BIOGEN : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

The following discussion should be read in conjunction with our consolidated
financial statements and the accompanying notes beginning on page F-1 of this
report.
For our discussion of the year ended December 31, 2018, compared to the year
ended December 31, 2017, please read Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations located in our 2018
Form 10-K.
Executive Summary
Introduction
Biogen is a global biopharmaceutical company focused on discovering, developing
and delivering worldwide innovative therapies for people living with serious
neurological and neurodegenerative diseases as well as related therapeutic
adjacencies. Our core growth areas include MS and neuroimmunology; AD and
dementia; neuromuscular disorders, including SMA and ALS; movement disorders,
including Parkinson's disease; and ophthalmology. We are also focused on
discovering, developing and delivering worldwide innovative therapies in our
emerging growth areas of immunology; neurocognitive disorders; acute neurology;
and pain. In addition, we commercialize biosimilars of advanced biologics. We
support our drug discovery and development efforts through the commitment of
significant resources to discovery, research and development programs and
business development opportunities.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, VUMERITY and
FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; and FUMADERM
for the treatment of severe plaque psoriasis. We also have certain business and
financial rights with respect to RITUXAN for the treatment of non-Hodgkin's
lymphoma, CLL and other conditions; RITUXAN HYCELA for the treatment of
non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular
lymphoma; OCREVUS for the treatment of PPMS and RMS; and other potential
anti-CD20 therapies pursuant to our collaboration arrangements with Genentech.
For additional information on our collaboration arrangements with Genentech,
please read Note 18, Collaborative and Other Relationships, to our consolidated
financial statements included in this report.
Our innovative drug development and commercialization activities are
complemented by our biosimilar products that expand access to medicines

and reduce the cost burden for healthcare systems. Through Samsung Bioepis, our
joint venture with Samsung BioLogics Co., Ltd., we market and sell BENEPALI, an
etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar
referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE,
in certain countries in Europe and have exclusive rights to commercialize these
products in China. Additionally, we have exclusive rights to commercialize two
potential ophthalmology biosimilar products, SB11 referencing LUCENTIS and SB15
referencing EYLEA, in major markets worldwide, including the U.S., Canada,
Europe, Japan and Australia. For additional information on our collaboration
arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other
Relationships, to our consolidated financial statements included in this report.
Our revenues depend upon continued sales of our products, as well as the
financial rights we have in our anti-CD20 therapeutic programs, and, unless we
develop, acquire rights to and/or commercialize new products and technologies,
we will be substantially dependent on sales from our products and our financial
rights in our anti-CD20 therapeutic programs for many years.
In the longer term, our revenue growth will depend upon the successful clinical
development, regulatory approval and launch of new commercial products as well
as additional indications for our existing products, our ability to obtain and
maintain patents and other rights related to our marketed products, assets
originating from our research and development efforts and/or successful
execution of external business development opportunities.
Business Environment
The biopharmaceutical industry and the markets in which we operate are intensely
competitive. Many of our competitors are working to develop or have
commercialized products similar to those we market or are developing and have
considerable experience in undertaking clinical trials and in obtaining
regulatory approval to market pharmaceutical products. In addition, the
commercialization of certain of our own approved products, products of our
collaborators and pipeline product candidates may negatively impact future sales
of our existing products.
Our products continue to face increasing competitive pressures from the
introduction of generic versions, prodrugs and biosimilars of existing products
as well as products approved under abbreviated regulatory pathways. Such
products are likely to be sold at substantially lower prices than branded
products, which may significantly reduce both the price that we are able to
charge for our products and the volume of products we sell. In addition, when

                                       55

--------------------------------------------------------------------------------

Table of Contents

a generic version of one of our products is commercialized, it may, in some
cases, be automatically substituted for our product and reduce our revenues in a
short period of time.
Sales of our products depend, to a significant extent, on the availability and
extent of adequate coverage, pricing and reimbursement from government health
administration authorities, private health insurers and other organizations.
When a new pharmaceutical product is approved, the availability of government
and private reimbursement for that product may be uncertain, as is the pricing
and amount for which that product will be reimbursed.
Drug prices are under significant scrutiny in the markets in which our products
are prescribed. We expect drug pricing and other health care costs to continue
to be subject to intense political and societal pressures on a global basis.
Our failure to obtain or maintain adequate coverage, pricing or reimbursement
for our products could have an adverse effect on our business, reputation,
revenues and results of operations, could curtail or eliminate our ability to
adequately fund research and development programs for the discovery and
commercialization of new products or could cause a decline or volatility in our
stock price.
In addition to the impact of competition, pricing actions and other measures
being taken worldwide designed to reduce healthcare costs and limit the overall
level of government expenditures, our sales and operations could also be
affected by other risks of doing business internationally, including the impact
of foreign currency exchange fluctuations, changes in intellectual property
legal protections and changes in trade regulations and procedures as well as the
impact of the continued uncertainty of the credit and economic conditions in
certain countries in Europe.
For additional information on our competition and pricing risks that could
negatively impact our product sales, please read Item 1A. Risk Factors and Item
7A. Quantitative and Qualitative Disclosures About Market Risk included in this
report.

Brexit

In June 2016 the U.K. electorate voted in a referendum to voluntarily depart
from the E.U., known as Brexit. In March 2017 the U.K. government formally
notified the European Council of its intention to leave the E.U. and began to
negotiate the terms of its withdrawal and outline the future relationship
between the U.K. and the E.U. upon exit, which occurred on January 31, 2020.
Following the U.K.'s departure, there is now a transition period during which
existing arrangements will remain in place until the end of 2020, allowing
detailed discussions on the future relationship between the U.K. and the E.U. to
take place.
The potential impact on our results of operations and liquidity resulting from
Brexit remains unclear. The actual effects of Brexit will depend upon many
factors and significant uncertainty remains with respect to the future
relationship between the U.K. and the E.U. The final outcome of the discussions
during the transition period may impact certain of our research, commercial and
general business operations in the U.K. and the E.U., including the approval and
supply of our products.
Compliance with any resulting regulatory mandates may prove challenging and the
macroeconomic impact on our sales and consolidated results of operations from
these developments remains unknown. We do not, however, expect Brexit to have a
material impact on our consolidated results of operations as approximately 3.5%,
3.3% and 3.2% of our total product revenues in 2019, 2018 and 2017,
respectively, were derived from U.K. sales.
We have implemented measures to meet E.U. legal and regulatory requirements and
to continue to modify our business operations to prepare for the finalization of
the terms of the U.K.'s separation from the E.U. However, we cannot predict the
direction Brexit-related developments will take nor the impact of those
developments on our European operations and the economies of the markets where
we operate. Therefore, we will continue to monitor for developments in this area
and assess any potential impact on our business and results of operations.

                                       56

--------------------------------------------------------------------------------

Table of Contents

Financial Highlights
[[Image Removed: finhighlights.jpg]]
Diluted earnings per share attributable to Biogen Inc. were $31.42 for 2019,
representing an increase of 45.6% over $21.58 in the same period in 2018.
As described below under Results of Operations, our net income and diluted
earnings per share attributable to Biogen Inc. for the year ended December 31,
2019, compared to the year ended December 31, 2018, reflects the following:
•   Total revenues were $14,377.9 million for 2019, representing an increase of

6.9% over $13,452.9 million in 2018.

• Product revenues, net totaled $11,379.8 million for 2019, representing an

increase of 4.5% over $10,886.8 million in 2018. This increase was primarily

due to a 21.6% increase in revenues from SPINRAZA and a 35.4% increase in

revenues from our biosimilar business. Product revenues, net, compared to the

same period in 2018, further reflects the unfavorable impact of foreign

currency exchange of $53.0 million.

• Revenues from anti-CD20 therapeutic programs totaled $2,290.4 million for

2019, representing an increase of 15.7% over $1,980.2 million in 2018. This

increase was primarily due to an increase in royalty revenues on sales of

    OCREVUS.

• Other revenues totaled $707.7 million for 2019, representing an increase of

20.8% over $585.9 million in 2018. This increase was primarily due to higher

    revenues from our manufacturing and supply agreement with Bioverativ,
    partially offset by lower revenues from other contract manufacturing
    agreements.

• Total cost and expenses totaled $7,335.3 million for 2019, representing a

decrease of 3.0% from $7,564.3 million in 2018. This decrease was primarily

due to:

•         a 12.2% decrease in research and development expense, primarily due to
          the $482.6 million net charge recognized in 2018 upon the closing of
          the 2018 Ionis Agreement;

• a 34.4% decrease in amortization and impairment of acquired intangible

assets, primarily due to the $366.1 million impairment charges

recognized in 2018, which lowered amortization expense in subsequent

          periods, partially offset by the $215.9 million impairment charges
          recognized in 2019; and

• a net change in (gain) loss on fair value remeasurement of contingent

          consideration, primarily due to the gain recognized on the
          remeasurement of our continent consideration obligation related to the
          Phase 2b study of BG00011 for the potential treatment of IPF.

This decrease was partially offset by: • a 12.7% increase in selling, general and administrative expenses,

primarily due to increased commercial and medical investments as well

as the timing of spend on selling, general and administrative expense;

and

• a 7.7% increase in cost of sales, primarily due to our sales in 2019 to

Bioverativ of hemophilia-related inventory on hand as of December 31,

2018, and an increase in sales of products within our biosimilar

business.

• Net income attributable to Biogen Inc. was favorably impacted by a decrease

in our effective tax rate to 16.3% for the year ended December 31, 2019, from

24.2% for 2018, due in part to an internal reorganization of certain

intellectual property rights, the impact of Swiss Tax Reform and the 2018

    unfavorable impacts of U.S. Tax Reform.



                                       57

--------------------------------------------------------------------------------

Table of Contents

As described below under Financial Condition, Liquidity and Capital Resources: • We generated $7,078.6 million of net cash flows from operations for 2019,

which were primarily driven by earnings.

• Cash, cash equivalents and marketable securities totaled approximately

$5,884.0 million as of December 31, 2019.

• We repurchased and retired approximately 23.6 million shares of our common

stock at a cost of approximately $5.8 billion during 2019 under our March

2019 Share Repurchase Program and our 2018 Share Repurchase Program.

Acquisitions, Collaborative and Other Relationships
For additional information on our acquisitions, collaborative and other
relationships discussed below, please read Note 2, Acquisitions, Note 3,
Divestitures, Note 18, Collaborative and Other Relationships, and Note 19,
Investments in Variable Interest Entities, to our consolidated financial
statements included in this report.
Skyhawk Therapeutics, Inc.
In January 2019 we entered into a collaboration and research and development
services agreement with Skyhawk pursuant to which the companies are leveraging
Skyhawk's SkySTAR technology platform with the goal of discovering innovative
small molecule treatments for patients with neurological diseases, including MS
and SMA. In connection with this agreement, we made an upfront payment of $74.0
million to Skyhawk. We are responsible for the development and potential
commercialization of any therapies resulting from this collaboration. In October
2019 we amended this agreement to add an additional discovery program. In
connection with this amendment, we made a payment to Skyhawk of $15.0 million.
Acquisition of Nightstar Therapeutics plc
In June 2019 we completed our acquisition of all of the outstanding shares of
NST, a clinical-stage gene therapy company focused on AAV treatments for
inherited retinal disorders. As a result of this acquisition, we added two mid-
to late-stage clinical assets, as well as preclinical programs, in
ophthalmology. These assets include BIIB111, which is in Phase 3 development for
the potential treatment of CHM, a rare, degenerative, X-linked inherited retinal
disorder that leads to blindness and currently has no approved treatments, and
BIIB112 (RPGR gene therapy), which is in Phase 2/3 development for the potential
treatment of XLRP, which is a rare inherited retinal disease with no currently
approved treatments.

Under the terms of the acquisition, we paid NST shareholders $25.50 in cash for
each issued and outstanding NST share, which totaled $847.6 million.
Divestiture of Hillerød, Denmark Manufacturing Operations
In August 2019 we completed the sale of all of the outstanding shares of our
subsidiary that owned our biologics manufacturing operations in Hillerød,
Denmark to FUJIFILM. Upon the closing of this transaction, we received
approximately $881.9 million in cash, which may be adjusted based on other
contractual terms. In addition, we sold to FUJIFILM $41.8 million of raw
materials that were remaining at the Hillerød facility on the closing date of
this transaction.
Samsung Bioepis
In December 2019 we completed a transaction with Samsung Bioepis and secured the
exclusive rights to commercialize two potential ophthalmology biosimilar
products, SB11 referencing LUCENTIS and SB15 referencing EYLEA, in major markets
worldwide, including the U.S., Canada, Europe, Japan and Australia. We also
acquired an option to extend our existing commercial agreement with Samsung
Bioepis for BENEPALI, IMRALDI and FLIXABI in Europe and obtained exclusive
rights to commercialize these products in China. In connection with this
transaction, we made an upfront payment of $100.0 million to Samsung Bioepis.
BIIB080 Option Exercise
In December 2019 we exercised our option with Ionis and obtained a worldwide,
exclusive, royalty-bearing license to develop and commercialize BIIB080, an
investigational treatment for AD.
Pfizer Inc.
In January 2020 we entered into an agreement to acquire PF-05251749, a novel
CNS-penetrant small molecule inhibitor of CK1, for the potential treatment of
patients with behavioral and neurological symptoms across various psychiatric
and neurological diseases from Pfizer. In particular, we plan to develop the
Phase 1 asset for the treatment of sundowning in AD and ISWRD in Parkinson's
disease. This transaction is subject to customary closing conditions, including
the expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 in the U.S. We expect this transaction to
close in the first quarter of 2020.

                                       58

--------------------------------------------------------------------------------

Table of Contents

Other Key Developments
VUMERITY
In October 2019 the FDA approved VUMERITY for the treatment of RMS. Under the
terms of the license and collaboration agreement with Alkermes, we made
milestone payments totaling $155.0 million to Alkermes following the FDA's
approval of VUMERITY. In November 2019 VUMERITY became available in the U.S.
Aducanumab
In October 2019 we and our collaboration partner Eisai announced that we plan to
pursue regulatory approval for aducanumab in the U.S. and that the Phase 3
EMERGE study met its primary endpoint showing a significant reduction in
clinical decline. We believe that results from a subset of patients in the Phase
3 ENGAGE study who received sufficient exposure to high dose aducanumab support
findings from EMERGE. The decision to file is based on a new analysis, conducted
in consultation with the FDA, of a larger dataset from the Phase 3 EMERGE and
ENGAGE trials that were discontinued in March 2019 following a futility
analysis.
For additional information on our plans to file for regulatory approval for
aducanumab, please read the

subsection entitled "Financial Condition, Liquidity and Capital Resources"
included below.
Elenbecestat
In September 2019 we and our collaboration partner Eisai announced the decision
to discontinue the global Phase 3 studies (MISSION AD1 and MISSION AD2) of the
investigational oral BACE inhibitor elenbecestat in patients with early AD.
2019 Share Repurchase Programs
In March 2019 our Board of Directors authorized our March 2019 Share Repurchase
Program, which is a program to repurchase up to $5.0 billion of our common
stock. Our March 2019 Share Repurchase Program does not have an expiration date.
All share repurchases under our March 2019 Share Repurchase Program will be
retired.
In December 2019 our Board of Directors authorized our December 2019 Share
Repurchase Program, which is a program to repurchase up to $5.0 billion of our
common stock. Our December 2019 Share Repurchase Program does not have an
expiration date. All share repurchases under our December 2019 Share Repurchase
Program will be retired.
Results of Operations
Revenues
Revenues are summarized as follows:
                                        For the Years Ended                            % Change
                                            December 31,
(In millions, except                                                      2019 compared to   2018 compared to
percentages)                     2019           2018           2017             2018               2017
Product revenues, net:
United States                $  6,713.8     $  6,800.5     $  7,017.1         (1.3 )%            (3.1 )%
Rest of world                   4,666.0        4,086.3        3,337.6         14.2  %            22.4  %

Total product revenues, net 11,379.8 10,886.8 10,354.7

   4.5  %             5.1  %
Revenues from anti-CD20
therapeutic programs            2,290.4        1,980.2        1,559.2         15.7  %            27.0  %
Other revenues                    707.7          585.9          360.0         20.8  %            62.8  %
Total revenues               $ 14,377.9     $ 13,452.9     $ 12,273.9          6.9  %             9.6  %



                                       59

--------------------------------------------------------------------------------

Table of Contents

Product Revenues
Product revenues are summarized as follows:
                                      For the Years Ended                   

% Change

                                          December 31,
(In millions, except                                                    2019 compared     2018 compared
percentages)                   2019           2018           2017          to 2018           to 2017
Multiple Sclerosis (MS):
TECFIDERA                  $  4,432.7     $  4,274.1     $  4,214.0          3.7  %           1.4  %
Interferon*                   2,101.8        2,363.0        2,645.8        (11.1 )%         (10.7 )%
TYSABRI                       1,892.2        1,864.0        1,973.1          1.5  %          (5.5 )%
VUMERITY                          5.5              -              -           **               **
FAMPYRA                          97.1           92.7           91.6          4.7  %           1.2  %
ZINBRYTA                            -            1.4           52.7       (100.0 )%         (97.3 )%
Subtotal: MS product
revenues                      8,529.3        8,595.2        8,977.2         

(0.8 )% (4.3 )%

Spinal Muscular Atrophy:
SPINRAZA                      2,097.0        1,724.2          883.7         21.6  %          95.1  %

Biosimilars:
BENEPALI                        486.2          485.2          370.8          0.2  %          30.9  %
IMRALDI                         184.0           16.7              -      1,001.8  %            **
FLIXABI                          68.1           43.2            9.0         57.6  %         380.0  %
Subtotal: Biosimilar
product revenues                738.3          545.1          379.8         35.4  %          43.5  %

Other:
FUMADERM                         15.2           22.3           39.6        (31.8 )%         (43.7 )%

Hemophilia:
ELOCTATE                            -              -           48.4           **               **
ALPROLIX                            -              -           26.0           **               **
Subtotal: Hemophilia
product revenues                    -              -           74.4           **               **

Total product revenues,
net                        $ 11,379.8     $ 10,886.8     $ 10,354.7          4.5  %           5.1  %


* Interferon includes AVONEX and PLEGRIDY.
** Percentage not meaningful.

                                       60

--------------------------------------------------------------------------------

Table of Contents

Multiple Sclerosis
TECFIDERA
[[Image Removed: tecfiderarev.jpg]]
For 2019 compared to 2018, the 1.6% increase in U.S. TECFIDERA revenues was
primarily due to a slight net price increase, offset by a small decrease in unit
sales volume.
For 2019 compared to 2018, the 10.3% increase in rest of world TECFIDERA
revenues was primarily due to increases in unit sales volume of 14%, primarily
related to our European and Japanese markets, and the favorable impact of
foreign currency exchange of $16.5 million, partially offset by pricing
reductions in certain European countries.
In February 2020 the U.S. Patent Trial and Appeal Board (PTAB) decided that our
U.S. Patent No. 8,399,514 (the '514 Patent) is patentable. The '514 Patent
covers treatment of MS with 480 mg of dimethyl fumarate per day as provided for
in our TECFIDERA label. This decision may be appealed.
The '514 Patent has also been challenged pursuant to the Hatch-Waxman Act in the
U.S. District Courts of Delaware (the Delaware action) and West Virginia (the
West Virginia action). We are awaiting a decision in the Delaware action and the
trial in the West Virginia action is ongoing. If we receive an adverse judgment
in either U.S. District Court action, we will appeal but we may face generic
competition while our appeal is pending.
We will face TECFIDERA generic competition if an adverse PTAB or U.S. District
Court decision is reached on appeal. In addition, we have entered into
settlement agreements with some of the defendants in the Delaware action and we
now anticipate TECFIDERA generic competition before the '514 Patent expires in
February 2028. Generic competition

is expected to have an adverse impact on our TECFIDERA sales and our results of
operations. For additional information, please read Note 20, Litigation, to our
consolidated financial statements included in this report.
We anticipate an increase in TECFIDERA demand in rest of world in 2020, compared
to 2019, notwithstanding the increasing competition from additional treatments
for MS. We expect volume growth in our rest of world markets to offset volume
declines in the U.S.
Interferon
AVONEX and PLEGRIDY
[[Image Removed: interferonrev.jpg]]
For 2019 compared to 2018, the 14.5% decrease in U.S. Interferon revenues was
primarily due to a decrease in Interferon unit sales volumes of 13%, which was
primarily attributable to patients transitioning to other MS therapies and a net
price decrease.
For 2019 compared to 2018, the 2.8% decrease in rest of world Interferon
revenues was primarily due to pricing reductions in certain European countries.
We expect that Interferon revenues will continue to decline in both the U.S. and
rest of world markets in 2020, compared to 2019, as a result of increasing
competition from our other MS products as well as other treatments for MS,
including biosimilars, and pricing reductions in certain European markets.
AVONEX
For 2019, 2018 and 2017 U.S. AVONEX revenues totaled $1,202.1 million, $1,420.2
million and $1,593.6 million, respectively.

                                       61

--------------------------------------------------------------------------------

Table of Contents

For 2019, 2018 and 2017 rest of world AVONEX revenues totaled $463.8 million,
$495.3 million and $557.9 million, respectively.
PLEGRIDY
For 2019, 2018 and 2017 U.S. PLEGRIDY revenues totaled $224.5 million, $248.1
million and $295.5 million, respectively.
For 2019, 2018 and 2017 rest of world PLEGRIDY revenues totaled $211.4 million,
$199.4 million and $198.8 million, respectively.
TYSABRI
[[Image Removed: tysabrirev.jpg]]
For 2019 compared to 2018, the 1.6% increase in U.S. TYSABRI revenues was
primarily due to price increases, partially offset by a decrease in unit sales
volumes of 4%.
For 2019 compared to 2018, the 1.4% increase in rest of world TYSABRI revenues
was primarily due to an increase in unit sales volumes of 3%.
We anticipate TYSABRI demand to be stable on a global basis in 2020, compared to
2019, with expected volume declines in the U.S. due to increasing competition
from additional treatments for MS, including OCREVUS, offset by volume growth in
our rest of world markets, net of price reductions in certain rest of world
countries.


Spinal Muscular Atrophy
SPINRAZA
[[Image Removed: spinrazarev.jpg]]
For 2019 compared to 2018, the 9.3% increase in U.S. SPINRAZA revenues was
primarily due to increases in unit sales volume of 9%.
For 2019 compared to 2018, the 33.7% increase in rest of world SPINRAZA revenues
was primarily due to an increase in unit sales volumes of 69%, partially offset
by the unfavorable impact of foreign currency exchange of $43.5 million.
We expect that the rate at which SPINRAZA revenues will grow will moderate in
2020, compared to 2019, primarily due to a lower rate of new patient starts
combined with the impact of loading dose dynamics as patients transition to
dosing once every four months.
We face competition from a new gene therapy product that was approved in the
U.S. in May 2019 for the treatment of SMA. Additionally, we are aware of other
products in development that, if successfully developed and approved, may
compete with SPINRAZA in the SMA market, including potential oral products.
Future sales of SPINRAZA may be adversely affected by the commercialization of
competing products.
For additional information on our collaboration arrangements with Ionis, please
read Note 18, Collaborative and Other Relationships, to our consolidated
financial statements included in this report.

                                       62

--------------------------------------------------------------------------------

Table of Contents

Biosimilars

BENEPALI, IMRALDI and FLIXABI
[[Image Removed: biosimilarsrev.jpg]]
For 2019 compared to 2018, the 35.4% increase in biosimilar revenues was
primarily due to the launch of IMRALDI in the fourth quarter of 2018, partially
offset by the unfavorable impact of foreign currency exchange of $27.8 million.
In 2020 we expect strong revenue growth for our biosimilars business, primarily
driven by the continued launch of IMRALDI in Europe, partially offset by price
reductions in certain European countries.
In December 2019 we completed a transaction with Samsung Bioepis and secured the
exclusive rights to commercialize two potential ophthalmology biosimilars, SB11
referencing LUCENTIS and SB15 referencing EYLEA, in major markets worldwide,
including the U.S., Canada, Europe, Japan and Australia. We also acquired an
option to extend our existing commercial agreement with Samsung Bioepis for
BENEPALI, IMRALDI and FLIXABI in Europe and obtained exclusive rights to
commercialize these products in China.
For additional information on our collaboration arrangements with Samsung
Bioepis, please read Note 18, Collaborative and Other Relationships, to our
consolidated financial statements included in this report.

Revenues from Anti-CD20 Therapeutic Programs
Genentech Inc. (Roche Group)
Our share of RITUXAN, including RITUXAN HYCELA, and GAZYVA collaboration
operating profits in the U.S. and other revenues from anti-CD20 therapeutic
programs are summarized in the table below. For purposes of this discussion we
refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
[[Image Removed: anticd20revenue.jpg]]
Biogen's Share of Pre-tax Profits in the U.S. for RITUXAN and GAZYVA
The following table provides a summary of amounts comprising our share of
pre-tax profits in the U.S. for RITUXAN and GAZYVA:
                                          For the Years Ended
                                              December 31,
(In millions)                        2019         2018         2017
Product revenues, net             $ 4,747.4    $ 4,484.3    $ 4,206.9
Cost and expenses                     622.7        669.6        755.2

Pre-tax profits in the U.S. $ 4,124.7 $ 3,814.7 $ 3,451.7 Biogen's share of pre-tax profits $ 1,542.4 $ 1,431.9 $ 1,316.4

Our share of RITUXAN annual pre-tax co-promotion profits in the U.S. in excess
of $50.0 million decreased to 37.5% from 39% in the third quarter of 2017 as
gross sales of GAZYVA in the U.S.

                                       63

--------------------------------------------------------------------------------

Table of Contents

for the preceding 12-month period exceeded $150.0 million.
For 2019 compared to 2018, the increase in U.S. product revenues, net was
primarily due to increased net sales of RITUXAN in the U.S. of 5.0%, which
reflects an increase in unit sales volume of 3%, and selling price increases,
partially offset by higher rates in discounts and allowances.
The increase in U.S. product revenues, net over 2018 also reflects an increase
in GAZYVA unit sales volume of 21%.
For 2019 compared to 2018, the decrease in collaboration costs and expenses was
primarily due to lower cost of sales and lower selling and marketing costs on
RITUXAN and lower Branded Pharmaceutical Drug fee expenses for RITUXAN and
GAZYVA.
We are aware of anti-CD20 molecules, including biosimilar products, in
development that if successfully developed and approved, could compete with
RITUXAN and GAZYVA in the oncology market. The introduction of a biosimilar
product can result in a significant reduction in net sales for the relevant
product, as other manufacturers typically offer their versions at lower prices.
In November 2019 and January 2020 biosimilar products referencing RITUXAN were
launched in the U.S. and this could adversely affect the pre-tax profits of our
collaboration arrangements with Genentech, which could, in turn, adversely
affect our co-promotion profits in the U.S. in future years.
Other Revenues from Anti-CD20 Therapeutic Programs
Other revenues from anti-CD20 therapeutic programs consist of royalty revenues
on sales of OCREVUS and our share of pre-tax co-promotion profits from RITUXAN
in Canada.

For 2019 compared to 2018, the increase in other revenues from anti-CD20
therapeutic programs was primarily due to the sales growth of OCREVUS. Royalty
revenues recognized on sales of OCREVUS for the years ended December 31, 2019,
2018 and 2017, totaled $687.5 million, $478.3 million and $159.3 million,
respectively.
OCREVUS royalty revenues are based on our estimates from third party and market
research data of OCREVUS sales occurring during the corresponding period.
Differences between actual and estimated royalty revenues will be adjusted for
in the period in which they become known, which is expected to be the following
quarter.
In March 2017 the FDA approved OCREVUS for the treatment of RMS and PPMS.
Pursuant to the terms of our collaboration arrangements with Genentech, we
receive a tiered royalty on U.S. net sales from 13.5% and increasing up to 24%
if annual net sales exceed $900.0 million. There will be a 50% reduction to
these royalties if a biosimilar to OCREVUS is approved in the U.S.
In addition, we receive a gross 3% royalty on net sales of OCREVUS outside the
U.S., with the royalty period lasting 11 years from the first commercial sale of
OCREVUS on a country-by-country basis. OCREVUS has been approved for the
treatment of RMS and PPMS in the E.U. and certain other countries.
The commercialization of OCREVUS does not impact the percentage of the
co-promotion profits we receive for RITUXAN or GAZYVA. Genentech is solely
responsible for development and commercialization of OCREVUS and funding future
costs. Genentech cannot develop OCREVUS in CLL, non-Hodgkin's lymphoma or
rheumatoid arthritis.
For additional information on our relationship with Genentech, including
information regarding the pre-tax profit-sharing formula and its impact on
future revenues from anti-CD20 therapeutic programs, please read Note 18,
Collaborative and Other Relationships, to our consolidated financial statements
included in this report.
Other Revenues
Other revenues are summarized as follows:
                                           For The Years                    

% Change

                                         Ended December 31,
(In millions, except                                                      2019 compared    2018 compared
percentages)                     2019           2018           2017          to 2018          to 2017
Revenues from collaborative
and other relationships      $    106.2     $     87.8     $     36.5         21.0 %          140.5 %
Other royalty and corporate
revenues                          601.5          498.1          323.5         20.8 %           54.0 %
Total other revenues         $    707.7     $    585.9     $    360.0         20.8 %           62.8 %



                                       64

--------------------------------------------------------------------------------

Table of Contents

Revenues from Collaborative and Other Relationships
Revenues from collaborative and other relationships primarily include revenues
from our technical development services and manufacturing agreements with
Samsung Bioepis and royalty revenues on biosimilar products from Samsung
Bioepis.
Following the divestiture of our Hillerød, Denmark manufacturing operations in
August 2019, FUJIFILM assumed responsibility for the manufacture of clinical and
commercial quantities of bulk drug substance of biosimilar products for Samsung
Bioepis. We no longer recognize revenues for the manufacturing completed after
the divestiture date under our technical development services and manufacturing
agreements with Samsung Bioepis.
For the years ended December 31, 2019 and 2018, we recognized $106.2 million and
$96.4 million, respectively, related to the services described above provided to
Samsung Bioepis.
For additional information on our collaborative and other relationships,
including revenues recognized under our technical development services and
manufacturing agreements with Samsung Bioepis, please read Note 18,
Collaborative and Other Relationships, to our consolidated financial statements
included in this report.
Other Royalty and Corporate Revenues
[[Image Removed: otherrev.jpg]]
We receive royalties from net sales on products related to patents that we have
out-licensed and we record other corporate revenues primarily from amounts
earned under contract manufacturing agreements.

For 2019 compared to 2018, the increase in other royalty and corporate revenues
was primarily due to $383.2 million in revenues recognized in 2019 under the
manufacturing and supply agreement with Bioverativ entered into in connection
with the spin-off of our hemophilia business, compared to $206.7 million
recognized in 2018. The increase in Bioverativ revenues in 2019 over the prior
year period was due to our sales in 2019 of hemophilia-related inventory on hand
as of December 31, 2018. The increase in corporate revenues was partially offset
by the reduction in royalty revenues due to the expiration of certain of our
patents and a reduction in revenues from contract manufacturing agreements,
other than Bioverativ, as discussed above.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of reserves established for
applicable discounts and allowances, including those associated with the
implementation of pricing actions in certain international markets where we
operate.
These reserves are based on estimates of the amounts earned or to be claimed on
the related sales and are classified as reductions of accounts receivable (if
the amount is payable to our customer) or a liability (if the amount is payable
to a party other than our customer). These estimates reflect our historical
experience, current contractual and statutory requirements, specific known
market events and trends, industry data and forecasted customer buying and
payment patterns. Actual amounts may ultimately differ from our estimates. If
actual results vary, we adjust these estimates, which could have an effect on
earnings in the period of adjustment.

                                       65

--------------------------------------------------------------------------------

Table of Contents

Reserves for discounts, contractual adjustments and returns that reduced gross product revenues are summarized as follows:

                   [[Image Removed: reservesdisandallow.jpg]]
For the years ended December 31, 2019, 2018 and 2017, reserves for discounts and
allowances as a percentage of gross product revenues were 24.3%, 23.7% and
22.0%, respectively.
Discounts
Discounts include trade term discounts and wholesaler incentives.
For 2019 compared to 2018, discounts were relatively consistent.

Contractual Adjustments
Contractual adjustments primarily relate to Medicaid and managed care rebates,
co-payment assistance (copay), VA and PHS discounts, specialty pharmacy program
fees and other government rebates or applicable allowances.
For 2019 compared to 2018, the increase in contractual adjustments was primarily
due to higher managed care rebates and governmental rebates in the U.S. as well
as higher governmental rebates and allowances in the rest of world, due in part
to an increase in SPINRAZA sales volumes worldwide.
Returns
Product return reserves are established for returns made by wholesalers. In
accordance with contractual terms, wholesalers are permitted to return product
for reasons such as damaged or expired product. The majority of wholesaler
returns are due to product expiration. Provisions for product returns are
recognized in the period the related revenue is recognized, resulting in a
reduction to product sales.
For 2019 compared to 2018, return reserves were relatively consistent.
For additional information on our revenue reserves, please read Note 4,
Revenues, to our consolidated financial statements included in this report.

                                       66

--------------------------------------------------------------------------------

Table of Contents

Cost and Expenses
A summary of total cost and expenses is as follows:
                                        For the Years Ended                 

% Change

                                            December 31,
(In millions, except                                                       2019 compared     2018 compared
percentages)                     2019           2018           2017           to 2018           to 2017
Cost of sales, excluding
amortization and impairment
of acquired intangible
assets                       $  1,955.4     $  1,816.3     $  1,630.0          7.7  %           11.4  %
Research and development        2,280.6        2,597.2        2,253.6        (12.2 )%           15.2  %
Selling, general and
administrative                  2,374.7        2,106.3        1,933.9         12.7  %            8.9  %
Amortization and impairment
of acquired intangible
assets                            489.9          747.3          814.7        (34.4 )%           (8.3 )%
Collaboration profit (loss)
sharing                           241.6          185.0          112.3         30.6  %           64.7  %
Loss on divestiture of
Hillerød, Denmark
manufacturing operations           55.3              -              -           **                **
(Gain) loss on fair value
remeasurement of contingent
consideration                     (63.7 )        (12.3 )         62.7        417.9  %         (119.6 )%
Acquired in-process research
and development                       -          112.5          120.0       (100.0 )%           (6.3 )%
Restructuring charges               1.5           12.0            0.9        (87.5 )%             **

Total cost and expenses $ 7,335.3 $ 7,564.3 $ 6,928.1

  (3.0 )%            9.2  %


                                                   ** Percentage not meaningful.
Cost of Sales, Excluding Amortization and Impairment of Acquired Intangible
Assets (Cost of Sales)
[[Image Removed: cogs.jpg]]
Cost of sales, as a percentage of total revenues, were 13.6%, 13.5% and 13.3%
for the years ended December 31, 2019, 2018 and 2017, respectively.

Product Cost of Sales
For 2019 compared to 2018, the increase in product cost of sales was primarily
due to our sale in 2019 to Bioverativ of hemophilia-related inventory on hand as
of December 31, 2018, with a cost basis totaling $184.5 million pursuant to the
terms of the manufacturing and supply agreement with Bioverativ

entered into in connection with the spin-off of our hemophilia business.
Additionally, the increase in product cost of sales was attributable to an
increase in sales of products within our biosimilar business and an increase in
inventory amounts written down as a result of excess, obsolescence,
unmarketability or other reasons, partially offset by lower cost of sales from
our contract manufacturing agreements, except Bioverativ, as discussed above.
Inventory amounts written down as a result of excess, obsolescence,
unmarketability or other reasons totaled $52.2 million, $41.9 million and $76.9
million for the years ended December 31, 2019, 2018 and 2017, respectively.
Royalty Cost of Sales
For 2019 compared to 2018, the decrease in royalty cost of sales was primarily
due to a decrease in royalties payable on sales of TYSABRI resulting from the
expiration of certain third party royalties, partially offset by increased
royalties payable on higher sales of SPINRAZA and IMRALDI.

                                       67

--------------------------------------------------------------------------------

Table of Contents

Research and Development
[[Image Removed: researchanddevelopment.jpg]]

[[Image Removed: researchanddev.jpg]]
We support our drug discovery and development efforts through the commitment of
significant resources to discovery, research and development programs and
business development opportunities.
A significant amount of our research and development costs consist of indirect
costs incurred in support of overall research and development activities and
non-specific programs, including activities that benefit multiple programs, such
as management costs, as well as depreciation, information technology and
facility-based expenses. These costs are considered other research and
development costs in the table above and are not allocated to a specific program
or stage.
Research and development expense incurred in support of our marketed products
includes costs associated with product lifecycle management activities
including, if applicable, costs associated with the development of new
indications for existing products. Late stage programs are programs in Phase 3
development or in registration stage. Early stage programs are programs in Phase
1 or Phase 2 development. Research and discovery represents costs incurred to
support our discovery research and translational science efforts. Costs are
reflected in the development stage based upon the program status when incurred.
Therefore, the same program could be reflected in different development stages
in the same year. For several of our programs, the research and development
activities are part of our collaborative and other relationships. Our costs
reflect our share of the total costs incurred.

                                       68

--------------------------------------------------------------------------------

Table of Contents

For 2019 compared to 2018, the decrease in research and development expense was
primarily due to a decrease in milestone and upfront expenses and a decrease in
other research and development costs. These decreases were partially offset by
increases in costs incurred in connection with our early stage programs and
marketed products.
We intend to continue committing significant resources to targeted research and
development opportunities where there is a significant unmet need and where a
drug candidate has the potential to be highly differentiated.
Milestone and Upfront Expenses
Research and development expense for 2019 includes:
•    $63.0 million charge to research and development expense upon the completion
     of a transaction with Samsung Bioepis to secure the exclusive rights to
     commercialize two potential ophthalmology biosimilar products;

• $45.0 million charge to research and development expense upon the exercise

of our option to obtain a worldwide, exclusive, royalty-bearing license from

Ionis to develop and commercialize BIIB080; and

• $46.5 million charge to research and development expense consisting of a

$38.5 million charge upon the entering into a collaboration and research and

development services agreement with Skyhawk and an approximately $8.0

million charge upon entering into an amendment to this agreement to add an

additional discovery program.

Research and development expense for 2018 includes: • $486.2 million net charge to research and development expense upon the

     closing of the 2018 Ionis Agreement; and

• $35.0 million charge to research and development expense upon the exercise

of our option to obtain a worldwide, exclusive, royalty-bearing license from

Ionis to develop and commercialize tofersen in ALS.

These payments are classified as research and development expense as the
programs they relate to had not achieved regulatory approval as of the payment
date.
For additional information about these collaboration arrangements, please read
Note 18, Collaborative and Other Relationships, to our consolidated financial
statements included in this report.

Early Stage Programs
For 2019 compared to 2018, the increase in spending related to our early stage
programs was primarily due to an increase in costs associated with:
• gosuranemab in PSP and AD pursuant to our license agreement with BMS;

• cinpanemab in Parkinson's disease;

• BIIB112 in XLRP;


• BIIB104 in CIAS;

• BIIB078 (IONIS-C9Rx) in ALS;

• BIIB091 in MS;

• BIIB110 (ActRIIA/B ligand trap) in SMA; and

• our decision in September 2019 to discontinue the Phase 2b study of BG00011

for the potential treatment of IPF, for which we incurred a one-time close

out charge of approximately $10.0 million.

These increases were partially offset by a decrease in costs associated with: • the development of vixotrigine (BIIB074) in trigeminal neuralgia (TGN);

• tofersen in ALS, which was advanced to a late stage program in the first

     quarter of 2019;


•    our decision in December 2018 to discontinue development of BIIB087, an
     investigational AAV-based gene therapy for the potential treatment of
     X-linked retinoschisis, and BIIB088, an investigational AAV-based gene
     therapy for the potential treatment of XLRP, upon the termination of our
     collaboration agreement with Applied Genetic Technologies Corporation; and

• BIIB093 in LHI, which was advanced to a late stage program in the third

     quarter of 2018.


Late Stage Programs
For 2019 compared to 2018, the decrease in spending associated with our late
stage programs was primarily due to a decrease in spending related to the
discontinuation of the global Phase 3 trials, ENGAGE and EMERGE, of aducanumab,
net of Eisai reimbursement. This decrease was partially offset by increases in
spending related to:
•    our share of the termination costs of approximately $48.0 million resulting

from the decision to discontinue the global Phase 3 studies of elenbecestat

in AD;

• BAN2401 in early AD pursuant to our collaboration arrangement with Eisai,

which was advanced to a late stage program in the first quarter of 2019;

                                       69

--------------------------------------------------------------------------------

Table of Contents

• tofersen in ALS, which was advanced to a late stage program in the first

quarter of 2019;

• BIIB093 in LHI, which was advanced to a late stage program in the third

     quarter of 2018; and


• BIIB111 in CHM.


Selling, General and Administrative
[[Image Removed: sellinggeneralandadmin.jpg]]
For 2019 compared to 2018, the increase in selling, general and administrative
expenses was primarily due to increased commercial and medical investments as
well as the timing of spend on selling, general and administrative expense.
In 2020 we expect selling, general and administrative costs, including increases
in headcount and other commercial infrastructure, to significantly increase as
we support pre-launch activities associated with the potential regulatory
approval of aducanumab.
Amortization and Impairment of Acquired Intangible Assets
[[Image Removed: amortofacquireintang.jpg]]
Our amortization expense is based on the economic consumption and impairment of
intangible assets. Our most significant intangible assets are related to our
TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products

and other programs acquired through business combinations.
Amortization and impairment of acquired intangible assets for the year ended
December 31, 2019, was impacted by the 2019 impairment charges of $215.9 million
related to certain IPR&D assets associated with the Phase 2b study of BG00011
for the potential treatment of IPF, which was discontinued in the third quarter
of 2019.
Amortization and impairment of acquired intangible assets for the year ended
December 31, 2018, was impacted by the 2018 impairment charges of $189.3 million
related to certain IPR&D assets associated with our vixotrigine program and
$176.8 million related to our intangible assets associated with our U.S. license
to Forward Pharma's intellectual property, including Forward Pharma's
intellectual property related to TECFIDERA.
Amortization of acquired intangible assets, excluding impairment charges,
totaled $274.0 million, $381.2 million and $455.3 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
For 2019 compared to 2018, the decrease in amortization of acquired intangible
assets, excluding impairment charges, was primarily due to a lower rate of
amortization for acquired intangible assets, primarily due to prior year
impairments.
We monitor events and expectations regarding product performance. If new
information indicates that the assumptions underlying our most recent analysis
are substantially different than those utilized in our current estimates, our
analysis would be updated and may result in a significant change in the
anticipated lifetime revenues of the relevant products. The occurrence of an
adverse event could substantially increase the amount of amortization expense
related to our acquired intangible assets as compared to previous periods or our
current expectations, which may result in a significant negative impact on our
future results of operations.
IPR&D related to Business Combinations
IPR&D represents the fair value assigned to research and development assets that
we acquired as part of a business combination and had not yet reached
technological feasibility at the date of acquisition. We review amounts
capitalized as acquired IPR&D for impairment annually, as of October 31, and
whenever events or changes in circumstances indicate to us that the carrying
value of the assets might not be recoverable.
BG00011

                                       70

--------------------------------------------------------------------------------

Table of Contents

During the third quarter of 2019 we discontinued the Phase 2b study of BG00011
for the potential treatment of IPF due to safety concerns. As a result, we
recognized an impairment charge of approximately $215.9 million during the third
quarter of 2019 to reduce the fair value of the IPR&D intangible asset to zero.
We also adjusted the value of our contingent consideration obligations related
to this asset resulting in a gain of $61.2 million in the third quarter of 2019.
Vixotrigine
During the third quarter of 2018 we completed a Phase 2b study of vixotrigine
for the potential treatment of painful lumbosacral radiculopathy (PLSR). The
study did not meet its primary or secondary efficacy endpoints and we
discontinued development of vixotrigine for the potential treatment of PLSR. As
a result, we recognized an impairment charge of approximately $60.0 million
during the third quarter of 2018 to reduce the fair value of the related IPR&D
intangible asset to zero.
In addition, we delayed the initiation of the Phase 3 studies of vixotrigine for
the potential treatment of TGN as we awaited the outcome of ongoing interactions
with the FDA regarding the design of the Phase 3 studies, a more detailed review
of the data from the Phase 2b study of vixotrigine for the potential treatment
of PLSR and insights from the Phase 2 study of vixotrigine for the potential
treatment of small fiber neuropathy. We reassessed the fair value of the TGN
program using reduced expected lifetime revenues, higher expected clinical
development costs and lower cumulative probability of success. As a result of
that reassessment, we recognized an impairment charge of $129.3 million during
the third quarter of 2018 to reduce the fair value of the TGN IPR&D intangible
asset to $41.8 million.
The TGN program has experienced numerous delays in development in the periods
since we acquired the program and the fair value of this asset is not
significantly in excess of carrying value. In addition, we are currently testing
vixotrigine in another mid-stage clinical trial, in a different neuropathic pain
indication, for which we also have an IPR&D asset. Data from that trial is
expected in the first half of 2020. This data may affect the economic value of
vixotrigine and the IPR&D assets for one or both programs could be impaired if
assumptions used in determining their fair value change.
Overall, the value of our acquired IPR&D assets is dependent upon several
variables, including estimates of future revenues and the effects of
competition, our ability to secure sufficient pricing in a competitive market,
our ability to confirm safety and

efficacy based on data from clinical trials and regulatory feedback, the level
of anticipated development costs and the probability and timing of successfully
advancing a particular research program from one clinical trial phase to the
next. We are continually reevaluating our estimates concerning these and other
variables, including our life cycle management strategies, research and
development priorities and development risk, changes in program and portfolio
economics and related impact of foreign currency exchange rates and economic
trends and evaluating industry and company data regarding the productivity of
clinical research and the development process. Changes in our estimates and
prioritization of these programs may result in a significant change to our
valuation of our IPR&D assets.
TECFIDERA License Rights
In January 2017 we entered into a settlement and license agreement among Biogen
Swiss Manufacturing GmbH, Biogen International Holding Ltd., Forward Pharma and
certain related parties, which was effective as of February 1, 2017. Pursuant to
this agreement, we obtained U.S. and rest of world licenses to Forward Pharma's
intellectual property, including Forward Pharma's intellectual property related
to TECFIDERA. In exchange, we paid Forward Pharma $1.25 billion in cash, of
which $795.2 million was recorded within intangible assets in the first quarter
of 2017.
We had an intellectual property dispute with Forward Pharma in the U.S.
concerning intellectual property related to TECFIDERA.
In March 2017 the U.S. intellectual property dispute was decided in our favor.
Forward Pharma appealed to the U.S. Court of Appeals for the Federal Circuit. We
evaluated the recoverability of the U.S. asset acquired from Forward Pharma and
recorded a $328.2 million impairment charge in the first quarter of 2017 to
adjust the carrying value of the acquired U.S. asset to fair value reflecting
the impact of the developments in the U.S. legal dispute and continued to
amortize the remaining net book value of the U.S. intangible asset in our
consolidated statements of income utilizing an economic consumption model. The
U.S. Court of Appeals for the Federal Circuit upheld the USPTO's March 2017
ruling and in January 2019 denied Forward Pharma's petition for rehearing. We
evaluated the recoverability of the U.S. asset based upon these most recent
developments and recorded a $176.8 million impairment charge in the fourth
quarter of 2018 to reduce the remaining net book value of the U.S. asset to
zero.
We have an intellectual property dispute with Forward Pharma in the E.U.
concerning intellectual property related to TECFIDERA.

                                       71

--------------------------------------------------------------------------------

Table of Contents

In March 2018 the European Patent Office (EPO) revoked Forward Pharma's European
Patent No. 2 801 355. Forward Pharma has filed an appeal to the Technical Boards
of Appeal of the EPO and a hearing has been set for June 2020. Based upon our
assessment of this ruling, we continue to amortize the remaining net book value
of the rest of world intangible asset in our consolidated statements of income
utilizing an economic consumption model. The remaining net book value of the
TECFIDERA rest of world intangible asset as of December 31, 2019, was $36.1
million.
For additional information on the dispute with Forward Pharma in the E.U.,
please read Note 20, Litigation, to our consolidated financial statements
included in this report.
For additional information on the amortization and impairment of acquired
intangible assets, please read Note 6, Intangible Assets and Goodwill, to our
consolidated financial statements included in this report.
Collaboration Profit (Loss) Sharing
[[Image Removed: collaborationprofitshare.jpg]]
Collaboration profit (loss) sharing primarily includes Samsung Bioepis' 50%
share of the profit or loss related to our biosimilars commercial agreement with
Samsung Bioepis.
For 2019, 2018 and 2017 we recognized a net profit-sharing expense of $241.6
million, $187.4 million and $111.0 million, respectively, to reflect Samsung
Bioepis' 50% sharing of the net collaboration profits. The increases in
profit-sharing expense for the comparative periods were primarily due to
increased collaboration profits resulting from increased biosimilar sales.
For additional information on our collaboration arrangements with Samsung
Bioepis, please read Note 18, Collaborative and Other Relationships, to our
consolidated financial statements included in this report.

Loss on Divestiture of Hillerød, Denmark Manufacturing Operations
[[Image Removed: lossondivestitureofdenmark.jpg]]
Divestiture of Hillerød, Denmark Manufacturing Operations
In August 2019 we completed the sale of all of the outstanding shares of our
subsidiary that owned our biologics manufacturing operations in Hillerød,
Denmark to FUJIFILM. Upon the closing of this transaction, we received
approximately $881.9 million in cash, which may be adjusted based on other
contractual terms, which are discussed below. We determined that the operations
disposed of in this transaction did not meet the criteria to be classified as
discontinued operations under the applicable guidance.
As part of this transaction, we have provided FUJIFILM with certain minimum
batch production commitment guarantees. There is a risk that the minimum
contractual batch production commitments will not be met. Based upon current
estimates we expect to incur an adverse commitment obligation of approximately
$74.0 million associated with such guarantees and have accrued for this
obligation. We may adjust this estimate based upon changes in business
conditions, which may result in the increase or reduction of this adverse
commitment obligation in subsequent periods. We also may be obligated to
indemnify FUJIFILM for liabilities that existed relating to certain business
activities incurred prior to the closing of this transaction.
In addition, we may earn certain contingent payments based on future
manufacturing activities at the Hillerød facility. For the disposition of a
business, our policy is to recognize contingent consideration when the
consideration is realizable. We currently believe the probability of earning
these payments is remote and therefore we did not include these contingent
payments in our calculation of the fair value of the operations.

                                       72

--------------------------------------------------------------------------------

Table of Contents

As part of this transaction, we entered into certain manufacturing services
agreements with FUJIFILM pursuant to which FUJIFILM will use the Hillerød
facility to produce commercial products for us, such as TYSABRI, as well as
other third-party products.
In connection with this transaction, we recognized a total net loss of
approximately $164.4 million in our consolidated statements of income. This loss
included a pre-tax loss of $95.5 million, which was recorded in loss on
divestiture of Hillerød, Denmark manufacturing operations. The loss recognized
was based on exchange rates and business conditions on the closing date of this
transaction, and included costs to sell our Hillerød, Denmark manufacturing
operations of approximately $11.2 million and our estimate of the fair value of
an adverse commitment of approximately $114.0 million associated with the
guarantee of future minimum batch production at the Hillerød facility. The value
of this adverse commitment was determined using a probability-weighted estimate
of future manufacturing activity. We also recorded a tax expense of $68.9
million related to this transaction. During the fourth quarter of 2019 we
recorded a $40.2 million reduction in our estimate of the future minimum batch
commitment utilizing our current manufacturing forecast, which reflects the
impact of forecasted aducanumab batches, resulting in a reduction in the pre-tax
loss on divestiture from $95.5 million to $55.3 million.
Our estimate of the fair value of the adverse commitment is a Level 3
measurement and is based on forecasted batch production at the Hillerød
facility.
For additional information on the divestiture of our Hillerød, Denmark
manufacturing operations, please read Note 3, Divestitures, to our consolidated
financial statements included in this report.
(Gain) Loss on Fair Value Remeasurement of Contingent Consideration
[[Image Removed: fvremeasurementcc.jpg]]

Consideration payable for certain of our business combinations includes future
payments that are contingent upon the occurrence of a particular event or
events. We record an obligation for such contingent consideration payments at
fair value on the acquisition date. We then revalue our contingent consideration
obligations each reporting period. Changes in the fair value of our contingent
consideration obligations, other than changes due to payments, are recognized as
a (gain) loss on fair value remeasurement of contingent consideration in our
consolidated statements of income.
The gain on fair value remeasurement of contingent consideration for 2019 was
primarily due to the discontinuation of the Phase 2b study of BG00011 for the
potential treatment of IPF, partially offset by changes in the probability and
expected timing of achievement of certain developmental milestones, a decrease
in interest rates used to revalue our contingent consideration liabilities and
the passage of time.
The gain on fair value remeasurement of contingent consideration for 2018 was
primarily due to delays in the expected timing of achievement of milestones
related to our vixotrigine program for the potential treatment of TGN and an
increase in discount rates used to revalue our contingent consideration
liabilities, partially offset by the passage of time.
The loss on fair value remeasurement of contingent consideration for 2017 was
primarily due to the increase in the probability of achieving certain
developmental milestones based upon the progression of the underlying clinical
programs.
For additional information on our IPR&D intangible assets related to our
discontinued BG00011 program for the potential treatment of IPF and our
vixotrigine program for the potential treatment of TGN, please read Note 6,
Intangible Assets and Goodwill, to our consolidated financial statements
included in this report.

                                       73

--------------------------------------------------------------------------------

Table of Contents

Acquired In-Process Research and Development
[[Image Removed: acquirediprd.jpg]]
BIIB110 Acquisition
In July 2018 we acquired BIIB110 and ALG-802 from AliveGen Inc. (AliveGen).
BIIB110 and ALG-802 represent novel ways of targeting the myostatin pathway. In
connection with the closing of this transaction, we made an upfront payment of
$27.5 million to AliveGen, which was recorded as acquired IPR&D in our
consolidated statements of income as BIIB110 has not yet reached technological
feasibility.
BIIB104 Acquisition
In April 2018 we acquired BIIB104 from Pfizer. BIIB104 is a first-in-class,
Phase 2b AMPA receptor potentiator for CIAS. In connection with the closing of
this transaction, we made an upfront payment of $75.0 million to Pfizer, which
was recorded as acquired IPR&D in our consolidated statements of income as
BIIB104 has not yet reached technological feasibility.
BIIB100 Acquisition
In January 2018 we acquired BIIB100 from Kayropharm Therapeutics Inc.
(Karyopharm). BIIB100 is a Phase 1 investigational oral compound for the
treatment of certain neurological and neurodegenerative diseases, primarily in
ALS. In connection with the closing of this transaction, we made an upfront
payment of $10.0 million to Karyopharm, which was recorded as acquired IPR&D in
our consolidated statements of income as BIIB100 has not yet reached
technological feasibility.
BIIB093 Acquisition
In May 2017 we acquired BIIB093 from Remedy Pharmaceuticals Inc. (Remedy). In
connection with the closing of this transaction, we made an upfront payment of
$120.0 million to Remedy, which was

recorded as acquired IPR&D in our consolidated statements of income as BIIB093
had not yet reached technological feasibility.
For additional information on our acquisitions of BIIB110, BIIB104, BIIB100 and
BIIB093, please read Note 2, Acquisitions, to our consolidated financial
statements included in this report.
Other Income (Expense), Net
[[Image Removed: otherincomeexpense.jpg]]
Effective January 1, 2018, other income (expense) reflects the recognition of
net gains (losses) recorded in relation to changes in the fair value of our
strategic investments following our adoption of Accounting Standards Update
(ASU) No. 2016-01, Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. Prior
to the adoption of this standard, we recognized changes in fair value of our
strategic investment in accumulated other comprehensive income (loss), net.
Changes in the fair value of our strategic investments could have a significant
impact on our results of operations in any given period.
For 2019 compared to 2018, the change in other income (expense), net primarily
reflects net gains totaling $204.7 million recognized on our investments related
to our holdings in equity and debt securities, compared to net gains totaling
$119.5 million in 2018. The net gains recognized during the year ended
December 31, 2019, primarily reflect an increase in the fair value in our
investment in Ionis common stock from December 31, 2018, partially offset by the
net loss recognized on our sale of a portion of our investment in Ionis common
stock during the second and third quarters of 2019 reflecting the decrease in
the fair value of the shares sold from March 31, 2019.
Proceeds from our sale of a portion of our investment in Ionis common stock
during the year ended December 31, 2019, totaled approximately

                                       74

--------------------------------------------------------------------------------

Table of Contents

$382.0 million. The original cost basis upon acquisition in June 2018 for the
shares sold during the year ended December 31, 2019, totaled approximately
$312.5 million.
Net gains recognized on our investments related to our holdings in equity and
debt securities for the year ended December 31, 2019, also reflects an increase
in the fair value of an investment in a non-marketable equity security from
December 31, 2018, that was realized for a net gain of approximately $87.7
million upon sale in the second quarter of 2019.
Income Tax Provision
[[Image Removed: incometaxprovision.jpg]]
Our effective tax rate fluctuates from year to year due to the global nature of
our operations. The factors that most significantly impact our effective tax
rate include changes in tax laws, variability in the allocation of our taxable
earnings among multiple jurisdictions, the amount and characterization of our
research and development expenses, the levels of certain deductions and credits,
acquisitions and licensing transactions.
For the year ended December 31, 2019, as compared to 2018, the decrease in our
effective tax rate was primarily due to the combination of the internal
reorganization of certain intellectual property rights and the impact of Swiss
Tax Reform. This decrease was partially offset by a $68.9 million tax expense
related to the divestiture of our subsidiary that owned our Hillerød, Denmark
manufacturing operations. We also had a higher effective tax rate in 2018
resulting from the unfavorable effects of the 2017 Tax Act and our sale of
inventory, the tax effect of which had been included within prepaid taxes at

January 1, 2018, at a higher effective tax rate than the 2018 statutory tax
rate.
For additional information on the divestiture of our Hillerød, Denmark
manufacturing operations, please read Note 3, Divestitures, to our consolidated
financial statements included in this report.
Accounting for Uncertainty in Income Taxes
For additional information on our uncertain tax positions and income tax rate
reconciliation for 2019, 2018 and 2017, please read Note 16, Income Taxes, to
our consolidated financial statements included in this report.
Equity in Loss of Investee, Net of Tax
[[Image Removed: equityinlossofinvestee.jpg]]
In February 2012 we entered into a joint venture agreement with Samsung
BioLogics, establishing an entity, Samsung Bioepis, to develop, manufacture and
market biosimilar products.
In June 2018 we exercised our option under our joint venture agreement to
increase our ownership percentage in Samsung Bioepis from approximately 5% to
approximately 49.9%. The share purchase transaction was completed in November
2018 and, upon closing, we paid 759.5 billion South Korean won ($676.6 million)
to Samsung BioLogics. As of December 31, 2019, our ownership percentage remained
at approximately 49.9%

We recognize our share of the results of operations related to our investment in
Samsung Bioepis under the equity method of accounting one quarter in arrears
when the results of the entity become available, which is reflected as equity in
income (loss) of investee, net of tax in our consolidated statements of income.
During 2015, as our share of losses exceeded the carrying value of our
investment, we suspended recognizing additional losses. In the first quarter of
2019 we restarted recognizing our share of Samsung Bioepis' income (losses), and
we began recognizing amortization on

                                       75

--------------------------------------------------------------------------------

Table of Contents

certain basis differences resulting from our November 2018 investment.
Our joint venture partner, Samsung BioLogics, is currently subject to an ongoing
criminal investigation that we continue to monitor. While this investigation
could impact the operations of Samsung Bioepis and its business, we have
assessed the value of our investment in Samsung Bioepis and continue to believe
that the fair value of the investment is in excess of its net book value.
For the year ended December 31, 2019, equity in loss of investee, net of tax
reflects our share of losses totaling $1.2 million and amortization of basis
differences totaling $78.2 million.
For additional information on our collaboration arrangements with Samsung
Bioepis, please read Note 18, Collaborative and Other Relationships, to our
consolidated financial statements included in this report.


Noncontrolling Interests, Net of Tax
[[Image Removed: nci.jpg]]
For 2018 net income attributable to noncontrolling interests, net of tax, was
primarily related to a $50.0 million pre-tax payment made to Neurimmune to
reduce the previously negotiated royalty rates payable on products developed
under the Neurimmune Agreement, including royalties payable on potential
commercial sales of aducanumab, by 5%.
For 2017 net income attributable to noncontrolling interests, net of tax, was
primarily related to a $150.0 million pre-tax payment made to Neurimmune to
reduce the previously negotiated royalty rates payable on products developed
under the Neurimmune Agreement, including royalties payable on potential
commercial sales of aducanumab, by 15%.
For additional information on our collaboration arrangement with Neurimmune,
please read Note 19, Investments in Variable Interest Entities, to our
consolidated financial statements included in this report.

                                       76

--------------------------------------------------------------------------------

Table of Contents

Financial Condition, Liquidity and Capital Resources Our financial condition is summarized as follows:

                                                     As of December 31,     

% Change

                                                                                 2019 compared
(In millions, except percentages)                   2019            2018            to 2018
Financial assets:
Cash and cash equivalents                       $   2,913.7     $   1,224.6        137.9  %
Marketable securities - current                     1,562.2         2,313.4        (32.5 )%
Marketable securities - non-current                 1,408.1         1,375.9          2.3  %
Total cash, cash equivalents and marketable
securities                                      $   5,884.0     $   4,913.9         19.7  %
Borrowings:
Current portion of notes payable                $   1,495.8     $         -           **
Notes payable                                       4,459.0         5,936.5        (24.9 )%
Total borrowings                                $   5,954.8     $   5,936.5          0.3  %
Working Capital:
Current assets                                  $   8,381.8     $   7,640.9          9.7  %
Current liabilities                                (4,863.8 )      (3,295.2 )       47.6  %
Total working capital                           $   3,518.0     $   4,345.7        (19.0 )%


** Percentage not meaningful.
For the year ended December 31, 2019, certain significant cash flows were as
follows:
• $7.1 billion in net cash flows provided by operating activities, net of:

• $1.1 billion in total net payments for income taxes; and

•        $74.0 million upfront payment made to Skyhawk upon entering into a
         collaboration and research and development services agreement;

• $5.9 billion used for share repurchases;

• $923.7 million in proceeds received on the divestiture of our Hillerød,

Denmark manufacturing operations, including the sale of raw materials that

were remaining at the Hillerød facility on the closing date of this

transaction;

• $744.4 million payment made for our acquisition of NST, net of cash acquired;

• $479.3 million in proceeds received on sales of strategic investments;

• $514.5 million used for purchases of property, plant and equipment;

• $300.0 million for the final contingent payment made to former shareholders

of Fumapharm AG and holders of their rights; and

• $155.0 million in payments made to Alkermes following the FDA's approval of

    VUMERITY.



For the year ended December 31, 2018, certain significant cash flows were as
follows:
• $6.2 billion in net cash flows provided by operating activities, net of:

• $1.0 billion in total net payments for income taxes; and

• $375.0 million in an upfront payment made to Ionis upon the closing of

         the 2018 Ionis Agreement and a $162.1 million expense reflecting the
         premium paid for the purchase of Ionis common stock;

• $4.4 billion used for share repurchases;

• $1.5 billion in contingent payments made to former shareholders of Fumapharm

AG and holders of their rights;

• $770.6 million used for purchases of property, plant and equipment;

• $676.6 million payment made to Samsung BioLogics upon the closing of the

share purchase transaction increasing our ownership percentage in Samsung

Bioepis to approximately 49.9%;

• $462.9 million payment made to Ionis reflecting the fair value of the Ionis

common stock purchased upon the closing the 2018 Ionis Agreement; and

• $112.5 million in payments made for the acquisitions of BIIB100, BIIB104 and

    BIIB110.



                                       77

--------------------------------------------------------------------------------

Table of Contents

Overview

We have historically financed our operating and capital expenditures primarily
through cash flows earned through our operations. We expect our operating
expenditures, particularly those related to research and development, clinical
trials, commercialization of new products and international expansion to
continue to grow. However, we expect to continue funding our current and planned
operating requirements principally through our cash flows from operations, as
well as our existing cash resources. We believe that our existing funds, when
combined with cash generated from operations and our access to additional
financing resources, if needed, are sufficient to satisfy our operating, working
capital, strategic alliance, milestone payment, capital expenditure and debt
service requirements for the foreseeable future. In addition, we may choose to
opportunistically return cash to shareholders and pursue other business
initiatives, including acquisition and licensing activities. We may, from time
to time, also seek additional funding through a combination of new collaborative
agreements, strategic alliances and additional equity and debt financings or
from other sources should we identify a significant new opportunity.
Aducanumab
In October 2019 we and our collaboration partner Eisai announced that we plan to
pursue regulatory approval for aducanumab in the U.S. We plan to actively commit
funds to developing our commercialization program for aducanumab so that we
would be in a position to launch aducanumab if we receive regulatory approval.
If we do not receive regulatory approval or are unable to successfully
commercialize aducanumab, our financial condition, business and operations may
be adversely affected.
For additional information on certain risks that could negatively impact our
financial position or future results of operations, please read Item 1A. Risk
Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk
included in this report.
Cash, Cash Equivalents and Marketable Securities
Until required for another use in our business, we typically invest our cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. and foreign government instruments, overnight reverse repurchase
agreements and other interest-bearing marketable debt instruments in accordance
with our investment policy. It is our policy to mitigate credit risk in our cash
reserves and marketable securities by maintaining a well-diversified portfolio
that limits the amount of exposure as to institution, maturity and investment
type.

As of December 31, 2019, we had cash, cash equivalents and marketable securities
totaling approximately $5.9 billion compared to approximately $4.9 billion as of
December 31, 2018. The net increase in cash, cash equivalents and marketable
securities at December 31, 2019, from December 31, 2018, was primarily due to
cash flows from operations, cash received upon the divestiture of our Hillerød,
Denmark manufacturing operations, net proceeds from marketable securities and
proceeds from sales of strategic investments, partially offset by cash used for
share repurchases, cash used for our acquisition of NST, net purchases of
property, plant and equipment, contingent payments made to former shareholders
of Fumapharm AG and holders of their rights and upfront and milestone payments
made to Alkermes and Skyhawk.
Investments and other assets in our consolidated balance sheet as of
December 31, 2019 and 2018, includes the carrying value of our investment in
Samsung Bioepis of $580.2 million and $680.6 million, respectively. As Samsung
Bioepis is a privately-held entity, our ability to liquidate our investment in
Samsung Bioepis may be limited and we may realize significantly less than the
value of such investment. Investments in other assets, as of December 31, 2019
and 2018, also includes the fair value of our investment in Ionis common stock
of $329.6 million and $563.8 million, respectively, which is subject to certain
holding period restrictions.
For additional information on our acquisition of NST, please read Note 2,
Acquisitions, to our consolidated financial statements included in this report.
For additional information on the divestiture of our Hillerød, Denmark
manufacturing operations, please read Note 3, Divestitures, to our consolidated
financial statements included in this report. For additional information on our
collaboration arrangements with Ionis, Samsung Bioepis, Alkermes and Skyhawk,
please read Note 18, Collaborative and Other Relationships, to our consolidated
financial statements included in this report.
Borrowings
The following is a summary of our principal indebtedness as of December 31,
2019:
•   $1.5 billion aggregate principal amount of 2.90% Senior Notes due September

15, 2020;

• $1.0 billion aggregate principal amount of 3.625% Senior Notes due September

15, 2022;

• $1.75 billion aggregate principal amount of 4.05% Senior Notes due September

    15, 2025; and



                                       78

--------------------------------------------------------------------------------

Table of Contents

• $1.75 billion aggregate principal amount of 5.20% Senior Notes due September

15, 2045.

These Senior Notes were issued at discount and are amortized as additional
interest expense over the period from issuance through maturity.
For a summary of the fair values of our outstanding borrowings as of
December 31, 2019 and 2018, please read Note 7, Fair Value Measurements, to our
consolidated financial statements included in this report.
2015 Credit Facility
In August 2015 we entered into a $1.0 billion, five-year senior unsecured
revolving credit facility under which we were permitted to draw funds for
working capital and general corporate purposes. The terms of the revolving
credit facility included a financial covenant that required us not to exceed a
maximum consolidated leverage ratio. As of December 31, 2019, we had no
outstanding borrowings and were in compliance with all covenants under this
facility. This credit facility was replaced with the new revolving credit
facility entered into in January 2020, as discussed below.
2020 Credit Facility
In January 2020 we entered into a $1.0 billion, five-year senior unsecured
revolving credit facility under which we are permitted to draw funds for working
capital and general corporate purposes. The terms of the revolving credit
facility include a financial covenant that requires us not to exceed a maximum
consolidated leverage ratio. This revolving credit facility replaced the
revolving credit facility entered into in August 2015.
Working Capital
Working capital is defined as current assets less current liabilities. The
change in working capital at December 31, 2019, from December 31, 2018, reflects
an increase in total current assets of $740.9 million and an increase in total
current liabilities of $1,568.6 million.
The net increase in total current assets was primarily driven by an increase in
net cash, cash equivalents and marketable securities, as described above, offset
by a decrease in inventory resulting from our sale of hemophilia-related
inventory to Bioverativ.
The net increase in total current liabilities was primarily due to the
reclassification of $1.5 billion of our Senior Notes to current liabilities from
notes payable, as these Senior Notes are due within one year. This increase was
partially offset by a reduction in accrued expenses and other.

The net decrease in accrued expenses and other was primarily related to a
decrease in the accrual of contingent payments related to FUMADERM and TECFIDERA
and a decrease in the accrual for construction in progress, partially offset by
the accrual of the $100.0 million upfront payment to Samsung Bioepis, which was
paid in January 2020.
Share Repurchase Programs
In December 2019 our Board of Directors authorized our December 2019 Share
Repurchase Program, which is a program to repurchase up to $5.0 billion of our
common stock. Our December 2019 Share Repurchase Program does not have an
expiration date. All share repurchases under our December 2019 Share Repurchase
Program will be retired. We did not repurchase shares of our common stock under
our December 2019 Share Repurchase Program during the year ended December 31,
2019.
In March 2019 our Board of Directors authorized our March 2019 Share Repurchase
Program, which is a program to repurchase up to $5.0 billion of our common
stock. Our March 2019 Share Repurchase Program does not have an expiration date.
All share repurchases under our March 2019 Share Repurchase Program will be
retired. Under our March 2019 Share Repurchase Program, we repurchased and
retired approximately 14.7 million shares of our common stock at a cost of
approximately $3.7 billion during the year ended December 31, 2019.
In August 2018 our Board of Directors authorized our 2018 Share Repurchase
Program, which was a program to repurchase up to $3.5 billion of our common
stock. Our 2018 Share Repurchase Program was completed as of June 30, 2019. All
share repurchases under our 2018 Share Repurchase Program were retired. Under
our 2018 Share Repurchase Program, we repurchased and retired approximately 8.9
million and 4.3 million shares of our common stock at a cost of approximately
$2.1 billion and $1.4 billion during the years ended December 31, 2019 and 2018,
respectively.
In July 2016 our Board of Directors authorized our 2016 Share Repurchase
Program, which was a program to repurchase up to $5.0 billion of our common
stock. Our 2016 Share Repurchase Program was completed as of June 30, 2018. All
share repurchases under our 2016 Share Repurchase Program were retired. Under
our 2016 Share Repurchase Program, we repurchased and retired approximately 10.5
million and 3.7 million shares of our common stock at a cost of approximately
$3.0 billion and $1.0 billion during the years ended December 31, 2018 and 2017,
respectively.

                                       79

--------------------------------------------------------------------------------

Table of Contents

Cash Flows
The following table summarizes our cash flow activity:
                                        For the Years Ended                 

% Change

                                            December 31,
(In millions, except                                                       2019 compared     2018 compared
percentages)                     2019           2018           2017           to 2018           to 2017
Net cash flows provided by
operating activities         $  7,078.6     $  6,187.7     $  4,551.0         14.4  %           36.0  %
Net cash flows provided by
(used in) investing
activities                   $    470.5     $ (2,046.3 )   $ (2,963.1 )     (123.0 )%          (30.9 )%
Net cash flows used in
financing activities         $ (5,860.4 )   $ (4,472.0 )   $ (2,380.0 )       31.0  %           87.9  %


Operating Activities
Cash flows from operating activities represent the cash receipts and
disbursements related to all of our activities other than investing and
financing activities. We expect cash provided from operating activities will
continue to be our primary source of funds to finance operating needs and
capital expenditures for the foreseeable future.
Operating cash flow is derived by adjusting our net income for:
•   non-cash operating items such as depreciation and amortization, impairment

charges, unrealized gain (loss) on strategic investments, acquired IPR&D and

share-based compensation;

• changes in operating assets and liabilities which reflect timing differences

between the receipt and payment of cash associated with transactions and when

they are recognized in results of operations; and

• changes in the fair value of contingent payments associated with our

acquisitions of businesses and payments related to collaborations.

For 2019 compared to 2018, net cash flows provided by operating activities increased primarily due to higher net income.

Investing Activities
For 2019 compared to 2018, the increase in net cash flows provided by investing
activities was primarily due to a decrease in contingent payments made to former
shareholders of Fumapharm AG and holders of their rights, the proceeds received
upon the divestiture of our Hillerød, Denmark manufacturing operations, the
proceeds received on our sales of strategic investments and the $462.9 million
payment made to Ionis reflecting the fair value of the Ionis common stock
purchased upon the closing of the 2018 Ionis Agreement in the prior year
comparative period. This increase was partially offset by a decrease in net
proceeds related to marketable securities, the cash used for our acquisition of
NST and $155.0 million in milestone payments made to Alkermes following the
FDA's approval of VUMERITY, which was recorded as an intangible asset during the
fourth quarter of 2019.
Financing Activities
For 2019 compared to 2018, the increase in net cash flows used in financing
activities was primarily due to an increase in cash used for share repurchases.

                                       80

--------------------------------------------------------------------------------

Table of Contents

Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations as of December 31,
2019, excluding amounts related to uncertain tax positions, funding commitments,
contingent development, regulatory and commercial milestone payments, contingent
payments and contingent consideration related to our business combinations, as
described below.
                                                     Payments Due by Period
                                             Less than        1 to 3         3 to 5         After
(In millions)                  Total          1 Year          Years          Years         5 Years
Non-cancellable operating
leases (1), (2)             $    372.3     $      60.6     $    105.9     $     89.3     $    116.5
Long-term debt obligations
(3)                            8,792.2         1,730.8        1,387.2          323.8        5,350.4
Purchase and other
obligations (4)                1,013.6           266.1          183.0          329.4          235.1
Defined benefit obligation       102.5               -              -              -          102.5
Total contractual
obligations                 $ 10,280.6     $   2,057.5     $  1,676.1     $    742.5     $  5,804.5

(1) We lease properties and equipment for use in our operations. Amounts

reflected within the table above detail future minimum rental commitments

    under non-cancelable operating leases as of December 31 for each of the
    periods presented. In addition to the minimum rental commitments, these
    leases may require us to pay additional amounts for taxes, insurance,
    maintenance and other operating expenses.

(2) Obligations are presented net of sublease income expected to be received for

the vacated small-scale biologics manufacturing facility in Cambridge, MA,

the vacated portion of our Weston, MA facility and other facilities

throughout the world.

(3) Long-term debt obligations are related to our Senior Notes, including

principal and interest payments.

(4) Purchase and other obligations primarily include $697.0 million related to

the remaining payments on the Transition Toll Tax, contractual commitments to

our suppliers, $52.0 million in contractual commitments for the construction

of our large-scale biologics manufacturing facility in Solothurn, Switzerland

and $8.3 million related to the fair value of net liabilities on derivative

    contracts.


Royalty Payments
TYSABRI
In 2013 we acquired from Elan Pharma International Ltd. (Elan), an affiliate of
Elan Corporation plc, full ownership of all remaining rights to TYSABRI that we
did not already own or control. Under the acquisition agreement, we are
obligated to make contingent payments to Elan of 18% on annual worldwide net
commercial sales up to $2.0 billion and

25% on annual worldwide net commercial sales that exceed $2.0 billion. Royalty
payments to Elan and other third parties are recognized as cost of sales in our
consolidated statements of income. Elan was acquired by Perrigo Company plc
(Perrigo) in December 2013 and Perrigo subsequently sold its rights to these
payments to a third-party effective January 2017.
SPINRAZA
In 2016 we exercised our option to develop and commercialize SPINRAZA from
Ionis. Under our agreement with Ionis, we make royalty payments to Ionis on
annual worldwide net commercial sales of SPINRAZA using a tiered royalty rate
between 11% and 15%, which are recorded as cost of sales in our consolidated
statements of income. For additional information on our collaboration
arrangements with Ionis, please read Note 18, Collaborative and Other
Relationships, to our consolidated financial statements included in this report.
VUMERITY
In October 2019 the FDA approved VUMERITY for the treatment of RMS. Under our
agreement with Alkermes, we make royalty payments to Alkermes on worldwide net
commercial sales of VUMERITY using a royalty rate of 15%, which are recorded as
cost of sales in our consolidated statements of income. Royalties payable on net
commercial sales of VUMERITY are subject, under certain circumstances, to tiered
minimum annual payment requirements for a period of five years following FDA
approval. For additional information on our collaboration arrangement with
Alkermes, please read Note 18, Collaborative and Other Relationships, to our
consolidated financial statements included in this report.

                                       81

--------------------------------------------------------------------------------

Table of Contents

Contingent Consideration related to Business Combinations
In connection with our acquisitions of Convergence Pharmaceuticals Holdings
Limited (Convergence) and Biogen International Neuroscience GmbH (BIN), we
agreed to make additional payments based upon the achievement of certain
milestone events.
As the acquisitions of Convergence and BIN occurred after January 1, 2009, we
recognized the contingent consideration liabilities associated with these
transactions at their fair value on the acquisition date and revalue the
remaining obligations each reporting period. We may pay up to approximately
$735.0 million in remaining milestones related to these acquisitions.
Fumapharm AG
In 2006 we acquired Fumapharm AG. As part of this acquisition we acquired
FUMADERM and TECFIDERA (together, the Fumapharm Products). We were required to
make contingent payments to former shareholders of Fumapharm AG and holders of
their rights based on the attainment of certain cumulative sales levels of
Fumapharm Products and the level of total net sales of Fumapharm Products in the
prior 12-month period, as defined in the acquisition agreement, until such time
as the cumulative sales level reached $20.0 billion, at which time no further
contingent payments were due. During the first quarter of 2019 we paid the final
$300.0 million contingent payment as we achieved the $20.0 billion cumulative
sales level related to the Fumapharm Products in the fourth quarter of 2018.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2019, we could make potential
future milestone payments to third parties of up to approximately $6.8 billion,
including approximately $1.2 billion in development milestones, approximately
$1.4 billion in regulatory milestones and approximately $4.2 billion in
commercial milestones, as part of our various collaborations, including
licensing and development programs. Payments under these agreements generally
become due and payable upon achievement of certain development, regulatory or
commercial milestones. Because the achievement of these milestones was not
considered probable as of December 31, 2019, such contingencies have not been
recorded in our financial statements. Amounts related to contingent milestone
payments are not considered contractual obligations as they are contingent on
the successful achievement of certain development, regulatory or commercial
milestones.

Provided various development, regulatory or commercial milestones are achieved,
we anticipate that we may pay approximately $430.0 million of milestone payments
in 2020, including $75.0 million upon the regulatory filing with the FDA for
approval of aducanumab and $100.0 million if aducanumab is launched in the U.S.
Other Funding Commitments
As of December 31, 2019, we have several ongoing clinical studies in various
clinical trial stages. Our most significant clinical trial expenditures are to
CROs. The contracts with CROs are generally cancellable, with notice, at our
option. We recorded accrued expenses of approximately $24.0 million in our
consolidated balance sheet for expenditures incurred by CROs as of December 31,
2019. We have approximately $514.0 million in cancellable future commitments
based on existing CRO contracts as of December 31, 2019.
As part of the sale of our Hillerød, Denmark manufacturing operations to
FUJIFILM, we have provided FUJIFILM with certain minimum batch production
commitment guarantees. There is a risk that the minimum contractual batch
production commitments will not be met. Based upon current estimates we expect
to incur an adverse commitment obligation of approximately $74.0 million
associated with such guarantees and have accrued for this obligation. We may
adjust this estimate based upon changes in business conditions, which may result
in the increase or reduction of this adverse commitment obligation in subsequent
periods.
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax positions from our summary of
contractual obligations as we cannot make a reliable estimate of the period of
cash settlement with the respective taxing authorities. As of December 31, 2019,
we have $136.9 million of net liabilities associated with uncertain tax
positions.
As of December 31, 2019 and 2018, we have accrued income tax liabilities of
$697.0 million under the Transition Toll Tax. Of the amounts accrued as of
December 31, 2019, no amounts are expected to be paid within one year due to an
approximately $87.0 million carryforward of taxes paid in relation to the
company's 2017 tax return. The Transition Toll Tax will be paid over an
eight-year period, which started in 2018, and will not accrue interest. For
additional information on the Transition Toll Tax, please read Note 16, Income
Taxes, to our consolidated financial statements included in this report.

                                       82

--------------------------------------------------------------------------------

Table of Contents

Other Off-Balance Sheet Arrangements
We do not have any relationships with entities often referred to as structured
finance or special purpose entities that were established for the purpose of
facilitating off-balance sheet arrangements. As such, we are not exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged
in such relationships. We consolidate variable interest entities if we are the
primary beneficiary.
New Accounting Standards
For a discussion of new accounting standards and their expected impact on our
consolidated financial statements or disclosures, please read Note 1, Summary of
Significant Accounting Policies, to our consolidated financial statements
included in this report.
Legal Matters
For a discussion of legal matters as of December 31, 2019, please read Note 20,
Litigation, to our consolidated financial statements included in this report.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
U.S. (U.S. GAAP), requires us to make estimates, judgments and assumptions that
may affect the reported amounts of assets, liabilities, equity, revenues and
expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis we evaluate our estimates, judgments and methodologies. We base
our estimates on historical experience and on various other assumptions that we
believe are reasonable, the results of which form the basis for making judgments
about the carrying values of assets, liabilities and equity and the amount of
revenues and expenses. Actual results may differ from these estimates. Other
significant accounting policies are outlined in Note 1, Summary of Significant
Accounting Policies, to our consolidated financial statements included in this
report.
Revenue Recognition
We recognize revenues when our customer obtains control of promised goods or
services, in an amount that reflects the consideration which we expect to
receive in exchange for those goods or services. We recognize revenues following
the five-step model prescribed under Financial Accounting Standards Board (FASB)
Accounting Standards Codification 606, Revenue from Contracts with

Customers: (i) identify contract(s) with a customer; (ii) identify the
performance obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the
contract; and (v) recognize revenues when (or as) we satisfy the performance
obligation.
Product Revenues
In the U.S., we sell our products primarily to wholesale distributors and
specialty pharmacy providers. In other countries, we sell our products primarily
to wholesale distributors, hospitals, pharmacies and other third-party
distribution partners. These customers subsequently resell our products to
health care providers and patients. In addition, we enter into arrangements with
health care providers and payors that provide for government-mandated or
privately-negotiated discounts and allowances related to our products.
Product revenues are recognized when the customer obtains control of our
product, which occurs at a point in time, typically upon delivery to the
customer. We expense incremental costs of obtaining a contract as and when
incurred if the expected amortization period of the asset that we would have
recognized is one year or less or the amount is immaterial.
Reserves for Discounts and Allowances
Product revenues are recorded net of reserves established for applicable
discounts and allowances that are offered within contracts with our customers,
health care providers or payors, including those associated with the
implementation of pricing actions in certain of the international markets in
which we operate. Our process for estimating reserves established for these
variable consideration components do not differ materially from our historical
practices.
Product revenue reserves, which are classified as a reduction in product
revenues, are generally characterized in the following categories: discounts,
contractual adjustments and returns.
These reserves are based on estimates of the amounts earned or to be claimed on
the related sales and are classified as reductions of accounts receivable (if
the amount is payable to our customer) or a liability (if the amount is payable
to a party other than our customer). Our estimates of reserves established for
variable consideration are calculated based upon a consistent application of our
methodology utilizing the expected value method. These estimates reflect our
historical experience, current contractual and statutory requirements, specific
known market events and trends, industry data and forecasted customer buying and
payment patterns. The transaction price, which includes

                                       83

--------------------------------------------------------------------------------

Table of Contents

variable consideration reflecting the impact of discounts and allowances, may be
subject to constraint and is included in the net sales price only to the extent
that it is probable that a significant reversal of the amount of cumulative
revenues recognized will not occur in a future period. Actual amounts may
ultimately differ from our estimates. If actual results vary, we adjust these
estimates, which could have an effect on earnings in the period of adjustment.
In addition to discounts, rebates and product returns, we also maintain certain
customer service contracts with distributors and other customers in the
distribution channel that provide us with inventory management, data and
distribution services, which are generally reflected as a reduction of revenues.
To the extent we can demonstrate a separable benefit and fair value for these
services we classify these payments in selling, general and administrative
expenses.
For additional information on our revenues, please read Note 4, Revenues, to our
consolidated financial statements included in this report.
Acquired Intangible Assets, including IPR&D
When we purchase a business, the acquired IPR&D is measured at fair value,
capitalized as an intangible asset and tested for impairment at least annually,
as of October 31, until commercialization, after which time the IPR&D is
amortized over its estimated useful life. If we acquire an asset or group of
assets that do not meet the definition of a business under applicable accounting
standards, the acquired IPR&D is expensed on its acquisition date. Future costs
to develop these assets are recorded to research and development expense as they
are incurred.
We have acquired, and expect to continue to acquire, intangible assets through
the acquisition of biotechnology companies or through the consolidation of
variable interest entities. These intangible assets primarily consist of
technology associated with human therapeutic products and IPR&D product
candidates. When significant identifiable intangible assets are acquired, we
generally engage an independent third-party valuation firm to assist in
determining the fair values of these assets as of the acquisition date.
Management will determine the fair value of less significant identifiable
intangible assets acquired. Discounted cash flow models are typically used in
these valuations, and these models require the use of significant estimates and
assumptions including but not limited to:
•   estimating the timing of and expected costs to complete the in-process
    projects;

• projecting regulatory approvals;

• estimating future cash flows from product sales resulting from completed

products and in process projects; and

• developing appropriate discount rates and probability rates by project.

We believe the fair values assigned to the intangible assets acquired are based
upon reasonable estimates and assumptions given available facts and
circumstances as of the acquisition dates.
If these projects are not successfully developed, the sales and profitability of
the company may be adversely affected in future periods. Additionally, the value
of the acquired intangible assets may become impaired. No assurance can be given
that the underlying assumptions used to estimate expected project sales,
development costs or profitability, or the events associated with such projects,
will transpire as estimated.
Impairment and Amortization of Long-lived Assets and Accounting for Goodwill
Long-lived Assets Other than Goodwill
Long-lived assets to be held and used include property, plant and equipment as
well as intangible assets, including IPR&D and trademarks. Property, plant and
equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. We review our intangible assets with indefinite lives for
impairment annually, as of October 31, and whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable.
When performing our impairment assessment, we calculate the fair value using the
same methodology as described above under Acquired Intangible Assets, including
IPR&D. If the carrying value of our acquired IPR&D exceeds its fair value, then
the intangible asset is written down to its fair value. Changes in the estimates
and assumptions used in determining the fair value of our acquired IPR&D could
result in an impairment. Impairments are recorded within amortization and
impairment of acquired intangible assets in our consolidated statements of
income. Assets that have previously been impaired, including our vixotrigine
program for the treatment of neuropathic pain, such as TGN, could become further
impaired in the future.
Our most significant intangible assets are our acquired and in-licensed rights
and patents. Acquired and in-licensed rights and patents primarily relate to our
acquisition of all remaining rights to TYSABRI from

                                       84

--------------------------------------------------------------------------------

Table of Contents

Elan and obtaining the fair value of the U.S. and rest of world licenses to
Forward Pharma's intellectual property, including Forward Pharma's intellectual
property related to TECFIDERA. We amortize the intangible assets related to our
TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products using
the economic consumption method based on revenues generated from the products
underlying the related intangible assets. An analysis of the anticipated
lifetime revenues of TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of
world) is performed annually during our long-range planning cycle and whenever
events or changes in circumstances would significantly affect the anticipated
lifetime revenues of our TYSABRI, AVONEX, SPINRAZA, VUMERITY or TECFIDERA (rest
of world) products.
For additional information on the impairment charges related to our long-lived
assets during 2019, 2018 and 2017, please read Note 6, Intangible Assets and
Goodwill, to our consolidated financial statements included in this report.
Goodwill
Goodwill relates largely to amounts that arose in connection with the merger of
Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003 and amounts that were
paid in connection with the acquisition of Fumapharm AG. Our goodwill balances
represent the difference between the purchase price and the fair value of the
identifiable tangible and intangible net assets when accounted for using the
purchase method of accounting.
We assess our goodwill balance within our single reporting unit annually, as of
October 31, and whenever events or changes in circumstances indicate the
carrying value of goodwill may not be recoverable to determine whether any
impairment in this asset may exist and, if so, the extent of such impairment. We
compare the fair value of our reporting unit to its carrying value. If the
carrying value of the net assets assigned to the reporting unit exceeds the fair
value of our reporting unit, we would record an impairment loss equal to the
difference.
We completed our required annual impairment test in the fourth quarters of 2019,
2018 and 2017 and determined in each of those periods that the carrying value of
goodwill was not impaired. In each year, the fair value of our reporting unit,
which includes goodwill, was significantly in excess of the carrying value of
our reporting unit.
Contingent Consideration
We record contingent consideration resulting from a business combination at its
fair value on the acquisition date. Each reporting period thereafter, we

revalue the remaining obligations and record increases or decreases in their
fair value as an adjustment to contingent consideration expense in our
consolidated statements of income. Changes in the fair value of our contingent
consideration obligations can result from changes to one or multiple inputs,
including adjustments to the discount rates and achievement and timing of any
cumulative sales-based and development milestones or changes in the probability
of certain clinical events and changes in the assumed probability associated
with regulatory approval. These fair value measurements represent Level 3
measurements as they are based on significant inputs not observable in the
market.
Significant judgment is employed in determining the appropriateness of these
assumptions as of the acquisition date and for each subsequent period.
Accordingly, changes in assumptions described above, could have a material
impact on the amount of contingent consideration expense we record in any given
period.
Income Taxes
We prepare and file income tax returns based on our interpretation of each
jurisdiction's tax laws and regulations. In preparing our consolidated financial
statements, we estimate our income tax liability in each of the jurisdictions in
which we operate by estimating our actual current tax expense together with
assessing temporary differences resulting from differing treatment of items for
tax and financial reporting purposes. These differences result in deferred tax
assets and liabilities, which are included in our consolidated balance sheets.
Upon our election in the fourth quarter of 2018 to record deferred taxes for
GILTI, we have included amounts related to U.S. GILTI taxes within temporary
difference. Significant management judgment is required in assessing the
realizability of our deferred tax assets. In performing this assessment, we
consider whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. In making this
determination, under the applicable financial accounting standards, we are
allowed to consider the scheduled reversal of deferred tax liabilities,
projected future taxable income and the effects of tax planning strategies. In
the event that actual results differ from our estimates, we adjust our estimates
in future periods and we may need to establish a valuation allowance, which
could materially impact our consolidated financial position and results of
operations.
We account for uncertain tax positions using a "more-likely-than-not" threshold
for recognizing and

                                       85

--------------------------------------------------------------------------------

Table of Contents

resolving uncertain tax positions. We evaluate uncertain tax positions on a
quarterly basis and consider various factors including, but not limited to,
changes in tax law, the measurement of tax positions taken or expected to be
taken in tax returns, the effective settlement of matters subject to audit,
information obtained during in process audit activities and changes in facts or
circumstances related to a tax position. We adjust the level of the liability to
reflect any subsequent changes in the relevant facts surrounding the uncertain
positions. Our liabilities for uncertain tax positions can be relieved only if
the contingency becomes legally extinguished, through either payment to the
taxing authority or the expiration of the statute of limitations, the
recognition of the benefits associated with the position meet the
"more-likely-than-not" threshold or the liability becomes effectively settled
through the examination process. We consider matters to be effectively settled
once the taxing authority has completed all of its required or expected
examination procedures, including all appeals and administrative reviews, we
have no plans to appeal or litigate any aspect of the tax position and we
believe that it is highly unlikely that the taxing authority would examine or
re-examine the related tax position. We also accrue for potential interest and
penalties related to unrecognized tax benefits in income tax expense.
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain risks that may affect our results of operations, cash
flows and fair values of assets and liabilities, including volatility in foreign
currency exchange rates, interest rate movements, pricing pressures worldwide
and weak economic conditions in the foreign markets in which we operate. We
manage the impact of foreign currency exchange rates and interest rates through
various financial instruments, including derivative instruments such as foreign
currency forward contracts, interest rate lock contracts and interest rate swap
contracts. We do not enter into financial instruments for trading or speculative
purposes. The counterparties to these contracts are major financial
institutions, and there is no significant concentration of exposure with any one
counterparty.
Foreign Currency Exchange Risk
Our results of operations are subject to foreign currency exchange rate
fluctuations due to the global nature of our operations. As a result, our
consolidated financial position, results of operations and cash flows can be
affected by market fluctuations in foreign currency exchange rates, primarily
with respect to the Euro, British pound sterling, Canadian dollar, Swiss franc,
Japanese yen and South Korean won.

While the financial results of our global activities are reported in U.S.
dollars, the functional currency for most of our foreign subsidiaries is their
respective local currency. Fluctuations in the foreign currency exchange rates
of the countries in which we do business will affect our operating results,
often in ways that are difficult to predict. In particular, as the U.S. dollar
strengthens versus other currencies, the value of the non-U.S. revenues will
decline when reported in U.S. dollars. The impact to net income as a result of a
strengthening U.S. dollar will be partially mitigated by the value of non-U.S.
expenses, which will also decline when reported in U.S. dollars. As the U.S.
dollar weakens versus other currencies, the value of the non-U.S. revenues and
expenses will increase when reported in U.S. dollars.
We have established revenue and operating expense hedging and balance sheet risk
management programs to protect against volatility of future foreign currency
cash flows and changes in fair value caused by volatility in foreign currency
exchange rates.
During the second quarter of 2018 the International Practices Task Force of the
Center for Audit Quality categorized Argentina as a country with a projected
three-year cumulative inflation rate greater than 100%, which indicated that
Argentina's economy is highly inflationary. This categorization did not have a
material impact on our results of operations or financial position as of
December 31, 2019, and is not expected to have a material impact on our results
of operations or financial position in the future.
Revenue and Operating Expense Hedging Program
Our foreign currency hedging program is designed to mitigate, over time, a
portion of the impact resulting from volatility in exchange rate changes on
revenues and operating expenses. We use foreign currency forward contracts to
manage foreign currency risk, with the majority of our forward contracts used to
hedge certain forecasted revenue and operating expense transactions denominated
in foreign currencies in the next 15 months. We do not engage in currency
speculation. For a more detailed disclosure of our revenue and operating expense
hedging program, please read Note 9, Derivative Instruments, to our consolidated
financial statements included in this report.
Our ability to mitigate the impact of foreign currency exchange rate changes on
revenues and net income diminishes as significant foreign currency exchange rate
fluctuations are sustained over extended periods of time. In particular,
devaluation or significant deterioration of foreign currency exchange rates are
difficult to mitigate and likely to negatively impact earnings. The cash flows
from these contracts

                                       86

--------------------------------------------------------------------------------

Table of Contents

are reported as operating activities in our consolidated statements of cash
flows.
Balance Sheet Risk Management Hedging Program
We also use forward contracts to mitigate the foreign currency exposure related
to certain balance sheet items. The primary objective of our balance sheet risk
management program is to mitigate the exposure of foreign currency denominated
net monetary assets and liabilities of foreign affiliates. In these instances,
we principally utilize currency forward contracts. We have not elected hedge
accounting for the balance sheet related items. The cash flows from these
contracts are reported as operating activities in our consolidated statements of
cash flows.
The following quantitative information includes the impact of currency movements
on forward contracts used in our revenue, operating expense and balance sheet
hedging programs. As of December 31, 2019 and 2018, a hypothetical adverse 10%
movement in foreign currency exchange rates compared to the U.S. dollar across
all maturities would result in a hypothetical decrease in the fair value of
forward contracts of approximately $265.0 million and $290.0 million,
respectively. The estimated fair value change was determined by measuring the
impact of the hypothetical exchange rate movement on outstanding forward
contracts. Our use of this methodology to quantify the market risk of such
instruments is subject to assumptions and actual impact could be significantly
different. The quantitative information about market risk is limited because it
does not take into account all foreign currency operating transactions.
Net Investment Hedge Program
Our net investment hedging program is designed to mitigate currency fluctuations
between the U.S. dollar and South Korean won as a result of exercising our
option to increase our ownership percentage in Samsung Bioepis to approximately
49.9%. We entered into foreign currency forward contracts to manage the foreign
currency risk with our forward contracts used to hedge changes in the spot rate
over the next 10 months. As of December 31, 2019 and 2018, a hypothetical
adverse 10% movement would result in a hypothetical decrease in fair value of
approximately $43.0 million and $64.0 million, respectively. The estimated fair
value was determined by measuring the impact of the hypothetical spot rate
movement on outstanding forward contracts.
Interest Rate Risk
Our investment portfolio includes cash equivalents and short-term investments.
The fair value of our marketable securities is 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. As of December 31, 2019 and 2018, we estimate that such
hypothetical 100 basis point adverse movement would result in a hypothetical
loss in fair value of approximately $21.0 million and $19.0 million,
respectively, to our interest rate sensitive instruments. The fair values of our
investments were determined using third-party pricing services or other market
observable data.
To achieve a desired mix of fixed and floating interest rate debt, we entered
into interest rate swap contracts during 2015 for certain of our fixed-rate
debt. These derivative contracts effectively converted a fixed-rate interest
coupon to a floating-rate LIBOR-based coupon over the life of the respective
note. As of December 31, 2019 and 2018, a 100 basis-point adverse movement
(increase in LIBOR) would increase annual interest expense by approximately
$6.8 million.
Pricing Pressure
Governments in certain international markets in which we operate have
implemented measures, and may in the future implement new or additional
measures, to reduce health care costs to limit the overall level of government
expenditures. These measures vary by country and may include, among other
things, patient access restrictions, suspensions on price increases, prospective
and possible retroactive price reductions and other recoupments and increased
mandatory discounts or rebates, recoveries of past price increases and greater
importation of drugs from lower-cost countries. In addition, certain countries
set prices by reference to the prices in other countries where our products are
marketed. Thus, our inability to obtain and maintain adequate prices in a
particular country may adversely affect our ability to secure acceptable prices
in existing and potential new markets, which may limit market growth. The
continued implementation of pricing actions throughout Europe may also lead to
higher levels of parallel trade.
In the U.S., federal and state legislatures, health agencies and third-party
payors continue to focus on containing the cost of health care. Legislative and
regulatory proposals, enactments to reform health care insurance programs and
increasing pressure from social sources could significantly influence the way
our products are prescribed and purchased. It is possible that additional
federal health care reform measures will be adopted in the future, which could
result in increased pricing pressure and reduced reimbursement for our products
and otherwise have an adverse impact on our consolidated financial position or
results of operations. There is also

                                       87

--------------------------------------------------------------------------------

Table of Contents

significant economic pressure on state budgets that may result in states
increasingly seeking to achieve budget savings through mechanisms that limit
coverage or payment for our drugs. Managed care organizations are also
continuing to seek price discounts and, in some cases, impose restrictions on
the coverage of certain drugs.
Our products are also susceptible to increasing competition in many markets from
generic versions, biosimilars and prodrugs of existing products as well as
products approved under abbreviated regulatory pathways. Such products are
likely to be sold at substantially lower prices than branded
products. Accordingly, the introduction of such products, as well as other
lower-priced competing products, may significantly reduce both the price that we
are able to charge for our products and the volume of products we sell, which
will negatively impact our revenues. In addition, when a generic version of one
of our products is commercialized, it may, in some cases, be automatically
substituted for our product and reduce our revenues in a short period of time.
Credit Risk
We are subject to credit risk from our accounts receivable related to our
product sales. The majority of our accounts receivable arise from product sales
in the U.S. and Europe with concentrations of credit risk limited due to the
wide variety of customers and markets using our products, as well as their
dispersion across many different geographic areas. Our accounts receivable are
primarily due from wholesale and other third-party distributors, public
hospitals, pharmacies and other government entities. We monitor the financial
performance and creditworthiness of our customers so that we can properly assess
and respond to changes in their credit profile. We operate in certain countries
where weakness in economic conditions can result in extended collection periods.
We continue to monitor these conditions, including the volatility associated
with international economies and the relevant financial markets, and assess
their possible impact on our business. To date, we have not experienced any
significant losses with respect to the collection of our accounts receivable.
We believe that our allowance for doubtful accounts was adequate as of
December 31, 2019 and 2018. However, if significant changes occur in the
availability of government funding or the reimbursement practices of these or
other governments, we may not be able to collect on amounts due to us from
customers in such countries and our results of operations could be adversely
affected.

© Edgar Online, source Glimpses