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Acquisitions
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Acquisitions Acquisitions
During the three months ended March 31, 2020 we completed the acquisition of Dermira, Inc. (Dermira) and during the three months ended March 31, 2019, we completed the acquisition of Loxo Oncology, Inc. (Loxo). These transactions, as further discussed in this note below in Acquisitions of Businesses, were accounted for as business combinations under the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated condensed financial statements. The determination of estimated fair value required management to make significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net assets, where applicable, has been recorded as goodwill. The results of operations of these acquisitions are included in our consolidated condensed financial statements from the date of acquisition.
We also acquired assets in development in the three months ended March 31, 2020 and 2019, which are further discussed in this note below in Asset Acquisitions. Upon acquisition, the acquired in-process research and development (IPR&D) charges related to these compounds were immediately expensed because the compounds had no alternative future use. We incurred acquired IPR&D charges of $52.3 million and $136.9 million for the three months ended March 31, 2020 and 2019, respectively.
Acquisitions of Businesses
Dermira Acquisition
Overview of Transaction
In February 2020, we acquired all shares of Dermira for a purchase price of approximately $849.3 million, net of cash acquired. Under terms of the agreement, we acquired lebrikizumab, a novel, investigational, monoclonal antibody being evaluated for the treatment of moderate-to-severe atopic dermatitis. Lebrikizumab was granted Fast Track designation from the U.S. Food and Drug Administration (FDA). We also acquired Qbrexza® (glycopyrronium) cloth, a medicated cloth approved by the FDA for the topical treatment of primary axillary hyperhidrosis (uncontrolled excessive underarm sweating).
Assets Acquired and Liabilities Assumed
Our access to Dermira information was limited prior to the acquisition. As a consequence, we are in the process of determining fair values and tax bases of a significant portion of the assets acquired and liabilities assumed, including the identification and valuation of intangible assets, long-term debt, and tax exposures. The final determination of these amounts will be completed as soon as possible but no later than one year from the acquisition date. The final determination may result in asset and liability fair values and tax bases that differ from the preliminary estimates and require changes to the preliminary amounts recognized. Preliminary fair values related to this acquisition included goodwill of $99.7 million, other intangibles of $1.21 billion, and long-term debt of $375.5 million. After the acquisition, we repaid $276.2 million of long-term debt assumed as part of our acquisition of Dermira.
Loxo Acquisition
Overview of Transaction
In February 2019, we acquired all shares of Loxo for a purchase price of $6.92 billion, net of cash acquired. The accelerated vesting of Loxo employee equity awards was recognized as transaction expense included in asset impairment, restructuring, and other special charges during the three months ended March 31, 2019 (see Note 6).
Under the terms of the agreement, we acquired a pipeline of investigational medicines, including selpercatinib (LOXO-292), an oral RET inhibitor granted Breakthrough Therapy designation and Priority Review by the FDA, and LOXO-305, an oral BTK inhibitor.
Assets Acquired and Liabilities Assumed
The following table summarizes the amounts recognized for assets acquired and liabilities assumed in the acquisition of Loxo as of the acquisition date:
Estimated Fair Value at February 15, 2019
Acquired IPR&D (1)
$
4,670.0

Finite-lived intangibles (2)
980.0

Deferred income taxes
(1,032.8
)
Other assets and liabilities - net
(26.4
)
Total identifiable net assets
4,590.8

Goodwill(3)
2,326.9

Total consideration transferred - net of cash acquired
$
6,917.7

(1) $4.60 billion of the acquired IPR&D relates to selpercatinib (LOXO-292).
(2) Contract-based intangibles (primarily related to Vitrakvi®) which are being amortized to cost of sales on a straight-line basis over their estimated useful lives, were expected to have a weighted average useful life of approximately 12 years from the acquisition date.
(3) The goodwill recognized from this acquisition is attributable primarily to future unidentified projects and products and the assembled workforce for Loxo and is not deductible for tax purposes.
Asset Acquisitions
The following table and narrative summarize our asset acquisitions during the three months ended March 31, 2020 and 2019:
Counterparty
Compound(s) or Therapy
Acquisition Month
 
Phase of Development (1)
 
Acquired IPR&D Expense
Sitryx Therapeutics Limited
Preclinical targets that could lead to potential new medicines for autoimmune diseases
March 2020
 
Pre-clinical
 
$
52.3

 
 
 
 
 
 
 
AC Immune SA (2)
Tau aggregation inhibitor small molecules for the potential treatment of Alzheimer's disease and other neurodegenerative diseases
January 2019
 
Pre-clinical
 
$
96.9

ImmuNext, Inc.
Novel immunometabolism target
March 2019
 
Pre-clinical
 
40.0


(1) The phase of development presented is as of the date of the arrangement and represents the phase of development of the most advanced asset acquired, where applicable.
(2) We recognized an additional acquired IPR&D expense of $30.2 million in September 2019 upon entering into an amendment to the license agreement.
We entered into an agreement with AbCellera Biologics Inc. (AbCellera) to co-develop antibody products for the potential treatment and prevention of COVID-19. Under the terms of the agreement, we have committed to equally share initial development costs towards a product with AbCellera, after which we will be responsible for all further development, manufacturing, and distribution. We expect to record an acquired IPR&D charge of $25.0 million in the second quarter of 2020 upon closing of the transaction.
In connection with these arrangements, our partners may be entitled to future royalties and/or commercial milestones based on sales should products be approved for commercialization and/or milestones based on the successful progress of compounds through the development process.