ALLERGAN PLC
The following discussion of our financial condition and the results of
operations should be read in conjunction with the "Consolidated Financial
Statements" and notes thereto included elsewhere in this Quarterly Report on
Form 10-Q ("Quarterly Report") and our audited consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2019
(the "Annual Report"). This discussion contains forward-looking statements that
are subject to known and unknown risks, uncertainties and other factors that may
cause our actual results to differ materially from those expressed or implied by
such forward-looking statements. These risks, uncertainties and other factors
include, among others, those identified under "Risk Factors" in our Annual
Report, and elsewhere in this Quarterly Report.
References throughout to "we," "our," "us," the "Company" or "Allergan" refer to
financial information and transactions of Allergan plc . References to "Warner
Chilcott Limited " refer to Warner Chilcott Limited , the Company's indirect
wholly-owned subsidiary, and, unless the context otherwise requires, its
subsidiaries. Warner Chilcott Limited is an indirect wholly-owned subsidiary of
Allergan plc , the ultimate parent of the group (together with other direct or
indirect parents of Warner Chilcott Limited , the "Parents"). The results of
Warner Chilcott Limited are consolidated into the results of Allergan plc . Due
to the de minimis activity between Warner Chilcott Limited and the Parents
(including Allergan plc ), content throughout this filing relates to both
Allergan plc and Warner Chilcott Limited . Warner Chilcott Limited disclosures
relate only to itself and not to any other company.
Merger Agreement with AbbVie Inc.
OnJune 25, 2019 , the Company announced that it entered into a transaction agreement (the "AbbVie Agreement") under which AbbVie Inc. ("AbbVie"), a global, research-driven biopharmaceutical company, would acquireAllergan plc in a stock and cash transaction (the "AbbVie Transaction"), valued at$188.24 per Allergan share, or approximately$63.0 billion , based on AbbVie's then-current stock price at the time the AbbVie Transaction was announced. At the closing of the proposed AbbVie Transaction, Company shareholders will receive 0.8660 shares of AbbVie common stock and$120.30 in cash for each of their existing shares. OnOctober 14, 2019 , the Company's shareholders voted to approve the AbbVie Transaction. The AbbVie Transaction is subject to customary regulatory approvals and other customary closing conditions. OnMay 5, 2020 theU.S. Federal Trade Commission ("FTC") accepted a proposed consent order in connection with the AbbVie Transaction. Under the terms of the consent order, the companies have agreed to divest brazikumab, an investigational IL-23 inhibitor in development for autoimmune diseases, to AstraZeneca and Zenpep, a treatment for exocrine pancreatic insufficiency due to cystic fibrosis and other conditions, toNestle Health Science . Nestle also will be acquiring Viokace, another pancreatic enzyme preparation, as part of the same transaction. OnMay 6, 2020 , theIrish High Court (the "Court") approved the AbbVie Transaction at a sanction hearing in relation to the scheme of arrangement (the "Scheme") (and to confirm the associated capital reduction) under the AbbVie Transaction. Completion of the AbbVie Transaction remains subject to the delivery to, and registration by, the Registrar of Companies inIreland of copies of (i) the order of the Court sanctioning the Scheme and confirming the associated reduction of capital; and (ii) the minute required by Section 86 of the Act in respect of the reduction of capital, each of which is expected to occur onMay 8, 2020 . Additionally, onOctober 25, 2019 , in connection with the AbbVie Transaction, AbbVie commenced offers to exchange all Allergan Senior Notes issued by Allergan and maturing fromSeptember 15, 2020 throughMarch 15, 2045 for up to approximately$19.6 billion aggregate principal amount of new notes to be issued by AbbVie and cash. In conjunction with the exchange offer, AbbVie solicited and obtained consents from eligible holders of the Allergan Senior Notes to amend each of the indentures governing the Allergan Senior Notes to eliminate substantially all of the restrictive covenants in such indentures and eliminate any guarantees of the related Allergan Senior Notes. Consummation of the exchange offer is conditioned upon, among other things, the closing of the AbbVie Transaction. The exchange offers are expected to close, and such amendments are expected to become operative, on or about the closing date of the AbbVie Transaction. 54
--------------------------------------------------------------------------------
Impact of COVID-19
In the three months endedMarch 31, 2020 , the Company's net sales were negatively impacted by an estimated 3% compared to the prior year period resulting from the COVID-19 pandemic. The Company's medical aesthetic portfolio of products has been most significantly impacted by the COVID-19 pandemic as these products are typically administered as elective procedures. These elective procedures have been negatively affected by local and national government restrictions, such as "social distancing, "shelter in place" orders and business closures, that were put in place in the last few weeks of the first quarter inthe United States and throughout the first quarter in many international markets as well as by economic conditions. As a consequence, consumer demand has significantly declined and the ability of practitioners to administer these procedures has been restricted. While the Company anticipates the COVID-19 pandemic will have a continued negative effect on the revenues of these products in the near-term, it is difficult to determine the full extent and duration of the impact on the future operating results of the business. For example, the Company has recently observed, particularly in certainAsia Pacific international markets, early signs of some recovery of the global medical aesthetic business and anticipates that the recovery with continue to occur during the second half of 2020. The Company anticipates that the impact of the COVID-19 pandemic on the Company's therapeutic products will be less significant compared to the Company's medical aesthetic products. The Company's therapeutic business may, however, be impacted by changes in commercial and government rebate channels as a result of economic conditions, including increases in unemployment rates. The Company and our third-party contract manufacturing partners continue to operate our manufacturing facilities at or near normal levels. While we currently do not anticipate any interruptions in our manufacturing process, it is possible that the COVID-19 pandemic may have an impact in the future on our and/or our third-party suppliers' and contract manufacturing partners' ability to manufacture our products or to have our products reach all markets. The Company continues to operate clinical trials globally. Due to the COVID-19 pandemic, certain clinical sites have temporarily suspended enrolling new patients. The Company is taking measures to mitigate any potential delays in clinical trials, but it is possible that the timing of these trials and anticipated launch dates of the related projects may be impacted. The Company has suspended face to face sales meetings and the Company's sales teams have been working remotely during the COVID-19 pandemic. The Company's sales teams continue to work with customers to provide sufficient levels of support and detailing. While the global medical aesthetics business has been significantly impacted by the COVID-19 pandemic and the demand for aesthetic products has declined, the Company's sales teams continues to work with customers to determine customer demand levels and to support these levels when consumer recovery occurs. Additionally, the Company will continue to assess variable sales and marketing expenses, such as direct to consumer advertising, as a result of the COVID-19 pandemic. The Company continues to monitor the collectability of receivables as a result of our customers' financial circumstances. The Company's global medical aesthetics business sells to practitioners who service consumers on a local, regional or national level. As the COVID-19 pandemic impacts their businesses, it may also impact their ability to pay their outstanding invoices. This would have a negative impact on the Company's account receivable balance, bad debt expenses recognized in general and administrative expenses, and liquidity. During the three months endedMarch 31, 2020 , the Company recorded incremental provisions for bad debts of approximately$30.0 million as we have assessed the impact on the COVID-19 pandemic on our US and international customer bases. The Company will continue to monitor the impact the pandemic has on the Company's ability to collect customer receivables. 55
--------------------------------------------------------------------------------
Operating Results for the Three Months Ended
Results of operations, including segment net revenues, segment operating
expenses and segment contribution consisted of the following for the three
months ended
Three Months Ended March 31, 2020
US Specialized US General
Therapeutics Medicine International Total
Net revenues $ 1,541.5 $ 1,320.5 $ 691.4 $ 3,553.4
Operating expenses:
Cost of sales(1) 129.7 250.6 117.4 497.7
Selling and marketing 420.4 296.4 210.7 927.5
General and administrative 59.0 50.2 36.3 145.5
Segment contribution $ 932.4 $ 723.3 $ 327.0 $ 1,982.7
Contribution margin 60.5 % 54.8 % 47.3 % 55.8 %
Corporate(2) 374.8
Research and development 430.0
Goodwill impairment 913.0
Amortization 1,416.4
Asset sales and impairments, net 148.1
Operating (loss) $ (1,299.6 )
Operating margin (36.6 )%
(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales
not attributable to segment results.
(2) Corporate includes net revenues of $51.0 million .
Three Months Ended March 31, 2019
US Specialized US General
Therapeutics Medicine International Total
Net revenues $ 1,542.9 $ 1,249.9 $ 801.5 $ 3,594.3
Operating expenses:
Cost of sales(1) 120.1 190.5 109.7 420.3
Selling and marketing 356.8 210.5 237.6 804.9
General and administrative 54.6 43.8 25.7 124.1
Segment contribution $ 1,011.4 $ 805.1 $ 428.5 $ 2,245.0
Contribution margin 65.6 % 64.4 % 53.5 % 62.5 %
Corporate(2) 258.0
Research and development 435.0
Goodwill impairment 2,467.0
Amortization 1,399.4
Asset sales and impairments, net (5.2 )
Operating (loss) $ (2,309.2 )
Operating margin (64.2 )%
(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales
not attributable to segment results.
(2) Corporate includes net revenues of $2.8 million .
56
--------------------------------------------------------------------------------US Specialized Therapeutics Segment
The following table presents top product sales and net contribution for the US Specialized Therapeutics segment for the three months endedMarch 31, 2020 and 2019 ($ in millions): Three Months Ended March 31, Change 2020 2019 Dollars % Total Eye Care$ 537.9 $ 465.1 $ 72.8 15.7 % Restasis® 278.6 231.7 46.9 20.2 % Alphagan®/Combigan® 81.6 83.0 (1.4 ) (1.7 )% Eye Drops 66.5 49.4 17.1 34.6 % Lumigan®/Ganfort® 63.0 57.7 5.3 9.2 % Ozurdex® 29.9 30.3 (0.4 ) (1.3 )% Other Eye Care 18.3 13.0 5.3 40.8 % Total Medical Aesthetics 587.6 648.2 (60.6 ) (9.3 )% Facial Aesthetics 325.5 366.5 (41.0 ) (11.2 )% Botox® Cosmetics 212.7 229.5 (16.8 ) (7.3 )% Juvederm® Collection 107.5 129.7 (22.2 ) (17.1 )% Kybella® 5.3 7.3 (2.0 ) (27.4 )% Plastic Surgery 40.1 61.2 (21.1 ) (34.5 )% Breast Implants 40.1 61.2 (21.1 ) (34.5 )% Regenerative Medicine 124.6 122.9 1.7 1.4 % Alloderm® 102.1 95.0 7.1 7.5 % Other Regenerative Medicine 22.5 27.9 (5.4 ) (19.4 )% Body Contouring 58.9 62.9 (4.0 ) (6.4 )% Coolsculpting® Systems & Add On 36.2 15.1 21.1 Applicators n.m. Coolsculpting® Consumables 22.7 47.8 (25.1 ) (52.5 )% Skin Care 38.5 34.7 3.8 11.0 % Total Medical Dermatology 3.6 6.1 (2.5 ) (41.0 )% Aczone® 3.0 1.6 1.4 87.5 % Other Medical Dermatology 0.6 4.5 (3.9 ) (86.7 )% Total Neuroscience and Urology 397.2 409.4 (12.2 ) (3.0 )% Botox® Therapeutics 395.8 397.6 (1.8 ) (0.5 )% Rapaflo® 1.4 11.8 (10.4 ) (88.1 )% Other revenues 15.2 14.1 1.1 7.8 % Net revenues$ 1,541.5 $ 1,542.9 $ (1.4 ) (0.1 )%
Operating expenses: Cost of sales(1) 129.7 120.1 9.6 8.0 % Selling and marketing 420.4 356.8 63.6 17.8 % General and administrative 59.0 54.6 4.4 8.1 % Segment contribution$ 932.4 $ 1,011.4 $ (79.0 ) (7.8 )% Segment margin 60.5 % 65.6 % (5.1 )% Segment gross margin(2) 91.6 % 92.2 % (0.6 )% (1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results. (2) Defined as net revenues less segment related cost of sales as a percentage of net revenues. 57
--------------------------------------------------------------------------------
Net Revenues
Three Months Ended
The decrease in net revenues in the three months endedMarch 31, 2020 was primarily driven by declines in sales of the Company's Medical Aesthetic products due to the impact of the COVID-19 pandemic, partially offset by increased sales of certainEye Care products. The declines in the Facial Aesthetic portfolio, Breast Implants, and Coolsculpting Consumables resulted from a reduction in elective procedures in the US during the latter part of the three months endedMarch 31, 2020 as a result of local government restrictions, including social distancing, "shelter in place orders" and business closures. Rapaflo® revenues declined primarily due to a loss of exclusivity. The increase inEye Care was driven by Restasis® and demand growth in Eye Drops during the quarter. The increase in Coolsculpting Systems was driven by the CoolTone launch. As a result of the COVID-19 pandemic, the Company anticipates a significant decline in the Medical Aesthetics net revenues in the second quarter of 2020. The overall full year reduction in these revenues will be determined by the duration of government restrictions, future economic conditions, and any potential future changes in consumer behavior related to medical aesthetics products, all of which are largely uncertain at this time.
Cost of Sales
Three Months Ended
The increase in cost of sales in the three months ended
Selling and Marketing Expenses
Three Months Ended
The increase in selling and marketing expenses in the three months endedMarch 31, 2020 was primarily related to increased promotional costs and sales force expansion forEye Care products for anticipated launches, including Durysta™.
General and Administrative Expenses
Three Months Ended
General and administrative expenses were consistent period over period.
58
--------------------------------------------------------------------------------US General Medicine Segment
The following table presents top product sales and net contribution for the US General Medicine segment for the three months endedMarch 31, 2020 and 2019 ($ in millions): Three Months Ended March 31, Change 2020 2019 Dollars % Total Central Nervous System (CNS)$ 429.9 $ 293.5 $ 136.4 46.5 % Vraylar® 277.3 143.7 133.6 93.0 % Viibryd®/Fetzima® 89.8 85.0 4.8 5.6 % Saphris® 31.0 31.9 (0.9 ) (2.8 )% Namzaric® 17.8 23.4 (5.6 ) (23.9 )% Ubrelvy® 11.1 - 11.1 n.a. Namenda®(3) 2.9 9.5 (6.6 ) (69.5 )% Total Gastrointestinal (GI) 309.4 358.2 (48.8 ) (13.6 )% Linzess® 172.2 161.3 10.9 6.8 % Zenpep® 65.6 63.0 2.6 4.1 % Viberzi® 37.3 37.2 0.1 0.3 % Carafate®/Sulcrate® 19.0 54.3 (35.3 ) (65.0 )% Canasa®/Salofalk® 7.2 10.2 (3.0 ) (29.4 )% Asacol®/Delzicol® 2.6 24.7 (22.1 ) (89.5 )% Other GI 5.5 7.5 (2.0 ) (26.7 )%Total Women's Health 171.6 201.0 (29.4 ) (14.6 )% Lo Loestrin® 109.8 125.8 (16.0 ) (12.7 )% Liletta® 23.1 14.8 8.3 56.1 % Other Women's Health 38.7 60.4 (21.7 ) (35.9 )% Total Anti-Infectives 78.0 81.6 (3.6 ) (4.4 )% Teflaro® 35.0 33.5 1.5 4.5 % Dalvance® 23.0 12.0 11.0 91.7 % Avycaz® 11.8 29.7 (17.9 ) (60.3 )% Other Anti-Infectives 8.2 6.4 1.8 28.1 % Diversified Brands 268.7 270.9 (2.2 ) (0.8 )% Bystolic®/ Byvalson® 129.8 128.3 1.5 1.2 % Armour Thyroid 46.3 50.0 (3.7 ) (7.4 )% Savella® 19.3 20.7 (1.4 ) (6.8 )% Other Diversified Brands 73.3 71.9 1.4 1.9 % Other revenues 62.9 44.7 18.2 40.7 % Net revenues$ 1,320.5 $ 1,249.9 $ 70.6 5.6 % Operating expenses: Cost of sales(1) 250.6 190.5 60.1 31.5 % Selling and marketing 296.4 210.5 85.9 40.8 % General and administrative 50.2 43.8 6.4 14.6 % Segment contribution$ 723.3 $ 805.1 $ (81.8 ) (10.2 )% Segment margin 54.8 % 64.4 % (9.6 )% Segment gross margin(2) 81.0 % 84.8 % (3.8 )% (1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results. (2) Defined as net revenues less segment related cost of sales as a percentage of net revenues. (3) Includes Namenda XR® and Namenda® IR. 59
--------------------------------------------------------------------------------
As previously described, the closing of the divestiture of Zenpep® is contingent upon the closing of the AbbVie Transaction and the satisfaction of other customary closing conditions.
Net Revenues
Three Months Ended
The increase in net revenues in the three months endedMarch 31, 2020 was primarily due to growth in CNS offset, in part, by a decline inGI and Women's Health revenues. CNS revenues increased primarily due to strong demand growth for Vraylar® and Viibryd® and the launch of Ubrelvy® during the first quarter of 2020.Women's Health revenues decreased primarily due to a decrease in the average net selling price for Lo Loestrin® and the impact of products losing exclusivity. GI was negatively affected by the loss of exclusivity for Carafate®/Sulcrate® and the continuing genericization and a temporary supply disruption for Asacol®, offset, in part, by an increase in demand growth for Linzess®. Cost of Sales
Three Months Ended
The increase in cost of sales in the three months ended
Selling and Marketing Expenses
Three Months Ended
The increase in selling and marketing expenses in the three months endedMarch 31, 2020 was primarily due to field force investments and increased promotional costs for newly launched, including Ubrelvy™, and promoted products.
General and Administrative Expenses
Three Months Ended
General and administrative expenses were consistent period over period.
60
--------------------------------------------------------------------------------International Segment
The following table presents top product sales and net contribution for the International segment for the three months endedMarch 31, 2020 and 2019 ($ in millions): Three Months Ended March 31, Change $ $ $ % % % Overall Operational Currency Overall
Operational Currency
2020 2019 Change Change (3) Change Change Change (3) Change
Total Eye Care $ 282.6 $ 291.8 $ (9.2 ) $ 4.8 $ (14.0 ) (3.2 )% 1.6 % (4.8 )%
Lumigan®/Ganfort® 80.7 85.1 (4.4 ) (0.9 ) (3.5 ) (5.2 )% (1.1 )% (4.1 )%
Ozurdex® 63.8 63.1 0.7 3.2 (2.5 ) 1.1 % 5.1 % (4.0 )%
Eye Drops 50.9 55.4 (4.5 ) (1.6 ) (2.9 ) (8.1 )% (2.9 )% (5.2 )%
Alphagan®/Combigan® 36.9 37.6 (0.7 ) 1.2 (1.9 ) (1.9 )% 3.2 % (5.1 )%
Restasis® 11.3 10.4 0.9 1.5 (0.6 ) 8.7 % 14.4 % (5.7 )%
Other Eye Care 39.0 40.2 (1.2 ) 1.4 (2.6 ) (3.0 )% 3.5 % (6.5 )%
Total Medical Aesthetics 249.4 352.8 (103.4 ) (96.6 ) (6.8 ) (29.3 )% (27.4 )% (1.9 )%
Facial Aesthetics 227.6 306.8 (79.2 ) (73.4 ) (5.8 ) (25.8 )% (23.9 )% (1.9 )%
Botox® Cosmetics 114.4 147.4 (33.0 ) (30.6 ) (2.4 ) (22.4 )% (20.8 )% (1.6 )%
Juvederm® Collection 113.1 157.8 (44.7 ) (41.3 ) (3.4 ) (28.3 )% (26.2 )% (2.1 )%
Belkyra® (Kybella®) 0.1 1.6 (1.5 ) (1.5 ) - (93.8 )% (93.8 )% 0.0 %
Plastic Surgery 5.4 11.6 (6.2 ) (5.8 ) (0.4 ) (53.4 )% (50.0 )% (3.4 )%
Breast Implants 5.2 11.2 (6.0 ) (5.6 ) (0.4 ) (53.6 )% (50.0 )% (3.6 )%
Other Plastic Surgery 0.2 0.4 (0.2 ) (0.2 ) - (50.0 )% (50.0 )% 0.0 %
Regenerative Medicine 3.4 3.3 0.1 0.2 (0.1 ) 3.0 % 6.1 % (3.1 )%
Alloderm® 1.7 1.6 0.1 0.1 - n.m. n.m. n.m.
Other Regenerative 0.1
Medicine 1.7 1.7 - (0.1 ) 0.0 % 5.9 % (5.9 )%
Body Contouring 10.2 28.4 (18.2 ) (17.7 ) (0.5 ) (64.1 )% (62.3 )% (1.8 )%
Coolsculpting® 8.8 17.8 (9.0 ) (8.7 ) (0.3 ) (50.6 )% (48.9 )% (1.7 )%
Consumables
Coolsculpting® Systems & 1.4 10.6 (9.2 ) (9.0 ) (0.2 ) (86.8 )% (84.9 )% (1.9 )%
Add On Applicators Skin Care 2.8 2.7 0.1 0.1 - 3.7 % 3.7 % 0.0 %
Botox® Therapeutics and
Other 140.2 138.8 1.4 6.0 (4.6 ) 1.0 % 4.3 % (3.3 )% Botox® Therapeutics 89.3 93.9 (4.6 ) (1.0 ) (3.6 ) (4.9 )% (1.1 )% (3.8 )% Asacol®/Delzicol® 7.7 10.3 (2.6 ) (2.5 ) (0.1 ) (25.2 )% (24.3 )% (0.9 )% Constella® 7.1 5.5 1.6 1.7 (0.1 ) 29.1 % 30.9 % (1.8 )% Other Products 36.1 29.1 7.0 7.8 (0.8 ) 24.1 % 26.8 % (2.7 )% Other revenues 19.2 18.1 1.1 1.1 - 6.1 % 6.1 % 0.0 % Net revenues$ 691.4 $ 801.5 $ (110.1 ) (84.7 )$ (25.4 ) (13.7 )% (10.6 )% (3.1 )% Operating expenses: Cost of sales(1) 117.4 109.7 7.7 12.5 (4.8 ) 7.0 % 11.4 % (4.4 )% Selling and marketing 210.7 237.6 (26.9 ) (19.0 ) (7.9 ) (11.3 )% (8.0 )% (3.3 )% General and 36.3 25.7 10.6 13.1 (2.5 ) 41.2 % 51.0 % (9.8 )% administrative Segment contribution$ 327.0 $ 428.5 $ (101.5 ) $ (91.3 )$ (10.2 ) (23.7 )% (21.3 )% (2.4 )% Segment margin 47.3 % 53.5 % (6.2 )% Segment gross margin(2) 83.0 % 86.3 % (3.3 )% (1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results. (2) Defined as net revenues less segment related cost of sales as a percentage of net revenues. (3) Defined as overall change excluding foreign exchange impact. 61
--------------------------------------------------------------------------------
The following table presents our revenue disaggregated by geography for our International segment ($ in millions):
Three Months Ended March 31,
$ $ % %
Overall Operational Overall Operational
2020 2019 Change Change Change Change
Europe $ 323.0 $ 354.4 $ (31.4 ) $ (20.7 ) (8.9 )% (5.8 )%
Asia Pacific, Middle 182.8
East and Africa 250.7 (67.9 ) (65.2 ) (27.1 )% (26.0 )%
Latin America and 161.8
Canada 178.2 (16.4 ) (4.5 ) (9.2 )% (2.5 )%
Other* 23.8 18.2 5.6 5.7 30.8 % 31.3 %
(10.6 )%
*Includes royalty and other revenue
Net Revenues
Three Months Ended
The decrease in net revenues in the three months endedMarch 31, 2020 was primarily driven by lower sales of the Company's Medical Aesthetic products due to the impact of the COVID-19 pandemic particularly in theAsia Pacific region where the impact occurred earlier in the quarter than other regions The declines in the Facial Aesthetic portfolio were due to decreased demand as a result of national and local government requirements around social distancing, "shelter in place" orders and business closures. As a result of the COVID-19 pandemic, the Company anticipates a significant decline in the Medical Aesthetics net revenues to continue in the second quarter of 2020. The overall full year reduction in revenues will be determined by the duration of government restrictions, future economic conditions, and any potential future changes in consumer behavior related to medical aesthetics products, all of which are largely uncertain at this time.
Cost of Sales
Three Months Ended
The increase in cost of sales in the three months endedMarch 31, 2020 reflects inventory provisions totaling approximately$10.0 million as a result of the COVID-19 pandemic.
Selling and Marketing Expenses
Three Months Ended
The decrease in selling and marketing expenses in the three months ended
General and Administrative Expenses
Three Months Ended
General and administrative expenses increased$10.6 million in the three months endedMarch 31, 2020 period over period as a result of an increase in bad debt provisions related to the COVID-19 pandemic. 62 --------------------------------------------------------------------------------
Corporate
Corporate represents the results of corporate initiatives as well as the impact
of select revenues and shared costs. The following represents the Corporate
amounts for the three months ended
Three Months Ended March 31, 2020
Non-
Acquisition Effect of
Integration / Related Fair Value Purchase Revenues and
Divestiture Restructuring Adjustments Accounting Other Shared Costs Total Net revenues
$ - $ - $
- $ - $ - $ 51.0
2.7 - 24.1 0.2 - 98.4 125.4
Selling and
marketing 43.6 0.5 - 0.5 - - 44.6
General and
administrative 27.2 1.2 - 0.1 5.5 221.8 255.8
Contribution $ (73.5 ) $ (1.7 ) $
(24.1 )
(1) Excludes amortization and impairment of acquired intangibles including product rights.
Three
Months Ended
Non-
Acquisition Effect of
Integration / Related Fair Value Purchase Revenues and
Divestiture Restructuring Adjustments Accounting Other Shared Costs Total
Net revenues $ - $ - $ - $ - $ - $ 2.8 $ 2.8
Operating expenses:
Cost of sales(1) - 4.6 16.2 0.3 - 56.4 77.5
Selling and
marketing - (1.8 ) - 0.9 - - (0.9 )
General and
administrative 5.4 0.1 - 0.3 11.2 167.2 184.2
Contribution $ (5.4 ) $ (2.9 ) $ (16.2 ) $ (1.5 ) $ (11.2 ) $ (220.8 ) $ (258.0 ) (1) Excludes amortization and impairment of acquired intangibles including product rights.
Integration / Divestiture
Three Months Ended
In the three months ended
Fair Value Adjustments
Fair value adjustments primarily relate to changes in estimated contingent liabilities for future amounts to be paid based on achievement of sales levels for the respective products.
Effect of Purchase Accounting
Three Months Ended
In the three months endedMarch 31, 2020 and 2019, the Company incurred charges related to the purchase accounting impact on share-based compensation related to the acquisition ofZeltiq Aesthetics, Inc. , which increased cost of sales, selling and marketing and general and administrative expenses. 63 --------------------------------------------------------------------------------
Other
Three Months Ended
In the three months ended
Revenues and Shared Costs
Shared costs primarily include above site and unallocated costs associated with running our global manufacturing facilities and corporate general and administrative expenses.
In the three months ended
Three Months Ended
In the three months ended
Research and Development Expenses
R&D expenses consist predominantly of personnel-related costs, active pharmaceutical ingredient costs, contract research, license and milestone fees, biostudy and facilities costs associated with product development.
R&D expenses consisted of the following in the three months endedMarch 31, 2020 and 2019 ($ in millions): Three Months Ended March 31, $ % 2020 2019 Change Change
Ongoing operating expenses
license payments 10.8 34.1 (23.3 ) (68.3 )% Contingent consideration adjustments, net 2.4 2.5 (0.1 ) n.m.
Acquisition accounting fair
market value adjustment to
share-based compensation 0.1 0.4 (0.3 ) (75.0 )% Acquisition, integration, and restructuring charges 3.7 0.1 3.6 n.m. Total R&D Expenses$ 430.0 $ 435.0 $ (5.0 ) (1.1 )% Operating Expenses
Three Months Ended
The increase in ongoing operating expenses in the three months endedMarch 31, 2020 is mainly due to increased product development spending in early stage development programs and for the Gastrointestinal therapeutic areas offset, in part, by lower spending in the Central Nervous System therapeutic areas. 64 --------------------------------------------------------------------------------
Milestone Expenses and Upfront License Payments
The following represents milestone expenses, asset acquisitions and upfront license payments in the three months endedMarch 31, 2020 and 2019, respectively ($ in millions): Three Months Ended March 31, 2020 2019 Akarna Therapeutics, Ltd. $ - $ 10.0 Other 10.8 24.1 Total $ 10.8 $ 34.1 Amortization Amortization in the three months endedMarch 31, 2020 and 2019 was as follows ($ in millions): Three Months Ended March 31, $ % 2020 2019 Change Change Amortization$ 1,416.4 $ 1,399.4 $ 17.0 1.2 %
Three Months Ended
Amortization for the three months ended
Goodwill , IPR&D and other impairments and asset sales, net consisted of the following in the three months endedMarch 31, 2020 and 2019 ($ in millions): Three Months Ended March 31, $ % 2020 2019 Change Change Goodwill impairments$ 913.0 $ 2,467.0 $ (1,554.0 ) (63.0 )% Asset sales and impairments, net 148.1 (5.2 ) 153.3 n.a. Refer to "NOTE 9 -Goodwill , Product Rights and Other Intangible Assets" for the description of the goodwill impairments and IPR&D impairments that the Company recorded in the three months endedMarch 31, 2020 and 2019.
Interest Income
Interest income in the three months endedMarch 31, 2020 and 2019 was as follows ($ in millions): Three Months Ended March 31, $ % 2020 2019 Change Change Interest income$ 21.2 $ 21.3 $ (0.1 ) (0.5 )%
Interest income represents interest earned on cash and cash equivalents and marketable securities held during the respective periods.
65
--------------------------------------------------------------------------------Interest Expense
Interest expense consisted of the following in the three months ended
Three Months Ended March 31,
$ %
2020 2019 Change Change
Fixed Rate Notes $ 161.4 $ 173.8 $ (12.4 ) (7.1 )%
Euro Denominated Notes 16.1 14.9 1.2 8.1 %
Floating Rate Notes 1.9 5.0 (3.1 ) (62.0 )%
Other 5.1 8.1 (3.0 ) (37.0 )%
Interest expense $ 184.5 $ 201.8 $ (17.3 ) (8.6 )%
Three Months Ended
Interest expense in the three months endedMarch 31, 2020 decreased versus the three months endedMarch 31, 2019 due to scheduled maturities and early debt extinguishment of senior secured notes period-over-period.
Other Income, Net
Other income, net consisted of the following in the three months ended
Three Months Ended March 31,
$ %
2020 2019 Change Change
Debt extinguishment other - (0.3 ) 0.3 (100.0 )%
Other income, net (24.9 ) 14.1 (39.0 ) (276.6 )%
Other income, net $ (24.9 ) $ 13.8 $ (38.7 ) (280.4 )%
Refer to "NOTE 4 - Other Income / (Expense)" for further details regarding the components of other income, net.
(Benefit) for Income Taxes
(Benefit) for income taxes in the three months ended
Three Months Ended March 31,
$ %
2020 2019 Change Change
(Benefit) for income
taxes $ (1,866.8 ) $ (68.6 ) $ (1,798.2 ) n.m.
Effective tax rate 125.5 % 2.8 %
Three Months Ended
The Company's effective tax rate for the three months endedMarch 31, 2020 was a benefit of 125.5%, compared to a benefit of 2.8% for the three months endedMarch 31, 2019 . The effective tax rate for the three months endedMarch 31, 2020 was favorably impacted by a tax benefit of$1.9 billion related to the decrease of certain deferred tax liabilities. The decrease resulted from the intra-entity transfer of intellectual property between entities under common control. As a result of this transfer, a deferred tax asset of$1.2 billion was recognized for the difference between the tax basis in the buyer's jurisdiction and the net book value of the intellectual property as reported in the consolidated financial statements. However, based on the Company's evaluation of the realizability of this deferred tax asset, the Company determined that it is not more-likely-than-not that the$1.2 billion deferred tax asset will be realizable as ofMarch 31, 2020 and therefore this amount was offset by a full valuation allowance. The effective tax rate was unfavorably impacted by the goodwill impairment charge of$913.0 million , for which no tax benefit was recorded. The effective tax rate for the three months endedMarch 31, 2019 was favorably impacted by a tax benefit of$91.5 million related to excess tax over book basis in aU.S. subsidiary that will reverse in the foreseeable future. The effective tax rate was unfavorably impacted by a goodwill impairment charge of$2,467.0 million , for which no tax benefit was recorded. 66 -------------------------------------------------------------------------------- The effective tax rate for the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 was primarily impacted by a tax benefit recorded in the first quarter of 2020 for the decrease of certain deferred tax liabilities.
Liquidity and Capital Resources
Working Capital Position
Working capital atMarch 31, 2020 andDecember 31, 2019 is summarized as follows ($ in millions): March 31, December 31, Increase 2020 2019 (Decrease) Current Assets: Cash and cash equivalents$ 999.5 $ 2,503.3 $ (1,503.8 ) Marketable securities 1,618.8 3,411.6 (1,792.8 ) Accounts receivable, net 2,800.6 3,192.3 (391.7 ) Inventories 1,199.9 1,133.1 66.8 Prepaid expenses and other current assets 855.3 886.4 (31.1 ) Total current assets 7,474.1 11,126.7 (3,652.6 ) Current liabilities: Accounts payable and accrued expenses$ 5,289.5 $ 6,348.7 $ (1,059.2 ) Income taxes payable 73.4 65.1 8.3 Current portion of long-term debt 1,950.7 4,532.5 (2,581.8 ) Current portion of lease liability - operating 119.8 124.4 (4.6 ) Total current liabilities 7,433.4 11,070.7 (3,637.3 ) Working Capital$ 40.7 $ 56.0$ (15.3 ) Current Ratio 1.01 1.01
Working capital movements were primarily due to the following:
• The Company generated cash flows from operations of$116.5 million ; • The Company paid dividends of$243.5 million ; and
• The Company repaid the scheduled maturities of the
during the quarter ending
Cash Flows
The Company's cash flows are summarized as follows ($ in millions):
Three Months Ended March 31,
2020 2019 $ Change
Net cash provided by operating activities $ 116.5 $ 1,234.0 $ (1,117.5 )
Net cash provided by / (used in) investing
activities $ 1,679.1 $ (104.8 ) $ 1,783.9
Net cash (used in) financing activities $ (3,268.4 ) $ (1,227.0 ) $ (2,041.4 )
Cash flows from operations represent net income adjusted for certain non-cash
items and changes in assets and liabilities. Cash provided by operating
activities decreased in the three months ended March 31, 2020 versus the prior
year period as a result of legal settlements payments of approximately $900.0
million , which were accrued as of December 31, 2019 and the impact of COVID-19.
The current balance of cash and marketable securities on hand as of March 31,
2020 was $2,618.3 million . While the ultimate duration and recovery period of
the COVID-19 pandemic presents inherent challenges to predict with certainty the
overall impact on the Company's liquidity needs, management expects that
available cash balances and the remaining 2020 cash flows from operating
activities will provide sufficient resources to fund our operating liquidity
needs and expected capital expenditure funding requirements for at least the
next twelve months. The Company also has the ability to borrow under its
existing $1.5 billion revolving credit facility, which should provide sufficient
additional resources to meet any further current liquidity needs. As of March
31, 2020 , the Company does not anticipate utilizing the facility to fund
liquidity needs.
67
--------------------------------------------------------------------------------
Investing cash flows for the three months ended March 31, 2020 reflect the net
cash from investments of $1,800.0 million . Investing cash flows for the three
months ended March 31, 2019 reflect the cash used in acquisitions of businesses
of $80.6 million .
Financing cash flows consist primarily of borrowings and repayments of debt,
repurchases of ordinary shares, dividend payments and proceeds from the exercise
of stock options. Cash used in financing activities in the three months ended
March 31, 2020 primarily related to the repayment of indebtedness of $3,031.8
million , and the payment of dividends of $243.5 million . Cash used in financing
activities in the three months ended March 31, 2019 primarily related to the
repayment of indebtedness of $159.4 million , the repurchase of ordinary shares
of $829.2 million and the payment of dividends of $246.1 million .
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, net revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Available Information
From time to time, we use our website, our Facebook, Instagram, LinkedIn and Twitter accounts and other social media channels as additional means of disclosing public information to investors, the media and others interested in the Company. Additionally, our Chairman, President and Chief Executive Officer,Brent L. Saunders , and our Executive Vice President and Chief Commercial Officer,Bill Meury , may use similar social media channels to disclose public information. It is possible that certain information we post on our website and on social media could be deemed to be material information, and we encourage investors, the media and others interested in the Company to review the business and financial information we post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into this Form 10-Q.
Cautionary note regarding forward-looking statements
Any statements made in this report that are not statements of historical fact or that refer to estimated or anticipated future events are "forwardlooking statements", as contemplated in the Private Securities Litigation Reform Act of 1995. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "plan," "intend," "could," "would," "should," "estimate," "continue," or "pursue," or the negative or other variations thereof or comparable terminology, are intended to identify forwardlooking statements. We have based our forwardlooking statements on management's beliefs and assumptions based on information available to our management at the time these statements are made. Such forwardlooking statements reflect our current perspective of our business, future performance, existing trends and information as of the date of this filing. The statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We caution the reader that these statements are based on certain assumptions, risks and uncertainties, many of which are beyond our control. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Actual results may differ materially from our current expectations depending upon a number of factors affecting our business. These factors include, among others: • global economic and trade conditions; • our ability to successfully develop and commercialize new products; • uncertainty associated with the continued success of major products; • generic product competition with our branded products;
• expiration of our patents on our branded products and the potential for
increased competition from generic manufacturers;
• the highly competitive nature of the pharmaceutical industry;
• our ability to protect our technology rights, patents or other intellectual
property;
68
--------------------------------------------------------------------------------
• costs and efforts to defend or enforce technology rights, patents or other
intellectual property;
• our ability to obtain and afford third-party licenses and proprietary
technology that we need;
• our potential infringement of others' proprietary rights;
• our dependency on third-party service providers and third-partymanufacturers and suppliers that in some cases may be the only source of
finished products or raw materials that we need;
• availability of raw materials and other key ingredients;
• our vulnerability to and ability to defend against product liability claims
and obtain sufficient or any product liability insurance;
• difficulties or delays in manufacturing;
• the effect of regulation including our ability to comply with and operate
successfully under regulatory regimes that apply to us, including
healthcare and privacy regulations;
• uncertainty and costs of legal actions and government investigations;
• the difficulty of predicting the timing or outcome of product development
efforts and regulatory agency approvals or actions, if any;
• our ability to successfully navigate consolidation of our distribution
network and concentration of our customer base;
• risks associated with acquisitions, mergers and joint ventures, such as
difficulties integrating businesses, uncertainty associated with financial
projections, projected synergies, restructuring, increased costs, and
adverse tax consequences;
• the inherent uncertainty associated with financial projections;
• fluctuations in our operating results and financial conditions;
• the adverse impact of substantial debt and other financial obligations on
the ability to fulfill and/or refinance debt obligations;
• the effect of goodwill and intangible assets and resulting impairment
testing and impairment charges on our financial condition;
• our ability to obtain additional debt or raise additional equity on terms
that are favorable to us;
• our ability to retain qualified employees and key personnel;
• risks related to health epidemics and other outbreaks, including the novel
coronavirus (COVID-19);
• risks associated with cyber-security and vulnerability of our information
and employee, customer and business information that we store digitally;
• our ability to manage environmental liabilities;
• our ability to continue foreign operations in countries and to maintain
global operations;
• uncertainty related to our dividend plan and share repurchase program;
• risks associated with tax liabilities, or changes in
international tax laws or tax rulings to which we and our affiliates are
subject, including changes that impact our effective tax rate and the risk
that the Internal Revenue Service disagrees that we are a foreign
corporation for U.S. federal tax purposes;
69
--------------------------------------------------------------------------------
• risks of fluctuations in foreign currency exchange rates; • our ability to maintain internal control over financial reporting; • the ability of Irish law to protect our shareholders;
• the impact of Irish laws and regulations on our business, including
limitations on capital management;
• uncertainty on the enforceability of judgements against our officers and
directors in an Irish court;
• risks associated with Irish tax liabilities, which could subject us or our
shareholders to Irish stamp duty, dividend withholding tax, income tax
and/or capital acquisition tax; and
• other risks and uncertainties including those discussed in "Risk Factors"
in our Annual Report on Form 10-K.
© Edgar Online, source
