2000 Biogen Annual Report

Defining the Future

ANNUAL REPORT 2000

Biogen,Inc.

14 Cambridge CenterCambridge, MA 02142

Telephone 617 679-2000

European Headquarters

Le Capitole55 avenue des Champs Pierreux92012 NanterreFrance

Telephone 33 1 41 37 95 95

www.biogen.com

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alIMPORTANT NOTE TO SHAREHOLDERS

In addition to historical information, this Annual Report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities LitigationReform Act of 1995. Reference is made in particular to statements regarding expectations as to future financial results, including the potential growth of the market for AVONEX®,the potential efficacy and uses of products in development, the timing of anticipated and ongoing clinical trials, expectations regarding trial results, regulatory filing and productlaunch of AMEVIVE™, anticipated availability of future manufacturing capacity, the description of the Company’s plans, goals and objectives for future operations and future productdevelopment, assumptions underlying such plans, goals and objectives and other forward-looking statements included in the Letter to Shareholders, “Management’s Discussionand Analysis of Financial Condition and Results of Operations” (“MD&A”) and other sections of this Annual Report. Such statements are based on management’s currentexpectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.In particular, careful consideration should be given to cautionary statements made in MD&A, including under the heading “Outlook” and in the business section of the Company’sForm 10-K under the heading “Risks Associated with Drug Development.”

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alIMPORTANT NOTE TO SHAREHOLDERS


James L. VincentChairman of the Board

James C. MullenPresident andChief Executive Officer

We made significant progress in

every key area of our business:

• AVONEX® maintained its

leadership position in the highly

competitive multiple sclerosis

(MS) marketplace. Approxi-

mately 100,000 patients

throughout the world are on

AVONEX treatment.

• We announced more data

about AVONEX than in any year

since product launch. Everything

we have learned confirms the

importance of this drug in the

treatment of MS.

• We made significant progress

in our clinical development

programs. In January 2001, we

announced positive results of the

Phase II trials of ANTEGREN®

(natalizumab) in MS and Crohn’s

disease. We expect to begin

Phase III trials in both indications

later this year. We are collabo-

rating with Elan Corporation

on the development of this

promising drug.

• We will report results of the

Phase III clinical trials of

AMEVIVE™ (alefacept) in chronic

plaque psoriasis during the first

half of 2001. Data from our

During the past year, Biogen

made enormous strides in

maintaining our AVONEX®

(Interferon beta-1a) market

leadership, moving our pipeline

compounds closer to market,

and refocusing our research

program to capitalize on the

advances of the genomics

revolution.

Phase II trials were very

encouraging. Psoriasis is the

kind of focused and underserved

market that we understand.

There is considerable commer-

cial potential for a novel therapy

in this indication, and we believe

AMEVIVE can do very well in this

marketplace.

• We focused our research

efforts, identifying four key

areas that combine considerable

market potential with Biogen’s

competitive research

advantages. We now have 20

research projects underway in

the areas of immunology, cancer,

neuroscience and fibrosis.

We also made great strides in

transforming our research

organization to respond to and

anticipate the opportunities

and challenges generated by

the genomics era.

• We delivered on our financial

goals. On an operating basis,

Earnings Per Share were $1.75,

an increase of 20 percent over

1999. Reported Net Income for

2000 was $334 million, or

$2.16 per share. Total Revenues

To Our Shareholders

Shareholder Value

CommercialLeverage

ProductCreation

StrategicResearch

Worldwide Capabilities

in Focused Markets

Integrated Experience The “Pull” Paradigm

Sustainable Financial Strength

Biogen’s Strategy for Building Our Company andIncreasing Shareholder Value

Defining the Future

B I O G E N - 3 -

were $926 million, compared

to $794 million in 1999.

Total AVONEX Sales were

$761 million, an increase of

23 percent over 1999.

With the successful introductions

of AVONEX in the U.S. and

Europe in 1996 and 1997,

Biogen fulfilled its initial mission

and vision of becoming an

independent, global

biopharmaceutical company.

Our next challenge is clear:

To transition from a

one-product company into a

multi-product company with

sustainable growth based on

constant introduction of

important novel therapeutics.

The essay section of this

book features comments by

several of Biogen’s key leaders,

who describe how we are

approaching the challenges

of bringing our organization

to the next level.

We learned many important

lessons through the development

and commercialization of

AVONEX and these will stand

us in good stead as we move

forward with our next generation

of products.

For example, the sales and

marketing model we developed

for AVONEX is easily reproducible.

This model is empowered,

efficient and global. It is

customer driven and patient

focused, reflecting the

empowerment of patients and

their increasing partnership with

their physicians in making

healthcare decisions. One

example is found in the number

of calls that come in each day

to our Customer Support lines.

Five years after AVONEX market

entry, we still receive more

than 1,600 calls a day –

an extraordinary level of

patient interest.

We gain additional commercial

leverage through our highly

efficient sales model. Members

of our field force, known as Area

Business Managers, effectively

run small, independent

businesses. Annual revenue per

AVONEX Area Business Manager

is more than $8 million,

compared to a U.S. industry

average of $1 million.

This sales and marketing model

is important not only for AVONEX,

but also because it can be

reproduced as our next

generation of drugs comes on

line. We can hire and train new

specialty sales forces very rapidly

in the kinds of focused markets

that we understand so well. We

are already making plans for

AMEVIVE based on our highly

successful AVONEX model.

We spent a great deal of time

refocusing our strategic research

model. During the past few

years, there has been a major

paradigm shift in biology that will

lead to major changes in the way

drugs are discovered and

developed. The mapping of the

human genome and the

surrounding technologies that

have emerged from this effort

will have a profound impact on

our industry. Biology is still the

basis of this industry and is

Biogen’s fundamental strength.

Our research strategy is in place

and has already generated a

number of exciting new

programs. Our challenge is to

execute on this strategy to

ensure a steady stream of

pipeline drugs.

The number of new partnerships

and collaborations announced

during the past year underscores

our increasing emphasis on

business development efforts.

$132$146

96 97 98 99 00

Research and Development

$177

$221

$303

$260

$412

96 97 98 99 00

Total Revenues

$558

$794

$926

$41

$89

96 97 98 99 00

Net Income

$139

$2202

$3341

$484$536

96 97 98 99 00

Shareholders’ Equity

$719

$980

$1,106

$0.28

$0.58

96 97 98 99 00

Diluted Earnings per Share

$0.90

$1.402

$2.161

$321

$440

96 97 98 99 00

Cash and Investments

$517

$655$682

Dollars in millions, except for Diluted Earnings per Share.1 Includes the effect of non-operational net pre-tax gains of $101 million, or $0.41 per share. 2 Includes the effect of a charge for the write-down of non-current marketable securitiesof $15 million, or $0.06 per share.

Selected Financial InformationBiogen, Inc. and Subsidiaries

B I O G E N - 5 -

We are collaborating with

Elan Corporation on ANTEGREN.

In 2000, we began collaborating

with Eos Biotechnology to

identify targets and develop

therapeutics for the treatment

of breast cancer. We also

in-licensed Neublastin from

NsGene of Denmark and are

now studying this molecule’s

potential in the treatment of

peripheral neuropathies.

Among our many other

collaborations are a series of

research agreements that

enable us to access promising

genomics technologies.

Biogen is also an industry leader

in manufacturing. With the

explosion of biopharmaceutical

drugs in the clinical pipeline,

the industry is beginning to

experience shortages of manu-

facturing capacity. Biogen has

built ahead of need. Our large-

scale manufacturing facility

currently under construction in

Research Triangle Park, North

Carolina, will give us capacity in

excess of 100,000 liters by

2002. We will continue to be

able to manufacture our

expanding portfolio from

research through commercial

stages. This makes us a strong

partner and gives Biogen a

unique competitive advantage

over other biopharmaceutical

companies.

Because of our strong financial

base, we have been able to

make necessary and timely

strategic investments in critical

areas like manufacturing and

bioinformatics.

Today, Biogen has in place the

world’s leading drug for multiple

sclerosis, and several promising

product candidates, the first of

which, if results are good, should

begin to reach the market in

2002. In addition, we have a

dynamic research pipeline that

capitalizes on our historic

strength in biological research.

Combined with our outstanding

financial profile and a committed

and dedicated group of

employees, we are confident

of meeting our objectives for

the coming years.

James C. MullenPresident andChief Executive Officer


February 6, 2001

A word from Jim Vincent . . .

The annual Letter to Shareholders is written jointly by Jim Mullen, Biogen’s Chief Executive Officer,

and me. It reports on our organization’s progress during the past year.

I am taking this opportunity to underscore the importance of the management transition in 2000 and the

quality of the individual leading Biogen through its next major period of growth.

Jim Mullen joined our Company in 1989 as Director, Facilities and Engineering, and was named

Vice President, Operations, in 1992. From 1996 - 1999, he served as Vice President, International,

with responsibility for building all Biogen operations outside North America.

From the beginning, it was apparent that Jim is an executive of exceptional quality, combining high

intelligence with discipline, vision and exceptional leadership skills. His many accomplishments include

creating our manufacturing and distribution operations, building our business operations outside the U.S.

and successfully registering and launching AVONEX throughout Europe. In his many different assignments,

Jim has consistently demonstrated his ability to identify, inspire and retain exceptionally talented

individuals, as well as the ability to lead large and diverse organizations and manage complex situations.

In my years with Biogen, I have watched our Company evolve from a research boutique to one of the

world’s leading global biopharmaceutical organizations. We are now in one of the most exciting times of

our history, as we meet the challenges of bringing the organization to its next operating level. I am

delighted an executive of Jim Mullen’s caliber is leading us at this critical time in our Company’s evolution.

-6 - B I O G E N


B I O G E N - 7 -

PROPRIETARY DRUGS RESEARCH PRE-CLINICAL CLINICAL TRIALS ON THE MARKET

AVONEX® (INTERFERON BETA 1-A)Relapsing Forms of MS

Monosymptomatic MS (CHAMPS)

Dose Comparison MS Phase III*

Secondary Progressive MS Phase III*

Primary Progressive MS Pilot Study*

Inhaled Formulation Phase I

Liquid Prefilled Syringe Phase I

AMEVIVE™ (ALEFACEPT)Moderate-to-Severe Psoriasis Phase III*

Rheumatoid Arthritis Phase II

ADENTRI™ (ADENOSINE A1 RECEPTOR ANTAGONIST)Congestive Heart Failure Phase I

ANTEGREN® (NATALIZUMAB)MS Phase II*

Crohn’s disease Phase II*

LT BETA RECEPTOR ANTAGONIST

Autoimmune Phase I

INTERFERON BETA GENE THERAPY

Oncology Preclinical

LT BETA RECEPTOR MONOCLONAL ANTIBODY

Oncology Preclinical

RESEARCH

OUT-LICENSED DRUGS CLINICAL TRIALS PENDING REGULATORY ON THE MARKETAPPROVAL

INTRON® A SCHERING-PLOUGH

(INTERFERON ALFA-2B, RECOMBINANT)Hepatitis B and C, certain cancers Global

HEPATITIS B VACCINES GLAXO SMITHKLINE, MERCK Global

HEPATITIS B DIAGNOSTICS ABBOTT AND OTHERS Global

ANGIOMAX™ (formerly Hirulog®) THE MEDICINES COMPANY

Angioplasty

Acute coronary syndromes

GAMMA INTERFERON SHIONOGI Japan

IL-2 SHIONOGI Japan

65+ countriesincluding U.S.,Europe, Canada

AwaitingEuropeanregulatory

review

Worldwideregulatory

review pending

20 activeresearchprograms

U.S.,New Zealand

Worldwideregulatory

filing pending

* Completed

Biogen Product Portfolio

Toshio Nakata, D.Sc.President, Biogen Japan Ltd.

Participants in thisdiscussion included:

Michael Gilman, P.h.D.Vice President, Research

Peter N. KelloggVice President, Finance andChief Financial Officer

Sylvie L. Grégoire, Pharm.D.Vice President, Manufacturing

Robert A. HammVice President,Sales and Marketing

Mark W. LeuchtenbergerVice President, International

Cornelis ‘Kees’ BeenVice President, Business andMarket Development

John W. PalmerVice President,Program Management

Burt A. Adelman, M.D.Vice President, Medical Research

B I O G E N - 9 -

At the January 2001JP Morgan Chase H&Q Lifesciences Conference,

Biogen’s CEO Jim Mullen told thefinancial community:

“Biogen’s next great challenge isto transition from being

a one-product company into amulti-product company.”

We asked a group of Biogen’ssenior managers how they are going to meet

this challenge. Here’s what they said . . .

Avonex ®

Bob Hamm is Vice President, Sales and MarketingMark Leuchtenberger is Vice President, International

• Landmark CHAMPS study published in the New England Journal of Medicine • Submitted worldwide regulatory filings for expanded label indication for

patients at high risk • CHAMPS data one of the top ten medical advances of the year as ranked by the Harvard Health Letter • CHAMPS data indicates

promising results showing that AVONEX significantly reduces the rate at which people at high risk for MS actually develop clinically definite disease

• Dose comparison study shows currently marketed AVONEX dose is the optimal dose • Reported promising data in a pilot study in primary

progressive MS, a particularly severe form of the disease

Q: AVONEX® (Interferon beta-1a),Biogen’s lead proprietaryproduct, has been on the marketfor several years. Is there still lifein AVONEX?

Bob Hamm: Absolutely. AVONEX

is the market leader and is beingprescribed to treat over 100,000patients worldwide. That’s a lot ofpatients, yet only 35 percent ofpeople with MS are on one of theavailable therapies today. There’sconsiderable room for growth inthis marketplace.

In 2000, we announced more newdata about AVONEX than in anyother year since product launch.These data are based onrigorous clinical trials and gaveus important new informationabout AVONEX in PrimaryProgressive MS, SecondaryProgressive MS, Early Stage MSand cognition.

The results of the landmarkCHAMPS study were out-standing. These data, which arenow under review by regulatoryauthorities worldwide, indicate

that AVONEX significantly reducesthe rate at which people at highrisk for MS actually developedclinically definite disease. Theprestigious “Harvard HealthLetter” listed this study as one ofthe top 10 medical advances ofthe year 2000.

And that’s not all. Our dosecomparison trial confirmed thatthe currently marketed dose –30 mcg – is optimal. We believethis study puts to rest allquestions about dose andsupports the hypothesis thatbiological products are differentfrom conventional medicineslike aspirin.

All this will help us enlarge thecategory of patients who willbenefit from AVONEX and set thestage for future advances in thetreatment of MS.

Q: That’s impressive newsabout AVONEX. How do you planto translate all this into themarketplace?

Hamm: We have several clearmarketing objectives for 2001.

We are working to differentiateAVONEX from its competitorsbased on Biogen’s sound science.Our clinical trials are rigorouslydesigned and our results basedon sound scientific evidence.

We will continue our educationalefforts to explain that MS is morethan just relapses. It is notenough to treat symptoms –the insidious underlying nature ofthis disease needs to be treated.AVONEX has been shown to havesignificant impact on slowingthe accumulation of physicaldisability. Recent publishedpapers show the effect of AVONEX

on cognition loss and brainatrophy, which have such adevastating impact on the lives ofpeople with MS.

Biogen has demonstrated along-term commitment to fightingMS with sound science andappropriate research. The MScommunity is increasinglylooking to Biogen to lead theway. The confidence it places inus also provides an importantmarketing advantage.

Q: What about Europe?You’re facing a different kind ofcompetitive challenge there.What are you doing about it?

Mark Leuchtenberger: Thedifference in the competitivechallenge for us in Europe is thepresence of a third interferonbeta. We have launched anaggressive initiative based on theefficacy of AVONEX. The newclinical data from CHAMPS, theresults of the dose comparisontrial and those of the IMPACTstudy of patients with secondaryprogressive MS, underscore themessages that differentiateAVONEX from other treatments.We experienced some marketshare loss in the beginning of theyear, and that was disappointing.I am very proud of the wayBiogen’s internationalorganization rallied and cameback. We finished the year ona high note and reported someincreases in market share, whileachieving an overall stabilizationof share.

B I O G E N - 11 -

Left: TV star David Lander

(“Squiggy” on “Laverne and

Shirley”) kept his MS secret for

years. Today, he is active in

speaking to patient groups about

his experiences and the significant

improvement AVONEX has made

in his life.

Top: MS hasn’t stopped AVONEX

patient Susan Krieg of Indianapolis,

IN, from competing in marathons.

More than 100,000 people with MS

throughout the world are now on

AVONEX therapy.

Right: Biogen’s Customer Support

Center handles more than 1,600

calls every day from physicians,

patients and family members

seeking information about AVONEX,

MS and associated issues.

Center: Dr. Tim Vartanian of

Beth Israel Deaconess Medical

Center in Boston, MA was an

investigator in the CHAMPS study,

which demonstrated that AVONEX

significantly reduces the rate at

which people at high risk for MS

actually develop clinically definite

disease.

Amevive™

• Anticipated product launch in second half of 2002 • Completed Phase III dosing ahead of schedule

• More than 100 clinical trial sites in North America and Europe • More than 1,500 people tested to date • Promising Phase II results demonstrate long-

term remission of up to 17 months post-treatment • No disease rebound effect or increased risk of infection seen in clinical trials to date

Burt Adelman, M.D., is Vice President, Medical Research

Q: Some people have beencritical of Biogen’s developmentpipeline. Is this criticismwell-founded?

Burt Adelman: There’s more toBiogen’s pipeline than manypeople recognize. We have tokeep demonstrating strong resultsto change this perception toreflect reality. We currently havethree drugs in the clinic –AVONEX, AMEVIVE, and – withour partner, Elan Corporation –ANTEGREN. We plan to doublethe number of Biogen drugs inthe clinic during 2001. Humantrials of ADENTRI, our AdenosineA1 receptor antagonist, beganin the first quarter, as did trialswith soluble lymphotoxin betareceptor antagonist. Interferonbeta gene therapy trials in gliomaare scheduled to begin laterin the year.

Let’s start with AMEVIVE.AMEVIVE is a fusion protein whosemechanism of action is

appropriate for treating a range ofautoimmune disorders byselectively targeting pathogenicT-cell subsets. From the results ofour clinical studies in psoriasis,we believe we have a drug thatcan provide prolonged diseaseremission with an improvedsafety profile over currenttherapies.

We have an aggressive timelinefor this drug. We will have datafrom our Phase III clinical trialsin chronic plaque psoriasis bymid-year 2001, expect to filewith regulatory authorities beforeyear-end, and are on track for ananticipated product launch in thesecond half of 2002.

Q: There are psoriasis therapiesalready on the market. Whatadvantage do you see withAMEVIVE ?

Adelman: There areapproximately one million peopleworldwide with moderate-to-severe psoriasis. While there arereasonably effective therapiescurrently available, they usuallyprovide only short-livedimprovements and havenumerous side effects. There’sroom in the marketplace for adrug that provides prolonged,durable remission and safeclearance of disease withoutsystemic toxicity. This creates anopportunity environment forAMEVIVE.

Our Phase II results indicateda very promising AMEVIVE profilewith some patients in remissionfor up to 17 months post-treatment. Twenty-four percent ofpatients cleared disease after onecourse of therapy. There were nosignificant side effects, such as

increased risk of infection ormalignancy, and no systemicorgan toxicity or cytokine releasesyndrome. Of particularimportance, there was no“rebound effect.” This is veryimportant because when currenttherapies are discontinued due totoxic side effects, the diseasecomes back – often more severelythan before. With no known“rebound effect,” AMEVIVE canpotentially provide long-termimprovement in quality of lifetogether with meaningfuldisease control.

B I O G E N - 13 -

Left: AMEVIVE is a fusion protein

with a mechanism of action

appropriate for treating a range of

autoimmune disorders.

Right: About 1,000,000 people

throughout the world suffer from

moderate-to-severe psoriasis.

Many patients avoid social

situations like swimming in which

their disease is apparent. A drug

like AMEVIVE that can potentially

provide long-term improvement

in quality of life together with

meaningful disease control

can play an important role in

the marketplace.

Center: Phase II clinical studies of

AMEVIVE demonstrated a profile

with some patients in remission for

up to 17 months post-treatment,

no significant side effects and no

“rebound effect.” Biogen has taken

AMEVIVE from discovery through the

clinic and expects to be on the

market in 2002.

Top: Dr. Ivor Caro of

Massachusetts General Hospital

is currently an investigator in a

long-term retreatment study of

AMEVIVE in patients with moderate-

to-severe chronic plaque psoriasis.

Some of the patients in the study

have received up to four courses of

AMEVIVE over the past three years.

Antegren®

Burt Adelman, M.D., is Vice President, Medical Research

• Partnership established with Elan Corporation in August 2000. • A novel anti-inflammatory that binds to alpha-4 integrins

• Positive Phase II results in MS and Crohn’s disease • Development in Crohn’s represents new opportunity for Biogen

Q: We heard some excitingthings about ANTEGREN

(natalizumab), on which Biogenand Elan Corporation arecollaborating. Can you tell ussomething about it?

Burt Adelman: In August 2000,Biogen and Elan Corporationannounced a worldwide, exclusivecollaboration to develop,manufacture and commercializeANTEGREN (natalizumab), anexciting new compound based ona novel pathway. Early in 2001,we announced positive resultsfrom preliminary analyses of twolarge Phase II clinical studies inMS and Crohn’s disease. Biogenand Elan have now begunplanning Phase III clinical studiesin both diseases.

Scientists at Elan Corporationdiscovered ANTEGREN in the early1990s. It is a humanizedmonoclonal antibody, the first in anew class of potential therapeuticsknown as alpha 4 integrininhibitors that are designed to

block immune cell adhesionto blood vessel walls andsubsequent migration oflymphocytes into tissue.ANTEGREN binds to the cellsurface receptors known asalpha-4-beta-1 (VLA-4) andalpha-4-beta-7. Both Biogen andElan are pioneers in the study ofthis pathway, which may beuseful in the treatment of a rangeof inflammatory and non-inflammatory diseases.

The Phase II study in MS involved213 relapsing-remitting andsecondary progressive patients.ANTEGREN achieved the primaryendpoint, showing a reduction ofgreater than 80 percent in thecumulative number of newgadolinium-enhancing lesionscompared to baseline over thesix-month treatment period,with a high degree of statisticalsignificance. ANTEGREN alsodemonstrated a statisticallysignificant reduction in theproportion of patientsexperiencing MS relapses duringthis period. It was well toleratedfrom a safety perspective.

Q: How do the ANTEGREN

data thus far compare to AVONEX

in MS?

Adelman: To date, ANTEGREN hasdemonstrated compellingbiological activity in MS that hasthe potential to be very effectiveas monotherapy and may have asynergistic therapeutic effect incombination with AVONEX. BothBiogen and Elan see ANTEGREN

as an additional choice for MSpatients, for whom there stillremains an unmet medical need.ANTEGREN should provide anopportunity to meet the needs ofthese patients.

Q: Crohn’s disease is animportant new therapeutic areafor Biogen. What have you seenthere in studies to date?

Adelman: Crohn’s disease is achronic inflammatory boweldisease. It affects approximately250,000 people in the U.S. andabout 350,000 in Europe.Approximately half of all Crohn’spatients have the moderate-to-severe form of disease. Onaverage, Crohn’s patients flaretwo times per year. Very severeflares may require hospitalization.An estimated 50,000hospitalizations occur eachyear in the U.S. to treat severeCrohn’s flares.

The Phase II study included 240patients with moderate-to-severeCrohn’s disease. ANTEGREN

demonstrated statisticallysignificant positive results onmultiple endpoints, includingresponse rate and induction ofremission as measured by theCrohn’s Disease Activity Index(CDAI). The CDAI is the standardvalidated composite score forCrohn’s disease that includesmeasures of patient symptoms,physician assessments andlaboratory tests.

Q: What are your long-term plans for ANTEGREN

development?

Adelman: Having demonstratedimportant clinical activity ofANTEGREN in two autoimmunediseases, Biogen and Elan will belooking carefully at other diseaseswhere this mechanism of actionmay have an important role.

B I O G E N - 15 -

Biogen and Elan Corporation are

collaborating on ANTEGREN, a

humanized monoclonal antibody

that is the first in a new class of

potential therapeutics known as

alpha 4 integrin inhibitors. Studies

are now underway in MS and

Crohn’s Disease.

Progress in Other Areas

John Palmer is Vice President, Program ManagementToshio Nakata, D.Sc., is President, Biogen JapanKees Been is Vice President, Business and Market Development

Q: We hear the ADENTRI programis back in the clinic.

John Palmer: Yes. The Phase IItrials with our proof-of-conceptmolecule were positive. We havecompleted pre-clinical studieswith our commercial molecule andare now back in the clinic with thishighly selective small moleculeadenosine A1 receptor antagonistfor congestive heart failure. Ittargets receptors in the kidney thatare clinically relevant for thetreatment of acute and chroniccongestive heart failure.

Q: What about soluble lympho-toxin beta receptor antagonist?

Palmer: As of April 2001, bothADENTRI and LT beta receptorantagonist were in the clinic. LTbeta receptor antagonist is acompound that blocks a novelpathway discovered by Biogenscientists and to which we holdworldwide rights. Blocking theLT beta receptor pathwayregulates the critical positioningof immune cells includingdendritic cells and lymphocytesduring an immune response.

We believe LT beta receptorantagonist has disease-modifyingpotential in autoimmune diseases.

Q: When will your gene therapytrial begin?

Palmer: We expect to begin aPhase I clinical trial of interferonbeta gene therapy in glioma laterthis year. We have strong datafrom animal models tested inseveral other oncologic indica-tions. Our hypothesis is that thelocalized sustained production ofinterferon beta could lead tosuperior anti-tumor efficacy withlittle or no systemic toxicity.

Q: What else can you tell usabout your program managementactivities?

Palmer: In this past year ourpipeline has progressedsignificantly in terms of movingprograms from research intoclinical development. Currently,we have eight programs in variousstages of clinical development.These are important milestones inthe assessment of the strength ofour pipeline. We are aggressivelygrowing and continue to transition

new products, from researchinto development.

Q: Biogen now has operationsin Japan. Can you tell us aboutyour strategy for this importantmarket?

Toshio Nakata: Because Japan isone of the largest pharmaceuticalmarkets in the world, it is veryimportant to Biogen’s continuedsuccess as a global biopharma-ceutical company. Our mission inJapan is to establish the basis forBiogen’s commercial capabilities.We are going to do this in anumber of focused ways. Byestablishing a clinical trialsprogram in the next few years,we will lay the groundwork toindependently register andlicense Biogen products now inthe pipeline. By developingstrategic alliances, we will be ableto secure appropriate partnershipsto market, sell and explore in-licensing opportunities. To achievethese goals, I will be working overthe course of the year to put inplace a dynamic managementteam to lead Biogen’s commercialoperation in Japan.

Q: Biogen seems to be increasingits business development activity.What’s your strategy in this area?

Kees Been: We have such anaggressive vision in terms ofgrowth that my group is very

• Eight new programs in clinical development • Positive Phase II trials with proof-of-concept molecule for adenosine A1 receptor antagonist

• Second-generation adenosine A1 receptor enters the clinic • Soluble LT beta receptor antagonist moves into Phase I safety trials

actively looking at a range ofopportunities and is at negotiatingstages in a number of projects.To generate the successful growththat we envision, we have tosignificantly enhance our pipelinethrough partnerships that willprovide even more products inboth early and late stagedevelopment. We have manyadvantages – our financialstrength, manufacturing and R&Dinfrastructure and a sales andmarketing model – that make us adesirable partner. We are smalland flexible enough so that in-licensed programs do not get lostamid a “not-invented-here”attitude. Each and every one of ourresearch and development projectsis important to us. We have uniquemanufacturing capacity and wehave global reach.

Another important part of ourstrategy is to invest in thetechnologies to develop drugsfaster and cheaper. This has ledus to successful partnerships,such as the collaboration withEOS Biotechnology, to identifytargets and develop therapeuticsfor the treatment of breast cancer.We in-licensed Neublastin fromNsGene and are investigating itspotential therapeutic role inperipheral neuropathies. Thesecurrent strategies will allow usto always be on the forefront ofdrug development.

B I O G E N - 17 -

A scientist works on gene

sequencing in a Biogen genomics

laboratory. The genomics revolution

provides an immediate driver for

change in the way drugs are

discovered and puts a stronger

premium than ever on experimental

biology, which is Biogen’s

unparalleled research strength.

Manufacturing

• World-class biologics manufacturing • Building ahead of need, including new large-scale manufacturing facility in North Carolina’s Research

Triangle Park • Over 100,000 liters of capacity by 2002 • Exceeding industry standards, from groundbreaking to FDA licensing in 33 months

Sylvie Grégoire, Pharm.D., is Vice President, Manufacturing

Q: Biogen seems to havesuccessfully avoided the short-fall of manufacturing capacitythat is beginning to plague thebiopharmaceutical industry.How have you managed this?

Sylvie Grégoire: Shortfall ofmanufacturing capacity isbeginning to shape up as animportant rate-limiting problemfor the industry. However, Biogenhas built ahead, forecasting theneed. We anticipate having amanufacturing capacity of morethan 100,000 liters by 2002.This will be sufficient to meet theneeds of our marketed andpipeline products, and shouldmake Biogen a particularlyattractive partner to othercompanies that lack manufac-turing capacity.

Q: Can you tell us somethingabout your large-scalemanufacturing (LSM) facilityin North Carolina’s ResearchTriangle Park?

Grégoire: In addition to our6,000-liter production facility inCambridge, Massachusetts, wehave a plant in North Carolina’sResearch Triangle Park that alsohas a production capacity of6,000 liters. This plant hasexceeded industry standards andwas fully validated after 18months from the start ofconstruction. It received FDAlicensing in an unbelievablerecord time, within 33 monthsfrom groundbreaking. Thisplant manufactures products forworldwide distribution ofAVONEX.

Currently, we are completing a250,000 square-foot facilityadjacent to our existing NorthCarolina facility that representsthe best of Biogen’s strategicplanning and advancedmanufacturing process. In termsof capacity, it will have 90,000liters of production capacity. Ourexperience in having already builttwo major biological bulk-manufacturing sites in the U.S.that are fully validated and

approved to meet worldwiderequirements certainlyestablished an expertise thatwe applied to the RTP facility.When the LSM comes on line,Biogen will have multi-productcapacity and flexibility tomanufacture manydifferent products.

Q: We are hearing aboutcompanies rationing drugsbecause they can’t keep upwith manufacturing needs.It sounds like that won’t be aproblem for Biogen.

Grégoire: That’s right. Biogen’scapacity for protein manufac-turing is world-class in qualityand scale and is a core capabilityfor the company. Our new LSMfacility will further enhance ourcapacity to manufacture bulkprotein and will be one of thelargest cell culture facilities in theworld. As we are building for thefuture, we can point to our pastsuccesses. When we launchedAVONEX, our manufacturingcapability proved to be acompetitive advantage. Unlikeother companies that had to rely

on a lottery system to make newdrugs available to patients,Biogen’s manufacturingcapability produced sufficientquantities of AVONEX to supplypatients within 33 hours afterFDA approval.

We are ready for the future.

In addition to our worldwidemanufacturing capabilities, werecently established a packagingfacility outside Amsterdam that isresponsible for packaging AVONEX

for distribution in more than 50countries. That’s not a small featwhen you consider the complexityof different labels, packaginginserts and languages.

B I O G E N - 19 -

Center: Biogen has 6,000 liter

production facilities in Cambridge,

MA and Research Triangle

Park, NC, and is completing a

250,000 square-foot facility in

North Carolina.

Top: Manufacturing capacity

shortfall is becoming an important

rate-limiting problem for the

biopharmaceutical industry.

Biogen has built ahead

of the curve and anticipates

manufacturing capacity in excess

of 100,000 liters by 2002.

Right: Biogen’s first manufacturing

operation outside the U.S. is a

packaging facility outside

Amsterdam that is responsible for

packaging AVONEX for distribution

in more than 50 countries.

R&D / Genomics

• More than 20 projects in the research pipeline • Research strategy targeted to more than 90 diseases in four key areas - fibrosis, neoplasia (oncology),

immunomodulation and neurodegeneration • Biomining as a discovery strategy • Strategy focuses on diseases of unmet need and commercial potential

Michael Gilman, Ph.D., is Vice President, Research

Q: Let’s look a little furtherinto the future. What’s inresearch phases behind Biogen’sdevelopment pipeline?

Mike Gilman: We are workinghard in Research to keep theclinical development pipeline full.We are running 20 programsin Research right now – mostfocused on specific molecules thatwe will bring forward fordevelopment, as well as severalexploratory programs designed toidentify new candidate moleculesfor us to work on. Our strategy inResearch is now very crisplyfocused on four key biologies orpathologies that underlie diseasesof strong commercial interest tothe company. These are immuno-modulation, neoplasia (oncology),fibrosis and neurodegeneration.

We have strong scientificleadership in each of the focusareas, and you can see this fromthe quality of the programs we’renow running.

Q: With the genomics revolution,there has been a paradigm shiftin the way drugs are discoveredand developed. How is Biogencapitalizing on this?

Gilman: The completion of themapping of the human genome isa profoundly important event formankind, and it will change ourlives in ways we cannot imagine.It provides an immediate driverfor change in how drugs arediscovered. The good news forBiogen is that it puts a strongerpremium than ever on experi-mental biology, which is ourunparalleled strength. Over thepast two years, we’ve workedhard to complement our depth inbiological research with a state-of-the-art genomics andbioinformatics infrastructure.And I think we’ve done a greatjob of that.

The challenge now is how to useall this new information todevelop breakthrough therapiesfor disease. There are basicallytwo different approaches you cantake. We call them “push” and“pull.” A lot of companies are nowusing a gene push strategy –working from the long list ofgenes the genome project hasgiven us and trying to “push”those genes into one or anothertherapeutic area. Sometimes youget there, sometimes you don’t.But we already know what areaswe are interested in – our fourfocus areas – so we think it ismuch more efficient to “pull”genes out of these biologicalsystems that match a specifichypothesis, test that hypothesisas quickly as possible and then,whatever the answer, move on.

With our enviable expertise inbiology and a genomics toolkit asgood as anyone has, we thinkBiogen is perfectly positioned toexploit this new golden age ofbiology and to deliver a steadystream of high-quality drugcandidates into the clinicaldevelopment pipeline.

B I O G E N - 21 -

Biogen’s research strategy is

focused on four key biologies that

underlie diseases of considerable

commercial interest to the

company – immunomodulation,

oncology, fibrosis and

neurodegeneration. Biogen is

harnessing the discoveries of the

genome to “pull” genes out of

biological systems that correspond

to these focus areas.

Defining the Future

• Financial discipline and financial strength • Making key strategic investments for the future – manufacturing and commercial infrastructure

• Attractive growth story • Excellent profit margins • Positive cash flow • Negligible debt • Significant amount of cash

Peter Kellogg is Vice President, Finance and CFOJim Mullen is President and CEO

Q: 2000 was a wild year in thestock market for the biotechs.With that behind us, how well isBiogen’s stock positioned as aninvestment today?

Peter Kellogg: At the beginning oflast year, the financial marketswere buzzing over the excitementof genomics and the discovery ofthe human genome. And, indeed,we are entering a breakthroughperiod for drug discovery anddevelopment. But, as has beenthe case with many technologybreakthroughs, investors evolveto searching for who the winnerswill be, and this drives a refinedview of success.

The gene data is now available,and the challenge now is defininga gene’s function and matching itto known biologic systems.Accordingly, investors are nowasking the tougher questions:Which companies can leveragethe genomic data? Who canconvert this newfound knowledgeinto successful products? Whocan commercialize theseproducts globally?

This is where Biogen has atremendous advantage, a proventrack record, and becomes a greatinvestment opportunity. We’vemade great progress in building agrowth formula.

Our research strategy involvestapping the genomics knowledgebase and applying the latesttechnologies to drive productivity,which should bring at least threenew clinical candidates in both2001 and 2002.

The late-stage pipeline has beenenhanced with the completion ofPhase III AMEVIVE trials andsuccessful Phase II results withANTEGREN. Both are productsthat could equal or exceedAVONEX in sales.

AVONEX market share hasstabilized and we have justcompleted several successfultrials reconfirming its outstandingefficacy, which, combined with astrong sales and marketinginvestment, should continue todrive momentum in 2001.

Finally, Biogen has operated withstrategic foresight. Our strong

financial position has allowed usto invest ahead in manufacturingcapacity, which will be scarce inour industry for years to come,and global commercial infra-structure, eliminating some of thebarriers to commercialization thatour competitors will face.

All of this is adding up to acompelling growth story forBiogen. I’m very bullish aboutBiogen’s prospects.

Q: It’s clear that you’re buildinga dynamic vision for Biogen.With some of the changesdiscussed here, how far alongare you in ‘Defining the Future’at Biogen?

Jim Mullen: Well, Jim Vincent’snote highlighted our strong senseof change at Biogen. I’m honoredand excited to be the CEO, but thechanges at Biogen are far moresweeping than one person. A bigpart of ‘Defining the Future’ isbuilding the organization totake us there.

Our management team hasseveral new members. Over thepast two years, we haveappointed a new CFO, CIO andnew Vice Presidents of Manufac-turing , Sales & Marketing andResearch, among several others.This team is already having atremendous impact. Throughoutthe organization, we have built

outstanding capability in criticalareas such as bioinformatics,product development and clinicalmanagement. I’m very proud ofthe progress we have made andbelieve that this organization isready for the growth ahead.

At Biogen, we’re ‘Defining theFuture’ through:

• World-class research thatleverages the genomicsrevolution, and can win theensuing race for biologic solutionsand biopharmaceutical products.

• Patient-focused solutions,developing drugs to address thecritical unmet medical needs ofpatients with serious and chroniclife-affecting diseases.

• Unparalleled commercialstrengths coupled with thecapability and capacity to developand manufacture drugs faster andmore efficiently than ever.

Biogen is now poised to takethe next major steps towardbecoming a global, multi-productcompany. We are a motivatedorganization driving change.

Biogen is well on the way to‘Defining the Future’ andbuilding one of the most dynamicbiotechnology companies ofthis decade.

B I O G E N - 23 -

Left/Right: Biogen’s excellence in

molecular biology brought the

company to its position of

leadership in today’s biopharma-

ceutical industry – and embodies

the company’s strategy for

the future.

Top: Biogen has direct operations

in the U.S., Canada, 13 European

countries and Japan, with active

distributor relationships in more

than 50 other countries. Direct

operations came on line in Japan in

2001. Japan is the world’s

third largest pharmaceutical

market and represents an

important opportunity. Biogen

will commercialize, register

and market its drugs there.

Center: CEO Jim Mullen and Toshio

Nakata, President, Biogen Japan,

meet in Biogen’s Tokyo offices.

B I O G E N - 25 -

Biogen, Inc. and Subsidiaries

26 Selected Financial Data27 Management’s Discussion and Analysis of Financial Condition and Results of Operations36 Consolidated Statements of Income37 Consolidated Balance Sheets38 Consolidated Statements of Cash Flows39 Consolidated Statements of Shareholders’ Equity40 Notes to Consolidated Financial Statements55 Report of Independent Accountants56 Senior Executives and Board Members57 Shareholder Information58 Biogen, Inc. and Subsidiaries

FinancialsBiogen, Inc. and Subsidiaries

- 26 - B I O G E N

Selected Financial DataBiogen, Inc. and Subsidiaries

(in thousands, except per share amounts)

Years Ended December 31, 2000 1999 1998 1997 1996

Product revenue $ 761,079 $ 620,636 $ 394,863 $ 239,988 $ 78,202Royalty revenue 165,373 173,799 162,724 171,921 181,502Total revenues 926,452 794,435 557,587 411,909 259,704Total costs and expenses 598,096 478,184 366,948 285,787 234,541Income before income taxes 487,105 329,016 210,193 148,968 40,829Net income 333,577 220,450 138,697 89,167 40,530Diluted earnings per share 2.16 1.40 0.90 0.58 0.28Cash, cash equivalents and short-

term marketable securities 682,412 654,539 516,914 440,088 321,381Total assets 1,431,856 1,277,973 924,715 813,825 634,572Long-term debt, less current portion 47,185 52,073 56,960 61,846 62,254Shareholders’ equity 1,106,402 979,530 718,613 536,293 484,370Shares used in calculating diluted earnings per share 154,602 157,788 154,270 152,999 146,442

B I O G E N - 27 -

Management’s Discussion and Analysis of Financial Condition and Results of OperationsBiogen, Inc. and Subsidiaries

OverviewBiogen, Inc. (the “Company” or “Biogen”) is a biopharmaceutical company principally engaged in the business of developing,

manufacturing and marketing drugs for human health care. The Company currently derives revenues from sales of its AVONEX® (Interferonbeta-1a) product for the treatment of relapsing forms of multiple sclerosis (“MS”). The Company also derives revenue from royalties onworldwide sales by the Company’s licensees of a number of products covered under patents controlled by the Company, including alphainterferon and hepatitis B vaccines and diagnostic products.

Results of Operations 2000 As Compared to 1999

RevenuesTotal revenues in 2000 were $926.5 million, as compared to $794.4 million in 1999, an increase of $132.1 million or

approximately 17%.Product sales in 2000 were $761.1 million as compared to $620.6 million in 1999, an increase of $140.5 million or approximately

23%. Product sales from AVONEX® represent approximately 82% of the Company’s total revenues in 2000 as compared to 78% in 1999.The growth in 2000 was primarily attributable to an increase in the sales volume of AVONEX® in the United States and in the fifteenmember countries of the European Union (“EU”). AVONEX® sales outside of the United States were approximately $208.5 million in 2000as compared to $178.4 million in 1999.

Revenues from royalties in 2000 were $165.4 million, a decrease of $8.4 million or approximately 5% as compared to $173.8 millionof royalty revenue in 1999. Revenues from royalties represented approximately 18% of total revenues in 2000 as compared to 22% in1999. The decrease in royalty revenues in 2000 over the comparable period in 1999 is primarily the result of reductions attributable topatent expirations and lower licensee sales. See “Outlook – Royalty Revenue” and “Outlook – Patents and Other Proprietary Rights”.

In the near and long term, the Company expects to experience declining royalty revenues as a result of patent expirations, other patent-related events and a potential decrease in sales by licensees of licensed products. In the near term, Biogen’s royalty revenues may also besignificantly affected as a result of a dispute with Schering-Plough Corporation (“Schering-Plough”) over twelve to eighteen months ofroyalties payable by Schering-Plough on U.S. sales of its alpha interferon products, including INTRON® A. See “Outlook – RoyaltyRevenue.” In addition, sales levels of products sold by the Company’s licensees may fluctuate from quarter to quarter due to the timingand extent of major events such as new indication approvals or government sponsored programs. For a discussion of some of the factorsthat may affect royalty revenues in the future, see “Outlook – Royalty Revenue” and “Outlook – Patents and Other Proprietary Rights”. TheCompany expects product sales as a percentage of total revenues to continue to increase in the near and long term as the Companycontinues to market AVONEX® worldwide, and as royalty revenues continue to decline, the Company also expects sales from AVONEX®

outside the United States to continue to increase as a percentage of total product sales. The Company, however, expects to face increasingcompetition in the MS marketplace in and outside the United States from existing and new MS treatments that may impact sales ofAVONEX®. See “Outlook – Competition”.

Costs and expensesTotal costs and expenses in 2000 were $598.1 million as compared to $478.2 million in 1999, an increase of approximately 25%.Cost of revenues in 2000 totaled $125.2 million, an increase of $14.2 million or 13% as compared to 1999. The increase in cost of

revenues was attributable to the higher sales volume of AVONEX®. Included in cost of revenues in 2000 and 1999 is $112.9 million and$96.9 million, respectively, from product sales and $12.3 million and $14.1 million, respectively, relating to royalty revenue. Grossmargins on product sales increased to approximately 85% for the period ended December 31, 2000 compared to 84% for the sameperiod in 1999. Gross margins on royalty revenue increased to approximately 93% for the period ended December 31, 2000 compared to92% for the same period in 1999. The Company expects that gross margins on royalty revenue will fluctuate in the future based onchanges in sales volumes for specific products.

Research and development expenses in 2000 were $302.8 million, an increase of $81.6 million or 37% as compared to $221.2million in 1999. The increase was primarily due to an increase in clinical trial costs of $35.9 million, the costs associated with an increasein the Company’s other development efforts related to its ongoing research and development programs of $14 million and the funding ofcollaboration agreements of $12.4 million. The Company expects that, in the near and long-term, research and development expenseswill increase as the Company continues to expand its development efforts with respect to new products, conducts clinical trials of theseproducts and continues work on new formulations and delivery methods for AVONEX®.

Selling, general and administrative expenses in 2000 were $170.1 million, an increase of $24.1 million or 17% as compared to 1999.This increase was primarily due to an increase in selling and marketing expenses related to the sale of AVONEX®. The Company expects

- 28 - B I O G E N

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Biogen, Inc. and Subsidiaries

that selling, general and administrative expenses will continue to increase in the near term as the Company continues to expand its salesand marketing organizations necessary to sell AVONEX® worldwide and as the Company expands in anticipation of additional products.

Other income, netOther income, net consists of interest income, partially offset by interest expenses and other non-operating income and expenses. Other

income, net in 2000 was $158.7 million as compared to $12.8 million in 1999, an increase of $145.9 million. Interest income in 2000was $43 million compared $35.4 million in 1999, an increase of $7.6 million or 21% due to higher average yields and an increase infunds invested. The Company expects interest income to vary based on changes in the amount of funds invested and fluctuations ininterest rates. Interest expense decreased $0.3 million or 7% in 2000 from 1999. Other income (expense) increased by $138.1 million in2000 from 1999. Other income (expense) for the period ended December 31, 2000 included gains on the sale of certain non-currentmarketable securities totaling approximately $101.1 million. Additionally, the Company realized gains of approximately $24.1 millionupon the acquisition of two of its investees by third parties. Other income (expense) for the period ended December 31, 1999 included a$15 million write-down of certain non-current marketable securities.

Other income, net consists of the following (in thousands):

December 31, 2000 1999

Interest income $ 42,965 $ 35,407Interest expense (4,310) (4,639)Other income (expense) 120,094 (18,003)

Total other income, net $ 158,749 $ 12,765

Income taxesThe Company’s effective tax rate in 2000 was 31.5%. Income tax expense for 2000 varied from the amount computed at the U.S.

federal statutory rates primarily due to higher sales in European jurisdictions with lower tax rates and to the utilization of research anddevelopment tax credits. The Company’s effective tax rate outside the U.S. is lower than the U.S. tax rate, and the Company expects thatthe U.S. tax rate will decline as a percentage of its total tax rate as international sales increase.

Results of Operations 1999 As Compared to 1998

RevenuesTotal revenues in 1999 were $794.4 million, as compared to $557.6 million in 1998, an increase of $236.8 million or approximately

42%.Product sales in 1999 were $620.6 million as compared to $394.9 million in 1998, an increase of $225.7 million or approximately

57%. Product sales from AVONEX® represent approximately 78% of the Company’s total revenues in 1999 as compared to 71% in 1998.The growth in 1999 was primarily attributable to an increase in the sales volume of AVONEX® in the United States and in the fifteenmember countries of the European Union (“EU”). AVONEX® sales outside of the United States were approximately $178.4 million in 1999as compared to $92 million in 1998.

Revenues from royalties in 1999 were $173.8 million, an increase of $11.1 million or approximately 7% as compared to $162.7million of royalty revenue in 1998. Revenues from royalties represented approximately 22% of total revenues in 1999 as compared to29% in 1998. The increase in royalty revenues in 1999 over the comparable period in 1998 is primarily the result of royalties received onincreased sales of alpha interferon.

Costs and expensesTotal costs and expenses in 1999 were $478.2 million as compared to $366.9 million in 1998, an increase of approximately 30%.Cost of revenues in 1999 totaled $111 million, an increase of $36.5 million or 49% as compared to 1998. The increase in cost of

revenues was attributable to the higher sales volume of AVONEX®. Included in cost of revenues in 1999 and 1998 is $96.9 million and$62.1 million, respectively, from product sales and $14.1 million and $12.4 million, respectively, relating to royalty revenue. Grossmargins on product sales remained constant at approximately 84% for the period ended December 31, 1999 compared to the sameperiod in 1998. Gross margins on royalty revenue remained constant at approximately 92% for the period ended December 31, 1999compared to the same period in 1998.

Research and development expenses in 1999 were $221.2 million, an increase of $44 million or 25% as compared to$177.2 million in 1998. The increase was primarily due to an increase in clinical trial costs, the costs associated with an

B I O G E N - 29 -

increase in the Company’s other development efforts related to its ongoing research and development programs and the fundingof collaboration agreements.

Selling, general and administrative expenses in 1999 were $146 million, an increase of $30.8 million or 27% as compared to 1998.This increase was primarily due to an increase in selling and marketing expenses related to the sale of AVONEX®.

Other income, netOther income, net consists primarily of interest income, partially offset by interest expenses and other non-operating income and

expenses. Other income, net in 1999 was $12.8 million as compared to $19.6 million in 1998, a decrease of $6.8 million orapproximately 35%. Interest income in 1999 was $35.4 million compared to $28.3 million in 1998, an increase of $7.1 million or 25%due to an increase in funds invested. Interest expense decreased $1.3 million or 22% in 1999 from 1998. Other expense increased by$15.2 million in 1999 from 1998, due primarily to a $15 million write-down related to certain non-current marketable securities in thesecond quarter of 1999.

As part of its strategic product development efforts, the Company invests in equity securities of certain biotechnology companies withwhich it has collaborative agreements. In December of 1996, Biogen purchased approximately 1.5 million shares of CreativeBioMolecules, Inc. common stock for $18 million. In March of 1997, Biogen purchased approximately 670,000 shares of CVTherapeutics, Inc. common stock for $7 million. In March of 1998, the Company purchased approximately 435,000 shares of CuraGencommon stock for $5 million and converted 100,000 shares of CuraGen Series E Preferred Stock valued at $1 million to CuraGencommon stock. Each of these small emerging companies is principally engaged in researching, developing or manufacturing drugs forhuman health care.

As a matter of policy, Biogen determines on a quarterly basis whether a decline in the fair value of a marketable security is other thantemporary. Unrealized gains and losses on marketable securities are included in other comprehensive income in shareholders’ equity, netof related tax effects. If a decline in the fair value of a marketable security below the Company’s cost basis is determined to be other thantemporary, such marketable security is written down to its estimated fair value with a charge to current earnings.

Up through and including the assessment at June 30, 1999, the Company concluded that substantial evidence existed suggesting thatthe value of the investments described above would recover to at least the Company’s purchase price. Such evidence included theprospects for favorable clinical trial results, new product initiatives and new collaborative agreements. However, given the lack of anysubstantial price recovery during the quarter ended June 30, 1999, and the amount of time elapsed since the decline in value began, theCompany concluded that it had become unclear over what period such price recovery would take place. As a result, it was determined thatthe positive evidence suggesting that the investments would recover to at least the Company’s purchase price was not sufficient toovercome the presumption that the current market price of the investments was the best indicator of value at June 30, 1999. Accordingly,the related unrealized losses of approximately $15 million were recognized as other expense in the second quarter of 1999.

Income taxesThe Company’s effective tax rate in 1999 was 33%. Income tax expense for 1999 varied from the amount computed at the U.S. federal

statutory rates primarily due to increased European sales and to the utilization of research and development tax credits. The Company’seffective tax rate outside the U.S. is lower than the U.S. tax rate.

Financial ConditionAt December 31, 2000, cash, cash equivalents and short-term marketable securities were $682.4 million compared with $654.5

million at December 31, 1999, an increase of $27.9 million. Working capital decreased $12.7 million to $707.3 million. Net cash fromoperating activities for the year ended December 31, 2000 was $365.9 million compared with $363.6 million in 1999. Cash outflowsfrom investing activities during 2000 included investments in property and equipment and patents of $199.1 million and investments incollaborative partners of $5 million. Net cash inflows from investing activities related to marketable securities was $99.1 million.Significant cash outflows from financing activities included $300.2 million for purchases of the Company’s common stock under its stockrepurchase program and $4.9 million for repayments on loan agreements with banks. Cash inflows from financing activities included $36million from common stock option exercises and employee stock purchase plan activity.

In August 1995, the Company entered into a loan agreement with a bank for financing the construction of its biological manufacturingfacility in North Carolina (the “Construction Loan”). During 1997, the Company completed construction of the facility and the fundsadvanced under the Construction Loan were converted to a floating rate ten-year term loan with principal and interest payable quarterly.As of December 31, 2000, the Company had $36.2 million outstanding under the Construction Loan. The Construction Loan is securedby the underlying building. The Company also entered into an interest rate swap agreement with the same bank, fixing its interest rate on

- 30 - B I O G E N


the Construction Loan at 7.75% during the remaining term of the loan with interest payable quarterly. In addition, as of December 31,2000, the Company had $15.8 million outstanding under a floating rate loan with a bank (the “Term Loan”). The Term Loan is secured bythe Company’s laboratory and office building in Cambridge, Massachusetts. The Company has fixed its interest rate on the Term Loan at7.5% under the terms of an interest rate swap agreement. Terms of the Company’s loan agreements include various covenants, includingfinancial covenants which require the Company to maintain minimum net worth, cash flow and various financial ratios.

On December 18, 2000, the Company announced that its Board of Directors had authorized the repurchase of up to 4 million shares ofthe Company’s common stock. The repurchased stock will provide the Company with treasury shares for general corporate purposes, suchas stock to be issued under employee stock option and stock purchase plans. Stock purchases are expected to occur from time to timethrough 2001. The stock repurchase program may be discontinued at any time. In November of 2000, the Company completed aprevious stock repurchase program. During 2000, the Company repurchased approximately 4.6 million shares of its common stock underthis program at a cost of $300.2 million.

On October 4, 1999, the Company began construction of its new research and development center in Cambridge, Massachusetts. Thenew 224,000 square foot building is expected to be completed in the spring of 2001 at a total cost of approximately $95 million, of which$81.4 million had been committed at December 31, 2000. Additionally, the Company is completing plans to build a large scalemanufacturing plant in Raleigh, North Carolina. The Company expects that construction will be completed at the end of 2001 at a totalcost of approximately $175 million of which $141.9 million had been committed at December 31, 2000.

In September 2000, the Company signed a research and development agreement (the “Eos Agreement”) with Eos Biotechnology, Inc.(“Eos”), under which the Company and Eos will collaborate in the research and development of novel targets for antibody and proteintherapeutics in the area of breast cancer. Under the Eos Agreement, the Company purchased 1.9 million shares of preferred stock of Eosfor $5 million. In addition, the Company paid a one-time, non-refundable license fee of $6 million, which was charged to research anddevelopment expense and acquired certain exclusive, worldwide rights related to breast cancer-specific molecules for the use in thedevelopment of new antibody and secreted protein therapeutics. The Company accounts for its investment in Eos, which is included inother assets, using the cost method of accounting. The Company provided Eos with research and development funding of $250,000 in2000. The Company expects to fund research activities of Eos related to the collaboration of up to $1.5 million in 2001.

In August 2000, the Company signed a development and marketing collaboration agreement (the “Antegren Agreement”) with ElanCorporation, plc (“Elan”) under which the Company and Elan collaborate in the development, manufacture and commercialization ofANTEGREN®, a humanized monoclonal antibody and alpha 4 integrin inhibitor. Under the terms of the Antegren Agreement, Biogen andElan will share costs for on-going development activities. The Company paid a one-time, non-refundable license fee of $15 million, whichwas charged to research and development expense.

In October 1997, the Company signed a research and option agreement (the “CuraGen Agreement”) with CuraGen Corporation(“CuraGen”) under which the Company and CuraGen collaborate in the discovery of novel genes using CuraGen’s functional genomicstechnologies. The Company provided CuraGen with research and development funding of $1.5 million, $1.1 million and $1.9 million in2000, 1999 and 1998, respectively. The Curagen Agreement was terminated in September 2000 and all investments in CuraGencommon stock were sold during 2000.

In March 1997, the Company signed a research collaboration and license agreement (the “CVT Agreement”) with CV Therapeutics,Inc. (“CVT”) under which Biogen obtained rights under CVT’s patents and know-how to develop and market molecules that act as highlyselective antagonists of the adenosine A1 receptor, for the treatment of congestive heart failure. Under the terms of the CVT Agreement, theCompany purchased approximately 670,000 shares of CVT common stock at the then fair value for $7 million and paid a one-timelicense fee of $5 million, which was charged to research and development expense. The investment in CVT is classified as available-for-sale and is included in long-term marketable securities. At December 31, 2000 the Company retained approximately 670,000 shares ofCVT common stock.

In December 1996, the Company signed a research collaboration and license agreement (the “CBM Agreement”) with CreativeBioMolecules, Inc. (“CBM”) under which Biogen obtained rights to develop and market CBM’s morphogenic protein, OP-1, for thetreatment of renal disorders. Under the CBM Agreement, the Company purchased 1.5 million shares of CBM common stock for $18million. The payment for the common stock included a $1.2 million premium over the fair value of the common stock which was chargedto research and development expense. The Company provided $10 million in research and development funding, which was charged toexpense as provided in 1998. The CBM Agreement terminated at the end of 1999 and all investments in CBM common stock were soldduring 2000.

In July 1996, the Company signed a collaborative research and commercialization agreement (the “Ontogeny Agreement”) withOntogeny, Inc. (“Ontogeny”), a private biotechnology company, for the development and commercialization of three specific hedgehog cellproteins, a class of novel human proteins, that are responsible for reducing the formation or regeneration of tissue. Under the Ontogeny

B I O G E N - 31 -

Agreement, the Company purchased 400,000 shares of preferred stock of Ontogeny for $1 million and acquired certain exclusive,worldwide rights related to products based on the hedgehog proteins for most disease areas. In November 1998, the Company extendedand expanded its collaboration with Ontogeny and provided to Ontogeny a $4 million convertible loan. In June 1999, the loan wasconverted into 800,000 shares of Ontogeny Convertible Preferred Stock. The Ontogeny Agreement was terminated in July 2000. InAugust 2000, Ontogeny merged with two other biotechnology companies to form Curis Inc. (“Curis”). As a shareholder in Ontogeny,Biogen received Curis common stock in exchange for the Company’s shares in Ontogeny. The Company provided $1 million, $2.8 millionand $3.6 million of research funding to Ontogeny in 2000, 1999 and 1998, respectively. Additionally, the Company provided $1.5million upon conclusion of the Ontogeny Agreement, which was charged to research and development expense. At December 31, 2000the investment in Curis is classified as available-for-sale and is included in long-term marketable securities. At December 31, 2000 theCompany retained approximately 308,000 shares of Curis common stock.

In August 1995, the Company signed a collaborative research agreement (the “Genovo Agreement”) for the development of humangene therapy treatments with Genovo, Inc. (“Genovo”), a gene therapy research company. Under the Genovo Agreement, the Companyacquired 380,000 shares of Genovo Series A Preferred Stock for $4.5 million and acquired certain licensing rights. The Companyaccounted for this investment, which was included in other assets, using the equity method of accounting. The Company recorded itsproportion of Genovo’s net losses as research and development expense in the amounts of $3.9 million, $7.6 million, and $9 million in2000, 1999, and 1998, respectively. In August 2000, Genovo entered into a merger agreement (“Targeted Merger Agreement”) withTargeted Genetics Corporation (“Targeted”). As a shareholder in Genovo, Biogen received Targeted common stock in exchange for theCompany’s shares in Genovo. Additionally, concurrently with the Targeted Merger Agreement, the Company entered into a developmentand marketing agreement and a funding agreement (the “Targeted Agreements”) for gene therapy research and development in oncology.The Targeted Agreements provide for a $10 million credit facility. Targeted also has an option to sell to the Company an additional $10million of Targeted common stock at fair value. As of December 31, 2000, there were no borrowings outstanding under the credit facilityand the Company provided $250,000 in research funding to Targeted in 2000.

The Company believes that existing funds and cash generated from operations are adequate to satisfy its working capital and capitalexpenditure requirements in the foreseeable future. However, the Company may raise additional capital to take advantage of favorableconditions in the market or in connection with the Company’s development activities.

Legal MattersOn July 3, 1996, Berlex Laboratories, Inc. (“Berlex”) filed suit against Biogen in the United States District Court for the District of New

Jersey alleging infringement by Biogen of Berlex’s “McCormick” patent (U.S. Patent No. 5,376,567) in the United States in theproduction of Biogen’s AVONEX® (Interferon beta-1a) product. In November 1996, Berlex’s New Jersey action was transferred to theUnited States District Court in Massachusetts and consolidated for pre-trial purposes with a related declaratory judgment actionpreviously filed by Biogen. On August 18, 1998, Berlex filed a second suit against Biogen alleging infringement by Biogen of a patentwhich was issued to Berlex in August 1998 and which is related to the McCormick patent (U.S. Patent No. 5,795,779). On September23, 1998, the cases were consolidated for pre-trial and trial purposes. Berlex sought a judgment granting it damages, a trebling of anydamages awarded and a permanent injunction restraining Biogen from the alleged infringement. A hearing on the parties’ summaryjudgment motions in the case was completed in March 2000. In September 2000, the District Court rendered final judgment in favor ofBiogen and against Berlex determining that Biogen’s production of AVONEX® did not infringe any of the claims of the Berlex patents. Berlexhas appealed this decision with the Court of Appeals for the Federal Circuit and the parties are in the process of briefing the appeal for oralargument. An unfavorable ruling on appeal would result in the case being remanded to the District Court for trial. If Berlex were to besuccessful in its appeal and the case were remanded, an unfavorable ruling in the remanded case could have a material adverse effect onthe Company’s results of operations and financial position. The Company believes that the decision of the District Court that Biogen doesnot infringe the Berlex patents is sound, but the ultimate outcome of the appeal is not currently determinable. As a result, an estimate ofany potential loss or range of loss cannot be made at this time.

In 1995, the Company filed an opposition with the Opposition Division of the European Patent Office to oppose a European patent (the“Rentschler I Patent”) issued to Dr. Rentschler Biotechnologie GmbH (“Rentschler”) relating to compositions of matter of beta interferon.In 1997, the European Patent Office issued a decision to revoke the Rentschler I Patent. Rentschler appealed that decision and an oralhearing on the appeal took place in December 2000. At the oral hearing in order to gain reinstatement of the patent, Rentschler narrowedthe patent claims so as to claim only a specific cell line. Biogen does not use the specific cell line now claimed. On October 13, 1998, theCompany filed another opposition with the Opposition Division of the European Patent Office to oppose a second European patent issuedto Rentschler (the “Rentschler II Patent”) with certain claims regarding compositions of matter of beta interferon with specific regard to thestructure of the glycosylated molecule. A hearing on the Company’s opposition previously scheduled for October 2000 has been

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postponed, and will likely be held in 2001. While Biogen believes that the Rentschler II Patent will be revoked and that the revocation ofthe Rentschler I Patent will be upheld on appeal, if either the Rentschler I Patent or the Rentschler II Patent were to be upheld and ifRentschler were to obtain, through legal proceedings, a determination that the Company’s sale of AVONEX® in Europe infringes a validRentschler patent, such result could have a material adverse effect on the Company’s results of operation and financial position.

New Accounting PronouncementIn December 1999, the United States Securities and Exchange Commission issued Staff Accounting Bulletin 101, “Revenue

Recognition in Financial Statements” (“SAB 101”). SAB 101 provides the staff’s views in applying generally accepted accountingprinciples to selected revenue recognition issues, as well as examples of how the staff applies revenue recognition guidance to specificcircumstances. The Company adopted SAB 101 in 2000. Adoption of SAB 101 did not have a material effect on the Company’s financialposition and results of operations.

Outlook

Safe Harbor Statement under Private Securities Litigation Reform Act of 1996In addition to historical information, this annual report contains forward-looking statements that involve risks and uncertainties that

could cause actual results to differ materially from those reflected in such forward-looking statements. Reference is made in particular toforward-looking statements regarding the anticipated level of future product sales, royalty revenues, expenses and profits, statementsregarding the timing of clinical trials, statements regarding the potential outcome of clinical programs, the marketing of additionalproducts and predictions as to the anticipated outcome of pending or anticipated litigation, arbitration and patent-related proceedings andthe Company’s expectations as to the value of its investments in certain marketable securities. These and all other forward-lookingstatements are made based on the Company’s current belief as to the outcome and timing of such future events. Factors which couldcause actual results to differ from the Company’s expectations and which could negatively impact the Company’s financial condition andresults of operations are discussed below.

Dependence on AVONEX® SalesThe Company’s ability to sustain increases in revenues and profitability for the next several years will be primarily dependent on the

level of revenues and profitability from AVONEX® sales. The Company’s ability to sustain profitability from sales of AVONEX® will depend ona number of factors, including: continued market acceptance of AVONEX® worldwide; the Company’s ability to maintain a high level ofpatient satisfaction with AVONEX®; the nature of regulatory and pricing decisions related to AVONEX® worldwide; the extent to whichAVONEX® continues to receive reimbursement coverage; the impact of competitive products; and the impact of adverse decisions inpatent-related proceedings. The extent of the profitability from AVONEX® sales is also dependent on the successful resolution of the Berlexsuit, which is described above under “Legal Matters”.

CompetitionThe Company faces increasing competition from other products for the treatment of relapsing forms of MS. As a treatment for multiple

sclerosis, AVONEX® competes with interferon beta-1b which is sold in the United States under the brand name Betaseron® by BerlexLaboratories, a United States affiliate of Schering AG, and is sold in Europe under the brand name Betaferon® by Schering AG. AVONEX®

also faces competition from Copaxone® glatiramer acetate (also known as copolymer-1). In the United States, Copaxone® is marketed bya partnership between Teva Pharmaceutical Industries, Ltd. and Hoechst Marion Roussel, Inc. In most countries outside of the UnitedStates, AVONEX® also competes with Rebif®, a recombinant interferon beta-1a product sold by Serono. In response to an application fromSerono for approval of Rebif® in the United States for relapsing multiple sclerosis, the FDA, in March 1999, upheld its earlier ruling that,based on the data from existing clinical trials, Serono cannot market Rebif® in the United States for relapsing multiple sclerosis while theorphan drug status afforded to AVONEX® and Betaseron® for that indication is still in effect. AVONEX®’s orphan drug status for relapsingforms of the disease expires in 2003. The ruling by the FDA prompted Serono in 2000 to initiate a 12-month head-to-head study ofRebif® and AVONEX® to determine if Serono can show whether Rebif® is clinically superior to AVONEX®. If positive, Serono will most likelyuse the results of this study in its attempts to overcome the orphan drug status of AVONEX® and to get Rebif® approved before expiration ofAVONEX’s orphan drug status. Biogen expects Serono to release the results of the study in the third quarter of 2001. AVONEX® alsocompetes in the United States with Novantrone® (mitoxantrone for injection) which is produced and marketed by Immunex Corporation, amajority-owned subsidiary of American Home Products Corporation. Novantrone® is approved for use in patients with clinically worseningforms of relapsing-remitting and secondary progressive multiple sclerosis.

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A number of other companies are working to develop products to treat multiple sclerosis which may in the future compete with AVONEX®,the worldwide market leader among multiple sclerosis therapies. AVONEX® may also in the future face competition from off-label uses ofdrugs approved for other indications. Biogen believes that competition among treatments for multiple sclerosis will be based on productperformance, service and price.

Royalty RevenueThe Company receives royalty revenues which contribute to its overall profitability. The Company expects to continue to experience a

decline in royalty revenues as a result of patent expirations and other patent-related events in the range of up to approximately $10 millionper quarter for 2001 (not including amounts that are subject to a dispute with Schering-Plough as discussed below). See “Outlook – Patentsand Other Proprietary Rights.” The Company expects the most significant decline to be in the amount of royalties received from Schering-Plough on sales of INTRON® A as the result of patent expirations in the EU and Japan. The extent of the decline in royalties related to UnitedStates sales of INTRON® A will depend on the outcome of a dispute with Schering-Plough related to its royalty obligations. Schering-Ploughhas taken the position that a Court of Appeal’s decision affirming a District Court’s ruling which narrowed the scope of the claims of Biogen’sUnited States alpha interferon patent has caused the patent to no longer cover Schering-Plough’s alpha interferon products, and, that, as aresult, Schering-Plough no longer has an obligation to pay royalties under that patent. Until expiration of Biogen’s EU (Irish) patent inJanuary 2001, Schering-Plough continued to pay royalties on sales of product in the United States based on manufacture of the product inIreland. Biogen is currently in discussions with Schering-Plough to work to resolve the royalty issue and to resolve claims by Biogen related tounderpayment of royalties by Schering-Plough. In any event, commencing in July 2002, Schering-Plough is obligated to pay royalties onsales of its alpha interferon products in the U.S., including INTRON®A, during the term of a certain Roche/Genentech U.S. alpha interferonpatent right under an agreement between Biogen and Schering-Plough in connection with settlement of a lawsuit with Roche/Genentechrelated to the Roche/Genentech patent right. Biogen intends to vigorously oppose any attempt by Schering-Plough to discontinue payment ofroyalties. If the dispute with Schering-Plough results in arbitration and Schering-Plough were to prevail in the arbitration, the resultingdecline in royalties on United States sales of alpha interferon products could range up to approximately an additional $10 million per quarterin the eighteen month period.

There are a number of other factors which could also cause the actual level of royalty revenue to differ from the Company’s expectations.For example, pricing reforms, health care reform initiatives, other legal and regulatory developments and the introduction of competitiveproducts may have an impact on product sales by the Company’s licensees. In addition, sales levels of products sold by the Company’slicensees may fluctuate from quarter to quarter due to the timing and extent of major events such as new indication approvals or governmentsponsored programs. Since the Company is not involved in the development or sale of products by its licensees, the Company can not becertain of the timing or potential impact of factors which may affect sales by the Company’s licensees. In the long term, the Company expectsits royalty revenue to be affected most significantly by patent expirations and a potential decrease in sales by licensees of licensed products. See“Outlook - Patents and Other Proprietary Rights.”

Patents and Other Proprietary RightsThe Company has numerous issued patents and patent applications pending on a number of its processes and products. The Company

has also obtained rights to certain patents under licenses with third parties which provide for the payment of royalties. There can be noassurances that Biogen’s existing patents or others, if obtained, will be of substantial protection or commercial benefit to Biogen. In addition,it is not known to what extent Biogen’s pending patent applications or patent applications licensed from third parties will be granted orwhether any of the Company’s patents will prevail if they are challenged in litigation. There is also no assurance that third parties have not orwill not be granted patents claiming subject matter necessary to Biogen’s business.

Biogen has granted an exclusive worldwide license to Schering-Plough under Biogen’s alpha interferon patents. Schering-Plough’s royaltyobligation to Biogen on sales of Schering-Plough’s INTRON® A brand of alpha interferon in Japan and Europe terminated upon expiration ofBiogen’s alpha interferon patent in such territories in January 2001, except in France and Italy where Biogen has obtained supplementalprotection certificates extending the coverage in France until 2003 and in Italy until 2007. In 2000, a Court of Appeals decision affirmed aDistrict Court’s decision narrowing the scope of Biogen’s United States alpha interferon patents. For a discussion of a dispute with Schering-Plough over the implications of the decision on the amount of royalties owed to Biogen on sales of alpha interferon products in the UnitedStates, see “Outlook – Royalty Revenue”. In consideration of assignment to Schering-Plough by Biogen of a Biogen patent applicationclaiming recombinant mature human alpha interferon, Schering-Plough has agreed to pay to Biogen certain sums on sales by Schering-Plough of alpha interferon products in the United States from the date when Biogen’s existing United States alpha interferon patent expires(i.e. July 2002) until expiration of an alpha interferon patent expected to be issued to Hoffman-LaRoche Inc. (“Roche”) and Genentech, Inc.(“Genentech”). The Roche/Genentech patent was the subject of a lawsuit brought by Biogen which was ultimately settled. Schering-Ploughentered into an agreement with Roche as part of the settlement.

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Biogen has licensed its recombinant hepatitis B antigen patent rights to manufacturers and marketers of hepatitis B vaccines anddiagnostic test kits, and receives royalties on sales of the vaccines and test kits by its licensees. The obligation of GlaxoSmithKline plc andMerck & Co., Inc. to pay royalties on sales of hepatitis B vaccines and the obligation of Biogen’s other licensees under its hepatitis Bpatents to pay royalties on sales of diagnostic products will terminate upon expiration of Biogen’s existing hepatitis B patents. Biogen’sexisting United States hepatitis B patents will expire in 2004. Biogen’s European hepatitis B patents expired at the end of 1999, except inthose countries in which Biogen has or is able to obtain supplementary protection certificates. To date, Biogen has receivedsupplementary protection certificates in Austria, Belgium, France, Great Britain, Ireland, Italy, Luxembourg, The Netherlands, Sweden,and Switzerland, and has a number of granted or pending registrations of the Great Britain supplementary protection certificates in variousBritish Territories. The additional coverage afforded by the supplementary protection certificates, or related registrations, ranges from twoto eight years. There can be no assurance as to the extent of coverage available under the supplementary protection certificates, or thatprotection will be available in additional countries.

In 1994, Biogen granted Eli Lilly and Company (“Lilly”) a non-exclusive license under certain patents for gene expression. Under thelicense, Biogen has received royalties from Lilly since 1994 on products which use the patented vectors and methods. Based on a DistrictCourt’s claims construction decision in an infringement action brought by Biogen against Amgen, Inc. involving the same patents as arelicensed to Lilly, Lilly recently notified Biogen that Lilly believes that it no longer owes royalties to Biogen under the agreement on any of itsproducts.

There has been, and Biogen expects that there may continue to be significant litigation in the industry regarding patents and other intellectualproperty rights. Such litigation could create uncertainty and consume substantial resources. See also “Legal Matters”.

ProductsAVONEX® is currently the only product sold by the Company. The Company’s long-term viability and growth will depend on the

successful development and commercialization of other products from its research activities and collaborations. The Company continuesto expand its development efforts related to other potential products in its pipeline. The expansion of the pipeline may include increases inspending on internal projects, the acquisition of third-party technologies or products or other types of investments. Product developmentinvolves a high degree of risk. Only a small number of research and development programs result in the commercialization of a product.Success in preclinical and early clinical trials does not ensure that later stage or large scale clinical trials will be successful. Manyimportant factors affect the Company’s ability to successfully develop and commercialize drugs, including the ability to obtain andmaintain necessary patents and licenses, to demonstrate safety and efficacy of drug candidates at each stage of the clinical trial process,to overcome technical hurdles that may arise, to meet applicable regulatory standards and to receive required regulatory approvals, to becapable of producing drug candidates in commercial quantities at reasonable costs, to compete successfully against other products and tomarket products successfully. There can be no assurance that the Company will be successful in its efforts to develop and commercializenew products.

Market RiskThe Company has exposure to financial risk in several areas including changes in foreign exchange rates and interest rates. The

Company attempts to minimize its exposures by using certain financial instruments, for purposes other than trading, in accordance withthe Company’s overall risk management guidelines. Further information regarding the Company’s accounting policies for financialinstruments and disclosures of financial instruments can be found in Notes 1, 2 and 3 to the Company’s Consolidated FinancialStatements.

Foreign ExchangeThe Company has operations in several European countries in connection with the sale of its product AVONEX®. The Company also

receives royalty revenues based on worldwide product sales by its licensees. As a result, the Company’s financial position, results ofoperations and cash flows can be affected by fluctuations in foreign currency exchange rates (primarily the Euro, British pound, Japaneseyen and Canadian dollar).

The Company uses foreign currency forward contracts to manage foreign currency risk and does not engage in currency speculation.The Company uses these forward contracts to hedge certain forecasted transactions denominated in foreign currencies. A hypotheticaladverse 10% movement in foreign exchange rates compared to the U.S. dollar across all maturities would result in a hypothetical loss infair value of approximately $11 million. The Company’s use of this methodology to quantify the market risk of such instruments should notbe construed as an endorsement of its accuracy or the accuracy of the related assumptions. The quantitative information about market riskis necessarily limited because it does not take into account operating transactions.

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Interest RatesThe Company is exposed to risk of interest rate fluctuations in connection with its variable rate long-term debt. The Term Loan requires

annual principal payments of $1.7 million through 2004, with the balance due in 2005. The Construction Loan requires annual principalpayments of $3.2 million through 2006, with the balance due in 2007. At December 31, 2000, the carrying values of the Term Loan andthe Construction Loan approximated fair value.

The Company has fixed its interest rates on the Term Loan and Construction Loan by entering interest rate swap agreements underwhich the Company exchanges the difference between 7.5% and 7.75%, respectively, and a floating rate. The notional principal balanceson the interest rate swap agreements are exactly equal to the principal on the underlying debt agreements. All other relevant terms of theinterest rate swap agreements (including the index rate, reset period, etc.) exactly match the underlying loan agreements. The fair value ofthe interest rate swap agreements at December 31, 2000, representing the cash requirements of the Company to settle the agreements,was approximately $1.7 million. Terms of the Company’s loan agreements include various covenants, including financial covenants whichrequire the Company to maintain minimum net worth, cash flow and various financial ratios.

The fair value of the Company’s cash, cash equivalents, marketable securities, long-term debt and interest rate swap agreements aresubject to change as a result of potential changes in market interest rates. The potential change in fair value for interest rate sensitiveinstruments has been assessed on a hypothetical 100 basis point adverse movement across all maturities. The Company estimates thatsuch hypothetical adverse 100 basis point movement would not have materially impacted net income or materially affected the fair valueof interest rate sensitive instruments.

Stock PriceThe stock prices of biotechnology companies are subject to significant fluctuations. The stock price may be affected by a number of

factors including, but not limited to clinical trial results and other product development events, the outcome of litigation, the financialimpact of changes in the value of investments, including investments in other biotechnology companies, the decisions relating tointellectual property rights and the entrance of competitive products into the market, changes in reimbursement policies or other practicesrelated to the pharmaceutical industry or other industry and market changes or trends. In addition, if revenues or earnings in any quarterfail to meet the investment community’s expectations, there could be an immediate adverse impact on the Company’s stock price.

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Consolidated Statements of IncomeBiogen, Inc. and Subsidiaries

(in thousands, except per share amounts)

For the years ended December 31, 2000 1999 1998

Revenues:Product $ 761,079 $ 620,636 $ 394,863Royalties 165,373 173,799 162,724

Total revenues 926,452 794,435 557,587

Costs and expenses:Cost of revenues 125,198 111,005 74,509Research and development 302,840 221,153 177,228Selling, general & administrative 170,058 146,026 115,211

Total costs and expenses 598,096 478,184 366,948

Income from operations 328,356 316,251 190,639Other income, net 158,749 12,765 19,554

Income before income taxes 487,105 329,016 210,193Income taxes 153,528 108,566 71,496

Net Income $ 333,577 $ 220,450 $ 138,697

Basic earnings per share $ 2.24 $ 1.47 $ 0.94

Diluted earnings per share $ 2.16 $ 1.40 $ 0.90

Shares used in calculating:Basic earnings per share 148,743 149,921 147,537

Diluted earnings per share 154,602 157,788 154,270

See accompanying notes to consolidated financial statements.

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Consolidated Balance SheetsBiogen, Inc. and Subsidiaries

(in thousands, except share amounts)

As of December 31 2000 1999

AssetsCurrent assets

Cash and cash equivalents $ 48,737 $ 56,920Marketable securities 633,675 597,619Accounts receivable, less allowances of $2,436 and $1,642, respectively 143,178 137,363Deferred tax assets 40,047 50,565Other current assets 62,634 67,759

Total current assets 928,271 910,226

Property and equipment, net 400,429 239,777Patents 13,510 13,871Marketable securities 71,982 98,017Other assets 17,664 16,082

$ 1,431,856 $ 1,277,973

Liabilities and Shareholders’ EquityCurrent liabilities

Accounts payable $ 37,869 $ 30,125Current portion of long-term debt 4,888 4,888Accrued expenses and other 178,264 155,257

Total current liabilities 221,021 190,270

Long-term debt, less current portion 47,185 52,073Other long-term liabilities 57,248 56,100Commitments and contingencies — —

Shareholders’ equityCommon stock, par value $0.01 per share (375,000,000

shares authorized; 151,705,636 and 150,684,586shares issued in 2000 and 1999, respectively) 1,517 1,507

Additional paid-in capital 772,172 676,673Retained earnings 543,913 352,016Accumulated other comprehensive income 22,376 45,618Treasury stock, at cost, 3,882,979 and 669,651

shares in 2000 and 1999, respectively (233,576) (96,284)

Total shareholders’ equity 1,106,402 979,530

$ 1,431,856 $ 1,277,973


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Consolidated Statements of Cash FlowsBiogen, Inc. and Subsidiaries

(in thousands)

For the years ended December 31, 2000 1999 1998

Cash Flows from Operating ActivitiesNet Income $ 333,577 $ 220,450 $ 138,697Adjustments to reconcile net income to net cash provided from operating activitiesDepreciation and amortization 38,824 31,099 24,590Other (569) 5,162 (888)Deferred income taxes 25,203 (23,981) 7,486Gain on sale of non-current marketable securities (101,129) — —Tax benefit of stock options 81,023 91,295 19,595Write-down of non-current marketable securities — 15,287 —Changes in: Accounts receivable (5,815) (36,082) (14,479) Other current and other assets (35,329) (41,372) (25,638) Accounts payable, accrued expenses and other current and long-term liabilities 30,154 101,725 38,077

Net cash flows from operating activities 365,939 363,583 187,440

Cash Flows from Investing ActivitiesPurchases of marketable securities (627,168) (1,120,218) (574,021)Proceeds from sales and maturities of marketable securities 606,087 1,006,465 453,952Proceeds from sales of non-current marketable securities 120,199 — —Investment in collaborative partners (5,000) (10,000) (5,000)Acquisitions of property and equipment (194,402) (82,528) (29,049)Additions to patents (4,713) (3,799) (4,562)

Net cash flows from investing activities (104,997) (210,080) (158,680)

Cash Flows from Financing ActivitiesRepayments on note payable — — (24,817)Repayments on long-term debt (4,888) (4,887) (4,886)Purchases of treasury stock (300,192) (197,717) (65,550)Proceeds from put warrants — 22,086 —Issuance of common stock and option exercises 35,955 58,490 21,580

Net cash flows from financing activities (269,125) (122,028) (73,673)

Net increase (decrease) in cash and cash equivalents (8,183) 31,475 (44,913)Cash and cash equivalents, beginning of the year 56,920 25,445 70,358

Cash and cash equivalents, end of the year $ 48,737 $ 56,920 $ 25,445

Supplemental Cash Flow DataCash paid during the year for:

Interest $ 4,314 $ 4,598 $ 5,909Income taxes $ 42,683 $ 4,787 $ 35,828


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Consolidated Statements of Shareholders’ EquityBiogen, Inc. and Subsidiaries

AccumulatedAdditional Other Total

(in thousands) Common Paid-in Treasury Retained Comprehensive Shareholders’Stock Capital Stock Earnings Income Equity

Balance, December 31, 1997 $ 1,483 $ 516,138 $ (4,385) $ 25,327 $ (2,270) $ 536,293

Net income 138,697 138,697Unrealized gains/losses on marketable

securities, net of tax of $4,476 (7,072) (7,072)Unrealized gains/losses on interest

rate swaps, net of transition adjustment(see Note 1) (4,132) (4,132)

Translation adjustment 309 309

Total comprehensive income 127,802

Exercise of options and related tax benefits 19,745 48,618 (27,188) 41,175 Reclassification of put option obligation 76,671 76,671

Treasury stock purchased (65,550) (65,550) (65,550) Compensation expense related

to stock options 2,222 2,222

Balance, December 31, 1998 $ 1,483 $ 538,105 $ (21,317) $ 213,507 $ (13,165) $ 718,613


securities, net of tax of $25,013 48,555 48,555Unrealized gains/losses on foreign currency

forward contracts, net of tax of $2,490 6,654 6,654Unrealized gains/losses on interest

rate swaps, net of tax of $137 4,501 4,501Translation adjustment (927) ( 927)


Exercise of options and related tax benefits 24 108,952 122,750 (81,941) 149,785Proceeds from sale of put warrants 22,086 22,086Treasury stock purchased (197,717) (197,717)Compensation expense related

to stock options 7,530 7,530

Balance, December 31, 1999 $ 1,507 $ 676,673 $ (96,284) $ 352,016 $ 45,618 $ 979,530


securities, net of tax of $6,791 (16,152) (16,152)Unrealized gains/losses on foreign currency

forward contracts, net of tax of $1,686 (5,311) (5,311)Unrealized gains/losses on interest rate swaps,

net of tax of $789 (1,458) (1,458)Translation adjustment (321) ( 321)


Exercise of options and relatedtax benefits 10 95,748 162,900 (141,680) 116,978

Treasury stock purchased (300,192) (300,192)Compensation expense related

to stock options (249) (249)

Balance, December 31, 2000 $ 1,517 $ 772,172 $ (233,576) $ 543,913 $ 22,376 $1,106,402


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Notes to Consolidated Financial StatementsBiogen, Inc. and Subsidiaries

1. Summary of Significant Accounting Policies

BusinessBiogen, Inc. (“Biogen” or the “Company”) is a biopharmaceutical company principally engaged in the business of developing,

manufacturing and marketing drugs for human health care. The Company currently derives revenues from sales of its AVONEX®

(Interferon beta-la) product for the treatment of relapsing forms of multiple sclerosis and from royalties on worldwide sales by theCompany’s licensees of a number of products covered under patents controlled by the Company, including alpha interferon and hepatitisB vaccines and diagnostic products.

Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material

intercompany balances and transactions have been eliminated. Certain items in prior years’ financial statements have been reclassified toconform with the current year’s presentation.

Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make

estimates and use assumptions that affect certain reported amounts and disclosures; actual amounts may differ.

Translation of Foreign CurrenciesThe functional currency for most of the Company’s foreign subsidiaries is the local currency. Assets and liabilities are translated at

current rates of exchange. Income and expense items are translated at the average exchange rates for the year. Adjustments resultingfrom the translation of the financial statements of the Company’s foreign operations into U.S. dollars are excluded from the determinationof net income and are accumulated in a separate component of shareholders’ equity. The U.S. dollar is the functional currency for certainforeign subsidiaries. The Company’s subsidiaries which have the U.S. dollar as the functional currency are remeasured into U.S. dollarsusing current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets. Foreignexchange transaction gains and losses are included in the results of operations in other income, net. Foreign exchange gains totaled $2.8million, $2.5 million and $2.5 million in 2000, 1999, and 1998, respectively.

Cash and Cash EquivalentsThe Company considers only those investments which are highly liquid, readily convertible to cash and which mature within three

months from date of purchase to be cash equivalents.

Fair Value of Financial InstrumentsThe carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other current

assets, accounts payable, and accrued expenses and other approximate fair value due to the short-term maturities of these instruments.Marketable securities are carried at fair value based on quoted market prices, consistent with the requirements of Statement of FinancialAccounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. The fair values of trading securities,interest rate swaps, foreign currency forward contracts and options on non-marketable instruments are based on quoted market prices orpricing models using current market rates. The Company’s long-term debt approximates fair value based on dealer quotes.

InventoriesInventories are stated at the lower of cost or market with cost determined under the first-in/first-out (“FIFO”) method and are included

in other current assets. Included in inventory are raw materials used in the production of pre-clinical and clinical products which areexpensed as research and development costs when consumed. The components of inventories for the periods ending December 31, areas follows:

(in thousands) 2000 1999

Raw materials $ 7,775 $ 5,679Work in process 17,582 15,110Finished goods 14,172 19,242

$ 39,529 $ 40,031

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Marketable SecuritiesThe Company invests its excess cash balances in short-term marketable securities, principally corporate notes and government

securities. At December 31, 2000, substantially all of the Company’s securities were classified as “available-for-sale”. All available-for-sale securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensiveincome in shareholders’ equity, net of related tax effects. Realized gains and losses and declines in value, if any, judged to be other thantemporary on available-for-sale securities are reported in other income or expense.

As part of its strategic product development efforts, the Company also invests in equity securities of certain biotechnology companieswith which it has collaborative agreements. Such investments, which are included in long-term marketable securities and other assets,are classified as available-for-sale if a readily determinable market value exists. These investments are accounted for under the cost orequity method, depending on the facts and circumstances of the investment, and are reviewed regularly for impairment.

On a quarterly basis, as of the end of the quarter, the Company determines whether a decline in fair value of a marketable security isother than temporary. Unrealized gains and losses on marketable securities are included in other comprehensive income in shareholders’equity, net of related tax effects. If a decline in the fair value of a marketable security below the Company’s cost basis is determined to beother than temporary, such marketable security is written down to its estimated fair value with a charge to current earnings. TheCompany has concluded that all unrealized losses on marketable securities at December 31, 2000 are temporary in nature. TheCompany expects that the market value of such investments will recover to at least the Company’s cost basis within a reasonable periodof time. Should any portion of these unrealized losses subsequently be determined to be other than temporary, the Company would berequired to record the related amount as a charge to current earnings.

Property and EquipmentProperty and equipment is carried at cost, subject to review of impairment for significant assets whenever events or changes in

circumstances indicate that the carrying amount of the asset may not be recoverable. Depreciation is calculated on the straight-line basisover the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the useful life or the term of therespective lease. Maintenance of computer systems, including maintenance to make software Year 2000 compliant, is expensed asincurred. Buildings and equipment are depreciated over estimated useful lives ranging from 30 to 40 and 3 to 10 years, respectively. TheCompany capitalizes certain incremental costs associated with the validation effort required for licensing by the FDA of manufacturingequipment for the production of a commercially approved drug. These costs include primarily direct labor and material and are incurredin preparing the equipment for its intended use. Net capitalized validation costs were $4.3 million and $4.7 million at December 31,2000 and 1999, respectively. The validation costs are amortized over the life of the related equipment.

PatentsThe costs associated with successful patent defenses and patent applications are capitalized and amortized on a straight-line basis

over estimated useful lives up to 15 years. Accumulated amortization of patent costs was $25.2 million and $20.1million as of December 31, 2000 and 1999, respectively. The carrying value of patents is regularly reviewed by the Companyand impairments are recognized when the expected future operating cash flows derived from the patent are less than their carrying value.

Derivatives and Hedging ActivitiesOn June 15, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133,

“Accounting for Derivative Instruments and Hedging Activities”, (“SFAS 133”). The Company elected to adopt SFAS 133 in the fourthquarter of 1998. All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives arerecorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of ahedge transaction and, if it is, the type of hedge transaction. The Company assesses, both at its inception and on an on-going basis,whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in cash flows of hedged items.The Company assesses hedge ineffectiveness on a quarterly basis and records the gain or loss related to the ineffective portion to currentearnings to the extent significant. If the Company determines that a cash flow hedge is no longer probable of occurring, the Companydiscontinues hedge accounting for the affected portion of the forecasted transaction, and any unrealized gain or loss on the contract isrecognized in current earnings.

Comprehensive IncomeStatement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”, (“SFAS 130”) requires the display of

comprehensive income and its components as part of the Company’s full set of financial statements. Comprehensive income is

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Notes to Consolidated Financial Statements (continued)Biogen, Inc. and Subsidiaries

comprised of net income and other comprehensive income. Other comprehensive income includes certain changes in equity that areexcluded from net income, such as translation adjustments and unrealized holding gains and losses on available-for-sale marketablesecurities and certain derivative instruments, net of tax. The Consolidated Statements of Shareholders’ Equity reflect comprehensiveincome for years ended December 31, 2000, 1999 and 1998 which were $310.3 million, $279.2 million and $127.8 million,respectively.

Upon adoption of SFAS 133, on October 1, 1998, the Company recorded an adjustment to other comprehensive income to recognizeat fair value all derivatives that were designated as cash flow hedging instruments, which comprised unrealized losses related to theCompany’s interest rate swaps of $5.4 million. This unrealized loss decreased by $1.3 million during the fourth quarter of 1998 and asof December 31, 1998, the cumulative unrealized losses on the Company’s interest rate swaps were $4.1 million. During 1999, theCompany recorded $4.5 million of unrealized gains to other comprehensive income reflecting the increase in the fair value of the interestrate swaps and at December 31, 1999 had a cumulative unrealized gain of $366,000. During 2000, the Company recorded $1.5million of unrealized losses to other comprehensive income reflecting the decrease in the fair value of the interest rate swaps and atDecember 31, 2000 had a cumulative unrealized loss of $1.1 million.

The Company entered into foreign currency forward contracts in October 1998. At December 31, 1998, these contracts hadunrealized gains of $3,000, which were aggregated with the unrealized losses associated with the Company’s interest rateswaps in comprehensive income. During 1999, the fair value of the Company’s foreign currency forward contracts increased by $6.7million in unrealized gains. At December 31, 1999, the Company had cumulative unrealized gains of $6.7 million on its foreign currencyforward contracts. During 2000, the fair value of the Company’s foreign currency forward contracts decreased by $5.3 million. AtDecember 31, 2000, the Company had cumulative unrealized gains of $1.4 million on its foreign currency forward contracts.

Segment InformationStatement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information”,

(“SFAS 131”) establishes standards for reporting information on operating segments in interim and annual financial statements. TheCompany’s chief operating decision makers review the profit and loss of the Company on an aggregate basis and manage the operationsof the Company as a single operating segment. Accordingly, the Company operates in one segment, which is the business of developing,manufacturing and marketing drugs for human health care.

RevenuesRevenues from product sales are recognized when product is shipped and title and the risk of loss has passed. Revenues are recorded

net of applicable allowances for returns, rebates and other applicable discounts and allowances. The Company prepares its estimates forsales returns and allowances, discounts and rebates quarterly based primarily on historical experience updated for changes in facts andcircumstances, as appropriate.

The Company receives royalty revenues under license agreements with a number of third parties that sell products based ontechnology developed by the Company or to which the Company has rights. The license agreements provide for the payment of royaltiesto the Company based on sales of the licensed product. The Company records these revenues based on estimates of the sales thatoccurred during the relevant period. The relevant period estimates of sales are based on interim data provided by licensees and analysisof historical royalties paid to the Company (adjusted for any changes in facts and circumstances, as appropriate). The Companymaintains regular communication with its licensees in order to gauge the reasonableness of its estimates. Differences between actualroyalty revenues and estimated royalty revenues are reconciled and adjusted for in the following quarter. Historically, adjustments havenot been material based on actual amounts paid by licensees. There are no future performance obligations on the part of the Companyunder these license agreements.

Revenue is not recognized in any circumstances unless collectibility is reasonably assured.

Research and Development ExpensesResearch and development costs, including amounts funded in research collaborations, are expensed as incurred.

Earnings per ShareThe Company calculates earnings per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per

Share” (“SFAS 128”). SFAS 128 requires the presentation of “basic” earnings per share and “diluted” earnings per share. Basic earningsper share is computed by dividing the net income available to common shareholders by the weighted average number of shares of

B I O G E N - 43 -

common stock outstanding. For purposes of calculating diluted earnings per share the denominator includes both the weighted averagenumber of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options andwarrants.

Dilutive securities include outstanding options under the Company’s stock option plans. Options to purchase 2.7 million shares wereoutstanding at December 31, 2000 but not included in the computation of diluted earnings per share because the options’ exerciseprices were greater than the average market price during the period. The put warrants sold in connection with the Company’s stockrepurchase program in 1999 did not have a significant additional dilutive effect. Shares used in calculating basic and diluted earnings pershare for the periods ending December 31, are as follows:

(in thousands) 2000 1999 1998

Weighted average number of shares of common stock outstanding 148,743 149,921 147,537Dilutive stock options 5,859 7,867 6,733

Shares used in calculating diluted earnings per share 154,602 157,788 154,270

On June 11, 1999, the Board of Directors declared a two-for-one stock split to be effected in the form of a stock dividend of one shareof common stock for each share outstanding. The stock dividend was payable on June 25, 1999 to shareholders of record at the close ofbusiness on June 11, 1999. All references to number of shares and per share amounts in the financial statements have been restated togive effect to the stock split for all periods presented.

2. Financial InstrumentsFinancial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and marketable

securities. Wholesale distributors and large pharmaceutical companies account for the majority of the accounts receivable and collateralis generally not required. To mitigate the risk, the Company monitors the financial performance and credit worthiness of its customers.The Company invests its excess cash balances in marketable debt securities, primarily U.S. government securities and corporate bondsand notes, with strong credit ratings. The Company limits the amount of investment exposure as to institution, maturity and investmenttype.

The average maturity of the Company’s marketable securities as of December 31, 2000 and 1999 was 30 months and 24 months,respectively. Proceeds from maturities and other sales of marketable securities, which were primarily reinvested, for the years endedDecember 31, 2000, 1999 and 1998 were approximately $606 million, $1,006 million and $454 million, respectively. The cost ofsecurities sold is determined based on the specific identification method. Realized gains and (losses) on these sales for the years endedDecember 31, 2000, 1999 and 1998 were $(1,846,000), $(1,442,000) and $645,000, respectively.

The following is a summary of marketable securities: Unrealized Unrealized Amortized

(in thousands) Fair Value Gains Losses Cost

December 31, 2000:U.S. Government securities $ 288,214 $ 5,284 $ — $ 282,930Corporate debt securities 345,461 2,444 — 343,017

$ 633,675 $ 7,728 $ — $ 625,947

Marketable securities, noncurrent $ 71,982 $ 28,174 $ — $ 43,808

December 31, 1999:U.S. Government securities $ 295,046 $ — $ 4,656 $ 299,702Corporate debt securities 302,573 — 3,717 306,290

$ 597,619 $ — $ 8,373 $ 605,992

Marketable securities, noncurrent $ 98,017 $ 75,263 $ — $ 22,754

The Company uses interest rate swap agreements to mitigate the risk associated with its floating rate debt. The fair value of theinterest rate swap agreements at December 31, 2000, representing the cash requirements of the Company to settle the agreements,

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approximated $1.7 million. The fair value of the interest rate swap agreements at December 31, 1999, representing the cash theCompany would receive to settle the agreements, was approximately $366,000. The Company has designated the interest rate swaps ascash flow hedges. There were no amounts of hedge ineffectiveness related to the Company’s interest rate swaps during 2000 and 1999,and no gains or losses were excluded from the assessment of hedge effectiveness. The Company records the differential to be paid orreceived on the interest rate swaps as incremental interest expense. The Company expects approximately $619,000 in losses related toits interest rate swaps to affect earnings in 2001.

The Company has foreign currency forward contracts to hedge specific transactions denominated in foreign currencies. All foreigncurrency forward contracts have durations of ninety days to 12 months. These contracts have been designated as cash flow hedges andaccordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in othercomprehensive income. Realized gains and losses for the effective portion are recognized with the underlying hedge transaction. TheCompany assesses hedge ineffectiveness on a quarterly basis and records the gain or loss related to the ineffective portion to currentearnings to the extent significant. If the Company determines that a cash flow hedge is no longer probable of occurring, the Companydiscontinues hedge accounting for the affected portion of the forecasted transaction and any unrealized gain or loss on the contract isrecognized in current earnings. The notional settlement amount of the foreign currency forward contracts outstanding at December 31,2000 was approximately $111.7 million. These contracts had a fair value of approximately $2.2 million, representing an unrealizedgain, and were included in other current assets at December 31, 2000.

In 2000, there were no significant amounts recognized in earnings due to hedge ineffectiveness. During 2000, the Companyrecognized $977,000 in other income as a result of the discontinuance of cash flow hedges upon determining that it was no longerprobable that the original forecasted transaction would occur. The Company recognized $12.7 million of gains in product revenue and$3.7 million of gains in royalty revenue for the settlement of certain effective cash flow hedge instruments during the year endedDecember 31, 2000. These settlements were recorded in the same period as the related forecasted transactions affecting earnings. TheCompany expects approximately $2.2 million of unrealized gains at December 31, 2000 to affect earnings in 2001 related to its foreigncurrency forward contracts.

In 1999, there were no significant amounts recognized in earnings due to hedge ineffectiveness or as a result of the discontinuance ofcash flow hedge accounting because it was probable that the original transaction would not occur. The Company recognized $7.4 millionof gains in product revenue and $2.7 million of gains in royalty revenue for the settlement of certain effective cash flow hedge instrumentsduring the year ended December 31, 1999. These settlements were recorded in the same period as the related forecasted transactionsaffecting earnings.

During 1998, the Company recognized $686,000 in other expense as a result of the discontinuance of cash flow hedges upondetermining that it was no longer probable that the original forecasted transaction would occur. The Company also recognized a$322,000 gain in product revenue and a $485,000 loss in royalty revenue for the settlement of certain cash flow hedge instrumentsduring the period. These settlements were recorded in the same period as the related forecasted transactions affecting earnings.

3. BorrowingsAs of December 31, 2000, the Company had $15.8 million outstanding under a floating rate loan with a bank (the “Term Loan”). The

Term Loan is secured by the Company’s laboratory and office building in Cambridge, Massachusetts. The Term Loan provides for annualprincipal payments of $1.7 million in each of the years 1996 through 2004 with the balance due May 8, 2005. The Company alsoentered into an interest rate swap agreement, with the same bank, fixing its interest rate at 7.5% during the remaining term of the loan,payable semi-annually.

As of December 31, 2000, the Company had $36.2 million outstanding under a floating rate loan agreement with a bank for financingthe construction of its biological manufacturing facility in North Carolina (the “Construction Loan”). The Construction Loan is secured bythe facility. Payments of $805,000 are due quarterly through 2006 with the balance due in 2007. The Company also entered into aninterest rate swap agreement, with the same bank, fixing its interest rate at 7.75% during the remaining term of the loan, payablequarterly.

The Term Loan and Construction Loan agreements include various covenants, including financial covenants, which require theCompany to maintain minimum net worth, cash flow and various financial ratios. The Company’s long-term debt obligations are carriedat face value, which approximates fair market value.

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Long-term debt at December 31, consists of the following:


Term Loan due 2005 $ 15,836 $ 17,501Construction Loan due 2007 36,237 39,460

52,073 56,961Current portion (4,888) (4,888)

$ 47,185 $ 52,073

4. Consolidated Balance Sheet Details

Property and equipment: December 31,


Land $ 12,349 $ 12,349Buildings 84,119 92,462Leasehold improvements 63,845 54,946Equipment 185,404 191,809Construction in Progress 191,355 —

Total cost 537,072 351,566Less accumulated depreciation 136,643 111,789

$ 400,429 $ 239,777

Depreciation expense was $27.8 million, $25.9 million and $21.4 million for 2000, 1999 and 1998, respectively.

Accrued expenses and other: December 31,


Royalties and licensing fees $ 32,188 $ 34,914Income taxes 69,494 64,545Clinical trial costs 24,694 15,746Other 51,888 40,052

$ 178,264 $ 155,257

5. PensionsThe Company has a defined benefit pension plan which provides benefits to substantially all of its employees. The Company also has a

supplemental retirement benefit plan which covers certain employees. The pension plans are noncontributory with benefit formulasbased on employee earnings and credited years of service. The Company’s funding policy for its pension plans is to contribute amountsdeductible for federal income tax purposes. Funds contributed to the plans are invested in fixed income and equity securities.

The components of net periodic pension cost for each of the three years ended December 31 are summarized below:

(in thousands) 2000 1999 1998

Service cost $ 3,314 $ 2,923 $ 2,225Interest cost 1,799 1,307 1,041Expected return on plan assets (1,258) (994) (722)Amortization of transition asset — — (21)Amortization of prior service cost 43 43 43Amortization of net actuarial loss 86 22 —

Net pension cost $ 3,984 $ 3,301 $ 2,566

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Reconciliations of projected benefit obligations, fair value of plan assets and the funded status of the plans as of December 31, arepresented below:


Change in projected benefit obligation

Net projected benefit obligation at the beginning of the year $ (19,377) $ (16,003)Service cost (3,314) (2,923)Interest cost (1,799) (1,307)Actuarial gain (loss) (935) 697Gross benefits paid 991 159

Net projected benefit obligation at the end of the year (24,434) (19,377)

Change in plan assets

Fair value of plan assets at the beginning of the year 15,061 11,773Actual return on plan assets (934) 2,021Employer contributions 2,000 1,500Gross benefits paid (752) (43)Administrative expenses (119) (190)

Fair value of plan assets at the end of the year 15,256 15,061

Funded status at the end of the year

Funded status at the end of the year (9,178) (4,316)Unrecognized net actuarial (gain) loss 1,224 (1,833)Unrecognized prior service cost 271 315Unrecognized net transition asset 0 0

Net amount recognized at the end of the year $ (7,683) $ (5,834)

Weighted average assumptions at the end of the year

Discount rate 7.50% 7.50%Expected return on plan assets 8.00% 8.00%Rates of compensation increase 5.00% 5.00%

The Company has an unfunded supplemental retirement plan. As of December 31, 2000 the projected benefit and the accumulated benefitobligations were $5.7 million and $3.7 million, respectively. As of December 31, 1999 the projected benefit and the accumulated benefitobligations were $3.8 million and $2.8 million, respectively.

6. Other Income, NetOther income, net consists of the following

December 31,(in thousands) 2000 1999 1998

Interest income $ 42,965 $ 35,407 $ 28,339Interest expense ( 4,310) ( 4,639) ( 5,944)Other income (expense) 120,094 ( 18,003) (2,841)

Total other income, net $ 158,749 $ 12,765 $ 19,554

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Other income (expense) for the period ended December 31, 2000 included gains on the sale of certain non-current marketablesecurities totaling approximately $101.1 million. Additionally, the Company realized gains of approximately $24.1 million upon theacquisition of two of its investees by third parties. Other income (expense) for the period ended December 31, 1999 included a $15million write-down of certain non-current marketable securities.

As part of its strategic product development efforts, the Company invests in equity securities of certain biotechnology companies withwhich it has collaborative agreements. In December of 1996, Biogen purchased approximately 1.5 million shares of CreativeBioMolecules, Inc. common stock for $18 million. In March of 1997, Biogen purchased approximately 670,000 shares of CVTherapeutics, Inc. common stock for $7 million. In March of 1998, the Company purchased approximately 435,000 shares of CuraGencommon stock for $5 million and converted 100,000 shares of CuraGen Series E Preferred Stock valued at $1 million into CuraGencommon stock. Each of these small emerging companies was principally engaged in researching, developing or manufacturing drugs forhuman health care.

As a matter of policy, Biogen determines on a quarterly basis whether a decline in the fair value of a marketable security is other thantemporary. Unrealized gains and losses on marketable securities are included in other comprehensive income in shareholders’ equity, netof related tax effects. If a decline in the fair value of a marketable security below the Company’s cost basis is determined to be other thantemporary, such marketable security is written down to its estimated fair value with a charge to current earnings.

Up through and including the assessment at June 30, 1999, the Company concluded that substantial evidence existed suggestingthat the value of the investments described above would recover to at least the Company’s purchase price. Such evidence included theprospects for favorable clinical trial results, new product initiatives and new collaborative agreements. However, given the lack of anysubstantial price recovery during the quarter ended June 30, 1999 and the amount of time elapsed since the decline in value began, theCompany concluded that it had become unclear over what period such price recovery would take place. As a result, it was determinedthat the positive evidence suggesting that the investments would recover to at least the Company’s purchase price was not sufficient toovercome the presumption that the current market price of the investments was the best indicator of value at June 30, 1999.Accordingly, the related unrealized losses of approximately $15 million were recognized as other expense in the second quarter of 1999.

7. Income TaxesThe components of income before income taxes and of income tax expense (benefit) for each of the three years ended December 31,are as follows:

(in thousands) 2000 1999 1998

Income before income taxes:Domestic $ 379,489 $ 253,303 $ 200,181Foreign 107,616 75,713 10,012

$ 487,105 $ 329,016 $ 210,193

Income tax expense:Current

Federal $ 115,696 $ 112,499 $ 58,152State 11,969 15,587 3,937Foreign 1,098 4,206 887

$ 128,763 $ 132,292 $ 62,976

DeferredFederal $ 25,344 $ (20,863) $ 8,314State (579) (2,863) 206

24,765 (23,726) 8,520

Total income tax expense $ 153,528 $ 108,566 $ 71,496

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Deferred tax assets (liabilities) are comprised of the following at December 31:


Tax credits $ 28,135 $ 35,089Inventory and other reserves 11,532 14,927Other 379 549

Deferred tax asset 40,046 50,565

Depreciation, amortization and other (24,189) (9,943)Unrealized gain on investments (12,956) (27,640)

Deferred tax liabilities (37,145) (37,583)

$ 2,901 $ 12,982

A reconciliation of the U.S. federal statutory tax rate to the effective tax rate for the periods ending December 31 is as follows:

2000 1999 1998

Statutory rate 35.0% 35.0% 35.0%State taxes 3.2 3.3 3.0Foreign taxes (2.6) (2.6) —Credits and net operating loss utilization (3.3) (2.6) (4.2)Other (0.8) (0.1) 0.2

Effective tax rate 31.5% 33.0% 34.0%

At December 31, 2000, the Company had tax credits of $28.1 million, most of which expire at various dates through 2015.As of December 31, 2000, undistributed foreign earnings of non-U.S. subsidiaries included in consolidated retained earnings

aggregated $117 million, exclusive of earnings that would result in little or no tax under current U.S. tax law. The Company intends toreinvest these earnings indefinitely in operations outside the United States. It is not practicable to estimate the amount of additional taxthat might be payable if such earnings were remitted to the United States.

8. Research CollaborationsIn September 2000, the Company signed a research and development agreement (the “Eos Agreement”) with Eos Biotechnology, Inc.

(“Eos”), under which the Company and Eos will collaborate in the research and development of novel targets for antibody and proteintherapeutics in the area of breast cancer. Under the Eos Agreement, the Company purchased 1.9 million shares of preferred stock of Eosfor $5 million. In addition, the Company paid a one-time, non-refundable license fee for $6 million, which was charged to research anddevelopment expense and acquired certain exclusive, worldwide rights related to breast cancer-specific molecules for the use in thedevelopment of new antibody and secreted protein therapeutics. The Company accounts for its investment in Eos, which is included inother assets, using the cost method of accounting. The Company provided Eos with research and development funding of $250,000 in2000. The Company expects to fund research activities of Eos related to the collaboration of up to $1.5 million in 2001.

In August 2000, the Company signed a development and marketing collaboration agreement (the “Antegren Agreement”) with ElanCorporation, plc (“Elan”) under which the Company and Elan collaborate in the development, manufacture and commercialization ofANTEGREN®, a humanized monoclonal antibody and alpha 4 integrin inhibitor. Under the terms of the Antegren Agreement, Biogen andElan will share costs for on-going development activities. The Company paid a one-time, non-refundable license fee of $15 million, whichwas charged to research and development expense.

In October 1997, the Company signed a research and option agreement (the “CuraGen Agreement”) with CuraGen Corporation(“CuraGen”) under which the Company and CuraGen collaborate in the discovery of novel genes using CuraGen’s functional genomicstechnologies. The Company provided CuraGen with research and development funding of $1.5 million, $1.1 million and $1.9 million in2000, 1999 and 1998, respectively. The Curagen Agreement was terminated in September 2000 and all investments in CuraGencommon stock were sold during 2000.

In March 1997, the Company signed a research collaboration and license agreement (the “CVT Agreement”) with CV Therapeutics,Inc. (“CVT”) under which Biogen obtained rights under CVT’s patents and know-how to develop and market molecules that act as highly

B I O G E N - 49 -

selective antagonists of the adenosine A1 receptor, for the treatment of congestive heart failure. Under the terms of the CVT Agreement,the Company purchased approximately 670,000 shares of CVT common stock at the then fair value for $7 million and paid a one-timelicense fee of $5 million, which was charged to research and development expense. The investment in CVT is classified as available-for-sale and is included in long-term marketable securities. At December 31, 2000 the Company retained approximately 670,000 shares ofCVT common stock.

In December 1996, the Company signed a research collaboration and license agreement (the “CBM Agreement”) with CreativeBioMolecules, Inc. (“CBM”) under which Biogen obtained rights to develop and market CBM’s morphogenic protein, OP-1, for thetreatment of renal disorders. Under the CBM Agreement, the Company purchased 1.5 million shares of CBM common stock for $18million. The payment for the common stock included a $1.2 million premium over the fair value of the common stock which was chargedto research and development expense. The Company provided $10 million in research and development funding, which was charged toexpense as provided in 1998. The CBM Agreement terminated at the end of 1999 and all investments in CBM common stock were soldduring 2000.

In July 1996, the Company signed a collaborative research and commercialization agreement (the “Ontogeny Agreement”) withOntogeny, Inc. (“Ontogeny”), a private biotechnology company, for the development and commercialization of three specific hedgehogcell proteins, a class of novel human proteins, that are responsible for reducing the formation or regeneration of tissue. Under theOntogeny Agreement, the Company purchased 400,000 shares of preferred stock of Ontogeny for $1 million and acquired certainexclusive, worldwide rights related to products based on the hedgehog proteins for most disease areas. In November 1998, the Companyextended and expanded its collaboration with Ontogeny and provided to Ontogeny a $4 million convertible loan. In June 1999, the loanwas converted into 800,000 shares of Ontogeny Convertible Preferred Stock. The Ontogeny Agreement was terminated in July 2000. InAugust 2000, Ontogeny merged with two other biotechnology companies to form Curis Inc. (“Curis”). As a shareholder in Ontogeny,Biogen received Curis common stock in exchange for the Company’s shares in Ontogeny. The Company provided $1 million, $2.8 millionand $3.6 million of research funding to Ontogeny in 2000, 1999 and 1998, respectively. Additionally, the Company provided $1.5million upon conclusion of the Ontogeny Agreement, which was charged to research and development expense. At December 31, 2000the investment in Curis is classified as available-for-sale and is included in long-term marketable securities. At December 31, 2000 theCompany retained approximately 308,000 shares of Curis common stock.

In August 1995, the Company signed a collaborative research agreement (the “Genovo Agreement”) for the development of humangene therapy treatments with Genovo, Inc. (“Genovo”), a gene therapy research company. Under the Genovo Agreement, the Companyacquired 380,000 shares of Genovo Series A Preferred Stock for $4.5 million and acquired certain licensing rights. The Companyaccounted for this investment, which was included in other assets, using the equity method of accounting. The Company recorded itsproportion of Genovo’s net losses as research and development expense in the amounts of $3.9 million, $7.6 million, and $9 million in2000, 1999, and 1998, respectively. In August 2000, Genovo entered into a merger agreement (“Targeted Merger Agreement”) withTargeted Genetics Corporation (“Targeted”). As a shareholder in Genovo, Biogen received Targeted common stock in exchange for theCompany’s shares in Genovo. Additionally, concurrently with the Targeted Merger Agreement, the Company entered into a developmentand marketing agreement and a funding agreement (the “Targeted Agreements”) for gene therapy research and development in oncology.The Targeted Agreements provide for a $10 million credit facility. Targeted also has an option to sell to the Company an additional $10million of Targeted common stock at fair value. As of December 31, 2000, there were no borrowings outstanding under the credit facilityand the Company provided $250,000 in research funding to Targeted in 2000.

9. Commitments and ContingenciesThe Company rents laboratory and office space and certain equipment under noncancellable operating leases. The rental expense

under these leases, which terminate at various dates through 2015, amounted to $14.9 million in 2000, $11.9 million in 1999 and$9.4 million in 1998. The lease agreements contain various clauses for renewal at the option of the Company and, in certain cases,escalation clauses linked generally to rates of inflation.

At December 31, 2000, minimum annual rental commitments under noncancellable leases were as follows:Year (in thousands)

2001 $ 17,3652002 15,1232003 13,3382004 12,2612005 11,993Thereafter 60,220

Total minimum lease payments $130,300

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On October 4, 1999 the Company began construction of its new research and development center in Cambridge, Massachusetts. Thenew 224,000 square foot building is expected to be completed in the spring of 2001. At December 31, 2000, $81.4 million had beencommitted for construction costs. Additionally, the Company is completing plans to build a large scale manufacturing plant in Raleigh,North Carolina. The Company expects that construction will be completed at the end of 2001. At December 31, 2000, $141.9 millionhad been committed for construction costs.

On July 3, 1996, Berlex Laboratories, Inc. (“Berlex”) filed suit against Biogen in the United States District Court for the District of NewJersey alleging infringement by Biogen of Berlex’s “McCormick” patent (U.S. Patent No. 5,376,567) in the United States in theproduction of Biogen’s AVONEX® (Interferon beta-1a) product. In November 1996, Berlex’s New Jersey action was transferred to theUnited States District Court in Massachusetts and consolidated for pre-trial purposes with a related declaratory judgment actionpreviously filed by Biogen. On August 18, 1998, Berlex filed a second suit against Biogen alleging infringement by Biogen of a patentwhich was issued to Berlex in August 1998 and which is related to the McCormick patent (U.S. Patent No. 5,795,779). On September23, 1998, the cases were consolidated for pre-trial and trial purposes. Berlex sought a judgment granting it damages, a trebling of anydamages awarded and a permanent injunction restraining Biogen from the alleged infringement. A hearing on the parties’ summaryjudgment motions in the case was completed in March 2000. In September 2000, the District Court rendered final judgment in favor ofBiogen and against Berlex determining that Biogen’s production of AVONEX® did not infringe any of the claims of the Berlex patents.Berlex has appealed this decision with the Court of Appeals for the Federal Circuit and the parties are in the process of briefing the appealfor oral argument. An unfavorable ruling on appeal would result in the case being remanded to the District Court for trial. If Berlex were tobe successful in its appeal and the case were remanded, an unfavorable ruling in the remanded case could have a material adverse effecton the Company’s results of operations and financial position. The Company believes that the decision of the District Court that Biogendoes not infringe the Berlex patents is sound, but the ultimate outcome of the appeal is not currently determinable. As a result, anestimate of any potential loss or range of loss cannot be made at this time.

In 1995, the Company filed an opposition with the Opposition Division of the European Patent Office to oppose a European patent (the“Rentschler I Patent”) issued to Dr. Rentschler Biotechnologie GmbH (“Rentschler”) relating to compositions of matter of beta interferon.In 1997, the European Patent Office issued a decision to revoke the Rentschler I Patent. Rentschler appealed that decision and an oralhearing on the appeal took place in December 2000. At the oral hearing in order to gain reinstatement of the patent, Rentschler narrowedthe patent claims so as to claim only a specific cell line. Biogen does not use the specific cell line now claimed. On October 13, 1998, theCompany filed another opposition with the Opposition Division of the European Patent Office to oppose a second European patent issuedto Rentschler (the “Rentschler II Patent”) with certain claims regarding compositions of matter of beta interferon with specific regard tothe structure of the glycosylated molecule. A hearing on the Company’s opposition previously scheduled for October 2000 has beenpostponed, and will likely be held in 2001. While Biogen believes that the Rentschler II Patent will be revoked and that the revocation ofthe Rentschler I Patent will be upheld on appeal, if either the Rentschler I Patent or the Rentschler II Patent were to be upheld and ifRentschler were to obtain, through legal proceedings, a determination that the Company’s sale of AVONEX® in Europe infringes a validRentschler patent, such result could have a material adverse effect on the Company’s results of operation and financial position.

10. Shareholders’ Equity

Convertible Exchangeable Preferred StockThe Company has authority to issue 20,000,000 shares of $.01 par value preferred stock.

Shareholder Rights PlanIn 1989, the Company’s Board of Directors declared a dividend to holders of the Company’s common stock of rights (the “Old Rights”)

to purchase shares of Series A Junior Participating Preferred Stock (the “Old Preferred Stock”). Each Old Right entitled the registeredholder to purchase from the Company one one-hundredth of a share of Old Preferred Stock upon the terms and subject to the conditionsset forth in a Rights Agreement, dated as of May 8, 1989, between the Company and The First National Bank of Boston (the “Old Plan”).The Old Plan and the Old Rights expired on May 8, 1999. Consequently, on April 16, 1999, the Board of Directors declared a dividend toholders of the Company’s common stock of one new preferred share purchase right (a “New Right”) for each outstanding share ofcommon stock. The New Rights were granted on May 8, 1999 pursuant to a new Rights Agreement, dated May 8, 1999, between theCompany and State Street Bank and Trust Company, as Rights Agent (the “New Plan”). Each New Right entitles the registered holder topurchase from the Company one one-thousandth of a share of Series A-1 Junior Participating Preferred Stock, par value $.01 per share(“New Preferred Stock”), at a price of $850 per one one-thousandth of a share of New Preferred Stock, subject to adjustment. Each oneone-thousandth of a share of New Preferred Stock has rights, privileges and preferences which make its value approximately equal to the

B I O G E N - 51 -

value of one share of the Company’s common stock. The New Rights are exercisable only if a person or group acquires 20% or more ofthe outstanding common stock of the Company or commences a tender or exchange offer, the consummation of which would result in theownership of 20% or more of the outstanding common stock of the Company. Once the New Rights become exercisable, and in somecircumstances if additional conditions are met, each New Right will entitle the Company’s shareholders (other than the acquiror) to,among other things, purchase common stock at a substantial discount. Unless earlier redeemed or exchanged by the Company, the NewRights expire on May 8, 2009. The Company is entitled to redeem the New Rights at a price of $.001 per New Right.

The Old Preferred Stock has been eliminated and replaced with the New Preferred Stock. At December 31, 2000, the Company had250,000 shares of New Preferred Stock authorized for use in connection with the New Plan.

Share Option and Purchase PlansThe Company has several stock-based compensation plans. The Company applies APB Opinion No. 25 “Accounting for Stock Issued

to Employees” in accounting for its plans and applies Statement of Financial Accounting Standards No. 123 “Accounting for Stock Issuedto Employees” (“SFAS 123”) for disclosure purposes only. The SFAS 123 disclosures include pro forma net income and earnings pershare as if the fair value-based method of accounting had been used. Stock issued to non-employees is accounted for in accordance withSFAS 123 and related interpretations. Included in compensation expense for the periods ending December 31, 2000, 1999 and 1998were approximately $(249,000), $7.5 million, and $2.2 million, respectively, related to stock based compensation plans.

The Company has several plans and arrangements under which it may grant options to employees, Directors and Scientific Boardmembers to purchase common stock. Under the terms of the Company’s stock-based compensation plans, approximately 47 millionoptions may be granted. Option grants are typically made under the 1985 Non-Qualified Stock Option Plan and the 1987 ScientificBoard Stock Option Plan (the “Plans”). Options under the Plans are granted at no less than 100% of the fair market value on the date ofgrant. Options generally become exercisable over various periods, typically 5 to 7 years for employees and 3 years for Directors andScientific Board members, and have a maximum term of 10 years.

Activity under these plans for the periods ending December 31, is as follows:

(shares are in thousands) 2000 1999 1998

Weighted Weighted WeightedAverage Average AverageExercise Exercise Exercise

Shares Price Shares Price Shares Price

Outstanding, Jan. 1 17,938 $ 24.53 22,376 $ 15.97 22,304 $ 11.98Granted 2,731 55.34 3,099 60.24 3,618 33.88Exercised (3,250) 11.61 (5,435) 10.45 (2,612) 7.65Canceled (502) 34.17 (2,102) 22.41 (934) 13.33

Outstanding, Dec. 31 16,917 $ 31.70 17,938 $ 24.53 22,376 $ 15.97

Options exercisable 9,093 9,384 10,998Available for grant 1,578 3,807 4,804Weighted average fair value of

options granted $ 24.34 $ 26.23 $ 14.63

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The table below summarizes options outstanding and exercisable at December 31, 2000:

(shares are in thousands) Options Outstanding Options Exercisable

WeightedAverage Weighted Weighted

Remaining Average AverageRange of Number Contractual Exercise Number ExerciseExercise Price Outstanding Life Price Exercisable Price

$0.00-$10.00 2,086 2.78 $ 8.10 2,030 $ 8.07$10.01-$20.00 6,711 5.25 15.69 4,622 15.24$20.01-$30.00 784 7.00 22.81 312 22.70$30.01-$40.00 232 7.76 33.23 115 33.28$40.01-$50.00 2,555 7.98 41.26 1,269 41.14$50.01-$60.00 2,626 9.31 54.69 173 53.11$60.01-$70.00 281 9.35 65.00 13 68.70$70.01-$80.00 1,453 8.93 72.34 521 71.98Over $80.00 189 8.80 85.85 38 85.89

Total 16,917 $ 31.70 9,093

The Company also has two employee stock purchase plans covering substantially all of its employees. The plans allow employees topurchase common stock at 85% of the lower of the fair market value at either the date of the beginning of the plan period or the purchasedate. Purchases under the plans are subject to certain limitations and may not exceed an aggregate of 1,120,000 shares during the termof the plans; no shares may be issued after December 31, 2007. Through December 31, 2000, 409,102 shares have been issuedunder the stock purchase plans.

If compensation cost for the Company’s 2000, 1999 and 1998 grants under the stock-based compensation plans had beendetermined based on SFAS 123, the Company’s pro forma net income, and pro forma diluted earnings per share for the years endingDecember 31, would have been as follows:

(in thousands except per share data) 2000 1999 1998

Pro forma net income $ 294,412 $ 196,965 $ 122,342Pro forma diluted earnings per share $ 1.90 $ 1.25 $ 0.79

The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model with the followingassumptions:

2000 1999 1998

Expected dividend yield 0% 0% 0%Expected stock price volatility 45% 36% 36%Risk-free interest rate 6.9% 5.5% 5.5%Expected option term in years 5.5 5.6 5.6

The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 did not apply to awardsprior to 1995, and additional awards in future years are anticipated.

Stock Repurchase ProgramOn December 18, 2000, the Company announced that its Board of Directors had authorized the repurchase of up to 4 million shares

of the Company’s common stock. The repurchased stock will provide the Company with treasury shares for general corporate purposes,such as stock to be issued under employee stock option and stock purchase plans. Stock purchases are expected to occur from time totime through 2001. The stock repurchase program may be discontinued at any time.

On February 22, 1999, the Company announced that its Board of Directors had authorized the repurchase of up to 8 million shares ofthe Company’s common stock. The repurchased stock provided the Company with treasury shares for general corporate purposes, suchas stock to be issued under employee stock option and stock purchase plans. During 1999, the Company repurchased approximately 3.4

B I O G E N - 53 -

million shares of its common stock at a cost of $197.7 million. During 2000, the Company repurchased approximately 4.6 millionshares of its common stock at a cost of $300.2 million, completing this program.

To enhance the 1999 stock repurchase program, the Company sold put warrants to and purchased call options from independent thirdparties for a total of 4 million shares of which 2.2 million shares were outstanding at December 31, 1999, at a strike price of $49.47.None of the put warrants and call options were outstanding at December 31, 2000. Additionally, during 1999 in a separate put warrantprogram to facilitate its purchase of common stock, the Company sold put warrants for total proceeds of $22.1 million. The Companyhad put warrants to purchase 1.6 million shares outstanding at December 31, 1999, at an average strike price of $68.99 relating to thisput warrant program. None of the put warrants were outstanding at December 31, 2000. The outstanding put warrants permitted a net-share settlement at the Company’s option and, therefore, did not result in a put obligation liability on the Company’s ConsolidatedBalance Sheets. The put warrants sold in connection with the Company’s stock repurchase program did not have a significant additionaldilutive effect.

11. Segment InformationThe Company operates in one segment, which is the business of developing, manufacturing and marketing drugs for human health

care. The chief operating decision makers review the profit and loss of the Company on an aggregate basis and manage the operations ofthe Company as a single operating segment. The Company currently derives product revenues from sales of its AVONEX® (Interferon beta-1a) product for the treatment of relapsing forms of multiple sclerosis. The Company also derives revenue from royalties on worldwidesales by the Company’s licensees of a number of products covered under patents controlled by the Company, including alpha interferonand hepatitis B vaccines and diagnostic products. Revenues are primarily attributed from external customers to individual countrieswhere earned based on location of the customer or licensee. At December 31, 2000, product and royalty revenues from externalcustomers in The Netherlands were approximately 10% of total revenues. As of December 31, 1999, and 1998, respectively, nomaterial amounts of product or royalty revenue could be attributable to an individual foreign country.

The Company’s geographic information is as follows:

(in thousands) US Europe Asia Other Total

December 31, 2000:

Product revenue from externalcustomers $ 552,591 $ 199,714 $ — $ 8,774 $ 761,079

Royalty revenue from externalcustomers 120,578 26,414 16,479 1,902 165,373

Long-lived assets 497,347 6,125 — 113 503,585

December 31, 1999:

Product revenue from externalcustomers $ 442,278 $ 173,640 $ — $ 4,718 $ 620,636



December 31, 1998:

Product revenue from externalcustomers $ 303,591 $ 91,237 $ — $ 35 $ 394,863



The Company received revenue from five unrelated parties in 2000 accounting for a total of 18%, 13%, 12%, 11% and 10% of totalproduct and royalty revenue. The Company received revenue from five unrelated parties in 1999 accounting for a total of 15%, 13%,13%, 11% and 11% of total product and royalty revenue. The Company received revenue from five unrelated parties in 1998 accountingfor a total of 16%, 13%, 11%, 11% and 10% of total product and royalty revenue.

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12. Quarterly Financial Data (unaudited)

(in thousands, First Second Third Fourth Totalexcept per share amounts) Quarter Quarter Quarter Quarter Year

2000

Total revenues $ 216,848 $ 230,514 $ 233,754 $ 245,336 $ 926,452Product revenue 174,596 190,009 193,242 203,232 761,079Royalties revenue 42,252 40,505 40,512 42,104 165,373Total expenses and taxes 194,506 175,191 198,577 183,350 751,624Other income, net 99,024 16,737 33,204 9,784 158,749Net income 121,366 72,060 68,381 71,770 333,577Basic earnings per share 0.81 0.48 0.46 0.49 2.24Diluted earnings per share 0.77 0.47 0.44 0.47 2.16

1999

Total revenues $ 171,720 $ 188,929 $ 208,431 $ 225,355 $ 794,435Product revenue 131,320 145,852 163,448 180,016 620,636Royalties revenue 40,400 43,077 44,983 45,339 173,799Total expenses and taxes 132,220 136,271 154,494 163,765 586,750Other income, net 6,184 (9,270) 8,092 7,759 12,765Net income 45,684 43,388 62,029 69,349 220,450Basic earnings per share 0.31 0.29 0.41 0.46 1.47Diluted earnings per share 0.29 0.28 0.39 0.44 1.40

13. New Accounting PronouncementIn December 1999, the United States Securities and Exchange Commission issued Staff Accounting Bulletin 101, “Revenue

Recognition in Financial Statements” (“SAB 101”). SAB 101 provides the staff’s views in applying generally accepted accountingprinciples to selected revenue recognition issues, as well as examples of how the staff applies revenue recognition guidance to specificcircumstances. The Company adopted SAB 101 in 2000. Adoption of SAB 101 did not have a material effect on the Company’s financialposition and results of operations.

B I O G E N - 55 -

Report of Independent AccountantsBiogen, Inc. and Subsidiaries

To the Board of Directors and Shareholders of Biogen, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flowsand of shareholders’ equity present fairly, in all material respects, the financial position of Biogen, Inc. and its subsidiaries atDecember 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financialstatements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statementsbased on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in theUnited States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion.

PricewaterhouseCoopers LLP

Boston, MassachusettsJanuary 11, 2001

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Senior Biogen Executives


James C. MullenPresident and Chief Executive Officer

Burt A. Adelman, M.D.Vice President - Medical Research

Cornelis “Kees” BeenVice President - Business andMarket Development

Thomas J. Bucknum, Esq.Vice President - General Counsel,Secretary and Clerk

Frank A. Burke, Jr.Vice President - Human Resources

Nadine D. Cohen, Ph.D.Vice President - Regulatory Affairs

Michael Gilman, Ph.D.Vice President - Research

Sylvie L. Grégoire, Pharm.D.Vice President - Manufacturing

Robert A. HammVice President - Sales and Marketing

Peter N. KelloggVice President - Finance andChief Financial Officer

Mark W. LeuchtenbergerVice President - International

Toshio Nakata, D.Sc.President - Biogen Japan, Ltd.Vice President - Japan, Asia, Oceana

John W. PalmerVice President - Program Management

David D. Pendergast, Ph.D.Vice President - Product Developmentand Quality Assurance

Patrick J. PurcellVice President - Information Systems andChief Information Officer

Board of Directors

James L. Vincent 2,3,5

Chairman of the BoardBiogen, Inc.

Alan Belzer 1,5

President, Chief Operating Officer and Director,Allied-Signal, Inc. (retired)

Harold W. Buirkle 1,2,4

Managing Director, The Henley Group, Inc. (retired)

Mary L. Good, Ph.D. 2

Former Undersecretary for Technology, U.S.Department of Commerce; Managing Member,Venture Capital Investors, LLC; Donaghey UniversityProfessor at University of Arkansas at Little Rock;Dean, Donaghey College of Information Science andSystem Engineering

Thomas F. Keller, Ph.D.1

R.J. Reynolds Professor and Dean, Fuqua School ofBusiness Europe, Duke University

Roger H. Morley 2,4

Vice President, Schiller International University;Co-Managing Director, R&R Inventions Ltd.;Former President, American Express Co.

James C. MullenPresident and Chief Executive OfficerBiogen, Inc.

Sir Kenneth Murray, Ph.D. 3,5

Biogen Professor of Molecular Biology, EmeritusUniversity of Edinburgh; Fellow of The Royal Society

Phillip A. Sharp, Ph.D. 2,3

Institute Professor and Director of the McGovernInstitute for Brain Research, Massachusetts Instituteof Technology; Nobel Laureate

Alan K. Simpson5

Former Director of the Institute of Politics and VisitingLecturer, John F. Kennedy School of Government,Harvard University; Visiting Lecturer, University ofWyoming; Former U.S. Senator

James W. Stevens 1,5

Former Chairman, Prudential AssetManagement Group

1 Member of the Finance and Audit Committee

2 Member of the Compensation and Management Resources

Committee

3 Member of the Project Share Committee

4 Member of the Stock and Option Plan Administration

Committee

5 Member of the Nominating Committee

Scientific Board

Phillip A. Sharp, Ph.D.Chairman of the Scientific BoardInstitute Professor and Director of the McGovernInstitute for Brain Research,Massachusetts Instituteof Technology; Nobel Laureate

Sir Kenneth Murray, Ph.D.Vice Chairman of the Scientific BoardBiogen Professor of Molecular Biology, EmeritusUniversity of Edinburgh; Fellow of The Royal Society

Alexander G. Bearn, M.D.Executive Officer, American PhilosophicalSociety; Adjunct Professor, The RockefellerUniversity; Professor Emeritus, Cornell UniversityMedical College

Max D. Cooper, M.D.Investigator, Howard Hughes Medical Institute;Professor of Medicine, Pediatrics, Microbiology, andPathology, University of Alabama at Birmingham

Joseph M. Davie, M.D., Ph.D.Former Senior Vice President - ResearchBiogen, Inc.

Richard A. Flavell, Ph.D.Professor and Chairman, Immunobiology Section,Howard Hughes Medical Institute, Yale UniversitySchool of Medicine; Fellow of The Royal Society

Michael Gilman, Ph.D.Vice President - ResearchBiogen, Inc.

Daniel H. Rich, Ph.D.Professor of Medicinal Chemistry and OrganicChemistry, University of Wisconsin - Madison

Kai L. Simons, M.D., Ph.D.Executive Director, Max-Planck-Institute ofMolecular Cell Biology and Genetics,Dresden, Germany

Thomas P. Stossel, M.D.Co-Director, Division of HematologyBrigham and Women’s Hospital

Daniel I.C. Wang, Ph.D.Institute Professor of Chemical EngineeringMassachusetts Institute of Technology

Senior Executives and Board MembersBiogen, Inc. and Subsidiaries

B I O G E N - 57 -

Corporate Headquarters:Biogen, Inc.14 Cambridge CenterCambridge, MA 02142Telephone: (617) 679-2000Fax: (617) 679-2617

Annual MeetingFriday, June 15, 2001 at 10:00 a.m.at the Company’s offices at 12 Cambridge Center.All shareholders are welcome.

Market for SecuritiesBiogen’s securities are quoted on the NASDAQ NationalMarket System.Common stock symbol: BGEN.

As of March 7, 2001, there were approximately 2,654 holdersof record of the Company’s Common Stock. The Company hasnot paid any cash dividends on its Common Stock since itsinception, and does not intend to pay any dividends in theforeseeable future. On June 25, 1999 the Company effected atwo-for-one stock split of its Common Stock. The quarterlyhigh and low closing sale prices (adjusted to reflect the stocksplit) of the Company’s Common Stock on the NASDAQNational Market System for 2000 and 1999 are as follows:

High Low

Fiscal 2000First Quarter 119 1/2 69 7/8

Second Quarter 72 3/4 49 3/4

Third Quarter 74 3/4 53Fourth Quarter 64 1/4 51 1/2

Fiscal 1999First Quarter 58 19/32 39 19/32

Second Quarter 64 5/16 46 3/16

Third Quarter 89 3/16 63 1/16

Fourth Quarter 88 1/16 64 3/8

SEC Form 10-KA copy of the Company’s annual report to the Securities andExchange Commission on Form 10-K is available withoutcharge upon written request to the:Corporate Communications DepartmentBiogen, Inc.14 Cambridge CenterCambridge, MA 02142

Transfer AgentFor shareholder questions regarding lost certificates, addresschanges and changes of ownership or name in which theshares are held, direct inquiries to:State Street Bank and Trust Companyc/o EquiServe150 Royall StreetCanton, MA 02021(877) 282-1168www.EquiServe.com

Independent AccountantsPricewaterhouseCoopers LLP160 Federal StreetBoston, MA 02110

U.S. Legal CounselMintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.One Financial CenterBoston, MA 02111

News ReleasesAs a service to our shareholders and prospective investors,copies of Biogen news releases issued in the last 12 monthsare now available almost immediately 24 hours a day, sevendays a week, on the Internet’s World Wide Web at http://www.prnewswire.com and via automated fax by calling“Company News On Call” at 1 800 758-5804,ext. 101550. Biogen news releases are usually posted onboth systems within one hour of being issued and areavailable at no cost.

The Biogen logo and AVONEX® are registered Trademarks of Biogen, Inc. AMEVIVE™

and ANTOVA™ are trademarks of Biogen, Inc. PEG-INTRON®, INTRON® A,

REBETOL®, and REBETRON® are registered trademarks of Schering-Plough

Corporation. Betaseron® is a registered trademark of Berlex Laboratories, Inc.

Betaferon® is a registered trademark of Schering AG, Germany. Copaxone® is a

registered trademark of Teva Pharmaceutical Industries, Ltd. Infergen® is a registered

trademark of Amgen, Inc. Rebif® is a registered trademark of Ares Serono S.A.

ANTEGREN® is a registered trademark of Elan Corporation.

Shareholder InformationBiogen, Inc. and Subsidiaries

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Biogen, Inc. and SubsidiariesOffices Worldwide

Biogen,Inc.14 Cambridge CenterCambridge, MA 02142United StatesTel 617 679-2000Fax 617 679-2617

Biogen EuropeLe Capitole55 avenue des Champs Pierreux92012 NanterreFranceTel 33 1 41 37 95 95Fax 33 1 41 37 24 00

Biogen, Inc. - RTPP.O. Box 146275000 Davis DriveResearch Triangle ParkNC 27709-4627Tel 919 941-1100Fax 919 941-1112

Biogen Australia Pty Ltd.Level 9123 Epping RoadNorth Ryde NSW 2113 Australia

Biogen GmbHEffingergasse 211160 ViennaAustriaTel 43 1 48 44 61 3Fax 43 1 48 44 61 311

Biogen Belgium S.A.Avenue de Tyras 1111120 Neder-Over-HeembeekBelgium

Biogen Canada, Inc.3-Robert Speck ParkwayMississauga, Ontario L4Z 2G5CanadaTel 1 888 456-2263

Biogen (Denmark) A/SLyngbyvej 282100 CopenhagenDenmarkTel 45 39 16 91 91Fax 45 39 16 91 99

Biogen Finland OyPakkalankuja 6SF-0150 VantaaFinlandTel 358 9 77 43 700Fax 358 9 77 43 70 40

Biogen France S.A.Le Capitole55 avenue des Champs Pierreux92012 NanterreFranceTel 33 1 41 37 95 95Fax 33 1 40 97 00 53

Biogen GmbHCarl-Zeiss Ring 685737 IsmaningGermanyTel 49 89 99 61 70Fax 49 89 99 61 71 99

Biogen Japan, Ltd.AIG Building 9th Floor1-1-3 MarunouchiChiyoda-kuTokyo 100-0005 Japan

Biogen International B.V.Robijnlaan 82132 WX HoofddorpThe NetherlandsTel 31 23 566 81 81Fax 31 23 566 81 82

Biogen Norway ASKarenslyst Allé 8bN-0277 OsloNorwayTel 47 23 12 06 38Fax 47 23 12 05 98

Biogen Sweden ABKanalvägen 10C/12S-194 61 Upplands VäsbyStockholm, SwedenTel 46 8 590 041 70Fax 46 8 590 042 02

Biogen Limited5d Roxborough WayFoundation ParkMaidenhead, Berkshire SL6 2UDUnited KingdomTel 44 1628 501000Fax 44 1628 501010

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IMPORTANT NOTE TO SHAREHOLDERS


Defining the Future

ANNUAL REPORT 2000

Biogen,Inc.

14 Cambridge CenterCambridge, MA 02142

Telephone 617 679-2000

European Headquarters

Le Capitole55 avenue des Champs Pierreux92012 NanterreFrance

Telephone 33 1 41 37 95 95

www.biogen.com

2000 Biogen Annual Report

Documents

Transcript of 2000 Biogen Annual Report