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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35238

HORIZON THERAPEUTICS PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)


Ireland		98-1195602
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

70 St. Stephen’s Green Dublin 2, D02 E2X4, Ireland		Not Applicable
(Address of principal executive offices)		(Zip Code)

011 353 1 772 2100

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Ordinary shares, nominal value $0.0001 per share	HZNP	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of registrant’s ordinary shares, nominal value $0.0001, outstanding as of August 2, 2023: 228,994,568.

HORIZON THERAPEUTICS PLC

INDEX


		Page
		No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2023 and as of December 31, 2022 (Unaudited)	1
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)	2
	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 6.	Exhibits	97
	Signatures	99

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except nominal value and share data)


	As of			As of
	June 30,			December 31,
	2023			2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,464,623		$	2,352,833
Restricted cash		4,791			4,755
Accounts receivable, net		717,417			676,347
Inventories, net		170,325			169,559
Prepaid expenses and other current assets		564,808			449,349
Total current assets		3,921,964			3,652,843
Property, plant and equipment, net		362,326			340,509
Developed technology and other intangible assets, net		2,486,565			2,664,777
In-process research and development		810,000			810,000
Goodwill		1,010,538			1,010,538
Deferred tax assets, net		444,306			431,814
Other long-term assets		263,042			204,135
Total assets	$	9,298,741		$	9,114,616
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	85,543		$	155,800
Accrued expenses and other current liabilities		496,669			457,557
Accrued trade discounts and rebates		319,469			319,780
Long-term debt—current portion		16,000			16,000
Total current liabilities		917,681			949,137
LONG-TERM LIABILITIES:
Long-term debt, net		2,541,458			2,546,837
Deferred tax liabilities, net		264,815			342,017
Other long-term liabilities		263,828			204,451
Total long-term liabilities		3,070,101			3,093,305
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Ordinary shares, $0.0001 nominal value; 600,000,000 shares authorized at June 30, 2023 and December 31, 2022; 229,323,393 and 227,625,913 shares issued at June 30, 2023 and December 31, 2022, respectively; and 228,939,027 and 227,241,547 shares outstanding at June 30, 2023 and December 31, 2022, respectively		23			23
Treasury stock, 384,366 ordinary shares at June 30, 2023 and December 31, 2022		(4,585	)		(4,585	)
Additional paid-in capital		4,522,145			4,474,199
Accumulated other comprehensive income		21,612			12,528
Retained earnings		771,764			590,009
Total shareholders’ equity		5,310,959			5,072,174
Total liabilities and shareholders’ equity	$	9,298,741		$	9,114,616

The accompanying notes are an integral part of these condensed consolidated financial statements.

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands, except share and per share data)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2023			2022			2023			2022
Net sales	$	944,959		$	876,411		$	1,777,018		$	1,761,656
Cost of goods sold		219,958			230,216			428,521			445,278
Gross profit		725,001			646,195			1,348,497			1,316,378
OPERATING EXPENSES:
Research and development		150,035			103,246			284,183			206,378
Selling, general and administrative		434,125			398,221			887,479			770,955
Impairment of goodwill		—			56,171			—			56,171
Gain on sale of asset		(2,000	)		—			(2,000	)		—
Total operating expenses		582,160			557,638			1,169,662			1,033,504
Operating income		142,841			88,557			178,835			282,874
OTHER EXPENSE, NET:
Interest expense, net		(12,098	)		(21,409	)		(27,638	)		(42,665	)
Foreign exchange gain		326			28			417			448
Other income (expense), net		4,183			(2,389	)		2,840			(3,131	)
Total other expense, net		(7,589	)		(23,770	)		(24,381	)		(45,348	)
Income before expense (benefit) for income taxes		135,252			64,787			154,454			237,526
Expense (benefit) for income taxes		8,181			3,813			(27,301	)		(27,709	)
Net income	$	127,071		$	60,974		$	181,755		$	265,235
Net income per ordinary share—basic	$	0.56		$	0.27		$	0.80		$	1.16
Weighted average ordinary shares outstanding—basic		228,743,143			230,020,004			228,571,356			229,559,715
Net income per ordinary share—diluted	$	0.54		$	0.26		$	0.78		$	1.12
Weighted average ordinary shares outstanding—diluted		233,935,591			236,166,384			233,938,149			236,077,147
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustments	$	1,409		$	(1,433	)	$	794		$	(1,893	)
Pension and other post-employment benefit plan remeasurements		179			(547	)		2,003			(222	)
Interest rate swap contracts designated as cash flow hedges		13,339			2,011			6,287			2,011
Other comprehensive income (loss)		14,927			31			9,084			(104	)
Comprehensive income	$	141,998		$	61,005		$	190,839		$	265,131

The accompanying notes are an integral part of these condensed consolidated financial statements.

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(In thousands, except share data)


										Additional			Accumulated Other					Total
	Ordinary Shares				Treasury Stock					Paid-in			Comprehensive			Retained		Shareholders’
	Shares		Amount		Shares		Amount			Capital			Income			Earnings		Equity
Balances at December 31, 2022		227,625,913	$	23		384,366	$	(4,585	)	$	4,474,199		$	12,528		$	590,009	$	5,072,174
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units		1,334,792		—		—		—			3,421			—			—		3,421
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
Balances at March 31, 2023		228,960,705	$	23		384,366	$	(4,585	)	$	4,448,744		$	6,685		$	644,693	$	5,095,560
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units		168,967		—		—		—			2,628			—			—		2,628
Issuance of ordinary shares in conjunction with the Employee Share Purchase Plan		193,721		—		—		—			14,912			—			—		14,912
Ordinary shares withheld for payment of employees’ withholding tax liability		—		—		—		—			(4,506	)		—			—		(4,506	)
Share-based compensation		—		—		—		—			60,367			—			—		60,367
Interest rate swap contracts designated as cash flow hedges		—		—		—		—			—			13,339			—		13,339
Pension and other post-employment benefit plan remeasurements		—		—		—		—			—			179			—		179
Foreign currency translation adjustments		—		—		—		—			—			1,409			—		1,409
Net income		—		—		—		—			—			—			127,071		127,071
Balances at June 30, 2023		229,323,393	$	23		384,366	$	(4,585	)	$	4,522,145		$	21,612		$	771,764	$	5,310,959


										Additional			Accumulated Other					Total
	Ordinary Shares				Treasury Stock					Paid-in			Comprehensive			Retained		Shareholders’
	Shares		Amount		Shares		Amount			Capital			Loss			Earnings		Equity
Balances at December 31, 2021		227,760,936	$	23		384,366	$	(4,585	)	$	4,373,337		$	(14,987	)	$	318,605	$	4,672,393
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units		2,112,964		—		—		—			9,071			—			—		9,071
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
Balances at March 31, 2022		229,873,900	$	23		384,366	$	(4,585	)	$	4,314,647		$	(15,122	)	$	522,866	$	4,817,829
Issuance of ordinary shares in conjunction with the exercise of stock options and the vesting of restricted stock units and performance stock units		660,784		—		—		—			12,951			—			—		12,951
Issuance of ordinary shares in conjunction with the Employee Share Purchase Plan		182,109		—		—		—			13,884			—			—		13,884
Ordinary shares withheld for payment of employees’ withholding tax liability		—		—		—		—			(5,419	)		—			—		(5,419	)
Share-based compensation		—		—		—		—			45,281			—			—		45,281
Pension and other post-employment benefit plan remeasurements		—		—		—		—			—			(547	)		—		(547	)
Foreign currency translation adjustments		—		—		—		—			—			(1,433	)		—		(1,433	)
Interest rate swap contracts designated as cash flow hedges		—		—		—		—			—			2,011			—		2,011
Net income		—		—		—		—			—			—			60,974		60,974
Balances at June 30, 2022		230,716,793	$	23		384,366	$	(4,585	)	$	4,381,344		$	(15,091	)	$	583,840	$	4,945,531

The accompanying notes are an integral part of these condensed consolidated financial statements.

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	For the Six Months Ended June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	181,755		$	265,235
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		191,145			192,538
Equity-settled share-based compensation		118,391			92,449
Amortization of debt discount and deferred financing costs		2,779			3,904
Impairment of goodwill		—			56,171
Gain on sale of asset		(2,000	)		—
Deferred income taxes		(91,952	)		(3,032	)
Foreign exchange and other adjustments		(6,143	)		10,566
Changes in operating assets and liabilities:
Accounts receivable		(41,140	)		(40,513	)
Inventories		(766	)		22,033
Prepaid expenses and other current assets		(108,816	)		(71,578	)
Accounts payable		(70,233	)		(11,980	)
Accrued trade discounts and rebates		(552	)		20,232
Accrued expenses and other current liabilities		63,390			(76,901	)
Other non-current assets and liabilities		11,931			5,863
Net cash provided by operating activities		247,789			464,987
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(42,594	)		(24,352	)
Payments related to license and collaboration agreements		(15,000	)		(25,000	)
Payments for long-term investments		(4,183	)		(4,847	)
Receipts from long-term investments		—			4,416
Payments for acquisitions, net of cash acquired		—			(3,122	)
Net cash used in investing activities		(61,777	)		(52,905	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of term loans		(8,000	)		(8,000	)
Proceeds from the issuance of ordinary shares in connection with stock option exercises		6,049			22,022
Proceeds from the issuance of ordinary shares in connection with the Employee Share Purchase Plan		14,912			13,884
Payment of employee withholding taxes relating to share-based awards		(92,055	)		(120,527	)
Net cash used in financing activities		(79,094	)		(92,621	)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash		4,908			(6,317	)
Net increase in cash, cash equivalents and restricted cash		111,826			313,144
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	$	2,469,414		$	1,897,300


SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of interest swap payments	$	74,619	$	41,778
Cash paid for income taxes, net of refunds received		19,731		13,216
Cash paid for amounts included in the measurement of operating lease liabilities		6,545		4,312
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Purchases of property, plant and equipment included in accounts payable and accrued expenses and other current liabilities	$	8,955	$	6,579
Lease liabilities arising from obtaining right-of-use assets		47,844		22,521

The accompanying notes are an integral part of these condensed consolidated financial statements.

HORIZON THERAPEUTICS PLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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 May 16, 2023, the Federal Trade Commission (“FTC”) filed a complaint in the United States District Court for the Northern District of Illinois seeking a temporary restraining order and preliminary injunction enjoining the Transaction. On May 23, 2023, the district court scheduled an evidentiary hearing on the FTC’s request for a preliminary injunction beginning on September 11, 2023. Based on the district court’s schedule, the Company, Amgen and the FTC then submitted a stipulated proposed temporary restraining order to the district court providing that the Company and Amgen would not close the Transaction until the earlier of October 31, 2023 or the second business day after the district court rules on the FTC’s request for a preliminary injunction (the “Stipulated TRO”). On May 31, 2023, the district court entered a case management order, and on June 2, 2023, the district court issued an order granting the Stipulated TRO. On June 22, 2023, the FTC filed a parallel complaint in its administrative court and an amended complaint was filed in the district court adding several states as additional plaintiffs. On June 29, 2023, the Company and Amgen filed an answer to the amended complaint and counterclaims against the FTC. The Company cannot predict with certainty the outcome of the FTC litigation or whether or when the Company will be able to successfully consummate the pending Transaction.

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 and six months ended June 30, 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 June 30, 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

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 a new accounting standard to ease the financial reporting burdens caused by the expected market transition from the London Inter Bank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, commonly referred to as reference rate reform. The new standard provides temporary optional expedients and exceptions to current GAAP guidance on contract modifications and hedge accounting. Specifically, a modification to transition to an alternative reference rate is treated as an event that does not require contract remeasurement or reassessment of a previous accounting treatment. Moreover, for all types of hedging relationships, an entity is permitted to change the reference rate without having to dedesignate the hedging relationship. In January 2021, the FASB issued a new accounting standard to expand the scope of the original March 2020 standard to include derivative instruments on discounting transactions. In the second quarter of 2022, the Company elected to apply the optional expedients for qualifying modifications to debt agreements under ASC 470 and for the assessment of hedge effectiveness for cash flow hedges affected by reference rate reform. LIBOR was discontinued as of June 30, 2023, and the discontinuation of LIBOR did not have a material impact on interest payments incurred under the Credit Agreement (as defined below). Refer to Note 12 for further details.

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.

NOTE 3 – NET INCOME PER SHARE

The following table presents basic and diluted net income per share for the three and six months ended June 30, 2023 and 2022 (in thousands, except share and per share data):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Basic net income per share calculation:
Numerator - net income	$	127,071	$	60,974	$	181,755	$	265,235
Denominator - weighted average of ordinary shares outstanding		228,743,143		230,020,004		228,571,356		229,559,715
Basic net income per share	$	0.56	$	0.27	$	0.80	$	1.16


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Diluted net income per share calculation:
Numerator - net income	$	127,071	$	60,974	$	181,755	$	265,235
Denominator - weighted average of ordinary shares outstanding		233,935,591		236,166,384		233,938,149		236,077,147
Diluted net income per share	$	0.54	$	0.26	$	0.78	$	1.12

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 and six months ended June 30, 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 and six months ended June 30, 2023 excluded 0.4 million and 1.2 million shares subject to equity awards, respectively, because their inclusion would have had an anti-dilutive effect on diluted net income per share. The computation of diluted net income per share for the three and six months ended June 30, 2022 excluded 1.2 million and 3.6 million shares subject to equity awards, respectively, because their inclusion would have had an anti-dilutive effect on diluted net income per share.

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 June 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Raw materials	$	84,728	$	44,230
Work-in-process		24,291		25,232
Finished goods		61,306		100,097
Inventories, net	$	170,325	$	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 $1.6 million and $17.4 million for the three months ended June 30, 2023 and 2022, respectively, and was $31.3 million and $44.6 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, the total remaining balance of inventory step-up was $1.0 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 Condensed Consolidated Financial Statements.

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Deferred charge for taxes on intercompany profit	$	206,232	$	164,771
Advance payments for inventory		187,002		156,824
Rabbi trust assets		31,890		28,227
Interest rate swap contracts		20,050		15,520
Other prepaid expenses and other current assets		119,634		84,007
Prepaid expenses and other current assets	$	564,808	$	449,349

Advance payments for inventory as of June 30, 2023 and December 31, 2022, primarily represented payments made to the contract manufacturer of TEPEZZA drug substance.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	June 30, 2023			December 31, 2022
Buildings	$	178,712		$	173,560
Construction in process		105,457			88,825
Land and land improvements		44,346			44,323
Machinery and equipment		30,728			22,865
Leasehold improvements		26,177			24,428
Furniture and fixtures		21,707			20,318
Software		13,186			13,332
Other		12,713			11,966
		433,026			399,617
Less accumulated depreciation		(70,700	)		(59,108	)
Property, plant and equipment, net	$	362,326		$	340,509

Depreciation expense was $6.7 million and $6.1 million for the three months ended June 30, 2023 and 2022, respectively, and was $12.9 million and $11.9 million for the six months ended June 30, 2023 and 2022, respectively.

Horizon Therapeutics Public Ltd Co 10-Q