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Collaborative and Other Relationships | 6 Months Ended
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Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Collaborative and Other Relationships | Collaborative and Other Relationships 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. As part of the $375.0 million upfront payment, $50.9 million was recorded as prepaid services in our condensed consolidated balance sheets, representing the value of the employee resources committed to the collaboration to provide research and discovery services over the collaboration term. The remaining $324.1 million was recorded as research and development expense in our condensed consolidated statements of income. The 11.5 million shares of Ionis' common stock were purchased at a premium to their fair value at the transaction closing date. The premium consisted of acquiring the shares at a price above the fair value based on the trailing 10-day weighted-average close price prior to entering into the collaboration agreement and the effect of certain holding period restrictions. We recorded an asset of $462.9 million in investments and other assets in our condensed consolidated balance sheets reflecting the fair value of the common stock and a charge of $162.1 million to research and development expense in our condensed consolidated statements of income for the three and six months ended June 30, 2018, reflecting the premium paid for the common stock. Our investment in Ionis' common stock is remeasured each reporting period. Changes in the fair value of our investment in Ionis' common stock, including the effect of the holding period restrictions, are reflected in other income (expense), net in our condensed consolidated statements of income. We have the option to license therapies arising out of this collaboration and will be responsible for the development and commercialization of such therapies. We may pay development milestones to Ionis of up to $125.0 million or $270.0 million for each program, depending on the indication, and royalties on net sales. For information on our other collaboration arrangements with Ionis, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K. AbbVie Inc. We have a collaboration agreement with AbbVie for the development and commercialization of ZINBRYTA, which was approved for the treatment of RMS in the U.S. in May 2016 and in the E.U. in July 2016. In March 2018 we and AbbVie announced the voluntary worldwide withdrawal of ZINBRYTA for RMS, as discussed below. Under this agreement, we and AbbVie conducted ZINBRYTA co-promotion activities in the U.S., E.U. and Canadian territories (Collaboration Territory), where development and commercialization costs and profits were shared equally. Outside of the Collaboration Territory, we were solely responsible for development and commercialization of ZINBRYTA and paid a tiered royalty to AbbVie as a percentage of net sales in the low to high teens. Article 20 Procedure and Voluntary Worldwide Withdrawal of ZINBRYTA In July 2017 the European Medicines Agency (EMA) announced a review (referred to as an Article 20 Procedure) of the use of ZINBRYTA following the report of a case of fatal fulminant liver failure, as well as four cases of serious liver injury, and recommended restrictions on its use. In January 2018 the European Commission (EC) adopted a final and legally-binding decision restricting ZINBRYTA's use to adult patients with RMS who have had an inadequate response to at least two disease modifying therapies (DMTs) and for whom treatment with any other DMT is contraindicated or otherwise unsuitable. For additional information on the Article 20 Procedure of ZINBRYTA, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K. The EMA subsequently started a second review following cases of serious inflammatory brain disorders including encephalitis and meningoencephalitis. In parallel, we and AbbVie began discussions with the EMA, and in March 2018 announced the voluntary worldwide withdrawal of ZINBRYTA for RMS as we and AbbVie believe that characterizing the complex and evolving benefit/risk profile of ZINBRYTA is not possible going forward given the limited number of patients being treated. Subsequent to the voluntary worldwide withdrawal of ZINBRYTA, the EMA recommended the immediate suspension of ZINBRYTA's marketing authorization and a recall of ZINBRYTA from pharmacies and hospitals in the E.U. As a result of the voluntary worldwide withdrawal of ZINBRYTA, we recognized $2.4 million in inventory charges and $12.8 million in losses related to the termination of research and development contracts and clinical trials in our condensed consolidated statements of income, net of an expected AbbVie reimbursement, in the first quarter of 2018. Co-promotion Profits and Losses In the U.S., for the three and six months ended June 30, 2018, we recognized a net reduction in revenues of $2.5 million and $7.2 million, respectively, to reflect our share of an overall net loss within the collaboration, compared to $3.9 million and $9.8 million, respectively, in the prior year comparative periods. These results include the collaboration's estimate of future returns of product in the U.S. In the E.U. and Canada, for the three and six months ended June 30, 2018, we recognized net profit sharing income of $0.5 million and $1.8 million, respectively, to reflect AbbVie's 50% sharing of the net collaboration losses, compared to net profit sharing expense of $1.3 million in the prior year comparative periods to reflect AbbVie's 50% sharing of the net collaboration profits. These results include the collaboration's estimate of future returns of product in the E.U. and Canada. For additional information on our collaboration arrangement with AbbVie, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K. Eisai Co., Ltd. BAN2401 and E2609 Collaboration We have a collaboration agreement with Eisai to jointly develop and commercialize BAN2401, a monoclonal antibody that targets amyloid beta aggregates, and E2609, a BACE inhibitor, two Eisai product candidates for the treatment of AD (the BAN2401 and E2609 Collaboration). Eisai serves as the global operational and regulatory lead for both compounds with all costs, including research, development and sales and marketing expenses, shared equally by us and Eisai; and, if applicable, following marketing approval in major markets, such as the U.S., the E.U. and Japan, we and Eisai will co-promote BAN2401 and E2609 and share profits equally. In smaller markets, Eisai will distribute these products and pay us a royalty. For the three and six months ended June 30, 2018, sales and marketing expenses related to the BAN2401 and E2609 Collaboration were immaterial. A summary of development expenses related to the BAN2401 and E2609 Collaboration is as follows:
| For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
(In millions) | 2018 |  | 2017 |  | 2018 |  | 2017
Total development expense incurred by the collaboration related to the advancement of BAN2401 and E2609 | $ | 54.6 |  |  | $ | 29.5 |  |  | $ | 111.1 |  |  | $ | 66.7 |
Biogen's share of BAN2401 and E2609 development expense reflected in research and development expense in our condensed consolidated statements of income | $ | 27.3 |  |  | $ | 14.7 |  |  | $ | 55.5 |  |  | $ | 33.3 |
Aducanumab Collaboration Agreement We also have the Aducanumab Collaboration Agreement with Eisai for the joint development and commercialization of aducanumab. Under the Aducanumab Collaboration Agreement, we will continue to lead the on-going Phase 3 development of aducanumab and remained responsible for 100% of development costs for aducanumab incurred in support of the Aducanumab Collaboration Agreement until April 1, 2018. For the period April 1, 2018 through December 31, 2018, Eisai is reimbursing us for 15% of aducanumab development expenses and will then reimburse us for 45% of aducanumab development expenses incurred thereafter. Additionally, sales and marketing expenses before commercialization are shared in proportion to the same region-based profit split that both companies will utilize to co-promote aducanumab upon potential commercialization. A summary of development and sales and marketing expenses related to the Aducanumab Collaboration Agreement is as follows:
| For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
(In millions) | 2018 |  | 2017 |  | 2018 |  | 2017
Total development expense incurred by the collaboration related to the advancement of aducanumab | $ | 76.5 |  |  | $ | 74.6 |  |  | $ | 140.0 |  |  | $ | 128.9 |
Biogen's share of aducanumab development expense reflected in research and development expense in our condensed consolidated statements of income | $ | 65.0 |  |  | $ | 74.6 |  |  | $ | 128.5 |  |  | $ | 128.9 |
Total sales and marketing expense incurred by the collaboration related to the advancement of aducanumab | $ | 14.0 |  |  | $ | 4.8 |  |  | $ | 21.2 |  |  | $ | 9.8 |
Biogen's share of aducanumab sales and marketing expense reflected in selling, general and administrative expense our condensed consolidated statements of income | $ | 9.2 |  |  | $ | 4.8 |  |  | $ | 13.9 |  |  | $ | 9.8 |
We and Eisai also co-promote AVONEX, TYSABRI and TECFIDERA in Japan in certain settings and Eisai will distribute AVONEX, TYSABRI, TECFIDERA and PLEGRIDY in India and other Asia-Pacific markets, excluding China. For additional information on our collaboration arrangements with Eisai, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K. Genentech We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, CLL and other conditions, GAZYVA for the treatment of CLL and follicular lymphoma, OCREVUS for the treatment of PPMS and RMS and other potential anti-CD20 therapies under a collaboration agreement with Genentech, a wholly-owned member of the Roche Group. RITUXAN Genentech and its affiliates are responsible for the worldwide manufacture of RITUXAN, as well as all development and commercialization activities as follows: U.S. We have co-exclusively licensed our rights to develop, commercialize and market RITUXAN in the U.S. Canada We have co-exclusively licensed our rights to develop, commercialize and market RITUXAN in Canada. GAZYVA The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacture and commercialization of GAZYVA in the U.S. We recognize our share of the development and commercialization expenses of GAZYVA as a reduction of our share of pre-tax profits in revenues from anti-CD20 therapeutic programs. OCREVUS In March 2017 the U.S. Food and Drug Administration approved OCREVUS for the treatment of RMS and PPMS. Under the terms of the collaboration agreement with Genentech, we receive a tiered royalty on U.S. net sales from 13.5% and increasing up to 24% if annual net sales exceed $900.0 million. There will be a 50% reduction to these royalties if a biosimilar to OCREVUS is approved in the U.S. In addition, we receive a 3% royalty on net sales of OCREVUS outside the U.S., with the royalty period lasting 11 years from the first commercial sale of OCREVUS on a country-by-country basis. OCREVUS has been approved for treatment of RMS and PPMS in the E.U. and certain other countries. The commercialization of OCREVUS does not impact the percentage of the co-promotion profits we receive for RITUXAN or GAZYVA. Genentech is solely responsible for development and commercialization of OCREVUS and funding future costs. OCREVUS royalty revenues were based on our estimates from third party and market research data of OCREVUS sales occurring during the corresponding period. Differences between actual and estimated royalty revenues will be adjusted for in the period in which they become known, which is expected to be the following quarter. 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 |
Biogen’s share of pre-tax profits in the U.S. for RITUXAN and GAZYVA for the three and six months ended June 30, 2017, excluded certain expenses charged to the collaboration by Genentech that we believed remained the responsibility of Genentech and were not obligated to pay under the terms of the collaboration agreement. Accordingly, we did not recognize the effect of those expenses in the determination of our share of pre-tax collaboration profits and Genentech withheld approximately $120 million from amounts due to us in relation to collaboration activity for the three and six months ended June 30, 2017, representing Genentech’s estimate of our share of these expenses. In June 2018 we reached a resolution with Genentech and received previously withheld amounts with no material adjustment. For additional information on our collaboration agreement with Genentech, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K. Samsung Bioepis Joint Venture Agreement In February 2012 we entered into a joint venture agreement with Samsung Biologics, establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. As of June 30, 2018, our ownership interest was approximately 5%, which reflects the effect of additional equity financings in which we did not participate. In June 2018 we exercised our option to increase our ownership percentage to approximately 49.9%. The completion of this share purchase transaction is subject to certain regulatory closing conditions in multiple jurisdictions and is expected to close in the second half of 2018. Upon closing, we expect to pay approximately $700.0 million to Samsung Biologics. The exact share purchase price will depend on the timing of the closing and foreign currency exchange rates at that time. We recognize our share of the results of operations related to our investment in Samsung Bioepis one quarter in arrears when the results of the entity become available, which is reflected as equity in loss of investee, net of tax in our condensed consolidated statements of income. During 2015, as our share of losses exceeded the carrying value of our investment, we suspended recognizing additional losses and will continue to do so unless we commit to providing additional funding. We expect to continue recognizing our share of the results of operations related to our investment in Samsung Bioepis under the equity method of accounting and expect to recommence recognition of our share of Samsung Bioepis' income (losses) upon acquiring the additional interest in Samsung Bioepis. Commercial Agreement We began to recognize revenues on sales of BENEPALI and FLIXABI in the E.U. in the first and third quarters of 2016, respectively. We reflect revenues on sales of BENEPALI and FLIXABI to third parties in product revenues, net in our condensed consolidated statements of income and record the related cost of revenues and sales and marketing expenses in our condensed consolidated statements of income to their respective line items when these costs are incurred. In August 2017 the EC granted a marketing authorization in the E.U. for IMRALDI, an adalimumab biosimilar referencing HUMIRA. In April 2018 we and Samsung Bioepis announced an agreement with AbbVie for the commercialization of IMRALDI. Under the terms of the agreement, AbbVie will grant patent licenses for the use and sale of IMRALDI in Europe, on a country-by-country basis, and we and Samsung Bioepis will make royalty payments to AbbVie. We expect to launch IMRALDI in Europe in October 2018. We share 50% of the profit or loss related to our commercial agreement with Samsung Bioepis, which is recognized in collaboration profit (loss) sharing in our condensed consolidated statements of income. For the three and six months ended June 30, 2018, we recognized net profit sharing expense of $39.7 million and $83.5 million, respectively, to reflect Samsung Bioepis's 50% sharing of the net collaboration profits, compared to $25.2 million and $46.0 million, respectively, in the prior year comparative periods. Other Services Simultaneous with the formation of Samsung Bioepis, we also entered into a license agreement, a technical development services agreement and a manufacturing agreement with Samsung Bioepis. For the three and six months ended June 30, 2018, we recognized $14.7 million and $32.6 million, respectively, in relation to these services in other revenues in our condensed consolidated statements of income, compared to $12.7 million and $14.9 million, respectively, in the prior year comparative periods. For additional information on our collaboration arrangement with Samsung Bioepis and our other significant collaboration arrangements, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K.

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