Horizon Therapeutics Public Company
Annual Report 2019

Plain-text annual report

H O R I Z O N 2 0 1 9 A N N U A L R E P O R T G O I N G T O I N C R E D I B L E L E N G T H S 2 0 1 9 A N N U A L R E P O R T O U R V A L U E S Transparency We value collaboration. Trusting each other and tackling tough challenges can make a powerful difference. Accountability We do what’s right for our patient communities through quality decisions and owning our successes and failures. Growth We fiercely innovate and evolve to better ourselves, our communities and our patients. H O R I Z O N 2 0 1 9 A N N U A L R E P O R T T O O U R S H A R E H O L D E R S 2019 was a year where our medicines and expanded philanthropic footprint impacted more lives than ever before. 2019 was another record year financially, as we P AT I E N T S generated record net sales of $1.3 billion, an increase of 8 percent over 2018, and adjusted EBITDA of $482.8 million, an increase of 7 percent. Importantly, our growth-driving orphan and rheumatology segment generated net sales of $929.6 million, an increase of 12 percent over 2018. In addition to our financial growth, we experienced significant employee growth, including the addition of our approximately 100-person field team focused on launch preparations for TEPEZZATM (teprotumumab-trbw), our breakthrough biologic medicine for thyroid eye disease (TED). As a result of our continued growth, we announced that we are moving our global corporate headquarters to a much larger space at 70 St. Stephen’s Green, which is one of the most visible and central locations in Dublin, Ireland. The new office was designed with sustainability in mind, making it compliant with near-zero emission building standards. We also opened a 20,000-square-foot facility in South San Francisco, featuring office and laboratory space to enable formulation and process development for manufacturing, as well as bioanalytical method development and other R&D functions. And in early 2020, we announced we are moving our U.S. headquarters to a 74-acre campus with more than 650,000 square feet of office space in Deerfield, Ill. We strive to help as many people as possible impacted by rare and rheumatic diseases. Last year, we provided our medicines to more patients than ever before: roughly 4,000 patients received treatment with KRYSTEXXA® and it passed the $340 million net sales mark, which is truly remarkable growth for a medicine nine years post-FDA approval. More than 1,000 patients received treatment with RAVICTI®, PROCYSBI® and ACTIMMUNE® combined, and more than 500,000 people living with osteoarthritis and rheumatoid arthritis were treated with our inflammation medicines. In January 2020, the FDA approved TEPEZZA for the treatment of TED, which is a serious, progressive and vision-threatening, rare autoimmune disease. TEPEZZA is the first and only FDA-approved medicine for the treatment of TED. At the time of approval, which was nearly two months before the target action date, the FDA said that “this treatment has the potential to alter the course of this disease.” As we look to the future, we have a tremendous opportunity to help thousands more people who are living with this devastating disease. We are building our pipeline with purpose – looking for opportunities where we can bring new and novel therapies to patients. But it is not the financial performance and company growth alone that drives who we are. Our future is defined by our people, our patients and our purpose. And it’s why we go to incredible lengths. Additionally, we are building our pipeline with purpose – looking for opportunities where we can bring new and novel therapies to patients, as well as evaluating ways to help more patients benefit HORIZON 2019 ANNUAL REPORTT O O U R S H A R E H O L D E R S from our current medicines. We recently announced top-line data from our MIRROR open-label trial, which evaluated the impact of adding methotrexate to KRYSTEXXA to increase the patient response rate – and the results are nothing short of impressive. Seventy-nine percent of patients (11 of 14 enrolled) achieved a complete response compared to 42 percent in the KRYSTEXXA Phase 3 program. This response rate is highly consistent with the data from other recent investigator-initiated trials. We also accelerated the start of our placebo-controlled MIRROR trial, which began in June and is expected to enroll 135 patients. Data from MIRROR is expected in 2021, and if positive, we plan to apply to update the KRYSTEXXA prescribing information to include this randomized controlled trial data. Another population we’re looking to help with KRYSTEXXA are kidney transplant patients with uncontrolled gout. Gout is 10 times more frequent in kidney transplant patients than the general population, and chronically elevated levels of serum uric acid are often associated with transplant organ rejection. With that in mind, we initiated the PROTECT trial in late 2019 to study the effect of KRYSTEXXA on serum uric acid levels in kidney transplant patients with uncontrolled gout. Similar to KRYSTEXXA, we are starting to explore additional potential uses for TEPEZZA in rare disease populations that have limited or no treatment options. We recently announced plans to initiate an exploratory trial in diffuse cutaneous scleroderma, a rare fibrotic disease with no FDA-approved treatments, in the first half of 2020. Literature suggests that the mechanism of action of TEPEZZA, which is to block the IGF-1 receptor, could have an impact on fibrotic processes like those relevant in diffuse cutaneous scleroderma. In TEPEZZA and KRYSTEXXA, not only do we have two medicines each with potential peak U.S. net sales of more than $1 billion, we also have two highly efficacious medicines that have the potential to dramatically change the lives of people suffering from the devastating diseases they treat. P U R P O S E In the last year, we have been busy expanding our philanthropic footprint for each of our global office locations. Last year alone, we provided $12 million in support to our communities. We worked with more than 60 nonprofits and directly impacted more than 5,000 lives through our corporate social responsibility (CSR) programming. We worked with more than 60 nonprofits and directly impacted more than 5,000 lives through our CSR programming. Just as we innovate on the R&D and commercial side of the business, we do the same when it comes to finding creative ways to impact our communities. One example is our new partnership with Gift of Adoption, which we launched in February 2019. We seeded a first of its kind #RAREis Adoption Fund, which will help 30 children with rare diseases to be adopted into loving homes over three years. This partnership combines so much of what’s important to us at Horizon – providing our resources to those living with rare diseases, supporting families, helping vulnerable children and making a difference. 03 We are also working toward aligning with 11 of the United Nations Sustainable Development Goals. In 2015, the United Nations General Assembly established 17 global goals for 2030 – with the objective of creating a better world for the planet and its inhabitants. The interconnecting goals cover environmental, economic and humanitarian issues and involve the collective action of government, nonprofit organizations, businesses and individuals. It’s this commitment to our communities that has blossomed into an internationally recognized CSR program that inspires and encourages other companies to follow our lead. This is why in 2019 we received awards from The Ireland Funds and PR News for our CSR work. In addition, we were awarded a gold international CSR excellence award, and as a result, Horizon was inducted into the CSR World Leaders at the Houses of Parliament in London. I am also proud of our commitment to operate as a compliant organization by industry standards – but also by our steadfast commitment to simply “doing the right thing.” I’ve always believed that being an ethical company is deeply intertwined with our success. At Horizon, we lead with integrity and never lose sight of why we do what we do – and more importantly, the patients we serve. P E O P L E I’m also very pleased with our efforts to make Horizon an inclusive and fair workplace for everyone. Just as the patients we serve come from different backgrounds with different points of view, our Horizon family must reflect diverse perspectives and backgrounds – helping each other to see what others may not when working with those living with rare and rheumatic diseases. With that said, I'm extremely proud of the pay equity study that we conducted with external consulting firm, AON. Our focus was simple: to determine if we were providing equal pay for equal work regardless of someone’s gender or ethnicity. The results of the study confirmed that Horizon has both gender and ethnicity pay equity – meaning that at Horizon, women, men and people from all ethnic backgrounds are paid equally for equal work. Being inclusive is ingrained in our values – and it’s a responsibility and theme that will continue into our future – only getting stronger as we make a conscious effort to do and be more. Being inclusive is ingrained in our values – and it’s a responsibility and theme that will continue into our future. From national FORTUNE workplace awards in the United States, to being named as a Great Place to Work® in Ireland, to regional Crain’s Chicago Business recognitions, it’s been another award-winning year. While it would be easy to get complacent about our winning culture, these awards serve as external validation that we have one of the best cultures in the industry and one that we will work hard to maintain – no matter our growth or size. Today, Horizon is in its strongest position ever and I look forward to continuing to innovate across all aspects of our business. For us, Going to Incredible Lengths is more than a mantra – it’s our mission and one that we will work to live by this year – and beyond. Sincerely, Timothy Walbert Chairman, President and Chief Executive Officer HORIZON 2019 ANNUAL REPORTT O O U R S H A R E H O L D E R S F Y 2 0 1 9 F I N A N C I A L H I G H L I G H T S $1.3B T O T A L N E T S A L E S 8% T O T A L N E T S A L E S G R O W T H O V E R 2 0 1 8 32% KRYSTE X X A NE T SALES GROW TH OVER 2018 K R Y S T E X X A R A V I C T I P R O C Y S B I A C T I M M U N E R A Y O S ® B U P H E N Y L® Q U I N S A I R TM PENNSAID® 2% DUEXIS® VIMOVO® MIGERGOT® 2 0 1 9 N E T S A L E S $ 342.4 M $ 228.8M $ $ $ $ $ $ $ $ $ $ 161.9M 107.3M 78.6M 9.8M 0.8M 200.8M 115.7M 52.1M 1.8M * 1.3B $929.6M 85% 1 - Y E A R T O T A L S H A R E H O L D E R R E T U R N VS NA SDAQ BIOTECHNOLOGY INDE X'S 25% $1.3B $370.4 M Orphan and Rheumatology Segment Inflammation Segment *Divested the rights to MIGERGOT in June 2019 05 HORIZON 2019 ANNUAL REPORTP A T I E N T C O U R A G E T O C A R E I R M A Irma immigrated to the United States from Cuba with her parents when she was just three years old and knows firsthand the impact language barriers can have on a person’s ability to make the best decisions for themselves and their families. So it was a natural fit for her to become a bilingual clinical nurse educator at Horizon, where she focuses on people living with chronic granulomatous disease (CGD), a rare condition that prevents the immune system from fighting off certain life-threatening infections. Her ability to share information with patients and their families in Spanish and English ensures that all of her patients have the information they need to understand their CGD diagnosis. I love the one-on-one interaction and knowing that I’m making a real difference. “By educating patients, families and their caregivers about CGD in their primary language, I’m able to ease some of their greatest concerns about what to expect or how to manage their treatment plan,” said Irma. “I tell them I’m here to walk you through this, and I am not leaving until you are comfortable. I’m able to say “todo saldrá bien” – everything is going to be okay – and they can trust that it will be.” Like all of Horizon’s patient service team members, Irma goes to great lengths, helping her patients and their caregivers gain access to medicines as well as with other challenges that come up along the CGD journey. “I connect them with the right resources,” Irma said. “I love the one-on-one interaction and knowing that I’m making a real difference.” O N E - O N - O N E S U P P O R T We have 82 employees dedicated to providing one-on-one support for patients throughout their journeys. 07 P E O P L E D R I V E N B Y C O M P A S S I O N C A N D I S Most people start a new job imagining new experiences and possibilities. But for Territory Manager Candis who joined Horizon in October 2017, what happened during her first big company meeting was unimaginable. In fact, when she arrived, she wasn’t feeling well. “I had an excruciating headache,” she remembered. “I was nauseated.” With the encouragement of her new colleagues, she went to a medical clinic, where they gave her some medication for her headache, hoping it would alleviate the pain. It didn’t. In fact, her headache got worse, so she went to the emergency room, where they did a CT scan and found the unexpected. “I had a massive brain tumor,” she said. “It was scary. Really scary.” Despite undergoing six surgeries, Candis never gave up hope. Nor did our team, who was with her every step of the way. After successful emergency surgery to remove the tumor, Candis learned she did not require any additional treatment and thought she was through the most difficult part of her journey. Yet, soon afterward, another scan revealed a brain infection. She then had what would become the second of six surgeries. Throughout it all, she said her new colleagues at Horizon were there for her. “They went to incredible lengths for me,” she said. In addition to visits from her co-workers, including her general manager and regional director, Horizon flew her family out to be with her and provided them housing while she was being treated at the hospital. Going through this crisis, she added, gave her a new perspective not only on what it means to be a patient, but what it means to be a part of the Horizon family. In good times and bad, she said, “Horizon really cares.” Horizon really was amazing and went to incredible lengths for me. From the moment that I felt ill and was taken to the hospital, I wasn't alone. HORIZON 2019 ANNUAL REPORT09 HORIZON 2019 ANNUAL REPORTP U R P O S E B R O A D E N I N G O U R I M P A C T N O R A With two daughters, Hanna and Evie, Adam and Rhianon thought their family was complete: a close-knit foursome living in a joyful house with dogs, cats and even a few chickens out back. “Our little zoo,” Rhianon called it. And even though Evie lived with ichthyosis, a rare skin disorder that required her parents to give her therapy baths for up to two hours every other day, life had settled into a pleasant routine. We instantly fell in love and just knew that this was something we were meant to do. Horizon and employee donations will help more than 30 families adopt children like Nora over three years, including many children who otherwise would not have the chance at all. But then the family learned about a little girl named Nora, abandoned by her family in China and also living with ichthyosis. “We instantly fell in love and just knew that this was something we were meant to do,” said Rhianon. Nora joined her new family in May 2019. On her first Thanksgiving, when everyone at the table was asked what they were thankful for, Nora said, “I’m thankful for my mommy and daddy to bring me home.” Adam and Rhianon made the remarkable decision to expand their family through adoption, with support from Gift of Adoption and Horizon’s #RAREis Adoption Fund, which helps families adopt children with rare diseases. “And yes,” said Rhianon, “we all just about lost it.” T H E G I F T O F F A M I L Y 11 In 2019, Horizon’s #RAREis Adoption Fund helped facilitate the adoptions of 11 children with rare diseases into loving homes. Over the next two years, the #RAREis Adoption Fund will help approximately 20 more children find their forever families. 11 O U R P O R T F O L I O At Horizon, we think differently about research and development, so we can deliver in new ways for the patients and communities we serve. Our mission for R&D is clear – we apply scientific expertise and courage to address the most challenging needs while constantly looking through a patient-informed lens. This mission pushes our teams to find new uses and benefits for patients with our current portfolio of medicines. It also drives us to move urgently and decisively through the clinical process to bring new and novel therapies to patients. Changing the odds in rare disease means delivering on our promise to bring meaningful medicines to patients, their families and the physicians who care for them. TEPEZZA is the first and only FDA-approved medicine for thyroid eye disease – fulfilling an unmet need for patients living with this serious, progressive and vision-threatening rare disease. HORIZON 2019 ANNUAL REPORTP R O D U C T S O U R P I P E L I N E M E D I C I N E / P R O G R A M PRE-CLINICAL PHASE 1 PHASE 2 PHASE 3 PHASE 3B/4 KRYSTE X X A IMMUNOMODUL ATION MIRROR randomized controlled trial KRYSTE X X A NEPHROLOGY PROTECT trial in kidney transplant patients with uncontrolled gout KRYSTE X X A SHORTER-INFUSION DUR ATION Open-label trial TEPEZZ A THYROID E YE DISE A SE OPTIC-X: Phase 3 extension trial TEPEZZ A DIFFUSE CUTANEOUS SCLERODERM A Exploratory trial HZN-003 NE X T-GEN UNCONTROLLED GOUT Optimized uricase and optimized PEGylation for uncontrolled gout HZN-007 NE X T-GEN UNCONTROLLED GOUT Optimized uricase and PASylation for uncontrolled gout HEMOSHE AR GOUT DISCOVERY COLL ABOR ATION Exploration of novel approaches to treating gout 13 E X E C U T I V E M A N A G E M E N T TIMOTHY WALBERT Chairman, President and Chief Executive Officer BRIAN K. BEELER Executive Vice President, General Counsel GEOFFREY M. CURTIS Executive Vice President, Corporate Affairs and Chief Communications Officer MICHAEL A . DESJARDIN Executive Vice President, Technical Operations and Corporate Quality PAUL W. HOELSCHER Executive Vice President, Chief Financial Officer VIKR AM K ARNANI Executive Vice President, Chief Commercial Officer JEFFREY D. KENT, M.D., FACG, FACP Executive Vice President, Medical Affairs and Outcomes Research IRINA KONSTANTINOVSK Y Executive Vice President, Chief Human Resources Officer BARRY J. MOZE Executive Vice President, Chief Administrative Officer ANDY PASTERNAK Executive Vice President, Chief Business Officer JEFFREY W. SHERMAN, M.D., FACP Executive Vice President, Chief Medical Officer 14 HORIZON PHARMA PLC FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-35238 HORIZON THERAPEUTICS PUBLIC LIMITED COMPANY (Exact name of Registrant as specified in its charter) Ireland (State or other jurisdiction of incorporation or organization) Connaught House, 1st Floor 1 Burlington Road, Dublin 4, D04 C5Y6, Ireland (Address of principal executive offices) Not Applicable (I.R.S. Employer Identification No.) Not Applicable (Zip Code) 011 353 1 772 2100 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Ordinary shares, nominal value $0.0001 per share Trading Symbol HZNP Name of Each Exchange on Which Registered The Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer Emerging growth company ☒ ☐ ☐ Accelerated filer Smaller reporting company ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the registrant’s voting ordinary shares held by non-affiliates of the registrant, based upon the $24.06 per share closing sale price of the registrant’s ordinary shares on June 28, 2019 (the last business day of the registrant’s most recently completed second quarter), was approximately $4.5 billion. Solely for purposes of this calculation, the registrant’s directors and executive officers and holders of 10% or more of the registrant’s outstanding ordinary shares have been assumed to be affiliates and an aggregate of 949,834 ordinary shares held by such persons on June 28, 2019 are not included in this calculation. As of February 19, 2020, the registrant had outstanding 189,941,651 ordinary shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive Proxy Statement for the registrant’s 2020 Annual General Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K. HORIZON THERAPEUTICS PLC FORM 10-K — ANNUAL REPORT For the Fiscal Year Ended December 31, 2019 TABLE OF CONTENTS PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data 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 PART III 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 PART IV Item 15. Exhibits, Financial Statement Schedules Item 16. Form 10-K Summary Page 1 36 87 87 87 87 88 90 92 122 123 123 123 124 124 124 124 124 124 125 133 PART I Special Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains “forward-looking statements” — that is, statements related to future, not past, events — as defined in Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current expectations regarding our future growth, results of operations, business strategy and plans, financial condition, cash flows, performance, development plans and timelines, business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. Forward-looking statements include any statement that does not directly relate to a current or historical fact. Forward-looking statements generally can be identified by words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would”, or similar expressions. These statements are based on current expectations and assumptions that are subject to risks and uncertainties inherent in our business, which could cause our actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ materially from those indicated in the forward- looking statements include, without limitation: our ability to successfully execute our sales and marketing strategy, including continuing to successfully recruit and retain sales and marketing personnel and to successfully build the market for our medicines; our ability to build a sustainable pipeline of new medicine candidates; whether we will be able to realize the expected benefits of strategic transactions, including whether and when such transactions will be accretive to our net income; the rate and degree of market acceptance of, and our ability and our distribution and marketing partners’ ability to obtain coverage and adequate reimbursement and pricing for, our medicines from government and third-party payers and risks relating to the success of our patient assistance programs; our ability to maintain regulatory approvals for our medicines; our ability to conduct clinical development and obtain regulatory approvals for our medicine candidates, including potential delays in initiating and completing studies and filing for and obtaining regulatory approvals and whether data from clinical studies will support regulatory approval; our need for and ability to obtain additional financing; the accuracy of our estimates regarding future financial results; our ability to successfully execute our strategy to develop or acquire additional medicines or companies, including disruption from any future acquisition or whether any acquired development programs will be successful; our ability to manage our anticipated future growth; the ability of our medicines to compete with generic medicines, especially those representing the active pharmaceutical ingredients in our medicines as well as new medicines that may be developed by our competitors; our ability and our distribution and marketing partners’ ability to comply with regulatory requirements regarding the sales, marketing and manufacturing of our medicines and medicine candidates; the performance of our third-party distribution partners, licensees and manufacturers over which we have limited control; our ability to obtain and maintain intellectual property protection for our medicines; our ability to defend our intellectual property rights with respect to our medicines; our ability to operate our business without infringing the intellectual property rights of others; the loss of key commercial or management personnel; regulatory developments in the United States and other countries, including potential changes in healthcare laws and regulations; and other risks detailed below in Part I — Item 1A. “Risk Factors”. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. Item 1. Business Unless otherwise indicated or the context otherwise requires, references to the “Company”, “we”, “us” and “our” refer to Horizon Therapeutics plc (formerly known as Horizon Pharma plc) and its consolidated subsidiaries. Overview We are focused on researching, developing and commercializing medicines that address critical needs for people impacted by rare and rheumatic diseases. Our pipeline is purposeful: we apply scientific expertise and courage to bring clinically meaningful therapies to patients. We believe science and compassion must work together to transform lives. 1 Our Strategy Horizon today is a leading biopharma company focused on rare diseases, delivering innovative therapies to patients and generating value for our shareholders. We are strongly focused on executing our strategy to maximize the benefit and value of our key growth drivers and expand our pipeline for sustainable growth. We have taken a different approach from typical biopharma companies. Instead of starting with a pipeline and raising capital to finance development opportunities, after our initial public offering in 2011, we developed a successful commercial business. Our initial portfolio of two medicines generated cash flows and significant growth, establishing a strong foundation for our future. Beginning in 2014, we deployed the cash flows in building out our portfolio of rare disease medicines, including the acquisition of our key growth driver KRYSTEXXA®, and now have seven rare disease medicines. One of those medicines is TEPEZZA™ (teprotumumab-trbw), our other key growth driver, which we acquired in 2017 as part of our acquisition of River Vision Development Corp., or River Vision. TEPEZZA represents the evolution of our strategy to its third – and current phase – expanding our pipeline and maximizing the value of our medicines, in particular our growth drivers KRYSTEXXA and TEPEZZA and expanding our pipeline for sustainable growth. To support our pipeline strategy, we expanded our research and development organization, adding an experienced leadership team and augmenting the organization’s capabilities. It was our new leadership team that drove the successful Phase 3 clinical program and U.S. Food and Drug Administration, or FDA, approval of TEPEZZA in early 2020. Today, in addition to reinvesting in our key growth drivers, our priority is to expand our pipeline, concentrating on developing a deeper presence in our four core therapeutic areas of rheumatology, nephrology, ophthalmology and endocrinology. We have significantly transformed Horizon since our beginnings as a public company in 2011, then with two medicines and total net sales of approximately $7.0 million. In a span of only eight years, we have evolved to a biopharma company with eleven on-market medicines, seven of them for the treatment of rare diseases, total net sales in 2019 of $1.3 billion, and a growing pipeline of development programs. Prior to 2020, our two reportable segments were (i) the orphan and rheumatology segment and (ii) the inflammation segment (previously the primary care segment). The orphan and rheumatology segment is our strategic growth segment. Effective in the first quarter of 2020, we (i) reorganized our commercial operations and moved responsibility for RAYOS® to the inflammation segment and (ii) renamed the orphan and rheumatology segment the orphan segment. With the approval of TEPEZZA on January 21, 2020, net sales generated by this medicine will be reported as part of the renamed orphan segment. 2 Our Company We are a public limited company formed under the laws of Ireland. We operate through a number of U.S. and other international subsidiaries with principal business purposes to perform research and development or manufacturing operations, serve as distributors of our medicines, hold intellectual property assets or provide us with services and financial support. Our principal executive offices are located at Connaught House, 1st Floor, 1 Burlington Road, Dublin 4, D04 C5Y6, Ireland and our telephone number is 011 353 1 772 2100. Our website address is www.horizontherapeutics.com. Information found on, or accessible through, our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K. Acquisitions and Divestitures Since January 1, 2017, we completed the following acquisitions and divestitures: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) On June 28, 2019, we sold our rights to MIGERGOT to Cosette Pharmaceuticals, Inc., for an upfront payment and potential additional contingent consideration payments, or the MIGEROT transaction. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura Group plc, or Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA® in Europe to Vectura. On December 28, 2018, we sold our rights to RAVICTI® and AMMONAPS® (known as BUPHENYL® in the United States) outside of North America and Japan to Medical Need Europe AB, part of the Immedica Group, or Immedica. We have retained rights to RAVICTI and BUPHENYL in North America and Japan. On June 30, 2017, we completed our acquisition of certain rights to interferon gamma-1b from Boehringer Ingelheim International GmbH, or Boehringer Ingelheim International, in all territories outside of the United States, Canada and Japan. Interferon gamma-1b is known as IMUKIN® outside of the United States, Canada and Japan. On July 24, 2018, we sold the rights to IMUKIN in all territories outside of the United States, Canada and Japan to Clinigen Group plc, or Clinigen, for an upfront payment and a potential additional contingent consideration payment that was subsequently received in September 2019, or the IMUKIN sale. On June 23, 2017, we sold our European subsidiary that owned the marketing rights to PROCYSBI® (cysteamine bitartrate) delayed-release capsules and QUINSAIR™ (levofloxacin inhalation solution) in Europe, the Middle East and Africa, or EMEA, regions, to Chiesi Farmaceutici S.p.A., or Chiesi. On May 8, 2017, we completed our acquisition of River Vision, which added the late development-stage rare disease biologic medicine TEPEZZA to our research and development pipeline. In January 2020, the FDA approved TEPEZZA for the treatment of thyroid eye disease, or TED. The consolidated financial statements presented herein include the results of operations of the acquired businesses from the applicable dates of acquisition. See Note 4 of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K, for further details of our acquisitions and divestitures. 3 Our Medicines We believe our medicines address unmet therapeutic needs in orphan diseases, arthritis, pain and inflammation, and inflammatory diseases and provide significant advantages over existing therapies. In January 2020, the FDA approved TEPEZZA for the treatment of TED, a serious, progressive and vision-threatening rare autoimmune condition. As of December 31, 2019, our marketed medicine portfolio consisted of the following: Medicine Indication 2019 Net Sales (in millions) Marketing Rights ORPHAN AND RHEUMATOLOGY SEGMENT: KRYSTEXXA RAVICTI PROCYSBI ACTIMMUNE® Chronic granulomatous disease $ 107.3 Chronic refractory gout (“uncontrolled gout”) Urea cycle disorders Nephropathic cystinosis $ $ $ 228.8 161.9 342.4 Worldwide North America and Japan (1) United States and certain other countries (2) United States, Canada and Japan (3) $ 78.6 North America (4) and severe, malignant osteopetrosis Rheumatoid arthritis, polymyalgia rheumatic, systemic lupus erythematosus and multiple other indications Urea cycle disorders $ Treatment of chronic pulmonary infections due to Pseudomonas aeruginosa in cystic fibrosis patients $ 9.8 0.8 North America and Japan (5) Canada and certain other countries (6) Pain of osteoarthritis of the knee(s) Signs and symptoms of $ $ 200.8 United States 115.8 Worldwide (8) osteoarthritis and rheumatoid arthritis Signs and symptoms of osteoarthritis, rheumatoid arthritis and ankylosing spondylitis $ 52.1 United States RAYOS BUPHENYL QUINSAIR INFLAMMATION SEGMENT(7): PENNSAID 2%® DUEXIS® VIMOVO® (1) On December 28, 2018, we sold our rights to RAVICTI outside of North America and Japan to Immedica. RAVICTI is also available in Canada through an exclusive distribution agreement with Innomar Strategies Inc., or Innomar. (2) We market PROCYSBI in the United States and Canada. Innomar is our exclusive distributor for PROCYSBI in Canada. We also have marketing rights to PROCYSBI in Asia. PROCYSBI is also available in Latin America through a managed access program through our partner Uno Healthcare Inc. (3) ACTIMMUNE is known as IMUKIN outside the United States, Canada and Japan. On July 24, 2018, we sold the rights to IMUKIN in all territories outside of the United States, Canada and Japan to Clinigen. 4 (4) Outside the United States, RAYOS is sold and marketed as LODOTRA. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura Group plc, or Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura. (5) BUPHENYL is known as AMMONAPS outside of North America and Japan. On December 28, 2018, we sold our rights to AMMONAPS outside of North America and Japan to Immedica. The amount shown in the table above includes net sales for AMMONAPS of $5.6 million for 2018. Orphan Pacific, Inc. holds an exclusive distribution agreement for the distribution of BUPHENYL in Japan. (6) We market QUINSAIR in Canada and Latin America. Innomar is our exclusive distributor for QUINSAIR in Canada. We also have marketing rights for QUINSAIR in the United States and Asia. We have not received regulatory approval to market QUINSAIR in the United States. (7) On June 28, 2019, we sold our rights to MIGERGOT. We recorded net sales for MIGERGOT of $1.8 million during 2019 prior to selling our rights. (8) DUEXIS rights in Mexico and Chile have been licensed to Grünenthal GmbH, or Grünenthal. Information on our total revenues by product in each of the years ended December 31, 2019, 2018 and 2017, is included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. ORPHAN AND RHEUMATOLOGY During 2019, our orphan and rheumatology segment included the marketed medicines, KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE, RAYOS, BUPHENYL and QUINSAIR. In January 2020, the FDA approved TEPEZZA for the treatment of TED. KRYSTEXXA A PEGylated uric acid specific enzyme (uricase), KRYSTEXXA is the first and only FDA approved medicine for the treatment of uncontrolled gout. Uncontrolled gout occurs in patients who have failed to normalize serum uric acid, or sUA, and whose signs and symptoms are inadequately controlled with conventional therapies, such as xanthine oxidase inhibitors, or XOIs, at the maximum medically appropriate dose, or for whom these drugs are contraindicated. KRYSTEXXA has a unique mechanism of action that can rapidly reverse disease progression. Unlike conventional XOI therapies, which address the over-production or under-excretion of uric acid, KRYSTEXXA converts uric acid into allantoin, a water-soluble molecule, which the body can easily eliminate through the urine. Renal excretion of allantoin is ten times more efficient than uric acid excretion. Additionally, many chronic kidney disease, or CKD, patients have gout, and the disease tends to be more prevalent as CKD advances. While conventional XOI gout therapies can place additional burden on the kidneys and have dosing limitations, KRYSTEXXA has been proven effective and safe for uncontrolled gout patients with CKD without the need to adjust dosing. Gout is one of the most common forms of inflammatory arthritis and can be assessed by a simple blood test for the amounts of uric acid in the blood (sUA levels). Typically in gout, when uric acid levels are greater than 6.8 milligrams per deciliter, urate will crystallize and deposit. These hard deposits are known as tophi and may occur anywhere in the body, including joints, as well as organs, such as the kidney and heart. When under-treated medically, tophi often lead to bone erosions and loss of functional ability. Gout flares, a common characteristic of uncontrolled gout, are intensely painful. They may or may not be accompanied by tophi. A systemic disease, uncontrolled gout frequently causes crippling disabilities and significant joint damage. Of the 9.5 million gout sufferers in the United States, we estimate that greater than 100,000 patients have uncontrolled gout. 5 KRYSTEXXA was approved by the FDA in 2010 following the results of two replicate clinical trials six months in duration involving 85 patients treated with KRYSTEXXA. The mean baseline sUA levels for patients in the trial were greater than 10 mg/dL, and 71 percent of patients had visible tophi. The primary endpoint for the trials was the ability to maintain a low sUA for 80 percent of the samples taken at months three and six. As a result of the every-other-week dosing of KRYSTEXXA at 8 mg, 42 percent of KRYSTEXXA patients achieved complete response versus 0 percent for the placebo group; and 45 percent of KRYSTEXXA patients achieved complete resolution of tophi versus 8 percent for the placebo group over six months. We are focused on optimizing and maximizing the potential of KRYSTEXXA by expanding our commercialization efforts, as well as investing in education, patient and physician outreach, activities related to label expansion and investigation programs that demonstrate KRYSTEXXA as an effective treatment for uncontrolled gout. We believe that KRYSTEXXA represents a significant opportunity and potential growth driver for our company. We doubled our KRYSTEXXA commercial team in 2018, we increased our promotional efforts to further penetrate rheumatology and initiate marketing to nephrology and we are growing our customer base from both new and existing prescribers. In 2019, we added a separate group of sales representatives to call exclusively on nephrologists. We believe KRYSTEXXA offers a solution to a clinical need experienced by many nephrologists in dealing with uncontrolled gout patients with CKD. As the only FDA-approved medication for the treatment of uncontrolled gout, KRYSTEXXA faces limited direct competition. We believe that the complexity of manufacturing KRYSTEXXA provides a barrier to potential biosimilar competition. However, a number of competitors have medicines in Phase 1 or Phase 2 trials, including Selecta Biosciences, Inc., which has presented Phase 2 clinical data and is conducting a six-month trial comparing their candidate that uses an immunomodulator to KRYSTEXXA alone. RAVICTI RAVICTI is formed by the catalyzed esterification of glycerol with 4-phenylbutyric acid and the subsequent purification of the glycerol phenylbutyrate formed. The purified glycerol phenylbutyrate drug substance is filled into glass bottles for use as an oral dosage liquid. RAVICTI is indicated for use as a nitrogen-binding agent for chronic management of adult and pediatric patients (beginning at birth) with urea cycle disorders, or UCDs, that cannot be managed by dietary protein restriction and/or amino acid supplementation alone. UCDs are rare, life-threatening genetic disorders. RAVICTI must be used with dietary protein restriction and, in some cases, dietary supplements (for example, essential amino acids, arginine, citrulline or protein-free calorie supplements). UCDs are inherited metabolic diseases caused by a deficiency of one of the enzymes or transporters that constitute the urea cycle. The urea cycle involves a series of biochemical steps in which ammonia, a potent neurotoxin, is converted to urea, which is excreted in the urine. UCD patients may experience episodes during which the ammonia levels in their blood become excessively high, called hyperammonemic crises, which may result in irreversible brain damage, coma or death. We estimate that there are approximately 2,600 patients with UCDs living in the United States, including approximately 1,000 diagnosed patients. UCD symptoms may first occur at any age depending on the severity of the disorder, with more severe defects presenting earlier in life. However, a prompt diagnosis and careful management of the disease can lead to good clinical outcomes. RAVICTI competes with older-generation nitrogen scavenger medicines. In the United States, RAVICTI competes with generic forms of sodium phenylbutyrate, including BUPHENYL. RAVICTI has advantages over older-generation medicines leading to better patient adherence and compliance rates, such as its better tolerability for patients. It is ingested by mouth and therefore requires little preparation and it has little taste and lower sodium content than its competitors. A few competitors have medicine candidates in early-stage development, including a gene-therapy candidate by Ultragenyx Pharmaceutical Inc., a generic taste-masked formulation option of BUPHENYL by ACER Therapeutics Inc., and an enzyme replacement for a specific UCD subtype (ARG) by Aeglea Bio Therapeutics Inc. If successful, these medicine candidates could compete with RAVICTI. 6 Our strategy for RAVICTI is to drive growth through increased awareness and diagnosis of UCDs; to drive conversion to RAVICTI from older-generation nitrogen scavengers, such as generic forms of sodium phenylbutyrate based on the medicine’s differentiated benefits; to position RAVICTI as the first line of therapy; and increase compliance rates. On December 28, 2018, we sold our rights to RAVICTI outside of North America and Japan to Immedica. We previously distributed RAVICTI through a commercial partner in Europe and other non-U.S. markets. We have retained rights to RAVICTI in North America and Japan. PROCYSBI PROCYSBI is indicated for nephropathic cystinosis, or NC, a rare and life-threatening metabolic disorder. PROCYSBI capsules contain cysteamine bitartrate in the form of innovative microspheronized beads that are individually coated to create delayed and extended-release properties, allowing patients to maintain consistent therapeutic systemic drug levels over a twelve-hour dosing period. The enteric-coated beads are pH sensitive and bypass the stomach for dissolution and absorption in the more alkaline environment of the proximal small intestine. Randomized controlled clinical trials and extended treatment with PROCYSBI therapy demonstrated consistent cystine depletion as monitored by levels of the biomarker (and surrogate marker), white blood cell cystine. In February 2020, the FDA approved PROCYSBI Delayed-Release Oral Granules in Packets for adults and children one year of age and older living with nephropathic cystinosis. The PROCYSBI Delayed-Release Oral Granules in Packets product is the same as the currently available PROCYSBI capsules product except in respect of the packaging format. This new dosage form provides another administration option for patients, in addition to the PROCYSBI capsules. The PROCYSBI Delayed-Release Oral Granules in Packets are expected to be commercially available in the first half of 2020. PROCYSBI is differentiated by its ability to control cystine concentration continuously over twelve hours. Older therapies require administration of medicine every six hours. By taking PROCYSBI, patients have to dose only twice a day, providing them greater control over their medication schedule and lifestyle. Additionally, because PROCYSBI can be administered through a feeding tube or mixed with approved foods and beverages, the patient can choose a more flexible dosing regimen. PROCYSBI also has fewer known side effects, such as less severe body odor, than older-generation therapies. We estimate that there are approximately 500 patients diagnosed with cystinosis living in the United States. NC comprises 95 percent of known cases of cystinosis. In these patients, elevated cystine can lead to cellular dysfunction and death; without treatment, the disease is usually fatal by the end of the first decade of life. Cystinosis is progressive, eventually causing irreversible tissue damage and multi-organ failure, including kidney failure, blindness, muscle wasting and premature death. NC is usually diagnosed in infancy after children display symptoms to physicians, including markedly increased urination, thirst, dehydration, gastrointestinal distress, failure to thrive, rickets, photophobia and kidney symptoms specific to Fanconi syndrome. Management of cystinosis requires lifelong therapy. In addition to patients who have already been identified, we believe that a number of patients with atypical phenotypic presentation and end-stage renal disease have their condition as a result of undiagnosed late-onset NC and would benefit from treatment with PROCYSBI. Other than PROCYSBI, we are aware of two pharmaceutical products currently approved to treat cystinosis, Cystagon® and Cystaran®. Cystagon, an immediate-release cysteamine bitartrate capsule, is an older-generation systemic cystine- depleting therapy for cystinosis in the United States marketed by Mylan N.V., and by Orphan Europe SARL in markets outside of the United States. Cystagon is PROCYSBI’s primary competitor. Cystaran, a cysteamine ophthalmic solution, is approved in the United States for treatment of corneal crystal accumulation in patients with cystinosis and is marketed by Leadiant Biosciences, Inc. Additionally, we are also aware that AVROBIO, Inc., has an early-stage gene therapy candidate in development for the treatment of cystinosis. We believe that PROCYSBI will continue to be well received in the market and continue to expect Cystagon to be the primary competitor for PROCYSBI for the foreseeable future. 7 Our strategy for PROCYSBI is to drive conversion of patients from older-generation immediate-release capsules of cysteamine bitartrate; to increase the uptake of the medicine by diagnosed but untreated patients; to identify previously undiagnosed patients who are suitable for treatment; to position PROCYSBI as a first line of therapy; and to increase compliance rates. ACTIMMUNE ACTIMMUNE is indicated for chronic granulomatous disease, or CGD, and severe, malignant osteopetrosis, or SMO. It is a biologically manufactured protein called interferon gamma-1b that is similar to a protein the human body makes naturally. Interferon gamma helps prevent infection in CGD patients and enhances osteoclast function in SMO patients. ACTIMMUNE is the only medicine approved by the FDA to reduce the frequency and severity of serious infections associated with CGD and for delaying disease progression in patients with SMO. ACTIMMUNE is believed to work by modifying the cellular function of various cells, including those in the immune system and those that help form bones. CGD is a genetic disorder of the immune system. It is described as a primary immunodeficiency disorder, which means it is not caused by another disease or disorder. In people who have CGD, a type of white blood cell called a phagocyte is defective. These defective phagocytes cannot generate superoxide, leading to an inability to kill harmful microorganisms such as bacteria and fungi. As a result, the immune system is weakened. People with CGD are more likely to have certain problems, such as recurrent severe bacterial and fungal infections and chronic inflammatory conditions. These patients are prone to developing masses called granulomas, which can occur repeatedly in organs throughout the body and cause a variety of problems. We estimate that there are approximately 1,600 patients with CGD in the United States. SMO is a form of osteopetrosis and is sometimes referred to as marble bone disease or malignant infantile osteopetrosis because it occurs in very young children. While exact numbers are not known, it has been estimated that one out of 250,000 children is born with SMO. ACTIMMUNE currently faces limited competition. There are additional or alternative approaches used to treat patients with CGD and SMO, including the increasing trend towards the use of bone marrow transplants in patients with CGD, however, there are currently no medicines on the market that compete directly with ACTIMMUNE. Our strategy with respect to ACTIMMUNE, our medicine for the treatment of CGD, includes increasing awareness and diagnosis of CGD and increasing compliance rates. RAYOS RAYOS is indicated for the treatment of multiple conditions: rheumatoid arthritis, or RA; ankylosing spondylitis, or AS; polymyalgia rheumatica, or PMR; primary systemic amyloidosis; asthma; chronic obstructive pulmonary disease; systemic lupus erythematosus, or SLE; and a number of other conditions. We focus our promotion of RAYOS on rheumatology indications, including RA and PMR. RAYOS is composed of an active core containing prednisone that is encapsulated by an inactive porous shell, and acts as a barrier between the medicine’s active core and the patient’s gastrointestinal, or GI, fluids. RAYOS was developed using Vectura’s proprietary GeoClock™ and GeoMatrix™ technologies, for which we hold an exclusive worldwide license for the delivery of glucocorticoid, a class of corticosteroid. The delivery system enables a delayed release, synchronizing the prednisone delivery time with the patient’s elevated cytokine levels, thereby taking effect at a physiologically optimal point to inhibit cytokine production, and thus significantly reducing the signs and symptoms of RA and PMR. RA is a chronic disease that causes pain, stiffness and swelling, primarily in the joints; PMR is an inflammatory disorder that causes significant muscle pain and stiffness; SLE is a chronic autoimmune disease that primarily affects women and causes inflammation and pain in the joints and muscles as well as overall fatigue. RAYOS competes with a number of medicines in the market to treat RA, including corticosteroids, such as prednisone; traditional disease-modifying anti-rheumatic drugs, or DMARDs, such as methotrexate; and biologic agents, such as Humira and Enbrel. The majority of RA patients are treated with DMARDs, which are typically used as initial therapy in patients with RA. Biologic agents are typically added to DMARDs as combination therapy. It is common for an RA patient to take a combination of a DMARD, an oral corticosteroid, a non-steroidal anti-inflammatory drug, or NSAID, and/or a biologic agent. 8 Outside the United States, RAYOS is sold and marketed as LODOTRA. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. These transfer activities are ongoing. We ceased recording LODOTRA revenue from January 1, 2019. See “Manufacturing, Commercial, Supply and License Agreements” below for further details of the amendments. BUPHENYL BUPHENYL tablets and BUPHENYL powder are made from granules that contain sodium phenylbutyrate as the active (chemically synthesized) ingredient and microcrystalline cellulose as a diluent. BUPHENYL tablets for oral administration and BUPHENYL powder for oral, nasogastric, or gastrostomy tube administration are indicated as adjunctive therapy in the chronic management of patients with UCDs involving deficiencies of carbamoyl phosphate synthetase, ornithine transcarbamylase or argininosuccinic acid synthetase. BUPHENYL is indicated in all patients with neonatal-onset deficiency (complete enzymatic deficiency, presenting within the first twenty-eight days of life). It is also indicated in patients with late-onset disease (partial enzymatic deficiency, presenting after the first month of life) who have a history of hyperammonemic encephalopathy. It is important that the diagnosis be made early and treatment initiated immediately to improve chances of survival. BUPHENYL must be combined with dietary protein restriction and, in some cases, essential amino acid supplementation. We distribute BUPHENYL in the United States. On December 28, 2018, we sold our rights to AMMONAPS outside of North America and Japan to Immedica. We previously distributed AMMONAPS through a commercial partner in Europe and other non-U.S. markets. We have retained rights to BUPHENYL in North America and Japan. QUINSAIR QUINSAIR is a formulation of the antibiotic drug levofloxacin, suitable for inhalation via a nebulizer and indicated for the management of chronic pulmonary infections due to Pseudomonas aeruginosa in adult patients with cystic fibrosis, or CF. CF is a rare, life-threatening genetic disease affecting approximately 70,000 people worldwide, and results in buildup of abnormally thick secretions that can cause chronic lung infections and progressive lung damage in many patients that eventually leads to death. QUINSAIR’s route of delivery allows higher concentrations of drug in the lung sputum than can be achieved via systemic (for example, oral) administration. QUINSAIR, as approved in Canada and Latin America, is administered twice daily in twenty-eight-day cycles, using a hand-held nebulizer with a disposable handset known as the Zirela® device, manufactured by our partner PARI Pharma GmbH, or PARI, and configured specifically for use with QUINSAIR. QUINSAIR is not approved in the United States. Chronic pulmonary infections due to Pseudomonas aeruginosa are currently treated primarily with inhaled antibiotics, including tobramycin, an aminoglycoside-class antibiotic sold by Novartis Pharmaceuticals Corporation as TOBI® or in dry- powder-inhalation format as TOBI Podhaler® and sold by others in generic form, aztreonam, a monobacter-class antibiotic which is marketed in an inhaled formulation by Gilead Sciences, Inc. under the tradename Cayston®, and colistimethate sodium, a polymixin-class antibiotic which is approved and marketed in inhaled formulations in Europe. Tobramycin, aztreonam and colistimethane are primarily effective against gram-negative bacteria such as Pseudomonas aeruginosa. However, the prevalence of multi-drug-resistant Pseudomonas aeruginosa is growing. Thus, we believe there is an unmet need that might be addressed with a new class of inhaled antibiotic such as the fluoruquinolone class that levofloxacin represents. 9 TEPEZZA TEPEZZA is a fully human monoclonal antibody (mAb) and a targeted inhibitor of the insulin-like growth factor-1 receptor, or IGF-1R, that is the first and only FDA-approved medicine for the treatment of TED. TED is a serious, progressive and vision-threatening rare autoimmune condition. While TED often occurs in people living with hyperthyroidism or Graves’ disease, it is a distinct disease that is caused by autoantibodies activating an IGF-1R-mediated signaling complex on cells within the retro-orbital space. This leads to a cascade of negative effects, which may cause long- term, irreversible eye damage. As TED progresses, it causes serious damage – including proptosis (eye bulging), strabismus (misalignment of the eyes) and diplopia (double vision) – and in some cases can lead to blindness. Historically, patients have had to live with TED until the inflammation subsides, after which they are often left with permanent and vision-impairing consequences and may require multiple surgeries that do not completely return the patient to their pre-disease state. TEPEZZA was approved by the FDA in January 2020 following the positive results from the Phase 2 clinical trial, as well as the Phase 3 confirmatory clinical trial, OPTIC. The OPTIC trial found that significantly more patients treated with TEPEZZA (82.9%) had a meaningful improvement in proptosis (≥ 2 mm) as compared with placebo patients (9.5%) (p˂0.001) without deterioration in the fellow eye at Week 24. Additional secondary endpoints were also met, including a change from baseline of at least one grade in diplopia (double vision) in 67.9% of patients receiving TEPEZZA compared to 28.6% of patients receiving placebo (p=0.001) at Week 24. In a related analysis of the Phase 2 and Phase 3 clinical trials, there were more patients with complete resolution of diplopia among those treated with TEPEZZA (53%) compared with those treated with placebo (25%). The majority of adverse events experienced with TEPEZZA treatment were graded as mild to moderate and were manageable in the trials, with few discontinuations or therapy interruptions. Our commercialization strategy for TEPEZZA is focused on four pillars: establishing the market structure and simplifying the diagnosis and treatment of TED for patients; educating the multiple stakeholders about TED and TEPEZZA; supporting the commercialization of TEPEZZA with our comprehensive approach and patient-centric model; and facilitating access to TEPEZZA by establishing an infusion site-of-care referral process for treating physicians who may not have infusion capabilities. As the only FDA-approved medication for the treatment of TED, TEPEZZA has no direct approved competition. We believe that the results of the TEPEZZA Phase 3 and Phase 2 clinical trials present a significantly high hurdle for potential competitors, given that candidate medicines would be expected to demonstrate similar or greater efficacy in the treatment of TED. In addition, the complexity of manufacturing TEPEZZA could pose a barrier to potential biosimilar competition. Although TEPEZZA does not face direct competition, other therapies, such as corticosteroids, have been used on an off-label basis to alleviate some of the symptoms of TED. While these therapies have not proved effective in treating the underlying disease, and carry with them significant side effects, their off-label use could reduce or delay treatment with TEPEZZA in the addressable patient population. Immunovant Inc. is also conducting clinical studies of a medicine candidate for the treatment of active TED, also referred to as Graves’ ophthalmopathy. INFLAMMATION During 2019, our inflammation segment included PENNSAID 2% w/w, or PENNSAID 2%, DUEXIS and VIMOVO. PENNSAID 2% PENNSAID 2% is indicated for the treatment of pain of osteoarthritis, or OA, of the knee(s). OA is a type of arthritis that is caused by the breakdown and eventual loss of the cartilage of one or more joints. An analgesic that is easy-to-apply topically directly to the knee, PENNSAID 2% contains diclofenac sodium, a commonly prescribed NSAID to treat OA pain, and dimethyl sulfoxide, or DMSO, a penetrating agent that helps ensure that diclofenac sodium is absorbed through the skin to the site of inflammation and pain. Topical NSAIDs such as PENNSAID 2% are generally viewed as safer alternatives to oral NSAID treatment because they reduce systemic exposure to a fraction of that of an oral NSAID. PENNSAID 2% is the only topical NSAID offered with the convenience of a metered-dose pump, which ensures that the patient receives the correct amount of PENNSAID 2% solution with each use. PENNSAID 2% competes primarily with the generic version of Voltaren Gel, a market leader in the topical NSAID category. 10 DUEXIS DUEXIS is indicated for the relief of signs and symptoms of RA and OA and to decrease the risk of developing upper- GI ulcers in patients who are taking ibuprofen for these indications. RA is a chronic disease that causes pain, stiffness and swelling, primarily in the joints. DUEXIS provides a fixed-dose combination in tablet form of ibuprofen, the most widely prescribed NSAID, and famotidine, a well-established GI agent used to treat dyspepsia, gastroesophageal reflux disease and active ulcers. Fixed-dose combination therapy provides significant advantages over multiple-pill regimens: fixed-dose combinations can reduce the number of pills taken; ensure that the correct dosage of each component is taken at the correct time, improving compliance; and is often associated with better treatment outcomes. In general, DUEXIS faces competition from the separate use of NSAIDs for pain relief and GI medications to address the risk of NSAID-induced ulcers. However, the prescribing information for DUEXIS states that DUEXIS should not be substituted with the single-ingredient products of ibuprofen and famotidine. DUEXIS competes with other NSAIDs, including Celebrex®, manufactured by Pfizer Inc., and celecoxib, a generic form of the medicine supplied by other pharmaceutical companies. DUEXIS also competes with TIVORBEX™ (indomethacin) capsules, VIVLODEX® (meloxicam) capsules and ZORVOLEX ® (diclofenac) capsules marketed by Iroko Pharmaceuticals, LLC. VIMOVO VIMOVO is indicated for the relief of signs and symptoms of OA, RA and AS and to decrease the risk of developing gastric ulcers in patients at risk of developing NSAID-associated gastric ulcers. It is a proprietary, fixed-dose, delayed- release tablet that combines enteric-coated naproxen, an NSAID, surrounded by a layer of immediate-release esomeprazole magnesium. Naproxen has proven anti-inflammatory and analgesic properties, and esomeprazole magnesium reduces the stomach acid secretions that can cause upper-GI ulcers. Both naproxen and esomeprazole magnesium have well-documented and excellent long-term safety profiles, and both medicines have been used by millions of patients worldwide. VIMOVO has been shown to decrease the risk of developing gastric ulcers in patients at risk of developing NSAID associated gastric ulcers. Patent litigation is currently pending in the United States District Court for the District of New Jersey and the Court of Appeals for the Federal Circuit against Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Ltd., or collectively Dr. Reddy’s, who intends to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. The cases arise from Paragraph IV Patent Certification notice letters from Dr. Reddy’s advising that it had filed an ANDA with the FDA seeking approval to market generic versions of VIMOVO before the expiration of the patents- in-suit. On July 30, 2019, the Federal Circuit Court of Appeals denied our request for a rehearing of the Court’s invalidity ruling against the 6,926,907 and 8,557,285 patents for VIMOVO coordinated-release tablets. As a result, the District Court entered judgment in September 2019 invalidating the ‘907 and ‘285 patents, which ended any restriction against the FDA from granting final approval to Dr. Reddy’s generic version of VIMOVO. On February 18, 2020, the FDA granted final approval for Dr. Reddy’s generic version of VIMOVO. We anticipate that Dr. Reddy’s will immediately launch its product at-risk notwithstanding the ongoing patent litigation. Patent litigation is currently pending in the United States District Court for the District of New Jersey against Ajanta Pharma LTD, or Ajanta, intending to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. If we are unsuccessful in any of the VIMOVO cases, we will likely face generic competition with respect to VIMOVO and sales of VIMOVO will be substantially harmed. In addition, similar to DUEXIS, VIMOVO faces competition from the separate use of NSAIDs for pain relief and GI medications to address the risk of NSAID-induced ulcers. However, the prescribing information for VIMOVO states that VIMOVO should not be substituted with the single-ingredient products of naproxen and esomeprazole magnesium. VIMOVO also competes with other NSAIDs, including Celebrex, TIVORBEX, VIVLODEX and ZORVOLEX. 11 Research and Development Our research and development programs currently include pre-clinical and clinical development of new medicine candidates and activities related to label expansions for existing medicines. We devote significant resources to research and development activities associated with our medicines and medicine candidates. The graphic below summarizes our significant research and development activities in order of the program stage, from post-market to pre-clinical: MEDICINE / PROGRAM DESCRIPTION PRE-CLINICAL PHASE 1 PHASE 2 PHASE 3 PHASE 3b/4 KRYSTEXXA Immunomodulation KRYSTEXXA Nephrology • MIRROR Randomized Controlled Trial • PROTECT study in kidney transplant patients with uncontrolled gout KRYSTEXXA Shorter-Infusion Duration(1) • Open-label study TEPEZZA Thyroid Eye Disease • OPTIC-X trial: Phase 3 extension study TEPEZZA Diffuse Cutaneous Systemic Scleroderma(1) • Exploratory study HZN-003 Next-Gen Uncontrolled Gout HZN-007Next-Gen Uncontrolled Gout(2) HemoShear Gout Discovery Collaboration • Optimized uricase and optimized PEGylation for uncontrolled gout • Optimized uricase and PASylation for uncontrolled gout • Exploration of novel approaches to treating gout (1) Planned study expected to begin in 2020. (2) Being developed under a collaboration agreement with XL Protein GmbH. MIRROR: Trial evaluating use of KRYSTEXXA in combination with immunomodulator methotrexate to increase the patient response rate. PROTECT: Clinical study evaluating the effect of KRYSTEXXA on sUA levels in kidney transplant patients with uncontrolled gout. OPTIC-X: Open-label extension study of the Phase 3 trial evaluating TEPEZZA for the treatment of TED. KRYSTEXXA MIRROR Randomized Clinical Trial KRYSTEXXA is a recombinant protein of uricase, an enzyme not found in humans, and PEGylation. As with many biologic medicines, some people treated with KRYSTEXXA develop antidrug antibodies as part of an immune response to the medicine and lose response to therapy. We are evaluating ways to maximize KRYSTEXXA benefit to patients by improving its response rate. In the KRYSTEXXA pivotal trials, 42 percent of patients achieved a complete response, defined as the proportion of sUA responders (sUA < 6 mg/dL) at Months 3 and 6. While this is an impressive result relative to the response rate of biologic medicines used for other types of inflammatory arthritis, we are investigating ways to increase the number of patients who can achieve a complete response by co-administering KRYSTEXXA with methotrexate, an immunomodulator medicine commonly used by rheumatologists. There is well-documented evidence that the addition of immunomodulators to biological therapies can decrease rates of immunogenicity, as the immunomodulators work to reduce the formation of anti- drug antibodies to the medicine, allowing it to maintain appropriate blood levels over a longer period of time. MIRROR, our randomized, placebo-controlled clinical trial, was initiated in June 2019, and is expected to enroll 135 patients. The trial is designed to support the potential for registration and modification of our KRYSTEXXA FDA label. The MIRROR randomized trial was preceded by a smaller open-label study, which also evaluated the use of the immunomodulator methotrexate with KRYSTEXXA to increase the response rate and was completed in 2019. Of the 14 patients in the study, 79 percent, or 11 patients, achieved a complete response, defined as the proportion of sUA responders (sUA < 6 mg/dL) at Month 6. The 79 percent response rate is clinically importantly higher than the 42 percent response rate in the KRYSTEXXA Phase 3 clinical program, which evaluated KRYSTEXXA alone. No new safety concerns associated with the combination were identified. 12 KRYSTEXXA PROTECT Study in Kidney Transplant Patients with Uncontrolled Gout PROTECT is an open-label clinical study evaluating the effect of KRYSTEXXA on sUA levels in adults with uncontrolled gout who have undergone a kidney transplant. The objective of the study is to demonstrate that KRYSTEXXA provides effective disease control in a severe uncontrolled gout population. Kidney transplant patients have more than a tenfold increase in the prevalence of gout when compared to the general population, and literature suggests that persistently high sUA levels can be associated with organ rejection. Managing uncontrolled gout is one of the most common and significant unmet needs of kidney transplant patients. The PROTECT study is expected to enroll 20 adults. KRYSTEXXA Shorter-Infusion Duration Study We expect to begin an initial proof of concept study in mid-2020 to evaluate the impact of administering KRYSTEXXA over a significantly shorter infusion duration. Currently, KRYSTEXXA is infused over a two-hour long interval. A shorter infusion duration could meaningfully improve the experience and convenience for patients, physicians and sites of care. TEPEZZA OPTIC-X TEPEZZA is a fully human monoclonal antibody inhibitor of IGF-1R approved early in 2020 for the treatment of TED after an accelerated Priority Review by the FDA. TEPEZZA is the first and only approved treatment for this serious, progressive and vision-threatening rare autoimmune condition in which the muscles and fatty tissue behind the eye become inflamed and expand. This can lead to proptosis (eye bulging) and diplopia (double vision) and seriously impact activities of daily living and patients’ quality of life. In rare instances, it can result in compression of the optic nerve that can lead to blindness. In 2019, we completed OPTIC, the TEPEZZA Phase 3 confirmatory clinical trial. Patients included in the study had a clinical diagnosis of TED. The results were statistically significant and clinically meaningful: 82.9 percent of TEPEZZA patients achieved the primary endpoint, defined as a reduction of proptosis of at least 2mm (p<0.001), compared to 9.5 percent of placebo patients. All secondary endpoints were met, and the manageable safety profile was consistent across the Phase 3 and Phase 2 trials. The trial results for both the TEPEZZA Phase 3 and Phase 2 clinical trial results were published in The New England Journal of Medicine, a significant achievement. OPTIC-X is an extension study of OPTIC and is currently ongoing. Patients who participated in the OPTIC trial had the option to participate in the extension study and receive an additional eight infusions of TEPEZZA. The results of OPTIC- X are expected to provide additional data on whether non-responders from the initial twenty-four weeks of treatment during OPTIC would benefit from longer treatment and if patients who lose response off drug after the initial twenty-four weeks of treatment would benefit from retreatment. TEPEZZA Diffuse Cutaneous Scleroderma We expect to initiate an exploratory TEPEZZA study in 2020 in diffuse cutaneous scleroderma, a rare fibrotic disease with no approved treatment options, as part of our approach to evaluate additional indications for TEPEZZA. Diffuse cutaneous scleroderma is a subtype of scleroderma in which excess collagen production causes skin thickening and hardening, or fibrosis, over large areas of the skin and internal organs. There can be significant associated organ damage, including to the gastrointestinal tract, kidneys, lungs and heart. Literature suggests that the mechanism of action of TEPEZZA, which is to block the IGF-1R, could have an impact on fibrotic processes, such as those that are relevant to diffuse cutaneous scleroderma. The objective of the exploratory study is to evaluate biomarkers and safety, tolerability of TEPEZZA in patients with diffuse cutaneous scleroderma and to inform potential subsequent larger and longer duration clinical trials. HZN-003: Potential Next-Generation Biologic for Uncontrolled Gout Using Optimized Uricase and Optimized PEGylation Technology A potential biologic for uncontrolled gout, HZN-003 is a pre-clinical, genetically engineered uricase with optimized PEGylation technology that has the potential to improve the half-life and reduce immunogenicity of this molecule. In addition, it has the potential for subcutaneous dosing. We licensed HZN-003 from MedImmune LLC, the global biologics research and development arm of the AstraZeneca Group, in late 2017. HZN-003 is a rheumatology pipeline program with the objective of enhancing our leadership position in the uncontrolled gout market. 13 HZN-007: PASylated Uricase for Uncontrolled Gout Using Optimized Uricase and PASylation Technology HZN-007 is a PASylated uricase, resulting from a collaboration program to identify uncontrolled gout biologic candidates. HZN-007 is a pre-clinical medicine candidate, using PASylation technology as a biological alternative to synthetic PEGylation. PASylation is a new approach for extending the half-life of pharmaceutically active proteins and reducing immunogenicity. In addition, it has the potential for subcutaneous dosing. HemoShear Gout Discovery Collaboration We have a collaboration agreement with HemoShear Therapeutics, LLC, a biotechnology company, to discover and develop novel therapeutics for gout. The collaboration provides us an opportunity to address unmet treatment needs for people with gout by evaluating new targets for the control of sUA levels as well as new targets to address the inflammation associated with acute flares of gout. With the objective to enhance our leadership position in uncontrolled gout, HZN-003, HZN-007 and the HemoShear programs are all exploring innovative approaches to improve the treatment of this painful, debilitating systemic disease. Distribution We use central third-party logistics and FDA-compliant warehouses for storage and distribution of our medicines into the supply chain. Our third-party logistics providers specialize in integrated operations that include warehousing and transportation services that can be scaled and customized to our needs based on market conditions and the demands and delivery service requirements for our medicines and materials. Their services eliminate the need to build dedicated internal infrastructures that would be difficult to scale without significant capital investment. Our third-party logistics providers warehouse all medicines in controlled FDA-registered facilities. Incoming orders are prepared and shipped through an order entry system to ensure just in time delivery of the medicines. Sales and Marketing As of December 31, 2019, our sales force was composed of approximately 480 sales representatives consisting of approximately 75 orphan disease sales representatives (including approximately 50 TEPEZZA sales representatives), 170 rheumatology sales specialists and 235 inflammation sales representatives. Our orphan and rheumatology sales representatives focus on marketing our orphan and rheumatology medicines to a limited number of healthcare practitioners who specialize in fields such as pediatric immunology, allergy, infectious diseases, metabolic disorders, rheumatology, nephrology, ophthalmology and endocrinology with the approval of TEPEZZA, to help them understand the potential benefits of our medicines. We have entered into, and may continue to enter into, agreements with third parties for commercialization of our medicines outside the United States. We offer discount card and other programs such as our HorizonCares program to patients under which the patient receives a discount on his or her prescription. In certain circumstances when a patient’s prescription is rejected by a managed care vendor, we will pay for the full cost of the prescription. Patients are able to fill prescriptions for our inflammation medicines through pharmacies participating in our HorizonCares patient assistance program, as well as other pharmacies. In addition, we have business arrangements with pharmacy benefit managers, or PBMs, and other payers to secure formulary status and reimbursement of our inflammation medicines. The business arrangements with the PBMs generally require us to pay administrative fees and rebates to the PBMs and other payers for qualifying prescriptions. We have a comprehensive compliance program in place to address adherence with various laws and regulations relating to our sales, marketing, and manufacturing of our medicines, as well as certain third-party relationships, including pharmacies. Specifically with respect to pharmacies, the compliance program utilizes a variety of methods and tools to monitor and audit pharmacies, including those that participate in our patient assistance programs, to confirm their activities, adjudication and practices are consistent with our compliance policies and guidance. Manufacturing, Commercial, Supply and License Agreements We have agreements with third parties for active pharmaceutical ingredients, or APIs, and manufacturing of our medicines, formulation and development services, fill, finish and packaging services, transportation, and distribution and logistics services for certain medicines. In most cases, we retain certain levels of safety stock or maintain alternate supply relationships that we can utilize without undue disruption of our manufacturing processes if a third party fails to perform its contractual obligations. 14 KRYSTEXXA KRYSTEXXA is produced by fermentation of a genetically engineered Escherichia coli bacterium containing the DNA which encodes for uricase. The complementary DNA coding for the uricase is based on mammalian sequences. Uricase is purified and is then PEGylated with a PEGylation agent to produce the bulk medicine, pegloticase. PEGylation and purification of the active drug substance is achieved by conventional column chromatography. The resulting highly purified sterile solution is filled in a single-use vial for intravenous infusion following dilution. In support of its manufacturing process, we store multiple vials of the Escherichia coli bacterium master cell bank and working cell bank at multiple locations in order to ensure adequate backup should any cell bank be lost in a catastrophic event. NOF Supply Agreement In August 2015, Crealta Holdings LLC, or Crealta, and NOF Corporation, or NOF, in Japan, entered into an exclusive supply agreement for the PEGylation agent used in the manufacture of KRYSTEXXA. We assumed this agreement as part of our acquisition of Crealta in January 2016, or the Crealta acquisition. Under the terms of this agreement, we are required to issue NOF forecasts of our requirements for the PEGylation agent, a portion of which are binding. The agreement expires in August 2020 and we expect to extend the agreement beyond this date. Either we or NOF may also terminate the agreement upon a material breach, if not cured within a specified period of time, or in the event of the other party’s insolvency. While there are no minimum purchase obligations under the agreement, we are required to use NOF as our exclusive supplier for the PEGylation agent, subject to certain exceptions if NOF is unable to supply the PEGylation agent. Bio-Technology General (Israel) Supply Agreement In March 2007, Savient Pharmaceuticals, Inc. (as predecessor in interest to Crealta), or Savient, entered into a commercial supply agreement with Bio-Technology General (Israel) Ltd, or BTG Israel, which was subsequently amended, for the production of the bulk KRYSTEXXA medicine, or bulk product. We assumed this agreement as part of the Crealta acquisition and further amended the agreement in September 2016. Under this agreement, we have agreed to purchase certain minimum annual order quantities and are obligated to purchase at least 80 percent of our annual world-wide bulk product requirements from BTG Israel. The term of the agreement runs until December 31, 2030, and will automatically renew for successive three-year periods unless earlier terminated by either party upon three years’ prior written notice. The agreement may be terminated earlier by either party in the event of a force majeure, liquidation, dissolution, bankruptcy or insolvency of the other party, uncured material breach by the other party or after January 1, 2024, upon three years’ prior written notice. Under this agreement, if the manufacture of the bulk product is moved out of Israel, we may be required to obtain the approval of the Israeli Office of the Chief Scientist, or OCS, because certain KRYSTEXXA intellectual property was initially developed with a grant funded by the OCS and we may be required to pay the OCS additional amounts as a repayment for the OCS grant funding. We issue eighteen-month forecasts of the volume of KRYSTEXXA that we expect to order. The first six months of the forecasts are considered binding firm orders. Exelead PharmaSource Supply Agreement In October 2008, Savient and Exelead, Inc. (formerly known as Sigma Tau PharmaSource, Inc. (as successor in interest to Enzon Pharmaceuticals, Inc.)), or Exelead, entered into a commercial supply agreement, which was subsequently amended, for the packaging and supply of the final drug product KRYSTEXXA. This agreement remains in effect until terminated, and either we or Exelead may terminate the agreement with three years notice, given thirty days prior to the agreement anniversary date. Either we or Exelead may also terminate the agreement upon a material default, if not cured within a specified period of time, or in the event of the other party’s insolvency or bankruptcy. 15 Duke University and Mountain View Pharmaceutical License Agreement In August 1998, Savient entered into an exclusive, worldwide license agreement with Duke University, or Duke, and Mountain View Pharmaceuticals Inc., or MVP, which was subsequently amended, and which we acquired as part of the Crealta acquisition. Duke developed the recombinant uricase enzyme used in KRYSTEXXA and MVP developed the PEGylation technology used in the manufacture of KRYSTEXXA. Duke and MVP may terminate the agreement if we commit fraud or for our willful misconduct or illegal conduct; upon our material breach of the agreement, if not cured within a specified period of time; upon written notice if we have committed two or more material breaches under the agreement; or in the event of our bankruptcy or insolvency. Under the terms of the agreement, we are obligated to pay Duke a mid-single digit percentage royalty on our global net sales of KRYSTEXXA and a royalty of between 5 percent and 15 percent on any global sublicense revenue. We are also obligated to pay MVP a mid-single digit percentage royalty on our net sales of KRYSTEXXA outside of the United States and royalty of between 5 percent and 15 percent on any sublicense revenue outside of the United States. RAVICTI We have clinical and commercial supplies of glycerol phenylbutyrate API manufactured for us by two alternate suppliers, Helsinn Advanced Synthesis SA (Switzerland) and Patheon Austria GmbH & Co KG (formerly DSM Fine Chemicals Austria) on a purchase-order basis. We have manufacturing agreements to manufacture finished RAVICTI drug product with Lyne Laboratories, Inc., Halo Pharmaceuticals, Inc. and PCI Pharma Services. Bausch Health Asset Purchase Agreement As a result of our acquisition of Hyperion Therapeutics, Inc., or Hyperion, in May 2015, or the Hyperion acquisition, we became subject to an asset purchase agreement with Bausch Health Companies, Inc. (formerly Ucyclyd Pharma, Inc.), or Bausch, pursuant to which we are obligated to pay to Bausch mid single-digit royalties on our global net sales of RAVICTI. The asset purchase agreement cannot be terminated for convenience by either party. We have a license to certain Bausch manufacturing technology, however Bausch is permitted to terminate the license if we fail to comply with any payment obligations relating to the license and do not cure such failure within a defined time period. Brusilow License Agreement As a result of the Hyperion acquisition, we became subject to a license agreement, as amended, with Saul W. Brusilow, M.D. and Brusilow Enterprises, Inc., or Brusilow, pursuant to which we license patented technology related to RAVICTI from Brusilow. Under such agreement, we are obligated to pay low-single digit royalties to Brusilow on net sales of RAVICTI that are, or were, covered by a valid claim of a licensed patent. The license agreement may be terminated for any uncured breach as well as bankruptcy. We may also terminate the agreement at any time by giving Brusilow prior written notice, in which case all rights granted to us would revert to Brusilow. PROCYSBI PROCYSBI drug product is comprised of enteric-coated beads of cysteamine bitartrate encapsulated in gelatin capsules or packaged directly into packets. PROCYSBI drug product and API, cysteamine bitartrate, are manufactured and packaged on a contract basis by third parties. Patheon Manufacturing Services Agreement As a result of our acquisition of Raptor Pharmaceutical Corp, in October 2016, or the Raptor acquisition, we assumed a manufacturing services agreement, as amended, with Patheon Pharmaceuticals Inc., or Patheon, for the manufacture and supply of PROCYSBI. Pursuant to the agreement, we must provide a rolling, non-binding forecast of PROCYSBI, with a portion of the forecast being a firm written order. The agreement has a term that runs until December 31, 2021 and which automatically renews for successive two-year terms if not terminated at least eighteen months in advance. Cambrex Profarmaco Milano Supply Agreement As a result of the Raptor acquisition, we assumed an API supply agreement, as amended, with Cambrex Profarmaco Milano, or Cambrex. Pursuant to the agreement, we must provide rolling, non-binding forecasts, with a portion of the forecast being the minimum floor of the firm order that must be placed. The Cambrex supply agreement has an initial term that runs until November 30, 2020, and which automatically renews for successive two-year terms if not terminated at least one year in advance. 16 UCSD License Agreement In May 2017, we entered into an amended and restated license agreement with The Regents of the University of California, San Diego, or UCSD, which was amended in September 2018. We must pay UCSD a royalty in the mid-single digits on net sales of PROCYSBI in countries where PROCYSBI is covered by a patent right, and a royalty in the low-single digits on net sales of PROCYSBI in countries where PROCYSBI is not covered by a patent right. Each such royalty is subject to reduction for sales of PROCYSBI in countries in the event a generic substitute for PROCYSBI is sold in such countries. We must pay UCSD a minimum annual royalty in an amount less than $0.1 million. Royalties terminate upon the later of (a) the expiration date of the longest-lived patent rights on a country-by-country basis; and (b) twenty years after first commercial sale of PROCYSBI. We must also pay UCSD a percentage in the mid-teens of any fees we receive from our sublicensees under the agreement that are not earned royalties. We may also be obligated to pay UCSD aggregate developmental milestone payments of $0.3 million and aggregate regulatory milestone payments of $1.8 million for each orphan indication and aggregate developmental milestone payments of $0.8 million and aggregate regulatory milestone payments of $3.5 million for each non-orphan indication. We are also subject to certain diligence obligations relating to performing activities for specified indications, including maintaining existing regulatory approvals for PROCYSBI and commercializing PROCYSBI in countries where regulatory approvals have been obtained and using commercially reasonable efforts to develop, obtain regulatory approval, and commercialize certain other licensed medicines in the United States and other countries. Under the terms of our agreement with Chiesi, royalties due to UCSD on sales of PROCYSBI in EMEA will be paid by Chiesi to us, which we will forward to UCSD unless we instruct Chiesi to make such payments directly to UCSD. ACTIMMUNE ACTIMMUNE is a recombinant protein that is produced by fermentation of a genetically engineered Escherichia coli bacterium containing the DNA which encodes for the human protein. Purification of the active drug substance is achieved by conventional column chromatography. The resulting active drug substance is then formulated as a highly purified sterile solution and filled in a single-use vial for subcutaneous injection, which is the ACTIMMUNE finished drug product. In support of its manufacturing process, we and Boehringer Ingelheim RCV GmbH & Co KG, or Boehringer Ingelheim, store multiple vials of the Escherichia coli bacterium master cell bank and working cell bank in order to ensure adequate backup should any cell bank be lost in a catastrophic event. Boehringer Ingelheim Supply Agreement In June 2017, we entered into an exclusive global supply agreement with Boehringer Ingelheim Biopharmaceuticals GmbH, or Boehringer Ingelheim Biopharmaceuticals, pursuant to which Boehringer Ingelheim Biopharmaceuticals is required to manufacture and supply ACTIMMUNE and IMUKIN active drug substance and commercial quantities of the ACTIMMUNE and IMUKIN finished drug product. Boehringer Ingelheim Biopharmaceuticals is our sole source supplier for ACTIMMUNE active drug substance and finished drug product. Pursuant to the agreement, we are required to purchase minimum quantities of finished drug product during the term of the agreement. Boehringer Ingelheim Biopharmaceuticals manufactures our commercial requirements of ACTIMMUNE based on our forecasts and the annual contractual minimum purchase quantity. The supply agreement continues for an indefinite period but can be terminated by either party upon three years notice (but, in such case, cannot be terminated sooner than June 30, 2024), for an uncured material breach by the other party, upon the other party’s bankruptcy or insolvency, or upon certain changes of control of the other party. We can terminate the supply agreement in the event we are prevented by regulatory authorities from distributing the product on the market for all indications. License Agreements Under a license agreement, as amended, with Genentech Inc., or Genentech, who was the original developer of ACTIMMUNE, we are obligated to pay a low single-digit royalty to Genentech on our annual net sales of ACTIMMUNE. Either Genentech or we may terminate the agreement if the other party becomes bankrupt or defaults, however, in the case of a default, the defaulting party has thirty days to cure the default before the license agreement may be terminated. Under the terms of an assignment and option agreement with Connetics Corporation (which was the predecessor parent company to InterMune Pharmaceuticals Inc. and is now part of GlaxoSmithKline), or Connetics, we are obligated to pay low single-digit royalties to Connetics on our net sales of ACTIMMUNE in the United States. 17 RAYOS and LODOTRA We purchase the API for RAYOS from Tianjin Tianyao Pharmaceuticals Co., Ltd. in China and from Sanofi Chimie SA in France. We have contracted with Jagotec AG, which is an affiliate of Vectura, for the production of RAYOS tablets and we entered into an agreement with Patheon for the packaging and assembling of RAYOS. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which is also an affiliate of Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. These transfer activities are ongoing. In exchange for transferring the LODOTRA economic benefits and rights, the royalty payable by us to Vectura in respect of RAYOS sales in North America was amended whereby, effective January 1, 2019, we were obligated to pay Vectura a mid-teens percentage royalty on our net sales, subject to a minimum royalty of $8.0 million per year, with the minimum royalty requirement expiring on December 31, 2022. Under the amendments, we ceased recording LODOTRA revenue and we are no longer required to pay a royalty in respect of LODOTRA. In addition, under the amendments, from January 1, 2020, we are no longer subject to a minimum purchase commitment in respect of the supply agreement with Jagotec AG. BUPHENYL When Hyperion purchased BUPHENYL, Hyperion assumed all of Bausch’s rights and obligations under its manufacturing agreements for the medicine. We assumed these agreements when we acquired Hyperion. We purchase API for BUPHENYL from CU Chemie Uetikon GmbH and final manufacturing, testing and packaging of the medicine is provided by Patheon UK Limited. QUINSAIR QUINSAIR drug product, its API, levofloxacin hemihydrate, and the Zirela nebulizer device are all manufactured on a contract basis by third parties. The API is exclusively supplied by TEVA API Inc. QUINSAIR drug product is manufactured by Catalent Pharma Solutions, LLC. Nebulizers are supplied by PARI in Starnberg, Germany. TEPEZZA TEPEZZA is produced by culture of a genetically engineered mammalian cell line containing the DNA which encodes for teprotumumab-trbw, a fully human IgG1 monoclonal antibody. Cell culture broth is harvested and purified through filtration processes and chromatography processes prior to being formulated, frozen and shipped to the site of drug product manufacture. AGC Biologics Supply Agreement In February 2018, we entered into a commercial supply agreement with AGC Biologics A/S (formerly known as CMC Biologics A/S), or AGC, which was amended in May 2019 and December 2019, for the supply of TEPEZZA drug substance. Pursuant to the agreement, we have agreed to purchase certain minimum annual order quantities of TEPEZZA drug substance. In addition, we must provide AGC with rolling forecasts of TEPEZZA drug substance requirements, with a portion of the forecast being a firm and binding order. The agreement has a term that runs indefinitely. Either party may terminate the agreement by giving notice at least three years in advance, but notice may not be given before February 14, 2022. Either party may also terminate the agreement for the other party’s failure to pay any undisputed sum payable under the agreement within a specified period of time, for a material breach by the other party if not cured within a specified period of time, upon the other party’s insolvency, or in the event that any material permit or regulatory license is permanently revoked preventing the performance of specified services by the other party. Catalent Indiana Supply Agreement In December 2018, we entered into a commercial supply agreement with Catalent Indiana, LLC, or Catalent, for the supply of TEPEZZA drug product. Pursuant to the agreement, we must provide Catalent with rolling forecasts of TEPEZZA drug product requirements, with a portion of the forecast being a firm and binding order. The agreement has a term that runs until December 18, 2023, and automatically renews for two successive two-year terms unless terminated by either party at least two years in advance. The agreement may be terminated earlier by either party for a material breach by the other party, if not cured within a specified period of time, or upon the other party’s insolvency. 18 Roche License Agreement As a result of our acquisition of River Vision, we have a license of intellectual property rights to TEPEZZA under a license agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or Roche, effective as of June 15, 2011, as amended. Pursuant to the agreement, we are obligated to pay tiered royalties between 9 and 12 percent on annual worldwide net sales. The royalty terminates upon the later of (a) the expiration date of the longest-lived patent rights on a country-by- country basis; and (b) ten years after first commercial sale of TEPEZZA. We have paid development and regulatory milestones totaling CHF5.0 million relating to the United States and will pay an additional milestone payment of CHF5.0 million during the first quarter of 2020. We may be obligated to pay Roche additional development and regulatory milestones for activities outside the United States or for additional indications. We may also be obligated to pay Roche aggregate sales milestone payments totaling up to mid-double-digit million Swiss francs. We are also obligated to use commercially reasonable efforts to develop and commercialize TEPEZZA. Either party may terminate the agreement upon the other party’s breach of the agreement, if not cured within a specified period of time, or in the event of the other party’s bankruptcy or insolvency. Roche may also terminate the agreement if we challenge the validity of Roche’s patents. Upon providing written notice to Roche, we may also terminate the agreement within six-months of such notice before the first commercial sale of TEPEZZA or within nine months of such notice after the first commercial sale of TEPEZZA. Lundquist Institute License Agreement As a result of our acquisition of River Vision, we have a license of patent rights to TEPEZZA under a license agreement with Lundquist Institute (formerly known as Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center), or Lundquist, dated December 5, 2012. Pursuant to the agreement, we are obligated to pay Lundquist a royalty payment of less than 1 percent of TEPEZZA net sales. The royalty terminates upon the expiration date of the longest-lived patent rights. We may terminate the agreement upon sixty days’ prior written notice to Lundquist. Either party may terminate the agreement upon the other party’s material breach of the agreement if not cured within a specified period of time. Lundquist may also terminate the agreement in the event of our bankruptcy or insolvency. Boehringer Ingelheim Biopharmaceuticals License Agreement As a result of our acquisition of River Vision, we have a license of certain manufacturing technology for TEPEZZA under a license agreement with Boehringer Ingelheim Biopharmaceuticals, effective as of December 21, 2016. Pursuant to the agreement, we may be obligated to pay Boehringer Ingelheim Biopharmaceuticals milestone payments totaling low- single-digit million euros upon the achievement of certain TEPEZZA sales milestones. Either party may terminate the agreement upon the other party’s material breach of the agreement if not cured within a specified period of time. Boehringer Ingelheim Biopharmaceuticals may also terminate the agreement if we challenge the validity of certain of its patent rights. In addition to the above supply and license agreements, under the agreement for the acquisition of River Vision, we are required to pay up to $325.0 million upon the attainment of various milestones, composed of $100.0 million related to FDA approval and $225.0 million related to net sales thresholds for TEPEZZA. The agreement also includes a royalty payment of 3 percent of the portion of annual worldwide net sales exceeding $300.0 million (if any). We will make a milestone payment of $100.0 million related to FDA approval during the first quarter of 2020. PENNSAID 2% In October 2014, in connection with the acquisition of the U.S. rights to PENNSAID 2% from Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.), or Nuvo, we entered into an exclusive supply agreement with Nuvo, which was amended in February 2016, January 2017 and February 2018, under which Nuvo is obligated to manufacture and supply PENNSAID 2% to us. The term of our supply agreement is through December 31, 2029, but the agreement may be terminated earlier by either party for any uncured material breach by the other party of its obligations under the supply agreement or upon the bankruptcy or similar proceeding of the other party. A key excipient used in PENNSAID 2% as a penetration enhancer is DMSO. We and Nuvo rely on a sole proprietary form of DMSO for which we maintain a substantial safety stock. However, should this supply become inadequate, damaged, destroyed or unusable, we and Nuvo may not be able to qualify a second source. 19 DUEXIS We purchase DUEXIS in final, packaged form exclusively from Sanofi-Aventis U.S. LLC, or Sanofi, for our commercial requirements in North America. The first API in DUEXIS is ibuprofen in a direct compression blend called DC85 and is supplied to Sanofi by BASF Corporation, or BASF, in Bishop, Texas. The second API in DUEXIS is famotidine, which is available from a number of international suppliers. Famotidine is currently sourced from two manufacturers. We currently receive both APIs in powder form and each is blended with a number of U.S. Pharmacopeia inactive ingredients. BASF In July 2010, we entered into a contract with BASF for the purchase of DC85, which was subsequently amended effective as of January 2016. Pursuant to the agreement, which expired in December 2018, we were obligated to source a significant majority of our commercial demand for DC85 from BASF. During 2018, BASF notified customers that were being supplied by the Bishop manufacturing facility, including us, that it would not be renewing supply agreements due to a technical issue at the facility that has prevented it from supplying these customers. During 2019, BASF has supplied us with a limited amount of DC85 and informed us of their intention to return to full supply. While we consider our DUEXIS inventory on hand to be sufficient to meet current and future commercial requirements, we cannot guarantee that BASF’s manufacturing facility will return to full operations or we will be able to enter into a new supply agreement with BASF for DC85. Manufacturing and Supply Agreement with Sanofi In May 2011, we entered into a manufacturing and supply agreement with Sanofi, which was amended in September 2013 and May 2018. Pursuant to the agreement, Sanofi is obligated to manufacture and supply DUEXIS to us in final, packaged form, and we are obligated to purchase DUEXIS exclusively from Sanofi for our commercial requirements in North America and certain countries and territories in Europe, including the EU member states and Scandinavia, and South America. Sanofi must acquire the components necessary to manufacture DUEXIS, including the APIs, and is obligated to acquire all DC85 under the terms of our agreements with suppliers. In order to allow Sanofi to perform its obligations under the agreement, we granted Sanofi a non-exclusive license to our related intellectual property. The agreement term extends until September 2021, and automatically extends for successive two-year terms unless terminated by either party upon two years’ prior written notice. Either party may terminate the agreement upon thirty days’ prior written notice to the other party in the event of breach by the other party that is not cured within thirty days of notice (which notice period may be longer in certain, limited situations) or in the event we lose regulatory approval to market DUEXIS in all countries worldwide, and either party may terminate the agreement without cause upon two years’ prior written notice to the other party at any time after the third anniversary of the first commercial sale of DUEXIS in any country worldwide. VIMOVO We purchase VIMOVO in final, packaged form from Patheon for our commercial requirements in North America. The first API in VIMOVO is naproxen which is supplied to Patheon by Divis Laboratories Limited in India. The second API in VIMOVO is esomeprazole magnesium trihydrate, which we source from Minakem Holding SAS in France. Under a license agreement with Nuvo (formerly Aralez Pharmaceuticals Inc.), we are required to pay Nuvo a 10 percent royalty based on net sales of VIMOVO sold by us, our affiliates or sublicensees during the royalty term, subject to a minimum annual royalty obligation of $7.5 million, which minimum royalty obligations will continue for each year during which one of Nuvo’s patents covers VIMOVO in the United States and there are no competing medicines in the United States. The royalty rate may be reduced to a mid-single digit royalty rate as a result of loss of market share to competing medicines. 20 Intellectual Property Our objective is to aggressively patent the technology, inventions and improvements that we consider important to the development of our business. We have a portfolio of patents and applications based on clinical and pharmacokinetic/pharmacodynamic modeling discoveries, and our novel formulations. We intend to continue filing patent applications seeking intellectual property protection as we generate anticipated formulation refinements, new methods of manufacturing and clinical trial results. We will only be able to protect our technologies and medicines from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. As such, our commercial success will depend in part on receiving and maintaining patent protection and trade secret protection of our technologies and medicines as well as successfully defending these patents against third-party challenges. The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. The patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) we or our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents; we or our licensors might not have been the first to file patent applications for these inventions; others may independently develop similar or alternative technologies or duplicate any of our technologies; it is possible that none of our pending patent applications or the pending patent applications of our licensors will result in issued patents; our issued patents and the issued patents of our licensors may not provide a basis for commercially viable drugs, or may not provide us with any competitive advantages, or may be challenged and invalidated by third parties; we may not be successful in any patent litigation to enforce our patent rights, including our pending patent litigation regarding PENNSAID 2%, DUEXIS and/or VIMOVO; we may not develop additional proprietary technologies or medicine candidates that are patentable; or the patents of others may have an adverse effect on our business. KRYSTEXXA We have licenses to U.S. and foreign patents and applications covering KRYSTEXXA. If not otherwise invalidated, those patents expire between 2021 and 2030. We continue to prosecute and pursue patent protection to obtain additional patent coverage on KRYSTEXXA and its uses. In the United States, KRYSTEXXA has received twelve years of biologic exclusivity, expiring in 2022. RAVICTI We have ownership of U.S. and foreign patents and patent applications covering RAVICTI. If not otherwise invalidated, those patents expire between 2030 and 2036. We license our rights to patents and patent applications outside of North America and Japan to Immedica. We continue to prosecute and pursue patent protection to obtain additional patent coverage on RAVICTI and its uses. In the United States, RAVICTI received two separate orphan drug exclusivities for two patient populations. The first of those orphan drug exclusivities expired on February 1, 2020, and the second will expire on April 28, 2024. Under our settlement and license agreement with Par Pharmaceutical, Inc., Par Pharmaceutical, Inc. may enter the market on July 1, 2025, or earlier in certain circumstances. We also have a settlement and license agreement with Lupin Limited and Lupin Pharmaceuticals, Inc., or collectively Lupin, pursuant to which Lupin may enter the market on July 1, 2026, or earlier under certain circumstances. 21 PROCYSBI We have U.S. and foreign patents and patent applications covering PROCYSBI, as well as licenses from UCSD to U.S. and foreign patents and patent applications covering PROCYSBI. If not otherwise invalidated, those patents expire between 2027 and 2034. We continue to prosecute and pursue patent protection to obtain additional patent coverage on PROCYSBI and its uses. PROCYSBI received marketing authorization in September 2013 from the European Commission, or the EC, for marketing in the EU as an orphan medicinal product for the management of proven NC. PROCYSBI received seven years of market exclusivity, through 2020, for patients six years and older as an orphan drug in the United States, and ten years of market exclusivity, through 2023, as an orphan drug in Europe. PROCYSBI received seven years of market exclusivity, through 2022, for patients two years of age to less than six years of age, and seven years of market exclusivity, through 2024, for patients one year of age to less than two years of age, as an orphan drug in the United States. During December 2017, the FDA awarded pediatric exclusivity to PROCYSBI in the United States, which adds an additional six-month exclusivity period to the end of each orphan exclusivity period and patent term covering PROCYSBI. ACTIMMUNE We have licenses to U.S. patents covering ACTIMMUNE. If not otherwise invalidated, those patents expire in 2022. We continue to prosecute and pursue patent protection to obtain additional patent coverage on ACTIMMUNE and its uses. RAYOS/LODOTRA We have an exclusive license to U.S. and foreign patents and patent applications from Vectura covering RAYOS/LODOTRA. If not otherwise invalidated, those in-licensed patents expire between 2020 and 2028. We continue to prosecute and pursue additional patent coverage on RAYOS/LODOTRA and its uses. Under our settlement agreement with Teva Pharmaceuticals Industries Limited (formerly known as Actavis Laboratories FL, Inc., which itself was formerly known as Watson Laboratories, Inc. – Florida), or Teva, Teva may enter the market on December 23, 2022, or earlier under certain circumstances. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which is also an affiliate of Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. These transfer activities are ongoing. QUINSAIR We have U.S. and foreign patents and patent applications covering QUINSAIR, as well as licenses from PARI and Tripex Pharmaceuticals, LLC to U.S. and foreign patents and patent applications covering QUINSAIR. If not otherwise invalidated, those patents expire between 2020 and 2032. We continue to prosecute and pursue patent protection to obtain additional patent coverage on QUINSAIR and its uses. QUINSAIR received ten years of market exclusivity in the EU, beginning with its March 2015 marketing authorization and expiring in March 2025. PENNSAID 2% We have ownership of U.S. patents and patent applications covering PENNSAID 2% from Nuvo. We also co-own other U.S. patent applications with Mallinckrodt LLC. If not otherwise invalidated, those patents expire between 2027 and 2030. Under our settlement agreements with Amneal Pharmaceuticals, LLC., Teligent, Inc., Perrigo Company plc, Taro Pharmaceuticals Industries Ltd., and Lupin, such parties may enter the market on October 17, 2027, or earlier under certain circumstances. DUEXIS We have multiple patents and patent applications related to DUEXIS. Unless otherwise invalidated, those patents expire in 2026. Under a settlement agreement with Par Pharmaceutical, Inc. and Par Pharmaceutical Companies, Inc., or collectively Par, Par may enter the market on January 1, 2023, or earlier under certain circumstances. 22 VIMOVO We have licenses to U.S. patents and patent applications and trademarks covering VIMOVO from Nuvo and AstraZeneca AB. We co-own other U.S. patents and patent applications with Nuvo. If not otherwise invalidated, those in- licensed patents expire between 2022 and 2031. We continue to prosecute and pursue patent protection in the United States to obtain additional patent coverage on VIMOVO and its uses. For a description of our legal proceedings related to intellectual property matters, see Note 16 of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K. Third-Party Coverage and Reimbursement In both U.S. and foreign markets, our ability to commercialize our medicines successfully depends in significant part on the availability of coverage and adequate reimbursement to healthcare providers from third-party payers, including, in the United States, government payers such as the Medicare and Medicaid programs, managed care organizations and private health insurers. Third-party payers are increasingly challenging the prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy. This is especially true in markets where over-the-counter and generic options exist. Even if coverage is made available by a third-party payer, the reimbursement rates paid for covered medicines might not be adequate. For example, third-party payers may use tiered coverage and may adversely affect demand for our medicines by not covering our medicines or by placing them in a more expensive formulary tier relative to competitive medicines (where patients have to pay relatively more out of pocket than for medicines in a lower tier). We cannot be certain that our medicines will be covered by third-party payers or that such coverage, where available, will be adequate, or that our medicines will successfully be placed on the list of drugs covered by particular health plan formularies. Many states have also created preferred drug lists for use in their Medicaid programs and include drugs on those lists only when the manufacturers agree to pay a supplemental rebate. The industry competition to be included on such formularies and preferred drug lists often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payers may refuse to include a particular branded drug on their formularies or otherwise restrict patient assistance to a branded drug when a less costly generic equivalent or other therapeutic alternative is available. In addition, because each third-party payer individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming and costly process. We may be required to provide scientific and clinical support for the use of any medicine to each third-party payer separately with no assurance that approval would be obtained, and we may need to conduct pharmacoeconomic studies to demonstrate the cost effectiveness of our medicines for formulary coverage and reimbursement. Even with studies, our medicines may be considered less safe, less effective or less cost-effective than competitive medicines, and third-party payers may not provide coverage and adequate reimbursement for our medicines or our medicine candidates. These pricing and reimbursement pressures may create negative perceptions to any medicine price increases, or limit the amount we may be able to increase our medicine prices, which may adversely affect our medicine sales and results of operations. Where coverage and reimbursement are not adequate, physicians may limit how much or under what circumstances they will prescribe or administer such medicines, and patients may decline to purchase them. This, in turn, could affect our ability to successfully commercialize our medicines and impact our profitability, results of operations, financial condition, and future success. The U.S. market has seen a trend in which retail pharmacies have become increasingly involved in determining which prescriptions will be filled with the requested medicine or a substitute medicine, based on a number of factors, including potentially perceived medicine costs and benefits, as well as payer medicine substitution policies. Many states have in place requirements for prescribers to indicate “dispense as written” on their prescriptions if they do not want pharmacies to make medicine substitutions; these requirements are varied and not consistent across states. We may need to increasingly spend time and resources to ensure the prescriptions written for our medicines are filled as written, where appropriate. Coverage policies, third-party reimbursement rates and medicine pricing regulation have been subject to significant change, and may change further at any time, particularly given recent political focus on the pharmaceutical industry. Even if favorable coverage and adequate reimbursement status is attained for one or more medicines, less favorable coverage policies and reimbursement rates may be implemented in the future. 23 Government Regulation The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose extensive requirements upon the clinical development, pre-market approval, manufacture, labeling, marketing, promotion, pricing, import, export, storage and distribution of medicines. These agencies and other regulatory agencies regulate research and development activities and the testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, recordkeeping, advertising and promotion of drugs and biologics. Failure to comply with applicable FDA or foreign regulatory agency requirements may result in warning letters, fines, civil or criminal penalties, additional reporting obligations and/or agency oversight, suspension or delays in clinical development, recall or seizure of medicines, partial or total suspension of production or withdrawal of a medicine from the market. In the United States, the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act and its implementing regulations and biologics additionally under the Public Health Service Act. The process required by the FDA before medicine candidates may be marketed in the United States generally involves the following: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) submission to the FDA of an investigational new drug, or IND, which must become effective before human clinical trials may begin and must be updated annually; completion of extensive pre-clinical laboratory tests and pre-clinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the medicine candidate for each proposed indication; submission to the FDA of a new drug application, or NDA, or BLA as appropriate, after completion of all pivotal clinical trials to demonstrate the safety, purity and potency of the medicine candidate for the indication for use; a determination by the FDA within sixty days of its receipt of an NDA or BLA to file the application for review; satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities to assess compliance with the FDA’s current good manufacturing practices, or cGMPs, regulations for pharmaceuticals; and FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of the medicine in the United States. The development and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our medicine candidates will be granted on a timely basis, if at all. The results of pre-clinical tests (which include laboratory evaluation as well as GLP studies to evaluate toxicity in animals) for a particular medicine candidate, together with related manufacturing information and analytical data, are submitted as part of an IND to the FDA. The IND automatically becomes effective thirty days after receipt by the FDA, unless the FDA, within the thirty-day time period, raises concerns or questions about the conduct of the proposed clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. IND submissions may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during medicine development. Further, an independent institutional review board, or IRB, for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive good clinical practice regulations and regulations for informed consent and privacy of individually identifiable information. Similar requirements to the U.S. IND are required in the European Economic Area, or the EEA, and other jurisdictions in which we may conduct clinical trials. Clinical Trials. For purposes of NDA or BLA submission and approval, clinical trials are typically conducted in the following sequential phases, which may overlap: (cid:129) (cid:129) Phase 1. Studies are initially conducted in a limited population to test the medicine candidate for safety, dose tolerance, absorption, distribution, metabolism, and excretion, typically in healthy humans, but in some cases in patients. Phase 2. Studies are generally conducted in a limited patient population to identify possible adverse effects and safety risks, explore the initial efficacy of the medicine for specific targeted indications and to determine dose range or pharmacodynamics. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. 24 (cid:129) (cid:129) Phase 3. These are commonly referred to as pivotal studies. When Phase 2 evaluations demonstrate that a dose range of the medicine is effective and has an acceptable safety profile, Phase 3 clinical trials are undertaken in large patient populations to further evaluate dosage, provide substantial evidence of clinical efficacy and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial centers. Phase 4. The FDA may approve an NDA or BLA for a medicine candidate, but require that the sponsor conduct additional clinical trials to further assess the medicine after approval under a post-marketing commitment or post- marketing requirement. In addition, a sponsor may decide to conduct additional clinical trials after the FDA has approved a medicine. Post-approval trials are typically referred to as Phase 4 clinical trials. The results of drug development, pre-clinical studies and clinical trials are submitted to the FDA as part of an NDA or BLA, as appropriate. Applications also must contain extensive chemistry, manufacturing and control information. Applications must be accompanied by a significant user fee. Once the submission has been accepted for filing, the FDA’s goal is to review applications within twelve months of submission or, if the application relates to an unmet medical need in a serious or life-threatening indication, eight months from submission. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA will typically conduct a pre-approval inspection of the manufacturer to ensure that the medicine can be reliably produced in compliance with cGMPs and will typically inspect certain clinical trial sites for compliance with good clinical practice, or GCP. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. The FDA may deny approval of an application by issuing a Complete Response Letter if the applicable regulatory criteria are not satisfied. A Complete Response Letter may require additional clinical data and/or trial(s), and/or other significant, expensive and time- consuming requirements related to clinical trials, pre-clinical studies or manufacturing. Data from clinical trials are not always conclusive and the FDA may interpret data differently than we or our collaborators interpret data. Approval may occur with boxed warnings on medicine labeling or Risk Evaluation and Mitigation Strategies, or REMS, which limit the labeling, distribution or promotion of a medicine. Once issued, the FDA may withdraw medicine approval if ongoing regulatory requirements are not met or if safety problems occur after the medicine reaches the market. In addition, the FDA may require testing, including Phase 4 clinical trials, and surveillance programs to monitor the safety effects of approved medicines which have been commercialized and the FDA has the power to prevent or limit further marketing of a medicine based on the results of these post-marketing programs or other information. Clinical Trials in the EU. Clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and the international council for harmonization, or ICH, guidelines on GCP. Additional GCP guidelines from the EC, focusing in particular on traceability, apply to clinical trials of advanced therapy medicinal products. The sponsor must take out a clinical trial insurance policy, and in most EU countries, the sponsor is liable to provide “no fault” compensation to any study subject injured in the clinical trial. Prior to commencing a clinical trial, the sponsor must obtain a clinical trial authorization from the competent authority, and a positive opinion from an independent ethics committee. The application for a clinical trial authorization must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation. Currently, clinical trial authorization applications must be submitted to the competent authority in each EU Member State in which the trial will be conducted. Under the new Regulation on Clinical Trials, which is expected to take effect in 2020, there will be a centralized application procedure where one national authority takes the lead in reviewing the application and the other national authorities have only a limited involvement. Any substantial changes to the trial protocol or other information submitted with the clinical trial applications must be notified to or approved by the relevant competent authorities and ethics committees. Medicines used in clinical trials must be manufactured in accordance with cGMP. Other national and EU-wide regulatory requirements also apply. During the development of a medicinal product, the European Medicines Agency, or EMA, and national medicines regulators within the EU provide the opportunity for dialogue and guidance on the development program. At the EMA level, this is usually done in the form of scientific advice, which is given by the Scientific Advice Working Party of the Committee for Medicinal Products for Human Use. A fee is incurred with each scientific advice procedure. Advice from the EMA is typically provided based on questions concerning, for example, quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical studies, and pharmacovigilance plans and risk-management programs. 25 Orphan Medicines. Under the Orphan Drug Act, the FDA may designate a medicine as an “orphan drug” if it is intended to treat a rare disease or condition, meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a medicine available in the United States for treatment of the disease or condition will be recovered from sales of the medicine. A company must request orphan drug designation before submitting an NDA for the drug and rare disease or condition. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation does not shorten the Prescription Drug User Fee Act, or PDUFA, goal dates for the regulatory review and approval process, although it does convey certain advantages such as tax benefits and exemption from the PDUFA application fee. If a medicine with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the medicine generally will receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same drug for the same indication for seven years, except in certain limited circumstances. Orphan exclusivity does not block the approval of a different drug for the same rare disease or condition, nor does it block the approval of the same drug for different indications. If a drug designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity. Orphan exclusivity will not bar approval of another medicine under certain circumstances, including if a subsequent medicine with the same drug for the same indication is shown to be clinically superior to the approved medicine on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. In the EU, Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 provide that a medicine can be designated as an orphan medicinal product by the EC if its sponsor can establish: that the medicine is intended for the diagnosis, prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the EU when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives it is unlikely that the marketing of the medicinal product in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the medicinal product will be of significant benefit to those affected by that condition. Once authorized, orphan medicinal products are entitled to ten years of market exclusivity in all EU Member States (extendable to twelve years for medicines that have complied with an agreed pediatric investigation plan pursuant to Regulation 1901/2006) and in addition a range of other benefits during the development and regulatory review process including scientific assistance for study protocols, authorization through the centralized marketing authorization procedure covering all member countries and a reduction or elimination of registration and marketing authorization fees. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the regulatory exclusivity period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if this medicine is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if, at the end of the fifth year, it can be demonstrated on the basis of available evidence that the criteria for its designation as an orphan medicine are no longer satisfied, for example if the original orphan medicinal product has become sufficiently profitable not to justify maintenance of market exclusivity. 26 Other Regulatory Requirements. Medicines manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including recordkeeping, annual medicine quality review, payment of program fees and reporting requirements. Adverse event experience with the medicine must be reported to the FDA in a timely fashion and pharmacovigilance programs to proactively look for these adverse events are mandated by the FDA. Our medicines may be subject to REMS requirements that affect labeling, distribution or post market reporting. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMPs, which impose certain procedural and documentation requirements upon us and our third- party manufacturers. Following such inspections, the FDA may issue notices on Form 483 and untitled letters or warning letters that could cause us or our third-party manufacturers to modify certain activities. A Form 483 notice, if issued at the conclusion of an FDA inspection, can list conditions the FDA investigators believe may have violated cGMP or other FDA regulations or guidelines. In addition to Form 483 notices and untitled letters, failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of medicine, injunctive action, additional reporting requirements and/or oversight by the agency, import alert or possible civil penalties. The FDA may also require us to recall a drug from distribution or withdraw approval for that medicine. The FDA closely regulates the post-approval marketing and promotion of pharmaceuticals, including standards and regulations for direct-to-consumer advertising, dissemination of off-label information, industry-sponsored scientific and educational activities and promotional activities involving the Internet, including certain social media activities. Medicines may be marketed only for the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to the medicine, including changes in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new or supplemental application, which may require us to develop additional data or conduct additional pre-clinical studies and clinical trials. Failure to comply with these requirements can result in adverse publicity, untitled letters, corrective advertising and potential administrative, civil and criminal penalties, as well as damages, fines, withdrawal of regulatory approval, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs, additional reporting requirements and/or oversight by the agency, and imprisonment, any of which could adversely affect our ability to sell our medicines or operate our business and also adversely affect our financial results. Physicians may, in their independent medical judgment, prescribe legally available pharmaceuticals for uses that are not described in the medicine’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label use. Additionally, a significant number of pharmaceutical companies have been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of medicines for off-label uses and other sales practices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, false claims laws, the Prescription Drug Marketing Act, or PDMA, anti-kickback laws, and other alleged violations in connection with the promotion of medicines for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. If our promotional activities, including any promotional activities that a contracted sales force may perform on our behalf, fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to issue warning letters or untitled letters, suspend or withdraw an approved medicine from the market, require corrective advertising or a recall or institute fines or civil fines, additional reporting requirements and/or oversight or could result in disgorgement of money, operating restrictions, injunctions or criminal prosecution, any of which could harm our business. In addition, the distribution of prescription medicines is subject to the PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription medicine samples and impose requirements to ensure accountability in distribution, including a drug pedigree which tracks the distribution of prescription drugs. Further, under the Drug Quality and Security Act, drug manufacturers are subject to a number of requirements, including, medicine identification, tracing and verification, among others, that are designed to detect and remove counterfeit, stolen, contaminated or otherwise potentially harmful drugs from the U.S. drug supply chain. Outside the United States, the ability of our partners and us to market a medicine is contingent upon obtaining marketing authorization from the appropriate regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from country to country and region to region. 27 The EU and the EEA consist, at the time of writing, of the twenty-seven Member States of the EU (for details on the impact the United Kingdom leaving the EU will have, see the section entitled ‘The Impact of Brexit’ below), plus Norway, Iceland and Liechtenstein which are Member States of the EEA. These Member States have all acceded to the single market rules governing the supervision of medicinal products. Under the prevailing rules, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are three procedures for an MA to be obtained: (cid:129) (cid:129) (cid:129) the Centralized MA, which is issued by the EC through the Centralized Procedure, based on the scientific opinion of the Committee for Medicinal Products for Human Use of the EMA, and which is valid throughout the entire territory of the EU/EEA. The Centralized Procedure is mandatory for certain types of products, such as (i) biotechnology medicinal products such as genetic engineering, (ii) orphan medicinal products, (iii) medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, autoimmune and viral diseases and (iv) advanced-therapy medicines, such as gene therapy, somatic cell therapy or tissue-engineered medicines. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EU/EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. Decentralized Procedure MAs are available for products not falling within the mandatory scope of the Centralized Procedure. An identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS, to lead the evaluation of the regulatory submission. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SmPC, and a draft of the labeling and package leaflet as distilled from the preliminary evaluation, which are sent to the other Member States (referred to as the Concerned Member States) for their approval. If the Concerned Member States raise no objections, based on a potential serious risk to public health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the RMS records the agreement, closes the procedure and informs the applicant accordingly. Each Member State concerned by the procedure is required to adopt a national decision to grant a national MA in conformity with the approved assessment report, SmPC and the labeling and package leaflet as approved. Where a product has already been authorized for marketing in a Member State of the EEA, the granted national MA can be used for mutual recognition in other Member States through the Mutual Recognition Procedure, or MRP, resulting in progressive national approval of the product in the EU/EEA. National MAs, which are issued by a single competent authority of the Member States of the EEA and only covers their respective territory, are also available for products not falling within the mandatory scope of the Centralized Procedure. Once a product has been authorized for marketing in a Member State of the EEA through the National Procedure, this National MA can also be recognized in other Member States through the MRP. Under the procedures described above, before granting the MA, the EMA or the competent authority(ies) of the Member State(s) of the EEA prepare an assessment of the risk-benefit balance of the product against the scientific criteria concerning its quality, safety and efficacy. Under Regulation (EC) No 726/2004/EC and Directive 2001/83/EC (each as amended), the EU has adopted a harmonized approach to data and market protection or exclusivity (known as the 8 + 2 + 1 formula). The data exclusivity period begins to run on the date when the first MA is granted in the EU. It confers on the MA holder of the reference medicinal product eight years of data protection and ten years of market protection. A reference medicinal product is defined to mean a medicinal product authorized based on a full dossier consisting of pharmaceutical and pre-clinical testing results and clinical trial data, such as a medicinal product containing a new active substance. The ten-year market protection can be extended cumulatively to a maximum period of eleven years if during the first eight years of those ten years of protection period, the MA holder obtains an authorization for one or more new therapeutic indications that are deemed to bring a significant clinical benefit compared to existing therapies. The protection period means that an applicant for a generic medicinal product is not permitted to rely on pre-clinical pharmacological, toxicological, and clinical data contained in the file of the reference medicinal product of the originator until the first eight years of data protection have expired. Thereafter, a generic product application may be submitted and generic companies may rely on the pre-clinical and clinical data relating to the reference medicinal product to support approval of the generic product. However, a generic cannot market until ten years have elapsed from the initial authorization of the reference medicinal product or eleven years if the protection period is extended, based on the formula of 8+2+1. 28 In addition to the above, where an application is made for a new indication for a well-established substance, a non- cumulative period of one year of data exclusivity shall be granted, provided that significant pre-clinical or clinical studies were carried out in relation to the new indication. Finally, where a change of classification of a medicinal product has been authorized on the basis of significant pre-clinical tests or clinical trials, the competent authority shall not refer to the results of those tests or trials when examining an application by another applicant for or holder of marketing authorization for a change of classification of the same substance for one year after the initial change was authorized. The 8 + 2 + 1 exclusivity scheme applies to products that have been authorized in the EU by either the EMA through the Centralized Procedure or the competent authorities of the Member States of the EEA nationally, including through the Decentralized and Mutual Recognition procedures. For a medicinal product which has received orphan designation under Regulation 141/2000, it will, as set out in further detail in the section entitled ‘Orphan Medicines’ above, benefit from a period of ten years of orphan market exclusivity which essentially constitutes a period of market monopoly. During this period of orphan market exclusivity, no EU regulatory authority is permitted to accept or approve an application for marketing authorization for a similar medicinal product or an extension application for the same therapeutic indication. This period can be extended cumulatively to a total of twelve years if the marketing authorization holder or applicant complies with the requirements for an agreed pediatric investigation plan pursuant to Regulation 1901/2006. The holder of a Centralized MA or National MA is subject to various obligations under the applicable EU laws, such as pharmacovigilance obligations, requiring it to, among other things, report and maintain detailed records of adverse reactions, and to submit periodic safety update reports, or PSURs, to the competent authorities. All new marketing authorization applications must include a risk management plan, or RMP, describing the risk management system that the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs are routinely available to third parties requesting access, subject to limited redactions. All advertising and promotional activities for the product must be consistent with the approved summary of product characteristics, and therefore all off-label promotion is prohibited. Direct- to-consumer advertising of prescription medicines is also prohibited in the EU. The holder must also ensure that the manufacturing and batch release of its product is in compliance with the applicable requirements. The MA holder is further obligated to ensure that the advertising and promotion of its products complies with applicable EU laws and industry code of practice as implemented in the domestic laws of the Member States of the EU/EEA. The advertising and promotional rules are enforced nationally by the EU/EEA Member States. The Impact of Brexit. The withdrawal of the United Kingdom from the EU (commonly referred to as “Brexit”) took effect on January 31, 2020. Since a significant portion of the regulatory framework in the United Kingdom applicable to our business and our products is derived from EU directives and regulations, Brexit could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our products in the United Kingdom and/or the EU. Healthcare Fraud and Abuse Laws. As a pharmaceutical company, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We may be subject to various federal and state laws targeting fraud and abuse in the healthcare industry. For example, in the United States, there are federal and state anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services or reward past purchases or recommendations. Violations of these laws can lead to civil and criminal penalties, including fines, imprisonment, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement, and exclusion from participation in federal healthcare programs. These laws are applicable to manufacturers of products regulated by the FDA, such as us, and pharmacies, hospitals, physicians and other potential purchasers of such products. 29 The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” is defined as any remuneration, direct or indirect, overt or covert, in cash or in kind, and has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute may have been violated, and enforcement will depend on the relevant facts and circumstances. The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, among other things, amended the intent requirement of the federal Anti-Kickback Statute to state that a person or entity need not have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or to have offered improper inducements to federal health care program beneficiaries to select a particular provider or supplier. The federal Anti- Kickback Statute is broad, and despite a series of narrow safe harbors, prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Many states have also adopted laws similar to the federal Anti- Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs, and do not contain identical safe harbors. In addition, where such activities involve foreign government officials, they may also potentially be subject to the Foreign Corrupt Practices Act. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities, including our activities with physician customers, pharmacies, and patients, as well as our activities pursuant to partnerships with other companies and pursuant to contracts with contract research organizations, could be subject to challenge under one or more of such laws. The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. In addition, the ACA specified that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. The federal False Claims Act has been the basis for numerous enforcement actions and settlements by pharmaceutical and other healthcare companies in connection with various alleged financial relationships with customers. In addition, a number of pharmaceutical manufacturers have reached substantial financial settlements in connection with allegedly causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses. Certain marketing practices, including off-label promotion, may also violate false claims laws, as might violations of the federal physician self-referral laws, such as the Stark laws, which prohibit a physician from making a referral to certain designated health services with which the physician or the physician’s family member has a financial interest and prohibit submission of a claim for reimbursement pursuant to the prohibited referral. The “qui tam” provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In addition, various states have enacted similar fraud and abuse statutes or regulations, including, without limitation, false claims laws analogous to the False Claims Act, and laws analogous to the federal Anti-Kickback Statute, that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer, and there are also federal criminal false claims laws. Separately, there are a number of other fraud and abuse laws that pharmaceutical manufacturers must be mindful of, particularly after a medicine candidate has been approved for marketing in the United States. For example, a federal criminal law enacted as part of, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payers. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. There are also federal civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, as well as federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers. 30 Privacy and Security Laws. We may be subject to, or our marketing activities may be limited by, HIPAA, as amended by the Health Information Technology and Clinical Health Act (HITECH) and their respective implementing regulations, which established uniform standards for certain “covered entities” (healthcare providers, health plans and healthcare clearinghouses) governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information. Among other things, HIPAA’s privacy and security standards are directly applicable to “business associates” — independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. In addition to possible civil and criminal penalties for violations, state attorneys general are authorized to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. Accordingly, state attorneys general (along with private plaintiffs) have brought civil actions seeking injunctions and damages resulting from alleged violations of HIPAA’s privacy and security rules. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. In the EU/EEA, the General Data Protection Regulation (2016/679), or GDPR, went into effect in 2018 and replaced Directive 95/46/EC (the EU Privacy Directive). The GDPR applies to identified or identifiable personal data processed by automated means (for example, a computer database of customers) and data contained in, or intended to be part of, non- automated filing systems (traditional paper files) as well as transfer of such data to a country outside of the EU/EEA. Under the GDPR, fines of up to €20.0 million or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed for significant non-compliance. The GDPR includes more stringent operational requirements for processors and controllers of personal data and creates additional rights for data subjects. Additionally, Brexit took effect in January 2020, which is also expected to lead to further legislative and regulatory changes. While the Data Protection Act of 2018, that “implements” and complements the GDPR has achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under GDPR. We may incur liabilities, expenses, costs, and other operational losses under GDPR and applicable EU Member States and the United Kingdom privacy laws in connection with any measures we take to comply with them. Additionally, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020. The CCPA has been dubbed the first “GDPR-like” law in the United States since it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households (including health information). The CCPA requires covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personal information, and allows for a new cause of action for data breaches. It is unclear how the CCPA will be interpreted, but as currently written, it will likely impact our business activities and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protected health information. “Sunshine” and Marketing Disclosure Laws. There are an increasing number of federal and state “sunshine” laws that require pharmaceutical manufacturers to make reports to states on pricing and marketing information. Several states have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing compliance programs, file periodic reports with the state, and make periodic public disclosures on sales and marketing activities, and prohibiting certain other sales and marketing practices. In addition, a similar federal requirement requires manufacturers, including pharmaceutical manufacturers, to track and report to the federal government the following: certain payments and other transfers of value made to physicians, teaching hospitals and, in 2021, other healthcare professionals including physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives; and ownership or investment interests held by physicians and their immediate family members. The federal government began disclosing the reported information on a publicly available website in 2014. Certain states, such as Massachusetts, also make the reported information publicly available. In addition, there are state and local laws that require pharmaceutical representatives to be licensed and comply with codes of conduct, transparency reporting, and other obligations. These laws may adversely affect our sales, marketing, and other activities with respect to our medicines in the United States by imposing administrative and compliance burdens on us. If we fail to track and report as required by these laws or otherwise comply with these laws, we could be subject to the penalty provisions of the pertinent state and federal authorities. In the EU/EEA, declaration of transfers of value to healthcare professionals is subject to the requirements under the voluntary industry code of practice. France however has a statutory regime similar to the U.S. Sunshine Act. 31 Government Price Reporting. For those marketed medicines which are covered in the United States by the Medicaid programs, we have various obligations, including government price reporting and rebate requirements, which generally require medicines be offered at substantial rebates/discounts to Medicaid and certain purchasers (including “covered entities” purchasing under the 340B Drug Discount Program). We are also required to discount such medicines to authorized users of the Federal Supply Schedule of the General Services Administration, under which additional laws and requirements apply. These programs require submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations, and the guidance governing such calculations is not always clear. Compliance with such requirements can require significant investment in personnel, systems and resources, but failure to properly calculate our prices, or offer required discounts or rebates could subject us to substantial penalties. One component of the rebate and discount calculations under the Medicaid and 340B programs, respectively, is the “additional rebate”, a complex calculation which is based, in part, on the extent that a branded drug’s price increases over time more than the rate of inflation (based on the Consumer Price Index for All Urban Consumers). This comparison is based on the baseline pricing data for the first full quarter of sales associated with a branded drug’s NDA, and baseline data cannot generally be reset, even on transfer of the NDA to another manufacturer. This “additional rebate” calculation can, in some cases where price increase have been relatively high versus the first quarter of sales of the NDA, result in Medicaid rebates up to 100 percent of a drug’s “average manufacturer price” and 340B prices of one penny. Governments influence the price of medicinal products in the EU through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other EU Member States allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription medicines, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In General. Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities in the United States could be subject to challenge under one or more of such laws. Moreover, state governmental agencies may propose or enact laws and regulations that extend or contradict federal requirements. If we or our operations are found to be in violation of any of the state or federal laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significant civil and criminal penalties, damages, fines, imprisonment, exclusion from participation in U.S. federal or state healthcare programs, additional reporting requirements and/or oversight and the curtailment or restructuring of our operations. To the extent that any medicine we make is sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal, state and foreign privacy, security, sunshine, government price reporting, and fraud laws may prove costly. Impact of Healthcare Reform and Recent Public Scrutiny of Drug Pricing on Coverage, Reimbursement, and Pricing. In the United States and other potentially significant markets for our medicines, federal and state lawmakers and regulatory authorities as well as third-party payers are increasingly attempting to regulate the price of medical products and services, particularly for new and innovative medicines and therapies, which has resulted in delays of coverage decisions, barriers for product access including higher patient copays and in certain cases, leads to lower average net selling prices. Further, there is increased scrutiny of prescription drug pricing practices by federal and state lawmakers and enforcement authorities. In addition, there is an emphasis on managed healthcare in the United States and on country-specific and regional pricing and reimbursement controls in the EU, both of which will put additional pressure on medicine pricing, reimbursement and usage, which may adversely affect our future medicine sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general. 32 The U.S. and some foreign jurisdictions are considering or have enacted a number of additional legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our medicines profitably. Among policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs (including a number of proposals pertaining to prescription drugs, specifically), improving quality and/or expanding access. In the United States, some of the additional proposals to reduce the cost of prescription drug prices considered at the federal level include directing Medicare to negotiate directly with manufacturers for the costliest drugs; various Medicare Part D and Medicaid reforms; price reporting transparency; importation rulemaking; an international pricing index proposal to require additional discounts to Medicare, as well as a proposal requiring manufacturers to pay a rebate to the federal government if the price of a Medicare Part B or Part D drug increases more than the rate of inflation. Also at the federal level, the Trump administration’s budget proposal for fiscal year 2020 contained further drug price control measures that could be enacted during the 2020 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. For example, in May 2019, CMS issued a final regulation that would require Part D plans to include drug pricing information and lower cost therapeutic alternatives as well as allow “step therapy” in Medicare Advantage for Part B drugs. While these final measures will require additional rulemaking and action by Congress to pass legislation to become effective, these provisions reinforce the administration’s focus on controlling drug prices. At the state level, in Massachusetts, the MassHealth program has requested permission from the federal government to use commercial tools, such as a closed formulary, to negotiate more favorable rebate agreements from drug manufacturers. There also has been particular and increasing legislative and enforcement interest in the United States with respect to drug pricing practices in recent years, particularly with respect to drugs that have been subject to relatively large price increases over relatively short time periods. There have been several recent state and federal lawmaker inquiries, proposed legislation and enacted legislation as was the case in California designed to, among other things, bring more transparency to drug pricing, by requiring drug companies to notify insurers and government regulators of price increases and provide an explanation of the reasons for the increase. There have also been actions to review the relationship between pricing and manufacturer patient assistance programs, and reform government program reimbursement methodologies for drugs. In the United States, the pharmaceutical industry has already been significantly affected by major legislative initiatives, including, for example, the ACA. The ACA, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, and impose additional health policy reforms, any or all of which may affect our business. Since its enactment, there have been judicial and Congressional challenges to numerous provisions of the ACA. These challenges include Executive Orders directing federal agencies with authorities and responsibilities under the ACA, to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices as well as legislation passed by the House of Representatives and Senate, but not yet signed into law, to repeal certain aspects of the ACA. On October 12, 2017, U.S. President Donald Trump signed another Executive Order directing certain federal agencies (including HHS) to propose regulations or guidelines, such regulations that HHS finalized by HHS in 2019 to permit small businesses to form association health plans, expand the availability of short-term, limited duration insurance, and expand the use of health reimbursement arrangements, which may circumvent some of the requirements for health insurance mandated by the ACA. In addition, citing legal guidance from the U.S. Department of Justice and the U.S. Department of Health and Human Services, the Trump administration has concluded that cost-sharing reduction, or CSR, payments to insurance companies required under the ACA have not received necessary appropriations from Congress and announced that it will discontinue these payments immediately until such appropriations are made. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. Finally, while Congress has not passed comprehensive ACA repeal or replace legislation, the federal income tax legislation signed into law on December 22, 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. We continue to evaluate the effect that the ACA and additional actions by Congress to possibly repeal and replace it has on our business. 33 Other legislative changes have also been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011 resulted in aggregate reductions in Medicare payments to providers of up to 2 percent per fiscal year, starting in 2013, and the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Such laws, and others that may affect our business that have been recently enacted or may in the future be enacted, may result in additional reductions in Medicare and other healthcare funding. In the future, there will likely continue to be additional proposals relating to the reform of the U.S. healthcare system, some of which could further limit coverage and reimbursement of medicines, including our medicine candidates. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payers. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans (also known as the Medicare “Donut Hole”), and also increases in 2019 the percentage that a drug manufacturer must discount the cost of prescription drugs from 50 percent under current law to 70 percent. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our medicines. Irish Law Matters As we are an Irish-incorporated company, the following matters of Irish law are relevant to the holders of our ordinary shares. Irish Restrictions on Import and Export of Capital. Except as indicated below, there are no restrictions imposed specifically on non-residents of Ireland dealing in Irish domestic securities, which includes ordinary shares of Irish companies. Dividends and redemption proceeds also continue to be freely transferable to non-resident holders of such securities. The Financial Transfers Act 1992 gives power to the Minister for Finance of Ireland to restrict financial transfers between Ireland and other countries and persons. Financial transfers are broadly defined and include all transfers that would be movements of capital or payments within the meaning of the treaties governing the member states of the EU. The acquisition or disposal of interests in shares issued by an Irish incorporated company and associated payments falls within this definition. In addition, dividends or payments on redemption or purchase of shares and payments on a liquidation of an Irish incorporated company would fall within this definition. The Criminal Justice (Terrorist Offences) Act 2005 (as amended) also gives the Minister of Finance of Ireland the power to take various measures, including the freezing or seizure of assets, in order to combat terrorism. At present the Financial Transfers Act 1992, certain EU regulations (as implemented into Irish law) and the Criminal Justice (Terrorist Offences) Act 2005 (as amended) prohibit financial transfers involving certain persons and entities associated with the ISIL (Da’esh) and Al-Qaida organizations, the late Slobodan Milosevic and associated persons, Republic of Guinea-Bissau, Myanmar/Burma, Belarus, certain persons indicted by the International Criminal Tribunal for the former Yugoslavia, the late Osama bin Laden, Al-Qaida, the Taliban of Afghanistan, Democratic Republic of Congo, Democratic People’s Republic of Korea (North Korea), Iran, Iraq, Côte d’Ivoire, Lebanon, Liberia, Zimbabwe, South Sudan, Sudan, Somalia, Republic of Guinea, Afghanistan, Egypt, Eritrea, Libya, Syria, Tunisia, Burundi, the Central African Republic, Ukraine, Yemen, Bosnia and Herzegovina, certain known terrorists and terrorist groups, and countries that harbor certain terrorist groups, without the prior permission of the Central Bank of Ireland or the Minister of Finance (as applicable). Any transfer of, or payment in respect of, a share or interest in a share involving the government of any country that is currently the subject of United Nations or EU sanctions, any person or body controlled by any of the foregoing, or by any person acting on behalf of the foregoing, may be subject to restrictions pursuant to such sanctions as implemented into Irish law. Irish Taxes Applicable to U.S. Holders Withholding Tax on Dividends. While we have no current plans to pay dividends, dividends on our ordinary shares would generally be subject to Irish Dividend Withholding Tax, or DWT, at the rate of 25 percent, unless an exemption applies. Dividends on our ordinary shares that are owned by residents of the United States and held beneficially through the Depositary Trust Company, or DTC, will not be subject to DWT provided that the address of the beneficial owner of the ordinary shares in the records of the broker is in the United States. 34 Dividends on our ordinary shares that are owned by residents of the United States and held directly (outside of DTC) will not be subject to DWT provided that the shareholder has completed the appropriate Irish DWT form and this form remains valid. Such shareholders must provide the appropriate Irish DWT form to our transfer agent at least seven business days before the record date for the first dividend payment to which they are entitled. If any shareholder who is resident in the United States receives a dividend subject to DWT, he or she should generally be able to make an application for a refund from the Irish Revenue Commissioners on the prescribed form (DWT Claim Form 1). While the U.S./Ireland Double Tax Treaty contains provisions regarding withholding tax, due to the wide scope of the exemptions from DWT available under Irish domestic law, it would generally be unnecessary for a U.S. resident shareholder to rely on the treaty provisions. Income Tax on Dividends. A shareholder who is neither resident nor ordinarily resident in Ireland and who is entitled to an exemption from DWT generally has no additional liability to Irish income tax or to the universal social charge on a dividend from us unless that shareholder holds our ordinary shares through a branch or agency in Ireland through which a trade is carried on. A shareholder who is neither resident nor ordinarily resident in Ireland and who is not entitled to an exemption from DWT generally has no additional liability to Irish income tax or to the universal social charge on a dividend from us. The DWT deducted by us discharges the liability to Irish income tax and to the universal social charge. This however is not the case where the shareholder holds the ordinary shares through a branch or agency in Ireland through which a trade is carried on. Irish Tax on Capital Gains. A shareholder who is neither resident nor ordinarily resident in Ireland and does not hold our ordinary shares in connection with a trade or business carried on by such shareholder in Ireland through a branch or agency should not be within the charge to Irish tax on capital gains on a disposal of our ordinary shares. Capital Acquisitions Tax. Irish capital acquisitions tax, or CAT, is composed principally of gift tax and inheritance tax. CAT could apply to a gift or inheritance of our ordinary shares irrespective of the place of residence, ordinary residence or domicile of the parties. This is because our ordinary shares are regarded as property situated in Ireland as our share register must be held in Ireland. The person who receives the gift or inheritance has primary liability for CAT. CAT is levied at a rate of 33 percent above certain tax-free thresholds. The appropriate tax-free threshold is dependent upon (i) the relationship between the donor and the donee and (ii) the aggregation of the values of previous gifts and inheritances received by the donee from persons within the same category of relationship for CAT purposes. Gifts and inheritances passing between spouses are exempt from CAT. Our shareholders should consult their own tax advisers as to whether CAT is creditable or deductible in computing any domestic tax liabilities. Stamp Duty. Irish stamp duty (if any) may become payable in respect of ordinary share transfers. However, a transfer of our ordinary shares from a seller who holds shares through DTC to a buyer who holds the acquired shares through DTC will not be subject to Irish stamp duty. A transfer of our ordinary shares (i) by a seller who holds ordinary shares outside of DTC to any buyer, or (ii) by a seller who holds the ordinary shares through DTC to a buyer who holds the acquired ordinary shares outside of DTC, may be subject to Irish stamp duty (currently at the rate of 1 percent of the price paid or the market value of the ordinary shares acquired, if greater). The person accountable for payment of stamp duty is the buyer or, in the case of a transfer by way of a gift or for less than market value, all parties to the transfer. 35 A shareholder who holds ordinary shares outside of DTC may transfer those ordinary shares into DTC without giving rise to Irish stamp duty provided that the shareholder would be the beneficial owner of the related book-entry interest in those ordinary shares recorded in the systems of DTC (and in exactly the same proportions) as a result of the transfer and at the time of the transfer into DTC there is no sale of those book-entry interests to a third party being contemplated by the shareholder. Similarly, a shareholder who holds ordinary shares through DTC may transfer those ordinary shares out of DTC without giving rise to Irish stamp duty provided that the shareholder would be the beneficial owner of the ordinary shares (and in exactly the same proportions) as a result of the transfer, and at the time of the transfer out of DTC there is no sale of those ordinary shares to a third party being contemplated by the shareholder. In order for the share registrar to be satisfied as to the application of this Irish stamp duty treatment where relevant, the shareholder must confirm to us that the shareholder would be the beneficial owner of the related book-entry interest in those ordinary shares recorded in the systems of DTC (and in exactly the same proportions) (or vice-versa) as a result of the transfer and there is no agreement for the sale of the related book-entry interest or the ordinary shares or an interest in the ordinary shares, as the case may be, by the shareholder to a third party being contemplated. Employees As of December 31, 2019, we had approximately 1,200 full-time employees. Of our employees as of December 31, 2019, approximately 230 were engaged in development, regulatory and manufacturing activities, approximately 740 were engaged in sales and marketing and approximately 230 were engaged in administration, including business development, finance, legal, information systems, facilities and human resources. None of our employees are subject to a collective bargaining agreement. We consider our employee relations to be good. Available Information We make available free of charge on or through our internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. We also regularly post copies of our press releases as well as copies of presentations and other updates about our business on our website. Our website address is www.horizontherapeutics.com. The information contained in or that can be accessed through our website is not part of this Annual Report on Form 10-K. Information is also available through the Securities and Exchange Commission’s website at www.sec.gov. Item 1A. Risk Factors Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its entirety, in addition to other information contained in this report as well as our other public filings with the Securities and Exchange Commission, or SEC. Risks Related to Our Business and Industry Our ability to generate revenues from our medicines is subject to attaining significant market acceptance among physicians, patients and healthcare payers. Our current medicines, and other medicines or medicine candidates that we may develop or acquire, may not attain market acceptance among physicians, patients, healthcare payers or the medical community. Some of our medicines have not been on the market for an extended period of time, which subjects us to numerous risks as we attempt to increase our market share. We believe that the degree of market acceptance and our ability to generate revenues from our medicines will depend on a number of factors, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) timing of market introduction of our medicines as well as competitive medicines; efficacy and safety of our medicines; continued projected growth of the markets in which our medicines compete; the extent to which physicians diagnose and treat the conditions that our medicines are approved to treat; prevalence and severity of any side effects; 36 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) if and when we are able to obtain regulatory approvals for additional indications for our medicines; acceptance by patients, physicians and key specialists; availability of coverage and adequate reimbursement and pricing from government and other third-party payers; potential or perceived advantages or disadvantages of our medicines over alternative treatments, including cost of treatment and relative convenience and ease of administration; strength of sales, marketing and distribution support; the price of our medicines, both in absolute terms and relative to alternative treatments; impact of past and limitation of future medicine price increases; our ability to maintain a continuous supply of our medicines for commercial sale; the effect of current and future healthcare laws; the performance of third-party distribution partners, over which we have limited control; and medicine labeling or medicine insert requirements of the U.S. Food and Drug Administration, or FDA, or other regulatory authorities. With respect to KRYSTEXXA, our ability to grow sales will be affected by the success of our sales, marketing and clinical strategies, which are intended to expand the patient population and usage of KRYSTEXXA. This includes our marketing efforts in nephrology and our studies designed to improve the response rate to KRYSTEXXA and to evaluate the use of KRYSTEXXA in kidney transplant patients. With respect to RAVICTI, which is approved to treat a very limited patient population, our ability to grow sales will depend in large part on our ability to transition urea cycle disorder, or UCD, patients from BUPHENYL or generic equivalents, which are comparatively much less expensive, to RAVICTI and to encourage patients and physicians to continue RAVICTI therapy once initiated. With respect to PROCYSBI, which is also approved to treat a very limited patient population, our ability to grow sales will depend in large part on our ability to transition patients from the first-generation immediate-release cysteamine therapy to PROCYSBI, to identify additional patients with nephropathic cystinosis and to encourage patients and physicians to continue therapy once initiated. With respect to ACTIMMUNE, while it is the only FDA-approved treatment for chronic granulomatous disease, or CGD, and severe, malignant osteopetrosis, or SMO, they are very rare conditions and, as a result, our ability to grow ACTIMMUNE sales will depend on our ability to identify additional patients and encourage patients and physicians to continue treatment once initiated. With respect to each of PENNSAID 2% w/w, or PENNSAID 2%, RAYOS, DUEXIS and VIMOVO, their higher cost compared to the generic or branded forms of their active ingredients alone may limit adoption by physicians, patients and healthcare payers. With respect to DUEXIS and VIMOVO, studies indicate that physicians do not commonly co-prescribe gastrointestinal, or GI, protective agents to high-risk patients taking nonsteroidal anti-inflammatory drugs, or NSAIDs. We believe this is due in part to a lack of awareness among physicians prescribing NSAIDs regarding the risk of NSAID-induced upper GI ulcers, in addition to the inconvenience of prescribing two separate medications and patient compliance issues associated with multiple prescriptions. If physicians remain unaware of, or do not otherwise believe in, the benefits of combining GI protective agents with NSAIDs, our market opportunity for DUEXIS and VIMOVO will be limited. Some physicians may also be reluctant to prescribe DUEXIS or VIMOVO due to the inability to vary the dose of ibuprofen and naproxen, respectively, or if they believe treatment with NSAIDs or GI protective agents other than those contained in DUEXIS and VIMOVO, including those of its competitors, would be more effective for their patients. With respect to TEPEZZA, sales will depend on market acceptance and adoption by physicians and healthcare payers, as well as the ability and willingness of physicians who do not have in-house infusion capability to refer patients to infusion sites of care. If our current medicines or any other medicine that we may seek approval for, or acquire, fail to attain market acceptance, we may not be able to generate significant revenue to achieve or sustain profitability, which would have a material adverse effect on our business, results of operations, financial condition and prospects (including, possibly, the value of our ordinary shares). 37 Our future prospects are highly dependent on our ability to successfully formulate and execute commercialization strategies for each of our medicines. Failure to do so would adversely impact our financial condition and prospects. A substantial majority of our resources are focused on the commercialization of our current medicines. Our ability to generate significant medicine revenues and to achieve commercial success in the near-term will initially depend almost entirely on our ability to successfully commercialize these medicines in the United States. With respect to our rare disease medicines, KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE and TEPEZZA, our commercialization strategy includes efforts to increase awareness of the rare conditions that each medicine is designed to treat, enhancing efforts to identify target patients and in certain cases pursue opportunities for label expansion and more effective use through clinical trials. Our strategy with respect to KRYSTEXXA includes existing rheumatology account growth, new rheumatology account growth and accelerating nephrology growth, as well as development efforts to enhance response rates through combination treatment with methotrexate and to shorten the infusion time. With respect to RAVICTI and PROCYSBI, our strategy includes accelerating the transition of patients from first-generation therapies, increasing the diagnosis of the associated rare conditions through patient and physician outreach; and increasing compliance rates. Our commercialization strategy for TEPEZZA is focused on four pillars: establishing the market structure and simplifying the diagnosis and treatment of thyroid eye disease, or TED, for patients; educating the multiple stakeholders about TED and TEPEZZA; supporting the commercialization of TEPEZZA with our comprehensive approach and its patient-centric model; and facilitating access to TEPEZZA by establishing an infusion site-of-care referral process for treating physicians who may not have infusion capabilities. We are focusing a significant portion of our commercial activities and resources on TEPEZZA, and we believe our ability to grow our long-term revenues, and a significant portion of the value of our company, relates to our ability to successfully commercialize TEPEZZA in the United States. As a newly-launched medicine for a disease that had no previously-approved treatments, successful commercialization of TEPEZZA is subject to many risks. There are numerous examples of unsuccessful product launches and failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than us. While we have established our commercial team and U.S. sales force, we will need to train and further develop the team in order to successfully coordinate the launch and commercialization of TEPEZZA. There are many factors that could cause the launch and commercialization of TEPEZZA to be unsuccessful, including a number of factors that are outside our control. Because no medicine has previously been approved by the FDA for the treatment of TED, it is especially difficult to estimate TEPEZZA’s market potential or the time it will take to increase patient and physician awareness of TED and change current treatment paradigms. In addition, some physicians that are potential prescribers of TEPEZZA do not have the necessary infusion capabilities to administer the medicine and may not otherwise be able or willing to refer their patients to third-party infusion centers, which may discourage them from treating their patients with TEPEZZA. The commercial success of TEPEZZA depends on the extent to which patients and physicians accept and adopt TEPEZZA as a treatment for TED. For example, if the patient population suffering from TED is smaller than we estimate, if it proves difficult to identify TED patients or educate physicians as to the availability and potential benefits of TEPEZZA, or if physicians are unwilling to prescribe or patients are unwilling to take TEPEZZA, the commercial potential of TEPEZZA will be limited. We also do not know how physicians, patients and payers will respond to the pricing of TEPEZZA. Physicians may not prescribe TEPEZZA and patients may be unwilling to use TEPEZZA if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost. Further, the status of reimbursement codes for TEPEZZA could also affect reimbursement. J codes, Q codes and C codes are reimbursement codes maintained by the Centers for Medicare & Medicaid Services, or CMS, that are typically used to report injectable drugs that ordinarily cannot be self-administered. Initially, TEPEZZA will be reimbursed through a non-specific miscellaneous J code. The non-specific miscellaneous J code is used for a wide variety of products and health plans may have more difficulty determining the actual product used and billed for the patient. As a result, these claims must often be submitted with additional information and manually processed, which can create delays in claims processing times as well as increasing the likelihood for claim errors. These delays and claims errors may in turn slow adoption of TEPEZZA until a product-specific reimbursement code is issued by the CMS. Thus, significant uncertainty remains regarding the commercial potential of TEPEZZA. If the launch or commercialization of TEPEZZA is unsuccessful or perceived as disappointing, the price of our ordinary shares could decline significantly and long-term success of the medicine and our company could be harmed. 38 With respect to our inflammation medicines, PENNSAID 2%, DUEXIS, and VIMOVO, our strategy has included entering into rebate agreements with pharmacy benefit managers, or PBMs, for certain of our inflammation medicines where we believe the rebates and costs justify expanded formulary access for patients and ensuring patient assistance to these drugs when prescribed through our HorizonCares program. However, we cannot guarantee that we will be able to secure additional rebate agreements on commercially reasonable terms, that expected volume growth will sufficiently offset the rebates and fees paid to PBMs or that our existing agreements with PBMs will have the intended impact on formulary access. In addition, as the terms of our existing agreements with PBMs expire, we may not be able to renew the agreements on commercially favorable terms, or at all. For each of our inflammation medicines, we expect that our commercial success will depend on our sales and marketing efforts in the United States, reimbursement decisions by commercial payers, the expense we incur through our patient assistance program for fully bought down contracts and the rebates we pay to PBMs, as well as the impact of numerous efforts at federal, state and local levels to further reduce reimbursement and net pricing of inflammation medicines. Our strategy for RAYOS in the United States is to focus on the rheumatology indications approved for RAYOS, including our collaboration with the Alliance for Lupus Research, to study the effect of RAYOS on the fatigue experienced by systemic lupus erythematosus, or SLE, patients. If any of our commercial strategies are unsuccessful or we fail to successfully modify our strategies over time due to changing market conditions, our ability to increase market share for our medicines, grow revenues and to achieve and sustain profitability will be harmed. In order to increase adoption and sales of our medicines, we will need to continue developing our commercial organization as well as recruit and retain qualified sales representatives. Part of our strategy is to continue to build a biopharma company to successfully execute the commercialization of our medicines in the U.S. market, and in selected markets outside the United States where we have commercial rights. We may not be able to successfully commercialize our medicines in the United States or in any other territories where we have commercial rights. In order to commercialize any approved medicines, we must continue to build our sales, marketing, distribution, managerial and other non-technical capabilities. As of December 31, 2019, we had approximately 480 sales representatives in the field, consisting of approximately 75 orphan disease sales representatives (including approximately 50 TEPEZZA sales representatives), 170 rheumatology sales specialists and 235 inflammation sales representatives. We currently have limited resources compared to some of our competitors, and the continued development of our own commercial organization to market our medicines and any additional medicines we may acquire will be expensive and time- consuming. We also cannot be certain that we will be able to continue to successfully develop this capability. As we continue to add medicines through development efforts and acquisition transactions, the members of our sales force may have limited experience promoting certain of our medicines. To the extent we employ an acquired entity’s sales forces to promote acquired medicines, we may not be successful in continuing to retain these employees and we otherwise will have limited experience marketing these medicines under our commercial organization. In addition, none of the members of our sales force have promoted TEPEZZA or any other medicine for the treatment of TED prior to the launch of TEPEZZA. We are required to expend significant time and resources to train our sales force to be credible and persuasive in convincing physicians to prescribe and pharmacists to dispense our medicines. In addition, we must train our sales force to ensure that a consistent and appropriate message about our medicines is being delivered to our potential customers. Our sales representatives may also experience challenges promoting multiple medicines when we call on physicians and their office staff. We have experienced, and may continue to experience, turnover of the sales representatives that we hired or will hire, requiring us to train new sales representatives. If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate physicians about the benefits of our medicines and their proper administration and label indication, as well as our patient assistance programs, our efforts to successfully commercialize our medicines could be put in jeopardy, which could have a material adverse effect on our financial condition, share price and operations. 39 As a result of the evolving role of various constituents in the prescription decision making process, we focus on hiring sales representatives for our inflammation medicines and RAYOS with successful business to business experience. For example, we have faced challenges due to pharmacists switching a patient’s intended prescription from DUEXIS and VIMOVO to a generic or over-the-counter brand of their active ingredients, despite such substitution being off-label in the case of DUEXIS and VIMOVO. We have faced similar challenges for PENNSAID 2% and RAYOS with respect to generic brands. While we believe the profile of our representatives is suited for this environment, we cannot be certain that our representatives will be able to successfully protect our market for PENNSAID 2%, DUEXIS, RAYOS and VIMOVO or that we will be able to continue attracting and retaining sales representatives with our desired profile and skills. We will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain commercial personnel. To the extent we rely on additional third parties to commercialize any approved medicines, we may receive less revenue than if we commercialized these medicines ourselves. In addition, we may have little or no control over the sales efforts of any third parties involved in our commercialization efforts. In the event we are unable to successfully develop and maintain our own commercial organization or collaborate with a third-party sales and marketing organization, we may not be able to commercialize our medicines and medicine candidates and execute on our business plan. Coverage and reimbursement may not be available, or reimbursement may be available at only limited levels, for our medicines, which could make it difficult for us to sell our medicines profitably or to successfully execute planned medicine price increases. Market acceptance and sales of our medicines will depend in large part on global coverage and reimbursement policies and may be affected by future healthcare reform measures, both in the United States and other key international markets. Successful commercialization of our medicines will depend in part on the availability of governmental and third- party payer reimbursement for the cost of our medicines. Government health administration authorities, private health insurers and other organizations generally provide reimbursement for healthcare. In particular, in the United States, private health insurers and other third-party payers often provide reimbursement for medicines and services based on the level at which the government (through the Medicare or Medicaid programs) provides reimbursement for such treatments. In the United States, the European Union, or EU, and other significant or potentially significant markets for our medicines and medicine candidates, government authorities and third-party payers are increasingly attempting to limit or regulate the price of medicines and services, particularly for new and innovative medicines and therapies, which has resulted in lower average selling prices. Further, the increased scrutiny of prescription drug pricing practices and emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the EU will put additional pressure on medicine pricing, reimbursement and usage, which may adversely affect our medicine sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general. These pressures may create negative reactions to any medicine price increases, or limit the amount by which we may be able to increase our medicine prices, which may adversely affect our medicine sales and results of operations. We expect to experience pricing pressures in connection with the sale of our medicines due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals relating to outcomes and quality. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, increased the mandated Medicaid rebate from 15.1% to 23.1%, expanded the rebate to Medicaid managed care utilization and increased the types of entities eligible for the federal 340B drug discount program. As concerns continue to grow over the need for tighter oversight, there remains the possibility that the Health Resources and Services Administration or another agency under the U.S. Department of Health and Human Services, or HHS, will propose a similar regulation or that Congress will explore changes to the 340B program through legislation. For example, a bill was introduced in 2018 that would require hospitals to report their low-income utilization of the program. Further, the Centers for Medicare & Medicaid Services issued a final rule that would revise the Medicare hospital outpatient prospective payment system for calendar year 2019, including a new reimbursement methodology for drugs purchased under the 340B program for Medicare patients at the hospital setting and recently announced the same change for physician-based practices under 340B in 2019. Pursuant to the final rule, after January 1, 2019, manufacturers must calculate 340B program ceiling prices on a quarterly basis. Moreover, manufacturers could be subject to a $5,000 penalty for each instance where they knowingly and intentionally overcharge a covered entity under the 340B program. With respect to KRYSTEXXA, the “additional rebate” scheme of the 340B pricing rules, as applied to the historical pricing of KRYSTEXXA both before and after we acquired the medicine, have resulted in a 340B ceiling price of one penny. A material portion of KRYSTEXXA prescriptions (approximately 20 percent) are written by healthcare providers that are eligible for 340B drug pricing and therefore the reduction in 340B pricing to a penny has negatively impacted our net sales of KRYSTEXXA. 40 Patients are unlikely to use our medicines unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our medicines. Third-party payers may limit coverage to specific medicines on an approved list, also known as a formulary, which might not include all of the FDA-approved medicines for a particular indication. Moreover, a third-party payer’s decision to provide coverage for a medicine does not imply that an adequate reimbursement rate will be approved. Additionally, one third-party payer’s decision to cover a particular medicine does not ensure that other payers will also provide coverage for the medicine, or will provide coverage at an adequate reimbursement rate. Even though we have contracts with some PBMs in the United States, that does not guarantee that they will perform in accordance with the contracts, nor does that preclude them from taking adverse actions against us, which could materially adversely affect our operating results. In addition, the existence of such PBM contracts does not guarantee coverage by such PBM’s contracted health plans or adequate reimbursement to their respective providers for our medicines. For example, some PBMs have placed certain of our medicines on their exclusion lists from time to time, which has resulted in a loss of coverage for patients whose healthcare plans have adopted these PBM lists. Additional healthcare plan formularies may also exclude our medicines from coverage due to the actions of certain PBMs, future price increases we may implement, our use of the HorizonCares program or other free medicine programs whereby we assist qualified patients with certain out-of-pocket expenditures for our medicine, including donations to patient assistance programs offered by charitable foundations, or any other co-pay programs, or other reasons. If our strategies to mitigate formulary exclusions are not effective, these events may reduce the likelihood that physicians prescribe our medicines and increase the likelihood that prescriptions for our medicines are not filled. In light of such policies and the uncertainty surrounding proposed regulations and changes in the coverage and reimbursement policies of governments and third-party payers, we cannot be sure that coverage and reimbursement will be available for any of our medicines in any additional markets or for any other medicine candidates that we may develop. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our medicines. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to successfully commercialize our medicines. There may be additional pressure by payers, healthcare providers, state governments, federal regulators and Congress, to use generic drugs that contain the active ingredients found in our medicines or any other medicine candidates that we may develop or acquire. If we fail to successfully secure and maintain coverage and adequate reimbursement for our medicines or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our medicines and expected revenue and profitability which would have a material adverse effect on our business, results of operations, financial condition and prospects. We may also experience pressure from payers as well as state and federal government authorities concerning certain promotional approaches that we may implement such as our HorizonCares program or any other co-pay programs. Certain state and federal enforcement authorities and members of Congress have initiated inquiries about co-pay assistance programs. Some state legislatures have been considering proposals that would restrict or ban co-pay coupons. For example, legislation was recently signed into law in California that would limit the use of co-pay coupons in cases where a lower cost generic drug is available and if individual ingredients in combination therapies are available over the counter at a lower cost. It is possible that similar legislation could be proposed and enacted in additional states. If we are unsuccessful with our HorizonCares program or any other co-pay programs, or we alternatively are unable to secure expanded formulary access through additional arrangements with PBMs or other payers, we would be at a competitive disadvantage in terms of pricing versus preferred branded and generic competitors. We may also experience financial pressure in the future which would make it difficult to support investment levels in areas such as managed care contract rebates, HorizonCares and other access tools. 41 Our medicines are subject to extensive regulation, and we may not obtain additional regulatory approvals for our medicines. The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, marketing and distribution and other possible activities relating to our medicines and our medicine candidates are, and will be, subject to extensive regulation by the FDA and other regulatory agencies. Failure to comply with FDA and other applicable regulatory requirements may, either before or after medicine approval, subject us to administrative or judicially imposed sanctions. To market any drugs or biologics outside of the United States, we and current or future collaborators must comply with numerous and varying regulatory and compliance related requirements of other countries. Approval procedures vary among countries and can involve additional medicine testing and additional administrative review periods, including obtaining reimbursement and pricing approval in select markets. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks associated with FDA approval as well as additional, presently unanticipated, risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Applications for regulatory approval, including a marketing authorization application, or MAA, for marketing new drugs in Europe, must be supported by extensive clinical and pre-clinical data, as well as extensive information regarding chemistry, manufacturing and controls, or CMC, to demonstrate the safety and effectiveness of the applicable medicine candidate. The number and types of pre-clinical studies and clinical trials that will be required for regulatory approval varies depending on the medicine candidate, the disease or the condition that the medicine candidate is designed to target and the regulations applicable to any particular medicine candidate. Despite the time and expense associated with pre-clinical and clinical studies, failure can occur at any stage, and we could encounter problems that cause us to repeat or perform additional pre-clinical studies, CMC studies or clinical trials. Regulatory authorities could delay, limit or deny approval of a medicine candidate for many reasons, including because they: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) may not deem a medicine candidate to be adequately safe and effective; may not find the data from pre-clinical studies, CMC studies and clinical trials to be sufficient to support a claim of safety and efficacy; may interpret data from pre-clinical studies, CMC studies and clinical trials significantly differently than we do; may not approve the manufacturing processes or facilities associated with our medicine candidates; may conclude that we have not sufficiently demonstrated long-term stability of the formulation for which we are seeking marketing approval; may change approval policies (including with respect to our medicine candidates’ class of drugs) or adopt new regulations; or may not accept a submission due to, among other reasons, the content or formatting of the submission. Even if we believe that data collected from our pre-clinical studies, CMC studies and clinical trials of our medicine candidates are promising and that our information and procedures regarding CMC are sufficient, our data may not be sufficient to support marketing approval by regulatory authorities, or regulatory interpretation of these data and procedures may be unfavorable. Even if approved, medicine candidates may not be approved for all indications requested and such approval may be subject to limitations on the indicated uses for which the medicine may be marketed, restricted distribution methods or other limitations. Our business and reputation may be harmed by any failure or significant delay in obtaining regulatory approval for the sale of any of our medicine candidates. We cannot predict when or whether regulatory approval will be obtained for any medicine candidate we develop. The ultimate approval and commercial marketing of any of our medicines in additional indications or geographies is subject to substantial uncertainty. Failure to gain additional regulatory approvals would limit the potential revenues and value of our medicines and could cause our share price to decline. 42 We may be subject to penalties and litigation and large incremental expenses if we fail to comply with regulatory requirements or experience problems with our medicines. Even after we achieve regulatory approvals, we are subject to ongoing obligations and continued regulatory review with respect to many operational aspects including our manufacturing processes, labeling, packaging, distribution, storage, adverse event monitoring and reporting, dispensation, advertising, promotion and recordkeeping. These requirements include submissions of safety and other post-marketing information and reports, ongoing maintenance of medicine registration and continued compliance with current good manufacturing practices, or cGMPs, good clinical practices, or GCPs, good pharmacovigilance practice, good distribution practices and good laboratory practices, or GLPs. If we, our medicines or medicine candidates, or the third-party manufacturing facilities for our medicines or medicine candidates fail to comply with applicable regulatory requirements, a regulatory agency may: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) impose injunctions or restrictions on the marketing, manufacturing or distribution of a medicine, suspend or withdraw medicine approvals, revoke necessary licenses or suspend medicine reimbursement; issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available; suspend any ongoing clinical trials or delay or prevent the initiation of clinical trials; delay or refuse to approve pending applications or supplements to approved applications we have filed; refuse to permit drugs or precursor or intermediary chemicals to be imported or exported to or from the United States; suspend or impose restrictions or additional requirements on operations, including costly new manufacturing quality or pharmacovigilance requirements; seize or detain medicines or require us to initiate a medicine recall; and/or commence criminal investigations and prosecutions. Moreover, existing regulatory approvals and any future regulatory approvals that we obtain will be subject to limitations on the approved indicated uses and patient populations for which our medicines may be marketed, the conditions of approval, requirements for potentially costly, post-market testing and requirements for surveillance to monitor the safety and efficacy of the medicines. Physicians nevertheless may prescribe our medicines to their patients in a manner that is inconsistent with the approved label or that is off-label. Positive clinical trial results in any of our medicine development programs increase the risk that approved pharmaceutical forms of the same active pharmaceutical ingredients, or APIs, may be used off-label in those indications. If we are found to have improperly promoted off-label uses of approved medicines, we may be subject to significant sanctions, civil and criminal fines and injunctions prohibiting us from engaging in specified promotional conduct. In addition, engaging in improper promotion of our medicines for off-label uses in the United States can subject us to false claims litigation under federal and state statutes. These false claims statutes in the United States include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims or causing to present such false or fraudulent claims for payment by a federal program such as Medicare or Medicaid. Growth in false claims litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay civil money penalties, settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations and be excluded from Medicare, Medicaid and other federal and state healthcare programs. The regulations, policies or guidance of regulatory agencies may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our medicine candidates or further restrict or regulate post-approval activities. For example, in January 2014, the FDA released draft guidance on how drug companies can fulfill their regulatory requirements for post-marketing submission of interactive promotional media, and though the guidance provided insight into how the FDA views a company’s responsibility for certain types of social media promotion, there remains a substantial amount of uncertainty regarding internet and social media promotion of regulated medical products. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad. If we are unable to achieve and maintain regulatory compliance, we will not be permitted to market our drugs, which would materially adversely affect our business, results of operations and financial condition. 43 We have rights to medicines in certain jurisdictions but have no control over third parties that have rights to commercialize those medicines in other jurisdictions, which could adversely affect our commercialization of these medicines. Following our sale of the rights to RAVICTI outside of North America and Japan to Medical Need Europe AB, part of the Immedica Group, or Immedica, in December 2018, Immedica has marketing and distribution rights to RAVICTI in those regions. Following our sale of the rights to PROCYSBI in the Europe, Middle East and Africa, or EMEA, regions to Chiesi Farmaceutici S.p.A., or Chiesi, in June 2017, or the Chiesi divestiture, Chiesi has marketing and distribution rights to PROCYSBI in the EMEA regions. Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.), or Nuvo, has retained its rights to PENNSAID 2% in territories outside of the United States. In March 2017, Nuvo announced that it had entered into an exclusive license agreement with Sayre Therapeutics PVT Ltd. to distribute, market and sell PENNSAID 2% in India, Sri Lanka, Bangladesh and Nepal, and in December 2017 Nuvo announced that it had entered into a license and distribution agreement with Gebro Pharma AG for the exclusive right to register, distribute, market and sell PENNSAID 2% in Switzerland and Liechtenstein. Grünenthal GmbH, or Grünenthal, acquired the rights to VIMOVO in territories outside of the United States, including the right to use the VIMOVO name and related trademark from AstraZeneca AB, or AstraZeneca, in October 2018. We have little or no control over Immedica’s activities with respect to RAVICTI outside of North America and Japan, over Chiesi’s activities with respect to PROCYSBI in the EMEA, over Nuvo’s or its existing and future commercial partners’ activities with respect to PENNSAID 2% outside of the United States, or over Grünenthal’s activities with respect to VIMOVO outside the United States even though those activities could impact our ability to successfully commercialize these medicines. For example, Immedica or its assignees, Chiesi or its assignees, Nuvo or its assignees or Grünenthal or its assignees can make statements or use promotional materials with respect to RAVICTI, PROCYSBI, PENNSAID 2% or VIMOVO, respectively, outside of the United States that are inconsistent with our positioning of the medicines in the United States, and could sell RAVICTI, PROCYSBI, PENNSAID 2% or VIMOVO, respectively, in foreign countries at prices that are dramatically lower than the prices we charge in the United States. These activities and decisions, while occurring outside of the United States, could harm our commercialization strategy in the United States, in particular because Grünenthal is continuing to market VIMOVO outside the United States under the same VIMOVO brand name that we are using in the United States. In addition, medicine recalls or safety issues with these medicines outside the United States, even if not related to the commercial medicine we sell in the United States, could result in serious damage to the brand in the United States and impair our ability to successfully market them. We also rely on Immedica, Chiesi, Nuvo and Grünenthal or their assignees to provide us with timely and accurate safety information regarding the use of these medicines outside of the United States, as we have or will have limited access to this information ourselves. We rely on third parties to manufacture commercial supplies of all of our medicines, and we currently intend to rely on third parties to manufacture commercial supplies of any other approved medicines. The commercialization of any of our medicines could be stopped, delayed or made less profitable if those third parties fail to provide us with sufficient quantities of medicine or fail to do so at acceptable quality levels or prices or fail to maintain or achieve satisfactory regulatory compliance. The facilities used by our third-party manufacturers to manufacture our medicines and medicine candidates must be approved by the applicable regulatory authorities. We do not control the manufacturing processes of third-party manufacturers and are currently completely dependent on our third-party manufacturing partners. In addition, we are required to obtain Grünenthal’s (formerly AstraZeneca) consent prior to engaging any third-party manufacturers for esomeprazole, one of the APIs in VIMOVO, other than the third-party manufacturer(s) used by Grünenthal or its affiliates or licensees. To the extent such manufacturers are unwilling or unable to manufacture esomeprazole for us on commercially acceptable terms, we cannot guarantee that Grünenthal would consent to our use of alternate sources of supply. 44 We rely on NOF Corporation, or NOF, as our exclusive supplier of the PEGylation agent that is a critical raw material in the manufacture of KRYSTEXXA. If NOF failed to supply such PEGylation agent, it may lead to KRYSTEXXA supply constraints. A key excipient used in PENNSAID 2% as a penetration enhancer is dimethyl sulfoxide, or DMSO. We and Nuvo, our exclusive supplier of PENNSAID 2%, rely on a sole proprietary form of DMSO for which we maintain a substantial safety stock. However, should this supply become inadequate, damaged, destroyed or unusable, we and Nuvo may not be able to qualify a second source. We rely on an exclusive supply agreement with Boehringer Ingelheim Biopharmaceuticals GmbH, or Boehringer Ingelheim Biopharmaceuticals, for manufacturing and supply of ACTIMMUNE. ACTIMMUNE is manufactured by starting with cells from working cell bank samples which are derived from a master cell bank. We and Boehringer Ingelheim Biopharmaceuticals separately store multiple vials of the master cell bank. In the event of catastrophic loss at our or Boehringer Ingelheim Biopharmaceuticals’ storage facility, it is possible that we could lose multiple cell banks and have the manufacturing capacity of ACTIMMUNE severely impacted by the need to substitute or replace the cell banks. We rely on AGC Biologics A/S (formerly known as CMC Biologics A/S), or AGC Biologics, as our exclusive manufacturer of the TEPEZZA drug substance. If AGC Biologics failed to supply such drug substance, it may lead to TEPEZZA supply constraints. If any of our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the applicable regulatory authorities’ strict regulatory requirements, or pass regulatory inspection, they will not be able to secure or maintain regulatory approval for the manufacturing facilities. For example, BASF Corporation, or BASF, our manufacturer of one of the APIs in DUEXIS, ibuprofen in a direct compression blend called DC85, previously notified us that it was not able to supply DC85 due to a technical issue at its manufacturing facility in Bishop, Texas during 2018. During 2019, BASF has supplied us with a limited amount of DC85 and informed us of their intention to return to full supply. We consider our DUEXIS inventory on hand to be sufficient to meet current and future commercial requirements. However, we cannot guarantee that BASF’s manufacturing facility will return to full operations or that we will be able to enter into a new supply agreement with BASF for DC85. In addition, we have no control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or any other applicable regulatory authorities do not approve these facilities for the manufacture of our medicines or if they withdraw any such approval in the future, or if our suppliers or third-party manufacturers decide they no longer want to supply our primary active ingredients or manufacture our medicines, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our medicines. To the extent any third- party manufacturers that we engage with respect to our medicines are different from those currently being used for commercial supply in the United States, the FDA will need to approve the facilities of those third-party manufacturers used in the manufacture of our medicines prior to our sale of any medicine using these facilities. Although we have entered into supply agreements for the manufacture and packaging of our medicines, our manufacturers may not perform as agreed or may terminate their agreements with us. We currently rely on single source suppliers for certain of our medicines. If our manufacturers terminate their agreements with us, we may have to qualify new back-up manufacturers. We rely on safety stock to mitigate the risk of our current suppliers electing to cease producing bulk drug product or ceasing to do so at acceptable prices and quality. However, we can provide no assurance that such safety stocks would be sufficient to avoid supply shortfalls in the event we have to identify and qualify new contract manufacturers. The manufacture of medicines requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of medicines often encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties with production costs and yields, quality control, including stability of the medicine, quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in the medicines or in the manufacturing facilities in which our medicines are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure that issues relating to the manufacture of any of our medicines will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to commercialize our medicines or provide any medicine candidates to patients in clinical trials would be jeopardized. 45 Any delay or interruption in our ability to meet commercial demand for our medicines will result in the loss of potential revenues and could adversely affect our ability to gain market acceptance for these medicines. In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of any of our medicines or medicine candidates and could have a material adverse effect on our business, results of operations, financial condition and prospects. We face significant competition from other biotechnology and pharmaceutical companies, including those marketing generic medicines and our operating results will suffer if we fail to compete effectively. The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and international markets, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff, experienced marketing and manufacturing organizations and well- established sales forces. Additional consolidations in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors and we will have to find new ways to compete and may have to potentially merge with or acquire other businesses to stay competitive. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or in-licensing on an exclusive basis, medicines that are more effective and/or less costly than our medicines. While KRYSTEXXA faces limited direct competition, a number of competitors have medicines in Phase 1 or Phase 2 trials, including Selecta Biosciences Inc. which has presented Phase 2 clinical data and is conducting a six-month trial comparing their candidate that uses an immunomodulator to KRYSTEXXA alone. RAVICTI could face competition from a few medicine candidates that are in early-stage development, including a gene-therapy candidate by Ultragenyx Pharmaceutical Inc., a generic taste-masked formulation option of BUPHENYL by ACER Therapeutics Inc., and an enzyme replacement for a specific UCD subtype (ARG) by Aeglea Bio Therapeutics Inc. PROCYSBI faces competition from Cystagon (immediate-release cysteamine bitartrate capsules) for the treatment of cystinosis and Cystaran (cysteamine ophthalmic solution) for treatment of corneal crystal accumulation in patients with cystinosis. Additionally, we are also aware that AVROBIO, Inc. has an early-stage gene therapy candidate in development for the treatment of cystinosis. Although TEPEZZA does not face direct competition, other therapies, such as corticosteroids, have been used on an off-label basis to alleviate some of the symptoms of TED. While these therapies have not proved effective in treating the underlying disease, and carry with them significant side effects, their off-label use could reduce or delay treatment in the addressable patient population for TEPEZZA. Immunovant Inc. is also conducting clinical studies of a medicine candidate for the treatment of active TED, also referred to as Graves’ ophthalmopathy. PENNSAID 2% faces competition from generic versions of diclofenac sodium topical solutions that are priced significantly less than the price we charge for PENNSAID 2%. The generic version of Voltaren Gel is the market leader in the topical NSAID category. Legislation enacted in most states in the United States allows, or in some instances mandates, that a pharmacist dispense an available generic equivalent when filling a prescription for a branded medicine, in the absence of specific instructions from the prescribing physician. DUEXIS and VIMOVO face competition from other NSAIDs, including Celebrex®, marketed by Pfizer Inc., and celecoxib, a generic form of the medicine marketed by other pharmaceutical companies. DUEXIS and VIMOVO also face significant competition from the separate use of NSAIDs for pain relief and GI protective medications to reduce the risk of NSAID- induced upper GI ulcers. Both NSAIDs and GI protective medications are available in generic form and may be less expensive to use separately than DUEXIS or VIMOVO, despite such substitution being off-label in the case of DUEXIS and VIMOVO. Because pharmacists often have economic and other incentives to prescribe lower-cost generics, if physicians prescribe PENNSAID 2%, DUEXIS, or VIMOVO, those prescriptions may not result in sales. If physicians do not complete prescriptions through our HorizonCares program or otherwise provide prescribing instructions prohibiting generic diclofenac sodium topical solutions as a substitute for PENNSAID 2%, the substitution of generic ibuprofen and famotidine separately as a substitution for DUEXIS or generic naproxen and branded Nexium® (esomeprazole) as a substitute for VIMOVO, sales of PENNSAID 2%, DUEXIS and VIMOVO may suffer despite any success we may have in promoting PENNSAID 2%, DUEXIS or VIMOVO to physicians. In addition, other medicine candidates that contain ibuprofen and famotidine in combination or naproxen and esomeprazole in combination, while not currently known or FDA approved, may be developed and compete with DUEXIS or VIMOVO, respectively, in the future. 46 We have also entered into settlement and license agreements that may allow certain of our competitors to sell generic versions of certain of our medicines in the United States, subject to the terms of such agreements. We granted (i) a non- exclusive license (that is only royalty-bearing in some circumstances) to manufacture and commercialize a generic version of DUEXIS in the United States after January 1, 2023, (ii) non-exclusive licenses to manufacture and commercialize generic versions of PENNSAID 2% in the United States after October 17, 2027, (iii) a non-exclusive license to manufacture and commercialize a generic version of RAYOS tablets in the United States after December 23, 2022, (iv) a non-exclusive license to manufacture and commercialize a generic version of VIMOVO in the United States after August 1, 2024, and (v) non- exclusive licenses to manufacture and commercialize generic versions of RAVICTI in the United States after July 1, 2025, or earlier under certain circumstances. Patent litigation is currently pending in the United States District Court for the District of New Jersey against Actavis Laboratories UT, Inc., formerly known as Watson Laboratories, Inc., Actavis, Inc. and Actavis plc, or collectively Actavis, who intend to market a generic version of PENNSAID 2% prior to the expiration of certain of our patents listed in the FDA’s Orange Book, or the Orange Book. These cases arise from Paragraph IV Patent Certification notice letters from Actavis advising it had filed an Abbreviated New Drug Application, or ANDA, with the FDA seeking approval to market a generic version of PENNSAID 2% before the expiration of the patents-in-suit. Patent litigation is currently pending in the United States District Court for the District of New Jersey and the Court of Appeals for the Federal Circuit against Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Ltd., or collectively Dr. Reddy’s, who intends to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. The cases arise from Paragraph IV Patent Certification notice letters from Dr. Reddy’s advising that it had filed an ANDA with the FDA seeking approval to market generic versions of VIMOVO before the expiration of the patents- in-suit. On July 30, 2019, the Federal Circuit Court of Appeals denied our request for a rehearing of the Court’s invalidity ruling against the 6,926,907 and 8,557,285 patents for VIMOVO coordinated-release tablets. As a result, the District Court entered judgment in September 2019 invalidating the ‘907 and ‘285 patents, which ended any restriction against the FDA from granting final approval to Dr. Reddy’s generic version of VIMOVO. On February 18, 2020, the FDA granted final approval for Dr. Reddy’s generic version of VIMOVO. We anticipate that Dr. Reddy’s will immediately launch its product at-risk notwithstanding the ongoing patent litigation. Patent litigation is currently pending in the United States District Court for the District of New Jersey against Ajanta Pharma LTD, or Ajanta, intending to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. Patent litigation is currently pending in the United States District Court for the District of Delaware against Alkem Laboratories, Inc., or Alkem, who intends to market a generic version of DUEXIS prior to the expiration of certain of our patents listed in the Orange Book. This case arises from Paragraph IV Patent Certification notice letters from Alkem advising it had filed an ANDA with the FDA seeking approval to market a generic version of DUEXIS before the expiration of the patents-in-suit. If we are unsuccessful in any of the VIMOVO cases, PENNSAID 2% cases or DUEXIS case, we will likely face generic competition with respect to VIMOVO, PENNSAID 2% and/or DUEXIS and sales of VIMOVO, PENNSAID 2% and/or DUEXIS will be substantially harmed. 47 ACTIMMUNE is the only medicine currently approved by the FDA specifically for the treatment of CGD and SMO. While there are additional or alternative approaches used to treat patients with CGD and SMO, there are currently no medicines on the market that compete directly with ACTIMMUNE. A widely accepted protocol to treat CGD in the United States is the use of concomitant “triple prophylactic therapy” comprising ACTIMMUNE, an oral antibiotic agent and an oral antifungal agent. However, the FDA-approved labeling for ACTIMMUNE does not discuss this “triple prophylactic therapy,” and physicians may choose to prescribe one or both of the other modalities in the absence of ACTIMMUNE. Because of the immediate and life-threatening nature of SMO, the preferred treatment option for SMO is often to have the patient undergo a bone marrow transplant which, if successful, will likely obviate the need for further use of ACTIMMUNE in that patient. Likewise, the use of bone marrow transplants in the treatment of patients with CGD is becoming more prevalent, which could have a material adverse effect on sales of ACTIMMUNE and its profitability. We are aware of a number of research programs investigating the potential of gene therapy as a possible cure for CGD. Additionally, other companies may be pursuing the development of medicines and treatments that target the same diseases and conditions which ACTIMMUNE is currently approved to treat. As a result, it is possible that our competitors may develop new medicines that manage CGD or SMO more effectively, cost less or possibly even cure CGD or SMO. In addition, U.S. healthcare legislation passed in March 2010 authorized the FDA to approve biological products, known as biosimilars, that are similar to or interchangeable with previously approved biological products, like ACTIMMUNE, based upon potentially abbreviated data packages. Biosimilars are likely to be sold at substantially lower prices than branded medicines because the biosimilar manufacturer would not have to recoup the research and development and marketing costs associated with the branded medicine. Though we are not currently aware of any biosimilar under development, the development and commercialization of any competing medicines or the discovery of any new alternative treatment for CGD or SMO could have a material adverse effect on sales of ACTIMMUNE and its profitability. BUPHENYL’s composition of matter patent protection and orphan drug exclusivity have expired. Because BUPHENYL has no regulatory exclusivity or listed patents, there is nothing to prevent a competitor from submitting an ANDA for a generic version of BUPHENYL and receiving FDA approval. Generic versions of BUPHENYL to date have been priced at a discount relative to RAVICTI, and physicians, patients, or payers may decide that this less expensive alternative is preferable to RAVICTI. If this occurs, sales of RAVICTI could be materially reduced, but we would nevertheless be required to make royalty payments to Bausch Health Companies Inc. (formerly Ucyclyd Pharma, Inc.), or Bausch, and another external party, at the same royalty rates. While Bausch and its affiliates are generally contractually prohibited from developing or commercializing new medicines, anywhere in the world, for the treatment of UCD or hepatic encephalopathy, or HE, which are chemically similar to RAVICTI, they may still develop and commercialize medicines that compete with RAVICTI. For example, medicines approved for indications other than UCD and HE may still compete with RAVICTI if physicians prescribe such medicines off-label for UCD or HE. We are also aware that Recordati S.p.A (formerly known as Orphan Europe SARL), or Recordati, is conducting clinical trials of carglumic acid to assess the efficacy for acute hyperammonemia in some of the UCD enzyme deficiencies for which RAVICTI is approved for chronic treatment. Carglumic acid is approved for maintenance therapy for chronic hyperammonemia and to treat hyperammonemic crises in N-acetylglutamate synthase deficiency, a rare UCD subtype, and is sold under the name Carbaglu. If the results of this trial are successful and Recordati is able to complete development and obtain approval of Carbaglu to treat additional UCD enzyme deficiencies, RAVICTI may face additional competition from this compound. The availability and price of our competitors’ medicines could limit the demand, and the price we are able to charge, for our medicines. We will not successfully execute on our business objectives if the market acceptance of our medicines is inhibited by price competition, if physicians are reluctant to switch from existing medicines to our medicines, or if physicians switch to other new medicines or choose to reserve our medicines for use in limited patient populations. In addition, established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to acquire novel compounds that could make our medicines obsolete. Our ability to compete successfully with these companies and other potential competitors will depend largely on our ability to leverage our experience in clinical, regulatory and commercial development to: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) develop and acquire medicines that are superior to other medicines in the market; attract qualified clinical, regulatory, and sales and marketing personnel; obtain patent and/or other proprietary protection for our medicines and technologies; obtain required regulatory approvals; and successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicine candidates. 48 If we are unable to maintain or realize the benefits of orphan drug exclusivity, we may face increased competition with respect to certain of our medicines. Under the Orphan Drug Act of 1983, the FDA may designate a medicine as an orphan drug if it is a drug intended to treat a rare disease or condition affecting fewer than 200,000 people in the United States. A company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years from the date of its approval. PROCYSBI has been granted orphan drug exclusivity by the FDA, which we expect will provide orphan drug marketing exclusivity in the United States until December 2020, with exclusivity for PROCYSBI extending to 2022 for patients ages one to six years. In addition, TEPEZZA has been granted orphan drug exclusivity for treatment of active (dynamic) phase Graves’ ophthalmopathy, which we expect will provide orphan drug marketing exclusivity in the United States until January 2027. However, despite orphan drug exclusivity, the FDA can still approve another drug containing the same active ingredient and used for the same orphan indication if it determines that a subsequent drug is safer, more effective or makes a major contribution to patient care, and orphan exclusivity can be lost if the orphan drug manufacturer is unable to ensure that a sufficient quantity of the orphan drug is available to meet the needs of patients with the rare disease or condition. Orphan drug exclusivity may also be lost if the FDA later determines that the initial request for designation was materially defective. In addition, orphan drug exclusivity does not prevent the FDA from approving competing drugs for the same or similar indication containing a different active ingredient. If orphan drug exclusivity is lost and we were unable to successfully enforce any remaining patents covering the applicable medicine, we could be subject to generic competition and revenues from the medicine could decrease materially. In addition, if a subsequent drug is approved for marketing for the same or a similar indication as our medicines despite orphan drug exclusivity, we may face increased competition and lose market share with respect to these medicines. If we cannot successfully implement our patient assistance programs or increase formulary access and reimbursement for our medicines in the face of increasing pressure to reduce the price of medications, the adoption of our medicines by physicians, patients and payers may decline. There continues to be immense pressure from healthcare payers, PBMs and others to use less expensive or generic medicines or over-the-counter brands instead of certain branded medicines. For example, some PBMs have placed certain of our medicines on their exclusion lists from time to time, which has resulted in a loss of coverage for patients whose healthcare plans have adopted these PBM lists. Additional healthcare plans, including those that contract with these PBMs but use different formularies, may also choose to exclude our medicines from their formularies or restrict coverage to situations where a generic or over-the-counter medicine has been tried first. Many payers and PBMs also require patients to make co-payments for branded medicines, including many of our medicines, in order to incentivize the use of generic or other lower-priced alternatives instead. Legislation enacted in most states in the United States allows, or in some instances mandates, that a pharmacist dispenses an available generic equivalent when filling a prescription for a branded medicine, in the absence of specific instructions from the prescribing physician. Because our medicines (other than BUPHENYL and VIMOVO) do not currently have FDA-approved generic equivalents in the United States, we do not believe our medicines should be subject to mandatory generic substitution laws. We understand that some pharmacies may attempt to obtain physician authorization to switch prescriptions for DUEXIS or VIMOVO to prescriptions for multiple generic medicines with similar APIs to ensure payment for the medicine if the physician’s prescription for the branded medicine is not immediately covered by the payer, despite such substitution being off-label in the case of DUEXIS and VIMOVO. If these limitations in coverage and other incentives result in patients refusing to fill prescriptions or being dissatisfied with the out- of-pocket costs of their medications, or if pharmacies otherwise seek and receive physician authorization to switch prescriptions, not only would we lose sales on prescriptions that are ultimately not filled, but physicians may be dissuaded from writing prescriptions for our medicines in the first place in order to avoid potential patient non-compliance or dissatisfaction over medication costs, or to avoid spending the time and effort of responding to pharmacy requests to switch prescriptions. 49 Part of our commercial strategy to increase adoption and access to our medicines in the face of these incentives to use generic alternatives is to offer physicians the opportunity to have patients fill prescriptions through independent pharmacies participating in our HorizonCares patient assistance program, including shipment of prescriptions to patients. We also have contracted with a third-party prescription clearinghouse that offers physicians a single point of contact for processing prescriptions through these independent pharmacies, reducing physician administrative costs, increasing the fill rates for prescriptions and enabling physicians to monitor refill activity. Through HorizonCares, financial assistance may be available to reduce eligible patients’ out-of-pocket costs for prescriptions filled. Because of this assistance, eligible patients’ out-of- pocket cost for our medicines when dispensed through HorizonCares may be significantly lower than such costs when our medicines are dispensed outside of the HorizonCares program. However, to the extent physicians do not direct prescriptions currently filled through traditional pharmacies, including those associated with or controlled by PBMs, to pharmacies participating in our HorizonCares program, we may experience a significant decline in PENNSAID 2%, DUEXIS and VIMOVO prescriptions. Our ability to increase utilization of our patient assistance programs will depend on physician and patient awareness and comfort with the programs, and we have limited ability to influence whether physicians use our patient assistance programs to prescribe our medicines or whether patients will agree to receive our medicines through our HorizonCares program. In addition, the HorizonCares program is not available to federal health care program (such as Medicare and Medicaid) beneficiaries. We have also contracted with certain PBMs and other payers to secure formulary status and reimbursement for certain of our inflammation medicines, which generally require us to pay administrative fees and rebates to the PBMs and other payers for qualifying prescriptions. While we have business relationships with two of the largest PBMs, Express Scripts, Inc., or Express Scripts, and CVS Caremark, as well as a rebate agreement with another PBM, Prime Therapeutics LLC, and we believe these agreements will secure formulary status for certain of our medicines, we cannot guarantee that we will be able to agree to terms with other PBMs and other payers, or that such terms will be commercially reasonable to us. Despite our agreements with PBMs, the extent of formulary status and reimbursement will ultimately depend to a large extent upon individual healthcare plan formulary decisions. If healthcare plans that contract with PBMs with which we have agreements do not adopt formulary changes recommended by the PBMs with respect to our medicines, we may not realize the expected access and reimbursement benefits from these agreements. In addition, we generally pay higher rebates for prescriptions covered under plans that adopt a PBM-chosen formulary than for plans that adopt custom formularies. Consequently, the success of our PBM contracting strategy will depend not only on our ability to expand formulary adoption among healthcare plans, but also upon the relative mix of healthcare plans that have PBM-chosen formularies versus custom formularies. If we are unable to realize the expected benefits of our contractual arrangements with the PBMs we may continue to experience reductions in net sales from our inflammation medicines and/or reductions in net pricing for our inflammation medicines due to increasing patient assistance costs. If we are unable to increase adoption of HorizonCares for filling prescriptions of our medicines and to secure formulary status and reimbursement through arrangements with PBMs and other payers, particularly with healthcare plans that use custom formularies, our ability to achieve net sales growth for our inflammation medicines would be impaired. There has been negative publicity and inquiries from Congress and enforcement authorities regarding the use of specialty pharmacies and drug pricing. Our patient assistance programs are not involved in the prescribing of medicines and are solely to assist in ensuring that when a physician determines one of our medicines offers a potential clinical benefit to their patients and they prescribe one for an eligible patient, financial assistance may be available to reduce the patient’s out- of-pocket costs. In addition, all pharmacies that fill prescriptions for our medicines are fully independent, including those that participate in HorizonCares. We do not own or possess any option to purchase an ownership stake in any pharmacy that distributes our medicines, and our relationship with each pharmacy is non-exclusive and arm’s length. All of our sales are processed through pharmacies independent of us. Despite this, the negative publicity and interest from Congress and enforcement authorities regarding specialty pharmacies may result in physicians being less willing to participate in our patient assistance programs and thereby limit our ability to increase patient assistance and adoption of our medicines. 50 We may also encounter difficulty in forming and maintaining relationships with pharmacies that participate in our patient assistance programs. We currently depend on a limited number of pharmacies participating in HorizonCares to fulfill patient prescriptions under the HorizonCares program. If these HorizonCares participating pharmacies are unable to process and fulfill the volume of patient prescriptions directed to them under the HorizonCares program, our ability to maintain or increase prescriptions for our medicines will be impaired. The commercialization of our medicines and our operating results could be affected should any of the HorizonCares participating pharmacies choose not to continue participation in our HorizonCares program or by any adverse events at any of those HorizonCares participating pharmacies. For example, pharmacies that dispense our medicines could lose contracts that they currently maintain with managed care organizations, or MCOs, including PBMs. Pharmacies often enter into agreements with MCOs. They may be required to abide by certain terms and conditions to maintain access to MCO networks, including terms and conditions that could limit their ability to participate in patient assistance programs like ours. Failure to comply with the terms of their agreements with MCOs could result in a variety of penalties, including termination of their agreement, which could negatively impact the ability of those pharmacies to dispense our medicines and collect reimbursement from MCOs for such medicines. The HorizonCares program may implicate certain federal and state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud. We have a comprehensive compliance program in place to address adherence with various laws and regulations relating to the selling, marketing and manufacturing of our medicines, as well as certain third-party relationships, including pharmacies. Specifically, with respect to pharmacies, the compliance program utilizes a variety of methods and tools to monitor and audit pharmacies, including those that participate in the HorizonCares program, to confirm their activities, adjudication and practices are consistent with our compliance policies and guidance. Despite our compliance efforts, to the extent the HorizonCares program is found to be inconsistent with applicable laws or the pharmacies that participate in our patient assistance programs do not comply with applicable laws, we may be required to restructure or discontinue such programs, terminate our relationship with certain pharmacies, or be subject to other significant penalties. In November 2015, we received a subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting documents and information related to our patient assistance programs and other aspects of our marketing and commercialization activities. We are unable to predict how long this investigation will continue or its outcome, but we have incurred and anticipate that we may continue to incur significant costs in connection with the investigation, regardless of the outcome. We may also become subject to similar investigations by other governmental agencies or Congress. The investigation by the U.S. Attorney’s Office and any additional investigations of our patient assistance programs and sales and marketing activities may result in damages, fines, penalties, exclusion, additional reporting requirements and/or oversight or other administrative sanctions against us. If the cost of maintaining our patient assistance programs increases relative to our sales revenues, we could be forced to reduce the amount of patient financial assistance that we offer or otherwise scale back or eliminate such programs, which could in turn have a negative impact on physicians’ willingness to prescribe and patients’ willingness to fill prescriptions of our medicines. While we believe that our arrangements with PBMs will result in broader inclusion of certain of our inflammation medicines on healthcare plan formularies, and therefore increase payer reimbursement and lower our cost of providing patient assistance programs, these arrangements generally require us to pay administrative and rebate payments to the PBMs and/or other payers and their effectiveness will ultimately depend to a large extent upon individual healthcare plan formulary decisions that are beyond the control of the PBMs. If our arrangements with PBMs and other payers do not result in increased prescriptions and reductions in our costs to provide our patient assistance programs that are sufficient to offset the administrative fees and rebate payments to the PBMs and/or other payers, our financial results may continue to be harmed. If we are unable to successfully implement our commercial plans and facilitate adoption by patients and physicians of any approved medicines through our sales, marketing and commercialization efforts, then we will not be able to generate sustainable revenues from medicine sales which will have a material adverse effect on our business and prospects. 51 Our business operations may subject us to numerous commercial disputes, claims and/or lawsuits and such litigation may be costly and time-consuming and could materially and adversely impact our financial position and results of operations. Operating in the pharmaceutical industry, particularly the commercialization of medicines, involves numerous commercial relationships, complex contractual arrangements, uncertain intellectual property rights, potential product liability and other aspects that create heightened risks of disputes, claims and lawsuits. In particular, we may face claims related to the safety of our medicines, intellectual property matters, employment matters, tax matters, commercial disputes, competition, sales and marketing practices, environmental matters, personal injury, insurance coverage and acquisition or divestiture-related matters. Any commercial dispute, claim or lawsuit may divert management’s attention away from our business, we may incur significant expenses in addressing or defending any commercial dispute, claim or lawsuit, and we may be required to pay damage awards or settlements or become subject to equitable remedies that could adversely affect our operations and financial results. We are currently in litigation with multiple generic drug manufacturers regarding intellectual property infringement. For example, we are currently involved in Hatch Waxman litigation with generic drug manufacturers related to DUEXIS, PENNSAID 2% and VIMOVO. Similarly, from time to time we are involved in disputes with distributors, PBMs and licensing partners regarding our rights and performance of obligations under contractual arrangements. For example, we were previously in litigation with Express Scripts related to alleged breach of contract claims. Litigation related to these disputes may be costly and time-consuming and could materially and adversely impact our financial position and results of operations if resolved against us. A variety of risks associated with operating our business internationally could adversely affect our business. In addition to our U.S. operations, we have operations in Ireland, Bermuda, the Grand Duchy of Luxembourg, or Luxembourg, Switzerland, Germany and in Canada. We face risks associated with our international operations, including possible unfavorable political, tax and labor conditions, which could harm our business. We are subject to numerous risks associated with international business activities, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) compliance with Irish laws and the maintenance of our Irish tax residency with respect to our overall corporate structure and administrative operations, including the need to generally hold meetings of our board of directors and make decisions in Ireland, which may make certain corporate actions more cumbersome, costly and time- consuming; difficulties in staffing and managing foreign operations; foreign government taxes, regulations and permit requirements; U.S. and foreign government tariffs, trade restrictions, price and exchange controls and other regulatory requirements; anti-corruption laws, including the Foreign Corrupt Practices Act, or the FCPA; economic weakness, including inflation, natural disasters, war, events of terrorism or political instability in particular foreign countries; fluctuations in currency exchange rates, which could result in increased operating expenses and reduced revenues, and other obligations related to doing business in another country; compliance with tax, employment, immigration and labor laws, regulations and restrictions for employees living or traveling abroad; workforce uncertainty in countries where labor unrest is more common than in the United States; production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; changes in diplomatic and trade relationships; and challenges in enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States. 52 Our business activities outside of the United States are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA and similar anti-corruption laws generally prohibit offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to non-U.S. government officials in order to improperly influence any act or decision, secure any other improper advantage, or obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the company and to devise and maintain an adequate system of internal accounting controls. As described above, our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, any dealings with these prescribers and purchasers may be subject to regulation under the FCPA. Recently the SEC and the U.S. Department of Justice, or DOJ, have increased their FCPA enforcement activities with respect to pharmaceutical companies. In addition, under the Dodd–Frank Wall Street Reform and Consumer Protection Act, private individuals who report to the SEC original information that leads to successful enforcement actions may be eligible for a monetary award. We are engaged in ongoing efforts that are designed to ensure our compliance with these laws, including due diligence, training, policies, procedures and internal controls. However, there is no certainty that all employees and third- party business partners (including our distributors, wholesalers, agents, contractors, and other partners) will comply with anti- bribery laws. In particular, we do not control the actions of manufacturers and other third-party agents, although we may be liable for their actions. Violation of these laws may result in civil or criminal sanctions, which could include monetary fines, criminal penalties, and disgorgement of past profits, which could have a material adverse impact on our business and financial condition. We are subject to tax audits around the world, and such jurisdictions may assess additional income tax against us. Although we believe our tax positions are reasonable, the final determination of tax audits could be materially different from our recorded income tax provisions and accruals. The ultimate results of an audit could have a material adverse effect on our operating results or cash flows in the period or periods for which that determination is made and could result in increases to our overall tax expense in subsequent periods. These and other risks associated with our international operations may materially adversely affect our business, financial condition and results of operations. If we fail to develop or acquire other medicine candidates or medicines, our business and prospects would be limited. A key element of our strategy is to develop or acquire and commercialize a portfolio of other medicines or medicine candidates in addition to our current medicines, through business or medicine acquisitions. Because we do not engage in proprietary drug discovery, the success of this strategy depends in large part upon the combination of our regulatory, development and commercial capabilities and expertise and our ability to identify, select and acquire approved or clinically enabled medicine candidates for therapeutic indications that complement or augment our current medicines, or that otherwise fit into our development or strategic plans on terms that are acceptable to us. Identifying, selecting and acquiring promising medicines or medicine candidates requires substantial technical, financial and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a particular medicine or medicine candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. If we are unable to identify, select and acquire suitable medicines or medicine candidates from third parties or acquire businesses at valuations and on other terms acceptable to us, or if we are unable to raise capital required to acquire businesses or new medicines, our business and prospects will be limited. 53 Moreover, any medicine candidate we acquire may require additional, time-consuming development or regulatory efforts prior to commercial sale or prior to expansion into other indications, including pre-clinical studies if applicable, and extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All medicine candidates are prone to the risk of failure that is inherent in pharmaceutical medicine development, including the possibility that the medicine candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. In addition, we cannot assure that any such medicines that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective or desired than other commercially available alternatives. In addition, if we fail to successfully commercialize and further develop our medicines, there is a greater likelihood that we will fail to successfully develop a pipeline of other medicine candidates to follow our existing medicines or be able to acquire other medicines to expand our existing portfolio, and our business and prospects would be harmed. We have experienced growth and expanded the size of our organization substantially in connection with our acquisition transactions, and we may experience difficulties in managing this growth as well as potential additional growth in connection with future medicine, development program or company acquisitions. As of December 31, 2013, we employed approximately 300 full-time employees as a consolidated entity. As of December 31, 2019, we employed approximately 1,200 full-time employees, including approximately 480 sales representatives, representing a substantial change to the size of our organization. We have also experienced, and may continue to experience, turnover of the sales representatives that we hired or will hire in connection with the commercialization of our medicines, requiring us to hire and train new sales representatives. Our management, personnel, systems and facilities currently in place may not be adequate to support anticipated growth, and we may not be able to retain or recruit qualified personnel in the future due to competition for personnel among pharmaceutical businesses. As our commercialization plans and strategies continue to develop, we will need to continue to recruit and train sales and marketing personnel. Our ability to manage any future growth effectively may require us to, among other things: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) continue to manage and expand the sales and marketing efforts for our existing medicines; enhance our operational, financial and management controls, reporting systems and procedures; expand our international resources; successfully identify, recruit, hire, train, maintain, motivate and integrate additional employees; establish and increase our access to commercial supplies of our medicines and medicine candidates; expand our facilities and equipment; and manage our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors, collaborators, distributors and other third parties. Our acquisitions have resulted in many changes, including significant changes in the corporate business and legal entity structure, the integration of other companies and their personnel with us, and changes in systems. We may encounter unexpected difficulties or incur unexpected costs, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) difficulties in achieving growth prospects from combining third-party businesses with our business; difficulties in the integration of operations and systems; difficulties in the assimilation of employees and corporate cultures; challenges in preparing financial statements and reporting timely results at both a statutory level for multiple entities and jurisdictions and at a consolidated level for public reporting; challenges in keeping existing physician prescribers and patients and increasing adoption of acquired medicines; difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination; potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the transaction; and challenges in attracting and retaining key personnel. 54 If any of these factors impair our ability to continue to integrate our operations with those of any companies or businesses we acquire, we may not be able to realize the business opportunities, growth prospects and anticipated tax synergies from combining the businesses. In addition, we may be required to spend additional time or money on integration that otherwise would be spent on the development and expansion of our business. We may not be successful in growing our commercial operations outside the United States, and could encounter other challenges in growing our commercial presence, including due to risks associated with political and economic instability, operating under different legal requirements and tax complexities. If we are unable to manage our commercial growth outside of the United States, our opportunities to expand sales in other countries will be limited or we may experience greater costs with respect to our ex-U.S. commercial operations. We have also broadened our acquisition strategy to include development-stage assets or programs, which entails additional risk to us. For example, if we are unable to identify programs that ultimately result in approved medicines, we may spend material amounts of our capital and other resources evaluating, acquiring and developing medicines that ultimately do not provide a return on our investment. We have less experience evaluating development-stage assets and may be at a disadvantage compared to other entities pursuing similar opportunities. Regardless, development-stage programs generally have a high rate of failure and we cannot guarantee that any such programs will ultimately be successful. While we have significantly enhanced out research and development function over the last two years, we may need to enhance our clinical development and regulatory functions to properly evaluate and develop earlier-stage opportunities, which may include recruiting personnel that are knowledgeable in therapeutic areas we have not yet pursued. If we are unable to acquire promising development-stage assets or eventually obtain marketing approval for them, we may not be able to create a meaningful pipeline of new medicines and eventually realize a return on our investments. Our management may also have to divert a disproportionate amount of its attention away from day-to-day activities and toward managing these growth and integration activities. Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and our failure to effectively manage growth could have a material adverse effect on our business, results of operations, financial condition and prospects. Our prior medicine and company acquisitions and any other strategic transactions that we may pursue in the future could have a variety of negative consequences, and we may not realize the benefits of such transactions or attempts to engage in such transactions. We have completed multiple medicine and company acquisitions and our strategy is to engage in additional strategic transactions with third parties, such as acquisitions of companies or divisions of companies and asset purchases of medicines, medicine candidates or technologies that we believe will complement or augment our existing business. We may also consider a variety of other business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and other investments. Any such transaction may require us to incur non-recurring and other charges, increase our near and long-term expenditures, pose significant integration challenges, create additional tax, legal, accounting and operational complexities in our business, require additional expertise, result in dilution to our existing shareholders and disrupt our management and business, which could harm our operations and financial results. For example, we assumed responsibility for the patent infringement litigation with respect to RAVICTI upon the closing of our acquisition of Hyperion Therapeutics, Inc., or Hyperion, and we have assumed responsibility for completing post-marketing clinical trials of RAVICTI that are required by the FDA, one of which is ongoing. We are subject to contractual obligations under an amended and restated license agreement with the Regents of the University of California, San Diego, or UCSD, as amended, with respect to PROCYSBI. To the extent that we fail to perform our obligations under the agreement, UCSD may, with respect to applicable indications, terminate the license or otherwise cause the license to become non-exclusive. If this license was terminated, we would have no further right to use or exploit the related intellectual property, which would limit our ability to develop PROCYSBI in other indications, and could impact our ability to continue commercializing PROCYSBI in its approved indications. 55 We face significant competition in seeking appropriate strategic transaction opportunities and the negotiation process for any strategic transaction can be time-consuming and complex. In addition, we may not be successful in our efforts to engage in certain strategic transactions because our financial resources may be insufficient and/or third parties may not view our commercial and development capabilities as being adequate. We may not be able to expand our business or realize our strategic goals if we do not have sufficient funding or cannot borrow or raise additional capital. There is no assurance that following any of our recent acquisition transactions or any other strategic transaction, we will achieve the anticipated revenues, net income or other benefits that we believe justify such transactions. In addition, any failures or delays in entering into strategic transactions anticipated by analysts or the investment community could seriously harm our consolidated business, financial condition, results of operations or cash flow. We may not be able to successfully maintain our current advantageous tax status and resulting tax rates, which could adversely affect our business and financial condition, results of operations and growth prospects. Our parent company is incorporated in Ireland and has subsidiaries maintained in multiple jurisdictions, including Ireland, the United States, Switzerland, Luxembourg, Germany, Canada and Bermuda. We are able to achieve a favorable tax rate through the performance of certain functions and ownership of certain assets in tax-efficient jurisdictions, including Ireland and Bermuda, together with the use of intra-company service and transfer pricing agreements, each on an arm’s length basis. Our effective tax rate may be different than experienced in the past due to numerous factors including, changes to the tax laws of jurisdictions that we operate in, the enactment of new tax treaties or changes to existing tax treaties, changes in the mix of our profitability from jurisdiction to jurisdiction, the implementation of the EU Anti-Tax Avoidance Directive (see further discussion below), the implementation of the Bermuda Economic Substance Act 2018 (effective December 31, 2018) and our inability to secure or sustain acceptable agreements with tax authorities (if applicable). Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations. Taxing authorities, such as the U.S. Internal Revenue Service, or IRS, actively audit and otherwise challenge these types of arrangements, and have done so in the pharmaceutical industry. We expect that these challenges will continue as a result of the recent increase in scrutiny and political attention on corporate tax structures. The IRS and/or the Irish tax authorities may challenge our structure and transfer pricing arrangements through an audit or lawsuit. Responding to or defending such a challenge could be expensive and consume time and other resources, and divert management’s time and focus from operating our business. We cannot predict whether taxing authorities will conduct an audit or file a lawsuit challenging this structure, the cost involved in responding to any such audit or lawsuit, or the outcome. If we are unsuccessful in defending such a challenge, we may be required to pay taxes for prior periods, as well as interest, fines or penalties, and may be obligated to pay increased taxes in the future, any of which could require us to reduce our operating expenses, decrease efforts in support of our medicines or seek to raise additional funds, all of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. The IRS may not agree with our conclusion that our parent company should be treated as a foreign corporation for U.S. federal income tax purposes following the combination of the businesses of Horizon Pharma, Inc., or HPI, our predecessor,and Vidara. Although our parent company is incorporated in Ireland, the IRS may assert that it should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Section 7874 of the Internal Revenue Code of 1986, as amended, or the Code. A corporation is generally considered a tax resident in the jurisdiction of its organization or incorporation for U.S. federal income tax purposes. Because our parent company is an Irish incorporated entity, it would generally be classified as a foreign corporation (and, therefore, a non-U.S. tax resident) under these general rules. Section 7874 of the Code provides an exception pursuant to which a foreign incorporated entity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes. In July 2018, the IRS issued regulations under Section 7874. We do not believe that our classification as a foreign corporation for U.S. federal income tax purposes is affected by Section 7874 or the regulations thereunder, though the IRS may disagree. Recent and future changes to U.S. and non-U.S. tax laws could materially adversely affect our company. Under current law, we expect our parent company to be treated as a foreign corporation for U.S. federal income tax purposes. However, changes to the rules in Section 7874 of the Code or regulations promulgated thereunder or other guidance issued by the U.S. Department of the Treasury, or the U.S. Treasury, or the IRS could adversely affect our parent company’s status as a foreign corporation for U.S. federal income tax purposes or the taxation of transactions between members of our group, and any such changes could have prospective or retroactive application. If our parent company is treated as a domestic corporation, more of our income will be taxed by the United States which may substantially increase our effective tax rate. 56 In addition, the Organization for Economic Co-operation and Development, or the OECD, released its Base Erosion and Profit Shifting project final report on October 5, 2015. This report provides the basis for international standards for corporate taxation that are designed to prevent, among other things, the artificial shifting of income to tax havens and low-tax jurisdictions, the erosion of the tax base through interest deductions on intra-company debt and the artificial avoidance of permanent establishments (i.e., tax nexus with a jurisdiction). Legislation to adopt these standards has been enacted or is currently under consideration in a number of jurisdictions. On June 7, 2017, several countries, including many countries that we operate and have subsidiaries in, participated in the signing ceremony adopting the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, commonly referred to as the MLI. The MLI came into effect on July 1, 2018. In January 2019, Ireland deposited the instrument of ratification of Ireland’s MLI choices with the OECD. Ireland’s MLI came into force on May 1, 2019, however the provisions in respect of withholding taxes and other taxes levied by Ireland did not come into effect for us until January 1, 2020 (with application also depending on whether the MLI has been ratified in other jurisdictions whose tax treaties with Ireland are affected). The MLI may modify affected tax treaties making it more difficult for us to obtain advantageous tax-treaty benefits. The number of affected tax treaties could eventually be in the thousands. As a result, our income may be taxed in jurisdictions where it is not currently taxed and at higher rates of tax than it is currently taxed, which may increase our effective tax rate. The Irish Finance Act 2019, or Finance Act 2019, which was signed into law on December 22, 2019, introduced changes to Ireland’s transfer pricing rules, which came into force with effect from January 1, 2020. The changes introduce the 2017 version of the OECD Transfer Pricing Guidelines, or 2017 OECD Guidelines, as the reference guidelines for Ireland’s domestic transfer pricing regime. The 2017 OECD Guidelines were already applicable under Ireland’s international tax treaties and therefore the introduction of these guidelines should only affect transactions with non-tax treaty countries. In addition to updating Irish tax law for the 2017 OECD Guidelines, these changes also extend the transfer pricing rules to certain non-trading transactions and to certain capital transactions. We have restructured certain intercompany arrangements, such that we do not expect there to be a material impact on our effective tax rate as a result of the introduction of these provisions. On July 12, 2016, the Anti-Tax Avoidance Directive, or ATAD, was formally adopted by the Economic and Financial Affairs Council of the EU. The stated objective of the ATAD is to provide for the effective and swift coordinated implementation of anti-base erosion and profit shifting measures at EU level. Like all directives, the ATAD is binding as to the results it aims to achieve though EU Member States are free to choose the form and method of achieving those results. In addition, the ATAD contains a number of optional provisions that present an element of choice as to how it will be implemented into law. On December 25, 2018, the Finance Act 2018 was signed into Irish law, which introduced certain elements of the ATAD, such as the Controlled Foreign Company, or CFC, regime, into Irish law. The CFC regime became effective as of January 1, 2019. The ATAD also set out a high-level framework for the introduction of Anti-hybrid provisions. Finance Act 2019 introduced Anti-hybrid legislation in Ireland with effect from January 1, 2020. We do not expect these legislative changes to have a material impact on our effective tax rate. The timing of the introduction into Irish tax law of further ATAD measures, such as the interest limitation rules, is unclear. Although it is difficult at this stage to determine with precision the impact that these remaining provisions will have, their implementation could materially increase our effective tax rate. 57 On December 22, 2017, U.S. federal income tax legislation was signed into law (H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”, informally titled the Tax Cuts and Jobs Act, or the Tax Act) that significantly revised the Code in the United States. The Tax Act, among other things, contained significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), implementation of a “base erosion anti-abuse tax” which requires U.S. corporations to make an alternative determination of taxable income without regard to tax deductions for certain payments to affiliates, taxation of certain non-U.S. corporations’ earnings considered to be “global intangible low taxed income”, or GILTI, repeal of the alternative minimum tax, or AMT, for corporations and changes to a taxpayer’s ability to either utilize or refund the AMT credits previously generated, changes to the limitation on deductions for certain executive compensation particularly with respect to the removal of the previously allowed performance based compensation exception, changes in the attribution rules relating to shareholders of certain “controlled foreign corporations”, limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. For example, U.S. federal income tax law resulting in additional taxes owed by U.S. shareholders under the GILTI rules, together with the Tax Act’s change to the attribution rules related to “controlled foreign corporations” may discourage U.S. investors from owning or acquiring 10% or greater of our outstanding ordinary shares, which other shareholders may have viewed as beneficial or may otherwise negatively impact the trading price of our ordinary shares. We are unable to predict what federal tax law may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our effective tax rates in the future in countries where we have operations and have an adverse effect on our overall tax rate in the future, along with increasing the complexity, burden and cost of tax compliance. We urge our shareholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our ordinary shares. On December 20, 2018, the U.S. Treasury issued Proposed Regulations under Section 267A of the Code, or Section 267A Proposed Regulations, to clarify certain aspects of Section 267A of the Code (commonly referred to as the “Anti- Hybrid Rules”). The Section 267A Proposed Regulations were the first administrative guidance on Section 267A of the Code and provided several rules which expanded the reach and scope of the Anti-Hybrid Rules particularly involving the payment of interest and royalties by certain branches, reverse hybrid entities, and other hybrid mismatch arrangements. While Section 267A of the Code does not appear to apply to us, we will assess the impact of the Anti-Hybrid Rules if and when the 267A Final Regulations are issued. To the extent that the Anti-Hybrid Rules under the 267A Final Regulations are applicable to us, such application could have a material impact on our effective tax rate. On March 4, 2019, the U.S. Treasury issued Proposed Regulations under Section 250 of the Code, which provide guidance on both the computation of the deductions for GILTI and “foreign-derived intangible income”, or FDII, and the determination of FDII. We do not expect to be subject to the GILTI inclusion nor is it expected that the potential FDII deduction would have a material impact on our effective tax rate. 58 If a United States person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences. If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting and tax paying obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations from starting with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, sales and marketing and scientific and medical personnel, including our executive officers. In order to retain valuable employees at our company, in addition to salary and annual cash incentives, we provide a mix of performance stock units, or PSUs, that vest subject to attainment of specified corporate performance goals and continued services, stock options and restricted stock units, or RSUs, that vest over time subject to continued services. The value to employees of PSUs, stock options and RSUs will be significantly affected by movements in our share price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, sales and marketing, regulatory affairs, clinical development, medical affairs and development teams may terminate their employment with us on short notice. Although we have written employment arrangements with all of our employees, these employment arrangements generally provide for at-will employment, which means that our employees can leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior sales and marketing and scientific and medical personnel. Many of the other biotechnology and pharmaceutical companies with whom we compete for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than that which we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize medicines and medicine candidates will be limited. 59 We are, with respect to our current medicines, and will be, with respect to any other medicine or medicine candidate for which we obtain FDA or EMA approval or which we acquire, subject to ongoing FDA or EMA obligations and continued regulatory review, which may result in significant additional expense. Additionally, any other medicine candidate, if approved by the FDA or EMA, could be subject to labeling and other restrictions and market withdrawal, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our medicines. Any regulatory approvals that we obtain for our medicine candidates may also be subject to limitations on the approved indicated uses for which the medicine may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the medicine candidate. In addition, with respect to our current FDA-approved medicines (and with respect to our medicine candidates, if approved), the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the medicine are subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs, GCPs, International Council for Harmonisation, or ICH, guidelines and GLPs, which are regulations and guidelines enforced by the FDA for all of our medicines in clinical development, for any clinical trials that we conduct post-approval. In addition, the FDA closely regulates the marketing and promotion of drugs and biologics. The FDA does not regulate the behaviour of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ promotional communications. A significant number of pharmaceutical companies have been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of medicines for off-label uses and other sales practices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, false claims laws, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of medicines for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. While Congress has recently considered legislation that would modify or eliminate restrictions for off-label promotion, we do not have sufficient information to anticipate if the current regulatory environment will change. Later discovery of previously unknown problems with a medicine, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: • • • • restrictions on the marketing or manufacturing of the medicine, withdrawal of the medicine from the market, or voluntary or mandatory medicine recalls; refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of medicine license approvals; medicine seizure or detention, or refusal to permit the import or export of medicines; and injunctions, the imposition of civil or criminal penalties, or exclusion, debarment or suspension from government healthcare programs. If we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would have a material adverse effect on our business, results of operations, financial condition and prospects. We are subject to federal, state and foreign healthcare laws and regulations and implementation or changes to such healthcare laws and regulations could adversely affect our business and results of operations. The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to regulate and to change the healthcare system in ways that could affect our ability to sell our medicines profitably. In the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs (including a number of proposals pertaining to prescription drugs, specifically), improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. 60 If we are found to be in violation of any of these laws or any other federal or state regulations, we may be subject to civil and/or criminal penalties, damages, fines, exclusion, additional reporting requirements and/or oversight from federal health care programs and the restructuring of our operations. Any of these could have a material adverse effect on our business and financial results. Since many of these laws have not been fully interpreted by the courts, there is an increased risk that we may be found in violation of one or more of their provisions. Any action against us for violation of these laws, even if we ultimately are successful in our defense, will cause us to incur significant legal expenses and divert our management’s attention away from the operation of our business. There remain judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance, and delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. While the Texas U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and our business. Likewise, in the countries in the EU, legislators, policymakers and healthcare insurance funds continue to propose and implement cost-containing measures to keep healthcare costs down, due in part to the attention being paid to healthcare cost containment in the EU. Certain of these changes could impose limitations on the prices we will be able to charge for our products and any approved product candidates or the amounts of reimbursement available for these products from governmental agencies or third-party payers, may increase the tax obligations on pharmaceutical companies such as ours, or may facilitate the introduction of generic competition with respect to our products. 61 In addition, drug pricing by pharmaceutical companies has come under increased scrutiny. Specifically, there have been several recent state and U.S. Congressional inquiries, proposed federal and state legislation and state laws enacted designed to, among other things, bring more transparency to drug pricing by requiring drug companies to notify insurers and government regulators of price increases and provide an explanation of the reasons for the increase, reduce the out-of-pocket cost of prescription drugs, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies. For example, legislation signed into law in 2017 in California requires drug manufactures to provide advance notice and explanation to state regulators, health plans and insurers and PBMs for price increases of more than 16% over two years. Moreover, in May 2018, the Trump administration released its “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs”, or Blueprint. The Blueprint contains several potential regulatory actions and legislative recommendations aimed at lowering prescription drug prices including measures to promote innovation and competition for biologics, changes to Medicare Part D to give plan sponsors more leverage when negotiating prices with manufacturers and updating the Medicare drug-pricing dashboard to make price increases and generic competition more transparent. The recommendations in the Blueprint if enacted by Congress and HHS, could lead to changes to Medicare Parts B and D. Further, the Bipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. The majority of our medicines are purchased by private payers, and much of the focus of pending legislation is on government program reimbursement. Most recently, the Office of Inspector General of HHS published a Proposed Rule in January 2019 that would, among other items, eliminate the current safe harbor protection under the Anti-Kickback Statute for pharmaceutical manufacturer rebates to Medicare Part D plans, Medicaid MCOs and the PBMs with which such entities contract. Although this Proposed Rule was withdrawn by the Administration, in July 2019 a similar provision was included in legislation currently being considered in the United States Senate. We cannot know what form any such action may take, the likelihood it would be executed, enacted, effectuated or implemented or the market’s perception of how such legislation or regulation would affect us. Any reduction in reimbursement from government programs may result in a similar reduction in payments from private payers. The Trump administration’s budget proposal for fiscal year 2020 contains further drug price control measures that could be enacted during the 2020 budget process, through regulation or other future legislation. In September 2019, Speaker of the House Nancy Pelosi introduced legislation that would in part, require the HHS Secretary to identify 250 drugs that “lack price competition” and therefore would be subject to government price negotiation. The proposal defines a drug that lacks price competition as a brand-name drug that does not have a generic or biosimilar competitor on the market. Under the proposal, the HHS Secretary would directly negotiate with drug manufacturers to establish a maximum fair price. In December 2019, the Further Consolidated Appropriations Act was signed into law which included the Creating and Restoring Equal Access to Equivalent Samples Act, or CREATES Act. The CREATES Act allows generic drug manufacturers to bring suit against a brand name manufacturer to compel the provision of brand samples if the generic manufacturer has made a request for samples and the brand manufacturer fails to deliver sufficient quantities of the sample on commercially reasonable, market-based terms within 31 days of receipt of the request. The United States Senate is also considering legislation that would, among other changes to Medicare reimbursement, require manufacturers to report to the HHS Secretary information to justify price increases. The HHS would make the price justification information available to the public. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our current medicines and/or those for which we may receive regulatory approval in the future. We are subject, directly or indirectly, to federal and state healthcare fraud and abuse, transparency laws and false claims laws. Prosecutions under such laws have increased in recent years and we may become subject to such litigation. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. In the United States, we are subject directly, or indirectly or through our customers, to various state and federal fraud and abuse and transparency laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, civil monetary penalty statutes prohibiting beneficiary inducements, and similar state and local laws, federal and state privacy and security laws, sunshine laws, government price reporting laws, and other fraud laws. Some states, such as Massachusetts, make certain reported information public. In addition, there are state and local laws that require pharmaceutical representatives to be licensed and comply with codes of conduct, transparency reporting, and other obligations. Collectively, these laws may affect, among other things, our current and proposed sales, marketing and educational programs, as well as other possible relationships with customers, pharmacies, physicians, payers, and patients. We are subject to similar laws in the EU/European Economic Area, including the EU General Data Protection Regulation (2016/679), or GDPR, under which fines of up to €20.0 million or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed for significant non-compliance. 62 Compliance with these laws, including the development of a comprehensive compliance program, is difficult, costly and time consuming. Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Moreover, state governmental agencies may propose or enact laws and regulations that extend or contradict federal requirements. These risks may be increased where there are evolving interpretations of applicable regulatory requirements, such as those applicable to manufacturer co-pay programs. Pharmaceutical manufacturer co-pay programs, including pharmaceutical manufacturer donations to patient assistance programs offered by charitable foundations, are the subject of ongoing litigation, enforcement actions and settlements (involving other manufacturers and to which we are not a party) and evolving interpretations of applicable regulatory requirements and certain state laws, and any change in the regulatory or enforcement environment regarding such programs could impact our ability to offer such programs. If we are unsuccessful with our HorizonCares programs, any other co-pay programs, we would be at a competitive disadvantage in terms of pricing versus preferred branded and generic competitors, or be subject to significant penalties. We are engaged in various business arrangements with current and potential customers, and we can give no assurance that such arrangements would not be subject to scrutiny under such laws, despite our efforts to properly structure such arrangements. Even if we structure our programs with the intent of compliance with such laws, there can be no certainty that we would not need to defend our business activities against enforcement or litigation. Further, we cannot give any assurances that prior business activities or arrangements of other companies that we acquire will not be scrutinized or subject to enforcement or litigation. There has also been a trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The ACA, among other things, imposed reporting requirements on drug manufacturers for payments made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. In November 2019, HHS published a final 2020 Physician Fee Schedule rule which for calendar year 2021, expands the definition of “covered recipients” for which reporting of payments and transfers is required, to include physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwives. Failure to submit required information may result in significant civil monetary penalties. On March 5, 2019, we received a civil investigative demand, or CID, from the DOJ pursuant to the Federal False Claims Act regarding assertions that certain of our payments to PBMs were potentially in violation of the Anti-Kickback Statute. The CID requests certain documents and information related to our payments to PBMs, pricing and our patient assistance program regarding DUEXIS, VIMOVO and PENNSAID 2%. We are cooperating with the investigation. While we believe that our payments and programs are compliant with the Anti-Kickback Statute, no assurance can be given as to the timing or outcome of the DOJ’s investigation, or that it will not result in a material adverse effect on our business. We are unable to predict whether we could be subject to other actions under any of these or other healthcare laws, or the impact of such actions. If we are found to be in violation of, or to encourage or assist the violation by third parties of any of the laws described above or other applicable state and federal fraud and abuse laws, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, withdrawal of regulatory approval, imprisonment, exclusion from government healthcare reimbursement programs, contractual damages, reputational harm, diminished profits and future earnings, injunctions and other associated remedies, or private “qui tam” actions brought by individual whistleblowers in the name of the government, and the curtailment or restructuring of our operations, all of which could have a material adverse effect on our business and results of operations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. 63 Our medicines or any other medicine candidate that we develop may cause undesirable side effects or have other properties that could delay or prevent regulatory approval or commercialization, result in medicine re-labeling or withdrawal from the market or have a significant impact on customer demand. Undesirable side effects caused by any medicine candidate that we develop could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, or cause us to evaluate the future of our development programs. With respect to KRYSTEXXA, the most commonly reported serious adverse reactions in the pivotal trial were gout flares, infusion reactions, nausea, contusion or ecchymosis, nasopharyngitis, constipation, chest pain, anaphylaxis, exacerbation of pre-existing congestive heart failure and vomiting. With respect to RAVICTI, the most common side effects are diarrhea, nausea, decreased appetite, gas, vomiting, high blood levels of ammonia, headache, tiredness and dizziness. The most common adverse events reported in a Phase 2 clinical trial of PENNSAID 2% were application site reactions, such as dryness, exfoliation, erythema, pruritus, pain, induration, rash and scabbing. With respect to PROCYSBI, the most common side effects include vomiting, nausea, abdominal pain, breath odor, diarrhea, skin odor, fatigue, rash and headache. In our two Phase 3 clinical trials with DUEXIS, the most commonly reported treatment-emergent adverse events were nausea, dyspepsia, diarrhea, constipation and upper respiratory tract infection. The most common side effects observed in pivotal trials for ACTIMMUNE were “flu-like” or constitutional symptoms such as fever, headache, chills, myalgia and fatigue. The most commonly reported treatment-emergent adverse events in the Phase 3 clinical trials with RAYOS included flare in rheumatoid arthritis related symptoms, abdominal pain, nasopharyngitis, headache, flushing, upper respiratory tract infection, back pain and weight gain. In Phase 3 endoscopic registration clinical trials with VIMOVO, the most commonly reported treatment-emergent adverse events were erosive gastritis, dyspepsia, gastritis, diarrhea, gastric ulcer, upper abdominal pain, nausea and upper respiratory tract infection. In our Phase 3 clinical trial evaluating TEPEZZA for the treatment of active TED, the most commonly reported treatment-emergent adverse events were muscle spasms, nausea, alopecia, diarrhea, fatigue, hyperglycemia, hearing impairment, dysgeusia, headache and dry skin. The FDA or other regulatory authorities may also require, or we may undertake, additional clinical trials to support the safety profile of our medicines or medicine candidates. In addition, if we or others identify undesirable side effects caused by our medicines or any other medicine candidate that we may develop that receives marketing approval, or if there is a perception that the medicine is associated with undesirable side effects: (cid:129) (cid:129) (cid:129) (cid:129) regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication; regulatory authorities may withdraw their approval of the medicine or place restrictions on the way it is prescribed; we may be required to change the way the medicine is administered, conduct additional clinical trials or change the labeling of the medicine or implement a risk evaluation and mitigation strategy; and we may be subject to increased exposure to product liability and/or personal injury claims. If any of these events occurred with respect to our medicines, our ability to generate significant revenues from the sale of these medicines would be significantly harmed. 64 We rely on third parties to conduct our pre-clinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or if they experience regulatory compliance issues, we may not be able to obtain regulatory approval for or commercialize our medicine candidates and our business could be substantially harmed. We have agreements with third-party contract research organizations, or CROs, to conduct our clinical programs, including those required for post-marketing commitments, and we expect to continue to rely on CROs for the completion of on-going and planned clinical trials. We may also have the need to enter into other such agreements in the future if we were to develop other medicine candidates or conduct clinical trials in additional indications for our existing medicines. We also rely heavily on these parties for the execution of our clinical studies and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol. We, our CROs and our academic research organizations are required to comply with current GCP or ICH regulations. The FDA enforces these GCP or ICH regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs or collaborators fail to comply with applicable GCP or ICH regulations, the data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure that, upon inspection, the FDA will determine that any of our clinical trials comply or complied with GCP or ICH regulations. In addition, our clinical trials must be conducted with medicine produced under cGMP regulations, and may require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of our CROs or collaborators violates federal or state fraud and abuse or false claims laws and regulations or privacy and security laws. We must also obtain certain third-party institutional review board, or IRB, and ethics committee approvals in order to conduct our clinical trials. Delays by IRBs and ethics committees in providing such approvals may delay our clinical trials. If any of our relationships with these third-party CROs or collaborators terminate, we may not be able to enter into similar arrangements on commercially reasonable terms, or at all. If CROs or collaborators do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our medicines and medicine candidates. As a result, our results of operations and the commercial prospects for our medicines and medicine candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. Switching or adding additional CROs or collaborators can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO or collaborator commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs and collaborators, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition or prospects. Clinical development of drugs and biologics involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Clinical testing is expensive and can take many years to complete, and its outcome is uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials of potential medicine candidates may not be predictive of the results of later-stage clinical trials. Medicine candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical testing. For example, in December 2016, we announced that the Phase 3 trial, Safety, Tolerability and Efficacy of ACTIMMUNE Dose Escalation in Friedreich’s ataxia, evaluating ACTIMMUNE for the treatment of Friedreich’s ataxia did not meet its primary endpoint. Additionally, we discontinued our ACTIMMUNE investigator-initiated trials in oncology to focus on our strategic pipeline where we see more promise and long-term intellectual property. We may experience delays in clinical trials or investigator-initiated studies. We do not know whether any additional clinical trials will be initiated in the future, begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to: (cid:129) (cid:129) obtaining regulatory approval to commence a trial; reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; 65 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) obtaining IRB or ethics committee approval at each site; recruiting suitable patients to participate in a trial; having patients complete a trial or return for post-treatment follow-up; clinical sites dropping out of a trial; adding new sites; or manufacturing sufficient quantities of medicine candidates for use in clinical trials. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the medicine candidate being studied in relation to other available therapies, including any new drugs or biologics that may be approved for the indications we are investigating. We could encounter delays if prescribing physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our medicine candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, our collaborators, the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a medicine candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or if we terminate, any clinical trial of our medicine candidates, the commercial prospects of our medicine candidates will be harmed, and our ability to generate medicine revenues from any of these medicine candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our medicine development and approval process and jeopardize our ability to commence medicine sales and generate revenues. Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of one or more of our medicine candidates. Any of these occurrences may harm our business, financial condition, results of operations and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our medicine candidates. 66 Business interruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. While we carry insurance for certain of these events and have implemented disaster management plans and contingencies, the occurrence of any of these business interruptions could seriously harm our business and financial condition and increase our costs and expenses. We conduct significant management operations at both our global headquarters located in Dublin, Ireland and our U.S. office located in Lake Forest, Illinois. If our Dublin or Lake Forest offices were affected by a natural or man-made disaster or other business interruption, our ability to manage our domestic and foreign operations could be impaired, which could materially and adversely affect our results of operations and financial condition. We currently rely, and intend to rely in the future, on third-party manufacturers and suppliers to produce our medicines and third-party logistics partners to ship our medicines. Our ability to obtain commercial supplies of our medicines could be disrupted and our results of operations and financial condition could be materially and adversely affected if the operations of these third-party suppliers or logistics partners were affected by a man-made or natural disaster or other business interruption. The ultimate impact of such events on us, our significant suppliers and our general infrastructure is unknown. We are dependent on information technology systems, infrastructure and data, which exposes us to data security risks. We are dependent upon our own or third-party information technology systems, infrastructure and data, including mobile technologies, to operate our business. The multitude and complexity of our computer systems may make them vulnerable to service interruption or destruction, disruption of data integrity, malicious intrusion, or random attacks. Likewise, data privacy or security incidents or breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, customers or other business partners may be exposed to unauthorized persons or to the public. Cyberattacks are increasing in their frequency, sophistication and intensity. Cyberattacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Our business partners face similar risks and any security breach of their systems could adversely affect our security posture. A security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to litigation or other liability under laws and regulations that protect personal data, any of which could disrupt our business and/or result in increased costs or loss of revenue. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. Despite significant efforts to create security barriers to the above described threats, it is impossible for us to entirely mitigate these risks. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to compromise our systems because they change frequently and are generally not detected until after an incident has occurred. In addition, a cybersecurity event could result in significant increases in costs, including costs for remediating the effects of such an event, fines imposed by regulators, lost revenues due to decrease in customer trust and network downtime, increases in insurance premiums due to cybersecurity incidents and damages to our reputation because of any such incident. While we have invested, and continue to invest, in the protection of our data and information technology infrastructure, there can be no assurance that our efforts will prevent service interruptions, or identify vulnerabilities or breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches. 67 We are subject to extensive laws and regulations related to data privacy, and our failure to comply with these laws and regulations could harm our business. We are subject to laws and regulations governing data privacy and the protection of personal information. These laws and regulations govern our processing of personal data, including the collection, access, use, analysis, modification, storage, transfer, security breach notification, destruction and disposal of personal data. There are foreign and state law versions of these laws and regulations to which we are currently and/or may in the future, be subject. For example, the collection and use of personal health data in the EU is governed by the GDPR. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of personal data. The GDPR also imposes strict rules on the transfer of personal data out of the EU to the United States, provides an enforcement authority and imposes potentially large monetary penalties for noncompliance. The GDPR requirements apply not only to third-party transactions, but also to transfers of information within our company, including employee information. The GDPR and similar data privacy laws of other jurisdictions place significant responsibilities on us and create potential liability in relation to personal data that we or our third-party service providers process, including in clinical trials conducted in the United States and EU. In addition, we expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy and data protection in the United States, the EU and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business. Additionally, the California Consumer Privacy Act, or CCPA, went into effect on January 1, 2020. The CCPA has been dubbed the first “GDPR-like” law in the United States since it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA requires covered companies to provide new disclosures to California consumers (as that word is broadly defined in the CCPA), provide such consumers new ways to opt-out of certain sales of personal information, and allow for a new cause of action for data breaches. It remains unclear how the CCPA will be interpreted, but as currently written, it will likely impact our business activities and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protected health information. As we expand our operations and trials (both preclinical or clinical), the CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States. Other states are beginning to pass similar laws. Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time- intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations. Furthermore, the laws are not consistent, and compliance in the event of a widespread data breach is costly. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our medicines. We face an inherent risk of product liability claims as a result of the commercial sales of our medicines and the clinical testing of our medicine candidates. For example, we may be sued if any of our medicines or medicine candidates allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the medicine, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our medicines and medicine candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) decreased demand for our medicines or medicine candidates that we may develop; injury to our reputation; withdrawal of clinical trial participants; initiation of investigations by regulators; costs to defend the related litigation; 68 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) a diversion of management’s time and resources; substantial monetary awards to trial participants or patients; medicine recalls, withdrawals or labeling, marketing or promotional restrictions; loss of revenue; exhaustion of any available insurance and our capital resources; and the inability to commercialize our medicines or medicine candidates. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of medicines we develop. We currently carry product liability insurance covering our clinical studies and commercial medicine sales in the amount of $125.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. If we determine that it is prudent to increase our product liability coverage due to the on-going commercialization of our current medicines in the United States, and/or the potential commercial launches of any of our medicines in additional markets or for additional indications, we may be unable to obtain such increased coverage on acceptable terms or at all. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Our business involves the use of hazardous materials, and we and our third-party manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business. Our third-party manufacturers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our medicine candidates and other hazardous compounds. We and our manufacturers are subject to federal, state and local as well as foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, state, federal or foreign authorities may curtail the use of these materials and interrupt our business operations. We currently only maintain hazardous materials insurance coverage related to our South San Francisco facility. If we are subject to any liability as a result of our third-party manufacturers’ activities involving hazardous materials, our business and financial condition may be adversely affected. In the future we may seek to establish longer-term third-party manufacturing arrangements, pursuant to which we would seek to obtain contractual indemnification protection from such third-party manufacturers potentially limiting this liability exposure. 69 Our employees, independent contractors, principal investigators, consultants, vendors, distributors and CROs may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, distributors and CROs may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or unauthorized activities that violate FDA regulations, including those laws that require the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, and laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by our employees and other third parties may also include the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment. Risks Related to our Financial Position and Capital Requirements We have incurred significant operating losses. We have financed our operations primarily through equity and debt financings and have incurred significant operating losses. We recorded operating income of $126.6 million for the year ended December 31, 2019, operating income of $37.9 million for the year ended December 31, 2018 and an operating loss of $339.4 million for the year ended December 31, 2017. We recorded net income of $573.0 million for the year ended December 31, 2019, a net loss of $38.4 million for the year ended December 31, 2018 and a net loss of $350.1 million for the year ended December 31, 2017. As of December 31, 2019, we had an accumulated deficit of $605.7 million. Our prior losses have resulted principally from costs incurred in our development activities for our medicines and medicine candidates, commercialization activities related to our medicines, costs associated with our acquisition transactions and costs associated with derivative liability accounting. Our prior losses, combined with possible future losses, have had and will continue to have an adverse effect on our shareholders’ equity and working capital. While we anticipate that we will generate operating profits in the future, whether we can accomplish this will depend on the revenues we generate from the sale of our medicines being sufficient to cover our operating expenses. We have limited sources of revenues and significant expenses. We cannot be certain that we will achieve or sustain profitability, which would depress the market price of our ordinary shares and could cause our investors to lose all or a part of their investment. Our ability to achieve and sustain profitability depends upon our ability to generate sales of our medicines. The commercialization of our medicines has been primarily in the United States. We may never be able to successfully commercialize our medicines or develop or commercialize other medicines in the United States, which we believe represents our most significant commercial opportunity. Our ability to generate future revenues depends heavily on our success in: (cid:129) (cid:129) (cid:129) continued commercialization of our existing medicines and any other medicine candidates for which we obtain approval; securing additional foreign regulatory approvals for our medicines in territories where we have commercial rights; and developing, acquiring and commercializing a portfolio of other medicines or medicine candidates in addition to our current medicines. Even if we do generate additional medicine sales, we may not be able to achieve or sustain profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our ordinary shares and could impair our ability to raise capital, expand our business, diversify our medicine offerings or continue our operations. 70 We may need to obtain additional financing to fund additional acquisitions. Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) commercialize our existing medicines in the United States, including the substantial expansion of our sales force in recent years; complete the regulatory approval process, and any future required clinical development related thereto, for our medicines and medicine candidates; potentially acquire other businesses or additional complementary medicines or medicines that augment our current medicine portfolio, including costs associated with refinancing debt of acquired companies; satisfy progress and milestone payments under our existing and future license, collaboration and acquisition agreements; and conduct clinical trials with respect to potential additional indications, as well as conduct post-marketing requirements and commitments, with respect to our medicines and medicines we acquire. While we believe that our existing cash and cash equivalents will be sufficient to fund our operations based on our current expectations of continued revenue growth, we may need to raise additional funds if we choose to expand our commercialization or development efforts more rapidly than presently anticipated, if we develop or acquire additional medicines or acquire companies, or if our revenue does not meet expectations. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our medicines or medicine candidates or one or more of our other research and development initiatives, or delay, cut back or abandon our plans to grow the business through acquisitions. We also could be required to: (cid:129) (cid:129) seek collaborators for one or more of our current or future medicine candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or relinquish or license on unfavorable terms our rights to technologies or medicine candidates that we would otherwise seek to develop or commercialize ourselves. In addition, if we are unable to secure financing to support future acquisitions, our ability to execute on a key aspect of our overall growth strategy would be impaired. Any of the above events could significantly harm our business, financial condition and prospects. We have incurred a substantial amount of debt, which could adversely affect our business, including by restricting our ability to engage in additional transactions or incur additional indebtedness, and prevent us from meeting our debt obligations. As of December 31, 2019, we had $1,352.8 million book value, or $1,418.0 million aggregate principal amount of indebtedness, including $418.0 million in secured indebtedness. In March 2019, we received $200.0 million of commitments under a new revolving credit facility under our credit agreement. In December 2019, we borrowed approximately $418.0 million aggregate principal amount of loans pursuant to an amendment to our credit agreement to refinance the then outstanding senior secured term loans of approximately $418.0 million under our credit agreement. In July 2019, we issued $600.0 million aggregate principal amount of 5.500% Senior Notes due 2027, or the 2027 Senior Notes. In March 2015, we issued $400.0 million aggregate principal amount of 2.50% Exchangeable Senior Notes due 2022, or the Exchangeable Senior Notes. Accordingly, we have a significant amount of debt outstanding on a consolidated basis. This substantial level of debt could have important consequences to our business, including, but not limited to: (cid:129) (cid:129) (cid:129) (cid:129) reducing the benefits we expect to receive from our prior and any future acquisition transactions; making it more difficult for us to satisfy our obligations; requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund acquisitions, capital expenditures, and future business opportunities; exposing us to the risk of increased interest rates to the extent of any future borrowings, including borrowings under our credit agreement, at variable rates of interest; 71 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) making it more difficult for us to satisfy our obligations with respect to our indebtedness, including our outstanding notes, our credit agreement, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing such indebtedness; increasing our vulnerability to, and reducing our flexibility to respond to, changes in our business or general adverse economic and industry conditions; limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes and increasing the cost of any such financing; limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and placing us at a competitive disadvantage as compared to our competitors, to the extent they are not as highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage may prevent us from exploiting; and restricting us from pursuing certain business opportunities. The credit agreement and the indenture governing the 2027 Senior Notes impose, and the terms of any future indebtedness may impose, various covenants that limit our ability and/or the ability of our restricted subsidiaries’ (as designated under such agreements) to, among other things, pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments, incur additional debt and issue certain preferred stock, incur liens on assets, engage in certain asset sales, consolidate with or merge or sell all or substantially all of our assets, enter into transactions with affiliates, designate subsidiaries as unrestricted subsidiaries, and allow to exist certain restrictions on the ability of restricted subsidiaries to pay dividends or make other payments to us. Our ability to obtain future financing and engage in other transactions may be restricted by these covenants. In addition, any credit ratings will impact the cost and availability of future borrowings and our cost of capital. Our ratings at any time will reflect each rating organization’s then opinion of our financial strength, operating performance and ability to meet our debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. A reduction in our credit ratings may limit our ability to borrow at acceptable interest rates. If our credit ratings were downgraded or put on watch for a potential downgrade, we may not be able to sell additional debt securities or borrow money in the amounts, at the times or interest rates or upon the more favorable terms and conditions that might otherwise be available. Any impairment of our ability to obtain future financing on favorable terms could have an adverse effect on our ability to refinance any of our then-existing debt and may severely restrict our ability to execute on our business strategy, which includes the continued acquisition of additional medicines or businesses. We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our ability to make scheduled payments under or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain financial, business and other factors beyond our control. Our ability to generate cash flow to meet our payment obligations under our debt may also depend on the successful implementation of our operating and growth strategies. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. We cannot assure that we will maintain a level of cash flows from operating activities sufficient to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or business operations, seek additional capital or restructure or refinance our indebtedness. We cannot ensure that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of existing or future debt agreements, including the indenture that governs the 2027 Senior Notes and the credit agreement. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. If we cannot make scheduled payments on our debt, we will be in default and, as a result: (cid:129) (cid:129) (cid:129) our debt holders could declare all outstanding principal and interest to be due and payable; the administrative agent and/or the lenders under the credit agreement could foreclose against the assets securing the borrowings then outstanding; and we could be forced into bankruptcy or liquidation, which could result in you losing your investment. 72 We generally have broad discretion in the use of our cash and may not use it effectively. Our management has broad discretion in the application of our cash, and investors will be relying on the judgment of our management regarding the use of our cash. Our management may not apply our cash in ways that ultimately increase the value of any investment in our securities. We expect to use our existing cash to fund commercialization activities for our medicines, to potentially fund additional medicine, medicine candidate or business acquisitions, to potentially fund additional regulatory approvals of certain of our medicines, to potentially fund development, life cycle management or manufacturing activities of our medicines and medicine candidates, to potentially fund share repurchases, and for working capital, milestone payments, capital expenditures and general corporate purposes. We may also invest our cash in short-term, investment- grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders. If we do not invest or apply our cash in ways that enhance shareholder value, we may fail to achieve expected financial results, which could cause the price of our ordinary shares to decline. Our ability to use net operating loss carryforwards and certain other tax attributes to offset U.S. income taxes may be limited. Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percent change (by value) in its equity ownership over a three-year period), the corporation’s ability to use pre-change net operating loss carryforwards and other pre-change tax attributes to offset post-change income may be limited. We continue to carry forward our annual limitation resulting from an ownership change date of August 2, 2012. The limitation on pre-change net operating losses incurred prior to the August 2, 2012 change date is approximately $7.7 million for 2020 through 2028. In addition, we recognized $32.2 million of federal net operating losses, $2.2 million of state net operating losses and $9.5 million of federal tax credits following our acquisition of River Vision Development Corp. These acquired federal net operating losses and tax credits are subject to an annual limitation of $2.6 million. The net operating loss carryforward and tax credit carryforward limitations are cumulative such that any use of the carryforwards below the limitations in one year will result in a corresponding increase in the limitations for the subsequent tax year. Under the Tax Act, U.S. federal net operating losses incurred in taxable years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal net operating losses generated in taxable years beginning after December 31, 2017 is limited to 80 percent of the current year’s taxable income. It remains uncertain if and to what extent various U.S. states will conform to the Tax Act. Following certain acquisitions of a U.S. corporation by a foreign corporation, Section 7874 of the Code limits the ability of the acquired U.S. corporation and its U.S. affiliates to utilize U.S. tax attributes such as net operating losses to offset U.S. taxable income resulting from certain transactions. Based on the limited guidance available, we expect this limitation is applicable for approximately ten years following the Vidara Merger with respect to certain intra-company transactions. As a result, we or our other U.S. affiliates may not be able to utilize U.S. tax attributes to offset U.S. taxable income or U.S. tax liability respectively, if any, resulting from certain intra-company taxable transactions during such period. Notwithstanding this limitation, we expect that we will be able to fully use our U.S. net operating losses and tax credits prior to their expiration. As a result of this limitation, however, it may take Horizon Therapeutics USA, Inc. (formerly known as Horizon Pharma USA, Inc. and as the successor to HPI) longer to use its net operating losses and tax credits. Moreover, contrary to these expectations, it is possible that the limitation under Section 7874 of the Code on the utilization of U.S. tax attributes could prevent us from fully utilizing our U.S. tax attributes prior to their expiration if we do not generate sufficient taxable income or tax obligations. Any limitation on our ability to use our net operating loss and tax credit carryforwards, including the carryforwards of companies that we acquire, will likely increase the taxes we would otherwise pay in future years if we were not subject to such limitations. 73 Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price. From time to time, global credit and financial markets have experienced extreme disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment and continued unpredictable and unstable market conditions. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and share price and could require us to delay or abandon commercialization or development plans. There is a risk that one or more of our current service providers, manufacturers and other partners may not survive an economic down-turn, which could directly affect our ability to attain our operating goals on schedule and on budget. The United Kingdom’s referendum to leave the EU and the United Kingdom’s exit from the EU on January 31, 2020, or “Brexit,” has caused and may continue to cause disruptions to capital and currency markets worldwide. The full impact of Brexit, however, remains uncertain. Pursuant to the formal withdrawal arrangements agreed to between the United Kingdom and the EU, the United Kingdom will be subject to a transition period, or Transition Period, until December 31, 2020, during which EU rules will continue to apply. Negotiations between the United Kingdom and the EU are expected to continue in relation to the customs and trading relationship between the United Kingdom and the EU following the expiry of the Transition Period. During this period of negotiation and afterwards, our results of operations and access to capital may be negatively affected by interest rate, exchange rate and other market and economic volatility, as well as political uncertainty. Brexit may also have a detrimental effect on our customers, distributors and suppliers, which would, in turn, adversely affect our revenues and financial condition. At December 31, 2019, we had $1,076.3 million of cash and cash equivalents consisting of cash and money market funds. While we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents since December 31, 2019, no assurance can be given that deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities owned by us. If the London Inter-Bank Offered Rate, or LIBOR, is discontinued, interest payments under our credit agreement may be calculated using another reference rate. In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, or FCA, which regulates LIBOR, announced that the FCA intends to phase out the use of LIBOR by the end of 2021. In addition, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities. Although there have been certain issuances utilizing SOFR, it is unknown whether this or any other alternative reference rate will attain market acceptance as a replacement for LIBOR. LIBOR is used as a benchmark rate throughout our credit agreement, and our credit agreement does not address all circumstances in which LIBOR ceases to be published. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate, and any potential effects of the transition away from LIBOR on us are not known. The transition process may involve, among other things, increased volatility and illiquidity in markets for instruments that currently rely on LIBOR and may result in increased borrowing costs, the effectiveness of related transactions such as hedges, uncertainty under applicable documentation, including the credit agreement, or difficult and costly processes to amend such documentation. As a result, our ability to refinance our credit agreement or other indebtedness or to hedge our exposure to floating rate instruments may be impaired, which would adversely affect the operations of our business. 74 Changes in accounting rules or policies may affect our financial position and results of operations. Accounting principles generally accepted in the United States, or GAAP, and related implementation guidelines and interpretations can be highly complex and involve subjective judgments. Changes in these rules or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations. In addition, our operation as an Irish company with multiple subsidiaries in different jurisdictions adds additional complexity to the application of GAAP and this complexity will be exacerbated further if we complete additional strategic transactions. Changes in the application of existing rules or guidance applicable to us or our wholly owned subsidiaries could significantly affect our consolidated financial position and results of operations. Covenants under the indenture governing our 2027 Senior Notes and our credit agreement may restrict our business and operations in many ways, and if we do not effectively manage our covenants, our financial conditions and results of operations could be adversely affected. The indenture governing the 2027 Senior Notes and the credit agreement impose various covenants that limit our ability and/or our restricted subsidiaries’ ability to, among other things: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) pay dividends or distributions, repurchase equity, prepay, redeem or repurchase certain debt and make certain investments; incur additional debt and issue certain preferred stock; provide guarantees in respect of obligations of other persons; incur liens on assets; engage in certain asset sales; merge, consolidate with or sell all or substantially all of our assets to another person; enter into transactions with affiliates; sell assets and capital stock of our subsidiaries; enter into agreements that restrict distributions from our subsidiaries; designate subsidiaries as unrestricted subsidiaries; and allow to exist certain restrictions on the ability of restricted subsidiaries to pay dividends or make other payments to us. These covenants may: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes; limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes; require us to use a substantial portion of our cash flow from operations to make debt service payments; limit our flexibility to plan for, or react to, changes in our business and industry; place us at a competitive disadvantage compared to less leveraged competitors; and increase our vulnerability to the impact of adverse economic and industry conditions. If we are unable to successfully manage the limitations and decreased flexibility on our business due to our significant debt obligations, we may not be able to capitalize on strategic opportunities or grow our business to the extent we would be able to without these limitations. Our failure to comply with any of the covenants could result in a default under the credit agreement or the indenture governing the 2027 Senior Notes, which could permit the administrative agent or the trustee, as applicable, or permit the lenders or the holders of the 2027 Senior Notes to cause the administrative agent or the trustee, as applicable, to declare all or part of any outstanding senior secured term loans or revolving loans, or the 2027 Senior Notes to be immediately due and payable or to exercise any remedies provided to the administrative agent or the trustee, including, in the case of the credit agreement proceeding against the collateral granted to secure our obligations under the credit agreement. An event of default under the credit agreement or the indenture governing the 2027 Senior Notes could also lead to an event of default under the terms of the other agreements and the indenture governing our Exchangeable Senior Notes. Any such event of default or any exercise of rights and remedies by our creditors could seriously harm our business. 75 If intangible assets that we have recorded in connection with our acquisition transactions become impaired, we could have to take significant charges against earnings. In connection with the accounting for our various acquisition transactions, we have recorded significant amounts of intangible assets. Under GAAP, we must assess, at least annually and potentially more frequently, whether the value of goodwill has been impaired. Amortizing intangible assets will be assessed for impairment in the event of an impairment indicator. For example, during the year ended December 31, 2018, we recorded an impairment of $33.6 million to fully write off the book value of developed technology related to PROCYSBI in Canada and Latin America. Such impairment and any reduction or other impairment of the value of goodwill or other intangible assets will result in a charge against earnings, which could materially adversely affect our results of operations and shareholders’ equity in future periods. Risks Related to Our Intellectual Property If we are unable to obtain or protect intellectual property rights related to our medicines and medicine candidates, we may not be able to compete effectively in our markets. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our medicines and medicine candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own may fail to result in issued patents with claims that cover our medicines in the United States or in other foreign countries. If this were to occur, early generic competition could be expected against our current medicines and other medicine candidates in development. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which prior art can invalidate a patent or prevent a patent from issuing based on a pending patent application. In particular, because the APIs in RAYOS, DUEXIS, PENNSAID 2% and VIMOVO have been on the market as separate medicines for many years, it is possible that these medicines have previously been used off-label in such a manner that such prior usage would affect the validity of our patents or our ability to obtain patents based on our patent applications. In addition, claims directed to dosing and dose adjustment may be substantially less likely to issue in light of the Supreme Court decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., where the court held that claims directed to methods of determining whether to adjust drug dosing levels based on drug metabolite levels in the red blood cells were not patent eligible because they were directed to a law of nature. This decision may have wide-ranging implications on the validity and scope of pharmaceutical method claims. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Patent litigation is currently pending in the United States District Court for the District of New Jersey against Actavis, who intend to market a generic version of PENNSAID 2% prior to the expiration of certain of our patents listed in the Orange Book. These cases arise from Paragraph IV Patent Certification notice letters from Actavis advising they had filed an ANDA with the FDA seeking approval to market a generic version of PENNSAID 2% before the expiration of the patents-in-suit. For a more detailed description of the PENNSAID 2% litigation, see Note 16, Legal Proceedings, of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K. Patent litigation is currently pending in the United States District Court for the District of New Jersey and the Court of Appeals for the Federal Circuit against Dr. Reddy’s intending to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. The cases arise from Paragraph IV Patent Certification notice letters from Dr. Reddy’s, advising that it had filed an ANDA with the FDA seeking approval to market generic versions of VIMOVO before the expiration of the patents-in-suit. On July 30, 2019, the Federal Circuit Court of Appeals denied our request for a rehearing of the Court’s invalidity ruling against the 6,926,907 and 8,557,285 patents for VIMOVO coordinated-release tablets. As a result, the District Court entered judgment in September 2019 invalidating the ‘907 and ‘285 patents, which ended any restriction against the FDA from granting final approval to Dr. Reddy’s generic version of VIMOVO. On February 18, 2020, the FDA granted final approval for Dr. Reddy’s generic version of VIMOVO. We anticipate that Dr. Reddy’s will immediately launch its product at-risk notwithstanding the ongoing patent litigation. Patent litigation is currently pending in the United States District Court for the District of New Jersey against Ajanta intending to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. For a more detailed description of the VIMOVO litigation, see Note 16, Legal Proceedings, of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K. 76 Patent litigation is currently pending in the United States District Court for the District of Delaware against Alkem, who intends to market a generic version of DUEXIS prior to the expiration of certain of our patents listed in the Orange Book. This case arises from Paragraph IV Patent Certification notice letters from Alkem advising it had filed an ANDA with the FDA seeking approval to market a generic version of DUEXIS before the expiration of the patents-in-suit. For a more detailed description of the DUEXIS litigation, see Note 16, Legal Proceedings, of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K. We intend to vigorously defend our intellectual property rights relating to our medicines, but we cannot predict the outcome of the DUEXIS case, the PENNSAID 2% cases and the VIMOVO cases. Any adverse outcome in these matters or any new generic challenges that may arise could result in one or more generic versions of our medicines being launched before the expiration of the listed patents, which could adversely affect our ability to successfully execute our business strategy to increase sales of our medicines, and would negatively impact our financial condition and results of operations, including causing a significant decrease in our revenues and cash flows. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the patent applications we hold with respect to our medicines fail to issue or if their breadth or strength of protection is threatened, it could dissuade companies from collaborating with us to develop them and threaten our ability to commercialize our medicines. We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be found not invalid and not unenforceable or will go unthreatened by third parties. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to our medicines or any other medicine candidates. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be provoked by a third-party or instituted by us to determine which party was the first to invent any of the subject matter covered by the patent claims of our applications. In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. For example, if the issuance, in a given country, of a patent to us, covering an invention, is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition. 77 Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. Our commercial success depends in part on us avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter party reexamination proceedings before the United States Patent and Trademark Office, or the U.S. PTO. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which our collaborators are developing medicine candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our medicine candidates may be subject to claims of infringement of the patent rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. There may be third- party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our medicines and/or any other medicine candidates. Because patent applications can take many years to issue, there may be currently pending patent applications, which may later result in issued patents that our medicine candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our medicine candidates, any molecules formed during the manufacturing process or any final medicine itself, the holders of any such patents may be able to block our ability to commercialize such medicine candidate unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patent may be able to block our ability to develop and commercialize the applicable medicine candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all. Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our medicine candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing medicines, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our medicine candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our medicine candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our medicines, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties. 78 If we fail to comply with our obligations in the agreements under which we license rights to technology from third parties, we could lose license rights that are important to our business. We are party to a number of technology licenses that are important to our business and expect to enter into additional licenses in the future. For example, we rely on a license from Bausch with respect to technology developed by Bausch in connection with the manufacturing of RAVICTI. The purchase agreement under which Hyperion purchased the rights to RAVICTI contains obligations to pay Bausch regulatory and sales milestone payments relating to RAVICTI, as well as royalties on the net sales of RAVICTI. On May 31, 2013, when Hyperion acquired BUPHENYL under a restated collaboration agreement with Bausch, Hyperion received a license to use some of the manufacturing technology developed by Bausch in connection with the manufacturing of BUPHENYL. The restated collaboration agreement also contains obligations to pay Bausch regulatory and sales milestone payments, as well as royalties on net sales of BUPHENYL. If we fail to make a required payment to Bausch and do not cure the failure within the required time period, Bausch may be able to terminate the license to use its manufacturing technology for RAVICTI and BUPHENYL. If we lose access to the Bausch manufacturing technology, we cannot guarantee that an acceptable alternative method of manufacture could be developed or acquired. Even if alternative technology could be developed or acquired, the loss of the Bausch technology could still result in substantial costs and potential periods where we would not be able to market and sell RAVICTI and/or BUPHENYL. We also license intellectual property necessary for commercialization of RAVICTI from an external party. This party may be entitled to terminate the license if we breach the agreement, including failure to pay required royalties on net sales of RAVICTI, or we do not meet specified diligence obligations in our development and commercialization of RAVICTI, and we do not cure the failure within the required time period. If the license is terminated, it may be difficult or impossible for us to continue to commercialize RAVICTI, which would have a material adverse effect on our business, financial condition and results of operations. We also license rights to know-how and trademarks for ACTIMMUNE from Genentech Inc., or Genentech. Genentech may terminate the agreement upon our material default, if not cured within a specified period of time. Genentech may also terminate the agreement in the event of our bankruptcy or insolvency. Upon such a termination of the agreement, all intellectual property rights conveyed to us under the agreement, including the rights to the ACTIMMUNE trademark, revert to Genentech. If we fail to comply with our obligations under this agreement, we could lose the ability to market and distribute ACTIMMUNE, which would have a material adverse effect on our business, financial condition and results of operations. We are subject to contractual obligations under our amended and restated license agreement with UCSD, as amended, with respect to PROCYSBI. If one or more of these licenses was terminated, we would have no further right to use or exploit the related intellectual property, which would limit our ability to develop PROCYSBI in other indications, and could impact our ability to continue commercializing PROCYSBI in its approved indications. We also hold an exclusive license to patents and technology from Duke University, or Duke, and Mountain View Pharmaceuticals, Inc., or MVP, covering KRYSTEXXA. Duke and MVP may terminate the license if we commit fraud or for our willful misconduct or illegal conduct. Duke and MVP may also terminate the license upon our material breach of the agreement, if not cured within a specified period of time, or upon written notice if we have committed two or more material breaches under the agreement. Duke and MVP may also terminate the license in the event of our bankruptcy or insolvency. If the license is terminated, it may be impossible for us to continue to commercialize KRYSTEXXA, which would have a material adverse effect on our business, financial condition and results of operations. We hold an exclusive license to Vectura Group plc’s, or Vectura, proprietary technology and know-how covering the delayed-release of corticosteroids relating to RAYOS. If we fail to comply with our obligations under our agreement with Vectura or our other license agreements, or if we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market medicines covered by the license, including RAYOS. 79 We hold an exclusive, worldwide license from F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or Roche, to patents and know-how for TEPEZZA. We also have exclusive sub-licenses for rights licensed to Roche for TEPEZZA by certain third-party licensors. Roche may have the right to terminate the license upon our breach, if not cured within a specified period of time. Roche may also terminate the license in the event of our bankruptcy or insolvency, or if we challenge the validity of Roche’s patents. If the license is terminated for our breach or based on our challenging the validity of Roche’s patents, then all rights and licenses granted to us by Roche would also terminate, and we may be required to assign and transfer to Roche certain filings and approvals, trademarks, and data in our possession necessary for the development and commercialization of TEPEZZA, and assign clinical trial agreements to the extent permitted. We may also be required to grant Roche an exclusive license under our patents and know-how for TEPEZZA, and to manufacture and supply TEPEZZA to Roche for a transitional period. We also have a license of patent rights to TEPEZZA under a license agreement with Lundquist Institute (formerly known as Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center), or Lundquist. Lundquist has the right to terminate the license agreement upon our material breach, if not cured within a specified period of time, or in the event of our bankruptcy or insolvency. If one or more of these licenses is terminated, it may be impossible for us to continue to commercialize TEPEZZA, which would have a material adverse effect on our business, financial condition and results of operations. We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful. Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one of our patents, or a patent of one of our licensors, is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. There are numerous post grant review proceedings available at the U.S. PTO (including inter partes review, post-grant review and ex-parte reexamination) and similar proceedings in other countries of the world that could be initiated by a third- party that could potentially negatively impact our issued patents. Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our collaborators or licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares. 80 Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or licensors that control the prosecution and maintenance of our licensed patents fail to maintain the patents and patent applications covering our medicine candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business. We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. Risks Related to Ownership of Our Ordinary Shares The market price of our ordinary shares historically has been volatile and is likely to continue to be volatile, and you could lose all or part of any investment in our ordinary shares. The trading price of our ordinary shares has been volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this report, these factors include: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) our failure to successfully execute our commercialization strategy with respect to our approved medicines, particularly our commercialization of our medicines in the United States; actions or announcements by third-party or government payers with respect to coverage and reimbursement of our medicines; disputes or other developments relating to intellectual property and other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our medicines and medicine candidates; unanticipated serious safety concerns related to the use of our medicines; adverse regulatory decisions; changes in laws or regulations applicable to our business, medicines or medicine candidates, including but not limited to clinical trial requirements for approvals or tax laws; inability to comply with our debt covenants and to make payments as they become due; inability to obtain adequate commercial supply for any approved medicine or inability to do so at acceptable prices; developments concerning our commercial partners, including but not limited to those with our sources of manufacturing supply; our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; adverse results or delays in clinical trials; 81 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) our failure to successfully develop and/or acquire additional medicine candidates or obtain approvals for additional indications for our existing medicine candidates; introduction of new medicines or services offered by us or our competitors; overall performance of the equity markets, including the pharmaceutical sector, and general political and economic conditions; failure to meet or exceed revenue and financial projections that we may provide to the public; actual or anticipated variations in quarterly operating results; failure to meet or exceed the estimates and projections of the investment community; inaccurate or significant adverse media coverage; publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; our inability to successfully enter new markets; the termination of a collaboration or the inability to establish additional collaborations; announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; our inability to maintain an adequate rate of growth; ineffectiveness of our internal controls or our inability to otherwise comply with financial reporting requirements; adverse U.S. and foreign tax exposure; additions or departures of key management, commercial or regulatory personnel; issuances of debt or equity securities; significant lawsuits, including patent or shareholder litigation; changes in the market valuations of similar companies to us; sales of our ordinary shares by us or our shareholders in the future; trading volume of our ordinary shares; effects of natural or man-made catastrophic events or other business interruptions; and other events or factors, many of which are beyond our control. In addition, the stock market in general, and The Nasdaq Global Select Market and the stock of biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may adversely affect the market price of our ordinary shares, regardless of our actual operating performance. We have never declared or paid dividends on our share capital and we do not anticipate paying dividends in the foreseeable future. We have never declared or paid any cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future, including due to limitations that are currently imposed by our credit agreement and the indenture governing the 2027 Senior Notes. Any return to shareholders will therefore be limited to the increase, if any, of our ordinary share price. 82 We have incurred and will continue to incur significant increased costs as a result of operating as a public company and our management will be required to devote substantial time to compliance initiatives. As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. In particular, the Sarbanes-Oxley Act of 2000, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market, Inc., or Nasdaq, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. These rules and regulations have substantially increased our legal and financial compliance costs and have made some activities more time-consuming and costly. These effects are exacerbated by our transition to an Irish company and the integration of numerous acquired businesses and operations into our historical business and operating structure. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will continue to decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our medicines or services. For example, these rules and regulations make it more difficult and more expensive for us to obtain and maintain director and officer liability insurance. We cannot predict or estimate the amount or timing of additional costs that we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. If we fail to comply with the continued listing requirements of Nasdaq, our ordinary shares could be delisted from The Nasdaq Global Select Market, which would adversely affect the liquidity of our ordinary shares and our ability to obtain future financing. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we are required to perform annual system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Our independent registered public accounting firm is also required to deliver a report on the effectiveness of our internal control over financial reporting. Our testing, or the testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 requires that we incur substantial expense and expend significant management efforts, particularly because of our Irish parent company structure and international operations. If we are not able to comply with the requirements of Section 404 or if we or our independent registered public accounting firm identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our ordinary shares could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources. New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act and rules adopted by the SEC and by Nasdaq, would likely result in increased costs as we respond to their requirements. 83 Sales of a substantial number of our ordinary shares in the public market could cause our share price to decline. If our existing shareholders sell, or indicate an intention to sell, substantial amounts of our ordinary shares in the public market, the trading price of such ordinary shares could decline. In addition, our ordinary shares that are either subject to outstanding options and restricted stock units or reserved for future issuance under our employee benefit plans are or may become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and the Securities Act of 1933, as amended, or the Securities Act. If these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our ordinary shares could decline. In addition, any conversion or exchange of our Exchangeable Senior Notes, whether pursuant to their terms or pursuant to privately negotiated transactions between the issuer and/or us and a holder of such securities, could depress the market price for our ordinary shares. Future sales and issuances of our ordinary shares, securities convertible into our ordinary shares or rights to purchase ordinary shares or convertible securities could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to decline. Additional capital may be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities or securities convertible into or exchangeable for ordinary shares, our shareholders may experience substantial dilution. We may sell ordinary shares, and we may sell convertible or exchangeable securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell such ordinary shares, convertible or exchangeable securities or other equity securities in subsequent transactions, existing shareholders may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of ordinary shares. We also maintain equity incentive plans, including our Amended and Restated 2014 Equity Incentive Plan, 2014 Non-Employee Equity Plan, as amended, and 2014 Employee Share Purchase Plan, as amended, and intend to grant additional ordinary share awards under these and future plans, which will result in additional dilution to our existing shareholders. Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities. It may not be possible to enforce court judgments obtained in the United States against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically or necessarily be enforceable in Ireland. As an Irish company, we are governed by the Irish Companies Act 2014 (as amended), which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States. 84 Provisions of our articles of association, and Irish law could delay or prevent a takeover of us by a third party. Our articles of association could delay, defer or prevent a third-party from acquiring us, despite the possible benefit to our shareholders, or otherwise adversely affect the price of our ordinary shares. For example, our articles of association: (cid:129) (cid:129) (cid:129) impose advance notice requirements for shareholder proposals and nominations of directors to be considered at shareholder meetings; stagger the terms of our board of directors into three classes; and require the approval of a supermajority of the voting power of the shares of our share capital entitled to vote generally at a meeting of shareholders to amend or repeal our articles of association. In addition, several mandatory provisions of Irish law could prevent or delay an acquisition of us. For example, Irish law does not permit shareholders of an Irish public limited company to take action by written consent with less than unanimous consent. We are also subject to various provisions of Irish law relating to mandatory bids, voluntary bids, requirements to make a cash offer and minimum price requirements, as well as substantial acquisition rules and rules requiring the disclosure of interests in our ordinary shares in certain circumstances. These provisions may discourage potential takeover attempts, discourage bids for our ordinary shares at a premium over the market price or adversely affect the market price of, and the voting and other rights of the holders of, our ordinary shares. These provisions could also discourage proxy contests and make it more difficult for you and our other shareholders to elect directors other than the candidates nominated by our board of directors, and could depress the market price of our ordinary shares. Any attempts to take us over will be subject to Irish Takeover Rules and subject to review by the Irish Takeover Panel. We are subject to the Irish Takeover Rules, under which our board of directors will not be permitted to take any action which might frustrate an offer for our ordinary shares once it has received an approach which may lead to an offer or has reason to believe an offer is imminent. A transfer of our ordinary shares may be subject to Irish stamp duty. In certain circumstances, the transfer of shares in an Irish incorporated company will be subject to Irish stamp duty, which is a legal obligation of the buyer. This duty is currently charged at the rate of 1.0 percent of the price paid or the market value of the shares acquired, if higher. Because our ordinary shares are traded on a recognized stock exchange in the United States, an exemption from this stamp duty is available to transfers by shareholders who hold ordinary shares beneficially through brokers, which in turn hold those shares through the Depositary Trust Company, or DTC, to holders who also hold through DTC. However, a transfer by or to a record holder who holds ordinary shares directly in his, her or its own name could be subject to this stamp duty. We, in our absolute discretion and insofar as the Irish Companies Act 2014 (as amended) or any other applicable law permit, may, or may provide that one of our subsidiaries will pay Irish stamp duty arising on a transfer of our ordinary shares on behalf of the transferee of such ordinary shares. If stamp duty resulting from the transfer of ordinary shares which would otherwise be payable by the transferee is paid by us or any of our subsidiaries on behalf of the transferee, then in those circumstances, we will, on our behalf or on behalf of such subsidiary (as the case may be), be entitled to (i) seek reimbursement of the stamp duty from the transferee, (ii) set-off the stamp duty against any dividends payable to the transferee of those ordinary shares and (iii) claim a first and permanent lien on the ordinary shares on which stamp duty has been paid by us or such subsidiary for the amount of stamp duty paid. Our lien shall extend to all dividends paid on those ordinary shares. 85 Dividends paid by us may be subject to Irish dividend withholding tax. In certain circumstances, as an Irish tax resident company, we will be required to deduct Irish dividend withholding tax (currently at the rate of 20%) from dividends paid to our shareholders. Shareholders that are resident in the United States, EU countries (other than Ireland) or other countries with which Ireland has signed a tax treaty (whether the treaty has been ratified or not) generally should not be subject to Irish withholding tax so long as the shareholder has provided its broker, for onward transmission to our qualifying intermediary or other designated agent (in the case of shares held beneficially), or our or its transfer agent (in the case of shares held directly), with all the necessary documentation by the appropriate due date prior to payment of the dividend. However, some shareholders may be subject to withholding tax, which could adversely affect the price of our ordinary shares. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline. The trading market for our ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our rating or publish inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts cease coverage of our company or fail to publish reports on our company regularly, demand for our ordinary shares could decrease, which might cause our share price and trading volume to decline. Securities class action litigation could divert our management’s attention and harm our business and could subject us to significant liabilities. The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the equity securities of pharmaceutical companies. These broad market fluctuations may cause the market price of our ordinary shares to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharma companies have experienced significant stock price volatility in recent years. For example, following declines in our stock price, two federal securities class action lawsuits were filed in March 2016 against us and certain of our current and former officers alleging violations of the Securities Exchange Act of 1934, as amended, which lawsuits were dismissed by the plaintiffs in June 2018. Even if we are successful in defending any similar claims that may be brought in the future, such litigation could result in substantial costs and may be a distraction to our management, and may lead to an unfavorable outcome that could adversely impact our financial condition and prospects. 86 Item 1B. Unresolved Staff Comments None. Item 2. Properties Location Dublin, Ireland Lake Forest, Illinois Novato, California South San Francisco, California Chicago, Illinois Mannheim, Germany Other Approximate Square Footage 18,900 160,000 61,000 20,000 9,200 4,800 12,400 Lease Expiry Date November 4, 2029 March 31, 2031 August 31, 2021 January 31, 2030 December 31, 2028 December 31, 2020 May 31, 2020 to September 15, 2022 The above table does not include details of an agreement to lease entered into on October 14, 2019, relating to approximately 63,000 square feet of office space under construction in Dublin, Ireland. Lease commencement will begin when construction of the offices are completed by the lessor and we have access to begin the construction of leasehold improvements. We expect to incur leasehold improvement costs during 2020 and 2021 in order to prepare the building for occupancy. In February 2020, we purchased a three-building campus in Deerfield, Illinois, for total cash consideration of $115.0 million. The Deerfield campus totals 70 acres and consists of more than 650,000 square feet of office space. We expect to move to the Deerfield campus in the second half of 2020 and market our Lake Forest office for sub-lease. We expect to make significant capital expenditures during 2020 in order to prepare the Deerfield campus for occupancy. Item 3. Legal Proceedings For a description of our legal proceedings, see Note 16 of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures None. 87 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our ordinary shares trade on The Nasdaq Global Select Market under the trading symbol “HZNP”. Holders of Record The closing price of our ordinary shares on February 19, 2020 was $36.06. As of February 19, 2020, there were approximately eleven holders of record of our ordinary shares. Because almost all of our ordinary shares are held by brokers, nominees and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders. Performance Graph The following graph shows a comparison from December 31, 2014, through December 31, 2019, of the cumulative total return for (i) our ordinary shares, (ii) the Nasdaq Biotechnology Index and (iii) the Nasdaq U.S. Benchmark Total Return Index. Information set forth in the graph below represents the performance of our ordinary shares from December 31, 2014, through December 31, 2019. The graph assumes an initial investment of $100 on December 31, 2014. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of our ordinary shares. Horizon Therapeutics plc Nasdaq US Benchmark Total Return Index Nasdaq Biotechnology Index 300.00 250.00 200.00 150.00 100.00 50.00 0.00 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 88 Cumulative Returns Horizon Therapeutics plc Nasdaq Biotechnology Index Nasdaq U.S. Benchmark Total Return Index 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 $ 100.00 $ 168.11 $ 125.52 $ 113.27 106.92 137.83 100.00 111.77 87.91 100.00 100.48 113.55 $ 151.59 $ 280.84 121.92 170.96 97.45 130.33 The foregoing graph and table are furnished solely with this report, and are not filed with this report, and shall not be deemed incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, whether made by us before or after the date hereof, regardless of any general incorporation language in any such filing, except to the extent we specifically incorporate this material by reference into any such filing. Dividend Policy We have never declared or paid cash dividends on our common equity. We currently intend to retain all available funds and any future earnings to support operations and finance the growth and development of our business and do not intend to pay cash dividends on our ordinary shares for the foreseeable future. Under Irish law, dividends may only be paid, and share repurchases and redemptions must generally be funded only out of, “distributable reserves”. In addition, our ability to pay cash dividends is currently prohibited by the terms of our credit agreement with Citibank, N.A., as administrative and collateral agent and our $600.0 million aggregate principal amount of 5.5% Senior Notes due 2027, subject to customary exceptions. Any future determination as to the payment of dividends will, subject to Irish legal requirements, be at the sole discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors our board of directors deems relevant. Securities Authorized for Issuance under Equity Compensation Plans See Item 12 of Part III of this Annual Report on Form 10-K regarding information about securities authorized for issuance under our equity compensation plans. Recent Sales of Unregistered Securities There were no unregistered sales of equity securities by us during the year ended December 31, 2019. Issuer Repurchases of Equity Securities None. Irish Law Matters See Irish Law Matters included in Item 1 of Part I of this Annual Report on Form 10-K. 89 Item 6. Selected Financial Data The selected statement of comprehensive income (loss) data and selected statement of cash flows data for the years ended December 31, 2019, 2018 and 2017, and the selected balance sheet data as of December 31, 2019 and 2018 have been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. The selected statement of comprehensive income (loss) data and selected statement of cash flows data for the years ended December 31, 2016 and 2015, and the selected balance sheet data as of December 31, 2017, 2016 and 2015 have been derived from audited financial statements which are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of future results. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. On May 7, 2015, we completed our acquisition of Hyperion Therapeutics, Inc., on January 13, 2016, we completed our acquisition of Crealta Holdings LLC and on October 25, 2016, we completed our acquisition of Raptor Pharmaceutical Corp. The financial data presented below include the results of operations of the acquired Hyperion, Crealta and Raptor businesses from the applicable dates of acquisition. 2019 2018 As of December 31, 2017 (in thousands) 2016 2015 Selected Balance Sheet Data Cash and cash equivalents Working capital Total assets (3)(6) Total debt, net Accumulated deficit (1)(2)(3)(6) Total shareholders’ equity (1)(2)(3)(6) 958,712 $ 837,129 751,368 $ 526,905 $ 1,076,287 $ 962,934 859,616 706,209 4,436,034 3,941,962 3,961,472 4,054,897 2,941,407 1,352,841 1,896,684 1,901,655 1,807,493 1,136,756 (651,043) 2,185,449 1,190,106 1,101,452 1,313,665 1,343,289 (605,682) (1,178,769) (1,141,975) 509,055 $ 389,147 (798,135) 2019 2018 For the Years Ended December 31, 2016 2017 (in thousands, except per share data) 2015 Selected Statement of Comprehensive Income (Loss) Data Net sales Cost of goods sold (6) Gross profit (6) Loss before benefit for income taxes (6) Net income (loss) (6) Net income (loss) per ordinary share – basic (6) Net income (loss) per ordinary share – diluted (6) (7) $1,300,029 $1,207,570 $1,056,231 $ 493,368 562,863 (458,811) (350,125) (2.15) (2.15) 391,301 816,269 (83,132) (38,380) (0.23) (0.23) 362,175 937,854 (20,224) 573,020 3.13 2.90 981,120 $ 366,405 614,715 (199,918) (147,092) (0.92) (0.92) 757,044 194,516 562,528 (107,726) 60,411 0.41 0.39 Selected Statement of Cash Flows Data Net cash provided by operating activities (5) Net cash provided by (used in) investing activities (4) Net cash (used in) provided by financing activities (5) $ 426,332 $ 194,543 $ 284,340 $ (17,857) (290,446) 27,653 (16,596) 369,456 $ 249,536 (102,185) (1,370,646) (1,049,299) 657,074 1,442,481 54,276 (1) On January 1, 2017, we adopted Accounting Standards Update or ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, on a modified retrospective basis and recorded a decrease of $7.2 million in net deferred tax liabilities and a corresponding decrease in accumulated deficit during the year ended December 31, 2017. (2) On January 1, 2018, we adopted ASU No. 2016-16, Income Taxes, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings and we reclassified $9.3 million of unrecognized deferred charges directly to retained earnings. 90 (3) On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers, on a modified retrospective basis and we reclassified $11.3 million of deferred revenue directly to retained earnings. In addition, as a result of the adoption of ASU No. 2014-09, we now present all allowances for medicine returns in accrued expenses on the consolidated balance sheets. This resulted in a reclassification of $37.9 million, $15.2 million and $14.5 million, respectively, of allowances for medicine returns from “accounts receivable, net” to “accrued expenses” in the consolidated balance sheets at December 31, 2017, 2016 and 2015. (4) On January 1, 2018, we adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This resulted in movements in restricted cash of $0.6 million, $5.2 million and $1.1 million in the consolidated statement of cash flows for the years ended December 31, 2017, 2016 and 2015, respectively, no longer being included in “net cash provided by (used in) investing activities”. (5) On January 1, 2018, we adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This resulted in a reclassification of $4.1 million and $55.4 million outflow in the consolidated statement of cash flows for the years ended December 31, 2017 and 2015, respectively, from “net cash provided by operating activities” to “net cash (used in) provided by financing activities”. (6) Effective January 1, 2019, we retrospectively changed our accounting for business combinations and we now record acquired intangible assets and their related third-party contingent royalties on a net basis, or the New Method. We changed our accounting principle on the basis that the use of the New Method is preferable primarily due to improved comparability with our peers. The impact of the accounting change resulted in adjustments to the consolidated financial statements as of and for the years ended December 31, 2018, 2017, 2016 and 2015, and the revised amounts are presented above. See Note 1 of the Notes to the Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K, for further detail of the impact of the accounting change. (7) During the year ended December 31, 2019, we prospectively applied the if-converted method to our 2.50% Exchangeable Senior Notes due 2022 when determining the diluted net income (loss) per share. 91 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The discussion below contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current expectations regarding our future growth, results of operations, business strategy and plans, financial condition, cash flows, performance, development plans and timelines, business prospects and opportunities, as well as assumptions made by, and information currently available to, our management. We have tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “plan,” “expect,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors, including, but not limited to, those matters discussed in Item 1A. “Risk Factors” in Part I of this Annual Report on Form 10- K, that could cause our actual growth, results of operations, business strategy and plans, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances, or for any other reason. Unless otherwise indicated or the context otherwise requires, references to “we”, “us”, “our” and “Horizon” refer to Horizon Therapeutics plc (formerly known as Horizon Pharma plc) and its consolidated subsidiaries. When accounting for business combinations under ASC Topic 805, Business Combinations, we previously separately identified and recorded at fair value intangible assets acquired and their related third-party contingent royalties at the date of acquisition. Third-party contingent royalties are royalties payable to parties other than sellers of the businesses. Effective January 1, 2019, we retrospectively changed our accounting for business combinations and we now record acquired intangible assets and their related third-party contingent royalties on a net basis, or the New Method. We changed our accounting principle on the basis that the use of the New Method is preferable primarily due to improved comparability with our peers. We adjusted the accompanying consolidated balance sheet as at December 31, 2018, the consolidated statement of comprehensive income (loss) for the years ended December 31, 2018 and 2017 and the consolidated statement of cash flows for the years ended December 31, 2018 and 2017 to reflect this change in accounting. There was no impact on total operating, investing or financing cash flows for any period. In addition, there was no impact from the change in accounting principle on our previously reported adjusted EBITDA, non-GAAP net income and non-GAAP diluted earnings per share for any prior period. OUR BUSINESS We are focused on researching, developing and commercializing medicines that address critical needs for people impacted by rare and rheumatic diseases. Our pipeline is purposeful: we apply scientific expertise and courage to bring clinically meaningful therapies to patients. We believe science and compassion must work together to transform lives. On January 21, 2020, the U.S. Food and Drug Administration, or FDA, approved TEPEZZA™ (teprotumumab-trbw), for the treatment of thyroid eye disease, or TED, a serious, progressive and vision-threatening rare autoimmune condition. During 2019, our two reportable segments were (i) the orphan and rheumatology segment and (ii) the inflammation segment (previously the primary care segment). We report net sales and segment operating income for each segment. Effective in the first quarter of 2020, we (i) reorganized our commercial operations and moved responsibility for RAYOS® to the inflammation segment and (ii) renamed the orphan and rheumatology segment the orphan segment. With the approval of TEPEZZA in the first quarter of 2020, net sales generated by this medicine will be reported as part of the renamed orphan segment. 92 As of December 31, 2019, our marketed medicine portfolio consisted of the following: Orphan and Rheumatology KRYSTEXXA® (pegloticase injection), for intravenous infusion RAVICTI® (glycerol phenylbutyrate) oral liquid PROCYSBI® (cysteamine bitartrate) delayed-release capsules, for oral use ACTIMMUNE® (interferon gamma-1b) injection, for subcutaneous use RAYOS (prednisone) delayed-release tablets BUPHENYL® (sodium phenylbutyrate) tablets and powder QUINSAIR™ (levofloxacin) solution for inhalation Inflammation PENNSAID® (diclofenac sodium topical solution) 2% w/w, or PENNSAID 2%, for topical use DUEXIS® (ibuprofen/famotidine) tablets, for oral use VIMOVO® (naproxen/esomeprazole magnesium) delayed-release tablets, for oral use Acquisitions and Divestitures Since January 1, 2017, we completed the following acquisitions and divestitures: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) On June 28, 2019, we sold our rights to MIGERGOT to Cosette Pharmaceuticals, Inc., for an upfront payment and potential additional contingent consideration payments, or the MIGERGOT transaction. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura Group plc, or Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA® in Europe to Vectura. On December 28, 2018, we sold our rights to RAVICTI and AMMONAPS (known as BUPHENYL in the United States) outside of North America and Japan to Medical Need Europe AB, part of the Immedica Group, or Immedica, and such transaction, the Immedica transaction. We previously distributed RAVICTI and AMMONAPS through a commercial partner in Europe and other non-U.S. markets. We have retained the rights to RAVICTI and BUPHENYL in North America and Japan. On June 30, 2017, we completed our acquisition of certain rights to interferon gamma-1b from Boehringer Ingelheim International GmbH, or Boehringer Ingelheim International, in all territories outside of the United States, Canada and Japan. Interferon gamma-1b is known as IMUKIN outside of the United States, Canada and Japan. On July 24, 2018, we sold the rights to IMUKIN in all territories outside of the United States, Canada and Japan to Clinigen Group plc, or Clinigen, for an upfront payment and a potential additional contingent consideration payment, that was subsequently received in September 2019, or the IMUKIN sale. On June 23, 2017, we sold our European subsidiary that owned the marketing rights to PROCYSBI (cysteamine bitartrate) delayed-release capsules and QUINSAIR (levofloxacin inhalation solution) in Europe, the Middle East and Africa, or EMEA, regions, or the Chiesi divestiture, to Chiesi Farmaceutici S.p.A., or Chiesi. On May 8, 2017, we completed our acquisition of River Vision Development Corp., or River Vision, which added the late development-stage rare disease biologic medicine candidate TEPEZZA to our research and development pipeline. In January 2020, the FDA approved TEPEZZA for the treatment of TED. The consolidated financial statements presented herein include the results of operations of the acquired businesses from the applicable dates of acquisition. See Note 4 of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K, for further details of our acquisitions and divestitures. 93 Strategy Horizon today is a leading biopharma company focused on rare diseases, delivering innovative therapies to patients and generating value for our shareholders. Our strategy is to maximize the benefit and value of our key growth drivers KRYSTEXXA and TEPEZZA, both rare disease medicines, and expand our pipeline for sustainable growth. We believe our strategy allows more patients to benefit from our on-market medicines, as well as from medicines we develop as part of our pipeline. Our vision is to build healthier communities, urgently and responsibly, which in turn, we believe, generates value to our many stakeholders, including our shareholders. On May 2, 2019, our shareholders approved changing our name from “Horizon Pharma Public Limited Company” to “Horizon Therapeutics Public Limited Company”. We believe the new name better reflects our long-term strategy to develop and commercialize innovative new medicines to address rare diseases with very few effective treatment options. Orphan and Rheumatology As of December 31, 2019, our orphan and rheumatology segment consisted of our medicines KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE, BUPHENYL, QUINSAIR and RAYOS. In January 2020, the FDA approved TEPEZZA for the treatment of TED. With the exception of RAYOS, all are orphan medicines for rare diseases. KRYSTEXXA is the only approved medicine indicated for the treatment of uncontrolled gout, or gout that is refractory (unresponsive) to conventional therapies. We are focused on optimizing and maximizing the peak sales potential of KRYSTEXXA through our patient-centric commercialization efforts as well as investing in education, patient and physician outreach that demonstrates the benefits KRYSTEXXA offers in treating uncontrolled gout. Three areas are driving growth for KRYSTEXXA: an increase in new and existing accounts; accelerating uptake by nephrologists; and growth in the adoption of the use of KRYSTEXXA with the immunomodulator methotrexate to improve the KRYSTEXXA response rate in patients with uncontrolled gout. Immunomodulation is one of the clinical development programs we are investing in to evaluate ways to increase the number of patients who can benefit from KRYSTEXXA. Our registrational MIRROR randomized controlled trial, or RCT, is evaluating the co-administration of KRYSTEXXA with methotrexate, the immunomodulator most often used by rheumatologists, to increase the durability of response for uncontrolled gout patients. The MIRROR RCT, which we initiated in mid-2019, was preceded by the MIRROR open-label study, which was initiated in 2018 and completed in 2019. The recently announced positive topline results of the MIRROR open-label study signify to us the value of continuing our research into the benefits of this immunomodulation approach. We are also investing to expand the use of KRYSTEXXA among nephrologists by providing additional data about the effectiveness of KRYSTEXXA in treating uncontrolled gout with its kidney-friendly mechanism of action. In October 2019, we initiated our PROTECT open-label study to evaluate the use of KRYSTEXXA in adult uncontrolled gout patients who have undergone a kidney transplant, a population that was not originally studied in the KRYSTEXXA pivotal trials. We also plan to initiate a proof of concept study in 2020 to evaluate the impact of administering KRYSTEXXA over a shorter infusion time, which could improve the experience and convenience for patients. We believe KRYSTEXXA represents a significant driver of growth for Horizon. 94 TEPEZZA is the first and only FDA-approved medicine for the treatment of TED, a serious, progressive and vision- threatening rare autoimmune condition. TEPEZZA obtained FDA approval in early 2020, after an accelerated review of the medicine and its statistically significant Phase 3 data. Our commercialization strategy for the medicine, which we recently launched, has four components: (i) establishing the market structure and simplifying the diagnosis and treatment of TED for patients; (ii) educating the multiple stakeholders about TED, the benefits of TEPEZZA and the urgency to diagnose and treat; (iii) supporting the TEPEZZA launch with our comprehensive approach and including a high-touch, patient-centric model; and (iv) facilitating access to TEPEZZA and establishing a referral process for treating physicians who may not have infusion capabilities. During 2019, we invested significantly in TEPEZZA in preparation for its potential U.S. launch, driving awareness in the medical and patient community about TED and establishing a potential pathway for treatment. Our clinical strategy for TEPEZZA is to evaluate additional indications for the medicine. Scientific literature suggests that the mechanism of action of TEPEZZA, which is to block the insulin-like growth factor-1 receptor, could have an impact on fibrotic processes. As such, we expect to initiate an exploratory TEPEZZA study in the first half of 2020 in diffuse cutaneous scleroderma, a rare fibrotic disease with no treatment options. The objective of the exploratory trial is to evaluate objective biomarker and clinical endpoints to inform potential subsequent larger and longer duration clinical trials. Our strategy for RAVICTI, our medicine for the treatment of urea cycle disorders, is to drive growth through increased awareness and diagnosis of urea cycle disorders; to drive conversion to RAVICTI from older-generation nitrogen scavengers, such as generic forms of sodium phenylbutyrate based on the medicine’s differentiated benefits; to position RAVICTI as the first line of therapy; and to increase compliance rates. Our strategy for PROCYSBI, our medicine for the treatment of nephropathic cystinosis, is to drive conversion of patients from older-generation immediate-release capsules of cysteamine bitartrate; to increase the use of the medicine by diagnosed but untreated patients; to identify previously undiagnosed patients who are suitable for treatment; to position PROCYSBI as a first line of therapy; and to increase compliance rates. Our strategy with respect to ACTIMMUNE, our medicine for the treatment of chronic granulomatous disease, includes increasing awareness and diagnosis of chronic granulomatous disease and increasing compliance rates. We also market the rheumatology medicine RAYOS. As of December 31, 2019, RAYOS was included in the orphan and rheumatology segment. Effective in the first quarter of 2020, we (i) reorganized our commercial operations and moved responsibility for RAYOS to the inflammation segment and (ii) renamed the orphan and rheumatology segment the orphan segment. With the approval of TEPEZZA in the first quarter of 2020, net sales generated by this medicine will be reported as part of the renamed orphan segment. 95 Inflammation As of December 31, 2019, our inflammation segment consisted of our medicines PENNSAID 2%, DUEXIS and VIMOVO. Our strategy for our inflammation medicines is to educate physicians about these clinically differentiated medicines and the benefits they offer. Patients are able to fill prescriptions for these medicines through pharmacies participating in our HorizonCares patient assistance program, as well as other pharmacies. We offer discount card and other programs to patients under which the patient receives a discount on his or her prescription. In certain circumstances when a patient’s prescription is rejected by a managed care vendor, we will pay for the full cost of the prescription. In addition, we have entered into business arrangements with pharmacy benefit managers, or PBMs, and other payers to secure formulary status and reimbursement of our inflammation medicines. The business arrangements with the PBMs generally require us to pay administrative fees and rebates to the PBMs and other payers for qualifying prescriptions. Effective in the first quarter of 2020, we moved our medicine RAYOS, which is not an orphan medicine, to the inflammation segment. Patent litigation is currently pending in the United States District Court for the District of New Jersey and the Court of Appeals for the Federal Circuit against Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Ltd., or collectively Dr. Reddy’s, who intends to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. The cases arise from Paragraph IV Patent Certification notice letters from Dr. Reddy’s advising that it had filed an ANDA with the FDA seeking approval to market generic versions of VIMOVO before the expiration of the patents- in-suit. On July 30, 2019, the Federal Circuit Court of Appeals denied our request for a rehearing of the Court’s invalidity ruling against the 6,926,907 and 8,557,285 patents for VIMOVO coordinated-release tablets. As a result, the District Court entered judgment in September 2019 invalidating the ‘907 and ‘285 patents, which ended any restriction against the FDA from granting final approval to Dr. Reddy’s generic version of VIMOVO. On February 18, 2020, the FDA granted final approval for Dr. Reddy’s generic version of VIMOVO. We anticipate that Dr. Reddy’s will immediately launch its product at-risk notwithstanding the ongoing patent litigation. Patent litigation is currently pending in the United States District Court for the District of New Jersey against Ajanta Pharma LTD, or Ajanta, intending to market a generic version of VIMOVO before the expiration of certain of our patents listed in the Orange Book. If we are unsuccessful in any of the VIMOVO cases, we will likely face generic competition with respect to VIMOVO and sales of VIMOVO will be substantially harmed. We market all of our medicines in the United States through our field sales forces, which numbered approximately 480 representatives as of December 31, 2019. 96 RESULTS OF OPERATIONS Year Ended December 31, 2019 Compared to Year Ended December 31, 2018 Consolidated Results Net sales Cost of goods sold Gross profit Operating expenses: Research and development Selling, general and administrative Loss (gain) on sale of assets Impairment of long-lived assets Total operating expenses Operating income Other expense, net: Interest expense, net Loss on debt extinguishment Foreign exchange gain (loss) Other (expense) income, net Total other expense, net Loss before benefit for income taxes Benefit for income taxes Net income (loss) For the Years Ended December 31, 2019 2018 (in thousands) Change $ 1,300,029 $ 1,207,570 391,301 816,269 362,175 937,854 $ 92,459 (29,126) 121,585 103,169 697,111 10,963 — 811,243 126,611 (87,089) (58,835) 33 (944) (146,835) (20,224) (593,244) 573,020 $ 82,762 692,485 (42,985) 46,096 778,358 37,911 (121,692) — (192) 841 (121,043) (83,132) (44,752) (38,380) $ 20,407 4,626 53,948 (46,096) 32,885 88,700 34,603 (58,835) 225 (1,785) (25,792) 62,908 (548,492) 611,400 $ Net sales. Net sales increased $92.4 million, or 8%, to $1,300.0 million during the year ended December 31, 2019, from $1,207.6 million during the year ended December 31, 2018. The increase in net sales during the year ended December 31, 2019 was primarily due to an increase in net sales in our orphan and rheumatology segment of $98.1 million, offset by a decrease in net sales in our inflammation segment of $5.7 million. The following table presents a summary of total net sales attributed to geographic sources for the years ended December 31, 2019 and 2018 (in thousands, except percentages): United States Rest of world Total net sales Year Ended December 31, 2019 Year Ended December 31, 2018 Amount $ 1,292,419 7,610 $ 1,300,029 % of Total Net Sales Amount 99% $ 1,186,519 21,051 1% $ 1,207,570 % of Total Net Sales 98% 2% 97 The following table reflects the components of net sales for the years ended December 31, 2019 and 2018 (in thousands, except percentages): KRYSTEXXA RAVICTI PROCYSBI ACTIMMUNE RAYOS BUPHENYL QUINSAIR LODOTRA Orphan and Rheumatology segment net sales PENNSAID 2% DUEXIS VIMOVO MIGERGOT Inflammation segment net sales Year Ended December 31, Change Change 2019 2018 $ 342,379 $ 258,920 $ 226,650 154,895 105,563 61,067 21,810 504 2,067 $ 929,595 $ 831,476 $ 228,755 161,941 107,302 78,595 9,806 817 — $ 83,459 2,105 7,046 1,739 17,528 (12,004) 313 (2,067) 98,119 200,756 115,750 52,106 1,822 190,206 114,672 67,646 3,570 $ 370,434 $ 376,094 $ 10,550 1,078 (15,540) (1,748) (5,660) % 32% 1% 5% 2% 29% (55)% 62% (100)% 12% 6% 1% (23)% (49)% (2)% Total net sales $1,300,029 $1,207,570 $ 92,459 8% Orphan and Rheumatology KRYSTEXXA. Net sales increased $83.5 million, or 32%, to $342.4 million during the year ended December 31, 2019, from $258.9 million during the year ended December 31, 2018. Net sales increased by approximately $73.9 million due to volume growth and approximately $9.6 million due to higher net pricing. RAVICTI. Net sales increased $2.1 million, or 1%, to $228.7 million during the year ended December 31, 2019, from $226.6 million during the year ended December 31, 2018. Net sales in the United States increased by approximately $5.2 million, which was composed of an increase of approximately $21.9 million due to higher sales volume, partially offset by a decrease of approximately $16.7 million resulting from lower net pricing. Net sales outside the United States decreased by approximately $3.1 million as a result of the Immedica transaction on December 28, 2018. PROCYSBI. Net sales increased $7.0 million, or 5%, to $161.9 million during the year ended December 31, 2019, from $154.9 million during the year ended December 31, 2018. The increase in net sales was composed of an increase of approximately $9.0 million due to volume growth, partially offset by a decrease of $2.0 million resulting from lower net pricing. ACTIMMUNE. Net sales increased $1.7 million, or 2%, to $107.3 million during the year ended December 31, 2019, from $105.6 million during the year ended December 31, 2018. Net sales increased by approximately $4.2 million due to higher net pricing, partially offset by a decrease of approximately $2.5 million resulting from lower sales volume. RAYOS. Net sales increased $17.5 million, or 29%, to $78.5 million during the year ended December 31, 2019, from $61.0 million during the year ended December 31, 2018. Net sales increased by approximately $29.9 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs, partially offset by a decrease of approximately $12.4 million due to lower sales volume. BUPHENYL. Net sales decreased $12.0 million, or 55%, to $9.8 million during the year ended December 31, 2019, from $21.8 million during the year ended December 31, 2018. Net sales decreased primarily as a result of the Immedica transaction in December 2018. LODOTRA. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. Effective January 1, 2019, we ceased recording LODOTRA net sales. 98 Inflammation PENNSAID 2%. Net sales increased $10.6 million, or 6%, to $200.8 million during the year ended December 31, 2019, from $190.2 million during the year ended December 31, 2018. Net sales increased by approximately $47.2 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs, partially offset by a decrease of approximately $36.6 million resulting from lower sales volume. DUEXIS. Net sales increased $1.1 million, or 1%, to $115.8 million during the year ended December 31, 2019, from $114.7 million during the year ended December 31, 2018. Net sales increased by approximately $18.1 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs, partially offset by a decrease of approximately $17.0 million resulting from lower sales volume. VIMOVO. Net sales decreased $15.5 million, or 23%, to $52.1 million during the year ended December 31, 2019, from $67.6 million during the year ended December 31, 2018. Net sales decreased by approximately $17.8 million due to lower sales volume, partially offset by an increase of approximately $2.3 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs. MIGERGOT. Net sales decreased $1.8 million, or 49%, to $1.8 million during the year ended December 31, 2019, from $3.6 million during the year ended December 31, 2018. On June 28, 2019, we sold our rights to MIGERGOT. 99 The table below reconciles our gross to net sales for the years ended December 31, 2019 and 2018 (in millions, except percentages): Year Ended December 31, 2019 Year Ended December 31, 2018 Gross sales Adjustments to gross sales: Prompt pay discounts Medicine returns Co-pay and other patient assistance Commercial rebates and wholesaler fees Government rebates and chargebacks Total adjustments Net sales Amount $ 3,911.8 % of Gross Sales Amount % of Gross Sales 100% $ 4,264.5 100% (71.4) (26.5) (1,519.7) (479.5) (514.7) (2,611.8) 1,300.0 $ (1.8)% (0.7)% (38.8)% (12.3)% (13.2)% (66.8)% 33.2% $ (75.1) (25.1) (1,970.4) (589.6) (396.7) (3,056.9) 1,207.6 (1.8)% (0.6)% (46.2)% (13.8)% (9.3)% (71.7)% 28.3% During the year ended December 31, 2019, co-pay and other patient assistance costs, as a percentage of gross sales, decreased to 38.8% from 46.2% during the year ended December 31, 2018, primarily due to lower utilization of our patient assistance programs. During the year ended December 31, 2019, government rebates and chargebacks, as a percentage of gross sales, increased to 13.2% from 9.3% during the year ended December 31, 2018, primarily as a result of an increased proportion of orphan and rheumatology medicines sold. Government rebates and chargebacks as a percentage of gross sales are typically higher for medicines in the orphan and rheumatology segment compared to medicines in the inflammation segment. On a quarter-to-quarter basis, our net sales have traditionally been lower in first half of the year, particularly in the first quarter, with the second half of the year representing a greater share of overall net sales each year. This is due to annual managed care plan changes and the re-setting of patients’ medical insurance deductibles at the beginning of each year, resulting in higher co-pay and other patient assistance costs as patients meet their annual medical insurance deductibles during the first and second quarters, and higher net sales in the second half of the year after patients meet their deductibles and healthcare plans reimburse a greater portion of the total cost of our medicines. Cost of Goods Sold. Cost of goods sold decreased $29.1 million to $362.2 million during the year ended December 31, 2019, from $391.3 million during the year ended December 31, 2018. As a percentage of net sales, cost of goods sold was 28% during the year ended December 31, 2019, compared to 32% during the year ended December 31, 2018. The decrease in cost of goods sold was primarily attributable to a $17.0 million decrease in inventory step-up expense. Because inventory step-up expense is acquisition-related, will not continue indefinitely and has a significant effect on our gross profit, gross margin percentage and net income (loss) for all affected periods, we disclose balance sheet and income statement amounts related to inventory step-up within the Notes to the Consolidated Financial Statements. The decrease in inventory step-up expense of $17.0 million recorded to cost of goods sold during the year ended December 31, 2019 compared to the prior year was primarily related to KRYSTEXXA, inventory step-up being fully expensed by March 31, 2018, resulting in no significant inventory step-up expense being recorded during the year ended December 31, 2019. Research and Development Expenses. Research and development expenses increased $20.4 million to $103.2 million during the year ended December 31, 2019, from $82.8 million during the year ended December 31, 2018. The increase was primarily attributable to total upfront and progress payments of $6.0 million incurred under our collaboration agreement with HemoShear Therapeutics, LLC, or HemoShear, and a milestone payment of $3.0 million made to Roche relating to the TEPEZZA BLA submission to the FDA. In addition, employee-related costs increased by $6.5 million, TEPEZZA-related external costs increased by $3.3 million and KRYSTEXXA-related external costs increased by $1.6 million during the year ended December 31, 2019 compared to December 31, 2018. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $4.6 million to $697.1 million during the year ended December 31, 2019, from $692.5 million during the year ended December 31, 2018. The increase was primarily attributable to an increase in employee costs of $17.6 million, partially offset by a decrease of $14.0 million in legal fees and litigation settlements. 100 Loss (Gain) on sale of assets. During the year ended December 31, 2019, we sold our rights to MIGERGOT for cash proceeds of $6.0 million, and we recorded a loss of $11.0 million on the sale. During the year ended December 31, 2018, we completed the sale of rights to RAVICTI and AMMONAPS outside of North America and Japan for cash proceeds of $35.0 million, and we recorded a gain of $30.7 million on the sale. Additionally, we completed the IMUKIN sale for cash proceeds of $9.5 million, with a potential additional contingent consideration payment and we recorded a gain of $12.3 million on the sale. The contingent consideration payment of €3.0 million ($3.3 million when converted using a Euro-to-Dollar exchange rate at the date of receipt of 1.0991) was received in September 2019. Impairment of Long-Lived Assets. During the year ended December 31, 2018, we recorded an impairment of $33.6 million to fully write off the book value of developed technology related to PROCYSBI in Canada and Latin America due primarily to lower anticipated future net sales based on a Patented Medicine Prices Review Board, or PMPRB, review. We also recorded an impairment of $10.6 million during the year ended December 31, 2018, to fully write off the book value of developed technology related to LODOTRA as result of amendments to our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura. Under these amendments, effective January 1, 2019, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. These transfer activities are ongoing. We ceased recording LODOTRA revenue from January 1, 2019. Interest Expense, Net. Interest expense, net, decreased $34.6 million to $87.1 million during the year ended December 31, 2019, from $121.7 million during the year ended December 31, 2018. The decrease was primarily due to a decrease in debt interest expense of $27.9 million, primarily related to the decrease in the principal amount of our term loans, repayment of our 6.625% Senior Notes due 2023, or the 2023 Senior Notes, in May 2019 and in August 2019, repayment of our 8.750% Senior Notes due 2024, or the 2024 Senior Notes, and an increase in interest income of $6.5 million. Loss on Debt Extinguishment. During the year ended December 31, 2019, we recorded a loss on debt extinguishment of $58.8 million in the consolidated statements of comprehensive income (loss), which reflected the early redemption premiums and the write-off of the deferred financing fees and debt discount fees related to the prepayment of $775.0 million of our 2023 Senior Notes and our 2024 Senior Notes, and the write-off of the deferred financing fees and debt discount fees related to the $400.0 million of term loan repayments. Benefit for Income Taxes. During the year ended December 31, 2019, we recorded a benefit for income taxes of $593.2 million compared to $44.8 million during the year ended December 31, 2018. The benefit for income taxes recorded during the year ended December 31, 2019, was primarily attributable to the recognition of a $553.3 million deferred tax asset resulting from an intra-company transfer of intellectual property assets to an Irish subsidiary. 101 Information by Segment See Note 11, Segment and Other Information, of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K for a reconciliation of our segment operating income to our total loss before benefit for income taxes for the years ended December 31, 2019 and 2018. Orphan and Rheumatology The following table reflects our orphan and rheumatology net sales and segment operating income for the years ended December 31, 2019 and 2018 (in thousands, except percentages). Net sales Segment operating income $ 929,595 306,333 $ 831,476 290,014 $ 98,119 16,319 12% 6% For the Year Ended December 31, 2019 2018 Change % Change The increase in orphan and rheumatology net sales during the year ended December 31, 2019 is described in the Consolidated Results section above. Segment operating income. Orphan and rheumatology segment operating income increased $16.3 million to $306.3 million during the year ended December 31, 2019, from $290.0 million during the year ended December 31, 2018. The increase was primarily attributable to an increase in net sales of $98.1 million as described above, partially offset by an increase in selling, general and administrative expenses of $69.4 million. The increase in selling, general and administrative expenses was mainly due to an increase in costs to prepare for the U.S. launch of TEPEZZA. Inflammation The following table reflects our inflammation net sales and segment operating income for the years ended December 31, 2019 and 2018 (in thousands, except percentages). Net sales Segment operating income $ 370,434 174,869 $ 376,094 160,447 $ (5,660) 14,422 (2)% 9% For the Year Ended December 31, 2019 2018 Change % Change The decrease in inflammation net sales during the year ended December 31, 2019 is described in the Consolidated Results section above. Segment operating income. Inflammation segment operating income increased $14.4 million to $174.8 million during the year ended December 31, 2019, from $160.4 million during the year ended December 31, 2018. The increase was primarily attributable to a decrease in selling, general and administrative expenses of $18.6 million offset by a decrease in net sales of $5.7 million as described above. The decrease in selling, general and administrative expenses was mainly due to lower sample and patient assistance program administration expenses. 102 Year Ended December 31, 2018 Compared to Year Ended December 31, 2017 Consolidated Results Net sales Cost of goods sold Gross profit Operating expenses Research and development Selling, general and administrative Impairment of long-lived assets Gain on sale of asset Total operating expenses Operating income (loss) Other expense, net: Interest expense, net Foreign exchange loss Gain on divestiture Loss on debt extinguishment Other income, net: Total other expense, net Loss before benefit for income taxes Benefit for income taxes Net loss For the Years Ended December 31, 2018 2017 (in thousands) Change $ 1,207,570 $ 1,056,231 $ 493,368 562,863 391,301 816,269 151,339 (102,067) 253,406 82,762 692,485 46,096 (42,985) 778,358 37,911 224,962 655,093 22,270 — 902,325 (339,462) (142,200) 37,392 23,826 (42,985) (123,967) 377,373 (121,692) (192) — — 841 (121,043) (83,132) (44,752) (38,380) $ (126,523) (260) 7,965 (978) 447 (119,349) (458,811) (108,686) (350,125) $ 4,831 68 (7,965) 978 394 (1,694) 375,679 63,934 311,745 $ Net sales. Net sales increased $151.3 million, or 14.3%, to $1,207.6 million during the year ended December 31, 2018, from $1,056.2 million during the year ended December 31, 2017. The increase in net sales during the year ended December 31, 2018, was primarily due to higher net sales in our orphan and rheumatology segment. The following table presents a summary of total net sales attributed to geographic sources for the years ended December 31, 2018 and 2017 (in thousands, except percentages): United States Rest of world Total net sales Year Ended December 31, 2018 Year Ended December 31, 2017 Amount $ 1,186,519 21,051 $ 1,207,570 % of Total Net Sales Amount 98% $ 1,026,527 29,704 2% $ 1,056,231 % of Total Net Sales 97% 3% 103 The following table reflects the components of net sales for the years ended December 31, 2018 and 2017 (in thousands, except percentages): Year Ended December 31, Change Change 2018 2017 $ % KRYSTEXXA RAVICTI PROCYSBI ACTIMMUNE RAYOS BUPHENYL LODOTRA QUINSAIR Orphan and Rheumatology segment net sales $ 258,920 $ 156,483 $ 102,437 32,732 17,155 (5,430) 8,942 1,018 (3,326) (2,938) $ 831,476 $ 680,886 $ 150,590 193,918 137,740 110,993 52,125 20,792 5,393 3,442 226,650 154,895 105,563 61,067 21,810 2,067 504 PENNSAID 2% DUEXIS VIMOVO MIGERGOT Inflammation segment net sales $ 190,206 $ 191,050 $ 121,161 57,666 5,468 $ 376,094 $ 375,345 $ 114,672 67,646 3,570 (844) (6,489) 9,980 (1,898) 749 65% 17% 12% (5)% 17% 5% (62)% (85)% 22% (0)% (5)% 17% (35)% 0% Total net sales $1,207,570 $1,056,231 $ 151,339 14% Orphan and Rheumatology KRYSTEXXA. Net sales increased $102.4 million, or 65%, to $258.9 million during the year ended December 31, 2018, from $156.5 million during the year ended December 31, 2017. Net sales increased by approximately $108.5 million resulting from volume growth, partially offset by a decrease of approximately $6.1 million due to lower net pricing. RAVICTI. Net sales increased $32.7 million, or 17%, to $226.6 million during the year ended December 31, 2018, from $193.9 million during the year ended December 31, 2017. Net sales in the United States increased by approximately $30.8 million, which was composed of an increase of $24.4 million due to higher net pricing and $6.4 million due to volume growth. Net sales outside the United States increased by approximately $1.9 million primarily due to higher sales volume. On December 28, 2018, we sold our rights to RAVICTI outside of North America and Japan to Immedica. PROCYSBI. Net sales increased $17.2 million, or 12%, to $154.9 million during the year ended December 31, 2018, from $137.7 million during the year ended December 31, 2017. Net sales in the United States increased by approximately $22.7 million, which was composed of $15.6 million due to higher net pricing and $7.1 million resulting from volume growth. Net sales outside the United States decreased by approximately $5.5 million primarily as a result of the Chiesi divestiture in June 2017. ACTIMMUNE. Net sales decreased $5.4 million, or 5%, to $105.6 million during the year ended December 31, 2018, from $111.0 million during the year ended December 31, 2017. Net sales decreased by approximately $11.2 million resulting from lower volume, partially offset by an increase of approximately $5.8 million due to higher net pricing. RAYOS. Net sales increased $8.9 million, or 17%, to $61.0 million during the year ended December 31, 2018, from $52.1 million during the year ended December 31, 2017. Net sales increased by approximately $5.0 million resulting from volume growth and approximately $3.9 million due to higher net pricing. BUPHENYL. Net sales increased $1.0 million, or 5%, to $21.8 million during the year ended December 31, 2018, from $20.8 million during the year ended December 31, 2017. Net sales increased by approximately $2.0 million due to volume growth, partially offset by a decrease of approximately $1.0 million resulting from lower net pricing. On December 28, 2018, we sold our rights to AMMONAPS outside of North America and Japan to Immedica. 104 LODOTRA. Net sales decreased $3.3 million, or 62%, to $2.1 million during the year ended December 31, 2018, from $5.4 million during the year ended December 31, 2017. The decrease was due to decreased shipments to our European distribution partner, Mundipharma International Corporation Limited, or Mundipharma. LODOTRA sales to Mundipharma occurred at the time we shipped, based on Mundipharma’s estimated requirements. Accordingly, LODOTRA sales were not linear or directly tied to Mundipharma’s in-market sales and could therefore fluctuate significantly from period to period. Effective January 1, 2019, we amended our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura. Under these amendments, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. These transfer activities are ongoing. We ceased recording LODOTRA revenue from January 1, 2019. See “Manufacturing, Commercial, Supply and License Agreements” included in Item 1 of this Annual Report on Form 10-K for further details of the amendments. QUINSAIR. Net sales decreased $2.9 million, or 85%, to $0.5 million during the year ended December 31, 2018, from $3.4 million during the year ended December 31, 2017, primarily due to lower volume following the Chiesi divestiture. Inflammation PENNSAID 2%. Net sales decreased $0.8 million to $190.2 million during the year ended December 31, 2018, from $191.0 million during the year ended December 31, 2017. Net sales decreased by approximately $12.1 million due to lower volume, partially offset by an increase of approximately $11.3 million due to higher net pricing. DUEXIS. Net sales decreased $6.5 million, or 5%, to $114.7 million during the year ended December 31, 2018, from $121.2 million during the year ended December 31, 2017. Net sales decreased by approximately $6.4 million due to lower volume and approximately $0.1 million due to lower net pricing. VIMOVO. Net sales increased $10.0 million, or 17%, to $67.6 million during the year ended December 31, 2018, from $57.6 million during the year ended December 31, 2017. Net sales increased by approximately $23.2 million due to higher net pricing, partially offset by a decrease of approximately $13.2 million resulting from lower volume. MIGERGOT. Net sales decreased $1.9 million, or 35%, to $3.6 million during the year ended December 31, 2018, from $5.5 million during the year ended December 31, 2017. Net sales decreased by approximately $1.6 million due to lower volume and approximately $0.3 million due to lower net pricing. On June 28, 2019, we sold our rights to MIGEROT. 105 The table below reconciles our gross to net sales for the years ended December 31, 2018 and 2017 (in millions, except percentages): Gross sales Adjustments to gross sales: Prompt pay discounts Medicine returns Co-pay and other patient assistance Commercial rebates and wholesaler fees Government rebates and chargebacks Total adjustments Net sales Year Ended December 31, 2018 Year Ended December 31, 2017 Amount % of Gross Sales Amount % of Gross Sales $ 4,264.5 100.0% $ 4,057.8 100.0% (75.1) (25.1) (1,970.4) (589.6) (396.7) (3,056.9) 1,207.6 $ (1.8)% (0.6)% (46.2)% (13.8)% (9.3)% (71.7)% 28.3% $ (80.2) (45.6) (1,907.6) (641.5) (326.7) (3,001.6) 1,056.2 (2.0)% (1.1)% (47.0)% (15.8)% (8.1)% (74.0)% 26.0% During the year ended December 31, 2018, commercial rebates and wholesaler fees, as a percentage of gross sales, decreased to 13.8% from 15.8% during the year ended December 31, 2017, primarily as a result of a change in the mix of medicines sold and lower rates paid to distributors during 2018 compared to 2017. During the year ended December 31, 2018, government rebates and chargebacks, as a percentage of gross sales, increased to 9.3% from 8.1% during the year ended December 31, 2017, primarily as a result of a change in the mix of medicines sold. On a quarter-to-quarter basis, our net sales have traditionally been lower in first half of the year, particularly in the first quarter, with the second half of the year representing a greater share of overall net sales each year. This is due to annual managed care plan changes and the re-setting of patients’ medical insurance deductibles at the beginning of each year, resulting in higher co-pay and other patient assistance costs as patients meet their annual medical insurance deductibles during the first and second quarters, and higher net sales in the second half of the year after patients meet their deductibles and healthcare plans reimburse a greater portion of the total cost of our medicines. Additionally, on January 1, 2019, the 340B ceiling price rule became effective. With respect to KRYSTEXXA, the “additional rebate” scheme of the 340B pricing program, as applied to the historical pricing of KRYSTEXXA both before and after we acquired the medicine, have resulted in a 340B ceiling price of one penny. A material portion of KRYSTEXXA prescriptions (approximately 20 percent) are written by healthcare providers that are eligible for 340B drug pricing and therefore the reduction in 340B pricing to a penny has negatively impacted our net sales from KRYSTEXXA. Cost of Goods Sold. Cost of goods sold decreased $102.1 million to $391.3 million during the year ended December 31, 2018, from $493.4 million during the year ended December 31, 2017. As a percentage of net sales, cost of goods sold was 32% during the year ended December 31, 2018, compared to 47% during the year ended December 31, 2017. The decrease in cost of goods sold was primarily attributable to a $101.8 million decrease in inventory step-up expense. Because inventory step-up expense is acquisition-related, will not continue indefinitely and has a significant effect on our gross profit, gross margin percentage and net income (loss) for all affected periods, we disclose balance sheet and income statement amounts related to inventory step-up within the Notes to the Consolidated Financial Statements. The decrease in inventory step-up expense of $101.8 million recorded to cost of goods sold during the year ended December 31, 2018 compared to the prior year was primarily related to KRYSTEXXA, PROCYSBI and QUINSAIR inventory step-up expense. KRYSTEXXA inventory step-up expense recorded during the year ended December 31, 2018 was $17.0 million compared to $78.3 million recorded during the year ended December 31, 2017. PROCYSBI and QUINSAIR inventory step-up expense recorded during the year ended December 31, 2018 was $0.3 million compared to $40.8 million recorded during the year ended December 31, 2017. 106 Research and Development Expenses. Research and development expenses decreased $142.2 million to $82.8 million during the year ended December 31, 2018, from $225.0 million during the year ended December 31, 2017. The decrease was primarily attributable to $150.3 million related to the acquisition of River Vision during the year ended December 31, 2017. Pursuant to Accounting Standards Codification Topic 805, Business Combinations, or ASC 805, as amended by ASU No. 2017-01, we accounted for the River Vision acquisition as the purchase of an in-process research and development, or IPR&D, asset and, pursuant to ASC 730, Research and Development, or ASC 730, recorded the purchase as a research and development expense during the year ended December 31, 2017. Additionally, during the year ended December 31, 2017, we entered into an agreement to license HZN-003, a rheumatology pipeline program with the objective of enhancing our leadership position in the uncontrolled gout market, from MedImmune LLC, or MedImmune, and we paid MedImmune an upfront cash payment of $12.0 million which we recorded as a “research and development” expense in the consolidated statement of comprehensive income (loss) during the year ended December 31, 2017 and included in “accrued expenses” as of December 31, 2017. The upfront payment was subsequently paid in January 2018. Excluding the costs attributable to the acquisition of River Vision and HZN-003, research and development expenses increased by $20.1 million during the year ended December 31, 2018, compared to the year ended December 31, 2017, primarily due to the costs associated with the development of TEPEZZA. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $37.4 million to $692.5 million during the year ended December 31, 2018, from $655.1 million during the year ended December 31, 2017. The increase was primarily attributable to the expansion of our KRYSTEXXA sales force that was initiated during the second half of 2017 and other activities to support the growth in sales of the medicine, and pre-launch costs for TEPEZZA. Impairment of Long-Lived Assets. During the year ended December 31, 2018, we recorded an impairment of $33.6 million to fully write off the book value of developed technology related to PROCYSBI in Canada and Latin America due primarily to lower anticipated future net sales based on a Patented Medicine Prices Review Board, or PMPRB, review. We also recorded an impairment of $10.6 million during the year ended December 31, 2018, to fully write off the book value of developed technology related to LODOTRA as result of amendments to our license and supply agreements with Jagotec AG and Skyepharma AG, which are affiliates of Vectura. Under these amendments, effective January 1, 2019, we agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. These transfer activities are ongoing. We ceased recording LODOTRA revenue from January 1, 2019. Impairment of long-lived assets of $22.3 million during the year ended December 31, 2017, represents the impairment of a non-current asset recorded following payment to Boehringer Ingelheim International for the acquisition of certain rights to interferon gamma-1b. This was previously included within “selling, general and administrative” expenses. On July 24, 2018, we completed the IMUKIN sale as further described in the next paragraph. Gain on sale of assets. During the year ended December 31, 2018, we completed the sale of rights to RAVICTI and AMMONAPS outside of North America and Japan for cash proceeds of $35.0 million, and we recorded a gain of $30.7 million on the sale. Additionally, we completed the IMUKIN sale for cash proceeds of $9.5 million, with a potential additional contingent consideration payment and we recorded a gain of $12.3 million on the sale. Interest Expense, Net. Interest expense, net, decreased $4.8 million to $121.7 million during the year ended December 31, 2018, from $126.5 million during the year ended December 31, 2017. The decrease in net interest expense was primarily due to an increase in interest income of $8.5 million primarily due to higher cash balances, partially offset by an increase of $3.7 million in interest expense. Gain on divestiture. During the year ended December 31, 2017, we completed the Chiesi divestiture for an upfront payment of $72.5 million, which reflects $3.1 million of cash divested, with additional potential milestone payments based on sales thresholds, and we recorded a gain of $8.0 million on the divestiture. Benefit for Income Taxes. During the year ended December 31, 2018, we recorded a benefit for income taxes of $44.8 million compared to $108.7 million during the year ended December 31, 2017. The reduction in benefit for income taxes of $63.9 million during the year ended December 31, 2018, compared to year ended December 31, 2017, was primarily due to a decrease in pre-tax losses and the tax rate at which some of these reduced losses were tax effected resulting in a tax provision of $57.9 million and income tax expense of $45.8 million generated on an intra-company transfer of assets other than inventory during the year ended December 31, 2018. 107 Additionally, during the year ended December 31, 2017, we recorded a provisional estimate of $84.0 million net benefit following the enactment in the United States of H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”, informally titled the Tax Cuts and Jobs Act, or the Tax Act, in December 2017, which net benefit included a $143.3 million tax benefit from the revaluation of our U.S. net deferred tax liability based on the revised U.S. federal tax rate of 21 percent, partially offset by the write-off of the $59.2 million deferred tax asset related to our U.S. interest expense carryforwards under Section 163(j) of the Internal Revenue Code of 1986, as amended, or the Code. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period that should not extend beyond one year from the date of enactment for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, we reflected the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 was complete. To the extent that our accounting for certain income tax effects of the Tax Act was incomplete but it was possible to determine a reasonable estimate, we recorded a provisional estimate in the consolidated financial statements as of December 31, 2017. On April 2, 2018, the U.S. Treasury Department and the U.S. Internal Revenue Service issued Notice 2018-28, or the Notice, which provided guidance for computing the business interest expense limitation under the Tax Act and clarified the treatment of interest disallowed and carried forward under Section 163(j) of the Code prior to enactment of the Tax Act. In accordance with the measurement period provisions under SAB 118 and the guidance in the Notice we reinstated the deferred tax asset related to our U.S. interest expense carryforwards under Section 163(j) based on the revised U.S. federal tax rate of 21 percent. The impact of the deferred tax asset reinstatement in accordance with SAB 118 during the year ended December 31, 2018 was a $37.4 million increase to our benefit for income taxes and a corresponding decrease to the U.S. group net deferred tax liability position. We had no other material measurement period adjustments under SAB 118. The remainder of the decrease in benefit for income taxes during the year ended December 31, 2018, compared to year ended December 31, 2017 resulted from a tax provision of $8.1 million attributable to the remeasurement of net U.S. deferred tax liabilities for the year ended December 31, 2018 due to an increase in U.S. state effective tax rates attributable to the enactment of certain U.S. state legislation during the year ended December 31, 2018. These decreases to the benefit for income taxes during the year ended December 31, 2018 were partially offset by an income tax expense of $51.1 million on non-deductible research and development costs which occurred during the year ended December 31, 2017 and did not re- occur for the year ended December 31, 2018, a tax benefit of $42.7 million U.S. federal tax and $7.9 million U.S. state tax benefit on the liquidation of a foreign partnership owned by us during the year ended December 31, 2018 and decreases to our current state income tax expense of $6.8 million resulting from current year pre-tax losses incurred in the U.S. group. During the year ended December 31, 2017, the first of three tranches of our outstanding performance stock unit awards, or PSUs, issued in 2015 expired without payout as the minimum total compounded annual shareholder rate of return was not achieved. As a result, we wrote off to income tax expense $16.4 million of deferred tax assets related to previously recognized share-based compensation. In relation to our outstanding PSUs at December 31, 2017, as our share price was lower than $32.70 for the twenty trading days ended March 22, 2018, and lower than $33.86 for the twenty trading days ended June 22, 2018, the second two tranches of PSU awards granted in 2015 expired without payment as the minimum total compounded annual shareholder rate of return was not achieved, and approximately $10.7 million and $12.6 million, respectively, of deferred tax assets at December 31, 2017, related to previously recognized share-based compensation expense was charged to income tax expense during the year ended December 31, 2018. 108 Information by Segment See Note 11, Segment and Other Information, of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K for a reconciliation of our segment operating income to our total loss before benefit for income taxes for the years ended December 31, 2018 and 2017. Orphan and Rheumatology The following table reflects our orphan and rheumatology net sales and segment operating income for the years ended December 31, 2018 and 2017 (in thousands, except percentages). Net sales Segment operating income $ 831,476 290,014 $ 680,886 241,135 $ 150,590 48,879 22% 20% For the Year Ended December 31, 2018 2017 Change % Change The increase in orphan and rheumatology net sales during the year ended December 31, 2018 is described in the Consolidated Results section above. Segment operating income. Orphan and rheumatology segment operating income increased $48.9 million to $290.0 million during the year ended December 31, 2018, from $241.1 million during the year ended December 31, 2017. The increase was primarily attributable to an increase in net sales of $150.6 million as described above, partially offset by an increase in selling, general and administrative expenses of $68.2 million and an increase in research and development expenses of $17.6 million. The increase in selling, general and administrative expenses was mainly due to the expansion of our KRYSTEXXA sales force that was initiated during the second half of 2017 and other activities to support the growth in sales of the medicine, and pre-launch costs for TEPEZZA. The increase in research and development expenses was primarily due to costs associated with the development of TEPEZZA. Inflammation The following table reflects our inflammation net sales and segment operating income for the years ended December 31, 2018 and 2017 (in thousands, except percentages). Net sales Segment operating income $ 376,094 160,447 $ 375,345 149,133 $ 749 11,314 0% 8% For the Year Ended December 31, 2018 2017 Change % Change The increase in inflammation net sales during the year ended December 31, 2018, is described in the Consolidated Results section above. Segment operating income. Inflammation segment operating income increased $11.3 million to $160.4 million during the year ended December 31, 2018, from $149.1 million during the year ended December 31, 2017. The increase was primarily attributable to stability in net sales and a decrease in selling, general and administrative expenses of $10.7 million. 109 Non-GAAP Financial Measures EBITDA, or earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, non-GAAP net income and non-GAAP earnings per share are used and provided by us as non-GAAP financial measures. These non-GAAP financial measures are intended to provide additional information on our performance, operations and profitability. Adjustments to our GAAP figures as well as EBITDA exclude acquisition/divestiture-related costs, upfront, progress and milestone payments related to license and collaboration agreements, drug substance harmonization costs, fees related to refinancing activities, restructuring and realignment costs, litigation settlements and charges related to discontinuation of the Friedreich’s ataxia program, or the FA discontinuation, loss (gain) on sale of assets, loss on debt extinguishments, the income tax effect on pre-tax non-GAAP adjustments and other non-GAAP income tax adjustments, as well as non-cash items such as share-based compensation, inventory step-up expense, depreciation and amortization, non-cash interest expense, long-lived assets impairment charges, and other non-cash adjustments. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. We maintain an established non-GAAP cost policy that guides the determination of what costs will be excluded in non-GAAP measures. We believe that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of our financial and operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of our historical financial results and trends and to facilitate comparisons between periods. In addition, these non-GAAP financial measures are among the indicators our management uses for planning and forecasting purposes and measuring our performance. For example, adjusted EBITDA is used by us as one measure of management performance under certain incentive compensation arrangements. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies. Reconciliations of reported GAAP net income (loss) to EBITDA, adjusted EBITDA and non-GAAP net income, and the related per share amounts, were as follows (in thousands, except share and per share amounts): For the Years Ended December 31, 2018 2017 2019 $ 573,020 6,733 $ (38,380) $ 6,126 (350,125) 6,631 230,424 — 89 87,089 (593,244) 304,111 91,215 58,835 10,963 9,073 3,556 2,292 1,076 1,000 457 237 — — 178,704 482,815 $ 243,634 — 17,312 121,692 (44,752) 305,632 114,860 — (42,985) (10) 4,396 937 (1,464) 5,750 2,855 15,350 46,096 — 145,785 451,417 $ 249,456 (860) 119,151 126,523 (108,686) 42,090 121,553 978 — 12,186 177,631 5,220 239 — 10,651 4,883 22,270 (7,965) 347,646 389,736 GAAP net income (loss) Depreciation (1) Amortization and step-up: Intangible amortization expense (2) Amortization of deferred revenue Inventory step-up expense (3) Interest expense, net (including amortization of debt discount and deferred financing costs) Benefit for income taxes EBITDA Other non-GAAP adjustments: Share-based compensation (4) Loss on debt extinguishment (5) Loss (gain) on sale of assets (6) Upfront, progress and milestone payments related to license and collaboration agreements (7) Acquisition/divestiture-related costs (8) Fees related to refinancing activities (9) Charges relating to discontinuation of Friedreich's ataxia program (10) Litigation settlements (11) Drug substance harmonization costs (12) Restructuring and realignment costs (13) Impairment of long-lived assets (14) Gain on divestiture (15) Total of other non-GAAP adjustments Adjusted EBITDA $ 110 For the Years Ended December 31, 2018 2017 2019 GAAP net income (loss) Non-GAAP adjustments: Depreciation (1) Amortization and step-up: Intangible amortization expense (2) Inventory step-up expense (3) Amortization of debt discount and deferred financing costs (16) Share-based compensation (4) Loss on debt extinguishment (5) Loss (gain) on sale of assets (6) Upfront, progress and milestone payments related to license and collaboration agreements (7) Acquisition/divestiture-related costs (8) Fees related to refinancing activities (9) Charges relating to discontinuation of Friedreich's ataxia program (10) Litigation settlements (11) Drug substance harmonization costs (12) Restructuring and realignment costs (13) Impairment of long-lived assets (14) Gain on divestiture (15) Total pre-tax non-GAAP adjustments Income tax effect of pre-tax non-GAAP adjustments (17) Other non-GAAP income tax adjustments (18) Total non-GAAP adjustments Non-GAAP Net Income Non-GAAP Earnings Per Share: Weighted average ordinary shares – Basic Non-GAAP Earnings Per Share – Basic GAAP income (loss) per share - Basic Non-GAAP adjustments Non-GAAP earnings per share – Basic Non-GAAP Net Income Effect of assumed conversion of Exchangeable Senior Notes, net of tax Numerator - non-GAAP Net Income Weighted average ordinary shares – Diluted Weighted average ordinary shares – Basic Ordinary share equivalents Denominator - weighted average ordinary shares – Diluted Non-GAAP Earnings Per Share – Diluted GAAP income (loss) per share – Diluted Non-GAAP adjustments Diluted earnings per share effect of ordinary share equivalents Non-GAAP earnings per share – Diluted $ 573,020 $ (38,380) $ (350,125) 6,733 6,126 6,631 230,424 89 22,602 91,215 58,835 10,963 9,073 3,556 2,292 1,076 1,000 457 237 — — 438,552 (66,568) (554,786) (182,802) $ 390,218 243,634 17,312 22,752 114,860 — (42,985) (10) 4,396 937 (1,464) 5,750 2,855 15,350 46,096 — 435,609 (45,186) (37,392) 353,031 314,651 $ 249,456 119,151 21,619 121,553 978 — 12,186 177,631 5,220 239 — 10,651 4,883 22,270 (7,965) 744,503 (115,569) (84,011) 544,923 194,798 182,930,109 166,155,405 163,122,663 $ 3.13 (1.00) $ 2.13 (0.23) $ 2.12 1.89 $ 390,218 7,500 397,718 $ $ 314,651 — 314,651 $ $ (2.15) 3.34 1.19 194,798 — 194,798 182,930,109 22,294,112 205,224,221 166,155,405 5,393,514 171,548,919 163,122,663 2,582,576 165,705,239 2.90 $ (0.96) — 1.94 $ (0.23) $ 2.12 (0.06) $ 1.83 (2.15) 3.34 (0.01) 1.18 $ $ $ $ $ $ $ (1) Represents depreciation expense related to our property, equipment, software and leasehold improvements. (2) Intangible amortization expenses are associated with our intellectual property rights, developed technology and customer relationships related to KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE, RAYOS, BUPHENYL, LODOTRA, PENNSAID 2%, VIMOVO and MIGERGOT. 111 (3) During the year ended December 31, 2018, we recognized in cost of goods sold $17.3 million for inventory step-up expense primarily related to KRYSTEXXA inventory sold. During the year ended December 31, 2017, we recognized in cost of goods sold $78.3 million for inventory step-up expense related to KRYSTEXXA and MIGERGOT inventory sold and $40.8 million for inventory step-up expense related to PROCYSBI and QUINSAIR inventory sold. (4) Represents share-based compensation expense associated with our stock option, restricted stock unit and performance stock unit grants to our employees and non-employee directors and our employee share purchase plan. (5) During the year ended December 31, 2019, we recorded a loss on debt extinguishment of $58.8 million in the consolidated statements of comprehensive income (loss), which reflected the early redemption premiums and the write- off of the deferred financing fees and debt discount fees related to the prepayment of $775.0 million of our 2023 Senior Notes and 2024 Senior Notes and the write-off of the deferred financing fees and debt discount fees related to the $400.0 million of term loan repayments. During the year ended December 31, 2017, we entered into two refinancing amendments for our term loans. We accounted for a portion of the repayments under these refinancing amendments as a debt extinguishment and recorded a loss on debt extinguishment of $1.0 million in the consolidated statements of comprehensive income (loss), which reflected the write-off of the unamortized portion of debt discount and deferred financing costs previously incurred and a 1 percent prepayment penalty fee. (6) During the year ended December 31, 2019, we recorded a loss of $11.0 million on the sale of our rights to MIGERGOT. During the year ended December 31, 2018, we completed the IMUKIN sale for cash proceeds of $9.5 million, with a potential additional contingent consideration payment and we recorded a gain of $12.3 million on the sale. The contingent consideration payment of €3.0 million ($3.3 million when converted using a Euro-to-Dollar exchange rate at the date of receipt of 1.0991) was received in September 2019. Additionally, during the year ended December 31, 2018, we sold our rights to RAVICTI and AMMONAPS outside of North America and Japan to Medical Need Europe AB, and we recorded a gain of $30.7 million. (7) During the year ended December 31, 2019, we recorded an upfront, progress and milestone payments related to license and collaboration agreements of $9.1 million which was composed of a $3.0 million milestone payment to Roche relating to the TEPEZZA BLA submission to the FDA during the third quarter of 2019, and an upfront cash payment of $2.0 million and a progress payment of $4.0 million in relation to the collaboration agreement with HemoShear. During the year ended December 31, 2017, we incurred $12.2 million of upfront and milestone payments related to license agreements, primarily related to our agreement to license HZN-003 (formerly MEDI4945), a rheumatology pipeline program with the objective of enhancing our leadership position in the uncontrolled gout market, from MedImmune for an upfront cash payment of $12.0 million. (8) Represents expenses, including legal and consulting fees, incurred in connection with our acquisitions and divestitures. Costs recovered from subleases of acquired facilities and reimbursed expenses incurred under transition arrangements for divestitures are also reflected in this line-item. (9) Represents arrangement and other fees relating to our refinancing activities. (10) During the year ended December 31, 2019, we recorded charges related to the FA discontinuation of $1.1 million, primarily due to the remeasurement of an inventory purchase commitment liability. During the year ended December 31, 2018, we recorded a reduction to previously incurred charges relating to the FA discontinuation of $1.5 million reflecting lower costs to discontinue the clinical trial than previously anticipated. During the year ended December 31, 2017, we recorded charges relating to the FA discontinuation of $0.2 million. (11) We recorded $1.0 million and $5.8 million of expense during the years ended December 31, 2019 and 2018, respectively, for litigation settlements. 112 (12) During the year ended December 31, 2016, we entered into a definitive agreement to acquire certain rights to interferon gamma-1b, marketed as IMUKIN in an estimated thirty countries primarily in Europe and the Middle East, or the IMUKIN purchase agreement. We already owned the rights to interferon gamma-1b marketed as ACTIMMUNE in the United States, Canada and Japan. In connection with the IMUKIN purchase agreement, we also committed to pay our contract manufacturer certain amounts related to the harmonization of the manufacturing processes for ACTIMMUNE and IMUKIN drug substance, or the harmonization program. At the time we entered into the IMUKIN purchase agreement and the harmonization program commitment was made, we had anticipated achieving certain benefits should the Phase 3 clinical trial evaluating ACTIMMUNE for the treatment of FA be successful. If the study had been successful and if U.S. marketing approval had subsequently been obtained, we had forecasted significant increases in demand for the medicine and the harmonization program would have resulted in significant benefits for us. Following our discontinuation of the FA program, we determined that certain assets, including an upfront payment related to the IMUKIN purchase agreement, were impaired, and the costs under the harmonization program would no longer have benefit to us and should be expensed as incurred. (13) Represents expenses, including severance costs and consulting fees, related to restructuring and realignment activities. (14) Impairment of long-lived assets during the year ended December 31, 2018, primarily relates to the write-off of the book value of developed technology related to PROCYSBI in Canada and Latin America and LODOTRA. Impairment of long-lived assets during the year ended December 31, 2017 of $22.3 million relates to an impairment recorded following payment to Boehringer Ingelheim International for the acquisition of certain rights to interferon gamma-1b. This was presented in the “charges relating to the discontinuation of the Friedreich’s ataxia program” line item in the reconciliation of GAAP to non-GAAP measures during the year ended December 31, 2017. (15) During the year ended December 31, 2017, we completed the divestiture of a European subsidiary that owns the marketing rights to PROCYSBI and QUINSAIR in EMEA to Chiesi and in connection with this divestiture we recorded a gain of $8.0 million. (16) Represents amortization of debt discount and deferred financing costs associated with our debt. (17) Income tax adjustments on pre-tax non-GAAP adjustments represent the estimated income tax impact of each pre-tax non-GAAP adjustment based on the statutory income tax rate of the applicable jurisdictions for each non-GAAP adjustment. (18) Other non-GAAP income tax adjustments during the year ended December 31, 2019, primarily reflect a tax benefit of $553.3 million resulting from an intra-company transfer of intellectual property assets to an Irish subsidiary. Other non-GAAP income tax adjustments during the year ended December 31, 2018, reflect the impact of the deferred tax asset reinstatement in accordance with SAB 118, which was a $37.4 million increase to our benefit for income taxes and a corresponding decrease to the U.S. group net deferred tax liability position. Following Notice 2018-28 that was issued by the U.S. Treasury Department and the U.S. Internal Revenue Service during the year ended December 31, 2018 and in accordance with the measurement period provisions under SAB 118, we reinstated the deferred tax asset related to our U.S. interest expense carry forwards under Section 163(j) of the Code based on the revised U.S. federal tax rate of 21 percent. Other non-GAAP income tax adjustments during the year ended December 31, 2017, reflect the provisional $84.0 million net benefit recorded following the enactment of the Tax Act, which net benefit included a $143.3 million tax benefit from the revaluation of our U.S. net deferred tax liability based on the revised U.S. federal tax rate of 21 percent, partially offset by the write-off of the $59.2 million deferred tax asset related to our U.S. interest expense carryforwards under Section 163(j) of the Code. 113 Liquidity, Financial Position and Capital Resources We have incurred losses in most fiscal years since our inception in June 2005 and, as of December 31, 2019, we had an accumulated deficit of $605.7 million. We expect that our sales and marketing expenses will continue to increase as a result of the commercialization of our medicines, including as a result of the commercial launch of TEPEZZA, but we believe these cost increases will be more than offset by higher net sales and gross profits. Additionally, we expect that our research and development costs will increase as we acquire or develop more development-stage medicine candidates and advance our candidates through the clinical development and regulatory approval processes. In February 2020, we purchased a three-building campus in Deerfield, Illinois, for total cash consideration of $115.0 million. The Deerfield campus totals 70 acres and consists of more than 650,000 square feet of office space. We expect to move to the Deerfield campus in the second half of 2020 and market our Lake Forest office for sub-lease. We expect to make significant capital expenditures during 2020 in order to prepare the Deerfield campus for occupancy. As a result of the FDA approval of TEPEZZA in January 2020, we will make a milestone payment of $100.0 million under the agreement for the acquisition of River Vision during the first quarter of 2020. We have financed our operations to date through equity financings, debt financings and the issuance of convertible notes, along with cash flows from operations during the last several years. During 2019, we reduced the principal amount of our total debt outstanding by $575.0 million. As of December 31, 2019, we had $1,080.0 million in cash and cash equivalents and total debt with a book value of $1,352.8 million and principal amount of $1,418.0 million. We believe our existing cash and cash equivalents and our expected cash flows from operations will be sufficient to fund our business needs for at least the next twelve months from the issuance of the financial statements in this Annual Report on Form 10-K. Part of our strategy is to expand and leverage our commercial capabilities and to develop a pipeline of rare disease medicine candidates by researching, developing and commercializing innovative medicines that address unmet treatment needs for rare and rheumatic diseases. To the extent we enter into transactions to acquire medicines or businesses in the future, we may need to finance a significant portion of those acquisitions through additional debt, equity or convertible debt financings, or through the use of cash on hand. Equity Issuances On March 11, 2019, we closed an underwritten public equity offering of 14.1 million ordinary shares at a price to the public of $24.50 per share, resulting in net proceeds of approximately $326.8 million after deducting underwriting discounts and other estimated offering expenses payable by us. This included the exercise in full by the underwriters of their option to purchase up to 1.8 million additional ordinary shares. During the year ended December 31, 2019, we issued an aggregate of 5.1 million of our ordinary shares in connection with stock option exercises, the vesting of restricted stock units and performance stock units, and employee share purchase plan purchases. We received a total of $36.2 million in proceeds in connection with such issuances. Amendments to Credit Agreement, Debt Repayments and 2027 Senior Notes On March 11, 2019, Horizon Therapeutics USA, Inc. (formerly known as Horizon Pharma USA, Inc.), our wholly owned subsidiary, or HTUSA, received $200.0 million aggregate principal amount of revolving commitments, or the Incremental Revolving Commitments, pursuant to an amendment to our credit agreement, dated as of May 7, 2015, with Citibank, N.A., as amended, or the Credit Agreement. The Incremental Revolving Commitments were established pursuant to an incremental facility, or the Revolving Credit Facility, and will provide HTUSA with $200.0 million of additional borrowing capacity, which includes a $50.0 million letter of credit sub-facility. The Incremental Revolving Commitments will terminate in March 2024. Borrowings under the Revolving Credit Facility are available for general corporate purposes. As of December 31, 2019, the Revolving Credit Facility was undrawn. On March 18, 2019, HTUSA completed the repayment of $300.0 million of the outstanding principal amount of term loans under our Credit Agreement. On April 1, 2019, we delivered a notice of partial optional redemption of $250.0 million of the 2023 Senior Notes to the trustee under the indenture governing the 2023 Senior Notes and the holders of the 2023 Senior Notes, which were redeemed on May 1, 2019. In connection with this early redemption, we paid a premium of $8.3 million on May 1, 2019. On May 22, 2019, HTUSA borrowed approximately $518.0 million aggregate principal amount of loans, or the May 2019 Refinancing Loans, pursuant to an amendment to our Credit Agreement. HTUSA used the proceeds of the May 2019 Refinancing Loans to repay the outstanding amounts under our prior term loans, which totaled approximately $518.0 million. 114 On July 16, 2019, HTUSA completed a private placement of $600.0 million aggregate principal amount of 5.5% Senior Notes due 2027, or the 2027 Senior Notes, to several investment banks acting as initial purchasers, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, who subsequently resold the 2027 Senior Notes to persons reasonably believed to be qualified institutional buyers in reliance on the exemption from registration provided by Rule 144A under the Securities Act and in offshore transactions to certain non-U.S. persons in reliance on Regulation S under the Securities Act. We used the net proceeds from the offering of the 2027 Senior Notes, together with approximately $65.0 million in cash on hand, to redeem or prepay $625.0 million of our outstanding debt, consisting of (i) the outstanding $225.0 million principal amount of our 2023 Senior Notes, (ii) the outstanding $300.0 million principal amount of our 2024 Senior Notes and (iii) $100.0 million of the outstanding principal amount of senior secured term loans under the Credit Agreement, as well as to pay the related premiums and fees and expenses, excluding accrued interest, associated with such redemption and prepayment. On December 18, 2019, HTUSA borrowed approximately $418.0 million aggregate principal amount of loans, or the December 2019 Refinancing Loans, pursuant to an amendment to our Credit Agreement. HTUSA used the proceeds of the December 2019 Refinancing Loans to repay the outstanding amounts under our prior term loans, which totaled approximately $418.0 million. Following these transactions, our total aggregate outstanding principal amount of indebtedness was $1,418.0 million, a decrease of $575.0 million from $1,993.0 million at December 31, 2018. For a more detailed description of our debt agreements, see Note 13, Debt Agreements, of the Notes to Consolidated Financial Statements, included in Item 1 of this Annual Report on Form 10-K. We have a significant amount of debt outstanding on a consolidated basis. This substantial level of debt could have important consequences to our business, including, but not limited to: making it more difficult for us to satisfy our obligations; requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund acquisitions, capital expenditures, and future business opportunities; limiting our ability to obtain additional financing, including borrowing additional funds; increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions; limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and placing us at a disadvantage as compared to our competitors, to the extent that they are not as highly leveraged. We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness. In addition, the indenture governing our 2027 Senior Notes and our Credit Agreement impose various covenants that limit our ability and/or our restricted subsidiaries’ ability to, among other things, pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments, incur additional debt and issue certain preferred stock, incur liens on assets, engage in certain asset sales or merger transactions, enter into transactions with affiliates, designate subsidiaries as unrestricted subsidiaries; and allow to exist certain restrictions on the ability of restricted subsidiaries to pay dividends or make other payments to us. Sources and Uses of Cash The following table provides a summary of our cash position and cash flows for the years ended December 31, 2019, 2018 and 2017 (in thousands): Cash, cash equivalents and restricted cash Cash provided by (used in): Operating activities Investing activities Financing activities 2019 For the Years Ended December 31, 2018 962,117 $ 2017 757,897 $ 1,080,039 $ 426,332 (17,857) (290,446) 194,543 27,653 (16,596) 284,340 (102,185) 54,276 115 Operating Cash Flows During the years ended December 31, 2019, 2018 and 2017, net cash provided by operating activities was $426.3 million, $194.5 million and $284.3 million, respectively. Net cash provided by operating activities during the year ended December 31, 2019 was primarily attributable to cash collections from gross sales, partially offset by payments made related to patient assistance programs and commercial rebates for our inflammation segment medicines, and payments related to selling, general and administrative expenses and research and development expenses. Operating cash flow was also used to fund interest on outstanding debt of $78.0 million. Net cash provided by operating activities during the year ended December 31, 2018 was primarily attributable to cash collections from net sales, net of operating expenses. Operating cash flow was also used to fund interest on outstanding debt of $112.5 million and income taxes of $53.1 million. Net cash provided by operating activities during the year ended December 31, 2017 was primarily attributable to cash collections from net sales. Cash provided by operating activities was negatively impacted during the year ended December 31, 2017 by cash payments of $113.8 million for interest, $32.5 million outlay for the remaining 50 percent of the litigation settlement amount with Express Scripts, cash payments of $54.0 million for acquisition/divestiture-related costs, cash payments relating to term loan refinancing of $9.1 million, cash payments related to the discontinuation of the FA program of $7.2 million, cash payments relating to our drug substance harmonization program of $5.2 million and cash payments related to our restructuring and realignment activities of $4.7 million. Investing Cash Flows During the years ended December 31, 2019 and 2017, net cash used in investing activities was $17.9 million and $102.2 million, respectively. During the year ended December 31, 2018, net cash provided by investing activities was $27.7 million. Net cash used in investing activities during the year ended December 31, 2019, was primarily attributable to the purchases of property and equipment of $17.9 million and an escrow deposit payment of $6.0 million related to the purchase of the Deerfield campus, partially offset by proceeds from the MIGERGOT transaction of $6.0 million. Net cash provided by investing activities during the year ended December 31, 2018, was primarily attributable to proceeds from the sale of assets during the year, including cash proceeds of $35.0 million following the sale of rights to RAVICTI and AMMONAPS outside of North America and Japan to Immedica and cash proceeds of $9.5 million following the IMUKIN sale. This was partially offset by $12.0 million we paid to MedImmune to license HZN-003 (formerly MEDI4945). Net cash used in investing activities during the year ended December 31, 2017, was primarily associated with $144.9 million of payments for the acquisition of River Vision, net of cash acquired, and associated transaction costs, and $22.3 million relating to the payment for certain rights for interferon gamma-1b. This was partially offset by $69.4 million of proceeds received from the Chiesi divestiture, net of cash divested. Financing Cash Flows During the years ended December 31, 2019 and 2018, net cash used in financing activities was $290.5 million and $16.6 million, respectively. During the year ended December 31, 2017, net cash provided by financing activities was $54.3 million. Net cash used in financing activities during the year ended December 31, 2019, was primarily attributable to the net repayment of $400.0 million of the outstanding principal amount of term loans under our Credit Agreement, the repayment of the outstanding principal amount of our 2023 Senior Notes and 2024 Senior Notes of $775.0 million and related early redemption premiums of $39.5 million, partially offset by net proceeds from the issuance of our 2027 Senior Notes of $590.1 million and net proceeds from the issuance of ordinary shares of $326.8 million. 116 Net cash used in financing activities during the year ended December 31, 2018, was primarily attributable to the repayment of term loans of $845.7 million, partially offset by $818.0 million in net proceeds from term loans. In June 2018, we made a mandatory prepayment of $23.5 million under our term loan facility. In October 2018, we refinanced our term loans without changing the principal amount outstanding. Net cash provided by financing activities during the year ended December 31, 2017, was primarily attributable to the net proceeds of $1,693.5 million from term loans, offset in part by repayment of term loans of $1,622.8 million. We refinanced our term loans during March 2017 and October 2017. The March 2017 refinancing loans replaced the $394.0 million 2015 term loan facility and the $375.0 million 2016 incremental loan facility and the October 2017 refinancing loans replaced the October 2017 refinanced loans. The March 2017 amendment to the Credit Agreement resulted in an increase of $81.0 million of principal amount of our outstanding debt and the October 2017 refinancing loans did not result in any changes to the principal amount outstanding. Additionally, during the year ended December 31, 2017, we paid $20.0 million relating to milestones in connection with a contingent consideration liability assumed in our acquisition of Raptor. Financial Condition as of December 31, 2019 compared to December 31, 2018 Accounts receivable, net. Accounts receivable, net, decreased $56.0 million, from $464.7 million as of December 31, 2018 to $408.7 million as of December 31, 2019. The decrease was due to lower gross sales of our medicines during the fourth quarter of 2019 when compared to the fourth quarter of 2018. Prepaid expenses and other current assets. Prepaid expenses and other current assets increased $75.4 million, from $68.2 million as of December 31, 2018 to $143.6 million as of December 31, 2019. The increase was primarily due to an increase in advance payments for inventory of $29.8 million, an increase in deferred charge for taxes on intra-company profits of $24.7 million and an increase in prepaid income taxes of $6.7 million. Developed technology, net. Developed technology, net, decreased $246.8 million, from $1,945.6 million as of December 31, 2018 to $1,698.8 million as of December 31, 2019. The decrease was due to the amortization of developed technology of $230.4 million during the year ended December 31, 2019 and the recording of a reduction in the net book value of $17.0 million related to the MIGERGOT transaction. Deferred Tax Assets, net. Deferred tax assets, net, increased $552.0 million from $3.1 million as of December 31, 2018 to $555.2 million as of December 31, 2019. This was primarily attributable to the recognition of a $553.3 million deferred tax asset resulting from an intra-company transfer of intellectual property assets to an Irish subsidiary. Other assets. Other assets increased $39.3 million, from $9.0 million as of December 31, 2018 to $48.3 million as of December 31, 2019. Upon adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), or ASU No. 2016- 02, on January 1, 2019, we established $38.0 million of liabilities and corresponding lease assets of $36.0 million on the consolidated balance sheet for leases, primarily related to operating leases on rented office properties, that existed as of the January 1, 2019, adoption date. Accrued expenses. Accrued expenses increased $19.5 million, from $215.7 million as of December 31, 2018 to $235.2 million as of December 31, 2019. This was primarily due to an increase in allowance for returns of $6.0 million, payroll- related expenses of $6.0 million and accrued interest of $5.5 million. Accrued trade discounts and rebates. Accrued trade discounts and rebates increased $8.6 million, from $457.8 million as of December 31, 2018 to $466.4 million as of December 31, 2019. This was primarily due to an increase of $39.3 million in accrued government rebates and chargebacks offset by a $15.8 million decrease in co-pay and other patient assistance costs and a $14.8 million decrease in accrued commercial rebates and wholesaler fees. Long-term debt, net of current. Long-term debt, net of current decreased $563.2 million from $1,564.5 million as of December 31, 2018 to $1,001.3 million as of December 31, 2019. The decrease was primarily related to the repayment of $400.0 million of the outstanding principal amount of our term loans and the repayment of our 2023 Senior Notes and 2024 Senior Notes. See Note 13, Debt Agreements, of the Notes to Consolidated Financial Statements, included in Item 1 of this Annual Report on Form 10-K for further detail. Deferred tax liabilities, net. Deferred tax liabilities, net, decreased $13.6 million, from $107.8 million as of December 31, 2018 to $94.2 million as of December 31, 2019. The decrease was primarily due to the U.S. federal and state tax credits generated during 2019 of $10.5 million and the decrease in state effective tax rate on the U.S. group net deferred tax liabilities of $1.5 million. 117 Other long-term liabilities. Other long-term liabilities increased $41.6 million, from $38.7 million as of December 31, 2018 to $80.3 million as of December 31, 2019. This was primarily due to $46.5 million related to long-term lease liabilities as of December 31, 2019. Upon adoption of ASU No. 2016-02 on January 1, 2019, we established $38.0 million of liabilities and corresponding lease assets of $36.0 million on the consolidated balance sheet for leases, primarily related to operating leases on rented office properties, that existed as of the January 1, 2019, adoption date. Contractual Obligations As of December 31, 2019, minimum future cash payments due under contractual obligations, including, among others, our debt agreements, purchase agreements with third-party manufacturers and non-cancelable operating lease agreements, were as follows (in thousands): Debt agreements – principal (1) Debt agreements - interest (1) Purchase commitments (2) Operating lease obligations (3) Total contractual cash obligations 2025 & Thereafter 2023 2020 2022 2021 — $ $ 61,697 60,832 55,832 49,253 50,880 88,754 40,298 10,169 10,266 7,155 5,940 5,867 6,485 2024 — $400,000 $ — $ — $1,018,026 $1,418,026 402,556 166,642 72,819 $158,255 $108,246 $471,941 $ 65,386 $ 64,520 $1,191,695 $2,060,043 124,062 10,000 39,607 7,116 7,804 Total (1) Represents the minimum contractual obligation due under the following debt agreements: (cid:129) (cid:129) (cid:129) $418.0 million under the December 2019 Refinancing Loans, which includes estimated monthly interest payments based on the applicable interest rate at December 31, 2019 of 3.94% and repayment of the remaining principal in May 2026. In June 2018, we repaid $23.5 million under the mandatory prepayment provisions of the Credit Agreement. In March 2019, we completed the repayment of $300.0 million of our outstanding principal amount of term loans under the Credit Agreement following the closing of our underwritten public equity offering. In July 2019, we repaid an additional $100.0 million of our term loans under the Credit Agreement. Following these repayments, our outstanding principal balance of term loans under the Credit Agreement was $418.0 million and we are not required to pay any further quarterly installments. $600.0 million 2027 Senior Notes, which includes bi-annual interest payments and repayment of the principal in August 2027. $400.0 million Exchangeable Senior Notes, which includes bi-annual interest payments and repayment of the principal in March 2022. (2) These amounts reflect the following purchase commitments with our third-party manufacturers: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Purchase commitment for TEPEZZA drugs substance with AGC Biologics A/S to be delivered through the second half of 2021. Purchase commitments with Catalent Indiana, LLC for TEPEZZA drug product to be delivered through December 2020. Purchase commitment for PROCYSBI through March 2020. Minimum annual order quantities required to be placed with Boehringer Ingelheim for final packaged ACTIMMUNE through July 2024 and additional units we also committed to purchase which were intended to cover anticipated demand if the results of the FA program of ACTIMMUNE for the treatment of FA had been successful. As of December 31, 2019, the minimum binding purchase commitment to Boehringer Ingelheim Biopharmaceuticals GmbH, or Boehringer Ingelheim Biopharmaceuticals, was $15.6 million (converted using a Dollar-to-Euro exchange rate of 1.1215) through July 2024. A commitment to spend $0.7 million with Boehringer Ingelheim related to the harmonization of the manufacturing process for ACTIMMUNE drug substance. Minimum purchase commitment for KRYSTEXXA through 2026. Minimum purchase commitment for RAYOS tablets from Jagotec AG through December 2023. 118 (cid:129) (cid:129) (cid:129) At December 31, 2019, the minimum purchase commitment based on tablet pricing in effect under the agreement was $2.0 million through March 2020. Purchase commitment for final packaged PENNSAID 2% from Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.) through March 2020. Purchase commitment for final packaged DUEXIS tablets from Sanofi-Aventis U.S. through June 2020. Purchase commitment for RAVICTI, BUPHENYL and QUINSAIR outstanding at December 31, 2019. (3) These amounts reflect payments due under our operating leases, which are principally for our facilities. For further details regarding these properties, see Item 2 of Part I, Properties, of this Annual Report on Form 10-K. The above table does not include details of an agreement to lease entered into on October 14, 2019, relating to approximately 63,000 square feet of office space under construction in Dublin, Ireland. Lease commencement will begin when construction of the offices are completed by the lessor and we have access to begin the construction of leasehold improvements. We expect to incur leasehold improvement costs during 2020 and 2021 in order to prepare the building for occupancy. As of December 31, 2019, our contingent liability for uncertain tax positions amounted to $27.4 million (excluding interest and penalties). Due to the nature and timing of the ultimate outcome of these uncertain tax positions, we cannot make a reasonably reliable estimate of the amount and period of related future payments, if any. Therefore, our contingent liability has been excluded from the above contractual obligations table. We do not expect a significant tax payment related to these obligations within the next year. In addition to the obligations set out in the above table, we have assumed material obligations to make royalty and milestone payments to certain third parties on net sales of certain of our medicines. See Note 15 of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K, for details of these material obligations. In February 2020, we purchased a three-building campus in Deerfield, Illinois, for total cash consideration of $115.0 million. The Deerfield campus totals 70 acres and consists of more than 650,000 square feet of office space. We expect to move to the Deerfield campus in the second half of 2020 and market our Lake Forest office for sub-lease. We expect to make significant capital expenditures during 2020 in order to prepare the Deerfield campus for occupancy. OFF-BALANCE SHEET ARRANGEMENTS Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities, other than the indemnification agreements discussed in Note 15, Commitments and Contingencies, of the Notes to Consolidated Financial Statements, included in Item 1 of this Annual Report on Form 10-K. CRITICAL ACCOUNTING POLICIES The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. We have identified the accounting policies and estimates listed below as those that we believe require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties. This section should also be read in conjunction with Note 2 in the Notes to our Consolidated Financial Statements included in this report, which includes a discussion of these and other significant accounting policies. 119 Revenue Recognition In the United States, we sell our medicines primarily to wholesale distributors, specialty distributors and specialty pharmacy providers. In other countries, we sell our medicines primarily to wholesale distributors and other third-party distribution partners. These customers subsequently resell our medicines to health care providers and patients. In addition, we enter into arrangements with health care providers and payers that provide for government-mandated or privately negotiated discounts and allowances related to our medicines. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of our contracts have a single performance obligation to transfer medicines. Accordingly, revenues from medicine sales are recognized when the customer obtains control of our medicines, which occurs at a point in time, typically upon delivery to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring medicines and is generally based upon a list or fixed price less allowances for medicine returns, rebates and discounts. We sell our medicines to wholesale pharmaceutical distributors and pharmacies under agreements with payment terms typically less than 90 days. Our process for estimating reserves established for these variable consideration components does not differ materially from our historical practices. Medicine Sales Discounts and Allowances The nature of our contracts gives rise to variable consideration because of allowances for medicine returns, rebates and discounts. Allowances for medicine returns, rebates and discounts are recorded at the time of sale to wholesale pharmaceutical distributors and pharmacies. We apply significant judgments and estimates in determining some of these allowances. If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future. Our adjustments to gross sales are discussed further below. Commercial Rebates We participate in certain commercial rebate programs. Under these rebate programs, we pay a rebate to the commercial entity or third-party administrator of the program. We calculate accrued commercial rebate estimates using the expected value method. We accrue estimated rebates based on contract prices, estimated percentages of medicine that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel and record the rebate as a reduction of revenue. Accrued commercial rebates are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Co-pay and Other Patient Assistance Programs We offer discount card and other programs such as our HorizonCares program to patients under which the patient receives a discount on his or her prescription. In certain circumstances when a patient’s prescription is rejected by a managed care vendor, we will pay for the full cost of the prescription. We reimburse pharmacies for this discount through third-party vendors. We reduce gross sales by the amount of actual co-pay and other patient assistance in the period based on invoices received. We also record an accrual to reduce gross sales for estimated co-pay and other patient assistance on units sold to distributors that have not yet been prescribed/dispensed to a patient. We calculate accrued co-pay and other patient assistance costs using the expected value method. The estimate is based on contract prices, estimated percentages of medicine that will be prescribed to qualified patients, average assistance paid based on reporting from the third-party vendors and estimated levels of inventory in the distribution channel. Accrued co-pay and other patient assistance costs are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Sales Returns Consistent with industry practice, we maintain a return policy that allows customers to return certain medicines within a specified period prior to and subsequent to the medicine expiration date. Generally, medicines may be returned for a period beginning six months prior to its expiration date and up to one year after its expiration date. The right of return expires on the earlier of one year after the medicine expiration date or the time that the medicine is dispensed to the patient. The majority of medicine returns result from medicine dating, which falls within the range set by our policy, and are settled through the issuance of a credit to the customer. We calculate sales returns using the expected value method. The estimate of the provision for returns is based upon our historical experience with actual returns. The return period is known to us based on the shelf life of medicines at the time of shipment. We record sales returns in “accrued expenses” and as a reduction of revenue. 120 Government Rebates We participate in certain government rebate programs such as Medicare Coverage Gap and Medicaid. We calculate accrued government rebate estimates using the expected value method. We accrue estimated rebates based on percentages of medicine prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and record the rebates as a reduction of revenue. Accrued government rebates are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Chargebacks We provide discounts to government qualified entities with whom we have contracted. These entities purchase medicines from the wholesale pharmaceutical distributors at a discounted price and the wholesale pharmaceutical distributors then charge back to us the difference between the current retail price and the contracted price that the entities paid for the medicines. We calculate accrued chargeback estimates using the expected value method. We accrue estimated chargebacks based on contract prices, sell-through sales data obtained from third-party information and estimated levels of inventory in the distribution channel and record the chargeback as a reduction of revenue. Accrued chargebacks are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Intangible Assets Definite-lived intangible assets are amortized over their estimated useful lives. We review our intangible assets when events or circumstances may indicate that the carrying value of these assets is not recoverable and exceeds their fair value. We measure fair value based on the estimated future discounted cash flows associated with our assets in addition to other assumptions and projections that we deem to be reasonable and supportable. The estimated useful lives, from the date of acquisition, for all identified intangible assets that are subject to amortization are between five and thirteen years. Goodwill Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment loss, if any, is recognized based on a comparison of the fair value of the asset to its carrying value, without consideration of any recoverability. We test goodwill for impairment annually during the fourth quarter and whenever indicators of impairment exist by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If we conclude it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is performed. If we conclude that goodwill is impaired, we will record an impairment charge in our consolidated statement of comprehensive income (loss). 121 Provision for Income Taxes We account for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant judgment is required in determining whether it is probable that sufficient future taxable income will be available against which a deferred tax asset can be utilized. In determining future taxable income, we are required to make assumptions including the amount of taxable income in the various jurisdictions in which we operate. These assumptions require significant judgment about forecasts of future taxable income. Actual operating results in future years could render our current assumption of recoverability of deferred tax assets inaccurate. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the period that the change is enacted. From time to time, we execute intra-company transactions in response to changes in operations, regulations, tax laws, funding needs and other circumstances. These transactions require the interpretation and application of tax laws in the applicable jurisdiction to support the tax treatment taken. The valuations which support the tax treatment of the transactions require significant estimates and assumptions within discounted cash flow models. We also account for the uncertainty in income taxes by utilizing a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or are expected to be taken on an income tax return. Deferred tax assets and deferred tax liabilities are netted by each tax-paying entity within each jurisdiction in our consolidated balance sheets. Share-Based Compensation We account for employee share-based compensation by measuring and recognizing compensation expense for all share-based payments based on estimated grant date fair values. We use the straight-line method to allocate compensation cost to reporting periods over each awardee’s requisite service period, which is generally the vesting period. If an award includes both a service condition and a market or performance condition, the graded vesting method is used to allocate compensation cost to reporting periods. We adopted ASU No. 2016-09 on January 1, 2017 and elected to retain a forfeiture rate after adoption. New Accounting Pronouncements Impacting Critical Accounting Policies Refer to Note 2 in the Notes to our Consolidated Financial Statements included in this report, which includes a discussion of the new accounting pronouncements impacting critical accounting policies. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to various market risks, which include potential losses arising from adverse changes in market rates and prices, such as interest rates and foreign exchange fluctuations. We do not enter into derivatives or other financial instruments for trading or speculative purposes. Interest Rate Risk. We are subject to interest rate fluctuation exposure through our borrowings under the Credit Agreement and our investment in money market accounts which bear a variable interest rate. Term loans under the Credit Agreement bear interest, at our option, at a rate equal to the London Inter-Bank Offered Rate, or LIBOR, plus 2.25% per annum (subject to a 0.00% LIBOR floor), or the adjusted base rate plus 1.25% per annum with a step-down to LIBOR plus 2.00% per annum or the adjusted base rate plus 1.00% per annum at the time our leverage ratio is less than or equal to 2.00 to 1.00. The adjusted base rate is defined as the greatest of (a) LIBOR (using one-month interest period) plus 1.00%, (b) the prime rate, (c) the federal funds rate plus 0.50%, and (d) 1.00%. The loans under the Revolving Credit Facility bear interest, at our option, at a rate equal to either LIBOR plus an applicable margin of 2.25% per annum (subject to a LIBOR floor of 0.00%), or the adjusted base rate plus 1.25% per annum with a step-down to LIBOR plus 2.00% per annum or the adjusted base rate plus 1.00% per annum at the time our leverage ratio is less than or equal to 2.00 to 1.00. Our approximately $418.0 million of senior secured term loans under the Credit Agreement is based on LIBOR. As of December 31, 2019, the Revolving Credit Facility was undrawn. The one-month LIBOR rate as of February 6, 2020, which was the most recent date the interest rate on the term loan was fixed, was 1.69%, and as a result, the interest rate on our borrowings is currently 3.94% per annum. Because the United Kingdom Financial Conduct Authority, which regulates LIBOR, intends to phase out the use of LIBOR by the end of 2021, future borrowings under our Credit Agreement could be subject to reference rates other than LIBOR. 122 An increase in the LIBOR of 100 basis points above the current LIBOR rate would increase our interest expense related to the Credit Agreement by $4.2 million per year. The goals of our investment policy are to preserve capital, fulfill liquidity needs and maintain fiduciary control of cash. To achieve our goal of maximizing income without assuming significant market risk, we maintain our excess cash and cash equivalents in money market funds. Because of the short-term maturities of our cash equivalents, we do not believe that a decrease in interest rates would have any material negative impact on the fair value of our cash equivalents. Foreign Currency Risk. Our purchase costs of TEPEZZA drug substance and ACTIMMUNE inventory are principally denominated in Euros and are subject to foreign currency risk. We have contracts relating to RAVICTI, QUINSAIR and PROCYSBI for sales in Canada which sales are subject to foreign currency risk. We also incur certain operating expenses in currencies other than the U.S. dollar in relation to our Irish operations and foreign subsidiaries. Therefore, we are subject to volatility in cash flows due to fluctuations in foreign currency exchange rates, particularly changes in the Euro and the Canadian dollar. Inflation Risk. We do not believe that inflation has had a material impact on our business or results of operations during the periods for which the consolidated financial statements are presented in this report. Credit Risk. Historically, our accounts receivable balances have been highly concentrated with a select number of customers, consisting primarily of large wholesale pharmaceutical distributors who, in turn, sell the medicines to pharmacies, hospitals and other customers. As of December 31, 2019 and 2018, our top four customers accounted for approximately 84% and 85%, respectively, of our total outstanding accounts receivable balances. Item 8. Financial Statements and Supplementary Data The financial information required by Item 8 is contained in Part IV, Item 15 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act), have concluded that, as of December 31, 2019, our disclosure controls and procedures were effective to provide reasonable assurance that 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 Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management, under the supervision of our chief executive officer and our chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is 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. 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. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 123 Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on management’s assessment, management has concluded that, as of December 31, 2019, our internal control over financial reporting was effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2019, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein. Changes in Internal Control Over Financial Reporting There have been no material changes to our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the three months ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with our 2020 Annual General Meeting of Shareholders, or our 2020 Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2019. We have adopted a written Code of Business Conduct and Ethics, or Ethics Code, that applies to all officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Ethics Code is available on our website at www.horizontherapeutics.com. If we make any substantive amendments to the Ethics Code or grant any waiver from a provision of the Ethics Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website or in a Current Report on Form 8-K. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to our 2020 Proxy Statement. 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 our 2020 Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated herein by reference to our 2020 Proxy Statement. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated herein by reference to our 2020 Proxy Statement. 124 PART IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this report. 1. Financial Statements The financial statements listed on the Index to Consolidated Financial Statements F-1 to F-60 are filed as part of this Annual Report on Form 10-K. 2. Financial Statement Schedules Schedule II – Valuation and Qualifying Accounts and Reserves for each of the three fiscal years ended December 31, 2019, 2018 and 2017 appearing on page F-61. Other financial statement schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required. 125 3. Exhibits INDEX TO EXHIBITS Exhibit Number Description of Document 3.1 4.1 4.2 4.3 4.4 4.5 4.6 10.1+ 10.2+ 10.3+ 10.4+** 10.5+** 10.6+ Memorandum and Articles of Association of Horizon Therapeutics Public Limited Company, as amended (incorporated by reference to Exhibit 3.1 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2019). Indenture, dated March 13, 2015, by and among Horizon Therapeutics Public Limited Company, Horizon Therapeutics Investment Limited and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on March 13, 2015). Form of 2.50% Exchangeable Senior Note due 2022 (incorporated by reference to Exhibit 4.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on March 13, 2015). Rights Agreement, dated as of February 28, 2019, by and between Horizon Therapeutics Public Limited Company and Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on February 28, 2019). Indenture dated as of July 16, 2019 by and between Horizon Therapeutics USA, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on July 16, 2019). Form of 5.500% Senior Note due 2027 (incorporated by reference to Exhibit 4.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on July 16, 2019). Description of securities registered under Section 12 of the Exchange Act of 1934. Form of Indemnification Agreement entered into by and between Horizon Therapeutics Public Limited Company and certain of its directors, officers and employees (incorporated by reference to Exhibit 10.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on September 19, 2014). Form of Indemnification Agreement entered into by and between Horizon Therapeutics USA, Inc. and certain directors, officers and employees of Horizon Therapeutics Public Limited Company (incorporated by reference to Exhibit 10.2 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on September 19, 2014). Horizon Therapeutics Public Limited Company Non-Employee Director Compensation Policy, as amended (incorporated by reference to Exhibit 10.5 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 7, 2019). Horizon Therapeutics USA, Inc. 2005 Stock Plan and Form of Stock Option Agreement thereunder (incorporated by reference to Exhibit 10.2 to Horizon Therapeutics, Inc.’s Registration Statement on Form S- 1 (No. 333-168504), as amended). Horizon Therapeutics USA, Inc. 2011 Equity Incentive Plan, as amended, and Form of Option Agreement and Form of Stock Option Grant Notice thereunder (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics, Inc.’s Current Report on Form 8-K, filed on July 2, 2014). Horizon Therapeutics Public Limited Company Amended and Restated 2014 Equity Incentive Plan and Form of Option Agreement, Form of Stock Option Grant Notice, Forms of Restricted Stock Unit Agreement and Forms of Restricted Stock Unit Grant Notice thereunder (incorporated by reference to Exhibit 10.7 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2019). 126 10.7+ 10.8+ 10.9+ 10.10+ 10.11* 10.12* 10.13+ 10.14+ 10.15* 10.16* 10.17 10.18* 10.19* 10.20 Horizon Therapeutics Public Limited Company 2014 Non-Employee Equity Plan, as amended, and Form of Option Agreement, Form of Stock Option Grant Notice, Forms of Restricted Stock Unit Agreement and Forms of Restricted Stock Unit Grant Notice thereunder (incorporated by reference to Exhibit 10.8 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2019). Horizon Therapeutics Public Limited Company 2014 Employee Share Purchase Plan, as amended (incorporated by reference to Exhibit 99.2 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on May 4, 2016). Form of Employee Proprietary Information and Inventions Agreement (incorporated by reference to Exhibit 10.15 to Horizon Pharma, Inc.’s Registration Statement on Form S-1 (No. 333-168504), as amended). Amended and Restated Executive Employment Agreement, dated July 27, 2010, by and between Horizon Therapeutics USA, Inc. and Timothy Walbert (incorporated by reference to Exhibit 10.22 to Horizon Pharma, Inc.’s Registration Statement on Form S-1 (No. 333-168504), as amended). Manufacturing and Supply Agreement, dated May 25, 2011, by and between Horizon Therapeutics USA, Inc. and Sanofi-Aventis U.S. LLC (incorporated by reference to Exhibit 10.35 to Horizon Pharma, Inc.’s Registration Statement on Form S-1 (No. 333-168504), as amended). Amendment to Manufacturing and Supply Agreement, effective as of September 25, 2013, by and between Horizon Therapeutics USA, Inc. and Sanofi-Aventis U.S. LLC (incorporated by reference to Exhibit 10.3 to Horizon Pharma, Inc.’s Quarterly Report on Form 10-Q, filed on November 8, 2013). First Amendment to Amended and Restated Executive Employment Agreement, dated January 16, 2014, by and between Horizon Therapeutics USA, Inc. and Timothy Walbert (incorporated by reference to Exhibit 99.1 to Horizon Pharma, Inc.’s Current Report on Form 8-K, filed on January 16, 2014). Executive Employment Agreement, effective as of June 23, 2014, by and between Horizon Therapeutics USA, Inc. and Paul W. Hoelscher (incorporated by reference to Exhibit 99.4 to Horizon Pharma, Inc.’s Current Report on Form 8-K, filed on June 18, 2014). Supply Agreement, dated October 17, 2014, by and between Horizon Therapeutics Ireland DAC and Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.) (incorporated by reference to Exhibit 10.57 to Horizon Therapeutics Public Limited Company’s Amendment No. 2 to Annual Report on Form 10-K, filed on April 10, 2015). License Agreement for Interferon Gamma, dated May 5, 1998, by and between Genentech, Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to Connetics Corporation) (incorporated by reference to Exhibit 10.62 to Horizon Therapeutics Public Limited Company’s Amendment No. 3 to Annual Report on Form 10-K, filed on May 26, 2017). Amendment No. 1 to License Agreement for Interferon Gamma, dated December 28, 1998, by and between Genentech, Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to Connetics Corporation) (incorporated by reference to Exhibit 10.63 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2015). Amendment No. 2 to License Agreement for Interferon Gamma, dated January 15, 1999, by and between Genentech, Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to Connetics Corporation) (incorporated by reference to Exhibit 10.64 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2015). Amendment No. 3 to License Agreement for Interferon Gamma, dated April 27, 1999, by and between Genentech, Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to Connetics Corporation) (incorporated by reference to Exhibit 10.65 to Horizon Therapeutics Public Limited Company’s Amendment No. 3 to Annual Report on Form 10-K, filed on May 26, 2017). Consent to Assignment Agreement, dated June 23, 2000 (Amendment No. 4), by and among Genentech, Inc., Connetics Corporation and Horizon Therapeutics Ireland DAC (as successor in interest to InterMune Pharmaceuticals, Inc.) (incorporated by reference to Exhibit 10.66 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2015). 127 10.21 10.22* 10.23* 10.24+ 10.25+ 10.26+ 10.27+ 10.28 10.29* 10.30* 10.31+ 10.32* Amendment No. 5 to License Agreement for Interferon Gamma, dated January 25, 2001, by and between Genentech, Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to InterMune Pharmaceuticals, Inc.) (incorporated by reference to Exhibit 10.67 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2015). Amendment No. 6 to License Agreement for Interferon Gamma, dated February 27, 2006, by and between Genentech, Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to InterMune, Inc.) (incorporated by reference to Exhibit 10.68 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2015). Amendment No. 7 to License Agreement for Interferon Gamma, dated December 17, 2013, by and between Genentech, Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to Vidara Therapeutics International Public Limited Company) (incorporated by reference to Exhibit 10.69 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2015). Executive Employment Agreement, effective as of September 18, 2014, by and between Horizon Therapeutics USA, Inc. and Barry Moze (incorporated by reference to Exhibit 10.74 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2015). Horizon Therapeutics USA, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.30 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 28, 2018). Horizon Therapeutics Public Limited Company Equity Long-Term Incentive Program (incorporated by reference to Exhibit 10.2 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10- Q, filed on May 8, 2015). Executive Employment Agreement, dated May 7, 2015, by and between Horizon Therapeutics USA, Inc. and Brian Beeler (incorporated by reference to Exhibit 10.4 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2015). Credit Agreement, dated May 7, 2015, by and among Horizon Therapeutics USA, Inc., as borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on May 11, 2015). License Agreement, dated April 16, 1999, by and among Saul Brusilow, M.D., Brusilow Enterprises, Inc. and Horizon Therapeutics, LLC (as successor in interest to Medicis Pharmaceutical Corporation) (incorporated by reference to Exhibit 10.8 to Horizon Therapeutics Public Limited Company’s Amendment No. 2 to Quarterly Report on Form 10-Q, filed on May 26, 2017). Settlement Agreement and First Amendment to License Agreement, dated August 21, 2007, by and among Saul Brusilow, M.D., Brusilow Enterprises, Inc., and Horizon Therapeutics, LLC (as successor in interest to Medicis Pharmaceutical Corporation and Ucyclyd Pharma, Inc.) (incorporated by reference to Exhibit 10.22 to Hyperion Therapeutics, Inc.’s Amendment No. 1 to the Registration Statement on Form S-1, filed on May 24, 2012). Horizon Therapeutics Public Limited Company Share Clog Program Trust Deed, as amended, and Form of Clog Letter (incorporated by reference to Exhibit 10.6 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 8, 2016). License Agreement, dated August 12, 1998, by and among Mountain View Pharmaceuticals, Inc., Duke University and Horizon Therapeutics Ireland DAC (as successor in interest to Bio-Technology General Corporation), as amended November 12, 2001, August 30, 2010, March 12, 2014 and July 16, 2015 (incorporated by reference to Exhibit 10.61 to Horizon Therapeutics Public Limited Company’s Amendment No. 1 to Annual Report on Form 10-K, filed on May 26, 2017). 128 10.33* 10.34* 10.35* 10.36* 10.37* 10.38* 10.39 10.40* 10.41* 10.42+ 10.43+ Commercial Supply Agreement, dated March 20, 2007, by and between Horizon Therapeutics Ireland DAC (as successor in interest to Savient Pharmaceuticals, Inc.) and Bio-Technology General (Israel) Ltd., as amended September 24, 2007, January 24, 2009, July 1, 2010 and March 21, 2012 (incorporated by reference to Exhibit 10.62 to Horizon Therapeutics Public Limited Company’s Amendment No. 1 to Annual Report on Form 10-K, filed on May 26, 2017). Supply Agreement, dated August 3, 2015, by and between NOF Corporation and Horizon Therapeutics Ireland DAC (as successor in interest to Crealta Pharmaceuticals LLC) (incorporated by reference to Exhibit 10.63 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 29, 2016). Asset Purchase Agreement, dated March 22, 2012, by and between Horizon Therapeutics, LLC (as successor in interest to Hyperion Therapeutics, Inc.) and Bausch Health Companies Inc. (formerly Ucyclyd Pharma, Inc.) (incorporated by reference to Exhibit 2.1 to Hyperion Therapeutics, Inc.’s Amendment No. 1 to the Registration Statement on Form S-1, filed on May 24, 2012). Amendment No. 1 to Supply Agreement, dated February 4, 2016, by and between Horizon Therapeutics Ireland DAC and Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.) (incorporated by reference to Exhibit 10.66 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 29, 2016). Commercial Supply Agreement, dated October 16, 2008, by and between Exelead, Inc. (formerly known as Sigma-Tau PharmaSource, Inc. (as successor in interest to Enzon Pharmaceuticals, Inc.)) and Horizon Therapeutics Ireland DAC (as successor in interest to Savient Pharmaceuticals, Inc.), as amended October 5, 2009, October 22, 2009 and July 29, 2014 (incorporated by reference to Exhibit 10.68 to Horizon Therapeutics Public Limited Company’s Amendment No. 1 to Annual Report on Form 10-K, filed on May 26, 2017). Fifth Amendment to Commercial Supply Agreement, effective as of August 31, 2016, by and between Horizon Therapeutics Ireland DAC and Bio-Technology General (Israel) Ltd. (incorporated by reference to Exhibit 10.1 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 7, 2016). Amendment No. 1, dated October 25, 2016, to Credit Agreement, dated May 7, 2015, by and among Horizon Therapeutics USA, Inc., as borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Amendment No. 1 to Current Report on Form 8-K, filed on October 25, 2016). API Supply Agreement, dated November 3, 2010, by and between Cambrex Profarmaco Milano and Horizon Therapeutics Ireland DAC (as successor in interest to Raptor Therapeutics Inc. and Raptor Pharmaceuticals Europe B.V.), as amended April 9, 2013 (incorporated by reference to Exhibit 10.4 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 7, 2016). Manufacturing Services Agreement, dated November 15, 2010, by and among Patheon Pharmaceuticals Inc., Horizon Orphan LLC (as successor in interest to Raptor Therapeutics Inc.) and Horizon Pharma Europe B.V. (as successor in interest to Raptor Pharmaceuticals Europe B.V.), as amended April 5, 2012 and June 21, 2013 (incorporated by reference to Exhibit 10.5 to Horizon Therapeutics Public Limited Company’s Amendment No. 1 to Quarterly Report on Form 10-Q, filed on May 26, 2017). Horizon Therapeutics Public Limited Company Equity Long-Term Incentive Program (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on January 11, 2018). Horizon Therapeutics Public Limited Company Cash Incentive Program (incorporated by reference to Exhibit 99.2 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on January 11, 2018). 129 10.44+ 10.45+ 10.46+ 10.47 10.48 10.49* 10.50* 10.51+ 10.52+ 10.53+ 10.54+ 10.55+ 10.56+ Horizon Therapeutics Public Limited Company Incentive Compensation Recoupment Policy (incorporated by reference to Exhibit 99.4 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on January 11, 2018). Separation Agreement, dated January 23, 2020, by and between Horizon Therapeutics USA, Inc. and Shao- Lee Lin, M.D., Ph.D. Executive Employment Agreement, effective as of September 11, 2017, by and between Horizon Therapeutics USA, Inc. and Irina Konstantinovsky (incorporated by reference to Exhibit 10.2 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 6, 2017). Amendment No. 2, dated March 29, 2017, to Credit Agreement, dated May 7, 2015, by and among Horizon Therapeutics USA, Inc., as Borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on March 30, 2017). Amendment No. 3, dated October 23, 2017, to Credit Agreement, dated May 7, 2015, by and among Horizon Therapeutics USA, Inc., as Borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on October 23, 2017). Global Supply Agreement, dated June 30, 2017, by and between Horizon Therapeutics Ireland DAC and Boehringer Ingelheim Biopharmaceuticals GmbH (incorporated by reference to Exhibit 10.3 to Horizon Therapeutics Public Limited Company’s Amendment No. 1 to Quarterly Report on Form 10-Q, filed on September 28, 2017). Amended and Restated License Agreement, dated May 31, 2017, by and between Horizon Orphan LLC and The Regents of the University of California (incorporated by reference to Exhibit 10.4 to Horizon Therapeutics Public Limited Company’s Amendment No. 1 to Quarterly Report on Form 10-Q, filed on September 28, 2017). Amended and Restated Executive Employment Agreement, effective as of March 1, 2018, by and between Horizon Therapeutics USA, Inc. and Vikram Karnani (incorporated by reference to Exhibit 10.10 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 9, 2018). First Amendment to Executive Employment Agreement, dated May 4, 2017, by and between Horizon Therapeutics USA, Inc. and Paul W. Hoelscher (incorporated by reference to Exhibit 10.7 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 7, 2017). First Amendment to Executive Employment Agreement, dated May 4, 2017, by and between Horizon Therapeutics USA, Inc. and Barry Moze (incorporated by reference to Exhibit 10.8 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 7, 2017). First Amendment to Executive Employment Agreement, dated May 4, 2017, by and between Horizon Therapeutics USA, Inc. and Brian Beeler (incorporated by reference to Exhibit 10.9 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 7, 2017). Second Amendment to Amended and Restated Executive Employment Agreement, dated May 4, 2017, by and between Horizon Therapeutics USA, Inc. and Timothy Walbert (incorporated by reference to Exhibit 10.13 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 7, 2017). Executive Employment Agreement, effective as of February 16, 2017, by and between Horizon Therapeutics USA, Inc. and Michael DesJardin (incorporated by reference to Exhibit 10.68 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 28, 2018). 130 10.57+ 10.58* 10.59* 10.60* 10.61* 10.62* 10.63 10.64* 10.65+ 10.66 10.67+ 10.68*** First Amendment to Executive Employment Agreement, dated May 4, 2017, by and between Horizon Therapeutics USA, Inc. and Michael DesJardin (incorporated by reference to Exhibit 10.69 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 28, 2018). Second Amendment to Supply Agreement, dated January 1, 2017, by and between Horizon Therapeutics Ireland DAC and Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.) (incorporated by reference to Exhibit 10.71 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 28, 2018). Third Amendment to Supply Agreement, dated February 16, 2018, by and between Horizon Therapeutics Ireland DAC and Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.) (incorporated by reference to Exhibit 10.72 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 28, 2018). Confidential Settlement and License Agreement, effective as of June 27, 2018, by and among Horizon Therapeutics, LLC, Lupin Ltd. and Lupin Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 8, 2018). Letter Agreement, dated May 1, 2018, by and between Horizon Therapeutics USA, Inc. and Sanofi US Services, Inc. (incorporated by reference to Exhibit 10.2 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on August 8, 2018). Confidential Settlement and License Agreement, effective as of September 17, 2018, by and between Horizon Therapeutics, LLC and Par Pharmaceutical, Inc. (incorporated by reference to Exhibit 10.1 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 7, 2018). Amendment No. 4, dated October 19, 2018, to Credit Agreement, dated May 7, 2015 (as amended by Amendment No. 1, dated October 25, 2016, Amendment No. 2, dated March 29, 2017 and Amendment No. 3, dated October 23, 2017), by and among Horizon Therapeutics USA, Inc., as Borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on October 19, 2018). Amendment No. 1 to Amended and Restated License Agreement, dated September 11, 2018, by and between Horizon Orphan LLC and The Regents of the University of California (incorporated by reference to Exhibit 10.3 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 7, 2018). Amended and Restated Executive Employment Agreement, effective as of August 1, 2018, by and between Horizon Therapeutics USA, Inc. and Geoffrey M. Curtis (incorporated by reference to Exhibit 10.69 to Horizon Therapeutics Public Limited Company’s Annual Report on Form 10-K, filed on February 27, 2019). Amendment No. 5, dated March 11, 2019, to Credit Agreement, dated May 7, 2015 (as amended by Amendment No. 1, dated October 25, 2016, Amendment No. 2, dated March 29, 2017, Amendment No. 3, dated October 23, 2017, and Amendment No. 4, dated October 19, 2018), by and among Horizon Therapeutics USA, Inc., as Borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on March 11, 2019). Executive Employment Agreement, effective as of May 1, 2019, by and between Horizon Therapeutics USA, Inc. and Jeffery Kent, M.D., FACP, FACG (incorporated by reference to Exhibit 10.2 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2019). Commercial Supply Agreement, effective as of February 14, 2018, by and between CMC Biologics A/S, dba AGC Biologics and Horizon Therapeutics Ireland DAC (incorporated by reference to Exhibit 10.3 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2019). 131 10.69*** 10.70*** 10.71*** 10.72 10.73*** 10.74*** 10.75+ 10.76+ 10.77 10.78*** 10.79 10.80*** Commercial Supply Agreement, effective as of December 18, 2018, by and between Catalent Indiana, LLC and Horizon Therapeutics Ireland DAC (incorporated by reference to Exhibit 10.4 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2019). License Agreement, effective as of June 15, 2011, by and among F. Hoffmann-La Roche Ltd, Hoffman-La Roche Inc. and Horizon Therapeutics Ireland DAC (as successor in interest to River Vision Development Corp), as amended through Amendment No. 9 to the License Agreement, effective as of October 21, 2016. Exclusive License Agreement, dated December 5, 2012, by and between Lundquist Institute (formerly known as Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center) and Horizon Therapeutics Ireland DAC (as successor in interest to River Vision Development Corp) (incorporated by reference to Exhibit 10.6 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on May 8, 2019). Amendment No. 6, dated May 22, 2019, to Credit Agreement, dated May 7, 2015 (as amended by Amendment No. 1, dated October 25, 2016, Amendment No. 2, dated March 29, 2017, Amendment No. 3, dated October 23, 2017, Amendment No. 4, dated October 19, 2018 and Amendment No. 5, dated March 11, 2019), by and among Horizon Therapeutics USA, Inc., as Borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on May 22, 2019). Amendment No. 1 to Commercial Supply Agreement, dated May 15, 2019, by and between AGC Biologics A/S (formerly known as CMC Biologics A/S) and Horizon Therapeutics Ireland DAC (incorporated by reference to Exhibit 10.6 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10- Q, filed on August 7, 2019). Mutual Settlement, Release and Media License Agreement, effective as of December 21, 2016, by and between Horizon Therapeutics Ireland DAC (as successor in interest to River Vision Development Corp). and Boehringer Ingelheim Biopharmaceuticals GmbH (incorporated by reference to Exhibit 10.1 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 6, 2019). Release and Waiver of Claims of Robert F. Carey, dated as of September 18, 2019 (incorporated by reference to Exhibit 10.2 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 6, 2019). Executive Employment Agreement, effective as of November 1, 2019, by and among Horizon Therapeutics Public Limited Company, Horizon Therapeutics USA, Inc. and Andy Pasternak (incorporated by reference to Exhibit 10.3 to Horizon Therapeutics Public Limited Company’s Quarterly Report on Form 10-Q, filed on November 6, 2019). Amendment No. 7, dated December 18, 2019, to Credit Agreement, dated May 7, 2015 (as amended by Amendment No. 1, dated October 25, 2016, Amendment No. 2, dated March 29, 2017, Amendment No. 3, dated October 23, 2017, Amendment No. 4, dated October 19, 2018, Amendment No. 5, dated March 11, 2019 and Amendment No. 6, dated May 22, 2019), by and among Horizon Therapeutics USA, Inc., as Borrower, Horizon Therapeutics Public Limited Company, as Irish Holdco and a guarantor, the subsidiary guarantors party thereto, as subsidiary guarantors, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 99.1 to Horizon Therapeutics Public Limited Company’s Current Report on Form 8-K, filed on December 18, 2019). Amendment No. 2 to Commercial Supply Agreement, dated December 18, 2019, by and between AGC Biologics A/S (formerly known as CMC Biologics A/S) and Horizon Therapeutics Ireland DAC. Amendment No. 2 to API Supply Agreement, effective as of January 17, 2018, by and between Cambrex Profarmaco Milano and Horizon Therapeutics Ireland DAC. Amendment to Supply Agreement, effective as of November 30, 2018, by and between NOF Corporation and Horizon Therapeutics Ireland DAC. 132 21.1 23.1 24.1 31.1 31.2 32.1 32.2 Subsidiaries of Horizon Therapeutics Public Limited Company. Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. Power of Attorney. Reference is made to the signature page hereto. Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act. Certification of Principal Executive Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350. Certification of Principal Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350. 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) + * ** Indicates management contract or compensatory plan. Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. Indicates an instrument, agreement or compensatory arrangement or plan assumed by Horizon Therapeutics Public Limited Company in the merger with Vidara and no longer binding on Horizon Therapeutics USA, Inc. *** Certain portions of this exhibit (indicated by “[***]”) have been omitted as the Registrant has determined (i) the omitted information is not material and (ii) the omitted information would likely cause harm to the Registrant if publicly disclosed. Item 16. Form 10-K Summary None. 133 HORIZON THERAPEUTICS PLC Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2019 and 2018 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018 and 2017 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017 Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 Notes to Consolidated Financial Statements Page F-1 F-4 F-5 F-6 F-7 F-9 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Horizon Therapeutics plc Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Horizon Therapeutics plc and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income (loss), of shareholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 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, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principles As discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed the manner in which it accounts for business combinations and the manner in which it accounts for leases in 2019. 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 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. F-1 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. 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. Accrued Medicaid Rebates and Accrued Co-Pay and Other Patient Assistance As described in Notes 2 and 10 to the consolidated financial statements, the Company has accrued government rebates and chargebacks of $164.5 million as of December 31, 2019. A significant portion of these accruals relates to the Company’s Medicaid rebates. The Company also has accrued co-pay and other patient assistance of $163.6 million as of December 31, 2019. Collectively these are referred to as “the allowances”. Management calculates the allowances using the expected value method. Management applied significant judgment in estimating the allowances at the time of sale to wholesale pharmaceutical distributors and pharmacies based on estimated rebate percentages, estimated percentages of medicine that will be prescribed to qualified patients, average assistance paid based on reporting from the third-party vendors, and estimated levels of inventory in the distribution channel. The principal considerations for our determination that performing procedures relating to accrued Medicaid rebates and accrued co-pay and other patient assistance is a critical audit matter is that there was significant judgment by management when estimating the allowances. This in turn led to a high degree of auditor judgment, subjectivity and effort in applying procedures to evaluate management's estimate and significant assumptions, including estimated rebate percentages, average assistance paid based on reporting from third-party vendors, estimated percentages of medicine prescribed to qualified patients and estimated levels of inventory in the distribution channel. F-2 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 the valuation of the accrued Medicaid rebates and accrued co-pay and other patient assistance, including controls over the assumptions used to estimate the allowances. These procedures also included, among others, i) developing an independent estimate of the accrued Medicaid rebates by utilizing third-party prescription data, the terms of the specific rebate programs, and the historical trend of actual rebate claims paid, ii) comparing the independent estimate to management’s estimate to evaluate the reasonableness of the estimate, iii) testing rebate claims processed by the Company, including evaluating those claims for consistency with the terms of the specific rebate programs, iv) testing management’s process for developing the co-pay and other patient assistance allowances and evaluating the appropriateness of the methodology used by management, v) testing co-pay and other patient assistance payments, including evaluating the consistency with third-party invoices, vi) testing the completeness, accuracy and relevance of underlying data used by management, and vii) evaluating the significant assumptions used by management including estimated rebate percentages, average assistance paid based on reporting from third-party vendors, estimated percentages of medicine prescribed to qualified patients and estimated levels of inventory in the distribution channel. Evaluating management’s assumptions involved evaluating whether the assumptions used by management were reasonable by (i) evaluating the consistency of the assumptions with historical trends, (ii) comparing assumptions and inputs to government prices, invoices, current payment trends, and other third party data on a test basis where relevant, (iii) considering whether relevant company and industry specific considerations have been incorporated into the assumptions appropriately, and (iv) evaluating evidence identified that was considered contrary to management’s assumptions and evaluating its impact on management’s estimate. Income Tax Impacts of Intra-company Transfer of Intellectual Property Assets As described in Notes 2 and 19 to the consolidated financial statements, the Company executed an intra-company transfer of intellectual property assets to an Irish subsidiary. During the year ended December 31, 2019, the Company recognized a deferred tax asset and related income tax benefit of $553.3 million, which represents the difference between the book and tax basis of the transferred assets multiplied by the Irish statutory income tax rate. The transaction required the interpretation and application of tax laws in the applicable jurisdiction to support the tax treatment taken. The valuation of the step-up tax basis of intellectual property assets, which supports the tax treatment of the transaction, required significant estimates and assumptions within discounted cash flow models. The principal considerations for our determination that performing procedures relating to income tax impacts of intra- company transfer of intellectual property assets is a critical audit matter are that there was significant judgment by management when interpreting and applying the tax laws in the applicable jurisdiction, and in estimating the valuation of the step-up tax basis of intellectual property assets. This in turn led to a high degree of auditor judgment, subjectivity and effort to evaluate management’s interpretation of the tax laws in the relevant jurisdiction and to evaluate management's estimate of the valuation of the intellectual property assets. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. 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 the income tax impacts of the intra-company transfer of intellectual property assets, including controls over the tax treatment and application of tax laws, and the valuation of the step-up tax basis of intellectual property assets. These procedures also included, among others, (i) testing the information used in the determination of the tax impacts of the transaction, including examining intercompany agreements and management’s interpretation and application of tax law; (ii) testing the calculation of the deferred tax asset and related income tax benefit for the intra-company transfer for intellectual property assets; (iii) testing the valuation of intellectual property assets; and (iv) testing the completeness and accuracy of data provided by management. Professionals with specialized skill and knowledge were used (i) to assist in the evaluation of the reasonableness of management’s assessment of the income tax impact of intra-company transfer of intellectual property assets based on relevant tax laws in the applicable jurisdiction and (ii) to assist in evaluating the valuation of intellectual property assets. /s/ PricewaterhouseCoopers LLP Chicago, Illinois February 26, 2020 We have served as the Company’s auditor since 2009. F-3 HORIZON THERAPEUTICS PLC CONSOLIDATED BALANCE SHEETS (In thousands, except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents Restricted cash Accounts receivable, net Inventories, net Prepaid expenses and other current assets Total current assets Property and equipment, net Developed technology, net Other intangible assets, net Goodwill Deferred tax assets, net Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable Accrued expenses Accrued trade discounts and rebates Deferred revenues, current portion Total current liabilities LONG-TERM LIABILITIES: Exchangeable notes, net Long-term debt, net of current Deferred tax liabilities, net Other long-term liabilities Total long-term liabilities COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: As of As of December 31, December 31, 2019 2018 $ $ $ $ $ $ 1,076,287 3,752 408,685 53,802 143,577 1,686,103 30,159 1,698,808 3,820 413,669 555,165 48,310 4,436,034 21,514 235,234 466,421 — 723,169 351,533 1,001,308 94,247 80,328 1,527,416 958,712 3,405 464,730 50,751 68,218 1,545,816 20,101 1,945,639 4,630 413,669 3,148 8,959 3,941,962 30,284 215,739 457,763 4,901 708,687 332,199 1,564,485 107,768 38,717 2,043,169 Ordinary shares, $0.0001 nominal value; 600,000,000 and 300,000,000 shares authorized at December 31, 2019 and December 31, 2018, respectively; 188,402,040 and 169,244,520 shares issued at December 31, 2019 and December 31, 2018, respectively, and 188,017,674 and 168,860,154 shares outstanding at December 31, 2019 and December 31, 2018, respectively Treasury stock, 384,366 ordinary shares at December 31, 2019 and December 31, 2018 Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders’ equity Total liabilities and shareholders' equity $ 19 (4,585) 2,797,602 (1,905) (605,682) 2,185,449 4,436,034 $ 17 (4,585) 2,374,966 (1,523) (1,178,769) 1,190,106 3,941,962 The accompanying notes are an integral part of these consolidated financial statements. F-4 HORIZON THERAPEUTICS PLC CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share data) Net sales Cost of goods sold Gross profit OPERATING EXPENSES: Research and development Selling, general and administrative Loss (gain) on sale of assets Impairment of long-lived assets Total operating expenses Operating income (loss) OTHER EXPENSE, NET: Interest expense, net Loss on debt extinguishment Gain on divestiture Foreign exchange gain (loss) Other (expense) income, net Total other expense, net Loss before benefit for income taxes Benefit for income taxes Net income (loss) Net income (loss) per ordinary share—basic Weighted average ordinary shares outstanding—basic Net income (loss) per ordinary share—diluted Weighted average ordinary shares outstanding—diluted OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX Foreign currency translation adjustments Pension remeasurements Other comprehensive (loss) income Comprehensive income (loss) $ For the Years Ended December 31, 2018 1,207,570 391,301 816,269 2019 1,300,029 362,175 937,854 $ $ 103,169 697,111 10,963 — 811,243 126,611 82,762 692,485 (42,985) 46,096 778,358 37,911 2017 1,056,231 493,368 562,863 224,962 655,093 — 22,270 902,325 (339,462) (121,692) (87,089) (58,835) — 33 (944) (146,835) (20,224) (593,244) $ 573,020 $ $ $ 3.13 166,155,405 182,930,109 $ $ 2.90 166,155,405 205,224,221 — — (192) 841 (121,043) (83,132) (44,752) (38,380) $ (0.23) $ (126,523) (978) 7,965 (260) 447 (119,349) (458,811) (108,686) (350,125) (2.15) 163,122,663 (2.15) 163,122,663 (0.23) $ $ $ (382) $ — (382) $ 572,638 (826) $ 286 (540) (38,920) $ 2,067 36 2,103 (348,022) The accompanying notes are an integral part of these consolidated financial statements. F-5 C L P S C I T U E P A R E H T N O Z I R O H Y T I U Q E ’ S R E D L O H E R A H S F O S T N E M E T A T S D E T A D I L O S N O C ) a t a d e r a h s t p e c x e , s d n a s u o h t n I ( y t i u q E t i c i f e D s s o L ’ s r e d l o h e r a h S d e t a l u m u c c A e v i s n e h e r p m o C l a t o T d e t a l u m u c c A r e h t O l a n o i t i d d A n i - d i a P l a t i p a C t n u o m A s e r a h S t n u o m A s e r a h S k c o t S y r u s a e r T s e r a h S y r a n i d r O 7 6 1 , 2 ) 3 3 5 , 6 ( 2 8 0 , 7 — 9 1 0 , 5 2 1 ) 2 9 9 ( 9 8 7 , 1 7 6 0 , 2 6 3 — — — — — ) 2 9 9 ( — — 0 1 2 , 7 0 1 2 , 7 ) 5 2 1 , 0 5 3 ( ) 5 2 1 , 0 5 3 ( — — — — — — — — 6 3 — 7 6 0 , 2 — 7 6 1 , 2 ) 3 3 5 , 6 ( 2 8 0 , 7 — 9 8 7 , 1 9 1 0 , 5 2 1 — — — — — — — — — — — — — — — — — — — — — — — — — — 2 3 7 , 3 1 3 , 1 $ ) 8 6 0 , 8 9 7 ( $ ) 6 8 0 , 3 ( $ 5 5 4 , 9 1 1 , 2 $ ) 5 8 5 , 4 ( $ 6 6 3 , 4 8 3 6 8 5 , 1 6 8 5 , 1 3 7 9 , 6 1 ) 5 5 4 , 4 1 ( 0 1 6 , 8 0 6 8 , 4 1 1 ) 6 2 8 ( 6 8 2 ) 0 8 3 , 8 3 ( — — — — — — ) 0 8 3 , 8 3 ( — — — — — ) 6 2 8 ( — 6 8 2 — 2 7 9 , 6 1 ) 5 5 4 , 4 1 ( 0 1 6 , 8 0 6 8 , 4 1 1 — — — — — — — — — — — — — — — — — — — 2 5 4 , 1 0 1 , 1 $ ) 5 7 9 , 1 4 1 , 1 ( $ ) 3 8 9 ( $ 9 7 9 , 8 4 2 , 2 $ ) 5 8 5 , 4 ( $ 6 6 3 , 4 8 3 7 6 4 9 7 , 6 2 3 1 8 8 , 4 2 ) 9 6 5 , 1 3 ( 7 1 3 , 1 1 5 1 2 , 1 9 ) 2 8 3 ( 0 2 0 , 3 7 5 7 6 — — — — — — 0 2 0 , 3 7 5 — — — — — — ) 2 8 3 ( — — 2 9 7 , 6 2 3 1 8 8 , 4 2 ) 9 6 5 , 1 3 ( 7 1 3 , 1 1 5 1 2 , 1 9 — — — — — — — — — — — — — — — — — — 6 0 1 , 0 9 1 , 1 $ ) 9 6 7 , 8 7 1 , 1 ( $ ) 3 2 5 , 1 ( $ 6 6 9 , 4 7 3 , 2 $ ) 5 8 5 , 4 ( $ 6 6 3 , 4 8 3 9 4 4 , 5 8 1 , 2 $ ) 2 8 6 , 5 0 6 ( $ ) 5 0 9 , 1 ( $ 2 0 6 , 7 9 7 , 2 $ ) 5 8 5 , 4 ( $ 6 6 3 , 4 8 3 6 1 — — — — — — — — — — — 6 1 — 1 — — — — — — 7 1 — 2 — — — — — — 9 1 — $ 6 5 9 , 4 0 0 , 2 6 1 — — 0 0 0 , 5 2 1 3 2 , 2 2 8 6 7 8 , 7 1 1 , 1 0 2 0 , 5 1 9 ) 0 0 0 , 0 0 1 ( — — — $ 3 8 0 , 5 8 7 , 4 6 1 y t i l i b a i l x a t g n i d l o h h t i w ’ s e e y o l p m e f o t n e m y a p r o f d l e h h t i w s e r a h s y r a n i d r O k c o t s d e t c i r t s e r f o g n i t s e v h t i w n o i t c n u j n o c n i s e r a h s y r a n i d r o f o e c n a u s s I 9 0 - 6 1 0 2 U S A f o n o i t p o d a m o r f t n e m t s u j d a t c e f f e e v i t a l u m u C s e s i c r e x e n o i t p o k c o t s d n a s t i n u 6 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B m a r g o r p P P S E h t i w n o i t c n u j n o c g n i t s e v U S P h t i w n o i t c n u j n o c n i n i s e r a h s y r a n i d r o s e r a h s y r a n i d r o f o f o e c n a u s s I e c n a u s s I n o i t a s n e p m o c d e s a b - e r a h S s e s i c r e x e t n a r r a w h t i w n o i t c n u j n o c n i s e r a h s y r a n i d r o f o e c n a u s s I t n e m t s u j d a n o i t a l s n a r t y c n e r r u C s t n e m e r u s a e m e r n o i s n e P d e s a h c r u p e r s e r a h S s s o l t e N 7 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B — — — — — 4 0 5 , 7 1 9 3 3 9 , 1 4 5 , 3 $ 0 2 5 , 4 4 2 , 9 6 1 — — — — 2 3 6 , 1 8 0 , 4 1 — 0 9 8 , 7 4 8 8 9 9 , 7 2 2 , 4 $ 0 4 0 , 2 0 4 , 8 8 1 y t i l i b a i l x a t g n i d l o h h t i w ’ s e e y o l p m e f o t n e m y a p r o f d l e h h t i w s e r a h s y r a n i d r O m a r g o r p P P S E h t i w n o i t c n u j n o c n i s e r a h s y r a n i d r o f o e c n a u s s I s e s i c r e x e n o i t p o k c o t s d n a s t i n u t n e m t s u j d a n o i t a l s n a r t y c n e r r u C n o i t a s n e p m o c d e s a b - e r a h S s t n e m e r u s a e m e r n o i s n e P s s o l t e N 8 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B y t i l i b a i l x a t g n i d l o h h t i w ’ s e e y o l p m e f o t n e m y a p r o f d l e h h t i w s e r a h s y r a n i d r O m a r g o r p P P S E h t i w n o i t c n u j n o c n i s e r a h s y r a n i d r o f o e c n a u s s I s e s i c r e x e n o i t p o k c o t s d n a s t i n u k c o t s e c n a m r o f r e p , s t i n u k c o t s d e t c i r t s e r f o g n i t s e v h t i w n o i t c n u j n o c n i s e r a h s y r a n i d r o g n i r e f f o c i l b u p - s e r a h s y r a n i d r o f o f o e c n a u s s I e c n a u s s I 2 0 - 6 1 0 2 s U S A f o n o i t p o d a m o r f s t n e m t s u j d a t c e f f e e v i t a l u m u C t n e m t s u j d a n o i t a l s n a r t y c n e r r u C n o i t a s n e p m o c d e s a b - e r a h S e m o c n i t e N 9 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B — 6 1 - 6 1 0 2 d n a 9 0 - 4 1 0 2 s U S A f o n o i t p o d a m o r f t n e m t s u j d a t c e f f e e v i t a l u m u C k c o t s d e t c i r t s e r f o g n i t s e v h t i w n o i t c n u j n o c n i s e r a h s y r a n i d r o f o e c n a u s s I . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T 6 - F HORIZON THERAPEUTICS PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31, 2018 2019 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: $ 573,020 $ (38,380) $ (350,125) Depreciation and amortization expense Equity-settled share-based compensation Loss on debt extinguishment Amortization of debt discount and deferred financing costs Loss (gain) on sale of assets Deferred income taxes Impairment of long-lived assets Gain on divestiture Acquired in-process research and development expense Foreign exchange and other adjustments Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other current assets Accounts payable Accrued trade discounts and rebates Accrued expenses Deferred revenues Other non-current assets and liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets Purchases of property and equipment Change in escrow deposit for property purchase Payment related to license agreement Payments for acquisitions, net of cash acquired Proceeds from divestiture, net of cash divested Net cash (used in) provided by investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from the issuance of senior notes Net proceeds from the issuance of ordinary shares Repayment of senior notes Net proceeds from term loans Repayment of term loans Contingent consideration proceeds from divestiture Payment of contingent consideration Repurchase of ordinary shares Proceeds from the issuance of ordinary shares in connection with warrant exercises Proceeds from the issuance of ordinary shares in conjunction with ESPP program Proceeds from the issuance of ordinary shares in connection with stock option exercises Payment of employee withholding taxes relating to share-based awards Net cash (used in) provided by financing activities Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash Net increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of the year Cash, cash equivalents and restricted cash, end of the year $ 237,157 91,215 58,835 22,602 10,963 (565,537) — — — 574 56,166 (3,268) (72,763) (8,723) 8,591 19,788 (4,901) 2,613 426,332 6,000 (17,857) (6,000) — — — (17,857) 590,057 326,793 (814,420) 935,404 (1,336,207) 3,297 — — — 11,317 24,882 (31,569) (290,446) (107) 117,922 962,117 1,080,039 $ 249,759 114,860 — 22,751 (42,985) (64,491) 46,096 — — 332 (59,697) 10,280 (25,313) (4,593) (44,028) 40,787 (395) (10,440) 194,543 44,424 (4,771) — (12,000) — — 27,653 — — — 818,026 (845,749) — — — — 8,610 16,972 (14,455) (16,596) (1,380) 204,220 757,897 962,117 $ 256,087 125,019 978 21,619 — (132,231) 22,270 (1,236) 159,171 (1,466) (84,444) 108,371 5,110 (16,521) 205,487 (43,937) 4,468 5,720 284,340 — (4,336) — — (167,220) 69,371 (102,185) — — — 1,693,512 (1,622,749) — (20,000) (992) 1,789 7,082 2,167 (6,533) 54,276 5,316 241,747 516,150 757,897 F-7 HORIZON THERAPEUTICS PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) For the Years Ended December 31, 2018 2019 2017 Supplemental cash flow information: Cash paid for interest Cash paid for income taxes Cash paid for amounts included in the measurement of lease liabilities, net of lease incentive payments Supplemental non-cash flow information: Purchases of property and equipment included in accounts payable and accrued expenses Lease liabilities arising from obtaining right-of-use assets Purchases of acquired in-process research and development included in accounts payable and accrued expenses $ 78,044 9,925 $ 112,468 53,058 $ 113,790 2,548 6,484 117 11,444 — 1,101 — — — — — — 12,000 The accompanying notes are an integral part of these consolidated financial statements. F-8 HORIZON THERAPEUTICS PLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019, 2018 and 2017 NOTE 1 – BASIS OF PRESENTATION AND BUSINESS OVERVIEW Unless otherwise indicated or the context otherwise requires, references to “Horizon”, the “Company”, “we”, “us” and “our” refer to Horizon Therapeutics plc (formerly known as Horizon Pharma plc) and its consolidated subsidiaries. On May 2, 2019, the shareholders of the Company approved changing the name of the Company from “Horizon Pharma Public Limited Company” to “Horizon Therapeutics Public Limited Company” to better reflect the Company’s long- term strategy to develop and commercialize innovative new medicines to address rare diseases with very few effective options. Business Overview Horizon is focused on researching, developing and commercializing medicines that address critical needs for people impacted by rare and rheumatic diseases. The Company’s pipeline is purposeful: it applies scientific expertise and courage to bring clinically meaningful therapies to patients. Horizon believes science and compassion must work together to transform lives. The Company has two reportable segments, the orphan and rheumatology segment and the inflammation segment (previously named the primary care segment), and currently markets eleven medicines in the areas of orphan diseases, rheumatology and inflammation. On January 21, 2020, the U.S. Food and Drug Administration (“FDA”) approved TEPEZZA™ (teprotumumab-trbw) for the treatment of thyroid eye disease. As of December 31, 2019, the Company’s marketed medicines consisted of the following: Orphan and Rheumatology KRYSTEXXA® (pegloticase injection), for intravenous infusion RAVICTI® (glycerol phenylbutyrate) oral liquid PROCYSBI® (cysteamine bitartrate) delayed-release capsules, for oral use ACTIMMUNE® (interferon gamma-1b) injection, for subcutaneous use RAYOS® (prednisone) delayed-release tablets BUPHENYL® (sodium phenylbutyrate) tablets and powder QUINSAIR™ (levofloxacin) solution for inhalation Inflammation PENNSAID® (diclofenac sodium topical solution) 2% w/w (“PENNSAID 2%”), for topical use DUEXIS® (ibuprofen/famotidine) tablets, for oral use VIMOVO® (naproxen/esomeprazole magnesium) delayed-release tablets, for oral use F-9 Change in Accounting Method When accounting for business combinations under ASC Topic 805, Business Combinations, the Company previously separately identified and recorded at fair value intangible assets acquired and their related third-party contingent royalties at the date of acquisition. Third-party contingent royalties are royalties payable to parties other than sellers of the businesses. Effective January 1, 2019, the Company retrospectively changed its accounting for business combinations and now records acquired intangible assets and their related third-party contingent royalties on a net basis (“New Method”). The Company changed its accounting principle on the basis that the use of the New Method is preferable primarily due to improved comparability with the Company’s peers. The Company has adjusted the accompanying consolidated balance sheet as at December 31, 2018, consolidated statement of comprehensive income (loss) for the years ended December 31, 2018 and 2017 and the consolidated statements of cash flows for the years ended December 31, 2018 and 2017 to reflect this change in accounting. Total shareholders’ equity at December 31, 2018 was adjusted by $135.9 million to reflect the cumulative impact of the change to the earliest year presented. The impact on the consolidated statement of cash flows consisted of adjustments to reconcile net income (loss) to net cash provided by operating activities and changes in operating assets and liabilities for all periods presented. There was no impact on total operating, investing or financing cash flows for any prior period. The following are selected line items from the Company’s consolidated financial statements illustrating the effect of the change in accounting method (in thousands, except per share data): Prepaid expenses and other current assets Total current assets Developed technology, net Goodwill Other assets Total assets Accrued expenses Accrued royalties - current portion Total current liabilities Accrued royalties - net of current Deferred tax liabilities, net Other long-term liabilities Total long-term liabilities Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity $ Consolidated Balance Sheet as of December 31, 2018 Impact of Accounting Change (1) As Previously Reported As Adjusted $ 70,828 1,548,426 2,120,596 426,441 23,029 4,146,371 205,593 63,363 761,904 285,374 93,630 54,622 2,330,310 (1,314,718) 1,054,157 4,146,371 $ (2,610) (2,610) (174,957) (12,772) (14,070) (204,409) 10,146 (63,363) (53,217) (285,374) 14,138 (15,905) (287,141) 135,949 135,949 (204,409) 68,218 1,545,816 1,945,639 413,669 8,959 3,941,962 215,739 — 708,687 — 107,768 38,717 2,043,169 (1,178,769) 1,190,106 3,941,962 (1) The change in accounting principle resulted in the Company re-performing its purchase price allocations as of the respective acquisition dates for prior business combinations. The adjustments to the purchase price allocations primarily resulted in a decrease in developed technology intangible assets and the elimination of liabilities for accrued contingent royalties due to recording these items on a net basis. The re-performance of purchase price allocations also impacted goodwill and deferred tax liabilities. In addition, the change in accounting principle resulted in the elimination of royalty reimbursement assets and accrued contingent royalty liabilities that were recorded in connection with divestitures, impacting prepaid expenses and other current assets, other assets, accrued expenses and other long-term liabilities captions as shown in the table above. In addition, under the New Method of accounting, the Company is presenting accrued royalties based on each periods’ net sales as part of the accrued expenses line item on its consolidated balance sheets. F-10 Consolidated Statement of Comprehensive Loss For the Year Ended December 31, 2018 Impact of Accounting Change (1) As Previously Reported As Adjusted $ $ Cost of goods sold Gross profit Impairment of long-lived assets Gain on sale of assets Total operating expenses Operating income Other income, net Total other expenses, net Loss before benefit for income taxes Benefit for income taxes Net loss Net loss per ordinary share - basic and diluted Comprehensive loss Cost of goods sold Gross profit Operating loss Gain on divestiture Other income, net Total other expenses, net Loss before benefit for income taxes Benefit for income taxes Net loss Net loss per ordinary share - basic and diluted Comprehensive loss $ 422,317 785,253 50,302 (42,688) 782,861 2,392 346 (121,538) (119,146) (44,959) (74,187) (0.45) (74,727) $ (31,016) 31,016 (4,206) (297) (4,503) 35,519 495 495 36,014 207 35,807 0.22 35,807 391,301 816,269 46,096 (42,985) 778,358 37,911 841 (121,043) (83,132) (44,752) (38,380) (0.23) (38,920) Consolidated Statement of Comprehensive Loss For the Year Ended December 31, 2017 Impact of Accounting Change (1) As Previously Reported As Adjusted $ 537,334 518,897 (383,428) 6,267 588 (120,906) (504,334) (102,749) (401,585) (2.46) (399,482) $ (43,966) 43,966 43,966 1,698 (141) 1,557 45,523 (5,937) 51,460 0.31 51,460 493,368 562,863 (339,462) 7,965 447 (119,349) (458,811) (108,686) (350,125) (2.15) (348,022) (1) The change in accounting principle resulted in the Company re-performing its purchase price allocations as of the respective acquisition dates for prior business combinations. The adjustments to the purchase price allocations primarily resulted in a net decrease in cost of goods sold reflecting lower intangible asset amortization and the elimination of royalty accretion and remeasurement expenses, partially offset by the royalty expense based on the periods’ net sales. The re-performance of purchase price allocations also directly impacted impairments of long-lived assets and benefit/expense for income taxes, as shown in the tables above. In addition, the elimination of royalty reimbursement assets and accrued contingent royalty liabilities that were recorded in connection with divestitures resulted in adjustments to other income, net. F-11 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). Principles of Consolidation The consolidated financial statements include the Company’s accounts and those of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. Segment Information The Company’s reportable segments, which are the orphan and rheumatology segment and the inflammation segment, are reported in a manner consistent with the internal reporting provided to the Company’s chief operating decision maker (“CODM”). The Company’s CODM has been identified as its chief executive officer. The Company has no transactions between reportable segments. Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation and Transactions The reporting currency of the Company and its subsidiaries is the U.S. dollar. The U.S. dollar is the functional currency for the Company’s Ireland and United States-based businesses and the majority of its subsidiaries. The Company has foreign subsidiaries that have the Euro and the Canadian Dollar as their functional currency. Foreign currency-denominated assets and liabilities of these subsidiaries are translated into U.S. dollars based on exchange rates prevailing at the end of the period, revenues and expenses are translated at average exchange rates prevailing during the corresponding period, and shareholders’ equity accounts are translated at historical exchange rates as of the date of any equity transaction. The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of those entities where the functional currency is not the U.S. dollar are included as a component of accumulated other comprehensive (loss) income. Gains and losses resulting from foreign currency transactions are reflected within the Company’s results of operations. F-12 Revenue Recognition On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, and subsequent amendments (ASC 606 or new guidance), using the modified retrospective method. The Company applied the new guidance to all contracts with customers within the scope of the standard that were in effect on January 1, 2018 and recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. Comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods. In the United States, the Company sells its medicines primarily to wholesale distributors and specialty pharmacy providers. In other countries, the Company sells its medicines primarily to wholesale distributors and other third-party distribution partners. These customers subsequently resell the Company’s medicines to health care providers and patients. In addition, the Company enters into arrangements with health care providers and payers that provide for government-mandated or privately negotiated discounts and allowances related to the Company’s medicines. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the Company's contracts have a single performance obligation to transfer medicines. Accordingly, revenues from medicine sales are recognized when the customer obtains control of the Company’s medicines, which occurs at a point in time, typically upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring medicines and is generally based upon a list or fixed price less allowances for medicine returns, rebates and discounts. The Company sells its medicines to wholesale pharmaceutical distributors and pharmacies under agreements with payment terms typically less than 90 days. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from the Company’s historical practices. Medicine Sales Discounts and Allowances The nature of the Company’s contracts gives rise to variable consideration because of allowances for medicine returns, rebates and discounts. Allowances for medicine returns, rebates and discounts are recorded at the time of sale to wholesale pharmaceutical distributors and pharmacies. The Company applies significant judgments and estimates in determining some of these allowances. If actual results differ from its estimates, the Company will be required to make adjustments to these allowances in the future. The Company’s adjustments to gross sales are discussed further below. Commercial Rebates The Company participates in certain commercial rebate programs. Under these rebate programs, the Company pays a rebate to the commercial entity or third-party administrator of the program. The Company calculates accrued commercial rebate estimates using the expected value method. The Company accrues estimated rebates based on contract prices, estimated percentages of medicine that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel and records the rebate as a reduction of revenue. Accrued commercial rebates are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Distribution Service Fees The Company includes distribution service fees paid to its wholesalers for distribution and inventory management services as a reduction to revenue. The Company calculates accrued distribution service fee estimates using the most likely amount method. The Company accrues estimated distribution fees based on contractually determined amounts, typically as a percentage of revenue. Accrued distribution service fees are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Co-pay and Other Patient Assistance Programs The Company offers discount card and other programs such as its HorizonCares program to patients under which the patient receives a discount on his or her prescription. In certain circumstances when a patient’s prescription is rejected by a managed care vendor, the Company will pay for the full cost of the prescription. The Company reimburses pharmacies for this discount through third-party vendors. The Company reduces gross sales by the amount of actual co-pay and other patient assistance in the period based on invoices received. The Company also records an accrual to reduce gross sales for estimated co-pay and other patient assistance on units sold to distributors that have not yet been prescribed/dispensed to a patient. The Company calculates accrued co-pay and other patient assistance costs using the expected value method. The estimate is based on contract prices, estimated percentages of medicine that will be prescribed to qualified patients, average assistance paid based on reporting from the third-party vendors and estimated levels of inventory in the distribution channel. Accrued co-pay and other patient assistance costs are included in “accrued trade discounts and rebates” on the consolidated balance sheet. F-13 Sales Returns Consistent with industry practice, the Company maintains a return policy that allows customers to return certain medicines within a specified period prior to and subsequent to the medicine expiration date. Generally, medicines may be returned for a period beginning six months prior to its expiration date and up to one year after its expiration date. The right of return expires on the earlier of one year after the medicine expiration date or the time that the medicine is dispensed to the patient. The majority of medicine returns result from medicine dating, which falls within the range set by the Company’s policy, and are settled through the issuance of a credit to the customer. The Company calculates sales returns using the expected value method. The estimate of the provision for returns is based upon the Company’s historical experience with actual returns. The return period is known to the Company based on the shelf life of medicines at the time of shipment. The Company records sales returns in “accrued expenses” and as a reduction of revenue. Prompt Pay Discounts As an incentive for prompt payment, the Company offers a 2% cash discount to most customers. The Company calculates accrued prompt pay discounts using the most likely amount method. The Company expects that all eligible customers will comply with the contractual terms to earn the discount. The Company records the discount as an allowance against “accounts receivable, net” and a reduction of revenue. Government Rebates The Company participates in certain government rebate programs such as Medicare Coverage Gap and Medicaid. The Company calculates accrued government rebate estimates using the expected value method. The Company accrues estimated rebates based on percentages of medicine prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and records the rebates as a reduction of revenue. Accrued government rebates are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Chargebacks The Company provides discounts to government qualified entities with whom the Company has contracted. These entities purchase medicines from the wholesale pharmaceutical distributors at a discounted price and the wholesale pharmaceutical distributors then charge back to the Company the difference between the current retail price and the contracted price that the entities paid for the medicines. The Company calculates accrued chargeback estimates using the expected value method. The Company accrues estimated chargebacks based on contract prices, sell-through sales data obtained from third-party information and estimated levels of inventory in the distribution channel and records the chargeback as a reduction of revenue. Accrued chargebacks are included in “accrued trade discounts and rebates” on the consolidated balance sheet. Bad Debt Expense The Company’s medicines are sold to wholesale pharmaceutical distributors and pharmacies. The Company monitors its accounts receivable balances to determine the impact, if any, of such factors as changes in customer concentration, credit risk and the realizability of its accounts receivable, and records a bad debt reserve when applicable. F-14 Inventories Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out convention. Inventories consist of raw materials, work-in-process and finished goods. The Company has entered into manufacturing and supply agreements for the manufacture or purchase of raw materials and production supplies. The Company’s inventories include the direct purchase cost of materials and supplies and manufacturing overhead costs. The Company reviews its inventory balance and purchase obligations to assess if it has obsolete or excess inventory and records a charge to “cost of goods sold” when applicable. Inventories acquired in business combinations are recorded at their estimated fair values. “Step-up” represents the write-up of inventory from the lower of cost or net realizable value (the historical book value as previously recorded on the acquired company’s balance sheet) to fair market value at the acquisition date. Inventory step-up expense is recorded in the consolidated statement of comprehensive income (loss) based on actual sales, or usage, using the first-in, first-out convention. Inventories exclude medicine sample inventory, which is included in other current assets and is expensed as a component of “selling, general and administrative” expense when shipped to sales representatives. Pre-launch Inventories The Company capitalizes inventory costs associated with its medicine candidates prior to regulatory approval when, based on management judgment, future commercialization is considered probable and future economic benefit is expected to be realized. A number of factors are taken into consideration by management, including the current status of the regulatory approval process and any potential impediments to the approval process such as safety or efficacy. If future commercialization and future economic benefit is no longer considered probable, the capitalized pre-launch inventory would be expensed. Cost of Goods Sold The Company recognizes cost of goods sold in connection with its sales of each of its distributed medicines. Cost of goods sold includes all costs directly related to the acquisition of the Company’s medicines from its third-party manufacturers, including freight charges and other direct expenses such as insurance and supply chain costs. Cost of goods sold also includes amortization of intellectual property as described in the intangible assets accounting policy below, inventory step-up expense, drug substance harmonization costs, share-based compensation, charges relating to discontinuation of clinical trials, royalty payments to third parties and loss on inventory purchase commitments. Pre-clinical Studies and Clinical Trial Accruals The Company’s pre-clinical studies and clinical trials have historically been conducted by third-party contract research organizations and other vendors. Pre-clinical study and clinical trial expenses are based on the services received from these contract research organizations and vendors. Payments depend on factors such as the milestones accomplished, successful enrollment of certain numbers of patients and site initiation. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual accordingly. Net Income (Loss) Per Share Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share (“EPS”) reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue ordinary shares were exercised, converted into ordinary shares, or resulted in the issuance of ordinary shares that would have shared in the Company’s earnings. Cash and Cash Equivalents The Company considers all highly liquid investments, readily convertible to cash, that mature within three months or less from date of purchase to be cash equivalents. Cash and cash equivalents primarily consist of cash balances and money market funds. The Company generally invests excess cash in money market funds and other financial instruments with short- term durations, based upon operating requirements. F-15 Restricted Cash Restricted cash consists primarily of balances in interest-bearing money market accounts required by a vendor for the Company’s sponsored employee business credit card program and collateral for a letter of credit. Fair Value of Financial Instruments The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to their short maturities. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and investments. The Company’s investment policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, and tax-exempt obligations of municipalities and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding the Company’s cash, cash equivalents and investments to the extent recorded on the balance sheet. The purchase cost of TEPEZZA drug substance and ACTIMMUNE inventory are principally denominated in Euros and are subject to foreign currency risk. The Company has contracts relating to RAVICTI, QUINSAIR and PROCYSBI for sales in Canada which are subject to foreign currency risk. The Company also incurs certain operating expenses in currencies other than the U.S. dollar in relation to its Irish operations and foreign subsidiaries. Therefore, the Company is subject to volatility in cash flows due to fluctuations in foreign currency exchange rates, particularly changes in the Euro and the Canadian dollar. Historically, the Company’s accounts receivable balances have been highly concentrated with a select number of customers consisting primarily of large wholesale pharmaceutical distributors who, in turn, sell the medicines to pharmacies, hospitals and other customers. As of December 31, 2019 and 2018, the Company’s top four customers accounted for approximately 84% and 85%, respectively, of the Company’s total outstanding accounts receivable balances. The Company depends on single-source suppliers and manufacturers for certain of its medicines, medicine candidates and their active pharmaceutical ingredients. Business Combinations The Company accounts for business combinations in accordance with the guidance in Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”) under which acquired assets and liabilities are measured at their respective estimated fair values as of the acquisition date. The Company may be required, as in the case of intangible assets, to determine the fair value associated with these amounts by estimating the fair value using an income approach under the discounted cash flow method, which may include revenue projections and other assumptions made by the Company to determine the fair value. F-16 Provision for Income Taxes The Company accounts for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant judgment is required in determining whether it is probable that sufficient future taxable income will be available against which a deferred tax asset can be utilized. In determining future taxable income, the Company is required to make assumptions including the amount of taxable income in the various jurisdictions in which the Company operates. These assumptions require significant judgment about forecasts of future taxable income. Actual operating results in future years could render our current assumption of recoverability of deferred tax assets inaccurate. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the period that the change is enacted. From time to time, the Company executes intra-company transactions in response to changes in operations, regulations, tax laws, funding needs and other circumstances. These transactions require the interpretation and application of tax laws in the applicable jurisdiction to support the tax treatment taken. The valuations which support the tax treatment of the transactions require significant estimates and assumptions within discounted cash flow models. The Company also accounts for the uncertainty in income taxes by utilizing a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or are expected to be taken on an income tax return. Deferred tax assets and deferred tax liabilities are netted by each tax-paying entity within each jurisdiction on the Company’s consolidated balance sheets. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation. Depreciation is recognized using the straight- line method over the estimated useful lives of the related assets for financial reporting purposes and an accelerated method for income tax reporting purposes. Upon retirement or sale of an asset, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Repair and maintenance costs are charged to expenses as incurred and improvements are capitalized. Leasehold improvements are amortized on a straight-line basis over the term of the applicable lease, or the useful life of the assets, whichever is shorter. Depreciation and amortization periods for the Company’s property and equipment are as follows: Machinery and equipment Furniture and fixtures Computer equipment Software Trade show equipment 5 to 7 years 3 to 5 years 3 years 3 years 3 years The Company capitalizes software development costs associated with internal use software, including external direct costs of materials and services and payroll costs for employees devoting time to a software project. Costs incurred during the preliminary project stage, as well as costs for maintenance and training, are expensed as incurred. Software includes internal-use software acquired and modified to meet the Company’s internal requirements. Amortization commences when the software is ready for its intended use. F-17 Intangible Assets Definite-lived intangible assets are amortized over their estimated useful lives. The Company reviews its intangible assets when events or circumstances may indicate that the carrying value of these assets is not recoverable and exceeds their fair value. The Company measures fair value based on the estimated future discounted cash flows associated with these assets in addition to other assumptions and projections that the Company deems to be reasonable and supportable. The estimated useful lives, from the date of acquisition, for all identified intangible assets that are subject to amortization are between five and thirteen years. Goodwill Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment loss, if any, is recognized based on a comparison of the fair value of the asset to its carrying value, without consideration of any recoverability. The Company tests goodwill for impairment annually during the fourth quarter and whenever indicators of impairment exist by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is performed. If the Company concludes that goodwill is impaired, it will record an impairment charge in its consolidated statement of comprehensive income (loss). Research and Development Expenses Research and development expenses include, but are not limited to, payroll and other personnel expenses, consultant expenses, expenses incurred under agreements with contract research organizations to conduct clinical trials, expenses incurred to manufacture clinical trial materials and acquired in-process research and development (“IPR&D”) assets. Research and development expenses were $103.2 million, $82.8 million and $225.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. Advertising Expenses We expense the costs of advertising as incurred. Advertising expenses were $35.8 million, $21.6 million and $19.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. Deferred Financing Costs Costs incurred in connection with debt financings have been capitalized to “Long-term debt, net of current” and “Exchangeable notes, net” in the Company’s consolidated balance sheets as deferred financing costs, and are charged to interest expense using the effective interest method over the terms of the related debt agreements. These costs include document preparation costs, commissions, fees and expenses of investment bankers and underwriters, and accounting and legal fees. Comprehensive Income (Loss) Comprehensive income (loss) is composed of net income (loss) and other comprehensive income (loss) (“OCI”). OCI includes certain changes in shareholders’ equity that are excluded from net income (loss), which consist of foreign currency translation adjustments and pension remeasurements. The Company reports the effect of significant reclassifications out of accumulated OCI on the respective line items in net income (loss) if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income (loss). For other amounts that are not required under GAAP to be reclassified in their entirety to net income (loss) in the same reporting period, the Company cross-references other disclosures required under GAAP that provide additional detail about those amounts. Share-Based Compensation The Company accounts for employee share-based compensation by measuring and recognizing compensation expense for all share-based payments based on estimated grant date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over each awardee’s requisite service period, which is generally the vesting period. The Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”) on January 1, 2017 and has elected to retain a forfeiture rate after adoption. F-18 Royalties The Company records royalty expense based on each periods’ net sales as part of cost of goods sold. Leases The Company’s leases primarily relate to operating leases of rented office properties. For contracts entered into on or after January 1, 2019, at the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. At inception of a lease, the Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. The right-of-use lease asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use lease asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred. All right-of-use lease assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s secured incremental borrowing rate for the same term as the underlying lease. The Company identified and assessed the following significant assumptions in recognizing the right-of-use lease assets and corresponding liabilities. Expected lease term – The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Incremental borrowing rate – As the Company’s leases do not provide an implicit rate, the Company obtained the incremental borrowing rate (“IBR”) based on the remaining term of each lease. The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company has elected not to recognize right-of-use lease assets and lease liabilities for short-term leases that have a term of 12 months or less. The Company reports right-of-use lease assets within non-current “Other assets” in its consolidated balance sheet. The Company reports the current portion of lease liabilities within “Accrued expenses” and long-term lease liabilities within “Other long-term liabilities” in its consolidated balance sheet. Contingencies From time to time, the Company may become involved in claims and other legal matters arising in the ordinary course of business. The Company records accruals for loss contingencies to the extent that it concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. Legal fees and other expenses related to litigation are expensed as incurred and included in “selling, general and administrative” expenses. F-19 Recent Accounting Pronouncements From time to time, the Company adopts new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies. Effective January 1, 2019, the Company adopted Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). Under ASU No. 2016-02, an entity is required to recognize right-of-use lease assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The Company adopted this standard on January 1, 2019, using a modified retrospective approach at the adoption date through a cumulative-effect adjustment to retained earnings. The Company elected the package of transition provisions available for expired or existing contracts, which allowed the Company to carry forward its historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs. In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases. The Company applied the new guidance to all operating leases within the scope of the standard that were in effect on January 1, 2019, or entered into after, the adoption date. Comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption did not have a material impact on the Company’s consolidated statement of comprehensive income (loss). However, the new standard established $38.0 million of liabilities and corresponding right-of-use assets of $36.0 million on the Company’s consolidated balance sheet for leases, primarily related to operating leases on rented office properties, that existed as of the January 1, 2019, adoption date. Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU No. 2018-07”). ASU No. 2018-07 largely aligns the accounting for share-based payment awards issued to employees and non-employees. The adoption of ASU No. 2018-07 did not have a material impact on the Company’s consolidated financial statements and related disclosures. Effective January 1, 2019, the Company adopted ASU No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (“ASU No. 2018-08”), using prospective application to any new agreements entered into after the effective date. The new guidance applies to all entities that receive or make contributions, including business entities. The adoption of ASU No. 2018-08 did not have a material impact on the Company’s consolidated financial statements and related disclosures. In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments and is effective for the Company as of January 1, 2020. The Company does not expect the adoption of ASU 2016-13 to have a material impact to the Company’s consolidated financial statements and related disclosures. In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplification and reduce the cost of accounting for income taxes (“ASU 2019-12”) and is effective for the Company January 1, 2021. The Company is currently evaluating the impact of ASU 2019-12. Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures. F-20 NOTE 3 – NET INCOME (LOSS) PER SHARE The following table presents basic and diluted net income (loss) per share for the years ended December 31, 2019, 2018 and 2017 (in thousands, except share and per share data): For the Years Ended December 31, 2018 2019 2017 Basic net income (loss) per share calculation: Numerator - net income (loss) Denominator - weighted average of ordinary shares outstanding Basic net income (loss) per share 573,020 $ 182,930,109 3.13 $ (38,380) $ 166,155,405 $ (0.23) $ (350,125) $ 163,122,663 (2.15) For the Years Ended December 31, 2018 2019 2017 Diluted net income (loss) per share calculation: Net income (loss) Effect of assumed conversion of Exchangeable Senior Notes, net of tax Numerator - net income (loss) Denominator - weighted average of ordinary shares outstanding Diluted net income (loss) per share $ 573,020 22,440 $ 595,460 205,224,221 2.90 $ $ (38,380) — (38,380) $ $ 166,155,405 $ (0.23) $ $ (350,125) — (350,125) 163,122,663 (2.15) Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised, converted into ordinary shares, or resulted in the issuance of ordinary shares that would have shared in the Company’s earnings. Beginning in the fourth quarter of 2019, with the ordinary share price significantly above the $28.66 exchange price, the Company decided that it no longer had the intent to settle the notes for cash. Accordingly, during the year ended December 31, 2019, the Company prospectively applied the if-converted method to its 2.50% Exchangeable Senior Notes due 2022 (the “Exchangeable Senior Notes”) when determining the diluted net income (loss) per share. The outstanding securities listed in the table below were excluded from the computation of diluted net income (loss) per ordinary share for the years ended December 31, 2019, 2018 and 2017 due to being anti-dilutive: Stock options Restricted stock units Performance stock units Employee stock purchase plan shares Warrants 2019 For the Years Ended December 31, 2017 2018 233,260 6,406,914 12,887,595 1,840 2,299,254 1,095,768 586,868 1,248,632 2,742,301 63,445 388,841 824,175 10,220,686 17,177,950 265,886 — 2,207 — During the years ended December 31, 2018 and 2017, the potentially dilutive impact of the Exchangeable Senior Notes was determined using a method similar to the treasury stock method. Under this method, no numerator or denominator adjustments arose from the principal and interest components of the Exchangeable Senior Notes because the Company had the intent and ability to settle the Exchangeable Senior Notes’ principal and interest in cash. Instead, the Company was required to increase the diluted net income (loss) per share denominator by the variable number of shares that would be issued upon conversion if it settled the conversion spread obligation with shares. For diluted net income (loss) per share purposes, the conversion spread obligation was calculated based on whether the average market price of the Company’s ordinary shares over the reporting period was in excess of the exchange price of the Exchangeable Senior Notes. There was no calculated spread added to the denominator for the years ended December 31, 2018 and 2017. F-21 NOTE 4 –ACQUISITIONS, DIVESTITURES AND OTHER ARRANGEMENTS Sale of MIGERGOT rights On June 28, 2019, the Company sold its rights to MIGERGOT to Cosette Pharmaceuticals, Inc., for $6.0 million and total potential contingent consideration payments of $4.0 million (the “MIGERGOT transaction”). Pursuant to ASC 805 (as amended by ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU No. 2017-01”)), the Company accounted for the MIGERGOT transaction as a sale of assets, specifically a sale of intellectual property rights, and a sale of inventory. The loss on sale of assets recorded to the consolidated statement of comprehensive income (loss) during the year ended December 31, 2019, was determined as follows (in thousands): Cash proceeds Less net assets sold: Developed technology Inventory Release of contingent consideration liability Loss on sale of assets $ 6,000 (16,999) (236) 272 (10,963) $ Sale of RAVICTI and AMMONAPS Rights outside of North America and Japan On December 28, 2018, the Company sold its rights to RAVICTI and AMMONAPS (known as BUPHENYL in the United States) outside of North America and Japan to Medical Need Europe AB, part of the Immedica Group, for $35.0 million (the “Immedica transaction”). The Company previously distributed RAVICTI and AMMONAPS through a commercial partner in Europe and other non-U.S. markets. The Company has retained the rights to RAVICTI and BUPHENYL in North America and Japan. Pursuant to ASU No. 2017-01, the Company accounted for the Immedica transaction as a sale of assets, specifically a sale of intellectual property rights. The gain on sale of assets recorded to the consolidated statement of comprehensive income (loss) during the year ended December 31, 2018, was determined as follows (in thousands): Cash proceeds Less net assets sold: Developed technology Transaction costs Gain on sale of assets $ $ 35,000 (4,146) (197) 30,657 F-22 Acquisition and Subsequent Sale of Additional Rights to Interferon Gamma-1b On June 30, 2017, the Company completed its acquisition of certain rights to interferon gamma-1b from Boehringer Ingelheim International GmbH (“Boehringer Ingelheim International”) in all territories outside of the United States, Canada and Japan and in connection therewith, paid Boehringer Ingelheim International €19.5 million ($22.3 million when converted using a Euro-to-Dollar exchange rate at date of payment of 1.1406). Boehringer Ingelheim International commercialized interferon gamma-1b as IMUKIN in an estimated thirty countries, primarily in Europe and the Middle East. Upon closing, during the year ended December 31, 2017, the Company accounted for the payment as the acquisition of an asset which was immediately impaired as projections for future net sales of IMUKIN in these territories did not exceed the related costs, and included the payment in the “impairment of long-lived assets” line item in its consolidated statement of comprehensive income (loss). On July 24, 2018, the Company sold its rights to interferon gamma-1b in all territories outside the United States, Canada and Japan to Clinigen Group plc (“Clinigen”) for an upfront payment of €7.5 million ($8.8 million when converted using a Euro-to-Dollar exchange rate at date of payment of 1.1683) and a potential additional contingent consideration payment of €3.0 million ($3.5 million when converted using a Euro-to-Dollar exchange rate of 1.1673) (the “IMUKIN sale”). The contingent consideration payment of €3.0 million ($3.3 million when converted using a Euro-to-Dollar exchange rate at the date of receipt of 1.0991) was received in September 2019. The Company continues to market interferon gamma- 1b as ACTIMMUNE in the United States. Pursuant to ASU No. 2017-01, the Company accounted for the IMUKIN sale as a sale of assets, specifically a sale of intellectual property rights and a sale of inventory. The gain on sale of assets recorded to the consolidated statement of comprehensive income (loss) during the year ended December 31, 2018, was determined as follows (in thousands): Cash proceeds including $715 for inventory Contingent consideration receivable Less net assets sold: Inventory Transaction costs Gain on sale of assets $ $ 9,477 3,502 (623) (28) 12,328 Acquisition of River Vision On May 8, 2017, the Company acquired 100% of the equity interests in River Vision Development Corp. (“River Vision”) for upfront cash payments totaling approximately $150.3 million, including cash acquired of $6.3 million, with additional potential future milestone and royalty payments contingent on the satisfaction of certain regulatory milestones and sales thresholds. Pursuant to ASU No. 2017-01, the Company accounted for the River Vision acquisition as the purchase of an IPR&D asset and, pursuant to ASC Topic 730, Research and Development, recorded the purchase price as research and development expense during the year ended December 31, 2017. Further, the Company recognized approximately $32.4 million of federal net operating losses, $2.2 million of state net operating losses and $9.5 million of federal tax credits. The acquired tax attributes were set up as deferred tax assets which were further netted within the net deferred tax liabilities of the U.S. group, offset by a deferred credit recorded in long-term liabilities. Under the agreement for the acquisition of River Vision, the Company is required to pay up to $325.0 million upon the attainment of various milestones, composed of $100.0 million related to FDA approval and $225.0 million related to net sales thresholds for TEPEZZA. The agreement also includes a royalty payment of 3 percent of the portion of annual worldwide net sales exceeding $300.0 million (if any). The Company will make a milestone payment of $100.0 million related to FDA approval during the first quarter of 2020 and is expected to be capitalized as a finite-lived intangible asset representing the developed technology for TEPEZZA. Refer to Note 15 for further detail on TEPEZZA milestone payments. F-23 Divestiture of PROCYSBI and QUINSAIR rights in EMEA Regions On June 23, 2017, the Company completed the sale of its European subsidiary that owned the marketing rights to PROCYSBI and QUINSAIR in Europe, the Middle East and Africa (“EMEA”) regions (the “Chiesi divestiture”) to Chiesi Farmaceutici S.p.A. (“Chiesi”) for an upfront payment of $72.5 million, which reflects $3.1 million of cash divested, with additional potential milestone payments based on sales thresholds. Pursuant to ASU No. 2017-01, the Company accounted for the Chiesi divestiture as a sale of a business. The Company determined that the sale of the business and its assets in connection with the Chiesi divestiture did not constitute a strategic shift and that it did not and will not have a major effect on its operations and financial results. Accordingly, the operations associated with the Chiesi divestiture are not reported in discontinued operations. The gain on divestiture recorded during the year ended December 31, 2017 was determined as follows (in thousands): Cash proceeds Add reimbursement of royalties Less net assets sold: Developed technology Goodwill Other Transaction and other costs Gain on divestiture $ $ 72,462 5,074 (42,627) (15,692) (5,984) (5,268) 7,965 Under the terms of its agreement with Chiesi, the Company will continue to pay third parties for the royalties on sales of PROCYSBI and QUINSAIR in the EMEA regions, and Chiesi will reimburse the Company for those royalties. At the date of divestiture, the Company recorded an asset of $5.1 million to “other assets”, which represented the estimated amounts that are expected to be reimbursed from Chiesi for the PROCYSBI and QUINSAIR royalties. These estimated royalties are accrued in “accrued expenses” and “other long-term liabilities”. Transaction and other costs primarily relate to professional and license fees attributable to the divestiture. Licensing Agreement On December 12, 2017, the Company entered into an agreement to license HZN-003 (formerly MEDI4945), a potential next-generation biologic for uncontrolled gout, from MedImmune LLC (“MedImmune”), the global biologics research and development arm of the AstraZeneca Group. HZN-003 is a pre-clinical, genetically engineered uricase derivative with optimized uricase and optimized PEGylation technology that has the potential to improve the response rate to the biologic as well as the potential for subcutaneous dosing. Under the terms of the agreement, the Company agreed to pay MedImmune an upfront cash payment of $12.0 million with additional potential future milestone payments of up to $153.5 million contingent on the satisfaction of certain development and sales thresholds. The $12.0 million upfront payment was accounted for as the acquisition of an asset and was recorded as “research and development” expenses in the consolidated statement of comprehensive income (loss) during the year ended December 31, 2017 and included in “accrued expenses” as of December 31, 2017. The upfront payment was subsequently paid in January 2018. Other Arrangements On January 3, 2019, the Company entered into a collaboration agreement with HemoShear Therapeutics, LLC (“HemoShear”), a biotechnology company, to discover novel therapeutic targets for gout. The collaboration provides the Company with an opportunity to address unmet treatment needs for people with gout by evaluating new targets for the control of serum uric acid levels as well as new targets to address the inflammation associated with acute flares of gout. Under the terms of the agreement, the Company paid HemoShear an upfront cash payment of $2.0 million with additional potential future milestone payments upon commencement of new stages of development, contingent on the Company’s approval at each stage. In June 2019, the Company incurred a $4.0 million progress payment, which was subsequently paid in July 2019. F-24 NOTE 5 – INVENTORIES The components of inventories as of December 31, 2019 and 2018 consisted of the following (in thousands): Raw materials Work-in-process Finished goods Inventories, net As of December 31, 2019 2018 $ $ 6,750 $ 22,465 24,587 53,802 $ 5,092 27,068 18,591 50,751 At December 31, 2019, the Company had approximately $3.2 million of raw materials and $3.9 million of work-in- process inventory related to TEPEZZA. NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets as of December 31, 2019 and 2018 consisted of the following (in thousands): Deferred charge for taxes on intra-company profit Advance payments for inventory Rabbi trust assets Prepaid income taxes Other prepaid expenses and other current assets Prepaid expenses and other current assets As of December 31, 2018 2019 $ $ 46,388 $ 31,203 12,704 12,583 40,699 143,577 $ 21,734 1,449 8,203 5,899 30,933 68,218 Advance payments for inventory as of December 31, 2019, represents payments made to the manufacturer of TEPEZZA drug substance. NOTE 7 – PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2019 and 2018 consisted of the following (in thousands): Leasehold improvements Software Machinery and equipment Computer equipment Other Less accumulated depreciation Construction in process Property and equipment, net As of December 31, 2019 2018 $ $ 25,985 $ 14,890 5,217 3,316 6,334 55,742 (25,848) 265 30,159 $ 9,982 14,843 4,800 2,485 2,501 34,611 (19,197) 4,687 20,101 Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $6.7 million, $6.1 million and $6.6 million, respectively. In February 2020, the Company purchased a three-building campus in Deerfield, Illinois for total cash consideration of $115.0 million. The Deerfield campus totals 70 acres and consists of more than 650,000 square feet of office space. The Company expects to move to the Deerfield campus in the second half of 2020 and market its Lake Forest office for sub-lease. F-25 NOTE 8 – GOODWILL AND INTANGIBLE ASSETS Effective January 1, 2019, the Company retrospectively changed its accounting for business combinations, which impacted the carrying amounts of its goodwill and intangible assets. Refer to Note 1 for further detail. Goodwill The gross carrying amount of goodwill as of December 31, 2019 and 2018 was $413.7 million. The table below presents goodwill for the Company’s reportable segments as of December 31, 2019 (in thousands): Goodwill Orphan and Rheumatology Inflammation Total $ 360,745 $ 52,924 $ 413,669 As of December 31, 2019, there were no accumulated goodwill impairment losses. Intangible Assets As of December 31, 2019, the Company’s finite-lived intangible assets consisted of developed technology related to ACTIMMUNE, BUPHENYL, KRYSTEXXA, PENNSAID 2%, PROCYSBI, RAVICTI and RAYOS, as well as customer relationships for ACTIMMUNE. The intangible asset related to VIMOVO developed technology was fully amortized as of December 31, 2019. During the year ended December 31, 2019, in connection with the MIGERGOT transaction, the Company wrote off the remaining net book value of developed technology related to MIGERGOT of $17.0 million. See Note 4 for further details. During the year ended December 31, 2018, in connection with the Immedica transaction, the Company recorded a reduction in the net book value of developed technology related to RAVICTI and AMMONAPS of $4.1 million. See Note 4 for further details. The Company tests its intangible assets for impairment when events or circumstances may indicate that the carrying value of these assets exceeds their fair value. During the year ended December 31, 2018, the Company recorded an impairment of $33.6 million to fully write off the book value of developed technology related to PROCYSBI in Canada and Latin America due primarily to lower anticipated future net sales based on a Patented Medicine Prices Review Board review. The fair value of developed technology was determined using an income approach. The Company also recorded an impairment of $10.6 million during the year ended December 31, 2018, to fully write off the book value of developed technology related to LODOTRA as result of amendments to its license and supply agreements with Jagotec AG (“Jagotec”) and Skyepharma AG, which are affiliates of Vectura Group plc (“Vectura”). Under these amendments, effective January 1, 2019, the Company agreed to transfer all economic benefits of LODOTRA in Europe to Vectura during an initial transition period, with full rights transferring to Vectura when certain transfer activities have been completed. These transfer activities are ongoing. The Company ceased recording LODOTRA net sales beginning January 1, 2019. The fair value of developed technology was determined using an income approach. Intangible assets as of December 31, 2019 and December 31, 2018 consisted of the following (in thousands): Developed technology Customer relationships Total intangible assets As of December 31, 2018 2019 Accumulated Amortization Net Book Value Cost Basis $2,758,403 $(1,059,595) $1,698,808 $2,828,648 $ (44,245) $ (838,764) $1,945,639 4,630 $2,766,503 $(1,063,875) $1,702,628 $2,836,748 $ (44,245) $ (842,234) $1,950,269 Cost Basis Impairment 8,100 (3,470) (4,280) 3,820 8,100 — Accumulated Amortization Net Book Value F-26 Amortization expense for the years ended December 31, 2019, 2018 and 2017 was $230.4 million, $243.6 million and $249.5 million, respectively. As of December 31, 2019, estimated future amortization expense was as follows (in thousands): 2020 2021 2022 2023 2024 Thereafter Total $ 228,728 221,244 220,071 219,454 218,022 595,109 $ 1,702,628 NOTE 9 – ACCRUED EXPENSES Accrued expenses as of December 31, 2019 and 2018 consisted of the following (in thousands): Payroll-related expenses Allowances for returns Consulting and professional services Accrued royalties Accrued interest Pricing review liability Accrued other Accrued expenses As of December 31, 2019 84,516 $ 45,082 32,423 19,985 18,709 9,831 24,688 235,234 $ 2018 78,555 39,041 35,799 15,746 13,196 9,091 24,311 215,739 $ $ F-27 NOTE 10 – ACCRUED TRADE DISCOUNTS AND REBATES Accrued trade discounts and rebates as of December 31, 2019 and 2018 consisted of the following (in thousands): Accrued commercial rebates and wholesaler fees Accrued co-pay and other patient assistance Accrued government rebates and chargebacks Accrued trade discounts and rebates Invoiced commercial rebates and wholesaler fees, co-pay and other patient assistance, and government rebates and chargebacks in accounts payable Total customer-related accruals and allowances $ $ $ As of December 31, 2019 138,272 $ 163,641 164,508 466,421 $ 2018 153,083 179,463 125,217 457,763 489 466,910 $ 3,666 461,429 The following table summarizes changes in the Company’s customer-related accruals and allowances during the years ended December 31, 2019 and 2018 (in thousands): Balance at December 31, 2017 Current provisions relating to sales during the year ended December 31, 2018 Adjustments relating to prior-year sales Payments relating to sales during the year ended December 31, 2018 Payments relating to prior-year sales Balance at December 31, 2018 Current provisions relating to sales during the year ended December 31, 2019 Adjustments relating to prior-year sales Payments relating to sales during the year ended December 31, 2019 Payments relating to prior-year sales Balance at December 31, 2019 Wholesaler Fees Co-Pay and Government and Commercial Other Patient Rebates and Chargebacks Assistance 93,985 $ 232,325 $ 190,485 $ Rebates $ Total 516,795 590,316 1,970,714 (374) (667) 411,449 2,972,479 (15,828) (14,787) (283,124) (2,511,247) (436,871) (1,791,252) (500,770) (231,951) (189,818) (79,001) 461,429 179,462 $ 128,522 $ 153,445 $ 484,843 1,519,712 — (5,296) 503,652 2,508,207 5,825 11,121 (339,603) (2,041,756) (346,082) (1,356,071) (466,795) (139,184) (179,462) (148,149) 466,910 163,641 $ 164,508 $ 138,761 $ $ $ F-28 NOTE 11 – SEGMENT AND OTHER INFORMATION The Company has two reportable segments, the orphan and rheumatology segment and the inflammation segment, and the Company reports net sales and segment operating income for each segment. The orphan and rheumatology segment includes the marketed medicines KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE, RAYOS, BUPHENYL and QUINSAIR. The inflammation segment includes the marketed medicines PENNSAID 2%, DUEXIS and VIMOVO and previously included MIGERGOT prior to the MIGERGOT transaction. The Company’s CODM evaluates the financial performance of the Company’s segments based upon segment operating income. Segment operating income is defined as loss before benefit for income taxes adjusted for the items set forth in the reconciliation below. Items below income from operations are not reported by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s CODM. Additionally, certain expenses are not allocated to a segment. The Company does not report balance sheet information by segment as no balance sheet by segment is reviewed by the Company’s CODM. The following table reflects net sales by medicine for the Company’s reportable segments (in thousands): KRYSTEXXA RAVICTI PROCYSBI ACTIMMUNE RAYOS BUPHENYL QUINSAIR LODOTRA Orphan and Rheumatology segment net sales PENNSAID 2% DUEXIS VIMOVO MIGERGOT Inflammation segment net sales Year Ended December 31, 2018 258,920 $ 226,650 154,895 105,563 61,067 21,810 504 2,067 831,476 $ 2019 342,379 $ 228,755 161,941 107,302 78,595 9,806 817 — 929,595 $ 200,756 115,750 52,106 1,822 370,434 $ 190,206 114,672 67,646 3,570 376,094 $ 2017 156,483 193,918 137,740 110,993 52,125 20,792 3,442 5,393 680,886 191,050 121,161 57,666 5,468 375,345 $ $ $ Total net sales $ 1,300,029 $ 1,207,570 $ 1,056,231 F-29 The table below provides reconciliations of the Company’s segment operating income to the Company’s total loss before benefit for income taxes (in thousands): 2019 Year Ended December 31, 2018 2017 $ 306,333 174,869 $ 290,014 160,447 $ 241,135 149,133 Segment operating income: Orphan and Rheumatology Inflammation Reconciling items: Amortization and step-up: Intangible amortization expense Inventory step-up expense Interest expense, net Share-based compensation Impairment of long-lived assets Restructuring and realignment costs Acquisition/divestiture-related costs Depreciation Litigation settlements Drug substance harmonization costs Fees relating to term loan refinancing Foreign exchange gain (loss) Upfront and milestone payments related to license agreements Gain on divestiture Loss on debt extinguishment Other (expense) income, net Charges relating to discontinuation of Friedreich's ataxia program (Loss) gain on sale of assets Loss before benefit for income taxes $ (230,424) (89) (87,089) (91,215) — (237) (1,032) (6,733) (1,000) (457) (2,292) 33 (9,073) — (58,835) (944) (1,076) (10,963) (20,224) $ (243,634) (17,312) (121,692) (114,860) (46,096) (15,350) (3,989) (6,126) (5,750) (2,855) (937) (192) (90) — — 841 1,464 42,985 (83,132) $ (249,456) (119,151) (126,523) (121,553) (22,270) (4,883) (177,490) (6,631) — (10,651) (5,220) (260) (12,186) 7,965 (978) 447 (239) — (458,811) As a result of the change in accounting method described in Note 1, certain adjustments in the above table have been changed from the amounts presented in the reconciliation of the Company’s segment operating income to its total loss before benefit for income taxes as previously reported. The Company’s segment operating income was not impacted by the change in accounting method. The following table presents the amount and percentage of gross sales to customers that represented more than 10% of the Company’s gross sales included in its two reportable segments, and all other customers as a group (in thousands, except percentages): Customer A Customer B Customer C Customer D Other Customers Gross Sales Year ended December 31, 2019 2018 2017 Amount $ 1,414,617 757,138 664,454 391,628 683,987 $ 3,911,824 % of Gross Sales 36% 19% 17% 10% 18% 100% Amount $ 1,553,333 526,398 1,011,996 458,074 714,652 $ 4,264,453 Amount % of Gross Sales 36% $1,165,591 12% 567,583 24% 1,205,268 11% 16,304 17% 1,103,093 100% $4,057,839 % of Gross Sales 29% 14% 30% 0% 27% 100% F-30 Geographic revenues are determined based on the country in which the Company’s customers are located. The following table presents a summary of net sales attributed to geographic sources (in thousands, except percentages): United States Rest of world Total net sales Year Ended December 31, 2019 Year Ended December 31, 2018 Year Ended December 31, 2017 % of Total Net Sales 97% 3% % of Total Net Sales % of Total Net Sales $ 99% $ 1% $ Amount 1,186,519 21,051 1,207,570 Amount 1,292,419 7,610 1,300,029 $ Amount 1,026,527 29,704 1,056,231 98% $ 2% $ The following table presents total tangible long-lived assets by location (in thousands): United States Other Total long-lived assets (1) (1) Long-lived assets consist of property and equipment. NOTE 12 – FAIR VALUE MEASUREMENTS As of December 31, 2019 2018 $ $ 27,497 $ 2,662 30,159 $ 17,107 2,994 20,101 The following tables and paragraphs set forth the Company’s financial instruments that are measured at fair value on a recurring basis within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The following describes three levels of inputs that may be used to measure fair value: Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company utilizes the market approach to measure fair value for its money market funds. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. As of December 31, 2018, the Company’s cash and cash equivalents included bank time deposits which were measured at fair value using Level 2 inputs and their carrying values were approximately equal to their fair values. Level 2 inputs, obtained from various third-party data providers, represent quoted prices for similar assets in active markets, or these inputs were derived from observable market data, or if not directly observable, were derived from or corroborated by other observable market data. Other current assets and other long-term liabilities recorded at fair value on a recurring basis are composed of investments held in a rabbi trust and the related deferred liability for deferred compensation arrangements. Quoted prices for this investment, primarily in mutual funds, are available in active markets. Thus, the Company’s investments related to deferred compensation arrangements and the related long-term liability are classified as Level 1 measurements in the fair value hierarchy. F-31 Assets and liabilities measured at fair value on a recurring basis The following tables set forth the Company’s financial assets and liabilities at fair value on a recurring basis as of December 31, 2019 and 2018 (in thousands): Assets: Money market funds Other current assets Total assets at fair value Liabilities: Other long-term liabilities Total liabilities at fair value Assets: Bank time deposits Money market funds Other current assets Total assets at fair value Liabilities: Other long-term liabilities Total liabilities at fair value Level 1 Level 2 Level 3 Total December 31, 2019 1,029,725 12,704 $ 1,042,429 $ (12,704) (12,704) $ $ — — — $ — — $ — 1,029,725 — 12,704 — $ 1,042,429 — — $ (12,704) (12,704) Level 1 Level 2 Level 3 Total December 31, 2018 $ — $ 915,800 8,203 $ 924,003 $ 6,500 $ — — 6,500 $ 6,500 — $ 915,800 — — 8,203 — $ 930,503 (8,203) (8,203) $ $ — — $ — — $ (8,203) (8,203) NOTE 13 – DEBT AGREEMENTS The Company’s outstanding debt balances as of December 31, 2019 and 2018 consisted of the following (in thousands): Term Loan Facility 2027 Senior Notes 2023 Senior Notes 2024 Senior Notes Exchangeable Senior Notes Total face value Debt discount Deferred financing fees Total long-term debt and exchangeable notes Less: long-term debt - current portion Long-term debt and exchangeable notes, net of current portion $ As of December 31, 2019 418,026 $ 600,000 — — 400,000 1,418,026 (59,922) (5,263) 1,352,841 — 2018 818,026 — 475,000 300,000 400,000 1,993,026 (87,038) (9,304) 1,896,684 — $ 1,352,841 $ 1,896,684 Scheduled maturities with respect to the Company’s long-term debt are as follows (in thousands): 2020 2021 2022 2023 2024 Thereafter Total $ — — (400,000) — — (1,018,026) $ (1,418,026) F-32 Term Loan Facility and Revolving Credit Facility On December 18, 2019, Horizon Therapeutics USA, Inc. (formerly known as Horizon Pharma USA, Inc.) (the “Borrower”), a wholly owned subsidiary of the Company, borrowed approximately $418.0 million aggregate principal amount of loans (the “December 2019 Refinancing Loans”) pursuant to an amendment (the “December 2019 Refinancing Amendment”) to the credit agreement, dated as of May 7, 2015, by and among the Borrower, the Company and certain of its subsidiaries as guarantors, the lenders party thereto from time to time and Citibank, N.A., as administrative agent and collateral agent, as amended by Amendment No. 1, dated as of October 25, 2016, Amendment No. 2, dated March 29, 2017, Amendment No. 3, dated October 23, 2017, Amendment No. 4, dated October 19, 2018, Amendment No. 5, dated March 11, 2019 and Amendment No. 6, dated May 22, 2019 (the “Term Loan Facility”). Pursuant to Amendment No. 5, the Borrower received $200.0 million aggregate principal amount of revolving commitments (the “Incremental Revolving Commitments”). The Incremental Revolving Commitments were established pursuant to an incremental facility (the “Revolving Credit Facility”) and provide the Borrower with $200.0 million of additional borrowing capacity, which includes a $50.0 million letter of credit sub-facility. The Incremental Revolving Commitments will terminate in March 2024. Borrowings under the Revolving Credit Facility are available for general corporate purposes. As of December 31, 2019, the Revolving Credit Facility was undrawn. As used herein, all references to the “Credit Agreement” are references to the original credit agreement, dated as of May 7, 2015, as amended through the December 2019 Refinancing Amendment. The December 2019 Refinancing Loans were incurred as a separate new class of term loans under the Credit Agreement with substantially the same terms as the previously outstanding senior secured term loans incurred on May 22, 2019 (the “Refinanced Loans”) to effectuate a repricing of the Refinanced Loans. The Borrower used the proceeds of the December 2019 Refinancing Loans to repay the Refinanced Loans, which totaled approximately $418.0 million. The December 2019 Refinancing Loans bear interest at a rate, at the Borrower’s option, equal to the London Inter-Bank Offered Rate (“LIBOR”), plus 2.25% per annum (subject to a 0.00% LIBOR floor) or the adjusted base rate plus 1.25% per annum, with a step-down to LIBOR plus 2.00% per annum or the adjusted base rate plus 1.00% per annum at the time the Company’s leverage ratio is less than or equal to 2.00 to 1.00. The adjusted base rate is defined as the greatest of (a) LIBOR (using one- month interest period) plus 1.00%, (b) the prime rate, (c) the federal funds rate plus 0.50%, and (d) 1.00%. The loans under the Revolving Credit Facility bear interest, at the Borrower’s option, at a rate equal to either LIBOR plus an applicable margin of 2.25% per annum (subject to a LIBOR floor of 0.00%), or the adjusted base rate plus 1.25% per annum, with a step-down to LIBOR plus 2.00% per annum or the adjusted base rate plus 1.00% per annum at the time the Company’s leverage ratio is less than or equal to 2.00 to 1.00. The Credit Agreement provides for (i) the December 2019 Refinancing Loans, (ii) the Revolving Credit Facility, (iii) one or more uncommitted additional incremental loan facilities subject to the satisfaction of certain financial and other conditions, and (iv) one or more uncommitted refinancing loan facilities with respect to loans thereunder. The Credit Agreement allows for the Company and certain of its subsidiaries to become additional borrowers under incremental or refinancing facilities. The obligations under the Credit Agreement (including obligations in respect of the December 2019 Refinancing Loans and the Revolving Credit Facility) and any swap obligations and cash management obligations owing to a lender (or an affiliate of a lender) are guaranteed by the Company and each of the Company’s existing and subsequently acquired or formed direct and indirect subsidiaries (other than certain immaterial subsidiaries, subsidiaries whose guarantee would result in material adverse tax consequences and subsidiaries whose guarantee is prohibited by applicable law). The obligations under the Credit Agreement (including obligations in respect of the December 2019 Refinancing Loans and the Revolving Credit Facility) and any related swap and cash management obligations are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in (i) all tangible and intangible assets of the Borrower and the guarantors, except for certain customary excluded assets, and (ii) all of the capital stock owned by the Borrower and guarantors thereunder (limited, in the case of the stock of certain non-U.S. subsidiaries of the Borrower, to 65% of the capital stock of such subsidiaries). The Borrower and the guarantors under the Credit Agreement are individually and collectively referred to herein as a “Loan Party” and the “Loan Parties,” as applicable. The Company elected to exercise its reinvestment rights under the mandatory prepayment provisions of the Credit Agreement with respect to the net proceeds from the Company’s sale of its rights to PROCYSBI and QUINSAIR in the Europe, Middle East and Africa regions to Chiesi Farmaceutici S.p.A. To the extent the Company had not applied such net proceeds to permitted acquisitions (including the acquisition of rights to products and products lines) and/or the acquisition of capital assets within 365 days of the receipt thereof (or committed to so apply and then applied within 180 days after the end of such 365-day period), the Company was required to make a mandatory prepayment under the Credit Agreement in an amount equal to the unapplied net proceeds. In June 2018, the Company repaid $23.5 million under the mandatory prepayment provisions of the Credit Agreement. F-33 On March 18, 2019, the Company completed the repayment of $300.0 million of the outstanding principal amount of term loans under the Credit Agreement following the closing of its underwritten public equity offering on March 11, 2019. In July 2019, the Company repaid an additional $100.0 million of term loans under the Credit Agreement following the private placement of the 2027 Senior Notes. Following these repayments, the outstanding principal balance of term loans under the Credit Agreement was $418.0 million. Additionally, the Company elected to exercise its reinvestment rights under the mandatory prepayment provisions of the Credit Agreement with respect to the net proceeds from the Immedica transaction. To the extent the Company had not applied such net proceeds to permitted acquisitions (including the acquisition of rights to products and products lines) and/or the acquisition of capital assets within 365 days of the receipt of proceeds from the Immedica transaction (or commit to so apply and then apply within 180 days after the end of such 365-day period), the Company was required to make a mandatory prepayment under the Credit Agreement in an amount equal to the unapplied net proceeds. In March 2019, the Company repaid $35.0 million under the mandatory prepayment provisions of the Credit Agreement which was included in the $300.0 million repayment referred to above. The Borrower is permitted to make voluntary prepayments of the loans under the Credit Agreement at any time without payment of a premium, except that with respect to the December 2019 Refinancing Loans, a 1% premium will apply to a repayment of the December 2019 Refinancing Loans in connection with a repricing of, or any amendment to the Credit Agreement in a repricing of, such loans effected on or prior to the date that is six months following December 18, 2019. The Borrower is required to make mandatory prepayments of loans under the Credit Agreement (without payment of a premium) with (a) net cash proceeds from certain non-ordinary course asset sales (subject to reinvestment rights and other exceptions), (b) casualty proceeds and condemnation awards (subject to reinvestment rights and other exceptions), (c) net cash proceeds from issuances of debt (other than certain permitted debt), and (d) 50% of the Company’s excess cash flow (subject to decrease to 25% or 0% if the Company’s first lien leverage ratio is less than 2.25:1 or 1.75:1, respectively). The principal amount of the December 2019 Refinancing Loans are due and payable on May 22, 2026, the final maturity date of the December 2019 Refinancing Loans. The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. The Credit Agreement also contains a springing financial maintenance covenant, which requires that the Company maintain a specified leverage ratio at the end of each fiscal quarter. The covenant is tested if both the outstanding loans and letters of credit under the Revolving Credit Facility, subject to certain exceptions, exceed 25% of the total commitments under the Revolving Credit Facility as of the last day of any fiscal quarter. If the Company fails to meet this covenant, the commitments under the Revolving Credit Facility could be terminated and any outstanding borrowings, together with accrued interest, under the Revolving Credit Facility could be declared immediately due and payable. Other events of default under the Credit Agreement include: (i) the failure by the Borrower to timely make payments due under the Credit Agreement; (ii) material misrepresentations or misstatements in any representation or warranty by any Loan Party when made; (iii) failure by any Loan Party to comply with the covenants under the Credit Agreement and other related agreements; (iv) certain defaults under a specified amount of other indebtedness of the Company or its subsidiaries; (v) insolvency or bankruptcy-related events with respect to the Company or any of its material subsidiaries; (vi) certain undischarged judgments against the Company or any of its restricted subsidiaries; (vii) certain ERISA-related events reasonably expected to have a material adverse effect on the Company and its restricted subsidiaries taken as a whole; (viii) certain security interests or liens under the loan documents ceasing to be, or being asserted by the Company or its restricted subsidiaries not to be, in full force and effect; (ix) any loan document or material provision thereof ceasing to be, or any challenge or assertion by any Loan Party that such loan document or material provision is not, in full force and effect; and (x) the occurrence of a change of control. If one or more events of default occurs and continues beyond any applicable cure period, the administrative agent may, with the consent of the lenders holding a majority of the loans and commitments under the facilities, or will, at the request of such lenders, terminate the commitments of the lenders to make further loans and declare all of the obligations of the Loan Parties under the Credit Agreement to be immediately due and payable. The interest on the Term Loan Facility is variable and as of December 31, 2019, the interest rate on the Term Loan Facility was 3.94% and the effective interest rate was 4.31%. As of December 31, 2019, the fair value of the amounts outstanding under the Term Loan Facility was approximately $420.1 million, categorized as a Level 2 instrument, as defined in Note 12. F-34 2027 Senior Notes On July 16, 2019, Horizon Therapeutics USA, Inc. (formerly known as Horizon Pharma USA, Inc.), the Company’s wholly owned subsidiary (“HTUSA”), completed a private placement of $600.0 million aggregate principal amount of 5.5% Senior Notes due 2027 (the “2027 Senior Notes”) to several investment banks acting as initial purchasers, who subsequently resold the 2027 Senior Notes to persons reasonably believed to be qualified institutional buyers. The Company used the net proceeds from the offering of the 2027 Senior Notes, together with approximately $65.0 million in cash on hand, to redeem or prepay $625.0 million of its outstanding debt, consisting of (i) the outstanding $225.0 million principal amount of its 6.625% Senior Notes due 2023 (the “2023 Senior Notes”), (ii) the outstanding $300.0 million principal amount of its 8.750% Senior Notes due 2024 (the “2024 Senior Notes”) and (iii) $100.0 million of the outstanding principal amount of senior secured term loans under the Credit Agreement, as well as to pay the related premiums and fees and expenses, excluding accrued interest, associated with such redemption and prepayment. The 2027 Senior Notes are HTUSA’s general unsecured senior obligations, rank equally in right of payment with all existing and future senior debt of HTUSA and rank senior in right of payment to any existing and future subordinated debt of HTUSA. The 2027 Senior Notes are effectively subordinate to all of the existing and future secured debt of HTUSA to the extent of the value of the collateral securing such debt. The 2027 Senior Notes are unconditionally guaranteed on a senior basis by the Company and all of the Company’s restricted subsidiaries, other than HTUSA and certain immaterial subsidiaries, that guarantee the Credit Agreement. The guarantees are each guarantor’s senior unsecured obligations and rank equally in right of payment with such guarantor’s existing and future senior debt and senior in right of payment to any existing and future subordinated debt of such guarantor. The guarantees are effectively subordinated to all of the existing and future secured debt of each guarantor, including such guarantor’s guarantee under the Credit Agreement, to the extent of the value of the collateral securing such debt. The guarantees of a guarantor may be released under certain circumstances. The 2027 Senior Notes are structurally subordinated to all of the liabilities of the Company’s subsidiaries that do not guarantee the 2027 Senior Notes. The 2027 Senior Notes accrue interest at an annual rate of 5.5% payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2020. The 2027 Senior Notes will mature on August 1, 2027, unless earlier exchanged, repurchased or redeemed. Except as described below, the 2027 Senior Notes may not be redeemed before August 1, 2022. Thereafter, some or all of the 2027 Senior Notes may be redeemed at any time at specified redemption prices, plus accrued and unpaid interest to the redemption date. At any time prior to August 1, 2022, some or all of the 2027 Senior Notes may be redeemed at a price equal to 100% of the aggregate principal amount thereof, plus a make-whole premium and accrued and unpaid interest to the redemption date. Also prior to August 1, 2022, up to 40% of the aggregate principal amount of the 2027 Senior Notes may be redeemed at a redemption price of 105.5% of the aggregate principal amount thereof, plus accrued and unpaid interest, with the net proceeds of certain equity offerings. In addition, the 2027 Senior Notes may be redeemed in whole but not in part at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date, if on the next date on which any amount would be payable in respect of the 2027 Senior Notes, HTUSA or any guarantor is or would be required to pay additional amounts as a result of certain tax related events. If the Company undergoes a change of control, HTUSA will be required to make an offer to purchase all of the 2027 Senior Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest to, but not including, the repurchase date, subject to certain exceptions. If the Company or certain of its subsidiaries engages in certain asset sales, HTUSA will be required under certain circumstances to make an offer to purchase the 2027 Senior Notes at 100% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. The indenture governing the 2027 Senior Notes contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments, incur additional debt and issue certain preferred stock, incur liens on assets, engage in certain asset sales, merge, consolidate with or merge or sell all or substantially all of their assets, enter into transactions with affiliates, designate subsidiaries as unrestricted subsidiaries, and allow to exist certain restrictions on the ability of restricted subsidiaries to pay dividends or make other payments to the Company. Certain of the covenants will be suspended during any period in which the 2027 Senior Notes receive investment grade ratings. The indenture governing the 2027 Senior Notes also includes customary events of default. F-35 As of December 31, 2019, the interest rate on the 2027 Senior Notes was 5.50% and the effective interest rate was 5.76%. As of December 31, 2019, the fair value of the 2027 Senior Notes was approximately $645.8 million, categorized as a Level 2 instrument, as defined in Note 12. 2023 Senior Notes On April 29, 2015, Horizon Pharma Financing Inc. (“Horizon Financing”), a wholly owned subsidiary of the Company, completed a private placement of $475.0 million aggregate principal amount of 2023 Senior Notes to certain investment banks acting as initial purchasers who subsequently resold the 2023 Senior Notes to qualified institutional buyers as defined in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and in offshore transactions to non-U.S. persons in reliance on Regulation S under the Securities Act. The net proceeds from the offering of the 2023 Senior Notes were approximately $462.3 million, after deducting the initial purchasers’ discount and offering expenses payable by Horizon Financing. In connection with the closing of the acquisition of Hyperion Therapeutics, Inc. (“Hyperion”) on May 7, 2015, Horizon Financing merged with and into Horizon Pharma, Inc. (“HPI”) and on October 31, 2018, HPI merged with and into HTUSA. As a result, the 2023 Senior Notes became the general unsecured senior obligations of HTUSA, which was previously a guarantor under the 2023 Senior Notes. The obligations under the 2023 Senior Notes were fully and unconditionally guaranteed on a senior unsecured basis by the Company and all of the Company’s direct and indirect subsidiaries that were guarantors from time to time under the Credit Agreement. The Company redeemed $250.0 million of 2023 Senior Notes on May 1, 2019. In connection with this early redemption, the Company paid a premium of $8.3 million on May 1, 2019. Following this redemption, $225.0 million of the 2023 Senior Notes remained outstanding. On August 9, 2019, the Company redeemed the remaining $225.0 million of 2023 Senior Notes. In connection with this early redemption, the Company paid a premium of $7.5 million on August 9, 2019. 2024 Senior Notes On October 25, 2016, HPI and HTUSA (together, in such capacity, the “2024 Issuers”), completed a private placement of $300.0 million aggregate principal amount of 2024 Senior Notes to certain investment banks acting as initial purchasers who subsequently resold the 2024 Senior Notes to qualified institutional buyers as defined in Rule 144A under the Securities Act. The net proceeds from the offering of the 2024 Senior Notes were approximately $291.9 million, after deducting the initial purchasers’ discount and offering expenses payable by the 2024 Issuers. On October 31, 2018, HPI merged with and into HTUSA, and as a result, HPI’s obligations as co-issuer under the 2024 Senior Notes became HTUSA’s general unsecured senior obligations. The obligations under the 2024 Senior Notes were HTUSA’s general unsecured senior obligations and were fully and unconditionally guaranteed on a senior unsecured basis by the Company and all of the Company’s direct and indirect subsidiaries that were guarantors from time to time under the Credit Agreement. On August 9, 2019, the Company redeemed all $300.0 million of 2024 Senior Notes. In connection with this early redemption, the Company paid a premium of $23.7 million on August 9, 2019. F-36 Exchangeable Senior Notes On March 13, 2015, Horizon Investment completed a private placement of $400.0 million aggregate principal amount of Exchangeable Senior Notes to certain investment banks acting as initial purchasers who subsequently resold the Exchangeable Senior Notes to qualified institutional buyers as defined in Rule 144A under the Securities Act. The net proceeds from the offering of the Exchangeable Senior Notes were approximately $387.2 million, after deducting the initial purchasers’ discount and offering expenses payable by Horizon Investment. The Exchangeable Senior Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company (the “Guarantee”). The Exchangeable Senior Notes and the Guarantee are Horizon Investment’s and the Company’s senior unsecured obligations. The Exchangeable Senior Notes accrue interest at an annual rate of 2.50% payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2015. The Exchangeable Senior Notes will mature on March 15, 2022, unless earlier exchanged, repurchased or redeemed. The initial exchange rate is 34.8979 ordinary shares of the Company per $1,000 principal amount of the Exchangeable Senior Notes (equivalent to an initial exchange price of approximately $28.66 per ordinary share). The exchange rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or upon a tax redemption, Horizon Investment will increase the exchange rate for a holder who elects to exchange its Exchangeable Senior Notes in connection with such a corporate event or a tax redemption in certain circumstances. Other than as described below, the Exchangeable Senior Notes may not be redeemed by the Company. Issuer Redemptions: Optional Redemption for Changes in the Tax Laws of a Relevant Taxing Jurisdiction: Horizon Investment may redeem the Exchangeable Senior Notes at its option, prior to March 15, 2022, in whole but not in part, in connection with certain tax- related events. Provisional Redemption: Horizon Investment may redeem for cash all or a portion of the Exchangeable Senior Notes if the last reported sale price of ordinary shares of the Company has been at least 130% of the exchange price then in effect for at least twenty trading days whether or not consecutive) during any thirty consecutive trading day period ending on, and including, the trading day immediately preceding the date on which Horizon Investment provide written notice of redemption. The redemption price will be equal to 100% of the principal amount of the Exchangeable Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date; provided that if the redemption date occurs after a regular record date and on or prior to the corresponding interest payment date, Horizon Investment will pay the full amount of accrued and unpaid interest due on such interest payment date to the record holder of the Exchangeable Senior Notes on the regular record date corresponding to such interest payment date, and the redemption price payable to the holder who presents an Exchangeable Senior Note for redemption will be equal to 100% of the principal amount of such Exchangeable Senior Note. Holder Exchange Rights: Holders may exchange all or any portion of their Exchangeable Senior Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2021 only upon satisfaction of one or more of the following conditions: 1. 2. 3. Exchange upon Satisfaction of Sale Price Condition – During any calendar quarter, if the last reported sale price of ordinary shares of the Company for at least twenty trading days (whether or not consecutive) during the period of thirty consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable exchange price on each applicable trading day. Exchange upon Satisfaction of Trading Price Condition – During the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of Exchangeable Senior Notes for each trading day of such period was less than 98% of the product of the last reported sale price of ordinary shares of the Company and the applicable exchange rate on such trading day. Exchange upon Notice of Redemption – Prior to the close of business on the business day immediately preceding December 15, 2021, if Horizon Investment provides a notice of redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date. F-37 As of December 31, 2019, none of the above conditions had been satisfied and no exchange of Exchangeable Senior Notes had been triggered. On or after December 15, 2021, a holder may exchange all or any portion of its Exchangeable Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon exchange, Horizon Investment will settle exchanges of the Exchangeable Senior Notes by paying or causing to be delivered, as the case may be, cash, ordinary shares or a combination of cash and ordinary shares, at its election. The Company recorded the Exchangeable Senior Notes under the guidance in ASC Topic 470-20, Debt with Conversion and Other Options, and separated them into a liability component and equity component. The carrying amount of the liability component of $268.9 million was determined by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component of $119.1 million represented by the embedded conversion option was determined by deducting the fair value of the liability component of $268.9 million from the initial proceeds of $387.2 million ascribed to the convertible debt instrument as a whole. The initial debt discount of $131.1 million is being charged to interest expense over the life of the Exchangeable Senior Notes using the effective interest rate method. As of December 31, 2019, the interest rate on the Exchangeable Senior Notes was 2.50% and the effective interest rate was 8.88%. As of December 31, 2019, the fair value of the Exchangeable Senior Notes was approximately $528.2 million, categorized as a Level 2 instrument, as defined in Note 12. Loss on debt extinguishment During the year ended December 31, 2019, the Company recorded a loss on debt extinguishment of $58.8 million in the consolidated statement of comprehensive income (loss), which reflected the early redemption premiums and the write-off of the deferred financing fees and debt discount fees related to the prepayment of $775.0 million of the 2023 Senior Notes and 2024 Senior Notes and the write-off of the deferred financing fees and debt discount fees related to the $400.0 million of term loan repayments. NOTE 14 – LEASE OBLIGATIONS As discussed in Note 2, the Company elected the Topic 842 transition provision that allows entities to continue to apply the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. Accordingly, the Topic 842 disclosures below are presented as of and for the twelve-month period ended December 31, 2019 only. The Company has the following office space lease agreements in place for real properties: Location Dublin, Ireland Lake Forest, Illinois Novato, California South San Francisco, California Chicago, Illinois Mannheim, Germany Other Approximate Square Feet 18,900 160,000 61,000 20,000 9,200 4,800 12,400 Lease Expiry Date November 4, 2029 March 31, 2031 August 31, 2021 January 31, 2030 December 31, 2028 December 31, 2020 May 31, 2020 to September 15, 2022 F-38 The above table does not include details of an agreement to lease entered into on October 14, 2019, relating to approximately 63,000 square feet of office space under construction in Dublin, Ireland. Lease commencement will begin when construction of the offices are completed by the lessor and the Company has access to begin the construction of leasehold improvements. The Company expects to incur leasehold improvement costs during 2020 and 2021 in order to prepare the building for occupancy. As of December 31, 2019, the Company held $39.8 million of right-of-use lease assets, $4.4 million of the current portion of lease liabilities and $46.5 million of long-term lease liabilities. The Company recognizes rent expense on a monthly basis over the lease term based on a straight-line method. Rent expense was $6.2 million, $5.6 million and $6.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the Company’s consolidated balance sheet as of December 31, 2019 (in thousands): 2020 2021 2022 2023 2024 Thereafter Total lease payments Imputed interest Total operating lease liabilities $ $ 7,804 7,116 5,940 5,867 6,485 39,607 72,819 (21,935) 50,884 The weighted-average discount rate and remaining lease term for operating leases as of December 31, 2019 was 7.11% and 10.4 years, respectively. The following table, which was included in the Company’s 2018 Annual Report on Form 10-K, depicts the minimum future cash payments due under lease obligations at December 31, 2018 (in thousands): 2019 2020 2021 2022 2023 Thereafter Total $ $ 6,228 6,680 5,788 4,565 4,442 36,696 64,399 F-39 NOTE 15 – COMMITMENTS AND CONTINGENCIES Purchase Commitments Under the Company’s agreement with AGC Biologics A/S (formerly known as CMC Biologics A/S) (“AGC Biologics”), the Company has agreed to purchase certain minimum annual order quantities of TEPEZZA drug substance. In addition, the Company must provide AGC Biologics with rolling forecasts of TEPEZZA drug substance requirements, with a portion of the forecast being a firm and binding order. Under the Company’s agreement with Catalent Indiana, LLC (“Catalent”), the Company must provide Catalent with rolling forecasts of TEPEZZA drug product requirements, with a portion of the forecast being a firm and binding order. At December 31, 2019, the Company had binding purchase commitments with AGC Biologics for TEPEZZA drug substance of €66.3 million ($74.3 million converted at an exchange rate as of December 31, 2019 of 1.1215), to be delivered through the second half of 2021. In addition, the Company had binding purchase commitments with Catalent for TEPEZZA drug product of $7.7 million, to be delivered through December 2020. Patheon Pharmaceuticals Inc. (“Patheon”) is obligated to manufacture PROCYSBI for the Company through December 31, 2021. The Company must provide Patheon with rolling, non-binding forecasts of PROCYSBI, with a portion of the forecast being a firm written order. Cambrex Profarmaco Milano (“Cambrex”) is obligated to manufacture PROCYSBI active pharmaceutical ingredient (“API”) for the Company through November 2, 2020. The Company must provide Cambrex with rolling, non-binding forecasts, with a portion of the forecast being the minimum floor of the firm order that must be placed. At December 31, 2019, the Company had a binding purchase commitment with Patheon for PROCYSBI of $3.1 million, to be delivered through March 2020 and with Cambrex for PROCYSBI API of $0.6 million, to be delivered through February 2020. Under an agreement with Boehringer Ingelheim Biopharmaceuticals GmbH (“Boehringer Ingelheim Biopharmaceuticals”), Boehringer Ingelheim Biopharmaceuticals is required to manufacture and supply ACTIMMUNE and IMUKIN to the Company. Following the IMUKIN sale, purchases of IMUKIN inventory are expected to be onward sold to Clinigen. The Company is required to purchase minimum quantities of finished medicine during the term of the agreement, which term extends to at least June 30, 2024. As of December 31, 2019, the minimum binding purchase commitment to Boehringer Ingelheim Biopharmaceuticals was $15.6 million (converted using a Dollar-to-Euro exchange rate of 1.1215) through July 2024. As of December 31, 2019, the Company also committed to incur an additional $0.7 million for the harmonization of the drug substance manufacturing process with Boehringer Ingelheim Biopharmaceuticals. Under the Company’s agreement with Bio-Technology General (Israel) Ltd (“BTG Israel”), the Company has agreed to purchase certain minimum annual order quantities and is obligated to purchase at least 80 percent of its annual world-wide bulk product requirements for KRYSTEXXA from BTG Israel. The term of the agreement runs until December 31, 2030, and will automatically renew for successive three-year periods unless earlier terminated by either party upon three years’ prior written notice. The agreement may be terminated earlier by either party in the event of a force majeure, liquidation, dissolution, bankruptcy or insolvency of the other party, uncured material breach by the other party or after January 1, 2024, upon three years’ prior written notice. Under the agreement, if the manufacture of the bulk product is moved out of Israel, the Company may be required to obtain the approval of the Israel Innovation Authority (formerly known as Israeli Office of the Chief Scientist) (“IIA”) because certain KRYSTEXXA intellectual property was initially developed with a grant funded by the IIA. The Company issues eighteen-month forecasts of the volume of KRYSTEXXA that the Company expects to order. The first nine months of the forecast are considered binding firm orders. At December 31, 2019, the Company had a binding purchase commitment with BTG Israel for KRYSTEXXA of $44.0 million, to be delivered through December 31, 2026. Additionally, there were other purchase orders relating to the manufacture of KRYSTEXXA of $3.4 million outstanding at December 31, 2019. Jagotec or its affiliates are required to manufacture and supply RAYOS exclusively to the Company in bulk. The earliest the agreement can expire is December 31, 2023, and the minimum purchase commitment is in force until December 2023. At December 31, 2019, the minimum purchase commitment based on tablet pricing in effect under the agreement was $3.2 million through December 2023. Additionally, purchase orders relating to the manufacture of RAYOS of $0.3 million were outstanding at December 31, 2019. Effective January 1, 2019, the Company amended its license and supply agreements with Jagotec and Skyepharma AG, which are affiliates of Vectura. Under these amendments, from January 1, 2020, the Company is no longer subject to a minimum purchase commitment in respect of the supply agreement with Jagotec. F-40 Nuvo Pharmaceuticals Inc. (formerly known as Nuvo Research Inc.) (“Nuvo”) is obligated to manufacture and supply PENNSAID 2% to the Company. The term of the supply agreement is through December 31, 2029, but the agreement may be terminated earlier by either party for any uncured material breach by the other party of its obligations under the supply agreement or upon the bankruptcy or similar proceeding of the other party. At least ninety days prior to the first day of each calendar month during the term of the supply agreement, the Company submits a binding written purchase order to Nuvo for PENNSAID 2% in minimum batch quantities. At December 31, 2019, the Company had a binding purchase commitment with Nuvo for PENNSAID 2% of $2.0 million, to be delivered through March 2020. Sanofi-Aventis U.S. LLC (“Sanofi-Aventis U.S.”) is obligated to manufacture and supply DUEXIS to the Company in final, packaged form and the Company is obligated to purchase DUEXIS exclusively from Sanofi-Aventis U.S. for the commercial requirements of DUEXIS in North America, South America and certain countries and territories in Europe, including the European Union (“EU”) member states and Scandinavia. The agreement term extends until May 2021 and automatically renews for successive two-year terms unless terminated by either party upon two years’ prior written notice. At December 31, 2019, the Company had a binding purchase commitment to Sanofi-Aventis U.S. for DUEXIS of $9.1 million, to be delivered through June 2020. Excluding the above, additional purchase orders and other commitments relating to the manufacture of RAVICTI, BUPHENYL and QUINSAIR of $2.6 million were outstanding at December 31, 2019. Royalty and Milestone Agreements KRYSTEXXA Under the terms of a license agreement with Duke and MVP, the Company is obligated to pay Duke a mid-single-digit royalty on its global net sales of KRYSTEXXA and a royalty of between 5% and 15% on any global sublicense revenue. The Company is also obligated to pay MVP a mid-single-digit royalty on its net sales of KRYSTEXXA outside of the United States and a royalty of between 5% and 15% on any sublicense revenue outside of the United States. RAVICTI Under the terms of an asset purchase agreement with Bausch Health Companies Inc. (formerly Ucyclyd Pharma, Inc.) (“Bausch”), the Company is obligated to pay to Bausch mid single-digit royalties on its global net sales of RAVICTI. Under the terms of a license agreement with Saul W. Brusilow, M.D. and Brusilow Enterprises, Inc. (“Brusilow”), the Company is obligated to pay low single-digit royalties to Brusilow on net sales of RAVICTI that are covered by a valid claim of a licensed patent. PROCYSBI Under the terms of an amended and restated license agreement with The Regents of the University of California, San Diego (“UCSD”), as amended, the Company is obligated to pay to UCSD tiered low to mid-single-digit royalties on its net sales of PROCYSBI, including a minimum annual royalty in an amount less than $0.1 million. The Company must also pay UCSD a percentage in the mid-teens of any fees it receives from its sublicensees under the agreement that are not earned royalties. The Company may also be obligated to pay UCSD aggregate developmental milestone payments of $0.3 million and aggregate regulatory milestone payments of $1.8 million for each orphan indication, and aggregate developmental milestone payments of $0.8 million and aggregate regulatory milestone payments of $3.5 million for each non-orphan indication. ACTIMMUNE Under a license agreement, as amended, with Genentech Inc. (“Genentech”), who was the original developer of ACTIMMUNE, the Company is obligated to pay a low single digit royalty to Genentech on its annual net sales of ACTIMMUNE. Under the terms of an assignment and option agreement with Connetics Corporation (which was the predecessor parent company to InterMune Pharmaceuticals Inc. and is now part of GlaxoSmithKline), (“Connetics”), the Company is obligated to pay low single-digit royalties to Connetics on the Company’s net sales of ACTIMMUNE in the United States. F-41 RAYOS and LODOTRA During the years ended December 31, 2018 and 2017, the Company was obligated to pay Vectura a mid-single digit percentage royalty on its adjusted gross sales of RAYOS and LODOTRA and on any sub-licensing income, which includes any payments not calculated based on the adjusted gross sales of RAYOS and LODOTRA, such as license fees, and lump sum and milestone payments. Under certain amendments to the Company’s license and supply agreements with Vectura, the royalty payable by the Company to Vectura in respect of RAYOS sales in North America is amended whereby, effective January 1, 2019, the Company is obligated to pay Vectura a mid-teens percentage royalty on its net sales, subject to a minimum royalty of $8.0 million per year, with the minimum royalty requirement expiring on December 31, 2022. In addition, under the amendments, the Company ceased recording LODOTRA revenue and is no longer required to pay a royalty in respect of LODOTRA. VIMOVO The Company is required to pay Nuvo (formerly Aralez Pharmaceuticals Inc.) a 10 percent royalty on net sales of VIMOVO and other medicines sold by the Company, its affiliates or sublicensees during the royalty term that contain gastroprotective agents in a single fixed combination oral solid dosage form with nonsteroidal anti-inflammatory drugs, subject to minimum annual royalty obligations of $7.5 million. These minimum royalty obligations will continue for each year during which one of Nuvo’s patents covers such medicines in the United States and there are no competing medicines in the United States. The royalty rate may be reduced to a mid-single digit royalty rate as a result of loss of market share to competing medicines. The Company’s obligation to pay royalties to Nuvo will expire upon the later of (a) expiration of the last-to-expire of certain patents covering such medicines in the United States, and (b) ten years after the first commercial sale of such medicines in the United States. TEPEZZA Under the agreement for the acquisition of River Vision Development Corp., the Company is required to pay up to $325.0 million upon the attainment of various milestones, composed of $100.0 million related to FDA approval and $225.0 million related to net sales thresholds for TEPEZZA. The agreement also includes a royalty payment of 3 percent of the portion of annual worldwide net sales exceeding $300.0 million (if any). The Company will make a milestone payment of $100.0 million related to FDA approval, during the first quarter of 2020. Under the Company’s license agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (together referred to as “Roche”), the Company is required to pay Roche up to CHF103.0 million ($106.5 million when converted using a CHF-to-Dollar exchange rate at December 31, 2019 of 1.0336) upon the attainment of various development, regulatory and sales milestones for TEPEZZA. During the years ended December 31, 2019 and 2017, CHF3.0 million ($3.0 million when converted using a CHF-to-Dollar exchange rate at the date of payment of 1.0023) and CHF2.0 million ($2.0 million when converted using a CHF-to-Dollar exchange rate at the date of payment of 1.0169), respectively, was paid in relation to these milestones. The Company will make a milestone payment of CHF5.0 million ($5.2 million when converted using a CHF-to-Dollar exchange rate at December 31, 2019 of 1.0336), during the first quarter of 2020. The agreement with Roche also includes pay tiered royalties on annual worldwide net sales between 9 and 12 percent. Under the Company’s license agreement with Lundquist Institute (formerly known as Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center) (“Lundquist”), the Company is required to pay Lundquist a royalty payment of less than 1 percent of TEPEZZA net sales. Under the Company’s license agreement with Boehringer Ingelheim Biopharmaceuticals, the Company is required to pay Boehringer Ingelheim Biopharmaceuticals milestone payments totaling low-single-digit million euros upon the achievement of certain TEPEZZA sales milestones. For all of the royalty agreements entered into by the Company, a total royalty expense of $71.5 million was recorded in cost of goods sold in the consolidated statements of comprehensive income (loss) during the year ended December 31, 2019. A total net expense of $66.6 million was recorded during the year ended December 31, 2018, of which an expense of $68.5 million was recorded in “cost of goods sold” and a reduction of $1.9 million was recorded in “selling, general and administrative” expenses in the consolidated statements of comprehensive income (loss). A total net expense of $73.5 million was recorded during the year ended December 31, 2017, of which $72.8 million was recorded in “cost of goods sold” and $0.7 million was recorded in “selling, general and administrative” expenses in the consolidated statements of comprehensive income (loss). F-42 Contingencies The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. In addition, the Company from time to time has billing disputes with vendors in which amounts invoiced are not in accordance with the terms of their contracts. In November 2015, the Company received a subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting documents and information related to its patient assistance programs and other aspects of its marketing and commercialization activities. The Company is unable to predict how long this investigation will continue or its outcome, but it anticipates that it may continue to incur significant costs in connection with the investigation, regardless of the outcome. The Company may also become subject to similar investigations by other governmental agencies. The investigation by the U.S. Attorney’s Office and any additional investigations of the Company’s patient assistance programs and sales and marketing activities may result in damages, fines, penalties or other administrative sanctions against the Company. On March 5, 2019, the Company received a civil investigative demand (“CID”) from the United States Department of Justice (“DOJ”) pursuant to the Federal False Claims Act regarding assertions that certain of the Company’s payments to pharmacy benefit managers (“PBMs”) were potentially in violation of the Anti-Kickback Statute. The CID requests certain documents and information related to the Company’s payments to PBMs, pricing and the Company’s patient assistance program regarding DUEXIS, VIMOVO and PENNSAID 2%. The Company is cooperating with the investigation. While the Company believes that its payments and programs are compliant with the Anti-Kickback Statute, no assurance can be given as to the timing or outcome of the DOJ’s investigation, or that it will not result in a material adverse effect on the Company’s business. Other Agreements On December 12, 2017, the Company entered into an agreement to license HZN-003 (formerly MEDI4945), a rheumatology pipeline program with the objective of enhancing the Company’s leadership position in the uncontrolled gout market, from MedImmune. Under the terms of the agreement, the Company paid MedImmune an upfront cash payment of $12.0 million. Under the license agreement, the Company is required to pay up to $153.5 million upon the attainment of various milestones linked to the initiation of clinical trials and the attainment of net sales thresholds, and royalties on net sales. Indemnification In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. The Company may record charges in the future as a result of these indemnification obligations. In accordance with its memorandum and articles of association, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. Additionally, the Company has entered into, and intends to continue to enter into, separate indemnification agreements with its directors and executive officers. These agreements, among other things, require the Company to indemnify its directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of the Company’s directors or executive officers, or any of the Company’s subsidiaries or any other company or enterprise to which the person provides services at the Company’s request. The Company also has a director and officer insurance policy that enables it to recover a portion of any amounts paid for current and future potential claims. All of the Company’s officers and directors have also entered into separate indemnification agreements with HTUSA. F-43 NOTE 16 - LEGAL PROCEEDINGS PENNSAID 2% On November 13, 2014, the Company received a Paragraph IV Patent Certification from Watson Laboratories, Inc., now known as Actavis Laboratories UT, Inc. (“Actavis UT”), advising that Actavis UT had filed an Abbreviated New Drug Application (“ANDA”) with the FDA for a generic version of PENNSAID 2%. On December 23, 2014, June 30, 2015, August 11, 2015 and September 17, 2015, the Company filed four separate suits against Actavis UT and Actavis plc (collectively “Actavis”), in the United States District Court for the District of New Jersey, with each of the suits seeking an injunction to prevent approval of the ANDA. The lawsuits alleged that Actavis has infringed nine of the Company’s patents covering PENNSAID 2% by filing an ANDA seeking approval from the FDA to market a generic version of PENNSAID 2% prior to the expiration of certain of the Company’s patents listed in the FDA’s Orange Book (the “Orange Book”). These four suits were consolidated into a single suit. On October 27, 2015 and on February 5, 2016, the Company filed two additional suits against Actavis, in the United States District Court for the District of New Jersey, for patent infringement of three additional Company patents covering PENNSAID 2%. On August 17, 2016, the District Court issued a Markman opinion holding certain of the asserted claims of seven of the Company’s patents covering PENNSAID 2% invalid as indefinite. On March 16, 2017, the Court granted Actavis’ motion for summary judgment of non-infringement of the asserted claims of three of the Company’s patents covering PENNSAID 2%. In view of the Markman and summary judgment decisions, a bench trial was held from March 21, 2017 through March 30, 2017, regarding a claim of one of the Company’s patents covering PENNSAID 2%. On May 14, 2017, the Court issued its opinion upholding the validity of claim of the patent, which Actavis had previously admitted its proposed generic diclofenac sodium topical solution product would infringe. Actavis filed its Notice of Appeal on June 16, 2017. The Company also filed its Notice of Appeal of the District Court’s rulings on certain claims of the Company’s patents covering PENNSAID 2%. On October 10, 2019, the Federal Circuit Court affirmed the District Court’s judgment of validity of U.S Patent No. 9,066,913 (the “‘913 patent”), and its finding that the Actavis generic product would infringe the ‘913 patent. The Federal Circuit also affirmed the District Court’s summary judgment finding that certain patents are invalid for indefiniteness and would not be infringed. The Company filed a Petition for Rehearing, asking the Federal Circuit to reconsider the latter order invalidating certain patents. On August 18, 2016, the Company filed suit in the United States District Court for the District of New Jersey against Actavis for patent infringement of four of the Company’s newly issued patents covering PENNSAID 2%. All four of such patents are listed in the Orange Book. This litigation is currently stayed by agreement of the parties. The Company received from Actavis a Paragraph IV Patent Certification notice, dated September 27, 2016, against an additional newly issued patent covering PENNSAID 2%, advising that Actavis had filed an ANDA with the FDA for a generic version of PENNSAID 2%. The subject patent is listed in the Orange Book. On March 29, 2019, the Company received notice from Aurolife Pharma, Inc. (“Aurolife”) that it had filed an ANDA with the FDA seeking approval of a generic version of PENNSAID 2%. The ANDA contained a Paragraph IV Patent Certification alleging that the patents covering PENNSAID 2% are invalid and/or will not be infringed by Aurolife’s manufacture, use or sale of its generic version of PENNSAID 2%. DUEXIS On May 29, 2018, the Company received notice from Alkem Laboratories, Inc. (“Alkem”) that it had filed an ANDA with the FDA seeking approval of a generic version of DUEXIS. The ANDA contained a Paragraph IV Patent Certification alleging that the patents covering DUEXIS are invalid and/or will not be infringed by Alkem’s manufacture, use or sale of the medicine for which the ANDA was submitted. The Company filed suit in the United States District Court of Delaware against Alkem on July 9, 2018, seeking an injunction to prevent the approval of Alkem’s ANDA and/or to prevent Alkem from selling a generic version of DUEXIS. The litigation is scheduled for a bench trial beginning on September 14, 2020. On September 27, 2018, the Company received notice from Teva Pharmaceuticals USA, Inc. (“Teva”) that it had filed an ANDA with the FDA seeking approval of a generic version of DUEXIS. The ANDA contained a Paragraph IV Patent Certification alleging that the patents covering DUEXIS are invalid and/or will not be infringed by Teva’s manufacture, use or sale of its generic version of DUEXIS. F-44 VIMOVO Currently, patent litigation is pending in the United States District Court for the District of New Jersey and the Court of Appeals for the Federal Circuit against Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Ltd. (collectively, “Dr. Reddy’s”) which seeks to market VIMOVO prior to the expiration of certain of the Company’s patents listed in the Orange Book. Settlements have been reached with three other generic companies: (i) Teva Pharmaceuticals Industries Limited (formerly known as Actavis Laboratories FL, Inc., which itself was formerly known as Watson Laboratories, Inc. – Florida) and Actavis Pharma, Inc. (collectively, “Actavis Pharma”) (ii) Lupin; and (iii) Mylan Pharmaceuticals Inc., Mylan Laboratories Limited, and Mylan Inc. (collectively, “Mylan”). Under the Settlement Agreements, the license entry date is now August 1, 2024; however, all three may be able to enter the market earlier in certain circumstances. The Company understands that Dr. Reddy’s has entered into a settlement with AstraZeneca with respect to patent rights directed to Nexium® (esomeprazole) for the commercialization of VIMOVO. The settlement agreement, however, has no effect on the Nuvo VIMOVO patents, which are still the subject of patent litigations. As part of the Company’s acquisition of the U.S. rights to VIMOVO, the Company has taken over and is responsible for the patent litigation that includes the Nuvo patents licensed to the Company under the amended and restated collaboration and license agreement for the United States with Nuvo. The VIMOVO cases were filed on April 21, 2011, July 25, 2011, October 28, 2011, January 4, 2013, May 10, 2013, June 28, 2013, October 23, 2013, May 13, 2015 and November 24, 2015 and collectively include allegations of infringement of certain of the Company’s patents covering VIMOVO. The District Court consolidated all of the cases pending against the generic companies into two separate cases for purposes of discovery. The District Court entered final judgment for one of the consolidated cases on July 21, 2017, upholding the validity of U.S. Patent No. 6,926,907 (the “‘907 patent”) and U.S. Patent No. 8,557,285 (the “‘285 patent”), and finding the generic products would infringe one or both of the two patents. Both sides appealed the District Court’s judgment to the Court of Appeals for the Federal Circuit. On May 15, 2019, the Federal Circuit reversed the District Court’s judgment in favor of the Company, and entered judgment that the ‘285 and ‘907 patents are invalid for lack of a sufficient written description. On July 30, 2019, the Federal Circuit Court of Appeals denied the Company’s request for a rehearing of the Court’s invalidity ruling against the ‘285 and ‘907 patents for VIMOVO coordinated-release tablets. As a result, the District Court entered judgment invalidating the ‘285 and ‘907 patents in September 2019, which could subsequently result in Dr. Reddy’s initiating an at-risk launch of a generic version of VIMOVO. On February 18, 2020, the FDA granted final approval for Dr. Reddy’s generic version of VIMOVO. The Company anticipates that Dr. Reddy’s will immediately launch its product at-risk notwithstanding the ongoing patent litigation. The Company continues to assert claims of infringement against Dr. Reddy’s based on U.S. Patent No. 8,858,996 (the “‘996 patent”) and U.S. Patent No. 9,161,920 (the “‘920 patent”) in the District Court. On November 19, 2018, the District Court granted Dr. Reddy’s and Mylan’s summary judgment ruling that U.S Patent Numbers 9,220,698 and 9,393,208 are invalid, and on January 21, 2019, it entered final judgment against the ‘698, ‘208, and U.S. Patent Number 8,945,621. On February 21, 2019, the Company appealed the adverse judgments on the ‘208 and ‘698 patents to the Federal Circuit Court of Appeals. F-45 On December 4, 2017, Mylan filed a Petition for inter partes review (“IPR”) against the ‘208 patent. The Patent Trial and Appeals Board (“PTAB”) instituted an IPR proceeding on Mylan’s Petition on June 14, 2018. On July 2, 2018, Dr. Reddy’s filed a motion seeking to join Mylan’s ‘208 IPR. On April 1, 2019, the PTAB granted Dr. Reddy’s request to join the Mylan ‘208 IPR. On September 6, 2019, the PTAB issued a Final Written Decision invalidating the ‘208 patent on the basis of obviousness. On November 18, 2019, the Company filed an appeal with the Federal Circuit Court of Appeals to review the PTAB’s ruling invalidating the ‘208 patent. On August 20, 2019, the Company received notice from Ajanta Pharma LTD (“Ajanta”) that it had filed an ANDA with the FDA seeking approval of a generic version of VIMOVO. The ANDA contained a Paragraph IV Patent Certification alleging that the patents covering VIMOVO are invalid and/or will not be infringed by Ajanta’s manufacture, use or sale of the medicine for which the ANDA was submitted. The Company filed suit in the United States District Court of New Jersey against Ajanta on September 30, 2019, seeking an injunction to prevent the approval of Ajanta’s ANDA and/or to prevent Ajanta from selling a generic version of VIMOVO. NOTE 17 – SHAREHOLDERS’ EQUITY On February 28, 2019, the Company entered into a Rights Agreement (the “Rights Agreement”), with Computershare Trust Company, N.A., as rights agent. The Board of Directors of the Company (the “Board”) has authorized the issuance of one ordinary share purchase right (a “Right”) for each outstanding ordinary share of the Company. Each Right represents the right to purchase one-fifth of an ordinary share of the Company, upon the terms and subject to the conditions of the Rights Agreement. The Rights were issued to the shareholders of record on March 11, 2019 and will expire on February 28, 2020. The Board has adopted the Rights Agreement to enable all shareholders of the Company to realize the long-term value of their investment in the Company and to guard against attempts to acquire control of the Company at an inadequate price. In general terms, the Rights Agreement works by causing significant dilution to any person or group that acquires 10% (or 15% in the case of an existing “13G Investor” as defined in the Rights Agreement) or more of the outstanding ordinary shares of the Company without the prior approval of the Board. The Rights Agreement is not intended to prevent an acquisition of the Company on terms that the Board considers favorable to, and in the best interests of, all shareholders. Rather, the Rights Agreement aims to provide the Board with adequate time to fully assess any takeover proposal and therefore comply with its fiduciary duties and to encourage anyone seeking to acquire the Company to negotiate with the Board prior to attempting a takeover. The Rights Agreement was adopted in response to the takeover environment in general, particularly in light of the Company’s evolution into a biopharma company focused on rare diseases and rheumatology, the Phase 3 clinical trial results of its rare disease medicine candidate TEPEZZA announced on February 28, 2019 and the market opportunity for KRYSTEXXA and TEPEZZA and was not in response to any specific approach to the Company or perceived imminent takeover proposal for the Company. The issuance of Rights is not taxable to the Company or to shareholders and does not affect reported earnings per share. During the year ended December 31, 2019, the Company issued an aggregate of 14.1 million of ordinary shares in connection with the closing of its underwritten public equity offering on March 11, 2019. The Company received a total of approximately $326.8 million after deducting underwriting discounts and other estimated offering expenses payable by the Company in connection with such offering. During the year ended December 31, 2019, the Company issued an aggregate of 5.1 million of ordinary shares in connection with stock option exercises, the vesting of restricted stock units and performance stock units, and employee share purchase plan purchases. The Company received a total of $36.2 million in net proceeds in connection with such issuances. During the year ended December 31, 2019, the Company made payments of $31.6 million for employee withholding taxes relating to share-based awards. On May 2, 2019, the shareholders of the Company approved an increase in the Company’s authorized share capital of an additional 300,000,000 ordinary shares of nominal value $0.0001 per share. F-46 On May 2, 2019, the shareholders of the Company approved the renewal of the Board’s existing authority to allot and issue ordinary shares for cash and non-cash considerations under Irish law for a five-year period to expire on May 2, 2024. Additionally, on May 2, 2019, the shareholders of the Company approved the renewal of the Board’s existing authority to allot and issue ordinary shares for cash without first offering those ordinary shares to existing shareholders pursuant to the statutory pre-emption right that would otherwise apply under Irish law for a five-year period to expire on May 2, 2024. NOTE 18 – SHARE-BASED AND LONG-TERM INCENTIVE PLANS Employee Stock Purchase Plan 2014 Employee Stock Purchase Plan. On May 17, 2014, HPI’s board of directors adopted the 2014 Employee Stock Purchase Plan (the “2014 ESPP”). On September 18, 2014, at a special meeting of the stockholders of HPI (the “Special Meeting”), HPI’s stockholders approved the 2014 ESPP. Upon consummation of the Company’s merger transaction with Vidara (the “Vidara Merger”), the Company assumed the 2014 ESPP. As of December 31, 2019, an aggregate of 1,236,775 ordinary shares were authorized and available for future issuance under the 2014 ESPP. Share-Based Compensation Plans 2005 Stock Plan. In October 2005, HPI adopted the 2005 Stock Plan (the “2005 Plan”). Upon the signing of the underwriting agreement related to HPI’s initial public offering, on July 28, 2011, no further option grants were made under the 2005 Plan. All stock awards granted under the 2005 Plan prior to July 28, 2011 continue to be governed by the terms of the 2005 Plan. Upon consummation of the Vidara Merger, the Company assumed the 2005 Plan. 2011 Equity Incentive Plan. In July 2010, HPI’s board of directors adopted the 2011 Equity Incentive Plan (the “2011 EIP”). In June 2011, HPI’s stockholders approved the 2011 EIP, and it became effective upon the signing of the underwriting agreement related to HPI’s initial public offering on July 28, 2011. Upon consummation of the Vidara Merger, the Company assumed the 2011 EIP, and upon the effectiveness of the Horizon Therapeutics Public Limited Company 2014 Equity Incentive Plan (the “2014 EIP”), no additional stock awards were or will be made under the 2011 Plan, although all outstanding stock awards granted under the 2011 Plan continue to be governed by the terms of the 2011 Plan. 2014 Equity Incentive Plan and 2014 Non-Employee Equity Plan. On May 17, 2014, HPI’s board of directors adopted the 2014 EIP and the Horizon Therapeutics Public Limited Company 2014 Non-Employee Equity Plan (the “2014 Non- Employee Equity Plan”). At the Special Meeting, HPI’s stockholders approved the 2014 EIP and 2014 Non-Employee Equity Plan. Upon consummation of the Vidara Merger, the Company assumed the 2014 EIP and 2014 Non-Employee Equity Plan, which serve as successors to the 2011 EIP. The 2014 EIP provides for the grant of incentive and nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other stock awards that may be settled in cash, shares or other property to the employees of the Company (or a subsidiary company). During the year ended December 31, 2017, the compensation committee of the Company’s board of directors (the “Compensation Committee”) approved an amendment to the 2014 EIP to reserve additional shares to be used exclusively for grants of awards to individuals who were not previously employees or non-employee directors of the Company (or following a bona fide period of non-employment with the Company) (the “2017 Inducement Pool”), as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules, (“Rule 5635(c)(4)”). The 2014 EIP was amended by the Compensation Committee without shareholder approval pursuant to Rule 5635(c)(4). An amendment to the 2014 EIP increasing the number of ordinary shares that may be issued under the 2014 EIP by 10,800,000 ordinary shares was approved by the Compensation Committee on February 21, 2018 and by the shareholders of the Company on May 3, 2018. On February 20, 2019, the Compensation Committee approved, subject to shareholder approval, an amendment to the 2014 EIP, increasing the number of ordinary shares that may be issued under the 2014 EIP by 9,000,000 ordinary shares, subject to adjustment for certain changes in our capitalization. On May 2, 2019, the shareholders of the Company approved such amendment to the 2014 EIP. F-47 The 2014 Non-Employee Equity Plan provides for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and other forms of stock awards that may be settled in cash, shares or other property to the non-employee directors and consultants of the Company (or a subsidiary company). The Company’s board of directors has authority to suspend or terminate the 2014 Non-Employee Equity Plan at any time. On February 20, 2019, the Compensation Committee approved, subject to shareholder approval, an amendment to the 2014 Non-Employee Equity Plan, increasing the number of ordinary shares that may be issued under the 2014 Non- Employee Equity Plan by 750,000 ordinary shares, subject to adjustment for certain changes in our capitalization. On May 2, 2019, the shareholders of the Company approved such amendment to the 2014 Non-Employee Equity Plan. As of December 31, 2019, an aggregate of 9,087,671 ordinary shares were authorized and available for future grants under the 2014 EIP, of which 424,421 shares relate to the 2017 Inducement Pool. As of December 31, 2019, 698,491 ordinary shares were authorized and available for future grants under the 2014 Non-Employee Equity Plan. Stock Options The following table summarizes stock option activity during the year ended December 31, 2019: Outstanding as of December 31, 2018 Granted Exercised Forfeited Expired Outstanding as of December 31, 2019 Exercisable as of December 31, 2019 Weighted Average Exercise Price Weighted Average Contractual Term Remaining (in years) Aggregate Intrinsic Value (in thousands) 37,257 6.24 $ Options 11,827,765 $ 69,752 (1,863,093) (118,982) (351,240) 9,564,202 8,986,221 $ 19.06 29.52 13.31 22.32 28.98 19.85 19.99 5.43 5.29 $ 156,270 145,621 Stock options typically have a contractual term of ten years from grant date. The following table summarizes the Company’s outstanding stock options at December 31, 2019: Exercise Price Ranges $2.01 - $4.00 $4.01- $8.00 $8.01 - $12.00 $12.01 - $17.00 $17.01 - $22.00 $22.01 - $28.00 $28.01 - $36.00 Options Outstanding Number of options Average Weighted Weighted Average Remaining Contractual outstanding Exercise Price Term (in years) Options Exercisable Weighted Weighted Average Remaining Average Number Exercise Contractual Exercisable Price Term (in years) 240,451 $ 267,898 317,975 1,976,577 1,822,998 2,928,868 2,009,435 9,564,202 $ 2.83 6.97 9.07 14.30 18.07 22.28 28.86 19.85 2.66 240,451 $ 2.98 267,898 4.44 317,975 5.81 1,757,320 6.35 1,534,026 5.15 2,928,868 5.43 1,939,683 5.43 8,986,221 $ 2.83 6.97 9.07 14.26 18.20 22.28 28.84 19.99 2.66 2.98 4.44 5.59 6.22 5.15 5.27 5.29 During the years ended December 31, 2019, 2018 and 2017, the Company granted stock options to purchase an aggregate of 69,752, 403,973 and 2,077,215 ordinary shares, respectively, with a weighted average grant date fair value of $15.77, $6.93 and $7.96, respectively. The total intrinsic value of the options exercised during the years ended December 31, 2019, 2018 and 2017 was $28.2 million, $17.0 million and $2.6 million, respectively. The total fair value of stock options vested during the years ended December 31, 2019, 2018 and 2017 was $13.8 million, $36.6 million and $41.3 million, respectively. F-48 The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of each stock option is affected by the Company’s share price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected share price volatility over the expected term of the awards and actual and projected stock option exercise behavior. The weighted average fair value per share of stock option awards granted during the years ended December 31, 2019, 2018 and 2017, and assumptions used to value stock options, are as follows: Dividend yield Risk-free interest rate Weighted average volatility Expected term (in years) Weighted average grant date fair value per share of options granted 2019 — 1.6% 56.5% 6.00 2018 — 2.3%-2.8% 2017 — 1.8%-2.2% 49.5% 5.56 49.1% 5.99 $ 15.77 $ 6.93 $ 7.96 Dividend yields The Company has never paid dividends and does not anticipate paying any dividends in the near future. Additionally, the Credit Agreement (described in Note 13 above), as well as the indentures governing the 2027 Senior Notes, (described in Note 13 above), contain covenants that restrict the Company from issuing dividends. Risk-Free Interest Rate The Company determined the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on the U.S. Treasury constant maturity rate as of the date of grant. Volatility The Company used an average historical share price volatility of comparable companies to be representative of future share price volatility, as the Company did not have sufficient trading history for its ordinary shares. Expected Term Given the Company’s limited historical exercise behavior, the expected term of options granted was determined using the “simplified” method since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. Under this approach, the expected term is presumed to be the average of the vesting term and the contractual life of the option. Forfeitures As share-based compensation expense recognized in the consolidated statements of comprehensive income (loss) is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures based on actual forfeiture experience, analysis of employee turnover and other factors. The Company adopted ASU No. 2016-09 on January 1, 2017 and has elected to retain a forfeiture rate after adoption. F-49 Restricted Stock Units The following table summarizes restricted stock unit activity for the year ended December 31, 2019: Outstanding as of December 31, 2018 Granted Vested Forfeited Outstanding as of December 31, 2019 Weighted Average Number of Grant-Date Fair Value Per Units 15.56 21.69 15.38 18.06 18.77 Units 6,772,818 $ 3,581,848 (3,197,941) (615,501) 6,541,224 $ The grant-date fair value of restricted stock units is the closing price of the Company’s shares on the date of grant. During the years ended December 31, 2019, 2018 and 2017, the Company granted 3,581,848, 4,983,368 and 3,732,035 restricted stock units to acquire shares of the Company’s ordinary shares to its employees and non-executive directors, respectively, with a weighted average grant date fair value of $21.69, $15.85 and $12.44, respectively. The restricted stock units vest annually, with a vesting period ranging from two to four years. The Company accounts for the restricted stock units as equity-settled awards in accordance with ASU No. 2017-09. The total fair value of restricted stock units vested during the years ended December 31, 2019, 2018 and 2017 was $76.4 million, $43.6 million and $18.0 million, respectively. Performance Stock Unit Awards The following table summarizes performance stock unit awards (“PSUs”) activity for the year ended December 31, 2019: Outstanding as of December 31, 2018 Granted Forfeited Vested Performance based adjustment (1) Outstanding as of December 31, 2019 Weighted Average Grant-Date Fair Value Per Unit Average Illiquidity Discount Recorded Weighted Average Fair Value Per Unit 25.31 23.52 13.87 13.87 0.75% $ 0.23% 0.00% 0.00% 25.12 23.47 13.87 13.87 Number of Units 1,393,943 2,290,632 $ (170,792) (515,629) 560,746 3,558,900 (1) Represents adjustment based on the net sales performance criteria meeting 157.4% of target as of December 31, 2018 for the 2018 PSUs (as defined below). F-50 On January 5, 2018, the Company awarded PSUs to key executive participants (“2018 PSUs”). Vesting of the 2018 PSUs was contingent upon receiving shareholder approval of amendments to the 2014 EIP, which were approved on May 3, 2018. The 2018 PSUs utilize two performance metrics, a short-term component tied to business performance and a long-term component tied to total compounded annual shareholder rate of return (“TSR”), as follows: (cid:129) (cid:129) 30% of the granted 2018 PSUs that may vest (such portion of the PSU award, the “2018 Relative TSR PSUs”) are determined by reference to the level of the Company’s relative TSR over the three-year period ending December 31, 2020, as measured against the TSR of each company included in the Nasdaq Biotechnology Index (NBI) during such three-year period. Generally, in order to earn any portion of the 2018 Relative TSR PSUs, the participant must also remain in continuous service with the Company through the earlier of January 1, 2021 or the date immediately prior to a change in control. If a change in control occurs prior to December 31, 2020, the level of the Company’s relative TSR will be measured through the date of the change in control. 70% of the granted 2018 PSUs that may vest (such portion of the PSU award, the “2018 Net Sales PSUs”), are determined by reference to the Company’s net sales for its segments during 2018 (being the orphan and rheumatology segment and inflammation segment), weighted with the orphan and rheumatology segment comprising the majority of the target sales (with respect to the total PSU award). During the year ended December 31, 2018, the net sales performance criteria was met at 157.4% of target. Accordingly, the two- thirds of the 2018 Net Sales PSUs earned portion have vested and the remaining one-third will vest in January 2021, subject to the participant’s continued service with the Company through such vesting date. On January 4, 2019, the Company awarded PSUs to key executive participants (“2019 PSUs”). The 2019 PSUs utilize two performance metrics, a short-term component tied to business performance and a long-term component tied to relative compounded annual TSR, as follows: (cid:129) (cid:129) 30% of the granted 2019 PSUs that may vest (such portion of the PSU award, the “2019 Relative TSR PSUs”) are determined by reference to the level of the Company’s relative TSR over the three-year period ending December 31, 2021, as measured against the TSR of each company included in the Nasdaq Biotechnology Index (NBI) during such three-year period. Generally, in order to earn any portion of the 2019 Relative TSR PSUs, the participant must also remain in continuous service with the Company through the earlier of January 1, 2022 or the date immediately prior to a change in control. If a change in control occurs prior to December 31, 2021, the level of the Company’s relative TSR will be measured through the date of the change in control. 70% of the granted 2019 PSUs that may vest (such portion of the PSU award, the “2019 Net Sales PSUs”), are determined by reference to the Company’s net sales for its orphan and rheumatology segment. During the year ended December 31, 2019, the net sales performance criteria was met at 119.2% of target. Accordingly, one-third of the net sales PSUs portion have vested and the remaining two-thirds will vest in equal installments in January 2021 and January 2022, subject to the participant’s continued service with the Company through the applicable vesting dates. All PSUs outstanding at December 31, 2019, may vest in a range of between 0% and 200%, based on the performance metrics described above. The Company accounts for the 2018 PSUs and 2019 PSUs as equity-settled awards in accordance with ASC 718. Because the value of the 2018 Relative TSR PSUs and 2019 Relative TSR PSUs are dependent upon the attainment of a level of TSR, it requires the impact of the market condition to be considered when estimating the fair value of the 2018 Relative TSR PSUs and 2019 Relative TSR PSUs. As a result, the Monte Carlo model is applied and the most significant valuation assumptions used related to the 2019 PSUs during the year ended December 31, 2019, include: Valuation date stock price Expected volatility Risk-free rate $ 20.39 38.9% 2.6% F-51 The value of the 2018 Net Sales PSUs and 2019 Net Sales PSUs is calculated at the end of each quarter based on the expected payout percentage based on estimated full-period performance against targets, and the Company adjusts the expense quarterly. On January 4, 2019, the Company awarded a company-wide grant of PSUs (the “TEPEZZA PSUs”). Vesting of the TEPEZZA PSUs was contingent upon receiving shareholder approval of amendments to the 2014 EIP, which approval was received on May 2, 2019. The TEPEZZA PSUs are generally eligible to vest contingent upon receiving approval of the TEPEZZA BLA from the FDA no later than September 30, 2020 and the employee’s continued service with the Company. At December 31, 2019, there were 1,472,961 TEPEZZA PSUs outstanding. In January 2020, the Company received TEPEZZA approval from the FDA and the Company started recognizing the expense related to the TEPEZZA PSUs on that date. For members of the executive committee, one-third of the TEPEZZA PSUs vested on the FDA approval date and one- third will vest on each of the first two anniversaries of the FDA approval date, subject to the employee’s continued service through the applicable vesting dates. For all other participants, one-half of the TEPEZZA PSUs vested on the FDA approval date and one-half will vest on the one-year anniversary of the FDA approval date, subject to the employee’s continued service through the applicable vesting dates. Share-Based Compensation Expense The following table summarizes share-based compensation expense included in the Company’s consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 (in thousands): Share-based compensation expense: Cost of goods sold Research and development Selling, general and administrative Total share-based compensation expense For the Years Ended December 31, 2018 2019 2017 $ $ 3,818 $ 9,117 78,280 91,215 $ 3,699 $ 8,880 102,281 114,860 $ 2,469 9,263 109,821 121,553 During the years ended December 31, 2019 and 2018, the Company recognized $9.1 million and $2.0 million of a tax benefit, respectively, related to share-based compensation resulting from the current share prices in effect at the time of the exercise of stock options and vesting of restricted stock units. As of December 31, 2019, the Company estimates that pre-tax unrecognized compensation expense of $103.5 million for all unvested share-based awards, including stock options, restricted stock units and PSUs, will be recognized through the third quarter of 2022. The Company expects to satisfy the exercise of stock options and future distribution of shares for restricted stock units and PSUs by issuing new ordinary shares which have been reserved under the 2014 EIP. The above table does not include expense related to the TEPEZZA PSUs as the recognition of expense related to these awards will commence when approval of the TEPEZZA BLA from the FDA is considered probable. As of December 31, 2019, the Company was not able to make a determination as to whether the TEPEZZA Phase 3 positive research results represented sufficient evidence to support a conclusion that achievement of the performance condition was probable and as such, the Company did not recognize an expense related to the TEPEZZA PSU’s during the year ended December 31, 2019. In January 2020, the Company received TEPEZZA approval from the FDA and the Company started recognizing the expense related to the TEPEZZA PSUs beginning on that date. F-52 Cash Incentive Program On January 5, 2018, the Compensation Committee approved a performance cash incentive program for the Company’s executive leadership team, including its executive officers (the “Cash Incentive Program”). Participants receiving awards under the Cash Incentive Program are eligible to earn a cash bonus based upon the achievement of specified Company goals, which both performance criteria were met on or before December 31, 2018. The Company determined that the cash bonus award under the Cash Incentive Program is to be paid out at the maximum 150% target level of $14.1 million. The first and second installments were paid in January 2019 and January 2020, respectively, and the remaining installment will vest and become payable in January 2021, subject to the participant’s continued services with the Company through such vesting date, the date of any earlier change in control, or a termination due to death or disability. The Company accounted for the Cash Incentive Program as a deferred compensation plan under ASC 710 and is recognizing the payout expense using straight-line recognition through the end of the 36-month vesting period. During the year ended December 31, 2019, the Company recorded an expense of $4.2 million, to the consolidated statement of comprehensive income (loss) related to the Cash Incentive Program. NOTE 19 – INCOME TAXES The Company’s loss before benefit for income taxes by jurisdiction for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands): Ireland United States Other foreign Loss before benefit for income taxes For the Years Ended December 31, 2017 2018 (16,956) (10,944) $ (266,857) (179,388) (174,998) 107,200 (83,132) $ (458,811) 2019 77,272 $ (21,269) (76,227) (20,224) $ $ $ The components of the benefit for income taxes were as follows for the years ended December 31, 2019, 2018 and 2017 (in thousands): For the Years Ended December 31, 2018 2017 2019 Current (benefit) provision Ireland U.S. – Federal and State Other foreign Total current (benefit) provision Deferred (benefit) provision Ireland U.S. – Federal and State Other foreign Total deferred benefit Total benefit for income taxes $ (1,233) $ (4,663) 1,257 (4,639) (245) $ 42,791 843 43,389 2,922 12,085 831 15,838 $ (556,370) $ (7,581) (24,654) (588,605) $ (593,244) $ (14,184) $ (6,294) (62,788) (126,048) (11,169) 7,818 (124,524) (88,141) (44,752) $ (108,686) F-53 Total benefit for income taxes was $593.2 million, $44.8 million and $108.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. The current tax benefit of $4.6 million for the year ended December 31, 2019 was primarily attributable to the tax benefit recognized on the amortization of the deferred credit of $6.7 million, partially offset by the U.S. state tax liabilities of $1.7 million. The deferred tax benefit of $588.6 million for the year ended December 31, 2019, was primarily attributable to the recognition of a deferred tax asset resulting from an intra-company transfer of intellectual property assets to an Irish subsidiary of $553.3 million, the tax benefit recognized on intra-company inventory transfers of $24.7 million and the U.S federal and state tax credits generated during the year of $10.5 million. The Company recognized a deferred tax asset and related income tax benefit of $553.3 million, which represents the difference between the book and tax basis of the transferred assets multiplied by the Irish statutory income tax rate. The tax deductions for the amortization of the assets will be recognized in the future up to 80% of the current year’s taxable income and any amortization not deducted for tax purposes in a particular year is allowed to be carried forward indefinitely under Irish tax law. The Company has evaluated the need for a valuation allowance with respect to this deferred tax asset, and as part of that analysis, the Company reviewed its projected earnings in the foreseeable future. Based upon all available evidence it is more likely than not that we would be able to fully realize the tax benefit on the deferred tax asset resulting from the intra-company transfer of intellectual property assets. A reconciliation between the Irish statutory income tax rate to the Company’s effective tax rate for 2019, 2018 and 2017 is as follows (in thousands): Irish income tax at statutory rate (12.5%) Foreign tax rate differential Intra-company transfer of IP assets Intra-company inventory transfers Notional interest deduction U.S. federal and state tax credits Share-based compensation Change in U.S. state effective tax rate Uncertain tax positions U.S state income taxes Liquidation of foreign partnership Write-off and reinstatement of U.S. deferred tax asset related to interest expense carryforwards due to the Tax Act Impact of the Tax Act on deferred taxes Non-deductible in-process research and development costs Disallowed interest Change in valuation allowances Disqualified compensation expense Other, net Benefit for income taxes Effective income tax rate $ For the Years Ended December 31, 2019 2017 2018 $ (57,351) $(10,392) (2,528) (13,479) 8,927 14,111 — 45,780 (553,334) (8,888) (11,169) (24,654) (27,020) (24,455) (19,982) (3,608) (16,752) (4,405) 26,811 21,383 (4,614) (2,329) 8,103 (1,551) 4,976 2,456 (382) 214 (135) (6,515) — (42,689) — — — — 1,749 4,069 7,219 3,540 $(593,244) (37,392) — — 3,023 (1,115) 4,831 (1,123) $(44,752) 59,243 (143,254) 51,148 2,990 (1,378) 1,305 1,934 $(108,686) 2933.5% 53.8% 23.7% The overall effective income tax rate for 2019 of 2,933.5% was a higher benefit rate than the Irish statutory rate of 12.5% primarily attributable to the recognition of a $553.3 million deferred tax asset resulting from an intra-company transfer of intellectual property assets to an Irish subsidiary, a $24.7 million tax benefit recognized on intra-company inventory transfers, a $20.0 million tax benefit recognized on the Company’s notional interest deduction, $16.8 million of U.S. Federal and state tax credits generated during the year (inclusive of the deferred credit amortization) and the excess tax benefits recognized on share-based compensation of $4.6 million. These tax benefits are partially offset by tax expense of $14.1 million on the pre-tax income and losses generated in jurisdictions with statutory tax rates different than the Irish statutory tax rate, a tax expense of $7.2 million on non-deductible officer’s compensation and a tax expense of $4.1 million on increases in net valuation allowances. F-54 The overall effective income tax rate for 2018 of 53.8% was a higher benefit rate than the Irish statutory rate of 12.5% primarily due to a $42.7 million U.S. federal tax benefit and $7.9 million U.S. state tax benefit was recorded with respect to the liquidation of a foreign partnership, a $37.4 million tax benefit resulting from a measurement period adjustment under SAB 118 to reinstate the deferred tax asset related to our U.S. interest expense carryforwards under Section 163(j) of the Internal Revenue Code (“Section 163(j)”) to reflect the guidance issued by the U.S. Treasury Department and the U.S. Internal Revenue Service in Notice 2018-28, a $24.5 million tax benefit on the Company’s notional interest deduction and a $11.2 million tax benefit recognized on intra-company inventory transfers. These tax benefits are partially offset by tax expense of $45.8 million on an intra-company transfer of asset other than inventory, a tax expense of $21.4 million on non- deductible share-based compensation expenses, which includes the previously recognized share-based compensation expense relating to PSUs which was charged to income tax expense during the year ended December 31, 2018, of $23.3 million, a tax expense of $8.9 million on the income earned in higher tax rate jurisdictions and a tax expense of $8.1 million resulting from the remeasurement of net U.S. deferred tax liabilities attributable to state legislation as enacted during the current year. The overall effective income tax rate for 2017 of 23.7% was a higher benefit rate than the Irish statutory rate of 12.5% primarily due to a provisional $84.0 million net benefit recorded following the enactment of the Tax Act, which net benefit included a $143.3 million tax benefit from the revaluation of the Company’s U.S. net deferred tax liability based on the revised U.S. federal tax rate of 21%, partially offset by the write-off of a $59.2 million deferred tax asset related to the Company’s U.S. interest expense carryforwards. The higher 2017 benefit rate was also attributable to losses incurred in higher tax rate jurisdictions, the benefit realized on the notional interest deduction of $27.0 million, a tax benefit recognized on intra-company inventory transfers of $8.9 million, U.S. federal and state tax credits of $3.6 million and $2.3 million due to a decrease in the U.S. state effective tax rate. These benefits to income taxes are partially offset by non-deductible IPR&D expenses of $51.1 million recorded in connection with the acquisition of River Vision, non-deductible share-based compensation expenses of $26.8 million, including the write-off of $16.4 million of deferred taxes related to previously recognized share-based compensation expense related to PSUs that expired unvested in December 2017, and an increase in uncertain tax positions of $5.0 million. The increase in the effective income tax rate in 2019 compared to that in 2018 was primarily due to the recognition of a deferred tax asset of $553.3 million resulting from an intra-company transfer of intellectual property assets to an Irish subsidiary. The increase in the effective income tax rate in 2018 compared to that in 2017 was primarily due to a tax benefit of $42.7 million U.S. federal and $7.9 million U.S. state tax benefit generated on the liquidation of a foreign partnership during the year ended December 31, 2018, a tax benefit of $37.4 million recorded during the year ended December 31, 2018, as a measurement period adjustment under SAB 118, to reinstate the deferred tax asset related to our U.S. interest expense carryforwards under Section 163(j) to reflect the guidance issued by the U.S. Treasury Department and the U.S. Internal Revenue Service in Notice 2018-28, and a non-deductible IPR&D expenses of $51.1 million recorded during the year ended December 31, 2017, recorded in connection with the acquisition of River Vision. F-55 Significant components of the Company’s net deferred tax assets and liabilities, are as follows (in thousands): Deferred tax assets: Intangible assets Net operating loss carryforwards Intercompany interest Accrued compensation Accruals and reserves U.S. federal and state credits Capital loss carryforwards Alternative minimum tax credit Other Total deferred tax assets Valuation allowance Deferred tax assets, net of valuation allowance Deferred tax liabilities: Debt discount Intangible assets Total deferred tax liabilities Net deferred income tax (asset) liability As of December 31, 2019 2018 $ $ 332,764 $ 35,762 60,885 40,851 14,097 12,977 1,893 — 3,452 502,681 (29,268) 473,413 $ — 51,264 52,605 40,942 3,284 43,789 3,139 2,816 738 198,577 (26,472) 172,105 $ 12,495 $ — 12,495 $ (460,918) $ 18,795 257,930 276,725 104,620 On December 22, 2017, the SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period that should not extend beyond one year from the date of enactment for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, during the year ended December 31, 2017, the Company reflected the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 was complete. To the extent that the Company’s accounting for certain income tax effects of the Tax Act was incomplete but it was able to determine a reasonable estimate, the Company recorded a provisional estimate in the consolidated financial statements for the year ended December 31, 2017. As of December 31, 2017, the Company had not completed its accounting for the effects of the Tax Act. However, the Company had made reasonable estimates of the effects on its income tax provision with respect to certain items, primarily the revaluation of its existing U.S. deferred tax balances and the write-off of its U.S. deferred tax assets resulting from interest expense carryforwards under Section 163(j). The Company recognized a net income tax benefit of $84.0 million for the year ended December 31, 2017, associated with the items it could reasonably estimate. This benefit reflects the revaluation of its U.S. net deferred tax liability based on the U.S. federal tax rate of 21%, partially offset by the write-off of the deferred tax asset related to its U.S. interest expense carryforwards. On April 2, 2018, the U.S. Treasury Department and the U.S. Internal Revenue Service issued Notice 2018-28 (“the Notice”) which provides guidance for computing the business interest expense limitation under the Tax Act and clarifies the treatment of interest disallowed and carried forward under Section 163(j), prior to enactment of the Tax Act. In accordance with the measurement period provisions under SAB 118 and the guidance in the Notice the Company reinstated the deferred tax asset related to its U.S. interest expense carryforwards under Section 163(j) based on the revised U.S. federal tax rate of 21% plus applicable state tax rates. The impact of the deferred tax asset reinstatement in accordance with SAB 118 was a $37.4 million increase to the Company’s benefit for income taxes and a corresponding decrease to the U.S. group net deferred tax liability position. The impact of this reinstatement has been recognized as a discrete tax adjustment during the year ended December 31, 2018 and resulted in a 45.0% increase in the Company’s effective tax rate during the period. In the fourth quarter of 2018, the Company completed our analysis to determine the effect of the Tax Act and recorded immaterial adjustments as of December 31, 2018 which related to return to provision adjustments which impacted the U.S. net deferred tax liabilities. No provision has been made for income taxes on undistributed earnings of subsidiaries because it is the Company’s intention to indefinitely reinvest outside of Ireland undistributed earnings of its subsidiaries. In the event of the distribution of those earnings to Ireland in the form of dividends, a sale of the subsidiaries, or certain other transactions, the Company may be liable for income taxes in Ireland. The cumulative unremitted earnings of the Company as of December 31, 2019, were approximately $4.3 billion, and the Company estimates that it would incur approximately $2.0 million of additional income tax on unremitted earnings were they to be remitted to Ireland. F-56 As of December 31, 2019, the Company had net operating loss carryforwards of approximately $69.4 million for U.S. federal, $24.4 million for various U.S. states and $9.2 million for non-U.S. losses. Net operating loss carryforwards for U.S. federal income tax purposes that were generated prior to January 1, 2018, have a twenty-year carryforward life and the earliest layers will begin to expire in 2031. Under the Tax Act, U.S. federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such net operating losses is limited to 80% of the current year’s taxable income. It is uncertain if and to what extent various U.S. states will conform to the Tax Act. U.S. state net operating losses will start to expire in 2020 for the earliest net operating loss layers to the extent there is not sufficient state taxable income to utilize those net operating loss carryovers. Irish net operating losses may be carried forward indefinitely and therefore have no expiration. Utilization of the U.S. net operating loss carryforwards may be subject to annual limitations as prescribed by federal and state statutory provisions. The imposition of the annual limitations may result in a portion of the net operating loss carryforwards expiring unused. Utilization of certain net operating loss and tax credit carryforwards in the United States is subject to an annual limitation due to ownership change limitations provided by Sections 382 and 383 of the Internal Revenue Code. The Company is limited under the annual limitation of $7.7 million from the year 2019 until 2028 on certain net operating losses generated before an August 2, 2012 ownership change. The U.S. federal net operating loss carryforward and U.S. federal tax credit carryforward limitation is cumulative such that any use of the carryforwards below the limitation in a particular tax year will result in a corresponding increase in the limitation for the subsequent tax year. At December 31, 2019, the Company had $18.2 million and $12.9 million of U.S. federal and state income tax credits, respectively, to reduce future tax liabilities. The federal income tax credits consisted of orphan drug credits and research and development credits. The U.S. state income tax credits consisted primarily of California research and development credits and the Illinois Economic Development for a Growing Economy (“EDGE”) tax credits. Both the U.S. federal orphan drug credits and research and development credits have a twenty-year carryforward life. The U.S. federal orphan drug credits will begin to expire in 2037 and the U.S. federal research and development credits will begin to expire in 2039. The California research and development credits have indefinite lives and therefore are not subject to expiration. The EDGE credits have a five-year carryforward life following the year of generation and will begin to expire in 2020. A reconciliation of the beginning and ending amounts of valuation allowances for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands): Valuation allowances at December 31, 2016 Increase for 2016 activity Release of valuation allowances Decreases to valuation allowances due to divestiture Valuation allowances at December 31, 2017 Increase for 2017 activity Release of valuation allowances Valuation allowances at December 31, 2018 Increase for 2019 activity Release of valuation allowances Valuation allowances at December 31, 2019 $ $ $ $ (32,532) (6,835) 5,313 8,404 (25,650) (3,328) 2,506 (26,472) (5,693) 2,897 (29,268) Deferred tax valuation allowances increased by $2.8 million during the year ended December 31, 2019, increased by $0.8 million during the year ended December 31, 2018 and decreased by $6.9 million during the year ended December 31, 2017. For the year ended December 31, 2019, the net increase in valuation allowances resulted primarily from additional U.S. state tax credits and state net operating losses which are unlikely to be realized in the foreseeable future, partially offset by the release of a portion of the valuation allowances with respect to the U.S. capital loss carryforwards which expired unused. F-57 The changes in the Company's uncertain income tax positions for the years ended December 31, 2019, 2018 and 2017, excluding interest and penalties, consisted of the following (in thousands): Beginning balance – uncertain tax positions Tax positions in the year: Additions Acquired uncertain tax positions Tax positions related to prior years: Additions Settlements and lapses Ending balance – uncertain tax positions For the Years Ended December 31, 2018 23,404 $ 17,747 2017 2019 $ 26,306 $ 2,553 — 1,899 — 2,451 — 1,663 (3,094) $ 27,428 $ 1,531 (528) 4,145 (939) 26,306 $ 23,404 For the year ended December 31, 2019, the net increase in uncertain tax positions was primarily attributable to additional U.S. federal orphan drug credits and U.S. federal research and development credits generated during the year, partially offset by lapses in statute for a portion of uncertain tax positions in jurisdictions outside of the United States. In the Company’s consolidated balance sheet, uncertain tax positions (including interest and penalties) of $9.1 million were included in other long-term liabilities, $2.4 million were included in accrued expenses and an additional $18.1 million was included in deferred tax assets. At December 31, 2019, penalties of $0.2 million and interest of $2.0 million are included in the balance of the uncertain tax positions and penalties of $0.2 million and interest of $2.0 million were included in the balance of uncertain tax positions at December 31, 2018. The Company classifies interest and penalties with respect to income tax liabilities as a component of income tax expense. The Company assessed that its liability for uncertain tax positions will not significantly change within the next twelve months. If these uncertain tax positions are released, the impact on the Company’s tax provision would be a benefit of $28.4 million, including interest and penalties. The Company files income tax returns in Ireland, in the United States for federal and various states, as well as in certain other jurisdictions. At December 31, 2019, all open tax years in U.S. federal and certain state jurisdictions date back to 2006 due to the taxing authorities’ ability to adjust operating loss carryforwards. In Ireland, the statute of limitations expires five years from the end of the tax year or four years from the time a tax return is filed, whichever is later. Therefore, the earliest year open to examination is 2015 with the lapse of statute occurring in 2020. No changes in settled tax years have occurred to date. F-58 NOTE 20 – EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution 401(k) retirement savings plan covering all of its U.S. employees, whereby an eligible employee may elect to contribute a portion of his or her salary on a pre-tax basis, subject to applicable federal limitations. The Company is not required to make any discretionary matching of employee contributions. The Company makes a matching contribution equal to 100% of each employee’s elective contribution to the plan of up to 3% of the employee’s eligible pay, and 50% for the next 2% of the employee’s eligible pay. The full amount of this employer contribution is immediately vested in the plan. For the years ended December 31, 2019, 2018 and 2017, the Company recorded defined contribution expense of $6.2 million, $5.2 million and $4.9 million, respectively. The Company’s wholly owned Irish subsidiary sponsors a defined contribution plan covering all of its employees in Ireland. For the years ended December 31, 2019, 2018 and 2017, the Company recognized expenses of $0.6 million, $0.6 million and $0.4 million, respectively, under this plan. The Company has a non-qualified deferred compensation plan for executives. The deferred compensation plan obligations are payable in cash upon retirement, termination of employment and/or certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the plan. As of December 31, 2019 and 2018, the deferred compensation plan liabilities totaled $12.7 million and $8.2 million, respectively, and are included in “other long-term liabilities” in the consolidated balance sheet. The Company held funds of approximately $12.7 million and $8.2 million in an irrevocable grantor's rabbi trust as of December 31, 2019 and 2018, respectively, related to this plan. Rabbi trust assets are classified as trading marketable securities and are included in “other current assets” in the consolidated balance sheets. Unrealized gains and losses on these marketable securities are included in “other income” in the consolidated statements of comprehensive income (loss). For the years ended December 31, 2019, 2018 and 2017, the Company recognized expenses of $1.1 million, $0.9 million and $0.8 million, respectively, under this plan. NOTE 21 – SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table provides a summary of selected financial results of operations by quarter for the years ended December 31, 2019 and 2018 (in thousands, except per share data): 2019 Net sales Gross profit Operating (loss) income Net (loss) income Net (loss) income per ordinary share - basic Net (loss) income per ordinary share - diluted 2018 Net sales Gross profit Operating (loss) income Net (loss) income Net (loss) income per ordinary share - basic Net (loss) income per ordinary share - diluted First Second Third Fourth (1) $ 280,371 $ 320,647 $ 335,466 $ 363,545 268,624 54,675 592,769 3.16 2.84 231,484 25,112 (5,120) (0.03) $ (0.03) 245,517 48,619 18,234 0.10 $ 0.09 192,229 (1,795) (32,863) (0.19) $ (0.19) $ First Second Third Fourth $ 223,881 $ 302,835 $ 325,311 $ 355,543 256,944 82,468 101,648 0.60 0.58 113,593 (117,298) (148,656) (0.90) $ (0.90) 211,498 10,559 (24,751) (0.15) $ (0.15) 234,234 62,180 33,381 0.20 $ 0.19 $ (1) During the year ended December 31, 2019, the Company prospectively applied the if-converted method to the Exchangeable Senior Notes when determining the diluted net income (loss) per share. F-59 Change in Accounting Method Effective January 1, 2019, the Company retrospectively changed its accounting for business combinations and now records acquired intangible assets and their related third-party contingent royalties on a net basis. See Note 1, for further details of this accounting change and the related revisions to the Company’s consolidated balance sheet as at December 31, 2018, and the consolidated statement of comprehensive income (loss) and cash flows for the years ended December 31, 2018 and 2017. The impact of the accounting change resulted in certain adjustments to the consolidated statements of comprehensive income (loss) for the quarters during the year ended December 31, 2018. The first three quarters during the year 2018 were presented as adjusted in the Company’s Quarterly Reports on Form 10-Q that were filed during 2019. Additionally, the following are selected line items from the Company’s unaudited consolidated financial information for the three months ended December 31, 2018 illustrating the effect of the change in accounting method (in thousands, except per share data): Consolidated Statements of Comprehensive Loss For the Three Months Ended December 31, 2018 Impact of Accounting Change (1) As Previously Reported As Adjusted Cost of goods sold Gross profit Gain on sale of assets Total operating expenses Operating income Other income, net Total other expenses, net Income before benefit for income taxes Benefit for income taxes Net income Net income per ordinary share—basic Net income per ordinary share—diluted Comprehensive income $ 109,520 $ 246,023 (30,385) 174,773 71,250 (632) (30,514) 40,736 (46,822) 87,558 0.52 0.50 87,296 (10,921) $ 10,921 (297) (297) 11,218 640 640 11,858 (2,232) 14,090 0.08 0.08 14,090 98,599 256,944 (30,682) 174,476 82,468 8 (29,874) 52,594 (49,054) 101,648 0.60 0.58 101,386 (1) The change in accounting principle resulted in the Company re-performing its purchase price allocations as of the respective acquisition dates for prior business combinations. The adjustments to the purchase price allocations primarily resulted in a net decrease in cost of goods sold reflecting lower intangible asset amortization and the elimination of royalty accretion and remeasurement expenses, partially offset by the royalty expense based on the periods’ net sales. The re-performance of purchase price allocations also directly impacted impairments of long-lived assets and benefit/expense for income taxes, as shown in the tables above. In addition, the elimination of royalty reimbursement assets and accrued contingent royalty liabilities that were recorded in connection with divestitures resulted in adjustments to other income, net. F-60 SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS For Each of the Three Fiscal Years Ended December 31, 2019, 2018 and 2017: Valuation and Qualifying Accounts (in thousands) Year ended December 31, 2019: Allowance for returns Allowance for prompt pay discounts Year ended December 31, 2018: Allowance for returns Allowance for prompt pay discounts Year ended December 31, 2017: Allowance for returns Allowance for prompt pay discounts Balance at beginning of period Additions charged to costs and expenses Deductions from reserves Balance at end of period 39,041 9,113 37,862 9,234 15,246 6,670 25,813 64,968 25,111 75,121 45,648 80,203 (19,772) (66,892) 45,082 7,189 (23,932) (75,242) 39,041 9,113 (23,032) (77,639) 37,862 9,234 F-61 Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Dated: February 26, 2020 HORIZON THERAPEUTICS PLC By: /s/ TIMOTHY WALBERT Timothy Walbert President, Chief Executive Officer and Chairman of the Board KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Timothy Walbert and Paul W. Hoelscher, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof. 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. SIGNATURE TITLE /s/ TIMOTHY WALBERT Timothy Walbert President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) /s/ PAUL W. HOELSCHER Paul W. Hoelscher Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ MILES W. MCHUGH Miles W. McHugh /s/ MICHAEL GREY Michael Grey /s/ WILLIAM F. DANIEL William F. Daniel /s/ JEFF HIMAWAN Jeff Himawan, Ph.D. /s/ SUSAN MAHONY Susan Mahony, Ph.D. /s/ GINO SANTINI Gino Santini /s/ JAMES SHANNON James Shannon, M.D. /s/ H. THOMAS WATKINS H. Thomas Watkins /s/ PASCALE WITZ Pascale Witz Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director DATE February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 February 26, 2020 B O A R D O F D I R E C T O R S C O M P A N Y I N F O R M A T I O N Timothy Walbert Chairman, President and Chief Executive Officer Horizon Therapeutics plc Michael Grey Lead Independent Director Chairman, Mirum Pharmaceuticals, Inc. William F. Daniel Chairman, Malin Corporation plc Jeff Himawan, Ph.D. Managing Director, Essex Woodlands Health Ventures, L.P. Susan Mahony, Ph.D. Director, Zymeworks Inc. Gino Santini Chairman, AMAG Pharmaceuticals, Inc. James Shannon, M.D. Director, MannKind Corporation H. Thomas Watkins Chairman, Vanda Pharmaceuticals, Inc. Pascale Witz President, PWH Advisors Corporate Headquarters Connaught House, 1st Floor 1 Burlington Road, Dublin 4, D04 C5Y6, Ireland +353 1 772 2100 Horizontherapeutics.com Ordinary Shares Horizon Therapeutics plc ordinary shares are traded on the Nasdaq Global Market under the symbol “HZNP.” Annual General Meeting The annual general meeting of shareholders will be held at 3 p.m. local time on April 30, 2020, at: Horizon Therapeutics plc Corporate Headquarters Connaught House, 1st Floor 1 Burlington Road, Dublin 4, D04 C5Y6, Ireland Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP, One North Wacker Drive, Chicago, IL 60606 Transfer Agent And Registrar Computershare Investor Services computershare.com Ireland Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland +353 1 216 3128 United States 462 South 4th Street, Suite 1600, Louisville, KY 40202 +1 866 286-9155 (in the U.S.) +1 732 491-0661 (outside the U.S.) Corporate Counsel Cooley LLP, 4401 Eastgate Mall, San Diego, CA 92121 Irish Counsel Matheson, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland Investor Relations investor-relations@horizontherapeutics.com SEC Form 10-K A copy of our annual report on Form 10-K filed with the Securities and Exchange Commission is available without charge by calling or writing to our corporate headquarters address provided above. H O R I Z O N 2 0 1 9 A N N U A L R E P O R T 

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