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inte

s

 

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, 2020

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

Not Applicable

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

Connaught House, 1st Floor

1 Burlington Road, Dublin 4, D04 C5Y6, Ireland

Not Applicable

(Address of principal executive offices)

(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

 

Trading Symbol

Name of Each Exchange on Which Registered

Ordinary shares, nominal value $0.0001 per share

HZNP

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

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

☐ 

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

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 $55.58 per share closing sale price of the registrant’s ordinary shares on June 30, 2020 (the last business day of the registrant’s most recently completed second quarter), was approximately $11.0 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 2,590,708 ordinary shares held by such persons on June 30, 2020 are not included in this calculation.

As of February 17, 2021, the registrant had outstanding 224,047,600 ordinary shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the registrant’s 2021 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, 2020

TABLE OF CONTENTS

 

 

 

Page

PART I

 

 

 

 

 

Item 1. Business

 

2

 

 

 

Item 1A. Risk Factors

 

48

 

 

 

Item 1B. Unresolved Staff Comments

 

104

 

 

 

Item 2. Properties

 

104

 

 

 

Item 3. Legal Proceedings

 

104

 

 

 

Item 4. Mine Safety Disclosures

 

104

 

 

 

PART II

 

 

 

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

105

 

 

 

Item 6. Selected Financial Data

 

107

 

 

 

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

 

109

 

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

135

 

 

 

Item 8. Financial Statements and Supplementary Data

 

135

 

 

 

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

 

135

 

 

 

Item 9A. Controls and Procedures

 

136

 

 

 

Item 9B. Other Information

 

136

 

 

 

PART III

 

 

 

 

 

Item 10. Directors, Executive Officers and Corporate Governance

 

137

 

 

 

Item 11. Executive Compensation

 

137

 

 

 

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

 

137

 

 

 

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

 

137

 

 

 

Item 14. Principal Accountant Fees and Services

 

137

 

 

 

PART IV

 

 

 

 

 

Item 15. Exhibits, Financial Statement Schedules

 

138

 

 

 

Item 16. Form 10-K Summary

 

145

 

 

 

 


 

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; the scope and duration of impacts of the COVID-19 pandemic on our business, our industry and the economy; 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.

 

 

Risk Factors Summary

Our business faces significant risks and uncertainties.  If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected.  You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.  Set forth below is a summary list of the principal risk factors as of the date of the filing this Annual Report on Form 10-K:

 

 

The COVID-19 global pandemic has and may continue to adversely impact our business, including the commercialization of our medicines, our supply chain, our clinical trials, our liquidity and access to capital markets and our business development activities.

 

Our ability to generate revenues from our medicines is subject to attaining significant market acceptance among physicians, patients and healthcare payers.

 

Our future prospects are highly dependent on our ability to successfully develop and execute commercialization strategies for each of our medicines.  Failure to do so would adversely impact our financial condition and prospects.

 

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.

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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.

 

Our medicines are subject to extensive regulation, and we may not obtain additional regulatory approvals for our medicines.

 

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.

 

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.

 

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.

 

If we fail to develop or acquire other medicine candidates or medicines, our business and prospects would be limited.

 

We are subject to ongoing obligations and continued regulatory review by the FDA and equivalent foreign regulatory agencies, which may result in significant additional expense and significant penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our medicines.  

 

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.

 

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.

Item 1. Business

Unless otherwise indicated or the context otherwise requires, references to the “Company”, “we”, “us” and “our” refer to Horizon Therapeutics 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.

 


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Our Strategy

Horizon is a leading high-growth, innovation-driven, profitable biotech company.  We are focused on rare diseases, delivering innovative therapies to patients and generating value for our shareholders.  Our strategy is to expand our development-stage pipeline for long-term sustainable growth and maximize the benefit and value of our on-market medicines, with particular focus on our key growth drivers TEPEZZA® and KRYSTEXXA®, both rare disease medicines.  Our vision is to build healthier communities, urgently and responsibly, which we believe generates value for our many stakeholders, including our shareholders.

We have significantly transformed Horizon since our beginnings as a public company in 2011, when we had two on-market medicines and total net sales of approximately $7.0 million.  In a span of only nine years, we have evolved to a profitable, biotech company with eleven on-market medicines, seven of them for the treatment of rare diseases, total net sales in 2020 of $2.2 billion, and a growing pipeline with 14 development programs.  

We have achieved this transformation by first building a strong commercial business as our foundation, then using the resulting cash flows to build our portfolio of rare disease medicines, including the acquisition of KRYSTEXXA, which we transformed into a key growth driver, and then building our development-stage pipeline, primarily through business development.  Our second key growth driver, TEPEZZA, is the result of our acquisition of River Vision Development Corp., or River Vision, in 2017, when TEPEZZA was a late-stage development candidate.

We are executing on our strategy to expand our pipeline and maximize the value of our on-market medicines by leveraging the three elements that we believe set Horizon apart and are key to our success:  (i) our excellence in commercial execution; (ii) our proven and disciplined business development strategy; and (iii) our strong clinical development capability.  Through our commercial execution, we seek to accelerate the growth trajectory and maximize the potential of our medicines.  Through our strong in-house business development capability, we acquire medicines focused on opportunities in which we believe we are uniquely positioned to drive value.  We also leverage the deep collective drug development experience of our research and development organization using an agile approach to continually innovate our existing medicines and develop new medicines.

We have two reportable segments, (i) the orphan segment (previously the orphan and rheumatology segment), our strategic growth business, and (ii) the inflammation segment, and we report net sales and segment operating income for each segment.

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, 2018, we completed the following acquisitions and divestitures:

 

On October 27, 2020, we sold our rights to develop and commercialize RAVICTI® and BUPHENYL® in Japan to Medical Need Europe AB, part of the Immedica Group, or Immedica.  On December 28, 2018, we sold our rights to RAVICTI and AMMONAPS® (known as BUPHENYL in the United States and Japan) outside of North America and Japan to Immedica.  We have retained the rights to RAVICTI and BUPHENYL in North America.

 

 

On April 1, 2020, we acquired Curzion Pharmaceuticals, Inc., or Curzion, a privately held development-stage biopharma company, and its development-stage oral selective lysophosphatidic acid 1 receptor (LPAR1) antagonist, CZN001 (renamed HZN-825), for an upfront payment with additional payments contingent on the achievement of development and regulatory milestones.

 

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On June 28, 2019, we sold our rights to MIGERGOT to Cosette Pharmaceuticals, Inc., for an upfront payment and potential additional contingent consideration payments.

 

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, our rights to LODOTRA® in Europe were transferred to Vectura.

 

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.

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.

On January 31, 2021, we entered into an Agreement and Plan of Merger with Viela Bio, Inc., or Viela, to acquire all of the issued and outstanding shares of Viela’s common stock for $53.00 per share in cash, which represents a fully diluted equity value of approximately $3.05 billion, or approximately $2.67 billion net of Viela’s cash and cash equivalents.  Viela has one on-market medicine in the United States and a deep mid-stage biologics pipeline for autoimmune and severe inflammatory diseases, with four candidates currently in nine development programs.  The acquisition of Viela has not been completed and is subject to a several conditions, including the successful completion of a tender offer for the outstanding shares of Viela.  The transaction is expected to close by the end of the first quarter of 2021. See the “Research and Development” section below and Note 21 of the Notes to Consolidated Financial Statements, included in Item 15 of this Annual Report on Form 10-K, for further details of this pending acquisition.

 

Impact of COVID-19

On March 11, 2020, the World Health Organization made the assessment that a novel strain of coronavirus, which causes the COVID-19 disease, had become a pandemic.  On March 13, 2020, The President of the United States declared the COVID-19 pandemic a national emergency and many states and municipalities in the United States took aggressive actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing “shelter-in-place” orders which direct individuals to shelter at their places of residence (subject to limited exceptions).  Similarly, the Irish government limited gatherings of people and encouraged employees to work from their homes, and may implement more aggressive policies in the future.  In mid-March 2020 we implemented work-from-home policies for all employees and moved to a “virtual” model with respect to our physician, patient and partner support activities.  As certain U.S. states started to reduce restrictions, we saw physicians’ offices beginning to reopen, which reopening varied on a state-by-state basis.  As a result, our sales representatives in some areas have transitioned to being back out in the field and are working on ways to re-engage patients and physicians.  However, as COVID-19 cases have increased in certain areas, certain U.S. states have reimplemented restrictions and some physician offices re-established limits on in-person visits.  While our financial results during the year ended December 31, 2020, were strong and we continue to have a significant amount of available liquidity, we anticipate the COVID-19 pandemic to continue to have a negative impact on net sales into 2021.  In addition, our clinical trials have been and may in the future be affected by the COVID-19 pandemic as referred to below.

Economic and health conditions in the United States and across most of the world are continuing to change rapidly because of the COVID-19 pandemic.  Although COVID-19 is a global issue that is altering business and consumer activity, the pharmaceutical industry is considered a critical and essential industry in the United States and many other countries and, therefore, we do not currently expect any significant extended shut downs of suppliers or distribution channels, except for the short-term disruption in TEPEZZA supply described below.  In respect of our other medicines, we believe we have sufficient inventory of raw materials and finished goods and we expect patients to be able to continue to receive their medicines at a site of care, for our infused medicines, and from their current pharmacies, alternative pharmacies or, if necessary, by direct shipment from our third-party providers that have such capability, for our other medicines.


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TEPEZZA

The launch of our infused medicine for thyroid eye disease, or TED, TEPEZZA, which was approved by the FDA on January 21, 2020, significantly exceeded our expectations.  In early 2019, we initiated our pre-launch disease awareness, market development and market access efforts with multi-functional field-based teams beginning to engage with key stakeholders in July of 2019.  We believe these pre-launch efforts, the severity and acute nature of TED, and a highly motivated patient population have generated significant demand for the medicine.  While we experienced a much higher number of new patients in 2020 than our initial estimates, the impact from COVID-19 has slowed the generation of patient enrollment forms for TEPEZZA, which drive new patient starts.  

On December 17, 2020, we announced that we expected a short-term disruption in TEPEZZA supply as a result of recent U.S. government-mandated COVID-19 vaccine production orders pursuant to the Defense Production Act of 1950, or DPA, that dramatically restricted capacity available for the production of TEPEZZA at our drug product contract manufacturer, Catalent Indiana, LLC, or Catalent.  Pursuant to the DPA, Catalent was ordered to prioritize certain COVID-19 vaccine manufacturing at Catalent, resulting in the cancellation of previously guaranteed and contracted TEPEZZA drug product manufacturing slots in December 2020, which were required to maintain TEPEZZA supply.  To offset the reduced slots, we accelerated plans to increase the production scale of TEPEZZA drug product at Catalent.

Prior to the announcement of the short-term supply disruption in TEPEZZA, we were able to meet the significantly higher than initially expected demand for TEPEZZA in 2020.  For the year ended December 31, 2020, we recorded TEPEZZA net sales of $820.0 million, which is more than 20 times greater than the expected TEPEZZA full year 2020 net sales of $30.0 million to $40.0 million that we stated in a Form 8-K filing on February 26, 2020.

In January 2021, we submitted a prior approval supplement to the FDA to support increased scale production of TEPEZZA drug product for the treatment of TED. The submission includes data to support more product output with each manufacturing slot than is currently approved by the FDA. We will continue to discuss potential additional data requirements and the approval timeline with the FDA. We continue to anticipate the disruption could last through the first quarter of 2021. The length of the TEPEZZA supply disruption will depend on future manufacturing slots and whether future manufacturing slots are successfully completed as well as decisions by the FDA regarding the increased scale manufacturing process of TEPEZZA.  We expect to add a second drug product manufacturer by the end of 2021, a project which we initiated early in 2020.  Other than Catalent, we are not aware of any manufacturing facilities that are part of the supply chain for our medicines that are being utilized for the manufacture of vaccines for COVID-19.  At this time, we consider our inventories on hand of all our other medicines to be sufficient to meet our commercial requirements.

We have delayed the start of an FDA-required post-marketing study to evaluate safety of TEPEZZA in a larger patient population and retreatment rates relative to how long patients receive the medicine.  We have also delayed the start of our planned TEPEZZA clinical trial in chronic TED and an exploratory trial of TEPEZZA in diffuse cutaneous systemic sclerosis until later in 2021, assuming commercial drug product supplies have normalized by that time.

KRYSTEXXA

KRYSTEXXA is an infused medicine for uncontrolled gout and was also achieving rapid growth prior to the COVID-19 pandemic.  While the vast majority of patients on therapy have maintained therapy, many new patients have delayed infusions due to shelter-in-place guidelines and patients voluntarily delaying visits to healthcare providers and infusion centers.  Patient visits to physicians substantially declined during 2020, which resulted in a reduction of new patients.  Although we cannot predict when healthcare activities will return to normal levels due to the continued uncertainty with respect to the COVID-19 pandemic, patient demand is beginning to return with the return of healthcare activity.


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Our other medicines

Our other rare disease medicines, RAVICTI, PROCYSBI and ACTIMMUNE, treat serious, chronic diseases with serious consequences if left untreated.  It is therefore critical for patients to maintain therapy.  Patient motivation to continue treatment is high, and therefore net sales for these three medicines were stable during 2020, with less impact from COVID-19 compared to our other medicines.

In regard to the inflammation segment, we are experiencing reduced demand given the absence of in-person engagement by our sales representatives with healthcare providers and reduced levels of non-essential patient visits to physicians.  This impact has been somewhat mitigated by the virtual engagement efforts of our sales representatives, as well as the use of telemedicine by many physicians, which allows them to continue to see patients and prescribe medicines.  In addition, with our HorizonCares program, most patients do not need to physically visit a pharmacy to obtain a prescription because the vast majority of these medicines are delivered to a patient’s home through mail or local courier, depending on the participating pharmacy.

 

Clinical trials

Our clinical trials have been and may in the future be affected by COVID-19.  As referred to above, two of our clinical trials for TEPEZZA have been delayed due to the impact of the TEPEZZA supply disruption at Catalent.  In addition, clinical site initiation and patient enrollment may be delayed due to prioritization of hospital and healthcare resources toward COVID-19.  Current or potential patients in our ongoing or planned clinical trials may also choose to not enroll, not participate in follow-up clinical visits or drop out of the trial as a result of, or a precaution against, contracting COVID-19.  Further, some patients may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.  Some clinical sites in the United States have slowed or stopped further enrollment of new patients in clinical trials, denied access to site monitors or otherwise curtailed certain operations.  Similarly, our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may be adversely impacted.  These events could delay our clinical trials, increase the cost of completing our clinical trials and negatively impact the integrity, reliability or robustness of the data from our clinical trials.  

We are continuing to actively monitor the possible impacts from the COVID-19 pandemic and may take further actions to alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of patients.  There is significant uncertainty about the duration and potential impact of the COVID-19 pandemic.  This means that our results could change at any time and the contemplated impact of the COVID-19 pandemic on our business results and outlook represents our estimate based on the information available as of the date of this Annual Report on Form 10-K.


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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.

As of December 31, 2020, our medicine portfolio consisted of the following:

Medicine

 

Indication

 

2020 Net Sales (in millions)

 

 

Marketing Rights

 

 

 

 

 

 

 

 

 

ORPHAN SEGMENT:

 

 

 

 

 

 

TEPEZZA

 

Thyroid eye disease

 

$

820.0

 

 

Worldwide (1)

KRYSTEXXA

 

Chronic refractory gout (“uncontrolled gout”)

 

$

405.8

 

 

Worldwide

RAVICTI

 

Urea cycle disorders

 

$

261.6

 

 

North America (2)

PROCYSBI®

 

Nephropathic cystinosis

 

$

170.1

 

 

United States and certain other countries (3)

ACTIMMUNE®

 

Chronic granulomatous disease and severe, malignant osteopetrosis

 

$

118.8

 

 

United States, Canada and Japan (4)

BUPHENYL

 

Urea cycle disorders

 

$

10.5

 

 

North America (5)

QUINSAIR

 

Treatment of chronic pulmonary infections due to Pseudomonas aeruginosa in cystic fibrosis patients

 

$

0.7

 

 

Canada and certain other countries (6)

INFLAMMATION SEGMENT:

 

 

 

 

 

 

PENNSAID 2%®

 

Pain of osteoarthritis of the knee(s)

 

$

178.0

 

 

United States

DUEXIS®

 

Signs and symptoms of osteoarthritis and rheumatoid arthritis

 

$

125.3

 

 

Worldwide

RAYOS®

 

Rheumatoid arthritis, polymyalgia rheumatic, systemic lupus erythematosus and multiple other indications

 

$

71.8

 

 

North America (7)

VIMOVO®

 

Signs and symptoms of osteoarthritis, rheumatoid arthritis and ankylosing spondylitis

 

$

37.6

 

 

United States (8)

 

 

(1)

On January 21, 2020, the FDA approved TEPEZZA for the treatment of TED, a serious, progressive and vision-threatening rare autoimmune condition.

 

 

(2)

On October 27, 2020, we sold our rights to develop and commercialize RAVICTI in Japan to Immedica. On December 28, 2018, we sold our rights to RAVICTI outside of North America and Japan to Immedica.

 

 

(3)

We market PROCYSBI in the United States and Canada.  We also have marketing rights to PROCYSBI in Asia.  PROCYSBI is also available in Latin America through a managed assistance program through our partner Uno Healthcare Inc.

 

 

(4)

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.

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(5)

BUPHENYL is known as AMMONAPS outside of North America and Japan.  On October 27, 2020, we sold our rights to develop and commercialize BUPHENYL in Japan to Immedica.  On December 28, 2018, we sold our rights to AMMONAPS outside of North America and Japan to Immedica.  We have retained the rights to BUPHENYL in North America.

 

 

(6)

We market QUINSAIR in Canada.  We also have marketing rights for QUINSAIR in the United States, Latin America and Asia.  We have not received regulatory approval to market QUINSAIR in the United States.

 

 

(7)

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, our rights to LODOTRA in Europe were transferred to Vectura.

 

 

(8)

Net sales of $37.6 million for the year ended December 31, 2020, includes $4.9 million related to authorized generic VIMOVO sales.

Information on our total revenues by product in each of the years ended December 31, 2020, 2019 and 2018, 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 SEGMENT

Our orphan segment consists of our medicines TEPEZZA, KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE, BUPHENYL and QUINSAIR.  

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 a Phase 2 clinical trial, as well as a 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%) 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 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 comprehensive post-launch commercial strategy for TEPEZZA aims to enable more TED patients to benefit from TEPEZZA.  We are doing this by: (i) facilitating continued TEPEZZA uptake in the treatment of acute and chronic TED through continued promotion of TEPEZZA to treating physicians; (ii) continuing to develop the TED market by increasing physician awareness of the disease severity, the urgency to diagnose and treat it, as well as the benefits of treatment with TEPEZZA; (iii) driving accelerated disease identification and time to treatment through our digital and broadcast marketing campaigns; (iv) enhancing the patient journey with our high-touch, patient-centric model as well as support for the patient and site-of-care referral processes; and (v) expanding more timely access to TEPEZZA for TED patients.


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Our first-quarter 2020 launch followed significant market-preparation initiatives for TEPEZZA in 2019 to drive awareness about TED in the medical and patient community and establish a potential pathway for treatment.  Our pre-launch market preparation initiatives have proven effective in driving the highly successful launch of TEPEZZA, which has significantly exceeded our expectations.  To advance the continued strong growth and adoption of TEPEZZA, we are investing in significant expansion efforts in multiple areas: our commercial and field-based organization for TEPEZZA, which we doubled in size to approximately 200 employees by the end of 2020; our marketing initiatives; our long-term supply capacity; and our efforts in pursuing expansion outside the United States.

With the U.S. launch of TEPEZZA in 2020 and the demonstrated benefit it has provided U.S. patients with TED, we are pursuing a global expansion strategy to bring TEPEZZA to patients with TED in other parts of the world.  Japan is one of the countries we are pursuing, and we are engaging with Japanese regulatory authorities and the Pharmaceutical and Medical Devices Agency, as well as with the Japanese medical community, to better understand the current dynamics of TED in Japan and the regulatory requirements for approval of TEPEZZA.

On December 17, 2020, we announced that we expected a short-term disruption in TEPEZZA supply as a result of recent U.S. government-mandated COVID-19 vaccine production orders pursuant to the DPA that have dramatically restricted capacity available for the production of TEPEZZA at our drug product contract manufacturer, Catalent.  See “Impact of COVID-19” above for further information.

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 potentially competitive medicines would be expected to demonstrate similar or greater efficacy and safety in the treatment of TED.  In addition, we have a biologic exclusivity in the United States covering TEPEZZA that will expire in 2032. Further, 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 potential significant side effects, their off-label use could reduce or delay treatment with TEPEZZA among the addressable patient population.  Immunovant Inc., or Immunovant, is conducting Phase 2 clinical trials of a fully human anti-FcRn monoclonal antibody candidate for the treatment of active TED, also referred to as Graves’ ophthalmopathy.  On February 2, 2021, Immunovant announced a voluntary pause in the clinical dosing of the candidate due to elevated total cholesterol and low-density lipoprotein levels in patients treated with the candidate.  Immunovant has indicated it intends to continue developing the candidate but did not provide an estimate of when the dosing might resume.  Viridian Therapeutics, Inc. is pursuing development of an anti-IGF-1R monoclonal antibody for TED and has announced plans to initiate a Phase 2 trial in the second half of 2021.

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.  

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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 benefit the medicine offers for patients as well as driving toward its peak U.S. net sales potential.  We are driving growth for KRYSTEXXA by: (i) supporting the continued adoption of the use of KRYSTEXXA with immunomodulators to increase the complete response rate of KRYSTEXXA; (ii) increasing uptake by rheumatologists; and (iii) accelerating uptake of the medicine by nephrologists.

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 through 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 clinical trials, including Selecta Biosciences Inc., or Selecta, which has initiated a Phase 3 trial of a candidate for the treatment of chronic refractory gout.  In September 2020, Selecta announced topline clinical data that did not meet the primary endpoint or demonstrate statistical superiority for their Phase 2 trial that compared their candidate, which includes an immunomodulator, to KRYSTEXXA alone without an immunomodulator.  In July 2020, Selecta and Swedish Orphan Biovitrum AB, or Sobi, entered into a strategic licensing agreement under which Sobi will assume responsibility for certain development, regulatory, and commercial activities for this candidate.  

RAVICTI

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.  RAVICTI is not used to treat extremely high levels of ammonia in the blood (hyperammonemic crisis) or for N-acetylglutamate synthase (NAGS) deficiency.

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 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.


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RAVICTI competes with older-generation nitrogen scavenger medicines.  In the United States, RAVICTI competes with all 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, requires little preparation and has little taste and lower sodium content than other nitrogen scavenger medications.  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., an enzyme replacement for a specific UCD subtype (ARG) by Aeglea Bio Therapeutics Inc., and a mRNA-based therapeutic for a specific UCD subtype (OTC) by Arcturus Therapeutics Holdings Inc.  If successful, these medicine candidates could compete with RAVICTI.

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 to increase compliance rates.  

On December 28, 2018, we sold our rights to RAVICTI outside of North America and Japan to Immedica.  On October 27, 2020, we sold our rights to develop and commercialize RAVICTI in 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.

PROCYSBI

PROCYSBI is indicated for nephropathic cystinosis, or NC, a rare lysosomal storage disorder that results in the amino acid cystine accumulating inside the lysosomes of nearly every cell.  Cystine accumulation results in the formation of crystals that lead to cell damage and death in tissues and organs throughout the body.  PROCYSBI (cysteamine bitartrate) delayed-release capsules and delayed-release oral granules is the first and only FDA-approved treatment for NC with 12-hour dosing.  PROCYSBI uses proprietary technology that releases cysteamine gradually, providing 12-hour continuous cystine control in adults and children 1 year of age and older.  PROCYSBI granules, also called “microbeads,” are composed of cysteamine bitartrate surrounded by an acid-resistant enteric coating.  The microbeads release cysteamine gradually, providing 12 hours of continuous cystine control.  To work properly, PROCYSBI microbeads must dissolve and release cysteamine bitartrate in the small intestine.  The coating on the microbeads helps to control where and how medicine is released by allowing the cysteamine bitartrate to pass through the acidic stomach to the alkaline environment of the small intestine.  Once in the small intestine, the coating begins to dissolve and the microbeads release cysteamine bitartrate gradually.  This allows PROCYSBI to control cystine levels continuously over the dosing interval.  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 NC 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 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 were made commercially available in April 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 may also have fewer known side effects, such as less severe body odor, than older-generation therapies.

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We estimate that there are approximately 550 patients diagnosed with NC living in the United States.  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 three pharmaceutical products currently approved to treat cystinosis, Cystagon®, Cystadrops® 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.  Cystadrops is a recently approved (2020) cysteamine ophthalmic solution indicated for the treatment of corneal cystine crystal deposits and is marketed by Recordati Rare Disease Inc.  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 aware of an early-stage gene therapy candidate in development by AVROBIO, Inc. 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.

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 and potentially life-threatening 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.  Orchard Therapeutics plc has an early-stage ex-vivo autologous hematopoietic stem cell gene therapy candidate in development for the treatment of X-linked chronic granulomatous disease.

Our strategy for ACTIMMUNE is to increase awareness and diagnosis of CGD; to drive utilization of ACTIMMUNE prophylaxis in newly-diagnosed CGD patients as recommended in current treatment guidelines; and increase compliance rates.

 


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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 for treatment of all patients with neonatal-onset deficiency (complete enzymatic deficiency, presenting within the first twenty-eight days of life).  It is also indicated for treatment of 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 clinical outcomes.  BUPHENYL must be combined with dietary protein restriction and, in some cases, essential amino acid supplementation.  We distribute BUPHENYL in the United States.

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.  We previously distributed AMMONAPS through a commercial partner in Europe and other non-U.S. markets. On October 27, 2020, we sold our rights to develop and commercialize BUPHENYL in Japan to Immedica. We have retained our rights to BUPHENYL in North America.

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.

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INFLAMMATION SEGMENT

Our inflammation segment includes PENNSAID 2% w/w, or PENNSAID 2%, DUEXIS, RAYOS 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 1%, a market leader in the topical NSAID category.

DUEXIS

DUEXIS is indicated for the relief of signs and symptoms of rheumatoid arthritis, or 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 dose 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.

RAYOS

RAYOS is indicated for the treatment of multiple conditions: 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.

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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.

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, our rights to LODOTRA in Europe were transferred to Vectura.  We ceased recording LODOTRA revenue from January 1, 2019.  See “Manufacturing, Commercial, Supply and License Agreements” below for further details of the amendments.

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, for marketing 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 Abbreviated New Drug Application, or 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 two patents for VIMOVO coordinated-release tablets.  As a result, the District Court entered judgment in September 2019 invalidating these 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.  On February 27, 2020, Dr. Reddy’s launched its generic version of VIMOVO in the United States.  Patent litigation against Dr. Reddy’s for infringement continues with respect to certain other patents in the New Jersey District Court.  We have repositioned our promotional efforts previously directed to VIMOVO to our other inflammation segment medicines and expect that our VIMOVO net sales will continue to decrease in future periods.  

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.  In addition to the generic version of VIMOVO launched by Dr. Reddy’s, VIMOVO also competes with other NSAIDs, including Celebrex, TIVORBEX, VIVLODEX and ZORVOLEX.


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Research and Development

Our 14 research and development programs currently include preclinical and clinical development of new medicine candidates, as well as development programs that are intended to maximize the benefit and value of our 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 preclinical:

Our research and development programs are focused on our development candidate HZN-825, the most recent addition to our pipeline, and growth drivers TEPEZZA and KRYSTEXXA.  Six of our 14 programs are expected to begin in 2021. The following describes our programs for HZN-825, TEPEZZA and KRYSTEXXA, followed by our other clinical programs.

HZN-825 Clinical Programs

HZN-825 is an oral lysophosphatidic acid 1 receptor (LPAR1) antagonist candidate we acquired in April 2020 that we are developing as a potential treatment of fibrotic diseases with significant unmet need.  

LPAR1 signaling has been implicated in fibrosis and inflammation; furthermore, research, preclinical and clinical evidence supports the anti-fibrotic potential of LPAR1 antagonism across organ systems, including lung and skin. The results of an eight-week placebo-controlled Phase 2a trial of HZN-825, for example, showed evidence of potential clinical benefit in patients with diffuse cutaneous systemic sclerosis, or dcSSc, with a numerically greater median reduction in the modified Rodnan skin thickness score, or mRSS, from baseline to Week 8.  However, the timeframe was likely too short to show statistically significant clinical benefit. Data from the 16-week open-label extension period of the same trial, however, suggest that longer treatment duration could show more meaningful benefit: 79 percent of patients (11 of 14 patients) who received 24 weeks of continuous treatment responded with a clinically significant 5-or-more point reduction in mRSS.

Additionally, proof of concept for LPAR1 antagonism in idiopathic pulmonary fibrosis, or IPF, has been demonstrated with differentiated forced vital capacity, or FVC, outcomes compared to the current treatments. FVC is a measure of lung capacity used to assess the progression of lung disease and the effectiveness of treatment. The mechanistic rationale for HZN-825 also supports evaluation in other interstitial lung disease, or ILD, conditions.

Our HZN-825 clinical programs include studying HZN-825 in dcSSc and ILDs.  We expect to initiate two HZN-825 Phase 2b pivotal trials in 2021, one in dcSSc and the other in IPF.  The primary endpoint for both trials will be FVC.  


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HZN-825 Diffuse Cutaneous Systemic Sclerosis

dcSSc is a rare, chronic, progressive autoimmune disease in which excess collagen production causes skin thickening and hardening, or fibrosis, over large areas of the skin and internal organs.  It can progress to internal organ damage.  Given that there is no compelling evidence that current treatments halt disease progression, and dcSSc has a high mortality rate, it represents a significant unmet need.  We expect to initiate a Phase 2b pivotal trial to evaluate HZN-825 in the treatment of dcSSc in 2021.  We expect to enroll approximately 300 patients, who will be randomized in a 1:1:1 ratio to receive HZN-825 300 mg once daily, HZN-825 300 mg twice daily, or placebo, for 52 weeks.  The primary endpoint of the trial will be change in FVC after 52 weeks.  We expect enrollment to take approximately two years and so, with a one-year endpoint, we expect data to be available in 2024.

HZN-825 Interstitial Lung Diseases – Idiopathic Pulmonary Fibrosis

We expect to initiate a Phase 2b pivotal trial to evaluate HZN-825 in the treatment of IPF in 2021.  This trial is part of our clinical development program for HZN-825 in ILDs.  IPF, the most common ILD, is a rare, progressive lung disease with a median survival rate of less than five years.  While current treatments may slow disease progression, there is no evidence that they stabilize or reverse the disease. In addition, significant tolerability and compliance issues are associated with the current anti-fibrotic therapies.  However, lung transplant has lower survival rates than other solid-organ transplants, and among lung transplants, survival is lower for pulmonary fibrosis patients compared with those with other diagnoses such as cystic fibrosis or chronic obstructive pulmonary disease. Therefore, IPF represents a significant unmet need.

TEPEZZA Clinical Programs

In addition to OPTIC-X, the extension trial of the TEPEZZA Phase 3 OPTIC clinical trial, we have three other TEPEZZA programs:  TEPEZZA Chronic Thyroid Eye Disease and TEPEZZA Subcutaneous Administration, which are further studies of TEPEZZA in TED; and TEPEZZA Diffuse Cutaneous Systemic Sclerosis, which will explore TEPEZZA in the potential additional indication of dcSSc.  Our clinical strategy for TEPEZZA is to maximize the value of the medicine for patients and its long-term potential.  

On December 17, 2020, we announced that we expected a short-term disruption in TEPEZZA supply as a result of recent U.S. government-mandated COVID-19 vaccine production orders pursuant to the DPA that dramatically restricted capacity available for the production of TEPEZZA at our drug product contract manufacturer, Catalent.  See “Impact of COVID-19” above for further information relating to the impact of the supply disruption on our TEPEZZA clinical programs.

TEPEZZA Chronic Thyroid Eye Disease

We expect to initiate a randomized, placebo-controlled trial of TEPEZZA in patients with chronic TED in 2021, contingent on the normalization of TEPEZZA supply.  The disease in patients with chronic TED is no longer progressive or inflammatory; however, patients may continue to experience proptosis, diplopia, pain and other debilitating eye symptoms that can impair their quality of life.  Signaling through the IGF-1R drives many of these symptoms.  Given that IGF-1R is still present at heightened levels in orbital fibroblasts from surgical samples of chronic TED patients, the TEPEZZA mechanism of action that inhibits IGF-1R appears to be relevant in chronic disease.  While the TEPEZZA prescribing information is broad and encompasses all patients with TED, including chronic TED patients, our objective for the Chronic Thyroid Eye Disease trial is to generate data to better inform the physician community who may wish to use TEPEZZA in treating their chronic TED patients as well as to better inform the payer community about the benefits of TEPEZZA in treating chronic TED, given that patients with chronic TED were not studied in the Phase 3 clinical program.

Target enrollment for the chronic TED randomized controlled trial is approximately 40 patients, with a two-to-one ratio of patients who will receive infusions of TEPEZZA or placebo once every three weeks for a total of eight infusions.  The primary endpoint is the change in proptosis in the study eye from baseline at Week 24.  After the initial 24-week treatment period, proptosis non-responders may choose to enter an additional 24-week open-label treatment period.

TEPEZZA OPTIC-X

OPTIC-X is an extension trial of OPTIC, the TEPEZZA Phase 3 confirmatory clinical trial, in which 82.9 percent of TEPEZZA patients achieved the primary endpoint, defined as a reduction of proptosis of at least 2 mm, compared to 9.5 percent of placebo patients.    


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In OPTIC-X, placebo patients who participated in the OPTIC trial had the option to participate in the extension trial and receive eight infusions of TEPEZZA.  In July 2020, we announced OPTIC-X results that showed that 89 percent of OPTIC placebo patients who then entered OPTIC-X and received a course of TEPEZZA achieved the primary endpoint of a reduction in proptosis of 2 mm or more at Week 24.  These patients had TED diagnoses for an average of one year compared with an average of six months for patients in OPTIC.  OPTIC-X is in its final stage of completion.

In addition, there were a small number of TEPEZZA patients in the OPTIC 48-week off-treatment follow-up period who relapsed, which was defined as: (i) patients who lost at least 2 mm of their proptosis improvement during the 48-week off-treatment period, even if the proptosis was substantially better than at OPTIC baseline; or (ii) patients who had a substantial increase in the number of inflammatory signs or symptoms during the 48-week off-treatment period without worsening proptosis.  Of the small number of TEPEZZA patients who relapsed during the off-treatment period, more than 60 percent experienced at least 2 mm of proptosis improvement with an additional course of TEPEZZA in OPTIC-X.  

Of note, the majority of TEPEZZA patients who were proptosis responders at Week 24 of OPTIC maintained their proptosis response at Week 72, the end of the 48-week off-treatment follow-up period.  In addition, there were no new safety concerns in either the 48-week off-treatment follow-up period, or in OPTIC-X, during which patients received additional TEPEZZA treatment.  The OPTIC-X and OPTIC 48-week off-treatment follow-up period data underscore the long-term durability of clinical benefits from TEPEZZA treatment, the potential for retreatment, and the efficacy of TEPEZZA in patients with longer duration of TED.

TEPEZZA Diffuse Cutaneous Systemic Sclerosis

We plan to initiate an exploratory TEPEZZA trial in dcSSc as part of our approach to evaluate additional indications for TEPEZZA in 2021, contingent on the normalization of TEPEZZA supply.  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 dcSSc.  The objective of the exploratory trial is to investigate the safety, tolerability and effect of TEPEZZA on IGF-1R inflammatory/fibrotic biomarkers to inform potential subsequent larger and longer duration clinical trials.  

TEPEZZA Subcutaneous Administration

The objective of the TEPEZZA subcutaneous administration trial is to explore the potential for additional administration options for TEPEZZA, which could provide greater flexibility for patients and physicians.  We initiated a pharmacokinetic trial in 2020 to explore subcutaneous dosing of TEPEZZA, which is currently administered by infusion.  In addition, in 2020 we announced a global collaboration and licensing agreement with Halozyme to develop a subcutaneous formulation using Halozyme’s ENHANZE® drug-delivery technology.  This technology is based on its patented recombinant human hyaluronidase enzyme, or rHuPH20, which has been shown to remove traditional limitations on the volume of biologics that can be delivered subcutaneously.  By using rHuPH20, some biologics and compounds that are administered intravenously may instead be delivered subcutaneously.  This delivery technology has been shown in studies to shorten time for administration of certain medicines.  We expect to initiate our early clinical work of TEPEZZA with the Halozyme delivery technology for subcutaneous administration in 2021.

KRYSTEXXA Clinical Programs

Our five KRYSTEXXA programs aim to maximize the value of KRYSTEXXA in three ways:  increasing the response rate of the medicine, allowing broader populations of patients with uncontrolled gout to benefit from KRYSTEXXA and improving the patient experience with the medicine.

KRYSTEXXA MIRROR Randomized Clinical Trial

We are evaluating the use of immunomodulation with KRYSTEXXA to increase the response rate of the medicine in our MIRROR randomized control trial, or RCT.


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As with many biologic medicines, some people treated with KRYSTEXXA develop anti-drug antibodies as part of an immune response to the medicine and lose response to therapy.  In the KRYSTEXXA Phase 3 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.  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.  Furthermore, there is a growing body of evidence supporting the immunomodulation approach for KRYSTEXXA:  results of several trials and case series using KRYSTEXXA with immunomodulators have demonstrated response rates ranging between 70 and 100 percent, significantly higher than the 42 percent response rate achieved in the KRYSTEXXA Phase 3 clinical program.  

Our MIRROR RCT, which we initiated in June 2019, is a 12-month trial evaluating KRYSTEXXA with methotrexate, the immunomodulator most commonly used by rheumatologists, and results are expected by year-end 2021.  Enrollment in the MIRROR RCT was completed in 2020 with 145 patients, exceeding its target enrollment by 10 patients.  The trial is designed to support the potential for registration and modification of our KRYSTEXXA FDA label to include immunomodulation with methotrexate. 

The MIRROR RCT was preceded by our smaller MIRROR open-label trial, 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 trial, 79 percent 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.  No new safety concerns associated with the combination were identified.

One of the trials supporting the immunomodulation approach is the RECIPE trial, an investigator-initiated trial partially funded by Horizon, and the first randomized controlled trial, or RCT, to evaluate the effect of the use of KRYSTEXXA with an immunomodulator to increase the response rate.  Data presented in 2020 showed that 86 percent of patients who received KRYSTEXXA with the immunomodulator mycophenolate mofetil, or MMF, achieved a complete response rate at 12 weeks compared to 40 percent of placebo patients on KRYSTEXXA alone.  Furthermore, 68 percent of the immunomodulation patients achieved a sustained response 12 weeks off MMF but continuing on KRYSTEXXA therapy, compared to 30 percent of placebo patients.

KRYSTEXXA PROTECT Trial in Kidney Transplant Patients with Uncontrolled Gout

PROTECT is an open-label clinical trial evaluating the effect of KRYSTEXXA on sUA levels in adults with uncontrolled gout who have undergone a kidney transplant, with the objective of demonstrating that KRYSTEXXA can provide 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.  In January 2021, we completed enrollment in the PROTECT open-label trial.  

We announced interim PROTECT data in 2020 that showed that KRYSTEXXA improved the management of uncontrolled gout in this very sensitive transplant population without compromising kidney function.  This data was presented as part of the 2020 American Society of Nephrology Kidney Week.  The interim data indicated that the estimated glomerular filtration rate, a measurement of kidney function, remained stable throughout the initial period of KRYSTEXXA treatment.  The data also showed reductions in pain and disability scores.  

KRYSTEXXA Retreatment 

As part of our clinical objective to explore ways for KRYSTEXXA to benefit wider uncontrolled gout patient populations, we plan to initiate an open-label trial in 2021 to evaluate KRYSTEXXA co-administered with methotrexate in patients who previously failed therapy after having developed an immune response to KRYSTEXXA when taken alone. Patients who have previously failed KRYSTEXXA have limited options available to address their uncontrolled gout.

KRYSTEXXA Shorter Infusion Duration

We initiated an open-label trial in the fourth quarter of 2020 to evaluate the impact of administering KRYSTEXXA with methotrexate over a significantly shorter infusion duration.  Currently, KRYSTEXXA is infused over a two-hour or longer timeframe.  This shorter infusion duration trial is assessing up to three new infusion durations: 60-minute, 45-minute- and 30-minute durations. A shorter infusion duration could meaningfully improve the experience for patients, physicians and sites of care.  

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KRYSTEXXA Monthly Dosing 

We plan to initiate an open-label trial in 2021 to evaluate a monthly dosing regimen of KRYSTEXXA with methotrexate to treat people with uncontrolled gout. The current dosing schedule for KRYSTEXXA is every other week. Our new monthly dosing trial will assess the impact on patients of receiving twice the current dose of KRYSTEXXA monthly, instead of the current bi-weekly dosing regimen.    

Other Clinical Programs

HZN-003, HZN-007 and the HemoShear programs are all exploring innovative approaches to improve the treatment of uncontrolled gout, with the objective to enhance our leadership position in the treatment of this painful, debilitating systemic disease.

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.  HZN-003 is licensed from MedImmune LLC, the global biologics research and development arm of the AstraZeneca Group.  

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 novel approach for extending the half-life of pharmaceutically active proteins and reducing immunogenicity with the potential for subcutaneous dosing.  

HemoShear Gout Discovery Collaboration

We have a collaboration agreement with HemoShear Therapeutics, LLC, 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.

Viela Clinical Programs

On January 31, 2021, we entered into an agreement to acquire Viela, and the acquisition is expected to close in the first quarter of 2021.  Viela has a deep mid-stage biologics pipeline for autoimmune and severe inflammatory diseases, with four candidates currently in nine development programs.  Each molecule targets central pathways that are implicated in a wide range of autoimmune diseases.  

Uplizna® Clinical Programs

Targeting the autoantibody pathway, Uplizna is a humanized monoclonal antibody that works by binding to CD19, a cell-surface molecule broadly expressed throughout the B cell development, including plasmablasts.  In the autoantibody pathway, autoantibodies secreted by a subset of B cells (plasmablasts, plasma cells) attack native tissues as opposed to foreign pathogens.  Uplizna depletes B cells and the pathogenic cells that produce autoantibodies.  Uplizna was approved by the FDA in June 2020 for the treatment of neuromyelitis optica spectrum disorder, or NMOSD.  Viela is pursuing three additional indications for Uplizna: myasthenia gravis, IgG4-related disease and kidney transplant desensitization.  

Myasthenia Gravis, or MG, is a chronic, rare, autoimmune neuromuscular disease that affects voluntary muscles, especially those that control the eyes, mouth, throat and limbs.  In severe cases, respiratory muscles may be compromised.  Viela initiated its Phase 3 trial in MG in the third quarter of 2020 to assess the safety and efficacy of Uplizna in this disease.    

IgG4-related disease refers to a group of disorders marked by tumor-like swelling and fibrosis of affected organs, such as the pancreas, salivary glands and kidneys. It is primarily treated by rheumatologists, and rheumatology is one of our key therapeutic areas.  Viela has a Phase 3 trial underway to assess whether Uplizna can reduce flares in the absence of concomitant steroid treatment.  Similar to many other autoimmune diseases, chronic steroid therapy is the current treatment approach, which has a significant and toxic side-effect profile.


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Uplizna is also being evaluated in a Phase 2 proof-of-concept trial in kidney transplant desensitization.  Desensitization is aimed at reducing alloantibodies that often preclude patients with end-stage renal disease, or ESRD, from finding a matching organ and result in poor post-transplant outcomes through antibody mediated graft rejection.  Given the at-risk patient population studied, this trial was paused in 2020 due to COVID-19.

VIB4920 Clinical Programs

VIB4920 targets the CD40/CD40 ligand co-stimulatory pathway.  In this pathway, overstimulation of immune cells can be triggered by interaction of CD40/CD40L, leading to an immune response cascade and overproduction of molecules that mediate inflammation.  Several autoimmune diseases are associated with the overactivation of the CD40/CD40 ligand co-stimulatory pathway. A CD40 ligand antagonist, VIB4920 is a fusion protein that binds to CD40 ligand, disrupting this pathway and reducing autoantibody production.  VIB4920 is being studied by Viela for three potential indications:  Sjögren’s syndrome, kidney transplant rejection and RA.

Sjögren’s syndrome, the second most common rheumatic disease after RA, is a chronic, systemic autoimmune condition that impacts exocrine glands, including the salivary glands and tear glands.  Inflammation and destruction of these glands lead to dry eye and dry mouth.  In severe cases, the joints, lungs, skin, blood and kidneys may be also affected.  There are currently no treatments approved for Sjögren’s syndrome.  In patients with for Sjögren’s syndrome, both CD40 ligand and its receptor, CD40, are overexpressed in inflamed tissues.  Targeting this pathway with VIB4920 may reduce inflammation and tissue damage.  VIB4920 is in a Phase 2b trial for Sjögren’s syndrome.

Kidney transplant rejection occurs when the immune system detects an organ transplant as a threat and attacks it, resulting in organ rejection.  The current standard of care to prevent transplant rejection involves a combination of various immunosuppressants and calcineurin inhibitors, the latter of which is associated with kidney toxicity. Viela is conducting a small Phase 2 proof-of-concept study with VIB4920 in kidney transplant rejection, evaluating if a combination of the immunosuppressant, belatacept, and VIB4920 can be effective in preventing transplant rejection while reducing renal toxicity.

VIB4920 is also in a Phase 2 trial in active RA, a chronic inflammatory disorder characterized by progressive destruction of the joints. The primary objectives of this study are to better understand the pharmacodynamic and pharmacokinetic effects of VIB4920 and to further optimize its dosing regimen.

VIB7734 Clinical Programs

VIB 7734 targets the innate immunity pathway.  In this pathway, there is an overproduction of pro-inflammatory cytokines secreted by plasmacytoid dendritic cells, or pDCs.  pDCs play a critical role in autoimmune signaling, inflammation and associated tissue damage through cytokine production.  VIB7734 is a human monoclonal antibody that binds to a unique cell surface receptor on pDCs called ILT7, causing pDC depletion.  Depleting these cells may interrupt the vicious cycle of inflammation that causes tissue damage in diseases such as lupus, dermatomyositis and a variety of other autoimmune conditions.  VIB 7734 has the potential to become a novel treatment for autoimmune diseases in which pDCs overproduce interferons and other types of cytokines and chemokines.  Viela is conducting two trials in VIB7734, one for SLE and one for COVID-19-related acute lung injury.

pDCs play a key role in SLE, a systemic autoimmune disease in which the body's immune system attacks an individual’s tissues and organs. Inflammation caused by SLE can affect many different body systems, including joints, skin, kidneys, blood cells, brain, heart and lungs. With only one biologic approved and substantial room for improved efficacy, SLE represents a significant unmet need. Viela recently announced plans for a Phase 2 trial in SLE after demonstrating encouraging results from their Phase 1b cutaneous lupus erythematosus trial that suggested that VIB7734 has the potential to meaningfully reduce skin lesions in lupus patients.  The Phase 2 trial in SLE is expected to begin in the first half of 2021.  

COVID-19-related acute lung injury is the result of immune overactivation which can cause lung injury.  VIB7734 is also in Phase 1 development for COVID-19-related acute lung injury.

VIB1116 Clinical Program

VIB1116 is a monoclonal antibody expected to begin a Phase 1 first-in-human trial in mid-2021 for autoimmune diseases.


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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, 2020, our sales force was composed of approximately 460 sales representatives consisting of approximately 215 orphan sales representatives and 245 inflammation sales representatives.

Our orphan sales representatives focus on marketing our rare disease 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, 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.


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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.

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.  In support of its manufacturing process, we store multiple vials of teprotumumab-trbw 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.

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, December 2019 and July 2020, for the supply of TEPEZZA drug substance from AGC’s facilities in Copenhagen, Denmark; Seattle, Washington; and Boulder, Colorado.  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.

AGC Development and Manufacturing Services Agreement

As a result of our acquisition of River Vision, we have a development and manufacturing services agreement with AGC, dated June 10, 2015, which was amended in February 2018, for development and manufacturing services relating to TEPEZZA drug substance.  The agreement has a term that runs until the later of the date that all work under the agreement is completed and June 2025, unless earlier terminated by us upon 30 days’ written notice.  AGC can terminate the agreement after AGC has completed its services by giving 180 days’ written notice, or sooner if certain conditions are met, or upon 60 business days’ notice if AGC reasonably concludes it cannot deliver the services under the agreement despite applying commercially reasonable efforts.  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, or upon the other party’s insolvency.

Catalent Indiana Supply Agreement

In December 2018, we entered into a commercial supply agreement with 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.

On December 17, 2020, we announced that we expected a short-term disruption in TEPEZZA supply as a result of recent U.S. government-mandated COVID-19 vaccine production orders pursuant to the DPA that dramatically restricted capacity available for the production of TEPEZZA at Catalent.  See “Impact of COVID-19” above for further information.

 


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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 have paid development and regulatory milestones totaling CHF10.0 million relating to the United States. We may be obligated to pay Roche additional development and regulatory milestones for activities outside the United States or for additional indications.  We are also 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.  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.  We may also terminate the agreement within nine months written notice to Roche.  

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 Lundquist patent rights, which is December 2021 for the U.S. 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.

Other Agreements

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.  We made a $100.0 million milestone payment related to FDA approval during the first quarter of 2020. The agreement also includes a royalty payment of 3 percent of the portion of annual worldwide net sales exceeding $300.0 million (if any).  

In April 2020, we entered into an agreement with S.R. One, Limited, or S.R. One, and an agreement with Lundbeckfond Invest A/S, or Lundbeckfond, pursuant to which we acquired all of S.R. One’s and Lundbeckfond’s beneficial rights to proceeds from certain contingent future TEPEZZA milestone and royalty payments in exchange for a one-time payment of $55.0 million to each of the respective parties.  As a result of our agreements with S.R. One and Lundbeckfond in April 2020, our remaining net obligations to make TEPEZZA payments to the former stockholders of River Vision was reduced by approximately 70.25%, after including payments to a third party.

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.


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NOF Supply Agreement

In August 2015, Crealta Holdings LLC, or Crealta, and NOF Corporation, or NOF, entered into an exclusive supply agreement, which was amended in November 2018 and January 2021, 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.  Under the agreement, we are obligated to purchase a certain minimum quantity of the PEGylation agent over specified periods of time and 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. The agreement expires in October 2024 unless earlier terminated by either party upon three years’ prior written notice.  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. 

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 the agreement, if the manufacture of the bulk product is moved out of Israel, we may be required to obtain the approval of the Israel Innovation Authority (formerly known as Israeli Office of the Chief Scientist), or IIA, because certain KRYSTEXXA intellectual property was initially developed with a grant funded by the IIA.  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.

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.

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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 until 2025.  We have manufacturing agreements for finished RAVICTI drug product with Lyne Laboratories, 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 related to RAVICTI; 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 composed 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.

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, related to PROCYSBI API.  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 a term that runs until November 30, 2022, and which renews for successive two-year terms if not terminated at least one year in advance.

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 capsules and granules.  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, 2023 and which automatically renews for successive two-year terms if not terminated at least eighteen months in advance.  In addition, we have separate agreement with another third-party contract manufacturer for the packaging of PROCYSBI granules.

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.

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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.

OTHER MEDICINES

ORPHAN SEGMENT

BUPHENYL API is manufactured on a contract basis by a third party and final manufacturing, testing and packaging of the medicine is provided by another third party.  QUINSAIR drug product, its API, levofloxacin hemihydrate, and the Zirela nebulizer device are all manufactured on a contract basis by three separate third parties.  

INFLAMMATION SEGMENT

PENNSAID 2% is manufactured on a contract basis by a third party.  The two API’s for DUEXIS are manufactured on a contract basis by two separate third parties.  The final packaged form of DUEXIS is provided on a contract basis from an additional third party.  We purchase API for RAYOS from a contract manufacturer.  In addition, we have contracted with two separate third-party manufacturers for the production of RAYOS tablets and for the packaging and assembling of RAYOS.  The two API’s for VIMOVO are manufactured on a contract basis by two separate third parties.  The final packaged form of VIMOVO is provided on a contract basis from an additional third party.

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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:

 

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 PROCYSBI;

 

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.

TEPEZZA

We have licenses to U.S. and foreign patents and applications covering TEPEZZA.  If not otherwise invalidated, those patents expire between December 2021 and 2029.  We continue to prosecute and pursue patent protection to obtain additional patent coverage on TEPEZZA and its uses. Additionally, we have a biologic exclusivity in the United States covering TEPEZZA that will expire in 2032.

KRYSTEXXA

We have licenses to U.S. and foreign patents and applications covering KRYSTEXXA.  If not otherwise invalidated, those patents expire between 2023 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 or licenses to 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 to Immedica.  We continue to prosecute and pursue patent protection to obtain additional patent coverage on RAVICTI and its uses.

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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 may enter the market on July 1, 2025, or earlier in certain circumstances.  We also have settlement and license agreements with Lupin Limited and Lupin Pharmaceuticals, Inc., or collectively Lupin; and Annora Pharma Private Limited and Hetero USA, Inc., or collectively Annora, pursuant to which Lupin and Annora may enter the market on July 1, 2026, or earlier under certain circumstances.

PROCYSBI

We have U.S. and foreign patents and patent applications covering PROCYSBI, as well as licenses from the University of California, San Diego 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 European Union, or EU, as an orphan medicinal product for the management of proven NC.

PROCYSBI received 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.  

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 2026 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%.  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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RAYOS

We have an exclusive license to U.S. patents and patent applications from Vectura covering RAYOS.  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.  

VIMOVO

We have licenses to U.S. patents and patent applications and trademarks covering VIMOVO from Nuvo Pharmaceuticals (Ireland) Designated Activity Company, or 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.  

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 in the United 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:

 

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:

 

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 2021, 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.  The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.  Medicines used in clinical trials must be manufactured in accordance with cGMP.

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.

Orphan designation in Great Britain following Brexit is largely aligned with the position in the EU, but is based on the prevalence of the condition in Great Britain (for further details on the impact the United Kingdom, or UK, leaving the EU has and will have, see the section entitled ‘The Impact of Brexit’ below).

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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 certain 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 UK leaving the EU has and 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:

 

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 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 Mutual Recognition Procedure.

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 exclusivity and ten years of market exclusivity.  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 exclusivity 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 exclusivity 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 product 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 may 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 the EC 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 UK from the EU (commonly referred to as “Brexit”) took effect on January 31, 2020.  Pursuant to the formal withdrawal arrangements agreed between the UK and the EU, the UK was subject to a transition period that ended December 31, 2020, during which EU rules continued to apply.  A Trade and Cooperation Agreement, or the TCA, that outlines the future trading relationship between the UK and the EU was agreed in December 2020.  Since a significant portion of the regulatory framework in the UK applicable to our business and our products is derived from EU directives and regulations, Brexit has materially impacted the regulatory regime in the UK with respect to the development, manufacture, importation, approval and commercialization of our products.  The regulatory changes that are a result of Brexit may also materially impact upon the development, manufacture, importation, approval and commercialization of our products in the EU, should any development or manufacture of these products take place in the UK.

Great Britain is no longer covered by the EU’s procedures for the grant of marketing authorizations (Northern Ireland will be covered by the centralized authorization procedure and can be covered under the decentralized or mutual recognition procedures). A separate marketing authorization will be required to market drugs in Great Britain.   However, for two years from January 1, 2021, the UK’s regulator, the Medicines and Healthcare products Regulatory Agency, or MHRA, may adopt decisions taken by the EC on the approval of new marketing authorizations through the centralized procedure, and the MHRA will have regard to marketing authorizations approved in a country in the EEA (although in both cases a marketing authorization will only be granted if any Great Britain-specific requirements are met). Various national procedures are now available to place a drug on the market in the UK, Great Britain, or Northern Ireland, with the main national procedure having a maximum timeframe of 150 days (excluding time taken to provide any further information or data required).

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The data exclusivity periods in the UK are currently in line with those in the EU, but the TCA provides that the periods for both data and market exclusivity are to be determined by domestic law, and so there could be divergence in the future.  It is currently unclear whether the MHRA in the UK is sufficiently prepared to handle the increased volume of marketing authorization applications that it is likely to receive.

Orphan designation in Great Britain following Brexit is based on the prevalence of the condition in Great Britain as opposed to the current position where prevalence in the EU is the determinant.  It is therefore possible that conditions that are currently designated as orphan conditions in Great Britain will no longer be and that conditions that are not currently designated as orphan conditions in the EU will be designated as such in Great Britain.  

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 significant administrative, 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.

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.

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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 False Claims Act.  The 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 well as physician self-referral laws, such as the Stark Law, 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.

We are also subject to analogous foreign laws of each of the above federal healthcare laws and foreign jurisdictions may require the implementation of compliance programs, disclosure of any gifts, compensation, or other remuneration provided to health professionals.  

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” (covered 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 as well as their covered subcontractors.  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.  

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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. Further, on July 16, 2020, Europe’s top court, the Court of Justice of the EU, ruled in Schrems II (C-311/18) that the Privacy Shield, used by thousands of companies to transfer data between the EU and United States and upon which we relied, was invalid and could no longer be used due to the strength of United States surveillance laws.  We continue to use alternative transfer mechanisms including the standard contractual clauses, or SCCs, while the authorities interpret the decisions and scope of the invalidated Privacy Shield and the alternative permitted data transfer mechanisms.  The SCCs, though approved by the EC, have faced challenges in European courts (including being called into question in Schrems II), and may be challenged, suspended or invalidated.

The UK’s vote in favor of exiting the EU, often referred to as Brexit, and ongoing developments in the UK have created uncertainty with regard to data protection regulation in the UK.  As of January 1, 2021, and the expiry of transitional arrangements agreed to between the UK and EU, data processing in the UK is governed by a UK version of the GDPR (combining the GDPR and the Data Protection Act 2018), exposing us to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for certain violations.  Pursuant to the TCA, which went into effect on January 1, 2021, the UK and EU agreed to a specified period during which the UK will be treated like an EU member state in relation to transfers of personal data to the UK for four months from January 1, 2021.  This period may be extended by two further months.  Unless the EC makes an ‘adequacy finding’ in respect of the UK before the expiration of such specified period, the UK will become an ‘inadequate third country’ under the GDPR and transfers of data from the EEA to the UK will require a ‘transfer mechanism,’ such as the standard contractual clauses.  Furthermore, following the expiration of the specified period, there will be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the UK and EEA.

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. Further, California voters approved a new privacy law, the California Privacy Rights Act, or CPRA, in the November 3, 2020 election.  Effective starting on January 1, 2023, the CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information.  The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA.  It is unclear how the CCPA and CPRA 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 certain manufacturers, including pharmaceutical manufacturers, to track and report to the federal government the following: certain payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and ownership or investment interests held by physicians and their immediate family members.  Beginning in 2022, applicable manufacturers will be required to report such information regarding its payments and other transfers of value made to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants and certified nurse midwives during the previous year. 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 increases 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.

Penalties.  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 administrative, 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.  We maintain a comprehensive healthcare corporate compliance program.  Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks and risks of regulatory non-compliance 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 used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives.   For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that seek to implement several of the administration’s proposals. As a result, the FDA released a final rule on September 24, 2020 providing guidance for states to build and submit importation plans for drugs from Canada.  Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law.  The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation.  The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review by the Biden administration until March 22, 2021.  Further, in November 2020, CMS issued an interim final rule implementing the Most Favored Nation, or MFN, Model under which  Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita.  The MFN Model regulations mandate participation by identified Part B providers and will apply in all U.S. states and territories for a seven-year period beginning January 1, 2021, and ending December 31, 2027.  On December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. However, it is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives.  

Congress continued to seek new legislative and/or administrative measures to control drug costs.  For example, in June 2020, the U.S. House of Representatives passed a bill, H.R. 1425, “Patient Protection and Affordable Care Enhancement Act”, which would strengthen and expand parts of the ACA and incentivize Medicaid expansion, but also proposes to implement a “Fair Price Negotiation Program” to utilize international price referencing metrics for certain drugs that are considered high-cost or are reimbursable by both Medicare Part D and Part B, while giving commercial payers, including employer and individual market plans, access to the reference price. The majority of our medicines are purchased by private payers, and much of the focus of pending legislation is on government program reimbursement. Additionally, certain proposals have been contemplated that would implement a cap on annual price increases for certain drugs covered under Medicare at the rate of inflation or require the respective manufacturers to pay a rebate.  There has also been advocacy for increasing the Medicaid drug rebates cap, currently at 100% of a drug's average manufacturer price or removing such cap in its entirety.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, designed to encourage importation from other countries and bulk purchasing.  In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine which drugs, biological products and suppliers will be included in their healthcare programs.  

Furthermore, there has been increased interest by third-party payers and governmental authorities in reference pricing systems and publication of discounts and list prices. There also has been particular and increasing legislative and enforcement interest in the United States with respect 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.  Further, a growing number of states have implemented, or are contemplating implementing, drug affordability boards to establish “allowable rates” for certain high-cost drugs identified by such boards.

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In addition to the aforementioned price reform measures, there are other potential reform measures relating to the pharmaceutical industry that may impact our business. For example, there have been efforts to amend the Orphan Drug Act, including a bill passed in the House of Representatives in November 2020, the Orphan Drug Exclusivity Act, that would have limited manufacturers’ ability to receive orphan drug exclusivity under the “cost recovery” pathway under the Orphan Drug Act. While the Senate did not take further action on this bill in 2020, the bill’s co-sponsors were re-elected, and it remains unclear whether it will be re-introduced. Further, on December 31, 2020, CMS issued a final rule that broadened the definition of “line extension” under the ACA. It is unclear whether this final rule will be challenged similar to other final rules that were issued shortly prior to the change in presidential administration.  

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.  There were efforts by the Trump administration as well as 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 eliminate 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.   While Congress has not passed comprehensive ACA repeal or replace legislation, the federal income tax legislation signed into law on December 22, 2017 included 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”.  On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well.  The United States Supreme Court is currently reviewing this case but it is unclear when a decision will be made. Although the United States Supreme Court has not yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.  There is a wide range of potential outcomes to this litigation and it is unclear how the Supreme Court ruling, other such litigation and the healthcare reform measures of the Biden administration will impact the ACA’s many different provisions affecting the health system, the pharmaceutical sector and our business. We continue to evaluate the effect that the ACA and additional actions to possibly repeal and replace it has on our business.

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 due to subsequent legislative amendments to the statute, including the Bipartisan Budget Act of 2018, or the BBA, will remain in effect through 2030, unless additional Congressional action is taken.  However, COVID-19 relief legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021, and extended the sequester by one year, through 2030.  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 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 BBA among other things, amended 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 increased 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.

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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.

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 or provides a Certification of U.S. Tax Residency, or Form IRS 6166.  Such shareholders must provide the appropriate Irish DWT form or Form IRS 6166 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.

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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.

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.

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 and Human Capital

As of December 31, 2020, we had approximately 1,395 full-time employees.  Of our employees as of December 31, 2020, approximately 290 were engaged in development, regulatory and manufacturing activities, approximately 820 were engaged in sales and marketing and approximately 285 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.  We are committed to strict policies and procedures to maintain a safe work environment.  The health and safety of our employees, customers and communities are of primary concern.  

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and future employees.  In addition to competitive base salaries, the other competitive benefits that we provide to all employees, include annual equity and cash incentive plans, retirement benefits and an employee share purchase plan.  The principal purposes of these employee benefits are to attract, retain and reward personnel and also, through the granting of share-based and cash-based compensation awards, in order to secure and retain the services of our employees and to provide long-term incentives that align the interests of employees with the interests of our shareholders.

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Our Core Values

Our culture is reflected in Horizon’s three core values: growth, accountability and transparency. Through these core values, our teams of highly engaged employees work to better the lives of patients and the community.  This engagement is fostered by our strong emphasis on creating a diverse and inclusive culture that drives how we treat employees and expect employees to treat one another.

Growth:  Horizon is a high-growth organization that values innovation, development and evolution.  We are fiercely innovating to better our communities, our patients and our employees and place a strong emphasis on personal and professional growth.  Employees have access to resources to develop their teams and themselves.  

Accountability: We strive to do what’s right for patients and employees through quality decisions and owning successes and failures.  Employees hold each other accountable to make quality decisions that keep our company moving forward in order to meet the needs of patients.

Transparency: Horizon values the collaboration that is made possible by employees trusting each other to tackle tough challenges and difficult conversations.  We are courageous in our decision making, knowing it's necessary to drive our business forward.

Our Response to the COVID-19 Pandemic

Horizon’s commitment to its employees has been exemplified during the COVID-19 crisis.  At the onset of the pandemic, in addition to working to support patients, physicians and our communities, we took steps to ensure the health, safety and welfare of our employees, including:

 

implementing travel restrictions and remote working;

 

providing a special one-time bonus for all employees, excluding executive officers, to support our employees through the pandemic and to show our appreciation for their efforts and dedication during the challenging period;

 

implementing a COVID-19 leave policy with 100% pay continuation for U.S. employees affected by the virus or needing to care for a family member with the virus, and paid leave for medical professional employees who wished to assist with pandemic-related efforts;

 

providing employees with personal protective equipment; and

 

making no furloughs or lay-offs as a result of the pandemic.

Additionally, after noticing that employees were not taking time off in this “work from home” environment, we instituted three additional company-wide paid days off during 2020, providing an opportunity for employees to step away, support their health and well-being, and recharge.  Furthermore, we allowed an additional five days of unused paid time off to be carried over to 2021.  In addition to our multiple established leadership development programs, we hosted 24 teleconference calls with over 250 leaders in 2020, with 13 hours of content focused on helping managers lead their teams during the COVID-19 pandemic and the ensuing remote working environment, primarily focusing on employee engagement, well-being, team effectiveness, supporting caregivers and mitigating burnout.  Flexibility is driven by our executive leadership and managers, encouraging employees to work adaptable hours and take breaks where needed and when possible.

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Focus on Employee Benefits

At the center of our employee experience is how we reward our employees for the impact they create.  We absorb most of the costs for employee medical insurance plans.  In addition to medical insurance, we offer a wide variety of benefits that support working families. This includes our parental and caregiver programs.  As part of these programs, all caregivers have flexible paid options to care for the needs of their families.  These benefits are paid at 100 percent salary. For employees pursuing adoption, we offer competitive reimbursement for costs associated with the legal adoption of a child.

We offer all full-time employees a “Make it Personal” account, which provides $500 annually for certain employee personal expenses including student loan repayment, contributions to college savings plans, donations to charitable organizations, health club memberships or purchases of personal health equipment or home office equipment.  In addition, all employees have access to an annual “Make it Personal” day.  This is an additional 8 hours of paid time off that employees can use to participate in something meaningful or personal to them – from volunteering at a local charity to spending time caring for a loved one.

We also offer competitive educational benefits for our employees and families. We value and encourage continued growth and development of our employees and their families. To support educational goals, we offer several programs to help offset the financial burden of college expenses, including tuition reimbursement, an executive scholarship award for graduate school and scholarships for dependents of our employees.

Our Commitment to Inclusion and Diversity

We are committed to maintaining a workplace free of discrimination, harassment, intimidation or inappropriate conduct based on sex/gender, race, color, religion, national origin, age, disability, veteran status, sexual orientation and/or any other category protected by law.  We also provide equal opportunity in employment to all employees and applicants.  Equal opportunity rights are applicable to recruitment, hiring, employment and employment-related decisions.  In 2020, we introduced RiSE, a strategic program to further embed inclusion, diversity, equity and allyship into the organization.  Through RiSE, over 20 volunteer employee leaders work together, along with diverse working groups, to enhance and promote our approach to diverse recruitment, professional development, community involvement and building the overall organizational inclusive culture.  

Our commitment to inclusion, diversity, equity and allyship is evidenced from the top down.  Our CEO, Timothy Walbert, was one of the first signatories to the CEO Action for Diversity & Inclusion pledge.  Our top leaders have gone through in-depth assessments to determine their inclusive leadership capabilities, with coaching being made available for leaders who want to enhance their skillset.  In 2020, we allocated additional resources and clarified accountability of leaders to focus on enhancing organizational inclusion and diversity, including appointing Irina Konstantinovsky as our Chief Diversity Officer, adding to her responsibilities as our Chief Human Resources Officer. We also assigned a fellow to participate for one year in the CEO Action for Racial Equity initiative, stepping away from her role at Horizon to do work for the betterment of our communities.

In 2019, a study conducted by Aon, a leading compensation consulting firm, demonstrated our gender and ethnicity pay equity.  The study analyzed employee demographic and pay data and showed that we provide equal pay for equal work, regardless of gender or ethnicity.  Based on the outputs of the study according to Aon, we ranked in the top five of the approximately 100 companies it had studied in this regard at the time of the study.

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Our commitment to the engagement of our employees is evidenced by the many workplace recognitions we received during 2020, including the following:

 

 

FORTUNE Best Workplaces in Health Care and BioPharma 2020 (#4) – the fourth consecutive year to be named to the list

 

FORTUNE Best Small & Medium Workplaces 2020 (#10) – the fifth consecutive year to be named to the list

 

Great Place to Work® Best Workplaces for Parents 2020 (#27)

 

FORTUNE 2020 Top workplace for Millennials 2020 (#7)

 

Crain’s Chicago Business Most Innovative Companies in Chicago (#2)

 

Crain’s Chicago Business Best Places to Work in Chicago (#45) – the seventh consecutive year to be named to the list

 

Chicago Tribune Best Medium Sized Workplaces in Chicago (#2) – the sixth consecutive year to be named to the list

 

Great Place to Work® Best Workplaces in Chicago 2020 (#1) – the fourth consecutive year to be named to the list

 

Great Place to Work® Ireland’s Best Workplaces 2020 – Best Small (#13)

 

Dave Thomas Adoption Foundation Top 100 Adoption-friendly Workplaces

 

San Francisco Bay Area’s Best and Brightest Companies to Work For

 

2020 People “50 Companies that Care” (#15)

 

National Best and Brightest Companies to Work For

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.

 

 


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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

The COVID-19 global pandemic has and may continue to adversely impact our business, including the commercialization of our medicines, our supply chain, our clinical trials, our liquidity and access to capital markets and our business development activities.

On March 11, 2020, the World Health Organization made the assessment that a novel strain of coronavirus, which causes the COVID-19 disease, was a pandemic.  The President of the United States declared the COVID-19 pandemic a national emergency and many states and municipalities in the Unites States took aggressive actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing “shelter-in-place” orders which direct individuals to shelter at their places of residence (subject to limited exceptions).  Similarly, the Irish government has limited gatherings of people and encouraged employees to work from their homes, and may implement more aggressive policies in the future.  In addition, in mid-March 2020 we implemented work-from-home policies for all employees and moved to a “virtual” model with respect to our physician, patient and partner support activities.  As certain U.S. states started to reduce restrictions, we saw physician offices beginning to reopen, which reopening has varied on a state-by-state basis.  As a result, our sales representatives in some areas have transitioned to being back out in the field and are working on ways to re-engage patients and physicians in person.  However, as COVID-19 cases have increased in certain areas, certain U.S. states have started to reimplement restrictions and we have seen some physician offices re-establish limits on in-person visits.  Restrictions in response to COVID-19 may continue to fluctuate in U.S. states and other geographies and we cannot guarantee that additional U.S. states that have previously reduced restrictions will not reimplement them or that other states will reduce restrictions in the near-term.  The effects of government actions and our policies and those of third parties to reduce the spread of COVID-19 may negatively impact productivity and our ability to market and sell our medicines, cause disruptions to our supply chain and ongoing and future clinical trials and impair our ability to execute our business development strategy.  These and other disruptions in our operations and the global economy could negatively impact our business, operating results and financial condition.

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The commercialization of our medicines has been and will continue to be adversely impacted by COVID-19 and actions taken to slow its spread.  For example, patients have postponed visits to healthcare provider facilities, certain healthcare providers have temporarily closed their offices or are restricting patient visits, healthcare provider employees may become generally unavailable and there could be disruptions in the operations of payers, distributors, logistics providers and other third parties that are necessary for our medicines to be prescribed, reimbursed and administered to patients. In March 2020, we transitioned our sales force to a virtual model such that they no longer had in-person interactions with healthcare professionals and while we have been working on ways to re-engage patients and physicians as certain U.S. states have started to reduce restrictions, the virtual model is still being used.  While we have attempted to maintain the effectiveness of our sales and marketing efforts in the virtual model, it may not be as effective as in-person interactions in terms of conveying key information about our medicines or aiding physicians and their staff in prescribing and helping their patients obtain appropriate reimbursement for our medicines.  Many physicians, in particular in primary care practices that prescribe our inflammation segment medicines, have reduced their operations in light of COVID-19, including delaying patient visits and writing new prescriptions, and this has negatively impacted sales in our inflammation segment.  Similarly, many patients have deferred non-essential visits to healthcare providers, which has had a negative impact on prescriptions being written and filled.  For example, due to reduced willingness of patients to visit physician offices and infusion centers, sales of KRYSTEXXA have been negatively impacted, and we expect this impact to continue in future quarters until healthcare activities and patient visits return to normal levels.  In addition, while we experienced a much higher number of new patients in 2020 for TEPEZZA than our initial estimates, the impact from COVID-19 has slowed the generation of patient enrollment forms for TEPEZZA, which drive new patient starts.  It is also possible that a prolonged period of “shelter-in-place” orders and social distancing behaviors and the associated reduction of physician office visits could force various healthcare practices to permanently close or to consolidate with larger practices or healthcare groups, which could cause us to lose previously-established physician relationships.  We cannot predict how long the COVID-19 pandemic will continue to negatively impact sales of our medicines and we expect that even after government-mandated restrictions are lifted, our sales force activities, healthcare provider operations and patients’ willingness to visit healthcare facilities will continue to be limited. We also cannot predict how effective our virtual patient, physician and partner support initiatives will be with respect to marketing and supporting the administration and reimbursement of our medicines, or when we will be able to resume other in-person sales and marketing activities.

Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities upon which we rely, or the availability or cost of materials, which could disrupt the supply chain for our medicines.  In particular, some of our suppliers of certain materials used in the production of our medicines are located in regions that have been subject to COVID-19-related actions and policies that limit the conduct of normal business operations.  To the extent our suppliers and service providers are unable to comply with their obligations under our agreements with them or they are otherwise unable to deliver or are delayed in delivering goods and services to us due to COVID-19, our ability to continue meeting commercial demand for our medicines in the United States or advancing development of our medicine candidates may become impaired.  For example, On December 17, 2020, we announced that we expected a short-term disruption in TEPEZZA supply as a result of recent U.S. government-mandated COVID-19 vaccine production pursuant to the Defense Production Act of 1950, or DPA, that have dramatically restricted capacity available for the production of TEPEZZA at our drug product contract manufacturer, Catalent.  Refer to the Impact of COVID-19 section in Item 1 of Part I, Business, of this Annual Report on Form 10-K for further information.  At this time, we consider our inventories on hand of all of our other medicines to be sufficient to meet our commercial requirements.

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Our clinical trials may be affected by COVID-19. As described in the Impact of COVID-19 section in Item 1 of Part I, Business, of this Annual Report on Form 10-K, two of our clinical trials for TEPEZZA have been delayed due to the impact of the TEPEZZA supply disruption at Catalent.  In addition, clinical site initiation and patient enrollment may be delayed due to prioritization of hospital and healthcare resources toward COVID-19.  Current or potential patients in our ongoing or planned clinical trials may also choose to not enroll, not participate in follow-up clinical visits or drop out of the trial as a precaution against contracting COVID-19.  Further, some patients may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.  Some clinical sites in the United States have slowed or stopped further enrollment of new patients in clinical trials, denied access to site monitors or otherwise curtailed certain operations.  Similarly, our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may be adversely impacted.  These events could delay our clinical trials, increase the cost of completing our clinical trials and negatively impact the integrity, reliability or robustness of the data from our clinical trials.

The spread of COVID-19 and actions taken to reduce its spread may also materially affect us economically.  As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.  If the equity and credit markets deteriorate, it may make any additional debt or equity financing more difficult, more costly or more dilutive.  While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position or our business development activities.

COVID-19 continues to rapidly evolve. The extent to which COVID-19 may impact the commercialization of our medicines, our supply chain, our clinical trials, our access to capital and our business development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the pandemic, the duration of the pandemic and the efforts by governments and business to contain it, business closures or business disruptions and the impact on the economy and capital markets.

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, in particular TEPEZZA, 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:

 

 

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;

 

if and when we are able to obtain regulatory approvals for additional indications for our medicines;

 

acceptance by patients, physicians and applicable specialists;

 

availability of, and ability to maintain, 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;


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the effect of current and future healthcare laws;

 

the extent and duration of the COVID-19 pandemic, including the extent to which physicians and patients delay visits or writing or filling prescriptions for our medicines, the extent to which operations of healthcare facilities, including infusion centers, are reduced and the length of time and the extent to which our sales force must continue operating in a virtual model;

 

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 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.  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, to evaluate a shorter infusion time, 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 educate patients and physicians on the benefits of continuing 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 educate patients and physicians on the benefits of continuing 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 with such conditions and educate patients and physicians on the benefits of continuing treatment once initiated.  With respect to each of PENNSAID 2% w/w, or PENNSAID 2%, RAYOS and DUEXIS, 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, if physicians remain unaware of, or do not otherwise believe in, the benefits of combining gastrointestinal protective agents with NSAIDs, our market opportunity will be limited.  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 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).

Our future prospects are highly dependent on our ability to successfully develop 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, TEPEZZA, KRYSTEXXA, RAVICTI, PROCYSBI and ACTIMMUNE, 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 comprehensive post-launch commercial strategy for TEPEZZA aims to enable more thyroid eye disease, or TED, patients to benefit from TEPEZZA.  We are doing this by: (i) facilitating continued TEPEZZA uptake in the treatment of acute and chronic TED through continued promotion of TEPEZZA to treating physicians; (ii) continuing to develop the TED market by increasing physician awareness of the disease severity, the urgency to diagnose and treat it, as well as the benefits of treatment with TEPEZZA; (iii) driving accelerated disease identification and time to treatment through our digital and broadcast marketing campaigns; (iv) enhancing the patient journey with our high-touch, patient-centric model as well as support for the patient and site-of-care referral processes; and (v) expanding more timely access to TEPEZZA for TED patients.  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 strategy with respect to ACTIMMUNE, includes increasing awareness and diagnosis of chronic granulomatous disease and increasing compliance rates.

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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 further train and develop the team in order to successfully commercialize TEPEZZA.  There are many factors that could cause 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.  For example, shortly after the launch of TEPEZZA, we transitioned our sales force to a virtual model in light of the COVID-19 pandemic, which, combined with physicians generally reducing their own availability, has made it more challenging to execute on our strategy to educate physicians about TEPEZZA and the treatment of TED.  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.  In addition, the current disruption in TEPEZZA supply has resulted in existing patients stopping therapy and an inability of new patients to initiate therapy. Once TEPEZZA supply normalizes, we cannot be certain how many prior TEPEZZA patients will re-initiate therapy or whether or when growth in TEPEZZA adoption will return to levels seen prior to the supply disruption. We also have limited information regarding 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.  Thus, significant uncertainty remains regarding the commercial potential of TEPEZZA.  If the continued commercialization of TEPEZZA becomes 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.

With respect to our inflammation segment medicines, PENNSAID 2% and DUEXIS, our strategy has included entering into rebate agreements with pharmacy benefit managers, or PBMs, for certain of our inflammation segment 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 segment 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 segment 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 sustain profitability will be harmed.

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We are dependent on wholesale distributors for distribution of our products in the United States and, accordingly, our results of operations could be adversely affected if they encounter financial difficulties

In 2020, four wholesale distributors accounted for substantially all of our sales in the United States.  If one of our significant wholesale distributors encounters financial or other difficulties, such distributor may decrease the amount of business that it does with us, and we may be unable to collect all the amounts that the distributor owes on a timely basis or at all, which could negatively impact our business and results of operations.

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 biotech 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, 2020, we had approximately 460 sales representatives in the field, consisting of approximately 215 orphan sales representatives and 245 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 able to educate physicians on the benefits of prescribing and pharmacists dispensing 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.  For example, we have had to train our sales force to operate in a virtual environment due to the COVID-19 pandemic and are continuing to learn and implement new strategies and techniques to promote our medicines without the benefit of in-person interactions with healthcare providers and their staff.  We may not be successful in finding effective ways to promote our medicines remotely or our competitors may be more successful than we are at adapting to virtual marketing.

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 segment medicines with successful business to business experience.  For example, we have faced challenges due to pharmacists switching a patient’s intended prescription from DUEXIS to a generic or over-the-counter brand of their active ingredients, despite such substitution being off-label in the case of DUEXIS.  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 and RAYOS 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.

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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 and other significant or potentially significant markets 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 CMS issued a final rule in 2018 that implemented civil monetary penalties for manufacturers who exceeded the ceiling price methodology for a covered outpatient drug when selling to a 340B covered entity. 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” methodology 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 (normally in the range of 15 percent to 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.  The CMS had also finalized a proposal in calendar years 2018, 2019 and 2020 that would revise the Medicare hospital outpatient prospective payment system by creating a new, significantly reduced reimbursement methodology for drugs purchased under the 340B program for Medicare patients at hospital and other settings. These reductions were upheld by the U.S. Court of Appeals for the D.C. Circuit in July 2020, and it is unclear whether this matter will be subject to further litigation. Further, the CMS final rule for calendar year 2021 continues these reductions for drugs acquired through the 340B program.

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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 some 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 implemented or have been considering implementing laws to restrict or ban co-pay coupons for branded drugs.  For example, legislation was 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.  Additionally, numerous organizations, including pharmaceutical manufacturers, have been subject to ongoing litigation, enforcement actions and settlements related to their patient assistance programs and support.  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.

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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.  For example, we are pursuing a global expansion strategy to bring TEPEZZA to patients with TED outside of the United States, including Japan.  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 the European Economic Area, or EEA, 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:

 

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.

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Since a significant proportion of the regulatory framework in the United Kingdom, or UK, applicable to our business and our products is derived from EU directives and regulations, Brexit has and will continue to impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our products in the UK.  Great Britain is no longer covered by the centralized procedures for obtaining EEA-wide marketing authorizations from the European Commission, or EC.  Our product candidates require a separate marketing authorization for Great Britain, and it is unclear as to whether the relevant authorities in the EU and the UK are adequately prepared for the additional administrative burden caused by Brexit.  Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, could prevent us from or delay us commercializing our product candidates in the UK and/or the EEA and restrict our ability to generate revenue and achieve and sustain profitability.  If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the UK and/or EEA for our product candidates, which could significantly and materially harm our business.

Brexit may influence the attractiveness of the UK as a place to conduct clinical trials.  The EU’s regulatory environment for clinical trials is being harmonized as part of the Clinical Trial Regulation but it is currently unclear as to what extent the UK will seek to align its regulations with the EU.  Failure of the UK to closely align its regulations with the EU may have an effect on the cost of conducting clinical trials in the UK as opposed to other countries and/or make it harder to seek a marketing authorization for our product candidates in the EU on the basis of clinical trials conducted in the UK.

In the short term there is a risk of disrupted import and export processes due to a lack of administrative processing capacity by the respective UK and EU customs agencies that may delay time-sensitive shipments and may negatively impact our product supply chain.

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:

 

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.

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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.

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 (i) outside of North America and Japan to Medical Need Europe AB, part of the Immedica Group, or Immedica, in December 2018 and (ii) in Japan to Immedica, 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.  Miravo Healthcare (formerly known as Nuvo Pharmaceuticals Inc.), or Miravo, has retained its rights to PENNSAID 2% in territories outside of the United States.  In March 2017, Miravo 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 Miravo 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.  We have little or no control over Immedica’s activities with respect to RAVICTI outside of North America, over Chiesi’s activities with respect to PROCYSBI in the EMEA, or over Miravo’s or its existing and future commercial partners’ activities with respect to PENNSAID 2% outside of 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 or Miravo or its assignees can make statements or use promotional materials with respect to RAVICTI, PROCYSBI or PENNSAID 2% , respectively, outside of the United States that are inconsistent with our positioning of the medicines in the United States, and could sell RAVICTI, PROCYSBI or PENNSAID 2%, 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 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 and Miravo, 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.

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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.

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 and Catalent Indiana, LLC, or Catalent, for TEPEZZA drug product.  On December 17, 2020, we announced that we expected a short-term disruption in TEPEZZA supply as a result of recent U.S. government-mandated COVID-19 vaccine production orders pursuant to the DPA that dramatically restricted capacity available for the production of TEPEZZA at our drug product contract manufacturer, Catalent. To offset the reduced slots allowed by the DPA and Catalent, we accelerated plans to increase the production scale of TEPEZZA drug product.  In January 2021, we submitted a prior approval supplement to the FDA to support increased scale production of TEPEZZA drug product for the treatment of TED. The submission includes data to support more product output with each manufacturing slot than is currently approved by the FDA. We will continue to discuss potential additional data requirements and approval timeline with the FDA, but we cannot guarantee when the FDA will approve the submission, if at all. We continue to anticipate the disruption could last through the first quarter of 2021, however the length of the TEPEZZA supply disruption will depend on future manufacturing slots and whether future manufacturing slots are successfully completed, as well as on decisions by the FDA regarding the increased scale manufacturing process of TEPEZZA.  While we are not currently aware of any manufacturing facilities other than Catalent that are part of the supply chain for our medicines that are being utilized for the manufacture of vaccines for COVID-19,  similar circumstances could arise in the future and could result in supply disruption to our other medicines.

Further, following the highly successful launch of TEPEZZA, which significantly exceeded expectations, we began the process of expanding our production capacity in 2020 to meet anticipated future demand for TEPEZZA.  If AGC Biologics fails to supply TEPEZZA drug substance or if Catalent fails to supply TEPEZZA drug product for a period beyond our current expectation or either manufacturer is otherwise unable to meet our volume requirements due to unexpected market demand for TEPEZZA, it may lead to further TEPEZZA supply constraints.  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 fails 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 Miravo, 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 Miravo 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. 

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.  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.

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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.

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, including any further potential disruption caused by the COVID-19 pandemic, 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.

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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., or Immunovant, is conducting Phase 2 clinical trials of a fully human anti-FcRn monoclonal antibody candidate for the treatment of active TED, also referred to as Graves’ ophthalmopathy.  On February 2, 2021, Immunovant announced a voluntary pause in the clinical dosing of the candidate due to elevated total cholesterol and low-density lipoprotein levels in patients treated with the candidate.  Immunovant has indicated it intends to continue developing the candidate but did not provide an estimate of when the dosing might resume.  Viridian Therapeutics, Inc. is pursuing development of an anti-IGF-1R monoclonal antibody for TED and has announced plans to initiate a Phase 2 trial in the second half of 2021.  While KRYSTEXXA faces limited direct competition, a number of competitors have medicines in clinical trials, including Selecta Biosciences Inc., or Selecta, which has initiated a Phase 3 trial of a candidate for the treatment of chronic refractory gout.  In September 2020, Selecta announced topline clinical data that did not meet the primary endpoint or demonstrate statistical superiority for their Phase 2 trial that compared their candidate, which includes an immunomodulator, to KRYSTEXXA alone.  In July 2020, Selecta and Swedish Orphan Biovitrum AB, or Sobi, entered into a strategic licensing agreement under which Sobi will assume responsibility for certain development, regulatory, and commercial activities for this candidate.  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., an enzyme replacement for a specific UCD subtype (ARG) by Aeglea Bio Therapeutics Inc. and a mRNA-based therapeutic for a specific UCD subtype (OTC) by Arcturus Therapeutics Holdings Inc. PROCYSBI faces competition from Cystagon (immediate-release cysteamine bitartrate capsules) for the treatment of cystinosis, Cystadrops (cysteamine ophthalmic solution) for the treatment of corneal cystine crystal deposits 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.  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 faces competition from other NSAIDs, including Celebrex®, marketed by Pfizer Inc., and celecoxib, a generic form of the medicine marketed by other pharmaceutical companies.  DUEXIS also faces 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, despite such substitution being off-label in the case of DUEXIS.  Because pharmacists often have economic and other incentives to prescribe lower-cost generics, if physicians prescribe PENNSAID 2% or DUEXIS, 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, sales of PENNSAID 2% and DUEXIS may suffer despite any success we may have in promoting PENNSAID 2% or DUEXIS 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 in the future.

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, and (iv) 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.  

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On February 27, 2020, following a judgment in federal court invalidating certain patents covering VIMOVO, Dr. Reddy’s launched a generic version of VIMOVO in the United States.  While patent litigation against Dr. Reddy’s for infringement continues on additional patents in the New Jersey District Court, we now face generic competition for VIMOVO, which has negatively impacted net sales of VIMOVO in 2020. As a result, we have repositioned our promotional efforts previously directed to VIMOVO to the other inflammation segment medicines and expect that our VIMOVO net sales will continue to decrease in future periods.

Patent litigation is currently pending in the Federal Circuit Court of Appeals and the United States District Court of New Jersey against Alkem Laboratories, Inc., or Alkem, and Teva Pharmaceuticals USA, Inc., or Teva USA, respectively, who each intend to market a generic version of DUEXIS 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 Alkem and Teva USA advising they had filed an ANDA with the FDA seeking approval to market a generic version of DUEXIS before the expiration of the patents-in-suit.  

On June 27, 2020, we received notice from Lupin Limited, or Lupin, that it had filed an ANDA with the FDA seeking approval of a generic version of PROCYSBI.  The ANDA contained a Paragraph IV Patent Certification alleging that the patents covering PROCYSBI are invalid and/or will not be infringed by Lupin’s manufacture, use or sale of a generic version of PROCYSBI.  Patent litigation is currently pending in the United States District Court of New Jersey against Lupin seeking to prevent Lupin from selling its generic version of PROCYSBI before the expiration of the patents-in-suit. 

If we are unsuccessful in any of the PENNSAID 2% cases, DUEXIS cases or PROCYSBI case, we will likely face generic competition with respect to PENNSAID 2%, DUEXIS, and/or PROCYSBI and sales of PENNSAID 2%, DUEXIS, and/or PROCYSBI will be substantially harmed.

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.  We have licenses to U.S. patents covering ACTIMMUNE.  If not otherwise invalidated, those patents expire in 2022.

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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:

 

develop and acquire medicines that are superior to other medicines in the market;

 

attract qualified clinical, regulatory, and sales and marketing personnel;