10-Q 1 alxn9301510q.htm 10-Q 10-Q

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 September 30, 2015
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
 
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.)
 
352 Knotter Drive, Cheshire Connecticut 06410
(Address of Principal Executive Offices) (Zip Code)
203-272-2596
(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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check One:
Large accelerated filer  x   Accelerated filer  ¨    Non-accelerated filer  ¨ (Do not check if a smaller reporting company)
Smaller reporting company  ¨
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
225,324,303
Class
Outstanding as of October 28, 2015










 
Alexion Pharmaceuticals, Inc.
Contents

 
PART I.
FINANCIAL INFORMATION
Page
 
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 thousands, except per share amounts)
 
 
September 30,
 
December 31,
 
2015
 
2014
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
1,163,281

 
$
943,999

Marketable securities
295,211

 
1,017,567

Trade accounts receivable, net
512,253

 
432,888

Inventories
236,542

 
176,441

Prepaid expenses and other current assets
272,932

 
225,134

Total current assets
2,480,219

 
2,796,029

Property, plant and equipment, net
618,733

 
392,248

Intangible assets, net
4,787,901

 
587,046

Goodwill
5,015,519

 
254,073

Other assets
250,643

 
172,566

Total assets
$
13,153,015

 
$
4,201,962

Liabilities and Stockholders' Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
46,974

 
$
44,016

Accrued expenses
357,987

 
395,232

Deferred revenue
49,944

 
58,837

Deferred tax liabilities
132,619

 
12,476

Current portion of long-term debt
175,000

 
48,000

Other current liabilities
4,336

 
48,179

Total current liabilities
766,860

 
606,740

Long-term debt, less current portion
3,325,000

 
9,500

Deferred tax liabilities
417,319

 
7,046

Facility lease obligation
149,604

 
107,099

Contingent consideration
158,678

 
116,425

Other liabilities
82,685

 
53,134

Total liabilities
4,900,146

 
899,944

Commitments and contingencies (Note 18)

 

Stockholders' Equity:
 
 
 
Preferred stock, $0.0001 par value; 5,000 shares authorized, no shares issued or outstanding

 

Common stock, $0.0001 par value; 290,000 shares authorized; 229,895 and 201,944 shares issued at September 30, 2015 and December 31, 2014, respectively
23

 
20

Additional paid-in capital
7,642,974

 
2,592,167

Treasury stock, at cost, 3,910 and 2,888 shares at September 30, 2015 and December 31, 2014, respectively
(558,347
)
 
(382,964
)
Accumulated other comprehensive income
54,428

 
56,785

Retained earnings
1,113,791

 
1,036,010

Total stockholders' equity
8,252,869

 
3,302,018

Total liabilities and stockholders' equity
$
13,153,015

 
$
4,201,962


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 thousands, except per share amounts)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Net product sales
$
665,791

 
$
555,146

 
$
1,902,107

 
$
1,634,257

Other revenue
846

 

 
1,073

 

Total revenues
666,637

 
555,146

 
1,903,180

 
1,634,257

Cost of sales
54,057

 
51,858

 
175,463

 
124,423

Operating expenses:
 
 
 
 
 
 
 
Research and development
165,664

 
100,661

 
518,437

 
384,672

Selling, general and administrative
212,520

 
157,665

 
621,019

 
446,433

Amortization of purchased intangible assets
36,608

 

 
36,608

 

Acquisition-related costs
35,759

 
8,303

 
81,559

 
10,254

Restructuring expenses
7,461

 

 
30,737

 

Impairment of intangible asset

 

 

 
3,464

Total operating expenses
458,012

 
266,629

 
1,288,360

 
844,823

Operating income
154,568

 
236,659

 
439,357

 
665,011

Other income and expense:
 
 
 
 
 
 
 
Investment income
1,967

 
2,250

 
7,077

 
6,177

Interest expense
(19,971
)
 
(655
)
 
(24,593
)
 
(2,433
)
Foreign currency gain (loss)
2,795

 
(2,045
)
 
1,755

 
(1,989
)
Income before income taxes
139,359

 
236,209

 
423,596

 
666,766

Income tax provision
323,116

 
58,478

 
345,815

 
163,186

Net income (loss)
$
(183,757
)
 
$
177,731

 
$
77,781

 
$
503,580

Earnings (loss) per common share
 
 
 
 
 
 
 
Basic
$
(0.81
)
 
$
0.90

 
$
0.37

 
$
2.54

Diluted
$
(0.81
)
 
$
0.88

 
$
0.37

 
$
2.50

Shares used in computing earnings per common share
 
 
 
 
 
 
 
Basic
226,228

 
198,052

 
209,373

 
197,910

Diluted
226,228

 
201,313

 
211,808

 
201,528

 
 
 
 
 
 
 
 

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 thousands)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(183,757
)
 
$
177,731

 
$
77,781

 
$
503,580

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(1,847
)
 
(2,996
)
 
(6,065
)
 
(2,444
)
Unrealized gain (loss) on marketable securities
135

 
(776
)
 
389

 
334

Unrealized gain (loss) on pension obligation
8,932

 
(570
)
 
1,487

 
(3,255
)
Unrealized (loss) gain on hedging activities, net of tax of $(8,011), $12,194, $2,998 and $10,423, respectively
(15,308
)
 
85,292

 
1,832

 
76,722

Other comprehensive income (loss), net of tax
(8,088
)
 
80,950

 
(2,357
)
 
71,357

Comprehensive income (loss)
$
(191,845
)
 
$
258,681

 
$
75,424

 
$
574,937


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


4


Alexion Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
 
Nine months ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
77,781

 
$
503,580

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
72,863

 
28,395

Impairment of intangible asset

 
3,464

Change in fair value of contingent consideration
45,707

 
10,254

Share-based compensation expense
160,853

 
80,620

Premium amortization of available-for-sale securities
6,156

 
12,114

Deferred taxes
385,915

 
(160,456
)
Change in excess tax benefit from stock options
76,291

 
(286,325
)
Unrealized foreign currency (gain) loss
(8,865
)
 
9,253

Other
1,641

 
(1,082
)
Changes in operating assets and liabilities, excluding the effect of acquisitions:
 
 
 
Accounts receivable
(90,952
)
 
(22,731
)
Inventories
(7,368
)
 
(26,217
)
Prepaid expenses and other assets
(80,015
)
 
(6,241
)
Accounts payable, accrued expenses and other liabilities
(147,108
)
 
166,545

Deferred revenue
(8,557
)
 
45,443

Net cash provided by operating activities
484,342

 
356,616

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(372,537
)
 
(451,842
)
Proceeds from maturity or sale of available-for-sale securities
1,092,968

 
398,071

Purchases of trading securities
(12,249
)
 
(2,412
)
Proceeds from sale of trading securities
8,287

 
79

Purchases of other investments

 
(25,000
)
Purchases of property, plant and equipment
(206,224
)
 
(83,879
)
Payment for acquisition of business, net of cash acquired
(3,939,307
)
 

Other
5,479

 
(707
)
Net cash used in investing activities
(3,423,583
)
 
(165,690
)
Cash flows from financing activities:
 
 
 
Debt issuance costs
(45,492
)
 

Proceeds from revolving credit facility
200,000

 

Proceeds from term loan
3,500,000

 

Payments on revolving credit facility
(200,000
)
 

Payments on term loan
(57,500
)
 
(43,500
)
Equity issuance costs for shares issued in connection with acquisition of business
(4,053
)
 

Change in excess tax benefit from stock options
(76,291
)
 
286,325

Repurchase of common stock
(175,383
)
 
(283,148
)
Net proceeds from the exercise of stock options
50,824

 
77,680

Payments of contingent consideration
(50,000
)
 

Proceeds from development-related grants
26,000

 

Other
(1,718
)
 
(119
)
Net cash provided by financing activities
3,166,387

 
37,238

Effect of exchange rate changes on cash
(7,864
)
 
(5,857
)
Net change in cash and cash equivalents
219,282

 
222,307

Cash and cash equivalents at beginning of period
943,999

 
529,857

Cash and cash equivalents at end of period
$
1,163,281

 
$
752,164

 
 
 
 
Supplemental cash flow disclosures from investing and financing activities:
 
 
 
Common stock issued in acquisition of business
$
4,917,810

 
$

Construction in process related to facility lease obligation
$
40,185

 
$
54,799

Accrued expenses for purchases of property, plant and equipment
$
25,165

 
$
14,293

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

5

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






1.
Business
Alexion Pharmaceuticals, Inc. (Alexion, the Company, we, our or us) is a biopharmaceutical company focused on serving patients with devastating and rare disorders through the innovation, development and commercialization of life-transforming therapeutic products.
In our complement franchise, Soliris® is the first and only therapeutic approved for patients with either of two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system: paroxysmal nocturnal hemoglobinuria (PNH), a life-threatening and ultra-rare genetic blood disorder, and atypical hemolytic uremic syndrome (aHUS), a life-threatening and ultra-rare genetic disease.
In our metabolic franchise we market Strensiq™ (asfotase alfa) for the treatment of hypophasphatasia (HPP) and Kanuma™ (sebelipase alfa) for the treatment of lysosomal acid lipase deficiency (LAL-D). HPP is a genetic ultra-rare disease characterized by defective bone mineralization that can lead to deformity of bones and other skeletal abnormalities. LAL-D is a serious, life threatening ultra-rare disease in which genetic mutations result in decreased activity of the LAL enzyme leading to marked accumulation of lipids in vital organs, blood vessels and other tissues. We initiated sales of these products in the third quarter 2015.
We are also evaluating additional potential indications for eculizumab in other severe and devastating diseases in which uncontrolled complement activation is the underlying mechanism, and we are progressing in various stages of development with additional product candidates as potential treatments for patients with severe and life-threatening rare disorders.

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, 2014. In our opinion, the accompanying unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States. The condensed consolidated balance sheet data as of December 31, 2014 was derived from audited 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, 2014 included in our Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.
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, 2014.

New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new standard which amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2017 and allows for adoption using a full retrospective method, or a modified retrospective method. Entities may elect to early adopt the standard for annual periods

6

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





beginning after December 15, 2016. We are currently assessing the method of adoption and the expected impact the new standard has on our financial position and results of operations.
In April 2015, the FASB issued a new standard simplifying the presentation of debt issuance costs. The new standard aligns the treatment of debt issuance costs with debt discounts and premiums and requires debt issuance costs be presented as a direct deduction from the carrying amount of the related debt. The standard is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted, and requires a retrospective method of adoption. We will adopt the provisions of the new standard for the balance sheet disclosures of debt issuance costs beginning in the first quarter 2016.
In September 2015, the FASB issued a new standard simplifying the accounting for measurement-period adjustments. The new standard eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new standard requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified.The standard is effective for interim and annual periods beginning after December 15, 2015 and is not expected to have a material impact on our financial condition or results of operations.

3.
Acquisitions

Acquisition of Synageva BioPharma Corp.
On May 6, 2015, we announced that we entered into a definitive agreement to acquire Synageva BioPharma Corp. (Synageva), a publicly-held clinical-stage biotechnology company based in Lexington, Massachusetts for per share consideration of $115 in cash and 0.6581 shares of Alexion stock. At this date, the announced purchase consideration was estimated at approximately $8,400,000, net of Synageva cash, based on the closing price of Alexion stock on May 5, 2015 of $168.55.
On June 22, 2015, we completed the acquisition of Synageva, in a transaction accounted for under the acquisition method of accounting for business combinations. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Synageva were recorded as of the acquisition date at their respective fair values. Synageva's results of operations are included in the consolidated financial statements from the date of acquisition. The acquisition was intended to further our objective to develop and commercialize life-transforming therapies to an increasing number of patients with devastating and rare diseases. Synageva's lead product candidate, Kanuma (sebelipase alfa), is an enzyme replacement therapy for patients suffering with LAL-D, a life-threatening, ultra-rare disease for which there are no approved treatments.
We acquired all of the outstanding shares of common stock of Synageva for $4,565,524 in cash and 26,125 shares of common stock. At closing of the business combination on June 22, 2015, the purchase consideration was approximately $8,860,000, net of Synageva cash, based on Alexion's closing share price on the date of acquisition of $188.24. We financed the cash consideration with existing cash and proceeds from our new credit facility described further in Note 6.
The aggregate consideration to acquire Synageva consisted of:
Stock consideration
$
4,917,810

Cash consideration
4,565,524

Total purchase price
$
9,483,334

The following table summarizes the estimated fair values of assets acquired and liabilities assumed:
Cash
$
626,217

Inventory
51,068

In-process research and development (IPR&D)
4,236,000

Deferred tax liabilities, net
(175,431
)
Other assets and liabilities
(15,966
)
Net assets acquired
4,721,888

Goodwill
4,761,446

Total purchase price
$
9,483,334


7

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





Our accounting for this acquisition is preliminary. The fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations, and our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of these preliminary estimates that are not yet finalized relate to inventory, identifiable intangible assets and tax-related items. During the third quarter 2015, we recorded approximately $8,400 of adjustments to the amounts initially recorded for the assets acquired and liabilities assumed as of the acquisition date. These adjustments related primarily to the valuation of acquired inventory.
We acquired $51,068 of Kanuma (sebelipase alfa) inventory. The estimated fair value of work-in-process and finished goods inventory was determined utilizing the comparative sales method, based on the expected selling price of the inventory, adjusted for incremental costs to complete the manufacturing process and for direct selling efforts, as well as for a reasonable profit allowance. The estimated fair value of raw material inventory was valued at replacement cost, which is equal to the value a market participant would pay to acquire the inventory.
Intangible assets associated with IPR&D projects primarily relate to Synageva's lead product candidate, Kanuma (sebelipase alfa). The estimated fair value of IPR&D assets of $4,236,000 was determined using the multi-period excess earnings method, a variation of the income approach. The multi-period excess earnings 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. The fair value using the multi-period excess earnings method was dependent on an estimated weighted average cost of capital for Synageva of 10.0%, which represents a rate of return that a market participant would expect for these assets.
The excess of purchase price over the fair value amounts of the assets acquired and liabilities assumed represents the goodwill amount 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 goodwill represents future economic benefits arising from other assets acquired that could not be individually identified and separately recognized and expected synergies that are specific to our business and not available to market participants, including our unique ability to commercialize therapies for rare diseases, our existing relationships with specialty physicians who can identify patients with LAL-D, a global distribution network to facilitate drug delivery and other benefits that we believe will result from combining the operations of Synageva within our operations.
We recorded a net deferred tax liability of $175,431. This amount was primarily comprised of $588,559 and $18,593, of deferred tax liabilities related to the IPR&D and inventory acquired, respectively, offset by $232,182, $177,128, and $22,411 of deferred tax assets related to NOLs, tax credits, and other temporary differences, respectively, which we expect to utilize.
For the three and nine months ended September 30, 2015, we recorded $53,721 and $58,356 of pre-tax operating losses, respectively, associated with the continuing operations of Synageva in our condensed consolidated statements of operations.
Pro forma financial information (unaudited)
The following unaudited pro forma information presents the combined results of Alexion and Synageva as if the acquisition of Synageva had been completed on January 1, 2014, with adjustments to give effect to pro forma events that are directly attributable to the acquisition, including the impact of acquisition financing and the related tax effects. The unaudited pro forma results do not reflect operating efficiencies or potential cost savings which may result from the consolidation of operations. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations that we would have recognized had we completed the transaction on January 1, 2014.
 
Three months ended
 
Nine months ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Pro forma revenue
$
666,637

 
$
556,472

 
$
1,905,388

 
$
1,639,512

Pro forma net (loss) income
(177,854
)
 
111,485

 
(47,565
)
 
180,739

Earnings (loss) per common share
 
 
 
 
 
 
 
     Basic
$
(0.79
)
 
$
0.50

 
$
(0.21
)
 
$
0.81

     Diluted
$
(0.79
)
 
$
0.49

 
$
(0.21
)
 
$
0.79


8

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





The unaudited pro forma consolidated results include the following pro forma adjustments related to non-recurring activity:
Alexion acquisition-related and restructuring costs of $9,223 were excluded from income for the three months ended September 30, 2015. These expenses were included in net income for the three months ended September 30, 2014.
Alexion and Synageva expenses of $33,150 and $127,290, respectively, associated with the accelerated vesting of stock based compensation as a result of the acquisition were excluded from net income for the nine months ended September 30, 2015. These expenses were included in net income for the nine months ended September 30, 2014;
Alexion and Synageva acquisition-related and restructuring costs of $49,367 and $62,071, respectively, were excluded from income for the nine months ended September 30, 2015. These expenses were included in net income for the nine months ended September 30, 2014.
Acquisition-Related Costs
Acquisition-related costs associated with our business combinations for the three and nine months ended September 30, 2015 and 2014 include the following:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Transaction costs (1)
$

 
$

 
$
26,799

 
$

Integration costs
6,075

 

 
9,053

 

Changes in fair value of contingent consideration
29,684

 
8,303

 
45,707

 
10,254

 
$
35,759

 
$
8,303

 
$
81,559

 
$
10,254

 
 
 
 
 
 
 
 
(1) Transaction costs include investment advisory, legal, and accounting fees
 
The acquisition of Synageva also resulted in $3,149 and $13,470 of restructuring related charges for the three and nine months ended September 30, 2015, respectively. See Note 19 for additional details.

4.
Inventories
Inventories are stated at the lower of cost or estimated realizable value. We determine the cost of inventory using the weighted-average cost method.
The components of inventory are as follows:
 
September 30,
 
December 31,
 
2015
 
2014
Raw materials
$
17,574

 
$
14,570

Work-in-process
106,921

 
107,170

Finished goods
112,047

 
54,701

 
$
236,542

 
$
176,441


As of December 31, 2014, we capitalized $22,005 of inventory produced for commercial sale for products awaiting regulatory approval, respectively. As a result of receiving regulatory approval, we have no inventory capitalized for products awaiting regulatory approval as of September 30, 2015.
In the first quarter 2015, we recorded an expense of $24,352 associated with a portion of a single manufacturing campaign at a third party manufacturer for Strensiq (asfotase alfa). The costs are comprised of raw materials, internal overhead and external production costs.



9

Alexion Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(amounts in thousands, 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: 

 
 
 
September 30, 2015
 
December 31, 2014
 
Estimated
Life (years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Licenses
6-8
 
$
28,507

 
$
(28,493
)
 
$
14

 
$
28,507

 
$
(28,461
)
 
$
46

Patents
7
 
10,517

 
(10,517
)
 

 
10,517

 
(10,517
)
 

Purchased technology
6-16
 
4,708,495

 
(36,608
)
 
4,671,887

 

 

 

Acquired IPR&D
Indefinite
 
116,000

 

 
116,000

 
587,000

 

 
587,000

Total
 
 
$
4,863,519

 
$
(75,618
)
 
$
4,787,901

 
$
626,024

 
$
(38,978
)
 
$
587,046

Goodwill
Indefinite
 
$
5,018,420

 
$
(2,901
)
 
$
5,015,519

 
$
256,974

 
$
(2,901
)
 
$
254,073


In the third quarter 2015 we received regulatory approval for Strensiq and Kanuma. As a result, $587,000 and $4,120,000 of acquired IPR&D assets associated with Strensiq and Kanuma, respectively, were reclassified from acquired IPR&D to purchased technology.
Amortization expense was $36,619 and $2,526 for the three months ended September 30, 2015 and 2014, respectively, and $36,640 and $8,994 for the nine months ended September 30, 2015 and 2014, respectively. Total estimated amortization expense for finite-lived intangible assets is $80,067 for the three months ending December 31, 2015, $320,145 for the year ending December 31, 2016 and $320,142 for each of the years ending December 31, 2017 through December 31, 2020.
The following table summarizes the changes in the carrying amount of goodwill:
Balance at December 31, 2014
$
254,073

Goodwill resulting from the Synageva acquisition
4,761,446

Balance at September 30, 2015
$
5,015,519


6.
Debt
On June 22, 2015, Alexion entered into a credit agreement (Credit Agreement) with a syndicate of banks, which provides for a $3,500,000 term loan facility and a $500,000 revolving credit facility maturing in five years. Borrowings under the term loan are payable in quarterly installments equal to 1.25% of the original loan amount, beginning December 31, 2015. Final repayment of the term loan and revolving credit loans are due on June 22, 2020. In addition to borrowings in which prior notice is required, the revolving credit facility includes a sublimit of $100,000 in the form of letters of credit and borrowings on same-day notice, referred to as swingline loans, of up to $25,000. Borrowings can be used for working capital requirements, acquisitions and other general corporate purposes. With the consent of the lenders and the administrative agent, and subject to satisfaction of certain conditions, we may increase the term loan facility and/or the revolving credit facility in an amount that does not cause our consolidated net leverage ratio to exceed the maximum allowable amount.
Under the Credit Agreement we may elect that the loans under the Credit Agreement bear interest at a rate per annum equal to either a base rate or a Eurodollar rate plus, in each case, an applicable margin. The applicable margins on base rate loans range from 0.25% to 1.00% and the applicable margins on Eurodollar loans range from 1.25% to 2.00%, in each case depending upon our consolidated net leverage ratio (as calculated in accordance with the Credit Agreement).
Our obligations under the credit facilities are guaranteed by certain of Alexion's foreign and domestic subsidiaries and secured by liens on certain of Alexion's and its subsidiaries' equity interests, subject to certain exceptions.
The Credit Agreement requires us to comply with certain financial covenants on a quarterly basis. Further, the Credit Agreement includes negative covenants, subject to exceptions, restricting or limiting our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, grant liens, and engage in certain investment, acquisition and disposition transactions. The Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the interest rate would increase and the administrative agent would be entitled to take various actions, including the acceleration of amounts due under the loan.

10

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





In connection with entering into the Credit Agreement, we paid $45,492 in financing costs which are being amortized as interest expense over the life of the debt.
In connection with the acquisition of Synageva in June 2015, we borrowed $3,500,000 under the term loan facility and $200,000 under the revolving facility, and we used our available cash for the remaining cash consideration. In June 2015, we repaid the revolving facility in full. At September 30, 2015, we had $3,500,000 outstanding on the term loan and zero outstanding on the revolving facility. At September 30, 2015, we had open letters of credit of $5,710, and our borrowing availability under the revolving facility was $494,290.
The fair value of our long term debt, which is measured using Level 2 inputs, approximates book value.
On June 22, 2015, in connection with, and simultaneously with, the execution of the Credit Agreement described above, the 2012 Credit Agreement (Prior Credit Agreement) dated February 7, 2012 was terminated, and outstanding borrowings of $33,500 were repaid.

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. For purposes of calculating diluted EPS, the denominator reflects the potential dilution that could occur if stock options, unvested restricted stock, 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 and nine months ended September 30, 2015 and 2014:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss) used for basic and diluted calculation
$
(183,757
)
 
$
177,731

 
$
77,781

 
$
503,580

Shares used in computing earnings per common share—basic
226,228

 
198,052

 
209,373

 
197,910

Weighted-average effect of dilutive securities:
 
 
 
 
 
 
 
Stock awards

 
3,261

 
2,435

 
3,618

Shares used in computing earnings per common share—diluted
226,228

 
201,313

 
211,808

 
201,528

Earnings (loss) per common share:
 
 
 
 

 

Basic
$
(0.81
)
 
$
0.90

 
$
0.37

 
$
2.54

Diluted
$
(0.81
)
 
$
0.88

 
$
0.37

 
$
2.50

We exclude from EPS the weighted-average number of securities whose effect is anti-dilutive. For the three months ended September 30, 2015, we reported a net loss; therefore, no outstanding stock awards were included in the computation of diluted net loss per share since such inclusion would have been anti-dilutive. Excluded from the calculation of EPS for the nine months ended September 30, 2015 were 2,437 shares of common stock because their effect was anti-dilutive. Similarly, we excluded 1,346 and 1,005 shares from the calculation of EPS for the three and nine months ended September 30, 2014, respectively, because their effect was anti-dilutive.
 

11

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





8.
Marketable Securities

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated fair value of available-for-sale investments by type of security at September 30, 2015 and December 31, 2014 were as follows:
 
 
September 30, 2015
 
 
Amortized Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
Commercial paper
 
$
279,274

 
$

 
$

 
$
279,274

Corporate bonds
 
133,738

 
167

 
(48
)
 
133,857

Municipal bonds
 
88,706

 
15

 

 
88,721

Other government-related obligations:
 
 
 
 
 
 
 
 
U.S.
 
81,500

 
3

 
(14
)
 
81,489

Foreign
 
137,998

 
172

 
(32
)
 
138,138

Bank certificates of deposit
 
58,022

 

 

 
58,022

 
 
$
779,238

 
$
357

 
$
(94
)
 
$
779,501


 
 
December 31, 2014
 
 
Amortized Cost Basis
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Aggregate Fair Value
Commercial paper
 
$
142,495

 
$

 
$

 
$
142,495

Corporate bonds
 
494,032

 
415

 
(581
)
 
493,866

Municipal bonds
 
174,759

 
132

 
(46
)
 
174,845

Other government-related obligations:
 
 
 
 
 
 
 
 
U.S.
 
99,668

 
14

 
(71
)
 
99,611

Foreign
 
193,439

 
100

 
(174
)
 
193,365

Bank certificates of deposit
 
77,000

 

 

 
77,000

 
 
$
1,181,393

 
$
661

 
$
(872
)
 
$
1,181,182


The aggregate fair value of available-for-sale securities in an unrealized loss position as of September 30, 2015 and December 31, 2014 was $111,545 and $472,241, respectively. Investments that have been in a continuous unrealized loss position for more than 12 months are not material. As of September 30, 2015, we believe that the cost basis of our available-for-sale investments is recoverable.
The fair values of available-for-sale securities by classification in the condensed consolidated balance sheet were as follows:
 
September 30, 2015
December 31, 2014
Cash and cash equivalents
$
492,239

$
167,892

Marketable securities
287,262

1,013,290

 
$
779,501

$
1,181,182



12

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





The fair values of available-for-sale debt securities at September 30, 2015, by contractual maturity, are summarized as follows:
 
September 30, 2015
Due in one year or less
$
622,525

Due after one year through three years
156,976

 
$
779,501


As of September 30, 2015 and December 31, 2014, the fair value of our trading securities was $7,949 and $4,277, respectively.
We utilize the specific identification method in computing realized gains and losses. Realized gains and losses on our available-for-sale and trading securities were not material for the three and nine months ended September 30, 2015 and 2014.

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 manage our foreign currency transaction risk 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, 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 and to increase the visibility of the foreign exchange impact on forecasted revenues. These hedges are designated as cash flow hedges upon contract inception. At September 30, 2015, we had open contracts with notional amounts totaling $1,862,706 that qualified for hedge accounting.
The impact on accumulated other comprehensive income (AOCI) and earnings from foreign exchange contracts that qualified as cash flow hedges, for the three and nine months ended September 30, 2015 and 2014 were as follows:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Gain recognized in AOCI, net of tax
$
10,206

 
$
89,959

 
$
81,794

 
$
81,896

Gain reclassified from AOCI to net product sales (effective portion), net of tax
$
25,842

 
$
2,873

 
$
78,959

 
$
3,372

(Loss) gain reclassified from AOCI to other income and expense (ineffective portion), net of tax
$
(328
)
 
$
1,794

 
$
1,003

 
$
1,802

Assuming no change in foreign exchange rates from market rates at September 30, 2015, $73,904 of gains recognized in AOCI will be reclassified to revenue over the next 12 months.
We enter into foreign exchange forward contracts, with durations of approximately 30 days, designed to limit the balance sheet exposure of monetary assets and liabilities. We enter into these hedges to reduce the impact of fluctuating exchange rates on our operating results. Hedge accounting is not applied to these derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures. As of September 30, 2015, the notional amount of foreign exchange contracts where hedge accounting is not applied was $276,391.
We recognized a gain of $2,676 and $12,491, in other income and expense, for the three months ended September 30, 2015 and 2014, respectively, and $2,439 and $13,140, for the nine months ended September 30, 2015 and 2014, 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.

13

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





The following tables summarize the fair value of outstanding derivatives at September 30, 2015 and December 31, 2014: 

 
September 30, 2015
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
78,776

 
Other current liabilities
 
$
3,184

Foreign exchange forward contracts
Other non-current assets
 
69,486

 
Other non-current liabilities
 
5,806

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
463

 
Other current liabilities
 
508

Total fair value of derivative instruments
 
 
$
148,725

 
 
 
$
9,498



 
December 31, 2014
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
77,348

 
Other current liabilities
 
$
794

Foreign exchange forward contracts
Other non-current assets
 
58,698

 
Other non-current liabilities
 
86

Total fair value of derivative instruments
 
 
$
136,046

 
 
 
$
880


The fair value of our foreign exchange forward contracts that are not designated as hedging instruments was zero as of December 31, 2014.

Although we do not offset derivative assets and liabilities within our condensed consolidated balance sheets, our International Swap and Derivatives Association (ISDA) 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 subject to such provisions:
 
 
September 30, 2015
 
 
 
 
 
 
 
 
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
 
Amounts of Assets/Liabilities Presented in the Condensed Consolidated Balance Sheet
 
Derivative Financial Instruments
 
Cash Collateral Received (Pledged)
 
Net Amount
Derivative assets
 
$
148,725

 
$

 
$
148,725

 
$
(9,498
)
 
$

 
$
139,227

Derivative liabilities
 
(9,498
)
 

 
(9,498
)
 
9,498

 

 



14

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






 
 
December 31, 2014
 
 
 
 
 
 
 
 
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
 
Amounts of Assets/Liabilities Presented in the Condensed Consolidated Balance Sheet
 
Derivative Financial Instruments
 
Cash Collateral Received (Pledged)
 
Net Amount
Derivative assets
 
$
136,046

 
$

 
$
136,046

 
$
(880
)
 
$

 
$
135,166

Derivative liabilities
 
(880
)
 

 
(880
)
 
880

 

 


10.
Other Investments
Other investments include our investment of $37,500 in the preferred stock of Moderna LLC. Our investment is recorded at cost within other assets in our condensed consolidated balance sheets. The carrying value of this investment was not impaired as of September 30, 2015.


11.
Stockholders' Equity
In November 2012, our Board of Directors authorized a share repurchase program. 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 the Company's discretion. In May 2015, our Board of Directors increased the authorization of shares up to $1,000,000 for future purchases under the repurchase program, which superseded all prior repurchase programs. During the three months ended September 30, 2015 and 2014, we repurchased 556 and 640 shares of our common stock at a cost of $91,820 and $104,633, respectively, and during the nine months ended September 30, 2015 and 2014, we repurchased 1,022 and 1,789 shares of our common stock at a cost of $175,383 and $283,148, respectively. As previously disclosed, the Company did not repurchase any shares during the pendency of the Synageva acquisition and the Company began repurchasing shares in the third quarter 2015. Subsequent to September 30, 2015, we repurchased 776 shares of our common stock under our repurchase program at a cost of $123,311. As of November 2, 2015, there is a total of $784,869 remaining for repurchases under the repurchase program.
In June 2015, in connection with our acquisition of Synageva, we issued 26,125 shares of common stock to Synageva shareholders and employees. The value of the stock was $4,917,810, and we incurred $4,053 of issuance costs.
  
12.
Other Comprehensive Income and Accumulated Other Comprehensive Income

The following tables summarize the changes in AOCI, by component, for the nine months ended September 30, 2015 and 2014:

 
Defined Benefit Pension Plans
 
Unrealized Gains (Losses) from Marketable Securities
 
Unrealized Gains (Losses) from Hedging Activities
 
Foreign Currency Translation Adjustment
 
Total Accumulated Other Comprehensive Income (Loss)
Balances, December 31, 2014
$
(16,570
)
 
$
(234
)
 
$
87,308

 
$
(13,719
)
 
$
56,785

Other comprehensive income before reclassifications
1,394

 
412

 
81,794

 
(6,065
)
 
77,535

Amounts reclassified from other comprehensive income
93

 
(23
)
 
(79,962
)
 

 
(79,892
)
Net other comprehensive income (loss)
1,487

 
389

 
1,832

 
(6,065
)
 
(2,357
)
Balances, September 30, 2015
$
(15,083
)
 
$
155

 
$
89,140

 
$
(19,784
)
 
$
54,428


15

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






 
Defined Benefit Pension Plans
 
Unrealized Gains (Losses) from Marketable Securities
 
Unrealized Gains (Losses) from Hedging Activities
 
Foreign Currency Translation Adjustment
 
Total Accumulated Other Comprehensive Income (Loss)
Balances, December 31, 2013
$
(11,502
)
 
$
(146
)
 
$
(3,827
)
 
$
(7,382
)
 
$
(22,857
)
Other comprehensive income before reclassifications
(3,714
)
 
344

 
81,896

 
(2,444
)
 
76,082

Amounts reclassified from other comprehensive income
459

 
(10
)
 
(5,174
)
 

 
(4,725
)
Net other comprehensive income (loss)
(3,255
)
 
334

 
76,722

 
(2,444
)
 
71,357

Balances, September 30, 2014
$
(14,757
)
 
$
188

 
$
72,895

 
$
(9,826
)
 
$
48,500


The table below provides details regarding significant reclassifications from AOCI during the three and nine months ended September 30, 2015 and 2014:
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified From Accumulated Other Comprehensive Income during the three months ended September 30,
 
Amount Reclassified From Accumulated Other Comprehensive Income during the nine months ended September 30,
 
Affected Line Item in the Condensed Consolidated Statements of Operations
 
2015
2014
 
2015
2014
 
Unrealized Gains (Losses) from Hedging Activity
 
 
 
 
 
 
 
 
Effective portion of foreign exchange contracts
 
$
29,534

$
3,283

 
$
90,240

$
3,854

 
Net product sales
Ineffective portion of foreign exchange contracts
 
(375
)
2,051

 
1,146

2,059

 
Foreign currency gain (loss)
 
 
29,159

5,334

 
91,386

5,913

 
 
 
 
(3,645
)
(667
)
 
(11,424
)
(739
)
 
Income tax provision
 
 
$
25,514

$
4,667

 
$
79,962

$
5,174

 
 
Unrealized Gains (Losses) from Marketable Securities
 
 
 
 
 
 
 
 
Realized gains on sale of securities
 
$

$
14

 
$
35

$
16

 
Investment income
 
 

14

 
35

16

 
 
 
 

(5
)
 
(12
)
(6
)
 
Income tax provision
 
 
$

$
9

 
$
23

$
10

 
 
Defined Benefit Pension Plans
 
 
 
 
 
 
 
 
Amortization of prior service costs and actuarial losses
 
$
(313
)
$
(213
)
 
$
(939
)
$
(651
)
 
(a)
Other
 
821



821


 
(a)
 
 
508

(213
)
 
(118
)
(651
)
 
 
 
 
(107
)
63

 
25

192

 
Income tax provision
 
 
$
401

$
(150
)
 
$
(93
)
$
(459
)
 
 
(a) This AOCI component is included in the computation of net periodic pension benefit cost (see Note 15 for additional details).

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

16

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





active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.
The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. 
 
 
Fair Value Measurement at
September 30, 2015
Balance Sheet
Classification
Type of Instrument
Total
 
Level 1
 
Level 2
 
Level 3
Cash equivalents
Institutional money market funds
$
133,776

 
$

 
$
133,776

 
$

Cash equivalents
Commercial paper
$
279,274

 
$

 
$
279,274

 
$

Cash equivalents
Corporate bonds
$
6,061

 
$

 
$
6,061

 
$

Cash equivalents
Municipal bonds
$
71,365

 
$

 
$
71,365

 
$

Cash equivalents
Other government-related obligations
$
77,517

 
$

 
$
77,517

 
$

Cash equivalents
Bank certificates of deposit
$
58,022

 
$

 
$
58,022

 
$

Marketable securities
Mutual funds
$
7,949

 
$
7,949

 
$

 
$

Marketable securities
Corporate bonds
$
127,796

 
$

 
$
127,796

 
$

Marketable securities
Municipal bonds
$
17,356

 
$

 
$
17,356

 
$

Marketable securities
Other government-related obligations
$
142,110

 
$

 
$
142,110

 
$

Prepaid expenses and other current assets
Foreign exchange forward contracts
$
79,239

 
$

 
$
79,239

 
$

Other assets
Foreign exchange forward contracts
$
69,486

 
$

 
$
69,486

 
$

Other current liabilities
Foreign exchange forward contracts
$
3,692

 
$

 
$
3,692

 
$

Other liabilities
Foreign exchange forward contracts
$
5,806

 
$

 
$
5,806

 
$

Contingent consideration
Acquisition-related contingent consideration
$
158,678

 
$

 
$

 
$
158,678

 

17

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





 
 
Fair Value Measurement at
December 31, 2014
Balance Sheet
Classification
Type of Instrument
Total
 
Level 1
 
Level 2
 
Level 3
Cash equivalents
Institutional money market funds
$
176,331

 
$

 
$
176,331

 
$

Cash equivalents
Commercial paper
$
117,529

 
$

 
$
117,529

 
$

Cash equivalents
Corporate bonds
$
9,315

 
$

 
$
9,315

 
$

Cash equivalents
Municipal bonds
$
12,050

 
$

 
$
12,050

 
$

Cash equivalents
Other government-related obligations
$
23,998

 
$

 
$
23,998

 
$

Cash equivalents
Bank certificates of deposit
$
5,000

 
$

 
$
5,000

 
$

Marketable securities
Mutual funds
$
4,277

 
$
4,277

 
$

 
$

Marketable securities
Commercial paper
$
24,966

 
$

 
$
24,966

 
$

Marketable securities
Corporate bonds
$
484,551

 
$

 
$
484,551

 
$

Marketable securities
Municipal bonds
$
162,795

 
$

 
$
162,795

 
$

Marketable securities
Other government-related obligations
$
268,978

 
$

 
$
268,978

 
$

Marketable securities
Bank certificates of deposit
$
72,000

 
$

 
$
72,000

 
$

Prepaid expenses and other current assets
Foreign exchange forward contracts
$
77,348

 
$

 
$
77,348

 
$

Other assets
Foreign exchange forward contracts
$
58,698

 
$

 
$
58,698

 
$

Other current liabilities
Foreign exchange forward contracts
$
794

 
$

 
$
794

 
$

Other liabilities
Foreign exchange forward contracts
$
86

 
$

 
$
86

 
$

Other current liabilities
Acquisition-related contingent consideration
$
46,546

 
$

 
$

 
$
46,546

Contingent consideration
Acquisition-related contingent consideration
$
116,425

 
$

 
$

 
$
116,425


There were no securities transferred between Level 1, 2 and 3 during the nine months ended September 30, 2015.

Valuation Techniques
We classify mutual fund investments, 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 institutional money market funds, commercial paper, municipal bonds, 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 the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. We validate the prices provided by our third-party pricing sources by

18

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





understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.
Our derivative assets and liabilities include foreign exchange 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 acquisitions are classified as Level 3 within the valuation hierarchy and are valued based on various estimates, including probability of success, discount rates and amount of time until the conditions of the milestone payments are met.
As of September 30, 2015, 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.

Contingent Consideration
In connection with prior acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory and reimbursement approvals or sales-based milestone events. We determine the fair value of these obligations on the acquisition date 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 4.8% for developmental milestones and a weighted average cost of capital ranging from 12% to 21% 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 development work progresses towards the achievement of the milestones.
Estimated future contingent milestone payments related to prior business combinations range from zero if no milestone events are achieved, to a maximum of $826,000 if all development, regulatory and sales-based milestones are reached. As of September 30, 2015, the fair value of acquisition-related contingent consideration was $158,678. The following table represents a roll-forward of our acquisition-related contingent consideration:
 
Nine months ended
 
September 30, 2015
Balance at beginning of period
$
(162,971
)
Milestone payments
50,000

Changes in fair value
(45,707
)
Balance at end of period
$
(158,678
)


14.
Income Taxes
The following table provides a comparative summary of our income tax provision and effective tax rate for the three and nine months ended September 30, 2015 and 2014:
 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Provision for income taxes
$
323,116

 
$
58,478

 
$
345,815

 
$
163,186

Effective tax rate
231.9
%
 
24.8
%
 
81.6
%
 
24.5
%

The tax provision for the three and nine months ended September 30, 2015 and 2014 is attributable to the U.S. federal, state and foreign income taxes on our profitable operations. In connection with the integration of the Synageva business with and into the Alexion business, we incurred a one-time tax expense of $315,569. This tax expense is attributable to the change in

19

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





our deferred tax liability associated with the outside basis difference related to the movement of assets into our captive foreign partnership. Additionally, reflected in the tax provision for the three and nine months ended September 30, 2015 are the benefits realized in connection with our acquisition of Synageva. These benefits include current year operating losses.
We continue to maintain a valuation allowance against certain other deferred tax assets where realization is not certain.

15.
Defined Benefit Plans
We maintain defined benefit plans for employees in certain countries outside the United States, including retirement benefit plans required by applicable local law. The plans are valued by independent actuaries using the projected unit credit method. The liabilities correspond to the projected benefit obligations of which the discounted net present value is calculated based on years of employment, expected salary increases, and pension adjustments.
The components of net periodic benefit cost were as follows: 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
2,380

 
$
2,040

 
$
7,241

 
$
6,225

Interest cost
179

 
195

 
551

 
595

Expected return on plan assets
(248
)
 
(225
)
 
(756
)
 
(688
)
Employee contributions
(442
)
 
(427
)
 
(1,342
)
 
(1,304
)
Amortization
313

 
213

 
939

 
651

Other
(821
)
 

 
(821
)
 

Total net periodic benefit cost
$
1,361

 
$
1,796

 
$
5,812

 
$
5,479


16.
Leases

In November 2012, we entered into a lease agreement for office and laboratory space to be constructed in New Haven, Connecticut. The term of the new lease will commence upon the landlord's substantial completion of the building and will expire 12 years later, with a minimum renewal option of 7 years and a maximum renewal option of 20 years, provided that we expand our lease to include all rentable space in the building. Although we will not legally own the premises, we are deemed to be the owner of the building during the construction period based on applicable accounting guidance for build-to-suit leases due to our involvement during the construction period. Accordingly, the landlord's costs of constructing the facility are required to be capitalized, as a non-cash transaction, offset by a corresponding facility lease obligation in our condensed consolidated balance sheet.
Construction of the new facility began in June 2013 and is expected to be completed in late 2015. As of September 30, 2015, we recorded a construction-in-process asset of $203,494, inclusive of the landlord's costs as well as costs incurred by Alexion, and an offsetting facility lease obligation of $130,254 associated with the new facility.
In connection with the planned construction of facilities in New Haven, Connecticut, we entered into an agreement with the State of Connecticut Department of Economic and Community Development which provides for a forgivable loan and grants totaling $26,000 and tax credits of up to $25,000. The program requires that we meet certain criteria in order to prevent forfeiture or repayment of the loan, grants and credits, which include (i) maintaining corporate headquarters in Connecticut for ten years; (ii) satisfying minimum employment obligations; and (iii) minimum capital spending requirements. In the third quarter 2015, we received $26,000 for the forgivable loan and grants. The proceeds reduce the costs of our construction-in-process asset associated with the project. As of September 30, 2015, we have not received any tax credits associated with our agreement with the State of Connecticut.

17.
License Agreements
In March 2015, we entered into an agreement with a third party that allowed us to exercise an option with another third party for exclusive, worldwide, perpetual license rights to a specialized technology and other intellectual property, and we simultaneously exercised the option. Due to the early stage of these assets, we recorded expense for the payments of $47,000 during the first quarter 2015.

20

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





In March 2015, we entered into a collaboration agreement with a third party that allows us to identify and optimize drug candidates. Alexion will have the exclusive worldwide rights to develop and commercialize products arising from the collaboration. Due to the early stage of the assets we are licensing in connection with the collaboration, we recorded expense for the upfront payment of $15,000 during the first quarter 2015. In addition, we could be required to pay up to an additional $252,500 if certain development, regulatory, and commercial milestones are met over time, as well as royalties on commercial sales.
In January 2015, we entered into a license agreement with a third party to obtain an exclusive research, development and commercial license for specific therapeutic molecules. Due to the early stage of these assets, we recorded expense for the upfront payment of $50,000 during the first quarter 2015. In addition, we could be required to pay up to an additional $830,000 if certain development, regulatory, and commercial milestones are met over time, as well as royalties on commercial sales.
In January 2014, we entered into an agreement with Moderna Therapeutics, Inc. (Moderna) that allows us to purchase ten product options to develop and commercialize treatments for rare diseases with Moderna's messenger RNA (mRNA) therapeutics platform. Alexion will lead the discovery, development and commercialization of the treatments produced through this broad, long-term strategic agreement, while Moderna will retain responsibility for the design and manufacture of the messenger RNA against selected targets. Due to the early stage of these assets, we recorded expense for an upfront payment of $100,000.  We will also be responsible for funding research activities under the program.  In addition, for each drug target, up to a maximum of ten targets, we could be required to make an option exercise payment of $15,000 and to pay up to an additional $120,000 with respect to a rare disease product and $400,000 with respect to a non-rare disease product in development and sales milestones if the specific milestones are met over time as well as royalties on commercial sales. 

18.
Commitments and Contingencies
Commitments
Manufacturing obligations
We rely on Lonza Group AG and its affiliates (Lonza), a third party manufacturer, to produce a portion of commercial and clinical quantities of Soliris and for clinical and commercial quantities of Strensiq (asfotase alfa). We have various agreements with Lonza with remaining total non-cancellable future commitments of approximately $1,204,070. If we terminate certain supply agreements with Lonza without cause, we will be required to pay for product scheduled for manufacture under our arrangement. Under an existing arrangement with Lonza, we also pay Lonza a royalty on sales of Soliris manufactured at Alexion Rhode Island Manufacturing Facility (ARIMF) and a payment with respect to sales of Soliris manufactured at Lonza facilities.
During the third quarter 2015, we entered into a new agreement with Lonza whereby Lonza will construct a new manufacturing facility dedicated to Alexion at their existing Portsmouth, New Hampshire facility. The agreement requires us to make certain payments during the construction of the new manufacturing facility and annual payments for ten years thereafter. As we have full capacity rights to the new manufacturing facility, a portion of the payments under the agreement are considered to be lease payments and a portion as payment for the supply of inventory. Although we will not legally own the premises, we are deemed to be the owner of the manufacturing facility during the construction period based on applicable accounting guidance for build-to-suit leases due to our involvement during the construction period. During the third quarter 2015, we recorded a construction-in-process asset and an offsetting facility lease obligation of $17,030 associated with the manufacturing facility.
Payments made to Lonza under the agreement are allocated to the purchases of inventory and the repayment of the facility lease obligation on a relative fair value basis. During the third quarter 2015, we made $8,000 of payments to Lonza, of which $1,040 was applied against the outstanding facility lease obligation and $6,960 was recognized as a prepayment of inventory.
In addition, we have non-cancellable commitments of approximately $39,048 with other third party manufacturers.

Contingent Liabilities
On an ongoing basis, we are involved in various claims, and legal proceedings, none of which we deem material to our operations. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Because of uncertainties related to claims and litigation, accruals are based on our best estimates based on available information. On a periodic basis, as additional information becomes

21

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





available, or based on specific events such as the outcome of litigation or settlement of claims, we may reassess the potential liability related to these matters and may revise these estimates, which could result in a material adverse adjustments to our operating results.
We have in the past received, and may in the future receive, notices from third parties claiming that their patents may be infringed by the development, manufacture or sale of our products. Under the guidance of ASC 450, Contingencies, we record a royalty accrual based on our best estimate of the fair value percent of net sales of Soliris that we could be required to pay the owners of patents for technology used in the manufacture and sale of our products. A costly license, or inability to obtain a necessary license, could have a material adverse effect on our financial results.
As previously disclosed, in May 2015, we received a subpoena in connection with an investigation by the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting information related to our grant-making activities and compliance with the Foreign Corrupt Practices Act (FCPA) in various countries. The SEC also seeks information related to Alexion’s recalls of specific lots of Soliris and related securities disclosures. In addition, in October 2015, Alexion received a request from the U.S. Department of Justice for the voluntary production of documents and other information pertaining to Alexion's compliance with the FCPA. Alexion is cooperating with these investigations. At this time, Alexion is unable to predict the duration, scope or outcome of these investigations. Given the ongoing nature of these investigations, management does not currently believe a loss related to these matters is probable or that the potential magnitude of such loss or range of loss, if any, can be reasonably estimated.
In March 2013, we received a Warning Letter (Warning Letter) from the U.S. Food and Drug Administration (FDA) regarding compliance with current Good Manufacturing Practices (cGMP) at ARIMF. The Warning Letter followed receipt of a Form 483 Inspectional Observations by the FDA in connection with an FDA inspection that concluded in August 2012. The observations relate to commercial and clinical manufacture of Soliris at ARIMF. We responded to the Warning Letter in a letter to the FDA dated in April 2013. As previously announced, the FDA issued Form 483s in August 2014 and August 2015 relating to observations at ARIMF. The inspectional observations from the August 2015 letter have since been closed out by the FDA. The observations are inspectional and do not represent a final FDA determination of compliance. We continue to manufacture products, including Soliris, in this facility. While the resolution of the issues raised in the Warning Letter is difficult to predict, we do not currently believe a loss related to this matter is probable or that the potential magnitude of such loss or range of loss, if any, can be reasonably estimated.

19.
Restructuring
In conjunction with the acquisition and integration of Synageva, we recorded restructuring expense of $10,321 related to employee costs in the second quarter 2015. During the three months ended September 30, 2015, we incurred additional restructuring costs of $3,149. We expect to pay all remaining accrued amounts related to this restructuring activity by the end of 2016.
In the fourth quarter 2014, we announced plans to relocate our European headquarters from Lausanne to Zurich, Switzerland. The relocation of the European headquarters supports our operational needs based on growth in the European region. The activities that primarily occurred at our Lausanne site were relocated to our Zurich, Cheshire, Connecticut, and Dublin, Ireland locations. As a result of this action, we recorded restructuring expenses of $15,365 related to employee costs in the fourth quarter 2014. During the three and nine months ended September 30, 2015, we incurred additional restructuring costs of $4,312 and $17,267, respectively. We expect to pay all remaining accrued amounts related to this restructuring activity by the end of 2016.

22

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





The following table presents a reconciliation of the restructuring reserve recorded within accrued expenses on the Company's condensed consolidated balance sheet for the three and nine months ended September 30, 2015:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2015
 
Employee Separation Costs
 
Contract Termination Costs
 
Other Costs
 
Total
 
Employee Separation Costs
 
Contract Termination Costs
 
Other Costs
 
Total
Liability, beginning of period
$
35,707

 
$

 
$
277

 
$
35,984

 
$
15,365

 
$

 
$

 
$
15,365

Restructuring expenses
2,518

 
1,029

 
1,634

 
5,181

 
21,129

 
1,029

 
2,752

 
24,910

Cash settlements
(23,148
)
 

 
(1,467
)
 
(24,615
)
 
(24,964
)
 

 
(2,308
)
 
(27,272
)
Adjustments to previous estimates
2,280

 

 

 
2,280

 
5,827

 

 

 
5,827

Liability, end of period
$
17,357

 
$
1,029

 
$
444

 
$
18,830

 
$
17,357

 
$
1,029

 
$
444

 
$
18,830


Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by our management, and may include, but are not limited to, statements regarding the potential benefits and commercial potential of Soliris®, StrensiqTM and KanumaTM for approved indications and any expanded uses, timing and effect of sales of our products in various markets worldwide, pricing for our products, level of insurance coverage and reimbursement for our products, level of future product sales and collections, timing regarding development and regulatory approvals for our products in additional indications or in additional territories, the medical and commercial potential of additional indications for Soliris, failure to satisfactorily address the issues raised by the U.S. Food and Drug Administration (FDA) in the March 2013 Warning Letter and Form 483s issued by the FDA, costs, expenses and capital requirements, cash outflows, cash from operations, status of reimbursement, price approval and funding processes in various countries worldwide, progress in developing commercial infrastructure and interest about our products and our product candidates in the patient, physician and payer communities, the safety and efficacy of our products and our product candidates, estimates of the potential markets and estimated commercialization dates for our products and our product candidates around the world, sales and marketing plans, any changes in the current or anticipated market demand or medical need for our products or our product candidates, status of our ongoing clinical trials for our product candidates, commencement dates for new clinical trials, clinical trial results, evaluation of our clinical trial results by regulatory agencies, the adequacy of our pharmacovigilance and drug safety reporting processes, prospects for regulatory approval of our product candidates, need for additional research and testing, the uncertainties involved in the drug development process and manufacturing, performance and reliance on third party service providers, our future research and development activities, plans for acquired programs, our ability to develop and commercialize products with our collaborators, assessment of competitors and potential competitors, the outcome of challenges and opposition proceedings to our intellectual property, assertion or potential assertion by third parties that the manufacture, use or sale of our products infringes their intellectual property, estimates of the capacity of manufacturing and other service facilities to support our products and our product candidates, potential costs resulting from product liability or other third party claims, the sufficiency of our existing capital resources and projected cash needs, the possibility that expected tax benefits will not be realized, assessment of impact of recent accounting pronouncements, declines in sovereign credit ratings or sovereign defaults in countries where we sell our products, delay of collection or reduction in reimbursement due to adverse economic conditions or changes in government and private insurer regulations and approaches to reimbursement, uncertainties surrounding government investigations, including the SEC and DOJ investigations, the short and long term effects of other government healthcare measures, and the effect of shifting foreign exchange rates. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed later in this report under the section entitled “Risk Factors”. Unless required by law, we undertake no

23

Alexion Pharmaceuticals, Inc.
(amounts in thousands, except per share amounts)

obligation to update publicly any forward-looking statements, whether because of new information, future events or otherwise. However, readers should carefully review the risk factors set forth in this and other reports or documents we file from time to time with the Securities and Exchange Commission.
Business
We are a biopharmaceutical company focused on serving patients with devastating and rare disorders through the innovation, development and commercialization of life-transforming therapeutic products.
In our complement franchise, Soliris is the first and only therapeutic approved for patients with either of two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system: paroxysmal nocturnal hemoglobinuria (PNH), a life-threatening and ultra-rare genetic blood disorder, and atypical hemolytic uremic syndrome (aHUS), a life-threatening and ultra-rare genetic disease.
In our metabolic franchise, we market Strensiq (asfotase alfa) for the treatment of hypophasphatasia (HPP) and Kanuma (sebelipase alfa) for the treatment of lysosomal acid lipase deficiency (LAL-D). HPP is a genetic ultra-rare disease characterized by defective bone mineralization that can lead to deformity of bones and other skeletal abnormalities. LAL-D is a serious, life threatening ultra-rare disease in which genetic mutations result in decreased activity of the LAL enzyme leading to marked accumulation of lipids in vital organs, blood vessels and other tissues.
We are also evaluating additional potential indications for eculizumab in other severe and devastating diseases in which uncontrolled complement activation is the underlying mechanism, and we are progressing in various stages of development with additional product candidates as potential treatments for patients with severe and life-threatening rare disorders.
We were incorporated in 1992. In June 2015, we acquired all of the outstanding shares of common stock of Synageva BioPharma Corp. (Synageva), a publicly-held clinical-stage biotechnology company. We financed the acquisition with existing cash, proceeds from a new credit facility and exchange of shares of common stock.
Products and Development Programs
We focus our product development programs on life-transforming therapeutics for severe and life-threatening ultra-rare diseases for which current treatments are either non-existent or inadequate.
Marketed Products
Our marketed products include the following:
Product
 
Development Area
 
Indication
 
Development Stage
Soliris (eculizumab)
 
Hematology
 
Paroxysmal Nocturnal Hemoglobinuria (PNH)
 
Commercial
 
 
 
 
PNH Registry
 
Phase IV
 
 
Hematology/Nephrology
 
Atypical Hemolytic Uremic Syndrome (aHUS)
 
Commercial
 
 
 
 
aHUS Registry
 
Phase IV
Strensiq (asfotase alfa)
 
Metabolic Disorders
 
Hypophosphatasia (HPP)
 
Commercial
 
 
 
 
HPP Registry
 
Phase IV
Kanuma (sebelipase alfa)
 
Metabolic Disorders
 
Lysosomal Acid Lipase Deficiency (LAL-D)
 
Commercial
 
 
 
 
LAL-D Registry
 
Phase IV
Soliris (eculizumab)
Soliris is designed to inhibit a specific aspect of the complement component of the immune system and thereby treat inflammation associated with chronic disorders in several therapeutic areas, including hematology, nephrology, transplant rejection and neurology. Soliris is a humanized monoclonal antibody that effectively blocks terminal complement activity at the doses currently prescribed. The initial indication for which we received approval for Soliris is PNH.
Paroxysmal Nocturnal Hemoglobinuria (PNH)
PNH is a debilitating and life-threatening, ultra-rare genetic blood disorder defined by chronic uncontrolled complement activation leading to the destruction of red blood cells (hemolysis). The chronic hemolysis in patients with PNH may be associated with life-threatening thromboses, recurrent pain, kidney disease, disabling fatigue, impaired quality of life, severe anemia, pulmonary hypertension, shortness of breath and intermittent episodes of dark-colored urine (hemoglobinuria). We

24

Alexion Pharmaceuticals, Inc.
(amounts in thousands, except per share amounts)

continue to work with researchers to expand the base of knowledge in PNH and the utility of Soliris to treat patients with PNH. Soliris was approved for the treatment of PNH by the FDA and the European Commission (EC) in 2007 and by Japan’s Ministry of Health, Labour and Welfare (MHLW) in 2010, and has been approved in several other territories. In 2013, the EC extended the Soliris label to include pediatric patients with PNH. The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) recommends that the renewal be granted with unlimited validity.  We are sponsoring a multinational registry to gather information regarding the natural history of patients with PNH and the longer term outcomes during Soliris treatment. In April 2015, the EC approved an update to the EU label that supports Soliris treatment for patients with PNH regardless of history of transfusion and additional updates to inform physicians to make treatment decisions based on elevated hemolysis and the presence of common symptoms associated with PNH. Additionally, Soliris has been granted orphan drug designation for the treatment of PNH in the United States, Europe, Japan and several other territories.
Atypical Hemolytic Uremic Syndrome (aHUS)
aHUS is a severe and life-threatening genetic ultra-rare disease characterized by chronic uncontrolled complement activation and thrombotic microangiopathy (TMA), the formation of blood clots in small blood vessels throughout the body, causing a reduction in platelet count (thrombocytopenia) and life-threatening damage to the kidney, brain, heart and other vital organs. In September and November 2011, Soliris was approved by the FDA and EC, respectively, for the treatment of pediatric and adult patients with aHUS in the United States and Europe. In September 2013, the MHLW approved Soliris for the treatment of pediatric and adult patients with aHUS in Japan. In May 2014, the FDA approved conversion of Soliris accelerated approval in aHUS to regular approval for the treatment of adult and pediatric patients with aHUS to inhibit complement-mediated TMA. In April 2015, the EC approved an update to the EU label for Soliris treatment for patients with aHUS that included new efficacy data which specifies that longer-term treatment with Soliris is associated with a greater proportion of patients achieving clinically significant benefits, including complete TMA response and hematologic normalization, as well as the importance of sustained Soliris therapy. In addition, the FDA and EC have granted Soliris orphan drug designation for the treatment of patients with aHUS.
Strensiq (asfotase alfa)
Hypophosphatasia (HPP)
HPP is an ultra-rare genetic and progressive metabolic disease in which patients experience devastating effects on multiple systems of the body, leading to debilitating or life-threatening complications. HPP is characterized by defective bone mineralization that can lead to deformity of bones and other skeletal abnormalities, as well as systemic complications such as profound muscle weakness, seizures, pain, and respiratory failure leading to premature death in infants.
Strensiq (asfotase alfa), a targeted enzyme replacement therapy, is the first and only approved therapy for patients with HPP, and is designed to directly address underlying causes of HPP by aiming to restore the genetically defective metabolic process, thereby preventing or reversing the severe and potentially life-threatening complications in patients with HPP. In July 2015, Japan’s MHLW approved Strensiq (asfotase alfa) for the treatment of patients with HPP. On September 1, 2015, Alexion announced that the EC granted marketing authorization for Strensiq (asfotase alfa) for the treatment of patients with pediatric-onset HPP. On October 23, 2015, we announced the FDA approved Strensiq for patients with perinatal-, infantile- and juvenile-onset HPP.
Kanuma (sebelipase alfa)
Lysosomal Acid Lipase Deficiency (LAL Deficiency or LAL-D)
LAL-D is a serious, life-threatening ultra-rare disease associated with premature mortality and significant morbidity. LAL-D is a chronic disease in which genetic mutations result in decreased activity of the LAL enzyme that leads to marked accumulation of lipids in vital organs, blood vessels, and other tissues, resulting in progressive and systemic organ damage including hepatic fibrosis, cirrhosis, liver failure, accelerated atherosclerosis, cardiovascular disease, and other devastating consequences.
Kanuma (sebelipase alfa), a recombinant form of the human LAL enzyme, is the only enzyme-replacement therapy that is approved treatment for patients with LAL-D. On September 1, 2015, Alexion announced that the European Commission granted marketing authorization of Kanuma (sebelipase alfa) for long-term enzyme replacement therapy in patients of all ages with LAL-D.
The FDA has accepted for review the BLA for Kanuma (sebelipase alfa) and granted the request for Priority Review. In addition, a New Drug Application (NDA) for Kanuma (sebelipase alfa) has been submitted to Japan’s MHLW. On September 4, 2015, the FDA extended the Prescription Drug User Fee Act (PDUFA) date for its Priority Review of the Company's Biologics License Application (BLA) for Kanuma (sebelipase alfa). The previously disclosed September 8, 2015 PDUFA date has been extended by the standard extension period of three months.

25

Alexion Pharmaceuticals, Inc.
(amounts in thousands, except per share amounts)

Clinical Development Programs
Our programs, including investigator sponsored clinical programs, include the following:
Product
 
Development Area
 
Indication
 
Development Stage
Soliris (eculizumab)
 
Neurology
 
Myasthenia Gravis (MG)
 
Phase III
 
 
 
 
Neuromyelitis Optica (NMO)
 
Phase III
 
 
Transplant
 
Delayed Kidney Transplant Graft Function
 
Phase III
 
 
 
 
Antibody Mediated Rejection (AMR) Presensitized Renal Transplant - Living Donor
 
Phase II
 
 
 
 
Antibody Mediated Rejection (AMR) Presensitized Renal Transplant - Deceased Donor
 
Phase II
 
 
 
 
Treatment of Antibody Mediated Rejection (AMR) Following Renal Transplantation*
 
Phase II
cPMP (ALXN 1101)