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Analysis of Goodwill and Intangible Assets
Difficulty: Advanced
- Goodwill and Intangible Assets Accounting Policy
- Goodwill and Intangible Assets Disclosure
- Analyst Adjustments: Removal of Goodwill
- Adjusted Ratios: Removal of Goodwill (Summary)
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
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 within amortization and impairment of acquired intangible assets in Biogen’s consolidated statements of income.
Acquired and in-licensed rights and patents primarily relate to Biogen’s acquisition of all remaining rights to TYSABRI from Elan Pharma International, Ltd. (Elan), an affiliate of Elan Corporation, plc. Acquired and in-licensed rights and patents also includes 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 other amounts related to the other marketed products and other programs acquired through business combinations. 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 the TYSABRI, AVONEX, SPINRAZA and TECFIDERA products 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 Biogen’s TYSABRI, AVONEX, SPINRAZA and TECFIDERA products is performed annually during the long-range planning cycle and whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of the TYSABRI, AVONEX, SPINRAZA and TECFIDERA products.
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.
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 may 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 is the only reporting unit.
Source: 10-K (filing date: 2019-02-06).
Goodwill and Intangible Assets Disclosure
Biogen Inc., Statement of Financial Position, Goodwill and Intangible Assets
USD $ in thousands
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Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-02), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).
| 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 increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
| Goodwill | Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. | Biogen Inc.’s goodwill increased from 2016 to 2017 and from 2017 to 2018. |
| 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 2016 to 2017 and from 2017 to 2018. |
Analyst Adjustments: Removal of Goodwill
Biogen Inc., adjustments to financial data
USD $ in thousands
Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-02), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).
Biogen Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
Biogen Inc., adjusted ratios
Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-02), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).
| 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 improved from 2016 to 2017 and from 2017 to 2018. |
| 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 increased from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Biogen Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Biogen Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Biogen Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-02), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).
2018 Calculations
1 Total asset turnover = Revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =
| 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 improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-02), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).
2018 Calculations
1 Financial leverage = Total assets ÷ Total Biogen Inc. shareholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Biogen Inc. shareholders’ equity
= ÷ =
| 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 increased from 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-02), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).
2018 Calculations
1 ROE = 100 × Net income attributable to Biogen Inc. ÷ Total Biogen Inc. shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net income attributable to Biogen Inc. ÷ Adjusted total Biogen Inc. shareholders’ equity
= 100 × ÷ =
| 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 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-02), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).
2018 Calculations
1 ROA = 100 × Net income attributable to Biogen Inc. ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net income attributable to Biogen Inc. ÷ Adjusted total assets
= 100 × ÷ =
| 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 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |