QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
−Removed: We are subject to certain risks that may affect our results of operations, cash flows and fair values of assets and liabilities, including volatility in foreign currency exchange rates, interest rate movements and pricing pressures worldwide as well as changes in economic conditions in the markets in which we
−Removed: operate as a result of the COVID-19 pandemic.
+Added: We are subject to certain risks that may affect our results of operations, cash flow and fair values of assets and liabilities, including volatility in foreign currency exchange rates, interest rate movements and equity price exposure as well as changes in economic conditions in the markets in which we operate as a result of the COVID-19 pandemic.
We manage the impact of foreign currency exchange rates and interest rates through various financial instruments, including derivative instruments such as foreign currency forward contracts, interest rate lock contracts and interest rate swap contracts.
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Our results of operations are subject to foreign currency exchange rate fluctuations due to the global nature of our operations.
−Removed: As a result, our consolidated financial position, results of operations and cash flows can be affected by market fluctuations in foreign currency exchange rates, primarily with respect to the Euro, British pound sterling, Canadian dollar, Swiss franc, Japanese yen and South Korean won.
+Added: As a result, our consolidated financial position, results of operations and cash flow can be affected by market fluctuations in foreign currency exchange rates, primarily with respect to the Euro, British pound sterling, Canadian dollar, Swiss franc, Japanese yen and South Korean won.
While the financial results of our global activities are reported in U.S.
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dollar strengthens versus other currencies, the value of the non-U.S.
−Removed: revenues will decline when reported in U.S.
+Added: revenue will decline when reported in U.S.
The impact to net income as a result of a strengthening U.S.
dollar will be partially mitigated by the value of non-U.S.
−Removed: expenses, which will also decline when reported in U.S.
+Added: expense, which will also decline when reported in U.S.
dollar weakens versus other currencies, the value of the non-U.S.
−Removed: revenues and expenses will increase when reported in U.S.
+Added: revenue and expense will increase when reported in U.S.
We have established revenue and operating expense hedging and balance sheet risk management programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign currency exchange rates.
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Revenue and Operating Expense Hedging Program
−Removed: Our foreign currency hedging program is designed to mitigate, over time, a portion of the impact resulting from volatility in exchange rate changes on revenues and operating expenses.
+Added: Our foreign currency hedging program is designed to mitigate, over time, a portion of the impact resulting from volatility in exchange rate changes on revenue and operating expense.
We use foreign currency forward contracts to manage foreign currency risk, with the majority of our forward contracts used to hedge certain forecasted revenue and operating expense transactions denominated in foreign currencies in the next 15 months.
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For a more detailed disclosure of our revenue and operating expense hedging program, please read Note 9, Derivative Instruments, to our consolidated financial statements included in this report.
−Removed: Our ability to mitigate the impact of foreign currency exchange rate changes on revenues and net income diminishes as significant foreign currency exchange rate fluctuations are sustained over extended periods of time.
+Added: Our ability to mitigate the impact of foreign currency exchange rate changes on revenue and net income diminishes as significant foreign currency exchange rate fluctuations are sustained over extended periods of time.
In particular, devaluation or significant deterioration of foreign currency exchange rates are difficult to mitigate and likely to negatively impact earnings.
−Removed: The cash flows from these contracts are reported as operating activities in our consolidated statements of cash flows.
+Added: The cash flow from these contracts are reported as operating activities in our consolidated statements of cash flow.
Balance Sheet Risk Management Hedging Program
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We have not elected hedge accounting for the balance sheet related items.
−Removed: The cash flows from these contracts are reported as operating activities in our consolidated statements of cash flows.
+Added: The cash flow from these contracts are reported as operating activities in our consolidated statements of cash flow.
The following quantitative information includes the impact of currency movements on forward contracts used in our revenue, operating expense and balance sheet hedging programs.
As of December 31, 2021 and 2020, a hypothetical adverse 10.0% movement in foreign currency exchange rates compared to the U.S.
−Removed: dollar across all maturities would result in a hypothetical decrease in the fair value of forward contracts of approximately $458.2 million and $265.0 million, respectively.
+Added: dollar across all maturities
+Added: T a ble of Content s
+Added: would result in a hypothetical decrease in the fair value of forward contracts of approximately $333.1 million and $458.2 million, respectively.
The estimated fair value change was determined by measuring the impact of the hypothetical exchange rate movement on outstanding forward contracts.
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dollar and the South Korean won as a result of our approximately 49.9% ownership interest in Samsung Bioepis.
−Removed: We entered into foreign currency forward contracts to manage the foreign currency risk with our forward contracts used to hedge changes in the spot rate over the next 10 months.
+Added: We entered into foreign currency forward contracts to hedge changes in the spot rate over the next 10 months.
As of December 31, 2021 and 2020, a hypothetical adverse 10.0% movement would result in a hypothetical decrease in fair value of approximately $58.7 million and $56.9 million, respectively.
The estimated fair value was determined by measuring the impact of the hypothetical spot rate movement on outstanding forward contracts.
+Added: We plan to unwind our foreign currency forward contracts in conjunction with the closing of our proposed sale of our ownership interest in Samsung Bioepis to Samsung Biologics.
+Added: Closing of the transaction is currently anticipated in mid-2022, contingent on the effectiveness of a securities registration statement filed by Samsung Biologics and satisfaction of certain regulatory and other customary closing conditions.
Interest Rate Risk
Our investment portfolio includes cash equivalents and short-term investments.
−Removed: The fair value of our marketable securities is subject to change as a result of potential changes in market interest rates, including changes resulting from the impact of the COVID-19 pandemic.
+Added: The fair value of our marketable securities is subject to change as a result of potential changes in market interest rates.
The potential change in fair value for interest rate sensitive instruments has been assessed on a hypothetical 100 basis point adverse movement across all maturities.
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The fair values of our investments were determined using third-party pricing services or other market observable data.
−Removed: Pricing Pressure
−Removed: Governments in certain international markets in which we operate have implemented measures, and may in the future implement new or additional measures, to reduce health care costs to limit the overall level of government expenditures.
−Removed: These measures vary by country and may include, among other things, patient access restrictions, suspensions on price increases, prospective and possible retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases and greater importation of drugs from lower-cost countries.
−Removed: In addition, certain countries set prices by reference to the prices in other countries where our products are marketed.
−Removed: Our inability to obtain and maintain adequate prices in a particular country may not only limit the revenues from our products within that country but may also adversely affect our ability to secure acceptable prices in existing and potential new markets, which may limit market growth.
−Removed: The continued implementation of pricing actions
−Removed: throughout Europe may also lead to higher levels of parallel trade.
−Removed: In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the cost of health care.
−Removed: Legislative and regulatory proposals, enactments to reform health care insurance programs and increasing pressure from social sources could significantly influence the way our products are prescribed and purchased.
−Removed: It is possible that additional federal health care reform measures will be adopted in the future, which could result in increased pricing pressure and reduced reimbursement for our products and otherwise have an adverse impact on our consolidated financial position or results of operations.
−Removed: There is also significant economic pressure on state budgets that may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs.
−Removed: Managed care organizations are also continuing to seek price discounts and, in some cases, impose restrictions on the coverage of certain drugs.
−Removed: Our products continue to face increasing competition in many markets from new originator therapies, generics, prodrugs and biosimilars of existing products and products approved under abbreviated regulatory pathways.
−Removed: Such products are likely to be sold at substantially lower prices than branded products.
−Removed: Accordingly, the introduction of such products, as well as other lower-priced competing products, may significantly reduce both the price that we are able to charge for our products and the volume of products we sell, which will negatively impact our revenues.
−Removed: In addition, in some markets, when a generic or biosimilar version of one of our products is commercialized, it may be automatically substituted for our product and significantly reduce our revenues in a short period of time.
−Removed: Multiple TECFIDERA generic entrants are now in the U.S.
−Removed: market and have deeply discounted prices compared to TECFIDERA.
−Removed: The generic competition for TECFIDERA significantly reduced our TECFIDERA revenues during the year ended December 31, 2020, and is expected to have a substantial negative impact on our TECFIDERA revenues for as long as there is generic competition.
−Removed: We are subject to credit risk from our accounts receivable related to our product sales.
−Removed: The majority of our accounts receivable arise from product sales in the U.S.
−Removed: and Europe with concentrations of credit risk limited due to the wide variety of customers and markets using our products as well as their dispersion across many different geographic areas.
−Removed: Our accounts receivable are primarily due from wholesale and other
−Removed: third-party distributors, public hospitals, pharmacies and other government entities.
−Removed: We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile.
+Added: Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, investments, derivatives and accounts receivable.
+Added: We attempt to minimize the risks related
+Added: to cash and cash equivalents and investments by investing in a broad and diverse range of financial instruments.
+Added: We have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity.
+Added: Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer.
+Added: We minimize credit risk resulting from derivative instruments by choosing only highly rated financial institutions as counterparties.
We operate in certain countries where weakness in economic conditions, including as a result of the COVID-19 pandemic, can result in extended collection periods.
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We believe that our allowance for doubtful accounts was adequate as of December 31, 2021 and 2020.
−Removed: However, if significant changes occur in the availability of government funding or the reimbursement practices of these or other governments, we may not be able to collect on amounts due to us from customers in such countries and our results of operations could be adversely affected.
+Added: Equity Price Risk
+Added: Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies.
+Added: While we are holding such securities, we are subject to equity price risk, and this may increase the volatility of our income in future periods due to changes in the fair value of equity investments.
+Added: We may sell such equity securities based on our business considerations, which may include limiting our price risk.
+Added: Changes in the fair value of these equity securities are impacted by the volatility of the stock market and changes in general economic conditions, among other factors.
+Added: The potential change in fair value for equity price sensitive instruments has been assessed on a hypothetical 10.0% adverse movement.
+Added: As of December 31, 2021 and 2020, a hypothetical adverse 10.0% movement would result in a hypothetical decrease in fair value of approximately $104.8 million and $188.8 million, respectively.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is contained on pages F-1 through F-78 of this report and is incorporated herein by reference.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.