Horizon Pharma plc Reports Strong First-Quarter 2018 Orphan and Rheumatology Net Sales Growth; Increases Full-Year 2018 Guidance and Announces New Company Operating Structure to Enhance Focus on Rare Diseases

Horizon Pharma plc Reports Strong First-Quarter 2018 Orphan and Rheumatology Net Sales Growth; Increases Full-Year 2018 Guidance and Announces New Company Operating Structure to Enhance Focus on Rare Diseases

05/09/18

-- First-Quarter 2018 Orphan and Rheumatology Net Sales of $172.2 Million Increased 11 Percent;
Represented 77 Percent of Total Company Net Sales --

-- First-Quarter 2018 KRYSTEXXA Net Sales Growth of 48 Percent;
Increasing Full-Year 2018 Net Sales Growth Guidance to More Than 65 Percent --

-- 50 Percent of Patients Now Enrolled in Teprotumumab Phase 3 Clinical Trial --

-- Establishing New Operating Structure Effective in Second-Quarter 2018,
With Two Operating Segments:  Orphan and Rheumatology; Primary Care --

-- First-Quarter 2018 Net Sales of $223.9 Million;
First-Quarter 2018 GAAP Net Loss of $157.3 Million; Adjusted EBITDA of $33.6 Million --

-- Increasing Full-Year 2018 Net Sales Guidance Range to $1.170 Billion to $1.200 Billion and
Adjusted EBITDA Guidance Range to $390 Million to $415 Million --

DUBLIN, Ireland, May 09, 2018 (GLOBE NEWSWIRE) -- Horizon Pharma plc (NASDAQ:HZNP) announced its first-quarter 2018 financial results today and increased its full-year 2018 net sales and adjusted EBITDA guidance.  The Company also announced that, effective in the second-quarter 2018, the Company is realigning its operating structure and will report financial results as two separate operating segments: its strategic growth business, orphan and rheumatology; and primary care.  The new operating structure reflects the evolution of the Company’s strategy and vision of transitioning Horizon Pharma to a biopharmaceutical company focused on rare disease medicines. 

“Our orphan and rheumatology medicines represented approximately 77 percent of the Company’s first-quarter net sales and generated double-digit growth driven by 48 percent growth of KRYSTEXXA,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc.  “Our decision to operate orphan and rheumatology separately from primary care marks a pivotal next step in our ongoing strategic transformation to a company focused on rare disease medicines.  We made significant advancements during the first quarter toward our goal, including progress ahead of our expectations in the Phase 3 clinical trial for our key rare disease medicine in development, teprotumumab, which is now 50 percent enrolled.”

Financial Highlights

(in millions except for per share amounts and percentages) Q1 18   Q1 17   %
Change
           
Net sales $ 223.9     $ 220.9     1  
Net loss   (157.3 )     (90.6 )   (74 )
Non-GAAP net income   4.8       35.0     (86 )
Adjusted EBITDA   33.6       51.9     (35 )
           
Net loss per share - diluted   (0.96 )     (0.56 )   (71 )
Non-GAAP earnings per share - diluted   0.03       0.21     (86 )
           


First-Quarter and Recent Company Highlights

  • New Head of R&D and Chief Scientific OfficerShao-Lee Lin, M.D., Ph.D., joined the Company in January 2018 as executive vice president, head of research and development (R&D) and chief scientific officer.  Dr. Lin is an accomplished pharmaceutical executive, physician and scientist with more than 20 years of academic and clinical research experience and will accelerate the development of a robust pipeline to drive the Company’s next phase of growth. 

    “We are committed to establishing Horizon Pharma as a leader in the rare disease space, and one of our goals to support that objective is to enhance the capabilities of our R&D organization,” said Lin.  “We are well on our way, having made several important additions to the organization that expand our development capabilities, support our business development team in evaluating and identifying development-stage opportunities and lead our therapeutic areas from a clinical development strategy and portfolio management perspective.  Enhancing our R&D organization will enable us to maximize our on-market medicines and develop new medicines for patients with unmet needs – and in the case of rare diseases, some of the most significantly underserved patients.”
  • Intellectual Property Update:  The Company recently received two Notices of Allowance from the U.S. Patent and Trademark Office for U.S. patent application numbers 15/457,643 and 15/687,132, both entitled "Methods of Therapeutic Monitoring of Nitrogen Scavenging Drugs" that cover RAVICTI. The U.S. patents scheduled to issue from these applications will expire on Sept. 22, 2030. After issuance, the Company plans to list the U.S. patents in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book.

Research and Development
Orphan Candidates and Programs:

  • Teprotumumab:  The Phase 3 clinical trial for teprotumumab, the Company’s fully human monoclonal antibody IGF-1R-inhibitor in development for the treatment of thyroid eye disease (TED), a rare eye disease, is 50 percent enrolled and is on track for enrollment completion by year end, or earlier.  The pivotal confirmatory study is evaluating teprotumumab for the treatment of moderate-to-severe active TED, which has no FDA-approved treatments.  The Company estimates peak annual U.S. net sales of more than $750 million for teprotumumab, assuming U.S. FDA approval. 

Rheumatology Pipeline Candidates and Programs:

  • Immunomodulation Studies:  The evaluation of the use of immunomodulation therapies to enhance the response rate to KRYSTEXXA is being studied in two investigator-initiated trials, using two different immunomodulators, both of which are commonly used by rheumatologists.  REduCing Immunogenicity to PegloticasE (RECIPE) is a double-blind, placebo controlled trial to evaluate the impact of a 12-week course of immunomodulating therapy with daily doses of mycophenolate mofetil (MMF).  Tolerization Reduces Intolerance to Pegloticase and Prolongs the Urate Lowering Effect (TRIPLE) is an exploratory, open-label adaptive trial with multiple patient cohorts, including a cohort to evaluate the impact of adding daily doses of the immunomodulator azathioprine for a two-week run-in period, followed by KRYSTEXXA every two weeks for a total of 13 doses along with daily doses of azathioprine.
     
  • New Rheumatology Programs:  In January 2018, the Company announced two development programs for next-generation biologics for uncontrolled gout (chronic gout that is refractory to conventional therapies) to support and sustain the Company’s market leadership in uncontrolled gout:  HZN-003 and PASylated uricase technology.  HZN-003 is a pre-clinical, genetically engineered uricase derivative with optimized uricase and optimized PEGylation technology.  PASylated uricase technology may improve the half-life of uricase, and the Company is collaborating with a third party to identify a lead candidate that could use the technology to construct a next-generation gout biologic.  The Company also announced the addition of HZN-002, a pre-clinical, novel dexamethasone conjugate with the potential to address inflammatory diseases through its targeted delivery technology. 

New Operating Structure Aligned with Long-term Strategy

Given the Company’s focus on rare disease medicines, effective in the second quarter of 2018, the Company is realigning its structure to operate its strategic growth business, orphan and rheumatology, separate from its primary care business.  The new structure allows the Company to more efficiently allocate its resources to address unmet treatment needs for patients with rare diseases. 

As part of the new operating structure, the Company has realigned its commercial operations under a new leadership position, executive vice president and chief commercial officer, and recently promoted Vikram Karnani to that role.  Karnani was most recently senior vice president, rheumatology business unit, leading the successful growth to date of KRYSTEXXA.  In addition, aligned with the new operating structure, the Company is adding critical R&D leadership roles to support the orphan and rheumatology segment, including recently hired clinical development heads for both of these therapeutic areas.

As a result of these changes, in the second quarter of 2018, the Company will begin reporting its financial results as two separate operating segments:  the orphan and rheumatology segment, the Company’s strategic rare disease-focused business and the primary care segment, reporting net sales and operating income for each segment. 

First-Quarter 2018 Total Company Financial Results

Note:  For additional detail and reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, please refer to the tables at the end of this release.

  • Total Net Sales:  First-quarter net sales were $223.9 million, an increase of 1.4 percent, driven by continued strong growth of the Company’s orphan and rheumatology medicines.  Net sales of $220.9 million in the first quarter of 2017 included PROCYSBI and QUINSAIR net sales of $4.9 million in Europe, the Middle East and Africa (EMEA) regions.  The EMEA marketing rights to PROCYSBI and QUINSAIR were divested in June 2017.  Excluding the 2017 EMEA net sales of PROCYSBI and QUINSAIR, year-over-year growth would have been 3.7 percent. 
     
  • Gross Profit:  Under U.S. GAAP in the first quarter of 2018, the gross profit ratio was 48.1 percent compared to 37.0 percent in the first quarter of 2017.  The non-GAAP gross profit ratio in the first quarter of 2018 was 87.0 percent compared to 88.5 percent in the first quarter of 2017.
     
  • Operating Expenses:  R&D expenses were 7.9 percent of net sales; and selling, general and administrative (SG&A) expenses were 80.2 percent of net sales.  Non-GAAP R&D expenses were 6.8 percent of net sales, and non-GAAP SG&A expenses were 65.2 percent of net sales.
  • Income Tax Rate:  The income tax rate in the first quarter of 2018 on a GAAP basis was 0.2 percent and on a non-GAAP basis was 44.5 percent. 
     
  • Net (Loss) Income:  On a GAAP basis in the first quarter of 2018, net loss was $157.3 million.  First-quarter 2018 non-GAAP net income was $4.8 million.
     
  • Adjusted EBITDA:  In the first quarter of 2018, adjusted EBITDA was $33.6 million.
     
  • Earnings (Loss) per Share:  On a GAAP basis in the first quarter of 2018, diluted loss per share was $0.96; in the first quarter of 2017, diluted loss per share was $0.56.  Non-GAAP diluted earnings per share in the first quarter of 2018 and 2017 were $0.03 and $0.21, respectively.  Weighted average shares outstanding used for calculating GAAP diluted loss per share and non-GAAP diluted earnings per share in the first quarter of 2018 were 164.5 million and 167.8 million, respectively.

First-Quarter Orphan and Rheumatology Net Sales

(in millions except for percentages) Q1 18   Q1 17   %
Change
             
Orphan $    114.7   $    112.5   2  
RAVICTI®   49.1     43.9   12  
PROCYSBI®(1)     34.9     34.3   2  
ACTIMMUNE®   24.9     26.2   (5 )
BUPHENYL®     5.7     6.3   (9 )
QUINSAIRTM(1)     0.1     1.8   (93 )
Rheumatology     57.5       42.8   35  
KRYSTEXXA®   46.7     31.6   48  
RAYOS®   10.7     10.3   4  
LODOTRA®   0.1     0.9   (87 )
Orphan and Rheumatology Net Sales $    172.2   $    155.3   11  
             
(1)  On June 23, 2017, Horizon Pharma completed the divestiture of a European subsidiary that owned the marketing rights to PROCYSBI and QUINSAIR in Europe, the Middle East and Africa to Chiesi Farmaceutici S.p.A.  Horizon Pharma retains marketing rights for the two medicines in the United States, Canada, Latin America and Asia.
  • Combined first-quarter 2018 net sales of orphan and rheumatology medicines of $172.2 million increased 11 percent, driven by continued strong KRYSTEXXA vial growth, as well as growth of RAVICTI and PROCYSBI.  Combined first-quarter 2017 net sales of orphan and rheumatology medicines of $155.3 million included EMEA net sales of PROCYSBI and QUINSAIR, which were divested in June 2017, of $4.9 million. Excluding the 2017 EMEA net sales of PROCYSBI and QUINSAIR from combined orphan and rheumatology net sales, year-over-year growth would have been 15 percent. 

First-Quarter Primary Care Net Sales

(in millions except for percentages) Q1 18   Q1 17   %
Change
             
Primary Care          
PENNSAID® 2% 26.8   41.6   (36 )
DUEXIS® 15.7   17.7   (12 )
VIMOVO® 8.4   4.9   72  
MIGERGOT® 0.8   1.4   (47 )
Primary Care Net Sales   51.7     65.6   (21 )
  • First-quarter 2018 net sales of primary care medicines were $51.7 million, negatively impacted by seasonality, to a somewhat greater degree than originally anticipated.  First-quarter net sales also included a negative $14 million impact from an additional accrual for medicines in the wholesale and retail channel following the Company's price action.  Excluding the additional accrual, which did not occur in first-quarter 2017, first-quarter 2018 primary care net sales on a pro-forma basis were similar to first-quarter 2017, reflecting the stability of this business.

Cash Flow Statement and Balance Sheet Highlights

  • On a GAAP basis in the first quarter of 2018, operating cash flow was negative $60.8 million. Non-GAAP operating cash flow was negative $52.7 million in the first quarter of 2018, as expected.  GAAP and non-GAAP operating cash flow in the first quarter of 2017 included a significant one-time working capital benefit associated with the implementation of managed care contracts for certain primary care medicines.
  • The Company had cash and cash equivalents of $674.3 million as of March 31, 2018.
     
  • As of March 31, 2018, the total principal amount of debt outstanding was $2.019 billion, which comprised $844 million in senior secured term loans due 2024; $300 million senior notes due 2024; $475 million senior notes due 2023; and $400 million exchangeable senior notes due 2022.  As of March 31, 2018, net debt was $1.344 billion. 

Full-Year 2018 Guidance

The Company now expects full-year 2018 net sales guidance of $1.170 billion to $1.200 billion, an increase from the previous range of $1.150 billion to $1.180 billion.  Full-year 2018 adjusted EBITDA is now expected to be $390 million to $415 million, an increase from the previous range of $370 million to $395 million.  Company guidance now assumes a delay in the implementation of a U.S. government rule related to 340B entity drug pricing to July 1, 2019, following the U.S. Department of Health and Human Services’ proposal to delay the effective date to that date.  As a result, the Company now expects full-year 2018 net sales growth for KRYSTEXXA of more than 65 percent.

Webcast

At 8 a.m. EST / 1 p.m. IST today, the Company will host a live webcast to review its financial and operating results and provide a general business update.  The live webcast and a replay may be accessed at http://ir.horizon-pharma.com.  Please connect to the Company's website at least 15 minutes prior to the live webcast to ensure adequate time for any software download that may be needed to access the webcast.  A replay of the webcast will be available approximately two hours after the live webcast.

About Horizon Pharma plc
Horizon Pharma plc is focused on researching, developing and commercializing innovative medicines that address unmet treatment needs for rare and rheumatic diseases.  By fostering a growing pipeline of medicines in development and exploring all potential uses for currently marketed medicines, we strive to make a powerful difference for patients, their caregivers and physicians.  For us, it’s personal:  by living up to our own potential, we are helping others live up to theirs.  For more information, please visit www.horizonpharma.com.  Follow @HZNPplc on Twitter, like us on Facebook or explore career opportunities on LinkedIn.

Note Regarding Use of Non-GAAP Financial Measures
EBITDA, or earnings before interest, taxes, depreciation and amortization, and adjusted EBITDA are used and provided by Horizon Pharma as non-GAAP financial measures.  Horizon Pharma provides certain other financial measures such as non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross profit and gross profit ratio, non-GAAP operating expenses, non-GAAP tax rate and non-GAAP operating cash flow, each of which include adjustments to GAAP figures.  These non-GAAP measures are intended to provide additional information on Horizon Pharma’s performance, operations, expenses, profitability and cash flows.  Adjustments to Horizon Pharma's GAAP figures as well as EBITDA exclude acquisition and/or divestiture-related expenses, charges related to the discontinuation of ACTIMMUNE development for Friedreich’s ataxia, gain from divestiture, an upfront fee for a license of a patent, a litigation settlement, loss on debt extinguishment, costs of debt refinancing, drug manufacturing harmonization costs, restructuring and realignment costs, as well as non-cash items such as share-based compensation, depreciation and amortization, royalty accretion, non-cash interest expense, long-lived asset impairment charges, impacts of contingent royalty liability remeasurements and other non-cash adjustments.  Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred.  Horizon maintains an established non-GAAP cost policy that guides the determination of what costs will be excluded in non-GAAP measures.  Horizon Pharma believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Horizon Pharma's financial and operating performance.  The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of the Company’s historical and expected 2018 financial results and trends and to facilitate comparisons between periods and with respect to projected information.  In addition, these non-GAAP financial measures are among the indicators Horizon Pharma's management uses for planning and forecasting purposes and measuring the Company's performance.  For example, adjusted EBITDA is used by Horizon Pharma as one measure of management performance under certain incentive compensation arrangements.  These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.  The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies.  Horizon Pharma has not provided a reconciliation of its full-year 2018 adjusted EBITDA outlook to an expected net income (loss) outlook because certain items such as acquisition/divestiture-related expenses and share-based compensation that are a component of net income (loss) cannot be reasonably projected due to the significant impact of changes in Horizon Pharma's stock price, the variability associated with the size or timing of acquisitions/divestitures and other factors.  These components of net income (loss) could significantly impact Horizon Pharma’s actual net income (loss).   

Forward-Looking Statements
This press release contains forward-looking statements, including, but not limited to, statements related to Horizon Pharma's full-year 2018 net sales and adjusted EBITDA guidance, expected growth of certain medicines, estimated peak annual net sales of certain of Horizon Pharma’s medicines and pipeline candidates, expected financial performance in future periods, expected timing and scope of clinical trials, including the Phase 3 clinical trial of teprotumumab, expected increases in investment in Horizon Pharma’s rare disease medicine pipeline and the impact thereof, expected enhancements to Horizon Pharma’s R&D function, potential market opportunity for Horizon Pharma’s medicines in approved and potential additional indications, and business and other statements that are not historical facts.  These forward-looking statements are based on Horizon Pharma's current expectations and inherently involve significant risks and uncertainties.  Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks that Horizon Pharma’s actual future financial and operating results may differ from its expectations or goals; Horizon Pharma’s ability to grow net sales from existing products; the availability of coverage and adequate reimbursement and pricing from government and third-party payers and risks relating to Horizon Pharma’s ability to successfully implement its business strategies; risks inherent in developing novel medicine candidates, such as teprotumumab, and existing medicines for new indications; risks related to acquisition integration and achieving projected benefits; risks associated with regulatory approvals; risks in the ability to recruit, train and retain qualified personnel; competition, including potential generic competition; the ability to protect intellectual property and defend patents; regulatory obligations and oversight, including any changes in the legal and regulatory environment in which Horizon Pharma operates and those risks detailed from time-to-time under the caption "Risk Factors" and elsewhere in Horizon Pharma's filings and reports with the SEC.  Horizon Pharma undertakes no duty or obligation to update any forward-looking statements contained in this press release as a result of new information.

Contacts:  
   
Investors:    U.S. Media:
Tina Ventura  Geoff Curtis
Senior Vice President,  Senior Vice President,
Investor Relations Corporate Affairs & Chief Communications Officer
investor-relations@horizonpharma.com media@horizonpharma.com 
   
Ruth Venning Ireland Media:
Executive Director,  Ray Gordon
Investor Relations Gordon MRM
investor-relations@horizonpharma.com ray@gordonmrm.ie

 

Horizon Pharma plc
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
         
    Three Months Ended March 31, 
      2018       2017  
     
Net Sales   $ 223,881     $ 220,859  
Cost of goods sold     116,092       139,116  
Gross profit     107,789       81,743  
         
OPERATING EXPENSES:        
Research and development     17,645       13,061  
Selling, general and administrative     179,599       174,065  
Impairment of long-lived asset     37,853       -  
Total operating expenses     235,097       187,126  
Operating loss     (127,308 )     (105,383 )
         
OTHER EXPENSE, NET:        
Interest expense, net     (30,454 )     (31,983 )
Foreign exchange loss     (110 )     (259 )
Loss on debt extinguishment     -       (533 )
Other income, net     178       35  
Total other expense, net     (30,386 )     (32,740 )
         
Loss before benefit for income taxes     (157,694 )     (138,123 )
Benefit for income taxes     (367 )     (47,553 )
Net loss   $ (157,327 )   $ (90,570 )
         
Net loss per ordinary share - basic and diluted   $ (0.96 )   $ (0.56 )
         
Weighted average ordinary shares outstanding - basic and diluted     164,549,502       161,972,052  
         

 

Horizon Pharma plc
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
         
         
    As of
    March 31,
2018
  December 31,
2017
ASSETS    
CURRENT ASSETS:        
Cash and cash equivalents   $ 674,330     $ 751,368  
Restricted cash     6,390       6,529  
Accounts receivable, net     404,208       405,214  
Inventories, net     47,365       61,655  
Prepaid expenses and other current assets     52,805       43,402  
Total current assets     1,185,098       1,268,168  
Property and equipment, net     19,488       20,405  
Developed technology, net     2,338,942       2,443,949  
Other intangible assets, net     5,241       5,441  
Goodwill     426,441       426,441  
Deferred tax assets, net     859       3,470  
Other assets     26,776       36,081  
Total assets   $ 4,002,845     $ 4,203,955  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Long-term debt—current portion   $ 38,446     $ 10,625  
Accounts payable     41,271       34,681  
Accrued expenses     180,448       175,697  
Accrued trade discounts and rebates     429,701       501,753  
Accrued royalties—current portion     65,534       65,328  
Deferred revenues—current portion     3,812       6,885  
Total current liabilities     759,212       794,969  
         
LONG-TERM LIABILITIES:        
Exchangeable notes, net     318,669       314,384  
Long-term debt, net, net of current     1,547,912       1,576,646  
Accrued royalties, net of current     291,456       291,185  
Deferred revenues, net of current     -       9,713  
Deferred tax liabilities, net     157,472       157,945  
Other long-term liabilities     67,029       68,015  
Total long-term liabilities     2,382,538       2,417,888  
         
COMMITMENTS AND CONTINGENCIES        
SHAREHOLDERS' EQUITY:        
Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized;        
165,359,893 and 164,785,083  shares issued at March 31, 2018 and        
December 31, 2017, respectively, and 164,975,527 and 164,400,717 shares        
outstanding at March 31, 2018 and December 31, 2017, respectively     17       16  
Treasury stock, 384,366 ordinary shares at March 31, 2018 and December 31, 2017     (4,585 )     (4,585 )
Additional paid-in capital     2,274,254       2,248,979  
Accumulated other comprehensive loss     (520 )     (983 )
Accumulated deficit     (1,408,071 )     (1,252,329 )
Total shareholders' equity     861,095       991,098  
Total liabilities and shareholders' equity   $ 4,002,845     $ 4,203,955  
         

 

Horizon Pharma plc
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
         
     
    Three Months Ended March 31, 
      2018       2017  
     
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (157,327 )   $ (90,570 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities        
Depreciation and amortization expense     68,907       71,483  
Equity-settled share-based compensation     27,833       28,837  
Royalty accretion     14,718       12,959  
Royalty liability remeasurement     (2,151 )     (2,944 )
Impairment of long-lived asset     37,853       -  
Amortization of debt discount and deferred financing costs     5,496       5,423  
Deferred income taxes     1,680       (47,695 )
Loss on debt extinguishment     -       533  
Foreign exchange and other adjustments     (120 )     787  
Changes in operating assets and liabilities:        
Accounts receivable     1,064       (94,377 )
Inventories     14,290       37,050  
Prepaid expenses and other current assets     (9,805 )     (2,445 )
Accounts payable     6,528       36,078  
Accrued trade discounts and rebates     (72,120 )     116,079  
Accrued expenses and accrued royalties     4,454       (46,040 )
Deferred revenues     (1,484 )     (618 )
Other non-current assets and liabilities     (627 )     266  
Net cash (used in) provided by operating activities     (60,811 )     24,806  
CASH FLOWS FROM INVESTING ACTIVITIES:        
Payment related to license agreement     (12,000 )     -  
Purchases of property and equipment     (665 )     (1,423 )
Net cash used in investing activities     (12,665 )     (1,423 )
CASH FLOW FROM FINANCING ACTIVITIES:        
Repayment of term loans     (2,125 )     (772,750 )
Net proceeds from term loans     -       847,768  
Proceeds (refunds) related to the ESPP plan     14       (173 )
Proceeds from the issuance of ordinary shares in connection with stock option exercises     945       544  
Payment of employee withholding taxes relating to share-based awards     (3,517 )     (4,277 )
Net cash (used in) provided by financing activities     (4,683 )     71,112  
         
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash     982       (298 )
         
Net (decrease) increase in cash, cash equivalents and restricted cash     (77,177 )     94,197  
Cash, cash equivalents and restricted cash, beginning of the period(1)     757,897       516,150  
Cash, cash equivalents and restricted cash, end of the period(1)   $    680,720     $    610,347  
         
(1) Amounts include restricted cash balance in accordance with ASU No. 2016-18.

 

Horizon Pharma plc
GAAP to Non-GAAP Reconciliations
Net Income and Earnings Per Share (Unaudited)
(in thousands, except share and per share data)
         
         
    Three Months Ended March 31, 
      2018       2017  
     
         
GAAP net loss   $    (157,327 )   $    (90,570 )
Non-GAAP adjustments:        
Impairment of long-lived asset     37,853       -  
Remeasurement of royalties for medicines acquired through business combinations     (2,151 )     (2,944 )
Acquisition/divestiture-related costs     3,911       10,039  
Restructuring and realignment costs     3,342       -  
Amortization, accretion and step-up:        
Intangible amortization expense     67,355       69,677  
Accretion of royalty liabilities     14,719       12,959  
Amortization of debt discount and deferred financing costs     5,496       5,423  
Inventory step-up expense     17,076       40,595  
Share-based compensation     27,833       28,469  
Depreciation expense     1,552       1,806  
Charges relating to discontinuation of Friedreich's ataxia program     950       -  
Drug substance harmonization costs     804       4,299  
Upfront and milestone payments related to license agreements     90       -  
Fees related to term loan refinancings     27       4,143  
Loss on debt extinguishment     -       533  
Royalties for medicines acquired through business combinations     (12,521 )     (11,317 )
Total of pre-tax non-GAAP adjustments     166,336       163,682  
Income tax effect of pre-tax non-GAAP adjustments     31,683       (38,103 )
Other non-GAAP income tax adjustments     (35,893 )     -  
Total of non-GAAP adjustments     162,126       125,579  
Non-GAAP Net Income   $    4,799     $    35,009  
         
Non-GAAP Earnings Per Share:        
         
Weighted average shares - Basic       164,549,502         161,972,052  
         
Non-GAAP Earnings Per Share - Basic:        
GAAP loss per share - Basic       (0.96 )       (0.56 )
Non-GAAP adjustments     0.99       0.78  
Non-GAAP earnings per share - Basic       0.03         0.22  
         
         
Weighted average shares - Diluted        
Weighted average shares - Basic     164,549,502       161,972,052  
Ordinary share equivalents     3,201,430       2,895,016  
Weighted average shares - Diluted       167,750,932         164,867,068  
         
         
Non-GAAP Earnings Per Share - Diluted        
GAAP loss per share - Diluted       (0.96 )       (0.56 )
Non-GAAP adjustments     0.99       0.78  
Diluted earnings per share effect of ordinary share equivalents     -       (0.01 )
Non-GAAP earnings per share - Diluted       0.03         0.21  
         

 

               
Horizon Pharma plc
GAAP to Non-GAAP Reconciliations
EBITDA, Gross Profit and Operating Cash Flow (Unaudited)
(in thousands, except percentages)
               
               
          Three Months Ended March 31,   
          2018   2017
               
EBITDA and Adjusted EBITDA:        
               
  GAAP net loss   $    (157,327 )   $    (90,570 )
  Depreciation       1,552         1,806  
  Amortization, accretion and step-up:          
    Intangible amortization expense        67,355         69,677  
    Accretion of royalty liabilities         14,719         12,959  
    Amortization of deferred revenue         -          (204 )
    Inventory step-up expense         17,076         40,595  
  Interest expense, net (including amortization of          
    debt discount and deferred financing costs)         30,454         31,983  
  Benefit for income taxes         (367 )       (47,553 )
  EBITDA     $    (26,538 )   $    18,693  
  Other non-GAAP adjustments:          
    Impairment of long-lived asset       37,853         -   
    Remeasurement of royalties for medicines acquired through business combinations       (2,151 )       (2,944 )
    Acquisition/divestiture-related costs         3,911         10,039  
    Restructuring and realignment costs         3,342         -   
    Share-based compensation         27,833         28,469  
    Charges relating to discontinuation of Friedreich's ataxia program       950         -   
    Drug substance harmonization costs         804         4,299  
    Upfront and milestone payments related to license agreements       90         -   
    Fees related to term loan refinancing         27         4,143  
    Loss on debt extinguishment          -          533  
    Royalties for medicines acquired through business combinations       (12,521 )       (11,317 )
  Total of other non-GAAP adjustments         60,138         33,222  
  Adjusted EBITDA     $    33,600     $    51,915  
               
  GAAP gross profit     $    107,789     $    81,743  
  Non-GAAP gross profit adjustments:          
    Acquisition/divestiture-related costs         19         80  
    Share-based compensation         783         428  
    Remeasurement of royalties for medicines acquired through business combinations         (2,151 )       (2,944 )
    Intangible amortization expense          67,155         69,474  
    Accretion of royalty liabilities         14,719         12,959  
    Inventory step-up expense         17,076         40,595  
    Depreciation         176         183  
    Charges relating to discontinuation of Friedreich's ataxia program       950         -   
    Drug substance harmonization costs         804         4,299  
    Royalties for medicines acquired through business combinations         (12,521 )       (11,317 )
  Total of Non-GAAP adjustments         87,010         113,757  
  Non-GAAP gross profit      $    194,799     $    195,500  
               
  GAAP gross profit %       48.1 %     37.0 %
  Non-GAAP gross profit %       87.0 %     88.5 %
               
               
Non-GAAP operating cash flow:          
  GAAP cash provided by operating activities     $    (60,811 )   $    24,806  
    Cash payments for acquisition/divestiture-related costs         3,958         20,392  
    Cash payment for litigation settlement         -          16,250  
    Cash payments for upfront and milestone payments related to licence agreement         275         -   
    Cash payments for charges relating to clinical trial wind-down costs         3,399         482  
    Cash payments relating to term loan refinancing         18         3,312  
    Cash payments for restructuring and realignment costs         447         -   
  Non-GAAP operating cash flow     $    (52,714 )   $    65,242  
               

 

Horizon Pharma plc
GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)
(in millions, except percentages)
           
           
  Q1 2018
  Pre-tax Net
(Loss) Income
 Income Tax
(Benefit) Expense
 
Tax Rate Net (Loss)
Income
Diluted (Loss)
Earnings Per Share
As reported - GAAP $ (157.7 ) $ (0.4 ) 0.2 % $ (157.2 ) $ (0.96 )
Non-GAAP adjustments   166.3     4.2       162.1    
Non-GAAP $ 8.6   $ 3.8   44.5 % $ 4.9   $ 0.03  
           
           
  Q1 2017
  Pre-tax Net
(Loss) Income
 Income Tax
(Benefit) Expense
 
Tax Rate Net (Loss)
Income
Diluted (Loss)
Earnings Per Share
As reported - GAAP $ (138.1 ) $ (47.6 ) 34.4 % $ (90.6 ) $ (0.56 )
Non-GAAP adjustments   163.7     38.1       125.7    
Non-GAAP $ 25.6   $ (9.4 ) (37.0 )% $ 35.0   $ 0.21  
           

  

Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended March 31, 2018 
(in thousands) (Unaudited)
             
             
             Income Tax 
     Research &   Selling, General   Impairment of   Interest   Benefit 
   COGS   Development   & Administrative   long lived asset   Expense   (Expense) 
             
GAAP as reported $   (116,092 ) $   (17,645 ) $   (179,599 ) $   (37,853 ) $   (30,454 ) $   367  
             
Non-GAAP Adjustments (in thousands):            
Impairment of long-lived asset(1)     -        -        -        37,853       -        -   
Remeasurement of royalties for medicines acquired through business combinations(2)     (2,151 )     -        -        -        -        -   
Acquisition/divestiture-related costs(3)     19       (85 )     3,977       -        -        -   
Restructuring and realignment costs (4)     -        -        3,342       -        -        -   
Amortization, accretion and step-up:            
Intangible amortization expense(5)     67,155       -        200       -        -        -   
Amortization of debt discount and deferred financing costs(6)     -        -        -        -        5,496       -   
Accretion of royalty liability(7)     14,719       -        -        -        -        -   
Inventory step-up expense(8)     17,076       -        -        -        -        -   
Share-based compensation(9)     783       2,440       24,610       -        -        -   
Depreciation expense(10)     176       -        1,376       -        -        -   
Drug substance harmonization costs (11)     804       -        -        -        -        -   
Upfront and milestone payments related to license agreements(12)     -        90       -        -        -        -   
 Fees related to term loan refinancing (13)     -        -        27       -        -        -   
Charges relating to discontinuation of Friedreich's ataxia program (14)      950       -        -        -        -        -   
Royalties for medicines acquired through business combinations(15)     (12,521 )     -        -        -        -        -   
Income tax effect on pre-tax non-GAAP adjustments(16)     -        -        -        -        -        31,683  
Other non-GAAP income adjustments(17)     -        -        -        -        -        (35,893 )
Total of non-GAAP adjustments     87,010       2,445       33,532       37,853       5,496       (4,210 )
             
Non-GAAP $   (29,082 ) $   (15,200 ) $   (146,067 ) $   -    $   (24,958 ) $   (3,843 )
             
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended March 31, 2017 
(in thousands) (Unaudited)
             
             
             Income Tax 
     Research &   Selling, General   Interest   Loss on Debt   Benefit 
   COGS   Development   & Administrative   Expense   Extinguishment   (Expense) 
             
GAAP as reported $   (139,116 ) $   (13,061 ) $   (174,065 ) $   (31,983 ) $   (533 ) $   47,553  
             
             
Acquisition/divestiture-related costs(3)     80       177       9,782       -        -        -   
Amortization, accretion and step-up:            
Intangible amortization expense(5)     69,474       -        203       -        -        -   
Amortization of debt discount and deferred financing costs(6)     -        -        -        5,423       -        -   
Accretion of royalty liability(7)     12,959       -        -        -        -        -   
Inventory step-up expense(8)     40,595       -        -        -        -        -   
Share-based compensation(9)     428       2,049       25,992       -        -        -   
Depreciation expense(10)     183       -        1,623       -        -        -   
Drug substance harmonization costs (11)     4,299       -        -        -        -        -   
Remeasurement of royalties for medicines acquired through business combinations(2)     (2,944 )     -        -        -        -        -   
Fees related to term loan refinancing (13)      -        -        4,143       -        -        -   
Loss on debt extinguishment(18)     -        -        -        -        533       -   
Royalties for medicines acquired through business combinations(15)     (11,317 )     -        -        -        -        -   
Income tax effect on pre-tax non-GAAP adjustments(16)     -        -        -        -        -        (38,103 )
Total of non-GAAP adjustments     113,757       2,226       41,743       5,423       533       (38,103 )
             
Non-GAAP $   (25,359 ) $   (10,835 ) $   (132,322 ) $   (26,560 ) $   -    $   9,450  
             

 

NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS - NON-GAAP

  1. During the three months ended March 31, 2018, the Company recorded an impairment of $37.9 million to write off the book value of developed technology related to PROCYSBI in Canada and Latin America due to lower than anticipated future net sales.
     
  2. At the time of the Company's acquisition of the rights to ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, RAVICTI and VIMOVO, the Company estimated the fair value of contingent royalties payable to third parties using an income approach under the discounted cash flow method, which included revenue projections and other assumptions the Company made to determine the fair value.  If the Company significantly overperforms or underperforms against its original revenue projections or it becomes necessary to make changes to assumptions as a result of a triggering event, the Company is required to reassess the fair value of the contingent royalties payable.  Any subsequent adjustment to fair value is recorded in the period such adjustment is made as either an increase or decrease to royalties payable, with a corresponding increase or decrease in cost of goods sold, in accordance with established accounting policies.  The Company recorded net decreases of $2.2 million and $2.9 million to cost of goods sold to adjust the amount of the contingent royalty liabilities relating to PROCYSBI during the first quarter of 2018, and to KRYSTEXXA and VIMOVO during the first quarter of 2017, respectively.
     
  3. Expenses, including legal and consulting fees, incurred in connection with the Company’s acquisitions and divestitures have been excluded.
     
  4. Represents expenses, including severance costs and consulting fees, related to the restructuring and realignment activities.
     
  5. Intangible amortization expenses are associated with the Company’s intellectual property rights, developed technology and customer relationships of ACTIMMUNE, BUPHENYL, KRYSTEXXA, LODOTRA, MIGERGOT, PENNSAID 2%, PROCYSBI, RAVICTI, RAYOS and VIMOVO.
     
  6. Represents amortization of debt discount and deferred financing costs associated with the Company's debt.
     
  7. Represents accretion expense associated with the ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO contingent royalty liabilities.
     
  8. During the three months ended March 31, 2018, the Company recognized in cost of goods sold, $17.1 million for inventory step-up expense, primarily related to KRYSTEXXA inventory sold.

    During the three months ended March 31, 2017, the Company recognized in cost of goods sold, $14.4 million for inventory step-up expense related to KRYSTEXXA inventory sold and $26.1 million for inventory step-up expense related to PROCYSBI and QUINSAIR inventory sold.
  1. Represents share-based compensation expense associated with the Company's stock option, restricted stock unit and performance stock unit grants to its employees and non-employees, its cash-settled long-term incentive plan and its employee stock purchase plan.
     
  2. Represents depreciation expense related to the Company’s property, equipment, software and leasehold improvements.
     
  3. During the year ended December 31, 2016, the Company committed to spend $14.9 million related to the harmonization of the manufacturing processes for ACTIMMUNE and IMUKIN drug substance.  During the three months ended March 31, 2018, the Company incurred costs of $0.8 million related to these activities that qualify for exclusion in the Company’s non-GAAP financial measures under its non-GAAP cost policy.
     
  4. Represents upfront and milestone payments related to license agreements.
     
  5. Represents arrangement and other fees relating to the refinancing of the Company’s term loans during the first quarter 2018.
     
  6. During the three months ended March 31, 2018, charges relating to discontinuation of the Friedreich’s ataxia program include a $1.0 million increase in cost of goods sold relating to the purchase of additional units of ACTIMMUNE.
     
  7. Royalties of $12.5 million were incurred during the three months ended March 31, 2018, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO. 
     
  8. Income tax adjustments on pre-tax non-GAAP adjustments represent the estimated income tax impact of each pre-tax non-GAAP adjustment based on the statutory income tax rate of the applicable jurisdictions for each non-GAAP adjustment.
     
  9. Other non-GAAP income tax adjustments during the three months ended March 31, 2018 reflect a measurement period adjustment relating to Notice 2018-28 that was issued by the U.S. Treasury Department and the U.S. Internal Revenue Service in April 2018 (“the notice”).  In accordance with the measurement period provisions under SAB 118 and the guidance in the notice the Company reinstated the deferred tax asset related to its U.S. interest expense carryforwards under Section 163(j) based on the new U.S. federal tax rate of 21 percent.  The impact of the deferred tax asset reinstatement in accordance with SAB 118 was a $35.9 million increase to the Company’s benefit for income taxes and a corresponding decrease to the U.S. group net deferred tax liability position.
     
  10. During the three months ended March 31, 2017, the Company recorded a loss on debt extinguishment of $0.5 million, comprised the write-off of $0.4 million in debt discount and deferred financing costs, and an early redemption payment of $0.1 million.

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Source: Horizon Pharma plc