8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 6, 2017

 

 

Horizon Pharma Public Limited Company

(Exact name of registrant as specified in its charter)

 

 

 

Ireland   001-35238   Not Applicable

(State or other jurisdiction

of incorporation)

  (Commission File No.)   (IRS Employer Identification No.)

Connaught House, 1st Floor, 1 Burlington Road, Dublin 4, D04 C5Y6, Ireland

(Address of principal executive offices)

Registrant’s telephone number, including area code: 011-353-1-772-2100

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On November 6, 2017, Horizon Pharma plc issued a press release announcing its financial results for the third quarter ended September 30, 2017. A copy of this press release is attached hereto as Exhibit 99.1.

The information in this Item 2.02 and the exhibit hereto are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 9.01 Financial Statements and Exhibits.

(d)    Exhibits.

 

Exhibit No.

  

Description

99.1    Press Release of Horizon Pharma plc, dated November 6, 2017.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: November 6, 2017

 

HORIZON PHARMA PUBLIC LIMITED COMPANY

 

By:

 

/s/ Paul W. Hoelscher

    Paul W. Hoelscher
    Executive Vice President and Chief Financial Officer
EX-99.1

Exhibit 99.1

 

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Horizon Pharma plc Announces Third-Quarter and Year-to-Date 2017 Results

— Third-Quarter 2017 Net Sales of $271.6 Million —

— Third-Quarter 2017 Net Loss of $64.0 Million; Adjusted EBITDA of $108.1 Million —

— Third-Quarter 2017 GAAP Operating Cash Flow of $68.3 Million;

Non-GAAP Operating Cash Flow of $83.5 Million —

— Third-Quarter 2017 Net Sales of Rare Disease Medicines Represented 59 Percent of Net Sales and

Increased 65 Percent from Third-Quarter 2016 —

— On Oct. 25, 2017, Announced Enrollment in the Phase 3 Clinical Trial Evaluating Teprotumumab

for Thyroid Eye Disease —

— Increasing Full-Year 2017 Net Sales Guidance Range to $1.030 Billion to $1.050 Billion;

Increasing Lower End of Full-Year 2017 Adjusted EBITDA Guidance, Resulting in Adjusted EBITDA

Guidance Range of $350 Million to $375 Million —

— Providing KRYSTEXXA® 2018 Net Sales Guidance of More than 50 Percent Year-Over-Year Growth —

DUBLIN, IRELAND Nov. 6, 2017 – Horizon Pharma plc (NASDAQ: HZNP), a biopharmaceutical company focused on improving patients’ lives by identifying, developing, acquiring and commercializing differentiated and accessible medicines that address unmet medical needs, announced its third-quarter and year-to-date 2017 financial results today. The Company also increased its full-year 2017 net sales guidance and increased the lower end of its full-year 2017 adjusted EBITDA guidance.

“Our third-quarter results reflect our dedicated focus on execution, driven by 65 percent year-over-year growth of our diverse portfolio of rare disease medicines,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. “We continue to make progress in several key areas, including the expansion of our KRYSTEXXA organization into nephrology and expect KRYSTEXXA net sales growth in 2018 of more than 50 percent. In addition, we have started building a pipeline of differentiated and clinically relevant development-stage medicines and are pleased the Phase 3 clinical trial for teprotumumab, our biologic candidate for the treatment of thyroid eye disease, a rare eye disease, has started ahead of our projected year-end timeline.”

Financial Highlights

 

(in millions except for per share amounts and percentages)    Q3 17     Q3 16     %
Change
    YTD 17     YTD 16     %
Change
 

Net sales (1)

   $ 271.6     $ 208.7       30     $ 782.0     $ 670.8       17  

Non-GAAP adjusted net sales (1)

     271.6       273.7       (1     782.0       735.8       6  

Net loss

     (64.0     (5.9     NM       (364.1     (36.3     NM  

Non-GAAP net income

     43.1       115.5       (63     146.4       248.1       (41

Adjusted EBITDA

     108.1       141.2       (23     287.0       334.3       (14

Net loss per share—diluted

     (0.39     (0.04     NM       (2.24     (0.23     NM  

Non-GAAP earnings per share—diluted

     0.26       0.70       (63     0.89       1.51       (41

 

1) On Sept. 26, 2016, Horizon Pharma agreed to pay Express Scripts $65 million as part of a litigation settlement, which was recorded as a one-time reduction to GAAP net sales for the three and nine months ended Sept. 30, 2016, in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The exclusion of the $65 million settlement from GAAP net sales is the only adjustment reflected in third-quarter and nine months of 2016 non-GAAP adjusted net sales.

 

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Company Highlights

 

    Third-quarter net sales were $271.6 million, driven by continued strong growth from the Company’s orphan and rheumatology business units.

 

    Third-quarter net sales of Horizon Pharma’s medicines for rare diseases, which include KRYSTEXXA®, RAVICTI®, PROCYSBI®, ACTIMMUNE®, BUPHENYL® and QUINSAIR™, increased 65 percent compared to the third quarter of 2016. Net sales of the Company’s rare disease medicines represented 59 percent of total net sales compared to 35 percent of non-GAAP adjusted net sales in the third quarter of 2016.

 

    On Oct. 25, 2017, the Company announced that the first patient was enrolled in the Phase 3 confirmatory clinical trial for teprotumumab, a fully human monoclonal antibody biologic medicine candidate. Teprotumumab, an IGF-1R inhibitor, is in development for the treatment of moderate-to-severe active thyroid eye disease (TED), a rare, painful and debilitating autoimmune condition that occurs when the body’s immune system attacks the eye, causing inflammation in the eye muscles and fatty tissue behind the eye. This can also cause the eyes to protrude from their sockets, a condition known as proptosis. There are no U.S. Food and Drug Administration (FDA) approved therapies that exist for TED.

 

    The Company is presenting data on KRYSTEXXA at the American College of Rheumatology (ACR) meeting Nov. 3 to 8, 2017, where it is expanding awareness of KRYSTEXXA as an important option for the treatment of chronic gout in adult patients refractory to conventional therapy, or uncontrolled gout.

 

    The Company presented data on PROCYSBI at the American Society of Nephrology (ASN) meeting Oct. 31 to Nov. 5, 2017, that demonstrated the beneficial impact one year of PROCYSBI therapy can have on previously untreated children six years of age and younger with nephropathic cystinosis.

 

    On Oct. 26, 2017, the Company launched PROCYSBI in Canada following approval in June. PROCYSBI is the only cystine-depleting agent approved in Canada for treatment of nephropathic cystinosis.

 

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Third-Quarter and Year-to-Date 2017 Business Unit Net Sales Results

 

(in millions except for percentages)    Q3 17      Q3 16     %
Change
    YTD 17      YTD 16     %
Change
 

Orphan

   $ 117.4      $ 71.4       64     $ 350.3      $ 211.2       66  

RAVICTI®

     50.9        42.2       21       142.1        118.6       20  

PROCYSBI®(1)(2)

     33.5        —         NM       104.5        —         NM  

ACTIMMUNE®

     29.2        24.9       17       84.2        80.5       5  

BUPHENYL®

     3.7        4.3       (16     16.2        12.1       34  

QUINSAIRTM(1)(2)

     0.1        —         NM       3.3        —         NM  

Rheumatology

     58.1        40.5       44       152.6        101.0       51  

KRYSTEXXA®

     42.8        25.6       67       112.7        61.6       83  

RAYOS®

     14.6        13.4       9       36.5        36.0       1  

LODOTRA®

     0.7        1.5       (50     3.4        3.4       1  

Primary Care

     96.1        161.8       (41     279.1        423.6       (34

PENNSAID® 2%

     48.3        80.2       (40     141.1        207.9       (32

DUEXIS®

     31.6        47.6       (34     92.9        122.8       (24

VIMOVO®

     15.1        32.8       (54     41.1        89.7       (54

MIGERGOT®

     1.1        1.2       (1     4.0        3.2       25  

Litigation settlement(3)

     —          (65.0     (100     —          (65.0     (100
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total GAAP net sales(3)

   $ 271.6      $ 208.7       30     $ 782.0      $ 670.8       17  
  

 

 

    

 

 

     

 

 

    

 

 

   

Total non-GAAP adjusted net sales(3)

   $ 271.6      $ 273.7       (1   $ 782.0      $ 735.8       6  
  

 

 

    

 

 

     

 

 

    

 

 

   

 

(1) PROCYSBI and QUINSAIR were acquired on Oct. 25, 2016. Q3 16 pre-acquisition net sales of PROCYSBI and QUINSAIR were $35.1 million and $1.7 million respectively. Pre-acquisition net sales for the first nine months of 2016 of PROCYSBI and QUINSAIR were $94.0 million and $2.4 million respectively.
(2) On June 23, 2017, Horizon Pharma completed the divestiture of a European subsidiary that owned the marketing rights to PROCSYBI 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.
(3) On Sept. 26, 2016, Horizon Pharma agreed to pay Express Scripts $65 million as part of a litigation settlement, which was recorded as a one-time reduction to GAAP net sales for the three and nine months ended Sept. 30, 2016, in accordance with U.S. GAAP. The exclusion of the $65 million settlement from GAAP net sales is the only adjustment reflected in third-quarter and year-to-date 2016 non-GAAP adjusted net sales.    

 

  Orphan Business Unit: Third-quarter net sales for the orphan business unit were $117.4 million, an increase of 64 percent compared to the third quarter of 2016.

RAVICTI net sales in the third quarter of 2017 were $50.9 million, an increase of 21 percent compared to the third quarter of 2016, driven by continued conversion from older-generation nitrogen-scavenger therapies, as well as the addition of treatment-naïve patients, in part due to the recently updated RAVICTI label expanding the use of the medicine to patients older than two months of age. The Company expects RAVICTI to be available in Europe in the fourth quarter of 2017 in partnership with Swedish Orphan Biovitrum AB (SOBI).

PROCYSBI net sales in the third quarter of 2017 were $33.5 million and no longer include net sales in the Europe, Middle East and Africa regions following the sale of those geographic rights to Chiesi Farmaceutici S.p.A. on June 23, 2017. ACTIMMUNE net sales in the third quarter of 2017 were $29.2 million, an increase of 17 percent versus the third quarter of 2016, driven by the Company’s continued efforts to establish the role of ACTIMMUNE in a broader range of chronic granulomatous disease patients.

 

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    Rheumatology Business Unit: Third-quarter net sales for the rheumatology business unit were $58.1 million, an increase of 44 percent compared to the third quarter of 2016.

KRYSTEXXA net sales in the third quarter of 2017 were $42.8 million, an increase of 67 percent compared to the third quarter of 2016, driven by continued strong year-over-year vial demand.

During the third quarter, the Company remained on track to complete the further expansion of its rheumatology business unit by year-end to nearly 200 employees from more than 100 to increase awareness of uncontrolled gout among physicians and patients, given the clear unmet need that exists for thousands of people with uncontrolled gout. The objective of the initiative is to reach more physicians – both rheumatologists and now nephrologists, kidney specialists who also treat gout.

 

    Primary Care Business Unit: Third-quarter net sales for the primary care business unit were $96.1 million, a decrease of 41 percent compared to the third quarter of 2016, due to the implementation of the new contracting model with pharmacy benefit managers. As expected, third-quarter 2017 net sales declined sequentially over second-quarter 2017 net sales, primarily as a result of lower average net realized price (ANRP).

Clinical Development Update

 

    Teprotumumab: On Oct. 25, 2017, the Company announced that the first patient was enrolled in the teprotumumab Phase 3 clinical trial, ahead of schedule. Titled OPTIC (Treatment of Graves’ Orbitopathy (Thyroid Eye Disease) to Reduce Proptosis with Teprotumumab Infusions in a Randomized, Placebo-Controlled, Clinical Study), the pivotal confirmatory study will evaluate teprotumumab for the treatment of moderate-to-severe active TED. The study is expected to enroll 76 patients across 11 centers in the United States, Germany and Italy.

Teprotumumab Phase 2 results were clinically meaningful and highly statistically significant and were published in The New England Journal of Medicine on May 4, 2017. This randomized double-blind, placebo-controlled study was conducted to evaluate the efficacy and safety of teprotumumab in patients with recent onset, moderate-to-severe TED. In the study, 88 patients were assigned to receive eight infusions of teprotumumab or placebo once every three weeks for 21 weeks. The primary endpoint was response in the study eye, defined as a reduction in the Clinical Activity Score of ³2 points and a reduction of proptosis of ³2 mm at week 24.

In the intent-to-treat population, 29 of 42 (69 percent) patients receiving teprotumumab and 9 of 45 (20 percent) patients receiving placebo were responders at week 24 (p<0.001). Therapeutic effects were rapid, with responder rates of 43 percent for patients treated with teprotumumab and 4 percent for patients treated with placebo at week six (p<0.001). Treatment with teprotumumab was well tolerated, with the majority of adverse events being mild. The only clearly treatment-related adverse event was hyperglycemia in diabetic patients, which was controlled by adjusting diabetes medication.

 

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    KRYSTEXXA: The Company is presenting data on KRYSTEXXA at the ACR meeting Nov. 3 to 8, 2017, where it is expanding awareness of KRYSTEXXA as an important treatment option for uncontrolled gout. Data from a post-hoc analysis of two pivotal, six-month, randomized KRYSTEXXA clinical trials showed that responders to KRYSTEXXA experienced meaningful reductions in blood pressure that were independent of changes in renal (kidney) function. Blood pressure reduction is an important insight relevant to rheumatologists and nephrologists. Emerging data is being presented from the open-label investigator-initiated TRIPLE (Tolerization Reduces Intolerance to Pegloticase and Prolongs the Urate Lowering Effect) trial that is evaluating ways to improve the KRYSTEXXA response rate and reduce the rate of infusion reactions. This study is the first to show prospectively that when treatment “stopping rules” are used, which is occurring more frequently in real-world practice, the rate of infusion reactions can be meaningfully reduced. The rate was less than one percent to date in the ongoing TRIPLE trial.

The Company has submitted to the U.S. FDA a proposed label update in the Prescribing Information for KRYSTEXXA based on additional analysis of the Phase 3 clinical trials that demonstrated a very low infusion reaction rate if stopping rules were used. The rate from this post-hoc analysis of the clinical trials was similar to the rate seen to date in the ongoing TRIPLE study, which was also provided as supplemental supportive data.

The Company has a complementary multi-pronged strategy in place to evaluate new approaches to the clinical use of KRYSTEXXA, including improving response rates. To that end, the investigator-initiated RECIPE (REduCing Immunogenicity to PegloticasE) trial is expected to begin enrolling patients by the end of the year. This trial will evaluate the impact of adding CellCept®, a commonly used immunomodulator, on the KRYSTEXXA response rate.

KRYSTEXXA ACR Investor Webcast: The Company will hold an investor webcast on Thursday, Nov. 9, 2017, at 10 a.m. EST to provide an overview of the gout market, KRYSTEXXA and the Company’s comprehensive clinical strategy for KRYSTEXXA, including data presented at ACR. The live webcast and a replay may be accessed at http://ir.horizon-pharma.com.

 

    RAVICTI: The Company remains on track to submit a supplemental New Drug Application (sNDA) in the first quarter of 2018 to expand the age range for chronic management of urea cycle disorders (UCDs) to birth and older. This follows the April 28, 2017, sNDA approval to expand the age range to patients to two months of age and older from two years of age and older.

 

    PROCYSBI: The Company presented data on PROCYSBI at the American Society of Nephrology meeting Oct. 31 to Nov. 5, 2017, that demonstrated the impact one year of PROCYSBI therapy can have on children six years of age and younger with nephropathic cystinosis. In the study, children never before treated with cysteamine therapy were able to maintain their white blood cell cystine levels – a biomarker for disease control – and reach several development milestones similar to what are expected for an average child of the same age, such as height, weight and body surface area.

 

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    ACTIMMUNE: Three investigator-initiated cancer-combination trials with ACTIMMUNE continue to advance. These studies are evaluating cancer treatment therapies for advanced breast cancer patients, Cutaneous T-Cell Lymphoma and certain cancerous solid tumors.

Third-Quarter 2017 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.

 

    Gross Profit: Under U.S. GAAP in the third quarter of 2017, the gross profit ratio was 53.8 percent compared to 59.2 percent in the third quarter of 2016. The non-GAAP gross profit ratio in the third quarter of 2017 was 89.6 percent compared to 91.6 percent in the third quarter of 2016.

 

    Operating Expenses: On a GAAP basis in the third quarter of 2017, total operating expenses were 63.3 percent of net sales. Non-GAAP total operating expenses in the third quarter of 2017 were 49.9 percent of net sales. On a GAAP basis, research and development (R&D) expenses were 6.6 percent of net sales, and selling, general and administrative (SG&A) expenses were 56.7 percent of net sales. Non-GAAP R&D expenses were 6.3 percent of net sales and non-GAAP SG&A expenses were 43.7 percent of net sales.

 

    Income Tax Rate: The income tax rate in the third quarter of 2017 on a GAAP basis was negative 12.6 percent and on a non-GAAP basis was 47.3 percent.

 

    Net (Loss) Income: The Company posted a net loss of $64.0 million. Non-GAAP net income was $43.1 million for the third quarter.

 

    Adjusted EBITDA: Adjusted EBITDA in the third quarter of 2017 was $108.1 million.

 

    Earnings (Loss) per Share: On a GAAP basis, third-quarter 2017 diluted loss per share was $0.39, compared with diluted loss per share of $0.04 in the third quarter of 2016. Non-GAAP diluted earnings per share in the third quarter of 2017 and 2016 were $0.26 and $0.70, respectively. Weighted average shares outstanding used for calculating GAAP diluted loss per share and non-GAAP diluted earnings per share in the third quarter of 2017 were 163.4 million and 165.8 million, respectively.

Cash Flow Statement and Balance Sheet Highlights

 

    In the third quarter of 2017, operating cash flow was $68.3 million on a GAAP basis and $83.5 million on a non-GAAP basis.

 

    The Company had cash and cash equivalents of $625.0 million as of Sept. 30, 2017.

 

    Total principal amount of debt outstanding as of Sept. 30, 2017, was $2.023 billion, which was composed of $848 million in senior secured term loans due 2024; $475 million senior notes due 2023; $300 million senior notes due 2024; and $400 million exchangeable senior notes due 2022. As of Sept. 30, 2017, net debt was $1.398 billion.

 

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Full-Year 2017 Guidance

The Company increased its full-year 2017 guidance net sales range to $1.030 billion to $1.050 from the previous range of $1.010 billion to $1.045 billion and increased the lower end of its full-year 2017 adjusted EBITDA guidance to $350 million, resulting in an adjusted EBITDA guidance range of $350 million to $375 million from $340 million to $375 million.

Conference Call

At 8 a.m. EST / 1 p.m. IST today, the Company will host a live conference call and webcast to review its financial and operating results and provide a general business update.

U.S. Dial-In Number: +1 888.338.8373

International Dial-In Number: +1 973.872.3000

Passcode: 96805714

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 conference call will be available approximately two hours after the call and is accessible through one of the following telephone numbers, using the passcode below:

Replay U.S. Dial-In Number: +1 855.859.2056

Replay International Dial-In Number: +1 404.537.3406

Passcode: 96805714

About Horizon Pharma plc

Horizon Pharma plc is a biopharmaceutical company focused on improving patients’ lives by identifying, developing, acquiring and commercializing differentiated and accessible medicines that address unmet medical needs. The Company markets 11 medicines through its orphan, rheumatology and primary care business units. For more information, please visit www.horizonpharma.com. Follow @HZNPplc on Twitter or view careers on our LinkedIn page.

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/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, Primary Care business unit realignment costs, as well as non-cash items such as share-based compensation, depreciation and amortization,

 

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royalty accretion, non-cash interest expense, intangible and other non-current asset impairment charges, 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 2017 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 2017 adjusted EBITDA outlook to an expected net income (loss) outlook because certain items such as acquisition-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 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 2017 net sales and adjusted EBITDA guidance, expected net sales growth of KRYSTEXXA, expected financial performance in future periods, expected timing of clinical, regulatory and commercial events, including the Phase 3 clinical trial of teprotumumab and RECIPE clinical trial of KRYSTEXXA, the planned expansion of the KRYSTEXXA commercial organization, the expected launch of RAVICTI in Europe, the expected timing of an sNDA submission for RAVICTI, potential market opportunity for Horizon Pharma’s medicines in approved and potential additional indications, potential growth of Horizon Pharma’s medicines 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; whether Horizon Pharma is able to realize expected benefits from arrangements with PBMs; risks related to acquisition integration and achieving projected benefits; risks associated with clinical development and 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.

 

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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

 

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Horizon Pharma plc

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2017     2016     2017     2016  

Net sales

   $ 271,646     $ 208,702     $ 782,012     $ 670,770  

Cost of goods sold

     125,517       85,161       394,783       243,520  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     146,129       123,541       387,229       427,250  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Research and development

     17,928       12,814       194,090       36,746  

Selling, general and administrative

     153,952       132,049       509,940       407,563  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     171,880       144,863       704,030       444,309  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (25,751     (21,322     (316,801     (17,059
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER EXPENSE, NET:

        

Interest expense, net

     (31,706     (19,066     (95,297     (57,752

Foreign exchange gain (loss)

     275       (108     167       (266

Gain on divestiture

     112       —         5,968       —    

Loss on debt extinguishment

     —         —         (533     —    

Other income, net

     280       6,879       280       6,839  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (31,039     (12,295     (89,415     (51,179
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before expense (benefit) for income taxes

     (56,790     (33,617     (406,216     (68,238

Expense (benefit) for income taxes

     7,181       (27,747     (42,138     (31,946
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (63,971   $ (5,870   $ (364,078   $ (36,292
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per ordinary share - basic and diluted

   $ (0.39   $ (0.04   $ (2.24   $ (0.23
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding - basic and diluted

     163,447,208       161,038,827       162,810,551       160,472,530  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

10


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Horizon Pharma plc

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

 

     As of  
     September 30,
2017
    December 31,
2016
 

ASSETS

  

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 624,960     $ 509,055  

Restricted cash

     6,530       7,095  

Accounts receivable, net

     390,683       305,725  

Inventories, net

     86,527       174,788  

Prepaid expenses and other current assets

     52,925       49,619  
  

 

 

   

 

 

 

Total current assets

     1,161,625       1,046,282  
  

 

 

   

 

 

 

Property and equipment, net

     21,700       23,484  

Developed technology, net

     2,512,412       2,767,184  

Other intangible assets, net

     5,643       6,251  

Goodwill

     426,441       445,579  

Deferred tax assets, net

     5,399       911  

Other assets

     36,234       2,368  
  

 

 

   

 

 

 

Total assets

   $ 4,169,454     $ 4,292,059  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Long-term debt—current portion

   $ 8,500     $ 7,750  

Accounts payable

     32,825       52,479  

Accrued expenses

     162,701       182,765  

Accrued trade discounts and rebates

     435,714       297,556  

Accrued royalties—current portion

     62,273       61,981  

Deferred revenues—current portion

     5,938       3,321  
  

 

 

   

 

 

 

Total current liabilities

     707,951       605,852  
  

 

 

   

 

 

 

LONG-TERM LIABILITIES:

    

Exchangeable notes, net

     310,130       298,002  

Long-term debt, net, net of current

     1,578,947       1,501,741  

Accrued royalties, net of current

     268,672       272,293  

Deferred revenues, net of current

     9,842       7,763  

Deferred tax liabilities, net

     226,113       296,568  

Other long-term liabilities

     67,976       46,061  
  

 

 

   

 

 

 

Total long-term liabilities

     2,461,680       2,422,428  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

    

SHAREHOLDERS’ EQUITY:

    

Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized; 164,242,005 and 162,004,956 issued at September 30, 2017 and December 31, 2016, respectively, and 163,857,639 and 161,620,590 outstanding at September 30, 2017 and December 31, 2016, respectively

     16       16  

Treasury stock, 384,366 ordinary shares at September 30, 2017 and December 31, 2016

     (4,585     (4,585

Additional paid-in capital

     2,212,613       2,119,455  

Accumulated other comprehensive loss

     (2,341     (3,086

Accumulated deficit

     (1,205,880     (848,021
  

 

 

   

 

 

 

Total shareholders’ equity

     999,823       1,263,779  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,169,454     $ 4,292,059  
  

 

 

   

 

 

 

 

11


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Horizon Pharma plc

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     2017     2016  
     (Unaudited)     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net loss

   $ (63,971   $ (5,870   $ (364,078   $ (36,292

Adjustments to reconcile net loss to net cash provided by operating activities

        

Depreciation and amortization expense

     70,142       51,940       213,155       154,465  

Equity-settled share-based compensation

     33,431       28,593       91,391       84,011  

Royalty accretion

     12,720       9,734       38,415       28,762  

Royalty liability remeasurement

     —         —         (2,944     —    

Acquired in-process research and development expense

     160       —         148,769       —    

Impairment of non-current asset

     —         —         22,270       —    

Loss on debt extinguishment

     —         —         388       —    

Payments related to term loan refinancing

     —         —         (3,940     —    

Amortization of debt discount and deferred financing costs

     5,234       4,537       15,863       13,469  

Gain on divestiture

     —         —         (2,635     —    

Deferred income taxes

     16,497       (29,796     (62,989     (35,158

Foreign exchange and other adjustments

     (2,134     109       (1,521     268  

Changes in operating assets and liabilities:

        

Accounts receivable

     162       (58,516     (85,161     (142,448

Inventories

     15,746       10,065       83,482       23,842  

Prepaid expenses and other current assets

     (6,869     (4,212     (4,435     (20,838

Accounts payable

     (48,237     7,417       (18,414     49,695  

Accrued trade discounts and rebates

     22,511       47,529       139,461       83,009  

Accrued expenses and accrued royalties

     38,886       73,109       (59,293     29,582  

Deferred revenues

     3,386       (25     3,770       (443

Other non-current assets and liabilities

     (29,315     (5,827     (14,559     (1,653
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     68,349       128,787       136,995       230,271  
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Payments for acquisitions, net of cash acquired

     (968     —         (168,818     (520,405

Proceeds from divestiture, net of cash divested

     —         —         69,072       —    

Change in restricted cash

     738       (2,102     568       (3,411

Purchases of property and equipment

     (1,403     (1,840     (4,031     (14,616
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1,633     (3,942     (103,209     (538,432
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Net proceeds from term loans

     —         —         847,768       —    

Repayment of term loans

     —         (1,000     (770,790     (3,000

Proceeds from the issuance of ordinary shares in connection with warrant exercises

     1,778       —         1,789       —    

Proceeds from the issuance of ordinary shares through an employee stock purchase plan

     —         —         3,856       3,235  

Proceeds from the issuance of ordinary shares in connection with stock option exercises

     465       1,726       1,762       3,384  

Payment of employee withholding taxes relating to share-based awards

     (438     (575     (5,640     (5,309

Repurchase of ordinary shares

     —         —         (992     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,805       151       77,753       (1,690
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     2,170       (218     4,366       (462
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     70,691       124,778       115,905       (310,313

Cash and cash equivalents, beginning of the period

     554,269       424,525       509,055       859,616  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of the period

   $ 624,960     $ 549,303     $ 624,960     $ 549,303  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

12


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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 September 30,     Nine Months Ended September 30,  
     2017     2016     2017     2016  

GAAP net loss

   $ (63,971   $ (5,870   $ (364,078   $ (36,292

Non-GAAP adjustments:

        

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,944     —    

Acquisition/divestiture-related costs

     5,561       5,159       168,985       16,456  

Upfront fee for license of global patent

     —         —         —         2,000  

Fees related to term loan refinancing

     16       —         4,114       —    

Primary Care business unit realignment costs

     (290     —         4,903       —    

Gain on divestiture

     (112     —         (5,968     —    

Loss on debt extinguishment

     —         —         533       —    

Amortization, accretion and step-up:

        

Intangible amortization expense

     68,666       50,757       208,118       151,199  

Amortization of debt discount and deferred financing costs

     5,234       4,537       15,863       13,469  

Accretion of royalty liabilities

     12,720       9,734       38,415       28,762  

Inventory step-up expense

     21,170       11,305       95,659       27,853  

Share-based compensation

     31,698       29,312       87,935       84,921  

Depreciation expense

     1,476       1,183       5,037       3,266  

Litigation settlement

     —         65,000       —         65,000  

Reversal of pre-acquisition reserve upon signing of contract

     —         (6,900     —         (6,900

Charges relating to discontinuation of Friedreich’s ataxia program

     (1,116     —         18,051       —    

Drug substance harmonization costs

     5,654       —         10,698       —    

Royalties for medicines acquired through business combinations

     (12,031     (9,564     (34,970     (27,159
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of pre-tax non-GAAP adjustments

     138,646       160,523       614,429       358,867  

Income tax effect of pre-tax non-GAAP adjustments

     (31,548     (39,180     (103,923     (74,518
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     107,098       121,343       510,506       284,349  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net Income

   $ 43,127     $ 115,473     $ 146,428     $ 248,057  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share:

        

Weighted average shares - Basic

     163,447,208       161,038,827       162,810,551       160,472,530  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share - Basic:

        

GAAP loss per share - Basic

     (0.39     (0.04     (2.24     (0.23

Non-GAAP adjustments

     0.65       0.76       3.14       1.78  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share—Basic

     0.26       0.72       0.90       1.55  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares - Diluted

        

Weighted average shares - Basic

     163,447,208       161,038,827       162,810,551       160,472,530  

Ordinary share equivalents

     2,346,684       3,868,212       2,510,909       3,763,984  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares - Diluted

     165,793,892       164,907,039       165,321,460       164,236,514  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share - Diluted

        

GAAP loss per share - Diluted

     (0.39     (0.04     (2.24     (0.23

Non-GAAP adjustments

     0.65       0.75       3.14       1.77  

Diluted earnings per share effect of ordinary share equivalents

     —         (0.01     (0.01     (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share - Diluted

     0.26       0.70       0.89       1.51  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

13


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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

EBITDA, Gross Profit and Operating Cash Flow (Unaudited)

(in thousands, except percentages)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     2017     2016  

EBITDA and Adjusted EBITDA:

        

GAAP net loss

   $ (63,971   $ (5,870   $ (364,078   $ (36,292

Depreciation

     1,476       1,183       5,037       3,266  

Amortization, accretion and step-up:

        

Intangible amortization expense

     68,666       50,757       208,118       151,199  

Accretion of royalty liabilities

     12,720       9,734       38,415       28,762  

Amortization of deferred revenue

     (225     (212     (636     (631

Inventory step-up expense

     21,170       11,305       95,659       27,853  

Interest expense, net (including amortization of debt discount and deferred financing costs)

     31,706       19,066       95,297       57,752  

Expense (benefit) for income taxes

     7,181       (27,747     (42,138     (31,946
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 78,723     $ 58,216     $ 35,674     $ 199,963  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other non-GAAP adjustments:

        

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,944     —    

Acquisition/divestiture-related costs

     5,561       5,159       168,985       16,456  

Upfront fee for license of global patent

     —         —         —         2,000  

Primary Care business unit realignment costs

     (290     —         4,903       —    

Gain on divestiture

     (112     —         (5,968     —    

Loss on debt extinguishment

     —         —         533       —    

Fees related to term loan refinancing

     16       —         4,114       —    

Share-based compensation

     31,698       29,312       87,935       84,921  

Litigation settlement

     —         65,000       —         65,000  

Reversal of pre-acquisition reserve upon signing of contract

     —         (6,900     —         (6,900

Charges relating to discontinuation of Friedreich’s ataxia program

     (1,116     —         18,051       —    

Drug substance harmonization costs

     5,654       —         10,698       —    

Royalties for medicines acquired through business combinations

     (12,031     (9,564     (34,970     (27,159
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of other non-GAAP adjustments

     29,380       83,007       251,337       134,318  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 108,103     $ 141,223     $ 287,011     $ 334,281  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Gross Profit:

        

GAAP net sales

   $ 271,646     $ 208,702     $ 782,012     $ 670,770  

Litigation settlement

     —         65,000       —         65,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted net sales

   $ 271,646     $ 273,702     $ 782,012     $ 735,770  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP gross profit

   $ 146,129     $ 123,541     $ 387,229     $ 427,250  

Non-GAAP gross profit adjustments:

        

Acquisition/divestiture-related costs

     96       43       128       454  

Share-based compensation

     695       —         1,696       —    

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,944     —    

Intangible amortization expense (COGS only)

     68,464       50,555       207,511       150,592  

Accretion of royalty liabilities

     12,653       9,734       38,348       28,762  

Inventory step-up expense

     21,170       11,305       95,659       27,853  

Depreciation (COGS only)

     182       100       548       320  

Litigation settlement

     —         65,000       —         65,000  

Charges relating to discontinuation of Friedreich’s ataxia program

     389       —         (2,714     —    

Drug substance harmonization costs

     5,654       —         10,698       —    

Royalties for medicines acquired through business combinations

     (12,031     (9,564     (34,970     (27,159
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of Non-GAAP adjustments

     97,272       127,173       313,960       245,822  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 243,401     $ 250,714     $ 701,189     $ 673,072  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP gross profit %

     53.8     59.2     49.5     63.7

Non-GAAP gross profit %

     89.6     91.6     89.7     91.5

Non-GAAP operating cash flow:

        

GAAP cash provided by operating activities

   $ 68,349     $ 128,787     $ 136,995     $ 230,271  

Cash payments for acquisition/divestiture-related costs

     11,109       4,966       44,121       27,543  

Cash payment for litigation settlement

     —         —         32,500       —    

Upfront fee for license of global patent

     —         —         —         2,000  

Drug substance harmonization costs

     38       —         5,044       —    

Cash payments for charges relating to discontinuation of Friedreich’s ataxia program

     1,169       —         4,170       —    

Cash payment for debt extinguishment

     —         —         145       —    

Cash payments relating to term loan refinancing

     307       —         8,014       —    

Cash payments for Primary Care business unit realignment

     2,493       —         4,157       —    
  

 

 

   

 

 

   

 

 

   

 

 

 
Non-GAAP operating cash flow    $ 83,465     $ 133,753     $ 235,146     $ 259,814  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

14


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Horizon Pharma plc

GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)

(in millions, except percentages)

 

    Q3 2017  
    Pre-tax Net
(Loss) Income
    Income Tax
Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported - GAAP

  $ (56.8   $ 7.2       -12.6   $ (64.0   $ (0.39

Non-GAAP adjustments

    138.6     $ 31.5         107.1    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ 81.8     $ 38.7       47.3   $ 43.1     $ 0.26  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Q3 2016  
    Pre-tax Net
(Loss) Income
    Income Tax
(Benefit)
Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported - GAAP

  $ (33.6   $ (27.7     82.5   $ (5.9   $ (0.04

Non-GAAP adjustments

    160.5       39.1         121.4    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ 126.9     $ 11.4       9.0   $ 115.5     $ 0.70  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Q3 2017 YTD  
    Pre-tax Net
(Loss) Income
    Income Tax
(Benefit)
Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported - GAAP

  $ (406.2   $ (42.1     10.4   $ (364.1   $ (2.24

Non-GAAP adjustments

    614.4       103.9         510.5    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ 208.2     $ 61.8       29.7   $ 146.4     $ 0.89  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Q3 2016 YTD  
    Pre-tax Net
(Loss) Income
    Income Tax
(Benefit)
Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported - GAAP

  $ (68.2   $ (31.9     46.8   $ (36.3   $ (0.23

Non-GAAP adjustments

    358.9       74.5         284.4    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ 290.7     $ 42.6       14.6   $ 248.1     $ 1.51  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

15


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Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended September 30, 2017
(Unaudited)

 

                                  Income Tax        
          Research &     Selling, General     Interest     Gain on     Benefit        
    COGS     Development     & Administrative     Expense     Divestiture     (Expense)        

GAAP as reported

  $ (125,517   $ (17,928   $ (153,952   $ (31,706   $ 112     $ (7,181  

Non-GAAP Adjustments (in thousands):

             

Acquisition/divestiture-related costs(1)

    96       168       5,297       —         —         —      

Fees related to term loan refinancing(2)

    —         —         16       —         —         —      

Primary Care business unit realignment costs(3)

    —         —         (290     —         —         —      

Gain on divestiture(4)

    —         —         —         —         (112     —      

Amortization, accretion and step-up:

             

Intangible amortization expense(5)

    68,464       —         202       —         —         —      

Amortization of debt discount and deferred financing costs(6)

    —         —         —         5,234       —         —      

Accretion of royalty liability(7)

    12,653       —         67       —         —         —      

Inventory step-up expense(8)

    21,170       —         —         —         —         —      

Share-based compensation(9)

    695       2,251       28,752       —         —         —      

Depreciation expense(10)

    182       —         1,294       —         —         —      

Charges relating to discontinuation of Friedreich’s ataxia program(11)

    389       (1,505     —         —         —         —      

Drug substance harmonization costs(12)

    5,654       —         —         —         —         —      

Royalties for medicines acquired through business combinations(13)

    (12,031     —         —         —         —         —      

Income tax effect on pre-tax non-GAAP adjustments(14)

    —         —         —         —         —         (31,548  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total of non-GAAP adjustments

    97,272       914       35,338       5,234       (112     (31,548  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Non-GAAP

  $ (28,245   $ (17,014   $ (118,614   $ (26,472   $ —       $ (38,729  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended September 30, 2016
(Unaudited)

 

                                        Income Tax  
    Net
Sales
    COGS     Research &
Development
    Selling, General
& Administrative
    Interest
Expense
    Other     Benefit
(Expense)
 

GAAP as reported

  $ 208,702     $ (85,161   $ (12,814   $ (132,049   $ (19,066   $ 6,879     $ 27,747  

Non-GAAP Adjustments (in thousands):

             

Acquisition/divestiture-related costs(1)

    —         43       (21     5,137       —         —         —    

Amortization, accretion and step-up:

             

Intangible amortization expense(5)

    —         50,555       —         202       —         —         —    

Amortization of debt discount and deferred financing costs(6)

    —         —         —         —         4,537       —         —    

Accretion of royalty liability(7)

    —         9,734       —         —         —         —         —    

Inventory step-up expense(8)

    —         11,305       —         —         —         —         —    

Share-based compensation(9)

    —         —         2,482       26,830       —         —         —    

Depreciation expense(10)

    —         100       —         1,083       —         —         —    

Litigation Settlement(15)

    65,000       —         —         —         —         —         —    

Reversal of pre-acquistion reserve upon signing of contracts(16)

    —         —         —         —         —         (6,900     —    

Royalties for medicines acquired through business
combinations(13)

    —         (9,564     —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(14)

    —         —         —         —         —         —         (39,180
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    65,000       62,173       2,461       33,252       4,537       (6,900     (39,180
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ 273,702     $ (22,988   $ (10,353   $ (98,797   $ (14,529   $ (21   $ (11,433
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

16


LOGO

 

Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Nine Months Ended September 30, 2017
(Unaudited)

 

                                        Income Tax  
          Research &     Selling, General     Interest     Gain on     Loss on Debt     Benefit  
    COGS     Development     & Administrative     Expense     Divestiture     Extinguishment     (Expense)  

GAAP as reported

  $ (394,783   $ (194,090   $ (509,940   $ (95,297   $ 5,968     $ (533   $ 42,138  

Non-GAAP Adjustments (in thousands):

             

Remeasurement of royalties for products acquired through business combinations(17)

    (2,944     —         —         —         —         —         —    

Acquisition/divestiture-related costs(1)

    128       148,425       20,432       —         —         —         —    

Fees related to term loan refinancing(2)

    —         —         4,114       —         —         —         —    

Loss on debt extinguistment(18)

    —         —         —         —         —         533       —    

Primary Care business unit realignment costs(3)

    —         —         4,903       —         —         —         —    

Gain on divestiture(4)

    —         —         —         —         (5,968     —         —    

Amortization, accretion and step-up:

             

Intangible amortization expense(5)

    207,511       —         607       —         —         —         —    

Amortization of debt discount and deferred financing costs(6)

    —         —         —         15,863       —         —         —    

Accretion of royalty liability(7)

    38,348       —         67       —         —         —         —    

Inventory step-up expense(8)

    95,659       —         —         —         —         —         —    

Share-based compensation(9)

    1,696       6,613       79,626       —         —         —         —    

Depreciation expense(10)

    548       —         4,489       —         —         —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(11)

    (2,714     (1,505     22,270       —         —         —         —    

Drug substance harmonization costs(12)

    10,698       —         —         —         —         —         —    

Royalties for medicines acquired through business combinations(13)

    (34,970     —         —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(14)

    —         —         —         —         —         —         (103,923
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    313,960       153,533       136,508       15,863       (5,968     533       (103,923
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ (80,823   $ (40,557   $ (373,432   $ (79,434   $ —       $ —       $ (61,785
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Nine Months Ended September 30, 2016
(Unaudited)

 

                                        Income Tax  
                Research &     Selling, General     Interest           Benefit  
    Net Sales     COGS     Development     & Administrative     Expense     Other     (Expense)  

GAAP as reported

  $ 670,770     $ (243,520   $ (36,746   $ (407,563   $ (57,752   $ 6,839     $ 31,946  

Non-GAAP Adjustments (in thousands):

             

Acquisition/divestiture-related costs(1)

    —         454       517       15,485       —         —         —    

Upfront fee for license of global patent(19)

    —         —         2,000       —         —         —         —    

Amortization, accretion and step-up:

             

Intangible amortization expense(5)

    —         150,592       —         607       —         —         —    

Amortization of debt discount and deferred financing costs(6)

    —         —         —         —         13,469       —         —    

Accretion of royalty liability(7)

    —         28,762       —         —         —         —         —    

Inventory step-up expense(8)

    —         27,853       —         —         —         —         —    

Share-based compensation(9)

    —         —         6,845       78,076       —         —         —    

Depreciation expense(10)

    —         320       —         2,946       —         —         —    

Litigation settlement(18)

    65,000       —         —         —         —         —         —    

Reversal of pre-acquisition reserve upon signing of contract(16)

    —         —         —         —         —         (6,900     —    

Royalties for medicines acquired through business combinations(13)

    —         (27,159     —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(14)

    —         —         —         —         —           (74,518
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    65,000       180,822       9,362       97,114       13,469       (6,900     (74,518
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ 735,770     $ (62,698   $ (27,384   $ (310,449   $ (44,283   $ (61   $ (42,572
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS - NON-GAAP

 

(1) Expenses, including legal and consulting fees, incurred in connection with the Company’s acquisitions and divestitures have been excluded.

 

(2) Represents arrangement and other fees relating to the refinancing of the Company’s term loans during the first quarter of 2017.

 

(3) Represents expenses, including severance costs and consulting fees, related to the realignment of the Company’s Primary Care business unit.

 

(4) On June 23, 2017, the Company completed the divestiture of a European subsidiary that owned the marketing rights to PROCSYBI and QUINSAIR in Europe, the Middle East and Africa to Chiesi Farmaceutici S.p.A. In connection with this divestiture, the Company recorded a gain of $6.0 million during the nine months ended September 30, 2017.

 

(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 royalties for the three and nine months ended September 30, 2017 and represents accretion expense associated with the ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, RAVICTI and VIMOVO royalties for the three and nine months ended September 30, 2016.

 

(8) In connection with the Crealta acquisition, the KRYSTEXXA and MIGERGOT inventory was stepped up in value by $144.3 million and during the three and nine months ended September 30, 2017, the Company recognized in cost of goods sold, $21.2 million and $54.9 million, respectively, for step-up inventory expenses related to KRYSTEXXA and MIGERGOT inventory sold.

During the three and nine months ended September 30, 2016, the Company recognized in cost of goods sold, $11.3 million and $27.9 million, respectively, for step-up inventory expenses related to KRYSTEXXA and MIGERGOT inventory sold.

In connection with the Raptor acquisition, the PROCYSBI and QUINSAIR inventory was stepped up in value by $67.0 million and during the three and nine months ended September 30, 2017, the Company recognized in cost of goods sold zero and $40.8 million, respectively, of step-up inventory expenses related to PROCYSBI and QUINSAIR inventory sold.

 

(9) 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 program and its employee stock purchase plan.

 

(10) Represents depreciation expense related to the Company’s property, equipment, software and leasehold improvements.

 

(11) During the nine months ended September 30, 2017, charges relating to discontinuation of Friedreich’s ataxia program include $22.3 million relating to the impairment of a non-current asset recorded following payment to Boehringer Ingelheim International for the acquisition of certain rights to interferon gamma-1b, a $2.7 million reduction in cost of goods sold relating to the renegotiation of a contract with Boehringer Ingelheim related to the purchase of additional units of ACTIMMUNE and a $1.5 million reduction in research and development expenses reflecting lower costs to discontinue the clinical trial than previously anticipated.

 

18


LOGO

 

(12) 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 nine months ended September 30, 2017, the Company incurred $12.2 million of this spend, including costs of $10.7 million that qualify for exclusion in the Company’s non-GAAP financial measures under its non-GAAP cost policy.

 

(13) Royalties of $12.0 million and $35.0 million were incurred during the three and nine months ended September 30, 2017, respectively, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO. Royalties of $9.7 million and $27.2 million were incurred during the three and nine months ended September 30, 2016, respectively, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, RAVICTI and VIMOVO.

 

(14) 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.

 

(15) On September 26, 2016, the Company agreed to pay Express Scripts $65.0 million as part of a litigation settlement, which was recorded as a one-time reduction to GAAP net sales for the three and nine months ended September 30, 2016, in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The exclusion of the $65.0 million settlement from GAAP net sales is the only adjustment reflected in the non-GAAP adjusted net sales for the three and nine months ended September 30, 2016.

 

(16) During the third quarter of 2016, the Company released a contingent liability of $6.9 million that was recorded as part of acquisition accounting for Crealta.

 

(17) 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. During the first quarter of 2017, the Company recorded a net reduction of $2.9 million to cost of goods sold to adjust the amount of the contingent royalty liabilities relating to VIMOVO and KRYSTEXXA.

 

(18) During the first quarter of 2017, the Company recorded a loss on debt extinguishment of $0.5 million, which was comprised of the write-off of $0.4 million in debt discount and deferred financing costs, and an early redemption payment of $0.1 million.

 

(19) Represents an upfront fee paid for a license of a global patent.

 

19