0001564590-22-007863 | 10-K | XBRL Viewer | Horizon Therapeutics Public LTD Co

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Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
CURRENT ASSETS:
Cash and cash equivalents	$ 1,580,317	$ 2,079,906
Restricted cash	3,839	3,573
Accounts receivable, net	632,775	659,701
Inventories, net	225,730	75,283
Prepaid expenses and other current assets	357,106	251,945
Total current assets	2,799,767	3,070,408
Property, plant and equipment, net	292,298	189,037
Developed technology and other intangible assets, net	2,960,118	1,782,962
In-process research and development	880,000
Goodwill	1,066,709	413,669
Deferred tax assets, net	538,098	560,841
Other assets	140,738	55,699
Total assets	8,677,728	6,072,616
CURRENT LIABILITIES:
Accounts payable	30,125	37,710
Accrued expenses and other current liabilities	523,015	485,567
Accrued trade discounts and rebates	317,431	352,463
Long-term debt—current portion	16,000
Total current liabilities	886,571	875,740
LONG-TERM LIABILITIES:
Long-term debt, net	2,555,233	1,003,379
Deferred tax liabilities, net	390,455	66,474
Other long-term liabilities	173,076	101,672
Total long-term liabilities	3,118,764	1,171,525
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Ordinary shares, $0.0001 nominal value; 600,000,000 shares authorized at December 31, 2021 and December 31, 2020; 227,760,936 and 221,721,674 shares issued at December 31, 2021 and December 31, 2020, respectively; and 227,376,570 and 221,337,308 shares outstanding at December 31, 2021 and December 31, 2020, respectively	23	22
Treasury stock, 384,366 ordinary shares at December 31, 2021 and December 31, 2020	(4,585)	(4,585)
Additional paid-in capital	4,373,337	4,245,945
Accumulated other comprehensive loss	(14,987)	(145)
Retained earnings (accumulated deficit)	318,605	(215,886)
Total shareholders’ equity	4,672,393	4,025,351
Total liabilities and shareholders' equity	$ 8,677,728	$ 6,072,616

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2021	Dec. 31, 2020
Statement Of Financial Position [Abstract]
Ordinary shares, nominal value	$ 0.0001	$ 0.0001
Ordinary shares, shares authorized	600,000,000	600,000,000
Ordinary shares, shares issued	227,760,936	221,721,674
Ordinary shares, shares outstanding	227,376,570	221,337,308
Treasury stock, ordinary shares	384,366	384,366

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Income Statement [Abstract]
Net sales	$ 3,226,410	$ 2,200,429	$ 1,300,029
Cost of goods sold	794,512	532,695	362,175
Gross profit	2,431,898	1,667,734	937,854
OPERATING EXPENSES:
Research and development	431,990	209,364	103,169
Selling, general and administrative	1,446,410	973,227	697,111
Impairment of long-lived asset	12,371	1,713
(Gain) loss on sale of assets	(2,000)	(4,883)	10,963
Total operating expenses	1,888,771	1,177,708	811,243
Operating income	543,127	490,026	126,611
OTHER EXPENSE, NET:
Interest expense, net	(81,063)	(59,616)	(87,089)
Foreign exchange (loss) gain	(1,028)	(297)	33
Loss on debt extinguishment		(31,856)	(58,835)
Other income (expense), net	1,791	3,388	(944)
Total other expense, net	(80,300)	(88,381)	(146,835)
Income (loss) before (benefit) expense for income taxes	462,827	401,645	(20,224)
(Benefit) expense for income taxes	(71,664)	11,849	(593,244)
Net income	$ 534,491	$ 389,796	$ 573,020
Net income per ordinary share—basic	$ 2.37	$ 1.91	$ 3.13
Weighted average ordinary shares outstanding—basic	225,551,410	203,967,246	182,930,109
Net income per ordinary share—diluted	$ 2.27	$ 1.81	$ 2.90
Weighted average ordinary shares outstanding—diluted	235,680,483	215,308,768	205,224,221
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
Pension and other post-employment benefit plan remeasurements	$ (13,296)
Foreign currency translation adjustments	(1,546)	$ 1,760	$ (382)
Other comprehensive (loss) income	(14,842)	1,760	(382)
Comprehensive income	$ 519,649	$ 391,556	$ 572,638

Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Total	Ordinary Shares [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Retained Earnings (Accumulated Deficit) [Member]
Beginning balance at Dec. 31, 2018	$ 1,190,106	$ 17	$ (4,585)	$ 2,374,966	$ (1,523)	$ (1,178,769)
Beginning balance, shares at Dec. 31, 2018		169,244,520	384,366
Cumulative effect adjustments from adoption of ASU 2016-02	67					67
Issuance of ordinary shares - public offering	326,794	$ 2		326,792
Issuance of ordinary shares - public offering, shares		14,081,632
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock and performance stock units	24,881			24,881
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock and performance stock units, shares		4,227,998
Ordinary shares withheld for payment of employees’ withholding tax liability	(31,569)			(31,569)
Issuance of ordinary shares in conjunction with Employee Share Purchase Plan	11,317			11,317
Issuance of ordinary shares in conjunction with Employee Share Purchase Plan, shares		847,890
Share-based compensation	91,215			91,215
Currency translation adjustment	(382)				(382)
Net income	573,020					573,020
Ending balance at Dec. 31, 2019	2,185,449	$ 19	$ (4,585)	2,797,602	(1,905)	(605,682)
Ending balance, shares at Dec. 31, 2019		188,402,040	384,366
Issuance of ordinary shares in conjunction with 2.5% Exchangeable Senior Notes due 2022	395,672	$ 1		395,671
Issuance of ordinary shares in conjunction with 2.5% Exchangeable Senior Notes due 2022, shares		13,898,414
Issuance of ordinary shares - public offering	919,514	$ 1		919,513
Issuance of ordinary shares - public offering, shares		13,570,000
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock and performance stock units	36,870	$ 1		36,869
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock and performance stock units, shares		5,109,168
Ordinary shares withheld for payment of employees’ withholding tax liability	(66,505)			(66,505)
Issuance of ordinary shares in conjunction with Employee Share Purchase Plan	16,168			16,168
Issuance of ordinary shares in conjunction with Employee Share Purchase Plan, shares		742,052
Share-based compensation	146,627			146,627
Currency translation adjustment	1,760				1,760
Net income	389,796					389,796
Ending balance at Dec. 31, 2020	4,025,351	$ 22	$ (4,585)	4,245,945	(145)	(215,886)
Ending balance, shares at Dec. 31, 2020		221,721,674	384,366
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock and performance stock units	50,566	$ 1		50,565
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock and performance stock units, shares		5,420,024
Ordinary shares withheld for payment of employees’ withholding tax liability	(165,964)			(165,964)
Issuance of ordinary shares in conjunction with Employee Share Purchase Plan	22,528			22,528
Issuance of ordinary shares in conjunction with Employee Share Purchase Plan, shares		619,238
Share-based compensation	220,263			220,263
Pension and other post-employment benefit plan remeasurements	(13,296)				(13,296)
Currency translation adjustment	(1,546)				(1,546)
Net income	534,491					534,491
Ending balance at Dec. 31, 2021	$ 4,672,393	$ 23	$ (4,585)	$ 4,373,337	$ (14,987)	$ 318,605
Ending balance, shares at Dec. 31, 2021		227,760,936	384,366

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 534,491	$ 389,796	$ 573,020
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	353,751	279,451	237,157
Equity-settled share-based compensation	219,086	146,627	91,215
Acquired in-process research and development expense	76,572	77,517
Impairment of long-lived asset	12,371	1,713
Amortization of debt discount and deferred financing costs	5,189	12,640	22,602
Loss on debt extinguishment		31,856	58,835
(Gain) loss on sale of assets	(2,000)	(4,883)	10,963
Deferred income taxes	(101,016)	(33,453)	(565,537)
Foreign exchange and other adjustments	(1,433)	1,812	574
Changes in operating assets and liabilities:
Accounts receivable	34,796	(251,173)	56,166
Inventories	1,267	(21,451)	(3,268)
Prepaid expenses and other current assets	(88,193)	(114,788)	(72,763)
Accounts payable	(12,197)	16,015	(8,723)
Accrued trade discounts and rebates	(36,929)	(113,991)	8,591
Accrued expenses and other current liabilities	50,622	114,621	14,887
Other non-current assets and liabilities	(11,106)	25,092	2,613
Net cash provided by operating activities	1,035,271	555,688	426,332
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired	(2,845,275)	(262,305)
Purchases of property, plant and equipment	(76,596)	(169,852)	(17,857)
Payment related to license agreements	(49,572)	(30,000)
Payments for long-term investments, net	(24,668)	(13,314)
Proceeds from sale of assets	2,000	5,400	6,000
Change in escrow deposit for property purchase		6,000	(6,000)
Net cash used in investing activities	(2,994,111)	(464,071)	(17,857)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from term loans	1,574,993		935,404
Repayment of term loans	(12,000)		(1,336,207)
Net proceeds from the issuance of senior notes			590,057
Repayment of senior notes		(1,739)	(814,420)
Proceeds from the issuance of ordinary shares in conjunction with Employee Share Purchase Plan	22,528	16,168	11,317
Proceeds from the issuance of ordinary shares in connection with stock option exercises	50,566	36,869	24,882
Payment of employee withholding taxes relating to share-based awards	(165,964)	(66,505)	(31,569)
Net proceeds from the issuance of ordinary shares		919,786	326,793
Contingent consideration proceeds from divestiture			3,297
Net cash provided by (used in) financing activities	1,470,123	904,579	(290,446)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(10,606)	7,244	(107)
Net (decrease) increase in cash, cash equivalents and restricted cash	(499,323)	1,003,440	117,922
Cash, cash equivalents and restricted cash, beginning of the year	2,083,479	1,080,039	962,117
Cash, cash equivalents and restricted cash, end of the year	1,584,156	2,083,479	1,080,039
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	74,353	51,863	78,044
Cash paid for income taxes, net of refunds received	97,235	15,115	9,925
Cash paid for amounts included in the measurement of operating lease liabilities	8,868	7,840	6,484
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Lease liabilities arising from obtaining right-of-use assets	62,156		11,444
Purchases of acquired in-process research and development included in accrued expenses and other current liabilities	25,000
Purchases of property, plant and equipment included in accounts payable and accrued expenses and other current liabilities	$ 9,228	13,430	$ 117
Principal amount of 2.5% Exchangeable Senior Notes due 2022 converted into ordinary shares		398,261
Milestone payments for TEPEZZA intangible asset included in accrued expenses and other current liabilities		$ 123,442

Basis of Presentation and Business Overview

12 Months Ended

Dec. 31, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation and Business Overview

NOTE 1 – BASIS OF PRESENTATION AND BUSINESS OVERVIEW

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

On March 15, 2021, the Company completed its acquisition of Viela Bio, Inc. (“Viela”) and acquired all of the issued and outstanding shares of Viela’s common stock for $53.00 per share. The total consideration for the acquisition was approximately $3.0 billion, including cash acquired of $342.3 million. Following the completion of the acquisition, Viela became a wholly-owned subsidiary of the Company. The consolidated financial statements presented herein include the results of operations of the acquired business from the date of acquisition.

Business Overview

Horizon is focused on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases. The Company’s pipeline is purposeful: it applies scientific expertise and courage to bring clinically meaningful therapies to patients. Horizon believes science and compassion must work together to transform lives. The Company has two reportable segments, the orphan segment and the inflammation segment, and its commercial portfolio is currently composed of 12 medicines in the areas of rare diseases, gout, ophthalmology and inflammation.

As of December 31, 2021, the Company’s commercial portfolio consisted of the following medicines:

Orphan

TEPEZZA^® (teprotumumab-trbw), for intravenous infusion

KRYSTEXXA^® (pegloticase injection), for intravenous infusion

RAVICTI^® (glycerol phenylbutyrate) oral liquid

PROCYSBI^® (cysteamine bitartrate) delayed-release capsules and granules, for oral use

ACTIMMUNE^® (interferon gamma-1b) injection, for subcutaneous use

UPLIZNA^® (inebilizumab-cdon) injection, for intravenous use

BUPHENYL^® (sodium phenylbutyrate) tablets and powder, for oral use

QUINSAIR™ (levofloxacin) solution for inhalation

Inflammation

PENNSAID^® (diclofenac sodium topical solution) 2% w/w (“PENNSAID 2%”), for topical use

DUEXIS^® (ibuprofen/famotidine) tablets, for oral use

RAYOS^® (prednisone) delayed-release tablets, for oral use

VIMOVO^® (naproxen/esomeprazole magnesium) delayed-release tablets, for oral use

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The consolidated financial statements include the Company’s accounts and those of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Segment Information

The Company’s reportable segments, which are the orphan segment and the inflammation segment, are reported in a manner consistent with the internal reporting provided to the Company’s chief operating decision maker (“CODM”). The Company’s CODM has been identified as its chief executive officer. The Company has no transactions between reportable segments.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation and Transactions

The reporting currency of the Company and its subsidiaries is the U.S. dollar.

The U.S. dollar is the functional currency for the Company’s Ireland and United States-based businesses and the majority of its subsidiaries. The Company has foreign subsidiaries that have the Euro and the Canadian Dollar as their functional currency. Foreign currency-denominated assets and liabilities of these subsidiaries are translated into U.S. dollars based on exchange rates prevailing at the end of the period, revenues and expenses are translated at average exchange rates prevailing during the corresponding period, and shareholders’ equity accounts are translated at historical exchange rates as of the date of any equity transaction. The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of those entities where the functional currency is not the U.S. dollar are included as a component of accumulated other comprehensive loss (“AOCI”).

Gains and losses resulting from foreign currency transactions are reflected within the Company’s results of operations.

Revenue Recognition

In the United States, the Company sells its medicines primarily to wholesale distributors and specialty pharmacy providers. In other countries, the Company sells its medicines primarily to wholesale distributors and other third-party distribution partners. These customers subsequently resell the Company’s medicines to health care providers and patients. In addition, the Company enters into arrangements with health care providers and payers that provide for government-mandated or privately negotiated discounts and allowances related to the Company’s medicines. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the Company’s contracts have a single performance obligation to transfer medicines. Accordingly, revenues from medicine sales are recognized when the customer obtains control of the Company’s medicines, which occurs at a point in time, typically upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring medicines and is generally based upon a list or fixed price less allowances for medicine returns, rebates and discounts. The Company sells its medicines to wholesale pharmaceutical distributors and pharmacies under agreements with payment terms typically less than 90 days. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from the Company’s historical practices.

Medicine Sales Discounts and Allowances

The nature of the Company’s contracts gives rise to variable consideration because of allowances for medicine returns, rebates and discounts. Allowances for medicine returns, rebates and discounts are recorded at the time of sale to wholesale pharmaceutical distributors and pharmacies. The Company applies significant judgments and estimates in determining some of these allowances. If actual results differ from its estimates, the Company will be required to make adjustments to these allowances in the future. The Company’s adjustments to gross sales are discussed further below.

Commercial Rebates

The Company participates in certain commercial rebate programs. Under these rebate programs, the Company pays a rebate to the commercial entity or third-party administrator of the program. The Company calculates accrued commercial rebate estimates using the expected value method. The Company accrues estimated rebates based on contract prices, estimated percentages of medicine that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel and records the rebate as a reduction of revenue. Accrued commercial rebates are included in “accrued trade discounts and rebates” on the consolidated balance sheet.

Distribution Service Fees

The Company includes distribution service fees paid to its wholesalers for distribution and inventory management services as a reduction to revenue. The Company calculates accrued distribution service fee estimates using the most likely amount method. The Company accrues estimated distribution fees based on contractually determined amounts, typically as a percentage of revenue. Accrued distribution service fees are included in “accrued trade discounts and rebates” on the consolidated balance sheet.

Co-pay and Other Patient Assistance Programs

The Company offers discount card and other programs such as its HorizonCares program to patients under which the patient receives a discount on his or her prescription. In certain circumstances when a patient’s prescription is rejected by a managed care vendor, the Company will pay for the full cost of the prescription. The Company reimburses pharmacies for this discount through third-party vendors. The Company reduces gross sales by the amount of actual co-pay and other patient assistance in the period based on invoices received. The Company also records an accrual to reduce gross sales for estimated co-pay and other patient assistance on units sold to distributors that have not yet been prescribed/dispensed to a patient. The Company calculates accrued co-pay and other patient assistance costs using the expected value method. The estimate is based on contract prices, estimated percentages of medicine that will be prescribed to qualified patients, average assistance paid based on reporting from the third-party vendors and estimated levels of inventory in the distribution channel. Accrued co-pay and other patient assistance costs are included in “accrued trade discounts and rebates” on the consolidated balance sheet.

Sales Returns

Consistent with industry practice, the Company maintains a return policy that allows customers to return certain medicines within a specified period prior to and subsequent to the medicine expiration date. Generally, medicines may be returned for a period beginning six months prior to its expiration date and up to one year after its expiration date. The right of return expires on the earlier of one year after the medicine expiration date or the time that the medicine is dispensed to the patient. The majority of medicine returns result from medicine dating, which falls within the range set by the Company’s policy, and are settled through the issuance of a credit to the customer. The Company calculates sales returns using the expected value method. The estimate of the provision for returns is based upon the Company’s historical experience with actual returns. The return period is known to the Company based on the shelf life of medicines at the time of shipment. The Company records sales returns in “accrued expenses and other current liabilities” and as a reduction of revenue.

Prompt Pay Discounts

As an incentive for prompt payment, the Company offers a 2% cash discount to most customers. The Company calculates accrued prompt pay discounts using the most likely amount method. The Company expects that all eligible customers will comply with the contractual terms to earn the discount. The Company records the discount as an allowance against “accounts receivable, net” and a reduction of revenue.

Government Rebates

The Company participates in certain government rebate programs such as Medicare Coverage Gap and Medicaid. The Company calculates accrued government rebate estimates using the expected value method. A significant portion of these accruals relates to the Company’s Medicaid rebates. The Company accrues estimated rebates based on estimated percentages of medicine prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and records the rebates as a reduction of revenue. Accrued government rebates are included in “accrued trade discounts and rebates” on the consolidated balance sheet.

Chargebacks

The Company provides discounts to government qualified entities with whom the Company has contracted. These entities purchase medicines from the wholesale pharmaceutical distributors at a discounted price and the wholesale pharmaceutical distributors then charge back to the Company the difference between the current retail price and the contracted price that the entities paid for the medicines. The Company calculates accrued chargeback estimates using the expected value method. The Company accrues estimated chargebacks based on contract prices, sell-through sales data obtained from third-party information and estimated levels of inventory in the distribution channel and records the chargeback as a reduction of revenue. Accrued chargebacks are included in “accrued trade discounts and rebates” on the consolidated balance sheet.

Allowance for Credit Losses

The Company’s medicines are sold to wholesale pharmaceutical distributors and pharmacies. The Company monitors its accounts receivable balances to determine the impact, if any, of such factors as changes in customer concentration, credit risk and the realizability of its accounts receivable, and records an allowance for credit losses when applicable.

Inventories

Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out convention. Inventories consist of raw materials, work-in-process and finished goods. The Company has entered into manufacturing and supply agreements for the manufacture or purchase of raw materials and production supplies. The Company’s inventories include the direct purchase cost of materials and supplies and manufacturing overhead costs. The Company reviews its inventory balance and purchase obligations to assess if it has obsolete or excess inventory and records a charge to “cost of goods sold” when applicable.

Inventories acquired in business combinations are recorded at their estimated fair values. “Step-up” represents the write-up of inventory from the lower of cost or net realizable value (the historical book value as previously recorded on the acquired company’s balance sheet) to fair market value at the acquisition date. Inventory step-up expense is recorded in the consolidated statement of comprehensive income based on actual sales, or usage, using the first-in, first-out convention.

Inventories exclude medicine sample inventory, which is included in other current assets and is expensed as a component of “selling, general and administrative” expense when shipped to sales representatives.

Pre-launch Inventories

The Company capitalizes inventory costs associated with its medicine candidates prior to regulatory approval when, based on management judgment, future commercialization is considered probable and future economic benefit is expected to be realized. A number of factors are taken into consideration by management, including the current status of the regulatory approval process and any potential impediments to the approval process such as safety or efficacy. If future commercialization and future economic benefit is no longer considered probable, the capitalized pre-launch inventory would be expensed.

Cost of Goods Sold

The Company recognizes cost of goods sold in connection with its sales of each of its distributed medicines. Cost of goods sold includes all costs directly related to the acquisition of the Company’s medicines from its third-party manufacturers, including freight charges and other direct expenses such as insurance and supply chain costs. Cost of goods sold also includes amortization of intellectual property as described in the intangible assets accounting policy below, inventory step-up expense, drug substance harmonization costs, share-based compensation, charges relating to discontinuation of clinical trials, royalty payments to third parties and loss on inventory purchase commitments.

Pre-clinical Studies and Clinical Trial Accruals

The Company’s pre-clinical studies and clinical trials have historically been conducted by third-party contract research organizations and other vendors. Pre-clinical study and clinical trial expenses are based on the services received from these contract research organizations and vendors and are charged to R&D expense as incurred. Payments depend on factors such as the milestones accomplished, successful enrollment of certain numbers of patients and site initiation. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual accordingly.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of ordinary shares outstanding during the period. Diluted net income per share reflects the potential dilution beyond shares for basic net income per share that could occur if securities or other contracts to issue ordinary shares were exercised, converted into ordinary shares, or resulted in the issuance of ordinary shares that would have shared in the Company’s earnings.

Cash and Cash Equivalents

The Company considers all highly liquid investments, readily convertible to cash, that mature within three months or less from date of purchase to be cash equivalents. Cash and cash equivalents primarily consist of cash balances and money market funds. The Company generally invests excess cash in money market funds and other financial instruments with short-term durations, based upon operating requirements.

Restricted Cash

Restricted cash consists primarily of balances in interest-bearing money market accounts required by a vendor for the Company’s sponsored employee business credit card program and collateral for a letter of credit.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities, approximate their fair values due to their short maturities.

Investments

Investments consist primarily of equity securities, bank time deposits and money market funds. Investments in publicly traded equity securities are reported at fair value determined using quoted market prices in active markets. Changes in the fair value of these investments are included in other income (expense), net in the consolidated statement of comprehensive income.

Equity Method Investments

Investments in companies over which the Company has significant influence but not a controlling interest are accounted for using the equity method, with the share of earnings or losses reported in other income (expense), net.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and investments. The Company’s investment policy permits investments in time deposits, U.S. federal government and federal agency securities, corporate bonds or commercial paper, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, and tax-exempt obligations of municipalities and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding the Company’s cash, cash equivalents and investments to the extent recorded on the balance sheet.

The purchase cost of TEPEZZA drug substance, TEPEZZA drug product with the Company’s recently approved second drug product manufacturer, Patheon Pharmaceuticals Inc. (“Patheon”) (contract development and manufacturing organization services of Thermo Fisher Scientific). and ACTIMMUNE inventory are principally denominated in Euros and are subject to foreign currency risk. In addition, the Company is obligated to pay certain milestones and a royalty on sales of TEPEZZA to F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (together referred to as “Roche”) in Swiss Francs, which obligations are subject to foreign currency risk. The Company has contracts relating to RAVICTI, QUINSAIR and PROCYSBI for sales in Canada which are subject to foreign currency risk. The Company also incurs certain operating expenses in currencies other than the U.S. dollar in relation to its Irish operations and foreign subsidiaries. Therefore, the Company is subject to volatility in cash flows due to fluctuations in foreign currency exchange rates, particularly changes in the Euro and the Swiss Franc. From time to time, the Company may enter into forward currency contracts to hedge its foreign currency risk exposure.

Historically, the Company’s accounts receivable balances have been highly concentrated with a select number of customers consisting primarily of large wholesale pharmaceutical distributors who, in turn, sell the medicines to pharmacies, hospitals and other customers. As of December 31, 2021 and 2020, the Company’s top four customers accounted for approximately 94% and 93%, respectively, of the Company’s total outstanding accounts receivable balances. Given the size and creditworthiness of the customers, we have not experienced and do not expect to experience material credit related losses with such customers.

The Company depends on single-source suppliers and manufacturers for certain of its medicines, medicine candidates and their active pharmaceutical ingredients.

Business Combinations

The Company accounts for business combinations in accordance with the guidance in Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”) under which acquired assets and liabilities are measured at their respective estimated fair values as of the acquisition date. The Company may be required, as in the case of intangible assets, to determine the fair value associated with these amounts by estimating the fair value using an income approach under the discounted cash flow method, which may include revenue projections and other assumptions made by the Company to determine the fair value.

Provision for Income Taxes

The Company accounts for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant judgment is required in determining whether it is probable that sufficient future taxable income will be available against which a deferred tax asset can be utilized. In determining future taxable income, the Company is required to make assumptions including the amount of taxable income in the various jurisdictions in which the Company operates. These assumptions require significant judgment about forecasts of future taxable income. Actual operating results in future years could render our current assumption of recoverability of deferred tax assets inaccurate. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the period that the change is enacted. From time to time, the Company executes intercompany transactions in response to changes in operations, regulations, tax laws, funding needs and other circumstances. These transactions require the interpretation and application of tax laws in the applicable jurisdiction to support the tax treatment taken. The valuations which support the tax treatment of the transactions require significant estimates and assumptions within discounted cash flow models. The Company also accounts for the uncertainty in income taxes by utilizing a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or are expected to be taken on an income tax return. Deferred tax assets and deferred tax liabilities are netted by each tax-paying entity within each jurisdiction on the Company’s consolidated balance sheets.

Property, Plant and Equipment

Land is stated at cost. Property, plant and equipment, other than land, are stated at cost less accumulated depreciation. Depreciation is recognized using the straight-line method over the estimated useful lives of the related assets for financial reporting purposes and an accelerated method for income tax reporting purposes. Upon retirement or sale of an asset, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Repair and maintenance costs are charged to expenses as incurred and improvements are capitalized.

Leasehold improvements are amortized on a straight-line basis over the term of the applicable lease, or the useful life of the assets, whichever is shorter.

Depreciation and amortization periods for the Company’s property, plant and equipment are as follows:

Buildings		40 years
Land improvements		10 years
Machinery and equipment		5 to 7 years
Furniture and fixtures		3 to 5 years
Computer equipment		3 years
Software		3 years
Trade show equipment		3 years

The Company capitalizes software development costs associated with internal use software, including external direct costs of materials and services and payroll costs for employees devoting time to a software project. Costs incurred during the preliminary project stage, as well as costs for maintenance and training, are expensed as incurred.

Software includes internal-use software acquired and modified to meet the Company’s internal requirements. Amortization commences when the software is ready for its intended use.

Intangible Assets

Definite-lived intangible assets are amortized over their estimated useful lives. The Company reviews its intangible assets when events or circumstances may indicate that the carrying value of these assets is not recoverable and exceeds their fair value. The Company measures fair value based on the estimated future discounted cash flows associated with these assets in addition to other assumptions and projections that the Company deems to be reasonable and supportable. The estimated useful lives, from the date of acquisition, for all identified intangible assets that are subject to amortization are between five and thirteen years.

Indefinite-lived intangible assets consist of capitalized in-process research and development (“IPR&D”). IPR&D assets represent capitalized incomplete research projects that the Company acquired through business combinations. Such assets are initially measured at their acquisition date fair values and are tested for impairment, until completion or abandonment of research and development (“R&D”) efforts associated with the projects. An IPR&D asset is considered abandoned when R&D efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive value from the asset. At that point, the asset is considered to be impaired and is written off. Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization. The Company tests its indefinite-lived intangibles, including IPR&D assets, for impairment annually during the fourth quarter and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

Goodwill

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment loss, if any, is recognized based on a comparison of the fair value of the asset to its carrying value, without consideration of any recoverability. The Company tests goodwill for impairment annually during the fourth quarter and whenever indicators of impairment exist by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is performed. If the Company concludes that goodwill is impaired, it will record an impairment charge in its consolidated statement of comprehensive income.

R&D Expenses

R&D expenses include, but are not limited to, payroll and other personnel expenses, consultant expenses, expenses incurred under agreements with contract research organizations to conduct clinical trials, expenses incurred to manufacture clinical trial materials and acquired IPR&D assets. R&D expenses were $432.0 million, $209.4 million and $103.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Advertising Expenses

The Company expenses the costs of advertising as incurred. Advertising expenses were $288.8 million, $114.4 million and $35.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Deferred Financing Costs

Costs incurred in connection with debt financings have been capitalized to “Long-term debt, net” in the Company’s consolidated balance sheets as deferred financing costs, and are charged to interest expense using the effective interest method over the terms of the related debt agreements. These costs include document preparation costs, commissions, fees and expenses of investment bankers and underwriters, and accounting and legal fees.

Comprehensive Income

Comprehensive income is composed of net income and other comprehensive (loss) income (“OCI”). OCI includes certain changes in shareholders’ equity that are excluded from net income, which consist of foreign currency translation adjustments and pension and other post-employment benefit plan remeasurements. The Company reports the effect of significant reclassifications out of accumulated OCI on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income.

Share-Based Compensation

The Company accounts for employee share-based compensation by measuring and recognizing compensation expense for all share-based payments based on estimated grant date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over each awardee’s requisite service period, which is generally the vesting period. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.

Post-employment Benefits

The Company records annual expenses relating to its defined benefit U.S. retiree medical plan based on calculations which utilize various actuarial assumptions, including discount rates, health care cost trend rates, turnover rates, and retirement rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends. Prior service costs and credits from plan amendments, including initiation of a plan, are deferred in AOCI, net of tax and amortized at an equal amount in each remaining year of service until the full eligibility date of employees active as of the amendment date. Actuarial gains and losses are deferred in AOCI, net of tax and amortized over the remaining service attribution periods of the employees under the corridor method.

Royalties

The Company records royalty expense based on each periods’ net sales as part of cost of goods sold.

Leases

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases. Under ASU No. 2016-02, an entity is required to recognize right-of-use lease assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The Company adopted this standard on January 1, 2019, using a modified retrospective approach at the adoption date through a cumulative-effect adjustment to retained earnings. The Company applied the new guidance to all operating leases within the scope of the standard that were in effect on January 1, 2019, or entered into after, the adoption date. The adoption did not have a material impact on the Company’s consolidated statement of comprehensive income. However, the new standard established $38.0 million of liabilities and corresponding right-of-use assets of $36.0 million on the Company’s consolidated balance sheet for leases, primarily related to operating leases on rented office properties, that existed as of the January 1, 2019, adoption date.

The Company’s leases primarily relate to operating leases of rented office properties. For contracts entered into on or after January 1, 2019, at the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. At inception of a lease, the Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. The right-of-use lease asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

The right-of-use lease asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred. All right-of-use lease assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s secured incremental borrowing rate for the same term as the underlying lease.

The Company identified and assessed the following significant assumptions in recognizing the right-of-use lease assets and corresponding liabilities.

Expected lease term – The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Incremental borrowing rate – As the Company’s leases do not provide an implicit rate, the Company obtained the incremental borrowing rate (“IBR”) based on the remaining term of each lease. The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company has elected not to recognize right-of-use lease assets and lease liabilities for short-term leases that have a term of 12 months or less.

The Company reports right-of-use lease assets within non-current “Other assets” in its consolidated balance sheet. The Company reports the current portion of lease liabilities within “Accrued expenses and other current liabilities” and long-term lease liabilities within “Other long-term liabilities” in its consolidated balance sheet.

Contingencies

From time to time, the Company may become involved in claims and other legal matters arising in the ordinary course of business. The Company records accruals for loss contingencies to the extent that it concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. Legal fees and other expenses related to litigation are expensed as incurred and included in “selling, general and administrative” expenses.

Recent Accounting Pronouncements

From time to time, the Company adopts new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplification and reduce the cost of accounting for income taxes (“ASU 2019-12”), which was effective for the Company as of January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification (“ASC”)), the American Institute of Certified Public Accountants and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures.

Net Income Per Share

12 Months Ended

Dec. 31, 2021

Earnings Per Share [Abstract]

Net Income Per Share

NOTE 3 – NET INCOME PER SHARE

The following table presents basic and diluted net income per share for the years ended December 31, 2021, 2020 and 2019 (in thousands, except share and per share data):

	For the Years Ended December 31,
	2021		2020		2019
Basic net income per share calculation:
Numerator - net income	$	534,491	$	389,796	$	573,020
Denominator - weighted average of ordinary shares outstanding		225,551,410		203,967,246		182,930,109
Basic net income per share	$	2.37	$	1.91	$	3.13
	For the Years Ended December 31,
	2021		2020		2019
Diluted net income per share calculation:
Net income	$	534,491	$	389,796	$	573,020
Effect of assumed conversion of 2.50% Exchangeable Senior Notes due 2022, net of tax		—		—		22,440
Numerator - net income	$	534,491	$	389,796	$	595,460
Denominator - weighted average of ordinary shares outstanding		235,680,483		215,308,768		205,224,221
Diluted net income per share	$	2.27	$	1.81	$	2.90

Basic net income per share is computed by dividing net income by the weighted-average number of ordinary shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised, converted into ordinary shares, or resulted in the issuance of ordinary shares that would have shared in the Company’s earnings.

During the years ended December 31, 2021, 2020 and 2019, the difference between the basic and diluted weighted average ordinary shares outstanding primarily represents the effect of incremental shares from the Company’s share-based compensation programs.

The outstanding securities listed in the table below were excluded from the computation of diluted net income per ordinary share for the years ended December 31, 2021, 2020 and 2019 due to being anti-dilutive:

	For the Years Ended December 31,
	2021		2020		2019
Stock options		397,576		44,670		233,260
Restricted stock units		1,557,405		2,398,710		1,840
Performance stock units		791,747		790,949		586,868
Employee share purchase plan shares		295,050		18,618		2,207
2.50% Exchangeable Senior Notes due 2022		—		6,862,376		—
		3,041,778		10,115,323		824,175

Beginning in the fourth quarter of 2019, with the Company’s ordinary share price significantly above the $28.66 exchange price, the Company decided that it no longer had the intent to settle the Company’s 2.50% Exchangeable Senior Notes due 2022 (the “Exchangeable Senior Notes”) for cash and, as a result, began to prospectively apply the if-converted method to the Exchangeable Senior Notes when determining the diluted net income per share. By August 3, 2020, the Exchangeable Senior Notes were fully extinguished through exchanges for ordinary shares or cash redemption.

Acquisitions, Divestitures and Other Arrangements

12 Months Ended

Dec. 31, 2021

Business Combinations [Abstract]

Acquisitions, Divestitures and Other Arrangements

NOTE 4 –ACQUISITIONS, DIVESTITURES AND OTHER ARRANGEMENTS

Acquisition of biologic drug product manufacturing facility

In July 2021, the Company completed the purchase of a biologic drug product manufacturing facility from EirGen Pharma Limited (“EirGen”), a subsidiary of OPKO Health, Inc. in Waterford, Ireland for $67.9 million, which included an upfront cash payment of $64.8 million and $3.1 million of additional transaction costs, legal fees and liabilities assumed. The facility, which is located in an Industrial Development Agency Ireland (“IDA Ireland”) business park, includes a filling line and lyophilizer, or freeze dryer, that can be used for both the Company’s commercial medicines, including its rare disease biologics TEPEZZA, KRYSTEXXA and UPLIZNA, and certain of its medicine candidates in development, following build-out, validation and regulatory approval processes. In addition, there is adjacent IDA Ireland land available for further manufacturing and development expansion. The Company accounted for the transaction as an asset acquisition.

The following table summarizes fair values of assets acquired as of the acquisition date (in thousands):

Construction in process	$	22,736
Buildings		21,550
Furniture and fixtures		1,089
Definite-lived intangible assets		21,794
Other		775
Total consideration	$	67,944

Acquisition of Viela

On March 15, 2021, the Company completed its acquisition of Viela and acquired all of the issued and outstanding shares of Viela’s common stock for $53.00 per share. The acquisition added an additional rare disease medicine, UPLIZNA, to the Company’s commercial medicine portfolio. The Viela acquisition also provides multiple opportunities to drive long-term growth and solidify the Company’s future as an innovation-driven biotech company. Viela’s mid-stage biologics pipeline, R&D team and on-market medicine UPLIZNA, made it a complementary strategic fit with the Company’s pipeline, commercial portfolio and therapeutic areas of focus. Following completion of the acquisition, Viela became a wholly-owned subsidiary of the Company. The Company financed the transaction through cash on hand and $1.6 billion of aggregate principal amount of term loans pursuant to the Company’s existing credit agreement, as described in Note 13.

The total consideration for the acquisition was approximately $3.0 billion, including cash acquired of $342.3 million, and was composed of the following (in thousands):

Equity value (54,988,820 shares at $53.00 per share)	$	2,914,407
Net settlements on the exercise of stock options		78,554
Consideration for exchange of Viela stock options		1,130
Total consideration	$	2,994,091

During the year ended December 31, 2021, the Company incurred $28.6 million in Viela transaction costs, including advisory, legal, accounting, valuation and other professional and consulting fees, which were accounted for as “Selling, General and Administrative Expenses” in the consolidated statement of comprehensive income.

Pursuant to ASC 805, the Company accounted for the Viela acquisition as a business combination using the acquisition method of accounting. Identifiable assets and liabilities of Viela, including identifiable intangible assets, were recorded based on their estimated fair values as of the date of the closing of the acquisition. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. While all amounts were subject to adjustments, the areas subject to the most significant potential adjustments were inventory, intangible assets, IPR&D and deferred income taxes. As a result, the Company recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date. Such preliminary valuation required estimates and assumptions including, but not limited to, estimating future cash flows and direct costs in addition to developing the appropriate discount rates and current market profit margins. The Company’s management believes the fair values recognized for the assets acquired and the liabilities assumed are based on reasonable estimates and assumptions.

During the year ended December 31, 2021, the Company recorded measurement period adjustments related to deferred tax liabilities, accrued expenses and other current liabilities, accrued trade discounts and rebates, accounts receivable, prepaid expenses and other current assets and inventory, which resulted in a net reduction in goodwill of $9.7 million.

The following table summarizes the fair values assigned to the assets acquired and the liabilities assumed by the Company along with the resulting goodwill before and after the measurement period adjustments (in thousands):

	Before			Adjustments			After
Deferred tax liabilities, net	$	(457,928	)	$	6,589		$	(451,339	)
Accrued expenses and other current liabilities		(73,401	)		(335	)		(73,736	)
Other long-term liabilities		(22,631	)		—			(22,631	)
Accounts payable		(4,768	)		—			(4,768	)
Accrued trade discounts and rebates		(1,492	)		(373	)		(1,865	)
Marketable securities		400			—			400
Property, plant and equipment		1,747			—			1,747
Other assets		3,253			1,613			4,866
Accounts receivable		8,053			(267	)		7,786
Prepaid expenses and other current assets		16,444			152			16,596
Inventories		149,348			2,300			151,648
Cash and cash equivalents		342,347			—			342,347
In-process research and development		910,000			—			910,000
Developed technology		1,460,000			—			1,460,000
(Liabilities assumed) and assets acquired		2,331,372			9,679			2,341,051
Goodwill		662,719			(9,679	)		653,040
Fair value of consideration paid	$	2,994,091		$	—		$	2,994,091

Inventories acquired included raw materials, work in process and finished goods for UPLIZNA. Inventories were recorded at their estimated fair values. The fair value of finished goods has been determined based on the estimated selling price, net of selling costs and a margin on the selling activities. The fair value of work in process has been determined based on estimated selling price, net of selling costs and costs to complete the manufacturing, and a margin on the selling and manufacturing activities. The fair value of raw materials was estimated to equal the replacement cost. A step-up in the value of inventory of $149.3 million was originally recorded in connection with the acquisition, which was composed of $10.1 million for raw materials, $119.0 million for work-in-process and $20.2 million for finished goods. During the year ended December 31, 2021, the step-up in the value of inventory was increased to $151.6 million following the recording of $2.3 million in measurement period adjustments which was composed of $1.9 million for work-in-process and $0.4 million for finished goods. During the year ended December 31, 2021, the Company recorded inventory step-up expense of $27.6 million related to UPLIZNA based on the acquired units sold during the period.

Other tangible assets and liabilities were valued at their respective carrying amounts as management believes that these amounts approximated their acquisition-date fair values.

Developed technology is an intangible asset that reflects the estimated fair value of the rights to UPLIZNA in the United States. The estimated fair values of the developed technology represent valuations performed with the assistance of an independent appraisal firm based on management’s estimates, forecasted financial information and reasonable and supportable assumptions. The fair value of developed technology was determined using an income approach. The income approach explicitly recognizes that the fair value of an asset is premised upon the expected receipt of future economic benefits such as earnings and cash inflows based on current sales projections and estimated direct costs for UPLIZNA. Indications of value were developed by discounting these benefits to their acquisition-date fair value at a discount rate of 11.5% that reflects the return requirements of the market. Some of the most significant assumptions inherent in the development of the asset valuation include the estimated net cash flows for each year (including net sales, cost of goods sold, sales and marketing costs and R&D costs) and the discount rate. The fair value of the UPLIZNA developed technology was capitalized as of the Viela acquisition date and is subsequently being amortized over approximately 14 years.

IPR&D is related to R&D projects including:

(i)

Potential regulatory approval of UPLIZNA for neuromyelitis optica spectrum disorder (“NMOSD”) outside of the United States and certain other indications worldwide. As of the date of the acquisition, UPLIZNA had not been granted regulatory approval in any territory outside the United States or for any indications other than NMOSD in the United States. On March 23, 2021, the Company’s strategic partner, Mitsubishi Tanabe Pharma Corporation, received manufacturing and marketing approval for UPLIZNA in Japan. Refer to Note 8 for further details.

(ii)

Daxdilimab (HZN-7734), an investigational human monoclonal antibody designed to deplete plasmacytoid dendritic cells (pDCs), a cell type believed to be critical to the pathogenesis of multiple autoimmune diseases.

(iii)

Dazodalibep (HZN-4920), an investigational fusion protein designed to block a key co-stimulatory pathway involved in many autoimmune and inflammatory diseases.

Each IPR&D asset is considered separable from the business as each project could be sold to a third party. The fair value of each IPR&D asset was determined using an income approach. The income approach explicitly recognizes that the fair value of an asset is premised upon the expected receipt of future economic benefits such as earnings and cash inflows based on sales projections and estimated direct costs. Indications of value are developed by discounting these benefits to their present value at a discount rate of 12.5% that reflects the return requirements of the market. Some of the most significant assumptions inherent in the development of the asset valuations include the estimated net cash flows for each year (including net sales, cost of goods sold, sales and marketing costs and R&D costs), the discount rate, the assessment of each asset’s life cycle and the potential regulatory and commercial success risk. The fair value of the various IPR&D assets was recorded as an indefinite-lived intangible asset and will be tested for impairment until completion or abandonment of R&D efforts associated with the project. The Company reviews amounts capitalized as acquired IPR&D for impairment annually and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable.

Deferred tax assets and liabilities arise from acquisition accounting adjustments where book values of certain assets and liabilities differ from their tax bases. Deferred tax assets and liabilities are recorded at the currently enacted rates which will be in effect at the time when the temporary differences are expected to reverse in the country where the underlying assets and liabilities are located. The developed technology, IPR&D assets and inventory acquired through the Viela acquisition were located in the United States as of the acquisition date, where a U.S. tax rate of 23.8% is being utilized and a significant deferred tax liability of $451.3 million was recorded.

Goodwill represents the excess of the total consideration over the estimated fair value of net assets acquired and was recorded in the consolidated balance sheet as of the acquisition date. The goodwill was primarily attributable to the establishment of a deferred tax liability for the developed technology intangible asset and the IPR&D intangible assets. Viela’s mid-stage biologics pipeline, R&D team and on-market medicine UPLIZNA, made it a complementary strategic fit with the Company’s pipeline, commercial portfolio and therapeutic areas of focus. The Company does not expect any portion of this goodwill to be deductible for tax purposes.

The following table presents the pro forma combined results of the Company and Viela for the year ended December 31, 2021 and 2020 as if the acquisition of Viela had occurred on January 1, 2020 (in thousands):

	For the Year Ended December 31,
	2021							2020
	As reported		Pro forma adjustments			Pro forma		As reported		Pro forma adjustments			Pro forma
Net sales	$	3,226,410	$	10,588		$	3,236,998	$	2,200,429	$	11,652		$	2,212,081
Net income		534,491		(30,804	)		503,687		389,796		(291,730	)		98,066

The pro forma combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and Viela. In order to reflect the pro forma information as if the acquisition occurred on January 1, 2020 as required, the pro forma financial information includes adjustments to reflect incremental amortization expense to be incurred based on the current fair values of the identifiable intangible assets acquired; the incremental cost of products sold related to the fair value adjustments associated with acquisition date inventory; the additional interest expense associated with the issuance of debt to finance the acquisition; and the reclassification of transaction costs incurred during the year ended December 31, 2021 to the year ended December 31, 2020. Significant non-recurring pro forma adjustments include transaction costs of $86.6 million which were assumed to have been incurred on January 1, 2020 and were recognized as if incurred during the year ended December 31, 2020. The pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition actually been completed on January 1, 2020. In addition, the pro forma financial information is not a projection of future results of operations of the combined company nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition.

Acquisition of Curzion Pharmaceuticals, Inc.

On April 1, 2020, the Company acquired Curzion Pharmaceuticals, Inc. (“Curzion”), a privately held development-stage biopharma company, and its development-stage oral selective lysophosphatidic acid 1 receptor (LPAR₁) antagonist, CZN001 (renamed HZN-825).

Under the terms of the acquisition agreement, the Company acquired Curzion for a $45.0 million upfront cash payment with additional payments contingent on the achievement of development and regulatory milestones. Pursuant to ASC 805 (as amended by ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU No. 2017-01”)), the Company accounted for the Curzion acquisition as the purchase of an IPR&D asset and, pursuant to ASC Topic 730, Research and Development (“ASC 730”), recorded the purchase price as R&D expense during the year ended December 31, 2020. HZN-825 was originally discovered and developed by Sanofi-Aventis U.S. LLC, which is eligible to receive contingent payments upon the achievement of development and commercialization milestones and royalties based on revenue thresholds. A member of the Company’s board of directors was also a member of the board of directors of, and held a beneficial interest in, Curzion. This related party transaction was conducted in the normal course of business on an arm’s length basis.

Sale of RAVICTI and BUPHENYL Rights in Japan

On October 27, 2020, the Company sold its rights to develop and commercialize RAVICTI and BUPHENYL in Japan to Medical Need Europe AB, part of the Immedica Group, for $5.4 million and recorded a gain of $4.9 million on the sale in the fourth quarter of 2020. The Company has retained the rights to RAVICTI and BUPHENYL in North America.

Sale of MIGERGOT rights

On June 28, 2019, the Company sold its rights to MIGERGOT to Cosette Pharmaceuticals, Inc., for $6.0 million and total potential contingent consideration payments of $4.0 million (the “MIGERGOT transaction”).

Pursuant to ASU No. 2017-01, the Company accounted for the MIGERGOT transaction as a sale of assets, specifically a sale of intellectual property rights, and a sale of inventory.

The loss on sale of assets recorded to the consolidated statement of comprehensive income during the year ended December 31, 2019, was determined as follows (in thousands):

Cash proceeds	$	6,000
Less net assets sold:
Developed technology		(16,999	)
Inventory		(236	)
Release of contingent consideration liability		272
Loss on sale of assets	$	(10,963	)

Acquisition of River Vision

On May 8, 2017, the Company acquired 100% of the equity interests in River Vision Development Corp. (“River Vision”) for upfront cash payments totaling approximately $150.3 million, including cash acquired of $6.3 million, with additional potential future milestone and royalty payments contingent on the satisfaction of certain regulatory milestones and sales thresholds. Pursuant to ASU No. 2017-01, the Company accounted for the River Vision acquisition as the purchase of an IPR&D asset (teprotumumab, now known as TEPEZZA) and, pursuant to ASC 730, recorded the purchase price as R&D expense during the year ended December 31, 2017.

Under the acquisition agreement for River Vision, the Company agreed to pay up to $325.0 million upon the attainment of various milestones, composed of $100.0 million related to U.S. Food and Drug Administration (“FDA”) approval and $225.0 million related to net sales thresholds for TEPEZZA. The agreement also includes a royalty payment of 3 percent of the portion of annual worldwide net sales exceeding $300.0 million. The Company made the milestone payment of $100.0 million related to FDA approval during the first quarter of 2020 which is now capitalized as a finite-lived intangible asset representing the developed technology for TEPEZZA.

Additionally, under the Company’s license agreement with Roche, the Company made a milestone payment of CHF5.0 million ($5.2 million when converted using a CHF-to-Dollar exchange rate at the date of payment of 1.0382), during the first quarter of 2020 which the Company also capitalized as a finite-lived intangible asset representing the developed technology for TEPEZZA.

In April 2020, a subsidiary of the Company entered into an agreement with S.R. One, Limited (“S.R. One”) and an agreement with Lundbeckfond Invest A/S (“Lundbeckfond”) pursuant to which the Company 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. The total payments of $110.0 million were capitalized as a finite-lived intangible asset representing the developed technology for TEPEZZA during the second quarter of 2020.

In addition, during the year ended December 31, 2020, the Company recorded $120.8 million as a finite-lived intangible asset representing the developed technology for TEPEZZA, composed of $67.0 million in relation to the expected future attainment of various net sales milestones payable under the acquisition agreement for River Vision and CHF50.0 million ($53.8 million when converted using a CHF-to-Dollar exchange rate as of the date the intangible asset was recorded) in relation to the expected future attainment of various net sales milestones payable to Roche. The liabilities relating to these TEPEZZA net sales milestones were recorded in accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2020. The Company paid such TEPEZZA net sales milestones to Roche in February 2021 and to the former River Vision stockholders in April 2021 and, following such payments, there are no further TEPEZZA net sales milestone obligations remaining to Roche and the former River Vision stockholders. The Company’s remaining obligation to Roche relating to the attainment of various TEPEZZA development and regulatory milestones is CHF43.0 million ($47.0 million when converted using a CHF-to-Dollar exchange rate at December 31, 2021 of 1.0937).

Refer to Note 15 for further detail on TEPEZZA milestone payments.

Other Arrangements

Alpine Immune Sciences, Inc.

On December 15, 2021, the Company entered into an exclusive license agreement with Alpine Immune Sciences, Inc. (“Alpine”) for the development and commercialization of up to four preclinical candidates generated from Alpine’s unique discovery platform. The agreement includes licensing of a lead, potential first-in-class preclinical candidate, as well as a research partnership to jointly generate additional novel candidates. These candidates include previously undisclosed multi-specific fusion protein-based therapeutic candidates for autoimmune and inflammatory diseases.

In connection with the execution of the license agreement, the Company entered into a stock purchase agreement with Alpine to purchase a minority stake of 951,980 shares of Alpine’s common stock in a private placement.

Under the terms of the agreements, the Company paid Alpine $15.0 million in the fourth quarter of 2021 and paid $25.0 million in the first quarter of 2022. The shares of Alpine’s common stock were purchased at a premium to their fair value at the transaction closing date. The premium consisted of acquiring the shares at a price above the fair value based on a premium to the 30-day volume-weighted average share price prior to entering into the agreement. The Company recorded an asset of $11.9 million in other assets in our consolidated balance sheet reflecting the fair value of the common stock. In addition, we recorded a charge of $28.1 million to R&D expense in our consolidated statement of comprehensive income for the year ended December 31, 2021, of which $25.0 million relates to the upfront payment and $3.1 million relates to the premium paid for shares of Alpine’s common stock. The $28.1 million was accounted for as the acquisition of an IPR&D asset during the year ended December 31, 2021.

In addition, Alpine is eligible to receive up to $381.0 million per program, or approximately $1.52 billion in total, in future success-based payments related to development, regulatory and commercial milestones. Additionally, Alpine is eligible to receive tiered royalties from a mid-single digit percentage to a low double-digit percentage on global net sales. Alpine will advance candidate molecules to pre-defined preclinical milestones, and the Company will be responsible for the costs. The Company will then assume responsibility for development and commercialization activities and costs.

Arrowhead Pharmaceuticals, Inc.

On June 18, 2021, the Company entered into a global agreement with Arrowhead Pharmaceuticals, Inc. (“Arrowhead”) for ARO-XDH, a previously undisclosed discovery-stage investigational RNA interference (“RNAi”) therapeutic being developed by Arrowhead as a potential treatment for uncontrolled gout. Arrowhead granted the Company a worldwide exclusive license to develop, manufacture and commercialize products based on the RNAi therapeutic. Arrowhead will conduct all research and preclinical development activities for the RNAi therapeutic products. The Company must use commercially reasonable efforts in, and will be responsible for, clinical development and commercialization of the RNAi therapeutic products. Under the terms of the agreement, the Company paid Arrowhead an upfront cash payment of $40.0 million in July 2021 and agreed to pay additional potential future milestone payments of up to $660.0 million contingent on the achievement of certain development, regulatory and commercial milestones, and low to mid-teens royalties on worldwide calendar year net sales of licensed products. The $40.0 million upfront payment was accounted for as the acquisition of an IPR&D asset and was recorded as a R&D expense in the consolidated statement of comprehensive income during the year ended December 31, 2021.

Halozyme Therapeutics, Inc.

On November 21, 2020, the Company entered into a global agreement with Halozyme Therapeutics, Inc. (“Halozyme”) that gives the Company exclusive access to Halozyme’s ENHANZE^® drug delivery technology for subcutaneous (“SC”) formulation of medicines targeting IGF-1R. The Company is using ENHANZE to develop a SC formulation of TEPEZZA, indicated for the treatment of thyroid eye disease, a serious, progressive and vision-threatening rare autoimmune disease, potentially shortening drug administration time, reducing healthcare practitioner time and offering additional flexibility and convenience for patients. Under the terms of the agreement, the Company paid Halozyme an upfront cash payment of $30.0 million in December 2020, with additional potential future milestone payments of up to $160.0 million contingent on the satisfaction of certain development and sales thresholds. Halozyme will also be entitled to receive mid-single digit royalties on sales of commercialized medicines using the ENHANZE technology. The $30.0 million upfront payment was accounted for as the acquisition of an IPR&D asset and was recorded as a R&D expense in the consolidated statement of comprehensive income during the year ended December 31, 2020.

HemoShear Therapeutics, LLC

On January 3, 2019, the Company entered into an agreement with HemoShear Therapeutics, LLC (“HemoShear”), a biotechnology company, to discover novel therapeutic targets for gout. The agreement provides the Company with an opportunity to address unmet treatment needs for people with gout by evaluating new targets for the control of serum uric acid levels. Under the terms of the agreement, the Company paid HemoShear an upfront cash payment of $2.0 million with additional potential future milestone payments upon commencement of new stages of development, contingent on the Company’s approval at each stage. In June 2019, a $4.0 million progress payment became due, which the Company subsequently paid in July 2019. In June 2020, a $3.0 million progress payment became due, which the Company subsequently paid in July 2020. Progress payments of $7.0 million became due and were paid during the year ended December 31, 2021.

Inventories

12 Months Ended

Dec. 31, 2021

Inventory Disclosure [Abstract]

Inventories

NOTE 5 – INVENTORIES

The components of inventories as of December 31, 2021 and 2020 consisted of the following (in thousands):

	As of December 31,
	2021		2020
Raw materials	$	43,366	$	11,760
Work-in-process		101,719		33,167
Finished goods		80,645		30,356
Inventories, net	$	225,730	$	75,283

During the year ended December 31, 2021, as part of the Viela acquisition, a step-up in the value of inventory of $151.6 million was recorded, which was composed of $10.1 million for raw materials, $120.9 million for work-in-process and $20.6 million for finished goods. Refer to Note 4 for further details. The Company recorded $27.6 million of UPLIZNA inventory step-up expense in cost of goods sold during the year ended December 31, 2021.

Because inventory step-up expense is related to an acquisition, will not continue indefinitely and has a significant effect on the Company’s gross profit, gross margin percentage and net loss for all affected periods, the Company discloses balance sheet and income statement amounts related to inventory step-up within the Notes to Consolidated Financial Statements.

Prepaid Expenses and Other Current Assets

12 Months Ended

Dec. 31, 2021

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Prepaid Expenses and Other Current Assets

NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of December 31, 2021 and 2020 consisted of the following (in thousands):

	As of December 31,
	2021		2020
Advance payments for inventory	$	160,103	$	137,680
Deferred charge for taxes on intercompany profit		66,175		52,306
Prepaid income taxes and income tax receivable		36,388		102
Rabbi trust assets		26,519		18,423
Other prepaid expenses and other current assets		67,921		43,434
Prepaid expenses and other current assets	$	357,106	$	251,945

Advance payments for inventory as of December 31, 2021 and 2020, primarily represented payments made to the contract manufacturer of TEPEZZA drug substance.

Property, Plant and Equipment

12 Months Ended

Dec. 31, 2021

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31, 2021 and 2020 consisted of the following (in thousands):

	As of December 31,
	2021			2020
Buildings	$	174,209		$	80,341
Land and land improvements		40,468			38,076
Construction in process		28,210			63,656
Leasehold improvements		23,801			26,323
Furniture and fixtures		19,318			5,973
Machinery and equipment		18,390			4,695
Software		13,388			14,618
Other		10,418			3,146
		328,202			236,828
Less accumulated depreciation		(35,904	)		(47,791	)
Property, plant and equipment, net	$	292,298		$	189,037

Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $17.5 million, $24.3 million and $6.7 million, respectively.

In July 2021, the Company completed the purchase of a biologic drug product manufacturing facility from EirGen. Refer to Note 4 for further details.

In February 2020, the Company purchased a three-building campus in Deerfield, Illinois for total consideration and directly attributable transaction costs of $118.5 million. The Deerfield campus totals 70 acres and consists of approximately 650,000 square feet of office space. The Company’s office employees previously located in Lake Forest, Illinois moved to the Deerfield campus in February 2021. In January 2022, the Company entered into a sublease agreement for the entire Lake Forest office building for the remaining term of the original lease through March 31, 2031. The increase in amount classified as buildings and the decrease in amount classified as construction in process is primarily due to the Deerfield campus becoming operational in February 2021.

Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2021

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

The table below presents goodwill for the Company’s reportable segments as of December 31, 2021 (in thousands):

	Orphan			Inflammation		Total
Balance at December 31, 2020	$	357,498		$	56,171	$	413,669
Goodwill recognized on acquisition of Viela		662,719			—		662,719
Adjustment relating to the acquisition of Viela		(9,679	)		—		(9,679	)
Balance at December 31, 2021	$	1,010,538		$	56,171	$	1,066,709

In March 2021, the Company recognized goodwill with a preliminary value of $662.7 million in connection with the Viela acquisition, which represented the excess of the purchase price over the fair value of the net assets acquired. During the year ended December 31, 2021, the Company recorded measurement period adjustments related to deferred tax liabilities, accounts receivable, prepaid expenses and other current assets, accrued expenses and other current liabilities and accrued trade discounts and rebates, which resulted in a net decrease in goodwill of $9.7 million, to $653.0 million. Refer to Note 4 for further details.

As of December 31, 2021, there were no accumulated goodwill impairment losses.

At September 30, 2021, the Company determined that there was an indicator to trigger an interim impairment analysis of the inflammation reporting unit’s goodwill. The indicator was the August 2021 launch of a generic version of DUEXIS in the United States, resulting in a decrease in future expected net sales. As of September 30, 2021, the Company performed a quantitative assessment to determine if it was more likely than not that the fair value of the inflammation reporting unit exceeds its carrying value, including goodwill. The fair value of the inflammation reporting unit exceeded its carrying value by more than 30%, resulting in no impairment.

The Company determined the fair value of the inflammation reporting unit using accepted valuation methods, including the use of discounted cash flows that incorporate the use of projected financial information and a 7% discount rate developed using market participant-based assumptions. The cash-flow projections are based on a five-year financial forecast developed by management that includes net sales projections, which are updated annually and reviewed by management. The selected discount rate considered the risk and nature of the inflammation reporting unit’s cash flows and the rates of return market participants would require to invest their capital in the Company’s reporting unit.

In addition, the Company’s annual goodwill impairment test in the fourth quarter of 2021 did not indicate an impairment. While no impairment was recognized during the year ended December 31, 2021, the Company anticipates that an impairment of the inflammation reporting unit’s goodwill could occur in the next 12 to 18 months if the reporting unit does not achieve currently forecasted net sales and profitability estimates. These forecasts and estimates could be impacted by factors outside of the Company’s control, such as increased competition from RAYOS generic entrants, which may result in an impairment.

Intangible Assets

As of December 31, 2021, the Company’s finite-lived intangible assets consisted of developed technology related to ACTIMMUNE, BUPHENYL, KRYSTEXXA, PROCYSBI, RAVICTI, RAYOS, TEPEZZA and UPLIZNA as well as customer relationships for ACTIMMUNE. The intangible assets related to PENNSAID 2% and VIMOVO developed technology were fully amortized as of December 31, 2020.

In July 2021, in connection with the purchase of a biologic drug product manufacturing facility from EirGen, the Company capitalized $21.8 million of intangible assets which are being amortized over a weighted-average estimated useful life of 16 years. Refer to Note 4 for further details.

On March 15, 2021, in connection with the acquisition of Viela, the Company capitalized $1,460.0 million of developed technology related to UPLIZNA. Refer to Note 4 for further details.

In connection with the acquisition of River Vision, the Company capitalized payments of $336.0 million related to TEPEZZA developed technology during the year ended December 31, 2020. Refer to Note 4 for further details on the River Vision acquisition.

Intangible assets as of December 31, 2021 and 2020 consisted of the following (in thousands):

	As of December 31,
	2021							2020
	Cost Basis		Accumulated Amortization			Net Book Value		Cost Basis		Accumulated Amortization			Net Book Value
Developed technology	$	4,579,171	$	(1,642,427	)	$	2,936,744	$	3,093,886	$	(1,313,934	)	$	1,779,952
In-process research and development (1)		880,000		—			880,000		—		—			—
Customer relationships and other intangibles		29,894		(6,520	)		23,374		8,100		(5,090	)		3,010
Total intangible assets	$	5,489,065	$	(1,648,947	)	$	3,840,118	$	3,101,986	$	(1,319,024	)	$	1,782,962

(1)

The Company acquired IPR&D of $910.0 million relating to the Viela acquisition. On March 23, 2021, the Company’s strategic partner, Mitsubishi Tanabe Pharma Corporation, received manufacturing and marketing approval of UPLIZNA in Japan. As a result, the Company transferred $30.0 million of IPR&D to developed technology. As of December 31, 2021, the remaining IPR&D relating to the Viela acquisition was $880.0 million.

Amortization expense for the years ended December 31, 2021, 2020 and 2019 was $336.3 million, $255.1 million and $230.4 million, respectively. As of December 31, 2021, estimated future amortization expense was as follows (in thousands):

2022		$	360,120
2023