2017 Irish Statutory Accounts (“Irish Annual Report”)

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2017 Irish Statutory Accounts (“Irish Annual Report”) Horizon Pharma plc 2017 Irish Statutory Accounts (“Irish Annual Report”) CONTENTS Page DIRECTORS AND OTHER INFORMATION 2 DIRECTORS' REPORT 3 - 67 INDEPENDENT AUDITOR’S REPORT 68 - 73 CONSOLIDATED PROFIT AND LOSS ACCOUNT 74 CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS 75 CONSOLIDATED BALANCE SHEET 76 - 77 CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY 78 CONSOLIDATED STATEMENT OF CASH FLOWS 79 - 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 81 - 145 PARENT COMPANY FINANCIAL STATEMENTS 146 - 154 DIRECTORS AND OTHER INFORMATION Board of Directors at December 31, 2017 Timothy P. Walbert Michael Grey William F. Daniel Jeff Himawan, Ph.D. Ronald Pauli Gino Santini James Shannon, M.D. H. Thomas Watkins Pascale Witz Secretary and Registered Office David G. Kelly Connaught House 1st Floor 1 Burlington Road Dublin 4 D04 C5Y6 Ireland Registered Number: 507678 Auditor PricewaterhouseCoopers Chartered Accountants and Statutory Audit Firm One Spencer Dock North Wall Quay Dublin 1 D01 X9R7 Ireland Solicitor Matheson 70 Sir John Rogerson’s Quay Grand Canal Dock Dublin 2 D02 R296 Ireland 2 DIRECTORS’ REPORT The directors present their report and the audited financial statements of the Company (as defined below) for the financial year ended December 31, 2017. Basis of Presentation The Company is a public limited company formed under the laws of Ireland. The Company operates through a number of international and U.S. subsidiaries with principal business purposes to either perform research and development or manufacturing operations, serve as distributors of the Company’s medicines, hold intellectual property assets or provide services and financial support to the Company. The directors have elected to prepare the consolidated financial statements in accordance with Section 279 of the Companies Act 2014, which provides that a true and fair view of the state of affairs and profit or loss may be given by preparing the financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), as defined in Section 279 of the Companies Act 2014, to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of the Irish Companies Acts (collectively, the “Companies Act”) or of any regulations made thereunder. Principal Activities Unless otherwise indicated or the context otherwise requires, references to the “Company”, “we”, “us” and “our” refer to Horizon Pharma plc and its consolidated subsidiaries, including its predecessor, Horizon Pharma, Inc. (“HPI”). The Company is a biopharmaceutical company focused on researching, developing and commercializing innovative medicines that address unmet treatment needs for rare and rheumatic diseases. By fostering a growing pipeline of medicines in development and exploring all potential uses for currently marketed medicines, the Company strives to make a powerful difference for patients, their caregivers and physicians. The Company markets eleven medicines through its orphan, rheumatology and primary care business units. The Company’s marketed medicines are: Orphan Business Unit RAVICTI (glycerol phenylbutyrate) Oral Liquid PROCYSBI (cysteamine bitartrate) delayed-release capsules ACTIMMUNE® (interferon gamma-1b); marketed as IMUKIN® outside the United States, Canada and Japan BUPHENYL (sodium phenylbutyrate) Tablets and Powder; marketed as AMMONAPS® in certain European countries and Japan QUINSAIR (levofloxacin inhalation solution) Rheumatology Business Unit KRYSTEXXA (pegloticase) RAYOS® (prednisone) delayed-release tablets; marketed as LODOTRA® outside the United States Primary Care Business Unit PENNSAID® (diclofenac sodium topical solution) 2% w/w (“PENNSAID 2%”) DUEXIS® (ibuprofen/famotidine) VIMOVO® (naproxen/esomeprazole magnesium) MIGERGOT (ergotamine tartrate & caffeine suppositories) Acquisitions and Divestitures During the years ended December 31, 2017 and 2016, the Company completed the following acquisitions and divestitures: • On June 30, 2017, the Company completed its acquisition of certain rights to interferon gamma-1b from Boehringer Ingelheim International GmbH (“Boehringer Ingelheim International”) in all territories outside of the United States, Canada and Japan. • On June 23, 2017, the Company completed the sale of its European subsidiary that owned the marketing rights to PROCYSBI® (cysteamine bitartrate) delayed-release capsules and QUINSAIR™ (levofloxacin inhalation solution) in 3 Europe, the Middle East and Africa (“EMEA”) regions (the “Chiesi divestiture”) to Chiesi Farmaceutici S.p.A. (“Chiesi”). • On May 8, 2017, the Company completed its acquisition of River Vision Development Corp. (“River Vision”), which added the late development-stage rare disease biologic medicine candidate teprotumumab to the Company’s research and development pipeline. • On October 25, 2016, the Company completed its acquisition of Raptor Pharmaceutical Corp. (“Raptor”), which added the rare disease medicines PROCYSBI and QUINSAIR to the Company’s medicine portfolio. • On January 13, 2016, the Company completed its acquisition of Crealta Holdings LLC (“Crealta”), which added the rare disease medicine KRYSTEXXA® and the primary care medicine MIGERGOT® to the Company’s medicine portfolio. Business Review Key Performance Indicators Our consolidated results of operations for the financial years ended December 31, 2017 and 2016 were as follows (in thousands): For the Years Ended December 31, Change 2017 2016 $ Turnover $ 1,056,231 $ 981,120 $ 75,111 Cost of sales 546,275 393,272 153,003 Gross profit 509,956 587,848 (77,892 ) Operating expenses Research and development 224,962 60,707 164,255 Selling, general and administrative 677,363 608,308 69,055 Impairment of in-process research and development — 66,000 (66,000 ) Total operating expenses 902,325 735,015 167,310 Operating loss (392,369 ) (147,167 ) (245,202 ) Other expense, net: Interest expense, net (1) (126,523 ) (86,610 ) (39,913 ) Foreign exchange loss (2) (260 ) (1,005 ) 745 Gain on divestiture (3) 6,267 — 6,267 Loss on debt extinguishment (1) (978 ) — (978 ) Other income (expense), net (2) (4) 588 6,697 (6,109 ) Total other expense, net (120,906 ) (80,918 ) (39,988 ) Loss on ordinary activities before taxation (513,275 ) (228,085 ) (285,190 ) Benefit for income taxes (138,642 ) (61,251 ) (77,391 ) Loss for the financial year $ (374,633 ) $ (166,834 ) $ (207,799 ) (1) These items are grouped together as “Interest payable and similar expenses” under the required Irish Companies Acts format in the consolidated profit and loss account. (2) “Foreign exchange loss” and “other expense” are grouped together as “other expense” under the required Irish Companies Acts format in the consolidated profit and loss account. (3) “Gain on divestiture” is included as “other income” under the required Irish Companies Acts format in the consolidated profit and loss account. (4) “Other income (expense), net” in the table above includes $6.9 million related to the release of a contingent liability during the financial year ended December 31, 2016 which was assumed as part of the Crealta acquisition, and this is included as “other income” under the required Irish Companies Acts format in the consolidated profit and loss account. Turnover. Turnover increased $75.1 million, or 8%, to $1,056.2 million during the year ended December 31, 2017, from $981.1 million during the year ended December 31, 2016, primarily due to lower turnover during the year ended December 31, 2016, as a result of the $65.0 million litigation settlement with Express Scripts, Inc., or Express Scripts. 4 The following table presents a summary of total turnover attributed to geographic sources for the years ended December 31, 2017 and 2016 (in thousands): Year Ended December 31, 2017 Year Ended December 31, 2016 % of Total % of Total Amount Turnover Amount Turnover United States $ 1,026,527 97 % $ 964,041 98 % Rest of world 29,704 3 % 17,079 2 % Total turnover $ 1,056,231 $ 981,120 The following table reflects the components of turnover for the years ended December 31, 2017 and 2016 (in thousands): Year Ended December 31, Change Change 2017 2016 $ % RAVICTI $ 193,918 $ 151,532 $ 42,386 28 % PENNSAID 2% 191,050 304,433 (113,383 ) (37 )% KRYSTEXXA 156,483 91,102 65,381 72 % PROCYSBI 137,740 25,268 112,472 445 % DUEXIS 121,161 173,728 (52,567 ) (30 )% ACTIMMUNE 110,993 104,624 6,369 6 % VIMOVO 57,666 121,315 (63,649 ) (52 )% RAYOS 52,125 47,356 4,769 10 % BUPHENYL 20,792 16,879 3,913 23 % MIGERGOT 5,468 4,651 817 18 % LODOTRA 5,393 4,193 1,200 29 % QUINSAIR 3,442 1,039 2,403 231 % Litigation settlement — (65,000 ) 65,000 100 % Total turnover $ 1,056,231 $ 981,120 $ 75,111 8 % The increase in turnover during the year ended December 31, 2017 compared to the year ended December 31, 2016, was primarily due to lower turnover during the year ended December 31, 2016 as a result of the $65.0 million litigation settlement with Express Scripts, the recognition of PROCYSBI turnover following the acquisition of Raptor in October 2016 and higher turnover of KRYSTEXXA and RAVICTI, offset by lower turnover of PENNSAID 2%, VIMOVO and DUEXIS. RAVICTI. Turnover increased $42.4 million, or 28%, to $193.9 million during the year ended December 31, 2017, from $151.5 million during the year ended December 31, 2016. Turnover in the United States increased by approximately $39.4 million, which was composed of $31.5 million resulting from prescription volume growth and $7.9 million due to higher net pricing. Turnover outside the United States increased by approximately $3.0 million primarily due to higher sales volume. PENNSAID 2%. Turnover decreased $113.4 million, or 37%, to $191.1 million during the year ended December 31, 2017, from $304.5 million during the year ended December 31, 2016. Turnover decreased by approximately $90.2 million due to lower net pricing, as further described after the next table, and approximately $23.2 million resulting from lower prescription volume. KRYSTEXXA. Turnover increased $65.4 million, or 72%, to $156.5 million during the year ended December 31, 2017, from $91.1 million during the year ended December 31, 2016.
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