required to be disclosed by us in the reports that
we file or submit under the Securities Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (b) such
information is accumulated and communicated to our management,
including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions
regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, our management recognized
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
the desired control objectives, and our management necessarily
was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
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Changes in Internal Control over Financial Reporting |
We evaluate the effectiveness of our internal control over
financial reporting in order to comply with Section 404 of
the Sarbanes-Oxley Act of 2002. Section 404 requires us to
evaluate annually the effectiveness of our internal controls
over financial reporting as of the end of each fiscal year
beginning in 2004, and to include a management report assessing
the effectiveness of our internal control over financial
reporting in all annual reports beginning with this Annual
Report on Form 10-K. In evaluating our internal control
over financial reporting, we have identified a number of changes
that need to be made to our internal controls, primarily related
to better documentation of internal controls, and related
changes to information systems used in financial reporting. We
continued to make these changes during the fourth quarter of
2004. The changes during the fourth quarter of 2004 did not,
individually or in the aggregate, have a material effect on our
internal control over financial reporting.
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Management’s Annual Report on Internal Control over
Financial Reporting |
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended, as a process designed by, or under the
supervision of, a company’s principal executive and
principal financial officers and effected by a company’s
board of directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. Our internal control over financial
reporting includes those policies and procedures that:
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• |
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of our assets; |
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• |
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and |
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• |
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
our assets that could have a material effect on the financial
statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that
75
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2004.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control —
Integrated Framework.
Based on our assessment, our management has concluded that, as
of December 31, 2004, our internal control over financial
reporting is effective based on those criteria. Our
management’s assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears on page
F-51 of this Annual Report on Form 10-K.
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| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk. |
See the sections from “Item 1 —
Business — Forward Looking Information and Risk
Factors that May Affect Future Results” entitled “We
are Subject to Market Risk,” “Our Financial Position,
Results of Operations and Cash Flows can be Affected by
Fluctuations in Foreign Currency Exchange Rates,” and
“We are Exposed to Risk of Interest Rate Fluctuations.”
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| Item 8. |
Consolidated Financial Statements and Supplementary
Data. |
The information required by this Item 8 is contained on
pages F-1 through F-53 of this Annual Report on Form 10-K.
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| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. |
Not applicable.
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| Item 9A. |
Controls and Procedures |
The information required by this Item is contained in the
section “Disclosure Controls and Procedures and Internal
Control over Financial Reporting” beginning on page 75
of this Annual Report on Form 10-K.
Item 9B. Other
Information
Not applicable.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
The information concerning our executive officers is set forth
in Part I of this Form 10-K. The text of our code of
business conduct, which includes the code of ethics that applies
to our principal executive officer, principal financial officer,
principal accounting officer or controller and persons
performing similar functions, is posted on our website,
www.biogenidec.com, under the “Corporate Governance”
subsection of the “Company” section of the site.
Disclosure regarding any amendments to, or waivers from,
provisions of our code of business conduct, if required, will be
included in a Current Report on Form 8-K within four
business days following the date of the amendment or waiver,
unless website posting of such amendments or waivers is
permitted by the rules of The Nasdaq Stock Market, Inc. Our
corporate governance principles (also posted on
www.biogenidec.com) prohibit our Board of Directors from
granting any waiver of the code of ethics for any of our
directors or executive officers. We include our website address
in this Annual Report on Form 10-K only as an inactive
textual reference and do not intend it to be an active link to
our website.
The response to the remainder of this item is incorporated by
reference from the discussion responsive thereto in the sections
labeled “Proposal 1 — Election of
Directors — Information about our Directors” and
76
“Stock Ownership — Section 16(a) Beneficial
Ownership Reporting Compliance” contained in the Proxy
Statement for our 2005 Annual Meeting of Stockholders.
|
|
| Item 11. |
Executive Compensation |
The response to this item is incorporated by reference from the
discussion responsive thereto in the section labeled
“Executive Compensation and Related Information”
contained in the Proxy Statement for our 2005 Annual Meeting of
Stockholders.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. |
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections labeled
“Stock Ownership” and “Disclosure with Respect to
our Equity Compensation Plans” contained in the Proxy
Statement for our 2005 Annual Meeting of Stockholders.
|
|
| Item 13. |
Certain Relationships and Related Transactions. |
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections labeled
“Proposal 1 — Election of
Directors — Information about our Board of Directors
and its Committees,” “Executive Compensation and
Related Information — Employment Agreements and Change
of Control Arrangements,” and “Certain Relationships
and Related Party Transactions” contained in the Proxy
Statement for our 2005 Annual Meeting of Stockholders.
|
|
| Item 14. |
Principal Accountant Fees and Services |
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections labeled
“Proposal 2 — Ratification of the Selection
of our Independent Registered Public Accounting Firm”
contained in the Proxy Statement for our 2005 Annual Meeting of
Stockholders.
PART IV
|
|
| Item 15. |
Exhibits, Financial Statement Schedules |
a. (1) Consolidated Financial Statements and
Schedule:
|
|
| |
The Financial Statements required to be filed by Item 8 of
this Annual Report on Form 10-K, and filed in this
Item 15, are as follows: |
| |
|
|
|
|
| |
|
Page Number | |
| |
|
in This | |
| Financial Statements |
|
Form 10-K | |
| |
|
| |
|
Consolidated Statements of Income
|
|
|
F-2 |
|
|
Consolidated Balance Sheets
|
|
|
F-3 |
|
|
Consolidated Statements of Cash Flows
|
|
|
F-4 |
|
|
Consolidated Statements of Shareholders’ Equity
|
|
|
F-5 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-6 |
|
|
Reports of Independent Registered Public Accounting Firms
|
|
|
F-51 |
|
(2) Financial Statement Schedules
The following financial statement schedule is included in the
Annual Report on Form 10-K:
| |
|
|
|
|
| |
|
Page Number | |
| |
|
in This | |
| Financial Statement Schedule[s] |
|
Form 10-K | |
| |
|
| |
|
Schedule II — Valuation and Qualifying Accounts
and Reserves
|
|
|
F-50 |
|
77
(3) Exhibits:
The following exhibits are referenced or included in this
Form 10-K.
| |
|
|
|
|
| Exhibit Number |
|
Description |
| |
|
|
| |
2 |
.1(12) |
|
Agreement and Plan of Merger, dated as of June 20, 2003, by
and among us, Bridges Merger Corporation and Biogen, Inc. |
| |
| |
3 |
.1(24) |
|
Amended and Restated Certificate of Incorporation |
| |
| |
3 |
.2(24) |
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated as of May 21, 2001 |
| |
| |
3 |
.3(24) |
|
Certificate Increasing the Number of Authorized Shares of
Series X Junior Participating Preferred Stock, dated as of
July 26, 2001 |
| |
| |
3 |
.4(24) |
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated as of November 12, 2003 |
| |
| |
3 |
.5(24) |
|
Bylaws |
| |
| |
3 |
.6(24) |
|
Amendment to Bylaws, dated as of December 21, 2001 |
| |
| |
3 |
.7(24) |
|
Amendment to Bylaws, dated as of November 12, 2003 |
| |
| |
4 |
.1 |
|
Reference is made to Exhibit 3.1 for a description of the
rights, preferences and privileges of our Series A
Preferred Stock and Series X Junior Participating Preferred
Stock |
| |
| |
4 |
.2(24) |
|
Specimen Common Stock Certificate |
| |
| |
4 |
.3(6) |
|
Indenture dated as of February 16, 1999 between us and
Chase Manhattan Bank and Trust Company, National Association, as
Trustee |
| |
| |
4 |
.4(4) |
|
Form of Registered Liquid Yield
Optiontm
Note due 2019 |
| |
| |
4 |
.5(9) |
|
Amended and Restated Rights Agreement dated as of July 26,
2001 between us and Mellon Investor Services LLC |
| |
| |
4 |
.6(12) |
|
Amendment No. 1 to Amended and Restated Rights Agreement
dated as of June 23, 2003 between us and Mellon Investor
Services LLC |
| |
| |
4 |
.7(11) |
|
Indenture dated as of April 29, 2002 between us and JP
Morgan Trust Company, N.A., as Trustee |
| |
| |
4 |
.8(11) |
|
Registration Rights Agreement, dated as of April 29, 2002,
between us and Merrill Lynch, Pierce, Fenner & Smith
Incorporated |
| |
| |
4 |
.9(11) |
|
Form of Liquid Yield
Optiontm
Note dated April 29, 2002 |
| |
| |
10 |
.1(13)* |
|
IDEC Pharmaceuticals Corporation 1988 Stock Option Plan, as
amended and restated through February 19, 2003 |
| |
| |
10 |
.2(5) |
|
Letter Agreement between the Registrant and Genentech, Inc.,
dated May 21, 1996 |
| |
| |
10 |
.3(2)† |
|
License Agreement between us and Coulter Immunology (now Corixa
Corporation), dated May 16, 1991 |
| |
| |
10 |
.5(13) |
|
1993 Non-Employee Directors Stock Option Plan, as amended and
restated through February 19, 2003 |
| |
| |
10 |
.6(3)† |
|
Expression Technology Agreement between us and Genentech. Inc.,
dated March 16, 1995 |
| |
| |
10 |
.8(1)* |
|
Form of Indemnification Agreement for certain directors and
executive officers |
| |
| |
10 |
.9(6) |
|
Indenture dated as of February 16, 1999 between us and
Chase Manhattan Bank and Trust Company, National Association, as
Trustee |
| |
| |
10 |
.10(11) |
|
Indenture dated as of April 29, 2002 between us and JP
Morgan Trust Company, N.A., as Trustee |
78
| |
|
|
|
|
| Exhibit Number | |
|
Description |
| | |
|
|
| |
| |
10 |
.11(7)† |
|
Collaboration & License Agreement between us and
Schering Aktiengesellschaft, dated June 9, 1999 |
| |
| |
10 |
.12(8)† |
|
Isotope Agreement between us and MDS Nordion Inc. as amended by
a first amendment on January 21, 2000 and a second
amendment on March 16, 2001 |
| |
| |
10 |
.13(24)* |
|
Voluntary Executive Supplemental Savings Plan (as amended and
restated; effective January 1, 2004) |
| |
| |
10 |
.14(10)† |
|
Third Amendment to Agreement between MDS Canada Inc., MDS
Nordion division, successor to MDS Nordion Inc. and us dated
November 12, 2001 |
| |
| |
10 |
.15(14)† |
|
Commercial Supply Agreement between us and Baxter Pharmaceutical
Solutions LLC dated June 1, 2002 |
| |
| |
10 |
.16(15)* |
|
2003 Omnibus Equity Plan |
| |
| |
10 |
.17(15)* |
|
2003 Performance Based Management Incentive Plan |
| |
| |
10 |
.18(21)* |
|
Form of Indemnification Agreement between Biogen, Inc. and
certain directors and executive officers |
| |
| |
10 |
.19(18) |
|
Cambridge Center Lease dated October 4, 1982 between
Mortimer Zuckerman, Edward H. Linde and David Barrett, as
Trustees of Fourteen Cambridge Center Trust, and B. Leasing, Inc. |
| |
| |
10 |
.20(19) |
|
First Amendment to Lease dated January 19, 1989, amending
Cambridge Center Lease dated October 4, 1982 |
| |
| |
10 |
.21(19) |
|
Second Amendment to Lease dated March 8, 1990, amending
Cambridge Center Lease dated October 4, 1982 |
| |
| |
10 |
.22(19) |
|
Third Amendment to Lease dated September 25, 1991, amending
Cambridge Center Lease dated October 4, 1982 |
| |
| |
10 |
.23(20) |
|
Fourth Amendment to Lease dated October 6, 1993, amending
Cambridge Center Lease dated October 4, 1982 |
| |
| |
10 |
.24(20) |
|
Fifth Amendment to Lease dated October 9, 1997, amending
Cambridge Center Lease dated October 4, 1982 |
| |
| |
10 |
.25 |
|
Lease dated April 1, 1990 between Biogen, Inc. and Steven
D. Rosenberg as Trustee of the Fifth Realty Trust of 300 Bent
Street |
| |
| |
10 |
.26(22)* |
|
Biogen, Inc. 1985 Non-Qualified Stock Option Plan (as amended
and restated through February 7, 2003) |
| |
| |
10 |
.27(22)* |
|
Biogen, Inc. 1987 Scientific Board Stock Option Plan (as amended
and restated through February 7, 2003) |
| |
| |
10 |
.28(24)* |
|
Voluntary Board of Directors Savings Plan (as amended and
restated; effective January 1, 2004) |
| |
| |
10 |
.29(24)* |
|
Executive Severance Policy — Senior/ Executive Vice
Presidents |
| |
| |
10 |
.30(22)† |
|
ANTEGREN (now TYSABRI) Development and Marketing Collaboration
Agreement between us and Elan Pharma International Limited,
dated August 15, 2000 |
| |
| |
10 |
.31(16)* |
|
Employment Agreement between us and James C Mullen, dated
June 20, 2003 |
| |
| |
10 |
.32(16)* |
|
Employment Agreement between us and William R.
Rastetter, Ph.D., dated June 20, 2003. |
| |
| |
10 |
.33(17)† |
|
Amended and Restated Collaboration Agreement between us and
Genentech, Inc., dated June 19, 2003 |
| |
| |
10 |
.34(24) |
|
Fourth Amendment to Agreement between us, MDS (Canada) Inc., MDS
Nordion division, successor to MDS Nordion Inc., dated
June 10, 2003 |
79
| |
|
|
|
|
| Exhibit Number | |
|
Description |
| | |
|
|
| |
| |
10 |
.35(24)† |
|
Fifth Amendment to Agreement between us, MDS (Canada) Inc., MDS
Nordion division, successor to MDS Nordion Inc., dated
December 17, 2003 |
| |
| |
10 |
.36(24)* |
|
Form of letter agreement regarding employment arrangement
between us and our Executive Vice Presidents |
| |
| |
10 |
.37(23)* |
|
Letter agreement regarding employment arrangement of Peter N.
Kellogg, dated June 21, 2000 |
| |
| |
10 |
.38(25) |
|
Lease agreement between Biogen Idec BV, a wholly-owned
subsidiary of the registrant, and TUG Vastgoed B.V., dated as of
September 24, 2004 |
| |
| |
10 |
.39(26)* |
|
Amendment to the IDEC Pharmaceuticals Corporation 1988 Stock
Option Plan, as amended and restated through February 19,
2003 |
| |
| |
10 |
.40(26)* |
|
Amendment to Biogen Idec Inc. Executive Severance
Policy — Senior/ Executive Vice Presidents |
| |
| |
10 |
.41(27)* |
|
Letter agreement regarding use of company-owned condominium of
William H. Rastetter, Ph.D., dated January 5, 2005 |
| |
| |
10 |
.42* |
|
Board of Directors — Annual Retainer Summary Sheet |
| |
| |
12 |
.1 |
|
Computation of Ratio of Earnings to Fixed Charges |
| |
| |
21 |
.1 |
|
Subsidiaries |
| |
| |
23 |
.1 |
|
Consent of PricewaterhouseCoopers LLP — an Independent
Registered Public Accounting Firm |
| |
| |
23 |
.2 |
|
Consent of KPMG LLP — an Independent Registered Public
Accounting Firm |
| |
| |
31 |
.1 |
|
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| |
31 |
.2 |
|
Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| |
32 |
.1 |
|
Certification of the Chief Executive Officer and the Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
Reference to “our” in these cross-references mean
filings made by Biogen Idec and filings made by IDEC
Pharmaceuticals Corporation prior to the merger with Biogen, Inc.
|
|
|
| |
* |
Management contract or compensatory plan or arrangement. |
|
|
|
| |
† |
Confidential Treatment has been granted with respect to portions
of this agreement. |
|
|
|
| |
tm |
Trademark of Merrill Lynch & Co., Inc. |
|
|
|
| |
(1) |
Incorporated by reference from an exhibit filed with our
Registration Statement on Form 8-B filed on June 2,
1997. |
| |
| |
(2) |
Incorporated by reference from an exhibit filed with our
Registration Statement on Form S-1, File No. 33-40756. |
| |
| |
(3) |
Incorporated by reference from an exhibit filed with our
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995. |
| |
| |
(4) |
Incorporated by reference from an exhibit filed with our
Registration Statement on Form S-3/ A, File
No. 333-85339, filed on November 10, 1999. |
| |
| |
(5) |
Incorporated by reference from an exhibit filed with our Current
Report on Form 8-K, filed on June 6, 1996. |
| |
| |
(6) |
Incorporated by reference from an exhibit filed with our Annual
Report on Form 10-K for the fiscal year ended
December 31, 1998. |
80
|
|
|
| |
(7) |
Incorporated by reference from an exhibit filed with our
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999. |
| |
| |
(8) |
Incorporated by reference from an exhibit filed with our
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001. |
| |
| |
(9) |
Incorporated by reference from an exhibit filed with our
Registration Statement on Form 8-A, File
No. 333-37128, dated July 27, 2001. |
|
|
| (10) |
Incorporated by reference from an exhibit filed with our Annual
Report on Form 10-K for the fiscal year ended
December 31, 2001. |
| |
| (11) |
Incorporated by reference from an exhibit filed with our
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002. |
| |
| (12) |
Incorporated by reference from an exhibit filed with our Current
Report on Form 8-K filed on June 23, 2003. |
| |
| (13) |
Incorporated by reference from an appendix filed with our
Definitive Proxy Statement on Schedule 14A filed on
April 11, 2003. |
| |
| (14) |
Incorporated by reference from an exhibit filed with our Annual
Report on Form 10-K for the year ended December 31,
2002. |
| |
| (15) |
Incorporated by reference from an exhibit filed with our Current
Report on Form 8-K filed on November 12, 2003. |
| |
| (16) |
Incorporated by reference from an exhibit filed with our
Registration Statement on Form S-4, File
No. 333-107098, filed with the SEC on July 16, 2003. |
| |
| (17) |
Incorporated by reference from an exhibit filed with our Current
Report on Form 8-K filed on July 31, 2003. |
| |
| (18) |
Incorporated by reference from an exhibit filed with Biogen,
Inc.’s Registration Statement on Form S-1, File
No. 2-81689 |
| |
| (19) |
Incorporated by reference from an exhibit filed with Biogen,
Inc.’s Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 0-12042 |
| |
| (20) |
Incorporated by reference from an exhibit filed with Biogen,
Inc.’s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 0-12042 |
| |
| (21) |
Incorporated by reference from an exhibit filed with Biogen,
Inc.’s Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 0-12042 |
| |
| (22) |
Incorporated by reference from an exhibit filed with Biogen,
Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2002, File No. 0-12042. |
| |
| (23) |
Incorporated by reference from an exhibit filed with Biogen,
Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2001, File No. 0-12042. |
| |
| (24) |
Incorporated by reference from an exhibit filed with our Annual
Report on Form 10-K for the year ended December 31,
2003. |
| |
| (25) |
Incorporated by reference from an exhibit filed with our Current
Report on Form 8-K filed on September 29, 2004. |
| |
| (26) |
Incorporated by reference from an exhibit filed with our
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004. |
| |
| (27) |
Incorporated by reference from an exhibit filed with our Current
Report on Form 8-K filed on January 6, 2005. |
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
|
| |
James C. Mullen |
| |
Chief Executive Officer and President |
Date: March 31, 2005
Pursuant to the requirements the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
| |
|
|
|
|
|
|
| Name |
|
Capacity |
|
Date |
| |
|
|
|
|
| |
/s/ William H.
Rastetter, Ph.D.
William
H. Rastetter, Ph.D. |
|
Director, Executive Chairman |
|
March 31, 2005 |
| |
/s/ James C. Mullen
James
C. Mullen |
|
Director, Chief Executive Officer and President (principal
executive officer) |
|
March 31, 2005 |
| |
/s/ Peter N. Kellogg
Peter
N. Kellogg |
|
Executive Vice President, Finance and Chief Financial Officer
(principal financial and accounting officer) |
|
March 31, 2005 |
| |
/s/ Alan Belzer
Alan
Belzer |
|
Director |
|
March 31, 2005 |
| |
/s/ Lawrence C. Best
Lawrence
C. Best |
|
Director |
|
March 31, 2005 |
| |
/s/ Alan B.
Glassberg, M.D.
Alan
B. Glassberg, M.D. |
|
Director |
|
March 31, 2005 |
| |
/s/ Mary L.
Good, Ph.D.
Mary
L. Good, Ph.D. |
|
Director |
|
March 31, 2005 |
| |
/s/ Thomas F.
Keller, Ph.D.
Thomas
F. Keller, Ph.D. |
|
Director |
|
March 31, 2005 |
| |
/s/ Robert W. Pangia
Robert
W. Pangia |
|
Director |
|
March 31, 2005 |
| |
/s/ Bruce R. Ross
Bruce
R. Ross |
|
Director |
|
March 31, 2005 |
82
| |
|
|
|
|
|
|
| Name |
|
Capacity |
|
Date |
| |
|
|
|
|
| |
/s/ Lynn Schenk
Lynn
Schenk |
|
Director |
|
March 31, 2005 |
| |
/s/ Phillip A.
Sharp, Ph.D.
Phillip
A. Sharp, Ph.D. |
|
Director |
|
March 31, 2005 |
| |
/s/ William D. Young
William
D. Young |
|
Director |
|
March 31, 2005 |
83
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Consolidated Statements of Income
|
|
|
F-2 |
|
|
Consolidated Balance Sheets
|
|
|
F-3 |
|
|
Consolidated Statements of Cash Flows
|
|
|
F-4 |
|
|
Consolidated Statements of Shareholders’ Equity
|
|
|
F-5 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-6 |
|
F-1
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product
|
|
$ |
1,486,344 |
|
|
$ |
171,561 |
|
|
$ |
13,711 |
|
| |
Revenue from unconsolidated joint business
|
|
|
615,743 |
|
|
|
493,049 |
|
|
|
385,809 |
|
| |
Royalties
|
|
|
98,945 |
|
|
|
12,010 |
|
|
|
— |
|
| |
Corporate partner
|
|
|
10,530 |
|
|
|
2,563 |
|
|
|
4,702 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
|
2,211,562 |
|
|
|
679,183 |
|
|
|
404,222 |
|
| |
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of product revenues
|
|
|
548,702 |
|
|
|
283,813 |
|
|
|
1,457 |
|
| |
Cost of royalty revenues
|
|
|
5,617 |
|
|
|
926 |
|
|
|
— |
|
| |
Research and development
|
|
|
687,663 |
|
|
|
233,337 |
|
|
|
100,868 |
|
| |
Selling, general and administrative
|
|
|
578,487 |
|
|
|
174,596 |
|
|
|
88,021 |
|
| |
Acquisition of in-process research and development
|
|
|
— |
|
|
|
823,000 |
|
|
|
— |
|
| |
Amortization of acquired intangible assets
|
|
|
347,677 |
|
|
|
33,180 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
2,168,146 |
|
|
|
1,548,852 |
|
|
|
190,346 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Income (loss) from operations
|
|
|
43,416 |
|
|
|
(869,669 |
) |
|
|
213,876 |
|
| |
Other income (expense), net
|
|
|
20,677 |
|
|
|
(10,955 |
) |
|
|
17,646 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Income (loss) before income taxes (benefit)
|
|
|
64,093 |
|
|
|
(880,624 |
) |
|
|
231,522 |
|
| |
Income taxes (benefit)
|
|
|
39,007 |
|
|
|
(5,527 |
) |
|
|
83,432 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
25,086 |
|
|
$ |
(875,097 |
) |
|
$ |
148,090 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Basic earnings (loss) per share
|
|
$ |
0.07 |
|
|
$ |
(4.92 |
) |
|
$ |
0.95 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted earnings (loss) per share
|
|
$ |
0.07 |
|
|
$ |
(4.92 |
) |
|
$ |
0.85 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in calculating:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings (loss) per share
|
|
|
334,996 |
|
|
|
177,982 |
|
|
|
153,086 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted earnings (loss) per share
|
|
|
343,475 |
|
|
|
177,982 |
|
|
|
176,805 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, except per | |
| |
|
share amounts) | |
|
ASSETS |
|
Current assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
209,447 |
|
|
$ |
314,850 |
|
| |
Marketable securities available-for-sale
|
|
|
848,495 |
|
|
|
521,109 |
|
| |
Accounts receivable, less allowances of $35,882 and $22,830 at
December 31, 2004 and 2003, respectively
|
|
|
278,637 |
|
|
|
198,524 |
|
| |
Due from unconsolidated joint business
|
|
|
137,451 |
|
|
|
117,342 |
|
| |
Deferred tax assets
|
|
|
86,880 |
|
|
|
123,945 |
|
| |
Inventory
|
|
|
251,016 |
|
|
|
496,349 |
|
| |
Other current assets
|
|
|
119,118 |
|
|
|
66,545 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
1,931,044 |
|
|
|
1,838,664 |
|
| |
|
|
|
|
|
|
|
Marketable securities available-for-sale
|
|
|
1,109,624 |
|
|
|
1,502,327 |
|
|
Property and equipment, net
|
|
|
1,525,225 |
|
|
|
1,252,783 |
|
|
Intangible assets, net
|
|
|
3,292,827 |
|
|
|
3,638,812 |
|
|
Goodwill
|
|
|
1,151,105 |
|
|
|
1,151,066 |
|
|
Investments and other assets
|
|
|
155,933 |
|
|
|
120,293 |
|
| |
|
|
|
|
|
|
| |
|
$ |
9,165,758 |
|
|
$ |
9,503,945 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current liabilities
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
121,471 |
|
|
$ |
63,364 |
|
| |
Deferred revenue
|
|
|
13,695 |
|
|
|
7,155 |
|
| |
Current taxes payable
|
|
|
129,350 |
|
|
|
94,176 |
|
| |
Notes payable
|
|
|
748,430 |
|
|
|
— |
|
| |
Accrued expenses and other
|
|
|
247,802 |
|
|
|
240,130 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current liabilities
|
|
|
1,260,748 |
|
|
|
404,825 |
|
| |
|
|
|
|
|
|
|
Notes payable
|
|
|
101,879 |
|
|
|
887,270 |
|
|
Long-term deferred tax liability
|
|
|
921,771 |
|
|
|
1,108,318 |
|
|
Other long-term liabilities
|
|
|
54,959 |
|
|
|
50,204 |
|
|
Commitments and contingencies
|
|
|
— |
|
|
|
— |
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
| |
Convertible preferred stock, par value $0.001 per share
(8 shares authorized, issued and outstanding at
December 31, 2004 and 2003; $551 liquidation value at
December 31, 2004 and 2003)
|
|
|
— |
|
|
|
— |
|
| |
Common stock, par value $0.0005 per share
(1,000,000 shares authorized; 336,700 shares and
330,410 shares issued and outstanding at December 31,
2004 and 2003, respectively)
|
|
|
173 |
|
|
|
166 |
|
| |
Additional paid-in capital
|
|
|
8,184,979 |
|
|
|
7,801,170 |
|
| |
Accumulated other comprehensive (loss) income
|
|
|
(6,767 |
) |
|
|
1,054 |
|
| |
Deferred stock-based compensation
|
|
|
(36,280 |
) |
|
|
(2,141 |
) |
| |
Accumulated deficit
|
|
|
(801,094 |
) |
|
|
(611,921 |
) |
| |
|
|
|
|
|
|
| |
|
|
7,341,011 |
|
|
|
7,188,328 |
|
| |
Less treasury stock, at cost; 8,766 and 2,209 shares at
December 31, 2004 and 2003, respectively
|
|
|
514,610 |
|
|
|
135,000 |
|
| |
|
|
|
|
|
|
| |
|
Total shareholders’ equity
|
|
|
6,826,401 |
|
|
|
7,053,328 |
|
| |
|
|
|
|
|
|
| |
|
$ |
9,165,758 |
|
|
$ |
9,503,945 |
|
| |
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
25,086 |
|
|
$ |
(875,097 |
) |
|
$ |
148,090 |
|
| |
Adjustments to reconcile net income (loss) to net cash flows
from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Write-off of acquired in-process research and development
|
|
|
— |
|
|
|
823,000 |
|
|
|
— |
|
| |
|
Depreciation and amortization
|
|
|
439,435 |
|
|
|
61,308 |
|
|
|
10,156 |
|
| |
|
Stock based compensation
|
|
|
16,795 |
|
|
|
— |
|
|
|
— |
|
| |
|
Non-cash interest expense
|
|
|
55,002 |
|
|
|
41,226 |
|
|
|
26,905 |
|
| |
|
Deferred income taxes
|
|
|
(135,553 |
) |
|
|
(27,267 |
) |
|
|
(39,922 |
) |
| |
|
Tax benefit from stock options
|
|
|
144,550 |
|
|
|
23,373 |
|
|
|
114,337 |
|
| |
|
Realized loss (gain) on sale of marketable securities
available-for-sale
|
|
|
4,090 |
|
|
|
(2,153 |
) |
|
|
(2,779 |
) |
| |
|
Write-down of inventory to net realizable value
|
|
|
43,358 |
|
|
|
173,896 |
|
|
|
— |
|
| |
|
Impact of inventory step-up
|
|
|
289,505 |
|
|
|
79,097 |
|
|
|
— |
|
| |
|
Impairment of investments
|
|
|
18,482 |
|
|
|
— |
|
|
|
— |
|
| |
|
Loss on disposition of assets
|
|
|
2,577 |
|
|
|
— |
|
|
|
— |
|
| |
|
Other
|
|
|
830 |
|
|
|
2,643 |
|
|
|
1,665 |
|
| |
|
Changes in, net of assets and liabilities acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(76,529 |
) |
|
|
22,618 |
|
|
|
(3,927 |
) |
| |
|
|
Due from unconsolidated joint business
|
|
|
(20,109 |
) |
|
|
(17,054 |
) |
|
|
(32,637 |
) |
| |
|
|
Inventory
|
|
|
(90,804 |
) |
|
|
(8,720 |
) |
|
|
(33,141 |
) |
| |
|
|
Other current and other assets
|
|
|
(63,894 |
) |
|
|
(35,076 |
) |
|
|
(27,434 |
) |
| |
|
|
Accrued expenses and other current liabilities
|
|
|
63,870 |
|
|
|
(66,775 |
) |
|
|
24,648 |
|
| |
|
|
Deferred revenue
|
|
|
6,540 |
|
|
|
2,700 |
|
|
|
(1,575 |
) |
| |
|
|
Other long-term liabilities
|
|
|
4,755 |
|
|
|
(27,752 |
) |
|
|
12,333 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash flows from operating activities
|
|
|
727,986 |
|
|
|
169,967 |
|
|
|
196,719 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash received from acquisition of Biogen, Inc., net of cash paid
|
|
|
— |
|
|
|
136,793 |
|
|
|
— |
|
| |
Purchases of marketable securities available-for-sale
|
|
|
(3,187,717 |
) |
|
|
(1,233,251 |
) |
|
|
(1,501,404 |
) |
| |
Proceeds from sales and maturities of marketable securities
available-for-sale
|
|
|
3,200,386 |
|
|
|
1,118,775 |
|
|
|
841,225 |
|
| |
Acquisitions of property, plant and equipment, net
|
|
|
(361,013 |
) |
|
|
(301,248 |
) |
|
|
(165,904 |
) |
| |
Restricted cash
|
|
|
— |
|
|
|
22,500 |
|
|
|
(17,498 |
) |
| |
Acquisitions of intangible assets
|
|
|
(8,750 |
) |
|
|
— |
|
|
|
— |
|
| |
Increase in investments and other assets
|
|
|
(25,334 |
) |
|
|
— |
|
|
|
(13,071 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash flows from investing activities
|
|
|
(382,428 |
) |
|
|
(256,431 |
) |
|
|
(856,652 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from issuance of notes payable, net
|
|
|
— |
|
|
|
— |
|
|
|
696,004 |
|
| |
Purchases of treasury stock
|
|
|
(734,427 |
) |
|
|
— |
|
|
|
(135,000 |
) |
| |
Issuance of common stock for option exercises and employee stock
purchase plan
|
|
|
132,977 |
|
|
|
24,439 |
|
|
|
23,059 |
|
| |
Issuance of treasury stock for option exercises and employee
stock purchase plan
|
|
|
140,558 |
|
|
|
— |
|
|
|
— |
|
| |
Change in cash overdraft
|
|
|
9,931 |
|
|
|
26,746 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash flows from financing activities
|
|
|
(450,961 |
) |
|
|
51,185 |
|
|
|
584,063 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(105,403 |
) |
|
|
(35,279 |
) |
|
|
(75,870 |
) |
|
Cash and cash equivalents, beginning of the year
|
|
|
314,850 |
|
|
|
350,129 |
|
|
|
425,999 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$ |
209,447 |
|
|
$ |
314,850 |
|
|
$ |
350,129 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Income taxes
|
|
$ |
1,215 |
|
|
$ |
41,249 |
|
|
$ |
356 |
|
For information associated with assets and liabilities assumed
in the Merger with Biogen, Inc., see Note 2.
See accompanying notes to consolidated financial statements.
F-4
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
| |
|
Convertible |
|
|
|
|
|
Other | |
|
|
|
(Accumulated | |
|
|
|
|
| |
|
Preferred Stock |
|
Common Stock | |
|
Additional | |
|
Comprehensive | |
|
Deferred | |
|
Deficit) | |
|
|
|
Total | |
| |
|
|
|
| |
|
Paid-In | |
|
(Loss) | |
|
Stock-Based | |
|
Retained | |
|
Treasury | |
|
Shareholders’ | |
| |
|
Shares | |
|
Amount |
|
Shares | |
|
Amount | |
|
Capital | |
|
Income | |
|
Compensation | |
|
Earnings | |
|
Stock | |
|
Equity | |
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
|
|
|
|
(In thousands) | |
|
|
|
|
|
|
|
|
|
Balance, December 31, 2001
|
|
|
48 |
|
|
$ |
— |
|
|
|
152,775 |
|
|
$ |
76 |
|
|
$ |
840,232 |
|
|
$ |
1,085 |
|
|
$ |
— |
|
|
$ |
115,086 |
|
|
$ |
— |
|
|
$ |
956,479 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,090 |
|
|
|
|
|
|
|
148,090 |
|
| |
Unrealized gains (losses) on securities available for sale, net
of tax of $1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,679 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,769 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under stock option and stock purchase
plans, net
|
|
|
|
|
|
|
|
|
|
|
3,112 |
|
|
|
2 |
|
|
|
23,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,059 |
|
|
Issuance of common stock from conversion of series A-2
convertible preferred stock
|
|
|
(12 |
) |
|
|
|
|
|
|
708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Issuance of common stock from conversion of notes payable due
2019
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
Repurchase of common stock for treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
(2,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135,000 |
) |
|
|
(135,000 |
) |
|
Tax benefit from stock option and stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,337 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
36 |
|
|
|
— |
|
|
|
154,391 |
|
|
|
78 |
|
|
|
977,672 |
|
|
|
3,764 |
|
|
|
— |
|
|
|
263,176 |
|
|
|
(135,000 |
) |
|
|
1,109,690 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(875,097 |
) |
|
|
|
|
|
|
(875,097 |
) |
| |
Unrealized gains (losses) on securities available for sale, net
of tax of $1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,262 |
) |
| |
Unrealized losses on foreign currency forward contracts, net of
tax of $1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,268 |
) |
| |
Translation adjustment, net of tax of $823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,820 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(877,807 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under stock option and stock purchase
plans, net
|
|
|
|
|
|
|
|
|
|
|
2,401 |
|
|
|
1 |
|
|
|
24,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,439 |
|
|
Issuance of common stock and assumption of stock options related
to merger with Biogen, Inc
|
|
|
|
|
|
|
|
|
|
|
171,938 |
|
|
|
86 |
|
|
|
6,775,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,775,738 |
|
|
Issuance of common stock from conversion of series A-2 and
A-3 convertible preferred stock
|
|
|
(28 |
) |
|
|
|
|
|
|
1,680 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Deferred stock-based compensation related to unvested Biogen,
Inc. options assumed in the merger, net of amortization of $120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,141 |
) |
|
|
|
|
|
|
|
|
|
|
(2,141 |
) |
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
Tax benefit from stock option and stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,373 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
8 |
|
|
|
— |
|
|
|
330,410 |
|
|
|
166 |
|
|
|
7,801,170 |
|
|
|
1,054 |
|
|
|
(2,141 |
) |
|
|
(611,921 |
) |
|
|
(135,000 |
) |
|
|
7,053,328 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,086 |
|
|
|
|
|
|
|
25,086 |
|
| |
Unrealized gains (losses) on securities available for sale, net
of tax of $1,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,256 |
) |
| |
Unrealized losses on foreign currency forward contracts, net of
tax of $4,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,105 |
) |
| |
Translation adjustment, net of tax of $2,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,540 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,265 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under stock option and stock purchase
plans, net
|
|
|
|
|
|
|
|
|
|
|
6,604 |
|
|
|
3 |
|
|
|
132,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,977 |
|
|
Issuance of common stock under restricted stock purchase plan,
net
|
|
|
|
|
|
|
|
|
|
|
1,266 |
|
|
|
1 |
|
|
|
55,491 |
|
|
|
|
|
|
|
(55,491 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Issuance of common stock from conversion of notes payable due
2019
|
|
|
|
|
|
|
|
|
|
|
5,078 |
|
|
|
3 |
|
|
|
55,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,354 |
|
|
Forfeiture of common stock under restricted stock purchase plan,
net
|
|
|
|
|
|
|
|
|
|
|
(102 |
) |
|
|
|
|
|
|
(4,557 |
) |
|
|
|
|
|
|
4,557 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Issuance of common stock from treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
6,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(214,259 |
) |
|
|
354,817 |
|
|
|
140,558 |
|
|
Repurchase of common stock for treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
(12,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(734,427 |
) |
|
|
(734,427 |
) |
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,795 |
|
|
|
|
|
|
|
|
|
|
|
16,795 |
|
|
Tax benefit from stock option and stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,550 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
8 |
|
|
$ |
— |
|
|
|
336,700 |
|
|
$ |
173 |
|
|
$ |
8,184,979 |
|
|
$ |
(6,767 |
) |
|
$ |
(36,280 |
) |
|
$ |
(801,094 |
) |
|
$ |
(514,610 |
) |
|
$ |
6,826,401 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| 1. |
Summary of Significant Accounting Policies |
Biogen Idec creates new standards of care in oncology and
immunology. As a global leader in the development,
manufacturing, and commercialization of novel therapies, we
transform scientific discoveries into advances in human
healthcare. We currently have five products:
|
|
|
| |
• |
AVONEX® (interferon beta-1a) for the treatment of relapsing
forms of multiple sclerosis, or MS. |
| |
| |
• |
RITUXAN® (rituximab) and ZEVALIN® (ibritumomab
tiuxetan), both of which treat certain B-cell non-Hodgkin’s
lymphomas, or B-cell NHLs. We collaborate with Genentech Inc.,
or Genentech, on the development and commercialization of
RITUXAN. RITUXAN is the trade name in the United States, or
U.S., Canada and Japan for the compound Rituximab. MabThera is
the tradename for rituximab in the European Union, or EU. In
these financial statements, we refer to rituximab, RITUXAN and
MabThera collectively as RITUXAN, except where we have otherwise
indicated. |
| |
| |
• |
TYSABRI® (natalizumab), formerly known as ANTEGREN®,
which was approved by the U.S. Food and Drug
Administration, or FDA, in November 2004 to treat relapsing
forms of MS to reduce the frequency of clinical relapses. In
February 2005, in consultation with the FDA, we and Elan
Corporation plc, or Elan, voluntarily suspended the marketing
and commercial distribution of TYSABRI, and informed physicians
that they should suspend dosing of TYSABRI until further
notification. In addition, we suspended dosing in clinical
studies of TYSABRI in MS, Crohn’s disease and rheumatoid
arthritis, or RA. These decisions were based on reports of two
serious adverse events that have occurred in patients treated
with TYSABRI in combination with AVONEX in MS clinical studies.
These events involved two cases of progressive multifocal
leukoencephalopathy, or PML, a rare and frequently fatal,
demyelinating disease of the central nervous system. Both
patients received more than two years of TYSABRI in combination
with AVONEX. In light of the two reports of PML, the companies
initiated a systematic review of the TYSABRI safety database. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported by the investigator as malignant
astrocytoma in July 2003. The patient died in December 2003. The
patient had received 8 doses of TYSABRI over an
18 month period and prior medication history included
multiple courses of immunosuppressant agents. We and Elan are
working with clinical investigators to evaluate patients treated
with TYSABRI in clinical studies and are consulting with leading
experts to better understand the possible risk of PML. The
outcome of these evaluations will be used to determine possible
re-initiation of dosing in clinical studies and future
commercial availability. |
| |
| |
• |
AMEVIVE® (alefacept) for the treatment of adult patients
with moderate-to-severe chronic plaque psoriasis who are
candidates for systemic therapy or phototherapy. |
We also receive royalty revenues on sales by our licensees of a
number of products covered under patents that we control,
including on sales by Schering AG of ZEVALIN in EU. In addition,
we have a number of ongoing research and development programs in
our core therapeutic areas and in other areas of interest.
On November 12, 2003, IDEC Pharmaceuticals Corporation and
Biogen, Inc. completed a merger transaction, or the Merger,
resulting in Biogen, Inc. becoming a wholly owned subsidiary of
IDEC Pharmaceuticals Corporation. The Merger was treated as an
acquisition of Biogen, Inc. by IDEC Pharmaceuticals Corporation
for accounting purposes. In connection with the Merger, IDEC
Pharmaceuticals Corporation changed its name to Biogen Idec Inc.
F-6
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Principles of Consolidation |
The consolidated financial statements include our financial
statements and those of our wholly owned subsidiaries. We also
consolidate a limited partnership investment, in which we are
the majority investor. All material intercompany balances and
transactions have been eliminated. On November 12, 2003, we
completed the Merger and changed our name to Biogen Idec Inc.
(see Note 2, Merger of IDEC Pharmaceuticals
Corporation and Biogen, Inc.). Our results of operations for the
year ended December 31, 2003 include the results of
operations of Biogen, Inc. from November 13, 2003 through
December 31, 2003.
The preparation of consolidated financial statements requires
our management to make estimates and judgments that may affect
the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates,
including those related to revenue recognition and related
allowances, marketable securities, derivatives and hedging
activities, inventories, patents, impairment of intangible
assets and goodwill, income taxes including the valuation
allowance for deferred tax assets, valuation of long-lived
assets and investments, research and development, loans,
pensions, retiree medical plan, contingencies and litigation. We
base our estimates on historical experience and on various other
assumptions that are believed to be reasonable, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions.
|
|
|
Translation of Foreign Currencies |
The functional currency for most of our foreign subsidiaries is
the local currency. Assets and liabilities are translated at
current rates of exchange. Income and expense items are
translated at the average exchange rates for the year.
Adjustments resulting from the translation of the financial
statements of our foreign operations into U.S. dollars are
excluded from the determination of net income and are
accumulated in a separate component of shareholders’
equity. The U.S. dollar is the functional currency for
certain foreign subsidiaries. Our subsidiaries that have the
U.S. dollar as the functional currency are remeasured into
U.S. dollars using current rates of exchange for monetary
assets and liabilities and historical rates of exchange for
nonmonetary assets. Foreign exchange transaction gains and
losses are included in the results of operations in other income
(expense), net. We had foreign exchange gains totaling
$5.4 million and $1.3 million for the years ended
December 31, 2004 and 2003, respectively.
|
|
|
Cash and Cash Equivalents |
We consider only those investments which are highly liquid,
readily convertible to cash and which mature within three months
from date of purchase to be cash equivalents.
|
|
|
Fair Value of Financial Instruments |
The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, accounts receivable, due
from unconsolidated joint business, other current assets,
accounts payable, and accrued expenses and other, approximate
fair value due to their short-term maturities. Our marketable
securities available-for-sale are carried at fair value based on
quoted market prices. The fair values of our foreign currency
forward contracts are based on quoted market prices or pricing
models using current market rates. At December 31, 2004,
the fair value of our senior and subordinated notes were
$778.7 million and $591.0 million, respectively.
F-7
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Inventories are stated at the lower of cost or market with cost
determined under the first-in, first-out (“FIFO”)
method. Included in inventory are raw materials used in the
production of pre-clinical and clinical products, which are
expensed as research and development costs when consumed.
The components of inventories for the periods ending
December 31 are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Raw materials
|
|
$ |
48,465 |
|
|
$ |
36,247 |
|
|
Work in process
|
|
|
157,947 |
|
|
|
443,666 |
|
|
Finished goods
|
|
|
44,604 |
|
|
|
16,436 |
|
| |
|
|
|
|
|
|
| |
|
$ |
251,016 |
|
|
$ |
496,349 |
|
| |
|
|
|
|
|
|
Our policy is to capitalize inventory costs associated with our
products prior to regulatory approval, when, based on
management’s judgment, future commercialization is
considered probable and the future economic benefit is expected
to be realized. Our accounting policy addresses the attributes
that should be considered in evaluating whether the costs to
manufacture a product have met the definition of an asset as
stipulated in FASB Concepts Statement No. 6. We assess the
regulatory approval process and where the particular product
stands in relation to that approval process including any known
constraints and impediments to approval, including safety,
efficacy and potential labeling restrictions. We evaluate our
anticipated research and development initiatives and constraints
relating to the product and the indication in which it will be
used. We consider our manufacturing environment including our
supply chain in determining logistical constraints that could
possibly hamper approval or commercialization. We consider the
shelf life of the product in relation to the expected timeline
for approval and we consider patent related or contract issues
that may prevent or cause delay in commercialization. We are
sensitive to the significant commitment of capital to scale up
production and to launch commercialization strategies. We also
base our judgment on the viability of commercialization, trends
in the marketplace and market acceptance criteria. Finally, we
consider the reimbursement strategies that may prevail with
respect to the product and assess the economic benefit that we
are likely to realize.
There is a risk inherent in these judgments, and we would be
required to expense previously capitalized costs related to
pre-approval inventory upon a change in such judgment, due to,
among other potential factors, a denial or delay of approval by
necessary regulatory bodies.
In February 2005, we and Elan voluntarily suspended the
marketing and commercial distribution of TYSABRI based on
reports of two serious adverse events that occurred in patients
treated with TYSABRI in combination with AVONEX in MS clinical
studies. These events involved two cases, of PML, a rare and
frequently fatal, demyelinating disease of the central nervous
system. In light of the two reports of PML, the companies
initiated a systematic review of the TYSABRI safety database. On
March 30, 2005, we and Elan announced that the review of
the safety database led a serious adverse event previously
reported by a clinical investigator in a clinical study of
TYSABRI in Crohn’s disease to be reassessed as PML. The
case was originally reported by the investigator as malignant
astrocytoma in July 2003. The patient died in
December 2003. The patient had received 8 doses of
TYSABRI over an 18 month period and prior medication
history included multiple courses of immunosuppressant agents.
We and Elan are working with clinical investigators to evaluate
patients treated with TYSABRI in clinical studies and are
consulting with leading experts to better understand the
possible risk of PML. The outcome of these evaluations will be
used to determine future commercial availability. We cannot
predict the outcome of these evaluations. An unfavorable or
inconclusive outcome could result in the permanent withdrawal of
TYSABRI from the market and termination of clinical studies of
TYSABRI, or the re-introduction of TYSABRI to the market with
significant restrictions on its permissible uses, blackbox or
other significant safety warnings in its label and
F-8
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
such other restrictions, requirements and limitations as the FDA
may require. While we presently believe that we will be able to
find a path forward for TYSABRI, there are no assurances as to
the likelihood of success. In light of our inability to predict
to the required degree of certainty that our TYSABRI inventory
will be realized in commercial sales prior to the expiration of
its shelf life, we have written down all of the
$19.1 million of TYSABRI inventory that had been included
on the balance sheet as of December 31, 2004, which was
charged to cost of product revenues. We are continuing to
manufacture TYSABRI. Because of the uncertainty described above,
in the first quarter of 2005, we also expect to expense between
$22 million (unaudited) and $25 million (unaudited) of
TYSABRI that was manufactured in the first quarter of 2005. In
subsequent periods, we will continue to assess TYSABRI to
determine if it needs to be expensed in light of existing
information related to the potential future commercial
availability of TYSABRI and applicable accounting standards. See
“Forward Looking Information and Risk Factors That May
Affect Future Results — Safety Issues with TYSABRI
Could Significantly Affect Our Growth.”
We had no unapproved products capitalized to inventory as of
December 31, 2004 or 2003. At December 31, 2004 and
2003, all products that we capitalize to inventory have been
approved for sale by either the European Medicines Agency, the
regulatory authority in the EU, or EMEA, or FDA.
We periodically review our inventories for excess or obsolete
inventory and write down obsolete or otherwise unmarketable
inventory to its estimated net realized value. If the actual
realizable value is less than that estimated by us, or if there
are any further determinations that inventory will not be
marketable based on estimates of demand, additional inventory
write-offs may be required. This periodic review led to the
write-down of TYSABRI inventory as of December 31, 2004 and
the expensing of TYSABRI expected to occur in the first quarter
of 2005, as described above, and may lead us to expense TYSABRI
in subsequent periods. Also included in product cost of revenues
were write-downs of commercial inventory that did not meet
quality specifications or become obsolete due to dating
expiration, in all cases this product inventory was written-down
to its net realizable value. We wrote-down $46.7 million of
unmarketable inventory during 2004, which was charged to cost of
product revenues and consisted of $16.2 million related to
AVONEX, $9.7 million related to ZEVALIN, $1.7 million
related to AMEVIVE and $19.1 million related to TYSABRI.
The AVONEX and AMEVIVE inventory was written-down when it was
determined that the inventory did not meet quality
specifications. The ZEVALIN inventory was written-down when it
was determined that the inventory did not meet quality
specifications or when it was determined that the inventory will
not be marketable based on estimates of demand.
We wrote-down $173.9 million of unmarketable inventory
during 2003, which was charged to cost of product revenues and
consisted of $160.8 million related to AVONEX,
$1.0 million related to AMEVIVE and $12.1 million
related to ZEVALIN. Of the $160.8 million write-down
related to AVONEX, $149.6 million represented the increase
to fair market value in connection with the Merger and
$11.2 million represented the historical manufacturing
costs. ZEVALIN was written-down to net realizable value due to
product expiration.
The AVONEX inventory that was written-down had been assessed as
commercially viable and saleable and there were no known
contingent issues at the acquisition date. This inventory was
recorded at the estimated selling price less the costs to
complete, costs of disposal and a reasonable distribution profit
allowance. Our products are required to meet numerous stringent
quality specifications that are agreed upon with the FDA at
various times prior to and after approval. Based on quality
testing performed subsequent to the Merger date, we became aware
of certain lots of our pre-filled syringe formulation of AVONEX
that previously had been approved for sale, but after additional
testing no longer met the established quality specifications.
Substantially all of the AVONEX inventory write-down was related
to our pre-filled syringe formulation of AVONEX, in which
certain lots had aggregate levels that exceeded the approved
specifications. As a result of extensive discussions with the
FDA, a new set of testing protocols were agreed to and certain
lots were deemed unmarketable. Upon management’s
determination that the inventory was unmarketable, we wrote off
the carrying value of the inventory to earnings in the fourth
quarter of 2003 because the cost
F-9
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of the inventory would not be recoverable. In 2004, we developed
a new pre-filled syringe formulation of AVONEX, which was
approved by the EMEA in November 2004 and the FDA in
March 2005. We do not expect to experience interruption in
the supply of AVONEX. However, we expect to write-down between
$6 million and $8 million of the remaining supplies of
the older formulation in the first quarter of 2005, related to
the FDA approval.
We invest our excess cash balances in short-term and long-term
marketable securities, principally corporate notes and
government securities. At December 31, 2004, substantially
all of our securities were classified as
“available-for-sale”. All available-for-sale
securities are recorded at fair market value and unrealized
gains and losses are included in accumulated other comprehensive
(loss) income in shareholders’ equity, net of related tax
effects. Realized gains and losses and declines in value, if
any, judged to be other than temporary on available-for-sale
securities are reported in other expense. The cost of
available-for-sale securities sold is based on the specific
identification method. We have established guidelines that
maintain safety and provide adequate liquidity in our
available-for-sale portfolio. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and
interest rates. In 2004, we recognized a charge of approximately
$5.7 million for certain unrealized losses on
available-for-sale securities that were determined to be other
than temporary, because we believe the securities will be sold
prior to a potential recovery of their decline in value.
As part of our strategic product development efforts, we invest
in equity securities of certain biotechnology companies with
which we have collaborative agreements. As a matter of policy,
we determine on a quarterly basis whether any decline in the
fair value of a marketable security is temporary or other than
temporary. Unrealized gains and losses on marketable securities
are included in other comprehensive (loss) income in
shareholders’ equity, net of related tax effects. If a
decline in the fair value of a marketable security below our
cost basis is determined to be other than temporary, such
marketable security is written down to its estimated fair value
with a charge to current earnings. The factors that we consider
in our assessments include the fair market value of the common
stock, the duration of the stock’s decline, prospects for
favorable clinical trial results, new product initiatives and
new collaborative agreements.
We also invest in equity securities of certain companies whose
securities are not publicly traded and fair value is not readily
available. These investments are recorded using the cost method
of accounting and are adjusted only for other-than-temporary
declines in fair value, distributions of earnings and additional
investments. As a matter of policy, we monitor these investments
in private securities on a quarterly basis and determine whether
any impairment in their value would require a charge to current
earnings, based on the implied value from any recent rounds of
financing completed by the investee, and general market
conditions.
Property and equipment are carried at cost, subject to review of
impairment for significant assets whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. Depreciation is calculated on the
straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the lesser of
the useful life or the term of the respective lease. Maintenance
costs are expensed as incurred. Buildings and building
components are depreciated over estimated useful lives ranging
from 15 to 45 years, machinery and equipment from 5 to
15 years, and furniture and fixtures 7 years. We
capitalize certain incremental costs associated with the
validation effort required for licensing by the FDA of
manufacturing equipment for the production of a commercially
approved drug. These costs include primarily direct labor and
material and are incurred in preparing the equipment for its
intended use. The validation costs are amortized over the life
of the related equipment.
F-10
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The timing of the anticipated licensing and use of the Oceanside
facility and the Hillerod facility is dependent upon the
commercial availability and potential market acceptance of
TYSABRI. If TYSABRI is permanently withdrawn from the market, we
would need to evaluate our long-term plans for these facilities.
If we are able to reintroduce TYSABRI to the market, we would
need to evaluate our requirements for existing inventory and
additional manufacturing capacity in light of the approved label
and our judgment of the potential U.S. market acceptance of
TYSABRI in MS, the probability of obtaining marketing approval
of TYSABRI in MS in the EU and other jurisdictions, and the
probability of obtaining marketing approval of TYSABRI in
additional indications in the U.S., EU and other jurisdictions.
|
|
|
Intangible Assets and Goodwill |
In connection with the Merger (see Note 2), we recorded
intangible assets related to patents, trademarks, and core
technology as part of the purchase price. These intangible
assets were recorded at fair value and at December 31,
2004 net of accumulated amortization and impairments.
Intangible assets related to out-licensed patents and core
technology are amortized over their remaining estimated useful
lives, ranging from 11 to 19 years, based on the greater of
the straight-line method or economic consumption each period.
These amortization costs are included in “Amortization of
acquired intangible assets” in the accompanying
consolidated statements of income. Intangible assets related to
trademarks have indefinite lives, and as a result are not
amortized, but are subject to review for impairment. We review
our intangible assets for impairment periodically and whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. In the third quarter
of 2004, management determined that certain clinical trials
would not continue which indicated that the carrying value of
certain core technology intangible assets related to AMEVIVE may
not be recoverable. As a result, we recorded a charge of
approximately $27.8 million to amortization of acquired
intangible assets, which reflects the adjustment to net
realizable value of core technology intangible assets related to
AMEVIVE.
Goodwill associated with the Merger represents the difference
between the purchase price and the fair value of the
identifiable tangible and intangible net assets when accounted
for by the purchase method of accounting. Goodwill is not
amortized, but rather subject to periodic review for impairment.
Goodwill is reviewed annually and whenever events or changes in
circumstances indicate that the carrying amount of the goodwill
might not be recoverable. In the fourth quarter of 2004, we
performed an assessment of our goodwill, and concluded that
goodwill was not impaired as of October 31, 2004. As a
result of the voluntary suspension of TYSABRI in
February 2005, we have performed an interim review for
impairment. We believe that the fair value of our legacy Biogen
reporting unit exceeds its carrying value and therefore, we
believe goodwill is properly valued. However, should new
information arise, we may need to reassess goodwill for
impairment in light of the new information and we may be
required to take impairment charges related to goodwill.
As of December 31, 2004 and 2003, intangible assets and
goodwill, net of accumulated amortization and impairment
charges, are as follows (amounts in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Accumulated | |
|
|
| December 31, 2004: |
|
Estimated Life | |
|
Fair Value | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
|
Out-licensed patents
|
|
|
12 years |
|
|
$ |
578,000 |
|
|
$ |
54,589 |
|
|
$ |
523,411 |
|
|
Core/developed technology
|
|
|
15-20 years |
|
|
|
2,993,000 |
|
|
|
297,269 |
|
|
|
2,695,731 |
|
|
Trademarks & tradenames
|
|
|
Indefinite |
|
|
|
64,000 |
|
|
|
— |
|
|
|
64,000 |
|
|
In-licensed patents
|
|
|
7-14 years |
|
|
|
12,482 |
|
|
|
2,797 |
|
|
|
9,685 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
|
|
|
$ |
3,647,482 |
|
|
$ |
354,655 |
|
|
$ |
3,292,827 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Indefinite |
|
|
$ |
1,151,105 |
|
|
$ |
— |
|
|
$ |
1,151,105 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
F-11
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Accumulated | |
|
|
| December 31, 2003: |
|
Estimated Life | |
|
Fair Value | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
|
Out-licensed patents
|
|
|
12 years |
|
|
$ |
578,000 |
|
|
$ |
6,422 |
|
|
$ |
571,578 |
|
|
Core/developed technology
|
|
|
15-21 years |
|
|
|
3,022,000 |
|
|
|
26,758 |
|
|
|
2,995,242 |
|
|
Trademarks & tradenames
|
|
|
Indefinite |
|
|
|
64,000 |
|
|
|
— |
|
|
|
64,000 |
|
|
In-licensed patents
|
|
|
7-12 years |
|
|
|
9,482 |
|
|
|
1,490 |
|
|
|
7,992 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
|
|
|
$ |
3,673,482 |
|
|
$ |
34,670 |
|
|
$ |
3,638,812 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Indefinite |
|
|
$ |
1,151,066 |
|
|
$ |
— |
|
|
$ |
1,151,066 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization on intangible assets is expected to be in the range
of approximately $276 million to $323 million for each
of the next five years.
|
|
|
Impairment of Long-Lived Assets |
Long-lived assets to be held and used, including intangible
assets, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an
impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the
extent or manner in which an asset is used, or a significant
adverse change that would indicate that the carrying amount of
an asset or group of assets is not recoverable. Determination of
recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset and its eventual
disposition. In the event that such cash flows are not expected
to be sufficient to recover the carrying amount of the assets,
the assets are written-down to their estimated fair values.
Long-lived assets to be disposed of are carried at fair value
less costs to sell.
In February 2005, we and Elan voluntarily suspended the
marketing and commercial distribution of TYSABRI based on
reports of two serious adverse events that have occurred in
patients treated with TYSABRI in combination with AVONEX in MS
clinical studies. These events involved two cases of PML, a rare
and frequently fatal, demyelinating disease of the central
nervous system. In light of the two reports of PML, the
companies initiated a systematic review of the TYSABRI safety
database. On March 30, 2005, we and Elan announced that the
review of the safety database led a serious adverse event
previously reported by a clinical investigator in a clinical
study of TYSABRI in Crohn’s disease to be reassessed as
PML. The case was originally reported by the investigator as
malignant astrocytoma in July 2003. The patient died in December
2003. The patient had received 8 doses of TYSABRI over an
18 month period and prior medication history included
multiple courses of immunosuppressant agents. We and Elan are
working with clinical investigators to evaluate patients treated
with TYSABRI in clinical studies and are consulting with leading
experts to better understand the possible risk of PML. The
outcome of these evaluations will be used to determine possible
re-initiation of dosing in clinical studies and future
commercial availability.
We cannot predict the outcome of these evaluations. An
unfavorable or inconclusive outcome could result in the
permanent withdrawal of TYSABRI from the market and termination
of clinical studies of TYSABRI, or the re-introduction of
TYSABRI to the market with significant restrictions on its
permissible uses, blackbox or other significant safety warnings
in its label and such other restrictions, requirements and
limitations as the FDA may require. We have reassessed our
long-lived assets related to TYSABRI, such as intangibles and
manufacturing facilities, and have determined that there are no
impairments related to these assets as a result of the
suspension of the marketing of TYSABRI. However, should new
information arise, we may be required to take impairment charges
related to certain of our long-lived assets.
F-12
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In connection with certain of our research collaborations, we
have extended loans or made loan commitments to collaborators.
On a quarterly basis, the loans are monitored for potential
impairment, based on the probability of the collection of the
full amount due under the loan according to each loan’s
terms. If it is determined that it is not probable that we will
be able to collect all interest and principal due, we will
recognize a corresponding impairment charge to current earnings.
In connection with our senior and subordinated notes payable, we
capitalized certain issuance costs which are being amortized to
interest expenses over the estimated outstanding term of the
notes, according to EITF 86-15, “Increasing-Rate
Debt.” We currently expect that holders of the senior notes
due in 2032 will require us to purchase all or a portion of the
senior notes on April 29, 2005. As a result, we have
reassessed the estimated term of this debt, and recorded
additional interest expense of approximately $7.1 million
in the fourth quarter of 2004. We have also classified our
senior notes as current liabilities on the consolidated balance
sheet as of December 31, 2004. The remaining unamortized
issuance costs of approximately $9.7 million will be
amortized through April 29, 2005.
|
|
|
Derivatives and Hedging Activities |
Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging
Activities”, (“SFAS 133”) requires that all
derivatives be recognized on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive (loss)
income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge
transaction. We assess, both at its inception and on an on-going
basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting the changes in
cash flows of hedged items. We also assess hedge ineffectiveness
on a quarterly basis and record the gain or loss related to the
ineffective portion to current earnings to the extent
significant. If we determine that a forecasted transaction is no
longer probable of occurring, we discontinue hedge accounting
for the affected portion of the hedge instrument, and any
related unrealized gain or loss on the contract is recognized in
current earnings.
Statement of Financial Accounting Standards No. 130,
“Reporting Comprehensive Income”,
(“SFAS 130”), requires us to display
comprehensive income and its components as part of our full set
of financial statements. Comprehensive income is comprised of
net income (loss) and other comprehensive (loss) income. Other
comprehensive (loss) income includes certain changes in equity
that are excluded from net income (loss), such as translation
adjustments and unrealized holding gains and losses on
available-for-sale marketable securities and certain derivative
instruments, net of tax.
Statement of Financial Accounting Standards No. 131,
“Disclosures about Segments of an Enterprise and Related
Information”, (“SFAS 131”) establishes
standards for reporting information on operating segments in
interim and annual financial statements. We operate in one
segment, which is the business of development, manufacturing and
commercialization of novel therapeutics for human health care.
Our chief operating decision-makers review our operating results
on an aggregate basis and manage our operations as a single
operating segment.
F-13
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Revenue Recognition and Accounts Receivable |
SEC Staff Accounting Bulletin No. 101
(“SAB 101”), superceded in part by SAB 104,
provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. SAB 101
establishes the SEC’s view that it is not appropriate to
recognize revenue until all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; the seller’s price
to the buyer is fixed or determinable; and collectibility is
reasonably assured. SAB 104 also requires that both title
and the risks and rewards of ownership be transferred to the
buyer before revenue can be recognized. We believe that our
revenue recognition policies are in compliance with SAB 104.
Product revenue consists of sales from our four products:
AVONEX, AMEVIVE, ZEVALIN, and TYSABRI. The timing of distributor
orders and shipments can cause variability in earnings. Revenues
from product sales are recognized when product is shipped and
title and risk of loss has passed to the customer, typically
upon delivery. Revenues are recorded net of applicable
allowances for returns, patient assistance, trade term
discounts, Medicaid rebates, Veteran’s Administration
rebates, and managed care discounts and other applicable
allowances. Included in our consolidated balance sheets at
December 31, 2004 and 2003, are allowances for returns,
rebates, discounts and other allowances which totaled
$33.8 million and $20.8 million, respectively. At
December 31, 2004, our allowance for product revenues was
$5.2 million. In 2004, total discounts and allowances were
approximately 1.8% of total current assets and less than 1% of
total assets. We prepare our estimates for sales returns and
allowances, discounts and rebates quarterly based primarily on
historical experience updated for changes in facts and
circumstances, as appropriate.
For the years ended December 31, 2004, 2003, and 2002, we
recorded $169.3 million, $13.9 million and
$0.7 million, respectively, in our consolidated statements
of income related to sales returns and allowances, discounts,
and rebates. In 2004, the amount of product returns was
approximately 1% of product revenue for all our products.
Product returns were $17.4 million, $3.7 million and
$0.5 million for 2004, 2003 and 2002, respectively. Product
returns in 2004 included $3.2 million related to product
sales made prior to 2004. During 2004, we had encountered
problems in manufacturing our pre-filled syringe formulation of
AVONEX. As a result, we had an increase in our expected level of
returns related to batches that failed to meet specifications.
In November 2004, we received regulatory approval in the
U.S. of TYSABRI for the treatment of MS and paid a
$7.0 million approval-based milestone to Elan. Upon
approval, we also became obligated to provide Elan with
$5.3 million in credits for payments on certain purchases
of TYSABRI and for reimbursement of commercialization costs.
Elan can apply $1.5 million of the credits per year. The
approval and credit milestones were capitalized upon approval in
investments and other assets and are being amortized over the
remaining patent life of 15.7 years. The amortization of
the approval and credit milestones is being recorded as a
reduction of revenue. In February 2005, in consultation with the
FDA, we and Elan voluntarily suspended the marketing and
commercial distribution of TYSABRI, and informed physicians that
they should suspend dosing of TYSABRI until further notification.
Under our agreement with Elan, we manufacture TYSABRI and, in
the U.S. prior to the suspension, sold TYSABRI to Elan who
then distributed TYSABRI to third party distributors. In the
U.S., we record revenue when TYSABRI is shipped from Elan to
third party distributors. In December 2004, we recorded
$3.1 million of product revenues related to sales of
TYSABRI to Elan. Additionally, as of December 31, 2004, we
deferred $1.9 million in revenue related to sales of
TYSABRI which had not yet been shipped by Elan. As of
December 31, 2004, Elan owed us $34.4 million,
representing commercialization and development expenses incurred
by us, which is included in other current assets on our
consolidated balance sheets. We received the entire
$34.4 million from Elan in the first quarter of 2005
related to the receivable.
Revenues from unconsolidated joint business consist of our share
of the pretax copromotion profits generated from our copromotion
arrangement with Genentech, reimbursement from Genentech of our
F-14
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
RITUXAN-related sales force and development expenses and
royalties from Genentech for sales of RITUXAN outside the
U.S. by Roche and Zenyaku. Under the copromotion
arrangement, all U.S. sales of RITUXAN and associated costs
and expenses are recognized by Genentech and we record our share
of the pretax copromotion profits on a quarterly basis, as
defined in our amended and restated collaboration agreement with
Genentech. Pretax copromotion profits under the copromotion
arrangement are derived by taking U.S. net sales of RITUXAN
to third-party customers less cost of sales, third-party royalty
expenses, distribution, selling and marketing expenses and joint
development expenses incurred by Genentech and us. Our
profit-sharing formula with Genentech has two tiers; we earn a
higher percentage of the pretax copromotion profits at the upper
tier once a fixed pretax copromotion profit level is met. The
profit-sharing formula resets annually at the beginning of each
year to the lower tier. In June 2003, we amended and restated
our collaboration agreement with Genentech to include the
development and commercialization of one or more anti-CD20
antibodies targeting B-cell disorders, in addition to RITUXAN,
for a broad range of indications. Upon approval of the first new
anti-CD20 product, the pretax copromotion profit-sharing formula
for RITUXAN and other anti-CD20 products will change over a
period of time to a fixed annual profit-sharing percentage at
the lower tier. Currently, we record our share of expenses
incurred for the development of new anti-CD20 products in
research and development expense until such time as a new
product is approved, at which time we will record our share of
pretax copromotion profits related to the new product in
revenues from unconsolidated joint business. We record our
royalty revenue on sales of RITUXAN outside the U.S. on a
cash basis. Under the amended and restated collaboration
agreement, we will receive lower royalty revenue from Genentech
on sales by Roche and Zenyaku of new anti-CD20 products and only
for the first eleven years from the date of first commercial
sale of such new anti-CD20 products.
In February 2002, the FASB Emerging Issues Task Force, or EITF,
released EITF Issue No. 01-09
(“EITF 01-09”), “Accounting for
Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products)”.
EITF 01-09 states that cash consideration (including a
sales incentive) given by a vendor to a customer is presumed to
be a reduction of the selling prices of the vendor’s
products or services and, therefore, should be characterized as
a reduction of revenue when recognized in the vendor’s
income statement, rather than a sales and marketing expense. We
have various contracts with distributors that provide for
discounts and rebates. These contracts are classified as a
reduction of revenue. We also maintain select customer service
contracts with distributors and other customers in the
distribution channel. In accordance with EITF 01-09, we
have established the fair value of these contracts and, as
provided by EITF 01-09, classified these customer service
contracts as sales and marketing expense. If we had concluded
that sufficient evidence of the fair value did not exist for
these contracts, we would have been required to classify these
costs as a reduction of revenue.
We receive royalty revenues under license agreements with a
number of third parties that sell products based on technology
we have developed or to which we have rights. The license
agreements provide for the payment of royalties to us based on
sales of the licensed product. We record these revenues based on
estimates of the sales that occurred during the relevant period.
The relevant period estimates of sales are based on interim data
provided by licensees and analysis of historical royalties we
have been paid (adjusted for any changes in facts and
circumstances, as appropriate). We maintain regular
communication with our licensees in order to gauge the
reasonableness of our estimates. Differences between actual
royalty revenues and estimated royalty revenues are reconciled
and adjusted for in the period which they become known,
typically the following quarter. Historically, adjustments have
not been material based on actual amounts paid by licensees.
There are no future performance obligations on our part under
these license agreements. To the extent we do not have
sufficient ability to accurately estimate revenue, we record it
on a cash basis.
|
|
|
Research and Development Expenses |
Research and development expenses are comprised of costs
incurred in performing research and development activities
including salaries and benefits, facilities costs, overhead
costs, clinical trial and related
F-15
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
clinical manufacturing costs, contract services and other
outside costs. Research and development costs, including upfront
fees and milestones paid to collaborators, are expensed as
incurred. We have entered into certain research agreements in
which we share costs with our collaborator. We have entered into
other collaborations where we are reimbursed for work performed
by our collaborative partners. We record these costs as research
and development expenses. If the arrangement is a cost-sharing
arrangement and there is a period during which we receive
payments from the collaborator, we record payments by the
collaborator for their share of the development effort as a
reduction of research and development expense. If the
arrangement is a reimbursement of research and development
costs, we record the reimbursement as corporate partner revenue.
Certain reclassifications of prior years amounts have been made
to conform to current year presentation.
We calculate earnings (loss) per share in accordance with
Statement of Financial Accounting Standards No. 128,
“Earnings per Share,” or SFAS 128, and
EITF 03-06, “Participating Securities and the
Two-Class Method Under SFAS 128.” SFAS 128
and EITF 03-06 together require the presentation of
“basic” earnings (loss) per share and
“diluted” earnings (loss) per share. Basic earnings
(loss) per share is computed using the two-class method. Under
the two-class method, undistributed net income is allocated to
common stock and participating securities based on their
respective rights to share in dividends. We have determined that
our preferred shares meet the definition of participating
securities, and have allocated a portion of net income to our
preferred shares on a pro rata basis. Net income allocated to
preferred shares is excluded from the calculation of basic
earnings (loss) per share. For basic earnings (loss) per share,
net income (loss) available to holders of common stock is
divided by the weighted average number of shares of common stock
outstanding. For purposes of calculating diluted earnings (loss)
per share, net income (loss) is adjusted for the after-tax
amount of interest associated with convertible debt and net
income allocable to preferred shares, and the denominator
includes both the weighted average number of shares of common
stock outstanding and the number of dilutive common stock
equivalents such as stock options, unvested restricted stock
awards and other convertible securities, to the extent they are
dilutive.
F-16
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Basic and diluted earnings (loss) per share for the periods
ending December 31 are calculated as follows (table in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
25,086 |
|
|
$ |
(875,097 |
) |
|
$ |
148,090 |
|
| |
Adjustment for net income allocable to preferred stock
|
|
|
37 |
|
|
|
— |
|
|
|
2,687 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income (loss) used in calculating basic earnings (loss) per
share
|
|
$ |
25,049 |
|
|
$ |
(875,097 |
) |
|
$ |
145,403 |
|
| |
Adjustment for interest, net of interest capitalized and tax
|
|
|
— |
|
|
|
— |
|
|
|
4,926 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income (loss) used in calculating diluted earnings (loss)
per share
|
|
$ |
25,049 |
|
|
$ |
(875,097 |
) |
|
$ |
150,329 |
|
| |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of common shares outstanding
|
|
|
334,996 |
|
|
|
177,982 |
|
|
|
153,086 |
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options
|
|
|
7,600 |
|
|
|
— |
|
|
|
9,783 |
|
| |
Restricted stock awards
|
|
|
879 |
|
|
|
— |
|
|
|
— |
|
| |
Convertible promissory notes due 2019
|
|
|
— |
|
|
|
— |
|
|
|
13,936 |
|
| |
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
8,479 |
|
|
|
— |
|
|
|
23,719 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings (loss) per share
|
|
|
343,475 |
|
|
|
177,982 |
|
|
|
176,805 |
|
| |
|
|
|
|
|
|
|
|
|
The following amounts were not included in the calculation of
net income (loss) per share because their effects were
anti-dilutive for the periods ending December 31 (table in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income allocable to preferred shares
|
|
$ |
37 |
|
|
$ |
— |
|
|
$ |
2,687 |
|
| |
Adjustment for interest, net of tax
|
|
|
3,762 |
|
|
|
9,378 |
|
|
|
5,605 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
3,799 |
|
|
$ |
9,378 |
|
|
$ |
8,292 |
|
| |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options
|
|
|
5,080 |
|
|
|
7,103 |
|
|
|
— |
|
| |
Convertible preferred stock
|
|
|
247 |
|
|
|
2,173 |
|
|
|
2,829 |
|
| |
Convertible promissory notes due 2019
|
|
|
4,563 |
|
|
|
13,935 |
|
|
|
— |
|
| |
Convertible promissory notes due 2032
|
|
|
2,165 |
|
|
|
8,661 |
|
|
|
5,917 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
12,055 |
|
|
|
31,872 |
|
|
|
8,746 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for Stock Based Compensation |
We have several stock-based compensation plans which are
described more fully in Note 12. We apply APB Opinion
No. 25 “Accounting for Stock Issued to Employees”
in accounting for our plans and apply Statement of Financial
Accounting Standards No. 123 “Accounting for Stock
Issued to Employees,” or SFAS 123, as amended by
Statement of Financial Accounting Standards No. 148
“Accounting for Stock-Based Compensation —
Transition and Disclosure”, or SFAS 148, for
disclosure purposes only. The SFAS 123 disclosures include
pro forma net income and earnings per share as if the fair
value-based method
F-17
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of accounting had been used. Stock-based compensation issued to
non-employees is accounted for in accordance with SFAS 123
and related interpretations.
If compensation cost for awards issued in 2004, 2003 and 2002
under the stock-based compensation plans, including costs
related to prior years’ awards, had been determined based
on SFAS 123, as amended by SFAS 148, our pro forma net
income (loss), and pro forma earnings (loss) per share for the
years ending December 31, would have been as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Reported net income (loss)
|
|
$ |
25,086 |
|
|
$ |
(875,097 |
) |
|
$ |
148,090 |
|
|
Stock based compensation included in net income (loss)
|
|
|
16,795 |
|
|
|
— |
|
|
|
— |
|
|
Pro forma stock compensation expense, net of tax
|
|
|
(76,421 |
) |
|
|
(51,850 |
) |
|
|
(54,662 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
(34,540 |
) |
|
$ |
(926,947 |
) |
|
$ |
93,428 |
|
| |
|
|
|
|
|
|
|
|
|
|
Reported basic earnings (loss) per share
|
|
$ |
0.07 |
|
|
$ |
(4.92 |
) |
|
$ |
0.95 |
|
| |
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per share
|
|
$ |
(0.10 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.60 |
|
| |
|
|
|
|
|
|
|
|
|
|
Reported diluted earnings (loss) per share
|
|
$ |
0.07 |
|
|
$ |
(4.92 |
) |
|
$ |
0.85 |
|
| |
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per share
|
|
$ |
(0.10 |
) |
|
$ |
(5.21 |
) |
|
$ |
0.53 |
|
| |
|
|
|
|
|
|
|
|
|
The fair value of each option granted under our stock-based
compensation plans and each purchase right granted under our
employee stock purchase plan is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Option Grants | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Expected stock price volatility
|
|
|
42 |
% |
|
|
41 |
% |
|
|
48 |
% |
|
Risk-free interest rate
|
|
|
3.4 |
% |
|
|
2.8 |
% |
|
|
2.7 |
% |
|
Expected option life in years
|
|
|
5.4 |
|
|
|
5.8 |
|
|
|
5.8 |
|
|
Per share grant date fair value
|
|
$ |
19.93 |
|
|
$ |
16.41 |
|
|
$ |
28.90 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Purchase Rights | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Expected stock price volatility
|
|
|
41 |
% |
|
|
48 |
% |
|
|
48 |
% |
|
Risk-free interest rate
|
|
|
1.4 |
% |
|
|
1.3 |
% |
|
|
1.0 |
% |
|
Expected option term in years
|
|
|
0.24 - 1.5 |
|
|
|
0.13 - 2.0 |
|
|
|
0.3 - 2.0 |
|
|
Per share grant date fair value
|
|
$ |
11.34 |
|
|
$ |
21.46 |
|
|
$ |
19.73 |
|
The effects of applying SFAS 123 in this pro forma
disclosure are not indicative of future amounts. SFAS 123
did not apply to awards prior to 1995, and additional awards in
future years are anticipated. Additionally, in December 2004,
new accounting guidance was issued which will require all
share-based payments to employees, including grants of employee
stock options, to be recognized in the statement of income based
on their fair values, effective June 15, 2005. See
“Note 17 — New Accounting
Pronouncements” for a more complete description of this new
accounting guidance and the potential impact it will have on our
financial statements.
F-18
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 2. |
Merger of IDEC Pharmaceuticals Corporation and Biogen,
Inc. |
On November 12, 2003, IDEC Pharmaceuticals Corporation and
Biogen, Inc. entered into the Merger. The Merger was treated as
an acquisition of Biogen, Inc. by IDEC Pharmaceuticals
Corporation for accounting purposes. In connection with the
Merger, IDEC Pharmaceuticals Corporation changed its name to
Biogen Idec Inc.
As a result of the Merger, Biogen, Inc. stockholders received
1.15 shares of Biogen Idec common stock for each share of
Biogen, Inc. common stock. As a result, Biogen Idec issued
approximately 171.9 million shares of common stock at a
fair value of approximately $6.48 billion. In addition,
options to purchase Biogen, Inc. common stock outstanding at
November 12, 2003 were assumed by Biogen Idec and converted
into options to purchase approximately 20.7 million shares
of Biogen Idec common stock at a fair value of approximately
$295 million. We paid approximately $19.9 million in
fees for banking, legal, accounting and tax related services
related to the Merger. Merger related fees paid by Biogen, Inc.
prior to completion of the Merger are not included in this
amount as they were expensed as incurred. The total Merger
purchase price was approximately $6.8 billion. The Merger
qualifies as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
The purchase price is as follows (table in thousands):
| |
|
|
|
|
|
Fair value of Biogen Idec common stock
|
|
$ |
6,480,339 |
|
|
Fair value of replacement stock options
|
|
|
295,399 |
|
|
Cash paid for fractional shares
|
|
|
27 |
|
|
Acquisition related costs
|
|
|
19,872 |
|
| |
|
|
|
|
Total purchase price
|
|
$ |
6,795,637 |
|
| |
|
|
|
The fair value of Biogen Idec’s shares used in determining
the purchase price was $37.69 per share based on the
average of the closing price of IDEC Pharmaceuticals
Corporation’s common stock for the period two days before
through two days after the announcement of the Merger on
June 23, 2003. The fair value of assumed stock options was
determined using the Black-Scholes option pricing model with the
following assumptions: stock price of $37.69, which is the value
ascribed to IDEC Pharmaceutical Corporation’s common stock
in determining the purchase price; volatility of 40%; risk-free
interest rate of 1.8%; and an expected life of 4.0 years.
F-19
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Purchase price allocation |
The purchase price has been allocated to the acquired tangible
and intangible assets and liabilities based on their fair values
as of November 12, 2003, the date that the Merger was
consummated (table in thousands):
| |
|
|
|
|
|
Inventory
|
|
$ |
706,957 |
|
|
Accounts receivable
|
|
|
216,221 |
|
|
Property, plant and equipment
|
|
|
713,719 |
|
|
Acquired identifiable intangible assets
|
|
|
3,664,000 |
|
|
Goodwill
|
|
|
1,151,105 |
|
|
In-process research and development
|
|
|
823,000 |
|
|
Deferred stock-based compensation
|
|
|
2,261 |
|
|
Other current and long-term assets
|
|
|
1,106,112 |
|
|
Assumed liabilities
|
|
|
(424,648 |
) |
|
Increase benefit plan liability to fair value
|
|
|
(26,650 |
) |
|
Deferred tax liabilities arising from fair value adjustments
|
|
|
(1,136,440 |
) |
| |
|
|
|
|
Total purchase price
|
|
$ |
6,795,637 |
|
| |
|
|
|
The allocation of the purchase price was based, in part, on a
third-party valuation of the fair value of in-process research
and development, identifiable intangible assets, and certain
property, plant and equipment. The excess of the purchase price
over the fair value of assets and liabilities acquired is
allocated to goodwill. We believe the fair values assigned to
the assets acquired and liabilities assumed are based on
reasonable assumptions. These assumptions are based on the best
available information that we had at the time.
|
|
|
Identifiable intangible assets |
The amount allocated to acquired identifiable intangible assets
has been attributed to the following categories (table in
thousands):
| |
|
|
|
|
|
Patents
|
|
$ |
578,000 |
|
|
Trademarks
|
|
|
64,000 |
|
|
Core Technology
|
|
|
3,022,000 |
|
| |
|
|
|
| |
|
$ |
3,664,000 |
|
| |
|
|
|
The estimated fair value attributed to core technology, which
relates to Biogen, Inc.’s existing FDA-approved products,
was determined based on a discounted forecast of the estimated
net future cash flows to be generated from the technology. The
estimated fair value attributed to core technology will be
amortized over 15 to 20 years, which is the estimated
period over which cash flows will be generated from the
technology.
The estimated fair value attributed to patents represents only
those patents from which Biogen, Inc. derives cash flows through
contractual third-party out-licensing activity and not patents
related to Biogen, Inc.’s current product portfolio or
in-process research projects. The estimated fair value was
determined based on a discounted forecast of the estimated net
future cash flows to be generated from the patents. The
estimated fair value attributed to patents is being amortized
over 12 years, which is the estimated period over which
cash flows will be generated from the patents.
The amount allocated to in-process research and development, or
IPR&D, represents an estimate of the fair value of purchased
in-process technology for research projects that, as of the date
of the Merger, had not
F-20
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reached technological feasibility and have no alternative future
use. Only those research projects that had advanced to a stage
of development where management believed reasonable net future
cash flow forecasts could be prepared and a reasonable
likelihood of technical success existed were included in the
estimated fair value. As of the date of the Merger, the
IPR&D primarily represented the estimated fair value of
TYSABRI, which is currently in Phase III development for
Crohn’s disease, and was approved by the FDA in November
2004 for MS. In February 2005, we suspended the marketing and
commercial distribution of TYSABRI, and suspended dosing of
TYSABRI in clinical trials. See “Note 1 —
Summary of Significant Accounting Policies —
Overview” for a discussion on the TYSABRI suspension. The
estimated fair value of the IPR&D was determined based on a
discounted forecast of the estimated net future cash flows for
each project, adjusted for the estimated probability of
technical success and FDA approval for each research project.
IPR&D was expensed immediately following consummation of the
Merger.
|
|
|
Pro forma results of operations (unaudited) |
The following unaudited pro forma information presents a summary
of the historical consolidated statements of income of IDEC
Pharmaceuticals Corporation and Biogen, Inc. for the years ended
December 31, 2003 and 2002, giving effect to the merger as
if it occurred on January 1, 2002 and 2003 (in thousands,
except per share amounts):
| |
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
Product sales
|
|
$ |
1,228,493 |
|
|
$ |
1,048,068 |
|
|
Total revenue
|
|
|
1,853,233 |
|
|
|
1,552,586 |
|
|
Net loss
|
|
|
(243,929 |
) |
|
|
(168,476 |
) |
|
Pro forma earnings (loss) per share:
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
(0.75 |
) |
|
|
(0.52 |
) |
| |
Diluted
|
|
|
(0.75 |
) |
|
|
(0.52 |
) |
The pro forma net income (loss) and income (loss) per share for
the periods presented exclude the acquired IPR&D charge of
$823.0 million. Amortization of the acquired intangibles is
included on a straight-line basis. This unaudited pro forma
information does not purport to indicate the results that would
have actually been obtained had the Merger been completed on the
assumed date or for the period presented, or which may be
realized in the future. To produce the pro forma financial
information, Biogen Idec allocated the purchase price using its
best estimates of fair value. These estimates are based on the
information that was available at the purchase date.
Financial instruments that potentially subject us to
concentrations of credit risk are accounts receivable and
marketable securities. Wholesale distributors and large
pharmaceutical companies account for the majority of our
accounts receivable and collateral is generally not required. We
also sell ZEVALIN to radiopharmacies throughout the U.S., and
collateral is generally not required. To mitigate the risk, we
monitor the financial performance and credit worthiness of our
customers. We invest our excess cash balances in marketable debt
securities, primarily U.S. government securities and
corporate bonds and notes, with strong credit ratings. We limit
the amount of investment exposure as to institution, maturity
and investment type.
The average maturity of our marketable securities as of
December 31, 2004 and 2003 was 20 months and
16 months, respectively. Proceeds from maturities and other
sales of marketable securities, which were primarily reinvested,
for the years ended December 31, 2004, 2003, and 2002 were
approximately $3.2 billion, $1.1 billion, and
$841.0 million, respectively. Realized losses on these
sales for the years ended December 31, 2004, 2003, and 2002
were $4.1 million, $2.1 million, and
$2.8 million, respectively.
F-21
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following is a summary of marketable securities:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
|
Gross | |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized | |
|
Amortized | |
| |
|
Fair Value | |
|
Gains | |
|
Losses | |
|
Cost | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
$ |
436,719 |
|
|
$ |
2 |
|
|
$ |
(405 |
) |
|
$ |
437,122 |
|
| |
Noncurrent
|
|
|
619,454 |
|
|
|
90 |
|
|
|
(3,793 |
) |
|
|
623,157 |
|
|
U.S. Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
|
411,776 |
|
|
|
8 |
|
|
|
(203 |
) |
|
|
411,971 |
|
| |
Noncurrent
|
|
|
490,170 |
|
|
|
333 |
|
|
|
(4,657 |
) |
|
|
494,494 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total securities available-for-sale
|
|
$ |
1,958,119 |
|
|
$ |
433 |
|
|
$ |
(9,058 |
) |
|
$ |
1,966,744 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other marketable securities, noncurrent
|
|
$ |
29,434 |
|
|
$ |
7,369 |
|
|
$ |
— |
|
|
$ |
22,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
|
Gross | |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized | |
|
Amortized | |
| |
|
Fair Value | |
|
Gains | |
|
Losses | |
|
Cost | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
$ |
10,102 |
|
|
$ |
30 |
|
|
$ |
— |
|
|
$ |
10,072 |
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
|
347,865 |
|
|
|
883 |
|
|
|
(9 |
) |
|
|
346,991 |
|
| |
Noncurrent
|
|
|
768,840 |
|
|
|
3,280 |
|
|
|
(520 |
) |
|
|
766,080 |
|
|
U.S. Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
|
163,142 |
|
|
|
733 |
|
|
|
(4 |
) |
|
|
162,413 |
|
| |
Noncurrent
|
|
|
733,487 |
|
|
|
2,680 |
|
|
|
(511 |
) |
|
|
731,318 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total securities available-for-sale
|
|
$ |
2,023,436 |
|
|
$ |
7,606 |
|
|
$ |
(1,044 |
) |
|
$ |
2,016,874 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other marketable securities, noncurrent
|
|
$ |
27,115 |
|
|
$ |
138 |
|
|
$ |
(2,789 |
) |
|
$ |
29,766 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of securities
available-for-sale at December 31, 2004 by contractual
maturity are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Amortized Cost | |
|
Estimated Fair Value | |
| |
|
| |
|
| |
|
Due in one year or less
|
|
$ |
849,093 |
|
|
$ |
848,495 |
|
|
Due after one year
|
|
|
1,117,651 |
|
|
|
1,109,624 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,966,744 |
|
|
$ |
1,958,119 |
|
| |
|
|
|
|
|
|
F-22
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Unrealized losses for which other-than-temporary losses have not
been recognized at December 31, 2004 consist of the
following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less than 12 Months | |
|
12 Months or Greater | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
| |
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Corporate debt securities
|
|
$ |
865,097 |
|
|
$ |
(3,796 |
) |
|
$ |
57,097 |
|
|
$ |
(402 |
) |
|
$ |
922,194 |
|
|
$ |
(4,198 |
) |
|
U.S. Government securities
|
|
|
672,839 |
|
|
|
(4,393 |
) |
|
|
111,560 |
|
|
|
(467 |
) |
|
|
784,399 |
|
|
|
(4,860 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,537,936 |
|
|
$ |
(8,189 |
) |
|
$ |
168,657 |
|
|
$ |
(869 |
) |
|
$ |
1,706,593 |
|
|
$ |
(9,058 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses relate to various debt securities, including
U.S. government issues, corporate bonds and asset-backed
securities. The unrealized losses on these securities were
primarily caused by higher interest rates, and represent less
than 1% of the total fair value of the portfolio. We believe
these unrealized losses are not other-than-temporary, and have
the intent and ability to hold these securities with unrealized
losses to maturity or to recovery. In 2004, we recognized a
charge of approximately $5.7 million for certain unrealized
losses on available-for-sale securities that were determined to
be other-than-temporary, because we believe the securities will
be sold prior to a potential recovery of their decline in value.
We have foreign currency forward contracts to hedge specific
forecasted transactions denominated in foreign currencies. All
foreign currency forward contracts have durations of ninety days
to 12 months. These contracts have been designated as cash
flow hedges and accordingly, to the extent effective, any
unrealized gains or losses on these foreign currency forward
contracts are reported in other comprehensive income. Realized
gains and losses for the effective portion are recognized with
the underlying hedge transaction. We assess hedge
ineffectiveness on a quarterly basis and record the gain or loss
related to the ineffective portion to current earnings to the
extent significant. If we determine that a forecasted
transaction is no longer probable of occurring, we discontinue
hedge accounting for the affected portion of the hedge
instrument and any related unrealized gain or loss on the
contract is recognized in current earnings. The notional
settlement amount of the foreign currency forward contracts
outstanding at December 31, 2004 was approximately
$164.3 million. These contracts had a fair value of
$18.1 million, representing an unrealized loss, and were
included in other current liabilities at December 31, 2004.
The notional settlement amount of the foreign currency forward
contracts outstanding at December 31, 2003 was
approximately $109.4 million. These contracts had a fair
value of $5.9 million, representing an unrealized loss, and
were included in other current liabilities at December 31,
2003.
In 2004, approximately $0.9 million of losses were
recognized in earnings due to hedge ineffectiveness. We
recognized $5.5 million of losses in product revenue and
$0.5 million of losses in royalty revenue for the
settlement of certain effective cash flow hedge instruments at
December 31, 2004. These settlements were recorded in the
same period as the related forecasted transactions affecting
earnings. We expect approximately $18.1 million of
unrealized losses at December 31, 2004 to affect earnings
in 2005 related to our foreign currency forward contracts.
In 2003, there were no losses recognized in earnings due to
hedge ineffectiveness or as a result of the discontinuance of
cash flow hedges upon determining that it was no longer probable
that the original forecasted transaction would occur. We
recognized $1.3 million of losses in product revenue and
$0.5 million of losses in royalty revenue for the
settlement of certain effective cash flow hedge instruments at
December 31, 2003. These settlements were recorded in the
same period as the related forecasted transactions affecting
earnings.
We had no forward currency forward contracts during 2002.
F-23
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In April and May 2002, we issued 30-year senior convertible
promissory notes, or senior notes, for gross proceeds of
approximately $714.4 million, or $696.0 million net of
underwriting commissions and expenses of $18.4 million.
Simultaneously with the issuance of the senior notes, we used a
portion of the proceeds to fund the repurchase of
$135 million of our outstanding common stock. The senior
notes are zero coupon and were priced with a yield to maturity
of 1.75% annually. We will pay contingent cash interest to the
holders of these senior notes during any nine-month period
commencing on or after April 30, 2007 if the average market
price of the senior notes for a five-trading-day measurement
period preceding such nine-month period equals 120% or more of
the sum of the issue price and accrued original issue discount
for such senior note. The contingent interest payable per senior
note with respect to any quarterly period within such nine-month
period where contingent interest is determined to be payable
will equal the greater of (1) the amount of regular cash
dividends paid by us per share on our common stock during that
quarterly period multiplied by the then applicable conversion
rate or (2) 0.0625% of the average market price of a senior
note for the five-trading-day measurement period preceding such
nine-month period, provided that if we do not pay regular cash
dividends during a semiannual period, we will pay contingent
interest semiannually at a rate of 0.125% of the average market
price of a senior note for the five-trading-day measurement
period immediately preceding such nine-month period.
Upon maturity, the senior notes will have an aggregate principal
face value of $1.2 billion. Each $1,000 aggregate principal
face value senior note is convertible at the holder’s
option at any time through maturity into 7.1881 shares of
our common stock at an initial conversion price of $82.49,
resulting in total potential common shares to be issued upon
conversion of 8.7 million shares. In addition, holders of
the senior notes may require us to purchase all or a portion of
the senior notes on April 29, 2005, 2007, 2012 and 2017 at
a price equal to the issue price plus the accrued original issue
discount to the date of purchase, payable in cash. We expect
that on April 29, 2005, holders of the senior notes will
require us to purchase all or a portion of the senior notes
which could result in a cash outflow of approximately
$809 million. This outflow includes payments of the
aggregate purchase price of the notes of approximately
$753 million plus the payment of tax for which deferred tax
liabilities have been previously established related to
additional deductible interest expense. As a result, these
senior notes are included in notes payable under current
liabilities in our consolidated balance sheets. In addition, if
a change in control in our company occurs on or before
April 29, 2007, holders may require us to purchase all or a
portion of their senior notes for cash. We have the right to
redeem, at a price equal to the issue price plus the accrued
original issue discount to the date of redemption, all or a
portion of the senior notes for cash at any time on or after
April 29, 2007.
In February 1999, we raised through the issuance of our
subordinated notes, approximately $112.7 million, net of
underwriting commissions and expenses of $3.9 million. The
subordinated notes were priced with a yield to maturity of 5.5%
annually. Upon maturity, the subordinated notes issued in
February 1999 had an aggregate principal face value of
$345.0 million. As of December 31, 2004, our remaining
indebtedness under the subordinated notes was approximately
$219.2 million at maturity, due to conversion of
subordinated notes into common stock.
Each $1,000 aggregate principal face value subordinated note is
convertible at the holders’ option at any time through
maturity into 40.404 shares of our common stock at an
initial conversion price of $8.36 per share. Additionally,
the holders of the subordinated notes may require us to purchase
the subordinated notes on February 16, 2009 or 2014 at a
price equal to the issue price plus the accrued original issue
discount to the date of purchase, with us having the option to
repay the subordinated notes plus accrued original issue
discount in cash, common stock or a combination of cash and
stock. We have the right to redeem at a price equal to the issue
price plus the accrued original issue discount to the date of
redemption all or a portion of the subordinated notes for cash
at any time. During 2004, holders of subordinated notes with a
face value of approximately $125.7 million elected to
convert their subordinated notes to approximately
5.1 million shares
F-24
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of our common stock. To date, in the first quarter of 2005,
holders of subordinated notes with a face value of approximately
$18.1 million elected to convert their subordinated notes
to approximately 0.7 million shares of our common stock.
Notes payable at December 31, consists of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
30-year senior convertible promissory notes, due 2032 at 1.75%
|
|
$ |
748,430 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
| |
|
$ |
748,430 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
| |
20-year subordinated convertible promissory notes, due 2019 at
5.5%
|
|
$ |
101,879 |
|
|
$ |
151,772 |
|
| |
30-year senior convertible promissory notes, due 2032 at 1.75%
|
|
|
— |
|
|
|
735,498 |
|
| |
|
|
|
|
|
|
| |
|
$ |
101,879 |
|
|
$ |
887,270 |
|
| |
|
|
|
|
|
|
|
|
| 5. |
Consolidated Balance Sheets Details |
Property and equipment:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Land
|
|
$ |
127,411 |
|
|
$ |
90,282 |
|
|
Buildings
|
|
|
476,615 |
|
|
|
305,326 |
|
|
Leasehold improvements
|
|
|
58,945 |
|
|
|
57,907 |
|
|
Furniture and fixtures
|
|
|
36,348 |
|
|
|
15,808 |
|
|
Machinery and equipment
|
|
|
546,101 |
|
|
|
401,642 |
|
|
Construction in progress
|
|
|
436,750 |
|
|
|
450,122 |
|
| |
|
|
|
|
|
|
|
Total cost
|
|
|
1,682,170 |
|
|
|
1,321,087 |
|
|
Less accumulated depreciation
|
|
|
156,945 |
|
|
|
68,304 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,525,225 |
|
|
$ |
1,252,783 |
|
| |
|
|
|
|
|
|
Depreciation expense was $92.0 million, $26.7 million
and $10.2 million for 2004, 2003 and 2002, respectively.
During 2004 and 2003, we capitalized to construction in progress
approximately $8.8 million and $6.8 million,
respectively, of interest costs primarily related to the
development of our West Coast headquarters and research and
development campus in San Diego, California and our
large-scale manufacturing facility in Oceanside, California.
F-25
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Accrued expenses and other:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Employee compensation and benefits
|
|
$ |
68,002 |
|
|
$ |
55,277 |
|
|
Royalties and licensing fees
|
|
|
45,201 |
|
|
|
42,074 |
|
|
Clinical development expenses
|
|
|
20,564 |
|
|
|
19,303 |
|
|
Construction costs
|
|
|
— |
|
|
|
21,888 |
|
|
Legal settlement costs
|
|
|
— |
|
|
|
20,000 |
|
|
Unrealized losses on foreign currency contracts
|
|
|
18,051 |
|
|
|
5,926 |
|
|
Other
|
|
|
95,984 |
|
|
|
75,662 |
|
| |
|
|
|
|
|
|
| |
|
$ |
247,802 |
|
|
$ |
240,130 |
|
| |
|
|
|
|
|
|
|
|
| 6. |
Employee Benefit Plans |
401(k) Employee Savings
Plan
We maintain a 401(k) Savings Plan, or 401(k) Plan, an employee
savings plan, available to substantially all U.S. regular
employees over the age of 21. Participants may make voluntary
contributions. We make matching contributions according to the
401(k) Plan’s matching formula. The matching contributions
vest over four years of service by the employee. The Plan also
provides for certain transition contributions on behalf of
participants who previously participated in the Biogen, Inc.
Retirement Plan. Employer contributions for the years ended
December 31, 2004, 2003 and 2002 totaled
$11.4 million, $2.4 million and $1.8 million,
respectively.
|
|
| |
Deferred Compensation Plan |
We maintain the Voluntary Executive Supplemental Savings Plan, a
non-qualified deferred compensation plan that allows a select
group of management and highly compensated U.S. employees
to defer a portion of their compensation and that provides for
certain company credits to participants’ accounts. The
deferred compensation amounts are accrued when earned but are
unfunded. Such deferred compensation is distributable in cash in
accordance with the Plan. Deferred compensation amounts under
such plan at December 31, 2004 and 2003, totaled
approximately $33.4 million and $17.6 million,
respectively, and is included in other long-term liabilities in
the accompanying consolidated balance sheets. Participant
contributions are immediately 100% vested. Certain employer
credits to participants’ accounts are subject to vesting
schedules. Distributions to participants can be either in a one
lump sum payment or annual installments as elected by the
participants.
We have had a program since 2003, prior to the Merger, in which
we provide medical plan benefits to former IDEC retirees under
65. In 2004, former Biogen retirees began participation in this
plan. Our obligation is funded on a pay-as-you-go basis and
there are no plan assets. Our liability at December 31,
2004 related to this program was approximately $2.4 million.
In connection with the Merger, we assumed Biogen, Inc.’s
Retirement Plan, a tax-qualified defined benefit pension plan.
Prior to November 13, 2003, we did not have a pension plan.
Prior to the Merger, the
F-26
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Retirement Plan covered substantially all of Biogen, Inc.’s
regular U.S. employees and provided compensation credits
and interest credits to participants’ Retirement Plan
accounts using a cash balance method.
We also assumed Biogen, Inc.’s unfunded Supplemental
Executive Retirement Plan, or SERP, which covered a select group
of highly compensated U.S. employees. The plans are
noncontributory. The Retirement Plan’s benefit formula was
based on employee earnings and age. The SERP provided benefits
for covered executives in excess of those permitted under the
tax-qualified Retirement Plan. Biogen, Inc.’s funding
policy for the plans has been to contribute amounts deductible
for federal income tax purposes. Funds contributed to the plans
have been invested in fixed income and equity securities. At
October 31, 2003, Biogen, Inc. ceased allowing new
participants into the plans. Effective December 31, 2003,
we amended the Plan so that no further benefits would accrue to
participants.
We credited participants’ cash balance accounts under the
Retirement Plan for compensation and interest earned through
December 31, 2003. After that date, no further compensation
credits will be made, but interest credits will be made until
Retirement Plan benefits have been distributed to participants.
We credited participants’ accounts under the SERP for
compensation and interest earned through December 31, 2003.
No further compensation credits will be made, but interest
credits will be made until SERP is terminated.
In connection with the termination of the Retirement Plan, we
requested an Internal Revenue Service, or IRS, ruling that the
Plans’ terminations did not adversely affect its
tax-qualified status. During 2004, our management decided to
accelerate the payment and to pay out participants’
benefits as soon as administratively possible. In December 2004,
we began distributing to employees their respective Retirement
Plan benefits. Participants had the following options with
respect to the value of their Plan distribution: (a) to
receive an immediate lump sum payment which may be rolled over
into the 401(k) Plan or other designated qualified plan or
individual retirement account, or (b) to receive an annuity
that would begin either immediately or at a deferred date.
During 2004, we incurred charges of approximately
$2.1 million related to transition benefits associated with
the plan termination, and plan curtailment costs and additional
premium costs related to the annuity transfer of approximately
$3.0 million, which are included in our results of
operations for 2004. At December 31, 2004 we had a
liability of $14.1 million related to these plans,
including $7.7 million for related to transition benefits
associated with the Retirement Plan terminations.
The components of net periodic pension cost for the years ended
December 31, 2004 and 2003 are summarized below (table in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Pension Benefit | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Service cost
|
|
$ |
— |
|
|
$ |
511 |
|
|
Interest cost
|
|
|
2,479 |
|
|
|
332 |
|
|
Expected return on plan assets
|
|
|
(1,955 |
) |
|
|
(149 |
) |
|
Amortization of prior service cost
|
|
|
— |
|
|
|
— |
|
|
Amortization of net actuarial loss
|
|
|
(40 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
Net pension cost
|
|
$ |
484 |
|
|
$ |
694 |
|
| |
|
|
|
|
|
|
F-27
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Reconciliations of projected benefit obligations, fair value of
plan assets and the funded status of the plans as of
December 31, are presented below (table in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
|
Other Benefits | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net projected benefit obligation at December 31 and
November 13, 2003
|
|
$ |
(52,444 |
) |
|
$ |
(51,964 |
) |
|
$ |
— |
|
|
$ |
— |
|
| |
Service cost
|
|
|
— |
|
|
|
(511 |
) |
|
|
(2,430 |
) |
|
|
— |
|
| |
Interest cost
|
|
|
(2,478 |
) |
|
|
(332 |
) |
|
|
— |
|
|
|
— |
|
| |
Actuarial gain (loss)
|
|
|
(2,212 |
) |
|
|
353 |
|
|
|
— |
|
|
|
— |
|
| |
Transfers
|
|
|
12,408 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Gross benefits paid
|
|
|
37,212 |
|
|
|
10 |
|
|
|
22 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net projected benefit obligation at the end of the year
|
|
|
(7,514 |
) |
|
|
(52,444 |
) |
|
|
(2,408 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fair value of plan assets at the beginning of the year
|
|
|
38,431 |
|
|
|
28,639 |
|
|
|
— |
|
|
|
— |
|
| |
Actual return on plan assets
|
|
|
433 |
|
|
|
(202 |
) |
|
|
— |
|
|
|
— |
|
| |
Employer contributions
|
|
|
11,032 |
|
|
|
10,004 |
|
|
|
— |
|
|
|
— |
|
| |
Transfers
|
|
|
(12,408 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Gross benefits paid
|
|
|
(37,212 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair value of plan assets at the end of the year
|
|
|
276 |
|
|
|
38,431 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Funded status at the end of the year
|
|
|
(7,239 |
) |
|
|
(14,013 |
) |
|
|
(12,676 |
) |
|
|
— |
|
| |
Unrecognized net actuarial gain
|
|
|
796 |
|
|
|
(2 |
) |
|
|
2,689 |
|
|
|
— |
|
| |
Unrecognized prior service cost
|
|
|
— |
|
|
|
— |
|
|
|
7,579 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net amount recognized at the end of the year
|
|
$ |
(6,443 |
) |
|
$ |
(14,015 |
) |
|
$ |
(2,408 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions at the end of the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.56 |
% |
|
|
5.68 |
% |
|
|
4.75 |
% |
|
|
6.25 |
% |
|
Expected return on plan assets
|
|
|
5.12 |
% |
|
|
5.63 |
% |
|
|
— |
|
|
|
— |
|
|
Rates of compensation increase
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
As of December 31, 2004, the unfunded supplemental
retirement plan has a projected benefit of $4.8 million. At
December 31, 2003, the unfunded supplemental retirement
plan had a projected benefit of $6.6 million.
F-28
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Amounts recognized in the statements of financial position
consist of (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
|
Other Benefits |
| |
|
| |
|
|
| |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 |
| |
|
| |
|
| |
|
| |
|
|
|
Prepaid Benefit Cost
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Accrued Benefit Cost
|
|
|
(7,239 |
) |
|
|
(14,015 |
) |
|
|
(2,408 |
) |
|
|
— |
|
|
Intangible Assets
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Accumulated other comprehensive income
|
|
|
796 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amount Recognized
|
|
$ |
(6,443 |
) |
|
$ |
(14,015 |
) |
|
$ |
(2,408 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit
pension plans was $7.5 million at December 31, 2004.
The accumulated benefit obligation for all defined benefit
pension plans was $52.4 million at December 31, 2003.
Assumptions
The weighted-average assumptions used to determine net periodic
benefit cost for 2004 and the period November 12, 2003
through December 31, 2003 were:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Discount Rate
|
|
|
5.69 |
% |
|
|
5.63 |
% |
|
Expected long-term return on plan assets
|
|
|
5.12 |
% |
|
|
5.00 |
% |
|
Rate of compensation increase
|
|
|
N/A |
|
|
|
N/A |
|
The expected return on assets was determined based on the
average rate of earnings expected to be earned reflecting the
plan’s current allocation.
Weighted-average assumptions used to determine pension benefit
obligations were:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Discount Rate
|
|
|
5.56 |
% |
|
|
5.69 |
% |
|
Rate of compensation increase
|
|
|
N/A |
|
|
|
N/A |
|
Weighted-average assumptions used to determine postretirement
benefit obligation for the medical plan were:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Discount Rate
|
|
|
4.75 |
% |
|
|
6.25 |
% |
|
Health Care Trend
|
|
|
9.00 |
% |
|
|
10.00 |
% |
|
Years to Ultimate Trend Rate
|
|
|
4.0 |
|
|
|
5.0 |
|
The discount rates used for the retiree medical plan were based
on an average yield of bonds between the
10th
to
90th
percentile in the six to eight year maturity group. A 1%
decrease in the assumed health care trend rate would have the
effect of approximately $1.7 million on the postretirement
benefit obligation, and approximately $0.2 million on the
total service cost and interest.
F-29
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Plan Assets
The Biogen Retirement Plan weighted-average asset allocations by
asset category are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Equity securities
|
|
|
— |
|
|
|
— |
|
|
Debt securities
|
|
|
— |
|
|
|
11.9 |
% |
|
Real estate
|
|
|
— |
|
|
|
— |
|
|
Cash and cash equivalents
|
|
|
100.0 |
% |
|
|
88.1 |
% |
| |
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
| |
|
|
|
|
|
|
Contributions
In January 2005, we made a contribution of $1.2 million to
the Biogen Retirement Plan to cover the remaining lump sum
benefit payments. We do not expect to make any additional
contributions to the Plan in 2005.
Expected Benefit Payments
Benefit payments of approximately $1.8 million are expected
to be paid out from the Retirement Plan during 2005, which
should complete the distribution of remaining benefit payments.
|
|
| 7. |
Other Income (Expense), Net |
Total other income (expense), net consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Interest income
|
|
$ |
57,225 |
|
|
$ |
33,610 |
|
|
$ |
34,528 |
|
|
Interest expense
|
|
|
(18,898 |
) |
|
|
(15,182 |
) |
|
|
(16,073 |
) |
|
Other expense
|
|
|
(17,650 |
) |
|
|
(29,383 |
) |
|
|
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$ |
20,677 |
|
|
$ |
(10,955 |
) |
|
$ |
17,646 |
|
| |
|
|
|
|
|
|
|
|
|
Other expense included the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Impairments of marketable securities
|
|
$ |
(18,482 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
Foreign exchange remeasurement gains
|
|
|
5,353 |
|
|
|
1,319 |
|
|
|
— |
|
|
Loss on sale of marketable securities available-for-sale
|
|
|
(4,090 |
) |
|
|
— |
|
|
|
— |
|
|
Gain on investments in executive deferred compensation plan
|
|
|
1,029 |
|
|
|
— |
|
|
|
— |
|
|
Donation to Biogen Idec Foundation
|
|
|
— |
|
|
|
(10,000 |
) |
|
|
— |
|
|
Settlement of patent disputes
|
|
|
— |
|
|
|
(20,668 |
) |
|
|
— |
|
|
Miscellaneous
|
|
|
(1,460 |
) |
|
|
(34 |
) |
|
|
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$ |
(17,650 |
) |
|
$ |
(29,383 |
) |
|
$ |
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
F-30
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In 2004, we recorded charges totaling $18.5 million to
other expense when it was determined that certain
marketable securities were impaired on an other-than-temporary
basis.
In October 2002, Biogen, Inc. established The Biogen Foundation,
a private, U.S. based, non-profit philanthropic
organization. In December 2002, Biogen, Inc. made a charitable
contribution of $15.0 million to fund the Biogen
Foundation. As a result of the Merger, we changed the name of
the foundation to The Biogen Idec Foundation and, in December
2003 contributed an additional $10.0 million. The
foundation is to operate exclusively for the benefit of funding
charitable, educational and scientific causes. Certain executive
officers and other employees serve as directors and officers of
the foundation. We classify charitable contributions to other
income (expense).
In December 2003, we recorded charges of $2.5 million and
$18.2 million to other expense related to the final
settlement of patent infringement disputes with Apoxis S.A. and
Corixa Corporation, respectively.
The components of income (loss) before income taxes (benefit)
and of income tax expense (benefit) for each of the three years
ended December 31 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Income (loss) before income taxes (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Domestic
|
|
$ |
108,298 |
|
|
$ |
(846,711 |
) |
|
$ |
231,522 |
|
| |
Foreign
|
|
|
(44,205 |
) |
|
|
(33,913 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
64,093 |
|
|
$ |
(880,624 |
) |
|
$ |
231,522 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
151,552 |
|
|
$ |
15,075 |
|
|
$ |
65,653 |
|
| |
State
|
|
|
17,648 |
|
|
|
6,872 |
|
|
|
14,414 |
|
| |
Foreign
|
|
|
5,360 |
|
|
|
192 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
174,560 |
|
|
$ |
22,139 |
|
|
$ |
80,067 |
|
| |
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
(121,343 |
) |
|
$ |
(31,988 |
) |
|
$ |
6,195 |
|
| |
State
|
|
|
(14,210 |
) |
|
|
4,322 |
|
|
|
(2,830 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
(135,553 |
) |
|
|
(27,666 |
) |
|
|
3,365 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$ |
39,007 |
|
|
$ |
(5,527 |
) |
|
$ |
83,432 |
|
| |
|
|
|
|
|
|
|
|
|
F-31
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Deferred tax assets (liabilities) are comprised of the
following at December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Tax credits
|
|
$ |
103,651 |
|
|
$ |
86,263 |
|
|
Net operating loss carryforwards
|
|
|
— |
|
|
|
1,439 |
|
|
Inventory and other reserves
|
|
|
26,343 |
|
|
|
21,656 |
|
|
Capitalized costs
|
|
|
42,774 |
|
|
|
49,013 |
|
|
Intangibles, net
|
|
|
13,688 |
|
|
|
2,414 |
|
|
Other
|
|
|
17,184 |
|
|
|
1,756 |
|
|
Unrealized loss on investments and cumulative translation
adjustment
|
|
|
6,101 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
Deferred tax assets
|
|
$ |
209,741 |
|
|
$ |
162,541 |
|
| |
|
|
|
|
|
|
|
Fair value adjustment
|
|
$ |
(867,907 |
) |
|
$ |
(1,055,358 |
) |
|
Interest expense on notes payable
|
|
|
(54,951 |
) |
|
|
(31,776 |
) |
|
Depreciation, amortization and other
|
|
|
(121,774 |
) |
|
|
(45,844 |
) |
|
Unrealized gain on investments and cumulative translation
adjustment
|
|
|
— |
|
|
|
(13,936 |
) |
| |
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
$ |
(1,044,632 |
) |
|
$ |
(1,146,914 |
) |
| |
|
|
|
|
|
|
A reconciliation of the U.S. federal statutory tax rate to
the effective tax rate for the periods ending December 31
is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Statutory rate
|
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
In process R&D
|
|
|
— |
|
|
|
(32.71 |
) |
|
|
— |
|
|
State taxes
|
|
|
2.75 |
|
|
|
(0.83 |
) |
|
|
3.20 |
|
|
Change in valuation allowance
|
|
|
— |
|
|
|
— |
|
|
|
(0.80 |
) |
|
Foreign taxes
|
|
|
(49.36 |
) |
|
|
1.28 |
|
|
|
— |
|
|
Credits and net operating loss utilization
|
|
|
(8.98 |
) |
|
|
0.71 |
|
|
|
(1.60 |
) |
|
Fair value step-up
|
|
|
74.81 |
|
|
|
(2.74 |
) |
|
|
— |
|
|
Non-deductible items
|
|
|
4.54 |
|
|
|
— |
|
|
|
— |
|
|
Other
|
|
|
2.10 |
|
|
|
(0.08 |
) |
|
|
0.20 |
|
| |
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
60.86 |
% |
|
|
0.63 |
% |
|
|
36.00 |
% |
| |
|
|
|
|
|
|
|
|
|
At December 31, 2004, we had general business credit
carryforwards for federal income tax purposes of approximately
$88 million, which expire from 2020 through 2024.
Additionally, for state income tax purposes, we had research
credit carryforwards of approximately $23 million that have
no prescribed expiration period.
In assessing the realizability of our deferred tax assets, we
have considered whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible. In
making this determination, under the applicable financial
reporting standards, we are allowed to consider the scheduled
reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies. Our estimates of future
taxable income takes into consideration, among other items, our
estimates of future income tax deductions related to the
exercise of
F-32
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
stock options. Based upon the level of historical taxable income
and income tax liability and projections for future taxable
income over the periods in which the deferred tax assets are
utilizable, we believe it is more likely than not that we will
realize the benefits of our entire deferred tax assets. In the
event that actual results differ from our estimates or we adjust
our estimates in future periods, we may need to establish a
valuation allowance which could materially impact our financial
position and results of operations.
As of December 31, 2004, undistributed foreign earnings of
non-U.S. subsidiaries included in consolidated retained
earnings aggregated $624.4 million, exclusive of earnings
that would result in little or no net income tax expense under
current U.S. tax law. We intend to reinvest these earnings
indefinitely in operations outside the U.S. It is not
practicable to estimate the amount of additional tax that might
be payable if such earnings were remitted to the U.S.
On October 22, 2004, the American Jobs Creation Act of
2004, or the Act, was signed into law. The Act creates a
temporary incentive for U.S. multinationals to repatriate
accumulated income earned outside the U.S. at an effective
tax rate that could be as low as 5.25%. On December 21,
2004, the FASB issued FASB staff position 109-2,
“Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004”, or FSP 109-2. FSP 109-2 allows
companies additional time to evaluate the effect of the law on
whether unrepatriated foreign earnings continue to qualify for
SFAS 109’s exception to recognizing deferred tax
liabilities and require explanatory disclosures from those who
need the additional time. Through December 31, 2004, we
have not recognized deferred taxes on foreign earnings because
such earnings were, and continue to be, indefinitely reinvested
outside the U.S. Whether we will ultimately take advantage
of the above temporary tax incentive depends on a number of
factors including reviewing future Congressional or other
Governmental guidance with respect to certain aspects of the new
legislation that require clarification before an informed
decision can be made. Until such clarification is received, we
will continue our plan and intention to indefinitely reinvest
accumulated earnings of its foreign subsidiaries. If we decide
to avail ourselves of this temporary incentive, up to
$500 million could be repatriated under the Act, and we
could incur a one-time tax charge to our consolidated results of
operations of up to approximately $32 million.
Another important provision of the Act relates to the deduction
for domestic manufacturing. In principle, this should provide a
favorable impact on future cash taxes and on our effective tax
rate. Biogen Idec is still in the process of evaluating this
provision and has not quantified the impact on its effective
rate.
|
|
| 9. |
Research Collaborations and Strategic Investments |
In connection with our research and development efforts, we have
entered into various collaboration arrangements which provide us
with rights to develop, produce and market products using
certain know-how, technology and patent rights maintained by the
parties. Terms of the various license agreements may require us
to make milestone payments upon the achievement of certain
product development objectives and pay royalties on future
sales, if any, of commercial products resulting from the
collaboration.
In October 2004, we entered into a development and license
agreement with ImmunoGen, Inc., or ImmunoGen, for a worldwide,
exclusive license to develop and commercialize anticancer
therapeutics that comprise an antibody that we have developed to
an undisclosed tumor cell target and ImmunoGen’s
proprietary Tumor-Activated Prodrug (TAP) technology. As
part of the agreement, we paid ImmunoGen an upfront fee of
$1.0 million, which was recorded as a research and
development expense. Upon the achievement of certain
predetermined milestones, we would be required to pay ImmunoGen
up to a total of $42.0 million plus royalties over the life
of the agreement. ImmunoGen will also receive compensation from
us for product development research done on its behalf, as well
as for the production of preclinical and initial clinical
materials.
F-33
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In August 2004, we entered into a collaborative agreement with
Sunesis Pharmaceuticals, Inc., or Sunesis, to discover and
develop small molecule cancer therapeutics targeting primarily
kinases. Under the agreement, we acquired exclusive licenses to
develop and commercialize certain compounds resulting from the
collaboration. Upon signing the agreement, we paid Sunesis a
non-refundable upfront license fee of $7.0 million, which
was recorded in research and development expenses in the third
quarter of 2004. Under the terms of this agreement, we purchased
approximately 2.9 million shares of preferred stock of
Sunesis for $14.0 million, the fair value of the shares. In
December 2002, Biogen, Inc. entered into a collaboration
agreement with Sunesis related to the discovery and development
of oral therapeutics for the treatment of inflammatory and
autoimmune diseases. Under the terms of this agreement, we
purchased 1.25 million shares of preferred stock of Sunesis
for $6.0 million, the fair value of the shares. We acquired
certain exclusive licenses to develop and commercialize certain
compounds resulting from the collaboration. Our investments in
Sunesis are included in investments and other assets. We account
for our investments in Sunesis using the cost method of
accounting, subject to periodic review of impairment. Under the
terms of the December 2002 agreement, we will pay Sunesis a
quarterly license maintenance fee of $357,500 during the period
January 1, 2005 through July 1, 2005. Additionally, we
have a Credit Facility Agreement with Sunesis under which we are
obligated to loan Sunesis up to $4.0 million. At
December 31, 2004, there is $3.2 million of borrowings
outstanding. We have committed to paying Sunesis additional
amounts upon the completion of certain future research
milestones and first and second indication development
milestones. If all the milestones were to be achieved in both
agreements, we would be required to pay up to an additional
$121.0 million over the life of the agreements, excluding
royalties.
In July 2004, we and Elan entered into a patent license
agreement with Genentech for a non-exclusive license to certain
Genentech patents related to the manufacture of licensed
products, including TYSABRI. As a part of the agreement, we and
Elan paid a $1.0 million license grant fee upon execution
of the agreement, which was charged to research and development
expenses, and each will pay an additional $1.0 million on
the first anniversary of the agreement. In addition, we and Elan
each have to pay a development milestone fee of
$2.5 million related to the approval of TYSABRI by the FDA
in November 2004, half of which was paid in 2004 upon approval
of TYSABRI and half of which is payable on the anniversary of
such approval. At December 31, 2004, our $2.5 million
total milestone fee is included in intangible assets, net on the
consolidated balance sheets, and is being amortized to cost of
product revenues over the life of the patent. The agreement also
requires that we or Elan pay royalties on net sales of TYSABRI
and other licensed products.
In June 2004, we entered into a collaborative research and
development agreement with Vernalis plc, or Vernalis, aimed at
advancing research into Vernalis’ adenosine A2A receptor
antagonist program, which targets Parkinson’s disease and
other central nervous system disorders. Under the agreement, we
receive exclusive worldwide rights to develop and commercialize
Vernalis’ lead compound, V2006. We paid Vernalis an initial
license fee of $10.0 million in July 2004, which was
recorded in research and development expenses in the second
quarter of 2004. Terms of the collaborative agreement may
require us to make milestone payments upon the achievement of
certain program objectives and pay royalties on future sales, if
any, of commercial products resulting from the collaboration. We
made an immediate investment of $5.5 million through
subscription for approximately 6.2 million new Vernalis
common shares, representing 4.19 percent of Vernalis’
post-financing issued share capital, and committed to purchase
an additional $4.0 million in the event of future Vernalis
financing. Our investment in Vernalis is included in investments
and other assets. We account for our investment in Vernalis
using the cost method of accounting, subject to periodic review
of impairment. Excluding royalties, total potential payments to
Vernalis could exceed $100.0 million.
In June 2004, we entered into a license agreement with BioWa,
Inc., or BioWa, for a worldwide, non-exclusive license for
research purposes and a worldwide, exclusive license for
development and commercialization purposes to certain BioWa
intellectual property rights related to monoclonal antibodies.
As part of the agreement, we have committed to paying BioWa
certain amounts upon the achievement of certain research
F-34
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and clinical milestones. If all the milestones were to be
achieved, we would be required to pay BioWa a total of
$18.8 million plus royalties over the life of the agreement.
In May 2004, we entered into a limited partnership agreement as
a limited partner with MPM Bioventures III GP, LP, to
create MPM Bioventures Strategic Fund, LP, or the Strategic
Fund. The purpose of the Strategic Fund is to make, manage, and
supervise investments in biotechnology companies with novel
products or technologies that fit strategically with Biogen
Idec. The Strategic Fund takes only minority positions in the
equity of its investments, and does not seek to engage in
day-to-day management of the entities. We have committed
$65.0 million to the Strategic Fund over a three-year
period. During 2004, we contributed $5.5 million to the
Strategic Fund.
In April 2004, we became a limited partner in MPM
Bioventures III-QP, LP, or the LP, a limited partnership
that invests in entities that are engaged in the research,
development, manufacture, marketing and/or sale of novel
biological products or technologies. We have committed to
contribute $4.0 million to the limited partnership. Through
December 31, 2004, we have contributed $1.8 million
into the LP, which is included in investments and other assets
in our consolidated balance sheets.
In September 2003, Biogen, Inc. entered into a license agreement
with Fumapharm AG, or Fumapharm, under which Biogen, Inc.
obtained exclusive rights to develop and market a
second-generation fumarate derivative with an immunomodulatory
mechanism of action, currently in clinical trials in Europe.
Under the terms of this agreement, we obtained an exclusive
worldwide marketing and distribution license for psoriasis, and
a production and exclusive marketing and distribution license
for the entire world for MS. During 2004, we made payments
totaling $4.2 million to Fumapharm for the achievement of
certain milestones, which were expensed to research and
development expense. We have committed to paying Fumapharm
additional amounts upon the completion of certain future
research milestones and first and second indication development
milestones. If all the milestones were to be achieved, we would
be required to pay up to an additional 20 million Swiss
francs plus royalties over the remaining life of the agreement.
In August 2003, Biogen, Inc. entered into a collaboration
agreement with Vetter Pharma-Fertigung GmbH & Co. KG,
or Vetter, for the fill-finish of Biogen Idec products. Under
the terms of this agreement, Biogen, Inc. paid a partial advance
payment to Vetter of 35 million Euros in return for
reserving certain capacity at Vetter’s fill-finish
facility. As of December 31, 2004, we have made payments
totaling $22.7 million to Vetter for the achievement of
certain milestones achieved under the terms of our supply
agreement for reserving certain capacity at Vetter’s
fill-finish facility. These payments are recorded in investments
and other assets on our consolidated balance sheets. The asset
will be amortized to cost of product revenues over the units
produced upon delivery to Biogen Idec. We have total potential
milestone payments of approximately 16.0 million euros
remaining as part of the agreement.
In September 2001, we entered into a collaborative development
agreement with Mitsubishi Pharma to support clinical development
of anti-CD80 (anti-B7.1) antibody products developed using our
Primatized® antibody technology. Under the terms of an
existing license agreement with Mitsubishi Pharma, entered into
in November 1993, Mitsubishi Pharma had an exclusive license in
Asia to develop and commercialize anti-CD80 (anti-B7.1) antibody
products. These agreements were terminated in December 2003. As
a result of the termination of these agreements, we have no
continuing financial obligations under these agreements. During
2003 and 2002, we recognized revenues from these agreements of
$1.5 million and $1.4 million, respectively, which are
included in corporate partner revenues. Under these agreements,
amounts earned by us and recognized as revenue for contract
research and development approximated the research and
development expenses incurred under the related agreement.
In August 2000, Biogen, Inc. entered into a development and
marketing collaboration agreement with Elan to collaborate in
the development, manufacture and commercialization of TYSABRI.
In November 2004, we received approval by the FDA to market
TYSABRI as a treatment for relapsing forms of MS to
F-35
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reduce frequency of clinical relapses. We are also developing
TYSABRI as a potential treatment for Crohn’s disease and
RA. In February 2005, we and Elan voluntarily suspended the
marketing and commercial distribution of TYSABRI and suspended
dosing in clinical trials of TYSABRI. Under the terms of this
agreement, we share costs with Elan for on-going development
activities. As of December 31, 2004, Elan owed us
$34.4 million, representing commercialization and
development expenses that we incurred, which is included in
other current assets on the consolidated balance sheets. We
received the entire $34.4 million from Elan in the first
quarter of 2005 related to the receivable.
In June 1999, we entered into a collaboration and license
agreement with Schering AG, or Schering, aimed at the
development and commercialization of ZEVALIN. Under the terms of
the agreement, we may receive milestone and research and
development support payments totaling up to $47.5 million,
subject to the attainment of product development objectives.
Schering received exclusive marketing and distribution rights to
ZEVALIN outside the U.S., and we will continue to receive
royalties on product sales by Schering. Under the terms of a
separate supply agreement, we are obligated to meet
Schering’s clinical and commercial requirements for
ZEVALIN. Schering may terminate these agreements for any reason.
During 2004, 2003 and 2002, we recognized revenues from our
agreements with Schering of $10.0 million,
$0.2 million and $0.3 million, respectively, which are
included in corporate partner revenues. In the first quarter of
2004, we received a $10.0 million payment from Schering for
the EMEA grant of marketing approval of ZEVALIN in the EU. The
payment represented, in part, a milestone payment to compensate
us for preparing, generating, and collecting data that was
critical to the EMEA marketing approval process, to which we
have no continuing involvement. Under the above agreement,
amounts earned by us and recognized as revenue for contract
research and development approximate the research and
development expenses incurred under the related agreement.
In December 1994, we entered into a collaborative development
agreement and a license agreement with Seikagaku Corporation, or
Seikagaku, aimed at the development and commercialization of an
anti-CD23 antibody using Primatized antibody technology. During
2003 and 2002, we recognized revenues from our agreement with
Seikagaku of $0.6 million and $1.6 million,
respectively, which are included in corporate partner revenues.
Although this agreement was terminated effective
January 17, 2004, we have certain continuing obligations
under the agreement that we expect to fulfill in the first half
of 2005 and for which we would receive revenue from Seikagaku.
Under the above agreement, amounts earned by us and recognized
as revenue for contract research and development approximate the
research and development expenses incurred under the related
agreement.
As part of previous agreements that Biogen, Inc. had with
Targeted Genetics Corporation, or Targeted, for gene therapy
research and development, we own approximately 12.1 million
shares of Targeted common stock with a fair value of
$18.8 million, which is included in investments and other
assets. In the third quarter of 2004, we recognized a
$12.7 million charge for the impairment of our Targeted
investment that was determined to be other than temporary. We
have no remaining commitments or obligations with Targeted.
|
|
| 10. |
Unconsolidated Joint Business Arrangement |
In June 2003, we amended and restated our collaboration
agreement with Genentech to include the development and
commercialization of one or more anti-CD20 antibodies targeting
B-cell disorders, in addition to RITUXAN, for a broad range of
indications. The original collaboration agreement was entered
into in 1995 for the clinical development and commercialization
of RITUXAN. Under the terms of the amended and restated
agreement, we continue to receive a share of the pretax
operating profits in the U.S. from RITUXAN and will share
in the pretax operating profits or losses in the
U.S. relating to any new products developed under the
agreement. In connection with the agreement, in 2003, we paid
Genentech $20.0 million which we recorded as research and
development expense.
F-36
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We copromote RITUXAN with Genentech, and share responsibility
with Genentech for continued development of RITUXAN, in the
U.S. Such continued development includes conducting
supportive research and post-approval clinical studies and
seeking potential approval for additional indications. Genentech
provides the support functions for the commercialization of
RITUXAN in the U.S., including marketing, customer service,
order entry, distribution, shipping and billing, as well as
fulfilling all worldwide manufacturing responsibilities. We
share responsibility with Genentech for development in the
U.S. of any new products developed under the agreement, and
we will also copromote with Genentech any such new products in
the U.S.
The amended and restated collaboration agreement provides that,
upon the occurrence of a Biogen Idec change-in-control as
described in the agreement, Genentech may present an offer to us
to purchase our rights to RITUXAN. We must then accept
Genentech’s offer or purchase Genentech’s rights to
RITUXAN for an amount proportioned (using the profit sharing
ratio between us) to Genentech’s offer. If Genentech
presents such an offer in such a situation, then Genentech will
be deemed concurrently to have exercised a right, in exchange
for a share in the operating profits or net sales in the
U.S. of any new products developed under the agreement, to
purchase our interest in each such product.
Concurrent with the original collaboration agreement, we also
entered into an expression technology license agreement with
Genentech (for a proprietary gene expression technology
developed by us) and a preferred stock purchase agreement
providing for certain equity investments in us by Genentech (see
Note 12 — Shareholders’ Equity).
Under the terms of separate agreements with Genentech,
commercialization of RITUXAN outside the U.S. is the
responsibility of Roche, except in Japan where it copromotes
RITUXAN in collaboration with Zenyaku. We receive royalties from
Genentech on sales by Roche and Zenyaku of RITUXAN outside the
U.S., except in Canada. Royalties on sales of RITUXAN in Canada
are received directly from Roche (and are included in revenues
from unconsolidated joint business arrangement in the
accompanying consolidated statements of income). Under our
amended and restated collaborative agreement with Genentech, we
will receive lower royalty revenue from Genentech on sales by
Roche and Zenyaku of new anti-CD20 products and only for the
first eleven years from the date of first commercial sale of
such new anti-CD20 products.
During 2003, we purchased certain clinical data from Roche
related to RITUXAN supporting potential label expansion.
Additionally, in 2003, Genentech and IDEC agreed that payments
were owed to Columbia University for royalties related to past
sales of RITUXAN in the U.S. As a result, we recognized
$2.6 million in royalty payments and $0.5 million in
interest charges related to these royalties.
Total revenues from unconsolidated joint business for the years
ended December 31 consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Copromotion profits
|
|
$ |
457,025 |
|
|
$ |
419,197 |
|
|
$ |
324,498 |
|
|
Reimbursement of selling and development expenses
|
|
|
37,710 |
|
|
|
18,400 |
|
|
|
15,879 |
|
|
Royalty revenue on sales of RITUXAN outside the U.S.
|
|
|
121,008 |
|
|
|
67,869 |
|
|
|
45,432 |
|
|
RITUXAN clinical data purchased from Roche
|
|
|
— |
|
|
|
(9,353 |
) |
|
|
— |
|
|
Columbia patent royalty and interest payment
|
|
|
— |
|
|
|
(3,064 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
615,743 |
|
|
$ |
493,049 |
|
|
$ |
385,809 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 11. |
Commitments and Contingencies |
We rent laboratory and office space and certain equipment under
noncancellable operating leases. The rental expense under these
leases, which terminate at various dates through 2015, amounted
to $35.4 million
F-37
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in 2004, $12.9 million in 2003, and $9.8 million in
2002. The lease agreements contain various clauses for renewal
at our option and, in certain cases, escalation clauses linked
generally to rates of inflation.
At December 31, 2004, minimum annual rental commitments
under noncancellable leases were as follows (in thousands):
| |
|
|
|
|
| Year |
|
|
| |
|
|
|
2005
|
|
$ |
28,111 |
|
|
2006
|
|
|
20,931 |
|
|
2007
|
|
|
19,193 |
|
|
2008
|
|
|
15,366 |
|
|
2009
|
|
|
12,448 |
|
|
Thereafter
|
|
|
37,577 |
|
| |
|
|
|
|
Total minimum lease payments
|
|
$ |
133,626 |
|
| |
|
|
|
In August 2004, we restarted construction of our large-scale
biologic manufacturing facility in Hillerod, Denmark to be used
to manufacture TYSABRI and other products in our pipeline. The
cost of the project is estimated to be $372.0 million. As
of December 31, 2004, we had committed approximately
$129 million to the project, of which $17.3 million
has been paid. We expect this facility to be substantially
complete in 2007 and available for commercial production in
2008. As of March 31, 2005, we determined that we would no
longer proceed with the fill-finish component of our large-scale
biologic manufacturing facility in Hillerod. As a result, we
expect to write-off in the first quarter of 2005 to research and
development expense approximately $6.5 million of
engineering costs which had previously been capitalized.
In June 2004, we commenced construction to add additional
research facilities and administrative space to one of our
existing buildings in Cambridge, Massachusetts. The cost of the
project is estimated to be $65.0 million. As of
December 31, 2004, we had committed approximately
$29.0 million to the project, of which $18.5 million
had been paid. The project is expected to be substantially
complete in late 2005.
In September 2001, we purchased approximately 42.6 acres of
land in San Diego, California for approximately
$31.7 million in cash where we are building a consolidated
research and development and administration campus. We have
substantially completed construction and took occupancy in the
building in the fourth quarter of 2004. The estimated total cost
of the project is $169.0 million. As of December 31,
2004, we have committed approximately $168.0 million to the
construction of these facilities, of which $167.0 million
has been paid.
In September 2000, we purchased a 60-acre site in Oceanside,
California for approximately $18.9 million in cash. In
December 2002, we purchased an additional 27 acres of land
at the Oceanside site for $7.9 million. We are building a
large-scale manufacturing facility at this location, which we
anticipate using to manufacture TYSABRI and other commercial
products. We have completed construction of this facility and
obtained the certificate of occupancy in the fourth quarter of
2004. Commissioning and validation is expected to continue
through 2005. We expect the facility to be licensed in 2006.
Including start-up costs, total costs of this facility upon
completion are estimated to be $480.0 million. As of
December 31, 2004, we have committed approximately
$413.0 million to the construction of this large-scale
manufacturing facility, of which $388.4 million has been
paid.
In May 1999, we entered into an arrangement with MDS (Canada)
Inc., MDS Nordion Division, successor to MDS Nordion Inc., or
MDS (Canada), under which MDS (Canada) agreed to supply us
yttrium-90, a radioisotope used in connection with administering
ZEVALIN. MDS (Canada) initially supplied product for use in the
ZEVALIN clinical trials. In anticipation of commercial launch of
ZEVALIN, we subsequently determined that additional commercial
production capacity for yttrium-90 would be
F-38
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
necessary. To obtain a commitment from MDS (Canada) that
sufficient commercial supply would be available, we agreed to
minimum purchase commitments of $55.0 million, and to make
periodic cash payments totaling $25.0 million into an
escrow account. The supply agreement was amended in November
2001 to give effect to these mutual commitments.
In December 2003, in light of the reduced expectations for
ZEVALIN sales levels, we agreed to release the
$25.0 million of escrowed funds to MDS (Canada), and MDS
(Canada) agreed to eliminate the minimum purchase commitments
from the supply arrangement. MDS (Canada)’s obligation to
supply yttrium-90 remains in effect. We are amortizing the
prepayment over the economic life of the agreement.
On March 2, 2005, we, along with William H. Rastetter, our
Executive Chairman, and James C. Mullen, our Chief Executive
Officer, were named as defendants in a purported class action
lawsuit, captioned Brown v. Biogen Idec Inc., et al.,
filed in the U.S. District Court for the District of
Massachusetts. The complaint alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. The action is
purportedly brought on behalf of all purchasers of our
publicly-traded securities between February 18, 2004 and
February 25, 2005. The plaintiff alleges that the
defendants made materially false and misleading statements
regarding potentially serious side effects of TYSABRI in order
to gain accelerated approval from the FDA for the product’s
distribution and sale. The plaintiff alleges that these
materially false and misleading statements harmed the purported
class by artificially inflating our stock price during the
purported class period and that company insiders benefited
personally from the inflated price by selling our stock. The
plaintiff seeks unspecified damages, as well as interest, cost
and attorneys’ fees. A substantially similar action,
captioned Grill v. Biogen Idec Inc., et al., was filed
on March 10, 2005 in the same court by another purported
class representative. We believe that the actions are without
merit and intend to contest them vigorously. At this stage of
litigation, we cannot make any estimate of a potential loss or
range of loss.
On March 4, 2005, a purported shareholder derivative
action, captioned Halpern v. Rastetter, et al., was
filed in the Court of Chancery for the State of Delaware, in New
Castle County, on our behalf of Biogen Idec Inc., against us as
nominal defendant, our Board of Directors and our former general
counsel. The plaintiff derivatively claims breaches of fiduciary
duty by the Board of Directors for inadequate oversight of our
policies, practices, controls and assets, and for recklessly
awarding executive bonuses despite alleged awareness of
potentially serious side effects of TYSABRI and the potential
for related harm to our financial position. The plaintiff also
derivatively claims that our Executive Chairman, former general
counsel and a director misappropriated confidential company
information for personal profit by selling our stock while in
possession of material, non-public information regarding the
potentially serious side effects of TYSABRI, and alleges that
our Board of Directors did not ensure that appropriate policies
were in place regarding the control of confidential information
and personal trading in our securities by officers and
directors. The plaintiff seeks unspecified damages, profits, the
return of all bonuses paid by us, costs and attorneys’
fees. A substantially similar action, captioned Golaine v.
Rastetter, et al., was filed on March 14, 2005 in the
same court. Neither of the plaintiffs made presuit demand on our
Board of Directors prior to filing their respective actions. As
required by applicable law, we and our Board of Directors are
considering the derivative claims in the complaints and will
respond in a time and manner consistent with applicable Delaware
statutory and common law. These purported derivative actions did
not seek affirmative relief from the company.
On March 9, 2005, two additional purported shareholder
derivative actions, captioned Carmona v. Mullen,
et al. and Fink v. Mullen, et al., were brought
in the Superior Court of the State of California, County of
San Diego, on our behalf, against us as nominal defendant,
our Board of Directors and our chief financial officer. The
plaintiffs derivatively claim breach of fiduciary duties, abuse
of control, gross mismanagement, waste of corporate assets and
unjust enrichment against all defendants. The plaintiffs also
derivatively claim insider selling in violation of California
Corporations Code § 25402 and breach of fiduciary
duty and misappropriation of information against certain
defendants who sold our securities during the period of
F-39
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
February 18, 2004 to the date of the complaints. The
plaintiffs allege that the defendants caused and/or allowed us
to issue, and conspired, aided and abetted and acted in concert
in concealing that we were issuing, false and misleading press
releases about the safety of TYSABRI and its financial prospects
which resulted in legal claims being asserted against us,
irreparable harm to our corporate image, depression of our stock
price and impairment of our ability to raise capital. The
plaintiffs also allege that certain defendants sold personally
owned shares of our stock while in possession of material,
undisclosed, adverse information. The plaintiffs seek
unspecified damages, treble damages for the purported insider
trading in violation of California Corporate
Code § 25402, equitable relief including
restriction of the defendants’ trading proceeds or other
assets, restitution, disgorgement and costs, including
attorneys’ fees and expenses. Neither of the plaintiffs
made presuit demand on our Board of Directors prior to filing
their respective actions. As required by applicable law, we and
our Board of Directors are considering the derivative claims in
the complaints and will respond in a time and manner consistent
with applicable statutory and common law. These purported
derivative actions did not seek affirmative relief from the
company.
Our Board of Directors has received letters, dated March 1
and 15, 2005, respectively, on behalf of purported owners
of our securities purportedly constituting demands under
Delaware law. A supplement to the March 1 letter was
received on March 2, 2005. The letters generally allege
that certain of our officers and directors breached their
fiduciary duty to us by selling personally held shares our
securities while in possession of material, non-public
information about potential serious side effects of TYSABRI. The
letters generally request that our Board of Directors take
action on our behalf to recover compensation and profits from
the officers and directors, consider enhanced corporate
governance controls related to the sales of securities by
insiders, and pursue other such equitable relief, damages, and
other remedies as may be appropriate. As required by applicable
law, our Board of Directors is currently considering the letters
and will respond in a time and manner consistent with Delaware
law.
We are providing information to the SEC regarding the SEC’s
informal inquiry into the suspension of marketing and commercial
distribution of TYSABRI and trading in our securities by certain
of our directors, officers and employees.
On July 15, 2003, Biogen, Inc. (now Biogen Idec MA,
Inc., one of our wholly-owned subsidiaries), along with Genzyme
Corporation and Abbott Bioresearch Center, Inc., filed suit
against The Trustees of Columbia University in the City of New
York, or Columbia, in the U.S. District Court for the
District of Massachusetts, contending that we no longer have any
obligation to pay royalties to Columbia on sales of our products
under a 1993 license agreement between us and Columbia related
to U.S. Patent Nos. 4,399,216, 4,634,665, and
5,179,017, also referred to as the Original Patents, or under a
newly issued patent, U.S. Patent No. 6,455,275, also
referred to as the ‘275 patent (the 2003 action). Based, in
part, on the court’s subsequent finding that we had made a
strong showing that we might prevail in proving the
‘275 patent is invalid under the doctrine of
non-statutory double patenting, Columbia has since covenanted
not to sue Biogen Idec MA, Inc. on any claim of the
‘275 patent and any claim that is the same or
substantially the same as the claims of the
‘275 patent if such claim(s) emerge from the
reexamination or reissue proceedings currently pending before
the U.S. Patent and Trademark Office, or USPTO, with
respect to the ‘275 patent. As a result of
Columbia’s covenant not to sue, and Columbia’s
assertion that Biogen Idec MA, Inc. is a licensee in good
standing, the court issued an order on November 5, 2004, in
which it dismissed Biogen Idec MA Inc.’s claims for
declaratory relief for lack of subject matter jurisdiction. At
this time, we are unable to predict whether any claims will
issue from the USPTO on the reexamination or reissue proceedings
concerning the ‘275 patent, or whether, if any claims
do issue, such claims will pose a risk of infringement with
respect to our activities.
On September 17, 2004, Biogen Idec Inc., Biogen
Idec MA, Inc., and Genzyme Corporation, filed suit against
Columbia in the U.S. District Court for the District of
Massachusetts (the 2004 action). In the 2004 action we
reasserted some of the contentions made in our complaint in the
action filed in 2003 action. For example, that we are seeking a
declaratory judgment that we have no obligation to pay any
further royalties
F-40
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
under the license agreement because the Original Patents have
expired and the ‘275 patent is invalid and
unenforceable; and that Columbia should be permanently enjoined
from demanding any further royalties based on the
‘275 patent or on any pending continuations,
continuations-in-part, or divisional applications of the
Original Patents. We have also asserted claims for relief based
on abuse of process, breach of contract, violation of
Massachusetts laws concerning unfair and deceptive trade
practices, prosecution laches and inequitable conduct. To date,
Columbia has refused to extend its covenant not to sue on the
‘275 patent to Biogen Idec Inc. In the event that
we are unsuccessful in the present litigation and Columbia
asserts a claim for infringement against Biogen Idec Inc.,
we may be liable for damages suffered by Columbia with respect
to unpaid royalties and such other relief as Columbia may seek
and be granted by the Court. At this stage of the litigation, we
cannot make any estimate of a potential loss or range of loss.
On August 10, 2004, Classen Immunotherapies, Inc. filed
suit against us, GlaxoSmithKline, Chiron Corporation,
Merck & Co., Inc., and Kaiser-Permanente, Inc., in the
U.S. District Court for the District of Maryland,
contending that we induced infringement of
U.S. patents 6,420,139, 6,638,739, 5,728,385, and
5,723,283, all of which are directed to various methods of
immunization or determination of immunization schedules. The
inducement of infringement claims are based on allegations that
we “provided instructions and/or recommendations on a
proper immunization schedule for vaccines” to other
defendants who are alleged to have directly infringed the
patents at issue. We are investigating the allegations, however,
we do not believe them to be based in fact. Under our 1988
license agreement with GlaxoSmithKline, GlaxoSmithKline is
obligated to indemnify and defend us against these claims. In
the event that the nature of the claims change such that
GlaxoSmithKline is no longer obligated to indemnify and defend
us and we are unsuccessful in the present litigation we may be
liable for damages suffered by Classen and such other relief as
Classen may seek and be granted by the court. At this stage of
the litigation, we cannot make any estimate of a potential loss
or range of loss.
Along with several other major pharmaceutical and biotechnology
companies, Biogen, Inc. (now Biogen Idec MA, Inc., one of
our wholly-owned subsidiaries) or, in certain cases, Biogen Idec
Inc., was named as a defendant in lawsuits filed by the County
of Suffolk, New York, the County of Westchester, New York, the
County of Rockland, New York, the County of Nassau, New York,
the County of Onondaga, New York, the County of Chenango, New
York, the County of Erie, New York, the City of New York, and
the County of Chautauqua, New York. All of the cases are pending
in the U.S. District Court for the District of
Massachusetts, with the exception of the Onondaga, Chenango and
Chautauqua lawsuits, which are expected to be transferred to the
U.S. District Court for the District of Massachusetts, and
the Erie lawsuit, which is pending in the Supreme Court of the
State of New York for the County of Erie. The complaints allege
that the defendants fraudulently reported the Average Wholesale
Price for certain drugs for which Medicaid provides
reimbursement, also referred to as Covered Drugs; marketed and
promoted the sale of Covered Drugs to providers based on the
providers’ ability to collect inflated payments from the
government and Medicaid beneficiaries that exceeded payments
possible for competing drugs; provided financing incentives to
providers to over-prescribe Covered Drugs or to prescribe
Covered Drugs in place of competing drugs; and overcharged
Medicaid for illegally inflated Covered Drugs reimbursements.
The complaints allege violations of New York state law and
advance common law claims for unfair trade practices, fraud, and
unjust enrichment. In addition, all of the complaints, with the
exception of the County of Erie, allege that the defendants
failed to accurately report the “best price” on the
Covered Drugs to the Secretary of Health and Human Services
pursuant to rebate agreements entered into with the Secretary of
Health and Human Services, and excluded from their reporting
certain drugs offered at discounts and other rebates that would
have reduced the “best price.” The Suffolk,
Westchester, Rockland, and Nassau County complaints also claim
that Biogen violated the Racketeering Influence and Corrupt
Organizations Act (RICO)
18 U.S.C. § 1962(c). In September 2003,
Biogen joined other named defendants in filing a motion to
dismiss the Suffolk County complaint. Biogen also separately
filed a motion on its own behalf arguing that the plaintiffs
made no specific factual allegations against Biogen to connect
it with the alleged scheme. In September 2004, the court, in
ruling on
F-41
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
defendants’ joint motion to dismiss, allowed the motion, in
part, and dismissed the RICO claim, the Medicaid best price
claim, the breach of contract claim, and the common law fraud
claim. The court did not dismiss the claims brought under the
New York State Medicaid and Social Services statutes, the unfair
trade practices claim, or the claim for unjust enrichment. In
October 2004, the court issued a partial decision on
Biogen’s individual motion to dismiss. The court dismissed
all of the state law claims against Biogen based on the alleged
failure to report best price, but deferred ruling on the
fraud-based claims and ordered Suffolk County to produce all
documents in support of its fraud-based claims. Suffolk County
subsequently produced documents in response to the court’s
request and Biogen renewed its motion to dismiss. Neither Biogen
nor the other defendants have answered or responded to the other
complaints, as all of the plaintiffs except Erie County have
agreed to stay the time to respond until the resolution of the
pending motion to dismiss the Suffolk County complaints. Biogen
Idec intends to defend itself vigorously against all of the
allegations and claims in these lawsuits. At this stage of the
litigation, we cannot make any estimate of a potential loss or
range of loss.
In addition, we are involved in certain other legal proceedings
generally incidental to our normal business activities. While
the outcome of any of these proceedings cannot be accurately
predicted, we do not believe the ultimate resolution of any of
these existing matters would have a material adverse effect on
our business or financial condition.
Convertible Preferred Stock: Our convertible preferred
stock, which is held solely by Genentech, is convertible into
shares of our common stock at anytime at the option of the
holder. At December 31, 2003, Genentech converted 5,000 of
the Series A-2 preferred shares and 22,993 of the
Series A-3 preferred shares into approximately
1.7 million common shares.
The terms of our convertible preferred stock and the number of
issued and outstanding shares at December 31, 2004 are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Preferred | |
|
|
|
|
| Nonvoting | |
|
|
|
Shares | |
|
Liquidation | |
|
|
| Convertible | |
|
|
|
Issued and | |
|
Preference Per | |
|
Common | |
| Preferred Stock | |
|
Issue Date | |
|
Outstanding | |
|
Share | |
|
Conversion | |
| | |
|
| |
|
| |
|
| |
|
| |
| |
Series A-2 |
|
|
|
August 1995 |
|
|
|
8,221 |
|
|
$ |
67.00 |
|
|
|
60 shares |
|
Stockholder Rights Plan: Effective July 26, 2001,
our Board of Directors amended and restated the terms of our
stockholder rights plan, originally adopted by the Board of
Directors in 1997. Under the plan, we declared a dividend
distribution of one “Right” for each outstanding share
of our common stock to stockholders of record at the close of
business on August 11, 1997. Since that time, we have
issued one Right with each newly issued share of common stock.
As amended, each Right, when exercisable, entitles the holder to
purchase from us one one-thousandth of a share of our
Series X Junior Participating Preferred Stock at a purchase
price of $500.00. In general, under the amended and restated
plan, if a person or affiliated group acquires beneficial
ownership of 15% or more of our shares of common stock, then
each Right (other than those held by such acquiring person or
affiliated group) will entitle the holder to receive, upon
exercise, shares of common stock (or, under certain
circumstances, a combination of securities or other assets)
having a value of twice the underlying purchase price of the
Right. In addition, if following the announcement of the
existence of an acquiring person or affiliated group we are
involved in a business combination or sale of 50% or more of our
assets or earning power, each Right (other than those held by
the acquiring person or affiliated group) will entitle the
holder to receive, upon exercise, shares of common stock of the
acquiring entity having a value of twice the underlying purchase
price of the Right. The Board of Directors also has the right,
after an acquiring person or affiliated group is identified, to
cause each Right to be exchanged for common stock or
F-42
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
substitute consideration. We may redeem the Rights at a price of
$0.001 per Right prior to the identification of an
acquiring person or affiliated group. The Rights expire on
July 26, 2011.
Stock Option Plans: We currently have five stock option
plans.
Directors Plan:
We maintain the 1993 Non-Employee Directors Stock Option Plan,
or the Directors Plan. Options granted annually under the
Directors Plan have a term of up to ten years and vest one year
from the date of grant. Options granted to directors upon their
appointment or election to the Board of Directors have a term of
up to ten years and vests over four years from the date of
grant. The options are exercisable at a price per share not less
than the fair market value of the underlying common stock on the
date of grant. As of December 31, 2004, the aggregate
number of shares authorized for issuance under the Directors
Plan was 3.1 million shares.
Omnibus Plan:
We maintain the 2003 Omnibus Equity Plan, or the Omnibus Plan.
Awards granted from the Omnibus Plan may include options, shares
of restricted stock, shares of phantom stock, stock bonuses,
stock appreciation rights and other awards in such amounts and
with such terms and conditions subject to the provisions of the
Plan. Options granted under the plan have a term of up to ten
years and are exercisable at a price per share not less than the
fair market value of the underlying common stock on the date of
grant. At December 31, 2004, the maximum number of shares
of Common Stock reserved for issuance under the Omnibus Plan was
17.4 million shares.
Other Plans:
We also maintain the 1988 Stock Option Plan, the Biogen, Inc.
1985 Non-Qualified Stock Option Plan and the Biogen, Inc. 1987
Scientific Board Stock Option Plan. We have not issued any
shares from these plans since the Merger, and do not intend to
issue any shares from these plans in the future. Under the 1998
Stock Option Plan, options for the purchase of our common stock
were granted to key employees (including officers) and
directors. Options were designated as incentive stock options or
as nonqualified stock options and generally vest over four
years, except under a provision of this plan which, under
certain circumstances, allows accelerated vesting due to change
in control events. Options under this plan, which have a term of
up to ten years, are exercisable at a price per share not less
than the fair market value of the underlying common stock on the
date of grant. Options under the plans assumed from Biogen, Inc.
were granted at no less than 100% of the fair market value on
the date of grant. These options generally are exercisable over
various periods, typically 4 to 7 years for employees and
3 years for directors and former scientific board members,
and have a maximum term of 10 years.
F-43
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of stock option activity is presented in the following
table (shares are in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
All Option Plans | |
| |
|
| |
| |
|
|
|
Weighted | |
| |
|
|
|
Average | |
| |
|
|
|
Exercise | |
| |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
Outstanding at December 31, 2001
|
|
|
19,978 |
|
|
|
21.83 |
|
|
Granted
|
|
|
4,964 |
|
|
|
52.49 |
|
|
Exercised
|
|
|
(3,015 |
) |
|
|
6.58 |
|
|
Cancelled
|
|
|
(814 |
) |
|
|
44.02 |
|
| |
|
|
|
|
|
|
|
Outstanding at December 31, 2002
|
|
|
21,113 |
|
|
$ |
30.36 |
|
|
Granted
|
|
|
4,872 |
|
|
|
34.29 |
|
|
Granted to Biogen, Inc employees (including 11.5 million
vested options)
|
|
|
20,728 |
|
|
|
37.56 |
|
|
Exercised
|
|
|
(2,254 |
) |
|
|
9.04 |
|
|
Cancelled
|
|
|
(936 |
) |
|
|
46.08 |
|
| |
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
43,523 |
|
|
$ |
35.01 |
|
| |
|
|
|
|
|
|
|
Granted
|
|
|
7,054 |
|
|
|
46.27 |
|
|
Exercised
|
|
|
(12,263 |
) |
|
|
21.28 |
|
|
Cancelled
|
|
|
(3,191 |
) |
|
|
45.98 |
|
| |
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
35,123 |
|
|
$ |
41.07 |
|
| |
|
|
|
|
|
|
The following table summarizes combined information about
options outstanding under all our stock option plans as of
December 31, 2004 (shares are in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
|
| |
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
| |
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Exercise | |
| Range of Exercise Prices |
|
Outstanding | |
|
Life | |
|
Price | |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 0.00 — $10.00
|
|
|
2,183 |
|
|
|
3.19 |
|
|
$ |
6.51 |
|
|
|
2,183 |
|
|
$ |
6.51 |
|
|
10.01 — 20.00
|
|
|
1,950 |
|
|
|
2.13 |
|
|
|
15.09 |
|
|
|
1,944 |
|
|
|
15.08 |
|
|
20.01 — 30.00
|
|
|
1,036 |
|
|
|
5.55 |
|
|
|
25.21 |
|
|
|
876 |
|
|
|
24.86 |
|
|
30.01 — 40.00
|
|
|
10,251 |
|
|
|
7.08 |
|
|
|
35.55 |
|
|
|
5,995 |
|
|
|
35.68 |
|
|
40.01 — 50.00
|
|
|
11,869 |
|
|
|
7.75 |
|
|
|
45.60 |
|
|
|
6,155 |
|
|
|
46.40 |
|
|
50.01 — 60.00
|
|
|
4,299 |
|
|
|
6.78 |
|
|
|
55.58 |
|
|
|
2,930 |
|
|
|
55.25 |
|
|
60.01 — 70.00
|
|
|
3,367 |
|
|
|
6.51 |
|
|
|
64.00 |
|
|
|
2,562 |
|
|
|
64.03 |
|
|
Over 70.00
|
|
|
168 |
|
|
|
4.80 |
|
|
|
74.74 |
|
|
|
160 |
|
|
|
74.71 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
35,123 |
|
|
|
6.64 |
|
|
$ |
41.07 |
|
|
|
22,805 |
|
|
$ |
39.58 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, 2003, and 2002, options to
purchase 22.8 million, 28.3 million, and
13.3 million shares, respectively, were exercisable at
weighted average exercise prices of $39.58, $30.88, and
$19.26 per share, respectively.
Employee Stock Purchase Plan: We also maintain the 1995
Employee Stock Purchase Plan, or the Purchase Plan. As of
December 31, 2004, a total of 0.5 million shares of
our common stock were available for issuance. Under the terms of
the Purchase Plan, employees can elect to have up to ten percent
of their annual
F-44
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
compensation withheld to purchase shares of our common stock.
The purchase price of the common stock is at 85 percent of
the lower of the fair market value of the common stock at the
enrollment or purchase date. During 2004, 2003 and 2002,
0.4 million, 0.2 million and 0.1 million shares,
respectively, were issued under the Purchase Plan.
Restricted Stock Awards: In 2004, we granted a total of
1.3 million shares of restricted common stock to employees
under our 2003 Omnibus Equity Plan. The restricted stock will
vest 100% three years from the grant date, provided the employee
remains continuously employed with us. During the vesting
period, shareholders have full voting rights, even though the
restricted stock remains subject to transfer restrictions and
will generally be forfeited upon termination of employment prior
to vesting. Approximately 0.1 million grants have been
forfeited as of December 31, 2004 due to employee
terminations. At December 31, 2004, deferred stock based
compensation related to restricted stock was $35.1 million
and was included in shareholders’ equity. For 2004, we
recorded $15.9 million of stock compensation charges
related to the restricted stock.
Stock Repurchase Programs:
In February 2004, our Board of Directors authorized the
repurchase of up to 12.0 million shares of our common
stock. During 2004, we repurchased all 12.0 million shares
at a cost of $698.4 million, completing this program. The
repurchased stock provided us with treasury shares to be used
for general corporate purposes, such as common stock to be
issued under employee equity and stock purchase plans
In October 2004, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. The repurchased stock will provide us with treasury
shares for general corporate purposes, such as common stock to
be issued under our employee equity and stock purchase plans.
This repurchase program will expire no later than
October 4, 2006. During the fourth quarter of 2004, we
repurchased 0.6 million shares at a cost of
$36.0 million. Approximately 19.4 million shares
remain authorized for repurchase under this program at
December 31, 2004. In the first quarter of 2005, we
repurchased approximately 3.5 million shares under this
program, at a cost of $168.5 million.
We operate in one segment, which is the business of development,
manufacturing and commercialization of novel therapeutics for
human health care. Our chief operating decision-makers review
our operating results on an aggregate basis and manage our
operations as a single operating segment. We currently have five
commercial products: AVONEX and TYSABRI for the treatment of
relapsing MS, RITUXAN and ZEVALIN, both of which treat certain
B-cell non-Hodgkin’s lymphomas, or B-cell NHLs, and AMEVIVE
for the treatment of adult patients with moderate-to-severe
chronic plaque psoriasis who are candidates for systemic therapy
or phototherapy. We also receive revenues from royalties on
sales by our licensees of a number of products covered under
patents that we control including sales of RITUXAN outside the
U.S. Revenues are primarily attributed from external
customers to individual countries where earned based on location
of the customer or licensee.
F-45
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our geographic information is as follows (table in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2004 |
|
US | |
|
Europe | |
|
Asia | |
|
Other | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Product revenues from external customers
|
|
$ |
986,050 |
|
|
$ |
406,898 |
|
|
$ |
— |
|
|
$ |
93,396 |
|
|
$ |
1,486,344 |
|
|
Revenues from unconsolidated joint business
|
|
$ |
494,735 |
|
|
$ |
121,008 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
615,743 |
|
|
Royalty revenues from external customers
|
|
$ |
61,957 |
|
|
$ |
25,389 |
|
|
$ |
10,584 |
|
|
$ |
1,015 |
|
|
$ |
98,945 |
|
|
Corporate partner revenues
|
|
$ |
530 |
|
|
$ |
10,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10,530 |
|
|
Long-lived assets
|
|
$ |
6,645,692 |
|
|
$ |
433,895 |
|
|
$ |
1,569 |
|
|
$ |
153,558 |
|
|
$ |
7,234,714 |
|
In 2004, we recorded revenue from one specialty distributor and
three wholesale distributors accounting for a total of 17%, 17%,
16%, and 14% of total product revenue. Approximately 28%, 73%,
and 95% of our total revenues in 2004, 2003, and 2002,
respectively, are derived from our joint business arrangement
with Genentech (see Note 10).
|
|
| 14. |
Severance Obligations |
In 2004 and 2003, we accrued $2.3 million and
$10.2 million, respectively, of restructuring costs related
to the relocation of our European headquarters, in selling,
general and administrative expense. During 2004, we made
payments of $11.5 million related to this relocation
obligation. At December 31, 2004, we had a remaining
accrual of approximately $1.1 million related to this
relocation obligation.
In 2003, we accrued $2.1 million of restructuring costs in
selling, general and administrative expense related to severance
obligations for certain employees affected by the Merger in our
Cambridge facilities, and accrued an additional
$1.0 million of charges in 2004. During 2004, we made
payments of $2.9 million related to the Cambridge severance
obligations and, at December 31, 2004, we had a remaining
accrual of approximately $0.2 million.
During 2004, we recorded charges of $4.4 million in
selling, general and administrative expense related to severance
obligations for certain employees affected by the Merger in our
San Diego facilities. During 2004, we made payments of
$4.0 million related to the San Diego restructuring
obligations and, at December 31, 2004, we had a remaining
accrual of approximately $0.4 million.
In November 2002, the FASB issued FASB Interpretation
No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements
No. 5, 57, and 107 and Rescission of FASB Interpretation
No. 34”, or FIN No. 45. FIN No. 45
elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also requires
that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of certain guarantees. The initial
recognition and initial measurement provisions of
FIN No. 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002.
Since January 1, 2003, we have not issued or modified any
guarantees as defined by FIN No. 45.
We enter into indemnification provisions under our agreements
with other companies in the ordinary course of business,
typically with business partners, contractors, clinical sites
and customers. Under these provisions, we generally indemnify
and hold harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of our activities.
These indemnification provisions generally survive
F-46
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
termination of the underlying agreement. The maximum potential
amount of future payments we could be required to make under
these indemnification provisions is unlimited. However, to date
we have not incurred material costs to defend lawsuits or settle
claims related to these indemnification provisions. As a result,
the estimated fair value of these agreements is minimal.
Accordingly, we have no liabilities recorded for these
agreements as of December 31, 2004.
|
|
| 16. |
Quarterly Financial Data (Unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Total Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
541,742 |
|
|
$ |
538,763 |
|
|
$ |
543,276 |
|
|
$ |
587,781 |
|
|
$ |
2,211,562 |
|
|
Product revenue
|
|
|
372,537 |
|
|
|
363,186 |
|
|
|
359,692 |
|
|
|
390,929 |
|
|
|
1,486,344 |
|
|
Royalties revenue
|
|
|
25,213 |
|
|
|
24,297 |
|
|
|
23,860 |
|
|
|
25,575 |
|
|
|
98,945 |
|
|
Total expenses and taxes
|
|
|
594,666 |
|
|
|
544,349 |
|
|
|
504,935 |
|
|
|
563,203 |
|
|
|
2,207,153 |
|
|
Other income (expense), net
|
|
|
11,726 |
|
|
|
6,413 |
|
|
|
(1,573 |
) |
|
|
4,111 |
|
|
|
20,677 |
|
|
Net income (loss)
|
|
|
(41,198 |
) |
|
|
827 |
|
|
|
36,768 |
|
|
|
28,689 |
|
|
|
25,086 |
|
|
Basic earnings (loss) per share
|
|
|
(0.12 |
) |
|
|
0.00 |
|
|
|
0.11 |
|
|
|
0.09 |
|
|
|
0.07 |
|
|
Diluted earnings (loss) per share
|
|
|
(0.12 |
) |
|
|
0.00 |
|
|
|
0.10 |
|
|
|
0.08 |
|
|
|
0.07 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
117,246 |
|
|
$ |
123,562 |
|
|
$ |
138,530 |
|
|
$ |
299,845 |
|
|
$ |
679,183 |
|
|
Product revenue
|
|
|
5,663 |
|
|
|
4,980 |
|
|
|
4,427 |
|
|
|
156,491 |
|
|
|
171,561 |
|
|
Royalties revenue
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,010 |
|
|
|
12,010 |
|
|
Total expenses and taxes
|
|
|
79,356 |
|
|
|
98,049 |
|
|
|
95,016 |
|
|
|
1,270,904 |
|
|
|
1,543,325 |
|
|
Other income (expense), net
|
|
|
3,310 |
|
|
|
3,253 |
|
|
|
1,986 |
|
|
|
(19,504 |
) |
|
|
(10,955 |
) |
|
Net income (loss)
|
|
|
41,200 |
|
|
|
28,766 |
|
|
|
45,500 |
|
|
|
(990,563 |
) |
|
|
(875,097 |
) |
|
Basic earnings (loss) per share
|
|
|
0.27 |
|
|
|
0.19 |
|
|
|
0.29 |
|
|
|
(4.03 |
) |
|
|
(4.92 |
) |
|
Diluted earnings (loss) per share
|
|
|
0.24 |
|
|
|
0.17 |
|
|
|
0.26 |
|
|
|
(4.03 |
) |
|
|
(4.92 |
) |
|
|
| 17. |
New Accounting Pronouncements |
EITF 03-01, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments,” was
issued in February 2004. EITF 03-01 stipulates disclosure
requirements for investments with unrealized losses that have
not been recognized as other-than-temporary impairments. We have
complied with the disclosure provisions of EITF 03-01. In
September 2004, the FASB staff issued two proposed FASB Staff
Positions: Proposed FSP EITF Issue 03-01-a, which provides
guidance for the application of paragraph 16 of EITF
Issue 03-01 to debt securities that are impaired because of
interest rate and/or sector spread increases, and Proposed FSP
EITF Issue 03-01-b, which delays the effective date of
Issue 03-01 for debt securities that are impaired because
of interests rate and/or sector spread increases. We are
currently monitoring these developments and assessing the impact
these will have on our results of operations.
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS 123(R), “Share-Based
Payments,” which replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to
Employees.” SFAS 123(R) will require all share-based
payments to employees, including grants of employee stock
options, to be recognized in the statement of operations based
on their fair values. SFAS 123(R) will be effective for
public companies for fiscal periods beginning after
June 15, 2005, and offers alternative methods for
determining the fair value. We
F-47
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
expect that SFAS 123(R) will have a significant impact on
our financial statements. At the present time, we have not yet
determined which valuation method we will use.
The FASB has proposed amending SFAS 128, “Earnings per
Share,” to make it consistent with International Accounting
Standard 33, “Earnings per Share”, and make earning
per share, or EPS, computations comparable on a global basis.
Under the proposed amendment, the year-to-date EPS computation
would be performed independently from the quarterly
computations. Additionally, for all contracts that may be
settled in either cash or shares of stock, companies must assume
that settlement will occur by the issuance of shares for
purposes of computing diluted EPS, even if they intend to settle
by paying cash or have a history of cash-only settlements,
regardless of who controls the means of settlement. Lastly,
under the proposed amendment, shares that will be issued upon
conversion of a mandatory convertible security must be included
in the weighted-average number of shares outstanding used in
computing basic EPS from the date that conversion becomes
mandatory, using the if-converted method, regardless of whether
the result is anti-dilutive. The proposed amended standard is
expected to be issued during the first quarter of 2005.
Retrospective application in all periods presented would be
required, and could require the restatement of previously
reported EPS. We do not expect the provisions of the amended
SFAS 128 will have a significant impact on our results of
operations.
In November 2004, the FASB issued SFAS 151, “Inventory
Costs, an amendment of ARB No. 43, Chapter 4,”
which amends the guidance in ARB No. 43, Chapter 4,
“Inventory Pricing,” to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). This Statement amends
ARB 43, Chapter 4, to clarify that abnormal amounts of
idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period
charges. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities. The
provisions of this Statement shall be effective for inventory
costs incurred during fiscal years beginning after June 15,
2005. We do not expect the provisions of SFAS 151 will have
a significant impact on our results of operations.
In December 2004, the FASB issued SFAS 153, “Exchanges
of Non-Monetary assets, an amendment of APB Opinion
No. 29,” which eliminates the exception from fair
value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion
No. 29, “Accounting for Nonmonetary
Transactions,” and replaces it with an exception for
exchanges that do not have commercial substance. This Statement
specifies that a nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of
this Statement shall be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. We do not expect the provisions of
SFAS 153 will have a significant impact on our results of
operations.
In December 2004, the FASB reached consensus on EITF Issue
No. 02-14, “Whether an Investor Should Apply the
Equity Method of Accounting to Investments Other Than Common
Stock,” which requires an investor that has the ability to
exercise significant influence over the operating and financial
policies of the investee to apply the equity method of
accounting only when it has an investment(s) in common stock
and/or an investment that is in-substance common stock. The Task
Force also reached a consensus on the definition of in-substance
common stock and related guidance. The provisions of
EITF 02-14 are effective for reporting periods beginning
after September 15, 2004, and have not had any impact on
our accounting for investments as of December 31, 2004.
EITF No. 04-01, “Accounting for Preexisting
Relationships between the Parties to a Business
Combination,” the EITF reached a consensus that the
consummation of a business combination between parties with a
preexisting relationship should be evaluated to determine if a
settlement of a preexisting relationship exists, thus requiring
accounting separate from the business combination. Under
EITF 04-01, the acquisition of a right that the acquiring
entity had previously granted to the acquired entity to use the
acquirer’s recognized or
F-48
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
unrecognized intangible assets (for example, rights to the
acquirer’s trade name under a franchise agreement or rights
to the acquirer’s technology under a technology licensing
agreement) should be included as part of the business
combination and recorded by the acquiring entity as an
intangible asset at fair value. If the contract giving rise to
the reacquired right includes terms that are favorable or
unfavorable when compared to pricing (for example, royalty
rates) for current market transactions for the same or similar
items, an entity should measure a settlement gain or loss as the
lesser of (a) the amount by which the contract is favorable
or unfavorable to market terms from the perspective of the
acquirer or (b) the stated settlement provisions of the
contract available to the counterparty to which the contract is
unfavorable. EITF 04-01 is effective for all business
combinations consummated and goodwill impairment tests (i.e., in
step 2 of the impairment test) performed in reporting
periods beginning after October 13, 2004. The provisions of
EITF 04-01 have not had any significant impact on our
results of operations in 2004.
In March 2005, we received FDA approval for a new pre-filled
syringe formulation of AVONEX, which had previously received
EMEA approval. As a result of the FDA approval, we expect to
write-down between $6 million and $8 million of the
remaining inventory of the older formulation, related to the FDA
approval and which will no longer be available for commercial
sale. This write-down will be recorded during the first quarter
of 2005.
As of March 31, 2005, we determined that we would no longer
proceed with the fill-finish component of our large-scale
biologic manufacturing facility in Hillerod. As a result, we
expect to write-off in the first quarter of 2005 to research and
development expense approximately $6.5 million of
engineering costs which had previously been capitalized.
F-49
BIOGEN IDEC INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 2004, 2003 and 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
|
|
|
|
|
|
|
| |
|
Beginning | |
|
|
|
Other | |
|
|
|
Balance at | |
| Description |
|
of Year | |
|
Additions | |
|
Additions(1) | |
|
Deductions | |
|
End of Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Allowance for Doubtful accounts(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
$ |
2,074 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,074 |
|
|
Year Ended December 31, 2003
|
|
$ |
361 |
|
|
$ |
2,277 |
|
|
$ |
— |
|
|
$ |
565 |
|
|
$ |
2,074 |
|
|
Year Ended December 31, 2002
|
|
$ |
— |
|
|
$ |
361 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
361 |
|
|
Sales Returns & Allowances, Discounts, and Rebates(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
$ |
20,756 |
|
|
$ |
188,525 |
|
|
$ |
— |
|
|
$ |
175,473 |
|
|
$ |
33,808 |
|
|
Year Ended December 31, 2003
|
|
$ |
371 |
|
|
$ |
14,729 |
|
|
$ |
18,816 |
|
|
$ |
13,161 |
|
|
$ |
20,756 |
|
|
Year Ended December 31, 2002
|
|
$ |
99 |
|
|
$ |
767 |
|
|
$ |
— |
|
|
$ |
495 |
|
|
$ |
371 |
|
|
|
| (1) |
As a result of the merger, we assumed sales returns and
allowances, discounts and rebates of $18.8 million from
Biogen, Inc. as of the Merger date. |
| |
| (2) |
Additions to allowance for doubtful accounts are recorded as an
expense. |
| |
| (3) |
Additions to sales returns and allowances, discounts, and
rebates are recorded as a reduction of revenue. |
F-50
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Biogen Idec Inc.:
We have completed an integrated audit of Biogen Idec Inc.’s
2004 consolidated financial statements and of its internal
control over financial reporting as of December 31, 2004
and audits of its 2003 consolidated financial statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated financial statements and Financial Statement
Schedule
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15a.(1) present fairly, in
all material respects, the financial position of Biogen Idec
Inc. and its subsidiaries at December 31, 2004 and 2003,
and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2004
in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under
Item 15a.(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in
the accompanying “Management’s Annual Report on
Internal Control Over Financial Reporting,” that the
Company maintained effective internal control over financial
reporting as of December 31, 2004 based on criteria
established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly
stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2004, based on criteria
established in Internal Control — Integrated
Framework issued by the COSO. The Company’s management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on
the effectiveness of the Company’s internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of
F-51
the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 2005
F-52
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Biogen Idec Inc.:
We have audited the accompanying consolidated statements of
income, stockholders’ equity, and cash flows for Biogen
Idec, Inc. and subsidiaries (formerly known as IDEC
Pharmaceuticals Corporation) for the year ended
December 31, 2002. In connection with our audit of the
consolidated financial statements, we have also audited the
consolidated financial statement schedule for the year ended
December 31, 2002, as listed in the accompanying index.
These consolidated financial statements and consolidated
financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the results
of operations and cash flows of IDEC Pharmaceuticals Corporation
and subsidiaries for the year ended December 31, 2002, in
conformity with U.S generally accepted accounting principles.
Also, in our opinion, the related consolidated financial
statement schedule when considered in relation to the basic
consolidated financial statements taken as a whole presents
fairly, in all material respects, the information set forth
therein.
|
|
| |
/s/ KPMG LLP |
| |
| |
San Diego, California |
| |
January 29, 2003 |
F-53