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Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Intangible Assets

Biogen's intangible assets consist of acquired and in-licensed rights and patents, developed technology, out-licensed patents, in-process research and development acquired after January 1, 2009, trademarks and trade names. Biogen's intangible assets are recorded at fair value at the time of their acquisition and are stated in the consolidated balance sheets net of accumulated amortization and impairments, if applicable.

Intangible assets related to acquired and in-licensed rights and patents, developed technology and out-licensed patents are amortized over their estimated useful lives using the economic consumption method if anticipated future revenues can be reasonably estimated. The straight-line method is used when revenues cannot be reasonably estimated. Amortization is recorded as amortization of acquired intangible assets in Biogen's consolidated statements of income.

Acquired and in-licensed rights and patents primarily relate to obtaining the fair value of the U.S. and rest of world licenses to Forward Pharma A/S' (Forward Pharma) intellectual property, including Forward Pharma's intellectual property related to TECFIDERA, and Biogen's acquisition of all remaining rights to TYSABRI from Elan Pharma International, Ltd. (Elan), an affiliate of Elan Corporation, plc. Developed technology primarily relates to the AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. Biogen amortizes the intangible assets related to TECFIDERA, TYSABRI and AVONEX using the economic consumption method based on revenues generated from the products underlying the related intangible assets. An analysis of the anticipated lifetime revenues of TECFIDERA, TYSABRI and AVONEX is performed annually during Biogen's long-range planning cycle, which is generally updated in the third quarter of each year, and whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of TECFIDERA, TYSABRI or AVONEX.

Intangible assets related to trademarks, trade names and in-process research and development prior to commercialization are not amortized because they have indefinite lives; however, they are subject to review for impairment. Biogen reviews the intangible assets with indefinite lives for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Acquired In-process Research and Development (IPR&D)

Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenues from the projects and discounting the net cash flows to present value. The revenues and costs projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing a new drug. Additionally, the projections consider the relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by Biogen and Biogen's competitors. The rates utilized to discount the net cash flows to their present value are commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections. Upon the acquisition of IPR&D, Biogen completes an assessment of whether the acquisition constitutes the purchase of a single asset or a group of assets. Biogen considers multiple factors in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance and the rationale for entering into the transaction.

If Biogen acquires a business as defined under applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If Biogen acquires an asset or group of assets that do not meet the definition of a business, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.

When performing the impairment assessment, Biogen calculates the fair value using the same methodology as described above. If the carrying value of Biogen's acquired IPR&D exceeds its fair value, then the intangible asset is written-down to its fair value. Certain IPR&D programs have a fair value that is not significantly in excess of carrying value, including treatments for forms of neuropathic pain, such as trigeminal neuralgia (TGN). Such programs could become impaired if assumptions used in determining the fair value change. Impairments are recorded as amortization of acquired intangible assets in Biogen's consolidated statements of income.

Goodwill

Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but reviewed for impairment. Goodwill is reviewed annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the goodwill might not be recoverable.

Biogen compares the fair value of the reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, Biogen would record an impairment loss equal to the difference. Biogen operates in one operating segment which Biogen considers the only reporting unit.

Source: Biogen Inc., Annual Report


Goodwill and Intangible Assets Disclosure

Biogen Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in thousands

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Out-licensed patents hidden hidden hidden hidden hidden
Developed technology hidden hidden hidden hidden hidden
In-process research and development hidden hidden hidden hidden hidden
Trademarks and trade names hidden hidden hidden hidden hidden
Acquired and in-licensed rights and patents hidden hidden hidden hidden hidden
Intangible assets, cost hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden
Intangible assets, net hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden
Intangible assets and goodwill hidden hidden hidden hidden hidden

Source: Based on data from Biogen Inc. Annual Reports

Item Description The company
Intangible assets, net Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Biogen Inc.'s intangible assets, net declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Goodwill Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. Biogen Inc.'s goodwill increased from 2015 to 2016 and from 2016 to 2017.
Intangible assets and goodwill Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Biogen Inc.'s intangible assets and goodwill increased from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Goodwill

Biogen Inc., adjustments to financial data

USD $ in thousands

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Biogen Inc. Shareholders' Equity
Total Biogen Inc. shareholders' equity (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Total Biogen Inc. shareholders' equity (adjusted) hidden hidden hidden hidden hidden

Adjusted Ratios: Removal of Goodwill (Summary)

Biogen Inc., adjusted ratios

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden% hidden% hidden% hidden% hidden%
Adjusted ROE hidden% hidden% hidden% hidden% hidden%
Return on Assets (ROA)
Reported ROA hidden% hidden% hidden% hidden% hidden%
Adjusted ROA hidden% hidden% hidden% hidden% hidden%
Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Biogen Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Biogen Inc.'s adjusted financial leverage declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Biogen Inc.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Biogen Inc.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Total Asset Turnover

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Revenues (USD $ in thousands) hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Revenues (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

2017 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Biogen Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Financial Leverage

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Total Biogen Inc. shareholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total Biogen Inc. shareholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden

2017 Calculations

1 Financial leverage = Total assets ÷ Total Biogen Inc. shareholders' equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Biogen Inc. shareholders' equity
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Biogen Inc.'s adjusted financial leverage declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

Adjusted Return on Equity (ROE)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to Biogen Inc. (USD $ in thousands) hidden hidden hidden hidden hidden
Total Biogen Inc. shareholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net income attributable to Biogen Inc. (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total Biogen Inc. shareholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROE = 100 × Net income attributable to Biogen Inc. ÷ Total Biogen Inc. shareholders' equity
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROE = 100 × Net income attributable to Biogen Inc. ÷ Adjusted total Biogen Inc. shareholders' equity
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Biogen Inc.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to Biogen Inc. (USD $ in thousands) hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net income attributable to Biogen Inc. (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROA = 100 × Net income attributable to Biogen Inc. ÷ Total assets
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROA = 100 × Net income attributable to Biogen Inc. ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Biogen Inc.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.