Acquisitions

9 Months Ended

Sep. 30, 2020

Business Combinations [Abstract]

Acquisitions

Acquisitions

In February 2020 and 2019, we completed the acquisitions of Dermira, Inc. (Dermira) and Loxo Oncology, Inc. (Loxo), respectively. 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 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. There were no acquired IPR&D charges recognized in the three months ended September 30, 2020. We recognized $294.1 million of acquired IPR&D charges for the nine months ended September 30, 2020. We recognized $77.7 million and $239.6 million of acquired IPR&D charges for the three and nine months ended September 30, 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 $46.8 million, other intangibles of $1.24 billion primarily related to lebrikizumab, deferred income tax liabilities of $55.0 million, 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 nine months ended September 30, 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, and LOXO-305, an oral BTK inhibitor. In the second quarter of 2020, the FDA approved selpercatinib (Retevmo®) under its Accelerated Approval regulations and continued approval may be

contingent upon verification and description of clinical benefit in confirmatory trials. At the time of approval, we reclassified our $4.60 billion intangible asset for selpercatinib (Retevmo) from indefinite-lived intangible assets to finite-lived intangible assets and began amortizing straight line over its estimated useful life.

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 nine months ended September 30, 2020 and 2019:

Counterparty	Compound(s) or Therapy	Acquisition Month	Phase of Development (1)	Acquired IPR&D Expense
Sitryx Therapeutics Limited	Pre-clinical targets that could lead to potential new medicines for autoimmune diseases	March 2020	Pre-clinical	$	52.3
AbCellera Biologics Inc.(2)	Neutralizing antibodies for the treatment and prevention of COVID-19	March 2020	Pre-clinical	25.0
Junshi Biosciences Co., Ltd.	Neutralizing antibodies for the treatment and prevention of COVID-19	May 2020	Pre-clinical	20.0
Undisclosed	Pre-clinical target that could lead to potential new medicine	May 2020	Pre-clinical	174.8
Evox Therapeutics Ltd.	Pre-clinical research collaboration for the potential treatment of neurological disorders	June 2020	Pre-clinical	22.0
AC Immune SA	Tau aggregation inhibitor small molecules for the potential treatment of Alzheimer's disease and other neurodegenerative diseases	January 2019 & September 2019(3)	Pre-clinical	$	127.1
ImmuNext, Inc.	Novel immunometabolism target	March 2019	Pre-clinical	40.0
Avidity Biosciences, Inc.	Potential new medicines in immunology and other select indications	April 2019	Pre-clinical	25.0
Centrexion Therapeutics Corporation	CNTX-0290, a novel, small molecule somatostain receptor type 4 agonist	July 2019	Phase I	47.5

(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 the acquired IPR&D expense of $25.0 million in May 2020 upon closing of the transaction.

(3) We recognized acquired IPR&D expense of $96.9 million in January 2019 upon entering into a license agreement and $30.2 million in September 2019 upon entering into an amendment to the license agreement.

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.

Subsequent Events

In October 2020, we completed the global expansion of our strategic alliance for Tyvyt® (sintilimab injection) with Innovent Biologics, Inc. (Innovent). We and Innovent currently co-commercialize Tyvyt in China. Under the terms of the expanded license agreement, we obtained an exclusive license for Tyvyt for geographies outside of China and plan to pursue registration of Tyvyt in the U.S. and other markets. As a result of the transaction, we will record an acquired IPR&D charge of $200.0 million in the fourth quarter of 2020 associated with the upfront payment due to Innovent. Innovent will be eligible to receive up to $825.0 million in success-based regulatory and sales-based milestones, as well as tiered double digit royalties on net sales for geographies outside of China. Both companies will also retain the right to study Tyvyt in combination with other medicines as part of their own clinical programs.

In October 2020, we acquired Disarm Therapeutics, Inc. (Disarm), a privately-held biotechnology company creating a new class of disease-modifying therapeutics for patients with axonal degeneration. Under the terms of the agreement, we acquired Disarm for an upfront payment of $135.0 million and up to $1.23 billion in additional future payments for potential development, success-based regulatory and sales-based milestones. The accounting impact of this acquisition and the results of the operations of Disarm will be included in our consolidated financial statements beginning in the fourth quarter of 2020.