Aralez Pharmaceuticals Inc.

October 28, 2016

Decision

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption granted from requirement to provide audited financial statements of the acquired business in a BAR – it is impracticable to prepare financial statements – filer granted relief to include alternative financial information, comprised of statement of assets acquired and liabilities assumed and statement of operations, as financial statement disclosure for a significant acquisition

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4, 13.1.

National Instrument 44-101 Short Form Prospectus Distributions, s. 8.1.

Form 44-101F1 Short Form Prospectus, s. 10.2.

October 28, 2016

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the “Jurisdiction”)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS

IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

ARALEZ PHARMACEUTICALS INC.

(the “Filer”)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for:

(a) a decision pursuant to section 13.1 of National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”) that the requirement under section 8.4 of NI 51-102 and Item 3 of Form 51-102F4 Business Acquisition Report (“Form 51-102F4”) to provide certain historical financial statements of a business that constitutes a significant acquisition, together with an auditor’s report on such financial statements (collectively, the “Historical Financial Statements”) in a business acquisition report (or any document or series of documents that are furnished to the SEC in connection with a business acquisition containing all of the information, including financial statements, required to be included in a business acquisition report) (a “BAR”) not apply to the Filer in connection with the Acquisition (as defined below); and

(b) a decision pursuant to section 8.1 of National Instrument 44-101 Short Form Prospectus Distributions (“NI 44-101”) that the Historical Financial Statements be included or incorporated by reference in any short form prospectus which the Filer files pursuant to NI 44-101 (a “Prospectus”), as required by Item 10.2(4) of Form 44-101F1 – Short Form Prospectus (“Form 44-101F1”), not apply to the Filer in connection with the Acquisition

(collectively, the “Exemption Sought”).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in Alberta, British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representation

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation incorporated under the Business Corporations Act (British Columbia) and is a reporting issuer or the equivalent thereof in each of the Ontario, Alberta, British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland (the “Jurisdictions”), and to the best of its knowledge, information and belief, is not in default of any requirement of securities legislation applicable in the Jurisdictions.

2. The Filer is an “SEC issuer” as defined in NI 51-102. The Filer is a U.S. domestic issuer and not a “foreign private issuer” within the meaning of Rule 405 under the Securities Exchange Act of 1934 of the United States of America.

3. The common shares of the Filer are listed and posted for trading on the TSX under the symbol “ARZ” and on the NASDAQ Global Market under the symbol “ARLZ”.

4. The Filer’s financial year-end is December 31. The Filer reports in U.S. GAAP and U.S. Dollars.

5. On September 6, 2016, the Filer acquired the U.S. and Canadian rights to Zontivity^® (the “Acquired Assets”) pursuant to an asset purchase agreement (the “Acquisition”) with Merck & Company, Inc. (“Merck”).

6. No employees were transferred to the Filer as part of the Acquisition.

7. The purchase price of the Acquired Assets consists of:

a. a payment of US$25 million by the Filer to Merck, which was made on the closing date;

b. certain milestone payments payable by the Filer subsequent to the closing date upon the occurrence of certain milestone events based on the annual aggregate net sale of Zontivity, any combination product containing vorapazar sulphate and one or more other active pharmaceutical ingredients or any line extension thereof, which in no event will exceed US$80 million in the aggregate; and

c. certain royalty payments based on the annual aggregate net sale of Zontivity, any combination product containing vorapazar sulphate and one or more other active pharmaceutical ingredients or any line extension thereof.

8. Pursuant to the terms of the asset purchase agreement related to the Acquisition, the Filer assumed, among other things, liabilities arising out of or relating to any Zontivity that is manufactured or sold on or after the closing date and Merck retained certain liabilities relating to pre-closing activities.

9. The asset purchase agreement for the Acquisition was executed on the same day as the closing date of the Acquisition, being September 6, 2016 (the “Acquisition Date”).

10. Details of the Acquisition and the asset purchase agreement related to the Acquisition can be found in the Current Report on Form 8-K (News Release) filed on SEDAR by the Filer on September 8, 2016 and a material change report filed on SEDAR by the Filer on September 16, 2016.

11. Pursuant to section 8.3 of NI 51-102 and section 81.(4) of Companion Policy 51-102CP – Continuous Disclosure Obligations (“51-102CP”), the Filer has concluded that the Acquisition constitutes as “significant acquisition” of a “business”. Accordingly the Filer will be required to file a BAR within 75 days of September 6, 2016, being November 20, 2016.

12. In addition, in connection with the filing of any Prospectus following completion of the Acquisition, the Filer would be required to include in any such Prospectus, in accordance with Form 44-101F1 Item 10(4)(a) or (b), financial statements and other information that is required to be included in, or incorporated by reference into, a BAR filed under Part 8 of NI 51-102 or satisfactory alternative financial statements or other information.

13. Section 8.4 of NI 51-102 requires that the Filer include in the BAR the following financial statements for the Acquired Assets:

a. comparative annual financial statements, including:

i. a statement of comprehensive income, a statement of changes in equity and a statement of cash flows for (i) the audited annual period ended December 31, 2015; and (ii) the annual period ended December 31, 2014;

ii. an audited statement of financial position as at December 31, 2015;

iii. a statement of financial position as at December 31, 2014; and

iv. notes to the annual financial statements; and

b. an interim financial report for June 30, 2016 and 2015.

14. Section 8.4(5) requires that the Filer include:

a. a pro forma statement of financial position of the Filer as at the date of the Filer’s most recent statement of financial position filed that gives effect, as if the Acquisition has taken place as at the date of the pro forma statement of financial position, to the Acquisition; and

b. a pro forma income statement that gives effect to significant acquisitions completed since January 1, 2015 (including the Acquisition) for (i) the annual period ended December 31, 2015; and (ii) the most recent interim period of the Filer that ended immediately before September 6, 2016.

15. Section 10.2(4) of Form 44-101F1 requires that, in any Prospectus filed after completion of a significant acquisition for which the Filer has not yet filed a BAR under NI 51-102, the Filer include the financial statements that would be required under NI 51-102, as outlined above, or satisfactory alternative financial statements or other information.

16. Merck has advised the Filer that it did not treat the Acquired Assets as a separate and distinct business or division for accounting purposes, and, as a result, Merck did not prepare or maintain stand-alone financial statements specific to the Acquired Assets.

17. The Filer has been further advised by Merck that it is impracticable to prepare “carve-out” financial statements for the Acquired Assets in accordance with the requirements under section 8.4 of NI 51-102 for the following reasons:

a. Merck has not maintained the distinct and separate accounts necessary to prepare the full financial statements for the Acquired Assets and the Acquired Assets are not accounted for as a separate entity, subsidiary or division of Merck and do not represent a separate legal entity. Accordingly, Merck has informed the Filer that it is unable to prepare carve-out financial statements;

b. the Acquired Assets represented an inconsequential part of the operations of Merck. The estimated revenue of the Acquired Assets for the year ended December 31, 2015 was $2 million, which represents less than 0.01% of Merck’s 2015 total revenue of $39 billion. The Acquired Assets’ estimated asset value represents 0.30% of Merck’s total assets as of December 31, 2015;

c. the Acquired Assets were integrated into other businesses of Merck and did not represent a separate reporting or operating segment of Merck. Due to the nature of the Acquired Assets, which relied on shared infrastructure, Merck is unable to systematically isolate discrete financial information for indirect activities and related balance sheet accounts as they were integrated with other parts of Merck’s business;

d. Merck did not maintain separate sales and marketing or general and administrative support functions (such as finance and accounting, treasury, human resources, public relations, tax, information systems, legal, accounts receivable and accounts payable) for the Acquired Assets;

e. as a result of the integration of Merck’s business with the Acquired Assets, Merck is unable to objectively allocate certain corporate expenses to the Acquired Assets and, as a result, any allocation would be subjective;

f. consistent with the foregoing, Merck’s systems and procedures do not provide sufficient information for the preparation of stand-alone income tax and interest/capital cost provisions for the Acquired Assets, nor was this required for internal, regulatory or tax purposes as the Acquired Assets were not operated as a separate business or legal entity;

g. as a result of the integration of the Acquired Assets in Merck’s business, there is no reasonable basis to allocate interest expense; and

h. separate cash balances were not maintained for the Acquired Assets; instead, cash receipts and disbursements were aggregated with Merck’s other cash activities.

18. The records are insufficiently detailed to extract information specific to the Acquired Assets as would be required to produce the financial statements as set out in Part 8 of NI 51-102 (and, accordingly, Item 10(4)(a) of Form 44-101F1) and, in the Filer’s view, it is impracticable to do so. As a result of the factors set out above, the assumptions and estimates required for the Filer to “carve-out” a complete set of financial statements for the Acquired Assets would by necessity be arbitrary and speculative and undermine the reliability of those statements. Any such statements would not reflect the true nature of the Acquired Assets or be useful to shareholders or investors.

19. The Filer proposes to include the following financial statements in the BAR and in any Prospectus (collectively, the “Abbreviated Financial Statements”):

a. an audited statement of the assets to be acquired and liabilities to be assumed by the Filer as at December 31, 2015 with an audited comparative statement of assets and liabilities as at December 31, 2014 (each, a “Statement of Assets Acquired and Liabilities Assumed”), prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) that:

i. includes all assets acquired and liabilities assumed;

ii. includes a statement that the Statement of Assets Acquired and Liabilities Assumed is prepared using accounting policies that are permitted by U.S. GAAP;

iii. includes a description of the accounting policies used to prepare the Statement of Assets Acquired and Liabilities Assumed; and

iv. includes an auditor’s report that reflects the fact that the Statement of Assets Acquired and Liabilities Assumed was prepared in accordance with the basis of presentation disclosed in the notes to the Statement of Assets Acquired and Liabilities Assumed;

b. an audited statement of the Acquired Assets’ direct revenues and expenses for the year ended December 31, 2015 with an audited comparative statement of direct revenues and expenses for the year ended December 31, 2014 (the “Statement of Direct Revenues and Expenses”). These statements will be prepared in accordance with U.S. GAAP and include direct revenues generated by the Acquired Assets less expenses directly attributable to the Acquired Assets and will include notes to the statements outlining the basis of preparation and assumptions used. The notes will include the assumptions used for any allocated costs (e.g. distribution and certain selling, general and administrative costs) and the nature of any costs excluded (e.g. treasury, tax, legal, information technology, human resources, interest expense and taxes). The Statement of Direct Revenues and Expenses will:

i. include a statement that the operating statements are prepared using accounting policies that are permitted by U.S. GAAP;

ii. include a description of the accounting policies used to prepare the operating statements; and

iii. include an auditor’s report that reflects the fact that the operating statements were prepared in accordance with the basis of presentation disclosed in the notes to the operating statements;

c. an unaudited statement of the assets to be acquired and liabilities to be assumed by the Filer as at June 30, 2016, reporting in a manner consistent with the Statement of Assets Acquired and Liabilities Assumed referred to in paragraph (a) above (the “Interim Statement of Assets Acquired and Liabilities Assumed”), as well as an unaudited statement of the Acquired Assets’ direct revenues and expenses as at June 30, 2016, reporting direct revenues and expenses in a manner consistent with the Statement of Direct Revenues and Expenses referred to in paragraph (b) above (the “Interim Statement of Direct Revenues and Expenses”);

d. a pro forma balance sheet as at June 30, 2016 that includes the Interim Statement of Assets Acquired and Liabilities Assumed (the “Pro Forma Balance Sheet”); and

e. a pro forma income statement for the year ended December 31, 2015 that includes the Filer’s consolidated statements of income and comprehensive income for the year ended December 31, 2015 and a constructed statement of the Acquired Assets’ direct revenues and expenses for the twelve-month period ended December 31, 2015 and a pro forma income statement for the interim period ended June 30, 2016 (the “Pro Forma Operating Statements”).

20. Based on the financial information relating to the Acquired Assets, the Filer believes that it would be impracticable to prepare a statement of cash flows. Likewise, there is not sufficient data to prepare information about the operating, investing and financing cash flows of the Acquired Assets.

21. The Filer believes that the Abbreviated Financial Statements will provide investors with sufficient information material to their understanding of the Acquired Assets.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that the Filer includes the Abbreviated Financial Statements in the BAR and in any Prospectus filed by the Filer that would be required to include or incorporate by reference the Historical Financial Statements.

“Sonny Randhawa”

Deputy Director, Corporate Finance Branch

Ontario Securities Commission