Under the Company’s supply agreement with AGC Biologics A/S (formerly known as CMC Biologics A/S) (“AGC Biologics”), the Company has agreed to purchase certain minimum annual order quantities of TEPEZZA drug substance. In addition, the Company must provide AGC Biologics with rolling forecasts of TEPEZZA drug substance requirements, with a portion of the forecast being a firm and binding order. Under the Company’s supply agreement with Catalent Indiana, LLC (“Catalent”), the Company must provide Catalent with rolling forecasts of TEPEZZA drug product requirements, with a portion of the forecast being a firm and binding order. At December 31, 2020, the Company had total purchase commitments, including the minimum annual order quantities and binding firm orders, with AGC Biologics for TEPEZZA drug substance of €134.7 million ($164.6 million converted at an exchange rate as of December 31, 2020 of 1.2216), to be delivered through December 2022. In addition, the Company had binding purchase commitments with Catalent for TEPEZZA drug product of $17.9 million, to be delivered through December 2021.

On December 17, 2020, the Company announced that it expected a short-term disruption in TEPEZZA supply as a result of recent U.S. government-mandated COVID-19 vaccine production orders pursuant to the Defense Production Act of 1950 (“DPA”) that dramatically restricted capacity available for the production of TEPEZZA at its drug product contract manufacturer, Catalent. Pursuant to the DPA, Catalent was ordered to prioritize certain COVID-19 vaccine manufacturing at Catalent, resulting in the cancellation of previously guaranteed and contracted TEPEZZA drug product manufacturing slots in December 2020, which were required to maintain TEPEZZA supply. To offset the reduced slots allowed by the DPA and Catalent, the Company accelerated plans to increase the production scale of TEPEZZA drug product. In January 2021, the Company submitted a prior approval supplement to the FDA to support increased scale production of TEPEZZA drug product for the treatment of TED. The submission includes data to support more product output with each manufacturing slot than is currently approved by the FDA. The Company will continue to discuss potential additional data requirements and approval timeline with the FDA. The Company continues to anticipate the disruption could last through the first quarter of 2021. The length of the TEPEZZA supply disruption will depend on future manufacturing slots and whether future manufacturing slots are successfully completed as well as decisions by the FDA regarding the increased scale manufacturing process of TEPEZZA.

Under the Company’s agreement with Bio-Technology General (Israel) Ltd (“BTG Israel”), the Company has agreed to purchase certain minimum annual order quantities and is obligated to purchase at least 80 percent of its annual world-wide bulk product requirements for KRYSTEXXA from BTG Israel. The term of the agreement runs until December 31, 2030, and will automatically renew for successive three-year periods unless earlier terminated by either party upon three years’ prior written notice. The agreement may be terminated earlier by either party in the event of a force majeure, liquidation, dissolution, bankruptcy or insolvency of the other party, uncured material breach by the other party or after January 1, 2024, upon three years’ prior written notice. Under the agreement, if the manufacture of the bulk product is moved out of Israel, the Company may be required to obtain the approval of the Israel Innovation Authority (formerly known as Israeli Office of the Chief Scientist) (“IIA”) because certain KRYSTEXXA intellectual property was initially developed with a grant funded by the IIA. The Company issues eighteen-month forecasts of the volume of KRYSTEXXA that the Company expects to order. The first nine months of the forecast are considered binding firm orders. At December 31, 2020, the Company had a total purchase commitment, including the minimum annual order quantities and binding firm orders with BTG Israel, for KRYSTEXXA of $33.0 million, to be delivered through December 2026. Additionally, there were other purchase orders relating to the manufacture of KRYSTEXXA of $1.5 million outstanding at December 31, 2020.

Under an agreement with Boehringer Ingelheim Biopharmaceuticals GmbH (“Boehringer Ingelheim Biopharmaceuticals”), Boehringer Ingelheim Biopharmaceuticals is required to manufacture and supply ACTIMMUNE and IMUKIN to the Company. Following the Company’s sale of the rights to IMUKIN in all territories outside of the United States, Canada and Japan to Clinigen Group plc (“Clinigen”), purchases of IMUKIN inventory are being resold to Clinigen. The Company is required to purchase minimum quantities of finished medicine during the term of the agreement, which term extends to at least June 30, 2024. As of December 31, 2020, the minimum purchase commitment to Boehringer Ingelheim Biopharmaceuticals was $15.8 million (converted using a Dollar-to-Euro exchange rate of 1.2216 as of December 31, 2020) through June 2024.

Excluding the above, additional purchase orders and other commitments relating to the manufacture of RAVICTI, BUPHENYL, PROCYSBI, PENNSAID 2%, DUEXIS, RAYOS and QUINSAIR of $14.7 million were outstanding at December 31, 2020.

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 FDA approval and $225.0 million related to net sales thresholds for TEPEZZA. The Company made the $100.0 million milestone payment related to FDA approval during the first quarter of 2020.

The aggregate potential milestone payments of $225.0 million are payable based on certain TEPEZZA worldwide net sales thresholds being achieved as noted in the following table:


TEPEZZA Worldwide Net Sales Threshold	Milestone Payment
>$250 million	$50 million
>$375 million	$75 million
>$500 million	$100 million

The agreement also includes a royalty payment of 3 percent of the portion of annual worldwide net sales exceeding $300.0 million (if any).

S.R. One and Lundbeckfond, as two of the former River Vision stockholders, both held rights to receive approximately 35.66% of any future TEPEZZA payments. As a result of the Company’s agreements with S.R. One and Lundbeckfond in April 2020, the Company’s remaining net obligations to make TEPEZZA payments for sales milestones and royalties to the former stockholders of River Vision was reduced by approximately 70.25%, after including payments to a third party.

Under the Company’s license agreement with Roche, the Company is required to pay Roche up to CHF103.0 million ($116.4 million when converted using a CHF-to-Dollar exchange rate at December 31, 2020 of 1.1301) upon the attainment of various development, regulatory and sales milestones for TEPEZZA. During the years ended December 31, 2019 and 2017, CHF3.0 million ($3.0 million when converted using a CHF-to-Dollar exchange rate at the date of payment of 1.0023) and CHF2.0 million ($2.0 million when converted using a CHF-to-Dollar exchange rate at the date of payment of 1.0169), respectively, was paid in relation to these milestones. 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. The agreement with Roche also includes tiered royalties on annual worldwide net sales between 9 and 12 percent.

As of December 31, 2020, the Company recorded a liability of $123.4 million in accrued expenses representing net sales milestones for TEPEZZA. During the second quarter of 2020, the Company recorded $67.0 million in relation to the expected attainment in 2020 of various net sales milestones payable under the acquisition agreement for River Vision and CHF30.0 million ($33.9 million when converted using a CHF-to-Dollar exchange rate as of December 31, 2020 of 1.1301) in relation to the expected attainment in 2020 of various net sales milestones payable to Roche. During the third quarter of 2020, the Company recorded an additional CHF20.0 million ($22.6 million when converted using a CHF-to-Dollar exchange rate as of December 31, 2020 of 1.1301) in relation to the expected attainment in 2020 of various net sales milestones payable to Roche. The timing of the payments is dependent on when the applicable milestone thresholds are attained. The Company paid the milestones to Roche in February 2021 and expects to pay the applicable milestones to the former River Vision stockholders in March 2021. In addition, the Company recorded $120.8 million as a finite lived intangible asset representing the developed technology for TEPEZZA on the consolidated balance sheet as of December 31, 2020 and the net foreign exchange loss of $2.6 million relating to remeasurement of the liability was recorded in the consolidated statement of comprehensive income (loss).

Under the Company’s license agreement with Lundquist Institute (formerly known as Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center) (“Lundquist”), the Company is required to pay Lundquist a royalty payment of less than 1 percent of TEPEZZA net sales. The royalty terminates upon the expiration date of the longest-lived Lundquist patent rights, which is December 2021 for the U.S. rights.

Under the Company’s license agreement with Boehringer Ingelheim Biopharmaceuticals, the Company is required to pay Boehringer Ingelheim Biopharmaceuticals milestone payments totaling less than $2.0 million upon the achievement of certain TEPEZZA sales milestones.

For all of the royalty agreements entered into by the Company, a total royalty expense of $164.6 million was recorded in cost of goods sold in the consolidated statements of comprehensive income (loss) during the year ended December 31, 2020. A total royalty expense of $71.5 million was recorded in cost of goods sold in the consolidated statements of comprehensive income (loss) during the year ended December 31, 2019. A total net expense of $66.6 million was recorded during the year ended December 31, 2018, of which $68.5 million was recorded in “cost of goods sold” and $1.9 million was recorded in “selling, general and administrative” expenses in the consolidated statements of comprehensive income (loss).

Under the terms of a license agreement with Duke and MVP, the Company is obligated to pay Duke a mid-single-digit royalty on its global net sales of KRYSTEXXA and a royalty of between 5% and 15% on any global sublicense revenue. The Company is also obligated to pay MVP a mid-single-digit royalty on its net sales of KRYSTEXXA outside of the United States and a royalty of between 5% and 15% on any sublicense revenue outside of the United States.

Under the terms of an asset purchase agreement with Bausch Health Companies Inc. (formerly Ucyclyd Pharma, Inc.) (“Bausch”), the Company is obligated to pay to Bausch mid single-digit royalties on its global net sales of RAVICTI. Under the terms of a license agreement with Saul W. Brusilow, M.D. and Brusilow Enterprises, Inc. (“Brusilow”), the Company is obligated to pay low single-digit royalties to Brusilow on net sales of RAVICTI that are covered by a valid claim of a licensed patent.

Under the terms of an amended and restated license agreement with The Regents of the University of California, San Diego (“UCSD”), as amended, the Company is obligated to pay to UCSD tiered low to mid-single-digit royalties on its net sales of PROCYSBI, including a minimum annual royalty in an amount less than $0.1 million. The Company must also pay UCSD a percentage in the mid-teens of any fees it receives from its sublicensees under the agreement that are not earned royalties. The Company may also be obligated to pay UCSD aggregate developmental milestone payments of $0.3 million and aggregate regulatory milestone payments of $1.8 million for each orphan indication, and aggregate developmental milestone payments of $0.8 million and aggregate regulatory milestone payments of $3.5 million for each non-orphan indication.

Under a license agreement, as amended, with Genentech Inc. (“Genentech”), who was the original developer of ACTIMMUNE, the Company is obligated to pay a low single digit royalty to Genentech on its annual net sales of ACTIMMUNE.

Under the terms of an assignment and option agreement with Connetics Corporation (which was the predecessor parent company to InterMune Pharmaceuticals Inc. and is now part of GlaxoSmithKline), (“Connetics”), the Company is obligated to pay low single-digit royalties to Connetics on the Company’s net sales of ACTIMMUNE in the United States.

During the years ended December 31, 2018 and 2017, the Company was obligated to pay Vectura a mid-single digit percentage royalty on its adjusted gross sales of RAYOS and LODOTRA and on any sub-licensing income, which includes any payments not calculated based on the adjusted gross sales of RAYOS and LODOTRA, such as license fees, and lump sum and milestone payments.

Under certain amendments to the Company’s license and supply agreements with Vectura, the royalty payable by the Company to Vectura in respect of RAYOS sales in North America is amended whereby, effective January 1, 2019, the Company is obligated to pay Vectura a mid-teens percentage royalty on its net sales, subject to a minimum royalty of $8.0 million per year, with the minimum royalty requirement expiring on December 31, 2022. In addition, under the amendments, the Company ceased recording LODOTRA revenue and is no longer required to pay a royalty in respect of LODOTRA.

The Company is required to pay Miravo Healthcare (formerly known as Nuvo Pharmaceuticals Inc.) a 10 percent royalty on net sales of VIMOVO and other medicines sold by the Company, its affiliates or sublicensees during the royalty term that contain gastroprotective agents in a single fixed combination oral solid dosage form with nonsteroidal anti-inflammatory drugs, subject to minimum annual royalty obligations of $7.5 million. These minimum royalty obligations will continue for each year during which one of Miravo’s patents covers such medicines in the United States and there are no competing medicines in the United States. The royalty rate may be reduced to a mid-single digit royalty rate as a result of loss of market share to competing medicines. The Company’s obligation to pay royalties to Miravo will expire upon the later of (a) expiration of the last-to-expire of certain patents covering such medicines in the United States, and (b) ten years after the first commercial sale of such medicines in the United States.

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. In addition, the Company from time to time has billing disputes with vendors in which amounts invoiced are not in accordance with the terms of their contracts.

In November 2015, the Company received a subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting documents and information related to its patient assistance programs and other aspects of its marketing and commercialization activities. The Company is unable to predict how long this investigation will continue or its outcome, but it anticipates that it may continue to incur significant costs in connection with the investigation, regardless of the outcome. The Company may also become subject to similar investigations by other governmental agencies. The investigation by the U.S. Attorney’s Office and any additional investigations of the Company’s patient assistance programs and sales and marketing activities may result in damages, fines, penalties or other administrative sanctions against the Company.

On March 5, 2019, the Company received a civil investigative demand (“CID”) from the United States Department of Justice (“DOJ”) pursuant to the Federal False Claims Act regarding assertions that certain of the Company’s payments to pharmacy benefit managers (“PBMs”) were potentially in violation of the Anti-Kickback Statute. The CID requests certain documents and information related to the Company’s payments to PBMs, pricing and the Company’s patient assistance program regarding DUEXIS, VIMOVO and PENNSAID 2%. The Company is cooperating with the investigation. While the Company believes that its payments and programs are compliant with the Anti-Kickback Statute, no assurance can be given as to the timing or outcome of the DOJ’s investigation, or that it will not result in a material adverse effect on the Company’s business.

On April 1, 2020, the Company acquired Curzion for an upfront payment of $45.0 million with additional payments of up to $15.0 million contingent on the achievement of certain development and regulatory milestones. Under separate agreements, the Company is also required to make contingent payments upon the achievement of certain development and regulatory milestones and certain net sales thresholds. These separate agreements also include mid to high-single-digit royalty payments based on the portion of annual worldwide net sales.

During the year ended December 31, 2020, the Company committed to invest as a strategic limited partner in four venture capital funds: Forbion Growth Opportunities Fund I C.V., Forbion Capital Fund V C.V., Aisling Capital V, L.P. and RiverVest Venture Fund V, L.P. As of December 31, 2020, the total carrying amount of the Company’s investments in these funds is $10.6 million, which is included in other assets in the consolidated balance sheet, and the Company’s total future commitments to these funds are $56.2 million.

On November 21, 2020, the Company entered into a global collaboration and license agreement with Halozyme that gives the Company exclusive access to Halozyme’s ENHANZE drug delivery technology for SC formulation of medicines targeting IGF-1R. The Company intends to use ENHANZE to develop a SC formulation of TEPEZZA. Under the terms of the agreement, the Company agreed to pay Halozyme an upfront cash payment of $30.0 million with additional potential future milestone payments of up to $160.0 million contingent on the satisfaction of certain development and sales thresholds. The upfront payment was paid in December 2020.

As of December 31, 2020, the Company has $25.0 million of non-cancellable advertising commitments due within one year, primarily related to agreements for advertising for TEPEZZA and KRYSTEXXA.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. The Company may record charges in the future as a result of these indemnification obligations.

In accordance with its memorandum and articles of association, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. Additionally, the Company has entered into, and intends to continue to enter into, separate indemnification agreements with its directors and executive officers. These agreements, among other things, require the Company to indemnify its directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of the Company’s directors or executive officers, or any of the Company’s subsidiaries or any other company or enterprise to which the person provides services at the Company’s request. The Company also has a director and officer insurance policy that enables it to recover a portion of any amounts paid for current and future potential claims. All of the Company’s officers and directors have also entered into separate indemnification agreements with HTUSA.