|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,171.3
|
|
|
$
|
1,228.9
|
|
|
Restricted cash included in other current assets
|
$
|
31.5
|
|
|
$
|
0.1
|
|
|
Restricted cash included in other noncurrent assets
|
$
|
0.3
|
|
|
$
|
2.1
|
|
|
Total cash and cash equivalents and restricted cash reported in the condensed consolidated statement of cash flows
|
$
|
2,203.1
|
|
|
$
|
1,231.1
|
|
Amounts included in restricted cash primarily represent funds placed in escrow as a result of the judicial order issued by the Federal Court of Canada related to SOLIRIS pricing (Note 18).
The accompanying notes are an integral part of these condensed consolidated financial statements.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
Alexion Pharmaceuticals, Inc. (Alexion, the Company, we, our or us) is a global biopharmaceutical company focused on serving patients and families affected by rare diseases through the innovation, development and commercialization of life-changing therapies.
We are the global leader in complement inhibition and have developed and commercialize two approved complement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS), as well as the first approved complement inhibitor to treat anti-acetylcholine receptor (AChR) antibody-positive generalized myasthenia gravis (gMG) and anti-AQP4 antibody-positive neuromyelitis optica spectrum disorder (NMOSD). In addition, Alexion has two highly innovative enzyme replacement therapies and the first and only approved therapies for patients with life-threatening and ultra-rare metabolic disorders, hypophosphatasia (HPP) and lysosomal acid lipase deficiency (LAL-D).
In addition to our marketed therapies, we have a diverse pipeline resulting from internal innovation and business development with strategic focus in hematology and nephrology, neurology, metabolics and neonatal Fc receptor (FcRn). We were incorporated in 1992 under the laws of the State of Delaware.
|
|
|
|
2.
|
Basis of Presentation and Principles of Consolidation
|
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These accounting principles were applied on a basis consistent with those of the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our financial statements for interim periods presented in accordance with accounting principles generally accepted in the United States. The condensed consolidated balance sheet as of December 31, 2018 was derived from audited annual financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year or any other future periods.
The financial statements of our subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for stockholders' equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss), net of tax, in stockholders' equity. Foreign currency transaction gains and losses are included in the results of operations in other income and expense.
The accompanying unaudited condensed consolidated financial statements include the accounts of Alexion Pharmaceuticals, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Our significant accounting policies are described in Note 1 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. Updates to our accounting policies, including impacts from the adoption of new accounting standards, are discussed below in this Note 2 and within Note 17, Leases.
Reclassifications
Certain items in the prior period’s condensed consolidated financial statements have been reclassified to conform to the current presentation.
New Accounting Pronouncements
Accounting Standards Update (ASU) 2016-13, "Measurement of Credit Losses on Financial Instruments": In June 2016, the Financial Accounting Standards Board (FASB) issued a new standard intended to improve reporting requirements specific to loans, receivables and other financial instruments. The new standard requires that credit losses
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
on financial assets measured at amortized cost be determined using an expected loss model, instead of the current incurred loss model, and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit losses and limited to the amount by which carrying value exceeds fair value. The new standard also requires enhanced disclosure of credit risk associated with financial assets. The standard is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. We do not expect the adoption of this standard to have a significant impact on our financial statements; however, the impact will depend on the composition of the Company's portfolio of financial instruments, and the current and forecasted economic conditions as of the adoption date.
ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract": In August 2018, the FASB issued a new standard on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement (CCA) that aligns the requirements for capitalizing implementation costs in a CCA service contract with existing internal-use software guidance. The standard also provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period and can be adopted prospectively or retrospectively. We intend to adopt this new guidance on a prospective basis. We do not expect the adoption of this standard to have a significant impact on our financial statements; however, the adoption of this standard will result in an increase in capitalized assets related to qualifying CCA implementation costs incurred after the adoption date.
Recently Adopted Accounting Pronouncements
ASU 2016-02, "Leases": In February 2016, the FASB issued a new standard that requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
We adopted the new standard on January 1, 2019 using the modified retrospective approach. We have elected to apply the transition method that allows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in the consolidated financial statements and recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. We also elected the “package of practical expedients”, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.
Results for reporting periods beginning after January 1, 2019 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Upon adoption of the new lease standard, on January 1, 2019, we derecognized $472.8 of property, plant and equipment and other assets and $372.2 of facility lease obligations associated with previously existing build-to-suit arrangements. We capitalized ROU assets of $326.1, inclusive of opening adjustments of $70.8 primarily related to prepaid rent existing at transition, and $255.3 of lease liabilities, within our condensed consolidated balance sheets upon adoption. At transition, we recorded a decrease of $90.3 to retained earnings, net of tax, primarily related to our derecognition of previously recorded build-to-suit arrangements.
ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income": In February 2018, the FASB issued a new standard that permits entities to make a one-time reclassification from accumulated other comprehensive income (AOCI) to retained earnings for the stranded tax effects resulting from the newly enacted corporate tax rates under the Tax Cuts and Jobs Act (the Tax Act), that was effective for the year ended December 31, 2017. We adopted the new standard on January 1, 2019 and elected not to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. We continue to release disproportionate income tax effects from AOCI based on the aggregate portfolio approach. The adoption of this standard did not have an impact on our condensed consolidated financial statements.
Wilson Therapeutics AB
On May 25, 2018, we completed the acquisition of Wilson Therapeutics AB (publ), a biopharmaceutical company based in Stockholm, Sweden (Wilson Therapeutics) that developed a novel therapy for patients with rare copper-mediated disorders, pursuant to a recommended public cash offer of SEK 232 for each share of stock of Wilson Therapeutics.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
As a result of the acquisition, we added WTX101 (ALXN1840), a highly innovative drug candidate that is currently in Phase III clinical trials for the treatment of patients with Wilson disease, to our clinical pipeline.
The acquisition of Wilson Therapeutics was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired was concentrated in a single asset, WTX101.
The following table summarizes the total consideration for the acquisition and the value of assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
Consideration
|
|
|
Cash paid for acquisition of Wilson Therapeutics outstanding shares
|
$
|
749.3
|
|
|
Transaction costs
|
15.1
|
|
|
Total consideration
|
$
|
764.4
|
|
|
|
|
|
Assets Acquired and Liabilities Assumed
|
|
|
Cash
|
$
|
45.1
|
|
|
In-process research & development
|
803.7
|
|
|
Employee related liabilities
|
(71.4
|
)
|
|
Other assets and liabilities
|
(13.0
|
)
|
|
Total net assets acquired
|
$
|
764.4
|
|
The acquired in-process research and development asset relates to WTX101. Due to the stage of development of this asset at the date of acquisition, significant risk remained and it was not yet probable that there was future economic benefit from this asset. Absent successful clinical results and regulatory approval for the asset, there was no alternative future use associated with WTX101. Accordingly, the value of this asset was expensed during the second quarter of 2018.
Employee related liabilities include the value of outstanding employee equity incentive awards that were accelerated in connection with the Wilson Therapeutics acquisition that have been settled in cash. Also included in this amount were employer tax obligations associated with the employee equity incentive awards.
In connection with rights to WTX101 that were previously acquired by Wilson Therapeutics from third parties, we could be required to pay up to approximately $19.0 if certain development, regulatory and commercial milestones are met over time, as well as royalties on commercial sales.
Syntimmune, Inc.
In September 2018, we entered into a definitive agreement to acquire Syntimmune, Inc. (Syntimmune), a clinical-stage biotechnology company developing an antibody therapy targeting the FcRn. Syntimmune’s lead candidate, SYNT001 (ALXN1830), is a monoclonal antibody that is designed to inhibit the interaction of FcRn with Immunoglobulin G (IgG) and IgG immune complexes, that is being studied for the treatment of IgG-mediated autoimmune diseases. The acquisition of Syntimmune closed in November 2018. Under the terms of the acquisition agreement, Alexion acquired Syntimmune for an upfront cash payment of $400.0, with the potential for additional milestone-dependent payments of up to $800.0, for a total potential value of up to $1,200.0.
The acquisition of Syntimmune was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired was concentrated in a single in-process research and development asset, SYNT001.
In connection with the agreement of the final working capital adjustment for the Syntimmune acquisition, we recognized a benefit of $4.1 associated with previously acquired in-process research and development in the second quarter 2019.
The following table summarizes the total consideration for the acquisition and the value of the assets acquired and liabilities assumed:
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
Consideration
|
|
|
Upfront payment for acquisition of Syntimmune outstanding shares
|
$
|
400.0
|
|
|
Cash acquired
|
4.2
|
|
|
Working capital adjustment
|
2.3
|
|
|
Transaction costs
|
0.9
|
|
|
Total consideration
|
$
|
407.4
|
|
|
|
|
|
Assets Acquired and Liabilities Assumed
|
|
|
Cash
|
$
|
4.2
|
|
|
In-process research & development
|
375.2
|
|
|
Deferred tax assets
|
25.1
|
|
|
Other assets and liabilities
|
2.9
|
|
|
Total net assets acquired
|
$
|
407.4
|
|
The acquired in-process research and development asset relates to SYNT001. Due to the stage of development of this asset at the date of acquisition, significant risk remained and it was not yet probable that there was future economic benefit from this asset. Absent successful clinical results and regulatory approval for the asset, there was no alternative future use associated with SYNT001. Accordingly, the value of this asset was expensed during the fourth quarter of 2018.
The components of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Raw materials
|
$
|
36.0
|
|
|
$
|
31.4
|
|
|
Work-in-process
|
180.4
|
|
|
90.4
|
|
|
Finished goods
|
360.3
|
|
|
350.7
|
|
|
|
$
|
576.7
|
|
|
$
|
472.5
|
|
5.Intangible Assets and Goodwill
The following table summarizes the carrying amount of our intangible assets and goodwill, net of accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Estimated
Life (years)
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Licensing rights
|
5-8
|
|
$
|
47.0
|
|
|
$
|
(32.8
|
)
|
|
$
|
14.2
|
|
|
$
|
39.0
|
|
|
$
|
(29.3
|
)
|
|
$
|
9.7
|
|
|
Patents
|
7
|
|
10.5
|
|
|
(10.5
|
)
|
|
—
|
|
|
10.5
|
|
|
(10.5
|
)
|
|
—
|
|
|
Purchased technology
|
6-16
|
|
4,710.5
|
|
|
(1,314.8
|
)
|
|
3,395.7
|
|
|
4,710.5
|
|
|
(1,079.1
|
)
|
|
3,631.4
|
|
|
Other intangibles
|
5
|
|
0.4
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
0.4
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
Total
|
|
|
$
|
4,768.4
|
|
|
$
|
(1,358.3
|
)
|
|
$
|
3,410.1
|
|
|
$
|
4,760.4
|
|
|
$
|
(1,119.1
|
)
|
|
$
|
3,641.3
|
|
|
Goodwill
|
Indefinite
|
|
$
|
5,040.3
|
|
|
$
|
(2.9
|
)
|
|
$
|
5,037.4
|
|
|
$
|
5,040.3
|
|
|
$
|
(2.9
|
)
|
|
$
|
5,037.4
|
|
Amortization expense for the three months ended September 30, 2019 and 2018 was $77.5 and $80.2, respectively. Amortization expense for the nine months ended September 30, 2019 and 2018 was $239.2 and $240.8, respectively. As of September 30, 2019, assuming no changes in the gross cost basis of intangible assets, the total estimated amortization expense for finite-lived intangible assets is $74.0 for the three months ending December 31, 2019, and approximately $296.0 for each of the years ending December 31, 2020 through December 31, 2024.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
As of September 30, 2019, the net book value of our purchased technology includes $3,057.5 associated with the KANUMA intangible asset, which we acquired in the acquisition of Synageva BioPharma Corp. As part of our standard quarterly procedures, we reviewed the KANUMA asset as of September 30, 2019 and determined that there were no indicators of impairment. Cash flow models used in our assessments are based on our commercial experience to date with KANUMA and require the use of significant estimates, which include, but are not limited to, long-range pricing expectations and patient-related assumptions, including patient identification, conversion and retention rates. We will continue to review the related valuation and accounting of this asset as new information becomes available to us.
On June 7, 2018, we entered into an Amended and Restated Credit Agreement (the Credit Agreement), with Bank of America, N.A. as Administrative Agent. The Credit Agreement amended and restated our credit agreement dated as of June 22, 2015 (the Prior Credit Agreement).
The Credit Agreement provides for a $1,000.0 revolving credit facility and a $2,612.5 term loan facility. The revolving credit facility and the term loan facility mature on June 7, 2023. Beginning with the quarter ending June 30, 2019, we are required to make payments of 5.00% of the original principal amount of the term loan facility annually, payable in equal quarterly installments.
In connection with entering into the Credit Agreement and the Prior Credit Agreement, we paid an aggregate of $53.1 in financing costs. Financing costs are amortized as interest expense over the life of the debt. Amortization expense associated with deferred financing costs for the three months ended September 30, 2019 and 2018 was $1.3 and amortization expense associated with deferred financing costs for the nine months ended September 30, 2019 and 2018 was $3.8 and $6.7, respectively. Remaining unamortized deferred financing costs as of September 30, 2019 and December 31, 2018 were $17.0 and $20.8, respectively.
We made principal payments of $32.7 and $65.4 on the term loan during the three and nine months ended September 30, 2019, respectively, and as of September 30, 2019, we had $2,547.1 outstanding on the term loan. In January 2019, we paid the outstanding balance on the revolving credit facility of $250.0 in full and we had no outstanding borrowings under the revolving credit facility as of September 30, 2019. As of September 30, 2019, we had open letters of credit of $1.0 that offset our availability in the revolving facility.
The fair value of our long term debt, which is measured using Level 2 inputs of the fair value hierarchy, approximates book value.
|
|
|
|
7.
|
Earnings Per Common Share
|
Basic earnings per common share (EPS) is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the applicable period. For purposes of calculating diluted EPS, the denominator reflects the potential dilution that could occur if stock options, unvested restricted stock units or other contracts to issue common stock were exercised or converted into common stock, using the treasury stock method.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The following table summarizes the calculation of basic and diluted EPS for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net income used for basic and diluted calculation
|
$
|
467.6
|
|
|
$
|
330.9
|
|
|
$
|
1,515.3
|
|
|
$
|
122.6
|
|
|
Shares used in computing earnings per common share—basic
|
223.3
|
|
|
222.9
|
|
|
223.8
|
|
|
222.5
|
|
|
Weighted-average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock awards
|
1.2
|
|
|
1.7
|
|
|
1.6
|
|
|
1.7
|
|
|
Shares used in computing earnings per common share—diluted
|
224.5
|
|
|
224.6
|
|
|
225.4
|
|
|
224.2
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
2.09
|
|
|
$
|
1.48
|
|
|
$
|
6.77
|
|
|
$
|
0.55
|
|
|
Diluted
|
$
|
2.08
|
|
|
$
|
1.47
|
|
|
$
|
6.72
|
|
|
$
|
0.55
|
|
We exclude from diluted EPS the weighted-average number of securities whose effect is anti-dilutive. Excluded from the calculation of diluted EPS for the three months ended September 30, 2019 and 2018 were 3.3 and 2.5 shares of common stock, respectively, because their effect was anti-dilutive. Similarly, we excluded 3.1 and 2.9 shares of common stock from the calculation of EPS for the nine months ended September 30, 2019 and 2018, respectively, because their effect was anti-dilutive.
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of available-for-sale debt securities by type of security as of September 30, 2019 and December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Holding Gains
|
|
Gross Unrealized Holding Losses
|
|
Fair Value
|
|
Commercial paper
|
|
$
|
287.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
287.3
|
|
|
Corporate bonds
|
|
4.6
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
|
Other government-related obligations:
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
130.5
|
|
|
—
|
|
|
—
|
|
|
130.5
|
|
|
Foreign
|
|
8.8
|
|
|
—
|
|
|
—
|
|
|
8.8
|
|
|
Bank certificates of deposit
|
|
15.6
|
|
|
—
|
|
|
—
|
|
|
15.6
|
|
|
Total available-for-sale debt securities
|
|
$
|
446.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
446.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Holding Gains
|
|
Gross Unrealized Holding Losses
|
|
Fair Value
|
|
Commercial paper
|
|
$
|
52.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52.1
|
|
|
Corporate bonds
|
|
122.9
|
|
|
—
|
|
|
(0.1
|
)
|
|
122.8
|
|
|
Other government-related obligations:
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
17.5
|
|
|
—
|
|
|
—
|
|
|
17.5
|
|
|
Bank certificates of deposit
|
|
33.2
|
|
|
—
|
|
|
—
|
|
|
33.2
|
|
|
Total available-for-sale debt securities
|
|
$
|
225.7
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
225.6
|
|
The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of September 30, 2019 and December 31, 2018 was $0.7 and $128.7, respectively. We did not have any investments in a continuous
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
unrealized loss position for more than twelve months as of September 30, 2019 and December 31, 2018. As of September 30, 2019, we believe that the cost basis of our available-for-sale debt securities is recoverable.
The fair values of available-for-sale debt securities by classification in the condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Cash and cash equivalents
|
$
|
423.2
|
|
|
$
|
43.8
|
|
|
Marketable securities
|
23.6
|
|
|
181.8
|
|
|
|
$
|
446.8
|
|
|
$
|
225.6
|
|
The fair values of available-for-sale debt securities at September 30, 2019, by contractual maturity, are summarized as follows:
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Due in one year or less
|
$
|
443.2
|
|
|
Due after one year through three years
|
3.6
|
|
|
|
$
|
446.8
|
|
We sponsor a nonqualified deferred compensation plan which allows certain highly-compensated employees to elect to defer income to future periods. Participants in the plan earn a return on their deferrals based on several investment options, which mirror returns on underlying mutual fund investments. We choose to invest in the underlying mutual fund investments to offset the liability associated with our nonqualified deferred compensation plan. These mutual fund investments are valued at net asset value per share and are carried at fair value with gains and losses included in investment income. The changes in the underlying liability to the employee are recorded in operating expenses. As of September 30, 2019 and December 31, 2018, the fair value of these investments was $20.8 and $16.5, respectively.
We utilize the specific identification method in computing realized gains and losses. Realized gains and losses on our marketable securities were not material for the three and nine months ended September 30, 2019 and 2018.
|
|
|
|
9.
|
Derivative Instruments and Hedging Activities
|
We operate internationally and, in the normal course of business, are exposed to fluctuations in foreign currency exchange rates. The exposures result from portions of our revenues, as well as the related receivables, and expenses that are denominated in currencies other than the U.S. dollar, primarily the Euro and Japanese Yen. We are also exposed to fluctuations in interest rates on outstanding borrowings under our revolving credit facility, if any, and term loan facility. We manage these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.
We enter into foreign exchange forward contracts, with durations of up to 60 months, to hedge exposures resulting from portions of our forecasted revenues, including intercompany revenues, and certain forecasted expenses that are denominated in currencies other than the U.S. dollar. The purpose of these hedges is to reduce the volatility of exchange rate fluctuations on our operating results. These hedges are designated as cash flow hedges upon contract inception. As of September 30, 2019, we had open revenue related foreign exchange forward contracts with notional amounts totaling $1,211.9 that qualified for hedge accounting with current contract maturities through May 2021. As of September 30, 2019, we had open expense related foreign exchange forward contracts with notional amounts totaling $15.6 that qualified for hedge accounting with contract maturities through September 2022.
To achieve a desired mix of floating and fixed interest rates on our term loan, we enter into interest rate swap agreements that qualify for and are designated as cash flow hedges. These contracts convert the floating interest rate on a portion of our debt to a fixed rate, plus a borrowing spread.
The following table summarizes the total interest rate swap contracts executed as of September 30, 2019:
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
Type of Interest Rate Swap Contract
|
Notional Amount
|
Effective Date
|
Termination Date
|
Fixed Interest Rate or Rate Range
|
|
Floating to Fixed
|
1,531.3
|
December 2016 - January 2018
|
December 2019
|
0.98% - 1.62%
|
|
Floating to Fixed
|
450.0
|
December 2018
|
December 2022
|
2.60% - 2.79%
|
|
Floating to Fixed
|
300.0
|
January 2019
|
December 2019
|
2.08%
|
|
Floating to Fixed
|
1,300.0
|
December 2019
|
December 2022
|
2.37% - 2.83%
|
The amount of gains and (losses) recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 from foreign exchange and interest rate swap contracts that qualified as cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Three months ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Financial Statement Line Item in which the Effects of Cash Flow Hedges are Recorded
|
Net Product Sales
|
|
Interest Expense
|
|
Net Product Sales
|
|
Interest Expense
|
|
Total amount presented in the Condensed Consolidated Statements of Operations
|
$
|
1,263.1
|
|
|
$
|
(17.9
|
)
|
|
$
|
1,026.5
|
|
|
$
|
(24.6
|
)
|
|
Impact of cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
11.0
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
$
|
—
|
|
|
Interest rate swap contracts
|
$
|
—
|
|
|
$
|
3.4
|
|
|
$
|
—
|
|
|
$
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
Nine months ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Financial Statement Line Item in which the Effects of Cash Flow Hedges are Recorded
|
Net Product Sales
|
|
Interest Expense
|
|
Net Product Sales
|
|
Interest Expense
|
|
Total amount presented in the Condensed Consolidated Statements of Operations
|
$
|
3,605.8
|
|
|
$
|
(56.1
|
)
|
|
$
|
3,001.6
|
|
|
$
|
(73.7
|
)
|
|
Impact of cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
27.1
|
|
|
$
|
—
|
|
|
$
|
(11.5
|
)
|
|
$
|
—
|
|
|
Interest rate swap contracts
|
$
|
—
|
|
|
$
|
12.5
|
|
|
$
|
—
|
|
|
$
|
8.5
|
|
The impact on AOCI from foreign exchange and interest rate swap contracts that qualified as cash flow hedges, for the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Foreign Exchange Forward Contracts:
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in AOCI, net of tax
|
$
|
30.5
|
|
|
$
|
9.8
|
|
|
$
|
40.8
|
|
|
$
|
26.3
|
|
|
Gain (loss) reclassified from AOCI to net product sales, net of tax
|
$
|
8.6
|
|
|
$
|
2.5
|
|
|
$
|
21.0
|
|
|
$
|
(8.9
|
)
|
|
Interest Rate Swap Contracts:
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in AOCI, net of tax
|
$
|
(7.1
|
)
|
|
$
|
7.2
|
|
|
$
|
(45.9
|
)
|
|
$
|
18.4
|
|
|
Gain (loss) reclassified from AOCI to interest expense, net of tax
|
$
|
2.6
|
|
|
$
|
3.1
|
|
|
$
|
9.6
|
|
|
$
|
6.7
|
|
Assuming no change in foreign exchange rates from market rates at September 30, 2019, $29.1 of gains recognized in AOCI will be reclassified to revenue over the next 12 months. Assuming no change in LIBOR-based interest rates from market rates at September 30, 2019, $14.0 of losses recognized in AOCI will be reclassified to interest expense over the next 12 months. Amounts recognized in AOCI for expense related foreign exchange forward contracts were immaterial at September 30, 2019.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
We enter into foreign exchange forward contracts, with durations of up to 8 months, designed to limit the balance sheet exposure of monetary assets and liabilities. We enter into these hedges to reduce the impact of fluctuating exchange rates on our operating results. Hedge accounting is not applied to these derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures. As of September 30, 2019, the notional amount of foreign exchange contracts where hedge accounting is not applied was $1,103.2.
We recognized a gain (loss) of $1.4 and $6.8, in other income and (expense) for the three months ended September 30, 2019 and 2018, respectively, associated with the foreign exchange contracts not designated as hedging instruments. We recognized a gain (loss) of $(1.2) and $17.1, in other income and (expense) for the nine months ended September 30, 2019 and 2018, respectively, associated with the foreign exchange contracts not designated as hedging instruments. These amounts were partially offset by gains or losses on monetary assets and liabilities.
The following tables summarize the fair value of outstanding derivatives as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets
|
|
$
|
32.5
|
|
|
Other current liabilities
|
|
$
|
3.6
|
|
|
Foreign exchange forward contracts
|
Other assets
|
|
4.1
|
|
|
Other liabilities
|
|
0.8
|
|
|
Interest rate swap contracts
|
Prepaid expenses and other current assets
|
|
2.4
|
|
|
Other current liabilities
|
|
16.4
|
|
|
Interest rate swap contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
55.7
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets
|
|
10.3
|
|
|
Other current liabilities
|
|
13.5
|
|
|
Total fair value of derivative instruments
|
|
|
$
|
49.3
|
|
|
|
|
$
|
90.0
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets
|
|
$
|
16.9
|
|
|
Other current liabilities
|
|
$
|
7.3
|
|
|
Foreign exchange forward contracts
|
Other assets
|
|
0.3
|
|
|
Other liabilities
|
|
3.1
|
|
|
Interest rate swap contracts
|
Prepaid expenses and other current assets
|
|
20.1
|
|
|
Other current liabilities
|
|
0.8
|
|
|
Interest rate swap contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
17.3
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets
|
|
23.6
|
|
|
Other current liabilities
|
|
11.5
|
|
|
Total fair value of derivative instruments
|
|
|
$
|
60.9
|
|
|
|
|
$
|
40.0
|
|
Although we do not offset derivative assets and liabilities within our condensed consolidated balance sheets, our International Swap and Derivatives Association agreements provide for net settlement of transactions that are due to or from the same counterparty upon early termination of the agreement due to an event of default or other termination event. The following tables summarize the potential effect on our condensed consolidated balance sheets of offsetting our foreign exchange forward contracts and interest rate contracts subject to such provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
|
|
|
|
Description
|
|
Gross Amounts of Recognized Assets/Liabilities
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheet
|
|
Net Amounts of Assets/Liabilities Presented in the Condensed Consolidated Balance Sheet
|
|
Derivative Financial Instruments
|
|
Cash Collateral Received (Pledged)
|
|
Net Amount
|
|
Derivative assets
|
|
$
|
49.3
|
|
|
$
|
—
|
|
|
$
|
49.3
|
|
|
$
|
(11.8
|
)
|
|
$
|
—
|
|
|
$
|
37.5
|
|
|
Derivative liabilities
|
|
(90.0
|
)
|
|
—
|
|
|
(90.0
|
)
|
|
11.8
|
|
|
—
|
|
|
(78.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
|
|
|
|
Description
|
|
Gross Amounts of Recognized Assets/Liabilities
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheet
|
|
Net Amounts of Assets/Liabilities Presented in the Condensed Consolidated Balance Sheet
|
|
Derivative Financial Instruments
|
|
Cash Collateral Received (Pledged)
|
|
Net Amount
|
|
Derivative assets
|
|
$
|
60.9
|
|
|
$
|
—
|
|
|
$
|
60.9
|
|
|
$
|
(30.2
|
)
|
|
$
|
—
|
|
|
$
|
30.7
|
|
|
Derivative liabilities
|
|
(40.0
|
)
|
|
—
|
|
|
(40.0
|
)
|
|
30.2
|
|
|
—
|
|
|
(9.8
|
)
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
Other investments include strategic investments in equity securities of certain biotechnology companies which we acquired in connection with license and option agreements. These investments are included in other assets in our condensed consolidated balance sheets.
Moderna
During 2014, we purchased $37.5 of preferred stock of Moderna Therapeutics, Inc. (Moderna), a privately held biotechnology company, which was recorded at cost. During the first quarter 2018, Moderna announced the completion of a new round of financing. As a result, we recognized an unrealized gain of $100.8 in investment income during the first quarter 2018 to adjust our investment in Moderna to fair value as of the date of the observable price change, based on the per share price in Moderna's new round of financing. There were no observable price changes during the second and third quarters of 2018.
On December 6, 2018, Moderna completed its initial public offering (IPO) and shares of Moderna began trading on the Nasdaq Global Select Market under the symbol “MRNA.” As part of the IPO, our preferred stock was converted into Moderna common stock and subject to a one year lock-up period. As our equity investment in Moderna common stock now has a readily determinable fair value, we are recording the investment at fair value, with the effects of the holding period restriction estimated using an option pricing valuation model. During the three and nine months ended September 30, 2019, we recognized an unrealized gain of $12.3 and $13.1, respectively, in investment income to adjust our investment in Moderna to fair value as of September 30, 2019.
The fair value of this investment was $95.0 and $81.9 as of September 30, 2019 and December 31, 2018, respectively.
Dicerna
In October 2018, we purchased $10.3 of Dicerna Pharmaceuticals Inc. (Dicerna) common stock in connection with an agreement that we entered into with Dicerna, a publicly-traded biopharmaceutical company. As our equity investment in Dicerna common stock has a readily determinable fair value, we are recording the investment at fair value. During the three and nine months ended September 30, 2019, we recognized an unrealized (loss) gain of $(1.1) and $3.1, respectively, in investment income to adjust our equity investment in Dicerna to fair value as of September 30, 2019.
The fair value of this investment was $12.0 and $8.9 as of September 30, 2019 and December 31, 2018, respectively.
Caelum
In January 2019, we purchased $41.0 of preferred stock of Caelum Biosciences (Caelum), a privately-held biotechnology company, and a $16.1 option to acquire the remaining equity in Caelum in connection with an agreement that we entered into with Caelum, see Note 18, “Commitments and Contingencies” for additional information on the agreement. As our equity investment in Caelum and the option to acquire the remaining equity in Caelum do not have a readily determinable fair value, we are recording the assets at cost, less impairment, and adjusted for any subsequent changes resulting from an observable price change in an orderly transaction for identical or similar equity securities of the same issuer.
There were no observable price changes associated with these assets during the three and nine months ended September 30, 2019. The carrying value of the investment and option of $41.0 and $16.1, respectively, were not impaired as of September 30, 2019.
Zealand
In March 2019, we purchased $13.8 of Zealand Pharma A/S (Zealand) common stock in connection with an agreement that we entered into with Zealand, a publicly-traded biopharmaceutical company based in Copenhagen, Denmark, see Note 18, “Commitments and Contingencies” for additional information on the agreement. As our equity investment in Zealand common stock has a readily determinable fair value, we are recording the investment at fair value. During the three and nine months ended September 30, 2019, we recognized an unrealized gain of $3.7 and $7.3, respectively, in investment income to adjust our equity investment in Zealand to fair value as of September 30, 2019.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The fair value of this investment was $20.4 as of September 30, 2019.
Eidos
In September 2019, we purchased $19.9 of Eidos Therapeutics, Inc. (Eidos) common stock, in connection with an agreement that we entered into with Eidos, a publicly-traded biopharmaceutical company and subsidiary of BridgeBio Pharma, Inc., see Note 18, “Commitments and Contingencies” for additional information on the agreement. As our equity investment in Eidos common stock has a readily determinable fair value, we are recording the investment at fair value, with the effects of a one year holding period restriction estimated using an option pricing valuation model. During the three and nine months ended September 30, 2019, we recognized an unrealized loss of $2.9 in investment income to adjust our equity investment in Eidos to fair value as of September 30, 2019.
The fair value of this investment was $17.0 as of September 30, 2019.
In November 2012, our Board of Directors authorized a share repurchase program. In February 2017, our Board of Directors increased the amount that we are authorized to expend on future repurchases to $1,000.0 under the repurchase program, which superseded all prior repurchase programs. The repurchase program does not have an expiration date and we are not obligated to acquire a particular number of shares. The repurchase program may be discontinued at any time at our discretion. Under the program, we repurchased 3.1 shares of our common stock at a cost of $334.6 during the three months ended September 30, 2019. The Company did not repurchase any shares during the three months ended September 30, 2018. During the nine months ended September 30, 2019 and 2018, we repurchased 3.5 and 0.7 shares of our common stock at a cost of $383.5 and $85.0, respectively.
Subsequent to September 30, 2019, we repurchased 0.1 shares of common stock under our repurchase program at a cost of $7.0. As of October 21, 2019, there is a total of $60.9 remaining for repurchases under the repurchase program.
|
|
|
|
12.
|
Other Comprehensive Income and Accumulated Other Comprehensive Income
|
The following tables summarize the changes in AOCI, by component, for the nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
Unrealized Gains (Losses) from Debt Securities
|
|
Unrealized Gains (Losses) from Hedging Activities
|
|
Foreign Currency Translation Adjustment
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
|
Balances, December 31, 2018
|
$
|
(2.6
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
9.6
|
|
|
$
|
(16.4
|
)
|
|
$
|
(9.7
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
0.2
|
|
|
(5.1
|
)
|
|
(3.0
|
)
|
|
(7.9
|
)
|
|
Amounts reclassified from other comprehensive income
|
—
|
|
|
—
|
|
|
(30.6
|
)
|
|
—
|
|
|
(30.6
|
)
|
|
Net other comprehensive income (loss)
|
—
|
|
|
0.2
|
|
|
(35.7
|
)
|
|
(3.0
|
)
|
|
(38.5
|
)
|
|
Balances, September 30, 2019
|
$
|
(2.6
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(26.1
|
)
|
|
$
|
(19.4
|
)
|
|
$
|
(48.2
|
)
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
Unrealized Gains (Losses) from Debt Securities
|
|
Unrealized Gains (Losses) from Hedging Activities
|
|
Foreign Currency Translation Adjustment
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
|
Balances, December 31, 2017
|
$
|
(4.8
|
)
|
|
$
|
0.2
|
|
|
$
|
(13.9
|
)
|
|
$
|
(15.9
|
)
|
|
$
|
(34.4
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
1.2
|
|
|
0.2
|
|
|
44.7
|
|
|
(6.0
|
)
|
|
40.1
|
|
|
Amounts reclassified from other comprehensive income
|
(0.5
|
)
|
|
(0.5
|
)
|
|
2.2
|
|
|
—
|
|
|
1.2
|
|
|
Net other comprehensive income (loss)
|
0.7
|
|
|
(0.3
|
)
|
|
46.9
|
|
|
(6.0
|
)
|
|
41.3
|
|
|
Balances, September 30, 2018
|
$
|
(4.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
33.0
|
|
|
$
|
(21.9
|
)
|
|
$
|
6.9
|
|
The table below provides details regarding significant reclassifications from AOCI during the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amount Reclassified From Accumulated Other Comprehensive Income during the three months ended September 30,
|
|
Amount Reclassified From Accumulated Other Comprehensive Income during the nine months ended September 30,
|
|
Affected Line Item in the Condensed Consolidated Statements of Operations
|
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
Unrealized Gains (Losses) on Hedging Activity
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
11.0
|
|
$
|
3.3
|
|
|
$
|
27.1
|
|
$
|
(11.5
|
)
|
|
Net product sales
|
|
Interest rate swap contracts
|
|
3.4
|
|
4.0
|
|
|
12.5
|
|
8.5
|
|
|
Interest expense
|
|
|
|
14.4
|
|
7.3
|
|
|
39.6
|
|
(3.0
|
)
|
|
|
|
|
|
(3.2
|
)
|
(1.7
|
)
|
|
(9.0
|
)
|
0.8
|
|
|
Income tax (benefit) expense
|
|
|
|
$
|
11.2
|
|
$
|
5.6
|
|
|
$
|
30.6
|
|
$
|
(2.2
|
)
|
|
|
|
|
|
|
13.
|
Fair Value Measurement
|
Authoritative guidance establishes a valuation hierarchy for disclosure of the inputs to the valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.
The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
September 30, 2019
|
|
Balance Sheet
Classification
|
Type of Instrument
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Cash equivalents
|
Money market funds
|
$
|
529.1
|
|
|
$
|
—
|
|
|
$
|
529.1
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Commercial paper
|
$
|
287.3
|
|
|
$
|
—
|
|
|
$
|
287.3
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Bank certificates of deposit
|
$
|
7.1
|
|
|
$
|
—
|
|
|
$
|
7.1
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Other government-related obligations
|
$
|
128.8
|
|
|
$
|
—
|
|
|
$
|
128.8
|
|
|
$
|
—
|
|
|
Marketable securities
|
Mutual funds
|
$
|
20.8
|
|
|
$
|
20.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Marketable securities
|
Commercial paper
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Marketable securities
|
Corporate bonds
|
$
|
4.6
|
|
|
$
|
—
|
|
|
$
|
4.6
|
|
|
$
|
—
|
|
|
Marketable securities
|
Other government-related obligations
|
$
|
10.5
|
|
|
$
|
—
|
|
|
$
|
10.5
|
|
|
$
|
—
|
|
|
Marketable securities
|
Bank certificates of deposit
|
$
|
8.5
|
|
|
$
|
—
|
|
|
$
|
8.5
|
|
|
$
|
—
|
|
|
Other assets
|
Equity securities
|
$
|
144.4
|
|
|
$
|
32.4
|
|
|
$
|
112.0
|
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
Foreign exchange forward contracts
|
$
|
42.8
|
|
|
$
|
—
|
|
|
$
|
42.8
|
|
|
$
|
—
|
|
|
Other assets
|
Foreign exchange forward contracts
|
$
|
4.1
|
|
|
$
|
—
|
|
|
$
|
4.1
|
|
|
$
|
—
|
|
|
Other current liabilities
|
Foreign exchange forward contracts
|
$
|
17.1
|
|
|
$
|
—
|
|
|
$
|
17.1
|
|
|
$
|
—
|
|
|
Other liabilities
|
Foreign exchange forward contracts
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
Interest rate contracts
|
$
|
2.4
|
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
—
|
|
|
Other current liabilities
|
Interest rate contracts
|
$
|
16.4
|
|
|
$
|
—
|
|
|
$
|
16.4
|
|
|
$
|
—
|
|
|
Other liabilities
|
Interest rate contracts
|
$
|
55.7
|
|
|
$
|
—
|
|
|
$
|
55.7
|
|
|
$
|
—
|
|
|
Current portion of contingent consideration
|
Acquisition-related contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Contingent consideration
|
Acquisition-related contingent consideration
|
$
|
188.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
188.0
|
|
|
Other current liabilities
|
Other contingent payments
|
$
|
14.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14.0
|
|
|
Other liabilities
|
Other contingent payments
|
$
|
13.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13.6
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
December 31, 2018
|
|
Balance Sheet
Classification
|
Type of Instrument
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Cash equivalents
|
Money market funds
|
$
|
569.4
|
|
|
$
|
—
|
|
|
$
|
569.4
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Commercial paper
|
$
|
35.4
|
|
|
$
|
—
|
|
|
$
|
35.4
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Corporate bonds
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Other government-related obligations
|
$
|
8.2
|
|
|
$
|
—
|
|
|
$
|
8.2
|
|
|
$
|
—
|
|
|
Marketable securities
|
Mutual funds
|
$
|
16.5
|
|
|
$
|
16.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Marketable securities
|
Commercial paper
|
$
|
16.7
|
|
|
$
|
—
|
|
|
$
|
16.7
|
|
|
$
|
—
|
|
|
Marketable securities
|
Corporate bonds
|
$
|
122.6
|
|
|
$
|
—
|
|
|
$
|
122.6
|
|
|
$
|
—
|
|
|
Marketable securities
|
Other government-related obligations
|
$
|
9.3
|
|
|
$
|
—
|
|
|
$
|
9.3
|
|
|
$
|
—
|
|
|
Marketable securities
|
Bank certificates of deposit
|
$
|
33.2
|
|
|
$
|
—
|
|
|
$
|
33.2
|
|
|
$
|
—
|
|
|
Other assets
|
Equity securities
|
$
|
90.8
|
|
|
$
|
8.9
|
|
|
$
|
81.9
|
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
Foreign exchange forward contracts
|
$
|
40.5
|
|
|
$
|
—
|
|
|
$
|
40.5
|
|
|
$
|
—
|
|
|
Other assets
|
Foreign exchange forward contracts
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
Other current liabilities
|
Foreign exchange forward contracts
|
$
|
18.8
|
|
|
$
|
—
|
|
|
$
|
18.8
|
|
|
$
|
—
|
|
|
Other liabilities
|
Foreign exchange forward contracts
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
Interest rate contracts
|
$
|
20.1
|
|
|
$
|
—
|
|
|
$
|
20.1
|
|
|
$
|
—
|
|
|
Other current liabilities
|
Interest rate contracts
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
Other liabilities
|
Interest rate contracts
|
$
|
17.3
|
|
|
$
|
—
|
|
|
$
|
17.3
|
|
|
$
|
—
|
|
|
Current portion of contingent consideration
|
Acquisition-related contingent consideration
|
$
|
97.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
97.6
|
|
|
Contingent consideration
|
Acquisition-related contingent consideration
|
$
|
183.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
183.2
|
|
There were no securities transferred between Level 1, 2 and 3 during the nine months ended September 30, 2019.
Valuation Techniques
We classify mutual fund investments and equity securities, which are valued based on quoted market prices in active markets with no valuation adjustment, as Level 1 assets within the fair value hierarchy.
Cash equivalents and marketable securities classified as Level 2 within the valuation hierarchy include money market funds, commercial paper, U.S. and foreign government-related debt, corporate debt securities and certificates of deposit. We estimate the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for similar securities, issuer credit spreads, benchmark yields, and other observable inputs. We validate the prices provided by our third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.
Other investments in equity securities of publicly traded companies which are subject to holding period restrictions are carried at fair value using an option pricing valuation model and classified as Level 2 equity securities within the fair value hierarchy. The most significant assumptions within the option pricing valuation model are the term of the restrictions and the stock price volatility, which is based upon the historical volatility of similar companies. We also use a constant maturity risk-free interest rate to match the remaining term of the restrictions on such investments.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
Our derivative assets and liabilities include foreign exchange and interest rate derivatives that are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk as well as an evaluation of our counterparties’ credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy.
Contingent consideration liabilities related to business acquisitions and derivative liabilities associated with other contingent payments are classified as Level 3 within the valuation hierarchy and are valued based on various estimates, including probability of success, discount rates and amount of time until the conditions of the milestone payments are met.
As of September 30, 2019, there has not been any impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties’ credit risks.
Acquisition-Related Contingent Consideration
In connection with prior business combinations, we may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approvals or sales-based milestone events. We determine the fair value of these obligations using various estimates that are not observable in the market and represent a Level 3 measurement within the fair value hierarchy. The resulting probability-weighted cash flows were discounted using a cost of debt of 5.1% for developmental and regulatory milestones and a weighted average cost of capital of 10.0% for sales-based milestones.
Each reporting period, we adjust the contingent consideration to fair value with changes in fair value recognized in operating earnings. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the milestone payments. In the absence of new information, changes in fair value will only reflect the interest component of contingent consideration related to the passage of time.
As of September 30, 2019, estimated future contingent milestone payments related to prior business combinations range from zero if no milestone events are achieved, to a maximum of $602.0 if all development, regulatory and sales-based milestones are reached. In the second quarter 2019, a sales-based milestone associated with our acquisition of Enobia Pharma Corp. was achieved. In connection with such achievement, we made a $100.0 milestone payment in the third quarter 2019.
As of September 30, 2019, the fair value of acquisition-related contingent consideration was $188.0. The following table represents a roll-forward of our acquisition-related contingent consideration:
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
September 30, 2019
|
|
Balance at beginning of period
|
$
|
280.8
|
|
|
Milestone payments
|
(100.0
|
)
|
|
Changes in fair value
|
7.2
|
|
|
Balance at end of period
|
$
|
188.0
|
|
Other Contingent Payments
In January 2019, we entered into an agreement with Caelum, a biotechnology company that is developing CAEL101 for light chain (AL) amyloidosis. Under the terms of the agreement, we acquired a minority equity interest in preferred stock of Caelum and an exclusive option to acquire the remaining equity in Caelum based on Phase II data, for pre-negotiated economics. We paid $30.0 during the first quarter 2019 and could be required to pay up to an additional $30.0 in contingent milestone-dependent fees. These contingent payments meet the definition of a derivative liability and were initially recorded at fair value of $27.1, based on the probability-weighted cash flows, discounted using a cost of debt ranging from 3.3% to 3.5%.
Each reporting period, we adjust the derivative liability associated with the contingent fees to fair value with changes in fair value recognized in other income and expense. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the milestone payments. In the absence of new information, changes in fair value will only reflect the interest component of the liability related to the passage of time. As of September 30, 2019, the fair value of our contingent fees was $27.6. We recorded $(0.2) and $(0.5) in other income and (expense) during
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
the three and nine months ended September 30, 2019, respectively, related to the change in the fair value of the liability.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into product and geographical regions as summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
SOLIRIS
|
|
|
|
|
|
|
|
|
United States
|
$
|
496.8
|
|
|
$
|
404.5
|
|
|
$
|
1,456.8
|
|
|
$
|
1,136.3
|
|
|
Europe
|
255.5
|
|
|
262.1
|
|
|
800.2
|
|
|
766.3
|
|
|
Asia Pacific
|
118.0
|
|
|
98.2
|
|
|
329.2
|
|
|
277.3
|
|
|
Rest of World
|
120.2
|
|
|
123.2
|
|
|
347.1
|
|
|
406.4
|
|
|
Total
|
$
|
990.5
|
|
|
$
|
888.0
|
|
|
$
|
2,933.3
|
|
|
$
|
2,586.3
|
|
|
|
|
|
|
|
|
|
|
|
ULTOMIRIS
|
|
|
|
|
|
|
|
|
United States
|
$
|
65.1
|
|
|
$
|
—
|
|
|
$
|
143.9
|
|
|
$
|
—
|
|
|
Europe
|
21.1
|
|
|
—
|
|
|
21.1
|
|
|
—
|
|
|
Asia Pacific
|
3.7
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
Rest of World
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
89.9
|
|
|
$
|
—
|
|
|
$
|
168.7
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
STRENSIQ
|
|
|
|
|
|
|
|
|
United States
|
$
|
118.0
|
|
|
$
|
86.6
|
|
|
$
|
323.7
|
|
|
$
|
275.7
|
|
|
Europe
|
19.0
|
|
|
16.6
|
|
|
56.0
|
|
|
47.0
|
|
|
Asia Pacific
|
14.0
|
|
|
7.2
|
|
|
36.0
|
|
|
19.2
|
|
|
Rest of World
|
3.3
|
|
|
2.8
|
|
|
10.0
|
|
|
7.1
|
|
|
Total
|
$
|
154.3
|
|
|
$
|
113.2
|
|
|
$
|
425.7
|
|
|
$
|
349.0
|
|
|
|
|
|
|
|
|
|
|
|
KANUMA
|
|
|
|
|
|
|
|
|
United States
|
$
|
16.0
|
|
|
$
|
13.7
|
|
|
$
|
45.1
|
|
|
$
|
38.6
|
|
|
Europe
|
6.3
|
|
|
4.7
|
|
|
19.4
|
|
|
16.4
|
|
|
Asia Pacific
|
1.3
|
|
|
0.8
|
|
|
3.4
|
|
|
2.9
|
|
|
Rest of World
|
4.8
|
|
|
6.1
|
|
|
10.2
|
|
|
8.4
|
|
|
Total
|
$
|
28.4
|
|
|
$
|
25.3
|
|
|
$
|
78.1
|
|
|
$
|
66.3
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Product Sales
|
$
|
1,263.1
|
|
|
$
|
1,026.5
|
|
|
$
|
3,605.8
|
|
|
$
|
3,001.6
|
|
Contract Balances and Receivables
Contract liabilities relate to consideration received and/or billed for goods that have not been delivered to the customer and for which the performance obligation has not yet been completed. These amounts are included within other current liabilities in the condensed consolidated balance sheets.
The following table provides information about receivables and contract liabilities from our contracts with customers.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Receivables, which are included in "Trade accounts receivable, net"
|
$
|
1,116.3
|
|
|
$
|
922.3
|
|
|
Contract liabilities, which are included in "Other current liabilities"
|
$
|
26.3
|
|
|
$
|
3.4
|
|
The following table provides a comparative summary of our income tax expense and effective income tax rate for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Income tax expense
|
$
|
67.9
|
|
|
$
|
11.2
|
|
|
$
|
61.5
|
|
|
$
|
152.5
|
|
|
Effective income tax rate
|
12.7
|
%
|
|
3.3
|
%
|
|
3.9
|
%
|
|
55.4
|
%
|
Income tax expense is attributable to the U.S. federal, state and foreign income taxes on our profitable operations. During the first quarter 2019, in connection with the future integration of intellectual property of Wilson Therapeutics into the Alexion corporate structure, we recognized certain one-time tax benefits. The deferred tax benefits include $95.7 and $30.3 associated with a tax election made with respect to intellectual property of Wilson Therapeutics and a valuation allowance release and corresponding recognition of net operating losses, respectively. These deferred tax benefits decreased the effective tax rate for the nine months ended September 30, 2019 by approximately 8.0%. Future changes to our intellectual property integration planning could materially impact our effective tax rate in subsequent periods.
On July 1, 2019, the Wilson Therapeutics intellectual property was integrated into the Alexion corporate structure, resulting in income tax expense of approximately $10.2.
During the third quarter 2019, we completed a comprehensive analysis of our current and prior year estimates related to our foreign-derived intangible income (“FDII”) based on additional guidance provided in the proposed regulations issued by the U.S. Treasury Department in 2019. The analysis resulted in income tax benefits of approximately $29.9, including $17.0 million related to prior year estimated tax benefits, which were recorded as a change in estimate in income tax expense in our consolidated statements of operations during the three and nine months ended September 30, 2019. These tax benefits decreased the effective tax rate for the three and nine months ended September 30, 2019 by approximately 5.6% and 1.9%, respectively.
The income tax expense for the three months ended September 30, 2018 includes a U.S. tax reform measurement period adjustment to deferred taxes of $(53.1). This deferred tax benefit decreased the effective tax rate by approximately 15.5%. The income tax expense for the nine months ended September 30, 2018 includes an increase in the effective tax rate of approximately 41.3% attributable to the acquisition of Wilson Therapeutics. Absent successful clinical results and regulatory approval, there is no alternative future use of the WTX101 asset acquired. Accordingly, the value of the asset of $803.7 was expensed as in-process research and development costs during the nine month period, for which no tax benefit has been recognized. Also included in the nine months ended September 30, 2018 is a U.S. tax reform measurement period adjustment to deferred taxes of $(14.7). This deferred tax benefit decreased the effective tax rate by approximately 1.4%.
In 2017, the Internal Revenue Service (IRS) commenced an examination of our U.S. income tax returns for 2015. We anticipate this audit will conclude within the next twelve months. We have not been notified of any significant adjustments proposed by the IRS. It is reasonably possible that previously unrecognized tax benefits could be recognized upon the conclusion of the IRS examination. At this time, an estimate of the change in unrecognized tax benefits cannot be made.
We have recorded tax on the undistributed earnings of our controlled foreign corporation (CFC) subsidiaries. To the extent CFC earnings may not be repatriated to the U.S. as a dividend distribution due to limitations imposed by law, we have not recorded the related potential withholding, foreign, local, and U.S. state income taxes.
We continue to maintain a valuation allowance against certain deferred tax assets where realization is not certain.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
16.
|
Defined Benefit Plans
|
We maintain defined benefit plans for employees in certain countries outside the U.S., including retirement benefit plans required by applicable local law. The plans are valued by independent actuaries using the projected unit credit method. The liabilities correspond to the projected benefit obligations of which the discounted net present value is calculated based on years of employment, expected salary increases, and pension adjustments. The total net periodic benefit cost for the three and nine months ended September 30, 2019 and 2018 was not material.
At the inception of an arrangement, we determine if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease classification, recognition, and measurement are then determined at the lease commencement date. For arrangements that contain a lease we (i) identify lease and non-lease components, (ii) determine the consideration in the contract, (iii) determine whether the lease is an operating or financing lease; and (iv) recognize lease ROU assets and liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable and as such, we use our incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.
Most leases include options to renew and, or, terminate the lease, which can impact the lease term. The exercise of these options is at our discretion and we do not include any of these options within the expected lease term as we are not reasonably certain we will exercise these options. We have elected to combine lease components (for example fixed payments including rent) with non-lease components (for example, non-dedicated parking and common-area maintenance costs) on our real estate and commercial fleet asset classes. We separate lease and non-lease components on our embedded contract manufacturing organization (CMO) arrangements. Lease and non-lease components on these CMO arrangements are determined based on an allocation of the consideration in the contract to the embedded lease and non-lease components of the arrangement based on the relative standalone prices of these components.
Fixed, or in substance fixed, lease payments on operating leases are recognized over the expected term of the lease on a straight-line basis, while fixed, or in substance fixed, payments on financing leases are recognized using the effective interest method. Variable lease expenses that are not considered fixed, or in substance fixed, are recognized as incurred. Fixed and variable lease expense on operating leases is recognized within operating expenses within our condensed consolidated statements of operations. Financing lease ROU asset amortization and interest costs are recorded within operating expenses and interest expense, respectively, within our condensed consolidated statements of operations. We have operating and financing leases for corporate offices, research and development facilities, regional executive and sales offices, commercial fleet, and CMO embedded lease arrangements. We have elected the short-term lease exemption and, therefore, do not recognize a ROU asset or corresponding liability for lease arrangements with an original term of 12 months or less.
Operating leases are included in right of use operating assets, other current liabilities, and noncurrent operating lease liabilities in our condensed consolidated balance sheet as of September 30, 2019. Financing leases are included in property, plant and equipment, other current liabilities, and other liabilities in our condensed consolidated balance sheet as of September 30, 2019.
The following table summarizes our lease assets and liabilities as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU Assets and Liabilities
|
|
|
|
|
|
|
Balance Sheet
Location
|
Financing
|
|
Operating
|
|
ROU - Asset
|
Right of use operating assets
|
$
|
—
|
|
|
$
|
206.9
|
|
|
ROU - Asset
|
Property, plant, and equipment
|
119.1
|
|
|
—
|
|
|
Lease liabilities (current)
|
Other current liabilities
|
5.1
|
|
|
17.4
|
|
|
Lease liabilities (noncurrent)
|
Noncurrent operating lease liabilities
|
—
|
|
|
166.8
|
|
|
Lease liabilities (noncurrent)
|
Other liabilities
|
74.2
|
|
|
—
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The following table summarizes our lease related costs for the three and nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Lease Cost
|
|
|
|
|
|
Statement of Operations Location
|
Three months ended
|
Nine months ended
|
|
|
|
September 30, 2019
|
September 30, 2019
|
|
Financing Lease Cost
|
|
$
|
3.7
|
|
$
|
11.2
|
|
|
Amortization of ROU Assets
|
Operating Expenses
|
2.7
|
|
8.2
|
|
|
Interest on Lease Liabilities
|
Interest Expense
|
1.0
|
|
3.0
|
|
|
Operating Lease Cost
|
Operating Expenses
|
8.5
|
|
26.1
|
|
|
Variable Lease Cost
|
Operating Expenses
|
4.8
|
|
9.1
|
|
|
Total Lease Cost
|
|
$
|
17.0
|
|
$
|
46.4
|
|
Amounts above include $5.3 and $11.6 of lease costs associated with our CMO embedded lease arrangement for the three and nine months ended September 30, 2019, respectively, which have been capitalized as part of the cost of product being manufactured at the site.
The following table summarizes supplemental cash flow information for the three and nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Other Information
|
Three months ended
|
Nine months ended
|
|
|
September 30, 2019
|
September 30, 2019
|
|
Cash Paid For Amounts Included In Measurement of Liabilities
|
$
|
9.0
|
|
$
|
25.5
|
|
|
Operating Cash Flows From Financing Leases
|
1.0
|
|
3.0
|
|
|
Operating Cash Flows From Operating Leases
|
6.8
|
|
18.8
|
|
|
Financing Cash Flows From Financing Leases
|
1.2
|
|
3.7
|
|
|
ROU Assets Obtained In Exchange For New Financing Liabilities (1)
|
—
|
|
—
|
|
|
ROU Assets Obtained In Exchange For New Operating Liabilities (2)
|
4.3
|
|
25.0
|
|
|
|
|
|
|
(1) We capitalized $83.1 of ROU financing assets upon adoption of the new lease standard in the first quarter of 2019 that are excluded from the figures for the nine months ended September 30, 2019. This figure excludes $44.2 of opening adjustments to ROU finance assets related, primarily, to prepayments of rent.
|
|
(2) We capitalized $172.2 of ROU operating assets upon adoption of the new lease standard in the first quarter of 2019 that are excluded from the figures for the nine months ended September 30, 2019. This figure excludes $26.6 of opening adjustments to ROU operating assets related, primarily, to prepayments of rent.
|
The following tables summarize maturities of lease liabilities and the reconciliation of lease liabilities as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Liability Maturity Summary
|
|
|
|
|
|
|
Year
|
Financing
|
|
Operating
|
|
Total
|
|
2019 (remaining)
|
$
|
2.2
|
|
|
$
|
5.7
|
|
|
$
|
7.9
|
|
|
2020
|
8.8
|
|
|
24.7
|
|
|
33.5
|
|
|
2021
|
9.0
|
|
|
22.0
|
|
|
31.0
|
|
|
2022
|
9.2
|
|
|
20.8
|
|
|
30.0
|
|
|
2023
|
9.2
|
|
|
20.5
|
|
|
29.7
|
|
|
2024
|
9.4
|
|
|
20.1
|
|
|
29.5
|
|
|
Thereafter
|
54.6
|
|
|
112.1
|
|
|
166.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Lease Liabilities
|
Financing
|
|
Operating
|
|
Total
|
|
Weighted-average Remaining Lease Term (years)
|
10.92
|
|
|
10.47
|
|
|
10.61
|
|
|
Weighted-average Discount Rate
|
4.85
|
%
|
|
4.11
|
%
|
|
4.34
|
%
|
|
|
|
|
|
|
|
|
Total Undiscounted Lease Liability
|
$
|
102.4
|
|
|
$
|
225.9
|
|
|
$
|
328.3
|
|
|
Imputed Interest
|
23.0
|
|
|
41.8
|
|
|
64.8
|
|
|
Total Discounted Lease Liability
|
79.3
|
|
|
184.2
|
|
|
263.5
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
For comparable purposes, our aggregate future minimum non-cancellable commitments under operating leases as of December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
Year
|
|
|
2019
|
$
|
27.8
|
|
|
2020
|
24.7
|
|
|
2021
|
21.3
|
|
|
2022
|
19.9
|
|
|
2023
|
19.7
|
|
|
Thereafter
|
132.2
|
|
Excluded from the table above are commitments with Lonza Group AG and its affiliates (Lonza), a third party manufacturer that produces a portion of commercial and clinical quantities of our commercial products and product candidates. During the third quarter 2015, we entered into an agreement with Lonza whereby Lonza constructed a facility to be used to manufacture product under a supply agreement for Alexion at one of its existing facilities, resulting in the determination that the CMO arrangement contained a lease. This agreement requires us to make certain payments during the construction of the manufacturing facility and annual payments for ten years thereafter. As the arrangement contains both a lease and non-lease component, related to the supply of product, the consideration paid to Lonza is allocated between these components. As of December 31, 2018, we had various manufacturing and licensing agreements with Lonza, with remaining total non-cancellable future commitments of approximately $1,084.6. This amount included $88.7 of undiscounted, fixed payments applicable to our CMO embedded lease arrangement with Lonza, based on the relative standalone price of the lease and non-lease components of the arrangement at that time.
|
|
|
|
18.
|
Commitments and Contingencies
|
Asset Acquisition and In-License Agreements
We have entered into asset purchase agreements, license agreements, and option arrangements in order to advance and obtain technologies and services related to our business. These agreements generally require us to pay an initial fee and certain agreements call for future payments upon the attainment of agreed upon development, regulatory and/or commercial milestones. These agreements may also require minimum royalty payments based on sales of products developed from the applicable technologies, if any.
In January 2019, we entered into an agreement with Caelum, a biotechnology company that is developing CAEL101 for light chain (AL) amyloidosis. Under the terms of the agreement, we acquired a minority equity interest in preferred stock of Caelum and an exclusive option to acquire the remaining equity in Caelum based on Phase II data, for pre-negotiated economics. We paid $30.0 in the first quarter 2019 and could be required to pay up to an additional $30.0 in contingent milestone-dependent fees. These contingent payments meet the definition of a derivative liability and were initially recorded at fair value of $27.1. We allocated the total consideration of $57.1, inclusive of the fair value of contingent milestone-dependent fees, to the equity investment in Caelum and the option to acquire the remaining equity in Caelum based on the relative fair values of the assets. The agreement with Caelum also provides for additional payments, in the event Alexion exercises the purchase option, for up to $500.0, which includes an upfront option exercise payment and potential regulatory and commercial milestone payments.
In March 2019, we entered into an agreement with Zealand which provides us with exclusive worldwide licenses, as well as development and commercial rights, for subcutaneously delivered preclinical peptide therapies directed at up to four complement pathway targets. Pursuant to the agreement, Zealand will lead joint discovery and research efforts through the preclinical stage, and Alexion will lead development efforts beginning with the investigational new drug filing and Phase 1 studies. In addition to the agreement, we made an equity investment in Zealand (see Note 10). Under the terms of the agreement, we made an upfront payment of $40.0 for an exclusive license to the lead target and the equity investment, as well as for preclinical research services to be performed by Zealand in relation to the lead target. The market value of the equity investment was $13.8 as of the date of acquisition, which we recorded in other assets in our condensed consolidated balance sheets. We also recognized prepaid research and development expense of $5.0 within the condensed consolidated balance sheets associated with the research activities to be performed by Zealand. Due to the early stage of the asset we are licensing, we recorded the upfront license payment of $21.2 as research and development expense during the first quarter 2019. As of September 30, 2019, we could be required to pay up to $610.0, for the lead target, upon the achievement of specified development, regulatory and
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
commercial milestones, as well as royalties on commercial sales. Each of the three subsequent targets can be selected for an option fee of $15.0 and has the potential for additional development, regulatory and commercial milestones, as well as royalty payments, at a reduced price to the lead target.
In March 2019, we entered into an agreement with Affibody AB (Affibody), through which Alexion obtained an exclusive worldwide license, as well as development and commercial rights, to ABY-039, a bivalent antibody-mimetic that targets the FcRn and is currently in Phase 1 development. The agreement with Affibody was subject to clearance under the Hart-Scott Rodino Antitrust Improvements Act and, following receipt of such approval, the transaction closed in April 2019. Pursuant to the agreement, Alexion will lead the clinical development and commercial activities for ABY-039 in rare Immunoglobulin G (IgG)-mediated autoimmune diseases. Affibody has the option to co-promote ABY-039 in the U.S. and will lead clinical development of ABY-039 in an undisclosed indication. Under the terms of the agreement, we made an upfront payment of $25.0 for the exclusive license to ABY-039. Due to the early stage of the asset we are licensing, we recorded the upfront license payment as research and development expense during the second quarter 2019. As of September 30, 2019, we could also be required to pay up to $625.0 for amounts due upon achievement of specific development, regulatory, and commercial milestones, as well as royalties on commercial sales.
In September 2019, we entered into an agreement with Eidos through which Alexion obtained an exclusive license to develop and commercialize AG10 in Japan. AG10 is a small molecule designed to treat the root cause of transthyretin amyloidosis (ATTR) and is currently in a Phase 3 study in the U.S. and Europe for ATTR cardiomyopathy (ATTR-CM). In addition, we made an equity investment in Eidos (see Note 10). Under the terms of the agreement, we made an upfront payment of $50.0 for the exclusive license to AG10 in Japan and the equity investment. The market value of the equity investment was $19.9 as of the date of acquisition, which we recorded in other assets in our condensed consolidated balance sheets. Due to the early stage of the asset we are licensing, we recorded the upfront license payment of $30.1 as research and development expense during the third quarter 2019. As of September 30, 2019, we could also be required to pay $30.0 upon achievement of a Japanese-based regulatory milestone as well as royalties on commercial sales.
In connection with our prior acquisition of Syntimmune (see Note 3), we could be required to pay up to $800.0 upon the achievement of specified development, regulatory and commercial milestones.
In addition, as of September 30, 2019, we have other license agreements under which we may be required to pay up to an additional $834.6 for currently licensed targets, if certain development, regulatory and commercial milestones are met. Additional amounts may be payable if we elect to acquire licenses to additional targets, as applicable, under the terms of these agreements.
Asset Sale and Out-License Arrangements
In connection with prior asset sale and out-license arrangements, Alexion is entitled to receive contingent payments upon the achievement of various regulatory and commercial milestones and other events, as well as royalties on commercial sales. The amount of contingent consideration related to these agreements is fully constrained and therefore has not been recognized as of September 30, 2019.
Manufacturing Agreements
We have various manufacturing development and license agreements to support our clinical and commercial product needs.
We rely on Lonza, a third party manufacturer, to produce a portion of commercial and clinical quantities of our commercial products and product candidates. We have various manufacturing and license agreements with Lonza, with remaining total non-cancellable future commitments of approximately $1,062.2. This amount includes $102.3 of undiscounted, fixed payments applicable to our CMO embedded lease arrangement with Lonza. If we terminate certain supply agreements with Lonza without cause, we will be required to pay for product scheduled for manufacture under our arrangement. Under an existing arrangement with Lonza, we also pay Lonza a royalty on sales of SOLIRIS that was manufactured at the Alexion Rhode Island Manufacturing Facility (ARIMF facility) prior to the sale of the facility and a payment with respect to sales of SOLIRIS manufactured at Lonza facilities. We also pay Lonza a royalty on the sales of ULTOMIRIS.
In addition to our commitments with Lonza, as of September 30, 2019 we have non-cancellable commitments of approximately $63.2 through 2020 with other third party manufacturers.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
Contingent Liabilities
We are currently involved in various claims, disputes, lawsuits, investigations, administrative proceedings and legal proceedings. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. In accordance with generally accepted accounting principles, if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Because of uncertainties related to claims, proceedings and litigation, accruals are based on our best estimates based on information available at the time of the assessment. On a periodic basis, as additional information becomes available, or based on specific events such as the outcome of litigation, court decisions or settlement of claims (and offers of settlement), we may reassess the potential liability related to these matters and may revise these estimates, which could result in a material adverse adjustment to our operating results. Costs associated with our involvement in legal proceedings are expensed as incurred. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. If we were unable to prevail in any such proceedings, our consolidated financial position, results of operations, and future cash flows may be materially impacted.
We have received, and may in the future receive, notices from third parties claiming that their patents may be infringed by the use, development, manufacture, importation or sale of our products or product candidates. Under the guidance of ASC 450, Contingencies, we record a royalty accrual based on our best estimate of the fair value percent of net sales of our products that we could be required to pay the owners of patents for technology used in the manufacture and sale of our products. A costly license, or inability to obtain a necessary license, could have a material adverse effect on our financial results.
In May 2015, we received a subpoena in connection with an investigation by the Enforcement Division of the Securities and Exchange Commission (SEC) requesting information related to our grant-making activities and compliance with the Foreign Corrupt Practices Act (FCPA) in various countries. In addition, in October 2015, we received a request from the Department of Justice (DOJ) for the voluntary production of documents and other information pertaining to Alexion’s compliance with FCPA. The SEC and DOJ also seek information related to Alexion’s recalls of specific lots of SOLIRIS and related securities disclosures. Alexion is cooperating with these investigations.
The investigations have focused on operations in various countries, including Brazil, Colombia, Japan, Russia and Turkey, and Alexion's compliance with the FCPA and other applicable laws.
At this time, Alexion is unable to predict the duration, scope or outcome of these investigations. While it is possible that a loss related to these matters may be incurred, given the ongoing nature of these investigations, management cannot reasonably estimate the potential magnitude of any such loss or range of loss, or the cost of the ongoing investigation. Any determination that our operations or activities are not or were not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, equitable remedies, including disgorgement, injunctive relief, and/or other sanctions against us, and remediation of any such findings could have an adverse effect on our business operations.
Alexion is committed to strengthening its compliance program and is currently implementing a comprehensive company-wide transformation plan that is designed to enhance and remediate its business processes, structures, controls, training, talent and systems across Alexion’s global operations.
As previously reported, on December 29, 2016, a shareholder filed a putative class action against the Company and certain former employees in the U.S. District Court for the District of Connecticut, alleging that defendants made misrepresentations and omissions about SOLIRIS. On April 12, 2017, the court appointed a lead plaintiff. On July 14, 2017, the lead plaintiff filed an amended putative class action complaint against the Company and seven current or former employees. Defendants moved to dismiss the amended complaint on September 12, 2017. Plaintiffs filed an opposition to defendants’ motion to dismiss on November 13, 2017, and defendants’ filed a reply brief in further support of their motion on December 28, 2017. On March 26, 2019, the court held a telephonic status conference. During that conference, the court informed counsel that it was preparing a ruling granting the defendants’ pending motion to dismiss. The court inquired of plaintiffs’ counsel whether they intended to seek leave to amend their complaint, and indicated that if they wished to file a second amended complaint, they would be allowed to do so. On April 2, 2019, the court granted plaintiffs until May 31, 2019 to file a second amended complaint, thereby rendering moot defendants’ pending motion to dismiss. On May 31, 2019, plaintiffs filed a second amended complaint against the same defendants. The complaint alleges that defendants engaged in securities fraud, including by making misrepresentations and omissions in its public disclosures concerning the Company’s SOLIRIS sales practices, management changes, and related investigations, between January 30, 2014 and May 26, 2017, and that the Company's stock price dropped upon the purported disclosure of the alleged fraud. The plaintiffs seek to recover unspecified monetary relief,
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
unspecified equitable and injunctive relief, interest, and attorneys’ fees and costs. Defendants’ filed a motion to dismiss the amended complaint on August 2, 2019; plaintiffs’ filed their opposition to that motion on October 2, 2019; and defendants’ reply in further support of their motion is due November 16, 2019. Given the early stage of these proceedings, we cannot presently predict the likelihood of obtaining dismissal of the case (or the ultimate outcome of the case if the motion to dismiss is denied by the court), nor can we estimate the possible loss or range of loss at this time.
In December 2016, we received a subpoena from the U.S. Attorney's Office for the District of Massachusetts requesting documents relating generally to our support of Patient Services, Inc. (PSI) and National Organization for Rare Disorders (NORD), 501(c)(3) organizations that provide financial assistance to Medicare patients taking drugs sold by Alexion; Alexion’s provision of free drug to Medicare patients; and Alexion compliance policies and training materials concerning the anti-kickback statute and information on donations to PSI and NORD from 2010 through 2016. In April 2019, we entered into a civil settlement agreement with the DOJ and the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services to resolve this matter. As part of the settlement agreement, Alexion paid $13.1 to the DOJ and OIG. OIG did not require a Corporate Integrity Agreement with Alexion because it made fundamental organizational changes, including hiring a new executive leadership team, replacing half of the members of its Board of Directors, and effecting a significant change in the workforce.
In May 2017, Brazilian authorities seized records and data from our Sao Paulo, Brazil offices as part of an investigation being conducted into Alexion’s Brazilian operations. We are cooperating with this inquiry.
In June 2017, we received a demand to inspect certain of our books and records pursuant to Section 220 of the General Corporation Law of the State of Delaware on behalf of a purported stockholder. Among other things, the demand sought to determine whether to institute a derivative lawsuit against certain of the Company’s directors and officers in relation to the investigation by our Audit and Finance Committee announced in November 2016 and the investigations instituted by the SEC, DOJ, U.S. Attorney’s Office for the District of Massachusetts, and Brazilian law enforcement officials that are described above. We have responded to the demand. Given the early stages of this matter, an estimate of the possible loss or range of loss cannot be made at this time.
On September 27, 2017, a hearing panel of the Canadian Patented Medicine Prices Review Board (PMPRB) issued a decision in a previously pending administrative pricing matter that we had excessively priced SOLIRIS in a manner inconsistent with the Canadian pricing rules and guidelines. In its decision, the PMPRB ordered Alexion to decrease the price of SOLIRIS to an upper limit based upon pricing in certain other countries, and to forfeit excess revenues for the period between 2009 and 2017. The amount of excess revenues for the period between 2009 and 2017 was not determined to be a material amount and was paid in 2018. In October 2017, Alexion filed an application for judicial review of the PMPRB’s decision in the Federal Court of Canada. On May 23, 2019, the Federal Court of Canada dismissed Alexion's application for judicial review and, as a consequence, affirmed the decision of the PMPRB that we had excessively priced SOLIRIS. On June 21, 2019, Alexion filed a notice of appeal of the Federal Court of Canada's ruling and on October 17, 2019, Alexion filed a memorandum of fact and law in support of the appeal. Pursuant to an order made by the Federal Court of Canada, as of October 23, 2019, we have placed approximately $37.0 in escrow to secure our obligations pending the final resolution of all appeals in this matter. This amount reflects the difference between the list price for SOLIRIS and the price determined by the PMPRB to be non-excessive for sales of Soliris in Canada for the period beginning September 2017 through September 30, 2019. In addition, on a quarterly basis until the appeals process has concluded, Alexion will be required to place amounts into escrow for each vial of SOLIRIS sold in the applicable quarter equal to the list price for SOLIRIS and the price determined by the PMPRB to be non-excessive. Our revenues in Canada recognized in the quarter ended September 30, 2019 were reduced by $3.9 and we have accrued an aggregate of $24.3, which is our current best estimate of our liability through September 30, 2019 if we lose the appeal of this matter (the amount of our ultimate liability, however, may be greater than this estimate when the appeal process for this matter is concluded).
In October 2018, the Japanese Ministry of Health, Labour and Welfare (MHLW) conducted an administrative inspection of Alexion’s Japanese operations. The MHLW inquiry primarily focused on our communication efforts regarding the proper use of SOLIRIS in Japan for aHUS, among other matters. We have cooperated with the inquiries and the investigation, and in March 2019, the MHLW indicated that it has completed its investigation.
Chugai Pharmaceutical Co., Ltd. has filed two lawsuits against Alexion. The first was filed in November 2018 in the United States District Court for the District of Delaware against Alexion Pharmaceuticals, Inc. alleging that ULTOMIRIS infringes one U.S. patent held by Chugai Pharmaceutical Co., Ltd. The second lawsuit was filed in December 2018 in the Tokyo District Court against Alexion Pharma GK (a wholly-owned subsidiary of Alexion) in Japan and alleges that
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
ULTOMIRIS infringes two Japanese patents held by Chugai Pharmaceutical Co., Ltd. Chugai’s complaints seek unspecified damages and certain injunctive relief. In both cases, Alexion has denied the charges and countered that the patents are neither valid nor infringed. A trial date for the U.S. case has been set for May 2021. The case is still at the briefing stage in Japan. Given the early stages of these litigations, an estimate of the possible loss or range of loss cannot be made at this time.
On February 28, 2019, Amgen Inc. (Amgen) petitioned the U.S. Patent and Trademark Office (PTO) to institute Inter Partes Review (IPR) of three patents owned by Alexion that relate to SOLIRIS: U.S. Patent Nos. 9,725,504; 9,718,880; and 9,732,149. In each case, Amgen alleges the patented subject matter was anticipated and/or obvious in view of prior art, and that the patent claims are therefore invalid. On August 30, 2019, the PTO instituted IPRs of each of the three patents. We expect the PTO to review written submissions by both parties, hold an oral argument, and issue decisions on the three IPRs by August 30, 2020. At this time we cannot determine what decision the PTO will make.
In connection with an ongoing matter, in August 2019, the Brazilian Federal Revenue Service provided a Notice of Tax and Description of the Facts (the “Tax Assessment”) to two Alexion subsidiaries (the "Brazil Subsidiaries"), as well as to two additional entities, a logistics provider utilized by Alexion and a distributor. The Tax Assessment focuses on the importation of SOLIRIS vials pursuant to Alexion’s free drug supply to patients program (referred to as Global Access to Medicines, or GATM) in Brazil. In September 2019, the Brazil Subsidiaries filed defenses to the Tax Assessment disputing the basis for liability under the Tax Assessment based on, among others, the following: in connection with the operation of GATM, during the period from September 2014 to June 2019: (i) the importers responsible for the importation of the GATM SOLIRIS vials into Brazil were correctly identified and (ii) the correct customs value was utilized for the purpose of importing the GATM SOLIRIS vials provided to the patients free of charge. There are three separate levels of administrative appeals within the Brazilian federal administrative proceeding system and, if the outcome of these administrative appeals is unfavorable, the final decision of the federal administrative proceeding system can be disputed to the federal court systems in Brazil (at this time, Alexion intends to appeal the Tax Assessment if it is not overturned in the course of administrative appeals). Given the early stage of these proceedings, Alexion is unable to predict the duration, scope or outcome of this matter, but we expect that a final resolution will take three years or more. While it is possible that a loss related to the Tax Assessment may be incurred, given its ongoing nature, we cannot reasonably estimate the potential magnitude of any such possible loss or range of loss, or the cost of the ongoing administrative appeals (and potential appeals to the federal court system) of the Tax Assessment. Any determination that any aspects of the importation of free of charge medications into Brazil as set forth in the Tax Assessment are not or were not in compliance with existing laws or regulations could result in the imposition of fines, civil penalties and, potentially criminal penalties, and/or other sanctions against us and could have an adverse impact on our Brazilian operations.
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|
19.
|
Restructuring and Related Expenses
|
In the first quarter 2019, we initiated corporate restructuring activities to re-align our commercial organization through re-prioritization of certain geographical markets and to implement operational excellence through strategic reallocation of resources.
In the first quarter 2017, we initiated a company-wide restructuring designed to help position the Company for sustainable, long-term growth that we believe will further allow us to fulfill our mission of serving patients and families with rare diseases. In September 2017, we committed to an operational plan to re-align the global organization with its refocused corporate strategy. The re-alignment included the relocation of the Company's headquarters to Boston, Massachusetts and a reduction of the Company's global workforce. The restructuring was designed to result in cost savings by focusing the development portfolio, simplifying business structures and process across the Company's global operations, and closing multiple Alexion sites.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The following table summarizes the total expenses recorded related to the restructuring activities by type of activity and the locations recognized within the consolidated statements of operations:
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Three months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
Employee Separation Costs
|
|
Asset-Related Charges
|
|
Other
|
|
Total
|
|
Employee Separation Costs
|
|
Asset-Related Charges
|
|
Other
|
|
Total
|
|
Cost of sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Research and development
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.9
|
|
|
—
|
|
|
7.9
|
|
|
Restructuring expense
|
(2.8
|
)
|
|
—
|
|
|
3.1
|
|
|
0.3
|
|
|
2.8
|
|
|
—
|
|
|
7.5
|
|
|
10.3
|
|
|
Other (income) expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
(2.8
|
)
|
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
0.3
|
|
|
$
|
2.8
|
|
|
$
|
7.9
|
|
|
$
|
7.5
|
|
|
$
|
18.2
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
Employee Separation Costs
|
|
Asset-Related Charges
|
|
Other
|
|
Total
|
|
Employee Separation Costs
|
|
Asset-Related Charges
|
|
Other
|
|
Total
|
|
Cost of sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5.8
|
|
|
$
|
—
|
|
|
$
|
5.8
|
|
|
Research and development
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
Selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18.0
|
|
|
—
|
|
|
18.0
|
|
|
Restructuring expense
|
8.7
|
|
|
—
|
|
|
3.2
|
|
|
11.9
|
|
|
6.9
|
|
|
—
|
|
|
19.5
|
|
|
26.4
|
|
|
Other (income) expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
|
$
|
8.7
|
|
|
$
|
—
|
|
|
$
|
3.2
|
|
|
$
|
11.9
|
|
|
$
|
6.9
|
|
|
$
|
23.9
|
|
|
$
|
19.4
|
|
|
$
|
50.2
|
|
The following table presents a reconciliation of the restructuring reserve recorded within accounts payable and accrued expenses on the Company's condensed consolidated balance sheets as of September 30, 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2019
|
|
|
Employee Separation Costs
|
|
Asset Charges
|
|
Other Costs
|
|
Total
|
|
Employee Separation Costs
|
|
Asset Charges
|
|
Other Costs
|
|
Total
|
|
Liability, beginning of period
|
$
|
9.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.5
|
|
|
$
|
4.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.2
|
|
|
Restructuring and related expenses
|
—
|
|
|
—
|
|
|
3.1
|
|
|
3.1
|
|
|
14.2
|
|
|
—
|
|
|
3.1
|
|
|
17.3
|
|
|
Cash settlements
|
(2.3
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(2.4
|
)
|
|
(8.6
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(8.7
|
)
|
|
Adjustments to previous estimates
|
(2.8
|
)
|
|
—
|
|
|
—
|
|
|
(2.8
|
)
|
|
(5.4
|
)
|
|
—
|
|
|
—
|
|
|
(5.4
|
)
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Liability, end of period
|
$
|
4.4
|
|
|
$
|
—
|
|
|
$
|
3.0
|
|
|
$
|
7.4
|
|
|
$
|
4.4
|
|
|
$
|
—
|
|
|
$
|
3.0
|
|
|
$
|
7.4
|
|
The restructuring reserve of $7.4 and $4.2 is recorded in accounts payable and accrued expenses on the Company's condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively. The accrued amounts are expected to be paid in the next twelve months. We currently estimate incurring up to an additional $8.0 in restructuring expenses related to the first quarter 2019 action.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
On October 10, 2019, we entered into an option agreement with Stealth BioTherapeutics Corp. (Stealth), a clinical-stage biotechnology company whose lead product candidate, elamipretide, is being investigated in late-stage clinical studies in three primary mitochondrial diseases - primary mitochondrial myopathy (PMM), Barth syndrome and Leber’s hereditary optic neuropathy (LHON). Under the terms of the option agreement, Alexion will receive an exclusive option to partner with Stealth in the development of subcutaneous elamipretide based on final results from the Phase 3 study currently underway in PMM. If we choose to exercise the option, the companies will co-develop subcutaneous elamipretide in the U.S. for PMM and Barth syndrome, as well as LHON. Upon commercialization, the agreement would provide for a 50-50 co-promote between the two companies in the U.S. and Alexion would receive exclusive rights to develop and commercialize subcutaneous elamipretide outside the U.S. Under the terms of the agreement, we made an upfront payment of $30.0 for the option and an equity investment in Stealth. The agreement also provides for additional payments, in the event Alexion exercises the option, of up to $440.0, which includes an upfront option exercise payment, an additional equity investment and potential regulatory and commercial milestone payments, as well as royalties on commercial sales outside the U.S.
On October 15, 2019, Alexion entered into a definitive agreement to acquire Achillion Pharmaceuticals, Inc. (Achillion), a clinical-stage biopharmaceutical company focused on the development of oral Factor D inhibitors. Achillion is developing oral small molecule Factor D inhibitors to treat people with complement alternative pathway-mediated rare diseases, such as PNH and C3 glomerulopathy (C3G). The company currently has two clinical-stage medicines in development, including danicopan (ACH-4471) in Phase 2 and ACH-5228 in Phase 1. Alexion’s acquisition of Achillion is subject to the approval of Achillion shareholders and satisfaction of customary closing conditions and approval from relevant regulatory agencies, including clearance under the Hart-Scott Rodino Antitrust Improvements Act. Under the terms of the definitive acquisition agreement, we will pay $6.30 per share of Achillion common stock, or an estimated $930.0, with the final purchase price to be determined upon closing. The acquisition will be funded with cash on hand. The transaction includes the potential for additional consideration in the form of non-tradeable contingent value rights (CVRs), which may be paid to Achillion shareholders if certain clinical and regulatory milestones are achieved within specified periods. These include $1.00 per share for the U.S. FDA approval of danicopan and $1.00 per share for the initiation of Phase 3 in ACH-5228.
On October 22, 2019, the Board of Directors approved a new share repurchase authorization of up to $1,000.0. The repurchase program does not have an expiration date and we are not obligated to acquire a particular number of shares of common stock. The repurchase program may be discontinued at any time at our discretion.