##### 



Exhibit 13

Financials

Biogen, Inc. and Subsidiaries

|   |  |                                                                                      
|-- |  | -------------------------------------------------------------------------------------
|2  |  | Selected Financial Data                                                              
|3  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|20 |  | Consolidated Statements of Income                                                    
|21 |  | Consolidated Balance Sheets                                                          
|22 |  | Consolidated Statements of Cash Flows                                                
|23 |  | Consolidated Statements of Shareholders Equity                                      
|24 |  | Notes to Consolidated Financial Statements                                           
|41 |  | Report of Independent Accountants                                                    
|42 |  | Senior Executives and Board Members                                                  
|43 |  | Shareholder Information                                                              

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Selected Financial Data
Biogen, Inc. and Subsidiaries

(in thousands, except per share amounts)

|                                                            |  |      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 
|----------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | ------- | 
|Years Ended December
31,                                    |  | 2002 |           | 2001 |  | 2000 |           | 1999 |  | 1998
|                                                           
|Product revenues                                            |  | $    | 1,034,357 |      |  | $    | 970,546   |      |  | $    | 760,292   |  |  | $ | 620,636   |  |  | $ | 394,863 | 
|Royalty revenues                                            |  |      | 114,007   |      |  |      | 71,766    |      |  |      | 165,373   |  |  |   | 173,799   |  |  |   | 162,724 | 
|Total revenues                                              |  |      | 1,148,364 |      |  |      | 1,042,312 |      |  |      | 925,665   |  |  |   | 794,435   |  |  |   | 557,587 | 
|Total costs and expenses                                    |  |      | 851,727   |      |  |      | 682,114   |      |  |      | 597,309   |  |  |   | 478,184   |  |  |   | 366,948 | 
|Income before income taxes                                  |  |      | 276,595   |      |  |      | 389,497   |      |  |      | 487,105   |  |  |   | 329,016   |  |  |   | 210,193 | 
|Net income                                                  |  |      | 199,148   |      |  |      | 272,683   |      |  |      | 333,577   |  |  |   | 220,450   |  |  |   | 138,697 | 
|Diluted earnings per share                                  |  |      | 1.31      |      |  |      | 1.78      |      |  |      | 2.16      |  |  |   | 1.40      |  |  |   | 0.90    | 
|Cash, cash equivalents and short-term
marketable securities |  |      | 867,109   |      |  |      | 798,107   |      |  |      | 682,412   |  |  |   | 654,539   |  |  |   | 516,914 | 
|Total assets                                                |  |      | 2,006,988 |      |  |      | 1,721,046 |      |  |      | 1,431,856 |  |  |   | 1,277,973 |  |  |   | 924,715 | 
|Long-term debt, less current portion                        |  |      | 37,410    |      |  |      | 42,297    |      |  |      | 47,185    |  |  |   | 52,073    |  |  |   | 56,960  | 
|Shareholders equity                                        |  |      | 1,595,421 |      |  |      | 1,348,832 |      |  |      | 1,106,402 |  |  |   | 979,530   |  |  |   | 718,613 | 
|Shares used in calculating diluted
earnings per share       |  |      | 151,930   |      |  |      | 152,916   |      |  |      | 154,602   |  |  |   | 157,788   |  |  |   | 154,270 | 

2



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

Overview

Biogen, Inc. (Biogen or the Company) is a global biopharmaceutical company
that develops, manufactures and markets novel human therapeutic products.
Biogens primary focus is developing pharmaceutical products that meet unmet
medical needs, particularly in its core therapeutic areas of neurology,
dermatology and rheumatology. Biogen currently sells AVONEX® (Interferon
beta-1a) for the treatment of relapsing multiple sclerosis (MS) and,
commencing in 2003, AMEVIVE® (alefacept) for the treatment of adult patients
with moderate-to-severe chronic plaque psoriasis who are candidates for
systemic therapy or phototherapy. Biogen also receives revenues from royalties
on sales by our licensees of a number of products covered under patents that
Biogen controls. In addition, Biogen has a pipeline of development stage
products and a number of research programs in our core therapeutic areas and in
other areas of interest.

Results of Operations 2002 As Compared to 2001

Revenues

Total revenues consist of the following:

|                  |               |       |         |               |         |        |         |       |       |  |    |    |   |  
|----------------- | ------------- | ----- | ------- | ------------- | ------- | ------ | ------- | ----- | ----- |  | -- | -- | - | -
|                  |               |       |         | (in millions) |         |       
|                  |               |       |         |               |         | %     
|December 31,      |               | 2002  |         | 2001          |         | Change
|                 
|Product revenues* |               |       |         |               |         |        |         |       |       |  |    |   
|                  | United States |       | $       | 743.5         |         |        | $       | 710.0 |       |  |    | 5  | %
|                  | Rest of world |       |         | 290.9         |         |        |         | 260.5 |       |  |    | 12 | %
|                 
|                  |               | Total |         |               | 1,034.4 |        |         |       | 970.5 |  |    |    | 7 | %
|Royalty revenues  |               |       | 114.0   |               |         |        | 71.8    |       |       |  | 59 | % 
|                 
|Total revenues    |               | $     | 1,148.4 |               |         | $      | 1,042.3 |       |       |  | 10 | % 
|                 



---

|* |  | Certain items in prior years
product revenues and selling, general & administrative expenses have been reclassified to
conform to the current years presentation as a result of the FASB Emerging
Issues Task Force (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). See Critical Accounting Estimates.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Product revenues

Product revenues from AVONEX represented approximately 90% of the Companys
total revenues in 2002 as compared to 93% in 2001. Product revenue growth in
2002 was attributable to an increase in the sales price in the United States
(U.S.) and an increase in sales volume of AVONEX worldwide. U.S. product
revenue growth was affected by increased competition and a softening of the MS
marketplace growth rate in the U.S. Product revenues outside of the U.S.
increased 12% compared to 2001, consisting of a 13% increase based on higher
sales volume in 2002, offset by a 1% decrease from the impact of foreign
exchange rate changes. The Company expects sales from AVONEX outside the U.S.
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 U.S. from existing and new MS treatments that may impact sales of
AVONEX. The Company expects future growth in AVONEX revenues to be dependent to
a large extent on the Companys ability to compete successfully. Biogen also
expects that future AVONEX sales may be affected by slower growth in the MS
market. See Outlook  Competition and Outlook  Dependence on AVONEX and
AMEVIVE Sales. 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 and sell AVONEX worldwide, and begins marketing and selling
AMEVIVE.

The Company expects product revenues to grow in 2003 due mostly to sales of
AMEVIVE. AMEVIVE was approved by the U.S. Food and Drug Administration (FDA)
in January 2003 for the treatment of adult patients with moderate-to-severe
chronic plaque psoriasis who are candidates for systemic therapy or
phototherapy. For further discussion of AMEVIVE and the factors that may
affect the revenues generated by AMEVIVE sales, see Outlook  Competition and
Outlook  Dependence on AVONEX and AMEVIVE Sales.

Royalty revenues

Revenues from royalties represented approximately 10% of total revenues in 2002
as compared to 7% in 2001. The increase in royalty revenues in 2002 over the
comparable period in 2001 is primarily attributable to the resumption of
royalty payments from Schering-

3



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Plough Corporation (Schering-Plough) in the fourth quarter of 2002 on U.S.
sales of its alpha interferon products, and, to a lesser extent, attributable
to increased sales of alpha interferon products in certain European Union
(EU) markets.

In the fourth quarter of 2002, the Company settled its dispute with
Schering-Plough over royalties on U.S. sales of alpha interferon products. As
part of the settlement, Schering-Plough agreed to commence royalty payments to
Biogen beginning in the fourth quarter of 2002 on U.S. sales of alpha
interferon products based on a 1998 agreement between the two companies. As a
result of the resumption of royalties from Schering-Plough, Biogen expects
royalty revenues in 2003 to be higher than in 2002. See Outlook-Royalty
Revenue. 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
royalty revenues as a percentage of total revenues to continue to decrease in
the near and long term as the Company continues to market and sell AVONEX
worldwide, and begins marketing and selling AMEVIVE. See Outlook  Royalty
Revenue and Outlook  Patents and Other Proprietary Rights.

Costs and expenses

Total costs and expenses consist of the following:

|                                   |                          |      |               |       |   |        |       |       |  |  |    |    |  
|---------------------------------- | ------------------------ | ---- | ------------- | ----- | - | ------ | ----- | ----- |  |  | -- | -- | -
|                                   |                          |      | (in millions) |       |  
|                                   |                          |      |               |       | %
|December 31,                       |                          | 2002 |               | 2001  |   | Change
|                                  
|Cost of product revenues           |                          | $    | 151.4         |       |   | $      | 131.9 |       |  |  | 15 | % 
|Cost of royalty revenues           |                          |      | 8.7           |       |   |        | 4.6   |       |  |  | 89 | % 
|Research and development           |                          |      | 367.6         |       |   |        | 314.6 |       |  |  | 17 | % 
|Selling, general & administrative* |                          |      | 324.0         |       |   |        | 231.0 |       |  |  | 40 | % 
|                                  
|                                   | Total costs and expenses |      | $             | 851.7 |   |        | $     | 682.1 |  |  |    | 25 | %
|                                  

The increase in cost of product revenues in 2002 compared to 2001 was primarily
attributable to the higher sales volume of AVONEX, and, to a lesser extent, to
a decrease in certain product yield and $2.7 million of writedowns of
commercial inventory which did not meet quality specifications to its net
realizable value in 2002. Gross margins on product sales were approximately
85% for the period ended December 31, 2002 compared to 86% for the same period
in 2001. The Company expects that gross margins on product revenues will
fluctuate in the future based on changes in product mix and new product
initiatives. The increase in cost of royalty revenues was primarily
attributable to increased sales on alpha interferon products sold in 2002 over
2001. Gross margins on royalty revenue decreased to approximately 92% for the
period ended December 31, 2002 compared to 94% for the same period in 2001.
The Company expects that gross margins on royalty revenues will fluctuate in
the future based on changes in sales volumes for specific products from which
the Company receives royalties.

Research and development expenses in 2002 were $367.6 million, an increase of
$53 million or 17% as compared to $314.6 million in 2001. The increase was
primarily due to increases in early stage research activities of $13 million,
clinical trial costs of $17 million primarily for ANTEGREN, $14 million related
to Phase IV AVONEX studies, and $9 million related to other production,
development, and infrastructure costs. Costs for upfront fees and milestone
payments may cause variability in future research and development expense. See
Critical Accounting Estimates.

Selling, general and administrative expenses in 2002 were $324 million, an
increase of $93 million or 40% as compared to 2001. This increase was primarily
due to an increase in selling and marketing expenses of $43 million related to
the sale of AVONEX, and increased spending of $32 million in preparation for
the launch of AMEVIVE. AVONEX-related increases were driven by heightened
competition in the U.S. market. AMEVIVE increases in spending were driven by
preparation for the launch of a product, which received FDA approval in the
U.S. in January 2003. The Company expects that selling, general and
administrative expenses will continue to increase in the near and long 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 continues to expand its sales and marketing
organizations and efforts necessary to sell AMEVIVE, and in preparation for the
possible future approval of additional products.

4



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Other income (expense), net

Total other income (expense), net consists of the following (in thousands):

|                                  |  |      |         |      |  |   |         |  
|--------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|December 31,                      |  | 2002 |         | 2001
|                                 
|Interest income                   |  | $    | 41,217  |      |  | $ | 44,128  |  
|Interest expense                  |  |      | (3,546  | )    |  |   | (3,954  | )
|Other expense                     |  |      | (57,713 | )    |  |   | (10,875 | )
|                                 
|Total other income (expense), net |  | $    | (20,042 | )    |  | $ | 29,299  |  
|                                 

Total other income (expense), net consists primarily of interest income,
partially offset by interest expenses and other non-operating income and
expenses. Total other income (expense), net in 2002 was an expense of $20
million as compared to income of $29.3 million in 2001, a decrease of $49.3
million.

Interest income in 2002 was $41.2 million compared to $44.1 million in 2001, a
decrease of $2.9 million or 7% primarily due to lower average yields on
invested funds in 2002. The Company expects interest income to vary based on
changes in the amount of funds invested and fluctuations in interest rates.

Interest expense decreased from $4 million in 2001 to $3.6 million for 2002.
The decrease in interest expense of $0.4 million or 10% in 2002 from 2001 was
due to lower borrowing outstanding under building loan agreements.

Other income (expense) decreased by $46.8 million in 2002 from 2001. Other
income (expense) included the following (in thousands):

|                                                         |  |      |         |      |  |   |         |  
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|December 31,                                             |  | 2002 |         | 2001
|                                                        
|Impairments of non-current marketable securities         |  | $    | (10,095 | )    |  | $ | (27,942 | )
|Reserve for outstanding loan to collaborator             |  |      | (10,500 | )    |  |   |        |  
|Gain (loss) on sale on non-current marketable
securities |  |      | (301    | )    |  |   | 32,143  |  
|Donation for establishment of Biogen Foundation          |  |      | (15,000 | )    |  |   |        |  
|Settlement of Schering-Plough dispute                    |  |      | 37,240  |      |  |   |        |  
|Settlement of Berlex dispute                             |  |      | (55,000 | )    |  |   | (20,000 | )
|Equity in net income (loss) of unconsolidated affiliate  |  |      | (3,392  | )    |  |   | 610     |  
|Gain on sale of current marketable securities            |  |      | 2,703   |      |  |   | 6,147   |  
|Miscellaneous                                            |  |      | (3,368  | )    |  |   | (1,833  | )
|                                                        
|Total other expense                                      |  | $    | (57,713 | )    |  | $ | (10,875 | )
|                                                        

As discussed in the Companys critical accounting estimates, the Company
assessed the unrealized losses on its investments in Curis Inc. and Targeted
Genetics Corporation (Targeted) at each quarter (see Financial Condition),
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 those dates. Accordingly, the related unrealized
losses of approximately $10.1 million and $28 million were reclassified from
other comprehensive income to current expense in 2002 and 2001, respectively.
Sales of non-current marketable securities resulted in a loss of $0.3 million
and a gain of $32.1 million for the years ended December 31, 2002 and 2001,
respectively.

During the third quarter of 2002, the Company recorded a $10.5 million charge
for the establishment of a reserve related to an outstanding loan to Targeted.
Based on a review of the financial condition of Targeted in 2002, the Company
determined that it was no longer probable that the loan would be repaid.

In October 2002, the Company established The Biogen Foundation, a private, U.S.
based, non-profit philanthropic organization. In December 2002, the Company
made a charitable contribution of $15 million to fund The Biogen Foundation.
The Foundation is to operate exclusively for the benefit of charitable,
educational and scientific purposes. Certain executive officers and other
employees of the Company serve as directors and officers of the Foundation.
The Company classifies charitable contributions to other income (expense).

During the fourth quarter of 2002, the Company and Schering-Plough settled
their dispute on the issue of whether and to what extent Schering-Plough has an
obligation to pay royalties in the U.S. on sales of its alpha interferon
products. The Company received a final settlement payment resulting in a net
gain of $37.2 million, which was classified to other income (expense). See
Royalty Revenues.

In the fourth quarter of 2002, the Company recorded a $55 million charge
related to the final settlement of a patent infringement dispute with Berlex.
In 2001, the Company reported an initial charge of $20 million as part of the
settlement agreement. See Legal Matters.

5



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Income taxes

The Companys effective tax rate in 2002 was 28%. Income tax expense for 2002
varied from the amount computed at the U.S. federal statutory rates primarily
due to earnings in European jurisdictions with lower tax rates and to the
utilization of research and development tax credits. The Company expects its
effective tax rate during 2003 to remain consistent.

Results of Operations 2001 As Compared to 2000

Revenues

Total revenues consist of the following:

|                  |               |       |         |               |        |   |       |       |       |  |     |    |    |  
|----------------- | ------------- | ----- | ------- | ------------- | ------ | - | ----- | ----- | ----- |  | --- | -- | -- | -
|                  |               |       |         | (in millions) |        |  
|                  |               |       |         |               |        | %
|December 31,      |               | 2001  |         | 2000          | Change
|                 
|Product revenues* |               |       |         |               |        |   |       |       |       |  |     |   
|                  | United States |       | $       | 710.0         |        |   | $     | 551.8 |       |  |     | 29 | % 
|                  | Rest of world |       |         | 260.5         |        |   |       | 208.5 |       |  |     | 25 | % 
|                 
|                  |               | Total |         |               | 970.5  |   |       |       | 760.3 |  |     |    | 28 | %
|Royalty revenues  |               |       | 71.8    |               |        |   | 165.4 |       |       |  | (57 | )%
|                 
|Total revenues    |               | $     | 1,042.3 |               |        | $ | 925.7 |       |       |  | 13  | % 
|                 



---

|* |  | Certain items in prior years
product revenues and selling, general & administrative expenses have been reclassified to
conform to the current years presentation as a result of the FASB Emerging
Issues Task Force (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). See Critical Accounting Estimates.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 U.S. and in
the fifteen member countries of the EU.

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 with
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.

Costs and expenses

Total costs and expenses consist of the following:

|                                   |                          |      |               |       |   |        |       |       |  |  |     |    |  
|---------------------------------- | ------------------------ | ---- | ------------- | ----- | - | ------ | ----- | ----- |  |  | --- | -- | -
|                                   |                          |      | (in millions) |       |  
|                                   |                          |      |               |       | %
|December 31,                       |                          | 2001 |               | 2000  |   | Change
|                                  
|Cost of product revenues           |                          | $    | 131.9         |       |   | $      | 112.9 |       |  |  | 17  | % 
|Cost of royalty revenues           |                          |      | 4.6           |       |   |        | 12.3  |       |  |  | (63 | )%
|Research and development           |                          |      | 314.6         |       |   |        | 302.8 |       |  |  | 4   | % 
|Selling, general & administrative* |                          |      | 231.0         |       |   |        | 169.3 |       |  |  | 36  | % 
|                                  
|                                   | Total costs and expenses |      | $             | 682.1 |   |        | $     | 597.3 |  |  |     | 14 | %
|                                  

The increase in cost of product revenues was attributable to the higher sales
volume of AVONEX. 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.

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 in
research and development expense in 2001 compared to 2000 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.

6



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Selling, general and administrative expenses in 2001 were $231 million, an
increase of $61.7 million or 36% as compared to 2000. This increase in selling,
general and administrative expense in 2001 was primarily due to an increase in
selling and marketing expenses related to the sale of AVONEX.

Other income, net

Total 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 |  
|                       

Total 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.

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 $131 million in 2001 from 2000. Other
income (expense) included the following
(in thousands):

|                                                        |  |      |         |      |  |   |         |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|December 31,                                            |  | 2001 |         | 2000
|                                                       
|Impairments of non-current marketable securities        |  | $    | (27,942 | )    |  | $ |        |  
|Gain on sale on non-current marketable securities       |  |      | 32,143  |      |  |   | 101,129 |  
|Initial settlement of Berlex dispute                    |  |      | (20,000 | )    |  |   |        |  
|Realized gains in third party acquisition of
investment |  |      |        |      |  |   | 24,132  |  
|Equity in net income of unconsolidated affiliate        |  |      | 610     |      |  |   |        |  
|Gain on sale of current marketable securities           |  |      | 6,147   |      |  |   | (1,846  | )
|Miscellaneous                                           |  |      | (1,833  | )    |  |   | (3,321  | )
|                                                       
|Total other income (expense)                            |  | $    | (10,875 | )    |  | $ | 120,094 |  
|                                                       

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. Sales of non-current
marketable securities resulted in gains of $32.1 million and $101.1 million for
the full year ended December 31, 2001 and 2000, respectively.

In 2001, the Company reported a charge of $20 million as part of the settlement
of a patent infringement dispute with Berlex. See Legal Matters.

In 2000, the Company realized gains of approximately $24.1 million upon the
acquisition by third parties of two companies in which the Company had
invested.

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.

Financial Condition

At December 31, 2002, cash, cash equivalents and short-term marketable
securities were $867.1 million compared with $798.1 million at December 31,
2001, an increase of $69 million. Working capital increased $86.9 million to
$889.7 million. Net cash from operating activities which included net income,
for the year ended December 31, 2002 was $267.1 million compared with $316.8
million in 2001, and included tax benefits related to stock options of $19.6
million, and non-cash charges of $10.1 million related to the write-down of
non-current marketable

7



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##### 



securities, and $10.5 million for the establishment of a
reserve related to an outstanding loan to a collaborator. Cash outflows from
investing activities during 2002 included investments in property and equipment
and patents of $221.6 million, net purchases of marketable securities totaling
$62 million, and a $6 million investment in a collaborator. Significant cash
outflows from financing activities included $8.4 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 $27.4 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, 2002, the Company had $29.8
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, 2002, the Company
had $12.5 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.

The Companys construction of the large scale manufacturing plant and a
laboratory office building in Research Triangle Park, North Carolina was
substantially completed in the first quarter of 2002. The Company continued
its further expansion of its Research Triangle Park, North Carolina complex in
2002 with ongoing construction of several projects to create additional
manufacturing capacity. These additional projects are expected to be completed
by the summer of 2003 at a total cost of approximately $93.3 million. As of
December 31, 2002, the Company had committed $81.7 million for construction
costs related to these additional projects, of which $73.5 million has been
spent. The Company is also completing plans to build a manufacturing plant in
Denmark. The Company expects that construction will commence in 2003 and be
completed early in 2005, at an estimated cost of $250 million. At December 31,
2002, $47 million had been committed for construction costs related to the
manufacturing plant in Denmark, of which $36.8 million has been spent.

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 2002, the Company repurchased
approximately 145,000 shares of its common stock at a cost of $8.4 million.
During 2001, the Company repurchased approximately 1.5 million shares of its
common stock at a cost of $88.3 million. Approximately 2.4 million shares
remain authorized for repurchase under this program at December 31, 2002. In
the first quarter of 2003, the Company began open market repurchases for
additional shares of its common stock under the program.

In 2002, the Company was an investor in an equity fund that invested in
biotechnology entities. In the first quarter of 2003, Biogen opted out of the
equity fund and will receive a distribution of approximately $7.2 million, its
remaining partnership interest, in the first quarter of 2003. Biogen had
accounted for its interest in this fund under the equity method of accounting.
The Companys share of the earnings or losses from the equity investment
consisted of a loss of $3.4 million in 2002 and income of $0.6 million in 2001,
which were recorded within other income and expenses.

In January 2003, the Company signed a collaboration agreement (the IDEC
Agreement) with IDEC Pharmaceuticals Corporation (IDEC), under which Biogen
and IDEC will collaborate on the development of three oncology therapeutics
from Biogens pipeline of early-stage product candidates: an anti-lymphotoxin
beta receptor (LTBR) monoclonal antibody, an anti-CRIPTO monoclonal antibody,
and an interferon beta (INF-b) gene delivery product. Under the terms of the
IDEC agreement, IDEC initially will be responsible for the development costs of
the product candidates, until that time, if any, when the Company exercises its
opt-in rights (which must be done within a certain timeframe) with respect to
each specific product candidate. If the Company exercises its opt-in rights
for a specific product, IDEC and the Company will share all subsequent costs
related to that specific product and the Company will retain fifty percent of
any economic benefit related to the product. If the Company chooses not to
exercise its opt-in rights, the Company will be entitled to receive royalty
payments from future sales of the specific products.

In December 2002, Biogen signed a collaboration agreement (the Sunesis
Agreement) with Sunesis Pharmaceuticals, Inc. (Sunesis) under which Biogen
and Sunesis will collaborate on the discovery and development of oral
therapeutics for the treatment of inflammatory and autoimmune diseases. The
parties will apply Sunesis proprietary fragment-based drug discovery
technology, known as tethering, to generate small molecule leads that target
select cytokines in the immune system. Under the terms of the Sunesis
Agreement, the Company purchased 1.25 million shares of preferred stock of
Sunesis for $6 million, the fair value of the shares. In addition, the Company
paid a one-time non-refundable license fee of $3 million which was charged to
research and development expense and acquired certain exclusive licenses to
develop and commercialize certain compounds resulting from the collaboration.
The Company accounts for its investment in Sunesis, which is included in other
assets, using the cost method of accounting, subject to periodic review of
impairment. The Company will pay Sunesis a quarterly license maintenance fee of
$357,500 during the period commencing on April 1, 2004 through July 1, 2005.
Additionally, Biogen agreed to enter into a Credit Facility Agreement (Loan
Agreement) with Sunesis under which Biogen is obligated to loan Sunesis up to
$4 million. No borrowings from

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the loan agreement were outstanding as of December 31, 2002. The Company has
committed to paying Sunesis additional amounts upon the completion of certain
future research milestones and first and second indication development
milestones. If all the milestones were to be achieved, the Company would be
required to pay up to an additional $60.5 million over the life of the
agreement.

In April 2002, the Company signed a development and marketing collaboration
agreement (the Celltech Agreement) with Celltech R&D Limited (Celltech)
under which the Company and Celltech agreed to collaborate on the development
and commercialization of a humanized anti-TNF alpha antibody known as CDP571
with potential value in treating gastrointestinal disorders (including Crohns
disease), psoriasis and other autoimmune disease conditions. Under the terms of
the Celltech Agreement, Biogen and Celltech agreed to share costs for on-going
development activities. In April 2002, the Company paid a one-time
non-refundable initiation fee of $500,000, which was charged to research and
development expense. Biogen incurred development expenses for CDP571 during the
second and third quarter of 2002, and in the third quarter of 2002, ceased
participation in development expenses associated with CDP571 due to unfavorable
Phase III data. Through December 31, 2002, the Company incurred approximately
$7 million of research and development expenses associated with CDP571. The
Company does not expect to pay any additional amounts in this collaboration.

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 are collaborating worldwide on the development and
commercialization of orally active, small molecule LFA-1 antagonists. Biogen
and ICOS are currently developing an oral small molecule LFA-1 antagonist as a
potential treatment for psoriasis. 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 in 2001. Additionally, as part
of the agreement, Biogen made available to ICOS a line of credit in the amount
of $20 million, of which $10 million was available at December 31, 2002. The
Company provided $6.8 million and $2.3 million from the line of credit to ICOS
that was recorded as a loan receivable and was later charged to research and
development expense in 2002 and 2001, respectively, upon the achievement of
certain clinical milestones by ICOS. As of December 31, 2002, there was $1.0
million in 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 future milestones were to be 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 $92.5 million over the
remaining life of the agreement.

In September 2000, the Company signed a collaborative research 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. 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 2002, $1.5 million in 2001 and $250,000 in 2000. The
research program under the Eos Agreement was terminated in December 2002,
thereby relieving Biogen of any future commitments. In February 2003, Eos and
Protein Design Labs, Inc. (PDLI) announced a definitive merger agreement
under which PDLI would acquire 100% of the outstanding stock of Eos in a
stock-for-stock transaction valued at $37.5 million. Upon completion of the
merger, Biogens preferred shares of EOS would be converted into common stock
of PDLI. The Company expects to record a writedown of approximately $3 million
in the first quarter of 2003 related to its investment in Eos.

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
are collaborating in the development, manufacture and commercialization of
ANTEGREN® (natalizumab), a humanized monoclonal antibody. The Company and Elan
are currently developing ANTEGREN as a potential treatment for MS and Crohns
disease. Under the terms of the Antegren Agreement, Biogen and Elan 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. The Company provided $7 million and $16
million to Elan for certain milestones achieved during the years 2002 and 2001,
respectively, which were charged to research and development expense. As of
December 31, 2002, Elan owed the Company $14.8 million, representing
development expenses incurred by Biogen to be reimbursed by Elan. The Company
has committed to paying Elan additional amounts upon the completion of certain
future milestones. If all the future milestones were to be achieved, the
Company would be required to pay up to an additional $14 million over the
remaining life of the agreement. Elan is in the process of implementing a
recovery plan to re-build its business. The Company does not believe that
business issues facing Elan will have a material adverse impact on the Companys
rights to
develop or commercialize ANTEGREN.

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 proteins. 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

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million of research funding to Ontogeny in 2000. Additionally, the Company
provided $1.5 million upon termination of the Ontogeny Agreement, which was
charged to research and development expense in 2000. At December 31, 2002 the
Company retained approximately 166,000 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 amount of $3.9 million in
2000. 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. Also as part of the Targeted Merger Agreement, an existing
$500,000 promissory note payable by Genovo to Biogen was converted into a
no-interest promissory note from Targeted with a term of five years.
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. The Targeted
Agreements provide for a $10 million credit facility, of which $10 million of
borrowings were outstanding as of December 31, 2002. Targeted also had an
option to sell to the Company an additional $10 million of Targeted common
stock at fair value. In September 2002, Targeted exercised an option to issue
$4 million of common stock to Biogen. During the third quarter of 2002, the
Company incurred a $10.5 million charge for the establishment of a reserve
related to an outstanding loan to Targeted. Based on a review of the financial
condition of Targeted at September 30, 2002, the Company determined that it was
no longer probable that the loan would be repaid. The Company provided $1
million in 2002, $1 million in 2001 and $250,000 in 2000 for research funding
to Targeted. The Company expects to fund research activities of Targeted
related to the collaboration of $750,000 in 2003. At December 31, 2002 the
Company retained approximately 8,963,402 shares of Targeted common stock, and
included the investment in long-term marketable securities available-for-sale.

The following summarizes the Companys contractual obligations (excluding
contingent milestone payments totaling $167 million) at December 31, 2002, and
the effects such obligations are expected to have on its liquidity and cash
flows in future periods.

|                                   |  |       |         |           |  |       |        |       |  |         |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ----- | ------- | --------- |  | ----- | ------ | ----- |  | ------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|Payments due by period            
|                                  
|                                   |  | Total |         | Less than |  | 1-3   |        | 4-5   |  | After  
|(in thousands)                     |  | Years |         | 1 year    |  | Years |        | Years |  | 5 Years
|                                  
|Long-term debt                     |  | $     | 42,298  |           |  | $     | 4,888  |       |  | $       | 17,276 |  |  | $ | 20,134 |  |  | $ |       | 
|Non-cancelable operating leases    |  |       | 122,038 |           |  |       | 20,411 |       |  |         | 33,150 |  |  |   | 24,501 |  |  |   | 43,976 | 
|Other long-term obligations        |  |       | 2,895   |           |  |       | 750    |       |  |         | 2,145  |  |  |   |       |  |  |   |       | 
|                                  
|Total contractual cash obligations |  | $     | 167,231 |           |  | $     | 26,049 |       |  | $       | 52,571 |  |  | $ | 44,635 |  |  | $ | 43,976 | 
|                                  

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

The Company maintains a 50% equity interest in two joint ventures outside the
U.S. The primary purpose of these entities is the distribution of AVONEX in
Switzerland and AMEVIVE in Italy. All material intercompany balances and
transactions have been eliminated. The Company records its share of the
earnings or losses of these entities to other income (expense). 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 currently generates cash from operations primarily due to the sale
of AVONEX and from royalties on sales generated by the Companys licensees. In
the future, the Company expects to continue generating cash from these sources.
Additionally, in 2003 and beyond, the Company expects to generate cash from
the sale of AMEVIVE.
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

In January 2002, the Company settled litigation with Berlex Laboratories, Inc.
(Berlex). Berlex had claimed that the Companys production of AVONEX in the
U. S. infringed certain U.S. patents which the Company refers to as the
McCormick patents. A District Court decision in 2000 rendered final judgment
in the Companys favor determining that the manufacture, use and sale of AVONEX
in the U.S. did not infringe any of the claims of the asserted McCormick
patents, but Berlex appealed the decision to the Court of Appeals for
the Federal Circuit. Under the
settlement agreement, the Company agreed to pay Berlex $20 million, and to make
a second and final payment to Berlex if the Court of Appeals were to reverse
the District Courts previous ruling granting summary judgment in the

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Companys favor. As part of the settlement, both parties agreed not to pursue
further litigation about these patents. Biogen recorded a $20 million charge
in Other Income, net in the fourth quarter of 2001 to account for the first
payment to Berlex. 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 at the time of the settlement that $20 million
was 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 the settlement in its December 31, 2001
financial statements.

On January 31, 2003, the Court of Appeals decided that the District Court had
properly construed the claims of the McCormick patents and that the Company did
not literally infringe the McCormick patents. The Court of Appeals remanded
the case to the District Court to determine if one of the Berlex patents might
be infringed under a redefinition of the doctrine of equivalents recently
handed down by the U.S. Supreme Court. As a result of the decision, the
Company was required to make a final payment to Berlex of $55 million under the
settlement agreement which was recorded in December 2002. The previously
negotiated contingent settlement eliminated the need for further litigation and
resolved the entire dispute. The settlement agreement provides that Biogen
receive a fully paid up, royalty free, non-exclusive license under the
McCormick patent and a related patent held by Berlex. The Company negotiated a
license in order to avoid future uncertainty surrounding the rights to the
Berlex patent for Biogen and its distribution channel partners. The McCormick
patents are not utilized by Biogen and, as such, do not hold value and will not
provide future economic benefit to the Company. The $55 million payment for
settlement of litigation was charged to other income (expense) in the fourth
quarter of 2002.

On October 13, 1998, the Company filed an opposition with the Opposition
Division of the European Patent Office opposing the grant of a European patent
(the Rentschler II Patent) issued to Dr. Rentschler Biotechnologie GmbH
(Rentschler) claiming compositions of matter of beta interferon having
specific glycosylation patterns. On November 6, 2002, a hearing took place
with regard to the Companys opposition of the Rentschler II Patent in the
European Patent Office. The Opposition Board of the European Patent Office
ruled in an appealable decision that the present claims of the Rentschler II
Patent should be maintained. Following this decision, Rentschler
Biotechnologie GmbH & Co. KG sued our German subsidiary, Biogen GmbH, for
infringement of the Rentschler II Patent in Germany. The Company intends to
appeal the decision of the Opposition Division to the European Patent Offices
Technical Board of Appeals. The Company believes that it has arguments
to support the invalidation of the Rentschler II Patent before the Technical
Board of Appeals. A decision on the appeal is not likely to be issued until at
least two years after the Company files the appeal. Biogen also believes that
it has solid arguments to support its defense against Rentschlers infringement
claims in the German infringement lawsuit. A hearing in the German proceeding
is scheduled to occur in September 2003, with a decision likely to follow
within a month or two after the hearing. The non-prevailing party will then
have the right to appeal the decision. A ruling on such an appeal would likely
take another 12 to 18 months. The Company is closely examining the Opposition
Boards recent written ruling and the claims made in the German infringement suit and
exploring various alternatives for handling these matters. If the Company were
to be enjoined from selling AVONEX in Germany by the German district court
pending our appeal of an adverse judgment, or, if the Company lost any appeal
of the German infringement suit, or if, through other legal proceedings
Rentschler were to obtain a determination that the Companys sales of AVONEX in
other European countries infringes a valid Rentschler II patent, such a result
or results could have a material adverse effect on the Companys results of
operations and financial condition. As a result, an estimate of any potential
loss or range of loss cannot be made at this time.

Along with most other major pharmaceutical and biotechnology companies, the
Company has been named as a defendant in a lawsuit filed by the County of
Suffolk, New York, in the U.S. District Court in the Eastern District of New
York in January 2003. In March 2003, the case was conditionally
transferred to the United States District Court for the District of
Massachusetts.  The complaint alleges that the defendants overstated the
Average Wholesale Price (AWP) for drugs for which Medicaid provides
reimbursement (Covered Drugs), marketed and promoted the sale of Covered
Drugs to providers based on the providers ability to collect inflated payments
from the government and Medicaid beneficiaries that exceeded payments possible
for competing drugs, provided financing incentives to providers to
over-prescribe Covered Drugs or prescribe Covered Drugs in place of competing
drugs, and overcharged Medicaid for illegally inflated Covered Drugs
reimbursements. The complaint further alleges that the defendants failed to
accurately report the best price on the Covered Drugs to New Yorks Medicaid
program. Under Medicaid, pharmaceutical and biotechnology companies agree to
pay Medicaid programs a rebate for each product reimbursed by
Medicaid. The amount of the rebate is often the difference between
the average manufacturers price and the best price reported by
companies to the Medicaid program. Plaintiff claims that it was
harmed because it could have allotted the dollars that it wrongfully spent on
Medicaid to other public needs. Plaintiff has brought the action under the
Racketeering Influence and Corrupt Organizations Act (RICO), and for breach of
contract, unjust enrichment, Medicaid fraud and common law fraud. The Company
intends to vigorously defend itself against all of the allegations and claims
in this lawsuit. As a result, an estimate of any potential loss or range of
loss cannot be made at this time.

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Critical Accounting Estimates

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-going basis, the Company evaluates its estimates,
including those related to revenue recognition and bad debts, marketable
securities, derivatives and hedging activities, inventories, patents, income
taxes, research and development, loans, 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) 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 v, the Company may need to adjust its estimates, which
could have an impact on earnings in the period of adjustment.

In Febru 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, rather
than a sales and marketing expense. The Company has various contracts with
distributors that provide for discounts and rebates. These contracts are
classified as a reduction of revenue. The Company also maintains select
customer service contracts with distributors and other customers in the
distribution channel. In accordance with EITF 01-09, the Company has
established the fair value of these contracts and, as provided by EITF 01-09,
classified these customer service contracts as sales and marketing expense. If the
Company had concluded that sufficient evidence of the fair value did not exist
for these contracts, the Company would have been required to classify these
costs as a reduction of revenue.

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.

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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 Investments 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
the fair market value of the common stock, the duration of the
stocks decline, prospects for favorable clinical trial results, new product initiatives and new
collaborative agreements. Any future determinations that unrealized losses are
other than temporary could have an impact on earnings. In connection with the
Companys assessment at December 31, 2002, $1.5 million of unrealized losses
related to these marketable securities were determined to be temporary. The
fair market value of these marketable securities totaled $3.8 million at December 31, 2002.

The Company also invests in equity securities of certain companies whose
securities are not publicly traded and fair value is not readily available.
These investments are recorded using the cost method of accounting and, as a
matter of policy, the Company monitors these investments in private securities
on a quarterly basis, and determines whether any impairment in their value
would require a charge to current earnings. At December 31, 2002, the Company
included approximately $15.3 million of investments in private securities in
other assets. There were no charges to current earnings in 2002, 2001, or 2000
for impairments of these investments. Recognition of impairments for these
securities may cause variability in earnings.

Derivatives and hedging activities

Biogen has operations in Europe, 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 Euro, Swedish krona, British pound, Japanese
yen and Canadian dollar).

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. SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, 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.
Under this policy, and in accordance with SFAS 133, earnings may vary if the
forecasted transaction does not occur, or if there is material hedge
ineffectiveness or if the hedge ceases to be highly effective.

Inventory capitalization

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

Biogen capitalizes inventory costs associated with certain products prior to
regulatory approval, based on managements judgment of probable future
commercialization. Biogen could 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, 2002, capitalized inventory related to
AMEVIVE, which received regulatory approval in the U.S. in January 2003, was
$25 million. At December 31, 2002, capitalized inventory related to the
pre-filled syringe formulation of AVONEX, which has not yet received regulatory
approval, was $3.7 million.

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 wrote down $6.8 million of unmarketable inventory during 2002, of
which $4.2 million was charged to research and development expense for product
not yet commercialized, and the remainder was charged to cost of product
revenues.

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Patents

The costs associated with successful defenses and patent applications are
capitalized and amortized on a straight-line basis over estimated useful lives
up to 15 years. 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 patents is less than the carrying value. Recognition of
patent impairments may cause variability in earnings.

Income taxes

Income tax expense includes a provision for income tax contingencies which
management believes is adequate and appropriate.

Research and development expenses

Research and development expenses are comprised of costs incurred in performing
research and development activities including salaries and benefits, facilities
costs, overhead costs, clinical trial and related clinical manufacturing costs,
contract services and other outside costs. Research and development costs,
including upfront fees and milestones paid to collaborators, are expensed as
incurred. The timing of upfront fees and milestone payments in the future may
cause variability in future research and development expense. Clinical trial
costs include costs associated with contract research organizations (CROs).
The invoicing from CROs for services rendered can lag several months. The
Company accrues the cost of services rendered in connection with CRO activities
based on its estimate of management fees, site management and site monitoring
costs, and data management costs. The Company maintains regular communication
with its CRO vendors to gauge the reasonableness of its estimates. Differences
between actual clinical trial costs and estimated clinical trial costs have not
been material and are adjusted for in the period which they become known.
Under this policy, research and development expense can vary due to accrual
adjustments related to clinical trials.

Loans

In connection with certain of its research collaborations, the Company has
extended loans or made loan commitments to collaborators. On a quarterly basis,
the loans are monitored for potential impairment, based on the probability of
the collection of the full amount due under the loan according to each loans
terms. Should it be determined that it is not probable that the Company will
be able to collect all interest and principal due, the Company recognizes a
corresponding impairment charge to current earnings.

Pensions

The Company has a defined benefit pension plan (the Plan) which provides
benefits to all of its full-time U.S. employees. The Company assumed an
expected long-term rate of return on Plan assets of 9.00% for 2002. This rate
is based on a review of historical returns for both the equity and fixed income
portfolios and the current Plan asset allocation of 80% equity and 20% fixed
income. The assumed rate of return is reviewed periodically and adjusted, as
appropriate, to reflect trends in returns and changes in asset allocation
assumptions.

Based on recent discussions about the current economic climate and a review of
industry benchmarks, it is anticipated that the assumption for long-term rate
of return for 2003 will be lowered to 8.75%. Based on sensitivity analysis, the
Company expects that a 25 basis point rate reduction will result in an increase
in pension expense of approximately $70,000.

The market-related value of Plan assets is determined using the fair value
method.

Contingencies and litigation

There has been, and Biogen expects there may be significant litigation in the
industry regarding regulatory, pricing, and patents and other intellectual
rights. The Company has determined that no liabilities are required to be
recorded at this time for potential losses relating to current and potential
litigation, as the Company will accrue for losses when they become probable and
estimable. Certain adverse unfavorable rulings or decisions in the future
could create variability or have a material adverse effect on the Companys
future results of operations and financial position.

New Accounting Pronouncements

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized at its fair market
value when the liability is incurred, rather than at the date of an entitys
commitment to an exit plan. The provisions of SFAS 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. The adoption
of SFAS 146 is not expected to have a material effect on the Companys
financial statements.

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In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34.
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees
that it has issued. It also requires that a guarantor recognize, at the
inception of a guarantee, a liability for the fair value of certain guarantees.
The initial recognition and initial measurement provisions of FIN 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN 45 are effective for
financial statement periods ending after December 15, 2002.

Under its charter, the Company has agreed to indemnify any person who is made a
party to any action or threatened with any action as a result of such persons
serving or having served as an officer or director of the Company or having
served, at the Companys request, as an officer or director of another company.
The indemnification does not apply if the person is adjudicated not to have
acted in good faith in the reasonable belief that his or her actions were in
the best interests of the Company. The indemnification obligation survives
termination of the indemnified partys involvement with the Company but only as
to those claims arising from such persons role as an officer or director. The
Company has separate indemnification agreements with certain of its officers
and directors that mirror the charter provisions. The maximum potential
amount of future payments that the Company could be required to make under the
charter provision and the corresponding indemnification agreements is
unlimited; however, the Company has Director and Officer insurance policies
that, in most cases, would limit its exposure and enable it to recover a
portion of any future amounts paid. As a result of the insurance policy
coverage, the estimated fair value of these indemnification provisions is
minimal. All of these indemnification provisions were grandfathered under the
provisions of FIN 45 as they were in effect prior to December 31, 2002.
Accordingly, we have no liabilities recorded for these provisions as of
December 31, 2002.

The Company enters into indemnification provisions under its agreements with
other companies in its ordinary course of business, typically with business
partners, contractors, clinical sites and customers. Under these provisions the
Company generally indemnifies and hold harmless the indemnified party for
losses suffered or incurred by the indemnified party as a result of the
Companys activities. These indemnification provisions generally survive
termination of the underlying agreement. The maximum potential amount of
future payments the Company could be required to make under these
indemnification provisions is unlimited. The Company has not incurred material
costs to defend lawsuits or settle claims related to these indemnification
agreements. As a result, the estimated fair value of these agreements is
minimal. Accordingly, the Company has no liabilities recorded for these
agreements as of December 31, 2002.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation-Transition and Disclosure  An Amendment of SFAS No. 123. SFAS
148 amends SFAS 123, Accounting for Stock-Based Compensation to provide
alternative methods of transition for those companies who voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both the annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
transition and annual disclosure provision of SFAS 148 are effective for fiscal
years ending after December 15, 2002. The Company has not adopted the fair
value method of accounting for stock-based compensation, and will continue to
apply APB 25 for its stock-based compensation plans. The Company has
incorporated the disclosure requirements of SFAS 148 at December 31, 2002,
which require a tabular pro forma presentation of net income had SFAS 123 been
adopted by the Company in the Summary of Significant Accounting Policies
footnote of the financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
FIN 46 requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. Variable interest entities that
effectively disperse risk will not be consolidated unless a single party holds
an interest or combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 also requires enhanced disclosure
requirements related to variable interest entities. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15,
2003 to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 is
not expected to have a material effect on the Companys financial statements.

Outlook

Safe Harbor

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, the timing of clinical trials, the potential
outcome of clinical programs, regulatory approvals, the marketing of additional
products the impact of competitive products, the anticipated outcome of pending
or anticipated litigation and patent-related proceedings, facility expansion
and the value of 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 and elsewhere in this annual report. Unless required by law, Biogen does
not undertake any obligation to publicly update any forward-looking statements.

Dependence on AVONEX and AMEVIVE Sales

Biogens ability to sustain increases in revenues and profitability is
primarily dependent on the level of revenues and profitability from AVONEX and
AMEVIVE 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), continued market



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acceptance of AVONEX worldwide; Biogens ability to
maintain a high level of physician and patient satisfaction with AVONEX; the
nature of regulatory and pricing decisions related to AVONEX worldwide; the
overall growth of the MS market; the extent to which AVONEX continues to
receive and maintains reimbursement coverage; the success of ongoing
development related to AVONEX in expanded MS indications; the success of
ongoing development of the pre-filled syringe formulation of AVONEX; and the
continued accessibility of third parties to vial, label, and distribute AVONEX
on acceptable terms.

AMEVIVE was approved in the U.S. in January 2003. In February 2003, Biogen
withdrew its application for approval to market AMEVIVE in the EU. Biogens
decision was based on a determination by the Committee for Proprietary
Medicinal Products, the scientific advisory board of the regulatory authority
in the EU, that more clinical information is needed to approve AMEVIVE.

Biogen plans to develop the additional information necessary to obtain approval of
AMEVIVE for psoriasis patients in the EU. Developing the data and re-filing
the application may take several years and there is no assurance that Biogen
will ever obtain approval of AMEVIVE in the EU. There is also no assurance
that our commercial efforts in the U.S. will be successful. The level of
revenues from sales of AMEVIVE in the U.S. will depend on a number of factors,
including: the ability to gain and to sustain market share and to continue to
increase market share of AMEVIVE as the competitive landscape for AMEVIVE
becomes more challenging; Biogens ability to maintain a high level of
physician and patient satisfaction with AMEVIVE; the nature of regulatory and
pricing decisions related to AMEVIVE worldwide; the extent to which AMEVIVE
receives and maintains adequate reimbursement coverage; and the accessibility
of third parties to vial, label, and distribute AMEVIVE on acceptable terms.

Competition

Biogen faces increasing competition from other products for the treatment of
relapsing forms of MS. In 2002, AVONEX competed in the U.S. and EU markets
primarily with four products: COPAXONE® glatiramer acetate, sold by Teva
Neuroscience, Inc. (Teva) in the U.S. and co-promoted in by Teva and Aventis
Pharma in the EU; BETASERON®, sold by Berlex in the U.S. and sold under the
name BETAFERON® by Schering A.G. in the EU; NOVANTRONE® (mitoxantrone for
injection) sold by Amgen, Inc. (Amgen) and Serono S.A. in the U.S. and sold
by Amgen in the EU; and REBIF®, which was launched in the U.S. by Serono, Inc.
(Serono) in March 2002. Serono announced in July 2002 that it reached an
agreement to co-promote REBIF in the U.S. with Pfizer Inc. A number of
companies, including Biogen, are working to develop products to treat MS which
may in the future compete with AVONEX. AVONEX also faces 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.

AMEVIVE competes with existing therapies for moderate-to-severe psoriasis, such
as oral retinoids, steroids, methotrexate and cyclosporin, along with other
drugs, as discussed below, approved for other indications. In the future,
AMEVIVE will also compete with new drugs currently in development for
psoriasis, drugs now approved for other indications that may be approved for
psoriasis, and off-label uses of drugs approved for other indications.
Genentech and Xoma Corporation are co-developing RAPTIVA® (efalizumab), an
antibody designed to block certain immune cells as a potential treatment for
moderate-to-severe psoriasis. Genentech has filed for regulatory approval of
the drug in the U.S. Serono has an exclusive license to RAPTIVA in the EU and
other countries and has filed for regulatory approval of the drug in the EU.
ENBREL® (etanercept), a drug sold by Amgen, Inc., has been approved by the FDA
as a treatment for psoriatic arthritis, a joint disease that can be associated
with the skin plaques of moderate to severe chronic plaque psoriasis. In
January 2003, Amgen announced positive results from a Phase 3 clinical study of
ENBREL in the treatment of moderate to severe plaque psoriasis and is
conducting a second Phase 3 clinical study in psoriasis. Centocor, Inc. sells
REMICADE® (infliximab) worldwide as a treatment for other indications,
including rheumatoid arthritis, and has completed a Phase 2 proof of concept
study for REMICADE as a potential treatment for psoriasis. HUMIRA®
(adalimumab), a drug sold by Abbott Laboratories, was also recently approved by
the FDA as a treatment for rheumatoid arthritis. Abbott is undertaking
clinical trials in psoriasis and psoriatic arthritis. In addition, a number of
other companies are working to develop products to treat psoriasis which may
ultimately compete with AMEVIVE.

Royalty Revenue

Biogen receives royalty revenues which, prior to 2001, contributed a
significant amount to its overall profitability. Royalty revenues decreased
significantly in recent years and through the third quarter of 2002 primarily
as the result of patent expirations and a royalty dispute with Schering-Plough.
In October 2002, Biogen settled its dispute with Schering-Plough over
royalties on U.S. sales of alpha interferon products. The Company received a
final settlement payment resulting in a net gain of $37.2 million. In
addition, Schering-Plough agreed, effective October 1, 2002, to commence
royalty payments on U.S. sales of alpha interferon products under an
interference settlement entered into in 1998. Under the terms of the
interference settlement, Schering-Plough agreed to pay Biogen royalties
commencing in mid-2002 under certain patents to be issued to Hoffman-La Roche
Inc. (Roche) and Genentech in consideration of Biogens assignment to
Schering-Plough of the alpha interferon patent application that had been the
subject of the settled interference with a Roche/Genentech patent.
Schering-Plough entered into an agreement with Roche as part of settlement of
the interference. The first of the Roche/Genentech patents was issued on
November 19, 2002 and has a seventeen-year term. Even with resolution of the
dispute with Schering-Plough, royalty revenues may fluctuate as a result of
future patent expirations and other factors such as 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.

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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 by Biogen. 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 U.S. 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 U.S. 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. 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 is also aware that
Genentech has been granted patents and is presently prosecuting other patent
applications in the U.S. and certain other countries pertaining to technology
referred to as immunoadheson technology. Genentech may allege that its patents
on such immunoadheson technology are infringed by Biogens commercial
activities with AMEVIVE. Biogen has had discussions with Genentech and is
evaluating these patents to determine if a license should be taken. The ultimate scope and
validity of Genentechs immunoadheson patents and the availability and ultimate
cost of acquiring such rights, currently cannot be determined.

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 and AMEVIVE are currently the only products 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 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 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 Biogen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.

Pricing Pressures

In the U.S., many pharmaceutical and biologic products are subject to
increasing pricing pressures, which could be significantly impacted by the
outcome of the current national debate over Medicare reform. If the
Medicare program provided outpatient pharmaceutical coverage for its
beneficiaries, the federal government, through its enormous purchasing power
under the program, could demand discounts from pharmaceutical and biotechnology
companies that may implicitly create price controls on prescription drugs. On
the other hand, a Medicare drug reimbursement provision may increase the volume
of pharmaceutical drug purchases, offsetting at least in part these potential
price discounts. In addition, Managed Care Organizations (MCOs), institutions
and other government agencies continue to seek price discounts. Government
efforts to reduce Medicare and Medicaid expenses are expected to increase the
use of MCOs. This may result in managed cares influencing prescription
decisions for a larger segment of the population. In addition, certain states
have proposed and certain other states have adopted various programs to control
prices for their seniors drug programs, including price or patient
reimbursement constraints, restrictions on access to certain products,
importation from other countries and bulk purchasing of drugs.

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Biogen encounters similar regulatory and legislative issues in most other
countries. In the EU and some other international markets, the government
provides health care at low direct cost to consumers and regulates
pharmaceutical prices or patient reimbursement levels to control costs for the
government-sponsored health care system. This international patchwork of price
regulation may lead to inconsistent prices and some third-party trade in
Biogens products from markets with lower prices. Such trade exploiting price
differences between countries could undermine our sales in markets with higher
prices.

Manufacturing

Biogen currently produces all of its bulk drug products at its manufacturing
facilities located in Cambridge, Massachusetts and Research Triangle Park,
North Carolina. Problems with manufacturing processes could result in product
defects, which could require Biogen to delay shipment of products, recall
products previously shipped or be unable to supply products at all. In
addition, any prolonged interruption in the operations of Biogens
manufacturing facilities could result in cancellations of shipments or loss of
product in the process of being manufactured. Because Biogens manufacturing
processes are highly complex and are subject to a lengthy FDA approval process,
alternative qualified production capacity may not be available on a timely
basis or at all. Biogen sources all of its fill-finish and final product
storage operations, along with a substantial portion of its packaging
operations, to a concentrated group of third party contractors. Problems with
the operations of these third party contractors could also require Biogen to
delay shipment of saleable products, recall products previously shipped or be
unable to supply products at all. Difficulties or delays in Biogens
manufacturing of existing or new products, including difficulties or delays in
the operations of third party contractors retained by Biogen to perform
fill-finish, packaging and storage of saleable products, could increase
Biogens costs, cause Biogen to lose revenue or market share and damage
Biogens reputation.

Litigation and Government Regulation

Biogen encounters, and may in the future encounter, legal difficulties, any of
which could preclude commercialization of products or adversely affect its
business or financial condition, including: claims asserting antitrust
violations, claims asserting securities law violations, claims asserting
violations of the Federal False Claim Act, Anti-Kickback Act, the Prescription
Drug Marketing Act or other violations in connection with Medicare and/or
Medicaid reimbursement, derivative actions, product liability claims, disputes
over intellectual property rights (including patents) and environmental
matters. There is no assurance that Biogen will be successful in asserting its
rights in current or future litigation, including the current litigation with
Rentschler and the current AWP litigation described under Legal
Matters. Biogens business is also subject to extensive government
regulation and oversight. Biogen may also become subject to governmental
actions which could adversely affect its business or financial condition,
including: (i) new laws, regulations and judicial decisions related to health
care availability, method of delivery and payment for health care products and
services, (ii) changes in the Federal Food and Drug Administration and foreign
regulatory approval processes that may delay or prevent the approval of new
products and result in lost market opportunity, (iii) new laws, regulations and
judicial decisions affecting pricing or marketing and (iv) changes in the tax
laws relating to Biogens operations.

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.
See Critical Accounting Estimates for information regarding Biogens
accounting policies for financial instruments and disclosures of financial
instruments.

Foreign Exchange

Biogen has operations in Europe, 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 Euro, Swedish krona, British pound, Japanese
yen and Canadian dollar).

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 (for example, a strengthening
of the Euro) would result in a hypothetical loss in fair value of approximately
$10 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.

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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, 2002, 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, 2002, representing the cash
requirements of Biogen to settle the agreements, was approximately $5.1
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.

19



---



##### 



Consolidated Statements of Income
Biogen, Inc. and Subsidiaries

(in thousands, except per share amounts)

|                                 |  |                                   |  |      |           |      |  |   |           |  |  |   |         |  |  |  |  | 
|-------------------------------- |  | --------------------------------- |  | ---- | --------- | ---- |  | - | --------- |  |  | - | ------- |  |  |  |  | 
|For the years ended December 31, |  | 2002                              |  | 2001 |           | 2000 |  |   |           | 
|                                
|Revenues:                        |  |                                   |  |      |           |      |  |   |           |  |  |   |         |  |  | 
|                                 |  | Product                           |  | $    | 1,034,357 |      |  | $ | 970,546   |  |  | $ | 760,292 |  |  |  |  | 
|                                 |  | Royalties                         |  |      | 114,007   |      |  |   | 71,766    |  |  |   | 165,373 |  |  |  |  | 
|                                
|                                 |  | Total revenues                    |  |      | 1,148,364 |      |  |   | 1,042,312 |  |  |   | 925,665 |  |  |  |  | 
|Costs and expenses:             
|                                 |  | Cost of product revenues          |  |      | 151,440   |      |  |   | 131,870   |  |  |   | 112,928 |  |  |  |  | 
|                                 |  | Cost of royalty revenues          |  |      | 8,719     |      |  |   | 4,640     |  |  |   | 12,270  |  |  |  |  | 
|                                 |  | Research and development          |  |      | 367,567   |      |  |   | 314,556   |  |  |   | 302,840 |  |  |  |  | 
|                                 |  | Selling, general & administrative |  |      | 324,001   |      |  |   | 231,048   |  |  |   | 169,271 |  |  |  |  | 
|                                
|                                 |  | Total costs and expenses          |  |      | 851,727   |      |  |   | 682,114   |  |  |   | 597,309 |  |  |  |  | 
|                                
|                                 |  | Income from operations            |  |      | 296,637   |      |  |   | 360,198   |  |  |   | 328,356 |  |  |  |  | 
|                                 |  | Other income (expense), net       |  |      | (20,042   | )    |  |   | 29,299    |  |  |   | 158,749 |  |  |  |  | 
|                                
|                                 |  | Income before income taxes        |  |      | 276,595   |      |  |   | 389,497   |  |  |   | 487,105 |  |  |  |  | 
|                                 |  | Income taxes                      |  |      | 77,447    |      |  |   | 116,814   |  |  |   | 153,528 |  |  |  |  | 
|                                
|                                 |  | Net Income                        |  | $    | 199,148   |      |  | $ | 272,683   |  |  | $ | 333,577 |  |  |  |  | 
|                                
|                                
|                                
|                                
|                                
|                                 |  | Basic earnings per share          |  | $    | 1.33      |      |  | $ | 1.84      |  |  | $ | 2.24    |  |  |  |  | 
|                                
|                                 |  | Diluted earnings per share        |  | $    | 1.31      |      |  | $ | 1.78      |  |  | $ | 2.16    |  |  |  |  | 
|                                
|                                
|                                
|                                
|                                
|Shares used in calculating:      |  |                                   |  |      |           |      |  |   |           |  |  |   |         |  |  | 
|                                
|                                 |  | Basic earnings per share          |  |      | 149,337   |      |  |   | 148,355   |  |  |   | 148,743 |  |  |  |  | 
|                                
|                                 |  | Diluted earnings per share        |  |      | 151,930   |      |  |   | 152,916   |  |  |   | 154,602 |  |  |  |  | 
|                                

See accompanying notes to consolidated financial statements.

20



---



##### 



Consolidated Balance Sheets
Biogen, Inc. and Subsidiaries

(in thousands, except share amounts)

|                                     |                                                                                                                     |      |           |           |   |   |           |           |   |  |  |  | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | ---- | --------- | --------- | - | - | --------- | --------- | - |  |  |  | 
|As of December 31,                   |                                                                                                                     | 2002 |           | 2001      |   |   |           |          
|                                    
|Assets                               |                                                                                                                     |      |           |           |   |   |           |           |   |  |  | 
|Current assets                       |                                                                                                                     |      |           |           |   |   |           |           |   |  |  | 
|                                     | Cash and cash equivalents                                                                                           |      | $         | 45,113    |   |   | $         | 54,042    |   |  |  |  | 
|                                     | Marketable securities                                                                                               |      |           | 821,996   |   |   |           | 744,065   |   |  |  |  | 
|                                     | Accounts receivable, less allowance
for doubtful accounts of $1,920 and
$2,082, respectively                        |      |           | 171,067   |   |   |           | 177,582   |   |  |  |  | 
|                                     | Deferred tax assets                                                                                                 |      |           | 38,592    |   |   |           | 44,108    |   |  |  |  | 
|                                     | Inventory                                                                                                           |      |           | 95,378    |   |   |           | 51,919    |   |  |  |  | 
|                                     | Other current assets                                                                                                |      |           | 43,878    |   |   |           | 26,011    |   |  |  |  | 
|                                    
|                                     | Total current assets                                                                                                |      |           | 1,216,024 |   |   |           | 1,097,727 |   |  |  |  | 
|                                    
|Property and equipment, net          |                                                                                                                     |      | 738,059   |           |   |   | 555,998   |           |   |  |  | 
|Patents, net                         |                                                                                                                     |      | 15,994    |           |   |   | 16,562    |           |   |  |  | 
|Marketable securities                |                                                                                                                     |      | 3,757     |           |   |   | 12,183    |           |   |  |  | 
|Other assets                         |                                                                                                                     |      | 33,154    |           |   |   | 38,576    |           |   |  |  | 
|                                    
|                                     |                                                                                                                     | $    | 2,006,988 |           |   | $ | 1,721,046 |           |   |  |  | 
|                                    
|Liabilities and Shareholders Equity |                                                                                                                     |      |           |           |   |   |           |           |   |  |  | 
|Current liabilities                  |                                                                                                                     |      |           |           |   |   |           |           |   |  |  | 
|                                     | Accounts payable                                                                                                    |      | $         | 64,876    |   |   | $         | 50,944    |   |  |  |  | 
|                                     | Current portion of long-term debt                                                                                   |      |           | 4,888     |   |   |           | 4,888     |   |  |  |  | 
|                                     | Current taxes payable                                                                                               |      |           | 73,824    |   |   |           | 90,131    |   |  |  |  | 
|                                     | Accrued expenses and other                                                                                          |      |           | 182,745   |   |   |           | 148,979   |   |  |  |  | 
|                                    
|                                     | Total current liabilities                                                                                           |      |           | 326,333   |   |   |           | 294,942   |   |  |  |  | 
|                                    
|Long-term debt, less current portion |                                                                                                                     |      | 37,410    |           |   |   | 42,297    |           |   |  |  | 
|Long-term deferred tax liability     |                                                                                                                     |      | 33,678    |           |   |   | 16,789    |           |   |  |  | 
|Other long-term liabilities          |                                                                                                                     |      | 14,146    |           |   |   | 18,186    |           |   |  |  | 
|Commitments and contingencies        |                                                                                                                     |      |          |           |   |   |          |           |   |  |  | 
|Shareholders equity                 |                                                                                                                     |      |           |           |   |   |           |           |   |  |  | 
|                                     | Common stock, par value $0.01 per
share (375,000,000 shares authorized;
151,705,636 shares issued in 2002 and
2001) |      |           | 1,517     |   |   |           | 1,517     |   |  |  |  | 
|                                     | Additional paid-in capital                                                                                          |      |           | 829,993   |   |   |           | 808,076   |   |  |  |  | 
|                                     | Treasury stock, at cost, 1,618,195
and 3,233,351 shares in 2002 and
2001, respectively                              |      |           | (90,844   | ) |   |           | (176,123  | ) |  |  |  | 
|                                     | Retained earnings                                                                                                   |      |           | 838,756   |   |   |           | 705,893   |   |  |  |  | 
|                                     | Accumulated other comprehensive income                                                                              |      |           | 15,999    |   |   |           | 9,469     |   |  |  |  | 
|                                    
|                                     | Total shareholders equity                                                                                          |      |           | 1,595,421 |   |   |           | 1,348,832 |   |  |  |  | 
|                                    
|                                     |                                                                                                                     | $    | 2,006,988 |           |   | $ | 1,721,046 |           |   |  |  | 
|                                    

See
accompanying notes to consolidated financial statements.

21



---



##### 



Consolidated Statements of Cash Flows
Biogen, Inc. and Subsidiaries

(in thousands)

|                                                     |                                                                                    |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |          |         |        | 
|---------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------ | -------- | ------- | ------ |  | ---- |  | - | ------ | -------- | ------- | ------ |  |  |  | - | ------ | -------- | ------- | ------ | 
|For the years ended December 31,                     |                                                                                    | 2002                                                                           |              |          |         |        |  | 2001 |  |   |        |          |         | 2000  
|                                                    
|Cash Flows from Operating Activities                 |                                                                                    |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |         
|                                                     | Net Income                                                                         |                                                                                | $            | 199,148  |         |        |  |      |  |   | $      | 272,683  |         |        |  |  |  |   | $      | 333,577  |        
|                                                     | Adjustments to reconcile net income to net cash provided from
operating activities |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |          |        
|                                                     | Depreciation and amortization                                                      |                                                                                |              | 45,100   |         |        |  |      |  |   |        | 37,023   |         |        |  |  |  |   |        | 39,035   |        
|                                                     | Equity in net loss (income) of unconsolidated affiliate                            |                                                                                |              | 3,392    |         |        |  |      |  |   |        | (610     | )       |        |  |  |  |   |        |         |         |        | 
|                                                     | Stock based compensation                                                           |                                                                                |              | 2,356    |         |        |  |      |  |   |        | 829      |         |        |  |  |  |   |        | (249     | )      
|                                                     | Deferred income taxes                                                              |                                                                                |              | 22,642   |         |        |  |      |  |   |        | (18,100  | )       |        |  |  |  |   |        | 25,203   |        
|                                                     | Realized loss (gain) on sale of non-current marketable securities                  |                                                                                |              | 301      |         |        |  |      |  |   |        | (32,143  | )       |        |  |  |  |   |        | (101,129 | )      
|                                                     | Tax benefit of stock options                                                       |                                                                                |              | 19,561   |         |        |  |      |  |   |        | 35,075   |         |        |  |  |  |   |        | 81,023   |        
|                                                     | Impairment of non-current marketable securities                                    |                                                                                |              | 10,095   |         |        |  |      |  |   |        | 27,942   |         |        |  |  |  |   |        |         |         |        | 
|                                                     | Loan loss reserve                                                                  |                                                                                |              | 10,500   |         |        |  |      |  |   |        |         |         |        |  |  |  |   |        |         |         |        | 
|                                                     | Write down of inventory to net realizable value                                    |                                                                                |              | 6,831    |         |        |  |      |  |   |        |         |         |        |  |  |  |   |        |         |         |        | 
|                                                     | Changes in:                                                                        |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |          |        
|                                                     |                                                                                    | Accounts receivable                                                            |              | 11,788   |         |        |  |      |  |   |        | (35,442  | )       |        |  |  |  |   |        | (7,357   | )      
|                                                     |                                                                                    | Inventory                                                                      |              | (50,290  | )       |        |  |      |  |   |        | (12,391  | )       |        |  |  |  |   |        | 502      |        
|                                                     |                                                                                    | Other current and other assets                                                 |              |          | (26,883 | )      |  |      |  |   |        |          | (29,285 | )      |  |  |  |   |        |          | (35,332 | )     
|                                                     |                                                                                    | Accounts payable, accrued expenses and other current and
long-term liabilities |              |          | 12,536  |        |  |      |  |   |        |          | 71,227  |        |  |  |  |   |        |          | 31,114  |        | 
|                                                    
|                                                     | Net cash flows from operating activities                                           |                                                                                |              | 267,077  |         |        |  |      |  |   |        | 316,808  |         |        |  |  |  |   |        | 366,387  |        
|                                                    
|Cash Flows from Investing Activities                 |                                                                                    |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |         
|                                                     | Purchases of current marketable securities                                         |                                                                                |              | (467,256 | )       |        |  |      |  |   |        | (827,807 | )       |        |  |  |  |   |        | (627,168 | )      
|                                                     | Proceeds from sales and maturities of current marketable
securities                |                                                                                |              | 404,808  |         |        |  |      |  |   |        | 734,599  |         |        |  |  |  |   |        | 606,087  |        
|                                                     | Proceeds from sales of non-current marketable securities                           |                                                                                |              | 493      |         |        |  |      |  |   |        | 35,827   |         |        |  |  |  |   |        | 120,199  |        
|                                                     | Investment in collaborators                                                        |                                                                                |              | (6,000   | )       |        |  |      |  |   |        |         |         |        |  |  |  |   |        | (5,000   | )      
|                                                     | Acquisitions of property and equipment, net                                        |                                                                                |              | (220,341 | )       |        |  |      |  |   |        | (191,019 | )       |        |  |  |  |   |        | (194,892 | )      
|                                                     | Additions to patents                                                               |                                                                                |              | (1,214   | )       |        |  |      |  |   |        | (4,781   | )       |        |  |  |  |   |        | (4,713   | )      
|                                                    
|                                                     | Net cash flows from investing activities                                           |                                                                                |              | (289,510 | )       |        |  |      |  |   |        | (253,181 | )       |        |  |  |  |   |        | (105,487 | )      
|                                                    
|Cash Flows from Financing Activities                 |                                                                                    |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |         
|                                                     | Repayments on long-term debt                                                       |                                                                                |              | (4,887   | )       |        |  |      |  |   |        | (4,888   | )       |        |  |  |  |   |        | (4,888   | )      
|                                                     | Purchases of treasury stock                                                        |                                                                                |              | (8,384   | )       |        |  |      |  |   |        | (88,284  | )       |        |  |  |  |   |        | (300,192 | )      
|                                                     | Issuance of common stock and option exercises                                      |                                                                                |              | 27,379   |         |        |  |      |  |   |        | 35,034   |         |        |  |  |  |   |        | 35,955   |        
|                                                     | Other                                                                              |                                                                                |              | 153      |         |        |  |      |  |   |        | (17      | )       |        |  |  |  |   |        | (13      | )      
|                                                    
|                                                     | Net cash flows from financing activities                                           |                                                                                |              | 14,261   |         |        |  |      |  |   |        | (58,155  | )       |        |  |  |  |   |        | (269,138 | )      
|                                                    
|                                                     | Effect of exchange rate changes on cash                                            |                                                                                |              | (757     | )       |        |  |      |  |   |        | (167     | )       |        |  |  |  |   |        | 55       |        
|                                                    
|Net increase (decrease) in cash and cash equivalents |                                                                                    |                                                                                | (8,929       | )        |         |        |  |      |  |   | 5,305  |          |         |        |  |  |  |   | (8,183 | )       
|Cash and cash equivalents, beginning of the year     |                                                                                    |                                                                                | 54,042       |          |         |        |  |      |  |   | 48,737 |          |         |        |  |  |  |   | 56,920 |         
|                                                    
|Cash and cash equivalents, end of the year           |                                                                                    | $                                                                              | 45,113       |          |         |        |  |      |  | $ | 54,042 |          |         |        |  |  |  | $ | 48,737 |         
|                                                    
|Supplemental Cash Flow Data                          |                                                                                    |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |         
|Cash paid during the year for:                       |                                                                                    |                                                                                |              |          |         |        |  |      |  |   |        |          |         |        |  |  |  |   |        |         
|                                                     |                                                                                    |                                                                                | Interest     |          | $       | 3,491  |  |      |  |   |        |          | $       | 3,954  |  |  |  |   |        |          | $       | 4,314  | 
|                                                     |                                                                                    |                                                                                | Income taxes |          | $       | 51,548 |  |      |  |   |        |          | $       | 79,002 |  |  |  |   |        |          | $       | 42,683 | 

See accompanying notes to consolidated financial statements.

22



---



##### 



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, 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 |        
|                                                                                   
|Net income                                                                          |  |                            |       |         |  |         |         |            |  |          |          |               |  |               | 199,148  |   |  |             |         |       |  |   | 199,148   |        
|Unrealized gains/losses on marketable
securities, net of tax of $3,427              |  |                            |       |         |  |         |         |            |  |          |          |               |  |               |          |   |  |             | 6,820   |       |  |   | 6,820     |        
|Unrealized gains/losses on foreign currency
forward contracts, net of tax of $3,064 |  |                            |       |         |  |         |         |            |  |          |          |               |  |               |          |   |  |             | (5,369  | )     |  |   | (5,369    | )      
|Unrealized gains/losses on interest rate
swaps, net of tax of $601                  |  |                            |       |         |  |         |         |            |  |          |          |               |  |               |          |   |  |             | (1,198  | )     |  |   | (1,198    | )      
|Translation adjustment                                                              |  |                            |       |         |  |         |         |            |  |          |          |               |  |               |          |   |  |             | 6,277   |       |  |   | 6,277     |        
|                                                                                   
|                                                                                    |  | Total comprehensive income |       |         |  |         |         |            |  |          |          |               |  |               |          |   |  |             |         |       |  |   |           | 205,678 |        
|                                                                                   
|Exercise of options and related tax benefits                                        |  |                            |       |         |  |         | 19,561  |            |  |          | 93,663   |               |  |               | (66,285  | ) |  |             |         |       |  |   | 46,939    |        
|Treasury stock purchased                                                            |  |                            |       |         |  |         |         |            |  |          | (8,384   | )             |  |               |          |   |  |             |         |       |  |   | (8,384    | )      
|Compensation expense related to stock
options                                       |  |                            |       |         |  |         | 2,356   |            |  |          |          |               |  |               |          |   |  |             |         |       |  |   | 2,356     |        
|                                                                                   
|Balance, December 31, 2002                                                          |  | $                          | 1,517 |         |  | $       | 829,993 |            |  | $        | (90,844  | )             |  | $             | 838,756  |   |  | $           | 15,999  |       |  | $ | 1,595,421 |        
|                                                                                   

See accompanying notes to consolidated financial statements.

23



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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 global biopharmaceutical company
that develops, manufactures and markets novel human therapeutic products.
Biogens primary focus is developing pharmaceutical products that meet unmet
medical needs particularly in its core therapeutic areas of neurology,
dermatology and rheumatology. Biogen currently sells AVONEX® (Interferon
beta-1a) for the treatment of relapsing multiple sclerosis (MS) and,
commencing in 2003, AMEVIVE® (alefacept) for the treatment of adult patients
with moderate-to-severe chronic plaque psoriasis who are candidates for
systemic therapy or phototherapy. Biogen also receives revenues from royalties
on sales by our licensees of a number of products covered under patents that
Biogen controls. In addition, Biogen has a pipeline of development stage
products and a number of research programs in our core therapeutic areas and in
other areas of interest. Certain items in prior years financial statements
have been reclassified to conform to the current years presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Additionally, the Company maintains a 50% equity
interest in two joint ventures outside the U.S. The primary purpose of these
entities is the distribution of AVONEX in Switzerland and AMEVIVE in Italy. All
material intercompany balances and transactions have been eliminated. The
Company records its share of the earnings or losses of these entities to other
income (expense).

Use of Estimates

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-going basis, the Company evaluates its estimates,
including those related to revenue recognition and bad debts, marketable
securities, derivatives and hedging activities, inventories, patents, income
taxes, research and development, loans, 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.

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. The
Company had foreign exchange gains totaling $2.2 million in 2002, and foreign
exchange losses of $1.2 million and $2.8 million in 2001 and 2000,
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

24



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securities, interest rate swaps
and foreign currency forward contracts are based on quoted market prices or
pricing models using current market rates. The Companys long-term debt
approximates fair value.

Inventories

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

|                |  |      |        |      |  |   |        | 
|--------------- |  | ---- | ------ | ---- |  | - | ------ | 
|(in thousands)  |  | 2002 |        | 2001
|               
|Raw materials   |  | $    | 27,027 |      |  | $ | 14,754 | 
|Work in process |  |      | 25,892 |      |  |   | 17,004 | 
|Finished goods  |  |      | 42,459 |      |  |   | 20,161 | 
|               
|                |  | $    | 95,378 |      |  | $ | 51,919 | 
|               

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, 2002, capitalized inventory related to
AMEVIVE, which received regulatory approval in the U.S. in January 2003, was
$25 million. At December 31, 2002, capitalized inventory related to pre-filled
syringe formulation of AVONEX, which has not yet received regulatory approval,
was $3.7 million.

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 wrote down $6.8 million of unmarketable inventory during 2002, of
which $4.2 million was charged to research and development expense for product
not yet commercialized, and the remainder was charged to cost of product
revenues. The Company did not have any material writedowns of inventory for
the years ended December 31, 2001 or 2000.

Marketable Securities

The Company invests its excess cash balances in short-term marketable
securities, principally corporate notes and government securities. At December
31, 2002, 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 the fair market value of the common stock, the duration of
the stocks decline, prospects for favorable clinical trial results, new product initiatives
and new collaborative agreements.

The Company also invests in equity
securities of certain companies whose securities are not publicly
traded and fair value is not readily available. These investments are
recorded using the cost method of accounting and, as a matter of
policy, the Company monitors these investments in private securities
on a quarterly basis and determines whether any impairment in their
value would require a charge to current earnings.

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 costs are expensed as
incurred. Buildings and equipment are depreciated over estimated useful lives
ranging from 15 to 40 and 3 to 20 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. The
validation costs are amortized over the life of the related equipment.

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 $11.3
million and $15.7 million as of December 31, 2002 and 2001, respectively. The
carrying value of patents is regularly reviewed by the Company and impairments
are recognized

25



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when the expected future operating cash flows derived from the
patent is less than their carrying value. For the year ending December 31,
2002, 2001, and 2000 the Company wrote off certain of its patents, which
resulted in a charge of $2 million in 2002.

Loans

In connection with certain of its research collaborations, the Company has
extended loans or made loan commitments to collaborators. On a quarterly basis,
the loans are monitored for potential impairment, based on the probability of
the collection of the full amount due under the loan according to each loans
terms. Should it be determined that it is not probable that the Company will
be able to collect all interest and principal due, the Company recognizes a
corresponding impairment charge to current earnings.

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, Reporting Comprehensive
Income, (SFAS 130), 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, 2002, 2001 and 2000 of $205.7 million, $259.8
million and $310.3 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 2000, the Company recorded
$1.5 million of unrealized losses, net of tax 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, net
of tax 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. During 2002, the Company recorded $1.2
million of unrealized losses, net of tax to other comprehensive income
reflecting the decrease in the fair value of the interest rate swaps and at
December 31, 2002 had a cumulative unrealized loss, net of tax, of $3.3
million.

The Company has foreign currency forward contracts to hedge specific
transactions denominated in foreign currencies. 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, net of tax. At December 31, 2001, the Company had
cumulative unrealized gains, net of tax, of $1.3 million on its foreign
currency forward contracts. During 2002, the fair value of the Companys
foreign currency forward contracts decreased by approximately $5.4 million, net
of tax. At December 31, 2002, the Company had cumulative unrealized losses, net
of tax, of $4.1 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.

26



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Revenue Recognition and Accounts Receivable

SEC Staff Accounting Bulletin No. 101 (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 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.

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, rather than a sales and marketing expense. The
Company has various contracts with distributors that provide for discounts and
rebates. These contracts are classified as a reduction of revenue. The
Company also maintains select customer service contracts with distributors
and other customers in the distribution channel. In accordance with EITF 01-09,
the Company has established the fair value of these contracts and, as provided
by EITF 01-09, classified these customer service contracts as sales and marketing
expense. If the Company had concluded that sufficient evidence of the
fair value did not exist for these
contracts, the Company would have been required to classify these costs as a reduction
of revenue. The adoption of EITF 01-09 did not have a significant impact on
the Companys financial statements.

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.

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.

Research and Development Expenses

Research and development expenses are comprised of costs incurred in performing
research and development activities including salaries and benefits, facilities
costs, overhead costs, clinical trial and related clinical manufacturing costs,
contract services and other outside costs. Research and development costs,
including upfront fees and milestones paid to collaborators, are expensed as
incurred. The Company has entered into certain research agreements in which it
shares costs with its collaborator. The Company records these costs as
research and development expenses. Certain of these costs are reimbursed by
the Companys collaborator and are recorded as a reduction of research and
development expense.

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, as determined using the
treasury stock method.

27



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

|                                                              |  |      |         |      |  |      |         |  |  |  |         | 
|------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|(in thousands)                                                |  | 2002 |         | 2001 |  | 2000
|                                                             
|Weighted average number of shares
of common stock outstanding |  |      | 149,337 |      |  |      | 148,355 |  |  |  | 148,743 | 
|Dilutive stock options and warrants                           |  |      | 2,593   |      |  |      | 4,561   |  |  |  | 5,859   | 
|                                                             
|Shares used in calculating diluted
earnings per share         |  |      | 151,930 |      |  |      | 152,916 |  |  |  | 154,602 | 
|                                                             

Dilutive securities include options outstanding under the Companys stock
option plans. Options to purchase 11.2 million shares, 3.8 million shares and
2.7 million shares were outstanding at December 31, 2002, 2001, and 2000,
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.

Accounting for Stock Based Compensation

The Company has several stock-based compensation plans which are described more
fully in Note 10. 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.

If compensation cost for the Companys 2002, 2001 and 2000 grants under the
stock-based compensation plans, including costs related to prior years grants
had been determined based on SFAS 123, the Companys pro forma net income, and
pro forma earnings per share for the years ending December 31, would have been
as follows:

|                                                 |  |      |         |      |  |      |         |  |  |   |         | 
|------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|(in thousands, except per share data)            |  | 2002 |         | 2001 |  | 2000
|                                                
|Reported net income                              |  | $    | 199,148 |      |  | $    | 272,683 |  |  | $ | 333,577 | 
|Pro forma stock compensation
expense, net of tax |  |      | 49,387  |      |  |      | 48,259  |  |  |   | 39,165  | 
|                                                
|Pro forma net income                             |  | $    | 149,761 |      |  | $    | 224,424 |  |  | $ | 294,412 | 
|                                                
|                                                
|Reported basic earnings per share                |  | $    | 1.33    |      |  | $    | 1.84    |  |  | $ | 2.24    | 
|                                                
|Pro forma basic earnings per share               |  | $    | 1.00    |      |  | $    | 1.51    |  |  | $ | 1.98    | 
|                                                
|Reported diluted earnings per share              |  | $    | 1.31    |      |  | $    | 1.78    |  |  | $ | 2.16    | 
|                                                
|Pro forma diluted earnings per share             |  | $    | 0.99    |      |  | $    | 1.47    |  |  | $ | 1.90    | 
|                                                

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

|                                |  |      |      |      |  |      |     |   |  |  |     |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | --- | - |  |  | --- | -
|                                |  | 2002 |      | 2001 |  | 2000
|                               
|Expected dividend yield         |  |      | 0    | %    |  |      | 0   | % |  |  | 0   | %
|Expected stock price volatility |  |      | 45   | %    |  |      | 44  | % |  |  | 45  | %
|Risk-free interest rate         |  |      | 5.75 | %    |  |      | 5.5 | % |  |  | 6.9 | %
|Expected option term in years   |  |      | 7.4  |      |  |      | 7.5 |   |  |  | 5.5 |  

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.

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.

28



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The average maturity of the Companys marketable securities as of December 31,
2002 and 2001 was 28 months and 29 months, respectively. Proceeds from
maturities and other sales of marketable securities, which were primarily
reinvested, for the years ended December 31, 2002, 2001 and 2000 were
approximately $405 million, $735 million and $606 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, 2002, 2001 and 2000 were $2.7 million, $6.1 million and $(1.8) million,
respectively.

The following is a summary of marketable securities:

|                                  |  |            |         |       |  |            |        |            |  |           |       |  |  |  |  |  |  |   |         | 
|--------------------------------- |  | ---------- | ------- | ----- |  | ---------- | ------ | ---------- |  | --------- | ----- |  |  |  |  |  |  | - | ------- | 
|                                  |  |            |         |       |  | Gross      |        | Gross      |  |           |       | 
|                                  |  |            |         |       |  | Unrealized |        | Unrealized |  | Amortized
|(in thousands)                    |  | Fair Value |         | Gains |  | Losses     |        | Cost      
|                                  |  |            |         |      
|December 31, 2002:                |  |            |         |       |  |            |        |            |  |           |       |  |  |  |  |  |  |   |         | 
|U.S. Government securities        |  | $          | 296,419 |       |  | $          | 12,568 |            |  | $         | 122   |  |  |  |  |  |  | $ | 283,973 | 
|Corporate debt securities         |  |            | 525,577 |       |  |            | 18,569 |            |  |           | 468   |  |  |  |  |  |  |   | 507,476 | 
|                                  |  |            |         |      
|                                  |  | $          | 821,996 |       |  | $          | 31,137 |            |  | $         | 590   |  |  |  |  |  |  | $ | 791,449 | 
|                                  |  |            |         |      
|Marketable securities, noncurrent |  | $          | 3,757   |       |  | $          |       |            |  | $         | 1,537 |  |  |  |  |  |  | $ | 5,294   | 
|                                  |  |            |         |      
|December 31, 2001:                |  |            |         |       |  |            |        |            |  |           |       |  |  |  |  |  |  |   |         | 
|U.S. Government securities        |  | $          | 252,838 |       |  | $          | 6,760  |            |  | $         | 346   |  |  |  |  |  |  | $ | 246,424 | 
|Corporate debt securities         |  |            | 491,227 |       |  |            | 12,794 |            |  |           | 445   |  |  |  |  |  |  |   | 478,878 | 
|                                  |  |            |         |      
|                                  |  | $          | 744,065 |       |  | $          | 19,554 |            |  | $         | 791   |  |  |  |  |  |  | $ | 725,302 | 
|                                  |  |            |         |      
|Marketable securities, noncurrent |  | $          | 12,183  |       |  | $          |       |            |  | $         |      |  |  |  |  |  |  | $ | 12,183  | 
|                                  |  |            |         |      

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, 2002, representing the cash requirements of the
Company to settle the agreements, approximated $5.1 million and was included in
accrued expenses and other. The fair value of the interest rate swap agreements
at December 31, 2001, representing the cash requirements of the Company to
settle the agreements, was approximately $3.3 million and was included in
accrued expenses and other. 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 2002 and 2001, 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 $2.7 million in
losses related to its interest rate swaps to affect earnings in 2003.

The Company has foreign currency forward contracts to hedge specific forecasted
transactions denominated in foreign currencies. All foreign currency forward
contracts have durations of ninety days to 12 months. These contracts have been
designated as cash flow hedges and accordingly, to the extent effective, any
unrealized gains or losses on these foreign currency forward contracts are
reported in other comprehensive income. Realized gains and losses for the
effective portion are recognized with the underlying hedge transaction. 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,
2002 was approximately $91.9 million. These contracts had a fair value of $6.4
million, representing an unrealized loss, and were included in other current
liabilities at December 31, 2002. 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 2002, approximately $1.3 million of losses were recognized in earnings due
to hedge ineffectiveness. Additionally, in 2002, approximately $1.1 million of
losses were recognized in earnings 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 $6.4 million of
losses in product revenue and $2.1 million of losses in royalty revenue for the
settlement of certain effective cash flow hedge instruments during the year
ended December 31, 2002. These settlements were recorded in the same period as
the related forecasted transactions affecting earnings. The Company expects
approximately $6.4 million of unrealized losses at December 31, 2002 to affect
earnings in 2003 related to its foreign currency forward contracts.

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.

29



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##### 



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.

3. Borrowings

As of December 31, 2002, the Company had $12.5 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, 2002, the Company had $29.8 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)             |  | 2002 |        | 2001
|                          
|Term Loan due 2005         |  | $    | 12,501 |      |  | $ | 14,168 |  
|Construction Loan due 2007 |  |      | 29,797 |      |  |   | 33,017 |  
|                          
|                           |  |      | 42,298 |      |  |   | 47,185 |  
|Current portion            |  |      | (4,888 | )    |  |   | (4,888 | )
|                          
|                           |  | $    | 37,410 |      |  | $ | 42,297 |  
|                          

4. Consolidated Balance Sheets Details

|                              |  |              |         |      |  |   |         | 
|----------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|Property and equipment:       |  | December 31,
|                              |  |             
|(in thousands)                |  | 2002         |         | 2001
|                             
|Land                          |  | $            | 32,687  |      |  | $ | 23,532  | 
|Buildings                     |  |              | 233,436 |      |  |   | 170,504 | 
|Leasehold improvements        |  |              | 47,504  |      |  |   | 65,381  | 
|Equipment                     |  |              | 309,521 |      |  |   | 249,887 | 
|Construction in progress      |  |              | 330,657 |      |  |   | 218,521 | 
|                             
|Total cost                    |  |              | 953,805 |      |  |   | 727,825 | 
|Less accumulated depreciation |  |              | 215,746 |      |  |   | 171,827 | 
|                             
|                              |  | $            | 738,059 |      |  | $ | 555,998 | 
|                             

Depreciation expense was $45.6 million, $36.9 million and $27.8 million for
2002, 2001 and 2000, respectively.

|                             |  |              |         |      |  |   |         | 
|---------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|Accrued expenses and other:  |  | December 31,
|                             |  |             
|(in thousands)               |  | 2002         |         | 2001
|                            
|Royalties and licensing fees |  | $            | 37,921  |      |  | $ | 34,361  | 
|Legal settlement accrual     |  |              | 55,000  |      |  |   | 20,000  | 
|Other                        |  |              | 89,824  |      |  |   | 94,618  | 
|                            
|                             |  | $            | 182,745 |      |  | $ | 148,979 | 
|                            

30



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##### 



5. Pensions

The Company has a defined benefit pension plan which provides benefits to all
of its full-time U.S. 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)                     |  | 2002 |        | 2001 |  | 2000
|                                  
|Service cost                       |  | $    | 5,098  |      |  | $    | 3,644  |   |  | $ | 3,314  |  
|Interest cost                      |  |      | 2,678  |      |  |      | 2,039  |   |  |   | 1,799  |  
|Expected return on plan assets     |  |      | (2,130 | )    |  |      | (1,655 | ) |  |   | (1,258 | )
|Amortization of prior service cost |  |      | 14     |      |  |      | 43     |   |  |   | 43     |  
|Amortization of net actuarial loss |  |      | 271    |      |  |      | 16     |   |  |   | 86     |  
|                                  
|Net pension cost                   |  | $    | 5,931  |      |  | $    | 4,087  |   |  | $ | 3,984  |  
|                                  

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)                                                |  | 2002 |         | 2001
|                                                             
|Change in projected benefit obligation                        |  |      |         |      |  |   |         |  
|                                                             
|Net projected benefit obligation at the beginning of the year |  | $    | (29,990 | )    |  | $ | (24,434 | )
|Service cost                                                  |  |      | (5,098  | )    |  |   | (3,644  | )
|Interest cost                                                 |  |      | (2,678  | )    |  |   | (2,039  | )
|Actuarial loss                                                |  |      | (5,271  | )    |  |   | (190    | )
|Gross benefits paid                                           |  |      | 734     |      |  |   | 317     |  
|                                                             
|Net projected benefit obligation at the end of the year       |  |      | (42,303 | )    |  |   | (29,990 | )
|                                                             
|Change in plan assets                                         |  |      |         |      |  |   |         |  
|                                                             
|Fair value of plan assets at the beginning of the year        |  |      | 18,728  |      |  |   | 15,256  |  
|Actual return on plan assets                                  |  |      | (3,779  | )    |  |   | (1,090  | )
|Employer contributions                                        |  |      | 10,550  |      |  |   | 5,000   |  
|Gross benefits paid                                           |  |      | (596    | )    |  |   | (182    | )
|Administrative expenses                                       |  |      | (143    | )    |  |   | (256    | )
|                                                             
|Fair value of plan assets at the end of the year              |  |      | 24,760  |      |  |   | 18,728  |  
|                                                             
|Funded status at the end of the year                          |  |      |         |      |  |   |         |  
|                                                             
|Funded status at the end of the year                          |  |      | (17,543 | )    |  |   | (11,262 | )
|Unrecognized net actuarial loss                               |  |      | 15,239  |      |  |   | 4,295   |  
|Unrecognized prior service cost                               |  |      | 219     |      |  |   | 229     |  
|                                                             
|Net amount recognized at the end of the year                  |  | $    | (2,085  | )    |  | $ | (6,738  | )
|                                                             
|Weighted average assumptions at the end of the year           |  |      | 2002    |      |  |   | 2001    |  
|                                                             
|Discount rate                                                 |  |      | 6.75    | %    |  |   | 7.25    | %
|Expected return on plan assets                                |  |      | 9.00    | %    |  |   | 9.00    | %
|Rates of compensation increase                                |  |      | 5.00    | %    |  |   | 5.00    | %

The Companys unfunded
supplemental retirement plan, as of December 31,
2002 has the projected benefit and the accumulated benefit
obligations of $8.4 million and $5.7 million, respectively. As of December 31, 2001 the projected
benefit and the accumulated benefit obligations were $5.9 million and $4.6
million, respectively.

31



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##### 



6. Other Income (Expense), Net

Total other income (expense), net consists of the following:

|                                  |  |      |              |      |  |      |         |   |  |   |         |  
|--------------------------------- |  | ---- | ------------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                  |  |      | December 31,
|                                  |  |      |              |      |  |     
|(in thousands)                    |  | 2002 |              | 2001 |  | 2000
|                                 
|Interest income                   |  | $    | 41,217       |      |  | $    | 44,128  |   |  | $ | 42,965  |  
|Interest expense                  |  |      | (3,546       | )    |  |      | (3,954  | ) |  |   | (4,310  | )
|Other income (expense)            |  |      | (57,713      | )    |  |      | (10,875 | ) |  |   | 120,094 |  
|                                 
|Total other income (expense), net |  | $    | (20,042      | )    |  | $    | 29,299  |   |  | $ | 158,749 |  
|                                 

Other income (expense) included the following (in thousands):

|                                                         |  |      |         |      |  |      |         |   |  |   |         |  
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|December 31,                                             |  | 2002 |         | 2001 |  | 2000
|                                                        
|Impairments of non-current marketable securities         |  | $    | (10,095 | )    |  | $    | (27,942 | ) |  | $ |        |  
|Reserve for outstanding loan to a collaborator           |  |      | (10,500 | )    |  |      |        |   |  |   |        |  
|Gain (loss) on sale on non-current marketable
securities |  |      | (301    | )    |  |      | 32,143  |   |  |   | 101,129 |  
|Donation for establishment of Biogen Foundation          |  |      | (15,000 | )    |  |      |        |   |  |   |        |  
|Settlement of Schering-Plough dispute                    |  |      | 37,240  |      |  |      |        |   |  |   |        |  
|Settlement of Berlex dispute                             |  |      | (55,000 | )    |  |      | (20,000 | ) |  |   |        |  
|Realized gains in third party acquisition of investment  |  |      |        |      |  |      |        |   |  |   | 24,132  |  
|Equity in net income (loss) of unconsolidated affiliate  |  |      | (3,392  | )    |  |      | 610     |   |  |   |        |  
|Gain
(loss) on sale of current marketable securities     |  |      | 2,703   |      |  |      | 6,147   |   |  |   | (1,846  | )
|Miscellaneous                                            |  |      | (3,368  | )    |  |      | (1,833  | ) |  |   | (3,321  | )
|                                                        
|Total other income (expense)                             |  | $    | (57,713 | )    |  | $    | (10,875 | ) |  | $ | 120,094 |  
|                                                        

As part of its quarterly assessments, the Company assessed the unrealized
losses on its investments in Curis Inc. and Targeted Genetics Corporation (see
Note 1  Summary of Significant Accounting Policies), 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
those dates. Accordingly, the related unrealized losses of approximately $10.1
million and $28 million were reclassified from other comprehensive income to
current expense in 2002 and 2001, respectively. Sales of non-current
marketable securities resulted in losses of $0.3 million in 2002, gains of
$32.1 million in 2001, and gains of $101.1 million in 2000.

In connection with the Companys assessment at December 31, 2002, $1.5 million
of unrealized losses related to these marketable securities were determined to
be temporary.

In connection with the Companys loan policy described in Note 1, during the
third quarter of 2002, the Company recorded a $10.5 million charge for the
establishment of a reserve related to an outstanding loan to Targeted. Based on
a review of the financial condition of the borrower at September 30, 2002, the
Company determined that it was no longer probable that the loan would be
repaid.

In October 2002, the Company established The Biogen Foundation, a private, U.S.
based, non-profit philanthropic organization. In December 2002, the Company
made a charitable contribution of $15 million to fund The Biogen Foundation.
The Foundation is to operate exclusively for the benefit of charitable,
educational and scientific purposes. Certain executive officers and other
employees of the Company serve as directors and officers of the Foundation.
The Company classifies charitable contributions to other income (expense).

During the fourth quarter of 2002, the Company and Schering-Plough settled
their dispute on the issue of whether and to what extent Schering-Plough has an
obligation to pay royalties in the U.S. on sales of its alpha interferon
products. The Company received a final settlement payment resulting in a net
gain of $37.2 million, which was classified to other income (expense).

In the fourth quarter of 2002, the Company recorded a $55 million charge
related to the final settlement of a patent infringement dispute with Berlex.
The $55 million payment for settlement of litigation was charged to other
income (expense) in the fourth quarter of 2002. In 2001, the Company reported
an initial charge of $20 million as part of the settlement agreement. See Note
9.

In 2000, the Company realized gains of approximately $24.1 million upon the
acquisition by third parties of two companies in which the Company had
invested.

32



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##### 



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)              |          | 2002 |        | 2001    |   | 2000
|                           
|Income before income taxes: |          |      |        |         |   |      |         |         |   |   |         |        
|                            | Domestic |      | $      | 244,515 |   |      | $       | 298,669 |   |   | $       | 379,489 |  
|                            | Foreign  |      |        | 32,080  |   |      |         | 90,828  |   |   |         | 107,616 |  
|                           
|                            |          |      | $      | 276,595 |   |      | $       | 389,497 |   |   | $       | 487,105 |  
|                           
|Income tax expense:         |          |      |        |         |   |      |         |         |   |   |         |        
|Current                     |          |      |        |         |   |      |         |         |   |   |         |        
|                            | Federal  |      | $      | 45,655  |   |      | $       | 119,930 |   |   | $       | 115,696 |  
|                            | State    |      |        | 6,173   |   |      |         | 12,911  |   |   |         | 11,969  |  
|                            | Foreign  |      |        | 2,975   |   |      |         | 1,917   |   |   |         | 1,098   |  
|                           
|                            |          | $    | 54,803 |         |   | $    | 134,758 |         |   | $ | 128,763 |        
|                           
|Deferred                    |          |      |        |         |   |      |         |         |   |   |         |        
|                            | Federal  |      | $      | 22,938  |   |      | $       | (16,257 | ) |   | $       | 25,344  |  
|                            | State    |      |        | (294    | ) |      |         | (1,687  | ) |   |         | (579    | )
|                           
|                            |          |      | 22,644 |         |   |      | (17,944 | )       |   |   | 24,765  |        
|                           
|Total income tax expense    |          | $    | 77,447 |         |   | $    | 116,814 |         |   | $ | 153,528 |        
|                           

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

|                                     |  |      |         |      |  |   |         |  
|------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|(in thousands)                       |  | 2002 |         | 2001
|                                    
|Tax credits                          |  | $    | 831     |      |  | $ | 25,440  |  
|Inventory and other reserves         |  |      | 37,761  |      |  |   | 18,288  |  
|Other                                |  |      |        |      |  |   | 380     |  
|                                    
|Deferred tax asset                   |  |      | 38,592  |      |  |   | 44,108  |  
|                                    
|Depreciation, amortization and other |  |      | (27,494 | )    |  |   | (10,365 | )
|Unrealized gain on investments       |  |      | (6,184  | )    |  |   | (6,424  | )
|                                    
|Deferred tax liabilities             |  |      | (33,678 | )    |  |   | (16,789 | )
|                                    

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

|                                           |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                           |  | 2002 |      | 2001 |  | 2000
|                                          
|Statutory rate                             |  |      | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State taxes                                |  |      | 1.8  |      |  |      | 2.5  |   |  |  | 3.2  |  
|Foreign taxes                              |  |      | (5.6 | )    |  |      | (4.2 | ) |  |  | (2.6 | )
|Credits and net operating loss utilization |  |      | (3.4 | )    |  |      | (3.4 | ) |  |  | (3.3 | )
|Other                                      |  |      | 0.2  |      |  |      | 0.1  |   |  |  | (0.8 | )
|                                          
|Effective tax rate                         |  |      | 28.0 | %    |  |      | 30.0 | % |  |  | 31.5 | %
|                                          

At December 31, 2002, the Company had tax credits of approximately $831,000,
which can be carried forward indefinitely. During 2002, management concluded
that the likelihood of the Company realizing state tax benefits relating to
research, development and investment credits previously recognized as deferred
tax assets is remote. Accordingly, the Companys deferred tax
assets relating to tax credits were
reduced by $24.6 million in 2002.

As of December 31, 2002, undistributed foreign earnings of non-U.S.
subsidiaries included in consolidated retained earnings aggregated $339.4
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 U.S. It is not practicable to estimate
the amount of additional tax that might be payable if such earnings were
remitted to the U.S.

33



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##### 



8. Research Collaborations

In January 2003, the Company signed a collaboration agreement (the IDEC
Agreement) with IDEC Pharmaceuticals Corporation (IDEC), under which Biogen
and IDEC will collaborate on the development of three oncology therapeutics
from Biogens pipeline of early-stage product candidates: an anti-lymphotoxin
beta receptor (LTBR) monoclonal antibody, an anti-CRIPTO monoclonal antibody,
and an interferon beta (INF-b) gene delivery product. Under the terms of the
IDEC agreement, IDEC initially will be responsible for the development costs of
the product candidates, until that time, if any, when the
Company exercises its opt-in rights (which must be done within a certain
timeframe) with respect to each specific product candidate. If the Company
exercises its opt-in rights for a specific product, IDEC and the Company will
share all subsequent costs related to that specific product and the Company
will retain fifty percent of any economic benefit related to the product. If
the Company chooses not to exercise its opt-in rights, the Company would be
entitled to receive royalty payments from future sales of the specific
products.

In December 2002, Biogen signed a collaboration agreement (the Sunesis
Agreement) with Sunesis Pharmaceuticals, Inc. (Sunesis) under which Biogen
and Sunesis will collaborate on the discovery and development of oral
therapeutics for the treatment of inflammatory and autoimmune diseases. The
parties will apply Sunesis proprietary fragment-based drug discovery
technology, known as tethering, to generate small molecule leads that target
select cytokines in the immune system. Under the terms of the Sunesis
Agreement, the Company purchased 1.25 million shares of preferred stock of
Sunesis for $6 million, the fair value of the shares. In addition, the Company
paid a one-time non-refundable license fee of $3 million which was charged to
research and development expense and acquired certain exclusive licenses to
develop and commercialize certain compounds resulting from the collaboration.
The Company accounts for its investment in Sunesis, which is included in other
assets, using the cost method of accounting, subject to periodic review of
impairment. The Company will pay Sunesis a quarterly license maintenance fee of
$357,500 during the period commencing on April 1, 2004 through July 1, 2005.
Additionally, Biogen agreed to enter into a Credit Facility Agreement (Loan
Agreement) with Sunesis under which Biogen is obligated to loan Sunesis up to
$4 million. No borrowings from the loan agreement were outstanding as of
December 31, 2002. The Company has committed to paying Sunesis additional
amounts upon the completion of certain future research milestones and first and
second indication development milestones. If all the milestones were to be
achieved, the Company would be required to pay up to an additional $60.5
million over the life of the agreement.

In April 2002, the Company signed a development and marketing collaboration
agreement (the Celltech Agreement) with Celltech R&D Limited (Celltech)
under which the Company and Celltech agreed to collaborate on the development
and commercialization of a humanized anti-TNF alpha antibody known as CDP571
with potential value in treating gastrointestinal disorders (including Crohns
disease), psoriasis and other autoimmune disease conditions. Under the terms of
the Celltech Agreement, Biogen and Celltech agreed to share costs for on-going
development activities. In April 2002, the Company paid a one-time
non-refundable initiation fee of $500,000, which was charged to research and
development expense. Biogen incurred development expenses for CDP571 during the
second and third quarter of 2002, and in the third quarter of 2002, ceased
participation in development expenses associated with CDP571 due to unfavorable
Phase III data. Through December 31, 2002, the Company incurred approximately
$7 million of research and development expenses associated with CDP571. The
Company does not expect to pay any additional amounts in this collaboration.

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 are collaborating worldwide on the development and
commercialization of orally active, small molecule LFA-1 antagonists. Biogen
and ICOS are currently developing an oral small molecule LFA-1 antagonist as a
potential treatment for psoriasis. 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 in 2001. Additionally, as part
of the agreement, Biogen made available to ICOS a line of credit in the amount
of $20 million, of which $10 million was available at December 31, 2002. The
Company provided $6.8 million and $2.3 million from the line of credit to ICOS
that was recorded as a loan receivable and later was charged to research and
development expense in 2002 and 2001, respectively, upon the achievement of
certain clinical milestones by ICOS. As of December 31, 2002, there was $1.0
million in 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 future milestones were to be 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 $92.5 million over the
remaining life of the agreement.

In September 2000, the Company signed a collaborative research 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. 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 2002, $1.5 million in 2001 and $250,000 in 2000. The
research program under the Eos Agreement was terminated in December 2002,
thereby relieving Biogen of any future commitments. In February 2003, Eos and
Protein Design Labs, Inc. (PDLI) announced a definitive merger agreement
under which PDLI would acquire 100% of the outstanding stock of Eos in a
stock-for-stock transaction valued at $37.5 million. Upon completion of the
merger, Biogens preferred shares of EOS would be converted into common stock
of PDLI. The Company expects to record a writedown of approximately $3 million
in the first quarter of 2003 related to its investment in Eos.

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
are collaborating in the development, manufacture and commercialization of
ANTEGREN® (natalizumab), a humanized monoclonal antibody. The Company

34



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and Elan are currently developing ANTEGREN as a potential treatment for MS and
Crohns disease. Under the terms of the Antegren Agreement, Biogen and Elan
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. The Company provided $7 million and $16
million to Elan for certain milestones achieved during the years 2002 and 2001,
respectively, which were charged to research and development expense. As of
December 31, 2002, Elan owed the Company $14.8 million, representing
development expenses incurred by Biogen to be reimbursed by Elan. The Company
has committed to paying Elan additional amounts upon the completion of certain
future milestones. If all the future milestones were to be achieved, the
Company would be required to pay up to an additional $14 million over the
remaining life of the agreement. Elan is in the process of implementing a
recovery plan to re-build its business. The Company does not believe that
business issues facing Elan will have a material adverse impact on
the Companys rights to
develop or commercialize ANTEGREN.

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 proteins. 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 of research funding to
Ontogeny in 2000. Additionally, the Company provided $1.5 million upon
termination of the Ontogeny Agreement, which was charged to research and
development expense in 2000. At December 31, 2002 the Company retained
approximately 166,000 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 amount of $3.9 million in
2000. 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. Also as part of the Targeted Merger Agreement, an existing
$500,000 promissory note payable by Genovo to Biogen was converted into a
no-interest promissory note from Targeted with a term of five years.
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. The Targeted
Agreements provide for a $10 million credit facility, of which $10 million of
borrowings were outstanding as of December 31, 2002. Targeted also had an
option to sell to the Company an additional $10 million of Targeted common
stock at fair value. In September 2002, Targeted exercised an option to issue
$4 million of common stock to Biogen. During the third quarter of 2002, the
Company incurred a $10.5 million charge for the establishment of a reserve
related to an outstanding loan to Targeted. Based on a review of the financial
condition of Targeted at September 30, 2002, the Company determined that it was
no longer probable that the loan would be repaid. The Company provided $1
million in 2002, $1 million in 2001 and $250,000 in 2000 for research funding
to Targeted. The Company expects to fund research activities of Targeted
related to the collaboration of $750,000 in 2003. At December 31, 2002 the
Company retained approximately 8,963,402 shares of Targeted common stock, and
included the investment in long-term marketable securities available-for-sale.

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 $22.7 million in 2002,
$17.2 million in 2001, $14.9 million in 2000. 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, 2002, minimum annual rental commitments under noncancellable
leases were as follows:

|                             |  |                |         | 
|---------------------------- |  | -------------- | ------- | 
|Year                         |  | (in thousands)
|                            
|2003                         |  | $              | 20,411  | 
|2004                         |  |                | 17,712  | 
|2005                         |  |                | 15,438  | 
|2006                         |  |                | 12,364  | 
|2007                         |  |                | 12,137  | 
|Thereafter                   |  |                | 43,976  | 
|                            
|Total minimum lease payments |  | $              | 122,038 | 
|                            

The Companys construction of a large scale manufacturing plant and a
laboratory office building in Research Triangle Park, North Carolina was
substantially completed in the first quarter of 2002. The Company continued
its further expansion of its Research Triangle Park, North Carolina complex in
2002 with ongoing construction of several projects to create additional
manufacturing

35



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capacity. These additional projects are expected to be completed by the summer
of 2003 at a total cost of approximately $93.3 million. As of December 31,
2002, the Company had committed $81.7 million for construction costs related to
these additional projects, of which $73.5 million has been spent. The Company
is also completing plans to build a manufacturing plant in Denmark. The Company
expects that construction will commence in 2003 and be completed early in 2005,
at an estimated cost of $250 million. At December 31, 2002, $47 million had
been committed for construction costs related to the manufacturing plant in
Denmark, of which $36.8 million has been spent.

In January 2002, the Company settled litigation with Berlex Laboratories, Inc.
(Berlex). Berlex had claimed that the Companys production of AVONEX in the
U.S. infringed certain U.S. patents which the Company refers to as the
McCormick patents. A District Court decision in 2000 rendered final judgment
in the Companys favor determining that the manufacture, use and sale of AVONEX
in the U.S. did not infringe any of the claims of the asserted McCormick
patents, but Berlex appealed the decision to the Court of Appeals for
the Federal Circuit. Under the
settlement agreement, the Company agreed to pay Berlex $20 million, and to make
a second and final payment to Berlex if the Court of Appeals were to reverse
the District Courts previous ruling granting summary judgment in the Companys
favor. As part of the settlement, both parties agreed not to pursue further
litigation about these patents. Biogen recorded a $20 million charge in Other
Income, net in the fourth quarter of 2001 to account for the first payment to
Berlex. 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 at the time
of the settlement that $20 million was 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 the settlement
in its December 31, 2001 financial statements.

On January 31, 2003, the Court of Appeals decided that the District Court had
properly construed the claims of the McCormick patents and that the Company did
not literally infringe the McCormick patents. The Court of Appeals remanded
the case to the District Court to determine if one of the Berlex patents might
be infringed under a redefinition of the doctrine of equivalents recently
handed down by the U.S. Supreme Court. As a result of the decision, the
Company was required to make a final payment to Berlex of $55 million under the
settlement agreement which was recorded in December 2002. The previously
negotiated contingent settlement eliminated the need for further litigation and
resolved the entire dispute. The settlement agreement provides that Biogen
receive a fully paid up, royalty free, non-exclusive license under the
McCormick patent and a related patent held by Berlex. The Company negotiated a
license in order to avoid future uncertainty surrounding the rights to the
Berlex patent for Biogen and its distribution channel partners. The McCormick
patents are not utilized by Biogen and, as such, do not hold value and will not
provide future economic benefit to the Company. The $55 million payment for
settlement of litigation was charged to other income (expense) in the fourth
quarter of 2002.

On October 13, 1998, the Company filed an opposition with the Opposition
Division of the European Patent Office opposing the grant of a European patent
(the Rentschler II Patent) issued to Dr. Rentschler Biotechnologie GmbH
(Rentschler) claiming compositions of matter of beta interferon having
specific glycosylation patterns. On November 6, 2002, a hearing took place
with regard to the Companys opposition of the Rentschler II Patent in the
European Patent Office. The Opposition Board of the European Patent Office
ruled in an appealable decision that the present claims of the Rentschler II
Patent should be maintained. Following this decision, Rentschler
Biotechnologie GmbH & Co. KG sued our German subsidiary, Biogen GmbH, for
infringement of the Rentschler II Patent in Germany. The Company intends to
appeal the decision of the Opposition Division to the European Patent Offices
Technical Board of Appeals. The Company believes that it has arguments
to support the invalidation of the Rentschler II Patent before the Technical
Board of Appeals. A decision on the appeal is not likely to be issued until at
least two years after the Company files the appeal. Biogen also believes that
it has solid arguments to support its defense against Rentschlers infringement
claim in the German infringement lawsuit. A hearing in the German proceeding
is scheduled to occur in September 2003, with a decision likely to follow
within a month or two after the hearing. The non-prevailing party will then
have the right to appeal the decision. A ruling on such an appeal would likely
take another 12 to 18 months. The Company is closely examining
the Opposition Boards recent written
ruling and the claims made in the German infringement suit, and exploring
various alternatives for handling these matters. If the Company were to be
enjoined from selling AVONEX in Germany by the German district court pending
our appeal of an adverse judgment, or, if the Company lost on appeal in the
German infringement suit, or if, through other legal proceedings Rentschler
were to obtain a determination that the Companys sales of AVONEX in other
European countries infringes a valid Rentschler II patent, such a result or
results could have a material adverse effect on the Companys results of
operations and financial condition. As a result, an estimate of any potential
loss or range of loss cannot be made at this time.

Along with most other major pharmaceutical and biotechnology companies, the
Company has been named as a defendant in a lawsuit filed by the County of
Suffolk, New York, in the U.S. District Court in the Eastern District of New
York in January 2003. In March 2003, the case was conditionally
transferred to the United States District Court for the District of
Massachusetts. The complaint alleges that the defendants overstated the
Average Wholesale Price (AWP) for drugs for which Medicaid provides
reimbursement (Covered Drugs), marketed and promoted the sale of Covered
Drugs to providers based on the providers ability to

36



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collect inflated payments from the government and Medicaid beneficiaries that
exceeded payments possible for competing drugs, provided financing incentives
to providers to over-prescribe Covered Drugs or prescribe Covered Drugs in
place of competing drugs, and overcharged Medicaid for illegally inflated
Covered Drugs reimbursements. The complaint further alleges that the
defendants failed to accurately report the best price on the Covered Drugs to
New Yorks Medicaid program. Under Medicaid, pharmaceutical and biotechnology
companies agree to pay Medicaid programs a rebate for each product
reimbursed by Medicaid. The amount of the rebate is often the
difference between the average manufacturers price and the best price
reported by companies to the Medicaid program. Plaintiff
claims that it was harmed because it could have allotted the dollars that it
wrongfully spent on Medicaid to other public needs. Plaintiff has brought the
action under the Racketeering Influence and Corrupt Organizations Act (RICO),
and for breach of contract, unjust enrichment, Medicaid fraud and common law
fraud. The Company intends to vigorously defend itself against all of the
allegations and claims in this lawsuit. As a result, an estimate of any
potential loss or range of loss cannot be made at this time.

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, 2002, 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, 2002, 2001 and 2000 were approximately $2.4 million,
$829,000, and $(249,000), respectively, related to stock based compensation
plans for employees and non-employees.

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 4 to 7 years for employees and 3
years for Directors and Scientific Board members, and have a maximum term of 10
years.

37



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Activity under these plans for the periods ending December 31, is as follows:

|                                               |  |        |        |       |  |          |       |       |  |        |        |          |  |   |       |  |  |          |        |   |  |   |       | 
|---------------------------------------------- |  | ------ | ------ | ----- |  | -------- | ----- | ----- |  | ------ | ------ | -------- |  | - | ----- |  |  | -------- | ------ | - |  | - | ----- | 
|                                              
|(shares are in thousands)                      |  | 2002   |        | 2001  |  | 2000    
|                                              
|                                               |  |        |        |       |  | Weighted |       |       |  |        |        | Weighted |  |   |       |  |  | Weighted
|                                               |  |        |        |       |  | Average  |       |       |  |        |        | Average  |  |   |       |  |  | Average 
|                                               |  |        |        |       |  | Exercise |       |       |  |        |        | Exercise |  |   |       |  |  | Exercise
|                                               |  | Shares |        | Price |  | Shares   |       | Price |  | Shares |        | Price   
|                                              
|Outstanding, Jan. 1                            |  |        | 17,757 |       |  | $        | 38.81 |       |  |        | 16,917 |          |  | $ | 31.70 |  |  |          | 17,938 |   |  | $ | 24.53 | 
|Granted                                        |  |        | 3,956  |       |  |          | 43.41 |       |  |        | 3,840  |          |  |   | 57.13 |  |  |          | 2,731  |   |  |   | 55.34 | 
|Exercised                                      |  |        | (1,797 | )     |  |          | 13.05 |       |  |        | (2,079 | )        |  |   | 15.48 |  |  |          | (3,250 | ) |  |   | 11.61 | 
|Canceled                                       |  |        | (706   | )     |  |          | 52.40 |       |  |        | (921   | )        |  |   | 37.24 |  |  |          | (502   | ) |  |   | 34.17 | 
|                                              
|Outstanding, Dec. 31                           |  |        | 19,210 |       |  | $        | 41.67 |       |  |        | 17,757 |          |  | $ | 38.81 |  |  |          | 16,917 |   |  | $ | 31.70 | 
|                                              
|Options exercisable                            |  |        | 10,351 |       |  |          |       |       |  |        | 9,466  |          |  |   |       |  |  |          | 9,093  |   |  |   |       | 
|Available for grant                            |  |        | 6,035  |       |  |          |       |       |  |        | 9,081  |          |  |   |       |  |  |          | 1,578  |   |  |   |       | 
|Weighted average fair
value of options granted |  |        |        |       |  | $        | 24.65 |       |  |        |        |          |  | $ | 31.77 |  |  |          |        |   |  | $ | 24.34 | 
|                                              

The table below summarizes options outstanding and exercisable at December 31,
2002:

|                          |  |                     |        |                     |  |           |      |             |  |          |       |  |  |          |        |  |  |   |       | 
|------------------------- |  | ------------------- | ------ | ------------------- |  | --------- | ---- | ----------- |  | -------- | ----- |  |  | -------- | ------ |  |  | - | ----- | 
|(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              |  |                     | 914    |                     |  |           | 1.54 |             |  | $        | 8.74  |  |  |          | 914    |  |  | $ | 8.74  | 
|$10.01-$20.00             |  |                     | 3,973  |                     |  |           | 3.41 |             |  |          | 16.08 |  |  |          | 3,884  |  |  |   | 16.03 | 
|$20.01-$30.00             |  |                     | 613    |                     |  |           | 5.63 |             |  |          | 23.79 |  |  |          | 456    |  |  |   | 23.17 | 
|$30.01-$40.00             |  |                     | 446    |                     |  |           | 8.10 |             |  |          | 33.05 |  |  |          | 168    |  |  |   | 33.11 | 
|$40.01-$50.00             |  |                     | 5,327  |                     |  |           | 8.37 |             |  |          | 42.49 |  |  |          | 1,769  |  |  |   | 41.39 | 
|$50.01-$60.00             |  |                     | 5,925  |                     |  |           | 8.23 |             |  |          | 55.68 |  |  |          | 1,954  |  |  |   | 55.37 | 
|$60.01-$70.00             |  |                     | 595    |                     |  |           | 7.90 |             |  |          | 64.33 |  |  |          | 236    |  |  |   | 64.32 | 
|$70.01-$80.00             |  |                     | 1,264  |                     |  |           | 6.90 |             |  |          | 72.41 |  |  |          | 862    |  |  |   | 72.30 | 
|Over $80.00               |  |                     | 153    |                     |  |           | 6.81 |             |  |          | 86.11 |  |  |          | 108    |  |  |   | 86.40 | 
|                         
|Total                     |  |                     | 19,210 |                     |  |           |      |             |  | $        | 41.67 |  |  |          | 10,351 |  |  | $ | 34.27 | 
|                         

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, 2002,
556,557 shares have been issued under the stock purchase plans.

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 2002, the Company repurchased
approximately 145,000 shares of its common stock at a cost of $8.4 million.
During 2001, the Company repurchased approximately 1.5 million shares of its
common stock at a cost of $88.3 million. Approximately 2.4 million shares
remain authorized for repurchase under this program at December 31, 2002. In
the first quarter of 2003, the Company began open market repurchases for
additional shares of its common stock under the program.

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.

38



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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, 2002,
2001, and 2000, product and royalty revenues from external customers in The
Netherlands were approximately 11%, 11%, and 10% of total revenues,
respectively.

The Companys geographic information is as follows:

|                                        |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |           | 
|--------------------------------------- |  | -- | ------- | ------ |  | ---- | ------- | ----- |  | ----- | ------ |  |  | - | ------ |  |  | - | --------- | 
|(in thousands)                          |  | US |         | Europe |  | Asia |         | Other |  | Total
|                                       
|December 31, 2002:                      |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |           | 
|                                       
|Product revenue from external customers |  | $  | 743,419 |        |  | $    | 275,657 |       |  | $     |       |  |  | $ | 15,281 |  |  | $ | 1,034,357 | 
|Royalty revenue from external customers |  |    | 65,518  |        |  |      | 42,493  |       |  |       | 5,827  |  |  |   | 169    |  |  |   | 114,007   | 
|Long-lived assets                       |  |    | 734,215 |        |  |      | 55,129  |       |  |       | 1,163  |  |  |   | 457    |  |  |   | 790,964   | 
|                                        |  |    |         |        |  |      |         |       |  |       |        |  |  |   |        |  |  |   |           | 
|December 31, 2001:                      |  | US |         | Europe |  | Asia |         | Other |  | Total
|                                       
|Product revenue from external customers |  | $  | 710,095 |        |  | $    | 246,581 |       |  | $     |       |  |  | $ | 13,870 |  |  | $ | 970,546   | 
|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 |  | $  | 551,804 |        |  | $    | 199,714 |       |  | $     |       |  |  | $ | 8,774  |  |  | $ | 760,292   | 
|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   | 

The Company received revenue from three wholesale distributors and a specialty
distributor in 2002 accounting for a total of 20%, 19%, 17%, and 16% of total
product and royalty revenue. 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.

12. Quarterly Financial Data (Unaudited)

|                            |  |         |         |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |           |  
|--------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ----- | ------- | - |  | - | ------- | - |  | - | --------- | -
|(in thousands,              |  | First   |         | Second  |  | Third   |         | Fourth  |  | Total
|except per share amounts)   |  | Quarter |         | Quarter |  | Quarter |         | Quarter |  | Year 
|                           
|2002                        |  |         |         |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |           |  
|                           
|Total revenues              |  | $       | 288,343 |         |  | $       | 269,263 |         |  | $     | 288,328 |   |  | $ | 302,430 |   |  | $ | 1,148,364 |  
|Product revenue             |  |         | 265,985 |         |  |         | 250,542 |         |  |       | 261,563 |   |  |   | 256,267 |   |  |   | 1,034,357 |  
|Royalties revenue           |  |         | 22,358  |         |  |         | 18,721  |         |  |       | 26,765  |   |  |   | 46,163  |   |  |   | 114,007   |  
|Total expenses and taxes    |  |         | 223,230 |         |  |         | 233,992 |         |  |       | 235,661 |   |  |   | 236,291 |   |  |   | 929,174   |  
|Other income (expense), net |  |         | 7,028   |         |  |         | 8,104   |         |  |       | (10,459 | ) |  |   | (24,715 | ) |  |   | (20,042   | )
|Net income                  |  |         | 72,141  |         |  |         | 43,375  |         |  |       | 42,208  |   |  |   | 41,424  |   |  |   | 199,148   |  
|Basic earnings per share    |  |         | 0.49    |         |  |         | 0.29    |         |  |       | 0.28    |   |  |   | 0.28    |   |  |   | 1.33      |  
|Diluted earnings per share  |  |         | 0.47    |         |  |         | 0.29    |         |  |       | 0.28    |   |  |   | 0.27    |   |  |   | 1.31      |  
|                            |  |         |         |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |           |  
|2001                        |  |         |         |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |           |  
|                           
|Total revenues              |  | $       | 237,047 |         |  | $       | 260,585 |         |  | $     | 264,097 |   |  | $ | 280,583 |   |  | $ | 1,042,312 |  
|Product revenue             |  |         | 219,997 |         |  |         | 243,140 |         |  |       | 248,107 |   |  |   | 259,302 |   |  |   | 970,546   |  
|Royalties revenue           |  |         | 17,050  |         |  |         | 17,445  |         |  |       | 15,990  |   |  |   | 21,281  |   |  |   | 71,766    |  
|Total expenses and taxes    |  |         | 181,387 |         |  |         | 200,266 |         |  |       | 204,421 |   |  |   | 212,854 |   |  |   | 798,928   |  
|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      |  

39



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##### 



13. New Accounting Pronouncements

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized at its fair market
value when the liability is incurred, rather than at the date of an entitys
commitment to an exit plan. The provisions of SFAS 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. The adoption
of SFAS 146 is not expected to have a material effect on the Companys
financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN 45
elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of certain guarantees. The initial recognition
and initial measurement provisions of FIN 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are effective for financial statement periods ending
after December 15, 2002.

Under its charter, the Company has agreed to indemnify any person who is made a
party to any action or threatened with any action as a result of such persons
serving or having served as an officer or director of the Company or having
served, at the Companys request, as an officer or director of another company.
The indemnification does not apply if the person is adjudicated not to have
acted in good faith in the reasonable belief that his or her actions were in
the best interests of the Company. The indemnification obligation survives
termination of the indemnified partys involvement with the Company but only as
to those claims arising from such persons role as an officer or director. The
Company has separate indemnification agreements with certain of its officers
and directors that mirror the charter provisions. The maximum potential
amount of future payments that the Company could be required to make under the
charter provision and the corresponding indemnification agreements is
unlimited; however, the Company has Director and Officer insurance policies
that, in most cases, would limit its exposure and enable it to recover a
portion of any future amounts paid. As a result of the insurance policy
coverage, the estimated fair value of these indemnification provisions is
minimal. All of these indemnification provisions were grandfathered under the
provisions of FIN 45 as they were in effect prior to December 31, 2002.
Accordingly, we have no liabilities recorded for these provisions as of
December 31, 2002.

The Company enters into indemnification provisions under its agreements with
other companies in its ordinary course of business, typically with business
partners, contractors, clinical sites and customers. Under these provisions the
Company generally indemnifies and hold harmless the indemnified party for
losses suffered or incurred by the indemnified party as a result of the
Companys activities. These indemnification provisions generally survive
termination of the underlying agreement. The maximum potential amount of
future payments the Company could be required to make under these
indemnification provisions is unlimited. The Company has not incurred material
costs to defend lawsuits or settle claims related to these indemnification
agreements. As a result, the estimated fair value of these agreements is
minimal. Accordingly, the Company has no liabilities recorded for these
agreements as of December 31, 2002.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation-Transition and Disclosure  An Amendment of FAS No. 123. SFAS
148 amends SFAS 123, Accounting for Stock-Based Compensation to provide
alternative methods of transition for those companies who voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both the annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
transition and annual disclosure provision of SFAS 148 are effective for fiscal
years ending after December 15, 2002. The Company has not adopted the fair
value method of accounting for stock-based compensation, and will continue to
apply APB 25 for its stock-based compensation plans. The Company has
incorporated the disclosure requirements of SFAS 148 at December 31, 2002,
which require a tabular pro forma presentation of net income had SFAS 123 been
adopted by the Company in the Summary of Significant Accounting
Policies footnote of the financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
FIN 46 requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. Variable interest entities that
effectively disperse risk will not be consolidated unless a single party holds
an interest or combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 also requires enhanced disclosure
requirements related to variable interest entities. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15,
2003 to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 is
not expected to have a material effect on the Companys financial statements.

40



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##### 



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, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2002 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
February 14, 2003

41



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##### 



Senior Executives and Board Members

Biogen, Inc. and Subsidiaries

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Senior Biogen Executives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Board of Directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|James C. Mullen
Chairman of the Board of Directors, President
and Chief Executive Officer
 
Burt A. Adelman, M.D.
Executive Vice President  Research
and Development
 
Thomas J. Bucknum, Esq
Executive Vice President  General
Counsel and Clerk
 
Sylvie L. Gregoire, Pharm. D
Executive Vice President  Technical
Operations
 
Hans Peter Hasler
Executive Vice President  Commercial
Operations
 
Peter N. Kellogg
Executive Vice President  Finance
and Chief Financial Officer
 
Craig Schneier, Ph.D.
Executive Vice President  Human Resources |  | James C. Mullen
Chairman of the Board of Directors, President
and Chief Executive Officer
 
Alan Belzer 1,3
President, Chief Operating Officer and Director,
Allied-Signal, Inc. (retired)
 
Lawrence C. Best 1
Senior Vice President and Chief Financial Officer,
Boston Scientific Corporation
 
Harold W. Buirkle 1,2
Managing Director, The Henley Group,
Inc. (retired)
 
Mary L. Good, Ph.D. 2
Former Undersecretary for Technology, U.S
Department of Commerce; Managing
Member, Venture Capital Investors, LLC;
Donaghey University Professor at University of Arkansas
at Little Rock; Dean, Donaghey College of Information
Science and System Engineering
 
Thomas F. Keller, Ph.D. 1
R. J. Reynolds Professor and Former
Dean, Fuqua School of Business, Duke University
 
Roger H. Morley 2
Vice President, Schiller International University;
Co-Managing Director, R&R Inventions
Ltd.; Former President, American Express Co.
 
Sir Kenneth Murray, Ph.D. 3
Biogen Professor of Molecular Biology, Emeritus
University of Edinburgh; Fellow of The Royal Society
 
Eckhard Pfeiffer 2
President and Chief Executive Officer,
Compaq Corporation (retired)
 
Phillip A. Sharp, Ph.D.
Institute Professor and Director of the McGovern Institute
for Brain Research, Massachusetts Institute of Technology;
Nobel Laureate
 
Alan K. Simpson 3
Former Director of the Institute of Politics and Former Visiting Lecturer, John F. Kennedy School of
Government, Harvard University; Visiting Lecturer,
University of Wyoming; Former U.S. Senator
 
James W. Stevens 1,3
Former Chairman, Prudential Asset
Management Group
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 1  Member of the Finance and Audit Committee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 2  Member of the Compensation and Management Development Committee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 3  Member of the Corporate Governance and Nominating Committee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

42



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##### 



Shareholder Information
Biogen, Inc. and Subsidiaries



Corporate Headquarters:
Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Telephone: (617) 679-2000
Fax: (617) 679-2617 Annual Meeting
Friday, June 6, 2003 at 10:00 am at the Companys
offices in 15 Cambridge Center, Cambridge, MA All shareholders are welcome Market for Securities
Biogens securities are quoted on the
NASDAQ National Market System Common stock symbol: BGEN As of March 7, 2003 there were approximately
2,346 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
intend to pay any dividends in the foreseeable
future. The quarterly high and low closing prices of the
Companys Common Stock on the NASDAQ National
Market System for 2002 and 2001 are as follows: High
    
    LowFiscal 2002First Quarter
    
    
    57
    42
    
    
    49
    06Second Quarter
    
    
    50
    94
    
    
    39
    19Third Quarter
    
    
    38
    95
    
    
    29
    08Fourth Quarter
    
    
    46
    23
    
    
    28
    89Fiscal 2001First Quarter
    
    
    74
    50
    
    
    51
    31Second Quarter
    
    
    66
    80
    
    
    52
    03Third Quarter
    
    
    61
    99
    
    
    49
    45Fourth Quarter
    
    
    59
    63
    
    
    52
    68


SEC Form 10-K
A copy of Biogens Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available upon written
request to the: Investor Relations Department
Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142. Transfer Agent
For shareholder questions regarding lost certificates, address
changes and changes of ownership or name in which the shares
are held, direct inquiries to: EquiServe
150 Royall Street
Canton, MA 02021
(877) 282-1168
www.equiserve.com Independent Accountants
PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 02109 News Releases
As a service to our shareholders and prospective investors,
copies of
Biogen news releases issued in the last 12 months are now
available
almost immediately 24 hours a day, seven days a week, on the
Internets World Wide Web at http://www.prnewswire.com. Biogen
news releases are usually posted within one hour of being
issued
and are available at no cost. The Biogen logo, AVONEX® and AMEVIVE® are registered
trademarks of Biogen, Inc. ANTEGREN® is a registered trademark
of Elan Corporation. PEG-INTRON®, INTRON®A, REBETOL® and
REBETRON® are registered trademarks of Schering-Plough
Corporation. ANGIOMAX® is a registered trademark of The
Medicines Company. 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. REBIF® is a registered
trademark of Serono S.A. NOVANTRONE® and ENBREL® are
registered trademarks of Amgen, Inc. RAPTIVA® is a
registered trademark of Genentech, Inc. REMICADE® is a
registered trademark of Centocor, Inc., a subsidiary of
Johnson & Johnson. HUMIRA® is a registered trademark of
Abbott Laboratories, Inc. MS ACTIVE SOURCE and PSORIASIS SUPPORT are service marks of
Biogen, Inc




43



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##### 



BIOGEN, INC.

Schedule II


Valuation and Qualifying Accounts and Reserves


Years Ended December 31, 2002, 2001 and 2000


(in thousands)


|                                                   |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 
|-------------------------------------------------- |  | ------------------- | ------ | --------- |  | ---------- | ------- | --------- |  | - | ------- | -------------- |  | - | ------ | 
|                                                   |  | Balance at          |        |           |  |            |         |           |  |   |         | Balance at End
|Description                                        |  | Beginning of Period |        | Additions |  | Deductions |         | of Period
|Allowance for Doubtful Accounts1                   |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 
|Year Ended December 31, 2002                       |  | $                   | 2,082  |           |  | $          | 302     |           |  | $ | 464     |                |  | $ | 1,920  | 
|                                                   |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 
|Year Ended December 31, 2001                       |  | $                   | 2,436  |           |  | $          | 386     |           |  | $ | 740     |                |  | $ | 2,082  | 
|                                                   |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 
|Year Ended December 31, 2000                       |  | $                   | 1,642  |           |  | $          | 794     |           |  | $ |        |                |  | $ | 2,436  | 
|                                                   |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 
|Sales Returns & Allowances,
Discounts and Rebates2 |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 
|Year Ended December 31, 2002                       |  | $                   | 14,279 |           |  | $          | 113,138 |           |  | $ | 112,280 |                |  | $ | 15,137 | 
|                                                   |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 
|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  | 
|                                                   |  |                     |        |           |  |            |         |           |  |   |         |                |  |   |        | 



---

|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.

44



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##### 



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 February 14, 2003 appearing in the 2002 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 15(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
February 14, 2003

45