UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-Q

 

 

 

Commission File Number 0-19311

 

BIOGEN IDEC INC.

(Exact name of registrant as specified in its charter)

 

 

 

133 Boston Post Road, Weston, MA 02493
(781) 464-2000

 

(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 þ     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 þ     No o

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes o     No þ

 

 

The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of October 22, 2010, was 238,302,269 shares.

 

 

BIOGEN IDEC INC.

FORM 10-Q — Quarterly Report
For the Quarterly Period Ended September 30, 2010

TABLE OF CONTENTS

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

In addition to historical information, this report contains forward-looking statements that are based on our current beliefs and expectations. These forward-looking statements do not relate strictly to historical or current facts and they may be accompanied by such words as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:

 

 

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements, including those discussed in the “Risk Factors” section of this report and elsewhere in this report. You should not place undue reliance on these statements. Forward-looking statements, like all statements in this report, speak only as of the date of this report, unless another date is indicated. Unless required by law, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

REFERENCES

 

Throughout this report, “Biogen Idec,” the “Company,” “we,” “us” and “our” refer to Biogen Idec Inc. and its consolidated subsidiaries. References to “RITUXAN” refer 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 “ANGIOMAX” refers to both ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and Latin America) and ANGIOX (the trade name for bivalirudin in Europe).

 

AVONEX^® and RITUXAN^® are registered trademarks of Biogen Idec. FUMADERM^tm is a common law trademark of Biogen Idec. TYSABRI^® is a registered trademark of Elan Pharmaceuticals, Inc. The following are trademarks of the respective companies listed: ANGIOMAX^® and ANGIOX^® — The Medicines Company; ARZERRA^tm — Glaxo Group Limited; BETASERON^® — Bayer Schering Pharma AG; EXTAVIA^® — Novartis AG; and REBIF^® — Ares Trading, S.A.

 

BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in thousands, except per share amounts)

 

 

See accompanying notes to these unaudited consolidated financial statements

BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except per share amounts)

 

 

See accompanying notes to these unaudited consolidated financial statements

BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

 

 

See accompanying notes to these unaudited consolidated financial statements.

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Biogen Idec is a global biotechnology company that discovers, develops, manufactures and commercializes innovative therapies for human health care. We currently have four marketed products: AVONEX, RITUXAN, TYSABRI, and FUMADERM. Our marketed products are used for the treatment of multiple sclerosis (MS), non-Hodgkin’s lymphoma (NHL), rheumatoid arthritis (RA), Crohn’s disease, chronic lymphocytic leukemia (CLL) and psoriasis.

 

Basis of Presentation

 

In the opinion of management, the accompanying unaudited 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, 2009 (2009 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2009 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

 

Consolidation

 

Our consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities in which we are the primary beneficiary. For such consolidated entities in which we own less than a 100% interest, we record net income (loss) attributable to noncontrolling interest in our consolidated statements of income equal to the percentage of the economic or ownership interest retained in the collaborative arrangement or joint venture by the respective noncontrolling parties. All material intercompany balances and transactions have been eliminated in consolidation.

 

In determining whether we are the primary beneficiary of an entity, we consider a number of factors, including our ability to direct the activities that most significantly affect the entity’s economic success, our contractual rights and responsibilities under the arrangement and the significance of the arrangement to each party. These considerations impact the way we account for our existing collaborative and joint venture relationships and determines the consolidation of companies or entities with which we have collaborative or other arrangements.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition and related allowances, marketable securities, derivatives and hedging activities, inventory, impairments of long-lived assets including intangible assets, impairments of goodwill, the consolidation of variable interest entities, income taxes including the valuation allowance for deferred tax assets, valuation of investments, research and development expenses, contingencies and litigation, and share-based payments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

Subsequent Events

 

We did not have any material recognizable subsequent events. However, we did have the following nonrecognizable subsequent events:

 

 

 

Biogen Idec Hemophilia Inc. (formerly Syntonix Pharmaceuticals, Inc.)

 

In connection with our acquisition of Biogen Idec Hemophilia Inc. (BIH), formerly Syntonix Pharmaceuticals, Inc. (Syntonix), in January 2007, we agreed to make additional future consideration payments based upon the achievement of certain milestone events associated with the development of BIH’s lead product, long-acting recombinant Factor IX, a product for the treatment of hemophilia B. In January 2010, we initiated patient enrollment in a registrational stage study for Factor IX which resulted in the achievement of one of those milestone events. As a result of the achievement of this milestone, we paid approximately $40.0 million to the former shareholders of Syntonix. As the acquisition of BIH occurred prior to our January 1, 2009 adoption of a new accounting standard for business combinations, this acquisition continues to be accounted for under previously issued guidance. Accordingly, we recorded this payment as a charge to acquired in-process research and development (IPR&D) within our consolidated statements of income. For a more detailed description of this acquisition, please read Note 2, Acquisitions and Dispositions to our consolidated financial statements included within our 2009 Form 10-K.

 

 

We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured.

 

Product Revenues

 

Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically upon delivery. However, sales of TYSABRI in the U.S. are recognized on the “sell-through” model, that is, upon shipment of the product by Elan Pharma International, Ltd. (Elan), an affiliate of Elan Corporation, plc, to its third party distributor rather than upon shipment to Elan.

 

Product revenues are recorded net of applicable reserves for trade term discounts, wholesaler incentives, Medicaid rebates, Veterans Administration (VA) and Public Health Service (PHS) discounts, managed care rebates, product returns and other applicable allowances.

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

Revenues from Unconsolidated Joint Business

 

We collaborate with Genentech on the development and commercialization of RITUXAN. Revenues from unconsolidated joint business consist of (1) our share of pre-tax co-promotion profits in the U.S.; (2) reimbursement of our selling and development expense in the U.S.; and (3) revenue on sales of RITUXAN in the rest of world, which consists of our share of pretax co-promotion profits in Canada and royalty revenue on sales of RITUXAN outside the U.S. and Canada by F. Hoffmann-La Roche Ltd. (Roche) and its sublicensees. Pre-tax co-promotion profits are calculated and paid to us by Genentech in the U.S. and by Roche in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian sales of RITUXAN to third-party customers net of discounts and allowances less the cost to manufacture RITUXAN, third-party royalty expenses, distribution, selling and marketing, and joint development expenses incurred by Genentech, Roche and us. We record our royalty and co-promotion profit revenue on sales of RITUXAN in the rest of world on a cash basis.

 

Royalty Revenues

 

We receive royalty revenues on sales by our licensees of other products covered under patents that we own. There are no future performance obligations on our part under these license arrangements. We record these revenues based on estimates of the sales that occurred during the relevant period. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. We maintain regular communication with our licensees in order to assess the reasonableness of our estimates. Differences between actual royalty revenues 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. If we are unable to accurately estimate revenue, then we record revenues on a cash basis.

 

Milestone Revenues

 

Under the terms of our collaboration agreement with Elan, once sales of TYSABRI exceeded specific thresholds, Elan was required to make milestone payments to us in order to continue sharing equally in the collaboration’s results. These amounts, totaling $125.0 million, were recorded as deferred revenue upon receipt and are recognized as revenue in our consolidated statements of income based on the ratio of units shipped in the current period over the total units expected to be shipped over the remaining term of the collaboration agreement.

 

Multiple-Deliverable Revenue Arrangements

 

During the third quarter of 2010, we elected to early adopt Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13, amends existing revenue recognition accounting pronouncements and provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Previous accounting principles required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. The early adoption of this standard requires the disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption. Our adoption of this standard did not have a material impact our financial position or results of

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

operations as through the third quarter of 2010, we had not recorded any revenue in accordance with revenue recognition rules for multiple deliverables as described in ASU 2009-13 or its predecessor pronouncements.

 

Bad Debt Reserves

 

Bad debt reserves are based on our estimated uncollectible accounts receivable. Given our historical experiences with bad debts, combined with our credit management policies and practices, we do not presently maintain significant bad debt reserves.

 

Concentrations of Credit Risk

 

The majority of our accounts receivable arise from product sales in the United States and Europe and are primarily due from wholesale distributors, large pharmaceutical companies and public hospitals. We monitor the financial performance and credit worthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor economic conditions, including the volatility associated with international economies, and associated impacts on the relevant financial markets and our business, especially in light of the global economic downturn. The credit and economic conditions within Greece, Italy, Spain, Portugal and Ireland, among other members of the European Union, have deteriorated throughout 2010. These conditions have resulted in, and may continue to result in, an increase in the average length of time that it takes to collect on our accounts receivable outstanding in these countries. As of September 30, 2010, our accounts receivable in Greece, Italy, Spain, Portugal and Ireland totaled approximately $250.4 million. To date, we have not experienced any significant losses with respect to the collection of our accounts receivable.

 

Reserves for Discounts and Allowances

 

We establish reserves for trade term discounts, wholesaler incentives, Medicaid rebates, VA and PHS discounts, managed care rebates, product returns and other applicable allowances. Reserves established for these discounts and allowances 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). In addition, we distribute no-charge product to qualifying patients under our patient assistance and patient replacement goods program. This program is administered through one of our distribution partners, which ships product for qualifying patients from its own inventory purchased from us. Gross revenue and the related reserves are not recorded on product shipped under this program and cost of sales is recorded when the product is shipped.

 

Product revenue reserves are categorized as follows: discounts, contractual adjustments and returns. An analysis of the amount of, and change in, reserves is summarized as follows:

 

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

 

The total reserves above, included in our consolidated balance sheets, are summarized as follows:

 

 

Healthcare Reform

 

In March 2010, healthcare reform legislation was enacted in the U.S. This legislation contains several provisions that affect our business.

 

Although many provisions of the new legislation did not take effect immediately, several provisions became effective in the first quarter of 2010. These include (1) an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% on our branded prescription drugs; (2) the extension of the Medicaid rebate to Managed Care Organizations that dispense drugs to Medicaid beneficiaries; and (3) the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics, and healthcare centers.

 

Beginning in 2011, the new law also requires drug manufacturers to provide a 50% discount to Medicare beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap (i.e. the “donut hole”). Also, in 2011, a new fee will be payable by branded prescription drug manufacturers and importers. This fee will be calculated based upon each organization’s percentage share of total branded prescription drug sales to qualifying U.S. government programs (such as Medicare, Medicaid and VA and PHS discount programs) made during the previous year. The aggregated industry wide fee is expected to total $28 billion through 2019, of which $2.5 billion is payable in 2011.

 

This new legislation contains a number of provisions that affect existing government programs and has required the creation of new programs, policies and processes, many of which remain under development and have not been fully implemented. For example, we do not yet fully know the extent of additional entities eligible to participate under the 340(B) program or when and how discounts will be provided to these entities. In addition, the operation of the Medicare Part D coverage gap remains uncertain, though, as noted above, this program and others will not be effective until 2011.

 

 

Inventory is stated at the lower of cost or market with cost determined under the first-in, first-out (FIFO) method. Included in inventory are raw materials used in the production of pre-clinical and clinical products, which are charged to research and development expense when consumed.

 

The components of inventory are summarized as follows:

 

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

 

Intangible Assets

 

Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:

 

 

Intangible assets were unchanged as of September 30, 2010, compared to December 31, 2009, exclusive of the impact of amortization.

 

Our most significant intangible asset is the core technology related to our AVONEX product. The net book value of this asset as of September 30, 2010 was $1,396.7 million. We believe the economic benefit of our core technology is consumed as revenue is generated from our AVONEX product, which we refer to as the economic consumption amortization model. This amortization methodology involves calculating a ratio of actual current period sales to total anticipated sales for the life of the product and applying this ratio to the carrying amount of the intangible asset. An analysis of the anticipated product sales of AVONEX is performed at least annually during our long range planning cycle, and this analysis serves as the basis for the calculation of our economic consumption amortization model. Although we believe this process has allowed us to reliably determine the best estimate of the pattern in which we will consume the economic benefits of our core technology intangible asset, the model could result in deferring amortization charges to future periods in certain instances, due to continued sales of the product at a nominal level after patent expiration or otherwise. In order to ensure that amortization charges are not unreasonably deferred to future periods, we compare the amount of amortization determined under the economic consumption model against the minimum amount of amortization recalculated each year under the straight-line method. Amortization is then recorded based upon the higher of the amount of amortization determined under the economic consumption model or the minimum amortization amount determined under the straight-line method.

 

We completed our most recent long range planning cycle in the third quarter of 2010. Based upon this analysis, we have continued to amortize this asset on the economic consumption model for the third quarter of 2010, and expect to apply the same model for the subsequent three quarters. In addition, this analysis did not result in a significant change in the expected lifetime revenue of AVONEX. As a result, the amortization recorded in relation to our core intangible asset for the current and three subsequent quarters is anticipated to be comparable to amounts recorded during the prior four quarters. We monitor events and expectations on product performance. If there are any indications that the assumptions underlying our most recent analysis would be different than those utilized within our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenue of AVONEX determined during our most recent annual review.

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

For the three and nine months ended September 30, 2010, amortization for acquired intangible assets totaled $53.5 million and $155.6 million, respectively, compared to $51.3 million and $233.8 million, respectively, in the prior year comparative periods and is expected to be in the range of approximately $170.0 million to $210.0 million annually through 2015.

 

Goodwill

 

Our goodwill balance remained unchanged as of September 30, 2010, compared to December 31, 2009. As of September 30, 2010, we had no accumulated impairment losses.

 

 

In January 2010, we adopted a newly issued accounting standard which requires additional disclosure about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring Level 2 and Level 3 measurements. As this newly issued accounting standard only requires enhanced disclosure, the adoption of this standard did not impact our financial position or results of operations. In addition, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount.

 

The tables below present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points from active markets that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability.

 

A majority of our financial assets and liabilities have been classified as Level 2. Our financial assets and liabilities (which include our cash equivalents, derivative contracts, marketable debt securities, and plan assets for deferred compensation) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. We validate the prices provided by our third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our pricing services as of September 30, 2010 and December 31, 2009.

 

Our strategic investments in publicly traded equity securities are classified as Level 1 assets as their fair values are readily determinable and based on quoted market prices.

 

Our venture capital investments include investments in certain biotechnology oriented venture capital funds which primarily invest in small privately-owned, venture-backed biotechnology companies. These investments are the only assets for which we used Level 3 inputs to determine the fair value and represented approximately 0.3% of total assets as of both September 30, 2010 and December 31, 2009. The fair value of

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

our investments in these venture capital funds has been estimated using the net asset value of the fund. The investments cannot be redeemed within the funds. Distributions from each fund will be received as the underlying investments of the fund are liquidated. The funds and therefore a majority of the underlying assets of the funds will not be liquidated in the near future. The underlying assets in these funds are initially measured at transaction prices and subsequently valued using the pricing of recent financings or by reviewing the underlying economic fundamentals and liquidation value of the companies that the funds invest in. Gains and losses (realized and unrealized) included in earnings for the period are reported in other income (expense), net.

 

There have been no transfers of assets or liabilities between the fair value measurement classifications for all periods presented.

 

The following tables set forth our financial assets and liabilities that were recorded at fair value:

 

 

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

 

The following table provides a roll forward of the fair value of our venture capital investments, where fair value is determined by Level 3 inputs:

 

 

The fair and carrying value of our debt instruments are summarized as follows:

 

 

The fair values of our credit line from Dompé and our note payable to Fumedica were estimated using an income-based approach with market observable inputs including current interest and foreign currency exchange rates. The fair value of our Senior Notes was determined through a market-based approach using observable

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

and corroborated sources; within the hierarchy of fair value measurements, these are classified as Level 2 fair values.

 

 

Marketable Securities, including Strategic Investments

 

The following tables summarize our marketable securities and strategic investments:

 

 

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

 

In the tables above, as of September 30, 2010 and December 31, 2009, government securities included $127.2 million and $298.8 million, respectively, of Federal Deposit Insurance Corporation (FDIC) guaranteed senior notes issued by financial institutions under the Temporary Liquidity Guarantee Program.

 

Certain commercial paper and short-term debt securities with original maturities of less than 90 days are included in cash and cash equivalents on the accompanying consolidated balance sheets and are not included in the tables above. As of September 30, 2010 and December 31, 2009, the commercial paper, including accrued interest, had fair and carrying values of $148.5 million and $76.9 million, respectively, and short-term debt securities had fair and carrying values of $385.8 million and $399.5 million, respectively.

 

Summary of Contractual Maturities: Available-for-Sale Securities

 

The estimated fair value and amortized cost of securities, excluding strategic investments, available-for-sale by contractual maturity are summarized as follows:

 

 

The weighted average maturity of our marketable securities as of September 30, 2010 and December 31, 2009 was 13 months and 15 months, respectively.

 

Proceeds from Marketable Securities, excluding Strategic Investments

 

The proceeds from maturities and sales of marketable securities, excluding strategic investments, which were primarily reinvested, and resulting realized gains and losses, are summarized as follows:

 

 

Realized losses for the three and nine months ended September 30, 2010, primarily relate to the sale of agency mortgage-backed securities and corporate debt securities. The realized losses for the three and nine months ended September 30, 2009, primarily relate to losses on the sale of corporate debt securities and non-agency mortgage-backed securities.

 

Impairments

 

Evaluating Investments for Other-than-Temporary Impairments

 

We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale debt securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is recorded within earnings as an impairment loss.

 

Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security and are recorded within earnings as an impairment loss.

 

For equity securities, when assessing whether a decline in fair value below our cost basis is other-than-temporary, we consider the fair market value of the security, the duration of the security’s decline, and the financial condition of the issuer. We then consider our intent and ability to hold the equity security for a period of time sufficient to recover our carrying value. Where we have determined that we lack the intent and ability to hold an equity security to its expected recovery, the security’s decline in fair value is deemed to be other-than-temporary and is recorded within earnings as an impairment loss.

 

Recognition and Measurement of Other-than-Temporary Impairment

 

For the three and nine months ended September 30, 2010, we recognized $2.8 million and $19.8 million, respectively, in charges for the other-than-temporary impairment of our publicly held strategic investments, investments in venture capital funds and investments in privately-held companies compared to $0.5 million and $6.5 million in the prior year comparative periods. The increase for the nine month comparative periods was primarily due to AVEO Pharmaceuticals, Inc., one of our strategic investments, executing an equity offering at a price below our cost basis during the first quarter of 2010.

 

We recognized $3.6 million in other-than-temporary impairment charges on our marketable debt securities during the nine months ended September 30, 2009. No impairments were recognized related to our marketable debt securities for the three months ended September 30, 2009 or for the three and nine months ended September 30, 2010.

 

 

Our primary market exposure is to changes (or fluctuations) in foreign exchange rates. We use certain derivative instruments to help manage this exposure. We execute these instruments with financial institutions we judge to be creditworthy and the majority of the foreign currencies are denominated in currencies of major industrial countries. We do not hold or issue derivative instruments for trading or speculative purposes.

 

We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. We classify the cash flows from these instruments in the same category as the cash flows from the hedged items.

 

Foreign Currency Forward Contracts

 

Due to the global nature of our operations, portions of our revenues are earned in currencies other than the U.S. dollar. The value of revenues measured in U.S. dollars is subject to changes in currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates.

 

Foreign currency forward contracts in effect as of September 30, 2010 and December 31, 2009 had remaining durations of 1 to 13 months. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

are reported in accumulated other comprehensive income. Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense), net.

 

The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenue is summarized as follows:

 

 

The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income within total equity reflected net losses of $17.1 million and net gains of $1.2 million as of September 30, 2010 and December 31, 2009, respectively. We expect all contracts to be settled over the next 13 months and any amounts in accumulated other comprehensive income to be reported as an adjustment to revenue. 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 obligations under the contract. As of September 30, 2010 and December 31, 2009, credit risk did not materially change the fair value of our forward contracts.

 

For the three and nine months ended September 30, 2010, we recognized $20.7 million and $40.6 million, respectively, of gains in product revenue for the settlement of certain effective cash flow hedge forward contracts compared to losses recognized in the amount of $16.3 million and $28.6 million, respectively, in the prior year comparative periods. These settlements were recorded in the same period as the related forecasted revenue.

 

In relation to our foreign currency forward contracts, we recognized in earnings net gains of $1.4 million and $0.9 million, respectively, due to hedge ineffectiveness for the three and nine months ended September 30, 2010. We recognized net losses of $0.1 million and $0.9 million, respectively, in the prior year comparative periods.

 

Summary of Derivatives Designated as Hedging Instruments

 

The following table summarizes the fair value and presentation in the consolidated balance sheets for derivatives designated as hedging instruments as of September 30, 2010 and December 31, 2009:

 

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

 

The following table summarizes the effect of derivatives designated as hedging instruments on the consolidated statements of income for the three and nine months ended September 30, 2010 and 2009:

 

 

Other Derivatives

 

We enter into other foreign currency forward contracts, with one month durations, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions. As of September 30, 2010, the aggregate notional amount of our outstanding foreign currency contracts was $170.1 million. The fair value of these contracts was a net liability of $7.0 million. Net losses of $10.1 million and net gains of $3.0 million related to these contracts were recognized as a component of other income (expense), net, for the three and nine months ended September 30, 2010, respectively. We recognized net losses of $2.2 million and a de minimis amount, respectively, as a component of other income (expense), net for the three and nine months ended September 30, 2009.

 

 

Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Accumulated depreciation on property, plant and equipment was $737.7 million at September 30, 2010 and $642.5 million at December 31, 2009.

 

San Diego Campus

 

On October 1, 2010, we sold our San Diego campus, which is comprised of 43 acres of land and buildings totaling approximately 355,000 square feet of laboratory and office space, for cash proceeds of approximately $128.0 million. Under the terms of the agreement, we have an option to cause the buyer to construct a 160,000 square foot office and laboratory facility in San Diego which we would lease for a term of 10 years. Under this option, we would receive approximately $22.0 million. This option will expire on November 1, 2010. As part of this transaction, we have also agreed to leaseback all of the San Diego facilities

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

for a period of 15 months. We will account for this transaction as a financing arrangement, incurring debt service payments and interest totaling approximately $9.4 million over the term of the leaseback period.

 

We have determined that the transaction does not qualify the facility for “held for sale” classification due to our continuing involvement under the leaseback terms. Accordingly, the campus assets remain classified as held for use and their carrying value is reflected as a component of Property, plant and equipment, net within our consolidated balance sheet as of September 30, 2010. We have not recognized a loss or impairment charge related to the San Diego campus.

 

As of September 30, 2010, our San Diego campus was not encumbered by any liabilities. The net carrying amounts of the major classes of assets are summarized as follows:

 

 

Impairment

 

We regularly evaluate our current facility utilization strategy and assess alternatives. In June 2010, we decided to delay completion of our manufacturing facility in Hillerød, Denmark upon completion of the facility’s operational qualification activities in the fourth quarter of 2010. In addition, if we decide to consolidate, co-locate or dispose of certain aspects of our business operations, for strategic or other operational reasons, we may dispose of or vacate one or more of our properties.

 

If any of our owned properties are held for sale and we determine that the fair value of the properties is lower than their book value, we may not realize our full investment in these properties and incur impairment charges which may be significant. In addition, if we decide to fully or partially vacate a leased property, we may incur significant cost, including lease termination fees, rent expense in excess of sublease income and impairment of leasehold improvements.

 

 

Shareholders’ equity as of September 30, 2010, decreased $1,191.7 million compared to December 31, 2009.

 

For the nine months ended September 30, 2010, we repurchased approximately 40.3 million shares at a cost of approximately $2.1 billion under our 2010 and 2009 stock repurchase authorizations. We retired all of these shares as they were acquired. In connection with this retirement, in accordance with our policy, we recorded a reduction in additional paid-in-capital by the same amount. Our 2010 and 2009 stock repurchase programs were completed during the third and first quarters of 2010, respectively.

 

This decline in shareholders’ equity was offset by net income attributable to Biogen Idec Inc. of $765.0 million, and the increase to additional paid-in capital resulting from the amortization of expense associated with our share-based compensation programs of $137.1 million.

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

 

The following tables reflect the activity in comprehensive income included within equity attributable to the shareholders of Biogen Idec, equity attributable to noncontrolling interests, and total shareholders’ equity:

 

 

 

Unrealized holding gains (losses) on investments are shown net of tax of $3.4 million and $2.1 million for the three and nine months ended September 30, 2010, respectively, compared to $0.3 million and $1.7 million in the prior year comparative periods.

 

Unrealized gains (losses) on foreign currency forward contracts are shown net of tax of $8.0 million, and $1.5 million for the three and nine months ended September 30, 2010, respectively, compared to $0.8 million and $0.3 million in the prior year comparative periods.

BIOGEN IDEC INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, continued)

 

The (over) underfunded status of pension and post-retirement benefit plans is shown net of tax as of September 30, 2010 and September 30, 2009. Tax for both years was immaterial.

 

The following table reconciles equity attributable to noncontrolling interest: