Biogen Inc. (BIIB)

Inventories are stated at the lower of cost or market with cost based on the first-in, first-out method. Biogen classifies the inventory costs as long-term when Biogen expects to utilize the inventory beyond the normal operating cycle and include these costs in investments and other assets in the consolidated balance sheets. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical manufacturing campaign.

Capitalization of Inventory Costs

Biogen capitalizes inventory costs associated with the products prior to regulatory approval, when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Biogen considers numerous attributes in evaluating whether the costs to manufacture a particular product should be capitalized as an asset. Biogen assesses the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety or efficacy concerns, potential labeling restrictions and other impediments to approval. Biogen evaluates the anticipated research and development initiatives and constraints relating to the product and the indication in which it will be used. Biogen considers the manufacturing environment including the supply chain in determining logistical constraints that could hamper approval or commercialization. Biogen considers the shelf life of the product in relation to the expected timeline for approval and Biogen considers patent related or contract issues that may prevent or delay commercialization. Biogen also bases the judgment on the viability of commercialization, trends in the marketplace and market acceptance criteria. Finally, Biogen considers the reimbursement strategies that may prevail with respect to the product and assess the economic benefit that Biogen is likely to realize. Biogen expenses previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by necessary regulatory bodies.

Obsolescence and Unmarketable Inventory

Biogen periodically reviews the inventories for excess or obsolescence and write-downs obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than that estimated by Biogen, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required. Additionally, the products are subject to strict quality control and monitoring that Biogen performs throughout the manufacturing process. In the event that certain batches or units of product no longer meet quality specifications, Biogen will record a charge to cost of sales to write-down any unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of cost or its estimated net realizable value. Amounts written-down due to unmarketable inventory are charged to cost of sales.

Source: Biogen Inc., Annual Report

Biogen Inc., Statement of Financial Position, Inventory

USD $ in thousands

Source: Based on data from Biogen Inc. Annual Reports

Item	Description	The company
Raw materials	Carrying amount as of the balance sheet date of unprocessed items to be consumed in the manufacturing or production process. Also includes purchased parts that will be used as components of a finished product.	Biogen Inc.'s raw materials declined from 2015 to 2016 and from 2016 to 2017.
Work in process	Carrying amount as of the balance sheet date of merchandise or goods which are partially completed, are generally comprised of raw materials, labor and factory overhead costs, and which require further materials, labor and overhead to be converted into finished goods, and which generally require the use of estimates to determine percentage complete and pricing.	Biogen Inc.'s work in process increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Finished goods	Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale.	Biogen Inc.'s finished goods increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
Inventory	Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer).	Biogen Inc.'s inventory increased from 2015 to 2016 but then declined significantly from 2016 to 2017.