(amounts in millions, except percentages and per share data)
In addition to historical information, this report contains forward-looking
statements that involve risks and uncertainties which may cause our actual
results to differ materially from expectations, plans and anticipated results
discussed in forward-looking statements. We encourage you to review the risks
and uncertainties, discussed in the section entitled item 1A "Risk Factors", and
the "Note Regarding Forward-Looking Statements", included at the beginning of
this Annual Report on Form 10-K. The risks and uncertainties can cause actual
results to differ significantly from those forecasted in forward-looking
statements or implied in historical results and trends.
The following discussion should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this Annual Report
on Form 10-K.
Overview
Alexion is a global biopharmaceutical company focused on serving patients and
families affected by rare diseases through the discovery, development and
commercialization of life-changing therapies.
As the global leader in complement biology and inhibition for more than 20
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).
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 and cardiology.
Recent Developments
In November 2019, Japan's Ministry of Health, Labour and Welfare (MHLW) approved
the extension of the current marketing authorization of SOLIRIS® (eculizumab) to
include the prevention of relapse in patients with anti-aquaporin-4 (AQP4)

antibody-positive neuromyelitis optica spectrum disorder (NMOSD), including
neuromyelitis optica.
In December 2019, we exercised our option for exclusive rights to two additional
targets within the complement pathway under an existing agreement with Dicerna
Pharmaceuticals, Inc, which expands Alexion's existing research collaboration
and license agreement with Dicerna to include a total of four targets within the
complement pathway. In connection with the option exercise, we paid Dicerna
$20.0 in the fourth quarter 2019.
In December 2019, following FDA feedback which resulted in the redesign and
expansion of Caelum's planned clinical development program for CAEL-101, we
amended the terms of our existing option agreement with Caelum. The amendment
modified the terms of the option to acquire the remaining equity in Caelum based
on data from the expanded Phase II/III trials. The amendment also modified the
development-related milestone events associated with the initial $30.0 in
contingent payments, provided for an additional $20.0 in upfront funding, as
well as funding of $60.0 in exchange for an additional equity interest at fair
value upon achievement of a specific development-related milestone event.
On January 28, 2020, we completed the acquisition of Achillion Pharmaceuticals,
Inc. (Achillion). Achillion is a clinical-stage biopharmaceutical company
focused on the development of oral Factor D inhibitors. Achillion is developing
oral small molecule Factor D inhibitors to treat complement alternative
pathway-mediated rare diseases, such as PNH and C3 glomerulopathy (C3G). The
company currently has two clinical stage medicines in development. Phase 3
development is being initiated for danicopan as an add-on therapy for PNH
patients with extravascular hemolysis and danicopan is also in Phase 2
development for C3G, and ACH-5228 is in Phase 2 development for PNH. Under the
terms of the agreement, we acquired all outstanding common stock of Achillion
for $6.30 per share, or approximately $926.0, 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 include $1.00 per share for the U.S.
FDA approval of danicopan and $1.00 per share for the initiation of Phase 3 in
ACH-5228.


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Critical Accounting Policies and Estimates
The significant accounting policies and basis of preparation of our consolidated
financial statements are described in Note 1, "Business Overview and Summary of
Significant Accounting Policies" of the Consolidated Financial Statements
included in this Annual Report on Form 10-K. The preparation of these financial
statements in conformity with GAAP requires that management make estimates,
judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and other related disclosures. Some of those
judgments can be subjective and complex, and therefore, actual results could
differ materially from those estimates under different assumptions or
conditions.
We believe the judgments, estimates and assumptions associated with the
following critical accounting policies have the greatest potential impact on our
consolidated financial statements:
• Revenue recognition;


• Contingent liabilities;


• Share-based compensation;

• Valuation of goodwill, acquired intangible assets and in-process research and

development (IPR&D);

• Valuation of contingent consideration; and




• Income taxes.


Revenue Recognition
Our principal source of revenue is product sales. Our contracts with customers
generally contain a single performance obligation and we recognize revenue from
product sales when we have satisfied our performance obligation by transferring
control of the product to our customers. Control of the product generally
transfers to the customer upon delivery. In certain countries, we sell to
distributors on a consignment basis and record revenue when control of the
product transfers to the customer upon sale to the end user.
Revenue is recognized at the amount to which we expect to be entitled in
exchange for the sale of our products. This amount includes both fixed and
variable consideration and excludes amounts that are collected from customers
and remitted to governmental authorities, such as value-added taxes in foreign
jurisdictions.
Variability in the transaction price for our products pursuant to our contracts
with customers primarily arises from the following:
Discounts and Rebates: We offer discounts and rebates to certain distributors
and customers under our arrangements. In many cases, these amounts are fixed at
the time of sale and the transaction price is reduced accordingly. We also
provide for rebates under certain governmental programs, including Medicaid in
the U.S.

and other programs outside the U.S., which are payable based on actual claim
data. We estimate these rebates based on an analysis of historical claim
patterns and estimates of customer mix to determine which sales will be subject
to rebates and the amount of such rebates. Generally, the length of time between
product sale and the processing and reporting of the rebates is three to six
months.
Volume-Based Arrangements: We have entered into volume-based arrangements with
governments in certain countries and other customers in which reimbursement is
limited to a contractual amount. Under this type of arrangement, amounts billed
in excess of the contractual limitation are repaid to the customer as a rebate.
We estimate incremental discounts resulting from these contractual limitations,
based on forecasted sales during the limitation period, and we apply the
discount percentage to product shipments as a reduction of revenue. Our
calculations related to these arrangements require estimation of sales during
the limitation period.
We believe the methodology used to accrue for discounts and rebates is
reasonable and appropriate given current facts and circumstances, but actual
results may differ.
We have provided balances and activity in the rebates payable account for the
years ended December 31, 2019, 2018 and 2017 as follows:
                                                      Rebates
                                                      Payable
Balances, December 31, 2016                          $  69.5

Current provisions relating to sales in current year 193.8 Adjustments relating to prior years

                     (4.5 )

Payments/credits relating to sales in current year (97.4 ) Payments/credits relating to sales in prior years (62.3 ) Balances, December 31, 2017

$  99.1

Current provisions relating to sales in current year 235.4 Adjustments relating to prior years

                     (2.4 )

Payments/credits relating to sales in current year (119.3 ) Payments/credits relating to sales in prior years (90.0 ) Balances, December 31, 2018

$ 122.8

Current provisions relating to sales in current year 322.7 Adjustments relating to prior years (1)

                 18.8

Payments/credits relating to sales in current year (123.4 ) Payments/credits relating to sales in prior years (90.8 ) Balances, December 31, 2019

$ 250.1


(1) Included in the adjustments related to prior years is an accrual recorded in
2019 related to the PMPRB matter. See Note 11, Commitments and Contingencies for
additional information.
Current provisions relating to sales in the current year increased by $87.3 in
2019 compared to 2018 and $41.6 in 2018 compared to 2017. The increase in 2019
and 2018 was primarily due to increased unit volumes in the U.S. which were
subject to rebates as well as increases in rebate rates in the U.S. on certain
product sales. The increase in 2017 was attributable to

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increased unit volumes in the U.S. and Europe, which were subject to rebates, as
well as to increases in rebate rates in certain geographical regions and on
certain product sales as compared to the prior year.
Contingent liabilities
We are currently involved in various claims and legal proceedings. 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. Significant
judgment is required in both the determination of probability and the
determination as to whether an exposure is reasonably estimable. Because of
uncertainties related to claims and litigation, accruals are based on the best
information available at the time of our assessment including the legal facts
and circumstances of the case, status of the proceedings, applicable law and the
likelihood of settlement, if any. On a periodic basis, as additional information
becomes available, or based on specific events such as the outcome of litigation
or settlement of claims (and our offers of settlement), we may reassess the
potential liability related to these matters and may revise these estimates,
when facts and circumstances indicate the need for any change.
Share-Based Compensation
The Company recognizes compensation expense associated with the issuance of
equity instruments that may be granted to our directors, officers, employees and
consultants or advisors of the Company or any subsidiary. To date, share-based
compensation issued consists of incentive and non-qualified stock options,
restricted stock and restricted stock units, including restricted stock units
with market and non-market performance conditions, and shares issued under our
ESPP.
Compensation expense for our share-based awards is recognized based on the
estimated fair value of the awards on the grant date. Compensation expense
reflects an estimate of the number of awards expected to vest and is primarily
recognized on a straight-line basis over the requisite service period of the
individual grants, which typically equals the vesting period. Compensation
expense for awards with performance conditions is recognized using the
graded-vesting method.
Significant judgments and assumptions are used in estimating compensation cost
for restricted stock units containing market-based performance conditions as
well as non-market performance conditions relating to the achievement of
operational metrics. We use payout simulation models to estimate the grant date
fair value of awards with market-based performance conditions. The payout
simulation models assume

volatility of our common stock and the common stock of a comparator group of
companies, as well as correlations of returns of the price of our common stock
and the common stock prices of the comparator group. For our non-market
performance-based awards, we estimate the anticipated achievement of the
performance targets, including forecasting the achievement of future financial
targets. These estimates are revised periodically based on the probability of
achieving the performance targets and adjustments are made throughout the
performance period as necessary. Changes in estimates and probability of
achieving the performance targets could have a material impact on our results of
operations.
Valuation of Goodwill, Acquired Intangible Assets and In-Process Research and
Development (IPR&D)
We have recorded goodwill and acquired intangible assets related to our business
combinations. When identifiable intangible assets, including IPR&D, are
acquired, we determine the fair values of the assets as of the acquisition date.
Discounted cash flow models are typically used in these valuations if quoted
market prices are not available, and the models require the use of significant
estimates and assumptions including but not limited to:

• timing and costs to complete the in-process projects;

• timing and probability of success of clinical events or regulatory approvals;

• estimated future cash flows from product sales resulting from completed

products and in-process projects; and

• discount rates.




We may also utilize a cost approach, which estimates the costs that would be
incurred to replace the assets being purchased. Significant inputs into the cost
approach include estimated rates of return on historical costs that a market
participant would expect to pay for these assets.
Intangible assets with definite useful lives are amortized to their estimated
residual values over their estimated useful lives and reviewed for impairment if
triggering events occur.
As of December 31, 2019, the net book value of our purchased technology includes
$2,992.4 associated with the KANUMA intangible asset, which we acquired in the
acquisition of Synageva BioPharma Corp. As part of our standard procedures, we
reviewed the KANUMA asset as of December 31, 2019 and determined that there were
no indicators of impairment. Cash flow models used in our assessments are based
on our commercial experience to date with KANUMA and require the use of
significant estimates, which include, but are not limited to, long-range pricing
expectations and patient-related assumptions, including patient identification,

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conversion and retention rates. We will continue to review the related valuation
and accounting of this asset as new information becomes available to us.
Goodwill represents the excess of purchase price over fair value of net assets
acquired in a business combination and is not amortized. Goodwill is subject to
impairment testing at least annually or when a triggering event occurs that
could indicate a potential impairment. We are organized and operate as a single
reporting unit and therefore the goodwill impairment test is performed using our
overall market value, as determined by our traded share price, compared to our
book value of net assets.
Valuation of Contingent Consideration
We record contingent consideration resulting from a business combination at its
fair value on the acquisition date. We determine the fair value of the
contingent consideration based primarily on the following factors:

• timing and probability of success of clinical events or regulatory approvals;

• timing and probability of success of meeting commercial milestones, such as

estimated future sales levels of a specific compound; and

• discount rates.




Our contingent consideration liabilities arose in connection with our business
combinations. On a quarterly basis, we revalue these obligations and record
increases or decreases in their fair value as an adjustment to operating
earnings. Changes to contingent consideration obligations can result from
adjustments to discount rates, accretion of the discount rates due to the
passage of time, changes in our estimates of the likelihood or timing of
achieving development or commercial milestones, changes in the probability of
certain clinical events or changes in the assumed probability associated with
regulatory approval.
The assumptions related to determining the value of contingent consideration
include a significant amount of judgment, and any changes in the underlying
estimates could have a material impact on the amount of contingent consideration
expense recorded in any given period.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and tax basis of
assets and liabilities using enacted tax rates in effect for years in which the
temporary differences are expected to reverse.
On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was enacted into law.
The Tax Act decreased

the U.S. statutory corporate tax rate for years beginning after December 31,
2017, and included other domestic and international tax provisions that affect
the measurement of our deferred tax assets and liabilities. As a result, we
revalued our deferred tax assets and liabilities as of December 31, 2017 and
recorded a deferred tax benefit of $292.4. We recorded other impacts of the Tax
Act on a provisional basis in 2017. As of December 22, 2018, our accounting for
the impact of the Tax Act was complete. See Note 12, Income Taxes to our
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for additional information.
If our estimate of the tax effect of reversing temporary differences is not
reflective of actual outcomes, is modified to reflect new developments or
interpretations of the tax law, revised to incorporate new accounting
principles, or changes in the expected timing or manner of the reversal our
results of operations could be materially impacted.
We follow the authoritative guidance regarding accounting for uncertainty in
income taxes, which prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. These unrecognized tax benefits relate
primarily to issues common among multinational corporations in our industry. We
apply a variety of methodologies in making these estimates which include studies
performed by independent economists, advice from industry and subject experts,
evaluation of public actions taken by the IRS and other taxing authorities, as
well as our own industry experience. We provide estimates for unrecognized tax
benefits which may be subject to material adjustments until matters are resolved
with taxing authorities or statutes expire. If our estimates are not
representative of actual outcomes, our results of operations could be materially
impacted.
We continue to maintain a valuation allowance against certain deferred tax
assets where realization is not certain. We periodically evaluate the likelihood
of the realization of deferred tax assets and reduce the carrying amount of
these deferred tax assets by a valuation allowance to the extent we believe a
portion will not be realized. We consider many factors when assessing the
likelihood of future realization of deferred tax assets, including our recent
cumulative earnings experience by taxing jurisdiction, expectations of future
taxable income, carryforward periods available to us for tax reporting purposes,
various income tax strategies and other relevant factors. Significant judgment
is required in making this assessment and, to the extent future expectations
change, we would assess the recoverability of our deferred tax assets at that
time. If we determine that the deferred tax assets are not realizable in a
future period, we would record

                                       69
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adjustments to income tax expense in that period, and such adjustments may be
material.
During the fourth quarter of 2013, in connection with the centralization of our
global supply chain and technical operations in Ireland, our U.S. parent company
became a direct partner in a captive foreign partnership. Our corporate
structure, which derives income from multiple jurisdictions, requires us to
interpret the related tax laws and regulations within those jurisdictions and
develop estimates and assumptions regarding significant future events, such as
the amount, timing and character of deductions and the applicability of foreign
tax credits. From time to time, we execute intercompany transactions that may
impact the valuation of the captive foreign partnership and the corresponding
interest allocated to each partner, resulting in a change to deferred taxes. The
transactions and related valuations require the application of transfer pricing
guidelines issued by the relevant taxing authorities. Significant estimates and
assumptions within discounted cash flow models are also required to calculate
the valuations. These estimates and assumptions include, but are not limited to,
estimated future operating cash flows, revenue growth rate assumptions,
long-range pricing expectations, patient-related assumptions and other
significant inputs such as discount rates and rates of return.
New Accounting Pronouncements
Accounting Standards Update (ASU) 2016-13, "Measurement of Credit Losses on
Financial Instruments": In June 2016, the Financial Accounting Standards Board
(FASB) issued a new standard intended to improve reporting requirements specific
to loans, receivables and other financial instruments. The new standard requires
that credit losses 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 substantially completed
our assessment of the standard based on the composition of our portfolio of
financial instruments and current and forecasted economic conditions as of
January 1, 2020. We are continuing to finalize our calculations for credit
losses and to establish processes and internal controls that may be required to
comply with the new credit loss standard and related disclosure requirements. We
do not expect the adoption of this standard to have a significant impact on our
consolidated financial statements.

ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract": In August 2018, the FASB
issued a new standard on a customer's accounting for implementation, set-up, and
other upfront costs incurred in a cloud computing arrangement (CCA) that aligns
the requirements for capitalizing implementation costs in a CCA service contract
with existing internal-use software guidance. The standard also provides
classification guidance on these implementation costs as well as additional
quantitative and qualitative disclosures. The standard is effective for interim
and annual periods beginning after December 15, 2019, with early adoption
permitted, and can be adopted prospectively or retrospectively.
We adopted the new standard on January 1, 2020 on a prospective basis and are
continuing to establish new processes and internal controls that may be required
to comply with the new cloud computing standard. We do not expect the adoption
of this standard to have a significant impact on our financial statements;
however, the adoption of this standard will result in an increase in capitalized
assets related to qualifying CCA implementation costs incurred after the
adoption date.
ASU 2019-12, "Income Taxes: Simplifying the Accounting for Income Taxes": In
December 2019, the 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 guidance 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 primarily be made
prospectively, with some changes to be made retrospectively. We are currently
assessing the impact of this standard 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 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

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periods beginning after December 15, 2020, with early adoption permitted.
Adoption of the standard requires changes to be made prospectively. We are
currently assessing the impact of this standard on our financial condition and
results of operations.
Recently Adopted Accounting Pronouncements
ASU 2016-02, "Leases": In February 2016, the FASB issued a new standard that
requires lessees to recognize leases on-balance sheet and disclose key
information about leasing arrangements. The new standard establishes a right of
use (ROU) model that requires a lessee to recognize a ROU asset and lease
liability on the balance sheet for all leases with a term longer than 12 months.
Leases will be classified as financing or operating, with classification
affecting the pattern and classification of expense recognition in the statement
of operations.
We adopted the new standard on January 1, 2019 using the modified retrospective
approach. We have elected to apply the transition method that allows companies
to continue applying the guidance under the lease standard in effect at that
time in the comparative periods presented in the consolidated financial
statements and recognize a cumulative-effect adjustment to the opening balance
of retained earnings on the date of adoption. We also elected the "package of
practical expedients", which permits us not to reassess under the new standard
our prior conclusions about lease identification, lease classification and
initial direct costs.
Results for reporting periods beginning on or after January 1, 2019 are
presented under the new standard,

while prior period amounts are not adjusted and continue to be reported under
the accounting standards in effect for the prior period. Upon adoption of the
new lease standard, on January 1, 2019, we derecognized $472.8 of property,
plant and equipment and other assets and $372.2 of facility lease obligations
associated with previously existing build-to-suit arrangements. We capitalized
ROU assets of $326.1, inclusive of opening adjustments of $70.8 primarily
related to prepaid rent existing at transition, and $255.3 of lease liabilities,
within our consolidated balance sheets upon adoption. At transition, we recorded
a decrease of $90.3 to retained earnings, net of tax, primarily related to our
derecognition of previously recorded build-to-suit arrangements.
ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income": In February 2018, the FASB issued a new standard that
permits entities to make a one-time reclassification from accumulated other
comprehensive income (AOCI) to retained earnings for the stranded tax effects
resulting from the newly enacted corporate tax rates under the Tax Cuts and Jobs
Act (the Tax Act) that was effective for the year ended December 31, 2017. We
adopted the new standard on January 1, 2019 and elected not to reclassify the
income tax effects of the Tax Act from AOCI to retained earnings. We continue to
release disproportionate income tax effects from AOCI based on the aggregate
portfolio approach. The adoption of this standard did not have an impact on our
consolidated financial statements.


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Results of Operations
The following table sets forth consolidated statements of operations data for
the periods indicated. This information has been derived from the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
                                                         Year Ended December 31,
                                                    2019          2018          2017
Net product sales                                $ 4,990.0     $ 4,130.1     $ 3,549.5
Other revenue                                          1.1           1.1           1.6
Total revenues                                     4,991.1       4,131.2       3,551.1
Cost of sales                                        394.5         374.3         454.2
Operating expenses:
Research and development                             886.0         730.4         878.4
Selling, general and administrative                1,261.1       1,111.8    

1,094.4

Acquired in-process research and development (4.1 ) 1,183.0

-

Amortization of purchased intangible assets 309.6 320.1

320.1

Change in fair value of contingent consideration 11.6 116.5

41.0


Restructuring expenses                                12.0          25.5    

104.6


Impairment of intangible assets                          -             -          31.0
Total operating expenses                           2,476.2       3,487.3       2,469.5
Operating income                                   2,120.4         269.6         627.4
Other income and (expense)                            58.4         (27.4 )       (79.6 )
Income before income taxes                         2,178.8         242.2         547.8
Income tax (benefit) expense                        (225.5 )       164.6         104.5
Net income                                       $ 2,404.3     $    77.6     $   443.3
Earnings per common share:
Basic                                            $   10.77     $    0.35     $    1.98
Diluted                                          $   10.70     $    0.35     $    1.97




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Comparison of the Years Ended December 31, 2019, 2018, and 2017 Net Product Sales Net product sales by product and significant geographic region are as follows:


                                 Year Ended December 31,                                % Change
                            2019           2018           2017       2019 compared to 2018    2018 compared to 2017
SOLIRIS
United States           $  2,014.0     $  1,588.4     $  1,235.0                26.8  %                 28.6  %
Europe                     1,049.8        1,036.7          985.2                 1.3  %                  5.2  %
Asia Pacific                 423.5          382.0          328.1                10.9  %                 16.4  %
Rest of World                459.1          555.9          595.8               (17.4 )%                 (6.7 )%
                        $  3,946.4     $  3,563.0     $  3,144.1                10.8  %                 13.3  %

ULTOMIRIS
United States           $    236.8     $        -     $        -                  **                      **
Europe                        52.2              -              -                  **                      **
Asia Pacific                  49.9              -              -                  **                      **
Rest of World                    -              -              -                  **                      **
                        $    338.9     $        -     $        -                  **                      **

STRENSIQ
United States           $    451.7     $    374.3     $    280.1                20.7  %                 33.6  %
Europe                        77.0           61.7           35.6                24.8  %                 73.3  %
Asia Pacific                  50.4           27.9           18.6                80.6  %                 50.0  %
Rest of World                 13.4           11.2            5.5                19.6  %                   **
                        $    592.5     $    475.1     $    339.8                24.7  %                 39.8  %

KANUMA
United States           $     60.0     $     51.3     $     42.4                17.0  %                 21.0  %
Europe                        27.1           21.6           14.6                25.5  %                 47.9  %
Asia Pacific                   4.6            3.7            2.7                24.3  %                 37.0  %
Rest of World                 20.5           15.4            5.9                33.1  %                   **
                        $    112.2     $     92.0     $     65.6                22.0  %                 40.2  %

Total Net Product Sales $  4,990.0     $  4,130.1     $  3,549.5                20.8  %                 16.4  %


** Percentages not meaningful


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Net Product Sales (consolidated)


                [[Image Removed: chart-290edd42576759848a9.jpg]]
  United States   Asia Pacific
  Europe          Rest of World





SOLIRIS net product sales


                [[Image Removed: chart-61aaea1386685585b42.jpg]]
  United States   Asia Pacific
  Europe          Rest of World



ULTOMIRIS net product sales


                [[Image Removed: chart-7dc676e89ddb7ca803b.jpg]]
  United States   Asia Pacific
  Europe          Rest of World




STRENSIQ net product sales


                [[Image Removed: chart-3588eeef93465231922.jpg]]
  United States   Asia Pacific
  Europe          Rest of World





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KANUMA net product sales


                [[Image Removed: chart-97148ccb37735d43b7b.jpg]]
  United States   Asia Pacific
  Europe          Rest of World



The increase in net product sales for fiscal year 2019, as compared to fiscal
year 2018, was primarily due to an increase in unit volumes. This increase in
unit volumes was primarily due to increased global demand for SOLIRIS therapy,
with sales to patients with gMG being the largest driver, as well as ULTOMIRIS
volumes due to the loading doses required in a patient's first year on therapy.
Partially offsetting the SOLIRIS increase was the conversion of PNH patients
from SOLIRIS to ULTOMIRIS. While ULTOMIRIS contributed to 2019, the ULTOMIRIS
volumes were primarily attributable to PNH patient conversion from SOLIRIS in
the U.S. Additional unit volume increases were due to increased demand of
STRENSIQ and KANUMA during 2019 as a result of our continued efforts to identify
and reach more patients with HPP and LAL-D globally.
The increase in net product sales for fiscal year 2019, as compared to fiscal
year 2018, was partially offset by price decreases of which the largest driver
was $29.8, or 0.7%, as a result of a judicial order issued in the second quarter
2019 related to SOLIRIS pricing in Canada. The decision led to a reduction of
revenue in the second quarter of 2019 and further reductions in all subsequent
quarters until the appeals process concludes. The reduction of revenue recorded
for the year ended December 31, 2019 includes the impact for the period from
September 2017 to December 2019.
As a result of patient conversion from SOLIRIS to ULTOMIRIS, we expect
variability in our revenues in future quarters due to the extended ULTOMIRIS
dosing interval and infusion timing which may result in either one or two
infusions in a quarter. ULTOMIRIS loading doses for PNH patients will result in
increased revenues during a patient's first year on therapy. The ULTOMIRIS
annual maintenance dose for PNH and aHUS requires

fewer vials as compared to the annual dose for SOLIRIS. Due to the decision to
price ULTOMIRIS lower than SOLIRIS on an annual basis, we anticipate U.S.
revenues will be unfavorably impacted by the lower annual cost per patient in
maintenance years, with the impact more pronounced for aHUS due to the greater
decrease in vials for aHUS ULTOMIRIS patients.
As a result of strategic pricing decisions implemented for STRENSIQ in the U.S.
that limit annual treatment costs given weight based dosing, we expect price to
be unfavorably impacted for STRENSIQ in the U.S. in future periods as compared
to prior periods.
The increase in net product sales for fiscal year 2018, as compared to fiscal
year 2017, was primarily due to an increase in unit volumes. This increase in
unit volumes is primarily due to increased global demand for SOLIRIS therapy,
including sales to patients with gMG, which received regulatory approval in the
second half of 2017. Additional unit volume increases were due to increased
sales of STRENSIQ and KANUMA during 2018 as a result of our continued efforts to
identify and reach more patients with HPP and LAL-D globally.
The increase in net product sales for fiscal year 2018, as compared to fiscal
year 2017, was partially offset by price decreases of 3.9% due, in part, to a
price change in Turkey resulting from a formalized reimbursement agreement,
subsequent to marketing authorization, in the third quarter of 2018. In
addition, rebates in the U.S. and reimbursement agreements outside the U.S. for
our metabolic products also contributed to this decrease in net product sales.
Cost of Sales
Cost of sales includes manufacturing costs, actual and estimated royalty
expenses associated with sales of our products, and amortization of licensing
rights.
The following table summarizes cost of sales for the years ended December 31,
2019, 2018 and 2017:

                [[Image Removed: chart-4831ba4c20ee5c948ac.jpg]]
  Cost of Sales
? Cost of sales as a percentage of net product sales



The decrease in cost of sales as a percentage of net product sales for the year ended December 31, 2019, as compared to the same periods in 2018 and


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2017, was primarily due to decreases in royalty expenses due to a contract
expiration that occurred in the fourth quarter 2018. Additionally, cost of sales
for the year ended December 31, 2018 and December 31, 2017 included asset
related charges of $5.8 and $152.1, respectively, associated with the closure of
the ARIMF facility announced in the third quarter of 2017 (this facility was
sold in 2018). These charges primarily relate to accelerated depreciation and
the impairment of manufacturing assets.
Exclusive of the items mentioned above, cost of sales as a percentage of net
product sales was 8.7%, 8.9% and 8.5% for the years ended December 31, 2019,
2018 and 2017, respectively.
Research and Development Expense
                [[Image Removed: chart-8629b14773865e62ba9.jpg]]
  Research and Development Expense (R&D)
? R&D as a % of net product sales


Our research and development expense includes personnel, facility and direct
costs associated with the research and development (R&D) of our product
candidates, as well as product development costs. For additional information on
our development programs, please refer to Product and Development Programs in
Item I Business of this Annual Report on Form 10-K.
R&D expenses are comprised of costs paid for clinical development, product
development and discovery research, as well as costs associated with certain
strategic licensing agreements and R&D-related asset purchase agreements we have
entered into with third parties. Clinical development costs are comprised of
costs to conduct and manage clinical trials related to eculizumab, ALXN1210 and
other product candidates. Product development costs are those incurred in
performing duties related to manufacturing development and regulatory functions,
including manufacturing of material for clinical and research activities and
other administrative costs incurred during product development. Discovery
research costs are incurred in conducting laboratory studies and performing
preclinical research for other uses of our products and other product
candidates. Upfront payments include upfront payments related to strategic
licensing agreements and R&D-related asset purchase

agreements. Subsequent milestone payments incurred under such agreements which
relate to R&D activities are classified as clinical, discovery or product
development costs based on the nature of the underlying milestone event.
Clinical development costs have been accumulated and allocated to each of our
programs, while product development and discovery research costs have not been
allocated.
Other R&D expenses consist of costs to compensate personnel, to maintain our
facilities and equipment, and other occupancy costs associated with our research
and development efforts. These costs relate to efforts on our clinical and
preclinical products, our product development and our discovery research
efforts. These costs have not been allocated directly to each program.
The following graph provides information regarding research and development
expenses:
                [[Image Removed: chart-389e50c21c4c55148cf.jpg]]
  Clinical Development   Discovery
  Product Development    Payroll and Benefits
  Upfront Payments       Facilities and Other


During the year ended December 31, 2019, we incurred R&D expenses of $886.0, an
increase of $155.6, or 21.3%, versus the $730.4 incurred during the year ended
December 31, 2018. The increase was primarily related to the following:
•     Increase of $76.7 in upfront payments primarily related to the license

payments made in connection with the arrangements we entered into with

Zealand Pharma A/S (Zealand), Affibody AB (Affibody), Eidos Therapeutics,

Inc. (Eidos) and Stealth BioTherapeutics Corp. (Stealth) in 2019. Upfront

payments made in 2018 related to the agreement entered into with Dicerna

Pharmaceuticals Inc. (Dicerna).



                                       76

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• Increase of $37.1 in payroll and benefits primarily related to headcount

increases.

• Increase of $34.8 in discovery mainly driven by target option exercise fees

and research milestones associated with our agreement with Dicerna.

• Increase of $23.6 in direct clinical development expenses related primarily

to increases in various studies (see graph on following page summarizing

expenses related to our clinical development programs).

• Decrease of $18.2 in direct product development expenses related primarily

to a decrease in costs associated with the manufacturing of material for

ALXN1210, partially offset by an increase for material related to ALXN1830

and ALXN1840.




During the year ended December 31, 2018, we incurred research and development
expenses of $730.4, a decrease of $148.0, or 16.8%, versus the $878.4 incurred
during the year ended December 31, 2017. The decrease was primarily related to
the following:
•     Decrease of $70.9 in direct clinical development expenses related primarily

to decreases in various eculizumab clinical studies, offset by expansion of

studies for ALXN1210.

• Increase of $13.0 in direct product development expenses related primarily

to an increase in costs associated with the manufacturing of material for

ALXN1210 offset by a decrease in ALXN6000 clinical research activities (the


      ALXN6000 program has been discontinued).


•     Decrease of $22.2 in upfront payments due to the nature and timing of
      licensing agreements executed in 2018 compared to 2017.


•     Decrease of $12.9 in discovery primarily related to de-prioritized

preclinical arrangements with Moderna Therapeutics and Blueprint Medicines.

We no longer conduct development efforts with these entities.

• Decrease of $26.0 in payroll and benefits primarily related to headcount

reductions resulting from restructuring activities initiated in 2017.

• Decrease of $29.0 in facilities and other related expenses primarily


      related to decreased facilities expenses primarily resulting from the
      impact of the 2017 restructuring.




The following graph summarizes expenses related to our clinical development
programs:
                [[Image Removed: chart-f0b5453bf67e5cc4861.jpg]]
  2019   2018   2017




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The following graph summarizes accumulated direct expenses related to our clinical development programs from January 1, 2006 to December 31, 2019:


                [[Image Removed: chart-779e96e2965b5064972.jpg]]
(a) From 1992 through 2006, substantially all research and development expenses
were related to two products, eculizumab and pexelizumab. We obtained approval
in the U.S. for eculizumab for PNH in 2007 and for aHUS in 2010, and we ceased
development of pexelizumab in 2006.
(b) Unallocated costs shared across various development programs.

The successful development of our drug candidates is uncertain and subject to a
number of risks. We cannot guarantee that results of clinical trials will be
favorable or sufficient to support regulatory approvals for any of our product
development programs. We could decide to abandon development or be required to
spend considerable resources not otherwise contemplated. For additional
discussion regarding the risks and uncertainties regarding our research and
development programs, please refer to Item 1A "Risk Factors" in this Annual
Report on Form 10-K.
We expect our research and development expenses to increase as a percentage of
sales in 2020 as compared to 2019.

Selling, General and Administrative Expense


                [[Image Removed: chart-6dc6720976a05c15811.jpg]]

Selling General and Administrative Expense (SG&A) ? SG&A as a % of net product sales




Our selling, general and administrative expense includes commercial and
administrative personnel, corporate facility and external costs required to
support the marketing and sales of our commercialized products. These selling,
general and administrative costs include: corporate facility operating expenses
and depreciation; marketing and sales operations in support of our products;
human resources; finance, legal, information technology and support personnel
expenses; and other corporate costs such as telecommunications, insurance,
audit, government affairs and our global corporate compliance program.

The table below provides information regarding selling, general and administrative expense:


                [[Image Removed: chart-eed55efe78fd56bab48.jpg]]
  Salary, benefits and other labor expense
  External selling, general and administrative expense


During the year ended December 31, 2019, we incurred selling, general and administrative expenses of $1,261.1, an increase of $149.3, or 13.4%, versus the $1,111.8 incurred during the year ended December 31, 2018. The increase was primarily related to the following:


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• Increase in salary, benefits and other labor expenses of $112.3.

The increase was primarily related to headcount increases driven by an

increase in commercial activities related to SOLIRIS for gMG and increased

staff costs associated with commercial support activities including NMOSD

pre-launch efforts. Employee related costs associated with our share-based

compensation plans also increased.

• Increase in external selling, general and administrative expenses of $37.0.

The increase was primarily driven by an increase in charitable

contributions and professional services.




During the year ended December 31, 2018, we incurred selling, general and
administrative expenses of $1,111.8, an increase of $17.4, or 1.6%, versus the
$1,094.4 incurred during the year ended December 31, 2017. The increase was
primarily related to the following:
•     Increase in external selling, general and administrative expenses of $20.2.

The increase was primarily due to an increase in professional services and

asset related charges associated with previously announced restructuring

programs. These increases were partially offset by decreased distribution

expenses as compared to the same period in 2017.

We expect our selling, general and administrative expenses to decrease as a percentage of sales in 2020 as compared to 2019. Acquired In-Process Research and Development


                [[Image Removed: chart-af3cda8f1cd35c8ea80.jpg]]
For the year ended December 31, 2019, we recorded a benefit of $4.1 to acquired
in-process research and development (IPR&D) associated with previously acquired
IPR&D related to the Syntimmune acquisition as a result of the agreement of the
final working capital adjustment in the second quarter 2019.
For the year ended December 31, 2018, we recorded acquired IPR&D expense of
$1,183.0 related to the Wilson Therapeutics acquisition completed in the second
quarter of 2018 and the Syntimmune acquisition

completed in the fourth quarter of 2018. The IPR&D assets associated with each
of these acquisitions, which were the principal assets acquired in each
transaction, had not reached technological feasibility and had no alternative
future use as of the acquisition date and were therefore expensed in 2018.
Amortization of Purchased Intangible Assets
                [[Image Removed: chart-f58bd2ea7a695335998.jpg]]
Amortization expense associated with purchased intangible assets was $309.6,
$320.1 and $320.1 for the years ended December 31, 2019, 2018 and 2017,
respectively. Amortization expense is primarily associated with intangible
assets related to STRENSIQ and KANUMA.
During the third quarter 2019, the U.S. patent term extension to a composition
of matter patent for STRENSIQ was granted, which resulted in an increase in the
estimated useful life of the STRENSIQ intangible asset and will result in lower
amortization expense in future periods.
Change in Fair Value of Contingent Consideration
                [[Image Removed: chart-b2f8bd888abf5624a3c.jpg]]
For the years ended December 31, 2019, 2018 and 2017, the change in fair value
of contingent consideration expense associated with our prior business
combinations was $11.6, $116.5 and $41.0, respectively. The change in the fair
value of contingent consideration will fluctuate based on the timing of
recognition of changes in the probability of achieving contingent milestones and
the expected timing of milestone payments in connection with previous
acquisitions.

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For the year ended December 31, 2019, changes in the fair value of contingent
consideration expense include the impact of changes in the expected timing of
achieving contingent milestones, in addition to the interest component related
to the passage of time.
In September 2018, we amended the terms of certain contingent milestone payments
due under our prior merger agreement with Enobia Pharma Corp. (Enobia), dated
December 28, 2011. The agreement removed our obligations with respect to a
regulatory milestone and redistributed the contingent payment associated with
this milestone to various sales milestones.  As a result of this agreement and
the probability of achieving the various sales milestones, our contingent
consideration liability increased by $48.7 in the third quarter 2018.
For the year ended December 31, 2018, changes in the fair value of contingent
consideration expense primarily reflect the impact of the agreement with Enobia
to amend milestones and changes in the expected timing of payments of contingent
consideration, as well as the interest component of contingent consideration
related to the passage of time.
Restructuring Expenses
                [[Image Removed: chart-cd38beea22725ee6948.jpg]]
For the years ended December 31, 2019, 2018 and 2017, we recorded $12.0, $25.5
and $104.6, respectively, in restructuring expenses. The charges for the year
ended December 31, 2019 relate to restructuring activities initiated in the
first quarter 2019 to re-align our international commercial organization.
The charges for the year ended December 31, 2018 were mainly attributable to the
relocation of our corporate headquarters from New Haven, Connecticut to Boston,
Massachusetts and other related costs. The charges for the year ended 2017 were
mainly attributable to employee separation costs in connection with the 2017
restructuring. In the first quarter of 2017, we initiated a company-wide
restructuring designed to help position the Company for sustainable, long-term
growth that we believe will further allow us to fulfill our mission of serving
patients and families with rare diseases. The initial restructuring activities
primarily focused on a reduction of the Company's global workforce. In September
2017, we committed to an

operational plan to re-align the global organization with our refocused
corporate strategy. The re-alignment focused investments in priority growth
areas to maximize leadership in complement and grow the rare disease business.
The re-alignment also included the relocation of the Company's headquarters to
Boston, Massachusetts in 2018. Our New Haven, Connecticut site continues to
support employees working in the research and process development laboratories,
the clinical supply and quality teams, patient support program and a number of
important enterprise business services. The 2017 restructuring plan reduced the
Company's global workforce by approximately 20.0%. The restructuring achieved
cost savings by focusing the development portfolio, simplifying business
structures and processes across the Company's global operations, and closing of
multiple Alexion sites, including ARIMF and certain regional and country-based
offices.
Impairment of Intangible Assets
                [[Image Removed: chart-c2dd8d6016ac5676bc3.jpg]]
In the second quarter 2017, due to clinical results, we recognized an impairment
charge of $31.0 related to our SBC-103 acquired in-process research and
development asset to write-down the asset to fair value, which was determined to
be de minimis.
As of December 31, 2019, we reviewed the KANUMA asset for impairment and
determined that there were no indicators of impairment. We will continue to
review the related valuation and accounting of this asset in future quarters as
new information becomes available to us. Changes to assumptions used in our net
cash flow projections may result in impairment charges in subsequent periods.
The net book value of the KANUMA intangible asset as of December 31, 2019 is
$2,992.4.

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Other Income and (Expense) The following table provides information regarding other income and expense:


                [[Image Removed: chart-ef96bc56b73859518e6.jpg]]
  Investment Income
  Interest Expense
  Other Income (expense)


For the years ended December 31, 2019 and 2018, we recognized other income of
$35.9 and $5.5, respectively. The increase in other income is primarily related
to a gain of $32.0 resulting from an amendment to the terms of our option
agreement with Caelum in the fourth quarter of 2019.
For the years ended December 31, 2019, 2018 and 2017, we recognized investment
income of $100.3, $65.3 and $18.5, respectively. The increase is primarily
related to unrealized gains and losses on our strategic equity investments
recorded at fair value. During the year ended December 31, 2019, we recorded
unrealized gains of $26.9 on our strategic equity investments and recognized a
net realized gain of $32.8 related to the sale of our Moderna Therapeutics Inc.
(Moderna) equity investment. For the year ended December 31, 2018, we recorded
unrealized gains of $43.0 on our strategic equity investments, primarily related
to our Moderna equity investment.
For the years ended December 31, 2019, 2018 and 2017, we recorded $77.8, $98.2
and $98.4, respectively, in interest expense. The decrease in interest expense
is driven by the derecognition of certain previously recorded build-to-suit
arrangements in the first quarter 2019 due to the adoption of the new lease
accounting standard.


Income Taxes


                [[Image Removed: chart-10d942a968fb5eeda63.jpg]]
  Income tax (benefit) expense
? Effective Tax Rate



The income tax (benefit) expense for the years ended December 31, 2019, 2018 and
2017 is attributable to the U.S. federal, state and foreign income taxes on our
profitable operations. During the year ended December 31, 2019, we recorded a
income tax benefit of $225.5 and an effective tax rate of (10.3)%, compared to
an income tax expense of $164.6 and $104.5 and an effective tax rate of 68.0%
and 19.1% for the years ended December 31, 2018 and 2017, respectively.
For the year ended December 31, 2019, we recognized certain one-time deferred
tax benefits including $95.7and $30.3 associated with a tax election made with
respect to intellectual property of Wilson Therapeutics and a valuation
allowance release and corresponding recognition of net operating losses,
respectively. These deferred tax benefits are offset by income tax expense of
$10.2 associated with the July 1, 2019 integration of the Wilson Therapeutics
intellectual property into the Alexion corporate structure.
We completed a comprehensive analysis of our prior year estimate related to our
foreign-derived intangible income ("FDII") based on additional guidance provided
in the proposed regulations issued by the U.S. Treasury Department in 2019. The
analysis resulted in income tax benefit of $17.0 related to the prior year,
which was recorded as a change in estimate in income tax expense in our 2019
consolidated statements of operations, resulting in a decrease of approximately
0.8% to our effective tax rate.
During the fourth quarter 2019, we completed an intra-entity asset transfer of
certain intellectual property to an Irish subsidiary within our captive foreign
partnership. We recognized deferred tax benefits of $2,221.5 which represents
the difference between the

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basis of the intellectual property for financial statement purposes and the
basis of the intellectual property for tax purposes, applying the appropriate
enacted statutory tax rates. We will receive future tax deductions associated
with amortization of the intellectual property, and any amortization not
deducted for tax purposes will be carried forward indefinitely under Irish tax
law. An offsetting deferred tax expense of $1,839.3 has been recognized to
reflect the reduction of future foreign tax credits associated with the foreign
local tax amortization deductions. These net deferred tax benefits resulted in a
decrease of approximately 17.5% to our effective tax rate.
The income tax expense for the year ended December 31, 2018 includes an increase
in the effective tax rate of 102.6% attributable to the acquisitions of
Syntimmune and Wilson Therapeutics. Absent successful clinical results and
regulatory approval, there is no alternative future use for the in-process
research assets we acquired in these acquisitions. Accordingly, the value of the
assets acquired of $1,183.0 were expensed as acquired in-process research and
development, for which no tax benefit has been recognized.
In December 2017, the Tax Act was enacted into law. The Tax Act decreased the
U.S. federal corporate tax rate to 21.0%, imposed a minimum tax on foreign
earnings and incorporated a one-time transition tax on previously unremitted
foreign earnings. We incorporated the impact of the Tax Act in our results of
operations or calculated provisional amounts for the tax effects of the Tax Act
that could be reasonably estimated for the year ended December 31, 2017. We
recorded adjustments to this provisional accounting during 2018, which resulted
in a decrease to tax expense of $56.5. We completed our accounting for the Tax
Act in the fourth quarter 2018.
The Tax Act resulted in an increase to tax expense for the year ended December
31, 2017 of $45.8. This increase included a transition tax expense of $177.9 and
deferred tax expense related to the new GILTI minimum tax of $165.4, partially
offset by the $297.5 benefit of re-measuring balance sheet taxes to the new
21.0% US federal tax rate. The re-measurement benefit included $292.4 related to
decreases to our net deferred tax liability and $5.1 related to decreases to
income taxes payable. The deferred tax expense related to the GILTI minimum tax
included incremental deferred tax of $236.9, net of a related $71.5 decrease for
uncertain tax positions. In addition, conclusion of the IRS examination of our
2013 and 2014 tax years resulted in a decrease to our 2017 effective tax rate of
approximately 3.6%.
We continue to maintain a valuation allowance against certain other deferred tax
assets where realization is not certain. We periodically evaluate the likelihood
of realizing deferred tax assets and reduce

the carrying amount of these deferred tax assets by a valuation allowance to the
extent we believe a portion will not be realized.
Financial Condition, Liquidity and Capital Resources
The following table summarizes the components of our financial condition as of
December 31, 2019 and 2018:
                                                                                     $
                                   December 31, 2019     December 31, 2018         Change
Cash and cash equivalents        $           2,685.5   $           1,365.5   $        1,320.0
Marketable securities                           64.0                 198.3             (134.3 )
Long-term debt (includes current
portion & revolving credit
facility)                                    2,514.5               2,862.5             (348.0 )

Current assets                   $           5,076.4   $           3,385.0   $        1,691.4
Current liabilities                          1,194.3               1,174.0               20.3
Working capital                  $           3,882.1   $           2,211.0   $        1,671.1


The aggregate increase in cash and cash equivalents and marketable securities of
$1,185.7 at December 31, 2019 as compared to December 31, 2018 was primarily
attributable to cash generated from operations, net proceeds from the issuance
of common stock under share-based compensation arrangements and proceeds
received from the sale of our investment in Moderna Therapeutics, Inc. Partially
offsetting these increases was cash utilized to repurchase shares of common
stock, payments on our revolving credit facility and term loan facility, upfront
payments related to licensing agreements, payment of a sales-based milestone to
Enobia Pharma Corp. and purchases of property, plant, and equipment.
Excluding the impact of any significant future asset acquisitions, licenses or
collaboration agreements, we expect our annual operating expenses to increase as
a percentage of sales in 2020 as compared to 2019. We also expect reduced
capital investment in 2020 as compared to 2019. We anticipate that cash
generated from operations and our existing available cash, cash equivalents and
marketable securities should provide us adequate resources to fund our
operations as currently planned for at least the next twelve months.
We have financed our operations and capital expenditures primarily through
positive cash flows from operations. We expect to continue to be able to fund
our operations, including principal and interest payments on our Amended and
Restated Credit Agreement and contingent payments associated with our
in-licenses and acquisitions principally through our cash flows from operations.
We may, from time to time, also seek additional funding through a combination of
equity or debt financings or from other sources, if necessary for future
acquisitions or other strategic

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purposes. New sources of financing through equity and/or debt financing(s) may
not always be available on acceptable terms, or at all, and we may be required
to obtain certain consents in connection with completing such financings.
Financial Instruments
Until required for use in the business, we may invest our cash reserves in money
market funds, bank deposits, and high quality marketable debt securities in
accordance with our investment policy. The stated objectives of our investment
policy are to preserve capital, provide liquidity consistent with forecasted
cash flow requirements, maintain appropriate diversification and generate
returns relative to these investment objectives and prevailing market
conditions.
Financial instruments that potentially expose us to concentrations of credit
risk are cash equivalents, marketable securities, accounts receivable and our
derivative contracts. At December 31, 2019, four customers accounted for 66.9%
of the accounts receivable balance, with these individual customers accounting
for 11.6% to 20.3% of the accounts receivable balance. At December 31, 2018,
three customers accounted for 48.7% of the accounts receivable balance, with
these individual customers accounting for 14.0% to 19.1% of the accounts
receivable balance.
For the year ended December 31, 2019, four customers accounted for 56.4% of our
net product sales with these individual customers accounting for 10.0% to 16.8%
of our net product sales. For the year ended December 31, 2018, four customers
accounted for 50.3% of our net product sales with these individual customers
accounting for 10.0% to 16.4% of our net product sales. For the year ended
December 31, 2017, three customers accounted for 37.0% of our net product sales
with these individual customers accounting for 10.8% to 15.0% of our net product
sales.
We continue to monitor economic conditions, including volatility associated with
international economies and the associated impacts on the financial markets and
our business. Substantially all of our accounts receivable are due from
wholesale distributors, public hospitals and other government entities. We
monitor the financial performance of our customers so that we can appropriately
respond to changes in their credit worthiness. We operate in certain
jurisdictions where weakness in economic conditions can result in extended
collection periods. We continue to monitor these conditions and assess their
possible impact on our business. To date, we have not experienced any
significant losses with respect to collection of our accounts receivable.
We manage our foreign currency transaction risk and interest rate 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. As of December 31, 2019, we had foreign exchange
forward contracts with notional amounts totaling $3,078.5. These outstanding
foreign exchange forward contracts had a net fair value asset of $2.8, of which
$30.5 is included in other current assets and noncurrent assets and $27.7 is
included in other current liabilities and noncurrent liabilities. As of
December 31, 2019, we had interest rate swap contracts with notional amounts
totaling $1,750.0. These outstanding interest rate swap contracts had a net fair
value liability of $61.4, which is included in other current liabilities and
noncurrent liabilities. The counterparties to these contracts are large domestic
and multinational commercial banks, and we believe the risk of nonperformance is
not material.
At December 31, 2019, our financial assets and liabilities were recorded at fair
value. We have classified our financial assets and liabilities as Level 1, 2 or
3 within the fair value hierarchy. Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities. Our Level 1 assets
consist of mutual fund investments and equity securities. 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, but substantially the full term of the financial
instrument. Our Level 2 assets consist primarily of money market funds,
commercial paper, municipal bonds, U.S. and foreign government-related debt,
corporate debt securities, certificates of deposit, equity securities subject to
holding period restrictions and derivative contracts. Our Level 2 liabilities
consist also of derivative contracts. Level 3 inputs are unobservable inputs
based on our own assumptions used to measure assets and liabilities at fair
value. Our Level 3 liabilities consist of contingent consideration related to
business acquisitions and derivative liabilities associated with other
contingent payments.
Business Combinations and Contingent Consideration Obligations
At December 31, 2019, the purchase agreements for our business combinations
include contingent payments totaling up to $602.0 that will become payable if
and when certain development and commercial milestones are achieved. Of these
milestone amounts, $367.0 and $235.0 of the contingent payments relate to
development and commercial milestones, respectively. We do not expect these
amounts to have a significant impact on our liquidity in the near-term, and,
during the next 12 months, we do not expect to make milestone payments
associated with our prior business combinations.
As additional future payments become probable, we will evaluate methods of
funding payments, which could be made from available cash and marketable

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securities, cash generated from operations or proceeds from the sale of equity
securities or debt.
On January 28, 2020, we completed the acquisition of Achillion. Under the terms
of the agreement, we acquired all outstanding common stock of Achillion for
$6.30 per share, or approximately $926.0, 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 include $1.00 per share for the U.S.
FDA approval of danicopan and $1.00 per share for the initiation of Phase 3 in
ACH-5228.
Asset Acquisitions and In-License Agreements
In December 2017, we entered into a collaboration and license agreement with
Halozyme Therapeutics, Inc. that allows us to use drug-delivery technology in
the development of subcutaneous formulations for our portfolio of products for
up to four targets. Under the terms of the agreement, we made an upfront payment
of $40.0 during the fourth quarter 2017. In addition, as of December 31, 2019,
we could be required to pay an additional $160.0 for each target developed,
subject to achievement of specified development, regulatory and sales-based
milestones, as well as royalties on commercial sales.
In October 2018, we entered into a collaboration agreement with Dicerna that
provides us with exclusive worldwide licenses and development and commercial
rights for two preclinical RNA interference (RNAi) subcutaneously delivered
molecules for complement-mediated diseases, as well as an exclusive option for
other preclinical RNAi molecules for two additional targets within the
complement pathway. In addition to the collaboration agreement, we made an
equity investment in Dicerna. Under the terms of the agreements, we made an
upfront payment of $37.0 for the exclusive licenses and the equity investment.
In December 2019, we exercised our option for exclusive rights to two additional
targets within the complement pathway under an existing agreement with Dicerna,
which expands Alexion's existing research collaboration and license agreement
with Dicerna to include a total of four targets within the complement pathway.
In connection with the option exercise, we paid Dicerna $20.0 in the fourth
quarter 2019. As of December 31, 2019, we could be required to pay up to $629.1
for amounts due upon the achievement of specified research, development,
regulatory and commercial milestones on the four licensed targets, as well as
royalties on commercial sales.
In January 2019, we entered into an agreement with Caelum, a biotechnology
company that is developing CAEL-101 for AL amyloidosis. Under the

terms of the agreement, we acquired a minority equity interest in Caelum and an
exclusive option to acquire the remaining equity in Caelum based on Phase II
data, for pre-negotiated economics. We paid $30.0 in the first quarter 2019 and
agreed to pay up to an additional $30.0 in contingent development milestones.
Following discussions with the FDA, Caelum changed the design of its clinical
development program and now plans to initiate expanded Phase II/III trials in
the second quarter 2020. In December 2019, we amended the terms of the agreement
with Caelum to modify the option to acquire the remaining equity in Caelum based
on data from the expanded Phase II/III trials. The amendment also modified the
development-related milestone events associated with the initial $30.0 in
contingent payments, provided for an additional $20.0 in upfront funding, which
we accrued as of December 31, 2019, as well as funding of $60.0 in exchange for
an additional equity interest at fair value upon achievement of a specific
development-related milestone event. The agreement also provides for potential
additional payments, in the event Alexion exercises the purchase option, for up
to $500.0 which includes an upfront option exercise payment and potential
regulatory and commercial milestone payments.
In March 2019, we entered into an agreement with Zealand that provides us with
exclusive worldwide licenses, as well as development and commercial rights for
preclinical peptide therapies subcutaneously delivered for up to four complement
pathway targets. Zealand will lead the joint discovery and research efforts
through the preclinical stage, and Alexion will lead development efforts
beginning with investigational new drug filing and Phase I studies. In addition
to the agreement, we made an equity investment in Zealand. Under the terms of
the agreement, we made an upfront payment of $40.0 for an exclusive license to
the lead target and the equity investment, as well as for preclinical research
services to be performed by Zealand in relation to the lead target. We could be
required to pay up to $610.0 for the lead target, upon the achievement of
specified development, regulatory and commercial milestones, as well as
royalties on commercial sales. In addition, we could be required to pay up to an
additional $115.0 in development and regulatory milestones if both a long-acting
and short-acting product are developed with respect to the lead target. Each of
the three subsequent targets can be selected for an option fee of $15.0 and has
the potential for additional development, regulatory and commercial milestones,
as well as royalty payments, at a reduced price to the lead target.
In March 2019, we entered into an agreement with Affibody that provides us with
an exclusive worldwide license, as well as development and commercial rights to
ABY-039, a bivalent antibody-mimetic that targets the neonatal Fc receptor
(FcRn) and is currently in Phase 1 development. The agreement with Affibody was
subject

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to clearance under the Hart-Scott Rodino Antitrust Improvements Act and,
following receipt of such approval, closed in April 2019. Pursuant to the
agreement, Alexion will lead the clinical development and commercial activities
for ABY-039 in rare Immunoglobulin G (IgG)-mediated autoimmune diseases.
Affibody has the option to co-promote ABY-039 in the U.S. and will lead clinical
development of ABY-039 in an undisclosed indication. Under the terms of the
agreement, we made an upfront payment of $25.0 for the exclusive license to
ABY-039. As of December 31, 2019, we could also be required to pay up to $625.0
for amounts due upon achievement of specific development, regulatory, and
commercial milestones, as well as royalties on commercial sales.
In September 2019, we entered into an agreement with Eidos that provides us with
an exclusive license to develop and commercialize AG10 in Japan. AG10 is an
orally administered small molecule designed to bind and stabilize TTR in the
blood. In addition, we made an equity investment in Eidos. Under the terms of
the agreement, we made an upfront payment of $50.0 for an exclusive license to
AG10 in Japan and the equity investment. As of December 31, 2019, we could also
be required to pay $30.0 upon achievement of a Japanese-based regulatory
milestone as well as royalties on commercial sales.
In October 2019, we entered into an option agreement with Stealth under which
Alexion received an exclusive option to co-develop subcutaneous elamipretide in
the U.S. as well as to obtain exclusive rights to develop and commercialize
subcutaneous elamipretide outside the U.S based on the final results from the
Phase III study in PMM. Under the terms of the agreement, we made an upfront
payment of $30.0 for the option and an equity investment in Stealth. In December
2019, Stealth announced that based on top-line data from the Phase III study in
PMM, the study did not meet its primary endpoints. Following review of the Phase
III data released in December 2019, we notified Stealth that we will not
exercise the co-development option agreement.
In connection with our prior acquisition of Syntimmune, a clinical-stage
biotechnology company developing an antibody therapy targeting the neonatal Fc
receptor (FcRn), we could be required to pay up to $800.0 upon the achievement
of specified development, regulatory and commercial milestones.
In addition, as of December 31, 2019, we have other license and collaboration
agreements under which we may be required to pay up to an additional $54.0 for
currently licensed targets, if certain development, regulatory and commercial
milestones are met. Additional amounts may be payable if we elect to acquire
licenses to additional targets, as applicable, under the terms of these
agreements.

We do not expect the payments associated with milestones under our asset
acquisitions and licensing agreements to have a significant impact on our
liquidity in the near-term. During the next 12 months, we may make milestone
payments related to these arrangements of approximately $220.0, excluding
milestones which were accrued as of December 31, 2019.
As additional future payments become probable, we will evaluate methods of
funding payments, which could be made from available cash and marketable
securities, cash generated from operations or proceeds from the sale of equity
securities or debt.
Operating and Financing Lease Liabilities
Operating and financing lease liabilities are recorded at lease commencement
based on the present value of fixed, or in substance fixed, lease payments over
the expected lease term. Lease liabilities are amortized over the lease term.
At December 31, 2019, we have $261.0 of total financing and operating lease
liabilities recorded on our consolidated balance sheets. The total undiscounted
lease commitments as of December 31, 2019 were $323.8, of which $34.4 is payable
during the next 12 months. Refer to Note 10, Leases for a summary of the
maturity of our lease liabilities by year. We do not expect the payments
associated with the maturity of lease liabilities to have a significant impact
on our liquidity in the near-term.
Long-term Debt
On June 7, 2018, Alexion entered into an Amended and Restated Credit Agreement
(the Credit Agreement) with Bank of America N.A. as administrative agent. The
Credit Agreement amended and restated our credit agreement dated as of June 22,
2015 (the Prior Credit Agreement).
The Credit Agreement provides for a $2,612.5 term loan facility and a $1,000.0
revolving facility. Borrowings can be used for working capital requirements,
acquisitions and other general corporate purposes. Beginning with the quarter
ending June 30, 2019, we are required to make amortization payments of 5.00% of
the aggregate original principal amount of the term loan facility annually,
payable in equal quarterly installments.
As of December 31, 2019, we had $2,514.5 outstanding on the term loan. As of
December 31, 2019, we had open letters of credit of $1.0 that offset our
borrowing availability on the revolving facility. In January 2019 we paid the
outstanding revolving credit facility of $250.0 in full and we had no
outstanding borrowings under the revolving credit facility as of December 31,
2019.

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Manufacturing Obligations
We have supply agreements with Lonza relating to the manufacture of SOLIRIS,
STRENSIQ and ULTOMIRIS which requires payments to Lonza at the inception of the
contract and upon the initiation and completion of product manufactured. On an
ongoing basis, we evaluate our plans for future levels of manufacturing by
Lonza, which depends upon our commercial requirements and the progress of our
clinical development programs.
We have various agreements with Lonza, with remaining total non-cancellable
commitments of approximately $1,099.9 through 2030. Certain commitments may be
canceled only in limited circumstances. If we terminate certain supply
agreements with Lonza without cause, we will be required to pay for product
scheduled for manufacture under our arrangement. Under an existing arrangement
with Lonza, we also pay Lonza a royalty on sales of SOLIRIS that was
manufactured at Alexion Rhode Island Manufacturing Facility (ARIMF) prior to its
sale and a payment with respect to sales of SOLIRIS manufactured at Lonza
facilities. We also pay Lonza a royalty on the sales of ULTOMIRIS.
In addition to Lonza, we have non-cancellable commitments of approximately $60.6
through 2020 with other third party manufacturers.

Taxes


We have recorded tax on the undistributed earnings of our controlled foreign
corporation (CFC) subsidiaries. To the extent CFC earnings may not be
repatriated to the U.S. as a dividend distribution due to limitations imposed by
law, we have not recorded the related potential withholding, foreign local, and
U.S. state income taxes.
Common Stock Repurchase Program
In November 2012, our Board of Directors authorized a share repurchase program.
In February 2017, our Board of Directors increased the amount that we are
authorized to expend on future repurchases to $1,000.0 under the repurchase
program, which superseded all prior repurchase programs. On October 22, 2019,
the Board of Directors approved an additional share repurchase authorization of
up to $1,000.0. The repurchase program does not have an expiration date and we
are not obligated to acquire a particular number of shares. The repurchase
program may be discontinued at any time at our discretion. Under the program, we
repurchased 3.8 and 0.7 shares of our common stock at a cost of $416.0 and $85.0
during the years ended December 31, 2019 and 2018, respectively. As of
December 31, 2019, there is a total of $1,035.5 remaining for repurchases under
the program.
Subsequent to December 31, 2019, we repurchased an immaterial number of shares
of our common stock under our repurchase program at a cost of $1.6. As of
January 29, 2020, there is a total of $1,033.9 remaining for repurchases under
the repurchase program.

Cash Flows

The following summarizes our net change in cash and cash equivalents:


                                                          Year Ended December 31,
                                                                                             $
                                                             2019             2018        Change
Net cash provided by operating activities              $     2,084.9       $  426.0     $ 1,658.9
Net cash provided by investing activities                        9.7          470.5        (460.8 )
Net cash used in financing activities                         (739.1 )       (102.4 )      (636.7 )
Effect of exchange rate changes on cash and cash
equivalents and restricted cash                                  0.8          (11.2 )        12.0
Net change in cash and cash equivalents and restricted
cash                                                   $     1,356.3       $  782.9     $   573.4



Operating Activities
Cash flows provided by operations in 2019 was $2,084.9 compared to $426.0 in
2018. The increase in cash provided by operating activities was primarily due to
the acquisition of Wilson Therapeutics and Syntimmune in 2018, higher cash
payments for restructuring in 2018 and increases due to the timing of cash
receipts, payments and other changes in working capital during 2019 as compared
to 2018.  This increase was partially offset by upfront and option

payments made in connection with our agreements with Zealand, Affibody, Eidos,
Stealth and Dicerna and payment of a sales-based milestone to Enobia Pharma
Corp.
Investing Activities
Cash provided by investing activities in 2019 was $9.7 compared to $470.5 in
2018. The decrease in cash provided by investing activities as compared to the
prior year was primarily attributable to purchases and

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sales of available-for-sale debt securities, which resulted in a net cash inflow
of $142.0 in 2019 compared to a net cash inflow of $690.8 in 2018. Purchases of
strategic equity investments for Zealand, Caelum, Eidos and Stealth resulted in
$73.3 in cash outflows during 2019 as compared to $10.3 in cash outflows during
2018 for Dicerna. In addition, we received net cash proceeds of $114.7 in
connection with the sale of our Moderna investment. Partially offsetting these
impacts were decreases in purchases of property, plant and equipment during 2019
as compared to 2018.
Financing Activities
Cash flows used in financing activities in 2019 was $739.1 compared to $102.4 in
2018. The increase in cash used for financing activities was primarily due to a
decrease in payments on our term loan of $195.8 as well as $250.0 of proceeds
from our revolving credit facility in 2018 which were repaid in the current
year. Additionally, there was an increase of $331.0 in common stock repurchases
in 2019 as compared to 2018.



Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2019
and the effect such obligations and commercial commitments are expected to have
on our liquidity and cash flow in future fiscal years. These do not include
potential milestone payments and assume non-termination of agreements.
These obligations, commitments and supporting arrangements represent payments
based on current operating forecasts at December 31, 2019, which are subject to
change:
                                                Less than                                       More than 5
                                 Total           1 Year         1-3 Years       3-5 Years          Years

Contractual obligations:
Long-term debt (1)          $     2,514.5     $         -     $     391.9     $   2,122.6     $           -
Interest expense (2)                290.6               -           258.5            32.1                 -
Financing leases                    100.2             8.8            18.2            18.6              54.6
Operating leases                    223.6            25.7            44.6            41.2             112.1
Total contractual
obligations                 $     3,128.9     $      34.5     $     713.2     $   2,214.5     $       166.7
Commercial commitments:
Clinical and manufacturing
development (3)             $     1,160.5     $     219.5     $     315.8     $     223.4     $       401.8
Total commercial
commitments                 $     1,160.5     $     219.5     $     315.8     $     223.4     $       401.8

(1) Includes our term loan facility balance. We are required to make payments of 5% of the original principal
amount of the term loan facility annually, payable in equal quarterly installments. We have no outstanding
borrowings under the revolving credit facility as of December 31, 2019.
(2) Interest on variable rate debt is calculated based on interest rates at December 31, 2019. Interest that
is fixed, associated to our interest rate swaps, is calculated based on the fixed interest swap rate at
December 31, 2019.
(3) Clinical and manufacturing development commitments include only non-cancellable commitments, including
all Lonza agreements, at December 31, 2019.



The contractual obligations table above does not include contingent royalties
and other contingent contractual payments we may owe to third parties in the
future because such payments are contingent on future sales of our products and
the existence and scope of

third party intellectual property rights and other factors described in Item 1A, Risk Factors and Note 11, Commitments and Contingencies to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.


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The liability for unrecognized tax benefits related to various federal, state
and foreign income tax matters of $133.8 at December 31, 2019 was not included
within the table above. The timing of the settlement of these amounts was not
reasonably estimable at December 31, 2019.
Contingent payments related to business acquisitions, asset acquisitions, option
or in-license agreements are not included within the table above, as the
satisfaction of the contingent consideration obligations and if satisfied, the
timing of payment for these amounts is uncertain at December 31,
2019. Contingent payments associated with these business combinations total up
to $602.0, which will become payable if and when certain development and
commercial milestones are achieved. During the next 12 months, we do not expect
to make milestone payments associated with our prior business combinations.
Commitments related to asset acquisitions, option and in-license agreements
include contingent payments that will become payable if and when certain
development, regulatory and commercial milestones are achieved. During the next
12 months, we may make milestone payments related to our asset acquisitions and
license agreements of approximately $220.0, excluding milestones accrued as of
December 31, 2019.
Future obligations related to our defined benefit plans are not included within
the table above, as the timing and amounts of these payments was not reasonably
estimable as of December 31, 2019. The total unfunded obligation on our defined
benefit plans as of December 31, 2019 was $27.7. Our unfunded obligation can be
impacted by changes in the laws and regulations, interest rates, investment
returns, and other variables.
Credit Facilities
On June 7, 2018, we entered into an Amended and Restated Credit Agreement (the
Credit Agreement), with Bank of America N.A. as administrative agent. The Credit
Agreement amends and restates our agreement dated as of June 22, 2015 (the Prior
Agreement).
The Credit Agreement provides for a $1,000.0 revolving credit facility and a
$2,612.5 term loan facility. The revolving credit facility and term loan
facility mature on June 7, 2023. Beginning with the quarter ending June 30,
2019, we are required to make amortization payments of 5.00% of the aggregate
original principal amount of the term loan facility annually, payable in equal
quarterly installments.
Loans under the Credit Agreement bear interest, at our option, at either the
base rate or a Eurodollar rate, in each case plus an applicable margin. Under
the Credit Agreement, 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 based on our consolidated net leverage ratio (as calculated in accordance
with the Credit Agreement). Our obligations under the Credit Agreement are
guaranteed by certain of our foreign and domestic subsidiaries and secured by
liens on certain of our subsidiaries' equity interests, subject to certain
exceptions. Under the terms of the Credit Agreement, we must maintain a ratio of
total net debt to EBITDA of 3.50 to 1.00 (subject to certain limited
adjustments) and EBITDA to cash interest expense ratio of at least 3.50 to 1.00,
in each case as calculated in accordance with the Credit Agreement. We were in
compliance with all applicable covenants under the Credit Agreement as of
December 31, 2019.
The Credit Agreement contains certain representations and warranties,
affirmative and negative covenants and events of default. The negative covenants
in the Credit Agreement restrict Alexion's and its subsidiaries' ability,
subject to certain baskets and exceptions, to (among other things) incur liens
or indebtedness, make investments, enter into mergers and other fundamental
changes, make dispositions or pay dividends. The restriction on dividend
payments includes an exception that permits us to pay dividends and make other
restricted payments regardless of dollar amount so long as, after giving pro
forma effect thereto, we have consolidated net leverage ratio, as defined in the
Credit Agreement, within predefined ranges, subject to certain increases
following designated material acquisitions.
Operating and Financing Leases
Our operating and financing leases are principally for facilities and equipment.
We currently lease office space in the U.S. and foreign countries to support our
operations as a global organization.
We believe that our administrative office space is adequate to meet our needs
for the foreseeable future. We also believe that our research and development
facilities and our manufacturing facilities, together with third party
manufacturing facilities, will be adequate for our on-going activities.
In addition to the minimum rental commitments on our operating leases we may
also be required to pay amounts for taxes, insurance, maintenance and other
operating expenses.

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Commercial Commitments
Our commercial commitments consist of research and development, license,
operational, clinical development, and manufacturing cost commitments, along
with anticipated supporting arrangements, subject to certain limitations and
cancellation clauses. The timing and level of our commercial scale manufacturing
costs, which may or may not be realized, are contingent upon the progress of our
clinical development programs and our commercialization plans. Our commercial
commitments are represented principally by our supply agreements with Lonza
described above. Our commitments with Lonza do not include amounts for estimated
consumer price index, or CPI, adjustments which we are obligated to pay to
Lonza.


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