SEC Form 10-K Filing Report

Company: BIOGEN INC.
CIK: 875045
SIC Code: 2836
Filing Date: 2022-02-03 00:00:00
Market Capitalization: 32356843.44090271

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Overview
Biogen is a global biopharmaceutical company focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. We have a leading portfolio of medicines to treat multiple sclerosis (MS), have introduced the first approved treatment for spinal muscular atrophy (SMA) and are providing the first and only approved treatment to address a defining pathology of Alzheimer’s disease. We also commercialize biosimilars of advanced biologics and focus on advancing our pipeline in neuroscience and specialized immunology. Lastly, we are focused on accelerating our efforts in digital health to support our commercial and pipeline programs while also creating opportunities for potential digital therapeutics. We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.
Our marketed products include TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; ADUHELM for the treatment of Alzheimer's disease; and FUMADERM for the treatment of severe plaque psoriasis. We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions; RITUXAN HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular lymphoma; OCREVUS for the treatment of primary progressive MS (PPMS) and relapsing MS (RMS); and other potential anti-CD20 therapies, including mosunetuzumab, pursuant to our collaboration arrangements with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group. For additional information on our collaboration arrangements with Genentech, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
For over two decades we have led in the research and development of new therapies to treat MS, resulting in our leading portfolio of MS treatments. Now our research is focused on developing next generation treatments for MS. We introduced the first approved treatment for SMA and are continuing to pursue research and development for potential advancements in the treatment of SMA. We are also applying our scientific expertise to solve some of the most challenging and complex diseases, including Alzheimer's disease, ALS, Parkinson's disease, major depressive disorder (MDD), postpartum depression (PPD), systemic lupus erythematosus (SLE), cutaneous lupus erythematosus (CLE), cognitive impairment associated with schizophrenia (CIAS), stroke and neuropathic pain.
Our innovative drug development and commercialization activities are complemented by our biosimilar business that expands access to medicines and reduces the cost burden for healthcare systems. Through our agreements with Samsung Bioepis Co., Ltd. (Samsung Bioepis), our joint venture with Samsung BioLogics Co., Ltd. (Samsung BioLogics), we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE, in certain countries in Europe. We have also secured the exclusive rights to commercialize BYOOVIZ, a ranibizumab biosimilar referencing LUCENTIS, which was approved in the U.S., the European Union (E.U.) and the U.K. during the third quarter of 2021. For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Key Business Developments
The following is a summary of key developments affecting our business since the beginning of 2021.
For additional information on our acquisitions, collaborative and other relationships discussed below, please read Note 2, Acquisitions, Note 18, Collaborative and Other Relationships, and Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report.
Acquisitions, Collaborative and Other Relationships
Bio-Thera Solutions
In April 2021 we entered into a commercialization and license agreement to develop, manufacture and commercialize BAT1806, a Phase 3 clinical stage anti-interleukin-6 (IL-6) receptor monoclonal antibody that is a proposed biosimilar referencing ACTEMRA. In connection with this agreement, we made an upfront payment of $30.0 million to Bio-Thera Solutions.
InnoCare Pharma Limited
In August 2021 we closed a collaboration and license agreement with InnoCare Pharma Limited (InnoCare) for orelabrutinib, an oral small molecule Bruton's tyrosine kinase inhibitor for the potential treatment of MS. Orelabrutinib is currently being studied in a multi-country, placebo-controlled Phase 2 trial in relapsing-remitting MS (RRMS). Under the terms of this collaboration, we have exclusive rights to orelabrutinib in the field of MS worldwide and certain autoimmune diseases outside of China (including Hong Kong, Macau and Taiwan), while InnoCare retains exclusive worldwide rights to orelabrutinib in the field of oncology and certain autoimmune diseases in China (including Hong Kong, Macau and Taiwan). In connection with this agreement, we made an upfront payment of $125.0 million to InnoCare.
Mosunetuzumab
In January 2022 we exercised our option with Genentech to participate in the joint development and commercialization of mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin’s lymphoma and other therapeutic areas. In connection with this exercise, we recorded a $30.0 million option exercise fee payable to Genentech in December 2021.
BIIB115 Option Exercise
In December 2021 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB115, a preclinical investigational ASO in development for SMA. In connection with this option exercise, we made an opt-in payment of $60.0 million to Ionis.
Samsung Bioepis - Biogen's Joint Venture with Samsung BioLogics
In January 2022 we entered into an agreement to sell to Samsung Biologics our equity in Samsung Bioepis. Under the terms of the proposed transaction, we would receive $1.0 billion in cash at closing and $1.3 billion to be deferred over two payments of $812.5 million due at the first anniversary and $437.5 million due at the second anniversary of the closing of the transaction. We would also be eligible to receive up to an additional $50.0 million upon the achievement of certain commercial milestones.
Closing of the transaction is currently anticipated in mid-2022, contingent on the effectiveness of a securities registration statement filed by Samsung Biologics and satisfaction of certain regulatory and other customary closing conditions.
For additional information on the proposed transaction and our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Other Key Developments
ADUHELM (aducanumab)
In June 2021 the U.S. Food and Drug Administration (FDA) granted accelerated approval of ADUHELM, which we are developing and commercializing in collaboration with Eisai Co., Ltd. (Eisai), based on reduction in amyloid beta plaques observed in patients treated with ADUHELM. As part of the accelerated approval, we will conduct a confirmatory trial to verify the clinical benefit of ADUHELM in patients with Alzheimer’s disease. The FDA may withdraw approval if, among other things, the confirmatory trial fails to verify clinical benefit of ADUHELM, ADUHELM's benefit-risk is no longer positive or we fail to comply with the conditions of the accelerated approval.
In December 2021 the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) adopted a negative opinion on the Marketing Authorization Application (MAA) for aducanumab in Europe. We are seeking a re-examination of the opinion by the CHMP.
In January 2022 the Centers for Medicare and Medicaid Services (CMS) released a proposed National Coverage Determination (NCD) decision memorandum stating the proposed NCD would cover FDA approved monoclonal antibodies that target amyloid for the treatment of Alzheimer's disease for people with Medicare only if they are enrolled in qualifying clinical trials. We expect a final Medicare NCD by the second quarter of 2022, which should clarify Medicare reimbursement for the class of antibodies directed against amyloid.
BIIB125 (zuranolone)
In June 2021 we and Sage Therapeutics, Inc. (Sage) announced positive Phase 3 results for BIIB125 (zuranolone) for the potential treatment of MDD and PPD. In October 2021 we and Sage announced our plan to submit a New Drug Application (NDA) to the FDA for zuranolone in the second half of 2022, with rolling submission expected to start in the first half of 2022. The planned initial submission package will seek approval of zuranolone for MDD and an additional filing for PPD is anticipated in the first half of 2023.
Lecanemab (BAN2401)
In June 2021 the FDA granted Breakthrough Therapy designation for lecanemab, an anti-amyloid antibody for the potential treatment of Alzheimer's disease, which we are developing in collaboration with Eisai. In September 2021 Eisai initiated a rolling submission to the FDA of a Biologics License Application (BLA) for lecanemab. The BLA is being submitted under the accelerated approval pathway and is primarily based in clinical, biomarker and safety data from the Phase 2b clinical trial in patients with early Alzheimer's disease and confirmed amyloid pathology.
BYOOVIZ (ranibizumab-nuna)
In September 2021 we announced that the FDA has approved BYOOVIZ (ranibizumab-nuna), a biosimilar referencing LUCENTIS for the treatment of neovascular (wet) age-related macular degeneration, macular edema following retinal vein occlusion and myopic choroidal neovascularization. In addition to the U.S. approval, BYOOVIZ was approved in the E.U. and the U.K. during the third quarter of 2021.
BIIB067 (tofersen)
In October 2021 we announced topline results from our pivotal Phase 3 VALOR study of BIIB067 (tofersen), an investigational antisense drug being evaluated for people with superoxide dismutase 1 (SOD1) amyotrophic lateral sclerosis (ALS), indicating that the primary endpoint was not met.
Exchange Offer
In February 2021 we completed a private offer to exchange (Exchange Offer) our tendered 5.200% Senior Notes due September 15, 2045 (2045 Senior Notes) for a new series of 3.250% Senior Notes due February 15, 2051 (2051 Senior Notes) and cash, and an offer to purchase our tendered 2045 Senior Notes for cash.
North Carolina Gene Therapy Manufacturing Facility
In March 2021 we announced our plans to build a new gene therapy manufacturing facility in RTP, North Carolina to support our gene therapy pipeline across multiple therapeutic areas. The new facility will be approximately 175,000 square feet and is expected to be operational by the end of 2023. Construction for this new facility began during the fourth quarter of 2021.
Solothurn, Switzerland Manufacturing Facility
In May 2021 we announced that a portion of our Solothurn manufacturing facility received a Good Manufacturing Practice (GMP) multi-product license from the Swiss Agency for Therapeutic Products (SWISSMEDIC).
Management Changes
In July 2021 we announced the appointment of Rachid Izzar to the Executive Committee of the Company as well as Head of the Alzheimer's Disease and Dementia Business Unit.
In November 2021 we announced the retirement of Alfred Sandrock and the appointment of Priya Singhal, Head of Global Safety and Regulatory Sciences, as interim Head of Research and Development.
For additional information on our executive officers, please read the subsection entitled "Information about our Executive Officers" included in this report.
Product and Pipeline Developments
Neurology
Multiple Sclerosis and Neuroimmunology
TECFIDERA (dimethyl fumerate)
•In April 2021 China's National Medical Products Administration approved TECFIDERA for the treatment of RMS.
VUMERITY (diroximel fumarate; DRF)
•In November 2021 the European Commission (EC) granted marketing authorization for VUMERITY in the E.U. for the treatment of RRMS.
PLEGRIDY (peginterferon beta-1a)
•In January 2021 the FDA approved a new intramuscular (IM) injection route of administration for PLEGRIDY for the treatment of RRMS.
TYSABRI (natalizumab)
•In April 2021 the EC granted marketing authorization for a new subcutaneous (SC) injection route of administration for TYSABRI for the treatment of RRMS.
•In April 2021, at the 2021 American Academy of Neurology (AAN) Virtual Annual Meeting, we presented new data on quality of life benefits and analyses of extended interval dosing with TYSABRI.
•In August 2021 we announced results from the two-year prospective, randomized, interventional, controlled, open-label Phase 3b NOVA study. NOVA was designed to estimate a potential difference between the efficacy of every six-weeks (Q6W) 300mg intravenous (IV) dosing compared to the efficacy of the approved every four-week (Q4W) dose in people treated with TYSABRI for RRMS.
Alzheimer's Disease and Dementia
ADUHELM (aducanumab)
•In June 2021 the FDA granted accelerated approval for ADUHELM as the first and only Alzheimer's disease treatment to address a defining pathology of the disease by reducing amyloid beta plaques in the brain.
•In July 2021 the FDA approved an updated label for ADUHELM injection 100 mg/mL solution.
•In July 2021, at the Alzheimer's Association International Conference (AAIC), we presented the design for the first real-world observational Phase 4 study of Alzheimer's disease called ICARE AD-US.
•In November 2021, at the 2021 Clinical Trials on Alzheimer's Disease (CTAD) conference, we announced that data from the ADUHELM Phase 3 clinical trials showed a statistically significant correlation between plasma p-tau reduction and less cognitive and functional decline in Alzheimer’s disease. We also presented data from the Phase 3b redosing study, EMBARK, which examined the impact of patients with Alzheimer's disease stopping ADUHELM treatment for an extended period of time before re-initiating treatment.
•In November 2021 we received a negative trend vote on the aducanumab MAA in the E.U.
•In December 2021 the CHMP adopted a negative opinion on the MAA for aducanumab.
•In December 2021 the First Committee on New Drugs (NDC) of the Pharmaceutical Affairs and Food Sanitation Council that advises the Ministry of Health, Labour and Welfare (MHLW) in Japan decided to continue deliberations on the application for the manufacturing and marketing approval of aducanumab for the treatment of Alzheimer's disease.
•In January 2022 the CMS released a proposed NCD decision memorandum, stating the proposed NCD would cover FDA approved monoclonal antibodies that target amyloid for the treatment of Alzheimer's disease for people with Medicare only if they are enrolled in qualifying clinical trials.
BAN2401 (lecanemab)
•In June 2021 the FDA granted Breakthrough Therapy designation for lecanemab for the potential treatment of Alzheimer's disease.
•In July 2021, at the AAIC, Eisai presented results of a longitudinal preliminary assessment of the clinical effects of lecanemab following 18 months of treatment in the open-label extension (OLE) of the Phase 2b proof-of-concept study in subjects with early Alzheimer's disease.
•In September 2021 Eisai initiated a rolling submission to the FDA of a BLA for lecanemab. The BLA is being submitted under the accelerated approval pathway and is primarily based on clinical, biomarker and safety data from the Phase 2b clinical trial (Study 201) in patients with early Alzheimer's disease and confirmed amyloid pathology.
•In November 2021 Eisai presented results of new clinical, biomarker and safety assessments of brain amyloid reduction and five-year clinical status of people living with early Alzheimer's disease from the
lecanemab Phase 2b 201 and the OLE studies. The findings were presented and discussed in a late-breaking roundtable session at the 2021 CTAD conference.
•In December 2021 we and Eisai announced that lecanemab was granted Fast Track designation by the FDA.
Neuromuscular Disorders
SPINRAZA (nusinersen)
•In January 2021 the first patient was dosed in the global RESPOND study, which will examine the clinical benefit and assess the safety of SPINRAZA in infants and children with SMA.
•In April 2021, at the AAN 2021 Virtual Annual Meeting, we announced new data from the Phase 2/3 DEVOTE study. Initial findings from the DEVOTE study suggest no new safety concerns and support continued development of a higher dose of SPINRAZA.
•In June 2021, at the virtual Cure SMA Research & Clinical Care Meeting, we announced new data on the long-term efficacy of SPINRAZA.
•In September 2021 we announced plans to initiate a global Phase 3b clinical study, ASCEND. The ASCEND study is designed to evaluate the clinical outcomes and assess the safety of a higher dose of SPINRAZA in children, teens and adults with later-onset SMA following treatment of Evrysdi.
Movement Disorders
SAGE-324 (GABAA receptor PAM)
•In April 2021 we and Sage reported that the Phase 2 KINETIC study evaluating SAGE-324 in the treatment of patients with essential tremor (ET) met its primary endpoint.
Neuropsychiatry
BIIB125 (zuranolone)
•In June 2021 we and Sage announced positive results from the Phase 3 WATERFALL study for zuranolone, an investigational two-week, once-daily therapeutic being evaluated for MDD.
•In October 2021 we and Sage shared positive data from the LANDSCAPE and NEST clinical development program. This study evaluated the efficacy and safety of zuranolone for the treatment of MDD and PPD. The data was presented at the European College of Neuropsychopharmacology Congress.
•In October 2021 we and Sage announced plans to submit a NDA to the FDA for zuranolone for the potential treatment of MDD in the second half of 2022 with rolling submission expected to start in early 2022. Plans also include the submission of a NDA to the FDA for zuranalone for the treatment of PPD, in the first half of 2023.
•In December 2021 we and Sage announced positive data from the 12-month Phase 3 open-label SHORELINE study for zuranolone. The SHORELINE study, part of the LANDSCAPE clinical program, was designed to naturalistically follow adult patients with MDD and evaluate the safety and tolerability of zuranolone as well as the need for repeat dosing for up to one year.
Specialized Immunology
Immunology
BIIB059 (anti-BDCA2) - SLE
•In June 2021 the first patient was dosed in the Phase 3 TOPAZ-1 study of BIIB059 for SLE. The Phase 3 study will evaluate the clinical efficacy and assess the safety of BIIB059 in participants with active SLE.
Neuropathic Pain
BIIB074 (vixotrigine)
•In September 2021 we announced positive results that the Phase 2 CONVEY study of vixotrigine, a non-opioid investigational oral pain drug being evaluated for the treatment of small fiber neuropathy. The CONVEY study 200 mg twice daily arm met its primary endpoint. The CONVEY study 350 mg twice daily arm did not meet its primary endpoint.
Biosimilars
BAT1806
•In April 2021 we entered into a commercialization and license agreement to develop, manufacture and commercialize BAT1806, a Phase 3 clinical stage anti-interleukin-6 (IL-6) receptor monoclonal antibody that is a proposed biosimilar referencing ACTEMRA (tocilizumab).
•In June 2021 we and Bio-Thera Solutions, Ltd. (Bio-Thera) announced positive results that the Phase 3 study of BAT1806, a proposed biosimilar referencing ACTEMRA (tocilizumab), met its primary endpoint.
Samsung Bioepis - Biogen's Joint Venture with Samsung BioLogics
•In June 2021 Samsung Bioepis announced that the CHMP adopted a positive opinion of BYOOVIZ (ranibizumab-nuna), a biosimilar referencing LUCENTIS, and in August 2021 BYOOVIZ was approved by the EMA.
•In September 2021 Samsung Bioepis announced the FDA approval of BYOOVIZ.
Digital Health
•In January 2021 we announced a virtual research study, in collaboration with Apple Inc., to investigate the role Apple Watch and iPhone could play in monitoring cognitive performance and screening for decline in cognitive health including mild cognitive impairment (MCI).
•In December 2021 we announced an expanded collaboration with TheraPanacea focused on multiple therapeutic areas in neuroscience. The expanded collaboration aims to leverage machine learning and artificial intelligence analysis to develop digital health solutions that may improve patient care, accelerate drug development, and further the understanding of the underlying pathologies of neurological diseases.
Discontinued or Suspended Programs
•In May 2021 we announced that the Phase 2/3 XIRIUS study of cotoretigene toliparvovec (BIIB112), a gene therapy being investigated as a one-time therapy for patients with X-linked retinitis pigmentosa, did not meet its primary endpoint. Based on these results, we suspended further development based on the decision of management as part of its strategic review process.
•In June 2021 we announced that the Phase 3 STAR study of timrepigene emparvovec (BIIB111), an investigational gene therapy for the potential treatment of choroideremia, did not meet its primary endpoint. Based on these results, we suspended further development based on the decision of management as part of its strategic review process.
•In June 2021 we announced that the Phase 2 TANGO study of BIIB092 (gosuranemab), an investigational anti-tau antibody that was being evaluated as a potential treatment for Alzheimer's disease, did not meet its primary endpoint. Based on these results, we discontinued development of gosuranemab.
Marketed Products
The following graph shows our revenue by product and revenue from anti-CD20 therapeutic programs for the years ended December 31, 2021, 2020 and 2019.
(1) Fumarate includes TECFIDERA and VUMERITY. VUMERITY became commercially available in the E.U. during the fourth quarter of 2021.
(2) Interferon includes AVONEX and PLEGRIDY.
(3) In June 2021 the FDA granted accelerated approval of ADUHELM, which became commercially available in the U.S. during the second quarter of 2021. For additional information, please read Note 18, Collaborative and Other Relationships - Eisai Co., Ltd. - ADUHELM Collaboration Agreement, to our consolidated financial statements included in this report.
(4) Other includes FAMPYRA, FUMADERM, BENEPALI, IMRALDI and FLIXABI.
(5) Anti-CD20 therapeutic programs include RITUXAN, RITUXAN HYCELA, GAZYVA and OCREVUS.
Product sales for TECFIDERA, AVONEX, TYSABRI and SPINRAZA each accounted for more than 10.0% of our total revenue for the years ended December 31, 2021, 2020 and 2019. For additional financial information about our product and other revenue and geographic areas where we operate, please read Note 4, Revenue, and Note 24, Segment Information, to our consolidated financial statements included in this report and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. A discussion of the risks attendant to our operations is set forth in

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Risks Related to Our Business
We are substantially dependent on revenue from our products.
Our revenue depends upon continued sales of our products as well as the financial rights we have in our anti-CD20 therapeutic programs. A significant portion of our revenue is concentrated on sales of our products in increasingly competitive markets and in markets affected directly and indirectly by the COVID-19 pandemic. Any of the following negative developments relating to any of our products or any of our anti-CD20 therapeutic programs may adversely affect our revenue and results of operations or could cause a decline in our stock price:
•the introduction or greater acceptance of competing products, including new originator therapies, generics, prodrugs and biosimilars of existing products and products approved under abbreviated regulatory pathways;
•safety or efficacy issues;
•limitations and additional pressures on product pricing or price increases, including those resulting from governmental or regulatory requirements; increased competition, including from generic or biosimilar versions of our products; or changes in, or implementation of, reimbursement policies and practices of payors and other third-parties;
•adverse legal, administrative, regulatory or legislative developments;
•our ability to maintain a positive reputation among patients, healthcare providers and others, which may be impacted by our pricing and reimbursement decisions; or
•the inability or reluctance of patients to receive a diagnosis, prescription or administration of our products or a decision to prescribe and administer competitive therapies as a direct or indirect result of the COVID-19 pandemic.
ADUHELM is in the early stages of commercial launch in the U.S. In addition to risks associated with new product launches and the other factors described in these Risk Factors, our ability to successfully commercialize ADUHELM may be adversely affected due to:
•the lack of readiness of healthcare providers to initiate treatment as well as our ability to successfully identify eligible patients based on the information included in ADUHELM’s label;
•concern regarding the accelerated approval of ADUHELM and its data;
•our ability to obtain and maintain reimbursement for ADUHELM;
•the lack of market acceptance of ADUHELM;
•the effectiveness of our commercial strategy for marketing ADUHELM;
•delays in the manufacturing, distribution and supply of ADUHELM;
•the approval of other new products for the same or similar indications; and
•our ability to maintain a positive reputation among patients, healthcare providers and others in the Alzheimer’s disease community, which may be impacted by pricing and reimbursement decisions relating to ADUHELM.
As part of the accelerated approval, we will conduct a confirmatory trial to verify the clinical benefit of ADUHELM in patients with Alzheimer's disease. The FDA may withdraw approval if, among other things, the confirmatory trial fails to verify clinical benefit, ADUHELM's benefit-risk is no longer positive or we fail to comply with the conditions of the accelerated approval.
Our long-term success depends upon the successful development of new products and additional indications for our existing products.
Our long-term success will depend upon the successful development of new products from our research and development activities or our licenses or acquisitions from third-parties, including our commercialization agreements with Samsung Bioepis, as well as additional indications for our existing products.
Product development is very expensive and involves a high degree of uncertainty and risk and may not be successful. Only a small number of research and development programs result in the commercialization of a product.
It is difficult to predict the success and the time and cost of product development of novel approaches for the treatment of diseases. The development of novel approaches for the treatment of diseases, including development efforts in new modalities such as those based on the antisense oligonucleotide platform and gene therapy, may present additional challenges and risks, including obtaining approval from regulatory authorities that have limited experience with the development of such therapies.
Clinical trial data are subject to differing interpretations and even if we view data as sufficient to support the safety, effectiveness and/or approval of an investigational therapy, regulatory authorities may disagree and may require additional data, limit the scope of the approval or deny approval altogether. Furthermore, the approval of a product candidate by one regulatory agency does not mean that other regulatory agencies will also approve such product candidate.
Success in preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful. Clinical trials may indicate that our product candidates lack efficacy, have harmful side effects, result in unexpected adverse events or raise other concerns that may significantly reduce the likelihood of regulatory approval. This may result in terminated programs, significant restrictions on use and safety warnings in an approved label, adverse placement within the treatment paradigm or significant reduction in the commercial potential of the product candidate.
Even if we could successfully develop new products or indications, we may make a strategic decision to discontinue development of a product candidate or indication if, for example, we believe commercialization will be difficult relative to the standard of care or we prefer to pursue other opportunities in our pipeline.
Sales of new products or products with additional indications may not meet investor expectations.
If we fail to compete effectively, our business and market position would suffer.
The biopharmaceutical industry and the markets in which we operate are intensely competitive. We compete in the marketing and sale of our products, the development of new products and processes, the acquisition of rights to new products with commercial potential and the hiring and retention of personnel. We compete with biotechnology and pharmaceutical companies that have a greater number of products on the market and in the product pipeline, substantially greater financial, marketing, research and development and other resources and other technological or competitive advantages.
Our products continue to face increasing competition from the introduction of new originator therapies, generics, prodrugs and biosimilars of existing products and products approved under abbreviated regulatory pathways. Some of these products are likely to be sold at substantially lower prices than our branded products. The introduction of such products as well as other lower-priced competing products has reduced, and may in the future, significantly reduce both the price that we are able to charge for our products and the volume of products we sell, which will negatively impact our revenue. For instance, demand and price for TECFIDERA declined significantly as a result of multiple TECFIDERA generic entrants entering the U.S. market in 2020. In addition, in some markets, when a generic or biosimilar version of one of our products is commercialized, it may be automatically substituted for our product and significantly reduce our revenue in a short period of time.
Our ability to compete, maintain and grow our business may also be adversely affected due to a number of factors, including:
•the introduction of other products, including products that may be more efficacious, safer, less expensive or more convenient alternatives to our products, including our own products and products of our collaborators;
•the off-label use by physicians of therapies indicated for other conditions to treat patients;
•patient dynamics, including the size of the patient population and our ability to identify, attract and maintain new and current patients to our therapies;
•the reluctance of physicians to prescribe, and patients to use, our products without additional data on the efficacy and safety of such products;
•damage to physician and patient confidence in any of our products, generic or biosimilars of our products or any other product from the same class as one of our products, or to our sales and reputation as a result of label changes, pricing and reimbursement decisions or adverse experiences or events that may occur with patients treated with our products or generic or biosimilars of our products;
•inability to obtain appropriate pricing and reimbursement for our products compared to our competitors in key international markets; or
•our ability to obtain and maintain patent, data or market exclusivity for our products.
Our business may be adversely affected if we do not successfully execute or realize the anticipated benefits of our strategic and growth initiatives.
The successful execution of our strategic and growth initiatives may depend upon internal development projects, commercial initiatives and external opportunities, which may include the acquisition and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations.
While we believe we have a number of promising programs in our pipeline, failure or delay of internal development projects to advance or difficulties in executing on our commercial initiatives could impact our current and future growth, resulting in additional reliance on external development opportunities for growth.
Supporting the further development of our existing products and potential new products in our pipeline will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing capabilities and other areas of our business. We have made, and may continue to make, significant operating and capital expenditures for potential new products prior to regulatory approval with no assurance that such investment will be recouped, which may adversely affect our financial condition, business and operations.
The availability of high quality, fairly valued external product development is limited and the opportunity for their acquisition is highly competitive. As such, we are not certain that we will be able to identify suitable candidates for acquisition or if we will be able to reach agreement.
We may fail to initiate or complete transactions for many reasons, including failure to obtain regulatory or other approvals as well as disputes or litigation. Furthermore, we may not be able to achieve the full strategic and financial benefits expected to result from transactions, or the benefits may be delayed or not occur at all. We may also face additional costs or liabilities in completed transactions that were not contemplated prior to completion.
Any failure in the execution of a transaction, in the integration of an acquired asset or business or in achieving expected synergies could result in slower growth, higher than expected costs, the recording of asset impairment charges and other actions which could adversely affect our business, financial condition and results of operations.
Sales of our products depend, to a significant extent, on adequate coverage, pricing and reimbursement from third-party payors, which are subject to increasing and intense pressure from political, social, competitive and other sources. Our inability to obtain and maintain adequate coverage, or a reduction in pricing or reimbursement, could have an adverse effect on our business, reputation, revenue and results of operations.
Sales of our products depend, to a significant extent, on adequate coverage, pricing and reimbursement from third-party payors. When a new pharmaceutical product is approved, the availability of government and private reimbursement for that product may be uncertain, as is the pricing and amount for which that product will be reimbursed.
Pricing and reimbursement for our products may be adversely affected by a number of factors, including:
•changes in, and implementation of, federal, state or foreign government regulations or private third-party payors’ reimbursement policies;
•pressure by employers on private health insurance plans to reduce costs;
•consolidation and increasing assertiveness of payors seeking price discounts or rebates in connection with the placement of our products on their formularies and, in some cases, the imposition of restrictions on access or coverage of particular drugs or pricing determined based on perceived value;
•our ability to recieve reimbursement for our products; and
•our value-based contracting program pursuant to which we aim to tie the pricing of our products to their clinical values by either aligning price to patient outcomes or adjusting price for patients who discontinue therapy for any reason, including efficacy or tolerability concerns.
Our ability to set the price for our products varies significantly from country to country and, as a result, so can the price of our products. Certain countries set prices by reference to the prices in other countries where our products are marketed. Our inability to obtain and maintain adequate prices in a particular country may not only limit the revenue from our products within that country but may also adversely affect our ability to secure acceptable prices in existing and potential new markets, which may limit market growth. This may create the opportunity for
third-party cross-border trade or influence our decision to sell or not to sell a product, thus adversely affecting our geographic expansion plans and revenue.
Drug prices are under significant scrutiny in the markets in which our products are prescribed. We expect drug pricing and other health care costs to continue to be subject to intense political and societal pressures on a global basis. Competition from current and future competitors may negatively impact our ability to maintain pricing and our market share. New products marketed by our competitors could cause our revenue to decrease due to potential price reductions and lower sales volumes. Additionally, the introduction of generic or biosimilar versions of our products, follow-on products, prodrugs or products approved under abbreviated regulatory pathways may significantly reduce the price that we are able to charge for our products and the volume of products we sell.
Many payors continue to adopt benefit plan changes that shift a greater portion of prescription costs to patients, including more limited benefit plan designs, higher patient co-pay or co-insurance obligations and limitations on patients' use of commercial manufacturer co-pay payment assistance programs (including through co-pay accumulator adjustment or maximization programs). Significant consolidation in the health insurance industry has resulted in a few large insurers and pharmacy benefit managers exerting greater pressure in pricing and usage negotiations with drug manufacturers, significantly increasing discounts and rebates required of manufacturers and limiting patient access and usage. Further consolidation among insurers, pharmacy benefit managers and other payors would increase the negotiating leverage such entities have over us and other drug manufacturers. Additional discounts, rebates, coverage or plan changes, restrictions or exclusions as described above could have a material adverse effect on sales of our affected products.
Our failure to obtain or maintain adequate coverage, pricing or reimbursement for our products could have an adverse effect on our business, reputation, revenue and results of operations.
We depend on relationships with collaborators, joint venture partners and other third-parties for revenue, and for the development, regulatory approval, commercialization and marketing of certain of our products and product candidates, which are outside of our full control.
We rely on a number of collaborative, joint venture and other third-party relationships for revenue and the development, regulatory approval, commercialization and marketing of certain of our products and product candidates. We also outsource certain aspects of our regulatory affairs and clinical development relating to our products and product candidates to third-parties. Reliance on third-parties subjects us to a number of risks, including:
•we may be unable to control the resources our collaborators, joint venture partners or third-parties devote to our programs, products or product candidates;
•disputes may arise under an agreement, including with respect to the achievement and payment of milestones, payment of development or commercial costs, ownership of rights to technology developed, and the underlying agreement may fail to provide us with significant protection or may fail to be effectively enforced if the collaborators, joint ventures partners or third-parties fail to perform;
•the interests of our collaborators, joint venture partners or third-parties may not always be aligned with our interests, and such parties may not pursue regulatory approvals or market a product in the same manner or to the same extent that we would, which could adversely affect our revenue, or may adopt tax strategies that could have an adverse effect on our business, results of operations or financial condition;
•third-party relationships require the parties to cooperate, and failure to do so effectively could adversely affect product sales or the clinical development or regulatory approvals of product candidates under joint control, could result in termination of the research, development or commercialization of product candidates or could result in litigation or arbitration;
•any failure on the part of our collaborators, joint venture partners or third-parties to comply with applicable laws, including tax laws, regulatory requirements and/or applicable contractual obligations or to fulfill any responsibilities they may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenue as well as involve us in possible legal proceedings; and
•any improper conduct or actions on the part of our collaborators, joint venture partners or third-parties could subject us to civil or criminal investigations and monetary and injunctive penalties, impact the accuracy and timing of our financial reporting and/or adversely impact our ability to conduct business, our operating results and our reputation.
Certain officers and affiliates of our joint venture partner, Samsung BioLogics, are currently subject to ongoing criminal proceedings that may impact its operations and business or divert the attention of the Samsung Bioepis management team from its ongoing operations. In addition, as Samsung Bioepis is a privately-held entity, our ability to liquidate our investment may be limited and we may realize significantly less than the value of such investment.
Given these risks, there is considerable uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed, revenue from products could decline and/or we may not realize the anticipated benefits of these arrangements.
Our results of operations may be adversely affected by current and potential future healthcare reforms.
In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the cost of health care. Legislative and regulatory proposals, enactments to reform health care insurance programs and increasing pressure from social sources could significantly influence the manner in which our products are prescribed and purchased. For example, provisions of the Patient Protection and Affordable Care Act (PPACA) have resulted in changes in the way health care is paid for by both governmental and private insurers, including increased rebates owed by manufacturers under the Medicaid Drug Rebate Program, annual fees and taxes on manufacturers of certain branded prescription drugs, the requirement that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D and the expansion of the number of hospitals eligible for discounts under Section 340B of the Public Health Service Act. These changes have had and are expected to continue to have a significant impact on our business.
We may face uncertainties as a result of efforts to repeal, substantially modify or invalidate some or all of the provisions of the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.
There is increasing public attention on the costs of prescription drugs and we expect drug pricing and other health care costs to continue to be subject to intense political and societal pressures on a global basis. For example, two committees of the U.S. House of Representatives are investigating the approval and price of ADUHELM. In addition, there have been, and are expected to continue to be, legislative proposals to address prescription drug pricing. Some of these proposals could have significant effects on our business, including an executive order issued in September 2020 to test a “most favored nation” model for Part B and Part D drugs that tie reimbursement rates to international drug pricing metrics. These actions and the uncertainty about the future of the PPACA and healthcare laws may put downward pressure on pharmaceutical pricing and increase our regulatory burdens and operating costs.
There is also significant economic pressure on state budgets, including as a result of the COVID-19 pandemic, that may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs. In recent years, some states have considered legislation and ballot initiatives that would control the prices of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the U.S. and laws intended to impose price controls on state drug purchases. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid. Government efforts to reduce Medicaid expense may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding limitation on prices and reimbursement for our products.
In the E.U. and some other international markets, the government provides health care at low cost to consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. Many countries have announced or implemented measures, and may in the future implement new or additional measures, to reduce health care costs to limit the overall level of government expenditures. These measures vary by country and may include, among other things, patient access restrictions, suspensions on price increases, prospective and possible retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases and greater importation of drugs from lower-cost countries. These measures have negatively impacted our revenue and may continue to adversely affect our revenue and results of operations in the future.
Our success in commercializing biosimilars is subject to risks and uncertainties inherent in the development, manufacture and commercialization of biosimilars. If we are unsuccessful in such activities, our business may be adversely affected.
The development, manufacture and commercialization of biosimilar products require specialized expertise and are very costly and subject to complex regulation. Our success in commercializing biosimilars is subject to a number of risks, including:
•Reliance on Third-Parties. We are dependent, in part, on the efforts of Samsung Bioepis, collaboration partners and other third-parties over whom we have limited or no control in the development and manufacturing of biosimilars products. If these third-parties fail to perform successfully, our biosimilar product development or commercialization of biosimilar products could be delayed, revenue from biosimilar products could decline and/or we may not realize the anticipated benefits of these arrangements;
•Regulatory Compliance. Biosimilar products may face regulatory hurdles or delays due to the evolving and uncertain regulatory and commercial pathway of biosimilars products in certain jurisdictions;
•Intellectual Property and Regulatory Challenges. Biosimilar products may face extensive patent clearances, patent infringement litigation, injunctions or regulatory challenges, which could prevent the commercial launch of a product or delay it for many years or result in imposition of monetary damages, penalties or other civil sanctions and damage our reputation;
•Failure to Gain Market and Patient Acceptance. Market success of biosimilar products will be adversely affected if patients, physicians and/or payors do not accept biosimilar products as safe and efficacious products offering a more competitive price or other benefit over existing therapies;
•Ability to Provide Adequate Supply. Manufacturing biosimilars is complex. If we encounter any manufacturing or supply chain difficulties we may be unable to meet higher than anticipated demand. We are dependent on a third-party for the manufacture of our biosimilar products and such third-party may not perform its obligations in a timely and cost-effective manner or in compliance with applicable regulations and may be unable or unwilling to increase production capacity commensurate with demand for our existing or future biosimilar products; and
•Competitive Challenges. Biosimilar products face significant competition, including from innovator products and biosimilar products offered by other companies. Local tendering processes may restrict biosimilar products from being marketed and sold in some jurisdictions. The number of competitors in a jurisdiction, the timing of approval and the ability to market biosimilar products successfully in a timely and cost-effective manner are additional factors that may impact our success and/or the success of Samsung Bioepis in this business area.
Risks Related to Intellectual Property
If we are unable to obtain and maintain adequate protection for our data, intellectual property and other proprietary rights, our business may be harmed.
Our success, including our long-term viability and growth, depends, in part, on our ability to obtain and defend patent and other intellectual property rights, including certain regulatory forms of exclusivity, that are important to the commercialization of our products and product candidates. Patent protection and/or regulatory exclusivity in the U.S. and other important markets remains uncertain and depends, in part, upon decisions of the patent offices, courts, administrative bodies and lawmakers in these countries. We may fail to obtain or preserve patent and other intellectual property rights, including certain regulatory forms of exclusivity, or the protection we obtain may not be of sufficient breadth and degree to protect our commercial interests in all countries where we conduct business, which could result in financial, business or reputational harm to us or could cause a decline or volatility in our stock price. In addition, settlements of such proceedings often result in reducing the period of patent and other protections, resulting in a reduction in revenue from affected products.
In many markets, including the U.S., manufacturers may be allowed to rely on the safety and efficacy data of the innovator's product and do not need to conduct clinical trials before marketing a competing version of a product after there is no longer patent or regulatory exclusivity. In such cases, manufacturers often charge significantly lower prices and a major portion of the company's revenue may be reduced in a short period of time. In addition, manufacturers of generics and biosimilars may choose to launch or attempt to launch their products before the expiration of our patent or other intellectual property protections.
Furthermore, our products may be determined to infringe patents or other intellectual property rights held by third-parties. Legal proceedings, administrative challenges or other types of proceedings are and may in the future be necessary to determine the validity, scope or non-infringement of certain patent rights claimed by third-parties to be pertinent to the manufacture, use or sale of our products. Such proceedings are unpredictable and are often
protracted and expensive. Negative outcomes of such proceedings could hinder or prevent us from manufacturing and marketing our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our financial statements. A failure to obtain necessary licenses for an infringed product or technology could prevent us from manufacturing or selling our products. Furthermore, payments under any licenses that we are able to obtain would reduce our profits from the covered products and services. Any of these circumstances could result in financial, business or reputational harm to us or could cause a decline or volatility in our stock price.
Risks Related to Development, Clinical Testing and Regulation of Our Products and Product Candidates
Successful preclinical work or early stage clinical trials does not ensure success in later stage trials, regulatory approval or commercial viability of a product.
Positive results in a clinical trial may not be replicated in subsequent or confirmatory trials. Additionally, success in preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful or that regulatory approval will be obtained. Even if later stage clinical trials are successful, regulatory authorities may delay or decline approval of our product candidates. Regulatory authorities may disagree with our view of the data, require additional studies or disagree with our trial design or endpoints. Regulatory authorities may also fail to approve the facilities or processes used to manufacture a product candidate, our dosing or delivery methods or companion devices. Regulatory authorities may grant marketing approval that is more restricted than anticipated, including limiting indications to narrow patient populations and the imposition of safety monitoring, educational requirements, requiring confirmatory trials and risk evaluation and mitigation strategies. For example, as part of the accelerated approval, we will conduct a confirmatory trial to verify the clinical benefit of ADUHELM in patients with Alzheimer's disease. The occurrence of any of these events could result in significant costs and expense, have an adverse effect on our business, financial condition and results of operations and/or cause our stock price to decline or experience periods of volatility.
Clinical trials and the development of biopharmaceutical products is a lengthy and complex process. If we fail to adequately manage our clinical activities, our clinical trials or potential regulatory approvals may be delayed or denied.
Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete clinical trials in a timely fashion depends on a number of key factors, including protocol design, regulatory and institutional review board approval, patient enrollment rates and compliance with current Good Clinical Practices. If we or our third-party clinical trial providers or third-party CROs do not successfully carry out these clinical activities, our clinical trials or the potential regulatory approval of a product candidate may be delayed or denied.
We have opened clinical trial sites and are enrolling patients in a number of countries where our experience is limited. In most cases, we use the services of third-parties to carry out our clinical trial related activities and rely on such parties to accurately report their results. Our reliance on third-parties for these activities may impact our ability to control the timing, conduct, expense and quality of our clinical trials. One CRO has responsibility for a substantial portion of our activities and reporting related to our clinical trials and if such CRO does not adequately perform, many of our trials may be affected. We may need to replace our CROs, which may result in the delay of the affected trials or otherwise adversely affect our efforts to obtain regulatory approvals and commercialize our product candidates.
Adverse safety events or restrictions on use and safety warnings for our products can negatively affect our business, product sales and stock price.
Adverse safety events involving our marketed products, generic or biosimilar versions of our marketed products or products from the same class as one of our products may have a negative impact on our business. Discovery of safety issues with our products could create product liability and could cause additional regulatory scrutiny and requirements for additional labeling or safety monitoring, withdrawal of products from the market and/or the imposition of fines or criminal penalties. Adverse safety events may also damage physician, patient and/or investor confidence in our products and our reputation. Any of these could result in adverse impacts on our results of operations.
Regulatory authorities are making greater amounts of stand-alone safety information directly available to the public through periodic safety update reports, patient registries and other reporting requirements. The reporting of adverse safety events involving our products or products similar to ours and public rumors about such events may increase claims against us and may also cause our product sales to decline or our stock price to experience periods of volatility.
Restrictions on use or safety warnings that may be required to be included in the label of our products may significantly reduce expected revenue for those products and require significant expense and management time.
The illegal distribution and sale by third-parties of counterfeit or unfit versions of our products or stolen products could have a negative impact on our reputation and business.
Third-parties might illegally distribute and sell counterfeit or unfit versions of our products, which do not meet our rigorous manufacturing, distribution and testing standards. A patient who receives a counterfeit or unfit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name. Inventory that is stolen from warehouses, plants or while in-transit, and that is subsequently improperly stored and sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our products and the diseases our therapies are designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear and creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend the company or the public's legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on social media. We may also encounter criticism on social media regarding our company, management, product candidates or products. The immediacy of social media precludes us from having real-time control over postings made regarding us via social media, whether matters of fact or opinion. Our reputation could be damaged by negative publicity or if adverse information concerning us is posted on social media platforms or similar mediums, which we may not be able to reverse. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face restrictive regulatory actions or incur other harm to our business.
Risks Related to Our Operations
A breakdown or breach of our technology systems could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon technology systems and data to operate our business. The COVID-19 pandemic has caused us to modify our business practices in ways that heighten this dependence, including changing the requirement that most of our office-based employees in the U.S. and our other key markets work from the office. As a result, we are increasingly dependent upon our technology systems to operate our business and our ability to effectively manage our business depends on the security, reliability and adequacy of our technology systems and data, which includes use of cloud technologies, including Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). Breakdowns, invasions, corruptions, destructions and/or breaches of our technology systems, including our cloud technologies, and/or unauthorized access to our data and information could subject us to liability, negatively impact our business operations, and/or require replacement of technology and/or ransom payments. Our technology systems, including our cloud technologies, continue to increase in multitude and complexity, increasing our vulnerability when breakdowns, malicious intrusions and random attacks occur. Data privacy or security breaches also pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, patients, customers or other business partners, may be exposed to unauthorized persons or to the public.
Cyber-attacks are increasing in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect, when they impact vendors, customers or companies, including vendors, suppliers and other companies in our supply chain. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with careless or malicious intent. Cyber-attacks include deployment of harmful malware and key loggers, ransomware, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data. Cyber-attacks also include manufacturing, hardware or software supply chain attacks, which could cause a delay in the manufacturing of products or products produced for contract manufacturing or lead to a data privacy or security breach. Our key business partners face similar risks and any security breach of their systems could adversely affect our security posture. In addition, our increased use of cloud technologies heightens these and other operational risks, and any failure by cloud or other technology service
providers to adequately safeguard their systems and prevent cyber-attacks could disrupt our operations and result in misappropriation, corruption or loss of confidential or propriety information.
While we continue to build and improve our systems and infrastructure, including our business continuity plans, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, operational or reputational harm to us, loss of competitive advantage or loss of consumer confidence. Our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
Regulators are imposing new data privacy and security requirements, including new and greater monetary fines for privacy violations. For example, the E.U.’s General Data Protection Regulation established regulations regarding the handling of personal data, and provides an enforcement authority and imposes large penalties for noncompliance. New U.S. data privacy and security laws, such as the California Consumer Privacy Act (CCPA), and others that may be passed, similarly introduce requirements with respect to personal information, and non-compliance with the CCPA may result in liability through private actions (subject to statutorily defined damages in the event of certain data breaches) and enforcement. Failure to comply with these current and future laws, policies, industry standards or legal obligations or any security incident resulting in the unauthorized access to, or acquisition, release or transfer of personal information may result in governmental enforcement actions, litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have a material adverse effect on our business and results of operations.
Management and other personnel changes may disrupt our operations, and we may have difficulty retaining personnel or attracting and retaining qualified replacements on a timely basis for the management and other personnel who may leave the Company.
Changes in management, other personnel and our overall retention rate may disrupt our business, and any such disruption could adversely affect our operations, programs, growth, financial condition or results of operations. New members of management may have different perspectives on programs and opportunities for our business, which may cause us to focus on new opportunities or reduce or change emphasis on our existing programs.
Our success is dependent upon our ability to attract and retain qualified management and key personnel in a highly competitive environment. Qualified individuals are in high demand, and we may incur significant costs to attract or retain them. We may face difficulty in attracting and retaining talent for a number of reasons, including management changes, the underperformance or discontinuation of one or more marketed or late stage programs, recruitment by competitors or changes in the overall labor market. In addition, changes in our organizational structure or in our flexible working arrangements could impact employees' productivity and morale as well as our ability to attract, retain and motivate employees. We cannot ensure that we will be able to hire or retain the personnel necessary for our operations or that the loss of any personnel will not have a material impact on our financial condition and results of operations.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators, distributors and other third-party providers, are subject to extensive government regulation and oversight in the U.S. and in foreign jurisdictions, and are subject to change and evolving interpretations, which could require us to incur substantial costs associated with compliance or to alter one or more of our business practices. The FDA and comparable foreign agencies directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting, product risk management and our compliance with good practice quality guidelines and regulations. Our interactions with physicians and other health care providers that prescribe or purchase our products are also subject to government regulation designed to prevent fraud and abuse in the sale and use of products and place significant restrictions on the marketing practices of health care companies. Health care companies are facing heightened scrutiny of their relationships with health care providers and have been the target of lawsuits and investigations alleging violations of government regulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of health care business, submission of false claims for government reimbursement, antitrust violations or violations related to environmental matters. There is also enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third-party charities that provide such assistance. The U.S. government has challenged some of our donations to third-party charities that provide patient assistance. If we, or our vendors or
donation recipients, are found to fail to comply with relevant laws, regulations or government guidance in the operation of these programs, we could be subject to significant fines or penalties. Risks relating to compliance with laws and regulations may be heightened as we continue to expand our global operations and enter new therapeutic areas with different patient populations, which may have different product distribution methods, marketing programs or patient assistance programs from those we currently utilize or support.
Conditions and regulations governing the health care industry are subject to change, with possible retroactive effect, including:
•new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or judicial decisions, related to health care availability, pricing or marketing practices, compliance with employment practices, method of delivery, payment for health care products and services, compliance with health information and data privacy and security laws and regulations, tracking and reporting payments and other transfers of value made to physicians and teaching hospitals, extensive anti-bribery and anti-corruption prohibitions, product serialization and labeling requirements and used product take-back requirements;
•changes in the FDA and foreign regulatory approval processes or perspectives that may delay or prevent the approval of new products and result in lost market opportunity;
•government shutdowns or relocations may result in delays to the review and approval process, slowing the time necessary for new drug candidates to be reviewed and/or approved, which may adversely affect our business;
•requirements that provide for increased transparency of clinical trial results and quality data, such as the EMA's clinical transparency policy, which could impact our ability to protect trade secrets and competitively-sensitive information contained in approval applications or could be misinterpreted leading to reputational damage, misperception or legal action, which could harm our business; and
•changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution or use or other measures after the introduction of our products to market, which could increase our costs of doing business, adversely affect the future permitted uses of approved products or otherwise adversely affect the market for our products.
Violations of governmental regulation may be punishable by criminal and civil sanctions, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid, as well as against executives overseeing our business. We could also be required to repay amounts we received from government payors or pay additional rebates and interest if we are found to have miscalculated the pricing information we submitted to the government. In addition, legal proceedings and investigations are inherently unpredictable, and large judgments or settlements sometimes occur. While we believe that we have appropriate compliance controls, policies and procedures in place to comply with the laws or regulations of the jurisdictions in which we operate, there is a risk that acts committed by our employees, agents, distributors, collaborators or third-party providers might violate such laws or regulations. Whether or not we have complied with the law, an investigation or litigation related to alleged unlawful conduct could increase our expense, damage our reputation, divert management time and attention and adversely affect our business.
Our sales and operations are subject to the risks of doing business internationally.
We are increasing our presence in international markets, subjecting us to many risks that could adversely affect our business and revenue. There is no guarantee that our efforts and strategies to expand sales in international markets will succeed. Emerging market countries may be especially vulnerable to periods of global and local political, legal, regulatory and financial instability and may have a higher incidence of corruption and fraudulent business practices. Certain countries may require local clinical trial data as part of the drug registration process in addition to global clinical trials, which can add to overall drug development and registration timelines. We may also be required to increase our reliance on third-party agents and unfamiliar operations and arrangements previously utilized by companies we collaborate with or acquire in emerging markets.
Our sales and operations are subject to the risks of doing business internationally, including:
•the impact of public health epidemics, such as the COVID-19 pandemic, on the global economy and the delivery of healthcare treatments;
•less favorable intellectual property or other applicable laws;
•the inability to obtain necessary foreign regulatory approvals of products in a timely manner;
•limitations and additional pressures on our ability to obtain and maintain product pricing or receive price increases, including those resulting from governmental or regulatory requirements;
•additional complexity in manufacturing internationally;
•the inability to successfully complete subsequent or confirmatory clinical trials in countries where our experience is limited;
•longer payment and reimbursement cycles and uncertainties regarding the collectability of accounts receivable;
•fluctuations in foreign currency exchange rates that may adversely impact our revenue, net income and value of certain of our investments;
•the imposition of governmental controls;
•diverse data privacy and protection requirements;
•increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may conflict with corresponding U.S. laws and regulations;
•the far-reaching anti-bribery and anti-corruption legislation in the United Kingdom (U.K.), including the U.K. Bribery Act 2010, and elsewhere and escalation of investigations and prosecutions pursuant to such laws;
•compliance with complex import and export control laws;
•changes in tax laws; and
•the imposition of tariffs or embargoes and other trade restrictions.
In addition, our international operations are subject to regulation under U.S. law. For example, the U.S. Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies and their representatives from paying, offering to pay, promising to pay or authorizing the payment of anything of value to any foreign government official, government staff member, political party or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the health care professionals we regularly interact with may meet the FCPA's definition of a foreign government official. Failure to comply with domestic or foreign laws could result in various adverse consequences, including possible delay in approval or refusal to approve a product, recalls, seizures or withdrawal of an approved product from the market, disruption in the supply or availability of our products or suspension of export or import privileges, the imposition of civil or criminal sanctions, the prosecution of executives overseeing our international operations and damage to our reputation. Any significant impairment of our ability to sell products outside of the U.S. could adversely impact our business and financial results. In addition, while we believe that we have appropriate compliance controls, policies and procedures in place to comply with the FCPA, there is a risk that acts committed by our employees, agents, distributors, collaborators or third-party providers might violate the FCPA and we might be held responsible. If our employees, agents, distributors, collaborators or third-party providers are found to have engaged in such practices, we could suffer severe penalties and may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.
We are building a large-scale biologics manufacturing facility, which will result in the incurrence of significant investment with no assurance that such investment will be recouped.
In order to support our future growth and drug development pipeline, we are expanding our large molecule production capacity by building a large-scale biologics manufacturing facility in Solothurn, Switzerland with no assurance that the additional capacity will be required or this investment will be recouped.
If we are unable to fully utilize our manufacturing facilities, our business may be harmed. Charges resulting from excess capacity may continue to occur and would have a negative effect on our financial condition and results of operations.
Although a portion of the Solothurn facility received a GMP multi-product license from SWISSMEDIC in May 2021, the manufacturing of a product or product candidate at the Solothurn facility must be approved by the applicable regulatory agencies, including the FDA. There can be no assurance that the regulatory authorities will approve the Solothurn facility for the manufacturing of a product or a product candidate. If we do not receive the necessary regulatory approvals of the Solothurn facility or if our future growth and drug development plans increase, we may not have sufficient large-scale manufacturing capacity to meet our long-term manufacturing requirements.
Manufacturing issues could substantially increase our costs, limit supply of our products and/or reduce our revenue.
The process of manufacturing our products is complex, highly regulated and subject to numerous risks, including:
•Risks of Reliance on Third-Parties and Single Source Providers. We rely on third-party suppliers and manufacturers for many aspects of our manufacturing process for our products and product candidates. In some cases, due to the unique manner in which our products are manufactured, we rely on single source providers of raw materials and manufacturing supplies. These third-parties are independent entities subject to their own unique operational and financial risks that are outside of our control. These third-parties may not perform their obligations in a timely and cost-effective manner or in compliance with applicable regulations, and they may be unable or unwilling to increase production capacity commensurate with demand for our existing or future products. Finding alternative providers could take a significant amount of time and involve significant expense due to the specialized nature of the services and the need to obtain regulatory approval of any significant changes to our suppliers or manufacturing methods. We cannot be certain that we could reach agreement with alternative providers or that the FDA or other regulatory authorities would approve our use of such alternatives. Furthermore, factors such as the COVID-19 pandemic, weather events, labor or raw material shortages and other supply chain disruptions could result in difficulties and delays in manufacturing our products, which could have an adverse impact on our results in operations or result in product shortages.
•Global Bulk Supply Risks. We rely on our manufacturing facilities for the production of drug substance for our large molecule products and product candidates. Our global bulk supply of these products and product candidates depends on the uninterrupted and efficient operation of these facilities, which could be adversely affected by equipment failures, labor or raw material shortages, public health epidemics, natural disasters, power failures, cyber-attacks and many other factors.
•Risks Relating to Compliance with current GMP (cGMP). We and our third-party providers are generally required to maintain compliance with cGMP and other stringent requirements and are subject to inspections by the FDA and other regulatory authorities to confirm compliance. Any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage of our products as a result of a failure of our facilities or operations or those of third-parties to receive regulatory approval or pass any regulatory agency inspection could significantly impair our ability to develop and commercialize our products. Significant noncompliance could also result in the imposition of monetary penalties or other civil or criminal sanctions and damage our reputation.
•Risk of Product Loss. The manufacturing process for our products is extremely susceptible to product loss due to contamination, oxidation, equipment failure or improper installation or operation of equipment or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or manufacturing facilities, we may need to close our manufacturing facilities for an extended period of time to investigate and remediate the contaminant.
•Risk Relating to Government Actions. We and/or our third-party providers may be required by the U.S. federal government to manufacture medical supplies needed to treat COVID-19 patients under the Defense Production Act or other acts or orders of government entities, which may result in delays in the manufacturing and supply of our products.
Any adverse developments affecting our manufacturing operations or the operations of our third-party suppliers and manufacturers may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the commercial supply of our products. We may also have to take inventory write-offs and incur other charges and expense for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Such developments could increase our manufacturing costs, cause us to lose revenue or market share as patients and physicians turn to competing therapeutics, diminish our profitability or damage our reputation.
In addition, although we have business continuity plans to reduce the potential for manufacturing disruptions or delays and reduce the severity of a disruptive event, there is no guarantee that these plans will be adequate, which could adversely affect our business and operations.
The ongoing COVID-19 pandemic may, directly or indirectly, adversely affect our business, results of operations and financial condition.
Our business has and could continue to be adversely affected, directly or indirectly, by the ongoing COVID-19 pandemic. National, state and local governments have implemented and may continue to implement safety
precautions. These measures may disrupt normal business operations and may have significant negative impacts on businesses and financial markets worldwide.
We continue to monitor our operations and applicable government recommendations, and we have made modifications to our normal operations because of the COVID-19 pandemic, including limiting travel and working from home. We have also suspended the vast majority of our in-person interactions by our customer-facing professionals in healthcare settings. This limits our ability to market our products and educate physicians, which, in turn, could have an adverse effect on our ability to compete in the marketing and sales of our products.
Changes in flexible working arrangements could impact employee retention, employees' productivity and morale, strain our technology resources and introduce operational risks. Additionally, the risk of cyber-attacks or other privacy or data security incidents may be heightened as a result of our moving increasingly towards a remote working environment, which may be less secure and more susceptible to hacking attacks.
The COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third-parties we rely on. Furthermore, delays and disruptions experienced by our collaborators, joint venture partners or other third-parties due to the COVID-19 pandemic could adversely impact the ability of such parties to fulfill their obligations, which could affect product sales or the clinical development or regulatory approvals of product candidates under joint control.
Our ability to continue our existing clinical trials or to initiate new clinical trials has been and may continue to be adversely affected, directly or indirectly, by the COVID-19 pandemic. Restrictions on travel and/or transport of clinical materials as well as diversion of hospital staff and resources to COVID-19 infected patients could disrupt trial operations and recruitment, possibly resulting in a slowdown in enrollment and/or deviations from or disruptions in key clinical trial activities, such as clinical trial site monitoring. These challenges may lead to difficulties in meeting protocol-specified procedures. We may need to make certain adjustments to the operation of clinical trials in an effort to minimize risks to trial data integrity during the COVID-19 pandemic. In addition, the impact of the COVID-19 pandemic on the operations of the FDA and other health authorities may delay potential approvals of our product candidates.
In response to the COVID-19 pandemic, legislation has been enacted aimed at providing emergency assistance and health care for individuals, families and businesses and broadly supporting the U.S. economy. Additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures and have a financial impact on our business that we cannot predict.
While it is not possible at this time to estimate the entirety of the impact that the COVID-19 pandemic will have on our business, operations, employees, customers, suppliers or collaboration partners, continued spread of COVID-19, measures taken by governments, actions taken to protect employees and the broad impact of the pandemic on all business activities may materially and adversely affect our business, supply chain and distribution systems, results of operations and financial condition.
Risks Related to Holding Our Common Stock
Our operating results are subject to significant fluctuations.
Our quarterly revenue, expense and net income (loss) have fluctuated in the past and are likely to fluctuate significantly in the future due to the risks described in these Risk Factors as well as the timing of charges and expense that we may take. We have recorded, or may be required to record, charges that include:
•the cost of restructurings or other initiatives to streamline our operations and reallocate resources;
•impairments with respect to investments, fixed assets and long-lived assets, including in-process research and development (IPR&D) and other intangible assets;
•inventory write-downs for failed quality specifications, recurring charges for excess or obsolete inventory and charges for inventory write-downs relating to product suspensions, expirations or recalls;
•changes in the fair value of contingent consideration or our equity investments;
•bad debt expense and increased bad debt reserves;
•outcomes of litigation and other legal or administrative proceedings, regulatory matters and tax matters;
•payments in connection with acquisitions, divestitures and other business development activities and under license and collaboration agreements;
•failure to meet certain contractual commitments; and
•the impact of public health epidemics, such as the COVID-19 pandemic, on employees, the global economy and the delivery of healthcare treatments.
Our revenue and certain assets and liabilities are also subject to foreign currency exchange rate fluctuations due to the global nature of our operations. Our efforts to mitigate the impact of fluctuating currency exchange rates may not be successful. As a result, currency fluctuations among our reporting currency, the U.S. dollar, and other currencies in which we do business will affect our operating results, often in unpredictable ways. Our net income may also fluctuate due to the impact of charges we may be required to take with respect to foreign currency hedge transactions. In particular, we may incur higher than expected charges from early termination of a hedge relationship.
Our operating results during any one period do not necessarily suggest the anticipated results of future periods.
Our investments in properties may not be fully realized.
We own or lease real estate primarily consisting of buildings that contain research laboratories, office space and manufacturing operations. We may decide to consolidate or co-locate certain aspects of our business operations or dispose of one or more of our properties, some of which may be located in markets that are experiencing high vacancy rates and decreasing property values. If we determine that the fair value of any of our owned properties is lower than their book value, we may not realize the full investment in these properties and incur significant impairment charges or additional depreciation when the expected useful lives of certain assets have been shortened due to the anticipated closing of facilities. If we decide to fully or partially vacate a property, we may incur significant cost, including facility closing costs, employee separation and retention expense, lease termination fees, rent expense in excess of sublease income and impairment of leasehold improvements and accelerated depreciation of assets. Any of these events may have an adverse impact on our results of operations.
Our investment portfolio is subject to market, interest and credit risk that may reduce its value.
We maintain a portfolio of marketable securities for investment of our cash as well as investments in equity securities of certain biotechnology companies. Changes in the value of our investment portfolio could adversely affect our earnings. The value of our investments may decline due to, among other things, increases in interest rates, downgrades of the bonds and other securities in our portfolio, negative company-specific news, biotechnology market sentiment, instability in the global financial markets that reduces the liquidity of securities in our portfolio, declines in the value of collateral underlying the securities in our portfolio and other factors. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.
There can be no assurance that we will continue to repurchase shares or that we will repurchase shares at favorable prices.
From time to time our Board of Directors authorizes share repurchase programs. The amount and timing of share repurchases are subject to capital availability and our determination that share repurchases are in the best interest of our shareholders and are in compliance with all respective laws and our applicable agreements. Our ability to repurchase shares will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, our results of operations, our financial condition and other factors beyond our control that we may deem relevant. A reduction in repurchases under, or the completion of, our share repurchase programs could have a negative effect on our stock price. We can provide no assurance that we will repurchase shares at favorable prices, if at all.
We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital and credit markets to supplement our existing funds and cash generated from operations for working capital, capital expenditure and debt service requirements and other business initiatives. The capital and credit markets are experiencing, and have in the past experienced, extreme volatility and disruption, which leads to uncertainty and liquidity issues for both borrowers and investors. In the event of adverse market conditions, we may be unable to obtain capital or credit market financing on favorable terms. Changes in credit ratings issued by nationally recognized credit rating agencies could also adversely affect our cost of financing and the market price of our securities.
Our indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in our business.
Our indebtedness, together with our significant contingent liabilities, including milestone and royalty payment obligations, could have important consequences to our business; for example, such obligations could:
•increase our vulnerability to general adverse economic and industry conditions;
•limit our ability to access capital markets and incur additional debt in the future;
•require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development, research and development and mergers and acquisitions; and
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, thereby placing us at a disadvantage compared to our competitors that have less debt.
Some of our collaboration agreements contain change in control provisions that may discourage a third-party from attempting to acquire us.
Some of our collaboration agreements include change in control provisions that could reduce the potential acquisition price an acquirer is willing to pay or discourage a takeover attempt that could be viewed as beneficial to shareholders. Upon a change in control, some of these provisions could trigger reduced milestone, profit or royalty payments to us or give our collaboration partner rights to terminate our collaboration agreement, acquire operational control or force the purchase or sale of the programs that are the subject of the collaboration.
General Risk Factors
Our effective tax rate fluctuates, and we may incur obligations in tax jurisdictions in excess of accrued amounts.
As a global biopharmaceutical company, we are subject to taxation in numerous countries, states and other jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates, including withholding taxes, in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Our effective tax rate may be different than experienced in the past or our current expectations due to many factors, including changes in the mix of our profitability from country to country, the results of examinations and audits of our tax filings (including those related to the impact of the Tax Cuts and Jobs Act of 2017), adjustments to the value of our uncertain tax positions, interpretations by tax authorities or other bodies with jurisdiction, the result of tax cases, changes in accounting for income taxes and changes in tax laws and regulations either prospectively or retrospectively.
Our inability to secure or sustain acceptable arrangements with tax authorities and future changes in the tax laws, among other things, may result in tax obligations in excess of amounts accrued in our financial statements.
The enactment of some or all of the recommendations set forth or that may be forthcoming in the Organization for Economic Cooperation and Development’s project on “Base Erosion and Profit Shifting” (BEPS) by tax authorities and economic blocs in the countries in which we operate, could unfavorably impact our effective tax rate. These initiatives focus on common international principles for the entitlement to taxation of global corporate profits and minimum global tax rates.
Our business involves environmental risks, which include the cost of compliance and the risk of contamination or injury.
Our business and the business of several of our strategic partners involve the controlled use of hazardous materials, chemicals, biologics and radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with state, federal and foreign standards, there will always be the risk of accidental contamination or injury. If we were to become liable for an accident, or if we were to suffer an extended facility shutdown, we could incur significant costs, damages and penalties that could harm our business. Manufacturing of our products and product candidates also requires permits from government agencies for water supply and wastewater discharge. If we do not obtain appropriate permits, including permits for sufficient quantities of water and wastewater, we could incur significant costs and limits on our manufacturing volumes that could harm our business.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Below is a summary of our owned and leased properties as of December 31, 2021.
Massachusetts
In Cambridge, MA we own approximately 508,000 square feet of real estate space, consisting of a building that houses a research laboratory and a cogeneration plant totaling approximately 263,000 square feet and a building that contains research, development and quality laboratories totaling approximately 245,000 square feet.
In addition, we lease a total of approximately 1,157,000 square feet in Massachusetts, which is summarized as follows:
•800,000 square feet in Cambridge, MA, which is comprised of offices for our corporate headquarters and other administrative and development functions and laboratories, of which 289,000 square feet is subleased by multiple companies for general office space, laboratories and manufacturing facilities; and
•357,000 square feet of office space in Weston, MA, of which 174,000 square feet is subleased through the remaining term of our lease agreement.
Our Massachusetts lease agreements expire at various dates through the year 2028.
North Carolina
In RTP, NC we own approximately 1,040,000 square feet of real estate space, which is summarized as follows:
•357,000 square feet of laboratory and office space;
•206,000 square foot multi-purpose facility, including an ASO manufacturing suite and administrative space;
•175,000 square feet related to a large-scale biologics manufacturing facility;
•105,000 square feet related to a small-scale biologics manufacturing facility;
•84,000 square feet of warehouse space and utilities;
•70,000 square feet related to a parenteral fill-finish facility; and
•43,000 square feet related to a large-scale purification facility.
In addition, we lease approximately 65,000 square feet of warehouse space and 103,000 square feet of office space in Durham, NC. Our North Carolina lease agreements expire at various dates through the year 2031.
In March 2021 we announced our plans to build a new gene therapy manufacturing facility in RTP, NC to support our gene therapy pipeline across multiple therapeutic areas. The new facility will be 175,000 square feet and is expected to be operational by the end of 2023, with an estimated total investment of $200.0 million. Construction for this new facility began during the fourth quarter of 2021.
Switzerland
In order to support our future growth and drug development pipeline, we are building a large-scale biologics manufacturing facility in Solothurn, Switzerland. Upon completion, the facility will include 393,000 square feet related to a large-scale biologics manufacturing facility, 290,000 square feet of warehouse, utilities and support space and 51,000 square feet of administrative space. In the second quarter of 2021 a portion of the facility received a GMP multi-product license from SWISSMEDIC.
Other International
We lease office space in Baar, Switzerland, our international headquarters; the U.K.; Germany; France; Japan; Canada and numerous other countries. Our international lease agreements expire at various dates through the year 2031.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
For a discussion of legal matters as of December 31, 2021, please read Note 20, Litigation, to our consolidated financial statements included in this report, which is incorporated into this item by reference.

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ITEM 4. RESERVED
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market and Stockholder Information
Our common stock trades on The Nasdaq Global Select Market under the symbol “BIIB.” As of February 2, 2022, there were approximately 479 shareholders of record of our common stock.
Dividends
We have not paid cash dividends since our inception. While we historically have not paid cash dividends and do not have a current intention to pay cash dividends, we continually review our capital allocation strategies, including, among other things, payment of cash dividends, share repurchases and acquisitions.
Issuer Purchases of Equity Securities
The following table summarizes our common stock repurchase activity during the fourth quarter of 2021:
(1) There were no share repurchases during the fourth quarter of 2021.
In October 2020 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2020 Share Repurchase Program). Our 2020 Share Repurchase Program does not have an expiration date. All share repurchases under our 2020 Share Repurchase Program will be retired. Under our 2020 Share Repurchase Program, we repurchased and retired approximately 6.0 million and 1.6 million shares of our common stock at a cost of approximately $1.8 billion and $400.0 million during the years ended December 31, 2021 and 2020, respectively. Approximately $2.8 billion remained available under our 2020 Share Repurchase Program as of December 31, 2021.
In December 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (December 2019 Share Repurchase Program), which was completed as of September 30, 2020. All shares repurchased under our December 2019 Share Repurchase Program were retired. Under our December 2019 Share Repurchase Program, we repurchased and retired approximately 16.7 million shares of our common stock at a cost of approximately $5.0 billion during the year ended December 31, 2020.
In March 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (March 2019 Share Repurchase Program), which was completed as of March 31, 2020. All shares repurchased under our March 2019 Share Repurchase Program were retired. Under our March 2019 Share Repurchase Program, we repurchased and retired approximately 4.1 million and 14.7 million shares of our common stock at a cost of approximately $1.3 billion and $3.7 billion during the years ended December 31, 2020 and 2019, respectively.
In August 2018 our Board of Directors authorized a program to repurchase up to $3.5 billion of our common stock (2018 Share Repurchase Program), which was completed as of June 30, 2019. All share repurchases under our 2018 Share Repurchase Program were retired. Under our 2018 Share Repurchase Program, we repurchased and retired approximately 8.9 million shares of our common stock at a cost of approximately $2.1 billion during the year ended December 31, 2019.
Performance Graph
The performance graph below compares the five-year cumulative total stockholder return on our common stock, the Nasdaq Pharmaceutical Index, the S&P 500 Index and the Nasdaq Biotechnology Index.
On February 1, 2017, we completed the spin-off of our hemophilia business, Bioverativ Inc. (Bioverativ), as an independent, publicly traded company. In connection with the spin-off, each Biogen shareholder received one share of Bioverativ common stock for every two shares of Biogen common stock they owned. For additional information on the spin-off of our hemophilia business, please read Note 3, Hemophilia Spin-Off, to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.
The performance graph below assumes the investment of $100.00 on December 31, 2016, in our common stock and each of the three indexes, with dividends being reinvested. Our stock prices have been adjusted for the effect of the spin-off of our hemophilia business. The five-year cumulative total stockholder return for Biogen does not reflect the reinvestment by Biogen shareholders of the distribution they received in connection with the spin-off of our hemophilia business or any subsequent increase or decrease in value of Bioverativ stock subsequent to the spin-off.
The stock price performance in the graph below is not necessarily indicative of future price performance.
2016 2017 2018 2019 2020 2021
Biogen Inc. $100.00 $121.79 $115.04 $113.44 $93.61 $91.72
Nasdaq Pharmaceutical Index $100.00 $119.12 $128.60 $147.25 $162.74 $202.43
S&P 500 Index $100.00 $121.83 $116.49 $153.17 $181.35 $233.41
Nasdaq Biotechnology Index $100.00 $121.66 $110.88 $138.72 $175.38 $175.41
The information included under the heading Performance Graph is “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed to be “soliciting material” subject to Regulation 14A or incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page of this report.
For our discussion of the year ended December 31, 2020, compared to the year ended December 31, 2019, please read Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the year ended December 31, 2020.
Executive Summary
Introduction
Biogen is a global biopharmaceutical company focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. We have a leading portfolio of medicines to treat multiple sclerosis (MS), have introduced the first approved treatment for spinal muscular atrophy (SMA) and are providing the first and only approved treatment to address a defining pathology of Alzheimer’s disease. We also commercialize biosimilars of advanced biologics and focus on advancing our pipeline in neuroscience and specialized immunology. Lastly, we are focused on accelerating our efforts in digital health to support our commercial and pipeline programs while also creating opportunities for potential digital therapeutics. We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.
Our marketed products include TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; ADUHELM for the treatment of Alzheimer's disease; and FUMADERM for the treatment of severe plaque psoriasis. We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, CLL and other conditions; RITUXAN HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular lymphoma; OCREVUS for the treatment of PPMS and RMS; and other potential anti-CD20 therapies, including mosunetuzumab, pursuant to our collaboration arrangements with Genentech, a wholly-
owned member of the Roche Group. For additional information on our collaboration arrangements with Genentech, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Our innovative drug development and commercialization activities are complemented by our biosimilar business that expands access to medicines and reduces the cost burden for healthcare systems. Through our agreements with Samsung Bioepis, our joint venture with Samsung BioLogics, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE, in certain countries in Europe. We have also secured the exclusive rights to commercialize BYOOVIZ, a ranibizumab biosimilar referencing LUCENTIS, which was approved in the U.S., the E.U. and the U.K. during the third quarter of 2021. For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
We seek to ensure an uninterrupted supply of medicines to patients around the world. To that end, we continually review our manufacturing capacity, capabilities, processes and facilities. In order to support our future growth and drug development pipeline, we are expanding our large molecule production capacity by building a large-scale biologics manufacturing facility in Solothurn, Switzerland. In the second quarter of 2021 a portion of the facility received a GMP multi-product license from SWISSMEDIC. We believe that the Solothurn facility will support our anticipated near-term needs for the manufacturing of ADUHELM and other biologic assets. In addition, we believe that the Solothurn site may provide us with the ability to further expand if we need additional large scale manufacturing capacity to support future clinical and commercial manufacturing requirements. If we are unable to fully utilize our manufacturing facilities, due to lower than forecasted demand for our products, we will incur excess capacity charges which will have a negative effect on our financial condition and results of operations.
Our revenue depends upon continued sales of our products as well as the financial rights we have in our anti-CD20 therapeutic programs, and, unless we develop, acquire rights to and/or commercialize new products and technologies, we will be substantially dependent on sales from our products and our financial rights in our anti-CD20 therapeutic programs for many years.
In the longer term, our revenue growth will depend upon the successful clinical development, regulatory approval and launch of new commercial products as well as additional indications for our existing products, our ability to obtain and maintain patents and other rights related to our marketed products, assets originating from our research and development efforts and/or successful execution of external business development opportunities.
Business Environment
For a detailed discussion on our business environment, please read Item 1. Business, included in this report. For additional information on our competition and pricing risks that could negatively impact our product sales, please read Item 1A. Risk Factors, included in this report.
ADUHELM (aducanumab)
U.S.
In June 2021 the FDA granted accelerated approval of ADUHELM, which we are developing and commercializing in collaboration with Eisai, based on reduction in amyloid beta plaques observed in patients treated with ADUHELM. As part of the accelerated approval, we will conduct a confirmatory trial to verify the clinical benefit of ADUHELM in patients with Alzheimer’s disease. The FDA may withdraw approval if, among other things, the confirmatory trial fails to verify clinical benefit of ADUHELM, ADUHELM's benefit-risk is no longer positive or we fail to comply with the conditions of the accelerated approval.
The U.S. ADUHELM product label states that treatment with ADUHELM should be initiated in patients with mild cognitive impairment or mild dementia stage of disease, the population which was studied in clinical trials. We expect patient uptake will be gradual and we do not expect all eligible patients will be treated with ADUHELM for a variety of reasons, including appropriate patient selection criteria, a complex diagnostic and care pathway, the lack of readiness of healthcare providers and institutions to initiate treatment, concern regarding the accelerated approval of ADUHELM and its data and the ability to obtain and maintain adequate reimbursement for ADUHELM. In January 2022 the Centers for Medicare and Medicaid Services (CMS) released a proposed NCD decision memorandum, stating the proposed NCD would cover FDA approved monoclonal antibodies that target amyloid for the treatment of Alzheimer's disease for people with Medicare only if they are enrolled in qualifying clinical trials. We expect a final Medicare NCD by the second quarter of 2022, which should clarify Medicare reimbursement for the class of antibodies directed against amyloid. If the final
NCD is not broader than the proposed NCD, our future operating results may be negatively impacted.
Under our collaboration agreement with Eisai (ADUHELM Collaboration Agreement), we and Eisai will co-promote ADUHELM with a region-based profit split, with Eisai reimbursing us for 45.0% of development and commercialization costs incurred by the collaboration for the advancement of ADUHELM in the U.S. Shipments of ADUHELM commenced during the second quarter of 2021.
We have made, and may continue to make, commercial, medical and infrastructure investments in support of activities associated with the launch of ADUHELM in the U.S.
Rest of World
In October 2020 the EMA accepted for review the Marketing Authorization Application for aducanumab and in December 2020 the MHLW accepted for review the Japanese NDA for aducanumab.
In December 2021 the CHMP of the EMA adopted a negative opinion on the MAA for aducanumab in Europe. We are seeking a re-examination of the opinion by the CHMP.
If we do not receive regulatory approval or are unable to successfully commercialize aducanumab in other jurisdictions, our financial condition, business and operations may be adversely affected.
TECFIDERA
In 2020 U.S. federal courts in West Virginia and Delaware entered judgments in favor of the defendants in patent infringement proceedings relating to TECFIDERA Orange-Book listed patents. We appealed both decisions. In late 2021 the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) affirmed the judgment of the West Virginia federal court. The appeals in the Delaware cases were stayed and we expect will remain so until the decision in the West Virginia case becomes final.
Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA has significantly reduced our TECFIDERA revenue and is expected to continue to have a substantial and increasing negative impact on our U.S. TECFIDERA revenue in the future.
In May 2021 the European General Court annulled the EMA's decision not to validate applications for approval of TECFIDERA generics on the basis that the EMA conducted the wrong assessment when determining TECFIDERA's entitlement to regulatory data and marketing protection. Our Company, the EMA and the EC have each appealed the General Court’s decision as wrongly decided and the appeal is pending.
In November 2021 the CHMP of the EMA issued an ad hoc opinion referencing the General Court’s decision which concluded that "the totality of the available data cannot establish that [monoethyl fumarate] exerts a clinically relevant therapeutic contribution within FUMADERM." The EC will decide TECFIDERA’s entitlement to regulatory data and market protection. If data and market protection is not upheld, we could face generic competition in the E.U. as early as the first half of 2022, which would have an adverse impact on our TECFIDERA sales in the E.U. and our results of operations.
For additional information, please read the discussion under Results of Operations - Product Revenue - Multiple Sclerosis (MS) - Fumarate below.
Business Update Regarding COVID-19
The COVID-19 pandemic continues to present a substantial public health and economic challenge around the world. The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including sales, expense, reserves and allowances, the supply chain, manufacturing, clinical trials, research and development costs and employee-related costs, depends on future developments that are highly uncertain, subject to change and are difficult to predict, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 as well as the economic impact on local, regional, national and international customers and markets.
We are monitoring the demand for our products, including the duration and degree to which we may see delays in starting new patients on a product due to hospitals diverting the resources that are necessary to administer certain of our products to care for COVID-19 patients, including products, such as TYSABRI and SPINRAZA, that are administered in a physician's office or hospital setting. We may also see reduced demand for immunosuppressant therapies during the COVID-19 pandemic.
While we are currently continuing the clinical trials we have underway in sites across the globe, COVID-19 precautions have impacted the timeline for some of our clinical trials and these precautions may, directly or indirectly, have a further impact on timing in the future. To help mitigate the impact of the COVID-19 pandemic to our clinical trials, we are pursuing innovative approaches such as remote monitoring, remote patient visits and supporting home infusions. These alternative measures have resulted in an immaterial increase to the cost of the clinical trials underway.
Factors such as the COVID-19 pandemic, adverse weather events, labor or raw material shortages and other supply chain disruptions could result in product shortages or other difficulties and delays in manufacturing our products.
For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this report.
Financial Highlights
Diluted earnings per share attributable to Biogen Inc. were $10.40 for 2021, representing a decrease of 58.1% as compared to $24.80 in the same period in 2020.
As described below under Results of Operations, our net income and diluted earnings per share attributable to Biogen Inc. for the year ended December 31, 2021, compared to the year ended December 31, 2020, reflects the following:
Revenue
•Total revenue was $10,981.7 million for 2021, representing a $2,462.9 million, or 18.3%, decrease compared to $13,444.6 million in 2020.
•Product revenue, net totaled $8,846.9 million for 2021, representing a $1,845.3 million, or 17.3%, decrease compared to $10,692.2 million in 2020. This decrease was primarily due to a $1,735.4 million, or 22.2%, decrease in MS product revenue and a $147.0 million, or 7.2%, decrease in SPINRAZA product revenue, partially offset by a $35.3 million, or 4.4%, increase in revenue from our biosimilar business.
◦The decrease in MS product revenue was primarily due to a decrease in U.S. TECFIDERA demand as a result of multiple TECFIDERA generic entrants in the U.S. market.
◦The decrease in SPINRAZA revenue was primarily due to a decrease in demand as a result of increased competition in the U.S. and Germany as well as a decrease in pricing in the U.S. and rest of world markets, partially offset by an increase in sales volumes in Latin America and certain distributor markets.
•Revenue from anti-CD20 therapeutic programs totaled $1,658.5 million for 2021, representing a $319.3 million, or 16.1%, decrease compared to $1,977.8 million in 2020. This decrease was primarily due to a $480.2 million, or 45.5%, decrease in RITUXAN revenue, partially offset by a $146.3 million, or 17.3%, increase in royalty revenue on sales of OCREVUS. Sales of RITUXAN have been adversely affected by the onset of biosimilar competition.
•Other revenue totaled $476.3 million for 2021, representing a $298.3 million, or 38.5%, decrease from $774.6 million in 2020.
◦The decrease in other revenue was primarily due to higher contract manufacturing revenue in 2020, resulting from $346.2 million in revenue related to the delivery of the license for certain of our manufacturing-related intellectual property to a contract manufacturing customer.
Expense
•Total cost and expense was $8,141.0 million for 2021, representing a $753.5 million, or 8.5%, decrease compared to $8,894.5 million in 2020. This decrease was primarily due to a $1,489.7 million, or 37.3%, decrease in research and development expense.
◦The decrease in research and development expense was primarily due to $1,893.3 million in upfront payments recognized in 2020 in connection with our collaborations with Sangamo, Denali and Sage, partially offset by a $125.0 million upfront payment recognized in connection with our collaboration with InnoCare in 2021.
◦The decrease was partially offset by a $304.5 million, or 16.9%, increase in cost of sales, which was primarily driven by $164.0 million of charges associated with inventory and purchase commitments in excess of forecasted demand related to ADUHELM during 2021 as well as higher impairment charges recorded during 2021 as compared to 2020.
As described below under Financial Condition, Liquidity and Capital Resources:
•We generated $3,639.9 million of net cash flow from operations for 2021.
•Cash, cash equivalents and marketable securities totaled approximately $4,694.5 million as of December 31, 2021.
•We repurchased and retired approximately 6.0 million shares of our common stock at a cost of approximately $1.8 billion during 2021 under our 2020 Share Repurchase Program. Approximately $2.8 billion remained available under our 2020 Share Repurchase Program as of December 31, 2021.
Acquisitions, Collaborative and Other Relationships
For additional information on our acquisitions, collaborative and other relationships discussed below,
please read Note 2, Acquisitions, Note 18, Collaborative and Other Relationships, and Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report.
Bio-Thera Solutions
In April 2021 we entered into a commercialization and license agreement to develop, manufacture and commercialize BAT1806, a Phase 3 clinical stage anti-interleukin-6 (IL-6) receptor monoclonal antibody that is a proposed biosimilar referencing ACTEMRA. In connection with this agreement, we made an upfront payment of $30.0 million to Bio-Thera Solutions.
InnoCare Pharma Limited
In July 2021 we entered into a collaboration and license agreement with InnoCare for orelabrutinib, an oral small molecule Bruton's tyrosine kinase inhibitor for the potential treatment of MS. In connection with this agreement, we made an upfront payment of $125.0 million to InnoCare.
For additional information on our collaboration arrangement with InnoCare, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Mosunetuzumab
In January 2022 we exercised our option with Genentech to participate in the joint development and commercialization of mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin’s lymphoma and other therapeutic areas. In connection with this exercise, we recorded a $30.0 million option exercise fee payable to Genentech in December 2021.
BIIB115 Option Exercise
In December 2021 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB115, a preclinical investigational ASO in development for SMA. In connection with this option exercise, we made an opt-in payment of $60.0 million to Ionis.
Samsung Bioepis - Biogen's Joint Venture with Samsung BioLogics
In January 2022 we entered into an agreement to sell to Samsung Biologics our equity in Samsung Bioepis. Under the terms of the proposed transaction, we would receive $1.0 billion in cash at closing and $1.3 billion to be deferred over two payments of $812.5 million due at the first anniversary and $437.5 million due at the second anniversary of the closing of the transaction. We would also be eligible
to receive up to an additional $50.0 million upon the achievement of certain commercial milestones.
Closing of the transaction is currently anticipated in mid-2022, contingent on the effectiveness of a securities registration statement filed by Samsung Biologics and satisfaction of certain regulatory and other customary closing conditions.
For additional information on the proposed transaction and our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Other Key Developments
Exchange Offer
In February 2021 we completed our Exchange Offer of our tendered 2045 Senior Notes for our 2051 Senior Notes and cash, and an offer to purchase our tendered 2045 Senior Notes for cash.
For additional information on our Exchange Offer, please read Note 12, Indebtedness, to our consolidated financial statements included in this report.
North Carolina Gene Therapy Manufacturing Facility
In March 2021 we announced our plans to build a new gene therapy manufacturing facility in RTP, NC to support our gene therapy pipeline across multiple therapeutic areas. The new facility will be 175,000 square feet and is expected to be operational by the end of 2023, with an estimated total investment of approximately $200.0 million. Construction for this new facility began during the fourth quarter of 2021.
Solothurn, Switzerland Manufacturing Facility
In May 2021 we announced that a portion of our Solothurn manufacturing facility received a GMP multi-product license from SWISSMEDIC.
For additional information on our Solothurn manufacturing facility, please read Note 10, Property, Plant and Equipment, to our consolidated financial statements included in this report.
BIIB125 (zuranolone)
In June 2021 we and Sage announced positive Phase 3 results for BIIB125 (zuranolone) for the potential treatment of MDD and PPD. In October 2021 we and Sage announced our plan to submit an NDA to the FDA for zuranolone in the second half of 2022, with rolling submission expected to start in early 2022. The planned initial submission package will seek approval of zuranolone for MDD, and an additional filing for PPD is anticipated in the first half of 2023.
For additional information on our collaboration arrangement with Sage, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Lecanemab (BAN2401)
In June 2021 the FDA granted Breakthrough Therapy designation for lecanemab, an anti-amyloid antibody for the potential treatment of Alzheimer's disease, which we are developing in collaboration with Eisai. In September 2021 Eisai initiated a rolling submission to the FDA of a BLA for lecanemab. The BLA is being submitted under the accelerated approval pathway and is primarily based on clinical, biomarker and safety data from the Phase 2b clinical trial in people with early Alzheimer's disease and confirmed amyloid pathology.
BYOOVIZ (ranibizumab-nuna)
In September 2021 we and Samsung Bioepis announced that the FDA has approved BYOOVIZ (ranibizumab-nuna), a biosimilar referencing LUCENTIS for the treatment of neovascular (wet) age-related macular degeneration, macular edema following retinal vein occlusion, and myopic choroidal neovascularization. In addition to the U.S. approval, BYOOVIZ was approved in the E.U. and the U.K. during the third quarter of 2021.
BIIB067 (tofersen)
In October 2021 we announced topline results from our pivotal Phase 3 VALOR study of BIIB067 (tofersen), an investigational antisense drug being evaluated for people with SOD1 ALS, indicating that the primary endpoint was not met. We are engaging with regulators and other key stakeholders to determine potential next steps.
RESULTS OF OPERATIONS
Revenue
Revenue is summarized as follows:
Product Revenue
Product revenue is summarized as follows:
(1) Fumarate includes TECFIDERA and VUMERITY. VUMERITY became commercially available in the E.U. during the fourth quarter of 2021.
(2) Interferon includes AVONEX and PLEGRIDY.
(3) In June 2021 the FDA granted accelerated approval of ADUHELM, which became commercially available in the U.S. during the second quarter of 2021. For additional information, please read Note 18, Collaborative and Other Relationships - Eisai Co., Ltd. - ADUHELM Collaboration Agreement, to our consolidated financial statements included in this report.
nm Not meaningful
Multiple Sclerosis (MS)
Fumarate
Fumarate revenue includes sales from TECFIDERA and VUMERITY. During the fourth quarter of 2021 VUMERITY was approved for the treatment of RRMS in the E.U., Switzerland and the U.K.
For 2021 compared to 2020, the 60.3% decrease in U.S. Fumarate revenue was primarily due to a decrease in TECFIDERA demand as a result of multiple TECFIDERA generic entrants entering the U.S. market. The decrease was partially offset by an increase in VUMERITY sales volumes in the U.S.
For 2021 compared to 2020, the 9.4% increase in rest of world Fumarate revenue was primarily due to an increase in TECFIDERA sales volumes of 6.2%.
In 2020 U.S. federal courts in West Virginia and Delaware entered judgments in favor of the defendants in patent infringement proceedings relating to TECFIDERA Orange-Book listed patents. We appealed both decisions. In late 2021 the Federal Circuit affirmed the judgment of the West Virginia federal court. The appeals in the Delaware cases were stayed and we expect will remain so until the decision in the West Virginia case becomes final.
Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA has significantly reduced our TECFIDERA revenue and is expected to continue to have a substantial and increasing negative impact on our U.S. TECFIDERA revenue in the future.
In May 2021 the European General Court annulled the EMA's decision not to validate applications for approval of TECFIDERA generics on the basis that the EMA conducted the wrong
assessment when determining TECFIDERA's entitlement to regulatory data and marketing protection. Our Company, the EMA and the EC have each appealed the General Court’s decision as wrongly decided and the appeal is pending.
In November 2021 the CHMP of the EMA issued an ad hoc opinion referencing the General Court’s decision which concluded that "the totality of the available data cannot establish that [monoethyl fumarate] exerts a clinically relevant therapeutic contribution within FUMADERM." The EC will decide TECFIDERA’s entitlement to regulatory data and market protection. If data and market protection is not upheld, we could face generic competition in the E.U. as early as the first half of 2022, which would have an adverse impact on our TECFIDERA sales in the E.U. and our results of operations.
For additional information, please read Note 20, Litigation, to our consolidated financial statements included in this report.
We expect that TECFIDERA revenue will continue to decline in 2022, compared to 2021, as a result of increasing generic competition.
We expect an increase in VUMERITY sales volumes in 2022, compared to 2021, mostly driven by demand growth, including the continued launch of VUMERITY in the E.U.
Interferon
For 2021 compared to 2020, the 22.8% decrease in U.S. Interferon revenue was primarily due to a decrease in Interferon sales volumes of 18.7%. The net decline in sales volumes reflects the continued decline of the Interferon market as patients transition to other higher efficacy and oral MS therapies.
For 2021 compared to 2020, the 3.5% decrease in rest of world Interferon revenue was primarily due to a decrease in Interferon sales volumes of 3.8%.
We expect that Interferon revenue will continue to decline in both the U.S. and rest of world markets in 2022, compared to 2021, as a result of increasing competition from other MS products, including biosimilars, and further pricing reductions in certain European markets.
TYSABRI
For 2021 compared to 2020, the 4.1% increase in U.S. TYSABRI revenue was primarily due to an increase in pricing, partially offset by a decrease in sales volumes.
For 2021 compared to 2020, the 8.4% increase in rest of world TYSABRI revenue was primarily due to favorable volume impacts, partially offset by decreases in pricing.
We anticipate TYSABRI revenue to be relatively flat on a global basis in 2022, compared to 2021, despite increasing competition from additional treatments for MS. We expect to continue to face price reductions in certain European markets.
Spinal Muscular Atrophy
SPINRAZA
For 2021 compared to 2020, the 25.4% decrease in U.S. SPINRAZA revenue was primarily due to a decrease in sales volumes of 24.2%, resulting from increased competition.
For 2021 compared to 2020, the 4.2% increase in rest of world SPINRAZA revenue was primarily due to an increase in sales volumes, particularly in Latin America and certain distributor markets. These increases were offset by lower volumes resulting from increased competition in certain established markets, particularly Germany.
We face competition from a gene therapy product and an oral product. In 2022 we expect that SPINRAZA revenue will be subject to increased competition, likely resulting in continued patient discontinuations and a lower rate of new patient starts, combined with the impact of loading dose dynamics, as patients transition to dosing once every four months, and lower prices in certain rest of world countries.
For additional information on our collaboration arrangements with Ionis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Alzheimer's Disease
ADUHELM
In June 2021 the FDA granted accelerated approval of ADUHELM, which became commercially available in the U.S. during the second quarter of 2021.
We expect minimal sales of ADUHELM in 2022.
For additional information on our collaboration arrangements with Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Biosimilars
BENEPALI, IMRALDI and FLIXABI
During the third quarter of 2021 BYOOVIZ, a biosimilar referencing LUCENTIS, was approved in the U.S., the E.U and the U.K.
For 2021 compared to 2020, the 4.4% increase in biosimilar revenue was primarily due to the
favorable impact of higher volumes and foreign currency exchange, partially offset by decreases in pricing in certain markets.
We anticipate a slight decline in revenue from our biosimilars business in 2022 compared to 2021, despite the launch of BYOOVIZ in the U.S. and an anticipated modest increase in sales volume in 2022, as we continue to face price reductions in certain markets.
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Revenue from Anti-CD20 Therapeutic Programs
Genentech (Roche Group)
Our share of RITUXAN, including RITUXAN HYCELA, and GAZYVA collaboration operating profits in the U.S. and other revenue from anti-CD20 therapeutic programs are summarized in the table below. For purposes of this discussion, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
Biogen’s Share of Pre-tax Profits in the U.S. for RITUXAN and GAZYVA
The following table provides a summary of amounts comprising our share of pre-tax profits in the U.S. for RITUXAN and GAZYVA:
For 2021 compared to 2020, the decrease in U.S. product revenue, net was primarily due to a decrease in sales volumes of RITUXAN in the U.S. of 38.8%, primarily due to the onset of competition from multiple biosimilar products.
For 2021 compared to 2020, product revenue, net also reflects an increase in GAZYVA sales volumes of 8.5%.
For 2021 compared to 2020, the decrease in collaboration cost and expense was primarily due to lower cost of sales, distribution costs and selling and marketing expense related to RITUXAN.
We are aware of several other anti-CD20 molecules, including biosimilar products, that have been approved and are competing with RITUXAN and GAZYVA in the oncology and other markets. In November 2019, January 2020 and January 2021 biosimilar products referencing RITUXAN were launched in the U.S. and are being offered at lower prices. This competition has had a significant adverse impact on the pre-tax profits of our collaboration
arrangements with Genentech, as the sales of RITUXAN have decreased substantially compared to prior periods. We expect that biosimilar competition will continue to increase as these products capture additional market share and that this will have a significant adverse impact on our co-promotion profits in the U.S. in future years.
Other Revenue from Anti-CD20 Therapeutic Programs
Other revenue from anti-CD20 therapeutic programs consist of royalty revenue on sales of OCREVUS and our share of pre-tax co-promotion profits from RITUXAN in Canada.
For 2021 compared to 2020, the increase in other revenue from anti-CD20 therapeutic programs was primarily due to sales growth of OCREVUS. Royalty revenue recognized on sales of OCREVUS for the years ended December 31, 2021, 2020 and 2019, totaled $991.7 million, $845.4 million and $687.5 million, respectively.
OCREVUS royalty revenue is based on our estimates from third party and market research data of OCREVUS sales occurring during the corresponding period. Differences between actual and estimated royalty revenue will be adjusted for in the period in which they become known, which is generally expected to be the following quarter.
For additional information on our collaboration arrangements with Genentech, including information regarding the pre-tax profit-sharing formula and its impact on future revenue from anti-CD20 therapeutic programs, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Other Revenue
Other revenue is summarized as follows:
Revenue from Collaborative and Other Relationships
Revenue from collaborative and other relationships primarily includes royalty revenue on biosimilar products from Samsung Bioepis.
For additional information on our collaborative arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our
consolidated financial statements included in this report.
Other Royalty and Corporate Revenue
We receive royalties from net sales on products related to patents that we have out-licensed and we record other corporate revenue primarily from amounts earned under contract manufacturing agreements.
For 2021 compared to 2020, the decrease in other corporate revenue was primarily due to higher contract manufacturing revenue during the year ended December 31, 2020, resulting from $346.2 million in revenue related to the delivery of the license for certain of our manufacturing-related intellectual property to a contract manufacturing customer. For additional information, please read Note 4, Revenue, to our consolidated financial statements included in this report.
Reserves for Discounts and Allowances
Revenue from product sales is recorded net of reserves established for applicable discounts and allowances, including those associated with the implementation of pricing actions in certain international markets where we operate.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.
Reserves for discounts, contractual adjustments and returns that reduced gross product revenue are summarized as follows:
For the years ended December 31, 2021, 2020 and 2019, reserves for discounts and allowances as a percentage of gross product revenue were 28.6%, 27.1% and 24.3%, respectively.
Discounts
Discounts include trade term discounts and wholesaler incentives.
For 2021 compared to 2020, the decrease in discounts was primarily driven by a decrease in gross sales.
Contractual Adjustments
Contractual adjustments primarily relate to Medicaid and managed care rebates in the U.S., pharmacy rebates, co-payment (copay) assistance, Veterans Administration, 340B discounts, specialty pharmacy program fees and other government rebates or applicable allowances.
For 2021 compared to 2020, the decrease in contractual adjustments was primarily driven by lower TECFIDERA sales in the U.S., resulting in lower Medicaid, managed care and government rebates, partially offset by managed care rebates in the U.S. from VUMERITY sales.
Returns
Product return reserves are established for returns made by wholesalers. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Provisions for product returns are
recognized in the period the related revenue is recognized, resulting in a reduction to product sales.
For 2021 compared to 2020, return reserves were relatively consistent.
For additional information on our revenue reserves, please read Note 4, Revenue, to our consolidated financial statements included in this report.
Cost and Expense
A summary of total cost and expense is as follows:
nm Not meaningful
Cost of Sales, Excluding Amortization and Impairment of Acquired Intangible Assets
Cost of sales, as a percentage of total revenue, were 19.2%, 13.4% and 13.6% for the years ended December 31, 2021, 2020 and 2019, respectively.
Product Cost of Sales
For 2021 compared to 2020, the increase in product cost of sales was primarily due to product mix and higher cost of sales associated with contract manufacturing agreements. The increase was also
due to the write-off of ADUHELM inventory during the year ended December 31, 2021, as discussed below.
Inventory amounts written down as a result of excess, obsolescence or unmarketability totaled $167.6 million, $26.6 million and $52.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
During the fourth quarter of 2021 we recorded approximately $164.0 million of charges associated with inventory and purchase commitments in excess of forecasted demand related to ADUHELM, which was recognized in cost of sales within our consolidated statements of income. In addition, we recognized the expected share of these charges from Eisai's 45.0% share in collaboration profit (loss) sharing within our consolidated statements of income. As of December 31, 2021, we had approximately $223.0 million of inventory related to ADUHELM. We may record additional write-downs of ADUHELM inventory if the final NCD is not broader than the proposed NCD.
For additional information, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Royalty Cost of Sales
For 2021 compared to 2020, the increase in royalty cost of sales was primarily due to higher
royalties payable on higher sales of TYSABRI and VUMERITY.
Research and Development
We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.
A significant amount of our research and development costs consist of indirect costs incurred in support of overall research and development activities and non-specific programs, including activities that benefit multiple programs, such as management costs, as well as depreciation, information technology and facility-based expenses. These costs are considered other research and
development costs in the table above and are not allocated to a specific program or stage.
Research and development expense incurred in support of our marketed products includes costs associated with product lifecycle management activities including, if applicable, costs associated with the development of new indications for existing products. Late stage programs are programs in Phase 3 development or in registration stage. Early stage programs are programs in Phase 1 or Phase 2 development. Research and discovery represents costs incurred to support our discovery research and translational science efforts. Costs are reflected in the development stage based upon the program status when incurred. Therefore, the same program could be reflected in different development stages in the same year. For several of our programs, the research and development activities are part of our collaborative and other relationships. Our costs reflect our share of the total costs incurred.
For 2021 compared to 2020, the decrease in research and development expense was primarily due to approximately $1,084.0 million, $601.3 million and $208.0 million in upfront payments recognized upon the closing of our collaborations with Sage, Denali and Sangamo, respectively, in 2020. This decrease was partially offset by approximately $125.0 million in an upfront payment recognized upon the closing of our collaboration with InnoCare in the third quarter of 2021, the development of zuranolone for the potential treatment of MDD and PPD, the development of BIIB124 (SAGE-324) for the potential treatment of essential tremor, which we are developing in collaboration with Sage, and closeout costs associated with BIIB111 (timrepigene emparvovec) and BIIB112 (cotoretigene).
In 2021 we recorded upfront payments related to our new collaborations as part of research and development expense. Excluding upfront payments, we expect our core research and development expense to increase in 2022, driven by continued investment in our pipeline. We intend to continue committing significant resources to targeted research and development opportunities where there is a significant unmet need and where a drug candidate has the potential to be highly differentiated.
Milestone and Upfront Expense
Research and development expense for 2021 includes:
•$125.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with InnoCare in the third quarter of 2021;
•$60.0 million charge to research and development expense upon the exercise of our option under our collaboration agreement with Ionis to develop and commercialize BIIB115, a preclinical investigational ASO in development for SMA;
•$30.0 million charge to research and development expense related to the option exercise fee payable to Genentech to jointly develop and commercialize mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin's lymphoma and other therapeutic areas; and
•$30.0 million charge to research and development expense in connection with the upfront payment associated with entering into a commercialization and license agreement with Bio-Thera to develop, manufacture and commercialize BAT1806, a proposed biosimilar referencing ACTEMRA.
Research and development expense for 2020 includes:
•$1,084.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Sage in the fourth quarter of 2020;
•$601.3 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Denali in the third quarter of 2020; and
•$208.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Sangamo in the second quarter of 2020.
The upfront payments associated with these collaborations are classified as research and development expense as the programs they relate to had not achieved regulatory approval as of the payment date.
For additional information about these collaboration arrangements, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Early Stage Programs
For 2021 compared to 2020, the decrease in spending related to our early stage programs was primarily due to a decrease in costs associated with:
•the discontinuation of opicinumab (anti-LINGO) in MS;
•the discontinuation of BIIB054 (cinpanemab) in Parkinson's disease and the discontinuation of gosuranemab (BIIB092) in Alzheimer's disease;
•the advancement of dapirolizumab pego, an anti-CD40L pegylated Fab that we are developing in collaboration with UCB, for the potential treatment of SLE into late stage; and
•the advancement of BIIB059 (anti-BDCA2) for the potential treatment of SLE into late stage.
These decreases were partially offset by an increase in costs associated with:
•an increase in spending in the development of BIIB124 for the potential treatment of essential tremor;
•an increase in spending in the development of BIIB122 (DNL151) for the potential treatment of Parkinson's disease, which we are developing in collaboration with Denali; and
•an increase in spending in the development of BIIB135 (orelabrutinib) for the potential treatment of MS.
Late Stage Programs
For 2021 compared to 2020, the increase in spending associated with our late stage programs was primarily due to:
•an increase in spending in the development of zuranolone for the potential treatment of MDD and PPD;
•the advancement of dapirolizumab pegol for the potential treatment of SLE into late stage;
•the advancement of BIIB059 for the potential treatment of SLE into late stage;
•an increase in spending related to our option exercise with Genentech to jointly develop and commercialize mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin's lymphoma and other therapeutic areas;
•an increase in spending related to lecanemab; and
•close out costs related to BIIB111.
These increases were partially offset by a decrease in costs associated with the advancement of ADUHELM from late stage to marketed.
Marketed Programs
For 2021 compared to 2020, the increase in spending associated with our marketed programs was primarily due to an increase in costs associated with:
•the advancement of ADUHELM from late stage to marketed upon the accelerated approval of ADUHELM in the U.S.
In March 2019 Eisai initiated a global Phase 3 trial for the development of lecanemab in early Alzheimer's disease. Under our collaboration arrangement, Eisai serves as the global operational and regulatory lead for lecanemab and all costs, including research, development, sales and marketing expense, are shared equally between us and Eisai.
For additional information on our collaboration arrangements with Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Selling, General and Administrative
For 2021 compared to 2020, the increase in selling, general and administrative expense was primarily due to an increase in personnel in support of the launch of ADUHELM in the U.S. Beginning in the second quarter of 2021, reimbursement from Eisai for its share of U.S. ADUHELM selling, general and administrative expense is recognized in collaboration profit (loss) sharing in our consolidated statements of income.
In 2022 we expect selling, general and administrative costs to decrease as we plan to implement cost-reduction measures with a significant portion expected to be realized in 2022.
Amortization and Impairment of Acquired Intangible Assets
Our amortization expense is based on the economic consumption and impairment of intangible assets. Our most significant amortizable intangible assets are related to our TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products and other programs acquired through business combinations.
For the year ended December 31, 2021, amortization and impairment of acquired intangible assets reflects the impact of a $365.0 million impairment charge related to BIIB111, a $220.0 million impairment charge related to BIIB112 and a $44.3 million impairment charge related to vixotrigine (BIIB074) for the potential treatment of trigeminal neuralgia (TGN).
For the year ended December 31, 2020, amortization and impairment of acquired intangible assets reflects the impact of a $115.0 million impairment charge related to BIIB111, a $75.4 million impairment charge related to BIIB054 and a $19.3 million impairment charge related to one of our other IPR&D intangible assets.
Amortization of acquired intangible assets, excluding impairment charges, totaled $252.0 million, $255.1 million and $274.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.
We monitor events and expectations regarding product performance. If new information indicates that the assumptions underlying our most recent analysis are substantially different than those utilized in our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenue of the relevant products. The occurrence of an adverse event could substantially increase the amount of amortization expense related to our acquired intangible assets as compared to previous periods or our current expectations, which
may result in a significant negative impact on our future results of operations.
IPR&D Related to Business Combinations
IPR&D represents the fair value assigned to research and development assets that we acquired as part of a business combination and had not yet reached technological feasibility at the date of acquisition. We review amounts capitalized as acquired IPR&D for impairment annually, as of October 31, and whenever events or changes in circumstances indicate to us that the carrying value of the assets might not be recoverable.
Overall, the value of our acquired IPR&D assets is dependent upon several variables, including estimates of future revenue and the effects of competition, our ability to secure sufficient pricing in a competitive market, our ability to confirm safety and efficacy based on data from clinical trials and regulatory feedback, the level of anticipated development costs and the probability and timing of successfully advancing a particular research program from one clinical trial phase to the next. We are continually reevaluating our estimates concerning these and other variables, including our life cycle management strategies, research and development priorities and development risk, changes in program and portfolio economics and related impact of foreign currency exchange rates and economic trends and evaluating industry and company data regarding the productivity of clinical research and the development process. Changes in our estimates may result in a significant change to our valuation of our IPR&D assets.
Vixotrigine
In the periods since we acquired vixotrigine, there have been numerous delays in the initiation of Phase 3 studies for the potential treatment of TGN and for the potential treatment of diabetic painful neuropathy (DPN), another form of neuropathic pain. We have engaged with the FDA regarding the design of the Phase 3 studies of vixotrigine for the potential treatment of TGN and DPN and are now performing an additional clinical trial of vixotrigine.
The performance of this additional clinical trial delayed the initiation of the Phase 3 studies of vixotrigine for the potential treatment of TGN, and, as a result, we recognized an impairment charge of $44.3 million related to vixotrigine for the potential treatment of TGN during the first quarter of 2021. As of December 31, 2021, the carrying value associated with the remaining IPR&D asset for DPN was $132.7 million and the fair value of this asset was not significantly in excess of its carrying value.
BIIB111 and BIIB112
During the fourth quarter of 2020 we recognized an impairment charge of $115.0 million related to BIIB111 as a result of third-party manufacturing delays that impacted the timing and increased the costs associated with advancing BIIB111 through Phase 3 development.
During the second quarter of 2021 we announced that our Phase 3 STAR study of BIIB111 and our Phase 2/3 XIRIUS study of BIIB112 did not meet their primary endpoints. In the third quarter of 2021 we suspended further development on these programs based on the decision by management as part of its strategic review process. For the year ended December 31, 2021, we recognized an impairment charge of $365.0 million related to BIIB111 and an impairment charge of $220.0 million related to BIIB112, reducing the remaining book values of these IPR&D intangible assets to zero.
In addition, for the year ended December 31, 2021, as a result of our decision to suspend further development of BIIB111 and BIIB112, we recognized charges of approximately $39.1 million related to our manufacturing arrangements and other costs that we expect to incur as a result of suspending these programs, which were recorded as research and development expense in our consolidated statements of income.
For additional information on the amortization and impairment of our acquired intangible assets, please read Note 6, Intangible Assets and Goodwill, to our consolidated financial statements included in this report.
Collaboration Profit (Loss) Sharing
Collaboration profit (loss) sharing primarily includes Samsung Bioepis' 50.0% share of the profit or loss related to our biosimilars commercial agreement with Samsung Bioepis and, beginning in the second quarter of 2021, Eisai's 45.0% share of
income and expense in the U.S. related to the ADUHELM Collaboration Agreement.
For the years ended December 31, 2021, 2020 and 2019 we recognized net profit-sharing expense of $285.4 million, $266.5 million and $241.6 million, respectively, to reflect Samsung Bioepis’ 50.0% sharing of the net collaboration profits.
For the year ended December 31, 2021, we recognized net profit-sharing income of $233.2 million to reflect Eisai's 45.0% share of loss related to the ADUHELM Collaboration Agreement. We also recognized net profit-sharing income of $45.0 million to reflect Eisai's 45.0% share of the $100.0 million milestone payment made to Neurimmune related to the launch of ADUHELM in the U.S.
For the year ended December 31, 2020, we recognized net profit-sharing income of $33.8 million to reflect Eisai's 45.0% share of the $75.0 million milestone payment made to Neurimmune related to the completed submission of the BLA for the approval of ADUHELM to the FDA.
For additional information on our collaboration arrangements with Samsung Bioepis and Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
(Gain) Loss on Divestiture of Hillerød, Denmark Manufacturing Operations
In March 2019 we entered into a share purchase agreement with FUJIFILM to sell all of the outstanding shares of our subsidiary that owned our biologics manufacturing operations in Hillerød, Denmark. The transaction closed in August 2019.
During the year ended December 31, 2020, we reduced our estimate of the fair value of the adverse commitment associated with the guarantee of future batch production by approximately $62.0 million based on our current manufacturing forecasts. Additionally, we recorded a reduction to our pre-tax loss of approximately $30.5 million due to a refund of interest paid associated with a tax matter.
For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report.
(Gain) Loss on Fair Value Remeasurement of Contingent Consideration
Consideration payable for certain of our business combinations includes future payments that are contingent upon the occurrence of a particular event or events. We record an obligation for such
contingent consideration payments at fair value on the acquisition date. We then revalue our contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations, other than changes due to payments, are recognized as a (gain) loss on fair value remeasurement of contingent consideration in our consolidated statements of income.
The gain on fair value remeasurement of contingent consideration for 2021 was primarily due to reductions in the probability of technical and regulatory success and delays in the expected timing of the achievement of certain remaining developmental milestones related to our vixotrigine programs.
The gain on fair value remeasurement of contingent consideration for 2020 was primarily due to the remeasurement of the contingent consideration associated with our BIIB054 program as well as changes in the probability and the expected timing of the achievement of certain remaining developmental milestones, changes in the interest rates used to revalue our contingent consideration liabilities and the passage of time.
For additional information on our IPR&D intangible assets, please read Note 6, Intangible Assets and Goodwill, to our consolidated financial statements included in this report.
Acquired In-Process Research and Development
BIIB118 Acquisition
In March 2020 we acquired BIIB118 (CK1 inhibitor) for the potential treatment of patients with behavioral and neurological symptoms across various psychiatric and neurological diseases from Pfizer Inc. (Pfizer). In connection with this acquisition, we made an upfront payment of $75.0 million to Pfizer, which was accounted for as an asset acquisition and
recorded as acquired IPR&D in our consolidated statements of income as BIIB118 has not yet reached technological feasibility.
For additional information on our acquisition of BIIB118, please read Note 2, Acquisitions, to our consolidated financial statements included in this report.
Other Income (Expense), Net
For 2021 compared to 2020, the change in other income (expense), net primarily reflects net unrealized losses on our holdings in equity securities.
For the year ended December 31, 2021, net unrealized losses and realized gains on our holdings in equity securities were approximately $831.4 million and $10.3 million, respectively, compared to net unrealized and realized gains of $681.8 million and $12.1 million, respectively, in 2020. The net unrealized losses recognized during the year ended December 31, 2021, primarily reflect decreases in the aggregate fair value of our investments in Denali, Sage, Sangamo and Ionis common stock of approximately $819.6 million.
For the year ended December 31, 2021, net interest expense was $242.6 million, compared to $180.5 million in 2020. This increase was primarily due to a lower amount of interest being capitalized to capital projects in 2021, compared to 2020, due to a portion of our Solothurn facility being placed in service in 2021 and lower interest income earned on our investments in 2021, compared to 2020. On April 30, 2020, we issued our senior unsecured notes for an aggregate principal amount of $3.0 billion (2020 Senior Notes).
We expect a moderate increase in interest expense in 2022, compared to 2021, primarily due to lower interest being capitalized as a result of assets being placed into service during 2021.
For additional information on our 2020 Senior Notes, please read Note 12, Indebtedness, to our
consolidated financial statements included in this report.
Income Tax Provision
Our effective tax rate fluctuates from year to year due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expense, the levels of certain deductions and credits, acquisitions and licensing transactions.
For the year ended December 31, 2021, compared to 2020, the decrease in our effective tax rate, excluding the impact of the Neurimmune deferred tax asset, as discussed below, was primarily due to the change in the territorial mix of our profitability, which included the adverse effect of generic competition for TECFIDERA in the U.S. market, the tax impacts of the BIIB111 and BIIB112 impairment charges and the impact of the non-cash tax effects of changes in the value of our equity investments, where we recorded net unrealized losses in 2021 and net unrealized gains in 2020. Our 2020 effective tax rate also reflected an income tax expense related to the establishment of a valuation allowance against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S.
In addition, for the year ended December 31, 2021, compared to 2020, the decrease in our effective tax rate was significantly impacted by a current year deferred tax benefit in Switzerland resulting from the accelerated approval of ADUHELM by the FDA in the U.S., recognized during the second
quarter of 2021. We recorded a net deferred tax asset of approximately $490.0 million during the second quarter of 2021. The net deferred tax asset is comprised of approximately $945.0 million of gross deferred tax asset, reduced by approximately $455.0 million of unrecognized tax benefit. During the fourth quarter of 2021 we recorded a valuation allowance of approximately $390.0 million related to this deferred tax asset. The deferred tax benefit relates to Neurimmune's tax basis in ADUHELM, the realization of which is dependent on future sales of ADUHELM and approval of the Swiss cantonal tax authorities, with an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable to Biogen Inc.
For additional information on our collaboration arrangement with Neurimmune, please read Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report.
For additional information on our income taxes please read Note 16, Income Taxes, to our consolidated financial statements included in this report.
Accounting for Uncertainty in Income Taxes
For additional information on our uncertain tax positions and income tax rate reconciliation for 2021, 2020 and 2019, please read Note 16, Income Taxes, to our consolidated financial statements included in this report.
Equity in (Income) Loss of Investee, Net of Tax
In February 2012 we entered into a joint venture agreement with Samsung BioLogics establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar products.
In June 2018 we exercised our option under our joint venture agreement to increase our ownership
percentage in Samsung Bioepis from approximately 5.0% to approximately 49.9%. The share purchase transaction was completed in November 2018. As of December 31, 2021, our ownership percentage remained at approximately 49.9%.
We recognize our share of the results of operations related to our investment in Samsung Bioepis under the equity method of accounting one quarter in arrears when the results of the entity become available, which is reflected as equity in (income) loss of investee, net of tax in our consolidated statements of income. We recognize amortization on certain basis differences resulting from our November 2018 investment.
Certain officers and affiliates of our joint venture partner, Samsung BioLogics, are currently subject to ongoing criminal proceedings that we continue to monitor. While these proceedings could impact the operations of Samsung Bioepis and its business, we have assessed the value of our investment in Samsung Bioepis and continue to believe that the fair value of the investment is in excess of its net book value.
For the year ended December 31, 2021, we recognized net income on our investment of $34.9 million, reflecting our share of Samsung Bioepis' operating profits, net of tax totaling $64.6 million offset by amortization of basis differences totaling $29.7 million.
For the year ended December 31, 2020, we recognized net income on our investment of $5.3 million, reflecting our share of Samsung Bioepis' operating profits, net of tax totaling $45.3 million offset by amortization of basis differences totaling $40.0 million.
Net income on our investment for the year ended December 31, 2021, reflects a $31.2 million benefit related to the release of a valuation allowance on deferred tax assets associated with Samsung Bioepis. The valuation allowance was released in the second quarter of 2021 based on a consideration of the positive and negative evidence, including the historic earnings of Samsung Bioepis.
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Noncontrolling Interests, Net of Tax
Our consolidated financial statements include the financial results of our variable interest entity, Neurimmune, as we determined that we are the primary beneficiary.
For 2021 the change in net income (loss) attributable to noncontrolling interests, net of tax, was primarily due to the recognition of a current year deferred tax benefit associated with the accelerated approval of ADUHELM by the FDA in the U.S. During the second quarter of 2021 we recorded a net deferred tax asset of approximately $490.0 million related to Neurimmune's tax basis in ADUHELM, the realization of which is dependent on future sales of ADUHELM and approval of the Swiss cantonal tax authorities.
During the fourth quarter of 2021 we recorded a valuation allowance of approximately $390.0 million related to this deferred tax asset. There is an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable to Biogen Inc.
For 2021 the change in net income (loss) attributable to noncontrolling interests, net of tax, was also due to the $100.0 million milestone payment to Neurimmune related to the launch of ADUHELM in the U.S. during the second quarter of 2021.
For 2020 the change in net income (loss) attributable to noncontrolling interests, net of tax, was primarily due to the $75.0 million milestone payment to Neurimmune related to the completed submission of the BLA for the approval of ADUHELM to the FDA.
For additional information on our collaboration agreement with Neurimmune, please read Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report.
For additional information on our income taxes please read Note 16, Income Taxes, to our consolidated financial statements included in this report.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our financial condition is summarized as follows:
nm Not meaningful
For the year ended December 31, 2021, certain significant cash flows were as follows:
•$3.6 billion in net cash flow provided by operating activities, which reflected an upfront payment of $125.0 million made in connection with entering into our collaboration with InnoCare and recognized as research and development expense;
•$1.8 billion used for share repurchases;
•$170.0 million used in connection with our Exchange Offer;
•$258.1 million used for purchases of property, plant and equipment;
•$247.9 million in total net payments for income taxes; and
•$100.0 million milestone payment to Neurimmune.
For the year ended December 31, 2020, certain significant cash flows were as follows:
•$4.2 billion in net cash flows provided by operating activities, which reflected $1.9 billion of upfront payments and the premium on stock purchases made in connection with entering into our collaborations with Sage, Denali and Sangamo and recognized as research and development expense;
•$6.7 billion used for share repurchases;
•$3.0 billion in proceeds received from the
issuance of our 2020 Senior Notes;
•$1.5 billion payment made for the redemption of our 2.90% Senior Notes due September 15, 2020, prior to their maturity;
•$906.7 million in total net payments for income taxes;
•$441.0 million used to purchase Sage common stock;
•$423.7 million used to purchase Denali common stock;
•$141.8 million used to purchase Sangamo common stock; and
•$424.8 million used for purchases of property, plant and equipment.
Overview
We have historically financed our operating and capital expenditures primarily through cash flow earned through our operations. We expect our operating expenditures, particularly those related to research and development, clinical trials, commercialization of new products and international expansion to continue to grow. However, we expect to continue funding our current and planned operating requirements primarily through our cash flow earned from our operations as well as our existing cash resources. We believe generic competition for TECFIDERA in the U.S. will continue to reduce our cash flow from operations in 2022 and will have a significant adverse impact on our future cash flow
from operations. Additionally, in 2022 we will repay or refinance $1.0 billion related to our 3.625% Senior Note due September 15, 2022.
We believe that our existing funds, when combined with cash generated from operations and our access to additional financing resources, if needed, are sufficient to satisfy our operating, working capital, strategic alliance, milestone payment, capital expenditure and debt service requirements for the foreseeable future. In addition, we may choose to opportunistically return cash to shareholders and pursue other business initiatives, including acquisition and licensing activities. We may, from time to time, also seek additional funding through a combination of new collaborative agreements, strategic alliances and additional equity and debt financings or from other sources should we identify a significant new opportunity.
For additional information on certain risks that could negatively impact our financial position or future results of operations, please read Item 1A. Risk Factors and

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to certain risks that may affect our results of operations, cash flow and fair values of assets and liabilities, including volatility in foreign currency exchange rates, interest rate movements and equity price exposure as well as changes in economic conditions in the markets in which we operate as a result of the COVID-19 pandemic. We manage the impact of foreign currency exchange rates and interest rates through various financial instruments, including derivative instruments such as foreign currency forward contracts, interest rate lock contracts and interest rate swap contracts. We do not enter into financial instruments for trading or speculative purposes. The counterparties to these contracts are major financial institutions, and there is no significant concentration of exposure with any one counterparty.
Foreign Currency Exchange Risk
Our results of operations are subject to foreign currency exchange rate fluctuations due to the global nature of our operations. As a result, our consolidated financial position, results of operations and cash flow can be affected by market fluctuations in foreign currency exchange rates, primarily with respect to the Euro, British pound sterling, Canadian dollar, Swiss franc, Japanese yen and South Korean won.
While the financial results of our global activities are reported in U.S. dollars, the functional currency for most of our foreign subsidiaries is their respective local currency. Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our operating results, often in ways that are difficult to predict. In particular, as the U.S. dollar strengthens versus other currencies, the value of the non-U.S. revenue will decline when reported in U.S. dollars. The impact to net income as a result of a strengthening U.S. dollar will be partially mitigated by the value of non-U.S. expense, which will also decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue and expense will increase when reported in U.S. dollars.
We have established revenue and operating expense hedging and balance sheet risk management programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign currency exchange rates.
During the second quarter of 2018 the International Practices Task Force of the Center for Audit Quality categorized Argentina as a country with a projected three-year cumulative inflation rate greater than 100.0%, which indicated that Argentina’s economy is highly inflationary. This categorization did not have a material impact on our results of operations or financial position as of December 31, 2021, and is not expected to have a material impact on our results of operations or financial position in the future.
Revenue and Operating Expense Hedging Program
Our foreign currency hedging program is designed to mitigate, over time, a portion of the impact resulting from volatility in exchange rate changes on revenue and operating expense. We use foreign currency forward contracts to manage foreign currency risk, with the majority of our forward contracts used to hedge certain forecasted revenue and operating expense transactions denominated in foreign currencies in the next 15 months. We do not engage in currency speculation. For a more detailed disclosure of our revenue and operating expense hedging program, please read Note 9, Derivative Instruments, to our consolidated financial statements included in this report.
Our ability to mitigate the impact of foreign currency exchange rate changes on revenue and net income diminishes as significant foreign currency exchange rate fluctuations are sustained over extended periods of time. In particular, devaluation or significant deterioration of foreign currency exchange rates are difficult to mitigate and likely to negatively impact earnings. The cash flow from these contracts are reported as operating activities in our consolidated statements of cash flow.
Balance Sheet Risk Management Hedging Program
We also use forward contracts to mitigate the foreign currency exposure related to certain balance sheet items. The primary objective of our balance sheet risk management program is to mitigate the exposure of foreign currency denominated net monetary assets and liabilities of foreign affiliates. In these instances, we principally utilize currency forward contracts. We have not elected hedge accounting for the balance sheet related items. The cash flow from these contracts are reported as operating activities in our consolidated statements of cash flow.
The following quantitative information includes the impact of currency movements on forward contracts used in our revenue, operating expense and balance sheet hedging programs. As of December 31, 2021 and 2020, a hypothetical adverse 10.0% movement in foreign currency exchange rates compared to the U.S. dollar across all maturities
would result in a hypothetical decrease in the fair value of forward contracts of approximately $333.1 million and $458.2 million, respectively. The estimated fair value change was determined by measuring the impact of the hypothetical exchange rate movement on outstanding forward contracts. Our use of this methodology to quantify the market risk of such instruments is subject to assumptions and actual impact could be significantly different. The quantitative information about market risk is limited because it does not take into account all foreign currency operating transactions.
Net Investment Hedge Program
Our net investment hedging program is designed to mitigate currency fluctuations between the U.S. dollar and the South Korean won as a result of our approximately 49.9% ownership interest in Samsung Bioepis. We entered into foreign currency forward contracts to hedge changes in the spot rate over the next 10 months. As of December 31, 2021 and 2020, a hypothetical adverse 10.0% movement would result in a hypothetical decrease in fair value of approximately $58.7 million and $56.9 million, respectively. The estimated fair value was determined by measuring the impact of the hypothetical spot rate movement on outstanding forward contracts. We plan to unwind our foreign currency forward contracts in conjunction with the closing of our proposed sale of our ownership interest in Samsung Bioepis to Samsung Biologics. Closing of the transaction is currently anticipated in mid-2022, contingent on the effectiveness of a securities registration statement filed by Samsung Biologics and satisfaction of certain regulatory and other customary closing conditions.
Interest Rate Risk
Our investment portfolio includes cash equivalents and short-term investments. The fair value of our marketable securities is subject to change as a result of potential changes in market interest rates. The potential change in fair value for interest rate sensitive instruments has been assessed on a hypothetical 100 basis point adverse movement across all maturities. As of December 31, 2021 and 2020, we estimate that such hypothetical 100 basis point adverse movement would result in a hypothetical loss in fair value of approximately $14.3 million and $13.2 million, respectively, to our interest rate sensitive instruments. The fair values of our investments were determined using third-party pricing services or other market observable data.
Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, investments, derivatives and accounts receivable. We attempt to minimize the risks related
to cash and cash equivalents and investments by investing in a broad and diverse range of financial instruments. We have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. We minimize credit risk resulting from derivative instruments by choosing only highly rated financial institutions as counterparties.
We operate in certain countries where weakness in economic conditions, including as a result of the COVID-19 pandemic, can result in extended collection periods. We continue to monitor these conditions, including the volatility associated with international economies and the relevant financial markets, and assess their possible impact on our business. To date, we have not experienced any significant losses with respect to the collection of our accounts receivable.
We believe that our allowance for doubtful accounts was adequate as of December 31, 2021 and 2020.
Equity Price Risk
Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies. While we are holding such securities, we are subject to equity price risk, and this may increase the volatility of our income in future periods due to changes in the fair value of equity investments. We may sell such equity securities based on our business considerations, which may include limiting our price risk.
Changes in the fair value of these equity securities are impacted by the volatility of the stock market and changes in general economic conditions, among other factors. The potential change in fair value for equity price sensitive instruments has been assessed on a hypothetical 10.0% adverse movement. As of December 31, 2021 and 2020, a hypothetical adverse 10.0% movement would result in a hypothetical decrease in fair value of approximately $104.8 million and $188.8 million, respectively.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is contained on pages through of this report and is incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of December 31, 2021. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that:
(a) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms; and
(b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control - Integrated Framework.
Based on our assessment, our management has concluded that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2021, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their attestation report, which is included herein.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
PART III

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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning our executive officers is set forth under the heading Information about our Executive Officers in Item 1 of this report. The text of our code of business conduct, which includes the code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions, is posted on our website, www.biogen.com, under the “Corporate Governance” subsection of the “Investors” section of the site. We intend to make all required disclosures regarding any amendments to, or waivers from, provisions of our code of business conduct at the same location of our website.
The response to the remainder of this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Proposal 1 - Election of Directors,” “Corporate Governance at Biogen” and “Miscellaneous - Stockholder Proposals” contained in the proxy statement for our 2022 annual meeting of stockholders.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Executive Compensation Matters” and “Corporate Governance at Biogen” contained in the proxy statement for our 2022 annual meeting of stockholders.

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ITEM 12. SECURITY OWNERSHIP
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The response to this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Stock Ownership” and “Equity Compensation Plan Information” contained in the proxy statement for our 2022 annual meeting of stockholders.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The response to this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Certain Relationships and Related Person Transactions” and “Corporate Governance at Biogen” contained in the proxy statement for our 2022 annual meeting of stockholders.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The response to this item is incorporated by reference from the discussion responsive thereto in the section entitled “Proposal 2 - Ratification of the Selection of our Independent Registered Public Accounting Firm” contained in the proxy statement for our 2022 annual meeting of stockholders.
PART IV

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. (1) Consolidated Financial Statements:
The following financial statements are filed as part of this report:
Financial Statements Page Number
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flow
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Certain totals may not sum due to rounding.
(2) Exhibits
The exhibits listed on the Exhibit Index beginning on page 93, which is incorporated herein by reference, are filed or furnished as part of this report or are incorporated into this report by reference.
(3) Financial Statement Schedules
Schedules are omitted because they are not applicable, or are not required, or because the information is included in the consolidated financial statements and notes thereto.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
EXHIBIT INDEX
Exhibit No. Description
2.1† Asset Purchase Agreement among Biogen Idec International Holding Ltd., Elan Pharma International Limited and Elan Pharmaceuticals, Inc., dated as of February 5, 2013. Filed as Exhibit 2.1 to our Current Report on Form 8-K/A filed on February 12, 2013.
2.2 Separation Agreement between Biogen Inc. and Bioverativ Inc. dated as of January 31, 2017. Filed as Exhibit 2.1 to our Current Report on Form 8-K filed on February 2, 2017.
3.1 Amended and Restated Certificate of Incorporation, as amended. Filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
3.2 Certificate of Amendment to the Certificate of Incorporation. Filed as Exhibit 3.1 to our Current Report on Form 8-K filed on March 27, 2015.
3.3 Certificate of Amendment of Biogen Inc.'s Amended and Restated Certificate of Incorporation, as amended. Filed as Exhibit 3.1 to our Current Report on Form 8-K filed on June 8, 2021.
3.4 Fourth Amended and Restated Bylaws. Filed as Exhibit 3.1 to our Current Report on Form 8-K filed on June 9, 2017.
4.1 Second Supplemental Indenture, dated April 30, 2020, between Biogen Inc. and U.S. Bank National Association, including the forms of Global Notes attached as Exhibit A and Exhibit B, respectively, thereto. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed on April 30, 2020.
4.2 Reference is made to Exhibit 3.1 for a description of the rights, preferences and privileges of our Series A Preferred Stock and Series X Junior Participating Preferred Stock.
4.3 Indenture between Biogen Inc. and U.S. Bank National Association, dated as of September 15, 2015. Filed as Exhibit 4.1 to our Current Report on Form 8-K filed on September 16, 2015.
4.4 First Supplemental Indenture between Biogen Inc. and U.S. Bank National Association, dated September 15, 2015. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed on September 16, 2015.
4.5 Third Supplemental Indenture, dated February 16, 2021, between Biogen Inc. and U.S. Bank National Association. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed on February 16, 2021.
4.6 Form of 3.250% Senior Notes due 2051, in the form of a Global Note bearing a private placement legend. Filed as Exhibit 4.3 to our Current Report on Form 8-K filed on February 16, 2021.
4.7 Form of 3.250% Senior Notes due 2051, in the form of a Global Note bearing a Regulation S legend. Filed as Exhibit 4.4 to our Current Report on Form 8-K filed on February 16, 2021.
4.8+ Description of Securities.
4.9 Registration Rights Agreement, dated February 16, 2021, between Biogen Inc. and Deutsche Bank Securities Inc. and Citigroup Global Markets, Inc. with respect to the 3.250% Senior Notes due 2051. Filed as Exhibit 4.5 to our Current Report on Form 8-K filed on February 16, 2021.
10.1 Credit Agreement between Biogen Inc., Bank of America, N.A., Goldman Sachs Bank USA and other lenders party thereto, dated August 28, 2015. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on September 1, 2015.
10.2 Credit Agreement, dated as of January 28, 2020, among Biogen Inc., Bank of America, N.A., as administrative agent, swing ling lender and the L/C issuer, and the other lenders party thereto. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on February 3, 2020.
10.3† Second Amended and Restated Collaboration Agreement between Biogen Idec Inc. and Genentech, Inc., dated as of October 18, 2010. Filed as Exhibit 10.5 to our Annual Report on Form 10-K for the year ended December 31, 2010.
10.4† Letter Agreement regarding GA101 financial terms between Biogen Idec Inc. and Genentech, Inc., dated October 18, 2010. Filed as Exhibit 10.6 to our Annual Report on Form 10-K for the year ended December 31, 2010.
10.5 Settlement and License Agreement, dated January 17, 2017, between Biogen Swiss Manufacturing GmbH, Biogen International Holdings ltd., Forward Pharma A/S and other parties thereto. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on February 1, 2017.
10.6* Biogen Inc. 2017 Omnibus Equity Plan. Filed as Appendix B to our Definitive Proxy Statement on Schedule 14A filed on April 26, 2017.
10.7* Form of restricted stock unit award agreement under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
10.8* Form of market stock unit award agreement under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
10.9* Form of performance unit award agreement under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
10.10* Form of cash-settled performance unit award agreement under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
Exhibit No. Description
10.11* Form of performance stock units award agreement (cash-settled) under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 2017.
10.12* Form of performance stock units award agreement under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.11 to our Annual Report on Form 10-K for the year ended December 31, 2017.
10.13* Form of performance stock units award agreement under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
10.14* Form of performance stock units award agreement (cash settled) under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
10.15* Form of restricted stock unit award agreement (2018 one-time transition grant) under the Biogen Inc. 2017 Omnibus Equity Plan. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
10.16* Form of market stock unit award agreement under the Biogen Inc. 2017 Omnibus Equity Plan (for grants commencing in July 2019). Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
10.17* Form of performance stock units award agreement under the Biogen Inc. 2017 Omnibus Equity Plan (for grants commencing in July 2019). Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
10.18* Form of performance stock units award agreement (cash settled) under the Biogen Inc. 2017 Omnibus Equity Plan (for grants commencing in July 2019). Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
10.19* Biogen Idec Inc. 2008 Amended and Restated Omnibus Equity Plan. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
10.20* Form of performance unit award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
10.21* Form of market stock unit award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
10.22* Form of restricted stock unit award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on August 1, 2008.
10.23* Form of nonqualified stock option award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.2 to our Current Report on Form 8-K filed on August 1, 2008.
10.24* Form of cash-settled performance shares award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.
10.25* Biogen Inc. 2006 Non-Employee Directors Equity Plan, as amended. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
10.26* Biogen Inc. 2015 Employee Stock Purchase Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 30, 2015.
10.27* Biogen Idec Inc. 2008 Performance-Based Management Incentive Plan. Filed as Appendix B to our Definitive Proxy Statement on Schedule 14A filed on May 8, 2008.
10.28* Biogen Inc. 2019 Form of Performance-Based Management Incentive Plan, as amended. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.
10.29* Biogen Idec Inc. Voluntary Executive Supplemental Savings Plan, as amended and restated effective January 1, 2004. Filed as Exhibit 10.13 to our Annual Report on Form 10-K for the year ended December 31, 2003.
10.30* Biogen Idec Inc. Supplemental Savings Plan, as amended. Filed as Exhibit 10.23 to our Annual Report on Form 10-K for the year ended December 31, 2015.
10.31* Biogen Idec Inc. Voluntary Board of Directors Savings Plan, as amended. Filed as Exhibit 10.24 to our Annual Report on Form 10-K for the year ended December 31, 2015.
10.32* Biogen Inc. Executive Severance Policy - U.S. Executive Vice President, as amended effective June 19, 2019. Filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
10.33* Biogen Inc. Executive Severance Policy - U.S. Executive Vice President, as amended effective July 13, 2020. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
10.34* Annual Retainer Summary for Board of Directors (effective January 1, 2020). Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
Exhibit No. Description
10.35* Form of indemnification agreement for directors and executive officers. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 7, 2011.
10.36* Employment Agreement between Biogen Inc. and Michel Vounatsos dated December 18, 2016 and effective as of January 6, 2017. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on December 19, 2016.
10.37* Letter regarding employment arrangement of Michael McDonnell dated July 16, 2020. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
10.38* Letter regarding employment arrangement of Susan Alexander dated December 13, 2005. Filed as Exhibit 10.58 to our Annual Report on Form 10-K for the year ended December 31, 2009.
10.39* Letter regarding employment arrangement of Alfred W. Sandrock, Jr. dated May 7, 2013. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
10.40* Letter regarding employment arrangement of Alfred Sandrock dated October 19, 2015. Filed as Exhibit 10.37 to our Annual Report on Form 10-K for the year ended December 31, 2015.
10.41* Letter regarding employment arrangement of Chirfi Guindo dated October 12, 2017. Filed as Exhibit 10.41 to our Annual Report on Form 10-K for the year ended December 31, 2020.
10.42* Letter regarding employment arrangement of Jeffrey Capello dated November 14, 2017. Filed as Exhibit 10.31 to our Annual Report on Form 10-K for the year ended December 31, 2017.
10.43* Separation Agreement between Biogen Inc. and Jeffrey Capello dated July 16, 2020. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
10.44 Joint Venture Agreement, dated December 6, 2011, by and between Samsung BioLogics Co., Ltd. and Biogen Therapeutics Inc. (f/k/a Biogen Idec Therapeutics Inc.), as amended February 28, 2012, September 29, 2014, and February 20, 2019. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.
21+ Subsidiaries.
23+ Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm.
31.1+ Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+ Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1++ Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101++ The following materials from Biogen Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flow, (v) the Consolidated Statements of Equity and (vi) Notes to Consolidated Financial Statements.
* Management contract or compensatory plan or arrangement.
† Confidential treatment has been granted or requested with respect to portions of this exhibit.
+ Filed herewith.
++ Furnished herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIOGEN INC.
By: /S/ MICHEL VOUNATSOS
Michel Vounatsos
Chief Executive Officer
Date: February 3, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Capacity Date
/S/ MICHEL VOUNATSOS
Director and Chief Executive Officer (principal executive officer) February 3, 2022
Michel Vounatsos
/S/ MICHAEL R. MCDONNELL
Executive Vice President and Chief Financial Officer (principal financial officer) February 3, 2022
Michael R. McDonnell
/S/ ROBIN C. KRAMER
Senior Vice President, Chief Accounting Officer (principal accounting officer) February 3, 2022
Robin C. Kramer
/S/ STELIOS PAPADOPOULOS
Director and Chairman of the Board of Directors February 3, 2022
Stelios Papadopoulos
/S/ ALEXANDER J. DENNER
Director February 3, 2022
Alexander J. Denner
/S/ CAROLINE D. DORSA
Director February 3, 2022
Caroline D. Dorsa
/S/ MARIA C. FREIRE
Director February 3, 2022
Maria C. Freire
/S/ WILLIAM A. HAWKINS
Director February 3, 2022
William A. Hawkins
/S/ WILLIAM D. JONES
Director February 3, 2022
William D. Jones
/S/ NANCY L. LEAMING
Director February 3, 2022
Nancy L. Leaming
/S/ JESUS B. MANTAS
Director February 3, 2022
Jesus B. Mantas
/S/ RICHARD C. MULLIGAN
Director February 3, 2022
Richard C. Mulligan
/S/ BRIAN S. POSNER
Director February 3, 2022
Brian S. Posner
/S/ ERIC K. ROWINSKY
Director February 3, 2022
Eric K. Rowinsky
/S/ STEPHEN A. SHERWIN
Director February 3, 2022
Stephen A. Sherwin
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Page Number
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flow
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In millions)
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In millions)
Preferred stock Common stock Additional
paid-in
capital Accumulated
other
comprehensive
loss Retained
earnings Treasury stock Total
Biogen Inc.
shareholders’
equity Noncontrolling
interests Total
equity
Shares Amount Shares Amount Shares Amount
Balance, December 31, 2019 - $ - 198.0 $ 0.1 $ - $ (135.2) $ 16,455.4 (23.8) $ (2,977.1) $ 13,343.2 $ (4.1) $ 13,339.1
Net income - - - - - - 4,000.6 - - 4,000.6 59.9 4,060.5
Other comprehensive income (loss), net of tax - - - - - (163.8) - - - (163.8) 1.0 (162.8)
Distribution to noncontrolling interest - - - - - - - - - - (75.0) (75.0)
Capital contribution from noncontrolling interest - - - - - - - - - - 4.0 4.0
Repurchase of common stock pursuant to the 2020 Share Repurchase Program, at cost - - - - - - - (1.6) (400.0) (400.0) - (400.0)
Retirement of common stock pursuant to the 2020 Share Repurchase Program, at cost - - (1.6) - (60.8) - (339.2) 1.6 400.0 - - -
Repurchase of common stock pursuant to the December 2019 Share Repurchase Program, at cost - - - - - - - (16.7) (5,000.0) (5,000.0) - (5,000.0)
Retirement of common stock pursuant to the December 2019 Share Repurchase Program, at cost - - (16.7) - (121.3) - (4,878.7) 16.7 5,000.0 - - -
Repurchase of common stock pursuant to the March 2019 Share Repurchase Program, at cost - - - - - - - (4.1) (1,279.1) (1,279.1) - (1,279.1)
Retirement of common stock pursuant to the March 2019 Share Repurchase Program, at cost - - (4.1) - (71.0) - (1,208.1) 4.1 1,279.1 - - -
Issuance of common stock under stock option and stock purchase plans - - 0.2 - 49.3 - - - - 49.3 - 49.3
Issuance of common stock under stock award plan - - 0.4 - - - (53.7) - - (53.7) - (53.7)
Compensation expense related to share-based payments - - - - 204.5 - - - - 204.5 - 204.5
Other - - - - (0.7) - - - - (0.7) - (0.7)
Balance, December 31, 2020 - $ - 176.2 $ 0.1 $ - $ (299.0) $ 13,976.3 (23.8) $ (2,977.1) $ 10,700.3 $ (14.2) $ 10,686.1
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In millions)
Preferred stock Common stock Additional
paid-in
capital Accumulated
other
comprehensive
loss Retained
earnings Treasury stock Total
Biogen Inc.
shareholders’
equity Noncontrolling
interests Total
equity
Shares Amount Shares Amount Shares Amount
Balance, December 31, 2018 - $ - 221.0 $ 0.1 $ - $ (240.4) $ 16,257.0 (23.8) $ (2,977.1) $ 13,039.6 $ (8.0) $ 13,031.6
Net income - - - - - - 5,888.5 - - 5,888.5 - 5,888.5
Other comprehensive income (loss), net of tax - - - - - 105.2 - - - 105.2 (0.4) 104.8
Capital contribution from noncontrolling interest - - - - - - - - - - 4.3 4.3
Repurchase of common stock pursuant to the March 2019 Share Repurchase Program, at cost - - - - - - - (14.7) (3,720.9) (3,720.9) - (3,720.9)
Retirement of common stock pursuant to the March 2019 Share Repurchase Program, at cost - - (14.7) - (121.5) - (3,599.4) 14.7 3,720.9 - - -
Repurchase of common stock pursuant to the 2018 Share Repurchase Program, at cost - - - - - - - (8.9) (2,147.4) (2,147.4) - (2,147.4)
Retirement of common stock pursuant to the 2018 Share Repurchase Program, at cost - - (8.9) - (110.5) - (2,036.9) 8.9 2,147.4 - - -
Issuance of common stock under stock option and stock purchase plans - - 0.2 - 40.8 - - - - 40.8 - 40.8
Issuance of common stock under stock award plan - - 0.4 - - - (53.8) - - (53.8) - (53.8)
Compensation expense related to share-based payments - - - - 191.2 - - - - 191.2 - 191.2
Balance, December 31, 2019 - $ - 198.0 $ 0.1 $ - $ (135.2) $ 16,455.4 (23.8) $ (2,977.1) $ 13,343.2 $ (4.1) $ 13,339.1
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
References in these notes to "Biogen," the "company," "we," "us" and "our" refer to Biogen Inc. and its consolidated subsidiaries.
Business Overview
Biogen is a global biopharmaceutical company focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. We have a leading portfolio of medicines to treat multiple sclerosis (MS), have introduced the first approved treatment for spinal muscular atrophy (SMA) and are providing the first and only approved treatment to address a defining pathology of Alzheimer’s disease. We also commercialize biosimilars of advanced biologics and focus on advancing our pipeline in neuroscience and specialized immunology. Lastly, we are focused on accelerating our efforts in digital health to support our commercial and pipeline programs while also creating opportunities for potential digital therapeutics. We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.
Our marketed products include TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; ADUHELM for the treatment of Alzheimer's disease; and FUMADERM for the treatment of severe plaque psoriasis. We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions; RITUXAN HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular lymphoma; OCREVUS for the treatment of primary progressive MS (PPMS) and relapsing MS (RMS); and other potential anti-CD20 therapies, including mosunetuzumab, pursuant to our collaboration arrangements with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group. For additional information on our collaboration arrangements with Genentech, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Our innovative drug development and commercialization activities are complemented by our biosimilar business that expands access to medicines and reduces the cost burden for healthcare systems. Through our agreements with Samsung Bioepis Co., Ltd. (Samsung Bioepis), our joint venture with Samsung BioLogics Co., Ltd. (Samsung BioLogics), we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE, in certain countries in Europe. We have also secured the exclusive rights to commercialize BYOOVIZ, a ranibizumab biosimilar referencing LUCENTIS, which was approved in the U.S., the E.U. and the U.K. during the third quarter of 2021. For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Consolidation
Our consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100.0% of the economics, we record net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of a variable interest entity, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or more of our collaborators or partners.
Use of Estimates
The preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenue and expense and related
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and assumptions. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenue and expense. Actual results may differ from these estimates.
The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including sales, expense, reserves and allowances, the supply chain, manufacturing, clinical trials, research and development costs and employee-related costs, depends on future developments that are highly uncertain, subject to change and are difficult to predict, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of the COVID-19 pandemic within our consolidated financial statements and there may be changes to those estimates in future periods.
Revenue Recognition
We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenue following the five-step model prescribed under the FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligations.
Product Revenue
In the U.S., we sell our products primarily to wholesale distributors and specialty pharmacy providers. In other countries, we sell our products primarily to wholesale distributors, hospitals, pharmacies and other third-party distribution partners. These customers subsequently resell our products to health care providers and patients. In addition, we enter into arrangements with health care providers and payors that provide for government-mandated or privately-negotiated discounts and allowances related to our products.
Product revenue is recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial.
Reserves for Discounts and Allowances
Product revenue is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payors, including those associated with the implementation of pricing actions in certain of the international markets in which we operate.
Product revenue reserves, which are classified as a reduction in product revenue, are generally characterized in the following categories: discounts, contractual adjustments and returns.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). Our estimates of reserves established for variable consideration are calculated based upon a consistent application of our methodology utilizing the expected value method. These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.
Discounts include trade term discounts and wholesaler incentives. Trade term discounts and wholesaler incentives primarily relate to estimated obligations for credits to be granted to wholesalers for remitting payment on their purchases within established incentive periods and credits to be granted to wholesalers for compliance with various contractually-defined inventory management practices, respectively. We determine these reserves based on our historical experience, including the timing of customer payments.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contractual adjustments primarily relate to Medicaid and managed care rebates in the U.S., pharmacy rebates, co-payment (copay) assistance, Veterans Administration (VA) and Public Health Service (PHS) discounts, specialty pharmacy program fees and other governmental rebates or applicable allowances.
•Medicaid rebates relate to our estimated obligations to states under established reimbursement arrangements. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities in our consolidated balance sheets. Our liability for Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoices received for claims from the prior quarters that have not been paid and an estimate of potential claims that will be made for inventory that exists in the distribution channel at period end.
•Governmental rebates or chargebacks, including VA and PHS discounts, represent our estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices we charge to wholesalers which provide those products. The wholesaler charges us for the difference between what the wholesaler pays for the products and the ultimate selling price to the qualified healthcare providers. Rebate and chargeback reserves are established in the same period as the related revenue is recognized, resulting in a reduction of product revenue and a reduction in the net accounts receivable. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider from the wholesaler, and we generally issue credits for such amounts within a few weeks of the wholesaler notifying us about the resale. Our reserves for VA, PHS and chargebacks consist of amounts that we expect to issue for inventory that exists at the wholesalers that we expect will be sold to qualified healthcare providers and chargebacks that wholesalers have claimed for which we have not issued a credit.
•Managed care rebates represent our estimated obligations to third-parties, primarily pharmacy benefit managers. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities in our consolidated balance sheets. These rebates result from performance-based goals, formulary position and price increase limit allowances (price protection). The calculation of the accrual for these rebates is based on an estimate of the coverage patterns and the resulting applicable contractual rebate rate(s) to be earned over a contractual period.
•Copay assistance represents financial assistance to qualified patients, assisting them with prescription drug co-payments required by insurance. The calculation of the accrual for copay is based on an estimate of claims and the cost per claim that we expect to receive associated with inventory that exists in the distribution channel at period end.
•Pharmacy rebates represent our estimated obligations resulting from contractual commitments to sell products to specific pharmacies. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities in our consolidated balance sheets. These rebates result from contracted discounts on product purchased or product dispensed. The calculation of the accrual for these rebates is based on an estimate of the pharmacy’s buying or dispensing patterns and the resulting applicable contractual rebate rate(s) to be earned over the contractual period.
•Other governmental rebates, non-U.S. pharmaceutical taxes or applicable allowances primarily relate to mandatory rebates and discounts in international markets where government-sponsored healthcare systems are the primary payors for healthcare.
Product return reserves are established for returns made by wholesalers and are recorded in the period the related revenue is recognized, resulting in a reduction to product revenue. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Expired product return reserves are estimated through a comparison of historical return data to their related sales on a production lot basis. Historical rates of return are determined for each product and are adjusted for known or expected changes in the marketplace specific to each product.
In addition to discounts, rebates and product returns, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and
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distribution services, which are generally reflected as a reduction of revenue. To the extent we can demonstrate a separable benefit and fair value for these services we classify these payments in selling, general and administrative expense in our consolidated statements of income.
Revenue from Anti-CD20 Therapeutic Programs
Our collaboration with Genentech is within the scope of ASC 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. For purposes of this footnote, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
Our share of the pre-tax co-promotion profits on RITUXAN and GAZYVA and royalty revenue on the sale of OCREVUS resulted from an exchange of a license. As we do not have future performance obligations under the license or collaboration agreement, revenue is recognized as the underlying sales occur.
Revenue from anti-CD20 therapeutic programs consist of:
(i) our share of pre-tax profits and losses in the U.S. for RITUXAN and GAZYVA; and
(ii) other revenue from anti-CD20 therapeutic programs, which primarily consist of our share of pre-tax co-promotion profits on RITUXAN in Canada and royalty revenue on sales of OCREVUS.
Pre-tax co-promotion profits on RITUXAN and GAZYVA are calculated and paid to us by Genentech and the Roche Group. Pre-tax co-promotion profits consist of net sales to third-party customers less applicable costs to manufacture, third-party royalty expense, distribution, selling and marketing expense and joint development expense incurred by Genentech and the Roche Group. Our share of the pre-tax profits on RITUXAN and GAZYVA include estimates that are based on information received from Genentech and the Roche Group. These estimates are subject to change and actual results may differ.
We recognize royalty revenue on sales of OCREVUS based on our estimates from third-party and market research data of OCREVUS sales occurring during the corresponding period. Differences between actual and estimated royalty revenue will be adjusted for in the period in which they become known, which is generally expected to be the following quarter.
For additional information on our relationship with Genentech, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Other Revenue
Royalty Revenue
We recognize royalty revenue related to sales by our licensees of products covered under patents that we own.
Collaborative and Other Relationships
We have a number of significant collaborative and other third-party relationships for revenue and for the development, regulatory approval, commercialization and marketing of certain of our products and product candidates. Where we are the principal on sales transactions with third-parties, we recognize revenue, cost of sales and operating expense on a gross basis in their respective lines in our consolidated statements of income. Where we are not the principal on sales transactions with third-parties, we record our share of the revenue, cost of sales and operating expense on a net basis in collaborative and other relationships included in other revenue in our consolidated statements of income.
Our development and commercialization arrangements with Genentech and Samsung Bioepis represent collaborative arrangements as each party is an active participant in one or more joint operating activities and is exposed to significant risks and rewards of these arrangements. These arrangements resulted from an exchange of a license and utilize the sales and usage based royalty exception. Therefore, revenue relating to royalties or profit-sharing amounts received is recognized as the underlying sales occur.
For additional information on our collaboration arrangements with Genentech and Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
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Other Corporate Revenue
We record other corporate revenue primarily from amounts earned under contract manufacturing agreements. Revenue under contract manufacturing agreements is recognized when the customer obtains control of the product, which may occur at a point in time or over time depending on the terms and conditions of the agreement.
Fair Value Measurements
We have certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
•Level 1 - Fair values are determined utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access;
•Level 2 - Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves, foreign currency spot rates and option pricing valuation models; and
•Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The majority of our financial assets have been classified as Level 2. Our financial assets (which include our cash equivalents, marketable debt securities and certain of our marketable equity securities, derivative contracts and plan assets for deferred compensation) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third-party pricing services or option pricing valuation models. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.
We validate the prices provided by our third-party pricing services by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances. The option pricing valuation models use assumptions within the model, including the term, stock price volatility, constant maturity risk-free interest rate and dividend yield. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our pricing services as of December 31, 2021 and 2020.
Other Assets and Liabilities
The carrying amounts reflected in our consolidated balance sheets for current accounts receivable, due from anti-CD20 therapeutic programs, other current assets, accounts payable and accrued expense and other, approximate fair value due to their short-term maturities.
Cash and Cash Equivalents
We consider only those investments that are highly liquid, readily convertible to cash and that mature within three months from date of purchase to be cash equivalents. As of December 31, 2021 and 2020, cash equivalents were comprised of money market funds, commercial paper, overnight reverse repurchase agreements and other debt securities with maturities less than 90 days from the date of purchase.
Accounts Receivable
The majority of our accounts receivable arise from product sales and primarily represent amounts due from our wholesale and other third-party distributors, public hospitals, pharmacies and other government entities and have standard payment terms that generally require payment within 30 to 90 days.
We do not adjust our receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale.
In countries where we have experienced a pattern of payments extending beyond our contractual payment term and we expect to collect receivables greater than one year from the time of sale, we have assessed whether the customer has a significant financing component and discounted our receivables and reduced related revenue over the period of time that we estimate those amounts will be paid using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as non-current assets. We accrete interest
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income on these receivables, which is recorded as a component of other income (expense), net in our consolidated statements of income.
We provide reserves against accounts receivable for estimated losses that may result from a customer's inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, investments, derivatives and accounts receivable. We attempt to minimize the risks related to cash and cash equivalents and investments by investing in a broad and diverse range of financial instruments as previously defined by us. We have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. We minimize credit risk resulting from derivative instruments by choosing only highly rated financial institutions as counterparties.
Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these conditions and assess their possible impact on our business.
Marketable Securities and Other Investments
Marketable Debt Securities
Available-for-sale marketable debt securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensive income (loss) in equity, net of related tax effects, unless the security has experienced a credit loss, we have determined that we have the intent to sell the security or we have determined that it is more likely than not that we will have to sell the security before its expected recovery. Realized gains and losses are reported in other income (expense), net on a specific identification basis.
Marketable Equity Securities and Venture Capital Funds
Our marketable equity securities are recorded at fair market value and unrealized gains and losses are included in other income (expense), net in our consolidated statements of income. Our marketable equity securities represent investments in publicly traded equity securities and are included in investments and other assets in our consolidated balance sheets.
Our investments in venture capital funds are recorded at net asset value, which approximates fair value, and unrealized gains and losses are included in other income (expense), net in our consolidated statements of income. The underlying investments of the venture capital funds in which we invest are in equity securities of certain biotechnology companies and are included in investments and other assets in our consolidated balance sheets.
Non-Marketable Equity Securities
We also invest in equity securities of companies whose securities are not publicly traded and where fair value is not readily available. These investments are recorded using either the equity method of accounting or the cost minus impairment adjusted for changes in observable prices, depending on our ownership percentage and other factors that suggest we have significant influence. We monitor these investments to evaluate whether any increase or decline in their value has occurred, based on the implied value of recent company financings, public market prices of comparable companies and general market conditions. These investments are included in investments and other assets in our consolidated balance sheets.
Evaluating Marketable Debt Securities for Other-than-Temporary Impairments
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale debt securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income (loss).
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For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected in earnings as an impairment loss.
Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.
Equity Method of Accounting
In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, we utilize the equity method of accounting for recording investment activity. In assessing whether we exercise significant influence, we consider the nature and magnitude of our investment, the voting and protective rights we hold, any participation in the governance of the other company and other relevant factors such as the presence of a collaborative or other business relationship. Under the equity method of accounting, we record in our consolidated statements of income our share of income or loss of the other company. If our share of losses exceeds the carrying value of our investment, we will suspend recognizing additional losses and will continue to do so unless we commit to providing additional funding.
Inventory
Inventories are stated at the lower of cost or net realizable value with cost based on the first-in, first-out method. We classify our inventory costs as long-term when we expect to utilize the inventory beyond our normal operating cycle and include these costs in investments and other assets in our consolidated balance sheets. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical manufacturing campaign.
Capitalization of Inventory Costs
We capitalize inventory costs associated with our products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. We consider numerous attributes in evaluating whether the costs to manufacture a particular product should be capitalized as an asset. We assess the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety or efficacy concerns, potential labeling restrictions and other impediments to approval. We evaluate our anticipated research and development initiatives and constraints relating to the product and the indication in which it will be used. We consider our manufacturing environment including our supply chain in determining logistical constraints that could hamper approval or commercialization. We consider the shelf life of the product in relation to the expected timeline for approval and we consider patent related or contract issues that may prevent or delay commercialization. We also base our judgment on the viability of commercialization, trends in the marketplace and market acceptance criteria. Finally, we consider the reimbursement strategies that may prevail with respect to the product and assess the economic benefit that we are likely to realize. We expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by necessary regulatory bodies.
Obsolescence and Unmarketable Inventory
At each reporting period we review our inventories for excess or obsolescence and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than that estimated by us, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required. Additionally, our products are subject to strict quality control and monitoring that we perform throughout the manufacturing process. In the event that certain batches or units of product no longer meet quality specifications, we will record a charge to cost of sales to write-down any unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of cost or its estimated net realizable value. Amounts written-down due to unmarketable inventory are charged to cost of sales in our consolidated statements of income.
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Property, Plant and Equipment
Property, plant and equipment are carried at cost, subject to reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The cost of normal, recurring or periodic repairs and maintenance activities related to property, plant and equipment are expensed as incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if the repair will result in future economic benefits.
Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the interest costs are amortized as depreciation expense over the life of the underlying asset. We also capitalize certain direct and incremental costs associated with the validation effort required for licensing by regulatory agencies of new manufacturing equipment for the production of a commercially approved drug. These costs primarily include direct labor and material and are incurred in preparing the equipment for its intended use. The validation costs are either amortized over the life of the related equipment or expensed as cost of sales when the product produced in the validation process is sold.
In addition, we capitalize certain internal use computer software development costs. If the software is an integral part of production assets, these costs are included in machinery and equipment and are amortized on a straight-line basis over the estimated useful lives of the related software, which generally range from three to five years.
We generally depreciate or amortize the cost of our property, plant and equipment using the straight-line method over the estimated useful lives of the respective assets, which are summarized as follows:
Asset Category Useful Lives
Land Not depreciated
Buildings 15 to 40 years
Leasehold Improvements Lesser of the useful life or the term of the respective lease
Furniture and Fixtures 5 to 7 years
Machinery and Equipment 5 to 20 years
Computer Software and Hardware 3 to 5 years
When we dispose of property, plant and equipment, we remove the associated cost and accumulated depreciation from the related accounts in our consolidated balance sheets and include any resulting gain or loss in our consolidated statements of income.
Leases
We determine if an arrangement is a lease at contract inception. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We use the implicit rate when readily determinable and use our incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments. Our incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease.
The lease payments used to determine our operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable and are recognized in our operating lease assets in our consolidated balance sheets. Our lease agreements may include both lease and non-lease components, which we account for as a single lease component when the payments are fixed. Variable payments included in the lease agreement are expensed as incurred. For certain equipment leases, such as vehicles, we apply a portfolio approach to effectively account for the operating lease assets and liabilities.
Our operating leases are reflected in operating lease assets, accrued expense and other and in long-term operating lease liabilities in our consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We also have real estate lease agreements which are subleased to third-parties. Operating leases for which we are the sublessor are included in accrued expense and other and other long-term liabilities in our consolidated
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balance sheets. We recognize sublease income on a straight-line basis over the lease term in our consolidated statements of income.
For additional information on our leases, please read Note 11, Leases, to these consolidated financial statements.
Intangible Assets
Our intangible assets consist of completed technology (comprised of acquired and in-licensed rights and patents, developed technology, out-licensed patents), in-process research and development (IPR&D) acquired after January 1, 2009, trademarks and trade names. Our intangible assets are recorded at fair value at the time of their acquisition and are stated in our consolidated balance sheets net of accumulated amortization and impairments, if applicable.
Intangible assets related to acquired and in-licensed rights and patents, developed technology and out-licensed patents are amortized over their estimated useful lives using the economic consumption method if anticipated future revenue can be reasonably estimated. The straight-line method is used when revenue cannot be reasonably estimated. Amortization is recorded within amortization and impairment of acquired intangible assets in our consolidated statements of income.
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan Pharma International Ltd. (Elan), an affiliate of Elan Corporation, plc. Acquired and in-licensed rights and patents also include other amounts related to our other marketed products and programs acquired through business combinations. Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. We amortize the intangible assets related to our TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products using the economic consumption method based on revenue generated from the products underlying the related intangible assets. An analysis of the anticipated lifetime revenue of our TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products is performed annually during our long-range planning cycle and whenever events or changes in circumstances would significantly affect the anticipated lifetime revenue of our TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products.
Intangible assets related to trademarks, trade names and IPR&D prior to commercialization are not amortized because they have indefinite lives; however, they are subject to review for impairment. We review our intangible assets with indefinite lives for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Acquired In-process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects and discounting the net cash flow to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing a new drug. Additionally, the projections consider the relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by us and our competitors. The rates utilized to discount the net cash flow to their present value are commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections. Upon the acquisition of IPR&D, we complete an assessment of whether our acquisition constitutes the purchase of a single asset or a group of assets. We consider multiple factors in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flow, the development process and stage of completion, quantitative significance and our rationale for entering into the transaction.
If we acquire a business as defined under applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in our consolidated statements of income as they are incurred.
When performing our impairment assessment, we calculate the fair value using the same methodology as described above. If the carrying value of our acquired IPR&D exceeds its fair value, then the intangible asset is written down to its fair value. Changes in estimates and assumptions used in determining the fair value of our
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acquired IPR&D could result in an impairment. Impairments are recorded within amortization and impairment of acquired intangible assets in our consolidated statements of income.
Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but is reviewed for impairment. Goodwill is reviewed for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.
We compare the fair value of our reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, we would record an impairment loss equal to the difference. As described in Note 24, Segment Information, to these consolidated financial statements, we operate in one operating segment, which is our only reporting unit.
Impairment of Long-Lived Assets
Long-lived assets to be held and used, including property, plant and equipment, and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future cash flow resulting from the use of the asset and its eventual disposition. In the event that such cash flow is not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their fair values. Long-lived assets to be disposed of are carried at fair value less costs to sell.
Contingent Consideration
The consideration for our acquisitions often includes future payments that are contingent upon the occurrence of a particular event or events. We record an obligation for such contingent payments at fair value on the acquisition date. We estimate the fair value of contingent consideration obligations through valuation models that incorporate probability-adjusted assumptions related to the achievement of the milestones and thus likelihood of making related payments. We revalue our contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations are recognized in our consolidated statements of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flow and reserves associated with products upon commercialization, changes in the assumed achievement or timing of any cumulative sales-based and development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval.
Discount rates in our valuation models represent a measure of the credit risk associated with settling the liability. The period over which we discount our contingent obligations is based on the current development stage of the product candidates, our specific development plan for that product candidate adjusted for the probability of completing the development step and when the contingent payments would be triggered. In estimating the probability of success, we utilize data regarding similar milestone events from several sources, including industry studies and our own experience. These fair value measurements are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.
Derivative Instruments and Hedging Activities
Cash Flow and Fair Value Derivative Instruments
We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. Changes in the fair value of our derivative instruments are recognized each period in current earnings or accumulated other comprehensive income (loss), depending on whether the derivative instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. We classify the cash flow from these instruments in the same category as the cash flow from the hedged items. We do not hold or issue derivative instruments for trading or speculative purposes.
We assess at inception and on an ongoing basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting the changes in cash flow or fair values of the hedged items. We exclude
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the forward points portion of the derivative instruments used in a hedging transaction from the effectiveness test and record the fair value gain or loss related to this portion each period in our consolidated statements of income in the same line as the underlying hedged item. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in current earnings.
Net Investment Derivative Instruments
We are exposed to the impact of foreign exchange fluctuations on our investment in the equity of Samsung Bioepis, which is denominated in a currency other than the U.S. dollar, and could adversely impact the U.S. dollar value of this investment. Using derivative instruments, we have hedged our net investment position to mitigate the effects of foreign exchange fluctuations. We recognize these designated net investment hedges as either assets or liabilities, at fair value, in our consolidated balance sheets. We hedge the changes in the spot exchange rate in accumulated other comprehensive income (loss) and exclude changes to the forward rate and amortize the forward points in other income (expense), net in our consolidated statements of income over the term of the contract. We classify the cash flow from these instruments in the same category as the cash flow from the hedged items.
For additional information on our derivative instruments and hedging activities, please read Note 9, Derivative Instruments, to these consolidated financial statements.
Translation of Foreign Currencies
The functional currency for most of our foreign subsidiaries is their local currency. For our non-U.S. subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign currency exchange rates for the period. Adjustments resulting from the translation of the financial statements of our foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income (loss), as a separate component of equity. For subsidiaries where the functional currency of the assets and liabilities differ from the local currency, non-monetary assets and liabilities are translated at the rate of exchange in effect on the date assets were acquired while monetary assets and liabilities are translated at current rates of exchange as of the balance sheet date. Income and expense items are translated at the average foreign currency rates for the period. Translation adjustments of these subsidiaries are included in other income (expense), net in our consolidated statements of income.
Royalty Cost of Sales
We make royalty payments to a number of third-parties under license or purchase agreements associated with our acquisition of intellectual property. These royalty payments are typically calculated as a percentage (royalty rate) of the sales of our products in a particular year. That royalty rate may remain constant, increase or decrease within each year based on the total amount of sales during the annual period. Each quarterly period, we estimate our total royalty obligation for the full year and recognize the proportional amount as cost of sales based on actual quarterly sales as a percentage of full year estimated sales. For example, if the level of net sales in any calendar year increases the royalty rate within the year, we will record our cost of sales at an even rate over the year, based on the estimated blended royalty rate.
Accounting for Share-Based Compensation
Our share-based compensation programs grant awards that have included stock options, restricted stock units that vest based on stock performance known as market stock units (MSUs), performance-vested restricted stock units that settle in cash (CSPUs), time-vested restricted stock units (RSUs), performance-vested restricted stock units that can be settled in cash or shares of our common stock (PUs) at the sole discretion of the Compensation and Management Development Committee of our Board of Directors, performance-vested stock units that settle in stock or cash (PSUs) and shares issued under our employee stock purchase plan (ESPP). Compensation expense is recognized based on the estimated fair value of the awards at grant date. We recognize compensation expense for the number of awards expected to vest after taking into consideration an estimate of award forfeitures over the requisite service period, which is generally the vesting period. Where awards are made with non-substantive vesting periods (for instance, where a portion of the award vests upon retirement eligibility), we estimate and recognize expense based on the period from the grant date to the date the employee becomes retirement eligible.
The fair values of our MSUs are estimated using a lattice model with a Monte Carlo simulation. We apply an accelerated attribution method to recognize share-based compensation expense over the applicable service period
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for our MSUs. The probability of actual shares expected to be earned is considered in the grant date valuation, therefore the expense is not adjusted to reflect the actual units earned.
The fair values of our RSUs are based on the market value of our stock on the date of grant. Compensation expense for RSUs is recognized straight-line over the applicable service period.
We apply an accelerated attribution method to recognize share-based compensation expense when accounting for our CSPUs, PUs and PSUs that settle in cash, and the fair value of the liability is remeasured at the end of each reporting period through expected settlement. Compensation expense associated with CSPUs, PUs and PSUs that settle in cash are based upon the stock price and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the targeted payout level associated with the performance criteria expected to be achieved. Cumulative adjustments are recorded each quarter to reflect changes in the stock price and estimated outcome of the performance-related conditions until the date results are determined and settled. If performance criteria are not met or not expected to be met, any compensation expense previously recognized to date associated with the awards will be reversed.
The fair values of PSUs that settle in stock are based upon the stock price on the date of grant. Compensation expense is recognized for the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the targeted payout level associated with the performance criteria expected to be achieved. Cumulative adjustments are recorded each quarter to reflect the estimated outcome of the performance-related conditions until the date results are determined and settled. If performance criteria are not met or not expected to be met, any compensation expense previously recognized to date associated with the awards will be reversed.
Research and Development Expense
Research and development expense consists of expenses incurred in performing research and development activities, which include compensation and benefits, facilities and overhead expense, clinical trial expense and fees paid to contract research organizations (CROs), clinical supply and manufacturing expense, write-offs of inventory that was previously capitalized in anticipation of product launch and determined to no longer be realizable and other outside expense and upfront fees and milestones paid to third-party collaborators. Research and development expense is expensed as incurred. Upfront and milestone payments made to third-party collaborators are expensed as incurred up to the point of regulatory approval. Milestone payments made upon regulatory approval are capitalized and amortized over the remaining useful life of the related product. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets in our consolidated balance sheets and are expensed as the services are provided. We also accrue the costs of ongoing clinical trials associated with programs that have been terminated or discontinued for which there is no future economic benefit at the time the decision is made to terminate or discontinue the program.
From time to time, we enter into development agreements in which we share expenses with a collaborative partner. We record payments received from our collaborative partners for their share of the development costs as a reduction of research and development expense, except as discussed in Note 18, Collaborative and Other Relationships, to these consolidated financial statements. Because an initial indication has been approved for both RITUXAN and GAZYVA, expense incurred by Genentech in the ongoing development of RITUXAN and GAZYVA are not recorded as research and development expense, but rather reduce our share of profits recorded as a component of revenue from anti-CD20 therapeutic programs.
For collaborations with commercialized products, if we are the principal, we record revenue and the corresponding operating costs in their respective line items in our consolidated statements of income. If we are not the principal, we record operating costs as a reduction of revenue.
Selling, General and Administrative Expense
Selling, general and administrative expense is primarily comprised of compensation and benefits associated with sales and marketing, finance, human resources, legal, information technology and other administrative personnel, outside marketing, advertising and legal expense and other general and administrative costs.
Advertising costs are expensed as incurred. For the years ended December 31, 2021, 2020 and 2019, advertising costs totaled $98.7 million, $111.8 million and $79.2 million, respectively.
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Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. We recognize deferred taxes associated with our global intangible low-taxed income (GILTI) tax calculations.
The income tax consequences from the intra-entity transfers of inventory within our consolidated group, both current and deferred, are recorded as a prepaid tax or deferred charge and recognized through our consolidated statements of income when the inventory is sold to a third-party. The income tax consequences from the intra-entity transfer of assets other than inventory and associated changes to deferred taxes are recognized when the transfer occurs.
We account for uncertain tax positions using a “more likely than not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in process audit activities and changes in facts or circumstances related to a tax position. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax (benefit) expense in our consolidated statements of income.
Contingencies
We are currently involved in various claims and legal proceedings. Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated or a range of loss can be determined. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. Significant judgment is required in both the determination of probability and as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may change our estimates. Legal costs associated with legal proceedings are expensed when incurred.
Earnings per Share
Basic earnings per share is computed by dividing undistributed net income attributable to Biogen Inc. by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed based on the treasury method by dividing net income by the weighted-average number of common shares outstanding during the period plus potentially dilutive common equivalent shares outstanding.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed below, we do not believe that the adoption of recently issued standards have or may have a material impact on our consolidated financial statements or disclosures.
Income Taxes
In December 2019 the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard removes certain exceptions to the general principles in Topic 740 and simplifies certain other aspects of the accounting for income taxes. This standard became effective for us on January 1, 2021, and did not have a material impact on our consolidated financial statements and related disclosures.
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2. ACQUISITIONS
BIIB118 Acquisition
In March 2020 we acquired BIIB118 (CK1 inhibitor) for the potential treatment of patients with behavioral and neurological symptoms across various psychiatric and neurological diseases from Pfizer Inc. (Pfizer). We are developing BIIB118 for the potential treatment of irregular sleep wake rhythm disorder in Parkinson’s disease and plan to develop BIIB118 for the potential treatment of sundowning in Alzheimer's disease.
In connection with this acquisition, we made an upfront payment of $75.0 million to Pfizer, which was accounted for as an asset acquisition and recorded as acquired IPR&D in our consolidated statements of income as BIIB118 has not yet reached technological feasibility. We may also pay Pfizer up to $635.0 million in potential additional development and commercialization milestone payments as well as tiered royalties in the high single digits to sub-teens.
Acquisition of Nightstar Therapeutics plc
In June 2019 we completed our acquisition of all of the outstanding shares of Nightstar Therapeutics plc (NST), a clinical-stage gene therapy company focused on adeno-associated virus treatments for inherited retinal disorders. As a result of this acquisition, we added two mid- to late-stage clinical assets, as well as preclinical programs, in ophthalmology. These assets included BIIB111 (timrepigene emparvovec), for the potential treatment of choroideremia, and BIIB112 (cotoretigene toliparvovec), for the potential treatment of X-linked retinitis pigmentosa.
Under the terms of the acquisition, we paid NST shareholders $25.50 in cash for each issued and outstanding NST share, which totaled $847.6 million. In addition, we paid $4.6 million in cash for equity compensation, which was attributable to pre-combination services and was reflected as a component of the total purchase price paid. The fair value of equity compensation attributable to the post-combination service period was $26.2 million, of which $18.4 million was recognized as a charge to selling, general and administrative expense with the remaining $7.8 million as a charge to research and development expense in our consolidated statements of income. These amounts were associated with the accelerated vesting of stock options previously granted to NST employees and were fully paid in cash as of June 30, 2019. We funded this acquisition through available cash and accounted for it as an acquisition of a business. We finalized purchase accounting for this acquisition in the fourth quarter of 2019.
The fair value of the IPR&D programs acquired was determined through a probability adjusted discounted cash flow analysis utilizing a discount rate of 12.5%. We recorded IPR&D assets for BIIB111 and BIIB112 at their initial fair values of $480.0 million and $220.0 million, respectively. Some of the more significant assumptions utilized in our asset valuations included the estimated net cash flows for each year for each asset or product, including net revenue, cost of sales, research and development and other operating expense, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream as well as other factors. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 fair value measurements.
We recognized goodwill in relation to the fair value associated with NST workforce's expertise and early research in retinal disorders. We also recognized goodwill in relation to the establishment of a deferred tax liability for the acquired IPR&D intangible assets, which have no tax basis. This deferred tax liability is net of the related impacts on the deferred taxes for GILTI. Goodwill that is tax deductible for GILTI purposes was approximately $60.9 million.
There is no remaining book value associated with either BIIB111 or BIIB112 as of December 31, 2021, as we have fully impaired both of these IPR&D assets. For additional information, please read Note 6, Intangible Assets and Goodwill, to these consolidated financial statements.
3. DIVESTITURES
Divestiture of Hillerød, Denmark Manufacturing Operations
In August 2019 we completed the sale of all of the outstanding shares of our subsidiary that owned our biologics manufacturing operations in Hillerød, Denmark to FUJIFILM Corporation (FUJIFILM). Upon the closing of this transaction, we received approximately $881.9 million in cash, which may be adjusted based on other contractual terms, which are discussed below. We determined that the operations disposed of in this transaction did not meet the criteria to be classified as discontinued operations under the applicable guidance.
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As part of this transaction, we provided FUJIFILM with certain minimum batch production commitment guarantees. There is a risk that the minimum contractual batch production commitments will not be met. Based upon current estimates we do not expect to incur an adverse commitment obligation associated with such guarantees. We may further adjust this estimate based upon changes in business conditions, which may result in the increase or reduction of this adverse commitment obligation in subsequent periods. We also may be obligated to indemnify FUJIFILM for liabilities that existed relating to certain business activities incurred prior to the closing of this transaction.
In addition, we may earn certain contingent payments based on future manufacturing activities at the Hillerød facility. For the disposition of a business, our policy is to recognize contingent consideration when the consideration is realizable. We currently believe the probability of earning these payments is remote and therefore we did not include these contingent payments in our calculation of the fair value of the operations.
As part of this transaction, we entered into certain manufacturing services agreements with FUJIFILM pursuant to which FUJIFILM will use the Hillerød facility to produce commercial products for us, such as TYSABRI, as well as other third-party products.
For the year ended December 31, 2019, we recognized a total net loss of approximately $124.2 million related to the transaction in our consolidated statements of income. This loss included a pre-tax loss of $55.3 million, which was recorded in loss on divestiture of Hillerød, Denmark manufacturing operations. The loss recognized was based on exchange rates and business conditions on the closing date of this transaction, and included costs to sell our Hillerød, Denmark manufacturing operations of approximately $11.2 million and our estimate of the fair value of adverse commitments of approximately $74.0 million, primarily associated with the guarantee of future minimum batch production at the Hillerød facility. We also recorded a tax expense of $68.9 million related to this transaction.
During the year ended December 31, 2020, we reduced our estimate of the fair value of the adverse commitment associated with the guarantee of future batch production by approximately $62.0 million based on our current manufacturing forecasts. Additionally, we recorded a reduction to our pre-tax loss of approximately $30.5 million due to a refund of interest paid associated with a tax matter.
Our estimate of the fair value of the adverse commitments is a Level 3 measurement and is based on forecasted batch production at the Hillerød facility.
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4. REVENUE
Product Revenue
Revenue by product are summarized as follows:
(1) Fumarate includes TECFIDERA and VUMERITY. VUMERITY became commercially available in the E.U. during the fourth quarter of 2021.
(2) Interferon includes AVONEX and PLEGRIDY.
(3) In June 2021 the FDA granted accelerated approval of ADUHELM, which became commercially available in the U.S. during the second quarter of 2021. For additional information, please read Note 18, Collaborative and Other Relationships - Eisai Co., Ltd. - ADUHELM Collaboration Agreement, to these consolidated financial statements.
We recognized revenue from two wholesalers accounting for 28.8% and 10.1% of gross product revenue in 2021, 30.5% and 15.3% of gross product revenue in 2020 and 30.0% and 17.2% of gross product revenue in 2019, respectively.
As of December 31, 2021, two wholesale distributors individually accounted for approximately 21.9% and 10.2% of net accounts receivable associated with our product sales, as compared to 21.1% and 8.5% as of December 31, 2020, respectively.
An analysis of the change in reserves for discounts and allowances is summarized as follows:
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December 31, 2020
(In millions) Discounts Contractual
Adjustments Returns Total
Beginning balance $ 131.1 $ 1,027.3 $ 40.5 $ 1,198.9
Current provisions relating to sales in current year 774.7 3,308.8 19.0 4,102.5
Adjustments relating to prior years (1.0) (54.0) 1.3 (53.7)
Payments/credits relating to sales in current year (635.1) (2,426.1) - (3,061.2)
Payments/credits relating to sales in prior years (128.3) (763.0) (19.2) (910.5)
Ending balance $ 141.4 $ 1,093.0 $ 41.6 $ 1,276.0
December 31, 2019
(In millions) Discounts Contractual
Adjustments Returns Total
Beginning balance $ 127.8 $ 888.8 $ 34.7 $ 1,051.3
Current provisions relating to sales in current year 666.2 3,011.5 20.9 3,698.6
Adjustments relating to prior years 0.3 (54.1) 5.5 (48.3)
Payments/credits relating to sales in current year (535.5) (2,242.9) (0.2) (2,778.6)
Payments/credits relating to sales in prior years (127.7) (576.0) (20.4) (724.1)
Ending balance $ 131.1 $ 1,027.3 $ 40.5 $ 1,198.9
The total reserves above, which are included in our consolidated balance sheets, are summarized as follows:
Revenue from Anti-CD20 Therapeutic Programs
Revenue from anti-CD20 therapeutic programs is summarized in the table below. For purposes of this footnote, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
Approximately 15.1%, 14.7% and 15.9% of our total revenue in 2021, 2020 and 2019, respectively, was derived from our collaboration arrangements with Genentech. For additional information on our collaboration arrangements with Genentech, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
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Other Revenue
Other revenue is summarized as follows:
Other corporate revenue primarily reflects amounts earned under contract manufacturing agreements with our strategic customers, including Bioverativ Inc. (Bioverativ). During the years ended December 31, 2021, 2020 and 2019, we recognized $18.2 million, $48.6 million and $383.2 million, respectively, in revenue under the manufacturing and supply agreement with Bioverativ entered into in connection with the spin-off of our hemophilia business.
During the third quarter of 2019, we amended our agreement with a contract manufacturing customer pursuant to which we licensed certain of our manufacturing-related intellectual property to the customer. In the second quarter of 2020, the customer received regulatory approval for its product that is being manufactured using certain of our manufacturing-related intellectual property. As a result we were entitled to $500.0 million in a series of three payments. The first payment became due upon a regulatory approval of such product and was received during the second quarter of 2020. The second payment became due upon the first anniversary of the regulatory approval and was received during the second quarter of 2021. The third payment is due on the second anniversary of the regulatory approval.
Other corporate revenue for the year ended December 31, 2020, reflects $346.2 million related to the delivery of the license for certain of our manufacturing-related intellectual property under the amended agreement, as discussed above, and the performance of manufacturing product supply services for such customer. We have allocated the remaining $153.8 million of the $500.0 million transaction price to the performance of manufacturing product supply services for the customer, which we expect to perform through 2026. The value allocated to the manufacturing services was based on expected demand for supply and the fair value of comparable manufacturing and development services.
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
5. INVENTORY
The components of inventory are summarized as follows:
Inventory amounts written down as a result of excess, obsolescence or unmarketability are charged to cost of sales, and totaled $167.6 million, $26.6 million and $52.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Upon review of the ADUHELM inventory it was determined that a portion of the inventory will not be consumed prior to product expiration based on our latest estimates of forecasted demand. During the fourth quarter of 2021
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we wrote-off approximately $120.0 million of inventory in excess of forecasted demand related to ADUHELM, which was recognized in cost of sales within our consolidated statements of income. As of December 31, 2021, we had approximately $223.0 million of inventory related to ADUHELM. For additional information please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
6. INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments are summarized as follows:
Amortization and Impairments
Amortization and impairment of acquired intangible assets totaled $881.3 million, $464.8 million and $489.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Amortization of acquired intangible assets, excluding impairment charges, totaled $252.0 million, $255.1 million and $274.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. The decrease in amortization of acquired intangible assets, excluding impairment charges, over the three years was primarily due to a lower rate of amortization for acquired intangible assets.
For the year ended December 31, 2021, amortization and impairment of acquired intangible assets reflects the impact of a $365.0 million impairment charge related to BIIB111, a $220.0 million impairment charge related to BIIB112 and a $44.3 million impairment charge related to vixotrigine (BIIB074) for the potential treatment of trigeminal neuralgia (TGN).
For the year ended December 31, 2020, amortization and impairment of acquired intangible assets reflects the impact of a $115.0 million impairment charge related to BIIB111, a $75.4 million impairment charge related to BIIB054 (cinpanemab) and a $19.3 million impairment charge related to one of our other IPR&D intangible assets.
For the year ended December 31, 2019, amortization and impairment of acquired intangible assets reflects the impact of a $215.9 million impairment charge related to certain IPR&D assets associated with the Phase 2b study of BG00011 (STX-100) for the potential treatment of idiopathic pulmonary fibrosis (IPF), which was discontinued in the third quarter of 2019.
Completed Technology
Completed technology primarily relates to our acquisition of all remaining rights to TYSABRI as well as other amounts related to our other marketed products and programs acquired through business combinations.
IPR&D Related to Business Combinations
IPR&D represents the fair value assigned to research and development assets that we acquired as part of a business combination and had not yet reached technological feasibility at the date of acquisition. Included in IPR&D balances are adjustments related to foreign currency exchange rate fluctuations. We review amounts capitalized as acquired IPR&D for impairment annually, as of October 31, and whenever events or changes in circumstances indicate to us that the carrying value of the assets might not be recoverable. The carrying value associated with our IPR&D assets as of December 31, 2021, relates to the IPR&D programs we acquired in connection with our acquisition of Convergence Pharmaceuticals Holdings Ltd. (Convergence).
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Vixotrigine
In the periods since we acquired vixotrigine, there have been numerous delays in the initiation of Phase 3 studies for the potential treatment of TGN and for the potential treatment of DPN, another form of neuropathic pain. We have engaged with the U.S. Food and Drug Administration (FDA) regarding the design of the Phase 3 studies of vixotrigine for the potential treatment of TGN and DPN and are now performing an additional clinical trial of vixotrigine.
The performance of this additional clinical trial delayed the initiation of the Phase 3 studies of vixotrigine for the potential treatment of TGN, and, as a result, we recognized an impairment charge of $44.3 million related to vixotrigine for the potential treatment of TGN during the first quarter of 2021. As of December 31, 2021, the carrying value associated with the remaining IPR&D asset for DPN was $132.7 million and the fair value of this asset was not significantly in excess of its carrying value.
BIIB111 and BIIB112
During the fourth quarter of 2020 we recognized an impairment charge of $115.0 million related to BIIB111 as a result of third-party manufacturing delays that impacted the timing and increased the costs associated with advancing BIIB111 through Phase 3 development.
During the second quarter of 2021 we announced that our Phase 3 STAR study of BIIB111 and our Phase 2/3 XIRIUS study of BIIB112 did not meet their primary endpoints. In the third quarter of 2021 we suspended further development on these programs based on the decision by management as part of its strategic review process. For the year ended December 31, 2021, we recognized an impairment charge of $365.0 million related to BIIB111 and an impairment charge of $220.0 million related to BIIB112, reducing the remaining book values of these IPR&D intangible assets to zero.
In addition, for the year ended December 31, 2021, as a result of our decision to suspend further development of BIIB111 and BIIB112, we recognized charges of approximately $39.1 million related to our manufacturing arrangements and other costs that we expect to incur as a result of suspending these programs, which were recorded as research and development expense in our consolidated statements of income.
BIIB054
In February 2021 we announced that we discontinued development of BIIB054 as a potential treatment of Parkinson's disease as our Phase 2 SPARK study did not meet its primary or secondary endpoints. Although we made this determination in February 2021, it was based on conditions that existed as of December 31, 2020. As a result, we recognized an impairment charge of approximately $75.4 million during the fourth quarter of 2020 to reduce the fair value of the related IPR&D intangible asset to zero.
The IPR&D impairment charges were included in amortization and impairment of acquired intangible assets and the gain resulting from the remeasurement of our contingent consideration obligation was recorded in (gain) loss on fair value remeasurement of contingent consideration in our consolidated statements of income. The fair value of the intangible assets and contingent consideration obligations were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value measurements and inputs including estimated revenue, costs and probabilities of success.
Estimated Future Amortization of Intangible Assets
The estimated future amortization of finite-lived intangible assets for the next five years is expected to be as follows:
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Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
As of December 31, 2021, we had no accumulated impairment losses related to goodwill. Other includes adjustments related to foreign currency exchange rate fluctuations.
7. FAIR VALUE MEASUREMENTS
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
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As of December 31, 2020
(In millions) Total Quoted Prices
in Active Markets
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents $ 626.9 $ - $ 626.9 $ -
Marketable debt securities:
Corporate debt securities 1,301.5 - 1,301.5 -
Government securities 627.1 - 627.1 -
Mortgage and other asset backed securities 122.4 - 122.4 -
Marketable equity securities 1,974.3 271.1 1,703.2 -
Derivative contracts 20.5 - 20.5 -
Plan assets for deferred compensation 28.2 - 28.2 -
Total $ 4,700.9 $ 271.1 $ 4,429.8 $ -
Liabilities:
Derivative contracts $ 217.2 $ - $ 217.2 $ -
Contingent consideration obligations 259.8 - - 259.8
Total $ 477.0 $ - $ 217.2 $ 259.8
There have been no material impairments of our assets measured and carried at fair value during the years ended December 31, 2021 and 2020. In addition, there have been no changes in valuation techniques during the years ended December 31, 2021 and 2020. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities was determined through third-party pricing services. The fair value of Level 2 instruments classified as marketable equity securities represents our investments in the common stock of Sangamo Therapeutics, Inc. (Sangamo), Denali Therapeutics Inc. (Denali) and Sage Therapeutics, Inc. (Sage) and are valued using an option pricing valuation model as the investments are each subject to certain holding period restrictions. The holding period restrictions for a portion of our Sangamo investment expired during the second quarter of 2021. The fair value of this portion of our Sangamo investment was a Level 1 measurement as of December 31, 2021. For additional information on our investments in Sangamo, Denali and Sage common stock, please read Note 8, Financial Instruments, to these consolidated financial statements.
For a description of our validation procedures related to prices provided by third-party pricing services and our option pricing valuation model, please read the Fair Value Measurements section within Note 1, Summary of Significant Accounting Policies, to these consolidated financial statements.
The following tables summarize the significant unobservable inputs in the fair value measurement of our contingent consideration obligations as of December 31, 2021 and 2020:
As of December 31, 2020
(In millions) Fair Value Valuation Technique Unobservable Input Range Weighted Average
Liabilities:
Contingent consideration obligation $259.8 Discounted cash flow Discount rate 0.60% 0.60%
Expected timing of achievement of development milestones 2021 to 2025 -
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The weighted average discount rate was calculated based on the relative fair value of our contingent consideration obligations. In addition, we apply various probabilities of technological and regulatory success, ranging from 10.9% to certain probability as of December 31, 2021, to the valuation models to estimate the fair values of our contingent consideration obligations.
Nonrecurring Fair Value Measurements
For the year ended December 31, 2021, we recorded impairment charges of $365.0 million related to BIIB111 and $220.0 million related to BIIB112. As a result, the remaining book values associated with these programs were reduced to zero. For additional information, please read Note 6, Intangible Assets and Goodwill, to these consolidated financial statements.
Debt Instruments
The fair values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
(1) In February 2021 we completed a private offer to exchange (Exchange Offer) our tendered 5.200% Senior Notes due September 15, 2045 (2045 Senior Notes), whereby approximately $624.6 million of our 2045 Senior Notes were exchanged for approximately $700.7 million of a new series of 3.250% Senior Notes due February 15, 2051 (2051 Senior Notes). For additional information on our Exchange Offer, please read Note 12, Indebtedness, to these consolidated financial statements.
The fair values of each of our series of Senior Notes were determined through market, observable and corroborated sources. For additional information related to our Senior Notes, please read Note 12, Indebtedness, to these consolidated financial statements.
Contingent Consideration Obligations
In connection with our acquisitions of Convergence and Biogen International Neuroscience GmbH (BIN), we agreed to make additional payments based upon the achievement of certain milestone events. The following table provides a roll forward of the fair values of our contingent consideration obligations, which includes Level 3 measurements:
As of December 31, 2021 and 2020, approximately $209.1 million and $110.3 million, respectively, of the fair value of our total contingent consideration obligations was reflected as a component of other long-term liabilities in our consolidated balance sheets with the remaining balance reflected as a component of accrued expense and other.
For the year ended December 31, 2021, changes in the fair value of our contingent consideration obligations were primarily due to reductions in the probability of technical and regulatory success and delays in the expected timing of the achievement of certain remaining developmental milestones related to our vixotrigine programs.
For the year ended December 31, 2020, changes in the fair value of our contingent consideration obligations were primarily due to our discontinuing development of BIIB054 for the potential treatment of Parkinson's disease, resulting in a reduction of our contingent consideration obligations of $51.0 million as well as other changes in the
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probability and the expected timing of the achievement of certain remaining developmental milestones, changes in the interest rates used to revalue our contingent consideration liabilities and the passage of time.
The fair values of the contingent consideration liabilities were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value measurements and inputs. For additional information on the valuation techniques and inputs utilized in the valuation of our financial assets and liabilities, please read Note 1, Summary of Significant Accounting Policies, to these consolidated financial statements.
Convergence Pharmaceuticals Holdings Limited
In connection with our acquisition of Convergence in February 2015 we recorded a contingent consideration obligation of $274.5 million. As of December 31, 2021 and 2020, the fair value of this contingent consideration obligation was $209.1 million and $259.8 million, respectively. Our most recent valuation was determined based upon net cash flow projections of $400.0 million, probability weighted and discounted using a rate of 1.3%, which is a measure of the credit risk associated with settling the liability.
Biogen International Neuroscience GmbH
In connection with our acquisition of BIN in December 2010 we recorded a contingent consideration obligation of $81.2 million. We discontinued further development of BIIB054 for the potential treatment of Parkinson's disease based on the results of a Phase 2 study of BIIB054. Additionally, during the third and fourth quarters of 2020 we discontinued other programs related to our acquisition of BIN for which we had immaterial contingent consideration obligations. As a result, the fair value of the contingent consideration obligations related to our acquisition of BIN was adjusted to zero, resulting in a gain of $101.5 million for the year ended December 31, 2020.
Acquired IPR&D
The fair values of the acquired IPR&D assets were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value measurements and inputs including estimated revenue and probabilities of success. These assets are tested for impairment annually until commercialization, after which time the acquired IPR&D will be amortized over its estimated useful life using the economic consumption method.
In connection with our acquisition of NST, we recognized $480.0 million and $220.0 million of acquired IPR&D intangible assets for BIIB111 and BIIB112, respectively. During the fourth quarter of 2020 we recognized an impairment charge of $115.0 million related to BIIB111. During the third quarter of 2021 we suspended further development on these programs and recognized an impairment charge of $365.0 million related to BIIB111 and an impairment charge of $220.0 million related to BIIB112, reducing the fair value of these IPR&D intangible assets to zero.
In connection with our acquisition of BIN, we recognized a $110.9 million acquired IPR&D intangible asset. During the fourth quarter of 2020 we discontinued further development of BIIB054 for the potential treatment of Parkinson's disease and recognized an impairment charge of $75.4 million to reduce the fair value of the IPR&D intangible asset to zero.
In connection with our acquisition of Stromedix Inc., we recognized a $219.2 million acquired IPR&D intangible asset. During the third quarter of 2019 we discontinued the Phase 2b study of BG00011 for the potential treatment of IPF and recognized an impairment charge of $215.9 million to reduce the fair value of the IPR&D intangible asset to zero.
For additional information on our IPR&D intangible assets, including a discussion of our most significant assumptions, please read Note 6, Intangible Assets and Goodwill, to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. FINANCIAL INSTRUMENTS
The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included in cash and cash equivalents in our consolidated balance sheets:
The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, money market funds and our short-term debt securities approximate fair value due to their short-term maturities.
Our marketable equity securities gains (losses) are recorded in other income (expense), net in our consolidated statements of income. The following tables summarize our marketable debt and equity securities, classified as available for sale:
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2020
(In millions) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Marketable debt securities:
Corporate debt securities:
Current $ 897.8 $ 0.4 $ (0.2) $ 898.0
Non-current 402.5 1.1 (0.1) 403.5
Government securities:
Current 380.6 0.1 - 380.7
Non-current 245.9 0.5 - 246.4
Mortgage and other asset backed securities:
Current 0.2 - - 0.2
Non-current 122.1 0.2 (0.1) 122.2
Total marketable debt securities $ 2,049.1 $ 2.3 $ (0.4) $ 2,051.0
Marketable equity securities:
Marketable equity securities, current $ 70.6 $ 15.9 $ - $ 86.5
Marketable equity securities, non-current 1,168.9 733.8 (14.9) 1,887.8
Total marketable equity securities $ 1,239.5 $ 749.7 $ (14.9) $ 1,974.3
Summary of Contractual Maturities: Available-for-Sale Debt Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
The average maturity of our marketable debt securities available-for-sale as of December 31, 2021 and 2020, was approximately 10 months and 11 months, respectively.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
Realized losses for the year ended December 31, 2021, 2020 and 2019, primarily relate to sales of corporate bonds, agency mortgage-backed securities and other asset-backed securities.
Strategic Investments
As of December 31, 2021 and 2020, our strategic investment portfolio was comprised of investments totaling $1,110.3 million and $2,024.6 million, respectively, which are included in other current assets and investments and other assets in our consolidated balance sheets.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies, which are reflected within our disclosures included in Note 7, Fair Value Measurements, to these consolidated financial statements, venture capital funds where the underlying investments are in equity securities of certain biotechnology companies and non-marketable equity securities.
The decrease in our strategic investment portfolio for the year ended December 31, 2021, was primarily due to decreases in the fair value of our investments in Denali, Ionis Pharmaceuticals, Inc. (Ionis), Sage and Sangamo common stock.
Sage Therapeutics, Inc.
In November 2020 we entered into a global collaboration and license agreement with Sage. In connection with the closing of this transaction in December 2020 we purchased $650.0 million of Sage common stock, or approximately 6.2 million shares at approximately $104.14 per share, which are subject to transfer restrictions. This investment is classified as a Level 2 marketable equity security due to certain holding period restrictions and is remeasured each reporting period and carried at fair value. The effects of certain holding period restrictions on the investment are estimated using an option pricing valuation model. The most significant assumptions within the model are the term of the restrictions and the stock price volatility, which is based upon historical volatility of similar companies. We also use a constant maturity risk free-interest rate to match the remaining term of the restrictions on our investment in Sage's common stock and a dividend yield of zero based upon the fact that Sage and similar companies generally have not historically granted cash dividends.
For additional information on our collaboration arrangement with Sage, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Denali Therapeutics Inc.
In August 2020 we entered into a collaboration and license agreement with Denali. As part of this collaboration we purchased $465.0 million of Denali common stock in September 2020, or approximately 13 million shares at approximately $34.94 per share, which are subject to transfer restrictions. This investment is classified as a Level 2 marketable equity security due to certain holding period restrictions and is remeasured each reporting period and carried at fair value. The effects of certain holding period restrictions on the investment are estimated using an option pricing valuation model. The most significant assumptions within the model are the term of the restrictions and the stock price volatility, which is based upon historical volatility of similar companies. We also use a constant maturity risk free-interest rate to match the remaining term of the restrictions on our investment in Denali's common stock and a dividend yield of zero based upon the fact that Denali and similar companies generally have not historically granted cash dividends.
For additional information on our collaboration agreement with Denali, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Sangamo Therapeutics, Inc.
In February 2020 we entered into a collaboration and license agreement with Sangamo. In connection with the closing of this transaction in April 2020 we purchased $225.0 million of Sangamo common stock, or approximately 24 million shares at approximately $9.21 per share, of which approximately 12 million shares remain subject to transfer restrictions as of December 31, 2021. This equity method investment will be remeasured each reporting period and carried at fair value due to our election of the fair value option. The effects of certain holding period restrictions on the investment are estimated using an option pricing valuation model. The most significant assumptions within the model are the term of the restrictions and the stock price volatility, which is based upon historical volatility of similar companies. We also use a constant maturity risk free-interest rate to match the remaining term of the restrictions on our investment in Sangamo's common stock and a dividend yield of zero based upon the fact that Sangamo and similar companies generally have not historically granted cash dividends.
For additional information on our collaboration agreement with Sangamo, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Samsung Bioepis
In June 2018 we exercised our option under our joint venture agreement with Samsung BioLogics to increase our ownership percentage in Samsung Bioepis from approximately 5.0% to approximately 49.9%. The share purchase transaction was completed in November 2018 and, upon closing, we paid 759.5 billion South Korean won ($676.6 million) to Samsung BioLogics.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2021 and 2020, the carrying value of our equity method investment in Samsung Bioepis totaled 713.3 billion South Korean won ($599.9 million) and 673.8 billion South Korean won ($620.2 million), respectively, which is classified as a component of investments and other assets within our consolidated balance sheets.
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
9. DERIVATIVE INSTRUMENTS
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenue and operating expense are recorded in currencies other than the U.S. dollar. The value of revenue and operating expense measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes, we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenue and operating expense.
Foreign currency forward contracts in effect as of December 31, 2021 and 2020, had durations of 1 to 15 months and 1 to 24 months, respectively. These contracts have been designated as cash flow hedges and unrealized gains or losses on the portion of these foreign currency forward contracts that are included in the effectiveness test are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the table below). Realized gains and losses of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized and in operating expense when the expense in the currency being hedged is recorded. We recognize all cash flow hedge reclassifications from accumulated other comprehensive income (loss) and fair value changes of excluded portions in the same line item in our consolidated statements of income that has been impacted by the hedged item.
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenue and operating expense is summarized as follows:
The pre-tax portion of the fair value of these foreign currency forward contracts that were included in accumulated other comprehensive income (loss) in total equity is summarized as follows:
We expect the net unrealized gains of $53.8 million to be settled over the next 15 months, of which $48.2 million of these unrealized gains are expected to be settled over the next 12 months, with any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue or operating expense. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of December 31, 2021 and 2020, credit risk did not materially change the fair value of our foreign currency forward contracts.
The following table summarizes the effect of foreign currency forward contracts designated as hedging instruments in our consolidated statements of income:
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Interest Rate Contracts - Hedging Instruments
We have entered into interest rate lock contracts or interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes and to reduce our overall cost of borrowing.
Interest Rate Swap Contracts
In connection with the issuance of our 2.90% Senior Notes due September 15, 2020, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which were originally set to expire on September 15, 2020. The interest rate swap contracts were designated as hedges of the fair value changes in our 2.90% Senior Notes attributable to changes in interest rates. In May 2020 we settled our interest rate swap contracts, in conjunction with our early redemption of our 2.90% Senior Notes, resulting in a gain of approximately $3.3 million, which was recorded as a component of interest expense in our consolidated statements of income during the year ended December 31, 2020.
Net Investment Hedges - Hedging Instruments
In February 2012 we entered into a joint venture agreement with Samsung BioLogics establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar products. In June 2018 we exercised our option under our joint venture agreement to increase our ownership percentage in Samsung Bioepis from approximately 5.0% to approximately 49.9%. The share purchase transaction was completed in November 2018 and, upon closing, we paid 759.5 billion South Korean won ($676.6 million) to Samsung BioLogics. Our investment in the equity of Samsung Bioepis is exposed to the currency fluctuations in the South Korean won.
In order to mitigate these currency fluctuations between the U.S. dollar and South Korean won, we have entered into foreign currency forward contracts. Foreign currency forward contracts in effect as of December 31, 2021, had remaining durations of 10 months. These contracts have been designated as net investment hedges. We recognize changes in the spot exchange rate in accumulated other comprehensive income (loss). The pre-tax portion of the fair value of these foreign currency forward contracts that were included in accumulated other comprehensive income (loss) in total equity reflected net gains of $10.6 million and net losses of $21.2 million as of December 31, 2021 and 2020, respectively. We exclude fair value changes related to the forward rate from our hedging relationship and will amortize the forward points in other income (expense), net in our consolidated statements of income over the term of the contract. The pre-tax portion of the fair value of the forward points that were included in accumulated other comprehensive income (loss) in total equity reflected net losses of $3.6 million and net gains of $0.2 million as of December 31, 2021 and 2020, respectively.
The following table summarizes the effect of our net investment hedges in our consolidated financial statements:
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Foreign Currency Forward Contracts - Other Derivative Instruments
We also enter into other foreign currency forward contracts, usually with durations of one month or less, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The aggregate notional amount of these outstanding foreign currency forward contracts was $1,268.0 million and $1,158.0 million as of December 31, 2021 and 2020, respectively. Net losses of $43.3 million, net gains of $30.1 million and net losses of $5.9 million related to these contracts were recorded as a component of other income (expense), net for the years ended December 31, 2021, 2020 and 2019, respectively.
Summary of Derivative Instruments
While certain of our derivative instruments are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our consolidated balance sheets. The amounts in the table below would not be substantially different if the derivative assets and liabilities were offset.
The following table summarizes the fair value and presentation in our consolidated balance sheets of our outstanding derivative instruments, including those designated as hedging instruments:
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Components of property, plant and equipment, net are summarized as follows:
Depreciation expense totaled $235.3 million, $201.9 million and $190.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.
For the years ended December 31, 2021, 2020 and 2019, we capitalized interest costs related to construction in progress totaling approximately $36.3 million, $65.2 million and $68.8 million, respectively.
Solothurn, Switzerland Manufacturing Facility
In order to support our future growth and drug development pipeline, we are building a large-scale biologics manufacturing facility in Solothurn, Switzerland. Upon completion, this facility will include 393,000 square feet
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
related to a large-scale biologics manufacturing facility, 290,000 square feet of warehouse, utilities and support space and 51,000 square feet of administrative space. As of December 31, 2021 and 2020, we had approximately $677.0 million and $1.8 billion, respectively, capitalized as construction in progress related to this facility. In the second quarter of 2021, a portion of the facility received a Good Manufacturing Practice multi-product license from the Swiss Agency for Therapeutic Products, resulting in approximately $1.2 billion of fixed assets being placed in service during the second quarter of 2021.
11. LEASES
We lease real estate, including laboratory and office space, and certain equipment.
Our leases have remaining lease terms ranging from less than one year to nine years. Certain leases include one or more options to renew, exercised at our sole discretion, with renewal terms that can extend the lease term from one year to six years.
In addition, we sublease certain real estate to third-parties. Our sublease portfolio consists of operating leases, with remaining lease terms ranging from three years to seven years. Our subleases do not include an option to renew as they are coterminous with our operating leases.
All of our leases qualify as operating leases. The following table summarizes the presentation in our consolidated balance sheets of our operating leases:
The following table summarizes the effect of lease costs in our consolidated statements of income:
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Variable lease cost primarily related to operating expense, taxes and insurance associated with our operating leases. As these costs are generally variable in nature, they are not included in the measurement of the operating lease asset and related lease liability.
The minimum lease payments for the next five years and thereafter is expected to be as follows:
The weighted average remaining lease term and weighted average discount rate of our operating leases are as follows:
Supplemental disclosure of cash flow information related to our operating leases included in cash flow provided by operating activities in our consolidated statements of cash flow is as follows:
12. INDEBTEDNESS
Our indebtedness is summarized as follows:
(1) In February 2021 we completed our Exchange Offer of our tendered 2045 Senior Notes, whereby approximately $624.6 million of our 2045 Senior Notes were exchanged for approximately $700.7 million of our 2051 Senior Notes.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Exchange Offer
In February 2021 we completed our Exchange Offer of our tendered 2045 Senior Notes for our 2051 Senior Notes and cash, and an offer to purchase our tendered 2045 Senior Notes for cash.
An aggregate principal amount of approximately $624.6 million of our 2045 Senior Notes was exchanged for an aggregate principal amount of approximately $700.7 million of our 2051 Senior Notes and aggregate cash payments of approximately $151.8 million. Our Exchange Offer has been accounted for as a debt modification; as such, the cash component has been reflected as additional debt discount and is amortized as an adjustment to interest expense over the term of our 2051 Senior Notes.
In addition, we redeemed an aggregate principal amount of approximately $8.9 million of our 2045 Senior Notes for aggregate cash payments of approximately $12.1 million, excluding accrued and unpaid interest. The redemption has been accounted for as a debt extinguishment; as such, we recognized a pre-tax charge of $3.2 million upon the extinguishment of such 2045 Senior Notes. This charge, which was recognized in interest expense in other income (expense), net in our consolidated statements of income for the year ended December 31, 2021, reflects the payment of an early call premium and the write-off of the remaining unamortized original debt issuance costs and discount balances associated with such 2045 Senior Notes.
Upon settlement, we also made aggregate cash payments of approximately $13.8 million to settle all accrued and unpaid interest from the last interest payment date on our 2045 Senior Notes that were exchanged or redeemed. We incurred approximately $6.1 million of costs associated with our Exchange Offer, which was recognized in interest expense in other income (expense), net in our consolidated statements of income for the year ended December 31, 2021.
2020 Senior Notes
On April 30, 2020, we issued senior unsecured notes for an aggregate principal amount of $3.0 billion (2020 Senior Notes), consisting of the following:
•$1.5 billion aggregate principal amount of 2.25% Senior Notes due May 1, 2030, valued at 99.973% of par; and
•$1.5 billion aggregate principal amount of 3.15% Senior Notes due May 1, 2050, valued at 99.174% of par.
Our 2020 Senior Notes are senior unsecured obligations and may be redeemed at our option at any time at 100.0% of the principal amount plus accrued interest and, until a specified period before maturity, a specified make-whole amount. Our 2020 Senior Notes contain a change-of-control provision that, under certain circumstances, may require us to purchase our 2020 Senior Notes at a price equal to 101.0% of the principal amount plus accrued and unpaid interest to the date of repurchase.
We incurred approximately $24.4 million of costs associated with this offering, which have been recorded as a reduction to the carrying amount of the debt on our consolidated balance sheet. These costs will be amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. The discounts will be amortized as additional interest expense over the period from issuance through maturity using the effective interest rate method. Interest on our 2020 Senior Notes is payable May 1 and November 1 of each year, commencing November 1, 2020.
2015 Senior Notes
The following is a summary of our currently outstanding senior secured notes issued in 2015 (the 2015 Senior Notes), consisting of the following:
•$1.0 billion aggregate principal amount of 3.625% Senior Notes due September 15, 2022, valued at 99.920% of par;
•$1.75 billion aggregate principal amount of 4.05% Senior Notes due September 15, 2025, valued at 99.764% of par; and
•$1.12 billion aggregate principal amount of 5.20% Senior Notes due September 15, 2045, valued at 99.294% of par.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The original costs associated with this offering of approximately $47.5 million have been recorded as a reduction to the carrying amount of the debt in our consolidated balance sheets. These costs along with the discounts will be amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity.
Our 2015 Senior Notes are senior unsecured obligations and may be redeemed at our option at any time at 100.0% of the principal amount plus accrued interest and a specified make-whole amount. Our 2015 Senior Notes contain a change of control provision that may require us to purchase the notes at a price equal to 101.0% of the principal amount plus accrued and unpaid interest to the date of purchase under certain circumstances.
On September 15, 2015, we issued $1.5 billion aggregate principal amount of 2.90% Senior Notes due September 15, 2020, at 99.792% of par. Our 2.90% Senior Notes were senior unsecured obligations. In connection with the 2.90% Senior Notes, we entered into interest rate swap contracts where we received a fixed rate and paid a variable rate. In May 2020 we used the net proceeds from the sale of our 2020 Senior Notes to redeem our 2.90% Senior Notes prior to their maturity and recognized a net pre-tax charge of $9.4 million upon the extinguishment of these notes. This charge, which was recognized in interest expense in other income (expense), net in our consolidated statements of income for the year ended December 31, 2020, reflects the payment of a $12.7 million early call premium and the write off of remaining unamortized original debt issuance costs and discount balances, partially offset by a $3.3 million gain related to the settlement of the associated interest rate swap contracts. For additional information on our interest rate contracts, please read Note 9, Derivative Instruments, to these consolidated financial statements.
2020 Credit Facility
In January 2020 we entered into a $1.0 billion, five-year senior unsecured revolving credit facility under which we are permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. This revolving credit facility replaced the revolving credit facility that we entered into in August 2015. As of December 31, 2021, we had no outstanding borrowings and were in compliance with all covenants under this facility.
Debt Maturity
The total gross payments due under our debt arrangements are as follows:
The fair value of our debt is disclosed in Note 7, Fair Value Measurements, to these consolidated financial statements.
13. EQUITY
Preferred Stock
We have 8.0 million shares of Preferred Stock authorized, of which 1.75 million shares are authorized as Series A, 1.0 million shares are authorized as Series X junior participating and 5.25 million shares are undesignated. Shares may be issued without a vote or action of shareholders from time to time in classes or series with the designations, powers, preferences and the relative, participating, optional or other special rights of the shares of each such class or series and any qualifications, limitations or restrictions thereon as set forth in the instruments governing such shares. Any such Preferred Stock may rank prior to common stock as to dividend rights, liquidation preference or both, and may have full or limited voting rights and may be convertible into shares of common stock. No shares of Preferred Stock were issued and outstanding during 2021, 2020 and 2019.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Common Stock
The following table describes the number of shares authorized, issued and outstanding of our common stock as of December 31, 2021, 2020 and 2019:
Share Repurchases
In October 2020 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2020 Share Repurchase Program). Our 2020 Share Repurchase Program does not have an expiration date. All share repurchases under our 2020 Share Repurchase Program will be retired. Under our 2020 Share Repurchase Program, we repurchased and retired approximately 6.0 million and 1.6 million shares of our common stock at a cost of approximately $1.8 billion and $400.0 million during the years ended December 31, 2021 and 2020, respectively. Approximately $2.8 billion remained available under our 2020 Share Repurchase Program as of December 31, 2021.
In December 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (December 2019 Share Repurchase Program), which was completed as of September 30, 2020. All shares repurchased under our December 2019 Share Repurchase Program were retired. Under our December 2019 Share Repurchase Program, we repurchased and retired approximately 16.7 million shares of our common stock at a cost of approximately $5.0 billion during the year ended December 31, 2020.
In March 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (March 2019 Share Repurchase Program), which was completed as of March 31, 2020. All shares repurchased under our March 2019 Share Repurchase Program were retired. Under our March 2019 Share Repurchase Program, we repurchased and retired approximately 4.1 million and 14.7 million shares of our common stock at a cost of approximately $1.3 billion and $3.7 billion during the years ended December 31, 2020 and 2019, respectively.
In August 2018 our Board of Directors authorized a program to repurchase up to $3.5 billion of our common stock (2018 Share Repurchase Program), which was completed as of June 30, 2019. All share repurchases under our 2018 Share Repurchase Program were retired. Under our 2018 Share Repurchase Program, we repurchased and retired approximately 8.9 million shares of our common stock at a cost of approximately $2.1 billion during the year ended December 31, 2019.
Amounts paid to repurchase shares in excess of their par value are allocated between additional paid-in capital and retained earnings, with payments in excess of our additional paid-in-capital balance recorded as a reduction to retained earnings.
Accumulated Other Comprehensive Income (Loss)
The following tables summarize the changes in accumulated other comprehensive income (loss), net of tax by component:
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2020
(In millions) Unrealized Gains (Losses) on Securities Available for Sale, Net of Tax Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax Gains (Losses) on Net Investment Hedge, Net of Tax Unfunded Status of Postretirement Benefit Plans, Net of Tax Currency Translation Adjustments Total
Balance, December 31, 2019 $ 4.2 $ 7.8 $ 25.1 $ (32.8) $ (139.5) $ (135.2)
Other comprehensive income (loss) before reclassifications (9.3) (165.0) (30.7) (33.5) 92.9 (145.6)
Amounts reclassified from accumulated other comprehensive income (loss) 6.5 (21.8) (2.9) - - (18.2)
Net current period other comprehensive income (loss) (2.8) (186.8) (33.6) (33.5) 92.9 (163.8)
Balance, December 31, 2020 $ 1.4 $ (179.0) $ (8.5) $ (66.3) $ (46.6) $ (299.0)
December 31, 2019
(In millions) Unrealized Gains (Losses) on Securities Available for Sale, Net of Tax Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax Gains (Losses) on Net Investment Hedge, Net of Tax Unfunded Status of Postretirement Benefit Plans, Net of Tax Currency Translation Adjustments Total
Balance, December 31, 2018 $ (4.0) $ 34.7 $ 3.5 $ (31.3) $ (243.3) $ (240.4)
Other comprehensive income (loss) before reclassifications 11.8 88.1 28.6 (1.5) 103.8 230.8
Amounts reclassified from accumulated other comprehensive income (loss) (3.6) (115.0) (7.0) - - (125.6)
Net current period other comprehensive income (loss) 8.2 (26.9) 21.6 (1.5) 103.8 105.2
Balance, December 31, 2019 $ 4.2 $ 7.8 $ 25.1 $ (32.8) $ (139.5) $ (135.2)
The following table summarizes the amounts reclassified from accumulated other comprehensive income (loss):
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. EARNINGS PER SHARE
Basic and diluted shares outstanding used in our earnings per share calculation are calculated as follows:
Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were insignificant.
Earnings per share for the years ended December 31, 2021, 2020 and 2019, reflects the repurchase of approximately 6.0 million shares, 22.4 million shares and 23.6 million shares of our common stock, respectively, under our share repurchase programs. For additional information on our share repurchase programs, please read Note 13, Equity, to these consolidated financial statements.
15. SHARE-BASED PAYMENTS
Share-Based Compensation Expense
The following table summarizes share-based compensation expense included in our consolidated statements of income:
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
As of December 31, 2021, unrecognized compensation cost related to unvested share-based compensation was approximately $235.5 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.9 years.
Share-Based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (i) the Biogen Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (ii) the Biogen Inc. 2017 Omnibus Equity Plan (2017 Omnibus Equity Plan); and (iii) the Biogen Inc. 2015 Employee Stock Purchase Plan (2015 ESPP).
Directors Plan
In May 2006 our shareholders approved the 2006 Directors Plan for share-based awards to our directors. Awards granted from the 2006 Directors Plan may include stock options, shares of restricted stock, RSUs, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the 2006 Directors Plan. We have reserved a total of 1.6 million shares of common stock for issuance under the 2006 Directors Plan. The 2006 Directors Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares reserved under the plan in a 1.5-to-1 ratio. In June 2015 our shareholders approved an amendment to extend the term of the 2006 Directors Plan until June 2025.
Omnibus Plan
In June 2017 our shareholders approved the 2017 Omnibus Equity Plan for share-based awards to our employees. Awards granted from the 2017 Omnibus Equity Plan may include stock options, shares of restricted stock, RSUs, performance shares, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the 2017 Omnibus Equity Plan. Shares of common stock available for grant under the 2017 Omnibus Equity Plan consist of 8.0 million shares reserved for this purpose, plus shares of common stock that remained available for grant under the Biogen Idec Inc. 2008 Omnibus Equity Plan (2008 Omnibus Equity Plan) as of June 7, 2017, or that could again become available for grant if outstanding awards under the 2008 Omnibus Equity Plan as of June 7, 2017, are cancelled, surrendered or terminated in whole or in part. The 2017 Omnibus Equity Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares available under the plan in a 1.5-to-1 ratio.
We have not made any awards pursuant to the 2008 Omnibus Equity Plan since our shareholders approved the 2017 Omnibus Equity Plan, and do not intend to make any awards pursuant to the 2008 Omnibus Equity Plan in the future, except that unused shares under the 2008 Omnibus Equity Plan have been carried over for use under the 2017 Omnibus Equity Plan.
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Stock Options
We currently do not grant stock options to our employees or directors. Outstanding stock options previously granted to our employees and directors generally have a 10-year term and vest over a period of between one and four years, provided the individual continues to serve at Biogen through the vesting dates. Options granted under all plans are exercisable at a price per share not less than the fair market value of the underlying common stock on the date of grant. All outstanding options were exercised as of December 31, 2020.
The total intrinsic values of options exercised in 2020 and 2019 totaled $2.9 million and $4.2 million, respectively.
The following table summarizes the amount of tax benefit realized for stock options and cash received from the exercise of stock options:
For the Years Ended December 31,
(In millions) 2020 2019
Tax benefit realized for stock options $ 2.9 $ 2.5
Cash received from the exercise of stock options 0.7 0.4
Market Stock Units (MSUs)
MSUs awarded to employees prior to 2014 vested in four equal annual increments beginning on the first anniversary of the grant date. Participants may ultimately earn between zero and 150.0% of the target number of units granted based on actual stock performance.
MSUs awarded to employees in 2014 and thereafter vest in three equal annual increments beginning on the first anniversary of the grant date, and participants may ultimately earn between zero and 200.0% of the target number of units granted based on actual stock performance.
The vesting of these awards is subject to the respective employee’s continued employment. The number of MSUs granted represents the target number of units that are eligible to be earned based on the attainment of certain market-based criteria involving our stock price. The number of MSUs earned is calculated at each annual anniversary from the date of grant over the respective vesting periods, resulting in multiple performance periods. Accordingly, additional MSUs may be issued or currently outstanding MSUs may be cancelled upon final determination of the number of awards earned.
The following table summarizes our MSU activity:
(1) MSUs granted during 2021 include awards granted in conjunction with our annual awards made in February 2021 and MSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant. MSUs granted in 2021 also reflect an adjustment based upon the final performance multiplier in relation to shares granted in 2020, 2019 and 2018.
We value grants of MSUs using a lattice model with a Monte Carlo simulation. This valuation methodology utilizes several key assumptions, the 30 calendar day average closing stock price on the date of grant for MSUs, expected volatility of our stock price, risk-free rates of return and expected dividend yield.
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The assumptions used in our valuation are summarized as follows:
The fair values of MSUs vested in 2021, 2020 and 2019 totaled $22.5 million, $26.9 million and $32.5 million, respectively.
Cash Settled Performance Units (CSPUs)
CSPUs awarded to employees vest in three equal annual increments beginning on the first anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment with such awards settled in cash. The number of CSPUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of each year. Participants may ultimately earn between zero and 200.0% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional CSPUs may be issued or currently outstanding CSPUs may be cancelled upon final determination of the number of units earned. CSPUs are classified as liability awards and will be settled in cash based on the 30 calendar day average closing stock price through each vesting date, once the actual vested and earned number of units is known. Since no shares are issued, these awards do not dilute equity. All remaining CSPUs were fully vested as of December 31, 2020.
The cash paid in settlement of CSPUs vested in 2020 and 2019 totaled $3.8 million and $10.6 million, respectively.
Performance-vested Restricted Stock Units (PUs)
PUs are granted to certain employees in the form of RSUs that may be settled in cash or shares of our common stock at the sole discretion of the Compensation and Management Development Committee of our Board of Directors. These awards are structured and accounted for the same way as the CSPUs, and vest in three equal annual increments beginning on the first anniversary of the grant date. The number of PUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of each year. Participants may ultimately earn between zero and 200.0% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional PUs may be issued or currently outstanding PUs may be cancelled upon final determination of the number of units earned. PUs settling in cash are based on the 30 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known. All remaining PUs were fully vested as of December 31, 2020.
All PUs that vested in 2020 and 2019 were settled in cash totaling $3.4 million and $10.4 million, respectively.
Performance Stock Units (PSUs)
PSUs Settled in Stock
During the first quarter of 2018 we began granting awards for performance-vested RSUs that will settle in stock. PSUs awarded to employees have a three-year performance period and vest on the third anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment. The number of PSUs granted represents the target number of units that are eligible to be earned based on the achievement of cumulative three-year performance measures established at the beginning of the performance period, which ends on December 31 of the third year of the performance period.
Participants may ultimately earn between zero and 200.0% of the target number of PSUs granted based on the degree of achievement of the applicable performance metric. Accordingly, additional PSUs may be issued or currently outstanding PSUs may be cancelled upon final determination of the number of units earned.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes our PSUs that settle in stock activity:
(1) PSUs settled in stock granted in 2021 include awards granted in conjunction with our annual awards made in February 2021 and PSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.
PSUs Settled in Cash
During the first quarter of 2018 we began granting awards for performance-vested restricted stock units that will settle in cash. PSUs awarded to employees have three performance periods and vest on the third anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment. The number of PSUs granted represents the target number of units that are eligible to be earned based on the achievement of three annual performance measures established when the performance objectives are defined, which will be at the beginning of each year and will end on December 31 of such year.
Participants may ultimately earn between zero and 200.0% of the target number of PSUs granted based on the degree of achievement of the applicable performance metric. Accordingly, additional PSUs may be issued or currently outstanding PSUs may be cancelled upon final determination of the number of units earned. PSUs are classified as liability awards and will be settled in cash based on the 30 calendar day average closing stock price through the vesting date, once the actual vested and earned number of PSUs is determined. Since no shares are issued, these awards do not dilute equity.
The following table summarizes our PSUs that settle in cash activity:
(1) PSUs settled in cash granted in 2021 include awards granted in conjunction with our annual awards made in February 2021 and PSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.
Time-Vested Restricted Stock Units (RSUs)
RSUs awarded to employees generally vest no sooner than one-third per year over three years on the anniversary of the date of grant, or upon the third anniversary of the date of the grant, provided the employee remains continuously employed with us, except as otherwise provided in the plan. Shares of our common stock will be delivered to the employee upon vesting, subject to payment of applicable withholding taxes. RSUs awarded to directors for service on our Board of Directors vest on the first anniversary of the date of grant, provided in each case that the director continues to serve on our Board of Directors through the vesting date. Shares of our common stock will be delivered to the director upon vesting and are not subject to any withholding taxes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes our RSU activity:
(1) RSUs granted in 2021 primarily represent RSUs granted in conjunction with our annual awards made in February 2021 and awards made in conjunction with the hiring of new employees. RSUs granted in 2021 also include approximately 10,000 RSUs granted to our Board of Directors.
RSUs granted in 2020 and 2019 had weighted average grant date fair values of $318.87 and $304.44, respectively.
The fair values of RSUs vested in 2021, 2020 and 2019 totaled $132.2 million, $140.5 million and $131.5 million, respectively.
Employee Stock Purchase Plan (ESPP)
In June 2015 our shareholders approved the 2015 ESPP. The maximum aggregate number of shares of our common stock that may be purchased under the 2015 ESPP is 6.2 million.
The following table summarizes our ESPP activity:
16. INCOME TAXES
Income Tax Expense
Income before income tax expense and the income tax expense consist of the following:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Transition Toll Tax
The Tax Cuts and Jobs Act of 2017 eliminated the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax). The Transition Toll Tax was assessed on our share of our foreign corporations' accumulated foreign earnings that were not previously taxed. Earnings in the form of cash and cash equivalents were taxed at a rate of 15.5% and all other earnings were taxed at a rate of 8.0%.
As of December 31, 2021 and 2020, we have accrued income tax liabilities of $633.0 million and $697.0 million, respectively, under the Transition Toll Tax. Of the amounts accrued as of December 31, 2021, approximately $72.7 million is expected to be paid within one year. The Transition Toll Tax will be paid in installments over an eight--year period, which started in 2018, and will not accrue interest.
Unremitted Earnings
At December 31, 2021, we considered our earnings not to be permanently reinvested outside the U.S. and therefore recorded deferred tax liabilities associated with an estimate of the total withholding taxes expected as a result of our repatriation of earnings. Other than for earnings, we are permanently reinvested for book/tax basis differences of approximately $1.5 billion as of December 31, 2021, primarily arising through the impacts of purchase accounting. These permanently reinvested basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which were considered probable as of December 31, 2021. The residual U.S. tax liability, if these differences reverse, would be between $300.0 million and $400.0 million as of December 31, 2021.
TECFIDERA
In 2020 U.S. federal courts in West Virginia and Delaware entered judgments in favor of the defendants in patent infringement proceedings relating to TECFIDERA Orange-Book listed patents. We appealed both decisions. In late 2021 the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) affirmed the judgment of the West Virginia federal court. The appeals in the Delaware cases were stayed and we expect will remain so until the decision in the West Virginia case becomes final. For additional information, please read Note 20, Litigation, to these consolidated financial statements.
Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA has significantly reduced our TECFIDERA revenue and is expected to continue to have a substantial and increasing negative impact on our U.S. TECFIDERA revenue in the future.
As of December 31, 2020, we assessed the realizability of our deferred tax assets that are dependent on future expected sales of TECFIDERA in the U.S. and reduced the net value of certain deferred tax assets by approximately $1.7 billion and reduced the net value of deferred tax liabilities associated with GILTI and tax credits by approximately $1.6 billion. For the year ended December 31, 2020, the income tax expense associated with these reductions was approximately $90.3 million. We continue to assess the realizability of these deferred tax assets and have recorded an increase in these deferred tax assets of approximately $108.5 million and an increase in these deferred tax liabilities of approximately $103.9 million for the year ended December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred Tax Assets and Liabilities
Significant components of our deferred tax assets and liabilities are summarized as follows:
The change in the valuation allowance between December 31, 2021 and 2020, was primarily related to the establishment of a valuation allowance against the deferred tax asset related to Neurimmune SubOne AG's (Neurimmune) tax basis in ADUHELM, as discussed below, and the adjustment of a valuation against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S., as discussed above.
In addition to deferred tax assets and liabilities, we have recorded deferred charges related to intra-entity sales of inventory. As of December 31, 2021 and 2020, the total deferred charges were $39.6 million and $142.2 million, respectively.
As of December 31, 2021 and 2020, the carrying value of our investment in Samsung Bioepis totaled 713.3 billion South Korean won ($599.9 million) and 673.8 billion South Korean won ($620.2 million), respectively, which is classified as a component of investments and other assets within our consolidated balance sheets. As of December 31, 2021, we have not recorded deferred taxes related to this investment as it is not apparent that the basis difference will reverse in the foreseeable future.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Tax Rate
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
Changes in Tax Rate
For the year ended December 31, 2021, compared to 2020, the decrease in our effective tax rate, excluding the impact of the Neurimmune deferred tax asset, as discussed below, was primarily due to the change in the territorial mix of our profitability, which included the adverse effect of generic competition for TECFIDERA in the U.S. market, the tax impacts of the BIIB111 and BIIB112 impairment charges and the impact of the non-cash tax effects of changes in the value of our equity investments, where we recorded net unrealized losses in 2021 and net unrealized gains in 2020. Our 2020 effective tax rate also reflected an income tax expense related to the establishment of a valuation allowance against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S.
In addition, for the year ended December 31, 2021, compared to 2020, the decrease in our effective tax rate was significantly impacted by a current year deferred tax benefit in Switzerland resulting from the accelerated approval of ADUHELM by the FDA in the U.S., recognized during the second quarter of 2021. We recorded a net deferred tax asset of approximately $490.0 million during the second quarter of 2021. The net deferred tax asset is comprised of approximately $945.0 million of gross deferred tax asset, reduced by approximately $455.0 million of unrecognized tax benefit, as discussed below. During the fourth quarter of 2021 we recorded a valuation allowance of approximately $390.0 million related to this deferred tax asset. The deferred tax benefit relates to Neurimmune's tax basis in ADUHELM, the realization of which is dependent on future sales of ADUHELM and approval of the Swiss cantonal tax authorities, with an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable to Biogen Inc. For additional information on our collaboration arrangement with Neurimmune, please read Note 19, Investments in Variable Interest Entities, to these consolidated financial statements.
For the year ended December 31, 2020, compared to 2019, the increase in our effective tax rate was primarily due to the income tax expense related to the establishment of a valuation allowance against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S., as discussed above, and partially offset by the benefit recognized on the effective settlement of certain tax matters. Additionally, our 2019 effective tax rate benefited from an internal reorganization of certain intellectual property rights and the enactment of a new taxing regime in the country and certain cantons of Switzerland, which we refer to as Swiss Tax Reform, partially offset by tax expense related to the divestiture of our Hillerød, Denmark manufacturing operations. Although we recognized a loss on the divestiture of our Hillerød, Denmark manufacturing operations, the divestiture required us to write-off certain deferred tax assets and resulted in a taxable gain in certain jurisdictions. For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Tax Attributes
As of December 31, 2021, we had net operating losses and general business credit carry forwards for U.S. federal income tax purposes of approximately $0.6 million and $4.8 million, respectively, which begin to expire in 2022 and 2027, respectively. For U.S. state income tax purposes, we had research and investment credit carry forwards of approximately $147.6 million that begin to expire in 2022. For foreign income tax purposes, we had $16.7 billion of Swiss federal net operating loss carryforwards that begin to expire in 2025 and $16.2 billion of Swiss cantonal net operating loss carryforwards that begin to expire in 2025.
In assessing the realizability of our deferred tax assets, we have considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial reporting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the net benefits of the deferred tax assets of our wholly owned subsidiaries, net of the recorded valuation allowance. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to adjust or establish a valuation allowance, which could materially impact our consolidated financial position and results of operations.
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
During the year ended December 31, 2021, we increased our gross unrecognized tax benefits by approximately $455.0 million, related to a deferred tax asset for Swiss tax purposes for Neurimmune's tax basis in ADUHELM, as discussed above. This unrecognized tax benefit was recorded as a reduction to the gross deferred tax asset, resulting in the net deferred tax asset, as discussed above, and not as a separate liability on our consolidated balance sheets.
Our 2020 activity reflects the impact of the effective settlement of certain tax matters. We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in various U.S. states and in U.S. federal and other foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal tax examination for years before 2017 or state, local or non-U.S. income tax examinations for years before 2012.
The U.S. Internal Revenue Service and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.
Included in the balance of unrecognized tax benefits as of December 31, 2021, 2020 and 2019, are $87.5 million, $68.8 million and $122.7 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods.
We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2021, 2020 and 2019 we recognized total interest and penalty expense of $2.7 million, $1.0 million and $4.7 million, respectively. We have accrued $24.8 million and $21.2 million for the payment of interest and penalties as of December 31, 2021 and 2020, respectively.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
It is reasonably possible that we will adjust the value of our uncertain tax positions related to certain transfer pricing, collaboration matters and other issues as we receive additional information from various taxing authorities, including reaching settlements with such authorities.
We estimate that it is reasonably possible that our gross unrecognized tax benefits, exclusive of interest, could decrease by up to approximately $475.0 million, including approximately $455.0 million related to the unrecognized tax benefits related to Neurimmune's tax basis in ADUHELM, as discussed above, in the next 12 months as a result of various audit closures, settlements and expiration of the statute of limitations.
17. OTHER CONSOLIDATED FINANCIAL STATEMENT DETAIL
Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the years ended December 31, 2021, 2020 and 2019, is as follows:
Non-cash Operating, Investing and Financing Activity
In the fourth quarter of 2018 we accrued $300.0 million upon reaching $20.0 billion in total cumulative sales of FUMADERM and TECFIDERA (together, the Fumapharm Products), which was paid in the first quarter of 2019. These amounts, net of tax benefit, were accounted for as increases to goodwill in accordance with the accounting standard applicable to business combinations when we acquired Fumapharm AG.
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
Gain (loss) on investments, net, as reflected in the table above, relate to debt securities, equity securities of certain biotechnology companies, venture capital funds where the underlying investments are in equity securities of certain biotechnology companies and non-marketable equity securities.
The following table summarizes our gain (loss) on investments, net that relates to our equity securities held as of December 31, 2021, 2020 and 2019:
The net unrealized losses recognized during the year ended December 31, 2021, primarily reflect decreases in the aggregate fair value of our investments in Denali, Sage, Sangamo and Ionis common stock of approximately $819.6 million.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accrued Expense and Other
Accrued expense and other consists of the following:
Other Long-term Liabilities
Other long-term liabilities were $1,320.5 million and $1,329.6 million as of December 31, 2021 and 2020, respectively, and included accrued income taxes totaling $664.5 million and $709.9 million, respectively.
18. COLLABORATIVE AND OTHER RELATIONSHIPS
In connection with our business strategy, we have entered into various collaboration agreements that provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make milestone payments upon the achievement of certain product research and development objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration.
Depending on the collaborative arrangement, we may record funding receivable or payable balances with our collaboration partners, based on the nature of the cost-sharing mechanism and activity within the collaboration. Our significant collaborative arrangements are discussed below.
Genentech, Inc. (Roche Group)
We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, CLL and other conditions; RITUXAN HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular lymphoma; OCREVUS for the treatment of PPMS and RMS; and other potential anti-CD20 therapies, including mosunetuzumab, pursuant to our collaboration arrangements with Genentech, a wholly-owned member of the Roche Group. For purposes of this footnote, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
Our collaboration arrangements will continue in effect until we mutually agree to terminate the collaboration, except that if we undergo a change in control, as defined in our collaboration agreement, Genentech has the right to present an offer to buy the rights to RITUXAN and we must either accept Genentech’s offer or purchase Genentech’s rights on the same terms as its offer. Genentech will also be deemed concurrently to have purchased our rights to OCREVUS and any other collaboration anti-CD20 products in development in exchange for a royalty as well as our rights to GAZYVA in exchange for the compensation described in the collaboration arrangement. Our collaboration with Genentech was created through a contractual arrangement and not through a joint venture or other legal entity.
RITUXAN
Genentech and its affiliates are responsible for the worldwide manufacture of RITUXAN as well as all development and commercialization activities as follows:
U.S.
We have co-exclusively licensed our rights to develop, commercialize and market RITUXAN in the U.S.
Canada
We have co-exclusively licensed our rights to develop, commercialize and market RITUXAN in Canada.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
GAZYVA
The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacture and commercialization of GAZYVA in the U.S. We recognize our share of the development and commercialization expense of GAZYVA as a reduction of our share of pre-tax profits in revenue from anti-CD20 therapeutic programs.
Commercialization of GAZYVA impacts our percentage of the co-promotion profits for RITUXAN, as summarized in the table below.
OCREVUS
In March 2017 the FDA approved OCREVUS for the treatment of RMS and PPMS. Pursuant to the terms of our collaboration arrangements with Genentech, we receive a tiered royalty on U.S. net sales from 13.5% and increasing up to 24.0% if annual net sales exceed $900.0 million. There will be a 50.0% reduction to these royalties if a biosimilar to OCREVUS is approved in the U.S.
In addition, we receive a gross 3.0% royalty on net sales of OCREVUS outside the U.S., with the royalty period lasting 11 years from the first commercial sale of OCREVUS on a country-by-country basis. OCREVUS has been approved for the treatment of RMS and PPMS in the E.U. and certain other countries.
The commercialization of OCREVUS does not impact the percentage of the co-promotion profits we receive for RITUXAN or GAZYVA. Genentech is solely responsible for development and commercialization of OCREVUS and funding future costs. Genentech cannot develop OCREVUS in CLL, non-Hodgkin's lymphoma or rheumatoid arthritis. OCREVUS royalty revenue was based on our estimates from third-party and market research data of OCREVUS sales occurring during the corresponding period. Differences between actual and estimated royalty revenue will be adjusted for in the period in which they become known, which is generally expected to be the following quarter.
Mosunetuzumab
In January 2022 we exercised our option with Genentech to participate in the joint development and commercialization of mosunetuzumab, a late-stage bispecific antibody in development for B-cell non-Hodgkin’s lymphoma and other therapeutic areas. In connection with this exercise, we recorded a $30.0 million option exercise fee payable to Genentech in December 2021, which was recognized in research and development expense in our consolidated statements of income. We also recorded a charge of approximately $20.0 million to reimburse Genentech for our 30.0% of the costs incurred in developing this product candidate during 2021, which was recognized in research and development expense in our consolidated statements of income. Under our collaboration with Genentech, we will be responsible for 30.0% of development costs for mosunetuzumab prior to FDA approval and will be entitled to 30.0% - 37.5% of mosunetuzumab co-promotion operating profits and losses in the U.S. based on certain events and low single-digit royalties on sales of mosunetuzumab outside the U.S.
Profit-sharing Formulas
RITUXAN and Mosunetuzumab Profit Share
Our current pretax co-promotion profit-sharing formula for RITUXAN and mosunetuzumab provides for a 30.0% share on the first $50.0 million of co-promotion operating profits earned each calendar year. Our share of annual co-promotion profits in excess of $50.0 million varies, as summarized in the table below, upon the following events:
First GAZYVA Threshold Date means the earlier of (i) the date of the First Non-CLL GAZYVA FDA approval if U.S. gross sales of GAZYVA for the preceding consecutive 12-month period were at least $150.0 million or (ii) the first day of the calendar quarter after the date of the First Non-CLL GAZYVA FDA Approval that U.S. gross sales of GAZYVA within any consecutive 12-month period have reached $150.0 million.
Second GAZYVA Threshold Date means the first day of the calendar quarter after U.S. gross sales of GAZYVA within any consecutive 12-month period have reached $500.0 million. The Second GAZYVA Threshold Date can be achieved regardless of whether GAZYVA has been approved in a non-CLL indication.
Our share of RITUXAN pre-tax profits in the U.S. in excess of $50.0 million for the years ended December 31, 2021, 2020 and 2019, was 37.5%.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition, should the FDA approve mosunetuzumab or any other anti-CD20 product other than OCREVUS or GAZYVA that is acquired or developed by Genentech and subject to the collaboration agreement, the above table would no longer apply and our share of the co-promotion operating profits of RITUXAN and the new product would be between 30.0% and 37.5% based on certain events.
GAZYVA Profit Share
Our current pretax profit-sharing formula for GAZYVA provides for a 35.0% share on the first $50.0 million of operating profits earned each calendar year. Our share of annual profits in excess of $50.0 million varies, as summarized in the table below, upon the following events:
Our share of GAZYVA pre-tax profits in excess of $50.0 million for the years ended December 31, 2021, 2020 and 2019, was 37.5%.
Revenue from Anti-CD20 Therapeutic Programs
Revenue from anti-CD20 therapeutic programs is summarized as follows:
Prior to regulatory approval, we record our share of the expense incurred by the collaboration for the development of anti-CD20 products in research and development expense in our consolidated statements of income. After an anti-CD20 product is approved, we record our share of the development expense related to that product as a reduction of our share of pre-tax profits in revenue from anti-CD20 therapeutic programs.
Ionis Pharmaceuticals, Inc.
SPINRAZA
In January 2012 we entered into a collaboration and license agreement with Ionis pursuant to which we have an exclusive, worldwide license to develop and commercialize SPINRAZA for the treatment of SMA.
Under our agreement with Ionis, we make royalty payments to Ionis on annual worldwide net sales of SPINRAZA using a tiered royalty rate between 11.0% and 15.0%, which are recognized in cost of sales within our consolidated statements of income. Royalty cost of sales related to sales of SPINRAZA for the years ended December 31, 2021, 2020 and 2019, totaled $267.1 million, $286.6 million and $293.0 million, respectively.
2012 Ionis Agreement
In December 2012 we entered into an agreement with Ionis for the development and commercialization of up to three gene targets.
Under this agreement, Ionis is responsible for global development of any product candidate through the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay a license fee of up to $70.0 million to Ionis and assume global development, regulatory and commercialization responsibilities. Ionis is eligible to receive up to $130.0 million in additional milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales if we successfully develop the product candidate after option exercise.
In December 2019 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB080 (tau ASO), which is currently in Phase 1 development for the potential treatment of Alzheimer's disease. In connection with the option exercise, we made a payment of $45.0 million to Ionis, which was recorded as research and development expense in our consolidated statements of income. Future payments may include additional milestone payments of up to $155.0 million and royalties on future sales in the low- to mid-teens if we successfully develop the product candidate after option exercise.
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2018 Ionis Agreement
In June 2018 we closed a 10-year exclusive collaboration agreement with Ionis to develop novel antisense oligonucleotide (ASO) drug candidates for a broad range of neurological diseases (2018 Ionis Agreement) for a total payment of $1.0 billion, consisting of an upfront payment of $375.0 million and the purchase of approximately 11.5 million shares of Ionis common stock at a cost of $625.0 million.
Upon closing, we recorded $50.9 million of the $375.0 million upfront payment as prepaid services in our consolidated balance sheets and recognized the remaining $324.1 million as research and development expense in our consolidated statements of income. The amount recorded as prepaid services represented the value of the employee resources committed to the arrangement to provide research and discovery services over the term of the agreement.
The 11.5 million shares of Ionis common stock were purchased at a premium to their fair value at the transaction closing date. The premium consisted of acquiring the shares at a price above the fair value based on the trailing 10-day weighted-average close price prior to entering into the 2018 Ionis Agreement in April 2018 and the effect of certain holding period restrictions. We recorded an asset of $462.9 million in investments and other assets in our consolidated balance sheets reflecting the fair value of the Ionis common stock as of the purchase date and a charge of $162.1 million to research and development expense in our consolidated statements of income in the second quarter of 2018 reflecting the premium paid for the Ionis common stock.
Our investment in Ionis common stock is remeasured each reporting period. Changes in the fair value of our investment in Ionis common stock, including the effect of the holding period restrictions, are reflected in other income (expense), net in our consolidated statements of income. For additional information on the fair value of our investment in Ionis common stock, please read Note 7, Fair Value Measurements, to these consolidated financial statements.
We have the option to license therapies arising out of the 2018 Ionis Agreement and will be responsible for the development and commercialization of such therapies. We may pay development milestones to Ionis of up to $125.0 million or $270.0 million for each program, depending on the indication plus an annual license fee, as well as royalties on potential net commercial sales.
During the years ended December 31, 2021, 2020 and 2019, we incurred milestones of $22.5 million, $11.3 million and $30.0 million, respectively, related to the advancement of neurological targets identified under this agreement, which were recorded as research and development expense in our consolidated statements of income.
2017 SMA Collaboration Agreement
In December 2017 we entered into a collaboration agreement with Ionis to identify new ASO drug candidates for the potential treatment of SMA. Under this agreement, we have the option to license therapies arising out of this collaboration and will be responsible for their development and commercialization of such therapies.
Upon entering into this agreement, we made a $25.0 million upfront payment to Ionis and we may pay Ionis up to $260.0 million in additional development and regulatory milestone payments if new drug candidates advance to marketing approval. Upon commercialization, we may also pay Ionis up to $800.0 million in additional performance-based milestone payments and tiered royalties on potential net sales of such therapies.
BIIB115
In December 2021 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB115, a preclinical investigational ASO in development for SMA. In connection with this option exercise, we made an opt-in payment of $60.0 million to Ionis, which was recorded as research and development expense in our consolidated statements of income.
2013 Long-term Strategic Research Agreement
In September 2013 we entered into a six-year research collaboration agreement with Ionis under which both companies collaborate to perform discovery level research and subsequent development and commercialization activities of antisense or other therapeutics for the potential treatment of neurological diseases. Under this agreement, Ionis performs research on a set of neurological targets identified within the agreement.
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Ionis is eligible to receive milestone payments, license fees and royalty payments for all product candidates developed through this collaboration, with the specific amount dependent upon the modality of the product candidate advanced by us under the terms of the agreement.
For non-ALS antisense product candidates, Ionis is responsible for global development through the completion of a Phase 2 trial and we provide advice on the clinical trial design and regulatory strategy. For ALS antisense product candidates, we are responsible for global development, clinical trial design and regulatory strategy. We have an option to license a product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay Ionis up to a $70.0 million license fee and assume global development, regulatory and commercialization responsibilities. Ionis could receive additional milestone payments upon the achievement of certain regulatory milestones of up to $130.0 million, plus additional amounts related to the cost of clinical trials conducted by Ionis under the collaboration, and royalties on future sales if we successfully develop the product candidate after option exercise.
In December 2018 we exercised our option with Ionis and obtained a worldwide, exclusive, royalty-bearing license to develop and commercialize BIIB067 (tofersen), an investigational treatment for ALS with superoxide dismutase 1 (SOD1) mutations. In connection with the option exercise, we made a payment of $35.0 million to Ionis, which was recorded as research and development expense in our consolidated statements of income. Future payments may include potential post-licensing milestone payments of up to $55.0 million and royalties in the low- to mid-teen percentages on potential annual worldwide net sales. We are solely responsible for the costs and expense related to the development, manufacturing and commercialization of tofersen following the option exercise.
During the years ending December 31, 2021, 2020 and 2019, we incurred milestones of $10.0 million, $28.0 million and $20.0 million, respectively, related to the advancement of programs under this agreement, which were recorded as research and development expense in our consolidated statements of income.
Eisai Co., Ltd.
Lecanemab Collaboration
We have a collaboration agreement with Eisai to jointly develop and commercialize lecanemab (BAN2401), an anti-amyloid antibody, and elenbecestat, the oral BACE (base amyloid cleaving enzyme) inhibitor, two Eisai product candidates for the potential treatment of Alzheimer's disease (the Lecanemab Collaboration). In September 2019 we and Eisai discontinued the global Phase 3 studies of elenbecestat in early Alzheimer's disease.
Eisai serves as the global operational and regulatory lead for lecanemab and all costs, including research, development, sales and marketing expense, are shared equally between us and Eisai. If lecanemab receives marketing approval, we and Eisai will co-promote lecanemab and share profits equally. In addition, the Lecanemab Collaboration provides both parties with certain rights and obligations in the event of a change in control of either party.
The Lecanemab Collaboration also provided Eisai with an option to jointly develop and commercialize ADUHELM (aducanumab) (ADUHELM Option), and an option to jointly develop and commercialize one of our anti-tau monoclonal antibodies (Anti-Tau Option). In October 2017 Eisai exercised its ADUHELM Option and we entered into a new collaboration agreement for the joint development and commercialization of ADUHELM (aducanumab) (the ADUHELM Collaboration Agreement).
Eisai may exercise the Anti-Tau Option after completion of the Phase 1 clinical trial of such anti-tau monoclonal antibody. If Eisai exercises its Anti-Tau Option, we will receive an upfront payment from Eisai and will be entitled to additional development and commercial milestone payments. Eisai has not yet exercised its Anti-Tau Option.
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A summary of development and sales and marketing expense related to the Lecanemab Collaboration is as follows:
ADUHELM Collaboration Agreement
Under the ADUHELM Collaboration Agreement, we lead the ongoing development of ADUHELM, and we and Eisai will co-promote ADUHELM with a region-based profit split. Beginning January 1, 2019, Eisai is reimbursing us for 45.0% of development costs incurred by the collaboration for the advancement of ADUHELM (ADUHELM development expense).
In March 2019, based on a pre-specified futility analysis, we discontinued the global Phase 3 trials, EMERGE and ENGAGE, designed to evaluate the efficacy and safety of ADUHELM in patients with early Alzheimer's disease. In the first quarter of 2019, as a result of the decision to discontinue the Phase 3 EMERGE and ENGAGE trials following the futility analysis, we accrued and subsequently paid approximately $45.0 million related to the termination of various clinical trials and research and development contracts net of the expected 45.0% Eisai reimbursement of development costs incurred under the ADUHELM Collaboration Agreement.
In October 2019 we and Eisai announced that we planned to pursue regulatory approval for ADUHELM in the U.S. A new analysis of a larger dataset from these trials, conducted in scientific collaboration with the FDA, showed that the Phase 3 EMERGE trial met its pre-specified primary and secondary endpoints. In July 2020 we completed the submission of a BLA for the approval of ADUHELM to the FDA and made a $75.0 million milestone payment to Neurimmune. We recognized net profit-sharing income of $33.8 million to reflect Eisai's 45.0% share of the $75.0 million milestone payment.
In June 2021 ADUHELM was granted accelerated approval by the FDA for the treatment of Alzheimer's disease and had its first commercial sale. As a result of the launch of ADUHELM in the U.S., we made a $100.0 million milestone payment to Neurimmune. For the year ended December 31, 2021, we recognized net profit-sharing income of $45.0 million to reflect Eisai's 45.0% share of the $100.0 million milestone payment.
Upon commercialization, both companies will co-promote ADUHELM with a region-based profit split. We will receive a 55.0% share of the potential profits (losses) in the U.S., a 68.5% share of the potential profits (losses) in the E.U. and a 20.0% share of the potential profits (losses) in Japan and Asia, excluding China and South Korea. The two companies will share equally in the potential profits (losses) in rest of world markets. Sales and marketing expense are shared in proportion to the same region-based profit split that is utilized to co-promote ADUHELM.
A summary of development expense, sales and marketing expense and milestone payments related to the ADUHELM Collaboration Agreement is as follows:
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Co-promotion Profits and Losses
In the U.S. we recognize revenue on sales to third-parties as a component of product revenue, net in our consolidated statements of income. We also record the related cost of revenue and sales and marketing expense in our consolidated statements of income as these costs are incurred. Payments made to and received from Eisai for its 45.0% share of the co-promotion profits or losses in the U.S. are recognized in collaboration profit (loss) sharing in our consolidated statements of income. For the year ended December 31, 2021, we recognized net profit-sharing income of $233.2 million to reflect Eisai's 45.0% sharing of the net collaboration losses in the U.S.
In addition, we and Eisai co-promote AVONEX, TYSABRI and TECFIDERA in Japan in certain settings and Eisai distributes AVONEX, TYSABRI, TECFIDERA and PLEGRIDY in India and other Asia-Pacific markets, excluding China.
During the fourth quarter of 2021 we recorded approximately $164.0 million of charges associated with inventory and purchase commitments in excess of forecasted demand related to ADUHELM, which was recognized in cost of sales within our consolidated statements of income. In addition, we recognized the expected share of these charges from Eisai's 45.0% share in collaboration profit (loss) sharing within our consolidated statements of income.
Amounts receivable from Eisai related to the agreements discussed above were $285.4 million and $151.1 million as of December 31, 2021 and 2020, respectively. Amounts payable to Eisai related to the agreements discussed above were $46.5 million and $111.9 million as of December 31, 2021 and 2020, respectively.
UCB
We have a collaboration agreement with UCB to jointly develop and commercialize dapirolizumab pegol, an anti-CD40L pegylated Fab, for the potential treatment of systemic lupus erythematosus and other future agreed indications. Either we or UCB may propose development of dapirolizumab pegol in additional indications. If the parties do not agree to add an indication as an agreed indication to the collaboration, we or UCB may, at the sole expense of the applicable party, pursue development in such excluded indication(s), subject to an opt-in right of the non-pursuing party after proof of clinical activity.
All costs incurred for agreed indications, including research, development, sales and marketing expense, are shared equally between us and UCB. Upon marketing approval, we and UCB will co-promote dapirolizumab pegol and share profits equally.
A summary of development expense related to the UCB collaboration agreement is as follows:
Alkermes
In November 2017 we entered into an exclusive license and collaboration agreement with Alkermes Pharma Ireland Limited, a subsidiary of Alkermes plc (Alkermes), for VUMERITY, a novel fumarate for the treatment of RMS. In October 2019 the FDA approved VUMERITY in the U.S. for the treatment of RMS. In November 2019 VUMERITY became commercially available in the U.S. During the fourth quarter of 2021 VUMERITY was approved for the treatment of RRMS in the E.U., Switzerland and the U.K.
Under this agreement, we received an exclusive, worldwide license to develop and commercialize VUMERITY and we pay Alkermes royalties of 15.0% on worldwide net commercial sales of VUMERITY, which are recognized in cost of sales within our consolidated statements of income. Royalties payable on net commercial sales of VUMERITY are subject, under certain circumstances, to tiered minimum annual payment requirements for a period of five years following FDA approval. Royalty cost of sales related to sales of VUMERITY for the years ended December 31, 2021, 2020 and 2019, totaled $61.6 million, $12.9 million and $1.6 million, respectively.
Alkermes is eligible to receive royalties in the high-single digits to sub-teen double digits of annual net commercial sales upon successful development and commercialization of new product candidates, other than VUMERITY, developed under the exclusive license from Alkermes.
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During the fourth quarter of 2019, following the FDA's approval of VUMERITY, we paid Alkermes $155.0 million in milestone payments, which were recorded in intangible assets in our consolidated balance sheets and will be amortized over the useful life of the product. For the years ended December 31, 2021, 2020 and 2019, we recorded $26.5 million, $32.4 million and $53.5 million, respectively, in research and development expense in our consolidated statements of income related to this collaboration.
Alkermes currently supplies VUMERITY to us pursuant to a supply agreement. In October 2019 we entered into a new supply agreement and amended our license and collaboration agreement with Alkermes. We have elected to initiate a technology transfer and, following a transition period, to manufacture VUMERITY or have VUMERITY manufactured by a third-party we have engaged in exchange for paying an increased royalty rate to Alkermes on any portion of future worldwide net commercial sales of VUMERITY that is manufactured by us or our designee.
Acorda Therapeutics, Inc.
In June 2009 we entered into a collaboration and license agreement with Acorda Therapeutics, Inc. (Acorda) to develop and commercialize products containing fampridine, such as FAMPYRA, in markets outside the U.S. We are responsible for all regulatory activities and the future clinical development of related products in those markets.
Under this agreement, we pay tiered royalties based on the level of ex-U.S. net sales and we may pay potential milestone payments based on the successful achievement of certain regulatory and commercial milestones, which would be capitalized as intangible assets upon achievement of the milestones and amortized utilizing an economic consumption model. The next expected milestone of $15.0 million, due if ex-U.S. net sales reach $100.0 million over a period of four consecutive quarters, was recognized during the third quarter of 2020 and capitalized within intangible assets, net in our consolidated balance sheets. Royalty payments are recognized in cost of sales within our consolidated statements of income.
In connection with the collaboration and license agreement, we also entered into a supply agreement with Acorda for the commercial supply of FAMPYRA. This agreement is a sublicense arrangement of an existing agreement between Acorda and Alkermes Inc., who acquired Elan Drug Technologies, the original party to the license with Acorda.
For the years ending December 31, 2021, 2020 and 2019, total cost of sales related to royalties and commercial supply of FAMPYRA reflected in our consolidated statements of income were $46.6 million, $44.5 million and $42.0 million, respectively.
Sage Therapeutics, Inc.
In November 2020 we entered into a global collaboration and license agreement with Sage to jointly develop and commercialize BIIB125 (zuranolone) for the potential treatment of major depressive disorder and postpartum depression and BIIB124 (SAGE-324) for the potential treatment of essential tremor with potential in other neurological conditions such as epilepsy.
In connection with the closing of this transaction in December 2020 we purchased $650.0 million of Sage common stock, or approximately 6.2 million shares at approximately $104.14 per share, which are subject to transfer restrictions. We recorded an asset in investments and other assets in our consolidated balance sheets to reflect the initial fair value of the Sage common stock acquired and a charge of approximately $209.0 million to research and development expense in our consolidated statements of income to reflect the premium paid for the Sage common stock. We also made an upfront payment of $875.0 million that was recorded as research and development expense in our consolidated statements of income.
We may also pay Sage development and commercial milestone payments that could total up to approximately $1.6 billion if all the specified milestones set forth in this collaboration are achieved. Both companies will share equal responsibility and costs for development as well as profits and losses for commercialization in the U.S. Outside of the U.S., we are responsible for development and commercialization, excluding Japan, Taiwan and South Korea, with respect to zuranolone and may pay Sage potential tiered royalties in the high teens to low twenties.
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A summary of development and sales and marketing expense related to this collaboration is as follows:
Denali Therapeutics Inc.
In August 2020 we entered into a collaboration and license agreement with Denali to co-develop and co-commercialize Denali's small molecule inhibitors of leucine-rich repeat kinase 2 (LRRK2) for Parkinson's disease. In addition to the LRRK2 program, we also have an exclusive option to license two preclinical programs from Denali’s Transport Vehicle platform, including its Antibody Transport Vehicle (ATV): ATV enabled anti-amyloid beta program and a second program utilizing its Transport Vehicle technology. Further, we have a right of first negotiation on two additional Transport Vehicle-enabled therapeutics, should Denali decide to seek a collaboration for such programs.
As part of this collaboration we purchased $465.0 million of Denali common stock in September 2020, or approximately 13 million shares at approximately $34.94 per share, which are subject to transfer restrictions. We recorded an asset in investments and other assets in our consolidated balance sheets to reflect the initial fair value of the Denali common stock acquired and a charge of approximately $41.3 million to research and development expense in our consolidated statements of income to reflect the premium paid for the Denali common stock. We also made an upfront payment of $560.0 million that was recorded as research and development expense in our consolidated statements of income.
We may also pay Denali development and commercial milestone payments that could total up to approximately $1.1 billion if the milestones related to the LRRK2 program are achieved. Under this collaboration, both companies share responsibility and costs for global development based on specified percentages and we are responsible for commercialization and may pay Denali potential tiered royalties.
A summary of development expense related to this collaboration is as follows:
Sangamo Therapeutics, Inc.
In February 2020 we entered into a collaboration and license agreement with Sangamo to develop and commercialize ST-501 for tauopathies, including Alzheimer's disease; ST-502 for synucleinopathies, including Parkinson’s disease; a third neuromuscular disease target; and up to nine additional neurological disease targets to be identified and selected within a five-year period. The companies are leveraging Sangamo’s proprietary zinc finger protein technology delivered via adeno-associated virus to modulate the expression of key genes involved in neurological diseases.
In connection with the closing of this transaction in April 2020 we purchased $225.0 million of Sangamo common stock, or approximately 24 million shares at approximately $9.21 per share, of which approximately 12 million shares remain subject to transfer restrictions as of December 31, 2021. We recorded an asset in investments and other assets in our consolidated balance sheets to reflect the initial fair value of the Sangamo common stock acquired and a charge of approximately $83.0 million to research and development expense in our consolidated statements of income to reflect the premium paid for the Sangamo common stock. We also made an upfront payment of $125.0 million that was recorded as research and development expense in our consolidated statements of income.
We may also pay Sangamo research, development, regulatory and commercial milestone payments that could total up to approximately $2.4 billion if we select all of the targets allowed under this collaboration and all the
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specified milestones set forth in this collaboration are achieved. Of this amount, up to $80.0 million relates to the selection of targets, $1.9 billion relates to the achievement of specified research, clinical development, regulatory and first commercial sale milestones and $380.0 million relates to the achievement of specified sales-based milestones if annual worldwide net sales of licensed products reach specified levels. In addition, we may pay Sangamo tiered royalties on potential net sales of any products developed under this collaboration in the high single digit to double digit sub-teen percentages.
A summary of development expense related to this collaboration is as follows:
InnoCare Pharma Limited
In July 2021 we entered into a collaboration and license agreement with InnoCare Pharma Limited (InnoCare) for orelabrutinib, an oral small molecule Bruton's tyrosine kinase inhibitor for the potential treatment of MS. Orelabrutinib is currently being studied in a multi-country, placebo-controlled Phase 2 trial in relapsing-remitting MS. Under the terms of this collaboration, we have exclusive rights to orelabrutinib in the field of MS worldwide and certain autoimmune diseases outside of China (including Hong Kong, Macau and Taiwan), while InnoCare retains exclusive worldwide rights to orelabrutinib in the field of oncology and certain autoimmune diseases in China (including Hong Kong, Macau and Taiwan).
In connection with the closing of this transaction in August 2021 we made an upfront payment of $125.0 million that was recorded as research and development expense in our consolidated statements of income. We may also pay InnoCare up to approximately $812.5 million in potential development milestones and potential commercial payments should this collaboration achieve certain development, commercial milestones and sales thresholds. In addition, we may pay InnoCare tiered royalties on potential net sales of any products developed under this collaboration in the low to high teen percentages.
Other Research and Discovery Arrangements
These arrangements may include the potential for future milestone payments based on the achievement of certain clinical and commercial development payable over a period of several years.
Other
For the years ended December 31, 2021, 2020 and 2019, we recorded $89.1 million, $92.1 million and $80.8 million, respectively, as research and development expense in our consolidated statements of income related to other research and discovery related arrangements.
Samsung Bioepis Co., Ltd.
Joint Venture Agreement
In February 2012 we entered into a joint venture agreement with Samsung BioLogics establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar products. Samsung BioLogics contributed 280.5 billion South Korean won (approximately $250.0 million) for an 85.0% ownership interest in Samsung Bioepis and we contributed 49.5 billion South Korean won (approximately $45.0 million) for the remaining 15.0% ownership interest. In June 2018 we exercised our option under our joint venture agreement to increase our ownership percentage in Samsung Bioepis from approximately 5.0%, which reflected the effect of previous equity financings in which we did not participate, to approximately 49.9%. The share purchase transaction was completed in November 2018 and, upon closing, we paid 759.5 billion South Korean won ($676.6 million) to Samsung BioLogics. As of December 31, 2021, our ownership percentage remained at approximately 49.9%.
We recognize our share of the results of operations related to our investment in Samsung Bioepis under the equity method of accounting one quarter in arrears when the results of the entity become available, which is reflected as equity in (income) loss of investee, net of tax in our consolidated statements of income. During 2015, as our share of losses exceeded the carrying value of our initial investment, we suspended recognizing additional
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losses. In the first quarter of 2019 we restarted recognizing our share of Samsung Bioepis' (income) losses, and we began recognizing amortization on certain basis differences resulting from our November 2018 investment.
Upon investment, the equity method of accounting requires us to identify and allocate differences between the fair value of our investment and the carrying value of our interest in the underlying net assets of the investee. These basis differences are amortized over their economic life. The total basis difference was approximately $675.0 million and relates to inventory, developed technology, IPR&D and deferred tax balances. The basis differences related to inventory were amortized, net of tax, over their estimated useful lives of 1.5 years, and the basis differences related to developed technology and IPR&D for marketed products will be amortized, net of tax, over their estimated useful lives of 15 years.
Certain officers and affiliates of our joint venture partner, Samsung BioLogics, are currently subject to ongoing criminal proceedings that we continue to monitor. While these proceedings could impact the operations of Samsung Bioepis and its business, we have assessed the value of our investment in Samsung Bioepis and continue to believe that the fair value of the investment is in excess of its net book value.
For the year ended December 31, 2021, we recognized net income on our investment of $34.9 million, reflecting our share of Samsung Bioepis' operating profits, net of tax totaling $64.6 million offset by amortization of basis differences totaling $29.7 million.
For the year ended December 31, 2020, we recognized net income on our investment of $5.3 million, reflecting our share of Samsung Bioepis' operating profits, net of tax totaling $45.3 million offset by amortization of basis differences totaling $40.0 million.
Net income on our investment for the year ended December 31, 2021, reflects a $31.2 million benefit related to the release of a valuation allowance on deferred tax assets associated with Samsung Bioepis. The valuation allowance was released in the second quarter of 2021 based on a consideration of the positive and negative evidence, including the historic earnings of Samsung Bioepis.
As of December 31, 2021 and 2020, the carrying value of our investment in Samsung Bioepis totaled 713.3 billion South Korean won ($599.9 million) and 673.8 billion South Korean won ($620.2 million), respectively, which is classified as a component of investments and other assets within our consolidated balance sheets.
In January 2022 we entered into an agreement to sell to Samsung Biologics our equity in Samsung Bioepis. Under the terms of the proposed transaction, we would receive $1.0 billion in cash at closing and $1.3 billion to be deferred over two payments of $812.5 million due at the first anniversary and $437.5 million due at the second anniversary of the closing of the transaction. We would also be eligible to receive up to an additional $50.0 million upon the achievement of certain commercial milestones.
Closing of the transaction is currently anticipated in mid-2022, contingent on the effectiveness of a securities registration statement filed by Samsung Biologics and satisfaction of certain regulatory and other customary closing conditions.
2019 Development and Commercialization Agreement
In December 2019 we completed a transaction with Samsung Bioepis and secured the exclusive rights to commercialize two potential ophthalmology biosimilar products, BYOOVIZ (ranibizumab-nuna), a proposed ranibizumab biosimilar referencing LUCENTIS, and SB15, a proposed aflibercept biosimilar referencing EYLEA, in major markets worldwide, including the U.S., Canada, Europe, Japan and Australia. Samsung Bioepis will be responsible for development and will supply both products to us at a pre-specified gross margin.
In connection with this transaction, we made an upfront payment of $100.0 million to Samsung Bioepis in January 2020, of which $63.0 million was recorded as research and development expense in our consolidated statements of income in 2019 and $37.0 million was recorded as an intangible assets, net in our consolidated balance sheets in 2019.
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During the third quarter of 2020, we paid Samsung Bioepis a $15.0 million development milestone, which was included in research and development expense in our consolidated statements of income. During the third quarter of 2021, we accrued $15.0 million in milestone payments related to the approval of BYOOVIZ in the U.S., the E.U. and the U.K., that were capitalized within intangible assets, net in our consolidated balance sheets. We may also pay Samsung Bioepis up to approximately $180.0 million in additional development, regulatory and sales-based milestones.
We also acquired an option to extend the term of our 2013 commercial agreement for BENEPALI, IMRALDI and FLIXABI by an additional five years, subject to payment of an option exercise fee of $60.0 million, and obtained an option to acquire exclusive rights to commercialize these products in China.
2013 Commercial Agreement
In December 2013 we entered into an agreement with Samsung Bioepis to commercialize, over a 10-year term, 3 anti-tumor necrosis factor (TNF) biosimilar product candidates in Europe and in the case of BENEPALI, Japan. As discussed above, we have an option to extend this agreement by an additional five years. Under this agreement, we have made upfront and clinical development milestone payments totaling $46.0 million, which were recorded as research and development expense in our consolidated statements of income as the programs they relate to had not achieved regulatory approval. We also agreed to make additional milestone payments of $25.0 million upon regulatory approval in the E.U. for each of the three anti-TNF biosimilar product candidates. IMRALDI, an adalimumab biosimilar referencing HUMIRA, FLIXABI, an infliximab biosimilar referencing REMICADE, and BENEPALI, an etanercept biosimilar referencing ENBREL, received regulatory approval in the E.U. in August 2017, May 2016 and January 2016, respectively, and we capitalized the related milestone payments totaling $75.0 million as intangible assets, net in our consolidated balance sheets.
In April 2018 we and Samsung Bioepis announced an agreement with AbbVie Inc. (AbbVie) related to the commercialization of IMRALDI. Under the terms of the agreement, AbbVie granted us and Samsung Bioepis patent licenses for the use and sale of IMRALDI in Europe, on a country-by-country basis, and we make royalty payments to AbbVie on behalf of Samsung Bioepis. We began to recognize revenue on sales of IMRALDI to third-parties in Europe in the fourth quarter of 2018.
We reflect revenue on sales of BENEPALI, IMRALDI and FLIXABI to third-parties in product revenue, net in our consolidated statements of income and record the related cost of revenue and sales and marketing expense in our consolidated statements of income to their respective line items when these costs are incurred. Royalty payments to AbbVie on sales of IMRALDI are recognized in cost of sales within our consolidated statements of income.
We share 50.0% of the profit or loss related to our commercial agreement with Samsung Bioepis, which is recognized in collaboration profit (loss) sharing in our consolidated statements of income. For the years ended December 31, 2021, 2020 and 2019, we recognized net profit-sharing expense of $285.4 million, $266.5 million and $241.6 million, respectively, to reflect Samsung Bioepis' 50.0% sharing of the net collaboration profits.
Other Services
Simultaneous with the formation of Samsung Bioepis, we also entered into a technical development services agreement, a manufacturing agreement and a license agreement with Samsung Bioepis.
Under the technical development services agreement, we provided Samsung Bioepis technical development and technology transfer services, which included, but were not limited to, cell culture development, purification process development, formulation development and analytical development.
Under the manufacturing agreement, we manufactured clinical and commercial quantities of bulk drug substance of biosimilar products for Samsung Bioepis pursuant to contractual terms.
Following the divestiture of our Hillerød, Denmark manufacturing operations in August 2019, FUJIFILM assumed responsibility for the manufacture of clinical and commercial quantities of bulk drug substance of biosimilar products for Samsung Bioepis. We no longer recognize revenue for the manufacturing completed after the divestiture date under the manufacturing agreements with Samsung Bioepis. For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to these consolidated financial statements.
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Under the license agreement, we granted Samsung Bioepis an exclusive license to use, develop, manufacture and commercialize biosimilar products created by Samsung Bioepis using Biogen product-specific technology. In exchange, we receive single digit royalties on biosimilar products developed and commercialized by Samsung Bioepis.
For the years ended December 31, 2021, 2020 and 2019, we recognized $20.7 million, $20.9 million and $106.2 million, respectively, in revenue under the license, technical development services and manufacturing agreements, which is reflected in revenue from collaborative and other relationships, as a component of other revenue in our consolidated statements of income.
Amounts receivable from Samsung Bioepis related to the agreements discussed above were $4.1 million and $5.1 million as of December 31, 2021 and 2020, respectively. Amounts payable to Samsung Bioepis related to the agreements discussed above were $148.7 million and $99.0 million as of December 31, 2021 and 2020, respectively.
19. INVESTMENTS IN VARIABLE INTEREST ENTITIES
Consolidated Variable Interest Entities
Our consolidated financial statements include the financial results of variable interest entities in which we are the primary beneficiary. The following are our significant variable interest entities.
Neurimmune SubOne AG
We have a collaboration and license agreement with Neurimmune for the development and commercialization of antibodies for the potential treatment of Alzheimer's disease, including ADUHELM (as amended, the Neurimmune Agreement). We are responsible for the development, manufacturing and commercialization of all collaboration products. The Neurimmune Agreement is effective for the longer of the duration of certain patents relating to a licensed product or 12 years from the first commercial sale of a licensed product.
We consolidate the results of Neurimmune as we determined that we are the primary beneficiary of Neurimmune because we have the power through the collaboration to direct the activities that most significantly impact the entity’s economic performance and we are required to fund 100.0% of the research and development costs incurred in support of the collaboration.
In October 2017 we amended the terms of the Neurimmune Agreement and made a $150.0 million payment to Neurimmune in exchange for a 15.0% reduction in the previously negotiated royalty rates payable on products developed under the Neurimmune Agreement, including royalties payable on potential commercial sales of ADUHELM. In May 2018 we made an additional $50.0 million payment to Neurimmune to further reduce the previously negotiated royalty rates payable on products developed under the Neurimmune Agreement, including royalties payable on commercial sales of ADUHELM, by an additional 5.0%. Our royalty rates payable on products developed under the Neurimmune Agreement, including royalty rates payable on commercial sales of ADUHELM, now range from the high single digits to sub-teens. As we consolidate the results of Neurimmune, we treated these payments as distributions and recognized them as charges to noncontrolling interests in the fourth quarter of 2017 and the second quarter of 2018, as applicable.
Under the terms of the Neurimmune Agreement, we were required to pay Neurimmune a milestone payment of $75.0 million upon the regulatory filing with the FDA for the approval of ADUHELM. During the second quarter of 2020 we paid Neurimmune $75.0 million upon the completed submission of the BLA for the approval of ADUHELM to the FDA, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income. In addition, during the second quarter of 2020 we recognized net profit-sharing income of $33.8 million to reflect Eisai's 45.0% share of the $75.0 million milestone payment, which was recognized in collaboration profit (loss) sharing in our consolidated statements of income.
In June 2021 ADUHELM was granted accelerated approval by the FDA. Under the terms of the Neurimmune Agreement, we were required to pay Neurimmune a milestone payment of $100.0 million related to the launch of ADUHELM in the U.S. During the second quarter of 2021 we made this $100.0 million payment, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income. In addition, during the second quarter of 2021 we recognized net profit-sharing income of $45.0 million to reflect Eisai's 45.0% share of the $100.0 million milestone payment, which was recognized in collaboration profit (loss) sharing in our consolidated statements of income.
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Additionally, if aducanumab receives regulatory approval in the jurisdictions where we have submitted filings, we may pay up to $100.0 million in additional milestones to Neurimmune, which includes $50.0 million if launched in three or more countries in the E.U. and $50.0 million if launched in Japan. Milestones payable to Neurimmune are shared expenses under the ADUHELM Collaboration Agreement.
Research and development costs for which we reimburse Neurimmune are reflected in research and development expense in our consolidated statements of income. During the years ending December 31, 2021, 2020 and 2019, amounts reimbursed were immaterial.
During the second quarter of 2021 we recorded a net deferred tax asset of approximately $490.0 million. The net deferred tax asset is comprised of approximately $945.0 million of gross deferred tax asset, reduced by approximately $455.0 million of unrecognized tax benefit. The deferred tax benefit relates to Neurimmune's tax basis in ADUHELM, the realization of which is dependent on future sales of ADUHELM and approval of the Swiss cantonal tax authorities. During the fourth quarter of 2021 we recorded a valuation allowance of approximately $390.0 million related to this deferred tax asset. There is an equal and offsetting amount assigned to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income, resulting in a zero net impact to net income attributable to Biogen Inc.
Excluding the impact of the Neurimmune deferred tax asset, the assets and liabilities of Neurimmune are not significant to our consolidated financial position or results of operations as it is a research and development organization. We have provided no financing to Neurimmune other than contractually required amounts.
Under the ADUHELM Collaboration Agreement, Eisai had an option to share in the benefit and cost associated with the royalty reductions, as discussed above; however, Eisai did not elect to share in the benefit and cost with respect to either the October 2017 or May 2018 royalty reductions, which will impact the amount of profits (losses) on commercial sales of ADUHELM to be shared with Eisai.
For additional information on our collaboration arrangements with Eisai, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Unconsolidated Variable Interest Entities
We have relationships with various variable interest entities that we do not consolidate as we lack the power to direct the activities that significantly impact the economic success of these entities. These relationships include investments in certain biotechnology companies and research collaboration agreements.
As of December 31, 2021 and 2020, the carrying value of our investments in certain biotechnology companies representing potential unconsolidated variable interest entities totaled $24.6 million and $12.8 million, respectively. Our maximum exposure to loss related to these variable interest entities is limited to the carrying value of our investments.
We have also entered into research collaboration agreements with certain variable interest entities where we are required to fund certain development activities. These development activities are included in research and development expense in our consolidated statements of income as they are incurred. We have provided no financing to these variable interest entities other than previously contractually required amounts.
20. LITIGATION
We are currently involved in various claims and legal proceedings, including the matters described below. For information as to our accounting policies relating to claims and legal proceedings, including use of estimates and contingencies, please read Note 1, Summary of Significant Accounting Policies, to these consolidated financial statements.
With respect to some loss contingencies, an estimate of the possible loss or range of loss cannot be made until management has further information, including, for example, (i) which claims, if any, will survive dispositive motion practice; (ii) information to be obtained through discovery; (iii) information as to the parties' damages claims and supporting evidence; (iv) the parties’ legal theories; and (v) the parties' settlement positions.
The claims and legal proceedings in which we are involved also include challenges to the scope, validity or enforceability of the patents relating to our products, pipeline or processes and challenges to the scope, validity or enforceability of the patents held by others. These include claims by third-parties that we infringe their patents. An
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adverse outcome in any of these proceedings could result in one or more of the following and have a material impact on our business or consolidated results of operations and financial position: (i) loss of patent protection; (ii) inability to continue to engage in certain activities; and (iii) payment of significant damages, royalties, penalties and/or license fees to third parties.
Loss Contingencies
ADUHELM Securities Litigation
We and certain current and former officers are named as defendants in an action filed by a shareholder on November 13, 2020, and now pending in the U.S. District Court for the District of Massachusetts. The action alleges violations of federal securities laws under 15 U.S.C §78j(b) and §78t(a) and 17 C.F.R. §240.10b-5 and seeks a declaration of the action as a class action and monetary relief. An estimate of the possible loss or range of loss cannot be made at this time. No trial date has been set. We have filed a motion to dismiss, which is pending.
IMRALDI Patent Litigation
In September 2018 Fresenius Kabi Deutschland GmbH (Fresenius Kabi) commenced proceedings for damages and injunctive relief against Biogen France SAS in the Tribunal de Grande Instance de Paris (the French proceeding) and in November 2018 against Biogen GmbH in the Düsseldorf Regional Court (the German proceeding), alleging that IMRALDI, the adalimumab biosimilar product of Samsung Bioepis that Biogen has commercialized in Europe, infringes national counterparts of European Patent No. 3 148 510 (the EP '510 Patent, expiring in May 2035). In May 2020 the European Patent Office (EPO) held the EP '510 Patent invalid. Fresenius Kabi' has appealed to the EPO's Technical Boards of Appeal, a hearing has been set for June 2022, and the German and French proceedings have been stayed pending the decision on appeal.
In June 2020 Fresenius Kabi commenced proceedings in Denmark's Maritime and Commercial High Court alleging that IMRALDI infringes the Danish counterpart of European Patent No. 3 145 488 (the EP '488 Patent, expiring in May 2035) and a Danish utility model. In September 2021 the Court ruled that the patent and utility model are invalid and not infringed. Fresenius Kabi has appealed to the High Court of Eastern Denmark and the appeal is pending. The EPO has scheduled a hearing on the validity of the EP '488 Patent for October 2022.
In July 2020 the Danish Patent Board of Appeal revoked the Danish utility models that Fresenius Kabi had asserted against Biogen and Fresenius Kabi has appealed to the Danish Maritime and Commercial High Court. No hearing has been scheduled.
In July 2019 Gedeon Richter Nyrt commenced proceedings for damages and injunctive relief against Biogen GmbH in the Düsseldorf Regional Court alleging infringement of the German counterpart of European Patent No. 3 212 667, which expires in October 2035. The case has been stayed pending proceedings in the EPO seeking to invalidate the patent. In November 2020 Gedeon Richter Nyrt commenced additional proceedings against Biogen GmbH in the Düsseldorf Regional Court alleging infringement of a German utility model. In October 2021 Biogen filed cancellation proceedings in respect of the German utility model and the infringement proceedings have been stayed pending the outcome of the cancellation proceedings.
An estimate of the possible loss or range of loss in the IMRALDI patent litigation described above cannot be made at this time.
Qui Tam Litigation
In July 2015 a qui tam action filed by Michael Bawduniak on behalf of the U.S. and certain states was unsealed by the U.S. District Court for the District of Massachusetts. The action alleges sales and promotional activities in violation of the federal False Claims Act and state law counterparts and seeks damages of $981.1 million plus statutory trebling of damages, civil penalties, attorneys' fees and costs. A trial is scheduled for the third quarter of 2022. The U.S. has not made an intervention decision. An estimate of the possible loss cannot be made at this time.
Dispute with Former Convergence Shareholders
In November and December 2019 Shareholder Representative Services LLC, on behalf of the former shareholders of Convergence, sent us correspondence asserting claims of $200.0 million for alleged breach of the contract under which we acquired Convergence. We dispute the claims.
Samsung BioLogics Arbitration
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In December 2020 we requested arbitration in the International Chamber of Commerce Court of International Arbitration against Samsung BioLogics seeking interpretation of certain provisions of the parties Joint Venture Agreement. Samsung BioLogics counterclaimed for breach and seeks declaratory relief and unspecified damages. The arbitration hearing has concluded and a decision is pending. An estimate of the possible loss or range of loss cannot be made at this time.
ERISA Class Action Litigation
In September 2020 the U.S. District Court for the District of Massachusetts consolidated two cases filed against us in July and August 2020 by participants in the Biogen 401(k) Savings Plan alleging breach of fiduciary duty under ERISA. Plaintiffs seek a declaration of the action as a class action and monetary and other relief. No trial date has been set. An estimate of the possible loss or range of loss cannot be made at this time.
Humana Patient Assistance Litigation
In September 2021 Humana Inc. (Humana) filed suit against us in the U.S District Court for the District of Massachusetts alleging damages related to our providing MS patients with free medications and making charitable contributions to non-profit organizations that assist MS patients. Humana alleges violation of the federal RICO Act and state laws and seeks statutory treble damages, attorneys' fees and costs. No trial date has been set. An estimate of the possible loss or range of loss cannot be made at this time.
Other Matters
Government Investigations
The U.S. House of Representatives Committees on Oversight and Reform and Energy and Commerce and the Office of Inspector General of the U.S. Department of Health and Human Services have announced investigations relating to ADUHELM. In addition, the Company has received a civil investigative demand from the Federal Trade Commission and an inquiry from the Securities and Exchange Commission seeking information relating to ADUHELM, including healthcare sites, ADUHELM’s approval and ADUHELM’s marketing.
Hatch-Waxman Act Litigation relating to TECFIDERA Orange-Book Listed Patents
In 2017 to 2020 we filed patent infringement proceedings relating to TECFIDERA Orange-Book listed patents pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act (the Delaware Actions), against Accord Healthcare Inc., Alkem Laboratories Ltd., Amneal Pharmaceuticals LLC, Cipla Limited, Graviti Pharmaceuticals Pvt. Ltd., Hetero USA, Inc., Lupin Atlantis Holdings SA, Macleods Pharmaceuticals, Ltd., MSN Laboratories Pvt. Ltd., Pharmathen S.A., Prinston Pharmaceutical Inc., Sandoz Inc., Shilpa Medicare Limited, Slayback Pharma LLC, Sun Pharmaceutical Industries, Ltd., Sun Pharmaceutical Industries, Inc., Sun Pharma Global FZE, Torrent Pharmaceuticals Ltd., TWi Pharmaceuticals, Inc., Windlas Healthcare Pvt. Ltd. and Zydus Pharmaceuticals (USA) Inc. (collectively, the Delaware Defendants) in the U.S. District Court for the District of Delaware (the Delaware Court) and against Mylan in the U.S. District Court for the Northern District of West Virginia (the West Virginia Court).
In June 2020 the West Virginia Court entered judgment for Mylan that the asserted claims of the ‘514 Patent are invalid for lack of written description and in November 2021 the Federal Circuit affirmed.
The Delaware Court entered judgment for the Delaware Defendants on the grounds that the judgment of the West Virginia Court applies to the Delaware Actions under principles of collateral estoppel. The appeals in the Delaware cases were stayed and we expect will remain so until the Federal Circuit's decision in the West Virginia case becomes final.
Petition for Inter Partes Review
In July 2018 Mylan Pharmaceuticals, Inc. (Mylan) filed a petition that was granted by the U.S. Patent Trial and Appeal Board (PTAB) for inter partes review of our U.S. Patent No. 8,399,514 (the '514 Patent). The '514 Patent includes claims covering treatment of MS with 480 mg of dimethyl fumarate per day as provided for in our TECFIDERA label. In February 2020 the PTAB issued a final written decision upholding the patentability of the ‘514 Patent and in November 2021 the Federal Circuit ruled that the decision was moot.
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European Patent Office Oppositions
In January 2022 the Technical Boards of Appeal of the EPO affirmed the EPO's 2016 decision revoking our European Patent No. 2 137 537, which covers the treatment of MS with 480 mg of dimethyl fumarate as provided for in our TECFIDERA label.
TYSABRI Patent Revocation Matters
In November 2017 Swiss Pharma International AG, affiliated with the Polpharma Group, filed an action in the Commercial Court of Rome to invalidate the Italian counterpart of the European Patent No. 1 485 127 (the E.U. '127 Patent) which covers administration of natalizumab (TYSABRI) to treat MS and expires in February 2023. A hearing has been set for June 2022.
In August 2020 Polpharma Biologics S.A., also affiliated with the Polpharma Group, brought an action in the Polish Patent Office to revoke our Polish Patent No. 215263, which corresponds to the E.U. '127 Patent and expires in February 2023. The action was suspended by the Polish Patent Office in April 2021 pending examination of our amended patent claims.
In June 2021 Polpharma Biologics S.A., Sandoz B.V. and Sandoz AG filed an action in the District Court of the Hague, Netherlands to invalidate the Dutch counterpart of our European Patent 2 676 967 (the EU '967 Patent), which expires in 2027 and covers methods of treatment using natalizumab (TYSABRI) and pre-treatment testing of patients. A hearing has been set for September 2022.
In July 2021 the EPO revoked the EU ‘967 Patent. We have appealed to the EPO’s Technical Boards of Appeal. A hearing date has not been set.
In September 2021 Polpharma Biologics S.A., Sandoz AG, Sandoz Limited and Sandoz GmbH filed an action in the English High Court to revoke the UK counterpart of the EU ‘967 Patent and seeking a declaration that the patent would not be infringed by the marketing of Polpharma’s proposed natalizumab biosimilar. A hearing has been set for November 2022.
Annulment Proceedings in General Court of the European Union relating to TECFIDERA
Pharmaceutical Works Polpharma SA (Polpharma) and Mylan Ireland Ltd. (Mylan Ireland) each filed actions in the General Court of the European Union (Polpharma in October 2018 and Mylan Ireland in November 2020) to annul the European Medicines Agency's (EMA) decision not to validate their applications to market generic versions of TECFIDERA on the grounds that TECFIDERA benefits from regulatory data protection. On May 5, 2021, the European General Court annulled the EMA's non-validation decision with respect to Polpharma. We have appealed the decision to the European Court of Justice and the appeal is pending. The case brought by Mylan Ireland has been stayed.
Product Liability and Other Legal Proceedings
We are also involved in product liability claims and other legal proceedings generally incidental to our normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, we do not believe the ultimate resolution of any of these existing matters would have a material adverse effect on our business or financial condition.
21. COMMITMENTS AND CONTINGENCIES
Royalty Payments
TYSABRI
In 2013 we acquired from Elan full ownership of all remaining rights to TYSABRI that we did not already own or control. Under the acquisition agreement, we are obligated to make contingent payments to Elan of 18.0% on annual worldwide net commercial sales up to $2.0 billion and 25.0% on annual worldwide net commercial sales that exceed $2.0 billion. Royalty payments to Elan and other third-parties are recognized as cost of sales in our consolidated statements of income. Elan was acquired by Perrigo Company plc (Perrigo) in December 2013 and Perrigo subsequently sold its rights to these payments to a third-party effective January 2017.
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SPINRAZA
In 2016 we exercised our option to develop and commercialize SPINRAZA from Ionis. Under our agreement with Ionis, we make royalty payments to Ionis on annual worldwide net commercial sales of SPINRAZA using a tiered royalty rate between 11.0% and 15.0%, which are recorded as cost of sales in our consolidated statements of income. For additional information on our collaboration arrangements with Ionis, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
VUMERITY
In October 2019 the FDA approved VUMERITY for the treatment of RMS. During the fourth quarter of 2021 VUMERITY was approved for the treatment of RRMS in the E.U., Switzerland and the U.K. Under our agreement with Alkermes, we make royalty payments to Alkermes on worldwide net commercial sales of VUMERITY using a royalty rate of 15.0%, which are recorded as cost of sales in our consolidated statements of income. Royalties payable on net commercial sales of VUMERITY are subject, under certain circumstances, to tiered minimum annual payment requirements for a period of five years following FDA approval. For additional information on our collaboration arrangement with Alkermes, please read Note 18, Collaborative and Other Relationships, to these consolidated financial statements.
Contingent Consideration related to Business Combinations
In connection with our acquisition of Convergence, we agreed to make additional payments based upon the achievement of certain milestone events.
As the acquisition of Convergence occurred after January 1, 2009, we recognized the contingent consideration liabilities associated with this transaction at their fair value on the acquisition date and revalue the remaining obligations each reporting period. We may pay up to approximately $400.0 million in remaining milestones related to this acquisition.
Fumapharm AG
In 2006 we acquired Fumapharm AG. As part of this acquisition we acquired the Fumapharm Products. We were required to make contingent payments to former shareholders of Fumapharm AG and holders of their rights based on the attainment of certain cumulative sales levels of Fumapharm Products and the level of total net sales of Fumapharm Products in the prior 12-month period, as defined in the acquisition agreement, until such time as the cumulative sales level reached $20.0 billion, at which time no further contingent payments were due. During the first quarter of 2019 we paid the final $300.0 million contingent payment as we achieved the $20.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2018.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2021, we could trigger potential future milestone payments to third-parties of up to approximately $10.0 billion, including approximately $2.0 billion in development milestones, approximately $900.0 million in regulatory milestones and approximately $7.1 billion in commercial milestones, as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones was not considered probable as of December 31, 2021, such contingencies have not been recorded in our financial statements. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory or commercial milestones.
If certain clinical and commercial milestones are met, we may pay up to $133.9 million in milestones in 2022 under our current agreements. Additionally, if aducanumab receives regulatory approval in the jurisdictions where we have submitted filings, we may pay up to $100.0 million in additional milestones to Neurimmune in 2022, which includes $50.0 million if launched in three or more countries in the E.U. and $50.0 million if launched in Japan. Milestones payable to Neurimmune are shared expenses under the ADUHELM Collaboration Agreement.
During the second quarter of 2020 we paid Neurimmune $75.0 million upon the completed submission of the BLA for the approval of ADUHELM to the FDA, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income.
In June 2021 ADUHELM was granted accelerated approval by the FDA. Under the terms of the Neurimmune Agreement, we were required to pay Neurimmune a milestone payment of $100.0 million related to the launch of
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ADUHELM in the U.S. During the second quarter of 2021 we made this $100.0 million payment, which was recognized as a charge to net income (loss) attributable to noncontrolling interests, net of tax in our consolidated statements of income.
Other Funding Commitments
As of December 31, 2021, we have several ongoing clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to CROs. The contracts with CROs are generally cancellable, with notice, at our option. We recorded accrued expense of approximately $27.3 million in our consolidated balance sheets for expenditures incurred by CROs as of December 31, 2021. We have approximately $676.1 million in cancellable future commitments based on existing CRO contracts as of December 31, 2021.
As part of the sale of our Hillerød, Denmark manufacturing operations to FUJIFILM, we provided FUJIFILM with certain minimum batch production commitment guarantees. There is a risk that the minimum contractual batch production commitments will not be met. Based upon current estimates we do not expect to incur an adverse commitment obligation associated with such guarantees. We developed this estimate using a probability-weighted estimate of future manufacturing activity and may further adjust this estimate based upon changes in business conditions, which may result in the increase or reduction of this adverse commitment obligation in subsequent periods. For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to these consolidated financial statements.
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 31, 2021, we have approximately $106.8 million of liabilities associated with uncertain tax positions.
As of December 31, 2021 and 2020, we have accrued income tax liabilities of approximately $633.0 million and $697.0 million, respectively, under the Transition Toll Tax. Of the amounts accrued as of December 31, 2021, approximately $72.7 million is expected to be paid within one year. The Transition Toll Tax will be paid in installments over an eight--year period, which started in 2018, and will not accrue interest. For additional information on the Transition Toll Tax, please read Note 16, Income Taxes, to these consolidated financial statements.
22. GUARANTEES
As of December 31, 2021 and 2020, we did not have significant liabilities recorded for guarantees.
We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business partners, contractors, clinical sites and customers. Under these provisions, we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. However, to date we have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of December 31, 2021 and 2020.
23. EMPLOYEE BENEFIT PLANS
We sponsor various retirement and pension plans. Our estimates of liabilities and expense for these plans incorporate a number of assumptions, including expected rates of return on plan assets and interest rates used to discount future benefits.
401(k) Savings Plan
We maintain a 401(k) Savings Plan, which is available to substantially all regular employees in the U.S. over the age of 21. Participants may make voluntary contributions. We make matching contributions according to the 401(k) Savings Plan’s matching formula. All matching contributions and participant contributions vest immediately. The 401(k) Savings Plan also holds certain transition contributions on behalf of participants who previously participated in the Biogen, Inc. Retirement Plan. The expense related to our 401(k) Savings Plan primarily consists of our matching contributions.
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Expense related to our 401(k) Savings Plan totaled $58.4 million, $44.3 million and $44.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Deferred Compensation Plan
We maintain a non-qualified deferred compensation plan, known as the Supplemental Savings Plan (SSP), which allows a select group of management employees in the U.S. to defer a portion of their compensation. The SSP also provides certain credits to highly compensated U.S. employees that are paid by the company. These credits are known as the Restoration Match. The deferred compensation amounts are accrued when earned. Such deferred compensation is distributable in cash in accordance with the rules of the SSP. Deferred compensation amounts under such plan as of December 31, 2021 and 2020, totaled approximately $131.4 million and $120.0 million, respectively, and are included in other long-term liabilities in our consolidated balance sheets. The SSP also holds certain transition contributions on behalf of participants who previously participated in the Biogen, Inc. Retirement Plan. The Restoration Match and participant contributions vest immediately. Distributions to participants can be either in one lump sum payment or annual installments as elected by the participants.
Pension Plans
Our retiree benefit plans include defined benefit plans for employees in our affiliates in Switzerland and Germany as well as other insignificant defined benefit plans in certain other countries where we maintain an operating presence.
Our Swiss plan is a government-mandated retirement fund that provides employees with a minimum investment return. The minimum investment return is determined annually by the Swiss government and was 1.00% in 2021, 2020 and 2019. Under the Swiss plan, both we and certain of our employees with annual earnings in excess of government determined amounts are required to make contributions into a fund managed by an independent investment fiduciary. Employer contributions must be in an amount at least equal to the employee’s contribution. Minimum employee contributions are based on the respective employee’s age, salary and gender. As of December 31, 2021 and 2020, the Swiss plan had an unfunded net pension obligation of $64.1 million and $75.7 million, respectively, and plan assets that totaled $200.1 million and $170.0 million, respectively. In 2021, 2020 and 2019 we recognized expense totaling $21.5 million, $15.5 million and $14.7 million, respectively, related to our Swiss plan, of which $3.5 million, $2.6 million and $1.2 million, respectively, was included in other income (expense), net in our consolidated statements of income.
The obligations under the German plans are unfunded and totaled $68.4 million and $75.5 million as of December 31, 2021 and 2020, respectively. Net periodic pension cost related to the German plans totaled $7.6 million, $6.2 million and $5.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, of which $2.1 million, $2.0 million and $1.4 million, respectively, was included in other income (expense), net in our consolidated statements of income.
24. SEGMENT INFORMATION
We operate as one operating segment, focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. Our Chief Executive Officer (CEO), as the chief operating decision-maker, manages and allocates resources to the operations of our company on a total company basis. Our research and development organization is responsible for the research and discovery of new product candidates and supports development and registration efforts for potential future products. Our pharmaceutical, operations and technology organization manages the development of the manufacturing processes, clinical trial supply, commercial product supply, distribution, buildings and facilities. Our commercial organization is responsible for U.S. and international development of our commercial products. The company is also supported by corporate staff functions. Managing and allocating resources on a total company basis enables our CEO to assess the overall level of resources available and how to best deploy these resources across functions, therapeutic areas and research and development projects that are in line with our long-term company-wide strategic goals. Consistent with this decision-making process, our CEO uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets.
Enterprise-wide disclosures about product revenue, other revenue and long-lived assets by geographic area are presented below. Revenue is primarily attributed to individual countries based on location of the customer or licensee.
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Geographic Information
The following tables contain certain financial information by geographic area:
(1) Represents amounts related to Europe less those attributable to Germany.
Other
As of December 31, 2021, 2020 and 2019, approximately $2,237.0 million, $2,180.6 million and $2,028.8 million, respectively, of our long-lived assets were related to the construction of our large-scale biologics manufacturing facility in Solothurn, Switzerland.
For additional information on our large-scale biologics manufacturing facility in Solothurn, Switzerland, please read Note 10, Property, Plant and Equipment, to these consolidated financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Biogen Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Biogen Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Reserves for Medicaid and Managed Care Rebates
As described in Notes 1 and 4 to the consolidated financial statements, the Company recognized revenue from product sales net of reserves, including Medicaid and managed care rebates. Within accrued expense and other, total contractual adjustments amounted to $759.6 million as of December 31, 2021. A portion of this balance includes provisions for Medicaid and managed care rebates in the US. Medicaid rebates relate to the Company’s estimated obligations to states under established reimbursement arrangements. The Company’s liability for Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoices received for claims from the prior quarters that have not been paid and an estimate of potential claims that will be made for inventory that exists in the distribution channel at period end. Managed care rebates represent the Company’s estimated obligations to third-parties, primarily pharmacy benefit managers. These rebates result from performance-based goals, formulary position and price increase limit allowances (price protection). The calculation of the accrual for these rebates is based on an estimate of the coverage patterns and the resulting applicable contractual rebate rate(s) to be earned over a contractual period. Rebate accruals for Medicaid and managed care are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expense and other current liabilities. The Medicaid and managed care estimates reflect historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.
The principal considerations for our determination that performing procedures relating to reserves for Medicaid and managed care rebates is a critical audit matter are the significant judgment by management due to the significant measurement uncertainty involved in developing these reserves, as the reserves are based on assumptions developed using historical experience, current contractual requirements, specific known market events and payment patterns, which in turn led to a high degree of auditor judgment, subjectivity and effort in applying procedures and evaluating audit evidence related to these assumptions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the reserves for Medicaid and managed care rebates, including controls over the assumptions used to estimate these Medicaid and managed care rebate reserves. These procedures also included, among others (i) developing an independent estimate of the Medicaid and managed care rebate reserves by utilizing third-party data related to product demand, data related to price changes, the terms of the specific rebate programs, the historical trend of actual rebate claims paid and consideration of contractual requirement changes and market events; (ii) comparing the independent estimate to management’s estimate; and (iii) testing rebate claims paid by the Company, including evaluating the claims for consistency with the contractual terms of the Company’s rebate agreements.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
February 3, 2022
We have served as the Company's auditor since 2003.

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