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Exhibit 13

Financials

Biogen, Inc. and Subsidiaries

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|2  |  | Selected Financial Data                                                              
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|3  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
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|15 |  | Consolidated Statements of Income                                                    
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|16 |  | Consolidated Balance Sheets                                                          
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|17 |  | Consolidated Statements of Cash Flows                                                
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|18 |  | Consolidated Statements of Shareholders Equity                                      
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|19 |  | Notes to Consolidated Financial Statements                                           
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|35 |  | Report of Independent Accountants                                                    
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|36 |  | Senior Executive and Board Members                                                   
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|37 |  | Shareholder Information                                                              

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Selected Financial Data
Biogen, Inc. and Subsidiaries



(in thousands, except per share amounts)



|                                                            |  |      |           |      |  |      |           |      |  |      |           |  |  |   |         |  |  |   |         | 
|----------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | ------- |  |  | - | ------- | 
|Years Ended December 31,                                    |  | 2001 |           | 2000 |  | 1999 |           | 1998 |  | 1997
|                                                           
|Product revenue                                             |  | $    | 971,594   |      |  | $    | 761,079   |      |  | $    | 620,636   |  |  | $ | 394,863 |  |  | $ | 239,988 | 
|                                                           
|                                                           
|                                                           
|                                                           
|Royalty revenue                                             |  |      | 71,766    |      |  |      | 165,373   |      |  |      | 173,799   |  |  |   | 162,724 |  |  |   | 171,921 | 
|                                                           
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|Total revenues                                              |  |      | 1,043,360 |      |  |      | 926,452   |      |  |      | 794,435   |  |  |   | 557,587 |  |  |   | 411,909 | 
|                                                           
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|                                                           
|Total costs and expenses                                    |  |      | 683,162   |      |  |      | 598,096   |      |  |      | 478,184   |  |  |   | 366,948 |  |  |   | 285,787 | 
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|Income before income taxes                                  |  |      | 389,497   |      |  |      | 487,105   |      |  |      | 329,016   |  |  |   | 210,193 |  |  |   | 148,968 | 
|                                                           
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|Net income                                                  |  |      | 272,683   |      |  |      | 333,577   |      |  |      | 220,450   |  |  |   | 138,697 |  |  |   | 89,167  | 
|                                                           
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|Diluted earnings per share                                  |  |      | 1.78      |      |  |      | 2.16      |      |  |      | 1.40      |  |  |   | 0.90    |  |  |   | 0.58    | 
|                                                           
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|Cash, cash equivalents and
short-term marketable securities |  |      | 798,107   |      |  |      | 682,412   |      |  |      | 654,539   |  |  |   | 516,914 |  |  |   | 440,088 | 
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|Total assets                                                |  |      | 1,721,046 |      |  |      | 1,431,856 |      |  |      | 1,277,973 |  |  |   | 924,715 |  |  |   | 813,825 | 
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|Long-term debt, less current
portion                        |  |      | 42,297    |      |  |      | 47,185    |      |  |      | 52,073    |  |  |   | 56,960  |  |  |   | 61,846  | 
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|Shareholders equity                                        |  |      | 1,348,832 |      |  |      | 1,106,402 |      |  |      | 979,530   |  |  |   | 718,613 |  |  |   | 536,293 | 
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|Shares used in calculating
diluted
earnings per share       |  |      | 152,916   |      |  |      | 154,602   |      |  |      | 157,788   |  |  |   | 154,270 |  |  |   | 152,999 | 

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Managements Discussion and Analysis of Financial Condition and Results of Operations
Biogen, Inc. and Subsidiaries



Overview

Biogen, Inc. (the Company or Biogen) is a biopharmaceutical company
principally engaged in the business of developing, manufacturing and marketing
drugs for human health care. The Company currently derives revenues from sales
of its AVONEX® (Interferon beta-1a) product for the treatment of relapsing
forms of multiple sclerosis (MS). The Company also derives revenue from
royalties on sales by the Companys licensees of a number of products covered
under patents controlled by the Company.

Results of Operations 2001 As Compared to 2000

Revenues

Total revenues in 2001 were $1,043.4 million, as compared to $926.5 million in
2000, an increase of $116.9 million or approximately 13%.

Product sales in 2001 were $971.6 million as compared to $761.1 million in
2000, an increase of $210.5 million or approximately 28%. Product sales from
AVONEX represented approximately 93% of the Companys total revenues in 2001 as
compared to 82% in 2000. The growth in 2001 was primarily attributable to an
increase in the sales volume of AVONEX in the United States and in the fifteen
member countries of the European Union (EU). AVONEX sales outside of the
United States were approximately $260.5 million in 2001 as compared to $208.5
million in 2000. The Company expects sales from AVONEX outside the United
States to continue to increase as a percentage of total product sales. The
Company, however, expects to face increasing competition in the MS marketplace
in and outside the United States from existing and new MS treatments that may
impact sales of AVONEX. In the United States, Biogen expects future growth in
AVONEX revenues to be dependent to a large extent on the Companys ability to
compete successfully with Serono, Inc. (Serono) and its REBIF® interferon
beta 1a product which was launched in the United States in March 2002 as a
treatment for relapsing/remitting MS. The FDA approved REBIF for sale in the
United States over a year before the expiration of AVONEXs orphan drug
marketing exclusivity. Biogen expects Serono to compete aggressively in the
United States market. REBIF is already on the market in the EU. See Outlook 
Competition.

Revenues from royalties in 2001 were $71.8 million, a decrease of $93.6 million
or approximately 57% as compared to $165.4 million of royalty revenue in 2000.
Revenues from royalties represented approximately 7% of total revenues in 2001
as compared to 18% in 2000. The decrease in royalty revenues in 2001 over the
comparable period in 2000 is primarily attributable to expiration of Biogens
alpha interferon patents in most of Europe and in Japan and a dispute, currently
in arbitration, with Schering-Plough Corporation (Schering-Plough) over
royalties payable by Schering-Plough on U.S. sales of its alpha interferon
products, and, to a lesser extent, attributable to lower licensee sales. See Outlook  Royalty Revenue and
Outlook  Patents and Other Proprietary Rights.

Biogen expects the low end of the range of potential royalty revenues in 2002
to be consistent with 2001. The low end of the range excludes amounts that are
subject to the dispute with Schering-Plough. As noted above, Biogen is currently
in arbitration with Schering-Plough on the issue of whether and to what extent
Schering-Plough has an obligation to pay royalties in the United States on
sales of its alpha interferon product. See Outlook  Royalty Revenue. If
Biogen were to prevail in this arbitration in 2002, Biogen expects that royalty
revenues from Schering-Plough in 2002 would be higher than in 2001. Royalty
revenues would also be higher in 2002 than in 2001 if Schering-Plough commences
payments of royalties on sales of alpha interferon products in the United
States based on issuance of a Roche/Genentech patent. See Outlook-Royalty
Revenues. In addition, royalty revenues may fluctuate as a result of
fluctuations in sales levels of products sold by the Companys licensees from
quarter to quarter due to the timing and extent of major events such as new
indication approvals or government sponsored programs. For a discussion of some
of the other factors that may affect royalty revenues in the future, see
Outlook  Royalty Revenue and Outlook  Patents and Other Proprietary
Rights. The Company expects product sales as a percentage of total revenues to
continue to increase in the near and long term as the Company continues to
market AVONEX worldwide.

Costs and expenses

Total costs and expenses in 2001 were $683.2 million as compared to $598.1
million in 2000, an increase of approximately 14%.

Cost of revenues in 2001 totaled $136.5 million, an increase of $11.3 million
or 9% as compared to 2000. The increase in cost of revenues was attributable to
the higher sales volume of AVONEX. Included in cost of revenues in 2001 and
2000 is $131.9 million and $112.9 million, respectively, from product sales and
$4.6 million and $12.3 million, respectively, relating to royalty revenue.
Gross margins on product sales increased to approximately 86% for the period
ended December 31, 2001 compared to 85% for the same period in 2000 due to
efficiencies of production reducing cost of goods sold in 2001. Gross margins
on royalty revenue increased to approximately 94% for the period ended December
31, 2001 compared to 93% for the same period in 2000. The Company expects that
gross margins on royalty revenue will fluctuate in the future based on changes
in sales volumes for specific

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products.

Research and development expenses in 2001 were $314.6 million, an increase of
$11.8 million or 4% as compared to $302.8 million in 2000. The increase was
primarily due to an increase in clinical production and other costs associated
with the Companys development efforts related to its ongoing research and
development programs of $19.9 million and an increase in the funding of
collaboration agreements of $7.2 million, offset by a reduction in the
Companys clinical trial costs of $15.3 million in 2001. Costs for upfront fees
and milestone payments may cause variability in future research and development
expense. See Critical Accounting Policies.

Selling, general and administrative expenses in 2001 were $232.1 million, an
increase of $62 million or 36% as compared to 2000. This increase was primarily
due to an increase in selling and marketing expenses related to the sale of
AVONEX. The Company expects that selling, general and administrative expenses
will continue to increase in the near term as the Company continues to expand
its sales and marketing organizations and efforts necessary to sell AVONEX worldwide in
response to increased competition, and as the Company expands in anticipation
of the possible approval of additional products, including AMEVIVE®
(alefacept).

Other income, net

Other income, net consists of the following (in thousands):

|                        |  |      |         |      |  |   |         |  
|----------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|December 31,            |  | 2001 |         | 2000
|                       
|Interest income         |  | $    | 44,128  |      |  | $ | 42,965  |  
|                       
|                       
|                       
|                       
|Interest expense        |  |      | ( 3,954 | )    |  |   | ( 4,310 | )
|                       
|                       
|                       
|                       
|Other income (expense)  |  |      | (10,875 | )    |  |   | 120,094 |  
|                       
|Total other income, net |  | $    | 29,299  |      |  | $ | 158,749 |  
|                       

Other income, net consists primarily of interest income, partially offset by
interest expenses and other non-operating income and expenses. Other income,
net in 2001 was $29.3 million as compared to $158.7 million in 2000, a decrease
of $129.4 million. Interest income in 2001 was $44.1 million compared to $43
million in 2000, an increase of $1.1 million or 3% due to an increase in funds
invested. The Company expects interest income to vary based on changes in the
amount of funds invested and fluctuations in interest rates. Interest expense
decreased $0.4 million or 9% in 2001 from 2000 due to lower outstanding
borrowing under building loan agreements. Other income (expense) decreased by
$109.2 million in 2001 from 2000. Other income (expense) for the period ended
December 31, 2001 included realized gains on the sale of certain non-current
marketable securities totaling $32.1 million, offset by a $28 million
write-down for unrealized losses on certain non-current marketable securities
that were determined to be other than temporary. Additionally, the Company
reported a charge of $20 million as part of the settlement of an ongoing patent
infringement dispute with Berlex. See Legal Matters. Other income (expense)
for the period ended December 31, 2000 included realized gains on the sale of
certain non-current marketable securities totaling approximately $101.1
million. Additionally, the Company realized gains of approximately $24.1
million in 2000 upon the acquisition by third parties of two companies in which
the Company had invested.

As part of its strategic product development efforts, the Company invests in
equity securities of certain biotechnology companies with which it has
collaborative agreements. As a matter of policy, Biogen determines on a
quarterly basis whether any decline in the fair value of a marketable security
is temporary or other than temporary. Unrealized gains and losses on marketable
securities are included in other comprehensive income in shareholders equity,
net of related tax effects. If a decline in the fair value of a marketable
security below the Companys cost basis is determined to be other than
temporary, such marketable security is written down to its estimated fair value
with a charge to current earnings. The factors that the Company considers in
its assessments include prospects for favorable clinical trial results, new
product initiatives and new collaborative agreements.

As part of its assessments at December 31, 2001, the Company assessed the
unrealized losses on its investments in Curis Inc. and Targeted Genetics
Corporation (see Financial Condition), and determined that the positive
evidence suggesting that the investments described above would recover to at
least the Companys purchase price was not sufficient to overcome the
presumption that the current market price of the investments was the best
indicator of value at December 31, 2001. Accordingly, the related unrealized
losses of approximately $28 million were reclassified from other comprehensive
income to current expense in the fourth quarter of 2001.

The Company had no unrealized losses at December 31, 2001 that were determined
to be temporary.

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Income taxes

The Companys effective tax rate in 2001 was 30%. Income tax expense for 2001
varied from the amount computed at the U.S. federal statutory rates primarily
due to higher sales in European jurisdictions with lower tax rates and to the
utilization of research and development tax credits. The Companys effective
tax rate outside the U.S. is lower than the U.S. tax rate, and the Company
expects that the U.S. tax rate will continue to decline as a percentage of its
total tax rate as international sales increase.

Results of Operations 2000 As Compared to 1999

Revenues

Total revenues in 2000 were $926.5 million, as compared to $794.4 million in
1999, an increase of $132.1 million or approximately 17%.

Product sales in 2000 were $761.1 million as compared to $620.6 million in
1999, an increase of $140.5 million or approximately 23%. Product sales from
AVONEX represent approximately 82% of the Companys total revenues in 2000 as
compared to 78% in 1999. The growth in 2000 was primarily attributable to an
increase in the sales volume of AVONEX in the United States and in the fifteen
member countries of the EU. AVONEX sales outside of the United States were
approximately $208.5 million in 2000 as compared to $178.4 million in 1999.

Revenues from royalties in 2000 were $165.4 million, a decrease of $8.4 million
or approximately 5% as compared to $173.8 million of royalty revenue in 1999.
Revenues from royalties represented approximately 18% of total revenues in 2000
as compared to 22% in 1999. The decrease in royalty revenues in 2000 over the
comparable period in 1999 is primarily the result of reductions attributable to
patent expirations and lower licensee sales.

Costs and expenses

Total costs and expenses in 2000 were $598.1 million as compared to $478.2
million in 1999, an increase of approximately 25%.

Cost of revenues in 2000 totaled $125.2 million, an increase of $14.2 million
or 13% as compared to 1999. The increase in cost of revenues was attributable
to the higher sales volume of AVONEX. Included in cost of revenues in 2000 and
1999 is $112.9 million and $96.9 million, respectively, from product sales and
$12.3 million and $14.1 million, respectively, relating to royalty revenue.
Gross margins on product sales increased to approximately 85% for the period
ended December 31, 2000 compared to 84% for the same period in 1999. Gross
margins on royalty revenue increased to approximately 93% for the period ended
December 31, 2000 compared to 92% for the same period in 1999.

Research and development expenses in 2000 were $302.8 million, an increase of
$81.6 million or 37% as compared to $221.2 million in 1999. The increase was
primarily due to an increase in clinical trial costs of $35.9 million, the
costs associated with an increase in the Companys other development efforts
related to its ongoing research and development programs of $14 million and the
funding of collaboration agreements of $12.4 million.

Selling, general and administrative expenses in 2000 were $170.1 million, an
increase of $24.1 million or 17% as compared to 1999. This increase was
primarily due to an increase in selling and marketing expenses related to the
sale of AVONEX.

Other income, net

Other income, net consists of the following (in thousands):

|                        |  |      |         |      |  |   |         |  
|----------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|December 31,            |  | 2000 |         | 1999
|                       
|Interest income         |  | $    | 42,965  |      |  | $ | 35,407  |  
|                       
|                       
|                       
|                       
|Interest expense        |  |      | (4,310  | )    |  |   | (4,639  | )
|                       
|                       
|                       
|                       
|Other income (expense)  |  |      | 120,094 |      |  |   | (18,003 | )
|                       
|Total other income, net |  | $    | 158,749 |      |  | $ | 12,765  |  
|                       

Other income, net consists primarily of interest income, partially offset by
interest expenses and other non-operating income and expenses. Other income,
net in 2000 was $158.7 million as compared to $12.8 million in 1999, an
increase of $145.9 million. Interest income in 2000 was $43 million compared
$35.4 million in 1999, an increase of $7.6 million or 21% due to higher average
yields and an increase in funds invested. Interest expense decreased $0.3
million or 7% in 2000 from 1999. Other income (expense) increased by $138.1
million in 2000 from 1999. Other income (expense) for the period ended December
31, 2000

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included gains on the sale of certain non-current marketable securities
totaling approximately $101.1 million. Additionally, the Company realized gains
of approximately $24.1 million upon the acquisition of two of its investees by
third parties. Other income (expense) for the period ended December 31, 1999
included a $15 million write-down of certain non-current marketable securities.

Income taxes

The Companys effective tax rate in 2000 was 31.5%. Income tax expense for 2000
varied from the amount computed at the U.S. federal statutory rates primarily
due to higher sales in European jurisdictions with lower tax rates and to the
utilization of research and development tax credits

Financial Condition

At December 31, 2001, cash, cash equivalents and short-term marketable
securities were $798.1 million compared with $682.4 million at December 31,
2000, an increase of $115.7 million. Working capital increased $95.5 million to
$802.8 million. Net cash from operating activities which included
net income, for the year ended December 31, 2001 was
$316.4 million compared with $365.9 million in 2000, and
also included
$32.1 million of realized gains on the sale of non-current marketable
securities, tax benefits related to stock options of
$35.1 million, and a non-cash adjustment of $27.9 million related to the write-down of non-current marketable
securities. Cash outflows from investing activities during 2001 included
investments in property and equipment and patents of $195.5 million and net
purchases of marketable securities totaling $57.4 million. Significant cash
outflows from financing activities included $88.3 million for purchases of the
Companys common stock under its stock repurchase program and $4.9 million for
repayments on loan agreements with banks. Cash inflows from financing
activities included $35 million from common stock option exercises and employee
stock purchase plan activity.

In August 1995, the Company entered into a loan agreement with a bank for
financing the construction of its biological manufacturing facility in North
Carolina (the Construction Loan). During 1997, the Company completed
construction of the facility and the funds advanced under the Construction Loan
were converted to a floating rate ten-year term loan with principal and
interest payable quarterly. As of December 31, 2001, the Company had $33
million outstanding under the Construction Loan. The Construction Loan is
collateralized by the underlying building. The Company also entered into an
interest rate swap agreement with the same bank, fixing its interest rate on
the Construction Loan at 7.75% during the remaining term of the loan with
interest payable quarterly. In addition, as of December 31, 2001, the Company
had $14.2 million outstanding under a floating rate loan with a bank (the Term
Loan). The Term Loan is collateralized by the Companys laboratory and office
building in Cambridge, Massachusetts. The Company has fixed its interest rate
on the Term Loan at 7.5% under the terms of an interest rate swap agreement.
Terms of the Companys loan agreements include various covenants, including
financial covenants which require the Company to maintain minimum net worth,
cash flow and various financial ratios. The Company is in compliance with all
covenants or requirements set forth in its credit agreements.

On December 18, 2000, the Company announced that its Board of Directors had
authorized the repurchase of up to 4 million shares of the Companys common
stock. The repurchased stock provides the Company with treasury shares for
general corporate purposes, such as stock to be issued under employee stock
option and stock purchase plans. During 2001, the Company repurchased
approximately 1.5 million shares of its common stock at a cost of $88.3
million. Approximately 2.5 million shares remain authorized for repurchase
under this program at December 31, 2001. In November of 2000, the Company
completed a previous stock repurchase program. During 2000, the Company
repurchased approximately 4.6 million shares of its common stock under this
program at a cost of $300.2 million.

The Company is building a large scale manufacturing plant in Research Triangle
Park, North Carolina. The Company expects that construction will be completed
early in 2002. The project is expected to cost $175 million, of which $172.5
million had been committed for construction costs at December 31, 2001.
Additionally, the Company began expansion of its Research Triangle Park, North
Carolina complex by constructing a laboratory office building and adding
manufacturing capacity. The projects are expected to be completed by the summer
of 2003 at a total cost of approximately $138 million. As of December 31, 2001,
the Company had committed $87 million for construction costs. The Company is
also completing plans to build a fill finish plant in Denmark. The Company
expects that construction will commence in 2002 and be completed early in 2005,
at an estimated cost of $130 million. At December 31, 2001, $17 million had
been committed for construction costs related to the fill finish plant in
Denmark.

In July 2001, the Company signed a development and marketing collaboration
agreement (the ICOS Agreement) with ICOS Corporation (ICOS), under which
the Company and ICOS will collaborate worldwide on the development and
commercialization of orally active, small molecule LFA-1 antagonists as oral
therapeutics for the treatment of inflammatory conditions. Under the terms of
the ICOS agreement, the Company paid ICOS a one-time, non-refundable license
fee of $8 million, which was charged to research and development expense.
Additionally, as part of the agreement, Biogen made available to ICOS a line of
credit in the amount of $20 million, of which $17.7 million was available at
December 31, 2001. During 2001, the Company provided $2.3 million from the line
of credit to ICOS that was charged to research and development expense in 2001

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upon the achievement of certain clinical milestones by ICOS. As of December 31,
2001, there were no borrowings outstanding under the credit facility. The
Company has committed to providing milestone payments to ICOS upon the
achievement of certain future events. If all the milestones were achieved and
commercialization were to be successful in excess of specified levels of sales,
the Company would be required to pay up to an additional $83.5 million over the
life of the agreement.

In September 2000, the Company signed a research and development agreement (the
Eos Agreement) with Eos Biotechnology, Inc. (Eos), under which the Company
and Eos will collaborate in the research and development of novel targets for
antibody and protein therapeutics in the area of breast cancer. Under the Eos
Agreement, the Company purchased 1.9 million shares of preferred stock of Eos
for $5 million at fair market value. In addition, the Company paid a one-time
non-refundable license fee of $6 million, which was charged to research and
development expense and acquired certain exclusive, worldwide rights related to
breast cancer-specific molecules for the use in the development of new antibody
and secreted protein therapeutics. The Company accounts for its investment in
Eos, which is included in other assets, using the cost method of accounting
subject to periodic review of impairment. The Company provided Eos with
research and development funding of $1.5 million in 2001 and $250,000 in 2000.
The Company expects to fund research activities of Eos related to the
collaboration of up to $1.5 million, $1.75 million and $1 million in 2002,
2003, and 2004, respectively.

In August 2000, the Company signed a development and marketing collaboration
agreement (the Antegren Agreement) with Elan Pharma International, Ltd, an affiliate of
Elan Corporation, plc (Elan) under
which the Company and Elan collaborate in the development, manufacture and
commercialization of Antegren® (natalizumab), a humanized monoclonal antibody
and alpha 4 integrin inhibitor. Under the terms of the Antegren Agreement,
Biogen and Elan will share costs for on-going development activities. The
Company paid a one-time non-refundable license fee of $15 million in 2000,
which was charged to research and development expense. During 2001, the Company
provided $16 million to Elan for certain milestones achieved during the year,
which were charged to research and development expense. The Company has
committed to paying Elan additional amounts upon the completion of certain
future milestones. If all the milestones are achieved, the Company would be
required to pay up to an additional $21 million over the life of the agreement.

In October 1997, the Company signed a research and option agreement (the
CuraGen Agreement) with CuraGen Corporation (CuraGen) under which the
Company and CuraGen collaborate in the discovery of novel genes using CuraGens
functional genomics technologies. The Company provided CuraGen with research
and development funding of $1.5 million and $1.1 million in 2000 and 1999,
respectively. The CuraGen Agreement was terminated in September 2000 and all
investments in CuraGen common stock were sold during the year 2000.

In July 1996, the Company signed a collaborative research and commercialization
agreement (the Ontogeny Agreement) with Ontogeny, Inc. (Ontogeny), a
private biotechnology company, for the development and commercialization of
three specific hedgehog cell proteins, a class of novel human proteins, that
are responsible for reducing the formation or regeneration of tissue. In August
2000, Ontogeny merged with two other biotechnology companies to form Curis Inc.
(Curis). As a shareholder in Ontogeny, Biogen received Curis common stock in
exchange for the Companys shares in Ontogeny. The Company provided $1 million
and $2.8 million of research funding to Ontogeny in 2000 and 1999,
respectively. Additionally, the Company provided $1.5 million upon conclusion
of the Ontogeny Agreement, which was charged to research and development
expense in 2000. At December 31, 2001 the Company retained approximately
308,000 shares of Curis common stock, and included the investment in long-term
marketable securities available-for-sale.

In August 1995, the Company signed a collaborative research agreement (the
Genovo Agreement) for the development of human gene therapy treatments with
Genovo, Inc. (Genovo), a gene therapy research company. Under the Genovo
Agreement, the Company acquired 380,000 shares of Genovo Series A Preferred
stock for $4.5 million and acquired certain licensing rights. The Company
accounted for this investment, which was included in other assets, using the
equity method of accounting. The Company recorded its proportion of Genovos
net losses as research and development expense in the amounts of $3.9 million
and $7.6 million in 2000 and 1999, respectively. In August 2000, Genovo entered
into a merger agreement (Targeted Merger Agreement) with Targeted Genetics
Corporation (Targeted). As a shareholder in Genovo, Biogen received Targeted
common stock in exchange for the Companys shares in Genovo. Additionally,
concurrently with the Targeted Merger Agreement, the Company entered into a
development and marketing agreement and a funding agreement (the Targeted
Agreements) for gene therapy research and development in oncology. The
Targeted Agreements provide for a $10 million credit facility. Targeted also
has an option to sell to the Company an additional $10 million of Targeted
common stock at fair value. As of December 31, 2001, there were $10 million of
borrowings outstanding under the credit facility and no additional common stock
had been purchased by the Company. The Company provided $1 million and $250,000
in research funding to Targeted in 2001 and 2000, respectively. The Company
expects to fund research activities of Targeted related to the collaboration of
up to $1 million and $750,000 in 2002 and 2003, respectively.

The following summarizes the Companys contractual obligations (excluding
contingent milestone payments) at December 31, 2001, and the effects such
obligations are expected to have on its liquidity and cash flows in future
periods.

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|                                   |  |       |         |           |  |                        |        |       |  |         |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ----- | ------- | --------- |  | ---------------------- | ------ | ----- |  | ------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |  |       |         |           |  | Payments due by period |        |       |  |        
|                                  
|                                   |  | Total |         | Less than |  | 1-3                    |        | 4-5   |  | After  
|(in thousands)                     |  | Years |         | 1 year    |  | Years                  |        | Years |  | 5 Years
|                                  
|Long-term debt                     |  | $     | 47,185  |           |  | $                      | 4,888  |       |  | $       | 9,776  |  |  | $ | 15,609 |  |  | $ | 16,912 | 
|                                  
|                                  
|                                  
|                                  
|Non-cancelable operating leases    |  |       | 145,577 |           |  |                        | 20,493 |       |  |         | 37,333 |  |  |   | 30,172 |  |  |   | 57,579 | 
|                                  
|                                  
|                                  
|                                  
|Other long-term obligations        |  |       | 6,000   |           |  |                        | 2,500  |       |  |         | 3,500  |  |  |   |       |  |  |   |       | 
|                                  
|Total contractual cash obligations |  | $     | 198,762 |           |  | $                      | 27,881 |       |  | $       | 50,609 |  |  | $ | 45,781 |  |  | $ | 74,491 | 
|                                  

The Company is in compliance with all covenants or other requirements set forth
in its credit agreements.

The Company does not have any other relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As such, the Company is not exposed to any
financing, liquidity, market or credit risk that could arise if the Company had
engaged in such relationships.

The Company believes that existing funds and cash generated from operations are
adequate to satisfy its working capital and capital expenditure requirements in
the foreseeable future. However, the Company may raise additional capital to
take advantage of favorable conditions in the market or in connection with the
Companys development activities.

Legal Matters

On July 3, 1996, Berlex Laboratories, Inc. (Berlex) filed suit against Biogen
in the United States District Court for the District of New Jersey alleging
infringement by Biogen of Berlexs McCormick patent (U.S. Patent No.
5,376,567) in the United States in the production of Biogens AVONEX product.
In November 1996, Berlexs New Jersey action was transferred to the United
States District Court in Massachusetts and consolidated for pre-trial purposes
with a related declaratory judgment action previously filed by Biogen. On
August 18, 1998, Berlex filed a second suit against Biogen alleging
infringement by Biogen of a patent which was issued to Berlex in August 1998
and which is related to the McCormick patent (U.S. Patent No. 5,795,779). On
September 23, 1998, the cases were consolidated for pre-trial and trial
purposes. Berlex sought a judgment granting it damages, a trebling of any
damages awarded and a permanent injunction restraining Biogen from the alleged
infringement. A hearing on the parties summary judgment motions in the case
was completed in March 2000. In September 2000, the District Court rendered
final judgment in favor of Biogen and against Berlex determining that Biogens
production of AVONEX did not infringe any of the claims of the Berlex patents.
Berlex has appealed this decision with the Court of Appeals for the Federal
Circuit. Oral arguments were presented by the parties to the Court of Appeals
on November 7, 2001 and a decision is expected in the first half of 2002. In
January 2002, Biogen and Berlex reached a settlement of the litigation pursuant
to which the parties agreed to end the dispute in return for a payment of $20
million from Biogen to Berlex, and the possibility of a second and final payment from Biogen to
Berlex if the Court of Appeals were to reverse the District Courts previous
ruling granting summary judgment in favor of Biogen. If the Court of Appeals
were to rule against Biogen and return the case to the District Court, Biogen
believes that the most likely decision would require it to make a second and
final payment of $55 million to Berlex. In the event the ruling is
significantly adverse to Biogen, the second and final payment to Berlex would
be $230 million. As part of the settlement, Biogen and Berlex agreed not to
pursue further litigation about these patents. Biogen has recorded a $20
million charge in Other Income, net in the fourth quarter of 2001 to account
for the first payment to Berlex. The Company has determined that, based on
information currently available, the most probable outcome is that no
additional payments will be required.

In 1995, the Company filed an opposition with the Opposition Division of the
European Patent Office to oppose a European patent (the Rentschler I Patent)
issued to Dr. Rentschler Biotechnologie GmbH (Rentschler) relating to
compositions of matter of beta interferon. In 1997, the European Patent Office
issued a decision to revoke the Rentschler I Patent. Rentschler appealed that
decision and an oral hearing on the appeal took place in December 2000. At the
oral hearing in order to gain reinstatement of the patent, Rentschler narrowed
the patent claims so as to claim only a specific cell line. Biogen does not
use the specific cell line now claimed. On October 13, 1998, the Company filed
another opposition with the Opposition Division of the European Patent Office
to oppose a second European patent issued to Rentschler (the Rentschler II
Patent) with certain claims regarding compositions of matter of beta
interferon with specific regard to the structure of the glycosylated molecule.
A hearing on the Companys opposition previously scheduled for October 2000 has
been postponed, and will likely be held in 2002. While Biogen believes that the
Rentschler II Patent will be revoked, if the Rentschler II Patent were to be
upheld and if Rentschler were to obtain, through legal proceedings, a
determination that the Companys sale of AVONEX in Europe infringes a valid
Rentschler II Patent, such result could have a material adverse effect on the
Companys results of operation and financial position.

Critical Accounting Policies

The preparation of consolidated financial statements requires the Company to
make estimates and judgements that may affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-

8



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going basis, the Company evaluates its estimates, including those related to
revenue recognition, marketable securities, hedging programs, bad debts,
inventories, patents, income taxes, pensions, contingencies and litigation. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgements about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.

Revenue Recognition and Accounts Receivable

SEC Staff Accounting Bulletin No 101 (SAB 101) was effective for the Company
in fiscal 2000. SAB 101 provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements. SAB 101 establishes the
SECs view that it is not appropriate to recognize revenue until all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the sellers price to the
buyer is fixed or determinable; and collectibility is reasonably assured.
Further, SAB 101 requires that both title and the risks and rewards of
ownership be transferred to the buyer before revenue can be recognized. The
Company believes that its revenue recognition policies are in compliance with
SAB 101.

Revenues from product sales are recognized when product is shipped and title
and risk of loss has passed to the customer. Revenues are recorded net of
applicable allowances for returns, rebates and other applicable discounts and
allowances. The timing of distributor orders and shipments can cause
variability in earnings. The Company prepares its estimates for sales returns
and allowances, discounts and rebates quarterly based primarily on historical
experience updated for changes in facts and circumstances, as appropriate. If
actual future results vary, the Company may need to adjust its
estimates, which could have an impact on earnings in the period of
adjustment.

The Company receives royalty revenues under license agreements with a number of
third parties that sell products based on technology developed by the Company
or to which the Company has rights. The license agreements provide for the
payment of royalties to the Company based on sales of the licensed product. The
Company records these revenues based on estimates of the sales that occurred
during the relevant period. The relevant period estimates of sales are based on
interim data provided by licensees and analysis of historical royalties paid to
the Company (adjusted for any changes in facts and circumstances, as
appropriate). The Company maintains regular communication with its licensees in
order to gauge the reasonableness of its estimates. Differences between actual
royalty revenues and estimated royalty revenues are reconciled and adjusted for
in the period which they become known, typically the following quarter.
Historically, adjustments have not been material based on actual amounts paid
by licensees. There are no future performance obligations on the part of the
Company under these license agreements. Under this policy, revenue can vary due
to factors such as resolution of royalty disputes and arbitration.

Revenue is not recognized in any circumstances unless collectibility is
reasonably assured.

Biogen maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of Biogens customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required, which could affect future earnings.

Marketable securities

As part of its strategic product development efforts, the Company invests in
equity securities of certain biotechnology companies with which it has
collaborative agreements. Statement of Financial Accounting Standards (SFAS) No. 115 (SFAS 115),
Accounting for Certain Investment in Debt and Equity Securities, addresses the
accounting for investment in marketable equity securities. As a matter of policy, Biogen determines on a
quarterly basis whether any decline in the fair value of a marketable security
is temporary or other than temporary. Unrealized gains and losses on marketable
securities are included in other comprehensive income in shareholders equity,
net of related tax effects. If a decline in the fair value of a marketable
security below the Companys cost basis is determined to be other than
temporary, such marketable security is written down to its estimated fair value
with a charge to current earnings. The factors that the Company considers in
its assessments include prospects for favorable clinical trial results, new
product initiatives and new collaborative agreements. Any
future determinations that unrealized losses are other than temporary could have an
impact on earnings.



9



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Inventory capitalization

Inventories are stated at the lower of cost or market with cost determined
under the first-in/first-out (FIFO) method, and are included in other current
assets. Included in inventory are raw materials used in the production of
pre-clinical and clinical products, which are expensed as research and
development costs when consumed.

Biogen writes down obsolete or otherwise unmarketable inventory to its
estimated net realizable value. If the actual realizable value is less than
that estimated by Biogen, additional inventory write-downs may be required.

Biogen capitalizes inventory costs associated with certain products prior to
regulatory approval, based on managements judgment of probable future
commercialization. Biogen would be required to expense previously capitalized
costs related to pre-approval inventory upon a change in such judgment, due to,
among other potential factors, a denial or delay of approval by necessary
regulatory bodies. At December 31, 2001, capitalized inventory related to
AMEVIVE, which has not yet received regulatory approval, was
$8.4 million.

Research and development expenses

Research and development expenses are comprised of costs incurred in performing
research and development activities including salaries and benefits, facilities
costs, overhead costs, clinical trial and related clinical manufacturing costs,
contract services and other outside costs. Research and development costs,
including upfront fees and milestones paid to collaborative partners, are
expensed as incurred. The timing of upfront fees and milestone
payments in the future may cause variability in future research and development
expense.

Accounting for contingencies and litigation

Because of the substantive terms of the Berlex settlement arrangement were
agreed to in the fourth quarter of 2001, the Company determined that the
provisions of SFAS 5, Accounting for Contingencies, required that the Company
account for this settlement in its December 31, 2001 financial statements. The
guidance in Financial Accounting Standards Board (FASB), Interpretation No.
14, Reasonable Estimation of the Amount of a Loss, an Interpretation of SFAS 5,
requires that when an amount within the range of potential loss appears to be a
better estimate that any other amount within the range, that amount should be
accrued. It further requires that when no amount within the range is a better
estimate than any other amount, the minimum amount in the range should be
accrued. In the case of the Berlex settlement, Biogen determined that $20
million is both the best estimate of the Companys potential loss, and the
minimum amount in the range of potential losses. As a result, the Company
recorded a charge of $20 million related to this settlement in its December 31,
2001 financial statements.

New Accounting Pronouncements

In July 2001, the FASB issued SFAS 141, Business Combinations and SFAS 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that all business
combinations be accounted for under the purchase method only and that certain
acquired intangible assets in a business combination be recognized as assets
apart from goodwill. SFAS 142 requires that ratable amortization of goodwill
be replaced with periodic tests of the goodwills impairment and that
intangible assets other than goodwill be amortized over their useful lives.
SFAS 141 is effective for all business combinations initiated after June 30,
2001 and for all business combinations accounted for by the purchase method for
which the date of acquisition is after June 30, 2001. The provisions of SFAS
142 will be effective for fiscal years beginning after December 15, 2001, and
will thus be adopted by the Company, as required, in fiscal year 2002. The
impact of SFAS 141 and SFAS 142 on the Companys financial statements is not
expected to be material.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. SFAS
144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001, and will thus be adopted by the Company, as required,
in fiscal year 2002. The adoption of SFAS 144 is not expected to have material
effect on the Companys financial statements.

In February 2002, the FASB Emerging Issues Task Force (EITF) released EITF
Issue No. 01-09 (EITF 01-09), Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendors Products). EITF 01-09
states that cash consideration (including a sales incentive) given by a vendor
to a customer is presumed to be a reduction of the selling prices of the
vendors products or services and, therefore, should be characterized as a
reduction of revenue when recognized in the vendors income statement. The
provisions of EITF 01-09 will be effective for fiscal years beginning after
December 15, 2001, and will thus be adopted by the Company, as required, in
2002. The Company is currently evaluating the effect on the Companys financial
statements of adoption of EITF 01-09.

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Outlook

Safe Harbor Statement Under Private Securities Litigation Reform Act of 1996

In addition to historical information, this annual report contains
forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from those reflected in such
forward-looking statements. Reference is made in particular to forward-looking
statements regarding the anticipated level of future product sales, royalty
revenues, expenses and profits, statements regarding the timing of clinical
trials, statements regarding the potential outcome of clinical programs,
statements regarding expectations regarding regulatory approvals, the marketing
of additional products and predictions as to the impact of competitive
products, predictions regarding the anticipated outcome of pending or
anticipated litigation, arbitration and patent-related proceedings, statements
regarding the Companys expectations regarding facility expansion and Biogens
expectations as to the value of its investments in certain marketable
securities. These and all other forward-looking statements are made based on
Biogens current belief as to the outcome and timing of such future events.
Factors which could cause actual results to differ from Biogens expectations
and which could negatively impact Biogens financial condition and results of
operations are discussed below.

Dependence on AVONEX Sales

Biogens ability to sustain increases in revenues and profitability until
at least approval and launch of a second product will be primarily dependent on
the level of revenues and profitability from AVONEX sales. The level of
revenues from sales of AVONEX will depend on a number of factors, including:
Biogens ability to sustain market share of AVONEX in light of competitive
products for the treatment of multiple sclerosis (MS), including the launch
of REBIF in the United States; continued market acceptance of AVONEX worldwide;
Biogens ability to maintain a high level of patient satisfaction with AVONEX;
the nature of regulatory and pricing decisions related to AVONEX worldwide; the
extent to which AVONEX continues to receive and maintains reimbursement
coverage; the success of ongoing development related to AVONEX in expanded MS
indications; and the continued accessibility of third parties to vial, label,
and distribute AVONEX on acceptable terms.

Competition

Biogen faces increasing competition from other products for the treatment
of relapsing forms of MS. In 2001, AVONEX competed in the United States as a
treatment for MS with three other products: an interferon beta-1b product sold
under the brand name BETASERON® by Berlex Laboratories, a product known as
COPAXONE® (glatiramer acetate) marketed by Teva Neuroscience,
Inc. and Aventis Pharmaceuticals, Inc. and NOVANTRONE® (mitoxantrone for
injection) marketed by Immunex Corporation for patients with clinically
worsening forms of relapsing-remitting and secondary progressive MS. Biogen
expects that competition in the United States will increase significantly with
the March 2002 launch of REBIF, an interferon beta-1a product marketed by
Serono, Inc. (Serono). The FDA approved REBIF for sale in the United States
over a year earlier than the expiration of AVONEXs orphan drug marketing
exclusivity based on the 24-week results of a head-to-head study of AVONEX and
REBIF conducted by Serono. Biogen expects Serono to compete aggressively in
the United States market. In most countries outside of the United States,
AVONEX competes with REBIF, BETASERON (sold in the EU by Schering A.G. under
the name BETAFERON®), and COPAXONE.

A number of companies, including Biogen, are working to develop products
to treat MS which may in the future compete with AVONEX, the worldwide market
leader among MS therapies. AVONEX may also in the future face competition from
off-label uses of drugs approved for other indications. Some of Biogens
current competitors are also working to develop alternative formulations for
delivery of their products which may in the future compete with AVONEX. Biogen
believes that competition among treatments for MS will be based on product
performance, service and price.

If AMEVIVE is approved, Biogen will also face significant competition from
other products for the treatment of moderate-to-severe plaque psoriasis.
AMEVIVE would compete with existing therapies such as oral retinoids, steroids,
methotrexate and cyclosporin, as well as new drugs currently in development and
drugs approved for other indications. Genentech and Xoma Corporation are
co-developing XANELIM® (efalizumab), an antibody designed to block certain
immune cells as a potential treatment for moderate-to-severe psoriasis. The
companies have completed Phase 3 trials for XANELIM and expect to complete a
one-year Phase 3 extension trial in early 2002. Centocor, Inc. sells REMICADE®
(Infliximab) worldwide as a treatment for other indications and has initiated a
Phase 2 proof of concept study for REMICADE as a potential treatment for
psoriasis. ENBREL® (etanercept), a drug co-developed by Immunex Corporation
and Wyeth (formerly American Home Products Corporation) has been approved by
the FDA as a treatment for psoriatic arthritis, a disease that has skin plaque
systems associated with moderate-to-severe plaque psoriasis. In addition, a
number of other companies are working to develop products to treat psoriasis
which may ultimately compete with AMEVIVE.

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Royalty Revenue

Biogen receives royalty revenues which, prior to 2001, contributed a
significant amount to its overall profitability. Royalty revenues have
decreased significantly in recent years primarily as the result of patent
expirations, see Outlook  Patents and Other Proprietary Rights, and a
royalty dispute with Schering-Plough. As noted above, Biogen is currently in
arbitration with Schering-Plough on the issue of whether and to what extent
Schering-Plough has an obligation to pay royalties in the United States on
sales of its alpha interferon products. Schering-Plough has taken the position
that a Court of Appeals decision affirming a District Courts ruling which
narrowed the scope of the claims of Biogens United States alpha interferon
patent (the 901 Patent) allowed it to discontinue royalty payments to Biogen
in the United States on sales of its alpha interferon products. The Court of
Appeals decision came as part of a suit filed by Schering-Plough, as Biogens
exclusive licensee, against Amgen, Inc. (Amgen) to enforce the 901 Patent
which Schering-Plough claimed was infringed by Amgens consensus interferon
product. Biogen disagrees with Schering-Ploughs position and has filed for
arbitration to compel payment of unpaid past royalties and to ensure payment of
royalties due in the future under the license agreement. Given
Schering-Ploughs history of taking aggressive positions in contract
interpretation, Biogen has included in the arbitration claims which would
resolve issues related to future royalty payments to pre-empt any potential
challenges by Schering-Plough. These claims include asking the arbitration
panel to confirm Schering-Ploughs obligation to commence royalty payments in
July 2002 (the expiration date of the 901 Patent) based on a patent application
owned by F. Hoffman-LaRoche (Roche) and Genentech, Inc. (Genentech). The
agreement between Biogen and Schering-Plough extending Schering-Ploughs
royalty obligation beyond the expiration date of the 901 Patent was part of the
settlement of a lawsuit between Biogen and Roche/Genentech. In return for
Schering-Ploughs agreement to extend its royalty obligation, Biogen settled
the lawsuit with Roche/Genentech and Roche granted Schering-Plough an exclusive
license for Schering-Plough to sell its products under the Roche/Genentech
patent rights that were the subject of the dispute. Biogen intends to
vigorously pursue its claims against Schering-Plough, but there is no guarantee
that Biogen will be successful in its efforts.There are a number of other
factors which could also cause the actual level of royalty revenue to differ
from Biogens expectations. For example, pricing reforms, health care reform
initiatives, other legal and regulatory developments and the introduction of
competitive products may have an impact on product sales by Biogens licensees.
In addition, sales levels of products sold by Biogens licensees may fluctuate
from quarter to quarter due to the timing and extent of major events such as
new indication approvals or government sponsored programs. Since Biogen is not
involved in the development or sale of products by its licensees, it cannot be
certain of the timing or potential impact of factors which may affect sales by
licensees. See Outlook  Patents and Other Proprietary Rights.

Patents and Other Proprietary Rights

Biogen has numerous issued patents and patent applications pending on a
number of its processes and products. Biogen has also obtained rights to
certain patents under licenses with third parties which provide for the payment
of royalties. There can be no assurances that Biogens existing patents or
others, if obtained, will substantially protect or commercially benefit Biogen.
In addition, Biogen does not know to what extent its pending patent
applications or patent applications licensed from third parties will be granted
or whether any of Biogens patents will prevail if they are challenged in
litigation. Also, there is also no assurance that third parties have not or
will not be granted patents claiming subject matter necessary to Biogens
business. Biogen is aware that others, including various universities and
companies working in the biotechnology field, have also filed patent
applications and have been granted patents in the United States and in other
countries claiming subject matter potentially useful or necessary to Biogens
business. Some of those patents and patent applications claim only specific
products or methods of making such products, while others claim more general
processes or techniques useful or now used in the biotechnology industry. For
example, Genentech has been granted patents and is prosecuting other patent
applications in the United States and certain other countries which it may
allege are currently used by Biogen and the rest of the biotechnology industry
to produce recombinant proteins in host cells. Genentech has offered to Biogen
and others in the industry non-exclusive licenses under some of those patents
and patent applications for various proteins and in various fields of use, but
not for others. Biogen is also aware of certain patents held by Genentech relating
to immunoadhesion technology that Genentech may take the position are valid and
infringed by Biogens future commercial activities with AMEVIVE. Biogen is
evaluating these patents to determine if a license should be taken. The
ultimate scope and validity of Genentechs patents, of other existing patents,
or of patents which may be granted to third parties in the future, and the
extent to which Biogen may wish or be required to acquire rights under such
patents and the availability and cost of acquiring such rights, currently
cannot be determined by Biogen.

Biogen has granted an exclusive worldwide license to Schering-Plough under
Biogens alpha interferon patents. Schering-Ploughs royalty obligation to
Biogen on sales of Schering-Ploughs INTRON® A brand of alpha interferon in
Japan and Europe terminated upon expiration of Biogens alpha interferon patent
in such territories in January 2001, except in France, Italy and Spain. Biogen
has obtained supplementary protection certificates in France and Italy
extending the coverage (in France until 2003 and in Italy until 2007). In
Spain, Biogens alpha interferon patents expire in 2003. In 2000, a Court of
Appeals decision affirmed a District Courts decision narrowing the scope of
Biogens United States alpha interferon patents. For a discussion of the
arbitration with Schering-Plough over the implications of the decision on the
amount of royalties owed to Biogen on sales of alpha interferon products in the
United States, see Outlook  Royalty Revenue. In consideration of assignment
to Schering-Plough by Biogen of a Biogen patent application claiming
recombinant mature human alpha interferon, Schering-Plough has agreed to pay to
Biogen certain sums on sales by Schering-Plough of alpha interferon products in
the United States from the date when Biogens existing United States alpha
interferon patent expires (i.e. July 2002) until expiration of the
Roche/Genentech patent. The

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Roche/Genentech patent right was the subject of a lawsuit brought by
Biogen which was ultimately settled. Schering-Plough entered into an agreement
with Roche as part of the settlement. In addition to deciding other aspects of
the royalty dispute, Biogen has asked an arbitration panel to confirm
Schering-Ploughs obligation to pay royalties commencing in July 2002. See
Outlook  Royalty Revenues.

Biogen has licensed its recombinant hepatitis B antigen patent rights to
GlaxoSmithKline plc and Merck and Co, Inc. to manufacturer and market hepatitis
B vaccines and to manufacturers of diagnostic test kits, and receives royalties
on sales of the vaccines and test kits by its licensees. See Principal
Products Being Marketed or Developed by Biogens Licensees  Hepatitis B
Vaccines and Diagnostics. The obligation of Glaxo and Merck to pay royalties
on sales of hepatitis B vaccines and the obligation of Biogens other licensees
under its hepatitis B patents to pay royalties on sales of diagnostic products
will terminate upon expiration of Biogens hepatitis B patents in each licensed
country. Following the conclusion of a successful interference proceeding in
the United States, Biogen was granted patents in the United States expiring in
2018 and which broadly cover hepatitis B virus polypeptides and vaccines and
diagnostics containing such polypeptides. Biogens European hepatitis B
patents expired at the end of 1999, except in those countries in which Biogen
has obtained supplementary protection certificates. Coverage under
supplementary protection certificates still exists in Austria, France, Italy,
Luxembourg and Sweden. The additional coverage afforded by the supplementary
protection certificates ranges from one to five years. There can be no
assurance as to the extent of coverage available under the supplementary
protection certificates, or that protection will be available in additional
countries.

There has been, and Biogen expects that there may continue to be
significant litigation in the industry regarding patents and other intellectual
property rights. Such litigation could create uncertainty and consume
substantial resources. See also Legal Matters.

Products

AVONEX is currently the only product sold by Biogen. Biogens long-term
viability and growth will depend on the successful development and
commercialization of other products from its research and development
activities and collaborations. Biogen expects that its next product on the
market will be AMEVIVE. In the second quarter of 2001, the Company completed
Phase 3 clinical studies of both the intramuscular and intravenous formulations
of AMEVIVE in patients with moderate to severe psoriasis. In August of 2001,
Biogen completed a simultaneous filing for regulatory approval of AMEVIVE in
the United States and Europe, with submission of data from the clinical
studies. The applications are currently under review by both the FDA and
regulatory authorities in the EU. Biogen continues to expand its development
efforts related to other potential products in its pipeline. The expansion of
the pipeline may include increases in spending on internal projects, the
acquisition of third-party technologies or products or other types of
investments. Product development involves a high degree of risk. Only a small
number of research and development programs result in the commercialization of
a product. Success in preclinical and early clinical trials does not ensure
that later stage or large-scale clinical trials will be successful. Many
important factors affect Biogens ability to successfully develop and
commercialize AMEVIVE and its other potential products, including the ability
to obtain and maintain necessary patents and licenses, to demonstrate safety
and efficacy of drug candidates at each stage of the clinical trial process, to
overcome technical hurdles that may arise, to meet applicable regulatory
standards, to obtain reimbursement coverage for the products, to receive
required regulatory approvals, to be capable of producing drug candidates in
commercial quantities at reasonable costs, to compete successfully against
other products and to market products successfully. Success in early stage
clinical trials or preclinical work does not ensure that later stage or larger
scale clinical trials will be successful. Even if later stage clinical trials
are successful, the risk exists that unexpected concerns may arise from
analysis of data or from additional data or that obstacles may arise or issues
be identified in connection with review of clinical data with regulatory
authorities or that regulatory authorities may disagree with the Companys view
of the data or require additional data or information or additional studies.
There can be no assurance that Biogen will be successful in its efforts to
develop and commercialize new products.

Market Risk

Biogen has exposure to financial risk in several areas including changes
in foreign exchange rates and interest rates. Biogen attempts to minimize its
exposures by using certain financial instruments, for purposes other than
trading, in accordance with the Biogens overall risk management guidelines.
Further information regarding the Biogens accounting policies for financial
instruments and disclosures of financial instruments can be found in Notes 1, 2
and 3 to Biogens Consolidated Financial Statements.

Foreign Exchange

Biogen has operations in several European countries, Japan, Australia and
Canada in connection with the sale of AVONEX. Biogen also receives royalty
revenues based on worldwide product sales by its licensees. As a result,
Biogens financial position, results of operations and cash flows can be
affected by fluctuations in foreign currency exchange rates (primarily the
Euro, British pound, Japanese yen and Canadian dollar).

13



---



##### 



Biogen uses foreign currency forward contracts to manage foreign currency
risk and does not engage in currency speculation. Biogen uses these forward
contracts to hedge certain forecasted transactions denominated in foreign
currencies. A hypothetical adverse 10% movement in foreign exchange rates
compared to the U.S. dollar across all maturities would result in a
hypothetical loss in fair value of approximately $11 million. Biogens use of
this methodology to quantify the market risk of such instruments should not be
construed as an endorsement of its accuracy or the accuracy of the related
assumptions. The quantitative information about market risk is necessarily
limited because it does not take into account operating transactions.

Interest Rates

Biogen is exposed to risk of interest rate fluctuations in connection with
its variable rate long-term debt. The Term Loan requires annual principal
payments of $1.7 million through 2004, with the balance due in 2005. The
Construction Loan requires annual principal payments of $3.2 million through
2006, with the balance due in 2007. At December 31, 2001, the carrying values
of the Term Loan and the Construction Loan approximated fair value.

Biogen has fixed its interest rates on the Term Loan and Construction Loan
by entering interest rate swap agreements under which Biogen exchanges the
difference between 7.5% and 7.75%, respectively, and a floating rate. The
notional principal balances on the interest rate swap agreements are exactly
equal to the principal on the underlying debt agreements. All other relevant
terms of the interest rate swap agreements (including the index rate, reset
period, etc.) exactly match the underlying loan agreements. The fair value of
the interest rate swap agreements at December 31, 2001, representing the cash
requirements of Biogen to settle the agreements, was approximately $3.3
million. Terms of Biogens loan agreements include various covenants, including
financial covenants which require Biogen to maintain minimum net worth, cash
flow and various financial ratios.

The fair value of Biogens cash, cash equivalents, marketable securities,
long-term debt and interest rate swap agreements are subject to change as a
result of potential changes in market interest rates. The potential change in
fair value for interest rate sensitive instruments has been assessed on a
hypothetical 100 basis point adverse movement across all maturities. Biogen
estimates that such hypothetical adverse 100 basis point movement would not
have materially impacted net income or materially affected the fair value of
interest rate sensitive instruments.

Stock Price

The stock prices of biotechnology companies are subject to significant
fluctuations. The stock price may be affected by a number of factors including,
but not limited to clinical trial results and other product development events,
the outcome of litigation, the financial impact of changes in the value of
investments, including investments in other biotechnology companies, the
decisions relating to intellectual property rights and the entrance of
competitive products into the market, changes in reimbursement policies or
other practices related to the pharmaceutical industry or other industry and
market changes or trends. In addition, if revenues or earnings in any quarter
fail to meet the investment communitys expectations, there could be an
immediate adverse impact on Biogens stock price.

14



---



##### 



Consolidated Statements of Income
Biogen, Inc. and Subsidiaries



(in thousands, except per share amounts)

|                                 |                                   |      |   |           |  |      |   |         |  |  |   |         | 
|-------------------------------- | --------------------------------- | ---- | - | --------- |  | ---- | - | ------- |  |  | - | ------- | 
|For the years ended December 31, |                                   | 2001 |   | 2000      |  | 1999
|                                
|                                 |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|Revenues:                        |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|                                 | Product                           |      | $ | 971,594   |  |      | $ | 761,079 |  |  | $ | 620,636 | 
|                                
|                                
|                                
|                                
|                                 | Royalties                         |      |   | 71,766    |  |      |   | 165,373 |  |  |   | 173,799 | 
|                                
|                                 | Total revenues                    |      |   | 1,043,360 |  |      |   | 926,452 |  |  |   | 794,435 | 
|                                
|                                 |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|Costs and expenses:              |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|                                 | Cost of revenues                  |      |   | 136,510   |  |      |   | 125,198 |  |  |   | 111,005 | 
|                                
|                                
|                                
|                                
|                                 | Research and development          |      |   | 314,556   |  |      |   | 302,840 |  |  |   | 221,153 | 
|                                
|                                
|                                
|                                
|                                 | Selling, general & administrative |      |   | 232,096   |  |      |   | 170,058 |  |  |   | 146,026 | 
|                                
|                                 | Total costs and expenses          |      |   | 683,162   |  |      |   | 598,096 |  |  |   | 478,184 | 
|                                
|                                 |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|                                 | Income from operations            |      |   | 360,198   |  |      |   | 328,356 |  |  |   | 316,251 | 
|                                
|                                
|                                
|                                
|                                 | Other income, net                 |      |   | 29,299    |  |      |   | 158,749 |  |  |   | 12,765  | 
|                                
|                                 | Income before income taxes        |      |   | 389,497   |  |      |   | 487,105 |  |  |   | 329,016 | 
|                                
|                                
|                                
|                                
|                                 | Income taxes                      |      |   | 116,814   |  |      |   | 153,528 |  |  |   | 108,566 | 
|                                
|                                 | Net Income                        |      | $ | 272,683   |  |      | $ | 333,577 |  |  | $ | 220,450 | 
|                                
|                                 |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|                                 | Basic earnings per share          |      | $ | 1.84      |  |      | $ | 2.24    |  |  | $ | 1.47    | 
|                                
|                                 | Diluted earnings per share        |      | $ | 1.78      |  |      | $ | 2.16    |  |  | $ | 1.40    | 
|                                
|                                 |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|Shares used in calculating:      |                                   |      |   |           |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|                                 | Basic earnings per share          |      |   | 148,355   |  |      |   | 148,743 |  |  |   | 149,921 | 
|                                
|                                 | Diluted earnings per share        |      |   | 152,916   |  |      |   | 154,602 |  |  |   | 157,788 | 
|                                

See accompanying notes to consolidated financial statements.

15



---



##### 



Consolidated Balance Sheets
Biogen, Inc. and Subsidiaries



(in thousands, except share amounts)

|                                     |                                                                                                                     |      |           |           |   |   |           |           |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | ---- | --------- | --------- | - | - | --------- | --------- | -
|As of December 31,                   |                                                                                                                     | 2001 |           | 2000     
|                                    
|                                     |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|Assets                               |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|Current assets                       |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                           |      | $         | 54,042    |   |   | $         | 48,737    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Marketable securities                                                                                               |      |           | 744,065   |   |   |           | 633,675   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, less allowance for doubtful
accounts of $2,082 and $2,436, respectively                        |      |           | 177,582   |   |   |           | 143,178   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax assets                                                                                                 |      |           | 44,108    |   |   |           | 40,047    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other current assets                                                                                                |      |           | 77,930    |   |   |           | 62,634    |  
|                                    
|                                     | Total current assets                                                                                                |      |           | 1,097,727 |   |   |           | 928,271   |  
|                                    
|                                     |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|Property and equipment, net          |                                                                                                                     |      | 555,998   |           |   |   | 400,429   |          
|                                    
|                                    
|                                    
|                                    
|Patents                              |                                                                                                                     |      | 16,562    |           |   |   | 13,510    |          
|                                    
|                                    
|                                    
|                                    
|Marketable securities                |                                                                                                                     |      | 12,183    |           |   |   | 71,982    |          
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                                                                                     |      | 38,576    |           |   |   | 17,664    |          
|                                    
|                                     |                                                                                                                     | $    | 1,721,046 |           |   | $ | 1,431,856 |          
|                                    
|                                     |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|Liabilities and Shareholders Equity |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|Current liabilities                  |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                    |      | $         | 50,944    |   |   | $         | 37,869    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                   |      |           | 4,888     |   |   |           | 4,888     |  
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued expenses and other                                                                                          |      |           | 239,110   |   |   |           | 178,264   |  
|                                    
|                                     | Total current liabilities                                                                                           |      |           | 294,942   |   |   |           | 221,021   |  
|                                    
|                                     |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|Long-term debt, less current portion |                                                                                                                     |      | 42,297    |           |   |   | 47,185    |          
|                                    
|                                    
|                                    
|                                    
|Other long-term liabilities          |                                                                                                                     |      | 34,975    |           |   |   | 57,248    |          
|                                    
|                                    
|                                    
|                                    
|Commitments and contingencies        |                                                                                                                     |      |          |           |   |   |          |          
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|Shareholders equity                 |                                                                                                                     |      |           |           |   |   |           |          
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, par value $0.01 per share (375,000,000
Shares authorized; 151,705,636 shares issued in
2001 and 2000) |      |           | 1,517     |   |   |           | 1,517     |  
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                          |      |           | 808,076   |   |   |           | 772,172   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Treasury stock, at cost, 3,233,351 and 3,882,979
shares in 2001 and 2000, respectively                              |      |           | (176,123  | ) |   |           | (233,576  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                                   |      |           | 705,893   |   |   |           | 543,913   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income                                                                              |      |           | 9,469     |   |   |           | 22,376    |  
|                                    
|                                     | Total shareholders equity                                                                                          |      |           | 1,348,832 |   |   |           | 1,106,402 |  
|                                    
|                                     |                                                                                                                     | $    | 1,721,046 |           |   | $ | 1,431,856 |          
|                                    

See accompanying notes to consolidated financial statements.

16



---



##### 



Consolidated Statements of Cash Flows
Biogen, Inc. and Subsidiaries



(in thousands)



|                                                                                |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |           |         |  
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | -------- | -------- | ------- | ---- | -------- | -------- | ------- | - | ---------- | --------- | ------- | -
|For the years ended December 31,                                                |                                                                                    | 2001                                                                           |          | 2000     |         | 1999
|                                                                               
|                                                                                |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash Flows from Operating Activities
Net Income                                 |                                                                                    | $                                                                              | 272,683  |          |         | $    | 333,577  |          |         | $ | 220,450    |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Adjustments to reconcile net income to net
cash provided from operating activities |                                                                                |          |          |         |      |          |          |         |   |            |           |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Depreciation and amortization                                                      |                                                                                |          | 36,913   |         |      |          | 38,824   |         |   |            | 31,099    |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Other                                                                              |                                                                                |          | (267     | )       |      |          | (569     | )       |   |            | 5,162     |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Deferred income taxes                                                              |                                                                                |          | (18,100  | )       |      |          | 25,203   |         |   |            | (23,981   | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Realized gain on sale of non-current marketable securities                         |                                                                                |          | (32,143  | )       |      |          | (101,129 | )       |   |            |          |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Tax benefit of stock options                                                       |                                                                                |          | 35,075   |         |      |          | 81,023   |         |   |            | 91,295    |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Write-down of non-current marketable securities                                    |                                                                                |          | 27,942   |         |      |          |         |         |   |            | 15,287    |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Changes in:                                                                        |                                                                                |          |          |         |      |          |          |         |   |            |           |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                                                                    | Accounts receivable                                                            |          |          | (34,404 | )    |          |          | (5,815  | ) |            |           | (36,082 | )
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                                                                    | Other current and other assets                                                 |          |          | (41,884 | )    |          |          | (35,329 | ) |            |           | (41,372 | )
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                                                                    | Accounts payable, accrued expenses and
other current and long-term liabilities |          |          | 70,543  |      |          |          | 30,154  |   |            |           | 101,725 |  
|                                                                               
|                                                                                | Net cash flows from operating activities                                           |                                                                                |          | 316,358  |         |      |          | 365,939  |         |   |            | 363,583   |        
|                                                                               
|                                                                                |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash Flows from Investing Activities
Purchases of current marketable securities |                                                                                    |                                                                                | (827,807 | )        |         |      | (627,168 | )        |         |   | (1,120,218 | )        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Proceeds from sales and maturities of current
marketable securities                |                                                                                |          | 734,599  |         |      |          | 606,087  |         |   |            | 1,006,465 |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Proceeds from sales of non-current marketable securities                           |                                                                                |          | 35,827   |         |      |          | 120,199  |         |   |            |          |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Investment in collaborative partners                                               |                                                                                |          |         |         |      |          | (5,000   | )       |   |            | (10,000   | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Acquisitions of property and equipment                                             |                                                                                |          | (190,753 | )       |      |          | (194,402 | )       |   |            | (82,528   | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Additions to patents                                                               |                                                                                |          | (4,781   | )       |      |          | (4,713   | )       |   |            | (3,799    | )      
|                                                                               
|                                                                                | Net cash flows from investing activities                                           |                                                                                |          | (252,915 | )       |      |          | (104,997 | )       |   |            | (210,080  | )      
|                                                                               
|                                                                                |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash Flows from Financing Activities
Repayments on long-term debt               |                                                                                    |                                                                                | (4,888   | )        |         |      | (4,888   | )        |         |   | (4,887     | )        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Purchases of treasury stock                                                        |                                                                                |          | (88,284  | )       |      |          | (300,192 | )       |   |            | (197,717  | )      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Proceeds from put warrants                                                         |                                                                                |          |         |         |      |          |         |         |   |            | 22,086    |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Issuance of common stock and option exercises                                      |                                                                                |          | 35,034   |         |      |          | 35,955   |         |   |            | 58,490    |        
|                                                                               
|                                                                                | Net cash flows from financing activities                                           |                                                                                |          | (58,138  | )       |      |          | (269,125 | )       |   |            | (122,028  | )      
|                                                                               
|                                                                                |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Net increase (decrease) in cash and cash equivalents                            |                                                                                    |                                                                                | 5,305    |          |         |      | (8,183   | )        |         |   | 31,475     |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash and cash equivalents, beginning of the year                                |                                                                                    |                                                                                | 48,737   |          |         |      | 56,920   |          |         |   | 25,445     |          
|                                                                               
|                                                                               
|Cash and cash equivalents, end of the year                                      |                                                                                    | $                                                                              | 54,042   |          |         | $    | 48,737   |          |         | $ | 56,920     |          
|                                                                               
|                                                                                |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Supplemental Cash Flow Data                                                     |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash paid during the year for:                                                  |                                                                                    |                                                                                |          |          |         |      |          |          |         |   |            |          
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Interest                                                                           |                                                                                | $        | 3,954    |         |      | $        | 4,314    |         |   | $          | 4,598     |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Income taxes                                                                       |                                                                                | $        | 79,002   |         |      | $        | 42,683   |         |   | $          | 4,787     |        

See accompanying notes to consolidated financial statements.

17



---



##### 



Consolidated Statements of Shareholders Equity
Biogen, Inc. and Subsidiaries



|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |         | 
|----------------------------------------------------------------------------------- | -------------------------- | ----- | ------ | ------- | ------- | ----- | ---------- | -------- | -------- | ------ | ------------- | ------ | ------------- | - | -------- | - | ----- | - | ----------- | - |  | - | --------- | ------- | 
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | Accumulated |   |  |   |          
|                                                                                    |                            |       |        |         |         |       | Additional |          |          |        |               |        |               |   |          |   | Other |   | Total      
|                                                                                    |                            |       | Common |         | Paid-in |       | Treasury   |          | Retained |        | Comprehensive |        | Shareholders'
|(in thousands)                                                                      |                            | Stock |        | Capital |         | Stock |            | Earnings |          | Income |               | Equity
|                                                                                   
|Balance, December 31, 1998                                                          |                            | $     | 1,483  |         |         | $     | 538,105    |          |          | $      | (21,317       | )      |               | $ | 213,507  |   |       | $ | (13,165     | ) |  | $ | 718,613   |        
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Net income                                                                          |                            |       |        |         |         |       |            |          |          |        |               |        |               |   | 220,450  |   |       |   |             |   |  |   | 220,450   |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on marketable
securities, net of tax of $25,013             |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | 48,555      |   |  |   | 48,555    |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on foreign currency
forward contracts, net of tax of $2,490 |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | 6,654       |   |  |   | 6,654     |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on interest rate
swaps, net of tax of $137                  |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | 4,501       |   |  |   | 4,501     |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Translation adjustment                                                              |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (927        | ) |  |   | (927      | )      
|                                                                                   
|                                                                                    | Total comprehensive income |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           | 279,233 | 
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Exercise of options and related tax benefits                                        |                            |       | 24     |         |         |       | 108,952    |          |          |        | 122,750       |        |               |   | (81,941  | ) |       |   |             |   |  |   | 149,785   |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Proceeds from sale of put warrants                                                  |                            |       |        |         |         |       | 22,086     |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   | 22,086    |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Treasury stock purchased                                                            |                            |       |        |         |         |       |            |          |          |        | (197,717      | )      |               |   |          |   |       |   |             |   |  |   | (197,717  | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Compensation expense related to stock options                                       |                            |       |        |         |         |       | 7,530      |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   | 7,530     |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|Balance, December 31, 1999                                                          |                            | $     | 1,507  |         |         | $     | 676,673    |          |          | $      | (96,284       | )      |               | $ | 352,016  |   |       | $ | 45,618      |   |  | $ | 979,530   |        
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Net income                                                                          |                            |       |        |         |         |       |            |          |          |        |               |        |               |   | 333,577  |   |       |   |             |   |  |   | 333,577   |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on marketable
securities, net of tax of $6,791              |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (16,152     | ) |  |   | (16,152   | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on foreign currency
forward contracts, net of tax of $1,686 |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (5,311      | ) |  |   | (5,311    | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on interest rate
swaps, net of tax of $789                  |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (1,458      | ) |  |   | (1,458    | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Translation adjustment                                                              |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (321        | ) |  |   | (321      | )      
|                                                                                   
|                                                                                    | Total comprehensive income |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           | 310,335 | 
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Exercise of options and related tax benefits                                        |                            |       | 10     |         |         |       | 95,748     |          |          |        | 162,900       |        |               |   | (141,680 | ) |       |   |             |   |  |   | 116,978   |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Treasury stock purchased                                                            |                            |       |        |         |         |       |            |          |          |        | (300,192      | )      |               |   |          |   |       |   |             |   |  |   | (300,192  | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Compensation expense related to stock options                                       |                            |       |        |         |         |       | (249       | )        |          |        |               |        |               |   |          |   |       |   |             |   |  |   | (249      | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|Balance, December 31, 2000                                                          |                            | $     | 1,517  |         |         | $     | 772,172    |          |          | $      | (233,576      | )      |               | $ | 543,913  |   |       | $ | 22,376      |   |  | $ | 1,106,402 |        
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Net income                                                                          |                            |       |        |         |         |       |            |          |          |        |               |        |               |   | 272,683  |   |       |   |             |   |  |   | 272,683   |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on marketable
securities, net of tax of $4,750              |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (11,352     | ) |  |   | (11,352   | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on foreign currency
forward contracts, net of tax of $52    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (87         | ) |  |   | (87       | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Unrealized gains/losses on interest rate
swaps, net of tax of $587                  |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (981        | ) |  |   | (981      | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Translation adjustment                                                              |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   | (487        | ) |  |   | (487      | )      
|                                                                                   
|                                                                                    | Total comprehensive income |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           | 259,776 | 
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Exercise of options and related tax benefits                                        |                            |       |        |         |         |       | 35,075     |          |          |        | 145,737       |        |               |   | (110,703 | ) |       |   |             |   |  |   | 70,109    |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Treasury stock purchased                                                            |                            |       |        |         |         |       |            |          |          |        | (88,284       | )      |               |   |          |   |       |   |             |   |  |   | (88,284   | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Compensation expense related to stock options                                       |                            |       |        |         |         |       | 829        |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   | 829       |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                            |       |        |         |         |       |            |          |          |        |               |        |               |   |          |   |       |   |             |   |  |   |           |        
|                                                                                   
|Balance, December 31, 2001                                                          |                            | $     | 1,517  |         |         | $     | 808,076    |          |          | $      | (176,123      | )      |               | $ | 705,893  |   |       | $ | 9,469       |   |  | $ | 1,348,832 |        
|                                                                                   

See accompanying notes to consolidated financial statements.

18



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##### 



Notes to Consolidated Financial Statements
Biogen, Inc. and Subsidiaries



1. Summary of Significant Accounting Policies

Business

Biogen, Inc. (Biogen or the Company) is a biopharmaceutical company
principally engaged in the business of developing, manufacturing and marketing
drugs for human health care. The Company currently derives revenues from sales
of its AVONEX® (Interferon beta-la) product for the treatment of relapsing
forms of multiple sclerosis and from royalties on worldwide sales by the
Companys licensees of a number of products covered under patents controlled by
the Company, including alpha interferon and hepatitis B vaccines and diagnostic
products.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated. Certain items in prior years financial
statements have been reclassified to conform with the current years
presentation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and use assumptions
that affect certain reported amounts and disclosures; actual amounts may
differ.

Translation of Foreign Currencies

The functional currency for most of the Companys foreign subsidiaries is the
local currency. Assets and liabilities are translated at current rates of
exchange. Income and expense items are translated at the average exchange rates
for the year. Adjustments resulting from the translation of the financial
statements of the Companys foreign operations into U.S. dollars are excluded
from the determination of net income and are accumulated in a separate
component of shareholders equity. The U.S. dollar is the functional currency
for certain foreign subsidiaries. The Companys subsidiaries which have the
U.S. dollar as the functional currency are remeasured into U.S. dollars using
current rates of exchange for monetary assets and liabilities and historical
rates of exchange for nonmonetary assets. Foreign exchange transaction gains
and losses are included in the results of operations in other income, net.
Foreign exchange gains totaled $1.2 million, $2.8 million and $2.5 million in
2001, 2000, and 1999, respectively.

Cash and Cash Equivalents

The Company considers only those investments, which are highly liquid, readily
convertible to cash and which mature within three months from date of purchase
to be cash equivalents.

Fair Value of Financial Instruments

The carrying amounts reflected in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, other current assets, accounts payable,
and accrued expenses and other, approximate fair value due to their short-term
maturities. Marketable securities are carried at fair value based on quoted
market prices, consistent with the requirements of Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The fair values of trading securities, interest rate swaps,
foreign currency forward contracts and options on non-marketable instruments
are based on quoted market prices or pricing models using current market rates.
The Companys long-term debt approximates fair value.

19



---



##### 



Inventories

Inventories are stated at the lower of cost or market with cost determined
under the first-in/first-out (FIFO) method and are included in other current
assets. Included in inventory are raw materials used in the production of
pre-clinical and clinical products which are expensed as research and
development costs when consumed. The components of inventories for the periods
ending December 31, are as follows:

|                |  |      |        |      |  |   |        | 
|--------------- |  | ---- | ------ | ---- |  | - | ------ | 
|(in thousands)  |  | 2001 |        | 2000
|               
|Raw materials   |  | $    | 14,754 |      |  | $ | 7,775  | 
|               
|               
|               
|               
|Work in process |  |      | 17,004 |      |  |   | 17,582 | 
|               
|               
|               
|               
|Finished goods  |  |      | 20,161 |      |  |   | 14,172 | 
|               
|                |  | $    | 51,919 |      |  | $ | 39,529 | 
|               

Biogen writes down obsolete or otherwise unmarketable inventory to its
estimated net realizable value. If the actual realizable value is less than
that estimated by Biogen, additional inventory write-downs may be required. The
Company has not had any material writedowns of inventory for the years ended
December 31, 2001, 2000, or 1999.

Biogen capitalizes inventory costs associated with certain products prior to
regulatory approval, based on managements judgment of probable future
commercialization. Biogen would be required to expense previously capitalized
costs related to pre-approval inventory upon a change in such judgment, due to,
among other potential factors, a denial or delay of approval by necessary
regulatory bodies. At December 31, 2001, capitalized inventory related to
AMEVIVE® (alefacept), which has not yet received regulatory approval, was $8.4
million.

Marketable Securities

The Company invests its excess cash balances in short-term marketable
securities, principally corporate notes and government securities. At December
31, 2001, substantially all of the Companys securities were classified as
available-for-sale. All available-for-sale securities are recorded at fair
market value and unrealized gains and losses are included in accumulated other
comprehensive income in shareholders equity, net of related tax effects.
Realized gains and losses and declines in value, if any, judged to be other
than temporary on available-for-sale securities are reported in other income or
expense.

As part of its strategic product development efforts, the Company invests in
equity securities of certain biotechnology companies with which it has
collaborative agreements. As a matter of policy, Biogen determines on a
quarterly basis whether any decline in the fair value of a marketable security
is temporary or other than temporary. Unrealized gains and losses on marketable
securities are included in other comprehensive income in shareholders equity,
net of related tax effects. If a decline in the fair value of a marketable
security below the Companys cost basis is determined to be other than
temporary, such marketable security is written down to its estimated fair value
with a charge to current earnings. The factors that the Company considers in
its assessments include prospects for favorable clinical trial results, new
product initiatives and new collaborative agreements.

As part of its assessments at December 31, 2001, the Company assessed the
unrealized losses on its investments in Curis Inc. and Targeted Genetics
Corporation, and determined that the positive evidence suggesting that the
investments described above would recover to at least the Companys purchase
price was not sufficient to overcome the presumption that the current market
price of the investments was the best indicator of value at December 31, 2001.
Accordingly, the related unrealized losses of approximately $28 million were
reclassified from other comprehensive income to current expense in the fourth
quarter of 2001.

The Company had no unrealized losses at December 31, 2001 that were determined
to be temporary.

Property and Equipment

Property and equipment is carried at cost, subject to review of impairment for
significant assets whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. Depreciation is
calculated on the straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the lesser of the useful life
or the term of the respective lease. Maintenance of computer systems is
expensed as incurred. Buildings and equipment are depreciated over estimated
useful lives ranging from 30 to 40 and 3 to 10 years, respectively. The Company
capitalizes certain incremental costs associated with the validation effort
required for licensing by the FDA of manufacturing equipment for the production
of a commercially approved drug. These costs include primarily direct labor and
material and are incurred in preparing the equipment for its intended use. Net
capitalized validation costs were $5.4 million and $4.3 million at December 31,
2001 and 2000, respectively. The validation costs are amortized over the life
of the related equipment.

20



---



##### 



Patents

The costs associated with successful patent defenses and patent applications
are capitalized and amortized on a straight-line basis over estimated useful
lives up to 15 years. Accumulated amortization of patent costs was $15.7
million and $25.2 million as of December 31, 2001 and 2000, respectively. The
carrying value of patents is regularly reviewed by the Company and impairments
are recognized when the expected future operating cash flows derived from the
patent is less than their carrying value.

Derivatives and Hedging Activities

Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, (SFAS 133) requires that all derivatives
be recognized on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction. The
Company assesses, both at its inception and on an on-going basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting the changes in cash flows of hedged items. The Company assesses
hedge ineffectiveness on a quarterly basis and records the gain or loss related
to the ineffective portion to current earnings to the extent significant. If
the Company determines that a forecasted transaction is no longer probable of
occurring, the Company discontinues hedge accounting for the affected portion
of the hedge instrument, and any related unrealized gain or loss on the
contract is recognized in current earnings.

Comprehensive Income

Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income, requires the display of comprehensive income and its
components as part of the Companys full set of financial statements.
Comprehensive income is comprised of net income and other comprehensive income.
Other comprehensive income includes certain changes in equity that are excluded
from net income, such as translation adjustments and unrealized holding gains
and losses on available-for-sale marketable securities and certain derivative
instruments, net of tax. The Consolidated Statements of Shareholders Equity
reflect comprehensive income for years ended December 31, 2001, 2000 and 1999
of $259.8 million, $310.3 million and $279.2 million, respectively.

In accordance with SFAS 133, the Company records an adjustment to other
comprehensive income to recognize at fair value all derivatives designated as
cash flow hedging instruments, which comprised unrealized gains or losses
related to the Companys interest rate swaps. During 1999, the Company recorded
$4.5 million of unrealized gains to other comprehensive income reflecting the
increase in the fair value of the interest rate swaps and at December 31, 1999
had a cumulative unrealized gain, net of tax, of $366,000. During 2000, the
Company recorded $1.5 million of unrealized losses to other comprehensive
income reflecting the decrease in the fair value of the interest rate swaps and
at December 31, 2000 had a cumulative unrealized loss, net of tax, of $1.1
million. During 2001, the Company recorded $1 million of unrealized losses to
other comprehensive income reflecting the decrease in the fair value of the
interest rate swaps and at December 31, 2001 had a cumulative unrealized loss,
net of tax, of $2.1 million.

The Company has foreign currency forward contracts to hedge specific
transactions denominated in foreign currencies. During 1999, the fair value of
the Companys foreign currency forward contracts increased by $6.7 million in
unrealized gains. At December 31, 1999, the Company had cumulative unrealized
gains, net of tax, of $6.7 million on its foreign currency forward contracts.
During 2000, the fair value of the Companys foreign currency forward contracts
decreased by $5.3 million. At December 31, 2000, the Company had cumulative
unrealized gains, net of tax, of $1.4 million on its foreign currency forward
contracts. During 2001, the fair value of the Companys foreign currency
forward contracts decreased by approximately $0.1 million. At December 31,
2001, the Company had cumulative unrealized gains, net of tax, of $1.3 million
on its foreign currency forward contracts.

Segment Information

Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, (SFAS 131) establishes
standards for reporting information on operating segments in interim and annual
financial statements. The Companys chief operating decision-makers review the
profit and loss of the Company on an aggregate basis and manage the operations
of the Company as a single operating segment. Accordingly, the Company operates
in one segment, which is the business of developing, manufacturing and
marketing drugs for human health care.

Revenue Recognition and Accounts Receivable

SEC Staff Accounting Bulletin No 101 (SAB 101) was effective for the Company
in fiscal 2000. SAB 101 provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements. SAB 101 establishes the
SECs view that it is

21



---



##### 



not appropriate to recognize revenue until all of the following criteria are
met: persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the sellers price to the buyer is fixed or
determinable; and collectibility is reasonably assured. Further, SAB 101
requires that both title and the risks and rewards of ownership be transferred
to the buyer before revenue can be recognized. The Company believes that its
revenue recognition policies are in compliance with SAB 101.

Revenues from product sales are recognized when product is shipped and title
and risk of loss has passed to the customer. Revenues are recorded net of
applicable allowances for returns, rebates and other applicable discounts and
allowances. The Company prepares its estimates for sales returns and
allowances, discounts and rebates quarterly based primarily on historical
experience updated for changes in facts and circumstances, as appropriate.

The Company receives royalty revenues under license agreements with a number of
third parties that sell products based on technology developed by the Company
or to which the Company has rights. The license agreements provide for the
payment of royalties to the Company based on sales of the licensed product. The
Company records these revenues based on estimates of the sales that occurred
during the relevant period. The relevant period estimates of sales are based on
interim data provided by licensees and analysis of historical royalties paid to
the Company (adjusted for any changes in facts and circumstances, as
appropriate). The Company maintains regular communication with its licensees in
order to gauge the reasonableness of its estimates. Differences between actual
royalty revenues and estimated royalty revenues are reconciled and adjusted for
in the period which they become known, typically the following quarter.
Historically, adjustments have not been material based on actual amounts paid
by licensees. There are no future performance obligations on the part of the
Company under these license agreements.

Revenue is not recognized in any circumstances unless collectibility is
reasonably assured.

Research and Development Expenses

Research and development expenses are comprised of costs incurred in performing
research and development activities including salaries and benefits, facilities
costs, overhead costs, clinical trial and related clinical manufacturing costs,
contract services and other outside costs. Research and development costs,
including upfront fees and milestones paid to collaborative partners, are
expensed as incurred.

Earnings per Share

The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS
128 requires the presentation of basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing the net
income available to common shareholders by the weighted average number of
shares of common stock outstanding. For purposes of calculating diluted
earnings per share the denominator includes both the weighted average number of
shares of common stock outstanding and the number of dilutive common stock
equivalents such as stock options and warrants.

Dilutive securities include options outstanding under the Companys stock
option plans. Options to purchase 3.8 million shares, 2.7 million shares and
276,000 shares were outstanding at December 31, 2001, 2000, and 1999,
respectively, but not included in the computations of diluted earnings per
share because the options exercise prices were greater than the average market
price during the periods. The put warrants sold in connection with the
Companys stock repurchase program in 1999 did not have a significant
additional dilutive effect. As of December 31, 2001, there were no outstanding
put warrants.

Shares used in calculating basic and diluted earnings per share for the periods
ending December 31, are as follows:

|                                                              |  |      |         |      |  |      |         |  |  |  |         | 
|------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|(in thousands)                                                |  | 2001 |         | 2000 |  | 1999
|                                                             
|Weighted average number of shares
of common stock outstanding |  |      | 148,355 |      |  |      | 148,743 |  |  |  | 149,921 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Dilutive stock options                                        |  |      | 4,561   |      |  |      | 5,859   |  |  |  | 7,867   | 
|                                                             
|Shares used in calculating diluted
earnings per share         |  |      | 152,916 |      |  |      | 154,602 |  |  |  | 157,788 | 
|                                                             

On June 11, 1999, the Board of Directors declared a two-for-one stock split to
be effected in the form of a stock dividend of one share of common stock for
each share outstanding. The stock dividend was payable on June 25, 1999 to
shareholders of record at the close of business on June 11, 1999. All
references to number of shares and per share amounts in the financial
statements have been restated to give effect to the stock split for all periods
presented.

22



---



##### 



2. Financial Instruments

Financial instruments that potentially subject the Company to concentrations of
credit risk are accounts receivable and marketable securities. Wholesale
distributors and large pharmaceutical companies account for the majority of the
accounts receivable and collateral is generally not required. To mitigate the
risk, the Company monitors the financial performance and credit worthiness of
its customers. The Company invests its excess cash balances in marketable debt
securities, primarily U.S. government securities and corporate bonds and notes,
with strong credit ratings. The Company limits the amount of investment
exposure as to institution, maturity and investment type.

The average maturity of the Companys marketable securities as of December 31,
2001 and 2000 was 29 months and 30 months, respectively. Proceeds from
maturities and other sales of marketable securities, which were primarily
reinvested, for the years ended December 31, 2001, 2000 and 1999 were
approximately $735 million, $606 million and $1,006 million, respectively. The
cost of securities sold is determined based on the specific identification
method. Realized gains and (losses) on these sales for the years ended December
31, 2001, 2000 and 1999 were $6.1 million, $(1.8) million and $(1.4) million,
respectively.

The following is a summary of marketable securities:

|                                  |  |            |         |       |  | Net        |        |           |  |   |         |  | 
|--------------------------------- |  | ---------- | ------- | ----- |  | ---------- | ------ | --------- |  | - | ------- |  | 
|                                  |  |            |         |       |  | Unrealized |        | Amortized
|(in thousands)                    |  | Fair Value |         | Gains |  | Cost      
|                                 
|                                  |  |            |         |       |  |            |        |           |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|December 31, 2001:                |  |            |         |       |  |            |        |           |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|                                  |  |            |         |       |  |            |        |           |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|U.S. Government securities        |  | $          | 252,838 |       |  | $          | 6,414  |           |  | $ | 246,424 | 
|                                 
|                                 
|                                 
|                                 
|Corporate debt securities         |  |            | 491,227 |       |  |            | 12,349 |           |  |   | 478,878 | 
|                                 
|                                  |  | $          | 744,065 |       |  | $          | 18,763 |           |  | $ | 725,302 | 
|                                 
|Marketable securities, noncurrent |  | $          | 12,183  |       |  | $          |       |           |  | $ | 12,183  | 
|                                 
|                                  |  |            |         |       |  |            |        |           |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|December 31, 2000:                |  |            |         |       |  |            |        |           |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|                                  |  |            |         |       |  |            |        |           |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|U.S. Government securities        |  | $          | 288,214 |       |  | $          | 5,284  |           |  | $ | 282,930 | 
|                                 
|                                 
|                                 
|                                 
|Corporate debt securities         |  |            | 345,461 |       |  |            | 2,444  |           |  |   | 343,017 | 
|                                 
|                                  |  | $          | 633,675 |       |  | $          | 7,728  |           |  | $ | 625,947 | 
|                                 
|Marketable securities, noncurrent |  | $          | 71,982  |       |  | $          | 28,174 |           |  | $ | 43,808  | 
|                                 

The Company uses interest rate swap agreements to mitigate the risk associated
with its floating rate debt. The fair value of the interest rate swap
agreements at December 31, 2001, representing the cash requirements of the
Company to settle the agreements, approximated $3.3 million. The fair value of
the interest rate swap agreements at December 31, 2000, representing the cash
requirements of the Company to settle the agreements, was approximately $1.7
million. The Company has designated the interest rate swaps as cash flow
hedges. There were no amounts of hedge ineffectiveness related to the Companys
interest rate swaps during 2001 and 2000, and no gains or losses were excluded
from the assessment of hedge effectiveness. The Company records the
differential to be paid or received on the interest rate swaps as incremental
interest expense. The Company expects approximately $2.5 million in losses
related to its interest rate swaps to affect earnings in 2002.

The Company has foreign currency forward contracts to hedge specific
transactions denominated in foreign currencies. All foreign currency forward
contracts have durations of ninety days to 12 months. These contracts have been
designated as cash flow hedges and accordingly, to the extent effective, any
unrealized gains or losses on these foreign currency forward contracts are
reported in other comprehensive income. Realized gains and losses for the
effective portion are recognized with the underlying hedge transaction. The
Company assesses hedge ineffectiveness on a quarterly basis and records the
gain or loss related to the ineffective portion to current earnings to the
extent significant. If the Company determines that a forecasted transaction is no
longer probable of occurring, the Company discontinues hedge accounting for the
affected portion of the hedge instrument and any related unrealized gain or loss
on the contract is recognized in current earnings. The notional settlement
amount of the foreign currency forward contracts outstanding at December 31,
2001 was approximately $113.4 million. These contracts had a fair value of $2.0
million, representing an unrealized gain, and were included in other current
assets at December 31, 2001.

In 2001, there were no significant amounts recognized in earnings due to hedge
ineffectiveness or as a result of the discontinuance of cash flow hedges upon
determining that it was no longer probable that the original forecasted
transaction would occur. The Company recognized $6.9 million of gains in
product revenue and $2 million of gains in royalty revenue for the settlement
of certain effective cash flow hedge instruments during the year ended December
31, 2001. These settlements were recorded in the same period as the related
forecasted transactions affecting earnings. The Company expects approximately
$2 million of unrealized gains at December 31, 2001 to affect earnings in 2002
related to its foreign currency forward contracts.

23



---



##### 



In 2000, there were no significant amounts recognized in earnings due to hedge
ineffectiveness. During 2000, the Company recognized $977,000 in other income
as a result of the discontinuance of cash flow hedges upon determining that it
was no longer probable that the original forecasted transaction would occur.
The Company recognized $12.7 million of gains in product revenue and $3.7
million of gains in royalty revenue for the settlement of certain effective
cash flow hedge instruments during the year ended December 31, 2000. These
settlements were recorded in the same period as the related forecasted
transactions affecting earnings.

In 1999, there were no significant amounts recognized in earnings due to hedge
ineffectiveness or as a result of the discontinuance of cash flow hedge
accounting because it was probable that the original transaction would not
occur. The Company recognized $7.4 million of gains in product revenue and $2.7
million of gains in royalty revenue for the settlement of certain effective
cash flow hedge instruments during the year ended December 31, 1999. These
settlements were recorded in the same period as the related forecasted
transactions affecting earnings.

3. Borrowings

As of December 31, 2001, the Company had $14.2 million outstanding under a
floating rate loan with a bank (the Term Loan). The Term Loan is
collateralized by the Companys laboratory and office building in Cambridge,
Massachusetts. The Term Loan provides for annual principal payments of $1.7
million in each of the years 1996 through 2004 with the balance due May 8,
2005. The Company also entered into an interest rate swap agreement, with the
same bank, fixing its interest rate at 7.5% during the remaining term of the
loan, payable semi-annually.

As of December 31, 2001, the Company had $33 million outstanding under a
floating rate loan agreement with a bank for financing the construction of its
biological manufacturing facility in North Carolina (the Construction Loan).
The Construction Loan is collateralized by the facility. Payments of $805,000
are due quarterly through 2006 with the balance due in 2007. The Company also
entered into an interest rate swap agreement, with the same bank, fixing its
interest rate at 7.75% during the remaining term of the loan, payable
quarterly.

The Term Loan and Construction Loan agreements include various covenants,
including financial covenants, which require the Company to maintain minimum
net worth, cash flow and various financial ratios. The Companys long-term debt
obligations are carried at face value, which approximates fair market value.

Long-term debt at December 31, consists of the following:

|                           |  |      |        |      |  |   |        |  
|-------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|(in thousands)             |  | 2001 |        | 2000
|                          
|Term Loan due 2005         |  | $    | 14,168 |      |  | $ | 15,836 |  
|                          
|                          
|                          
|                          
|Construction Loan due 2007 |  |      | 33,017 |      |  |   | 36,237 |  
|                          
|                           |  |      | 47,185 |      |  |   | 52,073 |  
|                          
|                          
|                          
|                          
|Current portion            |  |      | (4,888 | )    |  |   | (4,888 | )
|                          
|                           |  | $    | 42,297 |      |  | $ | 47,185 |  
|                          

4. Consolidated Balance Sheets Details

Property and equipment:

|                              |  |              |         |      |  |   |         | 
|----------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                              |  | December 31,
|(in thousands)                |  | 2001         |         | 2000
|                             
|Land                          |  | $            | 23,532  |      |  | $ | 12,349  | 
|                             
|                             
|                             
|                             
|Buildings                     |  |              | 170,504 |      |  |   | 84,119  | 
|                             
|                             
|                             
|                             
|Leasehold improvements        |  |              | 65,381  |      |  |   | 63,845  | 
|                             
|                             
|                             
|                             
|Equipment                     |  |              | 249,887 |      |  |   | 185,404 | 
|                             
|                             
|                             
|                             
|Construction in Progress      |  |              | 218,521 |      |  |   | 191,355 | 
|                             
|Total cost                    |  |              | 727,825 |      |  |   | 537,072 | 
|                             
|                             
|                             
|                             
|Less accumulated depreciation |  |              | 171,827 |      |  |   | 136,643 | 
|                             
|                              |  | $            | 555,998 |      |  | $ | 400,429 | 
|                             

Depreciation expense was $36.9 million, $27.8 million and $25.9 million for
2001, 2000 and 1999, respectively.

24



---



##### 



Accrued expenses and other:

|                             |  |              |         |      |  |   |         | 
|---------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                             |  | December 31,
|(in thousands)               |  | 2001         |         | 2000
|                            
|Royalties and licensing fees |  | $            | 34,361  |      |  | $ | 32,188  | 
|                            
|                            
|                            
|                            
|Income taxes                 |  |              | 90,131  |      |  |   | 69,494  | 
|                            
|                            
|                            
|                            
|Clinical trial costs         |  |              | 13,099  |      |  |   | 24,694  | 
|                            
|                            
|                            
|                            
|Legal settlement accrual     |  |              | 20,000  |      |  |   |        | 
|                            
|                            
|                            
|                            
|Other                        |  |              | 81,519  |      |  |   | 51,888  | 
|                            
|                             |  | $            | 239,110 |      |  | $ | 178,264 | 
|                            

5. Pensions

The Company has a defined benefit pension plan which provides benefits to
substantially all of its employees. The Company also has a supplemental
retirement benefit plan which covers certain employees. The pension plans are
noncontributory with benefit formulas based on employee earnings and credited
years of service. The Companys funding policy for its pension plans is to
contribute amounts deductible for federal income tax purposes. Funds
contributed to the plans are invested in fixed income and equity securities.

The components of net periodic pension cost for each of the three years ended
December 31 are summarized below:

|                                   |  |      |        |      |  |      |        |   |  |   |       |  
|---------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | -
|(in thousands)                     |  | 2001 |        | 2000 |  | 1999
|                                  
|Service cost                       |  | $    | 3,644  |      |  | $    | 3,314  |   |  | $ | 2,923 |  
|                                  
|                                  
|                                  
|                                  
|Interest cost                      |  |      | 2,039  |      |  |      | 1,799  |   |  |   | 1,307 |  
|                                  
|                                  
|                                  
|                                  
|Expected return on plan assets     |  |      | (1,655 | )    |  |      | (1,258 | ) |  |   | (994  | )
|                                  
|                                  
|                                  
|                                  
|Amortization of prior service cost |  |      | 43     |      |  |      | 43     |   |  |   | 43    |  
|                                  
|                                  
|                                  
|                                  
|Amortization of net actuarial loss |  |      | 16     |      |  |      | 86     |   |  |   | 22    |  
|                                  
|Net pension cost                   |  | $    | 4,087  |      |  | $    | 3,984  |   |  | $ | 3,301 |  
|                                  

Reconciliations of projected benefit obligations, fair value of plan assets and
the funded status of the plans as of December 31, are presented below:

|                                                              |  |      |         |      |  |   |         |  
|------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|(in thousands)                                                |  | 2001 |         | 2000
|                                                             
|                                                              |  |      |         |      |  |   |         |  
|                                                             
|                                                             
|                                                             
|                                                             
|Change in projected benefit obligation                        |  |      |         |      |  |   |         |  
|                                                             
|Net projected benefit obligation at the beginning of
the year |  | $    | (24,434 | )    |  | $ | (19,377 | )
|                                                             
|                                                             
|                                                             
|                                                             
|Service cost                                                  |  |      | (3,644  | )    |  |   | (3,314  | )
|                                                             
|                                                             
|                                                             
|                                                             
|Interest cost                                                 |  |      | (2,039  | )    |  |   | (1,799  | )
|                                                             
|                                                             
|                                                             
|                                                             
|Actuarial loss                                                |  |      | (190    | )    |  |   | (935    | )
|                                                             
|                                                             
|                                                             
|                                                             
|Gross benefits paid                                           |  |      | 317     |      |  |   | 991     |  
|                                                             
|Net projected benefit obligation at the end of the year       |  |      | (29,990 | )    |  |   | (24,434 | )
|                                                             
|                                                              |  |      |         |      |  |   |         |  
|                                                             
|                                                             
|                                                             
|                                                             
|Change in plan assets                                         |  |      |         |      |  |   |         |  
|                                                             
|Fair value of plan assets at the beginning of the year        |  |      | 15,256  |      |  |   | 15,061  |  
|                                                             
|                                                             
|                                                             
|                                                             
|Actual return on plan assets                                  |  |      | (1,090  | )    |  |   | (934    | )
|                                                             
|                                                             
|                                                             
|                                                             
|Employer contributions                                        |  |      | 5,000   |      |  |   | 2,000   |  
|                                                             
|                                                             
|                                                             
|                                                             
|Gross benefits paid                                           |  |      | (182    | )    |  |   | (752    | )
|                                                             
|                                                             
|                                                             
|                                                             
|Administrative expenses                                       |  |      | (256    | )    |  |   | (119    | )
|                                                             
|Fair value of plan assets at the end of the year              |  |      | 18,728  |      |  |   | 15,256  |  
|                                                             
|                                                              |  |      |         |      |  |   |         |  
|                                                             
|                                                             
|                                                             
|                                                             
|Funded status at the end of the year                          |  |      |         |      |  |   |         |  
|                                                             
|Funded status at the end of the year                          |  |      | (11,262 | )    |  |   | (9,178  | )
|                                                             
|                                                             
|                                                             
|                                                             
|Unrecognized net actuarial loss                               |  |      | 4,295   |      |  |   | 1,224   |  
|                                                             
|                                                             
|                                                             
|                                                             
|Unrecognized prior service cost                               |  |      | 229     |      |  |   | 271     |  
|                                                             
|Net amount recognized at the end of the year                  |  | $    | (6,738  | )    |  | $ | (7,683  | )
|                                                             

25



---



##### 



|                                                    |  |  |      |   |  |  |      |  
|--------------------------------------------------- |  |  | ---- | - |  |  | ---- | -
|Weighted average assumptions at the end of the year |  |  | 2001 |   |  |  | 2000 |  
|                                                   
|                                                    |  |  |      |   |  |  |      |  
|                                                   
|                                                   
|                                                   
|                                                   
|Discount rate                                       |  |  | 7.25 | % |  |  | 7.50 | %
|                                                   
|                                                   
|                                                   
|                                                   
|Expected return on plan assets                      |  |  | 9.00 | % |  |  | 8.00 | %
|                                                   
|                                                   
|                                                   
|                                                   
|Rates of compensation increase                      |  |  | 5.00 | % |  |  | 5.00 | %

The Company has an unfunded supplemental retirement plan. As of December 31,
2001 the projected benefit and the accumulated benefit obligations were $5.9
million and $4.6 million, respectively. As of December 31, 2000 the projected
benefit and the accumulated benefit obligations were $5.7 million and $3.7
million, respectively.

6. Other Income, Net

Other income, net consists of the following (in thousands):

|                        |  |      |         |      |  |              |         |   |  |   |         |  
|----------------------- |  | ---- | ------- | ---- |  | ------------ | ------- | - |  | - | ------- | -
|                        |  |      |         |      |  | December 31, |         |   |  |  
|(in thousands)          |  | 2001 |         | 2000 |  | 1999        
|                       
|Interest income         |  | $    | 44,128  |      |  | $            | 42,965  |   |  | $ | 35,407  |  
|                       
|                       
|                       
|                       
|Interest expense        |  |      | (3,954  | )    |  |              | (4,310  | ) |  |   | (4,639  | )
|                       
|                       
|                       
|                       
|Other income (expense)  |  |      | (10,875 | )    |  |              | 120,094 |   |  |   | (18,003 | )
|                       
|Total other income, net |  | $    | 29,299  |      |  | $            | 158,749 |   |  | $ | 12,765  |  
|                       

Other income (expense) for the period ended December 31, 2001 included realized
gains on the sale of certain non-current marketable securities totaling $32.1
million and a $28 million write-down of unrealized losses in certain
non-current marketable securities that were determined to be other than
temporary. Additionally, the Company reported a charge of $20 million as part
of the settlement of the ongoing patent infringement dispute with Berlex. (See
Note 9 of the Notes to Consolidated Financial Statements).

Other income (expense) for the period ended December 31, 2000 included realized
gains on the sale of certain non-current marketable securities totaling
approximately $101.1 million. Additionally, the Company realized gains of
approximately $24.1 million upon the acquisition of two of its investees by
third parties. Other income (expense) for the period ended December 31, 1999
included a $15 million write-down of unrealized losses in certain non-current
marketable securities that were determined to be other than temporary.

As part of its strategic product development efforts, the Company invests in
equity securities of certain biotechnology companies with which it has
collaborative agreements. As a matter of policy, Biogen determines on a
quarterly basis whether any decline in the fair value of a marketable security
is temporary or other than temporary. Unrealized gains and losses on marketable
securities are included in other comprehensive income in shareholders equity,
net of related tax effects. If a decline in the fair value of a marketable
security below the Companys cost basis is determined to be other than
temporary, such marketable security is written down to its estimated fair value
with a charge to current earnings. The factors that the Company considers in
its assessments include prospects for favorable clinical trial results, new
product initiatives and new collaborative agreements.

As part of its assessments at December 31, 2001, the Company assessed the
unrealized losses on its investments in Curis Inc. and Targeted Genetics
Corporation, and determined that the positive evidence suggesting that these
investments would recover to at least the Companys purchase price was not
sufficient to overcome the presumption that the current market price of the
investments was the best indicator of value at December 31, 2001. Accordingly,
the related unrealized losses of approximately $28 million were recognized as
other expense in the fourth quarter of 2001. As part of its assessments at June
30, 1999, the Company assessed the unrealized losses on its investments in
Creative BioMolecules, Inc, CV Therapeutics, and CuraGen, and determined that
the positive evidence suggesting that these investments would recover to at
least the Companys purchase price was not sufficient to overcome the
presumption that the current market price of the investments was the best indicator of value at June 30, 1999. Accordingly, the
related unrealized losses of approximately $15 million were recognized as other
expense in the second quarter of 1999.

The Company had no unrealized losses at December 31, 2001 that were determined
to be temporary.

26



---



##### 



7. Income Taxes

The components of income before income taxes and of income tax expense
(benefit) for each of the three years ended December 31, are as follows:

|                            |          |      |         |         |         |      |         |         |         |   |         |         |         | 
|--------------------------- | -------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|(in thousands)              |          | 2001 |         | 2000    |         | 1999
|                           
|Income before income taxes: |          |      |         |         |         |      |         |         |         |   |         |        
|                           
|                           
|                           
|                           
|                            | Domestic |      |         | $       | 298,669 |      |         | $       | 379,489 |   |         | $       | 253,303 | 
|                           
|                           
|                           
|                           
|                            | Foreign  |      |         |         | 90,828  |      |         |         | 107,616 |   |         |         | 75,713  | 
|                           
|                            |          | $    | 389,497 |         |         | $    | 487,105 |         |         | $ | 329,016 |        
|                           
|Income tax expense:         |          |      |         |         |         |      |         |         |         |   |         |        
|                           
|                           
|                           
|                           
|Current                     |          |      |         |         |         |      |         |         |         |   |         |        
|                           
|                           
|                           
|                           
|                            | Federal  |      | $       | 119,930 |         |      | $       | 115,696 |         |   | $       | 112,499 |        
|                           
|                           
|                           
|                           
|                            | State    |      |         | 12,911  |         |      |         | 11,969  |         |   |         | 15,587  |        
|                           
|                           
|                           
|                           
|                            | Foreign  |      |         | 1,917   |         |      |         | 1,098   |         |   |         | 4,206   |        
|                           
|                            |          | $    | 134,758 |         |         | $    | 128,763 |         |         | $ | 132,292 |        
|                           
|Deferred                    |          |      |         |         |         |      |         |         |         |   |         |        
|                           
|                           
|                           
|                           
|                            | Federal  |      | $       | (16,257 | )       |      | $       | 25,344  |         |   | $       | (20,863 | )      
|                           
|                           
|                           
|                           
|                            | State    |      |         | (1,687  | )       |      |         | (579    | )       |   |         | (2,863  | )      
|                           
|                            |          |      | (17,944 | )       |         |      | 24,765  |         |         |   | (23,726 | )      
|                           
|Total income tax expense    |          | $    | 116,814 |         |         | $    | 153,528 |         |         | $ | 108,566 |        
|                           

Deferred tax assets (liabilities) are comprised of the following at December 31:

|                                     |  |      |         |      |  |   |         |  
|------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|(in thousands)                       |  | 2001 |         | 2000
|                                    
|                                     |  |      |         |      |  |   |         |  
|                                    
|                                    
|                                    
|                                    
|Tax credits                          |  | $    | 25,440  |      |  | $ | 28,135  |  
|                                    
|                                    
|                                    
|                                    
|Inventory and other reserves         |  |      | 18,288  |      |  |   | 11,532  |  
|                                    
|                                    
|                                    
|                                    
|Other                                |  |      | 380     |      |  |   | 380     |  
|                                    
|Deferred tax asset                   |  |      | 44,108  |      |  |   | 40,047  |  
|                                    
|                                     |  |      |         |      |  |   |         |  
|                                    
|                                    
|                                    
|                                    
|Depreciation, amortization and other |  |      | (10,365 | )    |  |   | (24,189 | )
|                                    
|                                    
|                                    
|                                    
|Unrealized gain on investments       |  |      | (6,424  | )    |  |   | (12,956 | )
|                                    
|Deferred tax liabilities             |  |      | (16,789 | )    |  |   | (37,145 | )
|                                    
|                                     |  | $    | 27,318  |      |  | $ | 2,901   |  
|                                    

A reconciliation of the U.S. federal statutory tax rate to the effective tax
rate for the periods ending December 31 is as follows:

|                                           |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                           |  | 2001 |      | 2000 |  | 1999
|                                          
|Statutory rate                             |  |      | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|                                          
|                                          
|                                          
|                                          
|State taxes                                |  |      | 2.5  |      |  |      | 3.2  |   |  |  | 3.3  |  
|                                          
|                                          
|                                          
|                                          
|Foreign taxes                              |  |      | (4.2 | )    |  |      | (2.6 | ) |  |  | (2.6 | )
|                                          
|                                          
|                                          
|                                          
|Credits and net operating loss utilization |  |      | (3.4 | )    |  |      | (3.3 | ) |  |  | (2.6 | )
|                                          
|                                          
|                                          
|                                          
|Other                                      |  |      | 0.1  |      |  |      | (0.8 | ) |  |  | (0.1 | )
|                                          
|Effective tax rate                         |  |      | 30.0 | %    |  |      | 31.5 | % |  |  | 33.0 | %
|                                          

At December 31, 2001, the Company had tax credits of $25.4 million, most of
which expire at various dates through 2016.

As of December 31, 2001, undistributed foreign earnings of non-U.S.
subsidiaries included in consolidated retained earnings aggregated $188.3
million, exclusive of earnings that would result in little or no tax under
current U.S. tax law. The Company intends to reinvest these earnings
indefinitely in operations outside the United States. It is not practicable to
estimate the amount of additional tax that might be payable if such earnings
were remitted to the United States.

27



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##### 



8. Research Collaborations

In July 2001, the Company signed a development and marketing collaboration
agreement (the ICOS Agreement) with ICOS Corporation (ICOS), under which
the Company and ICOS will collaborate worldwide on the development and
commercialization of orally active, small molecule LFA-1 antagonists as oral
therapeutics for the treatment of inflammatory conditions. Under the terms of
the ICOS agreement, the Company paid ICOS a one-time, non-refundable license
fee of $8 million, which was charged to research and development expense.
Additionally, as part of the agreement, Biogen made available to ICOS a line of
credit in the amount of $20 million, of which $17.7 million was available at
December 31, 2001. During 2001, the Company provided $2.3 million from the line
of credit to ICOS that was charged to research and development expense in 2001
upon the achievement of certain clinical milestones by ICOS. As of December 31,
2001, there were no borrowings outstanding under the credit facility. The
Company has committed to providing milestone payments to ICOS upon the
achievement of certain future events. If all the milestones were achieved and
commercialization were to be successful in excess of specified levels of sales,
the Company would be required to pay up to an additional $83.5 million over the
life of the agreement.

In September 2000, the Company signed a research and development agreement (the
Eos Agreement) with Eos Biotechnology, Inc. (Eos), under which the Company
and Eos will collaborate in the research and development of novel targets for
antibody and protein therapeutics in the area of breast cancer. Under the Eos
Agreement, the Company purchased 1.9 million shares of preferred stock of Eos
for $5 million at fair market value. In addition, the Company paid a one-time
non-refundable license fee of $6 million, which was charged to research and
development expense and acquired certain exclusive, worldwide rights related to
breast cancer-specific molecules for the use in the development of new antibody
and secreted protein therapeutics. The Company accounts for its investment in
Eos, which is included in other assets, using the cost method of accounting,
subject to periodic review of impairment. The Company provided Eos with
research and development funding of $1.5 million in 2001 and $250,000 in 2000.
The Company expects to fund research activities of Eos related to the
collaboration of up to $1.5 million, $1.75 million and $1 million in 2002,
2003, and 2004, respectively.

In August 2000, the Company signed a development and marketing collaboration
agreement (the Antegren Agreement) with Elan Pharma International, Ltd, an affiliate of Elan Corporation, plc (Elan) under
which the Company and Elan collaborate in the development, manufacture and
commercialization of Antegren® (natalizumab), a humanized monoclonal antibody
and alpha 4 integrin inhibitor. Under the terms of the Antegren Agreement,
Biogen and Elan will share costs for on-going development activities. The
Company paid a one-time non-refundable license fee of $15 million in 2000,
which was charged to research and development expense. During 2001, the Company
provided $16 million to Elan for certain milestones achieved during the year,
which were charged to research and development expense. The Company has
committed to paying Elan additional amounts upon the completion of certain
future milestones. If all the milestones are achieved, the Company would be
required to pay up to an additional $21 million over the life of the agreement.

In October 1997, the Company signed a research and option agreement (the
CuraGen Agreement) with CuraGen Corporation (CuraGen) under which the
Company and CuraGen collaborate in the discovery of novel genes using CuraGens
functional genomics technologies. The Company provided CuraGen with research
and development funding of $1.5 million and $1.1 million in 2000 and 1999,
respectively. The CuraGen Agreement was terminated in September 2000 and all
investments in CuraGen common stock were sold during the year 2000.

In July 1996, the Company signed a collaborative research and commercialization
agreement (the Ontogeny Agreement) with Ontogeny, Inc. (Ontogeny), a
private biotechnology company, for the development and commercialization of
three specific hedgehog cell proteins, a class of novel human proteins, that
are responsible for reducing the formation or regeneration of tissue. In August
2000, Ontogeny merged with two other biotechnology companies to form Curis Inc.
(Curis). As a shareholder in Ontogeny, Biogen received Curis common stock in
exchange for the Companys shares in Ontogeny. The Company provided $1 million
and $2.8 million of research funding to Ontogeny in 2000 and 1999,
respectively. Additionally, the Company provided $1.5 million upon conclusion
of the Ontogeny Agreement, which was charged to research and development
expense in 2000. At December 31, 2001 the Company retained approximately
308,000 shares of Curis common stock, and included the investment in long-term
marketable securities available-for-sale.

In August 1995, the Company signed a collaborative research agreement (the
Genovo Agreement) for the development of human gene therapy treatments with
Genovo, Inc. (Genovo), a gene therapy research company. Under the Genovo
Agreement, the Company acquired 380,000 shares of Genovo Series A Preferred
stock for $4.5 million and acquired certain licensing rights. The Company
accounted for this investment, which was included in other assets, using the
equity method of accounting. The Company recorded its proportion of Genovos
net losses as research and development expense in the amounts of $3.9 million
and $7.6 million in 2000 and 1999, respectively. In August 2000, Genovo entered
into a merger agreement (Targeted Merger Agreement) with Targeted Genetics
Corporation (Targeted). As a shareholder in Genovo, Biogen received Targeted
common stock in exchange for the Companys shares in Genovo. Additionally,
concurrently with the Targeted Merger Agreement, the Company entered into a
development and marketing agreement and a funding agreement (the Targeted
Agreements) for gene

28



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##### 



therapy research and development in oncology. The Targeted Agreements provide
for a $10 million credit facility. Targeted also has an option to sell to the
Company an additional $10 million of Targeted common stock at fair value. As of
December 31, 2001, there were $10 million of borrowings outstanding under the
credit facility and no additional common stock had been purchased by the
Company. The Company provided $1 million and $250,000 in research funding to
Targeted in 2001 and 2000, respectively. The Company expects to fund research
activities of Targeted related to the collaboration of up to $1 million and
$750,000 in 2002 and 2003, respectively.

9. Commitments and Contingencies

The Company rents laboratory and office space and certain equipment under
noncancellable operating leases. The rental expense under these leases, which
terminate at various dates through 2015, amounted to $17.2 million in 2001,
$14.9 million in 2000 and $11.9 million in 1999. The lease agreements contain
various clauses for renewal at the option of the Company and, in certain cases,
escalation clauses linked generally to rates of inflation.

At December 31, 2001, minimum annual rental commitments under noncancellable
leases were as follows:

|                             |  |                |         | 
|---------------------------- |  | -------------- | ------- | 
|Year                         |  | (in thousands)
|                            
|2002                         |  | $              | 20,493  | 
|                            
|                            
|                            
|                            
|2003                         |  |                | 18,861  | 
|                            
|                            
|                            
|                            
|2004                         |  |                | 18,472  | 
|                            
|                            
|                            
|                            
|2005                         |  |                | 17,599  | 
|                            
|                            
|                            
|                            
|2006                         |  |                | 12,573  | 
|                            
|                            
|                            
|                            
|Thereafter                   |  |                | 57,579  | 
|                            
|Total minimum lease payments |  | $              | 145,577 | 
|                            

The Company is building a large scale manufacturing plant in Research Triangle
Park, North Carolina. The Company expects that construction will be completed
early in 2002. The project is expected to cost $175 million, of which $172.5
million had been committed for construction costs at December 31, 2001.
Additionally, the Company began expansion of its Research Triangle Park, North
Carolina complex by constructing a laboratory office building and adding
manufacturing capacity. The projects are expected to be completed by the summer
of 2003 at a total cost of approximately $138 million. As of December 31, 2001,
the Company had committed $87 million for construction costs. The Company is
also completing plans to build a fill finish plant in Denmark. The Company
expects that construction will commence in 2002 and be completed early in 2005,
at an estimated cost of $130 million. At December 31, 2001, $17 million had
been committed for construction costs related to the fill finish plant in
Denmark.

On July 3, 1996, Berlex Laboratories, Inc. (Berlex) filed suit against Biogen
in the United States District Court for the District of New Jersey alleging
infringement by Biogen of Berlexs McCormick patent (U.S. Patent No.
5,376,567) in the United States in the production of Biogens AVONEX product.
In November 1996, Berlexs New Jersey action was transferred to the United
States District Court in Massachusetts and consolidated for pre-trial purposes
with a related declaratory judgment action previously filed by Biogen. On
August 18, 1998, Berlex filed a second suit against Biogen alleging
infringement by Biogen of a patent which was issued to Berlex in August 1998
and which is related to the McCormick patent (U.S. Patent No. 5,795,779). On
September 23, 1998, the cases were consolidated for pre-trial and trial
purposes. Berlex sought a judgment granting it damages, a trebling of any
damages awarded and a permanent injunction restraining Biogen from the alleged
infringement. A hearing on the parties summary judgment motions in the case
was completed in March 2000. In September 2000, the District Court rendered
final judgment in favor of Biogen and against Berlex determining that Biogens
production of AVONEX did not infringe any of the claims of the Berlex patents.
Berlex has appealed this decision with the Court of Appeals for the Federal
Circuit. Oral arguments were presented by the parties to the Court of Appeals
on November 7, 2001 and a decision is expected in the first half of 2002. In
January 2002, Biogen and Berlex reached a settlement of the litigation pursuant
to which the parties agreed to end the dispute in return for a payment of $20
million from Biogen to Berlex and the possibility of a second and final payment from Biogen to
Berlex if the Court of Appeals were to reverse the District Courts previous
ruling granting summary judgment in favor of Biogen. If the Court of Appeals
were to rule against Biogen and return the case to the District Court, Biogen
believes that the most likely decision would require it to make a second and
final payment of $55 million to Berlex. In the event the ruling is
significantly adverse to Biogen, the second and final payment to Berlex would
be $230 million. As part of the settlement, Biogen and Berlex agreed not to
pursue further litigation about these patents. Biogen has recorded a $20
million charge in Other Income, net in the fourth quarter of 2001 to account
for the first payment to Berlex. The Company has determined that, based on
information currently available, the most probable outcome is that no
additional payments will be required.

In 1995, the Company filed an opposition with the Opposition Division of the
European Patent Office to oppose a European patent (the Rentschler I Patent)
issued to Dr. Rentschler Biotechnologie GmbH (Rentschler) relating to
compositions of matter of beta interferon. In 1997, the European Patent Office
issued a decision to revoke the Rentschler I Patent. Rentschler

29



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##### 



appealed that decision and an oral hearing on the appeal took place in December
2000. At the oral hearing in order to gain reinstatement of the patent,
Rentschler narrowed the patent claims so as to claim only a specific cell line.
Biogen does not use the specific cell line now claimed. On October 13, 1998,
the Company filed another opposition with the Opposition Division of the
European Patent Office to oppose a second European patent issued to Rentschler
(the Rentschler II Patent) with certain claims regarding compositions of
matter of beta interferon with specific regard to the structure of the
glycosylated molecule. A hearing on the Companys opposition previously
scheduled for October 2000 has been postponed, and will likely be held in 2002.
While Biogen believes that the Rentschler II Patent will be revoked, if the
Rentschler II Patent were to be upheld and if Rentschler were to obtain,
through legal proceedings, a determination that the Companys sale of AVONEX in
Europe infringes a valid Rentschler II Patent, such result could have a
material adverse effect on the Companys results of operation and financial
position.

10. Shareholders Equity

Convertible Exchangeable Preferred Stock

The Company has authority to issue 20,000,000 shares of $.01 par value
preferred stock.

Shareholder Rights Plan

In 1989, the Companys Board of Directors declared a dividend to holders of the
Companys common stock of rights (the Old Rights) to purchase shares of
Series A Junior Participating Preferred Stock (the Old Preferred Stock).
Each Old Right entitled the registered holder to purchase from the Company one
one-hundredth of a share of Old Preferred Stock upon the terms and subject to
the conditions set forth in a Rights Agreement, dated as of May 8, 1989,
between the Company and The First National Bank of Boston (the Old Plan).
The Old Plan and the Old Rights expired on May 8, 1999. Consequently, on April
16, 1999, the Board of Directors declared a dividend to holders of the
Companys common stock of one new preferred share purchase right (a New
Right) for each outstanding share of common stock. The New Rights were
granted on May 8, 1999 pursuant to a new Rights Agreement, dated May 8, 1999,
between the Company and State Street Bank and Trust Company, as Rights Agent
(the New Plan). Each New Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series A-1 Junior
Participating Preferred Stock, par value $.01 per share (New Preferred
Stock), at a price of $850 per one one-thousandth of a share of New Preferred
Stock, subject to adjustment. Each one one-thousandth of a share of New
Preferred Stock has rights, privileges and preferences which make its value
approximately equal to the value of one share of the Companys common stock.
The New Rights are exercisable only if a person or group acquires 20% or more
of the outstanding common stock of the Company or commences a tender or
exchange offer, the consummation of which would result in the ownership of 20%
or more of the outstanding common stock of the Company. Once the New Rights
become exercisable, and in some circumstances if additional conditions are met,
each New Right will entitle the Companys shareholders (other than the
acquirer) to, among other things, purchase common stock at a substantial
discount. Unless earlier redeemed or exchanged by the Company, the New Rights
expire on May 8, 2009. The Company is entitled to redeem the New Rights at a
price of $.001 per New Right.

The Old Preferred Stock has been eliminated and replaced with the New Preferred
Stock. At December 31, 2001, the Company had 250,000 shares of New Preferred
Stock authorized for use in connection with the New Plan.

Share Option and Purchase Plans

The Company has several stock-based compensation plans. The Company applies APB
Opinion No. 25 Accounting for Stock Issued to Employees in accounting for its
plans and applies Statement of Financial Accounting Standards No. 123
Accounting for Stock Issued to Employees (SFAS 123) for disclosure purposes
only. The SFAS 123 disclosures include pro forma net income and earnings per
share as if the fair value-based method of accounting had been used. Stock
issued to non-employees is accounted for in accordance with SFAS 123 and
related interpretations. Included in compensation expense for the periods
ending December 31, 2001, 2000 and 1999 were approximately $829,000,
$(249,000), and $7.5 million, respectively, related to stock based compensation
plans.

The Company has several plans and arrangements under which it may grant options
to employees, Directors and Scientific Board members to purchase common stock.
Under the terms of the Companys stock-based compensation plans, approximately
54 million options may be granted. Option grants are typically made under the
1985 Non-Qualified Stock Option Plan and the 1987 Scientific Board Stock Option
Plan (the Plans). Options under the Plans are granted at no less than 100% of
the fair market value on the date of grant. Options generally become
exercisable over various periods, typically 5 to 7 years for employees and 3
years for Directors and Scientific Board members, and have a maximum term of 10
years.

30



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##### 



Activity under these plans for the periods ending December 31, is as follows
(shares are in thousands):

|                                               |  |        |        |       |  |          |       |       |  |        |        |          |  |   |       |  |  |          |        |   |  |   |       | 
|---------------------------------------------- |  | ------ | ------ | ----- |  | -------- | ----- | ----- |  | ------ | ------ | -------- |  | - | ----- |  |  | -------- | ------ | - |  | - | ----- | 
|(shares are in thousands)                      |  | 2001   |        | 2000  |  | 1999    
|                                              
|                                               |  |        |        |       |  | Weighted |       |       |  |        |        | Weighted |  |   |       |  |  | Weighted
|                                               |  |        |        |       |  | Average  |       |       |  |        |        | Average  |  |   |       |  |  | Average 
|                                               |  |        |        |       |  | Exercise |       |       |  |        |        | Exercise |  |   |       |  |  | Exercise
|                                               |  | Shares |        | Price |  | Shares   |       | Price |  | Shares |        | Price   
|                                              
|Outstanding, Jan. 1                            |  |        | 16,917 |       |  | $        | 31.70 |       |  |        | 17,938 |          |  | $ | 24.53 |  |  |          | 22,376 |   |  | $ | 15.97 | 
|                                              
|                                              
|                                              
|                                              
|Granted                                        |  |        | 3,840  |       |  |          | 57.13 |       |  |        | 2,731  |          |  |   | 55.34 |  |  |          | 3,099  |   |  |   | 60.24 | 
|                                              
|                                              
|                                              
|                                              
|Exercised                                      |  |        | (2,079 | )     |  |          | 15.48 |       |  |        | (3,250 | )        |  |   | 11.61 |  |  |          | (5,435 | ) |  |   | 10.45 | 
|                                              
|                                              
|                                              
|                                              
|Canceled                                       |  |        | (921   | )     |  |          | 37.24 |       |  |        | (502   | )        |  |   | 34.17 |  |  |          | (2,102 | ) |  |   | 22.41 | 
|                                              
|Outstanding, Dec. 31                           |  |        | 17,757 |       |  | $        | 38.81 |       |  |        | 16,917 |          |  | $ | 31.70 |  |  |          | 17,938 |   |  | $ | 24.53 | 
|                                              
|Options exercisable                            |  |        | 9,466  |       |  |          |       |       |  |        | 9,093  |          |  |   |       |  |  |          | 9,384  |   |  |   |       | 
|                                              
|                                              
|                                              
|                                              
|Available for grant                            |  |        | 9,081  |       |  |          |       |       |  |        | 1,578  |          |  |   |       |  |  |          | 3,807  |   |  |   |       | 
|                                              
|                                              
|                                              
|                                              
|Weighted average fair
value of
options granted |  |        |        |       |  | $        | 31.77 |       |  |        |        |          |  | $ | 24.34 |  |  |          |        |   |  | $ | 26.23 | 
|                                              

The table below summarizes options outstanding and exercisable at December 31,
2001:

|                          |  |                     |        |                     |  |           |      |             |  |          |       |  |  |          |       |  |  |   |       | 
|------------------------- |  | ------------------- | ------ | ------------------- |  | --------- | ---- | ----------- |  | -------- | ----- |  |  | -------- | ----- |  |  | - | ----- | 
|(shares are in thousands) |  | Options Outstanding |        | Options Exercisable
|                         
|                          |  |                     |        |                     |  | Weighted  |      |             |  |          |       |  |  |          |       |  |  |  
|                          |  |                     |        |                     |  | Average   |      | Weighted    |  |          |       |  |  | Weighted
|                          |  |                     |        |                     |  | Remaining |      | Average     |  |          |       |  |  | Average 
|Range of                  |  | Number              |        | Contractual         |  | Exercise  |      | Number      |  | Exercise
|Exercise Price            |  | Outstanding         |        | Life                |  | Price     |      | Exercisable |  | Price   
|                         
|$0.00-$10.00              |  |                     | 1,505  |                     |  |           | 1.98 |             |  | $        | 8.26  |  |  |          | 1,504 |  |  | $ | 8.26  | 
|                         
|                         
|                         
|                         
|$10.01-$20.00             |  |                     | 5,122  |                     |  |           | 4.38 |             |  |          | 15.90 |  |  |          | 4,328 |  |  |   | 15.60 | 
|                         
|                         
|                         
|                         
|$20.01-$30.00             |  |                     | 665    |                     |  |           | 6.04 |             |  |          | 22.88 |  |  |          | 428   |  |  |   | 22.97 | 
|                         
|                         
|                         
|                         
|$30.01-$40.00             |  |                     | 186    |                     |  |           | 6.76 |             |  |          | 33.20 |  |  |          | 157   |  |  |   | 33.13 | 
|                         
|                         
|                         
|                         
|$40.01-$50.00             |  |                     | 2,295  |                     |  |           | 7.02 |             |  |          | 41.41 |  |  |          | 1,505 |  |  |   | 41.16 | 
|                         
|                         
|                         
|                         
|$50.01-$60.00             |  |                     | 5,772  |                     |  |           | 9.30 |             |  |          | 55.72 |  |  |          | 648   |  |  |   | 54.43 | 
|                         
|                         
|                         
|                         
|$60.01-$70.00             |  |                     | 660    |                     |  |           | 8.90 |             |  |          | 64.29 |  |  |          | 108   |  |  |   | 64.25 | 
|                         
|                         
|                         
|                         
|$70.01-$80.00             |  |                     | 1,369  |                     |  |           | 7.95 |             |  |          | 72.37 |  |  |          | 706   |  |  |   | 72.18 | 
|                         
|                         
|                         
|                         
|Over $80.00               |  |                     | 183    |                     |  |           | 7.79 |             |  |          | 85.93 |  |  |          | 82    |  |  |   | 86.13 | 
|                         
|Total                     |  |                     | 17,757 |                     |  |           |      |             |  | $        | 38.81 |  |  |          | 9,466 |  |  | $ | 27.16 | 
|                         

The Company also has two employee stock purchase plans covering substantially
all of its employees. The plans allow employees to purchase common stock at 85%
of the lower of the fair market value at either the date of the beginning of
the plan period or the purchase date. Purchases under the plans are subject to
certain limitations and may not exceed an aggregate of 1,000,000 shares; no shares may be issued after December 31, 2007. Through
December 31, 2001, 465,189 shares have been issued under the stock purchase
plans.

If compensation cost for the Companys 2001, 2000 and 1999 grants under the
stock-based compensation plans had been determined based on SFAS 123, the
Companys pro forma net income, and pro forma diluted earnings per share for
the years ending December 31, would have been as follows (in thousands except
per share data):

|                                      |  |      |         |      |  |      |         |  |  |   |         | 
|------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|(in thousands, except per share data) |  | 2001 |         | 2000 |  | 1999
|                                     
|Pro forma net income                  |  | $    | 224,424 |      |  | $    | 294,412 |  |  | $ | 196,965 | 
|                                     
|                                     
|                                     
|                                     
|Pro forma diluted earnings per share  |  | $    | 1.47    |      |  | $    | 1.90    |  |  | $ | 1.25    | 
|                                     

The fair value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

|                                |  |      |     |      |  |      |     |   |  |  |     |  
|------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                |  | 2001 |     | 2000 |  | 1999
|                               
|Expected dividend yield         |  |      | 0   | %    |  |      | 0   | % |  |  | 0   | %
|                               
|                               
|                               
|                               
|Expected stock price volatility |  |      | 44  | %    |  |      | 45  | % |  |  | 36  | %
|                               
|                               
|                               
|                               
|Risk-free interest rate         |  |      | 5.5 | %    |  |      | 6.9 | % |  |  | 5.5 | %
|                               
|                               
|                               
|                               
|Expected option term in years   |  |      | 7.5 |      |  |      | 5.5 |   |  |  | 5.6 |  
|                               

31



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##### 



The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 did not apply to awards prior to 1995,
and additional awards in future years are anticipated.

Stock Repurchase Program

On December 18, 2000, the Company announced that its Board of Directors had
authorized the repurchase of up to 4 million shares of the Companys common
stock. The repurchased stock provides the Company with treasury shares for
general corporate purposes, such as stock to be issued under employee stock
option and stock purchase plans. During 2001, the Company repurchased
approximately 1.5 million shares of its common stock at a cost of $88.3
million. Approximately 2.5 million shares remain authorized for repurchase
under this program at December 31, 2001.

On February 22, 1999, the Company announced that its Board of Directors had
authorized the repurchase of up to 8 million shares of the Companys common
stock. The repurchased stock provided the Company with treasury shares for
general corporate purposes, such as stock to be issued under employee stock
option and stock purchase plans. During 1999, the Company repurchased
approximately 3.4 million shares of its common stock at a cost of $197.7
million. During 2000, the Company repurchased approximately 4.6 million shares
of its common stock at a cost of $300.2 million, completing this program.

To enhance the 1999 stock repurchase program, the Company sold put warrants to
and purchased call options from independent third parties for a total of 4
million shares of which 2.2 million shares were outstanding at December 31,
1999, at a strike price of $49.47. None of the put warrants and call options
were outstanding at December 31, 2000 or 2001. Additionally, during 1999 in a
separate put warrant program to facilitate its purchase of common stock, the
Company sold put warrants for total proceeds of $22.1 million. The Company had
put warrants to purchase 1.6 million shares outstanding at December 31, 1999,
at an average strike price of $68.99 relating to this put warrant program. None
of the put warrants were outstanding at December 31, 2000. The outstanding put
warrants permitted a net-share settlement at the Companys option and,
therefore, did not result in a put obligation liability on the Companys
Consolidated Balance Sheets. The put warrants sold in connection with the
Companys stock repurchase program did not have a significant additional
dilutive effect.

11. Segment Information

The Company operates in one segment, which is the business of developing,
manufacturing and marketing drugs for human health care. The chief operating
decision-makers review the profit and loss of the Company on an aggregate basis
and manage the operations of the Company as a single operating segment. The
Company currently derives product revenues from sales of its AVONEX product for
the treatment of relapsing forms of multiple sclerosis. The Company also
derives revenue from royalties on worldwide sales by the Companys licensees of
a number of products covered under patents controlled by the Company, including
alpha interferon and hepatitis B vaccines and diagnostic products. Revenues are
primarily attributed from external customers to individual countries where
earned based on location of the customer or licensee. At December 31, 2001, and
2000, respectively, product and royalty revenues from external customers in The
Netherlands were approximately 11% and 10% of total revenues. As of December
31, 1999, no material amounts of product or royalty revenue could be
attributable to an individual foreign country.

32



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##### 



The Companys geographic information is as follows (in thousands):

|                                        |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |         | 
|--------------------------------------- |  | -- | ------- | ------ |  | ---- | ------- | ----- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|(in thousands)                          |  | US |         | Europe |  | Asia |         | Other |  | Total
|                                       
|                                        |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |         | 
|                                       
|                                       
|                                       
|                                       
|December 31, 2001:                      |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |         | 
|                                       
|Product revenue
from external
customers |  | $  | 711,143 |        |  | $    | 246,581 |       |  | $     |       |  |  | $ | 13,870 |  |  | $ | 971,594 | 
|                                       
|                                       
|                                       
|                                       
|Royalty revenue
from external
customers |  |    | 45,164  |        |  |      | 21,911  |       |  |       | 4,468  |  |  |   | 223    |  |  |   | 71,766  | 
|                                       
|                                       
|                                       
|                                       
|Long-lived assets                       |  |    | 614,026 |        |  |      | 9,214   |       |  |       |       |  |  |   | 79     |  |  |   | 623,319 | 
|                                       
|                                       
|                                       
|                                       
|                                        |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |         | 
|                                       
|                                       
|                                       
|                                       
|December 31, 2000:                      |  | US |         | Europe |  | Asia |         | Other |  | Total
|                                       
|Product revenue
from external
customers |  | $  | 552,591 |        |  | $    | 199,714 |       |  | $     |       |  |  | $ | 8,774  |  |  | $ | 761,079 | 
|                                       
|                                       
|                                       
|                                       
|Royalty revenue
from external
customers |  |    | 120,578 |        |  |      | 26,414  |       |  |       | 16,479 |  |  |   | 1,902  |  |  |   | 165,373 | 
|                                       
|                                       
|                                       
|                                       
|Long-lived assets                       |  |    | 497,347 |        |  |      | 6,125   |       |  |       |       |  |  |   | 113    |  |  |   | 503,585 | 
|                                       
|                                       
|                                       
|                                       
|                                        |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |         | 
|                                       
|                                       
|                                       
|                                       
|December 31, 1999:                      |  | US |         | Europe |  | Asia |         | Other |  | Total
|                                       
|Product revenue
from external
customers |  | $  | 442,278 |        |  | $    | 173,640 |       |  | $     |       |  |  | $ | 4,718  |  |  | $ | 620,636 | 
|                                       
|                                       
|                                       
|                                       
|Royalty revenue
from external
customers |  |    | 117,182 |        |  |      | 38,391  |       |  |       | 15,871 |  |  |   | 2,355  |  |  |   | 173,799 | 
|                                       
|                                       
|                                       
|                                       
|Long-lived assets                       |  |    | 346,706 |        |  |      | 20,910  |       |  |       |       |  |  |   | 131    |  |  |   | 367,747 | 

The Company received revenue from three wholesale distributors and a specialty
distributor in 2001 accounting for a total of 21%, 16%, 14%, and 14% of total
product and royalty revenue. The Company received revenue from five unrelated
parties in 2000 accounting for a total of 18%, 13%, 12%, 11% and 10% of total
product and royalty revenue. The Company received revenue from five unrelated
parties in 1999 accounting for a total of 15%, 13%, 13%, 11% and 11% of total
product and royalty revenue.

12. Quarterly Financial Data (Unaudited)



|                            |      |         |         |         |  |         |         |         |  |       |         |  |  |   |         |   |  |   |           |  | 
|--------------------------- | ---- | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ----- | ------- |  |  | - | ------- | - |  | - | --------- |  | 
|(in thousands,              |      | First   |         | Second  |  | Third   |         | Fourth  |  | Total
|except per share amounts)   |      | Quarter |         | Quarter |  | Quarter |         | Quarter |  | Year 
|                           
|                            |      |         |         |         |  |         |         |         |  |       |         |  |  |   |         |   |  |   |           | 
|                           
|                           
|                           
|                           
|                            | 2001 |         |         |         |  |         |         |         |  |       |         |  |  |   |         |   |  |   |           |  | 
|                           
|                            |      |         |         |         |  |         |         |         |  |       |         |  |  |   |         |   |  |   |           | 
|                           
|                           
|                           
|                           
|Total revenues              |      | $       | 237,047 |         |  | $       | 260,662 |         |  | $     | 265,193 |  |  | $ | 280,458 |   |  | $ | 1,043,360 | 
|                           
|                           
|                           
|                           
|Product revenue             |      |         | 219,997 |         |  |         | 243,217 |         |  |       | 249,203 |  |  |   | 259,177 |   |  |   | 971,594   | 
|                           
|                           
|                           
|                           
|Royalties revenue           |      |         | 17,050  |         |  |         | 17,445  |         |  |       | 15,990  |  |  |   | 21,281  |   |  |   | 71,766    | 
|                           
|                           
|                           
|                           
|Total expenses and taxes    |      |         | 181,387 |         |  |         | 200,343 |         |  |       | 205,517 |  |  |   | 212,729 |   |  |   | 799,976   | 
|                           
|                           
|                           
|                           
|Other income (expense),
net |      |         | 16,463  |         |  |         | 11,533  |         |  |       | 10,147  |  |  |   | (8,844  | ) |  |   | 29,299    | 
|                           
|                           
|                           
|                           
|Net income                  |      |         | 72,123  |         |  |         | 71,852  |         |  |       | 69,823  |  |  |   | 58,885  |   |  |   | 272,683   | 
|                           
|                           
|                           
|                           
|Basic earnings per share    |      |         | 0.49    |         |  |         | 0.48    |         |  |       | 0.47    |  |  |   | 0.40    |   |  |   | 1.84      | 
|                           
|                           
|                           
|                           
|Diluted earnings per share  |      |         | 0.47    |         |  |         | 0.47    |         |  |       | 0.46    |  |  |   | 0.39    |   |  |   | 1.78      | 
|                           
|                           
|                           
|                           
|                            |      |         |         |         |  |         |         |         |  |       |         |  |  |   |         |   |  |   |           | 
|                           
|                           
|                           
|                           
|                            | 2000 |         |         |         |  |         |         |         |  |       |         |  |  |   |         |   |  |   |           |  | 
|                           
|                            |      |         |         |         |  |         |         |         |  |       |         |  |  |   |         |   |  |   |           | 
|                           
|                           
|                           
|                           
|Total revenues              |      | $       | 216,848 |         |  | $       | 230,514 |         |  | $     | 233,754 |  |  | $ | 245,336 |   |  | $ | 926,452   | 
|                           
|                           
|                           
|                           
|Product revenue             |      |         | 174,596 |         |  |         | 190,009 |         |  |       | 193,242 |  |  |   | 203,232 |   |  |   | 761,079   | 
|                           
|                           
|                           
|                           
|Royalties revenue           |      |         | 42,252  |         |  |         | 40,505  |         |  |       | 40,512  |  |  |   | 42,104  |   |  |   | 165,373   | 
|                           
|                           
|                           
|                           
|Total expenses and taxes    |      |         | 194,506 |         |  |         | 175,191 |         |  |       | 198,577 |  |  |   | 183,350 |   |  |   | 751,624   | 
|                           
|                           
|                           
|                           
|Other income, net           |      |         | 99,024  |         |  |         | 16,737  |         |  |       | 33,204  |  |  |   | 9,784   |   |  |   | 158,749   | 
|                           
|                           
|                           
|                           
|Net income                  |      |         | 121,366 |         |  |         | 72,060  |         |  |       | 68,381  |  |  |   | 71,770  |   |  |   | 333,577   | 
|                           
|                           
|                           
|                           
|Basic earnings per share    |      |         | 0.81    |         |  |         | 0.48    |         |  |       | 0.46    |  |  |   | 0.49    |   |  |   | 2.24      | 
|                           
|                           
|                           
|                           
|Diluted earnings per share  |      |         | 0.77    |         |  |         | 0.47    |         |  |       | 0.44    |  |  |   | 0.47    |   |  |   | 2.16      | 

33



---



##### 



13. New Accounting Pronouncements

In July 2001, the FASB issued SFAS 141, Business Combinations and SFAS 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that all business
combinations be accounted for under the purchase method only and that certain
acquired intangible assets in a business combination be recognized as assets
apart from goodwill. SFAS 142 requires that ratable amortization of goodwill
be replaced with periodic tests of the goodwills impairment and that
intangible assets other than goodwill be amortized over their useful lives.
SFAS 141 is effective for all business combinations initiated after June 30,
2001 and for all business combinations accounted for by the purchase method for
which the date of acquisition is after June 30, 2001. The provisions of SFAS
142 will be effective for fiscal years beginning after December 15, 2001, and
will thus be adopted by the Company, as required, in fiscal year 2002. The
impact of SFAS 141 and SFAS 142 on the Companys financial statements is not
expected to be material.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
SFAS
144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001, and will thus be adopted by the Company, as required,
in fiscal year 2002. The adoption of SFAS 144 is not expected to have a
material effect on the Companys financial statements.

In February 2002, the FASB Emerging Issues Task Force (EITF) released EITF
Issue No. 01-09 (EITF 01-09), Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendors Products). EITF 01-09
states that cash consideration (including a sales incentive) given by a vendor
to a customer is presumed to be a reduction of the selling prices of the
vendors products or services and, therefore, should be characterized as a
reduction of revenue when recognized in the vendors income statement. The
provisions of EITF 01-09 will be effective for fiscal years beginning after
December 15, 2001, and will thus be adopted by the Company , as required, in
2002. The Company is currently evaluating the effect on the Companys financial
statements of adoption of EITF 01-09.

34



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Biogen, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of shareholders equity
present fairly, in all material respects, the financial position of Biogen,
Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
January 17, 2002

35



---



##### 



Senior Executives and Board
MembersBiogen, Inc. and Subsidiaries

|                                                |  |                                                             
|----------------------------------------------- |  | ------------------------------------------------------------
|Senior Biogen Executives                        |  | Board of Directors                                          
|James L. Vincent                                |  | James L. Vincent 2,3,5                                      
|Chairman of the Board                           |  | Chairman of the Board                                       
|                                                |  | Biogen, Inc.                                                
|James C. Mullen                                 |  |                                                             
|President and Chief Executive Officer           |  | Alan Belzer 1, 5                                            
|                                                |  | President, Chief Operating Officer and Director,            
|Burt A. Adelman, M.D.                           |  | Allied-Signal, Inc. (retired)                               
|Executive Vice-President  Research             |  |                                                             
|and Development                                 |  | Harold W. Buirkle 1,2,4                                     
|                                                |  | Managing Director, The Henley Group, Inc. (retired)         
|Cornelis Kees Been                            |  |                                                             
|Senior Vice President  Oncology Business       |  | Mary L. Good, Ph.D. 2                                       
|Unit                                            |  | Former Undersecretary for Technology, U.S                   
|                                                |  | Department of Commerce; Managing Member,                    
|Thomas J. Bucknum, Esq                          |  | Venture Capital Investors, LLC; Donaghey University         
|Executive Vice President  General Counsel,     |  | Professor at University of Arkansas at Little Rock;         
|Secretary and Clerk                             |  | Dean, Donaghey College of Information Science and           
|                                                |  | System Engineering                                          
|Frank A. Burke, Jr.                             |  |                                                             
|Executive Vice President  Human Resources      |  | Thomas F. Keller, Ph.D. 1                                   
|                                                |  | R. J. Reynolds Professor and Former Dean, Fuqua School      
|Nadine D. Cohen, Ph.D.                          |  | of Business, Duke University                                
|Senior Vice President  Regulatory Affairs      |  |                                                             
|                                                |  | Roger H. Morley 2,4                                         
|Michael Gilman, Ph.D.                           |  | Vice President, Schiller International University           
|Senior Vice President  Research                |  | Co-Managing Director, R&R Inventions Ltd.;                  
|                                                |  | Former President, American Express Co.                      
|Sylvie L. Gregoire, Pharm. D                    |  |                                                             
|Executive Vice President  Technical            |  | James C. Mullen                                             
|Operations                                      |  | President and Chief Executive Officer                       
|                                                |  | Biogen, Inc.                                                
|Robert A. Hamm                                  |  |                                                             
|Senior Vice President  Europe, Canada,         |  | Sir Kenneth Murray, Ph.D. 3,5                               
|Africa and Middle East                          |  | Biogen Professor of Molecular Biology, Emeritus             
|                                                |  | University of Edinburgh; Fellow of The Royal Society        
|Hans Peter Hasler                               |  |                                                             
|Executive Vice President  Commercial           |  | Eckhard Pfeiffer                                            
|Operations                                      |  | President and Chief Executive Officer,                      
|                                                |  | Compaq Corporation (retired)                                
|Peter N. Kellogg                                |  |                                                             
|Executive Vice President  Finance and          |  | Phillip A. Sharp, Ph.D. 2, 3                                
|Chief Financial Officer                         |  | Institute Professor and Director of the McGovern Institute  
|                                                |  | for Brain Research, Massachusetts Institute of Technology;  
|Toshio Nakata, D. Sc                            |  | Nobel Laureate                                              
|President  Biogen Japan, Ltd. and              |  |                                                             
|Senior Vice President  Biogen, Inc.            |  | Alan K. Simpson 5                                           
|                                                |  | Director of the Institute of Politics and Visiting Lecturer,
|John W. Palmer                                  |  | John F. Kennedy School of Government, Harvard               
|Senior Vice President  Corporate               |  | University; Visiting Lecturer, University of Wyoming;       
|Development                                     |  | Former U.S. Senator                                         
|                                                |  |                                                             
|Patrick J. Purcell                              |  | James W. Stevens 1, 5                                       
|Senior Vice President  Chief Information       |  | Former Chairman, Prudential Asset                           
|Officer                                         |  | Management Group                                            
|                                                |  |                                                             
|Craig Schneier                                  |  | 1 Member of the Finance and Audit Committee                 
|Senior Vice President  Strategic Organization, |  | 2 Member of the Compensation and Management                 
|Design and Effectiveness                        |  | Resources Committee                                         
|                                                |  | 3 Member of the Project Share Committee                     
|                                                |  | 4 Member of the Stock and Option Plan                       
|                                                |  | Administration Committee                                    
|                                                |  | 5 Member of the Nominating Committee                        

36



---



##### 



Shareholder
InformationBiogen, Inc. and Subsidiaries

|                                                      |        |                                                                                    |       |  |                                                             | 
|----------------------------------------------------- | ------ | ---------------------------------------------------------------------------------- | ----- |  | ----------------------------------------------------------- | 
|Corporate Headquarters:                               |        | SEC Form 10-K                                                                     
|Biogen, Inc.                                          |        | A copy of the Companys annual report to the                                      
|14 Cambridge Center                                   |        | Securities and Exchange Commission on                                             
|Cambridge, MA 02142                                   |        | Form 10-K is available upon written request to the:                               
|Telephone: (617) 679-2000                             |        | Public Affairs Department                                                         
|Fax:             (617) 679-2617                       |        | Biogen, Inc.                                                                      
|                                                      |        | 15 Cambridge Center                                                               
|Annual Meeting                                        |        | Cambridge, MA 02142.                                                              
|Friday, June 14, 2002 at 10:00 a.m                    |        |                                                                                   
|at the Companys offices in 15 Cambridge Center,      |        | Transfer Agent                                                                    
|Cambridge, MA                                         |        |                                                                                   
|All shareholders are welcome                          |        | For shareholder questions regarding lost certificates, address                    
|                                                      |        | changes and changes of ownership or name in which the                             
|Market for Securities                                 |        | shares are held, direct inquiries to:                                             
|Biogens securities are quoted on the                 |        | EquiServe                                                                         
|NASDAQ National Market System                         |        | 150 Royall Street                                                                 
|Common stock symbol: BGEN                             |        | Canton, MA 02021                                                                  
|                                                      |        | (877) 282-1168                                                                    
|As of March 26, 2002 there were approximately         |        | www.equiserve.com                                                                 
|2,514 holders of record of the Companys Common       |        |                                                                                   
|Stock. The Company has not paid any cash dividends    |        |                                                                                   
|on its Common Stock since its inception, and does not |        | Independent Accountants                                                           
|intend to pay any dividends in the foreseeable future |        | PricewaterhouseCoopers LLP                                                        
|The quarterly high and low closing prices of the      |        | 160 Federal Street                                                                
|Companys Common Stock on the NASDAQ National         |        | Boston, MA 02110                                                                  
|Market System for 2001 and 2000 are as follows:       |        |                                                                                   
|                                                      |        | U.S. Legal Counsel                                                                
|                                                      |        | Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.                               
|                                                      |        | One Financial Center                                                              
|                                                      |        | Boston, MA 02111                                                                  
|                                                      | High   |                                                                                    | Low  
|Fiscal 2001                                           |        | News Releases                                                                     
|                                                      |        |                                                                                   
|First Quarter                                         | 74 50  |                                                                                    | 5131  |  | As a service to our shareholders and prospective investors,
|Second Quarter                                        | 66 80  |                                                                                    | 52 03 |  | copies of Biogen news releases issued in the last 12 months
|Third Quarter                                         | 61 99  |                                                                                    | 49 45 |  | are now available almost immediately 24 hours a day, seven 
|Fourth Quarter                                        | 59 63  |                                                                                    | 52 68 |  | days a week, on the Internets World Wide Web at           
|                                                      |        | http:\www.prnewswire.com. Biogen news releases                                    
|Fiscal 2000                                           |        | are usually posted within one hour of being issued                                
|                                                      |        | and are available at no cost.                                                     
|First Quarter                                         | 119 50 |                                                                                    | 6987  |  |                                                            
|Second Quarter                                        | 72 75  |                                                                                    | 49 75 | 
|Third Quarter                                         | 74 75  |                                                                                    | 5300  | 
|Fourth Quarter                                        | 64 25  |                                                                                    | 5025  |  | The Biogen logo, AVONEX® and AMEVIVE® are registered       
|                                                      |        | trademarks of Biogen, Inc. ADENTRI is a trademark of Biogen,                     
|                                                      |        | Inc. PEG-INTRON®, INTRON®A, and REBETOL® are registered                           
|                                                      |        | trademarks of Schering-Plough Corporation. REBETRON is a                         
|                                                      |        | trademark of Schering-Plough Corporation.                                         
|                                                      |        | BETASERON® is a registered trademark of Berlex Laboratories, Inc.                 
|                                                      |        | BETAFERON® is a registered trademark of Schering AG, Germany.                     
|                                                      |        | COPAXONE® is a registered trademark of Teva Neuroscience, Inc.                    
|                                                      |        | INFERGEN® and NEUPOGEN® are registered trademarks                                 
|                                                      |        | of Amgen, Inc. REBIF® is a registered trademark of                                
|                                                      |        | Serono S.A. ANTEGREN® is a registered trademark of Elan                           
|                                                      |        | Corporation. NOVANTRONE® and ENBREL® are registered                               
|                                                      |        | trademarks of Immunex Corporation. XANELIM® is a registered                       
|                                                      |        | trademark of Genentech, Inc. REMICADE® is a registered trademark of Centocor, Inc.

37



---



##### 



BIOGEN, INC.
Schedule II
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2001, 2000 and 1999
(in thousands)



|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|-------------------------------- |  | ------------------- | ----- | --------- |  | ---------- | --------- |  |  | - | -------------- |  |  | - | ------ | 
|                                 |  | Balance at          |       |           |  |            |           |  |  |   | Balance at End
|Description                      |  | Beginning of Period |       | Additions |  | Deductions | of Period
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                
|                                
|                                
|                                
|Allowance for Doubtful Accounts1 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                
|                                
|                                
|                                
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                
|                                
|                                
|                                
|Year Ended December 31, 2001     |  | $                   | 2,436 |           |  | $          | 386       |  |  | $ | 740            |  |  | $ | 2,082  | 
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|Year Ended December 31, 2000     |  | $                   | 1,642 |           |  | $          | 794       |  |  | $ |               |  |  | $ | 2,436  | 
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|Year Ended December 31, 1999     |  | $                   | 1,642 |           |  | $          |          |  |  | $ |               |  |  | $ | 1,642  | 
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                
|                                
|                                
|                                
|Sales Returns & Allowances,      |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                
|                                
|                                
|                                
|Discounts and Rebates2           |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                
|                                
|                                
|                                
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|                                
|                                
|                                
|                                
|Year Ended December 31, 2001     |  | $                   | 9,040 |           |  | $          | 94,266    |  |  | $ | 89,027         |  |  | $ | 14,279 | 
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|Year Ended December 31, 2000     |  | $                   | 8,654 |           |  | $          | 58,666    |  |  | $ | 58,280         |  |  | $ | 9,040  | 
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 
|Year Ended December 31, 1999     |  | $                   | 5,592 |           |  | $          | 42,090    |  |  | $ | 39,028         |  |  | $ | 8,654  | 
|                                 |  |                     |       |           |  |            |           |  |  |   |                |  |  |   |        | 

Figure 1

















---

| |  | 1 Additions to allowance for doubtful accounts are recorded as an expense.                               
| |  | ---------------------------------------------------------------------------------------------------------
|
|
|
|
| |  | 2 Additions to sales returns & allowances, discounts, and rebates are recorded
as a reduction of revenue.

S-1



---



##### 



Report of Independent Accountants on
Financial Statement Schedule

To the Board of Directors and
Shareholders of Biogen, Inc.:

Our audits of the consolidated financial statements referred to in our report
dated January 17, 2002 appearing in the 2001 Annual Report to Shareholders of
Biogen, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 17, 2002

S-2