Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
8.Marketable Securities
The proceeds from maturities and sales of available-for-sale debt securities and resulting realized gains and losses are summarized below. In the second quarter of 2020, we liquidated all of our available-for-sale debt securities to fund the acquisition of Portola, which closed on July 2, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Proceeds from maturities and sales (1)
|
$
|
204.5
|
|
|
$
|
798.6
|
|
|
$
|
1,016.9
|
|
|
$
|
1,626.3
|
|
Realized gains
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Realized losses
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1) Proceeds from maturities and sales of available-for-sale debt securities include securities previously classified as cash and cash equivalents and marketable securities in the condensed consolidated balance sheet
|
|
|
|
|
|
|
|
We utilize the specific identification method in computing realized gains and losses.
As a result of our liquidation of all available-for-sale debt securities during the second quarter 2020, we have no remaining available-for-sale debt securities as of June 30, 2020. 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 December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Holding Gains
|
|
Gross Unrealized Holding Losses
|
|
Fair Value
|
Commercial paper
|
|
$
|
246.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
246.9
|
|
Corporate bonds
|
|
24.3
|
|
|
—
|
|
|
—
|
|
|
24.3
|
|
Other government-related obligations:
|
|
|
|
|
|
|
|
|
U.S.
|
|
70.4
|
|
|
—
|
|
|
—
|
|
|
70.4
|
|
Bank certificates of deposit
|
|
27.4
|
|
|
—
|
|
|
—
|
|
|
27.4
|
|
Total available-for-sale debt securities
|
|
$
|
369.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
369.0
|
|
The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of December 31, 2019 was $21.5. We did not have any investments in a continuous unrealized loss position for more than twelve months as of December 31, 2019.
The fair values of available-for-sale debt securities by classification in the condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
328.1
|
|
Marketable securities
|
—
|
|
|
40.9
|
|
|
$
|
—
|
|
|
$
|
369.0
|
|
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 June 30, 2020 and December 31, 2019, the fair value of these investments was $26.8 and $23.1, respectively.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
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 June 30, 2020, we had open revenue related foreign exchange forward contracts with notional amounts totaling $802.1 that qualified for hedge accounting with current contract maturities through June 2021. As of June 30, 2020, we had open expense related foreign exchange forward contracts with notional amounts totaling $11.3 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 June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Interest Rate Swap Contract
|
Notional Amount
|
Effective Date
|
Termination Date
|
Fixed Interest Rate or Rate Range
|
Floating to Fixed
|
$450.0
|
December 2018
|
December 2022
|
2.60% - 2.79%
|
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 six months ended June 30, 2020 and 2019 from foreign exchange and interest rate swap contracts that qualified as cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Three months ended
|
|
|
|
June 30, 2020
|
|
|
|
June 30, 2019
|
|
|
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
|
$
|
1,444.5
|
|
|
$
|
(23.6)
|
|
|
$
|
1,202.5
|
|
|
$
|
(18.3)
|
|
Impact of cash flow hedging relationships:
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
9.5
|
|
|
$
|
—
|
|
|
$
|
9.1
|
|
|
$
|
—
|
|
Interest rate swap contracts
|
$
|
—
|
|
|
$
|
(10.0)
|
|
|
$
|
—
|
|
|
$
|
4.5
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
Six months ended
|
|
|
|
June 30, 2020
|
|
|
|
June 30, 2019
|
|
|
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
|
$
|
2,889.1
|
|
|
$
|
(49.4)
|
|
|
$
|
2,342.7
|
|
|
$
|
(38.2)
|
|
Impact of cash flow hedging relationships:
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
20.9
|
|
|
$
|
—
|
|
|
$
|
16.1
|
|
|
$
|
—
|
|
Interest rate swap contracts
|
$
|
—
|
|
|
$
|
(14.6)
|
|
|
$
|
—
|
|
|
$
|
9.1
|
|
The impact on accumulated other comprehensive income (AOCI) and earnings from foreign exchange and interest rate swap contracts that qualified as cash flow hedges, for the three and six months ended June 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Six months ended
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
Foreign Exchange Forward Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain recognized in AOCI, net of tax
|
$
|
(6.1)
|
|
|
$
|
(3.9)
|
|
|
$
|
19.9
|
|
|
$
|
10.3
|
|
|
|
|
|
Gain reclassified from AOCI to net product sales, net of tax
|
$
|
7.4
|
|
|
$
|
7.0
|
|
|
$
|
16.2
|
|
|
$
|
12.4
|
|
|
|
|
|
Interest Rate Swap Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Loss recognized in AOCI, net of tax
|
$
|
(5.4)
|
|
|
$
|
(24.6)
|
|
|
$
|
(52.7)
|
|
|
$
|
(38.8)
|
|
|
|
|
|
(Loss) gain reclassified from AOCI to interest expense, net of tax
|
$
|
(7.7)
|
|
|
$
|
3.4
|
|
|
$
|
(11.3)
|
|
|
$
|
7.0
|
|
|
|
|
|
Assuming no change in foreign exchange rates from market rates at June 30, 2020, $11.3 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 June 30, 2020, $45.5 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 as of June 30, 2020.
We enter into foreign exchange forward contracts, with durations of up to 7 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 June 30, 2020, the notional amount of foreign exchange contracts where hedge accounting is not applied was $1,936.4.
We recognized a loss of $3.2 and $5.8, in other income and (expense) for the three months ended June 30, 2020 and 2019, respectively, associated with the foreign exchange contracts not designated as hedging instruments. We recognized a gain (loss) of $13.0 and $(2.6), in other income and (expense) for the six months ended June 30, 2020 and 2019, 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.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The following tables summarize the fair value of outstanding derivatives as of June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
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
|
|
$
|
14.6
|
|
|
Other current liabilities
|
|
$
|
3.6
|
|
Foreign exchange forward contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
0.4
|
|
Interest rate swap contracts
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Other current liabilities
|
|
45.5
|
|
Interest rate swap contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
69.6
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets
|
|
28.9
|
|
|
Other current liabilities
|
|
20.6
|
|
Total fair value of derivative instruments
|
|
|
$
|
43.5
|
|
|
|
|
$
|
139.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
12.7
|
|
|
Other current liabilities
|
|
$
|
6.2
|
|
Foreign exchange forward contracts
|
Other assets
|
|
0.6
|
|
|
Other liabilities
|
|
1.1
|
|
Interest rate swap contracts
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Other current liabilities
|
|
19.5
|
|
Interest rate swap contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
41.9
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets
|
|
17.2
|
|
|
Other current liabilities
|
|
20.4
|
|
Total fair value of derivative instruments
|
|
|
$
|
30.5
|
|
|
|
|
$
|
89.1
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
43.5
|
|
|
$
|
—
|
|
|
$
|
43.5
|
|
|
$
|
(23.3)
|
|
|
$
|
—
|
|
|
$
|
20.2
|
|
Derivative liabilities
|
|
$
|
(139.7)
|
|
|
$
|
—
|
|
|
$
|
(139.7)
|
|
|
$
|
23.3
|
|
|
$
|
—
|
|
|
$
|
(116.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
30.5
|
|
|
$
|
—
|
|
|
$
|
30.5
|
|
|
$
|
(21.4)
|
|
|
$
|
—
|
|
|
$
|
9.1
|
|
Derivative liabilities
|
|
$
|
(89.1)
|
|
|
$
|
—
|
|
|
$
|
(89.1)
|
|
|
$
|
21.4
|
|
|
$
|
—
|
|
|
$
|
(67.7)
|
|
10.Other Investments
Other investments include strategic investments in equity securities of certain biotechnology companies which we acquired in connection with strategic business development transactions, including 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 initially recorded at cost. We began recording the investment at fair value, with the effects of a holding period restriction estimated using an option pricing valuation model, upon Moderna's completion of its initial public offering (IPO) in 2018. During the three and six months ended June 30, 2019, we recognized an unrealized loss of $29.0 and unrealized gain $0.8, respectively, in investment income to adjust our investment in Moderna to fair value. On December 9, 2019, we sold our investment in Moderna for $114.7 in net proceeds, resulting in a realized gain of $77.2 on our initial investment.
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 six months ended June 30, 2020, we recognized an unrealized gain of $5.9 and $2.8, respectively, in investment income to adjust our equity investment in Dicerna to fair value. During the three and six months ended June 30, 2019, we recognized an unrealized gain of $0.9 and $4.2, respectively, in investment income to adjust our equity investment in Dicerna to fair value.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The fair value of this investment was $21.2 and $18.4 as of June 30, 2020 and December 31, 2019, 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, based on Phase II data, in connection with an agreement that we entered into with Caelum. Following discussions with the FDA, Caelum changed the design of its clinical development program and a Phase II trial for CAEL-101 commenced during the first quarter of 2020 with plans to initiate Phase III trials in the second half of 2020. In December 2019, we amended the terms of the agreement with respect to the option to acquire the remaining equity in Caelum based on data from the expanded Phase II/III trials. We accounted for the amendment as an exchange transaction as the terms of the modified option were determined to be substantially different than the terms of the original option. In conjunction with this amendment, we recognized a gain of $32.0 during the fourth quarter 2019 in other income and (expense), which reflects an increase in the fair value of the option, less $20.0 in incremental upfront funding which we accrued as of December 31, 2019 and paid during the first quarter 2020, and $4.1 associated with the change in the fair value of contingent payments which we also modified as part of the amendment. See Note 16, 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 only adjust the carrying value of the assets for impairment and 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 six months ended June 30, 2020 and 2019. As of June 30, 2020 and December 31, 2019, the carrying value of the investment and option, respectively, was $41.0 and $64.0. The investment and option were not impaired as of June 30, 2020.
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 16, 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 six months ended June 30, 2020, we recognized an unrealized loss of $0.8 and $1.0, respectively, in investment income to adjust our equity investment in Zealand to fair value. During the three and six months ended June 30, 2019, we recognized an unrealized gain of $2.9 and $3.6, respectively, in investment income to adjust our equity investment in Zealand to fair value.
The fair value of this investment was $27.5 and $28.5 as of June 30, 2020 and December 31, 2019, respectively.
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 16, 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 six months ended June 30, 2020, we recognized an unrealized gain of $0.6 and unrealized loss of $3.1, respectively, in investment income to adjust our equity investment in Eidos to fair value.
The fair value of this investment was $24.7 and $27.8 as of June 30, 2020 and December 31, 2019, respectively.
Stealth
In October 2019, we purchased $9.6 of Stealth BioTherapeutics Corp. (Stealth) common stock, in connection with an agreement that we entered into with Stealth, a publicly traded clinical-stage biotechnology company. As our equity investment in Stealth common stock has a readily determinable fair value, we are recording the investment at fair value. During the three and six months ended June 30, 2020, we recognized an unrealized gain of $0.9 and unrealized loss of $1.9, respectively, in investment income to adjust our equity investment in Stealth to fair value.
The fair value of this investment was $2.5 and $4.4 as of June 30, 2020 and December 31, 2019, respectively.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
Portola
In March 2020 and April 2020, we purchased of $14.5 and $3.6, respectively, of common stock of Portola Pharmaceuticals, Inc., a publicly traded commercial-stage biotechnology company. As our equity investment in the common stock has a readily determinable fair value, we are recording the investment at fair value. During the three and six months ended June 30, 2020, we recognized an unrealized gain of $29.0 and $29.6, respectively, in investment income to adjust our equity investment in Portola to fair value.
The fair value of this investment was $47.7 as of June 30, 2020. Upon closing of the acquisition of Portola on July 2, 2020 the equity investment was derecognized and included in the fair value of consideration transferred.
11.Stockholders' Equity
Share Repurchases
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 our repurchase program, which superseded all prior repurchase programs. The entire amount authorized pursuant to this February 2017 Board approval has been utilized. On October 22, 2019, the Board of Directors approved a 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. The repurchase program may be discontinued at any time at our discretion. Under the program, we repurchased 2.3 and 0.3 shares of our common stock at a cost of $253.7 and $37.6 during the three months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020 and 2019, we repurchased 3.6 and 0.4 shares of our common stock at a cost of $360.8 and $48.9, respectively.
On July 28, 2020, the Board of Directors approved a new share repurchase authorization of up to an additional $1,500.0. 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. As of July 28, 2020, there is a total of $2,174.7 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 six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019
|
$
|
(9.2)
|
|
|
$
|
(0.1)
|
|
|
$
|
(40.1)
|
|
|
$
|
(17.4)
|
|
|
$
|
(66.8)
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
0.1
|
|
|
(32.8)
|
|
|
(6.5)
|
|
|
(39.2)
|
|
Amounts reclassified from other comprehensive income
|
—
|
|
|
—
|
|
|
(4.9)
|
|
|
—
|
|
|
(4.9)
|
|
Net other comprehensive income (loss)
|
—
|
|
|
0.1
|
|
|
(37.7)
|
|
|
(6.5)
|
|
|
(44.1)
|
|
Balances, June 30, 2020
|
$
|
(9.2)
|
|
|
$
|
—
|
|
|
$
|
(77.8)
|
|
|
$
|
(23.9)
|
|
|
$
|
(110.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(28.5)
|
|
|
(0.5)
|
|
|
(28.8)
|
|
Amounts reclassified from other comprehensive income
|
—
|
|
|
—
|
|
|
(19.4)
|
|
|
—
|
|
|
(19.4)
|
|
Net other comprehensive income (loss)
|
—
|
|
|
0.2
|
|
|
(47.9)
|
|
|
(0.5)
|
|
|
(48.2)
|
|
Balances, June 30, 2019
|
$
|
(2.6)
|
|
|
$
|
(0.1)
|
|
|
$
|
(38.3)
|
|
|
$
|
(16.9)
|
|
|
$
|
(57.9)
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The table below provides details regarding significant reclassifications from AOCI during the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income Components
|
Amount Reclassified From Accumulated Other Comprehensive Income during the three months ended June 30,
|
|
|
|
Amount Reclassified From Accumulated Other Comprehensive Income during the six months ended June 30,
|
|
|
Affected Line Item in the Condensed Consolidated Statements of Operations
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Unrealized Gains (Losses) on Hedging Activity
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
9.5
|
|
|
$
|
9.1
|
|
|
$
|
20.9
|
|
|
$
|
16.1
|
|
Net product sales
|
Interest rate swap contracts
|
(10.0)
|
|
|
4.5
|
|
|
(14.6)
|
|
|
9.1
|
|
Interest expense
|
|
(0.5)
|
|
|
13.6
|
|
|
6.3
|
|
|
25.2
|
|
|
|
0.2
|
|
|
(3.2)
|
|
|
(1.4)
|
|
|
(5.8)
|
|
Income tax (benefit) expense
|
|
$
|
(0.3)
|
|
|
$
|
10.4
|
|
|
$
|
4.9
|
|
|
$
|
19.4
|
|
|
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 June 30, 2020 and December 31, 2019, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
June 30, 2020
|
|
|
|
|
|
|
Balance Sheet
Classification
|
Type of Instrument
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
Money market funds
|
$
|
1,212.8
|
|
|
$
|
—
|
|
|
$
|
1,212.8
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
Mutual funds
|
$
|
26.8
|
|
|
$
|
26.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
Equity securities
|
$
|
123.6
|
|
|
$
|
98.9
|
|
|
$
|
24.7
|
|
|
$
|
—
|
|
Prepaid expenses and other current assets
|
Foreign exchange forward contracts
|
$
|
43.5
|
|
|
$
|
—
|
|
|
$
|
43.5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
Foreign exchange forward contracts
|
$
|
24.2
|
|
|
$
|
—
|
|
|
$
|
24.2
|
|
|
$
|
—
|
|
Other liabilities
|
Foreign exchange forward contracts
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
Interest rate contracts
|
$
|
45.5
|
|
|
$
|
—
|
|
|
$
|
45.5
|
|
|
$
|
—
|
|
Other liabilities
|
Interest rate contracts
|
$
|
69.6
|
|
|
$
|
—
|
|
|
$
|
69.6
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
Acquisition-related contingent consideration
|
$
|
374.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
374.7
|
|
Other current liabilities
|
Other contingent payments
|
$
|
11.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.4
|
|
|
|
|
|
|
|
|
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
December 31, 2019
|
|
|
|
|
|
|
Balance Sheet
Classification
|
Type of Instrument
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
Money market funds
|
$
|
635.9
|
|
|
$
|
—
|
|
|
$
|
635.9
|
|
|
$
|
—
|
|
Cash equivalents
|
Commercial paper
|
$
|
227.9
|
|
|
$
|
—
|
|
|
$
|
227.9
|
|
|
$
|
—
|
|
Cash equivalents
|
Corporate bonds
|
$
|
20.6
|
|
|
$
|
—
|
|
|
$
|
20.6
|
|
|
$
|
—
|
|
Cash equivalents
|
Bank certificates of deposit
|
$
|
19.2
|
|
|
$
|
—
|
|
|
$
|
19.2
|
|
|
$
|
—
|
|
Cash equivalents
|
Other government-related obligations
|
$
|
60.4
|
|
|
$
|
—
|
|
|
$
|
60.4
|
|
|
$
|
—
|
|
Marketable securities
|
Mutual funds
|
$
|
23.1
|
|
|
$
|
23.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities
|
Commercial paper
|
$
|
19.0
|
|
|
$
|
—
|
|
|
$
|
19.0
|
|
|
$
|
—
|
|
Marketable securities
|
Corporate bonds
|
$
|
3.7
|
|
|
$
|
—
|
|
|
$
|
3.7
|
|
|
$
|
—
|
|
Marketable securities
|
Other government-related obligations
|
$
|
10.0
|
|
|
$
|
—
|
|
|
$
|
10.0
|
|
|
$
|
—
|
|
Marketable securities
|
Bank certificates of deposit
|
$
|
8.2
|
|
|
$
|
—
|
|
|
$
|
8.2
|
|
|
$
|
—
|
|
Other assets
|
Equity securities
|
$
|
79.0
|
|
|
$
|
51.2
|
|
|
$
|
27.8
|
|
|
$
|
—
|
|
Prepaid expenses and other current assets
|
Foreign exchange forward contracts
|
$
|
29.9
|
|
|
$
|
—
|
|
|
$
|
29.9
|
|
|
$
|
—
|
|
Other assets
|
Foreign exchange forward contracts
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
Other current liabilities
|
Foreign exchange forward contracts
|
$
|
26.6
|
|
|
$
|
—
|
|
|
$
|
26.6
|
|
|
$
|
—
|
|
Other liabilities
|
Foreign exchange forward contracts
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
Other current liabilities
|
Interest rate contracts
|
$
|
19.5
|
|
|
$
|
—
|
|
|
$
|
19.5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
Interest rate contracts
|
$
|
41.9
|
|
|
$
|
—
|
|
|
$
|
41.9
|
|
|
$
|
—
|
|
Contingent consideration
|
Acquisition-related contingent consideration
|
$
|
192.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
192.4
|
|
Other current liabilities
|
Other contingent payments
|
$
|
24.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24.0
|
|
There were no securities transferred between Level 1, 2 and 3 during the six months ended June 30, 2020.
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 the applicable company or 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 anticipated to be met.
As of June 30, 2020, 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 our 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. As of June 30, 2020, the resulting probability-weighted cash flows were discounted using a cost of debt ranging from 0.4% to 0.7% for developmental and regulatory milestones and a weighted average cost of capital of 9.0% for sales-based milestones. As of December 31, 2019, the resulting probability-weighted cash flows were discounted using a weighted average cost of capital of 9.0% 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 anticipated 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 June 30, 2020, estimated future contingent milestone payments related to our business combinations range from zero if no milestone events are achieved, to a maximum of $908.3 if all development, regulatory and sales-based milestones are reached.
As of June 30, 2020, the fair value of acquisition-related contingent consideration was $374.7. Amounts issued during the six months ended June 30, 2020, represent the fair value of the non-tradeable CVRs recorded in connection with the acquisition of Achillion. See Note 3, Acquisitions. The following table represents a roll-forward of our acquisition-related contingent consideration:
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
Balance at beginning of period
|
$
|
192.4
|
|
Amounts issued
|
160.7
|
|
Changes in fair value
|
21.6
|
|
Balance at end of period
|
$
|
374.7
|
|
Other Contingent Payments
In January 2019, we entered into an agreement with Caelum, a biotechnology company that is developing CAEL-101 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 agreed to pay up to an additional $30.0 in contingent development milestones prior to our exercise of the option to acquire the remaining equity in Caelum. 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%.
In December 2019, following FDA feedback which resulted in the redesign and expansion of Caelum's planned clinical development program for CAEL-101, we amended the terms of our existing option agreement with Caelum. The amendment modified the terms of the option to acquire the remaining equity in Caelum based on data from the expanded Phase II/III trials. The amendment also modified the development-related milestone events associated with the initial $30.0 in contingent payments, provided for an additional $20.0 in upfront funding, which we accrued
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
as of December 31, 2019 and paid during the first quarter 2020, as well as funding of $60.0 in exchange for an additional equity interest at fair value upon achievement of a specific development-related milestone event. In April 2020, we paid an aggregate of $15.0 of contingent payments to Caelum related to two development-based milestones. The remaining $15.0 of contingent payments continues to meet the definition of a derivative liability.
Each reporting period, we adjust the derivative liability associated with the contingent payments 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 anticipated 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 June 30, 2020, the fair value of our remaining contingent payments was $11.4, based on the probability-weighted cash flows, discounted using a cost of debt of 2.1%. We recorded $0.1 and $2.4 of expense in other income and (expense) during the three and six months ended June 30, 2020, respectively, related to the change in the fair value of the liability. We recorded $0.3 of expense in other income and (expense) during the three and six months ended June 30, 2019 related to the change in the fair value of the liability.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
14.Revenue Recognition
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into product and geographical regions as summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
SOLIRIS
|
|
|
|
|
|
|
|
United States
|
$
|
553.3
|
|
|
$
|
496.3
|
|
|
$
|
1,109.5
|
|
|
$
|
960.0
|
|
Europe
|
247.9
|
|
|
280.2
|
|
|
511.4
|
|
|
544.7
|
|
Asia Pacific
|
82.4
|
|
|
110.3
|
|
|
169.5
|
|
|
211.2
|
|
Rest of World
|
91.9
|
|
|
94.0
|
|
|
208.0
|
|
|
226.9
|
|
Total
|
$
|
975.5
|
|
|
$
|
980.8
|
|
|
$
|
1,998.4
|
|
|
$
|
1,942.8
|
|
|
|
|
|
|
|
|
|
ULTOMIRIS
|
|
|
|
|
|
|
|
United States
|
$
|
158.1
|
|
|
$
|
54.2
|
|
|
$
|
289.6
|
|
|
$
|
78.8
|
|
Europe
|
32.0
|
|
|
—
|
|
|
65.8
|
|
|
—
|
|
Asia Pacific
|
59.6
|
|
|
—
|
|
|
116.7
|
|
|
—
|
|
Rest of World
|
1.4
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
Total
|
$
|
251.1
|
|
|
$
|
54.2
|
|
|
$
|
473.9
|
|
|
$
|
78.8
|
|
|
|
|
|
|
|
|
|
STRENSIQ
|
|
|
|
|
|
|
|
United States
|
$
|
140.7
|
|
|
$
|
106.2
|
|
|
$
|
268.8
|
|
|
$
|
205.7
|
|
Europe
|
18.3
|
|
|
19.5
|
|
|
42.3
|
|
|
37.0
|
|
Asia Pacific
|
15.0
|
|
|
12.1
|
|
|
28.6
|
|
|
22.0
|
|
Rest of World
|
10.3
|
|
|
3.5
|
|
|
16.8
|
|
|
6.7
|
|
Total
|
$
|
184.3
|
|
|
$
|
141.3
|
|
|
$
|
356.5
|
|
|
$
|
271.4
|
|
|
|
|
|
|
|
|
|
KANUMA
|
|
|
|
|
|
|
|
United States
|
$
|
15.4
|
|
|
$
|
15.3
|
|
|
$
|
31.8
|
|
|
$
|
29.1
|
|
Europe
|
8.4
|
|
|
6.8
|
|
|
15.9
|
|
|
13.1
|
|
Asia Pacific
|
0.9
|
|
|
1.3
|
|
|
1.8
|
|
|
2.1
|
|
Rest of World
|
8.9
|
|
|
2.8
|
|
|
10.8
|
|
|
5.4
|
|
Total
|
$
|
33.6
|
|
|
$
|
26.2
|
|
|
$
|
60.3
|
|
|
$
|
49.7
|
|
|
|
|
|
|
|
|
|
Total Net Product Sales
|
$
|
1,444.5
|
|
|
$
|
1,202.5
|
|
|
$
|
2,889.1
|
|
|
$
|
2,342.7
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Receivables, which are included in "Trade accounts receivable, net"
|
$
|
1,372.2
|
|
|
$
|
1,243.2
|
|
Contract liabilities, which are included in "Other current liabilities"
|
$
|
24.7
|
|
|
$
|
6.8
|
|
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
15.Income Taxes
Coronavirus Aid, Relief and Economic Security Act
In response to the market volatility and instability resulting from the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Under the 2017 Tax Act, federal net operating losses (NOLs) generated after 2017 could not be carried back and utilization was limited to 80% of taxable income. The CARES Act allows for a five-year carryback of federal NOLs generated in 2018 through 2020 and eliminates the 80% taxable income limitation by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018 through 2020. In addition, the CARES Act generally allows taxpayers to deduct interest up to 50% of adjusted taxable income (30% limit under the 2017 Tax Act) for tax years 2019 and 2020. The CARES Act also allows taxpayers with prior year alternative minimum tax (repealed by the 2017 Tax Act) (AMT) credits to accelerate refund claims to tax years beginning in 2018 and 2019 instead of recovering the credits over a period of years, as originally enacted by the 2017 Tax Act.
Additionally, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and provides a technical correction to the 2017 Tax Act to generally provide qualified improvement property a 15-year cost-recovery period and allow 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three and six months ended June 30, 2020, or to our U.S. federal and state net deferred tax liabilities as of June 30, 2020.
Tax Rate
The following table provides a comparative summary of our income tax expense and effective income tax rate for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Income tax (benefit) expense
|
$
|
(284.0)
|
|
|
$
|
39.7
|
|
|
$
|
(178.0)
|
|
|
$
|
(6.4)
|
|
Effective income tax rate
|
21.0
|
%
|
|
7.9
|
%
|
|
25.9
|
%
|
|
(0.6)
|
%
|
Income tax (benefit) expense is attributable to the U.S. federal, state and foreign income taxes on our profitable operations. During the second quarter 2020, we recognized an impairment charge of $2,042.3 related to the KANUMA intangible asset, resulting in a deferred tax benefit of $377.3. See Note 5, Intangible Assets and Goodwill, for additional information on the impairment charge. These deferred tax benefits increased the effective tax rate for the six months ended June 30, 2020 by approximately 11.1%.
The income tax expense for the six months ended June 30, 2019 includes one-time tax benefits recorded during the first quarter 2019, in connection with the future integration of intellectual property of Wilson Therapeutics into the Alexion corporate structure. The deferred tax benefits included $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 six months ended June 30, 2019 by approximately 12.1%.
In April 2020 we became aware of a European withholding tax regulation that could be interpreted to apply to certain of our previous intra-group transactions. We continue to evaluate whether the interpretation of this regulation applies to our facts and circumstances, and, based on our preliminary analysis, we recorded an immaterial reserve related to this matter during the second quarter of 2020.
In July 2020, the U.S. Department of Treasury released certain proposed and final regulations which were originally enacted under the 2017 Tax Act. We are currently assessing the impact of these regulations on our financial condition and results of operations.
In 2017, the Internal Revenue Service (IRS) commenced an examination of our U.S. income tax returns for 2015. During the second quarter of 2020 we received a Revenue Agent Report (RAR) and held discussions with the IRS regarding a proposed adjustment related to the valuation of certain intellectual property that was contributed into our captive partnership during 2015. The Company agrees with the adjustment as outlined in the RAR and has
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
recognized a previously unrecognized tax benefit in the second quarter of 2020 that did not result in a significant impact to the financial statements. We anticipate the audit will conclude within the next six months.
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.
16.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 agreed to pay up to an additional $30.0 in contingent development milestones prior to the exercise the option to acquire the remaining equity in Caelum. 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 the contingent payments, 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. Following discussions with the FDA, Caelum changed the design of its clinical development program and a Phase II trial for CAEL-101 commenced during the first quarter of 2020 with plans to initiate Phase III trials in the second half of 2020. In December 2019, we amended the terms of the agreement with Caelum to modify the option to acquire the remaining equity in Caelum based on data from the expanded Phase II/III trials. The amendment also modified the development-related milestone events associated with the initial $30.0 in contingent payments, provided for an additional $20.0 in upfront funding, which we accrued as of December 31, 2019 and paid during the first quarter 2020, as well as funding of $60.0 in exchange for an additional equity interest at fair value upon achievement of a specific development-related milestone event. 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 April 2020, we paid an aggregate of $15.0 of contingent payments to Caelum related to two development-based milestones.
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 I studies. In addition to the agreement, we made an equity investment in Zealand (see Note 10, Other Investments). 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 June 30, 2020, we could be required to pay up to $610.0, for the lead target, upon the achievement of specified development, regulatory and commercial milestones, as well as royalties on commercial sales. In addition, we could be required to pay up to an additional $115.0 in development and regulatory milestones if both a long-acting and short-acting product are developed with respect to the lead target. 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 April 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
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
that targets the FcRn. 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 licensed, we recorded the upfront license payment as research and development expense during the second quarter 2019. In February 2020, based on data from our Phase I study, we terminated the agreement to co-develop ABY-039 with Affibody.
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 III study in the U.S. and Europe for ATTR cardiomyopathy (ATTR-CM). In addition, we made an equity investment in Eidos (see Note 10, Other Investments). 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 June 30, 2020, 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 October 2018, we entered into a collaboration agreement with Dicerna that provides us with exclusive worldwide licenses and development and commercial rights for two preclinical RNA interference (RNAi) subcutaneously delivered molecules for complement-mediated diseases, as well as an exclusive option for other preclinical RNAi molecules for two additional targets within the complement pathway. In addition to the collaboration agreement, we made an equity investment in Dicerna. Under the terms of the agreements, we made an upfront payment of $37.0 for the exclusive licenses and the equity investment. The market value of the equity investment was $10.3 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 assets we are licensing, we recorded the upfront license payment of $26.7 as research and development expense during the fourth quarter 2018. In December 2019, we exercised our option for exclusive rights to two additional targets within the complement pathway under an existing agreement with Dicerna, which expands our existing research collaboration and license agreement with Dicerna to include a total of four targets within the complement pathway. In connection with the option exercise, we paid Dicerna $20.0, which we recorded as research and development expense in the fourth quarter 2019. As of June 30, 2020, excluding accrued milestones, we could be required to pay up to $606.6 for amounts due upon the achievement of specified research, development, regulatory and commercial milestones on the four licensed targets, as well as royalties on commercial sales.
In December 2017, we entered into a collaboration and license agreement with Halozyme Therapeutics, Inc. that allows us to use drug-delivery technology in the development of subcutaneous formulations for our portfolio of products for up to four targets. Under the terms of the agreement, we made an upfront payment of $40.0 for an exclusive license to two of the four potential targets and due to the early stage of the assets we are licensing, we recorded an expense for the upfront payment during the fourth quarter 2017. During the second quarter of 2020, we forfeited our rights to one of the two targets we initially licensed. As of June 30, 2020, we could be required to pay up to $155.0 for the remaining licensed target upon achievement of specified development, regulatory and sales-based milestones, as well as royalties on commercial sales. Each of the two subsequent targets can be licensed for an option fee of $8.0, with contingent payments of up to $160.0 per target, subject to development, regulatory and commercial milestones, as well as royalties on commercial sales.
In connection with our prior acquisition of Syntimmune, Inc., a clinical-stage biotechnology company developing an antibody therapy targeting the neonatal Fc receptor (FcRn), we could be required to pay up to $800.0 upon the achievement of specified development, regulatory and commercial milestones, of which $130.0 is specific to the subcutaneous formulation.
In addition, excluding accrued milestones, as of June 30, 2020, we have other license agreements under which we may be required to pay up to an additional $42.5 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.
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
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 June 30, 2020.
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 $1,069.6, exclusive of future commitments assumed in connection with our acquisition of Portola. This amount includes $105.5 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 June 30, 2020 we have non-cancellable commitments of approximately $63.1 through 2020 with other third party manufacturers.
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 the FCPA. The SEC and DOJ also sought information related to Alexion’s recalls of specific lots of SOLIRIS and related securities disclosures.
The investigations focused on operations in various countries, including Brazil, Colombia, Japan, Russia and Turkey, and Alexion's compliance with the FCPA and other applicable laws.
In May 2020, DOJ informed us that it has closed its inquiry into these matters.
On July 2, 2020, we reached a civil settlement with the SEC fully resolving the SEC’s investigation into possible violations of the FCPA. Alexion neither admitted nor denied any wrongdoing in connection with the settlement but
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
agreed to pay $21.5 to the SEC, consisting of amounts attributable to disgorgement, civil penalties, and pre-judgment interest. In July 2020, we remitted $21.5 to the SEC and this amount has been recorded as an accrued liability on the condensed consolidated balance sheet at June 30, 2020.
Alexion is committed to continually focusing on its compliance program and continues to enhance its comprehensive company-wide program that is designed to enhance our 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, 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’ filed their reply in further support of their motion on 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
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
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(amounts in millions, except per share amounts)
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. On December 3, 2019, the Attorney General of Canada filed its memorandum of fact and law in support of the Federal Court of Canada's dismissal of Alexion's appeal of the PMPRB's decision. On December 19, 2019, intervenor, the Minister of Health for the Province of British Columbia, filed a separate memorandum of fact and law in support of the Federal Court of Canada's decision. A hearing date for the appeal has been set for the week of October 19, 2020. Pursuant to an order made by the Federal Court of Canada, as of July 28, 2020, we have placed approximately $54.5 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 June 30, 2020. 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 have been reduced by $36.8 cumulatively to date, which is our current best estimate of our liability through June 30, 2020 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).
Chugai Pharmaceutical Co., Ltd. has filed three 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. Upon issuance of a new U.S. patent on November 12, 2019, Chugai filed a second lawsuit in the United States alleging that ULTOMIRIS infringes the new patent. The parties have agreed to consolidate the November 2018 and November 2019 lawsuits. Chugai filed a third lawsuit in December 2018 in the Tokyo District Court against Alexion Pharma GK (a wholly-owned subsidiary of Alexion) in Japan and alleges that ULTOMIRIS infringes two Japanese patents held by Chugai Pharmaceutical Co., Ltd. Chugai’s complaints seek unspecified damages and certain injunctive relief. On March 5, 2020, the Supreme Court of Japan conclusively affirmed an earlier IP High Court of Japan decision which held that one of the Chugai patents-in-suit is invalid. Subsequently Chugai filed a correction to the claims of this patents-in-suit and Alexion has countered that the corrected claims are still invalid and not infringed. In all 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 July 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 alleged 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. On May 28, 2020, we entered into a Confidential Settlement and License Agreement (the “Settlement Agreement ”) with Amgen to settle the three IPRs at the Patent Trial and Appeal Board (“PTAB”) of the PTO. Pursuant to the Settlement Agreement, Alexion and Amgen have terminated each of the pending IPRs. In addition, effective March 1, 2025 (or an earlier date in certain circumstances), the Company grants to Amgen (and its affiliates and certain partners) a non-exclusive, royalty-free, license under U.S. patents and patent applications related to eculizumab and various aspects of the eculizumab product that Alexion currently markets and sells under the tradename SOLIRIS. This license will allow Amgen (and its affiliates and certain partners), effective March 1, 2025, the right to make, have made, use, import, have imported, sell, have sold, offer for sale, have offered for sale, distribute, and have distributed in or for the U.S., an eculizumab product.
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. The defenses filed by Alexion are pending judgment at the first level of administrative appeals within the Brazilian federal administrative proceeding system. There are three separate levels of administrative appeals within
Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
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.
In connection with Alexion’s acquisition of Portola, we have assumed litigation to which Portola was a party. Among the litigation assumed is a securities fraud class action filed against Portola and certain of its officers, directors and underwriters (“Defendants”) under the Securities Act of 1933 and the Securities Exchange Act of 1934. Specifically, on January 16, 2020, February 7, 2020, and February 28, 2020, stockholders filed three putative class actions in the U.S. District Court for the Northern District of California, captioned Hayden v. Portola Pharmaceuticals, Inc., et al., No. 3:20-cv-00367-VC (N.D. Cal.); McCutcheon v. Portola Pharmaceuticals, Inc., et al., No. 3:20-cv-00949 (N.D. Cal.); and Southeastern Pennsylvania Transportation Authority v. Portola Pharmaceuticals, Inc., et al., No. 3:20-cv-01501 (N.D. Cal.). These cases have since been consolidated, and on April 22, 2020, the Court issued an Order appointing the Alameda County Employees’ Retirement Association (“ACERA”) as Lead Plaintiff in the litigation. ACERA filed its amended consolidated complaint on May 20, 2020, asserting that Defendants made misrepresentations and omissions in public disclosures (including in materials issued in connection with the August 7, 2019 securities offering) concerning Portola’s sales of andexanet alfa, marketed as ANDEXXA in the United States and ONDEXXYA in Europe, between January 8, 2019 and February 26, 2020. Specifically, plaintiffs allege that Defendants made materially false and/or misleading statements about the demand for ANDEXXA, usage of ANDEXXA by hospitals and healthcare organizations, and about Portola’s accounting for its return reserves. Plaintiffs contend that the alleged fraud was revealed on January 9, 2020, when Portola announced its preliminary unaudited financial results for the fourth quarter of 2019, and again on February 26, 2020 when Portola issued its fourth quarter 2019 financial results. In July 2020, Portola and the Portola Defendants filed a motion to dismiss with the Court. Plaintiffs seek to recover unspecified monetary relief, interest, and attorneys’ fees and costs. 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.
Alexion Pharmaceuticals, Inc.
(amounts in millions, except per share amounts)