Item 1A. Risk Factors
Risks Related to Our Business
We are substantially dependent on revenues from our products.
Our revenues depend upon continued sales of our products as well as the financial rights we have in our anti-CD20 therapeutic programs. A significant portion of our revenues are concentrated on sales of our products in increasingly competitive markets and in markets affected directly and indirectly by the COVID-19 pandemic. Any of the following negative developments relating to any of our products or any of our anti-CD20 therapeutic programs may adversely affect our revenues and results of operations or could cause a decline in our stock price:
•the introduction or greater acceptance of competing products, including new originator therapies, generics, prodrugs and biosimilars of existing products and products approved under abbreviated regulatory pathways;
•safety or efficacy issues;
•limitations and additional pressures on product pricing or price increases, including those resulting from governmental or regulatory requirements; increased competition, including from generic or biosimilar versions of our products; or changes in, or implementation of, reimbursement policies and practices of payors and other third parties;
•adverse legal, administrative, regulatory or legislative developments;
•our ability to maintain a positive reputation among patients, healthcare providers and others, which may be impacted by our pricing and reimbursement decisions; or
•the inability or reluctance of patients to receive a diagnosis, prescription or administration of our products or a decision to prescribe and administer competitive therapies as a direct or indirect result of the COVID-19 pandemic.
Our long-term success depends upon the successful development of new products and additional indications for our existing products.
Our long-term success will depend upon the successful development of new products and technologies from our research and development activities or our licenses or acquisitions from third parties, including our commercialization agreements with Samsung Bioepis, as well as additional indications for our existing products.
Product development is very expensive and involves a high degree of uncertainty and risk and may not be successful. Only a small number of research and development programs result in the commercialization of a product. It is difficult to predict the success and the time and cost of product development of novel approaches for the treatment of diseases. The development of novel approaches for the treatment of diseases, including development efforts in new modalities such as those based on the ASO platform and gene therapy, may present additional challenges and risks, including obtaining approval from regulatory authorities that have limited experience with the development of such therapies. In addition, clinical trial data are subject to differing interpretations and even if we view data as sufficient to support the safety, effectiveness and/or approval of an investigational therapy, regulatory authorities may disagree and may require additional data, limit the scope of the approval or deny approval altogether.
Success in preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful. Clinical trials may indicate that our product candidates lack efficacy, have harmful side effects, result in unexpected adverse events or raise other concerns that may significantly reduce the likelihood of regulatory approval. This may result in terminated programs, significant restrictions on use and safety warnings in an approved label, adverse placement within the treatment paradigm or significant reduction in the commercial potential of the product candidate.
Even if we could successfully develop new products or indications, we may make a strategic decision to discontinue development of a product candidate or indication if, for example, we believe commercialization will be difficult relative to the standard of care or we prefer to pursue other opportunities in our pipeline.
Sales of new products or products with additional indications may also not meet investor expectations.
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If we fail to compete effectively, our business and market position would suffer.
The biopharmaceutical industry and the markets in which we operate are intensely competitive. We compete in the marketing and sale of our products, the development of new products and processes, the acquisition of rights to new products with commercial potential and the hiring and retention of personnel. We compete with biotechnology and pharmaceutical companies that have a greater number of products on the market and in the product pipeline, substantially greater financial, marketing, research and development and other resources and other technological or competitive advantages.
Our products continue to face increasing competition from the introduction of new originator therapies, generics, prodrugs and biosimilars of existing products and products approved under abbreviated regulatory pathways. Some of these products are likely to be sold at substantially lower prices than our branded products. The introduction of such products as well as other lower-priced competing products has reduced, and may in the future, significantly reduce both the price that we are able to charge for our products and the volume of products we sell, which will negatively impact our revenues. For instance, demand and price for TECFIDERA declined significantly as a result of multiple TECFIDERA generic entrants entering the U.S. market during the year ended December 31, 2020. In addition, in some markets, when a generic or biosimilar version of one of our products is commercialized, it may be automatically substituted for our product and significantly reduce our revenues in a short period of time.
In the MS market, we face intense competition as the number of products and competitors continues to expand. Due to our significant reliance on sales of our MS products, our business could be harmed if we are unable to successfully compete in the MS market. More specifically, our ability to compete, maintain and grow our share in the MS market may be adversely affected due to a number of factors, including:
•the introduction of more efficacious, safer, less expensive or more convenient alternatives to our MS products, including our own products and products of our collaborators;
•the introduction of generic versions of branded MS products, including our own products, biosimilars, follow-on products, prodrugs or products approved under abbreviated regulatory pathways, which would be significantly less costly than our products to bring to market and would be offered for sale at lower prices, and could result in a significant percentage of the sales of our products being lost to such products;
•the off-label use by physicians of therapies indicated for other conditions to treat MS patients;
•patient dynamics, including the size of the patient population and our ability to attract and maintain new and current patients to our therapies;
•damage to physician and patient confidence in any of our MS products, generic or biosimilars of our MS products or any other product from the same class as one of our products, or to our sales and reputation as a result of label changes or adverse experiences or events that may occur with patients treated with our MS products or generic or biosimilars of our MS products;
•inability to obtain appropriate pricing and reimbursement for our MS products compared to our competitors in key international markets; or
•our ability to obtain and maintain patent, data or market exclusivity for our MS products.
In the SMA market, we face competition from a gene therapy product that was approved the U.S. and the E.U. and a new oral product that was approved in the U.S. and has been accepted for review in the E.U. We expect that we will experience competition from both products in additional jurisdictions in the future. Additionally, we are aware of other products now in development that, if launched, may compete with SPINRAZA. Future sales of SPINRAZA may be adversely affected by the commercialization of competing products as well as the delay of SPINRAZA doses due, directly or indirectly, to the COVID-19 pandemic.
Our business may be adversely affected if we do not successfully execute or realize the anticipated benefits of our strategic and growth initiatives.
The successful execution of our strategic and growth initiatives may depend upon internal development projects, commercial initiatives and external opportunities, which may include the acquisition and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations.
While we believe we have a number of promising programs in our pipeline, failure or delay of internal development projects to advance or difficulties in executing on our commercial initiatives could impact our current and future growth, resulting in additional reliance on external development opportunities for growth.
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Supporting the further development of our existing products and potential new products in our pipeline will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing capabilities and other areas of our business. We have in the past made, and may continue to make, significant operating and capital expenditures for potential new products prior to regulatory approval with no assurance that such investment will be recouped, which may adversely affect our financial condition, business and operations.
The availability of high quality, fairly valued external product development is limited and the opportunity for their acquisition is highly competitive. As such, we are not certain that we will be able to identify suitable candidates for acquisition or if we will be able to reach agreement.
We may fail to initiate or complete transactions for many reasons and we may not be able to achieve the full strategic and financial benefits expected to result from transactions, or the benefits may be delayed or not occur at all. We may also face additional costs or liabilities in completed transactions that were not contemplated prior to completion.
Any failure in the execution of a transaction, in the integration of an acquired asset or business or in achieving expected synergies could result in slower growth, higher than expected costs, the recording of asset impairment charges and other actions which could adversely affect our business, financial condition and results of operations.
Sales of our products depend, to a significant extent, on adequate coverage, pricing and reimbursement from third-party payors, which are subject to increasing and intense pressure from political, social, competitive and other sources. Our inability to obtain and maintain adequate coverage, or a reduction in pricing or reimbursement, could have an adverse effect on our business, reputation, revenues and results of operations.
Sales of our products depend, to a significant extent, on adequate coverage, pricing and reimbursement from third-party payors. When a new pharmaceutical product is approved, the availability of government and private reimbursement for that product may be uncertain, as is the pricing and amount for which that product will be reimbursed.
Pricing and reimbursement for our products may be adversely affected by a number of factors, including:
•changes in, and implementation of, federal, state or foreign government regulations or private third-party payors’ reimbursement policies;
•pressure by employers on private health insurance plans to reduce costs;
•consolidation and increasing assertiveness of payors seeking price discounts or rebates in connection with the placement of our products on their formularies and, in some cases, the imposition of restrictions on access or coverage of particular drugs or pricing determined based on perceived value; and
•our value-based contracting program pursuant to which we aim to tie the pricing of our products to their clinical values by either aligning price to patient outcomes or adjusting price for patients who discontinue therapy for any reason, including efficacy or tolerability concerns.
Our ability to set the price for our products varies significantly from country to country and, as a result, so can the price of our products. Certain countries set prices by reference to the prices in other countries where our products are marketed. Our inability to obtain and maintain adequate prices in a particular country may not only limit the revenues from our products within that country but may also adversely affect our ability to secure acceptable prices in existing and potential new markets, which may limit market growth. This may create the opportunity for third-party cross-border trade or influence our decision to sell or not to sell a product, thus adversely affecting our geographic expansion plans and revenues.
Drug prices are under significant scrutiny in the markets in which our products are prescribed. We expect drug pricing and other health care costs to continue to be subject to intense political and societal pressures on a global basis. Competition from current and future competitors may negatively impact our ability to maintain pricing and our market share. New products marketed by our competitors could cause our revenues to decrease due to potential price reductions and lower sales volumes. Additionally, the introduction of generic or biosimilar versions of our products, follow-on products, prodrugs or products approved under abbreviated regulatory pathways may significantly reduce the price that we are able to charge for our products and the volume of products we sell.
Many payors continue to adopt benefit plan changes that shift a greater portion of prescription costs to patients, including more limited benefit plan designs, higher patient co-pay or co-insurance obligations and limitations on patients' use of commercial manufacturer co-pay payment assistance programs (including through co-pay accumulator adjustment or maximization programs). Significant consolidation in the health insurance industry
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has resulted in a few large insurers and pharmacy benefit managers exerting greater pressure in pricing and usage negotiations with drug manufacturers, significantly increasing discounts and rebates required of manufacturers and limiting patient access and usage. Further consolidation among insurers, pharmacy benefit managers and other payors would increase the negotiating leverage such entities have over us and other drug manufacturers. Additional discounts, rebates, coverage or plan changes, restrictions or exclusions as described above could have a material adverse effect on sales of our affected products.
Our failure to obtain or maintain adequate coverage, pricing or reimbursement for our products could have an adverse effect on our business, reputation, revenues and results of operations.
We depend on relationships with collaborators, joint venture partners and other third parties for revenues, and for the development, regulatory approval, commercialization and marketing of certain of our products and product candidates, which are outside of our full control.
We rely on a number of significant collaborative, joint venture and other third-party relationships for revenues and the development, regulatory approval, commercialization and marketing of certain of our products and product candidates. We also outsource certain aspects of our regulatory affairs and clinical development relating to our products and product candidates to third parties. Reliance on third parties subjects us to a number of risks, including:
•we may be unable to control the resources our collaborators, joint venture partners or third parties devote to our programs, products or product candidates;
•disputes may arise under an agreement, including with respect to the achievement and payment of milestones or ownership of rights to technology developed, and the underlying agreement may fail to provide us with significant protection or may fail to be effectively enforced if the collaborators, joint ventures partners or third parties fail to perform;
•the interests of our collaborators, joint venture partners or third parties may not always be aligned with our interests, and such parties may not pursue regulatory approvals or market a product in the same manner or to the same extent that we would, which could adversely affect our revenues, or may adopt tax strategies that could have an adverse effect on our business, results of operations or financial condition;
•third-party relationships require the parties to cooperate, and failure to do so effectively could adversely affect product sales or the clinical development or regulatory approvals of product candidates under joint control, could result in termination of the research, development or commercialization of product candidates or could result in litigation or arbitration;
•any failure on the part of our collaborators, joint venture partners or other third parties to comply with applicable laws, including tax laws, regulatory requirements and/or applicable contractual obligations or to fulfill any responsibilities they may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenues as well as involve us in possible legal proceedings; and
•any improper conduct or actions on the part of our collaborators, joint venture partners or other third parties could subject us to civil or criminal investigations and monetary and injunctive penalties, impact the accuracy and timing of our financial reporting and/or adversely impact our ability to conduct business, our operating results and our reputation.
Given these risks, there is considerable uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed, revenues from products could decline and/or we may not realize the anticipated benefits of these arrangements.
Our results of operations may be adversely affected by current and potential future healthcare reforms.
In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the cost of health care. Legislative and regulatory proposals, enactments to reform health care insurance programs and increasing pressure from social sources could significantly influence the manner in which our products are prescribed and purchased. For example, provisions of the PPACA have resulted in changes in the way health care is paid for by both governmental and private insurers, including increased rebates owed by manufacturers under the Medicaid Drug Rebate Program, annual fees and taxes on manufacturers of certain branded prescription drugs, the requirement that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D
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and the expansion of the number of hospitals eligible for discounts under Section 340B of the PHSA. These changes have had and are expected to continue to have a significant impact on our business.
We may face uncertainties as a result of efforts to repeal, substantially modify or invalidate some or all of the provisions of the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.
There is increasing public attention on the costs of prescription drugs and there have been, are expected to continue to be, legislative proposals to address prescription drug pricing. Some of these proposals could have significant effects on our business, including an executive order issued in September 2020 to test a “most favored nation” model for Part B and Part D drugs that tie reimbursement rates to international drug pricing metrics. These actions and the uncertainty about the future of the PPACA and healthcare laws may put downward pressure on pharmaceutical pricing and increase our regulatory burdens and operating costs.
There is also significant economic pressure on state budgets, including as a result of the COVID-19 pandemic, that may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs. In recent years, some states have considered legislation and ballot initiatives that would control the prices of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the U.S. and laws intended to impose price controls on state drug purchases. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding limitation on prices and reimbursement for our products.
In the E.U. and some other international markets, the government provides health care at low cost to consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. Many countries have announced or implemented measures, and may in the future implement new or additional measures, to reduce health care costs to limit the overall level of government expenditures. These measures vary by country and may include, among other things, patient access restrictions, suspensions on price increases, prospective and possible retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases and greater importation of drugs from lower-cost countries. These measures have negatively impacted our revenues and may continue to adversely affect our revenues and results of operations in the future.
Our success in commercializing biosimilars developed by Samsung Bioepis is subject to risks and uncertainties inherent in the development, manufacture and commercialization of biosimilars. If Samsung Bioepis is unsuccessful in such activities, we may not realize the anticipated benefits of our investment in Samsung Bioepis.
Our success in commercializing biosimilars developed by Samsung Bioepis is subject to a number of risks, including:
•Reliance on Third Parties. We are dependent on the efforts of Samsung Bioepis and other third parties over whom we have limited or no control in the development and manufacturing of biosimilars products. If Samsung Bioepis or other third parties fail to perform successfully, we may not realize the anticipated benefits of our investment in Samsung Bioepis;
•Regulatory Compliance. Biosimilar products may face regulatory hurdles or delays due to the evolving and uncertain regulatory and commercial pathway of biosimilars products in certain jurisdictions;
•Intellectual Property and Regulatory Challenges. Biosimilar products may face extensive patent clearances, patent infringement litigation, injunctions or regulatory challenges, which could prevent the commercial launch of a product or delay it for many years or result in imposition of monetary damages, penalties or other civil sanctions and damage our reputation;
•Failure to Gain Market and Patient Acceptance. Market success of biosimilar products will be adversely affected if patients, physicians and/or payors do not accept biosimilar products as safe and efficacious products offering a more competitive price or other benefit over existing therapies;
•Ability to Provide Adequate Supply. Manufacturing biosimilars is complex. If we encounter any manufacturing or supply chain difficulties we may be unable to meet higher than anticipated demand. We are dependent on a third-party for the manufacture of biosimilar products and such third-party may not perform its obligations in a timely and cost-effective manner or in compliance with applicable regulations and may be
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unable or unwilling to increase production capacity commensurate with demand for our existing or future biosimilar products;
•Competitive Challenges. Biosimilar products face significant competition, including from innovator products and biosimilar products offered by other companies. Local tendering processes may restrict biosimilar products from being marketed and sold in some jurisdictions. The number of competitors in a jurisdiction, the timing of approval and the ability to market biosimilar products successfully in a timely and cost-effective manner are additional factors that may impact our success and/or the success of Samsung Bioepis in this business area; and
•Legal and Regulatory Requirements. Any improper conduct or actions on the part of Samsung Bioepis or our joint venture partner, Samsung BioLogics, could damage our reputation and be distracting to management. The former chief executive officer (the incumbent chairman of the board) and the chief financial officer of our joint venture partner, Samsung BioLogics, are currently subject to ongoing criminal proceedings that may impact its operations and business or divert the attention of the Samsung Bioepis management team from its ongoing operations.
If Samsung Bioepis is unsuccessful in the development, manufacture and commercialization of biosimilar products, we may not realize the anticipated benefits of our investment in Samsung Bioepis.
In addition, as Samsung Bioepis is a privately-held entity, our ability to liquidate our investment in Samsung Bioepis may be limited and we may realize significantly less than the value of such investment.
Risks Related to Development, Clinical Testing and Regulation of Our Products and Product Candidates
Successful preclinical work or early stage clinical trials does not ensure success in later stage trials, regulatory approval or commercial viability of a product.
Positive results in a clinical trial may not be replicated in subsequent or confirmatory trials. Additionally, success in preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful or that regulatory approval will be obtained. Even if later stage clinical trials are successful, regulatory authorities may delay or decline approval of our product candidates. Regulatory authorities may disagree with our view of the data, require additional studies or disagree with our trial design or endpoints. Regulatory authorities may also fail to approve the facilities or processes used to manufacture a product candidate, our dosing or delivery methods or companion devices. Regulatory authorities may grant marketing approval that is more restricted than anticipated, including limiting indications to narrow patient populations and the imposition of safety monitoring, educational requirements and risk evaluation and mitigation strategies. The occurrence of any of these events could result in significant costs and expenses, have an adverse effect on our business, financial condition and results of operations and/or cause our stock price to decline or experience periods of volatility.
Clinical trials and the development of biopharmaceutical products is a lengthy and complex process. If we fail to adequately manage our clinical activities, our clinical trials or potential regulatory approvals may be delayed or denied.
Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete clinical trials in a timely fashion depends on a number of key factors, including protocol design, regulatory and institutional review board approval, patient enrollment rates and compliance with cGCP. If we or our third-party clinical trial providers or third-party CROs do not successfully carry out these clinical activities, our clinical trials or the potential regulatory approval of a product candidate may be delayed or denied.
We have opened clinical trial sites and are enrolling patients in a number of countries where our experience is limited. In most cases, we use the services of third parties to carry out our clinical trial related activities and rely on such parties to accurately report their results. Our reliance on third parties for these activities may impact our ability to control the timing, conduct, expense and quality of our clinical trials. One CRO has responsibility for a substantial portion of our activities and reporting related to our clinical trials and if such CRO does not adequately perform, many of our trials may be affected. We may need to replace our CROs, which may result in the delay of the affected trials or otherwise adversely affect our efforts to obtain regulatory approvals and commercialize our product candidates.
Adverse safety events or restrictions on use and safety warnings for our products can negatively affect our business, product sales and stock price.
Adverse safety events involving our marketed products, generic or biosimilar versions of our marketed products or products from the same class as one of our products may have a negative impact on our business. Discovery of safety issues with our products could create product liability and could cause additional regulatory scrutiny and
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requirements for additional labeling or safety monitoring, withdrawal of products from the market and/or the imposition of fines or criminal penalties. Adverse safety events may also damage physician, patient and/or investor confidence in our products and our reputation. Any of these could result in adverse impacts on our results of operations.
Regulatory authorities are making greater amounts of stand-alone safety information directly available to the public through periodic safety update reports, patient registries and other reporting requirements. The reporting of adverse safety events involving our products or products similar to ours and public rumors about such events may increase claims against us and may also cause our product sales to decline or our stock price to experience periods of volatility.
Restrictions on use or significant safety warnings that may be required to be included in the label of our products, such as the risk of developing PML in the label for certain of our products, may significantly reduce expected revenues for those products and require significant expense and management time.
The illegal distribution and sale by third parties of counterfeit or unfit versions of our products or stolen products could have a negative impact on our reputation and business.
Third parties might illegally distribute and sell counterfeit or unfit versions of our products, which do not meet our rigorous manufacturing, distribution and testing standards. A patient who receives a counterfeit or unfit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name. Inventory that is stolen from warehouses, plants or while in-transit, and that is subsequently improperly stored and sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our products and the diseases our therapies are designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear and creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend the company or the public's legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.
Risks Related to Intellectual Property
If we are unable to obtain and maintain adequate protection for our data, intellectual property and other proprietary rights, our business may be harmed.
Our success, including our long-term viability and growth, depends, in part, on our ability to obtain and defend patent and other intellectual property rights, including certain regulatory forms of exclusivity, that are important to the commercialization of our products and product candidates. Patent protection and/or regulatory exclusivity in the U.S. and other important markets remains uncertain and depends, in part, upon decisions of the patent offices, courts, administrative bodies and lawmakers in these countries. We may fail to obtain or preserve patent and other intellectual property rights, including certain regulatory forms of exclusivity, or the protection we obtain may not be of sufficient breadth and degree to protect our commercial interests in all countries where we conduct business, which could result in financial, business or reputational harm to us or could cause a decline or volatility in our stock price. In addition, settlements of such proceedings often result in reducing the period of patent and other protections, resulting in a reduction in revenue from affected products.
In many markets, including the U.S., manufacturers may be allowed to rely on the safety and efficacy data of the innovator's product and do not need to conduct clinical trials before marketing a competing version of a product after there is no longer patent or regulatory exclusivity. In such cases, manufacturers often charge significantly lower prices and a major portion of the company's revenues may be reduced in a short period of time. In addition, manufacturers of generics and biosimilars may choose to launch or attempt to launch their products before the expiration of our patent or other intellectual property protections.
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Furthermore, our products may be determined to infringe patents or other intellectual property rights held by third parties. Legal proceedings, administrative challenges or other types of proceedings are and may in the future be necessary to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Such proceedings are unpredictable and are often protracted and expensive. Negative outcomes of such proceedings could hinder or prevent us from manufacturing and marketing our products, could require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our financial statements. A failure to obtain necessary licenses for an infringed product or technology could prevent us from manufacturing or selling our products. Furthermore, payments under any licenses that we are able to obtain would reduce our profits from the covered products and services. Any of these circumstances could result in financial, business or reputational harm to us or could cause a decline or volatility in our stock price.
Risks Related to Our Operations
The ongoing COVID-19 pandemic may, directly or indirectly, adversely affect our business, results of operations and financial condition.
Our business could be materially adversely affected, directly or indirectly, by the ongoing COVID-19 pandemic. National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter in place orders and shutdowns, business closures and other measures. These measures may disrupt normal business operations both in and outside of affected areas and may have significant negative impacts on businesses and financial markets worldwide.
We continue to monitor our operations and applicable government recommendations, and we have made modifications to our normal operations because of the COVID-19 pandemic, including limiting travel and working from home. We have also suspended the vast majority of our in-person interactions by our customer-facing professionals in healthcare settings. This limits our ability to market our products and educate physicians, which, in turn, could have an adverse effect on our ability to compete in the marketing and sales of our products.
Prolonged remote working arrangements could impact employees’ productivity and morale, strain our technology resources and introduce operational risks. Operating requirements may continually change due to the COVID-19 pandemic and we may experience unpredictability in our expenses, employee productivity and employee work culture. Additionally, the risk of cyber-attacks or other privacy or data security incidents may be heightened as a result of our moving increasingly towards a remote working environment, which may be less secure and more susceptible to hacking attacks.
The COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third parties we rely on. If members of our management and other key personnel in critical functions across our organization are unable to perform their duties or have limited availability due to the COVID-19 pandemic, we may not be able to execute on our business strategy and/or our operations may be negatively impacted. Furthermore, delays and disruptions experienced by our collaborators, joint venture partners or other third parties due to the COVID-19 pandemic could adversely impact the ability of such parties to fulfill their obligations, which could affect product sales or the clinical development or regulatory approvals of product candidates under joint control.
Our ability to continue our existing clinical trials or to initiate new clinical trials may be adversely affected, directly or indirectly, by the COVID-19 pandemic. For example, our Phase 3 study of BIIB093 for LHI has been delayed as this study involves administration of BIIB093 in an acute hospital setting. Restrictions on travel and/or transport of clinical materials as well as diversion of hospital staff and resources to COVID-19 infected patients could disrupt trial operations and recruitment, possibly resulting in a slowdown in enrollment and/or deviations from or disruptions in key clinical trial activities, such as clinical trial site monitoring. These challenges may lead to difficulties in meeting protocol-specified procedures. We may need to make certain adjustments to the operation of clinical trials in an effort to minimize risks to trial data integrity during the COVID-19 pandemic. In addition, the impact of the COVID-19 pandemic on the operations of the FDA and other health authorities may delay potential approvals of our product candidates.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in the U.S. in March 2020 and is aimed at providing emergency assistance and health care for individuals, families and businesses and generally supporting the U.S. economy. We expect that additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures. The COVID-19 pandemic may introduce temporary or permanent healthcare reform measures for which we cannot predict the financial implication of on our business.
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While it is not possible at this time to estimate the entirety of the impact that the COVID-19 pandemic will have on our business, operations, employees, customers, suppliers or collaboration partners, continued spread of COVID-19, measures taken by governments, actions taken to protect employees and the broad impact of the pandemic on all business activities may materially and adversely affect our business, results of operations and financial condition.
A breakdown or breach of our technology systems could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon technology systems and data to operate our business. Further, the COVID-19 pandemic has caused us to modify our business practices, including the requirement that most of our office-based employees in the U.S. and our other key markets work from home. As a result, we are increasingly dependent upon our technology systems to operate our business and our ability to effectively manage our business depends on the security, reliability and adequacy of our technology systems and data, which includes use of cloud technologies, including Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). A breakdown, invasion, corruption, destruction or breach of our technology systems, including our cloud technologies, and/or unauthorized access to our data and information could subject us to liability or negatively impact the operation of our business. Our technology systems, including our cloud technologies, continue to increase in multitude and complexity, making them potentially vulnerable to breakdown, malicious intrusion and random attack. Data privacy or security breaches also pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our patients, customers or other business partners, may be exposed to unauthorized persons or to the public.
Cyber-attacks are increasing in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with malicious intent. Cyber-attacks could include the deployment of harmful malware and key loggers, ransomware, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data. Cyber-attacks could also include supply chain attacks, which could cause a delay in the manufacturing of our products or products produced for contract manufacturing. Our key business partners face similar risks and any security breach of their systems could adversely affect our security posture. In addition, our increased use of cloud technologies could heighten these and other operational risks, and any failure by cloud technology service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt our operations and result in misappropriation, corruption or loss of confidential or propriety information.
While we continue to build and improve our systems and infrastructure, including our business continuity plans, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, operational or reputational harm to us, loss of competitive advantage or loss of consumer confidence. Our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
Regulators are imposing new data privacy and security requirements, including new and greater monetary fines for privacy violations. For example, the E.U.’s GDPR established regulations regarding the handling of personal data, and provides an enforcement authority and imposes large penalties for noncompliance. New U.S. data privacy and security laws, such as the California Consumer Privacy Act (CCPA), and others that may be passed, similarly introduce requirements with respect to personal information, and non-compliance with the CCPA may result in liability through private actions (subject to statutorily defined damages in the event of certain data breaches) and enforcement. Failure to comply with these current and future laws, policies, industry standards or legal obligations or any security incident resulting in the unauthorized access to, or acquisition, release or transfer of personal information may result in governmental enforcement actions, litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have a material adverse effect on our business and results of operations.
Management and key personnel changes may disrupt our operations, and we may have difficulty retaining key personnel or attracting and retaining qualified replacements on a timely basis for management and other key personnel who may leave the Company.
Changes in management and other key personnel have the potential to disrupt our business, and any such disruption could adversely affect our operations, programs, growth, financial condition or results of operations. New members of management may have different perspectives on programs and opportunities for our business, which may cause us to focus on new opportunities or reduce or change emphasis on our existing programs.
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Our success is dependent upon our ability to attract and retain qualified management and key personnel in a highly competitive environment. Qualified individuals are in high demand, and we may incur significant costs to attract them, particularly at the executive level. We may face difficulty in attracting and retaining key talent for a number of reasons, including management changes, the underperformance or discontinuation of one or more late stage programs or recruitment by competitors. We cannot ensure that we will be able to hire or retain the personnel necessary for our operations or that the loss of any personnel will not have a material impact on our financial condition and results of operations.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators, distributors and other third-party providers, are subject to extensive government regulation and oversight in the U.S. and in foreign jurisdictions. The FDA and comparable foreign agencies directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting, product risk management and our compliance with good practice quality guidelines and regulations. Our interactions with physicians and other health care providers that prescribe or purchase our products are also subject to government regulation designed to prevent fraud and abuse in the sale and use of products and place significant restrictions on the marketing practices of health care companies. Health care companies are facing heightened scrutiny of their relationships with health care providers and have been the target of lawsuits and investigations alleging violations of government regulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of health care business, submission of false claims for government reimbursement, antitrust violations or violations related to environmental matters. There is also enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third-party charities that provide such assistance. The U.S. government has challenged some of our donations to third-party charities that provide patient assistance. If we, or our vendors or donation recipients, are found to fail to comply with relevant laws, regulations or government guidance in the operation of these programs, we could be subject to significant fines or penalties. Risks relating to compliance with laws and regulations may be heightened as we continue to expand our global operations and enter new therapeutic areas with different patient populations, which may have different product distribution methods, marketing programs or patient assistance programs from those we currently utilize or support.
Conditions and regulations governing the health care industry are subject to change, with possible retroactive effect, including:
•new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or judicial decisions, related to health care availability, pricing or marketing practices, compliance with employment practices, method of delivery, payment for health care products and services, compliance with health information and data privacy and security laws and regulations, tracking and reporting payments and other transfers of value made to physicians and teaching hospitals, extensive anti-bribery and anti-corruption prohibitions, product serialization and labeling requirements and used product take-back requirements;
•changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity;
•government shutdowns or relocations may result in delays to the review and approval process, slowing the time necessary for new drug candidates to be reviewed and/or approved, which may adversely affect our business;
•requirements that provide for increased transparency of clinical trial results and quality data, such as the EMA's clinical transparency policy, which could impact our ability to protect trade secrets and competitively-sensitive information contained in approval applications or could be misinterpreted leading to reputational damage, misperception or legal action, which could harm our business; and
•changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution or use or other measures after the introduction of our products to market, which could increase our costs of doing business, adversely affect the future permitted uses of approved products or otherwise adversely affect the market for our products.
Violations of governmental regulation may be punishable by criminal and civil sanctions, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid, as well as against executives overseeing our business. We could also be required to repay amounts we received from government payors or pay additional rebates and interest if we are found to have miscalculated the pricing
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information we submitted to the government. We cannot ensure that our compliance controls, policies and procedures will protect us from acts committed by our employees, collaborators or third-party providers that would violate the laws or regulations of the jurisdictions in which we operate. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention and adversely affect our business.
Our sales and operations are subject to the risks of doing business internationally.
We are increasing our presence in international markets, subjecting us to many risks that could adversely affect our business and revenues. There is no guarantee that our efforts and strategies to expand sales in international markets will succeed. Emerging market countries may be especially vulnerable to periods of global and local political, legal, regulatory and financial instability and may have a higher incidence of corruption and fraudulent business practices. Certain countries may require local clinical trial data as part of the drug registration process in addition to global clinical trials, which can add to overall drug development and registration timelines. We may also be required to increase our reliance on third-party agents and unfamiliar operations and arrangements previously utilized by companies we collaborate with or acquire in emerging markets.
Our sales and operations are subject to the risks of doing business internationally, including:
•the impact of public health epidemics, such as the COVID-19 pandemic, on the global economy and the delivery of healthcare treatments;
•less favorable intellectual property or other applicable laws;
•the inability to obtain necessary foreign regulatory or pricing approvals of products in a timely manner;
•limitations and additional pressures on our ability to obtain and maintain product pricing or receive price increases, including those resulting from governmental or regulatory requirements;
•the inability to successfully complete subsequent or confirmatory clinical trials in countries where our experience is limited;
•longer payment and reimbursement cycles and uncertainties regarding the collectability of accounts receivable;
•fluctuations in foreign currency exchange rates that may adversely impact our revenues, net income and value of certain of our investments;
•the imposition of governmental controls;
•diverse data privacy and protection requirements;
•increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may conflict with corresponding U.S. laws and regulations;
•the far-reaching anti-bribery and anti-corruption legislation in the U.K., including the Bribery Act, and elsewhere and escalation of investigations and prosecutions pursuant to such laws;
•the effects of the U.K.'s departure from the E.U., known as Brexit;
•compliance with complex import and export control laws;
•changes in tax laws; and
•the imposition of tariffs or embargoes and other trade restrictions.
In addition, our international operations are subject to regulation under U.S. law. For example, the FCPA prohibits U.S. companies and their representatives from paying, offering to pay, promising to pay or authorizing the payment of anything of value to any foreign government official, government staff member, political party or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the health care professionals we regularly interact with may meet the FCPA's definition of a foreign government official. Failure to comply with domestic or foreign laws could result in various adverse consequences, including possible delay in approval or refusal to approve a product, recalls, seizures or withdrawal of an approved product from the market, disruption in the supply or availability of our products or suspension of export or import privileges, the imposition of civil or criminal sanctions, the prosecution of executives overseeing our international operations and damage to our reputation. Any significant impairment of our ability to sell products outside of the U.S. could adversely impact our business and financial results.
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We are building a large-scale biologics manufacturing facility, which will result in the incurrence of significant investment with no assurance that such investment will be recouped.
In order to support our future growth and drug development pipeline, we are expanding our large molecule production capacity by building a large-scale biologics manufacturing facility in Solothurn, Switzerland with no assurance that the additional capacity will be required or this investment will be recouped.
We expect the Solothurn facility to be partially operational during the first half of 2021; however, there can be no assurance that we will be able to meet our expected timeline or that there will not be any direct or indirect delays resulting from the COVID-19 pandemic. We have had delays, and if there are additional delays, in bringing the Solothurn facility online, we may not have sufficient large-scale manufacturing capacity to meet our long-term manufacturing requirements.
If we are unable to adequately and timely manufacture and supply our products and product candidates or if we do not fully utilize our manufacturing facilities, our business may be harmed. Charges resulting from excess capacity would have a negative effect on our financial condition and results of operations.
Manufacturing issues could substantially increase our costs, limit supply of our products and/or reduce our revenues.
The process of manufacturing our products is complex, highly regulated and subject to numerous risks, including:
•Risks of Reliance on Third Parties and Single Source Providers. We rely on third-party suppliers and manufacturers for many aspects of our manufacturing process for our products and product candidates. In some cases, due to the unique manner in which our products are manufactured, we rely on single source providers of raw materials and manufacturing supplies. These third parties are independent entities subject to their own unique operational and financial risks that are outside of our control, including the impact of the COVID-19 pandemic. These third parties may not perform their obligations in a timely and cost-effective manner or in compliance with applicable regulations, and they may be unable or unwilling to increase production capacity commensurate with demand for our existing or future products. Finding alternative providers could take a significant amount of time and involve significant expense due to the specialized nature of the services and the need to obtain regulatory approval of any significant changes to our suppliers or manufacturing methods. We cannot be certain that we could reach agreement with alternative providers or that the FDA or other regulatory authorities would approve our use of such alternatives.
•Risks Relating to Compliance with cGMP. We and our third-party providers are generally required to maintain compliance with cGMP and other stringent requirements and are subject to inspections by the FDA and other regulatory authorities to confirm compliance. Any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage of our products as a result of a failure of our facilities or operations or those of third parties to pass any regulatory agency inspection could significantly impair our ability to develop and commercialize our products. Significant noncompliance could also result in the imposition of monetary penalties or other civil or criminal sanctions and damage our reputation.
•Global Bulk Supply Risks. We rely on our manufacturing facilities for the production of drug substance for our large molecule products and product candidates. Our global bulk supply of these products and product candidates depends on the uninterrupted and efficient operation of these facilities, which could be adversely affected by equipment failures, labor shortages, public health epidemics, natural disasters, power failures, cyber-attacks and many other factors. In addition, we are building a large-scale biologics manufacturing facility in Solothurn, Switzerland, which we expect to be partially operational during the first half of 2021. However, there can be no assurance that we will be able to meet our expected timeline or that there will not be any direct or indirect delays resulting from the COVID-19 pandemic. We have had delays, and if there are additional delays, in bringing the Solothurn facility online, we may not have sufficient large-scale manufacturing capacity to meet our long-term manufacturing requirements.
•Risk of Product Loss. The manufacturing process for our products is extremely susceptible to product loss due to contamination, oxidation, equipment failure or improper installation or operation of equipment or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or manufacturing facilities, we may need to close our manufacturing facilities for an extended period of time to investigate and remediate the contaminant.
•Risk Relating to Government Actions. We and/or our third-party providers may be required by the U.S. federal government to manufacture medical supplies needed to treat COVID-19 patients under the Defense
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Production Act or other acts or orders of government entities, which may result in delays in the manufacturing and supply of our products.
Any adverse developments affecting our manufacturing operations or the operations of our third-party suppliers and manufacturers may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the commercial supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Such developments could increase our manufacturing costs, cause us to lose revenues or market share as patients and physicians turn to competing therapeutics, diminish our profitability or damage our reputation.
In addition, although we have business continuity plans to reduce the potential for manufacturing disruptions or delays and reduce the severity of a disruptive event, there is no guarantee that these plans will be adequate, which could adversely affect our business and operations.
Our effective tax rate fluctuates, and we may incur obligations in tax jurisdictions in excess of accrued amounts.
As a global biopharmaceutical company, we are subject to taxation in numerous countries, states and other jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates, including withholding taxes, in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Our effective tax rate may be different than experienced in the past or our current expectations due to many factors, including changes in the mix of our profitability from country to country, the results of examinations and audits of our tax filings, adjustments to the value of our uncertain tax positions, interpretations by tax authorities or other bodies with jurisdiction, the result of tax cases, changes in accounting for income taxes and changes in tax laws and regulations either prospectively or retrospectively.
Our inability to secure or sustain acceptable arrangements with tax authorities and future changes in the tax laws, among other things, may result in tax obligations in excess of amounts accrued in our financial statements.
The Tax Cuts and Jobs Act of 2017 (2017 Tax Act) resulted in significant changes to the U.S. corporate income tax system. Our estimates concerning the impact of the 2017 Tax Act on our accounting and on our business remain subject to developing interpretations of the provisions of the 2017 Tax Act, which may require further adjustments and changes in our estimates, which could have a material adverse effect on our business, results of operations or financial condition. Further, the new administration could introduce new tax laws or revise or issue new interpretations of the 2017 Tax Act.
The Swiss Federal Act on Tax Reform and AHV Financing (TRAF) resulted in significant changes to the Swiss cantonal income tax system. Final interpretation of the transitional and new regimes of the TRAF may require further adjustments and changes in our estimates, which could have a significant adverse effect on our business, results of operations or financial condition.
The enactment of some or all of the recommendations set forth or that may be forthcoming in the Organization for Economic Cooperation and Development’s project on “Base Erosion and Profit Shifting” (BEPS) by tax authorities and economic blocs in the countries in which we operate, could unfavorably impact our effective tax rate. These initiatives focus on common international principles for the entitlement to taxation of global corporate profits and minimum global tax rates.
Risks Related to Holding Our Common Stock
Our operating results are subject to significant fluctuations.
Our quarterly revenues, expenses and net income (loss) have fluctuated in the past and are likely to fluctuate significantly in the future due to the risks described in these Risk Factors as well as the timing of charges and expenses that we may take. We have recorded, or may be required to record, charges that include:
•the cost of restructurings or other initiatives to streamline our operations and reallocate resources;
•impairments with respect to investments, fixed assets and long-lived assets, including in-process research and development (IPR&D) and other intangible assets;
•inventory write-downs for failed quality specifications, charges for excess or obsolete inventory and charges for inventory write downs relating to product suspensions, expirations or recalls;
•changes in the fair value of contingent consideration or our equity investments;
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•bad debt expenses and increased bad debt reserves;
•outcomes of litigation and other legal or administrative proceedings, regulatory matters and tax matters;
•payments in connection with acquisitions, divestitures and other business development activities and under license and collaboration agreements;
•failure to meet certain contractual commitments; and
•the impact of public health epidemics, such as the COVID-19 pandemic, on employees, the global economy and the delivery of healthcare treatments.
Our revenues and certain assets and liabilities are also subject to foreign currency exchange rate fluctuations due to the global nature of our operations. Our efforts to mitigate the impact of fluctuating currency exchange rates may not be successful. As a result, currency fluctuations among our reporting currency, the U.S. dollar, and other currencies in which we do business will affect our operating results, often in unpredictable ways. Our net income may also fluctuate due to the impact of charges we may be required to take with respect to foreign currency hedge transactions. In particular, we may incur higher than expected charges from early termination of a hedge relationship.
Our operating results during any one period do not necessarily suggest the anticipated results of future periods.
Our investments in properties may not be fully realized.
We own or lease real estate primarily consisting of buildings that contain research laboratories, office space and manufacturing operations. We may decide to consolidate or co-locate certain aspects of our business operations or dispose of one or more of our properties, some of which may be located in markets that are experiencing high vacancy rates and decreasing property values. If we determine that the fair value of any of our owned properties is lower than their book value, we may not realize the full investment in these properties and incur significant impairment charges or additional depreciation when the expected useful lives of certain assets have been shortened due to the anticipated closing of facilities. If we decide to fully or partially vacate a property, we may incur significant cost, including facility closing costs, employee separation and retention expenses, lease termination fees, rent expense in excess of sublease income and impairment of leasehold improvements and accelerated depreciation of assets. Any of these events may have an adverse impact on our results of operations.
Our investment portfolio is subject to market, interest and credit risk that may reduce its value.
We maintain a portfolio of marketable securities for investment of our cash as well as investments in equity securities of certain biotechnology companies. Changes in the value of our investment portfolio could adversely affect our earnings. The value of our investments may decline due to, among other things, increases in interest rates, downgrades of the bonds and other securities in our portfolio, instability in the global financial markets that reduces the liquidity of securities in our portfolio, declines in the value of collateral underlying the securities in our portfolio and other factors. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.
There can be no assurance that we will continue to repurchase shares or that we will repurchase shares at favorable prices.
From time to time our Board of Directors authorizes share repurchase programs. The amount and timing of share repurchases are subject to capital availability and our determination that share repurchases are in the best interest of our shareholders and are in compliance with all respective laws and our applicable agreements. Our ability to repurchase shares will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, our results of operations, our financial condition and other factors beyond our control that we may deem relevant. A reduction in repurchases under, or the completion of, our share repurchase programs could have a negative effect on our stock price. We can provide no assurance that we will repurchase shares at favorable prices, if at all.
We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital and credit markets to supplement our existing funds and cash generated from operations for working capital, capital expenditure and debt service requirements and other business initiatives. The capital and credit markets are experiencing, and have in the past experienced, extreme volatility and disruption, which leads to uncertainty and liquidity issues for both borrowers and investors. In the event of adverse market conditions, we may be unable to obtain capital or credit market financing on favorable terms. Changes in credit
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ratings issued by nationally recognized credit rating agencies could also adversely affect our cost of financing and the market price of our securities.
Our indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in our business.
Our indebtedness, together with our significant contingent liabilities, including milestone and royalty payment obligations, could have important consequences to our business; for example, such obligations could:
•increase our vulnerability to general adverse economic and industry conditions;
•limit our ability to access capital markets and incur additional debt in the future;
•require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development, research and development and mergers and acquisitions; and
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, thereby placing us at a competitive disadvantage compared to our competitors that have less debt.
Some of our collaboration agreements contain change in control provisions that may discourage a third party from attempting to acquire us.
Some of our collaboration agreements include change in control provisions that could reduce the potential acquisition price an acquirer is willing to pay or discourage a takeover attempt that could be viewed as beneficial to shareholders. Upon a change in control, some of these provisions could trigger reduced milestone, profit or royalty payments to us or give our collaboration partner rights to terminate our collaboration agreement, acquire operational control or force the purchase or sale of the programs that are the subject of the collaboration.
General Risk Factors
Our business involves environmental risks, which include the cost of compliance and the risk of contamination or injury.
Our business and the business of several of our strategic partners involve the controlled use of hazardous materials, chemicals, biologics and radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with state, federal and foreign standards, there will always be the risk of accidental contamination or injury. If we were to become liable for an accident, or if we were to suffer an extended facility shutdown, we could incur significant costs, damages and penalties that could harm our business. Manufacturing of our products and product candidates also requires permits from government agencies for water supply and wastewater discharge. If we do not obtain appropriate permits, including permits for sufficient quantities of water and wastewater, we could incur significant costs and limits on our manufacturing volumes that could harm our business.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Below is a summary of our owned and leased properties as of December 31, 2020.
Massachusetts
In Cambridge, MA we own approximately 508,000 square feet of real estate space, consisting of a building that houses a research laboratory and a cogeneration plant totaling approximately 263,000 square feet and a building that contains research, development and quality laboratories totaling approximately 245,000 square feet.
In addition, we lease a total of approximately 1,169,000 square feet in Massachusetts, which is summarized as follows:
•800,000 square feet in Cambridge, MA, which is comprised of offices for our corporate headquarters and other administrative and development functions and laboratories, of which 265,000 square feet is subleased by multiple companies for general office space, laboratories and manufacturing facilities;
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•357,000 square feet of office space in Weston, MA, of which 174,000 square feet is subleased through the remaining term of our lease agreement; and
•12,000 square feet of office space in Waltham, MA.
Our Massachusetts lease agreements expire at various dates through the year 2028.
North Carolina
In RTP, NC we own approximately 1,040,000 square feet of real estate space, which is summarized as follows:
•357,000 square feet of laboratory and office space;
•206,000 square foot multi-purpose facility, including an ASO manufacturing suite and administrative space;
•175,000 square feet related to a large-scale biologics manufacturing facility;
•105,000 square feet related to a small-scale biologics manufacturing facility;
•84,000 square feet of warehouse space and utilities;
•70,000 square feet related to a parenteral fill-finish facility; and
•43,000 square feet related to a large-scale purification facility.
In addition, we lease approximately 65,000 square feet of warehouse space and 103,000 square feet of office space in Durham, NC. Our North Carolina lease agreements expire at various dates through the year 2031.
Switzerland
In order to support our future growth and drug development pipeline, we are building a large-scale biologics manufacturing facility in Solothurn, Switzerland. We expect this facility to be partially operational during the first half of 2021. Upon completion, the facility will include 393,000 square feet related to a large-scale biologics manufacturing facility, 290,000 square feet of warehouse, utilities and support space and 51,000 square feet of administrative space.
Other International
We lease office space in Baar, Switzerland, our international headquarters; the U.K.; Germany; France; Japan; Canada and numerous other countries. Our international lease agreements expire at various dates through the year 2030.
Item 3. Legal Proceedings
For a discussion of legal matters as of December 31, 2020, please read Note 20, Litigation, to our consolidated financial statements included in this report, which is incorporated into this item by reference.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market and Stockholder Information
Our common stock trades on The Nasdaq Global Select Market under the symbol “BIIB.” As of February 2, 2021, there were approximately 505 shareholders of record of our common stock.
Dividends
We have not paid cash dividends since our inception. While we historically have not paid cash dividends and do not have a current intention to pay cash dividends, we continually review our capital allocation strategies, including, among other things, payment of cash dividends, share repurchases and acquisitions.
Issuer Purchases of Equity Securities
The following table summarizes our common stock repurchase activity during the fourth quarter of 2020:
In October 2020 our Board of Directors authorized our 2020 Share Repurchase Program, which is a program to repurchase up to $5.0 billion of our common stock. Our 2020 Share Repurchase Program does not have an expiration date. All share repurchases under our 2020 Share Repurchase Program will be retired. Under our 2020 Share Repurchase Program, we repurchased and retired approximately 1.6 million shares of our common stock at a cost of approximately $400.0 million during the year ended December 31, 2020.
In December 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (December 2019 Share Repurchase Program), which was completed as of September 30, 2020. All shares repurchased under our December 2019 Share Repurchase Program were retired. Under our December 2019 Share Repurchase Program, we repurchased and retired approximately 16.7 million shares of our common stock at a cost of approximately $5.0 billion during the year ended December 31, 2020.
In March 2019 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (March 2019 Share Repurchase Program), which was completed as of March 31, 2020. All shares repurchased under our March 2019 Share Repurchase Program were retired. Under our March 2019 Share Repurchase Program, we repurchased and retired approximately 4.1 million and 14.7 million shares of our common stock at a cost of approximately $1.3 billion and $3.7 billion during the years ended December 31, 2020 and 2019, respectively.
In August 2018 our Board of Directors authorized a program to repurchase up to $3.5 billion of our common stock (2018 Share Repurchase Program), which was completed as of June 30, 2019. All share repurchases under our 2018 Share Repurchase Program were retired. Under our 2018 Share Repurchase Program, we repurchased and retired approximately 8.9 million and 4.3 million shares of our common stock at a cost of approximately $2.1 billion and $1.4 billion during the years ended December 31, 2019 and 2018, respectively.
In July 2016 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2016 Share Repurchase Program), which was completed as of June 30, 2018. All share repurchases under our 2016 Share Repurchase Program were retired. Under our 2016 Share Repurchase Program, we repurchased and retired approximately 10.5 million shares of common stock at a cost of approximately $3.0 billion during the year ended December 31, 2018.
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Performance Graph
The performance graph below compares the five-year cumulative total stockholder return on our common stock, the Nasdaq Pharmaceutical Index, the S&P 500 Index and the Nasdaq Biotechnology Index.
On February 1, 2017, we completed the spin-off of our hemophilia business, Bioverativ Inc. (Bioverativ), as an independent, publicly traded company. In connection with the spin-off, each Biogen shareholder received one share of Bioverativ common stock for every two shares of Biogen common stock they owned. For additional information on the spin-off of our hemophilia business, please read Note 3, Hemophilia Spin-Off, to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.
The performance graph below assumes the investment of $100.00 on December 31, 2015, in our common stock and each of the three indexes, with dividends being reinvested. Our stock prices have been adjusted for the effect of the spin-off of our hemophilia business. The five-year cumulative total stockholder return for Biogen does not reflect the reinvestment by Biogen shareholders of the distribution they received in connection with the spin-off of our hemophilia business or any subsequent increase or decrease in value of Bioverativ stock subsequent to the spin-off.
The stock price performance in the graph below is not necessarily indicative of future price performance.
The information included under the heading Performance Graph is “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed to be “soliciting material” subject to Regulation 14A or incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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Item 6. Selected Financial Data
BIOGEN INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Our results of operations are summarized as follows:
For the Years Ended December 31,
Results of Operations
Equity in loss of investee, net of tax (5.3) 79.4 — — —
Diluted Earnings Per Share
Our financial condition is summarized as follows:
As of December 31,
Financial Condition
The financial data included within the tables above should be read in conjunction with our consolidated financial statements and related notes and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report and our previously filed Annual Reports on Form 10-K.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page F-1 of this report.
For our discussion of the year ended December 31, 2019, compared to the year ended December 31, 2018, please read Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the year ended December 31, 2019.
Executive Summary
Introduction
Biogen is a global biopharmaceutical company focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases as well as related therapeutic adjacencies. Our core growth areas include MS and neuroimmunology; Alzheimer's disease and dementia; neuromuscular disorders, including SMA and ALS; movement disorders, including Parkinson's disease; ophthalmology; and neuropsychiatry. We are also focused on discovering, developing and delivering worldwide innovative therapies in our emerging growth areas of immunology; acute neurology; and neuropathic pain. In addition, we commercialize biosimilars of advanced biologics. We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.
Our marketed products include TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS; SPINRAZA for the treatment of SMA; and FUMADERM for the treatment of severe plaque psoriasis. We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, CLL and other conditions; RITUXAN HYCELA for the treatment of non-Hodgkin's lymphoma and CLL; GAZYVA for the treatment of CLL and follicular lymphoma; OCREVUS for the treatment of PPMS and RMS; and other potential anti-CD20 therapies pursuant to our collaboration arrangements with Genentech. For additional information on our collaboration arrangements with Genentech, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Our innovative drug development and commercialization activities are complemented by our biosimilar business that expands access to medicines and reduces the cost burden for healthcare systems. Through our agreements with Samsung Bioepis, our joint venture with Samsung BioLogics, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, IMRALDI, an adalimumab biosimilar referencing HUMIRA, and FLIXABI, an infliximab biosimilar referencing REMICADE, in certain countries in Europe and have an option to acquire exclusive rights to commercialize these products in China. Additionally, we have exclusive rights to commercialize two potential ophthalmology biosimilar products, SB11, a proposed ranibizumab biosimilar referencing LUCENTIS, and SB15, a proposed aflibercept biosimilar referencing EYLEA, in major markets worldwide, including the U.S., Canada, Europe, Japan and Australia. For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
We seek to ensure an uninterrupted supply of medicines to our patients around the world. To that end, we continually review our manufacturing capacity, capabilities, processes and facilities. In order to support our future growth and drug development pipeline, we are expanding our large molecule production capacity by building a large-scale biologics manufacturing facility in Solothurn, Switzerland, which we expect to be partially operational during the first half of 2021. We believe that the Solothurn manufacturing facility will provide us with the ability to further expand if our future growth and drug development plans increase.
Our revenues depend upon continued sales of our products as well as the financial rights we have in our anti-CD20 therapeutic programs, and, unless we develop, acquire rights to and/or commercialize new products and technologies, we will be substantially dependent on sales from our products and our financial rights in our anti-CD20 therapeutic programs for many years.
In the longer term, our revenue growth will depend upon the successful clinical development, regulatory approval and launch of new commercial products as well as additional indications for our existing products, our ability to obtain and maintain patents and other rights related to our marketed products, assets originating from our research and development efforts and/or successful execution of external business development opportunities.
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Business Environment
For a detailed discussion on our business environment, please read Item 1. Business included in this report. For additional information on our competition and pricing risks that could negatively impact our product sales, please read Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in this report.
TECFIDERA
In June 2020 and September 2020 judgments were entered in favor of the defendants in the patent infringement proceedings relating to TECFIDERA Orange-Book listed patents pursuant to the Hatch-Waxman Act in West Virginia and Delaware. We have appealed the judgments in both actions. For additional information, please read Note 20, Litigation, to our consolidated financial statements included in this report.
Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA significantly reduced our TECFIDERA revenues during the year ended December 31, 2020, and is expected to have a substantial negative impact on our TECFIDERA revenues for as long as there is generic competition. For additional information, please read the discussion under Results of Operations - Product Revenues - Multiple Sclerosis (MS) - Fumarate below.
Business Update Regarding COVID-19
The COVID-19 pandemic continues to present a substantial public health and economic challenge around the world. The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition depends on future developments that are highly uncertain, subject to change and are difficult to predict, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 as well as the economic impact on local, regional, national and international customers and markets.
We are monitoring the demand for our products, including the duration and degree to which we may see delays in starting new patients on a product due to hospitals diverting the resources that are necessary to administer certain of our products to care for COVID-19 patients, including products, such as TYSABRI and SPINRAZA, that are administered in a physician's office or hospital setting. We may also see reduced demand for immunosuppressant therapies during the COVID-19 pandemic.
While we are currently continuing the clinical trials we have underway in sites across the globe,
COVID-19 precautions have impacted the timeline for some of our clinical trials and these precautions may, directly or indirectly, have a further impact on timing in the future. For example, our Phase 3 study of BIIB093 for LHI, a severe form of ischemic stroke, has been delayed as this study involves administration of BIIB093 in an acute hospital setting. To help mitigate the impact of the COVID-19 pandemic to our clinical trials, we are pursuing innovative approaches such as remote monitoring, remote patient visits and supporting home infusions. These alternative measures have resulted in an immaterial increase to the cost of the clinical trials underway.
For additional information on the various risks posed by the COVID-19 pandemic, please read Item 7A. Quantitative and Qualitative Disclosures About Market Risk and Item 1A.Risk Factors included in this report.
Brexit
Effective January 31, 2020, the U.K. ceased to be a member state of the E.U., a process known as Brexit, and began a transition period, which expired on December 31, 2020.
In December 2020 the U.K. and the E.U. agreed on a trade and cooperation agreement, under which the E.U. and the U.K. will now form two separate markets governed by two distinct regulatory and legal regimes. The trade and cooperation agreement covers the general objectives and framework of the relationship between the U.K. and the E.U., including as it relates to trade, transport and visas. Notably, under the trade and cooperation agreement, U.K. service suppliers no longer benefit from automatic access to the entire E.U. single market, U.K. goods no longer benefit from the free movement of goods and there is no longer the free movement of people between the U.K. and the E.U. Depending on the application of the terms of the trade and cooperation agreement, we could face new regulatory costs and challenges.
We do not expect Brexit to have a material impact on our consolidated results of operations as less than 4.0% of our total product revenues in 2020, 2019 and 2018 were derived from U.K. sales. However, we cannot predict the direction Brexit-related developments will take nor the impact of those developments on our European operations and the economies of the markets where we operate. Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate, including U.K. competition laws. Therefore, we will continue to monitor for developments in this area and assess any potential impacts on our business and results of operations.
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Financial Highlights
Diluted earnings per share attributable to Biogen Inc. were $24.80 for 2020, representing a decrease of 21.1% as compared to $31.42 in the same period in 2019.
As described below under Results of Operations, our net income and diluted earnings per share attributable to Biogen Inc. for the year ended December 31, 2020, compared to the year ended December 31, 2019, reflects the following:
Revenues
•Total revenues were $13,444.6 million for 2020, representing a decrease of 6.5% as compared to $14,377.9 million in 2019.
•Product revenues, net totaled $10,692.2 million for 2020, representing a decrease of 6.0% as compared to $11,379.8 million in 2019. This decrease was primarily due to a $697.2 million, or 8.2%, decrease in MS product revenues and a $44.9 million, or 2.1%, decrease in revenues from SPINRAZA, partially offset by a $57.5 million, or 7.8%, increase in revenues from our biosimilar business. Product revenues, net, compared to the same period in 2019, further reflects the unfavorable impact of foreign currency exchange of $111.6 million.
◦The decrease in MS product revenues was primarily due to a decrease in TECFIDERA demand and price as a result of multiple TECFIDERA generic entrants entering the U.S. market during the year ended December 31, 2020.
•Revenues from anti-CD20 therapeutic programs totaled $1,977.8 million for 2020, representing a decrease of 13.6% as compared to $2,290.4 million in 2019. This decrease was primarily due to a $490.7 million, or 31.7%, decrease in RITUXAN revenues, partially offset by a $157.9 million, or 23.0%, increase in royalty revenues on sales of OCREVUS. Sales of RITUXAN have been adversely affected primarily by the onset of biosimilars competition in the U.S.
•Other revenues totaled $774.6 million for 2020, representing an increase of 9.5% over $707.7 million in 2019. This increase was due to higher contract manufacturing revenues, primarily resulting from $346.2 million in revenues related to the delivery of the license for certain of our manufacturing-related intellectual property to a contract manufacturing customer.
Expenses
•Total cost and expenses were $8,894.5 million for 2020, representing an increase of 21.3% from $7,335.3 million in 2019. This increase was primarily due to a $1,710.3 million, or 75.0%, increase in research and development expense.
◦The increase in research and development expense was primarily due to $1,893.3 million in charges recognized in connection with upfront payments associated with entering into our collaborations with Sangamo, Denali and Sage.
This increase was partially offset by:
◦a 5.1% decrease in amortization and impairment of acquired intangible assets; and
◦a $92.5 million gain recognized in 2020 associated with the divestiture of our Hillerød, Denmark manufacturing operations.
As described below under Financial Condition, Liquidity and Capital Resources:
•We generated $4,229.8 million of net cash flows from operations for 2020.
•Cash, cash equivalents and marketable securities totaled approximately $3,382.2 million as of December 31, 2020.
•We repurchased and retired approximately 22.4 million shares of our common stock at a cost of approximately $6.7 billion during 2020 under our 2020, December 2019 and March 2019 Share Repurchase Programs.
Acquisitions, Collaborative and Other Relationships
For additional information on our acquisitions, collaborative and other relationships discussed below, please read Note 2, Acquisitions, Note 18, Collaborative and Other Relationships, and Note 19, Investments in Variable Interest Entities, to our consolidated financial statements included in this report.
BIIB118 Acquisition
In March 2020 we acquired BIIB118, a novel CNS-penetrant small molecule inhibitor of casein kinase 1, for the potential treatment of patients with behavioral and neurological symptoms across various psychiatric and neurological diseases from Pfizer. We are developing BIIB118 for the potential treatment of ISWRD in Parkinson’s disease and plan to develop
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BIIB118 for the potential treatment of sundowning in Alzheimer's disease.
For additional information on our acquisition of BIIB118, please read Note 2, Acquisitions, to our consolidated financial statements included in this report.
Sangamo Therapeutics, Inc.
In April 2020 we closed a collaboration and license agreement with Sangamo to develop and commercialize ST-501 for tauopathies, including Alzheimer's disease; ST-502 for synucleinopathies, including Parkinson’s disease; a third neuromuscular disease target; and up to nine additional neurological disease targets to be identified and selected within a five-year period.
For additional information on our collaboration arrangement with Sangamo, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Denali Therapeutics Inc.
In October 2020 we closed a collaboration and license agreement with Denali to co-develop and co-commercialize Denali's small molecule inhibitors of LRRK2 for Parkinson's disease. In addition to the LRRK2 program, we also have an exclusive option to license two preclinical programs from Denali’s Transport Vehicle platform, including its Antibody Transport Vehicle: Abeta program and a second program utilizing its Transport Vehicle technology. Further, we have a right of first negotiation on two additional Transport Vehicle-enabled therapeutics, should Denali decide to seek a collaboration for such programs.
For additional information on our collaboration arrangement with Denali, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Sage Therapeutics, Inc.
In December 2020 we closed a global collaboration and license agreement with Sage to jointly develop and commercialize zuranolone for the
potential treatment of major depressive disorder, postpartum depression and other psychiatric disorders and SAGE-324 for the potential treatment of essential tremor and other neurological disorders.
For additional information on our collaboration arrangement with Sage, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Other Key Developments
Aducanumab (AB mAb)
In July 2020 we completed the submission of a BLA for the approval of aducanumab to the FDA. In August 2020 the FDA accepted the BLA and granted Priority Review with a PDUFA action date on March 7, 2021. In November 2020 the FDA held a virtual meeting of the Advisory Committee to review data supporting the BLA for aducanumab and to vote on questions presented at the meeting. A majority of the Advisory Committee members voted against each of the questions presented at the meeting.
In January 2021 the FDA extended the review period for the BLA for aducanumab by three months. The updated PDUFA action date is June 7, 2021. As part of the ongoing review, we submitted a response to an information request by the FDA, including additional analyses and clinical data, which the FDA considered a Major Amendment to the application that will require additional time for review.
In October 2020 the EMA accepted for review the MAA for aducanumab.
In December 2020 the Ministry of Health, Labor and Welfare accepted for review the Japanese New Drug Application for aducanumab.
2020 Share Repurchase Program
In October 2020 our Board of Directors authorized our 2020 Share Repurchase Program, which is a program to repurchase up to $5.0 billion of our common stock. Our 2020 Share Repurchase Program does not have an expiration date. All share repurchases under our 2020 Share Repurchase Program will be retired.
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Results of Operations
Revenues
Revenues are summarized as follows:
For the Years Ended December 31, % Change $ Change
Product revenues, net:
Product Revenues
Product revenues are summarized as follows:
For the Years Ended December 31, % Change $ Change
Multiple Sclerosis (MS):
ZINBRYTA — — 1.4 — nm — (1.4)
Spinal Muscular Atrophy:
Biosimilars:
Other:
*Fumarate includes TECFIDERA and VUMERITY. VUMERITY became commercially available in the U.S. in November 2019.
**Interferon includes AVONEX and PLEGRIDY.
nm Not meaningful.
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Multiple Sclerosis (MS)
Fumarate
Fumarate revenues include sales from TECFIDERA and VUMERITY. In October 2019 the FDA approved VUMERITY for the treatment of RMS and VUMERITY became commercially available in the U.S. in November 2019.
For 2020 compared to 2019, the 17.2% decrease in U.S. Fumarate revenues was primarily due to a decrease in TECFIDERA demand and price as a result of multiple TECFIDERA generic entrants entering the U.S. market during the year ended December 31, 2020. This decrease was partially offset by an increase of approximately $60.0 million in VUMERITY sales, which became commercially available in the U.S. in November 2019.
For 2020 compared to 2019, the 3.3% increase in rest of world Fumarate revenues was primarily due to an increase in TECFIDERA sales volumes of 8.6%, partially offset by pricing reductions in certain European countries and the unfavorable impact of foreign currency exchange. The increase in volumes was primarily due to continued strong patient growth in our E.U. direct markets, including Italy, Spain and the U.K., as well as growth in Japan and Brazil.
In June 2020 and September 2020 judgments were entered in favor of the defendants in the patent infringement proceedings relating to TECFIDERA Orange-Book listed patents pursuant to the Hatch-Waxman Act in West Virginia and Delaware. We have appealed the judgments in both actions.For additional information, please read Note 20, Litigation, to our consolidated financial statements included in this report.
Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices
compared to TECFIDERA. The generic competition for TECFIDERA significantly reduced our TECFIDERA revenues during the year ended December 31, 2020, and is expected to have a substantial negative impact on our TECFIDERA revenues for as long as there is generic competition.
We anticipate an increase in TECFIDERA sales volume in rest of world in 2021, compared to 2020, notwithstanding the increasing competition from additional treatments for MS and potential disruptions due, directly or indirectly, to the COVID-19 pandemic.
We expect an increase in VUMERITY sales volume in the U.S., mostly driven by the continued launch of VUMERITY.
For additional information on our collaboration arrangement with Alkermes, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Interferon
For 2020 compared to 2019, the 10.7% decrease in U.S. Interferon revenues was primarily due to a decrease in Interferon sales volumes of 12.0%. The net decline in sales volumes reflects the continued decline of the Interferon market as patients transition to other higher efficacy and oral MS therapies.
For 2020 compared to 2019, the 10.5% decrease in rest of world Interferon revenues was primarily due to a decrease in Interferon sales volumes of 7.1%, which negatively impacted comparative revenue of $48.1 million.
We expect that Interferon revenues will continue to decline in both the U.S. and rest of world markets in 2021, compared to 2020, as a result of increasing
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competition from our other MS products as well as other treatments for MS, including biosimilars, and pricing reductions in certain European markets.
AVONEX
For 2020, 2019 and 2018 U.S. AVONEX revenues totaled $1,083.4 million, $1,202.1 million and $1,420.2 million, respectively.
For 2020, 2019 and 2018 rest of world AVONEX revenues totaled $408.5 million, $463.8 million and $495.3 million, respectively.
PLEGRIDY
For 2020, 2019 and 2018 U.S. PLEGRIDY revenues totaled $190.1 million, $224.5 million and $248.1 million, respectively.
For 2020, 2019 and 2018 rest of world PLEGRIDY revenues totaled $195.5 million, $211.4 million and $199.4 million, respectively.
TYSABRI
For 2020 compared to 2019, the 5.3% increase in U.S. TYSABRI revenues was primarily due to an increase in TYSABRI sales volume of 1.0% and price increases, partially offset by higher discounts and allowance rates.
For 2020 compared to 2019, rest of world TYSABRI revenues remained flat, with stable volume and pricing.
We anticipate TYSABRI sales volume to modestly increase on a global basis in 2021, compared to 2020, despite increasing competition from additional treatments for MS, including OCREVUS. We believe that some TYSABRI infusions may be delayed due, directly or indirectly, to the
COVID-19 pandemic. We expect to continue to face price reductions in certain European markets.
Spinal Muscular Atrophy (SMA)
SPINRAZA
For 2020 compared to 2019, the 15.6% decrease in U.S. SPINRAZA revenues was primarily due to a decrease in sales volumes of 15.0%, resulting from increased competition as well as lower loading and maintenance doses due to the impact of site of care closures as a result of the COVID-19 pandemic.
For 2020 compared to 2019, the 8.7% increase in rest of world SPINRAZA revenues was primarily due to a net increase in sales volumes of 16.8%, which was reflective of the impact of a shift from loading to maintenance doses and the impact of site of care closures as a result of the COVID-19 pandemic. This increase was partially lower net prices and the unfavorable impact of foreign currency exchange.
In 2021 we expect that SPINRAZA revenues will be subject to increased competition resulting in higher discontinuations and a lower rate of new patient starts combined with the impact of loading dose dynamics as patients transition to dosing once every four months and lower prices in certain rest of world countries. We believe that some SPINRAZA doses may continue to be delayed due, directly or indirectly, to the COVID-19 pandemic.
We face competition from a gene therapy product that was approved in the U.S. and the E.U. and a new oral product that was approved in the U.S. and has been accepted for review in the E.U. We expect that we will experience competition from both products in additional jurisdictions in the future. Additionally, we are aware of other products now in development that,
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if launched, may also compete with SPINRAZA. Future sales of SPINRAZA may be adversely affected by the commercialization of competing products.
For additional information on our collaboration arrangements with Ionis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Biosimilars
BENEPALI, IMRALDI and FLIXABI
For 2020 compared to 2019, the 7.8% increase in biosimilar revenues was primarily due to higher sales volumes and a favorable foreign currency impact, partially offset by the unfavorable impact of price decreases.
In 2021 we expect modest to moderate revenue growth for our biosimilars business depending on the impact of the COVID-19 pandemic. We expect growth to be primarily driven by the continued launch of IMRALDI in Europe, partially offset by price reductions in certain European countries.
In December 2019 we completed a transaction with Samsung Bioepis and secured the exclusive rights to commercialize two potential ophthalmology biosimilars, SB11, a proposed ranibizumab biosimilar referencing LUCENTIS, and SB15, a proposed aflibercept biosimilar referencing EYLEA, in major markets worldwide, including the U.S., Canada, Europe, Japan and Australia. In October 2020 the EMA accepted for review the MAA for SB11 and in November 2020 the FDA accepted the BLA for SB11. We also acquired an option to extend our existing commercial agreement with Samsung Bioepis for BENEPALI, IMRALDI and FLIXABI in certain countries in
Europe and obtained an option to acquire exclusive rights to commercialize these products in China.
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Revenues from Anti-CD20 Therapeutic Programs
Genentech (Roche Group)
Our share of RITUXAN, including RITUXAN HYCELA, and GAZYVA collaboration operating profits in the U.S. and other revenues from anti-CD20 therapeutic programs are summarized in the table below. For purposes of this discussion, we refer to RITUXAN and RITUXAN HYCELA collectively as RITUXAN.
Biogen’s Share of Pre-tax Profits in the U.S. for RITUXAN and GAZYVA
The following table provides a summary of amounts comprising our share of pre-tax profits in the U.S. for RITUXAN and GAZYVA:
For the Years Ended December 31,
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For 2020 compared to 2019, the decrease in U.S. product revenues, net was primarily due to a decrease in sales volumes of RITUXAN in the U.S. of 26.7%, due to the onset of competition from multiple biosimilars, and we believe RITUXAN was adversely impacted by the COVID-19 pandemic.
For 2020 compared to 2019, product revenues, net also reflects increases in GAZYVA sales volumes of 24.7%.
For 2020 compared to 2019, the decrease in collaboration costs and expenses was primarily due to lower cost of sales on RITUXAN.
We are aware of several other anti-CD20 molecules, including biosimilar products, that have recently been approved and are expected to compete with RITUXAN and GAZYVA in the oncology market. In November 2019, January 2020 and January 2021 biosimilar products referencing RITUXAN were launched in the U.S. and are being offered at lower prices. This competition has adversely affected the pre-tax profits of our collaboration arrangements with Genentech and could have a significant adverse affect on our co-promotion profits in the U.S. in future years.
Other Revenues from Anti-CD20 Therapeutic Programs
Other revenues from anti-CD20 therapeutic programs consist of royalty revenues on sales of
OCREVUS and our share of pre-tax co-promotion profits from RITUXAN in Canada.
For 2020 compared to 2019, the increase in other revenues from anti-CD20 therapeutic programs was primarily due to sales growth of OCREVUS. Royalty revenues recognized on sales of OCREVUS for the years ended December 31, 2020, 2019 and 2018, totaled $845.4 million, $687.5 million and $478.3 million, respectively.
OCREVUS royalty revenues are 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 generally expected to be the following quarter.
For additional information on our collaboration arrangements with Genentech, including information regarding the pre-tax profit-sharing formula and its impact on future revenues from anti-CD20 therapeutic programs, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Other Revenues
Other revenues are summarized as follows:
For the Years Ended December 31, % Change $ Change
Revenues from Collaborative and Other Relationships
Revenues from collaborative and other relationships primarily include revenues from our technical development services and manufacturing agreements with Samsung Bioepis and royalty revenues on biosimilar products from Samsung Bioepis.
Following the divestiture of our Hillerød, Denmark manufacturing operations in August 2019, FUJIFILM Corporation (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 Hillerød, Denmark manufacturing operations divestiture date under our technical development services and manufacturing agreements with Samsung Bioepis.
For the years ended December 31, 2020 and 2019, we recognized $20.9 million and $106.2 million, respectively, related to the services described above provided to Samsung Bioepis.
For additional information on our collaborative and other relationships, including revenues recognized under our technical development services and manufacturing agreements with Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
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For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report.
Other Royalty and Corporate Revenues
We receive royalties from net sales on products related to patents that we have out-licensed and we record other corporate revenues primarily from amounts earned under contract manufacturing agreements.
During the third quarter of 2019, we amended our agreement with a contract manufacturing customer pursuant to which we licensed certain of our manufacturing-related intellectual property to the customer. In the second quarter of 2020, the customer received regulatory approval for its product that is being manufactured using certain of our manufacturing-related intellectual property. As a result, we are entitled to $500.0 million in a series of three payments. The first payment became due upon regulatory approval of such product and was received during the second quarter of 2020. Subsequent payments are due on the first and second anniversaries of the regulatory approval.
Other corporate revenues for the year ended December 31, 2020, reflect $346.2 million related to the delivery of the license for certain of our manufacturing-related intellectual property under the amended agreement discussed above and the performance of manufacturing product supply services for such customer. We have allocated the remaining $153.8 million of the $500.0 million transaction price to the performance of manufacturing product supply services for the customer, which we expect to perform through 2026. The value allocated to the manufacturing services was based on expected
demand for supply and the fair value of comparable manufacturing and development services.
For 2020 compared to 2019, the increase in other royalty and corporate revenues was due to higher contract manufacturing revenues, primarily resulting from $346.2 million in revenues related to the delivery of the license for certain of our manufacturing-related intellectual property to a contract manufacturing customer, as discussed above.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances, including those associated with the implementation of pricing actions in certain international markets where we operate.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). These estimates reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.
Reserves for discounts, contractual adjustments and returns that reduced gross product revenues are summarized as follows:
For the years ended December 31, 2020, 2019 and 2018, reserves for discounts and allowances as
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a percentage of gross product revenues were 27.1%, 24.3% and 23.7%, respectively.
Discounts
Discounts include trade term discounts and wholesaler incentives.
For 2020 compared to 2019, the increase in discounts was primarily driven by an increase in gross biosimilar sales in our international markets as well as increases in discount percentages in certain countries.
Contractual Adjustments
Contractual adjustments primarily relate to Medicaid and managed care rebates, pharmacy rebates, co-payment (copay) assistance, VA and PHS discounts, specialty pharmacy program fees and other government rebates or applicable allowances.
For 2020 compared to 2019, the increase in contractual adjustments was primarily due to higher pharmacy rebates and governmental rebates in the
U.S. as well as higher governmental rebates and allowances in the rest of world, due in part to an increase in SPINRAZA sales volumes worldwide.
Returns
Product return reserves are established for returns expected to be made by wholesalers. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Provisions for product returns are recognized in the period the related revenues are recognized, resulting in a reduction to product sales.
For 2020 compared to 2019, return reserves were relatively consistent.
For additional information on our revenue reserves, please read Note 4, Revenues, to our consolidated financial statements included in this report.
Cost and Expenses
A summary of total cost and expenses is as follows:
For the Years Ended December 31, % Change $ Change
Acquired in-process research and development 75.0 — 112.5 nm nm 75.0 (112.5)
nm Not meaningful
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Cost of Sales, Excluding Amortization and Impairment of Acquired Intangible Assets
Cost of sales, as a percentage of total revenues, were 13.4%, 13.6% and 13.5% for the years ended December 31, 2020, 2019 and 2018, respectively.
Product Cost of Sales
For 2020 compared to 2019, the decrease in product cost of sales was primarily due to lower cost of sales from contract manufacturing agreements, primarily resulting from the sale of hemophilia inventory, with a cost basis of $173.5 million, to Bioverativ in the first quarter of 2019 and FUJIFILM assuming responsibility for the manufacture of clinical and commercial quantities of bulk drug substance of biosimilar products for Samsung Bioepis during the third quarter of 2019.
Inventory amounts written down as a result of excess, obsolescence, unmarketability or other reasons totaled $26.6 million, $52.2 million and $41.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Royalty Cost of Sales
For 2020 compared to 2019, the decrease in royalty cost of sales was primarily due to lower royalties payable on lower sales of AVONEX and SPINRAZA.
Research and Development
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We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities.
A significant amount of our research and development costs consist of indirect costs incurred in support of overall research and development activities and non-specific programs, including activities that benefit multiple programs, such as management costs, as well as depreciation, information technology and facility-based expenses. These costs are considered other research and
development costs in the table above and are not allocated to a specific program or stage.
Research and development expense incurred in support of our marketed products includes costs associated with product lifecycle management activities including, if applicable, costs associated with the development of new indications for existing products. Late stage programs are programs in Phase 3 development or in registration stage. Early stage programs are programs in Phase 1 or Phase 2 development. Research and discovery represents costs incurred to support our discovery research and translational science efforts. Costs are reflected in the development stage based upon the program status when incurred. Therefore, the same program could be reflected in different development stages in the same year. For several of our programs, the research and development activities are part of our collaborative and other relationships. Our costs reflect our share of the total costs incurred.
For 2020 compared to 2019, the increase in research and development expense was primarily due to approximately $1,084.0 million, $601.3 million and $208.0 million of upfront payments made in connection with entering into our collaborations with Sage, Denali and Sangamo, respectively.
In 2020 we recorded significant upfront payments related to our new collaborations as part of research and development expense. Excluding upfront payments, we expect our core research and development expense to increase in 2021, driven by continued investment in our pipeline, including significant investments related to the new assets in the Sage collaboration. We intend to continue committing significant resources to targeted research and development opportunities where there is a significant unmet need and where a drug candidate has the potential to be highly differentiated.
At December 31, 2020, we capitalized approximately $93.8 million of pre-launch inventory for aducanumab. If aducanumab does not receive regulatory approval in the U.S., we would expense this inventory as research and development expense and, under the terms of the Aducanumab Collaboration Agreement, Eisai would reimburse us for 45.0% of the costs.
Milestone and Upfront Expenses
Research and development expense for 2020 includes:
•$1,084.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Sage in the fourth quarter of 2020;
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•$601.3 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Denali in the third quarter of 2020; and
•$208.0 million charge to research and development expense in connection with the upfront payment associated with entering into our collaboration with Sangamo in the second quarter of 2020.
Research and development expense for 2019 includes:
•$63.0 million charge to research and development expense in connection with our agreement with Samsung Bioepis to secure the exclusive rights to commercialize two potential ophthalmology biosimilar products; and
•$45.0 million charge to research and development expense upon the exercise of our option to obtain a worldwide, exclusive, royalty-bearing license from Ionis to develop and commercialize BIIB080 (tau ASO) for the potential treatment of Alzheimer's disease.
The upfront payments associated with these collaborations are classified as research and development expense as the programs they relate to had not achieved regulatory approval as of the payment date.
For additional information about these collaboration arrangements, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
Early Stage Programs
For 2020 compared to 2019, the decrease in spending related to our early stage programs was primarily due to a decrease in costs associated with:
•the discontinuation of gosuranemab in progressive supraneuclear palsy;
•the advancement of toferson in ALS into late stage; and
•the discontinuation of the Phase 2b study of BG00011 for the potential treatment of idiopathic pulmonary fibrosis (IPF).
These decreases were partially offset by an increase in costs associated with:
•spending in the development of BIIB112 (RPGR gene therapy) in XLRP;
•spending in the development of BIIB080 in Alzheimer's disease; and
•spending in the development of gosuranemab in Alzheimer's disease.
Late Stage Programs
For 2020 compared to 2019, the decrease in spending associated with our late stage programs was primarily due to:
•a decrease in spending related to the discontinuation of the global Phase 3 trials of aducanumab, net of reimbursement from our collaboration partner Eisai in the first quarter of 2019;
•a decrease in spending related to the discontinuation of the global Phase 3 trials, MISSION AD1 and MISSION AD2, of elenbecestat (development code: E2609) in patients with early Alzheimer's disease in the third quarter of 2019; and
•a decrease in spending related to VUMERITY, which was approved by the FDA in the fourth quarter of 2019.
These decreases were partially offset by an increase in spending due to the advancement of toferson in ALS into late stage, an increase in spending related to BAN2401 in early Alzheimer's disease, our EMBARK redosing study for aducanumab and BIIB111 (timrepigene emparvovec) in CHM.
In the first quarter of 2019, as a result of the decision to discontinue the Phase 3 EMERGE and ENGAGE trials following a futility analysis, we accrued approximately $45.0 million related to the termination of clinical trials and research and development contracts net of the expected 45.0% Eisai reimbursement of development costs incurred by the collaboration for the advancement of aducanumab.
In July 2020 we completed the submission of a BLA for the approval of aducanumab to the FDA. In August 2020 the FDA accepted the BLA and granted Priority Review with a PDUFA action date on March 7, 2021. In January 2021 the FDA extended the review period for the BLA for aducanumab by three months. The updated PDUFA action date is June 7, 2021.
In March 2019 Eisai initiated a global Phase 3 trial for the development of BAN2401 in early Alzheimer's disease. Under our collaboration arrangement, Eisai serves as the global operational and regulatory lead for BAN2401 and all costs, including research, development, sales and marketing expenses, are shared equally between us and Eisai.
For additional information on our collaboration arrangements with Eisai, please read Note 18, Collaborative and Other Relationships, to our
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consolidated financial statements included in this report.
Selling, General and Administrative
For 2020 compared to 2019, the increase in selling, general and administrative expenses was primarily due to increased commercial and medical investments in support of pre-launch activities associated with the potential regulatory approval of aducanumab.
In 2021 we expect selling, general and administrative costs, including headcount and commercial infrastructure, to significantly increase as we support activities associated with the potential regulatory approvals of aducanumab in the U.S. and rest of world markets.
Amortization and Impairment of Acquired Intangible Assets
Our amortization expense is based on the economic consumption and impairment of intangible assets. Our most significant amortizable intangible assets are related to our TYSABRI, AVONEX, SPINRAZA, VUMERITY and TECFIDERA (rest of world) products and other programs acquired through business combinations.
For the year ended December 31, 2020, amortization and impairment of acquired intangible assets reflects the impact of a $115.0 million impairment charge related to BIIB111, which was obtained as part of our acquisition of Nightstar Therapeutics plc (NST), a $75.4 million impairment charge related to BIIB054 and a $19.3 million impairment charge related to one of our other IPR&D intangible assets.
For the year ended December 31, 2019, amortization and impairment of acquired intangible assets reflects the impact of a $215.9 million impairment charge related to certain IPR&D assets associated with the Phase 2b study of BG00011 for the potential treatment of IPF, which was discontinued in the third quarter of 2019.
Amortization of acquired intangible assets, excluding impairment charges, totaled $255.1 million, $274.0 million and $381.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.
For 2020 compared to 2019, the decrease in amortization of acquired intangible assets, excluding impairment charges, was primarily due to a lower rate of amortization for acquired intangible assets.
We monitor events and expectations regarding product performance. If new information indicates that the assumptions underlying our most recent analysis are substantially different than those utilized in our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenues of the relevant products. The occurrence of an adverse event could substantially increase the amount of amortization expense related to our acquired intangible assets as compared to previous periods or our current expectations, which may result in a significant negative impact on our future results of operations.
IPR&D Related to Business Combinations
IPR&D represents the fair value assigned to research and development assets that we acquired as part of a business combination and had not yet reached technological feasibility at the date of acquisition. We review amounts capitalized as acquired IPR&D for impairment annually, as of October 31, and whenever events or changes in circumstances indicate to us that the carrying value of the assets might not be recoverable.
Overall, the value of our acquired IPR&D assets is dependent upon several variables, including estimates of future revenues and the effects of competition, our ability to secure sufficient pricing in a competitive market, our ability to confirm safety and efficacy based on data from clinical trials and
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regulatory feedback, the level of anticipated development costs and the probability and timing of successfully advancing a particular research program from one clinical trial phase to the next. We are continually reevaluating our estimates concerning these and other variables, including our life cycle management strategies, research and development priorities and development risk, changes in program and portfolio economics and related impact of foreign currency exchange rates and economic trends and evaluating industry and company data regarding the productivity of clinical research and the development process. Changes in our estimates may result in a significant change to our valuation of our IPR&D assets.
BIIB111
During the fourth quarter of 2020 we began experiencing third-party manufacturing delays that may impact our timeline for a potential filing of a BLA for BIIB111 for regulatory approval by up to one year. In addition, we determined that forecasted costs associated with advancing the BIIB111 program through Phase 3 development and potential commercialization will exceed our original estimates. We reassessed the fair value of the program based on these changes in assumptions and determined that the program was partially impaired. We recognized an impairment charge of $115.0 million during the fourth quarter of 2020, which resulted in a reduction of the IPR&D asset from $480.0 million to $365.0 million.
BIIB054
In February 2021 we announced that we discontinued development of BIIB054 as a potential treatment of Parkinson's disease as our Phase 2 SPARK study did not meet its primary or secondary endpoints. Although we made this determination in February 2021, it was based on conditions that existed as of December 31, 2020. As a result, we recognized an impairment charge of approximately $75.4 million during the fourth quarter of 2020 to reduce the fair value of the related IPR&D intangible asset to zero.
Vixotrigine
In the periods since we acquired vixotrigine (BIIB074), there have been numerous delays in the initiation of Phase 3 studies for the potential treatment of trigeminal neuralgia (TGN) as we engaged with the FDA regarding the design of the Phase 3 studies and awaited data and insights from mid-stage clinical trials of vixotrigine in other indications that have since been completed. The fair value of the TGN asset is not significantly in excess of carrying value. As of December 31, 2020, the carrying value associated with our vixotrigine IPR&D assets was $177.5 million.
For additional information on the amortization and impairment of our acquired intangible assets, please read Note 6, Intangible Assets and Goodwill, to our consolidated financial statements included in this report.
Collaboration Profit (Loss) Sharing
Collaboration profit (loss) sharing primarily includes Samsung Bioepis' 50.0% share of the profit or loss related to our biosimilars commercial agreement with Samsung Bioepis.
For 2020, 2019 and 2018 we recognized a net profit-sharing expense of $266.5 million, $241.6 million and $187.4 million, respectively, to reflect Samsung Bioepis’ 50.0% sharing of the net collaboration profits.
For the year ended 2020, we also recognized net profit-sharing income of $33.8 million to reflect Eisai's 45.0% share of the $75.0 million milestone expense related to the completed submission of the BLA for the approval of aducanumab to the FDA.
For additional information on our collaboration arrangements with Samsung Bioepis and Eisai, please read Note 18, Collaborative and Other Relationships, to our consolidated financial statements included in this report.
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(Gain) Loss on Divestiture of Hillerød, Denmark Manufacturing Operations
In March 2019 we entered into a share purchase agreement with FUJIFILM to sell all of the outstanding shares of our subsidiary that owned our biologics manufacturing operations in Hillerød, Denmark. The transaction closed in August 2019.
For the year ended December 31, 2019, we recognized a total net loss of approximately $124.2 million related to the transaction in our consolidated statements of income. This loss included a pre-tax loss of $55.3 million, which was recorded in loss on divestiture of Hillerød, Denmark manufacturing operations. The loss recognized was based on exchange rates and business conditions on the closing date of this transaction, and included costs to sell our Hillerød, Denmark manufacturing operations of approximately $11.2 million and our estimate of the fair value of adverse commitments of approximately $74.0 million, primarily associated with the guarantee of future minimum batch production at the Hillerød facility. We also recorded a tax expense of $68.9 million related to this transaction.
During the year ended December 31, 2020, we reduced our estimate of the fair value of the adverse commitment associated with the guarantee of future batch production by approximately $62.0 million based on our current manufacturing forecasts. Additionally, we recorded a reduction to our pre-tax loss of approximately $30.5 million due to a refund of interest paid associated with a tax matter.
For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to our consolidated financial statements included in this report.
(Gain) Loss on Fair Value Remeasurement of Contingent Consideration
Consideration payable for certain of our business combinations includes future payments that are contingent upon the occurrence of a particular event or events. We record an obligation for such contingent consideration payments at fair value on the acquisition date. We then revalue our contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations, other than changes due to payments, are recognized as a (gain) loss on fair value remeasurement of contingent consideration in our consolidated statements of income.
The gain on fair value remeasurement of contingent consideration for 2020 was primarily due to the remeasurement of the contingent consideration associated with our BIIB054 program as well as changes in the probability and the expected timing of the achievement of certain remaining developmental milestones, changes in the interest rates used to revalue our contingent consideration liabilities and the passage of time.
The gain on fair value remeasurement of contingent consideration for 2019 was primarily due to the discontinuation of the Phase 2b study of BG00011 for the potential treatment of IPF as well as changes in the probability and expected timing of achievement of certain developmental milestones, a decrease in interest rates used to revalue our contingent consideration liabilities and the passage of time.
For additional information on our IPR&D intangible assets, please read Note 6, Intangible Assets and Goodwill, to our consolidated financial statements included in this report.
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Acquired In-Process Research and Development
BIIB118 Acquisition
In March 2020 we acquired BIIB118 from Pfizer for the potential treatment of patients with behavioral and neurological symptoms across various psychiatric and neurological diseases. In connection with this acquisition, we made an upfront payment of $75.0 million to Pfizer, which was accounted for as an asset acquisition and recorded as acquired IPR&D in our consolidated statements of income as BIIB118 has not yet reached technological feasibility.
For additional information on our acquisition of BIIB118, please read Note 2, Acquisitions, to our consolidated financial statements included in this report.
Other Income (Expense), Net
For 2020 compared to 2019, the change in other income (expense), net primarily reflects an increase in our net unrealized gains on our holdings in equity securities, partially offset by higher interest expense.
For the year ended December 31, 2020, net unrealized and realized gains on our holdings in equity securities were approximately $681.8 million and $12.1 million, respectively, compared to net unrealized and realized gains of $150.1 million and $50.0 million in 2019. The net unrealized gains recognized during the year ended December 31, 2020, primarily reflects an increase in the fair value of Denali and Sangamo common stock of approximately $703.9 million.
For the year ended December 31, 2020, net interest expense was $180.5 million as compared to $67.4 million in 2019. This increase was primarily due to additional borrowings in 2020 and lower interest income earned on our investments in 2020 as compared to 2019. On April 30, 2020, we issued our senior unsecured notes for an aggregate principal amount of $3.0 billion (2020 Senior Notes).
We expect interest expense will increase in 2021, as our 2020 Senior Notes will be outstanding for the entire year.
For additional information on our 2020 Senior Notes, please read Note 12, Indebtedness, to our consolidated financial statements included in this report.
Income Tax Provision