As filed with the Securities and Exchange Commission on December 26, 2013.

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

APTALIS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Delaware

2834

74-3249874

(State or other jurisdiction of

incorporation or organization)

(Primary standard industrial

classification code number)

(I.R.S. employer

identification number)

100 Somerset Corporate Boulevard

Bridgewater, NJ 08807

(908) 927-9600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Frank Verwiel, M.D.

Chief Executive Officer

100 Somerset Corporate Boulevard

Bridgewater, NJ 08807

(908) 927-9600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Patrick O’Brien

Ropes & Gray LLP

Prudential Tower,

800 Boylston Street

Boston, MA 02199-3600

Telephone: (617) 951 7527

Facsimile: (617) 235 0392

Richard E. Maroun

General Counsel

Aptalis Holdings Inc.

100 Somerset Corporate

Boulevard

Bridgewater, NJ 08807

(908) 927-9600

David Lopez

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, NY 10006

Telephone: (212) 225-2632

Facsimile: (212) 225-3999

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).


Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee(2)
Common Stock, par value $0.001 per share	$500,000,000	$64,400

(1)	Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, amended.

(2)	Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated December 26, 2013.

LOGO

APTALIS HOLDINGS INC.

Common Stock

$ per share

This is an initial public offering of shares of common stock of Aptalis Holdings Inc.

We are offering of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional shares. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We have applied to list our common stock on the NASDAQ Stock Market under the symbol “APTA.”

We are an “emerging growth company” as that term is defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, and, as such, have elected to comply with certain reduced public company reporting requirements in this prospectus and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

See “Risk Factors” beginning on page 18 to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount(1)	$	$
Proceeds, before expenses, to us	$	$
Proceeds, before expenses, to the selling stockholders	$	$

(1)	We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting.”

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from us and an additional shares from the selling stockholders at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on , .



Goldman, Sachs & Co.		J.P. Morgan



		Barclays		Evercore

Prospectus dated , 2013

TABLE OF CONTENTS


	Page
PROSPECTUS SUMMARY		1
RISK FACTORS		18
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		54
MARKET AND OTHER INDUSTRY DATA		56
USE OF PROCEEDS		57
DIVIDEND POLICY		59
CAPITALIZATION		60
DILUTION		62
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA		64
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		74
BUSINESS		108
MANAGEMENT		141
EXECUTIVE COMPENSATION		149
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		163
PRINCIPAL AND SELLING STOCKHOLDERS		164
DESCRIPTION OF CERTAIN INDEBTEDNESS		167
DESCRIPTION OF CAPITAL STOCK		171
SHARES ELIGIBLE FOR FUTURE SALE		175
CERTAIN MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF SHARES OF OUR COMMON STOCK		177
UNDERWRITING		181
CHANGE IN ACCOUNTANTS		186
LEGAL MATTERS		187
EXPERTS		187
WHERE YOU CAN FIND MORE INFORMATION		187
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1

Through and including , (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

About this Prospectus

In this prospectus, unless otherwise stated or the context otherwise requires, references to “Aptalis,” “Axcan,” “Company,” “we,” “us,” “our,” or similar references mean Aptalis Holdings Inc. and its subsidiaries on a consolidated basis. References to “Aptalis Holdings” refer to Aptalis Holdings Inc. on an unconsolidated basis. References to “Aptalis Pharma” refer to Aptalis Pharma Inc., Aptalis Holdings’ wholly-owned subsidiary through which we conduct our operations. References to “TPG Global” are to TPG Global, LLC, and references to “TPG” are to TPG Global and its affiliates. References to the “TPG Funds” are to TPG Partners V, L.P., TPG FOF V-A, L.P., TPG FOF V-B, L.P., TPG Biotechnology Partners II, L.P., TPG Axcan Co-Invest II, LLC and TPG Axcan Co-Invest, LLC. References to our “Sponsors” are to the TPG Funds and Investor Growth Capital, Ltd., collectively our financial sponsors. References to a “fiscal year” refer to the fiscal year ended on September 30 of such year.

The names APTALIS^TM, ADVATAB^®, BIORISE™, CANASA^®, CARAFATE^®, CITRAFLEET^®, DIFFUCAPS^®, DIFFUTAB^®, DELURSAN^®, EURAND^®, LACTEOL^®, LIQUITARD^® MICROCAPS^®, ORBEXA^®, PANZYTRAT^®, PYLERA^®, RECTIV^®, SALOFALK^®, SULCRATE^®, ULTRASE^®, ULTRESA^®, URSO^®, VIOKASE^®, VIOKACE™, ZENPEP^® and are trademarks or registered trademarks owned or used under license by the Company and/or its affiliated companies.

All other trademarks or service marks appearing in this prospectus that are not identified as marks owned by us, including ACTIGALL™, ADVIL^®, AMRIX^®, APRISO^®, ASACOL^®, CAYSTON^®, COLAZAL^®, CREON^®, DIPENTUM^®, eFLOW^®, HELIDAC^®, KREON^®, LAMICTAL^® ODT, LIALDA^®, MEZAVANT^®, PANCREAZE™, PENTASA^®, PERTZYE™, PHOTOBARR^®, PHOTOFRIN^®, PHOSPHO-SODA^®, PREVPAC^®, ROWASA^®, SOLPURA^®, TOBI^®, TOBI^® Podhaler^™ and URSOLVAN^®, are the property of their respective owners.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus, including the more detailed information and the financial statements appearing elsewhere in this prospectus.

Our Company

Our mission is to improve health and quality of care by providing specialty therapies for patients around the world. Our vision is to become the reference specialty pharmaceutical company providing innovative, effective therapies for unmet medical needs, including in cystic fibrosis, or CF, and in gastrointestinal, or GI, disorders. We develop, manufacture, license and market a broad range of therapies.

We have built market-leading franchises in CF and GI disorders by growing sales of our products, many of which command a number one or number two position in their respective markets, including ZENPEP, CANASA, CARAFATE, PYLERA and RECTIV. Our revenues are highly diversified, with our largest product accounting for only 21% of our total revenue in fiscal year 2013 and with operations outside the United States accounting for 20% of our total revenue during the same period. The CF and GI markets are each characterized by a concentrated base of high-volume prescribing physicians, which allows our highly efficient and effective sales force of 227 experienced sales specialists, including 155 sales specialists in the United States, to reach substantially all Cystic Fibrosis Foundation care centers and approximately half of the GI physicians in the United States. We have established sales and marketing operations in the United States, Canada, France and Germany and proprietary manufacturing capabilities in North America and Europe. In addition, we have proven product development capabilities and a demonstrated ability to selectively acquire complementary products, product candidates and companies. We believe our pipeline of four clinical product candidates targets major commercial opportunities in the European Union, or EU, and the United States and we have lifecycle management opportunities for our existing products using the proprietary technology platforms of our Pharmaceutical Technologies, or PT, business.

We have generated double-digit revenue growth since the beginning of fiscal year 2011. This strong performance has been achieved by driving continued growth of our market-leading products and by successfully integrating products and companies, including Eurand N.V., or Eurand. Our total revenue has grown from $470.4 million for fiscal year 2011 to $687.9 million for fiscal year 2013, representing a compound annual growth rate, or CAGR, of 20.9%. Revenue from assets acquired or licensed during this period, including ZENPEP, RECTIV and PT, has grown from $122.0 million in fiscal year 2011 to $244.8 million in fiscal year 2013, while the remainder of our portfolio grew at a CAGR of 12.8%, from $348.4 million in fiscal year 2011 to $443.1 million in fiscal year 2013. We had Adjusted EBITDA of $160.0 million in fiscal year 2011 and $314.6 million in fiscal year 2013, Adjusted pre-tax income of $67.5 million in fiscal year 2011 and $241.4 million in fiscal year 2013, and a net loss of $191.6 million in fiscal year 2011 compared to net income of $86.9 million in fiscal year 2013. Adjusted EBITDA and Adjusted pre-tax income are non-GAAP financial metrics. Please see “Selected Consolidated Financial and Operating Data” for reconciliations of Adjusted EBITDA to net (loss) income and Adjusted pre-tax income to income (loss) before income tax.

Our Products

Our portfolio of market-leading products has a demonstrated track record of sustained growth. In addition, we have four clinical product candidates, as well as a number of early-stage projects in

development related to our existing products and therapeutic spaces. We also continually seek to enhance our existing promoted and pipeline products by using our proprietary PT platforms. These platforms both support our internal drug development efforts and contribute to our revenue through third-party business-to-business development agreements under which we formulate enhanced pharmaceutical and biopharmaceutical products using novel oral drug delivery technologies.

We believe that our products benefit from one or more intellectual property, regulatory, clinical, sourcing and manufacturing barriers to entry. These include patent protection; data exclusivity under Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act; U.S. Food and Drug Administration, or FDA, requirements for generic entrants to conduct clinical trials with clinical efficacy endpoints; complexity in matching formulation characteristics; proprietary manufacturing processes; difficulty in sourcing certain active pharmaceutical ingredients that must match narrow specifications; and the know-how required to manufacture certain dosage forms.

Our principal products and clinical product candidates are:


Product	Summary of Indications	Commercial Markets	Position in Our Commercial Markets¹	Fiscal Year Ended September 30, 2013 Net Sales (in millions)		Net Sales CAGR Fiscal Year 2011-2013 (%)
*Pancreatic Enzyme Products*

ZENPEP	Treatment of exocrine pancreatic insufficiency, or EPI, due to CF or other conditions	U.S.	2	$	141		49.9	%

ULTRESA	Treatment of EPI due to CF or other conditions	U.S.	Launched December 2012	$	2		n.a.

VIOKACE	In combination with a proton pump inhibitor, VIOKACE is indicated in adults for the treatment of EPI due to chronic pancreatitis or pancreatectomy	U.S.	Launched August 2012	$	3		n.a.

PANZYTRAT	Treatment of EPI and pancreatic enzyme deficiency	Selected EU countries	3 (Germany)	$	11		(15.3	)%
*Ulcer Treatments*

CARAFATE	Short-term (up to 8 weeks) treatment of active duodenal ulcers	U.S.	2	$	145		17.0	%

PYLERA	Treatment of patients with Helicobacter pylori, or H. pylori, infection and duodenal ulcer disease (active or history of within the past five years) to eradicate H. pylori	U.S./EU	2 (United States); Launched January 2013 in Germany; Launched April 2013 in France.	$	21		28.0	%
*Mesalamines*

CANASA	Short-term treatment of mild to moderately active ulcerative proctitis, or UP	U.S.	1	$	133		18.9	%

SALOFALK	Depending on the dosage form of Salofalk, indications comprise treatment of acute ulcerative colitis, or UC, management of distal UC and prevention of relapse of distal UC.	Canada	1	$	23		(0.4	)%
*Chronic Anal Fissure*

RECTIV	Treatment of moderate to severe pain associated with chronic anal fissure	U.S.	1	$	16		n.a.

1.	Company estimate based on IMS NPA and Insight Health data as of September 30, 2013.


Pipeline Product Candidate	Summary of Indications	Jurisdiction	Stage / Status
APT-1026	Chronic lung infection with Pseudomonas aeruginosa in CF	U.S. / EU / Canada	Phase III EU study completed. Marketing Authorization Application with EMA submitted in November 2013. EU launch expected in 2015.

			Currently in discussions with FDA regarding results of our single U.S. phase III study.

APT-1008 (ZENPEP-EU)	EPI	EU	Phase III EU study enrolled. Completion of study expected in 2014.

APT-1016	Bowel cleansing preparation for colonoscopy	U.S.	Phase II U.S. study completed.

APT-1011	Eosinophilic esophagitis, or EoE	U.S. / EU	Phase IIb study expected to commence in 2014.

Our Industry

We believe the markets for CF and GI disorders are large and highly attractive, with significant opportunities for specialty pharmaceutical companies to run highly efficient, profitable businesses. These markets are fragmented and underserved by large pharmaceutical companies and are characterized by products used for chronic conditions, leaving significant unmet medical needs. Because the CF and GI specialty physician bases are relatively concentrated, a high percentage of prescriptions are written by a small number of physicians who can be reached effectively by a relatively small sales force. Further, the CF market has a highly organized patient advocacy base, allowing for a targeted and relationship-driven marketing approach by specialty pharmaceutical companies.

We also believe that the ability of generic entrants to obtain approval for many products that treat CF and GI disorders is more difficult than for many other therapeutic areas. In addition to traditional barriers to generic entry, such as intellectual property and data exclusivity, many products that treat CF and GI disorders have features that create additional barriers to generic entry, including:

Insignificant or highly variable absorption into the blood, or bioavailability. Many products in other therapeutic areas act primarily via the drug’s absorption into the blood, leading to the FDA’s requirement that generic entrants demonstrate similar blood levels of drug, or bioequivalence, to gain approval. Because many CF and GI products often show insignificant or highly variable systemic bioavailability, we believe that bioequivalence is difficult to demonstrate and may not be applicable to the FDA’s generic approval process. Therefore, we believe generic manufacturers will be required to conduct full clinical trials with efficacy and safety endpoints for some products, which will increase the cost and risk of generic development.

Locally acting mechanisms. Because many CF and GI products act locally, delivering drug to the site of the disease is critical for clinical efficacy. Therefore, potential generic entrants will encounter additional clinical risk in demonstrating equivalent levels of both local activity and efficacy in clinical trials.

Complex formulations. We believe that the complexity of formulations of many CF and GI products, as well as manufacturing know-how and trade secrets, leads to difficulties in demonstrating similar technical specifications, such as dissolution characteristics, which the FDA also typically requires for approval of generic products.

Evolving FDA guidance. FDA guidance on the requirements for approval of generic forms of branded CF and GI products has been evolving. We believe that in certain circumstances this will make it more challenging to develop products and clinical packages which will support generic approvals.

GI disorders are generally grouped into four categories: functional disorders of the upper GI tract such as gastroesophageal reflux disease, gastroparesis and functional dyspepsia; functional disorders of the lower GI tract such as constipation and irritable bowel syndrome, or IBS; inflammatory/immunologic GI disorders such as Crohn’s disease, EoE and celiac disease; and disorders of organs involved in the digestive process, such as the gallbladder, liver and pancreas. While some of these disorders can be treated through currently available pharmacologic interventions, significant unmet needs still exist, particularly for indications such as IBS, Crohn’s disease, UC and other emerging GI-related disease areas such as EoE and autoimmune hepatitis. According to a 2011 Business Insight report, the worldwide GI drug market was $38 billion in 2010, with the United States accounting for more than 36% of the total.

Based on a 2009 U.S. Department of Health and Human Services report, at least 60 to 70 million Americans are affected each year by GI disorders, placing a burden on society that exceeds $100 billion in direct medical costs in the United States. Annually, in the United States, about 14 million hospitalizations—10% of total hospitalizations—and 15% of all in-patient hospital procedures are attributed to treatment of GI disorders. In addition, in the United States, 105 million doctor visits occur each year for digestive diseases, frequently in response to symptoms such as abdominal pain, diarrhea, vomiting or nausea. GI disorders, even conditions that are not immediately life-threatening, can severely affect a patient’s quality of life and ability to work and engage in daily activities.

CF is a life-threatening genetic disease that begins at birth and, because of one or more defective genes, causes the body to produce faulty proteins that lead to abnormally thick, sticky mucus that clogs the lungs, obstructs ducts in the pancreas and results in a number of other digestive conditions. CF is one of the most prevalent genetic diseases among Caucasians in the United States and can result in a number of related conditions requiring treatment. The disease affects an estimated 30,000 adults and children in the United States and 70,000 patients worldwide, an estimated 85% to 90% of whom suffer from exocrine pancreatic insufficiency, or EPI, and/or chronic lung infections. The sticky mucus that clogs the lungs can lead to serious lung infections, which are becoming increasingly resistant to current antibiotic standards of care. When CF affects the pancreas, the body does not absorb sufficient nutrients to grow and thrive. There is no cure for most forms of CF, necessitating ongoing treatment for chronic concomitant conditions such as EPI and lung infections. These treatments have contributed to increasing life expectancy for CF patients in the United States, from 33 years in 2001 to 37 years in 2011.

Our Competitive Strengths

Focus on High Value Specialty Pharmaceutical Areas with Unmet Needs. We focus on the high value specialty CF and GI markets, which we believe provide opportunities to focus on diseases or disorders with significant unmet needs. Many of our products are used to treat CF and GI disorders that are chronic and treated by a small number of high-volume prescribing physicians, who can be reached by our effective and efficient sales force.

Differentiated and Market-Leading Branded Products. We believe that our products have a compelling value proposition for physicians, patients and payors and are often the first line of treatment. As a result, we believe that our products experience a high degree of physician and patient loyalty, allowing many of our products to maintain a number one or number two position in their respective markets.

Highly Diversified Revenue Base. We have acquired, developed and/or launched nine products since the beginning of fiscal year 2010, which have significantly diversified our revenue base. We currently market branded products that treat a broad range of CF and GI diseases and disorders in North America and Europe. In fiscal year 2013, our largest product accounted for only 21% of our total revenue and operations outside of the United States accounted for 20% of our total revenue. Diversification remains an important part of our ongoing corporate strategy.

Proven Track Record of Acquiring and Integrating Products, Product Candidates and Companies. We have a proven track record of successfully acquiring products and product candidates, including the acquisition of CARAFATE. In addition, we have efficiently integrated, developed and grown the businesses we have acquired, including Eurand (ZENPEP and PT) and Mpex Pharmaceuticals, Inc., or Mpex (APT-1026).

Substantial Development Capabilities and Robust Pipeline. Our pipeline has four clinical product candidates which target major commercial opportunities in the EU and the United States. We have proven research and development capabilities with a track record of developing and gaining regulatory approvals for our product candidates, including obtaining approval for and launching multiple product candidates in a number of markets simultaneously. In addition, we leverage our PT platforms to improve the safety and efficacy, or otherwise develop enhanced formulations, of our products and product candidates.

Sustainable Growth Due to Significant Barriers to Entry. We have demonstrated multiple years of growth for each of our principal products, which we believe is due in part to the fact that many of our products benefit from one or more intellectual property, regulatory, clinical, sourcing and manufacturing barriers to entry. These include patent protection, data exclusivity under the Hatch-Waxman Act, FDA requirements for generic entrants to conduct clinical trials with clinical efficacy endpoints, complexity in matching formulation characteristics, proprietary manufacturing processes, difficulty in sourcing certain active pharmaceutical ingredients that must match narrow specifications, and the know-how required to manufacture certain dosage forms.

Experienced and Dedicated Management Team. We have a highly experienced management team with an average of 26 years of experience in the healthcare industry, as well as a broad spectrum of general business experience. Several members of our management team have devoted large parts of their careers to the CF and GI markets.

Our Growth Strategy

We intend to enhance our position as a leading specialty pharmaceutical company concentrating on the fields of CF and GI by pursuing the following strategic initiatives:

Grow Sales of Existing Products. We intend to grow sales of our products by leveraging the value of our products and our strong relationships in our target markets. We intend to focus and build on our relationships with high-volume prescribers of drugs that treat the diseases and disorders that our products address, as well as our relationships with patients, payors and patient advocacy groups.

Utilize our Commercial Infrastructure to Launch New and Differentiated Products. We have established a comprehensive infrastructure to commercialize products in the United States, Canada, France and Germany. We intend to leverage these capabilities to launch products from our pipeline and from potential future acquisitions.

Advance our Pipeline and Enhance our Product Portfolio. We are working to develop the next generation of products to address unmet needs in the CF and GI markets. Currently, our most advanced product candidates are APT-1026 and ZENPEP-EU. We completed a pivotal phase III trial of APT-1026 in the EU in 2012 and we expect to launch in the EU in 2015. We recently completed enrollment for a pivotal phase III clinical trial in the EU for ZENPEP-EU, which is expected to be completed in 2014. In addition, by utilizing our PT capabilities, we expect to continue lifecycle management and enhancement of our current portfolio and pipeline.

Selectively Acquire Complementary Products, Product Candidates and Companies. We seek to selectively acquire or in-license new products and product candidates, or acquire companies, that complement the strategic focus of our existing product portfolio and pipeline. We will also consider the acquisition of products, product candidates and companies in therapeutic areas that we consider adjacent to our core areas of expertise.

Leverage our Platform to Expand Internationally. In addition to our current infrastructures in the United States, Canada, France and Germany, we have partners and distributors in over 50 countries worldwide. We intend to leverage our existing international commercial platform to market and distribute our products, including PYLERA and, if approved in the EU, APT-1026 and ZENPEP-EU. In addition, we will evaluate opportunities to expand our commercial presence in EU countries where we currently operate and to establish commercial operations in selected additional EU countries.

Risk Factors

Our business is subject to numerous risks, including, without limitation, the following:

the pharmaceutical industry is highly competitive, with some of our competitors having more resources than we do, and is subject to rapid and significant change, which could render our products obsolete or uncompetitive;

the potential for entry of generic versions of our products, particularly those without patent coverage, into the markets in which we operate could lead to price erosion and decreased sales of our products;

our top three products, ZENPEP, CANASA and CARAFATE, account for a large portion of our revenues and any significant setback with respect to any of them, including setbacks with respect to shipping, supply, generic product entry, and regulatory issues, would have a material adverse effect on our business;

we have invested significant time and resources in developing our pipeline products and we may be unable to gain regulatory approval for and successfully commercialize any of our pipeline products, or experience significant delays in doing so, which would negatively impact our prospects;

our business is subject to extensive regulations in the markets in which we operate;

our product candidates may fail in clinical studies; and

as of September 30, 2013, on an as adjusted basis after giving effect to the Recapitalization (defined below) and the offering and the application of the proceeds therefrom, we had total indebtedness of $ million and our degree of leverage could adversely affect our ability to raise additional capital to fund our operations and make payments on our indebtedness as well as increase our vulnerability to general economic and industry conditions.

The above list is not exhaustive, and the additional risks and challenges we face are described under the section titled “Risk Factors” beginning on page 18 of this prospectus. These risks and challenges or other unforeseen events could impair our ability to operate our business or inhibit our strategic plans.

Acquisition and Development History

Since our acquisition by TPG in February 2008, we have demonstrated a track record of successful product development and acquisition and integration of major products and companies, including our:

March 2010 acquisition of APT-1016, which has completed phase II studies;

February 2011 acquisition of Eurand, including ZENPEP and PT;

August 2011 acquisition of Mpex, including APT-1026, which has completed a pivotal phase III study in the EU and is expected to launch in the EU in 2015;

2012 commercial launches of ULTRESA and VIOKACE, which were two internally developed product candidates.

Our management team has efficiently integrated, developed, and grown the businesses we have acquired, including Eurand. For example, we have grown our ZENPEP franchise, which was launched at the end of 2009, from $46 million in revenue in calendar year 2010 to $141 million in fiscal year 2013. We have also realized significant synergies in excess of our initial internal objectives.

Recent Developments

On October 4, 2013, Aptalis Pharma Inc., or Aptalis Pharma, our wholly-owned subsidiary, and certain of our other wholly-owned subsidiaries effected a refinancing consisting of (i) the repayment, in full, of our outstanding indebtedness, in aggregate principal amount of $926.4 million, under our second amended and restated credit agreement dated April 18, 2012, or the Second A&R Credit Agreement, and termination of our Second A&R Credit Agreement and (ii) the entry into our new senior secured credit facilities providing for senior secured term loans in the amount of $1,250 million and a new senior secured revolving credit facility allowing for borrowings of up to $150 million, which we collectively refer to as the Refinancing. See “Description of Certain Indebtedness—Senior Secured Credit Facilities.”

Following the Refinancing, through a series of transactions, including repayment of intercompany debt, redemptions of subsidiary equity, dividends, distributions and mergers, we made a distribution in aggregate amount of $399.5 million to our shareholders, holders of our restricted stock units and certain holders of options to purchase shares of our common stock, which we refer to as the Distribution. Certain holders of options received an adjustment to the per share exercise price of the options in accordance with the relevant option plan to reflect the effects of the Distribution. The Refinancing, the Distribution and the other transactions referred to above are collectively referred to as the Recapitalization.

On November 8, 2013, in conjunction with the Refinancing, we terminated our existing interest rate swap and interest rate cap agreements and paid a total of $13.5 million to our derivative counterparties. We then entered into two new interest rate cap agreements with an effective date of December 31, 2013. The interest rate caps each have a notional amount of $275.0 million amortizing to $25.0 million by their maturity in December 2019. The interest rate caps are designated as cash flow hedges of interest rate risk and are designated to fix our interest payments on the hedged debt at 6.78%.

Our Principal Stockholder

TPG is a leading global private investment firm founded in 1992 with $55.7 billion of assets under management as of September 30, 2013 and offices in San Francisco, Fort Worth, Austin, Beijing, Chongqing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, São Paulo, Shanghai, Singapore and Tokyo. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings.

Following the completion of this offering, TPG will own approximately % of our common stock, or % if the underwriters’ option to purchase additional shares of our common stock from us and the selling stockholders is fully exercised. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the NASDAQ Stock Market (“NASDAQ”). on which we intend to apply for our shares to be listed. See “Risk Factors—Risks Relating to our Common Stock and this Offering—TPG will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.”

Corporate Information and Structure

The principal executive offices of Aptalis Holdings Inc. are located at 100 Somerset Corporate Boulevard, Bridgewater, NJ 08807. Our website is www.AptalisPharma.com. The information contained in, or accessible through, our website is not deemed to be part of this prospectus, and you should not rely on any such information in connection with your decision regarding whether or not to purchase our common stock.

The following charts shows our simplified organizational structure immediately following the consummation of this offering:

LOGO

(1)	Represents %, % and % of the total voting power in the Company, respectively.

(2)

Sponsors refers to the TPG Funds and Investor Growth Capital, Ltd., collectively. Following the consummation of this offering, the TPG Funds will own % of the total voting power in the Company, or % if the underwriters exercise their option to purchase additional shares, and Investor Growth Capital, Ltd. will own % of the total voting power in the Company or % if the underwriters exercise their option to purchase additional shares.

(3)	Co-borrowers under our senior secured credit facilities.

(4)

Substantially all of Aptalis Pharma’s domestic 100% owned subsidiaries and certain foreign 100% owned subsidiaries guarantee our senior secured credit facilities. Other subsidiaries, including foreign subsidiaries, do not guarantee our senior secured credit facilities. See “Description of Certain Indebtedness” for more information.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of certain reduced disclosures and other requirements that are otherwise unavailable, in general, to public companies that are not emerging growth companies. These provisions include:

reduced disclosures about our executive compensation arrangements;

no non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;

exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting; and

reduced disclosures of financial information in this prospectus.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large-accelerated filer under the rules of the Securities and Exchange Commission, or SEC, or if we issue more than $1.0 billion of non-convertible debt securities over a rolling three-year period.

The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision.

Offering

Common stock offered by us

Common stock offered by the selling stockholders

Common stock to be outstanding immediately after this offering

shares ( shares if the underwriters exercise their option to purchase additional shares from us and the selling stockholders in full)

Option to purchase additional shares

The underwriters have a 30-day option to purchase a maximum of additional shares of common stock from us and additional shares of common stock from the selling stockholders.

Use of Proceeds

We expect to receive net proceeds, after deducting estimated offering expenses and underwriting discounts and commissions, of approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares in full), based on an assumed offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus). We intend to use the net proceeds from this offering to repay approximately $ million of the $1,250 million outstanding under our senior secured credit facilities, and the remainder for working capital and general corporate purposes, which may include the repayment of additional indebtedness and the funding of strategic growth opportunities. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. See “Use of Proceeds.”

Risk Factors

You should read carefully the “Risk Factors” section beginning on page 18 of this prospectus for a discussion of factors that you should consider before deciding to invest in shares of our common stock.

Stock Exchange and Listing Symbol

We have applied to list our common stock on the NASDAQ under the symbol “APTA.”

Certain Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of Shares of Our Common Stock

For a discussion of certain material U.S. federal income and estate tax considerations that may be relevant to certain prospective stockholders who are not individual citizens or residents of the United States, please read “Certain Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of Shares of Our Common Stock” beginning on page 177.

The number of shares to be outstanding after this offering is based on 67,696,126 shares of common stock outstanding as of September 30, 2013, and the shares of common stock offered pursuant to this prospectus. This number of shares excludes 3,989,250 shares of common stock issuable upon the exercise of outstanding stock options at a weighted-average exercise price of $11.55 per share as of September 30, 2013, of which 2,086,650 were vested and exercisable; 235,842 shares of common stock issuable upon the exercise of outstanding penny stock options, with a grant date exercise price of $0.01 per share, all of which were vested and exercisable; 5,000 restricted stock units, all of which were vested but not yet settled into common stock of the Company as of September 30, 2013; and 893,721 shares of common stock reserved for future issuance under our equity incentive plans.

Except as otherwise indicated herein, all information in this prospectus, including the number of shares that will be outstanding after this offering, assumes:

an initial public offering price of $ per share of common stock, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus;

no exercise of the outstanding options described above; and

no exercise of the underwriters’ option to purchase additional shares of common stock.

Summary Historical Financial and Other Data

The summary statement of operations data for the fiscal years ended September 30, 2013, 2012 and 2011 and the summary balance sheet data as of September 30, 2013 have been derived from and are qualified by reference to our audited consolidated financial statements and related notes included elsewhere in this prospectus. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under the captions “Selected Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results.


	Fiscal Year Ended September 30, 2013			Fiscal Year Ended September 30, 2012			Fiscal Year Ended September 30, 2011
	(in millions of U.S. dollars, except per share data)
Statement of Operations Data:
Net product sales	$	667.7		$	600.9		$	461.4
Other revenue		20.2			14.2			9.0

Total revenue		687.9			615.1			470.4
Cost of goods sold(1)		146.6			144.2			135.4
Selling and administrative expenses(1)		172.5			168.8			143.5
Management fees		7.0			5.7			3.6
Research and development expenses(1)		65.5			72.6			58.0
Acquired in-process research		0.0			0.0			65.5
Depreciation and amortization		94.7			101.7			72.8
Loss (gain) on disposal of product line		(1.0	)		0.0			7.4
Transaction, restructuring and integration costs		2.5			12.4			50.9
Fair value adjustments to intangible assets and contingent consideration		10.0			(3.4	)		—

Operating income (loss)		190.1			113.1			(66.7	)
Financial expenses		68.8			80.2			89.5
Loss on extinguishment of debt		—			23.1			28.3
Other interest income		(0.4	)		(0.2	)		(0.4	)
Loss on foreign currencies		0.1			0.2			0.1

Income (loss) before income taxes		121.6			9.8			(184.2	)
Income taxes		34.7			21.8			7.4

Net (loss) income	$	86.9		$	(12.0	)	$	(191.6	)

Earnings per common share attributable to common shareholders:
Basic earnings per share	$	1.28		$	(0.18	)	$	(3.32	)
Diluted earnings per share	$	1.26		$	(0.18	)	$	(3.32	)
Weighted average common shares outstanding:
Basic		67,987,312			67,699,784			57,742,284
Diluted		69,174,681			67,699,784			57,742,284


	Fiscal Year Ended September 30, 2013		Fiscal Year Ended September 30, 2012		Fiscal Year Ended September 30, 2011
	(in millions of U.S. dollars, except per share data)
As Adjusted Data(3)(4)(5)(6):
Net (loss) income	$
Basic earnings per common share	$
Diluted earnings per common share	$
Weighted average common shares outstanding:
Basic
Diluted
Other Financial Data:
EBITDA(2)(7)	$	284.7	$	191.5	$	(22.3	)
Adjusted EBITDA(2)(7)	$	314.6	$	244.9	$	160.0
Adjusted pre-tax income (2)(7)	$	241.4	$	161.6	$	67.5


	September 30, 2013
	Actual		As Adjusted (3)(4)(5)
	(in millions of U.S. dollars)
Balance Sheet Data (at period end):
Cash and cash equivalents	$	229.9
Short-term investments, available for sale		—
Total current assets		401.2
Total assets		1,341.2
Total short-term borrowings		9.5
Total current liabilities		261.6
Total long-term debt		911.8
Total liabilities		1,294.6
Total shareholders’ equity		46.6

(1)	Exclusive of depreciation and amortization which is separately reported in the Statement of Operations.

(2)

EBITDA, Adjusted EBITDA and Adjusted pre-tax income are financial measures that are not defined under generally accepted accounting principles in the United States, or GAAP, and are presented in this prospectus because our management considers them important supplemental measures of our performance and believes that they provide greater transparency into our results of operation and are frequently used by investors in the evaluation of companies in the industry. In addition, our management believes that EBITDA, Adjusted EBITDA and Adjusted pre-tax income are useful financial metrics to assess our operating performance from period to period by excluding certain material non-cash items, unusual or non-recurring items that we do not expect to continue in the future and certain other adjustments we believe are not reflective of our ongoing operations and our performance.

it, is income before income taxes as reported under GAAP, adjusted to exclude certain non-cash charges, unusual or nonrecurring items, impact of discontinued operations, impairment of intangible assets, restructuring activities, litigation settlements and contingencies, upfront and development milestone payments, stock-based compensation and other adjustments set forth below.

We understand that although EBITDA, Adjusted EBITDA and Adjusted pre-tax income are frequently used by securities analysts, investors and others in their evaluation of companies, they have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect all cash expenditures, future requirements for capital expenditures, or contractual commitments;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect changes in, or cash requirements for, working capital needs;

EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect expenditures related to current business development and product acquisition activities, including payments due under existing agreements related to products in various stages of development or contingent payments tied to the achievement of sales milestones;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect any cash requirements for such replacements;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income exclude income tax payments that represent a reduction in cash available to us;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and

other companies in our industry may calculate EBITDA, Adjusted EBITDA and Adjusted pre-tax income differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA, Adjusted EBITDA and Adjusted pre-tax income should not be considered as measures of discretionary cash available to us to invest in our business. Our management compensates for these limitations by relying primarily on our GAAP results and using EBITDA, Adjusted EBITDA and Adjusted pre-tax income as supplemental information. Investors and potential investors are encouraged to review the reconciliations of EBITDA, Adjusted EBITDA and Adjusted pre-tax income to our closest reported GAAP measures contained within “Selected Consolidated Financial and Operating Data” included elsewhere in this prospectus.

(3)

expenses payable by us; and (iv) the application of the estimated proceeds of the offering as described in “Use of Proceeds.” This as adjusted consolidated financial data is presented for informational purposes only and does not purport to represent what our consolidated results of operations or financial position actually would have been had the transactions reflected occurred on the date indicated or to project our financial condition as of any future date or results of operations for any future period.

(4)

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the as adjusted amount of each of cash and cash equivalents, total current assets, total assets and total shareholders’ equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

A share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase the as adjusted amount of each of cash and cash equivalents, total current assets and total assets by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us. Conversely, a share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would decrease the as adjusted amount of each of cash and cash equivalents, total current assets and total assets by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us.

(5)	As adjusted information is unaudited.

(6)	As adjusted earnings per share.

The as adjusted earnings per share gives effect to (a) the Recapitalization, (b) the elimination of fees paid under our management agreements with our Sponsors (which will be terminated in connection with the offering) and (c) the issuance of shares of our common stock offered by this prospectus and the use of the proceeds therefrom as described in “Use of Proceeds,” as if each had occurred on October 1, 2012.

The following presents the computation of as adjusted basic and diluted earnings per share:


		Fiscal Year Ended September 30, 2013
		(in millions of U.S. dollars, except per share data)
Numerator:
Net income as reported		$
Net income as adjusted adjustments:
Interest expense, net of tax(a)
Amortization of debt issuance costs and discount, net of tax(a)
Reduction of management fees, net of tax(b)
As adjusted net income		$
Denominator:
Weighted average common shares used in computing basic income per common share
Adjustment for common stock assumed issued in this offering
As adjusted basic common shares outstanding(c)
As adjusted basic earnings per share		$
Weighted average common shares used in computing diluted income per common share outstanding
Adjustment for common stock assumed issued in this offering
As adjusted diluted common shares outstanding(c)
As adjusted diluted earnings per share		$

(a)

These adjustments reflect the change to historical interest expense and amortization of debt issuance costs and discount (net of tax at an applicable blended statutory rate of % for the fiscal year ended September 30, 2013) after reflecting the Refinancing and use of proceeds from this offering to repay $ million of our senior secured credit facilities.

(b)

After the offering, we will no longer incur expenses under the management agreements with our Sponsors, resulting in the elimination of management fees of $ million, net of tax at an applicable blended statutory rate of % for the fiscal year ended September 30, 2013. This as adjusted calculation does not include the approximately $ million expense to be paid to the Sponsors as a fee in connection with the termination of the management agreements, as these costs will not have a continuing impact on our consolidated results of operations.

(c)

The as adjusted basic and diluted earnings per share is calculated based upon the weighted-average common shares outstanding during the period including the issuance of common stock in this offering as if the offering occurred on October 1, 2012. We also assume that the underwriters of the offering do not exercise their option to purchase up to $ million additional common stock from us and the selling stockholders.

(7)	For a reconciliation of EBITDA and Adjusted EBITDA to Net (loss) income and Adjusted pre-tax income to income before income tax, see “Selected Consolidated Financial and Operating Data.”

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, as well as all of the other information contained in this prospectus, including our consolidated financial statements and the notes thereto and the “Cautionary Note Regarding Forward-Looking Statements,” before making an investment decision. The risks described below are those which we believe are the material risks that we face. Any of the following risks and uncertainties and those discussed elsewhere in this prospectus could materially adversely affect our business, financial condition or results of operations. In such case, the trading price of our common stock may decline and you may lose all or part of your original investment.

Risks Related to Our Business

The pharmaceutical industry is highly competitive and is subject to rapid and significant change, which could render our products obsolete or uncompetitive.

Competition in our industry is intense and characterized by extensive research efforts and rapid technological progress. Technological developments by competitors, regulatory approval for marketing competitive products, including potential generic or over-the-counter products, or competitors’ superior marketing resources could adversely affect the commercial potential of our products and could have a material adverse effect on our revenue and results of operations. We are aware that there are numerous pharmaceutical and biotechnology companies, including large, well-known pharmaceutical companies, as well as academic research groups, throughout the world, engaged in research and development efforts with respect to pharmaceutical products targeted at CF and GI disorders addressed by our current and potential products. Competitors might overcome the significant barriers to entry described in the “Business” section of this prospectus and develop products that render our current products and pipeline product candidates obsolete or uncompetitive. They may complete development and regulatory approval processes sooner, whether by virtue of their greater experience in clinical testing and human clinical trials of pharmaceutical products or otherwise, and, therefore, market their products earlier than we can. They may also succeed in developing products that are more effective or less expensive to use than any that we may develop or license. These developments would limit the demand for our products and have a material adverse effect on our business and financial results.

The entry of generic versions of our products into the market could have a material adverse impact on our financial position, cash flows and results of operations.

The entry of generic and unbranded competitors to branded products leads to price erosion and decreased sales of the branded product. For example, during the fiscal years ended September 30, 2012 and September 30, 2013, generic competitors of DELURSAN 250mg entered the market in France, which we believe contributed to a reduction in revenue from sales of DELURSAN 250mg from $26.2 million in fiscal year 2011 to $14.7 million in fiscal year 2013. In addition, generic competitors of URSO entered the U.S. market during the fiscal year ended September 30, 2010, which we believe contributed to a reduction in revenue from sales of URSO from $50.0 million in fiscal year 2009 to $12.3 million in fiscal year 2013. The Company is at risk of further erosion of its net sales for its products that face generic competition. We have no patent protection for certain of our products, such as ULTRESA, VIOKACE and CARAFATE, which could make it easier for generic competitors to enter the market. While we believe our products benefit from a variety of intellectual property, regulatory, clinical, sourcing and manufacturing barriers to competitive entry, there can be no assurance that these barriers will be effective in preventing generic versions of our products from being approved. See “Business—Our Products” for an additional description of certain of these barriers. Some of these barriers depend upon the FDA or other regulatory agencies following guidance or practice they have previously issued and followed. Typically such guidance and practice is not binding on the regulatory

agency and is subject to change and varying interpretation. For example, in March 2013, the FDA revised its draft guidance with respect to determining bioequivalency of mesalamine rectal suppository products. In its revised draft guidance, the FDA now recommends in vivo and in vitro studies to demonstrate the bioequivalency of generic mesalamine rectal suppositories with pharmacokinetic endpoints and comparative in vitro studies, rather than clinical trials with clinical efficacy endpoints as previous FDA guidance had provided.

Particularly in the United States, government and commercial payors often provide significant financial incentives to encourage patients to purchase generic products instead of branded products as a way to reduce healthcare costs, and pharmacists may substitute generic or unbranded products for our products even if physicians prescribe our products by name. Governmental and other pressures toward the dispensing of generic or biosimilar products may rapidly and significantly reduce, or slow the growth in, the sales and profitability of our products and may adversely affect our future results and financial condition.

We have received letters from two parties indicating that each party had filed an Abbreviated New Drug Application, or ANDA, seeking approval to market a generic version of CANASA. In July 2013, we filed patent infringement lawsuits against each party, alleging infringement of certain of our patents and seeking, among other things, injunctive relief. See “Business—Legal Proceedings” for more information regarding the infringement suits. We believe the ANDAs were filed before the patents covering CANASA were listed in the FDA’s publication, “Approved Drug Products with Therapeutics Evaluations” (commonly referred to as the “Orange Book”), which generally means that we are not entitled to the 30-month stay of the approval of these ANDAs provided for by the Hatch-Waxman Act.

In October 2013, we also filed a citizen’s petition to request that the FDA require any ANDAs for a generic version of CANASA to demonstrate bioequivalence to CANASA using a clinical endpoint study, as opposed to a confirmation of quantitative and qualitative equivalence and limited physical testing along with a pharmacokinetics assessment. We believe that a clinical endpoint study is necessary due to mesalamine’s drug release characteristics and the kinetics of drug disposition at the local site. We can offer no assurances as to whether the FDA will grant our petition, nor can we predict the impact, if any, the petition will have on the FDA’s consideration of any pending or future ANDAs relating to CANASA.

We can offer no assurance as to when the pending litigation will be resolved, whether the lawsuit will be successful or that a generic equivalent of CANASA will not be approved and enter the market. The launch of generic versions of any of our products would likely reduce prices and unit sales and could have a material adverse impact on our financial position, cash flows and results of operations.

Our top three products account for a large portion of our revenues; any significant setback with respect to any of these products could have a material adverse effect on our business.

Any factor that adversely affects the sale or price of our principal products could significantly decrease our sales and profits. ZENPEP, CANASA and CARAFATE sales accounted for 21%, 19% and 21%, respectively, of our total revenue for fiscal 2013 and 20%, 19% and 20%, respectively, of our total revenue for fiscal year 2012 and 13%, 20% and 22%, respectively, of our total revenue for fiscal year 2011. Any significant setback with respect to any one of these three products, including setbacks with respect to shipping, manufacturing, supply, regulatory issues, product safety, marketing, government licenses and approvals, intellectual property rights, formulary losses, or generic or other forms of competition related to these products could have a material adverse effect on our financial position, cash flows or overall trends in results of operations.

If we are unable to gain regulatory approval for and successfully commercialize any of our pipeline products, or experience significant delays in doing so, our growth prospects will be materially harmed.

We have invested significant time and financial resources in the development of our pipeline products, including APT-1026, ZENPEP-EU, APT-1016 and APT-1011, and impediments or delays in gaining regulatory approval or commercializing any of our pipeline product candidates would materially harm our prospects.

The commercial success of any of our product candidates for which we obtain marketing approval from the FDA, Health Canada’s Therapeutic Products Directorate, or the TPD, the European Medicines Agency, or the EMA, or other regulatory authorities will depend upon the acceptance of these products by the medical community, including physicians, patients and payors. The degree of market acceptance of any of our approved products will depend on a number of factors, including:

demonstration of clinical safety and efficacy and obtaining regulatory approval in the jurisdictions where we operate;

the relative convenience and ease of administration;

the expectedness, incidence and severity of any adverse side effects;

limitations or warnings contained in a product’s FDA-, TPD- or EMA- approved labeling;

the availability of alternative treatments for the indications we target;

pricing and comparative effectiveness to competing products, particularly generic products and the current standard of care;

the effectiveness of our sales and marketing strategies;

the effectiveness of our supply arrangements and manufacturing and distribution plants, and the continued operation of our and our suppliers’ facilities in compliance with current good manufacturing practices, or cGMPs;

our ability to supply the evidence required to obtain timely and sufficient third-party coverage and reimbursement; and

the willingness of patients to pay out-of-pocket costs for co-insurance or higher co-pays, or in the absence of third-party coverage.

If any of our product candidates are approved but do not achieve an adequate level of acceptance by physicians, payors and patients, we may not generate sufficient revenue from these products for such products to become or remain profitable. In addition, our efforts to educate the medical community and payors on the benefits of our product candidates may require significant resources and may not be successful.

Our initial analysis of the data on the placebo-controlled phase III clinical trial for U.S. approval for APT-1026 indicates that the clinical trial did not meet its primary endpoint, time to exacerbation, but did demonstrate efficacy in key secondary endpoints, including superiority over placebo in improving lung function. We are currently in discussions with the FDA to explore alternatives to advance APT-1026 in the United States. We can give no assurance that our applications for approval in the EU and Canada will be successful, or that we will seek or receive regulatory approval for APT-1026 in the United States or in any other jurisdiction. Our ability to develop and commercialize APT-1026 will depend on numerous factors, including those listed above. Failure to achieve any of these requirements for the successful development and commercialization of APT-1026 could prevent us from commercializing APT-1026 in the timeframe anticipated, or at all, and would materially harm our prospects and have an

adverse effect on our business. Even if we do receive regulatory approval for APT-1026, commercial success depends on a variety of factors, some of which are beyond our control, and we can provide no assurance as to the revenue we will realize from APT-1026.

Our business could suffer as a result of adverse drug reactions to the products we market.

Unexpected adverse drug reactions by patients to any of our products could negatively impact utilization or market availability of our product. Patients taking our principal products have experienced adverse events, the most common of which include, in the case of ZENPEP, abdominal pain, flatulence, headache, cough, decreased weight, early satiety and confusion, in the case of CARAFATE, constipation, and, in the case of CANASA, dizziness, rectal pain, fever, rash, acne and colitis. If the incidence or severity of adverse drug reactions to the products we market increases substantially or if previously unknown problems with any of our approved commercial products, manufacturers or manufacturing processes are discovered, we will suffer reputational harm and we could be subject to administrative or judicially imposed sanctions or other setbacks, including:

restrictions on the products, manufacturers or manufacturing processes;

warning letters;

civil penalties and criminal prosecutions and penalties;

injunctions;

product seizures or detentions;

import or export bans or restrictions;

extensive warnings on product labels;

imposition of restricted distribution programs;

risk evaluation mitigation and risk management strategies;

voluntary or mandatory product recalls and related publicity requirements;

suspension or withdrawal of regulatory approvals;

total or partial suspension of production; and

refusal to approve pending applications for marketing approval of new products or of supplements to approved applications.

Any of these could have an adverse impact on our financial condition or results of operations.

The publication of negative results of studies or clinical trials may adversely impact our sales revenue.

We, academics, government agencies and others conduct studies or clinical trials on various aspects of pharmaceutical products. The results of these studies or trials may have a dramatic effect on the market for the pharmaceutical product that is the subject of the study. The publication of negative results of studies or clinical trials related to our products or the therapeutic areas in which our products compete could adversely affect our sales, the prescription trends for our products and the reputation of our products. In the event of the publication of negative results of studies or clinical trials related to our products or the therapeutic areas in which our products compete, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Any difficulties with or interruptions in our own manufacturing operations could delay output of products, which would have a material adverse effect on our business.

Any difficulties with or interruptions in our proprietary manufacturing operations could delay our output of products. We rely on production capabilities at our manufacturing facilities in Pessano, Italy, San Guiliano, Italy, Houdan, France, Mont St. Hilaire, Canada and Vandalia, Ohio. Due to regulatory and technical requirements, we have limited ability to shift production among our facilities or to outsource any part of our manufacturing activities to third parties in order to avoid disruptions in supply of our products. Delays in site transfers or scale-up of production to commercial quantities could delay clinical studies, regulatory submissions and approvals and commercialization or continued commercialization of our products and product candidates. Damage to any of our manufacturing facilities caused by human error, physical or electronic security breaches, power loss or other failures or circumstances beyond our control, including acts of God, fire, explosion, flooding, war, insurrection or civil disorder, acts of, or authorized by, any government, terrorism, accidents, labor troubles or shortages, or the inability to obtain material, equipment or transportation, could interrupt or delay our manufacturing operations. Likewise, natural disasters could interrupt supply of our manufacturing operations. Any interruption in our own manufacturing, whether due to limitations in manufacturing capacity or arising from factors outside our control, could impede our ability to produce sufficient supplies of our products for clinical studies or commercial distribution, which would have a material adverse effect on our business.

We depend on third-party providers, including sole-source suppliers, to manufacture our products and the active pharmaceutical ingredient for our products. We may not be able to maintain these relationships and could experience supply disruptions outside of our control.

We rely on a network of third-party providers to manufacture certain of our finished products or supply the active pharmaceutical ingredient for our products. As a result of our reliance on these third-party providers, including sole-source suppliers of certain components of our products and product candidates, we could be subject to significant supply disruptions outside of our control.

Damage to any of our third-party providers’ manufacturing facilities caused by human error, physical or electronic security breaches, power loss or other failures or circumstances beyond our control, including acts of God, fire, explosion, flooding, war, insurrection or civil disorder, acts of, or authorized by, any government, terrorism, accidents, labor troubles or shortages, or the inability to obtain material, equipment or transportation, could interrupt or delay their manufacturing operations. Likewise, natural disasters could interrupt supply of our third-party providers manufacturing operations. Any such disruptions could disrupt sales of our products and/or the timing of our clinical trials. Any such disruptions could have a material adverse effect on our sales and revenue.

Our agreements for the manufacture of the active pharmaceutical ingredient for ZENPEP, with Nordmark Arzneimittel GmbH & Co., and CANASA, with Infar, S.A., expire in the next 12 months. We are currently negotiating the extension of the terms of these agreements, but there can be no assurance that such negotiations will be successful. Our agreement for the supply of finished-product CARAFATE, with Sanofi-Aventis U.S. LLC, expires in 2016. We have no direct agreement for the supply of the active pharmaceutical ingredient in CARAFATE and currently source it through the supplier from which we buy CARAFATE finished product. To the extent we are unable to maintain our arrangements with the current suppliers of our finished product or active pharmaceutical ingredients, or to contract with alternative suppliers on acceptable terms, or at all, our business may be materially adversely affected. In addition, if any of these manufacturers fail to supply us with sufficient quantities of high-quality active pharmaceutical ingredient at an acceptable cost and on a timely basis, this could result in the delay of clinical development or commercialization of our product candidates or a decline in our sales and revenue.

In some instances, our regulatory approvals require that we obtain prior approval of any change of third-party providers for our products or raw materials by the relevant regulatory agency, such as the FDA or the EMA. This regulatory approval process typically takes a minimum of 12 to 18 months, and could take longer and involve significant costs if new clinical trials are required. During the period of any such transition, we could face a shortage of supply of our products. Some of our contracts with our current providers prohibit us from using alternative providers for the products supplied under these contracts. As a result of these factors, it is difficult for us to reduce our dependence on single sources of supply, and, even where that is not the case, there are a limited number of manufacturers capable of manufacturing our marketed products and our product candidates. In addition, some of our contracts contain purchase commitments that require us to make minimum purchases that might exceed our needs or limit our ability to negotiate with other manufacturers, which might increase costs.

Our current and anticipated future dependence upon third-party providers for the manufacturing and supply and testing of our products and product candidates, together with the regulatory constraints on transfer of manufacturing and supply, may adversely affect sales of our products and our ability to develop and commercialize additional products that receive regulatory approval in a timely and competitive manner. If these third-party providers fail to supply us with sufficient quantities of finished product or active pharmaceutical ingredient at an acceptable cost and on a timely basis, this could result in the delay of clinical development or commercialization of our product candidates or a decline in our sales and revenues.

Our business is subject to international economic, political and other risks that could negatively affect our results of operations and financial condition.

We have operations in the United States, Canada and the EU and distribution and licensing contracts in many other countries where our products are distributed. For fiscal years 2013, 2012 and 2011, 20%, 24% and 28% of our revenues, respectively, were derived from sources outside the United States. As a result, we are subject to heightened risks inherent in conducting business internationally, including the following risks:

foreign countries could enact legislation or impose regulations or other restrictions, including unfavorable labor regulations or tax policies, which could have an adverse effect on our ability to conduct business in or expatriate profits from those countries;

the regulatory or judicial authorities of foreign countries may not enforce legal rights and recognize business procedures in a manner to which we are accustomed or that we would reasonably expect;

changes in general political, social and economic conditions may lead to changes in the business environment in which we operate, as well as inflation and changes in foreign currency exchange rates;

customers in foreign jurisdictions may have longer payment cycles, and it may be more difficult to collect receivables in foreign jurisdictions;

adverse tax consequences;

inadequate protection of intellectual property; and

natural disasters, pandemics or international conflict, including terrorist acts, could endanger our personnel, damage our facilities and interrupt our operations.

Any such events could negatively impact our ability to operate our business outside of the United States and could have an adverse impact on our financial condition and results of operations.

In addition, we face several risks relating to compliance with international and U.S. laws and regulations that apply to our international operations. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements and anti-bribery laws and regulations, such as the United States Foreign Corrupt Practices Act and the UK Anti-Bribery Act, and other laws that prohibit payments to governmental officials and certain payments or remunerations to customers. Given the high level of complexity of these laws and regulations there is a risk that some provisions may be inadvertently breached, through fraudulent or negligent behavior of individual employees or our partners, our failure to comply with certain formal documentation requirements or otherwise. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, our partners or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results.

The scope of these laws is broad and there may not be regulations, guidance or court decisions that definitively interpret these laws and apply them to particular industry practices. This uncertainty in the way such laws will be interpreted increases the risk of violations. In addition, these laws and their interpretations are subject to change. Our business success depends in part on our ability to anticipate and effectively manage these and other regulatory, economic, social and political risks inherent in multinational business. We cannot provide assurances that we will be able to effectively manage these risks or that they will not have a material adverse effect on our multinational business or on our business as a whole.

We rely on third parties to conduct, supervise and monitor our clinical trials, and those third parties may perform in an unsatisfactory manner.

We rely on third parties, such as clinical research organizations, or CROs, medical institutions and clinical investigators to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties for clinical development activities reduces our control over these activities. Such third parties may not complete activities on schedule, or may not conduct our preclinical studies or clinical trials in accordance with regulatory requirements or our trial design, either of which could delay or impede our efforts to obtain regulatory approvals for, and to commercialize, our product candidates.

The potential loss or delay of our access agreements or purchase-based contracts could adversely affect our results.

As is the case for other companies in our industry, we rely on access agreements with payors, especially in the United States, in order to make our products accessible to the patients of physicians who prescribe our products. These access agreements between us and payors are for varying terms and generally may be revised or terminated during their terms for various reasons, including upon entry by a generic into the market. We currently have access agreements for certain of our products with commercial pharmacy benefit management organizations, or PBMs, the Department of Veterans Affairs, Medicare, Medicaid and various national commercial insurers. We also rely on purchase-based agreements (such as with group purchasing organizations) that are in place for all key PEP brands to drive exclusive utilization in key institutions for the PEPs. Any failure to maintain or obtain favorable access agreements or purchase-based agreements could have a material effect on our results of operations and financial condition.

Sales of our products may be adversely affected by the concentration of our product sales with a small number of wholesale distributors. If there is a disruption in any of these arrangements, and we cannot negotiate agreements with replacement wholesale distributors on commercially reasonable terms, we may not be able to effectively distribute our products, which would reduce revenues and cash flows.

There are a small number of large pharmaceutical wholesale distributors that have the capacity to be effective distribution partners for us. As a result, the majority of our sales are to a small number of pharmaceutical wholesale distributors, which in turn sell our products primarily to pharmacies, which ultimately dispense our products to the end consumers. In fiscal year 2013, sales to our three largest customers, which are U.S. wholesalers, accounted for 65% of our net product sales. Although we have distribution service agreements, or DSAs, that outline the terms of our business arrangements with these three U.S. wholesalers, these agreements are either terminable at will, with proper notice, or by mutual consent, and the pricing and other terms we have negotiated under each agreement are subject to change during the term of the agreement. If we cease doing business with any of these distributors for any or all of our products, or if the amount purchased from us by any or all of them is materially reduced, and we cannot negotiate agreements with replacement wholesale distributors on commercially reasonable terms, or at all, we could experience a material reduction in revenues and cash flows and we might not be able to effectively distribute our products through pharmacies.

Future litigation and the outcome of current litigation, including product liability litigation, may harm our business.

We face an inherent business risk of exposure to product liability and other claims in the event that the use of our products results, or is alleged to have resulted, in adverse effects. We have generally agreed to indemnify our licensors, distributors and certain of our contract manufacturers for product liability claims and there is a risk that we will be subject to product liability claims and claims for indemnification under these agreements. Although we currently carry product liability insurance, there can be no assurance that we have sufficient coverage, or can in the future obtain sufficient coverage at a reasonable cost. An inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit successful marketing of products and the growth of our business. Our obligation to pay indemnities, the withdrawal of a product following complaints, or a product liability claim could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Our business depends on key scientific, sales and managerial personnel for continued success.

Much of our success to date has resulted from the skills of certain of our officers and scientific personnel, our marketing and market access team, our sales force and our business development team. High demand exists for these key personnel in the pharmaceutical industry. The loss of any of these people may negatively impact our ability to manage our company effectively and to carry out our business plan. If any of these individuals were no longer employed by us, we might not be able to attract or retain employees with similar skills or carry out our business plan. In particular, the continued service of our senior management team, including Frank Verwiel, Steve Gannon, John Fraher, David Mims, Jean-Louis Anspach and Ruth Thieroff-Ekerdt, who are responsible for the development and implementation of our business strategy, is critical to our success. The loss of service of any member of our senior management team or key personnel could prevent, impair or delay the acquisition of new products or companies, the successful completion of our planned clinical trials and the commercialization of our products and product candidates. Of our senior management team, only four have employment agreements. We do not carry key man insurance for any member of our senior management team.

Certain of our employees outside the United States are represented by collective bargaining or other labor agreements and we could face disruptions that would interfere with our operations as a result.

Certain of our employees located in Canada and most of our employees in Europe are represented by collective bargaining or other labor agreements or arrangements that provide bargaining or other rights to employees. Such employment rights require us to expend greater time and expense in making changes to employees’ terms of employment or carrying out staff reductions. In addition, any national or other labor disputes in these regions could result in a work stoppage or strike by employees that could delay or interrupt our ability to supply products and conduct operations. Due to the nature of these collective bargaining agreements, we will have no control over such work stoppages or strikes by our employees, and a strike may occur even if our employees do not have any grievances against us. Any interruption in manufacturing or operations would interfere with our business and could have a material adverse effect on our revenues.

A significant component of our growth strategy is to continue to pursue additional acquisitions, which will present certain risks to us.

A significant component of our strategy will continue to be growth by selectively acquiring product candidates, products and businesses. However, we cannot be certain that acquisition candidates will be appropriate, available or actionable. Even if an acquisition candidate is appropriate, available and actionable, there can be no assurance we will be able to successfully negotiate any such acquisition on favorable terms, or at all, finance such an acquisition or successfully integrate such an acquired product or business into our existing business. We face significant competition from other pharmaceutical companies for acquisition candidates, which makes it more difficult to find attractive transaction opportunities for product candidates, products and businesses on acceptable terms. Furthermore, the negotiation of potential acquisitions could divert management’s time and resources and require significant financial resources to consummate. To consummate any acquisition, we may need to incur additional debt or issue additional equity securities and, depending on market conditions, we may not be able to obtain necessary financing for any acquisitions on terms acceptable to us, or at all. We may also be required to pay external costs such as legal advisory, market research consultancy and due diligence fees related to our pursuit and evaluation of potential acquisitions, even if the acquisitions are never consummated. Failure to acquire new products may diminish our rate of growth and adversely affect our competitive position.

Any acquisition transactions involve various inherent risks, such as assessing the value, strengths, weaknesses, contingent and other liabilities and potential profitability of the acquisition; the potential loss of key personnel of an acquired business; the ability to achieve operating and financial synergies anticipated to result from an acquisition and unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the acquisition. Any one or more of these factors could cause us not to realize the anticipated benefits from the acquisition of product candidates, products or businesses.

Integrating acquired companies or products requires significant effort, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing and finance operations. These efforts result in additional expenses and involve significant amounts of management’s time. Factors that will affect the success of our acquisitions include the strength of the acquired companies’ or products’ underlying technology and ability to execute on strategic goals, results of clinical trials, regulatory approvals and reimbursement levels of the acquired products and related procedures, our ability to adequately fund acquired in-process research and development projects and retain key employees, and our ability to achieve synergies with our acquired companies and products, such as increasing sales of our products, achieving cost

savings and effectively combining technologies to develop new products. Our failure to manage successfully and coordinate the growth of these acquisitions could have an adverse impact on our business. In addition, we cannot be certain that the businesses or products we acquire will become profitable or remain so, and if our acquisitions are not successful, we may record related asset impairment charges in the future.

We may be required to record a significant charge to earnings if our goodwill or amortizable intangible assets become impaired.

We are required under GAAP to test goodwill for impairment at least annually and to review our amortizable intangible assets for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. Factors that could lead to impairment of goodwill and amortizable intangible assets include significant adverse changes in the business climate and declines in the financial condition of our business. We have had impairments in the past. For instance, in fiscal year 2013 we were required to take impairment charges with respect to RECTIV intangible assets and our intangible assets related to our supply agreement for LAMICTAL. See Note 12 to our consolidated financial statements for the fiscal year ended September 30, 2013. We may suffer impairment in the future and may be required in the future to record charges. Any such charge would adversely impact our financial results.

We may be impacted by unfavorable decisions in proceedings related to future tax assessments.

We operate in a number of jurisdictions and are from time to time subject to audits and reviews by various taxation authorities with respect to income, consumption, payroll and other taxes and remittances, for current as well as past periods. Accordingly, we may become subject to future tax assessments by various authorities. Any amount we might be required to pay in connection with a future tax assessment may have a material adverse effect on our financial position, cash flows or overall results of operations. There is a possibility of a material adverse effect on the results of operations of the period in which the matter is ultimately resolved, if it is resolved unfavorably, or in the period in which an unfavorable outcome becomes probable and reasonably estimable.

Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability and adversely affect our financial condition, results of operations and cash flows.

We conduct operations worldwide through subsidiaries in various tax jurisdictions. Certain aspects of the transactions between our subsidiaries, including our transfer pricing (which is the pricing we use in the transfer of products and services among our subsidiaries) and our intercompany financing arrangements, could be challenged by applicable taxing authorities. While we believe both our transfer pricing and our intercompany financing arrangements are reasonable, either or both could be challenged by the applicable taxing authorities and, following such challenge, our taxable income could be reallocated among our subsidiaries. Such reallocation could both increase our consolidated tax liability and adversely affect our financial condition, results of operations and cash flows.

We are currently unable to accurately predict what our short-term and long-term effective tax rates will be in the future.

We are subject to taxes in the United States and the various other jurisdictions in which we operate, and will become subject to taxes in additional jurisdictions. Significant judgment is required in determining our worldwide provision for taxes and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective tax rates

could be adversely affected by changes in the mix of earnings (losses) in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities or changes in tax laws, as well as other factors. Our judgments may be subject to audits or reviews by local tax authorities in each of these jurisdictions, which could adversely affect our tax provisions.

Breaches of our information technology systems could have a material adverse effect on our operations.

We are increasingly dependent on information technology systems and infrastructure. Any significant breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively impact operations. There is also a risk that we could experience a business interruption, theft of information or reputational damage as a result of a cyber attack, such as an infiltration of a data center or data leakage of confidential information either internally or at our third-party providers. Cyber attacks are becoming more sophisticated and frequent, and there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.

Risks Related to Regulatory Matters

Pharmaceutical suppliers are subject to U.S. and foreign governmental statutory and regulatory oversight. Failure to comply with such laws and regulations may have a material adverse impact on our business.

Our activities in the development, manufacture, packaging or repackaging of our pharmaceutical products subject us to a wide variety of laws and regulations in the countries in which we conduct business, including those related to pharmaceutical products intended for human use. These regulations normally require extensive clinical trials and other testing in addition to governmental review and final approval before products can be marketed.

The FDA, the EMA, the TPD and other regulatory agencies promulgate regulations and standards, commonly referred to as current Good Clinical Practices, or cGCP, for designing, conducting, monitoring, auditing and reporting the results of clinical trials to ensure that the data and results are accurate and that the rights and welfare of trial participants are adequately protected. The FDA, the EMA and other regulatory agencies enforce cGCP through periodic inspections of trial sponsors, principal investigators and trial sites, CROs and institutional review boards, or IRBs. If our studies fail to comply with applicable cGCP, the clinical data generated in our clinical trials may be deemed unreliable and relevant regulatory agencies may require us to perform additional clinical trials before approving our marketing applications. Noncompliance can also result in civil or criminal sanctions. We rely on third parties, including CROs, to carry out many of our clinical-trial-related activities. Failure of any such third party to comply with cGCP can likewise result in rejection of our clinical trial data or other sanctions.

We also are required to register for permits and/or licenses with, seek approvals from and comply with operating and security standards of the FDA, the U.S. Department of Health and Human Services, or HHS, the TPD, the EMA and various state and provincial boards of pharmacy, state and provincial controlled substance agencies, state and provincial health departments and/or comparable state and provincial agencies, as well as foreign agencies and certain accrediting bodies depending upon the type of operations and location of product distribution, manufacture and sale. Manufacturing facilities must be approved by the FDA and other regulatory bodies before they can be used to manufacture our products. Other regulations prescribe research and development, laboratory, manufacturing, testing and safety procedures for pharmaceutical products.

On October 25, 2013, we received a Warning Letter from the FDA regarding compliance with cGMPs related to our class II medical device called FLUTTER, which had net sales of $2.4 million in fiscal year 2013 and which was manufactured by a third party with whom we have since discontinued our relationship. The Warning Letter followed an FDA inspection which concluded on August 29, 2013. At the conclusion of that inspection, the FDA issued a Form 483 Inspectional Observations, to which we responded in September 2013. We are currently drafting a response to the Warning Letter. We are also working with a new manufacturer to begin manufacturing FLUTTER. While the resolution of this Warning Letter is difficult to predict, we do not currently believe it will result in any material effect on our results of operations.

The cost of complying with governmental regulations can be substantial, particularly because the regulations vary by country and state and may change intermittently. Failure to obtain necessary regulatory approvals, the restriction, suspension or revocation of existing approvals, or any other failure to comply with regulatory requirements might impair our ability to produce and market our products or otherwise have a material negative impact on our business.

Our product candidates may fail in clinical studies, which could have a material adverse effect on our business.

Our product candidates may not be successful in clinical trials. Our ongoing development and clinical studies may be delayed or halted, or additional studies may be necessary, for various reasons, including the following: our product candidates are shown not to be effective; we are unable to demonstrate that a product candidate’s benefits outweigh its risks; we are unable to demonstrate that a product candidate presents an advantage over existing products; we do not comply with requirements concerning the investigational new drug applications, or INDAs, for the protection of the rights and welfare of human subjects; the FDA, the EMA or other applicable regulatory authorities require additional or expanded trials or disagree with the manner in which the results from preclinical studies or clinical trials are interpreted; we experience delays in obtaining, or the inability to obtain or maintain, required approvals from IRBs or other reviewing entities at clinical sites selected for participation in our clinical trials; patients experience unacceptable side effects or die during clinical trials; patients do not enroll in studies at expected rates; a drug is modified during testing; product supplies are delayed or are insufficient to treat the participating patients; our manufacturers or suppliers are non-compliant with any of the FDA’s or other relevant foreign counterparts’ regulations; or the applicable governmental or agency statutory or regulatory authority changes. For example, as described below, with respect to the two phase III clinical trials we have conducted of APT-1026, one met its primary endpoint and the other did not, which has delayed our anticipated timeframe for seeking regulatory approval of APT-1026 in the United States. Likewise, we can provide no assurances that the phase III clinical study for ZENPEP-EU that we currently are conducting or the anticipated U.S. phase III clinical trial for APT-1016 will be completed in the timeframe anticipated, or at all, or that either trial will be determined to be successful upon completion. The failure of these or any other of our product candidates in clinical studies could have a material adverse effect on our business.

We may encounter difficulties in obtaining regulatory approval for our new products or for new indications of existing products, which would have a material adverse effect on our business.

Generally, a product must be approved by regulatory authorities in the jurisdiction in which we intend to market it prior to the commencement of marketing. Requirements for approval can vary widely from jurisdiction to jurisdiction. There may be significant delays in obtaining required clearances from regulatory authorities after applications are filed. There is also no assurance that we will obtain regulatory approvals or that we will not incur significant costs in obtaining or maintaining such regulatory approvals. Even if we do receive regulatory approval for a product, commercial success depends on a variety of factors, some of which are beyond our control, and we can provide no assurance as to the revenue we will realize from our product candidates.

Sales of our products outside the United States and any of our product candidates that are commercialized are subject to the regulatory requirements of each country in which the products are sold. Accordingly, the introduction of our products and product candidates in markets outside the United States will be subject to regulatory clearances in those jurisdictions, although once we obtain regulatory approval from one EU country or by the EMA we may be able to achieve approval in other EU countries through a quicker mutual recognition process. Approval and other regulatory requirements vary by jurisdiction and we may be required to perform additional preclinical or clinical studies even if FDA approval has been obtained. In addition, failures in European preclinical or clinical studies could impact our filings in the United States. Many countries also impose product standards, packaging and labeling requirements and import restrictions on our products. The approval by government authorities outside of the United States is unpredictable and uncertain and can be expensive. Our ability to market our approved products could be substantially limited due to delays in the receipt of, or failure to receive, the necessary approvals or clearances.

Moreover, our product candidates may not be granted the approval status that we seek. Under the U.S. Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which generally is a disease or condition that affects fewer than 200,000 individuals in the United States. If a product that has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan drug exclusivity. If a drug obtains orphan drug exclusivity, the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years following marketing approval, except in certain very limited circumstances, such as if the later product is shown to be clinically superior to the orphan product. Legislation similar to the U.S. Orphan Drug Act has been enacted in other countries, including within the EU. We were granted U.S. orphan drug designation in 2010 for use of CANASA in pediatric UC. This provides us with some tax and research benefits, but we will not have exclusivity under the U.S. Orphan Drug Act unless CANASA is given the first FDA approval for pediatric UC. APT-1011 was also designated as an orphan drug in 2011. There can be no assurance that future drugs for which we seek orphan drug status will also be approved as orphan drugs. If other drugs with which our products seek to compete are granted orphan drug exclusivity, this would delay and impede our ability to market and sell our products and would have an adverse impact on our business.

Our products may be subject to postmarketing requirements or to REMS, either of which could materially adversely affect our business.

Even if regulatory approval is obtained, we remain subject to heavy regulatory oversight from the FDA and other agencies. Pharmaceutical suppliers, like us, are required to comply with FDA postmarketing reporting, including adverse drug experience reporting and annual and other reports concerning approved drugs. Failure to comply with these reporting requirements may result in the withdrawal of FDA approval for the approved drug. Certain data reported may result in mandatory postmarketing studies, as discussed below. Post-approval labeling and promotional activities are also subject to continual scrutiny by the regulatory agencies, in particular the FDA, and, in some circumstances, the Federal Trade Commission. FDA enforcement policy prohibits the marketing of approved products for unapproved, or off-label, uses. These regulations and the FDA’s interpretation of them might impair our ability to effectively market our products.

In accordance with expanded post-approval authority gained pursuant to the Food and Drug Administration Amendments Act of 2007, or the FDAAA, the FDA may impose postmarketing requirements that may include additional studies or clinical trials. By imposing such post-approval requirements, the FDA would be seeking to assess a known serious risk related to the use of a drug, to assess signals of serious risk related to the use of the drug, or to identify an unexpected serious risk when available data indicates the potential for a serious risk.

The FDA has mandated various postmarketing requirements and commitments for PEP products, including our PEP products (other than VIOKACE). The postmarketing requirements include long-term observational studies to assess the known serious risk of fibrosing colonopathy, as well as observational studies to evaluate the risk of transmission of selected porcine viruses to patients. For ZENPEP and ULTRESA, those studies are ongoing, with due dates in 2022 for ZENPEP and 2022 and 2016 for ULTRESA. The FDA also required that PEP suppliers develop age-appropriate formulations for certain pediatric sub-populations for the PEP products. As a condition of granting marketing approval of a product, the FDA may also obtain certain postmarketing commitments from a company. For example, with regard to PEP products, including our PEP products, the FDA has requested that PEP suppliers undertake certain postmarketing commitments, including developing assays with increased sensitivity to detect potential viral contamination and revising animal surveillance programs. A number of other chemistry, manufacturing and control commitments are applicable for ZENPEP, ULTRESA and VIOKACE as well, most of which are ongoing or we have met. In some cases we have requested that the FDA extend the deadline for these commitments, but no extension has been granted to date. If we do not complete the postmarketing requirements or clinical studies on a timely basis or if any of the data or information derived from these long-term postmarketing studies or postmarketing commitments indicates that a known safety risk is more prevalent than expected or identifies previously undetected safety risks, such events could have a material adverse effect on the applicable product or class of products, which could adversely affect our business and financial performance.

In addition, under the Pediatric Research Equity Act we are required to conduct postmarketing pediatric clinical trials for both RECTIV and CANASA. We are in discussions with FDA regarding potential amendments to the requirements for these pediatric studies for RECTIV and CANASA in regard to the number and timing of such studies and are awaiting a response from the FDA.

The FDAAA also authorized the FDA to require risk evaluation and mitigation strategies, or REMS, for a product if the FDA believes there is a reason to monitor the safety of the drug in the marketplace. The FDA initially imposed a REMS on ZENPEP that included the creation and distribution of a medication guide to apprise potential patients of specific risks related to taking ZENPEP. This REMS was eliminated in June 2011; however, the medication guide continues to be distributed as part of the approved product labeling outside of any REMS requirement. There can be no assurance that the FDA will not impose a REMS on ZENPEP, or on any of our other products, in the future. If the FDA requires a REMS with respect to any of our products, such a requirement could have a material adverse effect on our business and financial performance.

Our approved products and pipeline products are subject to ongoing regulatory requirements. Failure to comply with these requirements may subject us to civil and criminal liability, penalties, sanctions, additional reporting obligations and exclusion from government-payor programs, including Medicare and Medicaid, any of which could harm our business.

After receipt of initial regulatory approval, each product remains subject to extensive regulatory requirements relating to, among other things, manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and recordkeeping. For example, any regulatory approval is limited to those specific diseases and indications for which our products are deemed to be safe and effective by the FDA, the TPD, the EMA or other applicable regulatory authorities. In addition to approval required for new formulations, any new indication for an approved product also requires regulatory approval.

Moreover, the FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. A product may not be marketed for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling or other prescribing information. Although we have a compliance policy in place to train employees

about the prohibition on improper marketing for off-label uses of our products, there can be no assurance that our employees will comply with such policy or that our policy will be effective in preventing improper marketing for off-label uses of our products. If we are found to have marketed such off-label uses, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies deemed to be engaged in improper promotion enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. Our failure to follow rules and guidelines relating to promotion and advertising could also cause regulatory authorities to delay approval or refuse to approve a product, the suspension or withdrawal of an approved product from the market, recalls, fines, disgorgement of profits, operating restrictions and injunctions, any of which could harm our business.

Regulatory approval of a product also may be conditioned on postmarketing testing or surveillance to monitor product safety or efficacy. These limitations or conditions may be costly or may render the approved product not commercially viable. In addition, clinical experience with a drug after approval may reveal side effects and other problems that were not observed or anticipated during pre-approval clinical trials. This might cause subsequent withdrawal of the product from the market or require reformulation of the drug, additional testing or changes in labeling of the product.

The FDA, the EMA and other regulatory agencies regulate and inspect equipment, facilities, and processes used in the manufacturing of pharmaceutical products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location, or process, additional regulatory review and approval may be required. We also must adhere to cGMPs and product-specific regulations enforced by the FDA following product approval. cGMP regulations include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. The cGMP requirements apply to all stages of the manufacturing process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug product. Manufacturers must establish validated systems to ensure that products meet specifications and regulatory standards, and test each product batch or lot prior to its release. The FDA, the EMA and other regulatory agencies also conduct periodic visits to re-inspect equipment, facilities and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our equipment, facilities or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal or administrative sanctions or remedies against us, including the suspension of our manufacturing operations. In April 2010, for example, the manufacturing and control process deficiencies of a third-party manufacturer of the active ingredient for ULTRASE MT and VIOKASE resulted in delay of approval of the new drug applications, or NDAs, for these products beyond the deadline set by FDA regulations for this product class. This required us to cease distribution of these products.

We also are required to comply with the Prescription Drug Marketing Act, or PDMA, which governs the distribution of prescription drug samples to healthcare practitioners, because, as part of our commercialization efforts, we provide physicians with samples. Among other things, the PDMA prohibits the sale, purchase or trade of prescription drug samples of certain products. It also sets out record keeping and other requirements for distributing samples to licensed healthcare providers. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, significant disbursements, operating restrictions and criminal prosecution.

Our operations may be affected by the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementing regulations, which established uniform standards for certain

“covered entities” (e.g., healthcare providers, health plans and healthcare clearinghouses) governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information. The American Recovery and Reinvestment Act of 2009, commonly referred to as the economic stimulus package, included the Health Information Technology for Economic and Clinical Health Act, or HITECH, which became effective on February 17, 2010 and expands HIPAA’s privacy and security standards. Among other things, HITECH makes certain HIPAA privacy and security standards directly applicable to “business associates,” including independent contractors of covered entities that receive or obtain protected health information in connection with providing a service on their behalf. HITECH also increased the civil and criminal penalties that may be imposed and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney fees and costs associated with pursuing federal civil actions. Although we believe that we are neither a “covered entity” nor a “business associate” under HIPAA or HITECH, we cannot be assured that regulatory authorities would agree with our assessment. In addition, HIPAA and HITECH may affect our interactions with customers who are covered entities or their business associates and affect our ability to conduct the necessary research studies to obtain and maintain regulatory approval of our products.

Imposition of any of the sanctions described above could have a material adverse effect on our business.

Pharmaceutical companies are subject to reporting, disclosure and marketing obligations under government-payor programs and federal and state fraud and abuse laws. Failure to comply with such requirements may subject us to civil and criminal liability, penalties, sanctions and/or exclusion from government-payor programs.

Pharmaceutical companies are subject to reporting, disclosure and marketing obligations under federal and state laws. In order to receive federal healthcare funding for their products, for example, pharmaceutical suppliers must participate in several federal pricing programs. These programs require reporting of pricing data in order to set payment rates for government-payor programs.

The Medicaid Drug Rebate program requires pharmaceutical manufacturers to report the average manufacturer price, or AMP, the average price paid by wholesalers and retail community pharmacies for a drug, and “best price,” the lowest price paid for a drug by any retailer or other purchaser, including discounts, rebates and the value of free goods provided, on a monthly and/or quarterly basis to the Centers for Medicare and Medicaid Services, or CMS. The Medicaid Drug Rebate program allows the Medicaid program to receive a rebate for each unit of drug dispensed to Medicaid beneficiaries equal to a percentage of the AMP or the difference between the AMP and the best price, whichever is greater. The reported pricing data determines the rebate amount, updated quarterly, that each state Medicaid program is entitled to receive on the state’s quarterly claimed payments of the pharmaceutical supplier’s product.

The Medicare program also requires pharmaceutical suppliers to report quarterly average sales price, or ASP, data to CMS, as a condition of Medicare reimbursement under Medicare Part B. CMS uses the ASP data to determine the appropriate reimbursed rates, updated quarterly, to be paid under Medicare Part B.

The Public Health Service 340B Program, or PHS, a program that limits the price a manufacturer may charge certain federal grantees, federally-qualified health center look-alikes and qualified disproportionate share hospitals known as “covered entities” for covered outpatient drugs. This discount requirement only applies to covered entity purchases of drugs for use in the outpatient setting. The statutorily defined PHS ceiling price, updated quarterly, also relies on pharmaceutical suppliers’ accurate reporting of the AMP. The PHS ceiling price is determined by subtracting the Medicaid unit rebate amount from the AMP.

The Veterans Health Care Act requires manufacturers to make their Covered Drugs readily available for purchase on the Federal Supply Schedule, or FSS, as a condition of federal payment for their products under the Medicaid program. The price paid by the Department of Veteran’s Affairs, or VA, Department of Defense, or DOD, Indian Health Service or Coast Guard may not exceed 76% of the Non-Federal Average Manufacturer Price, or NFAMP, with an additional discount subtracted. The NFAMP, similar to the AMP, is a price that manufacturers must report, in this case to the VA on a quarterly basis. Commercial discounting practices may, by operation of the NFAMP, trigger lower government prices for the agencies listed above. Companies must disclose their commercial pricing practices, and those practices become the basis for negotiation of the government contracts with the VA, DOD, Indian Health Service or Coast Guard. Companies also negotiate a “tracking customer” with these agencies. If during the term of the government contract a company lowers the price at which it offers the reference drug to that commercial tracking customer, it is required to disclose that lowered price and offer it to the FSS covered entities with which it holds contracts. False NFAMPs or failure to report this information may trigger government civil money penalties.

Federal and state laws and regulations also regulate the sales and marketing practices of pharmaceutical manufacturers. Certain federal and state laws, for example, require governmental and public disclosure of interactions between pharmaceutical suppliers and healthcare providers. The federal “sunshine” provisions, enacted in 2010 as part of the comprehensive federal healthcare reform legislation, require pharmaceutical suppliers, among others, to disclose annually to the federal government (for re-disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or to teaching hospitals. State laws also may require disclosure of pharmaceutical pricing information and marketing expenditures. These laws have been recently enacted and modifications to our systems for reporting have been based on interpretations of the regulations. If it is determined that these interpretations are incorrect, our reporting may be deficient.

Compliance with these obligations is complex, and requires the collection and analysis of large quantities of data, as well as timely and accurate reporting pursuant to federal and state programs. This process could be impacted by systems failures, inadvertent errors in compiling or interpreting data or intentional misreporting by employees, which could result in inaccurate or delayed reports. Pharmaceutical companies are increasingly subject to federal and state criminal and civil investigations and liability in connection with the reporting of prices for pharmaceutical products reimbursed under federal and state healthcare programs. Private litigants also have brought actions under federal and state false claims acts and other fraud and abuse laws alleging violations of price reporting that led to inflated reimbursement. Failure to comply with the federal and state reporting, disclosure and marketing obligations may subject us to criminal and/or civil liability, penalties, sanctions, additional reporting obligations and/or exclusion from government-payor programs. Even unsubstantiated allegations of non-compliance with these laws may cause us to incur significant legal fees, reputational harm and damage to our business.

Our relationships with customers and payors are subject to fraud and abuse laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, exclusion from government-payor programs, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and others play a primary role in the recommendation and prescription of our products. Our arrangements with payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including fines and civil monetary penalties and/or exclusion from government-payor programs. Federal and state authorities are paying increased attention to enforcement of these laws within the pharmaceutical

industry and private individuals have been active in alleging violations of the laws and bringing suits on behalf of the government under the false claims act as discussed below. If we were subject to allegations concerning, or were convicted of violating, these laws, our business, including our reputation, could be harmed. Applicable U.S. federal statutes, include, but are not limited to, the following statutes:

The federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under government-payor programs.

The federal False Claims Act, which imposes criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government.

The federal False Statements Statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.

The federal Prohibition Against Beneficiary Inducements statute, which imposes civil monetary penalties for any offers or transfers of remuneration to any individual eligible for Medicare or Medicaid benefits that is likely to influence the individual to order or receive a Medicare or Medicaid covered services from a particular provider, practitioner or supplier.

The Civil Monetary Penalties law, which authorizes the imposition of substantial civil money penalties against an entity, including pharmaceutical suppliers, that engages in activities including (1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (2) offering or giving remuneration to any beneficiary of a government-payor program likely to influence the receipt of reimbursable items or services; (3) arranging for reimbursable services with an entity that is excluded from participation from a government-payor healthcare program; or (4) knowingly or willfully soliciting or receiving remuneration for a referral of a government-payor program beneficiary.

Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government.

Compliance with applicable and evolving healthcare laws and regulations is costly, and it is possible that governmental authorities or courts will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our past or present operations, including activities conducted by our sales team or agents, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and

administrative penalties, damages, fines, exclusion from federally funded payor programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, any of which could have a material adverse effect on our business.

Changes in laws and regulations could affect our results of operations, financial position or cash flows.

Our future operating results, financial position or cash flows could be adversely affected by changes in laws and regulations, such as (i) changes in the FDA, the TPD or the EMA (or other foreign equivalents) approval processes that may cause delays in, or prevent the approval of, new products; (ii) new laws, regulations and judicial decisions affecting product development, marketing, promotion or the healthcare field generally; (iii) new laws or judicial decisions affecting intellectual property rights; and (iv) changes in the application of tax principles, including tax rates, new tax laws, or revised interpretations of existing tax laws and precedents, which result in a shift of taxable earnings between tax jurisdictions.

We deal with hazardous materials and must comply with environmental health and safety laws and regulations, which can be expensive, restrict how we do business and give rise to significant liabilities.

We are subject to various environmental, health and safety laws and regulations, including those governing air emissions, including greenhouse gases, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous and biological materials and wastes, and the cleanup of contaminated sites. The cost of compliance with these laws and regulations could be significant. In the event of a violation of these laws and regulations, including from accidental contamination or injury, we could be held liable for damages exceeding our available financial resources. We could be subject to monetary fines, penalties or third-party damage claims as a result of violations of such laws and regulations or noncompliance with environmental permits required at our facilities.

As an owner and operator of real property and a generator of hazardous materials and wastes, we also could be subject to environmental cleanup liability, in some cases without regard to fault or whether we were aware of the conditions giving rise to such liability. In addition, we may be subject to liability and may be required to comply with new or existing environmental laws regulating pharmaceuticals in the environment. Environmental laws or regulations, or their interpretation, may become more stringent in the future. If any such future changes to environmental laws and regulations require significant changes in our operations, or if we engage in the development and manufacture of new products or otherwise expand our operations in ways that require new or different environmental controls, we will have to dedicate additional management resources and incur additional expenses to comply with such laws and regulations.

In the event of an accident, applicable authorities may curtail our use of hazardous materials and interrupt our business operations. In addition, with respect to our manufacturing facilities, we may incur substantial costs to comply with environmental laws and regulations and may become subject to the risk of accidental contamination or injury from the use of hazardous materials in our manufacturing process. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We may face liability for any injury or contamination that results from our use or the use by third parties of these materials, and such liability may exceed our insurance coverage and our total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development and production efforts.

We maintain limited insurance coverage for the foregoing types of risks. In the event of environmental discharge, contamination or accident, we may be held liable for any resulting damages, and any such liability could exceed our resources.

Risks Related to Our Industry

Product pricing and reimbursement for government-payor programs are highly regulated and subject to change. Additionally, product pricing and reimbursement for private-payor and government-payor programs are subject to cost control measures. There can be no assurance that current levels of reimbursement for our products will continue in the future. Reductions in the pricing or reimbursement available for our products could have a material adverse effect on our business.

In both domestic and foreign markets, sales of our products depend on the availability and amount of reimbursement by payors, including governments and private health plans. Governments may regulate coverage, reimbursement and/or pricing of our products to control cost or affect utilization of our products. Private health plans may also seek to manage cost and utilization by implementing coverage and reimbursement limitations. Substantial uncertainty exists regarding the reimbursement by payors of newly approved healthcare products. The U.S. and foreign governments regularly consider reform measures that affect healthcare coverage and costs. Such reforms may include changes to the coverage and reimbursement of our products which may have a significant impact on our business.

Government-payor programs

Within the United States

Medicaid is a joint federal and state program that is administered by the states for low income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, we are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs. The amount of the rebate for each product fluctuates. It is set by law as the greater of 23.1% of the AMP or the difference between AMP and the “best price” paid by any commercial customer, with limited exceptions. The rebate amount must be adjusted upward if AMP increases more than inflation, as measured by the Consumer Price Index—Urban. The adjustment can cause the rebate amount to exceed the minimum 23.1% rebate amount. The rebate amount is calculated each quarter based on our report of current AMP and the best price for each of our products to CMS. The requirements for calculating AMP and best price are complex. We are required to report any revisions to AMP or “best price” previously reported within a certain period, which revisions could affect our rebate liability for prior quarters. There can be no assurance that our current levels of rebate liability will continue in the future. In addition, if we fail to provide timely information or we are found to have knowingly submitted false information to the government, we may be subject to criminal and civil liability as well as other sanctions and penalties.

Additionally, each state sets its own payment methodology for its Medicaid program, with some guidance and requirements from CMS. As a result, reimbursement under Medicaid is governed by myriad state regulations, which may conflict with regulations in other states. We may fail to comply with the unique state-specific requirements for reimbursement in certain markets, which may lead to potential liability, sanctions or exclusion from that state’s Medicaid program. These state reimbursement regulations are subject to change, which may also affect our ability to seek reimbursement for our products.

Medicare is a federal program that is administered by the federal government and covers individuals age 65 and over, as well as those with certain disabilities. Medicare Part B generally covers

drugs that must be administered by physicians or other healthcare practitioners, are provided in connection with certain durable medical equipment or are certain oral anti-cancer drugs or oral immunosuppressive drugs. Medicare Part B pays for such drugs under a payment methodology based on the ASP of the drugs. Suppliers, including us, are required to provide ASP information to CMS on a quarterly basis. This information is used to calculate Medicare payment rates. The current payment rate for Medicare Part B drugs is ASP plus 6% outside the hospital outpatient setting and ASP plus 4% for most drugs in the hospital outpatient setting. The Medicare payment rate is subject to periodic adjustment. CMS also has the statutory authority to adjust payment rates for specific drugs outside the hospital outpatient setting based on a comparison of ASP payment rates to widely available market prices or to AMP, which could decrease Medicare payment rates. There can be no assurance that our current Medicare Part B reimbursement will remain at its current levels. In addition, if a pharmaceutical supplier, like us, is found to have made a misrepresentation in the reporting of ASP, it may be subject to criminal and civil liability, as well as other sanctions and penalties.

Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs, i.e., drugs that do not need to be injected or otherwise administered by a physician. Medicare Part D is administered by private prescription drug plans approved by the U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the drug plan may modify from time to time. The prescription drug plans negotiate pricing with manufacturers and may condition formulary placement on the availability of manufacturer discounts. In addition, beginning in 2011, the new law requires drug manufacturers to provide a 50% discount to Medicare beneficiaries for any covered prescription drugs purchased during a Medicare Part D coverage gap (i.e., the “donut hole”), which rose to 52.5% in 2013. There can be no assurance that our current levels of Medicare Part D reimbursement will continue in the future.

Our products are subject to discounted pricing when purchased by federal agencies via the FSS. FSS participation is required for our products to be covered and reimbursed by the VA, DOD, Coast Guard and PHS. Coverage under Medicaid, the Medicare Part B program and the PHS pharmaceutical pricing program is also conditioned upon FSS participation. FSS pricing is negotiated periodically. FSS pricing is intended not to exceed the price that we charge our most-favored non-federal customer for a product. Prices for drugs purchased by the VA, DOD (including drugs purchased by military personnel and dependents through the DOD’s healthcare program for military personnel and their dependents, commonly known as the TriCare retail pharmacy program), Coast Guard and PHS are subject to a cap on pricing equal to 76% of the non-federal average manufacturer price, or non-FAMP. An additional discount applies if non-FAMP increases more than inflation, as measured by the Consumer Price Index—Urban. There can be no assurance that our current levels of FSS pricing will continue in the future. In addition, if pharmaceutical suppliers like us fail to provide timely information or are found to have knowingly submitted false information to the government, we may be subject to civil and criminal liability, as well as other sanctions and penalties.

Pharmaceutical suppliers also are required to provide discounts to certain purchasers under the PHS pharmaceutical pricing program as a condition of maintaining coverage of our products under the Medicaid Drug Rebate Program and Medicare Part B. Purchasers eligible for discounts include hospitals that serve a disproportionate share of financially needy patients, community health clinics and other entities that receive health services grants from the PHS. There can be no assurance that the current discount levels will continue in the future or that such discounts will not be required to be extended to other healthcare entities.

Outside the United States

Outside the United States, the EU represents our major market. Within the EU, our products are paid for by a variety of payors, with governments being the primary source of payment. Governments

may determine or influence coverage of products. Governments may also set prices or otherwise regulate pricing. Negotiating prices with governmental authorities can delay commercialization of our products. Governments may use a variety of cost-containment measures, including price cuts, mandatory rebates, value-based pricing, and reference pricing (i.e., referencing prices in other countries and using those reference prices to set a price). Recent budgetary pressures in many EU countries are causing governments to consider or to implement various cost-containment measures, such as price freezes, additional price cuts and rebates. If budget pressures continue, governments may implement additional cost-containment measures.

Cost control initiatives regarding product pricing and reimbursement

Our ability to successfully commercialize our products also depends on whether appropriate reimbursement levels for the cost of the products and related treatments are obtained from private health insurers and other organizations, such as PBMs, managed-care organizations, or MCOs, and government formularies. Payors continue to try to contain or reduce the costs of healthcare through coverage restrictions and price controls, as well as increasingly restrictive benefit designs, including greater consumer out-of-pocket cost sharing. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products and payors are increasingly challenging the prices charged for such products, especially those that do not come to the market with a distinct and proven advantage over the current standard of care. As a result, we may find it more difficult to raise prices for our products than we have in the past. If the reimbursement we receive for any of our current or future products or product candidates is inadequate in light of its development and other costs, our ability to realize profits from the affected product or product candidate would be limited and may cause us to reduce the price of our products, which would further reduce our margins.

MCOs and other private payors in the United States are increasingly relying on utilization management and payment or reimbursement reductions to contain costs, and consolidation among MCOs has increased the negotiating power of these entities. These payors may require pre-approval for branded products when generic alternatives are available or that a patient first fail on one or more generic products before accessing a branded medicine. MCOs and government-sponsored healthcare systems also seek to control their costs by developing formularies to encourage plan beneficiaries to use generics first, followed by preferred products for which the plans have negotiated favorable terms. Exclusion of a product from a formulary, or placement of a product on a disfavored formulary tier, can lead to sharply reduced usage in the patient population covered by the applicable MCO or government-sponsored healthcare. If our products are not included in an adequate number of formularies or if adequate reimbursement levels are not provided to support the consumer’s willingness to pay for prescriptions, or if reimbursement policies increasingly favor generic products, our market share and business could be materially and negatively affected. We cannot predict the availability or amount of reimbursement for our product candidates, and current reimbursement policies for marketed products may change at any time.

In other countries, particularly those of the European Economic Area, or the EEA, price constraints imposed by legislation and government authorities are even more restrictive, resulting in lower pricing or reimbursement rates than in the United States. In these countries, pricing negotiations with governmental authorities can take considerable time and delay the commercialization of a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial to demonstrate comparative effectiveness, including cost-effectiveness, of our product candidate against other available products. If reimbursement of our product is unavailable or limited in scope or amount in these countries, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Our ability to continue to successfully commercialize our products may be adversely affected if we are unable to secure adequate market access, consumer-friendly out-of-pocket contribution levels

and coverage by and reimbursement from payors. If we are unable to obtain and maintain adequate reimbursement and market access from government health administration authorities, private health insurers and other organizations, our products may be too costly for regular use, negatively affecting our ability to generate revenues. If payors do not provide consumers cost-sensitive coverage and reimbursement for our products, or provide an insufficient level of coverage and reimbursement, our products may be unattractive to consumers in comparison to other branded alternatives. Physicians may not prescribe our products and patients may not fill prescriptions. Restrictions such as pre-approval processes, high co-payment requirements or proof of failure on another type of treatment before covering a particular drug may also constrain the performance of our products. In addition, government and private third-party pricing algorithms may limit future price increases and constrain our ability to create additional revenue. Any of these impediments to successful commercialization of our products could have a material adverse effect on our business.

Reforms to the U.S. healthcare system may adversely affect our business.

The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2011, known together as the Affordable Care Act, enacted in the United States in March 2011 contain several provisions that could impact our business, including (1) an increase in the minimum Medicaid rebate to States participating in the Medicaid program on our branded prescription drugs (from 15.6% to 23.1%) (effective January 1, 2010); (2) the extension of the Medicaid rebate to MCOs that dispense drugs to Medicaid beneficiaries; (3) the expansion of the 340B Public Health Service Act drug pricing program, which provides outpatient drugs at reduced rates, to include certain children’s hospitals, free standing cancer hospitals, critical access hospitals and rural referral centers; (4) the state-based option of the expansion of Medicaid in 2014 to families with incomes up to 133% of U.S. federal poverty levels; and (5) the creation of the individual mandate pursuant to which each U.S. citizen will be required to purchase insurance effective January 1, 2014, and may do so via federally subsidized programs like the healthcare marketplaces, or the exchanges.

The law also requires drug manufacturers to provide a 50% discount to Medicare beneficiaries for any covered prescription drugs purchased during a Medicare Part D coverage gap (commonly referred to as the “donut hole”) and provides for a fee to be assessed on all branded prescription drug manufacturers and importers. This fee will be calculated based upon each organization’s percentage share of total branded prescription drug sales to U.S. government-payor programs (such as Medicare Parts B and D, Medicaid, the Department of Veterans Affairs, the DOD and the TriCare retail pharmacy program) made during the previous year. The aggregated industry-wide fee is expected to total $28 billion through 2019, ranging from $2.5 billion to $4.1 billion annually. The U.S. Internal Revenue Service, or the IRS, has issued guidance for calculating preliminary fees, but there is still uncertainty as to final implementation, because the IRS has requested public comment and may make changes in response. Effective March 31, 2013, pharmaceutical, medical device, biological, and medical supply manufacturers were required to report to the federal government the payments they make to physicians and teaching hospitals, and physician ownership interests in those entities. The law also provides for the creation of an abbreviated regulatory pathway for FDA approval of biosimilars and interchangeable biosimilar products. These and future reforms could negatively impact our financial performance. Based on the fact that some large states have not fully submitted their Managed Medicaid claims, it is possible that we could have changes to our estimates of the impact of health reform based on additional information received from the states, and such amounts could be material to our financial statements.

Risks Related to Intellectual Property

Our intellectual property rights might not afford us with meaningful protection, and certain of our products do not have patent protection at all.

We have limited patent protection for certain products, such as CANASA, and no patent protection for other products, such as ULTRESA, VIOKACE or CARAFATE. The other intellectual property rights protecting our products, such as trade secrets, might not afford us with meaningful protection from generic and other competition. The laws and regulations of certain foreign countries do not protect intellectual property rights to the same extent as those of the United States, which may render our protection and enforcement of such rights difficult or impossible in such foreign jurisdictions. In addition, because our strategy is to in-license or acquire pharmaceutical products that typically have been discovered and initially researched by others, future products might have limited or no remaining patent protection due to the time elapsed since their discovery. Competitors could also design around any of our intellectual property or otherwise design competitive products that do not infringe our intellectual property. For additional information on our products, see “Business–Our Products.”

We may not be able to protect or successfully enforce our intellectual property, and are currently engaged in patent litigation (especially as relates to ANDAs filed by potential competitors seeking to market generic versions of certain of our products).

Our continued success will depend, in part, on our ability to obtain, protect and maintain intellectual property rights. To protect our intellectual property, we have historically relied on trademarks, trade secrets, patents, know-how, technological advances and other proprietary information. We have filed and/or licensed patent applications related to certain of our products (including with respect to certain co-development products and product candidates), but such applications may fail to be granted, or, even if granted, may be challenged or invalidated. Additionally, patent applications in the United States and most other countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags behind actual discoveries by several months or more. As a result, we cannot be certain that we were the first to conceive inventions covered by our patents and pending patent applications or that we were the first to file patent applications for inventions covered by our patents. Thus, there is no guarantee that we will be granted patent protection. Competitors could also design around any of our intellectual property or otherwise design competitive products that do not infringe our intellectual property.

We own a number of registered trademarks and trademark applications. However, our trademark applications may not be granted, our trademarks could become generic, or the degree of our trademark protection could be limited such that competitors may adopt similar names, impeding our ability to build brand identity and leading to customer confusion and adversely affecting sales or profitability. Moreover, the ability to protect and enforce such trademarks can vary, especially depending on the jurisdiction.

We seek to protect our trade secrets, technological advances and proprietary know-how, in part, through confidentiality agreements with employees, consultants, vendors and suppliers prohibiting them from taking proprietary information and technology or from using or disclosing proprietary information to third parties except in specified circumstances. However, confidentiality agreements may be breached despite all precautions taken, and we may not have adequate remedies for any breach. Third parties may gain access to our proprietary information or may independently develop substantially equivalent proprietary information. Our inability to protect and maintain intellectual property rights in our products may impair our competitive position and adversely affect our sales and growth.

The strength of patents and other intellectual property rights in the pharmaceutical industry involves complex legal and scientific questions and can be uncertain. Litigation or patent interference proceedings, either of which could result in substantial cost to us, might be necessary to defend any patents to which we have rights and our other proprietary rights or to determine the scope and validity of other parties’ proprietary rights. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during any such litigation. The defense of patent and intellectual property claims is both costly and time consuming, even if the outcome is favorable. If a third party is able to demonstrate that it is not infringing our patents or that our patents are invalid, then we may not be able to stop them (or other third parties) from competing with us or launching competitive products. Any adverse outcome could result in the narrowing of our intellectual property rights (including a ruling that a patent of ours is not valid or is unenforceable).

We are currently involved (and expect to continue to be involved from time to time) in patent litigation relating to ANDAs filed by potential competitors seeking to market generic versions of our products. For example, in July 2013, in response to notice letters regarding the filings of ANDAs by Mylan Pharmaceuticals, Inc. and Mylan Inc., or, collectively, Mylan, as well as Sandoz Inc., or Sandoz, seeking approval to market a generic version of CANASA, we filed patent infringement lawsuits alleging infringement of certain of our patents and seeking, among other things, injunctive relief. Mylan filed its Answer and Counterclaims in August 2013 and Sandoz filed its Answer and Counterclaims in September 2013, in each case contending that our patents are invalid or not infringed. We believe the ANDAs were filed before the patents covering CANASA were listed in the Orange Book, which generally means that we are not entitled to the 30-month stay of the approval of these ANDAs provided for by the Hatch-Waxman Act. While we intend to vigorously defend these and other patents and pursue our legal rights, we can offer no assurance as to when the pending or any future litigation will be decided, whether such lawsuits will be successful or that a generic equivalent of one or more of our products will not be approved and enter the market. An adverse outcome in such patent litigation could materially and adversely affect our revenues. For a description of the ANDA process, see “Business—Government Regulation—U.S. Regulations,” and for a fuller description of the ANDA litigation in which we are involved at the present time, see “Business—Legal Proceedings.”

We rely on the intellectual property and development efforts of others.

The proprietary rights in certain of our products, such as RECTIV, and in certain know-how related to certain of our products, such as APT-1016, are held by third parties, from whom we license rights relating to the use, manufacture or sale of products. Such rights may have limited duration, increasing the likelihood of potential competition using similar technology. For example, the patents relevant to RECTIV, which we license under the agreement with Strakan International S.A.R.L. and Prostrakan Inc., will expire in 2014. We also enter into development agreements, including related licensing arrangements, with third parties for a variety of purposes, including lifecycle management and creation of potential new products. We cannot guarantee the successful outcome of such efforts, nor that they will result in any intellectual property rights or products that inure to our benefit. In connection with licenses and development agreements with third parties, we may agree (and have agreed) to pay royalties or other forms of compensation, for example, on existing or potential products, which can impact the profitability of our products or operations.

Third-party licensors may breach or otherwise fail to perform their obligations. Furthermore, third-party licensors may claim that we have breached our agreement or otherwise attempt to terminate their license agreements with us. Challenges to such third parties’ intellectual property rights may be brought against us directly or against the licensor, and we cannot guarantee that such third-party intellectual property rights provide us with meaningful protection. The expiration of patents we license may further enable third parties to offer products that are competitive with ours. Further, we cannot

guarantee that future third party intellectual property rights that we may need or that may be useful will be available to us for license or, even if they are, that the terms of such license will be financially and commercially viable.

Litigation or third-party claims of intellectual property infringement could require substantial time and money to resolve. Unfavorable outcomes to these proceedings could limit our intellectual property rights and materially restrict our ability to develop, make or sell products.

Our commercial success depends upon our ability to develop and market products without infringing the proprietary rights of third parties. As the pharmaceutical industry expands and more patents are issued, the risk increases that our products or product candidates may give rise to claims of infringement of the patent rights of others. Third-party patents (now or in the future) may not only cover our products, but may also cover the materials or methods of treatment related to our products, and third parties may make allegations of infringement, regardless of merit. Because patent applications can take many years to issue, there may be currently pending applications that may later result in issued patents that our products may infringe. We cannot provide any assurances that our products or activities, or those of our licensors, will not infringe patents, trademarks or other intellectual property owned by third parties or that our patent, trademark or other proprietary rights related to our products do not conflict with the current or future intellectual property rights of others. From time to time we may be (and have been) notified by third parties that consider their patents, trademarks or other intellectual property infringed by, or otherwise relevant to, our products.

In addition, we may from time to time have access to confidential or proprietary information of third parties that could bring a claim against us asserting that we have misappropriated their information or other technology (which, although not patented, may be protected as trade secret) and that we have improperly incorporated that technology into our products. Some of our employees may have been employed by other pharmaceutical or biotechnology companies that may allege misappropriation of their trade secrets by these individuals, irrespective of the steps that we may take to prevent such violations.

If a lawsuit is commenced against us with respect to any alleged intellectual property infringement, the uncertainties inherent in such litigation make the outcome difficult to predict, and the costs that we may incur as a result may have an adverse effect on our profitability. Such litigation would involve significant expense and would be a substantial diversion of the efforts of our scientific and management teams. During the course of any intellectual property litigation, there may be public announcements regarding claims and defenses, and regarding the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive these announcements as negative, the market price of the secured notes or any other securities that we may issue from time to time may decline.

Any such lawsuit that results in an adverse determination may result in the award of monetary damages to the intellectual property holder and payment by us of any such damages. Such adverse determination could also result in an injunction prohibiting all of our business activities that infringe the intellectual property, or may require us to obtain licenses from third parties on terms that may not be commercially acceptable to us, which would, in each case, adversely affect our profitability and our business. If so, we may attempt to redesign our processes, products or technologies so that they do not infringe, but that might not be possible. If we cannot obtain a necessary or desirable license, cannot obtain such a license on terms that we consider to be acceptable or cannot redesign our products or processes to avoid potential patent or other intellectual property infringement, then we may be restricted or prevented from developing and commercializing our products and our business may be harmed.

Risks Related to General Economic and Financial Conditions

Currency exchange rate fluctuations may have a negative effect on our financial condition.

We operate internationally, but a majority of our revenue and expense activities, including our debt service obligations and capital expenditures, are denominated in U.S. dollars. The other currencies in which we engage in significant transactions are Canadian dollars and euros. As a consequence, we are exposed to currency fluctuations from purchases of goods, services and equipment and investments in other countries, and funding denominated in the currencies of other countries. In particular, we are exposed to the fluctuations in the exchange rate between the U.S. dollar, the euro and the Canadian dollar. During fiscal years 2013, 2012 and 2011, 15.2%, 17.8% and 20.3% of our revenues were denominated in euros, respectively, and 5.1%, 5.9% and 7.9% of our revenues were denominated in Canadian dollars, respectively, while the remainder were denominated in U.S. dollars.

Fluctuations in currency exchange rates may affect the results of our operations and the value of our assets and revenues, and increase our liabilities and costs, which in turn may adversely affect reported earnings and the comparability of period-to-period results of operations. We experienced an insignificant foreign exchange effect on revenue in fiscal year 2013. Changes in currency exchange rates may affect the relative prices at which we and our competitors sell products in the same market. Changes in the value of the relevant currencies also may affect the cost of goods, services and equipment required in our operations.

In addition, due to the constantly changing currency exposures and the potential substantial volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations on our future results and, because we do not currently hedge fully against all currency risks and fluctuations between the U.S. dollar and the Canadian dollar and euro, such fluctuations may result in currency exchange rate losses. Fluctuations in exchange rates could result in our realizing a lower profit margin on sales of our product candidates than we anticipate at the time of entering into commercial agreements. Adverse movements in exchange rates could have a material adverse effect on our financial condition and results of operations.

A 1% change in the value of foreign currencies in which we had sales, income or expense in 2013, as compared to the U.S. dollar, would have increased or decreased the translation of foreign sales by $1.4 million and income by $0.8 million, respectively.

Risks Related to Our Indebtedness

Our substantial level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting obligations on our indebtedness.

We have a substantial amount of indebtedness. As of September 30, 2013, as adjusted to reflect the Refinancing and the application of the proceeds from this offering, our total indebtedness was $ million (excluding capital lease obligations). Certain of our subsidiaries have an additional $150.0 million of borrowing capacity available under the senior secured revolving credit facility (as defined below). In addition, certain of our subsidiaries have the right to request up to (a) $100.0 million of additional commitments plus (b) an unlimited amount at any time, subject to compliance on a pro forma basis with a senior secured first lien net leverage ratio of no greater than 3.50:1.00, in each case under the senior secured credit facilities. The following chart shows our level of indebtedness under our senior secured credit facilities as of September 30, 2013, as adjusted to reflect the Refinancing and the application of net proceeds from this offering.


		As of September 30, 2013
		As Adjusted
		(in millions of U.S. dollars)
		(unaudited)
Debt:
Senior secured term loan facility		$
Senior secured revolving credit facility

Total:		$

In addition, we have significant other commitments, including milestone and royalty payments. As of September 30, 2013, pro forma to reflect the Refinancing, we had outstanding approximately $ million in aggregate principal amount of indebtedness under the senior secured credit facilities that would bear interest at a floating rate. Although we may enter into interest rate swap agreements, we are exposed to interest rate increases on the floating portion of the senior secured credit facilities that are not covered by interest rate swaps.

Our substantial level of indebtedness could adversely affect our financial condition and increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our other existing and any future financial obligations and contractual commitments, could have important consequences. For example, it could:

make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness;

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other purposes;

increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have relatively less indebtedness;

cause us to incur substantial fees from time to time in connection with debt amendments or refinancings;

increase our exposure to rising interest rates because a portion of our borrowings is at variable interest rates;

limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and

limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other corporate purposes.

Despite our level of indebtedness, we are able to incur more debt and undertake additional obligations. Incurring such debt or undertaking such additional obligations could further exacerbate the risks our indebtedness poses to our financial condition.

We, including our subsidiaries, may be able to incur significant additional indebtedness in the future. Although the credit agreement governing the senior secured credit facilities contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and any indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness, may be waived by certain votes of debt holders and, if we refinance existing indebtedness, such refinancing indebtedness may contain fewer restrictions on our activities. Further, Aptalis Holdings is not a party to the credit agreement governing the senior secured credit facilities and is not subject to these restrictions. To the extent new debt is added to our and our subsidiaries’ currently anticipated debt levels, the related risks that we and our subsidiaries face could intensify.

While the credit agreement governing the senior secured credit facilities also contains restrictions on making certain loans and investments, these restrictions are subject to a number of qualifications and exceptions, and the investments incurred in compliance with these restrictions could be substantial.

Restrictions imposed in the senior secured credit facilities and our other outstanding indebtedness may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities.

The terms of the senior secured credit facilities restrict Aptalis Pharma and its restricted subsidiaries from engaging in specified types of transactions. These covenants restrict the ability of Aptalis Pharma and its restricted subsidiaries, among other things, to:

incur or guarantee additional indebtedness;

pay dividends on their capital stock or redeem, repurchase or retire their capital stock or indebtedness;

make investments, loans, advances and acquisitions;

make certain optional payments or modify certain debt instruments in respect of subordinated debt;

enter into arrangements that restrict their ability to pay dividends or other amounts;

engage in transactions with affiliates;

sell assets, including capital stock of their subsidiaries;

consolidate or merge; and

incur or assume certain liens.

In addition, the credit agreement governing the senior secured revolving credit facility contains a “springing” financial ratio maintenance covenant, based on Aptalis Pharma’s senior secured first lien

net leverage ratio, if there are outstanding borrowings in excess of 25% of the aggregate commitments thereunder (excluding letters of credit to the extent cash collateralized) as of the last day of the applicable test period. The “springing” financial ratio maintenance covenant will not be tested until December 31, 2013. As of December 1, 2013, the senior secured revolving credit facility was undrawn. Our ability to comply with this ratio can be affected by events beyond our control, and we may not be able to satisfy it. Aptalis MidHoldings Inc. is subject to a customary passive “holding company” covenant, subject to certain exceptions (including the issuance of certain debt). See “Description of Certain Indebtedness.”

A breach of any of these covenants could result in a default under the senior secured credit facilities. In the event of any default under the senior secured credit facilities, the applicable lenders could elect to terminate borrowing commitments and declare all borrowings and loans outstanding, together with accrued and unpaid interest and any fees and other obligations, to be due and payable. In addition, or in the alternative, the applicable lenders could exercise their rights under the security documents entered into in connection with the senior secured credit facilities. We have pledged a significant portion of our assets as collateral under the senior secured credit facilities.

If we were unable to repay or otherwise refinance these borrowings and loans when due, the applicable lenders could proceed against the collateral granted to them to secure that indebtedness, which could force us into bankruptcy or liquidation. In the event the applicable lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the credit agreement governing the senior secured credit facilities or the exercise by the applicable lenders of their rights under the security documents would likely have a material adverse effect on us.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations and to fund our planned capital expenditures, acquisitions and other ongoing liquidity needs depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. There can be no assurance that we will maintain a level of cash flows from operating activities or that future borrowings will be available to us under the senior secured credit facilities or otherwise in an amount sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. For fiscal year 2013, on an as adjusted basis after giving effect to the Refinancing and the offering and the application of the proceeds therefrom our interest expense was $ million.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The senior secured credit facilities restrict the ability of Aptalis MidHoldings Inc., Aptalis Pharma and its restricted subsidiaries to dispose of assets and use the proceeds from the disposition. We may not be able to

consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our debt service obligations.

A ratings downgrade of Aptalis Pharma or other negative action by a ratings organization could adversely affect the trading price of the shares of our common stock.

Credit rating agencies continually revise their ratings for companies they follow. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. In addition, developments in our business and operations could lead to a ratings downgrade for Aptalis Pharma. For instance, Aptalis Pharma’s senior secured bank debt has been downgraded in the past, including by Moody’s and Standard & Poor’s in April 2012. Any such fluctuation in the rating of Aptalis Pharma may impact its ability to access debt markets in the future or increase its cost of future debt which could have a material adverse effect on the operations and financial condition of Aptalis Pharma and its subsidiaries, which in return may adversely affect the trading price of shares of our common stock.

Risks Relating to Our Common Stock and this Offering

TPG will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.

We are currently controlled, and after this offering is completed will continue to be controlled, by TPG. Upon completion of this offering, the TPG Funds will beneficially own % of our outstanding common stock ( % if the underwriters exercise in full their option to purchase additional shares from us and the selling stockholders). As long as TPG owns or controls at least a majority of our outstanding voting power, it has the ability to exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the election and removal of directors and the size of our board, any amendment of our articles of incorporation or bylaws, the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. Even if its ownership falls below 50%, TPG will continue to be able to strongly influence or effectively control our decisions.

Additionally, TPG is in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. TPG may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

We are a “controlled company” within the meaning of the NASDAQ rules and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After completion of this offering, TPG will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the NASDAQ corporate governance standards. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:

we have a board that is composed of a majority of “independent directors,” as defined under the rules of such exchange;

we have a compensation committee that is composed entirely of independent directors; and

we have a nominating and corporate governance committee that is composed entirely of independent directors.

As a result, we may not have a majority of independent directors on our board. In addition, our compensation committee and our nominating and corporate governance committee may not consist entirely of independent directors or be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the .

Provisions of our corporate governance documents could make an acquisition of our company more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.

In addition to TPG’s beneficial ownership of a controlling percentage of our common stock, our certificate of incorporation and by-laws and the Delaware General Corporation Law, or DGCL, contain provisions that could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. These provisions include a classified board of directors and limitations on actions by our stockholders. In addition, our board of directors has the right to issue preferred stock without stockholder approval that could be used to dilute a potential hostile acquiror. As a result, you may lose your ability to sell your stock for a price in excess of the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of the company may be unsuccessful. See “Description of Capital Stock.”

We are eligible to be treated as an “emerging growth company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an emerging growth company, we are only required to provide two years of audited financial statements and two years of selected financial data in this prospectus. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any March 31 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, after which, in each case, we would no longer be an emerging growth company as of the following September 30 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our common stock is substantially higher than the net tangible book deficit per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book deficit per share after this offering. As a result, you will experience immediate dilution of $ per share, representing the difference between our pro forma net tangible book deficit per share after giving effect to this offering and the initial public offering price of $ per share. In addition, purchasers of common stock in this offering will have contributed % of the aggregate price paid by all purchasers of our stock but will own only approximately % of our common stock outstanding after this offering. We also have a large number of outstanding stock options to purchase common stock with exercise prices that are below the estimated initial public offering price of our common stock. To the extent that these options are exercised, you will experience further dilution. See “Dilution” for more detail.

An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.

Prior to this offering, there was no public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market for our shares on the NASDAQ or otherwise. The initial public offering price was determined by negotiations between us, the selling stockholders and the representatives of the underwriters and may not be indicative of market prices of our common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the initial public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Our results of operations might fluctuate from period to period, and a failure to meet the expectations of investors or the financial community at large could result in a decline in the market price of our stock below the price you pay.

Our quarterly operating results are likely to fluctuate in the future as a publicly traded company. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations, regardless of our operating performance. We and the underwriters will negotiate to determine the initial public offering price. You may not be able to resell your shares at or above the initial public offering price, or at all. Our operating results and the trading price of our shares may fluctuate in response to various factors, including

changing business and economic conditions;

actual or anticipated fluctuations in our quarterly financial and operating results;

the results of clinical trials of our product candidates and the timing of regulatory reviews and approvals for our pipeline products;

our ability to successfully develop or acquire and launch new products and to supply product in amounts sufficient to meet customer demand;

inventory levels at our distributors and wholesalers;

the size and timing of product orders, which can be affected by customer budgeting and buying patterns;

our dependence on a small number of products for the majority of our revenues;

introduction of new products or services by us or our competitors;

price erosion and customer consolidation;

the timing of significant milestone payments to us or that become due to development partners;

the timing of operating and other expenses, including costs of acquisitions, development, sales and marketing;

issuance of new or changed securities analysts’ reports or recommendations;

sales, or anticipated sales, of large blocks of our stock;

internal factors, such as changes in business strategies, additions or departures in key personnel and the impact of restructurings;

regulatory or political developments;

litigation and governmental investigations; and

exchange rate fluctuations.

These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of September 30, 2013. This includes shares that we are selling in this offering (or shares assuming the underwriters exercise in full their option to purchase additional shares), as well as the shares to be sold by the selling stockholders, all of which may be resold in the public market immediately, and assumes no exercises of outstanding options. We expect that shares of common stock, or if the underwriters exercise in full their option to purchase additional shares, will be subject to a 180-day lock-up period pursuant to agreements executed in connection with this offering. These shares will, however, be able to be resold after the expiration of the lock-up agreement as described in the “Shares Eligible for Future Sale” section of this prospectus. In connection with this offering, we expect to file a registration statement on Form S-8 under the Securities Act to register all of the shares of our common stock subject to outstanding options and other awards issuable pursuant

to our stock incentive plans. These shares can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the “Underwriting” section of this prospectus. As restrictions on resale end, the market price of our stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

Since we have no current plans to pay regular cash dividends on our common stock following this offering, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

Although we have previously made a distribution to our stockholders, we do not anticipate paying any regular cash dividends on our common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under the senior secured credit facilities. Therefore, any return on investment in our common stock is solely dependent upon the appreciation of the price of our common stock on the open market, which may not occur. See “Dividend Policy” for more detail.

As a public company, we will become subject to additional laws, regulations and stock exchange listing standards, which will impose additional costs on us and may strain our resources and divert our management’s attention. These factors could also make it more difficult for us to attract and retain executive officers and qualified members of our board of directors.

As a public company, we will incur significant legal, insurance, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff will be required to perform additional tasks. For example, in anticipation of becoming a public company, we will need to adopt additional internal disclosure controls and procedures, retain a transfer agent, adopt an insider trading policy and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention from product development activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. In connection with this offering, we are increasing our directors’ and officers’ insurance coverage, which will increase our insurance cost. In the future, it will be more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.

In addition, in order to comply with the requirements of being a public company, we may need to undertake various actions, including implementing new internal controls and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed in reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to our principal executive and financial officers. Any failure to develop or maintain effective controls could adversely affect the results of periodic management evaluations. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate or

that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the price of our ordinary shares could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on .

We are not currently required to comply with the SEC’s rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not yet required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report. This assessment will need to include the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. We are just beginning the costly and challenging process of implementing the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion.

Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company” as defined in the JOBS Act. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our share price and trading volume could decline.

The trading market for our shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our share price could decline.

We may need to raise additional capital that may not be available.

Although we do not have any plans to do so in the near term, we may in the future need to raise additional capital. Any potential public offering or private placement may or may not be similar to the transactions that we have completed in the past. Any debt financing may be on terms that, among other things, include conversion features that could result in dilution to our then-existing stockholders and restrict our ability to pay interest and dividends—although we do not intend to pay dividends for the foreseeable future in any event. Any equity financings would result in dilution to our then-existing stockholders. If adequate funds are not available on acceptable terms, or at all, we may be required to curtail significantly or discontinue one or more of our research, drug discovery or development programs, including clinical trials, incur significant cash exit costs or attempt to obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain of our technologies, drugs or drug candidates. Based on many factors, including general economic conditions, additional financing may not be available on acceptable terms, if at all.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts included in this prospectus, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans, future industry growth and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “project,” “forecast,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. Important factors that could cause actual results to differ materially from our expectations, or “cautionary statements,” are disclosed under “Risk Factors” and elsewhere in this prospectus.

These forward-looking statements include, among other things, statements about:

our expectations related to the use of proceeds from this offering;

the progress of, timing of and amount of expenses associated with our research, development and commercialization activities;

the timing, conduct and success of our clinical studies for our product candidates;

our ability to obtain U.S. and foreign regulatory approval for our product candidates and the ability of our product candidates to meet existing or future regulatory standards;

our expectations regarding federal, state and foreign regulatory requirements;

the therapeutic benefits and effectiveness of our product candidates;

the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our product candidates;

our ability to manufacture sufficient amounts of our product candidates for clinical studies and products for commercialization activities;

our plans with respect to collaborations and licenses related to the development, manufacture or sale of our product candidates;

our expectations as to future financial performance, expense levels and liquidity sources;

the timing of commercializing our product candidates;

our ability to compete with other companies that are or may be developing or selling products that are competitive with our product candidates;

anticipated trends and challenges in our potential markets;

our ability to attract, retain and motivate key personnel; and

other factors discussed elsewhere in this prospectus.

Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in “Risk Factors,” beginning on page 18. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

You should not rely on these forward-looking statements, which speak only as of the date of this prospectus, in any significant way. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where You Can Find More Information.”

MARKET AND OTHER INDUSTRY DATA

Although we are responsible for all of the disclosure contained in this prospectus, we rely on and refer to information regarding the pharmaceutical industry, which has been compiled from market research reports, governmental studies and other publicly available information. Other industry and market data included in this prospectus are from internal analyses based upon data available from known sources or other proprietary research and analysis. We believe this data to be accurate as of the date of this prospectus. However, such data involves risks and uncertainties and is subject to change based on various factors including those discussed in “Risk Factors”. Unless otherwise indicated, all market share information contained in this prospectus is based upon data prepared by IMS Health Ltd., or IMS, and U.S. Department of Health and Human Services, National Institutes of Health. The data provided by IMS that relates to the size of a market in terms of sales was determined based upon the sum of total prescription volume and total non-retail volume multiplied by the weighted average cost.

USE OF PROCEEDS

We expect to receive net proceeds, after deducting estimated offering expenses and underwriting discounts and commissions, of approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares in full), based on an assumed offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus). We intend to use the net proceeds from this offering to repay approximately $ million of the $1,250 million outstanding under our senior secured credit facilities, and the remainder for working capital and general corporate purposes, which may include repayment of additional indebtedness and the funding of strategic growth opportunities.

The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. As a result, our management will have broad discretion in applying the net proceeds of this offering. Although we may use a portion of the net proceeds of this offering for the acquisition or licensing, as the case may be, of product candidates, technologies, compounds, other assets or complementary businesses, we have no current understandings, agreements or commitments to do so.

Pending the use of the proceeds from this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities, certificates of deposit or government securities.

Borrowings under the senior secured credit facilities bear interest at a rate per annum equal to, at the Borrowers’ option, either a base rate (subject to a floor of 2.0% in the case of term B loans) or a LIBOR rate (subject to a floor of 1.0% in the case of term B loans), in each case plus an applicable margin. Subject to the floor described in the immediately preceding sentence, the base rate is determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 1/2 of 1.0% and (3) the one-month LIBOR rate plus 1.0%. Subject to the floor described in the first sentence of this paragraph, the LIBOR rate is determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs. The applicable margin for borrowings of term B loans under the senior secured term loan facility are equal to 4.00% per annum with respect to base rate borrowings and 5.00% per annum with respect to LIBOR borrowings. The applicable margin on the term B loans are subject to increase pursuant to the senior secured credit facilities in connection with the making of certain refinancing, extended or replacement term loans under the senior secured credit facilities with an all-in yield greater than the applicable all-in yield payable in respect of the applicable loans at such time plus 50 basis points. Further, upon or after the consummation of this offering, so long as Aptalis Pharma’s senior secured net leverage ratio does not exceed 3.25:1.00, the applicable margin with respect to term B loans and revolving loans (otherwise determined in accordance with the above) shall be reduced by 0.50%. We used the proceeds of the term loan under our senior secured credit facilities to make a distribution to our shareholders, holders of our restricted stock and certain holders of options to purchase shares of our common stock and to repay all amounts outstanding under our previously existing credit facility. Our term B loans mature on October 4, 2020.

A $1.00 increase (decrease) in the assumed public offering price of $ , based upon the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares we offer, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase the net proceeds to us from this offering by $ million after

deducting underwriting discounts and commissions and any estimated offering expenses payable by us. Conversely, a share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would decrease the net proceeds to us from this offering by $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us.

For additional information regarding our liquidity and outstanding indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

We will not receive any proceeds from the sale of shares of common stock by our selling stockholders.

DIVIDEND POLICY

On October 7, 2013, we made a cash distribution of $399.5 million in aggregate to our shareholders, holders of our restricted stock units and certain holders of options to purchase shares of our common stock. We did not pay any other dividends in the past two years. Our board of directors does not currently intend to pay regular dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis following this offering and may, subject to compliance with the covenants contained in the senior secured credit facilities and other considerations, determine to pay dividends in the future.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization at September 30, 2013:

on an actual basis;

on an as adjusted basis to give effect to (1) the Recapitalization, (2) the issuance of shares of common stock by us in this offering, after deducting underwriting discounts and commissions and estimated offering expenses, (3) the termination of our management agreements with our Sponsors, and (4) the application of the estimated net proceeds from the offering as described in “Use of Proceeds.”

You should read this table in conjunction with the information contained in “Use of Proceeds,” “Selected Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements and the related notes included elsewhere in this prospectus.


	As of September 30, 2013
	Actual			As Adjusted(3)(4)
	(in millions of U.S. dollars)
Cash and cash equivalents	$	229.9		$

Long-term debt, including current portions:
Senior secured credit facilities:
Prior term loan facility(1)		921.3			—
Prior revolving credit facility					—
Senior secured revolving credit facility		—
Senior secured term loan facility(2)		—

Total debt		921.3

Shareholders’ equity:
Common stock, par value $0.001 per share; 100,000,000 shares authorized and 67,696,126 shares issued and outstanding on an actual basis, shares authorized and shares issued and outstanding on a as adjusted basis		0.1
Additional paid-in capital		691.3
Accumulated deficit		(596.7	)
Accumulated other comprehensive loss		(48.1	)

Total shareholder’s equity		46.6

Total capitalization	$	967.9		$

(1)	As presented on the face of our consolidated balance sheet, which is net of unamortized discounts of $5.0 million.

(2)	Net of unamortized discounts of $ million.

(3)

As adjusted reflects (i) the Recapitalization, including (a) the distribution in aggregate amount of $399.5 million to our shareholders, holders of our restricted stock units and certain holders of options to purchase shares of our common stock on October 7, 2013, (b) the refinancing of our previously existing credit facilities, which were replaced with our senior secured credit facilities providing for senior secured term loans in the amount of $1,250 million and a senior secured revolving credit facility allowing for borrowings of up to $150 million and (c) a write-off of $ million (net of tax of $ million) in unamortized deferred debt issuance costs; (ii) the payment of $ million in connection with the termination of our management agreements with our Sponsors (iii) the offering of shares of common stock by us in this offering, assuming an

initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and (iv) the application of the estimated proceeds of the offering as described in “Use of Proceeds.”

(4)

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the as adjusted amount of each of cash and cash equivalents and total shareholders’ equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

A share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase the as adjusted amount of each of cash and cash equivalents and total shareholders’ equity by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us. Conversely, a share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would decrease the as adjusted amount of each of cash and cash equivalents and total shareholders’ equity by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us.

DILUTION

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book deficit per share of our common stock immediately after this offering. Dilution results from the fact that the initial public offering price per share of common stock is substantially in excess of the net tangible book deficit per share of our common stock attributable to the existing shareholders for our presently outstanding shares of common stock. Our net tangible book deficit per share represents the amount of our total tangible assets (total assets less intangible assets and goodwill) less total liabilities, divided by the number of shares of common stock issued and outstanding.

Our net tangible book deficit as of September 30, 2013 was $722.6 million, or $10.67 per share, based on 67,696,126 shares of our common stock outstanding as of September 30, 2013. Dilution is calculated by subtracting net tangible book deficit per share of our common stock from the assumed initial public offering price per share of our common stock.

Without taking into account any other changes in such net tangible book deficit after September 30, 2013, after giving effect to the sale of shares of our common stock in this offering assuming an initial public offering price of $ per share (the midpoint of the offering range shown on the cover of this prospectus), less the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book deficit as of September 30, 2013 would have been approximately $ million, or $ per share of common stock. This amount represents an immediate decrease in net tangible book deficit of $ per share of our common stock to the existing shareholders and immediate dilution in net tangible book deficit of $ per share of our common stock to investors purchasing shares of our common stock in this offering. The following table illustrates this dilution on a per share basis:


Assumed initial public offering price per share		$
Net tangible book deficit per share as of September 30, 2013, before giving effect to this offering		$
Decrease in net tangible book deficit per share attributable to investors purchasing shares in this offering		$
As adjusted net tangible book deficit per share, after giving effect to this offering		$
Dilution in as adjusted net tangible book deficit per share to investors in this offering		$

If the underwriters exercise their option in full to purchase additional shares, the as adjusted net tangible book deficit per share of our common stock after giving effect to this offering would be $ per share of our common stock. This represents an increase in as adjusted net tangible book deficit of $ per share of our common stock to existing shareholders and dilution in as adjusted net tangible book deficit of $ per share of our common stock to new investors.

A $1.00 increase (decrease) in the assumed public offering price of $ , based upon the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares we offer, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase each of cash and cash equivalents and total shareholders’ equity by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us. Conversely, a share decrease in the number of

shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would decrease each of cash and cash equivalents and total shareholders’ equity by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us.

The following table summarizes, as of September 30, 2013, on the as adjusted basis described above, the total number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share of our common stock paid by purchasers of such shares and by new investors purchasing shares of our common stock in this offering.

Shares
Purchased (000s)

Total
Consideration
(000s)

Average Price
Per Share

Number

Percent

Amount

Percent

Existing shareholders

New investors

Total

The total number of shares of our common stock reflected in the table and discussion above is based on shares of common stock outstanding on an adjusted basis, as of September 30, 2013, and excludes, as of September 30, 2013

shares of common stock issuable upon exercise of options outstanding as of September 30, 2013 at a weighted-average exercise price of $ per share; and

an aggregate of shares of common stock reserved for future issuance under our stock incentive plans.

To the extent that we grant options to our employees or directors in the future, and those options or existing options are exercised or other issuances of shares of our common stock are made, there will be further dilution to new investors.

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The information set forth below should be read in conjunction with the “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus and with our consolidated financial statements and notes thereto included elsewhere in this prospectus.

The following selected statements of operations and comprehensive income (loss) data for the fiscal years ended September 30, 2013, 2012 and 2011 and the balance sheet data as of September 30, 2013, 2012 and 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.


	Fiscal Year Ended September 30, 2013			Fiscal Year Ended September 30, 2012			Fiscal Year Ended September 30, 2011
	(in millions of U.S. dollars, except per share data)
Statement of Operations Data:
Net product sales	$	667.7		$	600.9		$	461.4
Other revenue		20.2			14.2			9.0

Total revenue	$	687.9		$	615.1		$	470.4
Cost of goods sold(1)		146.6			144.2			135.4
Selling and administrative expenses(1)		172.5			168.8			143.5
Management fees		7.0			5.7			3.6
Research and development expenses(1)		65.5			72.6			58.0
Acquired in-process research		0.0			0.0			65.5
Depreciation and amortization		94.7			101.7			72.8
Loss (gain) on disposal of product line		(1.0	)		0.0			7.4
Transaction, restructuring and integration costs		2.5			12.4			50.9
Fair value adjustments to intangible assets and contingent consideration		10.0			(3.4	)		—

Operating income (loss)		190.1			113.1			(66.7	)
Financial expenses		68.8			80.2			89.5
Loss on extinguishment of debt		—			23.1			28.3
Other interest income		(0.4	)		(0.2	)		(0.4	)
Loss on foreign currencies		0.1			0.2			0.1

Income (loss) before income taxes		121.6			9.8			(184.2	)
Income taxes		34.7			21.8			7.4

Net (loss) income	$	86.9		$	(12.0	)	$	(191.6	)

Earnings per common share attributable to common shareholders:
Basic earnings per share	$	1.28		$	(0.18	)	$	(3.32	)
Diluted earnings per share	$	1.26		$	(0.18	)	$	(3.32	)
Weighted average common shares outstanding:
Basic		67,987,312			67,699,784			57,742,284
Diluted		69,174,681			67,699,784			57,742,284


	Fiscal Year Ended September 30, 2013		Fiscal Year Ended September 30, 2012		Fiscal Year Ended September 30, 2011
	(in millions of U.S. dollars, except per share data)
As Adjusted Data(3)(5)(6):
Net (loss) income	$
Basic earnings per common share	$
Diluted earnings per common share	$
Weighted average common shares outstanding:
Basic
Diluted
Other Financial Data:
EBITDA(2)(7)	$	284.7	$	191.5	$	(22.3	)
Adjusted EBITDA(2)(7)	$	314.6	$	244.9	$	160.0
Adjusted pre-tax income(2)(7)	$	241.4	$	161.6	$	67.5


	September 30, 2013			September 30, 2012			September 30, 2011
	Actual		As Adjusted (3)(4)(5)	Actual			Actual
	(in millions of U.S.dollars)
Balance Sheet Data (at period end):
Cash and cash equivalents	$	229.9	$	$	115.0		$	126.9
Total current assets		401.2			287.9			272.0
Total assets		1,341.2			1,316.8			1,257.6
Total short-term borrowings		9.5			10.5			8.5
Total current liabilities		261.6			236.5			177.6
Total long-term debt		911.8			920.0			968.4
Total liabilities		1,294.6			1,376.0			1,297.6
Total shareholders’ equity		46.6			(59.2	)		(40.1	)

(1)	Exclusive of depreciation and amortization which is separately reported in the Statement of Operations.

(2)

None of EBITDA, Adjusted EBITDA or Adjusted pre-tax income are measures of net income, operating income or any other performance measure derived in accordance with GAAP, and each is subject to important limitations. EBITDA, as we use it, is net income before financial expenses, interest income, income taxes and depreciation and amortization. Adjusted EBITDA, as we use it, is EBITDA adjusted to exclude certain non-cash charges, unusual or nonrecurring items, impact of discontinued operations, impairment of intangible assets, restructuring activities, litigation settlements and contingencies, upfront and development milestone payments, stock-based compensation and other adjustments set forth below. Adjusted pre-tax income, as we use it, is income before income taxes as reported under GAAP, adjusted to exclude certain

non-cash charges, unusual or nonrecurring items, impact of discontinued operations, impairment of intangible assets, restructuring activities, litigation settlements and contingencies, upfront and development milestone payments, stock-based compensation and other adjustments set forth below.

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect all cash expenditures, future requirements for capital expenditures, or contractual commitments;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect changes in, or cash requirements for, working capital needs;

EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income exclude income tax payments that represent a reduction in cash available to us;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and

other companies in our industry may calculate EBITDA, Adjusted EBITDA and Adjusted pre-tax income differently than we do, limiting their usefulness as comparative measures.

(3)

As adjusted consolidated financial data reflects (i) the Recapitalization, including (a) the distribution in aggregate amount of $399.5 million to our shareholders, holders of our restricted stock units and certain holders of options to purchase shares of our common stock on October 7, 2013, and (b) the refinancing of our previously existing credit facilities, which were replaced with our senior secured credit facilities providing for senior secured term loans in the amount of $1,250 million and a senior secured revolving credit facility allowing for borrowings of up to $150 million; (ii) the elimination of fees paid under our management agreements with our Sponsors; (iii) the offering of million shares of common stock by us in this offering, assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and (iv) the application of the estimated proceeds of the offering as described in “Use of Proceeds.” This as adjusted consolidated financial data is presented for informational purposes only and does not purport to represent what our consolidated results of operations or financial position actually would have been had the transactions reflected occurred on the date indicated or to project our financial condition as of any future date or results of operations for any future period.

(4)

(5)	As Adjusted information is unaudited.

(6)	As Adjusted earnings per share.

The as adjusted earnings per share gives effect to (a) the Recapitalization, (b) the elimination of fees paid under our management agreements with our Sponsors (which will be terminated in connection with the offering) and (c) the issuance of shares of our common stock offered by this prospectus and the use of proceeds therefrom as described in “Use of Proceeds,” as if each had occurred on October 1, 2012.

The following presents the computation of as adjusted basic and diluted earnings per share:


		Fiscal Year Ended September 30, 2013
		(in millions of U.S. dollars, except per share data)
Numerator:
Net income as reported		$
Net income as adjusted adjustments:
Interest expense, net of tax(a)
Amortization of debt issuance costs and discount, net of tax(a)
Reduction of management fees, net of tax(b)
As adjusted net income		$
Denominator:
Weighted average common shares used in computing basic income per common share
Adjustment for common stock assumed issued in this offering
As adjusted basic common shares outstanding(c)
As adjusted basic earnings per share		$
Weighted average common shares used in computing diluted income per common share outstanding
Adjustment for common stock assumed issued in this offering
As adjusted diluted common shares outstanding(c)
As adjusted diluted earnings per share		$

(a)

These adjustments reflect the change to historical interest expense and amortization of debt issuance costs and discount (net of tax at an applicable blended statutory rate of % for fiscal year 2013) after reflecting the Refinancing and use of proceeds from this offering to repay $ million of our senior secured credit facilities.

(b)

After the offering, we will no longer incur expenses under the management services agreements with our Sponsors, resulting in the elimination of management fees of $ million, net of tax at an applicable blended statutory rate of % for the fiscal year ended September 30, 2013. This pro forma calculation has not included the approximately $ million expense to be paid to the Sponsors as a fee in connection with the termination of the management services agreements, as these costs will not have a continuing impact on our consolidated results of operations.

(c)

The as adjusted basic and diluted earnings per share is calculated based on weighted-average common shares outstanding during the period including the issuance of common stock in this offering as if the offering occurred on October 1, 2012. We also assume that the underwriters of the offering do not exercise their option to purchase up to $ million additional common stock from us and the selling stockholders.

(7)	The following table reconciles EBITDA and Adjusted EBITDA to net income (loss), and adjusted pre-tax income to income (loss) before income taxes.


	Fiscal Year Ended September 30, 2013			Fiscal Year Ended September 30, 2012			Fiscal Year Ended September 30, 2011
	(in millions of U.S. dollars)
Net income (loss) to EBITDA:
Net income (loss)	$	86.9		$	(12.0	)	$	(191.6	)
Financial expenses		68.8			80.2			89.5
Interest income		(0.4	)		(0.2	)		(0.4	)
Income taxes expense		34.7			21.8			7.4
Depreciation and amortization		94.7			101.7			72.8

EBITDA	$	284.7		$	191.5		$	(22.3	)
EBITDA to Adjusted EBITDA:
EBITDA	$	284.7		$	191.5		$	(22.3	)
Transaction, integration, refinancing costs and other payments to third parties(a)		11.1			19.8			50.6
Management Fees(b)		7.0			5.7			3.6
Stock-based compensation expense(c)		2.8			8.2			7.8
Loss on extinguishment of debt		—			23.1			28.3
Loss (gain) on disposal of product line (d)		(1.0	)		0.0			7.4
Inventories stepped-up value expensed(e)		0.0			0.0			19.1
Acquired in-process research(f)		0.0			0.0			65.5
Fair value adjustments to intangible assets and related liabilities(g)		10.0			(3.4	)		—

Adjusted EBITDA	$	314.6		$	244.9		$	160.0

Income (loss) before income taxes to Adjusted pre-tax income:
Income (loss) before income taxes	$	121.6		$	9.8		$	(184.2	)
Transaction, integration, refinancing costs and other payments to third parties(a)		11.1			19.8			50.6
Management Fees(b)		7.0			5.7			3.6
Stock-based compensation expense(c)		2.8			8.2			7.8
Loss on extinguishment of debt		—			23.1			28.3
Loss (gain) on disposal of product line (d)		(1.0	)		0.0			7.4
Inventories stepped-up value expensed(e)		0.0			0.0			19.1
Acquired in-process research(f)		0.0			0.0			65.5
Non-cash financial expenses(h)		9.1			9.4			8.8
Amortization expense and fair value adjustments to intangible assets and related liabilities (i)		90.8			85.6			60.6

Adjusted pre-tax income	$	241.4		$	161.6		$	67.5

(a)

Represents transaction, integration, refinancing and restructuring costs related to the Eurand Transaction and other corporate initiatives as well as to certain other business development projects, and certain payments to third parties in respect of research and development milestones and other progress payments, deferred revenue related to RECTIV, ULTRESA and VIOKACE, adjustments and other write-downs resulting from the impacts of the one-time removal of ULTRASE and VIOKASE from the market in 2010, and unrealized foreign exchange losses.

(b)	Represents management fees and other charges associated with the management agreements with our Sponsors.

(c)	Represents stock-based employee compensation expense under the provisions of GAAP.

(d)	Loss (gain) resulting from the disposal of the PHOTOFRIN/PHOTOBARR product line.

(e)

As part of the purchase price allocation for the acquisition of Eurand, the book value of inventory acquired was stepped-up to fair value by $18.7 million as at acquisition date. The stepped-up value has been recorded as charge to cost of goods sold as acquired inventory was sold, until acquired inventory was sold off.

(f)

Represents the initial non-contingent payment of $12.0 million, the discounted value of future time-based non-contingent payments payable under the option agreement of $44.8 million and the payment towards certain pre-agreement incurred development expenses of $8.7 million related to the acquisition of Mpex Transaction.

(g)	Represents impairment of the RECTIV and LAMICTAL intangible assets and change in fair value of the contingent consideration liability related to the Rectiv Transaction.

(h)	Represents amortization of original issuance discounts on our term-loans, changes in fair-value including accretion expense on amounts payable for the Mpex Transaction and Rectiv Transaction and amortization of deferred debt issue expense.

(i)	Represents amortization of intangible assets and impairment charges on intangible assets and goodwill.

Selected quarterly financial data

The following tables present selected quarterly financial data for the fiscal year ended September 30, 2013 and should be read in conjunction with our historical audited consolidated financial statements and related notes contained elsewhere in this prospectus. Our operating results for any quarter are not necessarily indicative of results for any future quarter or for a full fiscal year.


	For the quarters ended
	September 30, 2013			June 30, 2013			March 31, 2013		December 31, 2012
	(in millions of U.S. dollars)
Statement of Operations Data:
Net product sales	$	155.8		$	171.0		$	173.9	$	167.0
Other revenue		3.1			4.0			5.8		7.3

Total revenue		158.9			175.0			179.7		174.3
Cost of goods sold (a)		36.0			38.8			39.5		32.3
Selling and administration expenses (a)		44.1			42.5			43.2		42.7
Management fees		1.6			1.7			2.0		1.7
Research and development expenses (a)		17.4			15.7			14.9		17.5
Depreciation and amortization		23.1			22.6			23.7		25.3
Gain on disposal of product line		—			—			—		(1.0	)
Transaction, restructuring and integration costs		0.6			0.1			1.2		0.6
Fair value adjustments to intangible assets and contingent consideration		7.3			(2.1	)		1.9		2.9

Operating income (loss)		28.8			55.7			53.3		52.3
Financial expenses		16.8			17.6			16.5		17.9
Interest income		(0.1	)		(0.2	)		—		(0.1	)
Loss (gain) on foreign currencies		(0.1	)		0.4			0.2		(0.4	)

Total other expenses		16.6			17.8			16.7		17.4

Income before income taxes		12.2			37.9			36.6		34.9
Income taxes expense		8.3			7.9			10.3		8.2

Net income		3.9			30.0			26.3		26.7

EBITDA (b)		52.0			77.9			76.8		78.0
Adjusted EBITDA (b)		65.6			74.5			87.7		86.8
Adjusted pre-tax income (b)	$	47.4		$	55.0		$	70.4	$	68.6

(a)	Exclusive of depreciation and amortization

(b)	The following table reconciles EBITDA and Adjusted EBITDA to net income, and adjusted pre-tax income to income before income taxes for each of the quarters ended in fiscal year 2013:


	For the quarters ended
	September 30, 2013			June 30, 2013			March 31, 2013		December 31, 2012
	(in millions of U.S. dollars)
Net income to EBITDA:
Net income	$	3.9		$	30.0		$	26.3	$	26.7
Financial expenses		16.8			17.6			16.5		17.9
Interest income		(0.1	)		(0.2	)		—		(0.1	)
Income taxes expense		8.3			7.9			10.3		8.2
Depreciation and amortization		23.1			22.6			23.7		25.3

EBITDA (h)		52.0			77.9			76.8		78.0

EBITDA to Adjusted EBITDA:
Transaction, integration, refinancing costs and payments to third parties (a)		4.5			(2.3	)		5.1		3.8
Management fees (b)		1.6			1.7			2.0		1.7
Stock-based compensation expense (c)		0.2			(0.7	)		1.9		1.4
Fair value adjustments to intangible assets and contingent consideration (d)		7.3			(2.1	)		1.9		2.9
Gain on disposal of product line (e)		—			—			—		(1.0	)

Adjusted EBITDA (h)		65.6			74.5			87.7		86.8

Income before income taxes to Adjusted pre-tax income:
Income before income taxes		12.2			37.9			36.6		34.9
Transaction, integration, refinancing costs and other payments to third parties (a)		4.5			(2.3	)		5.1		3.8
Management Fees (b)		1.6			1.7			2.0		1.7
Stock-based compensation expense (c)		0.2			(0.7	)		1.9		1.4
Gain on disposal of product line (e)		—			—			—		(1.0	)
Non-cash financial expenses (g)		2.4			2.2			2.0		2.5
Amortization expense and fair value adjustments to intangible assets and related liabilities (f)		26.5			16.2			22.8		25.3

Adjusted pre-tax income (h)	$	47.4		$	55.0		$	70.4	$	68.6

(a)

(b)	Represents management fees and other charges associated with the management agreements with our Sponsors.

(c)	Represents stock-based employee compensation expense under the provisions of GAAP.

(d)	Represents impairment of the RECTIV and LAMICTAL intangible assets and change in fair value of the contingent consideration liability related to the Rectiv Transaction.

(e)	Gain resulting from the disposal of the PHOTOFRIN/PHOTOBARR product line.

(f)	Represents amortization of intangible assets and fair value adjustments to intangible assets and goodwill.

(g)	Represents amortization of original issuance discounts on our term-loans, changes in fair value including accretion expense on amounts payable for the Mpex Transaction and Rectiv Transaction and amortization of deferred debt issue expense.

(h)

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect all cash expenditures, future requirements for capital expenditures, or contractual commitments;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect changes in, or cash requirements for, working capital needs;

EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income exclude income tax payments that represent a reduction in cash available to us;

EBITDA, Adjusted EBITDA and Adjusted pre-tax income do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and

other companies in our industry may calculate EBITDA, Adjusted EBITDA and Adjusted pre-tax income differently than we do, limiting their usefulness as comparative measures.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Our Business

We have built market-leading franchises in CF and GI disorders by growing sales of our products, many of which command a number one or number two position in their respective markets, including ZENPEP, CANASA, CARAFATE, PYLERA and RECTIV. Our revenues are highly diversified, with our largest product accounting for only 21% of our total revenue in fiscal year 2013 and with operations outside the United States accounting for 20% of our total revenue during the same period. The CF and GI markets are each characterized by a concentrated base of high-volume prescribing physicians, which allows our highly efficient and effective sales force of 227 experienced sales specialists, including 155 sales specialists in the United States to reach substantially all Cystic Fibrosis Foundation care centers and approximately half of the GI physicians in the United States. We have established sales and marketing operations in the United States, Canada, France and Germany and proprietary manufacturing capabilities in North America and Europe. In addition, we have proven product development capabilities and a demonstrated ability to selectively acquire complementary products, product candidates and companies. We believe our pipeline of four clinical product candidates targets major commercial opportunities in the EU and the United States and we have lifecycle management opportunities for our existing products using the proprietary technology platforms of our Pharmaceutical Technologies, or PT, business.

We have generated double-digit revenue growth since the beginning of fiscal year 2011. This strong performance has been achieved by driving continued growth in our market-leading products and by successfully integrating products and companies, including Eurand N.V., or Eurand. Our total revenue has grown from $470.4 million for fiscal year 2011 to $687.9 million for fiscal year 2013, representing a compound annual growth rate, or CAGR, of 20.9%. Revenue from assets acquired or licensed during this period, including ZENPEP, RECTIV and PT, has grown from $122.0 million in fiscal year 2011 to $ 244.8 million in fiscal year 2013, while the remainder of our portfolio grew at a CAGR of 12.8%, from $348.4 million in fiscal year 2011 to $443.1 million in fiscal year 2013. We had Adjusted EBITDA of $160.0 million in fiscal year 2011 and $314.6 million in fiscal year 2013, Adjusted pre-tax income of $67.5 million in fiscal year 2011 and $241.4 million in fiscal year 2013, and a net loss of $191.6 million in fiscal year 2011 compared to net income of $86.9 million in fiscal year 2013. Adjusted EBITDA and Adjusted pre-tax income are non-GAAP financial metrics. Please see “Selected Consolidated Financial and Operating Data” for reconciliations of Adjusted EBITDA to net (loss) income and Adjusted pre-tax income to income (loss) before income tax.

Recent Acquisitions and Dispositions

On December 28, 2011, we entered into a license agreement with Strakan International S.A.R.L. and Prostrakan Inc., together ProStrakan, to acquire the exclusive rights and related business and supply agreement to commercialize and develop RECTIV in the United States, referred to as the Rectiv Transaction, which we recorded as a business combination. RECTIV received FDA approval in June 2011 and is indicated for the treatment of moderate to severe pain associated with chronic anal fissure. We made an upfront payment to ProStrakan of $20 million in January 2012, as well as an additional milestone payment of $20 million in December 2012. As we recorded the Rectiv Transaction as a business combination, we record the present value of estimated future payments in connection with certain milestones and royalties on net sales related to the Rectiv Transaction as a contingent liability on our balance sheet. As at September 30, 2013, we had $29.6 million of contingent liability related to the Rectiv Transaction on our balance sheet. For more information regarding our sensitivity analysis related to these contingent payments, see Note 4 to our consolidated financial statements included elsewhere in this prospectus. The next milestone payment of $5 million is expected to occur, if at all, upon net sales of RECTIV of $25 million in any calendar year. We began shipping RECTIV during the quarter ended March 31, 2012.

On April 11, 2011, we received the proceeds of a $55.0 million equity investment from funds managed by Investor Growth Capital Limited, which was used to fund a portion of the cost of our August 31, 2011 acquisition of Mpex Pharmaceuticals Inc., or Mpex. As a result of the asset acquisition, or the Mpex Transaction, we obtained the rights to APT-1026 and we have assumed all related research and development expenses since the date of acquisition. The transaction was accounted for as an asset acquisition, as Mpex did not include any processes or outputs to qualify as a business, as defined in GAAP. The total consideration in relation to the Mpex Transaction consists of (i) time-based, non-contingent payments amounting to $62.5 million to be paid in a number of installments, of which $37.5 million has been paid up to September 30, 2013, plus (ii) contingent payments of up to an aggregate of $195.0 million upon the achievement of certain regulatory milestones, such as acceptance for substantive review of an NDA or foreign equivalent, EU approval or U.S. approval and certain annual net sales milestones, and (iii) earn-out payments based on net sales of APT-1026. These contingent payments have not been recorded on our balance sheet because the applicable milestones have not been met. The final installments on the time-based non-contingent payments of $25.0 million are due in the next fiscal year ending September 30, 2014 and are recorded as a current liability as of September 30, 2013. On November 1, 2013, we paid $15.0 million of these remaining installments. Also, in November 2013, we filed a Marketing Authorization Application with the EMA. Upon acceptance for substantive review, a development milestone of $10 million would be due within 10 days of acceptance.

On March 28, 2011, we entered into a definitive agreement with Pinnacle Biologics, Inc., or Pinnacle, pursuant to which we sold all of our global assets and rights related to PHOTOFRIN/PHOTOBARR, a photo-sensitizer approved for use in photodynamic therapy, for non-contingent payments amounting to $4.3 million, plus additional contingent consideration. We received milestone payments of $1 million and recorded a corresponding gain during fiscal year 2013.

On February 11, 2011, we acquired Eurand for total consideration of $589.6 million, or the Eurand Transaction. As a result of the acquisition, Eurand is a subsidiary of the Company and its results of operations have been consolidated within our financial statements since the date of acquisition. Prior to the Eurand Transaction, Eurand was a specialty pharmaceutical company that developed, manufactured and commercialized enhanced pharmaceutical and biopharmaceutical products based on proprietary technology platforms. Eurand was a global company with facilities in the United States and Europe.

October 2013 Recapitalization

On October 4, 2013, Aptalis Pharma, our wholly-owned subsidiary, and certain of our other wholly-owned subsidiaries effected a refinancing consisting of (i) the repayment, in full, of our

outstanding indebtedness, in aggregate principal amount of $926.4 million, under our Second A&R Credit Agreement (defined below) and termination of our Second A&R Credit Agreement and (ii) the entry into our new senior secured credit facilities providing for senior secured term loans in the amount of $1,250 million and a new senior secured revolving credit facility allowing for borrowing of up to $150 million, which we collectively refer to as the Refinancing. See “Description of Certain Indebtedness—Senior Secured Credit Facilities.”

Following the Refinancing, through a series of transactions, including repayment of intercompany debt, redemptions of subsidiary equity, dividends, distributions and mergers, we made a distribution in aggregate amount of $399.5 million to our shareholders, holders of our restricted stock units and certain holders of options to purchase shares of our common stock, which we refer to as the Distribution. Certain holders of options received an adjustment to the per share exercise price in accordance with the relevant option plan to reflect the effects of the Distribution. The Refinancing, Distribution and the transactions referred to above are collectively referred to as the Recapitalization.

On November 8, 2013, in conjunction with the Refinancing, we terminated our existing interest rate swap and interest rate cap agreements and paid a total of $13.5 million to our derivative counterparties. We then entered into two new interest rate cap agreements with an effective date of December 31, 2013. The interest rate caps each have a notional amount of $275.0 million amortizing to $25.0 million by their maturity in December 2019. The interest rate caps are designated as cash flow hedges of interest rate risk and are designed to fix our interest payments on the hedged debt at 6.78%.

Affordable Care Act

The Affordable Care Act, enacted in the United States in March 2011, contains several provisions that could impact our business. In June 2012, the Supreme Court upheld the constitutionality of most aspects of the Affordable Care Act but found that states could not be forced to participate in the expansion of Medicaid provided for in the Affordable Care Act.

Although many provisions of the new legislation did not take effect immediately, several provisions became effective during the fiscal year ended September 30, 2010. These include (1) an increase in the minimum Medicaid rebate to states participating in the Medicaid program on our branded prescription drugs; (2) the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; and (3) the expansion of the 340(B) Public Health Service Act drug pricing program, which provides outpatient drugs at reduced rates, to include certain children’s hospitals, free-standing cancer hospitals, critical access hospitals, and rural referral centers. In the aggregate, Medicaid rebates negatively impacted our revenue by $42.1 million during the fiscal year ended September 30, 2013 and by $31.3 million and $20.2 million in fiscal years 2012 and 2011, respectively. Based on the fact that some large states have not fully submitted their Managed Medicaid claims, it is possible that we could have changes to our estimates of the impact of healthcare reform based on additional information received from the states, and such amounts could be material to our financial statements.

In addition, beginning in 2011, the new law requires drug manufacturers to provide a 50% discount to Medicare beneficiaries for any covered prescription drugs purchased during a Medicare Part D coverage gap (i.e. the “donut hole”), which rose to 52.5% in 2013. The Medicare Part D coverage gap had the effect of reducing our revenue by $9.9 million during the fiscal year ended September 30, 2013 and by $6.5 million and $1.5 million in fiscal years 2012 and 2011, respectively. Also, beginning in 2011, new fees are assessed on all branded prescription drug manufacturers and importers. This fee is calculated on each organization’s percentage share of total branded prescription drug sales to U.S. government programs (such as Medicare Parts B and D, Medicaid, Department of Veterans Affairs and Department of Defense programs and TRICARE retail pharmacy program) made during the previous

fiscal year. The aggregated industry wide fee is expected to total $28 billion through 2019, ranging from $2.5 billion to $4.1 billion annually. The IRS has issued guidance for calculating preliminary fees, but there is still uncertainty as to final implementation, since the IRS has requested public comment and may make changes in response. This industry wide branded prescription drug fee negatively impacted our earnings by $0.5 million during the fiscal year ended September 30, 2013 and by $0.4 million and $0.3 million in fiscal years 2012 and 2011, respectively. Further, the law requires pharmaceutical, medical device, biological, and medical supply manufacturers to begin reporting to the federal government by March 31, 2014, the payments they make to physicians and teaching hospitals, and physician ownership interests in those entities. The effective date of such reporting is August 1, 2013. The law also provides for the creation of an abbreviated regulatory pathway for FDA approval of biosimilars and interchangeable biosimilar products. While creation of the biosimilars program is authorized as of passage of the legislation in 2010, the process of creating the regulatory pathway for approval of biosimilars will likely be lengthy, and the FDA is in the process of soliciting public input.

While certain aspects of the new legislation implemented in 2010 are expected to reduce our revenues in future years, other provisions of this legislation may offset, at some level, any reduction in revenues when these provisions become effective. In future years these other provisions are expected to result in higher revenues due to an increase in the total number of patients covered by health insurance and an expectation that existing insurance coverage will provide more comprehensive consumer protections. This would include a federal subsidy for a portion of a beneficiary’s out-of-pocket cost under Medicare Part D. However, these higher revenues may be negatively impacted by the branded prescription drug manufacturers’ increased emphasis on co-insurance and incentives driving the greater use of generic alternatives.

Factors Affecting Our Results of Operations

Revenue

We generate two types of revenue: revenue from product sales (including revenue we generate from the sale of products we manufacture for third parties) and other revenue, which currently includes development fees, royalties and other revenue.

Net Product Sales

We currently sell products in various product categories that treat CF and a broad range of GI diseases and disorders. During fiscal year 2013, sales of three product lines, ZENPEP, CANASA and CARAFATE, accounted for 63% of our net product sales (61% in fiscal year 2012), but no single product line accounted for more than 22% of our net product sales (21% in fiscal year 2012). Our portfolio of products is also geographically diverse, with 20% of our net product sales being generated from sales outside the United States in fiscal year 2013 (24% in fiscal year 2012). While the ultimate end users of our products are the individual patients to whom our products are prescribed by physicians, the majority of our sales are to large pharmaceutical wholesale distributors. These distributors sell our products primarily to pharmacies, which ultimately dispense our products to the end consumers. In addition, many of our products have been commercialized in export markets through licensing and distribution agreements with local marketing partners.

Net product sales are stated net of deductions for product returns, chargebacks, contract rebates, distribution service agreement, or DSA, fees, discounts and other allowances.

Included in net product sales are amounts earned under agreements pursuant to which we manufacture products for third parties. Revenue from these types of arrangements was $86.2 million for the fiscal year ended September 30, 2013 ($85.3 million in fiscal year 2012).

Changes in revenue from sales of our products from period to period are affected by factors that include the following:

changes in the level of promotional or marketing support for our products and the size of our sales force;

changes in the level of competition faced by our products, including changes due to the launch of new branded products by our competitors and the introduction of generic equivalents of our branded products or those of our competitors prior to, or following, the loss of regulatory exclusivity or patent protection. For example, during fiscal years 2012 and 2013, generic competitors of DELURSAN 250mg entered the market, which may negatively impact future sales of DELURSAN 250mg and DELURSAN 500mg;

price changes, which are common in the branded pharmaceutical industry and, for the purposes of our period-over-period comparisons, reflect the average gross selling price billed to our customers before any sales-related deductions;

changes in the regulatory environment, including the impact of healthcare reforms in the United States and other markets we serve;

our ability to successfully develop or acquire and launch new products;

our ability to supply product in amounts sufficient to meet customer demand;

changes in the level of demand for our products, including changes based on general economic conditions in North American and Western European economies or industry-specific business conditions;

long-term growth or contraction of our core therapeutic markets, including CF and GI disorders;

inventory levels at our distributors and wholesalers;

the size and timing of product orders, which can be affected by customer budgeting and buying patterns;

internal factors, such as changes in business strategies and the impact of restructurings and business combinations; and

changes in the levels of sales-related deductions, including those resulting from changes in utilization levels or the terms of our patient assistance programs and the utilization and/or rebates paid under commercial and government rebate programs.

Other Revenue

Other revenue consists of development fees, royalties and other revenue, which can vary depending on the timing, stage of development or commercialization. We earn royalty revenues from some of our collaborators equal to a percentage of their sales of products for which we provided development assistance.

Development of a new pharmaceutical formulation generally includes the following stages:

feasibility and prototype development;

formulation optimization and preparation of pilot clinical samples;

scale-up, validation and preparation of clinical samples for regulatory and commercial purposes;

clinical trials; and

preparation of documents and regulatory filings.

We apply our proprietary PT platforms in one of two ways—either to develop products on behalf of our collaborators or to develop or enhance our internal products. In both situations, we are involved in all stages of the formulation development process and perform largely the same types of work although, in general, we only perform clinical trials for the products we develop internally. Clinical trials for co-developed products are typically performed by our collaboration partners. For internal projects, we fund all of the development costs with a view either to out-license the product once it is fully developed and has obtained the applicable regulatory approvals, or to market it directly.

Cost of Goods Sold (excluding depreciation and amortization)

Cost of goods sold consists principally of materials costs, internal labor and overhead from our owned manufacturing sites, third-party processing costs, other supply chain costs and royalties paid to our licensors. The manufacturing supply chain for our products is supported by our manufacturing facilities located in the United States and Europe and by third parties. We manufacture ZENPEP and ULTRESA at one of our facilities in Italy, LACTEOL at our facility in France, CANASA and rectal formulations of SALOFALK at our facility in Canada and other PT products in the United States and Italy. We have entered into agreements with third parties to manufacture the finished dosage form of most of our promoted products, other than ULTRESA, ZENPEP, LACTEOL, rectal formulations of SALOFALK and for certain parts of the manufacturing process for CANASA. Depending on the particular arrangement, either we or the third-party manufacturer sources the active pharmaceutical ingredient. With the exception of LACTEOL, we rely on third parties to supply the active pharmaceutical ingredient used in our finished products and have entered into supply agreements with most of our suppliers. Active pharmaceutical ingredients and excipients for certain of our products, including ZENPEP, are sourced from single suppliers. We use third parties and internal laboratories to perform analytical testing on our raw materials, active pharmaceutical ingredients, finished products and product candidates.

Our agreements with suppliers, manufacturers and testing laboratories include, among others, specific supply terms, product specifications, testing and release mechanisms, batch size requirements, price, payment terms, forecast requirements, shipping and quality assurance conditions. Under some of these agreements, we are obligated to purchase all or a specified percentage of our requirements for the product or active pharmaceutical ingredient supplied under the agreement. These agreements generally permit the manufacturer or supplier to pass on to us increases in cost of production or materials.

Selling and Administrative Expenses (excluding depreciation and amortization)

Selling and administrative expenses, on an ongoing basis, consist principally of salaries and other costs associated with our sales force and marketing activities and general administration of our business. Selling and administrative expenses may be affected by a number of factors, including the launch of new products, new marketing programs, changes in our sales force personnel, certain administrative functions, including IT initiatives, and any acquisition synergies we are able to achieve.

Management fees

Management fees consist of fees and other charges associated with the management agreements with our Sponsors, which automatically terminate upon consummation of this offering. See “Certain Relationships and Related Party Transactions.”

Research and development expenses (excluding depreciation and amortization)

Research and development expenses refer to (i) internal research and development expenses which consist principally of fees paid to outside parties that we use to conduct clinical studies and to

submit governmental approval applications on our behalf, as well as the salaries and benefits paid to personnel involved in research and development projects, as well as payments to third parties and (ii) research and development expenses on a number of external projects with third parties that generate development fee revenues and consist principally of personnel costs. These expenses vary depending on the number of clinical trials being run by us during any reporting period.

Acquired in-process research

The fair value of in-process research acquired in a business combination is capitalized as an indefinite-lived intangible asset subject to impairment testing until completion or abandonment of the project. The fair value of in-process research acquired as part of an asset acquisition is expensed on acquisition.

Depreciation and amortization

Depreciation and amortization consists principally of the amortization of intangible assets with a finite life and also includes the depreciation of property, plants and equipment. Intangible assets include trademarks, trademark licenses and manufacturing rights.

Transaction, restructuring and integration costs

Transaction, restructuring and integration costs consists principally of costs incurred in relation with our restructuring measures in conjunction with the integration of the operations of Eurand as well as within our ongoing legacy operations. These measures are intended to capture further synergies and generate cost savings across the Company. Restructuring actions taken include workforce reductions across the Company and other organizational changes. These reductions come primarily from the elimination of redundancies and the consolidation of staff in the sales and marketing, manufacturing, research and development, and general and administrative functions.

Financial expenses

Financial expenses consist principally of (i) interest and fees, inclusive of the effects of our hedging instruments, paid in connection with (a) funds borrowed in connection with the Eurand Transaction, (b) funds borrowed for the acquisition of the Company by TPG in February 2008 and (c) any refinancing expenses incurred in connection with our borrowings and (ii) accretion expense on amounts payable for the Mpex Transaction and Rectiv Transaction.

Financial Overview for the Fiscal Years Ended September 30, 2013 and 2012

This discussion and analysis is based on our audited annual consolidated financial statements at and for the fiscal years ended September 30, 2013 and 2012 and the related notes thereto reported under GAAP. For a description of our products, see “Business—Our Products.”

For the fiscal year ended September 30, 2013, total revenue was $687.9 million as compared to $615.1 million in fiscal year 2012, operating income was $190.1 million as compared to $113.1 million in fiscal year 2012 and net income was $86.9 million as compared to a net loss of $12.0 million in fiscal year 2012.

Total revenue in the United States was $548.6 million (79.7% of total revenue) for the fiscal year ended September 30, 2013, compared to $469.5 million (76.3% of total revenue) in fiscal year 2012. Total revenue earned outside the United States was $139.3 million (20.3% of total revenue) for the fiscal year ended September 30, 2013, compared to $145.6 million (23.7% of total revenue) in fiscal year 2012.

Fiscal year ended September 30, 2013, compared to the fiscal year ended September 30, 2012

Overview of results of operations


	Year Ended September 30,						Change
	2013			2012			Change
	(in millions of U.S. dollars, except percentages)
Net product sales	$	667.7		$	600.9		$	66.8		11.1	%
Other revenue		20.2			14.2			6.0		42.3

Total revenue		687.9			615.1			72.8		11.8
Cost of goods sold(a)		146.6			144.2			2.4		1.7
Selling and administration expenses(a)		172.5			168.8			3.7		2.2
Management fees		7.0			5.7			1.3		22.8
Research and development expenses(a)		65.5			72.6			(7.1	)	(9.8	)
Depreciation and amortization		94.7			101.7			(7.0	)	(6.9	)
Gain on disposal of product line		(1.0	)		—			(1.0	)	*
Transaction, restructuring and integration costs		2.5			12.4			(9.9	)	(79.8	)
Fair value adjustments to intangible assets and contingent consideration		10.0			(3.4	)		13.4		392.4

Total operating expenses		497.8			502.0			(4.2	)	(0.8	)

Operating income		190.1			113.1			77.0		68.1
Financial expenses		68.8			80.2			(11.4	)	(14.2	)
Loss on extinguishment of debt		—			23.1			(23.1	)	(100.0	)
Interest income		(0.4	)		(0.2	)		(0.2	)	(100.0	)
Loss on foreign currencies		0.1			0.2			(0.1	)	(50.0	)
Total other expenses		68.5			103.3			(34.8	)	(33.7	)

Income before income taxes		121.6			9.8			111.8		1,140.8
Income tax expense		34.7			21.8			12.9		59.2

Net income (loss)	$	86.9		$	(12.0	)	$	98.9		*	%

(a)	Exclusive of depreciation and amortization

*	Not meaningful

Net product sales

Net product sales in the United States increased $74.8 million to $532.7 million for the fiscal year ended September 30, 2013 as compared to $457.9 million for the preceding fiscal year, primarily due to strong sales performance within our U.S. specialty pharmaceuticals product portfolio which accounted for $67.8 million of the increase while our U.S. PT product portfolio accounted for the remaining $7.0 million increase. This growth in our U.S. specialty pharmaceuticals product portfolio is attributable to a mixture of sales price increases as well as increased sales volume across most of our product portfolio. Gross product sales increased by $121.9 million in aggregate and were partially offset by increases in sales deductions of $54.1 million.

Net product sales from our international operations decreased by $8.0 million to $135.0 million for the fiscal year ended September 30, 2013, compared to $143.0 million for the preceding fiscal year. This decrease is due mostly to lower sales performance of $6.1 million in our international PT product portfolio compared to the previous fiscal year and a decrease of $1.9 million in sales performance within our international specialty pharmaceuticals product portfolio.

Net product sales are stated net of deductions for product returns, chargebacks, contract rebates, DSA fees, discounts and other allowances. The following table summarizes our gross-to-net product sales adjustments for each significant category:


	Year Ended September 30,				Change
	2013		2012		Change
	(in millions of U.S. dollars, except percentages)
Gross product sales	$	867.2	$	746.1	$	121.1		16.2	%
Gross-to-net product sales adjustments:
Product returns		1.2		2.5		(1.3	)	(52.0	)
Medicaid and other government programs		71.8		51.8		20.0		38.6
Chargebacks		52.0		37.7		14.3		37.9
Contract rebates		38.5		30.9		7.6		24.6
DSA fees, discounts and other allowances		36.0		22.3		13.7		61.4

Total gross-to-net product sales adjustments		199.5		145.2		54.3		37.4

Total net product sales	$	667.7	$	600.9	$	66.8		11.1	%

Total gross-to-net sales adjustments totaled $199.5 million (23.0% of gross product sales) for the fiscal year ended September 30, 2013, compared to $145.2 million (19.5% of gross product sales) for the preceding fiscal year. The increase in total deductions as a percentage of gross product sales is due in part to:

changes in sales mix toward products with higher sales deductions as percentage of gross sales;

the continued effects of the Affordable Care Act, which in turn have driven an increase in Medicaid, and other government programs, as well as an increase in chargebacks; and

an increase in DSA fees, discounts and other allowances which have increased primarily as a result of our patient assistance programs.

The following table summarizes our net product sales by category. U.S. specialty pharmaceutical sales includes net product sales in the United States for CANASA, CARAFATE, PYLERA and RECTIV, as well as for our PEPs, including ZENPEP, ULTRESA and VIOKACE. The “other” category includes net product sales from all other products, other than PT, we sell in the United States. International specialty pharmaceuticals, or ISP, includes all net product sales outside of the United States of SALOFALK, PANZYTRAT and PYLERA. Worldwide PT reflects the revenue we generate from manufacturing products for third parties.


	Year Ended September 30,
	2013		2012		Change
	(in millions of U.S. dollars, except percentages)
Pancreatic Enzyme Portfolio (PEPs)	$	145.8	$	126.6	$	19.2		15.2	%
CARAFATE		144.5		121.7		22.8		18.7
CANASA		132.7		118.9		13.8		11.6
PYLERA		21.3		16.7		4.6		27.5
RECTIV		15.9		4.0		11.9		297.5
Other		24.9		29.4		(4.5	)	(15.3	)

Total U.S. Specialty Pharmaceuticals		485.1		417.3		67.8		16.2
International Specialty Pharmaceuticals (ISP)		96.4		98.3		(1.9	)	(1.9	)
Worldwide Pharmaceutical Technology (PT) product sales		86.2		85.3		0.9		1.0

Total	$	667.7	$	600.9	$	66.8		11.1	%

Other Revenue

Development fees decreased by $1.8 million (22.0%) to $6.4 million for the fiscal year ended September 30, 2013, compared to $8.2 million for the preceding fiscal year.

Royalties and other revenue increased by $7.8 million (130.0%) to $13.8 million for the fiscal year ended September 30, 2013, compared to $6.0 million for the preceding fiscal year. The increase for the fiscal year ended September 30, 2013 primarily relates to one-time milestone payments of $4.9 million in aggregate related to arrangements pertaining to our LACTEOL and Innopran XL product lines recorded in the first quarter of fiscal year 2013. We generally earn royalty revenues from certain of our collaborators based on a percentage of their sales of products developed with our assistance.

Cost of goods sold

For the fiscal year ended September 30, 2013, cost of goods sold increased $2.4 million (1.7%) to $146.6 million, from $144.2 million for the preceding fiscal year. As a percentage of net product sales, cost of goods sold for the fiscal year ended September 30, 2013, decreased to 22.0% compared to 24.0% for the corresponding period of the preceding fiscal year. The decrease as a percentage of net product sales is explained mainly by the effects of price increases within our U.S. Specialty Pharmaceuticals product portfolio.

Selling and administrative expenses

For the fiscal year ended September 30, 2013, selling and administrative expenses increased $3.7 million (2.2%) to $172.5 million, from $168.8 million for the preceding fiscal year. The increase is mainly due to (a) a $2.0 million increase related to an expansion of our contract sales force; (b) $0.9 million higher compensation costs, which in turn are primarily due to additional headcount due in part to the expansion of our sales force; and (c) $2.2 million of increases in marketing and selling costs primarily due to increased sampling, all offset by (d) a decrease of $1.8 million related to sales and marketing efforts related to the launch of RECTIV and VIOKACE as compared to the preceding fiscal year.

Management fees

Management fees consist of fees and other charges associated with the management agreements with our Sponsors. For the fiscal year ended September 30, 2013, management fees increased by $1.3 million to $7.0 million from $5.7 million for the preceding fiscal year. The increase is due to a corresponding increase in Adjusted EBITDA, which is the main driver of determining the management fees paid to our Sponsors.

Research and development expenses

For the fiscal year ended September 30, 2013, research and development expenses decreased $7.1 million (9.8%) to $65.5 million, from $72.6 million for preceding fiscal year. Our main research and development initiatives in 2013 were APT-1026, APT-1016, APT-1011 and APT-1008. The decrease in research and development expenses was mainly due to (a) $11.4 million lower spending on the development of APT-1026 as a result of having completed the clinical trials; (b) $1.2 million lower spending on our research and development related to our PEP products including APT-1008; (c) lower spending associated with other research and development initiatives amounting to $2.2 million compared to the preceding fiscal year. These decreases were partially offset by additional spending on development of suspension products amounting to $6.0 million, which in turn is inclusive of a development royalty related to APT-1011 which we began incurring during the fourth quarter of fiscal year 2012 and is charged to research and development expenses.

Depreciation and amortization

For the fiscal year ended September 30, 2013, depreciation and amortization decreased by $7.0 million (6.9%) to $94.7 million, from $101.7 million for the preceding fiscal year. The decrease in depreciation and amortization was due to the offsetting effects of certain intangible assets having become fully amortized at the end of the first quarter of fiscal year 2013 and the additional amortization expenses included in fiscal year 2013 compared to fiscal year 2012 related to the Rectiv Transaction. In addition, during the quarter ended on June 30, 2013, we revised the estimated remaining useful life of CANASA intangible assets, which resulted in $1.7 million in additional amortization expense during the fiscal year ended September 30, 2013 and will increase annual amortization expense by approximately $5.0 million over the remaining useful life of four years.

Gain on disposal of product line

On March 28, 2011, we entered into a definitive agreement with Pinnacle, pursuant to which it acquired all global assets and rights related to PHOTOFRIN/PHOTOBARR, including inventory, for non-contingent payments to us amounting to $4.3 million. In addition to the non-contingent payments, Pinnacle is required to make additional contingent payments to us if certain milestone events are achieved. We also receive royalties on annual net sales of PHOTOFRIN/PHOTOBARR.

Consideration for additional contingent payments to be made to us, if any, will be recorded as a gain in the period in which they are received. We earned milestone payments of $1.0 million in the first quarter of fiscal year 2013 and recorded a corresponding gain, as compared to fiscal year 2012 in which we did not record gains or losses from contingent payments.

Transaction, restructuring and integration costs

We did not incur transaction-related costs during the fiscal years ended September 30, 2013 or 2012.

During the fiscal year ended September 30, 2013, we recorded a restructuring expense of $1.9 million ($1.9 million during the fiscal year ended September 30, 2012) related to planned employee termination costs. Employee termination costs are generally recorded when the actions are communicated, probable and estimable and include accrued severance benefits and health insurance continuation, many of which may be paid out during periods after termination.

During the fiscal year ended September 30, 2013, we incurred integration costs of $0.6 million as compared to $10.5 million during the preceding fiscal year. Integration costs mainly represent certain external incremental costs directly related to integrating Eurand and primarily include expenditures for consulting and systems integration. We completed phase I of our initiative to optimize our enterprise resource planning systems across the organization in fiscal year 2012 and launched phase II in the first quarter of fiscal year 2013. The decreases in integration costs during the fiscal year ended September 30, 2013 as compared to the preceding fiscal year are a result of having substantially completed phase I of the integration of Eurand.

Fair value adjustments to intangible assets and contingent consideration

We recorded a trademark license intangible asset of $139.2 million resulting from the Rectiv Transaction in the first quarter of fiscal year 2012. Due to the continuing effects of RECTIV sales having performed below initial expectations, we revisited our long-term projection assumptions used in our assessment of the carrying value of our intangible asset and the contingent consideration liability relating to RECTIV during the fourth quarter of the fiscal year ended September 30, 2013. These changes to long-term projection assumptions were made as a result of ongoing competition from compounding pharmacies as well as the issue surrounding the introduction of the Compounding

Quality Act, which was introduced during the fourth quarter of fiscal year 2013 and was signed into law on November 27, 2013. As a result, we recorded an impairment charge of $65.2 million relating to the RECTIV intangible asset.

We recorded accretion expense related to the increase in the net present value of the contingent liability related to RECTIV of $13.0 million for the fiscal year ended September 30, 2013 ($11.4 million for the preceding fiscal year). We also recorded a change in the fair value of the contingent consideration related to the Rectiv Transaction which reduced the liability by $74.7 million for the fiscal year ended September 30, 2013 ($14.7 million for the preceding fiscal year). These two offsetting adjustments inclusive of accretion expense were recorded as fair value adjustments to intangible assets and contingent consideration within our consolidated statement of operations.

Similarly, during the fourth quarter of the fiscal year ended September 30, 2013, Actavis Inc. announced that it had received an approval from the FDA on its ANDA for Lamotrigine Orally Disintegrating Tablets, a generic equivalent to LAMICTAL^® ODT, which we manufacture for GlaxoSmithKline. As a result of this approval, we revised our forecasts and determined that our intangible assets tied to our supply agreement for LAMICTAL were impaired. As a result, we recorded an impairment charge of $6.5 million related to our LAMICTAL supply agreement intangible asset to reduce the asset value to zero.

Financial expenses

For the fiscal year ended September 30, 2013, financial expenses decreased by $11.4 million (14.2%) to $68.8 million, from $80.2 million for the preceding fiscal year.

The $11.4 million decrease in financial expenses is mainly due to fiscal year 2013 savings in interest expense amounting to $10.0 million resulting from redeeming our $235.0 million 12.75% senior unsecured notes and funded by a $200 million term loan bearing a lower interest rate based on the three-month LIBOR (subject to a floor of 1.5% in the case of Term B-1 Loans and Term B-2 Loans) plus a margin of 4.0%.

Loss on extinguishment of debt

On March 19, 2012, we redeemed $40.0 million aggregate principal amount of our senior unsecured notes at a redemption price of 106.375%. On April 18, 2012, we redeemed all of the remaining outstanding principal amount of 12.75% senior unsecured notes through a cash tender offer. The total redemption amount consisted of $195.0 million in aggregate principal and $13.6 million of redemption premiums. The difference between the net carrying value and the repayment price of the notes was recognized as a loss on extinguishment of debt. For the fiscal year ended September 30, 2012, loss on extinguishment of debt amounted to $23.1 million and comprised of the write-off of the unamortized deferred financing fees, the original issuance discount and the redemption premium. We did not have any loss on extinguishment of debt in the fiscal year ended September 30, 2013.

Interest income

For the fiscal year ended September 30, 2013, total interest income amounted to $0.4 million compared to $0.2 million for the preceding fiscal year.

Income taxes

For the fiscal year ended September 30, 2013, income tax expense amounted to $34.7 million compared to $21.8 million for the preceding fiscal year. The effective tax rate was 28.6% for the fiscal year ended September 30, 2013, compared to 222.6% for the preceding fiscal year.

The effective tax rate for the year ended September 30, 2013 is affected by a number of elements, the most important being: (a) the decrease in valuation allowance of $36.9 million; (b) the difference in foreign tax rates, which accounted for a difference of $24.8 million; (c) unrecognized outside basis difference for foreign subsidiaries of $30.8 million; (d) previously unrecognized outside basis difference for foreign subsidiaries of $101.0 million; (e) foreign tax credits of $ 56.3 million and (f) a $16.5 million tax benefit arising from a financing structure. The effective tax rate for the year ended September 30, 2012 is affected by a number of items, the most important being (i) the impact of relative fixed amounts of permanent tax effects compared to a small pre-tax result from operations, (ii) a $16.6 million tax benefit arising from a financing structure, (iii) the increase of a valuation allowance of $50.0 million, (iv) an $11.0 million difference attributable to differences in foreign tax rates; (v) non-deductible items of $3.7 million; and (vi) research and development tax credits of $6.7 million. If, in future periods, the deferred tax assets are determined by management to be more likely than not to be realized, the tax benefits relating to the reversal of the valuation allowance will be recorded in the Consolidated Statements of Operations.

The difference between our effective tax rate of 28.6% for the year ended September 30, 2013 and the statutory income tax rate of 35% is summarized as follows:


	Year Ended September 30,
	2013						2012
	(in millions of U.S. dollars, except percentages)
Combined statutory rate applied to pre-tax income (loss)		35.00	%	$	42.5			35.00	%	$	3.4
Increase (decrease) in taxes resulting from:
Change in promulgated rates		—			—			0.62			—
Difference with foreign tax rates		(20.42	)		(24.8	)		(112.76	)		(11.0	)
Unrecognized outside basis difference for foreign subsidiaries		25.35			30.8			—			—
Previously unrecognized outside basis difference for foreign subsidiaries		83.09			101.0			—			—
Foreign tax credits		(46.33	)		(56.3	)
Tax benefit arising from a financing structure		(13.61	)		(16.5	)		(169.79	)		(16.6	)
Unrecognized tax benefit reversal		—			—			(20.68	)		(2.0	)
Non-deductible items		1.06			1.3			37.55			3.7
Research and development tax credits		(3.50	)		(4.3	)		(68.24	)		(6.7	)
State taxes		0.18			0.2			5.57			0.5
Change in valuation allowance		(30.36	)		(36.9	)		510.54			50.0
Other		(1.81	)		(2.3	)		4.79			0.5

		28.55	%	$	34.7			222.60	%	$	21.8

On September 30, 2013, we elected under applicable provisions of the Internal Revenue Code to recharacterize foreign taxes previously deducted as foreign tax credit carry forwards. The net adjustment resulting from the changes to the net operating loss carry forward deferred tax assets, the foreign tax credit carry forward deferred tax assets and valuation allowance is presented in the effective rate reconciliation above.

As of September 30, 2013, we had $287 million ($229 million as of September 30, 2012) of unremitted earnings in respect to our international subsidiaries. As a result of the distribution made to the shareholders in October 2013, cash was repatriated from the foreign subsidiaries. We commenced the associated income tax planning and other efforts prior to the end of fiscal year 2013 and, as such, we can no longer assert the permanent reinvestment of earnings of our foreign subsidiaries. A deferred income tax liability amounting to $101 million on the outside basis of a subsidiary that was not recorded

as of June 2013 has been recorded in the fourth quarter of fiscal year 2013. The recognition of such deferred income liability allowed us to decrease our valuation allowance for the same amount in the United States. The repatriation of earnings that was done in the first quarter of the fiscal year 2014 will reduce the United States net operating losses and tax credits available by an equivalent amount. While deferred income tax assets will offset this deferred income tax liability, the allocation of the valuation allowance on a pro rata basis resulted in the presentation of current deferred income tax liability and non-current deferred income tax assets of $52.9 million. As of September 30, 2013, the outside tax basis of certain of our foreign subsidiaries exceeded the GAAP basis and, therefore, deferred income tax assets have not been recorded given that the amounts are not projected to reverse in the foreseeable future.

Balance sheets as at September 30, 2013 and September 30, 2012

The following table summarizes balance sheet information as at September 30, 2013, compared to September 30, 2012.


	September 30, 2013			September 30, 2012			Change
	(in millions of U.S. dollars, except percentages)
Cash and cash equivalents	$	229.9		$	115.0		$	114.9		99.9	%
Current assets		401.2			287.9			113.3		39.4
Total assets		1,341.2			1,316.8			24.4		1.9
Current liabilities		261.6			236.5			25.1		10.6
Long-term debt		911.8			920.0			(8.2	)	(0.9	)
Total liabilities		1,294.6			1,376.0			(81.4	)	(5.9	)
Shareholders’ equity (deficit)		46.6			(59.2	)		105.8		178.7
Working capital, exclusive of cash	$	(90.3	)	$	(63.6	)	$	(26.7	)	42.0	%

Working capital, exclusive of cash decreased by $26.7 million (42.0%) to $(90.3) million as at September 30, 2013, from $(63.6) million as at September 30, 2012 primarily as a result of a net increase in current liabilities of $25.1 million. The increase in current liabilities is due to an increase in deferred income tax liability of $52.9 million partially offset by a reduction in accounts payable and accrued liabilities of $10.6 million, which in turn was largely a result of having made $32.0 million of milestone payments on RECTIV and APT-1026 during the first quarter of fiscal year 2013 and a decrease in income tax payable of $16.2 million.

Total assets increased by $24.4 million (1.9%) to $1,341.2 million as at September 30, 2013, from $1,316.8 million as at September 30, 2012, primarily due to (a) an increase in cash and cash equivalents of $114.9 million, and (b) an increase in deferred income tax assets of $51.8 million, partially offset by a reduction of non-current assets of $141.8 million, which in turn is largely a result of the effects of impairment of intangible assets of $71.7 million and depreciation and amortization which amounted to $94.8 million.

Long-term debt decreased by $8.2 million (0.9 %) to $911.8 million as at September 30, 2013, from $920.0 million as at September 30, 2012, mainly as a result of capital repayments made and partially offset by amortization of the original issuance discounts on the debt.

Financial Overview for the Fiscal Years Ended September 30, 2012 and 2011

This discussion and analysis is based on our audited annual consolidated financial statements at and for the fiscal years ended September 30, 2012 and 2011 and the related notes thereto reported under GAAP. The results of Eurand’s business have been included in our results of operations, financial condition and cash flows only for the period subsequent to the completion of the Eurand Transaction on February 11, 2011. For a description of our products, see “Business—Our Products.”

For the fiscal year ended September 30, 2012, total revenue was $615.1 million as compared to $470.4 million in fiscal year 2011, operating income was $113.1 million as compared to operating loss of $66.7 million in fiscal year 2011 and net loss was $12.0 million as compared to $191.6 million in fiscal year 2011.

Total revenue in the United States was $469.4 million (76.3% of total revenue) for the fiscal year ended September 30, 2012, compared to $337.7 million (71.8% of total revenue) in fiscal year 2011. Total revenue earned outside the United States was $145.7 million (23.7% of total revenue) for the fiscal year ended September 30, 2012, compared to $132.7 million (28.2% of total revenue) in fiscal year 2011.

Fiscal year ended September 30, 2012, compared to the fiscal year ended September 30, 2011

Overview of results of operations


	Year Ended September 30,
	2012			2011			Change
	(in millions of U.S. dollars, except percentages)
Net product sales	$	600.9		$	461.4		$	139.5		30.2	%
Other revenue		14.2			9.0			5.2		57.8

Total revenue		615.1			470.4			144.7		30.8
Cost of goods sold^(a)		144.2			135.4			8.8		6.5
Selling and administration expenses^(a)		168.8			143.5			25.3		17.6
Management fees		5.7			3.6			2.1		58.3
Research and development expenses^(a)		72.6			58.0			14.6		25.2
Acquired in-process research		—			65.5			(65.5	)	(100.0	)
Depreciation and amortization		101.7			72.8			28.9		39.7
Loss on disposal of product line		—			7.4			(7.4	)	(100.0	)
Transaction, restructuring and integration costs		12.4			50.9			(38.5	)	(75.6	)
Fair value adjustments to intangible assets and contingent consideration		(3.4	)		—			(3.4	)	*

Total operating expenses		502.0			537.1			(35.1	)	(6.5	)

Operating income (loss)		113.1			(66.7	)		179.8		269.6

Financial expenses		80.2			89.5			(9.3	)	(10.4	)
Loss on extinguishment of debt		23.1			28.3			(5.2	)	(18.4	)
Interest income		(0.2	)		(0.4	)		0.2		50.0
Loss on foreign currencies		0.2			0.1			0.1		100.0
Total other expenses		103.3			117.5			(14.2	)	(12.1	)

Income (loss) before income taxes		9.8			(184.2	)		194.0		105.3
Income tax expense		21.8			7.4			14.4		194.6

Net loss	$	(12.0	)	$	(191.6	)	$	179.6		93.7	%

(a)	Exclusive of depreciation and amortization

*	Not meaningful

Net product sales

Net product sales in the United States increased by $127.9 million (38.8%) to $457.9 million for the fiscal year ended September 30, 2012, compared to $330.0 million for the preceding fiscal year. This increase is mostly due to (a) the inclusion of a full year of sales of Eurand products and growth on

those products, most notably ZENPEP, amounting to $77.8 million, (b) the launch of RECTIV and VIOKACE with sales amounting to $5.0 million and (c) an increase of $45.1 million in the sales performance of our other products, most notably CANASA and CARAFATE.

Net product sales in our international operations increased by $11.6 million (8.8%) to $143.0 million for the fiscal year ended September 30, 2012, compared to $131.4 million for the preceding fiscal year. The increase is due mostly to the inclusion of post-acquisition sales of Eurand PT products amounting to $19.4 million partially offset by an unfavorable sales performance of other portfolio products compared to the prior year amounting to $7.8 million including the effects of $5.2 million of unfavorable foreign currency fluctuations.

The following table summarizes our gross-to-net product sales adjustments for each significant category:


	Year Ended September 30,
	2012		2011		Change
	(in millions of U.S. dollars, except percentages)
Gross product sales	$	746.1	$	579.3	$	166.8		28.8	%
Gross-to-net product sales adjustments:
Product returns		2.5		8.5		(6.0	)	(70.6	)
Medicaid and other government programs		51.8		34.5		17.3		50.1
Chargebacks		37.7		22.4		15.3		68.3
Contract rebates		30.9		34.0		(3.1	)	(9.1	)
DSA fees, discounts and other allowances		22.3		18.5		3.8		20.5
Total gross-to-net product sales adjustments		145.2		117.9		27.3		23.2

Total net product sales	$	600.9	$	461.4	$	139.5		30.2	%

Total gross-to-net sales adjustments totaled $145.2 million (19.5% of gross product sales) for the fiscal year ended September 30, 2012, compared to $117.9 million (20.4% of gross product sales) for the preceding fiscal year. The decrease in total deductions as a percentage of gross product sales was mainly due to changes to estimates during fiscal year 2012 related to product returns which positively impacted net sales following the integration of the legacy Eurand business.


	Year Ended September 30,
	2012		2011		Change
	(in millions of U.S. dollars, except percentages)
Pancreatic Enzyme Portfolio (PEPs)	$	126.6	$	65.7	$	60.9		92.7	%
CARAFATE		121.7		105.5		16.2		15.4
CANASA		118.9		93.9		25.0		26.6
PYLERA		16.7		13.0		3.7		28.5
RECTIV		4.0		0.0		4.0		*
Other		29.4		28.8		0.6		2.1

Total U.S. Specialty Pharmaceuticals		417.3		306.9		110.4		36.0
International Specialty Pharmaceuticals (ISP)		98.3		105.3		(7.0	)	(6.6	)
Worldwide Pharmaceutical Technology (PT) product sales		85.3		49.2		36.1		73.4

Total	$	600.9	$	461.4	$	139.5		30.2	%

*	Not meaningful

Other Revenue

Development fees increased by $4.6 million (127.8%) to $8.2 million for the fiscal year ended September 30, 2012, compared to $3.6 million for the preceding fiscal year.

Royalties increased by $1.0 million (20.0%) to $6.0 million for the fiscal year ended September 30, 2012, compared to $5.0 million for the preceding fiscal year resulting mostly from the inclusion of Eurand’s business following the Eurand Transaction. We earn royalty revenues from our collaborators equal to a percentage of their sales of products for which we provided assistance to develop.

Cost of goods sold

For the fiscal year ended September 30, 2012, cost of goods sold increased $8.8 million (6.5%) to $144.2 million, from $135.4 million for the preceding fiscal year. As a percentage of net product sales, cost of goods sold for the fiscal year ended September 30, 2012, decreased to 24.0% compared to 29.3% for the preceding fiscal year. The decrease as a percentage of revenue is the result of a charge of $18.7 million reflecting the expense associated with the inventory stepped up to fair value resulting from the Eurand Transaction, which was reflected in the cost of goods sold in the fiscal year 2011 but not in fiscal year 2012.

Selling and administrative expenses

For the fiscal year ended September 30, 2012, selling and administrative expenses increased $25.3 million (17.6%) to $168.8 million, from $143.5 million for the preceding fiscal year. The increase primarily relates to the additional sales and marketing efforts related to the launch of RECTIV and VIOKACE amounting to $6.5 million for the fiscal year ended September 30, 2012, and the inclusion of expenses associated with the operation of the Eurand business.

Management fees

For the fiscal year ended September 30, 2012, management fees increased by $2.1 million (58.3%) to $5.7 million from $3.6 million for the preceding fiscal year.

Research and development expenses

For the fiscal year ended September 30, 2012, research and development expenses increased $14.6 million (25.2%) to $72.6 million, from $58.0 million for the preceding fiscal year.

The increases are mainly due to expenses incurred in connection with our development of APT-1026, amounting to an additional $7.4 million incurred in fiscal year ended September 30, 2012 as compared to the preceding fiscal year, spending associated with other research and development initiatives amounting to $8.3 million and the inclusion of expenses associated with Eurand activities in the post-acquisition period net of integration savings, partially offset by a reduction in research and development expenses in our remaining portfolio of product candidates.

On March 14, 2011, we entered into an agreement with a third-party to jointly develop a new product including sucralfate. Under the terms of this agreement, we will pay a series of contingent and non-contingent milestone-based payments. Upon commercialization of the new product, we will pay the third party a single digit royalty percentage on net sales of the new product. Additionally, to help cover the costs of research and development and to enhance continued collaboration, we began paying the third party a single digit sales-based royalty on CARAFATE, beginning on January 1, 2013, and will continue to do so until December 31, 2019.

Acquired in-process research

During the fiscal year ended September 30, 2011, we expensed $65.5 million as acquired in-process research and development relating to the Mpex Transaction that was recorded as an asset acquisition. We did not incur expense for acquired in-process research and development in fiscal year 2012.

Depreciation and amortization

For the fiscal year ended September 30, 2012, depreciation and amortization increased $28.9 million (39.7%) to $101.7 million, from $72.8 million for the preceding fiscal year. This increase is due mainly to (a) additional depreciation and amortization of intangible assets recognized on the acquisition of Eurand, (b) additional amortization of $11.3 million due to a change in the useful life of DELURSAN-related intangible assets and (c) additional amortization of intangible assets recognized on the acquisition of RECTIV amounting to $13.1 million.

Loss on disposal of product line

On March 28, 2011, we entered into a definitive agreement with Pinnacle Biologics, Inc., which acquired all global assets and rights related to PHOTOFRIN/PHOTOBARR, including inventory, for non-contingent payments amounting to $4.3 million. In addition to the non-contingent payments, Pinnacle is required to make additional contingent payments to us if certain milestones events are achieved. In addition, we receive royalties on annual net sales of PHOTOFRIN/PHOTOBARR.

During the fiscal year ended September 30, 2011, we recorded a loss of $7.4 million as a result of the disposal of the PHOTOFRIN/PHOTOBARR product line. Consideration for additional contingent payments to be made to us will be recorded as a gain in the period in which they are received. We did not receive any milestone payments in fiscal years 2012 and 2011.

Transaction, restructuring and integration costs

During the fiscal year ended September 30, 2011, we expensed $11.9 million of costs relating to legal, financial, valuation and accounting advisory services performed in connection with the Eurand Transaction, which are included in Transaction, restructuring and integration costs in the accompanying consolidated statement of operations. We did not incur transaction-related costs during the fiscal year ended September 30, 2012.

During the fiscal year ended September 30, 2012, we recorded a restructuring expense of $1.9 million as compared to $16.0 million during the fiscal year ended September 30, 2011, related to planned employee termination costs. Employee termination costs are generally recorded when the actions are communicated, probable and estimable and include accrued severance benefits and health insurance continuation, many of which may be paid out during periods after termination.

During the fiscal year ended September 30, 2012, we incurred integration costs of $10.5 million as compared to $23.0 million during the fiscal year ended September 30, 2011 representing certain external incremental costs directly related to integrating the Eurand business and primarily including expenditures for consulting and systems integration. We completed phase 1 of our initiative to optimize our enterprise resource planning systems across the organization during fiscal year 2012.

Fair value adjustments to intangible assets and contingent consideration

We recorded accretion expense related to the increase in the net present value of the contingent liability of $11.4 million for the fiscal year ended September 30, 2012. At September 30, 2012, we

assessed market acceptance after the product launch of RECTIV in March 2012 and subsequently revised our revenue estimates from the estimates used at the date of the Rectiv Transaction and recorded a favorable change in the fair value of the contingent consideration liability of $14.6 million. These two offsetting adjustments were recorded as fair value adjustments to intangible assets and contingent consideration within our consolidated statement of operations.

Financial expenses

For the fiscal year ended September 30, 2012, financial expenses decreased by $9.3 million (10.4%) to $80.2 million, from $89.5 million for the preceding fiscal year. The decrease is due to (a) certain one-time fees related to the bridge financing and the renegotiation of the original Credit Agreement (as defined below) in connection with the Eurand Transaction amounting to $10.5 million incurred in fiscal year 2011 and (b) fiscal year 2012 savings in interest expense amounting to $4.0 million resulting from redeeming $235.0 million in aggregate principal amount of our 12.75% senior unsecured notes and funded by a $200 million term loan bearing a lower interest rate based on the three-month LIBOR (subject to a floor of 1.5% in the case of Term B-1 Loans and Term B-2 Loans) plus a margin of 4.0%. The decrease is partially offset by additional accretion expense of $1.6 million recorded in fiscal year 2012 for the Mpex Transaction.

Loss on extinguishment of debt

On March 19, 2012, we redeemed $40.0 million in aggregate principal amount of our Senior Unsecured Notes at a redemption price of 106.375%. On April 18, 2012, we redeemed all of the remaining outstanding Senior Unsecured Notes through a cash tender offer. The total redemption amount consisted of $195.0 million in aggregate principal, and $13.6 million of redemption premiums. The difference between the net carrying value and the repayment price of the Senior Unsecured Notes was recognized as a loss on extinguishment of debt. For the fiscal year ended September 30, 2012, loss on extinguishment of debt amounted to $23.1 million and comprised of the write-off of the unamortized deferred financing fees, the original issuance discount and the redemption premium.

On February 11, 2011, the proceeds of the debt and equity financing obtained in connection with the Eurand Transaction were used to repay the outstanding term loan amounting to $125.7 million under the Original Credit Agreement. Subsequent to the Eurand Transaction, we redeemed $228 million in aggregate principal amount of our 9.25% senior secured notes at a premium of 106.938%. The difference between the net carrying value and the repayment price of the outstanding term loan and 9.25% senior secured notes was recognized as a loss on extinguishment of debt. For the fiscal year ended September 30, 2011, loss on extinguishment of debt amounted to $28.3 million and comprised of the write-off of the unamortized deferred financing fees, the original issuance discount and the redemption premium.

Interest income

For the fiscal year ended September 30, 2012, total interest income decreased to $0.2 million from $0.4 million for the preceding fiscal year.

Income taxes

For the fiscal year ended September 30, 2012, income tax expense amounted to $21.8 million compared to $7.4 million for the preceding fiscal year. The effective tax rate was 222.6% for the fiscal year ended September 30, 2012, compared to (4.04)% for the preceding fiscal year. The effective tax rate for the fiscal year ended September 30, 2012 is affected by a number of items, the most important being (i) the impact of relative fixed amounts of permanent tax effects compared to a small pre-tax

result from operations, (ii) the tax benefit arising from a financing structure of $16.6 million, (iii) the increase of a valuation allowance of $50.0 million, (iv) the difference in foreign tax rates of $11.0 million; (v) non-deductible items of $3.7 million; and (vi) the research and development tax credits of $6.7 million. The effective tax rate for the fiscal year ended September 30, 2011 is affected by a number of items, the most important being (i) the non-deductibility of certain expenses and the establishment of a valuation allowance of $57.8 million mainly against our net deferred tax assets generated in the United States (ii) the tax benefit arising from a financing structure of $14.2 million, and (iii) non-deductible items of $25 million. If, in future periods, the deferred tax assets are determined by management to be more likely than not to be realized, the tax benefits relating to the reversal of the valuation allowance will be recorded in the Consolidated Statements of Operations.

The difference between our effective tax rate of 222.6% for the year ended September 30, 2012 and the statutory income tax rate of 35% is summarized as follows:


	Year Ended September 30,
	2012						2011
	(in millions of U.S. dollars, except percentages)
Combined statutory rate applied to pre-tax income (loss)		35.00	%	$	3.4			35.00	%	$	(64.4	)
Increase (decrease) in taxes resulting from:
Change in promulgated rates		0.62			—			(0.03	)		—
Difference with foreign tax rates		(112.76	)		(11.0	)		(0.70	)		1.3
Tax benefit arising from a financing structure		(169.79	)		(16.6	)		7.71			(14.2	)
Unrecognized tax benefit reversal		(20.68	)		(2.0	)		—			—
Non-deductible items		37.55			3.7			(13.59	)		25.0
Investment tax credits		(68.24	)		(6.7	)		0.54			(1.0	)
State taxes		5.57			0.5			(0.20	)		0.4
Change in valuation allowance		510.54			50.0			(31.40	)		57.8
Other		4.79			0.5			(1.37	)		2.5

Effective tax rate		222.60	%	$	21.8			(4.04	)%	$	7.4

The significant increase in the benefit derived from differences in foreign tax rates from fiscal year 2011 to fiscal year 2012 was mainly attributable to new subsidiaries in foreign jurisdictions with low statutory rates, which were acquired in fiscal year 2011 as part of the Eurand transaction. Fiscal year 2012 reflects a full fiscal year of impact, whereas the Company’s fiscal year 2011 results only included these subsidiaries for a portion of the fiscal year. Our foreign subsidiaries were also more profitable in fiscal year 2012 than they were in fiscal year 2011, which contributed further to the significant difference year over year.

Balance sheets as at September 30, 2012 and September 30, 2011

The following table summarizes balance sheet information as at September 30, 2012, compared to September 30, 2011.


	September 30, 2012			September 30, 2011			Change
	(in millions of U.S. dollars, except percentages)
Cash and cash equivalents	$	115.0		$	126.9		$	(11.9	)	(9.4	)%
Current assets		287.9			272.0			15.9		5.8
Total assets		1,316.8			1,257.6			59.2		4.7
Current liabilities		236.5			177.6			58.9		33.2
Long-term debt		920.0			968.4			(48.4	)	(5.0	)
Total liabilities		1,376.0			1,297.6			78.4		6.0
Shareholders’ deficit		(59.2	)		(40.1	)		(19.1	)	(47.6	)
Working capital, exclusive of cash		(63.6	)		(32.5	)		(31.1	)	(95.7	)

Working capital, exclusive of cash, decreased by $31.1 million (95.7%) to ($63.6) million as at September 30, 2012, from ($32.5) million as at September 30, 2011, primarily as a result of: (1) a $58.8 million increase in current liabilities, which in turn was mainly due to: (a) a $40.1 million increase in accounts payable and accrued liabilities, which in turn was largely due to the inclusion as at September 30, 2012 of $30.9 million consideration payable under the Rectiv Transaction, as well as an increase in accounts payable of $18.7 million and partially offset by other smaller items; and (b) an increase in income taxes payable of $16.7 million; and (2) a $27.8 million increase of current assets, exclusive of cash, which was mainly due to an increase in accounts receivable of $25.1 million as a result of increased revenue.

Total assets increased $59.2 million (4.7%) to $1,316.8 million as at September 30, 2012, from $1,257.6 million as at September 30, 2011, primarily as a result of the Rectiv Transaction, which resulted in the recognition of an intangible asset of $139.2 million and an increase in current assets, exclusive of cash of $27.8 million partially offset by the senior secured debt repayments and prepayment of our 12.75% Senior Unsecured Notes and a decrease of $89.0 million in intangible assets from the amortization.

Long-term debt decreased $48.4 million (5.0%) to $920.0 million as at September 30, 2012, from $968.4 million as at September 30, 2011, as a result of senior secured debt repayments and prepayment of our 12.75% Senior Unsecured Notes.

Liquidity and Capital Resources

Cash requirements

Working capital, exclusive of cash, was $(90.3) million as at September 30, 2013 and $(63.6) million as at September 30, 2012. Cash and cash equivalents were $229.9 million as at September 30, 2013 compared to $115.0 million at September 30, 2012. Cash generated from operations is used to fund working capital, capital expenditures, milestone payments, debt service and business development activities. During the fiscal year ended September 30, 2013, we generated $163.3 million in cash flows from operating activities, made milestone payments totaling $32.4 million, invested $12 million of cash in the acquisition of property, plant and equipment and made $10.5 million in long-term debt repayments.

During the fiscal year ended September 30, 2012, we redeemed our $235.0 million 12.75% Senior Unsecured Notes. The aggregate redemption amount consisted of $235.0 million in aggregate principal, and $16.2 million of redemption premium. We funded the redemptions and related fees and expenses with cash generated from operations together with borrowings under a new tranche of term loans in the amount of $200.0 million pursuant to an amendment to the A&R Credit Agreement (as defined below).

On February 11, 2011, we acquired all of the outstanding equity of Eurand. The aggregate equity purchase price of $589.6 million plus acquisition costs (including related fees and expenses) for the Eurand Transaction were funded by cash equity contributions amounting to $140.0 million from TPG and certain co-investors, the proceeds from the borrowings under the A&R Credit Agreement and related security and other agreements and cash on hand from Aptalis Pharma and Eurand. We borrowed $500.0 million of the amount available under the A&R Credit Agreement at the closing of the Eurand Transaction.

A portion of the proceeds of the equity and debt financings, together with cash on hand of Aptalis Pharma and Eurand, were also used to repay the outstanding term loan portion amounting to $125.7 million under Aptalis Pharma’s prior credit agreement, dated as of February 25, 2008, referred to as the Original Credit Agreement, and to pay related fees and expenses. The remaining amount of $250.0 million of the term loan facility was used on March 15, 2011 to redeem 100% of our then existing 9.25% senior secured notes due 2015.

Long-term debt and Credit Facility

On April 18, 2012, Aptalis Pharma’s amended and restated credit agreement, dated as of February 11, 2011, referred to as the A&R Credit Agreement, was amended and restated in its entirety as the second amended and restated credit agreement, referred to as the Second A&R Credit Agreement. The amendments included redesignating all then outstanding term loans as Term B-1 Loans and providing a new tranche of term loans in an aggregate principal amount of $200.0 million, or Term B-2 Loans. The proceeds of the Term B-2 Loans were used to finance the redemption of the Senior Unsecured Notes.

Facilities under the Second A&R Credit Agreement totaling $1,097.0 million were comprised of Term B-1 Loans amounting to $750.0 million, Term B-2 Loans amounting to $200.0 million and a revolving credit facility totaling $147.0 million. The revolving credit facility was comprised of $115.0 million of existing revolving credit commitments that were extended or issued, referred to as the Extended Commitments and $32.0 million of existing revolving credit commitments that were not extended, referred to as Unextended Commitments pursuant to the Second A&R Credit Agreement. Borrowings under the Second A&R Credit Agreement bore interest at a rate per annum equal to, at Aptalis Pharma’s option, either a base rate or a LIBOR rate (subject to a floor of 1.5% in the case of Term B-1 Loans and Term B-2 Loans), in each case plus the applicable margin. The base rate was determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 1/2 of 1.0% and (3) the one-month LIBOR rate plus 1.0%. Subject to the floor of 1.5% for the Term B-1 Loans and Term B-2 Loans, the LIBOR rate was determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs.

The applicable margin for borrowings of revolving loans under the Second A&R Credit Agreement was subject to adjustment each fiscal quarter based on Aptalis Pharma’s total leverage ratio and ranged from (A) 1.75% to 3.50% per annum with respect to revolving loans that were base rate borrowings and (B) 2.75% to 4.50% per annum with respect to revolving loans that were LIBOR borrowings.

The applicable margin for borrowings of term loans under Second A&R Credit Agreement was equal to 3.00% per annum with respect to base rate borrowings and 4.00% per annum with respect to LIBOR borrowings. The applicable margin on the Term B-2 Loans was subject to increase pursuant to the Second A&R Credit Agreement in connection with the making of certain refinancing, extended or replacement term loans under Second A&R Credit Agreement with an all-in yield greater than the applicable all-in yield payable in respect of the applicable loans at such time plus 50 basis points.

The principal amount of the Term B-1 Loans and Term B-2 Loans amortized in equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal amount with payments beginning in fiscal year 2012. The principal amount outstanding of the Term B-1 Loans and Term B-2 Loans was due and payable on February 11, 2017. The principal amount of outstanding loans under the revolving credit facility was due and payable on February 11, 2016 with respect to Extended Commitments and on February 25, 2014 with respect to Unextended Commitments.

No amounts had been drawn during fiscal year 2012 against the revolving credit facility. The Term B-1 Loans and Term B-2 Loans were priced at $0.995 and $0.980 respectively, with a yield to maturity of 5.6% and 6.0% respectively, before the effect of interest rate hedging transactions.

We use interest rate swaps as part of our interest rate risk management strategy to add stability to interest expense and to manage our exposure to interest rate movements. See Note 19, “Derivatives and Hedging Activities,” to our consolidated financial statements, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rates and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—October 2013 Recapitalization.”

The Second A&R Credit Agreement required Aptalis Pharma to prepay outstanding term loans with the proceeds of the following events, subject to certain exceptions: (1) 100% of the net cash proceeds of any incurrence of debt other than debt permitted under the Second A&R Credit Agreement, (2) commencing with the fiscal year ending September 30, 2012, 50% (which percentage will be reduced if the senior secured leverage ratio is less than a specified ratio) of the annual excess cash flow (as defined in the Second A&R Credit Agreement) and (3) 100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property (including casualty events) by Aptalis Pharma or its subsidiaries, subject to reinvestment rights and certain other exceptions. We were not required to make any such prepayments in the fiscal year ended September 30, 2013.

In connection with the Recapitalization, the Second A&R Credit Agreement was repaid in full with the proceeds of borrowings under the senior secured credit facilities. The senior secured credit facilities consist of (a) a senior secured revolving credit facility (the “senior secured revolving credit facility”), allowing for borrowings of up to $150.0 million, of which $25.0 million may be in the form of letters of credit, and (b) term B loans (the “term B loans” and the facility the “senior secured term loan facility” and, together with the senior secured revolving credit facility, the “senior secured credit facilities”) with an outstanding principal amount as of September 30, 2013, pro forma to reflect the Refinancing of $1,250 million (excluding original issuance discount and upfront payments). The senior secured revolving credit facility includes borrowing capacity available for letters of credit and for short-term borrowings, referred to as swingline loans. See “Description of Certain Indebtedness.”

Related party transactions

We recorded charges pursuant to the terms of the management fee arrangements with our Sponsors of $7.0 million for the fiscal year ended September 30, 2013, $5.7 million for the fiscal year ended September 30, 2012, and $3.6 million for the fiscal year ended September 30, 2011. Upon consummation of this offering our management agreements with our sponsors will automatically terminate and we will pay them a termination fee of $ million.

Off-balance sheet arrangements

We do not have any transactions, arrangements and other relationships with unconsolidated entities that are likely to affect our operating results, liquidity or capital resources. We have no special-purpose or limited-purpose entities that provide off-balance sheet financing, liquidity or market or credit risk support, and do not engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected on the consolidated financial statements.

Cash flows

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:


	Year ended September 30,
	2013			2012			2011
	(in millions of U.S. dollars)
Net cash provided by (used in) operating activities	$	163.3		$	82.3			(49.1	)
Net cash used in investing activities		(32.0	)		(36.6	)		(530.0	)
Net cash provided by (used in) financing activities		(16.7	)		(56.7	)		543.4

Cash flows provided by operating activities increased by $81.0 million to $163.3 million for the fiscal year ended September 30, 2013 compared to $82.3 million for the preceding fiscal year, mainly due to a $77.0 million increase in operating income compared to the preceding fiscal year. Cash flows

provided by operating activities increased by $131.4 million to $82.3 million of cash provided by operating activities for the fiscal year ended September 30, 2012 from $49.1 million of cash used in operating activities for the fiscal year ended September 30, 2011. The increase in net cash provided by operating activities is mainly due to the inclusion of legacy Eurand business net of integration savings in the post-acquisition period as well a decrease in the transaction, restructuring and integration costs related to the Eurand Transaction.

Cash flows used in investing activities decreased by $4.6 million to $32.0 million for the fiscal year ended September 30, 2013 as compared to $36.6 million for the preceding fiscal year. Cash flows used in investing activities decreased by $493.4 million to $36.6 million for the fiscal year ended September 30, 2012 from $530.0 million for the fiscal year ended September 30, 2011. The cash flows used in investing activities are related to the Rectiv Transaction in the year ended September 30, 2012 and to the Eurand Transaction in year ended September 30, 2011.

Cash flows used in financing activities decreased by $40.0 million to $16.7 million for the fiscal year ended September 30, 2013 from $56.7 million for preceding fiscal year. This reduction was due to the redemption of our $235.0 million 12.75% Senior Unsecured Notes which occurred in the prior fiscal year. The redemption was funded with cash generated from operations together with $200.0 million of borrowings under a new tranche of term loans pursuant to an amendment to the A&R Credit Agreement. Cash flows provided by financing activities decreased by $600.1 million to $56.7 million of cash flows used in financing activities from $543.4 million of cash flows provided by financing activities for the fiscal years ended September 30, 2012 and 2011 respectively. On February 11, 2011, we entered into an amended and restated credit agreement and related security and other agreements in connection with the Eurand Transaction. During the fiscal year ended September 30, 2012, we redeemed $235 million in aggregate principal amount of our of 12.75% Senior Unsecured Notes due March 1, 2016. The redemption was funded with cash generated from operations together with borrowings under a new tranche of term loans in the amount of $200.0 million pursuant to an amendment to the A&R Credit Agreement.

Contractual Obligations and Commitments

For the purpose of the table below, contractual obligations for the purchase of goods or services are required to be included in other commitments where there exist agreements that are legally binding and enforceable on us and that specify all significant terms. Our purchase orders are based on current needs and are fulfilled by our vendors within relatively short timetables. We do not have significant agreements for the purchase of raw materials or finished goods specifying minimum quantities or set prices that exceed our short-term expected requirements. In the ordinary course of business, we enter into arrangements to acquire raw materials, finished goods and other goods and services with varying terms. It is not practicable to determine which purchase orders represent a legally binding obligation or only represent nonbinding authorizations to purchase, providing a framework for future specific orders. We also enter into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.

The expected timing of payment of the obligations discussed below is estimated based on current information. The timing of payments and actual amounts paid may differ depending on the timing of receipt of goods or services, or, for some obligations, changes to agreed-upon amounts.

As at September 30, 2013, we had unrecognized tax benefits of $5.9 million ($5.9 million as at September 30, 2012 and $14.8 million as at September 30, 2011). Due to the nature and timing of the ultimate outcome of these uncertain tax positions, we cannot make a reasonably reliable estimate of the amount and period of related future payments. Therefore, our unrecognized tax benefits with respect to our uncertain tax positions has been excluded from the below contractual obligations table.

Below is a summary of our future payment commitments by year under contractual obligations as of September 30, 2013 (in thousands of U.S. dollars):


Contractual Obligations	Payment due by period
Contractual Obligations	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Principal on indebtedness under our Second A&R Credit Agreement	$	9,500	$	19,000	$	897,875	$	—	$	926,375
Interest on indebtedness under our Second A&R Credit Agreement(1)		56,799		110,763		20,728		—		188,290

Total indebtedness under our Second A&R Credit Agreement		66,299		129,763		918,603		—		1,114,665
Operating leases		1,741		2,342		616		—		4,705
Non-Contingent Milestone Payments		25,000		—		—		—		25,000

Total	$	93,040	$	132,105	$	919,219	$	—	$	1,144,370

(1)

Estimated interest payable on indebtedness under our Second A&R Credit Agreement based on interest rate and hedging of interest rates (see Note 19, “Derivatives and Hedging Activities,” to our consolidated financial statements). On October 4, 2013, we repaid, in full, of our outstanding indebtedness, in aggregate principal amount of $926.4 million, under our Second A&R Credit Agreement, and entered into our new senior secured credit facilities providing for senior secured term loans in aggregate principal amount of $1,250 million, referred to as the Refinancing. This new indebtedness is described in more detail in the “Description of Certain Indebtedness.” The contractual obligations described above do not give effect to the Refinancing or the offering of our common stock and application of the process therefrom.

In addition to the commitments discussed above, we have commitments to make certain potential future contingent milestone payments. As milestone payments are primarily contingent upon successfully achieving clinical milestones or on receiving regulatory approval for products under development, they do not have defined maturities and therefore are not included in these tables. See Note 4 to our consolidated financial statements for additional disclosure related to these contingent milestone payments.

Significant Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP, applied on a consistent basis. Some of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters. Therefore, a change in the facts and circumstances of an underlying transaction could significantly change the application of our accounting policies to that transaction, which could have an effect on our financial statements. Certain of the policies that management believes are critical and require the use of complex judgment in their application are discussed below.

Use of estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and also affect the recognized amounts of revenues and expenses during the fiscal year. Estimates are used when accounting for amounts recorded in connection with acquisitions, including fair value determinations of assets and liabilities. Other significant estimates and assumptions made by management include those related to

allowances for accounts receivable, inventories, reserves for product returns, rebates, chargebacks and DSA fees, including those related to U.S. healthcare reform, the classification of intangible assets between finite life and indefinite life, the useful lives of long-lived assets, the expected cash flows used in evaluating long-lived assets including intangible assets and goodwill for impairment, fair value of liability for contingent consideration, stock-based compensation costs, pending legal settlements and the establishment of provisions for income taxes including the realizability of deferred tax assets. The estimates are made using the historical information and various other relevant factors available to management. We review all significant estimates affecting the financial statements on a recurring basis and record the effect of any adjustments when necessary. Actual results could differ from those estimates based on future events, which could include, among other risks, changes in regulations governing the manner in which we sell our products, changes in the healthcare environment, foreign exchange rates and managed care and managed Medicaid consumption patterns.

Revenue recognition

We recognize revenue from sales of products at the time title of goods passes to the customer and the customer assumes the risks and rewards of ownership, after the product has been delivered to the customer, persuasive evidence of an arrangement with the customer exists, the products’ price is fixed or determinable, and collectability is reasonably assured. Provisions for sales discounts and estimates for chargebacks, managed care and Medicaid rebates, product returns and DSA fees are established as a deduction of product sales revenues at the time such revenues are recognized. These revenue deductions are established by us at the time of sale, based on historical experience adjusted to reflect known changes in the factors that impact such reserves, such as contract charges, volume tiers being met, or changes in actual experience. In certain circumstances, product returns are allowed under our policy and provisions are maintained accordingly. These revenue deductions are generally reflected as an addition to accrued liabilities. Amounts received from customers as prepayments for products to be delivered in the future are reported as deferred revenue.

The following table summarizes the activity in the balance sheet accounts related to revenue reductions:


	Product returns			Medicaid and other government programs			Contract rebates			Charge- backs			DSA fees, discounts and other			Reserves related to PEPs withdrawal			Total
	(in millions of U.S. dollars)
Balance as at September 30, 2012		19.0			27.5			10.1			4.2			3.8			0.9			65.5
Provisions		1.3			71.8			38.5			52.0			36.0			(0.1	)		199.5
Settlements		(4.9	)		(69.2	)		(39.4	)		(51.7	)		(35.0	)		(0.8	)		(201.0	)

Balance as at September 30, 2013		15.4			30.1			9.2			4.5			4.8			0			64.0

Product returns

We do not provide any form of price protection to our wholesale customers and we generally permit product returns only if the product is returned in the six months prior to and twelve months following its expiration date. Under our policy, credit for returns generally is issued to the original purchaser at current wholesale acquisition cost less 10%.

We estimate the proportion of recorded revenue that will result in a return by considering relevant factors, including:

past product returns activity;

the duration of time taken for products to be returned;

the estimated level of inventory in the distribution channel;

product recalls and discontinuances;

the shelf life of products;

the launch of new drugs or new formulations; and

the loss of patent protection or new competition.

Our estimate of the level of inventory in the distribution channel is based on inventory data provided by wholesalers, retail surveys and third-party prescription data.

Returns for new products are more difficult to estimate than for established products. For shipments made to support the commercial launch of a new product under standard terms, our estimates of sales return accruals are based primarily on the historical sales returns experience of similar products, such as those within the same line of product or those within the same or similar therapeutic category. Once sufficient historical data on actual returns of the product are available, the returns provision is based on this data and any other relevant factors as noted above. In limited circumstances, where the new product is not an extension of an existing product line or where we have no historical experience with products in a similar therapeutic category, such that we cannot reliably estimate expected returns of the new product, we defer recognition of revenue until the right of return no longer exists or until we have developed sufficient historical experience to estimate sales returns. Estimated levels of inventory in the distribution channel and projected demand are also considered for new products.

During the fiscal year ended September 30, 2012 we shipped RECTIV to wholesalers and began promoting this drug to physicians. Because we had limited experience with RECTIV’s indication we did not have the ability to estimate returns for RECTIV. We recognized revenue for RECTIV based upon prescription pull-through until we had enough historical information to estimate returns. Effective May 1, 2013, we discontinued deferring revenue and started to recognize revenue for RECTIV when the product is delivered to the customer. At September 30, 2013 we have applied a similar revenue recognition pattern for ULTRESA and VIOKACE. As of September 30, 2013, the balance of deferred revenue was $1.7 million and is included in accounts payable and accrued liabilities.

The accrual estimation process for product returns involves in each case a number of interrelating assumptions, which vary for each combination of product and customer. Accordingly, it would not be meaningful to quantify the sensitivity to change for any individual assumption or uncertainty. However, we do not believe that the effect of uncertainties, as a whole, significantly impacts our financial condition or results of operations.

The accrued liabilities include reserves of $15.4 million as at September 30, 2013, ($19.0 million as at September 30, 2012) for estimated product returns.

Rebates, chargebacks and other sales deductions

In the United States, we establish and maintain reserves for amounts payable to MCOs, state Medicaid, Managed Medicaid, Medicare Part D and other government programs for the reimbursement of portions of the retail price of prescriptions filled that are covered by these programs. We also establish and maintain reserves for amounts payable to wholesale distributors for the difference between their regular sale price and the contract price for the products sold to our contract customers.

The amounts are recognized as revenue deductions at the time of sale based on our best estimate of the product’s utilization by these managed care and state Medicaid patients and sales to

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our contract customers using historical experience, the timing of payments, the level of reimbursement claims, changes in prices (both normal selling prices and statutory or negotiated prices), changes in prescription demand patterns, and the levels of inventory in the distribution channel.

Amounts payable to MCOs and state Medicaid programs are based on statutory or negotiated discounts to the selling price. Medicaid rebates generally increase as a percentage of the selling price over the life of the product. As it can take up to six months for information to reach us on actual usage of our products in managed care and Medicaid programs and on the total discounts to be reimbursed, we maintain reserves for amounts payable under these programs relating to sold products. We estimate the level of inventory in the distribution channels based on inventory data provided by wholesalers, retail surveys and third-party prescription data.

Revisions or clarification of guidelines related to state Medicaid and other government program reimbursement practices which are meant to apply to prior periods, or retrospectively, can result in changes to management’s estimates of the rebates reported in prior periods. However, since the prices of our products are fixed at the time of sale and the quantum of rebates are therefore reasonably determinable at the outset of each transaction, these factors would not impact the recording of revenues in accordance with generally accepted accounting principles.

The accrual estimation process for MCOs, state Medicaid and other government program rebates involves in each case a number of interrelating assumptions, which vary for each combination of products and programs. Accordingly, it would not be meaningful to quantify the sensitivity to change for any individual assumption or uncertainty. However, we do not believe that the effect of uncertainties, as a whole, significantly impacts our financial condition or results of operations.

Accrued liabilities include reserves of $30.1 million as at September 30, 2013 ($27.5 million as at September 30, 2012) for estimated Medicaid and other government programs, $9.2 million ($10.1 million as at September 30, 2012) for estimated contract rebates and $4.5 million ($4.2 million as at September 30, 2012) for chargebacks.

If the levels of chargebacks, fees pursuant to DSAs, managed care, Medicaid, Managed Medicaid and other government rebates, our portion of the Medicare coverage gap, product returns and discounts fluctuate significantly and/or if our estimates do not adequately reserve for these reductions of net product revenues, our reported revenue could be negatively affected.

Intangible assets and goodwill

Intangible assets with a finite life are amortized over their estimated useful lives mainly according to the straight-line method over periods varying from 4 to 18 years. The straight-line method of amortization is used because it reflects, in the opinion of management, the pattern in which the intangible assets with a finite life are used. In determining the useful life of intangible assets, we consider many factors, including the intention of management to support the asset on a long-term basis by maintaining the level of expenditure necessary to support the asset, the use of the asset, the existence and expiration date of a patent, the existence of a generic version of, or competitor to, the product, and any legal or regulatory provisions that could limit the use of the asset.

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The following table summarizes the changes to the carrying value of the intangible assets and goodwill from September 30, 2012 to September 30, 2013:


	Intangible assets			Goodwill
	(in millions of U.S. dollars)
Balance at October 1, 2012	$	737.4		$	178.3
Depreciation and amortization		(80.8	)		—
Impairment		(71.7	)		—
Foreign exchange translation adjustments		4.3			1.8

Balance at September 30, 2013	$	589.2		$	180.1

Income taxes

Income taxes are calculated using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized to account for the estimated taxes that will result from the recovery or settlement of assets and liabilities recorded at their financial statement carrying amounts. Deferred income tax assets and liabilities are measured based on enacted tax rates and laws at the date of the financial statements for the fiscal years in which the temporary differences are expected to reverse. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to remain unrealized. Adjustments to the deferred income tax asset and liability balances are recognized in net income as they occur.

We conduct business in various countries throughout the world and are subject to tax in numerous jurisdictions. As a result of our business activities, we file a significant number of tax returns that are subject to examination by various federal, state and local tax authorities. Tax examinations are often complex as tax authorities may disagree with the treatment of items reported by us and this may require several years to resolve.

Share-based compensation expense

Our stock-based compensation expense is estimated at the grant date based on an award’s fair value as calculated by the Black-Scholes option-pricing model for service-based options and the Monte Carlo simulation model for performance-based options and is recognized as expense over the requisite service period. The Black-Scholes model and Monte Carlo model require various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the Black-Scholes model and Monte Carlo model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, we estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly. See Note 15 to our consolidated financial statements.

Common Stock Valuation

In the absence of a public trading market, our board of directors, with input from management, determined a reasonable estimate of the then-current fair value of our common stock for purposes of determining fair value of our stock options on the date of grant. With the assistance of a reputable third-party valuation firm, on a quarterly basis, we determined the fair value of our common stock utilizing methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.” Our approach considered contemporaneous common stock valuations in

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determining the equity value of our company using a combination of various methodologies, each of which can be categorized under either of the following two valuation approaches: the income approach and the market approach. In addition, we exercised judgment in evaluating and assessing the foregoing based on several factors including:

the nature and history of our business;

our current and historical operating performance;

our expected future operating performance;

our financial condition at the grant date;

the value of companies we consider peers based on a number of factors, including, but not limited to, similarity to us with respect to industry, business model, stage of growth, intangible value, company size, geographic diversification, profitability, financial risk and other factors;

likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition of our company given prevailing market conditions;

industry information such as market size and growth; and

macroeconomic conditions.

Income approach

The income approach estimates the value of our company based on expected future cash flows discounted to a present value rate of return commensurate with the risks associated with the cash flows, or DCF method. The cash flows utilized in the DCF method have been based on our most recent long-range forecasts available at the time each applicable valuation was performed. The discount rate is intended to reflect the risks inherent in the future cash flows of our Company. Because the cash flows are only projected over a limited number of years, it is also necessary under the income approach to compute a terminal value as of the last period for which discrete cash flows are projected. This terminal value capitalizes the future cash flows beyond the projection period and is determined by calculating the value of a perpetuity of the cash flows associated with the final year of the projections, which for the purpose of our quarterly valuations has consistently been the end of the tenth full projected fiscal year. This amount is then discounted to its present value using a discount rate to arrive at the present value of the terminal value. The discounted projected cash flows and terminal value are totaled to arrive at an indicated aggregate equity value under the income approach. In applying the income approach, we derived the discount rate from an analysis of the cost of capital of our comparable industry peer companies as of each valuation date and adjusted it to reflect the risks inherent in our business cash flows. A range of discount rates from 11.75% to 13.25% have been used in our fiscal year 2012 and fiscal year 2013 quarterly valuations. We then reviewed the valuation multiple implied by the terminal value to assess the reasonableness of the value determined by the perpetuity method.

Market approach

The market approach incorporates various methodologies to estimate the equity value of a company and includes the guideline public company method, which utilizes market multiples of comparable companies that are publicly traded, and the guideline merged and acquired company, or GMAC, method, which utilizes multiples achieved in comparable industry mergers and acquisition transactions.

When considering which companies to include in our comparable industry peer companies, we focused on publicly traded companies in the industry in which we operate and selected comparable industry peer companies and transactions on the basis of operational and economic similarity to our

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business at the time of the valuation. The selection of our comparable industry peer companies requires us to make judgments as to the comparability of these companies to us. We considered a number of factors including the business in which the peer company is engaged, business size, market share, revenue model, product development pipeline and historical operating results. We then analyzed the business and financial profiles of the peer companies for relative similarities to us and, based on this assessment, we selected our comparable industry peer companies. The selection of our comparable peer companies has changed over time as we continue evaluating whether the selected companies remain comparable to us and considering sale transactions. Based on these considerations, we believe the comparable peer companies are a representative group for purposes of selecting sales and EBITDA multiples in the performance of contemporaneous valuations.

For each valuation in fiscal year 2012 and fiscal year 2013, we equally weighted the income and market approaches. We believe the two methods are equally appropriate as they utilize both management’s expectations of future results and an estimate of the market’s valuation of companies similar to ours. Determining fair value requires the exercise of significant judgment, including judgment about risk, appropriate discount rates, the amount and timing of expected future cash flows, as well as the relevant comparable company sales and earnings multiples for the market approach.

Once we determined our enterprise value, we adjusted the value for items such as expected contingent payments and tax items, and then allocated this value between our outstanding debt and common stock. The amount allocated to our outstanding debt is based on the public trading activity of such debt. The residual enterprise value, after allocation of value to outstanding debt, is further reduced by the value of outstanding stock options. The remaining value is then prescribed to our outstanding common stock in order to estimate a per share value.

The following table provides, by grant date, the number of stock options awarded during fiscal year 2012 and fiscal year 2013, the exercise price for each set of grants, the associated estimated fair value of our common stock and the fair value of the option:


Grant Date	Options Granted		Exercise Price		Grant Date Fair Value of Common Stock		Grant Date Fair Value of Option
December 3, 2013 Time-based MEIP options		72,500	$	16.83	$	16.83	$	7.54
December 3, 2013 Premium MEIP options		36,250	$	16.83	$	16.83	$	5.50
December 3, 2013 Performance MEIP options		36,250	$	16.83	$	16.83	$	4.48
March 5, 2013 Time-based MEIP options		17,500	$	20.50	$	20.50	$	4.54
March 5, 2013 Premium MEIP options		8,750	$	20.50	$	20.50	$	3.76
March 5, 2013 Performance MEIP options		8,750	$	20.50	$	20.50	$	5.56
February 8, 2013 Time-based MEIP options		17,500	$	20.50	$	20.50	$	4.54
February 8, 2013 Premium MEIP options		8,750	$	20.50	$	20.50	$	3.76
February 8, 2013 Performance MEIP options		8,750	$	20.50	$	20.50	$	5.56
January 7, 2013 Time-based MEIP options		17,500	$	19.00	$	19.00	$	4.54
January 7, 2013 Premium MEIP options		8,750	$	19.00	$	19.00	$	3.76
January 7, 2013 Performance MEIP options		8,750	$	19.00	$	19.00	$	5.56
December 4, 2012 Time-based MEIP options		10,000	$	19.00	$	19.00	$	3.98
December 4, 2012 Premium MEIP options		5,000	$	19.00	$	19.00	$	2.96
December 4, 2012 Performance MEIP options		5,000	$	19.00	$	19.00	$	4.83
September 11, 2012 Time-based MEIP options		17,500	$	15.00	$	15.00	$	3.98
September 11, 2012 Premium MEIP options		8,750	$	16.50	$	15.00	$	2.96
September 11, 2012 Performance MEIP options		8,750	$	15.00	$	15.00	$	4.83
July 16, 2012 Time-based MEIP options		125,000	$	13.25	$	13.25	$	3.98
July 16, 2012 Premium MEIP options		62,500	$	14.58	$	13.25	$	2.96
July 16, 2012 Performance MEIP options		62,500	$	13.25	$	13.25	$	4.83
May 11, 2012 Time-based MEIP options		80,000	$	13.25	$	13.25	$	3.55
May 11, 2012 Premium MEIP options		40,000	$	14.58	$	13.25	$	2.65
May 11, 2012 Performance MEIP options		40,000	$	13.25	$	13.25	$	4.16
February 9, 2012 Time-based MEIP options		35,000	$	11.25	$	11.25	$	3.46
February 9, 2012 Premium MEIP options		17,500	$	12.38	$	11.25	$	2.75
February 9, 2012 Performance MEIP options		17,500	$	11.25	$	11.25	$	3.24
November 30, 2011 Time-based MEIP options		30,000	$	11.00	$	11.00	$	3.46
November 30, 2011 Premium MEIP options		15,000	$	12.10	$	11.00	$	2.75
November 30, 2011 Performance MEIP options		15,000	$	11.00	$	11.00	$	3.24

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The board of directors and management intended all options granted to be exercisable at a price per share, with the exception of Premium Options, equal to the per share fair value of our common stock underlying those options on the date of grant.

The increase in the grant date fair value of common stock from $11.00 to $15.00 is reflective of the Company exceeding its forecast throughout fiscal year 2012, with a 30.8% increase in Total Revenue and a 53.1% increase in Adjusted EBITDA compared to fiscal year 2011, and a similar improvement in management’s future forecast based on results throughout fiscal year 2012 and improving market conditions. Similarly, the increase in grant date fair value of common stock from $15.00 to $20.50 is reflective of the Company’s improved performance for fiscal year ended September 30, 2013, with a 11.8% increase in Total Revenue and a 28.5% increase in Adjusted EBITDA compared to the preceding fiscal year. In addition, our successful integration of Eurand and the Mpex Transaction, which all occurred in fiscal year 2012, favorably impacted our valuation.

The intrinsic value of options outstanding as at September 30, 2013, is as follows:


	Vested options			Unvested options
	Number of options		Weighted average intrinsic value(1)	Number of options		Weighted average intrinsic value(1)
	(in millions of U.S. dollars, except number of options)
Exercise price
$10.00—$14.00		1,629,900	$		1,685,100	$
$14.01—$18.00		454,000			86,500
$18.01—$20.50		2,750			131,000

		2,086,650	$		1,902,600	$

(1)

The weighted average intrinsic value is calculated by taking the difference of the weighted average of exercise price of the options and the fair value of the underlying common stock, assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus.

Changes in accounting standards

See Note 3 to our consolidated financial statements for the fiscal year ended September 30, 2013 included elsewhere in this prospectus for a description of recently issued accounting standards, including our expected adoption dates and the estimated effects, if any, on our results of operations, financial condition and cash flows.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates and other relevant market rate or price changes. In the ordinary course of business, we are exposed to various market risks, including changes in foreign currency exchange rates, interest rates and equity price changes, and inflation risk due to operations in various countries with different Consumer Price Index growth rates. We regularly evaluate our exposure to such changes. Our overall risk management strategy seeks to balance the magnitude of the exposure and the cost and availability of appropriate financial instruments. From time to time, we have utilized forward exchange contracts to manage our foreign currency exchange rate risk. The following analyses present the sensitivity of our financial instruments to hypothetical changes in interest rates and equity prices that are reasonably possible over a one-year period.

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Foreign Currency Exchange Rates

We operate internationally; however, a substantial portion of revenue and expense activities as well as capital expenditures are transacted in U.S. dollars. Our results of operations are also affected by fluctuations of currencies other than the U.S. dollar, in particular Euros and Canadian dollars. Our exposure to exchange rate fluctuations in these currencies is reduced because, in general, our revenues denominated in currencies other than the U.S. dollar are partially offset by a corresponding amount of costs denominated in the same currency. However, significant long-term fluctuations in relative currency values could have an adverse effect on future profitability.

A 1% change in the value of foreign currencies as compared to the U.S. dollar in which we had sales, income or expense in fiscal year 2013 would have increased or decreased the translation of foreign sales by $1.4 million and income by $0.8 million.

We have used derivative instruments historically to reduce exposure to foreign currency risk. As at September 30, 2013, September 30, 2012 and September 30, 2011, we have no foreign exchange contracts outstanding.

Interest Rates

The primary objective of our investment policy is the protection of capital. Accordingly, investments are made in high-grade government and corporate securities with varying maturities, but typically less than 180 days. Therefore, we do not have a material exposure to interest rate risk on our cash and short-term investments, and a 100 basis-point adverse change in interest rates would not have a material effect on our consolidated results of operations, financial position or cash flows. We are exposed to interest rate risk on borrowings under our credit facilities bearing interest based on LIBOR.

We have entered into derivative financial instruments to manage the exposure from the variable interest rate changes to reduce our overall cost of borrowing. See Note 19, “Derivatives and Hedging Activities,” to our consolidated financial statements.

Derivative financial instruments are measured at fair value and are recognized as assets or liabilities on the balance sheet, with changes in the fair value of the derivatives recognized in either net income (loss) or other comprehensive income (loss), depending on the timing and designated purpose of the derivative. When we pay interest on the portion of the debt designated as hedged, the gain or loss on the swap designated as hedging the interest payment will be reclassified from accumulated other comprehensive income to interest expense. These derivative instruments are designated as cash flow hedges with the related gains or losses recorded in other comprehensive income, with an offsetting amount included in other long-term liabilities. The fair value of the interest rate swaps liability was $11.7 million as at September 30, 2013, compared to $17.3 million as at September 30, 2012, and the fair value of the interest rate cap liability was $0.3 million as at September 30, 2013 compared to $0.5 million as at September 30, 2012. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — October 2013 Recapitalization.”

Inflation

Inflation generally affects us by increasing our cost of labor and clinical trial costs, as well as market prices of the products that we sell. We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the fiscal years ended September 30, 2013, 2012 and 2011.

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JOBS Act

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

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BUSINESS

Our Company

We have built market-leading franchises in CF and GI disorders by growing sales of our products, many of which command a number one or number two position in their respective markets, including ZENPEP, CANASA, CARAFATE, PYLERA and RECTIV. Our revenues are highly diversified, with our largest product accounting for only 21% of our total revenue in fiscal year 2013 and with operations outside the United States accounting for 20% of our total revenue during the same period. The CF and GI markets are each characterized by a concentrated base of high-volume prescribing physicians, which allows our highly efficient and effective sales force of 227 experienced sales specialists, including 155 sales specialists in the United States, to reach substantially all Cystic Fibrosis Foundation care centers and approximately half of the GI physicians in the United States. We have established sales and marketing operations in the United States, Canada, France and Germany and proprietary manufacturing capabilities in North America and Europe. In addition, we have proven product development capabilities and a demonstrated ability to selectively acquire complementary products, product candidates and companies. We believe our pipeline of four clinical product candidates targets major commercial opportunities in the EU and the United States and we have various lifecycle management opportunities for our existing products using the proprietary technology platforms of our Pharmaceutical Technologies, or PT, business.

We have generated double-digit revenue growth since the beginning of fiscal year 2011. This strong performance has been achieved by driving continued growth of our market-leading products and by successfully integrating products and companies, including Eurand N.V., or Eurand. Our total revenue has grown from $470.4 million for fiscal year 2011 to $687.9 million for fiscal year 2013, representing a compound annual growth rate, or CAGR, of 20.9%. Revenue from assets acquired or licensed during this period, including ZENPEP, RECTIV and PT, has grown from $122.0 million in fiscal year 2011 to $244.8 million in fiscal year 2013, while the remainder of our portfolio grew at a CAGR of 12.8%, from $348.4 million in fiscal year 2011 to $443.1 million in fiscal year 2013. We had Adjusted EBITDA of $160.0 million in fiscal year 2011 and $314.6 million in fiscal year 2013, Adjusted pre-tax income of $67.5 million in fiscal year 2011 and $241.4 million in fiscal year 2013, and a net loss of $191.6 million in fiscal year 2011 compared to net income of $86.9 million in fiscal year 2013. Adjusted EBITDA and Adjusted pre-tax income are non-GAAP financial metrics. See “Selected Consolidated Financial and Operating Data” for reconciliations of Adjusted EBITDA to net (loss) income and Adjusted pre-tax income to income (loss) before income tax.

Our Industry

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Insignificant or highly variable absorption into the blood, or bioavailability. Many products in other therapeutic areas act primarily via the drug’s absorption into the blood, leading to the FDA’s requirement that generic entrants demonstrate similar blood levels of drug, or bioequivalence, to gain approval. Because many CF and GI products often show insignificant or highly variable systemic bioavailability, we believe that bioequivalence is often difficult to demonstrate and may not be applicable to the FDA’s generic approval process. Therefore, we believe generic manufacturers will be required to conduct full clinical trials with efficacy and safety endpoints for some products, which will increase the cost and risk of generic development.

GI disorders are generally grouped into four categories: functional disorders of the upper GI tract such as gastroesophageal reflux disease, gastroparesis and functional dyspepsia; functional disorders of the lower GI tract such as constipation and IBS; inflammatory/immunologic GI disorders such as Crohn’s disease, UC, EoE, and celiac disease; and disorders of organs involved in the digestive process, such as the gallbladder, liver and pancreas. While some of these disorders can be treated through currently available pharmacologic interventions, significant unmet needs still exist, particularly for indications such as IBS, Crohn’s disease, UC and other emerging GI-related disease areas such as EoE and auto immune hepatitis. According to a 2011 Business Insight report, the worldwide GI drug market was $38 billion in 2010, with the United States accounting for more than 36% of that total.

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adults and children in the United States and 70,000 patients worldwide, an estimated 85% to 90% of whom suffer from EPI and/or chronic lung infections. The sticky mucus that clogs the lungs can lead to serious lung infections, which are becoming increasingly resistant to current antibiotic standards of care. When CF affects the pancreas, the body does not absorb sufficient nutrients to grow and thrive. There is no cure for most forms of CF, necessitating ongoing treatment for chronic concomitant conditions such as EPI and lung infections. These treatments have contributed to increasing life expectancy for CF patients in the United States from 33 years in 2001 to 37 years in 2011.

Our Competitive Strengths

Aptalis Holdings Inc. S-1