0000950170-23-016886 | 10-Q | XBRL Viewer | Horizon Therapeutics Public LTD Co

Print Document View Excel Document

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2023	Apr. 27, 2023
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2023
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Title of 12(b) Security	Ordinary shares, nominal value $0.0001 per share
Trading Symbol	HZNP
Security Exchange Name	NASDAQ
Entity Registrant Name	HORIZON THERAPEUTICS PUBLIC LIMITED COMPANY
Entity Central Index Key	0001492426
Entity Tax Identification Number	98-1195602
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		228,621,802
Entity Shell Company	false
Entity File Number	001-35238
Entity Incorporation, State or Country Code	L2
Entity Address, Address Line One	70 St. Stephen’s Green
Entity Address, City or Town	Dublin 2
Entity Address, Postal Zip Code	D02 E2X4
Entity Address, Country	IE
City Area Code	011
Local Phone Number	353 1 772 2100
Document Quarterly Report	true
Document Transition Report	false

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
CURRENT ASSETS:
Cash and cash equivalents	$ 2,311,628	$ 2,352,833
Restricted cash	4,772	4,755
Accounts receivable, net	624,697	676,347
Inventories, net	164,496	169,559
Prepaid expenses and other current assets	497,254	449,349
Total current assets	3,602,847	3,652,843
Property, plant and equipment, net	355,872	340,509
Developed technology and other intangible assets, net	2,576,163	2,664,777
In-process research and development	810,000	810,000
Goodwill	1,010,538	1,010,538
Deferred tax assets, net	450,219	431,814
Other long-term assets	187,811	204,135
Total assets	8,993,450	9,114,616
CURRENT LIABILITIES:
Accounts payable	76,619	155,800
Accrued expenses and other current liabilities	482,334	457,557
Accrued trade discounts and rebates	309,935	319,780
Long-term debt-current portion	16,000	16,000
Total current liabilities	884,888	949,137
LONG-TERM LIABILITIES:
Long-term debt, net	2,544,230	2,546,837
Deferred tax liabilities, net	271,550	342,017
Other long-term liabilities	197,222	204,451
Total long-term liabilities	3,013,002	3,093,305
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Ordinary shares, $0.0001 nominal value; 600,000,000 shares authorized at March 31, 2023 and December 31, 2022; 228,960,705 and 227,625,913 shares issued at March 31, 2023 and December 31, 2022, respectively; and 228,576,339 and 227,241,547 shares outstanding at March 31, 2023 and December 31, 2022, respectively	23	23
Treasury stock, 384,366 ordinary shares at March 31, 2023 and December 31, 2022	(4,585)	(4,585)
Additional paid-in capital	4,448,744	4,474,199
Accumulated other comprehensive income	6,685	12,528
Retained earnings	644,693	590,009
Total shareholders’ equity	5,095,560	5,072,174
Total liabilities and shareholders' equity	$ 8,993,450	$ 9,114,616

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
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	228,960,705	227,625,913
Ordinary shares, shares outstanding	228,576,339	227,241,547
Treasury stock, ordinary shares	384,366	384,366

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Statement [Abstract]
Net sales	$ 832,059	$ 885,245
Cost of goods sold	208,563	215,062
Gross profit	623,496	670,183
OPERATING EXPENSES:
Research and development	134,148	103,132
Selling, general and administrative	453,354	372,734
Total operating expenses	587,502	475,866
Operating income	35,994	194,317
OTHER EXPENSE, NET:
Interest expense, net	(15,540)	(21,256)
Foreign exchange gain	91	420
Other expense, net	(1,343)	(742)
Total other expense, net	(16,792)	(21,578)
Income before benefit for income taxes	19,202	172,739
Benefit for income taxes	(35,482)	(31,522)
Net income	$ 54,684	$ 204,261
Net income per ordinary share—basic	$ 0.24	$ 0.89
Weighted average ordinary shares outstanding—basic	228,397,661	229,094,311
Net income per ordinary share—diluted	$ 0.23	$ 0.87
Weighted average ordinary shares outstanding—diluted	233,788,366	235,953,318
OTHER COMPREHENSIVE LOSS, NET OF TAX
Interest rate swap contracts designated as cash flow hedges	$ (7,052)
Foreign currency translation adjustments	(615)	$ (460)
Pension and other post-employment benefit plan remeasurements	1,824	325
Other comprehensive loss	(5,843)	(135)
Comprehensive income	$ 48,841	$ 204,126

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Ordinary Shares [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income [Member]	Retained Earnings [Member]
Beginning balance at Dec. 31, 2021	$ 4,672,393	$ 23	$ (4,585)	$ 4,373,337	$ (14,987)	$ 318,605
Beginning balance, shares at Dec. 31, 2021		227,760,936	384,366
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units	9,071			9,071
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units, shares		2,112,964
Ordinary shares withheld for payment of employees' withholding tax liability	(115,108)			(115,108)
Share-based compensation	47,347			47,347
Pension and other post-employment benefit plan remeasurements	325				325
Foreign currency translation adjustments	(460)				(460)
Net income	204,261					204,261
Ending balance at Mar. 31, 2022	4,817,829	$ 23	$ (4,585)	4,314,647	(15,122)	522,866
Ending balance, shares at Mar. 31, 2022		229,873,900	384,366
Beginning balance at Dec. 31, 2022	5,072,174	$ 23	$ (4,585)	4,474,199	12,528	590,009
Beginning balance, shares at Dec. 31, 2022		227,625,913	384,366
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units	3,421			3,421
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units, shares		1,334,792
Ordinary shares withheld for payment of employees' withholding tax liability	(87,549)			(87,549)
Share-based compensation	58,673			58,673
Interest rate swap contracts designated as cash flow hedges	(7,052)				(7,052)
Pension and other post-employment benefit plan remeasurements	1,824				1,824
Foreign currency translation adjustments	(615)				(615)
Net income	54,684					54,684
Ending balance at Mar. 31, 2023	$ 5,095,560	$ 23	$ (4,585)	$ 4,448,744	$ 6,685	$ 644,693
Ending balance, shares at Mar. 31, 2023		228,960,705	384,366

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 54,684	$ 204,261
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	94,860	95,112
Equity-settled share-based compensation	58,120	47,300
Amortization of debt discount and deferred financing costs	1,471	1,577
Deferred income taxes	(87,310)	(33,896)
Foreign exchange and other adjustments	(434)	3,190
Changes in operating assets and liabilities:
Accounts receivable	51,530	(51,665)
Inventories	5,067	(785)
Prepaid expenses and other current assets	(48,625)	(33,205)
Accounts payable	(78,040)	36,067
Accrued trade discounts and rebates	(9,938)	47,279
Accrued expenses and other current liabilities	42,858	(113,775)
Other non-current assets and liabilities	2,080	14,331
Net cash provided by operating activities	86,323	215,791
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments related to license and collaboration agreements	(15,000)	(25,000)
Purchases of property, plant and equipment	(24,128)	(14,198)
Payments for acquisitions, net of cash acquired		(3,122)
Payments for long-term investments	(2,623)	(1,464)
Receipts from long-term investments		3,060
Net cash used in investing activities	(41,751)	(40,724)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of term loans	(4,000)	(4,000)
Proceeds from the issuance of ordinary shares in connection with stock option exercises	3,421	9,071
Payment of employee withholding taxes relating to share-based awards	(87,549)	(115,108)
Net cash used in financing activities	(88,128)	(110,037)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	2,368	(1,921)
Net (decrease) increase in cash, cash equivalents and restricted cash	(41,188)	63,109
Cash, cash equivalents and restricted cash, beginning of the period	2,357,588	1,584,156
Cash, cash equivalents and restricted cash, end of the period	2,316,400	1,647,265
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of interest swap payments	43,572	28,095
Cash refunds received for income taxes, net of payments	21,544
Cash paid for income taxes, net of refunds received		1,496
Cash paid for amounts included in the measurement of operating lease liabilities	2,566	2,208
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Purchases of property, plant and equipment included in accounts payable and accrued expenses and other current liabilities	$ 14,413	3,627
Lease liabilities arising from obtaining right-of-use assets		$ 21,213

Basis of Presentation and Business Overview

3 Months Ended

Mar. 31, 2023

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation and Business Overview

NOTE 1 – BASIS OF PRESENTATION AND BUSINESS OVERVIEW

Basis of Presentation

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.

Transaction Agreement with Amgen Inc.

On December 12, 2022, the Company announced that it had entered into a transaction agreement with Amgen Inc. (“Amgen”) and Pillartree Limited (“Pillartree”), a wholly owned subsidiary of Amgen. Subject to the terms of the transaction agreement, Pillartree will acquire the Company (the “Transaction”), pursuant to a scheme of arrangement under Chapter 1 of Part 9 of the Companies Act 2014 of Ireland (the “Scheme”), or under certain circumstances, subject to the terms of the transaction agreement, a takeover offer (as such term is defined under the Irish Takeover Rules). As a result of the Scheme, the Company would become a wholly owned subsidiary of Amgen.

At the effective time of the Scheme (the “Effective Time”), holders of the Company’s ordinary shares will be entitled to receive $116.50 in cash per ordinary share (the “Consideration”). The Company’s equity awards will be treated as set forth in the transaction agreement, such that:

•

each option to purchase the Company’s ordinary shares that is outstanding as of immediately prior to the Effective Time (whether or not vested) will, contingent upon and effective as of the Effective Time, be canceled and converted into the right to receive cash, without interest, in an amount equal to (a) the total number of the Company’s ordinary shares subject to such option immediately prior to the Effective Time, multiplied by (b) the excess of (i) the Consideration over (ii) the exercise price payable per share under such option;

•

each of the Company’s restricted stock unit (“RSU”) awards, excluding PSUs (as defined below), that is outstanding as of immediately prior to the Effective Time (whether or not vested) will, contingent upon and effective as of the Effective Time, (a) if granted to a non-employee member of the Company’s board of directors or held by a person who, as of the date of the completion of the Transaction, is a former service-provider of the Company, be canceled and converted into the right to receive a cash amount equal to (i) the total number of the Company’s ordinary shares subject to such RSU immediately prior to the Effective Time multiplied by (ii) the Consideration, and (b) if not granted to an individual described in clause (a) above, be canceled and converted into a restricted stock unit (an “Amgen RSU”), denominated in shares of Amgen’s common stock. The number of shares of Amgen common stock subject to each such Amgen RSU will be equal to the product (rounded down to the nearest whole number) of (a) the total number of the Company’s ordinary shares subject to such RSU immediately prior to the Effective Time multiplied by (b) the quotient of (i) the Consideration divided by (ii) the volume weighted average of the per share closing price of Amgen’s common stock on the Nasdaq Global Select Market for five trading days ending on the second business day prior to the completion of the Transaction. Following the Effective Time, each Amgen RSU will continue to be governed by the same terms and conditions (including vesting terms) as were applicable to the applicable RSU immediately prior to the Effective Time; and

•

each of the Company’s RSU awards with performance-based vesting or delivery requirements (“PSU”) that is outstanding as of immediately prior to the Effective Time (whether or not vested) will, contingent upon and effective as of the Effective Time, be canceled and converted into the right to receive cash, without interest, in an amount equal to (i) the total number of the Company’s ordinary shares issuable in settlement of such PSU as determined, in accordance with the terms of such PSU, by the compensation committee of the Company’s board of directors (the “Compensation Committee”) prior to the Effective Time multiplied by (ii) the Consideration.

On February 24, 2023, the Company’s shareholders approved the Scheme and certain scheme approval resolutions and amendments to the memorandum and articles of association of Horizon to enable the Scheme to be effected. The closing of the Transaction remains subject to customary closing conditions, including, among other things, (a) the sanction by the Irish High Court of the Scheme and delivery of the court order to the Irish Registrar of Companies, (b) the receipt of required antitrust clearance in the United States, and the absence of an order or law that prevents consummation of the Transaction or imposes a burdensome condition (as defined in the transaction agreement), (c) absence of any Material Adverse Effect (as defined in the transaction agreement) from December 12, 2022 to the Sanction Date (as defined in the transaction agreement) that is continuing as of the Sanction Date, (d) the accuracy of the other party’s representations and warranties subject to certain materiality and material adverse effect exceptions and (e) the performance by each party of all of its covenants and agreements under the transaction agreement in all material respects. In connection with the Transaction, the Company and Amgen have received clearances or confirmation of non-applicability related to foreign direct investment in Denmark, Italy, Germany and France and clearances related to antitrust in Germany and Austria. On January 30, 2023, the Company and Amgen received a request for additional information and documentary materials, or a second request, from the Federal Trade Commission (“FTC”) in connection with the FTC’s review of the Transaction. The Company and Amgen have been working cooperatively with the FTC in its review and will continue to do so.

The Irish High Court has set a hearing date of May 22, 2023 to consider the Company’s application to sanction the Scheme. The Company will inform the Irish High Court in advance if the hearing date needs to be adjourned to a later date as a result of a condition to closing, including required regulatory clearances, not having been satisfied by the scheduled hearing date. The Transaction is expected to close shortly after the Irish High Court issues an order sanctioning the Scheme and the Company continues to expect that the closing of the Transaction will occur during the first half of 2023. Additional information about the transaction agreement and the Transaction is set forth in our filings with the SEC.

The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The December 31, 2022 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

Business Overview

Horizon is a global biotechnology company 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’s commercial portfolio is currently composed of 12 medicines in the areas of rare diseases, gout, ophthalmology and inflammation.

As of March 31, 2023, the Company’s commercial portfolio consisted of the following medicines:

TEPEZZA® (teprotumumab-trbw), for intravenous infusion

KRYSTEXXA® (pegloticase injection), for intravenous infusion

RAVICTI® (glycerol phenylbutyrate) oral liquid

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

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

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

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

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

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

QUINSAIR™ (levofloxacin) solution for inhalation

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

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

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), which provides expedients and exceptions for accounting treatment of contracts which are affected by the anticipated discontinuation of the London Inter-Bank Offered Rate (“LIBOR”) and other rates resulting from rate reform that are entered into on or before December 31, 2022. In December 2022, the FASB issued ASU 2022-06 which defers the sunset date of the guidance included in Topic 848 from December 31, 2022 to December 31, 2024. The Company does not expect the planned discontinuation of LIBOR to have a material impact on interest payments incurred under the Credit Agreement (as defined below). Refer to Note 12 for further details. The discontinuation of LIBOR is expected to occur as of June 30, 2023. In the second quarter of 2022, the Company elected to apply the optional expedients for the assessment of hedge effectiveness for cash flow hedges affected by reference rate reform.

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 did not, or are not expected to, have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Significant Accounting Policies

The Company’s significant accounting policies have not changed from those previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Net Income per Share

3 Months Ended

Mar. 31, 2023

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 three months ended March 31, 2023 and 2022 (in thousands, except share and per share data):


	For the Three Months Ended March 31,
	2023		2022
Basic net income per share calculation:
Numerator - net income	$	54,684	$	204,261
Denominator - weighted average of ordinary shares outstanding		228,397,661		229,094,311
Basic net income per share	$	0.24	$	0.89


	For the Three Months Ended March 31,
	2023		2022
Diluted net income per share calculation:
Numerator - net income	$	54,684	$	204,261
Denominator - weighted average of ordinary shares outstanding		233,788,366		235,953,318
Diluted net income per share	$	0.23	$	0.87

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 net income.

During the three months ended March 31, 2023 and 2022, 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 computation of diluted net income per share for the three months ended March 31, 2023 and 2022 excluded 1.0 million and 3.0 million shares subject to equity awards, respectively, because their inclusion would have had an anti-dilutive effect on diluted net income per share.

Inventories

3 Months Ended

Mar. 31, 2023

Inventory Disclosure [Abstract]

Inventories

NOTE 4 – INVENTORIES

Inventories are stated at the lower of cost or net realizable value. Inventories consist of raw materials, work-in-process and finished goods. The Company has entered into manufacturing and supply agreements for the manufacture of drug substance, drug product and finished goods inventories, and the 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 components of inventories as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Raw materials	$	68,813	$	44,230
Work-in-process		25,542		25,232
Finished goods		70,141		100,097
Inventories, net	$	164,496	$	169,559

As part of the Viela Bio Inc. (“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 during the year ended December 31, 2021. Inventory step-up expense recorded in cost of goods sold relating to UPLIZNA was $29.7 million and $27.2 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the total remaining balance of inventory step-up was $2.6 million.

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 income for all affected periods, the Company discloses balance sheet and income statement amounts related to inventory step-up within the Notes to the Condensed Consolidated Financial Statements.

Prepaid Expenses and Other Current Assets

3 Months Ended

Mar. 31, 2023

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Prepaid Expenses and Other Current Assets

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Deferred charge for taxes on intercompany profit	$	182,924	$	164,771
Advance payments for inventory		163,473		156,824
Rabbi trust assets		29,525		28,227
Prepaid income taxes and income tax receivable		5,359		9,835
Other prepaid expenses and other current assets		115,973		89,692
Prepaid expenses and other current assets	$	497,254	$	449,349

Advance payments for inventory as of March 31, 2023 and December 31, 2022, primarily represented payments made to the contract manufacturer of TEPEZZA drug substance.

Property, Plant and Equipment

3 Months Ended

Mar. 31, 2023

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023			December 31, 2022
Buildings	$	175,580		$	173,560
Construction in process		103,636			88,825
Land and land improvements		44,323			44,323
Leasehold improvements		25,957			24,428
Machinery and equipment		23,381			22,865
Furniture and fixtures		21,692			20,318
Software		13,253			13,332
Other		12,303			11,966
		420,125			399,617
Less accumulated depreciation		(64,253	)		(59,108	)
Property, plant and equipment, net	$	355,872		$	340,509

Depreciation expense was $6.2 million and $5.9 million for the three months ended March 31, 2023 and 2022, respectively.

Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2023

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

The gross carrying amount of goodwill as of March 31, 2023 and December 31, 2022 was $1,010.5 million.

During the three months ended March 31, 2023 and 2022, there were no goodwill impairment losses.

Intangible Assets

As of March 31, 2023, the Company’s finite-lived intangible assets primarily consisted of developed technology related to ACTIMMUNE, KRYSTEXXA, PROCYSBI, RAVICTI, TEPEZZA and UPLIZNA.

Intangible assets as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023							December 31, 2022
	Cost Basis		Accumulated Amortization			Net Book Value		Cost Basis		Accumulated Amortization			Net Book Value
Developed technology	$	4,650,292	$	(2,093,605	)	$	2,556,687	$	4,650,292	$	(2,005,327	)	$	2,644,965
In-process research and development		810,000		—			810,000		810,000		—			810,000
Other intangibles		29,894		(10,418	)		19,476		29,894		(10,082	)		19,812
Total intangible assets	$	5,490,186	$	(2,104,023	)	$	3,386,163	$	5,490,186	$	(2,015,409	)	$	3,474,777

Amortization expense for the three months ended March 31, 2023 and 2022 was $88.6 million and $89.3 million, respectively. In-process research and development is not amortized until successful regulatory approval of a project. As of March 31, 2023, estimated future amortization expense was as follows (in thousands):


2023 (April to December)	$	270,765
2024		359,426
2025		359,426
2026		304,164
2027		253,506
Thereafter		1,028,876
Total	$	2,576,163

Accrued Expenses and Other Current Liabilities

3 Months Ended

Mar. 31, 2023

Payables And Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Income taxes payable	$	89,282	$	2,829
Payroll-related expenses		85,586		121,066
Accrued royalties		82,483		106,126
R&D and manufacturing programs		69,417		66,725
Advertising and marketing		26,643		12,030
Allowances for returns		25,740		28,347
Consulting and professional services		25,365		28,915
Refund liability (1)		16,534		12,218
Accrued interest		8,420		15,130
Accrued upfront and milestone payments		—		15,000
Accrued other		52,864		49,171
Accrued expenses and other current liabilities	$	482,334	$	457,557

(1)

The refund liability represents the amount of consideration that the Company may need to refund to Mitsubishi Tanabe Pharma Corporation (“MTPC”) if it does not sell the UPLIZNA drug product that was shipped to MTPC. The refund liability is remeasured at each reporting date to reflect changes in the estimate of variable consideration, with a corresponding adjustment to revenue. Amounts expected to be settled within the 12 months following the balance sheet date are classified as current liabilities in the accompanying balance sheets. Amounts not expected to be settled within the 12 months following the condensed consolidated balance sheet date are classified as long-term liabilities. The following represents the changes to the refund liability for the three months ended March 31, 2023 (in thousands):


Refund liability at December 31, 2022	$	20,409
Shipments during the three months ended March 31, 2023		—
Remeasurement of refund liability recognized as revenue		(3,875	)
Refund liability at March 31, 2023	$	16,534
Less: current portion		16,534
Refund liability, net of current portion	$	—

Accrued Trade Discounts and Rebates

3 Months Ended

Mar. 31, 2023

Valuation And Qualifying Accounts Disclosure [Line Items]

Accrued Expenses and Other Current Liabilities

NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Income taxes payable	$	89,282	$	2,829
Payroll-related expenses		85,586		121,066
Accrued royalties		82,483		106,126
R&D and manufacturing programs		69,417		66,725
Advertising and marketing		26,643		12,030
Allowances for returns		25,740		28,347
Consulting and professional services		25,365		28,915
Refund liability (1)		16,534		12,218
Accrued interest		8,420		15,130
Accrued upfront and milestone payments		—		15,000
Accrued other		52,864		49,171
Accrued expenses and other current liabilities	$	482,334	$	457,557

(1)


Refund liability at December 31, 2022	$	20,409
Shipments during the three months ended March 31, 2023		—
Remeasurement of refund liability recognized as revenue		(3,875	)
Refund liability at March 31, 2023	$	16,534
Less: current portion		16,534
Refund liability, net of current portion	$	—

Accrued Trade Discounts and Rebates [Member]

Valuation And Qualifying Accounts Disclosure [Line Items]

Accrued Expenses and Other Current Liabilities

NOTE 9 – ACCRUED TRADE DISCOUNTS AND REBATES

Accrued trade discounts and rebates as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Accrued government rebates and chargebacks	$	260,093	$	235,216
Accrued commercial rebates and wholesaler fees		30,944		39,965
Accrued co-pay and other patient assistance		18,898		44,599
Accrued trade discounts and rebates	$	309,935	$	319,780
Invoiced commercial rebates and wholesaler fees, co-pay and other patient assistance, and government rebates and chargebacks in accounts payable		9,241		77,350
Total customer-related accruals and allowances	$	319,176	$	397,130

The following table summarizes changes in the Company’s customer-related accruals and allowances from December 31, 2022 to March 31, 2023 (in thousands):


	Government Rebates and Chargebacks			Commercial Rebates and Wholesaler Fees			Co-Pay and Other Patient Assistance			Total
Balance at December 31, 2022	$	295,558		$	46,159		$	55,413		$	397,130
Current provisions relating to sales during the three months ended March 31, 2023		200,302			38,731			38,061			277,094
Adjustments relating to prior-year sales		(9,507	)		(593	)		(5,495	)		(15,595	)
Payments relating to sales during the three months ended March 31, 2023		(56,806	)		(8,429	)		(20,827	)		(86,062	)
Payments relating to prior-year sales		(169,454	)		(41,654	)		(42,283	)		(253,391	)
Balance at March 31, 2023	$	260,093		$	34,214		$	24,869		$	319,176

Segment and Other Information

3 Months Ended

Mar. 31, 2023

Segment Reporting [Abstract]

Segment and Other Information

NOTE 10 – SEGMENT AND OTHER INFORMATION

The Company substantially completed the wind down of its former inflammation business in the fourth quarter of 2022. Effective in the fourth quarter of 2022, management realigned the Company’s reportable segments to reflect changes in the manner in which the chief operating decision maker (“CODM”) assesses financial information for decision-making purposes. The Company transitioned the Company’s two reportable segments, the inflammation segment and the orphan segment, to one reportable segment for the year ended December 31, 2022. All prior year amounts have been reclassified to conform to the Company’s current reporting structure.

The Company operates in one reportable segment, which focuses 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 operating segment is reported in a manner consistent with the internal reporting provided to the CODM. The Company’s chief executive officer has been identified as its CODM.

The following table reflects net sales by medicine for the Company’s reportable segment for the three months ended March 31, 2023 and 2022 (in thousands):


	For the Three Months Ended March 31,
	2023		2022
TEPEZZA	$	405,317	$	501,451
KRYSTEXXA		186,981		140,704
RAVICTI		90,321		78,257
UPLIZNA (1)		53,829		30,477
PROCYSBI		50,463		49,571
ACTIMMUNE		29,121		31,435
PENNSAID 2%		9,194		35,368
RAYOS		4,977		13,487
BUPHENYL		1,413		2,161
QUINSAIR		296		296
DUEXIS		139		1,123
VIMOVO		8		915
Total net sales	$	832,059	$	885,245

(1)

UPLIZNA revenue is affected each reporting period by the changes in the estimate of variable consideration included in the remeasurement of the refund liability for shipments to MTPC. During the three months ended March 31, 2023 and 2022, the Company recognized $3.9 million and $1.6 million, respectively, of revenue as a result of the change in this estimate. The amount of variable consideration recognized is dependent on MTPC’s sales over which the Company has no direct control.

The following table presents the amount and percentage of gross sales to customers that represented more than 10% of the Company’s gross sales included in its reportable segment and all other customers as a group for the three months ended March 31, 2023 and 2022 (in thousands, except percentages):


	For the Three Months Ended March 31,
	2023					2022
	Amount		% of Gross			Amount	% of Gross
			Sales				Sales
Customer A	$	315,697		29	%