Table of Contents
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F- 11
difference between what the wholesaler pays for the products and the ultimate selling price to the qualified
healthcare providers. Rebate and chargeback reserves are established in the same period as the related
revenue is recognized, resulting in a reduction in product revenue and accounts receivable. Chargeback
amounts are generally determined at the time of resale to the qualified healthcare provider from the wholesaler,
and we generally issue credits for such amounts within a few weeks of the wholesaler notifying us about the
resale. Our reserves for VA, PHS and chargebacks consist of amounts that we expect to issue for inventory that
exists at the wholesalers that we expect will be sold to qualified healthcare providers and chargebacks that
wholesalers have claimed for which we have not issued a credit.
• Managed care rebates represent our estimated obligations to third parties, primarily pharmacy benefit
managers. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a
reduction of product revenue and the establishment of a liability which is included in accrued expenses and
other current liabilities. These rebates result from performance-based goals, formulary position and price
increase limit allowances (price protection). The calculation of the accrual for these rebates is based on an
estimate of the customer’s buying patterns and the resulting applicable contractual rebate rate(s) to be earned
over a contractual period.
• Copay assistance represents financial assistance to qualified patients, assisting them with prescription drug co-
payments required by insurance. The calculation of the accrual for copay is based on an estimate of claims and
the cost per claim that we expect to receive associated with inventory that exists in the distribution channel at
period end.
• Other governmental rebates, non-US pharmaceutical taxes or applicable allowances primarily relate to
mandatory rebates and discounts in international markets where government-sponsored healthcare systems
are the primary payors for healthcare.
Product returns are established for returns expected to be made by wholesalers and are recorded in the period
the related revenue is recognized, resulting in a reduction to product sales. 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. Expired product return reserves are estimated through a
comparison of historical return data to their related sales on a production lot basis. Historical rates of return are
determined for each product and are adjusted for known or expected changes in the marketplace specific to each
product.
In addition to the discounts, rebates and product returns described above and classified as a reduction of
revenue, we also maintain certain customer service contracts with distributors and other customers in the
distribution channel that provide us with inventory management, data and distribution services, which are generally
reflected as a reduction of revenue. To the extent we can demonstrate a separable benefit and fair value for these
services, we classify these payments in selling, general and administrative expenses.
Revenues from Anti-CD20 Therapeutic Programs
Revenues from anti-CD20 therapeutic programs consist of:
(i) our share of pre-tax profits and losses in the United States (U.S.) for RITUXAN and GAZYVA;
(ii) reimbursement of our selling and development expenses in the U.S. for RITUXAN; and
(iii) other revenues from anti-CD20 therapeutic programs, which primarily consist of our share of pre-tax co-
promotion profits on RITUXAN in Canada and royalty revenues on sales of OCREVUS.
Pre-tax co-promotion profits on RITUXAN and GAZYVA are calculated and paid to us by Genentech in the U.S.
Pre-tax co-promotion profits on RITUXAN are calculated and paid to us by the Roche Group in Canada. Pre-tax co-
promotion profits consist of U.S. and Canadian net sales to third-party customers less applicable costs to
manufacture, third-party royalty expenses, distribution, selling and marketing expenses and joint development
expenses incurred by Genentech, the Roche Group and us. Our share of the pre-tax profits on RITUXAN and GAZYVA
in the U.S. and pre-tax co-promotion profits on RITUXAN in Canada include estimates made by Genentech and those
estimates are subject to change. Actual results may differ from our estimates. For additional information on our
collaboration with Genentech, please read Note 20, Collaborative and Other Relationships, to these consolidated
financial statements.
Table of Contents
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F- 12
Royalty Revenues
We receive royalty revenues on sales by our licensees of other products covered under patents that we own. We
do not have future performance obligations under these license arrangements. We record these revenues based on
estimates of the sales that occurred during the relevant period as a component of other revenues. The relevant
period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that
have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between
actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the
following quarter. Historically, adjustments have not been material when compared to actual amounts paid by
licensees.
Multiple-Element Revenue Arrangements
We may enter into transactions that involve the sale of products and related services under multiple element
arrangements. In accounting for these transactions, we assess the elements of the contract and whether each
element has standalone value and allocate revenues to the various elements based on their estimated selling price
as a component of total revenues. The selling price of a revenue generating element can be based on current selling
prices offered by us or another party for current products or management’s best estimate of a selling price.
Revenues allocated to an individual element are recognized when all other revenue recognition criteria are met for
that element.
Collaborative and Other Relationships
Our development and commercialization arrangement with AbbVie Inc. (AbbVie) represents a collaborative
arrangement as each party is an active participant and exposed to significant risks and rewards of the arrangement.
Where we are the principal on sales transactions with third parties, we recognize revenues, cost of sales and
operating expenses on a gross basis in their respective lines in our consolidated statements of income. Where we
are not the principal on sales transactions with third parties, we record our share of the revenues, cost of sales and
operating expenses on a net basis in collaborative and other relationships included in other revenue in our
consolidated statements of income.
For additional information on our collaboration with AbbVie, please read Note 20, Collaborative and Other
Relationships, to these consolidated financial statements.
Fair Value Measurements
We have certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2
or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
• Level 1 — Fair values are determined utilizing quoted prices (unadjusted) in active markets for identical assets
or liabilities that we have the ability to access;
• Level 2 — Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in
active markets or other market observable inputs such as interest rates, yield curves and foreign currency spot
rates; and
• Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and
unobservable.
The majority of our financial assets have been classified as Level 2. Our financial assets (which include our
cash equivalents, derivative contracts, marketable debt securities and plan assets for deferred compensation) have
been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing
third-party pricing services or other market observable data. The pricing services utilize industry standard valuation
models, including both income and market-based approaches and observable market inputs to determine value.
These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes,
bids, offers, current spot rates and other industry and economic events.
We validate the prices provided by our third-party pricing services by reviewing their pricing methods and
matrices, obtaining market values from other pricing sources and analyzing pricing data in certain instances. After
completing our validation procedures, we did not adjust or override any fair value measurements provided by our
pricing services as of December 31, 2017 and 2016.
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