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

The following discussion should be read in conjunction with our unaudited
condensed consolidated financial statements (condensed consolidated financial
statements) and the accompanying notes beginning on page 5 of this quarterly
report on Form 10-Q and our audited consolidated financial statements and the
accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 2019 (2019 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 multiple sclerosis (MS) and
neuroimmunology; Alzheimer's disease (AD) and dementia; neuromuscular disorders,
including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis (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, VUMERITY, AVONEX, PLEGRIDY, TYSABRI and
FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; and FUMADERM
for the treatment of severe plaque psoriasis. We also have certain business and
financial rights with respect to RITUXAN for the treatment of non-Hodgkin's
lymphoma, chronic lymphocytic leukemia (CLL) and other conditions; RITUXAN
HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the
treatment of CLL and follicular lymphoma; OCREVUS for the treatment of primary
progressive MS and relapsing MS (RMS); and other potential anti-CD20 therapies
pursuant to our collaboration arrangements with Genentech, Inc. (Genentech), a
wholly-owned member of the Roche Group. For additional information on our
collaboration arrangements with Genentech, please read Note 18, Collaborative
and Other Relationships, to our consolidated financial statements included in
our 2019 Form 10-K.

Our innovative drug development and commercialization activities are
complemented by our biosimilar business that expands access to medicines and
reduce the cost burden for healthcare systems. Through Samsung Bioepis Co., Ltd.
(Samsung Bioepis), our joint venture with Samsung BioLogics Co., Ltd. (Samsung
BioLogics), we market and sell BENEPALI, an etanercept biosimilar referencing
ENBREL, 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 17, Collaborative and Other Relationships, to our condensed
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 Update Regarding COVID-19
The COVID-19 pandemic continues to present a substantial public health and
economic challenge around the world and is affecting our employees, patients,
communities and business operations, as well as the U.S. and other major
economies and financial markets. The length of time and full extent to which the
COVID-19 pandemic will directly or indirectly impact our business, results of
operations and financial condition will depend on future developments that are
highly uncertain, subject to change and are difficult to predict, including new
information that may emerge concerning COVID-19, the actions taken to contain it
or treat its impact and the economic impact on local, regional, national and
international markets.

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To date, we and our collaboration partners have been able to continue to supply
our products to our patients worldwide and currently do not anticipate any
interruptions in supply. We have and are continuing to assess the actual and
potential impacts of the COVID-19 pandemic on our business and operations,
including our sales, expenses, manufacturing and clinical trials.
We are monitoring the demand for our products, including the duration and degree
to which we may see declines in customer orders or delays in starting new
patients on a product due to hospitals diverting the resources that are
necessary to administer certain of our products to care for COVID-19 patients,
including products, such as TYSABRI and SPINRAZA, that are administered in a
physician's office or hospital setting. We may also see reduced demand for
immunosuppressant therapies during the COVID-19 pandemic.
We have suspended the vast majority of our in-person interactions by our
customer-facing professionals in healthcare settings and have engaged with these
customers remotely as we seek to continue to support healthcare professionals
and patient care. During the second quarter of 2020, we began limited in-person
customer meetings and interactions consistent with local government mandates.
In the first quarter of 2020 we believe we benefited from precautionary measures
taken by our customers due to the COVID-19 pandemic, such as increasing their
levels of stock in anticipation of any interruptions from the pandemic, but over
the longer term we may see an impact from advance sales or fewer patients
visiting their healthcare provider to initiate, change or receive therapy.
During the second quarter of 2020 we believe customers began to utilize the
product purchased in the first quarter of 2020, which adversely affected sales
in the second quarter of 2020.
We may also see lower new prescriptions or refills of existing prescriptions due
to increased unemployment as a result of the COVID-19 pandemic. The severity and
duration of unemployment in the U.S. resulting from the effects of the COVID-19
pandemic may result in higher reserves for discounts and allowances in the
second half of the year due to higher expected utilization of Medicaid.
We and our third-party contract manufacturing partners continue to operate our
manufacturing facilities at or near normal levels. While we currently do not
anticipate any interruptions in our manufacturing process, it is possible that
the COVID-19 pandemic and response efforts may have an impact in the future on
our and/or our third-party suppliers and contract manufacturing partners'
ability

to manufacture our products or to have our products reach all markets.
While we are currently continuing the clinical trials we have underway in sites
across the globe, COVID-19 precautions have impacted the timeline for some of
our clinical trials and these precautions may, directly or indirectly, have a
further impact on timing in the future. For example, our Phase 3 study of
BIIB093 (glibenclamide IV) for large hemispheric infarction, a severe form of
ischemic stroke, has been delayed as this study involves administration of
BIIB093 in an acute hospital setting. We have also paused the initiation of new
clinical trials for compounds that are known to be immunosuppressants. To help
mitigate the impact of the COVID-19 pandemic to our clinical trials, we are
pursuing innovative approaches such as remote monitoring, remote patient visits
and supporting home infusions. These alternative measures have resulted in a
modest increase to the cost of the clinical trials underway.
In the U.S. and in most other key markets, our office-based employees began
working from home in early March 2020, while we ensured essential staffing
levels in our operations remained in place, including maintaining key personnel
in our laboratories and manufacturing facilities. As local regulations have
permitted, we have begun to re-open certain of our offices, allowing employees
to return to our offices in a phased, planned approach. To provide a safe work
environment for our employees, we have, among other things, increased the
cadence of sanitization of our office facilities, implemented various social
distancing measures on our campuses, issued travel advisories to our employees
consistent with government regulations and restricted participation of our
employees in any events that have large gatherings.
We are helping to increase the understanding of COVID-19 and advance research
efforts and potential therapeutic options. For example, we have entered into a
consortium with the Broad Institute of MIT and Harvard and Partners HealthCare
to build and share a COVID-19 biobank. The biobank will help scientists study a
large collection of de-identified biological and medical data to advance
knowledge and search for potential vaccines and treatments for COVID-19. In May
2020 we entered into a process development and manufacturing agreement with Vir
Biotechnology, Inc. (Vir) for the process development and clinical manufacturing
of Vir's human monoclonal antibodies for the potential treatment of COVID-19. In
addition, the Biogen Foundation has contributed $10.0 million to support the
global response efforts related to the COVID-19 pandemic and the immediate needs
of communities affected by it.
For additional information on the various risks posed by the COVID-19 pandemic,
please read Item 3.

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Quantitative and Qualitative Disclosures About Market Risk and Item 1A. Risk
Factors included in this report.
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 and revenue streams continue to face increasing competition in many
markets from 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.
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.
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 public health epidemics, such as the
COVID-19 pandemic, on employees, the global economy and the delivery of
healthcare treatments, foreign currency exchange fluctuations, changes in
intellectual property legal protections and changes in trade regulations and
procedures.
For additional information on the competition and pricing risks that could
negatively impact our product sales, please read Item 3. Quantitative and
Qualitative Disclosures About Market Risk and Item 1A. Risk Factors included in
this report.
TECFIDERA
On June 22, 2020, the U.S. District Court for the Northern District of West
Virginia (the West Virginia Court) entered judgment for Mylan Pharmaceuticals,
Inc. (Mylan) that the asserted claims of our U.S. Patent No. 8,399,514 (the '514
Patent) are invalid for lack of written description. The '514 Patent covers
treatment of MS with 480 mg of dimethyl fumarate per day as provided for in our
TECFIDERA label, and the litigation was filed pursuant to the Drug Competition
and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act.
We appealed the judgment on June 23, 2020, to the U.S. Court of Appeals for the
Federal Circuit (Federal Circuit) and filed an emergency motion for an
injunction pending resolution of the appeal. On June 30, 2020, the Federal
Circuit entered an interim injunction enjoining Mylan from launching its generic
version of TECFIDERA pending the Federal Circuit's consideration of our request
for an injunction pending appeal. In the event that our request for an
injunction pending appeal is denied, generic entry could occur during the
appeal.
The '514 Patent has also been challenged in the U.S. District Court of Delaware
in litigation filed pursuant to the Hatch-Waxman Act (the Delaware action) and
we are awaiting a decision.
We have entered into settlement agreements with some of the defendants in the
Delaware action and we now anticipate market entry of a generic product
equivalent to TECFIDERA before the '514 Patent expires in February 2028.
In February 2020, in an inter partes review proceeding filed by Mylan, the U.S.
Patent Trial and Appeal Board (PTAB) ruled that the challenged claims of the
'514 Patent are patentable. Mylan has appealed and the appeal is pending.
The commercialization of a generic version of TECFIDERA would have an adverse
impact on our TECFIDERA sales and our results of operations.

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For additional information, please read Note 19, Litigation, to these condensed
consolidated financial statements.
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 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 expect Brexit to have a material
impact on our consolidated results of operations as less than 4% of our total
product revenues for the three and six months ended June 30, 2020, were derived
from U.K. sales, which is consistent with full year product sales in 2019.
We have implemented measures to meet E.U. legal and regulatory requirements and
continue to modify our business operations to prepare for the end of the
transition period and 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 developments in this area and assess any potential impact on
our business and results of operations.

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Financial Highlights
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Diluted earnings per share attributable to Biogen Inc. was $9.59 for the three
months ended June 30, 2020, representing an increase of 22.2% over $7.85 in the
same period in 2019.
As further described below under Results of Operations, our net income and
diluted earnings per share attributable to Biogen Inc. for the three months
ended June 30, 2020, compared to the three months ended June 30, 2019, reflects
the following:
•      Total revenues were $3,681.6 million for the second quarter of 2020,

representing an increase of 1.8% over $3,616.7 million in the same period

in 2019.

• Product revenues, net totaled $2,795.7 million for the second quarter of

       2020, representing a decrease of 2.9% over $2,880.3 million in the same
       period in 2019. This decrease was primarily due to a 3.5% decrease in MS

product revenues and a 6.9% decrease in our biosimilar products, partially

       offset by a 1.3% increase in revenues from SPINRAZA.


•            We believe that, due to the COVID-19 pandemic, there was an
             acceleration in sales in the first quarter of 2020, primarily in the
             E.U., that increased revenues by approximately $100.0 million.
             During the second quarter of



2020 we believe customers began to utilize the product purchased (approximately
$75.0 million) in the first quarter of 2020, which adversely affected sales in
the second quarter of 2020.
•      Revenues from anti-CD20 therapeutic programs totaled $478.3 million for

the second quarter of 2020, representing a decrease of 17.0% from $576.4

million in the same period in 2019. This decrease was primarily due to a

33.0% decrease in RITUXAN revenues, partially offset by a 14.0% increase

in royalty revenues on sales of OCREVUS. We believe that sales of RITUXAN

       have been adversely affected by the onset of biosimilars competition and
       adverse impacts that we believe were due to the COVID-19 pandemic, as

hospitals prioritize the treatment of COVID-19 patients and/or patients

       decide to delay treatment.


•      Other revenues totaled $407.6 million for the second quarter of 2020,
       representing an increase from $160.0 million in the same period in 2019.
       This increase reflects $329.4 million related to the delivery of the

license for certain of our manufacturing-related intellectual property to

a contract manufacturing customer.

• Total cost and expenses were $1,707.1 million for the second quarter of

       2020, representing an increase of 2.8% from $1,660.8 million in the same
       period in 2019. This increase was primarily due to a 33.6% increase in

research and development expense, partially offset by a 13.7% decrease in

cost of sales.

•            The increase in research and development expense was 

primarily due

             to $208.0 million in charges recognized upon the closing of our
             collaboration with Sangamo Therapeutics, Inc. (Sangamo) in the
             second quarter of 2020.

As described below under Financial Condition, Liquidity and Capital Resources: • Cash, cash equivalents and marketable securities totaled approximately

$5.3 billion and $5.9 billion as of June 30, 2020 and December 31, 2019,

respectively.

• We repurchased and retired approximately 9.0 million shares of our common

stock at a cost of approximately $2.8 billion during the second quarter of

       2020 under a program authorized by our Board of Directors in



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December 2019 to repurchase up to $5.0 billion of our common stock (December
2019 Share Repurchase Program).
•      On April 30, 2020, we issued senior unsecured notes for an aggregate

principal amount of $3.0 billion (2020 Senior Notes).

Acquisitions and Collaborative and Other Relationships
BIIB118 Acquisition
In March 2020 we acquired BIIB118 (formerly known as PF-05251749), a novel
CNS-penetrant small molecule inhibitor of casein kinase 1, for the potential
treatment of patients with behavioral and neurological symptoms across various
psychiatric and neurological diseases from Pfizer Inc. (Pfizer). We plan to
develop this Phase 1 asset for the potential treatment of sundowning in AD and
irregular sleep wake rhythm in Parkinson's disease.
For additional information on our acquisition of BIIB118, please read Note 2,
Acquisitions, to our condensed consolidated financial statements included in
this report.
Sangamo Therapeutics, Inc.
In April 2020 we closed a collaboration and license agreement with Sangamo to
develop and commercialize ST-501 for tauopathies, including AD; ST-502 for
synucleinopathies, including, Parkinson's disease; a third neuromuscular disease
target; and up to nine additional neurological disease targets to be identified
and selected within a five-year period.
For additional information on our collaboration arrangement with Sangamo, please
read Note 17, Collaborative and Other Relationships, to our condensed
consolidated financial statements included in this report.
Other Key Developments
Aducanumab (AB mAb)
In July 2020 we and our collaboration partner Eisai Co., Ltd. (Eisai) announced
that we completed the submission of a Biologics License Application (BLA) to the
U.S. Food and Drug Administration (FDA) for the approval of aducanumab, an
anti-amyloid beta antibody candidate for the potential treatment of AD. The
completed submission followed ongoing collaboration with the FDA and includes
clinical data from the Phase 3 EMERGE and ENGAGE studies as well as the Phase 1b
PRIME study.
During the first quarter of 2020 we initiated the EMBARK global re-dosing
clinical study, which is designed to evaluate aducanumab in eligible AD patients
who were actively enrolled in aducanumab

studies (PRIME, EVOLVE, EMERGE and ENGAGE) in March 2019.

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Results of Operations
Revenues
Revenues are summarized as follows:
                                     For the Three Months                             For the Six Months
                                        Ended June 30,                                  Ended June 30,
(In millions, except
percentages)                     2020                    2019                    2020                    2019
Product revenues, net:
United States            $ 1,721.7      46.8 %   $ 1,744.4      48.2 %   $ 3,304.9      45.8 %   $ 3,257.7      45.8 %
Rest of world              1,074.0      29.2       1,135.9      31.4       2,395.4      33.2       2,302.6      32.4
Total product
revenues, net              2,795.7      75.9       2,880.3      79.6       5,700.3      79.0       5,560.3      78.2
Revenues from
anti-CD20 therapeutic
programs                     478.3      13.0         576.4      15.9         998.7      13.8       1,093.8      15.4
Other revenues               407.6      11.1         160.0       4.4         516.9       7.2         452.4       6.4
Total revenues           $ 3,681.6     100.0 %   $ 3,616.7     100.0 %   $ 

7,215.9 100.0 % $ 7,106.5 100.0 %

Product Revenues
Product revenues are summarized as follows:
                                     For the Three Months                             For the Six Months
                                        Ended June 30,                                  Ended June 30,
(In millions, except
percentages)                     2020                    2019                    2020                    2019
Multiple Sclerosis:
Fumarate*                $ 1,190.3      42.6 %   $ 1,150.2      39.9 %   $ 2,291.1      40.2 %   $ 2,149.0      38.6 %
Interferon**                 481.4      17.2         554.4      19.2         947.4      16.6       1,055.3      19.0
TYSABRI                      432.0      15.5         475.3      16.5         954.4      16.7         935.7      16.8
FAMPYRA                       23.0       0.8          24.1       0.8          51.3       0.9          47.0       0.8
Subtotal: MS product
revenues                   2,126.7      76.1       2,204.0      76.5       4,244.2      74.5       4,187.0      75.3

Spinal Muscular
Atrophy:
SPINRAZA                     494.6      17.7         488.2      16.9       1,059.6      18.6       1,006.7      18.1

Biosimilars:
BENEPALI                     106.2       3.8         120.3       4.2         239.7       4.2         244.3       4.4
IMRALDI                       44.8       1.6          47.3       1.6         106.4       1.9          83.0       1.5
FLIXABI                       20.6       0.7          16.8       0.6          44.3       0.8          31.5       0.6
Subtotal: Biosimilar
product revenues             171.6       6.1         184.4       6.4         390.4       6.8         358.8       6.5

Other:
FUMADERM                       2.8       0.1           3.7       0.1           6.1       0.1           7.8       0.1

Total product revenues $ 2,795.7 100.0 % $ 2,880.3 100.0 % $ 5,700.3 100.0 % $ 5,560.3 100.0 %

*Fumarate includes TECFIDERA and VUMERITY. VUMERITY became commercially available in the U.S. in November 2019. **Interferon includes AVONEX and PLEGRIDY.

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Multiple Sclerosis (MS)
Fumarate
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Fumarate revenues include sales from TECFIDERA and VUMERITY. In October 2019 the
FDA approved VUMERITY for the treatment of RMS and VUMERITY became commercially
available in the U.S. in November 2019.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases of 6.0% and 7.0%, respectively, in U.S. Fumarate revenues
were primarily due to net price increases and increases in Fumarate sales
volumes of 3.4% and 5.0%, respectively. Volume in the second quarter of 2020
reflected favorable channel dynamics of approximately $33.0 million.
For the three months ended June 30, 2020, compared to the same period in 2019,
the decrease of 4.2% in rest of world Fumarate revenues was primarily due to
pricing reductions in certain European countries and unfavorable foreign
currency impact, partially offset by an increase in sales volumes of 3.5%.
We believe that, due to the COVID-19 pandemic, there was an acceleration in
sales during the first quarter of 2020 that increased Fumarate revenues by
approximately $15.0 million in the U.S. and approximately $28.0 million in rest
of world. During the second quarter of 2020 we believe customers began to
utilize the product purchased (approximately $15.0 million in the U.S. and
approximately $17.0 million in rest of world) in the first quarter of 2020,
which adversely affected sales in the second quarter of 2020.
For the six months ended June 30, 2020, compared to the same period in 2019, the
increase of 5.4% in rest of world Fumarate revenues was primarily due to an
increase in sales volumes of

12.1%, which was primarily related to our European and Japanese markets,
partially offset by pricing reductions in certain European countries. The
increase in volumes was primarily due to continued strong patient growth in our
E.U. direct markets, including Italy, Spain and the U.K., as well as growth in
Asia (Japan) and Latin America (Brazil).
On June 22, 2020, the West Virginia Court entered judgment for Mylan that the
asserted claims of the '514 Patent are invalid for lack of written description.
The '514 Patent covers treatment of MS with 480 mg of dimethyl fumarate per day
as provided for in our TECFIDERA label, and the litigation was filed pursuant to
the Hatch-Waxman Act. We appealed the judgment on June 23, 2020, to the Federal
Circuit and filed an emergency motion for an injunction pending resolution of
the appeal. On June 30, 2020, the Federal Circuit entered an interim injunction
enjoining Mylan from launching its generic version of TECFIDERA pending the
Federal Circuit's consideration of our request for an injunction pending appeal.
In the event that our request for an injunction pending appeal is denied,
generic entry could occur during the appeal.
The '514 Patent has also been challenged in the Delaware action and we are
awaiting a decision.
We have entered into settlement agreements with some of the defendants in the
Delaware action and we now anticipate market entry of a generic product
equivalent to TECFIDERA before the '514 Patent expires in February 2028.
In February 2020, in an inter partes review proceeding filed by Mylan, the PTAB
ruled that the challenged claims of the '514 Patent are patentable. Mylan has
appealed and the appeal is pending.
The commercialization of a generic version of TECFIDERA would have an adverse
impact on our TECFIDERA sales and our results of operations.
For additional information, please read Note 19, Litigation, to our condensed
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 and potential disruptions from the COVID-19 pandemic. We expect volume
growth in our rest of world markets to offset volume declines in the U.S in
2020, assuming no generic TECFIDERA competition in the U.S. Due to the COVID-19
pandemic, we may experience variability in sales between quarters within the
year.

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Interferon

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For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the decreases of 9.0% and 9.7%, respectively, in U.S. Interferon
revenues were primarily due to decreases in Interferon sales volumes of 10.8%
and 9.6%, respectively. The net declines in sales volumes reflect the continued
decline of the Interferon market as patients transition to other higher efficacy
and oral MS therapies, which negatively impacted comparative revenues by $55.0
million and $95.0 million, respectively. The declines were partially offset by
favorable channel dynamics of $15.0 million and $27.0 million for the three and
six months ended June 30, 2020, respectively.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the decreases of 22.3% and 11.2%, respectively, in rest of world
Interferon revenues were primarily due to decreases in Interferon sales volumes
of 17.8% and 7.0%, respectively.
We believe that, due to the COVID-19 pandemic, there was an acceleration in
sales during the first quarter of 2020 that increased Interferon revenues by
approximately $4.0 million in the U.S. and approximately $25.0 million in rest
of world. During the second quarter of 2020 we believe customers began to
utilize the product purchased (approximately $4.0 million in the U.S. and
approximately $15.0 million in rest of world) in the first quarter of 2020,
which adversely affected sales in the second quarter of 2020.
Due to the COVID-19 pandemic, we may experience variability in sales between
quarters within the year.
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.
TYSABRI
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For the three months ended June 30, 2020, compared to the same period in 2019,
the decrease of 7.6% in U.S. TYSABRI revenues was primarily due to unfavorable
inventory channel dynamics of approximately $9.0 million and lower demand of
approximately $14.0 million due to site of care closures resulting from the
COVID-19 pandemic.
For the six months ended June 30, 2020, compared to the same period in 2019, the
increase of 2.5% in U.S. TYSABRI revenues was primarily due to price increases,
partially offset by higher discounts and allowance rates.
For the three months ended June 30, 2020, compared to the same period in 2019,
the decrease of 10.9% in rest of world TYSABRI revenues was primarily due to an
unfavorable foreign currency impact of approximately $12.0 million and an
unfavorable volume impact of approximately $10.0 million, which we believe
reflects the utilization of approximately $5.0 million of product purchased in
the first quarter of 2020 due to the COVID-19 pandemic and site of care closures
resulting from the COVID-19 pandemic.
For the six months ended June 30, 2020, compared to the same period in 2019,
rest of world TYSABRI revenues remained flat.
Due to the COVID-19 pandemic, we may experience variability in sales between
quarters within the year.

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We anticipate TYSABRI demand to be stable on a global basis in 2020, compared to
2019, despite increasing competition from additional treatments for MS,
including OCREVUS. We believe that some TYSABRI infusions may be delayed as
hospitals prioritize the treatment of COVID-19 patients and/or patients decide
to delay treatment.
Spinal Muscular Atrophy
SPINRAZA
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For the three months ended June 30, 2020, compared to the same period in 2019,
the decrease of 8.8% in U.S. SPINRAZA revenues was primarily due to a decrease
in sales volumes of 9.4% as a result of lower loading and maintenance doses due
to site of care closures in April and May 2020 as a result of the COVID-19
pandemic.
For the six months ended June 30, 2020, compared to the same period in 2019, the
decrease of 1.8% in U.S. SPINRAZA revenues was primarily due to a decrease in
sales volumes of 0.8% as a result of lower loading and maintenance doses due to
site of care closures in April and May 2020 resulting from the COVID-19 pandemic
and higher discount and allowance rates, partially offset by price increases.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases of 10.4% and 11.1%, respectively, in rest of world
SPINRAZA revenues were primarily due to increases in sales volumes of 18.4% and
23.9%, respectively, partially offset by the impact of a shift from loading to
maintenance doses, lower net prices and the unfavorable impact of foreign
currency exchange.
We believe that, due to the COVID-19 pandemic, there was an acceleration in
sales during the first quarter of 2020 that increased SPINRAZA revenues by

approximately $6.0 million in the U.S. and $5.0 million in rest of world. During
the second quarter of 2020 we believe customers began to utilize the product
purchased (approximately $6.0 million in the U.S. and approximately $4.0 million
in rest of world) in the first quarter of 2020, which adversely affected sales
in the second quarter of 2020.
Due to the COVID-19 pandemic, we may experience variability in sales between
quarters within the year.
We expect that the rate at which SPINRAZA revenues will grow will be modest 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, lower prices in certain rest of world countries
and the potential impact of the COVID-19 pandemic. We are evaluating the impact
of the COVID-19 pandemic on the ability of hospitals to provide SPINRAZA dosing
to patients. We believe that some SPINRAZA doses may be delayed as hospitals
prioritize the treatment of COVID-19 patients and/or patients decide to delay
treatment.
We face competition from a new gene therapy product that was approved in the
U.S. in May 2019 and in the E.U. in May 2020 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 information on our collaboration arrangements with Ionis Pharmaceuticals,
Inc. (Ionis), please read Note 18, Collaborative and Other Relationships, to our
consolidated financial statements included in our 2019 Form 10-K.

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Biosimilars

BENEPALI, IMRALDI and FLIXABI
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For the three months ended June 30, 2020, compared to the same period in 2019,
the decrease of 6.9% in biosimilar revenues was primarily due to the unfavorable
impact of price decreases, partially offset by increased volumes.
For the six months ended June 30, 2020, compared to the same period in 2019, the
increase of 8.8% in biosimilar revenues was primarily due to the continued
launch of IMRALDI in Europe, partially offset by the unfavorable impact of price
decreases.
Additionally, we believe that, due to the COVID-19 pandemic, there was an
acceleration in sales during the first quarter of 2020 that increased biosimilar
revenues by approximately $15.0 million. During the second quarter of 2020 we
believe customers began to utilize the product purchased (approximately $9.0
million) in the first quarter of 2020, which adversely affected sales in the
second quarter of 2020.
Due to the COVID-19 pandemic, we may experience variability in sales between
quarters within the year.
In 2020 we expect modest to moderate revenue growth for our biosimilars business
depending on the impact of the COVID-19 pandemic. We expect growth to be
primarily driven by the continued launch of IMRALDI in Europe, partially offset
by price reductions in certain European countries.
For additional information on our collaboration arrangements with Samsung
Bioepis, please read Note 17, Collaborative and Other Relationships, to our

condensed consolidated financial statements included in this report.
Revenues from Anti-CD20 Therapeutic Programs
Genentech (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.
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Biogen's Share of Pre-tax Profits in the U.S. for RITUXAN and GAZYVA
The following tables provide a summary of amounts comprising our share of
pre-tax profits in the U.S. for RITUXAN and GAZYVA:
                                        For the Three Months
                                           Ended June 30,
(In millions)                             2020            2019
Product revenues, net               $    807.9         $ 1,165.0
Cost and expenses                        121.5             158.5
Pre-tax profits in the U.S.              686.4           1,006.5

Biogen's share of pre-tax profits $ 257.5 $ 377.2

                                       For the Six Months
                                         Ended June 30,
(In millions)                          2020          2019
Product revenues, net               $  1,886.1    $ 2,391.7
Cost and expenses                        268.9        331.4
Pre-tax profits in the U.S.            1,617.2      2,060.3

Biogen's share of pre-tax profits $ 598.8 $ 768.0

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For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the decreases in U.S. product revenues, net were primarily due to
decreased sales volume of RITUXAN in the U.S. of 28.7% and 19.4%, respectively,
due to the onset of biosimilars competition and the adverse impacts that we
believe were due to the COVID-19 pandemic, as hospitals prioritize the treatment
of COVID-19 patients and/or patients decide to delay treatment.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases in U.S. product revenues, net also reflects increases in
GAZYVA sales volume of 20.9% and 36.8%, respectively.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the decreases in collaboration costs and expenses were primarily due to
lower cost of sales on RITUXAN.
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 in a significant manner 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 the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases in other revenues from anti-CD20 therapeutic programs
were primarily due to sales growth of OCREVUS. Royalty revenues recognized on
sales of OCREVUS for the three and six months ended June 30, 2020, totaled
$208.2 million and $370.5 million, respectively, compared to $182.7 million and
$294.3 million, respectively, in the prior year comparative periods.
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.
For additional information on our collaboration arrangements 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 our 2019 Form 10-K.
Other Revenues
Other revenues are summarized as follows:
                                   For the Three Months                         For the Six Months
                                      Ended June 30,                              Ended June 30,
(In millions, except
percentages)                    2020                  2019                  2020                  2019
Revenues from
collaborative and
other relationships      $   5.0       1.2 %   $  52.1      32.6 %   $   8.9       1.7 %   $  76.5      16.9 %
Other royalty and
corporate revenues         402.6      98.8       107.9      67.4       508.0      98.3       375.9      83.1
Total other revenues     $ 407.6     100.0 %   $ 160.0     100.0 %   $ 516.9     100.0 %   $ 452.4     100.0 %


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 Corporation (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 manufacturing facility divestiture date under our technical
development services and manufacturing agreements with Samsung Bioepis.

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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 17,
Collaborative and Other Relationships, to our condensed 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 condensed
consolidated financial statements included in this report.
Other Royalty and Corporate Revenues
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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.
During the third quarter of 2019 we amended our agreement with a contract
manufacturing customer, pursuant to which we licensed certain of our
manufacturing-related intellectual property to the customer. In the second
quarter of 2020 the customer received regulatory approval for its product that
is being manufactured using certain of our manufacturing-related intellectual
property. As a result, we are entitled to $500.0 million in a series of three
payments. The first payment became due upon regulatory approval of such product
and was received during the second quarter of 2020. Subsequent

payments are due on the first and second anniversaries of the regulatory
approval.
Other corporate revenues for the three and six months ended June 30, 2020,
reflect $329.4 million related to the delivery of the license for certain of our
manufacturing-related intellectual property under the amended agreement
discussed above. We have allocated the remaining $170.6 million of the $500.0
million transaction price to the performance of manufacturing product supply
services for the customer, which we expect to perform through 2026. The value
allocated to the manufacturing services was based on expected demand for supply
and the fair value of comparable manufacturing and development services.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases in other royalty and corporate revenues were due to
higher contract manufacturing revenues, primarily resulting from $329.4 million
in revenues related to the delivery of the license for certain of our
manufacturing-related intellectual property to a contract manufacturing customer
discussed above. The increase was partially offset by revenues recognized in
2019 under the manufacturing and supply agreement with Bioverativ Inc.
(Bioverativ) entered into in connection with the spin-off of our hemophilia
business as well as revenues recognized in 2019 under our technical development
services and manufacturing agreements with Samsung Bioepis prior to the
divestiture of our Hillerød, Denmark manufacturing facility operations.
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.

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Reserves for discounts, contractual adjustments and returns that reduced gross
product revenues are summarized as follows:
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For the three and six months ended June 30, 2020, reserves for discounts and
allowances as a percentage of gross product revenues were 26.0% and 25.8%,
respectively, compared to 23.1% in both prior year comparative periods.
The severity and duration of unemployment in the U.S. resulting from the effects
of the COVID-19 pandemic may result in higher reserves for discounts and
allowances in the second half of the year due to higher expected utilization of
Medicaid.

Discounts

Discounts include trade term discounts and wholesaler incentives.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increase in discounts were primarily driven by an increase in
sales.
Contractual Adjustments
Contractual adjustments primarily relate to Medicaid and managed care rebates,
co-payment assistance, Veterans Administration, Public Health Service discounts,
specialty pharmacy program fees and other government rebates or applicable
allowances.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases in contractual adjustments were 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
increases 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 revenues are recognized, resulting in a
reduction to product sales.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, return reserves were relatively consistent.
For additional information on our revenue reserves, please read Note 4,
Revenues, to our condensed consolidated financial statements included in this
report.

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Cost and Expenses
A summary of total cost and expenses is as follows:
                                           For the Three Months                     For the Six Months
                                              Ended June 30,                          Ended June 30,
(In millions, except
percentages)                          2020          2019       Change %       2020          2019       Change %
Cost of sales, excluding
amortization and impairment of
acquired intangible assets         $   411.1     $   476.3      (13.7 )%   $   865.5     $ 1,078.3      (19.7 )%
Research and development               647.6         484.8       33.6        1,123.9       1,048.5        7.2
Selling, general and
administrative                         555.1         587.6       (5.5 )      1,125.2       1,155.3       (2.6 )
Amortization and impairment of
acquired intangible assets              61.5          70.1      (12.3 )        133.0         138.3       (3.8 )
Collaboration profit (loss)
sharing                                 21.8          63.5      (65.7 )         93.5         121.6      (23.1 )
Loss on divestiture of Hillerød,
Denmark manufacturing operations           -          (2.3 )       **              -         113.2         **
(Gain) loss on fair value
remeasurement of contingent
consideration                           10.0         (20.0 )   (150.0 )          5.5          (8.5 )   (164.7 )
Restructuring charges                      -           0.8     (100.0 )            -           1.2     (100.0 )
Acquired in-process research and
development                                -             -         **           75.0             -         **
Total cost and expenses            $ 1,707.1     $ 1,660.8        2.8  %   $ 3,421.6     $ 3,647.9       (6.2 )%


                                                   ** Percentage not meaningful.
Cost of Sales, Excluding Amortization and Impairment of Acquired Intangible
Assets
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Product Cost of Sales
For the three months ended June 30, 2020, compared to the same period in 2019,
the decrease in product cost of sales was primarily due to lower cost of sales
from contract manufacturing agreements, primarily resulting from FUJIFILM
assuming 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 Hillerød,
Denmark manufacturing facility divestiture date under our technical development
services and manufacturing agreements with Samsung Bioepis.

For the six months ended June 30, 2020, compared to the same period in 2019, the
decrease in product cost of sales was primarily due to lower cost of sales from
contract manufacturing agreements, primarily resulting from the sale of
hemophilia inventory, with a cost basis of $173.5 million, to Bioverativ in the
first quarter of 2019 and FUJIFILM assuming responsibility for the manufacture
of clinical and commercial quantities of bulk drug substance of biosimilar
products for Samsung Bioepis.
Royalty Cost of Sales
For the three months ended June 30, 2020, compared to the same period in 2019,
the decrease in royalty cost of sales was primarily due to lower royalties
payable on lower sales of TYSABRI. For the six months ended June 30, 2020,
compared to the same period in 2019, the increase in royalty cost of sales was
primarily due to higher royalties payable on higher sales of SPINRAZA.

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Research and Development
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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

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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.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases in research and development expense were primarily due to
$208.0 million in charges recognized upon the closing of our collaboration with
Sangamo in the second quarter of 2020.
While we are currently continuing the clinical trials we have underway in sites
across the globe, COVID-19 precautions have impacted the timeline for some of
our clinical trials and these precautions may, directly or indirectly, have a
further impact on timing in the future. For example, our Phase 3 study of
BIIB093 for large hemispheric infarction has been delayed as this study involves
administration of BIIB093 in an acute hospital setting. We have also paused the
initiation of new clinical trials for compounds that are known to be
immunosuppressants.
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
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the increases in milestone and upfront expenses were primarily due to a
$208.0 million charge to research and development expense related to our
collaboration and license agreement with Sangamo in the second quarter of 2020.
For additional information on our collaboration arrangement with Sangamo, please
read Note 17,

Collaborative and Other Relationships, to our condensed consolidated financial
statements included in this report.
Early Stage Programs
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the decreases in spending related to our early stage programs were
primarily due to the discontinuation of gosuranemab (BIIB092) in progressive
supraneuclear palsy and the advancement of toferson (BIIB067) in ALS into late
stage. The decreases were partially offset by increases in spending in the
development of BIIB112 (RPGR gene therapy) in X-linked retinitis pigmentosa.
Late Stage Programs
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, the decreases in spending associated with our late stage programs were
primarily due to:
•      a decrease in spending related to the discontinuation of the global Phase
       3 trials of aducanumab, net of reimbursement from our collaboration
       partner Eisai in the first quarter of 2019;

• a decrease in spending related to the discontinuation of the global Phase

3 trials, MISSION AD1 and MISSION AD2, of elenbecestat (development code:

       E2609) in patients with early AD in the third quarter of 2019; and

• a decrease in spending related to VUMERITY, which was approved by the FDA

in the fourth quarter of 2019.

These decreases were partially offset by an increase in spending due to the
advancement of toferson in ALS into late stage, an increase in spending related
to BAN2401 in early AD, an increase in spending related to our EMBARK redosing
study for aducanumab and an increase in spending in the development of BIIB111
(timrepigene emparvovec) in choroideremia.
In the first quarter of 2019, as a result of the decision to discontinue the
Phase 3 EMERGE and ENGAGE trials following a futility analysis, we accrued
approximately $45.0 million related to the termination of various clinical
trials and research and development contracts net of the expected 45% Eisai
reimbursement of development costs incurred by the collaboration for the
advancement of aducanumab. In July 2020 we and our collaboration partner Eisai
announced that we completed the submission of a BLA to the FDA for the approval
of aducanumab.

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In March 2019 Eisai initiated a global Phase 3 trial for the development of
BAN2401 in early AD. Under our collaboration arrangement, Eisai serves as the
global operational and regulatory lead for BAN2401 and all costs, including
research, development, sales and marketing expenses, are shared equally between
us and Eisai.
For additional information on our collaboration arrangements with Eisai, please
read Note 17, Collaborative and Other Relationships, to our condensed
consolidated financial statements included in this report.
Selling, General and Administrative
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For the three and six months ended June 30, 2020, compared to the same periods
in 2019, selling, general and administrative expense decreased 5.5% and 2.6%,
respectively, primarily due to the timing of spend.
Selling, general and administrative expense for the three and six months ended
June 30, 2020, included expenses of approximately $14.0 million and $27.0
million, respectively, related to the COVID-19 pandemic. Due to the COVID-19
pandemic, we may experience variability in selling, general and administrative
expense between quarters within the year.

Amortization and Impairment of Acquired Intangible Assets
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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 three and six
months ended June 30, 2020, compared to the same periods in 2019, decreased
primarily due to a lower rate of amortization for acquired intangible assets,
primarily related to TYSABRI. We had no impairment charges for the three and six
months ended June 30, 2020 and 2019.
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
In-process research and development (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

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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.
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.
Vixotrigine
In the periods since we acquired vixotrigine (BIIB074), there have been numerous
delays in the initiation of Phase 3 studies for the potential treatment of
trigeminal neuralgia (TGN) as we engaged with the FDA regarding the design of
the Phase 3 studies and awaited data and insights from mid-stage clinical trials
of vixotrigine in other indications that have since been completed. The fair
value of the TGN asset is not significantly in excess of carrying value. As of
June 30, 2020, the carrying value associated with our vixotrigine IPR&D assets
was $160.2 million.
For additional information on the amortization and impairment of our acquired
intangible assets, please read Note 6, Intangible Assets and Goodwill, to our
condensed consolidated financial statements included in this report.

Collaboration Profit (Loss) Sharing
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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 the three and six months ended June 30, 2020, we recognized net
profit-sharing expense of $55.4 million and $127.2 million, respectively, to
reflect Samsung Bioepis' 50% sharing of the net collaboration profits compared
to $63.4 million and $121.5 million, respectively, in the prior year comparative
periods.
For the three and six months ended June 30, 2020, we also recognized net
profit-sharing income of $33.8 million to reflect Eisai's 45% share of the $75.0
million milestone expense related to the completed submission of the BLA to the
FDA for approval of aducanumab.
For additional information on our collaboration arrangements with Samsung
Bioepis and Eisai, please read Note 17, Collaborative and Other Relationships,
to our condensed consolidated financial statements included in this report.

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Loss on Divestiture of Hillerød, Denmark Manufacturing Operations
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Divestiture of Hillerød, Denmark Manufacturing Operations
In March 2019 we entered into a share purchase agreement with FUJIFILM to sell
all of the outstanding shares of our subsidiary that owned our biologics
manufacturing operations in Hillerød, Denmark. The transaction closed in August
2019.
For the six months ended June 30, 2019, we recorded a loss of approximately
$174.5 million in our condensed consolidated statements of income. This
estimated loss included a pre-tax loss of $113.2 million, which reflected a $2.3
million decrease to our original estimate as of March 31, 2019, reflecting our
estimated fair value of the assets and liabilities held for sale as of June 30,
2019, adjusted for our expected costs to sell our Hillerød, Denmark
manufacturing operations of approximately $10.0 million and included our initial
estimate of the fair value of an adverse commitment of approximately $120.0
million associated with the guarantee of future minimum batch production at the
Hillerød facility. The value of this adverse commitment was determined using a
probability-weighted estimate of future manufacturing activity. In addition, we
recorded a tax expense of $61.3 million related to the planned transaction
during the six months ended June 30, 2019.
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 condensed
consolidated financial statements included in this report.

(Gain) Loss on Fair Value Remeasurement of Contingent Consideration
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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.
For the three and six months ended June 30, 2020, compared to the same periods
in 2019, changes in the fair value of our contingent consideration obligations
were primarily due to changes in the interest rates, changes in the probability
and the expected timing of the achievement of certain remaining developmental
milestones and the passage of time.

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Acquired In-Process Research and Development
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BIIB118 Acquisition
In March 2020 we acquired BIIB118 for the potential treatment of patients with
behavioral and neurological symptoms across various psychiatric and neurological
diseases from Pfizer. In connection with this acquisition, we made an upfront
payment of $75.0 million to Pfizer, which was accounted for as an asset
acquisition and recorded as acquired IPR&D in our condensed consolidated
statements of income as BIIB118 has not yet reached technological feasibility.
For additional information on our acquisition of BIIB118, please read Note 2,
Acquisitions, to our condensed consolidated financial statements included in
this report.
Other Income (Expense), Net
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For the three months ended June 30, 2020, compared to the same period in 2019,
the change in other income (expense), net primarily reflects net

gains of approximately $106.8 million recognized on our investments related to
our holdings in equity and debt securities, compared to net losses totaling
$173.4 million in the prior year comparative period. The net gains recognized
during the three months ended June 30, 2020, primarily reflect an increase in
the fair value of Ionis common stock of approximately $67.2 million and an
increase in the fair value of Sangamo common stock of approximately $40.9
million.
For the six months ended June 30, 2020, compared to the same period in 2019, the
change in other income (expense), net was primarily due to approximately $203.0
million of net gains recognized on our investments related to our holdings in
equity and debt securities during the six months ended June 30, 2019.
We expect interest expense will continue to increase as a result of the issuance
of our 2020 Senior Notes. For additional information related to our 2020 Senior
Notes, please read Note 11, Indebtedness, to our condensed consolidated
financial statements included in this report.
Income Tax Provision
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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

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research and development expenses, the levels of certain deductions and credits,
acquisitions and licensing transactions.
For the three months ended June 30, 2020, compared to the same period in 2019,
the increase in our effective tax rate was primarily due to an internal
reorganization of certain intellectual property rights related to the
intercompany sale of the intellectual property in 2019 and the $56.0 million
income tax expense related to the establishment of a valuation allowance against
certain deferred tax assets, the realization of which is dependent on future
sales of TECFIDERA in the U.S. For additional information, please read Note 15,
Income Taxes, to our condensed consolidated financial statements included in
this report.
For the six months ended June 30, 2020, compared to the same period in 2019, the
increase in our effective tax rate was primarily due to the impacts of the
valuation allowance described above and the internal reorganization of certain
intellectual property rights, partially offset by the $61.3 million tax expense
recognized in 2019 related to the planned divestiture of our Hillerød, Denmark
manufacturing operations. Although we recognized a loss on the divestiture of
our Hillerød, Denmark manufacturing operations, the divestiture required us to
write off certain deferred tax assets and resulted in a taxable gain in certain
jurisdictions. For additional information on the divestiture of our Hillerød,
Denmark manufacturing operations, please read Note 3, Divestitures, to our
condensed consolidated financial statements included in this report.
For additional information, please read Note 19, Litigation, to our condensed
consolidated financial statements included in this report.
For additional information on our uncertain tax positions and income tax rate
reconciliation for the three and six months ended June 30, 2020 and 2019, please
read Note 15, Income Taxes, to our condensed consolidated financial statements
included in this report.

Equity in (Income) Loss of Investee, Net of Tax

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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 June 30, 2020, 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 condensed 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 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.

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For the three and six months ended June 30, 2020, we recognized net income on
our investment of $15.1 million and $0.4 million, respectively. This reflects
our share of income and amortization of basis differences.
For additional information on our collaboration arrangements with Samsung
Bioepis, please read Note 17, Collaborative and Other Relationships, to our
condensed consolidated financial statements included in this report.
Noncontrolling Interest
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For the three and six months ended June 30, 2020, the change in net income
(loss) attributable to noncontrolling interests, net of tax was primarily due to
the accrual of the $75.0 million milestone payment related to the completed
submission of the BLA to the FDA for approval of aducanumab.
For additional information, please read Note 18, Investments in Variable
Interest Entities, to our condensed consolidated financial statements included
in this report.

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

                                                As of             As of
                                               June 30,       December 31,
(In millions, except percentages)                2020             2019            Change %
Financial assets:
Cash and cash equivalents                   $    2,384.9     $     2,913.7           (18.1 )%
Marketable securities - current                  1,942.7           1,562.2  

24.4

Marketable securities - non-current                922.8           1,408.1           (34.5 )
Total cash, cash equivalents and
marketable securities                       $    5,250.4     $     5,884.0           (10.8 )%
Borrowings:
Current portion of notes payable            $          -     $     1,495.8          (100.0 )%
Notes payable                                    7,423.8           4,459.0            66.5
Total borrowings                            $    7,423.8     $     5,954.8            24.7  %
Working capital:
Current assets                              $    8,493.8     $     8,381.8             1.3  %
Current liabilities                             (3,447.1 )        (4,863.8 )         (29.1 )
Total working capital                       $    5,046.7     $     3,518.0            43.5  %


For the six months ended June 30, 2020, certain significant cash flows were as
follows:
• $3.4 billion in net cash flows provided by operating activities;

• $3.0 billion in net proceeds received from the issuance of our 2020 Senior

Notes;

• $1.5 billion payment made for the redemption of our 2.90% Senior Notes due

September 15, 2020, prior to their maturity;

• $5.0 billion used for share repurchases;

• $141.8 million used to purchase the Sangamo common stock;

• $37.0 million payment to Samsung Bioepis in connection with the 2019

transaction;

• $75.0 million payment related to our acquisition of BIIB118 from Pfizer; and

• $254.7 million used for purchases of property, plant and equipment.

Overview

We have historically financed our operating and capital expenditures primarily
through cash flows earned through our operations. On April 30, 2020, we issued
our 2020 Senior Notes for an aggregate principal amount of $3.0 billion. We
expect our operating expenditures, particularly those related to research and
development, clinical trials, commercialization of new products and
international expansion to continue to grow. However, we expect to continue
funding our current and planned operating requirements primarily through cash
flows earned from our operations, as well as our existing cash resources and
proceeds received from the issuance

of our 2020 Senior Notes. We believe that our existing funds, when combined with
cash generated from operations and our access to additional financing resources,
if needed, are sufficient to satisfy our operating, working capital, strategic
alliance, milestone payment, capital expenditure and debt service requirements
for the foreseeable future. In addition, we may choose to opportunistically
return cash to shareholders and pursue other business initiatives, including
acquisition and licensing activities. We may, from time to time, also seek
additional funding through a combination of new collaborative agreements,
strategic alliances and additional equity and debt financings or from other
sources should we identify a significant new opportunity.
For additional information on certain risks that could negatively impact our
financial position or future results of operations, please read Item 3.
Quantitative and Qualitative Disclosures About Market Risk and Item 1A. Risk
Factors 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. In March 2020 there was a severe liquidity crisis in the capital markets,
particularly with respect to securities with

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maturities of less than one year, due to the COVID-19 pandemic. This issue
impacted pricing of securities in our portfolio as we attempted to decrease our
marketable securities level and increase cash, leading to approximately $12.5
million in realized losses for the six months ended June 30, 2020. We believe
that recent actions taken by the U.S. Federal Reserve to enhance liquidity have
stabilized the capital markets for the time being.
As of June 30, 2020, we had cash, cash equivalents and marketable securities
totaling approximately $5.3 billion compared to approximately $5.9 billion as of
December 31, 2019. The net decrease in cash, cash equivalents and marketable
securities at June 30, 2020, from December 31, 2019, was primarily due to cash
used for share repurchases, the redemption of our 2.90% Senior Notes due
September 15, 2020, the purchase of Sangamo common stock, net purchases of
property, plant and equipment and upfront payments made to Samsung Bioepis and
Pfizer, partially offset by cash flows from operations, net proceeds from the
issuance of our 2020 Senior Notes and net proceeds from sales of marketable
securities.
Investments and other assets in our condensed consolidated balance sheets as of
June 30, 2020 and December 31, 2019, include the carrying value of our
investment in Samsung Bioepis of $557.5 million and $580.2 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. This investment is also
subject to foreign currency exchange fluctuations. Investments and other assets,
as of June 30, 2020 and December 31, 2019, also include the fair value of our
investment in Ionis common stock of $339.1 million and $329.6 million,
respectively. In connection with our collaboration and license agreement with
Sangamo, we purchased approximately 24 million shares of Sangamo common stock in
April 2020. As of June 30, 2020, the fair value of this investment was $182.7
million.
For additional information on our acquisition of BIIB118 from Pfizer, please
read Note 2, Acquisitions, to our condensed consolidated financial statements
included in this report. For additional information on our collaboration
arrangements with Samsung Bioepis and Sangamo, please read Note 17,
Collaborative and Other Relationships, to our condensed consolidated financial
statements included in this report.

Borrowings

In April 2020 we issued our 2020 Senior Notes for an aggregate principal amount
of $3.0 billion, consisting of the following:
•   $1.5 billion aggregate principal amount of 2.25% Senior Notes due May 1,

2030; and

• $1.5 billion aggregate principal amount of 3.15% Senior Notes due May 1, 2050.

The following is a summary of our currently outstanding senior secured notes
issued in 2015 (2015 Senior Notes):
•   $1.0 billion aggregate principal amount of 3.625% Senior Notes due September

15, 2022;

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

15, 2025; and

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

15, 2045.

The 2020 Senior Notes and the 2015 Senior Notes were issued at a discount, which
are amortized as additional interest expense over the period from issuance
through maturity.
In May 2020 we redeemed our 2.90% Senior Notes due September 15, 2020, with an
aggregate principal amount of $1.50 billion.
For a summary of the fair and carrying values of our outstanding borrowings as
of June 30, 2020 and December 31, 2019, please read Note 7, Fair Value
Measurements, to our condensed consolidated financial statements included in
this report.
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 that we entered into in August 2015. As of June 30,
2020, we had no outstanding borrowings and were in compliance with all covenants
under this facility.
Working Capital
Working capital is defined as current assets less current liabilities. The
change in working capital at June 30, 2020, from December 31, 2019, reflects an
increase in total current assets of approximately $112.0 million and a decrease
in total current liabilities of approximately $1,416.7 million.
The increase in total current assets was primarily driven by an increase in net
cash, cash

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equivalents and marketable securities, due to the issuance of our 2020 Senior
Notes, partially offset by purchases of our common stock and the redemption of
our 2.90% Senior Notes due September 15, 2020.
The net decrease in current liabilities was primarily due to the redemption of
our 2.90% Senior Notes due September 15, 2020, which was classified within
current liabilities, and a reduction in accrued expenses and other, which was
primarily related to the $100.0 million upfront payment made to Samsung Bioepis
in connection with the 2019 transaction, which was accrued as of December 31,
2019.
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 shares repurchased under our

December 2019 Share Repurchase Program will be retired. Under our December 2019
Share Repurchase Program, we repurchased and retired approximately 9.0 million
and 12.2 million shares of our common stock at a cost of approximately $2.8
billion and $3.7 billion during the three and six months ended June 30, 2020,
respectively. Approximately $1.3 billion remained available under our December
2019 Share Repurchase Program as of June 30, 2020.
In March 2019 our Board of Directors authorized a program to repurchase up to
$5.0 billion of our common stock (March 2019 Share Repurchase Program), which
was completed as of March 31, 2020. All shares repurchased under our March 2019
Share Repurchase Program were retired. Under our March 2019 Share Repurchase
Program, we repurchased and retired approximately 4.1 million shares of our
common stock at a cost of approximately $1.3 billion during the six months ended
June 30, 2020.
Cash Flows
The following table summarizes our cash flow activity:
                                                           For the Six 

Months

                                                             Ended June 30,
(In millions, except percentages)                    2020          2019       % Change
Net cash flows provided by operating activities   $ 3,415.8     $ 3,423.5       (0.2 )%
Net cash flows provided by investing activities      (389.8 )       128.0     (404.5 )
Net cash flows used in financing activities        (3,558.7 )    (3,055.0 ) 

16.5

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 the six months ended June 30, 2020, compared to the same period in 2019, net
cash flows provided by operating activities were consistent.
Investing Activities
For the six months ended June 30, 2020, compared to the same period in 2019, the
decrease in net cash flows provided by investing activities was primarily due to
higher net proceeds related to sales of marketable securities in 2019.
Financing Activities
For the six months ended June 30, 2020, compared to the same period in 2019, the
increase in net cash flows used in financing activities was primarily due to the
greater number of shares repurchased in 2020 as compared to the comparative
period in 2019 and the redemption of our 2.90% Senior Notes due September 15,
2020, partially offset by the net proceeds received from the issuance of our
2020 Senior Notes.

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Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
Our contractual obligations primarily consist of our obligations under
non-cancellable operating leases, long-term debt obligations and defined benefit
and other purchase obligations, 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.
There have been no material changes in our contractual obligations since
December 31, 2019.
Contingent 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
sales up to $2.0 billion and 25% on annual worldwide net sales that exceed $2.0
billion. Royalty payments to Elan and other third parties are recognized as cost
of sales in our condensed 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 sales of SPINRAZA using a tiered royalty rate between 11%
and 15%, which are recognized as cost of sales in our condensed 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 our 2019
Form 10-K.
VUMERITY
In October 2019 the FDA approved VUMERITY for the treatment of RMS. Under our
agreement with Alkermes Pharma Ireland Limited, a subsidiary of Alkermes plc
(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 our
2019 Form 10-K.
Contingent Consideration related to Business Combinations
In connection with our acquisitions of Convergence Pharmaceuticals Ltd. and
Biogen International Neuroscience GmbH, we agreed to make additional payments
based upon the achievement of certain milestone events. We recognized the
contingent consideration liabilities associated with these transactions at their
fair value on the acquisition date and revalue these obligations each reporting
period. We may pay up to approximately $735.0 million in remaining milestones
related to these acquisitions.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of June 30, 2020, we could trigger potential
future milestone payments to third parties of up to approximately $7.9 billion,
including approximately $1.4 billion in development milestones, approximately
$1.3 billion in regulatory milestones and approximately $5.2 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 June 30, 2020, 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 $237.5 million of milestone payments
for the remainder of 2020, including approximately $100.0 million if aducanumab
is launched in the U.S. In July 2020 we and our collaboration partner Eisai
announced that we completed the submission of a BLA to the FDA for the approval
of aducanumab. As of June 30, 2020, we recorded accrued expenses of
approximately $75.0 million related to this milestone payment as it was probable
that the submission of the BLA would be completed and the milestone earned. This
milestone payment is expected to be paid during the third quarter of 2020. For
the three and six months ended June 30, 2020, we recognized net profit-sharing
income of

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$33.8 million to reflect Eisai's 45% share of the $75.0 million milestone
expense.
For additional information on our collaboration arrangements with Eisai, please
read Note 17, Collaborative and Other Relationships, to our condensed
consolidated financial statements included in this report.
For additional information on our collaboration arrangement with Neurimmune,
please read Note 18, Investments in Variable Interest Entities, to our condensed
consolidated financial statements included in this report.
Other Funding Commitments
As of June 30, 2020, we have several ongoing clinical studies in various
clinical trial stages. Our most significant clinical trial expenditures are to
contract research organizations (CROs). The contracts with CROs are generally
cancellable, with notice, at our option. We recorded accrued expenses of
approximately $9.1 million in our condensed consolidated balance sheet for
expenditures incurred by CROs as of June 30, 2020. We have approximately $567.1
million in cancellable future commitments based on existing CRO contracts as of
June 30, 2020.
As part of the sale of our Hillerød, Denmark manufacturing operations to
FUJIFILM, we provided FUJIFILM with certain minimum batch production commitment
guarantees. There is a risk that the minimum contractual batch production
commitments will not be met. Our estimate of the adverse commitment obligation
is approximately $74.0 million as of June 30, 2020. We developed this estimate
using a probability-weighted estimate of future manufacturing activity and 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 June 30, 2020, we
have approximately $158.2 million of liabilities associated with uncertain tax
positions.
As of June 30, 2020 and December 31, 2019, included in other long-term
liabilities we have accrued approximately $635.0 million and approximately
$697.0 million, respectively, under a one-time mandatory deemed repatriation tax
on accumulated foreign subsidiaries' previously untaxed foreign earnings (the
Transition Toll Tax). The decrease of approximately $62.0 million between
December 31, 2019 and June 30, 2020, is related to the amount that

is expected to be paid within one year. The Transition Toll Tax will be paid in
installments over an eight-year period, which started in 2018, and will not
accrue interest.
Other Off-Balance Sheet Arrangements
We do not have any relationships with entities often referred to as structured
finance or special purpose entities that were established for the purpose of
facilitating off-balance sheet arrangements. As such, we are not exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged
in such relationships. We consolidate variable interest entities if we are the
primary beneficiary.
New Accounting Standards
For a discussion of new accounting standards please read Note 1, Summary of
Significant Accounting Policies, to our condensed consolidated financial
statements included in this report.
Critical Accounting Estimates
The preparation of our condensed consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
U.S., 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.
For a discussion of our critical accounting estimates, please read Part II,
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations in our 2019 Form 10-K. There have been no material changes to our
critical accounting estimates since our 2019 Form 10-K.
Item 3.  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 and pricing pressures worldwide
as well as changes in economic conditions in the markets in which we operate as
a result of the COVID-19 pandemic. We manage the impact of foreign currency
exchange rates

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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, including the impact of
the COVID-19 pandemic. 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
June 30, 2020, 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 18
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 condensed 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 are reported as operating activities in our condensed
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 condensed 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 June 30, 2020 and December 31, 2019, 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 $375.5 million and $265.0 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.

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dollar and the South Korean won as a result of our approximately 49.9% ownership
percentage in Samsung Bioepis. 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 four months. As of June 30, 2020
and December 31, 2019, a hypothetical adverse 10% movement would result in a
hypothetical decrease in fair value of approximately $41.7 million and $43.0
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, including changes resulting from the
impact of the COVID-19 pandemic. 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 June 30, 2020 and December 31,
2019, we estimate that such hypothetical 100 basis point adverse movement would
result in a hypothetical loss in fair value of approximately $17.6 million and
$21.0 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, a 100 basis-point adverse movement (increase in
LIBOR) would increase annual interest expense by approximately $6.8 million. In
May 2020 we settled our interest rate swap contracts in conjunction with our
early redemption of our 2.90% Senior Notes.
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 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 continue to face increasing competition in many markets from
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. 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

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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, including as a result of the COVID-19 pandemic, 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.
Additionally, we could see an increase in the amount of time our trade
receivables are paid by certain foreign countries that have been
disproportionately impacted by the COVID-19 pandemic. 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 June 30,
2020 and December 31, 2019. 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.

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