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WCRX Warner Chilcott

Filed: 7 May 20, 8:03am

 

o

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

 

Commission

File Number

 

 

Exact name of registrant as specified in its charter,

principal office and address and telephone number

 

 

State of incorporation

or organization

 

 

I.R.S. Employer

Identification No.

 

001-36867

 

Allergan plc

Clonshaugh Business and Technology Park

Coolock, Dublin, D17 E400, Ireland

(862) 261-7000

 

Ireland

 

98-1114402

 

 

 

 

 

 

 

001-36887

 

Warner Chilcott Limited

 

Bermuda

 

98-0496358

 

 

Victoria Place, 5th Floor

 

 

 

 

 

 

Hamilton HM 10

 

 

 

 

 

 

Bermuda

 

 

 

 

 

 

(441) 295-2244

 

 

 

 

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Allergan plc Ordinary Shares, $0.0001 par value

AGN

New York Stock Exchange

Floating rate notes due 2020

AGN20A

New York Stock Exchange

0.500% notes due 2021

AGN21

New York Stock Exchange

1.500% notes due 2023

AGN 23A

New York Stock Exchange

1.250% notes due 2024

AGN 24A

New York Stock Exchange

2.625% notes due 2028

AGN28

New York Stock Exchange

2.125% notes due 2029

AGN29

New York Stock Exchange

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Allergan plc Ordinary Shares, $0.0001 par value

AGN

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

 

Allergan plc

 

YES    

 

NO    

Warner Chilcott Limited

 

YES    

 

NO    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Allergan plc

 

YES    

 

NO    

Warner Chilcott Limited

 

YES    

 

NO    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Allergan plc

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

Warner Chilcott Limited

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

Allergan plc

 

YES    

 

NO    

Warner Chilcott Limited

 

YES    

 

NO    

 

Number of shares of Allergan plc’s Ordinary Shares outstanding on May 1, 2020: 329,805,791. There is 0 trading market for securities of Warner Chilcott Limited, all of which are indirectly wholly owned by Allergan plc.

 

This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Allergan plc and Warner Chilcott Limited. Warner Chilcott Limited is an indirect wholly-owned subsidiary of Allergan plc. The information in this Quarterly Report on Form 10-Q is equally applicable to Allergan plc and Warner Chilcott Limited, except where otherwise indicated. Warner Chilcott Limited meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and, to the extent applicable, is therefore filing this form with a reduced disclosure format.

 

 

 

 


 

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

 

 

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Consolidated Financial Statements (unaudited)

3

 

 

Consolidated Balance Sheets of Allergan plc as of March 31, 2020 and December 31, 2019

3

 

 

Consolidated Statements of Operations of Allergan plc for the three months ended March 31, 2020 and March 31, 2019

4

 

 

Consolidated Statements of Comprehensive Income / (Loss) of Allergan plc for the three months ended March 31, 2020 and March 31, 2019 

5

 

 

Consolidated Statements of Cash Flows of Allergan plc for the three months ended March 31, 2020 and March 31, 2019

6

 

 

Consolidated Statements of Equity of Allergan plc for the three months ended March 31, 2020 and March 31, 2019

7

 

 

Consolidated Balance Sheets of Warner Chilcott Limited as of March 31, 2020 and December 31, 2019

8

 

 

Consolidated Statements of Operations of Warner Chilcott Limited for the three months ended March 31, 2020 and March 31, 2019

9

 

 

Consolidated Statements of Comprehensive Income / (Loss) of Warner Chilcott Limited for the three months ended March 31, 2020 and March 31, 2019

10

 

 

Consolidated Statements of Cash Flows of Warner Chilcott Limited for the three months ended March 31, 2020 and March 31, 2019

11

 

 

Consolidated Statements of Equity of Warner Chilcott Limited for the three months ended March 31, 2020 and March 31, 2019

12

 

 

Notes to the Consolidated Financial Statements

13

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

54

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

70

Item 4.

 

Controls and Procedures

71

PART II. OTHER INFORMATION

73

Item 1.

 

Legal Proceedings

73

Item 1A.

 

Risk Factors

73

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 6.

 

Exhibits

75

 

 

Signatures

76

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

ALLERGAN PLC

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions, except par value)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

999.5

 

 

$

2,503.3

 

Marketable securities

 

 

1,618.8

 

 

 

3,411.6

 

Accounts receivable, net of allowances for doubtful accounts and credit losses of $144.8 and $110.8

 

 

2,800.6

 

 

 

3,192.3

 

Inventories

 

 

1,199.9

 

 

 

1,133.1

 

Prepaid expenses and other current assets

 

 

855.3

 

 

 

886.4

 

Total current assets

 

 

7,474.1

 

 

 

11,126.7

 

Property, plant and equipment, net

 

 

1,915.4

 

 

 

1,926.5

 

Right of use asset - operating leases

 

 

481.0

 

 

 

490.4

 

Investments and other assets

 

 

430.7

 

 

 

408.0

 

Non current assets held for sale

 

 

31.7

 

 

 

31.7

 

Deferred tax assets

 

 

597.9

 

 

 

576.9

 

Product rights and other intangibles

 

 

36,266.2

 

 

 

37,890.6

 

Goodwill

 

 

41,229.2

 

 

 

42,248.3

 

Total assets

 

$

88,426.2

 

 

$

94,699.1

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

5,289.5

 

 

$

6,348.7

 

Income taxes payable

 

 

73.4

 

 

 

65.1

 

Current portion of long-term debt

 

 

1,950.7

 

 

 

4,532.5

 

Current portion of lease liability - operating

 

 

119.8

 

 

 

124.4

 

Total current liabilities

 

 

7,433.4

 

 

 

11,070.7

 

Long-term debt

 

 

17,599.0

 

 

 

18,116.5

 

Lease liability - operating

 

 

438.3

 

 

 

446.1

 

Other long-term liabilities

 

 

787.4

 

 

 

800.9

 

Other taxes payable

 

 

1,690.4

 

 

 

1,704.8

 

Deferred tax liabilities

 

 

2,456.2

 

 

 

4,363.7

 

Total liabilities

 

 

30,404.7

 

 

 

36,502.7

 

Commitments and contingencies (Refer to Note 15)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Ordinary shares; $0.0001 par value per share; 1,000.0 million shares

   authorized, 329.7 million and 328.6 million shares issued and

   outstanding, respectively

 

$

-

 

 

$

-

 

Additional paid-in capital

 

 

56,036.2

 

 

 

55,974.9

 

Retained earnings

 

 

882.5

 

 

 

991.5

 

Accumulated other comprehensive income

 

 

1,079.0

 

 

 

1,207.2

 

Total shareholders’ equity

 

 

57,997.7

 

 

 

58,173.6

 

Noncontrolling interest

 

 

23.8

 

 

 

22.8

 

Total equity

 

 

58,021.5

 

 

 

58,196.4

 

Total liabilities and equity

 

$

88,426.2

 

 

$

94,699.1

 

 

See accompanying Notes to the Consolidated Financial Statements.

3


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in millions, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net revenues

 

$

3,604.4

 

 

$

3,597.1

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and impairment of

   acquired intangibles including product rights)

 

 

623.1

 

 

 

497.8

 

Research and development

 

 

430.0

 

 

 

435.0

 

Selling and marketing

 

 

972.1

 

 

 

804.0

 

General and administrative

 

 

401.3

 

 

 

308.3

 

Amortization

 

 

1,416.4

 

 

 

1,399.4

 

Goodwill impairments

 

 

913.0

 

 

 

2,467.0

 

Asset sales and impairments, net

 

 

148.1

 

 

 

(5.2

)

Total operating expenses

 

 

4,904.0

 

 

 

5,906.3

 

Operating (loss) / income

 

 

(1,299.6

)

 

 

(2,309.2

)

 

 

 

 

 

 

 

 

 

Interest income

 

 

21.2

 

 

 

21.3

 

Interest (expense)

 

 

(184.5

)

 

 

(201.8

)

Other income / (expense), net

 

 

(24.9

)

 

 

13.8

 

Total other (expense), net

 

 

(188.2

)

 

 

(166.7

)

(Loss) before income taxes and noncontrolling

   interest

 

 

(1,487.8

)

 

 

(2,475.9

)

(Benefit) for income taxes

 

 

(1,866.8

)

 

 

(68.6

)

Net income / (loss)

 

 

379.0

 

 

 

(2,407.3

)

(Income) attributable to noncontrolling interest

 

 

(1.0

)

 

 

(0.7

)

Net Income / (loss) attributable to shareholders

 

$

378.0

 

 

$

(2,408.0

)

 

 

 

 

 

 

 

 

 

Income / (Loss) per share attributable to shareholders

 

 

 

 

 

 

 

 

Basic

 

$

1.15

 

 

$

(7.25

)

Diluted

 

$

1.14

 

 

$

(7.25

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

329.1

 

 

 

332.0

 

Diluted

 

 

331.9

 

 

 

332.0

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

4


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

(Unaudited; in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net income / (loss)

 

$

379.0

 

 

$

(2,407.3

)

Other comprehensive (loss) / income

 

 

 

 

 

 

 

 

Foreign currency translation (losses)

 

 

(127.2

)

 

 

(127.8

)

Unrealized (losses), net of tax

 

 

(1.0

)

 

 

(1.0

)

Total other comprehensive (loss), net of tax

 

 

(128.2

)

 

 

(128.8

)

Comprehensive income / (loss)

 

 

250.8

 

 

 

(2,536.1

)

Comprehensive (income) attributable to noncontrolling

  interest

 

 

(1.0

)

 

 

(0.7

)

Comprehensive income / (loss) attributable to ordinary

   shareholders

 

$

249.8

 

 

$

(2,536.8

)

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

5


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net income / (loss)

 

$

379.0

 

 

$

(2,407.3

)

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

56.8

 

 

 

47.5

 

Amortization

 

 

1,416.4

 

 

 

1,399.4

 

Provision for inventory reserve

 

 

28.4

 

 

 

18.8

 

Share-based compensation

 

 

51.6

 

 

 

52.3

 

Deferred income tax benefit

 

 

(1,931.1

)

 

 

(229.7

)

Goodwill impairments

 

 

913.0

 

 

 

2,467.0

 

(Gain) / loss on asset sales and impairments, net

 

 

148.1

 

 

 

(5.2

)

Non-cash extinguishment of debt

 

 

-

 

 

 

0.3

 

Amortization of deferred financing costs

 

 

4.1

 

 

 

4.6

 

Non-cash lease expense

 

 

35.9

 

 

 

30.1

 

Contingent consideration adjustments, including accretion

 

 

26.6

 

 

 

18.7

 

Other, net

 

 

65.2

 

 

 

(10.3

)

Changes in assets and liabilities (net of effects of acquisitions):

 

 

 

 

 

 

 

 

Decrease / (increase) in accounts receivable, net

 

 

330.2

 

 

 

132.4

 

Decrease / (increase) in inventories

 

 

(126.3

)

 

 

(128.3

)

Decrease / (increase) in prepaid expenses and other current assets

 

 

(20.1

)

 

 

36.2

 

Increase / (decrease) in accounts payable and accrued expenses

 

 

(1,242.9

)

 

 

(199.8

)

Increase / (decrease) in income and other net taxes payable

 

 

2.1

 

 

 

60.0

 

Increase / (decrease) in other assets and liabilities

 

 

(20.5

)

 

 

(52.7

)

Net cash provided by operating activities

 

 

116.5

 

 

 

1,234.0

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(60.4

)

 

 

(64.8

)

Additions to product rights and other intangibles

 

 

(57.6

)

 

 

(7.5

)

Additions to investments

 

 

(5.0

)

 

 

(538.2

)

Proceeds from sale of investments and other assets

 

 

1,800.0

 

 

 

569.1

 

Proceeds from sales of property, plant and equipment

 

 

2.1

 

 

 

17.2

 

Acquisitions of businesses, net of cash acquired

 

 

-

 

 

 

(80.6

)

Net cash (used in) / provided by investing activities

 

 

1,679.1

 

 

 

(104.8

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Payments on debt, including finance lease obligations and credit facility

 

 

(3,031.8

)

 

 

(159.4

)

Payments of contingent consideration and other financing

 

 

(2.8

)

 

 

(2.0

)

Proceeds from stock plans

 

 

64.4

 

 

 

9.7

 

Repurchase of ordinary shares

 

 

(54.7

)

 

 

(829.2

)

Dividends paid

 

 

(243.5

)

 

 

(246.1

)

Net cash (used in) financing activities

 

 

(3,268.4

)

 

 

(1,227.0

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

(31.0

)

 

 

5.9

 

Net increase / (decrease) in cash and cash equivalents

 

 

(1,503.8

)

 

 

(91.9

)

Cash and cash equivalents at beginning of period

 

 

2,503.3

 

 

 

880.4

 

Cash and cash equivalents at end of period

 

$

999.5

 

 

$

788.5

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Income taxes other, net of refunds

 

$

68.7

 

 

$

105.4

 

Interest

 

$

237.6

 

 

$

252.0

 

Schedule of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Dividends accrued

 

$

244.5

 

 

$

1.4

 

 

See accompanying Notes to the Consolidated Financial Statements.

6


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Ordinary Shares

 

 

Paid-in-

 

 

Retained

 

 

Comprehensive

 

 

Noncontrolling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income / (Loss)

 

 

Interest

 

 

Total

 

BALANCE, December 31, 2018

 

 

332.6

 

 

$

-

 

 

$

56,510.0

 

 

$

7,258.9

 

 

$

1,345.2

 

 

$

16.9

 

 

$

65,131.0

 

Implementation of new accounting

   pronouncement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22.0

)

 

 

-

 

 

 

-

 

 

 

(22.0

)

BALANCE, January 1, 2019

 

 

332.6

 

 

$

-

 

 

$

56,510.0

 

 

$

7,236.9

 

 

$

1,345.2

 

 

$

16.9

 

 

$

65,109.0

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,408.0

)

 

 

-

 

 

 

-

 

 

 

(2,408.0

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128.8

)

 

 

-

 

 

 

(128.8

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

52.3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52.3

 

Ordinary shares issued under employee stock plans

 

 

0.7

 

 

 

-

 

 

 

9.7

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9.7

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(246.1

)

 

 

-

 

 

 

-

 

 

 

(246.1

)

Repurchase of ordinary shares under the

   share repurchase programs

 

 

(5.3

)

 

 

-

 

 

 

(799.7

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(799.7

)

Repurchase of ordinary shares

 

 

(0.2

)

 

 

-

 

 

 

(29.5

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(29.5

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.7

 

 

 

0.7

 

BALANCE, March 31, 2019

 

 

327.8

 

 

$

-

 

 

$

55,742.8

 

 

$

4,582.8

 

 

$

1,216.4

 

 

$

17.6

 

 

$

61,559.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2019

 

 

328.6

 

 

$

-

 

 

$

55,974.9

 

 

$

991.5

 

 

$

1,207.2

 

 

$

22.8

 

 

$

58,196.4

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

378.0

 

 

 

-

 

 

 

-

 

 

 

378.0

 

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128.2

)

 

 

-

 

 

 

(128.2

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

51.6

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

51.6

 

Ordinary shares issued under employee stock plans

 

 

1.4

 

 

 

-

 

 

 

64.4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

64.4

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(487.0

)

 

 

-

 

 

 

-

 

 

 

(487.0

)

Repurchase of ordinary shares

 

 

(0.3

)

 

 

-

 

 

 

(54.7

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(54.7

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1.0

 

 

 

1.0

 

BALANCE, March 31, 2020

 

 

329.7

 

 

 

-

 

 

 

56,036.2

 

 

 

882.5

 

 

 

1,079.0

 

 

 

23.8

 

 

 

58,021.5

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

7


 

WARNER CHILCOTT LIMITED

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

990.5

 

 

$

2,497.1

 

Marketable securities

 

 

1,618.8

 

 

 

3,411.6

 

Accounts receivable, net of allowances for doubtful accounts and credit losses of $144.8 and $110.8

 

 

2,800.6

 

 

 

3,192.3

 

Receivables from Parents

 

 

539.0

 

 

 

409.3

 

Inventories

 

 

1,199.9

 

 

 

1,133.1

 

Prepaid expenses and other current assets

 

 

855.3

 

 

 

886.4

 

Total current assets

 

 

8,004.1

 

 

 

11,529.8

 

Property, plant and equipment, net

 

 

1,915.4

 

 

 

1,926.5

 

Right of use asset - operating leases

 

 

481.0

 

 

 

490.4

 

Investments and other assets

 

 

430.7

 

 

 

408.0

 

Non current assets held for sale

 

 

31.7

 

 

 

31.7

 

Deferred tax assets

 

 

597.9

 

 

 

576.9

 

Product rights and other intangibles

 

 

36,266.2

 

 

 

37,890.6

 

Goodwill

 

 

41,229.2

 

 

 

42,248.3

 

Total assets

 

$

88,956.2

 

 

$

95,102.2

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

5,044.9

 

 

$

6,347.0

 

Payables to Parents

 

 

2,899.9

 

 

 

2,715.5

 

Income taxes payable

 

 

73.5

 

 

 

65.1

 

Current portion of long-term debt

 

 

1,950.7

 

 

 

4,532.5

 

Current portion of lease liability - operating

 

 

119.8

 

 

 

124.4

 

Total current liabilities

 

 

10,088.8

 

 

 

13,784.5

 

Long-term debt

 

 

17,599.0

 

 

 

18,116.5

 

Lease liability - operating

 

 

438.3

 

 

 

446.1

 

Other long-term liabilities

 

 

787.9

 

 

 

801.4

 

Other taxes payable

 

 

1,683.9

 

 

 

1,698.6

 

Deferred tax liabilities

 

 

2,455.8

 

 

 

4,363.2

 

Total liabilities

 

 

33,053.7

 

 

 

39,210.3

 

Commitments and contingencies (Refer to Note 15)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Members' capital

 

 

63,780.1

 

 

 

64,023.6

 

(Accumulated deficit)

 

 

(8,980.4

)

 

 

(9,361.7

)

Accumulated other comprehensive income

 

 

1,079.0

 

 

 

1,207.2

 

Total members’ equity

 

 

55,878.7

 

 

 

55,869.1

 

Noncontrolling interest

 

 

23.8

 

 

 

22.8

 

Total equity

 

 

55,902.5

 

 

 

55,891.9

 

Total liabilities and equity

 

$

88,956.2

 

 

$

95,102.2

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

8


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net revenues

 

$

3,604.4

 

 

$

3,597.1

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and impairment of

   acquired intangibles including product rights)

 

 

623.1

 

 

 

497.8

 

Research and development

 

 

430.0

 

 

 

435.0

 

Selling and marketing

 

 

972.1

 

 

 

804.0

 

General and administrative

 

 

398.0

 

 

 

306.1

 

Amortization

 

 

1,416.4

 

 

 

1,399.4

 

Goodwill impairments

 

 

913.0

 

 

 

2,467.0

 

Asset sales and impairments, net

 

 

148.1

 

 

 

(5.2

)

Total operating expenses

 

 

4,900.7

 

 

 

5,904.1

 

Operating (loss) / income

 

 

(1,296.3

)

 

 

(2,307.0

)

 

 

 

 

 

 

 

 

 

Interest income

 

 

21.2

 

 

 

21.3

 

Interest (expense)

 

 

(184.5

)

 

 

(201.8

)

Other (expense) income, net

 

 

(24.9

)

 

 

13.8

 

Total other (expense), net

 

 

(188.2

)

 

 

(166.7

)

(Loss) / income before income taxes and noncontrolling

   interest

 

 

(1,484.5

)

 

 

(2,473.7

)

(Benefit) for income taxes

 

 

(1,866.8

)

 

 

(68.7

)

Net income / (loss)

 

 

382.3

 

 

 

(2,405.0

)

(Income) attributable to noncontrolling interest

 

 

(1.0

)

 

 

(0.7

)

Net income / (loss) attributable to members

 

$

381.3

 

 

$

(2,405.7

)

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

9


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

(Unaudited; in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net income / (loss)

 

$

382.3

 

 

$

(2,405.0

)

Other comprehensive (loss) / income

 

 

 

 

 

 

 

 

Foreign currency translation (losses)

 

 

(127.2

)

 

 

(127.8

)

Unrealized gains / (losses), net of tax

 

 

(1.0

)

 

 

(1.0

)

Total other comprehensive (loss), net of tax

 

 

(128.2

)

 

 

(128.8

)

Comprehensive income / (loss)

 

 

254.1

 

 

 

(2,533.8

)

Comprehensive (income) attributable to noncontrolling

   interest

 

 

(1.0

)

 

 

(0.7

)

Comprehensive income / (loss) attributable to members

 

$

253.1

 

 

$

(2,534.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

10


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net income / (loss)

 

$

382.3

 

 

$

(2,405.0

)

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

56.8

 

 

 

47.5

 

Amortization

 

 

1,416.4

 

 

 

1,399.4

 

Provision for inventory reserve

 

 

28.4

 

 

 

18.8

 

Share-based compensation

 

 

51.6

 

 

 

52.3

 

Deferred income tax benefit

 

 

(1,931.1

)

 

 

(229.7

)

Goodwill impairments

 

 

913.0

 

 

 

2,467.0

 

(Gain) / loss on asset sales and impairments, net

 

 

148.1

 

 

 

(5.2

)

Non-cash extinguishment of debt

 

 

-

 

 

 

0.3

 

Amortization of deferred financing costs

 

 

4.1

 

 

 

4.6

 

Non-cash lease expense

 

 

35.9

 

 

 

30.1

 

Contingent consideration adjustments, including accretion

 

 

26.6

 

 

 

18.7

 

Other, net

 

 

65.2

 

 

 

(10.3

)

Changes in assets and liabilities (net of effects of acquisitions):

 

 

 

 

 

 

 

 

Decrease / (increase) in accounts receivable, net

 

 

330.2

 

 

 

132.4

 

Decrease / (increase) in inventories

 

 

(126.3

)

 

 

(128.3

)

Decrease / (increase) in prepaid expenses and other current assets

 

 

(20.1

)

 

 

40.4

 

Increase / (decrease) in accounts payable and accrued expenses

 

 

(1,000.0

)

 

 

(199.5

)

Increase / (decrease) in income and other net taxes payable

 

 

2.1

 

 

 

60.0

 

Increase / (decrease) in other assets and liabilities, including receivable / payable with Parents

 

 

(259.8

)

 

 

(79.3

)

Net cash provided by operating activities

 

 

123.4

 

 

 

1,214.2

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(60.4

)

 

 

(64.8

)

Additions to product rights and other intangibles

 

 

(57.6

)

 

 

(7.5

)

Additions to investments

 

 

(5.0

)

 

 

(538.2

)

Proceeds from sale of investments and other assets

 

 

1,800.0

 

 

 

569.1

 

Proceeds from sales of property, plant and equipment

 

 

2.1

 

 

 

17.2

 

Acquisitions of businesses, net of cash acquired

 

 

-

 

 

 

(80.6

)

Net cash (used in) / provided by investing activities

 

 

1,679.1

 

 

 

(104.8

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Payments on debt, including finance lease obligations and credit facility

 

 

(3,031.8

)

 

 

(159.4

)

Payments of contingent consideration and other financing

 

 

(2.8

)

 

 

(2.0

)

Dividends to Parents

 

 

(243.5

)

 

 

(1,045.8

)

Net cash (used in) financing activities

 

 

(3,278.1

)

 

 

(1,207.2

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

(31.0

)

 

 

5.9

 

Net increase / (decrease) in cash and cash equivalents

 

 

(1,506.6

)

 

 

(91.9

)

Cash and cash equivalents at beginning of period

 

 

2,497.1

 

 

 

878.6

 

Cash and cash equivalents at end of period

 

$

990.5

 

 

$

786.7

 

 

See accompanying Notes to the Consolidated Financial Statements.

11


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in millions, except share data)

 

 

 

Members' Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

(Accumulated Deficit)

 

 

Accumulated

Other

Comprehensive

Income / (Loss)

 

 

Noncontrolling

Interest

 

 

Total

 

BALANCE, December 31, 2018

 

 

100.0

 

 

$

65,797.9

 

 

$

(4,219.7

)

 

$

1,345.2

 

 

$

16.9

 

 

$

62,940.3

 

Implementation of new accounting

   pronouncements

 

 

-

 

 

 

-

 

 

 

(22.0

)

 

 

-

 

 

 

-

 

 

 

(22.0

)

BALANCE, January 1, 2019

 

 

100.0

 

 

$

65,797.9

 

 

$

(4,241.7

)

 

$

1,345.2

 

 

$

16.9

 

 

$

62,918.3

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to members

 

 

-

 

 

 

-

 

 

 

(2,405.7

)

 

 

-

 

 

 

-

 

 

 

(2,405.7

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128.8

)

 

 

-

 

 

 

(128.8

)

Dividends to Parents

 

 

-

 

 

 

(1,045.8

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,045.8

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.7

 

 

 

0.7

 

BALANCE, March 31, 2019

 

 

100.0

 

 

$

64,752.1

 

 

$

(6,647.4

)

 

$

1,216.4

 

 

$

17.6

 

 

$

59,338.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2019

 

 

100.0

 

 

$

64,023.6

 

 

$

(9,361.7

)

 

$

1,207.2

 

 

$

22.8

 

 

$

55,891.9

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to members

 

 

-

 

 

 

-

 

 

 

381.3

 

 

 

-

 

 

 

-

 

 

 

381.3

 

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128.2

)

 

 

-

 

 

 

(128.2

)

Dividends to Parents

 

 

-

 

 

 

(243.5

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(243.5

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1.0

 

 

 

1.0

 

BALANCE, March 31, 2020

 

 

100.0

 

 

 

63,780.1

 

 

 

(8,980.4

)

 

 

1,079.0

 

 

 

23.8

 

 

 

55,902.5

 

 

See accompanying Notes to the Consolidated Financial Statements.

12


 

ALLERGAN PLC AND WARNER CHILCOTT LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 — General

Allergan plc is a global pharmaceutical leader. Allergan is focused on developing, manufacturing and commercializing branded pharmaceutical, device, biologic, surgical and regenerative medicine products for patients around the world.  Allergan markets a portfolio of leading brands and best-in-class products primarily focused on four key therapeutic areas including medical aesthetics, eye care, central nervous system and gastroenterology.  As a part of its approach to deliver innovation for better patient care, Allergan has built one of the broadest pharmaceutical and device research and development pipelines in the industry.  The Company has operations in more than 100 countries.  Warner Chilcott Limited is an indirect wholly-owned subsidiary of Allergan plc and has the same principal business activities.

Merger Agreement with AbbVie Inc.

On June 25, 2019, the Company announced that it entered into a transaction agreement (the “AbbVie Agreement”) under which AbbVie Inc. (“AbbVie”), a global, research-driven biopharmaceutical company, would acquire Allergan plc in a stock and cash transaction (the “AbbVie Transaction”), valued at $188.24 per Allergan share, or approximately $63.0 billion, based on AbbVie’s then-current stock price at the time the AbbVie Transaction was announced. At the closing of the proposed AbbVie Transaction, Company shareholders will receive 0.8660 shares of AbbVie common stock and $120.30 in cash for each of their existing shares. On October 14, 2019, the Company’s shareholders voted to approve the AbbVie Transaction.  The AbbVie Transaction is subject to customary regulatory approvals and other customary closing conditions. On May 5, 2020 the U.S. Federal Trade Commission (“FTC”) accepted a proposed consent order in connection with the AbbVie Transaction. Under the terms of the consent order, the companies have agreed to divest brazikumab, an investigational IL-23 inhibitor in development for autoimmune diseases, to AstraZeneca and Zenpep, a treatment for exocrine pancreatic insufficiency due to cystic fibrosis and other conditions, to Nestle Health Science. Nestle also will be acquiring Viokace, another pancreatic enzyme preparation, as part of the same transaction.  

On May 6, 2020, the Irish High Court (the “Court”) approved the AbbVie Transaction at a sanction hearing in relation to the scheme of arrangement (the “Scheme”) (and to confirm the associated capital reduction) under the AbbVie Transaction.

Completion of the AbbVie Transaction remains subject to the delivery to, and registration by, the Registrar of Companies in Ireland of copies of (i) the order of the Court sanctioning the Scheme and confirming the associated reduction of capital; and (ii) the minute required by Section 86 of the Act in respect of the reduction of capital, each of which is expected to occur on May 8, 2020.

 

Additionally, on October 25, 2019, in connection with the AbbVie Transaction, AbbVie commenced offers to exchange all Allergan Senior Notes issued by Allergan and maturing from September 15, 2020 through March 15, 2045 for up to approximately $19.6 billion aggregate principal amount of new notes to be issued by AbbVie and cash.  In conjunction with the exchange offer, AbbVie solicited and obtained consents from eligible holders of the Allergan Senior Notes to amend each of the indentures governing the Allergan Senior Notes to eliminate substantially all of the restrictive covenants in such indentures and eliminate any guarantees of the related Allergan Senior Notes. Consummation of the exchange offer is conditioned upon, among other things, the closing of the AbbVie Transaction.  The exchange offers are expected to close, and such amendments are expected to become operative, on or about the closing date of the AbbVie Transaction.

13


 

The accompanying consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2019 (“Annual Report”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted from the accompanying consolidated financial statements. The accompanying year end consolidated balance sheet was derived from the audited financial statements included in the Annual Report. The accompanying interim financial statements are unaudited and reflect all adjustments which are in the opinion of management necessary for a fair statement of the Company’s consolidated financial position, results of operations, comprehensive (loss) / income and cash flows for the periods presented. All such adjustments are of a normal, recurring nature. All intercompany transactions and balances have been eliminated in consolidation. The Company’s results of operations, comprehensive (loss) / income and cash flows for the interim periods are not necessarily indicative of the results of operations, comprehensive (loss) / income and cash flows that it may achieve in future periods.

References throughout to “we,” “our,” “us,” the “Company” or “Allergan” refer to financial information and transactions of Allergan plc. References to “Warner Chilcott Limited” refer to Warner Chilcott Limited, the Company’s indirect wholly-owned subsidiary, and, unless the context otherwise requires, its subsidiaries.

 

 

NOTE 2 — Reconciliation of Warner Chilcott Limited results to Allergan plc results

Warner Chilcott Limited is an indirect wholly-owned subsidiary of Allergan plc, the ultimate parent of the group (together with other direct or indirect parents of Warner Chilcott Limited, the “Parents”). The results of Warner Chilcott Limited are consolidated into the results of Allergan plc. Due to the de minimis activity between Warner Chilcott Limited and the Parents (including Allergan plc), content throughout this filing relates to both Allergan plc and Warner Chilcott Limited. Warner Chilcott Limited disclosures relate only to itself and not to any other company.  Except where otherwise indicated, and excluding certain insignificant cash and non-cash transactions at the Allergan plc level, these notes relate to the consolidated financial statements for both separate registrants, Allergan plc and Warner Chilcott Limited. In addition to certain inter-company payable and receivable amounts between the entities, the following is a reconciliation of the financial position and results of operations of Warner Chilcott Limited to Allergan plc ($ in millions):

 

 

 

As of March 31, 2020

 

 

As of December 31, 2019

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

Cash and cash equivalents

 

$

999.5

 

 

$

990.5

 

 

$

9.0

 

 

$

2,503.3

 

 

$

2,497.1

 

 

$

6.2

 

Prepaid expenses and other current assets

 

 

855.3

 

 

 

855.3

 

 

 

-

 

 

 

886.4

 

 

 

886.4

 

 

 

-

 

Accounts payable and accrued liabilities

 

 

5,289.5

 

 

 

5,044.9

 

 

 

244.6

 

 

 

6,348.7

 

 

 

6,347.0

 

 

 

1.7

 

Other taxes payable

 

 

1,690.4

 

 

 

1,683.9

 

 

 

6.5

 

 

 

1,704.8

 

 

 

1,698.6

 

 

 

6.2

 

Total equity

 

 

58,021.5

 

 

 

55,902.5

 

 

 

2,119.0

 

 

 

58,196.4

 

 

 

55,891.9

 

 

 

2,304.5

 

 

 

 

Three Months Ended March 31, 2020

 

 

Three Months Ended March 31, 2019

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

General and administrative expenses

 

$

401.3

 

 

$

398.0

 

 

$

3.3

 

 

$

308.3

 

 

$

306.1

 

 

$

2.2

 

Operating income

 

 

(1,299.6

)

 

 

(1,296.3

)

 

 

(3.3

)

 

 

(2,309.2

)

 

 

(2,307.0

)

 

 

(2.2

)

Interest income

 

 

21.2

 

 

 

21.2

 

 

 

-

 

 

 

21.3

 

 

 

21.3

 

 

 

-

 

(Loss) / income before income taxes and

   noncontrolling interest

 

 

(1,487.8

)

 

 

(1,484.5

)

 

 

(3.3

)

 

 

(2,475.9

)

 

 

(2,473.7

)

 

 

(2.2

)

(Benefit) for income taxes

 

 

(1,866.8

)

 

 

(1,866.8

)

 

 

-

 

 

 

(68.6

)

 

 

(68.7

)

 

 

0.1

 

Net (loss) / income

 

 

379.0

 

 

 

382.3

 

 

 

(3.3

)

 

 

(2,407.3

)

 

 

(2,405.0

)

 

 

(2.3

)

Net (loss) / income attributable to

   ordinary shareholders/members

 

 

378.0

 

 

 

381.3

 

 

 

(3.3

)

 

 

(2,408.0

)

 

 

(2,405.7

)

 

 

(2.3

)

 

14


 

The differences between general and administrative expenses in the three months ended March 31, 2020 and 2019 were due to corporate related expenses incurred at Allergan plc.  The difference in accounts payable and accrued liabilities as of March 31, 2020 was due to accrued dividends.  The differences in total equity were due to historical differences in the results of operations of the companies and differences in equity awards and dividends.  

 

 

NOTE 3 — Summary of Significant Accounting Policies

The following are interim updates to certain of the policies described in “Note 4” of the notes to the Company’s audited consolidated financial statements for the year ended December 31, 2019 included in the Annual Report.   

Implementation of new guidance

In June 2016 the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2020. This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. This standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which amortized cost exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

This standard became effective for us on January 1, 2020, and based on the composition of our trade receivables, investment portfolio and other financial assets, current and forecasted economic conditions and historical credit loss activity, the adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.

 

Risk and Uncertainties

We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain. The Company continues to monitor and assess new information related to the COVID-19 pandemic, the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

The Company's medical aesthetic portfolio of products are susceptible to local and national government restrictions, such as social distancing, “shelter in place” orders and business closures, due to the economic and logistical impacts these measures have on consumer demand as well as the practitioners’ ability to administer such procedures.  The inability to perform such procedures may cause customer liquidity issues resulting in the inability of our customers to pay receivables. While the Company has recently observed, particularly in certain Asia Pacific international markets, early signs of some recovery of the global medial aesthetic business and anticipates that the recovery will continue to occur during the second half of 2020, the extent and duration of these logistical impediments and any reduced demand and the corresponding decreased sales is uncertain. Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that this can lead to a local and/or global economic recession. Such economic disruption could adversely effect on our business.  

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain. The Company's future results of operations and liquidity could be adversely impacted by reductions in sales, delays in payments of outstanding invoices beyond normal payment terms, supply chain disruptions and uncertain demand, a delay in the timing and completion of key clinical trials, and any impact on the Company’s access to the capital markets.  As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.  Furthermore, the estimation

15


 

process required to prepare the Company’s consolidated financial statements requires assumptions to be made about future events and conditions and the impact of COVID-19 on our financial results, and while we believe such assumptions are reasonable, they are inherently subjective and uncertain. The Company’s actual results could differ materially from those estimates.

Revenue Recognition

 

General

 

ASU No. 2014-09, “Revenue from Contracts with Customers” (“Topic 606”) provides that revenues are recognized when control of the promised goods under a contract is transferred to a customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods as specified in the underlying terms with the customer. The Company warrants products against defects and for specific quality standards, permitting the return of products under certain circumstances. Product sales are recorded net of all sales-related deductions including, but not limited to: chargebacks, trade discounts, commercial and government rebates, customer loyalty programs, fee-for-service arrangements with certain distributors, returns, and other allowances which we refer to in the aggregate as sales returns and allowances (“SRA”).

 

The Company’s performance obligations are primarily achieved when control of the products is transferred to the customer. Transfer of control is based on contractual performance obligations, but typically occurs upon receipt of the goods by the customer as that is when the customer has obtained control of significantly all of the economic benefits. During the three months ended March 31, 2020, the impact of COVID-19 on the Company’s SRA was not material.  The Company will continue to evaluate the potential impacts of COVID-19 on the commercial and government segments, including the impact unemployment and other factors may have on commercial and government utilization rates in future periods.

Refer to “NOTE 6 – Reportable Segments” for our revenues disaggregated by product and segment and our revenues disaggregated by geography for our international segment.  We believe this level of disaggregation best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.  

The following table summarizes the activity from operations in the Company’s major categories of SRA ($ in millions):

 

 

 

Chargebacks

 

 

Rebates

 

 

Returns

and

Other

Allowances

 

 

Cash

Discounts

 

 

Total

 

Balance at December 31, 2019

 

$

67.8

 

 

$

2,103.3

 

 

$

632.4

 

 

$

37.0

 

 

$

2,840.5

 

Provision related to sales in 2020

 

 

279.5

 

 

 

1,466.7

 

 

 

467.5

 

 

 

81.3

 

 

 

2,295.0

 

Credits and payments

 

 

(285.6

)

 

 

(1,485.3

)

 

 

(431.3

)

 

 

(84.4

)

 

 

(2,286.6

)

Balance at March 31, 2020

 

$

61.7

 

 

$

2,084.7

 

 

$

668.6

 

 

$

33.9

 

 

$

2,848.9

 

Contra accounts receivable

   at March 31, 2020

 

$

61.7

 

 

$

72.1

 

 

$

30.0

 

 

$

33.9

 

 

$

197.7

 

Accounts payable and accrued expenses

   at March 31, 2020

 

$

-

 

 

$

2,012.6

 

 

$

638.6

 

 

$

-

 

 

$

2,651.2

 

 

The following table summarizes the balance sheet classification of our SRA reserves ($ in millions):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Contra accounts receivable

 

$

197.7

 

 

$

242.0

 

Accounts payable and accrued expenses

 

 

2,651.2

 

 

 

2,598.5

 

Total

 

$

2,848.9

 

 

$

2,840.5

 

 

16


 

The SRA provisions recorded to reduce gross product sales to net product sales were as follows ($ in millions):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Gross product sales

 

$

5,752.0

 

 

$

5,659.9

 

Provisions to reduce gross product sales to net product sales

 

 

(2,295.0

)

 

 

(2,139.7

)

Net product sales

 

$

3,457.0

 

 

$

3,520.2

 

Percentage of SRA provisions to gross sales

 

 

39.9

%

 

 

37.8

%

 

Collectability Assessment

At the time of contract inception or customer account set-up, the Company performs a collectability assessment on the creditworthiness of such customer. The Company assesses the probability that the Company will collect the consideration to which it will be entitled in exchange for the goods sold. In evaluating collectability, the Company considers the customer’s ability and intention to pay consideration when it is due. On a recurring basis, the Company estimates the amount of receivables considered uncollectible after sale to the customer to reflect allowances for doubtful accounts.  Provision for bad debts, included in general and administrative expenses, were $44.2 million and $3.4 million in the three months ended March 31, 2020 and 2019, respectively. The increase in provisions for bad debts over the prior year period was primarily related to the impact of COVID-19 and the Company’s assessment of customer receivables primarily attributed to the US and International aesthetic business.

 

Goodwill and Intangible Assets with Indefinite Lives

 

General

 

The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the second quarter. Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or an indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including Reporting Unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a Reporting Unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative assessment for some or all of its Reporting Units and perform a quantitative test as of the measurement date of the test.

Goodwill is considered impaired if the carrying amount of the net assets exceeds the fair value of the reporting unit. Impairment, if any, would be recorded in operating income / (loss) and this could result in a material impact to net income / (loss) and income / (loss) per share.

Prior to Allergan’s 2018 annual impairment test, the Company adopted the new guidance under Accounting Standard Update No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment which eliminated step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment loss.  A goodwill impairment loss under the new guidance is instead measured using a single step test based on the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.  

17


 

Acquired in-process research and development (“IPR&D”) intangible assets represent the value assigned to research and development (“R&D”) projects acquired in a business combination that, as of the date acquired, represent the right to develop, use, sell and/or offer for sale a product or other intellectual property that has not been completed or approved. The IPR&D intangible assets are subject to impairment testing until completion or abandonment of each project. Upon abandonment, the assets are impaired if there is no future alternative use or ability to sell the asset. Impairment testing requires management to develop significant estimates and assumptions involving the determination of the fair value of the IPR&D asset, including estimated revenues, the probability of success of the project, determination of the appropriate discount rate, assessment of the asset’s life, potential regulatory risks, and net revenue growth curve assumptions.  The major risks and uncertainties associated with the timely and successful completion of IPR&D projects include legal risk, market risk and regulatory risk. Changes in our assumptions could result in future impairment charges. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change or the timely completion of each project and commercial success will occur. For these and other reasons, actual results may vary significantly from estimated results.

Upon successful completion of each project and approval of a product, we will make a separate determination of the useful life of the intangible asset, transfer the amount to currently marketed products (“CMP”) and amortization expense will be recorded over the estimated useful life.

Refer to “NOTE 9 –Goodwill, Product Rights, and Other Intangible Assets” for further discussion on the Company’s goodwill and intangible assets balances and impairments.

Earnings Per Share (“EPS”)

The Company computes EPS in accordance with Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share” (“ASC 260”) and related guidance, which requires two calculations of EPS to be disclosed: basic and diluted. Basic EPS is computed by dividing net income / (loss) by the weighted average ordinary shares outstanding during a period. Diluted EPS is based on the treasury stock method and includes the effect from potential issuance of ordinary shares, such as shares issuable pursuant to the exercise of stock options and restricted stock units. Ordinary share equivalents have been excluded where their inclusion would be anti-dilutive.

A reconciliation of the numerators and denominators of basic and diluted EPS follows ($ in millions, except per share amounts):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net income / (loss):

 

 

 

 

 

 

 

 

Net income / (loss) attributable to ordinary shareholders

 

$

378.0

 

 

$

(2,408.0

)

 

 

 

 

 

 

 

 

 

Basic weighted average ordinary shares outstanding

 

 

329.1

 

 

 

332.0

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

Net income / (loss) per share

 

$

1.15

 

 

$

(7.25

)

 

 

 

 

 

 

 

 

 

Dividends per ordinary share

 

$

0.74

 

 

$

0.74

 

 

 

 

 

 

 

 

 

 

Diluted weighted average ordinary shares outstanding

 

 

331.9

 

 

 

332.0

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

Net income / (loss) per share

 

$

1.14

 

 

$

(7.25

)

 

18


 

Stock awards to purchase 2.4 million ordinary shares for the three months ended March 31, 2019 were outstanding, but not included in the computation of diluted EPS, because the awards were anti-dilutive.  During the three months ended March 31, 2019, the Company repurchased shares under its share repurchase programs.  The impact of the 5.3 million shares repurchased in the three months ended March 31, 2019 on basic EPS was 0.7 million shares.    

Research and Development Activities

Research and development (“R&D”) activities are expensed as incurred and consist of self-funded R&D costs, the costs associated with work performed under collaborative R&D agreements, regulatory fees, and acquisition and license related milestone payments, if any.

As of March 31, 2020, we are developing a number of products, some of which utilize novel drug delivery systems, through a combination of internal and collaborative programs, and we additionally have products in development as part of our life-cycle management strategy for our existing product portfolio.  These development projects include but are not limited to the following:

 

Product

 

Therapeutic Area

 

Indication

 

Expected

Launch

Year

 

Phase

Abicipar

 

Eye Care

 

Age Related Macular Degeneration

 

2020

 

Review

Atogepant

 

Central Nervous System

 

Prophylaxis Migraine

 

2021

 

III

Presbysol

 

Eye Care

 

Presbyopia

 

2022

 

III

Cenicriviroc

 

Gastrointestinal

 

NASH

 

2022

 

III

Brimonidine DDS

 

Eye Care

 

Geographic Atrophy

 

2024

 

II

Relamorelin

 

Gastrointestinal

 

Gastroparesis

 

2024

 

III

Botox

 

Medical Aesthetics

 

Platysma/Masseter

 

2025/2024

 

II

Abicipar

 

Eye Care

 

Diabetic Macular Edema

 

2025

 

II

 

On March 5, 2020, the Company received FDA approval for Durysta™ (bimatoprost SR), a single intracameral, biodegradable sustained-release implant indicated to reduce intraocular pressure (IOP) in patients with open-angle glaucoma (OAG) or ocular hypertension (OHT).

 

As of March 31, 2020, the Company has not experienced a material delay in clinical trials for its R&D projects due to COVID-19 although there could be delays in the future depending on the duration and impact of COVID-19. In addition to the projects listed in the table above, the Company continues to develop brazikumab, a gastrointestinal development project for indications of Crohn’s disease and ulcerative colitis.  On January 27, 2020, in connection with the AbbVie Transaction, Allergan announced that it entered into definitive agreements to divest the global development and commercial rights of brazikumab. This agreement was made in conjunction with the regulatory approval process for the AbbVie Transaction. The closing of the divestiture of brazikumab is contingent upon the closing of the AbbVie Transaction and the satisfaction of other customary closing conditions.

 

 

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) that provides elective optional expedients and exceptions to existing accounting requirements for entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met.  The ASU is effective as of March 12, 2020 through December 31, 2022.  The expedients and exceptions provided by this ASU do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. As of March 31, 2020, this ASU does not have a material impact on our financial position and results of operations.

 

 

19


 

NOTE 4 – Other Income / (Expense)

Other income, net consisted of the following ($ in millions):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Debt extinguishment other

 

 

-

 

 

 

(0.3

)

Other income, net

 

 

(24.9

)

 

 

14.1

 

Other income, net

 

$

(24.9

)

 

$

13.8

 

 

Other Income, Net

Other income, net includes the mark to market losses of $7.8 million and mark to market gains of $10.4 million on equity securities held by the Company during the three months ended March 31, 2020 and March 31, 2019, respectively.

 

 

NOTE 5 — Share-Based Compensation

The Company recognizes compensation expense for all share-based compensation awards made to employees and directors based on the fair value of the awards on the date of grant.

The Company grants awards with the following features:

 

Time-based restricted stock and restricted stock unit awards (including, in certain foreign jurisdictions, cash-settled restricted stock unit awards, which are recorded as a liability);

 

Performance-based restricted stock unit awards measured against performance-based targets defined by the Company, including, but not limited to, total shareholder return metrics and R&D milestones, as defined by the Company; and

 

Non-qualified options to purchase outstanding shares.

The Company recognizes share-based compensation expense for granted awards over the applicable vesting period.

Fair Value Assumptions

All restricted stock and restricted stock units (whether time-based or performance-based) are granted and expensed using the fair value per share on the applicable grant date, over the applicable vesting period. Non-qualified options to purchase ordinary shares are granted to employees at exercise prices per share equal to the closing market price per share on the date of grant. The fair value of non-qualified options is determined on the applicable grant dates using the Black-Scholes method of valuation and that amount is recognized as an expense over the vesting period. Using the Black-Scholes valuation model, the fair value of options is based on the following assumptions:

 

 

 

2019

Grants

Dividend yield

 

1.7 - 2.2%

Expected volatility

 

23.5 - 26.4%

Risk-free interest rate

 

1.9 - 2.6%

Expected term (years)

 

7.0

 

20


 

Share-Based Compensation Expense

Share-based compensation expense recognized in the Company’s results of operations for the three months ended March 31, 2020 and 2019 was as follows ($ in millions):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Equity-based compensation awards

 

$

51.6

 

 

$

52.3

 

Total share-based compensation expense

 

$

51.6

 

 

$

52.3

 

 

Unrecognized future share-based compensation expense was $477.0 million as of March 31, 2020. This amount will be recognized as an expense over a remaining weighted average period of 1.8 years. Share-based compensation is being amortized and charged to operations over the same period as the restrictions are eliminated for the participants, which is generally on a straight-line basis.

Share Activity

The following is a summary of equity award activity for unvested restricted stock and stock units in the period from December 31, 2019 through March 31, 2020 (in millions, except per share data):

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Weighted

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Grant Date

Fair Value

 

Restricted shares / units outstanding at December 31, 2019

 

 

3.1

 

 

$

159.74

 

 

 

1.4

 

 

$

493.0

 

Granted

 

 

1.3

 

 

 

193.84

 

 

 

 

 

 

 

257.8

 

Vested

 

 

(0.8

)

 

 

174.87

 

 

 

 

 

 

 

(143.2

)

Forfeited

 

 

-

 

 

 

164.37

 

 

 

 

 

 

 

(4.9

)

Restricted shares / units outstanding at March 31, 2020

 

 

3.6

 

 

$

168.76

 

 

 

1.9

 

 

$

602.7

 

 

 

The following is a summary of equity award activity for non-qualified options to purchase ordinary shares in the period from December 31, 2019 through March 31, 2020 (in millions, except per share data):

 

 

 

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, vested and expected to vest at December 31, 2019

 

 

5.5

 

 

$

127.27

 

 

 

3.9

 

 

$

352.9

 

Granted

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Exercised

 

 

(0.6

)

 

 

108.13

 

 

 

 

 

 

 

 

 

Cancelled

 

 

-

 

 

 

229.40

 

 

 

 

 

 

 

 

 

Outstanding, vested and expected to vest at March 31, 2020

 

 

4.9

 

 

$

128.56

 

 

 

3.9

 

 

$

238.6

 

   

 

21


 

NOTE 6 — Reportable Segments

The Company’s businesses are organized into the following segments: US Specialized Therapeutics, US General Medicine and International. In addition, certain revenues and shared costs, and the results of corporate initiatives, are managed outside of the 3 segments.

The operating segments are organized as follows:

 

The US Specialized Therapeutics segment includes sales and expenses relating to branded products within the U.S., including Medical Aesthetics, Eye Care and Neuroscience and Urology therapeutic products.

 

The US General Medicine segment includes sales and expenses relating to branded products within the U.S. that do not fall into the US Specialized Therapeutics business units, including Central Nervous System, Gastrointestinal, Women’s Health, Anti-Infectives and Diversified Brands.

 

The International segment includes sales and expenses relating to products sold outside the U.S.

The Company evaluates segment performance based on segment contribution. Segment contribution for our segments represents net revenues less cost of sales (defined below), selling and marketing expenses, and select general and administrative expenses. The Company does not evaluate the following items at the segment level:

 

Revenues and operating expenses within cost of sales, selling and marketing expenses, and general and administrative expenses that result from the impact of corporate initiatives. Corporate initiatives primarily include integration, restructuring, divestitures, acquisitions, certain milestones and other shared costs.

 

General and administrative expenses that result from shared infrastructure, including certain expenses located within the United States.

 

Other select revenues and operating expenses including R&D expenses, amortization, IPR&D impairments, goodwill impairments and asset sales and impairments, net as not all such information has been accounted for at the segment level, or such information has not been used by all segments.

 

Total assets including capital expenditures.

The Company defines segment net revenues as product sales and other revenue derived from our products or licensing agreements.

Cost of sales within segment contribution includes standard production and packaging costs for the products we manufacture, third party acquisition costs for products manufactured by others, profit-sharing or royalty payments for products sold pursuant to licensing agreements and finished goods inventory reserve charges.  Cost of sales within segment contribution excludes non-standard production costs, such as non-finished goods inventory obsolescence charges, manufacturing variances and excess capacity utilization charges, where applicable. Cost of sales does not include amortization or impairment costs for acquired product rights or other acquired intangibles.

Selling and marketing expenses consist mainly of personnel-related costs, product promotion costs, distribution costs, professional service costs, insurance, depreciation and travel costs.

General and administrative expenses consist mainly of personnel-related costs, facilities costs, transaction costs, insurance, depreciation, litigation costs and professional services costs which are general in nature and attributable to the segment.

22


 

Segment net revenues, segment operating expenses and segment contribution information consisted of the following for the three months ended March 31, 2020 and 2019 ($ in millions):

 

 

 

Three Months Ended March 31, 2020

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

1,541.5

 

 

$

1,320.5

 

 

$

691.4

 

 

$

3,553.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

129.7

 

 

 

250.6

 

 

 

117.4

 

 

 

497.7

 

Selling and marketing

 

 

420.4

 

 

 

296.4

 

 

 

210.7

 

 

 

927.5

 

General and administrative

 

 

59.0

 

 

 

50.2

 

 

 

36.3

 

 

 

145.5

 

Segment contribution

 

$

932.4

 

 

$

723.3

 

 

$

327.0

 

 

$

1,982.7

 

Contribution margin

 

 

60.5

%

 

 

54.8

%

 

 

47.3

%

 

 

55.8

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

374.8

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

430.0

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

913.0

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,416.4

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

148.1

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,299.6

)

Operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36.6

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results.

 

(2) Corporate includes net revenues of $51.0 million.

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

1,542.9

 

 

$

1,249.9

 

 

$

801.5

 

 

$

3,594.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

120.1

 

 

 

190.5

 

 

 

109.7

 

 

 

420.3

 

Selling and marketing

 

 

356.8

 

 

 

210.5

 

 

 

237.6

 

 

 

804.9

 

General and administrative

 

 

54.6

 

 

 

43.8

 

 

 

25.7

 

 

 

124.1

 

Segment contribution

 

$

1,011.4

 

 

$

805.1

 

 

$

428.5

 

 

$

2,245.0

 

Contribution margin

 

 

65.6

%

 

 

64.4

%

 

 

53.5

%

 

 

62.5

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

258.0

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

435.0

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,467.0

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,399.4

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5.2

)

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(2,309.2

)

Operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(64.2

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results.

 

(2) Corporate includes net revenues of $2.8 million.

 

 

 

23


 

The following table presents our net revenue disaggregated by geography for our international segment for the three months ended March 31, 2020 and 2019 ($ in millions):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Europe

 

$

323.0

 

 

$

354.4

 

Asia Pacific, Middle East and Africa

 

 

182.8

 

 

 

250.7

 

Latin America and Canada

 

 

161.8

 

 

 

178.2

 

Other*

 

 

23.8

 

 

 

18.2

 

Total International

 

$

691.4

 

 

$

801.5

 

*Includes royalty and other revenue

 

 

 

24


 

The following tables present global net revenues for the top products greater than 10% of total revenues of the Company as well as a reconciliation of segment revenues to total net revenues for the three months ended March 31, 2020 and 2019 ($ in millions):

 

 

 

Three Months Ended March 31, 2020

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

608.5

 

 

$

-

 

 

$

203.7

 

 

$

812.2

 

Restasis®

 

 

278.6

 

 

 

-

 

 

 

11.3

 

 

 

289.9

 

Vraylar®

 

 

-

 

 

 

277.3

 

 

 

-

 

 

 

277.3

 

Juvederm® Collection

 

 

107.5

 

 

 

-

 

 

 

113.1

 

 

 

220.6

 

Linzess®/Constella®

 

 

-

 

 

 

172.2

 

 

 

7.1

 

 

 

179.3

 

Lumigan®/Ganfort®

 

 

63.0

 

 

 

-

 

 

 

80.7

 

 

 

143.7

 

Bystolic® / Byvalson®

 

 

-

 

 

 

129.8

 

 

 

0.5

 

 

 

130.3

 

Alphagan®/Combigan®

 

 

81.6

 

 

 

-

 

 

 

36.9

 

 

 

118.5

 

Eye Drops

 

 

66.5

 

 

 

-

 

 

 

50.9

 

 

 

117.4

 

Lo Loestrin®

 

 

-

 

 

 

109.8

 

 

 

-

 

 

 

109.8

 

Alloderm ®

 

 

102.1

 

 

 

-

 

 

 

1.7

 

 

 

103.8

 

Ozurdex ®

 

 

29.9

 

 

 

-

 

 

 

63.8

 

 

 

93.7

 

Viibryd®/Fetzima®

 

 

-

 

 

 

89.8

 

 

 

3.5

 

 

 

93.3

 

Zenpep®

 

 

-

 

 

 

65.6

 

 

 

0.4

 

 

 

66.0

 

Armour Thyroid

 

 

-

 

 

 

46.3

 

 

 

-

 

 

 

46.3

 

Breast Implants

 

 

40.1

 

 

 

-

 

 

 

5.2

 

 

 

45.3

 

Skin Care

 

 

38.5

 

 

 

-

 

 

 

2.8

 

 

 

41.3

 

Viberzi®

 

 

-

 

 

 

37.3

 

 

 

0.4

 

 

 

37.7

 

Coolsculpting ® Systems & Add On Applicators

 

 

36.2

 

 

 

-

 

 

 

1.4

 

 

 

37.6

 

Teflaro®

 

 

-

 

 

 

35.0

 

 

 

1.5

 

 

 

36.5

 

Coolsculpting ® Consumables

 

 

22.7

 

 

 

-

 

 

 

8.8

 

 

 

31.5

 

Saphris®

 

 

-

 

 

 

31.0

 

 

 

-

 

 

 

31.0

 

Dalvance®

 

 

-

 

 

 

23.0

 

 

 

3.1

 

 

 

26.1

 

Liletta®

 

 

-

 

 

 

23.1

 

 

 

-

 

 

 

23.1

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

19.0

 

 

 

1.0

 

 

 

20.0

 

Savella®

 

 

-

 

 

 

19.3

 

 

 

-

 

 

 

19.3

 

Namzaric®

 

 

-

 

 

 

17.8

 

 

 

-

 

 

 

17.8

 

Avycaz®

 

 

-

 

 

 

11.8

 

 

 

-

 

 

 

11.8

 

Canasa®/Salofalk®

 

 

-

 

 

 

7.2

 

 

 

4.0

 

 

 

11.2

 

Ubrelvy®

 

 

-

 

 

 

11.1

 

 

 

-

 

 

 

11.1

 

Asacol®/Delzicol®

 

 

-

 

 

 

2.6

 

 

 

7.7

 

 

 

10.3

 

Kybella® / Belkyra®

 

 

5.3

 

 

 

-

 

 

 

0.1

 

 

 

5.4

 

Aczone®

 

 

3.0

 

 

 

-

 

 

 

-

 

 

 

3.0

 

Namenda®

 

 

-

 

 

 

2.9

 

 

 

-

 

 

 

2.9

 

Rapaflo®

 

 

1.4

 

 

 

-

 

 

 

1.1

 

 

 

2.5

 

Other

 

 

56.6

 

 

 

188.6

 

 

 

80.7

 

 

 

325.9

 

Total segment revenues

 

$

1,541.5

 

 

$

1,320.5

 

 

$

691.4

 

 

$

3,553.4

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51.0

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,604.4

 

25


 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

627.1

 

 

$

-

 

 

$

241.3

 

 

$

868.4

 

Juvederm® Collection

 

 

129.7

 

 

 

-

 

 

 

157.8

 

 

 

287.5

 

Restasis®

 

 

231.7

 

 

 

-

 

 

 

10.4

 

 

 

242.1

 

Linzess®/Constella®

 

 

-

 

 

 

161.3

 

 

 

5.5

 

 

 

166.8

 

Vraylar®

 

 

-

 

 

 

143.7

 

 

 

-

 

 

 

143.7

 

Lumigan®/Ganfort®

 

 

57.7

 

 

 

-

 

 

 

85.1

 

 

 

142.8

 

Bystolic® / Byvalson®

 

 

-

 

 

 

128.3

 

 

 

0.4

 

 

 

128.7

 

Lo Loestrin®

 

 

-

 

 

 

125.8

 

 

 

-

 

 

 

125.8

 

Alphagan®/Combigan®

 

 

83.0

 

 

 

-

 

 

 

37.6

 

 

 

120.6

 

Eye Drops

 

 

49.4

 

 

 

-

 

 

 

55.4

 

 

 

104.8

 

Alloderm ®

 

 

95.0

 

 

 

-

 

 

 

1.6

 

 

 

96.6

 

Ozurdex ®

 

 

30.3

 

 

 

-

 

 

 

63.1

 

 

 

93.4

 

Viibryd®/Fetzima®

 

 

-

 

 

 

85.0

 

 

 

2.1

 

 

 

87.1

 

Breast Implants

 

 

61.2

 

 

 

-

 

 

 

11.2

 

 

 

72.4

 

Coolsculpting ® Consumables

 

 

47.8

 

 

 

-

 

 

 

17.8

 

 

 

65.6

 

Zenpep®

 

 

-

 

 

 

63.0

 

 

 

-

 

 

 

63.0

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

54.3

 

 

 

0.6

 

 

 

54.9

 

Armour Thyroid

 

 

-

 

 

 

50.0

 

 

 

-

 

 

 

50.0

 

Viberzi®

 

 

-

 

 

 

37.2

 

 

 

0.3

 

 

 

37.5

 

Skin Care

 

 

34.7

 

 

 

-

 

 

 

2.7

 

 

 

37.4

 

Asacol®/Delzicol®

 

 

-

 

 

 

24.7

 

 

 

10.3

 

 

 

35.0

 

Teflaro®

 

 

-

 

 

 

33.5

 

 

 

0.2

 

 

 

33.7

 

Saphris®

 

 

-

 

 

 

31.9

 

 

 

-

 

 

 

31.9

 

Avycaz®

 

 

-

 

 

 

29.7

 

 

 

-

 

 

 

29.7

 

Coolsculpting ® Systems & Add On Applicators

 

 

15.1

 

 

 

-

 

 

 

10.6

 

 

 

25.7

 

Namzaric®

 

 

-

 

 

 

23.4

 

 

 

-

 

 

 

23.4

 

Savella®

 

 

-

 

 

 

20.7

 

 

 

-

 

 

 

20.7

 

Liletta®

 

 

-

 

 

 

14.8

 

 

 

-

 

 

 

14.8

 

Canasa®/Salofalk®

 

 

-

 

 

 

10.2

 

 

 

3.6

 

 

 

13.8

 

Rapaflo®

 

 

11.8

 

 

 

-

 

 

 

0.6

 

 

 

12.4

 

Dalvance®

 

 

-

 

 

 

12.0

 

 

 

-

 

 

 

12.0

 

Namenda®

 

 

-

 

 

 

9.5

 

 

 

-

 

 

 

9.5

 

Kybella® / Belkyra®

 

 

7.3

 

 

 

-

 

 

 

1.6

 

 

 

8.9

 

Aczone®

 

 

1.6

 

 

 

-

 

 

 

-

 

 

 

1.6

 

Other

 

 

59.5

 

 

 

190.9

 

 

 

81.7

 

 

 

332.1

 

Total segment revenues

 

$

1,542.9

 

 

$

1,249.9

 

 

$

801.5

 

 

$

3,594.3

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.8

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,597.1

 

 

 

As previously described, the closing of the divestiture of Zenpep® is contingent upon the closing of the AbbVie Transaction and the satisfaction of other customary closing conditions.           

 

26


 

NOTE 7 — Inventories

 

Inventories consist of finished goods held for sale and distribution, raw materials and work-in-process.  Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value.  The Company writes down inventories to net realizable value based on forecasted demand, market conditions or other factors, which may differ from actual results.

 

Inventories consisted of the following ($ in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

484.1

 

 

$

455.2

 

Work-in-process

 

 

234.5

 

 

 

246.2

 

Finished goods

 

 

621.5

 

 

 

581.7

 

 

 

 

1,340.1

 

 

 

1,283.1

 

Less: inventory reserves

 

 

140.2

 

 

 

150.0

 

Total Inventories

 

$

1,199.9

 

 

$

1,133.1

 

 

   

 

NOTE 8 — Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following ($ in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued expenses:

 

 

 

 

 

 

 

 

Accrued third-party rebates

 

$

2,012.6

 

 

$

2,001.8

 

Litigation-related reserves and legal fees

 

 

352.5

 

 

 

1,250.7

 

Accrued payroll and related benefits

 

 

528.8

 

 

 

830.3

 

Accrued returns and other allowances

 

 

638.6

 

 

 

596.7

 

Accrued R&D expenditures

 

 

160.3

 

 

 

184.8

 

Interest payable

 

 

136.4

 

 

 

189.5

 

Royalties payable

 

 

172.4

 

 

 

216.9

 

Accrued pharmaceutical fees

 

 

143.2

 

 

 

125.9

 

Accrued severance, retention and other shutdown costs

 

 

14.6

 

 

 

12.7

 

Accrued non-provision taxes

 

 

68.6

 

 

 

64.6

 

Accrued selling and marketing expenditures

 

 

78.6

 

 

 

61.3

 

Current portion of contingent consideration obligations

 

 

14.6

 

 

 

12.1

 

Dividends payable

 

 

244.5

 

 

 

1.1

 

Other accrued expenses

 

 

321.8

 

 

 

409.9

 

Total accrued expenses

 

$

4,887.5

 

 

$

5,958.3

 

Accounts payable

 

 

402.0

 

 

 

390.4

 

Total accounts payable and accrued expenses

 

$

5,289.5

 

 

$

6,348.7

 

 

 

27


 

NOTE 9 — Goodwill, Product Rights and Other Intangible Assets

Goodwill

Goodwill for the Company’s reporting segments consisted of the following ($ in millions):

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Balance as of December 31, 2019

 

$

20,369.7

 

 

$

14,723.8

 

 

$

7,154.8

 

 

$

42,248.3

 

Impairments

 

 

-

 

 

 

-

 

 

 

(913.0

)

 

 

(913.0

)

Foreign exchange and other adjustments

 

 

-

 

 

 

-

 

 

 

(106.1

)

 

 

(106.1

)

Balance as of March 31, 2020

 

$

20,369.7

 

 

$

14,723.8

 

 

$

6,135.7

 

 

$

41,229.2

 

 

 

During the first quarter of 2020, the headroom in the Company’s US Medical Aesthetics and International Reporting Units was significantly decreased due the reversal of deferred tax liabilities as a result of certain intra-entity intellectual property transfers.  At the same time, the Company’s net sales for the three months ended March 31, 2020 were negatively impacted compared to the prior year period resulting from the COVID-19 pandemic.  The Company anticipates that the COVID-19 pandemic will also have a negative impact on its expected forecasted revenues, particularly the Company’s global medical aesthetic products within the US Medical Aesthetics and the International Reporting Units.  These products are typically administered via elective procedures which are susceptible to local and national government restrictions, such as social distancing, “shelter in place” orders and business shutdowns. Moreover, these measures may have economic, as well as logistical, impacts on consumer demand.  While the Company has recently observed, particularly in certain Asia Pacific international markets, early signs of some recovery of the global medial aesthetic business and anticipates that the recovery will continue to occur during the second half of 2020, the extent and duration of these logistical impediments and any reduced demand and the corresponding decreased sales is uncertain. Expected future cash flows of the Company’s Eye Care Reporting Unit were also negatively affected by reductions in office and hospital procedures as a result of COVID-19 as well as an anticipated decline in expected forecasted sales of recently launched products.

 

Consequently, the Company assessed the impact of the above factors on the future cash flows of each of the applicable reporting units, determined that these constituted triggering events in the International, US Medical Aesthetic, and US Eye Care Reporting Units, and evaluated these reporting units for goodwill impairment.  

 

The Company developed multiple forecasted future cash flow scenarios for the reporting units with varied recovery timing and sales impact assumptions.  These scenarios included assumptions of recovery for the global medical aesthetics business during the second half of 2020, as well as longer recovery periods. As a result of the impairment test, the Company recorded a goodwill impairment of $913.0 million within the International Reporting Unit during the three months ended March 31, 2020 primarily related to changes in net assets driven by the reversal of deferred tax liabilities and taking into account changes in cash flow projections resulting from a number of factors, including those stated above.  

 

As of March 31, 2020, the fair value of the Company’s US Eye Care Reporting Unit and the fair value of the US Medical Aesthetic Reporting Unit exceeded the respective book values (“headroom”) by less than five percent.  The Company’s US Eye Care Reporting Unit and US Medical Aesthetics Reporting Unit, which are components of the US Specialized Therapeutics Segment, have an allocated goodwill balance of $9,824.8 million and $7,698.8 million, respectively.  While management believes the assumptions used are reasonable and commensurate with the views of a market participant, changes in key assumptions for these Reporting Units, including increasing the discount rate, lowering revenue forecasts, lowering the operating margin, R&D pipeline delays, or lowering the long-term growth rate could result in a future impairment.  Other market factors and conditions could also result in downward revisions of the Company’s forecasts on future projected cash flows for these reporting units.  The duration and impact of the COVID-19 pandemic could affect the forecasted revenues and cash flows of the products and may affect the timing of key clinical trials of the products, which may result in delays.   Negative events regarding R&D pipeline assets including, but not limited to, Abicipar, Atogepant and, Ceniciviroc, as well as next generation aesthetic products, could lead to further goodwill impairment charges.

 

In performing the impairment test, the Company utilized discount rates ranging from 9.5% for the US reporting units and 11.0% for the International reporting unit, which were consistent with the rates utilized in the impairment testing performed in the 2019 annual impairment test. The discount rates included an increase in the alpha risk-related assumptions which reflects the increased level of uncertainty related to forecast estimates in the

28


 

current COVID-19 environment. The weighted average long-term growth rate utilized in the impairment test was approximately 1.0%. The assumptions used in evaluating goodwill for impairment are significant estimates, are subject to change, are assessed against historical performance by management and could result in additional impairment charges.  

  

As of March 31, 2020 and December 31, 2019, the gross balance of goodwill, prior to the consideration of impairments, was $48,553.3 million and $48,659.4 million, respectively.

Product Rights and Other Intangible Assets

Product rights and other intangible assets consisted of the following ($ in millions):

 

Cost Basis

 

Balance as of December 31, 2019

 

 

Additions

 

 

Impairments

 

 

IPR&D to

CMP

Transfers

 

 

Foreign

Currency

Translation

/ Other

 

 

Balance as of March 31, 2020

 

Intangibles with definite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product rights and other intangibles

 

$

72,217.5

 

 

$

7.6

 

 

$

-

 

 

$

288.0

 

 

$

(132.0

)

 

$

72,381.1

 

Trade name

 

 

690.0

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

690.0

 

Total definite lived intangible

   assets

 

$

72,907.5

 

 

$

7.6

 

 

$

-

 

 

$

288.0

 

 

$

(132.0

)

 

$

73,071.1

 

Intangibles with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D

 

$

4,536.5

 

 

$

-

 

 

$

-

 

 

$

(288.0

)

 

$

-

 

 

$

4,248.5

 

Total indefinite lived intangible

   assets

 

$

4,536.5

 

 

$

-

 

 

$

-

 

 

$

(288.0

)

 

$

-

 

 

$

4,248.5

 

Total product rights and other

   intangibles

 

$

77,444.0

 

 

$

7.6

 

 

$

-

 

 

$

-

 

 

$

(132.0

)

 

$

77,319.6

 

 

Accumulated Amortization

 

Balance as of December 31, 2019

 

 

Amortization

 

 

Impairments

 

 

IPR&D to

CMP

Transfers

 

 

Foreign

Currency

Translation

/ Other

 

 

Balance as of March 31, 2020

 

Intangibles with definite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product rights and other intangibles

 

$

(39,180.7

)

 

$

(1,396.0

)

 

$

(148.0

)

 

$

-

 

 

$

64.4

 

 

$

(40,660.3

)

Trade name

 

 

(372.7

)

 

 

(20.4

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(393.1

)

Total definite lived intangible

   assets

 

$

(39,553.4

)

 

$

(1,416.4

)

 

$

(148.0

)

 

$

-

 

 

$

64.4

 

 

$

(41,053.4

)

Total product rights and other

   intangibles

 

$

(39,553.4

)

 

$

(1,416.4

)

 

$

(148.0

)

 

$

-

 

 

$

64.4

 

 

$

(41,053.4

)

Net Product Rights and Other

   Intangibles

 

$

37,890.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

36,266.2

 

 

Three Months Ended March 31, 2020

During the three months ended March 31, 20120, the Company received FDA approval for Durysta™ (bimatoprost SR) for a single intracameral administration.  As a result, the Company reclassified the intangible asset from IPR&D to CMP and will amortize the asset over its remaining useful life.

29


 

During the three months ended March 31, 2020, the Company impaired the intangible assets associated with Kybella® by $148.0 million in “Asset sales and impairments, net” as a result of a decrease in anticipated future sales forecasts, including the discontinuation of clinical trials for additional indications of the product and the impact of COVID-19.

 

Assuming no additions, disposals or adjustments are made to the carrying values and/or useful lives of the intangible assets, annual amortization expense on product rights and other related intangibles as of March 31, 2020 over the remainder of 2020 and each of the next five years is estimated to be as follows ($ in millions):

 

 

 

Amortization

Expense

 

2020 remaining

 

$

4,157.7

 

2021

 

$

4,598.1

 

2022

 

$

4,205.2

 

2023

 

$

3,749.1

 

2024

 

$

2,872.2

 

2025

 

$

2,520.8

 

 

The above amortization expense is an estimate. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions, finalization of preliminary fair value estimates, potential impairments, accelerated amortization or other events.  Additional amortization may occur as products are approved.  In addition, the Company has certain currently marketed products for which operating contribution performance has been below that which was originally assumed in the products’ initial valuations, and certain IPR&D projects which are subject to delays in timing or other events which may negatively impact the asset’s value.  The Company, on a quarterly basis, monitors the related intangible assets for these products for potential impairments.  It is reasonably possible that impairments may occur in future periods, which may have a material adverse effect on the Company’s results of operations and financial position.

 

30


 

NOTE 10 — Long-Term Debt

Debt consisted of the following ($ in millions):

 

 

 

 

 

 

 

 

 

Balance As of

 

 

Fair Market Value As of

 

 

 

Guarantor

 

Issuance Date /

Acquisition Date

 

Interest

Payments

 

March 31, 2020

 

 

December 31, 2019

 

 

March 31, 2020

 

 

December 31, 2019

 

Senior Notes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floating Rate Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$500.0 million floating rate notes due March 12, 2020 (1)

 

(3)

 

March 4, 2015

 

Quarterly

 

 

-

 

 

 

500.0

 

 

 

-

 

 

 

501.0

 

 

 

 

 

 

 

 

 

 

-

 

 

 

500.0

 

 

 

-

 

 

 

501.0

 

Fixed Rate Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$3,500.0 million 3.000% notes due March 12, 2020

 

(3)

 

March 4, 2015

 

Semi-annually

 

 

-

 

 

 

2,526.0

 

 

 

-

 

 

 

2,529.5

 

$650.0 million 3.375% notes due September 15, 2020

 

(4)

 

March 17, 2015

 

Semi-annually

 

 

650.0

 

 

 

650.0

 

 

 

650.2

 

 

 

654.7

 

$750.0 million 4.875% notes due February 15, 2021

 

(5)

 

July 1, 2014

 

Semi-annually

 

 

450.0

 

 

 

450.0

 

 

 

461.2

 

 

 

463.4

 

$1,200.0 million 5.000% notes due December 15, 2021

 

(5)

 

July 1, 2014

 

Semi-annually

 

 

1,200.0

 

 

 

1,200.0

 

 

 

1,269.4

 

 

 

1,262.9

 

$3,000.0 million 3.450% notes due March 15, 2022

 

(3)

 

March 4, 2015

 

Semi-annually

 

 

2,878.2

 

 

 

2,878.2

 

 

 

2,863.8

 

 

 

2,945.1

 

$1,700.0 million 3.250% notes due October 1, 2022

 

(4)

 

October 2, 2012

 

Semi-annually

 

 

1,700.0

 

 

 

1,700.0

 

 

 

1,689.3

 

 

 

1,739.1

 

$350.0 million 2.800% notes due March 15, 2023

 

(4)

 

March 17, 2015

 

Semi-annually

 

 

350.0

 

 

 

350.0

 

 

 

347.3

 

 

 

352.7

 

$1,200.0 million 3.850% notes due June 15, 2024

 

(3)

 

June 10, 2014

 

Semi-annually

 

 

1,036.7

 

 

 

1,036.7

 

 

 

1,081.7

 

 

 

1,089.9

 

$4,000.0 million 3.800% notes due March 15, 2025

 

(3)

 

March 4, 2015

 

Semi-annually

 

 

3,020.7

 

 

 

3,020.7

 

 

 

3,116.1

 

 

 

3,172.4

 

$2,500.0 million 4.550% notes due March 15, 2035

 

(3)

 

March 4, 2015

 

Semi-annually

 

 

1,789.0

 

 

 

1,789.0

 

 

 

1,701.1

 

 

 

1,953.4

 

$1,000.0 million 4.625% notes due October 1, 2042

 

(4)

 

October 2, 2012

 

Semi-annually

 

 

456.7

 

 

 

456.7

 

 

 

540.9

 

 

 

482.8

 

$1,500.0 million 4.850% notes due June 15, 2044

 

(3)

 

June 10, 2014

 

Semi-annually

 

 

1,079.4

 

 

 

1,079.4

 

 

 

1,003.5

 

 

 

1,192.8

 

$2,500.0 million 4.750% notes due March 15, 2045

 

(3)

 

March 4, 2015

 

Semi-annually

 

 

881.0

 

 

 

881.0

 

 

 

779.2

 

 

 

968.7

 

 

 

 

 

 

 

 

 

 

15,491.7

 

 

 

18,017.7

 

 

 

15,503.7

 

 

 

18,807.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Euro Denominated Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

€700.0 million floating rate notes due November 15, 2020 (2)

 

(3)

 

November 15, 2018

 

Quarterly

 

 

772.2

 

 

 

784.9

 

 

 

773.6

 

 

 

784.4

 

€750.0 million 0.500% notes due June 1, 2021

 

(3)

 

May 26, 2017

 

Annually

 

 

827.3

 

 

 

841.0

 

 

 

826.0

 

 

 

846.7

 

€500.0 million 1.500% notes due November 15, 2023

 

(3)

 

November 15, 2018

 

Annually

 

 

551.6

 

 

 

560.7

 

 

 

564.3

 

 

 

589.8

 

€700.0 million 1.250% notes due June 1, 2024

 

(3)

 

May 26, 2017

 

Annually

 

 

772.2

 

 

 

784.9

 

 

 

773.3

 

 

 

817.7

 

€500.0 million 2.625% notes due November 15, 2028

 

(3)

 

November 15, 2018

 

Annually

 

 

551.6

 

 

 

560.7

 

 

 

569.8

 

 

 

648.2

 

€550.0 million 2.125% notes due June 1, 2029

 

(3)

 

May 26, 2017

 

Annually

 

 

606.7

 

 

 

616.7

 

 

 

590.9

 

 

 

683.9

 

 

 

 

 

 

 

 

 

 

4,081.6

 

 

 

4,148.9

 

 

 

4,097.9

 

 

 

4,370.7

 

Total Senior Notes Gross

 

 

 

 

 

 

 

 

19,573.3

 

 

 

22,666.6

 

 

 

19,601.6

 

 

 

23,679.1

 

Unamortized premium

 

 

 

 

 

 

 

 

33.8

 

 

 

39.9

 

 

 

-

 

 

 

-

 

Unamortized discount

 

 

 

 

 

 

 

 

(53.5

)

 

 

(55.4

)

 

 

-

 

 

 

-

 

Total Senior Notes Net

 

 

 

 

 

 

 

$

19,553.6

 

 

$

22,651.1

 

 

$

19,601.6

 

 

$

23,679.1

 

Other Indebtedness

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Issuance Costs

 

 

 

 

 

 

 

 

(71.4

)

 

 

(74.7

)

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

67.5

 

 

 

72.6

 

 

 

 

 

 

 

 

 

Total Other Borrowings

 

 

 

 

 

 

 

 

(3.9

)

 

 

(2.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Indebtedness

 

 

 

 

 

 

 

$

19,549.7

 

 

$

22,649.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Interest on the 2020 floating rate note is three month USD LIBOR plus 1.255% per annum

 

(2) Interest on the 2020 floating rate notes is the three month EURIBOR plus 0.350% per annum

 

(3) Guaranteed by Warner Chilcott Limited, Allergan Capital S.a.r.l. and Allergan Finance, LLC

 

(4) Guaranteed by Allergan plc and Warner Chilcott Limited

 

(5) Guaranteed by Allergan plc

 

 

Fair market value in the table above is determined in accordance with Fair Value Leveling (defined below) under Level 2 based upon quoted prices for similar items in active markets.

 

Companies are required to use a fair value hierarchy as defined in ASC Topic 820 “Fair Value Measurement,” (“ASC 820”) which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value (“Fair Value Leveling”). There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities.

31


 

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity. The Level 3 assets are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as instruments for which the determination of fair value requires significant judgment or estimation.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants.

 

During the three months ended March 31, 2020 the Company repaid the scheduled maturities of the $500.0 million floating rate notes due March 12, 2020 and $2,526.0 million of fixed rate notes due March 12, 2020.    

Annual Debt Maturities

As of March 31, 2020, annual debt maturities of senior notes gross were as follows ($ in millions):

 

 

 

Total Payments

 

2020 remaining

 

$

1,422.2

 

2021

 

 

2,477.3

 

2022

 

 

4,578.2

 

2023

 

 

901.6

 

2024

 

 

1,808.9

 

2025

 

 

3,020.7

 

2026 and after

 

 

5,364.4

 

Total senior notes gross

 

$

19,573.3

 

 

Amounts represent total anticipated cash payments assuming scheduled repayments.

 

NOTE 11 — Other Long-Term Liabilities

Other long-term liabilities consisted of the following ($ in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Acquisition related contingent consideration liabilities

 

$

398.6

 

 

$

377.3

 

Long-term pension and post retirement liability

 

 

153.3

 

 

 

144.1

 

Legacy Allergan deferred executive compensation

 

 

73.0

 

 

 

89.2

 

Accrued R&D milestone

 

 

75.0

 

 

 

75.0

 

Deferred revenue

 

 

22.9

 

 

 

26.6

 

Product warranties

 

 

29.2

 

 

 

29.2

 

Long-term severance and restructuring liabilities

 

 

10.7

 

 

 

10.8

 

Other long-term liabilities

 

 

24.7

 

 

 

48.7

 

Total other long-term liabilities

 

$

787.4

 

 

$

800.9

 

 

 

32


 

NOTE 12 — Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2020 was a benefit of 125.5%, compared to a benefit of 2.8% for the three months ended March 31, 2019. The effective tax rate for the three months ended March 31, 2020 was favorably impacted by a tax benefit of $1.9 billion related to the decrease of certain deferred tax liabilities. The decrease resulted from the intra-entity transfer of intellectual property between entities under common control. As a result of this transfer, a deferred tax asset of $1.2 billion was recognized for the difference between the tax basis in the buyer’s jurisdiction and the net book value of the intellectual property as reported in the consolidated financial statements. However, based on the Company’s evaluation of the realizability of this deferred tax asset, the Company determined that it is not more-likely-than-not that the $1.2 billion deferred tax asset will be realizable as of March 31, 2020 and therefore this amount was offset by a full valuation allowance. The effective tax rate was unfavorably impacted by the goodwill impairment charge of $913.0 million, for which 0 tax benefit was recorded.

The effective tax rate for the three months ended March 31, 2019 was favorably impacted by a tax benefit of $91.5 million related to excess tax over book basis in a U.S. subsidiary that will reverse in the foreseeable future. The effective tax rate was unfavorably impacted by a goodwill impairment charge of $2,467.0 million, for which 0 tax benefit was recorded.

The Company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could significantly impact the Company’s effective tax rate on future earnings.

Tax Audits

The Company conducts business globally and, as a result, files U.S. federal, state and foreign tax returns. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for amounts it believes are in accordance with the accounting standard, the final outcome with a tax authority may result in a tax liability that is different than that reflected in the consolidated financial statements. Furthermore, the Company may decide to challenge any assessments, if made, and may exercise its right to appeal. The uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations with tax authorities, identification of new issues and issuance of new legislation, regulations or case law.

The Company has several concurrent audits open and pending with the IRS as set forth below:

 

IRS Audits

 

Taxable Years

Allergan W.C. Holding Inc. f/k/a Actavis W.C. Holding Inc.

 

2013, 2014, 2015, 2016 and 2017

Allergan Pharma Inc. & Subsidiaries

 

2018

Warner Chilcott Corporation

 

2010, 2011, 2012 and 2013

Forest Laboratories, Inc.

 

2010, 2011, 2012, 2013 and 2014

Allergan, Inc.

 

2009, 2010, 2011, 2012, 2013, 2014 and 3/17/2015

 

 

 

33


 

NOTE 13 — Derivative Instruments and Hedging Activities

The Company’s revenue, earnings, cash flows and fair value of its assets and liabilities can be impacted by fluctuations in foreign exchange and interest rates, as applicable. The Company manages the impact of foreign exchange risk and interest rate movements through operational means and through the use of various financial instruments, including derivative instruments such as foreign currency derivatives.

Internationally, the Company is a net recipient of currencies other than the U.S. dollar and, as such, benefits from a weaker dollar and is adversely affected by a stronger dollar relative to major currencies worldwide. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar may negatively affect the Company’s consolidated revenues and favorably impact operating expenses in U.S. dollars.             

Derivatives Designated as Hedging Instruments

Cash Flow Hedge

In January 2019, Allergan entered into $500.0 million notional floating to fixed interest rate swaps maturing on March 12, 2020 whereby it fixed the interest rates on $500.0 million floating rate notes due March 12, 2020 to an average interest rate of 3.98%.  The swaps were being accounted for using hedge accounting treatment.  During the quarter ended March 31, 2020, the interest rate swap contracts expired.  For the three months ended March 31, 2020, the corresponding realized gain of $0.8 million was recorded in accumulated other comprehensive income / (loss).

 

Net Investment Hedge

In the normal course of business, we manage certain foreign exchange risks through a variety of strategies, including hedging.  Our hedging strategies include the use of derivatives, as well as net investment hedges.  For net investment hedges, the effective portion of the gains and losses on the instruments arising from the effects of foreign exchange are recorded in the currency translation adjustment component of accumulated other comprehensive income / (loss), consistent with the underlying hedged item. Hedging transactions are limited to an underlying exposure. As a result, any change in the value of our hedging instruments would be substantially offset by an opposite change in the value of the underlying hedged items. The Company does not use derivative instruments for trading or speculative purposes.

The Company is exposed to foreign exchange risk in its international operations from foreign currency purchases, net investments in foreign subsidiaries, and foreign currency assets and liabilities created in the normal course of business, including its Euro Denominated Notes. In the three months ended March 31, 2020, we used effective net investment hedges to partially offset the effects of foreign currency on our investments in certain of our foreign subsidiaries. The total notional amount of our instruments designated as net investment hedges was $4.9 billion as of March 31, 2020 and $5.0 billion as of December 31, 2019.  During the three months ended March 31, 2020 and March 31, 2019, the impact of the net investment hedges recorded in other comprehensive loss was a loss of $81.0 million and a gain of $110.8 million, respectively, which offset the currency impact within our net investment in subsidiaries which are impacted by their Euro Denominated Notes.   

 

 

34


 

NOTE 14 — Fair Value Measurement

Assets and liabilities that are measured at fair value using Fair Value Leveling or that are disclosed at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 consisted of the following ($ in millions):

 

 

 

Fair Value Measurements as of March 31, 2020 Using:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents*

 

$

567.8

 

 

$

567.8

 

 

$

-

 

 

$

-

 

Short-term investments

 

 

1,618.8

 

 

 

-

 

 

 

1,618.8

 

 

 

-

 

Deferred executive compensation investments

 

 

73.0

 

 

 

61.0

 

 

 

12.0

 

 

 

-

 

Contingent income

 

 

52.6

 

 

 

-

 

 

 

-

 

 

 

52.6

 

Investments and other

 

 

56.8

 

 

 

30.6

 

 

 

26.2

 

 

 

-

 

Total assets

 

$

2,369.0

 

 

$

659.4

 

 

$

1,657.0

 

 

$

52.6

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred executive compensation liabilities

 

$

73.0

 

 

$

61.0

 

 

$

12.0

 

 

$

-

 

Contingent consideration obligations

 

 

413.2

 

 

 

-

 

 

 

-

 

 

 

413.2

 

Total liabilities

 

$

486.2

 

 

$

61.0

 

 

$

12.0

 

 

$

413.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Marketable securities with less than 90 days remaining until maturity at the time of acquisition are classified as cash equivalents.

 

 

 

 

Fair Value Measurements as of December 31, 2019 Using:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents*

 

$

1,535.4

 

 

$

1,535.4

 

 

$

-

 

 

$

-

 

Short-term investments

 

 

3,411.6

 

 

 

-

 

 

 

3,411.6

 

 

 

-

 

Deferred executive compensation investments

 

 

89.2

 

 

 

77.0

 

 

 

12.2

 

 

 

-

 

Contingent income

 

 

51.8

 

 

 

-

 

 

 

-

 

 

 

51.8

 

Investments and other

 

 

70.9

 

 

 

38.2

 

 

 

32.6

 

 

 

-

 

Total assets

 

$

5,158.9

 

 

$

1,650.6

 

 

$

3,456.4

 

 

$

51.8

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred executive compensation liabilities

 

$

89.2

 

 

 

77.0

 

 

 

12.2

 

 

 

-

 

Contingent consideration obligations

 

 

389.4

 

 

 

-

 

 

 

-

 

 

 

389.4

 

Total liabilities

 

$

478.6

 

 

$

77.0

 

 

$

12.2

 

 

$

389.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Marketable securities with less than 90 days remaining until maturity at the time of acquisition are classified as cash equivalents.

 

 

Marketable securities and investments consist of money market securities, U.S. treasury and agency securities.  Unrealized gains or losses on marketable securities are recorded in interest income, while unrealized gains or losses on marketable debt securities are recorded in accumulated other comprehensive income.  Investments and other include equity and debt securities of publicly traded companies for which market prices are readily available. Unrealized gains or losses on long-term equity investments are recorded in other income / (expense), net.  The Company’s marketable securities and other long-term investments are recorded at fair value based on quoted market prices using the specific identification method. These investments are classified as either current or non-current, as appropriate, in the Company’s consolidated balance sheets.  The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and maturity management.

35


 

Contingent Consideration Obligations

The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs and is based on a probability-weighted income approach. The measurement is based upon unobservable inputs supported by little or no market activity, and is based on our own assumptions.  These assumptions include revenue estimates, post-tax gross profit levels and a probability assessment with respect to the likelihood of achieving contingent obligations including contingent payments such as milestone obligations, royalty obligations and contract earn-out criteria, where applicable.  The weighted average probability assessment utilized in the continent consideration obligations fair value measurement was approximately 70.0%. Changes in the fair value of the contingent consideration obligations, including accretion, are recorded in our consolidated statements of operations as follows ($ in millions):

 

 

 

Three Months Ended March 31,

 

Expense / (Income)

 

2020

 

 

2019

 

Cost of sales

 

$

24.2

 

 

$

16.2

 

Research and development

 

 

2.4

 

 

 

2.5

 

Total

 

$

26.6

 

 

$

18.7

 

 

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2020 and 2019 ($ in millions):

 

 

 

Balance as of December 31, 2019

 

 

Net transfers

in to (out of)

Level 3

 

 

Purchases,

settlements,

and other net

 

 

Net accretion

and fair value

adjustments

 

 

Balance as of March 31, 2020

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

   obligations

 

$

389.4

 

 

$

-

 

 

$

(2.8

)

 

$

26.6

 

 

$

413.2

 

 

 

 

Balance as of

December 31,

2018

 

 

Net transfers

in to (out of)

Level 3

 

 

Purchases,

settlements,

and other net

 

 

Net accretion

and fair value

adjustments

 

 

Balance as of

March 31, 2019

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

   obligations

 

$

344.6

 

 

$

-

 

 

$

(2.1

)

 

$

18.7

 

 

$

361.2

 

 

During the three months ended March 31, 2020, the activity in contingent consideration obligations by acquisition consisted of the following ($ in millions):

 

Business Acquisition

 

Balance as of December 31, 2019

 

 

Fair Value

Adjustments

and Accretion

 

 

Payments

and Other

 

 

Balance as of March 31, 2020

 

Tobira acquisition

 

$

264.3

 

 

$

2.4

 

 

$

-

 

 

$

266.7

 

Medicines 360 acquisition

 

 

79.7

 

 

 

19.7

 

 

 

(2.0

)

 

 

97.4

 

AqueSys acquisition

 

 

5.6

 

 

 

-

 

 

 

-

 

 

 

5.6

 

Oculeve acquisition

 

 

1.7

 

 

 

0.1

 

 

 

-

 

 

 

1.8

 

ForSight acquisition

 

 

24.4

 

 

 

-

 

 

 

-

 

 

 

24.4

 

Forest acquisition

 

 

12.5

 

 

 

4.4

 

 

 

(0.8

)

 

 

16.1

 

Other

 

 

1.2

 

 

 

-

 

 

 

-

 

 

 

1.2

 

Total

 

$

389.4

 

 

$

26.6

 

 

$

(2.8

)

 

$

413.2

 

 

Contingent Income

36


 

The fair value measurement of the contingent income is determined using Level 3 inputs and is based on a probability-weighted income approach. The measurement is based upon unobservable inputs supported by little or no market activity, and is based on our own assumptions. There were no material changes noted in the fair value of the contingent income for the three months ended March 31, 2020.

 

NOTE 15 — Commitments & Contingencies

The Company and its affiliates are involved in various disputes, governmental and/or regulatory inspections, inquires, investigations and proceedings, and litigation matters that arise from time to time in the ordinary course of business. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect the Company, its results of operations, financial condition and cash flows. The Company’s general practice is to expense legal fees as services are rendered in connection with legal matters, and to accrue for liabilities when losses are probable and reasonably estimable.

The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued. As of March 31, 2020, the Company’s consolidated balance sheet includes accrued loss contingencies of approximately $255.0 million.  As of December 31, 2019, the Company’s consolidated balance sheet included accrued loss contingencies of approximately $1,190.0 million.  

The Company’s legal proceedings range from cases brought by a single plaintiff to mass tort actions and class actions with thousands of putative class members. These legal proceedings, as well as other matters, involve various aspects of our business and a variety of claims (including, but not limited to, qui tam actions, antitrust, product liability, breach of contract, securities, patent infringement and trade practices), some of which present novel factual allegations and/or unique legal theories. In addition, a number of the matters pending against us are at very early stages of the legal process (which in complex proceedings of the sort faced by us often extend for several years). As a result, some matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable us to estimate a range of possible loss. In those proceedings in which plaintiffs do request publicly quantified amounts of relief, the Company does not believe that the quantified amounts are meaningful because they are merely stated jurisdictional limits, exaggerated and/or unsupported by the evidence or applicable burdens of proof.

In matters involving the assertion or defense of the Company’s intellectual property, the Company believes it has meritorious claims and intends to vigorously assert or defend the patents or other intellectual property at issue in such litigation.  Similarly, in matters where the Company is a defendant, the Company believes it has meritorious defenses and intends to defend itself vigorously.  However, the Company can offer no assurances that it will be successful in a litigation or, in the case of patent enforcement matters, that a generic version of the product at issue will not be launched or enjoined.  Failing to prevail in a litigation could adversely affect the Company and could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

Intellectual Property Litigation

Patent Enforcement Matters

Bystolic®. On July 2, 2019, subsidiaries of the Company brought an action for infringement of U.S. Patent No. 6,545,040 in the United States District Court for the District of Delaware against Ajanta Pharma Ltd. and Ajanta Pharma USA Inc. (collectively, “Ajanta”) in connection with an abbreviated new drug application filed with the FDA by Ajanta seeking approval to market a generic version of Bystolic® and challenging said patent. The Company entered into a settlement agreement with Ajanta on December 17, 2019, and the case was dismissed on January 2, 2020.

Combigan®. On October 30, 2017, subsidiaries of the Company filed an action for infringement of U.S. Patent Number 9,770,453 (the “‘453 Patent”) against Sandoz, Inc. and Alcon Laboratories, Inc. (“Sandoz”) in the U.S. District Court for the District of New Jersey, in connection with the abbreviated new drug applications respectively filed with the FDA by Sandoz and Alcon, seeking approval to market a generic version of Combigan®. On March 6, 2018, U.S. Patent Nos. 9,907,801 (the “‘801 Patent”) and 9,907,802 (the “‘802 Patent”) were added to the case. The ‘453, ‘801 and ‘802 Patents are listed in the Orange Book for Combigan® and expire on April 19, 2022. On July 13, 2018, the district court adopted Allergan’s proposed claim construction and granted Allergan’s motion for

37


 

preliminary injunction against Sandoz. On August 1, 2018, the district court entered an order setting a preliminary injunction bond in the amount of $157,300,000 under Federal Rule of Civil Procedure 65(c), which Allergan posted. Sandoz appealed the grant of the injunction. On August 29, 2019, the Federal Circuit affirmed the grant of a preliminary injunction against Sandoz. A mandate issued on October 7, 2019. On January 8, 2020, the district court entered a scheduling order. Trial is expected to occur in Q2 2021, on a date to be determined by the court.

Fetzima®. In October and November 2017, subsidiaries of the Company and Pierre Fabre Medicament S.A.S. brought actions for infringement of U.S. Patent Nos. RE43,879 (the “‘879 Patent”); 8,481,598 (the “‘598 Patent”); and 8,865,937 (the “‘937 Patent”) against MSN Laboratories Private Limited and MSN Pharmaceuticals Inc. (collectively, “MSN”), Prinston Pharmaceutical Inc. and Solco Healthcare U.S., LLC (collectively, “Prinston”), Torrent Pharmaceuticals Limited and Torrent Pharma Inc. (collectively, “Torrent”), West-Ward Pharmaceuticals International Limited and West-Ward Pharmaceuticals Corp. (collectively, “West-Ward”), Zydus Pharmaceuticals (USA) Inc. (“Zydus”), Aurobindo Pharma USA, Inc. and Aurobindo Pharma Limited (collectively, “Aurobindo”), and Amneal Pharmaceuticals LLC and Amneal Pharmaceuticals Private Limited (collectively, “Amneal”), in connection with abbreviated new drug applications, respectively filed with the FDA by MSN, Prinston, Torrent, West-Ward, Zydus, Aurobindo, and Amneal, each seeking approval to market generic versions of Fetzima® and challenging said patents. The ‘879 Patent expires in June 2023 (not including a pending application for patent term extension (“PTE”)), the ‘598 patent expires in March 2031, and the ‘937 Patent expires in May 2032.  Fact discovery is completed.  Trial is expected to begin in August 2020, subject to the Court’s availability.  Allergan entered into a settlement agreement with Amneal on December 18, 2018, and the case as against Amneal was dismissed.  Allergan entered into a settlement agreement with Prinston on June 6, 2019, and the case as against Prinston was dismissed.  Allergan entered into a settlement agreement with Hikma Pharmaceuticals USA Inc. and Hikma Pharmaceuticals International Limited (f/k/a West-Ward Pharmaceuticals Corp. and West-Ward Pharmaceuticals International Limited, respectively) on February 20, 2020.

In April 2019, subsidiaries of the Company and Pierre Fabre Medicament S.A.S. brought an action for infringement of the ‘879, ‘598 and ‘937 Patents against Micro Labs Ltd. and Micro Labs USA, Inc. (“Micro”) in connection with Micro’s abbreviated new drug application seeking approval to market a generic version of Fetzima® and challenging said patents.  Allergan entered into a settlement agreement with Micro Labs on October 22, 2019 and the case was dismissed.

In December 2019, subsidiaries of the Company and Pierre Fabre Medicament S.A.S. brought an action for infringement of the ‘879, ‘598 and ‘937 Patents against Torrent in connection with the same numbered Torrent abbreviated new drug application that was at issue in the action filed by Plaintiffs in 2017.  Fact discovery is scheduled to close in November 2020.  No trial date has been set.  

Juvéderm®. On February 26, 2019, subsidiaries of the Company filed an amended complaint for infringement of U.S. Patent Nos. 8,450,475 (the “‘475 Patent”), 8,357,795 (the “‘795 Patent”), 8,822,676 (the “‘676 Patent”), 9,089,519 (the “‘519 Patent”), 9,238,013 (the “‘013 Patent”) and 9,358,322 (the “‘322 Patent”) in the U.S. District Court for the District of Delaware against Prollenium US Inc. and Prollenium Medical Technologies, Inc. (collectively, “Prollenium”). The amended complaint seeks, among other things, a judgment that Defendants have infringed these patents by making, selling, offering to sell, and importing Prollenium’s Revanesse® Versa+TM products within and into the United States. Plaintiffs seek injunctive relief and damages for Defendants’ infringement. Trial is scheduled for June 14, 2021.  On April 13, 2020, Prollenium filed a motion to stay the action pending resolution of Inter Partes Review (“IPR”) petitions that were filed by Prollenium with respect to the asserted patents and instituted by the USPTO in March and April 2020.

On January 23, 2020, subsidiaries of the Company filed a complaint for infringement of U.S. Patent Nos. 10,391,202 (the “‘202 Patent”), and 10,485,896 (the “‘896 Patent”) in the U.S. District Court for the District of Delaware against Prollenium.  The complaint seeks, among other things, a judgment that Defendants have infringed these patents by making, selling, offering to sell, and importing Prollenium’s Revanesse® Versa+TM products within and into the United States. Plaintiffs seek injunctive relief and damages for Defendants’ infringement. On April 13, 2020, Prollenium filed a motion to stay the action pending resolution of Inter Partes Review (“IPR”) petitions that were filed by Prollenium with respect to patents asserted in the earlier-filed action and instituted by the USPTO in March and April 2020.

38


 

Juvéderm® IPR.  In August, September and October 2019, Prollenium US Inc. (“Prollenium”) submitted Inter Partes Review (“IPR”) petitions to the USPTO regarding U.S. Patent Nos. 8,450,475 (the “‘475 Patent), 9,238,013 (the “‘013 patent”), 9,358,322 (the “‘322 patent”), 8,822,676 (the “‘676 patent”), 8,357,795 (the “‘795 patent”) and 9,089,519 (the “‘519 patent”).  Prollenium’s IPR petitions seek review of all claims of the ‘013, ‘322, 676, and ‘519 patents, claims 1-9, 18, and 27-37 of the ‘475 patent, and claims 1-11, 22, 26-39, and 40-41 of the ‘795 patent.  Patent owner’s preliminary responses for these petitions are due on December 19, 2019, or later.  The Company filed patent owner's preliminary responses in December 2019 and January 2020 for petitions related to the ‘475, ‘013, ‘322, ‘676, ‘795, and ‘519 patents.  On January 17, 2020, Prollenium filed a consolidated reply to the patent owner's preliminary responses with respect to the ‘475, ‘013, ‘322, ‘676, and ‘795 patents, and on January 24, 2020, the Company filed a consolidated sur-reply.  In March and April 2020, the USPTO issued decisions granting institution of the IPRs filed by Prollenium. Oral argument, if requested, is scheduled in January 2021.    

Latisse® IV. In December 2016, Sandoz announced the U.S. market launch of its generic copy of Latisse®. In July 2017, subsidiaries of the Company and Duke University (collectively, “Plaintiffs”) filed a complaint for infringement of U.S. Patent Number 9,579,270 (“‘270 Patent”) against Defendants Sandoz Inc. (“Sandoz”) and Alcon Laboratories, Inc. (“Alcon”) in the U.S. District Court for the Eastern District of Texas (EDTX). The ‘270 patent expires in January 2021. In their complaint, Plaintiffs seek, among other things, a judgment that Defendants have infringed the ‘270 patent by making, selling, and offering to sell, and/or importing, their generic copy of Latisse® within the United States. Plaintiffs seek injunctive relief and damages for Defendants’ infringement. On April 3, 2018, the EDTX court issued an order, among other things, severing Plaintiff’s claims against Defendants and transferring Plaintiff’s claims against Alcon to the District Court of Delaware and Plaintiff’s claims against Sandoz to the District of Colorado. On October 5, 2018, the Delaware District Court entered an order dismissing the Delaware action against Alcon.  On September 18, 2019, the District of Colorado denied Sandoz’s motion for summary judgment.  Discovery is closed in the District of Colorado case and a trial date has not yet been set.  

Linzess®. Beginning in November 2016 subsidiaries of the Company and Ironwood Pharmaceuticals, Inc. (collectively, “Plaintiffs”), brought multiple actions for infringement of some or all of U.S. Patent Nos. 7,304,036 (the “‘036 Patent”); 7,371,727 (the “‘727 Patent”); 7,704,947 (the “‘947 Patent”); 7,745,409 (the “‘409 Patent”); 8,080,526 (the “‘526 Patent”); 8,110,553 (the “‘553 Patent”); 8,748,573 (the “‘573 Patent”); 8,802,628 (the “‘628 Patent”); and 8,933,030 (the “‘030 Patent”) against Teva Pharmaceuticals USA, Inc. (“Teva”), Aurobindo Pharma Ltd. (“Aurobindo”), Mylan Pharmaceuticals Inc. (“Mylan”), Sandoz Inc. (“Sandoz”) and Sun Pharma Global FZE (“Sun”) in the U.S. District Court for the District of Delaware in connection with abbreviated new drug applications respectively filed with the FDA by Teva, Aurobindo, Mylan, Sandoz and Sun, each seeking approval to market generic versions of Linzess® 145 mcg and 290 mcg capsules and challenging some or all of said patents (“November 2016 Action”).  The ‘727, ‘947, ‘409, ‘526 and ‘553 Patents expire in January 2024; the ‘036 Patent expires in August 2026; and the ‘573, ‘628 and ‘030 Patents expire in 2031.  In the November 2016 Action, expert discovery has been completed.  On May 31, 2019, due to a scheduling conflict, the bench trial set for June 2019 was postponed to January 7, 2020.

On October 20, 2017, November 30, 2017 and January 20, 2018, Plaintiffs brought actions for infringement of U.S. Patent No. 9,708,371 (the “‘371 Patent”) in the U.S. District Court for the District of Delaware against Teva, Mylan and Sandoz, respectively. The ‘371 Patent expires in 2033. The ‘371 patent actions have been consolidated with the November 2016 Action.

On February 2, 2018 and March 29, 2018, Plaintiffs brought actions for infringement of some or all of the ‘036, ‘727, ‘947, ‘409, ‘526, ‘553, ‘030 and ‘371 Patents against Teva and Mylan in the U.S. District Court for the District of Delaware in connection with abbreviated new drug applications respectively filed with the FDA by Teva and Mylan, each seeking approval to market generic versions generic versions of Linzess® 72 mcg capsules (“72 mcg ANDA”) before the expiration said patents. The district court consolidated the 72 mcg ANDA actions with the November 2016 Action.

In May and August 2018, the district court granted joint stipulations and orders to dismiss without prejudice all claims, counterclaims, and defenses in the November 2016 Action with respect to the ‘371 Patent and the ‘030 Patent, respectively, as between Plaintiffs, Teva, Mylan and Sandoz.

39


 

On September 4, 2018, Plaintiffs filed an amended complaint as to Mylan to assert the ‘628 patent against Mylan’s 72 mcg ANDA product.

Plaintiffs entered into a settlement agreement with Sun and certain Sun affiliates and the case against Sun was dismissed on January 18, 2018.  Plaintiffs entered into a settlement agreement with Aurobindo and the case against Aurobindo was dismissed on May 7, 2018.  Plaintiffs entered into a settlement agreement with Mylan and the case against Mylan was dismissed on December 27, 2018.  Under the terms of the settlement agreement, Plaintiffs will provide a license to Mylan to market its generic versions of Linzess® 145 mcg and 290 mcg in the United States beginning on February 5, 2030 (subject to FDA approval), and its generic version of Linzess® 72 mcg in the United States beginning on August 5, 2030, or earlier in certain circumstances.

Plaintiffs entered into a settlement agreement with Sandoz on January 3, 2020, and the cases against Sandoz were dismissed on January 7, 2020.  Under the terms of the settlement agreement, Plaintiffs will provide a license to Sandoz to market its generic versions of Linzess® 145 mcg and 290 mcg in the United States beginning on February 5, 2030 (subject to FDA approval), or earlier in certain circumstances.

On January 17, 2020, upon the parties' request, the district court dismissed without prejudice the litigations relating only to Teva's 72 mcg version of Linzess®.  Plaintiffs had asserted patents against Teva's 72 mcg ANDA, the last of which expires in 2026, subject to possible pediatric extension. Prior to the dismissal, Teva had stipulated to infringement of certain claims of those patents.  On January 21, 2020, Plaintiffs entered into a settlement agreement with Teva and the remaining case against Teva was dismissed. Under the terms of the settlement agreement, Plaintiffs will provide a license to Teva to market its generic versions of Linzess® 145 mcg and 290 mcg in the United States beginning on March 31, 2029 (subject to FDA approval), or earlier in certain circumstances. This settlement does not grant any license to Teva with regard to its 72 mcg generic version of Linzess®.  

Saphris®. Between September 2014 and May 2015, subsidiaries of the Company brought actions for infringement of some or all of U.S. Patent Nos. 5,763,476 (the “‘476 patent”), 7,741,358 (the “‘358 patent”) and 8,022,228 (the “‘228 patent”) against Sigmapharm Laboratories, LLC (“Sigmapharm”), Hikma Pharmaceuticals, LLC (“Hikma”), Breckenridge Pharmaceutical, Inc. (“Breckenridge”), Alembic Pharmaceuticals, Ltd. (“Alembic”) and Amneal Pharmaceuticals, LLC (“Amneal”), and related subsidiaries and affiliates thereof in the U.S. District Court for the District of Delaware in connection with an abbreviated new drug applications respectively filed with FDA by Sigmapharm, Hikma, Breckenridge, Alembic and Amneal, each seeking approval to market a generic versions of Saphris® and challenging each of said patents. Including a 6-month pediatric extension of regulatory exclusivity, the ‘476 patent expires in December 2020, and the ‘358 and ‘228 patents expire in October 2026. In 2016, the parties agreed to dismiss all claims related to the ‘358 and ‘228 patents, leaving only the ‘476 patent at issue. On October 13, 2016, the court stayed trial as to Sigmapharm and extended the 30-month stay as to Sigmapharm. On June 30, 2017, the district court issued an opinion and order finding all asserted claims of the ‘476 patent valid, that claims 1, 2, 5 and 6 were infringed by Alembic, Amneal, Breckenridge and Hikma, and that claims 4, 9 and 10 were not infringed by Alembic and Breckenridge. On July 11, 2017, the district court entered a final judgment that ordered, among other things, that Alembic’s, Amneal’s, Breckenridge’s and Hikma’s respective ANDAs not be granted final approval by FDA earlier than the date of expiration of the ‘476 patent inclusive of any applicable adjustments, extensions or exclusivities.

On March 14, 2019, the Federal Circuit vacated the district court’s July 2017 judgment that claims 1 and 4 are not invalid and remanded for the district court to consider a fact question and its impact on the obviousness analysis. On April 15, 2019, Plaintiffs filed a combined petition for panel rehearing and rehearing en banc with respect to this issue, which was denied on May 15, 2019.  In its March 14, 2019 order, the Federal Circuit also vacated the judgment of non-infringement of claims 4, 9 and 10 as to Alembic and Breckenridge and remanded for the district court to consider their infringement under a revised claim construction. In a joint stipulation entered by the district court on November 5, 2019, Alembic stipulated that its ANDA infringed claims 4, 9 and 10 of the '476 patent. On December 17, 2019, the district court entered a schedule for briefing on the remanded issues. Oral argument is currently scheduled for June 9, 2020.

40


 

A separate bench trial concerning Sigmapharm’s infringement of claim 1 of the ‘476 patent began on June 20, 2018, and on November 16, 2018, the court held that Sigmapharm’s proposed ANDA product would infringe claim 1 of the ‘476 patent On November 26, 2018, Sigmapharm sought relief from the November 16, 2018 decision. On November 30, 2018, the Company moved for entry of final judgment. On August 6, 2019, the district court denied Sigmapharm’s motion to reconsider its November 2018 Order, and denied without prejudice the Company’s motion for entry of final judgment. On August 22, 2019, the district court entered Plaintiffs and Sigmapharm’s stipulated final judgment finding that Sigmapharm infringed claims 1, 2, 5, and 6 of the ‘476 patent and ordering, among other things, that Sigmapharm’s ANDA be converted to tentative approval and not be granted final approval by FDA earlier than the date of expiration of the ‘476 patent inclusive of any applicable adjustments, extensions or exclusivities.

 

Viberzi®.   On September 6, 2019, subsidiaries of the Company and Janssen Pharmaceutica NV brought an action for infringement of U.S. Patent Nos. 7,741,356 ("the '356 patent"), 7,786,158 ("the '158 patent"), 8,344,011 ("the '011 patent"), 8,609,709 ("the '709 patent"), 8,772,325 ("the '325 patent"), 9,205,076 ("the '076 patent"), 9,700,542 ("the '542 patent"), and 10,213,415 ("the '415 patent") in the United States District Court for the District of Delaware against Aurobindo Pharma Ltd. and Aurobindo Pharma USA Inc. (collectively, “Aurobindo”) in connection with an abbreviated new drug application filed with the FDA by Aurobindo seeking approval to market a generic version of Viberzi® and challenging said patents.   Trial has been scheduled for May 2, 2022.

 

On September 13, 2019, subsidiaries of the Company brought an action for infringement of United States Patent Nos. 8,691,860 ("the '860 patent"), 9,115,091 ("the '091 patent"), 9,364,489 ("the '489 patent"), 9,675,587 ("the '587 patent"), 9,789,125 ("the '125 patent"), and 10,188,632 ("the '632 patent") in the United States District Court for the District of Delaware against Aurobindo Pharma Ltd., Aurobindo Pharma USA, Inc. (collectively, “Aurobindo”), Alkem Laboratories Limited (“Alkem”), Hetero Labs Limited and Hetero USA Inc. (collectively, “Hetero”), MSN Laboratories Private Limited and MSN Pharmaceuticals, Inc. (collectively, “MSN”), Sun Pharmaceutical Industries Limited (“Sun”), and Zydus Pharmaceuticals (USA) Inc. (“Zydus”) in connection with abbreviated new drug applications, respectively filed with the FDA by Aurobindo, Alkem, Hetero, MSN, Sun and Zydus, each seeking approval to market generic versions of Viberzi® and challenging said patents.    Trial has been scheduled for May 2, 2022.

 

Vraylar®.   On December 20, 2019, subsidiaries of the Company and Gedeon Richter Plc. brought an action for infringement of U.S. Patent Nos. 7,737,142 ("the '142 patent"), and 7,943,621 ("the '621 patent") in the United States District Court for the District of Delaware against Sun Pharmaceutical Industries Limited and Sun Pharma Global FZE (collectively, "Sun"), Aurobindo Pharma Limited and Aurobindo Pharma USA, Inc. (collectively, "Aurobindo"), and Zydus Pharmaceuticals (USA), Inc. and Cadila Healthcare Limited (collectively, "Zydus") in connection with abbreviated new drug applications, respectively filed with the FDA by Sun, Aurobindo, and Zydus, seeking approval to market generic versions of Vraylar® and challenging said patents. No trial date or case schedule has been set.

Trade Secret Matters

Botulinum Neurotoxin ITC Investigation. On January 30, 2019, subsidiaries of the Company and Medytox Inc. (collectively, “Complainants”) filed a complaint with the United States International Trade Commission (“ITC”) against Daewoong Pharmaceuticals Co., Ltd., Daewoong Co., Ltd., and Evolus Inc. (collectively, “Respondents”) requesting the ITC commence an investigation with respect to the Respondents’ importation into the United States of Respondents’ botulinum neurotoxin products, including DWP-450 (also known as JeuveauTM), which Complainants assert were developed, made and/or imported using Medytox’s trade secrets. Complainants seek, among other things, a permanent exclusionary order and cease and desist orders covering Respondents’ botulinum neurotoxin products, including DWP-450/JeuveauTM. On February 28, 2019, the ITC instituted an investigation into Respondents’ botulinum neurotoxin products, including DWP-450/JeuveauTM. Fact and expert discovery is closed and a hearing was held in early February 2020.  Post-hearing briefing was completed on February 28, 2020.  The target date for completion of the investigation is October 6, 2020.

41


 

Trademark Enforcement Matters

Juvéderm®. On April 5, 2017, a subsidiary of the Company brought an action for unfair competition, false advertising, dilution, conspiracy and infringement of Allergan’s Juvéderm ® trademarks in the U.S. District Court for the Central District of California against Dermavita Limited Partnership (“Dermavita”), Dima Corp. S.A. (“Dima Corp.”) and KBC Media Relations LLC (“KBC”). Dima Corp. had previously announced its acquisition of a license from Dermavita to develop and market in the U.S. cosmetic products under the Juvederm trademark. During June 2017, the Company entered into a settlement agreement with KBC. During July 2017, the Court preliminarily enjoined Dima Corp. from, inter alia, promoting or selling within the United States any product bearing the trademark Juvéderm® or any other trademark confusingly similar to it. During January 2018, the Court granted Dermavita’s renewed motion to dismiss the Company’s complaint based on purported lack of personal jurisdiction. During January 2019, the Company subsidiary and Dima Corp. resolved the action and the Court entered a permanent injunction and final judgment in favor of the Company subsidiary and against Dima Corp. for trademark infringement, unfair competition, dilution and false advertising.

Subsidiaries of the Company requested a preliminary injunction against Dermavita, Dima Corp, Aesthetic Services & Development, Jacqueline Sillam and Dimitri Sillam in the High Court of Paris, France. During June 2017, the Paris Court preliminarily enjoined the above-listed defendants, inter alia, to refrain from promoting or selling in France its Juvederm products, to transfer various domain names and to pay provisional damages to Allergan, on the basis that such use would infringe Allergan’s EU and French Juvéderm® trademarks and would amount to unfair competition. This injunction has become final. During July 2018, the Paris Court ordered Dermavita, Dima Corp, Aesthetic Services & Development to pay more than 75,000 Euros in liquidated damages for violation of the preliminary injunction mentioned above.  On February 2020, the Paris Court preliminarily enjoined newly-added defendants Lazeo, My Cream Lab, Vital Esthetique and Juvederm Elite Clinics, inter alia, to refrain from promoting or selling in the EU its Juvederm products and to pay provisional damages to the Company.  

A subsidiary of the Company has also filed against Dermavita, Dima Corp. and others a full action of trademark infringement in the Paris court. Dermavita has submitted two requests that the full action be stayed pending the outcome of the Nanterre action and the EUIPO trademark proceedings, both mentioned below. The Paris court rejected both of Dermavita’s stay requests.  Furthermore, Dermavita filed an action against subsidiaries of the Company in the Nanterre, France court alleging that the subsidiaries have not used its Juvéderm trademark and requesting the court to revoke the Company’s trademark based on its purported lack of use or purportedly invalid license and assignment agreements. On February 21, 2019, the Nanterre Court ruled in the Company’s favor, holding that the license and assignment agreements were valid and that Allergan has used its trademark in commerce.  Dermavita has appealed this decision.  

Dermavita has filed another action against subsidiaries of the Company in the Paris court requesting the court to declare that a trademark license agreement and trademark assignment agreement between subsidiaries of the Company are invalid and/or fraudulent. The case is still ongoing.  

 

42


 

On January 22, 2019, subsidiaries of the Company brought a related action for infringement of the Company’s Juvéderm® trademarks against Aesthetic Services and Development Limited, Juvederm Elite Clinics SARL and Jamal Hamadi in the (UK) High Court of Justice.  The case is still ongoing.  

Furthermore, more than 150 trademark opposition and cancellation actions between Allergan and Dermavita have been filed in front of the USPTO, EUIPO and various other national and regional trademark offices around the world. Most of these actions remain pending; however, Allergan has received favorable decisions in more than thirty (30) such actions.

Antitrust Litigation

Loestrin® 24 Litigation. Putative classes of direct and indirect purchasers as well as opt-out direct purchasers have filed complaints that have been consolidated in the U.S. District Court for the District of Rhode Island. The lawsuits allege that subsidiaries of the Company engaged in anticompetitive conduct, including when settling patent lawsuits related to Loestrin® 24 Fe, in violation of federal and state antitrust and consumer protection laws. The complaints each seek declaratory and injunctive relief and compensatory damages in the billions of dollars which, if plaintiffs are successful, are subject to trebling under the antitrust laws. The court granted the direct purchaser plaintiffs’ class certification motion but had not decided the indirect purchaser plaintiffs’ class motion.  Summary judgement motions were fully briefed, and oral arguments were held in September 2019.  Trial in this action was scheduled to begin in January 2020.  The parties reached agreements with each group of plaintiffs that, taken together, will resolve this litigation in its entirety.  Based on the settlements with the plaintiffs, the Company booked an accrual of $302,500,000.  The direct and indirect purchaser settlement agreements remain subject to final court approval.

Namenda® Litigation. In 2014, the State of New York filed a lawsuit in the U.S. District Court for the Southern District of New York alleging that Forest was acting to prevent or delay generic competition to Namenda® in violation of federal and New York antitrust laws and committed other fraudulent acts in connection with its commercial plans for Namenda® XR. The district court granted the state’s motion for a preliminary injunction which was later affirmed by the Court of Appeals for the Second Circuit. The parties in that case then reached a settlement to resolve the dispute. Following the conclusion of the New York Attorney General Matter, putative class actions were filed on behalf of direct and indirect purchasers in the same federal court. The class action complaints make claims similar to those asserted by the New York Attorney General and also include claims that Namenda® patent litigation settlements between a Company subsidiary and generic companies also violated the antitrust laws. The court had denied defendants’ motion for summary judgment in the direct purchaser action, certified the direct purchaser class of plaintiffs and set a trial date for October 28, 2019.  Prior to the start of the trial, the parties in the direct purchaser class action reached an agreement in principle to settle that litigation for $750,000,000.  The agreement, which contains no admission of liability, remains subject to final court approval.  

Restasis® Competitor Litigation. Shire, which offers the dry-eye disease drug Xiidra®, sued subsidiaries of the Company in U.S. District Court for the District of New Jersey alleging that defendants unlawfully harmed competition by foreclosing Xiidra® from sales to Medicare Part D plans (and the members of such plans) through the use of discounts (a) contingent on Restasis® receiving preferential formulary treatment; and/or (b) across a bundle of Allergan’s products, including Restasis®. The complaint seeks injunctive relief and damages under federal and state law. The court issued a decision on March 22, 2019 granting the defendants’ motion to dismiss the complaint.  On April 25, 2019, Shire filed an amended complaint.  Defendants have moved to dismiss the amended complaint.  At the request of the parties, the court entered an Order on June 28, 2019, staying the action through December 27, 2019.  The stay was extended through February 18, 2020 during which time the parties reached an agreement in principal to settle this litigation

Restasis® Class Action Litigation. Several class actions were filed on behalf of putative classes of direct and indirect purchasers of Restasis® alleging that subsidiaries of the company harmed competition by engaging in conduct to delay the market entry of generic versions of Restasis® in violation of the federal antitrust laws as well as state antitrust and consumer-protection laws and unjust enrichment. The cases have been consolidated in the U.S. District Court for the District of New Jersey. All plaintiffs seek compensatory damages in the billions of dollars which, if plaintiffs are successful are subject to trebling under the antitrust laws, as well as declaratory relief, and injunctive relief. The parties are currently engaged in discovery. Trial in this action is scheduled to begin in April 2020.  Recently, the Company reached agreements to settle the claims asserted by all direct purchaser plaintiffs and the Company has taken a reserve of $78,800,000 for these settlements.  The Company intends to vigorously defend its conduct and the patents or other intellectual property at issue in what remains of this litigation.

43


 

Commercial Litigation

Warner Chilcott Marketing Practices. A putative nationwide class of private payer entities, or their assignees, that paid Medicare benefits on behalf of their beneficiaries filed a complaint against certain subsidiaries of the Company in the U.S. District Court for the District of Massachusetts. The Complaint asserts claims under the federal RICO statute, state consumer protection statutes, common law fraud, and unjust enrichment with respect to the sale and marketing of certain products. The court recently granted Defendants’ motion to dismiss the Amended Complaint.  Following the dismissal of the action in federal court, plaintiffs recently filed a nearly identical complaint in state court in New Jersey.  On March 27, 2020, the state court granted the Defendants’ motion to dismiss.

Generic Drug Pricing Securities and ERISA Litigation. Putative classes of shareholders and 2 individual opt-out plaintiffs filed class action lawsuits against the Company and certain of its current and former officers alleging that defendants made materially false and misleading statements between February 2014 and November 2016 regarding the Company’s internal controls over its financial reporting and that it failed to disclose that its former Actavis generics unit had engaged in illegal, anticompetitive price-fixing with its generic industry peers. These lawsuits have been consolidated in the U.S. District Court for the District of New Jersey. The complaints seek unspecified monetary damages.  The Company filed a motion to dismiss the complaint, but the court denied the motion in a ruling on August 6, 2019.  The parties are now engaging in discovery in these cases. In addition, class action complaints have been filed premised on the same alleged underlying conduct that is at issue in the securities litigation but that assert claims under the Employee Retirement Income Security Act of 1974 (“ERISA”). These complaints have been consolidated in the district court in New Jersey. The court granted the Company’s motion to dismiss this complaint. The ERISA plaintiffs have appealed this decision to the Third Circuit Court of Appeals.

Prescription Opioid Drug Abuse Litigation. The Company has been named as a defendant, along with several other manufacturers and distributors of opioid products, in over 2,000 matters relating to the promotion and sale of prescription opioid pain relievers and additional suits have been filed. The lawsuits allege generally that the manufacturer defendants engaged in a deceptive campaign to promote their products in violation of state laws and seek unspecified monetary damages, penalties and injunctive relief. Plaintiffs in these suits include states, political subdivisions of states (i.e., counties and municipalities), Native American tribes and other private litigants such as insurance plans, hospital systems and consumers who were prescribed opioid products and were subsequently treated for an overdose or addiction. Cases are pending in both federal and state courts. The federal court cases have been consolidated in an MDL in the U.S. District Court for the Northern District of Ohio.  The Company recently reached a settlement agreement with the plaintiffs in the first case that is set for trial in the MDL proceeding.  To the Company’s knowledge, it was one of the first defendants in the MDL proceeding to reach a settlement with the plaintiffs and that settlement is among the lowest of all the settlements that have been announced to date in that consolidated action.  While not directly involved in those discussions, the Company is monitoring them closely and understands that other defendants involved in these lawsuits are engaged in global settlement discussions with plaintiffs in the MDL proceeding, state attorneys general and other plaintiff stakeholders.  The Company continues to examine the possibility of broader resolutions in these actions.

Breast Implant Securities Class Action. In December 2018, two plaintiffs filed class action lawsuits against the Company and certain of its current and former officers alleging that defendants made materially false and misleading statements regarding the Company’s textured breast implants and their association with an uncommon cancer known as breast implant associated anaplastic large cell lymphoma. These lawsuits have been consolidated in the U.S. District Court for the Southern District of New York. The complaints seek unspecified monetary damages.  The Company filed a motion to dismiss the amended complaint, which the court granted in part and denied in part in a ruling on September 20, 2019. The Company filed its answer on October 18, 2019 and the parties are now engaging in discovery.

Oculeve Shareholder Dispute.  On February 26, 2019, Fortis Advisors LLC, as a representative of the former stockholders of Oculeve, Inc., filed a lawsuit against a subsidiary of the Company in state court in Delaware.  The lawsuit centers on a claim that the Company breached the terms of a July 2015 merger agreement.  The court recently denied the Company subsidiary’s motion to dismiss the complaint.

AbbVie Transaction Shareholder Action.  On June 25, 2019, the Company and AbbVie Inc. announced that the companies had entered into a definitive transaction agreement whereby AbbVie will acquire the Company in a cash and stock transaction.  On September 20, 2019, a putative class action lawsuit was filed against the Company by one of its shareholders alleging that the Company and its Board of Directors violated the Securities laws by omitting or misrepresenting material information in the proxy statement the Company filed on September 16, 2019 seeking shareholder approval of the transaction with AbbVie.  In addition to the complaint in this action, the Company received a shareholder demand letter from a shareholder following the issuance of the preliminary proxy statement filed with the Securities and Exchange Commission on August 12, 2019.    The lawsuit and demand letters were voluntarily dismissed and withdrawn.

44


 

Product Liability Litigation

Actonel® Litigation. A subsidiary of the Company is a defendant in over 500 filed cases in federal and various state courts, relating to the bisphosphonate prescription drug Actonel®. In addition, there are 3 cases pending in provincial courts in Canada, 2 involving single plaintiffs, and a third on behalf of a purported class of injured plaintiffs. The complaints allege, among other things, that Actonel® caused them to suffer osteonecrosis of the jaw (“ONJ”) and/or atypical fractures of the femur. Plaintiffs are seeking unspecified monetary and injunctive relief, as well as attorneys’ fees. The Company subsidiary is being indemnified by Sanofi for certain claims pursuant to an agreement with Sanofi and is being partially indemnified by the Procter & Gamble Company (“P&G”) for ONJ claims that were pending at the time the Company subsidiary acquired P&G’s global pharmaceutical business in 2009. Settlements have been reached that have resolved most of the pending ONJ-related claims. Recently, all pending Actonel cases in New Jersey state court were dismissed without prejudice subject to refilling after the U.S. Supreme Court issues a decision in Merck Sharp & Dohme Corp. v. Albrecht, Doc. No. 17-290.  The U.S. Supreme Court issued their decision on May 20, 2019 and remanded the Merck case to the Third Circuit.

Breast Implant Litigation. Certain Company subsidiaries are defendants in approximately 48 cases, including several class actions and individual cases filed on behalf of multiple plaintiffs, alleging that Allergan’s textured breast implants caused women to develop an uncommon cancer known as breast implant associated anaplastic large cell lymphoma (“BIA-ALCL”).  Some of the lawsuits include claims that the defendants failed to properly warn against this risk and failed to promptly and properly report the results of the post-marketing studies relating to these products and that plaintiffs suffered injuries as a result. Other lawsuits seek to recover costs related to medical monitoring and damages for fear of developing BIA-ALCL.  The federal product liability and “fear of” cases have been consolidated in an MDL in the U.S. District Court for New Jersey. There are several additional cases filed in state courts in the United States and well as provincial courts in Canada.  On July 24, 2019, Allergan announced a voluntary worldwide recall of unused BIOCELL textured breast implants and tissue expanders. This announcement may impact the number of lawsuits related to BIA-ALCL filed moving forward.

Benicar® Litigation. A subsidiary of the Company has been named in a number of lawsuits involving allegations that Benicar® caused certain gastrointestinal injuries. Under a co-promotion agreement, Daiichi Sankyo is defending the Company subsidiary in these lawsuits and has announced that it has agreed to enter into a program to settle all of the pending cases on behalf of all defendants, including the Company subsidiary.

Celexa®/Lexapro® Litigation. Certain Company subsidiaries are defendants in over 150 actions alleging that Celexa® or Lexapro® caused various birth defects. Several of the cases involve multiple minor-plaintiffs. The majority of these actions have been consolidated in state court in Missouri.  The Company has entered into a program to settle a number of the pending claims. None of the actions are set for trial.

RepliForm® Litigation. A Company subsidiary has been named as a defendant in over 300 cases alleging that its biologic mesh product RepliForm® did not perform as intended and caused various injuries.  Presently only 3 cases remain pending.  The remainder of these cases have been settled or dismissed.

Testosterone Litigation. A number of product liability suits were filed against certain Company subsidiaries as well as other manufacturers and distributors of testosterone products, for personal injuries including but not limited to cardiovascular events allegedly arising out of the use of Androderm®. The cases have been consolidated in an MDL in the U.S. District Court for Northern District of Illinois. In mid-2018, the parties reached an agreement to settle all of the pending cases.

Government Investigations, Government Litigation and Qui Tam Litigation

The Company and its subsidiaries are involved in various disputes, governmental and/or regulatory inspections, inquires, investigations and proceedings that could result in litigation, and other litigation matters that arise from time to time.

Company subsidiaries have received subpoenas and/or Civil Investigative Demands (“CID”) from the United States Department of Justice, the United States Health and Human Services, Office of Inspector General, United States Congressional Committees as well as various state regulatory and enforcement authorities. Each of the subpoenas and CIDs seek documents and information relating to discrete topics, including but not limited to: the calculation and reporting by certain Company subsidiaries of their Average Manufacturer Prices, Average Wholesale Prices and Best Prices for several of their products; sales and marketing practices of Botox to urology practices; the promotion and sale of 2 gastroenterology products; the Saint Regis Mohawk Tribe’s acquisition of 6 Restasis patents and the granting of exclusive licenses to the Restasis product to the Company; and, the promotion and sale of opioid products. In each case, the Company and its subsidiaries are cooperating fully with the governmental authority’s requests.

45


 

Certain states have initiated lawsuits and qui tam lawsuits have been filed by private parties, also known as relators, on behalf of the federal or state governments. Certain Company subsidiaries have been named as defendants in lawsuits that allege generally that state Medicaid agencies were overcharged for their share of Medicaid drug reimbursement costs due to inflated Average Wholesale Prices (“AWP”) reported by the Company subsidiaries. AWP lawsuits are currently pending in Illinois, Utah and Wisconsin.

Namenda XR®/Namzaric® Qui Tam.  A relator filed a qui tam lawsuit on behalf of the United States government and several individual states against the Company and certain of its subsidiaries along with Adamas Pharma LLC and Adamas Pharmaceuticals, Inc. (collectively, “Adamas”).  The lawsuit, filed in the U.S. District Court for the Northern District of California, was unsealed on February 6, 2019.   The federal and state governments have declined to intervene in this action.  The complaint alleges generally that the Adamas and Allergan defendants each engaged in conduct that delayed generic versions of Namenda XR® and/or Namzaric® from entering the market and that such conduct resulted in the submission of false claims to the government.  The Company Defendants and Adamas have moved to dismiss the complaint.  Oral argument on the motions to dismiss was held in December 2019.

Medical Aesthetics Qui Tam.  A subsidiary of the Company was served with a qui tam lawsuit that was filed in the U.S. District Court for the Central District of California on behalf of the United States and several individual states.  The federal and state governments have declined to intervene in this action.  The complaint alleges that certain promotional programs and sampling practices of the Company’s Medical Aesthetics business result in price reporting violations and violate anti-kickback statutes.  The court recently denied the Company subsidiary’s motion to dismiss this complaint.

Lumigan® Qui Tam.  A relator filed a qui tam lawsuit on behalf of the United States government and several individual states against a subsidiary of the Company in the U.S. District Court for the Southern District of New York, which was unsealed on October 1, 2019.   The federal and state governments have declined to intervene in this action.  The complaint alleges generally that Allergan failed to disclose certain side effects of Lumigan® which resulted in the submission of false claims for reimbursement to the government. The Company has not yet been served with the complaint.

Pricing Qui Tam.  A relator filed a qui tam lawsuit on behalf of the United States government and several individual states against certain subsidiaries of the Company in the U.S. District Court for the District of Maryland, which was unsealed on September 17, 2019.   The federal and state governments have declined to intervene in this action.  The complaint alleges generally that the Company misreported its Best Price and Average Manufacturer Price for a number of products, thereby causing overpayment by the government.  Defendants have moved to dismiss relator’s complaint.

Matters Relating to the Company’s Divested Generics Business

The following matters relate to the former generics business of the Company or the transaction pursuant to which that business was sold to Teva, effective August 2, 2016. Teva has agreed to indemnify and defend the Company against all matters asserted in litigation against the Company arising out of the former generics business, including litigations and investigations relating to generic opioid products including, without limitation, the actions described below.

Hydrocortisone Investigation. In 2016, the Company received notice from the UK Competition and Markets Authority (“CMA”) that it would be included within the scope of the CMA’s formal investigation under Section 25 of the Competition Act of 1998 (“CA98”) into suspected abuse of dominance by a former generics business subsidiary of the Company in relation to the supply of 10mg and 20mg hydrocortisone tablets. The CMA is investigating: (i) alleged excessive and unfair prices with respect to hydrocortisone tablets and (ii) whether the former generics business subsidiary entered into anti-competitive agreements with a potential competitor for this product. The CMA has issued statements of objection with respect to both parts of its investigation. The Company intends to cooperate fully with the investigation.

Teva Shareholder Derivative Litigation. In 2017, the Company was named as defendant in a proposed Teva shareholder derivative litigation filed in the Economic Division of the Tel Aviv District Court in Israel. The lawsuit contains allegations that the Company aided and abetted Teva’s board of directors’ violations of Israeli securities laws. Recently, the plaintiffs have sought to assert additional claims against the Company.  To date, the court has not determined whether it will allow plaintiffs to proceed with this action.

 

46


 

NOTE 16 — Warner Chilcott Limited (“WCL”) Guarantor and Non-Guarantor Condensed Consolidating Financial Information

The following financial information is presented to segregate the financial results of WCL, Allergan Funding SCS, and Allergan Finance, LLC (the issuers of the long-term notes), the guarantor subsidiaries for the long-term notes and the non-guarantor subsidiaries. The guarantors jointly and severally, and fully and unconditionally, guarantee the Company’s obligation under the long-term notes.

The information includes elimination entries necessary to consolidate the guarantor and the non-guarantor subsidiaries. Investments in subsidiaries are accounted for using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries, equity and intercompany balances and transactions.

WCL, Allergan Capital S.à.r.l. and Allergan Finance, LLC are guarantors of the long-term notes.  

WCL has revised its consolidating balance sheets as previously presented in Footnote 27 of the December 31, 2019 Annual Report on Form 10-K and its consolidating financial statements as previously presented in Footnote 21 of the March 31, 2019 Quarterly Report on Form 10-Q due to a change in the Company’s legal entity structure and other reclassifications that occurred during the three months ended March 31, 2020.  As a result, prior period information has been recast to conform to the current period presentation.

The following financial information presents the consolidating balance sheets as of March 31, 2020 and December 31, 2019, the related statements of operations for the three months ended March 31, 2020 and 2019 and the statements of cash flows for the three months ended March 31, 2020 and 2019.

47


 

Warner Chilcott Limited

Consolidating Balance Sheets

As of March 31, 2020

(Unaudited; in millions)

 

 

 

Warner

Chilcott

Limited

(Parent

Guarantor)

 

 

Allergan

Capital

S.a.r.l.

(Guarantor)

 

 

Allergan

Funding

SCS

(Issuer)

 

 

Allergan

Finance,

LLC

(Issuer and

Guarantor)

 

 

Non-

guarantors

 

 

Eliminations

 

 

Consolidated

Warner

Chilcott

Limited

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

0.1

 

 

$

7.3

 

 

$

0.1

 

 

$

-

 

 

$

983.0

 

 

$

-

 

 

$

990.5

 

Marketable securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,618.8

 

 

 

-

 

 

 

1,618.8

 

Accounts receivable, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,800.6

 

 

 

-

 

 

 

2,800.6

 

Receivables from Parents

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

539.0

 

 

 

-

 

 

 

539.0

 

Inventories

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,199.9

 

 

 

-

 

 

 

1,199.9

 

Intercompany receivables

 

 

-

 

 

 

7,241.7

 

 

 

71.9

 

 

 

49.0

 

 

 

15,789.9

 

 

 

(23,152.5

)

 

 

-

 

Prepaid expenses and other current assets

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33.3

 

 

 

822.0

 

 

 

-

 

 

 

855.3

 

Total current assets

 

 

0.1

 

 

 

7,249.0

 

 

 

72.0

 

 

 

82.3

 

 

 

23,753.2

 

 

 

(23,152.5

)

 

 

8,004.1

 

Property, plant and equipment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,915.4

 

 

 

-

 

 

 

1,915.4

 

Right of use asset - operating leases

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

481.0

 

 

 

 

 

 

 

481.0

 

Investments and other assets

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

430.7

 

 

 

-

 

 

 

430.7

 

Investment in subsidiaries

 

 

55,902.4

 

 

 

77,345.8

 

 

 

21,149.4

 

 

 

84,044.2

 

 

 

-

 

 

 

(238,441.8

)

 

 

-

 

Non current intercompany receivables

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,161.9

 

 

 

(1,161.9

)

 

 

-

 

Non current assets held for sale

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31.7

 

 

 

-

 

 

 

31.7

 

Deferred tax assets

 

 

-

 

 

 

49.6

 

 

 

-

 

 

 

-

 

 

 

548.3

 

 

 

-

 

 

 

597.9

 

Product rights and other intangibles

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36,266.2

 

 

 

-

 

 

 

36,266.2

 

Goodwill

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41,229.2

 

 

 

-

 

 

 

41,229.2

 

Total assets

 

$

55,902.5

 

 

$

84,644.4

 

 

$

21,221.4

 

 

$

84,126.5

 

 

$

105,817.6

 

 

$

(262,756.2

)

 

$

88,956.2

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

-

 

 

 

0.1

 

 

 

80.6

 

 

 

119.5

 

 

 

4,844.7

 

 

 

-

 

 

 

5,044.9

 

Intercompany payables

 

 

-

 

 

 

4,305.4

 

 

 

1,029.4

 

 

 

10,455.1

 

 

 

7,362.6

 

 

 

(23,152.5

)

 

 

-

 

Payables to Parents

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,899.9

 

 

 

-

 

 

 

2,899.9

 

Income taxes payable

 

 

-

 

 

 

-

 

 

 

2.4

 

 

 

-

 

 

 

71.1

 

 

 

-

 

 

 

73.5

 

Current portion of long-term debt

 

 

-

 

 

 

-

 

 

 

755.2

 

 

 

-

 

 

 

1,195.5

 

 

 

-

 

 

 

1,950.7

 

Current portion of lease liability - operating

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

119.8

 

 

 

-

 

 

 

119.8

 

Total current liabilities

 

 

-

 

 

 

4,305.5

 

 

 

1,867.6

 

 

 

10,574.6

 

 

 

16,493.6

 

 

 

(23,152.5

)

 

 

10,088.8

 

Long-term debt

 

 

-

 

 

 

-

 

 

 

13,917.9

 

 

 

2,143.9

 

 

 

1,537.2

 

 

 

-

 

 

 

17,599.0

 

Lease liability - operating

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

438.3

 

 

 

-

 

 

 

438.3

 

Other long-term liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

787.9

 

 

 

-

 

 

 

787.9

 

Long-term intercompany payables

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,161.9

 

 

 

-

 

 

 

(1,161.9

)

 

 

-

 

Other taxes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,683.9

 

 

 

-

 

 

 

1,683.9

 

Deferred tax liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,455.8

 

 

 

-

 

 

 

2,455.8

 

Total liabilities

 

 

-

 

 

 

4,305.5

 

 

 

15,785.5

 

 

 

13,880.4

 

 

 

23,396.7

 

 

 

(24,314.4

)

 

 

33,053.7

 

Total equity / (deficit)

 

 

55,902.5

 

 

 

80,338.9

 

 

 

5,435.9

 

 

 

70,246.1

 

 

 

82,420.9

 

 

 

(238,441.8

)

 

 

55,902.5

 

Total liabilities and equity

 

$

55,902.5

 

 

$

84,644.4

 

 

$

21,221.4

 

 

$

84,126.5

 

 

$

105,817.6

 

 

$

(262,756.2

)

 

$

88,956.2

 

 

48


 

Warner Chilcott Limited

Consolidating Balance Sheets

As of December 31, 2019

(Unaudited; in millions)

 

 

 

Warner

Chilcott

Limited

(Parent

Guarantor)

 

 

Allergan

Capital

S.a.r.l.

(Guarantor)

 

 

Allergan

Funding

SCS

(Issuer)

 

 

Allergan

Finance,

LLC

(Issuer and

Guarantor)

 

 

Non-

guarantors

 

 

Eliminations

 

 

Consolidated

Warner

Chilcott

Limited

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

0.1

 

 

$

1.6

 

 

$

0.1

 

 

$

-

 

 

$

2,495.3

 

 

$

-

 

 

$

2,497.1

 

Marketable securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,411.6

 

 

 

-

 

 

 

3,411.6

 

Accounts receivable, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,192.3

 

 

 

-

 

 

 

3,192.3

 

Receivables from Parents

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

409.3

 

 

 

-

 

 

 

409.3

 

Inventories

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,133.1

 

 

 

-

 

 

 

1,133.1

 

Intercompany receivables

 

 

-

 

 

 

6,508.0

 

 

 

154.0

 

 

 

40.5

 

 

 

14,930.1

 

 

 

(21,632.6

)

 

 

-

 

Current assets held for sale

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Prepaid expenses and other current assets

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33.3

 

 

 

853.1

 

 

 

-

 

 

 

886.4

 

Total current assets

 

 

0.1

 

 

 

6,509.6

 

 

 

154.1

 

 

 

73.8

 

 

 

26,424.8

 

 

 

(21,632.6

)

 

 

11,529.8

 

Property, plant and equipment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,926.5

 

 

 

-

 

 

 

1,926.5

 

Right of use asset - operating leases

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

490.4

 

 

 

 

 

 

 

490.4

 

Investments and other assets

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

408.0

 

 

 

-

 

 

 

408.0

 

Investment in subsidiaries

 

 

55,891.8

 

 

 

76,855.8

 

 

 

21,016.7

 

 

 

83,155.2

 

 

 

-

 

 

 

(236,919.5

)

 

 

-

 

Non current intercompany receivables

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,156.6

 

 

 

(1,156.6

)

 

 

-

 

Non current receivables from Parents

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Non current assets held for sale

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31.7

 

 

 

-

 

 

 

31.7

 

Deferred tax assets

 

 

-

 

 

 

49.6

 

 

 

-

 

 

 

-

 

 

 

527.3

 

 

 

-

 

 

 

576.9

 

Product rights and other intangibles

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,890.6

 

 

 

-

 

 

 

37,890.6

 

Goodwill

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

42,248.3

 

 

 

-

 

 

 

42,248.3

 

Total assets

 

$

55,891.9

 

 

$

83,415.0

 

 

$

21,170.8

 

 

$

83,229.0

 

 

$

111,104.2

 

 

$

(259,708.7

)

 

$

95,102.2

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

-

 

 

 

0.1

 

 

 

155.2

 

 

 

97.3

 

 

 

6,094.4

 

 

 

-

 

 

 

6,347.0

 

Intercompany payables

 

 

-

 

 

 

3,544.4

 

 

 

930.6

 

 

 

10,455.1

 

 

 

6,702.5

 

 

 

(21,632.6

)

 

 

-

 

Payables to Parents

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,715.5

 

 

 

-

 

 

 

2,715.5

 

Income taxes payable

 

 

-

 

 

 

-

 

 

 

2.4

 

 

 

-

 

 

 

62.7

 

 

 

-

 

 

 

65.1

 

Current portion of long-term debt and capital leases

 

 

-

 

 

 

-

 

 

 

3,008.2

 

 

 

-

 

 

 

1,524.3

 

 

 

-

 

 

 

4,532.5

 

Current portion of lease liability - operating

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

124.4

 

 

 

-

 

 

 

124.4

 

Total current liabilities

 

 

-

 

 

 

3,544.5

 

 

 

4,096.4

 

 

 

10,552.4

 

 

 

17,223.8

 

 

 

(21,632.6

)

 

 

13,784.5

 

Long-term debt and capital leases

 

 

-

 

 

 

-

 

 

 

14,742.1

 

 

 

2,142.8

 

 

 

1,231.6

 

 

 

-

 

 

 

18,116.5

 

Lease liability - operating

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

446.1

 

 

 

-

 

 

 

446.1

 

Other long-term liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

801.4

 

 

 

-

 

 

 

801.4

 

Long-term intercompany payables

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,156.6

 

 

 

-

 

 

 

(1,156.6

)

 

 

-

 

Other taxes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,698.6

 

 

 

-

 

 

 

1,698.6

 

Deferred tax liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,363.2

 

 

 

-

 

 

 

4,363.2

 

Total liabilities

 

 

-

 

 

 

3,544.5

 

 

 

18,838.5

 

 

 

13,851.8

 

 

 

25,764.7

 

 

 

(22,789.2

)

 

 

39,210.3

 

Total equity / (deficit)

 

 

55,891.9

 

 

 

79,870.5

 

 

 

2,332.3

 

 

 

69,377.2

 

 

 

85,339.5

 

 

 

(236,919.5

)

 

 

55,891.9

 

Total liabilities and equity

 

$

55,891.9

 

 

$

83,415.0

 

 

$

21,170.8

 

 

$

83,229.0

 

 

$

111,104.2

 

 

$

(259,708.7

)

 

$

95,102.2

 

 

49


 

Warner Chilcott Limited

Consolidating Statements of Operations

For the Three Months Ended March 31, 2020

(Unaudited; in millions)

 

 

 

Warner

Chilcott

Limited

(Parent

Guarantor)

 

 

Allergan

Capital

S.a.r.l.

(Guarantor)

 

 

Allergan

Funding

SCS

(Issuer)

 

 

Allergan

Finance,

LLC

(Issuer and

Guarantor)

 

 

Non-

guarantors

 

 

Eliminations

 

 

Consolidated

Warner

Chilcott

Limited

 

Net revenues

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

3,604.4

 

 

$

-

 

 

$

3,604.4

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and

   impairment of acquired intangibles including

   product rights)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

623.1

 

 

 

-

 

 

 

623.1

 

Research and development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

430.0

 

 

 

-

 

 

 

430.0

 

Selling and marketing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

972.1

 

 

 

-

 

 

 

972.1

 

General and administrative

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

398.0

 

 

 

-

 

 

 

398.0

 

Amortization

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,416.4

 

 

 

-

 

 

 

1,416.4

 

Goodwill impairment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

913.0

 

 

 

-

 

 

 

913.0

 

Asset sales and impairments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

148.1

 

 

 

-

 

 

 

148.1

 

Total operating expenses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,900.7

 

 

 

-

 

 

 

4,900.7

 

Operating (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,296.3

)

 

 

-

 

 

 

(1,296.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (expense) / income, net

 

 

-

 

 

 

(21.6

)

 

 

(55.6

)

 

 

(20.1

)

 

 

(66.0

)

 

 

-

 

 

 

(163.3

)

Other income, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24.9

)

 

 

-

 

 

 

(24.9

)

Total other (expense) / income, net

 

 

-

 

 

 

(21.6

)

 

 

(55.6

)

 

 

(20.1

)

 

 

(90.9

)

 

 

-

 

 

 

(188.2

)

(Loss) before income taxes and

   noncontrolling interest

 

 

-

 

 

 

(21.6

)

 

 

(55.6

)

 

 

(20.1

)

 

 

(1,387.2

)

 

 

-

 

 

 

(1,484.5

)

Provision / (benefit) for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,866.8

)

 

 

-

 

 

 

(1,866.8

)

Losses / (earnings) of equity interest subsidiaries

 

 

(381.3

)

 

 

(392.7

)

 

 

(105.1

)

 

 

(797.8

)

 

 

-

 

 

 

1,676.9

 

 

 

-

 

Net (loss) / income

 

$

381.3

 

 

$

371.1

 

 

$

49.5

 

 

$

777.7

 

 

$

479.6

 

 

$

(1,676.9

)

 

$

382.3

 

(Income) attributable to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1.0

)

 

 

-

 

 

 

(1.0

)

Net (loss) / income attributable to members

 

$

381.3

 

 

$

371.1

 

 

$

49.5

 

 

$

777.7

 

 

$

478.6

 

 

$

(1,676.9

)

 

$

381.3

 

Other comprehensive (loss) / income, net of tax

 

 

(128.2

)

 

 

97.2

 

 

 

27.6

 

 

 

91.2

 

 

 

(128.2

)

 

 

(87.8

)

 

 

(128.2

)

Comprehensive (loss) / income attributable to

   members

 

$

253.1

 

 

$

468.3

 

 

$

77.1

 

 

$

868.9

 

 

$

350.4

 

 

$

(1,764.7

)

 

$

253.1

 

 

 

 

50


 

Warner Chilcott Limited

Consolidating Statements of Operations

For the Three Months Ended March 31, 2019

(Unaudited; in millions)

 

 

 

Warner

Chilcott

Limited

(Parent

Guarantor)

 

 

Allergan

Capital

S.a.r.l.

(Guarantor)

 

 

Allergan

Funding

SCS

(Issuer)

 

 

Allergan

Finance,

LLC

(Issuer and

Guarantor)

 

 

Non-

guarantors

 

 

Eliminations

 

 

Consolidated

Warner

Chilcott

Limited

 

Net revenues

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

3,597.1

 

 

$

-

 

 

$

3,597.1

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and

   impairment of acquired intangibles including

   product rights)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

497.8

 

 

 

-

 

 

$

497.8

 

Research and development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

435.0

 

 

 

-

 

 

$

435.0

 

Selling and marketing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

804.0

 

 

 

-

 

 

$

804.0

 

General and administrative

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

306.1

 

 

 

-

 

 

$

306.1

 

Amortization

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,399.4

 

 

 

-

 

 

$

1,399.4

 

Goodwill impairments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,467.0

 

 

 

-

 

 

$

2,467.0

 

Asset sales and impairments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5.2

)

 

 

-

 

 

$

(5.2

)

Total operating expenses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,904.1

 

 

 

-

 

 

 

5,904.1

 

Operating (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,307.0

)

 

 

-

 

 

 

(2,307.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (expense) / income, net

 

 

-

 

 

 

(23.4

)

 

 

(59.6

)

 

 

(19.9

)

 

 

(77.6

)

 

 

-

 

 

$

(180.5

)

Other income, net

 

 

-

 

 

 

-

 

 

 

(0.1

)

 

 

-

 

 

 

13.9

 

 

 

-

 

 

$

13.8

 

Total other (expense) / income, net

 

 

-

 

 

 

(23.4

)

 

 

(59.7

)

 

 

(19.9

)

 

 

(63.7

)

 

 

-

 

 

 

(166.7

)

(Loss) before income taxes and

   noncontrolling interest

 

 

-

 

 

 

(23.4

)

 

 

(59.7

)

 

 

(19.9

)

 

 

(2,370.7

)

 

 

-

 

 

$

(2,473.7

)

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(68.7

)

 

 

-

 

 

$

(68.7

)

Losses / (earnings) of equity interest subsidiaries

 

 

2,405.7

 

 

 

2,345.0

 

 

 

868.2

 

 

 

2,537.2

 

 

 

-

 

 

 

(8,156.1

)

 

$

-

 

Net (loss) / income

 

$

(2,405.7

)

 

$

(2,368.4

)

 

$

(927.9

)

 

$

(2,557.1

)

 

$

(2,302.0

)

 

$

8,156.1

 

 

$

(2,405.0

)

(Income) attributable to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.7

)

 

 

-

 

 

$

(0.7

)

Net (loss) / income attributable to members

 

$

(2,405.7

)

 

$

(2,368.4

)

 

$

(927.9

)

 

$

(2,557.1

)

 

$

(2,302.7

)

 

$

8,156.1

 

 

$

(2,405.7

)

Other comprehensive (loss) / income, net of tax

 

 

(128.8

)

 

 

(140.8

)

 

 

(172.9

)

 

 

(585.0

)

 

 

(128.8

)

 

 

1,027.5

 

 

$

(128.8

)

Comprehensive (loss) / income attributable to

   members

 

$

(2,534.5

)

 

$

(2,509.2

)

 

$

(1,100.8

)

 

$

(3,142.1

)

 

$

(2,431.5

)

 

$

9,183.6

 

 

$

(2,534.5

)

 

 

51


 

Warner Chilcott Limited

Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2020

(Unaudited; in millions)

 

 

 

Warner

Chilcott

Limited

(Parent

Guarantor)

 

 

Allergan

Capital

S.a.r.l.

(Guarantor)

 

 

Allergan

Funding

SCS

(Issuer)

 

 

Allergan

Finance,

LLC

(Issuer and

Guarantor)

 

 

Non-

guarantors

 

 

Eliminations

 

 

Consolidated

Warner

Chilcott

Limited

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) / income

 

$

381.3

 

 

$

371.1

 

 

$

49.5

 

 

$

777.7

 

 

$

479.6

 

 

$

(1,676.9

)

 

$

382.3

 

Reconciliation to net cash provided by / (used in)

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses / (earnings) of equity interest subsidiaries

 

 

(381.3

)

 

 

(392.7

)

 

 

(105.1

)

 

 

(797.8

)

 

 

-

 

 

 

1,676.9

 

 

 

-

 

Depreciation

 

 

-

 

 

 

-

 

 

 

-