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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020
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
 https://cdn.kscope.io/3b73a94e06f880620304ced700a9af61-alxn-20200930_g1.jpg
ALEXION PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware13-3648318
(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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock $0.0001 par valueALXNNASDAQ Stock Market LLC
 
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 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 value218,845,432
ClassOutstanding as of October 27, 2020



 
Alexion Pharmaceuticals, Inc.
Table of Contents

 
Page
PART I.
Item 1.
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)
 September 30,December 31,
 20202019
Assets
Current Assets:
Cash and cash equivalents$2,268.0 $2,685.5 
Marketable securities28.9 64.0 
Trade accounts receivable, net1,437.1 1,243.2 
Inventories729.0 627.6 
Prepaid expenses and other current assets604.8 456.1 
Total current assets5,067.8 5,076.4 
Property, plant and equipment, net1,214.5 1,163.3 
Intangible assets, net3,056.6 3,344.3 
Goodwill5,100.7 5,037.4 
Right of use operating assets220.1 204.0 
Deferred tax assets2,270.5 2,290.2 
Other assets618.2 429.0 
Total assets$17,548.4 $17,544.6 
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable$89.2 $74.0 
Accrued expenses978.4 892.7 
Current portion of long-term debt138.6 126.7 
Other current liabilities124.8 100.9 
Total current liabilities1,331.0 1,194.3 
Long-term debt, less current portion2,453.3 2,375.0 
Contingent consideration398.1 192.4 
Deferred tax liabilities1,818.2 2,081.4 
Noncurrent operating lease liabilities175.8 164.1 
Other liabilities297.1 265.6 
Total liabilities6,473.5 6,272.8 
Commitments and contingencies (Note 16)
Stockholders' Equity:
Common stock, $0.0001 par value; 290.0 shares authorized; 239.7 and 237.8 shares issued at September 30, 2020 and December 31, 2019, respectively
  
Additional paid-in capital9,030.4 8,804.7 
Treasury stock, at cost, 20.7 and 16.5 shares at September 30, 2020 and December 31, 2019, respectively
(2,543.7)(2,105.9)
Accumulated other comprehensive loss(119.2)(66.8)
Retained earnings4,707.4 4,639.8 
Total stockholders' equity11,074.9 11,271.8 
Total liabilities and stockholders' equity$17,548.4 $17,544.6 

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 September 30,Nine months ended September 30,
 2020201920202019
Net product sales$1,588.3 $1,263.1 $4,477.4 $3,605.8 
Other revenue0.4  0.7 1.0 
Total revenues1,588.7 1,263.1 4,478.1 3,606.8 
Costs and expenses:
Cost of sales (exclusive of amortization of purchased intangible assets)144.7 95.2 401.3 280.2 
Research and development285.9 232.9 707.9 616.4 
Selling, general and administrative334.2 299.3 955.5 880.1 
Acquired in-process research and development   (4.1)
Amortization of purchased intangible assets53.1 75.6 200.5 235.7 
Change in fair value of contingent consideration23.4 29.8 45.0 7.2 
Acquisition-related costs63.0  105.7  
Restructuring expenses14.3 0.3 13.5 11.9 
Impairment of intangible assets  2,053.3  
Gain on sale of asset(14.8) (14.8) 
Total costs and expenses903.8 733.1 4,467.9 2,027.4 
Operating income684.9 530.0 10.2 1,579.4 
Other income and expense:
Investment income, net11.5 23.0 47.8 50.6 
Interest expense(27.6)(17.9)(77.0)(56.1)
Other income and (expense)(1.9)0.4 (2.6)2.9 
Income (loss) before income taxes666.9 535.5 (21.6)1,576.8 
Income tax expense (benefit)88.8 67.9 (89.2)61.5 
Net income$578.1 $467.6 $67.6 $1,515.3 
Earnings per common share
Basic$2.64 $2.09 $0.31 $6.77 
Diluted$2.62 $2.08 $0.30 $6.72 
Shares used in computing earnings per common share
Basic219.1 223.3 220.4 223.8 
Diluted220.6 224.5 221.9 225.4 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Alexion Pharmaceuticals, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(amounts in millions)
Three months ended September 30,Nine months ended September 30,
2020201920202019
Net income$578.1 $467.6 $67.6 $1,515.3 
Other comprehensive (loss) income, net of tax:
Foreign currency translation1.2 (2.5)(5.3)(3.0)
Unrealized gains on debt securities  0.1 0.2 
Unrealized (gains) losses on hedging activities, net of tax of $(2.8), $3.5, $(14.3) and $(10.8), respectively
(9.5)12.2 (47.2)(35.7)
Other comprehensive (loss) income, net of tax(8.3)9.7 (52.4)(38.5)
Comprehensive income$569.8 $477.3 $15.2 $1,476.8 

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 September 30, 2020Common StockAdditional
Paid-In
Capital
Treasury Stock
at Cost
Accumulated Other
Comprehensive
Income (Loss)
Retained EarningsTotal
Stockholders’
Equity
 Shares IssuedAmountSharesAmount
Balances, June 30, 2020239.2 $ $8,942.4 20.1 $(2,470.0)$(110.9)$4,129.3 $10,490.8 
Repurchase of common stock— — — 0.6 (73.5)— — (73.5)
Issuance of common stock under stock option and stock purchase plans0.2 — 10.5 — — — — 10.5 
Issuance of restricted common stock0.3 — — — — — —  
Share-based compensation expense— — 70.3 — (0.2)— — 70.1 
Portola replacement equity awards attributable to the pre-combination period— — 7.2 — — — — 7.2 
Net income— — — — — — 578.1 578.1 
Other comprehensive loss— — — — — (8.3)— (8.3)
Balances, September 30, 2020239.7 $ $9,030.4 20.7 $(2,543.7)$(119.2)$4,707.4 $11,074.9 
Three months ended September 30, 2019Common StockAdditional
Paid-In
Capital
Treasury Stock
at Cost
Accumulated Other
Comprehensive
Income (Loss)
Retained EarningsTotal
Stockholders’
Equity
 Shares IssuedAmountSharesAmount
Balances, June 30, 2019237.3 $ $8,677.0 13.1 $(1,738.8)$(57.9)$3,283.2 $10,163.5 
Repurchase of common stock— — — 3.1 (334.6)— — (334.6)
Issuance of common stock under stock option and stock purchase plans0.1 — 1.9 — — — — 1.9 
Issuance of restricted common stock0.1 — — — — — —  
Share-based compensation expense— — 59.1 — — — — 59.1 
Net income— — — — — — 467.6 467.6 
Other comprehensive income— — — — — 9.7 — 9.7 
Balances, September 30, 2019237.5 $ $8,738.0 16.2 $(2,073.4)$(48.2)$3,750.8 $10,367.2 
Nine months ended September 30, 2020Common StockAdditional Paid-In CapitalTreasury Stock at CostAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Stockholders’ Equity
Shares IssuedAmountSharesAmount
Balances, December 31, 2019237.8 $ $8,804.7 16.5 $(2,105.9)$(66.8)$4,639.8 $11,271.8 
Repurchase of common stock— — — 4.2 (434.3)— — (434.3)
Issuance of common stock under stock option and stock purchase plans0.4 — 23.4 — — — — 23.4 
Issuance of restricted common stock1.5 — — — — — —  
Share-based compensation expense— — 195.1 — (3.5)— — 191.6 
Portola replacement equity awards attributable to the pre-combination period— — 7.2 — — — — 7.2 
Net income— — — — — — 67.6 67.6 
Other comprehensive loss— — — — — (52.4)— (52.4)
Balances, September 30, 2020239.7 $ $9,030.4 20.7 $(2,543.7)$(119.2)$4,707.4 $11,074.9 
5


Nine months ended September 30, 2019Common StockAdditional Paid-In CapitalTreasury Stock at CostAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Stockholders’ Equity
Shares IssuedAmountSharesAmount
Balances, December 31, 2018236.2 $ $8,539.1 12.7 $(1,689.9)$(9.7)$2,325.8 $9,165.3 
Repurchase of common stock— — — 3.5 (383.5)— — (383.5)
Issuance of common stock under stock option and stock purchase plans0.3 — 23.2 — — — — 23.2 
Issuance of restricted common stock1.0 — — — — — —  
Share-based compensation expense— — 175.7 — — — — 175.7 
Net income— — — — — — 1,515.3 1,515.3 
Other comprehensive loss— — — — — (38.5)— (38.5)
Adoption of new accounting standards— — — — — — (90.3)(90.3)
Balances, September 30, 2019237.5 $ $8,738.0 16.2 $(2,073.4)$(48.2)$3,750.8 $10,367.2 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Alexion Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(amounts in millions)
 Nine months ended September 30,
 20202019
Cash flows from operating activities:
Net income$67.6 $1,515.3 
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization254.3 286.2 
Change in fair value of contingent consideration45.0 7.2 
Payments of contingent consideration (100.0)
Share-based compensation expense195.6 176.8 
Deferred taxes (benefit)(174.2)(136.1)
Unrealized foreign currency loss (gain)0.9 (3.3)
Unrealized gain on forward contracts(3.9)(15.3)
Unrealized gain on strategic equity investments(4.6)(20.6)
Gain on sale of asset(14.8) 
Gain on derecognition of Portola strategic equity investment(29.7) 
Inventory obsolescence charge24.6  
Impairment of intangible assets2,053.3  
Other10.7 (2.3)
Changes in operating assets and liabilities, excluding the effect of acquisitions:
Accounts receivable(183.5)(199.1)
Inventories(10.3)(105.9)
Prepaid expenses, right of use operating assets and other assets(92.3)(42.2)
Accounts payable, accrued expenses, lease liabilities and other liabilities23.7 207.1 
Net cash provided by operating activities2,162.4 1,567.8 
Cash flows from investing activities:
Purchases of available-for-sale debt securities(19.4)(51.2)
Proceeds from maturity or sale of available-for-sale debt securities184.2 211.0 
Purchases of mutual funds related to nonqualified deferred compensation plan(14.1)(13.4)
Proceeds from sale of mutual funds related to nonqualified deferred compensation plan9.6 11.4 
Purchases of property, plant and equipment(29.2)(124.7)
Payment for acquisition of businesses, net of cash and restricted cash acquired(2,111.9) 
Purchases of strategic equity investments and options(38.1)(63.7)
Purchase of intangible assets (16.0)
Net cash used in investing activities(2,018.9)(46.6)
Cash flows from financing activities:
Payments on term loan(97.9)(65.4)
Payments on revolving credit facility (250.0)
Repurchases of common stock(434.3)(383.5)
Net proceeds from issuance of common stock under share-based compensation arrangements22.1 23.2 
Other(28.0)(3.7)
Net cash used in financing activities(538.1)(679.4)
Effect of exchange rate changes on cash and cash equivalents and restricted cash(0.5)(6.1)
Net change in cash and cash equivalents and restricted cash(395.1)835.7 
Cash and cash equivalents and restricted cash at beginning of period2,723.6 1,367.4 
Cash and cash equivalents and restricted cash at end of period$2,328.5 $2,203.1 

7


 Nine months ended September 30,
 20202019
Supplemental cash flow disclosures from investing and financing activities:
Contingent consideration issued in acquisitions$155.0 $ 
Fair value of equity shares in Portola settled at closing of the acquisition$47.8 $ 
Fair value of replacement equity awards issued to Portola employees attributable to the pre-combination period$7.2 $ 
Exchange of intellectual property rights for equity shares in Inozyme$14.8 $ 
Fair value of strategic investment and purchase option acquired, less upfront cash paid
$ $27.6 
Operating ROU lease assets obtained in exchange for operating lease liabilities$21.2 $23.9 
Accounts payable and accrued expenses for purchases of property, plant and equipment and intangible assets$14.3 $3.1 
The following provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the total of such amounts shown in the condensed consolidated statement of cash flows:
 Nine months ended September 30,
 20202019
Cash and cash equivalents$2,268.0 $2,171.3 
Restricted cash included in other current assets60.4 31.5 
Restricted cash included in other noncurrent assets0.1 0.3 
Total cash and cash equivalents and restricted cash reported in the condensed consolidated statement of cash flows$2,328.5 $2,203.1 
Amounts included in restricted cash primarily represent funds placed in escrow as a result of the judicial order issued by the Federal Court of Canada related to SOLIRIS pricing (Note 16, Commitments and Contingencies).

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

8

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 and devastating conditions through the discovery, development and commercialization of life-changing medicines.
As a leader in rare diseases for more than 25 years, Alexion has developed and commercializes two approved complement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS), as well as the first and only approved complement inhibitor to treat anti-acetylcholine receptor (AChR) antibody-positive generalized myasthenia gravis (gMG) and neuromyelitis optica spectrum disorder (NMOSD) in patients who are anti-aquaporin-4 (AQP4) antibody positive. Alexion also 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). With the acquisition of Portola Pharmaceuticals, Inc. (Portola) in July 2020, we added the first and only approved Factor Xa inhibitor reversal agent for patients treated with rivaroxaban or apixaban when reversal of anticoagulation is needed due to life-threatening or uncontrolled bleeding.
In addition to our marketed therapies, we have a diverse pipeline resulting from internal innovation and business development. Alexion focuses its research efforts on novel molecules and targets in the complement cascade and its development efforts on the core therapeutic areas of hematology, nephrology, neurology, metabolic disorders, cardiology, ophthalmology and acute care. 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, 2019. In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our financial statements for interim periods presented in accordance with accounting principles generally accepted in the United States. The condensed consolidated balance sheet as of December 31, 2019 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, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year or any other future periods.
The financial statements of our subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for stockholders' equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss), net of tax, in stockholders' equity. Foreign currency transaction gains and losses are included in the results of operations in other income and expense.
The accompanying unaudited condensed consolidated financial statements include the accounts of Alexion Pharmaceuticals, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Our significant accounting policies are described in Note 1 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. Updates to our accounting policies, including impacts from the adoption of new accounting standards, are discussed below in this Note 2.
Reclassifications
Certain items in the prior period’s condensed consolidated financial statements have been reclassified to conform to the current presentation.
9

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent liabilities in our condensed consolidated financial statements.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain. We are not aware of any specific event or circumstance that would require an update to our estimates, judgments and assumptions or a revision of the carrying value of our assets or liabilities as of October 29, 2020, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results may differ from these estimates under different assumptions or conditions and such differences may be material.
New Accounting Pronouncements
Accounting Standards Update (ASU) 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes”: In December 2019, the Financial Accounting Standards Board (FASB) issued a new standard intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. We do not expect the adoption of this standard to have a material impact on our financial condition and results of operations.
ASU 2020-01, “Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging - Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815”: In January 2020, the FASB issued a new standard intended to clarify the interactions between Accounting Standards Codification (ASC) 321, ASC 323 and ASC 815. The new standard addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The standard is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. Adoption of the standard requires changes to be made prospectively. We do not expect the adoption of this standard to have a material impact on our financial condition and results of operations.
ASU 2020-04, “Reference Rate Reform, Facilitation of the Effects of Reference Rate Reform on Financial Reporting": In response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. In March 2020, the FASB issued a new standard that provides optional guidance for a limited time to ease the potential burden in accounting for the effects of reference rate reform, including optional expedients and exceptions for the accounting implications of contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.
The amendments in this new standard only apply to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the standard do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. We are currently reviewing our contracts impacted by reference rate reform and are assessing the impact of this standard on our financial condition and results of operations.
Recently Adopted Accounting Pronouncements
ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract": In August 2018, the FASB issued a new standard on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement (CCA) that aligns the requirements for capitalizing implementation costs in a CCA service contract with existing internal-use software guidance. The standard also provides classification guidance on these implementation costs as well as additional
10

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
quantitative and qualitative disclosures. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, and can be adopted prospectively or retrospectively.
We adopted the new standard on January 1, 2020 on a prospective basis. The adoption of this standard had no impact on our financial statements at the date of adoption; however, we anticipate the adoption of this standard will result in an increase in capitalized assets related to qualifying CCA implementation costs in future periods.
Qualifying CCA implementation, set-up and other upfront costs incurred after January 1, 2020 are capitalized as other assets in our condensed consolidated balance sheets. These assets will be expensed over the term of the hosting arrangement and such expense will be presented within the same line item in our condensed consolidated statements of operations as the expense for fees for the associated hosting arrangement. These capitalized costs will be evaluated for impairment when events or changes in circumstances indicate that the carrying value of the capitalized implementation costs is not recoverable. For the nine months ended September 30, 2020, capitalized CCA implementation costs were not material.
ASU 2016-13, "Measurement of Credit Losses on Financial Instruments": In June 2016, the 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 on financial assets measured at amortized cost be determined using an expected loss model, instead of the current incurred loss model, and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit losses and limited to the amount by which carrying value exceeds fair value. The new standard also requires enhanced disclosure of credit risk associated with financial assets. The standard is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted.
We adopted the new standard on January 1, 2020 and have completed our assessment of the standard based on the composition of our portfolio of financial instruments and current and forecasted economic conditions at that date. Our significant financial assets that are within the scope of the new standard consist of trade accounts receivable and available for sale debt securities. We have not historically experienced any material credit losses associated with our trade accounts receivable or available for debt securities.
We monitor economic conditions, including volatility associated with international economies and the associated impacts on the financial markets and our business. We disaggregate our trade accounts receivable population into pools of similar risk characteristics based on underlying customer type and geographical location. Current expected credit loss allowances are estimated for each risk pool based on available information, including i) historical credit loss experience, ii) current economic conditions and, iii) reasonable and supportable forecasts of future economic conditions that may affect the collectibility of the recorded amounts. Based on the relevant facts and economic conditions as of the date of adoption, we concluded that the expected credit losses on our trade accounts receivable were immaterial. Additionally, unrealized losses on our available for sale investment portfolio were immaterial.
As of September 30, 2020, we reassessed our estimated credit losses on our trade accounts receivable, including consideration of the potential impacts of the COVID-19 global pandemic. Based on the relevant facts and economic conditions as of September 30, 2020, we concluded that the expected credit losses on our trade accounts receivable continued to be immaterial.
3.Acquisitions
Business Combinations
Achillion Pharmaceuticals, Inc.
In October 2019, Alexion entered into a definitive agreement to acquire Achillion Pharmaceuticals, Inc. (Achillion), a clinical-stage biopharmaceutical company focused on the development of oral Factor D inhibitors. Achillion was developing oral small molecule Factor D inhibitors to treat people with complement alternative pathway-mediated rare diseases, such as PNH and C3 glomerulopathy (C3G). Achillion had two clinical stage medicines in development, including danicopan (ACH-4471/ALXN2040) and ACH-5228 (ALXN2050).
The acquisition of Achillion closed on January 28, 2020. Under the terms of the agreement, we acquired all outstanding common stock of Achillion for $6.30 per share, or an aggregate of $926.2, inclusive of the settlement of Achillion's outstanding equity awards. The acquisition was funded with cash on hand. The transaction includes the potential for additional consideration in the form of non-tradeable contingent value rights (CVRs), which will be paid to Achillion shareholders if certain clinical and regulatory milestones are achieved within specified periods. These
11

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
include $1.00 per share for the U.S. Food and Drug Administration (FDA) approval of danicopan and $1.00 per share for the initiation of a Phase III clinical trial in ACH-5228.
The transaction was accounted for as a business combination. The following table summarizes the total consideration transferred to acquire Achillion and the estimated fair value of the identified assets acquired and liabilities assumed at the acquisition date:
Consideration
Upfront payment to shareholders and option holders$926.2 
Upfront payment, fair value of equity compensation attributable to the post-combination service period(20.0)
Upfront cash paid, net906.2 
Contingent consideration160.7 
Contingent consideration, fair value of equity compensation attributable to the post-combination service period(5.7)
Total consideration$1,061.2 
Assets Acquired and Liabilities Assumed
Cash and cash equivalents$68.5 
Marketable securities106.1 
In-process research & development assets (IPR&D)918.0 
Goodwill37.8 
Deferred tax liabilities, net(62.9)
Other assets and liabilities, net(6.3)
Total net assets acquired$1,061.2 

Our accounting for this acquisition was finalized during the second quarter of 2020. Measurement period adjustments increased goodwill by $3.1 during the second quarter of 2020 due to purchase price allocation increases to deferred tax liabilities, net. Measurement period adjustments were recorded as a result of studies completed during the second quarter of 2020 to determine the tax deductibility of certain acquisition-related costs and the valuation of historical net operating loss and income tax credit carryforwards.
The initial fair value estimate of the contingent consideration in the form of non-tradeable CVRs was $160.7, which was recorded as a noncurrent liability in our condensed consolidated balance sheet, including $5.7 related to compensation attributable to the post-combination service period. We determined the fair value of these milestone-related payment obligations using various estimates, including probabilities of success prior to expiration of the specified period, discount rates and the amount of time until the conditions of the milestone payments are expected to be met. This fair value measurement was based on significant inputs not observable in the market, representing Level 3 measurements within the fair value hierarchy. The resulting probability-weighted cash flows were discounted using a cost of debt rate ranging from 2.1% to 2.3%. The range of estimated milestone payments upon closing of the acquisition is from zero, if no milestones are achieved for any product, to $306.3 if certain development and regulatory milestones are achieved.
Subsequent to the acquisition date, we have adjusted 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 development work progresses towards the potential achievement of the milestones. At September 30, 2020, the fair value of the contingent consideration for the Achillion acquisition was $209.4 based on the probability-weighted cash flows, discounted using a cost of debt ranging from 3.9% to 4.3%. Changes in fair value of the contingent consideration associated with the Achillion acquisition for the three and nine months ended September 30, 2020 was $19.3 and $48.6, respectively.
The aggregate fair value of equity compensation attributable to the post-combination service period was $25.7. This amount was excluded from the total consideration transferred and was recognized as a charge to acquisition-related costs in our condensed consolidated statements of operations. These amounts were associated with the
12

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
accelerated vesting of stock options previously granted to Achillion employees. Excluding the $5.7 of contingent consideration related to equity compensation attributable to the post-combination service period, such amounts were paid during the first quarter 2020.
Intangible assets associated with IPR&D relate to two development-stage programs, ACH-4471 (ALXN2040) and ACH-5228 (ALXN2050). The estimated fair value of $918.0 was determined using the excess earnings valuation method, a variation of the income valuation approach. The excess earnings valuation method estimates the value of an intangible asset equal to the present value of the incremental after-tax cash flows attributable to that intangible asset. Some of the more significant assumptions utilized in our asset valuations included the estimated net cash flows for each asset, including net revenues, cost of sales, research and development and other operating expenses, the potential regulatory and commercial success rates, competitive trends impacting the assets, and tax rates. The fair value using the excess earnings valuation method was determined using an estimated weighted average cost of capital for Achillion of 11.5%, which represents a rate of return that a market participant would expect for these assets. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 fair value measurements. In the second quarter 2020, we recognized an impairment charge of $11.0 to write off our ACHN-4471 (ALXN2040) IPR&D asset due to clinical results received during the quarter.
The excess of purchase price over the fair value of the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. The goodwill, which is not tax-deductible, has been recorded as a noncurrent asset and is not amortized, but is subject to an annual review for impairment. The factors that contributed to the recognition of goodwill include the value of the acquired workforce, synergies that are specific to our business and not available to market participants, and early research in preclinical Factor D inhibitors, as well as the effects of the establishment of a deferred tax liability for the acquired IPR&D intangible assets, which has no tax basis.
We recorded a net deferred tax liability of $62.9, inclusive of measurement period adjustments recorded during the second quarter 2020. This amount was primarily comprised of $205.3 of deferred tax liabilities relating to the IPR&D acquired, offset by $142.4 of deferred tax assets related to net operating loss carryforwards (NOLs), income tax credits, and other temporary differences.
Achillion's results of operations are included in the condensed consolidated financial statements from the date of acquisition. For the three and nine months ended September 30, 2020 we recorded $24.6 and $51.4 of pre-tax operating losses exclusive of transaction costs, $19.3 and $48.6, respectively, of changes in contingent consideration and zero and $11.0, respectively, of impairment charges, associated with the operations of Achillion in our condensed consolidated statements of operations. We also recorded acquisition-related costs in connection with the acquisition during the three and nine months ended September 30, 2020 as presented below. No revenues were recorded in the results of operations during the three and nine months ended September 30, 2020 as neither ALXN2040 nor ALXN2050 has been approved for commercial sale by any regulatory agency.
Portola Pharmaceuticals, Inc.
In May 2020, Alexion entered into a definitive merger agreement to acquire Portola Pharmaceuticals, Inc. (Portola), a commercial-stage biopharmaceutical company focused on life-threatening blood-related disorders. Portola’s commercialized medicine, ANDEXXA®, marketed as ONDEXXYA® in Europe, is the first and only approved Factor Xa inhibitor reversal agent, and has demonstrated transformative clinical value by rapidly reversing the anticoagulant effects of Factor Xa inhibitors rivaroxaban and apixaban in severe and uncontrolled bleeding. The acquisition provides the opportunity to grow Alexion's commercial portfolio and is a strategic fit with our existing expertise in acute care, hematology and neurology.
Alexion completed the acquisition through a tender offer and subsequent merger of Portola which closed on July 2, 2020. Under the terms of the tender offer and merger agreement, Alexion purchased all outstanding common stock of Portola for $18.00 per share, or an aggregate of approximately $1,380.8, including the settlement of certain of Portola's outstanding equity awards but excluding shares of Portola stock held by Alexion at closing. The acquisition was funded by cash on hand.
Prior to the acquisition of Portola, in March 2020 and April 2020, we purchased $14.5 and $3.6, respectively, of common stock of Portola, which we recorded at fair value. Upon the closing of the acquisition of Portola, the fair value of the equity investment of $47.8 was derecognized and included in the fair value of consideration transferred. For additional information on our Portola equity investment, please see Note 10, Other Investments.
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Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in millions, except per share amounts)
The aggregate fair value of equity compensation attributable to the post-combination service period was $11.1. This amount was excluded from the total consideration transferred and was recognized as a charge to acquisition-related costs in our condensed consolidated statements of operations. These amounts were primarily associated with the accelerated vesting of stock options previously granted to Portola employees and were paid during the third quarter 2020.
We issued $41.5 of equity compensation replacement awards, of which the portion attributable to services performed prior to the acquisition date, or $7.2, was allocated to purchase consideration. The remaining fair value is attributable to future services and will be expensed as share-based compensation over the remaining service periods. Expense associated with the accelerated-vesting of the replacement awards in connection with employee terminations will be recognized as acquisition-related employee separation costs.
In connection with the acquisition, Alexion also paid $196.9 to settle certain debt held by Portola that was subject to preexisting change of control provisions.
The transaction was accounted for as a business combination. The following table summarizes the total consideration transferred to acquire Portola and the estimated fair value of the identified assets acquired and liabilities assumed at the acquisition date:
Consideration
Upfront payment to shareholders and equity holders$1,380.8 
Upfront payment, fair value of equity compensation attributable to the post-combination service period(11.1)
Upfront cash paid, net1,369.7 
Fair value of equity shares held by Alexion at closing 47.8 
Fair value of replacement equity awards attributable to the pre-combination period7.2 
Total consideration to acquire outstanding equity, net1,424.7 
Total consideration to settle preexisting debt196.9 
Total consideration$