Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with our consolidated financial statements and related notes beginning on page F‐1 of this Annual Report. The following discussion contains forward‐looking statements. Actual results may differ significantly from those projected in the forward‐looking statements. See “Cautionary Note Concerning Forward‐Looking Statements” on page 3 of this Annual Report. Factors that might cause future results to differ materially from those projected in the forward‐looking statements also include, but are not limited to, those discussed in “Item 1A—Risk Factors” and elsewhere in this Annual Report. A detailed discussion of our 2018 financial condition and results of operations, and of 2019 year-over-year changes as compared to 2018, can be found in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 13, 2020.

Overview

We earn revenue on net sales of VIVITROL, ARISTADA and ARISTADA INITIO, which are proprietary products that we manufacture, market and sell in the U.S., and manufacturing and/or royalty revenues on net sales of products commercialized by our licensees. Our key marketed products are expected to generate significant revenues for us in the near‐ and medium‐term and we believe are singular or competitively advantaged products in their classes. In 2020, these key marketed products consisted of VIVITROL; ARISTADA and ARISTADA INITIO; INVEGA SUSTENNA/XEPLION; INVEGA TRINZA/TREVICTA; and RISPERDAL CONSTA.

In 2020, we incurred an operating loss of $112.4 million, as compared to $175.5 million in 2019. Revenues decreased by 11% in 2020, as compared to 2019, which was primarily due to revenue earned in 2019 under our license and collaboration agreement with Biogen for VUMERITY and reduced net sales of VIVITROL in 2020 due to the impact of COVID-19. This was partially offset by increased net sales of ARISTADA in 2020. Also contributing to the decrease in our operating loss in 2020 as compared to 2019, was a 15% decrease in operating expenses, which was primarily due to a $60.6 million decrease in SG&A expense in 2020, a $86.6 million charge related to the IPR&D acquired as part of the acquisition of Rodin Therapeutics, Inc. (“Rodin”) in 2019 and a $13.4 million charge in 2019 related to the Restructuring. These items are discussed in further detail within the “Results of Operations” section below.

In December 2020, we announced a value enhancement plan designed to drive growth, improve operational and financial performance and enhance shareholder value. The value enhancement plan includes a commitment to certain multi-year profitability targets, a review and optimization of our cost structure, potential monetization of our non-core assets, and continued governance enhancements. A newly formed committee of our board of directors is responsible for overseeing achievement of the profitability targets and the potential monetization of our non-core assets.

We have already undertaken several important initiatives to support this plan, including a reorganization of our commercial infrastructure in November 2020 and an ongoing review of our operations and cost structure, both internally and with external advisors, to identify potential areas for improved efficiencies. We are also exploring a broad range of strategic opportunities, including potential strategic collaborations for nemvaleukin and monetization of our non-core assets, whether through divestment or other means. Any such collaboration or monetization, if effected, may impact our financial condition and operating results and may result in impairment charges related to our long-lived assets and/or adverse impacts on our liquidity.

COVID-19 Update

In March 2020, COVID-19 was declared a global pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns and/or shutdowns in affected areas. All U.S. states, and many local jurisdictions and countries around the world, including Ireland, have, at times during the pandemic, issued “shelter-in-place” orders, quarantines, executive orders and similar government orders, restrictions, and recommendations for their residents to control the spread of COVID-19. Such orders, restrictions and/or recommendations, and/or the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread closures of businesses, including healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia, work stoppages, slowdowns and/or delays, work-from-home policies and travel restrictions, among other effects.

We continue to closely monitor and rapidly respond to the ongoing impact of COVID-19 on our employees, our communities and our business operations. We have adopted a series of precautionary measures and will continue to do so as the circumstances warrant, in an effort to protect our employees and mitigate the potential spread of COVID-19 in a community setting. For example, we instituted a global remote work policy for those of our employees who are able to work remotely. Certain of our field-based employees have since resumed in-person interactions, as appropriate and on a voluntary basis, in accordance with location-specific guidance.

At the same time, we have worked to continue our critical business functions, including continued operation of our manufacturing facilities and our laboratories, and have continued to conduct our discovery efforts and supply our medicines. For those

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of our employees who work in our manufacturing facilities and laboratories or who otherwise enter any of our sites, we have instituted, and will continue to institute as we deem appropriate and as required, additional safety precautions, including increased sanitization of our facilities, use of personal protective equipment, implementation of a daily health screening application and physical distancing practices to help protect their health and safety. We have also taken actions to support people living with schizophrenia, opioid dependence and alcoholdependence to help assure that they have access to the information, resources and medicines that may assist in their treatment.

The marketed products from which we derive revenue, including manufacturing and royalty revenue, are primarily injectable medications administered by healthcare professionals. Given developments that have transpired to date, and may continue to transpire, in response to the pandemic, including the implementation of “shelter-in-place” policies, social distancing requirements and other restrictive measures, commercial sales of these marketed products have been adversely impacted to varying degrees and we expect commercial sales of these marketed products to continue to be adversely impacted while the pandemic persists.

As it relates to our proprietary marketed products, during the three months ended December 31, 2020, we saw a decrease of 5% in the number of VIVITROL units sold compared to the three months ended September 30, 2020. ARISTADA units sold during the three months ended December 31, 2020 increased 12% compared to the three months ended September 30, 2020. During the three months ended December 31, 2020, we continued to take actions to support uninterrupted access to our proprietary marketed products. However, we currently expect commercial sales of our marketed products, particularly VIVITROL, to continue to be impacted by the COVID-19 pandemic over the next few quarters. These items are discussed in greater detail later in the “Results of Operations” section in this “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

While we continue to conduct R&D activities, including our ongoing clinical trials, the COVID-19 pandemic has impacted, and may continue to impact, the timelines of certain of our early-stage discovery efforts and clinical trials. We are working with our internal teams, our clinical investigators, R&D vendors and critical supply chain vendors to continually assess, and mitigate, the potential impact of COVID-19 on our manufacturing operations and R&D activities.

Due to numerous uncertainties surrounding the ongoing COVID-19 pandemic, the actual impact on our financial condition and operating results resulting from the pandemic may differ from our current projections. These uncertainties include, among other things, the ultimate severity and duration of the pandemic; governmental, business or other actions that have been, are being, or will be, taken in response to the pandemic, including restrictions on travel and mobility, business closures and operating restrictions and imposition of social distancing measures; impacts of the pandemic on our employees, the vendors or distribution channels in our supply chain and on our ability to continue to manufacture our products; impacts of the pandemic on the conduct of our clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites, and monitoring of data; impacts of the pandemic on healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia; impacts of the pandemic on the regulatory agencies with which we interact in the development, review, approval and commercialization of our medicines; impacts of the pandemic on reimbursement for our products, including our Medicaid rebate liability, and for services related to the use of our products; and impacts of the pandemic on the U.S., Irish and global economies more broadly. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, our financial condition or our results of operations, see “Item 1A—Risk Factors” in this Annual Report.

Results of Operations

Product Sales, Net

Our product sales, net consist of sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S., primarily to wholesalers, specialty distributors and pharmacies. The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net for sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S. during the years ended December 31, 2020 and 2019:

Year Ended December 31,

(In millions, except for % of Sales) 2020 % of Sales 2019 % of Sales

Adjustments to product sales, gross:

Product discounts (88.2 ) (7.8 ) % (78.9 ) (7.7 ) %

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Our product sales, net for VIVITROL and ARISTADA and ARISTADA INITIO in 2020 were $310.7 million and $241.0 million, respectively, as compared to $335.4 million and $189.1 million in 2019, respectively.

The increase in product sales, gross was due to a 39% increase in ARISTADA and ARISTADA INITIO gross sales, partially offset by a 4% decrease in VIVITROL gross sales. The increase in ARISTADA and ARISTADA INITIO gross sales was due to a 30% increase in the number of ARISTADA and ARISTADA INITIO units sold and a 6% price increase that went into effect in April 2020. The decrease in VIVITROL gross sales was due to an 8% decrease in the number of VIVITROL units sold, primarily as a result of COVID-19-related disruptions, partially offset by a 6% increase in the selling price of VIVITROL, which went into effect in June 2020. The increase in Medicaid rebates, as a percentage of sales, is primarily due to factors related to the COVID-19 pandemic.

A number of companies, including us, are working to develop products to treat addiction, including alcohol and opioid dependence, that may compete with, and negatively impact, future sales of VIVITROL. Increased competition may lead to reduced unit sales of VIVITROL and increased pricing pressure. The latest to expire of our patents covering VIVITROL in the U.S. will expire in 2029 and the latest to expire of our patents covering VIVITROL in Europe will expire in 2021. Under the terms of a settlement and license agreement, we granted Amneal a license under certain patents covering VIVITROL, including the latest to expire patent covering VIVITROL in the U.S., to market and sell a generic formulation of VIVITROL in the U.S. beginning sometime in 2028 or earlier under certain circumstances. We are currently engaged in Paragraph IV litigation with certain Teva entities in respect of the last to expire patent covering VIVITROL in the U.S. For a discussion of these legal proceedings, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report and for information regarding the risks relating to these legal proceedings, see “Risks Related to our Intellectual Property—We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers”. A number of companies, including us, currently market and/or are developing products to treat schizophrenia that may compete with and negatively impact future sales of ARISTADA and ARISTADA INITIO. Increased competition may lead to reduced unit sales of ARISTADA and ARISTADA INITIO and increased pricing pressure. The latest to expire of our patents covering ARISTADA and ARISTADA INITIO in the U.S. will expire in 2035; and, as such, we do not anticipate any generic versions of this product to enter the market in the near term. We expect our product sales, net will continue to grow as VIVITROL continues to penetrate the opioid and alcohol dependence markets in the U.S., and as ARISTADA and ARISTADA INITIO continue to gain market share in the U.S.

Manufacturing and Royalty Revenues

Manufacturing revenues for third-party products using our proprietary technologies are mostly recognized over time as products move through the manufacturing process, using an input method based on costs as a measure of progress. Manufacturing revenue from RISPERDAL CONSTA is recognized at the point in time the product has been fully manufactured. Royalties earned on our licensees’ net sales of third-party products using our proprietary technologies are generally recognized in the period such products are sold by our licensees. The following table compares manufacturing and royalty revenues earned in the years ended December 31, 2020 and 2019:

Year Ended December 31, Change

Manufacturing and royalty revenues:

INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA $ 274.2 $ 256.9 $ 17.3

Manufacturing and royalty revenues $ 484.0 $ 447.9 $ 36.1

Under our agreements with Janssen related to INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA, we earn tiered royalty payments, which consist of a patent royalty and a know-how royalty, both of which are determined on a country-by-country basis. The patent royalty, which equals 1.5% of net sales, is payable in each country until the expiration of the last of the patents with valid claims applicable to the product in such country. The know-how royalty is a tiered royalty of 3.5% on calendar year net sales up to $250 million; 5.5% on calendar year net sales of between $250 million and $500 million; and 7.5% on calendar year net sales exceeding $500 million. The know-how royalty rate resets to 3.5% at the beginning of each calendar year and is payable until 15 years from the first commercial sale of a product in each individual country, subject to the expiry of the license agreement. The increase in INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA royalty revenues was due to an increase in Janssen’s end‐market net sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA. Janssen’s end‐market net sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA were $3.7 billion and $3.3 billion during the years ended December 31, 2020 and 2019, respectively. The latest of the patents subject to our license agreement with Janssen covering INVEGA SUSTENNA/XEPLION expires in 2030 in the U.S. and certain other countries and in 2022 in the EU. The latest of the licensed patents covering INVEGA TRINZA/TREVICTA expired in 2017 in the U.S. and will expire in 2022 in the EU. In addition, Janssen has other patents not subject to our license agreement, including one that covers INVEGA SUSTENNA in the U.S. and expires in 2031 and one that covers INVEGA TRINZA in the U.S. and expires in 2036. Each of INVEGA SUSTENNA and INVEGA

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TRINZA are currently subject to Paragraph IV litigation in response to companies seeking to market generic versions of such products. For a discussion of these legal proceedings, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report, and for information about risks relating to these legal proceedings, see “Item 1A—Risk Factors” in this Annual Report, and specifically the section entitled “Risks Related to Intellectual Property—We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers.”

We recognize manufacturing revenue, equal to 7.5% of Janssen’s unit net sales price of RISPERDAL CONSTA, at the point in time when RISPERDAL CONSTA has been fully manufactured, which is deemed to have occurred when the product is approved for shipment by both us and Janssen. We record royalty revenue, equal to 2.5% of end-market net sales, in the period that the end-market sale of RISPERDAL CONSTA occurs. The increase in RISPERDAL CONSTA revenue was due to a 13% increase in manufacturing revenue, partially offset by a 9% decrease in royalty revenue. The increase in manufacturing revenue was primarily due to an increase in the number of units of RISPERDAL CONSTA manufactured for Janssen. The decrease in royalty revenue was due to a decline in Janssen’s end-market net sales of RISPERDAL CONSTA. Janssen’s end‐market net sales of RISPERDAL CONSTA were $642.0 million and $688.0 million during the years ended December 31, 2020 and 2019, respectively. The latest to expire patent covering RISPERDAL CONSTA will expire in 2021 in the EU and 2023 in the U.S. For a discussion of legal proceedings related to patents covering RISPERDAL CONSTA, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report, and for risks relating to such legal proceedings, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Risks Related to our Intellectual Property—We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers.”

We expect revenues from our long‐acting, atypical franchise to decrease over time. While we expect continued growth from sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA in the near term, we are aware of potential generic competition for RISPERDAL CONSTA that may lead to reduced unit sales and increased pricing pressure in 2021. We are also aware of generic challenges to INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA. For a discussion of legal proceedings related to RISPERDAL CONSTA, INVEGA SUSTENNA and INVEGA TRINZA, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report. In addition, a number of companies, including us, are working to develop new products to treat schizophrenia and/or bipolar disorder that may compete with INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA and RISPERDAL CONSTA. Increased competition from new products or generic versions of INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA or RISPERDAL CONSTA may lead to reduced unit sales of INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA and RISPERDAL CONSTA, and increased pricing pressure.

We record manufacturing and royalty revenue for AMPYRA as the product is being manufactured, rather than when it is shipped to Acorda. For FAMPYRA, we record manufacturing revenue as the product is being manufactured and record royalty revenue when the end-market sale of FAMPYRA occurs. The increase in the amount of manufacturing and royalty revenue from AMPYRA and FAMPYRA was primarily due to an $11.3 million increase in AMPYRA revenue in 2020, $6.7 million of which was manufacturing revenue and $4.6 million of which was royalty revenue, in each case related to increased batches of AMPYRA manufactured in 2020, compared to 2019 in which we did not manufacture any batches of AMPYRA due to the entry of generic forms of AMPYRA into the U.S. market in 2018.. We expect revenues from AMPYRA to decline due to the availability of generic forms of AMPYRA in the U.S. The latest of the patents covering FAMPYRA expires in 2025 in the EU.

Certain of our manufacturing and royalty revenues are earned in countries outside of the U.S. and are denominated in currencies in which the product is sold. See “Item 7A—Quantitative and Qualitative Disclosures about Market Risk” in this Annual Report for information on currency exchange rate risk related to our revenues and “Item 1A—Risk Factors” in this Annual Report, and specifically the section entitled “Risks Related to our Financial Condition and Tax Matters—Currency exchange rates may affect revenues and expenses” for risks related to currency exchange rates.

License Revenue

Year Ended December 31, Change

The decrease in license revenue in 2020 was primarily due to the absence in 2020 of any milestone payments under our license and collaboration agreement with Biogen for VUMERITY, as compared to the $150.0 million milestone payment we received under such agreement in 2019 upon FDA approval of the NDA for VUMERITY, of which $145.8 million was allocated to the delivery of the license and the remaining $4.2 million was allocated to R&D services.

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Research and Development Revenue

Year Ended December 31, Change

Research and development revenue $ 1.9 $ 52.8 $ (50.9 )

The decrease in R&D revenue was primarily due to a decrease in the revenue earned under our license and collaboration agreement with Biogen for VUMERITY, as discussed in further detail within the “Critical Accounting Estimates”section below. R&D revenues earned under our license and collaboration agreement with Biogen for VUMERITY were $0.7 million and $50.0 million in the years ended December 31, 2020 and 2019, respectively, and the decrease in revenue was due to a decrease in services performed given FDA approval of VUMERITY in October 2019.

Costs and Expenses

Cost of Goods Manufactured and Sold

Year Ended December 31, Change

Cost of goods manufactured and sold $ 178.3 $ 180.4 $ (2.1 )

The decrease in cost of goods manufactured and sold was primarily due to a 6% decrease in cost of goods manufactured and sold related to VIVITROL, which was primarily due to a decrease in VIVITROL units sold, partially offset by a 10% increase in cost of goods manufactured and sold related to ARISTADA, primarily due to an increase in ARISTADA units sold, as described in the Product Sales, net section, above.

Research and Development Expenses

For each of our R&D programs, we incur both external and internal expenses. External R&D expenses include clinical and non‐clinical activities performed by CROs, consulting fees, laboratory services, purchases of drug product materials and third‐party manufacturing development costs. Internal R&D expenses include employee‐related expenses, occupancy costs, depreciation and general overhead. We track external R&D expenses for each of our development programs; however, internal R&D expenses are not tracked by individual program as they benefit multiple programs or our technologies in general.

The following table sets forth our external R&D expenses for the years ended December 31, 2020 and 2019 listed by the nature of such expenses:

Year Ended December 31, Change

External R&D Expenses:

Development programs:

IPR&D acquired from Rodin — 86.6 (86.6 )

Other external R&D expenses 66.5 72.7 (6.2 )

Internal R&D expenses:

These amounts are not necessarily predictive of future R&D expenses. In an effort to allocate our spending most effectively, we continually evaluate our products under development based on the performance of such products in preclinical and/or clinical trials and our expectations regarding the likelihood of their regulatory approval and commercial viability, among other factors.

The increase in expenses related to nemvaleukin was primarily due to the advancement of the ARTISTRY development program for the product. The increase in expenses related to LYBALVI was primarily due to the write-off of approximately $7.7 million of inventory that was expected to be sold commercially but, in the fourth quarter of 2020 we determined that certain lots were no longer probable of being sold commercially, partially offset by a decrease in clinical activity across the LYBALVI program following original submission of the NDA in November 2019. The decrease in expenses related to ALKS 5461 was primarily due to a

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decrease in activity within the program following receipt in January 2019 of a CRL from the FDA relating to our NDA seeking marketing approval of ALKS 5461 for the adjunctive treatment of major depressive disorder, and subsequent winding down of ongoing clinical activity in the development program. The decrease in expenses related to VUMERITY was primarily due to the completion of our elective, randomized, head-to-head phase 3 study in 2019. The FDA approved the NDA for VUMERITY in the fourth quarter of 2019. For additional detail on the status of our key development programs, see“Item 1—Business” in this Annual Report and specifically the section entitled “Key Development Programs”.

Included in external R&D expenses in 2019 was a charge of $86.6 million related to IPR&D acquired when we acquired Rodin in the fourth quarter of 2019. The acquisition of Rodin was treated as an asset acquisition and not a business combination for accounting purposes as substantially all of the fair value of the assets acquired in the acquisition of Rodin was tied to their IPR&D, which is largely in the preclinical stage. As the IPR&D was determined to have no alternative future use, the value ascribed to the IPR&D was charged to R&D expense upon its acquisition.

The decrease in employee-related expenses was primarily due to a decrease in R&D headcount of 10% from December 31, 2019 to December 31, 2020, as a result of the Restructuring. The increase in occupancy expenses in the year ended December 31, 2020, as compared to the year ended December 31, 2019, was primarily due to the commencement of the 900 Winter Street Lease in January 2020.

Selling, General and Administrative Expenses

Year Ended December 31, Change

General and administrative expense 200.3 209.9 (9.6 )

Selling, general and administrative expense $ 538.8 $ 599.4 $ (60.6 )

The decrease in selling and marketing expense was primarily due to a decrease in marketing expense of $40.4 million, a decrease in employee-related expenses of $7.6 million and a decrease in professional service fees of $4.2 million. The decrease in marketing expense was primarily due to cost saving measures taken in 2020 and a reduction in the number of speaker programs and speaker trainings and a reduction in conference-related spend primarily due to the impacts of the COVID-19 pandemic. The decrease in employee-related expenses was primarily due to a decrease in employee travel related to the impacts of the COVID-19 pandemic. The decrease in professional service fees was primarily due to an overall reduction in external consultant-related fees in 2020, as compared to 2019.

The decrease in general and administrative expense was primarily due to a decrease in employee-related expenses of $14.1 million and a decrease in professional service fees of $4.0 million, partially offset by an increase in overhead costs of $9.5 million. The decrease in employee-related expenses was primarily due to a decrease in share-based compensation expense and in salaries and benefits, due to a decrease in general and administrative headcount of 2% from December 31, 2019 to December 31, 2020 and the impact of the Restructuring, and due to a decrease in employee travel related to the impacts of the COVID-19 pandemic. The decrease in professional service fees was primarily due to expense management measures taken in response to COVID-19-related disruptions to the business. The increase in overhead expenses was primarily related to the commencement of the 900 Winter Street Lease and an increase in insurance costs.

Amortization of Acquired Intangible Assets

Year Ended December 31, Change

Amortization of acquired intangible assets $ 39.5 $ 40.4 $ (0.9 )

Our amortizable intangible assets consist of technology and collaborative arrangements acquired as part of the acquisition of EDT in September 2011, which are being amortized over 12 to 13 years. We amortize our amortizable intangible assets using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract.

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2020 is expected to be approximately $40.0 million, $35.0 million, $35.0 million, $1.0 million and none in the years ending December 31, 2021 through 2025, respectively.

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Restructuring

Year Ended December 31, Change

Restructuring expense $ — $ 13.4 $ (13.4 )

In the fourth quarter of 2019, our board of directors approved the Restructuring, which included a reduction in headcount of approximately 160 employees across the Company. We recorded a charge of $13.4 million in the fourth quarter of 2019 as a result of the Restructuring, which consisted of one-time termination benefits for employee severance, benefits and related costs, all of which are expected to result in cash expenditures and substantially all of which were paid out by the end of 2020. We paid $8.7 million and $4.2 million of the total $13.4 million accrued for the Restructuring during the years ended December 31, 2020 and 2019, respectively.

Other Income (Expense), Net

Year Ended December 31, Change

Interest income $ 7.0 $ 14.0 $ (7.0 )

Change in the fair value of contingent consideration 3.9 (22.8 ) 26.7

Total other income (expense), net $ 15.9 $ (21.6 ) $ 37.5

The decreases in interest income and interest expense in 2020, as compared to 2019, were primarily due to a decrease in interest rates. Interest income consists primarily of interest earned on our available-for-sale investments. Interest expense consists primarily of interest incurred on the 2023 Term Loans. The 2023 Term Loans bear interest at a LIBOR of our choosing (one, three or six months), plus 2.25% with a 0% LIBOR floor. During the years ended December 31, 2020 and 2019, the Company’s average LIBOR rates were 0.51% and 2.27%, respectively.

In April 2015, we sold certain of our business assets to Recro Pharma, Inc. (“Recro”) and Recro Gainesville LLC, which included as part of the purchase price contingent consideration tied to low double digit royalties on net sales of the IV/IM and parenteral forms of Meloxicam and any other product with the same active ingredient as Meloxicam IV/IM that is discovered or identified using certain of our IP to which Recro was provided a right of use, through license or transfer (such products, the “Meloxicam Products”), and milestone payments to be paid upon the achievement of certain regulatory and sales milestones related to the Meloxicam Products (such transaction, the “Gainesville Transaction”). In November 2019, Recro spun out its acute care segment to Baudax Bio, Inc. (“Baudax”), a publicly-traded pharmaceutical company. As part of this transaction, Recro’s obligations to pay certain contingent consideration from the Gainesville Transaction were assigned and/or transferred to Baudax.

We determined the fair value of the contingent consideration through three valuation approaches, which are described in greater detail in “Critical Accounting Estimates, Contingent Consideration”, later in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report. At each reporting date, we update our assessment of the fair value of this contingent consideration and reflect any changes to the fair value within the consolidated statements of operations and comprehensive loss and will continue to do so until the milestones and/or royalties included in the contingent consideration have been settled.

During the years ended December 31, 2020 and 2019, we determined that the fair value of the contingent consideration increased by $3.9 million and decreased by $22.8 million, respectively. The increase in the fair value of the contingent consideration in 2020, as compared to 2019, was primarily due to the approval by the FDA of ANJESO in February 2020, partially offset by an increase in the discount rate due to an increase in the risk of non-payment. In Baudax’s Quarterly Report on Form 10-Q for the period ended September 30, 2020, Baudax included disclosures around its ability to continue as a going concern.

The increase in other income, net in the year ended December 31, 2020, as compared to the year ended December 31, 2019, was primarily due to an $8.3 million gain on our equity method investment as a result of the sale of two of the companies within the Fountain Healthcare Partners II (“Fountain”) portfolio. Our investment in Fountain is discussed in greater detail in Note 4, Investments,in the “Notes to Consolidated Financial Statements” in this Annual Report.

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Provision(Benefit)for Income Taxes

Year Ended December 31, Change

Income tax provision (benefit) $ 14.3 $ (0.4 ) $ (14.7 )

The income tax provision in 2020 and the income tax benefit in 2019 were primarily due to U.S. federal and state taxes. The unfavorable change in income taxes in 2020, as compared to 2019, was primarily due to a significant benefit recorded in 2019 related to the foreign derived intangible income (“FDII”) proposed regulations issued by the U.S. Department of the Treasury and the U.S. Internal Revenue Service in March 2019.

No provision for income tax has been provided on undistributed earnings of the Company’s foreign subsidiaries because such earnings are indefinitely reinvested in the foreign operations. Cumulative unremitted earnings of overseas subsidiaries totaled approximately $369.0 million at December 31, 2020. In the event of a repatriation of those earnings in the form of dividends or otherwise, the Company may be liable for income taxes, subject to adjustment, if any, for foreign tax credits and foreign withholding taxes payable to foreign tax authorities. The Company estimates that approximately $38.0 million of income taxes would be payable on the repatriation of the unremitted earnings to Ireland.

As of December 31, 2020, the Company had $1.6 billion of Irish NOL carryforwards, $33.3 million of U.S. federal NOL carryforwards, $43.2 million of state NOL carryforwards, $48.6 million of federal R&D credits and $23.0 million of state tax credits which will either expire on various dates through 2040 or can be carried forward indefinitely. These loss and credit carryforwards are available to reduce certain future Irish and foreign taxable income and tax. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities and may be subject to limitations based upon changes in the ownership of the Company's ordinary shares.

Liquidity and Capital Resources

Our financial condition is summarized as follows:

(In millions) U.S. Ireland Total U.S. Ireland Total

At December 31, 2020, our investments consisted of the following:

Gross

Amortized Unrealized Allowance for Estimated

(In millions) Cost Gains Losses Credit Losses Fair Value

Investments—short-term available-for-sale $ 359.3 $ 1.9 $ — $ (1.0 ) $ 360.2

Investments—short-term held-to-maturity 1.7 0.1 — — 1.8

Investments—long-term available-for-sale 23.0 — — — 23.0

Investments—long-term held-to-maturity 1.8 — — — 1.8

Sources and Uses of Cash

We generated $82.8 million and $72.0 million of cash from operating activities during the years ended December 31, 2020 and 2019, respectively. We expect that our existing cash and investments will be sufficient to finance our anticipated working capital and other cash requirements, such as capital expenditures and principal and interest payments on our long‐term debt, for at least the twelve months following the date from which our financial statements were issued. Subject to market conditions, interest rates and other factors, we may pursue opportunities to obtain additional financing in the future, including debt and equity offerings, corporate collaborations, bank borrowings, arrangements relating to assets or other financing methods or structures. In addition, the 2023 Term Loans have an incremental facility capacity in an amount of $175.0 million, plus additional amounts as long as we meet certain conditions, including a specified leverage ratio.

Our investment objectives are, first, to preserve liquidity and conserve capital and, second, to generate investment income. We mitigate credit risk in our cash reserves by maintaining a well‐diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type. Our available‐for‐sale investments consist primarily of short‐ and long‐term U.S. government and agency debt securities and corporate debt securities. We classify available‐for‐sale investments in an unrealized loss position, which do not mature within 12 months, as long‐term investments. We have the intent and ability to hold these investments until recovery, which may be at maturity, and it is more‐likely‐than‐not that we would not be required to sell these securities before recovery of their amortized cost. At December 31, 2020, we performed an analysis of our investments with unrealized losses for impairment and determined that they were temporarily impaired.

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Information about our cash flows, by category, is presented in the accompanying consolidated statements of cash flows. The following table summarizes our cash flows for the years ended December 31, 2020 and 2019:

Year Ended December 31,

Cash and cash equivalents, beginning of period $ 203.8 $ 266.8

Cash flows provided by operating activities 82.8 72.0

Cash flows used in investing activities (11.5 ) (141.8 )

Cash flows (used in) provided by financing activities (2.1 ) 6.8

Cash and cash equivalents, end of period $ 273.0 $ 203.8

Operating Activities

The increase in cash flows provided by operating activities is primarily due to an increase in the cash provided from our net loss, net of adjustments to reconcile net loss to cash flows from operating activities. This was partially offset by a decrease in the cash provided from working capital, primarily due to increases in receivables and inventory, partially offset by an increase in accounts payable and accrued expenses.

Investing Activities

The decrease in cash used in investing activities was primarily due to the net sale of investments of $23.5 million in 2020 as compared to the net purchase of investments of $52.9 million in 2019. We also had a decrease in property, plant and equipment additions of $48.7 million in 2020 primarily due to a decrease in expenses related to leasehold improvements related to the 900 Winter Street Lease commencement in January 2020.

We expect to spend approximately $40.0 million during the year ended December 31, 2021 for capital expenditures. We continue to evaluate our manufacturing capacity based on expectations of demand for our products and will continue to record such amounts within construction in progress until such time as the underlying assets are placed into service, or we determine we have sufficient existing capacity and the assets are no longer required, at which time we would recognize an impairment charge. We continue to periodically evaluate whether facts and circumstances indicate that the carrying value of these long‐lived assets to be held and used may not be recoverable.

In the fourth quarter of 2019, we acquired Rodin for an upfront cash payment of approximately $100.0 million and potential future milestone payments of up to $850.0 million. We accounted for the transaction as an asset acquisition, as substantially all of the fair value of the assets acquired in the acquisition of Rodin were tied to their IPR&D, which was largely in the preclinical stage. As the IPR&D was determined to have no alternative future use, the value ascribed to the IPR&D, $86.6 million, was charged to R&D expense upon its acquisition and was included in our net loss in 2019. The remaining $8.9 million of net assets acquired, net of cash transferred as part of the acquisition of $2.7 million, was included as an investing activity in the 2019 cash flow statement.

Financing Activities

The change in cash flows from financing activities was due to an $8.9 million decrease in the net cash provided from stock option exercises by our employees.

Borrowings

At December 31, 2020, our borrowings consisted of $276.4 million outstanding under the 2023 Term Loans. Please refer to Note 11, Long‐Term Debt, in the “Notes to Consolidated Financial Statements” in this Annual Report for a discussion of our outstanding term loans.

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Contractual Obligations

The following table summarizes our obligations to make future payments under our current contracts at December 31, 2020:

Less Than One to Three to More than

One Year Three Years Five Years Five Years

As interest on the 2023 Term Loans is based on a one, three or six-month LIBOR rate of our choosing, for the purposes of this disclosure, we are using the one-month LIBOR rate, which was 0.16% at December 31, 2020 and is the rate we were using at December 31, 2020 for interest payments under the 2023 Term Loans.

This table excludes up to $850.0 million in milestone payments that we would be obligated to make upon achievement by the platform of development candidates acquired in the acquisition of Rodin of certain specified clinical and regulatory milestones, and attainment of certain sales thresholds, as we cannot make a reliable estimate of the period of payment. At December 31, 2020, we have not recorded a liability related to these milestone payments, as none of the future events which would trigger a milestone payment are considered probable of occurring.

This table also excludes any liabilities pertaining to uncertain tax positions as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. At December 31, 2020, we had $7.7 million of net liabilities associated with uncertain tax positions. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.

Off‐Balance Sheet Arrangements

At December 31, 2020, we were not a party to any off‐balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the “Notes to Consolidated Financial Statements” in this Annual Report. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit and Risk Committee of our board of directors.

Revenue from Contracts with Customers

When entering into arrangements with customers, we identify whether our performance obligations under each arrangement represent a distinct good or service or a series of distinct goods or services. If a contract contains more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The fair value of performance obligations under each arrangement may be derived using an estimate of selling price if we do not sell the goods or services separately.

We recognize revenue when or as we satisfy a performance obligation by transferring an asset or providing a service to a customer. Management judgment is required in determining the consideration to be earned under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or

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performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations.

Product Sales, Net

Our product sales, net consist of sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S. primarily to wholesalers, specialty distributors and pharmacies. Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payers. Our process for estimating reserves established for these variable consideration components does not differ materially from historical practices. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment. The following are our significant categories of sales discounts and allowances:

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Our provisions for sales and allowances reduced gross product sales as follows:

Provision:

Prior year (5.9 ) — — (2.2 ) — — (8.1 )

Actual:

Provision:

Prior year (5.0 ) — — (0.6 ) — — (5.6 )

Actual:

Manufacturing Revenue

We recognize manufacturing revenues from the sale of products we manufacture for resale by our licensees. Manufacturing revenues for our partnered products, with the exception of those from Janssen related to RISPERDAL CONSTA, are recognized over time as products move through the manufacturing process, using a standard cost-based model as a measure of progress, which represents a faithful depiction of the transfer of control of the goods. We recognize manufacturing revenue from these products over time as we determined, in each instance, that we would have a right to payment for performance completed to date if our customer were to terminate the manufacturing agreement for reasons other than our non-performance and the products have no alternative use. We invoice our licensees upon shipment with payment terms between 30 to 90 days.

We are the exclusive manufacturer of RISPERDAL CONSTA for commercial sale under our manufacturing and supply agreement with Janssen. We determined that it is appropriate to record revenue under this agreement at the point in time when control of the product passes to Janssen, which is determined to be when the product has been fully manufactured, since Janssen does not control the product during the manufacturing process and, in the event Janssen terminates the manufacturing and supply agreement, it is uncertain whether, and at what amount, we would be reimbursed for performance completed to date for product not yet fully manufactured. The manufacturing process is considered fully complete once the finished goods have been approved for shipment by both us and Janssen.

The sales price for certain of our manufacturing revenues is based on the end-market sales price earned by our licensees. As end-market sales generally occur after we have recorded manufacturing revenue, we estimate the sales price for such products based on information supplied to us by our licensees, our historical transaction experience and other third-party data. Differences between actual manufacturing revenues and estimated manufacturing revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The differences between our actual and estimated manufacturing revenues has not been material to date.

Royalty Revenue

We recognize royalty revenues related to the sale by our licensees of products that incorporate our technology. Substantially all of our royalties qualify for the sales-and-usage exemption under Topic 606 as (i) royalties are based strictly on the sales-and-usage by the licensee; and (ii) a license of IP is the sole or predominant item to which such royalties relate. Based on this exemption, these royalties are earned in the period the products are sold by our partner and we have a present right to payment.

Certain of our royalty revenues are recognized based on information supplied to us by our licensees and require estimates to be made. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The difference between our actual and estimated royalty revenues has not been material to date.

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Research and Development Revenue and License Revenue

Under a license and collaboration agreement with Biogen, which we entered into in November 2017 and amended in October 2018, January 2019 and October 2019, we granted Biogen a worldwide, exclusive, sublicensable license to develop, manufacture and commercialize VUMERITY and other products covered by patents licensed to Biogen under the agreement. Upon entering into the November 2017 license and collaboration agreement, we received an up-front cash payment of $28.0 million and were also eligible to receive additional payments upon achievement of developmental milestones with respect to VUMERITY. In June 2018, we received an additional cash payment of $50.0 million following Biogen’s review of preliminary gastrointestinal tolerability data from the clinical development program for VUMERITY. In November 2019, we received a payment of $150.0 million following FDA approval of the NDA for VUMERITY and transfer of such NDA to Biogen. We are also eligible to receive additional payments upon achievement of developmental milestones with respect to the first two products other than VUMERITY covered by patents licensed to Biogen under the license and collaboration agreement. Biogen paid a portion of the VUMERITY development costs we incurred in 2017 and, in January 2018, Biogen became responsible for all VUMERITY development costs we incurred, subject to annual budget limitations. Following FDA approval of the NDA for VUMERITY in October 2019, the NDA and any further development responsibilities with respect to VUMERITY were transferred to Biogen.

We evaluated the license and collaboration agreement under Topic 606 and determined that it had four deliverables: (i) the grant of a distinct, right-to-use license of IP to Biogen; (ii) future development services; (iii) clinical supply; and (iv) participation on a joint steering committee with Biogen. Our participation on the joint steering committee was considered to be perfunctory and thus not recognized as a performance obligation. The deliverables, aside from the participation in the joint steering committee which was considered to be perfunctory, were determined to be separate performance obligations as the license is separately identifiable from the development services and clinical supply, and the development services are not expected to significantly modify or customize the IP.

We allocated the arrangement consideration to each performance obligation using the standalone selling prices based on our estimate of selling price for the license and other deliverables. We used a discounted cash flow model to estimate the standalone selling price of the license in order to allocate the consideration to the performance obligations. To estimate the standalone selling price of the license, we assessed the likelihood of the FDA’s approval of VUMERITY and estimated the expected future cash flows assuming FDA approval and maintenance of the IP protecting VUMERITY. We then discounted these cash flows using a discount rate of 8.0%, which we believe captures a market participant’s view of the risk associated with the expected cash flows. The estimate of selling price of the development services and clinical supply were determined through third-party evidence. We believe that a change in the assumptions used to determine our estimate of selling price for the license most likely would not have a significant effect on the allocation of consideration transferred.

Under Topic 606, we allocated the $28.0 million up-front payment and the $50.0 million June 2018 payment as follows: $27.0 million and $48.3 million to the delivery of the license; $0.9 million and $1.5 million to future development services; and $0.1 million and $0.2 million to clinical supply, respectively.

We allocated the $150.0 milestone payment received in November 2019 to the relevant performance obligations as follows: $144.8 million was allocated to the delivery of the license; and $5.2 million was allocated to future development services and clinical supply. The amounts allocated to the license were recognized upon receipt of the payments as delivery of the license occurred upon entry into the agreement in 2017. The amounts allocated to the development services and clinical supply were recognized over the course of the development work and as clinical supply was delivered to Biogen in 2020.

In addition, we receive a 15% royalty on worldwide net sales of VUMERITY, subject to, under certain circumstances, minimum annual payments for the first five years following FDA approval of VUMERITY. We are also entitled to receive royalties on net sales of products other than VUMERITY covered by patents licensed to Biogen under the license and collaboration agreement, at tiered royalty rates calculated as percentages of net sales ranging from high-single digits to sub-teen double digits. All royalties are payable on a product-by-product and country-by-country basis until the later of (i) the last-to-expire patent right covering the applicable product in the applicable country and (ii) a specified period of time from the first commercial sale of the applicable product in the applicable country. Royalties for all products and the minimum annual payments for VUMERITY are subject to customary reductions, as set forth in the license and collaboration agreement.

We determined that the future development milestones and sales-based royalties that we may be entitled to receive are variable consideration. We are using the most likely amount method for estimating the variable consideration to be received related to the milestones under this arrangement. The royalties are subject to the sales-based exception and are recorded when the corresponding sale occurs.

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Under the license and collaboration agreement, Biogen appointed us as the toll manufacturer of clinical and commercial supplies of VUMERITY, subject to Biogen’s right to manufacture or have manufactured commercial supplies as a back-up manufacturer and subject to good faith agreement by the parties on the terms of such manufacturing arrangements. In October 2019, we entered into a commercial supply agreement with Biogen for the commercial supply of VUMERITY, an amendment to such commercial supply agreement and an amendment to the November 2017 license and collaboration agreement with Biogen. Under these agreements, Biogen has an option to assume responsibility, subject to a transition period, for the manufacture (itself or through a designee) of clinical supplies of VUMERITY and up to 100% of commercial supplies of VUMERITY in exchange for an increase in the royalty rate to be paid by Biogen to us on net sales of that portion of product that is manufactured by Biogen or its designee. We evaluated the commercial supply agreement and the related amendments under Topic 606 and determined that these agreements should be combined and accounted for as a separate contract since the commercial supply agreement and amendment to the November 2017 license and collaboration agreement were negotiated together to achieve a common economic objective and the additional performance obligations under the commercial supply agreement are considered distinct obligations priced at their standalone selling prices. We determined that we had two separate performance obligations, the commercial supply of VUMERITY and, upon an election by Biogen to commence a transfer of technology relating to the manufacture of VUMERITY (the “Tech Transfer”), services to be performed by us in connection with such Tech Transfer. There are other deliverables under the agreements that were determined to be perfunctory or immaterial.

In connection with the entry into the commercial supply agreement and the related amendments, we received payments in the aggregate amount of $5.8 million in the fourth quarter of 2019 and we will be eligible to receive an additional $5.0 million payment upon the earlier of successful completion of the Tech Transfer or a date in the fourth quarter of 2022. The $5.8 million received in the fourth quarter of 2019 plus amounts received in connection with the Tech Transfer will be allocated to each of the performance obligations using the standalone selling prices based on our estimate of selling price for the commercial supply of VUMERITY and the services related to the Tech Transfer, and this additional arrangement consideration will be recognized as we deliver commercial supply of VUMERITY and/or provide services relating to the Tech Transfer. We began performing under this commercial supply agreement in the first quarter of 2020.

Amortization and Impairment of Long‐Lived Assets

Long‐lived assets, other than goodwill which is separately tested for impairment, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. When evaluating long‐lived assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long‐lived asset, the new cost basis will be depreciated over the remaining useful life of that asset.

When reviewing long‐lived assets for impairment, we group long‐lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

Our amortizable intangible assets include technology and collaborative arrangements that were acquired as part of the Business Combination. These intangible assets are being amortized as revenue is generated from these products, which we refer to as the economic benefit amortization model. This amortization methodology involves calculating a ratio of actual current period sales to total anticipated sales for the life of the product and applying this ratio to the carrying amount of the intangible asset.

In order to determine the pattern in which the economic benefits of our intangible assets are consumed, we estimated the future revenues to be earned under our collaboration agreements and our NanoCrystal and OCR technology‐based intangible assets from the date of acquisition to the end of their respective useful lives. The factors used to estimate such future revenues included: (i) our and our licensees’ projected future sales of the existing commercial products based on these intangible assets; (ii) our projected future sales of new products based on these intangible assets which we anticipate will be launched commercially; (iii) the patent lives of the technologies underlying such existing and new products; and (iv) our expectations regarding the entry of generic and/or other competing products into the markets for such existing and new products. These factors involve known and unknown risks and uncertainties, many of which are beyond our control and could cause the actual economic benefits of these intangible assets to be materially different from our estimates.

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2020, is expected to be approximately $40.0 million, $35.0 million, $35.0 million, $1.0 million and none in the years ending December 31, 2021 through 2025, respectively. Although we believe such available information and assumptions are reasonable, given the inherent risks and uncertainties underlying our expectations regarding such future revenues, there is the potential for our actual results to vary significantly from such expectations. If revenues are projected to change, the related amortization of the

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intangible asset will change in proportion to the change in revenue.

If there are any indications that the assumptions underlying our most recent analysis would be different than those utilized within our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenue of the products associated with our amortizable intangible assets. For example, the occurrence of an adverse event could substantially increase the amount of amortization expense associated with our acquired intangible assets as compared to previous periods or our current expectations, which may result in a significant negative impact on our future results of operations.

In the fourth quarter of 2020, we determined that an impairment triggering event occurred and evaluated certain of our long-lived assets for impairment under a held-and-used model. We concluded that the long-lived assets evaluated for impairment were recoverable based on an analysis of the undiscounted net cash flows to be generated from the use of these assets.

Goodwill

We evaluate goodwill for impairment for our reporting units annually, as of October 31, and whenever events or changes in circumstances indicate its carrying value may not be recoverable. A reporting unit is an operating segment, as defined by the segment reporting accounting standards, or a component of an operating segment. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and is reviewed by management. Two or more components of an operating segment may be aggregated and deemed a single reporting unit for goodwill impairment testing purposes if the components have similar economic characteristics. As of December 31, 2020, we have one operating segment and two reporting units. Our goodwill, which solely relates to the Business Combination, has been assigned to one reporting unit which consists of the former EDT business.

We have the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. If we elect this option and determine, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Among other relevant events and circumstances that affect the fair value of reporting units, we consider individual factors, such as microeconomic conditions, changes in the industry and the markets in which we operate as well as historical and expected future financial performance. Alternatively, we may elect to not first assess qualitative factors and instead immediately perform the quantitative impairment test.

In 2017, we elected to early adopt guidance issued by the Financial Accounting Standards Board that simplifies the test for goodwill impairment. This guidance removed Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment charge is now recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.

On October 31, 2020, we elected to perform a quantitative impairment test and determined that the fair value of the reporting unit exceeded its carrying value.

Contingent Consideration

We record contingent consideration we receive related to the sale of a business at fair value on the acquisition date. We estimate the fair value of contingent consideration through valuation models that incorporate probability-adjusted assumptions related to the achievement of milestones and thus likelihood of receiving related payments. We revalue our contingent consideration each reporting period, with changes in the fair value of contingent consideration recognized within the consolidated statements of operations and comprehensive loss. Changes in the fair value of contingent consideration can result from changes to one or multiple assumptions, including adjustments to the discount rates, changes in the amount and timing of cash flows, changes in the assumed achievement and timing of any development and sales-based milestones and changes in the assumed probability associated with regulatory approval.

The period over which we discount contingent consideration is based on the current development stage of the product candidates, the specific development plan for that product candidate adjusted for the probability of completing the development step, and the date on which contingent payments would be triggered. In estimating the probability of success, we utilize data regarding similar milestone events from several sources, including industry studies and our own experience. These fair value measurements are based on significant inputs not observable in the market. Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above could have a material impact on the increase or decrease in the fair value of contingent consideration recorded in any given period.

At December 31, 2020, our contingent consideration related to consideration to be received as part of the Gainesville Transaction. In accordance with the accounting standard for fair value measurements, our contingent consideration has been classified as a Level 3 asset as its fair value is based on significant inputs not observable in the market. The fair value of the contingent consideration was determined as follows:

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In order to address the substantial doubt about Baudax’s ability to continue as a going concern, we split our fair value analysis into two scenarios and applied an equal weighting to each. In the first scenario, the amounts above were all discounted using a rate of 13%, which we believe captures a market participant’s view of the risk associated with the expected payments assuming Baudax is able to continue as a going concern. In the second scenario, we used the undiscounted values derived from the amounts summarized above and applied a recovery rate of 18%, based on an analysis performed by Moody’s Investor Service regarding recoveries in a pandemic-driven default cycle.

Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above could have a material impact on the increase or decrease in the fair value of contingent consideration we record in any given period.

Valuation of Deferred Tax Assets

We evaluate the need for deferred tax asset valuation allowances based on a more‐likely‐than‐not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possible sources of taxable income when assessing the realization of deferred tax assets:

• future reversals of existing taxable temporary differences;

• taxable income in prior carryback years; and

• tax‐planning strategies.

The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors including, but not limited to:

• nature, frequency and severity of recent losses;

• duration of statutory carryforward periods;

• historical experience with tax attributes expiring unused; and

• near‐ and medium‐term financial outlook.

We utilize a rolling three years of actual and current year anticipated results as the primary measures of cumulative losses in recent years.

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material effect on our financial condition and results of operations. For information related to risks surrounding our deferred tax assets, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Risks Related to our Financial Condition and Tax Matters—Our deferred tax assets may not be realized.”

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Recent Accounting Pronouncements

Please refer to Note 2, Summary of Significant Accounting Policies, “New Accounting Pronouncements” in our “Notes to Consolidated Financial Statements” in this Annual Report for a discussion of new accounting standards.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We hold securities in our investment portfolio that are sensitive to market risks. Our securities with fixed interest rates may have their market value adversely impacted by a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to a fall in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our investments in debt securities as available‐for‐sale, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other‐than‐temporary. Should interest rates fluctuate by 10%, our interest income would change by an immaterial amount over an annual period. We do not believe that we have a material exposure to interest rate risk as our investment policies specify credit quality standards for our investments and limit the amount of credit exposure from any single issue, issuer or type of investment.

We do not believe that inflation and changing prices have had a material impact on our results of operations, and as approximately 48% and 27% of our investments at December 31, 2020 are in corporate debt securities with a minimum rating of Aa2 (Moody’s)/AA (Standard and Poor’s) and debt securities issued by the U.S. government or its agencies, respectively, our exposure to liquidity and credit risk is not believed to be significant.

At December 31, 2020, our borrowings consisted of $276.4 million outstanding under the 2023 Term Loans. The 2023 Term Loans bear interest at a LIBOR rate of our choosing (one, three or six months), plus 2.25% with a 0% LIBOR floor. We are currently using the one-month LIBOR rate, which was 0.16% at December 31, 2020. A 10% increase in the one-month LIBOR rate would have increased the amount of interest we owe under this agreement during the year ended December 31, 2020 by approximately $0.4 million. At December 31, 2019, a 10% increase in the one-month LIBOR rate, which was the LIBOR rate in use at the time, would have increased the amount of interest we owed by approximately $0.5 million. For a discussion about risks relating to LIBOR, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Risks Related to our Financial Condition and Tax Matters—Discontinuation, reform or replacement of LIBOR, or uncertainty related to the potential for any of the foregoing, may adversely affect us.”

Currency Exchange Rate Risk

Manufacturing and royalty revenues we receive on certain of our products and services are a percentage of the net sales made by our licensees, and a portion of these sales are made in countries outside the U.S. and are denominated in currencies in which the product is sold, which is predominantly the euro. The manufacturing and royalty payments on these non‐U.S. sales are calculated initially in the currency in which the sale is made and are then converted into USD to determine the amount that our licensees pay us for manufacturing and royalty revenues. Fluctuations in the exchange ratio of the USD and these non‐U.S. currencies will have the effect of increasing or decreasing our revenues even if there is a constant amount of sales in non‐U.S. currencies. For example, if the USD weakens against a non‐U.S. currency, then our revenues will increase given a constant amount of sales in such non‐U.S. currency. For the year ended December 31, 2020, an average 10% strengthening of the USD relative to the currencies in which these products are sold would have resulted in revenues being reduced by approximately $28.9 million, as compared to a reduction in revenues of approximately $26.5 million for the year ended December 31, 2019.

We incur significant operating costs in Ireland and face exposure to changes in the exchange ratio of the USD and the euro arising from expenses and payables at our Irish operations that are settled in euro. The impact of changes in the exchange ratio of the USD and the euro on our USD denominated revenues earned in countries other than the U.S. is partially offset by the opposite impact of changes in the exchange ratio of the USD and the euro on operating expenses and payables incurred at our Irish operations that are settled in euro. For the year ended December 31, 2020, an average 10% weakening in the USD relative to the euro would have resulted in an increase to our expenses denominated in euro of approximately $7.3 million, as compared to an increase in our expenses of approximately $7.1 million in the year ended December 31, 2019.

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Item 8. Financial Statements and Supplementary Data

Selected Quarterly Financial Data (unaudited)

REVENUES:

EXPENSES:

First Quarter Second Quarter Third Quarter Fourth Quarter Total

REVENUES:

EXPENSES:

All financial statements required to be filed hereunder, other than the quarterly financial data required by Item 302 of Regulation S‐K summarized above, are filed as exhibits hereto, are listed under Item 15(a) (1) and (2) and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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Item 9A. Controls and Procedures

Disclosure Controls and Procedures and Internal Control Over Financial Reporting

Controls and Procedures

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‐15(e) and 15d‐15(e) under the Exchange Act), as of December 31, 2020. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost‐benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a‐15(f) and 15d‐15(f). Internal control over financial reporting is defined in Rules 13a‐15(f) and 15d‐15(f) under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its 2013 Internal Control—Integrated Framework.

Based on this assessment, our management has concluded that, as of December 31, 2020, our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report, beginning on page F-1.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated herein by reference to the Proxy Statement for our 2021 Annual General Meeting of Shareholders.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the Proxy Statement for our 2021Annual General Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to the Proxy Statement for our 2021 Annual General Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to the Proxy Statement for our 2021 Annual General Meeting of Shareholders.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to the Proxy Statement for our 2021 Annual General Meeting of Shareholders.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

EXHIBIT INDEX

Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

4.1 # Description of Securities.

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Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

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Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

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Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

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Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

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Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

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Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

21.1 # List of subsidiaries

24.1 # Power of Attorney (included on the signature pages hereto)

101.SCH # Inline XBRL Taxonomy Extension Schema Document.

101.CAL # Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB # Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE # Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF # Inline XBRL Taxonomy Extension Definition Linkbase Document.

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Incorporated by reference herein

Exhibit No. Description of Exhibit Form Date

# Filed herewith.

‡ Furnished herewith.

Item 16. Form 10-K Summary

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ALKERMES PLC

By: /s/ Richard F. Pops Richard F. Pops Chairman and Chief Executive Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Each person whose signature appears below in so signing also makes, constitutes and appoints Richard F. Pops and Iain M. Brown, and each of them, his true and lawful attorney‐in‐fact, with full power of substitution, for him in any and all capacities, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to this Annual Report, with exhibits thereto and other documents in connection therewith, and hereby ratifies and confirms all that said attorney‐in‐fact or his substitute or substitutes may do or cause to be done by virtue hereof.

Signature Title Date

/s/ David W. Anstice David W. Anstice Director February 11, 2021

/s/ Robert A. Breyer Robert A. Breyer Director February 11, 2021

/s/ Shane Cooke Shane Cooke Director February 11, 2021

/s/ David A. Daglio, Jr. Director February 11, 2021

David A. Daglio, Jr.

/s/ Richard Gaynor Richard Gaynor Director February 11, 2021

/s/ Wendy L. Dixon Wendy L. Dixon Director February 11, 2021

/s/ Brian P. McKeon Director February 11, 2021

Brian P. McKeon

/s/ Paul J. Mitchell Paul J. Mitchell Director February 11, 2021

/s/ Nancy L. Snyderman Nancy L. Snyderman Director February 11, 2021

/s/ Frank Anders Wilson Frank Anders Wilson Director February 11, 2021

/s/ Nancy J. Wysenski Nancy J. Wysenski Director February 11, 2021

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Alkermes plc

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Alkermes plc and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Rebate Accruals - Medicaid Drug Rebate Program

As described in Note 2 and Note 10 to the consolidated financial statements, the Company’s revenue from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers, health care providers or payers. The Company records accruals for rebates to U.S. states under the Medicaid Drug Rebate Program as a reduction of sales when the product is shipped into the distribution channel using the expected value method. As of December 31, 2020, total accrued sales discounts, allowances and reserves were $218.9 million, of which a significant amount related to Medicaid rebates. The Company rebates individual U.S. states for all eligible units purchased under the Medicaid program based on a rebate per unit calculation, which is based on the Company’s average manufacturer prices. The Company estimates expected unit sales to individuals covered by Medicaid and rebates per unit under the Medicaid program and adjusts its rebate accrual based on actual unit sales and rebates per unit and changes in trends in Medicaid utilization.

The principal considerations for our determination that performing procedures relating to rebate accruals for the Medicaid Drug Rebate Program is a critical audit matter are (i) the significant judgment by management due to significant measurement uncertainty involved in developing the reserves, as the reserves are based on assumptions developed using historical experience, current contractual requirements, specific known market events and payment patterns and (ii) a high degree of auditor judgment, effort, and subjectivity in applying procedures related to these assumptions.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to rebate accruals for the Medicaid Drug Rebate Program, including controls over the assumptions used to estimate the rebate accruals. These procedures also included, among others, (i) developing an independent estimate of the rebate accruals by utilizing third-party data related to product sales, the historical trend of actual rebate claims paid and consideration of contractual requirement changes and market events; (ii) comparing the independent estimate to management’s estimate; and (iii) testing rebate claims processed by the Company.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 11, 2021

We have served as the Company’s auditor since 2007.

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ALKERMES PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2020 and 2019

(In thousands, except share and per share amounts)

ASSETS

CURRENT ASSETS:

Prepaid expenses and other current assets 60,662 59,716

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Operating lease liabilities—short-term 15,732 8,466

Contract liabilities—short-term 7,512 6,766

Current portion of long-term debt 2,843 2,843

OPERATING LEASE LIABILITIES—LONG-TERM 119,464 5,342

COMMITMENTS AND CONTINGENT LIABILITIES (Note 19)

SHAREHOLDERS’ EQUITY:

Accumulated other comprehensive loss (1,349 ) (1,816 )

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

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ALKERMES PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Years Ended December 31, 2020, 2019 and 2018

Year Ended December 31,

(In thousands, except per share amounts)

REVENUES:

EXPENSES:

Restructuring expense — 13,401 —

OTHER INCOME (EXPENSE), NET:

Change in the fair value of contingent consideration 3,945 (22,800 ) (19,600 )

LOSS PER ORDINARY SHARE:

Basic and diluted $ (0.70 ) $ (1.25 ) $ (0.90 )

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING:

COMPREHENSIVE LOSS:

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

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ALKERMES PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years Ended December 31, 2020, 2019 and 2018

Accumulated

Additional Other

Ordinary Shares Paid-In Comprehensive Accumulated Treasury Stock

Shares Amount Capital Loss Deficit Shares Amount Total

(In thousands, except share data)

Share-based compensation expense — — 99,705 — — — — 99,705

Share-based compensation expense — — 91,262 — — — — 91,262

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

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ALKERMES PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2020, 2019 and 2018

Year Ended December 31,

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to cash flows from operating activities:

Change in the fair value of contingent consideration (3,945 ) 22,800 19,600

Loss on debt refinancing — — 2,298

Payment made for debt refinancing — — (2,251 )

Impairment of property, plant and equipment — — 5,746

Changes in assets and liabilities, excluding the effect of acquisitions:

Operating lease liabilities (16,273 ) (9,117 ) —

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from the sale of equipment 643 900 507

Proceeds from contingent consideration 3,886 10,000 —

Return of Fountain Healthcare Partners II, L.P. investment 2,751 — —

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments of long-term debt (2,843 ) (2,843 ) (743 )

Payment made for debt refinancing — — (2,132 )

Cash flows (used in) provided by financing activities (2,171 ) 6,765 (1,620 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 69,190 (62,991 ) 75,466

SUPPLEMENTAL CASH FLOW DISCLOSURE:

Non-cash investing and financing activities:

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

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Alkermes plc (the “Company”) is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. Alkermes has a diversified portfolio of marketed products focused on central nervous system disorders such as addiction and schizophrenia and a pipeline of product candidates in the fields of neuroscience and oncology. Headquartered in Dublin, Ireland, the Company has a research and development (“R&D”) center in Waltham, Massachusetts; R&D and manufacturing facilities in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.

During the year ended December 31, 2020, Alkermes Finance S.à r.l, an indirect subsidiary of Alkermes plc, was liquidated and its net assets were transferred to its parent company, Alkermes Pharma Ireland Limited.

Use of Estimates

The preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that Company management make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on‐going basis, the Company evaluates its estimates and judgments and methodologies, including those related to revenue from contracts with its customers and related allowances, impairment and amortization of intangibles and long‐lived assets, share‐based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments, contingent consideration and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Cash and Cash Equivalents

The Company values its cash and cash equivalents at cost plus accrued interest, which the Company believes approximates their market value. The Company considers cash equivalents only those investments that are highly liquid, readily convertible into cash and so near their maturity, generally three months from the date of purchase, that they present insignificant risk of change in value because of interest rate changes.

Investments

The Company has investments in various types of securities, consisting primarily of United States (“U.S.”) government and agency obligations, corporate debt securities and debt securities issued by foreign agencies and backed by foreign governments. The Company generally holds its interest-bearing investments with major financial institutions and in accordance with documented investment policies. The Company limits the amount of credit exposure to any one financial institution or corporate issuer. At December 31, 2020, substantially all these investments were classified as available-for-sale and were recorded at fair value.

Holding gains and losses on available-for-sale investments are considered “unrealized” and are reported within “Accumulated other comprehensive loss,” a component of shareholders’ equity. The Company uses the specific identification method for reclassifying unrealized gains and losses into earnings when investments are sold. The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments, as required by GAAP. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded in “Accumulated other comprehensive loss.”

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For securities with unrealized losses, the Company performs an analysis to assess whether it intends to sell or whether it would more likely than not be required to sell the security before the expected recovery of its amortized cost basis. If the Company intends to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is recorded within earnings as an impairment loss. Regardless of the Company’s intent to sell a security, the Company performs additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security.

The Company’s held-to-maturity investments are restricted investments held as collateral under letters of credit related to certain of the Company’s agreements and are included in “Investments—long-term,” in the accompanying consolidated balance sheets.

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are recorded at fair value and are classified as Level 1, 2 or 3 within the fair value hierarchy, as described in the accounting standards for fair value measurement. At December 31, 2020, the Company’s financial assets consisted of cash equivalents, investments and contingent consideration and are classified within the fair value hierarchy as follows:

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short‐term nature.

Inventory

Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Included in inventory are raw materials used in production of preclinical and clinical products, which have alternative future use and are charged to R&D expense when consumed. The cost elements included within inventory include three primary categories for commercial products: cost of raw materials; direct labor; and overhead. Overhead is based on the normal capacity of the Company’s production facilities and does not include costs from abnormally low production or idle capacity, which are expensed directly to the consolidated statement of operations and comprehensive loss.

The Company capitalizes inventory costs associated with its products prior to regulatory approval when, based on management’s judgment, future commercialization of the product is considered probable and future economic benefit from such product is expected to be realized. The Company assesses the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety, efficacy or quality concerns, potential labeling restrictions and other potential impediments to approval. The Company also considers the shelf life of the product in relation to the expected timeline for approval and considers issues that may prevent or delay commercialization, including issues that may arise in relation to the manufacturing of the product. The Company expenses previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by relevant regulatory agencies or other issues that may make the pre-approval inventory batches less likely or unlikely to be commercialized and to result in future economic benefit.

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Expenditures for repairs and maintenance are charged to expense as incurred and major renewals and improvements are capitalized. Depreciation is calculated using the straight‐line method over the following estimated useful lives of the assets:

Asset group Term

Buildings and improvements 15 - 40 years

Furniture, fixtures and equipment 3 - 10 years

Leasehold improvements Shorter of useful life or lease term

Contingent Consideration

The Company records contingent consideration it is entitled to receive at fair value on the acquisition date. The Company estimates the fair value of contingent consideration through valuation models that incorporate probability-adjusted assumptions related to the likelihood of achievement of milestones and of receipt of the related payments. The Company revalues its contingent consideration each reporting period, with changes in the fair value of contingent consideration recognized within the consolidated statements of operations and comprehensive loss. Changes in the fair value of contingent consideration can result from changes to one or multiple assumptions, including adjustments to discount rates, changes in the amount and timing of cash flows, changes in the assumed achievement and timing of any development and sales-based milestones, changes in the assumed probability associated with regulatory approvals and creditworthiness of the counterparty.

The period over which the Company discounts its contingent consideration is based on the current development stage of the product candidate, the specific development plan for that product candidate, adjusted for the probability of completing the development steps, and when contingent payments would be triggered. In estimating the probability of success, the Company utilizes data regarding similar milestone events from several sources, including industry studies and the Company’s own experience. These fair value measurements are based on significant inputs not observable in the market. Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above could have a material impact on the increase or decrease in the fair value of contingent consideration recorded in any given period.

Goodwill and Intangible Assets

Goodwill represents the excess cost of the Company’s investment in the net assets of acquired companies over the fair value of the underlying identifiable net assets at the date of acquisition. The Company’s goodwill consists solely of goodwill created as a result of the Company’s acquisition of Elan Drug Technologies (“EDT”) from Elan Corporation, plc (the “Business Combination”) in September 2011 and has been assigned to one reporting unit. A reporting unit is an operating segment or one level below an operating segment or a component to which goodwill is assigned when initially recorded.

Goodwill is not amortized but is reviewed for impairment on an annual basis, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the goodwill might not be recoverable. The Company has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. If the Company elects this option and believes, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of its reporting unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Alternatively, the Company may elect to not first assess qualitative factors and immediately perform the quantitative impairment test. In the quantitative impairment test, the Company compares the fair value of its reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of its reporting unit, then the Company would record an impairment loss equal to the difference.

The Company’s finite-lived intangible assets, consisting of core developed technology and collaboration agreements acquired as part of the acquisition of EDT, were recorded at fair value at the time of their acquisition and are stated within the Company’s consolidated balance sheets net of accumulated amortization. The finite-lived intangible assets are amortized over their estimated useful lives using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract. The useful lives of the Company’s intangible assets are primarily based on the legal or contractual life of the underlying patent or contract, which does not include additional years for the potential extension or renewal of the contract or patent.

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Impairment of Long‐Lived Assets

The Company reviews long‐lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset; a significant change in the extent or manner in which an asset is used; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; a current-period operating or cash flow loss combined with a history of operating or cash-flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written‐down to their estimated fair values. Long‐lived assets to be disposed of are carried at fair value less costs to sell them.

In the fourth quarter of 2020, the Company determined that an impairment triggering event occurred and evaluated certain of its long-lived assets for impairment under a held-and-used model. The Company concluded that the long-lived assets evaluated for impairment were recoverable based on an analysis of the undiscounted net cash flows to be generated from the use of these assets.

Revenue from Contracts with Customers

The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“Topic 606”). When entering into arrangements with customers, the Company identifies whether its performance obligations under the arrangement represent a distinct good or service or a series of distinct goods or services. If a contract contains more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The fair value of performance obligations under the arrangement may be derived using an estimate of selling price if the Company does not sell the goods or services separately.

The Company recognizes revenue when or as it satisfies a performance obligation by transferring an asset or providing a service to a customer. Management judgment is required in determining the consideration to be earned under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which the Company expects to complete its aggregate performance obligations.

Product Sales, Net

The Company’s product sales, net consist of sales of VIVITROL®, ARISTADA®and ARISTADA INITIO®in the U.S. primarily to wholesalers, specialty distributors and pharmacies. Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers, health care providers or payers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from historical practices. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment. The following are the Company’s significant categories of sales discounts and allowances:

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Collaborative Arrangements

The Company has entered into collaboration agreements with pharmaceutical companies including, among others, Janssen Pharmaceutica Inc. (“Janssen, Inc.”), Janssen Pharmaceutica International, a division of Cilag International AG (“Janssen International”), and Janssen Pharmaceutica N.V. (together with Janssen, Inc., Janssen International and their affiliates, “Janssen”) for INVEGA SUSTENNA®/XEPLION® and INVEGA TRINZA®/TREVICTA® as well as RISPERDAL CONSTA®, Acorda Therapeutics, Inc. (“Acorda”) for AMPYRA®/FAMPYRA® and Biogen Swiss Manufacturing GmbH (together with its affiliates, “Biogen”) for VUMERITY®. Substantially all of the products developed under these arrangements are currently being marketed as approved products for which the Company receives payments for manufacturing services and/or royalties on net product sales.

Manufacturing Revenue

The Company recognizes manufacturing revenues from the sale of products it manufactures for resale by its licensees. Manufacturing revenuesfor the Company’s partnered products, with the exception of those from Janssen related to RISPERDAL CONSTA, are recognized over time as products move through the manufacturing process, using a standard cost-based model as a measure of progress, which represents a faithful depiction of the transfer of control of the goods. The Company recognizes manufacturing revenue from these products over time as it determined, in each instance, that it would have a right to payment for performance completed to date if its customer were to terminate the manufacturing agreement for reasons other than the Company’s non-performance and the products have no alternative use. The Company invoices its licensees upon shipment with payment terms between 30 to 90 days.

The Company is the exclusive manufacturer of RISPERDAL CONSTA for commercial sale under its manufacturing and supply agreement with Janssen. The Company determined that it is appropriate to record revenue under this agreement at the point in time when control of the product passes to Janssen, which is determined to be when the product has been fully manufactured, since Janssen does not control the product during the manufacturing process and, in the event Janssen terminates the manufacturing and supply agreement, it is uncertain whether, and at what amount, the Company would be reimbursed for performance completed to date for product not yet fully manufactured. The manufacturing process is considered fully complete once the finished goods have been approved for shipment by both the Company and Janssen.

The sales price for certain of the Company’s manufacturing revenues is based on the end-market sales price earned by its licensees. As end-market sales generally occur after the Company has recorded manufacturing revenue, the Company estimates the sales price for such products based on information supplied to it by the Company’s licensees, its historical transaction experience and other third-party data. Differences between actual manufacturing revenues and estimated manufacturing revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The difference between the Company’s actual and estimated manufacturing revenues has not been material to date.

Royalty Revenue

The Company recognizes royalty revenues related to the sale by its licensees of products that incorporate the Company’s technologies. Substantially all of the Company’s royalties qualify for the sales-and-usage exemption under Topic 606 as (i) royalties are based strictly on the sales-and-usage by the licensee; and (ii) a license of intellectual property (“IP”) is the sole or predominant

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

item to which such royalties relate. Based on this exemption, these royalties are earned in the period the products are sold by the Company's partner and the Company has a present right to payment.

Certain of the Company’s royalty revenues are recognized by the Company based on information supplied to the Company by its licensees and require estimates to be made. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter. The difference between the Company’s actual and estimated royalty revenues has not been material to date.

Research and Development Revenue

R&D revenue consists of funding that compensates the Company for formulation, preclinical and clinical testing under R&D arrangements with its partners. The Company generally bills its partners under R&D arrangements using a full‐time equivalent or hourly rate, plus direct external costs, if any. Revenue is recognized as the obligations under the R&D arrangements are performed.

License Revenue

The Company recognizes revenue from the grant of distinct, right-to-use licenses of IP when control of the license is transferred to the customer, which is the point in time the customer is able to direct the use of and obtain substantially all of the benefits from the license.

Receivables, net

Receivables, net, include amounts billed and amounts unbilled but currently unconditionally due from customers. The amounts due are stated at their net estimated realizable value. The Company’s unbilled receivable balance was $110.9 million and $89.7 million at December 31, 2020 and 2019, respectively, and related primarily to royalty revenues. The Company maintains an allowance for doubtful accounts to provide for the estimated amounts of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. The Company’s allowance for doubtful accounts was approximately $0.1 million and $0.2 million at December 31, 2020 and 2019, respectively.

Contract Assets

Contract assets include unbilled amounts resulting from sales under certain of the Company’s manufacturing contracts where revenue is recognized over time, except for $5.0 million of consideration related to the Company’s collaboration with Biogen related to VUMERITY, which the Company expects to receive in approximately two years, and is included in “Other assets” in the accompanying consolidated balance sheets. The manufacturing-related amounts included in the contract assets table below are classified as “Current assets” in the accompanying consolidated balance sheets, as they related to manufacturing processes that are completed in ten days to eight weeks.

Contract assets consisted of the following:

(In thousands) Contract Assets

Transferred to receivables, net (32,755 )

Transferred to receivables, net (40,310 )

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Contract Liabilities

The Company’s contract liabilities consist of contractual obligations related to deferred revenue.

Contract liabilities consisted of the following:

(In thousands) Contract Liabilities

Amounts recognized into revenue (2,537 )

Additions —

Amounts recognized into revenue (4,925 )

Foreign Currency

The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. The resulting monetary assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the subsequent balance sheet date. Gains and losses as a result of translation adjustments are recorded within “Other income (expense), net” in the accompanying consolidated statements of operations and comprehensive loss. During the years ended December 31, 2020, 2019 and 2018, the Company recorded a gain (loss) on foreign currency translation of $2.4 million, $(0.9) million and $(2.3) million, respectively.

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk are receivables and marketable securities. Billings to large pharmaceutical companies and pharmaceutical wholesalers account for the majority of the Company’s receivables, and collateral is generally not required from these customers. To mitigate credit risk, the Company monitors the financial performance and credit worthiness of its customers. The following represents revenue and receivables from the Company’s customers exceeding 10% of the total in each category as of, and for the years ended, December 31, 2020, 2019 and 2018:

Year Ended December 31,

Customer Receivables Revenue Receivables Revenue Receivables Revenue

Biogen * * * 17 % * 10 %

AmerisourceBergen 11 % 10 % 10 % * * *

McKesson * 14 % * * * *

Acorda * * * * 15 % 10 %

The Company holds its interest‐bearing investments with major financial institutions and, in accordance with documented investment policies, the Company limits the amount of credit exposure to any one financial institution or corporate issuer. The Company’s investment objectives are, first, to ensure liquidity and conservation of capital and, second, to obtain investment income.

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Geographic Information

Company revenues by geographic location, as determined by the location of the customer, and the location of its assets, are as follows:

Year Ended December 31,

Revenue by region:

Assets by region:

Current assets:

Long-term assets:

U.S.:

Ireland:

Research and Development Expenses

For each of its R&D programs, the Company incurs both external and internal expenses. External R&D expenses include costs related to clinical and non‐clinical activities performed by contract research organizations, consulting fees, laboratory services, purchases of drug product materials and third‐party manufacturing development costs. Internal R&D expenses include employee‐related expenses, occupancy costs, depreciation and general overhead. The Company tracks external R&D expenses for each of its development programs, however, internal R&D expenses, with the exception of those expenses related to VUMERITY, are not tracked by individual program as they benefit multiple programs or the Company’s technologies in general.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses are primarily comprised of employee-related expenses associated with selling and marketing, finance, human resources, legal, information technology and other administrative personnel, outside marketing, advertising, financial and legal expenses and other general and administrative costs.

Advertising costs are expensed as incurred. During the years ended December 31, 2020, 2019 and 2018, advertising costs totaled $25.5 million, $31.1 million and $54.7 million, respectively.

Share‐Based Compensation

The Company’s share‐based compensation programs grant awards in the form of stock options and restricted stock unit awards (“RSUs”), which vest with the passage of time and/or vest based on the achievement of certain performance criteria. The Company issues new shares upon the exercise of stock options or the vesting of RSUs. Under the terms of the Company’s stock option plans (the “Plans”), certain of the Company’s employees may, at the discretion of the plan administrator, become eligible upon retirement for accelerated vesting of certain awards granted to them under the Plans. Since there are no effective future service requirements for such employees, the fair value of awards to such employees would be expensed in full on the grant date or upon meeting the retirement eligibility criteria, whichever is later.

Time-Based Stock Options

Except as otherwise provided in the applicable Plan, stock option grants to employees expire ten years from the grant date and generally vest in four equal annual installments, commencing on the first anniversary of the date of grant, provided the employee remains continuously employed with the Company during the applicable vesting period. Except as otherwise provided in the applicable Plan, stock option grants to non-employee directors expire ten years from the grant date and generally vest over a one year period provided that the director continues to serve on the Company’s board of directors through the vesting date. The estimated fair value of options is recognized over the requisite service period, which is generally the vesting period. Share‐based compensation expense is based on awards ultimately expected to vest. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.

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The fair value of stock option grants is based on estimates as of the date of grant using a Black‐Scholes option valuation model. The Company uses historical data as the basis for estimating stock option terms and forfeitures. Separate groups of employees that have similar historical stock option exercise and forfeiture behavior are considered separately for valuation purposes. The ranges of expected terms disclosed below reflect different expected behavior among certain groups of employees. Expected stock volatility factors are based on a weighted average of implied volatilities from traded options of the Company’s ordinary shares and historical share price volatility of the Company’s ordinary shares, which is determined based on a review of the weighted average of historical weekly price changes of the Company’s ordinary shares. The risk‐free interest rate for periods commensurate with the expected term of the stock option is based on the U.S. treasury yield curve in effect at the time of grant. The dividend yield on the Company’s ordinary shares is estimated to be zero as the Company has not paid dividends, and does not expect to pay dividends in the near future. The exercise price of options granted is equal to the closing price of the Company’s ordinary shares traded on the Nasdaq Global Select Market on the date of grant.

The fair value of each stock option grant was estimated on the grant date with the following weighted‐average assumptions:

Year Ended December 31,

Expected option term 5 - 7 years 5 - 7 years 5 - 8 years

Expected stock volatility 47 % - 54 % 46 % - 50 % 44 % - 49 %

Expected annual dividend yield — — —

Performance-Based Stock Options

Certain of the Company’s granted stock options are subject to achievement of a specified market condition prior to vesting in addition to being subject to time-based vesting. The estimated fair value of these stock options that vest upon the achievement of a market condition was determined through the use of a Monte Carlo simulation model, which utilizes input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair market value for the award. The Monte Carlo simulation model used the following assumptions:

ALKS US Equity

ALKS · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

ALKS US Equity☆

ALKS · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

ALKS US Equity