Forward-Looking Information

In addition to historical information, this report contains forward-looking statements that are based on our current beliefs and expectations. These statements involve risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. These forward-looking statements do not relate strictly to historical or current facts and they may be accompanied by such words as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "plan," "project," "target," "may," "will" and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding the anticipated level of future product sales, royalty revenues, expenses, contractual obligations, regulatory submissions and approvals, clinical trial results, our long-term growth, the development and marketing of additional products, the impact of competitive products, the incidence or anticipated outcome of pending or anticipated litigation, patent-related proceedings, tax assessments and other legal proceedings, our effective tax rate for future periods, our ability to finance our operations and meet our manufacturing needs, the completion of our manufacturing facility in Hillerød, Denmark, liquidity, and our plans to spend additional capital on external business development and research opportunities. Risk factors which could cause actual results to differ from our expectations and which could negatively impact our financial condition and results of operations are discussed in the section entitled "Risk Factors" in Part II of this report and elsewhere in this report. Forward-looking statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated). Unless required by law, we do not undertake any obligation to publicly update any forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Form 10-K, beginning on page F-1.

Executive Summary

Biogen Idec Inc. was formed in 2003 upon the acquisition of Biogen, Inc. by IDEC Pharmaceuticals Corporation in a merger transaction, or the Merger. We are a global biotechnology company that creates new standards of care in therapeutic areas of high unmet medical needs. We have two licensed biological bulk-manufacturing facilities, including our large-scale manufacturing plant in Research Triangle Park, NC, which is one of the world's largest cell culture facilities. An additional large-scale manufacturing plant is under construction in Hillerød, Denmark. We conduct research in San Diego, CA and Cambridge, MA. In 2008, we entered into an agreement with a real estate developer for the construction and leasing of a corporate headquarters in Weston, MA. We anticipate occupancy in 2010. We have additional offices in Canada, Brazil, Argentina, Australia, New Zealand, Japan, China, India and throughout Europe, including our international headquarters in Zug, Switzerland and operate a global distribution network, which covers over 70 countries. We currently employ approximately 4,700 people worldwide.

Results for the year ended December 31, 2008 included total revenue of $4,097.5 million, net income of $783.2 million and diluted net income per share of $2.65. These results reflect continued growth in unit sales of TYSABRI, an increase in revenues from an unconsolidated joint business arrangement due to increased sales of RITUXAN, as well as the impact of price increases in the United States and the favorable impact of exchange rates in rest of world on our AVONEX product. The effect of the increase in revenue was partially offset by an increase in research and development expense due to increased level of Phase 3 clinical trials and other projects, and an increase in selling, general and administrative expense related to a higher level of personnel to sustain AVONEX sales and drive TYSABRI growth. In the fourth quarter of 2008, we completed a reorganization of our domestic and

international operations, which included the movement of certain personnel and operational functions between Biogen Idec subsidiaries, as well as a restructuring of our supply chain.

Marketed Products

We currently have four marketed products:

• AVONEX® (interferon beta-1a);

• RITUXAN® (rituximab);

• TYSABRI® (natalizumab);

• FUMADERM® (dimethylfumarate and monoethylfumarate salts)

Through December 2007 we recorded product revenue from sales of ZEVALIN (ibritumomab tiuxetan) in the U.S. In December 2007, we sold the U.S. marketing, sales, manufacturing and development rights of ZEVALIN to Cell Therapeutics, Inc., or CTI, for an upfront purchase price of $10.0 million. In December 2008, pursuant to an amendment of the agreement, we received an additional $2.2 million milestone payment. We may receive up to an additional $20.0 million in milestone payments. In addition, we will receive royalty payments on future sales of ZEVALIN. As part of the overall agreement, we entered into a supply agreement with CTI to sell ZEVALIN product through 2014. Our sales of ZEVALIN to Bayer Schering Pharma AG, or Schering AG, for distribution in the EU will be recognized as product revenue and our supply of ZEVALIN to CTI is recognized as corporate partner revenue. We will continue to receive royalty revenues from Schering AG on their sales of ZEVALIN in the EU. The $10.0 million upfront and $2.2 million milestone payment have been deferred and are being recognized in our results of operations over the term of the supply agreement.

Through April 2006, we recorded product revenues from sales of AMEVIVE (alefacept). In April 2006, we sold the worldwide rights to this product to Astellas Pharma US, Inc., or Astellas. We will continue to manufacture and supply this product to Astellas for a period of up to 11 years. Under the terms of the supply agreement, we charge Astellas fixed amounts based on volume. Such amounts will be recognized as corporate partner revenue and are not significant.

Most of our revenues are currently dependent on sales of AVONEX, RITUXAN and TYSABRI. In the near term, we are dependent on the continued sales growth of TYSABRI to grow our overall revenues. In the longer term, our revenue growth is dependent on the successful clinical development, regulatory approval and launch of new commercial products currently being developed in our pipeline or products or programs that will be in-licensed or acquired.

Continued growth of global AVONEX unit sales is primarily dependent on maintaining AVONEX's position as the most prescribed multiple sclerosis, or MS, therapy in the world. In both the U.S. and rest of world, we face increasing competition in the MS market from currently marketed products and future products in late stage development, as well as increasing pricing pressure. We continue to generate data showing AVONEX to be an effective and safe choice for MS patients and physicians.

The majority of RITUXAN unit sales are currently from use in the oncology setting. We believe there is additional room for RITUXAN unit sales growth in the immunology setting, where RITUXAN is currently approved for patients with Rheumatoid Arthritis, or RA, with inadequate response to anti-tumor necrosis factor therapies, or TNF-IR. Additional immunology indications for RITUXAN that we are investigating include earlier stage RA patients with inadequate response to disease-modifying anti-rheumatic drugs, or DMARD-IR patients, DMARD-naïve RA patients and lupus nephritis and ANCA-associated vaculitis.

In July 2006, we reintroduced TYSABRI in the U.S. and began to ship internationally for the first time. TYSABRI sales are currently for use in relapsing remitting MS and, following the FDA's approval in January 2008, Crohn's disease. Growth in TYSABRI revenue will be dependent on the generation of a larger and longer term safety database, as well as continued acceptance by physicians and MS patients. Since the reintroduction of TYSABRI in the U.S. and the introduction of TYSABRI in the rest of world, we have disclosed five cases of progressive multifocal leukoencephalopathy, or PML, a known side effect, in patients taking TYSABRI in the post

marketing setting. These patients were the only confirmed cases of PML reported to us during this period. We continue to monitor the growth of TYSABRI unit sales in light of this news and we continue to develop protocols to potentially mitigate the risk and outcome of PML in patients being treated with TYSABRI.

Clinical Studies

Over the past few years, we have incurred significant expenditures related to conducting clinical studies to develop new pharmaceutical products and explore the utility of our existing products in treating disorders beyond those currently approved in their labels. For 2009, we expect to continue to incur significant levels of research and development expenditures. We have a number of pipeline products in late stage clinical trials, including over 13 pipeline products in Phase 2 or Phase 3 clinical trials. We are currently developing the late stage product candidates that are set forth below.

                                                                   Development and/or
                                                                       Marketing
Product                Product Indications         Status            Collaborators

BG-12                  Relapsing MS           Phase 3              None

Anti-CD80 MAb          Relapsed NHL           Phase 3              None
(galiximab)

Anti-CD23 MAb          Relapsed CLL           Phase 2/3            None
(lumiliximab)

Humanized Anti-CD20    RA                     Phase 3              U.S. - Genentech
MAb (ocrelizumab)                                                  Japan - Chugai and
                                                                   Zenyaku
                                                                   Outside U.S. and
                                                                   Japan - Roche

                       Lupus nephritis        Phase 3              See above

Lixivaptan             Hyponatremia,          Phase 3              Cardiokine
                       commonly seen in                            Biopharma LLC
                       acute decompensated
                       heart failure

ADENTRI®               Acute decompensated    Phase 3              None
                       heart failure with
                       renal insufficiency

In addition to the expense associated with these late stage trials, other pipeline products are in ongoing or are expected to enter proof of concept trials in 2009.

Business Development

As part of our business strategy, we have made acquisitions of other businesses, products, product rights or technologies and may continue to make acquisitions in the future. Our cash reserves and other liquid assets are substantial, but these sources of capital may be inadequate to consummate larger acquisitions and it may be necessary for us to raise substantial additional funds in the future to complete transactions. Due to the recent tightening of global credit and the disruption in the financial markets, it may be more difficult to secure such additional financing. In addition, as a result of our acquisition efforts, we may experience significant charges to earnings for merger and related expenses that may include transaction costs, closure costs or acquired in-process research and development charges.

Results of Operations

Revenues

Revenues were as follows (in millions):


                                                                 Year Ended December 31,
                                               2008                        2007                        2006

Product Sales
United States                         $ 1,472.9         35.9 %    $ 1,203.6         37.9 %    $ 1,069.5         40.0 %
Rest of world                           1,366.8         33.4 %        933.2         29.5 %        711.8         26.5 %

Total product revenues                  2,839.7         69.3 %      2,136.8         67.4 %      1,781.3         66.5 %
Unconsolidated Joint Business           1,128.2         27.5 %        926.1         29.2 %        810.9         30.2 %
Other Revenues                            129.6          3.2 %        108.7          3.4 %         90.8          3.3 %

Total revenues                        $ 4,097.5        100.0 %    $ 3,171.6        100.0 %    $ 2,683.0        100.0 %

Product Revenues

Product revenues were as follows (in millions):


                                                    Year Ended December 31,
                                   2008                      2007                      2006

  AVONEX                   $ 2,202.6        77.6 %   $ 1,867.8        87.4 %   $ 1,706.7        95.9 %
  TYSABRI                      588.6        20.7 %       229.9        10.8 %        35.8         2.0 %
  FUMADERM                      43.4         1.5 %        21.5         1.0 %         9.5         0.5 %
  ZEVALIN                        4.8         0.2 %        16.9         0.8 %        17.8         1.0 %
  AMEVIVE                        0.3           - %         0.7           -          11.5         0.6 %

  Total product revenues   $ 2,839.7       100.0 %   $ 2,136.8       100.0 %   $ 1,781.3       100.0 %

Cost of Sales

Cost of sales includes the following (in millions):


                                                     Year Ended December 31,
                                      2008                    2007                    2006

    Cost of product revenues   $ 397.0        98.8 %   $ 330.5        98.6 %   $ 270.0        98.4 %
    Cost of royalty revenues       5.0         1.2 %       4.7         1.4 %       4.4         1.6 %

    Cost of sales              $ 402.0       100.0 %   $ 335.2       100.0 %   $ 274.4       100.0 %

During the years ended December 31, 2008, 2007, and 2006, we wrote down approximately $29.8 million, $21.6 million, and $13.0 million, respectively, of inventory which was charged to cost of sales.

Cost of Product Revenues

Cost of product revenues, included in cost of sales, by product are as follows
(in millions):


                                                     Year Ended December 31,
                                      2008                    2007                    2006

    AVONEX                     $ 272.0        68.5 %   $ 258.3        78.2 %   $ 234.7        86.9 %
    TYSABRI                       68.5        17.3 %      10.4         3.1 %       5.3         2.0 %
    FUMADERM                       3.9         1.0 %       1.6         0.5 %       3.1         1.2 %
    ZEVALIN                        5.6         1.4 %      14.0         4.2 %      16.2         6.0 %
    AMEVIVE                        8.0         2.0 %       3.1         0.9 %      10.0         3.7 %
    Other                         39.0         9.8 %      43.1        13.1 %       0.7         0.2 %

    Cost of product revenues   $ 397.0       100.0 %   $ 330.5       100.0 %   $ 270.0       100.0 %

AVONEX

Revenues from AVONEX were as follows (in millions):


                                                   Year Ended December 31,
                                  2008                      2007                      2006

  AVONEX
  U.S.                    $ 1,276.5        58.0 %   $ 1,085.0        58.1 %   $ 1,022.2        59.9 %
  Rest of world               926.1        42.0 %       782.8        41.9 %       684.5        40.1 %

  Total AVONEX revenues   $ 2,202.6       100.0 %   $ 1,867.8       100.0 %   $ 1,706.7       100.0 %

For 2008 compared to 2007, U.S. sales of AVONEX increased $191.5 million, or 17.6%, due to price increases, partially offset by decreased product demand. For 2008 compared to 2007, rest of world sales of AVONEX increased $143.3 million, or 18.3%, due to increased unit shipments, the impact of exchange rates and the establishment of additional direct market affiliates.

For 2007 compared to 2006, U.S. sales of AVONEX increased $62.8 million, or 6.1%, primarily due to the impact of price increases. These increases were offset by lower demand. For 2007 compared to 2006, rest of world sales of AVONEX increased $98.3 million, or 14.4%, primarily due to the impact of exchange rates and higher sales volume.

We expect to face increasing competition in the MS marketplace in both the U.S. and rest of world from existing and new MS treatments, including TYSABRI and our other pipeline products, which may have a negative impact to the unit sales of AVONEX. We expect future unit sales of AVONEX to be dependent to a large extent on our ability to compete successfully with the products of our competitors.

TYSABRI

Revenues from TYSABRI were as follows (in millions):


                                                   Year Ended December 31,
                                     2008                    2007                    2006

     TYSABRI
     U.S.                     $ 196.4        33.4 %   $ 104.4        45.4 %   $ 25.8        72.1 %
     Rest of world              392.2        66.6 %     125.5        54.6 %     10.0        27.9 %

     Total TYSABRI revenues   $ 588.6       100.0 %   $ 229.9       100.0 %   $ 35.8       100.0 %

Under the terms of a collaboration agreement with Elan, we manufacture TYSABRI and collaborate with Elan on the product's marketing, commercial distribution and on-going development activities. We recognize revenue

for sales of TYSABRI in the U.S. upon Elan's shipment of the product to third party distributors. We recognize revenue for sales of TYSABRI in rest of world at the time of product delivery to our customers and distributors.

Since the reintroduction of TYSABRI in the U.S. and the introduction of TYSABRI in the rest of world in July 2006, we have disclosed five cases of PML, a known side effect, in patients taking TYSABRI in the post marketing setting. These patients were the only confirmed cases of PML reported to us during this period. We continue to monitor the growth of TYSABRI unit sales in light of these results and we continue to develop protocols to potentially mitigate the risk and outcome of PML in patients being treated with TYSABRI.

For 2008 and 2007, we recorded revenue on sales of TYSABRI of $588.6 million and $229.9 million, respectively. The increase in 2008 sales as compared to 2007 sales is primarily due to increased unit shipments due to the growth in the number of patients using TYSABRI.

For 2007 and 2006, we have recorded revenue on sales of TYSABRI of $229.9 million and $35.8 million, respectively. The increase in 2007 sales as compared to 2006 sales is primarily due to increased unit shipments due to the growth in the number of patients using TYSABRI and due to the product being shipped for the entire 12 months during 2007 versus being shipped for only six months in 2006.

During 2007 and 2006, we had product on hand that had been fully written-off in 2005 due to the uncertainties surrounding the TYSABRI suspension but which was available to fill future orders. As we sold TYSABRI in 2007 and 2006, we realized lower than normal cost of sales and, therefore, higher margins, as we shipped the inventory that had been previously written-off. For 2007 and 2006, cost of sales was approximately $12.6 million and $2.6 million, respectively, lower due to the sale of TYSABRI that had been previously written-off. All TYSABRI inventory that had been previously written-off had been shipped by December 31, 2007.

During the year ended December 31, 2008, pursuant to our collaboration agreement with Elan, Elan paid us a $75.0 million milestone payment in order to maintain the current collaboration profit sharing split. We recorded this amount as deferred revenue upon receipt and are recognizing this $75.0 million as product revenue in our consolidated statement of income over the term of our collaboration with Elan based on a units of revenue method whereby the revenue recognized is based on the ratio of units shipped in the current period over the total units expected to be shipped over the remaining term of the collaboration. We recognized $1.5 million of this milestone as revenue for the year ended December 31, 2008. Based on the TYSABRI sales levels achieved through the fourth quarter of 2008, in January 2009, Elan paid us an additional milestone payment of $50.0 million in order to maintain the current collaboration profit sharing split. Revenue from this milestone payment will also be deferred and recognized on a units of revenue model.

FUMADERM

In connection with our June 2006 acquisition of Fumapharm, we began recognizing revenue on sales of FUMADERM to our distributor, Fumedica, in July 2006. In December 2006, we acquired the right to distribute FUMADERM in Germany from Fumedica effective May 1, 2007. In connection with the acquisition of the FUMADERM distribution rights in Germany, we committed to the repurchase of any inventory Fumedica did not sell by May 1, 2007. As a result of this provision, we deferred the recognition of revenue on shipments made to Fumedica through April 30, 2007. We resumed recognizing revenue on sales of FUMADERM into the German market in May 2007. Sales of FUMADERM for 2008, 2007, and 2006 were $43.4 million, $21.5 million, and $9.5 million, respectively. These increases in sales were primarily due to increased volumes.

ZEVALIN

In 2008, 2007, and 2006 sales of ZEVALIN were $4.8 million, $16.9 million, and $17.8 million, respectively. The decrease in total ZEVALIN sales in 2008 as compared to 2007 is primarily due to the sale of the rights to market, sell, manufacture, and develop ZEVALIN in the U.S. to CTI during the fourth quarter of 2007. Beginning in 2008, ZEVALIN product revenue consists only of ZEVALIN sales to Schering AG.

AMEVIVE

In 2008, 2007, and 2006, sales of AMEVIVE were $0.3 million, $0.7 million, and $11.5 million, respectively. The decrease in total AMEVIVE sales is due to the sale, in April 2006, of our worldwide rights and infrastructure related to sales, production, and marketing of AMEVIVE to Astellas.

Although we sold the rights to this product, we continue to report a small amount of product revenues related to shipments made by certain of our overseas joint ventures, which we consolidate.

Provisions for Discounts and Allowances

Revenues from product sales are recognized when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collectibility is reasonably assured. Revenues are recorded net of applicable allowances for trade term discounts, wholesaler incentives, Medicaid rebates, Veteran's Administration, or VA, rebates, managed care rebates, product returns, other applicable allowances and, in 2006, patient assistance and patient replacement goods. The estimates we make with respect to these allowances represent significant judgments.

Effective January 1, 2007, we changed the manner in which we administer our patient assistance and patient replacement goods programs. Prior to January 1, 2007, AVONEX product shipped for these programs was invoiced and recorded as gross product revenue and an offsetting provision for discount and returns was recorded for expected credit requests from the distributor that administers these programs on our behalf (as such, no net revenue was recorded for these shipments). Effective January 1, 2007, we entered into a new arrangement with a distributor. Under the new sales model, gross revenue is not recorded for product shipped to satisfy these programs, and cost of sales is recorded when the product is shipped.

Provisions for discounts and allowances reduced gross product revenues as follows (in millions):

                                                   Year Ended December 31,
                                              2008          2007          2006

        Discounts                           $    67.1     $    45.7     $   102.9
        Contractual adjustments                 149.0         105.2          93.3
        Returns                                  12.2          22.1          38.7

        Total allowances                    $   228.3     $   173.0     $   234.9

        Gross product revenues              $ 3,068.0     $ 2,309.8     $ 2,016.2

        Percent of gross product revenues         7.4 %         7.5 %        11.7 %

An analysis of the amount of, and change in, reserves is as follows (in millions):

                                                                         Contractual
                                                        Discounts        Adjustments       Returns        Total

2008
Beginning Balance                                      $       6.4      $        33.1      $   20.4      $   59.9
Current provisions relating to sales in current year          67.1              150.6          14.7         232.4
Adjustments relating to prior years                              -               (1.6 )        (2.5 )        (4.1 )
Payments/returns relating to sales in current year           (57.8 )           (101.2 )        (0.1 )      (159.1 )
Payments/returns relating to sales in prior years             (6.5 )            (32.8 )       (14.4 )       (53.7 )

Ending Balance                                         $       9.2      $        48.1      $   18.1      $   75.4

2007
Beginning Balance                                      $      12.7      $        30.5      $   17.8      $   61.0
Current provisions relating to sales in current year          45.7              113.1          17.1         175.9
Adjustments relating to prior years                              -               (7.9 )         5.0          (2.9 )
Payments/returns relating to sales in current year           (39.4 )            (72.3 )        (0.4 )      (112.1 )
Payments/returns relating to sales in prior years            (12.6 )            (30.3 )       (19.1 )       (62.0 )

Ending Balance                                         $       6.4      $        33.1      $   20.4      $   59.9

2006
Beginning Balance                                      $      11.6      $        35.7      $    2.3      $   49.6
. . .