In October 2019, Alexion entered into a definitive agreement to acquire Achillion Pharmaceuticals, Inc. (Achillion), a clinical-stage biopharmaceutical company focused on the development of oral Factor D inhibitors. Achillion was developing oral small molecule Factor D inhibitors to treat people with complement alternative pathway-mediated rare diseases, such as PNH and C3 glomerulopathy (C3G). Achillion had two clinical stage medicines in development, including danicopan (ACH-4471/ALXN2040) and ACH-5228 (ALXN2050).

The acquisition of Achillion closed on January 28, 2020. Under the terms of the agreement, we acquired all outstanding common stock of Achillion for $6.30 per share, or an aggregate of $926.2, inclusive of the settlement of Achillion's outstanding equity awards. The acquisition was funded with cash on hand. The transaction includes the potential for additional consideration in the form of non-tradeable contingent value rights (CVRs), which will be paid to Achillion shareholders if certain clinical and regulatory milestones are achieved within specified periods. These


Consideration
Upfront payment to shareholders and option holders	$	926.2
Upfront payment, fair value of equity compensation attributable to the post-combination service period	(20.0)
Upfront cash paid, net	906.2

Contingent consideration	160.7
Contingent consideration, fair value of equity compensation attributable to the post-combination service period	(5.7)
Total consideration	$	1,061.2

Assets Acquired and Liabilities Assumed
Cash and cash equivalents	$	68.5
Marketable securities	106.1
In-process research & development assets (IPR&D)	918.0
Goodwill	37.8
Deferred tax liabilities, net	(62.9)
Other assets and liabilities, net	(6.3)
Total net assets acquired	$	1,061.2

Our accounting for this acquisition was finalized during the second quarter of 2020. Measurement period adjustments increased goodwill by $3.1 during the second quarter of 2020 due to purchase price allocation increases to deferred tax liabilities, net. Measurement period adjustments were recorded as a result of studies completed during the second quarter of 2020 to determine the tax deductibility of certain acquisition-related costs and the valuation of historical net operating loss and income tax credit carryforwards.

The initial fair value estimate of the contingent consideration in the form of non-tradeable CVRs was $160.7, which was recorded as a noncurrent liability in our condensed consolidated balance sheet, including $5.7 related to compensation attributable to the post-combination service period. We determined the fair value of these milestone-related payment obligations using various estimates, including probabilities of success prior to expiration of the specified period, discount rates and the amount of time until the conditions of the milestone payments are expected to be met. This fair value measurement is based on significant inputs not observable in the market, representing Level 3 measurements within the fair value hierarchy. The resulting probability-weighted cash flows were discounted using a cost of debt rate ranging from 2.1% to 2.3%. The range of estimated milestone payments is from zero, if no milestones are achieved for any product, to $306.3 if certain development and regulatory 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 potential achievement of the milestones. At June 30, 2020, the fair value of the contingent consideration for the Achillion acquisition was $190.1 based on the probability-weighted cash flows, discounted using a cost of debt ranging from 0.4% to 0.7%. Changes in fair value of the contingent consideration associated with the Achillion acquisition for the three and six months ended June 30, 2020 was $27.6 and $29.3 respectively. We continue to evaluate our development plans with respect to danicopan and ACH5228. The fair value of contingent consideration may change in future periods if we decide to pursue danicopan and ACH5228 in additional indications which may change the probability and timing of meeting certain milestones.

related costs in our condensed consolidated statements of operations. These amounts were associated with the accelerated vesting of stock options previously granted to Achillion employees. Excluding the $5.7 of contingent consideration related to equity compensation attributable to the post-combination service period, such amounts were paid during the first quarter 2020.

Intangible assets associated with IPR&D relate to two development-stage programs, ACH-4471 (ALXN2040) and ACH-5228 (ALXN2050). The estimated fair value of $918.0 was determined using the excess earnings valuation method, a variation of the income valuation approach. The excess earnings valuation 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. Some of the more significant assumptions utilized in our asset valuations included the estimated net cash flows for each asset, including net revenues, cost of sales, research and development and other operating expenses, the potential regulatory and commercial success rates, competitive trends impacting the assets, and tax rates. The fair value using the excess earnings valuation method was determined using an estimated weighted average cost of capital for Achillion of 11.5%, which represents a rate of return that a market participant would expect for these assets. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 fair value measurements. In the second quarter 2020, we recognized an impairment charge of $11.0 to write off our ACHN-4471 (ALXN2040) IPR&D asset due to clinical results received during the quarter.

The excess of purchase price over the fair value of the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. The goodwill, which is not tax-deductible, 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 include the value of the acquired workforce, synergies that are specific to our business and not available to market participants, and early research in preclinical Factor D inhibitors, as well as the effects of the establishment of a deferred tax liability for the acquired IPR&D intangible assets, which has no tax basis.

We recorded a net deferred tax liability of $62.9, inclusive of measurement period adjustments recorded during the second quarter 2020. This amount was primarily comprised of $205.3 of deferred tax liabilities relating to the IPR&D acquired, offset by $142.4 of deferred tax assets related to net operating loss carryforwards (NOLs), income tax credits, and other temporary differences.

Achillion's results of operations are included in the condensed consolidated financial statements from the date of acquisition. For the three and six months ended June 30, 2020, we recorded $12.9 and $26.8, respectively, of pre-tax operating losses excluding transaction costs and impairment charges, associated with the operations of Achillion in our condensed consolidated statements of operations. We also recorded acquisition-related costs in connection with the acquisition during the three and six months ended June 30, 2020 as presented below. No revenues were recorded in the results of operations during the three or six months ended June 30, 2020 as neither ALXN2040 nor ALXN2050 has been approved for commercial sale by any regulatory agency.

The following unaudited pro forma information presents the combined results of Alexion and Achillion as if the acquisition of Achillion had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the acquisition. The unaudited pro forma results do not reflect operating efficiencies or potential cost savings that may have resulted from the consolidation of operations. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations had we completed the transaction on January 1, 2019.

The unaudited pro forma consolidated results include pro forma adjustments related to non-recurring activity. Alexion and Achillion acquisition-related costs of $(0.1) and $53.2, respectively, net of tax, were excluded from net income for the three and six months ended June 30, 2020. These expenses were included in net income for the three and six months ended June 30, 2019.

In May 2020, Alexion entered into a definitive merger agreement to acquire Portola Pharmaceuticals, Inc. (Portola), a commercial-stage biopharmaceutical company focused on life-threatening blood-related disorders. Portola’s commercialized medicine, ANDEXXA®, marketed as ONDEXXYA® in Europe, is the first and only approved Factor Xa inhibitor reversal agent, and has demonstrated transformative clinical value by rapidly reversing the anticoagulant effects of Factor Xa inhibitors rivaroxaban and apixaban in severe and uncontrolled bleeding. The acquisition provides the opportunity to grow the commercial portfolio and is a strategic fit with our existing expertise in hematology and neurology.

Alexion completed the acquisition through a tender offer and subsequent merger of Portola with Odyssey Merger Sub Inc., a wholly owned subsidiary of Alexion. The acquisition closed on July 2, 2020. Under the terms of the tender offer and merger agreement, Alexion's subsidiary (Odyssey Merger Sub Inc.) purchased all outstanding common stock of Portola for $18.00 per share, or an aggregate of approximately $1,380.1, including the settlement of certain of Portola's outstanding equity awards but excluding shares of Portola stock held by Alexion at closing. The acquisition was funded by cash on hand. In connection with the acquisition, Alexion also paid $196.9 to settle certain debt held by Portola that was subject to preexisting change of control provisions.

We anticipate accounting for the transaction as a business combination and are currently evaluating the purchase price allocation. Due to the proximity of the completion of the acquisition to the filing of this Quarterly Report on Form 10-Q, it is not practicable to provide preliminary purchase price allocation of the fair value of the assets purchased and liabilities assumed in the transaction. The Company expects to complete the preliminary purchase price allocation in the third quarter of 2020.


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Transaction costs ⁽¹⁾	$	4.2	$	—	$	5.6	$	—
Integration costs	0.9		—		1.0		—
Fair value of equity compensation attributable to the post-combination service period	—		—		25.7		—
Restructuring-related costs⁽²⁾	(0.5)		—		10.4		—
	$	4.6	$	—	$	42.7	$	—

Acquisition-related costs attributable to the Achillion acquisition for the three and six months ended June 30, 2020 was $(0.1) and $38.0, respectively. Acquisition-related costs attributable to Portola acquisition for three and six months ended June 30, 2020 was $4.7. All Portola acquisition-related costs incurred were attributable to transaction and integration costs.