Company Quick10K Filing
Quick10K
Alexion Pharmaceuticals
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$131.77 224 $29,550
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-17 Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-02-04 Earnings, Exhibits
8-K 2018-12-21 Regulation FD
8-K 2018-11-15 Regulation FD
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-09-25 Enter Agreement, Other Events, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-06-27 Officers
8-K 2018-06-13 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-08 Shareholder Vote
8-K 2018-04-11 Other Events, Exhibits
8-K 2018-02-05 Officers, Exhibits
8-K 2018-01-22 Officers, Exhibits
UAL United Continental Holdings 22,130
Z Zillow Group 7,020
ODP Office Depot 1,140
VSEC VSE 298
SNOA Sonoma Pharmaceuticals 10
NVAX Novavax 8
CFT Campbell Fund Trust 0
WESTG Westgate Acquisitions 0
GNTH Genethera 0
UHSI Universal Hospital Services 0
ALXN 2019-03-31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A.Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 alxnex101q119.htm
EX-10.2 alxnex102q119.htm
EX-31.1 alxnex311q119.htm
EX-31.2 alxnex312q119.htm
EX-32.1 alxnex321q119.htm
EX-32.2 alxnex322q119.htm

Alexion Pharmaceuticals Earnings 2019-03-31

ALXN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 alxn3311910q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x
Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
or
¨
Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission file number: 0-27756
 alexionlogoa54.jpg
ALEXION PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
13-3648318
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
121 Seaport Boulevard, Boston Massachusetts 02210
(Address of Principal Executive Offices) (Zip Code)
475-230-2596
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x   Accelerated filer  ¨    Non-accelerated filer  ¨
Smaller reporting company  ¨ Emerging growth company  ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Common Stock, $0.0001 par value
224,237,214
Class
Outstanding as of April 23, 2019








 
Alexion Pharmaceuticals, Inc.
Table of Contents

 
 
 
 
Page
PART I.
FINANCIAL INFORMATION
 
 
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
PART II.
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 5.
 
Item 6.
SIGNATURES
 
 



Alexion Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(amounts in millions, except per share amounts)
 
March 31,

December 31,
 
2019

2018
Assets



Current Assets:



Cash and cash equivalents
$
1,544.8


$
1,365.5

Marketable securities
110.3


198.3

Trade accounts receivable, net
1,016.3


922.3

Inventories
482.2


472.5

Prepaid expenses and other current assets
497.0


426.4

Total current assets
3,650.6


3,385.0

Property, plant and equipment, net
1,095.7


1,471.5

Intangible assets, net
3,560.8


3,641.3

Goodwill
5,037.4


5,037.4

Right of use operating assets
192.8

 

Other assets
462.3


396.7

Total assets
$
13,999.6


$
13,931.9

Liabilities and Stockholders' Equity



Current Liabilities:



Accounts payable and accrued expenses
$
669.8


$
698.2

Revolving credit facility

 
250.0

Current portion of long-term debt
126.5


93.8

Current portion of contingent consideration
97.6


97.6

Other current liabilities
49.9


34.4

Total current liabilities
943.8


1,174.0

Long-term debt, less current portion
2,470.0


2,501.7

Contingent consideration
154.5

 
183.2

Facility lease obligation

 
361.0

Deferred tax liabilities
306.1


391.1

Noncurrent operating lease liabilities
150.8

 

Other liabilities
267.8


155.6

Total liabilities
4,293.0


4,766.6

Commitments and contingencies (Note 18)



Stockholders' Equity:



Common stock, $0.0001 par value; 290.0 shares authorized; 237.0 and 236.2 shares issued at March 31, 2019 and December 31, 2018, respectively



Additional paid-in capital
8,604.9


8,539.1

Treasury stock, at cost, 12.8 and 12.7 shares at March 31, 2019 and December 31, 2018, respectively
(1,701.2
)

(1,689.9
)
Accumulated other comprehensive loss
(20.5
)

(9.7
)
Retained earnings
2,823.4


2,325.8

Total stockholders' equity
9,706.6


9,165.3

Total liabilities and stockholders' equity
$
13,999.6


$
13,931.9


The accompanying notes are an integral part of these condensed consolidated financial statements.

2


Alexion Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(amounts in millions, except per share amounts)

 
Three Months Ended
March 31,
 
2019

2018
Net product sales
$
1,140.2


$
930.4

Other revenue
0.2


0.5

Total revenues
1,140.4


930.9

Cost of sales
85.8


91.6

Operating expenses:



Research and development
195.9


176.6

Selling, general and administrative
281.5


257.1

Amortization of purchased intangible assets
80.0


80.0

Change in fair value of contingent consideration
(28.7
)

52.7

Restructuring expenses
9.1


5.5

Total operating expenses
537.8


571.9

Operating income
516.8


267.4

Other income and expense:



Investment income
42.5


105.8

Interest expense
(19.9
)

(24.1
)
Other income and (expense)
2.4


2.5

Income before income taxes
541.8


351.6

Income tax (benefit) expense
(46.1
)

102.5

Net income
$
587.9


$
249.1

Earnings per common share



Basic
$
2.63


$
1.12

Diluted
$
2.61


$
1.11

Shares used in computing earnings per common share



Basic
223.8


222.1

Diluted
225.5


223.7


 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Alexion Pharmaceuticals, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(amounts in millions)

 
Three Months Ended
March 31,
 
2019
 
2018
Net income
$
587.9

 
$
249.1

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation
(2.0
)
 
3.8

Unrealized gains (losses) on debt securities
0.2

 
(0.4
)
Unrealized gains on pension obligation

 
0.7

Unrealized losses on hedging activities, net of tax of $(2.2), $(4.9), respectively
(9.0
)
 
(15.4
)
Other comprehensive income (loss), net of tax
(10.8
)
 
(11.3
)
Comprehensive income
$
577.1

 
$
237.8


The accompanying notes are an integral part of these condensed consolidated financial statements.


4


Alexion Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
(amounts in millions)
Three months ended March 31, 2019
Common Stock
 
Additional
Paid-In
Capital
 
Treasury Stock
at Cost
 
Accumulated Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Total
Stockholders’
Equity
 
Shares Issued
 
Amount
 
Shares
 
Amount
 
Balances, December 31, 2018
236.2

 
$

 
$
8,539.1

 
12.7

 
$
(1,689.9
)
 
$
(9.7
)
 
$
2,325.8

 
$
9,165.3

Repurchase of common stock

 

 

 
0.1

 
(11.3
)
 

 

 
(11.3
)
Issuance of common stock under stock option and stock purchase plans
0.1

 

 
10.1

 

 

 

 

 
10.1

Issuance of restricted common stock
0.7

 

 

 

 

 

 

 

Share-based compensation expense

 

 
55.7

 

 

 

 

 
55.7

Net income

 

 

 

 

 

 
587.9

 
587.9

Other comprehensive loss

 

 

 

 

 
(10.8
)
 

 
(10.8
)
Adoption of new accounting standards (see Note 2)

 

 

 

 

 

 
(90.3
)
 
(90.3
)
Balances, March 31, 2019
237.0


$


$
8,604.9


12.8


$
(1,701.2
)

$
(20.5
)

$
2,823.4


$
9,706.6

Three months ended March 31, 2018
Common Stock
 
Additional
Paid-In
Capital
 
Treasury Stock
at Cost
 
Accumulated Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Total
Stockholders’
Equity
 
Shares Issued
 
Amount
 
Shares
 
Amount
 
Balances, December 31, 2017
234.3

 
$

 
$
8,290.3

 
12.0

 
$
(1,604.9
)
 
$
(34.4
)
 
$
2,242.1

 
$
8,893.1

Repurchase of common stock

 

 

 
0.7

 
(85.0
)
 

 

 
(85.0
)
Issuance of common stock under stock option and stock purchase plans
0.1

 

 
9.5

 

 

 

 

 
9.5

Issuance of restricted common stock
0.8

 

 
(0.3
)
 

 

 

 

 
(0.3
)
Share-based compensation expense

 

 
51.4

 

 

 

 

 
51.4

Net income

 

 

 

 

 

 
249.1

 
249.1

Other comprehensive income

 

 

 

 

 
(11.3
)
 

 
(11.3
)
Adoption of new accounting standards

 

 

 

 

 

 
6.2

 
6.2

Balances, March 31, 2018
235.2

 
$

 
$
8,350.9

 
12.7

 
$
(1,689.9
)
 
$
(45.7
)
 
$
2,497.4

 
$
9,112.7

The accompanying notes are an integral part of these condensed consolidated financial statements.


5


Alexion Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(amounts in millions)
 
 
Three months ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
587.9

 
$
249.1

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
97.2

 
101.5

Change in fair value of contingent consideration
(28.7
)
 
52.7

Share-based compensation expense
56.7

 
51.3

Deferred taxes
(81.1
)
 
88.8

Unrealized loss (gain) on forward contracts
5.5

 
(3.7
)
Unrealized gain on equity investments
(33.8
)
 
(100.5
)
Other
(0.5
)
 
5.3

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(95.3
)
 
(42.7
)
Inventories
(11.2
)
 
3.9

Prepaid expenses, right of use operating assets and other assets
(58.6
)
 
(32.7
)
Accounts payable, accrued expenses, lease liabilities and other liabilities
(8.2
)
 
(73.7
)
Net cash provided by operating activities
429.9

 
299.3

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale debt securities

 
(342.8
)
Proceeds from maturity or sale of available-for-sale debt securities
92.6

 
155.0

Purchases of mutual funds related to nonqualified deferred compensation plan
(5.8
)
 
(5.2
)
Proceeds from sale of mutual funds related to nonqualified deferred compensation plan
3.7

 
2.8

Purchases of property, plant and equipment
(36.0
)
 
(66.6
)
Purchases of strategic investments
(43.8
)
 

Purchase of intangible assets
(8.0
)
 

Other
0.2

 
2.1

Net cash provided by (used in) investing activities
2.9

 
(254.7
)
Cash flows from financing activities:
 
 
 
Payments on term loan

 
(43.8
)
Payments on revolving credit facility
(250.0
)
 

Repurchases of common stock
(11.3
)
 
(85.0
)
Net proceeds from issuance of common stock under share-based compensation arrangements
10.2

 
9.4

Other
(1.3
)
 
(4.1
)
Net cash used in financing activities
(252.4
)
 
(123.5
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(1.4
)
 
6.3

Net change in cash and cash equivalents and restricted cash
179.0

 
(72.6
)
Cash and cash equivalents and restricted cash at beginning of period
1,367.3

 
586.3

Cash and cash equivalents and restricted cash at end of period
$
1,546.3

 
$
513.7

 
 
 
 
Supplemental cash flow disclosures from investing and financing activities:
 
 
 
Fair value of contingent liability related to strategic investment and purchase option
$
27.1

 
$

Capitalization of construction costs related to facility lease obligations
$

 
$
15.0

Accrued expenses for purchases of property, plant and equipment
$
10.8

 
$
32.1

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)






1.
Business
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 the first two approved complement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria (PNH), as well as the first approved complement inhibitor to treat atypical hemolytic uremic syndrome (aHUS) and anti-acetylcholine receptor (AChR) antibody-positive generalized myasthenia gravis (gMG).  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 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 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 months ended March 31, 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 Condensed 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 be reported based on expected losses compared to the current incurred loss model. The new standard also requires enhanced disclosure of credit risk associated with respective assets. The standard is effective for interim and annual

7

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





periods beginning after December 15, 2019 with early adoption permitted. We are currently assessing the impact of this standard on our consolidated financial statements.
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). Under the new guidance, customers will assess if a CCA includes a software license and if a CCA does include a software license, implementation and set-up costs will be accounted for consistent with existing internal-use software implementation guidance. Implementation costs associated with a CCA that do not include a software license would be expensed to operating expenses. The standard also provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures. The standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. Entities can choose to adopt the new guidance prospectively or retrospectively. We are currently assessing the impact this standard will have on our consolidated financial statements.
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 finance 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.

3.
Acquisitions
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 develops 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. 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 is concentrated in a single asset, WTX101.

8

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





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 is no alternative future use associated with WTX101. Accordingly, the value of this asset of $803.7 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 are 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.

9

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





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 neonatal Fc receptor (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 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 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 is concentrated in a single in-process research and development asset, SYNT001.
The following table summarizes the total consideration for the acquisition and the value of the assets acquired and liabilities assumed:
Consideration
 
Upfront payment for acquisition of Syntimmune outstanding shares
$
400.0

Cash acquired
4.2

Working capital adjustment
6.4

Transaction costs
0.9

Total consideration
$
411.5

 
 
Assets Acquired and Liabilities Assumed
 
Cash
$
4.2

In-process research & development
379.3

Deferred tax assets
25.1

Other assets and liabilities
2.9

Total net assets acquired
$
411.5

    
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 is no alternative future use associated with SYNT001. Accordingly, the value of this asset of $379.3 was expensed during the fourth quarter of 2018.

4.
Inventories
The components of inventory are as follows:
 
March 31,
 
December 31,
 
2019
 
2018
Raw materials
$
39.1

 
$
31.4

Work-in-process
100.9

 
90.4

Finished goods
342.2

 
350.7

 
$
482.2

 
$
472.5



10

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





5.Intangible Assets and Goodwill
The following table summarizes the carrying amount of our intangible assets and goodwill, net of accumulated amortization: 
 
 
 
March 31, 2019
 
December 31, 2018
 
Estimated
Life (years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Licensing rights
5-8
 
$
39.0

 
$
(29.8
)
 
$
9.2

 
$
39.0

 
$
(29.3
)
 
$
9.7

Patents
7
 
10.5

 
(10.5
)
 

 
10.5

 
(10.5
)
 

Purchased technology
6-16
 
4,710.5

 
(1,159.1
)
 
3,551.4

 
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
 
 
$
4,760.4

 
$
(1,199.6
)
 
$
3,560.8

 
$
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 March 31, 2019 and 2018 was $80.5 and $80.3, respectively. As of March 31, 2019, assuming no changes in the gross cost basis of intangible assets, the total estimated amortization expense for finite-lived intangible assets is $241.6 for the nine months ending December 31, 2019, and approximately $321.0 for each of the years ending December 31, 2020 through December 31, 2024.
As of March 31, 2019, the net book value of our purchased technology includes $3,187.6 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 March 31, 2019 and determined that there were no indicators of impairment. Cash flow models used in our assessments are based on our limited commercial experience 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.

6.
Debt
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 amends and restates 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 amortization payments of 5.00% of the aggregate 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 March 31, 2019 and 2018 was $1.2 and $2.3, respectively. Remaining unamortized deferred financing costs as of March 31, 2019 and December 31, 2018 were $19.6 and $20.8, respectively.
As of March 31, 2019, we had $2,612.5 outstanding on the term loan. As of March 31, 2019, we had open letters of credit of $0.7 that offset our availability in the revolving facility. 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 March 31, 2019.
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

11

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





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.
The following table summarizes the calculation of basic and diluted EPS for the three months ended March 31, 2019 and 2018:
 
Three months ended
 
March 31,
 
2019
 
2018
Net income used for basic and diluted calculation
$
587.9

 
$
249.1

Shares used in computing earnings per common share—basic
223.8

 
222.1

Weighted-average effect of dilutive securities:
 
 
 
Stock awards
1.7

 
1.6

Shares used in computing earnings per common share—diluted
225.5

 
223.7

Earnings per common share:
 
 
 
Basic
$
2.63

 
$
1.12

Diluted
$
2.61

 
$
1.11

We exclude from EPS the weighted-average number of securities whose effect is anti-dilutive. Excluded from the calculation of EPS for the three months ended March 31, 2019 and 2018 were 2.6 and 3.4 shares of common stock, respectively, because their effect was anti-dilutive.

8.
Marketable Securities

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 March 31, 2019 and December 31, 2018 were as follows:
 
 
March 31, 2019
 
 
Amortized Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Fair Value
Commercial paper
 
$
289.2

 
$

 
$

 
$
289.2

Corporate bonds
 
73.0

 

 

 
73.0

Other government-related obligations:
 
 
 
 
 
 
 
 
U.S.
 
43.5

 

 

 
43.5

Foreign
 
14.4

 

 

 
14.4

Bank certificates of deposit
 
18.8

 

 

 
18.8

Total available-for-sale debt securities
 
$
438.9

 
$

 
$

 
$
438.9


12

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





 
 
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

Foreign
 

 

 

 

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 March 31, 2019 and December 31, 2018 was $56.8 and $128.7, respectively. We did not have any investments in a continuous unrealized loss position for more than twelve months as of March 31, 2019 and December 31, 2018. As of March 31, 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:
 
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
348.8

 
$
43.8

Marketable securities
90.1

 
181.8

 
$
438.9

 
$
225.6


The fair values of available-for-sale debt securities at March 31, 2019, by contractual maturity, are summarized as follows:
 
March 31, 2019
Due in one year or less
$
433.1

Due after one year through three years
5.8

 
$
438.9

        
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 March 31, 2019 and December 31, 2018, the fair value of these investments was $20.2 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 months ended March 31, 2019 and 2018.


13

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 March 31, 2019, we had open revenue related foreign exchange forward contracts with notional amounts totaling $1,003.3 that qualified for hedge accounting with current contract maturities through December 2020. As of March 31, 2019, we had open expense related foreign exchange forward contracts with notional amounts totaling $18.7 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 March 31, 2019:
Type of Interest Rate Swap
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 months ended March 31, 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
 
March 31, 2019
 
March 31, 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
$
1,140.2

 
$
(19.9
)
 
$
930.4

 
$
(24.1
)
Impact of cash flow hedging relationships:
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
7.0

 
$

 
$
(13.1
)
 
$

Interest rate swap contracts
$

 
$
4.6

 
$

 
$
1.4


14

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





The impact on AOCI from foreign exchange and interest rate swap contracts that qualified as cash flow hedges, for the three months ended March 31, 2019 and 2018 were as follows:
 
Three months ended
 
March 31,
 
2019
 
2018
Foreign Exchange Forward Contracts:
 
 
 
Gain (loss) recognized in AOCI, net of tax
$
14.2

 
$
(32.5
)
Gain (loss) reclassified from AOCI to net product sales, net of tax
$
5.4

 
$
(10.1
)
Interest Rate Contracts:
 
 
 
Gain (loss) recognized in AOCI, net of tax
$
(14.2
)
 
$
8.1

Gain (loss) reclassified from AOCI to interest expense, net of tax
$
3.6

 
$
1.1

Assuming no change in foreign exchange rates from market rates at March 31, 2019, $17.5 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 March 31, 2019, $10.7 of gains 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 was immaterial at March 31, 2019.
We enter into foreign exchange forward contracts, with durations 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 March 31, 2019, the notional amount of foreign exchange contracts where hedge accounting is not applied was $1,184.0.
We recognized a gain (loss) of $3.2 and $(8.1), in other income and (expense) for the three months ended March 31, 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 March 31, 2019 and December 31, 2018: 

 
March 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
 
$
19.7

 
Other current liabilities
 
$
2.4

Foreign exchange forward contracts
Other assets
 
1.7

 
Other liabilities
 
0.9

Interest rate contracts
Prepaid expenses and other current assets
 
13.6

 
Other current liabilities
 
2.9

Interest rate contracts
Other assets
 

 
Other liabilities
 
31.1

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Prepaid expenses and other current assets
 
11.8

 
Other current liabilities
 
5.3

Total fair value of derivative instruments
 
 
$
46.8

 
 
 
$
42.6



15

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 contracts
Prepaid expenses and other current assets
 
20.1

 
Other current liabilities
 
0.8

Interest rate 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:
 
 
March 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
 
$
46.8

 
$

 
$
46.8

 
$
(18.2
)
 
$

 
$
28.6

Derivative liabilities
 
$
(42.6
)
 
$

 
$
(42.6
)
 
$
18.2

 
$

 
$
(24.4
)
 
 
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
)


16

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





10.
Other Investments    
Other investments include strategic investments in equity securities of certain biotechnology companies which we acquired in connection with license 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.
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 first quarter 2019, we recognized an unrealized gain of $29.8 in investment income to adjust our investment in Moderna to fair value as of March 31, 2019.
The fair value of this investment was $111.7 and $81.9 as of March 31, 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. We have considered the effects of a six month holding period restriction and determined the impact on the fair value is immaterial. During the first quarter 2019, we recognized an unrealized gain of $3.3 in investment income to adjust our equity investment in Dicerna to fair value as of March 31, 2019.
The fair value of this investment was $12.2 and $8.9 as of March 31, 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 will record the assets at cost, less impairments, and adjust 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 first quarter 2019. The carrying value of the investment and option of $41.0 and $16.1, respectively, were not impaired as of March 31, 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. We have considered the effects of a six month holding period restriction and determined that the impact on the fair value of the investment is immaterial. During the first quarter 2019, we recognized an unrealized gain of $0.7 in investment income to adjust our equity investment in Zealand to fair value as of March 31, 2019.
The fair value of this investment was $14.5 as of March 31, 2019.


17

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)






11.
Stockholders' Equity
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 0.1 and 0.7 shares of our common stock at a cost of $11.3 and $85.0, during the three months ended March 31, 2019 and 2018, respectively.
Subsequent to March 31, 2019, we repurchased 0.1 shares of common stock under our repurchase program at a cost of $9.3. As of April 23, 2019, there is a total of $430.8 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 three months ended March 31, 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

 

 
(2.0
)
 
(1.8
)
Amounts reclassified from other comprehensive income

 

 
(9.0
)
 

 
(9.0
)
Net other comprehensive income (loss)

 
0.2

 
(9.0
)
 
(2.0
)
 
(10.8
)
Balances, March 31, 2019
$
(2.6
)
 
$
(0.1
)
 
$
0.6

 
$
(18.4
)
 
$
(20.5
)
 
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
0.1

 
(0.4
)
 
(24.4
)
 
3.8

 
(20.9
)
Amounts reclassified from other comprehensive income
0.6

 

 
9.0

 

 
9.6

Net other comprehensive income (loss)
0.7

 
(0.4
)
 
(15.4
)
 
3.8

 
(11.3
)
Balances, March 31, 2018
$
(4.1
)
 
$
(0.2
)
 
$
(29.3
)
 
$
(12.1
)
 
$
(45.7
)

18

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 months ended March 31, 2019 and 2018:
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified From Accumulated Other Comprehensive Income during the three months ended March 31,
 
Affected Line Item in the Condensed Consolidated Statements of Operations
 
2019
2018
 
Unrealized Gains (Losses) on Hedging Activity
 
 
 
 
 
Foreign exchange forward contracts
 
$
7.0

$
(13.1
)
 
Net product sales
Interest rate swap contracts
 
4.6

1.4

 
Interest expense
 
 
11.6

(11.7
)
 
 
 
 
(2.6
)
2.7

 
Income tax (benefit) expense
 
 
$
9.0

$
(9.0
)
 
 


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.

19

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)





The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. 
 
 
Fair Value Measurement at
March 31, 2019
Balance Sheet
Classification
Type of Instrument
Total
 
Level 1
 
Level 2
 
Level 3
Cash equivalents
Money market funds
$
545.5

 
$

 
$
545.5

 
$

Cash equivalents
Commercial paper
$
289.2

 
$

 
$
289.2

 
$

Cash equivalents
Bank certificates of deposit
$
8.7

 
$

 
$
8.7

 
$

Cash equivalents
Other government-related obligations
$
50.9

 
$

 
$
50.9

 
$

Marketable securities
Mutual funds
$
20.2

 
$
20.2

 
$

 
$

Marketable securities
Corporate bonds
$
73.0

 
$

 
$
73.0

 
$

Marketable securities
Other government-related obligations
$
7.0

 
$

 
$
7.0

 
$

Marketable securities
Bank certificates of deposit
$
10.1

 
$

 
$
10.1

 
$

Other assets
Equity securities
$
138.4


$
26.7

 
$
111.7

 
$

Prepaid expenses and other current assets
Foreign exchange forward contracts
$
31.5

 
$

 
$
31.5

 
$

Other assets
Foreign exchange forward contracts
$
1.7

 
$

 
$
1.7

 
$

Other current liabilities
Foreign exchange forward contracts
$
7.7

 
$

 
$
7.7

 
$

Other liabilities
Foreign exchange forward contracts
$
0.9

 
$

 
$
0.9

 
$

Prepaid expenses and other current assets
Interest rate contracts
$
13.6

 
$

 
$
13.6

 
$

Other current liabilities
Interest rate contracts
$
2.9

 
$

 
$
2.9

 
$

Other liabilities
Interest rate contracts
$
31.1

 
$

 
$
31.1

 
$

Current portion of contingent consideration
Acquisition-related contingent consideration
$
97.6

 
$

 
$

 
$
97.6

Contingent consideration
Acquisition-related contingent consideration
$
154.5

 
$

 
$

 
$
154.5

Other current liabilities
Other contingent payments
$
13.7

 
$

 
$

 
$
13.7

Other liabilities
Other contingent payments
$
13.4

 
$

 
$

 
$
13.4

 

20

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 three months ended March 31, 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 consist of money market funds, commercial paper, reverse repurchase agreements, 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.

21

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 March 31, 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 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 March 31, 2019, estimated future contingent milestone payments related to prior business combinations range from zero if no milestone events are achieved, to a maximum of $702.0 if all development, regulatory and sales-based milestones are reached. As of March 31, 2019, the fair value of acquisition-related contingent consideration was $252.1. The following table represents a roll-forward of our acquisition-related contingent consideration:
 
Three months ended
 
March 31, 2019
Balance at beginning of period
$
280.8

Changes in fair value
(28.7
)
Balance at end of period
$
252.1


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 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 will 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, change in fair value will only reflect the interest component of the liability related to the passage of time. As of March 31, 2019, the fair value of our contingent fees was $27.1. The change in the fair value of the liability was immaterial for the first quarter 2019.


22

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 March 31,
 
2019
 
2018
SOLIRIS

 

United States
$
463.7

 
$
336.0

Europe
264.5

 
250.8

Asia Pacific
100.9

 
85.5

Rest of World
132.9

 
127.8

Total
$
962.0

 
$
800.1

 
 
 
 
ULTOMIRIS
 
 
 
United States
$
24.6

 
$

Europe

 

Asia Pacific

 

Rest of World

 

Total
$
24.6

 
$

 
 
 
 
STRENSIQ

 

United States
$
99.5

 
$
89.2

Europe
17.5

 
14.0

Asia Pacific
9.9

 
5.7

Rest of World
3.2

 
1.8

Total
$
130.1

 
$
110.7

 
 
 
 
KANUMA

 

United States
$
13.8

 
$
11.9

Europe
6.3

 
5.9

Asia Pacific
0.8

 
1.0

Rest of World
2.6

 
0.8

Total
$
23.5

 
$
19.6