Exhibit 99.2

 

		KPMG Audit		Telephone:		+33 (0)1 55 68 68 68
		Tour EQHO		Telefax:		+33 (0)1 55 68 73 00
		2 Avenue Gambetta		Internet:		www.kpmg.fr
		CS 60055 92066 Paris la Défense Cedex
		France

HERA S.A.S.

Statutory auditor’s report on the consolidated

financial statements as of and for the years ended

December 31, 2020 and 2021

Years ended December 31, 2020 and 2021

HERA S.A.S.

200, avenue de Paris – 92320 Chtillon

 

		KPMG S.A a French limited liability entity and a member firm of the KPMG Network of independent member firms affiliated with KPMG International Limited, a private Englsh company limited by guarantee		Société anonyme d’expertise comptable et de commissariat aux comptes à directoire et conseil de surveillance. Inscrite au Tableau de l’Ordre à Paris sous le n° 14-30080101 et à la Compagnie Régionale des Commissaires aux Comptes de Versailles.et du Centre		Headquarters: KPMG S.A. Tour Eqho 2 avenue Gambetta 92066 Paris la Défense Cedex Capital: 5 497 100 €. Code APE 6920Z 775 726 417 R.C.S. Nanterre TVA Union Européenne FR 77 775 726 417

 

		KPMG Audit		Telephone:		+33 (0)1 55 68 68 68
		Tour EQHO		Telefax:		+33 (0)1 55 68 73 00
		2 Avenue Gambetta		Internet:		www.kpmg.fr
		CS 60055 92066 Paris la Défense Cedex
		France

 

HERA S.A.S

Registered office: 200, avenue de Paris – 92320 Chatillon

Statutory auditor’s report on the consolidated financial statements as of and for the years ended December 31, 2020 and 2021

To the Chairman of HERA S.A.S.;

In our capacity as Statutory Auditor of HERA S.A.S. and in compliance with your request in the context of the proposed acquisition of HERA S.A. by Perrigo Company Plc, we have audited the accompanying consolidated financial statements of HERA S.A.S. as of and for the years ended December 31, 2020 and 2021.

Due to the global crisis related to the Covid-19 pandemic, the consolidated financial statements have been prepared and audited under specific conditions. Indeed, this crisis and the exceptional measures taken in the context of the state of sanitary emergency have had numerous consequences for companies, particularly on their operations and their financing, and have led to greater uncertainties on their future prospects. Those measures, such as travel restrictions and remote working, have also had an impact on the companies’ internal organisation and the performance of the audits.

The Chairman of HERA S.A.S. is responsible for the preparation and fair presentation of these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with professional standards applicable in France and the professional doctrine of the French national auditing body (Compagnie nationale des commissaires aux comptes) related to this engagement; these standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures, on a test basis or by other means of selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position and assets and liabilities of HERA S.A.S. as of December 31, 2020 and 2021 and the results of its operations for the years then ended in accordance with International Financial Reporting Standards (“IFRS”) as adopted in the European Union and in accordance with IFRS as issued by the International Accounting Standards Board.

 

		KPMG S.A a French limited liability entity and a member firm of the KPMG Network of independent member firms affiliated with KPMG International Limited, a private Englsh company limited by guarantee		Société anonyme d’expertise comptable et de commissariat aux comptes à directoire et conseil de surveillance. Inscrite au Tableau de l’Ordre à Paris sous le n° 14-30080101 et à la Compagnie Régionale des Commissaires aux Comptes de Versailles.et du Centre		Headquarters: KPMG S.A. Tour Eqho 2 avenue Gambetta 92066 Paris la Défense Cedex Capital : 5 497 100 €. Code APE 6920Z 775 726 417 R.C.S. Nanterre TVA Union Européenne FR 77 775 726 417

HERA S.A.S.

Statutory auditor’s report on the consolidated financial statements

as of and for the years ended December 31, 2020 and 2021

 

This report shall be governed by, and construed in accordance with French law. The Courts of France shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning the engagement letter or this report, and any matter arising from them. Each party irrevocably waives any right it may have to object to an action being brought in any of those Courts, to claim that the action has been brought in an inconvenient forum or to claim that those Courts do not have jurisdiction.

Paris la Défense March 23, 2022

KPMG Audit

A division of KPMG S.A.

/s/ Catherine Porta            

Catherine Porta

Partner

 

3

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2021 and 2020

 

STATEMENT OF FINANCIAL POSITION					4
STATEMENT OF PROFIT AND LOSS					5
CONSOLIDATED STATEMENT OF CASH FLOWS					6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY					7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS					8
1		ACCOUNTING PRINCIPLES AND METHODS			8
1.1		Reporting Entity			8
1.2		Accounting principles			8
1.2.1		Statement of compliance and accounting principles			8
1.2.2		Basis of measurement and presentation			9
1.2.3		Functional and reporting currency			9
1.2.4		Conversion of foreign currency transactions			9
1.2.5		Translation of financial statements of foreign subsidiaries whose functional currency is not the euro			9
1.2.6		Use of Judgments and Estimates			10
1.3		Main accounting principles			10
1.3.1		Consolidation method			10
1.3.2		Business combinations			10
1.3.3		Development costs			11
1.3.4		Other intangible assets			11
1.3.5		Property, plant and equipment			12
1.3.6		Financial assets and liabilities			12
1.3.7		Inventories and work in progress			15
1.3.8		Employee benefits			15
1.3.9		Share-based payments			16
1.3.10		Provisions			16
1.3.11		Revenue from ordinary activities			17
1.3.11.1		Turnover			17
1.3.11.2		Other income from operations			17
1.3.12		Research Tax Credit			17
1.3.13		Cost of sales and other operating expenses			17
1.3.14		Non-current income and expenses			17
1.3.15		Lease agreements			18
1.3.16		Financial income and expenses			18
1.3.17		Income tax			18
1.3.18		Earnings per share			19
1.3.19		Impairment testing of non-financial assets			19
1.4		Determining fair value			19
1.5		Significant changes in accounting policies			20
1.6		Significant events of the fiscal year period			20
1.6.1		Change of scope			20
1.6.2		COVID-19			21
1.6.3		Buyback offer from PERRIGO			22
1.6.4		Ongoing legal actions			22
1.6.5		Other Information			23

 

2

2		NOTES TO THE STATEMENT OF FINANCIAL POSITION			24
2.1		Goodwill			24
2.2		Intangible assets			25
2.3		Property, plant and equipment			26
2.4		Rights of Use associated with Leases			27
2.5		Current and non-current financial assets			28
2.6		Inventories			28
2.7		Trade and other receivables			29
2.8		Other receivables			30
2.9		Cash and cash equivalents			31
2.10		Share capital			31
2.10.1		Share-based payments - Stock options and free shares			32
2.10.2		Non-controlling interests			32
2.11		Provisions for employee benefits			33
2.12		Provisions			34
2.12.1		Provisions for tax liabilities			34
2.13		Borrowings and financial debts			35
2.13.1		Changes in financial liabilities			36
2.14		Lease liabilities			37
2.15		Other debts			37
2.16		Deferred income			38
2.17		Fair value table			39
3		NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME			39
3.1		Revenue from ordinary activities			39
3.2		Operating expenses			40
3.2.1		Staff costs			40
3.2.2		Headcount			41
3.3		Other operating income and expenses			41
3.4		Other non-current income and expenses			42
3.5		Financial result			43
3.6		Income tax			43
3.6.1		Breakdown of tax expense			43
3.6.2		Reconciliation between actual and notional tax			44
3.6.3		Breakdown of deferred tax assets and liabilities			44
3.7		Earnings per share			45
3.7.1		Basic earnings per share			45
3.7.2		Diluted earnings per share			45
4		RELATED PARTIES			45
5		LITIGATION			46
6		OFF-BALANCE SHEET COMMITMENTS			46
7		FINANCIAL RISK MANAGEMENT			47
8		SUBSEQUENT EVENTS			47
9		AUDITORS’ FEES			48

 

3

STATEMENT OF FINANCIAL POSITION

 

in thousands of euros				December 31, 2021				December 31, 2020
Assets
Goodwill		Note 2.1			529 585				529 585
Intangible assets		Note 2.2			514 489				505 893
Tangible assets		Note 2.3			3 261				3 427
Usage rights under leasing contracts		Note 2.4			8 654				9 873
Financial assets - Non-current portion		Note 2.5			773				575
Derivative asset instruments - Non-current portion					—				10
Deferred taxes - Assets		Note 3.6.3			30 618				34 577
Non-current assets					1 087 381				1 083 940
Stocks and work in progress		Note 2.6			22 726				31 543
Trade and other receivables		Note 2.7			53 599				48 423
Current tax assets		Note 2.8			10 205				6 115
Other receivables		Note 2.8			11 108				13 544
Prepayments					2 622				2 833
Financial assets - Current portion					9				9
Derivative asset instruments - Current portion					63				259
Cash and cash equivalents		Note 2.9			40 575				18 163
Current assets					140 907				120 888
TOTAL ASSETS					1 228 288				1 204 827
Equity
Share capital		Note 2.10			35 862				35 862
Share premium					319 897				319 897
Consolidated reserves - Group share					-171 588				-145 631
Profit or loss for the financial year - Group share					-3 166				-27 241
Equity - Group share					181 005				182 888
Non-controlling interests					107				29
Equity					181 112				182 917
Liabilities
Provisions for employee benefits		Note 2.11			2 441				2 266
Borrowings and financial debts - Non-current portion		Note 2.13			842 692				815 415
Leasing debts - Non-current portion		Note 2.14			7 359				8 759
Deferred income - Non-current portion		Note 2.16			666				625
Derivative liability instruments - Non-current portion					—				—
Deferred taxes - Liabilities		Note 3.6.3			127 508				128 658
Non-current liabilities					980 667				955 724
Provisions - Current portion		Note 2.12			822				335
Borrowings and financial debts - Current portion		Note 2.13			—				-1
Leasing debts - Current portion		Note 2.14			2 341				2 296
Trade and other payables					33 243				43 931
Current tax liabilities		Note 2.15			610				1 271
Other debts - Current portion		Note 2.15			28 405				18 163
Deferred income - Current portion		Note 2.16			137				191
Derivative liability instruments - Current portion					952				—
Current liabilities					66 509				66 187
LIABILITIES					1 047 176				1 021 911
TOTAL LIABILITIES AND EQUITY					1 228 288				1 204 827

 

4

STATEMENT OF PROFIT AND LOSS AND COMPREHENSIVE INCOME    

Profit and Loss account

 

in thousands of euros						December 31, 2021				December 31, 2020
Turnover							255 923				201 543
Other income from operations							605				1 384
Revenue from ordinary activities			Note 3.1				256 529				202 926
Costs of sales							-73 681				-56 635
Marketing and sales costs			Note 3.2				-77 834				-63 212
General and administrative costs			Note 3.2				-33 926				-27 449
Research and development costs			Note 3.2				-9 062				-9 418
Other operating revenues			Note 3.3				1 874				1 561
Other operating expenses			Note 3.3				-2 204				-11 178
Other income			Note 3.4				111				8 031
Other expenses			Note 3.4				-4 675				-24 338
Operating Result							57 133				20 290
Financial revenues							2 205				1 251
Financial expenses							-59 559				-55 188
Financial Result			Note 3.5				-57 354				-53 937
Pre-tax Result							-221				-33 648
Income/(expenses) from taxation			Note 3.6				-2 872				6 439
Net Result							-3 093				-27 209
Of which:
Group share							-3 166				-27 241
Non-controlling interest							72				32

Basic and diluted earnings per share

 

in thousands of euros		December 31, 2021				December 31, 2020
Basic and diluted earnings per share			-0,09				-0,76
Other comprehensive income
in thousands of euros		December 31, 2021				December 31, 2020
Net Result			-3 093				-27 209
Revaluation of net defined benefit liability (asset)			-154				191
Related taxes			42				-55
Total items that will not be reclassified to income in the future			-112				135
Exchange differences			1 045				-282
Gains / losses at fair value			193				255
Total items likely to be reclassified to profit or loss in the future			1 238				-28
Other components of comprehensive income			1 126				108
Total Global Result			-1 967				-27 101
Of which:
Group share			-2 042				-27 132
Non-controlling interests			75				32

 

5

CONSOLIDATED STATEMENT OF CASH FLOWS

 

in thousands of euros				December 31, 2021				December 31, 2020
Loss of fully consolidated companies before tax					-221				-33 648
Interest charges					57 085				52 739
Net provision for amortization					2 795				4 244
Net allocation for amortization of usage right - IFRS 16					2 379				2 419
Net provision for amortization (revaluation of assets - PPA Astorg)					1 237				3 806
Net allocation to provisions					904				-530
Capital gains and losses on the disposal of tangible and intangible assets and cost of disposa					193				8 907
Operating working capital					541				13 478
Stocks					9 238				-7 634
Trade and other receivables					-4 001				19 637
Trade and other payables					-4 696				1 475
Cash flows generated by operating activities					64 913				51 415
Tax income / (expenses) paid					-1 355				-71
Other components of operational activities					339				-619
Net cash flow from operational activities					63 897				50 725
Acquisition of tangible assets		Note 2.3			-427				-196
Acquisition of intangible assets		Note 2.2			-12 217				-11 031
Changes in payables to suppliers of fixed assets					3 298				-7 022
Change in financial assets					-1 026				-43
Change in the scope					-174
Other components of investment activities					-2				—
Net cash flow used in investment activities					-10 546				-18 292
Loan repayments		Note 2.13.1			-18 000				-35 030
New borrowings		Note 2.13.1			10 000				28 000
Repayment of leasing debts					-2 521				-2 355
Interest paid					-20 650				-21 264
Other components of financing activities					67				204
Net cash flow used in financial activities					-31 103				-30 446
Net cash flow					22 249				1 988
Opening cash					18 163				16 259
Effects of exchange rate fluctuations on hedging cash flow					163				-84
Closing cash					40 575				18 163
Net cash increase / (decrease)					22 249				1 988

 

6

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

In thousands of euros		Share capital				Share premium				Translation reserves				Fair value reserves				Consolidation reserves				Reserves - Actuarial gains and losses				Equity component of convertible bonds				Profit or loss				Total transactions with owners of the Company				Non- controlling interests				Total shareholders’ equity
Equity as of January 1, 2020			35 862				319 897				72				6 564				- 96 975				- 243				9 636				- 65 014				209 799				—				209 799
Total income for the period
Net income																															- 27 241				- 27 241				32				- 27 209
Other comprehensive income											- 236				255				- 62				153												109				-2				107
Total income for the period			—				—				- 236				255				- 62				153				—				- 27 241				- 27 131				29				- 27 102
Transactions with the Company’s owners																																			—								—
Contributions and distributions																																			—								—
Other variances																			220																220								220
Total contributions and distributions			—				—				- 236				255				158				153				—				- 27 241				- 26 911				29				- 26 881
Equity as of December 31, 2020			35 862				319 897				- 165				6 818				- 96 816				-90				9 636				- 92 254				182 888				29				182 917
Equity as of January 1, 2021			35 862				319 897				- 165				6 818				- 96 816				-90				9 636				- 92 254				182 888				29				182 917
Total income for the period
Net income																															- 3 166				- 3 166				72				- 3 094
Other comprehensive income											1 039				193								- 112												1 120				6				1 126
Total income for the period			—				—				1 039				193				—				- 112				—				- 3 166				- 2 046				78				- 1 968
Transactions with the Company’s owners																																			—								—
Contributions and distributions																																			—								—
Other variances											59								104																163								163
Total contributions and distributions			—				—				1 098				193				104				- 112				—				- 3 166				- 1 883				78				- 1 805
Equity as of December 31, 2021			35 862				319 897				934				7 011				- 96 713				- 201				9 636				- 95 420				181 006				107				181 112

 

7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1    ACCOUNTING PRINCIPLES AND METHODS

1.1    Reporting Entity

The parent company, Héra S.A.S. (hereinafter “the Company”) is a company domiciled in France with its registered office in Chatillon 92320, 200 avenue de Paris; it was established on November 16, 2015.

The financial statements of the Company and its subsidiaries controlled, directly or indirectly, by the Company are included in the consolidated financial statements.

The Héra Group (hereafter “the Group”) aspires to be a global leader in the development and commercialization of pharmaceuticals, medical devices, and cosmetics.

The Group is comprised of the following companies:

 

Entities		Country		% holding
Héra Sas		France			Mother
Laboratoire HRA Pharma Sas		France			100,00	%
HRA Pharma France Sas		France			100,00	%
HRA Pharma Development Sarl		France			100,00	%
HRA Pharma Deutschland GmbH		Germany			100,00	%
HRA Pharma UK & Ireland Limited		UK			100,00	%
HRA Pharma Italia Srl		Italy			100,00	%
HRA Pharma Iberia SL		Spain			100,00	%
HRA Pharma LLC		USA			100,00	%
HRA Pharma Switzerland Sarl		Switzerland			100,00	%
HRA Pharma Rare Diseases Sas		France			100,00	%
HRA Pharma Benelux		Belgium			100,00	%
HRA Pharma America Inc		USA			100,00	%
HRA Pharma APAC		Hong Kong			100,00	%
HRA Pharma Hong Kong Limited		Hong Kong			67,00	%
HRA Pharma China		China			100,00	%

1.2    Accounting principles

The consolidated financial statements were approved by the Chairman on March 23, 2022.

1.2.1    Statement of compliance and accounting principles

The consolidated financial statements have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union, IFRS as issued by the IASB (International Accounting Standard Board) and interpretations of international standards (SIC and IFRIC) as of December 31, 2020 and 2021.

All of the European Union’s adopted texts can be found on the European Commission’s website at the following location:

http://ec.europa.eu/commission/index_fr

 

8

Effective January 1, 2021, the following standards and interpretations will apply:

The IASB’s published standards, revisions to standards, and interpretations that are mandatory as of the fiscal year 2021 are given below:

 

•

Amendments to IFRS 4 “Extension of the temporary exemption from IFRS 9”

 

•

Amendments to IFRS 9, IAS 39 and IFRS 7 “Reform of reference interest rates - Phase 2”

 

•

Amendments to IFRS 16 “Covid-19 rent concessions beyond June 30, 2021”

 

•

Agenda decision of the IFRS Interpretations Committee (IFRS IC): Attributing Benefit to Periods of Service (IAS 19)

The impact of these standards is not significant in the financial statements as of December 31, 2021.

Standards, amendments and interpretations published but not yet endorsed by the European Union and Standards, amendments and interpretations endorsed by the European Union and not early adopted by the Group:

The estimated impact of applying the IASB’s (International Accounting Rules Board) and IFRS IC’s (International Financial Reporting Standards Interpretations Committee) standards and interpretations, is not significant.

1.2.2    Basis of measurement and presentation

With the exception of specific asset and liability classes, the consolidated financial statements are prepared on a historical cost basis in accordance with IFRS. The relevant classes are listed in the notes below, as applicable.

Assets and liabilities of different types, functions, and sizes are shown individually.

Current assets and liabilities are those included in the working capital used throughout a normal business cycle. Current and non-current assets and liabilities are categorized according to whether they are due within one year as of the balance sheet date.

1.2.3    Functional and reporting currency

An entity’s functional currency is the currency of the economic environment in which it is principally active. The functional currency for subsidiaries is the local currency.

The Company’s functional currency is the euro, hence the consolidated financial statements are presented in euros. Unless otherwise stated, all financial data is expressed in thousands of euros.

1.2.4    Conversion of foreign currency transactions

Foreign currency transactions are translated into the relevant functional currencies of Group entities using the exchange rate in effect at the time of the transactions, in accordance with IAS 21.

Monetary assets and liabilities denominated in foreign currencies are converted into the functional currency at the balance sheet date using the closing rate. Exchange gains and losses are recorded in the income statement as a result of the relevant exchange variations.

1.2.5    Translation of financial statements of foreign subsidiaries whose functional currency is not the euro

Foreign subsidiaries whose functional currency is not the euro have their financial statements translated into euros as follows:

 

•

the balance sheets of foreign subsidiaries are translated into euros using the exchange rate prevailing at the balance sheet date;

 

9

•

the income statements and cash flows of these companies are translated using the average exchange rate for the period;

 

•

differences arising from the translation of the financial statements of foreign companies are recorded in other comprehensive income under the heading “Exchange differences”.

1.2.6    Use of Judgments and Estimates

Management must use judgment and make estimates and assumptions while preparing financial statements, which affect the application of accounting policies and the reported values of assets and liabilities, income and expenses. Actual values may differ from those estimated due to changes in assumptions or economic conditions that differ from those in effect at the time the balance sheet was prepared.

The estimates and underlying assumptions are reviewed on an ongoing basis. The impact of changes in accounting estimates is recognized in the period of the change and any subsequent periods affected.

The following are some examples of key estimates and judgments used in adopting accounting policies:

 

•

the valuation of goodwill and intangible assets;

 

•

the valuation of employee benefits;

 

•

the valuation of provisions for risks, particularly in the event of litigation;

 

•

deferred tax assets on losses carried forward.

1.3    Main accounting principles

1.3.1    Consolidation method

The Group controls a subsidiary when it has power over the subsidiary, is exposed or has rights to variable returns from its involvement with the subsidiary and has the ability to use its power to affect the amount of its returns.

1.3.2    Business combinations

The acquisition method is used to account for business combinations. At the time of exchange, the consideration transferred is the fair value of the assets given, equity instruments issued, and liabilities incurred. Direct costs incurred as a result of the combination are recorded in “Other operating expenses” in the period in which they occur.

Except for particular exceptions provided for in the revised IFRS 3, the assets, liabilities, and contingent liabilities of the acquired firm are measured at fair value on initial consolidation of a controlled company.

Goodwill recorded in the consolidated balance sheet represents the difference between:

 

•

the aggregate of the following components:

 

•

the consideration transferred for the acquisition of control;

 

•

the amount of non-controlling interests in the acquired company, determined either at fair value at the acquisition date (full goodwill method) or on the basis of their proportionate share of the fair value of the net identifiable assets and liabilities acquired (partial goodwill method). This option is available on a transaction-by-transaction basis;

 

•

for step acquisitions, the fair value at the acquisition date of the Group’s share of the net assets acquired prior to the acquisition of control;

 

•

and the net amount of identified assets acquired and identified liabilities incurred, measured at their fair value at the acquisition date.

 

10

After initial recognition, goodwill are tested for impairment in accordance with IAS 36 – Impairment of Assets, at least once a year and whenever there is an indication that the asset may be impaired.

The difference is recognized directly in the income statement when the consideration transferred is less than the fair value of the Group’s share of the identifiable assets acquired and liabilities assumed of the subsidiary acquired.

When the accounting for a business combination may only be determined provisionally, IFRS 3 requires that the asset and liability values be adjusted within twelve months of the acquisition date.

Adjustments to the values recognized after the measurement period expires in relation to the values assigned to the assets acquired and liabilities assumed on initial consolidation are recognized prospectively in profit or loss for the year of the change and subsequent years, if any, without adjustment to goodwill.

If the changes in the initial accounting for the combination are due to an error, the values assigned to the acquired assets and liabilities, non-controlling interests, or purchase price elements are changed retrospectively, as if their corrected fair values had been recognized as of the acquisition date. Goodwill must also be adjusted accordingly, and the impact of the error correction is recognized in opening equity in the year of the error correction, in accordance with IAS 8 - Accounting policies, changes in accounting estimates and errors.

1.3.3    Development costs

Research costs for the purpose of acquiring new scientific or technical knowledge and understanding are expensed as incurred.

Development activities involve the existence of a plan or design for producing new or substantially improved products and processes. Development expenditure is recognized as an asset if and only if the costs can be reliably measured and the Group can demonstrate:

 

•

the technical and commercial feasibility of the product or process in the short term;

 

•

the recognition of probable future economic benefits;

 

•

and its intention and the availability of sufficient resources to complete the development and use or sell the asset.

The cost of materials and directly relevant subcontracting costs required to bring the asset to its intended use are included in the expense so capitalized.

Other development costs are expensed as incurred.

With the exception of products that have an active or exploitable marketing authorization and are capable of generating future economic benefits, or that are related to the safety of the environment or people, or that are indispensable for the continuation of the business, Héra believes that the criteria laid out in IAS 38 “Intangible Assets” have not yet been met, given the risks inherent in development programs and the progress of the Group’s projects.

1.3.4    Other intangible assets

Other intangible assets include intangible assets with an indefinite useful life (trademarks and property rights acquired from a third party for drugs) as well as patents, software, licenses, and marketing authorizations acquired or developed internally by the Group with a finite useful life. They are valued at the cost of acquisition (purchase price and related expenses).

Subsequent spending on intangible assets is recognized only if it boosts the asset’s future economic benefits. Other expenses are deducted as they are incurred.

Amortization is recognized over the expected useful life of intangible assets on a straight-line basis:

 

 

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1.3.5    Property, plant and equipment

Property, plant and equipment are initially recognized at acquisition cost.

If it is expected that future economic advantages connected with the asset will flow to the Group and the cost of the asset can be determined accurately, subsequent costs are included in the carrying amount of the asset or, where appropriate, recognized as a distinct asset.

Fixed assets are depreciated on a straight-line basis over the estimated useful life of the assets. Depreciation is recognized as an expense for the year.

The estimated useful lives are as follows:

 

Depreciation methods, useful lives and residual values are reviewed and, if necessary, adjusted at each balance sheet date.

1.3.6    Financial assets and liabilities

Financial assets and liabilities mainly include:

 

•

Group investments (non-consolidated investments, debt securities, etc.)

•

Loans and financial receivables

•

Cash and cash equivalents

•

Borrowings and other financial liabilities

•

Derivative instruments

Financial assets

Contractual characteristics and management models are used to classify financial assets.

Non-recyclable financial assets at fair value through other comprehensive income

The Group has made the irreversible decision to record investments in equity instruments at fair value through non-recyclable “other comprehensive income,” i.e., without the ability to transfer them to the income statement in the case of a sale. Only dividends received are recorded in the income statement.

Recyclable financial assets at fair value through other comprehensive income

Investments in debt instruments with a cash flow collection and resale mechanism and contractual flows consisting entirely of principal repayments and interest payments are reported at fair value with an offsetting entry in recyclable “other comprehensive income” (recyclable OCI).

Financial assets at fair value through profit or loss

Financial assets classified as fair value through profit or loss are financial assets purchased with the goal of resale in the near future or equity instruments for which the Group has not opted to define them as fair value through other comprehensive income.

 

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Loans

Loans are measured at amortized cost if the business model is to collect contractual cash flows consisting solely of principal and interest payments.

The effective interest rate technique is used to account for interest in the income statement’s “Other financial income and costs.”

The Group has taken an approach to loan impairment that is based on the counterparty’s likelihood of default and its assessment of the credit risk’s progression. The difference between the carrying amount and the value of the expected future cash flows, discounted at the financial assets’ original effective interest rate, is the impairment loss.

Trade and other receivables

Trade receivables are recognized and recorded at their transaction price.

A depreciation is recognized based on the expected losses since the origin of the receivable. Bad debts are recognized as losses when they are identified as such.

Cash and cash equivalents

Cash equivalents are short-term, liquid investments that are readily convertible into a known amount of cash and which are subject to an insignificant risk of change in value. Cash and cash equivalents therefore includes cash at bank and in hand, as well as cash investments in marketable securities with a maturity of three months or less and with very low sensitivity to interest rate risk.

In the cash flow statement, cash and cash equivalents comprise cash in hand, demand deposits in banks, and short-term liquid investments, net of bank overdrafts. It should be noted that bank overdrafts are included in the balance sheet under “Borrowings - current portion”.

Financial liabilities

Borrowings and financial debts

Bank loans are initially valued at fair value of the consideration received, minus transaction costs that are directly traceable.

They are then measured using the effective interest rate approach at amortized cost. Specifically, using the effective interest rate method, all costs associated with the issuance of loans or bonds, as well as any difference between the issuance proceeds net of transaction costs and the redemption value, are recognized in the income statement as financial expenses over the life of the loans.

Compound instruments

Compound financial instruments issued by the Group in euros include convertible bonds which give the holder the option to convert them into a specified number of shares.

The liability component of the compound financial instrument is initially valued at the fair value that a similar liability would have if it did not have a conversion option. The equity component is the difference between the fair value of the entire compound financial instrument and the fair value of the liability component when it is first recognized.

The liability component of a compound financial instrument is measured at amortized cost using the effective interest method after initial recognition. After initial recognition, the equity component of the compound financial instrument is not remeasured.

The income statement accounts for interest on financial liabilities.

 

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Derivative instruments

Hedging transactions in the form of derivative instruments, such as forward contracts, currency options, and interest rate options, are used by the Group to manage market risks (interest and exchange rates).

According to the standards of IFRS 9, these financial products are designated as hedging instruments and are primarily accounted for as cash flow hedges.

Hedge accounting

A cash flow hedge protects against the risk of profit or loss from variations in cash flows of an asset, obligation, or highly probable projected transaction that are linked to one or more risk components.

For the effective portion of the hedging relationship, changes in the fair value of the hedging instrument are recognized directly in the consolidated statement of comprehensive income, and for the ineffective portion, they are recorded in the income statement.

When the hedged transaction affects the income statement, cumulative changes in the fair value of the hedging instrument previously recognized in the consolidated statement of comprehensive income are recycled to the income statement.

Gains and losses are recorded in “Other operating income” for hedging operational activities and “Financial income” or “Financial expense” for hedging investment and financing activities.

The cumulative changes in the fair value of the hedging instrument previously recorded in the consolidated statement of comprehensive income are included in the initial measurement of the asset or liability concerned when the forecasted transaction results in the recognition of a non-financial asset or liability.

Hedging cost

The Group may document currency or interest rate options as hedging instruments as part of its market risk management policy, and the effectiveness of these products is assessed based on changes in intrinsic value. Depending on the nature of the risk hedged, the time value of these options is handled as a hedging cost and recognized in the consolidated statement of comprehensive income and recycled to the income statement.

Discontinuation of hedge accounting

When the criteria for hedge accounting’s application are no longer met, such as when the hedging instrument expires, is sold, terminated, or exercised, or when the hedging relationship’s market risk management purpose changes, hedge accounting is discontinued.

IBOR reform

A reform of the main reference rates is underway with the replacement of Interbank Offered Rates (IBOR) by alternative risk-free reference rates.

The Group is closely monitoring market activity as well as the publications of various bodies, particularly the IFRIC and the IASB, and has prepared itself for a gradual transition to risk-free rates.

Financial instruments (finance and derivatives) and, to a lesser extent, certain commercial contracts are likely to be affected by this reform (late payment interest, etc.).

In this context, the IASB has published several amendments to IFRS 9 and IFRS 7, including phase 2, which was adopted on January 13, 2021 and went into effect on January 1, 2021, to reflect the impact of replacing benchmark interest rates with new benchmark interest rates without any accounting impact that would not provide useful information to financial statement users.

 

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The Group’s financial statements for 2021 are unaffected by this rate change.

1.3.7    Inventories and work in progress

The cost of inventory is determined using the F.I.F.O. (First In, First Out) method. The cost of inventories includes all direct material costs, labor costs and the allocation of indirect production costs and/or subcontracting costs.

Inventories are measured at cost or net realizable value if lower than the net book value.

An impairment loss is recognized when:

 

•

products are damaged and therefore, not saleable;

 

•

products that have expired or are nearing obsolescence between 0 and 12 months before the expiration date.

1.3.8    Employee benefits

In accordance with the specific laws and provisions of each country in which it operates, the Group provides its employees with post-employment benefits (pension plans, termination benefits, etc.).

Defined contribution plans

A defined contribution plan is a post-employment benefit plan in which a company makes pre-determined contributions to a separate company and is under no legal or constructive duty to pay additional contributions. When contributions to defined contribution plans are due, they are recorded as an expense. Prepaid contributions are classified as assets if they may result in a cash refund or a reduction in future payments.

Defined benefit plans

A defined benefit plan is a post-employment plan other than a defined contribution plan.

Employees’ future benefits are estimated in exchange for services given in the current and preceding periods, and liabilities under defined benefit plans are measured separately for each plan. A certified actuary performs annual actuarial valuations using the predicted unit credit approach. This technique involves calculating the rights that employees have earned at the end of the year for all plans, taking into consideration the outlook for wage increases and the economic conditions in each country.

For post-employment benefits, the valuation is based in particular on the following methods and assumptions:

 

•

the retirement age, determined on the basis of the provisions applicable to each of the schemes and the conditions required to qualify for a full pension;

 

•

the projected salary level at retirement, taking into account the expected career progression and the estimated change in the retirement age;

 

•

the projected number of retirees determined on the basis of staff turnover rates and mortality tables available in each country;

 

•

the discount rate determined at the balance sheet date by reference to the rate on high quality corporate bonds with a duration close to that of the Group’s obligations.

The net expense recognized during the year for employee benefits includes:

 

-

in the Profit & Loss account:

 

•

the service cost corresponding to the acquisition of additional rights;

 

15

•

the net interest cost, corresponding to the interest cost on obligations net of income from hedging assets, now measured using the discount rate for obligations;

 

•

past service cost, including the expense or income arising from plan amendments/liquidation or the introduction of new plans;

 

•

actuarial gains and losses relating to other long-term benefits.

 

-

in the statement of net income and gains and losses recognized directly in other comprehensive income:

 

•

actuarial differences relating to post-employment benefits.

Termination benefits

When the Group is manifestly committed to a specific formal strategy for either termination of employment before the typical retirement date or an offer to induce voluntary redundancy with the goal of decreasing the workforce, termination benefits are recognized as an expense. If the Group has made an offer to encourage voluntary redundancies, it is likely that the offer will be accepted, and the number of employees who will accept the offer can be reasonably anticipated, voluntary redundancy payments are recorded as an expense.

Short-term benefits

If the Group has a present legal or constructive obligation to make such payments in return for past service rendered by the employee and the obligation can be reliably estimated, a provision is recognized for the amount that the Group expects to pay in respect of short-term cash-settled incentive and profit-sharing plans and bonuses.

1.3.9    Share-based payments

Over the time during which the staff members definitively acquire the rights, the fair value established at the date of grant of the options issued to employees is recognized as an employee benefit expense, with a corresponding rise in equity. The expense amount is adjusted to reflect the actual number of vested options for which the service and performance standards are met.

The fair value of the amount to be settled to an employee for cash-settled share appreciation rights is recognized as an expenditure, with a corresponding rise in the liability, over the period in which the employees become entitled to the final payment. At each balance sheet date and at the settlement date, the liability is remeasured. Personnel expenses account for any changes in the liability’s fair value.

Regardless of how the Group obtains the equity instruments, share-based payment transactions in which the Group receives goods or services in exchange for its own equity instruments are accounted for as equity-settled transactions.

The standards of IFRS 2 are used to measure and recognize plans that have been authorized but have not yet vested as of December 31, 2021.

1.3.10    Provisions

Provisions are accounted for when the Group has a present legal or constructive obligation as a result of a past event, the obligation can be reliably estimated and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

These provisions are calculated based on the most likely assumptions at the time of the balance sheet.

 

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1.3.11    Revenue from ordinary activities

1.3.11.1     Turnover

The Group’s revenue consists primarily of revenue from the sale of pharmaceutical products and medical devices. It is recognized when control of the goods or services is transferred to the client generally upon delivery, in accordance with the delivery and acceptance terms of the contract with the customer. Revenue is accounted for at the amount that reflects the sums that the Group expects to receive.

Revenue from product sales consists of the sale of products net of returns, rebates, discounts and allowances granted to customers. Rebates, discounts and rebates are recognized concurrently with the sales to which they relate and are identified as a variable component of the price in accordance with the provisions of IFRS 15.

1.3.11.2     Other income from operations

Other revenue includes royalties, income from licensing agreements with partners and other services.

Royalties received are recorded under “Royalties and Downpayments” on the basis of revenues generated by partners during the fiscal year and the contractual royalty rates.

1.3.12    Research Tax Credit

The French government provides tax incentives to businesses to encourage them to conduct technological and scientific research. Companies that can show that they have incurred expenses that meet the criteria (research expenses incurred in France, the European Union, or another country that has signed a tax treaty with France containing an administrative assistance clause since January 1, 2005) are eligible for a tax credit that can be used to pay corporate income tax. Except for the research tax credit arising from capitalized expenses, which is accounted for first as deferred income and then as a deduction from development costs as the expenses are amortized, this research tax credit is accounted for as a grant, as a deduction from recognized research and development costs.

1.3.13    Cost of sales and other operating expenses

The costs of manufacturing the marketed products are included in the sales costs.

The costs of distribution, promotion, and sale of pharmaceuticals are all included in marketing expenditures.

General management and support tasks are included in general and administrative costs (finance, IT, HR, etc.).

Internal and external costs of research and development studies that do not meet the criteria for the activation of new products, as well as regulatory affairs expenses, are included in research and development expenses.

1.3.14    Other income and expenses

Other income and expenses include a limited number of income and expenses, such as:

 

•

gains and losses on disposals of non-current tangible or intangible assets;

 

•

impairment of non-current tangible or intangible assets;

 

•

amortization of intangible assets acquired in business combinations;

 

•

restructuring costs;

 

•

provisions relating to major litigation for the company.

 

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1.3.15    Lease agreements

For all leases, regardless of their nature, the Group recognizes leases as assets in the form of a right of use against a rental liability on the balance sheet. The Group recognizes a depreciation charge and an interest charge in the profit and loss account, and lease payments are included in cash flows from financing activities in the cash flow statement.

Property leases and vehicle leases are the two principal contracts affected by the standard.

1.3.16    Financial income and expenses

Net financial income / (loss) includes interest on investments, interest payable on borrowings calculated using the effective interest method, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognized in respect of financial assets, foreign exchange gains and losses on financial transactions, foreign exchange differences and discounting and undiscounting effects.

When interest income is earned using the effective interest technique, it is recorded in the income statement.

1.3.17    Income tax

Current tax expense/income and deferred tax expense/income are both included in income tax (expense or income).

Tax is included in profit or loss unless it is related to items that are directly recorded in other comprehensive income or equity, in which case it is recorded in the same manner.

Current tax is defined as (i) the estimated amount of tax payable in respect of taxable profit for a period, calculated using tax rates enacted or substantively enacted at the balance sheet date, and (ii) any adjustment to the amount of tax payable in prior periods.

Unless otherwise specified, all transitory differences between the carrying amount of assets and liabilities and their tax bases are determined and recorded using the balance sheet liability technique. Based on tax regulations that have been passed or substantively enacted by the balance sheet date, deferred tax assets and liabilities are measured at the tax rates that are projected to apply to the period when the asset is realized and the liability is settled.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by the same taxation authority, either on the same taxable entity or on different taxable entities, but which intend to settle the current tax assets and liabilities on a net basis or to realize the assets and settle the liabilities at the same time.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each balance sheet date and are recognized to the extent that it is probable that sufficient taxable profit will be available.

Deferred taxes are calculated using domestic tax rates that are projected to apply when the asset is realized and the liability is resolved, based on tax rates that have been enacted or substantially enacted by the balance sheet date, depending on the jurisdiction.

As a result, as of December 31, 2021, deferred taxes for French corporations have been recognized at the rates approved by the French National Assembly (including the 3.3% social contribution) based on the reversal schedules below:

 

•

27.37% in 2021;

 

•

25.83% in 2022 and beyond.

 

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1.3.18    Earnings per share

Basic earnings per share are calculated by dividing the profit or loss attributable to ordinary and preference shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share are determined by adjusting the profit or loss attributable to ordinary and preference shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares (bonus share grants, warrants and stock options granted to beneficiaries).

1.3.19    Impairment testing of non-financial assets

In accordance with IAS 36 - Impairment of Non-Financial Assets, goodwill, trademarks, and non-amortizable rights of use are tested for impairment at least once a year, or more frequently if there is an indication of impairment. If there is any sign of impairment, additional assets are also subjected to impairment assessments.

In addition, at each balance sheet date, the carrying amounts of other intangible assets are examined to see whether there is any indication that the asset may be impaired. If such an indicator exists, the asset’s recoverable value is estimated.

The success of subsequent rounds of clinical research, pharmacovigilance, patent protection, the arrival of competitor treatments, or changes in actual sales compared to expectations can all be indicators of impairment.

Goodwill and assets identified in a business combination are allocated to one of the Group’s two cash-generating units, CHC (i.e., the sale of products in pharmacies, supermarkets, or e-commerce outlets and, for the most part, without prescription) and RX (i.e. the sale of prescription products and mainly comprising the rare disease activities), for the purposes of impairment testing, from the date of acquisition. These assets include, in particular, emergency contraceptive products (Compeed and Mederma), as well as RX.

Impairment tests consist of comparing the net book value of the asset or cash-generating unit with its recoverable amount, which is the higher of its fair value less costs to sell and its value in use.

Value in use is calculated as the sum of the discounted cash flows expected from the use of the asset or cash-generating unit and its ultimate disposal.

The amount that may be collected through the sale of an asset or cash-generating unit in an arm’s length transaction, minus costs directly related with the disposal, is known as fair value less costs to sell.

The Group’s weighted average cost of capital is used to discount the expected cash flows.

If the carrying value of an asset or its cash-generating unit exceeds its recoverable value, an impairment loss is recognized. Losses due to impairment are recorded in the income statement. A cash-generating unit’s impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and then to reduce the carrying amounts of the unit’s other assets pro rata to the carrying amount of each asset in the unit.

The methods and key assumptions specific to the asset impairment tests performed for the year ended December 31, 2021 are presented with respect to goodwill in note 2.1.

1.4    Determining fair value

The following are the valuation methodologies utilized at each level:

 

•

Level 1 (unadjusted quoted prices): prices available to the entity at the measurement date in active markets for identical assets or liabilities;

 

•

Level 2 (observable inputs): data about the asset or liability other than quoted market prices included in Level 1 inputs that are observable either directly (such as a price) or indirectly (i.e. derived from observable prices);

 

19

•

Level 3 (unobservable inputs): inputs that are not observable in a market, including observable inputs that are subject to significant adjustments.

The following procedures were used to determine fair values for balance sheet measurement and disclosure.

 

(i)	Investment in equity and debt securities

The fair value of listed financial instruments measured at fair value through profit or loss or through other comprehensive income is determined by comparing their last quoted bid price at the balance sheet date to their fair value or using recognized valuation techniques such as the discounted cash flow method if the instrument is not listed.

 

(ii)	Trade and other receivables

The fair value of trade and other receivables is calculated using the present value of future cash flows, discounted at the current market interest rate.

 

(iii)

Non-derivative financial liabilities

The present value of future cash flows generated by the debt (principal and interest) at the market interest rate adjusted for a credit spread at the reporting date is used to calculate fair value for disclosure purposes.

 

(iv)	Derivative instruments

The fair value of derivatives is based on recognized valuation techniques such as the discounted cash flow method and includes credit risk (Credit Value Adjustment) and counterparty risk (Debit Value Adjustment).

1.5    Changes in accounting policies

The IFRIC’s agenda decision issued in May 2021 on attributing retirement benefits on length of services has no significant impact on the consolidated financial statements.

1.6    Significant events of the fiscal year period

1.6.1    Change of scope

 

•

As part of the Group’s development in Asia, particularly in China, HRA Pharma has established 3 entities in 2019:

 

•

HRA Pharma APAC Limited, based in Hong Kong, was founded on December 10, 2019 with the goal of managing and supervising the company’s operations in Asia outside of China;

 

•

HRA Pharma Hong Kong Limited, based in Hong Kong, was founded on December 10, 2019 and is responsible for managing and supervising the company’s operations in China;

 

•

HRA Pharma China (WFOE), a Shanghai-based company founded on August 6, 2019.

As of December 31, 2020:

 

•

HRA Pharma APAC and HRA Pharma China are wholly owned by HRA Pharma;

 

•

HRA Pharma Hong Kong is 67% owned by HRA Pharma and 33% owned by the partner Profex;

 

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•

A capital of 700 thousand CNY was paid from HRA Pharma Laboratory to HRA Pharma China in June 2020;

 

•

Activity in China began in April 2020.

1.6.2    COVID-19

Financial year 2020:

The company has taken a targeted approach to conveying the most important impacts on the year’s performance and financial position.

The information presented pertains to the main impacts of the event that are recorded in the accounts, as judged appropriate. By measuring the gross and net impacts, these effects are described, taking into account the interactions and repercussions of the event on the normal aggregates. It is also evaluated in terms of the support measures from which it may have benefited.

The global epidemic known as “Covid-19” has had a detrimental influence on the Group’s operations, owing to containment and social distancing measures implemented in most nations throughout the world, particularly in Europe.

The impact on sales was felt most acutely in the “Consumer Healthcare” area, which had a 22% drop in sales, or - 44,564 thousand euros, compared to the previous year. The “Endocrinology” segment’s sales remained unaffected (+10% in comparison to 2019).

Despite the fact that practically all points of sale (pharmacies and supermarkets in particular) were open during these periods of confinement, there was a decline in sales.

The Group has attempted to mitigate the impact of Covid-19 on its profitability by cutting costs, particularly promotional expenses (-7%, or 2,462 thousand euros, compared to 2019) and development expenses (line item “Research and development expenses” in the income statement) (-16%, or -709 thousand euros compared with 2019).

It should be highlighted that the group’s manufacturing and transportation of products has not been disrupted.

With the prolongation of the €20 million senior loan took out in March 2020 and a new €8 million loan taken out with the BPI in September 2020, the company has strengthened its liquidity and has the required resources to ensure the company’s expansion.

Except for a suspension of payment of certain social security and tax expenses during the first confinement, the Group has not sought any remedy or aid from the government. At the end of the year, these deferrals were repaid up to 80%.

Financial year 2021:

The Group’s sales increased by more than 26% in 2021 compared to 2020, reflecting the strength of its brands as well as the recovery from the Covid-19 pandemic’s consequences.

After a negative impact from Covid-19 in 2020, Compeed branded revenues rebounded dramatically in 2021.

The Group concentrated on reducing and optimizing its material costs, notably in the area of “rare diseases” as well as its operating expenses, throughout this time. These efforts paid off with an operating profit of €57.1 million, up €36.8 million (+181.5%) over the previous year.

The Group’s inventory management has also been improved.

It should be emphasized that the Group’s manufacturing and supply of products has not been disrupted.

 

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Except for the German subsidiary, which has received 594,000 euros since the initial restriction, the Group has not sought recourse or assistance from the government.

As of December 31, 2021, all deferred payments of certain social security and tax costs made at the time of the first containment have been repaid.

1.6.3    Buyback offer from PERRIGO

Perrigo made an offer to the shareholders Astorg and Goldman Sachs Asset Management on September 8, 2021, to buy 100% of the Group’s share capital.

This offer was accepted by the shareholders in early November 2021. The sale of the Group is still subject to antitrust approval in the United States, despite the fact that all other prerequisites have been completed.

The deal is expected to be completed in the first half of 2022.

1.6.4    Ongoing legal actions

Financial year 2020:

 

•

In May 2018, BILIM, a Turkish generics business, requested that the Turkish counterpart of the European patent EP 2,419,108, which covers the protection of ella, be declared illegal by the Ankara Court.

Laboratoire HRA Pharma has filed its defense.

Laboratoire HRA Pharma withdrew the Turkish patent in January 2021, bringing the case to a close.

There were no financial or accounting implications.

 

•

In Europe, patent opposition procedures are pending before the European Patent Office, including the products ella and Esmya:

 

•

Opposition to the patent on the formulation of ella and Esmya tablets: HRA has challenged the European Patent Office’s first instance ruling. We predict that the appeal hearing will take place in 2021, and that the appeal judgment will be announced in 2021, with no additional information.

 

•

Opposition to the patent on the “Esmya” treatment: HRA filed an appeal; the hearing was place on November 23, 2020, and the European Patent Office revoked the patent.

There were no financial or accounting consequences.

 

•

Opposition to the patent on the contraceptive method “ella”: HRA appealed the first instance judgement and filed an appeal brief; the hearing before the European Patent Office’s Board of Appeal was held on October 11, 2020, and the European Patent Office revoked the patent.

There were no financial or accounting consequences.

 

•

Since early 2019, Laboratoire HRA Pharma and Vifor have engaged in a pre-litigation over the Esmya distribution contract in Australia and New Zealand. Laboratoire HRA Pharma sought 400 thousand euros under a condition that may be reduced if a disagreement arose.

Vifor expressed dissatisfaction with HRA Pharma but did not make a quantifiable claim.

On April 8, 2020, a deal was reached; HRA acknowledged the idea of contract cancellation, and neither side is responsible for any payments.

There has been no provision made.

 

•

Esmya Canada is the subject of a lawsuit filed in August 2019 against Apotex (Fibristal). This is a patent infringement case involving the patent for tablet composition and the patent for indication.

 

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Two similar litigations were initiated involving AbbVie, the local distributor of Esmya, the US Government and HRA against Jamp Pharma in one case and Pharma Science in the other case.

AbbVie relinquished its marketing license for Fibristal, bringing the case to a close.

Financial year 2021:

 

•

In Europe, ella and Esmya products are the subject of a patent opposition proceeding before the European Patent Office:

 

•

HRA filed an appeal against the European Patent Office’s first instance ruling on the patent for the formulation of ella and Esmya tablets.

HRA has filed an appeal against the European Patent Office’s first instance revocation judgment. A summons to an oral hearing before the Board of Appeal in Harr (Germany) has been issued; the hearing is scheduled for November 24, 2022. By the end of 2022, a conclusive decision on the patent’s maintenance or revocation is expected.

 

•

HRA filed an infringement claim against four generic makers of ellaOne products with the District Court in Korea on December 23, 2021, based on the ellaOne “formulation” patent.

 

•

A legal battle is underway with ella’s former Austrian distributor, who has sued HRA Pharma for non-delivery of supplies.

SANOVA also blames HRA Pharma for terminating the contract with too little notice.

HRA Pharma intends to actively defend itself against this attack, it has recorded a provision of 150 thousand euros in its financial statements.

The court is now hearing the case.

1.6.5    Other Information

Financial year 2020:

 

•

European health authorities have conducted evaluations of the medication Esmya (containing the active ingredient ulipristal acetate for the treatment of uterine fibroids in 3-month cycles at 5mg per day). The most recent decision is that of the European Union, which agreed to keep the medicine on the market but with a drastically limited indication on January 11, 2021.

The product’s marketing has been halted in practically every other country on the planet.

 

•

At the end of 2020, Laboratoire HRA Pharma’s management decided to put the “ELLIS” and “UPSI” projects on hold. As a result of this decision, items previously recognized as fixed assets have been removed for the following amounts: 8,666 thousand euros for ELLIS (net book value of 7,935 thousand euros) and 419 thousand euros for UPSI (net book value of 415 thousand euros).

Financial year 2021:

 

•

HRA France’s “rare diseases” business was transferred to HRA Pharma Rare Diseases on April 1, 2021.

 

•

HRA Pharma Development, which is wholly owned by Laboratoire HRA Pharma, was absorbed by the latter via a Universal Asset Transfer on December 31, 2021.

 

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•

On September 15, 2021, HRA Pharma LLC, which had no activity, was dissolved.

 

•

From July 2021, the local subsidiary in the United Kingdom began marketing Hana, a regular contraceptive tablet.

2    NOTES TO THE STATEMENT OF FINANCIAL POSITION

2.1    Goodwill

The goodwill shown in the December 31, 2021 balance sheet is the result of the acquisition of Laboratoire HRA Pharma in 2016 for an initial €303 million, the Compeed acquisition in 2017, the acquisition of the property rights of Lysodren in 2018, the acquisition of Mederma assets in June 2019 for €57 million.

At the end of the two fiscal years, goodwill had a balance of €530 million (gross €553 million minus a €23 million impairment).

Impairment testing

Impairment tests are conducted at the level of each of the two Cash Generating Units (CGUs): RX (the sale of prescription products, which primarily includes rare disease activities) and CHC (the sale of products in pharmacies, supermarkets, or e-commerce, which, for the most part, does not require a prescription). The CHC CGU includes, for example, emergency contraceptive medications such as Compeed and Mederma).

The recoverable amount of each cash-generating unit corresponds to its value in use, which is calculated using the discounted value of the expected future cash flows. The assumptions used for the impairment tests of each cash-generating unit are reviewed annually:

 

•

Business plan drawn up by management for the period 2022 to 2025 with structural costs allocated according to the weight of the activities of each CGU;

 

•

Beyond this horizon, cash flows are extrapolated by applying the expected long-term market growth rate;

 

•

An average tax rate has been used over the business plan horizon and corresponds to the weight of the activity in each area;

 

•

A discount rate determined by geographical area, ranging from 8% to 9.2% depending on the cash generating units tested;

 

•

Perpetual growth rate set at 2% for the calculation of terminal values of CGUs.

 

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The carrying amounts of the respective Cash Generating Units and the main assumptions are presented below:

 

in thousands of euros		RX				CHC				Total
Net book value as of December 31, 2020
Goodwill			63 879				465 707				529 585
Net assets			43 297				466 023				509 320
Total			107 176				931 730				1 038 905
Perpetual growth rate			2	%			2	%
Discount rate			8,2	%			8	%
Net book value as of December 31, 2021
Goodwill			63 879				465 707				529 585
Net assets			41 934				475 816				517 750
Total			105 813				941 523				1 047 335
Perpetual growth rate			2	%			2	%
Discount rate			9,2	%			8,3	%

For the years 2020 and 2021, tests were conducted to determine the sensitivity of the recoverable amount to likely changes in various actuarial assumptions, primarily the discount rate (range +/- 1%), change in cash flows (range +/- 20%), and perpetual growth rate (range +/- 1%). The sensitivity analyses were calculated by changing a single parameter and did not result in the recognition of any risk of goodwill impairment.

For the years 2020 and 2021, no impairment of goodwill has been identified.

2.2    Intangible assets

The following are the changes in “intangible assets” over the last two years:

 

Gross value in thousands of euros		Development Costs				Concessions, patents, trademarks and licenses				Marketing authorizations and exploitation rights				Software				Other intangible assets				Total
December 31, 2019			88 666				527 867				21 873				78				64				638 549
Acquisitions			10 420				350				39				222								11 031
Redeployment																							0
Sales / Scrapping			-9 064				-730				-6				-23								-9 823
December 31, 2020			90 022				527 487				21 907				277				64				639 757
Acquisitions			11 349				128				726				15								12 217
Redeployment																							0
Sales / Scrapping			-195												-10								-205
Exchange differences											9												9
December 31, 2021			101 176				527 615				22 641				281				64				651 778

 

Amortization in thousands of euros		Development Costs				Concessions, patents, trademarks and licenses				Marketing authorizations and exploitation rights				Software				Other intangible assets				Impairment losses				Total
December 31, 2019			-41 138				-20 253				-13 806				-59				-2				-52 139				-127 397
Allowances			-4 512				-166				-1 470				-54								-1 210				-7 412
Redeployment																											0
Sales / Scrapping			788				129				5				24												946
December 31, 2020			-44 862				-20 290				-15 271				-90				-2				-53 348				-133 864
Allowances			-1 828				-542				-1 482				-103								520				-3 437
Redeployment							186																-186				0
Sales / Scrapping			2												10												11
December 31, 2021			-46 689				-20 647				-16 753				-183				-2				-53 014				-137 289

 

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