MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,948.1
|
|
|
$
|
2,928.2
|
|
|
$
|
8,232.2
|
|
|
$
|
8,207.0
|
|
|
Other revenues
|
24.0
|
|
|
33.5
|
|
|
90.3
|
|
|
101.7
|
|
|
Total revenues
|
2,972.1
|
|
|
2,961.7
|
|
|
8,322.5
|
|
|
8,308.7
|
|
|
Cost of sales
|
1,813.6
|
|
|
1,889.3
|
|
|
5,232.2
|
|
|
5,498.5
|
|
|
Gross profit
|
1,158.5
|
|
|
1,072.4
|
|
|
3,090.3
|
|
|
2,810.2
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
129.8
|
|
|
167.9
|
|
|
400.3
|
|
|
488.1
|
|
|
Selling, general and administrative
|
658.4
|
|
|
632.7
|
|
|
1,983.2
|
|
|
1,909.2
|
|
|
Litigation settlements and other contingencies, net
|
18.9
|
|
|
(51.9)
|
|
|
36.5
|
|
|
(30.3)
|
|
|
Total operating expenses
|
807.1
|
|
|
748.7
|
|
|
2,420.0
|
|
|
2,367.0
|
|
|
Earnings from operations
|
351.4
|
|
|
323.7
|
|
|
670.3
|
|
|
443.2
|
|
|
Interest expense
|
117.3
|
|
|
128.9
|
|
|
353.4
|
|
|
391.3
|
|
|
Other (income) expense, net
|
(7.5)
|
|
|
9.0
|
|
|
24.6
|
|
|
32.7
|
|
|
Earnings (Loss) before income taxes
|
241.6
|
|
|
185.8
|
|
|
292.3
|
|
|
19.2
|
|
|
Income tax provision (benefit)
|
55.9
|
|
|
(4.0)
|
|
|
46.4
|
|
|
22.9
|
|
|
Net earnings (loss)
|
$
|
185.7
|
|
|
$
|
189.8
|
|
|
$
|
245.9
|
|
|
$
|
(3.7)
|
|
|
Earnings (Loss) per ordinary share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.48
|
|
|
$
|
(0.01)
|
|
|
Diluted
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.48
|
|
|
$
|
(0.01)
|
|
|
Weighted average ordinary shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
516.9
|
|
|
516.0
|
|
|
516.8
|
|
|
515.5
|
|
|
Diluted
|
517.7
|
|
|
516.2
|
|
|
517.3
|
|
|
515.5
|
|
See Notes to Condensed Consolidated Financial Statements
3
MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(Unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net earnings (loss)
|
$
|
185.7
|
|
|
$
|
189.8
|
|
|
$
|
245.9
|
|
|
$
|
(3.7)
|
|
|
Other comprehensive earnings (loss), before tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
687.7
|
|
|
(748.9)
|
|
|
483.1
|
|
|
(890.8)
|
|
|
Change in unrecognized (loss) gain and prior service cost related to defined benefit plans
|
(1.6)
|
|
|
(0.7)
|
|
|
3.4
|
|
|
(0.5)
|
|
|
Net unrecognized gain (loss) on derivatives in cash flow hedging relationships
|
32.5
|
|
|
(10.6)
|
|
|
(0.2)
|
|
|
24.8
|
|
|
Net unrecognized (loss) gain on derivatives in net investment hedging relationships
|
(114.7)
|
|
|
111.8
|
|
|
(119.7)
|
|
|
133.6
|
|
|
Net unrealized gain on marketable securities
|
—
|
|
|
0.1
|
|
|
0.8
|
|
|
0.7
|
|
|
Other comprehensive earnings (loss), before tax
|
603.9
|
|
|
(648.3)
|
|
|
367.4
|
|
|
(732.2)
|
|
|
Income tax provision (benefit)
|
2.8
|
|
|
1.2
|
|
|
(6.0)
|
|
|
14.1
|
|
|
Other comprehensive earnings (loss), net of tax
|
601.1
|
|
|
(649.5)
|
|
|
373.4
|
|
|
(746.3)
|
|
|
Comprehensive earnings (loss)
|
$
|
786.8
|
|
|
$
|
(459.7)
|
|
|
$
|
619.3
|
|
|
$
|
(750.0)
|
|
See Notes to Condensed Consolidated Financial Statements
4
MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited; in millions, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
|
ASSETS
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
664.5
|
|
|
$
|
475.6
|
|
|
Accounts receivable, net
|
2,964.1
|
|
|
3,058.8
|
|
|
Inventories
|
3,022.0
|
|
|
2,670.9
|
|
|
Prepaid expenses and other current assets
|
684.1
|
|
|
552.0
|
|
|
Total current assets
|
7,334.7
|
|
|
6,757.3
|
|
|
Property, plant and equipment, net
|
2,058.3
|
|
|
2,149.6
|
|
|
Intangible assets, net
|
10,965.8
|
|
|
11,649.9
|
|
|
Goodwill
|
9,817.3
|
|
|
9,590.6
|
|
|
Deferred income tax benefit
|
658.1
|
|
|
703.1
|
|
|
Other assets
|
408.9
|
|
|
405.0
|
|
|
Total assets
|
$
|
31,243.1
|
|
|
$
|
31,255.5
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Liabilities
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
1,447.8
|
|
|
$
|
1,528.1
|
|
|
Short-term borrowings
|
0.3
|
|
|
—
|
|
|
Income taxes payable
|
343.3
|
|
|
213.0
|
|
|
Current portion of long-term debt and other long-term obligations
|
3,237.8
|
|
|
1,508.1
|
|
|
Other current liabilities
|
2,246.2
|
|
|
2,319.9
|
|
|
Total current liabilities
|
7,275.4
|
|
|
5,569.1
|
|
|
Long-term debt
|
9,101.5
|
|
|
11,214.3
|
|
|
Deferred income tax liability
|
1,417.4
|
|
|
1,627.5
|
|
|
Other long-term obligations
|
900.9
|
|
|
960.8
|
|
|
Total liabilities
|
18,695.2
|
|
|
19,371.7
|
|
|
Equity
|
|
|
|
|
Mylan N.V. shareholders’ equity
|
|
|
|
|
Ordinary shares — nominal value €0.01 per ordinary share
|
|
|
|
|
Shares authorized: 1,200,000,000
|
|
|
|
|
Shares issued: 541,550,055 and 540,746,871 as of September 30, 2020 and December 31, 2019
|
6.1
|
|
|
6.1
|
|
|
Additional paid-in capital
|
8,688.3
|
|
|
8,643.5
|
|
|
Retained earnings
|
6,277.0
|
|
|
6,031.1
|
|
|
Accumulated other comprehensive loss
|
(1,423.8)
|
|
|
(1,797.2)
|
|
|
|
13,547.6
|
|
|
12,883.5
|
|
|
|
|
|
|
|
Less: Treasury stock — at cost
|
|
|
|
|
Ordinary shares: 24,598,074 as of September 30, 2020 and December 31, 2019
|
999.7
|
|
|
999.7
|
|
|
Total equity
|
12,547.9
|
|
|
11,883.8
|
|
|
Total liabilities and equity
|
$
|
31,243.1
|
|
|
$
|
31,255.5
|
|
See Notes to Condensed Consolidated Financial Statements
5
MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited; in millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
Retained
Earnings
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
Total
Equity
|
|
|
Ordinary Shares
|
|
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Cost
|
|
|
|
Shares
|
|
Cost
|
|
|
|
|
Balance at June 30, 2020
|
541,545,308
|
|
|
$
|
6.1
|
|
|
$
|
8,673.2
|
|
|
$
|
6,091.5
|
|
|
24,598,074
|
|
|
$
|
(999.7)
|
|
|
$
|
(2,024.9)
|
|
|
|
|
$
|
11,746.2
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
185.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
185.7
|
|
|
Other comprehensive earnings, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
601.1
|
|
|
|
|
601.1
|
|
|
Issuance of restricted stock and stock options exercised, net
|
4,747
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
15.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(0.2)
|
|
|
Balance at September 30, 2020
|
541,550,055
|
|
|
$
|
6.1
|
|
|
$
|
8,688.3
|
|
|
$
|
6,277.0
|
|
|
24,598,074
|
|
|
$
|
(999.7)
|
|
|
$
|
(1,423.8)
|
|
|
|
|
$
|
12,547.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
Retained
Earnings
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
Total
Equity
|
|
|
Ordinary Shares
|
|
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Cost
|
|
|
|
Shares
|
|
Cost
|
|
|
|
|
Balance at December 31, 2019
|
540,746,871
|
|
|
$
|
6.1
|
|
|
$
|
8,643.5
|
|
|
$
|
6,031.1
|
|
|
24,598,074
|
|
|
$
|
(999.7)
|
|
|
$
|
(1,797.2)
|
|
|
|
|
$
|
11,883.8
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
245.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
245.9
|
|
|
Other comprehensive earnings, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
373.4
|
|
|
|
|
373.4
|
|
|
Issuance of restricted stock and stock options exercised, net
|
803,184
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
0.6
|
|
|
Taxes related to the net share settlement of equity awards
|
—
|
|
|
—
|
|
|
(5.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(5.6)
|
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
49.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
49.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
541,550,055
|
|
|
$
|
6.1
|
|
|
$
|
8,688.3
|
|
|
$
|
6,277.0
|
|
|
24,598,074
|
|
|
$
|
(999.7)
|
|
|
$
|
(1,423.8)
|
|
|
|
|
$
|
12,547.9
|
|
See Notes to Condensed Consolidated Financial Statements
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
Retained
Earnings
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
Total
Equity
|
|
|
Ordinary Shares
|
|
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Cost
|
|
|
|
Shares
|
|
Cost
|
|
|
|
|
Balance at June 30, 2019
|
540,459,996
|
|
|
$
|
6.1
|
|
|
$
|
8,617.3
|
|
|
$
|
5,820.8
|
|
|
24,598,074
|
|
|
$
|
(999.7)
|
|
|
$
|
(1,541.7)
|
|
|
|
|
$
|
11,902.8
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
189.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
189.8
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(649.5)
|
|
|
|
|
(649.5)
|
|
|
Issuance of restricted stock and stock options exercised, net
|
279,505
|
|
|
—
|
|
|
4.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
16.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
540,739,501
|
|
|
$
|
6.1
|
|
|
$
|
8,637.6
|
|
|
$
|
6,010.6
|
|
|
24,598,074
|
|
|
$
|
(999.7)
|
|
|
$
|
(2,191.2)
|
|
|
|
|
$
|
11,463.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
Retained
Earnings
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
Total
Equity
|
|
|
Ordinary Shares
|
|
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Cost
|
|
|
|
Shares
|
|
Cost
|
|
|
|
|
Balance at December 31, 2018
|
539,289,665
|
|
|
$
|
6.0
|
|
|
$
|
8,591.4
|
|
|
$
|
6,010.7
|
|
|
23,490,867
|
|
|
$
|
(999.7)
|
|
|
$
|
(1,441.3)
|
|
|
|
|
$
|
12,167.1
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(3.7)
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(746.3)
|
|
|
|
|
(746.3)
|
|
|
Issuance of restricted stock and stock options exercised, net
|
1,449,836
|
|
|
—
|
|
|
8.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
8.1
|
|
|
Taxes related to the net share settlement of equity awards
|
—
|
|
|
—
|
|
|
(12.8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(12.8)
|
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
50.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
50.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
1,107,207
|
|
|
—
|
|
|
—
|
|
|
|
|
0.1
|
|
|
Cumulative effect of the adoption of new accounting standards
|
—
|
|
|
—
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
|
—
|
|
|
(3.6)
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
540,739,501
|
|
|
$
|
6.1
|
|
|
$
|
8,637.6
|
|
|
$
|
6,010.6
|
|
|
24,598,074
|
|
|
$
|
(999.7)
|
|
|
$
|
(2,191.2)
|
|
|
|
|
$
|
11,463.4
|
|
See Notes to Condensed Consolidated Financial Statements
7
MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
Net earnings (loss)
|
$
|
245.9
|
|
|
$
|
(3.7)
|
|
|
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
1,263.0
|
|
|
1,471.6
|
|
|
Share-based compensation expense
|
49.8
|
|
|
50.9
|
|
|
Deferred income tax benefit
|
(210.4)
|
|
|
(158.0)
|
|
|
Loss from equity method investments
|
37.4
|
|
|
43.6
|
|
|
Other non-cash items
|
134.3
|
|
|
124.2
|
|
|
Litigation settlements and other contingencies, net
|
43.6
|
|
|
13.5
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(27.3)
|
|
|
(20.7)
|
|
|
Inventories
|
(532.4)
|
|
|
(477.6)
|
|
|
Accounts payable
|
(99.7)
|
|
|
(83.2)
|
|
|
Income taxes
|
115.2
|
|
|
(60.2)
|
|
|
Other operating assets and liabilities, net
|
176.2
|
|
|
216.6
|
|
|
Net cash provided by operating activities
|
1,195.6
|
|
|
1,117.0
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Cash paid for acquisitions, net
|
—
|
|
|
(148.7)
|
|
|
Capital expenditures
|
(126.1)
|
|
|
(139.6)
|
|
|
Purchase of available for sale securities and other investments
|
(96.1)
|
|
|
(19.5)
|
|
|
Proceeds from the sale of marketable securities
|
38.6
|
|
|
19.1
|
|
|
Payments for product rights and other, net
|
(97.3)
|
|
|
(146.5)
|
|
|
Proceeds from the sale of assets
|
2.1
|
|
|
24.3
|
|
|
Net cash used in investing activities
|
(278.8)
|
|
|
(410.9)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from issuance of long-term debt
|
33.2
|
|
|
6.4
|
|
|
Payments of long-term debt
|
(588.9)
|
|
|
(657.1)
|
|
|
Non-contingent payments for product rights
|
(139.5)
|
|
|
—
|
|
|
Change in short-term borrowings, net
|
0.3
|
|
|
(1.9)
|
|
|
Taxes paid related to net share settlement of equity awards
|
(7.1)
|
|
|
(8.4)
|
|
|
Contingent consideration payments
|
(48.5)
|
|
|
(47.8)
|
|
|
Payments of financing fees
|
(1.8)
|
|
|
(2.7)
|
|
|
Proceeds from exercise of stock options
|
0.6
|
|
|
8.0
|
|
|
Other items, net
|
(3.1)
|
|
|
(1.1)
|
|
|
Net cash used in financing activities
|
(754.8)
|
|
|
(704.6)
|
|
|
Effect on cash of changes in exchange rates
|
14.0
|
|
|
(16.4)
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
176.0
|
|
|
(14.9)
|
|
|
Cash, cash equivalents and restricted cash — beginning of period
|
491.1
|
|
|
389.3
|
|
|
Cash, cash equivalents and restricted cash — end of period
|
$
|
667.1
|
|
|
$
|
374.4
|
|
See Notes to Condensed Consolidated Financial Statements
8
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.General
The accompanying unaudited condensed consolidated financial statements (“interim financial statements”) of Mylan N.V. and subsidiaries (“Mylan” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes and other financial information included in audited financial statements were condensed or omitted. The interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the interim results of operations, comprehensive earnings, financial position, equity and cash flows for the periods presented.
The global spread of the coronavirus disease 2019 (“COVID-19”) has created significant volatility, uncertainty and economic disruption affecting the markets we serve in North America, Europe and Rest of World, including Asia. Certain significant impacts of COVID-19 on our business are discussed in these notes to the condensed consolidated financial statements.
These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in Mylan N.V.’s Annual Report on Form 10-K for the year ended December 31, 2019, as amended (the “2019 Form 10-K”). The December 31, 2019 condensed consolidated balance sheet was derived from audited financial statements.
The interim results of operations and comprehensive earnings (loss) for the three and nine months ended September 30, 2020, and cash flows for the nine months ended September 30, 2020, are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.
2.Revenue Recognition and Accounts Receivable
The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes net revenue for product sales when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues are recorded net of provisions for variable consideration, including discounts, rebates, governmental rebate programs, price adjustments, returns, chargebacks, promotional programs and other sales allowances. Accruals for these provisions are presented in the condensed consolidated financial statements as reductions in determining net sales and as a contra asset in accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash).
Our net sales may be impacted by wholesaler and distributor inventory levels of our products, which can fluctuate throughout the year due to the seasonality of certain products, pricing, the timing of product demand, customer purchasing decisions and other factors. Such fluctuations may impact the comparability of our net sales between periods.
Consideration received from licenses of intellectual property is recorded as other revenues. Royalty or profit share amounts, which are based on sales of licensed products or technology, are recorded when the customer’s subsequent sales or usages occur. Such consideration is included in other revenue in the condensed consolidated statements of operations.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The following table presents the Company’s net sales by therapeutic franchise for each of our reportable segments for the three and nine months ended September 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
North America
|
|
Europe
|
|
Rest of World
|
|
Total
|
|
Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
Central Nervous System & Anesthesia
|
$
|
181.8
|
|
|
$
|
211.5
|
|
|
$
|
81.1
|
|
|
$
|
474.4
|
|
|
Infectious Disease
|
37.3
|
|
|
197.2
|
|
|
272.6
|
|
|
507.1
|
|
|
Respiratory & Allergy
|
284.9
|
|
|
103.1
|
|
|
74.4
|
|
|
462.4
|
|
|
Cardiovascular
|
58.5
|
|
|
125.6
|
|
|
38.4
|
|
|
222.5
|
|
|
Gastroenterology
|
41.8
|
|
|
166.2
|
|
|
91.7
|
|
|
299.7
|
|
|
Diabetes & Metabolism
|
70.8
|
|
|
80.1
|
|
|
36.3
|
|
|
187.2
|
|
|
Dermatology
|
33.2
|
|
|
72.8
|
|
|
20.3
|
|
|
126.3
|
|
|
Women’s Healthcare
|
96.0
|
|
|
60.5
|
|
|
34.0
|
|
|
190.5
|
|
|
Oncology
|
171.4
|
|
|
30.4
|
|
|
40.0
|
|
|
241.8
|
|
|
Immunology
|
7.9
|
|
|
35.2
|
|
|
10.2
|
|
|
53.3
|
|
|
Other (1)
|
45.2
|
|
|
41.2
|
|
|
96.5
|
|
|
182.9
|
|
|
Total
|
$
|
1,028.8
|
|
|
$
|
1,123.8
|
|
|
$
|
795.5
|
|
|
$
|
2,948.1
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
Central Nervous System & Anesthesia
|
$
|
484.0
|
|
|
$
|
631.0
|
|
|
$
|
210.8
|
|
|
$
|
1,325.8
|
|
|
Infectious Disease
|
120.7
|
|
|
320.1
|
|
|
756.8
|
|
|
1,197.6
|
|
|
Respiratory & Allergy
|
890.4
|
|
|
362.3
|
|
|
165.6
|
|
|
1,418.3
|
|
|
Cardiovascular
|
184.4
|
|
|
372.7
|
|
|
102.9
|
|
|
660.0
|
|
|
Gastroenterology
|
121.0
|
|
|
465.6
|
|
|
252.6
|
|
|
839.2
|
|
|
Diabetes & Metabolism
|
187.4
|
|
|
231.7
|
|
|
89.7
|
|
|
508.8
|
|
|
Dermatology
|
87.8
|
|
|
215.0
|
|
|
57.2
|
|
|
360.0
|
|
|
Women’s Healthcare
|
275.9
|
|
|
180.6
|
|
|
84.9
|
|
|
541.4
|
|
|
Oncology
|
470.8
|
|
|
71.2
|
|
|
103.8
|
|
|
645.8
|
|
|
Immunology
|
26.9
|
|
|
88.3
|
|
|
27.2
|
|
|
142.4
|
|
|
Other (1)
|
174.0
|
|
|
142.2
|
|
|
276.7
|
|
|
592.9
|
|
|
Total
|
$
|
3,023.3
|
|
|
$
|
3,080.7
|
|
|
$
|
2,128.2
|
|
|
$
|
8,232.2
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
North America
|
|
Europe
|
|
Rest of World
|
|
Total
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Central Nervous System & Anesthesia
|
$
|
155.5
|
|
|
$
|
214.3
|
|
|
$
|
87.0
|
|
|
$
|
456.8
|
|
|
Infectious Disease
|
28.7
|
|
|
179.0
|
|
|
270.3
|
|
|
478.0
|
|
|
Respiratory & Allergy
|
308.5
|
|
|
98.2
|
|
|
66.6
|
|
|
473.3
|
|
|
Cardiovascular
|
63.3
|
|
|
126.2
|
|
|
41.3
|
|
|
230.8
|
|
|
Gastroenterology
|
30.0
|
|
|
147.9
|
|
|
95.9
|
|
|
273.8
|
|
|
Diabetes & Metabolism
|
91.3
|
|
|
68.9
|
|
|
34.2
|
|
|
194.4
|
|
|
Dermatology
|
38.2
|
|
|
75.8
|
|
|
29.3
|
|
|
143.3
|
|
|
Women’s Healthcare
|
100.4
|
|
|
60.5
|
|
|
26.1
|
|
|
187.0
|
|
|
Oncology
|
196.1
|
|
|
22.0
|
|
|
42.8
|
|
|
260.9
|
|
|
Immunology
|
12.3
|
|
|
20.3
|
|
|
10.3
|
|
|
42.9
|
|
|
Other (1)
|
64.3
|
|
|
32.8
|
|
|
89.9
|
|
|
187.0
|
|
|
Total
|
$
|
1,088.6
|
|
|
$
|
1,045.9
|
|
|
$
|
793.7
|
|
|
$
|
2,928.2
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Central Nervous System & Anesthesia
|
$
|
426.4
|
|
|
$
|
619.3
|
|
|
$
|
243.9
|
|
|
$
|
1,289.6
|
|
|
Infectious Disease
|
77.3
|
|
|
299.7
|
|
|
783.0
|
|
|
1,160.0
|
|
|
Respiratory & Allergy
|
805.3
|
|
|
327.9
|
|
|
166.5
|
|
|
1,299.7
|
|
|
Cardiovascular
|
159.1
|
|
|
358.6
|
|
|
116.1
|
|
|
633.8
|
|
|
Gastroenterology
|
94.9
|
|
|
434.9
|
|
|
276.3
|
|
|
806.1
|
|
|
Diabetes & Metabolism
|
326.1
|
|
|
208.0
|
|
|
110.4
|
|
|
644.5
|
|
|
Dermatology
|
77.6
|
|
|
217.7
|
|
|
70.7
|
|
|
366.0
|
|
|
Women’s Healthcare
|
269.5
|
|
|
165.3
|
|
|
65.4
|
|
|
500.2
|
|
|
Oncology
|
567.8
|
|
|
59.9
|
|
|
107.0
|
|
|
734.7
|
|
|
Immunology
|
31.4
|
|
|
41.3
|
|
|
27.6
|
|
|
100.3
|
|
|
Other (1)
|
199.6
|
|
|
198.1
|
|
|
274.4
|
|
|
672.1
|
|
|
Total
|
$
|
3,035.0
|
|
|
$
|
2,930.7
|
|
|
$
|
2,241.3
|
|
|
$
|
8,207.0
|
|
____________
(1) Other consists of numerous therapeutic franchises, none of which individually exceeds 5% of consolidated net sales.
Variable Consideration and Accounts Receivable
The following table presents a reconciliation of gross sales to net sales by each significant category of variable consideration during the three and nine months ended September 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Gross sales
|
$
|
4,986.4
|
|
|
$
|
5,051.5
|
|
|
$
|
13,868.0
|
|
|
$
|
13,841.0
|
|
|
Gross to net adjustments:
|
|
|
|
|
|
|
|
|
Chargebacks
|
(967.0)
|
|
|
(913.5)
|
|
|
(2,616.9)
|
|
|
(2,368.8)
|
|
|
Rebates, promotional programs and other sales allowances
|
(926.3)
|
|
|
(979.2)
|
|
|
(2,592.3)
|
|
|
(2,709.9)
|
|
|
Returns
|
(76.6)
|
|
|
(82.3)
|
|
|
(193.2)
|
|
|
(203.3)
|
|
|
Governmental rebate programs
|
(68.4)
|
|
|
(148.3)
|
|
|
(233.4)
|
|
|
(352.0)
|
|
|
Total gross to net adjustments
|
$
|
(2,038.3)
|
|
|
$
|
(2,123.3)
|
|
|
$
|
(5,635.8)
|
|
|
$
|
(5,634.0)
|
|
|
Net sales
|
$
|
2,948.1
|
|
|
$
|
2,928.2
|
|
|
$
|
8,232.2
|
|
|
$
|
8,207.0
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
No significant revisions were made to the methodology used in determining these provisions or the nature of the provisions during the three and nine months ended September 30, 2020. Such allowances were comprised of the following at September 30, 2020 and December 31, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31,
2019
|
|
Accounts receivable, net
|
$
|
1,502.6
|
|
|
$
|
1,512.0
|
|
|
Other current liabilities
|
697.9
|
|
|
796.5
|
|
|
Total
|
$
|
2,200.5
|
|
|
$
|
2,308.5
|
|
Accounts receivable, net was comprised of the following at September 30, 2020 and December 31, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31,
2019
|
|
Trade receivables, net
|
$
|
2,587.8
|
|
|
$
|
2,640.1
|
|
|
Other receivables
|
376.3
|
|
|
418.7
|
|
|
Accounts receivable, net
|
$
|
2,964.1
|
|
|
$
|
3,058.8
|
|
Receivables Facility and Note Securitization Facility
Through its wholly owned subsidiary Mylan Pharmaceuticals Inc., the Company has access to a $400 million accounts receivable securitization facility (the “Receivables Facility”) and a $200 million note securitization facility (the “Note Securitization Facility”). The receivables underlying any borrowings are included in accounts receivable, net, in the condensed consolidated balance sheets. There were $480.6 million and $407.0 million of securitized accounts receivable at September 30, 2020 and December 31, 2019, respectively.
On August 4, 2020, the Company entered into (i) an amendment to the Receivables Facility to permit the occurrence of the Combination (as defined below) and to make certain other updates and (ii) an amendment to the Note Securitization Facility to extend the maturity date to August 30, 2021.
We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers. Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. We derecognized $123.0 million and $90.1 million of accounts receivable as of September 30, 2020 and December 31, 2019, respectively, under these factoring arrangements.
3.Recent Accounting Pronouncements
Adoption of New Accounting Standards and Amended SEC Rules
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses (“ASU 2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides transition relief for ASU 2016-13 by providing entities with an alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of ASU 2016-13. The Company applied the provisions of ASU 2016-13 and its subsequent revisions as of January 1, 2020 and the adoption did not have a material impact on its condensed consolidated financial statements and disclosures.
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-03”), which adds to and modifies certain disclosure requirements for fair value measurements including a requirement to disclose changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average used to develop significant inputs for Level 3 fair value measurements.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The Company applied the provisions of ASU 2018-13 as of January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s disclosures.
In August 2018, the FASB issued Accounting Standards Update 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The objective of this update is to clarify and align the accounting and capitalization of implementation costs for hosting arrangements, regardless of whether they convey a license to the hosted software. The updated guidance will require an entity in a hosting arrangement that is a service contract, to follow guidance in ASC Topic 350, Intangibles-Goodwill and Other, to determine which implementation costs to capitalize as an asset and which costs to expense. The Company applied the provisions of ASU 2018-15 as of January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.
In November 2018, the FASB issued Accounting Standards Update 2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). The amendments in ASU 2018-18 make targeted improvements to U.S. GAAP for collaborative arrangements by clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. In addition, unit-of-account guidance in Topic 808 was aligned with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. The Company applied the provisions of ASU 2018-18 as of January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.
In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding the financial disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered. Among other things, the amendments narrow the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamline the alternative disclosures required in lieu of those financial statements. The effective date of the amendment is January 4, 2021 with earlier voluntary compliance permitted. We have chosen to voluntarily comply with the amended rules effective during the three months ended March 31, 2020 and have included the required disclosures as a component of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q as permitted by the amendments.
Accounting Standards Issued Not Yet Adopted
In January 2020, the FASB issued Accounting Standards Update 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”), which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, ASU 2020-01 states that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. ASU 2020-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 with early adoption in any interim period permitted. The Company is currently assessing the impact of the adoption of this guidance on its condensed consolidated financial statements and disclosures.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. Entities can apply the provisions of ASU 2020-04 immediately, as applicable, and generally the provisions of the guidance are available through December 31, 2022 as entities transition away from reference rates that are expected to be discontinued. The Company is currently assessing the impact of the adoption of this guidance on its condensed consolidated financial statements and disclosures.
In addition, the following recently issued accounting standard has not been adopted. Refer to the 2019 Form 10-K for additional information and its potential impact.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
Accounting Standard Update
|
Effective Date
|
|
ASU 2018-14: Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20) Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans
|
January 1, 2021
|
4.Acquisitions and Other Transactions
Upjohn Business Combination Agreement
On July 29, 2019, the Company, Pfizer Inc. (“Pfizer”), Upjohn Inc., a wholly-owned subsidiary of Pfizer (“Upjohn” or “Newco”), and certain other affiliated entities entered into a Business Combination Agreement (as amended, the “Business Combination Agreement”) pursuant to which the Company will combine with Pfizer’s Upjohn Business (the “Upjohn Business”) in a Reverse Morris Trust transaction (the “Combination”). Newco, which will be the parent entity of the combined Upjohn Business and Mylan business, will be renamed Viatris Inc. (“Viatris”) effective as of the closing of the Combination. The Upjohn Business is a global, primarily off-patent branded and generic established medicines business, which includes 20 primarily off-patent solid oral dose legacy brands, such as Lyrica, Lipitor, Celebrex and Viagra.
Prior to the Combination and pursuant to a Separation and Distribution Agreement (as amended, the “Separation Agreement”), dated as of July 29, 2019, between Pfizer and Newco, Pfizer will, among other things, transfer to Newco substantially all of the assets and liabilities comprising the Upjohn Business (the “Separation”) and, thereafter, Pfizer will distribute to Pfizer stockholders all of the issued and outstanding shares of Newco (the “Distribution”). When the Distribution and Combination are completed, Pfizer stockholders as of the record date of the Distribution will own 57% of the outstanding shares of Newco common stock, and Mylan shareholders as of immediately before the Combination will own 43% of the outstanding shares of Newco common stock, in each case on a fully diluted basis. Newco will make a cash payment to Pfizer equal to $12 billion, to be funded with the proceeds of debt incurred by Newco, as partial consideration for the contribution of the Upjohn Business from Pfizer to Newco.
The consummation of the Combination is subject to the satisfaction (or, if applicable, valid waiver) of various conditions, including (a) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder and the receipt of regulatory approvals in certain other jurisdictions, (b) the consummation of the Separation and the Distribution in accordance with the terms of the Separation Agreement, (c) the approval of the Combination by Mylan shareholders, (d) the absence of any legal restraint (including legal actions or proceedings pursued by U.S. state authorities in the relevant states) preventing the consummation of the transactions, (e) in the case of Pfizer’s and Newco’s obligations to consummate the transactions, (i) the distribution of $12 billion in cash from Upjohn to Pfizer in accordance with the terms of the Separation Agreement and (ii) the receipt by Pfizer of a U.S. Internal Revenue Service (“IRS”) ruling and tax opinion of its tax counsel with respect to the Combination, and (f) other customary closing conditions.
On March 17, 2020, Pfizer received the IRS ruling with respect to the Combination, which is generally binding, unless the relevant facts or circumstances change prior to closing. On June 30, 2020, Mylan’s shareholders voted to approve the Combination at the extraordinary general meeting of shareholders.
On September 14, 2020, the European Commission (the “Commission”) approved the divestiture buyers with which Mylan entered into agreements for the sale of certain of Mylan’s products in Europe, which was a requirement of the Commission’s conditional approval of the Combination in April 2020.
On October 30, 2020, Mylan and Pfizer announced that the U.S. Federal Trade Commission (the “FTC”) accepted a proposed consent order, which concluded the FTC’s review of the proposed Combination. The parties have now obtained all required antitrust clearances for the Combination. The Combination is expected to close on November 16, 2020.
On May 29, 2020, Mylan, Pfizer, Newco and certain of their affiliates entered into Amendment No. 1 to the Business Combination Agreement (the “BCA Amendment”), and Pfizer and Newco entered into Amendment No. 2 to the Separation and Distribution Agreement (the “SDA Amendment” and, together with the BCA Amendment, the “Amendments”). In light of the ongoing regulatory review process, including delays related to the COVID-19 pandemic, the Amendments provide, among other things, that the closing of the Combination shall not occur prior to October 1, 2020 (unless otherwise agreed to by Mylan and Pfizer) and that the Outside Date (as defined in the Business Combination Agreement) shall be December 31, 2020.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
On June 16, 2020, Upjohn entered into a revolving credit agreement (the “Upjohn Revolving Credit Agreement”), by and among Upjohn, certain lenders and issuing banks from time to time party thereto and Bank of America, N.A., as administrative agent (in such capacity, the “Upjohn Revolving Administrative Agent”). The Upjohn Revolving Credit Agreement contains a revolving credit facility (the “Upjohn Revolving Credit Facility”) under which Upjohn may obtain extensions of credit in an aggregate principal amount not to exceed $4.0 billion, in U.S. dollars or alternative currencies including Euro, Sterling, Yen and any other currency that is approved by the Upjohn Revolving Administrative Agent and each lender under the Upjohn Revolving Credit Facility. The Upjohn Revolving Credit Facility will be available to Upjohn upon (a) its delivery of a certificate certifying that (i) the conditions to the consummation of the Combination have been satisfied or waived or are expected to be satisfied or waived on the date of funding of such facility or within one business day thereafter and (ii) the distribution by Pfizer to its stockholders of its shares of Upjohn’s common stock pursuant to the Separation Agreement is expected to be, the Combination is expected to be, and the contribution of the Upjohn Business to Upjohn has been or is expected to be consummated on the Upjohn Revolver Closing Date (as defined below) or within one business day thereafter (an “RMT Condition Certificate”) and (b) the satisfaction of certain customary conditions (the date such conditions are satisfied or waived being referred to as the “Upjohn Revolver Closing Date”). Subject to satisfaction of the foregoing conditions, up to $1.5 billion under the Upjohn Revolving Credit Facility will be available to Upjohn in a single draw on the Upjohn Revolver Closing Date for the sole purpose of funding a portion of the cash payment of $12.0 billion by Upjohn to Pfizer as partial consideration for Pfizer’s contribution of the Upjohn Business to Upjohn, as required by the Separation Agreement.
On June 16, 2020, Upjohn entered into a delayed draw term loan credit agreement (the “Upjohn Term Loan Credit Agreement”), by and among Upjohn, Mizuho Bank, Ltd. and MUFG Bank, Ltd., as administrative agent. The Upjohn Term Loan Credit Agreement provides for an 18-month $600.0 million principal amount delayed draw senior unsecured term loan facility (the “Upjohn Term Loan Credit Facility”).
The Upjohn Term Loan Credit Facility will be available to Upjohn upon its delivery of an RMT Condition Certificate and upon satisfaction of certain customary conditions. Upjohn intends to borrow the full $600.0 million aggregate principal amount available under the Upjohn Term Loan Credit Facility in order to fund a portion of the cash payment to Pfizer and related transaction fees and expenses, as required by the Separation Agreement.
On June 22, 2020, Upjohn completed a private offering of $7.45 billion aggregate principal amount of Upjohn’s senior, U.S. dollar-denominated notes (the “Upjohn U.S. Dollar Notes”) and on June 23, 2020, Upjohn Finance B.V. (“Finco”), a wholly-owned financing subsidiary of Upjohn, completed a private offering of €3.60 billion aggregate principal amount of Finco’s senior, euro-denominated notes (the “Upjohn Euro Notes” and, together with the Upjohn U.S. Dollar Notes, the “Upjohn Notes”), which are guaranteed on a senior unsecured basis by Upjohn. Upjohn intends to use the net proceeds from the offerings of the Upjohn Notes, together with the net proceeds from the Upjohn Term Loan Credit Facility, to fund in full the $12.0 billion cash payment to Pfizer and related transaction fees and expenses. The Upjohn Notes are initially guaranteed on a senior unsecured basis by Pfizer, which guarantees will be automatically and unconditionally terminated and released without consent of holders upon the consummation of the Distribution. Upon the consummation of the Combination, the Mylan entities (which will be subsidiaries of Upjohn following the Combination) that are issuers or guarantors of the outstanding senior unsecured notes issued by Mylan N.V. or Mylan Inc. (the “Mylan Notes”) will become guarantors of the Upjohn Notes, substantially concurrently with Upjohn becoming a guarantor of the Mylan Notes.
Upjohn had previously obtained commitments for the initial financing of the transaction in the form of a bridge loan from certain financial institutions. The bridge loan was subject to customary terms and conditions including a financial covenant. The commitments under the bridge loan commitment letter dated as of July 29, 2019 were reduced concurrently with the effectiveness of the Upjohn Revolving Credit Agreement and Upjohn Term Loan Credit Agreement, and were fully terminated upon the completion of each offering of Upjohn Notes.
Under the terms of the Business Combination Agreement and Separation Agreement, Mylan will be obligated to reimburse Pfizer for 43% of certain financing related costs if the Combination does not close and Viatris will be obligated to reimburse Pfizer for all such financing related costs if the Combination closes. As a result of the completion of the financing transactions described above, Mylan recorded $30.0 million and $115.0 million of expenses during the three and nine months ended September 30, 2020, respectively, which is included as a component of selling, general and administrative expenses (“SG&A”) in the condensed consolidated statements of operations to reflect Mylan’s obligation to reimburse Pfizer for 43% of those financing related costs.
In connection with the Separation Agreement and the Business Combination Agreement, Pfizer, Upjohn and Mylan previously agreed to review and negotiate a potential transfer of Pfizer’s Meridian Medical Technologies business (the “Meridian Business”) to Upjohn. The Meridian Business is Mylan’s supplier of EpiPen® Auto-Injectors pursuant to an
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
agreement that had an expiration date of December 31, 2020 (the “EpiPen Supply Agreement”). Instead of proceeding with the transfer of the Meridian Business, Pfizer and Mylan agreed in the third quarter of 2020 to extend the EpiPen Supply Agreement for an additional four-year period through December 31, 2024, with an option for Mylan (or Upjohn) to further extend the term for an additional one-year period thereafter. Mylan and Pfizer have also reached a preliminary agreement on the general terms under which Pfizer would transfer certain Pfizer assets that currently form part of a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan to Mylan or, following the Combination, to Viatris. Any such proposed transaction would be subject to the finalization and execution of a definitive agreement that would contain customary closing conditions including, but not limited to, receipt of any necessary regulatory approvals.
Other Transactions
During the three months ended September 30, 2020 the Company entered into an agreement to acquire the related intellectual property and commercialization rights of Aspen Global Incorporated’s (“Aspen”) thrombosis business in Europe for € 641.9 million, subject to customary closing conditions and European regulatory clearances. The portfolio consists of well-established injectable anticoagulants sold in Europe under the brand names, and variations of the brand names, Arixtra, Fraxiparine, Mono-Embolex and Orgaran.
Upon closing of the transaction, the Company will make a payment of €263.2 million to Aspen with the remaining payment of €378.7 million due on June 25, 2021. The Commission approved the transaction on October 15, 2020, and the closing is expected to be completed in the fourth quarter of 2020.
5.Share-Based Incentive Plan
The Company’s shareholders have approved the 2003 Long-Term Incentive Plan (as amended, the “2003 Plan”). Under the 2003 Plan, 55,300,000 ordinary shares are reserved for issuance to key employees, consultants, independent contractors and non-employee directors of the Company through a variety of incentive awards, including: stock options, stock appreciation rights (“SAR”), restricted ordinary shares and units, performance awards (“PSU”), other stock-based awards and short-term cash awards. Stock option awards are granted with an exercise price equal to the fair market value of the ordinary shares underlying the stock options at the date of the grant, generally become exercisable over periods ranging from three to four years, and generally expire in ten years.
The following table summarizes stock option and SAR (together, “stock awards”) activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Under Stock Awards
|
|
Weighted Average Exercise Price per Share
|
|
Outstanding at December 31, 2019
|
6,347,709
|
|
|
$
|
36.97
|
|
|
Granted
|
814,351
|
|
|
17.37
|
|
|
Exercised
|
(27,615)
|
|
|
21.13
|
|
|
Forfeited
|
(337,285)
|
|
|
25.37
|
|
|
Outstanding at September 30, 2020
|
6,797,160
|
|
|
$
|
35.26
|
|
|
Vested and expected to vest at September 30, 2020
|
6,589,725
|
|
|
$
|
35.57
|
|
|
Exercisable at September 30, 2020
|
5,159,754
|
|
|
$
|
38.75
|
|
As of September 30, 2020, stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had average remaining contractual terms of 5.3 years, 5.2 years and 4.2 years, respectively. Also, at September 30, 2020, stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had no aggregate intrinsic values.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
A summary of the status of the Company’s nonvested restricted stock unit awards, including PSUs (collectively, “restricted stock awards”), as of September 30, 2020 and the changes during the nine months ended September 30, 2020 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Awards
|
|
Weighted Average Grant-Date Fair Value per Share
|
|
Nonvested at December 31, 2019
|
4,105,689
|
|
|
$
|
34.42
|
|
|
Granted
|
2,978,412
|
|
|
17.46
|
|
|
Released
|
(1,104,737)
|
|
|
36.57
|
|
|
Forfeited
|
(306,108)
|
|
|
39.50
|
|
|
Nonvested at September 30, 2020
|
5,673,256
|
|
|
$
|
24.83
|
|
As of September 30, 2020, the Company had $78.9 million of total unrecognized compensation expense, net of estimated forfeitures, related to all of its stock-based awards, which we expect to recognize over the remaining weighted average vesting period of 1.5 years. The total intrinsic value of stock awards exercised and restricted stock units released during the nine months ended September 30, 2020 and 2019 was $19.1 million and $37.9 million, respectively.
6.Pensions and Other Postretirement Benefits
Defined Benefit Plans
The Company sponsors various defined benefit pension plans in several countries. Benefits provided generally depend on length of service, pay grade and remuneration levels. The Company maintains two fully frozen defined benefit pension plans in the U.S., and employees in the U.S. and Puerto Rico are generally provided retirement benefits through defined contribution plans.
The Company also sponsors other postretirement benefit plans including plans that provide for postretirement supplemental medical coverage. Benefits from these plans are provided to employees and their spouses and dependents who meet various minimum age and service requirements. In addition, the Company sponsors other plans that provide for life insurance benefits and postretirement medical coverage for certain officers and management employees.
Net Periodic Benefit Cost
Components of net periodic benefit cost for the three and nine months ended September 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Other Postretirement Benefits
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Service cost
|
$
|
5.3
|
|
|
$
|
5.3
|
|
|
$
|
15.9
|
|
|
$
|
15.9
|
|
|
Interest cost
|
2.9
|
|
|
3.8
|
|
|
8.7
|
|
|
11.5
|
|
|
Expected return on plan assets
|
(3.3)
|
|
|
(3.0)
|
|
|
(10.1)
|
|
|
(9.1)
|
|
|
Amortization of prior service costs
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.8
|
|
|
Recognized net actuarial losses (gains)
|
0.1
|
|
|
(0.2)
|
|
|
0.4
|
|
|
(0.6)
|
|
|
Net periodic benefit cost
|
$
|
5.0
|
|
|
$
|
6.2
|
|
|
$
|
14.9
|
|
|
$
|
18.5
|
|
The Company is making the minimum mandatory contributions to its U.S. defined benefit pension plans in the 2020 plan year. The Company expects to make total benefit payments of approximately $35.2 million from pension and other postretirement benefit plans in 2020. The Company anticipates making contributions to pension and other postretirement benefit plans of approximately $35.1 million in 2020.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
7.Balance Sheet Components
Selected balance sheet components consist of the following:
Cash and restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31,
2019
|
|
September 30,
2019
|
|
Cash and cash equivalents
|
$
|
664.5
|
|
|
$
|
475.6
|
|
|
$
|
358.9
|
|
|
Restricted cash, included in prepaid expenses and other current assets
|
2.6
|
|
|
15.5
|
|
|
15.5
|
|
|
Cash, cash equivalents and restricted cash
|
$
|
667.1
|
|
|
$
|
491.1
|
|
|
$
|
374.4
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31,
2019
|
|
Raw materials
|
$
|
892.6
|
|
|
$
|
886.8
|
|
|
Work in process
|
426.6
|
|
|
417.2
|
|
|
Finished goods
|
1,702.8
|
|
|
1,366.9
|
|
|
Inventories
|
$
|
3,022.0
|
|
|
$
|
2,670.9
|
|
Prepaid and other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31, 2019
|
|
Prepaid expenses
|
$
|
189.1
|
|
|
$
|
156.7
|
|
|
Restricted cash
|
2.6
|
|
|
15.5
|
|
|
Available-for-sale fixed income securities
|
39.1
|
|
|
26.8
|
|
|
Fair value of financial instruments
|
51.1
|
|
|
43.3
|
|
|
Equity securities
|
40.9
|
|
|
39.0
|
|
|
Other current assets
|
361.3
|
|
|
270.7
|
|
|
Prepaid expenses and other current assets
|
$
|
684.1
|
|
|
$
|
552.0
|
|
Prepaid expenses consist primarily of prepaid rent, insurance and other individually insignificant items.
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31, 2019
|
|
Machinery and equipment
|
$
|
2,603.1
|
|
|
$
|
2,523.7
|
|
|
Buildings and improvements
|
1,219.8
|
|
|
1,197.3
|
|
|
Construction in progress
|
271.9
|
|
|
277.3
|
|
|
Land and improvements
|
125.5
|
|
|
124.6
|
|
|
Gross property, plant and equipment
|
4,220.3
|
|
|
4,122.9
|
|
|
Accumulated depreciation
|
2,162.0
|
|
|
1,973.3
|
|
|
Property, plant and equipment, net
|
$
|
2,058.3
|
|
|
$
|
2,149.6
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31, 2019
|
|
Equity method investments, clean energy investments
|
$
|
57.6
|
|
|
$
|
92.2
|
|
|
Operating lease right-of-use assets
|
227.9
|
|
|
254.6
|
|
|
Other long-term assets
|
123.4
|
|
|
58.2
|
|
|
Other assets
|
$
|
408.9
|
|
|
$
|
405.0
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31,
2019
|
|
Trade accounts payable
|
$
|
900.8
|
|
|
$
|
1,061.9
|
|
|
Other payables
|
547.0
|
|
|
466.2
|
|
|
Accounts payable
|
$
|
1,447.8
|
|
|
$
|
1,528.1
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31, 2019
|
|
Accrued sales allowances
|
$
|
697.9
|
|
|
$
|
796.5
|
|
|
Legal and professional accruals, including litigation accruals
|
117.5
|
|
|
138.2
|
|
|
Payroll and employee benefit liabilities
|
503.2
|
|
|
467.1
|
|
|
Contingent consideration
|
124.8
|
|
|
120.4
|
|
|
Accrued interest
|
179.1
|
|
|
59.1
|
|
|
Restructuring
|
17.1
|
|
|
26.0
|
|
|
Equity method investments, clean energy investments
|
50.1
|
|
|
47.7
|
|
|
Fair value of financial instruments
|
17.1
|
|
|
12.9
|
|
|
Operating lease liability
|
68.5
|
|
|
76.7
|
|
|
Other
|
470.9
|
|
|
575.3
|
|
|
Other current liabilities
|
$
|
2,246.2
|
|
|
$
|
2,319.9
|
|
Other long-term obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31, 2019
|
|
Employee benefit liabilities
|
$
|
412.2
|
|
|
$
|
408.9
|
|
|
Contingent consideration
|
88.4
|
|
|
130.3
|
|
|
Equity method investments, clean energy investments
|
13.5
|
|
|
57.2
|
|
|
Tax related items, including contingencies
|
137.3
|
|
|
109.6
|
|
|
Operating lease liability
|
156.9
|
|
|
175.7
|
|
|
Other
|
92.6
|
|
|
79.1
|
|
|
Other long-term obligations
|
$
|
900.9
|
|
|
$
|
960.8
|
|
8.Equity Method Investments
The Company currently has three equity method investments in limited liability companies that own refined coal production plants (the “clean energy investments”) whose activities qualify for income tax credits under Section 45 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”).
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
During the three months ended September 30, 2020 and 2019, the Company reduced its long-term obligations for its three investments as a result of lower than anticipated production levels and lower expected future variable debt payments to the respective project sponsor. The Company recognized a net gain of approximately $15 million and $7 million, respectively, which was recognized as a component of the net loss of the equity method investments in the condensed consolidated statements of operations.
Summarized financial information, in the aggregate, for the Company’s significant equity method investments on a 100% basis for the three and nine months ended September 30, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Total revenues
|
$
|
113.5
|
|
|
$
|
101.6
|
|
|
$
|
288.8
|
|
|
$
|
274.1
|
|
|
Gross loss
|
(1.4)
|
|
|
(1.1)
|
|
|
(3.6)
|
|
|
(3.1)
|
|
|
Operating and non-operating expense
|
5.2
|
|
|
5.2
|
|
|
14.4
|
|
|
14.3
|
|
|
Net loss
|
$
|
(6.6)
|
|
|
$
|
(6.3)
|
|
|
$
|
(18.0)
|
|
|
$
|
(17.4)
|
|
The Company’s net losses from its equity method investments include amortization expense related to the excess of the cost basis of the Company’s investment over the underlying assets of each individual investee. For the three months ended September 30, 2020 and 2019, the Company recognized net losses from equity method investments of $2.9 million and $10.4 million, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized net losses from equity method investments of $37.4 million and $43.6 million, respectively, which were recognized as a component of other expense, net in the condensed consolidated statements of operations. The Company recognizes the income tax credits and benefits from the clean energy investments as part of its provision for income taxes.
9.Earnings (Loss) per Ordinary Share
Basic earnings (loss) per ordinary share is computed by dividing net earnings (loss) by the weighted average number of ordinary shares outstanding during the period. Diluted earnings (loss) per ordinary share is computed by dividing net earnings (loss) by the weighted average number of ordinary shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities or instruments, if the impact is dilutive.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Basic and diluted earnings (loss) per ordinary share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
(In millions, except per share amounts)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Basic earnings (loss) (numerator):
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
$
|
185.7
|
|
|
$
|
189.8
|
|
|
$
|
245.9
|
|
|
$
|
(3.7)
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding
|
516.9
|
|
|
516.0
|
|
|
516.8
|
|
|
515.5
|
|
|
Basic earnings (loss) per ordinary share
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.48
|
|
|
$
|
(0.01)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) (numerator):
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
$
|
185.7
|
|
|
$
|
189.8
|
|
|
$
|
245.9
|
|
|
$
|
(3.7)
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding
|
516.9
|
|
|
516.0
|
|
|
516.8
|
|
|
515.5
|
|
|
Share-based awards
|
0.8
|
|
|
0.2
|
|
|
0.5
|
|
|
—
|
|
|
Total dilutive shares outstanding
|
517.7
|
|
|
516.2
|
|
|
517.3
|
|
|
515.5
|
|
Net earnings (loss) per diluted ordinary share
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.48
|
|
|
$
|
(0.01)
|
|
Additional stock awards and restricted stock awards were outstanding during the three and nine months ended September 30, 2020 and 2019, but were not included in the computation of diluted earnings per ordinary share for each respective period because the effect would be anti-dilutive. Excluded shares at September 30, 2020 include certain share-based compensation awards whose performance conditions had not been fully met. Such excluded shares and anti-dilutive awards represented 8.8 million shares and 9.8 million shares for the three and nine months ended September 30, 2020, respectively, and 10.0 million shares and 9.9 million shares for the three and nine months ended September 30, 2019, respectively.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
10.Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
North America Segment
|
|
Europe Segment
|
|
Rest of World Segment
|
|
Total
|
|
Balance at December 31, 2019:
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
3,708.4
|
|
|
$
|
4,548.6
|
|
|
$
|
1,718.6
|
|
|
$
|
9,975.6
|
|
|
Accumulated impairment losses
|
(385.0)
|
|
|
—
|
|
|
—
|
|
|
(385.0)
|
|
|
|
3,323.4
|
|
|
4,548.6
|
|
|
1,718.6
|
|
|
9,590.6
|
|
|
Foreign currency translation
|
33.8
|
|
|
197.5
|
|
|
(4.6)
|
|
|
226.7
|
|
|
|
$
|
3,357.2
|
|
|
$
|
4,746.1
|
|
|
$
|
1,714.0
|
|
|
$
|
9,817.3
|
|
|
Balance at September 30, 2020:
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
3,742.2
|
|
|
$
|
4,746.1
|
|
|
$
|
1,714.0
|
|
|
$
|
10,202.3
|
|
|
Accumulated impairment losses
|
(385.0)
|
|
|
—
|
|
|
—
|
|
|
(385.0)
|
|
|
|
$
|
3,357.2
|
|
|
$
|
4,746.1
|
|
|
$
|
1,714.0
|
|
|
$
|
9,817.3
|
|
Intangible assets consist of the following components at September 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Weighted Average Life (Years)
|
|
Original Cost
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
Product rights, licenses and other (1)
|
15
|
|
$
|
20,738.7
|
|
|
$
|
9,890.1
|
|
|
$
|
10,848.6
|
|
|
In-process research and development
|
|
|
117.2
|
|
|
—
|
|
|
117.2
|
|
|
|
|
|
$
|
20,855.9
|
|
|
$
|
9,890.1
|
|
|
$
|
10,965.8
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Product rights, licenses and other (1)
|
15
|
|
$
|
20,109.1
|
|
|
$
|
8,579.5
|
|
|
$
|
11,529.6
|
|
|
In-process research and development
|
|
|
120.3
|
|
|
—
|
|
|
120.3
|
|
|
|
|
|
$
|
20,229.4
|
|
|
$
|
8,579.5
|
|
|
$
|
11,649.9
|
|
____________
(1)Represents amortizable intangible assets. Other intangible assets consists principally of customer lists and contractual rights.
During the three and nine months ended September 30, 2019, the Company recognized impairment charges of $1.9 million and $71.8 million, respectively, which have been recorded as a component of amortization expense, primarily for the impairment of certain finite-lived and in-process research and development (“IPR&D”) assets acquired as part of the acquisition of the non-sterile, topicals-focused business of Renaissance Acquisition Holdings, LLC. No impairment charges were recognized during the three and nine months ended September 30, 2020. The impairment testing involved calculating the fair value of the assets based upon detailed valuations employing the income approach which utilized Level 3 inputs, as defined in Note 11 Financial Instruments and Risk Management. These valuations reflect, among other things, the impact of changes to the development programs, the projected development and regulatory time frames and the current competitive environment. Changes in any of the Company’s assumptions may result in a further reduction to the estimated fair values of these assets and could result in additional future impairment charges.
The Company reviews goodwill for impairment annually on April 1st or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. As a result of the decline in the Company’s share price during the first quarter of 2020, and the general uncertainty and volatility in the economic environments in which the Company operates, including the impacts of the COVID-19 pandemic, the Company performed an interim goodwill impairment test as of March 31, 2020. The Company performed the annual goodwill impairment test as of April 1, 2020. There were no significant changes from the interim goodwill test performed at March 31, 2020 and the results were consistent with the interim goodwill impairment test.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The Company has performed both the interim and annual goodwill impairment tests on a quantitative basis for its four reporting units, North America Generics, North America Brands, Europe and Rest of World. In estimating each reporting unit’s fair value, the Company performed an extensive valuation analysis, utilizing both income and market-based approaches, except for the North America Brands reporting unit where the fair value was estimated utilizing the income approach. The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows. These estimates and assumptions, utilizing Level 3 inputs, primarily include, but are not limited to, market multiples, control premiums, the discount rate, terminal growth rates, operating income before depreciation and amortization, and capital expenditures forecasts.
As of March 31, 2020 and April 1, 2020, the allocation of the Company’s total goodwill was as follows: North America Generics $2.60 billion, North America Brands $0.65 billion, Europe $4.43 billion and Rest of World $1.65 billion.
As of March 31, 2020 and April 1, 2020, the Company determined that the fair value of the North America Generics, North America Brands and Rest of World reporting units was substantially in excess of the respective unit’s carrying value. However, when compared to the April 1, 2019 test, the fair value of our overall business declined because of future forecasts and the decline in our share price.
For the Europe reporting unit, the estimated fair value exceeded its carrying value by approximately $1.3 billion or 11.0% for both the interim and annual goodwill impairment test. The excess fair value for the Europe reporting unit is consistent with the result of the Company’s 2019 annual impairment test. As it relates to the income approach for the Europe reporting unit at March 31, 2020 and April 1, 2020, the Company forecasted cash flows for the next 5 years. During the forecast period, the revenue compound annual growth rate was approximately 7.5%. A terminal year value was calculated with a 2.0% revenue growth rate applied. The discount rate utilized was 11.0% and the estimated tax rate was 25.5%. Under the market-based approach, we utilized an estimated range of market multiples of 8.0 to 9.5 times EBITDA plus a control premium of 15.0%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 3.5% or an increase in discount rate by 3.5% would result in an impairment charge for the Europe reporting unit.
Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions, especially as it relates to the key assumptions detailed, could have a significant impact on the fair value of the reporting units.
Amortization expense, which is classified primarily within cost of sales in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 totaled:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Intangible asset amortization expense
|
$
|
368.1
|
|
|
$
|
405.6
|
|
|
$
|
1,070.9
|
|
|
$
|
1,210.3
|
|
|
IPR&D intangible asset impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
29.5
|
|
|
Finite-lived intangible asset impairment charges
|
—
|
|
|
1.9
|
|
|
—
|
|
|
42.3
|
|
|
Total intangible asset amortization expense (including impairment charges)
|
$
|
368.1
|
|
|
$
|
407.5
|
|
|
$
|
1,070.9
|
|
|
$
|
1,282.1
|
|
Intangible asset amortization expense over the remainder of 2020 and for the years ended December 31, 2021 through 2024 is estimated to be as follows (excludes the potential impact of the Combination):
|
|
|
|
|
|
|
|
(In millions)
|
|
|
2020
|
$
|
369
|
|
|
2021
|
1,404
|
|
|
2022
|
1,333
|
|
|
2023
|
1,166
|
|
|
2024
|
1,052
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
11.Financial Instruments and Risk Management
The Company is exposed to certain financial risks relating to its ongoing business operations. The primary financial risks that are managed by using derivative instruments are foreign currency risk and interest rate risk.
Foreign Currency Risk Management
In order to manage certain foreign currency risks, the Company enters into foreign exchange forward contracts to mitigate risk associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities. The foreign exchange forward contracts are measured at fair value and reported as current assets or current liabilities on the condensed consolidated balance sheets. Any gains or losses on the foreign exchange forward contracts are recognized in earnings in the period incurred in the condensed consolidated statements of operations.
The Company has also entered into forward contracts to hedge forecasted foreign currency denominated sales from certain international subsidiaries. These contracts are designated as cash flow hedges to manage foreign currency transaction risk and are measured at fair value and reported as current assets or current liabilities on the condensed consolidated balance sheets. Any changes in the fair value of designated cash flow hedges are deferred in accumulated other comprehensive earnings (“AOCE”) and are reclassified into earnings when the hedged item impacts earnings.
Net Investment Hedges
The Company may hedge the foreign currency risk associated with certain net investment positions in foreign subsidiaries by either borrowing directly in foreign currencies and designating all or a portion of the foreign currency debt as a hedge of the applicable net investment position or entering into foreign currency swaps that are designated as hedges of net investments.
The Company has designated certain Euro borrowings as a hedge of its investment in certain Euro-functional currency subsidiaries in order to manage foreign currency translation risk. Borrowings designated as net investment hedges are marked-to-market using the current spot exchange rate as of the end of the period, with gains and losses included in the foreign currency translation component of AOCE until the sale or substantial liquidation of the underlying net investments. In addition, the Company manages the related foreign exchange risk of the Euro borrowings not designated as net investment hedges through certain Euro denominated financial assets and forward currency swaps.
The following table summarizes the principal amounts of the Company’s outstanding Euro borrowings and the notional amounts of the Euro borrowings designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount Designated as a Net Investment Hedge
|
|
(in millions)
|
|
Principal Amount
|
|
September 30,
2020
|
|
December 31,
2019
|
|
2.250% Euro Senior Notes due 2024
|
|
€
|
1,000.0
|
|
|
€
|
1,000.0
|
|
|
€
|
1,000.0
|
|
|
3.125% Euro Senior Notes due 2028
|
|
750.0
|
|
|
750.0
|
|
|
750.0
|
|
|
1.250% Euro Senior Notes due 2020
|
|
750.0
|
|
|
104.0
|
|
|
104.0
|
|
|
2.125% Euro Senior Notes due 2025
|
|
500.0
|
|
|
500.0
|
|
|
500.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
€
|
3,000.0
|
|
|
€
|
2,354.0
|
|
|
€
|
2,354.0
|
|
Interest Rate Risk Management
The Company enters into interest rate swaps from time to time in order to manage interest rate risk associated with the Company’s fixed-rate and floating-rate debt. Interest rate swaps that meet specific accounting criteria are accounted for as fair value or cash flow hedges. All derivative instruments used to manage interest rate risk are measured at fair value and reported as current assets or current liabilities in the condensed consolidated balance sheets. For fair value hedges, the changes in the fair value of both the hedging instrument and the underlying debt obligations are included in interest expense. For cash flow hedges, the change in fair value of the hedging instrument is deferred through AOCE and is reclassified into earnings when the hedged item impacts earnings.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Credit Risk Management
The Company regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant loss from the failure of any counterparties to perform under any agreements. The Company is not subject to any obligations to post collateral under derivative instrument contracts. Certain derivative instrument contracts entered into by the Company are governed by master agreements, which contain credit-risk-related contingent features that would allow the counterparties to terminate the contracts early and request immediate payment should the Company trigger an event of default on other specified borrowings. The Company records all derivative instruments on a gross basis in the condensed consolidated balance sheets. Accordingly, there are no offsetting amounts that net assets against liabilities.
The Effect of Derivative Instruments in the Condensed Consolidated Balance Sheets
Fair Values of Derivative Instruments
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Interest rate swaps
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
|
$
|
22.3
|
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
12.5
|
|
|
Prepaid expenses and other current assets
|
|
12.5
|
|
|
Total
|
|
|
$
|
12.5
|
|
|
|
|
$
|
34.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Other current liabilities
|
|
—
|
|
|
Other current liabilities
|
|
—
|
|
|
Total
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
The Effect of Derivative Instruments in the Condensed Consolidated Balance Sheets
Fair Values of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
$
|
38.6
|
|
|
Prepaid expenses and other current assets
|
|
$
|
8.5
|
|
|
Total
|
|
|
$
|
38.6
|
|
|
|
|
$
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Foreign currency forward contracts
|
Other current liabilities
|
|
$
|
17.1
|
|
|
Other current liabilities
|
|
$
|
12.9
|
|
|
Total
|
|
|
$
|
17.1
|
|
|
|
|
$
|
12.9
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The Effect of Derivative Instruments in the Condensed Consolidated Statement of Operations
Derivatives in Fair Value Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss)
Recognized in Earnings
on Derivatives
|
|
Amount of Gain (Loss) Recognized in Earnings on Derivatives
|
|
(In millions)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Interest rate swaps
|
Interest expense
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
$
|
22.1
|
|
|
$
|
24.3
|
|
|
Total
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
$
|
22.1
|
|
|
$
|
24.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss)
Recognized in Earnings
on Hedged Items
|
|
Amount of Gain (Loss) Recognized in Earnings on Hedged Items
|
|
(In millions)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2023 Senior Notes (3.125% coupon)
|
Interest expense
|
|
$
|
—
|
|
|
$
|
(3.3)
|
|
|
$
|
(22.1)
|
|
|
$
|
(24.3)
|
|
|
Total
|
|
|
$
|
—
|
|
|
$
|
(3.3)
|
|
|
$
|
(22.1)
|
|
|
$
|
(24.3)
|
|
In the first quarter of 2020, the Company terminated interest rate swaps designated as a fair value hedge resulting in net proceeds of approximately $45 million. The amount included in the above tables represents the fair value adjustment recognized at the date the interest rate swaps were settled.
The Effect of Derivative Instruments in the Condensed Consolidated Statements of Comprehensive Earnings (Loss)
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in AOCE (Net of Tax) on Derivative
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Foreign currency forward contracts
|
|
$
|
29.5
|
|
|
$
|
(8.4)
|
|
|
$
|
(0.5)
|
|
|
$
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29.5
|
|
|
$
|
(8.4)
|
|
|
$
|
(0.5)
|
|
|
$
|
10.9
|
|
The Effect of Derivative Instruments in the Condensed Consolidated Statements of Comprehensive Earnings (Loss)
Derivatives in Net Investment Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in AOCE
(Net of Tax) on Derivative
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Foreign currency borrowings and forward contracts
|
|
$
|
(109.0)
|
|
|
$
|
106.2
|
|
|
$
|
(113.8)
|
|
|
$
|
126.9
|
|
|
Total
|
|
$
|
(109.0)
|
|
|
$
|
106.2
|
|
|
$
|
(113.8)
|
|
|
$
|
126.9
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The Effect of Derivative Instruments in the Condensed Consolidated Statement of Operations
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Reclassified from AOCE into Earnings
|
|
Amount of Gain (Loss) Reclassified from AOCE into Earnings
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Foreign currency forward contracts
|
Net sales
|
|
$
|
5.1
|
|
|
$
|
0.4
|
|
|
$
|
2.3
|
|
|
$
|
(1.2)
|
|
|
Interest rate swaps
|
Interest expense
|
|
(1.2)
|
|
|
(1.8)
|
|
|
(3.4)
|
|
|
(5.4)
|
|
|
Total
|
|
|
$
|
3.9
|
|
|
$
|
(1.4)
|
|
|
$
|
(1.1)
|
|
|
$
|
(6.6)
|
|
At September 30, 2020, the Company expects that approximately $39.0 million of pre-tax net losses on cash flow hedges will be reclassified from AOCE into earnings during the next twelve months.
The Effect of Derivative Instruments in the Condensed Consolidated Statement of Operations
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Earnings on Derivatives
|
|
Amount of Gain (Loss) Recognized in Earnings on Derivatives
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Foreign currency option and forward contracts
|
Other expense, net
|
|
$
|
9.8
|
|
|
$
|
15.5
|
|
|
$
|
22.9
|
|
|
$
|
(12.0)
|
|
|
Total
|
|
|
$
|
9.8
|
|
|
$
|
15.5
|
|
|
$
|
22.9
|
|
|
$
|
(12.0)
|
|
Fair Value Measurement
Fair value is based on the price that would be received from the sale of an identical asset or paid to transfer an identical liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy has been established that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
•Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
•Level 2: Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities.
•Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considers counterparty credit risk in its assessment of fair value.
Financial assets and liabilities carried at fair value are classified in the tables below in one of the three categories described above:
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
Total cash equivalents
|
0.9
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
Exchange traded funds
|
40.2
|
|
|
—
|
|
|
—
|
|
|
40.2
|
|
|
Marketable securities
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
Total equity securities
|
40.9
|
|
|
—
|
|
|
—
|
|
|
40.9
|
|
|
Available-for-sale fixed income investments:
|
|
|
|
|
|
|
|
|
Corporate bonds
|
—
|
|
|
19.4
|
|
|
—
|
|
|
19.4
|
|
|
U.S. Treasuries
|
—
|
|
|
12.8
|
|
|
—
|
|
|
12.8
|
|
|
Agency mortgage-backed securities
|
—
|
|
|
1.8
|
|
|
—
|
|
|
1.8
|
|
|
Asset backed securities
|
—
|
|
|
4.5
|
|
|
—
|
|
|
4.5
|
|
|
Other
|
—
|
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
Total available-for-sale fixed income investments
|
—
|
|
|
39.1
|
|
|
—
|
|
|
39.1
|
|
|
Foreign exchange derivative assets
|
—
|
|
|
51.1
|
|
|
—
|
|
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at recurring fair value measurement
|
$
|
41.8
|
|
|
$
|
90.2
|
|
|
$
|
—
|
|
|
$
|
132.0
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
—
|
|
|
17.1
|
|
|
—
|
|
|
17.1
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
213.2
|
|
|
213.2
|
|
|
Total liabilities at recurring fair value measurement
|
$
|
—
|
|
|
$
|
17.1
|
|
|
$
|
213.2
|
|
|
$
|
230.3
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
Total cash equivalents
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
Exchange traded funds
|
38.3
|
|
|
—
|
|
|
—
|
|
|
38.3
|
|
|
Marketable securities
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
Total equity securities
|
39.0
|
|
|
—
|
|
|
—
|
|
|
39.0
|
|
|
Available-for-sale fixed income investments:
|
|
|
|
|
|
|
|
|
Corporate bonds
|
—
|
|
|
10.8
|
|
|
—
|
|
|
10.8
|
|
|
U.S. Treasuries
|
—
|
|
|
9.5
|
|
|
—
|
|
|
9.5
|
|
|
Agency mortgage-backed securities
|
—
|
|
|
2.3
|
|
|
—
|
|
|
2.3
|
|
|
Asset backed securities
|
—
|
|
|
3.6
|
|
|
—
|
|
|
3.6
|
|
|
Other
|
—
|
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
Total available-for-sale fixed income investments
|
—
|
|
|
26.8
|
|
|
—
|
|
|
26.8
|
|
|
Foreign exchange derivative assets
|
—
|
|
|
21.0
|
|
|
—
|
|
|
21.0
|
|
|
Interest rate swap derivative assets
|
—
|
|
|
22.3
|
|
|
—
|
|
|
22.3
|
|
|
Total assets at recurring fair value measurement
|
$
|
39.7
|
|
|
$
|
70.1
|
|
|
$
|
—
|
|
|
$
|
109.8
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
$
|
—
|
|
|
$
|
12.9
|
|
|
$
|
—
|
|
|
$
|
12.9
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
250.7
|
|
|
250.7
|
|
|
Total liabilities at recurring fair value measurement
|
$
|
—
|
|
|
$
|
12.9
|
|
|
$
|
250.7
|
|
|
$
|
263.6
|
|
For financial assets and liabilities that utilize Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including the LIBOR yield curve, foreign exchange forward prices and bank price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities:
•Cash equivalents — valued at observable net asset value prices.
•Equity securities, exchange traded funds — valued at the active quoted market prices from broker or dealer quotations or transparent pricing sources at the reporting date. Unrealized gains and losses attributable to changes in fair value are included in other expense, net, in the condensed consolidated statements of operations.
•Equity securities, marketable securities — valued using quoted stock prices from public exchanges at the reporting date. Unrealized gains and losses attributable to changes in fair value are included in other expense, net, in the condensed consolidated statements of operations.
•Available-for-sale fixed income investments — valued at the quoted market prices from broker or dealer quotations or transparent pricing sources at the reporting date. Unrealized gains and losses attributable to changes in fair value, net of income taxes, are included in accumulated other comprehensive loss as a component of shareholders’ equity.
•Interest rate swap derivative assets and liabilities — valued using the LIBOR/EURIBOR yield curves at the reporting date. Counterparties to these contracts are highly rated financial institutions.
•Foreign exchange derivative assets and liabilities — valued using quoted forward foreign exchange prices and spot rates at the reporting date. Counterparties to these contracts are highly rated financial institutions.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Contingent Consideration
The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company’s contingent consideration represents a component of the total purchase consideration for Pfizer’s proprietary dry powder inhaler delivery platform and certain other acquisitions. The measurement is calculated using unobservable inputs based on the Company’s own assumptions primarily related to probability and timing of future development and commercial milestones and future profit sharing payments which are discounted using a market rate of return. At September 30, 2020 and December 31, 2019, discount rates ranging from 3.5% to 10.5% were utilized in the valuations. Significant changes in unobservable inputs could result in material changes to the contingent consideration liability.
A rollforward of the activity in the Company’s fair value of contingent consideration from December 31, 2019 to September 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Current Portion (1)
|
|
Long-Term Portion (2)
|
|
Total Contingent Consideration
|
|
Balance at December 31, 2019
|
$
|
120.4
|
|
|
$
|
130.3
|
|
|
$
|
250.7
|
|
|
Payments
|
(82.1)
|
|
|
—
|
|
|
(82.1)
|
|
|
Reclassifications
|
52.7
|
|
|
(52.7)
|
|
|
—
|
|
|
Accretion
|
—
|
|
|
9.0
|
|
|
9.0
|
|
|
Fair value loss (3)
|
33.8
|
|
|
1.8
|
|
|
35.6
|
|
|
Balance at September 30, 2020
|
$
|
124.8
|
|
|
$
|
88.4
|
|
|
$
|
213.2
|
|
____________
(1)Included in other current liabilities in the condensed consolidated balance sheets.
(2)Included in other long-term obligations in the condensed consolidated balance sheets.
(3)Included in litigation settlements and other contingencies, net in the condensed consolidated statements of operations.
Although the Company has not elected the fair value option for other financial assets and liabilities, any future transacted financial asset or liability will be evaluated for the fair value election.
12.Debt
Short-Term Borrowings
The Company had no short-term borrowings as of September 30, 2020 and December 31, 2019. The following provides an overview of the Company’s short-term credit facilities.
Receivables Facility and Note Securitization Facility
The Company has the $400 million Receivables Facility which expires in April 2022. The Company also has the $200 million Note Securitization Facility which expires on August 30, 2021. Borrowings outstanding under the Receivables Facility bear interest at a commercial paper rate plus 0.925% and under the Note Securitization Facility at a rate per annum quoted from time to time by MUFG Bank, Ltd. plus 1.00% and are included as a component of short-term borrowings, while the accounts receivable securing these obligations remain as a component of accounts receivable, net, in our condensed consolidated balance sheets. In addition, the agreements governing the Receivables Facility and Note Securitization Facility contain various customary affirmative and negative covenants, and customary default and termination provisions with which the Company was compliant as of September 30, 2020. As of September 30, 2020, the Company had no amounts outstanding under the Receivables Facility or the Note Securitization Facility.
Commercial Paper Program
The Company maintains a $1.65 billion commercial paper program (the “Commercial Paper Program”) to support its working capital requirements and for general corporate purposes. There were no commercial paper notes (the “CP Notes”) outstanding under this program as of September 30, 2020 and December 31, 2019. Amounts available under the Commercial
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Paper Program may be borrowed, repaid and re-borrowed from time to time, with the aggregate principal amount of the CP Notes outstanding under the Commercial Paper Program at any time not to exceed $1.65 billion. The Company’s Revolving Credit Facility (as defined below) will be available to pay the CP Notes, if necessary. The maturities of the CP Notes will vary but will not exceed 364 days from the date of issue. The Commercial Paper Program will terminate upon the consummation of the Combination. We expect that Viatris will establish a commercial paper program on substantially similar terms following the consummation of the Combination.
Long-Term Debt
A summary of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Interest Rate as of September 30, 2020
|
|
September 30,
2020
|
|
December 31,
2019
|
|
Current portion of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Floating Rate Euro Notes (a) **
|
|
|
—
|
|
|
560.6
|
|
|
2020 Euro Senior Notes **
|
1.250
|
%
|
|
878.9
|
|
|
840.1
|
|
|
2020 Senior Notes **
|
3.750
|
%
|
|
50.0
|
|
|
50.0
|
|
|
2021 Senior Notes **
|
3.150
|
%
|
|
2,249.6
|
|
|
—
|
|
|
Other
|
|
|
6.5
|
|
|
8.3
|
|
|
Deferred financing fees
|
|
|
(2.4)
|
|
|
(1.4)
|
|
|
Current portion of long-term debt
|
|
|
$
|
3,182.6
|
|
|
$
|
1,457.6
|
|
|
|
|
|
|
|
|
|
Non-current portion of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 Senior Notes **
|
3.150
|
%
|
|
—
|
|
|
2,249.2
|
|
|
2023 Senior Notes (b) *
|
3.125
|
%
|
|
785.4
|
|
|
771.8
|
|
|
2023 Senior Notes *
|
4.200
|
%
|
|
499.3
|
|
|
499.1
|
|
|
2024 Euro Senior Notes **
|
2.250
|
%
|
|
1,170.4
|
|
|
1,119.3
|
|
|
2025 Euro Senior Notes *
|
2.125
|
%
|
|
585.1
|
|
|
559.6
|
|
|
2026 Senior Notes **
|
3.950
|
%
|
|
2,239.3
|
|
|
2,238.1
|
|
|
2028 Euro Senior Notes **
|
3.125
|
%
|
|
872.7
|
|
|
834.3
|
|
|
2028 Senior Notes *
|
4.550
|
%
|
|
748.5
|
|
|
748.4
|
|
|
2043 Senior Notes *
|
5.400
|
%
|
|
497.3
|
|
|
497.2
|
|
|
2046 Senior Notes **
|
5.250
|
%
|
|
999.9
|
|
|
999.8
|
|
|
2048 Senior Notes *
|
5.200
|
%
|
|
747.7
|
|
|
747.7
|
|
|
Other
|
|
|
5.5
|
|
|
8.9
|
|
|
Deferred financing fees
|
|
|
(49.6)
|
|
|
(59.1)
|
|
|
Long-term debt
|
|
|
$
|
9,101.5
|
|
|
$
|
11,214.3
|
|
____________
(a) The 2020 Floating Rate Euro Notes were repaid at maturity in the second quarter of 2020. The instrument bore interest at a rate of three-month EURIBOR plus 0.50% per annum, reset quarterly.
(b) In the first quarter of 2020, the Company terminated interest rate swaps designated as a fair value hedge resulting in net proceeds of approximately $45 million. The fair value adjustment will be amortized to interest expense over the remaining term of the notes.
* Instrument was issued by Mylan Inc.
** Instrument was issued by Mylan N.V.
For additional information, see Note 10 Debt in Mylan N.V.’s 2019 Form 10-K.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Revolving Credit Facility
The Company has a $2.0 billion revolving credit facility which is scheduled to expire in July 2023 (the “Revolving Credit Facility”). The Revolving Credit Facility contains a maximum consolidated leverage ratio financial covenant requiring maintenance of a maximum ratio of 3.75 to 1.00 for consolidated total indebtedness as of the end of any quarter to consolidated EBITDA for the trailing four quarters as defined in the related credit agreements (“maximum leverage ratio”). On June 16, 2020, the Company entered into an amendment to the Revolving Credit Facility to temporarily increase the maximum leverage ratio to 4.25 to 1.00 after the March 31, 2020 reporting period through the December 31, 2020 reporting period with a maximum leverage ratio of 3.75 to 1.00 thereafter. The Company is in compliance at September 30, 2020 and expects to remain in compliance for the next twelve months. The Revolving Credit Facility will terminate upon completion of the Combination.
Fair Value
At September 30, 2020 and December 31, 2019, the aggregate fair value of the Company’s outstanding notes was approximately $13.7 billion and $13.4 billion, respectively. The fair values of the outstanding notes were valued at quoted market prices from broker or dealer quotations and were classified as Level 2 in the fair value hierarchy.
Mandatory minimum repayments remaining on the notional amount of outstanding long-term debt at September 30, 2020 were as follows for each of the periods ending December 31:
|
|
|
|
|
|
|
|
(In millions)
|
Total
|
|
2020
|
$
|
929
|
|
|
2021
|
2,250
|
|
|
2022
|
—
|
|
|
2023
|
1,250
|
|
|
2024
|
1,172
|
|
|
Thereafter
|
6,715
|
|
|
Total
|
$
|
12,316
|
|
13.Comprehensive Loss
Accumulated other comprehensive loss, as reflected on the condensed consolidated balance sheets, is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30,
2020
|
|
December 31,
2019
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
Net unrealized gain on marketable securities, net of tax
|
$
|
1.4
|
|
|
$
|
0.6
|
|
|
Net unrecognized loss and prior service cost related to defined benefit plans, net of tax
|
(14.5)
|
|
|
(17.4)
|
|
|
Net unrecognized loss on derivatives in cash flow hedging relationships, net of tax
|
(31.3)
|
|
|
(31.6)
|
|
|
Net unrecognized loss on derivatives in net investment hedging relationships, net of tax
|
(188.0)
|
|
|
(74.3)
|
|
|
Foreign currency translation adjustment
|
(1,191.4)
|
|
|
(1,674.5)
|
|
|
|
$
|
(1,423.8)
|
|
|
$
|
(1,797.2)
|
|
Components of accumulated other comprehensive loss, before tax, consist of the following, for the three and nine months ended September 30, 2020 and 2019:
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
|
|
Gains and Losses on Net Investment Hedges
|
|
Gains and Losses on Marketable Securities
|
|
Defined Pension Plan Items
|
|
Foreign Currency Translation Adjustment
|
|
Totals
|
|
(In millions)
|
Foreign Currency Forward Contracts
|
|
Interest Rate Swaps
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020, net of tax
|
|
|
|
|
$
|
(55.7)
|
|
|
$
|
(79.0)
|
|
|
$
|
1.3
|
|
|
$
|
(12.4)
|
|
|
$
|
(1,879.1)
|
|
|
$
|
(2,024.9)
|
|
|
Other comprehensive earnings (loss) before reclassifications, before tax
|
|
|
|
|
36.4
|
|
|
(114.7)
|
|
|
—
|
|
|
(1.7)
|
|
|
687.7
|
|
|
607.7
|
|
|
Amounts reclassified from accumulated other comprehensive earnings (loss), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign exchange forward contracts classified as cash flow hedges, included in net sales
|
(5.1)
|
|
|
|
|
(5.1)
|
|
|
|
|
|
|
|
|
|
|
(5.1)
|
|
|
Loss on interest rate swaps classified as cash flow hedges, included in interest expense
|
|
|
1.2
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss included in SG&A
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
0.1
|
|
|
Net other comprehensive earnings (loss), before tax
|
|
|
|
|
32.5
|
|
|
(114.7)
|
|
|
—
|
|
|
(1.6)
|
|
|
687.7
|
|
|
603.9
|
|
|
Income tax provision (benefit)
|
|
|
|
|
8.1
|
|
|
(5.7)
|
|
|
(0.1)
|
|
|
0.5
|
|
|
—
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020, net of tax
|
|
|
|
|
$
|
(31.3)
|
|
|
$
|
(188.0)
|
|
|
$
|
1.4
|
|
|
$
|
(14.5)
|
|
|
$
|
(1,191.4)
|
|
|
$
|
(1,423.8)
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
|
|
Gains and Losses on Net Investment Hedges
|
|
Gains and Losses on Marketable Securities
|
|
Defined Pension Plan Items
|
|
Foreign Currency Translation Adjustment
|
|
Totals
|
|
(In millions)
|
Foreign Currency Forward Contracts
|
|
Interest Rate Swaps
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019, net of tax
|
|
|
|
|
$
|
(33.0)
|
|
|
$
|
(110.2)
|
|
|
$
|
0.7
|
|
|
$
|
1.7
|
|
|
$
|
(1,400.9)
|
|
|
$
|
(1,541.7)
|
|
|
Other comprehensive earnings (loss) before reclassifications, before tax
|
|
|
|
|
(12.0)
|
|
|
111.8
|
|
|
0.1
|
|
|
(0.8)
|
|
|
(748.9)
|
|
|
(649.8)
|
|
|
Amounts reclassified from accumulated other comprehensive loss, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign exchange forward contracts classified as cash flow hedges, included in net sales
|
(0.4)
|
|
|
|
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
(0.4)
|
|
|
Loss on interest rate swaps classified as cash flow hedges, included in interest expense
|
|
|
1.8
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
Amortization of prior service costs included in SG&A
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
0.3
|
|
|
Amortization of actuarial loss included in SG&A
|
|
|
|
|
|
|
|
|
|
|
(0.2)
|
|
|
|
|
(0.2)
|
|
|
Net other comprehensive earnings (loss), before tax
|
|
|
|
|
(10.6)
|
|
|
111.8
|
|
|
0.1
|
|
|
(0.7)
|
|
|
(748.9)
|
|
|
(648.3)
|
|
|
Income tax provision (benefit)
|
|
|
|
|
(4.0)
|
|
|
5.5
|
|
|
—
|
|
|
(0.3)
|
|
|
—
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019, net of tax
|
|
|
|
|
$
|
(39.6)
|
|
|
$
|
(3.9)
|
|
|
$
|
0.8
|
|
|
$
|
1.3
|
|
|
$
|
(2,149.8)
|
|
|
$
|
(2,191.2)
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
|
|
Gains and Losses on Net Investment Hedges
|
|
Gains and Losses on Marketable Securities
|
|
Defined Pension Plan Items
|
|
Foreign Currency Translation Adjustment
|
|
Totals
|
|
(In millions)
|
Foreign Currency Forward Contracts
|
|
Interest Rate Swaps
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019, net of tax
|
|
|
|
|
$
|
(31.6)
|
|
|
$
|
(74.3)
|
|
|
$
|
0.6
|
|
|
$
|
(17.4)
|
|
|
$
|
(1,674.5)
|
|
|
$
|
(1,797.2)
|
|
|
Other comprehensive (loss) earnings before reclassifications, before tax
|
|
|
|
|
(1.3)
|
|
|
(119.7)
|
|
|
0.8
|
|
|
3.0
|
|
|
483.1
|
|
|
365.9
|
|
|
Amounts reclassified from accumulated other comprehensive (loss) earnings, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign exchange forward contracts classified as cash flow hedges, included in net sales
|
(2.3)
|
|
|
|
|
(2.3)
|
|
|
|
|
|
|
|
|
|
|
(2.3)
|
|
|
Loss on interest rate swaps classified as cash flow hedges, included in interest expense
|
|
|
3.4
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss included in SG&A
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
0.4
|
|
|
Net other comprehensive (loss) earnings, before tax
|
|
|
|
|
(0.2)
|
|
|
(119.7)
|
|
|
0.8
|
|
|
3.4
|
|
|
483.1
|
|
|
367.4
|
|
|
Income tax (benefit) provision
|
|
|
|
|
(0.5)
|
|
|
(6.0)
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
(6.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020, net of tax
|
|
|
|
|
$
|
(31.3)
|
|
|
$
|
(188.0)
|
|
|
$
|
1.4
|
|
|
$
|
(14.5)
|
|
|
$
|
(1,191.4)
|
|
|
$
|
(1,423.8)
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
|
|
Gains and Losses on Net Investment Hedges
|
|
Gains and Losses on Marketable Securities
|
|
Defined Pension Plan Items
|
|
Foreign Currency Translation Adjustment
|
|
Totals
|
|
(In millions)
|
Foreign Currency Forward Contracts
|
|
Interest Rate Swaps
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018, net of tax
|
|
|
|
|
$
|
(53.1)
|
|
|
$
|
(130.9)
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
$
|
(1,259.0)
|
|
|
$
|
(1,441.3)
|
|
|
Other comprehensive earnings (loss) before reclassifications, before tax
|
|
|
|
|
18.2
|
|
|
133.6
|
|
|
0.7
|
|
|
(0.7)
|
|
|
(890.8)
|
|
|
(739.0)
|
|
|
Amounts reclassified from accumulated other comprehensive loss, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign exchange forward contracts classified as cash flow hedges, included in net sales
|
1.2
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
Loss on interest rate swaps classified as cash flow hedges, included in interest expense
|
|
|
5.4
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
Amortization of prior service costs included in SG&A
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
0.8
|
|
|
Amortization of actuarial loss included in SG&A
|
|
|
|
|
|
|
|
|
|
|
(0.6)
|
|
|
|
|
(0.6)
|
|
|
Net other comprehensive earnings (loss), before tax
|
|
|
|
|
24.8
|
|
|
133.6
|
|
|
0.7
|
|
|
(0.5)
|
|
|
(890.8)
|
|
|
(732.2)
|
|
|
Income tax provision (benefit)
|
|
|
|
|
7.9
|
|
|
6.6
|
|
|
(0.1)
|
|
|
(0.3)
|
|
|
—
|
|
|
14.1
|
|
|
Cumulative effect of the adoption of new accounting standards
|
|
|
|
|
(3.4)
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
—
|
|
|
(3.6)
|
|
|
Balance at September 30, 2019, net of tax
|
|
|
|
|
$
|
(39.6)
|
|
|
$
|
(3.9)
|
|
|
$
|
0.8
|
|
|
$
|
1.3
|
|
|
$
|
(2,149.8)
|
|
|
$
|
(2,191.2)
|
|
14.Segment Information
Mylan reports segment information on a geographic basis. This approach reflects the company’s focus on bringing its broad and diversified portfolio of generic, branded generic, brand-name and over-the-counter products to people in markets everywhere. Our North America segment comprises our operations in the U.S. and Canada. Our Europe segment encompasses our operations in 35 countries, including France, Italy, Germany, the United Kingdom (“U.K.”) and Spain. Our Rest of World segment reflects our operations in more than 120 countries, including Japan, Australia, China, Brazil, Russia, India, South Africa and certain markets in the Middle East and Southeast Asia.
The Company’s chief operating decision maker is the Chief Executive Officer, who evaluates the performance of its segments based on total revenues and segment profitability. Segment profitability represents segment gross profit less direct research and development (“R&D”) and direct SG&A. Certain general and administrative and R&D expenses not allocated to the segments, including certain special items, net charges for litigation settlements and other contingencies, amortization of intangible assets, impairment charges and other expenses not directly attributable to the segments are reported separately or outside of segment profitability. Items below the earnings from operations line on the Company’s condensed consolidated statements of operations are not presented by segment, since they are excluded from the measure of segment profitability. The
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Company does not report depreciation expense, total assets and capital expenditures by segment, as such information is not used by the chief operating decision maker.
The accounting policies of the segments are the same as those described in Note 2 Summary of Significant Accounting Policies included in the 2019 Form 10-K, and Note 3 Recent Accounting Pronouncements, Adoption of New Accounting Standards included in this Form 10-Q. Intersegment revenues are accounted for at current market values and are eliminated at the consolidated level.
Presented in the table below is segment information for the periods identified and a reconciliation of segment information to total consolidated information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
North America
|
|
Europe
|
|
Rest of World
|
|
Eliminations
|
|
Consolidated
|
|
Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,028.8
|
|
|
$
|
1,123.8
|
|
|
$
|
795.5
|
|
|
$
|
—
|
|
|
$
|
2,948.1
|
|
|
Other revenue
|
17.4
|
|
|
3.4
|
|
|
3.2
|
|
|
—
|
|
|
24.0
|
|
|
Intersegment revenue
|
39.3
|
|
|
23.6
|
|
|
126.6
|
|
|
(189.5)
|
|
|
—
|
|
|
Total
|
$
|
1,085.5
|
|
|
$
|
1,150.8
|
|
|
$
|
925.3
|
|
|
$
|
(189.5)
|
|
|
$
|
2,972.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
$
|
497.9
|
|
|
$
|
348.1
|
|
|
$
|
120.3
|
|
|
$
|
—
|
|
|
$
|
966.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
|
|
|
|
|
|
|
(368.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Globally managed research and development costs
|
|
|
|
|
|
|
|
|
(31.0)
|
|
|
Corporate costs and special items
|
|
|
|
|
|
|
|
|
(196.9)
|
|
|
Litigation settlements & other contingencies
|
|
|
|
|
|
|
|
|
(18.9)
|
|
|
Earnings from operations
|
|
|
|
|
|
|
|
|
$
|
351.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,023.3
|
|
|
$
|
3,080.7
|
|
|
$
|
2,128.2
|
|
|
$
|
—
|
|
|
$
|
8,232.2
|
|
|
Other revenue
|
51.8
|
|
|
11.1
|
|
|
27.4
|
|
|
—
|
|
|
90.3
|
|
|
Intersegment revenue
|
133.4
|
|
|
83.2
|
|
|
387.9
|
|
|
(604.5)
|
|
|
—
|
|
|
Total
|
$
|
3,208.5
|
|
|
$
|
3,175.0
|
|
|
$
|
2,543.5
|
|
|
$
|
(604.5)
|
|
|
$
|
8,322.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
$
|
1,447.5
|
|
|
$
|
873.2
|
|
|
$
|
321.6
|
|
|
$
|
—
|
|
|
$
|
2,642.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
|
|
|
|
|
|
|
(1,070.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Globally managed research and development costs
|
|
|
|
|
|
|
|
|
(121.0)
|
|
|
Corporate costs and special items
|
|
|
|
|
|
|
|
|
(743.6)
|
|
|
Litigation settlements & other contingencies
|
|
|
|
|
|
|
|
|
(36.5)
|
|
|
Earnings from operations
|
|
|
|
|
|
|
|
|
$
|
670.3
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
North America
|
|
Europe
|
|
Rest of World
|
|
Eliminations
|
|
Consolidated
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,088.6
|
|
|
$
|
1,045.9
|
|
|
$
|
793.7
|
|
|
$
|
—
|
|
|
$
|
2,928.2
|
|
|
Other revenue
|
17.6
|
|
|
3.8
|
|
|
12.1
|
|
|
—
|
|
|
33.5
|
|
|
Intersegment revenue
|
13.9
|
|
|
23.2
|
|
|
134.0
|
|
|
(171.1)
|
|
|
—
|
|
|
Total
|
$
|
1,120.1
|
|
|
$
|
1,072.9
|
|
|
$
|
939.8
|
|
|
$
|
(171.1)
|
|
|
$
|
2,961.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
$
|
489.9
|
|
|
$
|
325.1
|
|
|
$
|
170.3
|
|
|
$
|
—
|
|
|
$
|
985.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
|
|
|
|
|
|
|
(405.6)
|
|
|
Intangible asset impairment charges
|
|
|
|
|
|
|
|
|
(1.9)
|
|
|
Globally managed research and development costs
|
|
|
|
|
|
|
|
|
(47.3)
|
|
|
Corporate costs and special items
|
|
|
|
|
|
|
|
|
(258.7)
|
|
|
Litigation settlements & other contingencies
|
|
|
|
|
|
|
|
|
51.9
|
|
|
Earnings from operations
|
|
|
|
|
|
|
|
|
$
|
323.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,035.0
|
|
|
$
|
2,930.7
|
|
|
$
|
2,241.3
|
|
|
$
|
—
|
|
|
$
|
8,207.0
|
|
|
Other revenue
|
58.8
|
|
|
12.3
|
|
|
30.6
|
|
|
—
|
|
|
101.7
|
|
|
Intersegment revenue
|
64.6
|
|
|
66.3
|
|
|
382.1
|
|
|
(513.0)
|
|
|
—
|
|
|
Total
|
$
|
3,158.4
|
|
|
$
|
3,009.3
|
|
|
$
|
2,654.0
|
|
|
$
|
(513.0)
|
|
|
$
|
8,308.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
$
|
1,342.3
|
|
|
$
|
723.7
|
|
|
$
|
435.2
|
|
|
$
|
—
|
|
|
$
|
2,501.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
|
|
|
|
|
|
|
(1,210.3)
|
|
|
Intangible asset impairment charges
|
|
|
|
|
|
|
|
|
(71.8)
|
|
|
Globally managed research and development costs
|
|
|
|
|
|
|
|
|
(167.8)
|
|
|
Corporate costs and special items
|
|
|
|
|
|
|
|
|
(638.4)
|
|
|
Litigation settlements & other contingencies
|
|
|
|
|
|
|
|
|
30.3
|
|
|
Earnings from operations
|
|
|
|
|
|
|
|
|
$
|
443.2
|
|
15.Restructuring
2020 Restructuring Program
On February 27, 2020, the Company announced that it has formalized the next steps in its efforts to sustain long-term value creation through the proactive transformation of its business. This transformation initiative includes a new global restructuring program. The program is intended to support the Company’s effort to improve operating performance and meet anticipated market demands by ensuring that the Company is appropriately structured and resourced to deliver sustainable value to customers, patients, other stakeholders and shareholders. Key activities under the program include supply chain network optimization intended to maximize the efficiency of the Company’s global manufacturing and distribution network capacity and further optimizing functional capabilities that support business growth.
The Company is currently developing the details of the initiatives, including workforce actions and other restructuring activities. Further details will be disclosed as plans are finalized, including the estimated amount or range of amounts to be incurred by major cost type and future cash expenditures associated with those initiatives. As a result of the COVID-19 pandemic and the related uncertainty and complexity of the current environment, the Company has delayed the implementation of the 2020 restructuring program.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
2016 Restructuring Program
On December 5, 2016, the Company announced a restructuring program representing a series of actions in certain locations that are anticipated to further streamline its operations globally. Since 2015, the Company has made a number of significant acquisitions, and as part of the holistic, global integration of these acquisitions, the Company is focused on how to best optimize and maximize all of its assets across the organization and across all geographies.
Charges for restructuring and ongoing cost reduction initiatives are recorded in the period the Company commits to a restructuring or cost reduction plan, or executes specific actions contemplated by the plan and all criteria for liability recognition have been met.
During the second quarter of 2018, the Company commenced comprehensive restructuring and remediation activities, which are aimed at reducing the complexity at the Morgantown, West Virginia plant and include the discontinuation and transfer to other manufacturing sites of a number of products, a reduction of the workforce and extensive process and facility remediation. The restructuring actions other than for this plant are substantially complete. At this time, the total expenses related to the additional restructuring and remediation activities at the Morgantown plant cannot be reasonably estimated.
The following table summarizes the restructuring charges and the reserve activity from December 31, 2019 to September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Employee Related Costs
|
|
Other Exit Costs
|
|
Total
|
|
Balance at December 31, 2019:
|
$
|
26.4
|
|
|
$
|
2.8
|
|
|
$
|
29.2
|
|
|
Charges (1)
|
2.9
|
|
|
4.7
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
Cash payment
|
(6.0)
|
|
|
(0.9)
|
|
|
(6.9)
|
|
|
Utilization
|
—
|
|
|
(3.7)
|
|
|
(3.7)
|
|
|
Foreign currency translation
|
(0.4)
|
|
|
(0.1)
|
|
|
(0.5)
|
|
|
Balance at March 31, 2020:
|
$
|
22.9
|
|
|
$
|
2.8
|
|
|
$
|
25.7
|
|
|
Charges (1)
|
0.4
|
|
|
23.2
|
|
|
23.6
|
|
|
|
|
|
|
|
|
|
Cash payment
|
(3.8)
|
|
|
(3.2)
|
|
|
(7.0)
|
|
|
Utilization
|
—
|
|
|
(20.0)
|
|
|
(20.0)
|
|
|
Foreign currency translation
|
0.4
|
|
|
0.1
|
|
|
0.5
|
|
|
Balance at June 30, 2020:
|
$
|
19.9
|
|
|
$
|
2.9
|
|
|
$
|
22.8
|
|
|
Charges (1)
|
4.7
|
|
|
9.8
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
Cash payment
|
(3.6)
|
|
|
(2.2)
|
|
|
(5.8)
|
|
|
Utilization
|
—
|
|
|
(7.5)
|
|
|
(7.5)
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at September 30, 2020:
|
$
|
21.0
|
|
|
$
|
3.0
|
|
|
$
|
24.0
|
|
____________
(1) For the three months ended September 30, 2020, total restructuring charges in North America, Europe and Rest of World were approximately $11.9 million, $2.3 million and $0.3 million, respectively. For the nine months ended September 30, 2020, total restructuring charges in North America, Europe, Rest of World, and corporate were approximately $19.9 million, $23.7 million, $1.6 million, and $0.5 million, respectively.
At September 30, 2020 and December 31, 2019, accrued liabilities for restructuring and other cost reduction programs were primarily included in other current liabilities in the condensed consolidated balance sheets.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
16.Collaboration and Licensing Agreements
We periodically enter into collaboration and licensing agreements with other pharmaceutical companies for the development, manufacture, marketing and/or sale of pharmaceutical products. Our significant collaboration agreements are primarily focused on the development, manufacturing, supply and commercialization of multiple, high-value generic biologic compounds, insulin analog products and respiratory products, among other complex products. Under these agreements, we have future potential milestone payments and co-development expenses payable to third parties as part of our licensing, development and co-development programs. Payments under these agreements generally become due and are payable upon the satisfaction or achievement of certain developmental, regulatory or commercial milestones or as development expenses are incurred on defined projects. Milestone payment obligations are uncertain, including the prediction of timing and the occurrence of events triggering a future obligation and are not reflected as liabilities in the condensed consolidated balance sheets, except for obligations reflected as acquisition related contingent consideration. Refer to Note 11 Financial Instruments and Risk Management for further discussion of contingent consideration. Our potential maximum development milestones not accrued for at September 30, 2020 totaled approximately $425 million. We estimate that the amounts that may be paid during the next twelve months to be approximately $40 million. These agreements may also include potential sales-based milestones and call for us to pay a percentage of amounts earned from the sale of the product as a royalty or a profit share. The amounts disclosed do not include sales-based milestones or royalty or profit share obligations on future sales of product as the timing and amount of future sales levels and costs to produce products subject to these obligations is not reasonably estimable. These sales-based milestones or royalty or profit share obligations may be significant depending upon the level of commercial sales for each product.
On February 28, 2018, the Company and Revance Therapeutics, Inc. (“Revance”) entered into a collaboration agreement (the “Revance Collaboration Agreement”) pursuant to which the Company and Revance will collaborate exclusively, on a world-wide basis (excluding Japan), to develop, manufacture and commercialize a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX®.
On August 22, 2019, the Company and Revance entered into an amendment (the “Amendment”) to the Revance Collaboration Agreement, pursuant to which Revance had agreed to extend the period of time for the Company to decide whether to continue the development and commercialization of a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX® beyond the initial development plan to prepare for and conduct the Biosimilar Initial Advisory Meeting (BIAM) with the U.S. Food and Drug Administration (“FDA”). In accordance with the Amendment, the Company was required to notify Revance of its decision on or before the later of (i) April 30, 2020 or (ii) thirty calendar days from the date that Revance provides Mylan with certain deliverables. On June 1, 2020, the Company and Revance announced a decision to continue the development program for a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX®. As a result, during the nine months ended September 30, 2020, the Company recorded $30 million of R&D expense for a milestone payment that was due upon the decision to continue the program.
There have been no other significant changes to our collaboration and licensing agreements as disclosed in our 2019 Form 10-K.
17.Income Taxes
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act includes several provisions, including increasing the amount of deductible interest, allowing companies to carryback certain Net Operating Losses (“NOLs”) and increasing the amount of NOLs that corporations can use to offset income. We anticipate that the applicable provisions of the CARES Act will reduce our 2020 income tax expense by approximately $27.0 million, of which $16.5 million has been recorded as of September 30, 2020. We will continue to monitor and assess the impact the CARES Act may have on our business and financial results.
Tax Examinations
The Company is subject to income taxes and tax audits in many jurisdictions. A certain degree of estimation is thus required in recording the assets and liabilities related to income taxes. Tax audits and examinations can involve complex issues,
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
interpretations, and judgments and the resolution of matters that may span multiple years, particularly if subject to litigation or negotiation.
Although the Company believes that adequate provisions have been made for these uncertain tax positions, the Company’s assessment of uncertain tax positions is based on estimates and assumptions that the Company believes are reasonable but the estimates for unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variations from such estimates could materially affect the Company’s financial condition, results of operations or cash flows in the period of resolution, settlement or when the statutes of limitations expire.
Mylan is subject to ongoing IRS examinations. The years 2015 through 2018 are open years under examination. The years 2012, 2013 and 2014 have one matter open, and a Tax Court petition has been filed regarding the matter and a trial was held in December 2018 and is discussed further below.
During the second quarter of 2019, we reached an agreement in principle with the IRS to resolve all issues relating to our positions on the February 27, 2015 acquisition by Mylan N.V. of Mylan Inc. and Abbott Laboratories’ non-U.S. developed markets specialty and branded generics business. Under the agreement in principle, which was finalized as part of a closing agreement with the IRS on October 11, 2019, our status as a non-U.S. corporation for U.S. Federal income tax purposes has been confirmed, and we have adjusted the interest rates used for intercompany loans. During the second quarter of 2019, the Company recorded a reserve of approximately $140.0 million as part of its liability for uncertain tax positions, with a net impact to the income tax provision of approximately $129.9 million related to this matter. Once the agreement with the IRS was finalized in the fourth quarter of 2019, the Company increased the reserve by $15.0 million with a corresponding increase to the income tax provision.
Several international audits are currently in progress. In some cases, the tax auditors have proposed adjustments to our tax positions including with respect to intercompany transactions, and we are in ongoing discussions with the auditors regarding the validity of their positions. The Company has recorded a reserve for uncertain tax positions of $126.9 million and $89.2 million, including interest and penalties, in connection with its international audits at September 30, 2020 and December 31, 2019, respectively. In certain cases, these audits can also result in non-tax consequences. For example, under French law, certain tax matters are automatically referred for criminal investigation.
The Company’s major state taxing jurisdictions remain open from fiscal year 2013 through 2019, with several state audits currently in progress. The Company’s major international taxing jurisdictions remain open from 2012 through 2019, some of which are indemnified by Strides Arcolab Limited (“Strides Arcolab”) for tax assessments.
Tax Court Proceedings
The Company's U.S. federal income tax returns for 2012 through 2014 had been subject to proceedings in U.S. Tax Court involving a dispute with the IRS regarding whether certain costs related to abbreviated new drug applications were eligible to be expensed and deducted immediately or required to be amortized over longer periods. A trial was held in U.S. Tax Court in December 2018. Both parties delivered their final post-trial briefs on June 27, 2019 and are awaiting the court’s final decision.
Accounting for Uncertainty in Income Taxes
The impact of an uncertain tax position that is more likely than not of being sustained upon audit by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained.
During the nine months ended September 30, 2019, primarily due to the settlement in principle reached with the IRS and the expiration of federal and foreign statutes of limitations expirations, the Company increased its net liability for unrecognized tax benefits by approximately $46.1 million.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
18.Litigation
The Company is involved in various disputes, governmental and/or regulatory inquiries, investigations and proceedings, tax proceedings and litigation matters, both in the U.S. and abroad, that arise from time to time, some of which could result in losses, including damages, fines and/or civil penalties, and/or criminal charges against the Company. These matters are often complex and have outcomes that are difficult to predict. The Company is also party to certain proceedings and litigation matters for which it may be entitled to indemnification under the respective sale and purchase agreements relating to the acquisitions of the former Merck Generics business, Agila Specialties Private Limited, Abbott Laboratories’ non-U.S. developed markets specialty and branded generics business, and certain other acquisitions.
While the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend its position, the process of resolving these matters is inherently uncertain and may develop over a long period of time, and so it is not possible to predict the ultimate resolution of any such matter. It is possible that an unfavorable resolution of any of the ongoing matters or the inability or denial of Merck KGaA, Strides Arcolab, Abbott Laboratories, or another indemnitor or insurer to pay an indemnified claim, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and/or ordinary share price.
Some of these governmental inquiries, investigations, proceedings and litigation matters with which the Company is involved are described below, and unless otherwise disclosed, the Company is unable to predict the outcome of the matter or to provide an estimate of the range of reasonably possible material losses. The Company records accruals for loss contingencies to the extent we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is also involved in other pending proceedings for which, in the opinion of the Company based upon facts and circumstances known at the time, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s business, financial position, results of operations, cash flows and/or ordinary share price. If and when any reasonably possible losses associated with the resolution of such other pending proceedings, in the opinion of the Company, become material, the Company will disclose such matters.
Legal costs are recorded as incurred and are classified in SG&A in the Company’s condensed consolidated statements of operations.
Modafinil Antitrust Litigation
Beginning in April 2006, Mylan and four other drug manufacturers were named as defendants in civil lawsuits filed in or transferred to the U.S. District Court for the Eastern District of Pennsylvania (“EDPA”) by a variety of plaintiffs purportedly representing direct and indirect purchasers of the drug modafinil and in a lawsuit filed by Apotex, Inc., a manufacturer of generic drugs. These actions alleged violations of federal antitrust and state laws in connection with the generic defendants’ settlement of patent litigation with Cephalon relating to modafinil. Mylan has settled all of these lawsuits.
The Company recorded approximately $18.0 million of expense related to this matter in the second quarter of 2019, which was subsequently paid during the year ended December 31, 2019. At December 31, 2019, the Company had a total accrual of approximately $14.4 million related to this matter, which is included in other current liabilities in the condensed consolidated balance sheets. The amount accrued was paid during 2020.
On July 10, 2015, the Louisiana Attorney General filed a lawsuit in the 19th Judicial District Court in Louisiana against Mylan and three other drug manufacturers asserting state law claims based on the same underlying allegations as those made in the litigation then pending in the EDPA. On December 8, 2016, the District Court dismissed the lawsuit with prejudice, which the State of Louisiana appealed. The appeals court subsequently remanded the lawsuit to the District Court to include certain language in order to make the District Court’s dismissal decision final and appealable.
The Company believes that it has strong defenses to the remaining case. Although it is reasonably possible that the Company may incur additional losses from this matter, any amount cannot be reasonably estimated at this time.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Pioglitazone
Beginning in December 2013, Mylan, Takeda, and several other drug manufacturers were named as defendants in civil lawsuits consolidated in the U.S. District Court for the Southern District of New York (“SDNY”) by plaintiffs which purport to represent direct and indirect purchasers of branded or generic Actos® and Actoplus Met®. These actions allege violations of state and federal competition laws in connection with the defendants’ settlements of patent litigation in 2010 related to Actos® and Actoplus Met®. Mylan’s motion to dismiss the indirect purchasers’ complaint was granted and no appeal was filed as to Mylan. Following the appellate decision relating to other defendants, the direct purchasers filed an amended complaint against Mylan and the other manufacturers. Mylan’s motion to dismiss was granted with prejudice on October 8, 2019.
Trade Agreements Act (“TAA”)
On April 9, 2018, a subsidiary of Mylan N.V. received a civil investigative demand from the Commercial Litigation Branch of the U.S. Department of Justice (“DOJ”) concerning its TAA compliance for certain products. The company fully cooperated with DOJ. On September 14, 2018, the United States District Court for the Southern District of Ohio unsealed a qui tam lawsuit filed against the Mylan N.V. subsidiary concerning its TAA compliance for the same products identified in DOJ’s civil investigative demand. DOJ declined to intervene in the lawsuit and has closed its investigation. Plaintiffs filed a Notice of Voluntary Dismissal of Mylan, which the Court granted on October 13, 2020 and dismissed the case against Mylan.
EpiPen® Auto-Injector
Department of Veterans Affairs Request for Information
On June 30, 2017, the Company responded to a request for information from the Department of Veterans Affairs (“VA”) (acting on behalf of itself and other government agencies) requesting certain historical pricing data related to the EpiPen® Auto-Injector. The Company and the VA have been engaged in a continuing dialogue regarding the classification of the EpiPen® Auto-Injector as a covered drug under Section 603 of the Veterans Health Care Act of 1992, Public Law 102-585. The Company historically classified EpiPen® Auto-Injector as a non-covered drug with the VA based upon long standing written guidance from the federal government. The Company has voluntarily reclassified the EpiPen® Auto-Injector as a covered drug, effective from April 1, 2017. The Company is fully cooperating with the VA.
EpiPen® Auto-Injector Civil Litigation
Mylan Specialty and other Mylan-affiliated entities have been named as defendants in putative indirect purchaser class actions relating to the pricing and/or marketing of the EpiPen® Auto-Injector. The plaintiffs in these cases assert violations of various federal and state antitrust and consumer protection laws, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), as well as common law claims. Plaintiffs’ claims include purported challenges to the prices charged for the EpiPen® Auto-Injector and/or the marketing of the product in packages containing two auto-injectors, as well as allegedly anti-competitive conduct. A Mylan officer and other non-Mylan affiliated companies were also named as defendants in some of the class actions. These lawsuits were filed in the various federal and state courts and have either been dismissed or transferred into a multidistrict litigation (“MDL”) in the U.S. District Court for the District of Kansas and have been consolidated. Mylan filed a motion to dismiss the consolidated amended complaint, which was granted in part and denied in part. On December 7, 2018, the plaintiffs filed a motion for class certification. On February 27, 2020, the District Court issued an order denying in part and granting in part plaintiffs’ motion for class certification. The District Court declined to certify consumer protection and unjust enrichment damages classes, as well as an injunctive relief class. The District Court certified an antitrust class that applies to 17 states and a RICO class. We filed a petition for permission to appeal the class certification decision on March 12, 2020, which was denied. On July 15, 2020, Defendants filed a motion for summary judgment as to the remaining claims asserted by plaintiffs. The motion is pending. A trial date has been scheduled for April 2021. We believe that the remaining claims in these lawsuits are without merit and intend to defend against them vigorously.
On February 14, 2020, Mylan Specialty and other Mylan-affiliated entities, together with other non-Mylan affiliated companies, were named as defendants in a putative direct purchaser class action filed in the U.S. District Court for the District of Kansas relating to the pricing and/or marketing of the EpiPen® Auto-Injector. The plaintiff in this case asserts federal antitrust claims which are based on allegations that are similar to those in the putative indirect purchaser class actions discussed above. On June 18, 2020, the District Court granted Mylan’s motion to compel pre-suit mediation, which did not result in a resolution of this matter. On September 10, 2020, the plaintiff filed an amended complaint. Mylan filed a motion to dismiss the amended complaint on October 13, 2020. On November 3, 2020, the plaintiff filed a second amended complaint that is
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
substantially similar to the allegations in the amended complaint thereby mooting the motion to dismiss.We believe that the claims in this lawsuit are without merit and intend to defend against them vigorously.
Beginning in March 2020, Mylan Inc. and Mylan Specialty, together with other non-Mylan affiliated companies, were named as defendants in putative direct purchaser class actions filed in the U.S. District Court for the District of Minnesota relating to contracts with certain pharmacy benefit managers concerning EpiPen® Auto-Injector. The plaintiffs claim that the alleged conduct resulted in the exclusion or restriction of competing products and the elimination of pricing constraints in violation of RICO and federal antitrust law. These actions have been consolidated and, on August 21, 2020, Defendants filed a motion to dismiss, which remains pending. We believe that the claims in these lawsuits are without merit and intend to defend against them vigorously.
On April 24, 2017, Sanofi-Aventis U.S., LLC (“Sanofi”) filed a lawsuit against Mylan Inc. and Mylan Specialty in the U.S. District Court for the District of New Jersey. This lawsuit has been transferred into the aforementioned MDL. In this lawsuit, Sanofi alleges exclusive dealings and anti-competitive marketing practices in violation of the antitrust laws in connection with the sale and marketing of the EpiPen® Auto-Injector. On November 1, 2018, Sanofi filed a Motion for a Suggestion of Remand of the case to the U.S. District Court for the District of New Jersey. On January 23, 2019, the Court denied Sanofi’s motion without prejudice. On June 28, 2019, Mylan filed a motion for summary judgment as to the claims asserted by Sanofi and Sanofi filed both a motion for partial summary judgment with respect to its claims against Mylan and for summary judgment with respect to Mylan’s counterclaims. These motions remain pending. We believe that Sanofi’s claims in this lawsuit are without merit and intend to defend against them vigorously.
The Company has a total accrual of approximately $10.0 million related to this matter at September 30, 2020, which is included in other current liabilities in the condensed consolidated balance sheets. The Company believes that it has strong defenses to current and future potential civil litigation, as well as governmental investigations, discussed in this “EpiPen® Auto-Injector” section of this Note 18 Litigation. Although it is reasonably possible that the Company may incur additional losses from these matters, any amount cannot be reasonably estimated at this time. In addition, the Company expects to incur additional legal and other professional service expenses associated with such matters in future periods and will recognize these expenses as services are received. The Company believes that the ultimate amount paid for these services and claims could have a material effect on the Company's business, financial condition, results of operations, cash flows and/or ordinary share price in future periods.
Drug Pricing Matters
Department of Justice
On December 3, 2015, a subsidiary of Mylan N.V. received a subpoena from the Antitrust Division of the DOJ seeking information relating to the marketing, pricing, and sale of our generic Doxycycline products and any communications with competitors about such products.
On September 8, 2016, a subsidiary of Mylan N.V., as well as certain employees and a member of senior management, received subpoenas from the DOJ seeking additional information relating to the marketing, pricing and sale of our generic Cidofovir, Glipizide-metformin, Propranolol and Verapamil products and any communications with competitors about such products. Related search warrants also were executed.
On May 10, 2018, a subsidiary of Mylan N.V. received a civil investigative demand from the Civil Division of the DOJ seeking information relating to the pricing and sale of its generic drug products.
The Company is fully cooperating with the DOJ.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Civil Litigation
Beginning in 2016, the Company, along with other manufacturers, has been named as a defendant in lawsuits generally alleging anticompetitive conduct with respect to generic drugs. The lawsuits have been filed by plaintiffs, including putative classes of direct purchasers, indirect purchasers, and indirect resellers, as well as individual direct and indirect purchasers and certain counties. They allege harm under federal and state laws, including federal and state antitrust laws, state consumer protection laws and unjust enrichment claims. Some of the lawsuits also name as defendants Mylan’s President, including allegations against him with respect to doxycycline hyclate delayed release, and one of Mylan’s sales employees, including allegations against him with respect to certain generic drugs. The lawsuits have been consolidated in an MDL proceeding in the EDPA. Defendants filed motions to dismiss certain complaints that each allege anticompetitive conduct with respect to single drug products. On October 16, 2018, the Court denied the motions with respect to the federal law claims. On February 15, 2019, the Court granted in part and denied in part the motions with respect to the state law claims. On February 21, 2019, Defendants filed a motion to dismiss certain complaints that allege anticompetitive conduct with respect to multiple drug products, which was denied on August 15, 2019. On July 14, 2020, the Court ordered that certain plaintiffs’ complaints regarding three individual drug products proceed as bellwethers. Mylan is named in those plaintiffs’ complaints that regard one of the three individual drug products. A scheduling order has not yet been issued for these matters.
The Company believes that the claims in these lawsuits are without merit and intends to defend against them vigorously.
Attorneys General Litigation
On December 21, 2015, the Company received a subpoena and interrogatories from the Connecticut Office of the Attorney General seeking information relating to the marketing, pricing and sale of certain of the Company’s generic products (including generic doxycycline) and communications with competitors about such products. On December 14, 2016, attorneys general of certain states originally filed a complaint in the United States District Court for the District of Connecticut against several generic pharmaceutical drug manufacturers, including Mylan, alleging anticompetitive conduct with respect to, among other things, doxycycline hyclate delayed release. The complaint has subsequently been amended, including on June 18, 2018, to add attorneys general alleging violations of federal and state antitrust laws, as well as violations of various states’ consumer protection laws. This lawsuit has been transferred to the aforementioned MDL proceeding in the EDPA. The operative complaint includes attorneys general of forty-seven states, the District of Columbia and the Commonwealth of Puerto Rico. Mylan is alleged to have engaged in anticompetitive conduct with respect to doxycycline hyclate delayed release, doxycycline monohydrate, glipizide-metformin, and verapamil. The amended complaint also includes claims asserted by attorneys general of thirty-seven states and the Commonwealth of Puerto Rico against certain individuals, including Mylan’s President, with respect to doxycycline hyclate delayed release. On February 21, 2019, Defendants filed motions to dismiss the amended complaint’s allegations of anticompetitive conduct with respect to multiple drug products, which was denied on August 15, 2019, and the ability of the state attorneys general to seek certain forms of relief under federal antitrust law, which remains pending. On May 31, 2019, Defendants filed a motion to dismiss certain state law claims, which remains pending.
On May 10, 2019, certain attorneys general filed a new complaint against various drug manufacturers and individuals, including Mylan and one of its sales employees, alleging anticompetitive conduct with respect to additional generic drugs. On November 1, 2019, the May 10, 2019 complaint was amended, adding additional states as plaintiffs. The operative complaint is brought by attorneys general of forty-eight states, certain territories and the District of Columbia. The amended complaint also includes claims asserted by attorneys general of forty-three states and certain territories against several individuals, including a Mylan sales employee. On July 14, 2020, the Court ordered that this complaint proceed as a bellwether. A scheduling order has not yet been issued for this matter. On November 2, 2020, Defendants filed motions to dismiss the amended complaint.
On June 10, 2020, attorneys general of forty-six states, certain territories and the District of Columbia filed a new complaint against drug manufacturers, including Mylan, and individual defendants (none from Mylan), alleging anticompetitive conduct with respect to additional generic drugs.
We believe that the claims in these lawsuits are without merit and intend to defend against them vigorously.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Securities Related Litigation
U.S. Securities Litigation
Purported class action complaints were filed in October 2016 against Mylan N.V., Mylan Inc. and certain of their current and former directors and officers (collectively, for purposes of this paragraph, the “defendants”) in the SDNY on behalf of certain purchasers of securities of Mylan N.V. and/or Mylan Inc. on the NASDAQ. The complaints alleged that defendants made false or misleading statements and omissions of purportedly material fact, in violation of federal securities laws, in connection with disclosures relating to Mylan N.V. and Mylan Inc.’s classification of their EpiPen® Auto-Injector as a non-innovator drug for purposes of the Medicaid Drug Rebate Program (“MDRP”). The complaints sought damages, as well as the plaintiffs’ fees and costs. On March 20, 2017, a consolidated amended complaint was filed, alleging substantially similar claims and seeking substantially similar relief, but adding allegations that defendants made false or misleading statements and omissions of purportedly material fact in connection with allegedly anticompetitive conduct with respect to EpiPen® Auto-Injector and certain generic drugs, and alleging violations of both federal securities laws (on behalf of a purported class of certain purchasers of securities of Mylan N.V. and/or Mylan Inc. on the NASDAQ) and Israeli securities laws (on behalf of a purported class of certain purchasers of securities of Mylan N.V. on the Tel Aviv Stock Exchange). On March 28, 2018, defendants’ motion to dismiss the consolidated amended complaint was granted in part (including the dismissal of claims arising under Israeli securities laws) and denied in part. On July 6, 2018, the plaintiffs filed a second amended complaint, including certain current and former directors and officers and additional allegations in connection with purportedly anticompetitive conduct with respect to EpiPen® Auto-Injector and certain generic drugs. On August 6, 2018, defendants filed a motion to dismiss the second amended complaint, which was granted in part and denied in part on March 29, 2019. On June 17, 2019, plaintiffs filed a third amended complaint, including certain current and former directors and employees/officers and additional allegations in connection with purportedly anticompetitive conduct with respect to certain generic drugs. On July 31, 2019, defendants filed a motion to dismiss certain of the claims in the third amended complaint, which was granted in part and denied in part on April 6, 2020. On August 30, 2019, plaintiffs filed a motion for class certification, which was granted on April 6, 2020. The certified class covers all persons or entities that purchased Mylan common stock between February 21, 2012 and May 24, 2019 excluding defendants, current and former officers and directors of Mylan, members of their immediate families and their legal representatives, heirs, successors or assigns, and any entity in which defendants have or had a controlling interest.
On February 26, 2019, MYL Litigation Recovery I LLC (“MYL Plaintiff”) (an assignee of entities that purportedly purchased stock of Mylan N.V.) filed an additional complaint against Mylan N.V., Mylan Inc., and certain of their current and former directors and officers in the SDNY asserting allegations pertaining to EpiPen® Auto-Injector under the federal securities laws that overlap in part with those asserted in the third amended complaint identified above. MYL Plaintiff’s complaint seeks damages as well as the plaintiff’s costs. On June 5, 2019, defendants filed a motion to dismiss certain of MYL Plaintiff’s claims, which was granted in part and denied in part on March 30, 2020. On May 6, 2020, MYL Plaintiff filed an amended complaint against Mylan N.V., Mylan Inc., and certain of their current and former officers and directors, including allegations in connection with purportedly anticompetitive conduct with respect to EpiPen® Auto-Injector.
MYL Plaintiff subsequently filed a summons on October 30, 2020, naming Mylan N.V., Mylan Inc., and certain current and former directors and employees/officers in New York State Court, County of New York, claiming investment losses suffered as a result of purportedly false and misleading statements in connection with allegedly anticompetitive conduct concerning generic pharmaceuticals.
On February 14, 2020, the Abu Dhabi Investment Authority filed a complaint against Mylan N.V. and Mylan Inc. in the SDNY asserting allegations pertaining to EpiPen® Auto-Injector and certain generic drugs under the federal securities laws that overlap with those asserted in the third amended complaint identified above. The Abu Dhabi Investment Authority’s complaint seeks damages as well as the plaintiff’s fees and costs. On June 26, 2020, defendants filed a motion to dismiss certain of plaintiff’s claims. The motion is pending.
Beginning in April 2020, Mylan N.V., its directors and certain of its officers were named as defendants in lawsuits filed in federal court, including a putative class action, alleging certain federal securities law violations for purportedly failing to disclose or misrepresenting material information in the definitive proxy statement filed by Mylan N.V. with the SEC in connection with the Combination. The lawsuits generally seek various relief including (i) enjoining the defendants from proceeding with consummating, or closing the Combination and any vote on the Combination unless and until Mylan discloses and disseminates the purportedly material information; (ii) in the event the Combination is consummated, rescinding it and
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setting it aside or awarding rescissory damages; and (iii) reasonable attorneys and expert fees. Plaintiffs in each of these cases have dismissed their cases against defendants.
On June 26, 2020, a putative class action complaint was filed by the Public Employees Retirement System of Mississippi against Mylan N.V. and certain of its directors and officers (collectively for the purposes of this paragraph, the “defendants”) in the U.S. District Court for the Western District of Pennsylvania on behalf of certain purchasers of securities of Mylan N.V. The complaint alleges that defendants made false or misleading statements and omissions of purportedly material fact, in violation of federal securities laws, in connection with disclosures relating to Mylan’s Morgantown manufacturing plant and inspections at the plant by the FDA. The complaint alleges that Mylan N.V.’s stock traded at artificially inflated prices as a result of the allegedly misleading statements and omissions. Plaintiff seeks certification of a class of purchasers of Mylan N.V. securities between February 16, 2016 and May 7, 2019. The complaint seeks damages, as well as the plaintiff’s fees and costs.
We believe that the claims in these lawsuits are without merit and intend to defend against them vigorously.
Israeli Securities Litigation
On October 13, 2016, a purported shareholder of Mylan N.V. filed a lawsuit, together with a motion to certify the lawsuit as a class action on behalf of certain Mylan N.V. shareholders on the Tel Aviv Stock Exchange, against Mylan N.V. and four of its directors and officers (collectively, for purposes of this paragraph, the “defendants”) in the Tel Aviv District Court (Economic Division) (the “Friedman Action”). The plaintiff alleges that the defendants made false or misleading statements and omissions of purportedly material fact in Mylan N.V.’s reports to the Tel Aviv Stock Exchange regarding Mylan N.V.’s classification of its EpiPen® Auto-Injector for purposes of the MDRP, in violation of both U.S. and Israeli securities laws, the Israeli Companies Law and the Israeli Torts Ordinance. The plaintiff seeks damages, among other remedies. On April 30, 2017, another purported shareholder of Mylan N.V. filed a separate lawsuit, together with a motion to certify the lawsuit as a class action on behalf of certain Mylan N.V. shareholders on the Tel Aviv Stock Exchange, in the Tel Aviv District Court (Economic Division), alleging substantially similar claims and seeking substantially similar relief against the defendants and other directors and officers of Mylan N.V., but alleging also that this group of defendants made false or misleading statements and omissions of purportedly material fact in connection with allegedly anticompetitive conduct with respect to EpiPen® Auto-Injector and certain generic drugs, and alleging violations of both U.S. federal securities laws and Israeli law (the “IEC Fund Action”). On April 10, 2018, the Tel Aviv District Court granted the motion filed by plaintiffs in both the Friedman Action and the IEC Fund Action, voluntarily dismissing the Friedman Action and staying the IEC Fund Action until a judgment is issued in the purported class action securities litigation pending in the U.S. We believe that the claims in the IEC Fund Action are without merit and intend to defend against them vigorously.
Opioids
On July 27, 2017, Mylan N.V. received a subpoena from the DOJ seeking information relating to opioids manufactured, marketed or sold by Mylan during the period from January 1, 2013 to December 31, 2016. On August 29, 2017, Mylan N.V. received a civil investigative demand from the Attorney General of the State of Missouri seeking information relating to opioids manufactured, marketed or sold by Mylan during the period from January 1, 2010 to the present and related subject matter. In November 2019, a subsidiary of Mylan N.V. received a subpoena from the New York Department of Financial Services as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. Mylan is fully cooperating with these subpoena requests.
Mylan along with other manufacturers, distributors, pharmacies, pharmacy benefit managers, and individual healthcare providers is a defendant in more than 1,000 cases in the United States and Canada filed by various plaintiffs, including counties, cities and other local governmental entities, asserting civil claims related to sales, marketing and/or distribution practices with respect to prescription opioid products. In addition, lawsuits have been filed as putative class actions including on behalf of children with Neonatal Abstinence Syndrome due to alleged exposure to opioids. The lawsuits generally seek equitable relief and monetary damages (including punitive and/or exemplary damages) based on a variety of legal theories, including various statutory and/or common law claims, such as negligence, public nuisance and unjust enrichment. The vast majority of these lawsuits have been consolidated in an MDL in the U.S. District Court for the Northern District Court of Ohio. A liability-only trial has been scheduled for November 2021 in a coordinated proceeding in West Virginia state court involving Mylan and numerous other manufacturers, distributors, and pharmacies. A trial has also been scheduled in a proceeding in Jefferson County, Missouri on June 6, 2022 involving Mylan and numerous other manufacturers, distributors and pharmacies. Mylan believes that the claims in these lawsuits are without merit and intends to defend against them vigorously.
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European Commission Proceedings
Perindopril
On July 9, 2014, the European Commission (the “Commission”) issued a decision finding that Mylan Laboratories Limited and Mylan, as well as several other companies, had violated European Union (“EU”) competition rules relating to the product Perindopril and fined Mylan Laboratories Limited approximately €17.2 million, including approximately €8.0 million jointly and severally with Mylan Inc. The Company paid approximately $21.7 million related to this matter during the fourth quarter of 2014. In September 2014, the Company filed an appeal of the Commission’s decision to the General Court of the EU. A hearing on the appeal before the General Court of the EU was held in June 2017 and the Commission’s decision was affirmed. Mylan appealed the decision to the European Court of Justice (“CJEU”). Mylan has received a notice from an organization representing health insurers in the Netherlands stating an intention to commence follow-on litigation and asserting damages.
Citalopram
On June 19, 2013, the Commission issued a decision finding that Generics [U.K.] Limited, (“GUK”) as well as several other companies, had violated EU competition rules relating to the product Citalopram and fined GUK approximately €7.8 million, jointly and severally with Merck KGaA. GUK appealed the Commission’s decision to the General Court of the EU. The case is currently on appeal to the CJEU. The U.K. applied and was granted permission to intervene in this proceeding. GUK has received notices from European national health services and health insurers stating an intention to commence follow-on litigation and asserting damages. The national health service in England and Wales has instituted litigation against all parties to the Commission’s decision, including GUK. This litigation has been stayed pending the CJEU’s decision.
GUK has also sought indemnification from Merck KGaA with respect to the €7.8 million portion of the fine for which Merck KGaA and GUK were held jointly and severally liable. Merck KGaA has counterclaimed against GUK seeking the same indemnification. In June 2018, the Frankfurt Regional Court issued a judgment dismissing GUK claims against Merck KGaA and ordered GUK to indemnify Merck KGaA with respect to the amount for which the parties were held jointly and severally liable. GUK has appealed this decision. The proceedings have been stayed pending the CJEU appeal decision.
The Company has accrued approximately €7.4 million as of each of December 31, 2019 and September 30, 2020 related to this matter. It is reasonably possible that we will incur additional losses above the amount accrued but we cannot estimate a range of such reasonably possible losses at this time. There are no assurances, however, that settlements reached and/or adverse judgments received, if any, will not exceed amounts accrued.
U.K. Competition and Markets Authority
Paroxetine
On August 12, 2011, GUK received notice that the Office of Fair Trading (subsequently changed to the Competition and Markets Authority (the “CMA”)) opened an investigation to explore the possible infringement of the Competition Act 1998 and Articles 101 and 102 of the Treaty on the Functioning of the EU, with respect to alleged agreements related to Paroxetine. The CMA issued a decision on February 12, 2016, finding that, GUK, Merck KGaA and other companies were liable for infringing EU and U.K. competition rules. With respect to Merck KGaA and GUK, the CMA issued a penalty of approximately £5.8 million, for which Merck KGaA is liable for the entire amount; and of that amount GUK is jointly and severally liable for approximately £2.7 million, which has been accrued for as of December 31, 2019 and September 30, 2020. The matter is currently on appeal to the Competition Appeals Tribunal (“CAT”), which on March 8, 2018, referred certain questions of law to the CJEU. The CJEU sought written observations from GUK, which were filed in September 2018. A hearing on the questions and the parties’ observations was held before the CJEU on September 19, 2019. On January 30, 2020, the CJEU ruled on the questions of law referred to it and the proceedings before the CAT had resumed.
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Italy Investigation
The Public Prosecutor’s Office in Milan, Italy is conducting an investigation of Mylan S.p.A. and other pharmaceutical companies concerning interactions with an Italian hospital and sales of certain reimbursable drugs. Mylan S.p.A. has resolved the investigation with no admission of liability or wrongdoing.
Product Liability
Mylan N.V., and certain of its subsidiaries, along with numerous other manufacturers, retailers, and others, are parties to litigation relating to alleged trace amounts of nitrosamine impurities in certain products, including valsartan and ranitidine. The vast majority of these lawsuits in the United States are pending in two MDLs, namely an MDL pending in the United States District Court for the District of New Jersey concerning valsartan and an MDL pending in the United States District Court for the Southern District of Florida concerning raniditine. The lawsuits against Mylan in the MDLs include putative class actions seeking the refund of the purchase price and other economic damages allegedly sustained by consumers and end payors as well as individual claims for personal injuries allegedly caused by ingestion of the medications. Similar lawsuits pertaining to valsartan have been filed in Canada and other countries. Mylan has also received claims and inquiries related to these products, as well as requests to indemnify purchasers of Mylan’s active pharmaceutical ingredient and/or finished dose forms of these products. We believe the claims in these matters are without merit and intend to defend against them vigorously.
The Company is involved in a number of other product liability lawsuits and claims related to alleged personal injuries arising out of certain products manufactured and/or distributed by the Company. The Company believes that it has meritorious defenses to these lawsuits and claims and intends to defend against them vigorously. From time to time, the Company has agreed to settle or otherwise resolve certain lawsuits and claims on terms and conditions that are in the best interests of the Company. The Company has accrued approximately $14.5 million and $12.8 million at December 31, 2019 and September 30, 2020, respectively, for these additional product liability matters. It is reasonably possible that we will incur additional losses and fees above the amount accrued but we cannot estimate a range of such reasonably possible losses or legal fees related to these claims at this time. There are no assurances, however, that settlements reached and/or adverse judgments received, if any, will not exceed amounts accrued.
Intellectual Property
The Company has used its business judgment in connection with the decision to launch its insulin glargine and dimethyl fumarate products described below and has also used its business judgment in certain other situations to decide to market and sell certain products, in each case based on its belief that the applicable patents are invalid and/or that its products do not infringe, notwithstanding the fact that allegations of patent infringement(s) or other potential third party rights have not been finally resolved by the courts. The risk involved in doing so can be substantial because the remedies available to the owner of a patent for infringement may include, a reasonable royalty on sales or damages measured by the profits lost by the patent owner. If there is a finding of willful infringement, damages may be increased up to three times. Moreover, because of the discount pricing typically involved with bioequivalent products, patented branded products generally realize a substantially higher profit margin than generic and biosimilar products. Mylan intends to defend against any such patent infringement claims vigorously. However, an adverse decision could have an adverse effect that is material to our business, financial condition, results of operations, cash flows and/or ordinary share price.
Insulin Glargine
On October 24, 2017, Sanofi and affiliated entities (collectively for the purposes of this section, “Sanofi”), sued Mylan in the U.S. District Court for the District of New Jersey asserting that Mylan GmbH’s new drug application for insulin glargine injection 100 Units/mL vials and prefilled injection pens (SEMGLEE® vial and pens) infringed 18 U.S. patents.
Two of the asserted patents claim insulin glargine formulations (U.S. Patent Numbers 7,476,652 and 7,713,930, “formulation patents”) and were the only patents asserted against Mylan’s SEMGLEE® vial product. Mylan filed petitions for inter partes review (“IPR”) with the U.S. Patent Trial and Appeal Board (“PTAB”) with respect to these two patents. On December 12, 2018, the PTAB issued final written decisions in the IPR proceedings finding Sanofi’s formulation patents unpatentable (i.e., invalid). Sanofi appealed, and on November 19, 2019, the Court of Appeals for the Federal Circuit affirmed the PTAB’s final written decisions. The Supreme Court of the United States denied Sanofi’s petition for review of the IPR proceedings on October 5, 2020.
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The 16 other asserted patents relate to a pen injection device (“device patents”) and were asserted only against Mylan’s SEMGLEE® pen injection device. Prior to trial, Sanofi dismissed 12 of those device patents from the case and granted Mylan a covenant not to sue with respect to them. On June 17, 2019, following the District Court’s claim construction order, the District Court entered judgment of non-infringement with respect to the asserted claims of three of the four remaining device patents (U.S. Patent Numbers 8,603,044, 8,679,069, 8,992,486).
Only one device patent remained for trial (U.S. Patent Number 9,526,844). On March 9, 2020, the Court issued an opinion after trial finding all asserted claims of the ‘844 patent not infringed and invalid for lack of written description.
On September 10, 2018, Mylan filed IPR petitions challenging five device patents (the ‘844, ‘044, ‘069, ‘486, and ‘008 patents). On April 2, 2020 and May 29, 2020, the PTAB issued final written decisions in the IPR proceedings finding all challenged claims unpatentable except for two claims of the ‘008 patent for which Sanofi granted Mylan a covenant not to sue as described above. In July 2020, Sanofi filed appeals of all IPR decisions, which remain pending.
On June 11, 2020, the FDA approved Mylan’s SEMGLEE® vial and pen products, which Mylan began selling on August 31, 2020.
Dimethyl Fumarate
On June 30, 2017, Biogen MA Inc. and Biogen International GmbH (collectively, “Biogen”) sued Mylan Pharmaceuticals Inc. (“MPI”) in the U.S. District Court for the Northern District of West Virginia asserting that MPI’s abbreviated new drug application for dimethyl fumarate delayed-release capsules containing 120 mg and 240 mg of dimethyl fumarate (generic for Tecfidera®) infringed six U.S. patents that Biogen had listed in the Orange Book: 6,509,376, 7,320,999, 7,619,001, 7,803,840, 8,759,393, and 8,399,514. All patents except for the ‘514 expired during the litigation and were dismissed from the case.
After a trial involving only the ’514 patent on June 18, 2020, the District Court issued a judgment finding all claims of the ’514 patent invalid for lack of adequate written description. Biogen appealed and moved for an injunction pending appeal. The Court of Appeals for the Federal Circuit issued an interim injunction while it considered Biogen’s motion. On July 30, 2020, the Court of Appeals for the Federal Circuit denied Biogen’s motion and terminated the interim injunction. The appeal remains pending.
On July 13, 2018, Mylan filed an IPR petition challenging the ’514 patent based only on obviousness. On February 5, 2020, the PTAB issued a final written decision finding the claims not obvious. Mylan is appealing that decision.
On August 17, 2020, the FDA approved Mylan’s dimethyl fumarate delayed-release capsules, which Mylan began selling on August 18, 2020.
Other Litigation
The Company is involved in various other legal proceedings that are considered normal to its business. The Company has approximately $8.0 million accrued related to these various other legal proceedings at September 30, 2020.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis addresses material changes in the financial condition and results of operations of Mylan N.V. and subsidiaries for the periods presented. Unless context requires otherwise, the “Company”, “Mylan”, “our”, or “we” refer to Mylan N.V. and its subsidiaries. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Mylan N.V.’s Annual Report on Form 10-K for the year ended December 31, 2019, as amended (the “2019 Form 10-K”), the unaudited interim financial statements and related Notes included in Part I — ITEM 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”) and our other Securities and Exchange Commission (the “SEC”) filings and public disclosures. The interim results of operations and comprehensive earnings for the three and nine months ended September 30, 2020, and cash flows for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.
This Form 10-Q contains “forward-looking statements.” Such forward-looking statements may include, without limitation, statements about the proposed Combination (as defined below), the expected timetable for completing the Combination, the benefits and synergies of the Combination, future opportunities for the combined company and products and any other statements regarding Mylan’s, the Upjohn Business’s (as defined below) or the combined company’s future operations, financial or operating results, capital allocation, dividend policy, debt ratio, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competitions, and other expectations and targets for future periods. These may often be identified by the use of words such as “will,” “may,” “could,” “should,” “would,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “pipeline,” “intend,” “continue,” “target,” “seek” and variations of these words or comparable words. Because forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to:
•with respect to the Combination, the parties’ ability to meet expectations regarding the timing, completion and accounting and tax treatments of the Combination, changes in relevant tax and other laws, the parties’ ability to consummate the Combination, the conditions to the completion of the Combination not being satisfied or waived on the anticipated timeframe or at all, the integration of Mylan and the Upjohn Business being more difficult, time consuming or costly than expected, Mylan’s and the Upjohn Business’s failure to achieve expected or targeted future financial and operating performance and results, the possibility that the combined company may be unable to achieve expected benefits, synergies and operating efficiencies in connection with the Combination within the expected timeframes or at all or to successfully integrate Mylan and the Upjohn Business, customer loss and business disruption being greater than expected following the Combination, the retention of key employees being more difficult following the Combination, changes in third-party relationships and changes in the economic and financial conditions of the business of Mylan or the Upjohn Business;
•the potential impact of public health outbreaks, epidemics and pandemics, such as the COVID-19 pandemic;
•actions and decisions of healthcare and pharmaceutical regulators;
•failure to achieve expected or targeted future financial and operating performance and results;
•uncertainties regarding future demand, pricing and reimbursement for our or the Upjohn Business’s products;
•any regulatory, legal, or other impediments to Mylan’s or the Upjohn Business’s ability to bring new products to market, including, but not limited to, where Mylan or the Upjohn Business uses its business judgment and decides to manufacture, market, and/or sell products, directly or through third parties, notwithstanding the fact that allegations of patent infringement(s) have not been finally resolved by the courts (i.e., an “at-risk launch”);
•success of clinical trials and Mylan’s or the Upjohn Business’s ability to execute on new product opportunities;
•any changes in or difficulties with our or the Upjohn Business’s manufacturing facilities, including with respect to remediation and restructuring activities, supply chain or inventory or the ability to meet anticipated demand;
•the scope, timing, and outcome of any ongoing legal proceedings, including government investigations, and the impact of any such proceedings on our or the Upjohn Business’s financial condition, results of operations, and/or cash flows;
•the ability to meet expectations regarding the accounting and tax treatments of acquisitions;
•changes in relevant tax and other laws, including but not limited to changes in the U.S. tax code and healthcare and pharmaceutical laws and regulations in the U.S. and abroad;
•any significant breach of data security or data privacy or disruptions to our or the Upjohn Business’s information technology systems;
•the ability to protect intellectual property and preserve intellectual property rights;
•the effect of any changes in customer and supplier relationships and customer purchasing patterns;
•the ability to attract and retain key personnel;
•the impact of competition;
•identifying, acquiring, and integrating complementary or strategic acquisitions of other companies, products, or assets being more difficult, time-consuming or costly than anticipated;
•the possibility that Mylan may be unable to achieve expected synergies and operating efficiencies in connection with business transformation initiatives, strategic acquisitions, strategic initiatives or restructuring programs within the expected timeframes or at all;
•uncertainties and matters beyond the control of management, including but not limited to general political and economic conditions and global exchange rates; and
•inherent uncertainties involved in the estimates and judgments used in the preparation of financial statements, and the providing of estimates of financial measures, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and related standards or on an adjusted basis.
For more detailed information on the risks and uncertainties associated with Mylan’s business activities, see the risks described in the 2019 Form 10-K, the Form 10-Q for the quarter ended June 30, 2020 and our other filings with the SEC. These risks, as well as other risks associated with Mylan, the Upjohn Business, the combined company and the Combination are also more fully discussed in the Registration Statement on Form S-4, as amended, which includes a proxy statement/prospectus, which was filed by Upjohn (as defined below) with the SEC on October 25, 2019 and declared effective by the SEC on February 13, 2020, the Registration Statement on Form 10, which includes an information statement, which was filed by Upjohn with the SEC on June 12, 2020 and declared effective by the SEC on June 30, 2020, a final information statement furnished with the Form 8-K filed by Upjohn with the SEC on August 6, 2020, a definitive proxy statement, which was filed by Mylan with the SEC on February 13, 2020, and a prospectus, which was filed by Upjohn with the SEC on February 13, 2020. You can access Mylan’s filings with the SEC through the SEC website at www.sec.gov or through our website, and Mylan strongly encourages you to do so. Mylan routinely posts information that may be important to investors on our website at investor.mylan.com, and we use this website address as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure (Reg FD). The contents of our website are not incorporated by reference in this Form 10-Q and shall not be deemed “filed” under the Securities Exchange Act of 1934, as amended. Mylan undertakes no obligation to update any statements herein for revisions or changes after the filing date of this Form 10-Q other than as required by law.
Company Overview
Mylan is a global pharmaceutical company committed to setting new standards in healthcare and providing 7 billion people access to high quality medicine. We offer a portfolio of more than 7,500 products, including prescription generic, branded generic, brand-name drugs and over-the-counter (“OTC”) remedies. We market our products in more than 165 countries and territories. Our approximately 35,000-strong global workforce is dedicated to delivering better health for a better world.
Over the last several years, Mylan has transformed itself through a clear, consistent and differentiated strategy into a company that is built to last. Fueling that durability is a business model anchored in providing access, Mylan’s core purpose.
Providing access requires that we satisfy the needs of an incredibly diverse global marketplace whose economic and political systems, approaches to delivering and paying for healthcare, languages and traditions, and customer and patient requirements vary by location and over time.
With these considerations in mind, we built and scaled our commercial, operational and scientific platforms to meet customers’ evolving needs in ways that are globally consistent and locally sensitive. As a result, not only are we succeeding in expanding people’s access to medicine, we are continually diversifying our business.
That diversification is what drives our durability. Durability allows us to withstand and overcome competitive pressures while continuing to innovate. It also allows us to generate consistent financial results, including reliable cash flows capable of supporting ongoing investments in long-term growth.
Certain Market and Industry Factors
As more fully explained in the 2019 Form 10-K, the global pharmaceutical industry is a highly competitive and highly regulated industry. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. The following discussion highlights some of these key factors and market conditions.
Generic products, particularly in the U.S., generally contribute most significantly to revenues and gross margins at the time of their launch, and even more so in periods of market exclusivity, or in periods of limited generic competition. As such, the timing of new product introductions can have a significant impact on the Company’s financial results. The entrance into the market of additional competition generally has a negative impact on the volume and pricing of the affected products. Additionally, pricing is often affected by factors outside of the Company’s control.
For branded products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S. and some other countries, when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales. OTC products also participate in a competitive environment that includes both branded and private label products. In the OTC space, value is realized through innovation, access and consumer activation.
Certain markets in which we do business outside of the U.S. have undergone government-imposed price reductions, and further government-imposed price reductions are expected in the future. Such measures, along with the tender systems discussed below, are likely to have a negative impact on sales and gross profit in these markets. However, government initiatives in certain markets that appear to favor generic products could help to mitigate this unfavorable effect by increasing rates of generic substitution and penetration.
Additionally, a number of markets in which we operate outside of the U.S. have implemented, or may implement, tender systems for generic pharmaceuticals in an effort to lower prices. Generally speaking, tender systems can have an unfavorable impact on sales and profitability. Under such tender systems, manufacturers submit bids that establish prices for generic pharmaceutical products. Upon winning the tender, the winning company will receive priority placement for a period of time. The tender system often results in companies underbidding one another by proposing low pricing in order to win the tender. The loss of a tender by a third party to whom we supply active pharmaceutical ingredients can also have a negative impact on our sales and profitability. Sales continue to be negatively affected by the impact of tender systems in certain countries.
Recent Developments
IMPACT OF THE CORONAVIRUS PANDEMIC ON OUR BUSINESS AND RESULTS OF OPERATIONS
As a leading global pharmaceutical company, Mylan is committed to continue doing its part in support of public health needs amid the evolving COVID-19 pandemic. The Company’s priorities remain protecting the health and safety of our workforce, continuing to produce critically needed medicines, deploying resources and expertise in the fight against COVID-19 through potential prevention and treatment efforts, supporting the communities in which we operate and maintaining the health of our overall business.
The following section discusses the important measures the Company is taking in light of the COVID-19 pandemic.
Employee Health and Safety
•Mylan continues to align with government and health authority guidelines in an effort to safeguard our workforce and continues to make assessments on an ongoing basis.
•While Mylan’s business operations are currently considered essential based on government guidelines throughout the world due to the important role pharmaceutical manufacturers play within the global healthcare system, many Mylan administrative offices continue operating under work from home protocols.
•Because protecting the health and safety of our workforce remains paramount, Mylan has taken extra precautions at manufacturing facilities to aid in the protection of site personnel and operations, including the implementation of social distancing guidelines, daily health assessments and split shifts where feasible.
•Customer facing field personnel have moved to a remote engagement model to ensure continued support for healthcare professionals, patient care and access to needed products.
•Global restrictions have been placed on travel and in-person meetings.
•Mylan has taken steps to protect the safety of study participants, our employees and staff at clinical trial sites and ensure regulatory compliance and scientific integrity of trial data.
Continuing to Produce Critically Needed Medicines
Manufacturing and Supply
•Mylan has activated worldwide business continuity plans to seek to ensure that our global supply chain platform continues to operate without significant disruption.
•All of our manufacturing facilities, and those of our key global partners, are currently operational and, at this time, we are not experiencing any significant disruptions to our supply chain, including the availability of active pharmaceutical ingredients. Also, we are currently not experiencing any negative impact on our customer service levels.
•Mylan continues to engage with regulatory authorities around the world who are committed to maintaining ongoing regulatory processes while also continuing to make available our global research and development ("R&D"), regulatory and manufacturing expertise and capacity to partners who may be in need of additional resources.
Commercial Operations
•Although the majority of our products globally have not seen a significant decline in customer utilization, as has been publicly reported for several markets and product categories, we are currently experiencing certain fluctuations in COVID-19 related demand trends. We will continue to monitor trends closely as we work to ensure patients have access to needed medicine.
•Inventory levels, both ours and those in our distribution channel, remain in-line with normal levels and are currently assessed to be sufficient for anticipated demand.
Deploying Resources and Expertise in the Fight Against COVID-19
Product Development
•On May 12, 2020, Mylan announced a global collaboration with Gilead Sciences, Inc. to expand access to the investigational antiviral remdesivir for the potential treatment of COVID-19. Under the terms of the license agreement Mylan has rights to manufacture and distribute remdesivir in 127 low-and middle-income countries, including India.
•On July 6, 2020, Mylan announced that the Drug Controller General of India (the “DCGI”) approved its remdesivir 100 mg/vial for restricted emergency use in India as part of the DCGI’s accelerated approval process to address urgent, unmet needs amid the evolving COVID-19 pandemic.
Maintaining the Health of Our Overall Business
Access to Capital Markets and Liquidity
While currently we are not experiencing any negative liquidity trends related to the COVID-19 pandemic, we continue to closely monitor developments and the potential negative impact on our operating performance and our ability to access the capital markets.
Due to the Company’s ability to generate significant cash flows from operations, as well as its revolving credit agreement, other short-term borrowing facilities and access to capital markets, we believe that we currently have, and will maintain, the ability to meet foreseeable liquidity needs.
Impact on Results of Operations
The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption affecting the markets we serve in North America, Europe and Rest of World, which has had and continues to have an impact on our current year results of operations. The extent to which the COVID-19 pandemic will impact our business, operations and financial results in future periods will depend on numerous evolving factors that are beyond our control and that we may not be able to accurately predict. For additional information, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations.”
Restructuring Programs
On February 27, 2020, the Company announced that it has formalized the next steps in its efforts to sustain long-term value creation through the proactive transformation of its business. This transformation initiative includes a new global restructuring program (the “2020 restructuring program”). The program is intended to support the Company’s effort to improve operating performance and meet anticipated market demands by ensuring that the Company is appropriately structured and resourced to deliver sustainable value to customers, patients, other stakeholders and shareholders. Key activities under the program include supply chain network optimization intended to maximize the efficiency of the Company’s global manufacturing and distribution network capacity and further optimizing functional capabilities that support business growth.
The Company is currently developing the details of the initiatives, including workforce actions and other restructuring activities. Further details will be disclosed as plans are finalized, including the estimated amount or range of amounts to be incurred by major cost type and future cash expenditures associated with those initiatives. As a result of the COVID-19 pandemic and the related uncertainty and complexity of the current environment, the Company has delayed the implementation of the 2020 restructuring program which is leading to higher than expected costs in 2020.
The Company previously announced a restructuring program representing a series of actions in certain locations that are anticipated to further streamline its operations globally. The restructuring actions, other than the additional restructuring and remediation activities at the Morgantown, West Virginia plant described below, are substantially complete.
In April 2018, the U.S. Food and Drug Administration (the “FDA”) completed an inspection at Mylan’s plant in Morgantown, West Virginia and made observations through a Form 483. The Company submitted a comprehensive response to the FDA and committed to a robust improvement plan. In addition, based upon the Company’s recognition of the continued evolution of industry dynamics and regulatory expectations, during the second quarter of 2018, the Company commenced comprehensive restructuring and remediation activities, which are aimed at reducing the complexity at the Morgantown plant and include the discontinuation and transfer to other manufacturing sites of a number of products, a reduction of the workforce and extensive process and facility remediation. The Company continues to incur incremental manufacturing variances related to these and other activities. In the fourth quarter of 2018, the Company received a warning letter related to the previously
disclosed observations at the plant. The issues raised in the warning letter are being addressed within the context of the Company’s comprehensive restructuring and remediation activities. On May 11, 2020 we received the close-out of the warning letter.
For the nine months ended September 30, 2020, the Company incurred expenses amounting to approximately $192.3 million for incremental manufacturing variances, site remediation and restructuring charges related to the Morgantown plant, as well as continued product rationalization. At this time, the total expenses related to ongoing activities at the Morgantown plant cannot be reasonably estimated.
Mylan remains committed to maintaining the highest quality manufacturing standards at its facilities around the world and to continuous assessment and improvement in a time of evolving industry dynamics and regulatory expectations.
Upjohn Business Combination Agreement
On July 29, 2019, the Company, Pfizer Inc. (“Pfizer”), Upjohn Inc., a wholly-owned subsidiary of Pfizer (“Upjohn” or “Newco”), and certain other affiliated entities entered into a Business Combination Agreement (as amended, the “Business Combination Agreement”) pursuant to which the Company will combine with Pfizer’s Upjohn Business (the “Upjohn Business”) in a Reverse Morris Trust transaction (the “Combination”). Newco, which will be the parent entity of the combined Upjohn Business and Mylan business, will be renamed Viatris Inc. (“Viatris”) effective as of the closing of the Combination. The Upjohn Business is a global, primarily off-patent branded and generic established medicines business, which includes 20 primarily off-patent solid oral dose legacy brands, such as Lyrica, Lipitor, Celebrex and Viagra.
Prior to the Combination and pursuant to a Separation and Distribution Agreement (as amended, the “Separation Agreement”), dated as of July 29, 2019, between Pfizer and Newco, Pfizer will, among other things, transfer to Newco substantially all of the assets and liabilities comprising the Upjohn Business (the “Separation”) and, thereafter, Pfizer will distribute to Pfizer stockholders all of the issued and outstanding shares of Newco (the “Distribution”). When the Distribution and Combination are completed, Pfizer stockholders as of the record date of the Distribution will own 57% of the outstanding shares of Newco common stock, and Mylan shareholders as of immediately before the Combination will own 43% of the outstanding shares of Newco common stock, in each case on a fully diluted basis. Newco will make a cash payment to Pfizer equal to $12 billion, to be funded with the proceeds of debt incurred by Newco, as partial consideration for the contribution of the Upjohn Business from Pfizer to Newco.
The consummation of the Combination is subject to the satisfaction (or, if applicable, valid waiver) of various conditions, including (a) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder and the receipt of regulatory approvals in certain other jurisdictions, (b) the consummation of the Separation and the Distribution in accordance with the terms of the Separation Agreement, (c) the approval of the Combination by Mylan shareholders, (d) the absence of any legal restraint (including legal actions or proceedings pursued by U.S. state authorities in the relevant states) preventing the consummation of the transactions, (e) in the case of Pfizer’s and Newco’s obligations to consummate the transactions, (i) the distribution of $12 billion in cash from Upjohn to Pfizer in accordance with the terms of the Separation Agreement and (ii) the receipt by Pfizer of a U.S. Internal Revenue Service (“IRS”) ruling and tax opinion of its tax counsel with respect to the Combination, and (f) other customary closing conditions.
On March 17, 2020, Pfizer received the IRS ruling with respect to the Combination, which is generally binding, unless the relevant facts or circumstances change prior to closing. On June 30, 2020, Mylan’s shareholders voted to approve the Combination at the extraordinary general meeting of shareholders.
On September 14, 2020, the European Commission (the “Commission”) approved the divestiture buyers with which Mylan entered into agreements for the sale of certain of Mylan’s products in Europe, which was a requirement of the Commission’s conditional approval of the Combination in April 2020.
On October 30, 2020, Mylan and Pfizer announced that the U.S. Federal Trade Commission (the “FTC”) accepted a proposed consent order, which concluded the FTC’s review of the proposed Combination. The parties have now obtained all required antitrust clearances for the Combination. The Combination is expected to close on November 16, 2020.
On May 29, 2020, Mylan, Pfizer, Newco and certain of their affiliates entered into Amendment No. 1 to the Business Combination Agreement (the “BCA Amendment”), and Pfizer and Newco entered into Amendment No. 2 to the Separation and Distribution Agreement (the “SDA Amendment” and, together with the BCA Amendment, the “Amendments”). In light of the
ongoing regulatory review process, including delays related to the COVID-19 pandemic, the Amendments provide, among other things, that the closing of the Combination shall not occur prior to October 1, 2020 (unless otherwise agreed to by Mylan and Pfizer) and that the Outside Date (as defined in the Business Combination Agreement) shall be December 31, 2020.
On June 16, 2020, Upjohn entered into a revolving credit agreement (the “Upjohn Revolving Credit Agreement”), by and among Upjohn, certain lenders and issuing banks from time to time party thereto and Bank of America, N.A., as administrative agent (in such capacity, the “Upjohn Revolving Administrative Agent”). The Upjohn Revolving Credit Agreement contains a revolving credit facility (the “Upjohn Revolving Credit Facility”) under which Upjohn may obtain extensions of credit in an aggregate principal amount not to exceed $4.0 billion, in U.S. dollars or alternative currencies including Euro, Sterling, Yen and any other currency that is approved by the Upjohn Revolving Administrative Agent and each lender under the Upjohn Revolving Credit Facility. The Upjohn Revolving Credit Facility will be available to Upjohn upon (a) its delivery of a certificate certifying that (i) the conditions to the consummation of the Combination have been satisfied or waived or are expected to be satisfied or waived on the date of funding of such facility or within one business day thereafter and (ii) the distribution by Pfizer to its stockholders of its shares of Upjohn’s common stock pursuant to the Separation Agreement is expected to be, the Combination is expected to be, and the contribution of the Upjohn Business to Upjohn has been or is expected to be consummated on the Upjohn Revolver Closing Date (as defined below) or within one business day thereafter (an “RMT Condition Certificate”) and (b) the satisfaction of certain customary conditions (the date such conditions are satisfied or waived being referred to as the “Upjohn Revolver Closing Date”). Subject to satisfaction of the foregoing conditions, up to $1.5 billion under the Upjohn Revolving Credit Facility will be available to Upjohn in a single draw on the Upjohn Revolver Closing Date for the sole purpose of funding a portion of the cash payment of $12.0 billion by Upjohn to Pfizer as partial consideration for Pfizer’s contribution of the Upjohn Business to Upjohn, as required by the Separation Agreement.
On June 16, 2020, Upjohn entered into a delayed draw term loan credit agreement (the “Upjohn Term Loan Credit Agreement”), by and among Upjohn, Mizuho Bank, Ltd. and MUFG Bank, Ltd., as administrative agent. The Upjohn Term Loan Credit Agreement provides for an 18-month $600.0 million principal amount delayed draw senior unsecured term loan facility (the “Upjohn Term Loan Credit Facility”).
The Upjohn Term Loan Credit Facility will be available to Upjohn upon its delivery of an RMT Condition Certificate and upon satisfaction of certain customary conditions. Upjohn intends to borrow the full $600.0 million aggregate principal amount available under the Upjohn Term Loan Credit Facility in order to fund a portion of the cash payment to Pfizer and related transaction fees and expenses, as required by the Separation Agreement.
On June 22, 2020, Upjohn completed a private offering of $7.45 billion aggregate principal amount of Upjohn’s senior, U.S. dollar-denominated notes (the “Upjohn U.S. Dollar Notes”) and on June 23, 2020, Upjohn Finance B.V. (“Finco”), a wholly-owned financing subsidiary of Upjohn, completed a private offering of €3.60 billion aggregate principal amount of Finco’s senior, euro-denominated notes (the “Upjohn Euro Notes” and, together with the Upjohn U.S. Dollar Notes, the “Upjohn Notes”), which are guaranteed on a senior unsecured basis by Upjohn. Upjohn intends to use the net proceeds from the offerings of the Upjohn Notes, together with the net proceeds from the Upjohn Term Loan Credit Facility, to fund in full the $12.0 billion cash payment to Pfizer and related transaction fees and expenses. The Upjohn Notes are initially guaranteed on a senior unsecured basis by Pfizer, which guarantees will be automatically and unconditionally terminated and released without consent of holders upon the consummation of the Distribution. Upon the consummation of the Combination, the Mylan entities (which will be subsidiaries of Upjohn following the Combination) that are issuers or guarantors of the outstanding senior unsecured notes issued by Mylan N.V. or Mylan Inc. (the “Mylan Notes”) will become guarantors of the Upjohn Notes, substantially concurrently with Upjohn becoming a guarantor of the Mylan Notes.
Upjohn had previously obtained commitments for the initial financing of the transaction in the form of a bridge loan from certain financial institutions. The bridge loan was subject to customary terms and conditions including a financial covenant. The commitments under the bridge loan commitment letter dated as of July 29, 2019 were reduced concurrently with the effectiveness of the Upjohn Revolving Credit Agreement and Upjohn Term Loan Credit Agreement, and were fully terminated upon the completion of each offering of Upjohn Notes.
Under the terms of the Business Combination Agreement and Separation Agreement, Mylan will be obligated to reimburse Pfizer for 43% of certain financing related costs if the Combination does not close and Viatris will be obligated to reimburse Pfizer for all such financing related costs if the Combination closes. As a result of the completion of the financing transactions described above, Mylan recorded $30.0 million and $115.0 million of expenses during the three and nine months ended September 30, 2020, respectively, which is included as a component of selling, general and administrative expenses (“SG&A”) in the condensed consolidated statements of operations to reflect Mylan’s obligation to reimburse Pfizer for 43% of those financing related costs.
In connection with the Separation Agreement and the Business Combination Agreement, Pfizer, Upjohn and Mylan previously agreed to review and negotiate a potential transfer of Pfizer’s Meridian Medical Technologies business (the “Meridian Business”) to Upjohn. The Meridian Business is Mylan’s supplier of EpiPen® Auto-Injectors pursuant to an agreement that had an expiration date of December 31, 2020 (the “EpiPen Supply Agreement”). Instead of proceeding with the transfer of the Meridian Business, Pfizer and Mylan agreed in the third quarter of 2020 to extend the EpiPen Supply Agreement for an additional four-year period through December 31, 2024, with an option for Mylan (or Upjohn) to further extend the term for an additional one-year period thereafter. Mylan and Pfizer have also reached a preliminary agreement on the general terms under which Pfizer would transfer certain Pfizer assets that currently form part of a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan to Mylan or, following the Combination, to Viatris. Any such proposed transaction would be subject to the finalization and execution of a definitive agreement that would contain customary closing conditions including, but not limited to, receipt of any necessary regulatory approvals.
Financial Summary
The tables below are a summary of the Company’s financial results for the three and nine months ended September 30, 2020 compared to the prior year periods:
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Three Months Ended
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September 30,
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(In millions, except per share amounts)
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2020
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2019
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Change
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% Change
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Total revenues
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$
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2,972.1
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|
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$
|
2,961.7
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|
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$
|
10.4
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|
|
—
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%
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Gross profit
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1,158.5
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|
|
1,072.4
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86.1
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8
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%
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Earnings from operations
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351.4
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323.7
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27.7
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9
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%
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Net earnings
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185.7
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189.8
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(4.1)
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(2)
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%
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Net earnings per diluted ordinary share
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$
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0.36
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$
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0.37
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$
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(0.01)
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(3)
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%
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Nine Months Ended
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September 30,
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(In millions, except per share amounts)
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2020
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2019
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Change
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% Change
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Total revenues
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$
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8,322.5
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|
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$
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8,308.7
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$
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13.8
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|
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—
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%
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Gross profit
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3,090.3
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|
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2,810.2
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|
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280.1
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10
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%
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Earnings from operations
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670.3
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443.2
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227.1
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51
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%
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Net earnings (loss)
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245.9
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(3.7)
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249.6
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nm
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Net earnings (loss) per diluted ordinary share
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$
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0.48
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$
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(0.01)
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$
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0.49
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nm
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A detailed discussion of the Company’s financial results can be found below in the section titled “Results of Operations.” As part of this discussion, we also report sales performance using the non-GAAP financial measures of “constant currency” net sales and total revenues. These measures provide information on the change in net sales and total revenues assuming that foreign currency exchange rates had not changed between the prior and current period. The comparisons presented at constant currency rates reflect comparative local currency sales at the prior year’s foreign exchange rates. We routinely evaluate our net sales and total revenues performance at constant currency so that sales results can be viewed without the impact of foreign currency exchange rates, thereby facilitating a period-to-period comparison of our operational activities, and believe that this presentation also provides useful information to investors for the same reason.
More information about non-GAAP measures used by the Company as part of this discussion, including adjusted cost of sales, adjusted gross margins, adjusted net earnings and adjusted EBITDA (all of which are defined below) can be found in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Use of Non-GAAP Financial Measures.”
Results of Operations
Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
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Three Months Ended
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September 30,
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(In millions)
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2020
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2019
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% Change
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2020 Currency Impact (1)
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2020 Constant Currency Revenues
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Constant Currency % Change (2)
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Net sales
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North America
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$
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1,028.8
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$
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1,088.6
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(5)
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%
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$
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0.8
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$
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1,029.6
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(5)
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%
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Europe
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1,123.8
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1,045.9
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7
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%
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(57.9)
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1,065.9
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2
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%
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Rest of World
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795.5
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793.7
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—
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%
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18.7
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814.2
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3
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%
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Total net sales
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2,948.1
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2,928.2
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1
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%
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$
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(38.4)
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$
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2,909.7
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(1)
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%
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Other revenues (3)
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24.0
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33.5
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(28)
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%
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(0.2)
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23.8
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(29)
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%
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Consolidated total revenues (4)
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$
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2,972.1
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$
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2,961.7
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—
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%
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$
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(38.6)
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$
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2,933.5
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(1)
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%
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____________
(1)Currency impact is shown as unfavorable (favorable).
(2)The constant currency percentage change is derived by translating net sales or revenues for the current period at prior year comparative period exchange rates, and in doing so shows the percentage change from 2020 constant currency net sales or revenues to the corresponding amount in the prior year.
(3)For the three months ended September 30, 2020, other revenues in North America, Europe, and Rest of World were approximately $17.4 million, $3.4 million, and $3.2 million, respectively. For the three months ended September 30, 2019, other revenues in North America, Europe, and Rest of World were approximately $17.6 million, $3.8 million, and $12.1 million, respectively.
(4)Amounts exclude intersegment revenue that eliminates on a consolidated basis.
Total Revenues
For the current quarter, Mylan reported total revenues of $2.97 billion, compared to $2.96 billion for the comparable prior year period, representing an increase of $10.4 million, or less than 1%. Total revenues include both net sales and other revenues from third parties. Net sales for the current quarter were $2.95 billion, compared to $2.93 billion for the comparable prior year period, representing an increase of $19.9 million, or 1%. Other revenues for the current quarter were $24.0 million, compared to $33.5 million for the comparable prior year period.
The increase in net sales was primarily the result of an increase in net sales in the Europe segment of 7% and a slight increase in net sales in the Rest of World segment. These were partially offset by a decrease in net sales in the North America segment of 5%. Mylan’s net sales were favorably impacted by net sales from new products of $170.1 million, as well as the effect of foreign currency translation on current period net sales of approximately $38.4 million, or 1%. The impact of foreign currency translation on current period net sales primarily reflects changes in the U.S. Dollar as compared to the currencies of Mylan’s subsidiaries in the European Union, partially offset by the negative impact of subsidiaries in India. On a constant currency basis, net sales decreased by approximately $18.5 million, or 1%. This decrease was primarily driven by lower volumes, and to a lesser extent, pricing from net sales of existing products, partially offset by new product sales. In the third quarter of 2020, we estimate that the COVID-19 pandemic negatively impacted our net sales by approximately 3%, primarily driven by lower retail pharmacy demand, lower non-COVID-19 related patient hospital visits and a lower number of in person meetings with prescribers and payors, as well as the impact on the back to school sales of the EpiPen® Auto-Injector.
From time to time, a limited number of our products may represent a significant portion of our net sales, gross profit and net earnings. Generally, this is due to the timing of new product introductions and the amount, if any, of additional competition in the market. Our top ten products in terms of net sales, in the aggregate, represented approximately 25% and 26% for the three months ended September 30, 2020 and 2019, respectively. This percentage may fluctuate based upon the timing of new product launches, seasonality and the timing of the discontinuation of products.
Net sales are derived from our three geographic reporting segments: North America, Europe and Rest of World. The graph below shows net sales by segment for the three months ended September 30, 2020 and 2019 and the net change period over period:
North America Segment
Net sales from North America decreased by $59.8 million or 5% during the three months ended September 30, 2020 when compared to the prior year period. This decrease was primarily driven by lower volumes, and to a lesser extent, pricing from net sales of existing products partially offset by new product sales, including sales from the launch of dimethyl fumarate capsules, a substitutable generic of Biogen Inc.'s Tecfidera®. The decrease in net sales of existing products was primarily driven by lower EpiPen® Auto-Injector volumes partially due to the negative impact of COVID-19 which resulted in lower back to school sales and changes in the competitive environment, including for Levothyroxine Sodium. These decreases were partially offset by increased volumes on Wixela™ Inhub™. The impact of foreign currency translation on current period net sales was insignificant within North America.
Europe Segment
Net sales from Europe increased by $77.9 million or 7% during the three months ended September 30, 2020 when compared to the prior year period. This increase was primarily due to the favorable impact of foreign currency translation of approximately $57.9 million or 5%, and new product sales. The favorable impact of these items was partially offset by lower volumes from net sales of existing products primarily due to the negative impact of COVID-19. Pricing was relatively stable in the quarter when compared to the prior year period. Constant currency net sales increased by approximately $20.0 million, or 2%, when compared to the prior year period.
Rest of World Segment
Net sales from Rest of World increased by $1.8 million or less than 1% during the three months ended September 30, 2020 when compared to the prior year period. This increase was primarily driven by new product sales, including sales of Remdesivir in India. This increase was partially offset by lower pricing, primarily due to government price reductions in Japan and Australia, and volumes from net sales of existing products, and the unfavorable impact of foreign currency translation. While volumes of existing products in the Company’s anti-retroviral franchise were higher compared to the prior year period, this increase was offset by lower volumes from net sales of existing products, partially driven by the negative impact of COVID-19 primarily in China, Russia and Japan. Overall, net sales from Rest of World were unfavorably impacted by the effect of foreign currency translation by approximately $18.7 million, or 2%. Constant currency net sales increased by approximately $20.5 million, or 3% when compared to the prior year period.
Cost of Sales and Gross Profit
Cost of sales decreased from $1.89 billion for the three months ended September 30, 2019 to $1.81 billion for the three months ended September 30, 2020. Cost of sales was primarily impacted by purchase accounting related amortization of acquired intangible assets and other special items, which are described further in the section titled Use of Non-GAAP Financial Measures. Gross profit for the three months ended September 30, 2020 was $1.16 billion and gross margins were 39%. For the three months ended September 30, 2019, gross profit was $1.07 billion and gross margins were 36%. Gross margins were positively impacted by margins on sales of new products of 380 basis points, primarily in the North America segment, and lower amortization expense from acquired intangible assets of 160 basis points. These items were partially offset by lower gross margins from the net sales of existing products of 260 basis points, primarily in the North America segment. Adjusted gross margins were 55% for the three months ended September 30, 2020, compared to 53% for the three months ended September 30, 2019.
A reconciliation between cost of sales, as reported under U.S. GAAP, and adjusted cost of sales and adjusted gross margin for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 is as follows:
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|
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|
|
Three Months Ended
|
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
U.S. GAAP cost of sales
|
$
|
1,813.6
|
|
|
$
|
1,889.3
|
|
|
Deduct:
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|
|
|
|
Purchase accounting amortization and other related items
|
(368.5)
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|
|
(408.6)
|
|
|
Acquisition related items
|
(9.4)
|
|
|
(0.8)
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|
|
Restructuring and related costs
|
(8.7)
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|
|
(11.4)
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|
|
Share-based compensation expense
|
(0.4)
|
|
|
(0.3)
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|
|
Other special items
|
(83.6)
|
|
|
(70.9)
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|
|
Adjusted cost of sales
|
$
|
1,343.0
|
|
|
$
|
1,397.3
|
|
|
|
|
|
|
|
Adjusted gross profit (a)
|
$
|
1,629.1
|
|
|
$
|
1,564.4
|
|
|
|
|
|
|
|
Adjusted gross margin (a)
|
55
|
%
|
|
53
|
%
|
____________
(a)Adjusted gross profit is calculated as total revenues less adjusted cost of sales. Adjusted gross margin is calculated as adjusted gross profit divided by total revenues.
Operating Expenses
Research & Development Expense
R&D expense for the three months ended September 30, 2020 was $129.8 million, compared to $167.9 million for the comparable prior year period, a decrease of $38.1 million. This decrease was primarily due to lower expenditures related to the reprioritization of global programs, and higher payments in the prior year period related to licensing arrangements for products in development.
Selling, General & Administrative Expense
SG&A expense for the current quarter was $658.4 million, compared to $632.7 million for the comparable prior year period, an increase of $25.7 million. The increase was primarily the result of higher consulting fees and other expenses primarily related to the pending Combination totaling approximately $74.0 million in the current year period, including approximately $30.0 million related to obligations to reimburse Pfizer for certain financing costs under the Business Combination Agreement and Separation Agreement (the “Combination Agreements”). Partially offsetting this increase were lower selling and promotional expenses, including through our active management and certain lower expenses as a result of COVID-19.
Litigation Settlements and Other Contingencies, Net
During the three months ended September 30, 2020 and 2019, the Company recorded a net charge of $18.9 million and net gain of $51.9 million, respectively.
The following table includes the losses/(gains) recognized in litigation settlements and other contingencies, net during the three months ended September 30, 2020 and September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
Respiratory delivery platform contingent consideration adjustment
|
$
|
16.9
|
|
|
$
|
—
|
|
|
Litigation settlements, net
|
2.0
|
|
|
(51.9)
|
|
|
Total litigation settlements and other contingencies, net
|
$
|
18.9
|
|
|
$
|
(51.9)
|
|
During the three months ended September 30, 2020, the Company recorded a $16.9 million loss for fair value adjustments related to Pfizer’s proprietary dry powder inhaler delivery platform (the “respiratory delivery platform”) contingent consideration and a net charge of approximately $2.0 million related to a number of litigation matters. During the three months ended September 30, 2019, the Company recognized a gain of approximately $51.9 million primarily related to the previously disclosed Celgene Corporation (“Celgene”) settlement of $62.0 million partially offset by certain litigation related charges.
Interest Expense
Interest expense for the three months ended September 30, 2020 totaled $117.3 million, compared to $128.9 million for the three months ended September 30, 2019, a decrease of $11.6 million. The decrease is primarily due to lower average long-term debt balances during the current quarter as compared to the prior year period.
Other (Income) Expense, Net
Other income, net, was $7.5 million for the three months ended September 30, 2020, compared to expense of $9.0 million for the comparable prior year period. Other (income) expense, net includes losses from equity affiliates, foreign exchange gains and losses and interest and dividend income. Other (income) expense, net was comprised of the following for the three months ended September 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
Losses from equity affiliates, primarily clean energy investments
|
$
|
2.9
|
|
|
$
|
10.4
|
|
|
Foreign exchange gains, net
|
(8.8)
|
|
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other gains, net
|
(1.6)
|
|
|
(1.0)
|
|
|
Other (income) expense, net
|
$
|
(7.5)
|
|
|
$
|
9.0
|
|
Income Tax Provision (Benefit)
For the three months ended September 30, 2020, the Company recognized an income tax provision of $55.9 million, an increase of $59.9 million over the $4.0 million benefit for the comparable prior year period. During the current quarter, the Company recognized an expense as a result of adjustments to reserve for uncertain tax positions and the assessment of the realizability of deferred tax assets. During the three months ended September 30, 2019, the Company recorded a $42.0 million benefit resulting from refinements to previous estimates in conjunction with the filing of the Company’s 2018 U.S. federal tax return, which revised the estimated impact of the Company’s valuation allowance on its interest limitation deductions and the estimate of available foreign tax credits. Also impacting the current year income tax benefit was the changing mix of income earned in jurisdictions with differing tax rates.
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
% Change
|
|
2020 Currency Impact (1)
|
|
2020 Constant Currency Revenues
|
|
Constant Currency % Change (2)
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
3,023.3
|
|
|
$
|
3,035.0
|
|
|
—
|
%
|
|
$
|
4.1
|
|
|
$
|
3,027.4
|
|
|
—
|
%
|
|
Europe
|
3,080.7
|
|
|
2,930.7
|
|
|
5
|
%
|
|
(3.3)
|
|
|
3,077.4
|
|
|
5
|
%
|
|
Rest of World
|
2,128.2
|
|
|
2,241.3
|
|
|
(5)
|
%
|
|
92.7
|
|
|
2,220.9
|
|
|
(1)
|
%
|
|
Total net sales
|
8,232.2
|
|
|
8,207.0
|
|
|
—
|
%
|
|
93.5
|
|
|
8,325.7
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues (3)
|
90.3
|
|
|
101.7
|
|
|
(11)
|
%
|
|
—
|
|
|
90.3
|
|
|
(11)
|
%
|
|
Consolidated total revenues (4)
|
$
|
8,322.5
|
|
|
$
|
8,308.7
|
|
|
—
|
%
|
|
$
|
93.5
|
|
|
$
|
8,416.0
|
|
|
1
|
%
|
____________
(1)Currency impact is shown as unfavorable (favorable).
(2)The constant currency percentage change is derived by translating net sales or revenues for the current period at prior year comparative period exchange rates, and in doing so shows the percentage change from 2020 constant currency net sales or revenues to the corresponding amount in the prior year.
(3)For the nine months ended September 30, 2020, other revenues in North America, Europe, and Rest of World were approximately $51.8 million, $11.1 million, and $27.4 million, respectively. For the nine months ended September 30, 2019, other revenues in North America, Europe, and Rest of World were approximately $58.8 million, $12.3 million, and $30.6 million, respectively.
(4)Amounts exclude intersegment revenue that eliminates on a consolidated basis.
Total Revenues
For the nine months ended September 30, 2020, Mylan reported total revenues of $8.32 billion, compared to $8.31 billion for the comparable prior year period, representing an increase of $13.8 million, or less than 1%. Total revenues include both net sales and other revenues from third parties. Net sales for the nine months ended September 30, 2020 were $8.23 billion, compared to $8.21 billion for the comparable prior year period, representing an increase of $25.2 million, or less than 1%. Other revenues for the nine months ended September 30, 2020 were $90.3 million, compared to $101.7 million for the comparable prior year period.
The increase in net sales was primarily the result of an increase in net sales in the Europe segment of 5% which was partially offset by a decrease in net sales in the Rest of World segment of 5% and a slight decrease in net sales in the North America segment. Mylan’s net sales were unfavorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S. Dollar as compared to the currencies of Mylan’s subsidiaries in India. The unfavorable impact of foreign currency translation on current year net sales was approximately $93.5 million, or 1%. On a constant currency basis, the increase in net sales was approximately $118.7 million, or 1% for the nine months ended September 30, 2020. This increase was primarily driven by new product sales of $342.8 million, and to a lesser extent, higher volumes of existing products, partially offset by lower pricing on sales of existing products. We have estimated that the net impact of the COVID-19 pandemic decreased net sales during the nine months ended September 30, 2020 by approximately 2%, caused by the same drivers for the three month period.
From time to time, a limited number of our products may represent a significant portion of our net sales, gross profit and net earnings. Generally, this is due to the timing of new product introductions and the amount, if any, of additional competition in the market. Our top ten products in terms of net sales, in the aggregate, represented approximately 23% and 24% for the nine months ended September 30, 2020 and 2019, respectively. This percentage may fluctuate based upon the timing of new product launches, seasonality and the timing of the discontinuation of products.
Net sales are derived from our three geographic reporting segments: North America, Europe and Rest of World. The graph below shows net sales by segment for the nine months ended September 30, 2020 and 2019 and the net change period over period:
North America Segment
Net sales from North America decreased by $11.7 million or less than 1% during the nine months ended September 30, 2020 when compared to the prior year period. This decrease was due primarily to lower pricing on sales of existing products, partially offset by new product sales and, to a lesser extent, higher volumes on sales of existing products. Lower pricing on sales of existing products was driven by changes in the competitive environment, including for Levothyroxine Sodium, and lower volumes primarily driven by the EpiPen® Auto-Injector, partially offset by increased Wixela™ Inhub™ volumes. The impact of foreign currency translation on current period net sales was insignificant within North America.
Europe Segment
Net sales from Europe increased by $150.0 million or 5% during the nine months ended September 30, 2020 when compared to the prior year period. This increase was primarily the result of new product sales and higher net sales of existing products, partially as a result of increased volumes which were driven by the resolution of supply disruptions encountered in the prior year period. The remainder of the increase in net sales was the result of expected net sales growth in the region partially offset by the negative impact of COVID-19. Pricing was relatively stable when compared to the prior year period. Net sales were also favorably impacted by the effect of foreign currency translation of approximately $3.3 million, or less than 1%. Constant currency net sales increased by approximately $146.7 million, or 5%, when compared to the prior year period.
Rest of World Segment
Net sales from Rest of World decreased by $113.1 million or 5% during the nine months ended September 30, 2020 when compared to the prior year period. The decrease was primarily due to the unfavorable impact of foreign currency translation and, to a lesser extent, by lower pricing on net sales of existing products, primarily driven by government price reductions in Japan and Australia. The decrease in net sales was also due to lower volumes on net sales of existing products related to the estimated negative impact from COVID-19 in China, Russia and Japan. Partially offsetting lower net sales of existing products were new product sales, including Remdesivir in India and emerging markets. Overall, net sales from Rest of World were unfavorably impacted by the effect of foreign currency translation of approximately $92.7 million, or 4%. Constant currency net sales decreased by approximately $20.4 million, or 1%, when compared to the prior year period.
Cost of Sales and Gross Profit
Cost of sales decreased from $5.50 billion for the nine months ended September 30, 2019 to $5.23 billion for the nine months ended September 30, 2020. Cost of sales was primarily impacted by purchase accounting related amortization of acquired intangible assets and other special items, which are described further in the section titled Use of Non-GAAP Financial Measures. Gross profit for the nine months ended September 30, 2020 was $3.09 billion and gross margins were 37%. For the nine months ended September 30, 2019, gross profit was $2.81 billion and gross margins were 34%. Gross margins were positively impacted by lower amortization expense from acquired intangible assets and intangible asset impairment charges realized in the prior year period of 265 basis points. In addition, gross margins were positively impacted as a result of higher gross profit from sales of new products of 255 basis points, primarily in North America and, to a lesser extent, sales of existing products in Europe. Gross margins were negatively impacted as a result of lower gross profit from sales of existing products in Rest of World and North America of 240 basis points. In addition, gross margins were negatively impacted by incremental costs incurred as a result of the COVID-19 pandemic, including a special bonus for plant employees. Adjusted gross margins were 54% for the nine months ended September 30, 2020, compared to 53% for the nine months ended September 30, 2019.
A reconciliation between cost of sales, as reported under U.S. GAAP, and adjusted cost of sales and adjusted gross margin for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
U.S. GAAP cost of sales
|
$
|
5,232.2
|
|
|
$
|
5,498.5
|
|
|
Deduct:
|
|
|
|
|
Purchase accounting amortization and other related items
|
(1,072.5)
|
|
|
(1,284.0)
|
|
|
Acquisition related items
|
(11.5)
|
|
|
(2.9)
|
|
|
Restructuring and related costs
|
(17.6)
|
|
|
(72.2)
|
|
|
Share-based compensation expense
|
(1.1)
|
|
|
(0.8)
|
|
|
Other special items
|
(299.3)
|
|
|
(268.1)
|
|
|
Adjusted cost of sales
|
$
|
3,830.2
|
|
|
$
|
3,870.5
|
|
|
|
|
|
|
|
Adjusted gross profit (a)
|
$
|
4,492.3
|
|
|
$
|
4,438.2
|
|
|
|
|
|
|
|
Adjusted gross margin (a)
|
54
|
%
|
|
53
|
%
|
____________
(a)Adjusted gross profit is calculated as total revenues less adjusted cost of sales. Adjusted gross margin is calculated as adjusted gross profit divided by total revenues.
Operating Expenses
Research & Development Expense
R&D expense for the nine months ended September 30, 2020 was $400.3 million, compared to $488.1 million for the comparable prior year period, a decrease of $87.8 million. This decrease was primarily due to lower expenditures related to the reprioritization of global programs, and higher payments in the prior year period related to licensing arrangements for products in development.
Selling, General & Administrative Expense
SG&A expense for the nine months ended September 30, 2020 was $1.98 billion, compared to $1.91 billion for the comparable prior year period, an increase of $74.0 million. The increase was due primarily to higher consulting fees along with other expenses primarily related to the pending Combination totaling approximately $235.5 million in the current year period, including approximately $115.0 million related to obligations to reimburse Pfizer for certain financing costs under the Combination Agreements. Partially offsetting this increase were lower selling and promotional expenses, including through our active management and certain lower expenses as a result of COVID-19.
Litigation Settlements and Other Contingencies, Net
During the nine months ended September 30, 2020 and 2019, the Company recorded a net charge of $36.5 million and net gain of $30.3 million, respectively.
The following table includes the losses/(gains) recognized in litigation settlements and other contingencies, net during the nine months ended September 30, 2020 and September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
Respiratory delivery platform contingent consideration adjustment
|
$
|
35.6
|
|
|
$
|
(28.9)
|
|
|
Litigation settlements, net
|
0.9
|
|
|
(1.4)
|
|
|
Total litigation settlements and other contingencies, net
|
$
|
36.5
|
|
|
$
|
(30.3)
|
|
During the nine months ended September 30, 2020, the Company recorded a $35.6 million loss for fair value adjustments related to respiratory delivery platform contingent consideration. Additionally, the Company recorded a net charge of approximately $0.9 million related to a number of litigation matters. Litigation settlements for the nine months ended September 30, 2019, consisted of litigation related gains of approximately $1.4 million primarily related to a favorable litigation settlement related to the previously disclosed Celgene matter of $62.0 million offset by litigation related charges for settlements reached related to the modafinil antitrust matter of $18.0 million and the settlement with the SEC in connection with the SEC staff’s investigation of the Company’s public disclosures regarding its 2016 settlement with the Department of Justice concerning the EpiPen Medicaid Drug Rebate Program of $30.0 million. Additionally, the Company recognized a gain of $28.9 million for fair value adjustments related to the respiratory delivery platform contingent consideration.
Interest Expense
Interest expense for the nine months ended September 30, 2020 totaled $353.4 million, compared to $391.3 million for the nine months ended September 30, 2019, a decrease of $37.9 million. The decrease is primarily due to lower average long-term debt balances during the current year.
Other (Income) Expense, Net
Other expense, net was $24.6 million for the nine months ended September 30, 2020, compared to $32.7 million for the comparable prior year period. Other expense, net includes losses from equity affiliates, foreign exchange gains and losses and interest and dividend income. Other expense, net was comprised of the following for the nine months ended September 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
Losses from equity affiliates, primarily clean energy investments
|
$
|
37.4
|
|
|
$
|
43.6
|
|
|
Foreign exchange losses/(gains), net
|
8.6
|
|
|
(4.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other gains, net
|
(21.4)
|
|
|
(6.5)
|
|
|
Other expense, net
|
$
|
24.6
|
|
|
$
|
32.7
|
|
Included in other gains for the nine months ended September 30, 2020 was a $16.5 million gain for a fair value adjustment relate to a non-marketable investment which the Company holds.
Income Tax Provision (Benefit)
For the nine months ended September 30, 2020, the Company recognized an income tax provision of $46.4 million, compared to a tax provision of $22.9 million for the comparable prior year period, an increase of $23.5 million. During the nine months ended September 30, 2020, the Company recognized a net charge as a result of adjustments to reserves for uncertain tax positions, partially offset by changes in the assessment of the realizability of deferred tax assets. During the nine months ended September 30, 2019, the Company reached a settlement in principle with the IRS to resolve federal tax matters related to the
February 27, 2015 acquisition by Mylan N.V. of Mylan Inc. and Abbott Laboratories’ non-U.S. developed markets specialty and branded generics business, including adjusting the interest rates used for intercompany loans and confirming our status as a non-U.S. corporation for U.S. federal income tax purposes, and recorded a reserve of approximately $140.0 million as part of its liability for uncertain tax positions, with a net impact to the income tax provision of approximately $129.9 million related to this matter. During the nine months ended September 30, 2019, primarily due to the settlement in principle reached with the IRS and the expiration of federal and foreign statutes of limitations, the Company increased its net liability for unrecognized tax benefits by approximately $46.1 million. Also impacting the current year income tax expense was the changing mix of income earned in jurisdictions with differing tax rates.
Use of Non-GAAP Financial Measures
Whenever the Company uses non-GAAP financial measures, we provide a reconciliation of the non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure. Investors and other readers are encouraged to review the related U.S. GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measure and should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with U.S. GAAP. Additionally, since these are not measures determined in accordance with U.S. GAAP, non-GAAP financial measures have no standardized meaning across companies, or as prescribed by U.S. GAAP and, therefore, may not be comparable to the calculation of similar measures or measures with the same title used by other companies.
Management uses these measures internally for forecasting, budgeting, measuring its operating performance, and incentive-based awards. Primarily due to acquisitions and other significant events which may impact comparability of our periodic operating results, we believe that an evaluation of our ongoing operations (and comparisons of our current operations with historical and future operations) would be difficult if the disclosure of our financial results was limited to financial measures prepared only in accordance with U.S. GAAP. We believe that non-GAAP financial measures are useful supplemental information for our investors and when considered together with our U.S. GAAP financial measures and the reconciliation to the most directly comparable U.S. GAAP financial measure, provide a more complete understanding of the factors and trends affecting our operations. The financial performance of the Company is measured by senior management, in part, using adjusted metrics as described below, along with other performance metrics. Beginning in 2020, management’s annual incentive compensation is derived, in part, based on adjusted EBITDA (as defined below).
Adjusted Cost of Sales and Adjusted Gross Margin
We use the non-GAAP financial measure “adjusted cost of sales” and the corresponding non-GAAP financial measure “adjusted gross margin.” The principal items excluded from adjusted cost of sales include restructuring, acquisition related and other special items and purchase accounting amortization and other related items, which are described in greater detail below.
Adjusted Net Earnings
Adjusted net earnings is a non-GAAP financial measure and provides an alternative view of performance used by management. Management believes that, primarily due to acquisition activity and other significant events, an evaluation of the Company’s ongoing operations (and comparisons of its current operations with historical and future operations) would be difficult if the disclosure of its financial results were limited to financial measures prepared only in accordance with U.S. GAAP. Management believes that adjusted net earnings is an important internal financial metric related to the ongoing operating performance of the Company, and are therefore useful to investors and that their understanding of our performance is enhanced by this measure. Actual internal and forecasted operating results and annual budgets used by management include adjusted net earnings.
EBITDA and Adjusted EBITDA
EBITDA and adjusted EBITDA are non-GAAP financial measures that the Company believes are appropriate to provide additional information to investors to demonstrate the Company’s ability to comply with financial debt covenants and assess the Company’s ability to incur additional indebtedness. The Company also believes that adjusted EBITDA better focuses management on the Company’s underlying operational results and true business performance and, beginning in 2020, is used, in part, for management’s incentive compensation. We calculate “EBITDA” as U.S. GAAP net earnings (loss) adjusted for net contribution attributable to equity method investments, income tax provision (benefit), interest expense and depreciation and amortization. EBITDA is further adjusted for share-based compensation expense, litigation settlements and other contingencies, net, and restructuring and other special items to determine “adjusted EBITDA”. These adjustments are permitted under our credit agreement in calculating Adjusted EBITDA for determining compliance with our debt covenants.
The significant items excluded from adjusted cost of sales, adjusted net earnings, EBITDA and adjusted EBITDA include:
Purchase Accounting Amortization and Other Related Items
The ongoing impact of certain amounts recorded in connection with acquisitions of both businesses and assets is excluded from adjusted cost of sales, adjusted net earnings, EBITDA and adjusted EBITDA. These amounts include the amortization of intangible assets, inventory step-up and intangible asset impairment charges, including for in-process research and development. For the acquisition of businesses accounted for under the provisions of the Financial Accounting Standards Board Accounting Standards Codification Topic 805, these purchase accounting impacts are excluded regardless of the financing method used for the acquisitions, including the use of cash, long-term debt, the issuance of ordinary shares, contingent consideration or any combination thereof.
Upfront and Milestone-Related R&D Expenses
These expenses and payments are excluded from adjusted net earnings and adjusted EBITDA because they generally occur at irregular intervals and are not indicative of the Company’s ongoing operations.
Accretion of Contingent Consideration Liability and Other Fair Value Adjustments
The impact of changes to the fair value of contingent consideration and accretion expense are excluded from adjusted net earnings and adjusted EBITDA because they are not indicative of the Company’s ongoing operations due to the variability of the amounts and the lack of predictability as to the occurrence and/or timing and management believes their exclusion is helpful to understanding the underlying, ongoing operational performance of the business.
Share-based Compensation Expense
Share-based compensation expense is excluded from adjusted net earnings and adjusted EBITDA. Our share-based compensation programs have become increasingly weighted toward performance-based compensation, which leads to variability and to a lack of predictability as to the occurrence and/or timing of amounts incurred. As such, management believes the exclusion of such amounts on an ongoing basis is helpful to understanding the underlying operational performance of the business.
Restructuring, Acquisition Related and Other Special Items
Costs related to restructuring, acquisition and integration activities and other actions are excluded from adjusted cost of sales, adjusted net earnings and adjusted EBITDA, as applicable. These amounts include items such as:
•Costs related to formal restructuring programs and actions, including costs associated with facilities to be closed or divested, employee separation costs, impairment charges, accelerated depreciation, incremental manufacturing variances, equipment relocation costs and other restructuring related costs;
•Certain acquisition related remediation and integration and planning costs, as well as other costs associated with acquisitions such as advisory and legal fees and certain financing related costs, and other business transformation and/or optimization initiatives, which are not part of a formal restructuring program, including employee separation and post-employment costs;
•The pre-tax loss of the Company’s clean energy investments, whose activities qualify for income tax credits under the U.S. Internal Revenue Code of 1986, as amended; only included in adjusted net earnings is the net tax effect of the entity’s activities;
•Other costs, incurred from time to time, related to certain special events or activities that lead to gains or losses, including, but not limited to, incremental manufacturing variances, asset write-downs, or liability adjustments;
•Certain costs to further develop and optimize our global enterprise resource planning systems, operations and supply chain; and
•The impact of changes related to uncertain tax positions is excluded from adjusted net earnings. In addition, tax adjustments to adjusted earnings are recorded to present items on an after-tax basis consistent with the presentation of adjusted net earnings.
The Company has undertaken restructurings and other optimization initiatives of differing types, scope and amount during the covered periods and, therefore, these charges should not be considered non-recurring; however, management
excludes these amounts from adjusted net earnings and adjusted EBITDA because it believes it is helpful to understanding the underlying, ongoing operational performance of the business.
Litigation Settlements, Net
Charges and gains related to legal matters, such as those discussed in Note 18 Litigation included in Part I, Item 1 of this Form 10-Q are generally excluded from adjusted net earnings and adjusted EBITDA. Normal, ongoing defense costs of the Company made in the normal course of our business are not excluded.
Reconciliation of U.S. GAAP Net Earnings to Adjusted Net Earnings
A reconciliation between net earnings (loss) as reported under U.S. GAAP, and adjusted net earnings for the periods shown follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
U.S. GAAP net earnings (loss)
|
$
|
185.7
|
|
|
|
|
$
|
189.8
|
|
|
|
|
$
|
245.9
|
|
|
$
|
(3.7)
|
|
|
Purchase accounting related amortization (primarily included in cost of sales)
|
368.5
|
|
|
|
|
408.5
|
|
|
|
|
1,072.5
|
|
|
1,283.9
|
|
|
Litigation settlements and other contingencies, net
|
18.9
|
|
|
|
|
(51.9)
|
|
|
|
|
36.5
|
|
|
(30.3)
|
|
|
Interest expense (primarily clean energy investment financing and accretion of contingent consideration)
|
5.3
|
|
|
|
|
6.6
|
|
|
|
|
16.6
|
|
|
20.8
|
|
|
Clean energy investments pre-tax loss
|
2.9
|
|
|
|
|
10.4
|
|
|
|
|
37.4
|
|
|
43.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs (primarily included in SG&A) (a)
|
72.3
|
|
|
|
|
43.0
|
|
|
|
|
218.2
|
|
|
56.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring related costs (b)
|
14.5
|
|
|
|
|
0.8
|
|
|
|
|
47.0
|
|
|
78.3
|
|
|
Share-based compensation expense
|
15.1
|
|
|
|
|
16.1
|
|
|
|
|
49.8
|
|
|
50.9
|
|
|
Other special items included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (c)
|
83.6
|
|
|
|
|
70.9
|
|
|
|
|
299.3
|
|
|
268.1
|
|
|
Research and development expense (d)
|
3.7
|
|
|
|
|
40.3
|
|
|
|
|
45.8
|
|
|
100.5
|
|
|
Selling, general and administrative expense
|
7.5
|
|
|
|
|
8.4
|
|
|
|
|
12.9
|
|
|
33.1
|
|
|
Other expense, net
|
—
|
|
|
|
|
—
|
|
|
|
|
(16.4)
|
|
|
—
|
|
|
Tax effect of the above items and other income tax related items
|
(98.3)
|
|
|
|
|
(138.5)
|
|
|
|
|
(344.3)
|
|
|
(342.7)
|
|
|
Adjusted net earnings
|
$
|
679.7
|
|
|
|
|
$
|
604.4
|
|
|
|
|
$
|
1,721.2
|
|
|
$
|
1,559.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant items include the following:
(a) Acquisition related costs consist primarily of transaction costs including legal and consulting fees and integration activities. The increase for the three and nine months ended September 30, 2020 relates to transaction costs for the pending Combination, including approximately $30.0 million and $115.0 million, respectively, related to the Company’s obligation to reimburse Pfizer for certain financing costs under the Combination Agreements.
(b) For the three months ended September 30, 2020, charges of approximately $8.7 million are included in cost of sales, approximately $0.1 million is included in R&D, and approximately $5.7 million is included in SG&A. For the nine months ended September 30, 2020, charges of approximately $17.6 million are included in cost of sales, approximately $0.3 million is included in R&D, and approximately $29.0 million is included in SG&A. Refer to Note 15 Restructuring included in Part I, Item 1 of this Form 10-Q for additional information.
(c) Costs incurred during the three and nine months ended September 30, 2020 include incremental manufacturing variances and site remediation activities as a result of the activities at the Company’s Morgantown plant of approximately $57.8 million and $179.6 million, respectively. In addition, the three and nine months ended September 30, 2020 includes incremental manufacturing variances incurred as a result of the COVID-19 pandemic of approximately $8.0 million and $32.0 million, respectively. Also, the nine months ended September 30, 2020 includes $27.0 million related to a special bonus for plant employees as a result of the COVID-19 pandemic. The three months ended September 30, 2019 includes costs related to incremental manufacturing variances and site remediation activities as a result of the activities at the Company’s Morgantown plant of approximately $50.0 million. The nine months ended September 30, 2019 includes charges for certain incremental manufacturing variances and site
remediation activities as a result of the activities at the Company’s Morgantown plant, product recall costs, including inventory write-offs, and charges related to the cancellation of a contract.
(d) R&D expense for the three and nine months ended September 30, 2020 consists primarily of amounts for product development arrangements, including with Revance Therapeutics Inc., of approximately $3.0 million and $41.0 million, respectively. R&D expense for the three months ended September 30, 2019 consists primarily of payments for product development. R&D expense for the nine months ended September 30, 2019 consists primarily of payments for product development arrangements of approximately $46.8 million, including $18.5 million for the expansion of the Yupelri® agreement and $23.3 million related to non-refundable upfront licensing amounts for a product in development. The remaining expense relates to on-going development collaborations.
Reconciliation of U.S. GAAP Net Earnings to EBITDA and Adjusted EBITDA
Below is a reconciliation of U.S. GAAP net earnings (loss) to EBITDA and adjusted EBITDA for the three and nine months ended September 30, 2020 compared to the prior year period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
U.S. GAAP net earnings (loss)
|
$
|
185.7
|
|
|
$
|
189.8
|
|
|
$
|
245.9
|
|
|
$
|
(3.7)
|
|
|
Add / (deduct) adjustments:
|
|
|
|
|
|
|
|
|
Clean energy investments pre-tax loss
|
2.9
|
|
|
10.4
|
|
|
37.4
|
|
|
43.6
|
|
|
Income tax provision (benefit)
|
55.9
|
|
|
(4.0)
|
|
|
46.4
|
|
|
22.9
|
|
|
Interest expense (a)
|
117.3
|
|
|
128.9
|
|
|
353.4
|
|
|
391.3
|
|
|
Depreciation and amortization (b)
|
432.3
|
|
|
469.7
|
|
|
1,263.0
|
|
|
1,471.6
|
|
|
EBITDA
|
$
|
794.1
|
|
|
$
|
794.8
|
|
|
$
|
1,946.1
|
|
|
$
|
1,925.7
|
|
|
Add / (deduct) adjustments:
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
15.1
|
|
|
16.1
|
|
|
49.8
|
|
|
50.9
|
|
|
Litigation settlements and other contingencies, net
|
18.9
|
|
|
(51.9)
|
|
|
36.5
|
|
|
(30.3)
|
|
|
Restructuring, acquisition related and other special items (c)
|
181.6
|
|
|
163.8
|
|
|
606.6
|
|
|
534.1
|
|
|
Adjusted EBITDA
|
$
|
1,009.7
|
|
|
$
|
922.8
|
|
|
$
|
2,639.0
|
|
|
$
|
2,480.4
|
|
(a) Includes clean energy investment financing and accretion of contingent consideration.
(b) Includes purchase accounting related amortization.
(c) See items detailed in the Reconciliation of U.S. GAAP Net Earnings to Adjusted Net Earnings.
Liquidity and Capital Resources
Our primary source of liquidity is net cash provided by operating activities, which was $1.20 billion for the nine months ended September 30, 2020. We believe that net cash provided by operating activities and available liquidity will continue to allow us to meet our needs for working capital, capital expenditures and interest and principal payments on debt obligations. Nevertheless, our ability to satisfy our working capital requirements and debt service obligations, or fund planned capital expenditures, will substantially depend upon our future operating performance (which will be affected by prevailing economic conditions), and financial, business and other factors, some of which are beyond our control.
Operating Activities
Net cash provided by operating activities increased by $78.6 million to $1.20 billion for the nine months ended September 30, 2020, as compared to net cash provided by operating activities of $1.12 billion for the nine months ended September 30, 2019. Net cash provided by operating activities is derived from net (loss) earnings adjusted for non-cash operating items, gains and losses attributed to investing and financing activities and changes in operating assets and liabilities resulting from timing differences between the receipts and payments of cash, including changes in cash primarily reflecting the timing of cash collections from customers, payments to vendors and employees and tax payments in the ordinary course of business.
The net increase in net cash provided by operating activities was principally due to the following:
•an increase in net earnings of approximately $249.6 million, principally as a result of an increase in earnings from operations; and
•a net increase in the amount of cash provided by changes in income taxes of $175.4 million as a result of the level and timing of estimated tax payments made during the current period.
These items were partially offset by the following:
•a net decrease in the non-cash impact of depreciation and amortization of $208.6 million;
•a net decrease in the amount of cash used through accounts receivable of $6.6 million, reflecting the timing of sales and cash collections;
•a net increase of $54.8 million in the amount of cash used through changes in inventory balances;
•a net increase in the amount of cash used through changes in trade accounts payable of $16.5 million as a result of the timing of cash payments; and
•a net decrease in the amount of cash provided by changes in other operating assets and liabilities of $40.4 million.
Investing Activities
Net cash used in investing activities was $278.8 million for the nine months ended September 30, 2020, as compared to $410.9 million for the nine months ended September 30, 2019, a net decrease of $132.1 million.
In 2020, significant items in investing activities included the following:
•payments for product rights and other, net totaling approximately $97.3 million, primarily related to deferred non-contingent purchase payments for the acquisition of intellectual property rights and marketing authorizations;
•purchase of marketable securities and other investments of $96.1 million; and
•capital expenditures, primarily for equipment and facilities, totaling approximately $126.1 million. While there can be no assurance that current expectations will be realized, capital expenditures for the 2020 calendar year are expected to be approximately $200 million to $250 million.
In 2019, significant items in investing activities included the following:
•cash paid for acquisitions, net totaling approximately $148.7 million primarily related to the deferred non-contingent purchase payments due to Novartis AG for the purchase of the worldwide rights to the TOBI Podhaler® and TOBI® solution global cystic fibrosis products;
•payments for product rights and other, net totaling approximately $146.5 million primarily related to the acquisitions of intellectual property rights and marketing authorizations;
•proceeds from the sale of assets of $24.3 million; and
•capital expenditures, primarily for equipment and facilities, totaling approximately $139.6 million.
Financing Activities
Net cash used in financing activities was $754.8 million for the nine months ended September 30, 2020, as compared to $704.6 million for the nine months ended September 30, 2019, a net increase of $50.2 million.
In 2020, significant items in financing activities included the following:
•long-term debt payments of approximately $588.9 million consisting primarily of the redemption of $555.2 million principal amount of the 2020 Floating Rate Euro Notes;
•non-contingent payments for product rights totaling approximately $139.5 million primarily related to the acquisitions of intellectual property rights and marketing authorizations in prior periods; and
•payments totaling approximately $48.5 million (of the $82.1 million) in profit share and milestone payments related to the respiratory delivery platform contingent consideration. The remaining payments related to the respiratory delivery platform contingent consideration are included as a component of other operating assets and liabilities, net within net cash from operating activities.
In 2019, significant items in financing activities included the following:
•long-term debt payments of approximately$657.1 million consisting primarily of the redemption of $550.0 million principal amount of 2.500% Senior Notes due 2019 and repayment of the remaining approximately $100.0 million balance of the 2016 Term Facility;
•payments totaling $47.8 million (of the $79.0 million) in profit share and milestone payments related to the respiratory delivery platform contingent consideration. The remaining payments related to the respiratory delivery
platform contingent consideration are included as a component of other operating assets and liabilities, net within net cash from operating activities; and
•a net decrease in short-term borrowings of $1.9 million.
Capital Resources
Our cash and cash equivalents totaled $664.5 million at September 30, 2020, and the majority of these funds are held by our non-U.S. subsidiaries. The Company anticipates having sufficient liquidity, including existing borrowing capacity under its Revolving Credit Facility, Commercial Paper Program, Receivables Facility and the Note Securitization Facility (which are each defined in Note 2 Revenue Recognition and Accounts Receivable or Note 12 Debt in Part I, Item 1 of this Form 10-Q) combined with cash to be generated from operations, to fund foreseeable cash needs without requiring the repatriation of non-U.S. cash.
The Company has access to $2.0 billion under the Revolving Credit Facility which matures in 2023. Up to $1.65 billion of the Revolving Credit Facility may be used to support borrowings under our Commercial Paper Program. As of September 30, 2020, the Company had no amounts outstanding under the Commercial Paper Program.
The Company has the $400 million Receivables Facility which expires in April 2022. The Company also has the $200 million Note Securitization Facility which expires on August 30, 2021. Borrowings outstanding under the Receivables Facility bear interest at a commercial paper rate plus 0.925% and under the Note Securitization Facility at a rate per annum quoted from time to time by MUFG Bank, Ltd. plus 1.00% and are included as a component of short-term borrowings, while the accounts receivable securing these obligations remain as a component of accounts receivable, net, in our condensed consolidated balance sheets. In addition, the agreements governing the Receivables Facility and Note Securitization Facility contain various customary affirmative and negative covenants, and customary default and termination provisions with which the Company was compliant as of September 30, 2020. As of September 30, 2020, the Company had no amounts outstanding under the Receivables Facility or the Note Securitization Facility.
We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers. Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. We derecognized $123.0 million and $90.1 million of accounts receivable as of September 30, 2020 and December 31, 2019, respectively, under these factoring arrangements.
At September 30, 2020, our long-term debt, including the current portion, totaled $12.28 billion, as compared to $12.67 billion at December 31, 2019. Total long-term debt is calculated net of deferred financing fees which were $52.0 million and $60.5 million at September 30, 2020 and December 31, 2019, respectively.
For additional information regarding our debt and debt agreements refer to Note 12 Debt in Part I, Item 1 of this Form 10-Q.
Long-term Debt Maturity
Mandatory minimum repayments remaining on the outstanding notional amount of long-term debt at September 30, 2020 was as follows for each of the periods ending December 31:
The Company has a $2.0 billion revolving credit facility which is scheduled to expire in July 2023. The Revolving Credit Facility contains a maximum consolidated leverage ratio financial covenant requiring maintenance of a maximum ratio of 3.75 to 1.00 for consolidated total indebtedness as of the end of any quarter to consolidated EBITDA for the trailing four quarters as defined in the related credit agreements (“maximum leverage ratio”). On June 16, 2020 the Company entered into an amendment to the Revolving Credit Facility to temporarily increase the maximum leverage ratio to 4.25 to 1.00 after the March 31, 2020 reporting period through the December 31, 2020 reporting period with a maximum leverage ratio of 3.75 to 1.00 thereafter. The Company is in compliance at September 30, 2020 and expects to remain in compliance for the next twelve months.
Collaboration and Licensing Agreements
We periodically enter into collaboration and licensing agreements with other pharmaceutical companies for the development, manufacture, marketing and/or sale of pharmaceutical products. Our significant collaboration agreements are primarily focused on the development, manufacturing, supply and commercialization of multiple, high-value generic biologic compounds, insulin analog products and respiratory products, among other complex products. Under these agreements, we have future potential milestone payments and co-development expenses payable to third parties as part of our licensing, development and co-development programs. Payments under these agreements generally become due and are payable upon the satisfaction or achievement of certain developmental, regulatory or commercial milestones or as development expenses are incurred on defined projects. Milestone payment obligations are uncertain, including the prediction of timing and the occurrence of events triggering a future obligation and are not reflected as liabilities in the condensed consolidated balance sheets, except for obligations reflected as acquisition related contingent consideration. Refer to Note 11 Financial Instruments and Risk Management in Part I, Item 1 of this Form 10-Q for additional information. Our potential maximum development milestones not accrued for at September 30, 2020 totaled approximately $425 million. We estimate that the amounts that may be paid during the next twelve months to be approximately $40 million. These agreements may also include potential sales-based milestones and call for us to pay a percentage of amounts earned from the sale of the product as a royalty or a profit share. The amounts disclosed do not include sales-based milestones or royalty or profit share obligations on future sales of product as the timing and amount of future sales levels and costs to produce products subject to these obligations is not reasonably estimable. These sales-based milestones or royalty or profit share obligations may be significant depending upon the level of commercial sales for each product.
We are contractually obligated to make potential future development, regulatory and commercial milestone, royalty and/or profit sharing payments in conjunction with acquisitions we have entered into with third parties. The most significant of these relates to the potential future consideration related to the respiratory delivery platform. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, we may be required to pay such amounts. The amount of the contingent consideration liabilities was $213.2 million at September 30, 2020. In addition, the Company expects to incur approximately $10 million to $15 million of non-cash accretion expense related to the increase in the net present value of the contingent consideration liabilities in 2020.
Supplemental Guarantor Financial Information
Mylan N.V. is the issuer of the 3.750% Senior Notes due 2020, 3.150% Senior Notes due 2021, 3.950% Senior Notes due 2026 and 5.250% Senior Notes due 2046 (collectively, the “Mylan N.V. Senior Notes”), which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan Inc. Mylan Inc. is the issuer of the 3.125% Senior Notes due 2023, 4.200% Senior Notes due 2023, 4.550% Senior Notes due 2028, 5.400% Senior Notes due 2043 and 5.200% Senior Notes due 2048 (collectively, the “Mylan Inc. Senior Notes” and, together with the Mylan N.V. Senior Notes, the “Senior Notes”), which are fully and unconditionally guaranteed on a senior unsecured basis by Mylan N.V.
The respective obligations of Mylan N.V. and Mylan Inc. as guarantors of the Senior Notes, as applicable, are senior unsecured obligations of the applicable guarantor and rank pari passu in right of payment with all of such guarantor’s existing and future senior unsecured obligations that are not expressly subordinated to such guarantor’s guarantee of the applicable series of Senior Notes, rank senior in right of payment to any future obligations of such guarantor that are expressly subordinated to such guarantor’s guarantee of the applicable series of Senior Notes, and are effectively subordinated to such guarantor’s existing and future secured obligations to the extent of the value of the collateral securing such obligations. The respective obligations of Mylan N.V. and Mylan Inc. as guarantors of the Senior Notes, as applicable, are structurally subordinated to all of the existing and future liabilities, including trade payables, of the existing and future subsidiaries of such guarantor that do not guarantee the applicable series of Senior Notes.
The guarantees by Mylan Inc. of the Mylan N.V. Senior Notes will terminate under the following customary circumstances: (1) a sale or disposition of Mylan Inc. in a transaction that complies with the applicable indenture such that Mylan Inc. ceases to be a subsidiary of Mylan N.V.; (2) legal defeasance or covenant defeasance, each as described in the applicable indenture, or if Mylan N.V.’s obligations under the applicable indenture are discharged; or (3) the earlier to occur of (i) the release of Mylan N.V.’s guarantee under all applicable Mylan Inc. debt and (ii) Mylan Inc. no longer having any obligations in respect of any Mylan Inc. debt.
The guarantee obligations of Mylan N.V. and Mylan Inc. under the Senior Notes are subject to certain limitations and terms similar to those applicable to other guarantees of similar instruments, including that (i) the guarantees are subject to fraudulent transfer and conveyance laws and (ii) each guarantee is limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable guarantor without rendering the guarantee, as it relates to such guarantor, voidable under applicable fraudulent transfer and conveyance laws or similar laws affecting the rights of creditors generally. In addition, Dutch and English insolvency laws to which Mylan N.V. is or may be subject may not be as favorable to holders of Senior Notes as United States or other insolvency laws, and, because it is a Dutch company, it may be more difficult for holders of Senior Notes to obtain or enforce judgments against Mylan N.V.
Because Mylan N.V. is a holding company, its only material assets are its ownership interests in its subsidiaries, and those subsidiaries conduct substantially all of its operations. As a result, Mylan N.V.’s ability to make payments on its obligations under the Senior Notes will depend on its subsidiaries’ cash flow and their ability to make payments to Mylan N.V., which will depend on their earnings, applicable covenants in debt and other agreements, business and tax considerations and applicable law (including local law regulating payments of dividends and distributions).
In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding the financial disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered. Among other things, the amendments narrow the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamline the alternative disclosures required in lieu of those financial statements. The effective date of the amendment is January 4, 2021 with earlier voluntary compliance permitted. We have chosen to voluntarily comply with the amended rules effective during the three months ended March 31, 2020.
The following table presents unaudited summarized financial information of Mylan N.V. and Mylan Inc. on a combined basis as of and for the nine months ended September 30, 2020 and as of and for the year ended December 31, 2019. All intercompany balances have been eliminated in consolidation. This unaudited combined summarized financial information is presented utilizing the equity method of accounting.
