Filed by AstraZeneca PLC

This communication is filed pursuant to Rule 425

under the United States Securities Act of 1933

Subject Company: Alexion Pharmaceuticals, Inc.

(Commission File No. 000-27756)

Date: 12 April, 2021

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. THIS DOCUMENT IS A CIRCULAR FOR THE PURPOSES OF LISTING RULE 13. IF YOU ARE IN ANY DOUBT AS TO WHAT ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED TO SEEK YOUR OWN PERSONAL FINANCIAL ADVICE IMMEDIATELY FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000, OR FROM ANOTHER APPROPRIATELY AUTHORISED INDEPENDENT FINANCIAL ADVISER.

If you have sold or otherwise transferred all of your AstraZeneca Shares, please send this document and the accompanying documents (other than documents or forms personalised to you) at once to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected, for delivery to the purchaser or transferee. HOWEVER, these documents must not be forwarded, distributed or transmitted in, into or from any jurisdiction where to do so would violate the laws of that jurisdiction. If you have sold or otherwise transferred only part of your holding of AstraZeneca Shares you should retain these documents and contact the bank, stockbroker or other agent through whom the sale or transfer was effected.

This document is not a prospectus and it does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any offer to sell, dispose of, purchase, acquire or subscribe for, any security, including any AstraZeneca Shares to be issued in connection with the Transaction. AstraZeneca is not required to publish a prospectus in connection with the Transaction.

This document (including any documents incorporated into it by reference) should be read as a whole and in conjunction with the accompanying Form of Proxy.

The distribution of this document and/or the accompanying documents (in whole or in part) in jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.

AstraZeneca PLC

(registered in England and Wales under the Companies Act 1985 with registered number 02723534)

Acquisition of Alexion Pharmaceuticals, Inc.

by AstraZeneca PLC

Circular to Shareholders

and

Notice of General Meeting

Your attention is drawn to the letter from the Chairman of AstraZeneca in Part I (Letter From the Chairman of AstraZeneca) of this document, which contains the unanimous recommendation of the Board that you vote in favour of the Resolution to be proposed at the AstraZeneca General Meeting. You should read the whole of this document and, in particular, the risk factors in Part II (Risk Factors) of this document.

The Notice of General Meeting, which will be held at Academy House, 136 Hills Road, Cambridge, CB2 8PA, United Kingdom at 11.30 a.m. on 11 May 2021, is set out in Part IX (Notice of General Meeting) of this document. The AstraZeneca General Meeting will be a closed meeting due to UK Government COVID-19 restrictions relating to indoor gatherings and will be preceded by an online shareholder engagement event which will be held at 2.00 p.m. on 30 April 2021.

The action to be taken by AstraZeneca Shareholders in relation to the AstraZeneca General Meeting is set out on pages 9 to 10 of this document. AstraZeneca Shareholders will find enclosed with this document a Form of Proxy for use in connection with the AstraZeneca General Meeting. As AstraZeneca Shareholders will not be allowed to attend the AstraZeneca General Meeting, AstraZeneca Shareholders are strongly encouraged to appoint the Chairman of the AstraZeneca General Meeting as their proxy, to ensure their votes are counted. Please complete and sign the enclosed Form of Proxy (or appoint a proxy electronically, as referred to below) in accordance with the instructions printed on it and return it to AstraZeneca’s registrars, Equiniti Limited at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom as soon as possible and, in any event, so as to be received by 11.30 a.m. on 7 May 2021. Unless the Form of Proxy is returned by the time mentioned in the instructions printed on it, it will be invalid.

Electronic Proxy Appointment (“EPA”) is available for the AstraZeneca General Meeting. To use this facility, you must visit www.sharevote.co.uk where details of the procedure are shown. The Authentication Reference Number shown on the Form of Proxy will be required to complete the procedure. Alternatively, shareholders who have already registered with Equiniti Registrars’ online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk. EPA will not be valid if received later than 48 hours before the AstraZeneca General Meeting, or, in the case of any adjournment, later than 48 hours before the time fixed for the adjourned meeting and will not be accepted if found to contain a computer virus.

Applications will be made to the FCA for the New AstraZeneca Shares to be admitted to listing on the premium listing segment of the Official List and to the London Stock Exchange for the New AstraZeneca Shares to be admitted to trading on the London Stock Exchange’s Main Market for listed securities.

If you have any questions about this document, the AstraZeneca General Meeting or on the completion and return of the Form of Proxy, please call the Shareholder Helpline between 8.30 a.m. and 5.30 p.m. (BST) Monday to Friday (excluding English and Welsh public holidays) on 0800 389 1580 (from within the UK) or +44 (0)121 415 7033 (from outside the UK, international rates apply). Please note that calls may be monitored or recorded and the Shareholder Helpline cannot provide financial, legal or tax advice or advice on the merits of the Transaction.

Certain terms used in this document are defined in Part VIII (Definitions) of this document.

Evercore Partners International LLP (“Evercore”), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for AstraZeneca and no one else in connection with the Transaction and the matters referred to in this document and will not regard any other person as a client in relation to the matters set out in this document (whether or not a recipient of this document) and will not be responsible to anyone other than AstraZeneca for providing the protections afforded to its clients, nor for providing advice in relation to the Transaction or any other matter referred to in this document. Neither Evercore nor any of its subsidiaries, holding companies, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client in connection with the Transaction or any statement contained herein or otherwise. Apart from the responsibilities and liabilities, if any, which may be imposed on Evercore by the FSMA, or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, neither Evercore nor any of its affiliates accepts any responsibility or liability whatsoever for the contents of this document, and no representation, express or implied, is made by it, or purported to be made on its behalf, in relation to the contents of this document, including its accuracy, fairness, sufficiency, completeness or verification of any statement contained herein or any other statement made or purported to be made by it, or on its behalf, in connection with AstraZeneca or the matters described in this document, and nothing in this document is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. To the fullest extent permitted by applicable law, each of Evercore and its affiliates accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any statement contained herein.

Centerview Partners UK LLP (“Centerview Partners”), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for AstraZeneca and no one else in connection with the Transaction and the matters referred to in this document and will not regard any other person as a client in relation to the matters set out in this document (whether or not a recipient of this document) and will not be responsible to anyone other than AstraZeneca for providing the protections afforded to its clients, nor for providing advice in relation to the Transaction or any other matter referred to in this document. Neither Centerview Partners nor any of its subsidiaries, holding companies, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client in connection with the Transaction or any statement contained herein or otherwise. Apart from the responsibilities and liabilities, if any, which may be imposed on Centerview Partners by the FSMA, or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, neither Centerview Partners nor any of its affiliates accepts any responsibility or liability whatsoever for the contents of this document, and no representation, express or implied, is made by it, or purported to be made on its behalf, in relation to the contents of this document, including its accuracy, fairness, sufficiency, completeness or verification of any statement contained herein or any other statement made or purported to be made by it, or on its behalf, in connection with AstraZeneca or the matters described in this document, and nothing in this document is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. To the fullest extent permitted by applicable law, each of Centerview Partners and its affiliates accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any statement contained herein.

Important Additional Information

In connection with the Transaction, AstraZeneca filed a registration statement on Form F-4 with the SEC on 19 February 2021 (the “Registration Statement”), which included a document that serves as a prospectus of AstraZeneca and a proxy statement of Alexion (the “proxy statement/prospectus”), Alexion intends to file a proxy statement with the SEC (the “proxy statement”) and each party will file other documents regarding the Transaction with the SEC. Investors and security holders of Alexion are urged to carefully read the entire Registration Statement and proxy statement/prospectus or proxy statement and other relevant documents filed with the SEC when they become available, because they will contain important information. A definitive proxy statement/prospectus or a definitive proxy statement will be sent to Alexion’s shareholders. Investors and security holders will be able to obtain the Registration Statement and the proxy statement/prospectus or the proxy statement free of charge from the SEC’s website or from AstraZeneca or Alexion as described in the paragraphs below.

The documents filed by AstraZeneca with the SEC may be obtained free of charge at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge on AstraZeneca’s website at http://www.astrazeneca.com under the tab “Investors”. The documents filed by Alexion with the SEC may be obtained free of charge at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge on Alexion’s internet website at http://www.alexion.com under the tab, “Investors” and under the heading “SEC Filings” or by contacting Alexion’s Investor Relations Department at investorrelations@alexion.com.

Participants in the Solicitation

AstraZeneca, Alexion and certain of their directors, executive officers and employees may be deemed participants in the solicitation of proxies from Alexion Shareholders in connection with the Transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of Alexion in connection with the Transaction, including a description of their direct or indirect interests, by security holdings or otherwise, will be set forth in the proxy statement/prospectus or proxy statement when it is filed with the SEC. Information about the directors and executive officers of Alexion and their ownership of Alexion Shares is set forth in Alexion’s Annual Report on Form 10-K/A, as previously filed with the SEC on 16 February 2021. Free copies of these documents may be obtained as described in the paragraphs above.

The date of publication of this document is 12 April 2021.

IMPORTANT NOTICES

Forward-looking statements

This document contains certain forward-looking statements with respect to the operations, performance and financial condition of the AstraZeneca Group, including, among other things, statements about expected revenues, margins, earnings per share or other financial or other measures, as well as the ability of the parties to consummate the Transaction on a timely basis or at all, the ability of the parties to satisfy the conditions precedent to consummation of the Transaction, including the ability to secure the required regulatory approvals on the terms expected, at all or in a timely manner, the ability of AstraZeneca to successfully integrate Alexion’s operations, and the ability of AstraZeneca to implement its plans, forecasts and other expectations with respect to Alexion’s business after Completion and realise expected synergies. Although the AstraZeneca Group believes its expectations are based on reasonable assumptions, any forward-looking statements, by their very nature, involve risks and uncertainties and may be influenced by factors that could cause actual outcomes and results to be materially different from those predicted. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and the AstraZeneca Group undertakes no obligation to update these forward-looking statements. The AstraZeneca Group identifies the forward-looking statements by using the words ‘anticipates’, ‘believes’, ‘expects’, ‘intends’ and similar expressions in such statements. Important factors that could cause actual results to differ materially from those contained in forward-looking statements, certain of which are beyond the AstraZeneca Group’s control, include, among other things: the risks set out in Part II (Risk Factors) of this document; failure or delay in delivery of pipeline or launch of new medicines; failure to meet regulatory or ethical requirements for medicine development or approval; failure to obtain, defend and enforce effective intellectual property (“IP”) protection and IP challenges by third parties; competitive pressures including expiry or loss of IP rights, and generic competition; price controls and reductions; economic, regulatory and political pressures; uncertainty and volatility in relation to the UK’s exit from the EU; failures or delays in the quality or execution of commercial strategies; failure to maintain supply of compliant, quality medicines; illegal trade in medicines; reliance on third-party goods and services; failure in information technology, data protection or cybercrime; failure of critical processes; uncertainty of expected gains from productivity initiatives; failure to attract, develop, engage and retain a diverse, talented and capable workforce, including following Completion; failure to adhere to applicable laws, rules and regulations; the safety and efficacy of marketed medicines being questioned; adverse outcome of litigation and/or governmental investigations, including relating to the Transaction; failure to adhere to increasingly stringent anti-bribery and anti-corruption legislation; failure to achieve strategic plans or meet targets or expectations; failure in financial control or the occurrence of fraud; unexpected deterioration in AstraZeneca’s or Alexion’s financial position; the COVID-19 global pandemic; the risk that a condition to the closing of the Transaction may not be satisfied, or that a regulatory approval that may be required for the Transaction is delayed or is obtained subject to conditions that are not anticipated; the risk that AstraZeneca is unable to achieve the synergies and value creation contemplated by the Transaction, or that AstraZeneca is unable to promptly and effectively integrate Alexion’s businesses; and the risk that management’s time and attention are diverted on Transaction-related issues or that disruption from the Transaction makes it more difficult to maintain business, contractual and operational relationships.

Neither AstraZeneca nor any of its associates or directors, officers or advisers provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this document will actually occur. You are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with their legal or regulatory obligations (including under the Listing Rules, the Disclosure and Transparency Rules and the Prospectus Regulation Rules of the FCA), AstraZeneca is under no obligation, and AstraZeneca expressly disclaims any intention or obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Nothing in this paragraph or anywhere else in this document should be construed as qualifying the statement in respect of the Combined Group’s working capital set out in paragraph 13 of Part VI (Additional Information) of this document.

No profit forecasts or estimates

Unless otherwise stated, no statement in this document, or incorporated by reference into this document, is intended to be or is to be construed as a profit forecast or estimate for any period and no other statement in this document should be interpreted to mean that earnings or earnings per share for AstraZeneca for the current or future financial years, or those of the Combined Group, would necessarily match or exceed the historical published earnings or core earnings per share for AstraZeneca.

Quantified synergy benefits

Statements of identified synergies and estimated costs savings relate to future actions and circumstances which by their nature involve risks, uncertainties and contingencies. As a consequence, the identified synergies and estimated cost savings referred to in this document may not be achieved, may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated.

Publication on website and availability of hard copies

A copy of this document and all information incorporated into this document by reference to another source, will be made available on AstraZeneca’s website at: https://www.astrazeneca.com/investor-relations/astrazeneca-to-acquire-alexion.html. For the avoidance of doubt, the contents of the websites referred to in this document are not incorporated into and do not form part of this document.

If you have received notification of this document in electronic form, you may request a hard copy of this document and/or any information incorporated into this document by reference to another source by contacting AstraZeneca’s registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom or, between 8.30 a.m. and 5.30 p.m. (BST), Monday to Friday (excluding English and Welsh public holidays), on 0800 389 1580 from within the UK or on +44 (0)121 415 7033 if calling from outside the UK (calls from outside the UK will be charged at the applicable international rate), with your full name and the full address to which the hard copy may be sent (calls may be recorded and monitored for training and security purposes). You may also request that all future documents, announcements and information to be sent to you in relation to the Transaction should be in hard copy form.

Rounding

Certain figures included in this document have been subjected to rounding adjustments. Accordingly, figures shown in the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Presentation of financial information

Unless otherwise stated:

(a)    financial information relating to AstraZeneca has been extracted without material adjustment from the audited consolidated financial statements of AstraZeneca for the financial years ended 31 December 2020, 31 December 2019 and 31 December 2018, each of which has been incorporated by reference into this document as described in Part VII (Documentation Incorporated by Reference) of this document;

(b)    financial information relating to Alexion has been extracted without material adjustment from the unaudited reconciliations (from US GAAP to IFRS) of the consolidated financial statements relating to Alexion for the financial years ended 31 December 2020, 31 December 2019 and 31 December 2018, each of which is included in Part IV (Historical Financial Information Relating to Alexion) of this document; and

(c)    all prices quoted for AstraZeneca Shares are closing prices in sterling as at the date specified as provided by the London Stock Exchange.

Unless otherwise indicated, financial information in this document relating to AstraZeneca and Alexion has been prepared in accordance with IFRS.

Pro forma financial information

In this document, any reference to “pro forma” financial information is to information which has been extracted without material adjustments from the unaudited pro forma financial information contained in Part V (Unaudited Pro Forma Financial Information for the Combined Group) of this document. The unaudited pro forma financial information contained in Part V (Unaudited Pro Forma Financial Information for the Combined Group) of this document is based on the historical financial information of Alexion and AstraZeneca contained in Part IV (Historical Financial Information relating to Alexion) and the financial information incorporated by reference into this document as described in Part VII (Documentation Incorporated by Reference) of this document, respectively. The unaudited pro forma income statement and statement of net assets are presented in US dollars, the proposed presentational currency of the Combined Group. The unaudited pro forma income statement has been prepared to illustrate the effect on the earnings of the Combined Group as if the Transaction had taken place on 1 January 2020. The unaudited pro forma statement of net assets has been prepared to illustrate the effect on the net assets of the Combined Group as if the Transaction had taken place on 31 December 2020.

The unaudited pro forma income statement and statement of net assets have been prepared for illustrative purposes only and, because of their nature, address a hypothetical situation and do not, therefore, represent AstraZeneca’s or the Combined Group’s actual financial position or results. The pro forma financial information has been prepared under IFRS as adopted by the EU and on the basis set out in Part V (Unaudited Pro Forma Financial Information for the Combined Group) of this document and in accordance with Item 13.3.3 R of the Listing Rules and in a manner consistent with the accounting policies adopted by AstraZeneca in preparing the audited consolidated financial statements for the year ended 31 December 2020.

In addition to the matters noted above, the unaudited pro forma financial information does not reflect the effect of anticipated synergies and efficiencies or the related costs of achieving these synergies that may result from the Transaction.

Non-GAAP measures

Certain operating and financial performance metrics contained in this document have not been audited and this document contains some financial measures which are not within the scope of IFRS or US GAAP (“Non- GAAP”) and which are used by the Company and Alexion, respectively, to assess the financial performance of their businesses. These measures include, among others, “Core operating margin”, “Core earnings at CER”, “Non-GAAP Net Income”, “Non-GAAP Operating Income (Post-SBC)”, “Core EBIT”, “Tax-Effected EBIT”, “Consolidated Borrowings”, “Unlevered Free Cash Flows”, “Adjusted EPS” and “Core EPS” and are included because the Company or Alexion believe that they are important supplemental measures of operating performance. These are not measures of operating performance derived from IFRS or US GAAP and should not be considered as substitutes for the AstraZeneca Group’s or Alexion’s financial results based on IFRS or US GAAP, as the case may be. In addition, these measures are not intended to be an indication of the Company’s ability to fund the AstraZeneca Group’s or, following Completion, the Combined Group’s cash requirements. Consideration should be given to the types of events and transactions that are excluded from the calculation of the measures. These Non-GAAP measures are not uniformly defined by all companies, and therefore comparability may be limited. Non-GAAP financial measures are used by the Company to make operating decisions because they facilitate internal comparisons of the AstraZeneca Group’s performance to historical results and to competitors’ results. The Directors also believe that they are useful in that they provide investors with alternative means to evaluate the underlying performance and position of the AstraZeneca Group.

Currencies

Unless otherwise indicated, all references in this document to “sterling”, “GBP”, “£”, “pence” or “p” are to the lawful currency of the United Kingdom; references to “EUR”, “Euro” or “€” are to the official currency of the Eurozone; and references to “US Dollars”, “USD” or “US$” are to the lawful currency of the US.

Market and industry information

Market data and certain industry forecasts used in this document were obtained from internal surveys, reports and studies, where appropriate, as well as market research, publicly available information and industry publications. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy or completeness of such information is not guaranteed. Similarly, internal surveys, reports and studies and market research, while believed by AstraZeneca to be reliable and accurately extracted by AstraZeneca for the purposes of this document, have not been independently verified and AstraZeneca makes no representation as to the accuracy of such information. See the section headed “Forward-looking statements” in the “Important Notices” section on page 3.

Incorporation by reference

Certain information in relation to AstraZeneca is incorporated by reference in this document, as set out in Part VII (Documentation Incorporated by Reference).

No incorporation of website information

The contents of AstraZeneca’s and Alexion’s websites or any hyperlinks accessible from those websites do not form part of this document and investors should not rely on them.

Defined terms

Certain terms used in this document are defined and certain technical and other terms used in this document are set out in Part VIII (Definitions) of this document.

Unless otherwise indicated, all references in this document to time of day are references to BST time.

All references to legislation in this document are to the legislation of England and Wales unless the contrary is indicated. Any reference to any provision of any legislation or regulation shall include any amendment, modification, re-enactment or extension thereof.

Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender.

TABLE OF CONTENTS

TO VOTE ON THE TRANSACTION

This page should be read in conjunction with the section entitled “Action to be taken”, set out on pages 9 to 10 of this document, and the rest of the document, in particular, the Notice of General Meeting included in Part IX (Notice of General Meeting) of this document.

Due to UK Government COVID-19 restrictions relating to indoor gatherings, the AstraZeneca General Meeting will be a closed meeting and it will not be possible for AstraZeneca Shareholders to attend. AstraZeneca Shareholders are strongly encouraged to vote in advance of the meeting by appointing the Chairman of the General Meeting as their proxy. This means that the Chairman of the AstraZeneca General Meeting will be able to vote on their behalf, and in accordance with their instructions, at the AstraZeneca General Meeting. You should complete, sign and return the accompanying Form of Proxy for use at the AstraZeneca General Meeting, so as to be received by no later than 11.30 a.m. on 7 May 2021, or, in the case of adjournment, by no later than 48 hours before the time fixed for the holding of the adjourned meeting.

EPA is also available for the AstraZeneca General Meeting. To use this facility, you must visit www.sharevote.co.uk where details of the procedure are shown. The Authentication Reference Number shown on the Form of Proxy will be required to complete the procedure. Alternatively, shareholders who have already registered with Equiniti Registrars’ online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk. EPA will not be valid if received later than 48 hours before the AstraZeneca General Meeting or, in the case of any adjournment, later than 48 hours before the time fixed for the adjourned meeting and will not be accepted if found to contain a computer virus.

If you require assistance, please telephone Equiniti on 0800 389 1580 from within the UK or on +44 (0)121 415 7033 (from outside the UK) between 8.30 a.m. and 5.30 p.m. (BST), Monday to Friday (excluding English and Welsh public holidays). Calls to the Shareholder Helpline from outside the UK will be charged at applicable international rates. Calls will be recorded and monitored for security and training purposes.

Please note that, for legal reasons, Equiniti cannot provide advice on the merits of the Transaction or give any legal, tax or financial advice.

Hard copies of any information incorporated into this document by reference to another source, sent to persons in electronic form or by means of being published on AstraZeneca’s website, and all future documents, announcements and information required to be sent to persons in relation to the Transaction may be requested to be received by AstraZeneca Shareholders in hard copy form by writing to Equiniti at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom or by calling Equiniti at the numbers provided above. A hard copy of any such documents will not be sent unless so requested.

ACTION TO BE TAKEN

For the reasons set out in this document, the Board unanimously recommends that AstraZeneca Shareholders vote in favour of the Resolution relating to the Transaction to be proposed at the AstraZeneca General Meeting, as the Directors intend to do in respect of their own beneficial holdings of AstraZeneca Shares, and that you take the action described below.

The AstraZeneca General Meeting will be held at Academy House, 136 Hills Road, Cambridge, CB2 8PA, United Kingdom at 11.30 a.m. on 11 May 2021. The Transaction requires approval of AstraZeneca Shareholders at the AstraZeneca General Meeting.

1.       The documents

If you received a Form of Proxy, you are requested to complete and return your form as soon as possible. If you have registered to appoint a proxy electronically, and have thus not received a Form of Proxy, you should follow the instructions in the email you received notifying you of the availability of this document.

2.       Voting at the AstraZeneca General Meeting

The Transaction will require approval by AstraZeneca Shareholders at the AstraZeneca General Meeting to be held at Academy House, 136 Hills Road, Cambridge, CB2 8PA, United Kingdom at 11.30 a.m. on 11 May 2021. The Transaction constitutes a Class 1 transaction for AstraZeneca under the Listing Rules and will require the passing by AstraZeneca Shareholders of the Resolution to be proposed at the AstraZeneca General Meeting.

The Board continues to monitor the evolving COVID-19 situation and the safety and security of the AstraZeneca workforce and AstraZeneca Shareholders remains paramount. In line with UK Government restrictions relating to public gatherings as at the date of this document, the AstraZeneca General Meeting will be a closed meeting and it will not be possible for AstraZeneca Shareholders to attend. The AstraZeneca General Meeting will function as a procedural meeting and only formal business will be conducted by a sufficient number of AstraZeneca Shareholders to constitute a quorum to ensure that the AstraZeneca General Meeting is validly held. As AstraZeneca Shareholders will not be allowed to attend the AstraZeneca General Meeting, AstraZeneca Shareholders are strongly encouraged to appoint the Chairman of the AstraZeneca General Meeting as their proxy, to ensure their votes are counted. A shareholder may appoint more than one proxy in relation to the AstraZeneca General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company.

2.1     Online appointment of proxies

AstraZeneca Shareholders entitled to vote at the AstraZeneca General Meeting may appoint a proxy electronically by logging on to the following website: www.sharevote.co.uk and entering the Authentication Reference Number shown on their Form of Proxy. Alternatively, shareholders who have already registered with Equiniti Registrars’ online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk. For an electronic proxy appointment to be valid, the appointment must be received by AstraZeneca’s registrar, Equiniti no later than 11.30 a.m. London time on 7 May 2021 (or, in the case of adjournment(s), not later than 48 hours before the time fixed for the adjourned meeting). Full details of the procedure to be followed to appoint a proxy electronically are given on both websites.

2.2     Electronic appointment of proxies through CREST

If you hold AstraZeneca Shares in uncertificated form through CREST and wish to appoint a proxy or proxies for the meeting (or any adjourned meeting) by using the CREST electronic proxy appointment service, you may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed any voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with the specifications of Euroclear and must contain the information required for such instructions as described in the CREST Manual. The message (regardless of whether it constitutes the appointment of a proxy or an amendment to the instructions given to a previously appointed proxy), must, in order to be valid, be transmitted so as to be received by AstraZeneca’s registrar, Equiniti, not less than 48 hours before the time fixed for the AstraZeneca General Meeting (or adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which Equiniti is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.

CREST members and, where applicable, their CREST sponsors or voting service providers, should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed any voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

AstraZeneca may treat as invalid a CREST Proxy Instruction in the circumstances set out in the CREST Regulations.

2.3     Sending Forms of Proxy by post or by hand

Please complete and sign the enclosed Form of Proxy in accordance with the instructions printed on it and return it either (i) by post or, (ii) during normal business hours only, by hand, to AstraZeneca’s registrar, Equiniti Limited at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom so as to be received as soon as possible and in any event not later than 11.30 a.m. on 7 May 2021, or, if the AstraZeneca General Meeting is adjourned, the Form of Proxy should be received not later than 48 hours before the time fixed for the adjourned AstraZeneca General Meeting.

The Form of Proxy must be returned by the time mentioned above, or it will be invalid.

AstraZeneca Shareholders are entitled to appoint a proxy in respect of some or all of their AstraZeneca Shares and may also appoint more than one proxy, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by such holder. AstraZeneca Shareholders who wish to appoint more than one proxy in respect of their holding of AstraZeneca Shares should contact Equiniti for further Forms of Proxy.

3.       Shareholder Helpline

If you have any questions about this document or the AstraZeneca General Meeting, or are in any doubt as to how to complete the Form of Proxy, please contact AstraZeneca’s registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom or call on 0800 389 1580 or, if telephoning from outside the UK, on +44 (0)121 415 7033, between 8.30 a.m. and 5.30 p.m. (BST), Monday to Friday (excluding English and Welsh public holidays). Calls to the helpline from outside the UK will be charged at applicable international rates. Calls may be recorded and monitored for security and training purposes. Please note that, for legal reasons, the helpline cannot provide advice on the merits of the Transaction or give any legal, tax or financial advice.

4.       ADSs

If you want the Depositary to vote your AstraZeneca ADSs at the AstraZeneca General Meeting, you may provide your voting instructions to the Depositary via the internet, by telephone or by sending in a completed voting instruction card, as described on such card. In each case, voting instructions must be received by the Depositary by 1.00 p.m. EDT on 3 May 2021.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

All times shown are BST times unless otherwise stated. All dates and times are based on the current expectations of AstraZeneca and are subject to change, which will depend, among other things, on the date on which the Conditions to the Transaction are satisfied or, where applicable, waived. If any of the dates and/or times in this expected timetable change, the revised dates and/or times will be notified to AstraZeneca Shareholders by announcement through the Regulatory Information Service of the London Stock Exchange.

Notes:

INDICATIVE TRANSACTION STATISTICS

Notes:

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS

PART I
LETTER FROM THE CHAIRMAN OF ASTRAZENECA

12 April 2021

To all AstraZeneca Shareholders, and, for information only, to participants in the AstraZeneca Share Plans and persons with information rights

Dear Shareholder

PROPOSED ACQUISITION OF ALEXION
BY ASTRAZENECA PLC

1.       Introduction

On 12 December 2020, AstraZeneca announced that it and Alexion had reached an agreement for the acquisition, by a subsidiary of AstraZeneca, of the entire common stock of Alexion (the “Alexion Shares”), which will be effected through a statutory merger pursuant to the laws of Delaware (the “Transaction”).

Under the terms of the Transaction, Alexion Shareholders will receive US$60 in cash and 2.1243 AstraZeneca American Depositary Shares (“AstraZeneca ADSs”) (each New AstraZeneca ADS representing one-half of one (1/2) AstraZeneca Share, as evidenced by American Depositary Receipts (“ADRs”)) for each Alexion Share (the “Merger Consideration”). If they elect, Alexion Shareholders may receive their allocation of New AstraZeneca ADSs in the form of a corresponding number of AstraZeneca Shares in addition to the cash consideration.

Owing to its size, the Transaction constitutes a class 1 transaction for the purposes of the Listing Rules, and therefore requires the approval of AstraZeneca Shareholders. The Transaction is conditional on, amongst other things, such approval being obtained. Accordingly, a General Meeting has been convened for 11.30 a.m. on 11 May 2021 at Academy House, 136 Hills Road, Cambridge, CB2 8PA, United Kingdom. The Notice of General Meeting is set out in Part IX (Notice of General Meeting) of this document and an explanation of the Resolution to be proposed is set out in paragraph 16 of this letter.

Alexion was incorporated in the state of Delaware and Alexion Shares are listed on the Nasdaq Stock Exchange. Alexion is therefore not subject to the Listing Rules. Pursuant to the terms of the Merger Agreement, and, in accordance with Delaware law, the Transaction is also conditional on Alexion Shareholder approval.

I am pleased to present this significant, value-creating opportunity AND RECOMMEND THE TRANSACTION to AstraZeneca Shareholders. The purpose of this letter is to: (i) explain the background to and reasons for the Transaction; (ii) explain why the Directors believe that the Transaction is in the best interests of AstraZeneca and AstraZeneca Shareholders taken as a whole; and (iii) recommend that, as an AstraZeneca Shareholder, you vote in favour of the Resolution to be proposed at the AstraZeneca General Meeting.

The notice of the AstraZeneca General Meeting, at which your approval will be sought for the Transaction, is set out at the end of this document. In order to approve the Transaction, a majority of AstraZeneca Shareholders attending, whether in person or by proxy, and voting at the AstraZeneca General Meeting will need to vote in favour of the Resolution. The Resolution is described in further detail in paragraph 16 (AstraZeneca General Meeting) of this letter, and is set out in Part IX (Notice of General Meeting) of this document. Details of the action you should take in order to cast your votes at the AstraZeneca General Meeting are set out in the part of this document entitled “Action to be taken” on pages 9 to 10 of this document. The recommendation of the Directors is set out in paragraph 20 (Recommendation) of this letter.

2.       Background to and reasons for the Transaction

Both AstraZeneca and Alexion share the same dedication to science and innovation to deliver life-changing medicines. The capabilities of both organisations will create a company with great strengths across a range of technology platforms, with the ability to bring innovative medicines to millions of people worldwide. The Combined Group will also have an enhanced global footprint and broad coverage across primary, speciality and highly specialised care.

Scientific leadership—accelerated presence in immunology

AstraZeneca has built a growing scientific presence in oncology, and in cardiovascular, renal and metabolism, and respiratory diseases, with a focus on organ protection. AstraZeneca has developed a broad range of technologies, initially focused on small molecules and biologics and with a growing focus in precision medicine, genomics, oligonucleotides and epigenetics. More recently, AstraZeneca has increased its efforts in immunology research and the development of medicines across a range of modalities for immune-mediated diseases, including for rare disorders.

Many immune disorders are caused by the over-activation of an individual’s own immune system against specific normal proteins or components, causing damage to cells, tissues and/or organs that express these proteins or components. In some of these disorders the damage is caused in whole or part by the over- activation of the complement arm of the immune system.

Alexion has pioneered complement inhibition for a broad spectrum of immune-mediated rare diseases caused by uncontrolled activation of the complement system. The complement system is a critical component of the innate immune system, which is typically the first line of defence against invading pathogens. The complement system consists of several plasma proteins that work together to destroy and remove foreign and infected cells, and cause inflammation of the surrounding tissue to recruit additional mediators of the immune system. The complement proteins usually circulate in the blood and extracellular fluid in an inactivated state. Activation by an appropriate signal sets off a chain reaction where each complement protein triggers the activation of the next protein in the cascade.

Complement activation occurs through three different routes, based on the type of activating signal:

All three pathways converge to activate C3, which then splits into two fragments, C3a and C3b. The smaller C3a fragment promotes inflammation, thus enhancing the immune response, while the larger C3b fragment binds to the surface of a human or microbial cell to form the C5 convertase. The latter splits the terminal complement protein C5, triggering the formation of the membrane attack complex (MAC), a structure that forms on the membranes of cells and pokes holes, causing the cellular contents to leak and the cells to die.

Uncontrolled complement activation can lead to life-threatening conditions, including systemic inflammation, dysregulation of coagulation (blood clotting) and fibrinolysis, and auto-aggression. It therefore needs to be tightly regulated.

Alexion’s franchise includes Soliris (eculizumab), a first-in-class anti-complement component 5 (C5) monoclonal antibody. The medicine is approved in many countries for the treatment of patients with paroxysmal nocturnal haemoglobinuria (PNH), atypical haemolytic uremic syndrome (aHUS), generalised myasthenia gravis (gMG) and neuromyelitis optica spectrum disorder (NMOSD). More recently, Alexion launched Ultomiris (ravulizumab), a second-generation C5 monoclonal antibody with a more convenient dosing regimen that has the potential to address a broader range of potential immune disorders.

Alexion’s expertise extends to other targets both within and beyond the complement cascade. Its deep pipeline includes Factor D small-molecule inhibitors that modulate the alternative pathway of the complement system, an antibody blocking the neonatal Fc receptor (FcRn), and a bi-specific mini-body targeting C5, among others. The FcRn binds to and recycles immunoglobulin G (IgG) antibodies, therefore extending their half-life. Blocking the FcRn reduces the amount of circulating antibodies, including pathogenic autoantibodies. Beyond complement, Alexion has successful commercial Metabolic (Strensiq and Kanuma) and Critical Care (Andexxa) franchises, as well as a number of non-complement-focused assets in development.

AstraZeneca, with Alexion’s R&D team, will work to build on Alexion’s pipeline of 11 molecules across more than 20 clinical development programmes across the spectrum of indications, in rare diseases and beyond.

Alexion’s leading expertise in complement biology will accelerate AstraZeneca’s growing presence in immunology. The Transaction adds a new technology platform to AstraZeneca’s science and innovation-driven strategy. The complement cascade is pivotal to the innate immune system. It plays a crucial role in many inflammatory and autoimmune diseases across multiple therapy areas, including haematology, nephrology, neurology, metabolic disorders, cardiology, ophthalmology and acute care. In contrast, AstraZeneca’s capabilities in genomics, precision medicine and oligonucleotides can be utilised to develop medicines targeting less-frequent diseases. Combining AstraZeneca’s capabilities in precision medicine and Alexion’s expertise in rare disease development and commercialisation will enable the new company to develop a portfolio of medicines addressing the large unmet needs of patients suffering from rare diseases.

The Combined Group will bring together two complementary, patient-centric models of care delivery with combined strengths in immunology, biologics, genomics and oligonucleotides to drive future medicine innovation. AstraZeneca intends to establish Boston, Massachusetts, US as its headquarters for rare diseases, capitalising on talent in the greater Boston area.

Industry-leading revenue growth; enhanced geographical presence and broad coverage across primary, specialised and highly specialised care

AstraZeneca’s acquisition of Alexion, with its strong commercial portfolio and robust pipeline, will support its long-term ambition to develop novel medicines in areas of immunology with high unmet medical needs. Alexion achieved impressive revenue growth over the last few years, with revenues of US$6 billion in 2020 (22 per cent. year-on-year growth). Alexion has exhibited skilful commercial execution in building its ‘blockbuster’ C5 franchise. The success of the franchise is demonstrated by the effective transition of over 70 per cent. of PNH patients from Soliris to Ultomiris in less than two years of launch in its key markets, including the US, Japan and Germany, as well as the strong pipeline of additional indications for Ultomiris.

Rare diseases is a high-growth therapy area with rapid innovation and significant unmet medical need. Over 7,000 rare diseases are known today, and only c.5 per cent. have US Food and Drug Administration-approved treatments. The global rare disease market is forecasted to grow by a low double-digit percentage in the future.

AstraZeneca intends to build on its geographical footprint and extensive emerging markets presence to accelerate the worldwide expansion of Alexion’s portfolio.

The combination of the two companies’ laboratories is complementary to each of their respective capabilities. The Board believes that, on the one hand, Alexion’s complement technology will benefit from AstraZeneca’s wider knowledge base to pursue medicines for indications other than rare diseases whilst, on the other, AstraZeneca will be able to move forward with potential medicines in rare diseases which were otherwise side- lined.

The Transaction strengthens AstraZeneca’s industry-leading growth, underpinned by its broad portfolio of medicines, which will enable the new company to bring innovative medicines to a broad range of healthcare practitioners in primary, speciality and highly specialised care.

The Combined Group is expected to deliver double-digit average annual revenue growth through 2025.

Enhanced core operating margin and cash-flow generation

The Transaction is expected to improve the Combined Group’s profitability, with the core operating margin significantly enhanced in the short term, and with continued expansion thereafter. This uplift is supported by increased scale and expected recurring run-rate pre-tax synergies of approximately US$500 million per year from the Combined Group (by end of the third year following Completion). AstraZeneca expects to generate significant value from the Transaction by extending Alexion’s commercial reach through leveraging AstraZeneca’s global presence and accelerating the development of Alexion’s pipeline.

The Transaction also strengthens AstraZeneca’s cash-flow generation, providing additional flexibility to reinvest in R&D and rapid debt reduction, with an ambition to increase the dividend.

Immediately core earnings-accretive and value-enhancing acquisition, in line with stated capital allocation priorities

The Transaction is expected to deliver robust and sustainable accretion to AstraZeneca’s core earnings per share (EPS) from the outset, with double-digit percentage accretion anticipated in the first three years following Completion. ¹

1    This should not be construed as a profit forecast or interpreted to mean that the future earnings per share, profits, margins or cashflows of AstraZeneca will match or exceed the historical published earnings or earnings per share, profits, margins or cashflows of AstraZeneca.

The Transaction is consistent with AstraZeneca’s capital allocation priorities. The Combined Group is expected to maintain a strong, investment-grade credit rating, and the Transaction supports AstraZeneca’s progressive dividend policy. The Transaction represents a significant step in AstraZeneca’s strategic and financial-growth plans.

3.       Summary information on Alexion

Alexion is a global biopharmaceutical company focused on serving patients and families affected by rare diseases and devastating conditions through the discovery, development and commercialisation of life-changing medicines. As a leader in rare diseases for more than 25 years, Alexion has developed and commercialises two approved complement inhibitors to treat patients with PNH and atypical haemolytic uremic syndrome, as well as the first and only approved complement inhibitor to treat anti-acetylcholine receptor antibody-positive generalised myasthenia gravis and neuromyelitis optica spectrum disorder. Alexion also has two highly innovative enzyme replacement therapies for patients with life-threatening and ultra-rare metabolic disorders, hypophosphatasia and lysosomal acid lipase deficiency, as well as the first and only approved Factor Xa inhibitor reversal agent. In addition, Alexion is developing several mid-to-late-stage therapies, including a copper-binding agent for Wilson disease, FcRn antibody for rare IgG-mediated diseases and an oral Factor D inhibitor as well as several early-stage therapies, including one for light chain amyloidosis, a second oral Factor D inhibitor and a third C5 inhibitor. Alexion focuses its research efforts on novel molecules and targets in the complement cascade and its development efforts on haematology, nephrology, neurology, metabolic disorders, cardiology, ophthalmology and acute care.

4.       Summary financial information on Alexion

The following selected historical consolidated financial data prepared in accordance with US GAAP has been extracted from the consolidated historical financial information extracted without material adjustment from Alexion’s audited consolidated financial statements for the years ended 31 December 2020, 31 December 2019 and 31 December 2018 included within Part IV (Historical Financial Information relating to Alexion) of this document.

Further detailed information on the historical financial information for Alexion is provided in Part IV (Historical Financial Information Relating to Alexion) of this document.

5.       Summary of the terms of the Transaction

The Transaction will be undertaken through a US statutory merger in which Alexion Shareholders will receive US$60 in cash and 2.1243 New AstraZeneca ADSs listed on the Nasdaq Stock Exchange for each of their Alexion Shares. If they elect, Alexion Shareholders may receive their allocation of New AstraZeneca ADSs in the form of a corresponding number of AstraZeneca Shares in addition to the cash consideration.

Based on AstraZeneca’s reference average ADR price of US$48.42 on the Latest Practicable Date, this implies:

The Transaction will take place by way of a statutory merger under the laws of Delaware, pursuant to which Merger Sub I, a Delaware corporation and an indirect wholly owned subsidiary of AstraZeneca, will merge with and into Alexion, with Alexion surviving the merger. Alexion will then merge with and into Merger Sub II, a Delaware limited liability company and an indirect wholly owned subsidiary of AstraZeneca, with Merger Sub II surviving as an indirect wholly owned subsidiary of AstraZeneca. The Merger Agreement was entered into on 12 December 2020, the terms of which are more fully described in Part III (Summary of the Key Transaction Terms) of this document.

Assuming the satisfaction or waiver of all Conditions, Completion is expected to take place in the third quarter of 2021. Following Completion, AstraZeneca will announce that the Transaction has taken effect. The announcement will be made by way of a press release despatched via a Regulatory Information Service.

6.       Synergies and integration

The Board expects the Transaction to realise recurring run-rate pre-tax cost synergies of approximately US$500 million per annum from the Combined Group by the end of the third year following Completion of the Transaction.

These synergies are expected to be primarily achieved by utilising the scale and global footprint of the Combined Group, integrating common corporate functions, taking full advantage of best practices and operational capacity that currently exists in each business, and sharing of resources in commercial and R&D to support Alexion as the rare diseases business unit in the Combined Group.

The Board expects cost synergies to be achieved in the following main areas, listed in order of the magnitude of expected impact on the Combined Group:

The Board expects the realisation of the quantified synergies will require estimated one-off cash costs of approximately US$600 million incurred in the first three years following Completion of the Transaction and believes that the synergies will not prevent the Combined Group from continuing to invest in future growth or planned R&D activities.

The expected synergies have been calculated based on AstraZeneca and Alexion financial information for the years ended 31 December 2019 and 31 December 2020.

In addition to the cost synergies, the Board further expects that the Combined Group will be able to realise substantial revenue synergy opportunities through utilising AstraZeneca’s global infrastructure to increase sales volumes of Alexion products, including Andexxa, Soliris/Ultomiris and metabolic products. The additional geographic cover will also lead to an increase of sales revenues in emerging markets and in countries with distributorships.

The estimated synergies reflect both the beneficial elements and relevant costs. The Board expects these anticipated synergies to accrue as a direct result of the Transaction and that they would not otherwise be achieved on a standalone basis and does not expect any material dis-synergies to arise in connection with the Transaction.

The Board is confident that the integration of Alexion can be achieved without causing any material disruption to the underlying operations of the two businesses. As at the date of this document, appropriate preparatory integration planning is being undertaken by an integration leadership team comprising members of senior management of both AstraZeneca and Alexion. Specific integration teams have been established across each functional division and are working together to produce detailed integration plans that will be implemented immediately following Completion. There can be no assurance that any particular amount of such savings or synergies will be achieved following Completion or that they will be achieved in the expected time frame.

7.           Summary of Unaudited Pro Forma Financial Information for the Combined Group

Unaudited Pro Forma income statement

Unaudited Pro Forma Statement of net assets

Further detailed information on the unaudited pro forma financial information for the Combined Group is provided in Part V (Unaudited Pro Forma Financial Information for the Combined Group) of this document.

8.           Management and employee incentive arrangements

AstraZeneca and Alexion will mutually agree on two individuals from Alexion’s board of directors who will join the Board as Directors upon Completion.

Members of Alexion’s current senior management team will lead the future rare disease activities. Under the terms of the Merger Agreement, AstraZeneca has agreed that for 12 months following Completion, it will provide the Alexion employees with salaries not less than such employees had before Completion, incentive compensation opportunities that are in the aggregate no less favourable than those provided before Completion and substantially comparable benefits to those provided before Completion. Details on how the Alexion share plans are treated under the Merger Agreement are set out in Part III (Summary of the Key Transaction Terms) of this document.

The Combined Group’s headquarters will be located at AstraZeneca’s existing headquarters at 1 Francis Crick Avenue, Cambridge Biomedical Campus, Cambridge, CB2 0AA, United Kingdom (which is also its registered office).

9.           Dividends and dividend policy

Alexion Shareholders will be entitled to AstraZeneca dividends (with record dates following Completion) in respect of the New AstraZeneca Shares and the New AstraZeneca ADSs from the time of issuance of such AstraZeneca Shares and AstraZeneca ADSs. The New AstraZeneca Shares will, when issued, rank pari passu with each other and with all existing AstraZeneca Shares and will rank in full for all dividends and other distributions hereafter declared, made or paid in respect of the existing AstraZeneca Shares. The New AstraZeneca ADSs will, when issued, rank pari passu with each other and with all existing AstraZeneca ADSs and will rank in full for all dividends and other distributions hereafter declared, made or paid in respect of the existing AstraZeneca ADSs.

AstraZeneca has a progressive dividend policy and the Board expects the Transaction to materially enhance core dividend cover. AstraZeneca’s dividends are declared in US Dollars per ordinary share and are paid in sterling, Swedish Krona or US Dollars, in each case corresponding to where the relevant AstraZeneca Shares or AstraZeneca ADSs are listed.

10.           Summary of the Merger Agreement

10.1   Conditions to the Transaction

The Merger Agreement contains a number of Conditions, which are more fully described in Part III (Summary of the Key Transaction Terms) of this document. AstraZeneca will not be required to complete the Transaction if the Conditions have not been satisfied or, to the extent legally permitted, waived. Certain of the material Conditions are summarised below:

(together, the “Regulatory Conditions”);

The Transaction will be subject to reviews by a number of antitrust authorities, including the European Commission (“EC”), the US Federal Trade Commission (the “FTC”), and the Competition and Markets Authority (“CMA”) in the UK. A number of further merger control and foreign investment clearances will also be sought by AstraZeneca and Alexion in connection with the Transaction. AstraZeneca currently expects these reviews to conclude to allow Completion of the Transaction in the third quarter of 2021.

For further information, please see Part III (Summary of the Key Transaction Terms) of this document.

10.2   Termination payment

AstraZeneca will be entitled to receive a termination payment of US$270 million from Alexion in the event that, subject to certain specified conditions, AstraZeneca or Alexion terminates the Merger Agreement because the required approval of the Alexion Shareholders is not obtained.

AstraZeneca will be entitled to receive a termination payment of US$1.18 billion from Alexion in the event that:

Alexion will be entitled to receive a termination payment of US$1.415 billion from AstraZeneca in the event that:

11.       Transaction financing

To support the financing of the offer consideration, on 12 December 2020, AstraZeneca entered into a new underwritten US$17.5 billion bridge financing facility, arranged by Morgan Stanley Bank International Limited, J.P. Morgan Securities PLC and Goldman Sachs Bank USA (the “Bridge Facility”). The initial term of the Bridge Facility is 12 months from the earlier of (i) the date of Completion and (ii) 12 December 2021, with up to two six month extensions available at the discretion of AstraZeneca. The Bridge Facility is intended to cover the financing of the cash portion of the acquisition consideration and associated acquisition costs and to refinance the existing term loan and revolving credit facilities of Alexion.

On 24 December 2020, the Bridge Facility was successfully syndicated to a number of large, well-regarded international banks (the lenders under the Bridge Facility, the “Bridge Lenders”) and US$5 billion of the Bridge Facility was cancelled and replaced by US$5 billion medium-term term and revolving facilities made available by the Bridge Lenders (the “Takeout Facilities”). The term facilities under the Takeout Facilities are intended to be available to be applied towards the financing of the cash portion of the acquisition consideration and associated acquisition costs and to refinance the existing drawn term loan facilities of Alexion. The revolving facilities under the Takeout Facilities are intended to be available to be applied towards the general corporate purposes of the Combined Group, including as a result of the cancellation of the existing revolving credit facilities of Alexion.

AstraZeneca intends to refinance the remaining US$12.5 billion available under the Bridge Facility through a combination of debt-capital market issuances, commercial paper issued under any commercial paper programme, and business cash flows.

For further information, please see paragraph 2 of Part III (Summary of the Key Transaction Terms) of this document.

12.       Current Trading and Prospects

12.1   AstraZeneca

Year ended 31 December 2020

On 15 February 2021, AstraZeneca published its Annual Report and Accounts for the year ended 31 December 2020. AstraZeneca delivered strong results in the year, delivering on guidance pertaining to growth and improvement in profitability.

Total revenue increased 9 per cent. (10 per cent. at constant exchange rates (“CER”)) to US$26.6 billion. This was driven by growth in new medicines which improved by 33 per cent. to US$14.0 billion. Globally, new medicines represented 52 per cent. of total revenue (compared to 43 per cent. for the financial year ended 31 December 2019). In terms of AstraZeneca’s three therapy areas, Oncology increased by 23 per cent. (24 per cent. at CER) to US$11.5 billion, while New CVRM increased by 7 per cent. (9 per cent. at CER) to US$4.7 billion. Respiratory & Immunology declined by 1 per cent. (stable at CER) to US$5.4 billion, a reflection of the impact in China of COVID-19.

The reported operating profit margin increased by seven percentage points in the year (eight at CER) to 19 per cent. The core operating profit margin increased by one percentage point (two at CER) to 28 per cent. and AstraZeneca anticipates further sustainable expansion in the core operating profit margin over time.

During 2020, AstraZeneca also made significant contributions towards the COVID-19 pandemic response. C19VAZ, which AstraZeneca co-developed with the University of Oxford, has received authorisation for emergency use by the UK MHRA, the EMA and the World Health Organisation. In addition to C19VAZ, AstraZeneca has initiated five Phase III clinical trials of AZD7442, a long-acting antibody combination therapy for the prevention and treatment of COVID-19, to evaluate safety and efficacy in preventing infection and treating patients in outpatient and inpatient settings.

Outlook for 2021

In its preliminary results announcement for the year ended 31 December 2020 and the three months ended 31 December 2020, published on 11 February 2021, AstraZeneca provided the following guidance for the financial year ending 31 December 2021 at CER:

“Total Revenue is expected to increase by a low-teens percentage, accompanied by faster growth in Core EPS to $4.75 to $5.00.

The guidance does not incorporate any revenue or profit impact from sales of COVID-19 Vaccine AstraZeneca (C19VAZ). The Company intends to report these sales separately from the next quarter. Similarly, the guidance excludes the proposed acquisition by the Company of Alexion Pharmaceuticals, Inc. (Alexion), anticipated to close in Q3 2021. AstraZeneca recognises the heightened risks and uncertainties from the impact of COVID19. Variations in performance between quarters can be expected to continue.”

Please see Appendix 1 (Profit Forecasts) of this document for more information on AstraZeneca’s outlook, including the basis of preparation and list of assumptions.

AstraZeneca’s trading remains in line with the contents of that announcement, the outlook is unchanged and the AstraZeneca Group continues to have a strong financial position. AstraZeneca continues to invest in new medicines to support the rapidly growing oncology and biopharmaceuticals therapy areas. The impact of the COVID-19 pandemic persists in 2021 as expected and AstraZeneca remains focussed on closely monitoring and evaluating any unexpected impact on its portfolio of medicines, including the sale of marketed products, our supply chain, and the initiation and execution of clinical trials.

12.2   Alexion

Year ended 31 December 2020

On 4 February 2021, Alexion reported its fourth quarter and full year results for the year ended 31 December 2020. Alexion delivered strong full year results, outperforming its financial guidance for the year.

Total revenues were US$6.1 billion, a 22 per cent. increase compared to the same period in 2019. This exceeded the latest revenue guidance of US$5.9 billion to US$6.0 billion given on 29 October 2020. Soliris net product sales were US$4.1 billion, compared to US$3.9 billion in 2019, representing a 3 per cent. increase. Soliris sales growth was primarily driven by its expanding presence in neurology patients, namely gMG and NMOSD. Ultomiris net product sales were US$1.1 billion, compared to US$338.9 million in 2019, representing a 218 per cent. increase. Ultomiris sales growth was driven by Alexion achieving over 70 per cent. conversion of its PNH patients from Soliris to Ultomiris in the US, Germany and Japan. Strensiq net product sales were US$731.8 million, compared to US$592.5 million in 2019, representing a 24 per cent. increase. Kanuma net product sales were US$117.9 million, compared to US$112.2 million in 2019, representing a 5 per cent. increase.

GAAP diluted EPS was US$2.72, compared to US$10.70 in 2019. GAAP diluted EPS for 2020 includes impairment charges of US$2.1 billion primarily relating to the Kanuma intangible asset recorded in the second quarter 2020, offset by a deferred tax benefit of US$377.3 million associated with the Kanuma impairment charge. GAAP diluted EPS for 2019 includes one-time tax benefits of US$382.2 million related to intra-entity asset transfers of intellectual property in 2019. Non-GAAP diluted EPS was US$12.51, compared to US$10.53 in 2019.

Outlook for 2021

Since 31 December 2020, Alexion’s business and financial performance has continued in line with management’s expectations. Alexion expects to continue revenue growth in its various franchises including neurology, hematology, metabolic and Andexxa alongside continued progress in conversion from Soliris to Ultomiris in its PNH and aHUS business. Alexion is not aware of any material change in the competitive landscape that will have a material negative impact on the complement inhibitor franchise. Alexion continues to invest in its R&D efforts including for Ultomiris in gMG, NMO and ALS and remains on track for the Phase 3 readout of 1840 in Wilson disease in 2021. Alexion believes that it maintains sufficient commercial supplies and inventory for all its drugs and remains committed to patients it serves and the orphan disease community globally. The COVID-19 pandemic continues to impact the business in various geographies which Alexion continues to monitor.

13.       De-listing of Alexion Shares and listing of New AstraZeneca Shares

13.1   De-listing of Alexion Shares

If the Transaction completes, there will no longer be any publicly held Alexion Shares. Accordingly, Alexion Shares will be delisted from the Nasdaq Stock Exchange and will be deregistered under the Exchange Act as soon as practicable following Completion, and Alexion will no longer be required to file periodic reports with the SEC in respect of Alexion Shares.

13.2   Listing of New AstraZeneca Shares

Under the terms of the Merger Agreement, AstraZeneca is required to use its reasonable best efforts to cause (i) the New AstraZeneca Shares to be approved for admission to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange and (ii) the New AstraZeneca ADSs to be issued as Merger Consideration to be approved for listing on the Nasdaq Stock Exchange, subject to official notice of issuance, each prior to Completion. It is a condition to both parties’ obligations to complete the Transaction that such approvals are obtained. Accordingly, application will be made to have the New AstraZeneca Shares approved for listing by the FCA and to trading on the main market for listed securities on the London Stock Exchange and for the New AstraZeneca ADSs to be approved for listing on the Nasdaq Stock Exchange.

The existing AstraZeneca Shares are already admitted to the Official List, the London Stock Exchange’s main market for listed securities, under the ticker symbol “AZN LN”, and CREST. It is expected that all of the New AstraZeneca Shares, when issued and fully paid, will be capable of being transferred by means of CREST. The New AstraZeneca Shares will trade under ISIN GB0009895292 which is the same ISIN as the existing AstraZeneca Shares.

AstraZeneca Shares also have a secondary listing on Nasdaq Stockholm in Sweden, under the ticker symbol “AZN SS”. On the Latest Practicable Date, 159,207,705 AstraZeneca Shares (being 12.1 per cent. of AstraZeneca’s issued ordinary share capital) were recorded on its Sweden branch share register. Application will be made to have the New AstraZeneca Shares admitted to trading on Nasdaq Stockholm.

The New AstraZeneca Shares will be created under the Companies Act and will be issued in registered form and will be capable of being held in both certificated and uncertificated form. The rights attached to the New AstraZeneca Shares will be the same as those attached to the existing AstraZeneca Shares, which are described in paragraph 3.2 of Part VI (Additional Information) of this document.

AstraZeneca ADSs are listed on the Nasdaq Stock Exchange under the ticker symbol “AZN US”. The New AstraZeneca ADSs will trade under ISIN US0463531089 which is the same ISIN as the existing AstraZeneca ADSs. The rights of holders of the AstraZeneca ADSs is governed by the terms of a depositary agreement between the Depositary, AstraZeneca and the owners and beneficial owners of the AstraZeneca ADSs. The rights of holders of New AstraZeneca ADSs will be the same as those attached to the existing AstraZeneca ADSs.

14.       Dilution

Subject to Completion, up to 235,149,198 New AstraZeneca Shares will be issued in connection with the Transaction. This will result in AstraZeneca’s issued share capital increasing by approximately 17.9 per cent. (including shares owned by employee share trusts). Following Completion and assuming that 235,149,198 New AstraZeneca Shares are issued in connection with the Transaction, AstraZeneca Shareholders will be subject to an immediate dilution as a result of the issue, following which they will hold approximately 84.8 per cent. of the Combined Group’s issued share capital.

15.       Taxation

The Transaction does not involve existing AstraZeneca Shareholders disposing of their AstraZeneca Shares or acquiring additional AstraZeneca Shares. As such, the Transaction is not expected to have any UK or US tax implications for existing AstraZeneca Shareholders. The contents of this document are not to be construed as tax advice and each AstraZeneca Shareholder should consult its own tax adviser for tax advice in relation to its holding of AstraZeneca Shares.

16.       AstraZeneca General Meeting

The AstraZeneca General Meeting has been convened for 11.30 a.m. (BST) on 11 May 2021 at Academy House, 136 Hills Road, Cambridge, CB2 8PA, United Kingdom, for AstraZeneca Shareholders to consider and, if thought fit, pass the Resolution.

In line with UK Government COVID-19 restrictions relating to public gatherings as at the date of this document, the AstraZeneca General Meeting will be a closed meeting and it will not be possible for AstraZeneca Shareholders to attend. The AstraZeneca General Meeting will be preceded by an online shareholder engagement event at 2.00 p.m. on 30 April 2021, at which AstraZeneca Shareholders will be invited to participate in a live Q&A session with the Board. More information about the online shareholder engagement event is set out in the Notes to the Notice of General Meeting in Part IX (Notice of General Meeting).

The Resolution set out in the Notice of General Meeting in Part IX (Notice of General Meeting) of this document proposes that: (i) the Transaction be approved and (ii) the Directors be authorised to take all steps as may be necessary, expedient or desirable to implement the Transaction.

A notice of the AstraZeneca General Meeting is set out at the end of this document. The Board unanimously considers that the Resolution is in the best interests of AstraZeneca and AstraZeneca Shareholders and recommends that AstraZeneca Shareholders vote in favour of the Resolution as the Directors intend to do in respect of their own legal and beneficial holdings of AstraZeneca Shares.

17.       Action to be taken

Your attention is drawn to the part of this document entitled “Action to be taken”, which explain the actions you should take in relation to the AstraZeneca General Meeting.

18.       Further information

Your attention is drawn to the additional information set out in Part VI (Additional Information) and the Notice of General Meeting in Part IX (Notice of General Meeting) of this document. You should read the whole of this document and the accompanying Form of Proxy and not rely solely on the information summarised in this letter.

A copy of this document (and all information incorporated into this document by reference to another source) and the Form of Proxy are and will be available for inspection on AstraZeneca’s website at https://www.astrazeneca.com/investor-relations/astrazeneca-to-acquire-alexion.html.

19.       Financial advice

The Board has received financial advice from Evercore and Centerview Partners in relation to the Transaction. In providing their respective financial advice to the Board, each of Evercore and Centerview Partners have relied upon the Board’s commercial assessment of the Transaction.

20.       Recommendation

The Board considers the Transaction is in the best interests of AstraZeneca and AstraZeneca Shareholders taken as a whole. Accordingly, the Board unanimously recommends that AstraZeneca Shareholders vote or procure votes in favour of the Resolution at the AstraZeneca General Meeting, as the Directors intend to do in respect of their own legal and beneficial holdings of 557,609 AstraZeneca Shares representing, in aggregate, approximately 0.04 per cent. of AstraZeneca’s issued share capital as at the Latest Practicable Date.

Yours faithfully,

Leif Johansson

Chairman

PART II
RISK FACTORS

AstraZeneca Shareholders should consider the following risks and uncertainties together with all the other information set out in, or incorporated by reference into, this document prior to making any decision as to whether or not to vote in favour of the Transaction.

AstraZeneca considers the following to be the material risks related to the Transaction, existing material risks to AstraZeneca which may be impacted by the Transaction, or material new risks to AstraZeneca as a result of the Transaction. However, these should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties.

The risks described below are based on information known at the date of this document but may not be the only risks to which AstraZeneca, Alexion or, following Completion, the Combined Group is or might be exposed. In particular, they do not include risks which AstraZeneca considers, as at the date of this document, to be ordinary course risks which may impact AstraZeneca, Alexion or, following Completion, the Combined Group, and which are unconnected with the Transaction. Additional risks and uncertainties, which are currently unknown to AstraZeneca or that AstraZeneca does not currently consider to be material, may materially affect the business of AstraZeneca, Alexion or, following Completion, the Combined Group, and could have a material adverse effects on the business, financial condition, results of operations and prospects of AstraZeneca, Alexion or, following Completion, the Combined Group. If any of the following risks were to occur, the business, financial condition, results of operations or prospects of AstraZeneca, Alexion or, following Completion, the Combined Group could be materially adversely affected and the value of the AstraZeneca Shares could decline and AstraZeneca Shareholders could lose all or part of the value of their investment in AstraZeneca Shares.

Risks related to the Transaction

There is no assurance when or if the Transaction will be completed.

Completion is subject to the satisfaction or waiver of a number of Conditions as set forth in the Merger Agreement, including, among others:

There can be no assurance as to when these Conditions will be satisfied or waived, if at all, or that other events will not intervene to delay or result in the failure to complete the transaction. If the Transaction does not complete, AstraZeneca may be required to pay Alexion a termination payment of US$1.415 billion if:

In order to complete the Transaction, AstraZeneca and Alexion must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions that become applicable to the parties, Completion may be delayed, jeopardised or prevented and the anticipated benefits of the Transaction could be reduced.

No assurance can be given that the required consents, orders and approvals will be obtained or that the required Conditions to Completion will be satisfied. Even if all such consents, orders and approvals are obtained and such Conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents, orders and approvals. For example, these consents, orders and approvals may impose conditions on or require divestitures relating to the divisions, operations or assets of AstraZeneca and Alexion or may impose requirements, limitations or costs or place restrictions on the conduct of AstraZeneca’s or Alexion’s business, and if such consents, orders and approvals require an extended period of time to be obtained, such extended period of time could increase the chance that an adverse event occurs with respect to Alexion or AstraZeneca. Such extended period of time also may increase the chance that other adverse effects with respect to Alexion or AstraZeneca could occur, such as the loss of key personnel. Even if all necessary approvals are obtained, no assurance can be given as to the terms, conditions and timing of such approvals or that they will satisfy the terms of the Merger Agreement.

The AstraZeneca General Meeting may take place before all of the required regulatory approvals have been obtained and before all conditions to such approvals, if any, are known. Notwithstanding the foregoing, if the Resolution is passed at the AstraZeneca General Meeting, and subject to the Listing Rules, AstraZeneca would not be required to seek further approval of AstraZeneca Shareholders, even if the conditions imposed in obtaining required regulatory approvals could have an adverse effect on AstraZeneca either before or after completing the Transaction.

Because the market value of AstraZeneca Shares that Alexion stockholders will receive in the Transaction may fluctuate, AstraZeneca cannot be sure of the market value of the Merger Consideration that it will pay in the Transaction.

As Merger Consideration, Alexion stockholders will receive (i) US$60.00 in cash, without interest and (ii) a fixed number of AstraZeneca Shares, not a number of shares that will be determined based on a fixed market value. The market value of AstraZeneca Shares and the market value of Alexion common stock at Completion may vary significantly from their respective values on the date that the Merger Agreement was executed or at other dates, such as the date of this document or the date of the AstraZeneca General Meeting. Stock price changes may result from a variety of factors, including changes in AstraZeneca’s or Alexion’s respective businesses, operations or prospects, regulatory considerations and general business, market, industry or economic conditions. The exchange ratio will not be adjusted to reflect any changes in the market value of AstraZeneca Shares, the comparative value of pounds sterling and the US dollar or market value of the Alexion common stock. Therefore, the aggregate market value of the AstraZeneca Shares that AstraZeneca is required to issue at the time that the Transaction is completed could vary significantly from the value of such shares on the date of this document, the date of the AstraZeneca General Meeting or the date on which AstraZeneca actually issues the New AstraZeneca Shares.

AstraZeneca may waive one or more conditions to the Transaction without seeking further shareholder approval for the Transaction.

Certain conditions to AstraZeneca’s obligations to complete the Transaction may be waived, in whole or in part, to the extent legally permissible, either unilaterally or by agreement of AstraZeneca and Alexion. In the event that any such waiver does not require further shareholder approval, the parties will have the discretion to complete the Transaction without seeking such further shareholder approval.

AstraZeneca expects to refinance its credit facilities entered into for the purpose of the Transaction but cannot guarantee that it will be able to obtain new financing on terms acceptable to it or at all.

AstraZeneca anticipates that the funds needed to complete the Transaction will be derived from a combination of some or all of: (i) cash on hand; (ii) borrowings under the credit facilities which have been entered into for the purpose of the Transaction, its existing credit facilities and/or new credit facilities; and (iii) the proceeds from the sale of new debt securities and the issuance of any commercial paper. While AstraZeneca intends to refinance the credit facilities it has entered into for the purpose of the Transaction, AstraZeneca’s ability to obtain any new debt financing will depend on, among other factors, prevailing market conditions and other factors beyond AstraZeneca’s control. AstraZeneca cannot assure you that it will be able to obtain new debt financing on terms acceptable to it or at all on or before the maturity date of the credit facilities which have been entered into for the purpose of the Transaction, and therefore any such failure to refinance could materially adversely affect its operations and financial condition.

Except in specified circumstances, if the Transaction is not completed by 12 December 2021, subject to extension in specified circumstances by either Alexion or AstraZeneca to 12 March 2022, either Alexion or AstraZeneca may choose not to proceed with the Transaction.

Either AstraZeneca or Alexion may terminate the Merger Agreement if the Transaction has not been completed by 12 December 2021. However, this right to terminate the Merger Agreement will not be available to AstraZeneca or Alexion if the failure of such party to perform any of its obligations under the Merger Agreement has been the proximate cause of or resulted in the failure of the Transactions to be completed on or before such time. The 12 December 2021 deadline is subject to an extension for an additional 90 day period by Alexion or AstraZeneca to 12 March 2022, if at the time of any such extension all Conditions (other than the Regulatory Conditions) have been satisfied or waived.

AstraZeneca and Alexion are targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Transaction from being completed.

As at the date of this document, nine securities or stockholder derivative lawsuits have been brought against Alexion, its board of directors, and in some cases, AstraZeneca. Such lawsuits are often brought against companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting Completion of the Transaction, then that injunction may delay or prevent the Transaction from being completed. Given the early stage of the nine existing proceedings, it is not possible to predict the outcome or to estimate possible loss or range of loss.

While the Merger Agreement is in effect, Alexion, AstraZeneca and their respective subsidiaries’ businesses are subject to restrictions on their business activities.

Under the Merger Agreement, AstraZeneca, Alexion and their respective subsidiaries are subject to certain restrictions on the conduct of their respective businesses and generally must operate their respective businesses in the ordinary course prior to completing the transaction (unless AstraZeneca or Alexion obtains the other’s consent, as applicable, which is not to be unreasonably withheld, conditioned or delayed), which may restrict AstraZeneca’s and Alexion’s ability to exercise certain of their respective business strategies. These restrictions may prevent AstraZeneca and Alexion from pursuing otherwise attractive business opportunities, making certain investments or acquisitions, selling assets, engaging in capital expenditures in excess of certain agreed limits, incurring indebtedness or making changes to AstraZeneca’s and Alexion’s respective businesses prior to the Completion of the transactions or termination of the Merger Agreement, as applicable. These restrictions could have an adverse effect on AstraZeneca’s and Alexion’s respective businesses, financial results, financial condition or stock price.

In addition, the Merger Agreement prohibits AstraZeneca from: (i) soliciting, initiating, knowingly facilitating or knowingly encouraging, subject to certain exceptions set forth in the merger agreement, any inquiry or the making or submission of any proposal or offer that constitutes an acquisition proposal (as defined for each party in the Merger Agreement); (ii) (A) entering into or participating in any discussions or negotiations regarding; (B) providing to any third party any information; or (C) otherwise assisting, participating in, knowingly facilitating or knowingly encouraging any third party, in each case, in connection with or for the purpose of knowingly encouraging or facilitating, an acquisition proposal; or (iii) approving, recommending or entering into (or publicly or formally proposing to approve, recommend or enter into), any letter of intent or similar document, agreement commitment or agreement in principle with respect to an acquisition proposal.

The Combined Group may not realise all of the anticipated benefits of the Transaction.

There is a risk that some or all of the expected benefits of the Transaction may fail to materialise or may not occur within the time periods anticipated by AstraZeneca. The realisation of such benefits may be affected by a number of factors, including regulatory considerations and decisions, many of which are beyond the control of AstraZeneca. The challenge of coordinating previously independent businesses makes evaluating the business and future financial prospects of the Combined Group following the Transaction difficult. AstraZeneca and Alexion have operated and, until Completion of the Transaction, will continue to operate, independently. The success of the Transaction, including anticipated benefits and cost savings, will depend, in part, on the ability to successfully integrate the operations of both companies in a manner that results in various benefits, including, among other things, an expanded market reach and operating efficiencies that do not materially disrupt existing customer relationships nor result in decreased revenues or dividends due to the full or partial loss of customers. The past financial performance of each of AstraZeneca and Alexion may not be indicative of their future financial performance. The Combined Group will be required to devote significant management attention and resources to integrating its business practices and support functions. The diversion of management’s attention and any delays or difficulties encountered in connection with the Transaction and the coordination of the two companies’ operations could have an adverse effect on the business, financial results, financial condition or the share price of AstraZeneca following Completion. The coordination process may also result in additional and unforeseen expenses.

Failure to realise all of the anticipated benefits of the Transaction may impact the financial performance of AstraZeneca, the price of AstraZeneca Shares and the ability of AstraZeneca to continue paying dividends on AstraZeneca Shares at levels per share consistent with the current dividend or at all. The declaration of dividends by AstraZeneca will be at the discretion of the Board, which may determine at any time to cease paying dividends, lower the dividend level per share or not increase the dividend level per share.

The substantial additional indebtedness that AstraZeneca will incur in connection with the Transaction could adversely affect AstraZeneca’s, and following Completion, the Combined Group’s, financial position, including by decreasing AstraZeneca’s, and following Completion, the Combined Group’s, business flexibility and resulting in a reduction of AstraZeneca’s, and following Completion, the Combined Group’s credit rating.

Following Completion, the Combined Group will have substantially increased borrowings compared to AstraZeneca’s historical level of borrowings. As at 31 December 2020, AstraZeneca’s Consolidated Borrowings were US$20.4 billion and Alexion’s Consolidated Borrowings amounted to US$2.8 billion. The Combined Group’s unaudited pro forma Consolidated Borrowings as at 31 December 2020 if the Transaction had been completed on 31 December 2020, would have been approximately US$37.3 billion, as the Transaction assumes to raise an incremental US$14.1 billion of Consolidated Borrowings (which includes US$16.5 billion of new borrowings less US$2.4 billion of existing borrowings which will be repaid at Completion). Out of the US$37.3 billion of Consolidated Borrowings of the Combined Group, US$16.7 billion would have been at variable rates of interest as at 31 December 2020, before any interest rate risk management the Combined Group may undertake.

This increased level of borrowings could have the effect, among other things, of reducing the Combined Group’s flexibility to respond to changing business and economic conditions and will have the effect of increasing the Combined Group’s interest expense. In addition, the amount of cash required to service the Combined Group’s increased borrowing levels and increased aggregate dividends following Completion and thus the demands on the Combined Group’s cash resources will be greater than the amount of cash flows required to service AstraZeneca’s borrowings and pay dividends prior to the Transaction. The increased levels of borrowings and dividends following Completion could also reduce funds available for the Combined Group’s investments in research and development and capital expenditures and other activities and may create competitive disadvantages for the Combined Group relative to other companies with lower debt levels, which could impact the financial performance of the Combined Group over the longer term.

AstraZeneca’s credit rating impacts the cost and availability of future borrowings and, accordingly, AstraZeneca’s cost of capital. AstraZeneca’s credit rating reflects each credit rating organisation’s opinion of AstraZeneca’s financial and business strength, operating performance and ability to meet AstraZeneca’s debt obligations. If AstraZeneca’s credit rating is reduced, AstraZeneca may not be able to sell additional debt securities, borrow money, refinance the Transaction Facilities if drawn or establish alternatives to the Transaction Facilities in the amounts, at the times or interest rates or upon the more favourable terms and conditions that might be available if AstraZeneca’s current credit rating is maintained.

In addition, future borrowings under circumstances in which the Combined Group’s debt is rated below investment grade may contain further restrictions that impose significant restrictions on the way the Combined Group operates following the Transaction.

AstraZeneca and Alexion may have difficulty attracting, motivating and retaining executives and other key employees in light of the Transaction.

AstraZeneca’s success after the Transaction will depend in part on the ability of AstraZeneca to retain key executives and other employees of Alexion. Uncertainty about the effect of the Transaction on AstraZeneca and Alexion employees may have an adverse effect on each of AstraZeneca and Alexion separately and consequently the Combined Group. This uncertainty may impair AstraZeneca’s and/or Alexion’s ability to attract, retain and motivate key personnel. Employee retention may be particularly challenging during the pendency of the transaction, as employees of AstraZeneca and Alexion may experience uncertainty about their future roles in the Combined Group.

Additionally, Alexion’s officers and employees may hold Alexion Shares, and, if the Transaction is completed, these officers and employees may be entitled to the Merger Consideration in respect of such Alexion Shares. Officers and employees may hold Alexion Stock Options, Alexion RSUs and Alexion PSUs that may be subject to accelerated vesting as a result of the transaction. Pursuant to severance plans maintained by Alexion, certain key employees of Alexion may also be entitled to receive severance payments on or following Completion. Under these plans, certain key employees of Alexion potentially could resign from his or her employment following specified circumstances set forth in the applicable plan that could result in the payments under the arrangements. These payments, individually or in the aggregate, could make retention of Alexion officers and employees more difficult.

Furthermore, if key employees of AstraZeneca or Alexion depart or are at risk of departing, including because of issues relating to the uncertainty and difficulty of integration, financial security or a desire not to become employees of the Combined Group, AstraZeneca may have to incur significant costs in retaining such individuals or in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent, and the Combined Group’s ability to realise the anticipated benefits of the Transaction may be materially and adversely affected. No assurance can be given that the Combined Group will be able to attract or retain key employees to the same extent that AstraZeneca and Alexion have been able to attract or retain employees in the past.

The announcement and pendency of the Transaction could adversely affect each of AstraZeneca’s and Alexion’s, and following Completion, the Combined Group’s, business, results of operations and financial condition.

The announcement and pendency of the Transaction could cause disruptions in and create uncertainty surrounding AstraZeneca’s and Alexion’s, and following Completion, the Combined Group’s business, including affecting AstraZeneca’s and Alexion’s relationships with its existing and future customers, suppliers and employees, which could have an adverse effect on AstraZeneca’s or Alexion’s, and following Completion, the Combined Group’s, business, results of operations and financial condition. In particular, AstraZeneca and Alexion, and following Completion, the Combined Group, could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Transaction. AstraZeneca and Alexion, and following Completion, the Combined Group, could also potentially lose customers or suppliers, and new customer or supplier contracts could be delayed or decreased. In addition, each of AstraZeneca and Alexion has expended, and continues to expend, significant management resources in an effort to complete the Transaction, which are being diverted from AstraZeneca’s and Alexion’s day-to-day operations.

If the Transaction is not completed, AstraZeneca’s share price may fall to the extent that the current price of AstraZeneca Shares reflects a market assumption that the Transaction will be completed. In addition, the failure to complete the Transaction may result in negative publicity or a negative impression of AstraZeneca in the investment community and may affect AstraZeneca’s relationship with employees, customers, suppliers and other partners in the business community.

Resales of AstraZeneca Shares and/or AstraZeneca ADSs following the Transaction may cause the market value of AstraZeneca Shares and AstraZeneca ADSs to decline.

AstraZeneca expects that it will issue up to approximately 235,149,198 AstraZeneca Shares at Completion. The issuance of these New AstraZeneca Shares and the sale of additional AstraZeneca Shares and/or AstraZeneca ADSs that may become eligible for sale in the public market from time to time could have the effect of depressing the market value for AstraZeneca Shares and AstraZeneca ADSs. The increase in the number of AstraZeneca Shares and AstraZeneca ADSs may lead to sales of such AstraZeneca Shares and/or AstraZeneca ADSs or the perception that such sales may occur, either of which may adversely affect the market for, and the market value of, AstraZeneca Shares and AstraZeneca ADSs.

The market value of AstraZeneca Shares and AstraZeneca ADSs may decline as a result of the Transaction.

The market value of AstraZeneca Shares and AstraZeneca ADSs may decline as a result of the Transaction if, among other things, the Combined Group is unable to achieve the expected growth in earnings, or if the operational cost savings estimates in connection with the integration of AstraZeneca’s and Alexion’s businesses are not realised or if the transaction costs related to the Transaction are greater than expected. The market value also may decline if the Combined Group does not achieve the perceived benefits of the Transaction as rapidly or to the extent anticipated by the market or if the effect of the Transaction on the Combined Group’s financial position, results of operations or cash flows is not consistent with the expectations of financial or industry analysts.

AstraZeneca and Alexion will incur substantial transaction fees and costs in connection with the Transaction.

AstraZeneca and Alexion have incurred and expect to incur additional material non-recurring expenses in connection with the Transaction and Completion, including costs relating to obtaining required approvals and compensation change in control payments. AstraZeneca and Alexion have incurred significant financial services, accounting, tax and legal fees in connection with the process of negotiating and evaluating the terms of the Transaction. Additional significant unanticipated costs may be incurred in the course of coordinating the businesses of AstraZeneca and Alexion after Completion. Even if the Transaction is not completed, AstraZeneca will need to pay certain costs relating to the transaction incurred prior to the date the transaction was abandoned, such as financial advisory, accounting, tax, legal, filing and printing fees. Such costs may be significant and could have an adverse effect on AstraZeneca’s future results of operations, cash flows and financial condition.

In addition to its own fees and expenses, in the event the AstraZeneca Shareholders do not approve the Resolution, and the Merger Agreement is terminated, AstraZeneca may be required to pay an amount equal to US$1.415 billion to Alexion.

Existing risks to AstraZeneca which will be impacted by the Transaction

The Transaction may affect the application of new or existing tax rules to the Combined Group which could result in a material impact on the Combined Group’s cash tax liabilities and tax charge.

Changes in tax regimes, such as those proposed by the new administration in the US that include raising the corporate tax rate and raising the tax rate on global intangible low-taxed income, could result in a material impact on the Combined Group’s cash tax liabilities and tax charge. The Combined Group will have a greater presence in the US than the existing AstraZeneca Group which means that these changes could have a more significant impact. Such an impact could also arise from changes in the application of existing tax rules, such as UK’s controlled foreign company regime, to the Combined Group as a result of the Transaction. In either case, this could result in either an increase or a reduction in financial results depending upon the nature of the change.

New risks to AstraZeneca as a result of the Transaction

AstraZeneca Shareholders will have a reduced ownership and voting interest in the Combined Group than they currently have in AstraZeneca.

Following Completion, AstraZeneca Shareholders will own a smaller percentage of the Combined Group than they currently own of AstraZeneca. Based on the number of AstraZeneca Shares in issue at the Latest Practicable Date and the total number of AstraZeneca Shares that are expected to be issued in connection with the Transaction, it is expected that, immediately following Completion, existing AstraZeneca Shareholders will own approximately 84.8 per cent. of the Combined Group and former Alexion Shareholders will own approximately 15.2 per cent. of the Combined Group’s share capital. As a consequence, the number of voting rights which can be exercised and the influence which may be exerted by existing AstraZeneca Shareholders in respect of the Combined Group will be reduced.

PART III
SUMMARY OF THE KEY TRANSACTION TERMS

1.       The Merger Agreement

Pursuant to the terms of the Merger Agreement, on Completion, each Alexion Share will be converted automatically into the right to receive US$60 in cash and 2.1243 AstraZeneca ADSs (each New AstraZeneca ADS representing half of an AstraZeneca Share, as evidenced by ADRs) for each Alexion Share. If they elect, Alexion Shareholders may receive their allocation of New AstraZeneca ADSs in the form of a corresponding number of AstraZeneca Shares in addition to the cash consideration.

The Transaction will take place by way of a statutory merger under the laws of Delaware, pursuant to which Merger Sub I, a Delaware corporation and an indirect wholly owned subsidiary of AstraZeneca, will merge with and into Alexion, with Alexion surviving the merger. Alexion will then merge with and into Merger Sub II, a Delaware limited liability company and an indirect wholly owned subsidiary of AstraZeneca, with Merger Sub II surviving as an indirect wholly owned subsidiary of AstraZeneca.

No fractional AstraZeneca Shares or AstraZeneca ADSs will be issued to any Alexion Shareholder. All fractional AstraZeneca Shares or AstraZeneca ADSs that any Alexion Shareholder would be otherwise entitled to receive pursuant to the Merger Agreement will be aggregated and rounded to three decimal places. Any Alexion Shareholder otherwise entitled to receive a fractional AstraZeneca Shares or Astra-Zeneca ADSs will be entitled to receive a cash payment, without interest, in lieu of any such fractional share, in an amount (rounded down to the nearest cent) representing such holder’s proportionate interest in the net proceeds from the sale in the market by the Exchange Agent of such fractional AstraZeneca Shares or AstraZeneca ADSs, as applicable, that would otherwise be issued.

1.1       Conditions

AstraZeneca and Alexion shall not be obliged to complete the Transaction if any of the Conditions have not been met, or have not been waived, if applicable. These include:

The Transaction will be subject to reviews by a number of antitrust authorities, including the EC, the FTC and the CMA. A number of further merger control and foreign investment clearances will also be sought by AstraZeneca and Alexion in connection with the Transaction. AstraZeneca currently expects these reviews to conclude to allow Completion of the Transaction in the third quarter of 2021.

1.2       Representations, warranties and covenants

Each of AstraZeneca and Alexion has agreed not to solicit proposals, engage in discussions, provide non-public information or enter into any agreement or commitment, in each case, relating to certain alternative transactions. However, each party may, subject to the terms and conditions set forth in the Merger Agreement, (i) provide information to a third party that makes an unsolicited, written acquisition proposal and (ii) engage in discussions and negotiations with a third party that makes an unsolicited, written acquisition proposal that qualifies, or that such party’s board of directors determines in good faith could reasonably be expected to qualify, as a superior proposal to the Transaction (as defined in the Merger Agreement). Under certain circumstances and upon compliance with certain notice and other specified conditions set forth in the Merger Agreement, each party may change the recommendation of its board of directors, and Alexion may terminate the Merger Agreement to accept a superior proposal.

The Merger Agreement contains customary representations and warranties made by each of AstraZeneca, Bidco, the Merger Subs and Alexion. These include, among other matters, representations and warranties in respect of: corporate existence, good standing and qualification to conduct business; due authorisation, execution and validity of the Merger Agreement; financial statements; conduct of business in the ordinary course of business consistent with past practices and absence of changes that have had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the respective party, in each case since 30 September 2020; absence of undisclosed material liabilities; compliance with laws; litigation; tax matters; employees, employee benefit plans and labour matters (in the case of Alexion only); intellectual property matters; environmental matters (in the case of Alexion only); material contracts; properties; and insurance matters (in the case of Alexion only). Certain of the representations and warranties made by each party are qualified by disclosures that such party delivered to the other party concurrently with the execution of the Merger Agreement.

The Merger Agreement also contains customary covenants made by each of AstraZeneca, Bidco, the Merger Subs and Alexion. The Merger Agreement requires AstraZeneca to call and hold a shareholders’ meeting and, subject to the ability of AstraZeneca’s board of directors to change their recommendation under certain specified circumstances, including as described above, requires the board of directors to recommend that AstraZeneca Shareholders approve the Resolution. The Merger Agreement also requires Alexion to call and hold a special shareholders’ meeting (subject to Alexion’s ability to terminate the Merger Agreement to enter into a superior proposal as described above) and, subject to the ability of Alexion’s board of directors to change their recommendation under certain specified circumstances, including as described above, requires Alexion’s board of directors to recommend that Alexion Shareholders approve the Merger Agreement.

In addition, pursuant to the Merger Agreement, AstraZeneca will take all necessary actions to cause two individuals serving on Alexion’s board of directors to be appointed to AstraZeneca’s board of directors upon Completion. Such directors will be mutually agreed by AstraZeneca and Alexion prior to Completion.

1.3       Termination

The Merger Agreement contains certain customary termination rights for each of AstraZeneca and Alexion, including the right of each party to terminate the Merger Agreement if the Transaction has not been completed on or before the Long Stop Date, subject to an extension by either party of 90 days if, on the initial Long Stop Date, all Conditions have been satisfied or waived except for the Regulatory Conditions. The extension can be requested by either AstraZeneca or Alexion, save that such extension (as well as the related right of termination upon expiration of the Long Stop Date) cannot be requested by a party whose breach of the Merger Agreement is the proximate cause of the failure to close the transaction by the initial Long Stop Date.

Pursuant to the Merger Agreement, if the Merger Agreement is terminated, AstraZeneca will be entitled to receive a termination payment of US$1.18 billion from Alexion in the event that:

Pursuant to the Merger Agreement, if the Merger Agreement is terminated, AstraZeneca will be entitled to receive a termination payment of US$270 million from Alexion in the event that, subject to certain specified conditions, AstraZeneca or Alexion terminates the Merger Agreement because the required approval of the Alexion Shareholders is not obtained.

Pursuant to the Merger Agreement, if the Merger Agreement is terminated, Alexion will be entitled to receive a termination payment of US$1.415 billion from AstraZeneca in the event that:

1.4       Treatment of Alexion Equity Awards

Alexion Stock Options

At Completion, each compensatory option to purchase Alexion Shares under any Alexion stock plan that is outstanding and unexercised immediately prior to Completion (an “Alexion Stock Option”), whether or not vested, shall be cancelled in consideration for the right to receive the Merger Consideration, with respect to each net option share subject to such Alexion Stock Option (as set out in the Merger Agreement) immediately prior to Completion. The number of net option shares with respect to each Alexion Stock Option will be determined by dividing the spread, or “in-the-money” value of such option by the value of the Merger Consideration.

Alexion Restricted Stock Units

At Completion, each restricted stock unit award with respect to Alexion Shares outstanding under any Alexion stock plan that vests solely based on the passage of time (an “Alexion RSU Award”), will be treated as described below.

If such Alexion RSU Award is held by a non-employee director of Alexion, it will automatically become fully vested and cancelled and converted into the right to receive the Merger Consideration, with respect to each Alexion Share subject to such Alexion RSU Award (or portion thereof) immediately prior to Completion.

Each other Alexion RSU Award will be assumed by AstraZeneca and will be converted into such number of equivalent AstraZeneca restricted stock unit awards as calculated under the Merger Agreement, based on the exchange ratio in the Merger (factoring in the cash consideration payable in the Merger).

Alexion Performance Stock Units

At Completion, each restricted stock unit award with respect to Alexion Shares outstanding under any Alexion stock plan that vests based on the achievement of performance goals (an “Alexion PSU Award”) will be assumed by AstraZeneca and will be converted into such number of AstraZeneca restricted stock unit awards as calculated under the Merger Agreement, based on the exchange ratio in the Merger (factoring in the cash consideration payable in the Merger). For these purposes, the applicable performance goals will be deemed to be achieved at the greater of the target level and the actual level of achievement at Completion, subject to a limit of 175 per cent. of target for Alexion PSU Awards granted in 2019 and 150 per cent. of target for Alexion PSU Awards granted in 2020.

The converted restricted stock unit awards held by any continuing employee who remains employed through the first anniversary of Completion that are otherwise scheduled to vest on or before the second anniversary of the Completion will be accelerated so that they vest on the first anniversary of Completion.

The Alexion employee stock purchase plan has been terminated in connection with the merger. Outstanding purchase rights for the last purchase period were exercised on 15 December 2020 in accordance with the terms of the plan, and no new purchase period has begun.

2.       The Transaction Facilities

On 12 December 2020, AstraZeneca and Bidco entered into the underwritten US$17.5 billion Bridge Facility with Morgan Stanley Bank International Limited, J.P. Morgan Securities PLC and Goldman Sachs Bank USA (the “Arrangers”) under which the Arrangers and/or their affiliates each provided a commitment to fund loans under the Bridge Facility.

On 24 December 2020, the Bridge Facility was successfully syndicated to the Bridge Lenders, a number of large, well-regarded international banks, and US$5 billion of the Bridge Facility was cancelled and replaced by a US$5 billion term and revolving Takeout Facilities made available by the Bridge Lenders. The term facilities available under the Takeout Facilities are referred to as “Facility A” and “Facility B”, with an available amount of US$2 billion each. The revolving facility available under the Takeout Facilities is referred to as the “Revolving Facility”, with an available amount of US$1 billion. Together, the Bridge Facility and the Takeout Facilities are referred to as the “Transaction Facilities”.

The Transaction Facilities can be utilised by AstraZeneca and/or Bidco. AstraZeneca guarantees the obligations of each of the borrowers under each of the Transaction Facilities and related finance documents.

The proceeds of the Bridge Facility, Facility A and Facility B, to the extent drawn, are be used to finance or refinance the amounts payable under the Merger Agreement, any financial indebtedness of Alexion or its subsidiaries and any other fees, commissions, costs and expenses in relation to the Transaction. The proceeds of the Revolving Facility, to the extent drawn, are to be used towards the general corporate purposes of the AstraZeneca Group.

The Bridge Facility, Facility A and Facility B are available to be utilised from their respective dates of signing, subject to satisfaction of a limited number of customary conditions precedent (including receipt of required consents relating to the Transaction), until the earlier of: (i) close of business on the date of Completion; (ii) the date of termination of the Merger Agreement; (iii) if the Long Stop Date has not been extended pursuant to the terms of the Merger Agreement, the date falling 12 months after the date the respective Transaction Facilities were entered into; and (iv) if the Long Stop Date has been extended pursuant to the terms of the Merger Agreement, the date falling 15 months after the date the respective Transaction Facilities were entered into. The Revolving Facility is available to be utilised from the date of Completion to the date falling one month before the termination date for the Revolving Facility (as detailed below).

The Bridge Facility will terminate on the date falling 12 months after the earlier of: (i) the date of Completion; and (ii) 12 December 2021, with up to two six month extensions available at the discretion of AstraZeneca.

Facility A will terminate on the date falling two years after the earlier of: (i) the date of Completion; and (ii) 24 December 2021. Facility B will terminate on the date falling three years after the earlier of: (i) the date of Completion; and (ii) 24 December 2021. The Revolving Facility will terminate on the date falling 12 months after the earlier of: (i) the date of Completion; and (ii) 24 December 2021, subject to AstraZeneca’s right (at its option) to extend the term of the Revolving Facility for an additional period of 364 days.

The Transaction Facilities contain: (i) certain mandatory prepayment and cancellation provisions in relation to lender illegality and change of control of AstraZeneca; and (ii) provisions allowing AstraZeneca to replace and cancel an affected lender in respect of increased costs, tax gross-up and tax indemnity of a lender. In addition, the Bridge Facility contains mandatory prepayment and cancellation provisions, subject to certain exceptions, in relation to: (i) the net proceeds received in excess of US$500 million as a result of AstraZeneca or a wholly owned member of AstraZeneca’s group issuing further debt (by way of one or more syndicated loan or capital markets debt issuances but excluding any commercial paper issuance); and (ii) the net proceeds received as a result of any disposal of any asset required by any government authority or agency as a condition of its approval of the Transaction, where such net proceeds are in an amount of US$500 million or greater.

The Transaction Facilities have a floating rate of interest which will initially be based on an interest rate calculated as the aggregate of the applicable margin and applicable US$ LIBOR. As a result of US$ LIBOR being discontinued, the Transaction Facilities each include a rate switch mechanic such that after a rate switch date (to be determined), interest will no longer be calculated with reference to US$ LIBOR and will instead be calculated as the aggregate of the applicable margin, SOFR and a credit adjustment spread. The rate switch date will be the earlier of a date selected by AstraZeneca and the occurrence of one of certain external events, including, in certain circumstances, US$ LIBOR rates ceasing to be published or ceasing to be representative of the underlying market or economic reality.

For the Bridge Facility, the initial margin is 0.30 per cent. per annum which increases 0.10 per cent. per annum every three months until 12 December 2021, after which it increases 0.15 per cent. per annum every three months until 12 March 2023 and 0.10 per cent. per annum every three months thereafter.

For the Takeout Facilities, the initial margins are, per annum, 0.55 per cent. for Facility A, 0.65 per cent. for Facility B and 0.20 per cent. for the Revolving Facility. The margin rates thereafter will vary depending on AstraZeneca’s S&P/Moody’s long-term credit ratings.

The Bridge Facility, Facility A and Facility B accrue a ticking fee on unutilised, uncancelled amounts. For the Bridge Facility, this fee accrues at the rate of 10 per cent. of the then applicable margin per annum from (but excluding) the date falling three months after the signing of the Bridge Facility to and including the date falling six months after the signing of the Bridge Facility, 20 per cent. of the then applicable margin per annum from (but excluding) the date falling six months after the signing of the Bridge Facility to and including the date falling nine months after the signing of the Bridge Facility, and 30 per cent. of the then applicable margin per annum from (but excluding) the date falling nine months after the signing of the Bridge Facility to the last day on which the facility is available for utilisation. For Facility A and Facility B, this fee accrues at the rate of 15, 25 and 35 per cent. of the then applicable margin per annum over the same respective periods. The Revolving Facility accrues a commitment fee of 35 per cent. of the applicable margin per annum, payable on each lender’s available commitment for the duration of the availability period. The Revolving Facility also accrues a utilisation fee of 0.10 per cent. per annum for each day on which the aggregate Revolving Facility loans exceeds 0 per cent. but is less than or equal to 33 1/3 per cent. of the total Revolving Facility, 0.20 per cent. per annum for each day on which the aggregate Revolving Facility loans exceeds 33 1/3 per cent. but is less than or equal to 66 2/3 per cent. of the total Revolving Facility and 0.40 per cent. for each day on which the aggregate Revolving Facility loans exceeds 66 2/3 per cent. of the total Revolving Facility.

The Transaction Facilities contain customary representations and undertakings, including (with certain agreed carve-outs) a negative pledge and Transaction-related undertakings. Each of the Transaction Facilities has a mechanism to introduce further additional borrowers in the future, at the request of AstraZeneca and provided certain customary conditions precedent are satisfied.

The Transaction Facilities also contain customary events of default, including non-payment, misrepresentation, cross default and insolvency, the occurrence of any of which would allow the lenders to cancel the commitments and declare any loans immediately due and payable. The events of default are subject to certain agreed carve-outs and include a clean-up period for events of default arising as a result of the Transaction.

PART IV
HISTORICAL FINANCIAL INFORMATION RELATING TO ALEXION

SECTION A — CONSOLIDATED HISTORICAL FINANCIAL INFORMATION RELATING TO ALEXION

This Section A of Part IV (Historical Financial Information Relating to Alexion) of this document contains consolidated historical financial information extracted without material adjustment from the audited consolidated historical financial statements of Alexion for the three financial years ended 31 December 2020, 31 December 2019 and 31 December 2018, which has been prepared in accordance with US GAAP.

Consolidated Balance Sheets (amounts in millions, except per share amounts)

Source: Consolidated Balance Sheet as per annual reports for 2018, 2019 and 2020.

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

Consolidated Statement of Operations

Source: Consolidated Statement of Operations as per Form 10K 2021.

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

Consolidated Statements of Comprehensive Income

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

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

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

The following provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of such amounts shown in the consolidated statement of cash flows:

Amounts included in restricted cash primarily represent funds placed in escrow as a result of the judicial order issued by the Federal Court of Canada related to SOLIRIS pricing (Note 11, Commitments and Contingencies).

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

Notes to the Consolidated Historical Financial Information (amounts in millions, except per share amounts)

1.       Business Overview and Summary of Significant Accounting Policies

Business

Alexion Pharmaceuticals, Inc. (Alexion, the Company, we, our or us) is a global biopharmaceutical company focused on serving patients and families affected by rare diseases and devastating conditions through the discovery, development and commercialization of life-changing medicines.

As a leader in rare diseases for more than 25 years, Alexion has developed and commercializes two approved complement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS), as well as the first and only approved complement inhibitor to treat anti- acetylcholine receptor (AChR) antibody-positive generalized myasthenia gravis (gMG) and neuromyelitis optica spectrum disorder (NMOSD) in patients who are anti-aquaporin-4 (AQP4) antibody positive. Alexion also has two highly innovative enzyme replacement therapies and the first and only approved therapies for patients with life-threatening and ultra-rare metabolic disorders, hypophosphatasia (HPP) and lysosomal acid lipase deficiency (LAL-D). With the acquisition of Portola Pharmaceuticals, Inc. (Portola) in July 2020, we added the first and only approved Factor Xa inhibitor reversal agent for patients treated with rivaroxaban or apixaban when reversal of anticoagulation is needed due to life-threatening or uncontrolled bleeding.

In addition to our marketed therapies, we have a diverse pipeline resulting from internal innovation and business development. Alexion focuses its research efforts on novel molecules and targets in the complement cascade and its development efforts on the core therapeutic areas of hematology, nephrology, neurology, metabolic disorders, cardiology, ophthalmology and acute care. We were incorporated in 1992 under the laws of the State of Delaware.

Merger Agreement with AstraZeneca

On December 12, 2020, we entered into an Agreement and Plan of Merger (the Merger Agreement) with AstraZeneca PLC, a public limited company incorporated under the laws of England and Wales (AstraZeneca), Delta Omega Sub Holdings Inc., a Delaware corporation and a wholly owned subsidiary of AstraZeneca (Bidco), Delta Omega Sub Holdings Inc. 1, a Delaware corporation and a direct, wholly owned subsidiary of Bidco (Merger Sub I) and Delta Omega Sub Holdings LLC 2, a Delaware limited liability company and a direct, wholly owned subsidiary of Bidco (Merger Sub II). The Merger Agreement provides, among other things, that subject to the satisfaction or waiver of the conditions set forth therein (1) Merger Sub I will merge with and into Alexion (the “First Merger”), with Alexion surviving the First Merger as a wholly owned subsidiary of Bidco, and (2) immediately following the effective time of the First Merger (the Effective Time), Alexion will merge with and into Merger Sub II (the Second Merger and, together with the First Merger, the Mergers), with Merger Sub II surviving the Second Merger as a wholly owned subsidiary of Bidco and an indirect wholly owned subsidiary of AstraZeneca.

Under the Merger Agreement, at the Effective Time (as defined in the Merger Agreement), each share of common stock, par value $0.0001 per share, of Alexion issued and outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be converted into the right to receive (1) 2.1243 American depositary shares of AstraZeneca (or, at the election of the holder thereof, a number of ordinary shares of AstraZeneca equal to the number of underlying ordinary shares represented by such American depositary shares) and (2) $60.00 in cash, without interest (collectively, the Merger Consideration).

The boards of directors of both companies have unanimously approved the acquisition.

The respective obligations of Alexion and AstraZeneca to consummate the transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver of a number of customary conditions, including: (1) the adoption of the Merger Agreement by Alexion’s stockholders; (2) approval of the transactions contemplated by the Merger Agreement by AstraZeneca’s shareholders; (3) the absence of any law or order prohibiting consummation of the Mergers; (4) AstraZeneca’s registration statement on Form F-4 having been declared effective by the Securities and Exchange Commission; (5) AstraZeneca’s shareholder circular (or, if required, prospectus) having been approved by the U.K. Financial Conduct Authority; (6) the American depository shares of AstraZeneca issuable in the Mergers (and the ordinary shares of AstraZeneca represented thereby) having been approved for listing on the Nasdaq; (7) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the approval of the Mergers under the antitrust and foreign investment laws of other specified jurisdictions; (8) accuracy of the other party’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement and (9) compliance by the other party in all material respects with such other party’s obligations under the Merger Agreement.

Without limiting the generality of the foregoing, we are subject to a variety of specified restrictions under the Merger Agreement. Unless we obtain AstraZeneca’s prior written consent (which consent may not be unreasonably withheld, conditioned or delayed) and except (i) as required or expressly contemplated by the Merger Agreement, (ii) as required by applicable law or (iii) as set forth in the confidential disclosure schedule delivered by Alexion to AstraZeneca, we may not, among other things and subject to certain exceptions and aggregate limitations, incur additional indebtedness, issue additional shares of our common stock outside of our equity incentive plans, repurchase our common stock, pay dividends, acquire assets, securities or property, dispose of businesses or assets, enter into material contracts or make certain additional capital expenditures.

Under the Merger Agreement, Alexion will be required to make a payment to AstraZeneca equal to $1,180.0 if the Merger Agreement is terminated in certain circumstances, including because the Alexion board of directors has changed its recommendation in favor of the Mergers or we terminated the Merger Agreement in order to enter into an agreement providing for a Company Superior Proposal (as defined in the Merger Agreement), and Alexion will be required to make a payment to AstraZeneca equal to $270.0 if the Merger Agreement is terminated because Alexion’s stockholders fail to adopt the Merger Agreement. AstraZeneca will be required to make a payment to Alexion equal to $1,415.0 if the Merger Agreement is terminated in certain circumstances, including because the AstraZeneca board of directors has changed its recommendation in favor of the Mergers or because AstraZeneca’s shareholders fail to approve the transactions contemplated by the Merger Agreement.

The acquisition is expected to close during the third quarter 2021, and upon completion, Alexion stockholders will own approximately 15.0% of the combined company.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Alexion and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. For each of our business combinations, all of the assets acquired, and liabilities assumed were recorded at their respective fair values as of the date of acquisition, and their results of operations are included in the consolidated financial statements from the date of acquisition.

Use of Estimates

Preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent liabilities in our consolidated financial statements.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain. We are not aware of any specific event or circumstance that would require an update to our estimates, judgments and assumptions or a revision of the carrying value of our assets or liabilities as of February 8, 2021, the date of issuance of the Annual Report on Form 10-K. These estimates may change, as new events occur, and additional information is obtained. Actual results may differ from these estimates under different assumptions or conditions and such differences may be material.

Dividend Policy

We have never paid a cash dividend on shares of our stock. We currently intend to retain our earnings to finance future operations and do not anticipate paying any cash dividends on our stock in the foreseeable future.

Critical Accounting Estimates

The preparation of our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S., requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities in our financial statements. We believe the most complex judgments result primarily from the need to make estimates about the effects of matters that are inherently uncertain and are significant to our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We evaluate our estimates, judgments and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions and such differences may be material.

The most significant areas involving estimates, judgments and assumptions used in the preparation of our consolidated financial statements are as follows:

Foreign Currency Translation

The financial statements of our subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for stockholders’ equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss), net of tax, in stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations in other income and expense.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost plus accrued interest, which approximates fair value, and include short-term highly liquid investments with original maturities of three months or less. As of December 31, 2020, 2019 and 2018, cash equivalents were comprised of money market funds and other debt securities with maturities less than three months from the date of purchase.

Fair Value of Financial Instruments

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other assets, accounts payable, accrued expenses and other liabilities approximate fair value due to their short-term maturities. Our marketable securities are valued based upon pricing of securities with similar investment characteristics and holdings. Our mutual fund investments and equity securities are valued based on quoted market prices in active markets with no valuation adjustment. Investments in equity securities of publicly traded companies which are subject to holding period restrictions are carried at fair value using an option pricing valuation model and observable market inputs such as the historical volatility of similar companies and risk-free interest rates. Our derivative financial instruments are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties’ credit risks. Our credit agreement and royalty-based debt obligations are recorded at historical cost, which approximates fair value. Our contingent consideration liabilities related to our acquisitions and derivative liabilities associated with certain option agreements are valued based on various estimates, including probability of success, estimated revenues, discount rates and amount of time until the conditions of the milestone payments are met.

Marketable Securities

We invest our excess cash balances in marketable securities of highly rated financial institutions and investment-grade debt instruments. We seek to diversify our investments and limit the amount of investment concentrations for individual institutions, maturities and investment types. We classify marketable debt securities as available-for-sale and, accordingly, record such securities at fair value. We classify these securities as current assets as these investments are intended to be available to the Company for use in funding current operations.

Credit losses related to our available-for-sale debt securities are recorded through an allowance for credit losses within operating results and are limited to the amount by which the carrying value of the security exceeds its fair value. Unrealized gains and losses on our marketable debt securities related to interest rate changes and other factors are included in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.

We sponsor a nonqualified deferred compensation plan which allows certain highly compensated employees to elect to defer income to future periods. Participants in the plan earn a return on their deferrals based on several investment options, which mirror returns on underlying mutual fund investments. We choose to invest in the underlying mutual fund investments to offset the liability associated with our nonqualified deferred compensation plan. These mutual fund investments are valued at net asset value per share and are carried at fair value with gains and losses included in investment income. The changes in the underlying liability to the employee are recorded in operating expenses.

Accounts Receivable

Our standard credit terms vary based on the country of sale and range from 30 to 120 days and all arrangements are payable within one year of the transfer of the product. Our consolidated average days’ sales outstanding ranges from 70 to 80 days which was 60 to 70 days in 2018. We evaluate the creditworthiness of customers on a regular basis. The length of time from sale to receipt of payment in certain countries exceeds our credit terms. In countries in which collections from customers extend beyond normal payment terms, we seek to collect interest. We record interest on customer receivables as interest income when collected. We monitor economic conditions and calculate allowances for estimated credit losses on our trade accounts receivable on a quarterly basis using an expected loss model. We assess whether collectability is probable at the time of sale and on an ongoing basis. We use judgment as to our ability to collect outstanding receivables and provide allowances for the portion of receivables if and when collection becomes doubtful. As of December 31, 2020, 2019 and 2018, allowances on receivables were not material.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk are limited to cash equivalents, marketable securities, accounts receivable and our foreign exchange derivative contracts. We invest our cash reserves in money market funds or high quality marketable debt securities in accordance with our investment policy. The stated objectives of our investment policy are to preserve capital, provide liquidity consistent with forecasted cash flow requirements, maintain appropriate diversification and generate returns relative to these investment objectives and prevailing market conditions.

As of December 31, 2020, four customers accounted for 66.8% of the accounts receivable balance, with these individual customers ranging from 11.7% to 22.1% of the accounts receivable balance. As of December 31, 2019, four customers accounted for 66.9% of the accounts receivable balance, with these individual customers ranging from 11.6% to 20.3% of the accounts receivable balance. At December 31, 2018, three customers accounted for 48.7% of the accounts receivable balance, with these individual customers ranging from 14.0% to 19.1% of the accounts receivable balance.

For the year ended December 31, 2020, three customers accounted for 47.4% of our product sales, with these individual customers ranging from 14.7% to 16.7% of our product sales. For the year ended December 31, 2019, four customers accounted for 56.4% of our product sales, with these individual customers ranging from 10.0% to 16.8% of our product sales. For the year ended December 31, 2018, four customers accounted for 50.3% of our product sales, with these individual customers ranging from 10.0% to 16.4% of our product sales. No other customers accounted for more than 10.0% of accounts receivable or net product sales.

We continue to monitor economic conditions, including volatility associated with international economies and the associated impacts on the financial markets and our business. We disaggregate our trade accounts receivable population into pools of similar risk characteristics based on underlying customer type and geographical location and assess current expected credit loss allowances based on available information. Substantially all of our accounts receivable are due from wholesale distributors, public hospitals and other government entities. We monitor the financial performance of our customers so that we can appropriately respond to changes in their credit worthiness. We operate in certain jurisdictions where weakness in economic conditions can result in extended collection periods. To date, we have not experienced any significant losses with respect to collection of our accounts receivable.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined in a manner that approximates average costs. The components of inventory are as follows:

Total inventories include ANDEXXA inventory acquired in connection with the July 2, 2020 Portola acquisition, but exclude acquired ANDEXXA validation batches of $60.9 that were manufactured under processes which are subject to regulatory approval. The acquired ANDEXXA inventory includes the acquisition-date fair value step-up, which is expensed within cost of sales as the inventory is sold to customers. For additional information on our acquisition of Portola, please refer to Note 2, Acquisitions.

We classify our inventory costs as long-term when we expect to utilize the inventory beyond our normal operating cycle and include these costs in other assets in our consolidated balance sheets. Inventories classified as long-term relate to ANDEXXA inventory, including inventory acquired in connection with the Portola acquisition.

Capitalization of Inventory Costs

We capitalize inventory produced for commercial sale, which may include costs incurred for certain products awaiting regulatory approval, or for inventory produced at new production facilities, when management considers it probable that the pre-approval inventories will be saleable. We capitalize inventory produced in preparation of product launches sufficient to support estimated initial market demand. Capitalization of such inventory begins when we have (i) obtained positive results in clinical trials that we believe are necessary to support regulatory approval, (ii) concluded that uncertainties regarding regulatory approval of the product and facilities have been sufficiently reduced, and (iii) determined that the inventory has probable future economic benefit. In evaluating whether these conditions have been met, we consider clinical trial results for the underlying product candidate, results from meetings with regulatory authorities, the compilation of the regulatory application, and how far a facility has progressed along the approval process. If we are aware of any material risks or contingencies outside of the standard regulatory review and approval process, or if there are any specific negative issues identified relating to the safety, efficacy, manufacturing, marketing or labeling of the product that would have a significant negative impact on its future economic benefits, the related inventory would not be capitalized. As of December 31, 2020, and 2019, the carrying value of inventory at unapproved production facilities was $39.8 and $60.5, respectively while we had no inventory capitalized for products awaiting regulatory approvals as of December 31, 2018. We also capitalize costs associated with technology transfer, including engineering and validation activities, to our external CMO’s within prepaid expenses and other current assets and other assets in our consolidated balance sheets. Upon regulatory approval, saleable inventory produced during the validation process is reclassified to inventory and expensed to cost of goods sold as the product is sold. Any costs associated with non-saleable inventory will remain in prepaid expenses and other current assets and other assets in our consolidated balance sheets and will be amortized to costs of goods sold over the remaining life of the contract.

Products that have been approved by the U.S. Food and Drug Administration (FDA) or other regulatory authorities are also used in clinical programs to assess the safety and efficacy of the products for usage in diseases that have not been approved by the FDA or other regulatory authorities. The form of the products utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use” as defined in authoritative guidance. Raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use”.

For products which are under development and have not yet been approved by regulatory authorities, purchased drug product is charged to research and development expense upon delivery. Delivery occurs when the inventory passes quality inspection and ownership transfers to us. Nonrefundable advance payments for research and development activities, including production of purchased drug product, are deferred and capitalized until the goods are delivered. We also recognize expense for raw materials purchased for developmental purposes when the raw materials pass quality inspection and we have an obligation to pay for the materials.

Inventory Write-Offs

We analyze our inventory levels to identify inventory that may expire prior to sale, inventory that has a cost basis in excess of its estimated realizable value, or inventory in excess of expected sales requirements. Although the manufacturing of our products are subject to strict quality control, certain batches or units of product may no longer meet quality specifications or may expire, which requires adjustments to our inventory values. We also apply judgment related to the results of quality tests that we perform throughout the production process, as well as our understanding of regulatory guidelines, to determine if it is probable that inventory will be saleable. These quality tests are performed throughout the pre-and post-production process, and we continually gather additional information regarding product quality for periods after the manufacture date. Our products currently have a maximum estimated life ranging from 36 to 48 months, and based on our sales forecasts, we expect to realize the carrying value of our inventory. In the future, reduced demand, quality issues or excess supply beyond those anticipated by management may result in a material adjustment to inventory levels, which would be recorded as an increase to cost of sales.

The determination of whether or not inventory costs will be realizable requires estimates by our management. A critical input in this determination is future expected inventory requirements based on internal sales forecasts. We then compare these requirements to the expiry dates of inventory on hand. For inventories that are capitalized in preparation of product launch, we also consider the expected approval date in assessing realizability. To the extent that inventory is expected to expire prior to being sold, we will write down the value of inventory.

Derivative Instruments

We record the fair value of derivative instruments as either assets or liabilities on the balance sheet. The accounting for gains and losses resulting from changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.

All qualifying hedging activities are documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes to future cash. On a quarterly basis, we perform an assessment to confirm that outstanding hedges remain highly effective and continue to qualify for hedge accounting. We record the fair value of the qualifying hedges in prepaid expenses and other current assets, other assets, other current liabilities and other liabilities. All unrealized gains and losses on derivatives that are designated and qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transaction affects earnings. When the forecasted transaction occurs, this amount is reclassified into the consolidated statement of operations and presented in the same financial statement line item as the hedged item.

Derivative instruments for which hedge accounting is not applied are recorded at fair value in prepaid expenses and other current assets and other current liabilities. Unrealized gains and losses resulting from changes in the fair value of these derivatives are reported in other income and expense.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. We estimate economic lives as follows:

Leasehold improvements and assets under financing lease arrangements are amortized over the lesser of the asset’s estimated useful life or the term of the respective lease. Maintenance costs are expensed as incurred.

Construction-in-progress reflects amounts incurred for property, plant, or equipment construction or improvements that have not been placed in service.

Assets held for Sale

We classify assets as held for sale when the following criteria are met: i) management, having the authority to approve the action, commits to a plan to sell the asset, ii) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of similar assets, iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated, iv) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year, v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Assets that are classified as held for sale are recorded at the lower of their carrying value or their fair value less the costs to sell.

In the third quarter 2017, we announced our intention to close the Alexion Rhode Island Manufacturing Facility (ARIMF). In the fourth quarter 2017, we met the criteria for assets held for sale and reclassified the ARIMF assets from property, plant and equipment to assets held for sale recorded within prepaid expenses and other current assets. We subsequently sold ARIMF during the third quarter of 2018.

Leases

In February 2016, the FASB issued a new standard that requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. We adopted the new standard on January 1, 2019 using the modified retrospective approach. Upon adoption of the new lease standard, on January 1, 2019, we derecognized $472.8 of property, plant and equipment and other assets and $372.2 of facility lease obligations associated with previously existing build-to suit arrangements. We capitalized right of use (ROU) assets of $326.1, inclusive of opening adjustments of $70.8 primarily related to prepaid rent existing at transition, and $255.3 of lease liabilities, within our consolidated balance sheets upon adoption. At transition, we recorded a decrease of $90.3 to retained earnings, net of tax, primarily related to our derecognition of previously recorded build-to-suit arrangements.

At the inception of an arrangement, we determine if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease classification, recognition, and measurement are then determined at the lease commencement date. For arrangements that contain a lease we (i) identify lease and non-lease components, (ii) determine the consideration in the contract, (iii) determine whether the lease is an operating or financing lease; and (iv) recognize lease ROU assets and liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable and as such, we use our incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

Most leases include options to renew and, or, terminate the lease, which can impact the lease term. The exercise of these options is at our discretion and we do not include any of these options within the expected lease term as we are not reasonably certain we will exercise these options. We have elected to combine lease components (for example fixed payments including rent) with non-lease components (for example, non- dedicated parking and common-area maintenance costs) on our real estate and commercial fleet asset classes. We separate lease and non-lease components on our embedded contract manufacturing organization (CMO) arrangements. Lease and non-lease components on these CMO arrangements are determined based on an allocation of the consideration in the contract to the embedded lease and non-lease components of the arrangement based on the relative standalone prices of these components.

Fixed, or in substance fixed, lease payments on operating leases are recognized over the expected term of the lease on a straight-line basis, while fixed, or in substance fixed, payments on financing leases are recognized using the effective interest method. Variable lease expenses that are not considered fixed, or in substance fixed, are recognized as incurred. Fixed and variable lease expense on operating leases is recognized within operating expenses within our consolidated statements of operations. Financing lease ROU asset amortization and interest costs are recorded within operating expenses and interest expense, respectively, within our consolidated statements of operations. We have operating and financing leases for corporate offices, research and development facilities, regional executive and sales offices, commercial fleet, and CMO embedded lease arrangements. We have elected the short-term lease exemption and, therefore, do not recognize a ROU asset or corresponding liability for lease arrangements with an original term of 12 months or less.

Operating leases are included in right of use operating assets, other current liabilities, and noncurrent operating lease liabilities in our consolidated balance sheet as of December 31, 2020 and 2019. Financing leases are included in property, plant and equipment, other current liabilities, and other liabilities in our consolidated balance sheet as of December 31, 2020 and 2019 and as Facility Lease Obligations for the year ending December 31, 2018.

Manufacturing Facilities

We capitalize costs incurred for the construction of facilities which support commercial manufacturing. We also capitalize costs related to validation activities which are directly attributable to preparing the facility for its intended use, including engineering runs and inventory production necessary to obtain approval of the facility from government regulators for the production of a commercially approved drug. When the facility is substantially complete and ready for its intended use and regulatory approval for commercial production has been received, we will place the asset in service.

The production of inventory for preparing the facility for its intended use requires two types of production: engineering runs which are used for testing purposes only and do not result in saleable inventory, and validation runs which are used for validating equipment and may result in saleable inventory. The costs associated with inventory produced during engineering runs and normal production losses during validation runs are capitalized to fixed assets and depreciated over the asset’s useful life. Saleable inventory produced during the validation process is initially recorded as a fixed asset; however, upon regulatory approval, this inventory is reclassified to inventory and expensed in cost of goods sold as product is sold, or in research and development expenses as product is utilized in R&D activities. Abnormal production costs incurred during the validation process are expensed as incurred.

Acquisitions

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the tangible and intangible assets acquired, and the liabilities assumed are recorded as of the acquisition date at their respective fair values. We evaluate a business as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits and consists of inputs and substantive processes applied to those inputs that have the ability to contribute to the creation of outputs. If substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar identifiable assets, the assets do not represent a business. In an acquisition of a business, the excess of the fair value of the consideration transferred over the fair value of the net assets acquired is recorded as goodwill.

Acquisitions of assets or a group of assets that do not meet the definition of a business are accounted for as asset acquisitions using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. No goodwill is recognized in an asset acquisition. Intangible assets that are acquired in an asset acquisition for use in research and development activities which have an alternative future use are capitalized as in-process research and development (IPR&D). Acquired IPR&D which has no alternative future use is recognized as research and development expense at acquisition. Contingent milestone payments associated with asset acquisitions are recognized when probable and estimable. These amounts are expensed to research and development if there is no alternative future use associated with the asset or capitalized as an intangible asset if alternative future use of the asset exists.

Our consolidated financial statements include the results of operations of an acquired business after the completion of the acquisition.

Contingent Consideration

We record contingent consideration resulting from a business combination at fair value on the acquisition date. On a quarterly basis, we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating earnings. Changes to contingent consideration obligations can result from adjustments to discount rates, accretion of the liability due to the passage of time, changes in our estimates of the likelihood or timing of achieving development or commercial milestones, changes in the probability of certain clinical events or changes in the assumed probability associated with regulatory approval.

Intangible Assets

Our intangible assets generally consist of licensing rights, patents, purchased technology, acquired IPR&D and other intangibles. Intangible assets with definite lives are amortized based on their pattern of economic benefit over their estimated useful lives and reviewed periodically for impairment.

Intangible assets related to IPR&D projects are considered to be indefinite lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment. Impairment testing is performed at least annually or when a triggering event occurs that could indicate a potential impairment. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized over a period that best reflects the economic benefits provided by these assets.

Goodwill

Goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination and is not amortized. Goodwill is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We are organized and operate as a single reporting unit and therefore the goodwill impairment test is performed using our overall market value, as determined by our traded share price, compared to our book value of net assets.

Impairment of Long-Lived Assets

Our long-lived assets are primarily comprised of intangible assets, right of use assets and property, plant and equipment. We evaluate our finite-lived intangible assets, right of use assets and property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets is not recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

In addition, indefinite-lived intangible assets, comprised of IPR&D, are reviewed for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired by comparing the fair value to the carrying value of the asset.

If the carrying value of a finite-lived intangible asset is not recoverable, or if there is an indicator of impairment on an indefinite-lived intangible asset, we will recognize an impairment in the amount by which the carrying value of the asset exceeds its fair value. We calculate the fair value of these assets using discounted cash flow models which require the use of significant estimates and judgements which include, but are not limited to, timing and costs to complete the in-process projects, timing and probability of success of clinical events or regulatory approvals, estimated future cash flows from product sales resulting from completed products and in-process projects, tax rates and discount rates. Changes to assumptions used in our cash flow projections could result in an impairment. Impairments are recorded within impairment of intangible assets in our consolidated statements of operations.

During the year-ended December 31, 2020, we recognized impairment charges of $2,053.3, related to a $2,042.3 impairment charge of our KANUMA intangible asset and an impairment charge of $11.0 to write off the cost basis of our ACHN-4471 (ALXN2040) acquired in- process research and development asset. Refer to Note 4, Intangible Assets and Goodwill, for additional information on the impairment charges recorded.

Other Investments

From time to time, we make strategic investments in equity securities of certain biotechnology companies which we acquire in connection with license and option agreements. Our strategic investment portfolio may include equity securities in publicly traded companies, as well as investments in companies with securities that are not publicly traded and where fair value is not readily available. These investments are included in other assets in our consolidated balance sheets.

We record our investments in securities that are not publicly traded at cost, less impairments and also adjust the investment for any changes resulting from an observable price change in an orderly transaction for identical or similar investments of the same issuer. We assess relevant transactions that occur on or before the balance sheet date to identify observable price changes, and we regularly monitor these investments to evaluate whether there is an indication that the investment is impaired, based on the implied value of recent company financings, public market prices of comparable companies, and general market conditions.

Our investments in equity securities in publicly traded companies which are unrestricted are regularly measured and carried at fair value and classified as Level 1 equity securities within the fair value hierarchy. Investments in publicly traded companies which are subject to holding period restrictions are carried at fair value using an option pricing valuation model and classified as Level 2 equity securities within the fair value hierarchy. The most significant assumptions within the option pricing valuation model are the term of the restrictions and the stock price volatility, which is based upon the historical volatility of the applicable company or similar companies.

Contingent Liabilities

We are currently involved in various claims and legal proceedings. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Because of uncertainties related to claims and litigation, accruals are based on the best information available at the time of our assessment including the legal facts and circumstances of the case, status of the proceedings, applicable law and the likelihood of settlement, if any. On a periodic basis, as additional information becomes available, or based on specific events such as the outcome of litigation or settlement of claims (and our offers of settlement), we may reassess the potential liability related to these matters and may revise these estimates when facts and circumstances indicate the need for changes.

Treasury Stock

Treasury stock is accounted for using the cost method, with the purchase price of the common stock recorded separately as a deduction from stockholders’ equity.

Revenue Recognition

In May 2014, the FASB issued a comprehensive new standard which amends revenue recognition principles. We adopted the new standard on January 1, 2018 by applying the modified retrospective method to all contracts that were not completed as of that date. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received in exchange for those goods or services. Revenue is recognized through a five-step process: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) a performance obligation is satisfied. The Company only applies the five- step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. Revenue is recognized for the applicable performance element when each distinct performance obligation is satisfied.

Upon adoption of the new revenue recognition standard, on January 1, 2018, we reduced our deferred revenue balance by $10.4, with an offsetting increase of $6.0 in retained earnings due to the cumulative impact of adopting this new standard. The impact to net product sales and net income for the year ended December 31, 2018 was an increase of $5.3 and $4.8, respectively. The new standard also resulted in a decrease of $17.9 in deferred revenue and an increase of $10.8 in retained earnings as of December 31, 2018. The adoption of the new revenue standard did not have a material impact on any other balances within the consolidated financial statements as of and for the year ended December 31, 2018. The adoption of the new standard did not significantly change our accounting policies.

Nature of Products

Our principal source of revenue is product sales. Our contracts with customers generally contain a single performance obligation and we recognize revenue from product sales when we have satisfied our performance obligation by transferring control of the product to our customers. Control of the product generally transfers to the customer upon delivery. In certain countries, we sell to distributors on a consignment basis and record revenue when control of the product transfers to the customer upon sale to the end user.

Our customers are primarily comprised of distributors, pharmacies, hospitals, hospital buying groups, and other healthcare providers. In some cases, we may also sell to governments and government agencies. In addition to sales in countries where our products are commercially available, we have also recorded revenue on sales for patients receiving treatment through named-patient programs. The relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where our products have not received final approval for commercial sale.

Revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of our products. This amount includes both fixed and variable consideration and excludes amounts that are collected from customers and remitted to governmental authorities, such as value-added taxes in foreign jurisdictions. Shipping and handling costs associated with outbound freight after control of a product has transferred to our customers are accounted for as a fulfillment cost and are included in operating expenses. The cost for any shipping and handling activities (including customs clearance activities) associated with transactions for which revenue has been recognized are accrued if not completed before the respective period end.

The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Our standard credit terms, which vary based on the country of sale, range from 30 to 120 days and all arrangements are payable within one year of the transfer of the product. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between the transfer of the promised good to the customer and receipt of payment will be one year or less.

Variable Consideration

We pay distribution fees to our distributors and offer rebates and/or discounts or enter into volume-based reimbursement arrangements with certain customers. We reduce the transaction price on our sales for these amounts. For variable amounts, we estimate the amount of consideration to which we expect to be entitled based on all available historic, current and forecast information. We primarily use the expected value method to estimate variable payments and, in limited circumstances, will apply the most likely method based on the type of variable consideration and what method better predicts the amount of consideration we expect to be entitled to. Consideration that is received from a customer that we expect will need to be refunded in the future is recorded as a refund liability to the customer within accrued expenses. Actual amounts of consideration ultimately received or refunded may differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect net product sales and earnings in the period such variances become known.

Variability in the transaction price for our products pursuant to our contracts with customers primarily arises from the following:

Discounts and Rebates: We offer discounts and rebates to certain distributors and customers under our arrangements. In many cases, these amounts are fixed at the time of sale and the transaction price is reduced accordingly. We also provide for rebates under certain governmental programs, including Medicaid in the U.S. and other programs outside the U.S., which are payable based on actual claim data. We estimate these rebates based on an analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the amount of such rebates. We update our estimates and assumptions each period and record any necessary adjustments, which may have an impact on revenue in the period in which the adjustment is made. Generally, the length of time between product sale and the processing and reporting of the rebates is three to six months.

Volume-Based Arrangements: We have entered into volume-based arrangements with governments in certain countries and other customers in which reimbursement is limited to a contractual amount. Under this type of arrangement, amounts billed in excess of the contractual limitation are repaid to the customer as a rebate. We estimate incremental discounts resulting from these contractual limitations, based on forecasted sales during the limitation period, and we apply the discount percentage to product shipments as a reduction of revenue. Our calculations related to these arrangements require estimation of sales during the limitation period, and adjustments in these estimates may have a material impact in the period in which these estimates change.

Distribution & Other Fees: We pay distribution and other fees to certain customers in connection with the sales of our products. We record distribution and other fees paid to our customers as a reduction of revenue, unless the payment is for a distinct good or service from the customer and we can reasonably estimate the fair value of the goods or services received. If both conditions are met, we record the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.

Product Returns: Our contracts with customers for ULTOMIRIS, SOLIRIS, STRENSIQ, and KANUMA generally provide for returns only if the product is damaged or defective upon delivery. Because of factors such as the price of our products, the limited number of patients, the short period from product sale to patient infusion and limited contractual return rights for SOLIRIS, ULTOMIRIS, STRENSIQ and KANUMA, our customers often carry limited inventory. Our contracts with customers for ANDEXXA generally provide for returns if the product is damaged or defective upon delivery and if the product is within an eligible expiry window. While ANDEXXA inventory on hand is also limited, there may be a longer period from product sale to patient use and a greater risk of return for product expiry. We assess our sales transactions and arrangements with customers and monitor inventory within our sales channels to determine whether a provision for returns is warranted and a resulting adjustment to the transaction price is necessary. This assessment is based on historical experience and assumptions as of the date of sale and changes in these estimates could have an impact in the period in which the change occurs.

The amount of variable consideration included in the transaction price is constrained by the amount that is probable will not result in a significant reversal of revenue. We consider our experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration to which we expect to be entitled and determining whether the estimated variable consideration should be constrained. We do not have any material constraints on the variable consideration included within the transaction price of our current revenue arrangements.

Refer to Note 18, Segment Information for a summary of revenue from contracts with customers by product and geographical region.

Contract Balances and Receivables

Contract liabilities relate to consideration received and/or billed for goods that have not been delivered to the customer and for which the performance obligation has not yet been completed. These amounts are included within other current liabilities in the consolidated statements of operations.

The following table provides information about receivables and contract liabilities from our contracts with customers.

Contract balances and receivables associated with collaboration agreements assumed through the acquisition of Portola in the third quarter 2020, which were included in the table above, were not material as of December 31, 2020.

Research and Development Expenses

Research and development expenses are comprised of costs incurred in performing research and development activities including payroll and benefits, preclinical, clinical trial and related clinical manufacturing costs, manufacturing development and scale-up costs, product development and regulatory costs, contract services and other outside contractor costs, research license fees, depreciation and amortization of lab facilities, and lab supplies. These costs are expensed as incurred. We accrue costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the contract research organizations, clinical study sites, laboratories, consultants, or other clinical trial vendors that perform the activities.

Share-Based Compensation

We have two share-based compensation plans pursuant to which awards are currently being made: (i) the 2017 Incentive Plan (2017 Plan) and (ii) the 2015 Employee Stock Purchase Plan (ESPP). The 2017 Plan replaced the Amended & Restated 2004 Incentive Plan (2004 Plan), effective May 10, 2017. Under the 2017 Plan, restricted stock, restricted stock units, stock options and other stock-related awards may be granted to our directors, officers, employees and consultants or advisors of the Company or any subsidiary. Under the ESPP, eligible employees can purchase shares of common stock at a discount semi-annually through payroll deductions. To date, share-based compensation issued under the plans consists of incentive and non-qualified stock options, restricted stock and restricted stock units, including restricted stock units with market and non- market performance conditions, and shares issued under our ESPP.

Compensation expense for our share-based awards is recognized based on the estimated fair value of the awards on the grant date. Compensation expense reflects an estimate of the number of awards expected to vest and is primarily recognized on a straight-line basis over the requisite service period of the individual grants, which typically equals the vesting period. Compensation expense for awards with performance conditions is recognized using the graded-vesting method.

Our estimates of employee stock option values rely on estimates of factors we input into the Black-Scholes model. The key factors involve an estimate of future uncertain events. Assumptions include the use of historical volatility to determine the expected stock price volatility. We also estimate expected term until exercise and the reduction in the expense from expected forfeitures. We currently use historical exercise and cancellation patterns as our best estimate of future estimated life.

For our non-market performance-based awards, we estimate the anticipated achievement of the performance targets, including forecasting the achievement of future financial targets. These estimates are revised periodically based on the probability of achieving the performance targets and adjustments are made throughout the performance period as necessary. We use payout simulation models to estimate the grant date fair value of awards with market-based performance conditions. The payout simulation models assume volatility of our common stock and the common stock of a comparator group of companies, as well as correlations of returns of the price of our common stock and the common stock prices of the comparator group.

The purchase price of common stock under our ESPP is equal to 85.0% of the lower of (i) the market value per share of the common stock on the first business day of an offering period or (ii) the market value per share of the common stock on the purchase date. The fair value of the discounted purchases made under our ESPP is calculated using the Black-Scholes model. The fair value of the look-back provision plus the 15.0% discount is recognized as compensation expense over the 6-month purchase period.

Restructuring and Restructuring Related Expenses

We record liabilities associated with one-time employee termination benefits and exit or disposal activities in the period in which the liability is incurred. One-time employee benefits are incurred when communicated to employees and / or where detailed action plans have been approved. For existing benefit arrangements, employee termination costs are accrued when the exit or disposal cost are probable and estimable. Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive benefits are recognized ratably over the service period.

Restructuring related expenses include accelerated depreciation costs and impairment charges associated with assets impacted by a restructuring exit activity. Accelerated depreciation costs represent the difference between the depreciation expense recognized over the revised useful life of the asset, based upon the anticipated date an impacted site closure, and the depreciation expense as determined using the useful life prior to the restructuring activities.

Earnings Per Common Share

Basic earnings per common share (EPS) is computed by dividing net income by the weighted-average number of shares of common stock outstanding. For purposes of calculating diluted EPS, the denominator reflects the potential dilution that could occur if stock options, unvested restricted stock units or other contracts to issue common stock were exercised or converted into common stock, using the treasury stock method.

The following table summarizes the calculation of basic and diluted EPS for years ended December 31, 2020, 2019 and 2018: