| Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated. Columns and rows within tables may not sum due to rounding. Reclassification The Company has presented its former oncology business as discontinued operations in its consolidated financial statements for all periods presented. See Note 3, Discontinued Operations in these “Notes to Consolidated Financial Statements” in this Annual Report for additional information. Additionally, as a result of the planned sale of the Athlone Facility, the Company has classified the assets described under the related asset purchase agreement as held for sale. The Company’s historical financial statements and footnotes have been recast accordingly. Discontinued Operations The Company determined that the separation of its oncology business in November 2023 met the criteria for classification of the oncology business as discontinued operations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205, Discontinued Operations . Accordingly, the accompanying consolidated financial statements have been updated to present the assets and liabilities associated with the oncology business as discontinued operations as of December 31, 2022 on the consolidated balance sheets, and the results of the oncology business as discontinued operations through the Separation Date for the years ended December 31, 2023, 2022 and 2021 in the consolidated statements of operations and comprehensive income (loss). Assets Held for Sale In connection with the planned sale of the Athlone Facility, the Company reviewed FASB ASC 805, Business Combinations and, based on the definitions therein, has determined that the Athlone Facility constitutes a business. Accordingly, the assets associated with the planned sale of the Athlone Facility have been classified as “Assets held for sale” within the accompanying consolidated balance sheets as of December 31, 2023 and 2022. Use of Estimates The preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that Company management make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments and methodologies, including but not limited to, those related to revenue from contracts with its customers and related allowances, impairment and amortization of intangibles and long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Cash and Cash Equivalents The Company values its cash and cash equivalents at cost plus accrued interest, which the Company believes approximates their market value. The Company considers as cash equivalents only those investments that are highly liquid, readily convertible into cash and so near their maturity (generally three months from the date of purchase) that they present insignificant risk of change in value because of interest rate changes. Investments The Company has investments in various types of securities, consisting primarily of United States (“U.S.”) government and agency obligations, corporate debt securities and debt securities issued by non-U.S. agencies and backed by non-U.S. governments. The Company generally holds its interest-bearing investments with major financial institutions and in accordance with documented investment policies. The Company limits the amount of credit exposure to any one financial institution or corporate issuer. At December 31, 2023, substantially all these investments were classified as available-for-sale and were recorded at fair value. Unrealized gains and losses are included in accumulated other comprehensive loss in equity, net of related tax, unless: (i) the security has experienced a credit loss; (ii) the Company has determined that it has the intent to sell the security; or (iii) the Company has determined that it is more likely than not that it will have to sell the security before its expected recovery. Periodic reviews are conducted to identify and evaluate each investment that has an unrealized loss in accordance with the meaning of other-than-temporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. For available-for-sale debt securities with unrealized losses, the Company performs an analysis to assess whether it intends to sell, or whether it would more likely than not be required to sell, the security before the expected recovery of the amortized cost basis. Where the Company intends to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected in earnings as an impairment loss. Regardless of the Company’s intent to sell a security, the Company performs additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security. The Company’s held-to-maturity investments are restricted investments held as collateral under letters of credit related to certain of the Company’s agreements and are included in “Investments—long-term,” in the accompanying consolidated balance sheets. Fair Value of Financial Instruments The Company’s financial assets and liabilities are recorded at fair value and are classified as Level 1, 2 or 3 within the fair value hierarchy, as described in the accounting standards for fair value measurement. At December 31, 2023, the Company’s financial assets consisted of cash equivalents and investments and are classified within the fair value hierarchy as follows: • Level 1 –these valuations are based on a market approach using quoted prices in active markets for identical assets. Valuations of these products do not require a significant degree of judgment. Assets utilizing Level 1 inputs at December 31, 2023 included U.S. treasury securities, marketable securities classified as cash equivalents and a fixed term deposit account; and • Level 2 –these valuations are based on quoted prices for identical or similar assets in active markets or other market observable inputs such as interest rates, yield curves, foreign currency spot rates and option pricing valuation models. Assets utilizing Level 2 inputs at December 31, 2023 included U.S. government agency debt securities, debt securities issued by non-U.S. agencies and backed by non-U.S. governments and investments in corporate debt securities that are trading in the credit markets. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature. Inventory Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Included in inventory are raw materials used in production of preclinical and clinical products, which have alternative future use and are charged to R&D expense when consumed. The cost elements included within inventory include three primary categories for commercial products: cost of raw materials; direct labor; and overhead. Overhead is based on the normal capacity of the Company’s production facilities and does not include costs from abnormally low production or idle capacity, which are expensed directly to the consolidated statement of operations and comprehensive income (loss). The Company capitalizes inventory costs associated with its products prior to regulatory approval when, based on management’s judgment, future commercialization of the product is considered probable and future economic benefit from such product is expected to be realized. The Company assesses the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety, efficacy or quality concerns, potential labeling restrictions and other potential impediments to approval. The Company also considers the shelf life of the product in relation to the expected timeline for approval and considers issues that may prevent or delay commercialization, including issues that may arise in relation to the manufacturing of the product. The Company expenses previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by relevant regulatory agencies or other issues that may make the pre-approval inventory batches less likely or unlikely to be commercialized and to result in future economic benefit. Property, Plant and Equipment Property, plant and equipment are recorded at cost, subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Expenditures for repairs and maintenance are charged to expense as incurred and major renewals and improvements are capitalized. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:
Asset group Term
Buildings and improvements 15 - 40 years
Furniture, fixtures and equipment 3 - 10 years
Leasehold improvements Shorter of useful life or lease term Goodwill and Intangible Assets Goodwill represents the excess cost of the Company’s investment in the net assets of acquired companies over the fair value of the underlying identifiable net assets at the date of acquisition. The Company’s goodwill consists solely of goodwill created as a result of the Company’s acquisition of Elan Drug Technologies (“EDT”) from Elan Corporation, plc (such acquisition, the “Business Combination”) in September 2011 and has been assigned to one reporting unit. A reporting unit is an operating segment or one level below an operating segment or a component to which goodwill is assigned when initially recorded. Goodwill is not amortized but is reviewed for impairment on an annual basis, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the goodwill might not be recoverable. The Company has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. If the Company elects this option and believes, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of its reporting unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Alternatively, the Company may elect to not first assess qualitative factors and immediately perform the quantitative impairment test. In the quantitative impairment test, the Company compares the fair value of its reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company would record an impairment loss equal to the difference. When some, but not all, of a reporting unit is to be disposed of, the accounting for that reporting unit’s goodwill will depend on whether the disposal group constitutes a business. If the disposal group constitutes a business, the Company attributes a portion of the reporting unit’s goodwill to the disposal group based on the relative fair values of: (i) the disposal group; and (ii) the portion of the reporting unit that will be retained. The Company’s finite-lived intangible assets, consisting of core developed technology and collaboration agreements acquired as part of the Business Combination, were recorded at fair value at the time of their acquisition and are stated within the Company’s consolidated balance sheets net of accumulated amortization. The finite-lived intangible assets are amortized over their estimated useful lives using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract. The useful lives of the Company’s intangible assets are primarily based on the legal or contractual life of the underlying patent or contract, which does not include additional years for the potential extension or renewal of the contract or patent. Impairment of Long-Lived Assets The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset; a significant change in the extent or manner in which an asset is used; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; a current-period operating or cash flow loss combined with a history of operating or cash-flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. Long-lived assets to be disposed of are carried at fair value less costs to sell them. Revenue from Contracts with Customers The Company recognizes revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers (“Topic 606”). When entering into arrangements with customers, the Company identifies whether its performance obligations under the arrangement represent a distinct good or service or a series of distinct goods or services. If a contract contains more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The fair value of performance obligations under the arrangement may be derived using an estimate of selling price if the Company does not sell the goods or services separately. The Company recognizes revenue when or as it satisfies a performance obligation by transferring an asset or providing a service to a customer. Management judgment is required in determining the consideration to be earned under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which the Company expects to complete its aggregate performance obligations. Product Sales, Net The Company’s product sales, net consist of sales in the U.S. of VIVITROL ® , ARISTADA ® and ARISTADA INITIO ® and LYBALVI ® , primarily to wholesalers, specialty distributors and pharmacies. Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer. Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers, healthcare providers or payers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from historical practices. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment. The following are the Company’s significant categories of sales discounts and allowances: • Medicaid Rebates —the Company records accruals for rebates to U.S. states under the Medicaid Drug Rebate Program as a reduction of sales when the product is shipped into the distribution channel using the expected value method. The Company rebates individual U.S. states for all eligible units purchased under the Medicaid program based on a rebate per unit calculation, which is based on the Company’s average manufacturer prices. The Company estimates expected unit sales to individuals covered by Medicaid and rebates per unit under the Medicaid program and adjusts its rebate accrual based on actual unit sales and rebates per unit and changes in trends in Medicaid utilization. To date, actual Medicaid rebates have not differed materially from the Company’s estimates; • Chargebacks —discounts that occur when contracted indirect customers purchase directly from wholesalers and specialty distributors. Contracted customers generally purchase a product at its contracted price. The wholesaler or specialty distributor, in turn, then generally charges back to the Company the difference between the wholesale acquisition cost and the contracted price paid to the wholesaler or specialty distributor by the customer. The allowance for chargebacks is made using the expected value method and is based on actual and expected utilization of these programs. Chargebacks could exceed historical experience and the Company’s estimates of future participation in these programs. To date, actual chargebacks have not differed materially from the Company’s estimates; • Product Discounts —cash consideration, including sales incentives, given by the Company under agreements with a number of wholesaler, distributor, pharmacy, and treatment provider customers that provide them with a discount on the purchase price of products. The reserve is made using the expected value method and to date, actual product discounts have not differed materially from the Company’s estimates; • Product Returns —the Company records an estimate for product returns at the time its customers take control of their product. The Company estimates this liability using the expected returns of product sold based on historical return levels and specifically identified anticipated returns due to known business conditions and product expiry dates. Return amounts are recorded as a reduction of sales. Once product is returned, it is destroyed. To date, actual product returns have not differed materially from the Company’s estimates; and • Medicare Part D —the Company records accruals for Medicare Part D liabilities under the Medicare Coverage Gap Discount Program (“CGDP”) as a reduction of sales. Under the CGDP, patients reaching the annual coverage gap threshold are eligible for reimbursement coverage for out-of-pocket costs for covered prescription drugs. Under an agreement with the Centers for Medicare and Medicaid Services, manufacturers are responsible to reimburse prescription plan sponsors for the portion of out-of-pocket expenses not covered under their Medicare plans. To date, actual Medicare Part D rebates have not differed materially from the Company’s estimates. Collaborative Arrangements The Company has entered into collaborative arrangements with pharmaceutical companies including, among others, Janssen Pharmaceuticals, Inc. (“Janssen, Inc.”), Janssen Pharmaceutica International, a division of Cilag International AG (“Janssen International”), and Janssen Pharmaceutica N.V. (together with Janssen, Inc., Janssen International and their affiliates, “Janssen”) related to INVEGA SUSTENNA ® /XEPLION ® , INVEGA TRINZA ® /TREVICTA ® , INVEGA HAFYERA ® /BYANNLI ® (the “long-acting INVEGA products”) and RISPERDAL CONSTA ® , and Biogen Swiss Manufacturing GmbH (together with its affiliates, “Biogen”) related to VUMERITY ® . Substantially all of the products developed under these arrangements are currently being marketed as approved products for which the Company receives payments for manufacturing services and/or royalties on net product sales. Manufacturing Revenue The Company recognizes manufacturing revenues from the sale of products it manufactures for resale by its licensees. Substantially all of the manufacturing revenues are recognized at a point in time when control of the product passes to the licensee. The sales price for certain of the Company’s manufacturing revenues is based on the end-market sales price earned by its licensees. As end-market sales generally occur after the Company has recorded manufacturing revenue, the Company estimates the sales price for such products based on information supplied to it by the Company’s licensees, its historical transaction experience and other third-party data. Differences between actual manufacturing revenues and estimated manufacturing revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The differences between the Company’s actual and estimated manufacturing revenues have not been material to date. Royalty Revenue The Company recognizes royalty revenues related to the sale by its licensees of products that incorporate the Company’s technologies. All of the Company’s royalties qualify for the sales-and-usage exemption under Topic 606 as (i) such royalties are based strictly on the sales-and-usage by the licensee; and (ii) a license of IP is the sole or predominant item to which such royalties relate. Based on this exemption, these royalties are earned in the period that the products are sold by the Company’s licensee and the Company has a present right to payment. Certain of the Company’s royalty revenues are recognized by the Company based on information supplied to the Company by its licensees and require estimates to be made. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The differences between the Company’s actual and estimated royalty revenues have not been material to date. License Revenue The Company recognizes revenue from the grant of distinct, right-to-use licenses of IP when control of the license is transferred to the licensee, which is the point in time that the licensee is able to direct the use of, and obtain substantially all of the benefits from the license. Receivables, net Receivables, net, include amounts billed and amounts unbilled but currently unconditionally due from customers. The amounts due are stated at their net estimated realizable value. The Company’s unbilled receivable balance was $ 103.1 million and $ 72.0 million at December 31, 2023 and 2022, respectively, and related primarily to royalty revenue. The Company maintains an allowance for doubtful accounts to provide for the estimated amounts of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. The Company’s allowance for doubtful accounts was approximately $ 0.2 million at each of December 31, 2023 and 2022. Contract Assets Contract assets include unbilled amounts that will result in a sale under certain of the Company’s manufacturing contracts. The amounts included in the contract assets table below are classified as “Current assets” in the accompanying consolidated balance sheets, as they relate to manufacturing processes that are completed in ten days to eight weeks . Contract assets consisted of the following:
(In thousands) Contract Assets
Contract assets at January 1, 2022 $ 13,363
Additions 42,218
Transferred to receivables, net ( 46,652 )
Contract assets at December 31, 2022 $ 8,929
Additions 13,606
Transferred to receivables, net ( 21,829 )
Contract assets at December 31, 2023 $ 706 Contract Liabilities Contract liabilities consist of contractual obligations related to deferred revenue. At December 31, 2023 and 2022, $ 2.7 million and $ 6.8 million of the contract liabilities, respectively, were classified as “Contract liabilities–short-term” in the accompanying consolidated balance sheets and $ 2.1 million and $ 3.9 million of the contract liabilities, respectively, were classified as “Other long-term liabilities” in the accompanying consolidated balance sheets. Contract liabilities consisted of the following:
(In thousands) Contract Liabilities
Contract liabilities at January 1, 2022 $ 17,830
Additions 6,769
Amounts recognized into revenue ( 7,514 )
Amounts recognized into other (expense) income, net ( 6,384 )
Contract liabilities at December 31, 2022 $ 10,701
Reductions ( 931 )
Amounts recognized into revenue ( 4,995 )
Contract liabilities at December 31, 2023 $ 4,775 Foreign Currency The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. The resulting monetary assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the subsequent balance sheet date. Gains and losses as a result of translation adjustments are recorded within “Other (expense) income, net” in the accompanying consolidated statements of operations and comprehensive income (loss). During the years ended December 31, 2023, 2022 and 2021, the Company recorded a loss of $ 0.5 million, a gain of $ 0.7 million and a loss of $ 0.3 million, respectively, on foreign currency translation. Concentrations Financial instruments that potentially subject the Company to concentrations of credit risk are receivables and marketable securities. Billings to large pharmaceutical companies and pharmaceutical wholesalers account for the majority of the Company’s receivables, and collateral is generally not required from these customers. To mitigate credit risk, the Company monitors the financial performance and credit-worthiness of its customers. The following represents revenue and receivables from the Company’s customers exceeding 10 % of the total in each category as of, and for the years ended, December 31, 2023, 2022 and 2021:
Year Ended December 31,
2023 2022 2021
Customer Receivables Revenue Receivables Revenue Receivables Revenue
Janssen 23 % 31 % * 15 % 30 % 30 %
Biogen 9 % 11 % 19 % 13 % 11 % 10 %
Cardinal Health 24 % 20 % 24 % 24 % 17 % 20 %
AmerisourceBergen 16 % 12 % 18 % 14 % 13 % 11 %
McKesson 14 % 14 % 12 % 16 % 11 % 13 %
* Indicates the revenues or receivables for the customer did not exceed 10 % of the Company’s total in each category as of or for the years ended December 31, 2023, 2022 and 2021, as noted. The Company holds its interest-bearing investments with major financial institutions and, in accordance with documented investment policies, the Company limits the amount of credit exposure to any one financial institution or corporate issuer. The Company’s investment objectives are, first, to ensure liquidity and conservation of capital and, second, to obtain investment income. Geographic Information Company revenues by geographic location for the years ended December 31, 2023, 2022 and 2021, as determined by the location of the customer, are as follows:
Year Ended December 31,
(In thousands) 2023 2022 2021
Revenue by region:
U.S. $ 1,491,939 $ 931,991 $ 984,235
Ireland 1,179 1,829 2,175
Rest of world 170,287 177,975 187,341 The location of the Company’s assets are as follows:
December 31,
(In thousands) 2023 2022 (1)
Assets by region:
Current assets:
U.S.:
Assets related to discontinued operations $ — $ 2,324
Other current assets 867,588 700,240
Ireland:
Assets held for sale $ 94,260 $ —
Other current assets 523,658 427,742
Rest of world — —
Long-term assets:
U.S.:
Assets related to discontinued operations $ — $ 37,763
Other 432,870 499,038
Ireland:
Intangible assets $ 1,991 $ 37,680
Assets held for sale — 93,871
Goodwill 83,027 83,027
Other 132,829 82,293 (1) Prior period amounts have been retrospectively adjusted to reflect assets related to discontinued operations related to the Separation and assets held for sale related to the planned sale of the Athlone Facility. Research and Development Expenses For each of its R&D programs, the Company incurs both external and internal expenses. External R&D expenses include fees related to clinical and preclinical activities performed by contract research organizations, consulting fees and costs related to laboratory services, purchases of drug product materials and third-party manufacturing development costs. Internal R&D expenses include employee-related expenses, occupancy costs, depreciation and general overhead. The Company tracks external R&D expenses for each of its development programs, however, internal R&D expenses are not tracked by individual program as they benefit multiple development programs or the Company’s products or technologies in general. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses are primarily comprised of employee-related expenses associated with selling and marketing, finance, human resources, legal, information technology and other administrative personnel, outside marketing, advertising, financial and legal expenses and other general and administrative costs. Advertising costs are expensed as incurred. During the years ended December 31, 2023, 2022 and 2021, advertising costs totaled $ 127.6 million, $ 41.4 million and $ 38.9 million, respectively. Share-Based Compensation The Company’s share-based compensation programs permit grants of awards in the form of stock options and restricted stock unit awards (“RSUs”), which vest with the passage of time and/or based on the achievement of certain performance criteria. The Company issues new shares upon the exercise of stock options or the vesting of RSUs. Under the terms of the Company’s stock option and incentive plans (the “Plans”), the Company’s employees may, at the discretion of the plan administrator, become eligible in certain circumstances set forth in the Plans for accelerated vesting of certain awards granted to them under the Plans. In such circumstances, if there are no effective future service requirements for such employees, the remaining fair value of any such accelerated awards would be expensed as of the date of acceleration. Time-Based Stock Options Except as otherwise provided in the applicable Plan or award certificate, stock option grants to employees expire ten years from the date of grant and generally vest in four equal annual installments, commencing on the first anniversary of the date of grant, provided the employee remains continuously employed with the Company during the applicable vesting period. Except as otherwise provided in the applicable Plan: (i) annual stock option grants to non-employee directors expire ten years from the grant date and generally vest over a one-year period, provided that the director continues to serve on the Company’s board of directors through the vesting date; and (ii) stock option grants to new non-emp |
