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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
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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.
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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.
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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.
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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.
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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:
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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.
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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.
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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.
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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:
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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;
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(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).
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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.
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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.
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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.
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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.
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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:
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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.
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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.
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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.
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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.
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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:
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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.
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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.
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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:
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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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:
•
•
•
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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.
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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.
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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.
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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.
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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.
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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:
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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;
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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.
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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.
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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:
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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;
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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.
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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:
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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.
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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:
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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:
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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:
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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;
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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%
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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
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-
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.
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