News Column

BIOGEN IDEC INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

April 23, 2014

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes beginning on page 4 of this quarterly report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K). Certain totals may not sum due to rounding. Executive Summary Introduction Biogen Idec is a global biotechnology company focused on discovering, developing, manufacturing and marketing therapies for the treatment of multiple sclerosis (MS) and other autoimmune disorders, neurodegenerative diseases and hemophilia. We also collaborate on the development and commercialization of RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia and other conditions and share profits and losses for GAZYVA for the treatment of chronic lymphocytic leukemia. In the near term, our revenues are dependent upon continued sales of our four principal products, AVONEX, TYSABRI, TECFIDERA and RITUXAN. In the longer term, our revenue growth will be dependent upon the successful clinical development, regulatory approval and launch of new commercial products, our ability to obtain and maintain patents and other rights related to our marketed products and assets originating from our research and development efforts, and successful execution of external business development opportunities. As part of our ongoing research and development efforts, we have devoted significant resources to conducting clinical studies to advance the development of new pharmaceutical products and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels. Financial Highlights The following table is a summary of financial results achieved: For the Three Months Ended March 31, (In millions, except per share amounts and percentages) 2014 (1) 2013 (2) Change % Total revenues $ 2,129.8$ 1,415.1 50.5 % Income from operations $ 671.3$ 510.5 31.5 %



Net income attributable to Biogen Idec Inc.$ 480.0$ 426.7 12.5 % Diluted earnings per share attributable to Biogen Idec Inc.

$ 2.02$ 1.79 12.7 % (1) Total revenues for the three months ended March 31, 2014 includes 100% of net revenues related to sales of TYSABRI as a result of our acquisition of TYSABRI rights from Elan on April 2, 2013 and net revenues related to sales of TECFIDERA, our oral first-line treatment for people with relapsing forms of MS, which was approved by the U.S. Food and Drug Administration (FDA) in March 2013 and the European Commission (EC) in February 2014. (2) Our share of revenues from unconsolidated joint business reflects a charge of $41.5 million for damages and interest awarded to Hoechst GmbH (Hoechst) in Genentech Inc.'s arbitration with Hoechst for RITUXAN. As described below under "Results of Operations," our operating results for the three months ended March 31, 2014 reflect the following: Worldwide AVONEX revenues totaled $761.5 million in the first quarter of 2014, representing an increase of 2.1% over the same period in 2013. Worldwide TYSABRI revenues totaled $441.0 million in the first quarter of 2014, representing an increase of 41.3% over the same period in 2013. The increase in revenue is primarily due to 100% of net U.S. revenue being recognized starting in April 2013 as a result of our acquisition of TYSABRI rights. Worldwide TECFIDERA revenues totaled $505.7 million in the first quarter of 2014. Our share of RITUXAN and GAZYVA revenues totaled $296.9 million in the first quarter of 2014, representing an increase of 12.2% over the same period in 2013. 29



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Total cost and expenses increased 60.8% in the first quarter of 2014, compared to the same period in 2013. This increase resulted from a 179.2% increase in the amortization of acquired intangible assets, a 86.0% increase in research and development expense, a 108.8% increase in cost of sales, a 172.4% increase in income tax expense and a 45.1% increase in selling, general and administrative expense, partially offset by a 100.0% decrease in collaboration profit sharing compared with the same period in 2013. The increases in cost of sales and the amortization of acquired intangibles are a result of our April 2013 acquisition of the TYSABRI rights. We also recorded higher amortization on our AVONEX intangible asset. Our increase in research and development expense is primarily attributable to upfront payments made to Eisai Co., Ltd. (Eisai) and Sangamo BioSciences, Inc. (Sangamo) in connection with collaboration agreements entered into with these companies in the first quarter of 2014. Higher selling, general and administrative expense resulted from increased costs incurred in connection with our product launch of TECFIDERA in the U.S. and E.U. and ALPROLIX in the U.S. and Canada and our development of commercial capabilities for potential product launches of ELOCTATE and PLEGRIDY. We generated $104.6 million of net cash flows from operations for the three months ended March 31, 2014, which were primarily driven by earnings offset by an increase in working capital. Cash, cash equivalents and marketable securities totaled approximately $1,984.5 million as of March 31, 2014. Business Environment We conduct our business within the biotechnology and pharmaceutical industries, which are highly competitive. Many of our competitors are working to develop or have commercialized products similar to those we market or are developing, including oral and other alternative formulations that may compete with AVONEX, TYSABRI, TECFIDERA or other products we are developing. In addition, the commercialization of certain of our own approved products and pipeline product candidates may negatively impact future sales of AVONEX, TYSABRI, TECFIDERA or all three. We may also face increased competitive pressures from the emergence of biosimilars, generic versions of TECFIDERA or related prodrug derivatives. In the U.S., AVONEX, TYSABRI, and RITUXAN are licensed under the Public Health Service Act (PHSA) as biological products. In March 2010, U.S. healthcare reform legislation amended the PHSA to authorize the FDA to approve biological products, known as biosimilars, that are similar to or interchangeable with previously approved biological products based upon potentially abbreviated data packages. Global economic conditions continue to present challenges for our industry. Governments in many international markets where we operate have implemented austerity measures to constrain the overall level of government expenditures. These measures, which include efforts aimed at reforming health care coverage and reducing health care costs, particularly in certain countries in Europe, continue to exert pressure on product pricing, have delayed reimbursement for our products, and have negatively impacted our revenues and results of operations. It is possible that additional U.S. federal health care reform measures will be adopted in the future, including as a result of ongoing discussions to reduce the U.S. federal budget deficit to address government finances, any of which could result in increased pricing pressure and reduced reimbursement for our products and otherwise have an adverse impact on our financial position or results of operations. For additional information about certain risks that could negatively impact our financial position or future results of operations, please read the "Risk Factors" section of this report. The Patient Protection and Affordable Care Act The Patient Protection and Affordable Care Act (PPACA) included a significant expansion of the Medicaid program, as well as the creation of new state-based health benefit exchanges, or marketplaces, through which individuals and small businesses may purchase health insurance. Premium and cost-sharing credits and subsidies are available to those who qualify based on income. Marketplace plans began to enroll new members in October 2013, and coverage began on January 1, 2014. Although the effects of the legislation are still unclear, PPACA could result in a greater number of individuals with health insurance under Medicaid and the marketplace health plans. The impact on manufacturers, including us, will depend in part on the formulary and benefit design decisions made by insurance sponsors or plans participating in the programs. It is possible that individuals who were previously unable to access insurance may now become insured, thus increasing coverage for our products. This potential increase in coverage, however, may be offset by the added discounts that could be required in these channels as well as the number of patients who over time move from commercial insurance to the health insurance marketplaces. It is also possible that we may need to provide discounts or rebates to such plans in order to maintain favorable formulary access for our products for this patient population, which could have an adverse impact on our sales and results of operations. 30



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Key Pipeline and Product Developments TECFIDERA In February 2014, the EC approved the use of TECFIDERA in the European Union (E.U.) as a first-line oral treatment for people with relapsing-remitting MS. TYSABRI In March 2014, we received marketing approval for TYSABRI in Japan. ALPROLIX In March 2014, the FDA approved the use of ALPROLIX for the control and prevention of bleeding episodes, perioperative (surgical) management and routine prophylaxis in adults and children with hemophilia B. ALPROLIX was also approved by Health Canada for the treatment of hemophilia B in March 2014. PLEGRIDY In March 2014, we announced that the FDA extended the initial Prescription Drug User Fee Act (PDUFA) date for its review of our application for PLEGRIDY by three months, which is a standard extension period. Results of Operations Revenues Revenues are summarized as follows: For the Three Months Ended March 31, (In millions, except percentages) 2014 2013 Product revenues: United States $ 1,170.2 54.9 % $ 604.9 42.7 % Rest of world 572.6 26.9 % 490.9 34.7 % Total product revenues 1,742.8 81.8 % 1,095.8 77.4 % Unconsolidated joint business 296.9 13.9 % 264.6 18.7 % Other revenues 90.1 4.2 % 54.7 3.9 % Total revenues $ 2,129.8 100.0 % $ 1,415.1 100.0 % Product Revenues Product revenues are summarized as follows: For the Three Months Ended March 31, (In millions, except percentages) 2014 2013 AVONEX $ 761.5 43.7 % $ 746.1 68.1 % TYSABRI 441.0 25.3 % 312.2 28.5 % TECFIDERA 505.7 29.0 % - - % Other product revenues 34.6 2.0 % 37.5 3.4 % Total product revenues $ 1,742.8 100.0 % $ 1,095.8 100.0 % AVONEX



Revenues from AVONEX are summarized as follows:

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For the Three Months Ended March 31, (In millions, except percentages) 2014 2013 Change % United States $ 476.1$ 491.5 (3.1 )% Rest of world 285.4 254.6 12.1 % Total AVONEX revenues $ 761.5$ 746.1 2.1 % For the three months ended March 31, 2014, compared to the same period in 2013, the decrease in U.S. AVONEX revenues was primarily due to a 16% decrease in unit sales volume, which was primarily attributable to patients transitioning to oral therapies including TECFIDERA, partially offset by price increases. For the three months ended March 31, 2014, compared to the same period in 2013, the increase in rest of world AVONEX revenues primarily was due to increased unit demand in the Emerging Markets region and a favorable net price in Germany due to a lower mandatory rebate, partially offset by pricing reductions in some countries. The increased unit demand in the Emerging Markets region was primarily related to the timing of shipments in Brazil, a tender market, which occurred in the first quarter this year but the second quarter of last year. Rest of world AVONEX revenue for the three months ended March 31, 2014, compared to the same period in 2013, also reflects the positive impact of foreign currency exchange rates, offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program. We expect AVONEX to continue facing increased competition in the MS marketplace in both the U.S. and rest of world. We and a number of other companies have commercialized or are working to develop additional treatments for MS, including oral and other alternative formulations that may compete with AVONEX. The launch and growth of TECFIDERA and the commercialization of certain of our own potential products, such as PLEGRIDY, may also negatively impact future sales of AVONEX. Increased competition also may lead to reduced unit sales of AVONEX, as well as increasing price pressures particularly in geographic markets outside the U.S. TYSABRI Revenues from TYSABRI are summarized as follows: For the Three Months Ended March 31, (In millions, except percentages) 2014 2013 Change % United States $ 234.3$ 113.4 106.6 % Rest of world 206.7 198.8 4.0 % Total TYSABRI revenues $ 441.0$ 312.2 41.3 %



The increase in U.S. TYSABRI revenue for the three months ended March 31, 2014, compared to the same period in 2013, was primarily due to our recognition, starting in April 2013, of 100% of net revenues on TYSABRI in-market sales due to our acquisition of the remaining TYSABRI rights from Elan and price increases, partially offset by a 22% decrease in unit sales volume. Based on data reported by Elan for 2013 and our sales to third party customers, total U.S. TYSABRI in-market sales were $234.3 million and $257.4 million for the three months ended March 31, 2014 and 2013, respectively. The decrease in the three months ended March 31, 2014 in-market sales compared to the prior year comparable period was primarily due to changes in the inventory levels at our distributor in anticipation of our acquisition of TYSABRI rights from Elan (which occurred in April 2013) and patients transitioning to oral therapies. For the three months ended March 31, 2014, compared to the same period in 2013, the increase in rest of world TYSABRI revenues was primarily due to a favorable net price in Germany as the mandatory rebate percentage was reduced and volume increases primary in Emerging Markets, partially offset by pricing reductions in some countries. The volume increase in the Emerging Markets was primarily related to the timing of shipments in Brazil that occurred in the first quarter of 2014 but the second quarter of 2013. Rest of world TYSABRI revenue for the three months ended March 31, 2014, compared to the same period in 2013, also reflects the positive impact of foreign currency exchange rates, partially offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program. Losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program for TYSABRI totaled $1.4 million for the three months ended March 31, 2014, compared to gains of $0.3 in the prior year comparative period.

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For information relating to our agreement with AIFA relating to sales of TYSABRI in Italy, please read Note 2, Accounts Receivable to our condensed consolidated financial statements included in this report. As described in Note 2, the pricing agreement with AIFA for the period starting February 2013, is pending approval by the board of directors of AIFA. Upon approval of a pricing agreement related to the periods subsequent to February 2013, TYSABRI revenues that were deferred subsequent to February 2013 will be recognized as revenue based on the agreed-upon price. Currently, we expect to record approximately $53 million of incremental revenue based on amounts deferred through March 31, 2014. We expect TYSABRI to continue facing increased competition in the MS marketplace in both the U.S. and rest of world. We and a number of other companies have commercialized or are working to develop additional treatments for MS, including oral and other alternative formulations that may compete with TYSABRI. In addition, the launch and growth of TECFIDERA and the commercialization of certain of our own products may negatively impact future sales of TYSABRI. In addition, safety warnings included in the TYSABRI label, such as the risk of progressive multifocal leukoencephalopathy (PML), and any future safety-related label changes, may limit the growth of TYSABRI unit sales. We continue to research and develop protocols and therapies that may reduce risk and improve outcomes of PML in patients. Our efforts to stratify patients into lower or higher risk for developing PML, including through the JCV antibody assay, and other on-going or future clinical trials involving TYSABRI may have a negative impact on prescribing behavior, which may result in decreased product revenues from sales of TYSABRI. TECFIDERA Revenues from TECFIDERA are summarized as follows: For the Three Months Ended March 31, (In millions, except percentages) 2014 2013 Change % United States $ 459.8 $ - ** Rest of world 45.9 - ** Total TECFIDERA revenues $ 505.7 $ - ** In February 2014, the EC approved the use of TECFIDERA in the E.U. During 2013, we received marketing approval for TECFIDERA in the U.S., Canada and Australia. U.S. sales began in April 2013. In the first year subsequent to its commercial launch in the U.S., approximately 70% of new patients taking TECFIDERA have switched from a different MS therapy, including our products AVONEX and TYSABRI. We believe that the previous therapies from which these patients switched to TECFIDERA is roughly proportionate to the current market share distribution of all products currently approved to treat relapsing remitting MS. We have a relatively limited product history for TECFIDERA. Therefore, it remains difficult to estimate trends of future product sales of TECFIDERA and the resulting impact on sales and market share of our other therapies and other competing MS therapies. Other Product Revenues Other product revenues are summarized as follows: For the Three Months Ended March 31,



(In millions, except percentages) 2014 2013 Change % FAMPYRA

$ 19.0$ 23.2 (18.1 )% FUMADERM 15.6 14.3 9.1 %



Total other product revenues $ 34.6$ 37.5 (7.7 )%

We have a license from Acorda Therapeutics, Inc. (Acorda) to develop and commercialize FAMPYRA in all markets outside the U.S. For information about our relationship with Acorda, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included within our 2013 Form 10-K. For the three months ended March 31, 2014, compared to the same period in 2013, the decrease in FAMPYRA revenue was primarily due to the recognition of deferred revenue in the prior year comparative period. FAMPYRA revenues for the three months ended March 31, 2013 included the recognition of revenues previously deferred in Germany as a result of finalizing a contract that included the final negotiated fixed price, which was higher than the lowest point of the initial range cited by the German pricing authority.

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Unconsolidated Joint Business Revenues We collaborate with Genentech, Inc., a wholly-owned member of the Roche Group, on the development and commercialization of RITUXAN. In addition, in the U.S. we share operating profits and losses relating to GAZYVA with Genentech. The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacturing and commercialization of GAZYVA in the U.S. For additional information related to this collaboration, including information regarding the pre-tax profit sharing formula and its impact on future unconsolidated joint business revenues, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included within our 2013 Form 10-K. Revenues from unconsolidated joint business are summarized as follows:


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Source: Edgar Glimpses