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): May 9, 2018

 

 

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 May 9, 2018, Horizon Pharma plc issued a press release announcing its financial results for the first quarter ended March 31, 2018. 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 May 9, 2018.


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: May 9, 2018     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 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

— 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 9, 2018 – 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.”

 

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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 Officer: Shao-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.

 

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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.

 

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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.

 

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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.

 

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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

 

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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).

 

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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

 

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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  
  

 

 

   

 

 

 

 

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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  
  

 

 

   

 

 

 

 

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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 FLOWS 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.

 

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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 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  
  

 

 

   

 

 

 

 

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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 March 31,  
     2018     2017  

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 discontinuation of Friedreich’s ataxia program

     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  
  

 

 

   

 

 

 

 

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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  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

Certain Income Statement Line Items—Non-GAAP Adjusted

For the Three Months Ended March 31, 2018

(in thousands) (Unaudited)

 

     COGS     Research &
Development
    Selling, General
& Administrative
    Impairment
of long-lived
asset
    Interest
Expense
    Income Tax
Benefit
(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)

 

 

 

 

 

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

GAAP as reported

   $ (139,116   $ (13,061   $ (174,065   $ (31,983   $ (533   $ 47,553  

Non-GAAP Adjustments (in thousands):

            

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  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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.

 

(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 plan and its employee stock purchase plan.

 

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

 

(11) 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.

 

(12) Represents upfront and milestone payments related to license agreements.

 

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(13) Represents arrangement and other fees relating to the refinancing of the Company’s term loans during the first quarter 2018.

 

(14) 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.

 

(15) 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.

 

(16) 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.

 

(17) 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.

 

(18) 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.

 

17