| 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. Reclassification The Company reclassified certain prior year amounts on the consolidated balance sheet to conform to the current year presentation. These reclassifications had no impact on the previously reported total assets, liabilities or shareholders’ equity. 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 and 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, contingent consideration 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 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, 2022, substantially all these investments were classified as available-for-sale and were recorded at fair value. U nrealized gains and losses are included in accumulated other comprehensive loss in equity, net of related tax, in accumulated other comprehensive loss 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) it has determined that it is more likely than not that the Company will have to sell the security before its expected recovery. P eriodic 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, 2022, the Company’s financial assets consisted of cash equivalents, investments and contingent consideration 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, 2022 included U.S. treasury securities, marketable securities classified as cash equivalents and a fixed term deposit account;
•
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, 2022 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; and
•
Level 3 –these valuations are based on an income approach using certain inputs that are unobservable and are significant to the overall fair value measurement. Valuations of these products require a significant degree of judgment. At December 31, 2022, no assets utilized Level 3 inputs. 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 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 Contingent Consideration The Company records contingent consideration it is entitled to receive related to the sale of a business at fair value on the acquisition date. The Company estimates the fair value of contingent consideration through valuation models that incorporate probability-adjusted assumptions related to the likelihood of achievement of milestones and the corresponding likelihood of receiving related payments. The Company revalues its contingent consideration each reporting period, with changes in the fair value of contingent consideration recognized within the consolidated statements of operations and comprehensive loss. Changes in the fair value of contingent consideration can result from changes to one or multiple assumptions, including adjustments to the discount rates, changes in the amount and timing of cash flows, changes in the assumed achievement and timing of any development and sales-based milestones, changes in the assumed probability associated with regulatory approvals and changes in the probability of collection or default of portions of the contingent consideration due to the Company. These fair value measurements are based on significant inputs, including inputs not observable in the market. Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above could have a material impact on the increase or decrease in the fair value of contingent consideration recorded in any given period. 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. 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. In April 2015, the Company sold its Gainesville, GA manufacturing facility, the related manufacturing and royalty revenue associated with certain products manufactured at the facility, and the rights to IV/IM and parenteral forms of Meloxicam to Recro Pharma, Inc. (“Recro”) and Recro Gainesville LLC (such transaction the “Gainesville Transaction”). The Gainesville Transaction included in the purchase price contingent consideration tied to low double digit royalties on net sales of the IV/IM and parenteral forms of Meloxicam and any other product with the same active ingredient as Meloxicam IV/IM that is discovered or identified using certain of the Company’s IP to which Recro was provided a right of use, through license or transfer, pursuant to the Gainesville Transaction (such products, the “Meloxicam Products”), and milestone payments upon the achievement of certain regulatory and sales milestones related to the Meloxicam Products. In the third quarter of 2022, the Company determined that certain construction in progress related to the manufacture of ANJESO ® Property, Plant and Equipment In the fourth quarter of 2022, the Company determined that an impairment triggering event occurred related to an arbitration panel’s ruling relative to the Company’s manufacturing and royalty revenue arrangement with Acorda related to AMPYRA ® Revenue from Contracts with Customers The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers 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 ® ® ® ® , 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:
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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 —
•
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; and
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Medicare Part D — Collaborative Arrangements The Company has entered into collaboration agreements 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 ® ® Manufacturing Revenue The Company recognizes manufacturing revenues from the sale of products it manufactures for resale by its licensees. Manufacturing revenues . The Company is the exclusive manufacturer of RISPERDAL CONSTA for commercial sale under its manufacturing and supply agreement with Janssen. The Company determined that it is appropriate to record revenue under this agreement at the point in time when control of the product passes to Janssen, which is determined to be when the product has been fully manufactured, since Janssen does not control the product during the manufacturing process and, in the event Janssen terminates the manufacturing and supply agreement, it is uncertain whether, and at what amount, the Company would be reimbursed for performance completed to date for product not yet fully manufactured. The manufacturing process is considered fully complete once the finished goods have been approved for shipment by both the Company and Janssen. The Company recognize s manufacturing revenue related to VUMERITY at cost plus 15 %, upon making available bulk batches of VUMERITY to Biogen , to the extent the Company package s such product, then also when packaged batches of VUMERITY are made available to Biogen . Control of the product passes to Biogen when VUMERITY , in either bulk or finished form, is made available to Biogen . 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 difference between the Company’s actual and estimated manufacturing revenues has 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. Substantially 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 difference between the Company’s actual and estimated royalty revenues has not been material to date. Research and Development Revenue R&D revenue consists of funding that compensates the Company for formulation, preclinical and clinical testing under R&D arrangements with its partners. The Company generally bills its partners under R&D arrangements using a full‑time equivalent or hourly rate, plus direct external costs, if any. Revenue is recognized as the obligations under the R&D arrangements are performed. 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 $72.0 million and $127.6 million at December 31, 2022 and 2021, 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 December 31, 2022 and 2021, respectively. Contract Assets Contract assets include unbilled amounts resulting from sales under certain of the Company’s manufacturing contracts where revenue is recognized over time, except for $5.0 million of consideration related to the Company’s collaboration with Biogen related to VUMERITY, which was included in contract assets at December 31, 2021 and transferred to receivables, net, as the milestone related to such amount was achieved in November 2022. The manufacturing-related amounts included in the contract assets table below are classified as “Current assets” in the accompanying consolidated balance sheets, as they related 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, 2021
$
19,401
Additions
30,609
Transferred to receivables, net
(36,647
)
Contract assets at December 31, 2021
$
13,363
Additions
42,218
Transferred to receivables, net
(46,652
)
Contract assets at December 31, 2022
$
8,929
Contract Liabilities The Company’s contract liabilities consist of contractual obligations related to deferred revenue. Contract liabilities consisted of the following:
(In thousands)
Contract Liabilities
Contract liabilities at January 1, 2021
$
23,909
Additions
—
Amounts recognized into revenue
(6,079
)
Contract liabilities at December 31, 2021
$
17,830
Additions
6,769
Amounts recognized into revenue
(7,514
)
Amounts recognized into other income, net
(6,384
)
Contract liabilities at December 31, 2022
$
10,701
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 income, net” in the accompanying consolidated statements of operations and comprehensive loss. During the years ended December 31, 2022, 2021 and 2020, the Company recorded a gain of $0.7 million, a loss of $0.3 million and a gain of $2.4 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, 2022, 2021 and 2020:
Year Ended December 31,
2022
2021
2020
Customer
Receivables
Revenue
Receivables
Revenue
Receivables
Revenue
Janssen
*
15
%
30
%
30
%
30
%
33
%
Biogen
19
%
13
%
11
%
10
%
*
*
Cardinal Health
24
%
24
%
17
%
20
%
16
%
21
%
AmerisourceBergen
18
%
14
%
13
%
11
%
11
%
10
%
McKesson
12
%
16
%
11
%
13
%
*
14
%
*
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, 2022, 2021 or 2020, 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, as determined by the location of the customer, and the location of its assets, are as follows:
Year Ended December 31,
(In thousands)
2022
2021
2020
Revenue by region:
U.S.
$
931,991
$
984,235
$
838,995
Ireland
1,829
2,175
3,233
Rest of world
177,975
187,341
196,528
Assets by region:
Current assets:
U.S.
$
702,564
$
485,083
$
662,615
Ireland
427,742
577,086
448,356
Rest of world
—
—
—
Long-term assets:
U.S.:
Other
$
529,002
$
591,217
$
472,999
Ireland:
Intangible assets
$
37,680
$
74,043
$
111,191
Goodwill
92,873
92,873
92,873
Other
174,117
204,182
161,696
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 non‑clinical 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 programs or the Company’s 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, 2022, 2021 and 2020, advertising costs totaled $41.4 million, $38.9 million and $25.5 million, respectively. Share‑Based Compensation The Company’s share‑based compensation programs grant 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”), certain of the Company’s employees may, at the discretion of the plan administrator, become eligible upon retirement for accelerated vesting of certain awards granted to them under the Plans. Since there are no effective future service requirements for such employees, the fair value of awards to such employees would be expensed in full on the grant date or upon meeting the retirement eligibility criteria, whichever is later. Time-Based Stock Options Except as otherwise provided in the applicable Plan, 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, annual stock option grants to non-employee directors expire ten years from the grant date and generally vest over a one-year The fair value of stock option grants is based on estimates as of the date of grant using a Black‑Scholes option valuation model. The Company uses historical data as the basis for estimating stock option terms and forfeitures. Separate groups of employees that have similar historical stock option exercise and forfeiture behavior are considered separately for valuation purposes. The ranges of expected terms disclosed below reflect different expected behavior among certain groups of employees. Expected stock volatility f |
