Alexion Pharmaceuticals Annual Report 2019

Plain-text annual report

a l e x i o n . c o m 2 0 1 9 A N N U A L R E P O R T Continue(d) E V E R Y D A Y 2 0 1 9 A N N U A L R E P O R T Rare Inspiration. Changing Lives. SHAREHOLDER INFORMATION EXECUTIVE MANAGEMENT Ludwig Hantson, Ph.D. Chief Executive Officer Tanisha Carino, Ph.D. Executive Vice President, Chief Corporate Affairs Officer Ellen Chiniara, J.D. Executive Vice President, Chief Legal Officer and Corporate Secretary Indrani Franchini, J.D. Executive Vice President, Chief Compliance Officer Brian Goff Executive Vice President, Chief Commercial & Global Operations Officer Anne-Marie Law Executive Vice President, Chief Human Experience Officer John Orloff, M.D. Executive Vice President, Head of Research & Development Morgan Sanford Chief of Staff to Chief Executive Officer Aradhana Sarin, M.D. Executive Vice President, Chief Financial Officer Rana Strellis Senior Vice President, Global Culture and Corporate Social Responsibility DIRECTORS David R. Brennan2, 3 Chairman of the Board, Former Chief Executive Officer, AstraZeneca PLC Felix J. Baker, Ph.D.3, 4 Co-Managing Member, Baker Brothers Advisors LP Christopher J. Coughlin1, 2 Former Executive Vice President and Chief Financial Officer, Tyco Deborah Dunsire, M.D.2, 4 President and Chief Executive Officer, H Lundbeck A/S Ludwig Hantson, Ph.D. Chief Executive Officer John T. Mollen 1, 2 Former Executive Vice President, Human Resources, EMC Corporation Francois Nader, M.D.1, 4 Former President and Chief Executive Officer, NPS Pharma Judith Reinsdorf, J.D.1, 3 Former Executive Vice President and General Counsel, Johnson Controls Paul A. Friedman, M.D.3, 4 Chairman and Chief Executive Officer, Madrigal Pharmaceuticals Former Chief Executive Officer, Incyte Corporation Andreas Rummelt, Ph.D.3, 4 Chief Executive Officer, InterPharmaLink AG Former Group Head, Quality Assurance and Technical Operations, Novartis TOP ROW, LEFT TO RIGHT: Morgan Sanford, John Orloff, Anne-Marie Law, Brian Goff, Rana Strellis BOTTOM ROW, LEFT TO RIGHT: Ellen Chiniara, Indrani Franchini, CEO Ludwig Hantson, Tanisha Carino, Aradhana Sarin TOP ROW, LEFT TO RIGHT: Felix J. Baker, Christopher J. Coughlin, John T. Mollen, Francois Nader, Andreas Rummelt BOTTOM ROW, LEFT TO RIGHT: Deborah Dunsire, Chairman of the Board David R. Brennan, CEO Ludwig Hantson, Judith Reinsdorf, Paul A. Friedman (INSET) OTHER INFORMATION ANNUAL SHAREHOLDERS MEETING 1. Member of the Audit and Finance Committee TRANSFER AGENT AND REGISTRAR Computershare Trust Company, N.A. 250 Royall Street, Canton, MA 02021 INVESTOR RELATIONS 121 Seaport Boulevard, Boston, MA 02210 Email: InvestorRelations@alexion.com INDEPENDENT AUDITORS PricewaterhouseCoopers, LLP, Hartford, CT TRADING SYMBOL Listing for Alexion Pharmaceuticals, Inc., is found on the NASDAQ stock market under the symbol ALXN. To be held on May 13, 2020, 5:30 p.m. Seaport Hotel 2. Member of the Leadership and Compensation Committee 3. Member of the Nominating and Corporate One Seaport Lane, Boston, MA 02210 Governance Committee CORPORATE HEADQUARTERS Alexion Pharmaceuticals, Inc. 121 Seaport Boulevard Boston, MA 02210 Tel: 475-230-2596 Fax: 203-271-8198 alexion.com 4. Member of the Science and Innovation Committee ©2020 Alexion Pharmaceuticals, Inc. ALEXION, KANUMA, SOLIRIS, STRENSIQ, ULTOMIRIS, and the Alexion logo are trademarks of the Alexion Pharmaceuticals, Inc., registered in the United States, the European Union, and in other countries worldwide. Follow us on Social Media This Annual Report contains forward looking statements, including statements contained in the CEO letter to shareholders. Forward looking statements include state- ments related to future regulatory approvals, clinical trial developments, potential benefits of our products and expected key drivers for future growth. Alexion cautions investors that any forward-looking statements or projections made by Alexion, including those made in this Annual Report, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Regulatory, economic, competitive, business, governmental, technological and other factors that may affect Alexion’s operations are discussed in Item 1A, Risk Factors in the Annual Report on Form 10-K for 2019. AT ALEXION, OUR MISSION IS TO TRANSFORM THE LIVES OF PEOPLE AFFECTED BY RARE AND DEVASTATING DISEASES. Our passion drives us to continuously innovate and create meaningful value in all we do. In doing so, we change lives for the better – ours, people living with rare diseases, and the communities we serve. Every day. THERE ARE GIFTS NMOSD HAS GIVEN ME THAT, AS TRAGIC AS IT’S BEEN TO BE DIAGNOSED WITH A RARE DISEASE, I WOULDN’T CHANGE IT FOR THE WORLD, BECAUSE WHEN YOU’RE DIAGNOSED WITH SOMETHING LIKE THIS IT MAKES YOU APPRECIATE THINGS THAT WE ALL TAKE FOR GRANTED.” Chelsey LIVING WITH NMOSD C o n n o r WITH HIS MOM, LIVING WITH NMOSD FOUNDERS OF THE CONNOR B. JUDGE FOUNDATION S u m a i r a LIVING WITH NMOSD FOUNDER OF THE SUMAIRA FOUNDATION pain and noticed that her eyesight had been I n 2009, Chelsey woke up with severe eye significantly impacted. Prior to this, Chelsey had spent nearly a year visiting different specialists to identify the cause of the symptoms she had been experiencing: vomiting, numbness, tingling in her limbs, headaches, and disabling fatigue. After being admitted to the hospital for the eye pain, Chelsey was diagnosed with multiple sclerosis (MS). During the 10 years that followed, Chelsey contin- ued to experience those symptoms and new ones, along with 10 episodes of optic neuritis. She began to wonder if she truly had MS or if there had been a mistake. In early 2019, after spending a week in the hospital, Chelsey woke up with eye pain that was unmistakable. Her neurologist began to explore neuromyelitis optica spectrum disorder (NMOSD), and formally diagnosed her after a series of tests and scans. TO OUR SHAREHOLDERS E V E R Y D A Y , we come to work with a singular purpose – to serve patients – and in 2019, we made significant strides in expanding the number of patients we are able to serve today and in the future. This is especially important during a global health crisis like the current COVID-19 pandemic. We also remain focused on protecting the health and safety of our employees and the communities in which we live and work. It was a year of unparalleled growth and expansion for Alexion. We secured six regulatory approvals in key markets, entered into seven business development deals, and welcomed more than 800 new employees. Together, we continued to transform our portfolio, our pipeline, our company, and most importantly, the lives of people with rare and devastating diseases. I am incredibly proud of how far we’ve come and the remarkable progression of Alexion 2.0, which can be seen across key aspects of the business. Through the hard work and dedication of our employees, we delivered strong execution against an ambitious set of objectives. • ULTOMIRIS® (ravulizumab-cwvz) is now the market leader and standard of care for the treatment of par- oxysmal nocturnal hemoglobinuria (PNH) in our three largest markets: the United States, Germany and Japan, and we look to build on this success with atypical hemolytic uremic syndrome (aHUS), following the U.S. approval in October 2019 and in anticipation of the Euro- pean and Japanese regulatory approvals later this year. • Neurology has become Alexion’s largest franchise in the U.S. Strong demand for SOLIRIS® (eculizumab) in generalized myasthenia gravis (gMG) and the global launches of SOLIRIS in neuromyelitis optica spectrum disorder (NMOSD) will continue to accelerate our neurology portfolio, which we expect will be a key driver of future growth as we look to treat four times as many gMG and NMOSD patients in the U.S. by 2025. The size and strength of our neurology franchise is a key example of Alexion’s transformation, which is being driven by our evolution from a company focused on medicines to treat ultra-rare conditions to one focused on rare and other devastating diseases. • We grew our metabolics portfolio by serving more people living with lysosomal acid lipase deficiency (LAL-D) and hypophosphatasia (HPP) around the globe while also progressing the Phase 3 study of ALXN1840 in Wilson disease. • We continued to expand and diversify our pipeline through internal and external efforts. We added five clinical-stage potential new medicines to our portfolio, 4 including two Factor D inhibitors that provide the opportunity to significantly broaden the range of rare diseases we can treat. We advanced the ULTOMIRIS development program with Phase 3 studies in gMG and NMOSD and plan to expand it into four new indications in 2020. • We delivered outstanding financial results once again that strengthen our foundation and position us to continue expanding our portfolio, creating significant value for shareholders and enabling us to serve many more people living with rare diseases in the future. The strength of our execution lies in the passion of our employees who, when empowered to perform at their personal best, deliver remarkable results. With a culture rooted in integrity, inclusion, and collaboration, and by keeping patients at the center of everything we do, we are making important strides in advancing our mission. I am very proud of the work our team accomplished over the last year and will continue to accomplish in the year ahead. Looking to 2020 and beyond, Alexion is positioned to further its leadership in delivering medicines that transform the lives of those suffering from rare diseases by: • Leading with ULTOMIRIS as the new standard of care for PNH and aHUS, • Expanding our current medicines into new diseases, and • Diversifying our pipeline even further. Not only are we evolving our business and taking bold steps in new directions, but we are learning to think and act differently so that we can further our mission. We are transforming the way we address the challenges that face people living with rare diseases by embedding patient-centric thinking in all aspects of our organization, because each of us is accountable to deliver on our commitments to patients, caregivers and families affected by rare diseases. It is this outside-in mindset that will drive our success not only today but as we pursue our ambitions for the future. Thank you to the patients and their families who inspire us, to our employees for their dedication, and to our shareholders for their support. I am so proud of the progress we continue to make and am confident that together we can achieve all we set out to do. I look forward to furthering our mission together. Sincerely, Ludwig Hantson, Ph.D. Chief Executive Officer OUR MISSION WILL ALWAYS BE A JOURNEY, IT WILL NEVER BE A DESTINATION. Deliver(ed) We began 2019 with a solid foundation of science, innovation and a willingness to expand beyond our core areas of focus in order to better serve people living with rare diseases. Our objectives reflected an ambition to expand our leadership in rare disease with our existing medicines and new medicines to create meaningful value for all our stakeholders. Through the hard work and dedication of our colleagues across the globe, we delivered on those objectives and in turn, furthered our mission of transforming the lives of people affected by rare and devastating diseases. 6ULTOMIRIS® (RAVULIZUMAB-CWVZ) IS NOW THE MARKET LEADER AND STANDARD OF CARE IN PNH IN OUR THREE LARGEST MARKETS - THE U.S., GERMANY AND JAPAN - AND WE LOOK TO BUILD ON THIS MOMENTUM WITH aHUS NEUROLOGY IS NOW ALEXION’S LARGEST FRANCHISE IN THE U.S., DRIVEN BY STRONG DEMAND FOR SOLIRIS® (ECULIZUMAB) IN gMG AND ITS LAUNCH IN NMOSD SERVED MORE PEOPLE LIVING WITH LAL-D AND HPP AND PROGRESSED THE PHASE 3 STUDY OF ALXN1840 IN WILSON DISEASE 6 REGULATORY APPROVALS IN KEY MARKETS 7 BUSINESS DEVELOPMENT TRANSACTIONS 800+ NEW EMPLOYEES 7 “He thought he was invincible. It was a little challenging at times to remind him [of his disease] but also not shut him down and lose his zest for life.” ERICA - JAMEL’ S M OM “I think the most challenging part was in the beginning when his health started to deteriorate.” DANIE L A - JAMEL’ S WIFE PNH —THOSE THREE LITTLE LETTERS DIDN’T REALLY MEAN MUCH, UNTIL I BEGAN TO FEEL THE SYMPTOMS MUCH LATER. IT’S HARD FOR ME TO EXPLAIN IN WORDS WHAT IT’S LIKE TO HAVE LIVED WITH A CHRONIC AND PROGRESSIVE ILLNESS THAT IS ESSENTIALLY A DEATH SENTENCE, ONLY TO HAVE MY HEALTH RESTORED. I’VE OFTEN COMPARED THIS SWING OF FORTUNES TO HAVING LOST THE LOTTERY THEN WON IT.” Jamel L I V I N G W I T H P N H 9 Connect(ed) There is an inherent connection between the experience of our employees and the experience of the patients we serve. We are focused on developing world- class leadership capabilities across the company so that we can deliver world-class innovation to patients and their caregivers while creating meaningful and fulfilling work for our employees. We invest in and value people who believe in the importance of our mission and understand what it takes to deliver on it. Every day I wear a bracelet with my nephew’s name on it to remind me of my motivation and also my blessings. He passed away weeks before his first birthday. The underlying issue was never found but in retrospect, we had many ‘we should have known’ moments.” PETER - GLOBAL M EDI CAL AFFAI RS , NEPHR OLOGY - U. S . My 10-year-old son suffers from a disease that little is known about because it is so rare. My personal experience motivates me to come to work at Alexion every day so I can help other families affected by a rare disease.” GAETANO - ADMI NISTRATIVE ASSI STANT AND FAT HE R OF A CHILD LIVING WI TH A RA RE DI SEASE - I TALY My daughter began experiencing symptoms at 9 months old and we did not get a diagnosis until she was 4. My first thought was, ‘How am I going to manage a child with a disease that most physi- cians had limited or no knowledge of?’ It has been a long journey with a lot of heartbreak, but after we received help from a case manager, I decided I wanted to give back the hope and support that I was given. I became a case manager at Alexion and feel honored to be able to give back given my personal journey.” ANDRE A – CA SE MANAGER A ND MOTHER OF A CHILD LIVING WITH A RARE DI SE AS E – U. S . 11 MY HEMATOLOGIST MADE THE FINAL DIAGNOSIS. AT FIRST, IT WAS DISBELIEF, BUT THEN I WAS HAPPY. I WAS EXTREMELY HAPPY, HAVING GONE SO MANY YEARS NOT KNOWING WHAT WAS CONTINUING TO DISRUPT THE FUNCTIONS OF MY BODY.” C h r i s t i a n LIVING WITH aHUS Dana LIVING WITH aHUS E r i c a LIVING WITH aHUS A t 25 years old, Dana’s journey to being After running several tests and still being unsure of diagnosed with atypical hemolytic uremic syndrome (aHUS) began with kidney failure. the cause of his kidney failure, Dana’s doctor gave him two options: to have a kidney transplant or go on dialysis. So, his father did what any father would do and became his son’s kidney donor. However, within a year of the transplant, Dana experienced a second kidney failure and was forced to go on dialysis. Eight years later, he received a second kidney donation. Unfortunately, within a year he lost that kidney as well. His doctors eventually diagnosed him with thrombotic thrombocytopenic purpura (TTP) and he returned to dialysis. Several years later, Dana came across an article about a woman with a nearly identical story, and she had been diagnosed with aHUS. He shared the story with his nephrologist who, after consulting with his hematologist-oncologist, finally diagnosed him with aHUS, 15 years after his initial kidney failure. 13 Advance(d) We advanced our culture of integrity and belonging through dedicated programs designed by employees, for employees, that encourage diversity of ideas and drive innovation. In everything we do, we are empowered and committed to speak up and perform at our personal best to accelerate our collective impact for people living with rare diseases. We lead with a sense of urgency and a relentless quest for answers, with quality top of mind every step of the way, because we know that patients and families are waiting. First Annual Global Culture FORUM, Boston, MA OUT OF 7 10 EXECUTIVE COMMITTEE MEMBERS ARE WOMEN 53% OF EMPLOYEES ARE FEMALE 2019 Global Day of Service, Tokyo, Japan | Learn more about our dedication to joining and supporting the communities in which we live and work in our first annual Corporate Social Responsibility report, found at csr.Alexion.com. Members of the Global Quality Team College Park, Ireland | Alexion was named “Biotech Company of the Year 2019” at the Pharma Industry Awards. It was also recognized as the Best Workplace at the Fingal Dublin Business Excellence & CSR Awards 2019 for its “Culture @ College Park” initiative, a comprehensive program designed to give back to the community, develop employees, sustain the environment and support patients. 15 HAVING THESE ILLNESSES HAS BEEN HARD. IT’S EMOTIONALLY HARD. BEING DIAGNOSED THE FIRST TIME AROUND WAS REALLY DIFFICULT. I DON’T LIKE THE UNKNOWN – IT SCARES ME AND I’M SURE IT SCARES A LOT OF PEOPLE.” 16 V i c t o r LIVING WITH PNH Lisa LIVING WITH PNH R u t h i e LIVING WITH PNH to develop large bruises on her legs that would I n 2003, Lisa was living in Canada when she began who performed several rounds of blood work, none not go away. Concerned, she visited her doctor of which gave them an answer. Several days after her final round of blood work, she received a call from her doctor saying she needed to have an emergency bone marrow biopsy. Her first thought was that she had leukemia – she was scared. But she didn’t have leukemia. She was diagnosed with severe aplastic anemia and a small clone of paroxysmal nocturnal hemoglobinuria (PNH). She began treatment for severe aplastic anemia and, with her health improved, she eventually began Dragon Boat (crew) racing. However, in 2007 her PNH began to progress and she grew increasingly symptomatic. Once approved, she began treatment and eventually was able to return to racing. Today, she continues to receive treatment and is training for her next big race. 1717 18 CLINICAL STAGE DEVELOPMENT PROGRAMS PLANNED FOR 2020 10POTENTIAL PRODUCT LAUNCHES BY 2023 18 Transform(ed) IN 2019, WE TRANSFORMED OUR PORTFOLIO WITH 6 regulatory approvals in key markets and entered into 7 business development transactions, which added several new clinical-stage assets to our current pipeline. SC QW gMG (IV) NMOSD (IV) ULTOMIRIS® Amyotrophic Lateral Sclerosis (ALS) (IV) Primary Progressive Multiple Sclerosis (PPMS) (IV) Hematopoietic Stem Cell Transplant-Associated Thrombotic Microangiopathy (HSCT-TMA) (IV) Complement Mediated Thrombotic Microangiopathy (CM-TMA) (IV) ALXN1810 (Renal Basket) ALXN1720 (Anti-C5 Bi specific) ALXN1840 (Wilson Disease) FcRn-Warm Autoimmune Hemolytic Anemia (WAIHA) ALXN1830 FcRn-gMG CAEL-101 (AL Amyloidosis)1 AG-10 (ATTR) Japan2 Danicopan PNH with Extravascular Hemolysis (EVH) Complement 3 Glomerulopathy (C3G) ACH-5228 PNH Additional Indications HEMATOLOGY NEPHROLOGY METABOLICS NEUROLOGY CARDIOLOGY OTHER/TBD AS OF FEBRUARY 25, 2020 1. Structured as an option to acquire 2. Exclusive license to develop and commercialize in Japan P R E C L I N I C A L P H A S E 1 P H A S E 2 P H A S E 3 TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG TEXT gMG 18 20 Lead(ing) ULTOMIRIS PROVIDES SOMETHING PATIENTS REALLY ASKED US TO DELIVER - LESS TIME BEING TREATED. IT IS CHANGING THEIR LIVES AND WE BELIEVE IT IS ALSO CHANGING THE LIVES OF THEIR FAMILIES.” – BRIAN GOFF - CH IEF COMMERCI AL A ND GLOB AL OPERATIONS O FFICER We are redefining the standard of care for people living with PNH and aHUS with ULTOMIRIS, which has a unique value proposition that is supported by patient preference of going to the hospital every two months, for adults, instead of every two weeks. In 2020, we will continue leading with ULTOMIRIS as the market leader for PNH and aspire to the same outcome for people living with aHUS. 22 19 U L T O M I R I S I N P N H THE MAJORITY OF PATIENTS HAVE CONVERTED TO ULTOMIRIS IN OUR THREE LARGEST MARKETS 60% IN THE U.S. 62% IN GERMANY 53% IN JAPAN Conversion rates by patient volume as of January 27, 2020 J a s o n LIVING WITH PNH J u l i a LIVING WITH aHUS U L T O M I R I S I N a H U S STRONG START FOR U.S. LAUNCH OF ULTOMIRIS IN aHUS OUR AMBITION IS TO ALSO MAKE ULTOMIRIS THE MARKET LEADER IN aHUS Expand(ing) 2 0 2 5 A M B I T I O N : 4X EXPANSION OF U.S. NEUROLOGY TREATED PATIENT POPULATION We continue our efforts to expand our C5 franchise into new areas, where there is great unmet need and opportunity to help even more patients and families. U LT O M I R I S ® (RAVULIZUMAB-CWVZ) D E V E L O P M E N T P R O G R A M S I N : NEUROLOGY gMG ~20K U.S. Target Population1 NMOSD ~4.5K U.S. Target Population3 ALS ~15K U.S. Diagnosed Population2 PPMS Exploratory Clinical Study NEPHROLOGY CM-TMA ~2K U.S. Diagnosed Population4 HSCT-TMA ~5K U.S. Diagnosed Population5 ALXN1720 BI-SPECIFIC SUBCUTANEOUS MINI-BODY THAT HAS THE POSSIBILITY TO TREAT NEW LARGER POPULATION RARE INDICATIONS ALXN1810 A SUBCUTANEOUS CO-FORMULATION OF ALXN1210 AND HALOZYME’S PH20 HYALURONIDASE 1. Commercial estimate. 2. Prevalence of ALS-United States, 2015 MMWR Morb Mortal Wkly Rep. 2018 Nov 23; 67(46): 1285-1289. 3. Aligned with our Phase 3 PREVENT criteria. 4. Zimmerhackl, L.B., N. Besbas, T. Jungraithmayr, N. van de Kar, H. Karch, D. Karpman, D. Landau, C. Loirat, W. Proesmans, F. Prufer, G. Rizzoni and M. C. Taylor (2006). “Epidemiology, clinical presentation, and pathophysiology of atypical and recurrent hemolytic uremic syndrome.” Semin Thromb Hemost 32(2): 113–120. 5. Rosenthal, J., HCT-TMA: a review of pathophysiology, diagnosis, and treatment, 201. 24 Diversify(ing) DEVELOPMENT PROGRAMS IN NON-C5 ASSETS We are diversifying our pipeline beyond C5 with new assets to help us serve even more patients in the future. ALXN1840 WILSON DISEASE ~10K U.S. and EU Diagnosed Population6 10,000X HIGHER AFFINITY FOR COPPER PHASE 3 SUPERIORITY TRIAL ONGOING ALXN1830 DANICOPAN ACH-5228 FcRn WAIHA FcRn gMG FACTOR D – PNH WITH EVH <10% OF U.S. PNH POPULATION7 PNH FACTOR D – C3G ADDITIONAL INDICATION SELECTION UNDERWAY CAEL-101 AL AMYLOIDOSIS ~10K U.S. Diagnosed Population8 AG-10 TRANSTHYRETIN AMYLOIDOSIS (ATTR) <6K Japan Diagnosed Population9 6. Poujois, A., et al. Characteristics and prevalence of Wilson’s disease: A 2013 observational population based study in France. Clin Res Hepatol Gastroenterol. 2018 Feb;42(1):57-6. 7. Risitano AM, et al. Blood. 2009;113(17):4094-4100 8. Quock, T. P., et al. Epidemiology of AL amyloidosis: a real-world study using US claims data. Blood Adv. 2018; 2(10):1046-1053 9. Eidos Therapeutics 25 F I N A N C I A L Highlights NET PRODUCT SALES ($ IN MILLIONS) NET INCOME ($ IN MILLIONS) EARNINGS PER SHARE-DILUTED CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES ($ IN MILLIONS) 5,000 4,000 3,000 2,000 1,000 0 2,500 2,000 1,500 1,000 500 0 11 10 9 8 7 6 5 4 3 2 1 0 2,800 2,400 2,000 1,600 1,200 800 400 0 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 UNITED STATES EUROPE ASIA REST OF WORLD NON-GAAP GAAP NON-GAAP GAAP CASH AND CASH EQUIVALENTS MARKETABLE SECURITIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL RESULTS 2019 2018 2017 IN MILLIONS EXCEPT PER SHARE AMOUNTS GAAP net income Share-based compensation Fair value adjustment in inventory acquired Upfront and milestone payments related to licenses and collaborations Litigation charges Gain on sale of asset 2,404.3 237.0 - 103.4 0.1 - 77.6 203.0 - 26.7 13.0 (3.5) Acquired in-process research and development (4.1) 1,183.0 443.3 243.2 5.2 49.4 - - - 320.1 41.0 - 309.6 11.6 - 12.0 - (59.7) (32.0) 320.1 116.5 - 50.7 286.5 - 31.0 (43.1) - - - (584.9) (145.4) (82.2) 2,397.3 1,798.6 1,337.5 10.70 10.53 0.35 7.92 1.97 5.86 Amortization of purchased intangible assets Change in fair value of contingent consideration Acquisition-related costs Restructuring and related expenses Impairment of intangible assets Change in value of strategic equity investments Gain related to purchase option Adjustments to income tax expense Non-GAAP net income GAAP earnings per share - diluted Non-GAAP earnings per share - diluted 26 UNITED STATESUNITED STATESSECURITIES AND EXCHANGE COMMISSIONSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Washington, D.C. 20549 FORM FORM 10-K10-KAnnual report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934For the fiscal year ended For the fiscal year ended December 31, 2019December 31, 2019ororTransition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934For the transition period from to For the transition period from to Commission file number: Commission file number: 0-277560-27756ALEXION PHARMACEUTICALS, INC.ALEXION PHARMACEUTICALS, INC.(Exact Name of Registrant as Specified in Its Charter)(Exact Name of Registrant as Specified in Its Charter)DelawareDelaware13-364831813-3648318(State or Other Jurisdiction of Incorporation or Organization)(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)(I.R.S. Employer Identification No.) 121 Seaport Boulevard121 Seaport Boulevard, , BostonBoston MassachusettsMassachusetts 0221002210(Address of Principal Executive Offices) (Zip Code)(Address of Principal Executive Offices) (Zip Code)475475--230-2596230-2596(Registrant’s telephone number, including area code)(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:Title of each classTitle of each classTrading Symbol(s)Trading Symbol(s)Name of each exchange on which registeredName of each exchange on which registeredCommon Stock $0.0001 par valueCommon Stock $0.0001 par valueALXNALXNNASDAQ Stock Market LLCNASDAQ Stock Market LLCIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerginggrowth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of theExchange Act.Large accelerated filer ☒ Smaller reporting company ☐Accelerated filer ☐ Emerging growth company ☐Non-accelerated filer ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒The aggregate market value of the Common Stock held by non-affiliates of the registrant, based upon the last sale price of the Common Stock reported on TheNasdaq Stock Market LLC on June 28, 2019, was $28,243,087,610.(1) Common Stock $0.0001 par value221,400,872ClassClassOutstanding as of January 29, 2020Outstanding as of January 29, 2020(1) Excludes 8,615,902 shares of common stock held by directors, executive officers and their respective affiliates at June 28, 2019. Exclusion of shares held byany person should not be construed to indicate that such person possesses the power, directly or indirectly, to direct or cause the direction of the management orpolicies of the registrant, or that such person is controlled by or under common control with the registrant.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Definitive Proxy Statement to be used in connection with its 2020 Annual Meeting of Stockholders currently anticipated to be held onMay 13, 2020, are incorporated by reference into Part III of this report.Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Table of ContentsTable of Contents PagePART IPART I Item 1.Business5Item 1A.Risk Factors34Item 1B.Unresolved Staff Comments60Item 2.Properties60Item 3.Legal Proceedings60Item 4.Mine Safety Disclosures60 PART IIPART II Item 5.Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities61Item 6.Selected Financial Data64Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations66Item 7.AQuantitative and Qualitative Disclosures About Market Risk90Item 8.Financial Statements and Supplementary Data91Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure91Item 9A.Controls and Procedures91Item 9A(T).Controls and Procedures92Item 9B.Other Information92 PART IIIPART III Item 10.Directors, Executive Officers and Corporate Governance93Item 11.Executive Compensation93Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters93Item 13.Certain Relationships and Related Transactions, and Director Independence93Item 14.Principle Accounting Fees and Services93 PART IVPART IV Item 15.Exhibits and Financial Statement Schedules94Item 16.Form 10-K Summary96 SIGNATURESSIGNATURES972PART IPART IUnless the context requires otherwise, references in this report to “Alexion,” the “Company,” “we,” “our” or “us” refer to Alexion Pharmaceuticals, Inc.and its subsidiaries.Note Regarding Forward-Looking StatementsNote Regarding Forward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements. Words such as “anticipates,” “may,” “forecasts,” “expects,” “intends,” “plans,”“potentially,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements,although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees of future performance and aresubject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed orforecasted in any such statements. Such forward-looking statements are based on current expectations, estimates and projections about our industry andbusiness, management's beliefs, and certain assumptions made by our management, and may include, but are not limited to, statements regarding:•the potential benefits and commercial potential of ULTOMIRIS®, SOLIRIS®, STRENSIQ® and KANUMA® for approved indications and any expandeduses;•sales of our products in various markets worldwide, pricing for our products, level of insurance coverage and reimbursement for our products,timing regarding development and regulatory approvals for our products or for additional indications or in additional territories;•plans for clinical trials (and proof of concept trials and exploratory clinical studies), status of our ongoing clinical trials for our product candidates,commencement dates for new clinical trials, clinical trial results and evaluation of our clinical trial results by regulatory agencies;•potential benefits offered by product candidates, including improved dosing intervals and potential to improve treatment in a number of IgG-mediated and neurological diseases;•the medical and commercial potential of additional indications for ourproducts;•the expected timing for the completion and/or regulatory approval of our facilities and facilities of our third-partymanufacturers;•future expansion of our commercial organization and transition to third-parties in certain jurisdictions to perform sales, marketing and distributionfunctions;•future governmental and regulatory decisions regarding pricing (and discounts) and the adoption, implementation and interpretation of healthcarelaws and regulations (and the impact on our business);•plans and prospects for future regulatory approval of products and productcandidates;•competitors, potential competitors and future competitive products (includingbiosimilars);•plans to grow our product pipeline (and diversify our business, including through acquisitions) and anticipated benefits to theCompany;•future objective to expand business and sales;•future plans to retain earnings and not paydividends;•expected decisions to appeal certain litigation and intellectual propertydecisions;•expectations to realize the carrying value of productinventory;•impact of accountingstandards;•future costs, operating expenses (including research and development, sales, general and administrative and restructuring expenses) and capitalrequirements, capital investment, sufficiency of cash to fund operations for at least the next 12 months, ability to make payment on our creditfacility and make contingent payment obligations, the sufficiency of our existing capital resources and projected cash needs, price approval andfunding processes in various countries;•the sources of expected increases in cash flow from operations, ifany;•anticipated impact of interest rate changes on financialstatements;•anticipated future milestone, contingent and royalty payments and lease payments (and, in each case, expected impact onliquidity);3•timing and anticipated amounts of future tax payments and benefits (including the potential recognition of unrecognized tax benefits), as well astiming of conclusion of tax audits;•collection of accounts receivable and impact of any delay in the future in collecting accounts receivable on financial condition and operations, aswell as the ability of counterparties to our derivatives to perform their obligations;•the safety and efficacy of our products and our product candidates;•the adequacy of our pharmacovigilance and drug safety reportingprocesses;•the uncertainties involved in the drug development process andmanufacturing;•performance and reliance on third party serviceproviders;•our future research and development activities, plans for acquired programs, our ability to develop and commercialize products with ourcollaborators and anticipated regulatory approval of acquisitions;•periods of patent, regulatory and market exclusivity for ourproducts;•the scope of our intellectual property and the outcome of any challenges or opposition to our intellectual property;and•estimates of the capacity of manufacturing and other service facilities to support our business, operations, products and productcandidates.Such risks and uncertainties include, but are not limited to, increased competition, actions by regulatory agencies, product candidates not receivingregulatory approvals, the possibility that expected tax benefits will not be realized, assessment of impact of recent accounting pronouncements, potentialdeclines in sovereign credit ratings or sovereign defaults in countries where we sell our products, delay of collection or reduction in reimbursement due toadverse economic conditions or changes in government and private insurer regulations and approaches to reimbursement, uncertainties surrounding legalproceedings, company investigations and government investigations and assessments, including our Securities and Exchange Commission (SEC) and U.S.Department of Justice (DOJ) investigations, the securities class action litigation filed in December 2016, the investigation of our Brazilian operations byBrazilian authorities, the tax assessment by the Brazilian Federal Revenue Service, risks related to the short and long-term effects of other governmenthealthcare measures, intellectual property lawsuits and the institution of Inter Partes Reviews, and the effect of shifting foreign exchange rates, as well asthose risks and uncertainties discussed later in this report under the section entitled “Risk Factors.” Unless required by law, we undertake no obligation toupdate publicly any forward-looking statements, whether because of new information, future events or otherwise. However, readers should carefully reviewthe risk factors set forth in this and other reports or documents we file from time to time with the SEC.Note Regarding TrademarksNote Regarding TrademarksWe have proprietary rights to a number of registered and unregistered trademarks worldwide that we believe are important to our business, includingbut not limited to: ALEXION, the Alexion logo, ULTOMIRIS, SOLIRIS, STRENSIQ and KANUMA. We have, in certain cases, omitted the ®, © and ™ designationsfor these and other trademarks used in this Annual Report on Form 10-K. Nevertheless, all rights to such trademarks are reserved. These and othertrademarks referenced in this Annual Report on Form 10-K are the property of their respective owners. 4Item 1. Item 1. BUSINESS.BUSINESS.(dollars and shares in millions)OverviewOverviewAlexion 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 approvedcomplement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS), as well as thefirst and only approved complement inhibitor to treat anti-acetylcholine receptor (AChR) antibody-positive generalized myasthenia gravis (gMG) andneuromyelitis optica spectrum disorder (NMOSD) in patients who are anti-aquaporin-4 (AQP4) antibody positive. Alexion also has two highly innovativeenzyme 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 itsresearch 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. We were incorporated in 1992 under the laws of the State of Delaware.Products and Development ProgramsProducts and Development ProgramsWe focus our product development programs on life-transforming therapeutics for rare diseases for which current treatments are either non-existentor inadequate. We have developed or are developing innovative products for, among others, the following indications:Paroxysmal NocturnalHemoglobinuria (PNH)PNH is a chronic, progressive, debilitating and life-threatening ultra-rare blood disorder characterized by intravascular hemolysis(destruction of red blood cells) that is mediated by an uncontrolled activation of the complement system, a part of the immunesystem. Chronic hemolysis in patients with PNH may be associated with life-threatening thromboses, recurrent pain, kidneydisease, disabling fatigue, impaired quality of life, severe anemia, pulmonary hypertension, shortness of breath and intermittentepisodes of dark-colored urine (hemoglobinuria).Atypical Hemolytic UremicSyndrome (aHUS)aHUS is a severe and life-threatening, ultra-rare genetic disease characterized by chronic uncontrolled complement activation andthrombotic microangiopathy (TMA), the formation of blood clots in small blood vessels throughout the body, causing a reduction inplatelet count (thrombocytopenia) and life-threatening damage to the kidney, brain, heart and other vital organs.Generalized Myasthenia Gravis(gMG)Myasthenia Gravis (MG) is a debilitating, complement-mediated neuromuscular disease in which patients suffer profound muscleweakness throughout the body, resulting in slurred speech, impaired swallowing and choking, double vision, upper and lowerextremity weakness, disabling fatigue, shortness of breath due to respiratory muscle weakness and episodes of respiratoryfailure.Hypophosphatasia (HPP)HPP is an ultra-rare genetic and progressive metabolic disease in which patients experience devastating effects on multiplesystems of the body, leading to debilitating or life-threatening complications. HPP is characterized by defective bonemineralization that can lead to deformity of bones and other skeletal abnormalities, as well as systemic complications such asprofound muscle weakness, seizures, pain, and respiratory failure leading to premature death in infants.Lysosomal Acid LipaseDeficiency (LAL Deficiency orLAL-D)LAL-D is a serious, life-threatening ultra-rare disease associated with premature mortality and significant morbidity. LAL-D is achronic disease in which genetic mutations result in decreased activity of the LAL enzyme that leads to marked accumulation oflipids in vital organs, blood vessels, and other tissues, resulting in progressive and systemic organ damage including hepaticfibrosis, cirrhosis, liver failure, accelerated atherosclerosis, cardiovascular disease, and other devastating consequences.Relapsing NeuromyelitisOptica Spectrum Disorder(NMOSD)Relapsing NMOSD is a severe and ultra-rare autoimmune disease of the central nervous system that primarily affects the opticnerves and the spinal cord. Each relapse of the disorder results in a stepwise accumulation of disability, including blindness andparalysis, and sometimes premature death. Complement activation due to anti-AQP4 antibodies is one of the primary underlyingcauses of the destruction of vital cells in the central nervous system in patients with NMOSD.5Wilson DiseaseWilson disease is a rare disorder, characterized by excess copper stored in various body tissues, that can lead to severe liverdisease, including cirrhosis and acute liver failure, as well as debilitating neurological morbidities such as impaired movement,gait, speech, swallowing, and psychiatric disorders.Warm Autoimmune HemolyticAnemia (WAIHA)WAIHA is a rare autoimmune disorder caused by pathogenic Immunoglobulin G (IgG) antibodies that react with and cause thepremature destruction of red blood cells at normal body temperature. The disease is often characterized by profound, andpotentially life-threatening anemia and other acute complications, including severe and life-threatening hemolysis, severeweakness, enlarged spleen and/or liver, rapid heart rate (tachycardia), chest pain, heart failure and fainting (syncope).Marketed ProductsMarketed ProductsOur marketed products include the following: ProductProductTherapeutic AreaTherapeutic AreaApproved IndicationApproved Indication HematologyParoxysmal Nocturnal Hemoglobinuria (PNH) Hematology/NephrologyAtypical Hemolytic Uremic Syndrome (aHUS) HematologyParoxysmal Nocturnal Hemoglobinuria (PNH) Hematology/NephrologyAtypical Hemolytic Uremic Syndrome (aHUS) NeurologyGeneralized Myasthenia Gravis (gMG) NeurologyNeuromyelitis Optica Spectrum Disorder (NMOSD) Metabolic DisordersHypophosphatasia (HPP) Metabolic DisordersLysosomal Acid Lipase Deficiency (LAL-D)ULTOMIRIS (ALXN1210/ravulizumab-cwvz)ULTOMIRIS (ALXN1210/ravulizumab-cwvz)ULTOMIRIS is an innovative, long-acting C5 inhibitor discovered anddeveloped by Alexion that works by inhibiting the C5 protein in theterminal complement cascade. In clinical studies, ULTOMIRISdemonstrated rapid, complete, and sustained reduction of free C5 levels.In December 2018, ULTOMIRIS was approved by the U.S. Food andDrug Administration (FDA) as a new treatment option for adult patientswith PNH in the U.S.ULTOMIRIS was approved as a new treatment option for adultpatients with PNH by the Ministry of Health, Labour and Welfare (MHLW) inJapan in June 2019. ULTOMIRIS was approved by the EuropeanCommission (EC) in July 2019 as a treatment for adult patients with PNHwith hemolysis with clinical symptoms indicative of high disease activity,and also for adult patients who are clinically stable after having beentreated with SOLIRIS for at least the past six months. In August 2019, the European Medicines Agency accepted a Type 2variation application for the use of ULTOMIRIS as a potential treatment foradult and pediatric patients with aHUS.In September 2019, Alexion submitted an application to theJapanese Pharmaceuticals and Medical Devices Agency (PMDA) for use ofULTOMIRIS as a potential treatment for patients with aHUS.In October 2019, the FDA approved the use of ULTOMIRIS as atreatment for adult and pediatric (one month of age or older) patients withaHUS to inhibit complement-mediated TMA.6SOLIRIS (eculizumab)SOLIRIS (eculizumab)SOLIRIS is an innovative C5 inhibitor discovered and developed byAlexion that works by inhibiting the C5 protein in the terminal complementcascade. SOLIRIS is a humanized monoclonal antibody that effectivelyblocks terminal complement activity at the doses currently prescribed.SOLIRIS is approved for the treatment of PNH and aHUS in pediatricand adult patients in the U.S., Europe, Japan and in several othercountries. We are sponsoring multinational registries to gather informationregarding the natural history of patients with PNH and aHUS and thelonger-term outcomes during SOLIRIS treatment.In 2017, the FDA and EC regulatory authority approved SOLIRIS forthe treatment of gMG in adults who are anti-acetylcholine receptor (AChR)antibody-positive. Additionally, in 2017 the MHLW in Japan approvedSOLIRIS as a treatment for patients with gMG who are AChR antibody-positive and whose symptoms are difficult to control with high-doseintravenous immunoglobulin therapy or plasmapheresis (PLEX).In June 2019, SOLIRIS became the first FDA-approved treatmentoption for adult patients with NMOSD who are AQP4 auto antibodypositive. In August 2019, the EC approved SOLIRIS as the first treatmentin Europe for NMOSD in adults who are AQP4 antibody-positive with arelapsing course of the disease. In November 2019, the Japanese MHLWapproved SOLIRIS as a treatment for the prevention of relapse in patientswith AQP4 antibody-positive NMOSD, including Neuromyelitis Optica. STRENSIQ (asfotase alfa)STRENSIQ (asfotase alfa)STRENSIQ, a targeted enzyme replacement therapy, is the first andonly approved therapy for patients with HPP and is designed to directlyaddress underlying causes of HPP by aiming to restore the geneticallydefective metabolic process, thereby preventing or reversing the severeand potentially life-threatening complications in patients with HPP.STRENSIQ is approved in the U.S. for patients with perinatal-, infantile- andjuvenile-onset HPP, Europe for the treatment of patients with pediatric-onset HPP, and Japan for the treatment of patients with HPP. We aresponsoring a multinational registry to gather information regarding thenatural history of patients with HPP and the longer-term outcomes duringSTRENSIQ treatment.KANUMA (sebelipase alfa)KANUMA (sebelipase alfa)KANUMA, a recombinant form of the human LAL enzyme, is the onlyenzyme-replacement therapy that is approved for the treatment forpatients with LAL-D. KANUMA is approved in the U.S. for the treatment ofpatients with LAL-D, Europe for long-term enzyme replacement therapy inpatients with LAL-D, and Japan for the treatment of patients with LAL-D.We are sponsoring a multinational registry to gather information regardingthe natural history of patients with LAL-D and the longer-term outcomesduring KANUMA treatment.Clinical Development ProgramsClinical Development ProgramsOur ongoing clinical development programs include the following:ProductProductDevelopment AreaDevelopment AreaIndicationIndicationPhase IPhase IPhase IIPhase IIPhase IIIPhase IIIFiledFiledULTOMIRIS(ALXN1210/ravulizumab-cwvz)(Intravenous)NeurologygMG/NMOSD l ULTOMIRIS(ALXN1210/ravulizumab-cwvz)(Subcutaneous)Hematology/NephrologyPNH/aHUS l ALXN1810 (ALXN1210with rHuPH20)(Subcutaneous)Next Generation SubcutaneousComplement Inhibitor l ALXN1720(Subcutaneous)Next Generation SubcutaneousComplement Inhibitor l ALXN1840(WTX101)Metabolic DisordersWilson disease l ALXN1830(SYNT001)(Subcutaneous)FcRn l ABY-039FcRn l 7In addition to our ongoing development programs, we hold a minority interest and option to acquire Caelum Biosciences (Caelum), a biotechnologycompany that is developing CAEL-101 for light chain (AL) amyloidosis. CAEL-101 is a first-in-class monoclonal antibody (mAb) designed to improve organfunction by reducing or eliminating amyloid deposits in the tissues and organs of patients with AL amyloidosis. A Phase 1a/1b study for CAEL-101 has beencompleted. Following discussions with the FDA, expanded Phase II/III trials for CAEL-101 are expected to begin in the second quarter 2020.In January 2020, Alexion acquired Achillion Pharmaceuticals, Inc. (Achillion). The acquisition adds two oral Factor D inhibitors, danicopan (ACCH-4771) and ACH-5228, to treat rare diseases associated with the complement alternative pathway to Alexion’s clinical-stage pipeline. Phase III developmentis being initiated for danicopan as an add-on therapy for PNH patients with extravascular hemolysis (EVH). Danicopan is also in Phase II development for C3glomerulopathy (C3G) and ACH-5228 is in Phase II development for PNH.8ULTOMIRIS (ALXN1210/ravulizumab-cwvz)ULTOMIRIS (ALXN1210/ravulizumab-cwvz)ULTOMIRIS is an innovative, long-acting C5 inhibitor discovered anddeveloped by Alexion that works by inhibiting the C5 protein in theterminal complement cascade. In clinical studies, ALXN1210demonstrated rapid, complete, and sustained reduction of free C5 levels.Intravenous (IV)In January 2019, we announced that the Phase III, global, single arm,multicenter study evaluating the safety and efficacy of ALXN1210administered by IV infusion every 8 weeks to adult patients with aHUS whohad never been treated with a complement inhibitor (inhibitor-naïvepatients) met its primary objective. In the study's initial 26 week treatmentperiod, 53.6 percent of patients demonstrated complete TMA response. Asecond Phase III, single arm, multicenter study to evaluate the safety,efficacy, pharmacokinetics (PK), and pharmaco-dynamics (PD) ofALXN1210 administered by IV infusion every 8 weeks in inhibitor-naïvepediatric patients (including adolescents) with aHUS is ongoing.In August 2019, the European Medicines Agency accepted a Type 2variation application for the use of ULTOMIRIS as a potential treatment foradult and pediatric patients with aHUS. In September 2019, Alexionsubmitted an application to the Japanese PMDA for use of ULTOMIRIS as apotential treatment for patients with aHUS. In October 2019, the FDAapproved ULTOMIRIS for the treatment of adult and pediatric patients (onemonth of age or older) with aHUS in order to inhibit complement-mediatedTMA. In November and December 2019, the Extension Application toregister the ULTOMIRIS 100 mg formulation (which is a higherconcentration formulation of ULTOMIRIS than the formulation currentlycommercialized) was submitted to the EMA and to the FDA, respectively.In March 2019, Alexion initiated a Phase III double-blind, placebo-controlled, multicenter study to evaluate the safety and efficacy ofALXN1210 in adult patients for the treatment of gMG. Additionally, inDecember 2019, Alexion initiated a Phase III, placebo-controlled, open-label, multicenter study to evaluate the safety and efficacy of ALXN1210 inadult patients with NMOSD.In addition to aHUS, NMOSD and gMG, Alexion plans to initiate: (i) aPhase III study for ALXN1210 in Amyotrophic Lateral Sclerosis (ALS); (ii) anexploratory clinical study for ALXN1210 in Primary Progressive MultipleSclerosis (PPMS); (iii) Phase III studies of ALXN1210 in adult and pediatrichematopoietic stem cell transplant-associated thromboticmicroangiopathy (HSCT-TMA); and (iv) a Phase III study with ALXN1210 incomplement-mediated TMA. Subcutaneous (SC) DeliveryIn March 2019, Alexion initiated a single, PK-based Phase III study ofALXN1210 delivered subcutaneously once per week to PNH patients tosupport regulatory approval submissions in both PNH and aHUS.ALXN1810 Subcutaneous (SC) DeliveryALXN1810 Subcutaneous (SC) DeliveryALXN1810 combines ALXN1210 with recombinant humanhyaluronidase enzyme (rHuPH20) licensed from Halozyme Therapeutics,Inc. to potentially further extend the dosing interval for ALXN1210 SC fromonce per week to once every two weeks or more. Alexion completed a SChealthy volunteer study with ALXN1810 in December 2018. A proof-of-concept trial in patients with various renal diseases (renal basket study) isexpected to be initiated in 2020.ALXN1720 Subcutaneous (SC) DeliveryALXN1720 Subcutaneous (SC) DeliveryALXN1720 is a novel humanized bi-specific minibody antibody thatbinds selectively and with high affinity to C5. ALXN1720 is designed for SCadministration as a concentrated formulation for the treatment of diseasestates involving dysregulated terminal complement activity. In September2019, Alexion initiated a Phase I healthy volunteer study of ALXN1720 toassess safety and tolerability.ALXN1840 (WTX101)ALXN1840 (WTX101)ALXN1840 (WTX101), an innovative product candidate thataddresses the underlying cause of Wilson disease, is a first-in-class oralcopper-binding agent with a unique mechanism of action and ability toaccess and bind copper from serum and promote its removal from theliver.Alexion is in the process of completing enrollment in a Phase III studyof ALXN 1840 for the treatment of Wilson disease. In addition, ALXN1840has received Fast Track designation in the U.S.ALXN1830 (SYNT001)ALXN1830 (SYNT001)ALXN1830 (SYNT001) is a humanized monoclonal antibody that isdesigned to inhibit the interaction of the neonatal Fc receptor (FcRn) withIgG and IgG immune complexes and has the potential to improvetreatment in a number of rare IgG-mediated diseases. Alexion plans to re-initiate a Phase II trial in WAIHA during the first quarter of 2020. Inaddition, Alexion initiated a Phase I study of a SC formulation ofALXN1830 in healthy volunteers in December 2019. A Phase II trial ingMG with the SC formulation is expected to initiate later in 2020 pending,among other things, the successful completion of the Phase I healthyvolunteer study.ABY-039ABY-039In March 2019, we entered into an agreement with Affibody AB(Affibody), through which Alexion obtained an exclusive worldwide license,as well as development and commercial rights, to ABY-039, a bivalentantibody-9mimetic that targets the FcRn. Following receipt of applicable antitrustapproval, the transaction closed in April 2019. Pursuant to the agreement,Alexion is leading the clinical development and commercial activities forABY-039 in rare IgG-mediated autoimmune diseases. A Phase I study ofsingle ascending doses and multiple ascending doses is ongoing.AG10AG10In September 2019, we entered into an agreement with EidosTherapeutics, Inc. (Eidos), through which Alexion obtained an exclusivelicense to develop and commercialize AG10 in Japan for transthyretinamyloidosis (ATTR). AG10 is an orally administered small molecule indevelopment designed to target the root cause of ATTR by stabilizingtransthyretin (TTR) in the blood. Eidos is currently evaluating AG10 in aPhase III study in the United States and Europe for ATTR cardiomyopathyand plans to begin a Phase III study in ATTR polyneuropathy in the firstquarter of 2020. Alexion plans to expand the AG10 program into Japanthrough the initiation of a clinical trial for which data would serve as thebasis for seeking regulatory approval to commercialize AG10 in Japan.ManufacturingWe utilize both internal manufacturing facilities and third-party contractmanufacturers to supply clinical and commercial quantities of ourproducts and product candidates. Our internal manufacturing capabilityincludes our Ireland facilities, a fill/finish facility in Athlone and apackaging facility in Dublin, as well as a production facility in Georgia.Third party contract manufacturers, including Lonza Group AG and itsaffiliates (Lonza), provide bulk drug substance as well as othermanufacturing services like purification, product filling, finishing,packaging, and labeling.We have various agreements with Lonza through 2030, with remainingtotal non-cancellable commitments of approximately $1,099.9. If weterminate certain supply agreements with Lonza without cause, we will berequired to pay for product scheduled for manufacture under ourarrangements. Under an existing arrangement, we pay Lonza a royalty onsales of SOLIRIS that was manufactured at the Alexion Rhode IslandManufacturing Facility (ARIMF) prior to the sale of the facility in 2018. Wealso pay Lonza a royalty on the sales of ULTOMIRIS and a payment withrespect to sales of SOLIRIS manufactured at Lonza facilities. Lonza is inthe process of qualifying a new manufacturing facility in New Hampshirethat would manufacture STRENSIQ (and commitments entered into underthis arrangement are included in the non-cancellable commitmentsamount noted in the first sentence of this paragraph).In addition, we have non-cancellable commitments of approximately $60.6 through 2020 with other third-party manufacturers. In April 2014, we purchased a fill/finish facility in Athlone, Ireland, whichhas been refurbished to become our first company-owned fill/finishfacility. We have also completed construction of a new biologicsmanufacturing facility at this site and we are currently pursuing regulatoryapproval.In May 2015, we announced plans to construct a new biologicsmanufacturing facility on our existing property in Dublin, Ireland.Construction of this facility has been completed and we are currentlypursuing regulatory approval.Sales and MarketingWe have established a commercial organization to support currentand future sales of our products in the U.S., Europe, Japan, Latin America,Asia Pacific countries, and other territories. Given our focus in rarediseases, we have a relatively small sales force; however, we believe thatthe size of our sales force is appropriate to effectively market our productsdue to the incidence and prevalence of rare diseases. If we receiveregulatory approval in new territories or for new products or indications,we may expand our own commercial organizations in such territories andmarket and sell our products through our own sales force in theseterritories. However, we evaluate each jurisdiction on a country-by-countrybasis, and, in certain territories, we promote our products in collaborationwith marketing partners or rely on relationships with one or morecompanies with established distribution systems and direct sales forces incertain countries. In addition, in an effort to align the structure of ourcommercial organization with our re-focused corporate strategy and torealize operational efficiencies, in selected geographies within ourinternational commercial organization, we have transitioned from a directsales model to an indirect sales model that relies to a greater extent orentirely on third-parties to promote, distribute and sell our products.CustomersOur customers are primarily comprised of distributors, pharmacies,hospitals, hospital buying groups, and other healthcare providers. In somecases, we also sell our products to governments and governmentagencies.Our net product sales to four customers, AmerisourceBergenCorporation, McKesson Corporation, Cardinal Health, Inc. and PANTHERxRare Pharmacy, each accounted for more than 10.0% of our totalrevenues for the years ended December 31, 2019 and 2018 and on acombined basis, accounted for approximately 56.4% and 50.3%,respectively. Our net product sales to three customers,AmerisourceBergen Corporation, McKesson Corporation and CardinalHealth, Inc., each accounted for more than 10.0% of our total revenues forthe year ended December 31, 201710and on a combined basis, accounted for approximately 37.0%.Because of factors such as the pricing of our products, the limitednumber of patients, the short period from product sale to patient use andthe lack of contractual return rights, customers often carry limitedinventory. We monitor inventory within our sales channels to determinewhether deferrals are appropriate based on factors such as inventorylevels compared to demand, contractual terms, financial strength ofdistributors and our ability to estimate returns.Please also see Management’s Discussion and Analysis – Net ProductSales, and Note 19, Segment Information of the consolidated financialstatements included in this Annual Report on Form 10-K, for financialinformation by geographic areas.Intellectual Property Rights and Market ExclusivityIntellectual Property Rights and Market ExclusivityWe rely on intellectual property rights to protect our investment indiscovering, developing and marketing our marketed products, productcandidates and investigational compounds. Accordingly, we own or licenserights to many patents in the U.S. and foreign countries that cover ourmarketed products, product candidates and investigational compounds.We also file and prosecute many patent applications covering newtechnologies and inventions that we believe are or may becomemeaningful to our business. In addition to patents, we rely on tradesecrets, know-how, trademarks, other forms of intellectual property andregulatory exclusivity. Our intellectual property rights have, we believe,material value and we undertake reasonable measures to protect thoserights.Patent rights and regulatory protections are key factors that determine theperiod of market exclusivity for our products. It is during the period ofmarket exclusivity that our products have their greatest commercial value.Patents provide a right to exclude others from practicing an invention for adefined period of time. In our business, patents may cover the activeingredients, uses, formulations, doses, administrations, deliverymechanisms, manufacturing processes and other aspects of a product.The period of patent protection for any given product may depend on theexpiration date of various patents and may differ from country to countryaccording to the type of patents, the scope of coverage and the remediesfor infringement available in a country. Because a significant portion of abiopharmaceutical product’s patent protection can elapse during thecourse of developing and obtaining regulatory approval of the product,certain countries provide compensatory mechanisms to extend patentterms for the biopharmaceutical products.Regulatory protections are another source of exclusive rights thatcontribute toward market exclusivity for our products. Many developed countries provide such non-patent incentives todevelop medicines. For example, countries provide data protection for aperiod of time after the approval of a new drug, during which regulatoryagencies may not rely on the innovator’s data to approve a biosimilar orgeneric copy. Some countries provide additional incentives to developmedicines for rare diseases, or orphan drugs, and medicines for pediatricpatients. Regulatory protections can work in conjunction with patents tostrengthen market exclusivity, and in countries where patent protectionhas expired or does not exist, regulatory protections can be the basis aproduct’s market exclusivity period. Different forms of regulatoryprotection are described in the section of this Annual Report on Form 10-Ktitled Government Regulation.Intellectual property rights in our industry are often disputed. Forinformation regarding legal actions that pertain to ULTOMIRIS and SOLIRISintellectual property rights, see Note 11, Commitments and Contingenciesto the notes to the consolidated financial statements included elsewherein this Annual Report on Form 10-K.SOLIRIS ExclusivityWith respect to SOLIRIS, we own an issued U.S. patent that covers theeculizumab composition of matter that will expire in 2021, taking intoaccount patent term extension. We also own other issued U.S. patentsthat cover the composition, use and formulation of eculizumab, that expirein 2027. SOLIRIS also benefits from orphan drug exclusivity for treatinggMG until 2024 and for treating NMOSD until 2026 (orphan drugexclusivity for SOLIRIS for treating PNH and aHUS in the U.S. previouslyexpired). In Europe, we have supplementary protection certificates thatextend rights associated with a composition of matter patent until May2020 in certain countries. SOLIRIS is also protected in Europe by orphandrug exclusivity through late 2023 for aHUS, until 2027 for gMG and until2029 for NMOSD (orphan drug exclusivity for SOLIRIS for treating PNH inEurope previously expired). In Japan, we own an issued patent that coversthe eculizumab composition of matter and will expire in 2027. SOLIRIS isalso protected in Japan by orphan drug exclusivity until 2020 for PNH,until 2023 for aHUS, until 2027 for gMG and until 2029 for NMOSD. Inaddition to the foregoing patent and regulatory protections, we own otherpatents and pending patent applications that are directed to variousaspects of eculizumab and which may provide additional protection forSOLIRIS in the U.S., Europe, Japan and other countries.On January 21, 2019, the Opposition Division of the European PatentOffice determined, following multi-party opposition proceedings, to revokeour European patent No. 2359834, which relates to the formulation ofSOLIRIS. This decision is currently under appeal.11ULTOMIRIS ExclusivityWith respect to ULTOMIRIS, we own issued U.S., European and Japanesepatents that cover the composition of matter, use and formulation ofravulizumab that will expire in 2035. ULTOMIRIS is also protected in theU.S. by regulatory data exclusivity until 2030 and by orphan drugexclusivity for treating PNH through 2025. ULTOMIRIS is also protected inJapan by orphan drug exclusivity for treating PNH until 2029. In additionto the foregoing patent and regulatory protections, we own other patentsand pending patent applications that are directed to various aspects ofULTOMIRIS and which may provide additional protection for ULTOMIRIS inthe U.S., Europe, Japan and other countries.STRENSIQ ExclusivityWith respect to STRENSIQ, we own an issued U.S. patent that covers theasfotase alfa composition of matter that will expire in 2029, includingpatent term restoration. STRENSIQ is also protected in the U.S. by orphandrug exclusivity until 2022 and by regulatory data exclusivity until 2027. InEurope, we own two issued patents that cover the asfotase alfacomposition of matter and these will expire in 2025 and 2028.Additionally, we have received supplementary protection certificates thatextend the patent protection until 2030 in many European countries.STRENSIQ is also protected in Europe by orphan drug exclusivity andregulatory data exclusivity until 2025. In Japan, STRENSIQ is protected byan issued patent that covers the asfotase alfa composition of matter until2028 and by orphan drug exclusivity until 2025. In addition to theforegoing patent and regulatory protections, we own other patents andpending patent applications that are directed to various aspects ofSTRENSIQ and which may provide additional protection for STRENSIQ inthe U.S., Europe, Japan and other countries.KANUMA ExclusivityWith respect to KANUMA, we own issued patents in the U.S., Europe andother countries that cover methods of using the product to treat LAL-D thatwill expire in 2031. We maintained the European patent in an oppositionproceeding that was favorably resolved in 2017. An exclusively licensedcomposition of matter patent that has been extended to 2026 viasupplementary protection certificates further protects KANUMA in certainEuropean countries. In the U.S., KANUMA also is protected by orphan drugexclusivity until 2022 and by regulatory data exclusivity until 2027. InEurope, it is protected by orphan drug exclusivity and regulatory dataexclusivity until 2025. In Japan, KANUMA is protected by orphan drugexclusivity until 2026. Investigational CompoundsWe also own U.S. and foreign patents and patent applications thatprotect our investigational compounds and product candidates. At present,we do not know whether any such investigational compound or productcandidate will be approved for human use and sale.Asset Acquisition and In-License AgreementsFrom time to time, we enter into arrangements with third parties,including asset purchase agreements, licensing arrangements, and optionagreements in order to advance and obtain technologies and servicesrelated to our business. These strategic alliances are intended tostrengthen and advance our R&D capabilities and diversify our productpipeline to support the growth of our marketed product base. Thearrangements, which generally provide Alexion with rights to specializedtechnology and intellectual property for the development of potentialproduct candidates, often require us to pay an initial fee and certainagreements call for future payments upon the attainment of agreed upondevelopment, regulatory and/or commercial milestones. Theseagreements may also require minimum royalty payments based on salesof products developed from the applicable technologies, if any.Importance of Intellectual Property Exclusivities and RightsThe pharmaceutical industry places considerable importance onobtaining and enforcing patent (including licensed patents), trade secretand other intellectual property protection for new therapies, technologies,products, services and processes. Our success therefore depends, in part,on our ability to obtain and enforce our patents (including licensedpatents) and other intellectual property rights necessary to protect ourcurrent and future products, to obtain and preserve our trade secrets andother confidential intellectual property and to avoid or neutralizeintellectual property threats from third parties. The existence of patentsdoes not guarantee our right to practice the patented technology orcommercialize the patented product. Litigation, oppositions, inter partesreviews or other proceedings are, have been and may in the future benecessary in some instances to determine the validity and scope of certainof our patents, regulatory exclusivities or other proprietary rights, and inother instances to determine the validity, scope or non-infringement ofcertain patent rights claimed by third parties to be pertinent to themanufacture, use or sale of our products. We may also face challenges toour patents, regulatory exclusivities and other proprietary rights coveringour products by manufacturers of biosimilars. For additional information,see Item 1A, Risk Factors - Risks Related to Intellectual Propertyelsewhere in this Annual Report on Form 10-K (including a recentEuropean Patent Office ruling to revoke a12previously issued patent relating to the formulation of SOLIRIS).Government RegulationGovernment RegulationDrug Development and Approval in the United StatesThe preclinical studies and clinical testing, manufacture, labeling,storage, record keeping, advertising, promotion, pharmacovigilancereporting, export, and marketing, among other things, of our products andproduct candidates, including ULTOMIRIS, SOLIRIS, STRENSIQ andKANUMA, are subject to extensive regulation by governmental authoritiesin the U.S., the EU, Japan and other territories. In the U.S., pharmaceuticalproducts are regulated by the FDA under the Federal Food, Drug, andCosmetic Act (FDCA) and other laws, including, in the case of biologics, thePublic Health Service Act. Our four approved products are regulated by theFDA as biologics. Biologics require the submission of a Biologics LicenseApplication (BLA) and approval by the FDA prior to being marketed in theU.S. In the case of KANUMA, which is derived from egg whites from selecthens, we also submitted a New Animal Drug Application (NADA) forapproval by the FDA. Manufacturers of biologics and drugs derived fromanimal origin may also be subject to state regulation. We also haveproduct candidates, including the Factor D assets from the Achillionacquisition and ALXN1840 that are small molecule compounds and, if wecomplete trials and request approval to market these products, thesesmall molecules require the submission of a New Drug Application (NDA)to the FDA. Failure to comply with FDA and state requirements, bothbefore and after product approval, may subject us and/or our partners,distributors, contract manufacturers, and suppliers to administrative orjudicial sanctions, including FDA refusal to approve applications, warningletters, product recalls, product seizures, total or partial suspension ofproduction or distribution, fines and/or criminal prosecution.The process for obtaining regulatory approval to market a biologic orsmall molecule is expensive, often takes many years, and can varysubstantially based on the type, complexity, and novelty of the productcandidates involved. The steps required before a biologic may beapproved for marketing of an indication in the U.S. generally include:(1) preclinical laboratory tests and animal tests;(2) submission to the FDA of an investigational new drug (IND)application for human clinical testing, which must becomeeffective before human clinical trials may commence;(3) adequate and well-controlled human clinical trials to establishthe safety and efficacy of the product for its intended use; (4) submission to the FDA of a BLA, supplemental BLA, NDA orsupplemental NDA;(5) FDA pre-approval inspection of the manufacturing sitesidentified in the BLA or NDA; and(6) FDA review and approval of the BLA, supplemental BLA, NDAor supplemental NDA.Preclinical studies include laboratory evaluation of product chemistryand formulation, as well as toxicological and pharmacological animalstudies to assess the potential safety and efficacy of the productcandidate. Preclinical safety tests intended for submission to FDA must beconducted in compliance with FDA’s Good Laboratory Practice (GLP)regulations and the U.S. Department of Agriculture’s Animal Welfare Act.The results of the preclinical tests, together with manufacturinginformation and analytical data, are submitted to the FDA as part of an INDapplication which must become effective before human clinical trials maybe commenced. The IND will automatically become effective 30 days afterreceipt by the FDA, unless the FDA, before that time, raises concernsabout the drug candidate or the conduct of the trials as outlined in theIND. The IND sponsor and the FDA must resolve any outstanding concernsbefore clinical trials can proceed. We cannot assure you that submissionof an IND will result in FDA authorization to commence clinical trials or thatonce commenced, other concerns will not arise that will prevent the trialsfrom moving forward. FDA may stop the clinical trials by placing them on“clinical hold” because of concerns about the safety of the product beingtested, or for other reasons.Clinical trials involve the administration of the investigational productto healthy volunteers or to patients, under the supervision of qualifiedprincipal investigators. The conduct of clinical trials is subject to extensiveregulation, including compliance with the FDA’s bioresearch monitoringregulations and Good Clinical Practice (GCP) requirements, whichestablish standards for conducting, recording data from, and reporting theresults of clinical trials, and are intended to assure that the data andreported results are credible and accurate, and that the rights, safety, andwell-being of study participants are protected. Clinical trials must beconducted in accordance with protocols that detail the objectives of thestudy, the criteria for determining subject eligibility, the dosing plan,patient monitoring requirements, timely reporting of adverse events, andother elements necessary to ensure patient safety, and any efficacycriteria to be evaluated. Each protocol must be submitted to FDA as partof the IND; further, each clinical study at each clinical site must bereviewed and approved by an independent institutional review board, priorto the recruitment of subjects. The institutional review board’s role is toprotect the rights and welfare13of human subjects involved in clinical studies by evaluating, among otherthings, the potential risks and benefits to subjects, processes for obtaininginformed consent, monitoring of data to ensure subject safety, andprovisions to protect the subjects’ privacy. Foreign studies conductedunder an IND application must meet the same requirements that apply tostudies being conducted in the U.S. Data from a foreign study notconducted under an IND may be submitted in support of a BLA if the studywas conducted in accordance with GCP and FDA is able to validate thedata.Clinical trials are typically conducted in three sequential phases, butthe phases may overlap and different trials may be initiated with the samedrug candidate within the same phase of development in similar ordiffering patient populations. Phase I studies may be conducted in alimited number of patients, but are usually conducted in healthy volunteersubjects. The drug is usually tested for safety and, as appropriate, forabsorption, metabolism, distribution, excretion, pharmaco-dynamics andpharmaco-kinetics. Phase II usually involves studies in a larger, but stilllimited patient population to evaluate preliminarily the efficacy of the drugcandidate for specific, targeted indications; to determine dosage toleranceand optimal dosage; and to identify possible short-term adverse effectsand safety risks.Phase III trials are undertaken to gather additional information toevaluate the product’s overall risk-benefit profile, and to provide a basisfor physician labeling. Phase III trials evaluate clinical efficacy of a specificendpoint(s) and test further for safety within an expanded patientpopulation at geographically dispersed clinical study sites. Phase I, PhaseII or Phase III testing might not be completed successfully within anyspecific time period, if at all, with respect to any of our product candidates.Results from one trial are not necessarily predictive of results from latertrials. Furthermore, the FDA, sponsor or institutional review board maysuspend clinical trials at any time on various grounds, including a findingthat the subjects or patients are being exposed to an unacceptable healthrisk.We must register each controlled clinical trial, other than Phase I trials,on a website administered by the National Institutes of Health (NIH)(http://clinicaltrials.gov). Registration must occur no later than 21 daysafter the first patient is enrolled, and the submission must includedescriptive information (e.g., a summary in lay terms of the study design,type and desired outcome), recruitment information (e.g., target number ofparticipants and whether healthy volunteers are accepted), location andcontact information, and other administrative data (e.g., FDA identificationnumbers). Within one year of a trial’s completion, information about thetrial including characteristics of the patient sample, primary andsecondary outcomes, trial results written in lay and technical terms, andthe full trial protocol must be submitted to the NIH. The results information is posted to the website unless the drug has not yetbeen approved, in which case the NIH posts the information shortly afterapproval. A BLA, BLA supplement, and certain other submissions to theFDA require certification of compliance with these clinical trials databaserequirements.The results of the preclinical studies and clinical trials, together withother detailed information, including information on the manufacture andcomposition of the product and proposed labeling for the product, aresubmitted to the FDA as part of a BLA or NDA requesting approval tomarket the product candidate for a proposed indication. Under thePrescription Drug User Fee Act, as amended, the fees payable to the FDAfor reviewing a BLA or NDA, as well as annual fees for commercialmanufacturing establishments and for approved products, can besubstantial. The review fee alone can exceed $2.0 subject to certainlimited deferrals, waivers and reductions that may be available. Each BLAand NDA submitted to the FDA for approval is typically reviewed foradministrative completeness and reviewability within sixty days followingsubmission of the application. If the FDA finds the submission sufficientlycomplete, the FDA will “file” the application, thus triggering a full review ofthe application. The FDA may refuse to file any BLA or NDA that it deemsincomplete or not properly reviewable at the time of submission. FDAperformance goals provide for action on an application within 12 monthsof submission. The FDA, however, may not approve a drug within theseestablished goals and its review goals are subject to change from time totime because the review process is often significantly extended by FDArequests for additional information or clarification. As part of its review, theFDA may refer the BLA or NDA to an advisory committee composed ofoutside experts for evaluation and a recommendation as to whether theapplication should be approved. Although the FDA is not bound by therecommendation of an advisory committee, the agency usually hasfollowed such recommendations.Further, the outcome of the review, even if generally favorable, may notbe an actual approval but instead a “complete response letter”communicating the FDA’s decision not to approve the application,outlining the deficiencies in the application, and identifying whatinformation and/or data (including additional pre-clinical or clinical data) isrequired before the application can be approved. Even if such additionalinformation and data are submitted, the FDA may decide that theapplication still does not meet the standards for approval. Data fromclinical trials are not always conclusive and the FDA may interpret datadifferently than we do.Before approving a BLA or NDA, the FDA typically will inspect thefacilities at which the product is manufactured and will not approve theproduct unless the facilities comply with the FDA’s current GoodManufacturing Practice (cGMP) requirements. The FDA14may deny approval of an application if applicable statutory or regulatorycriteria are not satisfied, or may require additional testing or information.FDA approval of any BLA or NDA may include many delays and requests foradditional information or never be granted. If a product is approved, theapproval will impose limitations on the indicated uses for which theproduct may be marketed, may require that warning statements beincluded in the product labeling, and may require that additional studiesbe conducted following approval as a condition of the approval. The FDAalso may impose restrictions and conditions on product distribution,prescribing or dispensing in the form of a Risk Evaluation and MitigationStrategy (REMS), or otherwise limit the scope of any approval. A REMSmay include various elements, ranging from a medication guide tolimitations on who may prescribe or dispense the drug, depending on whatthe FDA considers necessary for the safe use of the drug. To market aproduct for other indicated uses, or to make certain manufacturing orother changes, requires FDA review and approval of a BLA supplement ornew BLA (or NDA or NDA supplement in the case of a small moleculecompound) and the payment of applicable review fees. Further post-marketing testing and surveillance to monitor the safety or efficacy of aproduct may be required. In addition, new government requirements maybe established that could delay or prevent regulatory approval of ourproduct candidates under development.In 2010, the Biologics Price Competition and Innovation Act (BPCIA)was enacted, creating a statutory pathway for licensure, or approval, ofbiological products that are biosimilar to, and possibly interchangeablewith, reference biological products licensed under the Public HealthService Act. The objectives of the BPCIA are conceptually similar to thoseof the Drug Price Competition and Patent Term Restoration Act of 1984,commonly referred to as the “Hatch-Waxman Act”, which establishedabbreviated pathways for the approval of small molecule drug products.Under the BPCIA, innovator manufacturers of original reference biologicalproducts are granted 12 years of exclusive use before biosimilar versionsof such products can be licensed for marketing in the U.S. This means thatthe FDA may not approve an application for a biosimilar version of areference biological product until 12 years after the date of approval ofthe reference biological product (with a potential six-month extension ofexclusivity if certain pediatric studies are conducted and the resultsreported to FDA), although a biosimilar application may be submitted fouryears after the date of licensure of the reference biological product.Additionally, the BPCIA establishes procedures by which the biosimilarapplicant must provide information about its application and product tothe reference product sponsor, and by which information about potentiallyrelevant patents is shared and litigation over patents may proceed inadvance of approval. The BPCIA also provides a period of exclusivity for the first biosimilar to be determined by the FDA to beinterchangeable with the reference product.The FDA has released numerous guidance documents interpreting theBPCIA in recent years. These guidance documents, among other things,elaborate on the definition of a biosimilar as a biological product that ishighly similar to an already approved biological product, notwithstandingminor differences in clinically inactive components, and for which thereare no clinically meaningful differences between the biosimilar and theapproved biological product in terms of the safety, purity, and potency. TheFDA has also released final guidance documents on the assignment ofclearly distinguishable nonproprietary product names for both biologic andbiosimilar products, labeling for biosimilar products, considerations indemonstrating interchangeability with a reference product, including abiologic, and questions and answers on issues involving biosimilardevelopment.The FDA approved the first biosimilar product under the BPCIA in 2015and, as of December 2019, twenty six (26) biosimilar products have beenapproved in total. The agency continues to refine the procedures andstandards it will apply in implementing this approval pathway. In July2018, the FDA issued a Biosimilars Action Plan, asserting its intent to takesteps to facilitate biosimilars competition. We anticipate that the contoursof the BPCIA will continue to be defined as the statute is implementedover a period of years. This likely will be accomplished by a variety ofmeans, including FDA issuance of guidance documents, proposedregulations, and decisions in the course of considering specificapplications. Also, in 2019, the CREATES Act was signed, which requiresthat product manufacturers timely sell comparator trial supply at acommercially reasonable price (no more than the manufacturerswholesale acquisition cost) to biosimilar developers. The approval of abiologic product biosimilar to one of our products, including SOLIRIS, couldhave a material impact on our business because it may be significantlyless costly to bring to market, may be priced significantly lower than ourproducts, and result in a reduction in the pricing and reimbursement of ourproducts.Both before and after the FDA approves a product, the manufacturerand the holder or holders of the BLA or NDA, and in the case of KANUMA,the NADA, for the product are subject to comprehensive regulatoryoversight. If ongoing regulatory requirements are not satisfied or if safetyproblems occur after the product reaches the market, the FDA may at anytime withdraw its approval or take actions that would suspend marketing.For example, quality control and manufacturing procedures must conform,on an ongoing basis, to cGMP requirements, and the FDA periodicallysubjects manufacturing facilities to unannounced inspections to assesscompliance with cGMP. Failure to comply with applicable cGMPrequirements and other15conditions of product approval may lead the FDA to take regulatory action,including fines, recalls, civil penalties, injunctions, suspension ofmanufacturing operations, operating restrictions, withdrawal of FDAapproval, seizure or recall of products, and criminal prosecution.Accordingly, manufacturers must continue to spend time, money, andeffort to maintain cGMP compliance.The FDA and other federal regulatory agencies also closely regulate thepromotion of drugs and biologics through, among other things, standardsand regulations for direct-to-consumer advertising, communicationsregarding unapproved uses, industry-sponsored scientific and educationalactivities, and promotional activities involving the Internet and socialmedia. A product cannot be commercially promoted before it is approved.After approval, product promotion can include only those claims relating tosafety and effectiveness that are consistent with the labeling approved bythe FDA. Healthcare providers are permitted to prescribe drugs andbiologics for uses not approved by the FDA and therefore not described inthe product’s labeling - because the FDA does not regulate the practice ofmedicine. However, FDA regulations impose stringent restrictions onmanufacturers’ communications regarding such uses. Broadly speaking, amanufacturer may not promote a drug or biologic for an unapproved use,but may engage in non-promotional, balanced communication regardingsuch uses under certain conditions. Failure to comply with applicable FDArequirements and restrictions in this area may subject a company toadverse publicity and enforcement action by the FDA, the Department ofJustice, or the Office of the Inspector General (OIG) of the Department ofHealth and Human Services (HHS), as well as state authorities.Noncompliance could subject a company to a range of penalties thatcould have a significant commercial impact, including civil and criminalfines and agreements that materially restrict the manner in which acompany promotes or distributes drug or biologic products.Orphan Drug Designation in the U.S., the EU and Other ForeignJurisdictionsUnder the Orphan Drug Act, the FDA may grant orphan drugdesignation to drugs and biological products intended to treat a “raredisease or condition,” which generally is a disease or condition that affectsfewer than two hundred thousand individuals in the U.S. Orphan drugdesignation must be requested before submitting a BLA, supplementalBLA, NDA or supplemental NDA. If the FDA grants orphan drug designation,the generic identity of the therapeutic agent and its potential orphan useare publicly disclosed by the FDA. Orphan drug designation does notconvey any advantage in, or shorten the duration of, the regulatory reviewand approval process. If a product which has an orphan drug designationsubsequently receives the first FDA approval for that drug or biologic forthe indication for which it has such designation, the product is entitled to an orphan exclusivity period, in which the FDA may not approve anyother applications to market the same drug or biologic for the sameindication for seven years, except in limited circumstances, such as wherethe sponsor of a different version of the product is able to demonstratethat its product is clinically superior to the approved orphan drug product.This exclusivity does not prevent a competitor from obtaining approval tomarket a different product that treats the same disease or condition or thesame product to treat a different disease or condition. The FDA can revokea product’s orphan drug exclusivity under certain circumstances, includingwhen the holder of the approved orphan drug application is unable toassure the availability of sufficient quantities of the drug to meet patientneeds. A sponsor of a product application that has received an orphandrug designation is also granted U.S. federal tax incentives for clinicalresearch undertaken to support the application. In addition, the FDA willtypically coordinate with the sponsor on research study design for anorphan drug and may exercise its discretion to grant marketing approvalon the basis of more limited product safety and efficacy data than wouldordinarily be required.In the EU, medicinal products: (a) that are used to treat or prevent life-threatening or chronically debilitating conditions that affect no more thanfive in ten thousand people in the EU when the application is made; or(b) that are used to treat or prevent life-threatening or chronicallydebilitating conditions and that, for economic reasons, would be unlikelyto be developed without incentives; and (c) where no satisfactory methodof diagnosis, prevention or treatment of the condition concerned exists, or,if such a method exists, the medicinal product would be of significantbenefit to those affected by the condition, may be granted an orphandesignation. The application for orphan designation must be submitted tothe EMA and approved before an application is made for marketingauthorization for the product. Once authorized, orphan medicinal productsare entitled to up to ten years of market exclusivity (which may beextended for an additional two years if pediatric data have been producedin accordance with an agreed pediatric investigational plan). During thisten year period, with a limited number of exceptions, neither thecompetent authorities of the EU Member States, the EMA, or the EC arepermitted to accept applications or grant marketing authorization for othersimilar medicinal products with the same therapeutic indication. However,marketing authorization may be granted to a similar medicinal productwith the same orphan indication during the ten year period with theconsent of the marketing authorization holder for the original orphanmedicinal product or if the manufacturer of the original orphan medicinalproduct is unable to supply sufficient quantities. Marketing authorizationmay also be granted to a similar medicinal product with the same orphanindication if this latter product is safer, more efficacious16or otherwise clinically superior to the original orphan medicinal product.The period of market exclusivity may, in addition, be reduced to six years ifit can be demonstrated on the basis of available evidence that the criteriafor orphan designation are no longer met or if the orphan medicinalproduct is sufficiently profitable not to justify maintenance of marketexclusivity.ULTOMIRIS has received orphan drug designation for the treatment ofpatients with PNH in the U.S. and Japan, and for the subcutaneoustreatment of patients with aHUS in the U.S. SOLIRIS has received orphandrug designation for (a) the treatment of PNH in the U.S. and in severalother territories; (b) aHUS in the U.S., the EU and in several otherterritories; (c) the prevention of delayed graft function in renal transplantpatients in the U.S.; (d) the treatment of patients with gMG in the U.S.,Japan and the EU; and (e) for the treatment of NMOSD in the U.S., EU andJapan. In 2008, STRENSIQ received orphan drug designation for thetreatment of patients with HPP in the U.S. and the EU, and in Japan inNovember 2014. Furthermore, in 2010, KANUMA received orphan drugdesignation for the treatment of LAL-D in the U.S. and the EU. As notedabove, orphan drug designation provides certain regulatory and filing feeadvantages, including market exclusivity, except in limited circumstances,for several years after approval.Breakthrough Designation in the U.S.Congress has created the Breakthrough Therapy designation programunder which the FDA may grant Breakthrough Therapy status to a drugintended for the treatment of a serious condition when preliminary clinicalevidence indicates that the drug may demonstrate substantialimprovement on a clinically significant endpoint over existing therapies.The Breakthrough Therapy designation, which may be requested by asponsor when filing or amending an IND, is intended to facilitate andexpedite the development and FDA review of a product candidate.Specifically, the Breakthrough Therapy designation may entitle thesponsor to more frequent meetings with FDA during drug development,intensive guidance on clinical trial design, and expedited FDA review by across-disciplinary team comprised of senior managers. The designationdoes not guarantee a faster development or review time as compared toother drugs however, nor does it assure that the drug will obtain ultimatemarketing approval by the FDA. Once granted, the FDA may withdraw thisdesignation at any time if subsequent data no longer support thebreakthrough therapy designation. We have received BreakthroughTherapy designations for STRENSIQ for HPP in perinatal-, infant-, andjuvenile-onset patients; and for KANUMA in the treatment of LAL-Dpresenting in infants. It is difficult for us to predict the impact that thesedesignations will have on the development and FDA review of ourproducts. 21st Century Cures Act (the Cures Act)In December 2016, Congress passed the Cures Act which included anumber of provisions designed to speed development of innovativetherapies, provide funding authorization to the NIH, and provide fundingfor certain oncology-directed research. Because the FDA is still working toimplement many aspects of the Cures Act, its potential effect on ourbusiness remains unclear with the exception of a provision requiring thatwe post our policies on the availability of expanded access programs forindividuals. In addition, the Cures Act includes provisions requiring theFDA to assess and publish guidance on the use of novel clinical trialdesigns, the use of real world evidence in applications, the availability ofsummary level review for supplemental applications for certainindications, and the qualification of drug development tools. Becausethese provisions allow the FDA to spend several years developing thesepolicies, the effect on us could be delayed. At this time, we cannotanticipate what effect these future policies may have on our business.The Cures Act also authorized $1,800.0 in funding for the “CancerMoonshot” initiative (the Initiative) over a seven-year period to be run bythe National Cancer Institute under the NIH. The Initiative’s strategic goalsencourage inter-agency cooperation and fund research and innovation tocatalyze new scientific breakthroughs, bring new therapies to patients,and strengthen prevention and diagnosis. The Initiative aims to stimulatedrug development through the creation of a public-private partnership with20 to 30 pharmaceutical and biotechnology companies to expedite cancerresearchers’ access to investigational agents and approved drugs. Thispartnership is designed to permit researchers to obtain drugs and othertechnologies from a preapproved “formulary” list without having tonegotiate with each company for individual research projects. We willcontinue to monitor these developments but cannot currently assess howthe Initiative may impact our business.Right to Try ActThe Right to Try Act was signed into law May 30, 2018. The lawprovides an access pathway for eligible patients (as defined under thelaw) who have been diagnosed with life-threatening diseases or conditionsand have tried all approved treatment options and are unable toparticipate in a clinical trial to obtain certain investigational or unapprovedtreatments, each as defined under the law.As a clinical trial sponsor, when requested, Alexion is required toprovide eligible patients or their providers with information about whetherour products are considered an eligible investigational drug under Right toTry and if we would provide products under the Right to Try Act.17Foreign Regulation of Drug Development and ApprovalIn addition to regulations in the U.S., we are subject to a variety offoreign regulatory requirements including those governing drugdevelopment, pre-clinical trials, human clinical trials, marketing approval,manufacturing, pharmacovigilance and post-marketing regulation fordrugs. The foreign regulatory approval process includes all of the risksassociated with FDA approval set forth above, as well as additionalcountry-specific regulations. Whether or not we obtain FDA approval for aproduct, we must obtain approval of a product by the comparableregulatory authorities of foreign countries before we can commenceclinical trials or marketing of the product in those countries. Approval byone regulatory authority does not ensure approval by regulatoryauthorities in other jurisdictions. The approval process varies from countryto country, can involve additional testing beyond that required by FDA, andmay be longer or shorter than that required for FDA approval. Therequirements governing the conduct of clinical trials, product licensing,pricing, promotion, and reimbursement vary greatly from country tocountry.Under the EU regulatory system, we may submit applications formarketing authorizations either under a centralized, decentralized, ormutual recognition marketing authorization procedure. The centralizedprocedure provides for the grant of a single marketing authorization for amedicinal product by the EC on the basis of a positive opinion by the EMACommittee for Medicinal Products for Human Use (ChMP) and ismandatory for certain categories of medicinal products, such as orphanmedicinal products. A centralized marketing authorization is valid for all EUMember States and the European Economic Area (EEA) states. Thedecentralized procedure and the mutual recognition procedure applybetween EU Member States. The decentralized marketing authorizationprocedure involves the submission of an application for marketingauthorization to the competent authority of all EU member states in whichthe product is to be marketed. One national competent authority, selectedby the applicant, assesses the application for marketing authorization. Thecompetent authorities of the other EU Member States are subsequentlyrequired to grant marketing authorization for their territory on the basis ofthis assessment, except where grounds of potential serious risk to publichealth require this authorization to be refused. The mutual recognitionprocedure provides for mutual recognition of marketing authorizationsdelivered by the national competent authorities of EU Member States bythe competent authorities of other EU Member States. The holder of anational marketing authorization may submit an application to thecompetent authority of an EU Member State requesting that this authorityrecognize the marketing authorization delivered by the competentauthority of another EU Member State for the same medicinal product. TheEC may agree upon recommendation of the EMA to grant for medicines designated as orphanmedicines a (i) conditional marketing authorization in the interest of publichealth under certain conditions; namely that unmet medical needs will befulfilled, the benefit-risk balance of the product is positive, the benefit topublic health of the medicinal product’s immediate availability on themarket outweighs the risks due to need for further data and it is likely thatthe applicant will be able to provide comprehensive data; or (ii) marketingauthorization under “exceptional circumstances” when the applicant canshow that it is unable to provide comprehensive data on the efficacy andsafety under normal conditions of use and subject to specific proceduresbeing introduced. This may arise in particular when the intendedindications are very rare, in the present state of scientific knowledge, it isnot possible to provide comprehensive information, or when generatingdata may be contrary to generally accepted ethical principles.Similar to the U.S., both marketing authorization holders andmanufacturers of medicinal products are subject to comprehensiveregulatory oversight by the EMA and the competent authorities of theindividual EU Member States both before and after grant of themanufacturing and marketing authorizations. This includes control ofcompliance by the companies within the EU legal framework (i.e., GCP,GLP, cGMP and pharmacovigilance rules, which govern quality control ofthe manufacturing process and require documentation policies andprocedures). We and our third party manufacturers are required underregulations to ensure that all of our processes, methods, and equipmentare compliant with GCP, GLP, cGMP and pharmacovigilance rules. TheEMA and national competent authorities have in the past, and expect thatthey will continue to, arrange inspections to ensure that we adhere tothese principles and regulations. Any adverse findings from suchinspections, depending on their severity, may result in significant delays inobtaining a marketing authorization, may impose penalties or may result inother action by regulatory authorities.Failure by us or by any of our third party partners, including suppliers,manufacturers, marketers and distributors to comply with EU laws and therelated national laws of individual EU Member States governing theconduct of clinical trials, manufacturing approval, marketing authorizationof medicinal products, pre-approval promotion of products, reporting ofadverse health events, both before and after grant of marketingauthorization, and marketing/promotion of such products following grantof authorization may result in administrative, civil, or criminal penalties.These penalties could include delays in or refusal to authorize the conductof clinical trials or to grant marketing authorization, product withdrawalsand recalls, product seizures, suspension, or variation of the marketingauthorization, total or partial suspension of production, distribution,manufacturing, or clinical trials, operating18restrictions, injunctions, suspension of licenses, fines, and criminalpenalties.In April 2014, the EU adopted a new Clinical Trials Regulation, (EU) No536/2014, which will replace the current Clinical Trials Directive2001/20/EC. To ensure that the rules for clinical trials are identicalthroughout the EU, the new EU clinical trials legislation was passed as aregulation that is directly applicable in all EU Member States without theneed for implementation into the Member States’ national laws. All clinicaltrials performed in the EU are required to be conducted in accordance withthe Clinical Trials Directive 2001/20/EC until the new Clinical TrialsRegulation (EU) No 536/2014 becomes applicable. According to thecurrent plans of the EMA, the new Clinical Trials Regulation will becomeapplicable in late 2021 or early 2022. The Clinical Trials Directive2001/20/EC will, however, still apply three years from the date of entryinto application of the Clinical Trials Regulation to (i) clinical trialsapplications submitted before the entry into application and (ii) clinicaltrials applications submitted within one year after the entry intoapplication if the sponsor opts for old regulatory framework.The new Clinical Trials Regulation aims to simplify and streamline theapproval of clinical trials in the EU. The main characteristics of theregulation include: a streamlined application procedure via a single entrypoint, the EU portal; a single set of documents to be prepared andsubmitted for the application, as well as simplified reporting proceduresthat will spare sponsors from submitting broadly identical informationseparately to various bodies and different member states; andharmonized procedure for the assessment of applications for clinicaltrials, which is divided in two parts.The EU has had an established regulatory pathway for biosimilars since2005 and has approved several biosimilar products. In addition, inFebruary 2017 the EMA launched a pilot project with the aim of providingscientific advice to companies for the development of new biosimilarproducts.The approval of a biosimilar of one of our products marketed in the EUcould have a material impact on our business. The biosimilar may be lesscostly to bring to market, may be priced significantly lower than ourproducts, and result in a reduction in the pricing and reimbursement of ourproducts. Pharmaceutical Pricing and ReimbursementSales of pharmaceutical products depend in significant part on theextent of coverage and reimbursement from third party payers, includinggovernment programs such as Medicare and Medicaid in the U.S, as wellas private health insurers. Third party payers are sensitive to the cost ofdrugs and are increasingly seeking to implement cost containmentmeasures to control, restrict access to, or influence the purchase of drugs,biologics, and other health care products and services. For example,governments may regulate reimbursement, pricing, and coverage ofproducts in order to control costs or to affect utilization levels of certainproducts. In addition, private health insurance plans may restrict coverageof some products, such as by using drug formularies under which onlyselect drugs or uses of select drugs are covered, through theimplementation of variable patient co-payment obligations that make non-preferred drugs more expensive for patients, and by employing utilizationmanagement controls, such as requirements for prior authorization or priorfailure on another type of treatment before the insurer will cover andreimburse a particular therapy. Payers may especially impose theseobstacles to coverage for higher-priced drugs such as those we sell.Consequently, all of our products may be subject to payer-drivenrestrictions, rendering patients responsible for a higher percentage of thetotal cost of drugs in the outpatient setting. This can lower the demand forour products if the increased patient cost-sharing obligations are morethan patients can afford.Medicare is a U.S. federal government insurance program that coversindividuals aged 65 years or older, as well as individuals of any age withcertain disabilities, individuals with end-stage renal disease and ALS. Ourproducts are primarily reimbursed by Medicare under Medicare Part B,which generally covers physician services and outpatient care, includingsome outpatient prescription drugs under limited conditions, andMedicare Part D, which provides an outpatient prescription drug benefitfor Medicare beneficiaries.Generally speaking, Medicare Part B provides limited coverage ofcertain outpatient drugs and biologics that are reasonable and necessaryfor diagnosis or treatment of an illness or injury. Under Part B,reimbursement for most drugs is based on a fixed percentage above theapplicable product’s average sales price (ASP). Manufacturers calculateASP based on a statutory formula and must report ASP information to theCenters for Medicare and Medicaid Services (CMS), the federal agencywithin HHS that administers Medicare and the Medicaid Drug RebateProgram, on a quarterly basis. Under the Medicare Prescription Drug,Improvement, and Modernization Act of 2003, Medicare pays physiciansand suppliers ASP plus 6.0% for most Part B-covered drugs and biologics.Medicare payment for separately payable Part B drugs reimbursedthrough the hospital outpatient prospective payment system is19generally under the discretion of CMS, meaning it can be changed withoutlegislative action from Congress. The current reimbursement rate for mostseparately payable Part B drugs used in the hospital outpatient setting isASP plus 6.0%. One exception, however, is that, effective January 1, 2018,Medicare pays 340B hospital covered entities at ASP minus 22.5% (or77.5% of ASP) for separately payable Part-B covered drugs and biologicsthat were purchased under the 340B Program in an outpatient clinicsetting, as discussed further below. In addition, the sequester that iscurrently in place through 2029 reduces the portion of the payment paidby Medicare by 2.0%, which results in a net payment rate equivalent toASP plus 4.3%. The sequester affects other Medicare payments, and theoverall 2.0% sequester rate is discussed in more detail below. In bothsettings (i.e., physician office and hospital outpatient), the amount ofreimbursement is updated quarterly based on the manufacturer’ssubmission of new ASP information.Medicare Part D is an outpatient prescription drug benefit available toall Medicare beneficiaries. It is a benefit that is implemented throughprivate insurance plans under contractual arrangements between theplans and the federal government. Similar to pharmaceutical coveragethrough private health insurance, Part D plans develop formularies,impose utilization controls (such as prior authorization, step therapy, andquantity limits), and negotiate discounts from drug manufacturers.Because of this, the list of prescription drugs covered by Part D plansvaries by plan. However, with limited exceptions, individual plans arerequired by statute to cover certain therapeutic categories and classes ofdrugs or biologics and to have at least two drugs in each uniquetherapeutic category or class.Our products can also be provided under Medicare Parts A and C(Medicare Advantage, as discussed below). Medicare Part A generallycovers inpatient hospital benefits. Hospitals typically receive a singlepayment for an inpatient stay depending on the Medicare SeverityDiagnosis Related Group (MS-DRG) to which the inpatient stay isassigned. The MS-DRG for a hospital inpatient stay varies based on thepatient’s condition. Hospitals generally do not receive separate paymentfor drugs and biologics administered to patients during an inpatienthospital stay. As a result, hospitals may not have a financial incentive toutilize our products for inpatients where lower cost alternative therapiesare available. Finally, Medicare beneficiaries can receive their Part A, B,and D benefits through a Medicare Advantage organization plan that isadministered by a private insurance company pursuant to Medicare PartC. Similar to private health insurance plans, Medicare Advantageorganization plans negotiate discounts with health care providers andimplement utilization controls, including, most notably, step therapy forPart B drugs, which became effective January 1, 2019. This means that Medicare Advantage plans can now require beneficiaries to use amore cost-effective drug therapy first and only progress to a more costlytherapy if and when determined necessary after medical review. Thismethod of utilization management might lower the demand for therapiessubject to step therapy, and will likely be applied to very expensivetherapies.The Budget Control Act of 2011, as amended, requires Medicarepayments for all items and services, including drugs and biologics, to bereduced by up to 2.0% under sequestration (i.e., automatic spendingreductions, calculated each year by the Office of Management andBudget). Subsequent legislation extended the 2.0% reduction, on average,to 2029. This 2.0% reduction in Medicare payments affects all Parts of theMedicare program and could impact sales of our products. Additionalsequestration orders under the statutory Pay-As-You-Go Act of 2010 couldalso be triggered, potentially resulting in up to a 4% reduction in Medicarepayments. These potential future reductions to Medicare Part Breimbursement to physicians could potentially negatively impact ourbusiness as well.Pursuant to the Medicaid Drug Rebate Statute (42 U.S.C. § 1396r-8(a)(1)), we are required to participate in the Medicaid Drug Rebate Programin order for federal payment to be available for our products underMedicaid and Medicare Part B. Medicaid is a government health insuranceprogram for eligible low-income adults, children, families, pregnantwomen, and people with certain disabilities. It is jointly funded by thefederal and state governments, and it is administered by individual stateswithin parameters established by the federal government. As a result,coverage and reimbursement requirements for drugs and biologics vary bystate. For example, drugs and biologics may be covered under the medicalor pharmacy benefit, and state Medicaid programs may impose differentutilization management controls, such as prior authorization, step therapy,or quantity limits on drugs and biologics, subject to federal limitations forsuch controls. But all states must generally provide coverage andreimbursement for a manufacturer’s covered outpatient drugs, as thatterm is defined by applicable law, if a manufacturer participates in theMedicaid Drug Rebate Program.Under the Medicaid Drug Rebate Program, we are required to, amongother things, pay a rebate to each state Medicaid program for quantities ofour products utilized on an outpatient basis (with some exceptions) thatare dispensed to Medicaid beneficiaries and paid for by a state Medicaidprogram. Medicaid Drug Rebate Program Rebates are calculated using astatutory formula, state-reported utilization data, and pricing data that arecalculated and reported by us on a monthly and quarterly basis to CMS.These data include the average manufacturer price and, in the case ofinnovator products, the best price for each drug. As further20described below under “U.S. Healthcare Reform and Other U.S. andInternational Healthcare Laws,” the Patient Protection and Affordable CareAct, as amended by the Health Care and Education Reconciliation Act of2010 (collectively, the PPACA), made significant changes to the MedicaidDrug Rebate Program that could negatively impact our results ofoperations. Additionally, the Right Rebate Act became effective April 2019,which primarily imposes new penalties on drug manufacturers thatknowingly misclassify a covered outpatient drug under the Medicaid DrugRebate Program.In addition to participating in the Medicaid Drug Rebate Program,federal law requires manufacturers like us to participate in the PublicHealth Service’s 340B drug pricing program in order for federal funds tobe available for the manufacturer’s drugs under Medicaid and MedicarePart B. The 340B drug pricing program requires participatingmanufacturers to agree to charge statutorily-defined covered entities nomore than the 340B “ceiling price” for the manufacturer’s coveredoutpatient drugs. These 340B covered entities only include health careorganizations that have certain federal designations or receive fundingfrom specific federal programs, including Federally Qualified HealthCenters, Ryan White HIV/AIDS Program grantees, and certain types ofhospitals and specialized clinics, as well as certain hospitals that serve adisproportionate share of low-income patients. PPACA expanded the 340Bprogram to include additional types of covered entities: certain children’shospitals, certain free-standing cancer hospitals, critical access hospitals,rural referral centers and sole community hospitals, each as defined byPPACA. However, “orphan drugs” i.e., those designated under section 526of the FDCA, such as each of our products that have received marketauthorization are exempted from the ceiling price requirements for thesenewly-eligible entities when used for the rare disease or condition forwhich they received an orphan designation. The 340B ceiling price iscalculated using a statutory formula, which is based on the averagemanufacturer price and rebate amount for the covered outpatient drug ascalculated under the Medicaid Drug Rebate Program, and in general,products subject to the Medicaid Drug Rebate Program are also subject tothe 340B ceiling price calculation and discount requirement. Any changesto the definition of Medicaid average manufacturer price and the Medicaidrebate amount also could affect our 340B ceiling price calculation for ourproducts and could negatively impact our results of operations. Inaddition, after multiple delays, the final rule implementing civil monetarypenalties against manufacturers for instances of overcharging 340Bcovered entities became effective on January 1, 2019. Accordingly, wecould be subject to such penalties if the government finds that weknowingly and intentionally overcharged a 340B covered entity.Federal law requires that for a company to be eligible to have itsproducts paid for with federal funds under the Medicaid and Medicare PartB programs as well as to be purchased by certain federal agencies and grantees, it also mustparticipate in the Department of Veterans Affairs (VA) Federal SupplySchedule (FSS) pricing program. To participate, we are required to enterinto an FSS contract and other agreements with the VA for our products,which qualify as “covered drugs.” Under these agreements, we must makeour products available to the “Big Four” federal agencies the VA, theDepartment of Defense (DoD), the Public Health Service (including theIndian Health Service), and the Coast Guard at pricing that is cappedpursuant to a statutory federal ceiling price, or FCP, formula set forth inSection 603 of the Veterans Health Care Act of 1992 (VHCA). The FCP isbased on a weighted average non-federal average manufacturer price(Non-FAMP), which manufacturers are required to report on a quarterlyand annual basis to the VA. Pursuant to the VHCA, knowing provision offalse information in connection with a Non-FAMP filing can subject amanufacturer to a penalty for each item of false information and couldresult in other potential liability as well, including liability under the FalseClaims Act (which is discussed in more detail below).FSS contracts are federal procurement contracts that include standardgovernment terms and conditions, separate pricing for each product, andextensive disclosure and certification requirements. All items on FSScontracts are subject to a standard FSS contract clause that requires FSScontract price reductions under certain circumstances where pricing isreduced to an agreed “tracking customer.” Further, in addition to the “BigFour” agencies, all other federal agencies and some non-federal entitiesare authorized to purchase off FSS contracts. FSS contractors arepermitted to charge FSS purchasers other than the Big Four agencies“negotiated pricing” for covered drugs that is not capped by the FCP;instead, such pricing is negotiated based on a mandatory disclosure of thecontractor’s commercial “most favored customer” pricing. We offer dualpricing on our FSS contract.In addition, pursuant to regulations issued by the DoD to implementSection 703 of the National Defense Authorization Act for Fiscal Year2008, each of our covered drugs is listed on an agreement with theDefense Health Agency (DHA) under which we have agreed to honor the“Big Four” pricing for our products when they are dispensed to TRICAREbeneficiaries by TRICARE retail network pharmacies. More specifically, wehave agreed to provide rebates (or refunds) on such utilization. Companiesare required to enter into a DHA Agreement for “covered drug” products inorder for the covered drug to be eligible for DoD formulary inclusion andavailable to TRICARE beneficiaries without preauthorization. The formulafor determining the rebate is established in the regulations and our DHAagreement and is based on the difference between the annual Non-FAMPand the FCP (as described above, these price21points are required to be calculated by us under the VHCA).As noted in the foregoing, pricing and rebate calculations vary amongproducts and programs. The calculations can be very complex and areoften subject to interpretation by us, governmental or regulatory agenciesand the courts. We cannot assure you that our submissions will not befound by CMS or other governmental agencies to be incomplete orincorrect. Governmental agencies may also make changes in programinterpretations, requirements or conditions of participation, some of whichmay have implications for amounts previously estimated or paid. Forexample, if we become aware that certain Medicaid Drug Rebate Programprice reporting for a prior quarter was incorrect, or has changed as a resultof recalculation of the pricing data, we are obligated to resubmit thecorrected data for a period not to exceed twelve quarters from the quarterin which the data originally were due, and CMS may consider restatementsfor earlier periods as well depending on the circumstance. Suchrestatements and recalculations increase our costs for complying with thelaws and regulations governing the Medicaid Drug Rebate Program. Anycorrections to our Medicaid rebate calculations could result in an increaseor decrease in our rebate liability for past quarters, depending on thenature of the correction. Price recalculations also may affect the ceilingprice at which we are required to offer our products to certain coveredentities under the 340B drug pricing program.Any failure to comply with these price reporting and rebate paymentobligations could negatively impact our financial results. Civil monetarypenalties can be applied if we are found to have knowingly submitted anyfalse price information to the government, if we are found to have made amisrepresentation in the reporting of our average sales price, or if we failto submit the required price data on a timely basis. Such conduct alsocould be grounds for CMS to terminate our Medicaid drug rebateagreement, in which case federal payments may not be available underMedicaid or Medicare Part B for our covered outpatient drugs, as well asprovide a basis for other potential liability under other federal laws such asthe False Claims Act.Payers also are increasingly considering new metrics as the basis forreimbursement rates, such as ASP, average manufacturer price, andactual acquisition cost. The existing data for reimbursement based onthese metrics is relatively limited, although certain states have begun tosurvey acquisition cost data for the purpose of setting Medicaidreimbursement rates. CMS surveys and publishes retail communitypharmacy acquisition cost information in the form of National AverageDrug Acquisition Cost files to provide state Medicaid agencies with a basisof comparison for their own reimbursement and pricing methodologiesand rates. It may be difficult to project the impact of these evolvingreimbursement mechanics on the willingness of payers to cover our products.Further, in the U.S., there is increased focus on drug pricing: thePresident, HHS officials (including CMS and the FDA) and lawmakers andregulators (at both the federal and state level) have expressed a clearinterest in efforts to reduce prices for drugs and biologics, further increasetransparency around prices and price increases, lower out-of-pocket costsfor consumers, and decrease spending on drugs by government programs.In addition, members of Congress launched an investigation into thepricing practices of the prescription drug industry, held hearings in 2019to investigate increases in drug prices, and continue to release draftlegislation to address high drug prices and increase drug pricetransparency. Additionally, HHS announced its intent to propose anInternational Pricing Index (IPI) regulatory policy that would allow theMedicare program to acquire Part B drugs at a price closer to what othercountries pay for these drugs. At this time, we are unable to predictwhether a final rule for IPI will be implemented or the final provisions ofsuch a rule if implemented. In coordination with the FDA, HHS also issueda public notice stating that it intends to issue a proposed rule that wouldallow for the importation of certain prescription drugs from Canada.The state of California passed legislation that requires drugmanufacturers to notify the state within 60 days of instituting priceincreases and Maryland passed legislation to create a drug pricing reviewcommission that will evaluate drug cost and recommend setting an upperlimit or cap for therapies deemed too expensive. As 2020 is a Presidentialelection year for the U.S., we expect greater legislative and regulatorychanges, continued Congressional scrutiny, and negative media attentionwith respect to drugs reimbursed by federal healthcare programs, likeours, which could have a negative impact on our operations.In addition, in some foreign countries, the proposed pricing for a drugmust be approved before it may be lawfully marketed. Moreover, therequirements governing drug pricing and reimbursement vary widely fromcountry to country. For example, in the EU, the sole legal instrument at theEU level governing the pricing and reimbursement of medicinal products isCouncil Directive 89/105/EEC (the Price Transparency Directive). The aimof the Price Transparency Directive is to ensure that pricing andreimbursement mechanisms established in EU Member States aretransparent and objective, do not hinder the free movement and trade ofmedicinal products in the EU and do not hinder, prevent or distortcompetition on the market. The Price Transparency Directive does not,however, provide any guidance concerning the specific criteria on thebasis of which pricing and reimbursement decisions are to be made inindividual EU Member States. Neither does it have any directconsequence for pricing or levels of reimbursement in individual EU22Member States. Pricing of prescription only medicinal products is anational prerogative. Therefore the relevant national authorities of theindividual EU Member States are free to restrict the range of medicinalproducts for which their national health insurance systems providereimbursement and to control the prices and/or reimbursement ofmedicinal products for human use. Some individual EU Member Statesadopt policies according to which a specific price or level ofreimbursement is approved for the medicinal product. Other EU MemberStates adopt a system of reference pricing, basing the price orreimbursement level in their territory either, on the pricing andreimbursement levels in other countries, or on the pricing andreimbursement levels of medicinal products intended for the sametherapeutic indication. Furthermore, some EU Member States imposedirect or indirect controls on the profitability of the company placing themedicinal product on the market.Health Technology Assessment (HTA) of medicinal products isbecoming an increasingly common part of the pricing and reimbursementprocedures in some EU Member States. These countries include theUnited Kingdom, France, Germany and Sweden. The HTA process in the EUMember States is governed by the national laws of these countries. HTA isthe procedure according to which the assessment of the public healthimpact, therapeutic impact and the economic and societal impact of theuse of a given medicinal product in the national healthcare systems of theindividual country is conducted. HTA generally focuses on the clinicalefficacy and effectiveness, safety, cost, and cost-effectiveness ofindividual medicinal products as well as their potential implications for thenational healthcare system. Those elements of medicinal products arecompared with other treatment options available on the market.The outcome of HTA may influence the pricing and reimbursementstatus for specific medicinal products within individual EU Member States.The extent to which pricing and reimbursement decisions are influencedby the HTA of a specific medicinal product vary between the EU MemberStates.In 2011, Directive 2011/24/EU was adopted at the EU level. ThisDirective concerns the application of patients’ rights in cross-borderhealthcare. The Directive is intended to establish rules for facilitatingaccess to safe and high-quality cross-border healthcare in the EU.Pursuant to Directive 2011/24/EU, a voluntary network of nationalauthorities or bodies responsible for HTA in the individual EU MemberStates was established. The purpose of the network is to facilitate andsupport the exchange of scientific information concerning HTAs. This couldlead to harmonization of the criteria taken into account in the conduct ofHTA between EU Member States in pricing and reimbursement decisionsand negatively impact price in at least some EU Member States. On a continuous basis, we engage with appropriate authorities inindividual countries on the operational, reimbursement, price approvaland funding processes that are separately required in each country.Fraud and AbusePharmaceutical companies participating in federal healthcareprograms like Medicare or Medicaid are subject to various U.S. federal andstate laws pertaining to healthcare “fraud and abuse,” including withoutlimitation, anti-kickback and false claims laws. Violations of U.S. federaland state fraud and abuse laws may be punishable by criminal, civil andadministrative sanctions, including fines, damages, civil monetarypenalties and exclusion from participation in federal healthcare programs(including Medicare and Medicaid). Applicable U.S. statutes, include, butare not limited to, the following:•The federal Anti-Kickback Statute prohibits, among other things,knowingly and willfully soliciting, offering, receiving, or paying anyremuneration, directly or indirectly, in cash or in kind, to induce orreward purchasing, ordering or arranging for or recommending thepurchase or order of any item or service for which payment may bemade, in whole or in part, under a federal healthcare program suchas Medicare and Medicaid. Liability may be established without aperson or entity having actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it. This statute hasbeen interpreted to apply broadly to arrangements betweenpharmaceutical manufacturers on the one hand and individualssuch as prescribers, patients, purchasers and formulary managerson the other. In addition, PPACA amended the Social Security Actto provide that the government may assert that a claim includingitems or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim forpurposes of the federal civil False Claims Act (which is discussedbelow). A conviction for violation of the Anti-Kickback Statuteresults in criminal fines and requires mandatory exclusion fromparticipation in federal health care programs. Although there are anumber of statutory exceptions and regulatory safe harbors to thefederal Anti-Kickback Statute that protect certain common,industry practices from prosecution, the exceptions and safeharbors are drawn narrowly, and arrangements may be subject toscrutiny or penalty if they do not fully satisfy all elements of anavailable exception or safe harbor. Several of the existing Anti-Kickback Statute safe harbors are currently the subject of possiblereform, including proposals to create new safe harbors that wouldpromote and protect value-based and23coordinated care arrangements. Any changes to the discount safeharbor may cause us to review our arrangements and pricingstrategies with payers.•The federal civil False Claims Act (FCA) imposes civil penaltiesagainst individuals or entities for, among other things, knowinglypresenting, or causing to be presented, claims for payment to thegovernment that are false or fraudulent, or knowingly making,using or causing to be made or used a false record or statementmaterial to such a false or fraudulent claim, or knowinglyconcealing or knowingly and improperly avoiding, decreasing, orconcealing an obligation to pay money to the federal government.This statute also permits a private individual acting as a“whistleblower” to bring actions on behalf of the federalgovernment alleging violations of the FCA and to share in anymonetary recovery. FCA liability is potentially significant in thehealthcare industry because the statute provides for trebledamages and mandatory penalties of eleven thousand onehundred eighty-one to twenty-two thousand three hundred sixty-three dollars per false claim or statement for penalties assessedafter January 29, 2018, with respect to violations occurring afterNovember 2, 2015 (and penalties of five thousand five hundred toeleven thousand dollars with respect to violations occurring beforethat date). Government enforcement agencies and privatewhistleblowers have investigated pharmaceutical companies for orasserted liability under the FCA for a variety of allegedinappropriate promotional and marketing activities, includingthose involving the provision of free product or other items ofvalue to customers, patient support programs, certain financialarrangements with healthcare providers, misstated governmentdrug pricing information, and purported “off-label” promotion ofproducts, among other things.•Under the federal criminal statute on false statements relating tohealth care matters, it is a crime to knowingly and willfully falsify,conceal, or cover up a material fact, make any materially false,fictitious, or fraudulent statements or representations, or make oruse any materially false writing or document knowing the same tocontain any materially false, fictitious, or fraudulent statement orentry in connection with the delivery of or payment for federallyfunded healthcare benefits, items, or services.•Under the Health Insurance Portability and Accountability Act of1996 (HIPAA) criminal federal health care fraud statute, it is acrime to knowingly and willfully execute, or attempt to execute, ascheme or artifice to defraud any health care benefit program or toobtain, by means of false or fraudulent pretenses, representations, orpromises, any of the money or property owned by, or under thecustody or control of, any health care benefit program, inconnection with the delivery of or payment for health care benefits,items, or services.•The federal Civil Monetary Penalties Law authorizes the impositionof substantial civil monetary penalties against an entity, such as apharmaceutical manufacturer, that engages in activities including,among others (1) knowingly presenting, or causing to bepresented, a claim for services not provided as claimed or that isotherwise false or fraudulent in any way; (2) arranging for orcontracting with an individual or entity that is excluded fromparticipation in federal healthcare programs to provide items orservices reimbursable by a federal healthcare program; (3)violations of the federal Anti-Kickback Statute; or (4) failing toreport and return a known overpayment.•The majority of states also have statutes similar to the federal Anti-Kickback Statute and FCA that apply to items and servicesreimbursed under Medicaid and other state health care programs,or, in several states, apply regardless of the payer.•The federal Physician Payments Sunshine Act requires “applicablemanufacturers” of products, including biologics, for which paymentis available under Medicare, Medicaid or the State Children’sHealth Insurance Program, among others, to track and reportannually to the federal government (for disclosure to the public)certain payments and other transfers of value they make to”covered recipients.” The term covered recipients includesphysicians, teaching hospitals, and, for reports submitted on orafter January 1, 2022, physician assistants, nurse practitioners,clinical nurse specialists, certified nurse anesthetists, and certifiednurse-midwives. In addition, several U.S. states and localities haveenacted legislation requiring pharmaceutical companies toestablish marketing compliance programs, file periodic reports,and/or make periodic public disclosures on sales, marketing,pricing, clinical trials, and other activities. Other state laws prohibitcertain marketing-related activities including the provision of gifts,meals or other items to certain healthcare providers, and restrictthe ability of manufacturers to offer co-pay support to patients forcertain prescription drugs. Some states and cities requireidentification or licensing of state representatives. In addition,several recently passed state laws to require disclosures related tostate agencies and/or commercial purchasers with respect tocertain price increases that24exceed a certain level as identified in the relevant statutes. Manyof these laws and regulations contain ambiguous requirementsthat government officials have not yet clarified. Given the lack ofclarity in the laws and their implementation, our reporting actionscould be subject to the penalty provisions of the pertinent federaland state laws and regulations.Sanctions under federal and state fraud and abuse laws may includesignificant criminal, civil, and administrative penalties, including damages,fines, imprisonment, and exclusion of a manufacturer’s products fromreimbursement under government programs. Any of the foregoing wouldbe expected to have a negative impact on our business which may bematerial.Federal and state authorities are continuing to devote significantattention and resources to enforcement of fraud and abuse laws withinthe pharmaceutical industry, and private individuals have been active inalleging violations of the law and bringing suits on behalf of thegovernment under the FCA. For example, federal enforcement agenciesrecently have investigated certain pharmaceutical companies’ product andpatient assistance programs, including manufacturer reimbursementsupport services, relationships with specialty pharmacies, and grants toindependent charitable foundations. If we, our vendors, or donationrecipients are deemed to fail to comply with relevant laws, regulations orevolving government guidance in the operation of these programs, wecould be subject to damages, fines, penalties or other criminal, civil oradministrative sanctions or enforcement actions. We cannot ensure thatour compliance controls, policies and procedures will be sufficient toprotect against acts of our employees, business partners or vendors thatmay violate the laws or regulations of the jurisdictions in which weoperate. In December 2016, we received a subpoena from the U.S.Attorney’s Office for the District of Massachusetts relating generally to oursupport of 501(c)(3) organizations that provide financial assistance toMedicare patients, Alexion’s provision of free drug to Medicare patientsand Alexion’s related compliance policies and training materials. In April2019, we entered into a civil settlement agreement with the DOJ and theOffice of Inspector General (OIG) of the U.S. Department of Health andHuman Services to resolve this matter. As part of the settlementagreement, Alexion paid $13.1 to the DOJ and OIG. Please see thediscussion below in the “Risk Factors” section and Note 11, Commitmentsand Contingencies to the consolidated financial statements includedelsewhere in this Annual Report on Form 10-K for additional detailsregarding this investigation. Efforts to ensure that our businessarrangements continue to comply with applicable healthcare laws andregulations could be costly.Outside the U.S., other countries have implemented similar laws andregulations relating to fraud and abuse in the sale of pharmaceutical products and requirements for disclosure offinancial interactions with healthcare providers and additional countriesmay consider or implement such laws. See Other Regulations below foradditional information on such regulations outside the U.S.U.S. Healthcare Reform and Other U.S. and International Healthcare LawsPPACA was adopted in the U.S. in March 2010. This law substantiallychanges the way healthcare is financed in the U.S. by both governmentaland private insurers, and significantly impacts the pharmaceuticalindustry. PPACA contains a number of provisions that have and areexpected to impact our business and operations. Changes that may affectour business include those governing enrollment in federal healthcareprograms, reimbursement changes, rules regarding prescription drugbenefits under the health insurance exchanges, expansion of the 340Bprogram, expansion of state Medicaid programs, and fraud and abuse andenforcement.PPACA contains several provisions that have or could potentially havean impact on our business. PPACA made significant changes to theMedicaid Drug Rebate Program. Effective March 23, 2010, rebate liabilityexpanded from fee-for-service Medicaid utilization to include the utilizationof Medicaid managed care organizations as well. With regard to theamount of the rebates owed, PPACA increased the minimum Medicaidrebate percentage from 15.1% to 23.1% of the average manufacturerprice for most innovator products; changed the calculation of the rebatefor certain innovator products that qualify as line extensions of existingdrugs; and capped the total rebate amount for innovator drugs at 100.0%of the average manufacturer price. In addition, PPACA and subsequentlegislation changed the definition of average manufacturer price. Finally,PPACA requires pharmaceutical manufacturers of branded prescriptiondrugs to pay a branded prescription drug fee to the federal government.Each individual pharmaceutical manufacturer pays a prorated share of theaggregate branded prescription drug fee paid by all covered entities($2,800 in 2019 and each ensuing year), based on, among other things,its applicable branded prescription drug sales to certain federal programsidentified in the law. Sales of “orphan drugs” are excluded from this fee.“Orphan drugs” are specifically defined for purposes of the fee. For eachindication approved by the FDA for the drug, such indication must havebeen designated as orphan by the FDA under section 526 of the FDCA, anorphan drug tax credit under section 45C of the Internal Revenue Code of1986 (Internal Revenue Code) must have been claimed with respect tosuch indication, and such tax credit must not have been disallowed by theInternal Revenue Service (IRS). Finally, the FDA must not have approvedthe drug for any indication other than an25orphan indication for which a section 45C orphan drug tax credit wasclaimed (and not disallowed). In early 2016, CMS issued a final regulationto implement the changes to the Medicaid Drug Rebate Program underPPACA, which became effective on April 1, 2016. The issuance of the finalregulation, as well as any other regulations and coverage expansion byvarious governmental agencies relating to the Medicaid Drug RebateProgram, has increased and will continue to increase our costs and thecomplexity of compliance, has been and will continue to be time-consuming to implement, and could have a material adverse effect on ourresults of operations, particularly if CMS challenges the approach we takein our implementation of the final rule.Additional provisions of PPACA may negatively affect manufacturer’srevenues in the future. For example, as part of PPACA’s provisions closinga coverage gap that currently exists in the Medicare Part D prescriptiondrug program (commonly known as the “donut hole”), manufacturers ofbranded prescription drugs and biologics are required to provide a 50.0%discount on branded prescription drugs and biologics dispensed tobeneficiaries within this donut hole. This discount was recently increasedto 70.0%, beginning January 1, 2019, by the Bipartisan Budget Act of2018.As noted above, PPACA also expanded the Public Health Service’s340B drug pricing discount program by including additional types ofcovered entities. The 340B pricing program requires participatingmanufacturers to agree to charge statutorily-defined covered entities nomore than the 340B “ceiling price” for the manufacturer’s coveredoutpatient drugs. PPACA expanded the 340B program to include additionaltypes of covered entities as described above. PPACA exempts “orphandrugs” designated under section 526 of the FDCA, such as our products,from the ceiling pricing requirements for these newly-eligible coveredentities.Moreover, certain legislative changes to and regulatory changes underPPACA have occurred under the Trump Administration. For example, theTax Cuts and Jobs Act enacted in 2017 eliminated the sharedresponsibility payment for individuals who fail to maintain minimumessential coverage under section 5000A of the Internal Revenue Code,commonly referred to as the “individual mandate,” which became effectivein 2019. In December 2018, a federal district court in Texas ruled theindividual mandate was unconstitutional and could not be severed fromthe PPACA. As a result, the court ruled the remaining provisions of thePPACA were also invalid, though the court declined to issue a preliminaryinjunction with respect to the PPACA. In December of 2019, the FifthCircuit Court of Appeals agreed that the individual mandate wasunconstitutional, but remanded the case back to the district court toreassess how much of the PPACA would be damaged without theindividual mandate provision, and if the individual mandate could indeedbe severed. In January 2020, 21 state Attorney Generals urged the Supreme Court ofthe United States to decide whether or not the PPACA should be struckdown as unconstitutional, claiming that the Fifth Circuit erroneouslyremanded the case to the Texas federal district court. The House ofRepresentatives filed a similar petition and motion to expedite. Thislitigation remains ongoing, but places great uncertainty upon the longevityand nature of the PPACA moving forward. In addition, further legislativechanges to and regulatory changes under PPACA remain possible.However, it remains unclear whether the court’s ruling will be upheld uponany appeal. We expect to continue to see legislative, regulatory, andlitigation changes involving the PPACA that may impact the coverage andreimbursement of our products.Privacy, Data Protection and Information SecurityNumerous international, federal, and state laws, including state privacylaws (such as the California Consumer Privacy Act, or CCPA), state and citysecurity breach notification and information security laws, and federal andstate consumer protection laws govern the collection, use, and disclosureof personal information. In addition, most healthcare providers whoprescribe and dispense our products and research institutions with whomwe collaborate for our sponsored clinical trials are subject to privacy andsecurity requirements under HIPAA, as amended by the Health InformationTechnology for Economic and Clinical Health Act (HITECH), and itsimplementing regulations. Although we are not directly subject to HIPAAother than with respect to providing certain employee benefits, we couldbe potentially subject to penalties and sanctions, including criminalpenalties if we, our affiliates, or our agents knowingly obtain or discloseindividually identifiable health information (protected health information)maintained by a HIPAA covered entity in a manner that is not authorized orpermitted by HIPAA. In addition, in December 2018, HHS issuedcybersecurity guidance for all healthcare organizations that addressesorganizations’ enterprise-level information security generally, includingprotected health information. Failure to comply with current and futurelaws and regulations could result in governmental enforcement actions(including the imposition of significant penalties), criminal and civil liabilityfor our Company and our officers and directors, and/or adverse publicitythat negatively affects our business. Further, the EU’s General DataProtection Regulation (GDPR) and implementing laws in the EU memberstates govern the collection and processing of EU residents’ personal dataand, among other requirements, imposes certain consent and data accessrights. Such laws may impact our ability to conduct clinical trials thatinvolve EU personal data and engage in other activities that require theprocessing of EU personal data. The regulation introduces comprehensivedata protection requirements in the EU and substantial fines for26breaches of the data protection rules. It increases our responsibility andliability in relation to personal data that we process and we may berequired to put in place additional mechanisms ensuring compliance withthe new EU data protection rules.Outside of the U.S. and the EU, there are numerous other jurisdictions thathave their own privacy and information security laws, and new laws andregulations are being considered and/or enacted globally, which mayaffect our ability to collect, process, and store their residents’ personaldata. For example, the Brazilian General Data Protection Law (LGPD),which goes into effect in 2020, may impact our collection and use ofpersonal information related to this jurisdiction.Moreover, we rely on our internal and third-party provided informationtechnology systems and applications to support our operations and tomaintain and process company information including personalinformation, confidential business information and proprietaryinformation. If these information technology systems are subject tocybersecurity attacks, or are otherwise compromised, due to cyberattacks,human error or malfeasance, system errors or otherwise, it may adverselyimpact our business, disrupt our operations, or lead to the loss, theft,destruction, corruption or compromise of company information andpersonal information. Such information technology or security eventscould also lead to legal liability, regulatory investigations or actions, loss ofbusiness, negative media coverage, and reputational damage. While wemaintain an information security program with technical controls tomitigate these risks and training to educate and prepare our employees,the healthcare sector continues to see a high frequency of cyberattacksand threat actors that continue to become more sophisticated and betterresourced, and our systems and the information maintained within thosesystems remain potentially vulnerable to data security incidents.Moreover, losses from such events may not be completely covered byinsurance coverage (or may not be covered at all by any of our insurancepolicies depending on the circumstances). Finally, as cyber threatscontinue to evolve and privacy and cybersecurity laws and regulationscontinue to develop, we may need to invest additional resources toimplement new compliance measures, strengthen our information securityposture, or respond to cyber threats and incidents.Other RegulationsWe are also subject to the U.S. Foreign Corrupt Practices Act (FCPA),the U.K. Bribery Act (U.K. Bribery Act), and other anti-corruption laws andregulations pertaining to our financial relationships and interactions withforeign government officials. The FCPA prohibits U.S. companies and theiremployees, officers, and representatives from paying, offering to pay,promising, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, orpolitical candidate to obtain or retain business or to otherwise seekfavorable treatment. In many countries in which we operate or sell ourproducts, the healthcare professionals with whom we interact may bedeemed to be foreign government officials for purposes of the FCPA. TheU.K. Bribery Act, which applies to any company incorporated or doingbusiness in the UK, prohibits giving, offering, or promising bribes in thepublic and private sectors, bribing a foreign public official or privateperson, and failing to have adequate procedures to prevent briberyamongst employees and other agents. Penalties under the U.K. Bribery Actinclude potentially unlimited fines for companies and criminal sanctionsfor corporate officers under certain circumstances. Liability in relation tobreaches of the U.K. Bribery Act is strict. This means that it is notnecessary to demonstrate elements of a corrupt state of mind. However, adefense of having in place adequate procedures designed to preventbribery is available.Recent years have seen a substantial increase in anti-bribery lawenforcement activity by U.S. regulators, with more frequent and aggressiveinvestigations and enforcement proceedings by both the DOJ and the SEC,increased enforcement activity by non-U.S. regulators, and increases incriminal and civil proceedings brought against companies and individuals.In May 2015, we received a subpoena in connection with an investigationby the Enforcement Division of the SEC requesting information related toour grant-making activities and compliance with the FCPA in variouscountries. In addition, in October 2015, Alexion received a request fromthe DOJ for the voluntary production of documents and other informationpertaining to Alexion’s compliance with the FCPA. For informationconcerning this investigation see Note 11, Commitments andContingencies to the consolidated financial statements includedelsewhere in this Annual Report on Form 10-K and, with respect to therisks associated with the investigation, see our Risk Factors, including"Our business and operations may be materially adversely affected bygovernment investigations."The EU also imposes strict restrictions on the promotion and marketingof drug products in the EU, where a large portion of our non-U.S. businessis conducted, and other territories. Increasing regulatory scrutiny of thepromotional activities of pharmaceutical companies also has beenobserved in a number of EU Member States. Laws in the EU, including inthe individual EU Member States, require promotional materials andadvertising for drug products to comply with the product’s Summary ofProduct Characteristics (SmPC), which is approved by the competentauthorities. Promotion of a medicinal product which does not comply withthe SmPC is considered to constitute off-label promotion. The off-labelpromotion of medicinal products is prohibited in the EU and in otherterritories. The promotion of medicinal products that are not subject27to a marketing authorization is also considered to constitute off-labelpromotion and is prohibited in the EU. Laws in the EU, including in theindividual EU Member States, also prohibit the direct-to-consumeradvertising of prescription-only medicinal products. Violations of the rulesgoverning the promotion of medicinal products in the EU and in otherterritories could be penalized by administrative measures, fines andimprisonment.Under the new Clinical Trial Regulation there is an obligation to publishclinical trial within a certain timeframe. A breach of this obligation wouldconstitute non-compliance with an EU Regulation and may be met withpenalties set by each Member State, including civil and criminal liability.Japan and other countries in which we operate also have strictregulations and requirements regarding the promotion of pharmaceuticalproducts. For example, in October 2018, the Japanese MHLW conductedan administrative inspection of Alexion’s Japanese operations. The MHLWinquiry primarily focused on our communication efforts regarding theproper use of SOLIRIS in Japan for aHUS, among other matters. We havecooperated with the inquiries and the investigation, and in March 2019,the MHLW indicated that it has completed its investigation.Interactions between pharmaceutical companies and physicians arealso governed by strict laws, regulations, industry self-regulation codes ofconduct and physicians’ codes of professional conduct in the individual EUMember States. The provision of any inducements to physicians toprescribe, recommend, endorse, order, purchase, supply, use oradminister a medicinal product is prohibited. A number of EU MemberStates have introduced additional rules requiring pharmaceuticalcompanies to publicly disclose their interactions with physicians and toobtain approval from employers, professional organizations and/orcompetent authorities before entering into agreements with physicians.These rules have been supplemented by provisions of related industrycodes, including the EFPIA Disclosure Code on Disclosure of Transfers ofValue from Pharmaceutical Companies to Healthcare Professionals andHealthcare Organizations and related codes developed at national level inindividual EU Member States. Additional countries may consider orimplement similar laws and regulations. Violations of these rules couldlead to reputational risk, public reprimands, and/or the imposition of finesor imprisonment.Our present and future business has been and will continue to besubject to various other laws and regulations. Laws, regulations andrecommendations relating to safe working conditions, laboratory practices,the experimental use of animals, and the purchase, storage, movement,import and export and use and disposal of hazardous or potentiallyhazardous substances, including radioactive compounds, used in connection with our research work are or may be applicable to ouractivities. We cannot predict the impact of government regulation, whichmay result from future legislation or administrative action, on ourbusiness.CompetitionULTOMIRIS and SOLIRIS are currently the only approved therapies forthe treatment of PNH and aHUS (although several companies are currentlyevaluating other complement inhibitors for the treatment of PNH andaHUS in clinical trials). SOLIRIS is currently the only approved complementinhibitor therapy for the treatment of AChR antibody-positive gMG and theonly approved therapy for patients with NMOSD who are AQP4 autoantibody-positive (although, similar to PNH and aHUS, there are companiesevaluating other product candidates in gMG and NMOSD clinical trials).While the label for rituximab, a monoclonal anti-CD20 antibody that isdelivered by intravenous infusions, does not carry indications for NMOSD,we are aware that rituximab is prescribed by physicians for the treatmentof NMOSD in the U.S. and outside the U.S. Rituximab is currently co-marketed by Biogen and Genentech in the U.S., by Hoffmann-La Roche inCanada, the European Union (EU) and Chugai Pharmaceuticals ZenyakuKogyo in Japan. Clinical trials have not been conducted to compare thesafety and efficacy of SOLIRIS and rituximab in NMOSD. The cost ofrituximab is less than that of SOLIRIS. We are also evaluating ULTOMIRISand SOLIRIS in clinical studies for the treatment of other indications, andwe believe there are competitors for the patient segments we target withrespect to these products. STRENSIQ is currently the only productapproved for the treatment of HPP and KANUMA is the only productapproved for the treatment of LAL-D. Many pharmaceutical and biotechcompanies have publicly announced intention to establish or develop raredisease programs that may be competitive with ours. We also experiencecompetition in drug development from universities and other researchinstitutions, and pharmaceutical companies compete with us to attractuniversities and academic research institutions as drug developmentpartners, including for licensing their proprietary technology.Some of these entities may have:•greater financial and other resources;•larger research and development staffs;•lower labor costs; and/or•more extensive marketing and manufacturingorganizations.Many of these companies and organizations have significantexperience and resources in preclinical testing, human clinical trials,product process development and manufacturing, marketing, sales anddistribution and other regulatory approval and commercial procedures.They may also have a greater number of significant patents and greaterlegal resources to seek remedies for cases of alleged28infringement of their patents by us to block, delay or compromise our owndrug development process.We compete with large pharmaceutical companies that produce andmarket synthetic compounds and biologics and with specializedbiotechnology firms in the U.S., Europe and in other countries and regions,as well as a growing number of large pharmaceutical companies that aredeveloping biotechnology products. A number of biotechnology andpharmaceutical companies are developing new products for the treatmentof the same diseases being targeted by us. Other companies haveinitiated clinical studies for the treatment of PNH, aHUS, gMG andNMOSD, and we are aware of companies that have initiated or areplanning to initiate studies for diseases we are also targeting (in somecases, these companies have clinical trial programs that are moreadvanced than our clinical trial programs for these diseases). In addition,in 2019 a SOLIRIS biosimilar was introduced in Russia (which was sold byGenarium) and we experienced a significant decrease in sales of SOLIRISfollowing the introduction of Genarium’s biosimilar. We are aware thatother companies are conducting clinical trials for biosimilars of SOLIRISand we expect to compete with biosimilars in the future.Several biotechnology and pharmaceutical companies have programsto develop complement inhibitor therapies or have publicly announcedtheir intentions to develop drugs which target the inflammatory effects ofcomplement in the immune system or have had programs to developcomplement inhibitor therapies. SOLIRIS and ULTOMIRIS are the onlycomplement inhibitor therapies that have demonstrated to be safe andeffective in multiple clinical indications approved by regulators in manyjurisdictions around the world.BrexitIn June 2016 the U.K. electorate voted in a referendum to voluntarilydepart from the E.U., known as Brexit. Following the formation of amajority Conservative government in December 2019, the U.K. approvedthe Withdrawal Agreement and left the European Union (“Brexit”) onJanuary 31, 2020. The potential impact on our results of operations and liquidity resultingfrom Brexit remains unclear. The actual effects of Brexit will depend uponmany factors and significant uncertainty remains with respect to the termsof the ultimate resolution of the Brexit negotiations. The final terms of thewithdrawal may impact certain of our commercial and general businessoperations in the U.K. and the E.U., including the approval and supply ofour products. In addition, Brexit could lead to legal uncertainty andpotentially divergent national laws and regulations, including with respectto pharmaceuticals and biologics (as well as tax and free tradeagreements, intellectual property rights, supply chain logistics,environmental, health and safety laws and regulations and employmentlaws), as the U.K. determines which E.U. laws to replace or replicate.Compliance with any resulting regulatory mandates may provechallenging and the macroeconomic impact on our sales and consolidatedresults of operations from these developments remains unknown. We donot, however, expect Brexit to have a material impact on our consolidatedresults of operations as the U.K. does not account for a materialcomponent of our annual revenues.We cannot predict the direction Brexit-related developments will takenor the impact of those developments on our European operations andthe economies of the markets where we operate.EmployeesAs of December 31, 2019, we had 3,082 full-time, world-wideemployees, of which 1,259 were engaged in research, productdevelopment, manufacturing, and clinical development, 1,335 in salesand marketing, and 488 in administration, human resources, informationtechnology and finance. Our U.S. employees are not represented by anycollective bargaining unit, and we regard the relationships with all ouremployees as satisfactory.29Information about our Executive OfficersInformation about our Executive OfficersThe executive officers of the Company and their respective ages and positions as of February 4, 2020 are as follows:NameNamePosition with AlexionPosition with AlexionAgeAgeLudwig Hantson, Ph.D.Chief Executive Officer57Aradhana Sarin, M.D.Executive Vice President, Chief Financial Officer45Tanisha Carino, Ph.D.Executive Vice President, Chief Corporate Affairs Officer45Ellen Chiniara, J.D.Executive Vice President, Chief Legal Officer and Corporate Secretary61Indrani Franchini, J.D.Executive Vice President, Chief Compliance Officer48Brian GoffExecutive Vice President, Chief Commercial and Global Operations Officer50Anne-Marie LawExecutive Vice President, Chief Human Experience Officer52John Orloff, M.D.Executive Vice President, Head of Research and Development62 Ludwig N. Hantson, Ph.D.Ludwig N. Hantson, Ph.D., is Chief Executive Officer of Alexion. Dr. Hantson is an accomplished healthcare executive with morethan 30 years of experience in the biopharmaceutical industry.Prior to joining Alexion in March 2017, Dr. Hantson was President and Chief Executive Officer of Baxalta and also served on thecompany’s Board of Directors. He led Baxalta’s successful spin-off as a public company from Baxter in July 2015 where he wasPresident of Baxter BioScience. Dr. Hantson joined Baxter in May 2010 and established the BioScience division as one of the mostinnovative specialty and rare disease companies by building a robust pipeline of 25 new product candidates and launching 13new products.Dr. Hantson held several leadership roles during his decade-long tenure at Novartis from 2001-2010, including CEO of PharmaNorth America, CEO of Europe, and President of Pharma Canada. Prior to Novartis, he spent 13 years with Johnson & Johnson inroles of increasing responsibility in marketing, and research and development. Mr. Hantson serves on the Board of Directors ofHologic Inc., which is a medical technology company.Dr. Hantson received his Ph.D. in motor rehabilitation and physical therapy, master’s degree in physical education, and acertification in high secondary education, all from the University of Louvain in Belgium. Aradhana Sarin, M.D.Aradhana Sarin, M.D., is Executive Vice President, Chief Financial Officer of Alexion. In this role, she is responsible for overseeingglobal financial management, treasury, internal audit, corporate strategy, business development, investor relations, securityactivities, and business operations, including corporate planning, at Alexion.Dr. Sarin joined Alexion in November 2017 to drive strategy and business development, and she served as Alexion’s ChiefBusiness and Strategy Officer prior to becoming the Chief Financial Officer in October 2019. She brings to Alexion more than 20years of professional experience at global financial institutions. Dr. Sarin has extensive knowledge of global healthcare systems,and has closed more than 100 transactions across M&A, equity and debt financing transactions. Prior to joining Alexion, Dr. Sarinwas Managing Director of Healthcare Corporate & Investment Banking at Citi Global Banking (which she joined in 2010), focusingon clients in the life sciences and biopharmaceutical sectors. Before this, she served as Managing Director of HealthcareInvestment Banking at UBS, and worked at JP Morgan in the M&A Advisory and Healthcare groups focusing on transactionexecution. Before her banking career, Dr. Sarin trained as a medical doctor in India and spent two years practicing in both Indiaand Africa. Dr. Sarin also serves on the Board of OraSure Technologies, Inc., a manufacturer of point-of-care diagnostic tests.Dr. Sarin completed her medical training at the University of Delhi and received her MBA from Stanford Business School. 30 Tanisha Carino, Ph.D.Tanisha Carino, Ph.D.,, is Executive Vice President, Chief Corporate Affairs Officer of Alexion. In this role, Dr. Carino is responsiblefor global government relations, policy and communications.Prior to joining Alexion in November 2019, Dr. Carino served as Executive Director of FasterCures, a Center of the Milken Institute,a nonpartisan think tank whose mission is working with global government, philanthropic, and business leaders to acceleratetreatments to patients from January 2018 to November 2019. Prior to leading FasterCures, from May 2015 to January 2018, Dr.Carino was an executive at GlaxoSmithKline where she led the United States policy function, and spent over a decade with AvalereHealth, a strategic advisory services organization, where she worked with senior leaders of life sciences companies to maximizeopportunities and mitigate challenges related to biomedical research and patient access. She also worked in the U.S. Medicareprogram to improve access for its beneficiaries and support the development of real-world evidence.Dr. Carino is a Fulbright Fellow, earned her Ph.D. in health policy from Johns Hopkins University, and is associate faculty at theJohns Hopkins Bloomberg School of Public Health. Ellen Chiniara Ellen Chiniara is Executive Vice President, Chief Legal Officer and Corporate Secretary of Alexion. In this role, she is responsible foroverseeing all global legal matters for the Company.Ms. Chiniara previously served as Executive Vice President, General Counsel of Alexion until September 2019. Prior to joiningAlexion in January 2018, Ms. Chiniara was Senior Vice President and General Counsel of Alere Inc., a point-of-care diagnosticscompany, from October 2006 to October 2017 where she was responsible for all legal matters and, from June 2014 to October2017 she had oversight of compliance and government affairs matters. She managed the legal aspects of the company’snumerous acquisitions and dispositions and was also the executive sponsor of Alere’s corporate social responsibility efforts.Prior to joining Alere, Ms. Chiniara served as Associate General Counsel for Serono’s Neurology division from 2002 to 2006. Earlierin her career, Ms. Chiniara was a partner at the law firm Hale and Dorr LLP (now Wilmer Cutler Pickering Hale and Dorr LLP).Ms. Chiniara received her J.D. from Stanford University’s School of Law and her Bachelor's Degree from Bryn Mawr College. Shealso was a graduate fellow at Yale University in Slavic Languages.. Indrani Franchini, J.D.Indrani Franchini, J.D.,, is Executive Vice President, Chief Compliance Officer of Alexion. Ms. Franchini is responsible for leadingAlexion’s global compliance program and co-leads the Global Corporate Compliance Committee.Ms. Franchini has extensive experience developing and building the infrastructure and company-wide standards for globalcompliance programs. Prior to joining Alexion in June 2017, Ms. Franchini served as Chief Compliance Officer at Hess Corporation(a leading independent energy company) from June 2012 to July 2017. She previously spent nearly ten years with Pfizeroverseeing all compliance elements for the development, marketing, and promotion of its global business. Earlier in her career,Ms. Franchini served as an attorney with Milbank, Tweed, Hadley & McCloy in the firm’s New York and Tokyo offices.Ms. Franchini earned her J.D. from the University of Michigan Law School and a Bachelor of Arts from Princeton University. Inaddition, she spent a year as a Fulbright Fellow at the Kyushu University Graduation School in Fukuoka, Japan. 31 Brian GoffBrian Goff is Executive Vice President, Chief Commercial and Global Operations Officer of Alexion. Mr. Goff leads the globalcommercial and operations teams, which includes responsibility for country operations in each of Alexion’s affiliates in NorthAmerica, EMEA, Japan, Asia Pacific, and Latin America.Mr. Goff is a proven global biopharmaceutical executive with a 25-year track record of consistently delivering sustainable growththrough multiple business cycles. He has deep expertise in commercial operations across multiple therapeutic areas, as well asbroad expertise managing global cross-functional teams, including R&D, Medical Affairs, Manufacturing and Quality with a numberof industry-leading biopharmaceutical companies.Prior to joining Alexion in June 2017, Mr. Goff was Chief Operating Officer and a Member of the Board of Directors of NeurovanceInc. from December 2016 until its acquisition by Otsuka Pharmaceuticals in March 2017. Prior to joining Neurovance, Mr. Goffserved as Baxalta’s Executive Vice President & President — Hematology Division from January 2015 to July 2016. He previouslyserved with Baxter Healthcare Corporation as Global Hemophilia Franchise Head from June 2012 to December 2014. Earlier in hiscareer, Mr. Goff held positions of increasing responsibility in sales and marketing roles with Novartis Pharmaceuticals, and thepharmaceutical division of Johnson & Johnson.Mr. Goff has an MBA from the Wharton School at the University of Pennsylvania and a Bachelor of Arts from Skidmore College. Anne-Marie LawAnne-Marie Law is Executive Vice President, Chief Human Experience Officer of Alexion. She is responsible for Human Resources,Patient Advocacy, and digital and information technology on a global basis, with the goal of continuing to build the organizationcapabilities to advance Alexion’s strategy.Ms. Law brings more than 25 years of experience at global corporations to the organization. Prior to joining Alexion in June 2017,she served as Chief Human Resources Officer at Hyatt Hotels Corporation from October 2016 to May 2017, where she wasresponsible for building the strategy to support the company’s 100,000 employees worldwide, and designing talent systems tocreate world class leadership and customer connectivity capabilities. She previously served as Executive Vice President and Headof Human Resources for Baxalta Incorporated from April 2009 to December 2014, and held various senior human resourcespositions at McKesson Corporation, including the Specialty Health Division, VeriSign, and Xilinx, Inc.Ms. Law is a graduate of Leicester University with a degree in Art History in the United Kingdom and the National College of Ireland,Dublin. John Orloff, M.D.John Orloff, M.D.,, is Executive Vice President, Head of Research & Development of Alexion. Dr. Orloff is focused on strengtheningAlexion’s clinical pipeline and research programs, enhancing research and development productivity, overseeing regulatory andmedical affairs, and supporting business development. Dr. Orloff has 20 years of experience in the biopharmaceutical industry anddeep expertise spanning various stages of clinical and non-clinical development, including developing medicines for rare diseases.Prior to joining Alexion in June 2017, Dr. Orloff served as Executive Vice President, Head of Research & Development at Novelionfrom November 2016 to May 2017, where he currently sits on the Board of Directors. From July 2015 to July 2016, he servedwith Baxalta as Global Head of R&D and Chief Scientific Officer, where he advanced the company’s pipeline and oversawregulatory approval of 10 unique products and two devices. He also held executive R&D roles with Baxter International from July2014 to June 2015, Merck Serono from January 2014 to May 2014, Novartis from April 2003 to October 2013 and MerckResearch Laboratories. Prior to joining the biopharmaceutical industry in 1997, Dr. Orloff was with the Yale School of Medicine forseven years.Dr. Orloff received a Bachelor of Arts from Dartmouth College, and a M.D. from the University of Vermont College of Medicine. Hecompleted his medical training at the University of Pittsburgh Medical Center and Yale University School of Medicine. Available InformationAvailable InformationOur internet website address is http://www.alexion.com. Through our website, we make available, free of charge, our Annual Reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, any amendments to those reports, proxy and registration statements, and all of our insiderSection 16 reports, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. These SEC reports can beaccessed through the “Investors” section of our website. The information found on our website (or that may32be accessed through links on our website) is not part of this or any other report we file with, or furnish to, the SEC. Paper copies of our SEC reports areavailable free of charge upon request in writing to Investor Relations, Alexion Pharmaceuticals, Inc., 121 Seaport Boulevard, Boston Massachusetts 02210.In addition, any document we file may be viewed at the SEC’s internet address at http://www.sec.gov. (This website address is not intended to function as ahyperlink, and the information contained in the SEC’s website is not intended to be a part of this filing).The company intends to use its website http://www.alexion.com as a means of disclosing material non-public information and for complying with itsdisclosure obligations under SEC Regulation FD. Such disclosures will be included on the company’s website under the heading “Investors”. Accordingly,investors should monitor such portions of the company’s website, in addition to following the company’s press releases, SEC filings and public conferencecalls and webcasts.33Item 1A.Item 1A.Risk Factors.Risk Factors.(amounts in millions, except percentages)You should carefully consider the following risk factors before youdecide to invest in Alexion securities and our business, because the risksdescribed below may have a material impact on our business, operatingresults, financial condition, and cash flows. The risks and uncertaintiesdescribed below are not the only ones we face. Additional risks anduncertainties not presently known to us or that we currently deemimmaterial may also impair our business operations. If any of the followingrisks actually occurs, our business, financial condition and results ofoperations could be materially and adversely affected.Risks Related to Revenue Concentration and ConversionWe depend on revenue from sales of our C5 complement inhibitors and,if we are unable to continue to increase revenues from sales of our C5complement inhibitors, our business would be materially harmed and ourfuture operating results may be adversely impacted..Since 2007, our revenue has depended primarily on the sales ofSOLIRIS, a C5 complement inhibitor with a 2 week dosing schedule. InDecember 2018, we obtained our first regulatory approval in the U.S. tosell ULTOMIRIS, a long-acting C5 complement inhibitor, with an 8 weekdosing schedule. These C5 complement inhibitors accounted for 85.9% ofour total revenues for the fiscal year ended December 31, 2019. Unlesswe are able to develop or acquire and commercialize new products beyondthese C5 complement inhibitors, and/or materially increase sales ofSTRENSIQ and KANUMA (two additional currently approved products), wewill remain dependent on sales of SOLIRIS and ULTOMIRIS as a source ofour revenue. We expect our revenues for 2020 will continue to depend onour ability to sell our C5 complement inhibitors.The commercial success of our C5 complement inhibitors and ourability to generate revenue depends on several factors, including: thesafety and efficacy of our C5 complement inhibitors; coverage orreimbursement by government or third-party payers for our C5complement inhibitors; pricing for our complement inhibitors; the analysisby doctors, payers and patients of the cost of our C5 complementinhibitors relative to the perceived benefits; manufacturing anduninterrupted supply; the introduction and success of competing products(including novel products and biosimilars to SOLIRIS); the size of patientpopulations and the number of patients diagnosed who may be treatedwith our C5 complement inhibitors; the impact of legal, administrative,regulatory or legislative developments that impact the use of C5complement inhibitors; and our ability to develop, obtain regulatory approval for and commercialize our C5 complement inhibitors for newindications. Any of these or other factors may cause revenues from salesof our C5 complement inhibitors to decrease, which would harm ourbusiness results.While SOLIRIS and ULTOMIRIS are studied for indications beyond thosecurrently approved by regulatory authorities, there is no guarantee that wecan obtain regulatory approval or achieve any commercial sales ofSOLIRIS or ULTOMIRIS for such other indications. Nor can we guaranteethat, even if regulatory approval is obtained for such additionalindications, physicians and patients will accept SOLIRIS or ULTOMIRIS as atreatment for such indications or that payers will pay for or reimburse thecosts of these therapies.If we are not able to maintain revenues from sales of SOLIRIS andULTOMIRIS, or such revenues decrease, our operating results would benegatively impacted and our ability to fund research and development,commercialize or acquire new products would be harmed, which wouldlimit our ability to diversify our revenue base and our stock price could beadversely affected. In addition, as a result of having our revenueconcentrated in SOLIRIS and ULTOMIRIS, our future revenues and resultsof operations can be significantly harmed by, among other factors, theintroduction of one or more biosimilar products or novel competitiveproducts that treat the same indications, adverse developments in thecommercialization and sale of these products or a change inreimbursement policies by payers for the C5 complement inhibitors.We aim to facilitate the conversion of patients from SOLIRIS toULTOMIRIS. If we are unable to achieve our conversion objectives, ourbusiness may be harmed. In addition, even if we are successful, due tothe pricing of ULTOMIRIS, our revenues may decrease unless we are ableto increase the number of patients using our C5 inhibitors.ULTOMIRIS has been approved for patients with PNH in certainjurisdictions, including in the U.S., Europe and Japan, and was recentlyapproved for patients with aHUS in the U.S.One of our principal business objectives is to facilitate the conversionof PNH and aHUS patients from SOLIRIS to ULTOMIRIS. While clinical trialsin PNH patients demonstrated that ULTOMIRIS is non-inferior to SOLIRIS atan 8 week dosing interval (compared to a 2 week dosing interval forSOLIRIS), existing PNH patients taking SOLIRIS and their physicians maydecline to switch to ULTOMIRIS. If we are unable to facilitate conversion toULTOMIRIS prior to the loss of intellectual property or regulatoryexclusivities for SOLIRIS, our34future revenues could be adversely impacted if we were to face biosimilarcompetition for SOLIRIS.We have established what we believe is a globally sustainable anddurable pricing strategy for ULTOMIRIS that is intended to facilitate suchpatient conversions (for example, in the U.S. the cost of current labeledmaintenance therapy for ULTOMIRIS for adult PNH patients of averageweight, represents on an annual basis an approximate 10% decreaserelative to the cost of SOLIRIS). However, in the first year of PNHconversion to ULTOMIRIS, due to the loading doses required, there is anapproximate 10% premium to the cost of SOLIRIS. We have also pricedULTOMIRIS for patients with aHUS in the U.S. at a cost relative to the costof SOLIRIS for patients with aHUS in the U.S. that is approximately 30%less on an annual basis for an average adult patient on maintenancetherapy (unlike PNH, the cost in the first year of aHUS conversion toULTOMIRIS is approximately 20% less than the cost of SOLIRIS). If weachieve our goal of facilitating the conversion of current PNH and aHUSpatients from SOLIRIS (which accounted for approximately $3,946.4, or79.1%, of our revenues in 2019) to ULTOMIRIS, due to these discounts weanticipate that U.S. revenue attributable to each patient that convertsfrom SOLIRIS to ULTOMIRIS will decrease. In addition, as a result of thedecreased cost for ULTOMIRIS relative to SOLIRIS on a per patient basis,in order to maintain or increase C5 complement inhibitor revenues in thefuture as we succeed in converting patients from SOLIRIS to ULTOMIRIS,we must increase the total number of patients utilizing SOLIRIS, includinggMG and NMOSD patients, and ULTOMIRIS.Finally, as a result of patient conversion from SOLIRIS to ULTOMIRIS,we expect variability in our revenues in future quarters due to the extendedULTOMIRIS dosing interval and infusion timing which may result in eitherone or two infusions in a quarter. Due to the decision to price ULTOMIRISlower than SOLIRIS on an annual basis, we anticipate U.S. revenues will beunfavorably impacted by the lower annual cost per patient in maintenanceyears, with the impact more pronounced for aHUS due to the greaterdecrease in vials for aHUS ULTOMIRIS patients.Risks Related to Pricing and ReimbursementSales of our products depend on reimbursement by payers and thesepayers are subject to pressures to contain costs.Our commercial success depends on setting a price for our productsthat will enable us to obtain reimbursement at anticipated levels. Ourproducts are significantly more expensive than traditional drug treatmentsand almost all patients require governmental payers and/or private third-party payers to pay all or a portion of the cost of our products. There is asignificant trend in the health care industry by public and private payers tocontain or reduce their costs, including by taking the following steps, among others: decreasing the portion of costspayers will cover, ceasing to provide adequate payment for certainproducts or not covering certain products at all. If payers implement any ofthe foregoing with respect to our products, it would have an adverseimpact on our revenue and results of operations.Our ability to set the price for our products varies significantly fromcountry to country, including in those countries where pricing, coverage,reimbursement or funding of prescription drugs are subject togovernmental control. We may be unable to timely or successfullynegotiate coverage, pricing and reimbursement on terms that arefavorable to us (or at all), or such coverage, pricing and reimbursementmay differ in separate regions in the same country. In some countries, theproposed pricing for a drug must be approved before it may be lawfullymarketed, which could delay market entry (or, if pricing is not approved,we may be unable to sell at all in a country where we have receivedregulatory approval for a product). In addition, authorities in somecountries impose additional obligations, such as health technologyassessments (HTAs), which assess how well a prescription drug works inrelation to its cost. Additionally, U.S. payers are increasingly consideringnew metrics, including HTAs, as the basis for reimbursement rates. If ourproducts do not meet or surpass these metrics, these payers may notreimburse the use of our products or may reduce the rate ofreimbursement for our products and as a result, revenue from suchproducts may decrease. We have voluntarily elected to reduce prices orestablish price caps with payers, which we believe provides value in thelong term (but decreases revenue per patient).In the United States, there have been, and we expect that there willcontinue to be, a number of federal and state proposals to implementgovernmental controls on pharmaceutical pricing. Both the executive andlegislative branches of the U.S. government have recently unveiledproposals to implement such controls, among these proposals are: toallow Medicare to negotiate certain drug prices (and such prices wouldapply to the private market as well) (this measure was passed in the U.S.House of Representatives in late-2019), to move to a reimbursementregime that would establish pharmaceutical pricing by reference to atarget price derived from the international price index, and to permitimportation of medicines from other countries that have lower prices.Certain states have also proposed measures that are designed to controlthe costs of pharmaceuticals that they reimburse. If the U.S. (through thefederal or state governments), which accounted for approximately 25% ofour revenue in 2019, were to move to a pricing system based onnegotiated prices or to an international price index (or similar model) thatwere to apply to our products, we expect that our revenues for sales in theU.S. would be35lower, and potentially materially lower than if the current pricing programremained in place.Other countries, including many European countries and Canada, haveestablished pricing and reimbursement policies that contain costs byreferencing the price of the same or similar products in other countries. Inthese instances, if coverage or the level of reimbursement is reduced,limited or eliminated in one or more countries, we may be unable to obtainor maintain anticipated pricing or reimbursement in other countries or innew markets. This may create the opportunity for third-party cross-bordertrade or influence our decision whether to sell a product, thus adverselyaffecting our geographic expansion plans and revenues. See Note 11,Commitments and Contingencies to the consolidated financial statementsfor information about our lawsuit against the Patented Medicine PricesReview Board (PMPRB) to establish that Alexion did not excessively priceSOLIRIS in Canada, which uses reference pricing.Due to the cost of our therapies, any potential increase in the numberof patients receiving our products (for example, we expect there may beincreases in sales of SOLIRIS for patients with gMG and NMOSD as welaunch for those indications), may cause third-party payers to modify, limitor eliminate coverage or reimbursement for our products because theymay require an allocation of a greater percentage of the potential financialresources of any public or private payer for our products.Further, health insurance programs may utilize coverage incentives andobstacles to discourage beneficiaries from using higher priced productssuch as ours, including:•establishing formularies under which only selected drugs are covered(which may exclude one or more of our products);•utilizing variable co-payments that make drugs that are not preferredby the payer more expensive for patients; and•utilizing management controls, such as requirements for priorauthorization or failure first on another treatment.In countries where patients have access to insurance, their insuranceco-payment amounts or other benefit limits may represent a barrier toobtaining or continuing use of our products or adoption of new treatmentoptions, such as ULTOMIRIS. The imposition or continuation of the use ofthese types of limits or barriers by insurers or the imposition of similarlimitations or barriers in the future may have an adverse impact on ourrevenue and results of operations. In some cases, we have financiallysupported non-profit organizations that assist patients in accessingtreatments. Such organizations assist patients whose insurance coverageimposes high co-payment amounts or other expensive financial obligations. Such organizations’ ability toprovide assistance to patients is dependent on funding from externalsources, and we cannot guarantee that such funding will be provided atadequate levels, if at all. We have also provided our products withoutcharge to patients who have no or limited insurance coverage for drugsthrough related charitable purposes. We are not able to predict thefinancial impact of the support we may provide for these and othercharitable purposes; however, substantial support could have a materialadverse effect on our profitability in the future.As third-party payers attempt to contain health care costs, they aredemanding price discounts or rebates and limiting both the types andvariety of drugs that they may cover and the amounts that they will pay fordrugs. As a result, they may not cover or provide adequate payment topatients for our products or they may demand discounts or rebates fromus, which may be material.In 2019, four customers accounted for 56.4% of our total revenues. Ifany one or more of these customers were to to require significantdiscounts or rebates, or were to discontinue purchasing our products (dueto cost or otherwise), our results of operations may be materially andadversely impacted.Risks Related to Intellectual PropertyIf we cannot obtain new patents, maintain our existing patents andIf we cannot obtain new patents, maintain our existing patents andprotect the confidentiality and proprietary nature of our trade secrets andprotect the confidentiality and proprietary nature of our trade secrets andother intellectual property, our business and competitive position may beother intellectual property, our business and competitive position may beharmedharmed.Our success depends in part on our ability to obtain and maintainpatent and regulatory protections for our products and investigationalcompounds, to preserve our trade secrets and other proprietary rights andto prevent third parties from infringing on our rights.We have procured patent rights, through both ownership and license,that cover our products and investigational compounds, and will likelyapply for additional patent protections in the future. However, our patentapplications may not result in the issuance of patents in the U.S. or othercountries. In addition, a patent may be issued in one country, but acounterpart patent may not be issued in another country. For example, theEuropean Patent Office in September 2019 rejected a patent applicationrelating to the composition of matter for SOLIRIS; related patents weregranted in the U.S. and Japan.Even if a patent is issued, that is not conclusive as to its inventorship,scope, validity or enforceability and therefore that patent may not affordadequate (or any) protection for our products. On the basis of suchinconclusiveness, third parties may challenge our patents, have done so inthe past and, in some cases, have been successful in such challenges. Forexample,36on January 21, 2019, the Opposition Division of the European PatentOffice determined, following multi-party opposition proceedings, to revokeone of our European patents that relates to the formulation of SOLIRISand, on August 30, 2019, the U.S. Patent and Trademark Office institutedinter partes review of three of our patents that relate to SOLIRIS.If any of our patents are narrowed, invalidated, revoked or becomeunenforceable, competitors may develop and market products similar toours that do not conflict with or infringe our patents rights, which couldhave a material adverse effect on our financial condition. Even if weobtain and maintain patents, our business may be significantly harmed ifthe patents are not broad enough to protect our products from copycatproducts.We may finance or collaborate in research and development projectsconducted by third parties, including government organizations, hospitals,universities or other educational or research institutions, or other for-profitcompanies. Such third parties may be unwilling to grant us certain rightsto technology or products developed through such projects. Disputes mayalso arise as to the rights to technology or products developed incollaboration with such third parties.Significant legal questions exist concerning the extent and scope ofpatent protection for biopharmaceutical products and processes in theU.S. and elsewhere. Accordingly, there is no certainty that patentapplications owned or licensed by us will issue as patents, or that ourissued patents will afford meaningful protection against competitors. Onceissued, patents are subject to challenge through both administrative andjudicial proceedings in the U.S. and other countries. Such proceedingsinclude re-examinations, inter partes reviews, post-grant reviews andinterference proceedings before the U.S. Patent and Trademark Office, aswell as opposition proceedings before the European Patent Office andother non-U.S. patent offices. Certain countries have laws that providestronger bases for challenging third party patent rights than are availableto challenge patents in other countries. Therefore, we may be able todefend our patents against a third-party claim in one country butcounterpart patents may be invalidated in other countries and we may beable to invalidate a third-party patent in one country but not invalidate itscounterpart patents in other countries. Litigation may be required toenforce, defend or obtain our patent and other intellectual property rights.Any administrative proceeding or litigation could require a significantcommitment of our resources and, depending on outcome, could adverselyaffect the scope, validity or enforceability of certain of our patent or otherproprietary rights.Some of the sensitive technology, techniques and proprietarycompounds used in our business are protected as trade secrets. However, we may also rely on collaborationwith, or discuss the potential for collaboration with, suppliers, outsidescientists and other biopharmaceutical companies. Collaboration anddiscussion of potential collaboration present a strong risk of exposing ourtrade secrets. If our trade secrets were exposed, we may lose theprotection and potential exclusive rights afforded by trade secret law, andsuch exposure may likely help our competitors and allow them to accesstechnology without restriction and adversely affect our business prospects.If we are found to be infringing third party patents, we may be forced toIf we are found to be infringing third party patents, we may be forced topay damages to the patent owner and/or obtain a license to continue thepay damages to the patent owner and/or obtain a license to continue themanufacture, sale or development of our products. If we cannot obtain amanufacture, sale or development of our products. If we cannot obtain alicense, we may be prevented from the manufacture, sale orlicense, we may be prevented from the manufacture, sale ordevelopment of our products or product candidates, which may adverselydevelopment of our products or product candidates, which may adverselyaffect our business.affect our business.Parts of our technology, techniques, proprietary compounds andpotential product candidates, including those which are or may be in-licensed or developed in collaboration with third parties, may be found toinfringe patents owned by or granted to others. We have, and may in thefuture, receive notices claiming our products infringe third party patentsand third parties have and may in the future file civil lawsuits against usclaiming infringement of their intellectual property rights. ChugaiPharmaceutical Co., Ltd. filed suits in the U.S. and Japan alleging thatULTOMIRIS infringes patents held by Chugai. See Note 11, Commitmentsand Contingencies to the footnotes to the consolidated financialstatements. Additional third parties may claim that the manufacture, useor sale of our products or product candidates infringes patents owned orgranted to such third parties. We are aware of patents owned by thirdparties that might be claimed by such third parties to be infringed by thedevelopment and commercialization of our products or investigationalcompounds. In respect to some of these patents, we have invalidatedpatents or obtained licenses, or expect to obtain licenses. However, withregard to other patents, we have determined in our judgment that:•our products and investigational compounds do not infringe thepatents;•the patents are not valid or enforceable;and/or•we have identified and are testing various alternatives that should notinfringe the patents and which should permit continued developmentand commercialization of our products and investigationalcompounds.Any holder of these patents or other patents covering similartechnology could sue us for damages, which may be material in amount,and seek to prevent us from manufacturing, selling or developing ourproducts (and we may be, in certain cases, prevented from initiatingproduct launches in certain jurisdictions or required to37withdraw the product from the market after it has been launched).Intellectual property disputes, such as those initiated by Chugai, can becostly and time consuming to defend and there is no guarantee that wewould prevail in such lawsuit. If we cannot successfully defend against anyinfringement claims, we may seek to invalidate the patent or seek alicense to the technology prior to or during legal actions in order to reducethe risks in connection with the product launches (or at a later time afterproduct introduction) to reduce further costs and the risk of a courtdetermination that our technology, techniques, proprietary compounds orpotential product candidates infringe the third party’s patents. A requiredlicense may be costly or may not be available on acceptable terms, if at all.A costly license, or inability to obtain a necessary license, could have amaterial adverse effect on our business.In some instances, we believe we may prevail in a patent infringementaction. There can, however, be no assurance that the court will agree withour position or that it will decide this or any other infringement case in ourfavor. Nor can we be certain that, if we do not prevail in litigation, that wemay be able to obtain a license to any third-party patent on commerciallyreasonable terms (or at all); successfully develop non-infringingalternatives on a timely basis (or at all); or license alternative non-infringing technology, if any exists, on commercially reasonable terms (orat all). Any impediment to our ability to manufacture, use or sell approvedforms of our products or our product candidates could have a materialadverse effect on our business and prospects.It is possible that we could lose market exclusivity for a product earlierIt is possible that we could lose market exclusivity for a product earlierthan expected, which may harm our competitive position.than expected, which may harm our competitive position.In our industry, much of an innovative product’s commercial value isrealized while it has market exclusivity.Market exclusivity for our products depends in large part on patentrights and certain regulatory forms of protection. As noted above, patentprotection can be uncertain as to the validity, scope and enforceability ofmany issued patents. Absent relevant patent protection for a product,once regulatory exclusivity periods expire, biosimilar or generic versions ofthe product can be approved and marketed. For example, in 2019, aSOLIRIS biosimilar was approved in Russia for the treatment of patientswith PNH and aHUS.The market exclusivity of our products may be impacted by competitiveproducts that are either innovative, biosimilar or generic copies. In ourindustry, the risk of biosimilar or generic challenges has been increasing.U.S. law includes an approval pathway for biosimilar versions of innovativebiological products. Under the pathway, the FDA may approve productsthat are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required for a fullbiologic license application (and there are similar pathways for genericcopies of small molecule therapies). The law provides a mechanism tochallenge the patents that protect an innovator’s products. Such litigationmay begin as early as four years after the innovative biological product isfirst approved by the FDA. Pathways for biosimilar products also exist inmany other markets, including Europe, Japan and Russia. Othercompanies are developing and advancing SOLIRIS biosimilar programs,including conducting clinical trials. Competition, including from biosimilarsapproved for marketing, would likely result in a decrease in volume ofsales of our products, as well as a decrease in prices and lower marginsfor our products. In addition, approval of a biosimilar that is a substitutefor one of our products may increase the risk of accelerated marketpenetration by that biosimilar. Further, if patients or healthcare providersdo not believe that ULTOMIRIS provides a compelling profile for patientconversion from SOLIRIS, a SOLIRIS biosimilar may not only be expected tohave a material and negative impact on our SOLIRIS revenues andmargins (which accounted for a significant percentage of our revenue in2019), it may also have a material impact on ULTOMIRIS revenue andmargins and the ability of ULTOMIRIS to gain market acceptance.Our other products are also at risk from biosimilars. Other than SOLIRISfor the treatment of gMG and SOLIRIS and ULTOMIRIS as a treatment forPNH and aHUS, each of our products is currently the only approved drugfor the disease(s) the product treats. If a competitive product is approvedfor sale, including a biosimilar or generic product or novel therapy, ourmarket share and our revenues could decline, particularly if thecompetitive product is perceived to be more effective or is less expensivethan our product.Risks Related to Our Products and Product CandidatesOur future commercial success depends on gaining regulatory approvalfor new products and obtaining approvals for existing products for newindications.We invest significant amounts in acquiring new products andtechnologies and advancing our existing product candidates andtechnologies. Our success and revenue growth and diversification willdepend in part on our identification, acquisition (including licenses from orcollaborations with third parties), development and commercialization ofnew products and technologies, and approval of additional indications forour existing products and products under development. Productdevelopment is very expensive, takes significant time and involves a highdegree of risk. Only a small number of research and developmentprograms result in the commercialization of a product. In addition, ourrecent business development activities have focused on new technologieswith which we have very limited experience, including antibodytherapeutics targeting the neonatal38Fc receptor, which may make the development, approval andcommercialization of such potential products challenging for us.Our ability to maintain or grow and diversify revenues may be adverselyaffected if we are delayed or unable to successfully develop the productsin our pipeline, if we are unable to gain approval for SOLIRIS andULTOMIRIS for additional indications, for new routes of administration(subcutaneous delivery) and in new jurisdictions, obtain marketingapproval for STRENSIQ and KANUMA in additional territories, obtainapproval for additional delivery systems for our therapies (such assubcutaneous administration) or acquire or license products andtechnologies from third parties.Even if we are successful in developing new products or addressingnew indications, we cannot market any of those products unless and untilwe obtain all required regulatory approvals in each jurisdiction where weplan to sell these therapies. We must also maintain all such regulatoryapprovals for the period of time that we sell the product in each suchjurisdiction. Our failure to obtain, or we have a delay in obtaining, approvalor we fail to maintain approvals once obtained, will prevent us from sellingproducts and generating revenues for those products in such jurisdictionwhere we do not hold such approvals.Our products and product candidates target diseases with small patientpopulations and we may not be effective at identifying patients.The therapies that we have developed and that are in our productpipeline and in preclinical development target diseases that have smallpatient populations that have not been definitively determined. Further, inmany cases there are either no or limited diagnostic tools for theindications we treat or may treat in the future. The lack of diagnostic tools,coupled with the fact that there is frequently limited awareness amongcertain health care providers concerning the rare diseases we treat, oftenmeans that a proper diagnosis can, and frequently does, take years toidentify (or an appropriate diagnosis may never be made for certainpatients). As a result, we may not be able to grow our revenues (even aswe introduce new products or as existing products are approved foradditional indications). There can be no guarantee that any of ourprograms will be effective at identifying patients that will benefit from ourtherapies, and even if we can identify patients that our therapies can help,the number of patients that our therapies treat may turn out to be lowerthan we expect, they may not be otherwise amenable to treatment withour products, or new patients may become increasingly difficult to identify,all of which may adversely affect our ability to grow and diversify revenueand adversely affect our results of operations and our business. Inaddition, even in instances where we do add patients, the number may beless than the number of patients that discontinue use of the applicableproduct in a given period resulting in a net loss of patients and potentially decreased revenue.We may not be able to gain or maintain market acceptance ofWe may not be able to gain or maintain market acceptance of ourproducts among the medical community, patients or payers, which couldproducts among the medical community, patients or payers, which couldprevent us from maintaining profitability or growthprevent us from maintaining profitability or growth..Our products may not gain or maintain market acceptance amongphysicians, patients, payers and others. Although we have receivedregulatory approval for certain of our products in certain territories (andmay receive approvals for additional products or in additionaljurisdictions), such approvals do not guarantee future revenue. Physicians’willingness to prescribe, and patients’ willingness to accept, our products,depends on many factors, including:•prevalence and severity of adverse side effects in both clinical trialsand commercial use;•the timing of the market introduction of competitive drugs andbiosimilars;•perceived safety of ourproducts;•demonstrated clinical safety and efficacy of our products compared toother drugs;•perceived benefits relative to cost and/or evaluations inHTAs;•pricing and availability of reimbursement from third-party payers,including governmental entities;•convenience and ease ofadministration;•effectiveness of our marketingstrategy;•publicity concerning our products and our other product candidates(and those of competitive products); and•availability of alternativetreatments.The likelihood of physicians to prescribe SOLIRIS and ULTOMIRIS forpatients with aHUS may also depend on how quickly SOLIRIS orULTOMIRIS can be delivered to the hospital or clinic and our distributionmethods may not be sufficient to satisfy this need. In addition, whileSOLIRIS as a treatment for aHUS is recommended by some regulatoryauthorities to be used for the duration of a patient’s lifetime, we are awarethat some healthcare providers prescribe SOLIRIS for aHUS for a shortertime period and, in some cases, may prescribe SOLIRIS for aHUS inemergency or acute situations only (and the same may occur in connectionwith the use of ULTOMIRIS for aHUS). Decisions such as this by aHUSpatients and healthcare providers to use our products for a period that isless than the remaining lifetime of the patient or in only acutecircumstances may cause our SOLIRIS or ULTOMIRIS revenues, andrevenues for our other products, to fluctuate and past sales of ourproducts may not be indicative of future sales for such products.39If our products fail to achieve or maintain market acceptance amongthe medical community or patients in a particular country, we may not beable to market and sell our products successfully in such country, whichmay limit our ability to generate revenue and could harm our overallbusiness.If our products harm patients, or are perceived to harm patients evenf our products harm patients, or are perceived to harm patients evenwhen such harm is unrelated to our products, our regulatory approvalswhen such harm is unrelated to our products, our regulatory approvalscould be revoked or otherwise negatively impacted and we could becould be revoked or otherwise negatively impacted and we could besubject to costly and damaging product liability claimssubject to costly and damaging product liability claims..The testing, manufacturing, marketing and sale of biologics and smallmolecule therapies for use in humans may cause harm to patients, whichexposes us to product liability risks and regulatory penalties.Our products and our product candidates treat patients with rarediseases and, as a result, we generally are able to test our products in onlya small number of patients. As more patients use our products, includingmore children and adolescents, new risks and side effects may bediscovered, the rate of known risks or side effects may increase, and riskspreviously viewed as less significant could be determined to be significant.Under pharmacovigilance guidelines, we are required to timely reportany adverse events that any patient using our products experiences, aswell as any clinical evaluations of outcomes in the post-marketing setting.This information is required to be reported to appropriate regulatoryagencies in accordance with relevant regulations and, as a result, anypotential adverse events will be promptly brought to the attention ofregulators that may likely require prompt remedial action (and any failureto report these adverse events or report such events in a timely mannermay result in penalties being imposed on Alexion by regulators). In theevent any new risks or adverse effects are discovered as new patients aretreated for approved indications, or as our products are studied in or usedby patients for other indications, regulatory authorities may delay or revoketheir approvals or require changes to labeling or reformulation of theproducts (or take other actions).If previously unknown side effects are discovered or if there is anincrease in negative publicity regarding known side effects of any of ourproducts, it could significantly reduce demand for the product, harm ourreputation, result product withdrawals, recalls, in delays or revocations ofregulatory approvals or require us to take actions that could negativelyaffect sales and operating results, including conducting additional clinicaltrials and safety studies, making changes in labeling, reformulating ourproducts or making changes and obtaining new approvals for our and oursuppliers’ manufacturing facilities. Further, any investigation into thecircumstances surrounding an adverse event may be costly and timeconsuming (even if it is ultimately determined that the adverse event is not the result of the use of ourproduct).There are also risks associated with our products; for example, use ofC5 Inhibitors, such as SOLIRIS and ULTOMIRIS, is associated with anincreased risk for certain types of infection, including meningococcalinfection. In certain cases, a physician may not have the opportunity totimely vaccinate a patient in the event of an acute emergency episode,such as in a patient presenting with aHUS, which could result in thepatient using SOLIRIS or ULTOMIRIS experiencing a life-threateningmeningococcal infection (and even in certain cases in which a vaccinationcan be delivered to the patient, it may not, eliminate all risk ofmeningococcal infection). Patients using our products and productcandidates have died or suffered potentially life-threatening conditionseither during or after ending their treatments, and these include patientswho have died while participating in a clinical trial. In addition, manypatients who use our products are already very ill and may suffer adverseevents, including death, for reasons that may or may not be related to ourproducts. We may be sued by patients who are harmed during the courseof using our products, whether as a prescribed therapy, during a clinicaltrial, during an investigator-initiated study, or otherwise. Any such productliability lawsuit or injury claim, which could include class actions, couldharm our reputation among patients, physicians, payers and others andrequire us to pay substantial amounts of money to injured patients, andeven if successfully defended, could have a material adverse effect on ourbusiness, financial condition or results of operations due to the expense ofdefending any such claim. While we do have product liability insurance, itmay not cover all potential types of liabilities or may not cover certainliabilities completely. Moreover, we may not be able to maintain ourinsurance on acceptable terms, or at all.We anticipate that we will face increased competition from companiesWe anticipate that we will face increased competition from companiesthat will enter into the markets we currently serve and as our productthat will enter into the markets we currently serve and as our productpipeline expands into markets that are currently served by otherpipeline expands into markets that are currently served by othercompaniescompanies..We expect that the business environment in which we operate willbecome increasingly competitive. Currently, our products are the onlyapproved therapies for certain indications they treat. For example, SOLIRISand ULTOMIRIS are the only approved treatments for PNH and aHUS in theU.S. (and the only approved treatments for PNH Europe and Japan). In thefuture, we expect that SOLIRIS and ULTOMIRIS may compete with new,novel drugs and biosimilars currently in development. Several companiesare developing therapies to treat PNH, aHUS, gMG and NMOSD and otherpharmaceutical companies have publicly stated that they are developingand intend to commercialize a SOLIRIS biosimilar. We expect that theintroduction of a competitive product may negatively impact our business,including our revenue and profitability. For example,40following the introduction of a SOLIRIS biosimilar in 2019 in Russia for thetreatment of PNH and aHUS, we experienced a decrease in revenue fromsales of SOLIRIS and expect that Russia will account for a minor portion, ifany, of future SOLIRIS revenue as a result of this competitive product.STRENSIQ and KANUMA may also experience competition in the future.We are also aware of companies that have initiated or are planning toinitiate studies for diseases that we are also targeting with our productpipeline. Our revenues could be negatively affected if patients or potentialpatients enroll in our clinical trials or clinical trials of other companies withrespect to diseases that we also target with approved therapies.Some of our competitors may have significantly greater financial,technical and marketing resources than us and may commercializecompetitive products that are cheaper, more effective, safer, have lessfrequent dosing schedules, or are easier and quicker to administer thanour products. Our current and future competitors may develop productsthat are more broadly accepted or may receive patent protection thatdominates, blocks or adversely affects our product development orbusiness. These competitive products, including any biosimilars approvedunder alternative regulatory pathways, may significantly reduce both theprice that we receive for our marketed products and the volume ofproducts that we sell, which may negatively impact our revenues andprofitability. Given that a significant portion of our 2019 revenue wasattributable to SOLIRIS, one or more competitive novel products orbiosimilars could have a significant impact on our entire business.In addition, we experience competition in drug development fromuniversities and other research institutions, and pharmaceuticalcompanies compete with us to attract universities and academic researchinstitutions as drug development partners, including for licensing theirproprietary technology. If our competitors successfully enter into sucharrangements with academic institutions, we may be precluded frompursuing those unique opportunities and may not be able to findequivalent opportunities elsewhere.If a company announces successful clinical trial results for a productthat may be competitive with one of our products or product candidates,receives marketing approval of a competitive product, or gets to themarket before we do with a competitive product, our business may beharmed or our stock price may decline.Risks Related to Business OperationsWe rely on a limited number of facilities to produce our products andWe rely on a limited number of facilities to produce our products andmanufacturing issues at our facilities or the facilities of our third partymanufacturing issues at our facilities or the facilities of our third partyservice providers could cause product shortages, stop or delayservice providers could cause product shortages, stop or delaycommercialization of our products, disrupt or delay ourcommercialization of our products, disrupt or delay our clinical trials or regulatory approvals, and adversely affect our businessclinical trials or regulatory approvals, and adversely affect our business..The majority of our products and product candidates are biologics andthe production of such biologic therapeutics that meet all productspecification and regulatory requirements is particularly complex. Evenslight deviations at any point in the production process may lead toproduction failures, product recalls and regulatory actions. For example, in2013 and 2014 we undertook a voluntary recall of SOLIRIS due to thepresence of visible particles in a limited number of vials. In addition,because the production process involves the use of materials that arederived from biological sources, the process can be affected bycontaminants that could impact those biological micro-organisms. Thesemanufacturing challenges are coupled with the fact that we have limitedexperience manufacturing commercial quantities of certain of ourproducts (so we may have limited previous experience resolving anyissues in connection with the manufacture of these products and anyissues may take significant time to remediate or we may be unable tosolve any manufacturing problems). In addition, with our acquisition ofAchillion, we also have small molecules in a Phase II trial and and plan toinitiate a Phase III trial and we expect that manufacture of these therapiesand compliance with cGMP will pose similar challenges and we havelimited experience manufacturing small molecules for clinical trials and noexperience manufacturing for commercial sales.If we and/or our third party suppliers fail to meet the highly technicalrequirements/specifications of manufacturing our biologic products andour strict quality and control specifications, we (or they) may be unable tomanufacture or supply our products. We depend on our third partymanufacturers to perform effectively on a timely basis and to comply withregulatory requirements and meet our product specifications. If they areunable to do so, our contractual rights to address any failures and right torecover damages are limited. Our failure or the failure of our third-partymanufacturers to produce sufficient quantities of our products andproduct candidates could result in lost revenue, diminish our profitability,delay the development of our product candidates, delay regulatoryapproval, result in the rejection of our product candidates or result insupply shortages for our patients, which may lead to lawsuits, harm to ourreputation or could accelerate introduction of competing products to themarket. For example, we experienced unexpected chemistry,manufacturing and control (or CMC) issues with our ALXN 1830 programthat resulted in a delay in the clinical trial timeline for that program. Wemay experience similar CMC issues in the future that may impactmarketed products or other clinical trials.If we underestimate demand for ULTOMIRIS, SOLIRIS or any of ourproducts, or experience product interruptions at Alexion’s internalmanufacturing41facilities or a facility of a third party provider, including as a result of risksand uncertainties described in this Annual Report on Form 10-K, we maynot be able to increase our revenues and alternative therapies may gaingreater market acceptance.We also face external factors, many of which are beyond our control,that could cause production interruptions at our facilities or at the facilitiesof our third party providers, including natural disasters, labor disputes,acts of terrorism or war.The risks to our business of any manufacturing stops or interruptions(whether the result of internal or external factors of the nature identifiedabove) are amplified because we rely on a limited number of facilities toproduce our products and product candidates. Further, we expect that wewill continue to rely on a very limited number of manufacturing facilities inthe future for all of our products, including our complement inhibitors.Although we have business continuity plans, including with respect toinventory, to reduce the potential for manufacturing disruptions or delaysand reduce the severity of a disruptive event, there is no guarantee thatthese plans will be adequate, which could adversely affect our businessand operations.We and our third party providers are required to maintain compliancewith cGMP and other stringent operation and manufacturing requirementsand are subject to inspections by the FDA and comparable agencies inother jurisdictions to confirm such compliance. Governmental authoritieswill generally not permit products manufactured at a facility that is notregistered by the applicable government agency to enter into the countryand such products may be returned for failure to comply with suchregulation, which may decrease or delay sales and result in the loss ofinventory. Any delay, interruption or other issues that arise in themanufacture, fill-finish, packaging or storage of our products as a result ofa failure of our facilities or the facilities or operations of third parties topass any regulatory agency inspection or comply with ongoing operatingregulations could significantly impair our ability to supply our products andproduct candidates. Significant noncompliance could also result in theimposition of monetary penalties or other civil or criminal sanctions anddamage our reputation.Our efforts to bring more of our manufacturing operations under ourcontrol present additional risks. We have made significant investments inbiologics manufacturing facilities, warehousing, fill-finish and otherfacilities at our sites in Athlone and Dublin, Ireland and at dedicated sitesowned by third parties. We have commenced manufacturing operations atcertain of these sites prior to receiving regulatory approval and we have$60.5 of product produced at such sites in inventory as of December 31,2019. Despite the significant investment we have made in these facilitiesand operations, we cannot guarantee that we will be able to successfully and timely complete the appropriate validation processesor obtain the necessary regulatory approvals for these and other facilities,that we will be able to perform the intended manufacturing and supplychain services at these facilities for commercial or clinical use or that wewill be able to use the product manufactured at these sites. Prior to suchtime, we may continue to rely on third parties for these services.If our products are subject to any manufacturing issues, we may beunable to timely identify alternative manufacturers, and if we are able totimely identify alternative manufacturers, such alternative manufacturesmay not be able to satisfy our requirements. No guarantee can be madethat regulators will approve additional third party providers in a timelymanner or at all, or that any third party providers will be able to performmanufacturing or related services for sufficient product volumes for anycountry or territory. Further, due to the nature of the current market forthird-party commercial manufacturing, many arrangements requiresubstantial penalty payments by the customer for failure to use themanufacturing capacity for which it contracted. The payment of asubstantial penalty could harm our financial condition and may restrict ourability to transition to internal manufacturing or manufacturing by otherthird parties. In addition, the terms and conditions to engage an additionalthird-party manufacturer may not be as favorable to us as our currentarrangements and may likely reduce the profit on the sales of anyproducts to which they relate.Any adverse developments affecting our manufacturing operations orthe operations of our third-party providers could result in a productshortage of clinical or commercial requirements, withdrawal of our productcandidates or any approved products, shipment delays, lot failures orrecalls. We may also have to write-off inventory and incur other chargesand expenses for products that fail to meet specifications, undertakecostly remediation efforts or seek more costly manufacturing alternatives.Each of these could have an adverse material impact on our businessindividually or in the aggregate.We rely on a limited number of providers for our raw materials and supplychain services, which could result in our being unable to continue tosuccessfully commercialize our products and our product candidates (ifapproved) and to advance our clinical pipeline..Certain of the raw materials required in the manufacture and theformulation of our products are derived from biological sources. Such rawmaterials are difficult to procure and may be subject to contamination orrecall. Access to and supply of sufficient quantities of raw materials whichmeet the technical specifications for the production process ischallenging, and often limited to single-source suppliers. Finding analternative supplier could take a significant amount of time and42involve significant expense due to the nature of the products and the needto obtain regulatory approvals. The failure of these single-source suppliersto supply adequate quantities of raw materials for the production processin a timely manner may impact our ability to produce sufficient quantitiesof our products for clinical or commercial requirements. A materialshortage, contamination, recall, or restriction on the use of certainbiologically derived substances or any raw material used in themanufacture of our products could adversely impact or disruptmanufacturing and materially limit our ability to generate revenues.In addition, KANUMA is a transgenic product and the facilities on whichwe rely to produce raw material for KANUMA are the only animal facilitiesin the world that produce the necessary egg whites from transgenicchickens. Natural disasters, disease, such as exotic Newcastle disease oravian influenza, or other catastrophic events could have a significantimpact on the supply of unpurified KANUMA, or destroy our animaloperations altogether. If our animal operations are disrupted, it may beextremely difficult to set up another animal facility to supply the unpurifiedKANUMA.We also depend on a very limited number of third party providers forsupply chain services with respect to our clinical and commercial productrequirements, including product filling, finishing, packaging and labeling.These third-party raw material providers and supply chain serviceproviders operate as independent entities and we do not exercise controlover any such third-party provider’s operations or their compliance withour internal or external specifications or the rules and regulations ofregulatory agencies. Any contractual remedies we may have underagreements with these parties may not protect us from the harm sufferedby our business or our patients if they fail to provide material or performservices that meet our specifications. Due to the highly specialized natureof the services performed by these third parties, particularly the supply ofraw materials and other drug product, as well as the delivery and supplychain operations regarding our products, we do not believe that we couldquickly find replacement suppliers or service providers and, even if wewere able to identify additional third parties, the terms of any sucharrangement may not be favorable to us. In either of these cases, ourrevenue, results of operations, business and reputation may be harmedand we may not be able to provide the therapies that our patients require.The success of our business may also depend on the security of ourproducts while in the supply chain for delivery to patients, which, as notedabove, is dependent on third-party providers. For example, if our productsare not fully and adequately secured from unauthorized access by thirdparties, any of our products may be tampered with or contaminated. If ourproducts were exposed to any tampering or contamination, or if they are not transportedin accordance with the required specifications, our patients may beharmed through use of our products, and such harm may be severe. Inaddition, if the supply chain is not secure (or our distributors do notexercise control over our products while in their possession), we are alsoat risk for our products being diverted to patients other than those who arethe intended recipient or to patients who do not have a prescription toreceive our therapies (or it may be used for treatment by physicians whohave not completed the necessary REMs protocols in order to treatpatients) or it may be sold by distributors, channels or other entities thatare not authorized by Alexion to sell our products. In addition, anunauthorized distributor may not properly store or ship our products,thereby exposing patients to potential harm from use of the product thatwas not handled in accordance with our standards. If any of the foregoingwere to happen, we could be subject to costly litigation, significantmonetary penalties, harm to our reputation and investigation by regulatoryauthorities (and potentially subject to regulatory action, including recall,product withdrawals, suspensions and monetary penalties).The sale and use of counterfeit versions of our products could result inThe sale and use of counterfeit versions of our products could result insignificant harm to patients, reduced sales of our products and harm tosignificant harm to patients, reduced sales of our products and harm toour reputationour reputation..We are aware that counterfeit versions of our products have been soldby entities that are not affiliated with Alexion using product packagingsuggesting that the product was manufactured by Alexion. If unauthorizedthird parties illegally distribute and sell counterfeit versions of ourproducts, those products may not meet our very stringent productspecifications (or the manufacturing, handling and distributionrequirements for our products) and any patient that takes any counterfeitproduct may suffer serious adverse health consequences, including death.Our reputation and business could suffer harm as a result of counterfeitdrugs sold under our brand name and could result in lost sales for us anddecreased revenues.If we are unable to establish and maintain effective sales, marketing andIf we are unable to establish and maintain effective sales, marketing anddistribution capabilities or to enter into agreements with third parties todistribution capabilities or to enter into agreements with third parties todo so, we may be unable to successfully commercialize our products.do so, we may be unable to successfully commercialize our products.We currently market and sell our products in the U.S., the EU, Japanand several other territories through a direct sales force. In addition, inorder to gain greater efficiencies in our operations, we are implementing aplan pursuant to which certain portions of our international commercialoperations have already or will transition to a new operating model inwhich sales, distribution and marketing efforts in designated countries willbe conducted by third-parties, and our direct sales and marketingpresence will decrease (or be eliminated) in these regions.43Due to the fact that some of our products are new to the market, we donot have lengthy experience in marketing and selling these products topatients, healthcare providers and payers (for example, we are new tocertain therapeutic areas, such as neurology (gMG and NMOSD), and oursales force has had limited exposure in educating and targeting sales topatients and physicians in neurology practices). This challenge is coupledwith the fact that many members of our sales and marketing team arenew to working with Alexion products and we are transitioning to thirdparties to market, distribute and sell our product in certain countries. If weare unable to successfully market and sell our new products (and expandour sales and commercial operations) and to successfully sell our productsin new therapeutic areas, as well as successfully implement the transitionto third parties to sell, distribute and market our products in certaincountries, our business and sales may be harmed. We cannot guaranteethat we will be able to establish, maintain and expand our own capabilitiesor enter into and maintain any sales, marketing or distribution agreementswith third-party providers on acceptable terms, if at all, or that we will beable to manage the transition to third-party sales, marketing anddistribution in the relevant jurisdictions that will not cause any interruptionor disruption in our business and sales of our products. We will notexercise the same degree of control over such third parties that we doover our direct sales force and the ability to direct the third party andprovide incentives for such third party to market and sell our products maynot be as strong as in the case of a direct sales force. This transition andgreater reliance on third party sales force, marketers and distributors mayalso increase the risk of litigation with or liability to third parties that wehad previously engaged to perform services for us in jurisdictions wherewe are implementing these operational changes.Even if we hire qualified sales and marketing personnel necessary tosupport our objectives and enter into distribution agreements with thirdparties on acceptable terms, we may not hire such employees or enter intosuch agreements in an efficient manner or on a timely basis. We may notbe able to forecast accurately the size and experience of the sales andmarketing force and the scale of distribution capabilities necessary tosuccessfully market and sell our products which could result in decreasedrevenues or margins. In addition, as we launch new products, such asULTOMIRIS, and we move into new therapeutic areas (such as neurology),and, if and when, the products we acquire in connection with acquisitionsand development agreements with third parties move closer to regulatoryapproval, we may have a larger product portfolio and address moretherapeutic areas and the foregoing risks may continue to apply and mayincrease. Our expenses associated with building up and maintaining thesales force and distribution capabilities around the world, and in transitioning from direct sales force to third party sales, marketing anddistribution, may be disproportionate compared to the revenues we maybe able to generate on sales or any savings or efficiencies we gain throughuse of such third-parties. We cannot guarantee that we will be successfulin commercializing any of our products for the above referenced or otherreasons.Our efforts to expand our business and product offerings throughOur efforts to expand our business and product offerings throughacquisitions of businesses and technologies may not be successfulacquisitions of businesses and technologies may not be successful..Building our product pipeline is a key strategic objective to addressrevenue concentration risk in C5 complement inhibitors and we expect toregularly evaluate and, when appropriate, purchase businesses andacquire, co-develop or license technologies and products from thirdparties in an effort to expand and diversify our pipeline, product offerings,and our technologies. For example, we recently completed the acquisitionof Achillion Pharmaceuticals. Acquisitions of new businesses or productsand in-licensing of new technologies and products may involve numerousrisks, including:•substantial cashexpenditures;•potentially dilutive issuance of equity securities and incurrence ofdebt;•assumption of material liabilities in connection with the target orpurchased technology, some of which may be difficult or impossible toidentify at the time of acquisition;•difficulties in integrating the operations of the acquiredcompanies;•failure of any acquired businesses or products or in-licensed productsor technologies to achieve the scientific, medical, commercial or otherresults we anticipate;•diverting our management’s attention away from other businessopportunities and on-going operations;•the potential loss of our key employees or key employees of theacquired companies;•risks of entering disease areas and indications in which we havelimited or no direct experience; and•investments in resources and personnel to evaluate, integrate anddevelop acquisition and in-license programs.A substantial portion of our strategic efforts are focused onopportunities for rare disorders, but the availability of such opportunitiesmay be limited. We may not be able to identify opportunities that satisfyour strategic criteria or are acceptable to us or our stockholders. Severalcompanies have publicly announced intentions to establish or developrare disease programs and we may compete with these44companies (some of which may be larger and may be able to provide moreconsideration than we can) for the same opportunities. For these andother reasons, we may not be able to acquire the rights to additionalproduct candidates or approved products on acceptable terms, or at all. Insuch event, we may not be able to further rebuild our pipeline and anyfuture revenue may remain largely dependent on our existing products,which are subject to the risks noted above.In addition, through our business development initiatives we haveacquired new technologies, including Factor D small molecules and twoFcRN platforms. These technologies are intended to diversify our pipelineand revenue base (if products based on these technologies are approvedby regulatory authorities), but we have limited experience with thesetechnologies, including developing these therapies, operating clinical trialswith these therapies, obtaining regulatory approval and commercializingthese assets. If we are unable to successfully bring these products tomarket, we may not be able to diversify our revenue or generate a returnon our investments.Even if we are able to successfully identify and complete acquisitionsand other strategic transactions, we may not be able to integrate or takefull advantage of them. An acquisition or other strategic transaction mayor may not result in short-term or long-term benefits to us. We may alsoincorrectly judge the value or worth of an acquired company or business oran acquired or in-licensed product, particularly if the acquired technologyis in preclinical trials or early-stage clinical trials. Any therapies we acquirethat are in clinical trials may not result in a commercialized product andany revenues or, if commercialized, may not result in generating anadequate return on our investment.In order to support potential growth of the business, we will be required toIn order to support potential growth of the business, we will be required tomake significant investments in our business operations.make significant investments in our business operations.To effectively manage our current and future potential growth, we mustcontinue to effectively enhance and develop our global employee baseand our operational and financial processes. Supporting our growthstrategy may require significant capital expenditures and managementresources, including investments in research, development, sales andmarketing, manufacturing and other areas of our operations. Efforts toadvance our product pipeline, including the increased number of clinicaltrials that are under way or will commence in the future, will requiresignificant expense in 2020. The development or expansion of ourbusiness, any acquired business or any acquired or in-licensed productsmay require a substantial capital investment by us and we may likely incursubstantial expenses in advancing acquired products throughdevelopment, trials, regulatory approval and to commercialization. Wemay not have the necessary funds for these capital expenditures andexpenses or these funds might not be available to us on acceptable terms or at all. We may also seek to raisefunds by incurring additional indebtedness and selling shares of ourcapital stock, which could dilute current stockholders’ ownership interestin our company, or securities convertible into our capital stock, whichcould dilute current stockholders’ ownership interest in us uponconversion.Completion of proof of concept trials, biomarker studies, preclinicalCompletion of proof of concept trials, biomarker studies, preclinicalstudies or clinical trials does not guarantee advancement to the nextstudies or clinical trials does not guarantee advancement to the nextphase of development or regulatory approval or successfulphase of development or regulatory approval or successfulcommercializationcommercialization..Conducting clinical trials is a complex, time-consuming and expensiveprocess and there are no guarantees that any trial will meet its endpoints.Completion of preclinical studies or clinical trials does not guarantee thatwe will initiate additional studies or trials for our product candidates, iffurther studies or trials are initiated, what the scope and phase of the trialwill be or that they will be completed, or if these further studies or trialsare completed, that the design or results may provide a sufficient basis toapply for or receive regulatory approvals or to commercialize products.Results of clinical trials could be inconclusive, requiring additional orrepeat trials. Data obtained from preclinical studies and clinical trials aresubject to varying interpretations that could delay, limit or preventregulatory approval. Many companies have believed their productcandidates performed satisfactorily in clinical trials but nonetheless failedto obtain marketing approval of their drug candidate. If the design orresults achieved in our clinical trials are insufficient to proceed to furthertrials or to sustain regulatory approval of our product candidates, we couldbe materially adversely affected. Failure of a clinical trial to achieve its pre-specified primary endpoint generally increases the likelihood thatadditional studies or trials may be required if we even determine tocontinue development of the product candidate, reduces the likelihood oftimely development of and regulatory approval to market the productcandidate, and may decrease the chances for successfully achieving theprimary endpoint(s) in scientifically similar indications.We are currently planning and conducting several clinical trials ofproducts and product candidates that we anticipate may be important toour goal of expanding our business and diversifying our product portfolio.These trials may not yield the anticipated results for a number of reasons.ULTOMIRIS may not be approved as a treatment for additionalindications or in other jurisdictions and any clinical trials may not achievethe designated endpoints and prove to be effective for use in patients withthese additional indications. For example, we plan to initiate a Phase IIIclinical trial for ULTOMIRIS as a treatment for Amyotrophic LateralSclerosis (ALS) and an exploratory clinical study in Primary ProgressiveMultiple45Sclerosis (PPMS). There is no guarantee that the Phase III clinical trial forALS or the exploratory clinical study in PPMS will provide sufficientevidence to advance our research beyond these stages. In addition, weare also conducting clinical trials in therapeutic areas with which we havelimited experience (for example, ALXN1840 (WTX101), a therapy forWilson’s disease), Factor D small molecules, and with technologyplatforms with which we also have limited experience (for example,humanized monoclonal antibody that inhibits the interaction of FcRn withImmunoglobulin G (IgG) and IgG immune complexes). Each of theseclinical trials, and any other trial we commence, require significantfinancial expenses and operational resources, is subject to the riskshighlighted above and the investments we have made in thesetechnologies may not generate the expected returns.Our clinical studies may be costly and lengthy, and there are manyOur clinical studies may be costly and lengthy, and there are manyreasons why drug testing could be delayed or terminatedreasons why drug testing could be delayed or terminated..For human trials, patients must be recruited and each productcandidate must be tested at various doses and formulations for eachclinical indication. Many of our programs focus on diseases with smallpatient populations making patient enrollment difficult and requiring arelatively large number of trial sites to meet enrollment requirements topower our clinical trials to our desired levels for efficacy and, in certaincases, superiority. Additionally, we can have multiple clinical trials runningfor the same indication, further challenging clinical trial enrollment.Insufficient patient enrollment in our clinical trials could delay or cause usto abandon a product development program. We may decide to abandondevelopment of a product candidate or a study at any time due tounfavorable results or other reasons, including if there are concerns aboutpatient safety (as patients have, and may in the future, suffer injuriesduring clinical trials). If initial trials do not produce adequate results, wemay have to spend considerable resources repeating clinical trials orconducting additional trials, either of which may increase costs and delayrevenue from those product candidates, if any. We may open clinical sitesand enroll patients in countries where or for indications in which we havelittle experience.Even if we were to complete clinical trials for one or more of ourtherapies, we or regulatory authorities may determine that the results arenot be sufficient for filing a BLA or NDA or granting approval.We rely on a small number of clinical research organizations to carryout our clinical trial related activities, and one contract researchorganization (CRO) is responsible for many of our studies. We rely on suchparties to enroll clinical sites and patients, operate trials and accuratelyreport their results. Our reliance on CROs may impact our ability to controlthe timing, conduct, expense and quality of our clinical trials. In addition,we may be responsible for any errors in clinical trials by a CRO as a result ofthe performance of services in connection with a clinical trial on ourbehalf. And regulatory agencies, in connection with a potential productapproval or as part of ongoing monitoring, will review a CRO’s compliancewith regulatory requirements relating to clinical trials and we may besubject to findings and regulatory action (including denial or delay ofproduct approval) if a CRO fails to comply with regulations. Additional factors that can cause delay, impairment or termination ofour clinical trials or our product development efforts include:•delay or failure in obtaining institutional review board (IRB) approvalor the approval of other reviewing entities to conduct a clinical trial ateach site;•delay or failure in reaching agreement on acceptable terms withprospective CROs, and clinical trial sites, the terms of which can besubject to extensive negotiation and may vary significantly amongdifferent CROs and trial sites;•withdrawal of clinical trial sites from our clinical trials as a result ofchanging standards of care or the ineligibility of a site to participate inour clinical trials;•clinical sites and investigators deviating from trial protocol, failing toconduct the trial in accordance with regulatory requirements, ordropping out of a trial;•delay or failure in having patients complete a trial or return for post-treatment follow-up;•lack of sufficient supplies of the product candidate;•disruption of operations at the clinical trialsites;•adverse medical events or side effects in treatedpatients;•failure of patients taking the placebo to continue to participate in ourclinical trials;•insufficient clinical trial data to support safety and effectiveness of theproduct candidates;•lack of effectiveness or safety of the product candidate being tested;•decisions by regulatory authorities, the IRB, ethics committee, or us,or recommendation by a data safety monitoring board, to suspend orterminate clinical trials at any time for safety issues or for any otherreason;•failure to obtain the necessary regulatory approvals for the productcandidate or the approvals for the facilities in which such productcandidate is manufactured; and46•decisions by competent authorities, IRBs or ethics committees todemand variations in protocols or conduct of clinical trials.We expect our operating results to fluctuateWe expect our operating results to fluctuate..Our quarterly revenues, expenses and net income (loss) may fluctuate,even significantly, due to certain risks, including those described in these“Risk Factors” as well as the timing of charges and expenses that we maytake, acquisitions and business development transactions (such as theAchillion Pharmaceuticals, Wilson Therapeutics and Syntimmuneacquisitions) and the impact of converting patients from SOLIRIS toULTOMIRIS (as noted above). We may not be able to sustain or increaseprofitability on a quarterly or annual basis. Since we have a limited salesand operating history with certain of our products and for new indicationsof existing products (such as SOLIRIS as a treatment for NMOSD), we maynot be able to accurately forecast demand for our products or for newindications. Product demand and, in the case of conversion to ULTOMIRIS,product preference and conversion, is dependent on a number of factors,many of which are beyond our control. For these reasons, we may not beable to accurately forecast demand for our products. You should notconsider our financial performance, including our revenue growth, inrecent periods as indicative of our future performance.We cannot guarantee that we will achieve our financial goals, includingWe cannot guarantee that we will achieve our financial goals, includingour ability to maintain profitability on a quarterly or annual basis in theour ability to maintain profitability on a quarterly or annual basis in thefuturefuture..In the future, we may not generate sufficient revenues or controlexpenses to achieve our financial goals. Our investors and investmentanalysts may have widely varying expectations that may be materiallyhigher or lower than actual revenues and profits and if our revenues andprofits are different from these expectations, our stock price mayexperience significant volatility. Our revenues and profits are also subjectto foreign exchange rate fluctuations due to the global nature of ouroperations and our results of operations could be adversely affected dueto unfavorable foreign exchange rates. Although we use derivativeinstruments to manage foreign currency risk, our efforts to reducecurrency exchange losses may not be successful.In addition, we have in the past provided, and expect to continue toprovide, financial guidance for future periods and if our actual operatingresults fail to meet or exceed the guidance that we have previouslyprovided to our investors, our stock price could drop suddenly andsignificantly. Financial guidance is based on certain assumptions aboutfuture performance and such guidance is not a guarantee that the targetsset forth will be achieved.As we attempt to grow and expand our business, we may havesubstantial expenses as we continue our research and development efforts and our efforts to develop the assetswe have acquired through acquisitions, collaborations and in-licenses,continue to undertake additional business development activities,continue to conduct clinical trials and continue to develop and expandmanufacturing, sales, marketing and distribution capabilities worldwide,some of which could be delayed, scaled-back or eliminated to controlexpenses and/or achieve our financial objectives. Additionally, businessdevelopment activities may include milestone and royalty obligations andmay require substantial investment in research and development toachieve product approval. These expenses may increase and suchincreases may exceed analyst and investor expectations.If we fail to attract and retain highly qualified personnel, we may not beIf we fail to attract and retain highly qualified personnel, we may not beable to successfully develop, manufacture or commercialize our productsable to successfully develop, manufacture or commercialize our productsor products candidatesor products candidates..The success of our business is dependent in large part on ourcontinued ability to attract and retain our senior management, and otherhighly qualified personnel in our scientific, clinical, manufacturing,governmental regulations and commercial organizations and across themany geographies in which we operate. There is intense competition in thebiopharmaceutical industry for these types of personnel.Our business is specialized and global and we must attract and retainhighly qualified individuals across many geographies and expertise. Wemay not be able to continue to attract and retain the highly qualifiedpersonnel necessary to develop, manufacture and commercialize ourproducts and product candidates. If we are unsuccessful in ourrecruitment and retention efforts, or if our recruitment efforts take longerthan anticipated, our business may be harmed.We may not achieve some or all of the expected benefits of our currentWe may not achieve some or all of the expected benefits of our currentand future restructuring plans and restructurings may adversely affectand future restructuring plans and restructurings may adversely affectour business.our business.We announced our most recent restructuring in the first quarter 2019,which was designed to re-align our commercial organization through re-prioritization of certain geographical markets and to implementoperational excellence through strategic reallocation of resources. Wemay undertake additional restructurings in the future. Implementation of arestructuring plan may be costly and disruptive to our business, and wemay not be able to obtain the estimated cost savings and benefits thatwere initially anticipated in connection with our restructuring in a timelymanner or at all. Additionally, as a result of any restructuring, we mayexperience a loss of continuity, loss of accumulated knowledge and/orinefficiency during transitional periods. Reorganization and restructuringcan require a significant amount of management and other employees’time and focus, which may divert attention from operating and growing ourbusiness. If we fail to47achieve some or all of the expected benefits of restructuring, it could havean adverse effect on our business, financial condition, results ofoperations and cash flows.If we fail to satisfy our debt service obligations or our contingentIf we fail to satisfy our debt service obligations or our contingentobligations, we may be unable to commercialize our products or continueobligations, we may be unable to commercialize our products or continueor complete our product developmentor complete our product development..We have significant debt service obligations. In addition to theobligations to make interest and principal payments under our creditfacility throughout the term of the loans, any changes in interest ratesrelated to this debt could significantly increase our annual interestexpense and any hedging of this interest may not be effective to controlexpenses.Our Amended and Restated Credit Agreement requires us to complywith certain financial covenants and negative covenants, restricting orlimiting our ability and the ability of our subsidiaries to, among otherthings, incur additional indebtedness, grant liens, and engage in certaininvestment, acquisition and disposition transactions, subject to limitedexceptions. If an event of default occurs (due to, for example, the failure tocomply with certain covenants in the Amended and Restated CreditAgreement), the interest rate may increase and the administrative agentmay be entitled to take various actions, including the acceleration ofamounts due under the Amended and Restated Credit Agreement. If theinterest rate imposed under our Amended and Restated Credit Agreementwere to increase as a result of a default, our expenses may increase andwe may need to allocate additional funds to this interest expense (whichmay limit the use of these funds for other purposes, including growing ourbusiness or responding to changes in our business and industry). If someor all of the amounts outstanding under the Amended and Restated CreditAgreement were to be accelerated by the lenders, we may not havesufficient cash on hand to pay the amounts due, we may not be able torefinance such debt on terms acceptable to us (or at all) and we may berequired to sell certain assets on terms that are unfavorable to us.In addition, we have substantial contingent liabilities, includingmilestone and royalty obligations associated with acquisitions andstrategic transactions, and we have been, and in the future may again be,engaged in disputes with certain counterparties regarding potentialmilestone and royalty obligations. Our increased indebtedness, includingincreased interest expense, together with our significant contingentliabilities, could, among other things: •make us more vulnerable to economic or industry downturns andcompetitive pressures;•make it difficult for us to make payments on our credit facilities andrequire us to use cash flow from operations to satisfy our debtobligations, which may reduce the availability of our cash flow for other purposes,including business development efforts and research anddevelopment;•limit our ability to incur additional debt or access the capital markets;and•limit our flexibility in planning for, or reacting to changes in, ourbusiness.Our ability to satisfy our obligations under the Amended and RestatedCredit Agreement and meet our debt service obligations and our royaltyand milestone obligations will depend upon our future performance, whichwill be subject to financial, business and other factors affecting ouroperations, many of which are beyond our control.We may not be able to access the capital and credit markets on termsWe may not be able to access the capital and credit markets on termsthat are favorable to us or at allthat are favorable to us or at all..We may need to raise additional capital to supplement our existingfunds and cash generated from operations for working capital, capitalexpenditure and debt service requirements, and other business activities(including business and technology acquisitions). The amount of capital wemay need depends on many factors, including, the cost of any acquisitionor any new collaborative, licensing or other commercial relationships thatwe may establish, the time and cost necessary to build new manufacturingfacilities or enhance our manufacturing and related operations, amountswe may need to pay in connection with the resolution of any governmentinvestigation or litigation matter (including any securities class actionmatter or any product liability claim or any tax assessment), the cost ofobtaining and maintaining the necessary regulatory approvals for ourmanufacturing facilities, and the progress, timing and scope of ourpreclinical studies, clinical trials and product development andcommercialization efforts. The capital and credit markets haveexperienced and may continue to experience extreme volatility anddisruption. We may not receive additional funding when we need it orfunding may only be available on unfavorable terms. If we cannot raiseadequate funds to satisfy our working capital, capital requirements anddebt repayment obligations (or royalty and milestone obligations) orbusiness development activities, we may have to delay, scale-back oreliminate certain research, development, manufacturing, acquisition orcommercial activities or sell certain assets and technologies.We may incur impairment charges in the future for certain of our assets,We may incur impairment charges in the future for certain of our assets,including goodwill in connection with acquisitions, and such amountsincluding goodwill in connection with acquisitions, and such amountsmay be materialmay be material..If the purchase price of a business acquisition exceeds the value of theassets (and liabilities) acquired, the acquirer must recognize goodwill insuch amount. We may be required to recognize impairment charges48for our goodwill and other intangible assets, and such charges may bematerial and have an adverse impact on our financial results in the periodsuch charges are incurred.As of December 31, 2019, the net carrying value of our goodwill andother intangible assets, net totaled $8,381.7. As required by GAAP, weperiodically assess these assets to determine if there are indicators ofimpairment. We have recorded charges that include inventory write-downsfor failed quality specifications or recalls, impairments with respect toinvestments and acquisitions, fixed assets and long-lived assets,outcomes of litigation and other legal or administrative proceedings,regulatory matters and tax matters, and payments in connection withacquisitions and other business development activities, such as milestonepayments. The impairment of tangible and intangible assets may betriggered by developments both within and outside our control.Deteriorating economic conditions, technological changes, disruptions toour business, inability to effectively integrate acquired businesses,unexpected significant changes or planned changes in the use of theassets, intensified competition, divestitures, market capitalization declinesand other factors may impair our goodwill and other intangible assets. Aspart of our standard quarterly procedures, we reviewed the KANUMA assetas of December 31, 2019 and determined that there were no indicators ofimpairment. We will continue to review the related valuation andaccounting of this asset in future quarters as new information becomesavailable to us. Cash flow models used in our assessments are based onour commercial experience with KANUMA to date and require the use ofsignificant estimates, which include, but are not limited to, long-rangepricing expectations and patient-related assumptions, including patientidentification, conversion and retention rates. As we continue to sell thisproduct, new data may cause us to adjust the assumptions in our cashflow models. Changes to assumptions used in our net cash flowprojections may result in material impairment charges in subsequentperiods. The net book value of the KANUMA intangible asset as ofDecember 31, 2019 was $2,992.4.The efficiency of our corporate structure depends on the application ofThe efficiency of our corporate structure depends on the application ofthe tax laws and regulations in the countries where we operate and wethe tax laws and regulations in the countries where we operate and wemay have exposure to additional tax liabilities or our effective tax ratemay have exposure to additional tax liabilities or our effective tax ratecould increase, which could have a material impact on our results ofcould increase, which could have a material impact on our results ofoperations and financial position.operations and financial position.As a company with international operations, we are subject to incometaxes, as well as non-income based taxes, in both the U.S. and variousforeign jurisdictions. Significant judgment is required in determining ourworldwide tax liabilities. Although we believe our estimates arereasonable at the time made, the final taxes we owe may differ from theamounts recorded in our financial statements (and such differences may be material). If theIRS, or other taxing authority, disagrees with the positions we take, wecould have additional tax liability, and this could have a material impacton our results of operations and financial position. Our effective tax ratecould be adversely affected by changes in the mix of earnings in countrieswith different statutory tax rates, changes in the valuation of deferred taxassets and liabilities, changes in tax laws and regulations, changes ininterpretations of tax laws, including pending tax law changes, changes inour manufacturing activities and changes in our future levels of researchand development spending.We have designed, and from time to time we modify, our corporatestructure, the manner in which we develop and use our intellectualproperty, and our intercompany transactions between our affiliates in away that is intended to enhance our operational and financial efficiencyand increase our overall profitability. The application of the tax laws andregulations of various countries in which we operate and to our globaloperations is subject to interpretation. We also must operate our businessin a manner consistent with our corporate structure to realize suchefficiencies. The tax authorities of the countries in which we operate maychallenge our methodologies for valuing developed technology or fortransfer pricing or other operations. If tax authorities determine that themanner in which we operate results in our business not achieving theintended tax consequences, our effective tax rate could increase (andsuch increase may be material) and harm our financial position andresults of operations. In addition, certain governments are considering andmay adopt tax reform measures that significantly increase our worldwidetax liabilities. The Organization for Economic Co-operation andDevelopment and other government bodies have focused on issuesrelated to the taxation of multinational corporations, including, in the areaof “base erosion and profit shifting,” where payments are made fromaffiliates in jurisdictions with high tax rates to affiliates in jurisdictions withlower tax rates. It is possible that these reform measures could increaseour effective tax rate (and such increase may be material) and harm ourfinancial position and results of operations over the next several years.Our sales and operations are subject to a variety of risks relating to theOur sales and operations are subject to a variety of risks relating to theconduct of our international businessconduct of our international business..We have increased our international presence, including in emergingmarkets. Our operations in foreign countries subject us to a variety ofrisks, including:•difficulties or the inability to obtain necessary foreign regulatory orreimbursement approvals of our products in a timely manner or at all;•political or economic determinations that adversely impact pricing orreimbursement policies;49•economic problems or politicalinstability;•fluctuations in currency exchangerates;•difficulties or inability to obtain financing in markets;•unexpected changes in tariffs, trade barriers and regulatoryrequirements;•customs and tax officials in foreign jurisdictions may disagree with thevalue we set when we or others import our products (includingproducts that are donated for charitable purposes or used for clinicaltrials) and we may be required to pay additional duties or fines andsuch amounts may be substantial. For example, our offices in Brazilwere visited by the Brazilian federal tax authorities and we received awritten notice from such authorities requesting information withrespect to the importation of SOLIRIS free of charge to patients inBrazil from 2014 to 2019. In connection with this matter, in August2019, the Brazilian Federal Revenue Service provided a Notice of Taxand Description of the Facts to, among others, two Alexionsubsidiaries. This notice focuses on: (i) the identity of the importer and(ii) the importation value of SOLIRIS vials in connection with Alexion’sfree drug program in Brazil. See Note 11, Commitments andContingencies to the consolidated financial statements for moreinformation on this matter);•difficulties in establishing and enforcing contractual and intellectualproperty rights;•compliance with complex import and export control laws;•trade restrictions and restrictions on direct investments by foreignentities;•compliance with tax, employment and labor laws;•costs and difficulties in recruiting and retaining qualified managersand employees to manage and operate the business in localjurisdictions;•costs and difficulties in managing and monitoring internationaloperations; and•longer payment cycles.Additionally, our business and marketing methods are subject to thelaws and regulations of the countries in which we operate, which maydiffer significantly from country to country and may conflict with U.S. lawsand regulations. The FCPA and anti-bribery laws and regulations in thelocations in which we operate our business are extensive and far-reaching,and we must maintain accurate records and control over the activities ofour employees, distributors and third party service providers in countrieswhere we operate. We have policies and procedures, and we arecommitted to strengthening our compliance program and we are currentlyenhancing and continuing to implement a comprehensive company-wide compliance program and effort, designed tohelp us and our representatives, including our employees and our vendorsand distributors, comply with such laws, however we cannot guaranteethat these policies, programs and procedures will protect us againstliability under the FCPA or other anti-bribery laws for actions taken by us,our employees or our representatives. Any determination that ouroperations or activities are not in compliance with existing laws orregulations, including the FCPA and the UK Anti-Bribery Act, could result inthe imposition of fines, civil and criminal penalties, equitable remedies,including disgorgement, injunctive relief, and/or other sanctions againstus, and remediation of such findings could have a material and adverseeffect on our business operations. In addition, as our internationaloperations expand, we are likely to become subject to new anti-corruption/anti-bribery laws or existing laws may govern our activities innew jurisdictions in which we operate. In addition, as we move from adirect sales force to third-party sales force, distributors and marketers incertain countries and regions, we may also have liability under the FCPAand anti-bribery laws and regulations for the actions of these third parties.Although we can impose contractual restrictions on what these thirdparties are authorized to do on our behalf, we will exercise only limitedcontrol over the actions of these third parties but may still face the sameliabilities for their actions. Our failure, and the failure of others who weengage to act on our behalf, to comply, with the laws and regulations ofthe countries in which we operate, or will operate in the future, couldmaterially harm our business.Our business involves environmental risks and potential exposure toOur business involves environmental risks and potential exposure toenvironmental liabilitiesenvironmental liabilities..As a biopharmaceutical company, our business involves the use ofcertain hazardous materials in our research, development, manufacturingand other activities. We and our third party providers are subject tovarious federal, state, local and foreign environmental laws andregulations concerning the handling and disposal of non-hazardous andhazardous wastes, such as medical and biological wastes, and emissionsand discharges into the environment (including air, soils and watersources). We also are subject to laws and regulations that impose liabilityand clean-up responsibility for releases of hazardous substances into theenvironment and a current or previous owner or operator of property maybe liable for the costs of remediating its property or locations, withoutregard to whether the owner or operator knew of or caused thecontamination. Although our safety procedures for handling and disposingof hazardous materials are designed to comply with the laws andregulations established by state, federal, local and foreign regulators, therisk of loss of, or accidental contamination or injury from, these materialscannot be50eliminated. If an accident or environmental discharge occurs, or if wediscover contamination caused by prior owners and operators ofproperties we acquire, we could be liable for remediation obligations,damages and fines that could exceed our insurance coverage andfinancial resources. Such obligations and liabilities, which to date have notbeen material, could have a material impact on our business and financialcondition. Additionally, the cost of compliance with environmental andsafety laws and regulations may increase in the future, and we may berequired to dedicate more resources, including substantial financialresources, to comply with such laws and regulations or purchasesupplemental insurance coverage, which may not be available onacceptable terms or at all.Currency fluctuations and changes in exchange rates could adverselyCurrency fluctuations and changes in exchange rates could adverselyaffect our revenue, increase our costs and negatively affect ouraffect our revenue, increase our costs and negatively affect ourprofitabilityprofitability..We conduct a substantial portion of our business in currencies otherthan the U.S. dollar. We are exposed to fluctuations in foreign currencyexchange rates and such fluctuations affect our operating results. Theexposures result from portions of our revenues, as well as the relatedreceivables, and expenses that are denominated in currencies other thanthe U.S. dollar, including the Euro, Japanese Yen, British Pound, Canadiandollar and Turkish Lira. We cannot predict fluctuations in currencyexchange rates and such fluctuations in exchange rates (and inflation)could negatively affect our business, cash flow, results of operations,financial position and prospects. We manage a portion of our foreigncurrency transaction risk within specified guidelines through the use ofderivatives. All of our derivative instruments are utilized for riskmanagement purposes, and we do not use derivatives for speculativetrading purposes. While our hedging agreements may limit some of theexposure to exchange rate and interest rate fluctuations, such attempts tomitigate these risks may be costly and not always successful and theresults may have a material impact on our results of operations.Risks Related to the Regulatory EnvironmentWe operate in a highly regulated industry and if we or our third-partyWe operate in a highly regulated industry and if we or our third-partyproviders fail to comply with U.S. and foreign regulations, we or our thirdproviders fail to comply with U.S. and foreign regulations, we or our thirdparty providers could lose our approvals to market our products or ourparty providers could lose our approvals to market our products or ourproduct candidates, and our business may be seriously harmedproduct candidates, and our business may be seriously harmed..We and our current and future third-party vendors, contractmanufacturers, CROs, distributors and suppliers and logistic providers aresubject to rigorous and extensive regulation by governmental authoritiesaround the world, including the FDA, EMA, the competent authorities ofthe EU Member States and the MHLW. These regulations, many of whichare complex, relate to almost all aspects of our business, including GCP,GLP, cGMP and pharmacovigilance rules (for additional information on theregulations relating to our business, see “Business - GovernmentRegulation” in Item 1). If we or a regulatory agency discover previouslyunknown problems with a product, including adverse events ofunanticipated severity or frequency, or problems with the facility where theproduct is manufactured (such as product contamination), or in the caseof KANUMA, problems with animal operations, a regulatory agency mayimpose restrictions on that applicable product, the manufacturing facilityor us. In 2013, we received a Warning Letter from the FDA relating tocompliance with FDA’s cGMP requirements at one of our facilities, whichwas remediated. If we had failed to address the FDA’s concerns or if we (orone of our third-party contract manufacturers) were to receive anotherWarning Letter in the future relating to cGMP or other applicableregulations, the FDA or other regulatory authorities could take regulatoryaction, including fines, civil penalties, recalls, seizure of product,suspension of manufacturing operations, operating restrictions,injunctions, suspension of clinical trials, withdrawal of FDA (or otherregulatory authority) approval and/or criminal prosecution.If we or our third-party providers, including our product or raw materialmanufacturers, product fill-finish providers, packagers and labelers, fail tocomply fully with applicable regulations, then we may be required to,among other things, initiate a recall or withdrawal of our products. Inaddition to our manufacturing operations and those of contractmanufacturers’ manufacturing operations being subject to inspection andpotential regulatory action for failure to comply with (among otherregulations) cGMP, our animal operations may also be subject to FDA andU.S. Department of Agriculture, Animal and Plant Health Inspection Service(USDA APHIS) inspection to evaluate whether our animal husbandry,containment, personnel, and record keeping practices are sufficient toensure safety and security of our transgenic chickens and animal products(e.g., eggs, waste, etc.). Any failure to ensure safety and security of ourtransgenic chickens and/or animal products could result in regulatoryaction by the FDA or another regulatory body, including USDA APHIS.Failure to comply with the laws and requirements that apply to ourbusiness, including statutes and regulations, administered by the FDA, theEC, the competent authorities of the EU Member States, the MHLW orother comparable agencies, could result in:•a product recall;•a productwithdrawal;•modification or revision to a product label;•significant administrative and judicial sanctions, including, warningletters or untitled letters;•significant fines and other civil penalties;51•suspension, variation or withdrawal of a previously granted approvalfor our products;•interruption, suspension or termination of production;•operating restrictions, such as a shutdown of production facilities orproduction lines, or new manufacturing requirements;•suspension or termination of ongoing clinicaltrials;•delays in approving or refusal to approve our products includingpending BLAs or BLA supplements for our products or a facility thatmanufactures our products;•seizing or detainingproduct;•requiring us or third-parties performing services for us to enter into aconsent decree, which can include imposition of various fines,reimbursements for inspection costs, required due dates for specificactions and penalties for noncompliance;•injunctions; and/or•criminal prosecution.In addition, we are subject to antitrust regulations with respect to ouracquisitions, as well as our interactions with other participants in themarkets we currently serve or may serve in the future. In addition, theseantitrust laws are vigorously enforced in the U.S. and in other jurisdictionsin which we operate. In connection with any business developmenttransaction, acquisition, development agreement or collaboration that isreviewed by regulatory authorities, there can be no assurance that theseantitrust approvals will be obtained. In addition, the governmental entitiesfrom which these approvals are required may impose conditions on thecompletion of such business development transaction or require changesto the terms of the applicable transaction. Regulatory review process maycause a delay in the closing of a transaction beyond the time that weanticipate and communicate. Any conditions or unexpected delays inapproval could have the effect of jeopardizing or delaying completion ofthe applicable transaction or reducing the anticipated benefits of thetransaction (or, as noted above, may prohibit closing of the transaction).Our product candidates require extensive clinical testing and regulatoryOur product candidates require extensive clinical testing and regulatoryapproval and failure to satisfy regulatory requirements that meet theapproval and failure to satisfy regulatory requirements that meet theappropriate safety and efficacy thresholds may prevent us from beingappropriate safety and efficacy thresholds may prevent us from beingable to market our products and limit our ability to grow our business andable to market our products and limit our ability to grow our business anddiversify our revenuediversify our revenue..We believe our future success may depend on our ability to developand commercialize our product candidates and, to this end, we haverecently acquired companies and technologies in an effort to expand our product pipeline. Our product candidates are in various stages ofdevelopment and must satisfy the rigid safety and efficacy requirements ofthe FDA and other foreign regulatory agencies before they can beapproved for sale to patients. To satisfy these standards, we must ensure,among other things, that we have appropriately established our protocoldesigns, obtained the necessary IRB approval, provide adequate patientenrollment rates, timely and appropriately report any adverse events andserious adverse events to the appropriate authorities and ensurecompliance with cGCP. If we or our third-party clinical trial providers orthird-party CROs do not successfully carry out these clinical activities, ourclinical trials or the potential regulatory approval of a product candidatemay be delayed or be unsuccessful.If we discover safety or safety reporting issues with any of ourapproved products, or if we fail to comply with continuing U.S. andapplicable foreign regulations as they relate to our products andoperations, our revenue may decrease, an approved product could lose itsmarketing approval or sales could be suspended and our business couldbe materially harmed.Following marketing approval of a pharmaceutical product, the safetyprofile of such product continues to be closely monitored by the FDA andother foreign regulatory authorities. Regulations continue to apply afterproduct approval, and cover, among other things, testing, manufacturing,quality control, finishing, filling, labeling, advertising, promotion, riskmitigation, adverse event reporting requirements and export of biologicsand small molecule compounds. Included in the post-approval marketingrequirements are, for example, the REMS program for both SOLIRIS andULTOMIRIS in the U.S., and a REMS program can be updated from time totime by the FDA and such updates can be costly and burdensome toimplement. We are required to report any serious and unexpected adverseexperiences and certain quality problems with our products to the FDA, theEMA, the MHLW and other health agencies. Adverse safety eventsinvolving our products may have a negative impact on our business.Discovery of safety issues with our products could result in product liabilityclaims and could cause additional regulatory scrutiny and requirementsfor additional labeling or safety monitoring, withdrawal of products fromthe market and the imposition of fines or criminal penalties. In addition,governmental authorities are making greater amounts of safetyinformation directly available to the public through periodic safety updatereports, patient registries and other reporting requirements. The reportingof adverse safety events may also damage physician, patient and/orinvestor confidence in our products and our reputation. Any adverseevents in connection with the use of our products could result in liabilities,loss of revenues, material write-offs of inventory, material52impairments of intangible assets, goodwill and fixed assets, materialrestructuring charges and other adverse impacts on our results ofoperations.Regulatory agencies periodically inspect our pharmacovigilanceprocesses. If these regulatory agencies determine that we or other partieswhom we do not control that perform pharmacovigilance-related serviceson our behalf, including clinical trial investigators, have not complied withthe applicable reporting or other pharmacovigilance requirements, we maybecome subject to additional inspections, warning letters or otherenforcement actions, including monetary fines, marketing authorizationwithdrawal and other penalties.As a condition of approval for marketing our products, governmentalauthorities may require us to conduct additional studies. In connectionwith the approval of SOLIRIS we established a PNH Registry and an aHUSRegistry to collect additional data on patients. Furthermore, in connectionwith the approval of STRENSIQ in the U.S., we agreed to conduct aprospective observational study in treated patients to assess the long-term safety of STRENSIQ therapy and to develop complementary assays.In the EU, in connection with the grant of authorization for STRENSIQ, weagreed to conduct a study of STRENSIQ in patients with HPP and to extendthe studies ENB-008-10 and ENB-009-10 to provide efficacy data inpatients 13 to 18 years of age, and we completed this commitment to theEU. In the U.S., the FDA can also propose to withdraw approval for aproduct if it determines that such additional studies are inadequate or ifnew clinical data or information shows that a product is not safe for use inan approved indication.In addition, similar or more stringent post-approval requirements andobligations may be imposed by the FDA and/or other regulatory agencieswith respect to any of our future products that obtain regulatory approval.Compliance with these post-approval requirements could result inincreased cost and expense and decrease our operating margins and, ifwe are unable to comply with these requirements, we may be subject toregulatory action by the applicable regulatory agency and the penaltiesmay include fines and product withdrawals or restrictions in the use of aproduct.If we fail to comply with applicable healthcare laws and regulations,If we fail to comply with applicable healthcare laws and regulations,including those related to healthcare fraud and abuse, we may be subjectincluding those related to healthcare fraud and abuse, we may be subjectto investigations and civil or criminal penalties and our business could beto investigations and civil or criminal penalties and our business could beadversely affectedadversely affected..We are subject to healthcare “fraud and abuse” laws, such as the FalseClaims Act (FCA), the anti-kickback provisions of the federal Social SecurityAct, laws prohibiting off-label product promotion and other related federaland state laws and regulations. The federal Anti-Kickback Statute prohibits, among other things,knowingly and willfully offering, paying, soliciting or receiving anyremuneration, directly or indirectly, in cash or in kind to induce, or rewardthe purchasing, leasing, ordering or arranging for or recommending thepurchase, lease or order of any healthcare item or service reimbursableunder Medicare, Medicaid, or other federal healthcare programs. Liabilitymay be established without a person or entity having actual knowledge ofthe federal Anti-Kickback Statute or specific intent to violate it. Aconviction for violation of the Anti-kickback Statute requires mandatoryexclusion from participation in federal healthcare programs. The majorityof states also have statutes similar to the federal Anti-Kickback Statuteand false claims laws that apply to items and services reimbursed underMedicaid and other state programs, or, in several states, apply regardlessof the payer.The FCA prohibits any person from knowingly presenting, or causing tobe presented, a false or fraudulent claim for payment of governmentfunds, or knowingly making, using or causing to be made or used, a falserecord or statement material to a false or fraudulent claim.Pharmaceutical companies have been investigated and have reachedsubstantial financial settlements with the Federal government under theFCA for a variety of alleged promotional and marketing activities, such asallegedly providing free product to customers with the expectation that thecustomers would bill federal programs for the product; providingconsulting fees and other benefits to physicians to induce them toprescribe products; engaging in promotion of pharmaceuticals for usesthat the FDA has not approved, or “off-label” uses; and submitting inflatedbest price information to the Medicaid Rebate Program.We seek to comply with the Anti-Kickback Statute and FCA laws,including operating within any available safe harbors, but we cannotassure that our compliance program, policies and procedures will alwaysprotect us from acts committed by employees or third-party distributors orservice providers.There is also enhanced scrutiny of company-sponsored patientassistance programs, including insurance premium and co-pay assistanceprograms and donations to third-party charities that provide suchassistance. In 2019, we settled an investigation by the Department ofJustice relating to our support for 501(c)(3) entities. If we, or our vendorsor donation recipients, are deemed to fail to comply with relevant laws,regulations or government guidance in the operation of these programsagain in the future, we could be subject to significant fines or penalties.Other related federal and state laws and regulations that may affectour ability to operate include, among others, the federal False StatementsStatute, the federal Civil Monetary Penalties Law, HIPAA, the federal Open53Payments program, state anti-kickback and false claims acts, and stateand local disclosure requirements and marketing restrictions. Additionalinformation about the scope of these requirements and potentialpenalties is provided under “Government Regulation - Fraud and Abuse”included in Part I, Item 1.In recent years, legislation has been adopted at the federal, state andlocal level requiring pharmaceutical companies to establish marketingcompliance programs, file periodic reports or make periodic publicdisclosures on sales, marketing, pricing, clinical trials, health care providerpayments and other activities. For example, as part of the PatientProtection and Affordable Care Act, as amended by the Health Care andEducation Reconciliation Act of 2010 (collectively, the PPACA), the federalgovernment enacted the Open Payments (commonly known as theSunshine Act) provisions. Open Payments requires pharmaceuticalmanufacturers to report annually to CMS payments or other transfers ofvalue made by that entity to physicians and teaching hospitals. We alsonow have similar reporting obligations throughout the EU. Failure tocomply with the reporting requirements may result in significant civilmonetary penalties.Violations of U.S. federal and state fraud and abuse laws (andcomparable laws in foreign jurisdictions) may result in criminal, civil andadministrative sanctions, including fines, damages, civil monetarypenalties (which may be material in amount) and exclusion from federalhealthcare programs (including Medicare and Medicaid). Any actioninitiated against us for violation of these laws, even if we successfullydefend against it, could require the expenditure of significant resourcesand generate negative publicity, which could materially adversely affectour ability to operate our business and our financial results.Finally, the FDA, the EU and EU Member States and the MHLW, amongother regulatory agencies, impose restrictions on the promotion andmarketing of drug products and prohibit pharmaceutical manufacturersfrom promoting products for indications other than those cleared orapproved by regulatory authorities or for use in manner that is notconsistent with the product label approved by regulatory agencies, or off-label promotion. In certain instances, physicians are, however, in theirmedical judgment permitted to use products for unapproved purposes andwe are aware of such uses of SOLIRIS. Although we believe that ourmarketing materials and training programs for physicians do notconstitute improper promotion, the FDA, the DOJ, other federal or stategovernment agencies, the EU, EU Member States or the MHLW (or otherforeign regulatory agencies) may disagree. If any governmental authoritydetermines that our promotional materials, training or other activitiesconstitute improper promotion of any of our products, it could request thatwe modify our training or promotional materials (which occurred in 2019in Japan) or other activities or subject us to regulatory enforcement actions,including the issuance of a warning letter, product withdrawal or recall,injunction, seizure, civil fine and criminal penalties. It is also possible thatother enforcement authorities might take action if they believe that thealleged improper promotion led to the submission and payment of claimsfor an unapproved use, which could result in significant fines or penaltiesunder other statutory authorities, such as laws prohibiting false orfraudulent claims for payment of government funds.Our business and operations may be materially adversely affected byOur business and operations may be materially adversely affected bygovernment investigationsgovernment investigations..We are subject to the FCPA, the U.K. Bribery Act and other anti-corruption laws and regulations that generally prohibit companies andtheir intermediaries from making improper payments to governmentofficials and/or other persons for the purpose of obtaining or retainingbusiness and we operate in countries that are recognized as having agreater potential for governmental and commercial corruption. While wehave, and continue to, take steps that are intended to enhance ourcompliance and training programs, we cannot assure that our complianceprogram, policies and procedures will always protect us from actscommitted by employees or third-parties acting on our behalf.In May 2015, we received a subpoena in connection with aninvestigation by the Enforcement Division of the SEC requestinginformation related to our grant-making activities and compliance with theFCPA in various countries. In addition, in October 2015, we received arequest from the DOJ for the voluntary production of documents and otherinformation pertaining to our compliance with the FCPA. The SEC and DOJalso seek information related to our recalls of specific lots of SOLIRIS andrelated securities disclosures. Alexion is cooperating with theseinvestigations. The investigations have focused on operations in variouscountries, including Brazil, Colombia, Japan, Russia and Turkey, andAlexion's compliance with the FCPA and other applicable laws. See Note11, Commitments and Contingencies to our consolidated financialstatements included elsewhere in this Annual Report on Form 10-K foradditional information on this matter. In May 2017, Brazilian authoritiesseized records and data from our Sao Paulo, Brazil offices as part of aninvestigation being conducted into our Brazilian operations. At this time,we are unable to predict the duration, scope or outcome of the openinvestigations. In addition, even though we have settled the DOJinvestigation relating generally to our support of certain 501(c)(3)organizations that was initiated by the U.S. Attorney’s Office for the Districtof Massachusetts in December 2016 and the MHLW closed its 2018investigation into our Japanese operations, we may be subject to similarinvestigations in the future by the same or other regulatory agencies54and government authorities and the penalties imposed on us may bematerially greater in amount or we may be subject to material limitationson our operations, activities and our business. In addition, any remedialactions that have been or will be taken with the intent to address thematters that were the subject of these or other governmentalinvestigations may not prevent future investigations and potential liabilityas a result of such further investigations.Any determination that our operations or activities are not, or were not,in compliance with existing U.S. or foreign laws or regulations (includingthe 2015 investigations by the SEC and DOJ focusing on compliance withthe FCPA and other applicable laws), could result in the imposition of abroad range of civil and criminal sanctions against us and certain of ourdirectors, officers and/or employees, including injunctive relief,disgorgement, substantial fines or penalties, imprisonment, and otherlegal or equitable sanctions, including exclusion from Medicare, Medicaid,and other governmental healthcare programs. Any attempts to resolvesome or all of these matters may not be successful. If we were to engagein settlement discussions with respect to any current or futureinvestigation or litigation (and we may accrue amounts due to the natureof such discussions), but the matter is not settled, the ultimate resolutionmay result in monetary or other penalties materially greater or stricterthan the amounts or terms that we proposed in discussions (or theamount that we accrued for such matter during negotiations). Additionally,remediation of any such findings resulting from these and any futureinvestigations could have an adverse effect on our business operations,and we could experience interruptions of business, harm to our reputation,debarment from government contracts, loss of supplier, vendor or otherthird-party relationships, and necessary licenses and permits could beterminated. Other internal or government investigations or legal orregulatory proceedings, including lawsuits brought by private litigants, mayalso follow as a consequence. Cooperating with and responding torequests for information in connection with these ongoing investigations,as well as responding to any future U.S., state or foreign governmentalinvestigation or whistleblower lawsuit, has resulted and could continue toresult in substantial expenses, and could divert management’s attentionfrom other business concerns and could have a material adverse effect onour business and financial condition and growth prospects.Our business could be adversely affected by litigation and regulatoryOur business could be adversely affected by litigation and regulatoryenforcement actions.enforcement actions.We operate in many jurisdictions in a highly regulated industry and wecould be subject to litigation, government investigations (as noted above)and enforcement and other legal actions on a variety of matters in the U.S.or foreign jurisdictions, including, without limitation, intellectual property, regulatory, product liability, taxand custom/import duties, environmental, whistleblower, Qui Tam, falseclaims, privacy, anti-kickback, anti-bribery, securities, commercial,employment and other claims and legal proceedings which may arise fromconducting our business. We are involved in certain legal proceedings. SeeNote 11, Commitments and Contingencies to our consolidated financialstatements included elsewhere in this Annual Report on Form 10-K forinformation on these legal proceedings. Legal proceedings are inherentlyunpredictable, and the outcome can result in costly verdicts, fines andpenalties, exclusion from federal healthcare programs and/or injunctiverelief that affect how we operate our business. Defense of litigation claimscan be expensive, time consuming and distracting, and it is possible thatwe could incur judgments or enter into settlements of claims for monetarydamages or change the way we operate our business, which could have amaterial adverse effect on our product sales, business and results ofoperations. In addition, product liability is a major risk in testing andmarketing biotechnology and pharmaceutical products. We may facepotential product liability exposure in human clinical trials and for productswe sell after regulatory approval. Product liability claims, regardless oftheir merits, could be costly and divert management’s attention and couldadversely affect our reputation and the demand for our products andresult in significant monetary liability.Changes in healthcare laws and implementing regulations, as well asChanges in healthcare laws and implementing regulations, as well aschanges in healthcare policy, may affect coverage and reimbursement ofchanges in healthcare policy, may affect coverage and reimbursement ofour products in ways that we cannot currently predict and these changesour products in ways that we cannot currently predict and these changescould adversely affect our business and financial conditioncould adversely affect our business and financial condition.. In the U.S., there have been a number of legislative and regulatoryinitiatives focused on containing the cost of healthcare. The PPACA, forexample, substantially changed the way healthcare is financed by bothgovernmental and private insurers in the U.S., and significantly impactsthe pharmaceutical industry. The PPACA contains a number of provisionsthat are expected to impact our business and operations, in some cases inways we cannot currently predict. Changes that may affect our businessinclude those governing enrollment in federal healthcare programs,reimbursement changes, rules regarding prescription drug benefits underhealth insurance exchanges, expansion of the 340B program, expansionof state Medicaid programs, fraud and abuse enforcement and rulesgoverning the approval of biosimilar and generic products (and allowingbiosimilars access to the market in accordance with the FDA’s BiosimilarsAction Plan). These changes may impact existing government healthcareprograms, industry competition, formulary composition, and may result inthe development of new55programs, including Medicare payment for performance initiatives, healthtechnology assessments and improvements to the physician qualityreporting system and feedback program. In 2016, CMS implementedchanges to the Medicaid Drug Rebate Program under the PPACA.Moreover, in the future, Congress could enact legislation that furtherincreases Medicaid drug rebates or other costs and charges associatedwith participating in the Medicaid Drug Rebate Program. The issuance ofregulations and coverage expansion by various governmental agenciesrelating to the Medicaid Drug Rebate Program has and may continue todecrease revenues, increase our costs and the complexity of compliance,has been and may be time-consuming, and could have a material adverseeffect on our results of operations.Similar efforts to those in the United States, and in some cases evenmore aggressive efforts, are being taken by governments to control thecosts of pharmaceutical drugs and regulate the industry in countriesoutside the U.S. In these markets outside the U.S., the pricing andreimbursement of pharmaceutical products is subject to direct or indirectgovernmental control and such government authorities are increasinglyattempting to limit or regulate the price of drug products and due to theircontrol over pricing are able to move quickly to implement pricingchanges.We may face uncertainties as a result of federal and administrativeefforts to repeal, substantially modify or invalidate some or all of theprovisions of the PPACA. There is no assurance that the PPACA, ascurrently enacted or as amended in the future, will not adversely affect ourbusiness and financial results, and we cannot predict how future federalor state legislative or administrative changes relating to healthcare reformmay affect our business.State governments have sought to put in place limits and caps onpharmaceutical prices and have also requested rebates for certainpharmaceuticals. Attempts to decrease prices of pharmaceutical productsmay lead to increased use of managed care organizations by Medicaidprograms which could lead to managed care organizations influencingprescription decisions for beneficiaries and a corresponding limitation onprices and reimbursement for our products.Governments in countries where we operate have adopted or havealso shown significant interest in pursuing legislative initiatives to reducecosts of healthcare. We expect that the implementation of current lawsand policies, the amendment of those laws and policies in the future, aswell as the adoption of new laws and policies, could have a materialadverse effect on our industry generally and on our ability to maintain orincrease our product sales or revenues or successfully commercialize ourproduct candidates, or could limit or eliminate our future spending ondevelopment projects and product candidates. The announcement oradoption of regulatory or legislative proposals could delay or prevent our entry intonew markets, affect our reimbursement or sales in the markets where weare already selling our products and materially harm our business,financial condition and results of operations.If we fail to comply with our reporting and payment obligations under theIf we fail to comply with our reporting and payment obligations under theMedicaid Drug Rebate Program, Medicare, or other governmental pricingMedicaid Drug Rebate Program, Medicare, or other governmental pricingprograms, we could be subject to additional reimbursementprograms, we could be subject to additional reimbursementrequirements, penalties, sanctions and fines which could have a materialrequirements, penalties, sanctions and fines which could have a materialadverse effect on our business, financial condition, results of operationsadverse effect on our business, financial condition, results of operationsand prospectsand prospects..We participate in and have certain price reporting obligations to theMedicaid Drug Rebate Program and we have obligations to report theaverage sales price under the Medicare program. Under the Medicaid DrugRebate Program, we are required to pay a rebate to each state Medicaidprogram for quantities of our products that are dispensed to Medicaidbeneficiaries and paid for by a state Medicaid program as a condition ofhaving federal funds being made available to the states for our productsunder Medicaid and Medicare Part B. Those rebates are based on pricingdata reported by us on a monthly and quarterly basis to CMS. Any failureto comply with these price reporting and rebate payment obligations couldnegatively impact our financial results.Pricing and rebate calculations vary among products and programs.The calculations are complex and are often subject to interpretation by us,governmental or regulatory agencies and the courts. We cannot assureyou that our submissions will not be found by CMS or other applicablegovernment authorities to be incomplete or incorrect. Governmentalagencies may also make changes in program interpretations,requirements or conditions of participation, some of which may haveimplications for amounts previously estimated or paid. Recalculationsincrease our costs for complying with the laws and regulations governingthese programs, including the Medicaid Drug Rebate Program. Anycorrections to our rebate calculations could result in an underage in ourrebate liability for past quarters, and such amount may be material. Pricerecalculations also may affect the ceiling price at which we are required tooffer our products to certain covered entities under the 340B pricingprogram.We are liable for errors associated with our submission of pricing data.In addition to retroactive rebates and the potential for 340B programrefunds, civil monetary penalties can be applied if we are found to haveknowingly submitted any false pricing information to the government, if weare found to have made a misrepresentation in the reporting of ouraverage sales price, or if we fail to submit the required pricing data on atimely basis. Such conduct also could be grounds for CMS to terminate ourMedicaid drug rebate agreement, pursuant to which we participate in theMedicaid program. In the event that CMS terminates our56rebate agreement, federal payments may not be available under Medicaidor Medicare Part B for our covered outpatient drugs and any such actionscould negatively impact our business and results of operations.The Public Health Service’s 340B drug pricing program, and otherThe Public Health Service’s 340B drug pricing program, and othercomparable government and payer regulations, may have a negativecomparable government and payer regulations, may have a negativeimpact on the price we can charge for our products and result in aimpact on the price we can charge for our products and result in adecrease in revenuesdecrease in revenues..Federal law requires that any company that participates in theMedicaid Drug Rebate Program also participate in the Public HealthService’s 340B drug pricing program in order for federal funds to beavailable for the manufacturer’s drugs under Medicaid and Medicare PartB. The 340B pricing program requires participating manufacturers to agreeto charge statutorily-defined covered entities no more than the 340B“ceiling price” for the manufacturer’s covered outpatient drugs. The 340Bpricing program is described in Pharmaceutical Pricing andReimbursement in Item 1 Business of this Annual Report on Form 10-K.The 340B ceiling price is calculated using a statutory formula, which isbased on, among other prices, the average manufacturer price and rebateamount for the covered outpatient drug as calculated under the MedicaidDrug Rebate Program. We are a participant in the 340B drug pricingprogram and are, for the applicable covered entities, subject to the priceceiling. Any changes to the 340B drug pricing program, including:•the method of calculating the 340B ceiling price for ourproducts;•any expansion of the entities that qualify as covered entities;and•any requirement that participating manufacturers agree to provide340B discounted pricing on drugs used in an inpatient setting;could have a material and negative impact our revenue and results ofoperations.Pursuant to a final rule adopted on January 1, 2019, we could besubject to civil monetary penalties if the government finds that weknowingly and intentionally overcharged a 340B covered entity.In addition, the agreement that manufacturers must sign to participatein the 340B pricing program obligates a manufacturer to offer the 340Bprice to covered entities if the manufacturer makes the drug available toany other purchaser at any price and to report to the government theceiling prices for its drugs.Beyond the Public Health Service’s 340B drug pricing program, federallaw requires that a company must participate in the Department ofVeterans Affairs Federal Supply Schedule (FFS) pricing program to beeligible to have its products paid for with federal funds. If we overcharge the government in connection with our FSS contract orSection 703 Agreement, whether due to a misstated FCP or otherwise, weare required to refund the difference to the government. Failure to makenecessary disclosures and/or to identify contract overcharges can result inallegations against us under the FCA and other laws and regulations.Unexpected refunds to the government, and responding to a governmentinvestigation or enforcement action, may be expensive, and could have amaterial adverse effect on our business, financial condition, results ofoperations and growth prospects.We may be subject to numerous and varying privacy and security laws,We may be subject to numerous and varying privacy and security laws,and our failure to comply could result in penalties and reputationaland our failure to comply could result in penalties and reputationaldamagedamage..We are subject to laws and regulations covering data privacy and theprotection of personal information including health information. Thelegislative and regulatory landscape for privacy and data protectioncontinues to evolve, and there has been an increasing focus on privacyand data protection issues which have affected and may affect ourbusiness. In the U.S., numerous federal and state laws and regulations,including state security breach notification laws, state health informationprivacy laws, and federal and state consumer protection laws, whichgovern the collection, use, disclosure, and protection of personalinformation. Each of these laws is subject to varying interpretations bycourts and government agencies, creating complex compliance issues forus. If we fail to comply with applicable laws and regulations, we could besubject to penalties or sanctions, including criminal penalties if we, ouraffiliates, or our agents knowingly obtain or disclose individuallyidentifiable health information from a HIPAA covered entity in a mannerthat is not authorized or permitted by HIPAA.Numerous other countries have, or are developing, laws governing thecollection, use and transmission of personal information as well. Further,the EU’s GDPR and implementing laws in the EU member states governthe collection and processing of EU residents’ personal data and, amongother requirements, imposes certain consent and data access rights. Suchlaws may impact, among other things, our ability to conduct clinical trialsthat involve EU personal data and engage in other activities that requirethe processing of EU personal data. These laws are complex, subject tointerpretation by local authorities, and any determination that webreached such laws could lead to government enforcement actions,significant penalties and these may adversely impact our operatingresults.In May 2018, the General Data Protection Regulation, which applies inall EU Member States, went into effect. The regulation introducedcomprehensive data protection requirements in the EU and substantialfines for breaches of the data protection rules. It increased ourresponsibility and liability in relation to personal data57that we process and we may be required to put in place additionalmechanisms ensuring compliance with the new EU data protectionrules. Security breaches, cyber-attacks or other disruptions could expose us toSecurity breaches, cyber-attacks or other disruptions could expose us toliability and affect our business and reputationliability and affect our business and reputation..We are increasingly dependent on our information technology systemsand infrastructure for our business. We collect, store and transmitsensitive information including intellectual property, proprietary businessinformation and personal information in connection with businessoperations. The secure maintenance of this information is critical to ouroperations and business strategy. Some of this information could be anattractive target of criminal attack by third parties with a wide range ofmotives and expertise, including organized criminal groups, “hacktivists,”patient groups, disgruntled current or former employees and others.Cyber-attacks are of ever-increasing levels of sophistication, and despiteour security measures, our information technology and infrastructure maybe vulnerable to such attacks or may be breached, including due toemployee error or malfeasance. We have implemented informationsecurity measures designed to protect patients’ personal information andother corporate information (including proprietary information) against therisk of inappropriate and unauthorized external use and disclosure.However, despite these measures, and due to the ever-changinginformation cyber-threat landscape, we may be subject to data breachesthrough cyber-attacks. Any such breach could compromise our networksand the information stored there could be accessed, publicly disclosed,lost or stolen. If our information technology systems becomecompromised, we may not promptly discover the intrusion. Like othercompanies in our industry, we have experienced attacks to our data andsystems, including malware and computer viruses. If our systems failed orwere breached or disrupted, we could lose product sales, and sufferreputational damage and loss of customer confidence. Such incidentsmay result in notification obligations to affected individuals andgovernment agencies, legal claims or proceedings, and liability underforeign, federal and state laws that protect the privacy and security ofpersonal information. Our proprietary and confidential information mayalso be accessed. Any one of these events could cause our business to bematerially harmed and our results of operations may be adverselyimpacted.Negative public opinion and increased regulatory scrutiny of recombinantNegative public opinion and increased regulatory scrutiny of recombinantand transgenic products, genetically modified products and geneticallyand transgenic products, genetically modified products and geneticallymodified animals generally may damage public perception of ourmodified animals generally may damage public perception of ourKANUMA productKANUMA product..KANUMA is a transgenic product produced in the egg whites ofgenetically modified chickens who receive copies of the human lysosomal acid lipase gene to produce recombinanthuman lysosomal acid lipase. The success of KANUMA may depend, inpart, on public attitudes of the use of genetic engineering. Public attitudesmay be influenced by claims and perceptions that these types of activitiesor products are unsafe, and our products may not gain sufficientacceptance by, or fall out of favor with, the public or the medicalcommunity. Negative public attitudes to genetic engineering activities ingeneral could result in more restrictive legislation or regulations and couldimpede our ability to conduct our business, delay preclinical or clinicalstudies, or otherwise prevent us from commercializing our product.Risks Related to Our Common StockOur stock price is volatileOur stock price is volatile..The trading price of our common stock has been volatile and maycontinue to be volatile in the future. Many factors could have an impact onour stock price, including fluctuations in our or our competitors’ operatingresults, clinical trial results or adverse events associated with our productsor our competitors' products, product development by us or ourcompetitors, changes in laws, including healthcare, tax or intellectualproperty laws, intellectual property developments, changes inreimbursement or drug pricing, the existence or outcome of litigation orgovernment proceedings, including the SEC/DOJ investigation and theChugai lawsuits alleging patent infringement, acquisitions or otherstrategic transactions, and the perceptions of our investors that we are notperforming or meeting expectations. In addition, the sales of our commonstock by our officers, directors, or by any entities that an officer or directormay be affiliated with, may have caused our stock price to drop in the pastand any future sales by such officer, director or affiliate (or the perceptionthat such sales could occur) may have a negative impact on our stockprice. The trading price of the common stock of many biopharmaceuticalcompanies, including ours, has experienced price and volume fluctuations,which have at times been unrelated to the operating performance of thecompanies whose stocks were affected.Anti-takeover provisions in our charter and bylaws and under DelawareAnti-takeover provisions in our charter and bylaws and under Delawarelaw could make a third-party acquisition of us difficult and may frustratelaw could make a third-party acquisition of us difficult and may frustrateany attempt to remove or replace our current managemenany attempt to remove or replace our current management.t.Our corporate charter and by-law provisions may discourage certaintypes of transactions involving an actual or potential change of control thatmight be beneficial to us or our stockholders. Our bylaws provide thatspecial meetings of our stockholders may be called only by the Chairmanof the Board of Directors, the President, the Secretary, or a majority of theBoard of Directors, or upon the written request of stockholders58who together own of record 25.0% of the outstanding stock of all classesentitled to vote at such meeting. Our bylaws also specify that theauthorized number of directors may be changed only by resolution of theBoard of Directors. Our charter does not include a provision for cumulativevoting for directors, which may have enabled a minority stockholderholding a sufficient percentage of a class of shares to elect one or moredirectors. Under our charter, our Board of Directors has the authority,without further action by stockholders, to designate up to five millionshares of preferred stock in one or more series. The rights of the holdersof common stock will be subject to, and may be adversely affected by, therights of the holders of any class or series of preferred stock that may beissued in the future.Because we are a Delaware corporation, the anti-takeover provisions ofDelaware law could make it more difficult for a third party to acquirecontrol of us, even if the change in control may be beneficial tostockholders. We are subject to the provisions of Section 203 of theDelaware General Laws, which prohibits a person who owns in excess of15.0% of our outstanding voting stock from merging or combining with usfor a period of three years after the date of the transaction in which theperson acquired in excess of 15.0% of our outstanding voting stock,unless the merger or combination is approved in a prescribed manner.59Item 1B.Item 1B.UNRESOLVED STAFF COMMENTS.UNRESOLVED STAFF COMMENTS.None. Item 2.Item 2.PROPERTIES.PROPERTIES.We conduct our primary operations at the owned and leased facilities described below. LocationLocation Operations ConductedOperations Conducted ApproximateApproximateSquare FeetSquare Feet LeaseLeaseExpirationExpirationDatesDatesBoston, Massachusetts Corporate headquarters and executive, sales, research anddevelopment offices 150,000 2031New Haven, Connecticut Research and process development laboratories, clinical supply andquality, enterprise business services 263,000 2030Dublin, Ireland Global operations headquarters, global supply chain, distribution, andadministration offices 160,000 OwnedAthlone, Ireland Commercial, research and development manufacturing 80,000 OwnedWe believe that our administrative office space is adequate to meet our needs for the foreseeable future. We also believe that our research anddevelopment facilities and our manufacturing facilities, together with third party manufacturing facilities, will be adequate for our on-going activities. Inaddition to the locations above, we also lease space in other U.S. locations and in foreign countries to support our operations as a global organization.In April 2014, we purchased a fill/finish facility in Athlone, Ireland, which has been refurbished to become our first company-owned fill/finish facility.In July 2016, we announced plans to construct a new biologics manufacturing facility at this site. We have completed construction of a new biologicsmanufacturing facility at this site and we are currently pursuing regulatory approval.In May 2015, we announced plans to construct a new biologics manufacturing facility on our existing property in Dublin, Ireland. Construction of thisfacility has been completed and we are currently pursuing regulatory approval.In the fourth quarter of 2018, we amended the New Haven lease agreement significantly reducing our rented square footage in the buildingbeginning in 2019 through the expiration of the lease.Item 3.Item 3.LEGAL PROCEEDINGS.LEGAL PROCEEDINGS.For a discussion of legal matters as of December 31, 2019, see Note 11, Commitments and Contingencies, Contingent Liabilities, within our notes tothe consolidated financial statements included in this Annual Report on Form 10-K, which is incorporated into this item by reference.Item 4.Item 4.MINE SAFETY DISCLOSURES.MINE SAFETY DISCLOSURES.Not applicable.60PART IIPART II Item 5.Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES.SECURITIES.Our common stock is quoted on The Nasdaq Stock Market, LLC under the symbol “ALXN.” As of January 28, 2020, we had approximately 87 stockholders of record of our common stock. The closing sale price of our common stock onJanuary 28, 2020 was $106.97 per share.DIVIDEND POLICYDIVIDEND POLICYWe have never paid cash dividends. We do not expect to declare or pay any cash dividends on our common stock in the near future. We intend toretain all earnings, if any, to invest in our operations. The payment of future dividends is within the discretion of our Board of Directors and will dependupon our future earnings, if any, our capital requirements, financial condition and other relevant factors. In addition, restrictive covenants under ouramended and restated credit agreement prohibit or limit the payment of cash dividends if we are not in compliance with certain covenants.ISSUER PURCHASES OF EQUITY SECURITIES ISSUER PURCHASES OF EQUITY SECURITIES (amounts in millions except per share amounts)The following table summarizes our common stock repurchase activity during the fourth quarter of 2019:PeriodPeriodTotal Number of SharesTotal Number of SharesPurchasedPurchased Average Price Paid perAverage Price Paid perShareShare Total Number of SharesTotal Number of SharesPurchased as Part ofPurchased as Part ofPublicly AnnouncedPublicly AnnouncedProgramsPrograms Maximum Dollar ValueMaximum Dollar Valueof Shares that May Yetof Shares that May YetBe Purchased UnderBe Purchased Underthe Programsthe ProgramsOctober 1-31, 20190.1 $100.55 0.1 1,056.9November 1-30, 20190.1 108.8 0.1 1,046.6December 1-31, 20190.1 111.3 0.1 1,035.5TotalTotal0.3 $— 0.3 In November 2012, our Board of Directors authorized a share repurchase program. In February 2017, our Board of Directors increased the amountthat we are authorized to expend on future repurchases to $1,000.0 under the repurchase program, which superseded all prior repurchase programs. OnOctober 22, 2019, the Board of Directors approved an additional share repurchase authorization of up to $1,000.0. The repurchase program does nothave 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 ourdiscretion.As of February 4, 2020, there is a total of $1,033.9 remaining for repurchases under the repurchase program.61EQUITY COMPENSATION PLAN INFORMATIONEQUITY COMPENSATION PLAN INFORMATION (amounts in millions except per share amounts)The information provided in the following table is as of December 31, 2019.Plan CategoryPlan CategoryNumber of sharesNumber of sharesof common stockof common stockto be issued uponto be issued uponexercise ofexercise ofoutstandingoutstandingoptions (1)options (1) Weighted-Weighted-averageaverageexercise priceexercise priceofofoutstandingoutstandingoptionsoptions Weighted-Weighted-averageaverageterm toterm toexpiration ofexpiration ofoptionsoptionsoutstanding (years)outstanding (years) Number of sharesNumber of sharesof common stockof common stockremaining availableremaining availablefor future issuancefor future issuanceunder equityunder equitycompensation plans (2)compensation plans (2)Equity compensation plans approved by stockholders3.0 $119.51 4.08 14.3Equity compensation plans not approved bystockholders— $— — — (1)Reflects number of shares of common stock to be issued upon exercise of outstanding options under all our equity compensation plans, includingour 2017 Incentive Plan. Does not include 4.3 of outstanding restricted stock units, including performance-based restricted stock units, that wereissued under the 2017 Incentive plan and the previous Amended and Restated 2004 Incentive Plan.(2)Of these shares, 13.8 remain available for future issuance under the 2017 Incentive Plan and 0.5 remain available under the 2015 EmployeeStock Purchase Plan.The outstanding options and restricted stock units are not transferable for consideration and do not have dividend equivalent rights attached.62THE COMPANY’S STOCK PERFORMANCETHE COMPANY’S STOCK PERFORMANCEThe following graph compares cumulative total return of the Company’s common stock with the cumulative total return of (i) the Nasdaq StockMarket-United States, and (ii) the Nasdaq Biotechnology Index. The graph assumes (a) $100 was invested on December 31, 2014 in each of theCompany’s common stock, the stocks comprising the Nasdaq Stock Market-United States and the stocks comprising the Nasdaq Biotechnology Index, and(b) the reinvestment of dividends. The comparisons shown in the graph are based on historical data and the stock price performance shown in the graph isnot necessarily indicative of, or intended to forecast, future performance of our stock.CUMULATIVE TOTALCUMULATIVE TOTALRETURNRETURN 12/1412/14 12/1512/15 12/1612/16 12/1712/17 12/1812/18 12/1912/19Alexion Pharmaceuticals, Inc.100.00 103.09 66.12 64.63 52.62 58.45Nasdaq Composite100.00 106.96 116.45 150.96 146.67 200.49Nasdaq Biotechnology100.00 111.77 87.91 106.92 97.45 121.92This performance graph is furnished and shall not be deemed "filed" with the SEC or subject to Section 18 of the Securities ExchangeAct of 1934, nor shall it be deemed incorporated by reference in any of Alexion's filings under the Securities Act of 1933, as amended.63Item 6.Item 6.SELECTED FINANCIAL DATA.SELECTED FINANCIAL DATA.(amounts in millions, except per share amounts) The following selected financial data for the years ended December 31, 2019, 2018 and 2017 and as of December 31, 2019 and 2018 is derivedfrom, and should be read in conjunction with, the Consolidated Financial Statements, including the notes thereto, and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The selected financial data for the yearsended December 31, 2016 and 2015 and as of December 31, 2017, 2016, and 2015 are derived from our audited financial statements not included inthis Annual Report on Form 10-K.Consolidated Statements of Operations Data:Consolidated Statements of Operations Data: Year Ended December 31,Year Ended December 31, 2019201920182018201720172016201620152015Net product sales$4,990.0 $4,130.1 $3,549.5 $3,081.7 $2,602.5Other revenue1.1 1.1 1.6 2.4 1.5Total revenues4,991.1 4,131.2 3,551.1 3,084.1 2,604.0Cost of sales (1)394.5 374.3 454.2 258.3 233.1Operating expenses: Research and development886.0 730.4 878.4 757.2 709.5Selling, general and administrative1,261.1 1,111.8 1,094.4 953.0 862.6Acquired in-process research and development (2)(4.1) 1,183.0 — — —Amortization of purchased intangible assets (3)309.6 320.1 320.1 322.2 116.6Change in fair value of contingent consideration11.6 116.5 41.0 35.7 64.2Acquisition-related costs— — — 2.3 39.2Restructuring expenses (1)12.0 25.5 104.6 3.0 42.1Impairment of intangible assets— — 31.0 85.0 —Total operating expenses2,476.2 3,487.3 2,469.5 2,158.4 1,834.2Operating income2,120.4 269.6 627.4 667.4 536.7Other income and (expense) (4)58.4 (27.4) (79.6) (91.2) (38.6)Income before income taxes2,178.8 242.2 547.8 576.2 498.1Income tax (benefit) expense (5) (6) (7) (8) (225.5) 164.6 104.5 176.8 353.7Net income$2,404.3 $77.6 $443.3 $399.4 $144.4Earnings per common share Basic$10.77 $0.35 $1.98 $1.78 $0.68Diluted$10.70 $0.35 $1.97 $1.76 $0.67Shares used in computing earnings per common share Basic223.2 222.7 223.9 224.3 213.4Diluted224.8 224.5 225.4 226.3 215.964Consolidated Balance Sheet Data:Consolidated Balance Sheet Data: As of December 31,As of December 31, 20192019 20182018 20172017 20162016 20152015Cash, cash equivalents and marketable securities$2,749.5 $1,563.8 $1,474.1 $1,293.4 $1,385.0Total assets (5)17,544.6 13,931.9 13,583.3 13,253.3 13,097.9Long-term debt (current and noncurrent)2,501.7 2,595.5 2,888.1 3,055.1 3,420.9Contingent consideration (current and noncurrent)192.4 280.8 168.9 152.9 177.2Financing lease obligations (current and noncurrent) (9)78.1 372.2 353.3 243.4 151.3Total liabilities (5)6,272.8 4,766.6 4,690.2 4,559.5 4,838.5Total stockholders’ equity11,271.8 9,165.3 8,893.1 8,693.8 8,258.6In addition to the following notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and theConsolidated Financial Statements and accompanying notes and previously filed Annual Reports on Form 10-K for further information regarding ourconsolidated results of operations and financial position for periods reported therein.(1) In 2017, we committed to an operational plan to re-align the global organization with its refocused corporate strategy. As a result of this re-alignment, in2017, we recorded additional asset related charges of $152.1 associated with the planned closure of the Alexion Rhode Island Manufacturing Facility tocost of sales (which facility was subsequently sold in 2018). These charges primarily relate to accelerated depreciation and the impairment ofmanufacturing assets. Additionally, the re-alignment in 2017 resulted in restructuring expenses of $104.6, primarily related to employee separationcosts.(2) In the second quarter 2018, we completed the acquisition of Wilson Therapeutics AB (publ). We acquired in-process research and development relatedto WTX101, an early Phase III asset in development for the treatment of Wilson Disease. Due to the stage of development of this asset, the value of thisasset of $803.7 was expensed during 2018. In the fourth quarter of 2018 we completed the acquisition of Syntimmune, Inc. We acquired in-processresearch and development related to SYNT001, which is in Phase 1b/2a trials and in development for the treatment of Immunoglobulin G and IgG-mediated autoimmune diseases. Due to the stage of development of this asset, the value of this asset of $379.3 was expensed during 2018. Inconnection with the agreement of the final working capital adjustment for the Syntimmune acquisition, we recognized a benefit of $4.1 associated withpreviously acquired in-process research and development in the second quarter 2019.(3) In the third quarter 2015, we received regulatory approval for STRENSIQ and KANUMA. As a result, we began amortizing intangible assets associatedwith STRENSIQ and KANUMA.(4) In 2019, we sold our Moderna Therapeutics equity investment and recorded a realized gain of $32.8. In addition, we amended the terms of ouragreement with Caelum Biosciences which resulted in the recognition of a $32.0 gain in 2019. We recognized an unrealized gain of $44.4 on ourModerna Therapeutics equity investment in 2018. Additionally, in 2016, we incurred a full year of interest expense on our credit facility entered into in2015.(5) In 2019, we recognized a net tax benefit of $115.8 attributable to the integration of intellectual property of Wilson Therapeutics into the Alexioncorporate structure, a $17.0 tax benefit attributable to the completion of a comprehensive analysis of our prior year estimate related to our foreign-derived intangible income (“FDII”), and a $382.2 tax benefit attributable to the completion of an intra-entity asset transfer of certain intellectual propertywithin our captive foreign partnership. The Company recognized deferred tax assets of $2,221.5 and deferred tax liabilities of $1,839.3 in connectionwith the intra-entity asset transfer.(6) We recognized tax (benefit) expense of $(56.5) and $45.8 in 2018 and 2017, respectively, as a result of the Tax Cuts and Jobs Act. In 2017, werecorded certain impacts of the Tax Act on a provisional basis. As of December 22, 2018, our accounting for the impact of the Tax Act was complete.(7) In 2016, we recognized deferred tax expense of $119.3 associated with the distribution of earnings from our captive foreign partnership.(8) In connection with the integration of the Synageva business with and into the Alexion business, we incurred a one-time tax expense of $315.6 in thethird quarter 2015. This tax expense is attributable to the change in our deferred tax liability for the outside basis difference resulting from themovement of assets into our captive foreign partnership.(9) Upon adoption of the new lease standard in 2019, we derecognized $372.2 of facility lease obligations associated with previously existing build to-suitarrangements and capitalized $83.1 of financing lease liabilities. Financing lease liabilities as a result of the new standard are included in other currentliabilities and other liabilities.65Item 7.Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OFMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTSFINANCIAL CONDITION AND RESULTSOF OPERATIONS.OF OPERATIONS.(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 causeour actual results to differ materially from expectations, plans andanticipated results discussed in forward-looking statements. Weencourage you to review the risks and uncertainties, discussed in thesection entitled item 1A “Risk Factors”, and the “Note Regarding Forward-Looking Statements”, included at the beginning of this Annual Report onForm 10-K. The risks and uncertainties can cause actual results to differsignificantly from those forecasted in forward-looking statements orimplied in historical results and trends.The following discussion should be read in conjunction with ourconsolidated financial statements and related notes appearing elsewherein this Annual Report on Form 10-K.OverviewOverviewAlexion is a global biopharmaceutical company focused on servingpatients 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 morethan 20 years, Alexion has developed and commercializes two approvedcomplement inhibitors to treat patients with paroxysmal nocturnalhemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS), aswell as the first and only approved complement inhibitor to treat anti-acetylcholine receptor (AChR) antibody-positive generalized myastheniagravis (gMG) and neuromyelitis optica spectrum disorder (NMOSD) inpatients who are anti-aquaporin-4 (AQP4) antibody positive. Alexion alsohas two highly innovative enzyme replacement therapies and the first andonly approved therapies for patients with life-threatening and ultra-raremetabolic disorders, hypophosphatasia (HPP) and lysosomal acid lipasedeficiency (LAL-D).In addition to our marketed therapies, we have a diverse pipelineresulting from internal innovation and business development. Alexionfocuses its research efforts on novel molecules and targets in thecomplement cascade and its development efforts on the core therapeuticareas of hematology, nephrology, neurology, metabolic disorders andcardiology.RecentRecent DevelopmentsDevelopmentsIn November 2019, Japan’s Ministry of Health, Labour and Welfare(MHLW) approved the extension of the current marketing authorization ofSOLIRIS® (eculizumab) to include the prevention of relapse in patientswith anti-aquaporin-4 (AQP4) antibody-positive neuromyelitis optica spectrum disorder (NMOSD),including neuromyelitis optica.In December 2019, we exercised our option for exclusive rights totwo additional targets within the complement pathway under an existingagreement with Dicerna Pharmaceuticals, Inc, which expands Alexion’sexisting research collaboration and license agreement with Dicerna toinclude a total of four targets within the complement pathway. Inconnection with the option exercise, we paid Dicerna $20.0 in the fourthquarter 2019.In December 2019, following FDA feedback which resulted in theredesign and expansion of Caelum’s planned clinical developmentprogram for CAEL-101, we amended the terms of our existing optionagreement with Caelum. The amendment modified the terms of the optionto acquire the remaining equity in Caelum based on data from theexpanded Phase II/III trials. The amendment also modified thedevelopment-related milestone events associated with the initial $30.0 incontingent payments, provided for an additional $20.0 in upfront funding,as well as funding of $60.0 in exchange for an additional equity interest atfair value upon achievement of a specific development-related milestoneevent.On January 28, 2020, we completed the acquisition of AchillionPharmaceuticals, Inc. (Achillion). Achillion is a clinical-stagebiopharmaceutical company focused on the development of oral Factor Dinhibitors. Achillion is developing oral small molecule Factor D inhibitors totreat complement alternative pathway-mediated rare diseases, such asPNH and C3 glomerulopathy (C3G). The company currently has two clinicalstage medicines in development. Phase 3 development is being initiatedfor danicopan as an add-on therapy for PNH patients with extravascularhemolysis and danicopan is also in Phase 2 development for C3G, andACH-5228 is in Phase 2 development for PNH. Under the terms of theagreement, we acquired all outstanding common stock of Achillion for$6.30 per share, or approximately $926.0, inclusive of the settlement ofAchillion’s outstanding equity awards. The acquisition was funded withcash on hand. The transaction includes the potential for additionalconsideration in the form of non-tradeable contingent value rights (CVRs),which will be paid to Achillion shareholders if certain clinical andregulatory milestones are achieved within specified periods. These include$1.00 per share for the U.S. FDA approval of danicopan and $1.00 pershare for the initiation of Phase 3 in ACH-5228.66Critical Accounting Policies and EstimatesCritical Accounting Policies and EstimatesThe significant accounting policies and basis of preparation of ourconsolidated financial statements are described in Note 1, “BusinessOverview and Summary of Significant Accounting Policies” of theConsolidated Financial Statements included in this Annual Report on Form10-K. The preparation of these financial statements in conformity withGAAP requires that management make estimates, judgments andassumptions that affect the reported amounts of assets, liabilities,revenues, expenses and other related disclosures. Some of thosejudgments can be subjective and complex, and therefore, actual resultscould differ materially from those estimates under different assumptionsor conditions.We believe the judgments, estimates and assumptions associatedwith the following critical accounting policies have the greatest potentialimpact on our consolidated financial statements:•Revenue recognition;•Contingent liabilities;•Share-based compensation;•Valuation of goodwill, acquired intangible assets and in-processresearch and development (IPR&D);•Valuation of contingent consideration; and•Incometaxes.Revenue RecognitionRevenue RecognitionOur principal source of revenue is product sales. Our contracts withcustomers generally contain a single performance obligation and werecognize revenue from product sales when we have satisfied ourperformance obligation by transferring control of the product to ourcustomers. Control of the product generally transfers to the customerupon delivery. In certain countries, we sell to distributors on aconsignment basis and record revenue when control of the producttransfers to the customer upon sale to the end user.Revenue is recognized at the amount to which we expect to beentitled in exchange for the sale of our products. This amount includesboth fixed and variable consideration and excludes amounts that arecollected from customers and remitted to governmental authorities, suchas value-added taxes in foreign jurisdictions.Variability in the transaction price for our products pursuant to ourcontracts with customers primarily arises from the following:Discounts and Rebates: We offer discounts and rebates to certaindistributors and customers under our arrangements. In many cases, theseamounts are fixed at the time of sale and the transaction price is reducedaccordingly. We also provide for rebates under certain governmentalprograms, including Medicaid in the U.S. and other programs outside the U.S., which are payable based on actualclaim data. We estimate these rebates based on an analysis of historicalclaim patterns and estimates of customer mix to determine which saleswill be subject to rebates and the amount of such rebates. Generally, thelength of time between product sale and the processing and reporting ofthe rebates is three to six months.Volume-Based Arrangements: We have entered into volume-basedarrangements with governments in certain countries and other customersin which reimbursement is limited to a contractual amount. Under this typeof arrangement, amounts billed in excess of the contractual limitation arerepaid to the customer as a rebate. We estimate incremental discountsresulting from these contractual limitations, based on forecasted salesduring the limitation period, and we apply the discount percentage toproduct shipments as a reduction of revenue. Our calculations related tothese arrangements require estimation of sales during the limitationperiod.We believe the methodology used to accrue for discounts andrebates is reasonable and appropriate given current facts andcircumstances, but actual results may differ.We have provided balances and activity in the rebates payableaccount for the years ended December 31, 2019, 2018 and 2017 asfollows: RebatesRebatesPayablePayableBalances, December 31, 2016Balances, December 31, 2016$$69.569.5Current provisions relating to sales in current year193.8Adjustments relating to prior years(4.5)Payments/credits relating to sales in current year(97.4)Payments/credits relating to sales in prior years(62.3)Balances, December 31, 2017Balances, December 31, 2017$$99.199.1Current provisions relating to sales in current year235.4Adjustments 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, 2018Balances, December 31, 2018$$122.8122.8Current provisions relating to sales in current year322.7Adjustments relating to prior years (1)18.8Payments/credits relating to sales in current year(123.4)Payments/credits relating to sales in prior years(90.8)Balances, December 31, 2019Balances, December 31, 2019$$250.1250.1(1) Included in the adjustments related to prior years is an accrual recorded in 2019related to the PMPRB matter. See Note 11, Commitments and Contingencies foradditional 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 unitvolumes in the U.S. which were subject to rebates as well as increases inrebate rates in the U.S. on certain product sales. The increase in 2017was attributable to67increased unit volumes in the U.S. and Europe, which were subject torebates, as well as to increases in rebate rates in certain geographicalregions and on certain product sales as compared to the prior year.Contingent liabilitiesContingent liabilitiesWe are currently involved in various claims and legal proceedings. Ona quarterly basis, we review the status of each significant matter andassess its potential financial exposure. If the potential loss from anyclaim, asserted or unasserted, or legal proceeding is considered probableand the amount can be reasonably estimated, we accrue a liability for theestimated loss. Significant judgment is required in both the determinationof probability and the determination as to whether an exposure isreasonably estimable. Because of uncertainties related to claims andlitigation, accruals are based on the best information available at the timeof 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, orbased on specific events such as the outcome of litigation or settlement ofclaims (and our offers of settlement), we may reassess the potentialliability related to these matters and may revise these estimates, whenfacts and circumstances indicate the need for any change.Share-Based CompensationShare-Based CompensationThe Company recognizes compensation expense associated with theissuance of equity instruments that may be granted to our directors,officers, employees and consultants or advisors of the Company or anysubsidiary. To date, share-based compensation issued consists ofincentive and non-qualified stock options, restricted stock and restrictedstock units, including restricted stock units with market and non-marketperformance conditions, and shares issued under our ESPP.Compensation expense for our share-based awards is recognizedbased on the estimated fair value of the awards on the grant date.Compensation expense reflects an estimate of the number of awardsexpected to vest and is primarily recognized on a straight-line basis overthe requisite service period of the individual grants, which typically equalsthe vesting period. Compensation expense for awards with performanceconditions is recognized using the graded-vesting method.Significant judgments and assumptions are used in estimatingcompensation cost for restricted stock units containing market-basedperformance conditions as well as non-market performance conditionsrelating to the achievement of operational metrics. We use payoutsimulation models to estimate the grant date fair value of awards withmarket-based performance conditions. The payout simulation modelsassume volatility of our common stock and the common stock of a comparatorgroup of companies, as well as correlations of returns of the price of ourcommon stock and the common stock prices of the comparator group. Forour non-market performance-based awards, we estimate the anticipatedachievement of the performance targets, including forecasting theachievement of future financial targets. These estimates are revisedperiodically based on the probability of achieving the performance targetsand adjustments are made throughout the performance period asnecessary. Changes in estimates and probability of achieving theperformance targets could have a material impact on our results ofoperations.Valuation of Goodwill, Acquired Intangible Assets and In-ProcessValuation of Goodwill, Acquired Intangible Assets and In-ProcessResearch and Development (IPR&D)Research and Development (IPR&D)We have recorded goodwill and acquired intangible assets related toour business combinations. When identifiable intangible assets, includingIPR&D, are acquired, we determine the fair values of the assets as of theacquisition date. Discounted cash flow models are typically used in thesevaluations if quoted market prices are not available, and the modelsrequire the use of significant estimates and assumptions including but notlimited to: •timing and costs to complete the in-processprojects;•timing and probability of success of clinical events or regulatoryapprovals;•estimated future cash flows from product sales resulting fromcompleted products and in-process projects; and•discount rates.We may also utilize a cost approach, which estimates the costs thatwould be incurred to replace the assets being purchased. Significantinputs into the cost approach include estimated rates of return onhistorical costs that a market participant would expect to pay for theseassets.Intangible assets with definite useful lives are amortized to theirestimated residual values over their estimated useful lives and reviewedfor impairment if triggering events occur.As of December 31, 2019, the net book value of our purchasedtechnology includes $2,992.4 associated with the KANUMA intangibleasset, which we acquired in the acquisition of Synageva BioPharmaCorp. As part of our standard procedures, we reviewed the KANUMA assetas of December 31, 2019 and determined that there were no indicators ofimpairment. Cash flow models used in our assessments are based on ourcommercial experience to date with KANUMA and require the use ofsignificant estimates, which include, but are not limited to, long-rangepricing expectations and patient-related assumptions, including patientidentification,68conversion and retention rates. We will continue to review the relatedvaluation and accounting of this asset as new information becomesavailable to us.Goodwill represents the excess of purchase price over fair value ofnet assets acquired in a business combination and is not amortized.Goodwill is subject to impairment testing at least annually or when atriggering event occurs that could indicate a potential impairment. We areorganized and operate as a single reporting unit and therefore thegoodwill impairment test is performed using our overall market value, asdetermined by our traded share price, compared to our book value of netassets.Valuation of Contingent ConsiderationValuation of Contingent ConsiderationWe record contingent consideration resulting from a businesscombination at its fair value on the acquisition date. We determine the fairvalue of the contingent consideration based primarily on the followingfactors:•timing and probability of success of clinical events or regulatoryapprovals;•timing and probability of success of meeting commercialmilestones, such as estimated future sales levels of a specificcompound; and•discount rates.Our contingent consideration liabilities arose in connection with ourbusiness combinations. On a quarterly basis, we revalue these obligationsand record increases or decreases in their fair value as an adjustment tooperating earnings. Changes to contingent consideration obligations canresult from adjustments to discount rates, accretion of the discount ratesdue to the passage of time, changes in our estimates of the likelihood ortiming of achieving development or commercial milestones, changes in theprobability of certain clinical events or changes in the assumed probabilityassociated with regulatory approval.The assumptions related to determining the value of contingentconsideration include a significant amount of judgment, and any changesin the underlying estimates could have a material impact on the amount ofcontingent consideration expense recorded in any given period.Income TaxesIncome TaxesWe utilize the asset and liability method of accounting for incometaxes. Under this method, deferred tax assets and liabilities aredetermined based on the difference between the financial statementcarrying amounts and tax basis of assets and liabilities using enacted taxrates in effect for years in which the temporary differences are expected toreverse.On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) wasenacted into law. The Tax Act decreased the U.S. statutory corporate tax rate for years beginning after December31, 2017, and included other domestic and international tax provisionsthat affect the measurement of our deferred tax assets and liabilities. As aresult, we revalued our deferred tax assets and liabilities as of December31, 2017 and recorded a deferred tax benefit of $292.4. We recordedother impacts of the Tax Act on a provisional basis in 2017. As ofDecember 22, 2018, our accounting for the impact of the Tax Act wascomplete. See Note 12, Income Taxes to our consolidated financialstatements included elsewhere in this Annual Report on Form 10-K foradditional information.If our estimate of the tax effect of reversing temporary differences isnot reflective of actual outcomes, is modified to reflect new developmentsor interpretations of the tax law, revised to incorporate new accountingprinciples, or changes in the expected timing or manner of the reversal ourresults of operations could be materially impacted.We follow the authoritative guidance regarding accounting foruncertainty in income taxes, which prescribes a recognition threshold andmeasurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn. These unrecognized tax benefits relate primarily to issues commonamong multinational corporations in our industry. We apply a variety ofmethodologies in making these estimates which include studiesperformed by independent economists, advice from industry and subjectexperts, evaluation of public actions taken by the IRS and other taxingauthorities, as well as our own industry experience. We provide estimatesfor unrecognized tax benefits which may be subject to materialadjustments until matters are resolved with taxing authorities or statutesexpire. If our estimates are not representative of actual outcomes, ourresults of operations could be materially impacted.We continue to maintain a valuation allowance against certaindeferred tax assets where realization is not certain. We periodicallyevaluate the likelihood of the realization of deferred tax assets and reducethe carrying amount of these deferred tax assets by a valuation allowanceto the extent we believe a portion will not be realized. We consider manyfactors when assessing the likelihood of future realization of deferred taxassets, including our recent cumulative earnings experience by taxingjurisdiction, expectations of future taxable income, carryforward periodsavailable to us for tax reporting purposes, various income tax strategiesand other relevant factors. Significant judgment is required in making thisassessment and, to the extent future expectations change, we wouldassess the recoverability of our deferred tax assets at that time. If wedetermine that the deferred tax assets are not realizable in a futureperiod, we would record69adjustments to income tax expense in that period, and such adjustmentsmay be material.During the fourth quarter of 2013, in connection with thecentralization of our global supply chain and technical operations inIreland, our U.S. parent company became a direct partner in a captiveforeign partnership. Our corporate structure, which derives income frommultiple jurisdictions, requires us to interpret the related tax laws andregulations within those jurisdictions and develop estimates andassumptions regarding significant future events, such as the amount,timing and character of deductions and the applicability of foreign taxcredits. From time to time, we execute intercompany transactions thatmay impact the valuation of the captive foreign partnership and thecorresponding interest allocated to each partner, resulting in a change todeferred taxes. The transactions and related valuations require theapplication of transfer pricing guidelines issued by the relevant taxingauthorities. Significant estimates and assumptions within discounted cashflow models are also required to calculate the valuations. These estimatesand assumptions include, but are not limited to, estimated futureoperating cash flows, revenue growth rate assumptions, long-range pricingexpectations, patient-related assumptions and other significant inputssuch as discount rates and rates of return.New Accounting PronouncementsNew Accounting PronouncementsAccounting Standards Update (ASU) 2016-13, “Measurement ofAccounting Standards Update (ASU) 2016-13, “Measurement ofCredit Losses on Financial Instruments”:Credit Losses on Financial Instruments”: In June 2016, the FinancialAccounting Standards Board (FASB) issued a new standard intended toimprove reporting requirements specific to loans, receivables and otherfinancial instruments. The new standard requires that credit losses onfinancial assets measured at amortized cost be determined using anexpected loss model, instead of the current incurred loss model, andrequires that credit losses related to available-for-sale debt securities berecorded through an allowance for credit losses and limited to the amountby which carrying value exceeds fair value. The new standard also requiresenhanced disclosure of credit risk associated with financial assets. Thestandard is effective for interim and annual periods beginning afterDecember 15, 2019 with early adoption permitted.We adopted the new standard on January 1, 2020 and havesubstantially completed our assessment of the standard based on thecomposition of our portfolio of financial instruments and current andforecasted economic conditions as of January 1, 2020. We are continuingto finalize our calculations for credit losses and to establish processes andinternal controls that may be required to comply with the new credit lossstandard and related disclosure requirements. We do not expect theadoption of this standard to have a significant impact on our consolidatedfinancial statements. ASU 2018-15, “Customer’s Accounting for Implementation CostsASU 2018-15, “Customer’s Accounting for Implementation CostsIncurred in a Cloud Computing Arrangement That Is a Service Contract”:Incurred in a Cloud Computing Arrangement That Is a Service Contract”: InAugust 2018, the FASB issued a new standard on a customer's accountingfor implementation, set-up, and other upfront costs incurred in a cloudcomputing arrangement (CCA) that aligns the requirements for capitalizingimplementation costs in a CCA service contract with existing internal-usesoftware guidance. The standard also provides classification guidance onthese implementation costs as well as additional quantitative andqualitative disclosures. The standard is effective for interim and annualperiods beginning after December 15, 2019, with early adoptionpermitted, and can be adopted prospectively or retrospectively.We adopted the new standard on January 1, 2020 on a prospectivebasis and are continuing to establish new processes and internal controlsthat may be required to comply with the new cloud computing standard.We do not expect the adoption of this standard to have a significantimpact on our financial statements; however, the adoption of this standardwill result in an increase in capitalized assets related to qualifying CCAimplementation costs incurred after the adoption date.ASU 2019-12, “Income Taxes: Simplifying the Accounting for IncomeASU 2019-12, “Income Taxes: Simplifying the Accounting for IncomeTaxes”:Taxes”: In December 2019, the FASB issued a new standard intended tosimplify the accounting for income taxes by eliminating certain exceptionsrelated to the approach for intraperiod tax allocation, the methodology forcalculating income taxes in an interim period and the recognition ofdeferred tax liabilities for outside basis differences. The new guidancealso simplifies aspects of the accounting for franchise taxes and enactedchanges in tax laws or rates and clarifies the accounting for transactionsthat result in a step-up in the tax basis of goodwill. The standard iseffective for annual periods beginning after December 15, 2020 andinterim periods within, with early adoption permitted. Adoption of thestandard requires certain changes to primarily be made prospectively, withsome changes to be made retrospectively. We are currently assessing theimpact of this standard on our financial condition and results ofoperations.ASU 2020-01, “Investments - Equity Securities, Investments - EquityASU 2020-01, “Investments - Equity Securities, Investments - EquityMethod and Joint Ventures, and Derivatives and Hedging - Clarifying theMethod and Joint Ventures, and Derivatives and Hedging - Clarifying theInteractions Between Topic 321, Topic 323, and Topic 815”:Interactions Between Topic 321, Topic 323, and Topic 815”: In January2020, the FASB issued a new standard intended to clarify the interactionsbetween ASC 321, ASC 323 and ASC 815. The new standard addressesaccounting for the transition into and out of the equity method andmeasurement of certain purchased options and forward contracts toacquire investments. The standard is effective for annual and interim70periods beginning after December 15, 2020, with early adoptionpermitted. Adoption of the standard requires changes to be madeprospectively. We are currently assessing the impact of this standard onour financial condition and results of operations.Recently Adopted Accounting PronouncementsRecently Adopted Accounting PronouncementsASU 2016-02, “Leases”:ASU 2016-02, “Leases”: In February 2016, the FASB issued a newstandard that requires lessees to recognize leases on-balance sheet anddisclose key information about leasing arrangements. The new standardestablishes a right of use (ROU) model that requires a lessee to recognizea ROU asset and lease liability on the balance sheet for all leases with aterm longer than 12 months. Leases will be classified as financing oroperating, with classification affecting the pattern and classification ofexpense recognition in the statement of operations.We adopted the new standard on January 1, 2019 using themodified retrospective approach. We have elected to apply the transitionmethod that allows companies to continue applying the guidance underthe lease standard in effect at that time in the comparative periodspresented in the consolidated financial statements and recognize acumulative-effect adjustment to the opening balance of retained earningson the date of adoption. We also elected the “package of practicalexpedients”, which permits us not to reassess under the new standard ourprior conclusions about lease identification, lease classification and initialdirect costs. Results for reporting periods beginning on or after January 1, 2019are presented under the new standard, while prior period amounts are not adjusted and continue to be reportedunder the accounting standards in effect for the prior period. Uponadoption of the new lease standard, on January 1, 2019, we derecognized$472.8 of property, plant and equipment and other assets and $372.2 offacility lease obligations associated with previously existing build-to-suitarrangements. We capitalized ROU assets of $326.1, inclusive of openingadjustments of $70.8 primarily related to prepaid rent existing attransition, and $255.3 of lease liabilities, within our consolidated balancesheets upon adoption. At transition, we recorded a decrease of $90.3 toretained earnings, net of tax, primarily related to our derecognition ofpreviously recorded build-to-suit arrangements.ASU 2018-02, “Reclassification of Certain Tax Effects fromASU 2018-02, “Reclassification of Certain Tax Effects fromAccumulated Other Comprehensive Income”:Accumulated Other Comprehensive Income”: In February 2018, the FASBissued a new standard that permits entities to make a one-timereclassification from accumulated other comprehensive income (AOCI) toretained earnings for the stranded tax effects resulting from the newlyenacted corporate tax rates under the Tax Cuts and Jobs Act (the Tax Act)that was effective for the year ended December 31, 2017. We adoptedthe new standard on January 1, 2019 and elected not to reclassify theincome tax effects of the Tax Act from AOCI to retained earnings. Wecontinue to release disproportionate income tax effects from AOCI basedon the aggregate portfolio approach. The adoption of this standard did nothave an impact on our consolidated financial statements.71Results of OperationsResults of OperationsThe following table sets forth consolidated statements of operations data for the periods indicated. This information has been derived from theconsolidated financial statements included elsewhere in this Annual Report on Form 10-K. Year Ended December 31,Year Ended December 31, 201920192018201820172017Net product sales$4,990.0 $4,130.1 $3,549.5Other revenue1.1 1.1 1.6Total revenues4,991.1 4,131.2 3,551.1Cost of sales394.5 374.3 454.2Operating expenses: Research and development886.0 730.4 878.4Selling, general and administrative1,261.1 1,111.8 1,094.4Acquired in-process research and development(4.1) 1,183.0 —Amortization of purchased intangible assets309.6 320.1 320.1Change in fair value of contingent consideration11.6 116.5 41.0Restructuring expenses12.0 25.5 104.6Impairment of intangible assets— — 31.0Total operating expenses2,476.2 3,487.3 2,469.5Operating income2,120.4 269.6 627.4Other income and (expense)58.4 (27.4) (79.6)Income before income taxes2,178.8 242.2 547.8Income tax (benefit) expense(225.5) 164.6 104.5Net income$2,404.3 $77.6 $443.3Earnings per common share: Basic$10.77 $0.35 $1.98Diluted$10.70 $0.35 $1.9772Comparison of the Years Ended Comparison of the Years Ended December 31, 2019December 31, 2019, , 20182018, and , and 20172017Net Product SalesNet Product SalesNet product sales by product and significant geographic region are as follows: Year Ended December 31,Year Ended December 31, % Change% Change 20192019 20182018 20172017 2019 compared to 20182019 compared to 2018 2018 compared to 20172018 compared to 2017SOLIRISSOLIRIS United States$2,014.0 $1,588.4 $1,235.0 26.8 % 28.6 %Europe1,049.8 1,036.7 985.2 1.3 % 5.2 %Asia Pacific423.5 382.0 328.1 10.9 % 16.4 %Rest of World459.1 555.9 595.8 (17.4)% (6.7)% $3,946.4 $3,563.0$3,144.1 10.8 % 13.3 % ULTOMIRISULTOMIRIS United States$236.8 $— $— ** **Europe52.2 — — ** **Asia Pacific49.9 — — ** **Rest of World— — — ** ** $338.9 $— $— ** ** STRENSIQSTRENSIQ United States$451.7 $374.3 $280.1 20.7 % 33.6 %Europe77.0 61.7 35.6 24.8 % 73.3 %Asia Pacific50.4 27.9 18.6 80.6 % 50.0 %Rest of World13.4 11.2 5.5 19.6 % ** $592.5 $475.1$339.8 24.7 % 39.8 % KANUMAKANUMA United States$60.0 $51.3 $42.4 17.0 % 21.0 %Europe27.1 21.6 14.6 25.5 % 47.9 %Asia Pacific4.6 3.7 2.7 24.3 % 37.0 %Rest of World20.5 15.4 5.9 33.1 % ** $112.2 $92.0$65.6 22.0 % 40.2 % Total Net Product SalesTotal Net Product Sales$4,990.0 $4,130.1$3,549.5 20.8 % 16.4 %** Percentages not meaningful73Net Product Sales (consolidated) Net Product Sales (consolidated) United States Asia Pacific Europe Rest of WorldSOLIRIS net product sales United States Asia Pacific Europe Rest of World ULTOMIRIS net product sales United States Asia Pacific Europe Rest of WorldSTRENSIQ net product sales United States Asia Pacific Europe Rest of World74KANUMA net product sales United States Asia Pacific Europe Rest of WorldThe increase in net product sales for fiscal year 2019, as comparedto fiscal year 2018, was primarily due to an increase in unit volumes. Thisincrease in unit volumes was primarily due to increased global demand forSOLIRIS therapy, with sales to patients with gMG being the largest driver,as well as ULTOMIRIS volumes due to the loading doses required in apatient's first year on therapy. Partially offsetting the SOLIRIS increase wasthe conversion of PNH patients from SOLIRIS to ULTOMIRIS. WhileULTOMIRIS contributed to 2019, the ULTOMIRIS volumes were primarilyattributable to PNH patient conversion from SOLIRIS in the U.S. Additionalunit volume increases were due to increased demand of STRENSIQ andKANUMA during 2019 as a result of our continued efforts to identify andreach more patients with HPP and LAL-D globally.The increase in net product sales for fiscal year 2019, as comparedto fiscal year 2018, was partially offset by price decreases of which thelargest driver was $29.8, or 0.7%, as a result of a judicial order issued inthe second quarter 2019 related to SOLIRIS pricing in Canada. Thedecision led to a reduction of revenue in the second quarter of 2019 andfurther reductions in all subsequent quarters until the appeals processconcludes. The reduction of revenue recorded for the year endedDecember 31, 2019 includes the impact for the period from September2017 to December 2019.As a result of patient conversion from SOLIRIS to ULTOMIRIS, weexpect variability in our revenues in future quarters due to the extendedULTOMIRIS dosing interval and infusion timing which may result in eitherone or two infusions in a quarter. ULTOMIRIS loading doses for PNHpatients will result in increased revenues during a patient’s first year ontherapy. The ULTOMIRIS annual maintenance dose for PNH and aHUSrequires fewer vials as compared to the annual dose for SOLIRIS. Due to thedecision to price ULTOMIRIS lower than SOLIRIS on an annual basis, weanticipate U.S. revenues will be unfavorably impacted by the lower annualcost per patient in maintenance years, with the impact more pronouncedfor aHUS due to the greater decrease in vials for aHUS ULTOMIRISpatients.As a result of strategic pricing decisions implemented for STRENSIQin the U.S. that limit annual treatment costs given weight based dosing, weexpect price to be unfavorably impacted for STRENSIQ in the U.S. in futureperiods as compared to prior periods.The increase in net product sales for fiscal year 2018, as comparedto fiscal year 2017, was primarily due to an increase in unit volumes. Thisincrease in unit volumes is primarily due to increased global demand forSOLIRIS therapy, including sales to patients with gMG, which receivedregulatory approval in the second half of 2017. Additional unit volumeincreases were due to increased sales of STRENSIQ and KANUMA during2018 as a result of our continued efforts to identify and reach morepatients with HPP and LAL-D globally.The increase in net product sales for fiscal year 2018, as comparedto fiscal year 2017, was partially offset by price decreases of 3.9% due, inpart, to a price change in Turkey resulting from a formalizedreimbursement agreement, subsequent to marketing authorization, in thethird quarter of 2018. In addition, rebates in the U.S. and reimbursementagreements outside the U.S. for our metabolic products also contributed tothis decrease in net product sales.Cost of SalesCost of SalesCost of sales includes manufacturing costs, actual and estimatedroyalty expenses associated with sales of our products, and amortizationof licensing rights.The following table summarizes cost of sales for the years endedDecember 31, 2019, 2018 and 2017: Cost of Sales●●Cost of sales as a percentage of net product salesThe decrease in cost of sales as a percentage of net product salesfor the year ended December 31, 2019, as compared to the same periodsin 2018 and752017, was primarily due to decreases in royalty expenses due to acontract 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 thirdquarter of 2017 (this facility was sold in 2018). These charges primarilyrelate to accelerated depreciation and the impairment of manufacturingassets.Exclusive of the items mentioned above, cost of sales as apercentage of net product sales was 8.7%, 8.9% and 8.5% for the yearsended December 31, 2019, 2018 and 2017, respectively.Research and Development ExpenseResearch and Development Expense Research and Development Expense (R&D)●●R&D as a % of net product salesOur research and development expense includes personnel, facilityand direct costs associated with the research and development (R&D) ofour product candidates, as well as product development costs. Foradditional information on our development programs, please refer toProduct and Development Programs in Item I Business of this AnnualReport on Form 10-K.R&D expenses are comprised of costs paid for clinical development,product development and discovery research, as well as costs associatedwith certain strategic licensing agreements and R&D-related assetpurchase agreements we have entered into with third parties. Clinicaldevelopment costs are comprised of costs to conduct and manage clinicaltrials related to eculizumab, ALXN1210 and other product candidates.Product development costs are those incurred in performing duties relatedto manufacturing development and regulatory functions, includingmanufacturing of material for clinical and research activities and otheradministrative costs incurred during product development. Discoveryresearch costs are incurred in conducting laboratory studies andperforming preclinical research for other uses of our products and otherproduct candidates. Upfront payments include upfront payments relatedto strategic licensing agreements and R&D-related asset purchase agreements. Subsequent milestone payments incurred under suchagreements which relate to R&D activities are classified as clinical,discovery or product development costs based on the nature of theunderlying milestone event. Clinical development costs have beenaccumulated and allocated to each of our programs, while productdevelopment and discovery research costs have not been allocated.Other R&D expenses consist of costs to compensate personnel, tomaintain our facilities and equipment, and other occupancy costsassociated with our research and development efforts. These costs relateto efforts on our clinical and preclinical products, our product developmentand our discovery research efforts. These costs have not been allocateddirectly to each program.The following graph provides information regarding research anddevelopment expenses: Clinical Development Discovery Product Development Payroll and Benefits Upfront Payments Facilities and OtherDuring the year ended December 31, 2019, we incurred R&Dexpenses of $886.0, an increase of $155.6, or 21.3%, versus the $730.4incurred during the year ended December 31, 2018. The increase wasprimarily related to the following:•Increase of $76.7 in upfront payments primarily related to thelicense payments made in connection with the arrangements weentered into with Zealand Pharma A/S (Zealand), Affibody AB(Affibody), Eidos Therapeutics, Inc. (Eidos) and StealthBioTherapeutics Corp. (Stealth) in 2019. Upfront payments madein 2018 related to the agreement entered into with DicernaPharmaceuticals Inc. (Dicerna).76•Increase of $37.1 in payroll and benefits primarily related toheadcount increases.•Increase of $34.8 in discovery mainly driven by target optionexercise fees and research milestones associated with ouragreement with Dicerna.•Increase of $23.6 in direct clinical development expenses relatedprimarily to increases in various studies (see graph on followingpage summarizing expenses related to our clinical developmentprograms).•Decrease of $18.2 in direct product development expensesrelated primarily to a decrease in costs associated with themanufacturing of material for ALXN1210, partially offset by anincrease for material related to ALXN1830 and ALXN1840.During the year ended December 31, 2018, we incurred researchand 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 relatedprimarily to decreases in various eculizumab clinical studies, offsetby expansion of studies for ALXN1210.•Increase of $13.0 in direct product development expenses relatedprimarily to an increase in costs associated with the manufacturingof material for ALXN1210 offset by a decrease in ALXN6000clinical research activities (the ALXN6000 program has beendiscontinued).•Decrease of $22.2 in upfront payments due to the nature andtiming of licensing agreements executed in 2018 compared to2017.•Decrease of $12.9 in discovery primarily related to de-prioritizedpreclinical arrangements with Moderna Therapeutics and BlueprintMedicines. We no longer conduct development efforts with theseentities.•Decrease of $26.0 in payroll and benefits primarily related toheadcount reductions resulting from restructuring activitiesinitiated in 2017.•Decrease of $29.0 in facilities and other related expensesprimarily related to decreased facilities expenses primarilyresulting from the impact of the 2017 restructuring. The following graph summarizes expenses related to our clinicaldevelopment programs: 2019 2018 201777The following graph summarizes accumulated direct expensesrelated to our clinical development programs from January 1, 2006 toDecember 31, 2019:(a) From 1992 through 2006, substantially all research and development expenseswere related to two products, eculizumab and pexelizumab. We obtained approval in theU.S. for eculizumab for PNH in 2007 and for aHUS in 2010, and we ceased developmentof pexelizumab in 2006.(b) Unallocated costs shared across various development programs.The successful development of our drug candidates is uncertain andsubject to a number of risks. We cannot guarantee that results of clinicaltrials will be favorable or sufficient to support regulatory approvals for anyof our product development programs. We could decide to abandondevelopment or be required to spend considerable resources nototherwise contemplated. For additional discussion regarding the risks anduncertainties regarding our research and development programs, pleaserefer to Item 1A “Risk Factors” in this Annual Report on Form 10-K.We expect our research and development expenses to increase as apercentage of sales in 2020 as compared to 2019. Selling, General and Administrative ExpenseSelling, General and Administrative Expense Selling General and Administrative Expense (SG&A)●●SG&A as a % of net product salesOur selling, general and administrative expense includes commercialand administrative personnel, corporate facility and external costsrequired to support the marketing and sales of our commercializedproducts. These selling, general and administrative costs include:corporate facility operating expenses and depreciation; marketing andsales operations in support of our products; human resources; finance,legal, information technology and support personnel expenses; and othercorporate costs such as telecommunications, insurance, audit,government affairs and our global corporate compliance program.The table below provides information regarding selling, general andadministrative expense: Salary, benefits and other labor expense External selling, general and administrativeexpenseDuring 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 endedDecember 31, 2018. The increase was primarily related to the following:78•Increase in salary, benefits and other labor expenses of $112.3.The increase was primarily related to headcount increases drivenby an increase in commercial activities related to SOLIRIS for gMGand increased staff costs associated with commercial supportactivities including NMOSD pre-launch efforts. Employee relatedcosts associated with our share-based compensation plans alsoincreased.•Increase in external selling, general and administrative expensesof $37.0. The increase was primarily driven by an increase incharitable 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, or1.6%, 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 expensesof $20.2. The increase was primarily due to an increase inprofessional services and asset related charges associated withpreviously announced restructuring programs. These increaseswere partially offset by decreased distribution expenses ascompared to the same period in 2017.We expect our selling, general and administrative expenses todecrease as a percentage of sales in 2020 as compared to 2019.Acquired In-Process Research and DevelopmentAcquired In-Process Research and DevelopmentFor 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 Syntimmuneacquisition as a result of the agreement of the final working capitaladjustment in the second quarter 2019.For the year ended December 31, 2018, we recorded acquiredIPR&D expense of $1,183.0 related to the Wilson Therapeutics acquisitioncompleted in the second quarter of 2018 and the Syntimmune acquisition completed in the fourth quarter of 2018. The IPR&D assets associatedwith each of these acquisitions, which were the principal assets acquiredin each transaction, had not reached technological feasibility and had noalternative future use as of the acquisition date and were thereforeexpensed in 2018.Amortization of Purchased Intangible AssetsAmortization of Purchased Intangible AssetsAmortization expense associated with purchased intangible assetswas $309.6, $320.1 and $320.1 for the years ended December 31,2019, 2018 and 2017, respectively. Amortization expense is primarilyassociated with intangible assets related to STRENSIQ and KANUMA.During the third quarter 2019, the U.S. patent term extension to acomposition of matter patent for STRENSIQ was granted, which resulted inan increase in the estimated useful life of the STRENSIQ intangible assetand will result in lower amortization expense in future periods.Change in Fair Value of Contingent ConsiderationChange in Fair Value of Contingent ConsiderationFor the years ended December 31, 2019, 2018 and 2017, thechange in fair value of contingent consideration expense associated withour prior business combinations was $11.6, $116.5 and $41.0,respectively. The change in the fair value of contingent consideration willfluctuate based on the timing of recognition of changes in the probabilityof achieving contingent milestones and the expected timing of milestonepayments in connection with previous acquisitions.79For the year ended December 31, 2019, changes in the fair value ofcontingent consideration expense include the impact of changes in theexpected timing of achieving contingent milestones, in addition to theinterest component related to the passage of time.In September 2018, we amended the terms of certain contingentmilestone payments due under our prior merger agreement with EnobiaPharma Corp. (Enobia), dated December 28, 2011. The agreementremoved our obligations with respect to a regulatory milestone andredistributed the contingent payment associated with this milestone tovarious sales milestones. As a result of this agreement and the probabilityof achieving the various sales milestones, our contingent considerationliability increased by $48.7 in the third quarter 2018.For the year ended December 31, 2018, changes in the fair value ofcontingent consideration expense primarily reflect the impact of theagreement with Enobia to amend milestones and changes in the expectedtiming of payments of contingent consideration, as well as the interestcomponent of contingent consideration related to the passage of time.Restructuring ExpensesRestructuring ExpensesFor the years ended December 31, 2019, 2018 and 2017, werecorded $12.0, $25.5 and $104.6, respectively, in restructuringexpenses. The charges for the year ended December 31, 2019 relate torestructuring activities initiated in the first quarter 2019 to re-align ourinternational commercial organization.The charges for the year ended December 31, 2018 were mainlyattributable to the relocation of our corporate headquarters from NewHaven, Connecticut to Boston, Massachusetts and other related costs. Thecharges for the year ended 2017 were mainly attributable to employeeseparation costs in connection with the 2017 restructuring. In the firstquarter of 2017, we initiated a company-wide restructuring designed tohelp position the Company for sustainable, long-term growth that webelieve will further allow us to fulfill our mission of serving patients andfamilies with rare diseases. The initial restructuring activities primarilyfocused on a reduction of the Company's global workforce. In September2017, we committed to an operational plan to re-align the global organization with our refocusedcorporate strategy. The re-alignment focused investments in prioritygrowth areas to maximize leadership in complement and grow the raredisease business. The re-alignment also included the relocation of theCompany's headquarters to Boston, Massachusetts in 2018. Our NewHaven, Connecticut site continues to support employees working in theresearch and process development laboratories, the clinical supply andquality teams, patient support program and a number of importantenterprise business services. The 2017 restructuring plan reduced theCompany's global workforce by approximately 20.0%. The restructuringachieved cost savings by focusing the development portfolio, simplifyingbusiness structures and processes across the Company's globaloperations, and closing of multiple Alexion sites, including ARIMF andcertain regional and country-based offices.Impairment of Intangible AssetsImpairment of Intangible AssetsIn the second quarter 2017, due to clinical results, we recognized animpairment charge of $31.0 related to our SBC-103 acquired in-processresearch 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 forimpairment and determined that there were no indicators of impairment.We will continue to review the related valuation and accounting of thisasset in future quarters as new information becomes available to us.Changes to assumptions used in our net cash flow projections may resultin impairment charges in subsequent periods. The net book value of theKANUMA intangible asset as of December 31, 2019 is $2,992.4.80Other Income and (Expense)Other Income and (Expense)The following table provides information regarding other income andexpense: Investment Income Interest Expense Other Income (expense)For the years ended December 31, 2019 and 2018, we recognizedother income of $35.9 and $5.5, respectively. The increase in otherincome is primarily related to a gain of $32.0 resulting from anamendment to the terms of our option agreement with Caelum in thefourth quarter of 2019.For the years ended December 31, 2019, 2018 and 2017, werecognized investment income of $100.3, $65.3 and $18.5, respectively.The increase is primarily related to unrealized gains and losses on ourstrategic equity investments recorded at fair value. During the year endedDecember 31, 2019, we recorded unrealized gains of $26.9 on ourstrategic equity investments and recognized a net realized gain of $32.8related to the sale of our Moderna Therapeutics Inc. (Moderna) equityinvestment. For the year ended December 31, 2018, we recordedunrealized gains of $43.0 on our strategic equity investments, primarilyrelated to our Moderna equity investment.For the years ended December 31, 2019, 2018 and 2017, werecorded $77.8, $98.2 and $98.4, respectively, in interest expense. Thedecrease in interest expense is driven by the derecognition of certainpreviously recorded build-to-suit arrangements in the first quarter 2019due to the adoption of the new lease accounting standard. Income TaxesIncome Taxes Income tax (benefit) expense●●Effective Tax RateThe income tax (benefit) expense for the years ended December 31,2019, 2018 and 2017 is attributable to the U.S. federal, state and foreignincome taxes on our profitable operations. During the year endedDecember 31, 2019, we recorded a income tax benefit of $225.5 and aneffective 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 theyears 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 atax election made with respect to intellectual property of WilsonTherapeutics and a valuation allowance release and correspondingrecognition of net operating losses, respectively. These deferred taxbenefits are offset by income tax expense of $10.2 associated with theJuly 1, 2019 integration of the Wilson Therapeutics intellectual propertyinto the Alexion corporate structure.We completed a comprehensive analysis of our prior year estimaterelated to our foreign-derived intangible income (“FDII”) based onadditional guidance provided in the proposed regulations issued by theU.S. Treasury Department in 2019. The analysis resulted in income taxbenefit of $17.0 related to the prior year, which was recorded as a changein estimate in income tax expense in our 2019 consolidated statements ofoperations, resulting in a decrease of approximately 0.8% to our effectivetax rate.During the fourth quarter 2019, we completed an intra-entity assettransfer of certain intellectual property to an Irish subsidiary within ourcaptive foreign partnership. We recognized deferred tax benefits of$2,221.5 which represents the difference between the81basis of the intellectual property for financial statement purposes and thebasis of the intellectual property for tax purposes, applying theappropriate enacted statutory tax rates. We will receive future taxdeductions associated with amortization of the intellectual property, andany amortization not deducted for tax purposes will be carried forwardindefinitely under Irish tax law. An offsetting deferred tax expense of$1,839.3 has been recognized to reflect the reduction of future foreign taxcredits associated with the foreign local tax amortization deductions.These net deferred tax benefits resulted in a decrease of approximately17.5% to our effective tax rate.The income tax expense for the year ended December 31, 2018includes an increase in the effective tax rate of 102.6% attributable to theacquisitions of Syntimmune and Wilson Therapeutics. Absent successfulclinical results and regulatory approval, there is no alternative future usefor the in-process research assets we acquired in these acquisitions.Accordingly, the value of the assets acquired of $1,183.0 were expensedas acquired in-process research and development, for which no taxbenefit has been recognized.In December 2017, the Tax Act was enacted into law. The Tax Actdecreased the U.S. federal corporate tax rate to 21.0%, imposed aminimum tax on foreign earnings and incorporated a one-time transitiontax on previously unremitted foreign earnings. We incorporated the impactof the Tax Act in our results of operations or calculated provisionalamounts for the tax effects of the Tax Act that could be reasonablyestimated for the year ended December 31, 2017. We recordedadjustments to this provisional accounting during 2018, which resulted ina decrease to tax expense of $56.5. We completed our accounting for theTax Act in the fourth quarter 2018.The Tax Act resulted in an increase to tax expense for the yearended December 31, 2017 of $45.8. This increase included a transitiontax expense of $177.9 and deferred tax expense related to the new GILTIminimum 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. There-measurement benefit included $292.4 related to decreases to our netdeferred tax liability and $5.1 related to decreases to income taxespayable. The deferred tax expense related to the GILTI minimum taxincluded incremental deferred tax of $236.9, net of a related $71.5decrease for uncertain tax positions. In addition, conclusion of the IRSexamination of our 2013 and 2014 tax years resulted in a decrease to our2017 effective tax rate of approximately 3.6%.We continue to maintain a valuation allowance against certain otherdeferred tax assets where realization is not certain. We periodicallyevaluate the likelihood of realizing deferred tax assets and reduce the carrying amount of these deferred tax assets by a valuation allowanceto the extent we believe a portion will not be realized.Financial Condition, Liquidity and Capital ResourcesFinancial Condition, Liquidity and Capital ResourcesThe following table summarizes the components of our financialcondition as of December 31, 2019 and 2018: December 31,December 31,20192019December 31,December 31,20182018$$ChangeChangeCash and cashequivalents$2,685.5$1,365.5$1,320.0Marketable securities64.0198.3(134.3)Long-term debt (includescurrent portion & revolvingcredit facility)2,514.52,862.5(348.0) Current assets$5,076.4$3,385.0$1,691.4Current liabilities1,194.31,174.020.3Working capital$3,882.1$2,211.0$1,671.1The aggregate increase in cash and cash equivalents andmarketable securities of $1,185.7 at December 31, 2019 as compared toDecember 31, 2018 was primarily attributable to cash generated fromoperations, net proceeds from the issuance of common stock undershare-based compensation arrangements and proceeds received from thesale of our investment in Moderna Therapeutics, Inc. Partially offsettingthese increases was cash utilized to repurchase shares of common stock,payments on our revolving credit facility and term loan facility, upfrontpayments related to licensing agreements, payment of a sales-basedmilestone to Enobia Pharma Corp. and purchases of property, plant, andequipment.Excluding the impact of any significant future asset acquisitions,licenses or collaboration agreements, we expect our annual operatingexpenses to increase as a percentage of sales in 2020 as compared to2019. We also expect reduced capital investment in 2020 as compared to2019. We anticipate that cash generated from operations and our existingavailable cash, cash equivalents and marketable securities should provideus adequate resources to fund our operations as currently planned for atleast the next twelve months.We have financed our operations and capital expenditures primarilythrough positive cash flows from operations. We expect to continue to beable to fund our operations, including principal and interest payments onour Amended and Restated Credit Agreement and contingent paymentsassociated with our in-licenses and acquisitions principally through ourcash flows from operations. We may, from time to time, also seekadditional funding through a combination of equity or debt financings orfrom other sources, if necessary for future acquisitions or other strategic82purposes. New sources of financing through equity and/or debtfinancing(s) may not always be available on acceptable terms, or at all,and we may be required to obtain certain consents in connection withcompleting such financings.Financial InstrumentsUntil required for use in the business, we may invest our cashreserves in money market funds, bank deposits, and high qualitymarketable debt securities in accordance with our investment policy. Thestated objectives of our investment policy are to preserve capital, provideliquidity consistent with forecasted cash flow requirements, maintainappropriate diversification and generate returns relative to theseinvestment objectives and prevailing market conditions.Financial instruments that potentially expose us to concentrations ofcredit risk are cash equivalents, marketable securities, accountsreceivable and our derivative contracts. At December 31, 2019, fourcustomers accounted for 66.9% of the accounts receivable balance, withthese individual customers accounting for 11.6% to 20.3% of the accountsreceivable balance. At December 31, 2018, three customers accountedfor 48.7% of the accounts receivable balance, with these individualcustomers accounting for 14.0% to 19.1% of the accounts receivablebalance.For the year ended December 31, 2019, four customers accountedfor 56.4% of our net product sales with these individual customersaccounting for 10.0% to 16.8% of our net product sales. For the yearended December 31, 2018, four customers accounted for 50.3% of ournet product sales with these individual customers accounting for 10.0% to16.4% of our net product sales. For the year ended December 31, 2017,three customers accounted for 37.0% of our net product sales with theseindividual customers accounting for 10.8% to 15.0% of our net productsales.We continue to monitor economic conditions, including volatilityassociated with international economies and the associated impacts onthe financial markets and our business. Substantially all of our accountsreceivable are due from wholesale distributors, public hospitals and othergovernment entities. We monitor the financial performance of ourcustomers so that we can appropriately respond to changes in their creditworthiness. We operate in certain jurisdictions where weakness ineconomic conditions can result in extended collection periods. Wecontinue to monitor these conditions and assess their possible impact onour business. To date, we have not experienced any significant losses withrespect to collection of our accounts receivable.We manage our foreign currency transaction risk and interest raterisk within specified guidelines through the use of derivatives. All of ourderivative instruments are utilized for risk management purposes, and we do not use derivativesfor speculative trading purposes. As of December 31, 2019, we hadforeign exchange forward contracts with notional amounts totaling$3,078.5. These outstanding foreign exchange forward contracts had anet fair value asset of $2.8, of which $30.5 is included in other currentassets and noncurrent assets and $27.7 is included in other currentliabilities and noncurrent liabilities. As of December 31, 2019, we hadinterest rate swap contracts with notional amounts totaling $1,750.0.These outstanding interest rate swap contracts had a net fair value liabilityof $61.4, which is included in other current liabilities and noncurrentliabilities. The counterparties to these contracts are large domestic andmultinational commercial banks, and we believe the risk ofnonperformance is not material.At December 31, 2019, our financial assets and liabilities wererecorded at fair value. We have classified our financial assets andliabilities as Level 1, 2 or 3 within the fair value hierarchy. Level 1 inputsare quoted prices (unadjusted) in active markets for identical assets orliabilities. Our Level 1 assets consist of mutual fund investments andequity securities. Level 2 inputs are quoted prices for similar assets andliabilities in active markets or inputs that are observable for the asset orliability, either directly or indirectly through market corroboration, butsubstantially the full term of the financial instrument. Our Level 2 assetsconsist primarily of money market funds, commercial paper, municipalbonds, U.S. and foreign government-related debt, corporate debtsecurities, certificates of deposit, equity securities subject to holdingperiod restrictions and derivative contracts. Our Level 2 liabilities consistalso of derivative contracts. Level 3 inputs are unobservable inputs basedon our own assumptions used to measure assets and liabilities at fairvalue. Our Level 3 liabilities consist of contingent consideration related tobusiness acquisitions and derivative liabilities associated with othercontingent payments.Business Combinations and Contingent Consideration ObligationsAt December 31, 2019, the purchase agreements for our businesscombinations include contingent payments totaling up to $602.0 that willbecome payable if and when certain development and commercialmilestones are achieved. Of these milestone amounts, $367.0 and$235.0 of the contingent payments relate to development andcommercial milestones, respectively. We do not expect these amounts tohave a significant impact on our liquidity in the near-term, and, during thenext 12 months, we do not expect to make milestone paymentsassociated with our prior business combinations. As additional future payments become probable, we will evaluatemethods of funding payments, which could be made from available cashand marketable83securities, cash generated from operations or proceeds from the sale ofequity securities or debt.On January 28, 2020, we completed the acquisition of Achillion.Under the terms of the agreement, we acquired all outstanding commonstock of Achillion for $6.30 per share, or approximately $926.0, inclusiveof the settlement of Achillion’s outstanding equity awards. The acquisitionwas funded with cash on hand. The transaction includes the potential foradditional consideration in the form of non-tradeable contingent valuerights (CVRs), which will be paid to Achillion shareholders if certain clinicaland regulatory milestones are achieved within specified periods. Theseinclude $1.00 per share for the U.S. FDA approval of danicopan and $1.00per share for the initiation of Phase 3 in ACH-5228.Asset Acquisitions and In-License AgreementsIn December 2017, we entered into a collaboration and licenseagreement with Halozyme Therapeutics, Inc. that allows us to use drug-delivery technology in the development of subcutaneous formulations forour portfolio of products for up to four targets. Under the terms of theagreement, we made an upfront payment of $40.0 during the fourthquarter 2017. In addition, as of December 31, 2019, we could berequired to pay an additional $160.0 for each target developed, subject toachievement of specified development, regulatory and sales-basedmilestones, as well as royalties on commercial sales.In October 2018, we entered into a collaboration agreement withDicerna that provides us with exclusive worldwide licenses anddevelopment and commercial rights for two preclinical RNA interference(RNAi) subcutaneously delivered molecules for complement-mediateddiseases, as well as an exclusive option for other preclinical RNAimolecules for two additional targets within the complement pathway. Inaddition to the collaboration agreement, we made an equity investment inDicerna. Under the terms of the agreements, we made an upfrontpayment of $37.0 for the exclusive licenses and the equity investment. InDecember 2019, we exercised our option for exclusive rights to twoadditional targets within the complement pathway under an existingagreement with Dicerna, which expands Alexion’s existing researchcollaboration and license agreement with Dicerna to include a total of fourtargets within the complement pathway. In connection with the optionexercise, we paid Dicerna $20.0 in the fourth quarter 2019. As ofDecember 31, 2019, we could be required to pay up to $629.1 foramounts due upon the achievement of specified research, development,regulatory and commercial milestones on the four licensed targets, as wellas royalties on commercial sales.In January 2019, we entered into an agreement with Caelum, abiotechnology company that is developing CAEL-101 for AL amyloidosis.Under the terms of the agreement, we acquired a minority equity interest in Caelumand an exclusive option to acquire the remaining equity in Caelum basedon Phase II data, for pre-negotiated economics. We paid $30.0 in the firstquarter 2019 and agreed to pay up to an additional $30.0 in contingentdevelopment milestones. Following discussions with the FDA, Caelumchanged the design of its clinical development program and now plans toinitiate expanded Phase II/III trials in the second quarter 2020. InDecember 2019, we amended the terms of the agreement with Caelum tomodify the option to acquire the remaining equity in Caelum based ondata from the expanded Phase II/III trials. The amendment also modifiedthe development-related milestone events associated with the initial$30.0 in contingent payments, provided for an additional $20.0 in upfrontfunding, which we accrued as of December 31, 2019, as well as fundingof $60.0 in exchange for an additional equity interest at fair value uponachievement of a specific development-related milestone event. Theagreement also provides for potential additional payments, in the eventAlexion exercises the purchase option, for up to $500.0 which includes anupfront option exercise payment and potential regulatory and commercialmilestone payments.In March 2019, we entered into an agreement with Zealand thatprovides us with exclusive worldwide licenses, as well as development andcommercial rights for preclinical peptide therapies subcutaneouslydelivered for up to four complement pathway targets. Zealand will lead thejoint discovery and research efforts through the preclinical stage, andAlexion will lead development efforts beginning with investigational newdrug filing and Phase I studies. In addition to the agreement, we made anequity investment in Zealand. Under the terms of the agreement, we madean upfront payment of $40.0 for an exclusive license to the lead targetand the equity investment, as well as for preclinical research services tobe performed by Zealand in relation to the lead target. We could berequired to pay up to $610.0 for the lead target, upon the achievement ofspecified development, regulatory and commercial milestones, as well asroyalties on commercial sales. In addition, we could be required to pay upto an additional $115.0 in development and regulatory milestones if botha long-acting and short-acting product are developed with respect to thelead target. Each of the three subsequent targets can be selected for anoption fee of $15.0 and has the potential for additional development,regulatory and commercial milestones, as well as royalty payments, at areduced price to the lead target.In March 2019, we entered into an agreement with Affibody thatprovides us with an exclusive worldwide license, as well as developmentand commercial rights to ABY-039, a bivalent antibody-mimetic thattargets the neonatal Fc receptor (FcRn) and is currently in Phase 1development. The agreement with Affibody was subject84to clearance under the Hart-Scott Rodino Antitrust Improvements Act and,following receipt of such approval, closed in April 2019. Pursuant to theagreement, Alexion will lead the clinical development and commercialactivities for ABY-039 in rare Immunoglobulin G (IgG)-mediatedautoimmune diseases. Affibody has the option to co-promote ABY-039 inthe U.S. and will lead clinical development of ABY-039 in an undisclosedindication. Under the terms of the agreement, we made an upfrontpayment of $25.0 for the exclusive license to ABY-039. As ofDecember 31, 2019, we could also be required to pay up to $625.0 foramounts due upon achievement of specific development, regulatory, andcommercial milestones, as well as royalties on commercial sales.In September 2019, we entered into an agreement with Eidos thatprovides us with an exclusive license to develop and commercialize AG10in Japan. AG10 is an orally administered small molecule designed to bindand stabilize TTR in the blood. In addition, we made an equity investmentin Eidos. Under the terms of the agreement, we made an upfront paymentof $50.0 for an exclusive license to AG10 in Japan and the equityinvestment. As of December 31, 2019, we could also be required to pay$30.0 upon achievement of a Japanese-based regulatory milestone aswell as royalties on commercial sales.In October 2019, we entered into an option agreement with Stealthunder which Alexion received an exclusive option to co-developsubcutaneous elamipretide in the U.S. as well as to obtain exclusive rightsto develop and commercialize subcutaneous elamipretide outside the U.Sbased on the final results from the Phase III study in PMM. Under theterms of the agreement, we made an upfront payment of $30.0 for theoption and an equity investment in Stealth. In December 2019, Stealthannounced that based on top-line data from the Phase III study in PMM,the study did not meet its primary endpoints. Following review of thePhase III data released in December 2019, we notified Stealth that we willnot exercise the co-development option agreement.In connection with our prior acquisition of Syntimmune, a clinical-stage biotechnology company developing an antibody therapy targetingthe neonatal Fc receptor (FcRn), we could be required to pay up to $800.0upon the achievement of specified development, regulatory andcommercial milestones.In addition, as of December 31, 2019, we have other license andcollaboration agreements under which we may be required to pay up to anadditional $54.0 for currently licensed targets, if certain development,regulatory and commercial milestones are met. Additional amounts maybe payable if we elect to acquire licenses to additional targets, asapplicable, under the terms of these agreements. We do not expect the payments associated with milestones underour asset acquisitions and licensing agreements to have a significantimpact on our liquidity in the near-term. During the next 12 months, wemay make milestone payments related to these arrangements ofapproximately $220.0, excluding milestones which were accrued as ofDecember 31, 2019.As additional future payments become probable, we will evaluatemethods of funding payments, which could be made from available cashand marketable securities, cash generated from operations or proceedsfrom the sale of equity securities or debt.Operating and Financing Lease LiabilitiesOperating and financing lease liabilities are recorded at leasecommencement based on the present value of fixed, or in substancefixed, lease payments over the expected lease term. Lease liabilities areamortized over the lease term.At December 31, 2019, we have $261.0 of total financing andoperating lease liabilities recorded on our consolidated balance sheets.The total undiscounted lease commitments as of December 31, 2019were $323.8, of which $34.4 is payable during the next 12 months. Referto Note 10, Leases for a summary of the maturity of our lease liabilities byyear. We do not expect the payments associated with the maturity of leaseliabilities to have a significant impact on our liquidity in the near-term.Long-term DebtOn June 7, 2018, Alexion entered into an Amended and RestatedCredit Agreement (the Credit Agreement) with Bank of America N.A. asadministrative agent. The Credit Agreement amended and restated ourcredit agreement dated as of June 22, 2015 (the Prior Credit Agreement).The Credit Agreement provides for a $2,612.5 term loan facility anda $1,000.0 revolving facility. Borrowings can be used for working capitalrequirements, acquisitions and other general corporate purposes.Beginning with the quarter ending June 30, 2019, we are required tomake amortization payments of 5.00% of the aggregate original principalamount of the term loan facility annually, payable in equal quarterlyinstallments.As of December 31, 2019, we had $2,514.5 outstanding on the termloan. As of December 31, 2019, we had open letters of credit of $1.0 thatoffset our borrowing availability on the revolving facility. In January 2019we paid the outstanding revolving credit facility of $250.0 in full and wehad no outstanding borrowings under the revolving credit facility as ofDecember 31, 2019.85Manufacturing ObligationsWe have supply agreements with Lonza relating to the manufactureof SOLIRIS, STRENSIQ and ULTOMIRIS which requires payments to Lonzaat the inception of the contract and upon the initiation and completion ofproduct manufactured. On an ongoing basis, we evaluate our plans forfuture levels of manufacturing by Lonza, which depends upon ourcommercial requirements and the progress of our clinical developmentprograms.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 weterminate certain supply agreements with Lonza without cause, we will berequired to pay for product scheduled for manufacture under ourarrangement. Under an existing arrangement with Lonza, we also payLonza a royalty on sales of SOLIRIS that was manufactured at AlexionRhode Island Manufacturing Facility (ARIMF) prior to its sale and apayment 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 ofapproximately $60.6 through 2020 with other third party manufacturers. TaxesWe have recorded tax on the undistributed earnings of our controlledforeign corporation (CFC) subsidiaries. To the extent CFC earnings may notbe repatriated to the U.S. as a dividend distribution due to limitationsimposed by law, we have not recorded the related potential withholding,foreign local, and U.S. state income taxes.Common Stock Repurchase ProgramIn November 2012, our Board of Directors authorized a sharerepurchase program. In February 2017, our Board of Directors increasedthe amount that we are authorized to expend on future repurchases to$1,000.0 under the repurchase program, which superseded all priorrepurchase programs. On October 22, 2019, the Board of Directorsapproved an additional share repurchase authorization of up to $1,000.0.The repurchase program does not have an expiration date and we are notobligated to acquire a particular number of shares. The repurchaseprogram may be discontinued at any time at our discretion. Under theprogram, we repurchased 3.8 and 0.7 shares of our common stock at acost of $416.0 and $85.0 during the years ended December 31, 2019and 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 immaterialnumber of shares of our common stock under our repurchase program ata cost of $1.6. As of January 29, 2020, there is a total of $1,033.9remaining for repurchases under the repurchase program.Cash FlowsCash Flows The following summarizes our net change in cash and cash equivalents: Year Ended December 31,Year Ended December 31, 20192019 20182018 $$ChangeChangeNet cash provided by operating activities$2,084.9 $426.0 $1,658.9Net cash provided by investing activities9.7 470.5 (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 cash0.8 (11.2) 12.0Net change in cash and cash equivalents and restricted cash$1,356.3$782.9 $573.4Operating ActivitiesCash flows provided by operations in 2019 was $2,084.9 comparedto $426.0 in 2018. The increase in cash provided by operatingactivities was primarily due to the acquisition of Wilson Therapeutics andSyntimmune in 2018, higher cash payments for restructuring in 2018 andincreases due to the timing of cash receipts, payments and other changesin working capital during 2019 as compared to 2018. This increase waspartially 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 toEnobia Pharma Corp.Investing ActivitiesCash provided by investing activities in 2019 was $9.7 compared to$470.5 in 2018. The decrease in cash provided by investing activities ascompared to the prior year was primarily attributable to purchases and86sales of available-for-sale debt securities, which resulted in a net cashinflow of $142.0 in 2019 compared to a net cash inflow of $690.8 in2018. Purchases of strategic equity investments for Zealand, Caelum,Eidos and Stealth resulted in $73.3 in cash outflows during 2019 ascompared 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 ofour Moderna investment. Partially offsetting these impacts weredecreases in purchases of property, plant and equipment during 2019 ascompared to 2018.Financing ActivitiesCash flows used in financing activities in 2019 was $739.1compared to $102.4 in 2018. The increase in cash used for financingactivities 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 in2018 which were repaid in the current year. Additionally, there was anincrease of $331.0 in common stock repurchases in 2019 as compared to2018. Contractual ObligationsContractual ObligationsThe following table summarizes our contractual obligations at December 31, 2019 and the effect such obligations and commercial commitments areexpected to have on our liquidity and cash flow in future fiscal years. These do not include potential milestone payments and assume non-termination ofagreements.These obligations, commitments and supporting arrangements represent payments based on current operating forecasts at December 31, 2019,which are subject to change: TotalTotal Less thanLess than1 Year1 Year 1-3 Years1-3 Years 3-5 Years3-5 Years More than 5More than 5YearsYearsContractual obligations: Long-term debt (1)$2,514.5 $— $391.9 $2,122.6 $—Interest expense (2)290.6 — 258.5 32.1 —Financing leases100.2 8.8 18.2 18.6 54.6Operating leases223.6 25.7 44.6 41.2 112.1Total contractual obligations$3,128.9 $34.5 $713.2 $2,214.5 $166.7Commercial commitments: Clinical and manufacturing development (3)$1,160.5 $219.5 $315.8 $223.4 $401.8Total 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, iscalculated 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 contingentroyalties and other contingent contractual payments we may owe to thirdparties in the future because such payments are contingent on futuresales of our products and the existence and scope of third party intellectual property rights and other factors described in Item1A, Risk Factors and Note 11, Commitments and Contingencies to theConsolidated Financial Statements included elsewhere in this AnnualReport on Form 10-K.87The liability for unrecognized tax benefits related to various federal,state and foreign income tax matters of $133.8 at December 31, 2019was not included within the table above. The timing of the settlement ofthese amounts was not reasonably estimable at December 31, 2019.Contingent payments related to business acquisitions, assetacquisitions, option or in-license agreements are not included within thetable above, as the satisfaction of the contingent considerationobligations and if satisfied, the timing of payment for these amounts isuncertain at December 31, 2019. Contingent payments associated withthese business combinations total up to $602.0, which will becomepayable if and when certain development and commercial milestones areachieved. During the next 12 months, we do not expect to make milestonepayments associated with our prior business combinations. Commitmentsrelated to asset acquisitions, option and in-license agreements includecontingent payments that will become payable if and when certaindevelopment, regulatory and commercial milestones are achieved. Duringthe next 12 months, we may make milestone payments related to ourasset 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 notincluded within the table above, as the timing and amounts of thesepayments was not reasonably estimable as of December 31, 2019. Thetotal unfunded obligation on our defined benefit plans as of December 31,2019 was $27.7. Our unfunded obligation can be impacted by changes inthe laws and regulations, interest rates, investment returns, and othervariables.Credit FacilitiesOn June 7, 2018, we entered into an Amended and Restated CreditAgreement (the Credit Agreement), with Bank of America N.A. asadministrative agent. The Credit Agreement amends and restates ouragreement dated as of June 22, 2015 (the Prior Agreement).The Credit Agreement provides for a $1,000.0 revolving credit facilityand a $2,612.5 term loan facility. The revolving credit facility and termloan facility mature on June 7, 2023. Beginning with the quarter endingJune 30, 2019, we are required to make amortization payments of 5.00%of the aggregate original principal amount of the term loan facilityannually, payable in equal quarterly installments.Loans under the Credit Agreement bear interest, at our option, ateither the base rate or a Eurodollar rate, in each case plus an applicablemargin. Under the Credit Agreement, the applicable margins on base rateloans range from 0.25% to 1.00% and the applicable margins onEurodollar loans range from 1.25% to 2.00% in each case based on our consolidated net leverage ratio (as calculated inaccordance with the Credit Agreement). Our obligations under the CreditAgreement are guaranteed by certain of our foreign and domesticsubsidiaries and secured by liens on certain of our subsidiaries’ equityinterests, subject to certain exceptions. Under the terms of the CreditAgreement, we must maintain a ratio of total net debt to EBITDA of 3.50 to1.00 (subject to certain limited adjustments) and EBITDA to cash interestexpense ratio of at least 3.50 to 1.00, in each case as calculated inaccordance with the Credit Agreement. We were in compliance with allapplicable covenants under the Credit Agreement as of December 31,2019.The Credit Agreement contains certain representations andwarranties, affirmative and negative covenants and events of default. Thenegative covenants in the Credit Agreement restrict Alexion’s and itssubsidiaries’ ability, subject to certain baskets and exceptions, to (amongother things) incur liens or indebtedness, make investments, enter intomergers and other fundamental changes, make dispositions or paydividends. The restriction on dividend payments includes an exception thatpermits us to pay dividends and make other restricted paymentsregardless of dollar amount so long as, after giving pro forma effectthereto, we have consolidated net leverage ratio, as defined in the CreditAgreement, within predefined ranges, subject to certain increasesfollowing designated material acquisitions.Operating and Financing LeasesOur operating and financing leases are principally for facilities andequipment. We currently lease office space in the U.S. and foreigncountries to support our operations as a global organization.We believe that our administrative office space is adequate to meetour needs for the foreseeable future. We also believe that our researchand development facilities and our manufacturing facilities, together withthird party manufacturing facilities, will be adequate for our on-goingactivities.In addition to the minimum rental commitments on our operatingleases we may also be required to pay amounts for taxes, insurance,maintenance and other operating expenses.88Commercial CommitmentsOur commercial commitments consist of research and development,license, operational, clinical development, and manufacturing costcommitments, along with anticipated supporting arrangements, subject tocertain limitations and cancellation clauses. The timing and level of ourcommercial scale manufacturing costs, which may or may not be realized,are contingent upon the progress of our clinical development programsand our commercialization plans. Our commercial commitments arerepresented principally by our supply agreements with Lonza describedabove. Our commitments with Lonza do not include amounts forestimated consumer price index, or CPI, adjustments which we areobligated to pay to Lonza.89Item 7A.Item 7A.QUANTITATIVE AND QUALITATIVEQUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.DISCLOSURES ABOUT MARKET RISK.(amounts in millions, except percentages)Interest Rate RiskInterest Rate RiskAs of December 31, 2019, we invested our cash in a variety offinancial instruments, principally money market funds, corporate bonds,municipal bonds, commercial paper and government-related obligations.Most of our interest-bearing securities are subject to interest rate risk andcould decline in value if interest rates fluctuate. Our investment portfolio iscomprised of marketable debt securities of highly rated financialinstitutions and investment-grade debt instruments, and we haveguidelines to limit the term-to-maturity of our investments. Based on thetype of securities we hold, we do not believe a change in interest rateswould have a material impact on our financial statements. As ofDecember 31, 2019, if interest rates were to increase or decrease by1.00%, the fair value of our investment portfolio would increase(decrease) by approximately $0.4 and $(0.4), respectively.On June 7, 2018, we entered into an Amended and Restated CreditAgreement (the Credit Agreement), with Bank of America N.A. asadministrative agent. The Credit Agreement amended and restated ourcredit agreement dated as of June 22, 2015 (the Prior Agreement). Loansunder the Credit Agreement bear interest, at our option, at either the baserate or a Eurodollar rate, in each case plus an applicable margin. Underthe Credit Agreement, the applicable margins on base rate loans rangefrom 0.25% to 1.00% and the applicable margins on Eurodollar loansrange from 1.25% to 2.00%, in each case based on our consolidated netleverage ratio (as calculated in accordance with the Credit Agreement).Changes in interest rates related to the Credit Agreement could havea material effect on our financial statements.To achieve a desired mix of floating and fixed interest rates on ourterm loan, we entered into a number of interest rate swap agreementsthat qualified for and are designated as cash flow hedges. As ofDecember 31, 2019, we had cash flow hedges with aggregate amounts ofapproximately 69.6% of our current outstanding term loan coveringperiods over the next twelve months. If interest rates were to increase ordecrease by 1.00%, interest expense, over the next year would increase ordecrease by $7.0, based on the unhedged portion of our outstanding termloan as of December 31, 2019.Foreign Exchange Market RiskForeign Exchange Market RiskOur operations include activities in many countries outside the U.S.As a result, our financial results are impacted by factors such as changesin foreign currency exchange rates or weak economic conditions in the foreign markets wherewe operate. We have exposure to movements in foreign currencyexchange rates, the most significant of which are the Euro and JapaneseYen, against the U.S. dollar. We are a net receiver of many foreigncurrencies, and our consolidated financial results benefit from a weakerU.S. dollar and are adversely impacted by a stronger U.S. dollar relative toforeign currencies in which we sell our products. Our monetary exposures on our balance sheet arise primarily fromcash, accounts receivable, and payables denominated in foreigncurrencies. Approximately 42.4% of our net product sales weredenominated in foreign currencies during 2019, and our revenues are alsoexposed to fluctuations in the foreign currency exchange rates overtime. In certain foreign countries, we may sell in U.S. dollar, but ourcustomers may be impacted adversely by fluctuations in foreign currencyexchange rates which may also impact the timing and amount of ourrevenue.Both positive and negative impacts to our international product salesfrom movements in foreign currency exchange rates are only partiallymitigated by the natural, opposite impact that foreign currency exchangerates have on our international operating expenses. Additionally, we haveoperations based in Europe and accordingly, our expenses are impactedby fluctuations in the value of the Euro against the U.S. dollar.We currently have a derivative program in place intended to achievethe following: (1) limit the foreign currency exposure of our monetaryassets and liabilities on our balance sheet, using contracts with durationsof up to 8 months and (2) hedge a portion of our forecasted product sales(in some currencies), including intercompany sales, and certain forecastedexpenses using contracts with durations of up to 60 months. The objectiveof this program is to reduce the volatility of our operating results due tofluctuation of foreign exchange. This program utilizes foreign exchangeforward contracts intended to reduce, not eliminate, the volatility ofoperating results due to fluctuations in foreign exchange rates.As of December 31, 2019 and 2018, we held foreign exchangeforward contracts with notional amounts totaling $3,078.5 and $2,523.0,respectively. As of December 31, 2019 and 2018, our outstanding foreignexchange forward contracts had a net fair value of $2.8 and $18.9,respectively.We do not use derivative financial instruments for speculativetrading purposes. The counterparties to these foreign exchange forwardcontracts are large domestic and multinational commercial banks. Webelieve the risk of counterparty nonperformance is not material.90Based on our foreign currency exchange rate exposures atDecember 31, 2019, a hypothetical 10% adverse fluctuation in exchangerates would decrease the fair value of our foreign exchange forwardcontracts that are designated as cash flow hedges by approximately$113.0 at December 31, 2019. The resulting loss on these forwardcontracts would be offset by the gain on the underlying transactions andtherefore would have minimal impact on future anticipated earnings andcash flows. Similarly, adverse fluctuations in exchange rates that woulddecrease the fair value of our foreign exchange forward contracts that arenot designated as hedge instruments would be offset by a positive impactof the underlying monetary assets and liabilities.Credit RiskCredit RiskAs a result of our foreign operations, we are exposed to changes inthe general economic conditions in the countries in which we conductbusiness. The majority of our receivables are due from wholesaledistributors, public hospitals and other government entities. We monitorthe financial performance and creditworthiness of our large customers sothat we can properly assess and respond to changes in their credit profile.We continue to monitor these conditions, including the volatilityassociated with international economies and the relevant financialmarkets, and assess their possible impact on our business. Althoughcollection of our accounts receivables from certain countries may extendbeyond our standard credit terms, we do not expect any such delays tohave a material impact on our financial condition or results of operations.Item 8.Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARYFINANCIAL STATEMENTS AND SUPPLEMENTARYDATA.DATA.The consolidated financial statements and supplementary data ofthe Company required in this item are set forth beginning on page F-1 ofthis Annual Report on Form 10-K. Item 9.Item 9.CHANGES IN AND DISAGREEMENTS WITHCHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIALACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE.DISCLOSURE.None. Item 9A.Item 9A.CONTROLS AND PROCEDURES.CONTROLS AND PROCEDURES.Disclosure Controls and ProceduresDisclosure Controls and ProceduresWe have established disclosure controls and procedures to providereasonable assurance that information is accumulated and communicatedto our management, including our principal executive officer and principalfinancial officer, as appropriate to allow timely decisions regardingrequired disclosure, and ensure that information required to be disclosedin the reports we file or submit under the Securities Exchange Act of 1934,as amended (Exchange Act) is recorded, processed, summarized andreported, within the time periods specified in the SEC’s rules and forms.Our management, with the participation of our Chief ExecutiveOfficer and Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, as of December 31, 2019. Based onthis evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that as of December 31, 2019, our disclosure controls andprocedures were effective at the reasonable assurance level.Management’s Report on Internal Control Over Financial ReportingManagement’s Report on Internal Control Over Financial ReportingManagement of the Company is responsible for establishing andmaintaining adequate internal control over financial reporting as definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internalcontrol over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. Because of itsinherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.Management conducted an evaluation of the effectiveness of ourinternal control over financial reporting as of December 31, 2019 basedon the framework in Internal Control-Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Based on that evaluation, management hasconcluded that the Company maintained an effective internal control overfinancial reporting as of December 31, 2019.The effectiveness of our internal control over financial reporting as ofDecember 31, 2019 has been audited by PricewaterhouseCoopers LLP,an independent registered public accounting firm, as stated in their report,which is included herein.Changes in Internal Control over Financial ReportingChanges in Internal Control over Financial ReportingThere has been no change in our internal control over financialreporting that occurred during the quarter ended December 31, 2019 thathas materially affected,91or is reasonably likely to materially affect, our internal control overfinancial reporting.Item 9A(T).Item 9A(T).CONTROLS AND PROCEDURES.CONTROLS AND PROCEDURES.Not applicable Item 9B.Item 9B.OTHER INFORMATION.OTHER INFORMATION.None.92PART IIIPART III Item 10.Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEDIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE.GOVERNANCE.The information required by this item with respect to our executive officers is provided under the caption entitled “Information about our ExecutiveOfficers” in Part I of this Annual Report on Form 10-K and is incorporated by reference herein. The information required by this item with respect to ourdirectors and our audit committee and audit committee financial expert will be set forth in our definitive Proxy Statement under the captions “GeneralInformation About the Board of Directors” and “Election of Directors”, to be filed within 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K, and is incorporated herein by reference to our Proxy Statement.DELINQUENT SECTION 16(a) REPORTSDELINQUENT SECTION 16(a) REPORTSThe information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 required by this Item will be set forth in our definitiveProxy Statement under the caption “Delinquent Section 16(a) Reports”, to be filed within 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K, and is incorporated herein by reference to our Proxy Statement.CODE OF ETHICSCODE OF ETHICSWe have adopted the Alexion Pharmaceuticals, Inc. Code of Ethics and Business Conduct, or code of ethics, that applies to directors, officers andemployees of Alexion and its subsidiaries and complies with the requirements of Item 406 of Regulation S-K and the listing standards of the Nasdaq GlobalSelect Market. Our code of ethics is located on our website (http://complianceresources.alexion.com). We amended the code of ethics in September 2019and any future amendments or waivers to our code of ethics will be promptly disclosed on our website and as required by applicable laws, rules andregulations of the SEC and Nasdaq.Item 11.Item 11.EXECUTIVE COMPENSATION.EXECUTIVE COMPENSATION.The information required by this Item will be set forth in our definitive Proxy Statement, to be filed within 120 days after the end of the fiscal yearcovered by this Annual Report on Form 10-K, and is incorporated herein by reference to our Proxy Statement.Item 12.Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.MATTERS.The information required by this Item will be set forth in our definitive Proxy Statement, to be filed within 120 days after the end of the fiscal yearcovered by this Annual Report on Form 10-K, and is incorporated herein by reference to our Proxy Statement. Item 13.Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE.INDEPENDENCE.The information required by this Item will be set forth in our definitive Proxy Statement, to be filed within 120 days after the end of the fiscal yearcovered by this Annual Report on Form 10-K, and is incorporated herein by reference to our Proxy Statement. Item 14.Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.PRINCIPAL ACCOUNTING FEES AND SERVICES.The information required by this Item will be set forth in our definitive Proxy Statement under the caption “Independent Registered Public AccountingFirm”, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference toour Proxy Statement.93PART IVPART IV Item 15.Item 15.EXHIBITS AND FINANCIAL STATEMENTEXHIBITS AND FINANCIAL STATEMENTSCHEDULES.SCHEDULES.Item 15(a)Item 15(a)(1)(1)FinancialFinancialStatementsStatementsThe financial statements required by this item are submitted in a separate section beginning on page F-1 of this Annual Report on Form 10-K.(2)(2)Financial StatementFinancial StatementSchedulesSchedulesSchedules have been omitted because of the absence of conditions under which they are required or because the required information is included inthe financial statements or notes thereto beginning on page F-1 of this report.(3)(3)Exhibits:Exhibits:2.1Agreement and Plan of Merger by and among Alexion, TPCA Corporation, Taligen Therapeutics, Inc., each stockholder of Taligen that signedthe Agreement as a seller of Series Bl Call Rights, and, only for the limited purposes described therein as Stockholders’ Representatives (andnot in their individual capacities), Nick Galakatos, Ed Hurwitz and Timothy Mills, dated as of January 28, 2011.(1)+ 2.2Agreement and Plan of Merger by and among Alexion, EMRD Corporation, Enobia Pharma Corp., and the Stockholder Representatives namedtherein, dated as of December 28, 2011.(2)+ 2.3Amendment No. 1 to the Agreement and Plan of Merger, dated December 28, 2011, by and among Alexion, EMRD Corporation, EnobiaPharma Corp., and the Stockholder Representatives named therein, dated February 1, 2012.(3) 2.4Agreement, dated as of September 7, 2018, by and between Alexion Pharma Holding Unlimited Company, Shareholder RepresentativeServices LLC, Fonds de Solidarité des Travailleurs du Québec F.T.Q., Capital Régional e Coopératif Desjardins, CTI Life Sciences Fund, L.P.,OrbiMed Private Investments III, LP and OrbiMed Associates III, LP (in connection with the Agreement and Plan of Merger, dated December28, 2011 pursuant to which Alexion acquired Enobia Pharma Corp.)(4) 2.5Agreement and Plan of Reorganization, dated May 5, 2015, among Alexion Pharmaceuticals, Inc., Pulsar Merger Sub Inc., Galaxy Merger SubLLC and Synageva BioPharma Corp. (5) 2.6Agreement and Plan of Merger, dated as of September 25, 2018, by and among Alexion Pharmaceuticals, Inc., Syracuse Merger Sub, Inc.,Syntimmune, Inc. and Shareholder Representative Services LLC,(4)+ 2.7Agreement and Plan of Merger, dated October 15, 2019, by and among Alexion Pharmaceuticals, Inc., Beagle Merger Sub, Inc. and AchillionPharmaceuticals, Inc. (28) 3.1Certificate of Incorporation, as amended.(6) 3.2Certificate of Amendment of the Certificate of Incorporation.(7) 3.3Bylaws, as amended.(8) 4.1Specimen Common Stock Certificate.(9) 4.2Description of Securities of the Registrant 10.1Employment Agreement, dated as of March 27, 2017, by and between Ludwig N. Hantson and Alexion Pharmaceuticals, Inc. (23)** 10.2Employment Agreement, dated as of June 11, 2017, by and between Paul J. Clancy and Alexion Pharmaceuticals, Inc. (24)** 10.3Employment Agreement, dated as of June 1, 2017, by and between Brian Goff and Alexion Pharmaceuticals, Inc. (26)** 10.4Employment Agreement, dated June 5, 2017, by and between Anne-Marie Law and Alexion Pharmaceuticals, Inc. (29)** 10.5Employment Agreement, dated as of June 5, 2017, by and between John J. Orloff and Alexion Pharmaceuticals, Inc. (29)** 9410.6Employment Agreement, dated as of September 17, 2019, by and between Aradhana Sarin and Alexion Pharmaceuticals, Inc. (31)** 10.7Form of Employment Agreement (Senior Vice Presidents).(10)** 10.8Form of Amendment No. 1 to Employment Agreements (Senior Vice Presidents). (11)** 10.9Form of Indemnification Agreement for Officers and Directors. (12) 10.10Alexion’s 2000 Stock Option Plan, as amended.(13)** 10.11Alexion’s 1992 Outside Directors Stock Option Plan, as amended.(14)** 10.12Alexion’s Amended and Restated 2004 Incentive Plan.(15)** 10.13License Agreement dated March 27, 1996 between Alexion and Medical Research Council.(16)+ 10.14Master Manufacturing and Supply Agreement, dated December 16, 2014 between Alexion Pharma International Trading, AlexionPharmaceuticals, Inc., Lonza Group AG, Lonza Biologics Tuas PTE LTD and Lonza Sales AG. (22)+ 10.15Form of 2004 Incentive Plan Stock Option Agreement for Directors.(18)** 10.16Form of 2004 Incentive Plan Stock Option Agreement for Executive Officers (Form A).(19)** 10.17Form of 2004 Incentive Plan Stock Option Agreement for Executive Officers (Form B).(19)** 10.18Form of 2004 Incentive Plan Restricted Stock Award Agreement for Executive Officers (Form A).(20)** 10.19Form of 2004 Incentive Plan Stock Option Agreement (Incentive Stock Options).(17) 10.20Form of 2004 Incentive Plan Stock Option Agreement (Nonqualified Stock Options).(17) 10.21Form of 2004 Incentive Plan Restricted Stock Award Agreement.(17) 10.22Form of 2004 Incentive Plan Restricted Stock Unit Award Agreement.(21) 10.23Form of 2004 Incentive Plan Stock Option Agreement for Participants in France.(17)** 10.24Form of 2004 Incentive Plan Restricted Stock Unit Agreement for Participants in France.(17)** 10.25Amended and Restated Credit Agreement, dated as of June 7, 2018, by and among Alexion Pharmaceuticals, Inc., as administrative borrower,the subsidiary borrowers party thereto, the lenders and other financial institutions party thereto and Bank of America, N.A., as administrativeagent.(27) 10.26Alexion Pharmaceuticals, Inc. 2017 Incentive Plan (25)** 10.27Form of 2017 Incentive Plan Restricted Stock Unit Agreement.(26)** 10.28Form of 2017 Incentive Plan Nonqualified Stock Option Agreement.(26)** 10.29Form of 2017 Incentive Plan Performance Stock Unit Agreement (TSR.)(26)** 10.30Form of 2017 Incentive Plan Restricted Stock Unit Agreement for Director Annual Grant.(30)** 10.31Form of 2017 Incentive Plan Restricted Stock Unit Agreement for Director Fees.(30)** 10.32Form of 2017 Incentive Plan Performance Stock Unit Agreement (R&D Units.)(26)** 10.33Alexion Pharmaceuticals, Inc. 2017 Incentive Plan Rules for Awards Granted to Participants in France.(26)** 10.34Form of 2017 Incentive Plan Restricted Stock Unit Agreement for French Participants.(26)** 10.35Form of 2017 Incentive Plan Global Stock Option Agreement.(26)** 10.36Alexion Pharmaceuticals, Inc. Amended and Restated 2015 Employee Stock Purchase Plan.(4)** 10.37Form of 2017 Incentive Plan Restricted Stock Unit Agreement for Non-U.S. Participants.(26)** 10.38Alexion’s Non-Employee Director Nonqualified Deferred Compensation Plan. 21.1Subsidiaries of Alexion Pharmaceuticals, Inc. 23.1Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm 9531.1Certificate of Chief Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 Sarbanes OxleyAct of 2002. 31.2Certificate of Chief Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of SarbanesOxley Act of 2002. 32.1Certificate of Chief Executive Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes OxleyAct. 32.2Certificate of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes OxleyAct. 101The following materials from the Alexion Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 formattedin eXtensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements ofComprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) theConsolidated Statements of Cash Flows and (vi) related notes, tagged as blocks of text. 104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)_____________________(1)Incorporated by reference to our Report on Form 8-K, filed on February 3, 2011.(2)Incorporated by reference to our Report on Form 8-K, filed on January 4, 2012.(3)Incorporated by reference to our Report on Form 8-K, filed on February 7, 2012.(4)Incorporated by reference to our Quarterly Report on Form 10-Q, for the quarter ended September 30, 2018.(5)Incorporated by reference to our Report on Form 8-K, filed on May 6, 2015.(6)Incorporated by reference to our Registration Statement on Form S-3 (Reg. No. 333-128085), filed on September 2, 2005.(7)Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.(8)Incorporated by reference to our Report on Form 8-K, filed on January 8, 2016.(9)Incorporated by reference to our Registration Statement on Form S-1 (Reg. No. 333-00202).(10)Incorporated by reference to our Report on Form 8-K, filed on February 16, 2006.(11)Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.(12)Incorporated by reference to our Report on Form 8-K, filed on September 17, 2010.(13)Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended January 31, 2004.(14)Incorporated by reference to our Registration Statement on Form S-8 (Reg. No. 333-71879) filed on February 5, 1999.(15)Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.(16)Incorporated by reference to our Annual Report on Form 10-K/A for the fiscal year ended July 31, 1996.(17)Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.(18)Incorporated by reference to our Report on Form 8-K, filed on December 16, 2004.(19)Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended January 31, 2005.(20)Incorporated by reference to our Report on Form 8-K, filed on March 14, 2005.(21)Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.(22)Incorporated by reference to our Report on Form 10-K for the fiscal year ended December 31, 2014.(23)Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.(24)Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.(25)Incorporated by reference to our Registration Statement on Form S-8 (Reg. No. 333-217905) filed on May 5, 2017.(26)Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.(27)Incorporated by reference to our Report on Form 8-K, filed on June 13, 2018.(28)Incorporated by reference to our Report on Form 8-K, filed on October 16, 2019.(29)Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.(30)Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.(31)Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. +Confidential treatment was granted for portions of such exhibit.** Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 15(b) of Form 10-K.Item 15(b) ExhibitsItem 15(b) ExhibitsSee (a) (3) above.Item 15(c) Financial Statement SchedulesItem 15(c) Financial Statement SchedulesSee (a) (2) above.Item 16 Form 10-K SummaryItem 16 Form 10-K SummaryNot applicable.96SIGNATURESSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.on its behalf by the undersigned, thereunto duly authorized. ALEXION PHARMACEUTICALS, INC.ALEXION PHARMACEUTICALS, INC. By:/s/ Ludwig N. Hantson, Ph.D.Date:February 4, 2020 Ludwig N. Hantson, Ph.D.Chief Executive Officer(principal executive officer) By:/s/ Aradhana Sarin, M.D.Date:February 4, 2020 Aradhana Sarin, M.D.Executive Vice President and Chief Financial Officer(principal financial officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrantPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrantand in the capacities and on the dates indicated.and in the capacities and on the dates indicated. /s/ Ludwig N. Hantson Chief Executive Officer and Director (principal executive officer)February 4, 2020Ludwig N. Hantson, Ph.D.Ludwig N. Hantson, Ph.D. /s/ Aradhana Sarin Executive Vice President and Chief Financial Officer (principal financial officer)February 4, 2020Aradhana Sarin, M.D.Aradhana Sarin, M.D. /s/ Daniel A. Bazarko Senior Vice President and Chief Accounting Officer (principal accounting officer)February 4, 2020Daniel A. Bazarko, C.P.A.Daniel A. Bazarko, C.P.A. /s/ David R. Brennan ChairmanFebruary 4, 2020David R. BrennanDavid R. Brennan /s/ Felix J. Baker DirectorFebruary 4, 2020Felix J. Baker, Ph.D.Felix J. Baker, Ph.D. /s/ Christopher J. Coughlin DirectorFebruary 4, 2020Christopher J. CoughlinChristopher J. Coughlin /s/ Deborah Dunsire DirectorFebruary 4, 2020Deborah Dunsire, M.D.Deborah Dunsire, M.D. /s/ Paul A. Friedman DirectorFebruary 4, 2020Paul A. Friedman, M.D.Paul A. Friedman, M.D. /s/ John T. Mollen DirectorFebruary 4, 2020John T. MollenJohn T. Mollen /s/ Francois Nader DirectorFebruary 4, 2020Francois Nader, M.D.Francois Nader, M.D. /s/ Judith A. Reinsdorf DirectorFebruary 4, 2020Judith A. Reinsdorf, J.D.Judith A. Reinsdorf, J.D. /s/ Andreas Rummelt DirectorFebruary 4, 2020Andreas Rummelt, Ph.D.Andreas Rummelt, Ph.D. Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.ContentsContentsFor the Years Ended For the Years Ended December 31, 2019December 31, 2019, , 20182018 and and 20172017 Page(s)Report of Independent Registered Public Accounting FirmF-2Consolidated Financial StatementsConsolidated Financial Statements Consolidated Balance SheetsF-5Consolidated Statements of OperationsF-6Consolidated Statements of Comprehensive IncomeF-7Consolidated Statements of Changes in Stockholders’ EquityF-8Consolidated Statements of Cash FlowsF-8Notes to Consolidated Financial StatementsF-10F-1Report of Independent Registered Public Accounting FirmReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Alexion Pharmaceuticals, Inc.Opinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of Alexion Pharmaceuticals, Inc. and its subsidiaries (the “Company”) as of December 31,2019 and 2018, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for eachof the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - IntegratedFramework (2013) issued by the COSO.Change in Accounting PrincipleAs discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.Basis for OpinionsThe Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over FinancialReporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company'sinternal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting OversightBoard (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whethereffective internal control over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a testbasis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk thata material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditsalso included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basisfor our opinions.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,F-2accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.Critical Audit MattersThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that wascommunicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidatedfinancial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does notalter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.Income TaxesAs described in Notes 1 and 12 to the consolidated financial statements, the Company’s total income tax benefit for the year ended December 31, 2019was $225.5 million. The Company has net deferred tax assets of $208.8 million and gross unrecognized income tax benefits of $133.8 million as ofDecember 31, 2019. The Company’s corporate structure which derives income from multiple jurisdictions, requires management to interpret the relatedtax laws and regulations within those jurisdictions and develop estimates and assumptions regarding significant future events, such as the amount, timingand character of deductions and the applicability of foreign tax credits. From time to time, the Company executes intercompany transactions that mayimpact 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 estimatesand assumptions within discounted cash flow models are also required to calculate the valuations. As disclosed by management, these estimates andassumptions include, but are not limited to, revenue growth rates and discount rates. The Company accounts for the impact of the minimum tax on foreignearning related to intangible assets (GILTI) in deferred taxes. On July 1, 2019, the Wilson Therapeutics intellectual property was integrated into theCompany’s corporate structure. In the year ended December 31, 2019, the benefit from foreign earnings includes certain one-time tax benefits associatedwith the intellectual property of Wilson Therapeutics. The deferred tax benefits include $95.7 million and $30.3 million associated with a tax election madewith respect to intellectual property of Wilson Therapeutics and a valuation allowance release and corresponding recognition of net operating losses,respectively. In the year ended December 31, 2019, the Company completed an intra-entity asset transfer of certain intellectual property to an Irishsubsidiary within the Company's captive foreign partnership. The Company recognized deferred tax benefits of $2,221.5 million which represents thedifference between the 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. The Company will receive future tax deductions associated with amortization of the intellectualproperty, 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 million has been recognized to reflect the reduction of future foreign tax credits associated with the foreign local tax amortization deductions.The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter are there was significantjudgment by management when interpreting complex tax laws, remeasuring the deferred taxes for the outside basis of its foreign captive partnership, anddeveloping the provision for income taxes and deferred tax assets and liabilities, which in turn led to a high degree of audit effort, judgment, andsubjectivity in performing procedures and evaluating audit evidence related to the provision for income taxes, including GILTI and the deferred taxesrelating to the outside basis of its foreign captive partnership and IP restructurings. Additionally, the audit effort involved the use of professionals withspecialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.F-3Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidatedfinancial statements. These procedures included testing the effectiveness of controls relating to income taxes, including controls over the calculation andreview of the provision for income taxes, deferred taxes including those related to the IP restructurings, and the completeness and accuracy of datautilized. These procedures also included, among others, (i) testing the accuracy of the income tax provision, including the rate reconciliation and theimplications of the IP restructurings on the GILTI and outside basis partnership deferred tax accounting; (ii) testing the accuracy and completeness ofcertain data utilized in the calculation of the provision for income taxes and whether the data was consistent with evidence obtained in other areas of theaudit; (iii) testing the accuracy of the valuation of the IP; (iv) testing the completeness and accuracy of the data underlying the valuation of the IP; and (v)evaluating the adequacy of the Company’s disclosures. Professionals with specialized skill and knowledge were used to assist in evaluating audit evidenceand the reasonableness of management’s judgments and estimates, including application of foreign and domestic tax laws and regulations./s/PricewaterhouseCoopers LLPBoston, MassachusettsFebruary 4, 2020We have served as the Company’s auditor since 2002.F-4Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Consolidated Balance SheetsConsolidated Balance Sheets(amounts in millions, except per share amounts)(amounts in millions, except per share amounts) December 31,December 31, 2019201920182018AssetsAssetsCurrent Assets:Cash and cash equivalents$2,685.5$1,365.5Marketable securities64.0198.3Trade accounts receivable, net1,243.2922.3Inventories627.6472.5Prepaid expenses and other current assets456.1426.4Total current assets5,076.43,385.0Property, plant and equipment, net$1,163.31,471.5Intangible assets, net3,344.33,641.3Goodwill5,037.45,037.4Right of use operating assets204.0—Deferred tax assets2,290.2101.8Other assets429.0294.9Total assets$17,544.6$13,931.9Liabilities and Stockholders’ EquityLiabilities and Stockholders’ EquityCurrent Liabilities:Accounts payable and accrued expenses$966.7$698.2Revolving credit facility—250.0Current portion of long-term debt126.793.8Current portion of contingent consideration—97.6Other current liabilities100.934.4Total current liabilities1,194.31,174.0Long-term debt, less current portion2,375.02,501.7Contingent consideration192.4183.2Facility lease obligations—361.0Deferred tax liabilities2,081.4391.1Noncurrent operating lease liabilities164.1—Other liabilities265.6155.6Total liabilities6,272.84,766.6Commitments and contingencies (Note 11)Stockholders’ Equity:Common stock, $.0001 par value; 290.0 shares authorized; 237.8 and 236.2 shares issued at 2019and 2018, respectively——Additional paid-in capital8,804.78,539.1Treasury stock, at cost, 16.5 and 12.7 shares at 2019 and 2018, respectively(2,105.9)(1,689.9)Accumulated other comprehensive loss(66.8)(9.7)Retained earnings4,639.82,325.8Total stockholders’ equity11,271.89,165.3Total liabilities and stockholders’ equity$17,544.6$13,931.9The accompanying notes are an integral part of these consolidated financial statements.F-5Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Consolidated Statements of OperationsConsolidated Statements of Operations(amounts in millions, except per share amounts)(amounts in millions, except per share amounts) Year Ended December 31,Year Ended December 31, 201920192018201820172017Net product sales$4,990.0 $4,130.1 $3,549.5Other revenue1.1 1.1 1.6Total revenues4,991.1 4,131.2 3,551.1Cost of sales394.5 374.3 454.2Operating expenses: Research and development886.0 730.4 878.4Selling, general and administrative1,261.1 1,111.8 1,094.4Acquired in-process research and development(4.1) 1,183.0 —Amortization of purchased intangible assets309.6 320.1 320.1Change in fair value of contingent consideration11.6 116.5 41.0Restructuring expenses12.0 25.5 104.6Impairment of intangible assets— — 31.0Total operating expenses2,476.2 3,487.3 2,469.5Operating income2,120.4 269.6 627.4Other income and expense: Investment income100.3 65.3 18.5Interest expense(77.8) (98.2) (98.4)Other income and (expense)35.9 5.5 0.3Income before income taxes2,178.8 242.2 547.8Income tax (benefit) expense(225.5) 164.6 104.5Net income$2,404.3 $77.6 $443.3Earnings per common share Basic$10.77 $0.35 $1.98Diluted$10.70 $0.35 $1.97Shares used in computing earnings per common share Basic223.2 222.7 223.9Diluted224.8 224.5 225.4 The accompanying notes are an integral part of these consolidated financial statements.F-6Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Consolidated Statements of Comprehensive IncomeConsolidated Statements of Comprehensive Income(amounts in millions)(amounts in millions) Year Ended December 31,Year Ended December 31, 201920192018201820172017Net income$2,404.3 $77.6 $443.3Other comprehensive income (loss), net of tax: Foreign currency translation(1.0) (0.5) 8.4Unrealized gains (losses) on debt securities0.2 (0.5) 0.6Unrealized gains (losses) on pension obligation(6.6) 2.2 1.9Unrealized gains (losses) on hedging activities, net of tax of $(14.5), $7.3 and$(59.0), respectively(49.7) 23.5 (105.8)Other comprehensive income (loss), net of tax(57.1) 24.7 (94.9)Comprehensive income$2,347.2 $102.3 $348.4The accompanying notes are an integral part of these consolidated financial statements.F-7Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Consolidated Statements of Changes in Stockholders’ EquityConsolidated Statements of Changes in Stockholders’ Equity(amounts in millions)(amounts in millions) Common StockCommon Stock AdditionalAdditionalPaid-InPaid-InCapitalCapital Treasury StockTreasury Stockat Costat Cost AccumulatedAccumulatedOtherOtherComprehensiveComprehensiveIncome (Loss)Income (Loss) RetainedRetainedEarningsEarnings TotalTotalStockholders’Stockholders’EquityEquity Shares IssuedShares Issued AmountAmount SharesShares AmountAmount Balances, December 31, 2016Balances, December 31, 2016231.9 $— $7,957.0 8.0 $(1,141.3) $60.5 $1,817.6 $8,693.8Repurchase of common stock— — — 4.0 (463.6) — — (463.6)Issuance of common stock under stock option and stockpurchase plans1.3 — 85.9 — — — — 85.9Issuance of restricted common stock1.1 — — — — — — —Share-based compensation expense— — 247.4 — — — — 247.4Net income— — — — — — 443.3 443.3Other comprehensive loss— — — — — (94.9) — (94.9)Adoption of new intra-entity tax guidance— — — — — — (18.8) (18.8)Balances, December 31, 2017234.3 $— $8,290.3 12.0 $(1,604.9) $(34.4) $2,242.1 $8,893.1Repurchase of common stock— — — 0.7 (85.0) — — (85.0)Issuance of common stock under stock option and stockpurchase plans0.6 — 47.6 — — — — 47.6Issuance of restricted common stock1.3 — (0.3) — — — — (0.3)Share-based compensation expense— — 201.5 — — — — 201.5Net income— — — — — — 77.6 77.6Other comprehensive income— — — — — 24.7 — 24.7Adoption of new accounting standards— — — — — — 6.1 6.1Balances, December 31, 2018236.2 $— $8,539.1 12.7 $(1,689.9) $(9.7) $2,325.8 $9,165.3Repurchase of common stock— — — 3.8 (416.0) — — (416.0)Issuance of common stock under stock option and stockpurchase plans0.4 — 29.9 — — — — 29.9Issuance of restricted common stock1.2 — — — — — — —Share-based compensation expense— — 235.7 — — — 235.7Net income— — — — — — 2,404.3 2,404.3Other comprehensive loss— — — — — (57.1) — (57.1)Adoption of new accounting standards (see Note 1)— — — — — — (90.3) (90.3)Balances, December 31, 2019237.8 $— $8,804.7 16.5 $(2,105.9) $(66.8) $4,639.8 $11,271.8The accompanying notes are an integral part of these consolidated financial statements.Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Consolidated Statements of Cash FlowsConsolidated Statements of Cash Flows(amounts in millions)(amounts in millions) Year Ended December 31,Year Ended December 31, 20192019 20182018 20172017Cash flows from operating activities:Cash flows from operating activities: Net income$2,404.3 $77.6 $443.3Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization376.8 405.3 496.7Impairment of assets— 13.5 118.8Change in fair value of contingent consideration11.6 116.5 41.0Payments of contingent consideration(100.0) — (18.0)Share-based compensation expense237.0 203.0 243.1Non-cash expense for acquired IPR&D— 64.6 —Deferred tax (benefit) expense(455.4) 32.9 (45.9)Unrealized foreign currency (gain) loss(2.1) 4.8 (9.4)Unrealized (gain) loss on forward contracts(16.5) (15.8) 11.1Unrealized gain on strategic equity investments(26.9) (40.2) —Gain on sale of strategic equity investments(32.8) — —Gain on modification of purchase option(32.0) — —Other(2.7) (2.0) 5.4Changes in operating assets and liabilities, excluding the effect of acquisitions: Accounts receivable(319.2) (208.8) (55.2)Inventories(156.9) (14.7) (88.2)Prepaid expenses, right of use operating assets and other assets(31.0) (155.6) (137.2)Accounts payable, accrued expenses, lease liabilities and other liabilities230.7 (55.1) 110.1Net cash provided by operating activities2,084.9 426.0 1,115.6Cash flows from investing activities:Cash flows from investing activities: Purchases of available-for-sale debt securities(80.2) (782.7) (1,648.8)Proceeds from maturity or sale of available-for-sale debt securities222.2 1,473.5 1,089.9Purchases of mutual funds related to nonqualified deferred compensation plan(17.6) (12.1) (9.9)Proceeds from sale of mutual funds related to nonqualified deferred compensation plan14.7 12.3 7.7Purchases of property, plant and equipment(154.7) (213.0) (357.3)Purchases of strategic equity investments(73.3) (10.3) —Proceeds from sale of strategic equity investments114.7 — —Purchases of intangible assets(16.0) — —Other(0.1) 2.8 0.1Net cash provided by (used in) investing activities9.7 470.5 (918.3)Cash flows from financing activities:Cash flows from financing activities: Proceeds from revolving credit facility— 250.0 —Payments on revolving credit facility(250.0) — —Payments on term loan(98.0) (293.8) (175.0)Repurchase of common stock(416.0) (85.0) (463.6)Net proceeds from issuance of stock under share-based compensation arrangements29.9 47.3 85.9Payments of contingent consideration— — (7.0)Repayment of development-related grants— — (26.0)Other(5.0) (20.9) (10.9)Net cash used in financing activities(739.1) (102.4) (596.6)Effect of exchange rate changes on cash and cash equivalents and restricted cash0.8 (11.2) 17.7Net change in cash and cash equivalents and restricted cash1,356.3 782.9 (381.6)Cash and cash equivalents and restricted cash at beginning of period1,367.3 584.4 966.0Cash and cash equivalents and restricted cash at end of period$2,723.6 $1,367.3 $584.4 The accompanying notes are an integral part of these consolidated financial statements.F-8Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Consolidated Statements of Cash FlowsConsolidated Statements of Cash Flows(amounts in millions)(amounts in millions) Year Ended December 31,Year Ended December 31, 20192019 20182018 20172017 Supplemental cash flow disclosures:Supplemental cash flow disclosures: Cash paid for interest (net of amounts capitalized)$72.6 $90.9 $95.3Cash paid for income taxes$187.9 $163.9 $162.1Supplemental non-cash disclosures from investing and financing activities:Supplemental non-cash disclosures from investing and financing activities: Fair value of strategic investment and purchase option, less upfront cash paid$75.0 — —Operating ROU lease assets obtained in exchange for operating lease liabilities$27.5 — —Capitalization of construction costs related to facility lease obligations$— $44.8 $121.8Accounts payable and accrued expenses for purchases of property, plant and equipment and intangible assets$13.3 $21.4 $34.7The following provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total ofsuch amounts shown in the consolidated statement of cash flows: Year Ended December 31,Year Ended December 31, 20192019 20182018 20172017 Cash and cash equivalents$2,685.5 $1,365.5 $584.4Restricted cash included in other current assets$37.8 $0.1 $—Restricted cash included in other noncurrent assets$0.3 $1.7 $—Total cash and cash equivalents and restricted cash reported in the consolidatedstatement of cash flows$2,723.6 $1,367.3 $584.4Amounts included in restricted cash primarily represent funds placed in escrow as a result of the judicial order issued by the Federal Court of Canadarelated to SOLIRIS pricing (Note 11, Commitments and Contingencies).The accompanying notes are an integral part of these consolidated financial statements.F-9Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)1.1.Business Overview and Summary of Significant Accounting PoliciesBusiness Overview and Summary of Significant Accounting PoliciesBusinessBusinessAlexion Pharmaceuticals, Inc. (Alexion, the Company, we, our or us) is a global biopharmaceutical company focused on serving patients and familiesaffected 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 approvedcomplement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS), as well as thefirst and only approved complement inhibitor to treat anti-acetylcholine receptor (AChR) antibody-positive generalized myasthenia gravis (gMG) andneuromyelitis optica spectrum disorder (NMOSD) in patients who are anti-aquaporin-4 (AQP4) antibody positive. Alexion also has two highly innovativeenzyme 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 itsresearch 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. We were incorporated in 1992 under the laws of the State of Delaware.Basis of Presentation and Principles of ConsolidationBasis of Presentation and Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of Alexion and its wholly-owned subsidiaries. All intercompany balancesand transactions have been eliminated in consolidation. For each of our business combinations, all of the assets acquired and liabilities assumed wererecorded at their respective fair values as of the date of acquisition, and their results of operations are included in the consolidated financial statementsfrom the date of acquisition.Dividend PolicyDividend PolicyWe have never paid a cash dividend on shares of our stock. We currently intend to retain our earnings to finance future operations and do notanticipate paying any cash dividends on our stock in the foreseeable future.Critical Accounting EstimatesCritical Accounting EstimatesThe preparation of our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe U.S., requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues, expenses andrelated disclosure of contingent assets and liabilities in our financial statements. We believe the most complex judgments result primarily from the need tomake estimates about the effects of matters that are inherently uncertain and are significant to our consolidated financial statements. We base ourestimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities. We evaluate our estimates, judgments and assumptions on an ongoing basis. Actual resultsmay differ from these estimates under different assumptions or conditions and such differences may be material.The most significant areas involving estimates, judgments and assumptions used in the preparation of our consolidated financial statements are asfollows:•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•Incometaxes.F-10Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Foreign Currency TranslationForeign Currency TranslationThe financial statements of our subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-endexchange rates for assets and liabilities, historical exchange rates for stockholders’ equity and weighted average exchange rates for operating results.Translation gains and losses are included in accumulated other comprehensive income (loss), net of tax, in stockholders’ equity. Foreign currencytransaction gains and losses are included in the results of operations in other income and expense.Cash and Cash EquivalentsCash and Cash EquivalentsCash and cash equivalents are stated at cost plus accrued interest, which approximates fair value, and include short-term highly liquid investmentswith original maturities of three months or less. As of December 31, 2019 and 2018, cash equivalents were comprised of money market funds and otherdebt securities with maturities less than 90 days from the date of purchase.Fair Value of Financial InstrumentsFair Value of Financial InstrumentsThe carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other assets, accountspayable, accrued expenses and other liabilities approximate fair value due to their short-term maturities. Our marketable securities are valued based uponpricing of securities with similar investment characteristics and holdings. Our mutual fund investments and equity securities are valued based on quotedmarket prices in active markets with no valuation adjustment. Investments in equity securities of publicly traded companies which are subject to holdingperiod restrictions are carried at fair value using an option pricing valuation model and observable market inputs such as the historical volatility of similarcompanies and risk-free interest rates. Our derivative financial instruments are measured at fair value using observable market inputs such as forwardrates, interest rates, our own credit risk and our counterparties’ credit risks. Our debt obligations are carried at historical cost, which approximates fairvalue. Our contingent consideration liabilities related to our acquisitions and derivative liabilities associated with certain option agreements are valuedbased on various estimates, including probability of success, estimated revenues, discount rates and amount of time until the conditions of the milestonepayments are met.Marketable SecuritiesMarketable SecuritiesWe invest our excess cash balances in marketable securities of highly rated financial institutions and investment-grade debt instruments. We seek todiversify our investments and limit the amount of investment concentrations for individual institutions, maturities and investment types. We classifymarketable debt securities as available-for-sale and, accordingly, record such securities at fair value. We classify these securities as current assets asthese investments are intended to be available to the Company for use in funding current operations.Unrealized gains and losses on our marketable debt securities that are deemed temporary are included in accumulated other comprehensive income(loss) as a separate component of stockholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, we evaluatethe extent to which the decline is determined to be other-than-temporary and would mark the security to market through a charge to our consolidatedstatement of operations. Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of asecurity. In the event of a credit loss, only the amount associated with the credit loss is recognized in operating results, with the amount of loss relating toother factors recorded in accumulated other comprehensive income (loss).We sponsor a nonqualified deferred compensation plan which allows certain highly-compensated employees to elect to defer income to futureperiods. Participants in the plan earn a return on their deferrals based on several investments options, which mirror returns on underlying mutual fundinvestments. We choose to invest in the underlying mutual fund investments to offset the liability associated with our nonqualified deferred compensationplan. These mutual fund investments are valued at net asset value per share and are carried at fair value with gains and losses included in investmentincome. The changes in the underlying liability to the employee are recorded in operating expenses.F-11Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Accounts ReceivableAccounts ReceivableOur standard credit terms vary based on the country of sale and range from 30 to 120 days and all arrangements are payable within one year of thetransfer of the product. Our consolidated average days’ sales outstanding ranges from 70 to 80 days. We evaluate the creditworthiness of customers on aregular basis. The length of time from sale to receipt of payment in certain countries exceeds our credit terms. In countries in which collections fromcustomers extend beyond normal payment terms, we seek to collect interest. We record interest on customer receivables as interest income whencollected. Subsequent adjustments for further declines in credit rating are recorded as bad debt expense as a component of selling, general andadministrative expense. We also use judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables ifand when collection becomes doubtful, and we also assess on an ongoing basis whether collectibility is probable at the time of sale. As of December 31,2019 and 2018, allowances on receivables were not material.Concentration of Credit RiskConcentration of Credit RiskFinancial instruments that potentially expose the Company to concentrations of credit risk are limited to cash equivalents, marketable securities,accounts receivable and our foreign exchange derivative contracts. We invest our cash reserves in money market funds or high-quality marketable debtsecurities in accordance with our investment policy. The stated objectives of our investment policy are to preserve capital, provide liquidity consistent withforecasted cash flow requirements, maintain appropriate diversification and generate returns relative to these investment objectives and prevailing marketconditions.At December 31, 2019, four customers accounted for 66.9% of the accounts receivable balance, with these individual customers ranging from 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 theseindividual customers ranging from 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 product sales, with these individual customers ranging from10.0% to 16.8% of our product sales. For the year ended December 31, 2018, four customers accounted for 50.3% of our product sales, with theseindividual customers ranging from 10.0% to 16.4% of our product sales. For the year ended December 31, 2017, three customers accounted for 37.0% ofour product sales, with these individual customers ranging from 10.8% to 15.0% of our product sales. No other customers accounted for more than 10.0%of accounts receivable or net product sales.We continue to monitor economic conditions, including volatility associated with international economies and the associated impacts on the financialmarkets 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 certainjurisdictions where weakness in economic conditions can result in extended collection periods. To date, we have not experienced any significant losses withrespect to collection of our accounts receivable.InventoriesInventoriesInventories are stated at the lower of cost or net realizable value. Cost is determined in a manner that approximates average costs.The components of inventory are as follows: December 31,December 31, 20192019 20182018Raw materials$41.2 $31.4Work-in-process180.8 90.4Finished goods405.6 350.7 $627.6 $472.5 F-12Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Capitalization of Inventory CostsCapitalization of Inventory CostsWe capitalize inventory produced for commercial sale, which may include costs incurred for certain products awaiting regulatory approval, or forinventory produced at new production facilities, when management considers it probable that the pre-approval inventories will be saleable. We capitalizeinventory produced in preparation of product launches sufficient to support estimated initial market demand. Capitalization of such inventory begins whenwe have (i) obtained positive results in clinical trials that we believe are necessary to support regulatory approval, (ii) concluded that uncertainties regardingregulatory approval of the product and facilities have been sufficiently reduced, and (iii) determined that the inventory has probable future economicbenefit. In evaluating whether these conditions have been met, we consider clinical trial results for the underlying product candidate, results from meetingswith regulatory authorities, the compilation of the regulatory application, and how far a facility has progressed along the approval process. If we are awareof any material risks or contingencies outside of the standard regulatory review and approval process, or if there are any specific negative issues identifiedrelating to the safety, efficacy, manufacturing, marketing or labeling of the product that would have a significant negative impact on its future economicbenefits, the related inventory would not be capitalized. As of December 31, 2019, the carrying value of inventory at unapproved production facilities was$60.5.Products that have been approved by the U.S. Food and Drug Administration (FDA) or other regulatory authorities are also used in clinical programs toassess the safety and efficacy of the products for usage in diseases that have not been approved by the FDA or other regulatory authorities. The form of theproducts utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use” as defined inauthoritative guidance. Raw materials and purchased drug product associated with clinical development programs are included in inventory and charged toresearch and development expense when the product enters the research and development process and no longer can be used for commercial purposesand, therefore, does not have an “alternative future use”.For products which are under development and have not yet been approved by regulatory authorities, purchased drug product is charged to researchand development expense upon delivery. Delivery occurs when the inventory passes quality inspection and ownership transfers to us. Nonrefundableadvance payments for research and development activities, including production of purchased drug product, are deferred and capitalized until the goodsare delivered. We also recognize expense for raw materials purchased for developmental purposes when the raw materials pass quality inspection and wehave an obligation to pay for the materials. Inventory Write-OffsInventory Write-OffsWe analyze our inventory levels to identify inventory that may expire prior to sale, inventory that has a cost basis in excess of its estimated realizablevalue, or inventory in excess of expected sales requirements. Although the manufacturing of our product is subject to strict quality control, certain batchesor units of product may no longer meet quality specifications or may expire, which requires adjustments to our inventory values. We also apply judgmentrelated to the results of quality tests that we perform throughout the production process, as well as our understanding of regulatory guidelines, todetermine if it is probable that inventory will be saleable. These quality tests are performed throughout the pre-and post-production process, and wecontinually gather additional information regarding product quality for periods after the manufacture date. Our products currently have a maximumestimated life ranging from 36 to 48 months and, based on our sales forecasts, we expect to realize the carrying value of our inventory. In the future,reduced demand, quality issues or excess supply beyond those anticipated by management may result in a material adjustment to inventory levels, whichwould be recorded as an increase to cost of sales.The determination of whether or not inventory costs will be realizable requires estimates by our management. A critical input in this determination isfuture expected inventory requirements based on internal sales forecasts. We then compare these requirements to the expiry dates of inventory on hand.For inventories that are capitalized in preparation of product launch, we also consider the expected approval date in assessing realizability. To the extentthat inventory is expected to expire prior to being sold, we will write down the value of inventory.Derivative InstrumentsDerivative InstrumentsWe record the fair value of derivative instruments as either assets or liabilities on the balance sheet. The accounting for gains and losses resultingfrom changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.All qualifying hedging activities are documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes tofuture cash. On a quarterly basis, we perform an assessment to confirm thatF-13Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)outstanding hedges remain highly effective and continue to qualify for hedge accounting. We record the fair value of the qualifying hedges in prepaidexpenses and other current assets, other assets, other current liabilities and other liabilities. All unrealized gains and losses on derivatives that aredesignated and qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transactionaffects earnings. When the forecasted transaction occurs, this amount is reclassified into the consolidated statement of operations and presented in thesame financial statement line item as the hedged item.Derivative instruments for which hedge accounting is not applied are recorded at fair value in prepaid expenses and other current assets and othercurrent liabilities. Unrealized gains and losses resulting from changes in the fair value of these derivatives are reported in other income and expense.Property, Plant and EquipmentProperty, Plant and EquipmentProperty, plant and equipment are stated at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Weestimate economic lives as follows:•Building and improvements—fifteen to thirty fiveyears•Machinery and laboratory equipment—five to fifteenyears •Computer hardware and software—three to sevenyears•Furniture and office equipment— five to tenyearsLeasehold improvements and assets under financing lease arrangements are amortized over the lesser of the asset’s estimated useful life or theterm of the respective lease. Maintenance costs are expensed as incurred.Construction-in-progress reflects amounts incurred for property, plant, or equipment construction or improvements that have not been placed inservice.LeasesLeasesAt the inception of an arrangement, we determine if an arrangement is, or contains, a lease based on the unique facts and circumstances present inthat arrangement. Lease classification, recognition, and measurement are then determined at the lease commencement date. For arrangements thatcontain a lease we (i) identify lease and non-lease components, (ii) determine the consideration in the contract, (iii) determine whether the lease is anoperating or financing lease; and (iv) recognize lease ROU assets and liabilities. Lease liabilities and their corresponding ROU assets are recorded based onthe present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable and assuch, we use our incremental borrowing rate based on the information available at the lease commencement date, which represents an internallydeveloped rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similareconomic environment.Most leases include options to renew and, or, terminate the lease, which can impact the lease term. The exercise of these options is at our discretionand we do not include any of these options within the expected lease term as we are not reasonably certain we will exercise these options. We haveelected to combine lease components (for example fixed payments including rent) with non-lease components (for example, non-dedicated parking andcommon-area maintenance costs) on our real estate and commercial fleet asset classes. We separate lease and non-lease components on our embeddedcontract manufacturing organization (CMO) arrangements. Lease and non-lease components on these CMO arrangements are determined based on anallocation of the consideration in the contract to the embedded lease and non-lease components of the arrangement based on the relative standaloneprices of these components.Fixed, or in substance fixed, lease payments on operating leases are recognized over the expected term of the lease on a straight-line basis, whilefixed, or in substance fixed, payments on financing leases are recognized using the effective interest method. Variable lease expenses that are notconsidered fixed, or in substance fixed, are recognized as incurred. Fixed and variable lease expense on operating leases is recognized within operatingexpenses within our consolidated statements of operations. Financing lease ROU asset amortization and interest costs are recorded within operatingexpenses and interest expense, respectively, within our consolidated statements of operations. We have operating and financing leases for corporateoffices, research and development facilities, regional executive and sales offices, commercial fleet, and CMO embedded lease arrangements. We haveelected the short-term lease exemption and, therefore, do not recognize a ROU asset or corresponding liability for lease arrangements with an original termof 12 months or less.F-14Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Operating leases are included in right of use operating assets, other current liabilities, and noncurrent operating lease liabilities in our consolidatedbalance sheet as of December 31, 2019. Financing leases are included in property, plant and equipment, other current liabilities, and other liabilities in ourconsolidated balance sheet as of December 31, 2019.Assets Held for SaleAssets Held for SaleWe classify assets as held for sale when the following criteria are met: i) management, having the authority to approve the action, commits to a planto sell the asset, ii) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of similarassets, iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated, iv) the sale of the assetis probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year, v) the asset is being actively marketed forsale at a price that is reasonable in relation to its current fair value, and vi) actions required to complete the plan indicate that it is unlikely that significantchanges to the plan will be made or that the plan will be withdrawn. Assets that are classified as held for sale are recorded at the lower of their carryingvalue or their fair value less the costs to sell.In the third quarter 2017, we announced our intention to close the Alexion Rhode Island Manufacturing Facility (ARIMF). In the fourth quarter 2017,we met the criteria for assets held for sale and reclassified the ARIMF assets from property, plant and equipment to assets held for sale recorded withinprepaid expenses and other current assets. We subsequently sold ARIMF during the third quarter of 2018. See Note 18, Restructuring and RelatedExpenses.Manufacturing FacilitiesManufacturing FacilitiesWe capitalize costs incurred for the construction of facilities which support commercial manufacturing. We also capitalize costs related to validationactivities which are directly attributable to preparing the facility for its intended use, including engineering runs and inventory production necessary toobtain approval of the facility from government regulators for the production of a commercially approved drug. When the facility is substantially completeand ready for its intended use and regulatory approval for commercial production has been received, we will place the asset in service.The production of inventory for preparing the facility for its intended use requires two types of production: engineering runs which are used for testingpurposes only and do not result in saleable inventory, and validation runs which are used for validating equipment and may result in saleable inventory. Thecosts associated with inventory produced during engineering runs and normal production losses during validation runs are capitalized to fixed assets anddepreciated over the asset’s useful life. Saleable inventory produced during the validation process is initially treated as a fixed asset; however, uponregulatory approval, this inventory is reclassified to inventory and expensed in cost of goods sold as product is sold, or in research and developmentexpenses as product is utilized in R&D activities. Abnormal production costs incurred during the validation process are expensed as incurred.AcquisitionsAcquisitionsBusiness combinations are accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the tangible andintangible assets acquired and the liabilities assumed are recorded as of the acquisition date at their respective fair values. We evaluate a business as anintegrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lowercosts or other economic benefits and consists of inputs and substantive processes applied to those inputs that have the ability to contribute to the creationof outputs. If substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar identifiable assets, the assets donot represent a business. In an acquisition of a business, the excess of the fair value of the consideration transferred over the fair value of the net assetsacquired is recorded as goodwill.F-15Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Acquisitions of assets or a group of assets that do not meet the definition of a business are accounted for as asset acquisitions using the costaccumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relativefair values. No goodwill is recognized in an asset acquisition. Intangible assets that are acquired in an asset acquisition for use in research anddevelopment activities which have an alternative future use are capitalized as in-process research and development (IPR&D). Acquired IPR&D which has noalternative future use is recognized as research and development expense at acquisition. Contingent milestone payments associated with assetacquisitions are recognized when probable and estimable. These amounts are expensed to research and development if there is no alternative future useassociated with the asset, or capitalized as an intangible asset if alternative future use of the asset exists.Our consolidated financial statements include the results of operations of an acquired business after the completion of the acquisition.ContingentContingent ConsiderationConsideration We record contingent consideration resulting from a business combination at fair value on the acquisition date. On a quarterly basis, we revaluethese obligations and record increases or decreases in their fair value as an adjustment to operating earnings. Changes to contingent considerationobligations can result from adjustments to discount rates, accretion of the liability due to the passage of time, changes in our estimates of the likelihood ortiming of achieving development or commercial milestones, changes in the probability of certain clinical events or changes in the assumed probabilityassociated with regulatory approval.Intangible AssetsIntangible AssetsOur intangible assets generally consist of licensing rights, patents, purchased technology, acquired IPR&D and other intangibles. Intangible assetswith definite lives are amortized based on their pattern of economic benefit over their estimated useful lives and reviewed periodically for impairment.Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated research anddevelopment efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment. Impairmenttesting is performed at least annually or when a triggering event occurs that could indicate a potential impairment. If and when development is complete,which generally occurs when regulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized over aperiod that best reflects the economic benefits provided by these assets.GoodwillGoodwillGoodwill represents the excess of purchase price over fair value of net assets acquired in a business combination and is not amortized. Goodwill issubject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We are organized and operateas 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.Impairment of Long-Lived AssetsImpairment of Long-Lived AssetsOur long-lived assets are primarily comprised of intangible assets and property, plant and equipment. We evaluate our finite-lived intangible assetsand property, plant and equipment, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assetsis not recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of anasset group to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.In addition, indefinite-lived intangible assets, comprised of IPR&D, are reviewed for impairment annually and whenever events or changes incircumstances indicate that it is more likely than not that the asset is impaired by comparing the fair value to the carrying value of the asset. In the secondquarter 2017, we recognized an impairment charge of $31.0 related to our SBC-103 acquired in-process research and development asset due to clinicalresults.F-16Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Other InvestmentsOther InvestmentsFrom time to time, we make strategic investments in equity securities of certain biotechnology companies which we acquire in connection with licenseand option agreements. Our strategic investment portfolio may include equity securities in publicly traded companies, as well as investments in companieswith securities that are not publicly traded and where fair value is not readily available. These investments are included in other assets in our consolidatedbalance sheets.We have historically recorded our investments in securities that are not publicly traded at cost, less impairments. Beginning January 1, 2018, wecontinue to record these investments at cost, less impairments; however, we also adjust the investment for any changes resulting from an observable pricechange in an orderly transaction for identical or similar investments of the same issuer. We assess relevant transactions that occur on or before thebalance sheet date to identify observable price changes, and we regularly monitor these investments to evaluate whether there is an indication that theinvestment is impaired, based on the implied value of recent company financings, public market prices of comparable companies, and general marketconditions.Our investments in equity securities in publicly traded companies which are unrestricted are regularly measured and carried at fair value andclassified as Level 1 equity securities within the fair value hierarchy. Investments in publicly traded companies which are subject to holding periodrestrictions are carried at fair value using an option pricing valuation model and classified as Level 2 equity securities within the fair value hierarchy. Themost significant assumptions within the option pricing valuation model are the term of the restrictions and the stock price volatility, which is based upon thehistorical volatility of the applicable company or similar companies. We also use a constant maturity risk-free interest rate to match the remaining term ofthe restrictions on such investments.ContingentContingent LiabilitiesLiabilitiesWe are currently involved in various claims and legal proceedings. On a quarterly basis, we review the status of each significant matter and assess itspotential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can bereasonably estimated, we accrue a liability for the estimated loss. Because of uncertainties related to claims and litigation, accruals are based on the bestinformation available at the time of our assessment including the legal facts and circumstances of the case, status of the proceedings, applicable law andthe likelihood of settlement, if any. On a periodic basis, as additional information becomes available, or based on specific events such as the outcome oflitigation or settlement of claims (and our offers of settlement), we may reassess the potential liability related to these matters and may revise theseestimates when facts and circumstances indicate the need for changes.Treasury StockTreasury StockTreasury stock is accounted for using the cost method, with the purchase price of the common stock recorded separately as a deduction fromstockholders’ equity.Revenue RecognitionRevenue RecognitionIn May 2014, the FASB issued a comprehensive new standard which amends revenue recognition principles. We adopted the new standard onJanuary 1, 2018 by applying the modified retrospective method to all contracts that were not completed as of that date. Under the new guidance, revenueis recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received inexchange for those goods or services. Revenue is recognized through a five-step process: (i) identify the contract(s) with a customer; (ii) identify theperformance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in thecontract; and (v) recognize revenue when (or as) a performance obligation is satisfied. The Company only applies the five-step model to contracts when it isprobable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contractinception, the Company assesses the goods or services promised within each contract, and determines those that are performance obligations. Revenue isrecognized for the applicable performance element when each distinct performance obligation is satisfied. While results for reporting periods beginning after January 1, 2018 are presented under the new guidance, prior period amounts are not adjusted andcontinue to be reported under the accounting standards in effect for the prior period. Upon adoption of the new revenue recognition standard, on January1, 2018, we reduced our deferred revenue balance by $10.4, with an offsetting increase of $6.0 in retained earnings due to the cumulative impact ofadoptingF-17Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)this new standard. The impact to net product sales and net income for the year ended December 31, 2018 was an increase of $5.3 and $4.8, respectively.The new standard also resulted in a decrease of $17.9 in deferred revenue and an increase of $10.8 in retained earnings as of December 31, 2018. Theadoption of the new revenue standard did not have a material impact on any other balances within the consolidated financial statements as of and for theyear ended December 31, 2018. The adoption of the new standard did not significantly change our accounting policies.Nature of ProductsOur principal source of revenue is product sales. Our contracts with customers generally contain a single performance obligation and we recognizerevenue from product sales when we have satisfied our performance obligation by transferring control of the product to our customers. Control ofthe product generally transfers to the customer upon delivery. In certain countries, we sell to distributors on a consignment basis and recordrevenue when control of the product transfers to the customer upon sale to the end user.Our customers are primarily comprised of distributors, pharmacies, hospitals, hospital buying groups, and other healthcare providers. In somecases, we may also sell to governments and government agencies. In addition to sales in countries where our products are commercially available,we have also recorded revenue on sales for patients receiving treatment through named-patient programs. The relevant authorities or institutionsin those countries have agreed to reimburse for product sold on a named-patient basis where our products have not received final approval forcommercial sale.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 fixedand variable consideration and excludes amounts that are collected from customers and remitted to governmental authorities, such as value-added taxes in foreign jurisdictions. Shipping and handling costs associated with outbound freight after control of a product has transferred to ourcustomers are accounted for as a fulfillment cost and are included in operating expenses. The cost for any shipping and handling activities(including customs clearance activities) associated with transactions for which revenue has been recognized are accrued if not completed beforethe respective period end.The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Our standard credit terms, whichvary based on the country of sale, range from 30 to 120 days and all arrangements are payable within one year of the transfer of the product. Wedo not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between thetransfer of the promised good to the customer and receipt of payment will be one year or less.Variable ConsiderationWe pay distribution fees to our distributors and offer rebates and/or discounts, or enter into volume-based reimbursement arrangements withcertain customers. We reduce the transaction price on our sales for these amounts. For variable amounts, we estimate the amount ofconsideration to which we expect to be entitled based on all available historic, current and forecast information. We primarily use the expectedvalue method to estimate variable payments and, in limited circumstances, will apply the most likely method based on the type of variableconsideration and what method better predicts the amount of consideration we expect to be entitled to. Consideration that is received from acustomer that we expect will need to be refunded in the future is recorded as a refund liability to the customer within accrued expenses. Actualamounts of consideration ultimately received or refunded may differ from our estimates. If actual results in the future vary from our estimates, weadjust these estimates, which would affect net product sales and earnings in the period such variances become known.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, theseamounts are fixed at the time of sale and the transaction price is reduced accordingly. We also provide for rebates under certain governmentalprograms, including Medicaid in the U.S. and other programs outside the U.S., which are payable based on actual claim data. We estimate theserebates based on an analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates andthe amount of such rebates. We update our estimates and assumptions each period and record any necessary adjustments, which may have animpact on revenue in the period in which the adjustment is made. Generally, the length of time between product sale and the processing andreporting of the rebates is three to six months.F-18Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Volume-Based Arrangements: We have entered into volume-based arrangements with governments in certain countries and other customers inwhich reimbursement is limited to a contractual amount. Under this type of arrangement, amounts billed in excess of the contractual limitation arerepaid to the customer as a rebate. We estimate incremental discounts resulting from these contractual limitations, based on forecasted salesduring the limitation period, and we apply the discount percentage to product shipments as a reduction of revenue. Our calculations related tothese arrangements require estimation of sales during the limitation period, and adjustments in these estimates may have a material impact inthe period in which these estimates change.Distribution & Other Fees: We pay distribution and other fees to certain customers in connection with the sales of our products. We recorddistribution and other fees paid to our customers as a reduction of revenue, unless the payment is for a distinct good or service from the customerand we can reasonably estimate the fair value of the goods or services received. If both conditions are met, we record the consideration paid tothe customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to theperiod of sale.Product Returns: Our contracts with customers generally provide for returns only if the product is damaged or defective upon delivery. We assessour sales transactions and arrangements with customers and monitor inventory within our sales channels to determine whether a provision forreturns is warranted and a resulting adjustment to the transaction price is necessary. This assessment is based on historical experience andassumptions as of the date of sale and changes in these estimates could have an impact in the period in which the change occurs. Because offactors such as the price of our products, the limited number of patients, the short period from product sale to patient infusion and limitedcontractual return rights, our customers often carry limited inventory.The amount of variable consideration included in the transaction price is constrained by the amount that is probable will not result in a significantreversal of revenue. We consider our experience with similar transactions and expectations regarding the contract in estimating the amount ofvariable consideration to which we expect to be entitled, and determining whether the estimated variable consideration should be constrained. Wedo not have any material constraints on the variable consideration included within the transaction price of our current revenue arrangements.See Note 19, Segment Information for a summary of revenue from contracts with customers by product and geographical region.Contract Balances and ReceivablesContract liabilities relate to consideration received and/or billed for goods that have not been delivered to the customer and for which theperformance obligation has not yet been completed. These amounts are included within other current liabilities in the consolidated statements ofoperations.The following table provides information about receivables and contract liabilities from our contracts with customers. December 31, 2019 December 31, 2018Receivables, which are included in "Trade accounts receivable, net"$1,243.2 $922.3Contract liabilities, which are included in "Other current liabilities"$6.8 $3.4F-19Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Research and Development ExpensesResearch and Development ExpensesResearch and development expenses are comprised of costs incurred in performing research and development activities including payroll andbenefits, preclinical, clinical trial and related clinical manufacturing costs, manufacturing development and scale-up costs, product development andregulatory costs, contract services and other outside contractor costs, research license fees, depreciation and amortization of lab facilities, and labsupplies. These costs are expensed as incurred. We accrue costs for clinical trial activities based upon estimates of the services received and relatedexpenses incurred that have yet to be invoiced by the contract research organizations, clinical study sites, laboratories, consultants, or other clinical trialvendors that perform the activities.Share-Based CompensationShare-Based CompensationWe have two share-based compensation plans pursuant to which awards are currently being made: (i) the 2017 Incentive Plan (2017 Plan) and (ii)the 2015 Employee Stock Purchase Plan (ESPP). The 2017 Plan replaced the Amended & Restated 2004 Incentive Plan (2004 Plan), effective May 10,2017. Under the 2017 Plan, restricted stock, restricted stock units, stock options and other stock-related awards may be granted to our directors, officers,employees and consultants or advisors of the Company or any subsidiary. Under the ESPP, eligible employees can purchase shares of common stock at adiscount semi-annually through payroll deductions. To date, share-based compensation issued under the plans consists of incentive and non-qualifiedstock options, restricted stock and restricted stock units, including restricted stock units with market and non-market performance conditions, and sharesissued 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. Compensationexpense reflects an estimate of the number of awards expected to vest and is primarily recognized on a straight-line basis over the requisite service periodof the individual grants, which typically equals the vesting period. Compensation expense for awards with performance conditions is recognized using thegraded-vesting method.Our estimates of employee stock option values rely on estimates of factors we input into the Black-Scholes model. The key factors involve anestimate of future uncertain events. Assumptions include the use of historical volatility to determine the expected stock price volatility. We also estimateexpected term until exercise and the reduction in the expense from expected forfeitures. We currently use historical exercise and cancellation patterns asour best estimate of future estimated life.For our non-market performance-based awards, we estimate the anticipated achievement of the performance targets, including forecasting theachievement of future financial targets. These estimates are revised periodically based on the probability of achieving the performance targets andadjustments are made throughout the performance period as necessary. We use payout simulation models to estimate the grant date fair value of awardswith market-based performance conditions. The payout simulation models assume volatility of our common stock and the common stock of a comparatorgroup of companies, as well as correlations of returns of the price of our common stock and the common stock prices of the comparator group.The purchase price of common stock under our ESPP is equal to 85.0% of the lower of (i) the market value per share of the common stock on the firstbusiness day of an offering period or (ii) the market value per share of the common stock on the purchase date. The fair value of the discounted purchasesmade under our ESPP is calculated using the Black-Scholes model. The fair value of the look-back provision plus the 15.0% discount is recognized ascompensation expense over the 6 month purchase period.F-20Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Restructuring and Restructuring Related ExpensesRestructuring and Restructuring Related ExpensesWe record liabilities associated with one-time employee termination benefits and exit or disposal activities in the period in which the liability isincurred. One-time employee benefits are incurred when communicated to employees and / or where detailed action plans have been approved. Forexisting benefit arrangements, employee termination costs are accrued when the exit or disposal cost are probable and estimable. Costs for one-timetermination benefits in which the employee is required to render service until termination in order to receive benefits are recognized ratably over the serviceperiod.Restructuring related expenses include accelerated depreciation costs and impairment charges associated with assets impacted by a restructuringexit activity. Accelerated depreciation costs represent the difference between the depreciation expense recognized over the revised useful life of the asset,based upon the anticipated date an impacted site closure, and the depreciation expense as determined using the useful life prior to the restructuringactivities.Earnings Per Common ShareEarnings Per Common ShareBasic earnings per common share (EPS) is computed by dividing net income by the weighted-average number of shares of common stockoutstanding. For purposes of calculating diluted EPS, the denominator reflects the potential dilution that could occur if stock options, unvested restrictedstock units or other contracts to issue common stock were exercised or converted into common stock, using the treasury stock method.The following table summarizes the calculation of basic and diluted EPS for years ended December 31, 2019, 2018 and 2017: Year Ended December 31,Year Ended December 31, 20192019 20182018 20172017Net income used for basic and diluted calculation$2,404.3 $77.6 $443.3Shares used in computing earnings per common share—basic223.2 222.7 223.9Weighted-average effect of dilutive securities: Stock awards1.6 1.8 1.5Shares used in computing earnings per common share—diluted224.8 224.5 225.4Earnings per common share: Basic$10.77 $0.35 $1.98Diluted$10.70 $0.35 $1.97We exclude from EPS the weighted-average number of securities whose effect is anti-dilutive. Excluded from the calculation of EPS for the yearsended December 31, 2019, 2018 and 2017 were 3.0, 2.8, and 4.0 shares of common stock, respectively, because their effect is anti-dilutive.Income TaxesIncome TaxesWe utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined basedon the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years inwhich the temporary differences are expected to reverse. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce thecarrying amount of these deferred tax assets by a valuation allowance when it is more likely than not that deferred tax assets will not be realized.We recognize the benefit of an uncertain tax position that has been taken or we expect to take on income tax returns if such tax position is morelikely than not to be sustained. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that ismore likely than not to be realized. The amount of unrecognized tax benefits is adjusted, as appropriate, for changes in facts and circumstances, such assignificant amendments to existing tax law, new regulations or interpretations by the taxing authorities, or new information obtained during a taxexamination or resolution of an examination. We also accrue for potential interest and penalties related to unrecognized tax benefits as a component of taxexpense.During the fourth quarter of 2013, in connection with the centralization of our global supply chain and technical operations in Ireland, our U.S. parentcompany became a direct partner in a captive foreign partnership. Our corporateF-21Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)structure, which derives income from multiple jurisdictions, requires us to interpret the related tax laws and regulations within those jurisdictions anddevelop estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions and the applicability offoreign tax credits. From time to time, we execute intercompany transactions that may impact the valuation of the captive foreign partnership and thecorresponding interest allocated to each partner, resulting in a change to deferred taxes. The transactions and related valuations require the application oftransfer pricing guidelines issued by the relevant taxing authorities. Significant estimates and assumptions within discounted cash flow models are alsorequired to calculate the valuations.In December 2017, the Tax Cuts and Jobs Act (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 related to intangible assets (GILTI), a one-time transition tax on previously unremitted foreign earnings, andmodified the taxation of other income and expense items. With regard to the GILTI minimum tax, foreign earnings are reduced by the profit attributable totangible assets and a deductible allowance of up to 50.0%, subject to annual limitations. We have elected to account for the impact of the minimum tax indeferred taxes.Comprehensive IncomeComprehensive IncomeComprehensive income is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes changes inequity that are excluded from net income, such as changes in pension liabilities, unrealized gains and losses on marketable debt securities, unrealizedgains and losses on hedge contracts and foreign currency translation adjustments. These changes in equity are reflected net of tax.ReclassificationsReclassificationsCertain items in the prior year’s consolidated financial statements have been reclassified to conform to the current presentation.New Accounting PronouncementsNew Accounting PronouncementsAccounting Standards Update (ASU) 2016-13, "Measurement of Credit Losses on Financial Instruments":Accounting Standards Update (ASU) 2016-13, "Measurement of Credit Losses on Financial Instruments": In June 2016, the Financial AccountingStandards 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 thecurrent incurred loss model, and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit lossesand limited to the amount by which carrying value exceeds fair value. The new standard also requires enhanced disclosure of credit risk associated withfinancial 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 ourportfolio of financial instruments and current and forecasted economic conditions as of January 1, 2020. We are continuing to finalize our calculations forcredit losses and to establish processes and internal controls that may be required to comply with the new credit loss standard and related disclosurerequirements. 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":ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract": In August2018, the FASB issued a new standard on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computingarrangement (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. Thestandard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, and can be adopted prospectivelyor retrospectively.We adopted the new standard on January 1, 2020 on a prospective basis and are continuing to establish new processes and internal controls thatmay 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 ourfinancial statements; however, the adoption of this standard will result in an increase in capitalized assets related to qualifying CCA implementation costsincurred after the adoption date.ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes”:ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes”: In December 2019, the FASB issued a new standard intended to simplifythe accounting for income taxes by eliminating certain exceptionsF-22Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred taxliabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws orrates 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 beginningafter December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires certain changes to be madeprospectively, with some changes to be made retrospectively. We are currently assessing the impact of this standard on our financial condition and resultsof operations.ASU 2020-01, “Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging - Clarifying theASU 2020-01, “Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging - Clarifying theInteractions Between Topic 321, Topic 323, and Topic 815”:Interactions Between Topic 321, Topic 323, and Topic 815”: In January 2020, the FASB issued a new standard intended to clarify the interactions betweenASC 321, ASC 323 and ASC 815. The new standard addresses accounting for the transition into and out of the equity method and measurement of certainpurchased options and forward contracts to acquire investments. The standard is effective for annual and interim periods beginning after December 15,2020, with early adoption permitted. Adoption of the standard requires changes to be made prospectively. We are currently assessing the impact of thisstandard on our financial condition and results of operations.Recently Adopted Accounting PronouncemenRecently Adopted Accounting PronouncementssASU 2016-02, “Leases”:ASU 2016-02, “Leases”: In February 2016, the FASB issued a new standard that requires lessees to recognize leases on-balance sheet and disclosekey information about leasing arrangements. The new standard establishes a right of use (ROU) model that requires a lessee to recognize a ROU asset andlease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as financing or operating, with classificationaffecting 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 thatallows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in theconsolidated financial statements and recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. Wealso elected the “package of practical expedients”, which permits us not to reassess under the new standard our prior conclusions about leaseidentification, 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 notadjusted 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 previouslyexisting build-to-suit arrangements. We capitalized ROU assets of $326.1, inclusive of opening adjustments of $70.8 primarily related to prepaid rentexisting at transition, and $255.3 of lease liabilities, within our consolidated balance sheets upon adoption. At transition, we recorded a decrease of $90.3to 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":ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income": In February 2018, the FASB issued a newstandard that permits entities to make a one-time reclassification from accumulated other comprehensive income (AOCI) to retained earnings for thestranded 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 yearended 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 fromAOCI to retained earnings. We continue to release disproportionate income tax effects from AOCI based on the aggregate portfolio approach. The adoptionof this standard did not have an impact on our consolidated financial statements.2. 2. AcquisitionsAcquisitionsWilson Therapeutics ABOn May 25, 2018, we completed the acquisition of Wilson Therapeutics AB (publ), a biopharmaceutical company based in Stockholm, Sweden(Wilson Therapeutics) that developed a novel therapy for patients with rare copper-mediated disorders, pursuant to a recommended public cash offer ofSEK 232 for each share of stock of Wilson Therapeutics. As a result of the acquisition, we added WTX101 (ALXN1840), a highly innovative drug candidatethat is currently in Phase III clinical trials for the treatment of patients with Wilson disease, to our clinical pipeline.F-23Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The acquisition of Wilson Therapeutics was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquiredwas concentrated in a single asset, WTX101.The following table summarizes the total consideration for the acquisition and the value of assets acquired and liabilities assumed:ConsiderationConsideration Cash paid for acquisition of Wilson Therapeutics outstanding shares$749.3Transaction costs15.1Total consideration$764.4 Assets Acquired and Liabilities AssumedAssets Acquired and Liabilities Assumed Cash$45.1In-process research & development803.7Employee related liabilities(71.4)Other assets and liabilities(13.0)Total net assets acquiredTotal net assets acquired$764.4The acquired in-process research and development asset relates to WTX101. Due to the stage of development of this asset at the date of acquisition,significant risk remained and it was not yet probable that there was future economic benefit from this asset. Absent successful clinical results andregulatory approval for the asset, there was no alternative future use associated with WTX101. Accordingly, the value of this asset was expensed during thesecond quarter of 2018.Employee related liabilities include the value of outstanding employee equity incentive awards that were accelerated in connection with the WilsonTherapeutics acquisition that have been settled in cash. Also included in this amount were employer tax obligations associated with the employee equityincentive awards.In connection with rights to WTX101 that were previously acquired by Wilson Therapeutics from third parties, we could be required to pay up toapproximately $19.0 if certain development, regulatory and commercial milestones are met over time, as well as royalties on commercial sales.Syntimmune, Inc.In September 2018, we entered into a definitive agreement to acquire Syntimmune, Inc. (Syntimmune), a clinical-stage biotechnology companydeveloping an antibody therapy targeting the FcRn. Syntimmune’s lead candidate, SYNT001 (ALXN1830), is a monoclonal antibody that is designed toinhibit the interaction of FcRn with Immunoglobulin G (IgG) and IgG immune complexes, that is being studied for the treatment of IgG-mediatedautoimmune diseases. The acquisition of Syntimmune closed in November 2018. Under the terms of the acquisition agreement, Alexion acquiredSyntimmune for an upfront cash payment of $400.0, with the potential for additional milestone-dependent payments of up to $800.0, for a total potentialvalue of up to $1,200.0.The acquisition of Syntimmune was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired wasconcentrated in a single in-process research and development asset, SYNT001.In connection with the agreement of the final working capital adjustment for the Syntimmune acquisition, we recognized a benefit of $4.1 associatedwith previously acquired in-process research and development in the second quarter 2019.F-24Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The following table summarizes the total consideration for the acquisition and the value of the assets acquired and liabilities assumed:ConsiderationConsideration Upfront payment for acquisition of Syntimmune outstanding shares$400.0Cash acquired4.2Working capital adjustment2.3Transaction costs0.9Total consideration$407.4 Assets Acquired and Liabilities AssumedAssets Acquired and Liabilities Assumed Cash$4.2In-process research & development375.2Deferred tax assets25.1Other assets and liabilities2.9Total net assets acquiredTotal net assets acquired$407.4 The acquired in-process research and development asset relates to SYNT001. Due to the stage of development of this asset at the date ofacquisition, significant risk remained and it was not yet probable that there was future economic benefit from this asset. Absent successful clinical resultsand regulatory approval for the asset, there was no alternative future use associated with SYNT001. Accordingly, the value of this asset was expensedduring the fourth quarter of 2018.Achillion Pharmaceuticals, Inc.In October 2019, Alexion entered into a definitive agreement to acquire Achillion Pharmaceuticals, Inc. (Achillion), a clinical-stage biopharmaceuticalcompany focused on the development of oral Factor D inhibitors. Achillion is developing oral small molecule Factor D inhibitors to treat people withcomplement alternative pathway-mediated rare diseases, such as PNH and C3 glomerulopathy (C3G). The company currently has two clinical stagemedicines in development, including danicopan (ACH-4471) and ACH-5228.The acquisition of Achillion closed on January 28, 2020 . Under the terms of the agreement, we acquired all outstanding common stock of Achillionfor $6.30 per share, or approximately $926.0, inclusive of the settlement of Achillion’s outstanding equity awards. The acquisition was funded with cash onhand. The transaction includes the potential for additional consideration in the form of non-tradeable contingent value rights (CVRs), which will be paid toAchillion shareholders if certain clinical and regulatory milestones are achieved within specified periods. These include $1.00 per share for the U.S. FDAapproval of danicopan and $1.00 per share for the initiation of Phase 3 in ACH-5228.We anticipate accounting for the transaction as a business combination and are currently evaluating the purchase price allocation. Due to theproximity of the completion of the acquisition to the filing of this Form 10-K, it is not practicable to provide a preliminary purchase price allocation of the fairvalue of the assets purchased and liabilities assumed in the transaction. The Company expects to finalize the valuation and complete the preliminarypurchase price allocation in the first quarter of 2020.F-25Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)3.3.Property, Plant and Equipment,Property, Plant and Equipment,NetNetA summary of property, plant and equipment is as follows: December 31, 2019December 31, 2019 December 31, 2018December 31, 2018Land$9.6 $9.6Buildings and improvements208.7 520.1Machinery and laboratory equipment126.0 161.7Computer hardware and software155.1 144.8Furniture and office equipment23.4 27.5Construction-in-progress734.2 827.1Financing lease right of use assets127.2 —1,384.2 1,690.8Less: Accumulated depreciation and amortization(220.9) (219.3)$1,163.3 $1,471.5On January 1, 2019, we adopted a new lease accounting standard and results for reporting periods beginning on January 1, 2019 are presentedunder the new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the priorperiod. Upon adoption of the new lease standard, on January 1, 2019, we derecognized $472.8 of property, plant and equipment and other assetsassociated with previously existing build-to-suit arrangements. See Note 1, Business Overview & Summary of Significant Accounting Policies for an overviewof the impact this standard had on our property, plant and equipment balances upon adoption. Financing lease right of use assets recorded as a result ofthe new standard are included in property, plant and equipment in our consolidated balance sheet as of December 31, 2019.Depreciation and amortization of property, plant and equipment was approximately $56.8, $77.9 and $95.8 recorded within our consolidatedstatement of operations for the years ended December 31, 2019, 2018 and 2017, respectively. Included within this amount for the years endedDecember 31, 2018 and 2017 were charges related to the 2017 restructuring activities. See Note 18, Restructuring and Related Expenses for additionalinformation.At December 31, 2019 and 2018, computer software costs included in property, plant and equipment were $53.4 and $50.3, respectively.Depreciation and amortization expense for capitalized computer software costs was $15.3, $17.4 and $16.0 for the years ended December 31, 2019,2018 and 2017, respectively.4.4.Intangible Assets and GoodwillIntangible Assets and GoodwillThe following table summarizes the carrying amount of our intangible assets and goodwill, net of accumulated amortization: December 31, 2019December 31, 2019 December 31, 2018December 31, 2018 EstimatedEstimatedLife (years)Life (years) CostCost AccumulatedAccumulatedAmortizationAmortization NetNet CostCost AccumulatedAccumulatedAmortizationAmortization NetNetLicensing Rights3-8 $57.0 $(34.7) $22.3 $39.0 $(29.3) $9.7Patents7 10.5 (10.5) — 10.5 (10.5) —Purchased technology6-16 4,710.5 (1,388.7) 3,321.8 4,710.5 (1,079.1) 3,631.4Other Intangibles5 0.4 (0.2) 0.2 0.4 (0.2) 0.2Total $4,778.4 $(1,434.1) $3,344.3 $4,760.4 $(1,119.1) $3,641.3GoodwillIndefinite $5,040.3 $(2.9) $5,037.4 $5,040.3 $(2.9) $5,037.4During 2019 and 2018, we capitalized $18.0 and $8.0, respectively, related to regulatory approval and commercial milestones related to in-licensingarrangements.During the third quarter 2019, the U.S. patent term extension to a composition of matter patent for STRENSIQ was granted, which resulted in anincrease in the estimated useful life of the STRENSIQ intangible asset and will result in lower amortization expense in future periods.F-26Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Amortization expense was $315.0, $321.1 and $320.2 for the years ended December 31, 2019, 2018 and 2017, respectively. Assuming no changesin the gross cost basis of intangible assets, the total estimated amortization expense for finite-lived intangible assets is approximately $298.0 for each ofthe years ending December 31, 2020 through December 31, 2024.As of December 31, 2019, the net book value of our purchased technology includes $2,992.4 associated with the KANUMA intangible asset, whichwe acquired in the acquisition of Synageva BioPharma Corp. As part of our standard quarterly procedures, we reviewed the KANUMA asset as ofDecember 31, 2019 and determined that there were no indicators of impairment. Cash flow models used in our assessments are based on our commercialexperience to date with KANUMA and require the use of significant estimates, which include, but are not limited to, long-range pricing expectations andpatient-related assumptions, including patient identification, conversion and retention rates. We will continue to review the related valuation andaccounting of this asset as new information becomes available to us.5.5.Marketable SecuritiesMarketable SecuritiesThe amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of available-for-sale debt securities by type ofsecurity at December 31, 2019 and December 31, 2018 were as follows: December 31, 2019December 31, 2019 Amortized CostAmortized Cost Gross Unrealized HoldingGross Unrealized HoldingGainsGains Gross Unrealized HoldingGross Unrealized HoldingLossesLosses Fair ValueFair ValueCommercial paper $246.9 $— $— $246.9Corporate bonds 24.3 — — 24.3Other government related obligations: U.S. 70.4 — — 70.4Bank certificates of deposit 27.4 — — 27.4Total available-for-sale debt securities $369.0 $— $— $369.0 December 31, 2018December 31, 2018 Amortized CostAmortized Cost Gross Unrealized HoldingGross Unrealized HoldingGainsGains Gross Unrealized HoldingGross Unrealized HoldingLossesLosses Fair ValueFair ValueCommercial paper $52.1 $— $— $52.1Corporate bonds 122.9 — (0.1) 122.8Other government related obligations: U.S. 17.5 — — 17.5Bank certificates of deposit 33.2 — — 33.2Total available-for-sale debt securities $225.7 $— $(0.1) $225.6The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of December 31, 2019 and December 31, 2018 was$21.5 and $128.7, respectively. We did not have any investments in a continuous unrealized loss position for more than twelve months as ofDecember 31, 2019 and December 31, 2018. As of December 31, 2019, we believe that the cost basis of our available-for-sale debt securities isrecoverable.The fair values of available-for-sale debt securities by classification in the consolidated balance sheet were as follows: December 31, 2019December 31, 2019 December 31, 2018December 31, 2018Cash and cash equivalents$328.1 $43.8Marketable securities40.9 181.8 $369.0 $225.6F-27Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The fair values of available-for-sale debt securities as of December 31, 2019, by contractual maturity, are summarized as follows: December 31, 2019December 31, 2019Due in one year or less$365.5Due after one year through three years3.5Due after three years through five years— $369.0We sponsor a nonqualified deferred compensation plan which allows certain highly-compensated employees to elect to defer income to futureperiods. Participants in the plan earn a return on their deferrals based on several investment options, which mirror returns on underlying mutual fundinvestments. We choose to invest in the underlying mutual fund investments to offset the liability associated with our nonqualified deferred compensationplan. These mutual fund investments are valued at net asset value per share and are carried at fair value with gains and losses included in investmentincome. The changes in the underlying liability to the employee are recorded in operating expenses. As of December 31, 2019 and December 31, 2018, thefair value of these investments was $23.1 and $16.5, respectively.We utilize the specific identification method in computing realized gains and losses. Realized gains and losses on our marketable securities were notmaterial for the years ended December 31, 2019, 2018 and 2017.6.6.Derivative Instruments and Hedging ActivitiesDerivative Instruments and Hedging ActivitiesWe operate internationally and, in the normal course of business, are exposed to fluctuations in foreign currency exchange rates. The exposuresresult from portions of our revenues, as well as the related receivables, and expenses that are denominated in currencies other than the U.S. dollar,primarily the Euro and Japanese Yen. We are also exposed to fluctuations in interest rates on outstanding borrowings under our revolving credit facility, ifany, and term loan facility. We manage these exposures within specified guidelines through the use of derivatives. All of our derivative instruments areutilized for risk management purposes, and we do not use derivatives for speculative trading purposes.We enter into foreign exchange forward contracts, with durations of up to 60 months, to hedge exposures resulting from portions of our forecastedrevenues, including intercompany revenues, and certain forecasted expenses that are denominated in currencies other than the U.S. dollar. The purpose ofthese hedges is to reduce the volatility of exchange rate fluctuations on our operating results. These hedges are designated as cash flow hedges uponcontract inception. As of December 31, 2019, we had open revenue related foreign exchange forward contracts with notional amounts totaling $1,089.9that qualified for hedge accounting with current contract maturities through June 2021. As of December 31, 2019, we had open expense related foreignexchange forward contracts with notional amounts totaling $14.0 that qualified for hedge accounting with contract maturities through September 2022.To achieve a desired mix of floating and fixed interest rates on our term loan, we enter into interest rate swap agreements that qualify for and aredesignated as cash flow hedges. These contracts convert the floating interest rate on a portion of our debt to a fixed rate, plus a borrowing spread.The following table summarizes the total interest rate swap contracts executed as of December 31, 2019:Type of Interest RateType of Interest RateSwapSwapNotionalNotionalAmountAmountEffective DateEffective DateTermination DateTermination DateFixed Interest Rate orFixed Interest Rate orRate RangeRate RangeFloating to Fixed450.0December 2018December 20222.60% - 2.79%Floating to Fixed1,300.0December 2019December 20222.37% - 2.83%F-28Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The amount of gains and (losses) recognized in the consolidated statements of operations for the years ended December 31, 2019, 2018, and 2017from foreign exchange and interest rate swap contracts that qualified as cash flow hedges were as follows: Year ended December 31,Year ended December 31, 20192019 20182018 20172017Financial Statement Line Item in which the Effects of CashFinancial Statement Line Item in which the Effects of CashFlow Hedges are RecordedFlow Hedges are RecordedNet ProductNet ProductSalesSales Interest ExpenseInterest Expense Net ProductNet ProductSalesSales Interest ExpenseInterest Expense Net ProductNet ProductSalesSales Interest ExpenseInterest ExpenseTotal amount presented in the ConsolidatedStatements of Operations$4,990.0 $(77.8) $4,130.1 $(98.2) $3,549.5 $(98.4)Impact of cash flow hedging relationships:Impact of cash flow hedging relationships: Foreign exchange forward contracts$36.8 $— $(1.8) $— $28.9 $—Interest rate swap contracts$— $13.3 $— $13.6 $— $(1.8)The impact on accumulated other comprehensive income (AOCI) and earnings from foreign exchange and interest rate swap contracts that qualifiedas cash flow hedges, for the years ended December 31, 2019, 2018, and 2017 were as follows: Year Ended December 31,Year Ended December 31, 20192019 20182018 20172017Foreign Exchange Forward Contracts:Foreign Exchange Forward Contracts: Gain (loss) recognized in AOCI, net of tax$27.9 $37.7 $(96.1)Gain (loss) reclassified from AOCI to net product sales, net of tax$28.4 $(1.4) $18.7Interest Rate Swap Contracts:Interest Rate Swap Contracts: Gain (loss) recognized in AOCI, net of tax$(39.0) $(4.8) $7.9Gain (loss) reclassified from AOCI to interest expense, net of tax$10.2 $10.8 $(1.1)Assuming no change in foreign exchange rates from market rates at December 31, 2019, $6.7 of gains recognized in AOCI will be reclassified torevenue over the next 12 months. Assuming no change in LIBOR-based interest rates from market rates at December 31, 2019, $19.5 of losses recognizedin AOCI will be reclassified to interest expense over the next 12 months. Amounts recognized in AOCI for expense related foreign exchange forwardcontracts were immaterial as of December 31, 2019.We enter into foreign exchange forward contracts, with durations of up to 8 months, designed to limit the balance sheet exposure of monetary assetsand liabilities. We enter into these hedges to reduce the impact of fluctuating exchange rates on our operating results. Hedge accounting is not applied tothese derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheetexposures. As of December 31, 2019, the notional amount of foreign exchange contracts where hedge accounting is not applied was $1,974.6.We recognized a (loss) gain of $(0.4), $23.0 and $(14.7), in other income and (expense) for the years ended December 31, 2019, 2018 and 2017,respectively, associated with the foreign exchange contracts not designated as hedging instruments. These amounts were partially offset by gains or losseson monetary assets and liabilities.F-29Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The following tables summarize the fair value of outstanding derivatives at December 31, 2019 and 2018: December 31, 2019December 31, 2019 Asset DerivativesAsset Derivatives Liability DerivativesLiability Derivatives Balance SheetBalance SheetLocationLocation FairFairValueValue Balance SheetBalance SheetLocationLocation FairFairValueValueDerivatives designated as hedgingDerivatives designated as hedginginstruments:instruments: Foreign exchange forward contractsPrepaid expenses and othercurrent assets $12.7 Other current liabilities $6.2Foreign exchange forward contractsOther assets 0.6 Other liabilities 1.1Interest rate contractsPrepaid expenses and othercurrent assets — Other current liabilities 19.5Interest rate contractsOther assets — Other liabilities 41.9Derivatives not designated as hedgingDerivatives not designated as hedginginstruments:instruments: Foreign exchange forward contractsPrepaid expenses and othercurrent assets 17.2 Other current liabilities 20.4Total fair value of derivative instrumentsTotal fair value of derivative instruments $$30.530.5 $$89.189.1 December 31, 2018December 31, 2018 Asset DerivativesAsset Derivatives Liability DerivativesLiability Derivatives Balance SheetBalance SheetLocationLocation FairFairValueValue Balance SheetBalance SheetLocationLocation FairFairValueValueDerivatives designated as hedgingDerivatives designated as hedginginstruments:instruments: Foreign exchange forward contractsPrepaid expenses and othercurrent assets $16.9 Other current liabilities $7.3Foreign exchange forward contractsOther assets 0.3 Other liabilities 3.1Interest rate contractsPrepaid expenses and othercurrent assets 20.1 Other current liabilities 0.8Interest rate contractsOther assets — Other liabilities 17.3Derivatives not designated as hedgingDerivatives not designated as hedginginstruments:instruments: Foreign exchange forward contractsPrepaid expenses and othercurrent assets 23.6 Other current liabilities 11.5Total fair value of derivative instrumentsTotal fair value of derivative instruments $$60.960.9 $$40.040.0F-30Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Although we do not offset derivative assets and liabilities within our consolidated balance sheets, our International Swap and Derivatives Associationagreements provide for net settlement of transactions that are due to or from the same counterparty upon early termination of the agreement due to anevent of default or other termination event. The following tables summarize the potential effect on our condensed consolidated balance sheets of offsettingour foreign exchange forward contracts and interest rate contracts subject to such provisions:December 31, 2019December 31, 2019 Gross Amounts Not Offset in the ConsolidatedGross Amounts Not Offset in the ConsolidatedBalance SheetBalance Sheet DescriptionDescription Gross Amounts ofGross Amounts ofRecognizedRecognizedAssets/LiabilitiesAssets/Liabilities Gross Amounts OffsetGross Amounts Offsetin the Consolidatedin the ConsolidatedBalance SheetBalance Sheet Net Amounts ofNet Amounts ofAssets/LiabilitiesAssets/LiabilitiesPresented in thePresented in theConsolidated BalanceConsolidated BalanceSheetSheet Derivative FinancialDerivative FinancialInstrumentsInstruments Cash CollateralCash CollateralReceived (Pledged)Received (Pledged) Net AmountNet AmountDerivative assets $30.5 $30.5 $(21.4) $— $9.1Derivative liabilities $(89.1) $(89.1) $21.4 $— $(67.7)December 31, 2018December 31, 2018 Gross Amounts Not Offset in the ConsolidatedGross Amounts Not Offset in the ConsolidatedBalance SheetBalance Sheet DescriptionDescription Gross Amounts ofGross Amounts ofRecognizedRecognizedAssets/LiabilitiesAssets/Liabilities Gross Amounts Offset inGross Amounts Offset inthe Consolidated Balancethe Consolidated BalanceSheetSheet Net Amounts ofNet Amounts ofAssets/LiabilitiesAssets/LiabilitiesPresented in thePresented in theConsolidated BalanceConsolidated BalanceSheetSheet Derivative FinancialDerivative FinancialInstrumentsInstruments Cash CollateralCash CollateralReceived (Pledged)Received (Pledged) Net AmountNet AmountDerivative assets $60.9 $— $60.9 $(30.2) $— $30.7Derivative liabilities $(40.0) $— $(40.0) $30.2 $— $(9.8)7.7.OtherOtherInvestmentsInvestmentsOther investments include strategic investments in equity securities of certain biotechnology companies which we acquired in connection with licenseand option agreements. These investments are included in other assets in our consolidated balance sheets.ModernaDuring 2014, we purchased $37.5 of preferred stock of Moderna Therapeutics, Inc. (Moderna), a privately held biotechnology company, which wasrecorded at cost. During the first quarter 2018, Moderna announced the completion of a new round of financing. We considered this transaction and therights of the new shares issued in the new round, compared to the rights of the preferred equity that we held, and concluded that Moderna’s new round offinancing represented an observable price change in an orderly transaction for a similar investment. We further concluded, based on the respective rightsof the stock and consideration of potential liquidity events, that the value of our preferred stock was equivalent to the value of the newly issued preferredstock. As a result, we recognized an unrealized gain of $100.8 in investment income during the first quarter 2018 to adjust our equity investment inModerna to fair value as of the date of the observable price change, based on the per share price in Moderna's new round of financing.On December 6, 2018, Moderna completed its initial public offering (IPO) and shares of Moderna began trading on the Nasdaq Global Select Marketunder the symbol “MRNA.” As part of the IPO, our preferred stock was converted into Moderna common stock and subject to a one year lock-up period. Asour equity investment in Moderna common stock now had a readily determinable fair value, we began to record the investment at fair value, with theeffects of the holding period restriction estimated using an option pricing valuation model. During the fourth quarter 2018, we recognized an unrealizedloss of $56.4 in investment income to adjust our investment in Moderna to fair value as of December 31, 2018. The fair value of this investment was $81.9as of December 31, 2018.On December 9, 2019, we sold our investment in Moderna. We received $114.7 in net proceeds, resulting in a realized gain of $77.2 on our initialinvestment. During the twelve months ended December 31, 2019, we recognized a gain of $32.8 in investment income.F-31Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)DicernaIn October 2018, we purchased $10.3 of Dicerna Pharmaceuticals Inc. (Dicerna) common stock in connection with an agreement that we enteredinto with Dicerna, a publicly-traded biopharmaceutical company. As our equity investment in Dicerna common stock has a readily determinable fair value,we are recording the investment at fair value. During the twelve months ended December 31, 2019 and 2018, we recognized an unrealized gain of $9.5and an unrealized loss of $1.4, respectively, in investment income to adjust our equity investment in Dicerna to fair value.The fair value of this investment was $18.4 and $8.9 as of December 31, 2019 and 2018, respectively.CaelumIn January 2019, we purchased $41.0 of preferred stock of Caelum Biosciences (Caelum), a privately-held biotechnology company, and a $16.1option to acquire the remaining equity in Caelum, based on Phase II data, in connection with an agreement that we entered into with Caelum. Followingdiscussions with the FDA, Caelum changed the design of its clinical development program and now plans to initiate expanded Phase II/III trials in thesecond quarter 2020. In December 2019, we amended the terms of the agreement with respect to the option to acquire the remaining equity in Caelumbased on data from the expanded Phase II/III trials. We accounted for the amendment as an exchange transaction as the terms of the modified optionwere determined to be substantially different than the terms of the original option. In conjunction with this amendment, we recognized a gain of $32.0 inother income and (expense), which reflects an increase in the fair value of the option, less $20.0 in incremental upfront funding and $4.1 associated withthe change in the fair value of contingent payments which we also modified as part of the amendment, see Note 11, Commitments and Contingencies foradditional information on the agreement. As our equity investment in Caelum and the option to acquire the remaining equity in Caelum do not have areadily determinable fair value, we only adjust the carrying value of the assets for impairment and any subsequent changes resulting from an observableprice change in an orderly transaction for identical or similar equity securities of the same issuer.There were no observable price changes associated with these assets during the twelve months ended December 31, 2019. The carrying value of theinvestment and option of $41.0 and $64.0, respectively, were not impaired as of December 31, 2019.ZealandIn March 2019, we purchased $13.8 of Zealand Pharma A/S (Zealand) common stock in connection with an agreement that we entered into withZealand, a publicly-traded biopharmaceutical company based in Copenhagen, Denmark, see Note 11, Commitments and Contingencies for additionalinformation on the agreement. As our equity investment in Zealand common stock has a readily determinable fair value, we are recording the investment atfair value. During the twelve months ended December 31, 2019, we recognized an unrealized gain of $14.7, in investment income to adjust our equityinvestment in Zealand to fair value as of December 31, 2019.The fair value of this investment was $28.5 as of December 31, 2019.EidosIn September 2019, we purchased $19.9 of Eidos Therapeutics, Inc. (Eidos) common stock, in connection with an agreement that we entered intowith Eidos, a publicly-traded biopharmaceutical company and subsidiary of BridgeBio Pharma, Inc., see Note 11, Commitments and Contingencies foradditional information on the agreement. As our equity investment in Eidos common stock has a readily determinable fair value, we are recording theinvestment at fair value, with the effects of a one year holding period restriction estimated using an option pricing valuation model. During the twelvemonths ended December 31, 2019, we recognized an unrealized gain of $7.9 in investment income to adjust our equity investment in Eidos to fair value asof December 31, 2019.The fair value of this investment was $27.8 as of December 31, 2019.StealthIn October 2019, we purchased $9.6 of Stealth BioTherapeutics Corp. (Stealth) common stock, in connection with an agreement that we entered intowith Stealth, a publicly traded clinical-stage biotechnology company. See Note 11, Commitments and Contingencies for additional information on theagreement. As our equity investment in Stealth common stock has a readily determinable fair value, we are recording the investment at fair value. DuringtheF-32Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)fourth quarter 2019, we recognized an unrealized loss of $5.2 in investment income to adjust our equity investment in Stealth to fair value as ofDecember 31, 2019.The fair value of this investment was $4.4 as of December 31, 2019.8.8.Accounts Payable and Accrued ExpensesAccounts Payable and Accrued ExpensesAccounts payable and accrued expenses consist of the following: December 31, 2019December 31, 2019 December 31, 2018December 31, 2018Accounts Payable$74.0 $74.4Royalties20.1 27.0Payroll and employee benefits191.3 170.4Taxes payable103.9 24.4Rebates payable250.1 122.8Clinical67.3 58.6Manufacturing72.8 72.0Accrued restructuring costs6.8 4.2Other180.4 144.4 $966.7 $698.29.9.DebtDebtOn June 7, 2018, we entered into an Amended and Restated Credit Agreement (the Credit Agreement), with Bank of America, N.A. as AdministrativeAgent. 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 $1,000.0 revolving credit facility and a $2,612.5 term loan facility. The revolving credit facility and the term loanfacility mature on June 7, 2023. Beginning with the quarter ending June 30, 2019, we are required to make payments of 5.00% of the original principalamount of the term loan facility annually, payable in equal quarterly installments.Loans under the Credit Agreement bear interest, at our option, at either a 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 rangefrom 1.25% to 2.00%, in each case based on our consolidated net leverage ratio (as calculated in accordance with the Credit Agreement). At December 31,2019, the interest rate on our outstanding loans under the Credit Agreement was 3.05%. Our obligations under the Credit Agreement are guaranteed bycertain of Alexion Pharmaceuticals, Inc.'s foreign and domestic subsidiaries and secured by liens on certain of our subsidiaries’ equity interests, subject tocertain 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 limitedadjustments) 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. Wewere 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 negativecovenants in the Credit Agreement restrict Alexion’s and its subsidiaries’ ability, subject to certain baskets and exceptions, to (among other things) incurliens or indebtedness, make investments, enter into mergers and other fundamental changes, make dispositions or pay dividends. The restriction ondividend payments includes an exception that permits us to pay dividends and make other restricted payments regardless of dollar amount so long as, aftergiving pro forma effect thereto, we have a consolidated net leverage ratio, as defined in the Credit Agreement, within predefined ranges, subject to certainincreases following designated material acquisitions.In connection with entering into the Credit Agreement and the Prior Credit Agreement, we paid an aggregate of $53.1 in financing costs in 2018.Financing costs are amortized as interest expense over the life of the debt. Amortization expense associated with deferred financing costs for the yearsended December 31, 2019, 2018, and 2017 was $5.0, $8.0, and $9.2, respectively. Remaining unamortized deferred financing costs as of December 31,2019 and December 31, 2018 were $15.8 and $20.8, respectively.We made principal payments of $98.0 on the term loan during 2019 and as of December 31, 2019, we had $2,514.5 outstanding on the term loan.In January 2019, we paid the outstanding balance on the revolving credit facilityF-33Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)of $250.0 in full, which was used to refinance amounts outstanding under the Prior Credit Agreement, and we had no outstanding borrowings under therevolving credit facility as of December 31, 2019. As of December 31, 2019, we had open letters of credit of $1.0 that offset our availability in the revolvingfacility.The fair value of our long term debt, which is measured using Level 2 inputs of the fair value hierarchy, approximates book value.The contractual maturities of our long-term debt obligations due subsequent to December 31, 2019 are as follows:YearYear 2020$130.62021130.62022130.620232,122.72024—10.10.LeasesLeasesThe following table summarizes our lease assets and liabilities as of December 31, 2019: ROU Assets and LiabilitiesROU Assets and Liabilities Balance Sheet LocationBalance Sheet LocationFinancingFinancing OperatingOperatingROU - AssetRight of use operating assets$— $204.0ROU - AssetProperty, plant, and equipment$116.3 —Lease liabilities (current)Other current liabilities$5.2 18.8Lease liabilities (noncurrent)Noncurrent operating lease liabilities$— 164.1Lease liabilities (noncurrent)Other liabilities$72.9 —The following table summarizes our lease related costs for the twelve months ended December 31, 2019: Lease CostLease Cost Statement of Operations LocationStatement of Operations LocationTwelve months endedTwelve months ended December 31, 2019December 31, 2019Financing Lease Cost $14.8Amortization of ROU AssetsOperating Expenses10.9Interest on Lease LiabilitiesInterest Expense3.9Operating Lease CostOperating Expenses34.3Variable Lease CostOperating Expenses11.8Total Lease CostTotal Lease Cost $60.9Amounts above include $15.6 of lease costs associated with our CMO embedded lease arrangement for the twelve months ended December 31,2019, which have been capitalized as part of the cost of product being manufactured at the site.F-34Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The following table summarizes supplemental cash flow information for the twelve months ended December 31, 2019: Other InformationOther Information Twelve months endedTwelve months ended December 31, 2019December 31, 2019Cash Paid For Amounts Included In Measurement of Liabilities$32.3 Operating Cash Flows From Financing Leases3.9 Operating Cash Flows From Operating Leases23.5 Financing Cash Flows From Financing Leases4.9ROU Assets Obtained In Exchange For New Financing Liabilities (1)—ROU Assets Obtained In Exchange For New Operating Liabilities (2)27.5 (1) We capitalized $83.1 of ROU financing assets upon adoption of the new lease standard in the first quarter of 2019 that are excluded from the figures for the twelve months endedDecember 31, 2019. This figure excludes $44.2 of opening adjustments to ROU finance assets related, primarily, to prepayments of rent.(2) We capitalized $172.2 of ROU operating assets upon adoption of the new lease standard in the first quarter of 2019 that are excluded from the figures for the twelve monthsended December 31, 2019. This figure excludes $26.6 of opening adjustments to ROU operating assets related, primarily, to prepayments of rent.The following tables summarize maturities of lease liabilities and the reconciliation of lease liabilities as of December 31, 2019: Lease Liability Maturity SummaryLease Liability Maturity Summary YearYearFinancingFinancing OperatingOperating TotalTotal2020$8.8 $25.7 $34.520219.0 23.0 32.020229.2 21.6 30.820239.2 20.9 30.120249.4 20.3 29.7Thereafter54.6 112.1 166.7Reconciliation of Lease LiabilitiesReconciliation of Lease LiabilitiesFinancingFinancing OperatingOperating TotalTotalWeighted-average Remaining Lease Term (years)10.67 10.17 10.32Weighted-average Discount Rate4.85% 4.10% 4.33% Total Undiscounted Lease Liability$100.2 $223.6 $323.8Imputed Interest22.1 40.7 62.8Total Discounted Lease Liability78.1 182.9 261.0F-35Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)For comparable purposes, our aggregate future minimum non-cancellable commitments under leases as of December 31, 2018 were as follows:YearYear 2019$27.8202024.7202121.3202219.9202319.7Thereafter132.2Excluded from the table above are commitments with Lonza Group AG and its affiliates (Lonza), a third party manufacturer that produces a portion ofcommercial and clinical quantities of our commercial products and product candidates. During the third quarter 2015, we entered into an agreement withLonza whereby Lonza constructed a facility to be used to manufacture product under a supply agreement for Alexion at one of its existing facilities,resulting in the determination that the CMO arrangement contained a lease. This agreement requires us to make certain payments during the constructionof the manufacturing facility and annual payments for ten years thereafter. As the arrangement contains both a lease and non-lease component, related tothe supply of product, the consideration paid to Lonza is allocated between these components. As of December 31, 2018, we had various manufacturingand licensing agreements with Lonza, with remaining total non-cancellable future commitments of approximately $1,084.6. This amount included $88.7 ofundiscounted, fixed payments applicable to our CMO embedded lease arrangement with Lonza, based on the relative standalone price of the lease andnon-lease components of the arrangement at that time.11.11.Commitments andCommitments andContingenciesContingenciesAsset Acquisition and In-License AgreementsWe have entered into asset purchase agreements, license agreements, and option arrangements in order to advance and obtain technologies andservices related to our business. These agreements generally require us to pay an initial fee and certain agreements call for future payments upon theattainment of agreed upon development, regulatory and/or commercial milestones. These agreements may also require minimum royalty payments basedon sales of products developed from the applicable technologies, if any.In January 2019, we entered into an agreement with Caelum, a biotechnology company that is developing CAEL101 for light chain (AL) amyloidosis. Under the terms of the agreement, we acquired a minority equity interest in preferred stock of Caelum and an exclusive option to acquire the remainingequity 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 prior to the exercise the option to acquire the remaining equity in Caelum. These contingent payments meetthe definition of a derivative liability and were initially recorded at fair value of $27.1. We allocated the total consideration of $57.1, inclusive of the fairvalue of the contingent payments, to the equity investment in Caelum and the option to acquire the remaining equity in Caelum based on the relative fairvalues of the assets. Following discussions with the FDA, Caelum changed the design of its clinical development program and now plans to initiateexpanded 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 toacquire the remaining equity in Caelum based on data from the expanded Phase II/III trials. The amendment also modified the development-relatedmilestone events associated with the initial $30.0 in contingent payments, provided for an additional $20.0 in upfront funding, which we accrued as ofDecember 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 with Caelum also provides for 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 which provides us with exclusive worldwide licenses, as well as development andcommercial rights, for subcutaneously delivered preclinical peptide therapies directed at up to four complement pathway targets. Pursuant to theagreement, Zealand will lead joint discovery and research efforts through the preclinical stage, and Alexion will lead development efforts beginning with theinvestigational new drug filing and Phase I studies. In addition to the agreement, we made an equity investment in Zealand (see Note 7,F-36Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Other Investments). Under the terms of the agreement, we made an upfront payment of $40.0 for an exclusive license to the lead target and the equityinvestment, as well as for preclinical research services to be performed by Zealand in relation to the lead target. The market value of the equity investmentwas $13.8 as of the date of acquisition, which we recorded in other assets in our consolidated balance sheets. We also recognized prepaid research anddevelopment expense of $5.0 within the consolidated balance sheets associated with the research activities to be performed by Zealand. Due to the earlystage of the asset we are licensing, we recorded the upfront license payment of $21.2 as research and development expense during the first quarter 2019.As of December 31, 2019, we could be required to pay up to $610.0, for the lead target, upon the achievement of specified development, regulatory andcommercial milestones, as well as royalties on commercial sales. In addition, we could be required to pay up to an additional $115.0 in development andregulatory milestones if both a long-acting and short-acting product are developed with respect to the lead target. Each of the three subsequent targets canbe selected for an option fee of $15.0 and has the potential for additional development, regulatory and commercial milestones, as well as royaltypayments, at a reduced price to the lead target.In March 2019, we entered into an agreement with Affibody AB (Affibody), through which Alexion obtained an exclusive worldwide license, as well asdevelopment and commercial rights, to ABY-039, a bivalent antibody-mimetic that targets the FcRn and is currently in Phase I development. The agreementwith Affibody was subject to clearance under the Hart-Scott Rodino Antitrust Improvements Act and, following receipt of such approval, the transactionclosed 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 anundisclosed indication. Under the terms of the agreement, we made an upfront payment of $25.0 for the exclusive license to ABY-039. Due to the earlystage of the asset we are licensing, we recorded the upfront license payment as research and development expense during the second quarter 2019. As ofDecember 31, 2019, we could also be required to pay up to $625.0 for amounts due upon achievement of specific development, regulatory, andcommercial milestones, as well as royalties on commercial sales.In September 2019, we entered into an agreement with Eidos through which Alexion obtained an exclusive license to develop and commercializeAG10 in Japan. AG10 is a small molecule designed to treat the root cause of transthyretin amyloidosis (ATTR) and is currently in a Phase III study in the U.S.and Europe for ATTR cardiomyopathy (ATTR-CM). In addition, we made an equity investment in Eidos (see Note 7, Other Investments). Under the terms ofthe agreement, we made an upfront payment of $50.0 for the exclusive license to AG10 in Japan and the equity investment. The market value of the equityinvestment was $19.9 as of the date of acquisition, which we recorded in other assets in our consolidated balance sheets. Due to the early stage of theasset we are licensing, we recorded the upfront license payment of $30.1 as research and development expense during the third quarter 2019. As ofDecember 31, 2019, we could also be required to pay $30.0 upon achievement of a Japanese-based regulatory milestone as well as royalties oncommercial sales.In October 2019, we entered into an option agreement with Stealth BioTherapeutics Corp. (Stealth), a clinical-stage biotechnology company whoselead product candidate, elamipretide, is being investigated in late-stage clinical studies in three primary mitochondrial diseases - primary mitochondrialmyopathy (PMM), Barth syndrome and Leber’s hereditary optic neuropathy (LHON). Under the terms of the agreement, we made an upfront paymentof $30.0 for an equity investment in Stealth and an exclusive option to partner with Stealth in the development of subcutaneous elamipretide based onfinal results from the Phase III study in PMM. The market value of the equity investment was $9.6 as of the date of acquisition, which we recorded in otherassets in our consolidated balance sheets. Due to the early stage of the asset for which we have an option to license, we recorded the upfront optionpayment of $20.4 as research and development expense during the fourth quarter 2019. In December 2019, Stealth announced that based on top-linedata from the Phase 3 study in PMM, the study did not meet its primary endpoints. Following review of the Phase 3 data released in December 2019, wenotified Stealth that we will not exercise the co-development option agreement.In October 2018, we entered into a collaboration agreement with Dicerna that provides us with exclusive worldwide licenses and development andcommercial rights for two preclinical RNA interference (RNAi) subcutaneously delivered molecules for complement-mediated diseases, as well as anexclusive 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 theequity investment. The market value of the equity investment was $10.3 as of the date of acquisition, which we recorded in other assets in ourconsolidated balance sheets. Due to the early stage of the assets we are licensing, we recorded the upfront license payment of $26.7 as research anddevelopment expense during the fourthF-37Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)quarter 2018. In December 2019, we exercised our option for exclusive rights to two additional targets within the complement pathway under an existingagreement with Dicerna, which expands Alexion’s existing research collaboration and license agreement with Dicerna to include a total of four targetswithin the complement pathway. In connection with the option exercise, we paid Dicerna $20.0, which we recorded as research and development expensein 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 specifiedresearch, development, regulatory and commercial milestones on the four licensed targets, as well as royalties on commercial sales.In December 2017, we entered into a collaboration and license agreement with Halozyme Therapeutics, Inc. that allows us to use drug-deliverytechnology in the development of subcutaneous formulations for our portfolio of products for up to four targets. Due to the early stage of the assets we arelicensing, we recorded expense for the upfront payment of $40.0 during the fourth quarter 2017. In addition, as of December 31, 2019, we could berequired to pay up to $160.0 for each target developed, subject to achievement of specified development, regulatory and sales-based milestones, as wellas royalties on commercial sales.In connection with our prior acquisition of Syntimmune see Note 2, Acquisitions for additional information, we could be required to pay up to $800.0upon the achievement of specified development, regulatory and commercial milestones.In addition, as of December 31, 2019, we have other license agreements under which we may be required to pay up to an additional $54.0 forcurrently licensed targets, if certain development, regulatory and commercial milestones are met. Additional amounts may be payable if we elect to acquirelicenses to additional targets, as applicable, under the terms of these agreements.Asset Sale and Out-License ArrangementsIn connection with prior asset sale and out-license arrangements, Alexion is entitled to receive contingent payments upon the achievement of variousregulatory and commercial milestones and other events, as well as royalties on commercial sales. The amount of contingent consideration related to theseagreements is fully constrained and therefore has not been recognized as of December 31, 2019.Manufacturing AgreementsWe have various manufacturing development and license agreements to support our clinical and commercial product needs.We rely on Lonza, a third party manufacturer, to produce a portion of commercial and clinical quantities of our commercial products and productcandidates. We have various manufacturing and license agreements with Lonza, with remaining total non-cancellable future commitments ofapproximately $1,099.9. This amount includes $100.0 of undiscounted, fixed payments applicable to our CMO embedded lease arrangement with Lonza. Ifwe terminate certain supply agreements with Lonza without cause, we will be required to pay for product scheduled for manufacture under ourarrangement. Under an existing arrangement with Lonza, we also pay Lonza a royalty on sales of SOLIRIS that was manufactured at the Alexion RhodeIsland Manufacturing Facility (ARIMF facility) prior to the sale of the facility 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 our commitments with Lonza, as of December 31, 2019, we have non-cancellable commitments of approximately $60.6 through 2020with other third party manufacturers.F-38Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Contingent LiabilitiesContingent LiabilitiesWe are currently involved in various claims, disputes, lawsuits, investigations, administrative proceedings and legal proceedings. On a quarterly basis,we review the status of each significant matter and assess its potential financial exposure. In accordance with generally accepted accounting principles, ifthe potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, weaccrue a liability for the estimated loss. Because of uncertainties related to claims, proceedings and litigation, accruals are based on our best estimatesbased on information available at the time of the assessment. On a periodic basis, as additional information becomes available, or based on specificevents such as the outcome of litigation, court decisions or settlement of claims (and offers of settlement), we may reassess the potential liability related tothese matters and may revise these estimates, which could result in a material adverse adjustment to our operating results. Costs associated with ourinvolvement in legal proceedings are expensed as incurred. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. If wewere unable to prevail in any such proceedings, our consolidated financial position, results of operations, and future cash flows may be materiallyimpacted.We have received, and may in the future receive, notices from third parties claiming that their patents may be infringed by the use, development,manufacture, importation or sale of our products or product candidates. Under the guidance of ASC 450, Contingencies, we record a royalty accrual basedon our best estimate of the fair value percent of net sales of our products that we could be required to pay the owners of patents for technology used in themanufacture and sale of our products. A costly license, or inability to obtain a necessary license, could have a material adverse effect on our financialresults.In May 2015, we received a subpoena in connection with an investigation by the Enforcement Division of the Securities and Exchange Commission(SEC) requesting information related to our grant-making activities and compliance with the Foreign Corrupt Practices Act (FCPA) in various countries. Inaddition, in October 2015, we received a request from the Department of Justice (DOJ) for the voluntary production of documents and other informationpertaining to Alexion’s compliance with FCPA. The SEC and DOJ also seek information related to Alexion’s recalls of specific lots of SOLIRIS and relatedsecurities disclosures. Alexion is cooperating with these investigations.The investigations have focused on operations in various countries, including Brazil, Colombia, Japan, Russia and Turkey, and Alexion's compliancewith the FCPA and other applicable laws.Preliminary discussions have begun with the SEC to resolve the investigation. However, at this time, Alexion is unable to predict the duration, scope oroutcome of these preliminary discussions with the SEC or the investigations at the SEC or DOJ. There can be no assurance that any current or futurediscussions with the SEC or DOJ to resolve these matters will be successful or that any potential settlement terms or amount will be agreed to or finalized.While it is possible that a loss related to these matters may be incurred, given the ongoing nature of the discussions with the SEC and these investigationsat the SEC and DOJ, management cannot reasonably estimate the potential magnitude of any such loss or range of loss, or the cost of the ongoinginvestigation. Any determination that our operations or activities are not or were not in compliance with existing laws or regulations could result in theimposition of fines, civil and criminal penalties, equitable remedies, including disgorgement, injunctive relief, and/or other sanctions against us, andremediation of any such findings could have an adverse effect on our business operations.Alexion is committed to strengthening its compliance program and is currently enhancing and continuing to implement a comprehensive company-wide transformation plan that is designed to enhance our business processes, structures, controls, training, talent and systems across Alexion’s globaloperations.As previously reported, on December 29, 2016, a shareholder filed a putative class action against the Company and certain former employees in theU.S. District Court for the District of Connecticut, alleging that defendants made misrepresentations and omissions about SOLIRIS. On April 12, 2017, thecourt appointed a lead plaintiff. On July 14, 2017, the lead plaintiff filed an amended putative class action complaint against the Company and sevencurrent or former employees. Defendants moved to dismiss the amended complaint on September 12, 2017. Plaintiffs filed an opposition to defendants’motion to dismiss on November 13, 2017, and defendants filed a reply brief in further support of their motion on December 28, 2017. On March 26,2019, the court held a telephonic status conference. During that conference, the court informed counsel that it was preparing a ruling granting thedefendants’ pending motion to dismiss. The court inquired of plaintiffs’ counsel whether they intended to seek leave to amend their complaint, andindicated that if they wished to file a second amended complaint, they would be allowed to do so. On April 2, 2019, the court granted plaintiffs until May31, 2019 to file a second amended complaint, thereby rendering moot defendants’ pending motion to dismiss. On May 31, 2019, plaintiffs filed a secondamended complaint against the same defendants. The complaint alleges that defendants engaged in securities fraud, including bymaking misrepresentationsF-39Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)and omissions in its public disclosures concerning the Company’s SOLIRIS sales practices, management changes, and related investigations, betweenJanuary 30, 2014 and May 26, 2017, and that the Company's stock price dropped upon the purported disclosure of the alleged fraud. The plaintiffs seekto recover unspecified monetary relief, unspecified equitable and injunctive relief, interest, and attorneys’ fees and costs. Defendants’ filed a motion todismiss the amended complaint on August 2, 2019; plaintiffs’ filed their opposition to that motion on October 2, 2019; and defendants’ filed their reply infurther support of their motion on November 16, 2019. Given the early stage of these proceedings, we cannot presently predict the likelihood of obtainingdismissal of the case (or the ultimate outcome of the case if the motion to dismiss is denied by the court), nor can we estimate the possible loss or range ofloss at this time.In December 2016, we received a subpoena from the U.S. Attorney's Office for the District of Massachusetts requesting documents relating generallyto our support of Patient Services, Inc. (PSI) and National Organization for Rare Disorders (NORD), 501(c)(3) organizations that provide financial assistanceto Medicare patients taking drugs sold by Alexion; Alexion’s provision of free drug to Medicare patients; and Alexion compliance policies and trainingmaterials concerning the anti-kickback statute and information on donations to PSI and NORD from 2010 through 2016. In April 2019, we entered into acivil settlement agreement with the DOJ and the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services to resolve thismatter. As part of the settlement agreement, Alexion paid $13.1 to the DOJ and OIG. OIG did not require a Corporate Integrity Agreement with Alexionbecause it made fundamental organizational changes, including hiring a new executive leadership team, replacing half of the members of its Board ofDirectors, and effecting a significant change in the workforce.In May 2017, Brazilian authorities seized records and data from our Sao Paulo, Brazil offices as part of an investigation being conducted into Alexion’sBrazilian operations. We are cooperating with this inquiry.In June 2017, we received a demand to inspect certain of our books and records pursuant to Section 220 of the General Corporation Law of the Stateof Delaware on behalf of a purported stockholder. Among other things, the demand sought to determine whether to institute a derivative lawsuit againstcertain of the Company’s directors and officers in relation to the investigation by our Audit and Finance Committee announced in November 2016 and theinvestigations instituted by the SEC, DOJ, U.S. Attorney’s Office for the District of Massachusetts, and Brazilian law enforcement officials that are describedabove. We have responded to the demand. Given the early stages of this matter, an estimate of the possible loss or range of loss cannot be made at thistime.On September 27, 2017, a hearing panel of the Canadian Patented Medicine Prices Review Board (PMPRB) issued a decision in a previously pendingadministrative pricing matter that we had excessively priced SOLIRIS in a manner inconsistent with the Canadian pricing rules and guidelines. In itsdecision, the PMPRB ordered Alexion to decrease the price of SOLIRIS to an upper limit based upon pricing in certain other countries, and to forfeit excessrevenues for the period between 2009 and 2017. The amount of excess revenues for the period between 2009 and 2017 was not determined to be amaterial amount and was paid in 2018. In October 2017, Alexion filed an application for judicial review of the PMPRB’s decision in the Federal Court ofCanada. On May 23, 2019, the Federal Court of Canada dismissed Alexion's application for judicial review and, as a consequence, affirmed the decision ofthe PMPRB that we had excessively priced SOLIRIS. On June 21, 2019, Alexion filed a notice of appeal of the Federal Court of Canada's ruling and onOctober 17, 2019, Alexion filed a memorandum of fact and law in support of the appeal. On December 3, 2019, the Attorney General of Canada filed itsmemorandum of fact and law in support of the Federal Court of Canada’s dismissal of Alexion’s appeal of the PMPRB’s decision. On December 19, 2019,intervenor, the Minister of Health for the Province of British Columbia, filed a separate memorandum of fact and law in support of the Federal Court ofCanada’s decision. Pursuant to an order made by the Federal Court of Canada, as of February 4, 2020, we have placed approximately $43.4 in escrow tosecure our obligations pending the final resolution of all appeals in this matter. This amount reflects the difference between the list price for SOLIRIS andthe price determined by the PMPRB to be non-excessive for sales of SOLIRIS in Canada for the period beginning September 2017 through December 31,2019. In addition, on a quarterly basis until the appeals process has concluded, Alexion will be required to place amounts into escrow for each vial ofSOLIRIS sold in the applicable quarter equal to the list price for SOLIRIS and the price determined by the PMPRB to be non-excessive. Our revenues inCanada recognized in the year ended December 31, 2019 were reduced by $29.8, which is our current best estimate of our liability through December 31,2019 if we lose the appeal of this matter (the amount of our ultimate liability, however, may be greater than this estimate when the appeal process for thismatter is concluded).Chugai Pharmaceutical Co., Ltd. has filed three lawsuits against Alexion. The first was filed in November 2018 in the United States District Court forthe District of Delaware against Alexion Pharmaceuticals, Inc. alleging that ULTOMIRISF-40Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)infringes one U.S. patent held by Chugai Pharmaceutical Co., Ltd. Upon issuance of a new U.S. patent on November 12, 2019, Chugai filed a secondlawsuit in the United States alleging ULTOMIRIS infringes the new patent. The parties have agreed to consolidate the November 2018 and November 2019lawsuits. Chugai filed a lawsuit in December 2018 in the Tokyo District Court against Alexion Pharma GK (a wholly-owned subsidiary of Alexion) in Japanand alleges that ULTOMIRIS infringes two Japanese patents held by Chugai Pharmaceutical Co., Ltd. Chugai’s complaints seek unspecified damages andcertain injunctive relief. In all cases, Alexion has denied the charges and countered that the patents are neither valid nor infringed. A trial date for the U.S.case has been set for June 2021. The case is still at the briefing stage in Japan. Given the early stages of these litigations, an estimate of the possible lossor range of loss cannot be made at this time.On February 28, 2019, Amgen Inc. (Amgen) petitioned the U.S. Patent and Trademark Office (PTO) to institute Inter Partes Review (IPR) of threepatents owned by Alexion that relate to SOLIRIS: U.S. Patent Nos. 9,725,504; 9,718,880; and 9,732,149. In each case, Amgen alleges the patentedsubject matter was anticipated and/or obvious in view of prior art, and that the patent claims are therefore invalid. On August 30, 2019, the PTO institutedIPRs of each of the three patents. We expect the PTO to review written submissions by both parties, hold an oral argument, and issue decisions on thethree IPRs by August 30, 2020. At this time we cannot determine what decision the PTO will make.In connection with an ongoing matter, in August 2019, the Brazilian Federal Revenue Service provided a Notice of Tax and Description of the Facts(the “Tax Assessment”) to two Alexion subsidiaries (the "Brazil Subsidiaries"), as well as to two additional entities, a logistics provider utilized by Alexion anda distributor. The Tax Assessment focuses on the importation of SOLIRIS vials pursuant to Alexion’s free drug supply to patients program (referred to asGlobal Access to Medicines, or GATM) in Brazil. In September 2019, the Brazil Subsidiaries filed defenses to the Tax Assessment disputing the basis forliability under the Tax Assessment based on, among others, the following: in connection with the operation of GATM, during the period from September2014 to June 2019: (i) the importers responsible for the importation of the GATM SOLIRIS vials into Brazil were correctly identified and (ii) the correctcustoms value was utilized for the purpose of importing the GATM SOLIRIS vials provided to the patients free of charge. There are three separate levels ofadministrative appeals within the Brazilian federal administrative proceeding system and, if the outcome of these administrative appeals is unfavorable,the final decision of the federal administrative proceeding system can be disputed to the federal court systems in Brazil (at this time, Alexion intends toappeal the Tax Assessment if it is not overturned in the course of administrative appeals). Given the early stage of these proceedings, Alexion is unable topredict the duration, scope or outcome of this matter, but we expect that a final resolution will take three years or more. While it is possible that a lossrelated to the Tax Assessment may be incurred, given its ongoing nature, we cannot reasonably estimate the potential magnitude of any such possible lossor range of loss, or the cost of the ongoing administrative appeals (and potential appeals to the federal court system) of the Tax Assessment. Anydetermination that any aspects of the importation of free of charge medications into Brazil as set forth in the Tax Assessment are not or were not incompliance with existing laws or regulations could result in the imposition of fines, civil penalties and, potentially criminal penalties, and/or other sanctionsagainst us and could have an adverse impact on our Brazilian operations.12.Income TaxesIncome TaxesIncome tax expense is based on income before income taxes as follows: Year Ended December 31,Year Ended December 31, 201920192018201820172017U.S.$2.0 $(451.4) $(43.9)Non-U.S.2,176.8 693.6 591.7 $2,178.8 $242.2 $547.8During the fourth quarter of 2013, in connection with the centralization of our global supply chain and technical operations in Ireland, our U.S. parentcompany became a direct partner in a captive foreign partnership. The partnership income, which is derived in foreign jurisdictions, is classified as “non-U.S. income” for purposes of financial reporting. Substantially all non-U.S. income relates to income from our captive foreign partnership.F-41Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The components of income tax expense are as follows: Year Ended December 31,Year Ended December 31, 201920192018201820172017Domestic Current$71.8 $57.0 $42.9Deferred1,731.0 49.5 7.2 1,802.8 106.5 50.1Foreign Current158.2 74.7 107.5Deferred(2,186.5) (16.6) (53.1) (2,028.3) 58.1 54.4Total Current230.0 131.7 150.4Deferred(455.5) 32.9 (45.9) $(225.5) $164.6 $104.5We continue to pay cash taxes in U.S. federal, various U.S. state, and foreign jurisdictions where we have utilized all of our tax attributes or have metthe applicable limitation for attribute utilization.Effective Tax RateEffective Tax RateThe provision (benefit) for income taxes differs from the U.S. federal statutory tax rate. The reconciliation of the statutory U.S. federal income tax rateto our effective income tax rate is as follows: Year Ended December 31,Year Ended December 31, 201920192018201820172017U.S. federal statutory tax rate21.0 % 21.0 % 35.0 %Benefit of foreign earnings(12.6)% (71.2)% 60.1 %Tax credits(0.7)% (17.0)% (10.7)%Tax reserves(0.1)% 12.1 % (14.0)%Re-measurement of deferred taxes as a result of the Tax Act— % — % (53.4)%Acquired in-process research & development— % 102.6 % — %Intra-entity asset transfer of intellectual property(17.5)% — % — %Foreign-derived intangible income(1.6)% (4.5)% — %U.S. state taxes0.7 % 14.2 % 1.5 %Other permanent differences0.5 % 10.8 % 0.6 % Effective Income Tax Rate(10.3)% 68.0 % 19.1 %In our reconciliation of our statutory U.S. federal income tax rate to our effective tax rate above, we have included a benefit of foreign earningsamount which encapsulates the various tax impacts that result from our non-U.S. income. As a result of U.S. Tax Reform, a substantial portion of our foreignearnings are subject to the GILTI minimum tax at an effective rate which is lower than the U.S. statutory tax rate of 21.0%. While we are also subject to taxin foreign jurisdictions locally, substantially all of these current taxes are creditable against U.S. taxes imposed on foreign earnings. As a result, the effectivetax rate on our foreign earnings is lower than the U.S. statutory rate.In the year ended December 31, 2019, the benefit of foreign earnings includes foreign local tax expense of $193.2, which is offset by the benefitfrom U.S. foreign tax credits of $196.1, resulting in a net decrease to the effective tax rate of 0.1%. We incurred U.S. tax expense on our foreign earnings of$187.6, which includes GILTI minimum tax. The U.S. tax on our foreign earnings reflects a benefit of $269.5, or 12.4%, primarily related to the Section250(a) deduction, compared to the statutory rate. The benefit from foreign earnings also includes certain one-time tax benefits associated with theintellectual property of Wilson Therapeutics. The deferred tax benefits include $95.7and $30.3 associatedF-42Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)with a tax election made with respect to intellectual property of Wilson Therapeutics and a valuation allowance release and corresponding recognition ofnet operating losses, respectively. On July 1, 2019, the Wilson Therapeutics intellectual property was integrated into the Alexion corporate structure,resulting in income tax expense of approximately $10.2.In the year ended December 31, 2019, the Company completed an intra-entity asset transfer of certain intellectual property to an Irish subsidiarywithin our captive foreign partnership. The Company recognized deferred tax benefits of $2,221.5 which represents the difference between the basis ofthe intellectual property for financial statement purposes and the basis of the intellectual property for tax purposes, applying the appropriate enactedstatutory tax rates. The Company will receive future tax deductions associated with amortization of the intellectual property, and any amortization notdeducted for tax purposes will be carried forward indefinitely under Irish tax law. An offsetting deferred tax expense of $1,839.3 has been recognized toreflect the reduction of future foreign tax credits associated with the foreign local tax amortization deductions. These net deferred tax benefits resulted in adecrease of approximately 17.5% to our effective tax rate.We also completed a comprehensive analysis of our prior year estimate related to our foreign-derived intangible income (“FDII”) based on additionalguidance provided in the proposed regulations issued by the U.S. Treasury Department in 2019. The analysis resulted in income tax benefit of $17.0related to prior year, which was recorded as a change in estimate in income tax expense in our consolidated statements of operations, resulting in adecrease of approximately 0.8% to our effective tax rate.In the year ended December 31, 2018, the benefit of foreign earnings includes foreign local tax expense of $58.1, substantially all of which is offsetby the benefit from U.S. foreign tax credits of $54.2, resulting in a net increase to the effective tax rate of 1.6%. We incurred U.S. tax expense on our foreignearnings of $206.1, which includes GILTI minimum tax. The U.S. tax on our foreign earnings reflects a benefit of $108.7, or 44.8%, primarily related to theSection 250(a) deduction, compared to the U.S. statutory rate. Also included in this component is a benefit of $67.7 from adjustments to 2018 provisionalaccounting for the Tax Act, which resulted in a decrease to our effective tax rate of approximately 28.0%.In the year ended December 31, 2017, the benefit of foreign earnings includes foreign local tax expense of $54.4 partially offset by the benefit fromU.S. foreign tax credits of $33.2, resulting in a net increase to the effective tax rate of 3.9%. We incurred transition tax imposed by the Tax Act of $177.9and US deferred taxes related to the GILTI provisions of the Tax Act of $165.4. These Tax Act-related adjustments resulted in an increase to our effectivetax rate of approximately 62.7%. Additional U.S. tax imposed on our foreign earnings of $171.7 reflects a benefit of $35.4 or 6.5% compared to the U.S.statutory rate.The effective tax rate reconciliation includes the tax impact of acquisitions of IPR&D assets. Absent successful clinical results and regulatoryapproval, there is no alternative use for certain acquired IPR&D assets. An increase to the effective tax rate results when the value of such assets areexpensed, and no tax benefit is recognized. In the year ended December 31, 2018, this component of the effective tax rate includes an increase to taxexpense of $248.4 related to the acquired IPR&D costs for the acquisitions of Wilson Therapeutics and Syntimmune, which increased our effective tax rateby 69.7% and 32.9%, respectively.In the year ended December 31, 2018, other permanent differences includes tax expense of $21.1 or 8.7% related to nondeductible compensation.In 2017, we concluded the IRS examination of our 2013 and 2014 tax years. Conclusion of the IRS examination resulted in a decrease to the taxreserves component of the 2017 effective tax rate of approximately 3.6%.The Tax ActThe Tax ActIn December 2017, the Tax Cuts and Jobs Act (Tax Act) was enacted into law. The Tax Act decreased the US federal corporate tax rate to 21.0%,imposed a minimum tax on foreign earnings related to intangible assets (GILTI), a one-time transition tax on previously unremitted foreign earnings, andmodified the taxation of other income and expense items. With regard to the GILTI minimum tax, foreign earnings are reduced by the profit attributable totangible assets and a deductible allowance of up to 50.0%, subject to annual limitations. We have elected to account for the impact of the minimum tax indeferred taxes.At December 31, 2017, the Tax Act resulted in an increase to tax expense and the effective tax rate of $45.8 and 8.4%, respectively:F-43Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)(a)Income tax expense increased $177.9 or 32.5% related to the transition tax on unremitted earnings imposed by the Tax Act. This increaseincludes foreign income subject to US tax of $195.6, partially offset by a related benefit of foreign tax credits of $17.7.(b)The decrease to the U.S. federal tax rate resulted in a decrease to deferred tax expense of $292.4 or 53.4%. This decrease includes the $121.3 or22.2% benefit of re-measuring domestic deferred taxes and an additional decrease attributable to re-measuring deferred taxes on foreignearnings of $171.1 or 31.2%.(c)Other permanent differences includes a decrease to tax expense of $5.1 or 0.9% related to the re-measurement of income taxes payable as aresult of changes in U.S. federal tax rates under the Tax Act.(d)The enactment of the GILTI minimum tax increased US deferred taxes on foreign earnings $165.4 or 30.2%. This increase includes deferred taxexpense related to the GILTI minimum tax of $236.9. This deferred expense is partially offset by a related decrease to deferred expense for therelease of reserves for uncertain tax positions of $71.5.We calculated provisional amounts for the tax effects of the Tax Act that could be reasonably estimated, but not completed, in our results for the yearended December 31, 2017. As of the fourth quarter 2018 we had completed our analysis of all provisional estimates, and concluded as follows:(a)We calculated a reasonable estimate of the one-time transition tax on previously unremitted earnings, which resulted in an increase to U.S.Federal tax expense of $177.9 and an increase to taxes payable, net of tax credits, of $28.0 in the period ended December 31, 2017. Our initialaccounting for the transition tax was not complete as of December 31, 2017 because there was uncertainty regarding the calculation of theamounts subject to the tax. We completed our analysis of the transition tax and related interpretive guidance during the third quarter 2018. Nosignificant measurement period adjustment to our initial accounting was required.(b)We calculated a reasonable estimate of the impact of the GILTI minimum tax on deferred taxes, which resulted in an increase to U.S. Federal taxexpense and the deferred tax liability of $236.9 in the period ended December 31, 2017. Our initial accounting for the minimum tax wasincomplete because there was uncertainty regarding the calculation of the temporary differences subject to the minimum tax. We completed ouranalyses of these temporary differences and the expected timing and manner of their reversal during the fourth quarter 2018. We recordedmeasurement period adjustments during 2018 which resulted in a decrease to U.S. federal tax expense of $67.7.(c)We calculated a reasonable estimate of the Tax Act’s limits on deductions for employee remuneration, including remuneration in kind, whichresulted in an insignificant impact to tax expense, taxes payable, and deferred taxes in the period ended December 31, 2017. Our initialaccounting for these limits was incomplete because there was uncertainty regarding the value of the deduction-limited remuneration. Wecompleted our analysis of the relevant employee remuneration arrangements during the third quarter 2018. No measurement period adjustmentto our initial accounting was required.(d)We calculated a reasonable estimate of the impact of the Tax Act to U.S. state income taxes, which resulted in an increase to tax expense, taxespayable, and deferred taxes of $2.9, $2.2, and $0.7, respectively, in the period ended December 31, 2017. We interpreted the effect of the TaxAct's changes to federal law on each U.S. state's system of taxation as of the date of enactment. We completed additional analysis of the effect ofmodifications to federal deductions and income inclusions on U.S. state tax systems in the fourth quarter 2018. No measurement periodadjustment to our initial accounting was required.(e)We calculated the deferred tax liability related to our foreign captive partnership in the period ended December 31, 2017 consistent with ourcalculation in periods prior to enactment of the Tax Act. As a result, the deferred tax liability we recorded as of December 31, 2017 of $533.4related to our foreign captive partnership was provisional. We completed additional analysis of the direct and indirect effects of the Tax Act duringthe fourth quarter 2018. We recorded measurement period adjustments during 2018 which resulted in an increase to U.S. state income taxexpense and deferred taxes of $11.1.Deferred TaxesDeferred TaxesProvisions have been made for deferred taxes based on the differences between the basis of the assets and liabilities for financial statementpurposes and the basis of the assets and liabilities for tax purposes using currentlyF-44Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)enacted tax rates and regulations that will be in effect when the differences are expected to be recovered or settled. The components of the deferred taxassets and liabilities are as follows: December 31,December 31, December 31,December 31, 20192019 20182018Deferred tax assets: Net operating losses$102.9 $41.8Income tax credits328.1 371.6Stock compensation57.1 47.6Accruals and allowances65.2 105.8Unrealized losses18.8 —Research and development expenses3.5 5.2Accrued royalties0.8 89.1ROU leases46.2 —Intangible assets1,967.3 — 2,589.9 661.1Valuation allowance(72.6) (19.6)Total deferred tax assets2,517.3 641.5Deferred tax liabilities: Depreciable assets(5.1) (88.7)Unrealized gains— (6.6)Investment in foreign partnership(2,249.5) (566.6)ROU leases(53.9) —Intangible liabilities— (268.8)Total deferred tax liabilities(2,308.5) (930.7)Net deferred tax (liability) asset$208.8 $(289.2)At December 31, 2019, we have tax effected federal and state net operating loss carryforwards of $12.5 and $43.7, respectively. Our net operatinglosses expire between 2022 and 2040. We also have federal and state income tax credit carryforwards of $280.5 and $67.3 respectively. The federalincome tax credits expire between 2033 and 2039, whereas $47.2 of state income tax credit carryforwards expire between 2020 and 2034. The remaining$20.1 of state income tax credits can be carried forward indefinitely.Included in the year ended December 31, 2019 are $27.3 of Connecticut state net operating loss carryforwards and $39.7 of Connecticut stateincome tax credit carryforwards. A change in the Connecticut state tax regime signed into law during 2019 phases out the capital-based component of thebusiness tax. Once fully phased out, the Company will be subject to income-based taxes in the state of Connecticut. The Company anticipates generatingtax credits in future years that exceed the amount that can otherwise be utilized. As a result, a full valuation allowance has been established against thesecarryforward attributes.The increase in our net operating losses primarily relates to our technical operations center in Ireland, which received a tax benefit during the year forpreviously accrued but unpaid royalties. The decrease in income tax credits is attributable to the utilization of Orphan Drug credits, partially offset by anincrease to fully valued Connecticut state tax credits due to the change in the state tax regime. We continue to maintain a valuation allowance againstother certain deferred tax assets where realization is not certain.The increase in our intangible deferred tax assets relates to the intra-entity asset transfer of certain intellectual property to an Irish subsidiary withinour captive foreign partnership. The recognized deferred tax benefit represents the difference between the basis of the intellectual property for financialstatement purposes and the basis of the intellectual property for tax purposes. This transaction also increased our investment in foreign partnershipdeferred tax liability due to the recognition of anticipatory foreign tax credits that reflect the reduction of future foreign taxes associated with the foreignlocal tax amortization deductions.Included in our investment in foreign partnership above is $(1,408.2) associated with GILTI minimum tax.F-45Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Unrecognized Tax BenefitsUnrecognized Tax BenefitsWe follow authoritative guidance regarding accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation alsoprovides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.The beginning and ending amounts of unrecognized tax benefits reconciles as follows: 20192019 20182018 20172017Beginning of period balance$92.7 $60.9 $138.9Increases for tax positions taken during a prior period3.4 9.1 5.6Decreases for tax positions taken during a prior period(4.9) (5.8) (85.8)Increases for tax positions taken during the current period43.8 28.8 19.3Decreases for tax positions related to settlements— — (15.8)Decreases for tax positions related to lapse of statute(1.2) (0.3) (1.3) $133.8 $92.7 $60.9The total amount of accrued interest and penalties were not significant as of December 31, 2019. The total amount of tax benefit recorded during2019, 2018, and 2017 which related to unrecognized tax benefits was $4.6, $35.4, and $27.1, respectively. All of our unrecognized tax benefits, ifrecognized, would have a favorable impact on the effective tax rate.It is reasonably possible that a portion of our unrecognized tax benefits could reverse within the next twelve months. Reversal of these amounts iscontingent upon the completion of field audits by the taxing authorities in several jurisdictions, whether a tax adjustment is proposed, the nature andamount of any adjustment, and the administrative path to resolving the proposed adjustment. We cannot reasonably estimate the range of the potentialchange.Tax AuditsTax AuditsWe file federal and state income tax returns in the U.S. and in numerous foreign jurisdictions. The U.S. and foreign jurisdictions have statutes oflimitations ranging from 3 to 6 years. However, the limitation period could be extended due to our tax attribute carryforward position in a number of ourjurisdictions. The tax authorities generally have the ability to review income tax returns for periods where the limitation period has previously expired andcan subsequently adjust tax attribute values.In 2017, the IRS commenced an examination of our U.S. income tax returns for 2015. We anticipate this audit will conclude within the next twelvemonths. We have not been notified of any significant adjustments proposed by the IRS. It is reasonably possible that previously unrecognized tax benefitscould be recognized upon the conclusion of the IRS examination. At this time, an estimate of the change in unrecognized tax benefits cannot be made.Undistributed EarningsUndistributed EarningsWe have recorded tax on the undistributed earnings of our controlled foreign corporation (CFC) subsidiaries. To the extent CFC earnings may not berepatriated 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.F-46Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)13.Share-based CompensationShare-based Compensation2017 Incentive Plan2017 Incentive PlanThe 2017 Plan was approved by our stockholders in May 2017 and replaced the 2004 Plan effective May 10, 2017. The 2017 Plan is a broad basedplan that provides for the grant of equity awards including restricted stock and restricted stock units (collectively referred to as Restricted Stock), incentiveand non-qualified stock options, and other stock-related awards to our directors, officers, key employees and consultants, for up to a maximum of 18.2shares in addition to awards outstanding under the 2004 Incentive Plan on or after March 14, 2017 that are subsequently canceled, cash settled, expired,forfeited, or otherwise terminated without the delivery of such shares, subject to the limitations in the 2017 Plan. Stock options granted under the 2017Plan have a maximum contractual term of ten years from the date of grant, have an exercise price not less than the fair value of the stock on the grant dateand generally vest over four years. Restricted Stock awards also generally vest over four years, with performance-based restricted stock units having athree-year vesting period.Stock OptionsA summary of the status of our stock options at December 31, 2019, and changes during the year then ended is presented in the table and narrativebelow: Number ofNumber ofsharesshares WeightedWeightedAverage ExerciseAverage ExercisePricePrice WeightedWeightedAverageAverageRemainingRemainingContractualContractualTerm (in years)Term (in years) Aggregate IntrinsicAggregate IntrinsicValueValueOutstanding at December 31, 20183.6 $119.68 Granted— — Exercised(0.3) 67.87 Forfeited and canceled(0.3) 158.71 Outstanding at December 31, 20193.0 $119.51 4.08 $49.0Vested and unvested expected to vest at December 31, 20193.0 $119.49 4.07 $49.0Exercisable at December 31, 20192.9 $119.15 3.93 $48.9Total intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was $14.7, $27.5 and $88.9,respectively. We primarily utilize newly issued shares to satisfy the exercise of stock options. The total fair value of options vested during the years endedDecember 31, 2019, 2018 and 2017 was $10.1, $27.2 and $61.5, respectively.We did not grant any stock options during the years ended December 31, 2019 and 2018. For the year ended December 31, 2017, the fair value ofoptions at the date of grant was estimated using the Black-Scholes model with the following ranges of weighted average assumptions: December 31,December 31, 20172017Expected life in years4.07 - 4.29Interest rate1.64% - 1.92%Volatility38.78% - 39.01%Dividend yield—The expected stock price volatility rates are based on historical volatilities of our common stock. The risk-free interest rates are based on the U.S.Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The average expected life represents theweighted average period of time that options granted are expected to be outstanding. We have evaluated three distinct employee groups in determiningthe expected life assumptions, and we estimate the expected life of stock options based on historical experience of exercises, cancellations and forfeituresof our stock options.F-47Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The weighted average fair value at the date of grant for options granted during the year ended December 31, 2017 was $42.59.Restricted StockA summary of the status of our nonvested Restricted Stock at December 31, 2019 and changes during the year then ended is as follows: Number of SharesNumber of Shares Weighted AverageWeighted AverageGrant Date FairGrant Date FairValueValueNonvested Restricted Stock at December 31, 20183.7 $123.25Shares granted2.4 133.89Shares forfeited0.5 126.76Shares vested1.3 125.02Nonvested Restricted Stock at December 31, 20194.3 $128.24The fair value of Restricted Stock at the date of grant is based on the fair market value of the shares of common stock underlying the awards on thedate of grant. The weighted average fair value at the date of grant for Restricted Stock awards granted during the years ended December 31, 2019, 2018and 2017, including restricted stock units with performance conditions, was $133.89, $119.27 and $125.39 per share, respectively. The total fair value ofRestricted Stock vested during the years ended December 31, 2019, 2018 and 2017 was $161.3, $181.7 and $157.0, respectively.Included in the table above is 0.4 shares granted to senior management that include both market-based and non-market-based performanceconditions which provide the recipient the right to receive restricted stock at the end of a three year performance period. We used payout simulationmodels to estimate the grant date fair value of these awards at $147.79. Expense recognized for these awards was $46.3 and $14.9 for the years endedDecember 31, 2019 and 2018 and immaterial for the year ended December 31, 2017.Employee Stock Purchase PlanEmployee Stock Purchase PlanDuring 2015, the Company adopted the ESPP under which employees can purchase shares of our common stock based on a percentage of theircompensation subject to certain limits. The purchase price per share is equal to the lower of 85.0% of the fair market value of our common stock on theoffering date or the purchase date with a six month look-back feature. Under the ESPP, up to 1.0 shares of common stock may be issued to eligibleemployees who elect to participate in the purchase plan. Shares issued and compensation expense recognized under the ESPP for the years endedDecember 31, 2019, 2018 and 2017 were not material.Share-Based Compensation ExpenseShare-Based Compensation ExpenseThe following table summarizes the share-based compensation expense in the consolidated statements of operations: Year Ended December 31,Year Ended December 31, 20192019 20182018 20172017Cost of sales$14.1 $16.0 $11.1Research and development61.8 57.5 76.4Selling, general and administrative161.1 129.5 155.6Total share-based compensation expense237.0 203.0 243.1Income tax effect(55.0) (46.5) (89.3)Total share-based compensation expense, net of tax$182.0 $156.5 $153.8Share-based compensation expense capitalized to inventory during the years ended December 31, 2019, 2018 and 2017 was $12.9, $14.5, and$15.4, respectively.F-48Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)As of December 31, 2019, there was $351.4 of total unrecognized share-based compensation expense related to non-vested share-basedcompensation arrangements granted under our share-based compensation plans. The expense is expected to be recognized over a weighted-averageperiod of 1.71 years.14.14.Stockholders’ EquityStockholders’ EquityShare RepurchasesShare RepurchasesIn November 2012, our Board of Directors authorized a share repurchase program. In February 2017, our Board of Directors increased the amountthat we are authorized to expend on future repurchases to $1,000 under the repurchase program, which superseded all prior repurchase programs. OnOctober 22, 2019, the Board of Directors approved an additional share repurchase authorization of up to $1,000. The repurchase program does not havean expiration date and we are not obligated to acquire a particular number of shares. The repurchase program may be discontinued at any time at ourdiscretion. 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 endedDecember 31, 2019 and 2018, respectively.Subsequent to December 31, 2019, we repurchased an immaterial number of shares of common stock under our repurchase program at a cost of$1.6. As of February 4, 2020, there is a total of $1,033.9 remaining for repurchases under the repurchase program.15.15.Other Comprehensive Income and Accumulated Other ComprehensiveOther Comprehensive Income and Accumulated Other ComprehensiveIncomeIncomeThe following table summarizes the changes in AOCI, by component, for the years ended December 31, 2019, 2018 and 2017:Defined BenefitDefined BenefitPension PlansPension Plans Unrealized GainsUnrealized Gains(Losses) from Debt(Losses) from DebtSecuritiesSecurities Unrealized GainsUnrealized Gains(Losses) from Hedging(Losses) from HedgingActivitiesActivities Foreign CurrencyForeign CurrencyTranslationTranslationAdjustmentAdjustment Total AccumulatedTotal AccumulatedOther ComprehensiveOther ComprehensiveIncome (Loss)Income (Loss)Balances, December 31, 2016$(6.7) $(0.4) $91.9 $(24.3) $60.5Other comprehensive income (loss) beforereclassifications0.5 (0.2) (88.2) 8.4 (79.5)Amounts reclassified from othercomprehensive income1.4 0.8 (17.6) — (15.4)Net other comprehensive income (loss)1.9 0.6 (105.8) 8.4 (94.9)Balances, December 31, 2017$(4.8) $0.2 $(13.9) $(15.9) $(34.4)Other comprehensive income (loss) beforereclassifications1.5 0.1 32.9 (0.5) 34.0Amounts reclassified from othercomprehensive income0.7 (0.6) (9.4) — (9.3)Net other comprehensive income (loss)2.2 (0.5) 23.5 (0.5) 24.7Balances, December 31, 2018$(2.6) $(0.3) $9.6 $(16.4) $(9.7)Other comprehensive income (loss) beforereclassifications(6.6) 0.2 (11.1) (1.0) (18.5)Amounts reclassified from othercomprehensive income— — (38.6) — (38.6)Net other comprehensive income (loss)(6.6) 0.2 (49.7) (1.0) (57.1)Balances, December 31, 2019$(9.2) $(0.1) $(40.1) $(17.4) $(66.8)F-49Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The table below provides details regarding significant reclassifications from AOCI during the years ended December 31, 2019, 2018 and 2017:Details about Accumulated Other Comprehensive Income ComponentsDetails about Accumulated Other Comprehensive Income Components Amount Reclassified From Accumulated OtherAmount Reclassified From Accumulated OtherComprehensive Income during the year endedComprehensive Income during the year endedDecember 31,December 31, Affected Line Item in the ConsolidatedAffected Line Item in the ConsolidatedStatements of OperationsStatements of Operations 201920192018201820172017 Unrealized Gains (Losses) on Hedging Activity Forward exchange forward contracts $36.8$(1.8)$28.9 Net product salesInterest rate swap contracts 13.313.6(1.8) Interest expense 50.111.827.1 (11.5)(2.4)(9.5) Income tax (benefit) expense $38.6$9.4$17.6 Defined Benefit Pension Items Amortization of prior service costs and actuarial losses $—$(0.3)$(0.4) (a) Curtailment —(0.6)(1.8) (a) —(0.9)(2.2) —0.20.8 Income tax expense $—$(0.7)$(1.4) (a) This AOCI component is included in the computation of net periodic pension benefit cost see Note 17, Employee Benefit Plans, for additional details.16.16.Fair Value MeasurementFair Value MeasurementAuthoritative guidance establishes a valuation hierarchy for disclosure of the inputs to the valuation used to measure fair value. This hierarchyprioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly orindirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our ownassumptions used to measure assets and liabilities at fair value.The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31,2019 and 2018, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. F-50Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts) Fair Value Measurement atFair Value Measurement atDecember 31, 2019December 31, 2019Balance Sheet ClassificationBalance Sheet ClassificationType of InstrumentType of InstrumentTotalTotal Level 1Level 1 Level 2Level 2 Level 3Level 3Cash equivalentsMoney market funds$635.9 $— $635.9 $—Cash equivalentsCommercial paper$227.9 $— $227.9 $—Cash equivalentsCorporate bonds$20.6 $— $20.6 $—Cash equivalentsBank certificates of deposit$19.2 $— $19.2 $—Cash equivalentsOther government-related obligations$60.4 $— $60.4 $—Marketable securitiesMutual funds$23.1 $23.1 $— $—Marketable securitiesCommercial paper$19.0 $— $19.0 $—Marketable securitiesCorporate bonds$3.7 $— $3.7 $—Marketable securitiesOther government-related obligations$10.0 $— $10.0 $—Marketable securitiesBank certificates of deposit$8.2 $— $8.2 $—Other assetsEquity securities$79.0 $51.2 $27.8 $—Prepaid expenses and other currentassetsForeign exchange forward contracts$29.9 $— $29.9 $—Other assetsForeign exchange forward contracts$0.6 $— $0.6 $—Other current liabilitiesForeign exchange forward contracts$26.6 $— $26.6 $—Other liabilitiesForeign exchange forward contracts$1.1 $— $1.1 $—Other current liabilitiesInterest rate contracts$19.5 $— $19.5 $—Other liabilitiesInterest rate contracts$41.9 $— $41.9 $—Contingent considerationAcquisition-related contingent consideration$192.4 $— $— $192.4Other current liabilitiesOther contingent payments$24.0 $— $— $24.0F-51Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts) Fair Value Measurement atFair Value Measurement atDecember 31, 2018December 31, 2018Balance Sheet ClassificationBalance Sheet ClassificationType of InstrumentType of InstrumentTotalTotal Level 1Level 1 Level 2Level 2 Level 3Level 3Cash equivalentsMoney market funds$569.4 $— $569.4 $—Cash equivalentsCommercial paper$35.4 $— $35.4 $—Cash equivalentsCorporate bonds$0.2 $— $0.2 $—Cash equivalentsOther government-related obligations$8.2 $— $8.2 $—Marketable securitiesMutual funds$16.5 $16.5 $— $—Marketable securitiesCommercial paper$16.7 $— $16.7 $—Marketable securitiesCorporate bonds$122.6 $— $122.6 $—Marketable securitiesOther government-related obligations$9.3 $— $9.3 $—Marketable securitiesBank certificates of deposit$33.2 $— $33.2 $—Other assetsEquity securities$90.8 $8.9 $81.9 $—Prepaid expenses and other currentassetsForeign exchange forward contracts$40.5 $— $40.5 $—Other assetsForeign exchange forward contracts$0.3 $— $0.3 $—Other current liabilitiesForeign exchange forward contracts$18.8 $— $18.8 $—Other liabilitiesForeign exchange forward contracts$3.1 $— $3.1 $—Prepaid expenses and other currentassetsInterest rate contracts$20.1 $— $20.1 $—Other current liabilitiesInterest rate contracts$0.8 $— $0.8 $—Other liabilitiesInterest rate contracts$17.3 $— $17.3 $—Current portion of contingentconsiderationAcquisition-related contingentconsideration$97.6 $— $— $97.6Contingent considerationAcquisition-related contingentconsideration$183.2 $— $— $183.2There were no securities transferred between Level 1, 2 and 3 during the year ended December 31, 2019.Valuation TechniquesValuation TechniquesWe classify mutual fund investments and equity securities, which are valued based on quoted market prices in active markets with no valuationadjustment, as Level 1 assets within the fair value hierarchy.Cash equivalents and marketable securities classified as Level 2 within the valuation hierarchy include money market funds, commercial paper, U.S.and foreign government-related debt, corporate debt securities and certificates of deposit. We estimate the fair values of these marketable securities bytaking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, includingboth income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputsinclude market pricing based on real-time trade data for similar securities, issuer credit spreads, benchmark yields, and other observable inputs. Wevalidate the prices provided by our third-party pricing sources by understanding the models used, obtaining market values from other pricing sources andanalyzing pricing data in certain instances.Other investments in equity securities of publicly traded companies which are subject to holding period restrictions are carried at fair value using anoption pricing valuation model and classified as Level 2 equity securities within the fair value hierarchy. The most significant assumptions within the optionpricing valuation model are the term of the restrictions and the stock price volatility, which is based upon the historical volatility of the applicable companyor similar companies. We also use a constant maturity risk-free interest rate to match the remaining term of the restrictions on such investments.F-52Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Our derivative assets and liabilities include foreign exchange and interest rate derivatives that are measured at fair value using observable marketinputs such as forward rates, interest rates, our own credit risk as well as an evaluation of our counterparties’ credit risks. Based on these inputs, thederivative assets and liabilities are classified within Level 2 of the valuation hierarchy.Contingent consideration liabilities related to business acquisitions and derivative liabilities associated with other contingent payments are classifiedas Level 3 within the valuation hierarchy and are valued based on various estimates, including probability of success, discount rates and amount of timeuntil the conditions of the milestone payments are met.As of December 31, 2019, there has not been any impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there hasnot been any significant adverse impact to our derivative assets based on our evaluation of our counterparties’ credit risks.Acquisition-Related Contingent ConsiderationAcquisition-Related Contingent ConsiderationIn connection with prior business combinations, we may be required to pay future consideration that is contingent upon the achievement of specifieddevelopment, regulatory approvals or sales-based milestone events. We determine the fair value of these obligations using various estimates that are notobservable in the market and represent a Level 3 measurement within the fair value hierarchy. The resulting probability-weighted cash flows werediscounted using a cost of debt ranging from 3.9% to 5.1% for developmental and regulatory milestones and a weighted average cost of capital rangingfrom 9.0% to 10.0% for sales-based milestones.Each reporting period, we adjust the contingent consideration to fair value with changes in fair value recognized in operating earnings. Changes in fairvalues reflect new information about the probability and timing of meeting the conditions of the milestone payments. In the absence of new information,changes in fair value will only reflect the interest component of contingent consideration related to the passage of time.As of December 31, 2019, estimated future contingent milestone payments related to prior business combinations range from zero if no milestoneevents are achieved, to a maximum of $602.0 if all development, regulatory and sales-based milestones are reached. In the second quarter 2019, a sales-based milestone associated with our acquisition of Enobia Pharma Corp. was achieved. In connection with such achievement, we madea $100.0 milestone payment in the third quarter 2019.As of December 31, 2019, the fair value of acquisition-related contingent consideration was $192.4. The following table represents a roll-forward ofour acquisition-related contingent consideration:20192019Balance at beginning of period$280.8Milestone payments(100.0)Changes in fair value11.6Balance at end of period$192.4Other Contingent PaymentsOther Contingent PaymentsIn January 2019, we entered into an agreement with Caelum, a biotechnology company that is developing CAEL-101 for light chain (AL) amyloidosis. Under the terms of the agreement, we acquired a minority equity interest in preferred stock of Caelum and an exclusive option to acquire the remainingequity in Caelum based on Phase II data, for pre-negotiated economics. We paid $30.0 during the first quarter 2019 and agreed to pay up to an additional$30.0 in contingent development milestones prior to our exercise of the option to acquire the remaining equity in Caelum. These contingent payments meetthe definition of a derivative liability and were initially recorded at fair value of $27.1, based on the probability-weighted cash flows, discounted using a costof debt ranging from 3.3% to 3.5%.In December 2019, following FDA feedback which resulted in the redesign and expansion of Caelum’s planned clinical development program forCAEL-101, we amended the terms of our existing option agreement with Caelum. The amendment modified the terms of the option to acquire theremaining equity in Caelum based on data from the expanded Phase II/III trials. The amendment also modified the development-related milestone eventsassociated 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 ofF-53Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)a specific development-related milestone event. Following the amendment, the $30.0 in contingent payments continues to meet the definition of aderivative liability.Each reporting period, we adjust the derivative liability associated with the contingent payments to fair value with changes in fair value recognized inother income and expense. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the milestonepayments. In the absence of new information, changes in fair value will only reflect the interest component of the liability related to the passage of time. Asof December 31, 2019, the fair value of our contingent payments was $24.0, based on the probability-weighted cash flows, discounted using a cost of debtof 2.1%. We recorded $3.1 in other income and (expense) during the year ended December 31, 2019 related to the change in the fair value of the liability,including $4.1 as a result of the amendment to our agreement with Caelum.17.17.Employee Benefit PlansEmployee Benefit PlansDeferred Compensation PlanDeferred Compensation PlanWe have a nonqualified deferred compensation plan which allows certain highly-compensated employees to make voluntary deferrals of up to 80% oftheir base salary and incentive bonuses. The plan is designed to work in conjunction with the 401(k) plan and provides for a total combined employermatch of up to 6% of an employee’s eligible earnings, up to the IRS annual 401(k) contribution limitations. Deferred compensation amounts under this planas of December 31, 2019 and 2018 were $23.1 and $16.5, respectively, and are included in other liabilities within the consolidated balance sheets.Employer matching contributions under the plan for the years ended December 31, 2019, 2018 and 2017 were not material.Defined Contribution PlanDefined Contribution PlanWe have one qualified 401(k) plan covering all eligible employees. Under the plan, employees may contribute up to the statutory allowable amount forany calendar year. We make matching contributions equal to $1.00 for each dollar contributed up to the first 6% of an individual’s base salary andincentive cash bonus up to the annual IRS maximum. For the years ended December 31, 2019, 2018 and 2017, we recorded matching contributions ofapproximately $18.9, $14.1, and $15.9 respectively.Defined Benefit PlansDefined Benefit PlansWe maintain defined benefit plans for employees in certain countries outside the U.S., including retirement benefit plans required by applicable locallaw. The plans are valued by independent actuaries using the projected unit credit method. The liabilities correspond to the projected benefit obligations ofwhich the discounted net present value is calculated based on years of employment, expected salary increases, and pension adjustments.In 2018 and 2017 we recorded the impacts of a curtailment related to our Swiss plan as a result of a reduction of employees due to restructuringevents as discussed in Note 18, Restructuring and Related Expenses.The following table sets forth the funded status and the amounts recognized for defined benefit plans, including the impacts of the curtailments: December 31,December 31, 20192019 20182018Change in benefit obligation:Change in benefit obligation: Projected benefit obligation, beginning of year$39.4 $43.4Service cost6.0 6.3Curtailment— (3.8)Other9.6 (6.5)Projected benefit obligation, end of year$55.0 $39.4Accumulated benefit obligation, end of year$49.9 $36.1F-54Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts) December 31,December 31, 2019201920182018Change in plan assets:Change in plan assets: Fair value of plan assets, beginning of year$21.8 $24.2Employer contributions3.4 3.0Plan participants' contributions1.4 1.3Curtailment— (2.4)Other0.7 (4.3)Fair value of plan assets, end of year$27.3 $21.8Funded status at end of year$(27.7) $(17.6)The Company measures the fair value of plan assets based on the prices that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. All plan asset investments are classified as Level 2 within the fair valuehierarchy and are valued utilizing observable prices for similar instruments and quoted prices for identical or similar instruments in markets that are notactive. Plan assets are managed by an independent investment fiduciary and are primarily invested in debt and equity securities and real estate funds inorder to maximize the overall return from investment income considering asset allocation limits as determined by pension law.At December 31, 2019, we have recorded a liability of $27.7 in other noncurrent liabilities and an additional minimum liability of $9.2, net of tax, toaccumulated other comprehensive income.The following table provides the weighted average assumptions used to calculate net periodic benefit cost and the actuarial present value ofprojected benefit obligations: December 31,December 31, 20192019 20182018Weighted average assumptions - Net Periodic Benefit Cost: Discount rate0.8% 0.8%Long term rate of return on assets2.5% 2.5%Rate of compensation increase1.3% 1.3%Weighted average assumptions - Projected Benefit Obligation: Discount Rate0.1% 0.8%Rate of compensation increase0.8% 1.3%The discount rates used to determine the net periodic benefit cost and projected benefit obligation represent the yield on high quality AA-ratedcorporate bonds for periods that match the duration of the benefit obligations.The expected long-term rate of return on plan assets represents a weighted average of expected returns per asset category. The rate of returnconsiders historical and estimated future risk free rates of return as well as risk premiums for the relevant investment categories. F-55Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)The components of net periodic benefit cost are as follows: Year Ended December 31,Year Ended December 31, 20192019 20182018 20172017Service cost$6.0 $6.3 $7.8Employee contributions(1.4) (1.3) (1.5)Amortization of prior service costs(0.2) (0.3) (0.4)Curtailment— (0.8) (1.1)Amortization and deferral of actuarial gain0.2 0.5 0.8Other(0.2) (0.3) (0.6)Total net periodic benefit cost$4.4 $4.1 $5.0During 2019 service costs were recorded to operating expenses while all other components of the net periodic benefit was recorded to other incomeand expense within our consolidated statement of operations.Other changes in plan assets and benefit obligations recognized in AOCI are as follows: Amount included in AOCI - December 31, 2017Amount included in AOCI - December 31, 2017$(4.8)Prior service cost(0.3)Amortization of net gain0.6Curtailment0.6Taxes(0.7)Other2.0Amount included in AOCI - December 31, 2018Amount included in AOCI - December 31, 2018$$((2.62.6))Prior service cost(0.2)Amortization of net gain0.2Change in assumptions(6.4)Taxes2.1Other(2.3)Amount included in AOCI - December 31, 2019Amount included in AOCI - December 31, 2019$$((9.29.2))We estimate that we will pay employer contributions of approximately $2.6 in 2020. The expected future benefits to be paid in respect of the pensionplans as of December 31, 2019 were as follows: YearYear 2020$1.920211.820221.920231.820241.92025 to 20299.818.18.Restructuring and RelatedRestructuring and RelatedExpensesExpensesIn the first quarter 2019, we initiated corporate restructuring activities to re-align our international commercial organization through re-prioritizationof certain geographical markets and to implement operational excellence through strategic reallocation of resources.In the first quarter 2017, we initiated a company-wide restructuring designed to help position the Company for sustainable, long-term growth that webelieve will further allow us to fulfill our mission of serving patients and families with rare diseases. In September 2017, we committed to an operationalplan to re-align the global organization with its refocused corporate strategy. The re-alignment included the relocation of the Company's headquarters toBoston, Massachusetts and a reduction of the Company's global workforce. The restructuring was designed to result in costF-56Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)savings by focusing the development portfolio, simplifying business structures and process across the Company's global operations, and closing multipleAlexion sites.The following table summarizes the total expenses recorded related to the restructuring activities by type of activity and the locations recognizedwithin the consolidated statements of operations:December 31, 2019December 31, 2019December 31, 2018December 31, 2018 December 31, 2017December 31, 2017EmployeeEmployeeSeparationSeparationCostsCostsAsset-RelatedAsset-RelatedChargesChargesOtherOtherTotalTotalEmployeeEmployeeSeparationSeparationCostsCostsAsset-RelatedAsset-RelatedChargesChargesOtherOtherTotalTotal EmployeeEmployeeSeparationSeparationCostsCostsAsset-RelatedAsset-RelatedChargesChargesOtherOtherTotalTotalCost of sales$—$—$—$—$—$5.8$—$5.8 $—$152.1$—$152.1Research anddevelopment—————0.1—0.1 —16.3—16.3Selling, general andadministrative—————19.4—19.4 —10.9—10.9Restructuring expenses8.4—3.612.04.6—20.925.5 87.3—17.3104.6Other income and(expense)——————(0.1)(0.1) ——2.62.6$8.4$—$3.6$12.0$4.6$25.3$20.8$50.7 $87.3$179.3$19.9$286.5Employee separation costs are associated with headcount reductions, as well as corporate employees not relocating to the Company's headquartersin 2018.Asset-related charges consist of accelerated depreciation costs and asset impairment charges. Accelerated depreciation costs primarily relates tosite closures, including ARIMF (which was sold to a third-party in 2018). Accelerated depreciation costs represent the difference between the depreciationexpense recognized over the revised useful life of the asset, based upon the anticipated date the site closure, and the depreciation expense as determinedusing the useful life prior to the restructuring activities. Asset impairment charges primarily related to manufacturing assets that will no longer be utilizeddue to the 2017 restructuring activities.Other costs consist of contract termination expenses, relocation costs, and other costs incurred as a direct result of an exit plan.The following table presents a reconciliation of the restructuring reserve recorded within accounts payable and accrued expenses on the Company'sconsolidated balance sheets for the years ended December 31, 2019 and 2018: December 31, 2019December 31, 2019 December 31, 2018December 31, 2018 EmployeeEmployeeSeparation CostsSeparation Costs Asset-RelatedAsset-RelatedChargesCharges OtherOther TotalTotal EmployeeEmployeeSeparationSeparationCostsCosts Asset-RelatedAsset-RelatedChargesCharges OtherOther TotalTotalLiability, beginning of year$4.2 $— $— $4.2 $53.8 $— $4.4 $58.2Charges14.2 — 3.0 17.2 5.8 25.3 21.1 52.2Settlements(9.3) — (0.1) (9.4) (54.2) — (25.2) (79.4)Adjustments to previousestimates(5.8) — 0.6 (5.2) (1.2) — (0.3) (1.5)Non Cash Activity— — — — — (25.3) — (25.3)Liability, end of year$3.3 $— $3.5 $6.8 $4.2 $— $— $4.2The restructuring reserve of $6.8 and $4.2 is recorded in accounts payable and accrued expenses on the Company's consolidated balance sheet as ofDecember 31, 2019 and 2018, respectively. The accrued amounts are expected to be paid in the next twelve months. We estimate incurring an immaterialamount of additional restructuring expenses relating to the first quarter 2019 action.F-57Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)19.19.SegmentSegmentInformationInformationWe operate in a single segment, focusing on serving patients affected by rare diseases through the discovery, development and commercialization oflife-changing therapies. Consistent with our operational structure, our chief operating decision maker manages and allocates resources at a global,consolidated level. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with ourmanagement reporting. Disclosures about net product sales and long-lived assets by geographic area are presented below.Net Product SalesNet product sales by product and geographic region are as follows: Year Ended December 31,Year Ended December 31, % Change% Change 2019201920182018 20172017 2019 compared to 20182019 compared to 2018 2018 compared to 20172018 compared to 2017SOLIRISSOLIRIS United States$2,014.0 $1,588.4 $1,235.0 26.8 % 28.6 %Europe1,049.8 1,036.7 985.2 1.3 % 5.2 %Asia Pacific423.5 382.0 328.1 10.9 % 16.4 %Rest of World459.1 555.9 595.8 (17.4)% (6.7)% $3,946.4 $3,563.0 $3,144.1 10.8 % 13.3 % ULTOMIRISULTOMIRIS United States$236.8 $— $— ** **Europe52.2 — — ** **Asia Pacific49.9 — — ** **Rest of World— — — ** ** $338.9 $— $— ** ** STRENSIQSTRENSIQ United States$451.7 $374.3 $280.1 20.7 % 33.6 %Europe77.0 61.7 35.6 24.8 % 73.3 %Asia Pacific50.4 27.9 18.6 80.6 % 50.0 %Rest of World13.4 11.2 5.5 19.6 % ** $592.5 $475.1 $339.8 24.7 % 39.8 % KANUMAKANUMA United States$60.0 $51.3 $42.4 17.0 % 21.0 %Europe27.1 21.6 14.6 25.5 % 47.9 %Asia Pacific4.6 3.7 2.7 24.3 % 37.0 %Rest of World20.5 15.4 5.9 33.1 % ** $112.2 $92.0 $65.6 22.0 % 40.2 %Total Net Product SalesTotal Net Product Sales4,990.0 $4,130.1 $3,549.5 20.8 % 16.4 %** Percentages not meaningfulF-58Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)Long-Lived AssetsLong-lived assets consist of property, plant and equipment. December 31,December 31, 20192019 20182018United States$272.8 $468.3Europe889.6 1,001.1Other0.9 2.1 $1,163.3 $1,471.520.20.Quarterly Financial InformationQuarterly Financial Information(unaudited)(unaudited)The following condensed quarterly financial information is for the years ended December 31, 2019 and 2018: March 31March 31 June 30June 30 September 30September 30 December 31December 31 2019:2019: Total revenues$1,140.4 $1,203.3 $1,263.1 $1,384.3 Cost of sales85.8 99.2 95.2 114.3 Gross profit (A)1,054.6 1,104.1 1,167.9 1,270.0 Operating expenses537.8 571.5 637.9 729.0 Operating income516.8 532.6 530.0 541.0 Net income$587.9(1)$459.8 $467.6 $889.0(2)Earnings per common share Basic$2.63 $2.05 $2.09 $4.02 Diluted$2.61 $2.04 $2.08 $4.00 March 31March 31 June 30June 30 September 30September 30 December 31December 31 2018:2018: Total revenues$930.9 $1,045.0 $1,026.5 $1,128.8 Cost of sales91.6 95.3 90.6 96.8 Gross profit (A)839.3 949.7 935.9 1,032.0 Operating expenses571.9 1,349.8 577.3 988.3(3)Operating income (loss)267.4 (400.1) 358.6 43.7 Net income (loss)$249.1 $(457.4) $330.9 $(45.0)(4)Earnings (loss) per common share Basic$1.12 $(2.05) $1.48 $(0.20) Diluted$1.11 $(2.05) $1.47 $(0.20) (A) Gross profit is calculated as total revenues less cost of sales (1) During the first quarter of 2019, we recognized one time tax benefits of $95.7 and $30.3 associated with a tax election made with respect tointellectual property of Wilson Therapeutics AB and a release of an existing valuation allowance, respectively. See Note 12, Income Taxes for additionalinformation.(2) During the fourth quarter of 2019, we recognized a one-time tax benefit of $382.2 related to an intra-entity asset transfer of certain intellectualproperty within our captive foreign partnership. See Note 12, Income Taxes for additional information.(3) Included within operating expenses for the second and fourth quarter of 2018, we recognized $803.7 and $379.3, respectively, of acquired in-process research and development expense related to our Wilson and Syntimmune acquisitions, respectively. In connection with the agreement of the finalworking capital adjustment for the Syntimmune acquisition, we recognized a benefit of $4.1 associated with previously acquired in-process research anddevelopment in the second quarter 2019. See Note 2, Acquisitions for additional information.F-59Alexion Pharmaceuticals, Inc.Alexion Pharmaceuticals, Inc.Notes to Consolidated Financial StatementsNotes to Consolidated Financial StatementsFor the Years ended December 31, 2019, 2018 and 2017For the Years ended December 31, 2019, 2018 and 2017(amounts in millions except per share amounts)(amounts in millions except per share amounts)(4) We recognized a tax benefit of $56.5 in 2018 as a result of the Tax Cuts and Jobs Act. In 2017, we recorded certain impacts of the Tax Act on aprovisional basis. As of December 22, 2018, our accounting for the impact of the Tax Act was complete. See Note 12, Income Taxes for additionalinformation.F-60DESCRIPTION OF THE REGISTRANT’S SECURITIESREGISTERED PURSUANT TO SECTION 12 OF THESECURITIES EXCHANGE ACT OF 1934The following summary describes the material terms of the common stock Alexion Pharmaceuticals, Inc., which is listed on the NasdaqGlobal Select Market under the symbol “ALXN”. This description of our common stock is qualified by reference to our certificate ofincorporation, as amended, and our bylaws, both of which are incorporated by reference as exhibits to the Annual Report on Form 10-K ofwhich this Exhibit 4.2 is a part.Authorized Capital Shares. Our certificate of incorporation, as amended, authorizes us to issue 290,000,000 shares of common stock, parvalue $0.0001 per share. The shares of common stock currently outstanding are fully paid and nonassessable.Voting. Holders of our common stock are entitled to one vote per share for the election of directors and on all other matters that requirestockholder approval. There is no cumulative voting.Dividends and Other Distributions. Subject to any preferences that may apply to any shares of preferred stock outstanding at the time,holders of our common stock are entitled to share in an equal amount per share any dividends declared by our board of directors on thecommon stock and paid out of legally available assets.Distribution on Dissolution. Subject to any preferential rights of any outstanding preferred stock, in the event of our liquidation, dissolutionor winding up, holders of our common stock are entitled to share ratably in the assets remaining after payment of liabilities and theliquidation preferences of any outstanding preferred stock.Other Rights. Our common stock does not carry any preemptive rights enabling a holder to subscribe for, or receive shares of, any class ofour common stock or any other securities convertible into shares of any class of our common stock, and is not subject to any redemption orsinking fund provisions.Anti-Takeover Provisions of our Certificate of Incorporation, Bylaws, and Delaware Law. Provisions in our certificate of incorporation, asamended, and bylaws may discourage certain types of transactions involving an actual or potential change of control of Alexion. Our bylawsprovide that special meetings of our stockholders may be called only by the Chairman of the board of directors, the president, thesecretary, or a majority of the board of directors, or upon the written request of stockholders who together own of record 25% of theoutstanding stock of all classes entitled to vote at such meeting. Our bylaws also specify that the authorized number of directors may bechanged only by resolution of the board of directors. Under our certificate of incorporation, our board of directors has the authority,without further action by stockholders, to designate up to five million shares of preferred stock in one or more series. The rights of theholders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any class or series of preferredstock that may be issued in the future.Because we are a Delaware corporation, the anti-takeover provisions of Delaware law could make it more difficult for a third party toacquire control of us, even if the change in control may be beneficial to stockholders. We are subject to the provisions of Section 203 of theDelaware General Corporation Laws, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging orcombining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15.0% of ouroutstanding voting stock, unless the merger or combination is approved in a prescribed manner. ALEXION PHARMACEUTICALS, INC.NON-EMPLOYEE DIRECTORS’NONQUALIFIED DEFERRED COMPENSATION PLAN(Amended and Restated Effective January 1, 2020)Alexion Pharmaceuticals, Inc. Non-Employee Directors’ Nonqualified Deferred Compensation PlanARTICLE I Establishment and Purpose1ARTICLE II Definitions1ARTICLE III Eligibility and Participation3ARTICLE IV Deferrals3ARTICLE V Payments from Accounts5ARTICLE VI Valuation of Account Balances; Investments7ARTICLE VII Administration9ARTICLE VIII Amendment and Termination 10ARTICLE IX Informal Funding11ARTICLE X Claims12ARTICLE XI General Provisions15ARTICLE I Establishment and PurposeThis document amends and restates, effective as of January 1, 2020, the Alexion Pharmaceuticals, Inc. Non-Employee Directors’Nonqualified Deferred Compensation Plan (as from time to time amended, or amended and restated, and in effect, the “Plan”)originally established by Alexion Pharmaceuticals, Inc. (the “Company”) on November 29, 2016. Any amounts deferred orcontributed under the Plan pursuant to elections made prior to January 1, 2020 shall be governed by the Plan documents andapplicable elections as in effect prior to this amendment and restatement.The purpose of the Plan is to provide Directors with an opportunity to defer receipt of a portion of their fees and restricted stockunits. The Plan is intended to meet the requirements of Code Section 409A, and shall be operated and interpreted consistent with thatintent.The Plan constitutes an unsecured promise by the Company to pay benefits in the future. Participants in the Plan shall have the statusof general unsecured creditors of the Company. The Company shall be solely responsible for payment of Plan obligations. The Planis unfunded for Federal tax purposes. Any amounts set aside to defray the liabilities of the Plan will remain the general assets of theCompany and shall remain subject to the claims of the Company’s creditors until such amounts are distributed to the Participants.ARTICLE II Definitions2.1Account. Account means a bookkeeping account maintained by the Committee to record the payment obligation of theCompany to a Participant as determined under the terms of the Plan. The Committee may maintain an Account to record thetotal obligation to a Participant and component Accounts to reflect amounts payable at different times and in different forms.2.2Account Balance. Account Balance means, with respect to any Account, the total payment obligation owed to a Participantfrom such Account as of the most recent Valuation Date.2.3Beneficiary. Beneficiary means a natural person, estate, or trust designated by a Participant in accordance with Section 5.2hereof to receive payments to which a Beneficiary is entitled in accordance with provisions of the Plan.2.4Business Day. Business Day means each day on which the New York Stock Exchange is open for business.2.5Cash Account. Cash Account means an Account established by the Committee to record Deferrals of a Participant’s cashCompensation payable upon Separation from Service as set forth in Section 5.1.2.6Change in Control. Change in Control means, with respect to the Company, any of the following events: (i) a change in theownership of the Company, (ii) a change in the effective control of the Company or (iii) a change in the ownership of asubstantial portion of the assets of the Company, in each case, as such term is defined in Treas. Reg. Section 1.409A-3(i)(5).2.7Claimant. Claimant means a Participant or Beneficiary filing a claim under ARTICLE X of this Plan.2.8Code. Code means the Internal Revenue Code of 1986, as amended from time to time.2.9Code Section 409A. Code Section 409A means Section 409A of the Code, and regulations and other guidance issued by theTreasury Department and Internal Revenue Service thereunder.2.10Committee. Committee means the Alexion Retirement Committee consisting of the Company’s CFO, CHRO (orequivalent), and members of the Human Resources Comp Benefits, Finance and Legal teams.2.11Company. Company means Alexion Pharmaceuticals, Inc., a Delaware corporation.2.12Compensation. Compensation means Directors’ cash retainer, committee and other fees and restricted stock units awarded toDirectors by the Company.2.13Compensation Deferral Agreement. Compensation Deferral Agreement means an agreement between a Participant and theCompany that specifies: (i) the amount of each component of Compensation that the Participant has elected to defer to thePlan in accordance with the provisions of ARTICLE IV, and (ii) the Payment Schedule applicable to one or more Accounts.2.14Deferral. Deferral means a credit to a Participant’s Account(s) that records that portion of the Participant’s Compensationthat the Participant has elected to defer under the Plan in accordance with the provisions of ARTICLE IV. Unless the contextof the Plan clearly indicates otherwise, a reference to Deferrals includes Earnings attributable to such Deferrals.2.15Director. Director means any non-employee member of the Board of Directors of the Company that is also a U.S. taxresident.2.16Earnings. Earnings means an adjustment to the value of an Account in accordance with ARTICLE VI.2.17Participant. Participant means a Director who has an Account Balance greater than zero.2.18Payment Schedule. Payment Schedule means the date as of which payment of an Account under the Plan will commence andthe form in which payment of such Account will be made.2.19Plan Year. Plan Year means January 1 through December 31.2.20RSU Account. RSU Account means an Account established by the Committee to record Units payable upon Separation fromService as set forth in Section 5.1.2.21Separation from Service. A Separation from Service with respect to this Plan occurs when a Participant ceases to be amember of the Board of Directors of the Company. Separation from Service shall be determined according to therequirements of Code Section 409A.2.22Substantial Risk of Forfeiture. Substantial Risk of Forfeiture has the meaning specified in Treas. Reg. Section 1.409A-l(d).2.23Unit. Unit means a restricted stock unit granted by the Company to a Director under the terms of a restricted stock unit awardagreement and the Company’s equity incentive plan, settlement of which is deferred by the Director under a CompensationDeferral Agreement. A Unit’s value will be determined under the terms of the applicable restricted stock unit awardagreement and related equity incentive plan under which the restricted stock unit was granted.2.24Valuation Date. Valuation Date means each Business Day. For purposes of valuing payments from the Plan, the ValuationDate is the last day of the month immediately preceding the payment.ARTICLE III Eligibility and Participation3.1Eligibility and Participation. A Director shall be eligible to participate in the Plan upon receipt of written notification ofeligibility to participate in the Plan.3.2Duration. Directors shall continue to be eligible to submit Compensation Deferral Agreements and to modify PaymentSchedules under Section 5.6 for as long as they are members of the Board of Directors of the Company. A former Directormay not file any Compensation Deferral Agreements, but may continue to make investment allocations under ARTICLE VI,and otherwise exercise all of the rights of a Participant under the Plan with respect to his or her Account(s). An individualshall cease being a Participant in the Plan when his or her Account has been reduced to zero (0).ARTICLE IV Deferrals4.1Deferral Elections, Generally.(a)Time and Form; Effect. A Participant may elect to defer Compensation by submitting a Compensation DeferralAgreement during the enrollment periods established by the Committee and in the manner specified by theCommittee, but in any event, in accordance with Section 4.2. A Compensation Deferral Agreement that is not timelyfiled with respect to a service period or component of Compensation, or that is revocable at the time a Participantincurs a Separation from Service, shall be considered null and void and shall not take effect. Elections remainrevocable until the latest permissible deadline with respect to each item of Compensation described in Section 4.2.The Committee may modify any Compensation Deferral Agreement in whole or in part prior to the date the electionbecomes irrevocable.(b)Minimum and Maximum Deferrals. Directors may defer up to 100% of their Compensation.(c)Calculation. Deferrals of cash Compensation shall be calculated with respect to the gross Compensation payable tothe Participant.(d)Payment Schedules; Default Elections. The Participant shall specify on his or her Compensation Deferral Agreementthe amount of Deferrals and, upon his or her initial allocation to a Cash Account or RSU Account, the PaymentSchedule for such Account (lump sum or installments). If a Payment Schedule is not specified upon the initialallocation of Deferrals to such Account, the Payment Schedule for such Account will be a lump sum.4.2Timing Requirements for Compensation Deferral Agreements.(a)First Year of Eligibility. Upon becoming a member of the Board of Directors, a Director shall have thirty (30) days tofile a Compensation Deferral Agreement. Such Compensation Deferral Agreement becomes irrevocable after such30-day period and only applies to Compensation earned after the 30-day enrollment period.(b)Prior Year Election. A Compensation Deferral Agreement may be filed no later than December 31 of the year priorto the calendar year in which the Compensation to be deferred is earned. A Compensation Deferral Agreement filedunder this paragraph shall become irrevocable with respect to such Compensation as of December 31 of the year priorto the calendar year in which such Compensation is earned.(c)Certain Forfeitable Rights. A Director may defer restricted stock units by filing a Compensation Deferral Agreementnot later than the 30th day after the date such restricted stock units are awarded by the Company to such Director andat least 12 months in advance of the earliest date on which the forfeiture condition under such award could lapse(“Lapse Date”). The Compensation Deferral Agreement described in this paragraph becomes irrevocable on theearlier of (i) such 30th day or (ii) the last day of the 13th month next preceding the month in which the Lapse Dateoccurs. If the forfeiture condition applicable to the payment lapses before the end of such 12-month period as a resultof the Participant’s death or disability (as defined in Treas. Reg. Section 1.409A-3(i)(4)) or upon a Change inControl, the Compensation Deferral Agreement will be void unless it would be considered timely under another ruledescribed in this Section 4.2.(d)Company Awards. The Company may unilaterally credit awards to a Participant’s Account on or before the date theParticipant has a legally binding right to such award.(e)Automatic Renewals. The Committee may provide on a Compensation Deferral Agreement form that the deferralelections submitted under Sections 4.2(b) [and (c)] will renew automatically for each successive Plan Year [or awarddate] unless the Participant or the Company revokes the election before the date such election becomes irrevocable.4.3Deductions from Pay. The Committee has the authority to determine the pay practices under which any component ofCompensation subject to a Compensation Deferral Agreement will be deducted from a Participant’s Compensation.4.4Vesting. Participant Deferrals of cash Compensation shall be 100% vested at all times. Units shall become vested inaccordance with the provisions of the applicable restricted stock unit award agreement and related equity incentive planunder which the restricted stock units were granted.4.5Cancellation of Deferrals. The Committee may cancel a Participant’s Deferrals under the Plan, provided that suchcancellation occurs by the later of the end of the taxable year of the Participant or the 15th day of the third month followingthe date the Participant incurs a disability. For purposes of this Section 4.5, a disability means any medically determinablephysical or mental impairment resulting in a Participant being unable to perform the duties of his or her position or anysubstantially similar position, where such impairment can be expected to result in death or last for a continuous period of notless than six months.ARTICLE V Payments from Accounts5.1Separation from Service. A Participant’s Cash Account and RSU Account will be paid or commence payment uponSeparation from Service.The form of payment from each such Account will be a lump sum unless the Participant elects in the CompensationAgreement that established the Cash Account or RSU Account (and as modified in accordance with Section 5.6, below) toreceive annual installments up to ten (10) years.Accounts payable under this Section 5.1 will be valued as of the Valuation Date identified by the Plan Administrator in itssole discretion.Payments under this Section 5.1 are subject to the provisions of Sections 5.2 through 5.4.5.2Death. Notwithstanding the provisions of Section 5.1, upon the death of the Participant, all remaining vested AccountBalances shall be paid to his or her Beneficiary in a single lump sum no later than December 31 of the calendar yearfollowing the year of the Participant’s death.(a)Designation of Beneficiary in General. The Participant shall designate a Beneficiary in the manner and on such termsand conditions as the Committee may prescribe. No such designation shall become effective unless filed with theCommittee during the Participant’s lifetime. Any designation shall remain in effect until a new designation is filedwith the Committee; provided, however, that in the event a Participant designates his or her spouse as a Beneficiary,such designation shall be automatically revoked upon the dissolution of the marriage unless, following suchdissolution, the Participant submits a new designation naming the former spouse as a Beneficiary. A Participant mayfrom time to time change his or her designated Beneficiary without the consent of a previously- designatedBeneficiary by filing a new designation with the Committee.(b)No Beneficiary. If a designated Beneficiary does not survive the Participant, or if there is no valid Beneficiarydesignation, amounts payable under the Plan upon the death of the Participant shall be paid to the Participant’sspouse, or if there is no surviving spouse, then to the duly appointed and currently acting personal representative ofthe Participant’s estate.(c)Valuation Date. Accounts payable under this Section 5.2 will be valued as of the Valuation Date identified by thePlan Administrator in its sole discretion.5.3Change in Control. If elected upon initial enrollment in the Plan, a Participant will receive his or her Plan Account Balancesin a single lump sum. The Plan Account will be valued as of the Valuation Date identified by the Plan Administrator in itssole discretion.5.4Acceleration of or Delay in Payments. Notwithstanding anything to the contrary in this ARTICLE V, the Committee, in itssole and absolute discretion, may elect to accelerate the time or form of payment of an Account, provided such accelerationis permitted under Treas. Reg. Section 1.409A-3(j)(4). The Committee may also, in its sole and absolute discretion, delay thetime for payment of an Account, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7).5.5Rules Applicable to Installment Payments. Annual installment payments commence upon Separation from Service and shallcontinue to be made in each subsequent calendar year not later than December 31 of such year. The Committee maydetermine the Valuation Date and actual payment date within a calendar year in its sole discretion. The amount of eachinstallment payment shall be determined by dividing (a) by (b), where (a) equals the Account Balance as of the lastValuation Date in the month preceding the month of payment and (b) equals the remaining number of installment payments.Accounts will continue to be credited with Earnings in accordance with ARTICLE VI hereof until the Account is completelydistributed.5.6Modifications to Payment Schedules. A Participant may separately modify the form of payment from his or her CashAccount and RSU Account, consistent with the permissible Payment Schedules available under the Plan, provided that anysuch modification complies with the requirements of this Section 5.6.(a)Time of Election. The date on which a modification election is submitted to the Committee must be at least 12months prior to Separation from Service.(b)Date of Payment under Modified Payment Schedule. The date payments are to commence under the modifiedPayment Schedule must be no earlier than five years after Separation from Service (or, if later, five years after themost recent effective payment commencement date). Under no circumstances may a modification election result inan acceleration of payments in violation of Code Section 409A.(c)Effective Date. A modification election is irrevocable and effective 12 months after the date it is received by theCommittee.(d)Effect on Accounts. An election to modify a Payment Schedule is specific to the Account to which it applies, andshall not be construed to affect the Payment Schedule of any other Account.(e)Installments. For purposes of the Plan, each installment payment will be treated as a single form of payment.5.7Unforeseeable Emergency. A Participant who experiences an Unforeseeable Emergency may submit a written request to theCommittee to cease Deferrals and/or receive payment of all or any portion of his or her vested Accounts. The Committeemay approve cessation of Deferrals and/or an emergency payment not to exceed the amount reasonably necessary to satisfythe need. Emergency payments shall be paid in a single lump sum within the 90-day period following the date the paymentis approved by the Committee. Payments shall be made, first, from the Cash Account and second from the Stock Account.Unforeseeable Emergency means a severe financial hardship to the Participant resulting from an illness or accident of theParticipant, the Participant’s spouse, the Participant’s dependent (as defined in Code section 152, without regard to section152(b)(1), (b)(2), and (d)(1)(B)), or a Beneficiary; loss of the Participant’s property due to casualty (including the need torebuild a home following damage to a home not otherwise covered by insurance, for example, as a result of a naturaldisaster); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control ofthe Participant. The types of events which may qualify as an Unforeseeable Emergency may be limited by the Committeeand shall be determined in compliance with Code Section 409A.5.8Payments in Cash and Stock. All payments from the Cash Account will be made in cash. All payments from the RSUAccount will be made in shares of common stock of the Company as provided under the terms of the applicable restrictedstock unit award agreement and related equity incentive plan under which Units were granted. Any fractional Units will bepaid in cash. Notwithstanding the foregoing, any Units that have been re-allocated under the provisions of Section 6.6 willbe paid in cash.ARTICLE VI Valuation of Account Balances; Investments6.1Valuation. Deferrals shall be credited to appropriate Accounts as of the first Business Day following the date suchCompensation would have been paid to the Participant absent the Compensation Deferral Agreement. Valuation of Accountsshall be performed under procedures approved by the Committee.6.2Earnings Credit. Each Account will be credited with Earnings on each Business Day. The Cash Account Earnings will bebased upon the Participant’s investment allocation among a menu of investment options selected in advance by theCommittee, in accordance with the provisions of this ARTICLE VI. The RSU Account Earnings will reflect the value ofUnits and any dividend equivalents described in Section 6.8, to the extent not re-allocated under the provisions of Section6.6.6.3Investment Options. Investment options for the Cash Account will be determined by the Committee. The Committee, in itssole discretion, shall be permitted to add or remove investment options from the investment menu from time to time,provided that any such additions or removals of investment options shall not be effective with respect to any period prior tothe effective date of such change.6.4Investment Allocations. A Participant’s investment allocation constitutes a deemed, not actual, investment among theinvestment options comprising the investment menu. At no time shall a Participant have any real or beneficial ownership inany investment option included in the investment menu, nor shall the Company or any trustee acting on its behalf have anyobligation to purchase actual securities as a result of a Participant’s investment allocation. A Participant’s investmentallocation shall be used solely for purposes of adjusting the value of a Participant’s Account Balance(s).A Participant shall specify an investment allocation for his Cash Account in accordance with procedures established by theCommittee. Allocation among the investment options must be designated in increments of 1%. The Participant’s investmentallocation will become effective on the same Business Day or, in the case of investment allocations received after a timespecified by the Committee, the next Business Day.A Participant may change an investment allocation on any Business Day, both with respect to future credits to the Plan andwith respect to existing Account Balances, in accordance with procedures adopted by the Committee. Changes shall becomeeffective on the same Business Day or, in the case of investment allocations received after a time specified by theCommittee, the next Business Day, and shall be applied prospectively.6.5Unallocated Deferrals and Accounts. If the Participant fails to make an investment allocation, such Account shall be investedin an investment option determined by the Committee.6.6RSU Diversification. A Participant who is a current member of the Board of Directors may not re-allocate his or her RSUAccount into any investment option other than Units. Any time on or after the six-month anniversary of a Participant’sSeparation from Service, the Participant may re-allocate his or her Units among the same menu of investment options madeavailable to the Cash Account. Amounts re-allocated may not be allocated back to Units. The ability to re-allocateinvestments is effective January 1, 2020, and is first available to Participants who have incurred a Separation from Serviceon or before June 30, 2018.6.7Effect of Units on Installment Payments. Each installment payment from an RSU Account will be determined as the AccountBalance on the applicable Valuation Date, expressed in US dollars, divided by the number of remaining installments asdescribed in Section 5.5. Unless the Committee specifies a different allocation method or adjustment, each installment willconsist of a pro-rata allocation of cash and Units based on the proportion of each held in the Account prior to the installmentpayment.6.8Dividend Equivalents. During any period in which a Unit is outstanding and prior to its forfeiture, payment or settlement, asand when a dividend or dividend equivalent is paid by the Company with respect to such Unit it will be credited to the RSUAccount in the form of additional Units based on the value of a share of common stock of the Company on the date suchdividend is paid. Fractional Units will remain in cash until the cash value equals or exceeds the fair market value of a shareof common stock of the Company at which time it will be converted to a Unit. Any amounts credited pursuant to this Section6.8 shall be subject to the same vesting and payment schedule as the underlying Unit and the Director shall have no right tosuch amounts if such Unit is forfeited.ARTICLE VII Administration7.1Plan Administration. This Plan shall be administered by the Committee which shall have discretionary authority to make,amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and to utilize itsdiscretion to decide or resolve any and all questions, including but not limited to eligibility for benefits and interpretations ofthis Plan and its terms, as may arise in connection with the Plan. Claims for benefits shall be filed with the Committee andresolved in accordance with the claims procedures in ARTICLE X. The Committee has the authority to further delegate itsresponsibilities for the day to day administration of the Plan to such individuals or subcommittees as it may establish.7.2Administration Upon Change in Control. Upon a Change in Control, the Committee, as constituted immediately prior to suchChange in Control, shall continue to act as the Committee. The individual who was the Chief Executive Officer of theCompany (or if such person is unable or unwilling to act, the next highest ranking officer) prior to the Change in Controlshall have the authority (but shall not be obligated) to appoint an independent third party to act as the Committee.Subject to the Chief Executive Officer’s authority to designate an independent third party, upon such Change in Control, theCommittee may not be removed, unless 2/3rds of the members of the Board of Directors of the Company (or its successor)and a majority of Participants and Beneficiaries with Account Balances consent to the removal and replacement of theCommittee. Notwithstanding the foregoing, neither the Committee nor the officer described above shall have authority todirect investment of trust assets under any rabbi trust described in Section 9.2.The Company shall, with respect to the Committee identified under this Section: (i) pay all reasonable expenses and fees ofthe Committee, (ii) indemnity the Committee (including individuals serving as Committee members) against any costs,expenses and liabilities including, without limitation, attorneys’ fees and expenses arising in connection with theperformance of the Committee’s duties hereunder, except with respect to matters resulting from the Committee’s grossnegligence or willful misconduct, and (iii) supply full and timely information to the Committee on all matters related to thePlan, any rabbi trust, Participants, Beneficiaries and Accounts as the Committee may reasonably require.7.3Withholding. To the extent required by applicable Federal, state or local law, a Director must make arrangementssatisfactory to the Company for the payment of any withholding or similar tax obligations resulting from any payment dueunder the Plan (or with respect to any amounts credited to the Plan).7.4Indemnification. The Company shall indemnify and hold harmless each employee, officer, director, agent or organization, towhom or to which are delegated duties, responsibilities, and authority under the Plan or otherwise with respect toadministration of the Plan, including, without limitation, the Committee and its agents, against all claims, liabilities, fines andpenalties, and all expenses reasonably incurred by or imposed upon him or it (including but not limited to reasonable attorneyfees) which arise as a result of his or its actions or failure to act in connection with the operation and administration of thePlan to the extent lawfully allowable and to the extent that such claim, liability, fine, penalty, or expense is not paid for byliability insurance purchased or paid for by the Company. Notwithstanding the foregoing, the Company shall not indemnifyany person or organization if his or its actions or failure to act are due to gross negligence or willful misconduct or for anysuch amount incurred through any settlement or compromise of any action unless the Company consents in writing to suchsettlement or compromise.7.5Delegation of Authority. In the administration of this Plan, the Committee may, from time to time, employ agents anddelegate to them such administrative duties as it sees fit, and may from time to time consult with legal counsel who shall belegal counsel to the Company.7.6Binding Decisions or Actions. The decision or action of the Committee in respect of any question arising out of or inconnection with the administration, interpretation and application of the Plan and the rules and regulations thereunder shallbe final and conclusive and binding upon all persons having any interest in the Plan.ARTICLE VIII Amendment and Termination 8.1Amendment and Termination. The Company may at any time and from time to time amend the Plan or may terminate thePlan as provided in this Article VIII.8.2Amendments. The Company, by action taken by its Board of Directors, may amend the Plan at any time and for any reason,provided that any such amendment shall not reduce the vested Account Balances of any Participant accrued as of the date ofany such amendment or restatement (as if the Participant had incurred a voluntary Separation from Service on such date).The Board of Directors of the Company may delegate to the Committee the authority to amend the Plan without the consentof the Board of Directors for the purpose of: (i) conforming the Plan to the requirements of law; (ii) facilitating theadministration of the Plan; (iii) clarifying provisions based on the Committee’s interpretation of the document; and (iv)making such other amendments as the Board of Directors may authorize.8.3Termination. The Company, by action taken by its Board of Directors, may terminate the Plan and pay Participants andBeneficiaries their Account Balances in a single lump sum at any time, to the extent and in accordance with Treas. Reg.Section 1.409A-3(j)(4)(ix).8.4Code Section 409A. The Plan is intended to comply with the requirements of Code Section 409A or an exemptionthereunder, and shall be construed and interpreted consistent in a manner that is consistent with the requirements for avoidingadditional taxes or penalties under Section 409A of the Code. The Committee, pursuant to its authority to interpret the Plan,may sever from the Plan or any Compensation Deferral Agreement any provision or exercise of a right that otherwise wouldresult in a violation of Code Section 409A. Notwithstanding the foregoing, the Company makes no representations that thepayments and benefits provided under the Plan comply with Section 409A of the Code, and in no event shall the Companybe liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant onaccount of any actual or alleged non-compliance with Code Section 409A.ARTICLE IX Informal Funding9.1General Assets. Obligations established under the terms of the Plan may be satisfied from the general funds of the Companyor a trust described in this ARTICLE IX. No Participant, spouse or Beneficiary shall have any right, title or interest whateverin assets of the Company. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or beconstrued to create a trust of any kind, or a fiduciary relationship, between the Company and any Employee, spouse, orBeneficiary. To the extent that any person acquires a right to receive payments hereunder, such rights are no greater than theright of an unsecured general creditor of the Company.9.2Rabbi Trust. The Company may, in its sole discretion, establish a grantor trust, commonly known as a rabbi trust, as avehicle for accumulating assets to pay benefits under the Plan. Payments under the Plan may be paid from the general assetsof the Company or from the assets of any such rabbi trust. Payment from any such source shall reduce the obligation owed tothe Participant or Beneficiary under the Plan. ARTICLE X Claims10.1Filing a Claim. Any controversy or claim arising out of or relating to the Plan shall be filed in writing with the Committee atthe address set forth in Section 11.4 which shall make all determinations concerning such claim. Any claim filed with theCommittee and any decision by the Committee denying such claim shall be in writing and shall be delivered to theParticipant or Beneficiary filing the claim (the “Claimant”).(a)In General. Notice of a denial of benefits will be provided within 90 days of the Committee’s receipt of theClaimant’s claim for benefits. If the Committee determines that it needs additional time to review the claim, theCommittee will provide the Claimant with a notice of the extension before the end of the initial 90-day period. Theextension will not be more than 90 days from the end of the initial 90-day period and the notice of extension willexplain the special circumstances that require the extension and the date by which the Committee expects to make adecision.(b)Contents of Notice. If a claim for benefits is completely or partially denied, notice of such denial shall be in writingand shall set forth the reasons for denial in plain language. The notice shall: (i) cite the pertinent provisions of thePlan document, and (ii) explain, where appropriate, how the Claimant can perfect the claim, including a descriptionof any additional material or information necessary to complete the claim and why such material or information isnecessary. The claim denial also shall include an explanation of the claims review procedures and the time limitsapplicable to such procedures.10.2Discretion of Committee. All interpretations, determinations and decisions of the Committee with respect to any claim shallbe made in its sole discretion, and shall be final and conclusive.10.3Legal Action. A Claimant may not bring any legal action, including commencement of any arbitration, relating to a claim forbenefits under the Plan unless and until the Claimant has followed the claims procedures under the Plan and exhausted his orher administrative remedies under such claims procedures.10.4Arbitration.(a)Prior to a Change in Control, any claim or controversy between the Company and a Participant or Beneficiary that isnot resolved under Section 10.1 shall be submitted to and resolved exclusively by expedited binding arbitration by asingle arbitrator. Arbitration shall be conducted in accordance with the following procedures:The complaining party shall promptly send written notice to the other party identifying the matter in dispute and theproposed remedy. Following the giving of such notice, the parties shall meet and attempt in good faith to resolve thematter. In the event the parties are unable to resolve the matter within 21 days, the parties shall meet and attempt ingood faith to select a single arbitrator acceptable to both parties. If a single arbitrator is not selected by mutual consentwithin ten Business Days following the giving of the written notice of dispute, an arbitrator shall be selected from alist of nine persons each of whom shall be an attorney who is either engaged in the active practice of law orrecognized arbitrator and who, in either event, is experienced in serving as an arbitrator in disputes betweenemployers and employees, which list shall be provided by the main office of either JAMS, the American ArbitrationAssociation (“AAA”) or the Federal Mediation and Conciliation Service. If, within three Business Days of theparties’ receipt of such list, the parties are unable to agree on an arbitrator from the list, then the parties shall eachstrike names alternatively from the list, with the first to strike being determined by the flip of a coin. After each partyhas had four strikes, the remaining name on the list shall be the arbitrator. If such person is unable to serve for anyreason, the parties shall repeat this process until an arbitrator is selected.Unless the parties agree otherwise, within 60 days of the selection of the arbitrator, a hearing shall be conductedbefore such arbitrator at a time and a place agreed upon by the parties. In the event the parties are unable to agreeupon the time or place of the arbitration, the time and place shall be designated by the arbitrator after consultationwith the parties. Within 30 days of the conclusion of the arbitration hearing, the arbitrator shall issue an award,accompanied by a written decision explaining the basis for the arbitrator’s award.In any arbitration hereunder, the Company shall pay all administrative fees of the arbitration and all fees of thearbitrator. Each party shall pay its own attorneys’ fees, costs, and expenses, unless the arbitrator orders otherwise.The prevailing party in such arbitration, as determined by the arbitrator, and in any enforcement or other courtproceedings, shall be entitled, to the extent permitted by law, to reimbursement from the other party for all of theprevailing party’s costs (including but not limited to the arbitrator’s compensation), expenses, and attorneys’ fees.The arbitrator shall have no authority to add to or to modify this Plan, shall apply all applicable law, and shall have nolesser and no greater remedial authority than would a court of law resolving the same claim or controversy. Thearbitrator shall have no authority to add to or to modify this Plan, shall apply all applicable law, and shall have nolesser and no greater remedial authority than would a court of law resolving the same claim or controversy. Thearbitrator shall, upon an appropriate motion, dismiss any claim without an evidentiary hearing if the party bringingthe motion establishes that it would be entitled to summary judgment if the matter had been pursued in courtlitigation.The parties shall be entitled to discovery as follows: Each party may take no more than three depositions. TheCompany may depose the Participant or Beneficiary plus two other witnesses, and the Participant or Beneficiary maydepose the Company, pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure, plus two other witnesses.Each party may make such reasonable document discovery requests as are allowed in the discretion of the arbitrator.The decision of the arbitrator shall be final, binding, and non-appealable, and may be enforced as a final judgment inany court of competent jurisdiction.This arbitration provision of the Plan shall extend to claims against any parent, subsidiary, or affiliate of each party,and, when acting within such capacity, any officer, director, shareholder, Participant, Beneficiary, or agent of anyparty, or of any of the above, and shall apply as well to claims arising out of state and federal statutes and localordinances as well as to claims arising under the common law or under this Plan.Notwithstanding the foregoing, and unless otherwise agreed between the parties, either party may apply to a court forprovisional relief, including a temporary restraining order or preliminary injunction, on the ground that the arbitrationaward to which the applicant may be entitled may be rendered ineffectual without provisional relief.Any arbitration hereunder shall be conducted in accordance with the Federal Arbitration Act: provided, however,that, in the event of any inconsistency between the rules and procedures of the Act and the terms of this Plan, theterms of this Plan shall prevail.If any of the provisions of this Section 10.4(a) are determined to be unlawful or otherwise unenforceable, in thewhole part, such determination shall not affect the validity of the remainder of this Section 10.4(a) and this Section10.4(a) shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and toinsure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall beresolved by neutral, binding arbitration. If a court should find that the provisions of this Section 10.4(a) are notabsolutely binding, then the parties intend any arbitration decision and award to be fully admissible in evidence inany subsequent action, given great weight by any finder of fact and treated as determinative to the maximum extentpermitted by law.The parties do not agree to arbitrate any putative class action or any other representative action. The parties agree toarbitrate only the claims(s) of a single Participant or Beneficiary.(b)If, upon or after the occurrence of a Change in Control, any dispute, controversy or claim arises between a Participantor Beneficiary and the Company out of or relating to or concerning the provisions of the Plan, such dispute,controversy or claim shall be finally settled by a court of competent jurisdiction which, notwithstanding any otherprovision of the Plan, shall apply a de novo standard of review to any determination made by the Company, theBoard of Directors, or the Committee.ARTICLE XI General Provisions11.1Assignment. No interest of any Participant, spouse or Beneficiary under this Plan and no benefit payable hereunder shall beassigned as security for a loan, and any such purported assignment shall be null, void and of no effect, nor shall any suchinterest or any such benefit be subject in any manner, either voluntarily or involuntarily, to anticipation, sale, transfer,assignment or encumbrance by or through any Participant, spouse or Beneficiary. Notwithstanding anything to the contraryherein, however, the Committee has the discretion to make payments to an alternate payee in accordance with the terms of adomestic relations order (as defined in Code Section 414(p)(l)(B)).The Company may assign any or all of its liabilities under this Plan in connection with any restructuring, recapitalization,sale of assets or other similar transactions affecting the Company without the consent of the Participant.11.2No Legal or Equitable Rights or Interest. No Participant or other person shall have any legal or equitable rights or interest inthis Plan that are not expressly granted in this Plan. Participation in this Plan does not give any person any right to be retainedin the service of the Company. The Company makes no representations or warranties as to the tax consequences to aParticipant or a Participant’s beneficiaries resulting from a deferral of income pursuant to the Plan.11.3No Effect on Service. Nothing contained herein shall be deemed or construed to give a Participant any right to continue as aDirector of, or other service provider to, the Company or any of its affiliates, affect the right of the Company or theCompany’s shareholders to take any action permitted by law in respect of the removal of such Participant as a Director at anytime, or affect any right of such Participant to resign from service at any time.11.4Notice. Any notice or filing required or permitted to be delivered to the Committee under this Plan shall be delivered inwriting, in person, or through such electronic means as is established by the Committee. Notice shall be deemed given as ofthe date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration orcertification. Written transmission shall be sent by certified mail to:ALEXION PHARMACEUTICALS, INC.ATTN: HUMAN RESOURCES C/O ALEXION RETIREMENT COMMITTEE100 COLLEGE STREETNEW HAVEN, CONNECTICUT 06510or to the attention of Human Resources at the Company’s headquarters. Any notice or filing required or permitted to begiven to a Participant under this Plan shall be sufficient if in writing or hand-delivered, or sent by mail to the last knownaddress of the Participant.11.5Headings. The headings of Sections are included solely for convenience of reference, and if there is any conflict betweensuch headings and the text of this Plan, the text shall control.11.6Invalid or Unenforceable Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity orunenforceability shall not affect any other provisions hereof and the Committee may elect in its sole discretion to construesuch invalid or unenforceable provisions in a manner that conforms to applicable law or as if such provisions, to the extentinvalid or unenforceable, had not been included.11.7Lost Participants or Beneficiaries. Any Participant or Beneficiary who is entitled to a benefit from the Plan has the duty tokeep the Committee advised of his or her current mailing address. If benefit payments are returned to the Plan or are notpresented for payment after a reasonable amount of time, the Committee shall presume that the payee is missing. TheCommittee, after making such efforts as in its discretion it deems reasonable and appropriate to locate the payee, shall stoppayment on any uncashed checks and may discontinue making future payments until contact with the payee is restored.11.8Facility of Payment to a Minor. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, thenthe Committee may, in its discretion, make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payeewith whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person havingcustody of an incompetent payee. Any such distribution shall fully discharge the Committee, the Company, and the Planfrom further liability on account thereof.11.9Governing Law. The laws of the State of Connecticut shall govern the construction and administration of the Plan.IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer on this 5th day ofDecember, 2019.ALEXION PHARMACEUTICALS, INC.By: __/s/Anne-Marie LawTitle: _EVP – Human Experience OfficerExhibit 21.1Exhibit 21.1SUBSIDIARIES OF ALEXION PHARMACEUTICALS, INC.Alexion Delaware Holding LLC is organized in DelawareAlexion Services Latin America, Inc. is organized in DelawareAlexion US Holdings LLC is organized in DelawareAlexion US1 LLC is organized in DelawareAlexion Pharma LLC is organized in DelawareAlexion Holding LLC is organized in DelawareSavoy Therapeutics Corp. is organized in DelawareWilson Therapeutics USA, Inc. is organized in DelawareSyntimmune, Inc. is organized in DelawareAchillion Pharmaceuticals, Inc. is organized in DelawareAlexion Pharma Argentina SRL is organized in ArgentinaAlexion Pharmaceuticals Australasia PTY LTD is organized in AustraliaAlexion Pharma Austria GmbH is organized in AustriaAlexion Pharma Belgium Sprl is organized in BelgiumAlexion Services Europe Sprl is organized in BelgiumAlexion Bermuda L.P. is organized in BermudaAlexion Bermuda II L.P. is organized in BermudaAlexion Bermuda Holding ULC is organized in BermudaAlexion 1609 Partners, LP is organized in BermudaAlexion Bermuda Partners L.P. is organized in BermudaAlexion Bermuda Limited is organized in BermudaAlexion Farmacêutica Brasil Importação e Distribuição de Produtos e Serviços de Administração de Vendas Ltda. (doing business as Alexion Brasil) is organizedin BrazilAlexion Farmacêutica América Latina Serviços de Administração de Vendas Ltda. (doing business as Alexion Latina America) is organized in BrazilAlexion Pharma Canada Corp. is organized in CanadaAlexion Pharmaceuticals (Shanghai) Company Limited is organized in ShanghaiAlexion Pharma Colombia SAS is organized in ColombiaAlexion Pharma Czech s.r.o is organized in the Czech RepublicAlexion Pharma Middle East FZ-LLC is organized in DubaiAlexion Europe SAS is organized in FranceAlexion Pharma France SAS is organized in FranceAlexion R&D France SAS is organized in FranceAlexion Pharma Germany GmbH is organized in GermanyAlexion Business Services Private Limited is organized in IndiaAlexion Pharma International Operations Unlimited Company is organized in IrelandAlexion Pharma Holding Unlimited Company is organized in IrelandAlexion Pharma Development Unlimited Company is organized in IrelandAlexion Pharma Israel Ltd. is organized in IsraelAlexion Pharma Italy Sarl is organized in ItalyAlexion Pharma GK is organized in JapanAlexion Pharma Mexico, S. de R.L. de C.V. is organized in MexicoAlexion Holding B.V. is organized in the NetherlandsAlexion Pharma Foreign Holdings B.V. is organized in the NetherlandsAlexion Pharma Netherlands B.V. is organized in the NetherlandsAlexion Pharma OOO LLC is organized in RussiaAlexion Pharma Korea LLC is organized in South KoreaAlexion Pharma Spain S.L. is organized in SpainAlexion Pharma Nordics AB is organized in SwedenAlexion Pharma Nordics Holding AB is organized in SwedenWilson Therapeutics Incentive AB is organized in SwedenTTM Europe Development AB is organized in SwedenWilson Therapeutics AB is organized in SwedenAlexion Pharma GmbH is organized in SwitzerlandAlexion Pharma Taiwan LTD is organized in TaiwanAlexion Ilaç Ticaret Limited Þirketi is organized in TurkeyAlexion Pharma UK Ltd. is organized in the United KingdomSyntimmune, Ltd. is organized in the United KingdomExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-217905, 333-205379, 333-146319, 333-139600, 333-123212, and 333-153612) and Form S-3 (No. 333-226838) of Alexion Pharmaceuticals, Inc. of our report dated February 4, 2020 relatingto the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPBoston, MassachusettsFebruary 4, 2020Exhibit 31.1Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Ludwig Hantson, certify that:1I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 of Alexion Pharmaceuticals,Inc.;2Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and5The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Dated:February 4, 2020 /s/ LUDWIG N. HANTSON, Ph.D. Chief Executive OfficerChief Executive OfficerExhibit 31.2Exhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Aradhana Sarin, certify that:1I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 of Alexion Pharmaceuticals,Inc.;2Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report;3Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and5The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Dated:February 4, 2020 /s/ ARADHANA SARIN, M.D. Executive Vice President and Chief Financial OfficerExecutive Vice President and Chief Financial OfficerExhibit 32.1Exhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Alexion Pharmaceuticals, Inc. (the “Company”) for the year ended December 31, 2019 as filedwith the Securities and Exchange Commission (the “Report”), I, Ludwig N. Hantson, Ph.D., Chief Executive Officer of the Company, certify, pursuant to 18U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Dated:February 4, 2020 /s/ LUDWIG N. HANTSON, Ph.D. Chief Executive OfficerChief Executive OfficerA signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.2Exhibit 32.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Alexion Pharmaceuticals, Inc. (the “Company”) for the year ended December 31, 2019 as filedwith the Securities and Exchange Commission (the “Report”), I, Aradhana Sarin, Executive Vice President and Chief Financial Officer of the Company, certify,pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Dated:February 4, 2020 /s/ ARADHANA SARIN, M.D. Executive Vice President and Chief Financial OfficerExecutive Vice President and Chief Financial OfficerA signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.Rare Inspiration. Changing Lives. SHAREHOLDER INFORMATION EXECUTIVE MANAGEMENT Ludwig Hantson, Ph.D. Chief Executive Officer Tanisha Carino, Ph.D. Executive Vice President, Chief Corporate Affairs Officer Ellen Chiniara, J.D. Executive Vice President, Chief Legal Officer and Corporate Secretary Indrani Franchini, J.D. Executive Vice President, Chief Compliance Officer Brian Goff Executive Vice President, Chief Commercial & Global Operations Officer Anne-Marie Law Executive Vice President, Chief Human Experience Officer John Orloff, M.D. Executive Vice President, Head of Research & Development Morgan Sanford Chief of Staff to Chief Executive Officer Aradhana Sarin, M.D. Executive Vice President, Chief Financial Officer Rana Strellis Senior Vice President, Global Culture and Corporate Social Responsibility DIRECTORS David R. Brennan2, 3 Chairman of the Board, Former Chief Executive Officer, AstraZeneca PLC Felix J. Baker, Ph.D.3, 4 Co-Managing Member, Baker Brothers Advisors LP Christopher J. Coughlin1, 2 Former Executive Vice President and Chief Financial Officer, Tyco Deborah Dunsire, M.D.2, 4 President and Chief Executive Officer, H Lundbeck A/S Ludwig Hantson, Ph.D. Chief Executive Officer John T. Mollen 1, 2 Former Executive Vice President, Human Resources, EMC Corporation Francois Nader, M.D.1, 4 Former President and Chief Executive Officer, NPS Pharma Judith Reinsdorf, J.D.1, 3 Former Executive Vice President and General Counsel, Johnson Controls Paul A. Friedman, M.D.3, 4 Chairman and Chief Executive Officer, Madrigal Pharmaceuticals Former Chief Executive Officer, Incyte Corporation Andreas Rummelt, Ph.D.3, 4 Chief Executive Officer, InterPharmaLink AG Former Group Head, Quality Assurance and Technical Operations, Novartis TOP ROW, LEFT TO RIGHT: Morgan Sanford, John Orloff, Anne-Marie Law, Brian Goff, Rana Strellis BOTTOM ROW, LEFT TO RIGHT: Ellen Chiniara, Indrani Franchini, CEO Ludwig Hantson, Tanisha Carino, Aradhana Sarin TOP ROW, LEFT TO RIGHT: Felix J. Baker, Christopher J. Coughlin, John T. Mollen, Francois Nader, Andreas Rummelt BOTTOM ROW, LEFT TO RIGHT: Deborah Dunsire, Chairman of the Board David R. Brennan, CEO Ludwig Hantson, Judith Reinsdorf, Paul A. Friedman (INSET) OTHER INFORMATION ANNUAL SHAREHOLDERS MEETING 1. Member of the Audit and Finance Committee TRANSFER AGENT AND REGISTRAR Computershare Trust Company, N.A. 250 Royall Street, Canton, MA 02021 INVESTOR RELATIONS 121 Seaport Boulevard, Boston, MA 02210 Email: InvestorRelations@alexion.com INDEPENDENT AUDITORS PricewaterhouseCoopers, LLP, Hartford, CT TRADING SYMBOL Listing for Alexion Pharmaceuticals, Inc., is found on the NASDAQ stock market under the symbol ALXN. To be held on May 13, 2020, 5:30 p.m. Seaport Hotel 2. Member of the Leadership and Compensation Committee 3. Member of the Nominating and Corporate One Seaport Lane, Boston, MA 02210 Governance Committee CORPORATE HEADQUARTERS Alexion Pharmaceuticals, Inc. 121 Seaport Boulevard Boston, MA 02210 Tel: 475-230-2596 Fax: 203-271-8198 alexion.com 4. Member of the Science and Innovation Committee ©2020 Alexion Pharmaceuticals, Inc. ALEXION, KANUMA, SOLIRIS, STRENSIQ, ULTOMIRIS, and the Alexion logo are trademarks of the Alexion Pharmaceuticals, Inc., registered in the United States, the European Union, and in other countries worldwide. Follow us on Social Media This Annual Report contains forward looking statements, including statements contained in the CEO letter to shareholders. Forward looking statements include state- ments related to future regulatory approvals, clinical trial developments, potential benefits of our products and expected key drivers for future growth. Alexion cautions investors that any forward-looking statements or projections made by Alexion, including those made in this Annual Report, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Regulatory, economic, competitive, business, governmental, technological and other factors that may affect Alexion’s operations are discussed in Item 1A, Risk Factors in the Annual Report on Form 10-K for 2019. a l e x i o n . c o m 2 0 1 9 A N N U A L R E P O R T Continue(d) E V E R Y D A Y 2 0 1 9 A N N U A L R E P O R T

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