Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19311
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12367592&doc=14
BIOGEN INC.
(Exact name of registrant as specified in its charter)
Delaware
 
33-0112644
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
225 Binney Street, Cambridge, MA 02142
(617) 679-2000
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer x
 
Accelerated filer  o
Non-accelerated filer o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  o    No  x
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of July 20, 2018, was 201,442,850 shares.
 


Table of Contents

BIOGEN INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended June 30, 2018
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II — OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 


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Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the Act) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “possible,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
the anticipated amount, timing and accounting of revenues, contingent payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, collectability of receivables, pre-approval inventory, cost of sales, research and development costs, compensation and other selling, general and administrative expenses, amortization of intangible assets, foreign currency exchange risk, estimated fair value of assets and liabilities and impairment assessments;
expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products;
our plans and investments in our core and emerging growth areas;
the potential impact of increased product competition in the markets in which we compete;
patent terms, patent term extensions, patent office actions and expected availability and period of regulatory exclusivity;
the costs and timing of potential clinical trials, filings and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products;
the drivers for growing our business, including our plans and intent to commit resources relating to business development opportunities and research and development programs;
the anticipated benefits and the potential costs and expenses related to our current or future initiatives to streamline our operations and reallocate resources;
our manufacturing capacity, use of third-party contract manufacturing organizations and plans and timing relating to the expansion of our manufacturing capabilities, including anticipated investments and activities in new manufacturing facilities;
the potential impact on our results of operations and liquidity of the United Kingdom's (U.K.) intent to voluntarily depart from the European Union (E.U.);
the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries;
the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs to limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products;
the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters;
lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations;
our ability to finance our operations and business initiatives and obtain funding for such activities;
adverse safety events involving our marketed products;
the anticipated timing to complete certain business development transactions;
the impact of new laws, including the Tax Cuts and Jobs Act of 2017, and accounting standards; and
the anticipated costs and tax treatment of the spin-off of our hemophilia business.

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Table of Contents

These forward-looking statements involve risks and uncertainties, including those that are described in Item 1A. Risk Factors included in this report and elsewhere in this report that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. Except as required by law, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
References in this report to:
“Biogen,” the “company,” “we,” “us” and “our” refer to Biogen Inc. and its consolidated subsidiaries;
“RITUXAN” refers to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera (the trade name for rituximab outside the U.S., Canada and Japan); and
"ELOCTATE" refers to both ELOCTATE (the trade name for Antihemophilic Factor (recombinant), Fc Fusion Protein in the U.S., Canada and Japan) and ELOCTA (the trade name for Antihemophilic Factor (recombinant), Fc Fusion Protein in the E.U.).
NOTE REGARDING TRADEMARKS
AVONEX®, PLEGRIDY®, RITUXAN®, SPINRAZA®, TECFIDERA®, TYSABRI® and ZINBRYTA® are registered trademarks of Biogen. BENEPALITM, FLIXABITM, FUMADERMTM and IMRALDITM are trademarks of Biogen. ALPROLIX®, ELOCTATE®, ENBREL®, FAMPYRATM, GAZYVA®, HUMIRA®, OCREVUS®, REMICADE® and other trademarks referenced in this report are the property of their respective owners.

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Table of Contents

PART I FINANCIAL INFORMATION

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Product, net
$
2,757.5

 
$
2,639.7

 
$
5,281.0

 
$
5,019.8

Revenues from anti-CD20 therapeutic programs
490.4

 
397.1

 
933.6

 
737.7

Other
108.6

 
41.6

 
273.0

 
131.6

Total revenues
3,356.5

 
3,078.4

 
6,487.6

 
5,889.1

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding amortization of acquired intangible assets
421.0

 
366.2

 
867.0

 
750.8

Research and development
981.0

 
796.2

 
1,477.7

 
1,219.6

Selling, general and administrative
516.2

 
429.8

 
1,017.5

 
928.5

Amortization of acquired intangible assets
107.4

 
117.5

 
211.3

 
566.0

Acquired in-process research and development
75.0

 
120.0

 
85.0

 
120.0

Collaboration profit (loss) sharing
39.2

 
26.5

 
81.7

 
47.3

Loss (gain) on fair value remeasurement of contingent consideration
1.9

 
21.2

 
(3.7
)
 
31.2

Restructuring charges
1.6

 

 
3.2

 

Total cost and expenses
2,143.3

 
1,877.4

 
3,739.7

 
3,663.4

Income from operations
1,213.2

 
1,201.0

 
2,747.9

 
2,225.7

Other income (expense), net
(34.5
)
 
(68.6
)
 
(75.5
)
 
(106.6
)
Income before income tax expense and equity in loss of investee, net of tax
1,178.7

 
1,132.4

 
2,672.4

 
2,119.1

Income tax expense
263.7

 
269.6

 
586.2

 
508.8

Equity in loss of investee, net of tax

 

 

 

Net income
915.0

 
862.8

 
2,086.2

 
1,610.3

Net income (loss) attributable to noncontrolling interests, net of tax
48.4

 

 
46.7

 
(0.1
)
Net income attributable to Biogen Inc.
$
866.6

 
$
862.8

 
$
2,039.5

 
$
1,610.4

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Inc.
$
4.18

 
$
4.07

 
$
9.75

 
$
7.53

Diluted earnings per share attributable to Biogen Inc.
$
4.18

 
$
4.07

 
$
9.73

 
$
7.52

 
 
 
 
 
 
 
 
Weighted-average shares used in calculating:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Inc.
207.1

 
211.9

 
209.2

 
213.7

Diluted earnings per share attributable to Biogen Inc.
207.3

 
212.2

 
209.5

 
214.0





See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income attributable to Biogen Inc.
$
866.6

 
$
862.8

 
$
2,039.5

 
$
1,610.4

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax
0.6

 
7.2

 
(1.6
)
 
5.6

Unrealized gains (losses) on cash flow hedges, net of tax
132.8

 
(103.0
)
 
103.8

 
(126.8
)
Unrealized gains (losses) on pension benefit obligation, net of tax
0.9

 
(0.6
)
 
0.4

 
(0.5
)
Currency translation adjustment, net of tax
(92.0
)
 
82.8

 
(47.3
)
 
102.8

Total other comprehensive income (loss), net of tax
42.3

 
(13.6
)
 
55.3

 
(18.9
)
Comprehensive income attributable to Biogen Inc.
908.9

 
849.2

 
2,094.8

 
1,591.5

Comprehensive income (loss) attributable to noncontrolling interests, net of tax
48.4

 

 
46.7

 
(0.1
)
Comprehensive income
$
957.3

 
$
849.2

 
$
2,141.5

 
$
1,591.4




































See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 
 
As of June 30,
2018
 
As of December 31,
2017
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
1,250.2

 
$
1,573.8

Marketable securities
1,974.0

 
2,115.2

Accounts receivable, net
1,951.0

 
1,787.0

Due from anti-CD20 therapeutic programs
481.9

 
532.6

Inventory
931.7

 
902.7

Other current assets
843.3

 
962.0

Total current assets
7,432.1

 
7,873.3

Marketable securities
1,160.2

 
3,057.3

Property, plant and equipment, net
3,409.0

 
3,182.4

Intangible assets, net
3,661.3

 
3,879.6

Goodwill
5,170.3

 
4,632.5

Deferred tax assets
2,217.9

 
595.9

Investments and other assets
902.1

 
431.6

Total assets
$
23,952.9

 
$
23,652.6

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Current portion of notes payable
$

 
$
3.2

Taxes payable
223.0

 
68.2

Accounts payable
295.7

 
395.5

Accrued expenses and other
2,633.7

 
2,901.3

Total current liabilities
3,152.4

 
3,368.2

Notes payable
5,928.4

 
5,935.0

Deferred tax liabilities
1,160.8

 
122.6

Other long-term liabilities
1,457.6

 
1,628.7

Total liabilities
11,699.2

 
11,054.5

Commitments and contingencies


 


Equity:
 
 
 
Biogen Inc. shareholders’ equity:
 
 
 
Preferred stock, par value $0.001 per share

 

Common stock, par value $0.0005 per share
0.1

 
0.1

Additional paid-in capital

 
97.8

Accumulated other comprehensive loss
(261.6
)
 
(318.4
)
Retained earnings
15,499.5

 
15,810.4

Treasury stock, at cost
(2,977.1
)
 
(2,977.1
)
Total Biogen Inc. shareholders’ equity
12,260.9

 
12,612.8

Noncontrolling interests
(7.2
)
 
(14.7
)
Total equity
12,253.7

 
12,598.1

Total liabilities and equity
$
23,952.9

 
$
23,652.6


See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 
 
For the Six Months
Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
2,086.2

 
$
1,610.3

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
340.4

 
694.6

Acquired in-process research and development
85.0

 
120.0

Share-based compensation
81.7

 
67.3

Deferred income taxes
(57.4
)
 
(20.5
)
Other
42.4

 
73.5

Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(187.2
)
 
(301.2
)
Inventory
(40.1
)
 
(85.3
)
Accrued expenses and other current liabilities
13.3

 
(452.3
)
Income tax assets and liabilities
183.4

 
(114.7
)
Other changes in operating assets and liabilities, net
8.7

 
(187.3
)
Net cash flows provided by operating activities
2,556.4

 
1,404.4

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
6,802.7

 
3,584.5

Purchases of marketable securities
(4,774.3
)
 
(2,536.0
)
Contingent consideration paid related to Fumapharm AG acquisition
(900.0
)
 
(600.0
)
Purchases of property, plant and equipment
(381.5
)
 
(407.7
)
Acquired in-process research and development
(85.0
)
 
(120.0
)
Acquisitions of intangible assets
(3.0
)
 
(860.3
)
Purchase of Ionis Pharmaceuticals, Inc. stock
(463.7
)
 

Other
2.9

 
(7.2
)
Net cash flows provided by (used in) investing activities
198.1

 
(946.7
)
Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(3,000.0
)
 
(1,365.4
)
Payments related to issuance of stock for share-based compensation arrangements, net
(14.3
)
 
(17.8
)
Repayment of borrowings
(3.2
)
 

Net distribution to noncontrolling interest
(38.9
)
 

Net cash contribution to Bioverativ Inc.

 
(302.7
)
Other
(3.7
)
 
33.5

Net cash flows used in financing activities
(3,060.1
)
 
(1,652.4
)
Net increase (decrease) in cash and cash equivalents
(305.6
)
 
(1,194.7
)
Effect of exchange rate changes on cash and cash equivalents
(18.0
)
 
37.8

Cash and cash equivalents, beginning of the period
1,573.8

 
2,326.5

Cash and cash equivalents, end of the period
$
1,250.2

 
$
1,169.6







See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1.    Summary of Significant Accounting Policies
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, including in our core growth areas of multiple sclerosis (MS) and neuroimmunology, Alzheimer's disease (AD) and dementia, movement disorders and neuromuscular disorders, including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis (ALS). We are also focused on discovering, developing and delivering worldwide innovative therapies in our emerging growth areas of pain, ophthalmology, neuropsychiatry and acute neurology. In addition, we are employing innovative technologies to discover potential treatments for rare and genetic disorders, including new ways of treating diseases through gene therapy in the previously mentioned areas. We also manufacture and commercialize biosimilars of advanced biologics.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS, SPINRAZA for the treatment of SMA and FUMADERM for the treatment of severe plaque psoriasis. We also have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, 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 under a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group. In March 2018 we and AbbVie Inc. (AbbVie) announced the voluntary worldwide withdrawal of ZINBRYTA for RMS. For additional information on the voluntary worldwide withdrawal of ZINBRYTA, please read Note 18, Collaborative and Other Relationships, to these unaudited condensed consolidated financial statements (condensed consolidated financial statements).
We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities, particularly within our core and emerging growth areas. For nearly 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 additional improvements in the treatment of MS, such as the development of next generation therapies for MS, with a goal to reverse or possibly repair damage caused by the disease. We are also applying our scientific expertise to solve some of the most challenging and complex diseases, including AD, progressive supranuclear palsy, a rare condition that affects movement, speech, vision and cognitive function, Parkinson's disease, ALS, pain, cognitive impairment associated with schizophrenia (CIAS) and stroke.
Our innovative drug development and commercialization activities are complemented by our biosimilar therapies that expand access to medicines and reduce the cost burden for healthcare systems. We are leveraging our manufacturing capabilities and know-how to develop, manufacture and market biosimilars through Samsung Bioepis Co., Ltd. (Samsung Bioepis), our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics). Under our commercial agreement, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an infliximab biosimilar referencing REMICADE, in the European Union (E.U.).
Basis of Presentation
In the opinion of management, our condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2017 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and six months ended June 30, 2018, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
We operate as one operating segment, focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Consolidation
Our condensed 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% of the economics, we record net income (loss) attributable to noncontrolling interests in our condensed 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 an 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. These considerations impact the way we account for our existing collaborative relationships and other arrangements. 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 condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from these estimates.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (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 condensed consolidated financial statements and disclosures.
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services.
The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. We adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
The new revenue standards became effective for us on January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018, did not change our revenue recognition as the majority of our revenues continue to be recognized when the customer takes control of our product. As we did not identify any accounting changes that impacted the amount of reported revenues with respect to our product revenues, revenues from anti-CD20 therapeutic programs or other revenues, no adjustment to retained earnings was required upon adoption. However, the adoption of the new revenue standards may result in a change in the timing of revenue recognition related to certain of our contract manufacturing activities based upon the terms of the underlying agreements.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Under the new revenue standards, we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASU 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Product Revenues
In the United States (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.
Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payors, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. Our process for estimating reserves established for these variable consideration components do not differ materially from our historical practices.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, contractual adjustments and returns.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). Our estimates of reserves established for variable consideration are calculated based upon a consistent application of our methodology utilizing the expected value method. These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The transaction price, which includes 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 revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.
In addition to discounts, rebates and product returns, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services, which are generally reflected as a reduction of revenues. To the extent we can demonstrate a separable benefit and fair value for these services we classify these payments in selling, general and administrative expenses.
For additional information on our revenues, please read Note 4, Revenues, to these condensed consolidated financial statements.
Revenues from Anti-CD20 Therapeutic Programs
Our collaboration with Genentech is within the scope of Accounting Standards Codification (ASC) 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Our share of the pre-tax co-promotion profits on RITUXAN and GAZYVA and royalty revenues on the sale of OCREVUS resulted from an exchange of a license. As we do not have any future performance obligations under the license or collaboration agreement, revenues are recognized as the underlying sales occur.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Revenues 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 revenues from anti-CD20 therapeutic programs, which primarily consist of our share of pre-tax co-promotion profits on RITUXAN in Canada and royalty revenues on sales of OCREVUS.
For additional information on our collaboration with Genentech, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K.
Collaborative and Other Relationships
We have a number of significant collaborative and other third-party relationships for revenues, 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 revenues, cost of sales and operating expenses on a gross basis in their respective lines in our condensed consolidated statements of income. Where we are not the principal on sales transactions with third parties, we record our share of the revenues, cost of sales and operating expenses on a net basis in collaborative and other relationships included in other revenues in our condensed consolidated statements of income.

Our development and commercialization arrangements with AbbVie, 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, revenues relating to royalties or profit sharing amounts received are recognized as the underlying sales occur.
For additional information on our collaborations with AbbVie, Genentech and Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these condensed consolidated financial statements.
Royalty Revenues
We receive royalty revenues on sales by our licensees of other products covered under patents that we own. We do not have future performance obligations under these license arrangements. We record these revenues based on estimates of the sales that occurred during the relevant period as a component of other revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.
Other Corporate Revenues
We record other corporate revenues primarily from amounts earned under contract manufacturing agreements. Revenues under contract manufacturing agreements are 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.
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 revenues 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 income on these receivables, which is recognized as a component of other income (expense), net in our condensed consolidated statements of income.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

We provide reserves against trade receivables 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. 
The adoption of the new revenue standards did not change our historical accounting methods for our accounts receivable.
Financial Instruments
In January 2016 the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard amends certain aspects of accounting and disclosure requirements for financial instruments, including the requirement that equity investments with readily determinable fair values are to be measured at fair value with any changes in fair value recognized in a company's results of operations. This new standard does not apply to investments accounted for under the equity method of accounting or those investments that result in consolidation of the investee. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in observable prices. A financial liability that is measured at fair value in accordance with the fair value option is required to be presented separately in other comprehensive income for the portion of the total change in the fair value resulting from change in the instrument-specific credit risk. In addition, a valuation allowance should be evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred tax assets.
We adopted this new standard on January 1, 2018, using the modified retrospective method, and recognized a $1.3 million net adjustment to retained earnings reflecting the cumulative impact for the accounting changes made upon adoption. The adoption of this new standard resulted in a change in the income statement classification with respect to where we recognize changes in fair value related to certain equity security investments. Prior to the adoption of ASU 2016-01, we recognized changes in fair value in accumulated other comprehensive income (loss), net. Upon the adoption of ASU 2016-01, we recognize changes in fair value in other income (expense), net.
Leasing
In February 2016 the FASB issued ASU No. 2016-02, Leases (Topic 842). This new standard establishes a right-of-use (ROU) model that requires all lessees to recognize ROU assets and liabilities on their balance sheet that arise from leases with terms longer than 12 months as well as provide disclosures with respect to certain qualitative and quantitative information related to their leasing arrangements. This new standard will become effective for us on January 1, 2019. A modified retrospective transition approach is required to be applied to leases existing as of, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
We are in the process of cataloging our existing lease contracts and implementing changes to our systems and continue to evaluate the impact that this new standard may have on our consolidated results of operations, financial position and disclosures. We expect that the adoption of this new standard will materially affect the reported amount of our ROU assets and liabilities in our condensed consolidated balance sheets with no material impact to our condensed consolidated statements of income. We are unable to quantify the ultimate impact of adopting this new standard at this time as the actual impact will depend on the total amount of our lease commitments as of the adoption date. We plan to elect the practical expedients upon transition that will retain the lease classification and initial direct costs for any leases that existed prior to the adoption of this new standard. We will not reassess whether any contracts entered into prior to the adoption are leases.
Income Taxes
In October 2016 the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory. This new standard eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the income tax consequences from the intra-entity transfer of an asset other than inventory and associated changes to deferred taxes will be recognized when the transfer occurs.
We adopted this new standard on January 1, 2018, using the modified retrospective method, through a cumulative-effect adjustment to retained earnings as of that date. Upon adoption, we recognized additional net deferred tax assets of approximately $0.5 billion offset by a corresponding net increase to retained earnings of approximately $0.5 billion. We will recognize incremental deferred income tax expense thereafter as these deferred tax assets and liabilities are utilized.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

For additional information, please read Note 15, Income Taxes, to these condensed consolidated financial statements.
Net Periodic Pension Cost
In March 2017 the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This new standard requires that an employer disaggregate the service cost component from the other components of net benefit cost. This new standard also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the statements of income and allows only the service cost component of net benefit cost to be eligible for capitalization. The other components of the net periodic benefit cost must be presented separately from the line items that include service cost and outside of any subtotal of operating income on our condensed consolidated statements of income. We adopted this new standard on January 1, 2018, using the retrospective method.
As a result of the adoption of this new standard, the other components of the net periodic benefit cost, which we previously presented as a component of operating income, are now classified in other income (expense), net in our condensed consolidated statements of income. For the three and six months ended June 30, 2017, $0.4 million and $0.8 million, respectively, were reclassified from operating income to other income (expense), net in our condensed consolidated statements of income to conform to our current year presentation.
Debt Securities
In March 2017 the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This new standard amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. This new standard will be effective for us on January 1, 2019. While we continue to evaluate this new standard, we are unable to quantify the ultimate impact of adopting this new standard at this time as the actual impact will depend on our marketable debt securities as of the adoption date.
Derivative Instruments and Hedging Activities
In August 2017 the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This new standard provides guidance to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This new standard expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.
We adopted this new standard on January 1, 2018, using the modified retrospective method, which did not have an impact on our financial position or results of operations; however, the adoption of this new standard resulted in additional disclosures and a change in the income statement classification with respect to where we recognize ineffective hedge transaction gains and losses. Prior to the adoption of ASU 2017-12 on January 1, 2018, to the extent ineffective, hedge transaction gains and losses were reported in other income (expense), net. Effective January 1, 2018, we recognize all fair value changes of derivatives in earnings, including any ineffective portion, in the same line item in our condensed consolidated statements of income that has been impacted by the hedged item.
We recognize all derivative instruments as either assets or liabilities at fair value in our condensed 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 flows from these instruments in the same category as the cash flows from the hedged items. We do not hold or issue derivative instruments for trading or speculative purposes.
We assess at inception and on an on-going basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of the hedged items. We exclude the forward points portion of the derivative instrument used in a hedging transaction from the effectiveness test and record the fair value gain or loss related to this portion each period in the same line item as the underlying

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

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.
For additional information on our derivative instruments and hedging activities, please read Note 9, Derivative Instruments, to these condensed consolidated financial statements.
2.        Acquisitions
BIIB100 Acquisition
In January 2018 we acquired the Phase 1 ready investigational oral compound BIIB100 (formerly known as KPT-350) for the treatment of certain neurological and neurodegenerative conditions, primarily in ALS, from Karyopharm Therapeutics Inc. (Karyopharm). BIIB100 is a novel therapeutic candidate that works by inhibiting a protein known as XPO1, with the goal of reducing inflammation and neurotoxicity, along with increasing neuroprotective responses.
We accounted for this transaction as an asset acquisition as the value being acquired relates to a single asset. In connection with the closing of this transaction, we made an upfront payment of $10.0 million, which was recorded as acquired in-process research and development in our condensed consolidated statements of income as BIIB100 has not yet reached technological feasibility. We may also pay Karyopharm up to $207.0 million in additional milestone payments, as well as potential royalties in the mid-single digit to low-teen percentages.
BIIB104 Acquisition
In April 2018 we acquired BIIB104 (formerly known as PF-04958242), a first-in-class, AMPA receptor potentiator for CIAS, from Pfizer Inc. (Pfizer). AMPA receptors mediate fast excitatory synaptic transmission in the central nervous system, a process which can be disrupted in a number of neurological and psychiatric diseases, including schizophrenia.
We accounted for this transaction as an asset acquisition as the value being acquired primarily relates to a single asset. In connection with the closing of this transaction, we made an upfront payment of $75.0 million, which was recorded as acquired in-process research and development in our condensed consolidated statements of income as BIIB104 has not yet reached technological feasibility. We may also pay Pfizer up to $515.0 million in additional development and commercialization milestone payments, as well as potential tiered royalties in the low to mid-teen percentages. The next expected milestone would be $10.0 million upon the dosing of the first patient in the Phase 2b study, which will be recorded as research and development expense in our condensed consolidated statements of income.
TMS CO., LTD.
In June 2018 we entered into an exclusive option agreement with TMS Co., Ltd. (TMS) granting us the option to acquire TMS-007, a plasminogen activator with a novel mechanism of action (MOA) associated with breaking down blood clots, which is in Phase 2 development, and backup compounds for the treatment of stroke. In exchange for the purchase option, we made a $4.0 million upfront payment to TMS, which was recorded as research and development expense in our condensed consolidated statements of income as TMS-007 has not yet reached technological feasibility.
If we exercise the purchase option, we will make an additional payment of $18.0 million upon closing of the asset acquisition, which will be recorded as acquired in-process research and development expense in our condensed consolidated statements of income as TMS-007 will not have yet reached technological feasibility. In addition, under the option agreement we may pay TMS up to $335.0 million in additional development and commercialization milestone payments, as well as tiered royalties in the high-single digit to low-teen percentages. If we exercise the purchase option, consummation of the asset acquisition may be subject to the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in the U.S.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

3.        Restructuring
2017 Corporate Strategy
In October 2017, in connection with creating a leaner and simpler operating model, we approved a corporate restructuring program intended to streamline our operations and reallocate resources. We recognized restructuring charges of $0.9 million in our condensed consolidated statements of income during the fourth quarter of 2017. These restructuring charges were primarily related to severance.
For the three and six months ended June 30, 2018, we recognized restructuring charges of $1.6 million and $3.2 million, respectively, in our condensed consolidated statements of income. These restructuring charges were primarily related to severance.
Charges incurred under this program have been substantially paid as of June 30, 2018.
4.    Revenues
Product Revenues
Revenues by product are summarized as follows:
 
For the Three Months
Ended June 30,
(In millions)
2018
 
2017
 
United
States
 
Rest of
World
 
Total
 
United
States
 
Rest of
World
 
Total
Multiple Sclerosis:
 
 
 
 
 
 
 
 
 
 
 
TECFIDERA
$
825.8

 
$
261.0

 
$
1,086.8

 
$
875.0

 
$
235.6

 
$
1,110.6

Interferon*
444.7

 
180.8

 
625.5

 
501.7

 
188.9

 
690.6

TYSABRI
265.5

 
201.7

 
467.2

 
289.4

 
206.6

 
496.0

FAMPYRA

 
23.0

 
23.0

 

 
22.6

 
22.6

ZINBRYTA

 

 

 

 
16.1

 
16.1

Spinal Muscular Atrophy:
 
 
 
 

 
 
 
 
 

SPINRAZA
205.9

 
216.8

 
422.7

 
194.8

 
8.1

 
202.9

Other Product Revenues:
 
 
 
 

 
 
 
 
 

FUMADERM

 
5.5

 
5.5

 

 
10.3

 
10.3

BENEPALI

 
115.6

 
115.6

 

 
88.7

 
88.7

FLIXABI

 
11.2

 
11.2

 

 
1.9

 
1.9

Total product revenues
$
1,741.9

 
$
1,015.6

 
$
2,757.5

 
$
1,860.9

 
$
778.8

 
$
2,639.7

*Interferon includes AVONEX and PLEGRIDY.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

 
For the Six Months
Ended June 30,
(In millions)
2018
 
2017
 
United
States
 
Rest of
World
 
Total
 
United
States
 
Rest of
World
 
Total
Multiple Sclerosis:
 
 
 
 
 
 
 
 
 
 
 
TECFIDERA
$
1,554.7

 
$
519.0

 
$
2,073.7

 
$
1,626.1

 
$
442.7

 
$
2,068.8

Interferon*
816.0

 
359.8

 
1,175.8

 
966.5

 
372.4

 
1,338.9

TYSABRI
515.2

 
414.1

 
929.3

 
594.9

 
446.1

 
1,041.0

FAMPYRA

 
47.4

 
47.4

 

 
43.1

 
43.1

ZINBRYTA

 
1.4

 
1.4

 

 
26.8

 
26.8

Spinal Muscular Atrophy:
 
 
 
 
 
 
 
 
 
 
 
SPINRAZA
393.9

 
392.7

 
786.6

 
241.2

 
9.1

 
250.3

Hemophilia:
 
 
 
 
 
 
 
 
 
 
 
ELOCTATE

 

 

 
42.2

 
6.2

 
48.4

ALPROLIX

 

 

 
21.0

 
5.0

 
26.0

Other Product Revenues:
 
 
 
 
 
 
 
 
 
 
 
FUMADERM

 
12.5

 
12.5

 

 
20.0

 
20.0

BENEPALI

 
236.5

 
236.5

 

 
154.0

 
154.0

FLIXABI

 
17.8

 
17.8

 

 
2.5

 
2.5

Total product revenues
$
3,279.8

 
$
2,001.2

 
$
5,281.0

 
$
3,491.9

 
$
1,527.9

 
$
5,019.8

*Interferon includes AVONEX and PLEGRIDY.
We recognized revenues from two wholesalers accounting for 32.5% and 18.6% of gross product revenues for the three months ended June 30, 2018, and 33.2% and 17.3% of gross product revenues for the six months ended June 30, 2018.
We recognized revenues from two wholesalers accounting for 34.3% and 22.8% of gross product revenues for the three months ended June 30, 2017, and 35.5% and 21.1% of gross product revenues for the six months ended June 30, 2017.
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
Discounts
 
Contractual
Adjustments
 
Returns
 
Total
Balance, as of December 31, 2017
$
109.6

 
$
606.0

 
$
46.0

 
$
761.6

Current provisions relating to sales in current year
333.2

 
1,288.0

 
11.4

 
1,632.6

Adjustments relating to prior years
(0.3
)
 
7.4

 
2.6

 
9.7

Payments/credits relating to sales in current year
(222.3
)
 
(731.9
)
 

 
(954.2
)
Payments/credits relating to sales in prior years
(101.0
)
 
(469.6
)
 
(13.5
)
 
(584.1
)
Balance, as of June 30, 2018
$
119.2

 
$
699.9

 
$
46.5

 
$
865.6

The total reserves above, which are included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of
June 30,
2018
 
As of
December 31,
2017
Reduction of accounts receivable
$
162.8

 
$
189.6

Component of accrued expenses and other
702.8

 
572.0

Total reserves
$
865.6

 
$
761.6


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Revenues from Anti-CD20 Therapeutic Programs
Revenues from anti-CD20 therapeutic programs are summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2018
 
2017
 
2018
 
2017
Biogen’s share of pre-tax profits in the U.S. for RITUXAN and GAZYVA
$
359.0

 
$
347.5

 
$
708.6

 
$
671.0

Other revenues from anti-CD20 therapeutic programs
131.4

 
49.6

 
225.0

 
66.7

Total revenues from anti-CD20 therapeutic programs
$
490.4

 
$
397.1

 
$
933.6

 
$
737.7

For additional information on our collaboration with Genentech, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K.
Other Revenues
Other revenues are summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2018
 
2017
 
2018
 
2017
Revenues from collaborative and other relationships:
 
 
 
 
 
 
 
AbbVie
$
(2.5
)
 
$
(3.9
)
 
$
(7.2
)
 
$
(9.8
)
Samsung Bioepis and other
14.7

 
12.9

 
32.6

 
25.1

Other royalty and corporate revenues:
 
 
 
 
 
 
 
Royalty
17.3

 
11.8

 
27.9

 
37.3

Other corporate
79.1

 
20.8

 
219.7

 
79.0

Total other revenues
$
108.6

 
$
41.6

 
$
273.0

 
$
131.6

For additional information related to our collaborations with AbbVie and Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these condensed consolidated financial statements.
5.    Inventory
The components of inventory are summarized as follows:
(In millions)
As of
June 30,
2018
 
As of
December 31,
2017
Raw materials
$
176.1

 
$
162.4

Work in process
610.0

 
605.7

Finished goods
158.5

 
157.4

Total inventory
$
944.6

 
$
925.5

 
 
 
 
Balance Sheet Classification:
 
 
 
Inventory
$
931.7

 
$
902.7

Investments and other assets
12.9

 
22.8

Total inventory
$
944.6

 
$
925.5

Long-term inventory, which primarily consists of work in process, is included in investments and other assets in our condensed consolidated balance sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

6.    Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of June 30, 2018
 
As of December 31, 2017
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
543.3

 
$
(539.9
)
 
$
3.4

 
$
543.3

 
$
(535.6
)
 
$
7.7

Developed 
technology
15-23 years
 
3,005.3

 
(2,713.1
)
 
292.2

 
3,005.3

 
(2,689.0
)
 
316.3

In-process research and development
Indefinite until commercialization
 
670.5

 

 
670.5

 
680.6

 

 
680.6

Trademarks and 
tradenames
Indefinite
 
64.0

 

 
64.0

 
64.0

 

 
64.0

Acquired and in-licensed rights 
and patents
4-18 years
 
3,974.2

 
(1,343.0
)
 
2,631.2

 
3,971.4

 
(1,160.4
)
 
2,811.0

Total intangible assets
 
 
$
8,257.3

 
$
(4,596.0
)
 
$
3,661.3

 
$
8,264.6

 
$
(4,385.0
)
 
$
3,879.6

For the three and six months ended June 30, 2018, amortization of acquired intangible assets totaled $107.4 million and $211.3 million, respectively, compared to $117.5 million and $566.0 million, respectively, in the prior year comparative periods. For the six months ended June 30, 2018, compared to the same period in 2017, the decrease in amortization of acquired intangible assets was primarily due to the prior year impairment charge related to our U.S. and rest of world licenses to Forward Pharma A/S's (Forward Pharma) intellectual property, including Forward Pharma's intellectual property related to TECFIDERA, as discussed below.
Developed Technology
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. The net book value of this asset as of June 30, 2018, was $285.8 million.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan Corporation plc and our U.S. and rest of world licenses to Forward Pharma's intellectual property, including Forward Pharma's intellectual property related to TECFIDERA. The net book values of the TYSABRI and TECFIDERA assets as of June 30, 2018, were $2,120.8 million and $291.4 million, respectively.
TECFIDERA License Rights
In January 2017 we entered into a settlement and license agreement among Biogen Swiss Manufacturing GmbH, Biogen International Holding Ltd., Forward Pharma and certain related parties, which was effective as of February 1, 2017. Pursuant to this agreement, we obtained U.S. and rest of world licenses to Forward Pharma's intellectual property, including Forward Pharma's intellectual property related to TECFIDERA. In exchange, we paid Forward Pharma $1.25 billion in cash.
We have two intellectual property disputes with Forward Pharma, one in the U.S. and one in the E.U., concerning intellectual property related to TECFIDERA.
In March 2017 the U.S. intellectual property dispute was decided in our favor. Forward Pharma appealed to the U.S. Court of Appeals for the Federal Circuit and the appeal is pending. We evaluated the recoverability of the U.S. asset acquired from Forward Pharma and recorded an impairment charge in the first quarter of 2017 to adjust the carrying value of the acquired U.S. asset to fair value reflecting the impact of the developments in the U.S. legal dispute.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

In March 2018 the European Patent Office (EPO) issued its decision revoking Forward Pharma's European Patent No. 2 801 355. Forward Pharma has filed an appeal to the Technical Board of Appeal of the EPO and the appeal is pending.
Based upon our assessment of these rulings, we continue to amortize the remaining net book value of the U.S. and rest of world intangible assets in our condensed consolidated statements of income utilizing an economic consumption model.
For additional information on these disputes, please read Note 21, Litigation, to our consolidated financial statements included in our 2017 Form 10-K.
Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption and impairment of intangible assets. Our most significant intangible assets are related to our TECFIDERA, AVONEX and TYSABRI products. Annually, during our long-range planning cycle, we perform an analysis of anticipated lifetime revenues of our TECFIDERA, AVONEX and TYSABRI products. This analysis is also updated whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of any of these products.
Our most recent long-range planning cycle was completed in the third quarter of 2017. Based upon this analysis, the estimated future amortization of acquired intangible assets for the next five years is expected to be as follows:
(In millions)
As of
June 30,
2018
2018 (remaining six months)
$
215.8

2019
402.6

2020
380.9

2021
255.0

2022
242.3

2023
211.2

Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
As of
June 30,
2018
Goodwill, beginning of period
$
4,632.5

Increase to goodwill
540.9

Other
(3.1
)
Goodwill, end of period
$
5,170.3

The increase in goodwill during the six months ended June 30, 2018, was related to $600.0 million in contingent milestones achieved (exclusive of $59.1 million in tax benefits) and payable to the former shareholders of Fumapharm AG or holders of their rights.
For additional information on future contingent payments to the former shareholders of Fumapharm AG or holders of their rights, please read Note 22, Commitments and Contingencies, to our consolidated financial statements included in our 2017 Form 10-K.
Other includes changes in foreign currency exchange rate fluctuations. As of June 30, 2018, we had no accumulated impairment losses related to goodwill.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

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:
As of June 30, 2018 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
732.2

 
$

 
$
732.2

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
2,045.5

 

 
2,045.5

 

Government securities
828.7

 

 
828.7

 

Mortgage and other asset backed securities
260.0

 

 
260.0

 

Marketable equity securities
489.7

 
70.1

 
419.6

 

Derivative contracts
40.0

 

 
40.0

 

Plan assets for deferred compensation
28.2

 

 
28.2

 

Total
$
4,424.3

 
$
70.1

 
$
4,354.2

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
43.5

 
$

 
$
43.5

 
$

Contingent consideration obligations
499.9

 

 

 
499.9

Total
$
543.4

 
$

 
$
43.5

 
$
499.9

As of December 31, 2017 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
1,229.4

 
$

 
$
1,229.4

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
2,609.8

 

 
2,609.8

 

Government securities
1,919.3

 

 
1,919.3

 

Mortgage and other asset backed securities
643.4

 

 
643.4

 

Marketable equity securities
11.8

 
11.8

 

 

Derivative contracts
2.7

 

 
2.7

 

Plan assets for deferred compensation
28.5

 

 
28.5

 

Total
$
6,444.9

 
$
11.8

 
$
6,433.1

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
111.3

 
$

 
$
111.3

 
$

Contingent consideration obligations
523.6

 

 

 
523.6

Total
$
634.9

 
$

 
$
111.3

 
$
523.6

There have been no impairments of our assets measured and carried at fair value during the three and six months ended June 30, 2018. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and six months ended June 30, 2018. The fair values of Level 2 instruments classified as cash equivalents, marketable debt securities and our marketable equity security investment in Ionis Pharmaceuticals, Inc. (Ionis) were determined through third-party pricing services. For additional information on our collaboration agreement with Ionis, please read Note 18, Collaborative and Other Relationships, to these condensed consolidated financial statements. For a description of our validation procedures

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

related to prices provided by third-party pricing services, please read Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included in our 2017 Form 10-K.
Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of June 30, 2018
 
As of December 31, 2017
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes payable to Fumedica AG
$

 
$

 
$
3.2

 
$
3.2

2.900% Senior Notes due September 15, 2020
1,491.0

 
1,474.3

 
1,517.7

 
1,482.4

3.625% Senior Notes due September 15, 2022
999.6

 
994.9

 
1,032.9

 
994.3

4.050% Senior Notes due September 15, 2025
1,757.9

 
1,737.0

 
1,851.9

 
1,736.3

5.200% Senior Notes due September 15, 2045
1,854.5

 
1,722.2

 
2,077.6

 
1,722.0

Total
$
6,103.0

 
$
5,928.4

 
$
6,483.3

 
$
5,938.2

In connection with our 2006 distribution agreement with Fumedica AG, we issued notes totaling 61.4 million Swiss Francs that were payable to Fumedica AG in varying amounts from June 2008 through June 2018. In June 2018 we redeemed our remaining note payable to Fumedica AG.
The fair value of our notes payable to Fumedica AG, as of December 31, 2017, was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair values of each of our series of Senior Notes were determined through market, observable and corroborated sources. For additional information on our debt instruments, please read Note 12, Indebtedness, to our consolidated financial statements included in our 2017 Form 10-K.
Contingent Consideration Obligations
In connection with our acquisitions of Convergence Pharmaceuticals Ltd., Stromedix Inc. and Biogen International Neuroscience GmbH in 2015, 2012 and 2010, respectively, 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:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2018
 
2017
 
2018
 
2017
Fair value, beginning of period
$
498.0

 
$
470.9

 
$
523.6

 
$
467.6

Changes in fair value
1.9

 
21.2

 
(3.7
)
 
31.2

Payments

 

 
(20.0
)
 
(6.7
)
Fair value, end of period
$
499.9

 
$
492.1

 
$
499.9

 
$
492.1

As of June 30, 2018 and December 31, 2017, $270.5 million and $279.0 million, respectively, of the fair value of our contingent consideration obligations was reflected as a component of other long-term liabilities in our condensed consolidated balance sheets with the remaining balance reflected as a component of accrued expenses and other.
For the three and six months ended June 30, 2018, changes in the fair value of our contingent consideration obligations were primarily due to an increase in interest rates used to revalue our contingent consideration liabilities, the passage of time and a milestone payment.
For the three and six months ended June 30, 2017, changes in the fair value of our contingent consideration obligations were primarily due to an increase in the probability of achieving certain developmental milestones.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, 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 condensed consolidated balance sheets:
(In millions)
As of
June 30,
2018
 
As of
December 31,
2017
Commercial paper
$
125.2

 
$
30.5

Overnight reverse repurchase agreements
23.9

 
3.6

Money market funds
541.7

 
948.0

Short-term debt securities
41.4

 
247.3

Total
$
732.2

 
$
1,229.4

The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, money market funds and short-term debt securities approximate fair value due to their short-term maturities.
Upon the adoption of ASU 2016-01, our marketable equity securities gains (losses) are recorded in other income (expense), net in our condensed consolidated statements of income. The following tables summarize our marketable debt and equity securities, classified as available-for-sale:
As of June 30, 2018 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
1,484.2

 
$
0.1

 
$
(0.7
)
 
$
1,484.8

Non-current
561.3

 
0.4

 
(0.6
)
 
561.5

Government securities
 
 
 
 
 
 
 
Current
489.6

 

 
(0.1
)
 
489.7

Non-current
339.1

 
0.1

 
(0.6
)
 
339.6

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.2

 

 

 
0.2

Non-current
259.8

 
0.1

 
(0.8
)
 
260.5

Total marketable debt securities
$
3,134.2

 
$
0.7

 
$
(2.8
)
 
$
3,136.3

Marketable equity securities, non-current
$
489.7

 
$
42.5

 
$
(49.4
)
 
$
496.6

As of December 31, 2017 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
1,039.3

 
$

 
$
(0.2
)
 
$
1,039.5

Non-current
1,570.5

 
0.9

 

 
1,569.6

Government securities
 
 
 
 
 
 
 
Current
1,075.1

 
0.1

 
(0.7
)
 
1,075.7

Non-current
844.2

 
0.2

 
(1.1
)
 
845.1

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.8

 

 

 
0.8

Non-current
642.6

 
1.1

 
(0.8
)
 
642.3

Total marketable debt securities
$
5,172.5

 
$
2.3

 
$
(2.8
)
 
$
5,173.0

Marketable equity securities, non-current
$
11.8

 
$
1.8

 
$
(4.4
)
 
$
14.4


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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
 
As of June 30, 2018
 
As of December 31, 2017
(In millions)
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
Due in one year or less
$
1,974.0

 
$
1,974.7

 
$
2,115.2

 
$
2,116.0

Due after one year through five years
1,063.5

 
1,064.5

 
2,730.0

 
2,730.0

Due after five years
96.7

 
97.1

 
327.3

 
327.0

Total available-for-sale securities
$
3,134.2

 
$
3,136.3

 
$
5,172.5

 
$
5,173.0

The average maturity of our marketable debt securities available-for-sale as of June 30, 2018 and December 31, 2017, was approximately 10 months and 17 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:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2018
 
2017
 
2018
 
2017
Proceeds from maturities and sales
$
2,733.7

 
$
1,700.2

 
$
6,802.7

 
$
3,584.5

Realized gains
$
0.8

 
$
1.2

 
$
2.6

 
$
2.4

Realized losses
$
(0.8
)
 
$
(1.3
)
 
$
(10.2
)
 
$
(3.2
)
Strategic Investments
As of June 30, 2018 and December 31, 2017, our strategic investment portfolio was comprised of investments totaling $549.0 million and $85.8 million, respectively, which are included in investments and other assets in our condensed consolidated balance sheets. The increase in our strategic investment portfolio is a result of our investment in Ionis' common stock, as discussed below.
Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies and investments in venture capital funds where the underlying investments are in equity securities of certain biotechnology companies. Our investments in equity securities of certain publicly-traded biotechnology companies are regularly measured and carried at fair value and classified as Level 1 marketable equity securities within our disclosures included in Note 7, Fair Value Measurements, to these condensed consolidated financial statements. Our investment in Ionis' common stock will be regularly measured and carried at fair value and classified as a Level 2 marketable equity security within our disclosures in Note 7, Fair Value Measurements, to these condensed consolidated financial statements.
Ionis Pharmaceuticals, Inc.
In June 2018 we completed a new ten-year exclusive collaboration with Ionis to develop novel antisense oligonucleotide drug candidates for a broad range of neurological diseases 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.
Our investment in Ionis' common stock is remeasured each reporting period and carried at fair value. The effects of the holding period restrictions 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 Ionis' common stock and a dividend yield of zero based upon the fact that Ionis and similar companies generally have not historically granted cash dividends.
For additional information on our new collaboration agreement with Ionis, please read Note 18, Collaborative and Other Relationships, to these condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

9.    Derivative Instruments
In August 2017 the FASB issued ASU 2017-12. We adopted this new standard on January 1, 2018, using the modified retrospective method, which did not have an impact on our financial position or results of operations; however, the adoption of this new standard resulted in additional disclosures and a change in the income statement classification with respect to where we recognize ineffective hedge transaction gains and losses. For additional information on this new standard, please read Note 1, Summary of Significant Accounting Policies, to these condensed consolidated financial statements.
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues and operating expenses are recorded in currencies other than the U.S. dollar. The value of revenues and operating expenses 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 revenues and operating expenses.
Foreign currency forward contracts in effect as of June 30, 2018 and December 31, 2017, had durations of 1 to 18 months and 1 to 21 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 tables below). Realized gains and losses of such contracts are recognized in revenues when the sale of product in the currency being hedged is recognized and in operating expenses when the expense in the currency being hedged is recorded. Prior to the adoption of ASU 2017-12 on January 1, 2018, to the extent ineffective, hedge transaction gains and losses were reported in other income (expense), net. Effective January 1, 2018, we recognize all fair value changes of derivatives in earnings, including any ineffective portion, in the same line item in our condensed 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 revenues and operating expenses is summarized as follows:
 
Notional Amount
Foreign Currency: (In millions)
As of
June 30,
2018
 
As of
December 31,
2017
Euro
$
1,553.3

 
$
1,875.6

British pound
72.5

 
150.9

Canadian dollar
45.8

 
83.5

Swiss franc
36.8

 
88.7

Total foreign currency forward contracts
$
1,708.4

 
$
2,198.7

The pre-tax portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) in total equity reflected net losses of $8.6 million and $113.0 million as of June 30, 2018 and December 31, 2017, respectively. We expect the net losses of $8.6 million to be settled over the next 18 months, of which $15.8 million of these losses 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 revenues or operating expenses. 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 June 30, 2018 and December 31, 2017, credit risk did not change the fair value of our foreign currency forward contracts.

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Table of Contents
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

The following tables summarize the effect of foreign currency forward contracts designated as hedging instruments in our condensed consolidated statements of income:
For the Three Months Ended June 30, 2018
 
For the Six Months Ended June 30, 2018
Net Gains/(Losses)
Reclassified from AOCI into Operating Income (in millions)
Net Gains/(Losses)
Recognized in Operating Income (in millions)
 
Net Gains/(Losses)
Reclassified from AOCI into Operating Income (in millions)
Net Gains/(Losses)
Recognized in Operating Income (in millions)
Location
 
2018
 
Location
 
2018
 
Location
 
2018
 
Location
 
2018
Revenues
 
$
(10.4
)
 
Revenues
 
$
7.9

 
Revenues
 
$
(43.3
)
 
Revenues
 
$
7.0

Operating expenses
 
$
(0.4
)
 
Operating expenses
 
$
(0.1
)
 
Operating expenses
 
$
0.9

 
Operating expenses
 
$
(0.4
)

For the Three Months Ended June 30, 2017
 
For the Six Months Ended June 30, 2017
Net Gains/(Losses)
Reclassified from AOCI into Operating Income (in millions)
Net Gains/(Losses)
Recognized Directly into Net Income (in millions)
 
Net Gains/(Losses)
Reclassified from AOCI into
Operating Income (in millions)
Net Gains/(Losses)
Recognized Directly into Net
Income (in millions)
Location
 
2017
 
Location
 
2017
 
Location
 
2017
 
Location
 
2017
Revenues
 
$
(3.0
)
 
Other income (expense)
 
$
2.0

 
Revenue
 
$
3.7

 
Other income (expense)
 
$
6.0

Operating expenses
 
$
0.3

 
Other income (expense)
 
$
(0.1
)
 
Operating expenses
 
$
0.2

 
Other income (expense)
 
$
(0.3
)
Interest Rate Contracts - Hedging Instruments
We have entered into interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes.
In connection with the issuance of our 2.90% Senior Notes, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020. The interest rate swap contracts are designated as hedges of the fair value changes in our 2.90% Senior Notes attributable to changes in interest rates. Since the specific terms and notional amount of the swaps match the debt being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are recognized as a component of our 2.90% Senior Notes with no net impact recorded in income. Any net interest payments made or received on the interest rate swap contracts are recognized as a component of interest expense in our condensed consolidated statements of income.
Foreign Currency Forward Contracts - Other Derivatives
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.
The aggregate notional amount of these outstanding foreign currency contracts was $636.7 million and $564.9 million as of June 30, 2018 and December 31, 2017, respectively. Net gains of $5.2 million and net losses of $0.4 million related to these contracts were recognized as a component of other income (expense), net for the three and six months ended June 30, 2018, respectively, compared to net gains of $6.1 million and $4.5 million, respectively, in the prior year comparative periods.

26

Table of Contents
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Summary of Derivatives
While certain of our derivative instruments are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our condensed consolidated balance sheets.
The following table summarizes the fair value and presentation in our condensed consolidated balance sheets of our outstanding derivative instruments, including those designated as hedging instruments:
 
 
Fair Value
(In millions)
Balance Sheet Location
As of June 30, 2018
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
27.2

 
Investments and other assets
$
8.8

Liability derivatives
Accrued expenses and other
$
22.2

 
Other long-term liabilities
$
19.6

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
4.0

Liability derivatives
Accrued expenses and other
$
1.7


 
 
Fair Value
(In millions)
Balance Sheet Location
As of December 31, 2017
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
0.7

 
Investments and other assets
$
0.2

Liability derivatives
Accrued expenses and other
$
84.7

 
Other long-term liabilities
$
23.6

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.8

Liability derivatives
Accrued expenses and other
$
3.0

10.    Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Accumulated depreciation on property, plant and equipment was $1,671.7 million and $1,559.1 million as of June 30, 2018 and December 31, 2017, respectively.
Solothurn, Switzerland Facility
We are building a large-scale biologics manufacturing facility in Solothurn, Switzerland. We expect this facility to be operational by the end of 2020. 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. As of June 30, 2018 and December 31, 2017, we had approximately $1.5 billion and $1.2 billion, respectively, capitalized as construction in progress related to this facility. As of June 30, 2018, we had contractual commitments of approximately $230.0 million outstanding related to the construction of this facility.
11.    Equity
Total equity as of June 30, 2018, decreased $344.4 million compared to December 31, 2017. This decrease was primarily due to share repurchases totaling $3.0 billion, as described below, partially offset by net income attributable to Biogen Inc. of approximately $2.0 billion and a net cumulative-effect adjustment of approximately $0.5 billion recognized to retained earnings upon the adoptions of ASUs 2016-16 and 2016-01.

27

Table of Contents
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

For additional information related to the adoption of ASUs 2016-16 and 2016-01, please read Note 1, Summary of Significant Accounting Policies, to these condensed consolidated financial statements.
Share Repurchases
In July 2016 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2016 Share Repurchase Program), which was completed as of June 30, 2018. Under our 2016 Share Repurchase Program, we repurchased and retired 9.6 million and 10.5 million shares of our common stock at a cost of $2.75 billion and $3.0 billion during the three and six months ended June 30, 2018, respectively, and we repurchased and retired 2.9 million and 3.7 million shares of our common stock at a cost of $781.8 million and $1.0 billion during the three and six months ended June 30, 2017, respectively.
In February 2011 our Board of Directors authorized a program to repurchase up to 20.0 million shares of our common stock (2011 Share Repurchase Program). Shares repurchased under our 2011 Share Repurchase Program were principally used to offset common stock issuances under our share-based compensation programs. Our 2011 Share Repurchase Program was completed as of March 31, 2017. Under our 2011 Share Repurchase Program, we repurchased 1.3 million shares of our common stock at a cost of $365.4 million during the six