LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

9 Months Ended

Sep. 30, 2024

LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

In April 2020, we entered into a purchase and sale agreement, or Purchase Agreement, with BX Bodyguard Royalties L.P. (an affiliate of The Blackstone Group Inc.), or Blackstone Royalties, under which Blackstone Royalties acquired a percentage of royalties payable, or the Royalty Interest, initially set at 50% with respect to net sales by MDCO, its affiliates or sublicensees of inclisiran (or the branded drug product, Leqvio) and any other licensed products under the MDCO License Agreement, and 75% of the commercial milestone payments payable under the MDCO License Agreement, together with the Royalty Interest, the Purchased Interest. If Blackstone Royalties does not receive payments in respect of the Royalty Interest by December 31, 2029, equaling at least $1.00 billion, Blackstone Royalties will receive the Royalty Interest at 55% beginning on January 1, 2030. In consideration for the sale of the Purchased Interest, Blackstone Royalties paid us $1.00 billion.

Due to our continuing involvement and an obligation to repay BX Bodyguard Royalties L.P., we record the proceeds from this transaction as a debt, net of closing costs, on our condensed consolidated balance sheets. We account for any royalties and commercial milestones due to us under the MDCO License Agreement as revenue on our condensed consolidated statements of operations and comprehensive (loss) income.

In order to determine the amortization of the liability related to the sale of future royalties, we are required to estimate the total amount of future payments to Blackstone Royalties over the life of the Purchase Agreement. The $1.00 billion liability, recorded at execution of the agreement, will be accreted to the total of these royalty and commercial milestone payments as interest expense over the life of the Purchase Agreement. As of September 30, 2024 and December 31, 2023, our estimate of this total interest expense resulted in an effective annual interest rate of 9% and 8%, respectively. These estimates contain assumptions that impact both the amount recorded at execution and the interest expense that will be recognized in future periods.

As payments are made to Blackstone Royalties, the balance of the liability will be effectively repaid over the life of the Purchase Agreement. The exact timing and amount of repayment is likely to change each reporting period. A significant increase or decrease in Leqvio global net revenue will materially impact the liability related to the sale of future royalties, interest expense and the time period for repayment. We will periodically assess the expected payments to Blackstone Royalties and to the extent the amount or timing of such payments is materially different than our initial estimates, we will prospectively adjust the amortization of the liability related to the sale of future royalties and the related interest expense.

As of September 30, 2024 and December 31, 2023, the carrying value of the liability related to the sale of future royalties was $1.42 billion, net of closing costs of $9.3 million, and $1.38 billion, net of closing costs of $10.0 million, respectively. The carrying value of the liability related to the sale of future royalties approximates fair value as of September 30, 2024 and is based on our current estimates of future royalties and commercial milestones expected to be paid to Blackstone Royalties over the life of the arrangement, which are considered Level 3 inputs.

The following table shows the activity with respect to the liability related to the sale of future royalties, in thousands:


Carrying value as of December 31, 2023	$	1,377,239
Interest expense recognized	91,834
Payments	(44,708)
Carrying value as of September 30, 2024	$	1,424,365