Acquisitions

Acquisition of Enobia Pharma Corp.

On February 7, 2012, we acquired Enobia Pharma Corp. (Enobia), a privately held clinical-stage biotechnology company based in Montreal, Canada and Cambridge, Massachusetts, in a transaction accounted for under the acquisition method of accounting for business combinations. Under the acquisition method of accounting, the assets acquired and liabilities assumed of Enobia were recorded as of the acquisition date at their respective fair values. The reported consolidated financial condition after completion of the acquisition reflects these fair values. Enobia's results of operations are included in the consolidated financial statements from the date of acquisition. The acquisition is intended to further our objective to develop and commercialize therapies for patients with severe, ultra-rare and life-threatening disorders. Enobia's lead product candidate asfotase alfa, is a human recombinant targeted alkaline phosphatase enzyme-replacement therapy for patients suffering with hypophosphatasia (HPP), an ultra-rare, life-threatening, genetic metabolic disease for which there are no approved treatments.

We made an upfront cash payment of $623,876 for 100% of Enobia's capital stock. Additional contingent payments of up to an aggregate of $470,000 would be due upon reaching various regulatory and sales milestones. We financed the acquisition with existing cash and proceeds from our new credit facility (Note 7).

A reconciliation of upfront payments in accordance with the purchase agreement to the total purchase price is presented below:



	Enobia
Base payment per agreement	$	610,000
Cash acquired	18,141
Working capital adjustment	(4,265		)
Upfront payment in accordance with agreement	623,876
Estimated fair value of contingent consideration	117,000
Total purchase price	$	740,876

The initial estimate of fair value of contingent consideration was $117,000, which was recorded as a noncurrent liability. We determined the fair value of these obligations to pay additional milestone payments using various estimates, including probabilities of success, discount rates and amount of time until the conditions of the milestone payments are met. This fair value measurement is based on significant inputs not observable in the market, representing a Level 3 measurement within the fair value hierarchy (described further in Note 11). The resulting probability-weighted cash flows were discounted using a cost of debt rate of 5.2% for developmental milestones and a weighted average cost of capital rate of 13.0% for commercial milestones. These rates are representative of market participant assumptions. The range of estimated milestone payments is from zero if no clinical milestones are achieved for any product to $470,000 if various regulatory and sales milestones are achieved.

Subsequent to the acquisition date, we have adjusted the contingent consideration to fair value with changes in fair value recognized in operating earnings. Changes in fair values 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 development work progresses towards the achievement of the milestones. At September 30, 2012, the fair value of the contingent consideration for Enobia was $122,444. Changes in fair value of the consideration for Enobia were $1,932 and $5,444 for the three and nine months ended September 30, 2012, respectively.

The fair values of acquired assets and liabilities are based on preliminary estimates and are subject to change. The following table summarizes the estimated fair values of assets acquired and liabilities assumed:



	Enobia
Cash and cash equivalents	$	18,141
Current assets	5,536
In-process research and development	587,000
Other noncurrent assets	910
Assets acquired	611,587
Deferred tax liability	(31,665		)
Other liabilities assumed	(13,246		)
Liabilities assumed	(44,911		)
Goodwill	174,200
Net assets acquired	$	740,876

Asset categories acquired in the Enobia acquisition included working capital, fixed assets, deferred tax assets and in-process research and development (IPR&D). The fair value of working capital was determined to approximate book values. The fair value assigned to the assets acquired and liabilities assumed has been prepared on a preliminary basis, and changes to that allocation may occur as additional information becomes available related to working capital adjustments, indemnification assets and deferred taxes.

Intangible assets associated with IPR&D projects relate to Enobia's lead product candidate, asfotase alfa. The estimated fair value of $587,000 was determined using the multi-period excess earnings method, a variation of the income approach. The multi-period excess earnings method estimates the value of an intangible asset equal to the present value of the incremental after-tax cash flows attributable to that intangible asset. The fair value using the multi-period excess earnings method was dependent on an estimated weighted average cost of capital for Enobia of 13.0%, which represents a rate of return that a market participant would expect for these assets. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis, as well as between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their estimated useful lives at that point in time.

The excess of purchase price over the fair value amounts of the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. We do not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to our acquisition of Enobia has been recorded as a noncurrent asset and is not amortized, but is subject to an annual review for impairment. The factors that contributed to the recognition of goodwill included the synergies that are specific to our business and not available to market participants, including our unique ability to commercialize therapies for rare diseases, our skills and relationships related to biologics manufacturing, our existing relationships with specialty physicians who can identify patients with HPP and a global distribution network to facilitate immediate drug delivery.

We recorded a net deferred tax liability of $31,665. This amount was primarily comprised of $78,620 related to IPR&D, offset by acquired net operating losses and research credit carryovers totaling $46,955.

For the nine months ended September 30, 2012, we recorded $6,794 of expenses associated with the operations of Enobia from February 7, 2012 through March 31, 2012 in our condensed consolidated statement of comprehensive income. Effective April 1, 2012, the operations of Enobia were integrated into our operations.

Pro forma financial information (unaudited)

The following unaudited pro forma information presents the combined results of operations for the three months ended September 30, 2011 and for the nine months ended September 30, 2012 and 2011 as if the acquisition of Enobia had been completed on January 1, 2011. The pro forma results do not reflect operating efficiencies or potential cost savings which may result from the consolidation of operations. The pro forma results have been adjusted to remove costs associated with changes in the fair value of Enobia's preferred stock. Included in the pro forma net income for the nine months ended September 30, 2012, are approximately $20,600 and $7,900 of Alexion and Enobia acquisition-related costs, respectively, which are not expected to have an ongoing impact.



	Three months ended		Nine months ended
	September 30,		September 30,
	2011		2012		2011
Revenues	$	204,047	$	813,588	$	555,872
Net income	50,567		155,437		91,592
Earnings per common share
Basic	$	0.28	$	0.82	$	0.50
Diluted	$	0.26	$	0.79	$	0.48

Other Acquisitions

Taligen Therapeutics, Inc.

On January 28, 2011, we acquired all of the outstanding capital stock of Taligen Therapeutics, Inc. (Taligen) in a transaction accounted for under the acquisition method of accounting for business combinations. We made initial payments of $111,773 in cash and may make additional future payments of up to $367,000 in contingent milestone payments upon achievement of various development and commercial milestones. The range of estimated milestone payments is from zero if no clinical milestones are achieved for any product to $367,000 if six products gain both U.S. and European marketing approval.

The initial estimate of fair value of contingent consideration was $11,634. Subsequent to the acquisition date, we have adjusted the contingent consideration to fair value with changes in fair value recognized in operating earnings. At September 30, 2012, the fair value of the contingent consideration for Taligen was $9,615. Changes in fair value of the consideration for Taligen were $(4,224) and $149 for the three months ended September 30, 2012 and 2011, respectively and $(3,069) and $899 for the nine months ended September 30, 2012 and 2011, respectively. Included in this change in fair value of the Taligen for the three and nine months ended September 30, 2012 is a gain of $4,331 related to the decrease in the fair value of the contingent consideration related to this acquisition. The decrease in fair value was a result of a decreased likelihood of payments for contingent consideration due to the negative scientific findings, decrease in value and related deprioritization of the age-related macular degeneration program (Note 6).

Orphatec Pharmaceuticals GmbH

On February 8, 2011, we acquired certain patents and assets from Orphatec Pharmaceuticals GmbH (Orphatec) related to an investigational therapy for patients with molybdenum cofactor deficiency (MoCD) Type A, an ultra-rare genetic disorder characterized by severe brain damage and rapid death in newborns. We made initial payments of $3,050 in cash and may make additional future payments of up to $42,000 in contingent milestone payments upon various development, regulatory and commercial milestones. The range of estimated milestone payments is from zero if no products gain market approval to $42,000 if all indications for up to two products gain both U.S. and European marketing approval and reach applicable sales levels.

The initial estimate of fair value of contingent consideration was $5,086. Subsequent to the acquisition date, we have measured the contingent consideration arrangement at fair value with changes in fair value recognized in operating earnings. At September 30, 2012, the fair value of the contingent consideration for Orphatec was $7,394. Changes in fair value of the consideration for Orphatec were $1,750 and $87 for the three months ended September 30, 2012 and 2011, respectively and $1,958 and $218 for the nine months ended September 30, 2012 and 2011, respectively.

Acquisition-Related Costs

Acquisition-related costs for the three and nine months ended September 30, 2012 and 2011 include the following:



	Three months ended					Nine months ended
	September 30,					September 30,
	2012			2011		2012		2011
Separately-identifiable employee costs	$	457		$	—	$	3,552	$	6,597
Professional fees	1,052			—		11,562		3,450
Changes in fair value of contingent consideration	(542		)	236		4,333		1,117
	$	967		$	236	$	19,447	$	11,164

During the three and nine months ended September 30, 2012, we incurred approximately $3,400 and $20,600, respectively, in costs related to the Enobia acquisition, which are included in this table above.