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Revenue Recognition Accounting Policy

Biogen recognizes revenues when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured.

Product Revenues

Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically upon delivery.

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 of the international markets in which Biogen operates. 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 Biogen's customer) or a liability (if the amount is payable to a party other than Biogen's customer). Biogen's estimates take into consideration the 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 Biogen's estimates. If actual results vary, Biogen adjusts these estimates, which could have an effect on earnings in the period of adjustment.

Product revenue reserves are categorized as follows: discounts, contractual adjustments and returns.

Discounts include trade term discounts and wholesaler incentives. Trade term discounts and wholesaler incentives primarily relate to estimated obligations for credits to be granted to wholesalers for remitting payment on their purchases within established incentive periods and credits to be granted to wholesalers for compliance with various contractually-defined inventory management practices, respectively. Biogen determines these reserves based on the historical experience, including the timing of customer payments.

Contractual adjustments primarily relate to Medicaid and managed care rebates, co-payment (copay) assistance, Veterans Administration (VA) and Public Health Service (PHS) discounts, specialty pharmacy program fees and other governmental rebates or applicable allowances.

  • Medicaid rebates relate to Biogen's estimated obligations to states under established reimbursement arrangements. 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 other current liabilities. Biogen's liability for Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoices received for claims from the prior quarters that have not been paid, and an estimate of potential claims that will be made for inventory that exists in the distribution channel at period end.
  • Governmental rebates or chargebacks, including VA and PHS discounts, represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices Biogen charges to wholesalers which provide those products. The wholesaler charges Biogen for the 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 Biogen generally issues credits for such amounts within a few weeks of the wholesaler notifying Biogen about the resale. The reserves for VA, PHS and chargebacks consist of amounts that Biogen expects to issue for inventory that exists at the wholesalers that Biogen expects will be sold to qualified healthcare providers and chargebacks that wholesalers have claimed for which Biogen has not issued a credit.
  • Managed care rebates represent Biogen's 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 Biogen expects 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, Biogen also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide Biogen with inventory management, data and distribution services, which are generally reflected as a reduction of revenue. To the extent Biogen can demonstrate a separable benefit and fair value for these services, Biogen classifies these payments in selling, general and administrative expenses.

Revenues from Anti-CD20 Therapeutic Programs

Revenues from anti-CD20 therapeutic programs consist of:

  1. Biogen's share of pre-tax profits and losses in the United States (U.S.) for RITUXAN and GAZYVA;
  2. reimbursement of Biogen's selling and development expenses in the U.S. for RITUXAN; and
  3. other revenues from anti-CD20 therapeutic programs, which primarily consist of Biogen's 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 Biogen by Genentech in the U.S. Pre-tax co-promotion profits on RITUXAN are calculated and paid to Biogen 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 Biogen. Biogen's 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 Biogen's estimates.

Royalty Revenues

Biogen receives royalty revenues on sales by the licensees of other products covered under patents that Biogen owns. Biogen does not have future performance obligations under these license arrangements. Biogen records 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 Biogen, 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.

Source: Biogen Inc., Annual Report


Revenues as Reported

Biogen Inc., Income Statement, Revenues

USD $ in thousands

12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Product revenues

Source: Biogen Inc. Annual Reports

Item Description The company
Product revenues Aggregate revenue recognized during the period (derived from goods sold, services rendered, insurance premiums, or other activities that constitute an entity's earning process). For financial services companies, also includes investment and interest income, and sales and trading gains. Biogen Inc.'s product revenues increased from 2015 to 2016 and from 2016 to 2017.