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nte

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

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

For the quarterly period ended March 31, 2021

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 001-35238

 

HORIZON THERAPEUTICS PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

 

 

Ireland

 

Not Applicable

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

Connaught House, 1st Floor

1 Burlington Road, Dublin 4, D04 C5Y6, Ireland

 

Not Applicable

(Address of principal executive offices)

 

(Zip Code)

011 353 1 772 2100

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Ordinary shares, nominal value $0.0001 per share

HZNP

The Nasdaq Global Select Market

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.    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).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

 

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 Exchange Act).    Yes      No  

Number of registrant’s ordinary shares, nominal value $0.0001, outstanding as of April 29, 2021: 224,768,551

 

 

 


 

                                                                        HORIZON THERAPEUTICS PLC

INDEX

 

 

 

 

 

Page

 

 

 

No.

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

1

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and as of December 31, 2020 (Unaudited)

 

1

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 (Unaudited)

 

2

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (Unaudited)

 

3

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (Unaudited)

 

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

Item 2.

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

 

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

48

Item 4.

Controls and Procedures

 

49

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

50

Item 1A.

Risk Factors

 

50

Item 6.

Exhibits

 

106

 

Signatures

 

108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except nominal value and share data)

 

 

As of

 

As of

 

 

March 31,

 

December 31,

 

 

2021

 

2020

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

$

811,609

 

$

2,079,906

 

Restricted cash

 

3,839

 

 

3,573

 

Accounts receivable, net

 

443,172

 

 

659,701

 

Inventories, net

 

238,306

 

 

75,283

 

Prepaid expenses and other current assets

 

334,442

 

 

251,945

 

Total current assets

 

1,831,368

 

 

3,070,408

 

Property and equipment, net

 

201,857

 

 

189,037

 

Developed technology and other intangible assets, net

 

3,210,221

 

 

1,782,962

 

In-process research and development

 

880,000

 

 

 

Goodwill

 

1,076,388

 

 

413,669

 

Deferred tax assets, net

 

589,618

 

 

560,841

 

Other assets

 

57,158

 

 

55,699

 

Total assets

$

7,846,610

 

$

6,072,616

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable

$

42,986

 

$

37,710

 

Accrued expenses

 

389,626

 

 

485,567

 

Accrued trade discounts and rebates

 

325,232

 

 

352,463

 

Long-term debt—current portion

 

16,000

 

 

 

Total current liabilities

 

773,844

 

 

875,740

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

Long-term debt, net

 

2,562,517

 

 

1,003,379

 

Deferred tax liabilities, net

 

524,407

 

 

66,474

 

Other long-term liabilities

 

131,072

 

 

101,672

 

Total long-term liabilities

 

3,217,996

 

 

1,171,525

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

Ordinary shares, $0.0001 nominal value; 600,000,000 shares authorized at March 31, 2021 and December 31, 2020; 225,027,621 and 221,721,674 shares issued at March 31, 2021 and December 31, 2020, respectively; and 224,643,255 and 221,337,308 shares outstanding at March 31, 2021 and December 31, 2020, respectively

 

22

 

 

22

 

Treasury stock, 384,366 ordinary shares at March 31, 2021 and December 31, 2020

 

(4,585

)

 

(4,585

)

Additional paid-in capital

 

4,199,823

 

 

4,245,945

 

Accumulated other comprehensive loss

 

(1,253

)

 

(145

)

Accumulated deficit

 

(339,237

)

 

(215,886

)

Total shareholders’ equity

 

3,854,770

 

 

4,025,351

 

Total liabilities and shareholders' equity

$

7,846,610

 

$

6,072,616

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

(In thousands, except share and per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

Net sales

$

342,406

 

 

$

355,909

 

 

Cost of goods sold

 

100,368

 

 

 

97,416

 

 

Gross profit

 

242,038

 

 

 

258,493

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Research and development

 

57,693

 

 

 

27,209

 

 

Selling, general and administrative

 

331,992

 

 

 

247,775

 

 

Impairment of long-lived assets

 

12,371

 

 

 

 

 

Total operating expenses

 

402,056

 

 

 

274,984

 

 

Operating loss

 

(160,018

)

 

 

(16,491

)

 

OTHER EXPENSE, NET:

 

 

 

 

 

 

 

 

Interest expense, net

 

(13,460

)

 

 

(17,344

)

 

Foreign exchange (loss) gain

 

(848

)

 

 

776

 

 

Other income, net

 

3,224

 

 

 

442

 

 

Total other expense, net

 

(11,084

)

 

 

(16,126

)

 

Loss before benefit for income taxes

 

(171,102

)

 

 

(32,617

)

 

Benefit for income taxes

 

(47,751

)

 

 

(19,026

)

 

Net loss

$

(123,351

)

 

$

(13,591

)

 

Net loss per ordinary share—basic and diluted

$

(0.55

)

 

$

(0.07

)

 

Weighted average ordinary shares outstanding—basic and diluted

 

223,920,768

 

 

 

190,072,112

 

 

OTHER COMPREHENSIVE LOSS, NET OF TAX

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

$

(821

)

 

$

(325

)

 

Pension remeasurements

 

(287

)

 

 

 

 

Other comprehensive loss

 

(1,108

)

 

 

(325

)

 

Comprehensive loss

$

(124,459

)

 

$

(13,916

)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

 

 

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Total

 

 

 

Ordinary Shares

 

 

Treasury Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2020

 

 

221,721,674

 

 

$

22

 

 

 

384,366

 

 

$

(4,585

)

 

$

4,245,945

 

 

$

(145

)

 

$

(215,886

)

 

$

4,025,351

 

Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock and performance stock units

 

 

3,305,947

 

 

 

 

 

 

 

 

 

 

 

 

19,843

 

 

 

 

 

 

 

 

 

19,843

 

Ordinary shares withheld for payment of employees’ withholding tax liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(128,261

)

 

 

 

 

 

 

 

 

(128,261

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,296

 

 

 

 

 

 

 

 

 

62,296

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(821

)

 

 

 

 

 

(821

)

Pension remeasurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(287

)

 

 

 

 

 

(287

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(123,351

)

 

 

(123,351

)

Balances at March 31, 2021

 

 

225,027,621

 

 

$

22

 

 

 

384,366

 

 

$

(4,585

)

 

$

4,199,823

 

 

$

(1,253

)

 

$

(339,237

)

 

$

3,854,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Total

 

 

 

Ordinary Shares

 

 

Treasury Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2019

 

 

188,402,040

 

 

$

19

 

 

 

384,366

 

 

$

(4,585

)

 

$

2,797,602

 

 

$

(1,905

)

 

$

(605,682

)

 

$

2,185,449

 

Issuance of ordinary shares in conjunction with vesting of restricted stock

   units, performance stock units and stock option exercises

 

 

2,560,573

 

 

 

 

 

 

 

 

 

 

 

 

7,049

 

 

 

 

 

 

 

 

 

7,049

 

Ordinary shares withheld for payment of employees’ withholding tax liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,664

)

 

 

 

 

 

 

 

 

(46,664

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,421

 

 

 

 

 

 

 

 

 

56,421

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(325

)

 

 

 

 

 

(325

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,591

)

 

 

(13,591

)

Balances at March 31, 2020

 

 

190,962,613

 

 

$

19

 

 

 

384,366

 

 

$

(4,585

)

 

$

2,814,408

 

 

$

(2,230

)

 

$

(619,273

)

 

$

2,188,339

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

                

 

3


 

 

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)  

 

For the Three Months Ended March 31,

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(123,351

)

 

$

(13,591

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization expense

 

70,820

 

 

 

65,741

 

Equity-settled share-based compensation

 

61,166

 

 

 

56,421

 

Impairment of long-lived assets

 

12,371

 

 

 

 

Amortization of debt discount and deferred financing costs

 

773

 

 

 

5,569

 

Deferred income taxes

 

(28,771

)

 

 

(2,082

)

Foreign exchange and other adjustments

 

(5,440

)

 

 

(190

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

224,575

 

 

 

(16,869

)

Inventories

 

(13,660

)

 

 

(14,444

)

Prepaid expenses and other current assets

 

(65,575

)

 

 

(24,953

)

Accounts payable

 

993

 

 

 

28,551

 

Accrued trade discounts and rebates

 

(28,736

)

 

 

(129,940

)

Accrued expenses

 

(111,963

)

 

 

(28,087

)

Other non-current assets and liabilities

 

3,070

 

 

 

11,281

 

Net cash used in operating activities

 

(3,728

)

 

 

(62,593

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Payments for acquisition, net of cash acquired

 

(2,707,358

)

 

 

(105,200

)

Purchases of property and equipment

 

(18,333

)

 

 

(119,004

)

Payments for long-term investments, net

 

(3,808

)

 

 

 

Change in escrow deposit for property purchase

 

 

 

 

6,000

 

Net cash used in investing activities

 

(2,729,499

)

 

 

(218,204

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Net proceeds from term loans

 

1,577,612

 

 

 

 

Proceeds from the issuance of ordinary shares in connection with stock option exercises

 

19,843

 

 

 

7,050

 

Payment of employee withholding taxes relating to share-based awards

 

(128,261

)

 

 

(46,664

)

Net cash provided by (used in) financing activities

 

1,469,194

 

 

 

(39,614

)

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash

 

(3,998

)

 

 

(1,366

)

Net decrease in cash, cash equivalents and restricted cash

 

(1,268,031

)

 

 

(321,777

)

Cash, cash equivalents and restricted cash, beginning of the period

 

2,083,479

 

 

 

1,080,039

 

Cash, cash equivalents and restricted cash, end of the period

$

815,448

 

 

$

758,262

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest

$

18,988

 

 

$

26,636

 

Cash paid for income taxes, net of refunds received

 

1,201

 

 

 

266

 

Cash paid for amounts included in the measurement of lease liabilities

 

2,084

 

 

 

1,812

 

SUPPLEMENTAL NON-CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Milestone payments for TEPEZZA intangible asset included in accrued expenses as of March 31, 2021 and March 31, 2020, respectively

$

69,962

 

 

$

 

Purchases of property and equipment included in accounts payable and accrued expenses as of March 31, 2021 and March 31, 2020, respectively

 

10,523

 

 

 

539

 

      

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


HORIZON THERAPEUTICS PLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 – BASIS OF PRESENTATION AND BUSINESS OVERVIEW

Basis of Presentation

Unless otherwise indicated or the context otherwise requires, references to “Horizon”, the “Company”, “we”, “us” and “our” refer to Horizon Therapeutics plc and its consolidated subsidiaries.

On March 15, 2021, the Company completed its acquisition of Viela Bio, Inc. (“Viela”) and acquired all of the issued and outstanding shares of Viela’s common stock for $53.00 per share.  The total consideration for the acquisition was approximately $3.0 billion, including cash acquired of $342.3 million. Following the completion of the acquisition, Viela became a wholly-owned subsidiary of the Company.  The unaudited condensed consolidated financial statements presented herein include the results of operations of the acquired business from the date of acquisition.

The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included.  Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.  The December 31, 2020 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

Business Overview

Horizon is focused on researching, developing and commercializing medicines that address critical needs for people impacted by rare, autoimmune and serious inflammatory diseases.  The Company’s pipeline is purposeful: it applies scientific expertise and courage to bring clinically meaningful therapies to patients.  Horizon believes science and compassion must work together to transform lives. The Company has two reportable segments, the orphan segment and the inflammation segment, and its portfolio is currently composed of 12 medicines in the areas of rare diseases, gout, ophthalmology and inflammation.  

The Viela acquisition expanded the Company’s marketed medicine portfolio by adding an additional rare disease medicine, UPLIZNA®.  

As of March 31, 2021, the Company’s marketed medicines consisted of the following:

 

Orphan

TEPEZZA® (teprotumumab-trbw), for intravenous infusion

KRYSTEXXA® (pegloticase injection), for intravenous infusion

RAVICTI® (glycerol phenylbutyrate) oral liquid

PROCYSBI® (cysteamine bitartrate) delayed-release capsules and granules, for oral use

ACTIMMUNE® (interferon gamma-1b) injection, for subcutaneous use

BUPHENYL® (sodium phenylbutyrate) tablets and powder, for oral use

QUINSAIR™ (levofloxacin) solution for inhalation

UPLIZNA (inebilizumab-cdon) injection, for intravenous use

Inflammation

PENNSAID® (diclofenac sodium topical solution) 2% w/w (“PENNSAID 2%”), for topical use

DUEXIS® (ibuprofen/famotidine) tablets, for oral use

RAYOS® (prednisone) delayed-release tablets, for oral use

VIMOVO® (naproxen/esomeprazole magnesium) delayed-release tablets, for oral use

 

 


5


 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

From time to time, the Company adopts new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplification and reduce the cost of accounting for income taxes (“ASU 2019-12”), which was effective for the Company as of January 1, 2021.  The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification (“ASC”)), the American Institute of Certified Public Accountants and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

Significant Accounting Policies

The Company’s significant accounting policies have not changed from those previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.  The following accounting policy relating to intangible assets is disclosed in connection with the Viela acquisition.

Intangible Assets

Indefinite-lived intangible assets consist of capitalized in-process research and development (“IPR&D”).  IPR&D assets represent capitalized incomplete research projects that the Company acquired through business combinations.  Such assets are initially measured at their acquisition date fair values and are tested for impairment, until completion or abandonment of research and development efforts associated with the projects.  An IPR&D asset is considered abandoned when research and development efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive value from the asset.  At that point, the asset is considered to be impaired and is written off.  Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization.  The Company tests its indefinite-lived intangibles, including IPR&D assets, for impairment annually during the fourth quarter and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

 

 

NOTE 3 – NET LOSS PER SHARE

The following table presents basic and diluted net loss per share for the three months ended March 31, 2021 and 2020 (in thousands, except share and per share data):

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

Basic and diluted net loss per share calculation:

 

 

 

 

 

 

 

 

 

Numerator - net loss

 

$

(123,351

)

 

$

(13,591

)

 

Denominator - weighted average of ordinary shares outstanding

 

 

223,920,768

 

 

 

190,072,112

 

 

Basic and diluted net loss per share

 

$

(0.55

)

 

$

(0.07

)

 

 

Basic net loss per share is computed by dividing net loss by the weighted-average number of ordinary shares outstanding during the period.  Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised, converted into ordinary shares or resulted in the issuance of ordinary shares that would have shared in the Company’s earnings.

The computation of diluted net loss per share for the three months ended March 31, 2021 excluded 13.4 million shares subject to equity awards because their inclusion would have had an anti-dilutive effect on diluted net loss per share.

The computation of diluted net loss per share for the three months ended March 31, 2020 excluded 9.3 million shares subject to equity awards and 14.0 million shares (based on the if-converted method) related to the Company’s 2.50% Exchangeable Senior Notes due 2022 (the “Exchangeable Senior Notes”) because their inclusion would have had an anti-dilutive effect on diluted net loss per share.  On August 3, 2020, the Exchangeable Senior Notes were fully extinguished through exchanges for ordinary shares or cash redemption.

 


6


 

NOTE 4 – ACQUISITIONS, DIVESTITURES AND OTHER ARRANGEMENTS

 

Acquisition of Viela

On March 15, 2021, the Company completed its acquisition of Viela and acquired all of the issued and outstanding shares of Viela’s common stock for $53.00 per share.  The acquisition added an additional rare disease medicine, UPLIZNA, to the Company’s medicine portfolio.  The Viela acquisition provides multiple opportunities to drive long-term growth and solidify the Company’s future as an innovation-driven biotech company.  Viela’s mid-stage biologics pipeline, research and development (“R&D”) team and on-market medicine UPLIZNA, make it a complementary strategic fit with the Company’s pipeline, commercial portfolio and therapeutic areas of focus.  Following completion of the acquisition, Viela became a wholly-owned subsidiary of the Company.  The Company financed the transaction through cash on hand and $1.6 billion of aggregate principal amount of term loans pursuant to Company’s existing credit agreement, as described in Note 13.

The total consideration for the acquisition was approximately $3.0 billion, including cash acquired of $342.3 million, and was composed of the following (in thousands):

 

Equity value (54,988,820 shares at $53.00 per share)

 

$

2,914,407

 

Net settlements on the exercise of stock options

 

 

78,554

 

Consideration for exchange of Viela stock options

 

 

1,130

 

Total consideration

 

$

2,994,091

 

During the three months ended March 31, 2021, the Company incurred $28.0 million in Viela transaction costs, including advisory, legal, accounting, valuation and other professional and consulting fees, which were accounted for as “Selling, General and Administrative Expenses” in the condensed consolidated statement of comprehensive loss.

Pursuant to ASC 805, Business Combinations (“ASC 805”), the Company accounted for the Viela acquisition as a business combination using the acquisition method of accounting.  Identifiable assets and liabilities of Viela, including identifiable intangible assets, were recorded based on their estimated fair values as of the date of the closing of the acquisition.  The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill.  The valuation of assets acquired and liabilities assumed has not yet been finalized as of March 31, 2021.  While all amounts remain subject to adjustments, the areas subject to the most significant potential adjustments are inventory, intangible assets, IPR&D and deferred income taxes.  As a result, the Company recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date.  Such preliminary valuation required estimates and assumptions including, but not limited to, estimating future cash flows and direct costs in addition to developing the appropriate discount rates and current market profit margins. Accordingly, the purchase price adjustments are preliminary and are subject to further adjustments as additional information becomes available and as additional analyses are performed, and such further adjustments may be material.  The Company’s management believes the fair values recognized for the assets acquired and the liabilities assumed are based on reasonable estimates and assumptions.


7


 

The following table summarizes the preliminary fair values assigned to the assets acquired and the liabilities assumed by the Company along with the resulting goodwill (in thousands):

 

 

 

Allocation

 

Deferred tax liabilities, net

 

$

(457,928

)

Accrued expenses

 

 

(73,401

)

Other long-term liabilities

 

 

(22,631

)

Accounts payable

 

 

(4,768

)

Accrued trade discounts and rebates

 

 

(1,492

)

Marketable securities

 

 

400

 

Property, plant and equipment

 

 

1,747

 

Other assets

 

 

3,253

 

Accounts receivable

 

 

8,053

 

Prepaid expenses and other current assets

 

 

16,444

 

Inventories