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Collaborative and Other Relationships | 9 Months Ended
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Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Collaborative and Other Relationships | Collaborative and Other Relationships Eisai Co., Ltd. BAN2401 and Elenbecestat Collaboration We have a collaboration agreement with Eisai Co., Ltd. (Eisai) to jointly develop and commercialize BAN2401, a monoclonal antibody that targets amyloid beta aggregates, and elenbecestat, the oral BACE (base amyloid cleaving enzyme) inhibitor, two Eisai product candidates for the potential treatment of AD (the BAN2401 and Elenbecestat Collaboration). In September 2019 we and Eisai announced the decision to discontinue the global Phase 3 trials, MISSION AD1 and MISSION AD2, designed to assess the efficacy and safety of elenbecestat in patients with mild cognitive impairment and mild AD. As a result of this decision, in the third quarter of 2019, we accrued approximately $48.0 million related to our share of the termination of various clinical trials and research and development contracts incurred under the BAN2401 and Elenbecestat Collaboration. The BAN2401 and Elenbecestat Collaboration also provided Eisai with an option to jointly develop and commercialize aducanumab, our anti-amyloid beta antibody candidate for early AD (Aducanumab Option), and an option to jointly develop and commercialize one of our anti-tau monoclonal antibodies (Anti-Tau Option). In October 2017 Eisai exercised its Aducanumab Option and we entered into a new collaboration agreement for the joint development and commercialization of aducanumab (Aducanumab Collaboration Agreement). Eisai has not yet exercised its Anti-Tau Option. For additional information on our BAN2401 and Elenbecestat Collaboration, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K. For the three and nine months ended September 30, 2019 and 2018, sales and marketing expense related to the BAN2401 and Elenbecestat Collaboration was immaterial. A summary of development expense related to the BAN2401 and Elenbecestat Collaboration is as follows:
| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
(In millions) | 2019 |  | 2018 |  | 2019 |  | 2018
Total development expense incurred by the collaboration related to the advancement of BAN2401 and elenbecestat | $ | 168.7 |  |  | $ | 64.9 |  |  | $ | 305.3 |  |  | $ | 176.0 |
Biogen's share of BAN2401 and elenbecestat development expense reflected in research and development expense in our condensed consolidated statements of income | $ | 84.3 |  |  | $ | 32.5 |  |  | $ | 152.6 |  |  | $ | 88.0 |
Aducanumab Collaboration Agreement Under the Aducanumab Collaboration Agreement, we and Eisai will co-promote aducanumab with a region-based profit split and we lead the ongoing development of aducanumab. In March 2019, based on a pre-specified futility analysis, we discontinued the global Phase 3 trials, EMERGE and ENGAGE, designed to evaluate the efficacy and safety of aducanumab in patients with early AD. A new analysis of a larger dataset from these trials, conducted in consultation with the FDA, showed that the Phase 3 EMERGE study met its pre-specified primary and secondary endpoints. On October 22, 2019, we and Eisai announced that we plan to pursue regulatory approval for aducanumab in the U.S. For the period through March 31, 2018, we were responsible for 100% of development costs incurred by the collaboration for the advancement of aducanumab (aducanumab development expense). For the period April 1, 2018 through December 31, 2018, Eisai reimbursed us for 15% of aducanumab development expense incurred and, beginning January 1, 2019, is reimbursing us for 45% of aducanumab development expense incurred. In the first quarter of 2019, as a result of the decision to discontinue the Phase 3 EMERGE and ENGAGE trials following the futility analysis, we accrued approximately $45.0 million related to the termination of various clinical trials and research and development contracts net of the expected 45% Eisai reimbursement of development costs incurred under the Aducanumab Collaboration Agreement. Sales and marketing expense are shared in proportion to the same region-based profit split that will be utilized to co-promote aducanumab. For additional information on the Aducanumab Collaboration Agreement, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K. A summary of development and sales and marketing expense related to the Aducanumab Collaboration Agreement is as follows:
| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
(In millions) | 2019 |  | 2018 |  | 2019 |  | 2018
Total aducanumab development expense | $ | 4.7 |  |  | $ | 64.8 |  |  | $ | 170.5 |  |  | $ | 204.8 |
Biogen's share of aducanumab development expense reflected in research and development expense in our condensed consolidated statements of income | $ | 2.6 |  |  | $ | 55.1 |  |  | $ | 93.8 |  |  | $ | 183.6 |
Total aducanumab sales and marketing expense incurred by the collaboration | $ | 0.1 |  |  | $ | 12.1 |  |  | $ | 21.3 |  |  | $ | 33.3 |
Biogen's share of aducanumab sales and marketing expense reflected in selling, general and administrative expense in our condensed consolidated statements of income | $ | — |  |  | $ | 5.1 |  |  | $ | 11.7 |  |  | $ | 19.0 |
In addition, we and Eisai co-promote AVONEX, TYSABRI and TECFIDERA in Japan in certain settings and Eisai distributes AVONEX, TYSABRI, TECFIDERA and PLEGRIDY in India and other Asia-Pacific markets, excluding China. Other Research and Discovery Arrangements These arrangements may include the potential for future milestone payments based on the achievement of certain clinical and commercial development payable over a period of several years. Skyhawk Therapeutics, Inc. In January 2019 we entered into a collaboration and research and development services agreement with Skyhawk Therapeutics, Inc. (Skyhawk) pursuant to which the companies will leverage Skyhawk's SkySTAR technology platform with the goal of discovering innovative small molecule treatments for patients with neurological diseases, including MS and SMA. We will be responsible for the development and potential commercialization of any therapies resulting from this collaboration and we may also pay Skyhawk up to a total of approximately $2.0 billion in additional milestone payments as well as potential royalties on net commercial sales. In connection with this agreement, we made an upfront payment of $74.0 million to Skyhawk, of which $38.5 million was recorded as research and development expense in our condensed consolidated statements of income and $35.5 million was recorded as prepaid research and development expenditures within investments and other assets in our condensed consolidated balance sheets and will be expensed as the services are provided. 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 products. In June 2018 we exercised our option under our joint venture agreement to increase our ownership percentage in Samsung Bioepis from approximately 5% to approximately 49.9%. The share purchase transaction was completed in November 2018 and, upon closing, we paid 759.5 billion South Korean won ($676.6 million) to Samsung BioLogics. As of September 30, 2019, our ownership percentage remained at approximately 49.9%. We recognize our share of the results of operations related to our investment in Samsung Bioepis under the equity method of accounting one quarter in arrears when the results of the entity become available, which is reflected as equity in income (loss) of investee, net of tax in our condensed consolidated statements of income. During 2015, as our share of losses exceeded the carrying value of our initial investment, we suspended recognizing additional losses. In the first quarter of 2019 we restarted recognizing our share of Samsung Bioepis' income (losses), and we began recognizing amortization on certain basis differences resulting from our November 2018 investment. Upon investment, the equity method of accounting requires us to identify and allocate differences between the fair value of our investment and the carrying value of our interest in the underlying net assets of the investee. These basis differences are amortized over their economic life. The total basis difference was approximately $675 million, consisting of approximately $115 million attributed to inventory, approximately $615 million attributed to developed technology and approximately $170 million attributed to IPR&D. A deferred tax liability of $225 million was established for the acquired assets that had no tax basis. The basis differences related to inventory and developed technology will be amortized, net of tax, over their estimated useful lives of 1.5 years and 15 years, respectively, one quarter in arrears. Our joint venture partner, Samsung BioLogics, is currently subject to an ongoing criminal investigation that we continue to monitor. While this investigation could impact the operations of Samsung Bioepis and its business, we have assessed the value of our investment in Samsung Bioepis and continue to believe that the fair value of the investment is in excess of its net book value. For the three and nine months ended September 30, 2019, we recognized losses on our investment of $21.8 million and $66.8 million, respectively. These losses reflect our share of losses totaling $0.8 million and $9.3 million, respectively, and amortization of basis differences totaling $21.1 million and $57.6 million, respectively. As of September 30, 2019 and December 31, 2018, the carrying value of our investment in Samsung Bioepis totaled 687.3 billion South Korean won ($572.8 million) and 759.5 billion South Korean won ($680.6 million), respectively, which is classified as a component of investments and other assets in our condensed consolidated balance sheets. Commercial Agreement We reflect revenues on sales of BENEPALI, IMRALDI 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. 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 nine months ended September 30, 2019, we recognized net profit-sharing expense of $60.1 million and $181.6 million, respectively, to reflect Samsung Bioepis' 50% sharing of the net collaboration profits, compared to $47.7 million and $131.2 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 nine months ended September 30, 2019, we recognized $12.9 million and $89.9 million, respectively, in revenues related to these services, which is reflected in collaborative and other relationships revenues as a component of other revenues in our condensed consolidated statements of income, compared to $48.1 million and $80.7 million, respectively, in the prior year comparative periods. Following the divestiture of our Hillerød, Denmark manufacturing operations on August 1, 2019, FUJIFILM assumed responsibility for the manufacture of clinical and commercial quantities of bulk drug substance of biosimilar products for Samsung Bioepis. We no longer recognize revenues for the manufacturing completed after the divestiture date under our technical development services and manufacturing agreements with Samsung Bioepis. For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to these condensed consolidated financial statements. For additional information on our collaboration arrangement with Samsung Bioepis and our other significant collaboration arrangements, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K.

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