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): August 8, 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 August 8, 2018, Horizon Pharma plc issued a press release announcing its financial results for the second quarter ended June 30, 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 August 8, 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: August 8, 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 Record Quarterly Net Sales for Orphan and Rheumatology

Segment; Increases Full-Year 2018 Adjusted EBITDA Guidance; Implements New

Company Operating Structure to Enhance Focus on Rare Diseases

— Record Quarterly Orphan and Rheumatology Segment Net Sales of $201.7 Million

Increased 17 Percent; Represented 67 Percent of Total Company Net Sales —

— Second-Quarter 2018 KRYSTEXXA ® Net Sales Growth of 53 Percent;

Continue to Expect Full-Year 2018 Net Sales Growth of More Than 65 Percent —

— Target Enrollment Reached in Teprotumumab Phase 3 Clinical Trial,

Significantly Ahead of Schedule —

— Second-Quarter 2018 Net Sales of $302.8 Million;

Second-Quarter 2018 GAAP Net Loss of $32.8 Million; Adjusted EBITDA of $116.8 Million —

— Confirming Full-Year 2018 Net Sales Guidance Range of $1.170 Billion to $1.200 Billion;

Increasing Full-Year Adjusted EBITDA Guidance Range to $400 Million to $420 Million —

DUBLIN, IRELAND Aug. 8, 2018 – Horizon Pharma plc (NASDAQ: HZNP) announced its second-quarter 2018 financial results today. Effective with the second quarter of 2018, the Company has realigned its operating structure and is reporting financial results as two separate segments: the orphan and rheumatology segment, its strategic growth business, and the primary care segment. 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 segment generated record quarterly net sales, driven by accelerating KRYSTEXXA growth, reflecting the additional investments we are making this year,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. “Our clinical programs continue to advance, with target enrollment now complete in the teprotumumab Phase 3 trial, well ahead of schedule. Additionally, we plan on initiating a new study of KRYSTEXXA to continue exploring a broader clinical profile of this medicine, the only FDA-approved treatment for uncontrolled gout. These advancements support our transformation into a rare disease medicine focused company with a robust pipeline enabling sustainable growth.”

 

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Financial Highlights

 

(in millions except for per share amounts and percentages)    Q2 18     Q2 17     %
Change
    YTD 18     YTD 17     %
Change
 

Net sales

   $ 302.8     $ 289.5       5     $ 526.7     $ 510.4       3  

Net loss

     (32.8     (209.5     84       (190.2     (300.1     37  

Non-GAAP net income

     80.5       68.3       18       85.3       103.3       (17

Adjusted EBITDA

     116.8       127.0       (8     150.4       178.9       (16

Net loss per share—diluted

   $ (0.20   $ (1.29     84     $ (1.15   $ (1.85     38  

Non-GAAP earnings per share—diluted

     0.48       0.41       17       0.51       0.63       (19

Second-Quarter and Recent Company Highlights

 

   

Teprotumumab: OPTIC, the teprotumumab Phase 3 clinical trial, has reached its target enrollment of 76 patients, significantly ahead of schedule. The remaining few subjects in screening will be allowed to randomize over the next several weeks.

Teprotumumab is a fully human monoclonal antibody IGF-1R inhibitor being developed for the treatment of thyroid eye disease (TED), in which the muscles and fatty tissue behind the eye become inflamed, which can lead to proptosis, or bulging of the eye, and diplopia, or double vision, as well as quality-of-life issues. In October, data will be presented at the 2018 American Thyroid Association (ATA) meeting from the follow-up period of the Phase 2 clinical trial, during which the Company continued to collect data on study patients off therapy out to 48 weeks to assess durability of response.

 

   

New KRYSTEXXA Immunomodulation Study: The Company is planning on initiating a new study of KRYSTEXXA to continue to explore a broader clinical profile of this medicine, the only FDA-approved treatment for uncontrolled gout (chronic gout that is refractory to conventional therapies). The study will evaluate the impact of adding methotrexate to KRYSTEXXA to enhance the patient response rate. Methotrexate is the most common immunomodulator used by rheumatologists. Enrollment is expected to begin in the fourth quarter of 2018.

 

   

New Uncontrolled Gout and KRYSTEXXA Data Presented at EULAR: In June, the Company participated in the 2018 Annual European Congress of Rheumatology (EULAR) in Amsterdam, where new insights on both gout and KRYSTEXXA were presented. One presentation highlighted a 27 percent increase in U.S. emergency department visits between 2006 and 2014 for people living with gout, suggesting a sizeable and growing population of gout patients who are uncontrolled and not well managed. Several KRYSTEXXA data analyses underscored the complex nature of uncontrolled gout, the potential systemic effects of elevated serum uric acid (sUA) levels and the need to manage uncontrolled gout aggressively. These presentations support the Company’s continued efforts to increase awareness and understanding of uncontrolled gout and the benefits of KRYSTEXXA.

 

   

R&D Leadership: The Company made several important leadership additions to its research and development (R&D) organization to expand its capabilities, partner with the business development team in identifying and evaluating development-stage opportunities and lead the orphan and rheumatology therapeutic areas’ clinical development strategies.

 

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Intellectual Property Update: The Company received two new patents from the U.S. Patent and Trademark Office during the quarter that cover RAVICTI®, with two additional patents scheduled to be issued in August, resulting in five new patents in an 18-month period. In addition, the Company settled litigation in June with Lupin relating to RAVICTI. Lupin’s license to enter the market with a generic version of RAVICTI would begin on July 1, 2026.

 

   

Best Workplace Awards: Great Place to Work® and FORTUNE Magazine selected Horizon Pharma as the Number One place to work on FORTUNE’s “Best Workplaces in Health Care & Biopharma” list. The Company has also been awarded a 2018 “Best Places to Work in Chicago” designation by Crain’s Chicago Business, as well as named to its “10 Best Places to Work for Women” list. In addition, in July, the Company was recognized by PEOPLE and Great Place to Work® as one of the 2018 “50 Companies That Care,” a list that spotlights companies with 1,000 or more employees that have succeeded in business while also demonstrating respect, compassion and concern for their communities, their employees and the environment.

Research and Development Programs

Orphan Candidates and Programs:

 

   

Teprotumumab: Teprotumumab is the Company’s fully human monoclonal antibody IGF-1R inhibitor in development for the treatment of TED. The pivotal Phase 3 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 FDA approval.

Rheumatology Pipeline Candidates and Programs:

 

   

KRYSTEXXA 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, as well as a new trial being initiated by the Company. The three trials are evaluating different immunomodulators, all of which are used by rheumatologists.

 

  o

Methotrexate to Increase Response Rates in Patients with Uncontrolled GOut Receiving KRYSTEXXA (MIRROR): a Horizon Pharma-sponsored multicenter, efficacy and safety study for methotrexate co-administered with KRYSTEXXA to evaluate the impact of methotrexate weekly for one month prior to dosing with KRYSTEXXA and then throughout the 24 weeks of treatment with KRYSTEXXA. Enrollment is expected to begin in the fourth quarter of 2018.

 

  o

REduCing Immunogenicity to PegloticasE (RECIPE): a double-blind, placebo-controlled trial for mycophenolate mofetil (MMF) co-administered with KRYSTEXXA to evaluate the impact of MMF daily for two weeks prior to dosing with KRYSTEXXA, followed by a 12-week course of KRYSTEXXA every two weeks along with daily doses of MMF,followed by dosing of KRYSTEXXA alone every two weeks for 12 weeks.

 

  o

Tolerization Reduces Intolerance to Pegloticase and Prolongs the Urate Lowering Effect (TRIPLE) is an exploratory, open-label adaptive trial with multiple patient cohorts, including one evaluating the impact of adding daily doses of 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.

 

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Next-generation Biologic Programs for Uncontrolled Gout: The Company is pursuing two development programs for next-generation biologics for uncontrolled gout, HZN-003 and PASylated uricase technology to support and sustain the Company’s market leadership in uncontrolled gout. The programs are exploring the use of optimized uricase technology as well as optimized PEGylation and PASylation technology.

Second-Quarter 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.

 

   

Net Sales: Second-quarter 2018 net sales were $302.8 million, an increase of 4.6 percent, driven by continued strong growth of the Company’s orphan and rheumatology medicines. Year-over-year growth would have been 6.3 percent, excluding second-quarter 2017 net sales of $4.5 million for PROCYSBI® and QUINSAIR™ in the Europe, the Middle East and Africa (EMEA) regions, which were divested on June 23, 2017.

 

   

Gross Profit: Under U.S. GAAP in the second quarter of 2018, the gross profit ratio was 67.0 percent compared to 55.0 percent in the second quarter of 2017. The non-GAAP gross profit ratio in the second quarter of 2018 was 90.2 percent compared to 90.6 percent in the second quarter of 2017.

 

   

Operating Expenses: R&D expenses were 8.0 percent of net sales and selling, general and administrative (SG&A) expenses were 58.3 percent of net sales. Non-GAAP R&D expenses were 6.7 percent of net sales, and non-GAAP SG&A expenses were 45.0 percent of net sales.

 

   

Income Tax Rate: The income tax rate in the second quarter of 2018 on a GAAP basis was negative 13.7 percent and on a non-GAAP basis was 12.0 percent.

 

   

Net (Loss) Income: On a GAAP basis in the second quarter of 2018, net loss was $32.8 million.Second-quarter 2018 non-GAAP net income was $80.5 million.

 

   

Adjusted EBITDA: Second-quarter 2018 adjusted EBITDA was $116.8 million.

 

   

Earnings (Loss) per Share: On a GAAP basis in the second quarter of 2018, diluted loss per share was $0.20; in the second quarter of 2017, diluted loss per share was $1.29. Non-GAAP diluted earnings per share in the second quarter of 2018 and 2017 were $0.48 and $0.41, respectively. Weighted average shares outstanding used for calculating GAAP diluted loss per share and non-GAAP diluted earnings per share in the second quarter of 2018 were 165.5 million and 169.4 million, respectively.

 

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Second-Quarter Segment Results

The Company has realigned its structure to operate its strategic growth business, orphan and rheumatology, separately 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 a result of the realignment, effective with the second-quarter of 2018, the Company is reporting its financial results as two separate segments: the orphan and rheumatology segment and the primary care segment, reporting net sales and operating income for each segment. Historical segment net sales and operating income for 2017 are provided in the accompanying financial schedules.

Management uses net sales and segment operating income to evaluate the performance of the Company’s two segments. While segment operating income contains certain adjustments to the directly comparable GAAP figures in the Company’s consolidated financial results, it is considered to be prepared in accordance with GAAP for purposes of presenting the Company’s segment operating results.

Orphan and Rheumatology Segment

 

(in millions except for percentages)    Q2 18      Q2 17      %
Change
    YTD 18      YTD 17      %
Change
 

RAVICTI®

     57.0        47.2        21       106.1        91.1        16  

PROCYSBI®(1)

     38.4        36.7        5       73.4        71.0        3  

ACTIMMUNE®

     27.4        28.8        (5     52.2        55.0        (5

BUPHENYL®

     5.2        6.3        (16     11.0        12.6        (12

QUINSAIRTM(1)

     0.1        1.4        (93     0.2        3.2        (94

Orphan

   $ 128.1      $ 120.4        6     $ 242.9      $ 232.9        4  

KRYSTEXXA®

     58.6        38.3        53       105.3        69.9        51  

RAYOS®

     13.5        11.6        16       24.1        21.9        10  

LODOTRA®

     1.5        1.8        (15     1.7        2.7        (38

Rheumatology

   $ 73.6      $ 51.7        42     $ 131.1      $ 94.5        39  
  

 

 

    

 

 

      

 

 

    

 

 

    

Orphan and Rheumatology Net Sales

   $ 201.7      $ 172.1        17     $ 374.0      $ 327.3        14  
  

 

 

    

 

 

      

 

 

    

 

 

    

Orphan and Rheumatology Segment Operating Income

   $ 70.6      $ 64.7        9     $ 113.7      $ 114.4        (1

 

  (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 (EMEA) to Chiesi Farmaceutici S.p.A. Horizon Pharma retains marketing rights for the two medicines in the United States, Canada, Latin America and Asia. Second-quarter and year-to-date 2017 net sales of PROCYSBI and QUINSAIR in EMEA were $4.5 million and $9.5 million, respectively.

 

   

Second-quarter 2018 net sales of the orphan and rheumatology segment were $201.7 million, an increase of 17.2 percent over the prior year’s quarter, driven by continued strong KRYSTEXXA growth, as well as growth of RAVICTI and PROCYSBI. Excluding the second-quarter 2017 EMEA net sales of $4.5 million for PROCYSBI and QUINSAIR that were divested in June 2017, orphan and rheumatology segment year-over-year net sales growth would have been 20.4 percent.

 

   

In line with the Company’s expectations, second-quarter 2018 orphan and rheumatology segment operating income was $70.6 million, or 35 percent of orphan and rheumatology net sales. The Company is investing significantly in the commercial expansion of KRYSTEXXA in 2018, which is expected to continue to drive future net sales growth and margin expansion over time.

 

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Primary Care Segment

 

(in millions except for percentages)    Q2 18      Q2 17      %
Change
    YTD 18      YTD 17      %
Change
 

PENNSAID® 2%

     47.6        51.2        (7     74.4        92.8        (20

DUEXIS®

     30.7        43.6        (30     46.4        61.3        (24

VIMOVO®

     21.9        21.1        3       30.2        26.0        16  

MIGERGOT®

     0.9        1.5        (35     1.7        2.9        (41
  

 

 

    

 

 

      

 

 

    

 

 

    

Primary Care Net Sales

   $ 101.1      $ 117.4        (14   $ 152.7      $ 183.0        (17
  

 

 

    

 

 

      

 

 

    

 

 

    

Primary Care Segment Operating Income

   $ 45.9      $ 62.4        (26   $ 36.3      $ 65.0        (44

 

   

Second-quarter 2018 net sales of the primary care segment were $101.1 million.

 

   

In line with the Company’s expectations, second-quarter 2018 operating income for the primary care segment was $45.9 million, or 45 percent of primary care net sales.

Cash Flow Statement and Balance Sheet Highlights

 

   

On a GAAP basis in the second quarter of 2018, operating cash flow was $61.8 million. Non-GAAP operating cash flow was $75.2 million.

 

   

The Company had cash and cash equivalents of $710.2 million as of June 30, 2018.

 

   

As of June 30, 2018, the total principal amount of debt outstanding was $1.993 billion, which consists of $818 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 June 30, 2018, net debt was $1.283 billion.

Full-Year 2018 Guidance

The Company continues to expect full-year 2018 net sales in a range of $1.170 billion to $1.200 billion. The Company increased its full-year 2018 adjusted EBITDA guidance to a range of $400 million to $420 million, from $390 million to $415 million. The Company continues to project full-year 2018 net sales growth for KRYSTEXXA of more than 65 percent.

Webcast

At 8 a.m. EDT / 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.

 

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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 us @HZNPplc on Twitter or like us on Facebook.

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 operating income, non-GAAP tax rate, non-GAAP operating cash flow and net debt, 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, litigation settlements, 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 in net sales of certain medicines, estimated peak annual net sales of teprotumumab, if approved; expected financial performance in future periods; expected timing 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; 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; 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,    Executive 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 June 30,     Six Months Ended June 30,  
     2018     2017     2018     2017  

Net sales

   $ 302,835     $ 289,507     $ 526,716     $ 510,366  

Cost of goods sold

     100,082       130,150       216,174       269,266  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     202,753       159,357       310,542       241,100  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Research and development

     24,265       163,101       41,910       176,162  

Selling, general and administrative

     176,674       159,653       356,273       333,718  

Impairment of long-lived assets

     —         22,270       37,853       22,270  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     200,939       345,024       436,036       532,150  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     1,814       (185,667     (125,494     (291,050
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER EXPENSE, NET:

        

Interest expense, net

     (31,030     (31,608     (61,484     (63,591

Foreign exchange (loss) gain

     (5     151       (115     (108

Gain on divestiture

     —         5,856       —         5,856  

Loss on debt extinguishment

     —         —         —         (533

Other income (expense), net

     347       (35     525       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (30,688     (25,636     (61,074     (58,376
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before expense (benefit) for income taxes

     (28,874     (211,303     (186,568     (349,426

Expense (benefit) for income taxes

     3,962       (1,767     3,596       (49,320
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (32,836   $ (209,536   $ (190,164   $ (300,106
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per ordinary share—basic and diluted

   $ (0.20   $ (1.29   $ (1.15   $ (1.85
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding—basic and diluted

     165,536,826       162,931,930       164,921,722       162,486,946  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

 

     As of  
     June 30,
2018
    December 31,
2017
 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 710,211     $ 751,368  

Restricted cash

     6,394       6,529  

Accounts receivable, net

     403,671       405,214  

Inventories, net

     50,105       61,655  

Prepaid expenses and other current assets

     64,231       43,402  
  

 

 

   

 

 

 

Total current assets

     1,234,612       1,268,168  
  

 

 

   

 

 

 

Property and equipment, net

     18,070       20,405  

Developed technology, net

     2,272,154       2,443,949  

Other intangible assets, net

     5,039       5,441  

Goodwill

     426,441       426,441  

Deferred tax assets, net

     4,185       3,470  

Other assets

     29,224       36,081  
  

 

 

   

 

 

 

Total assets

   $ 3,989,725     $ 4,203,955  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Long-term debt—current portion

   $ —       $ 10,625  

Accounts payable

     31,110       34,681  

Accrued expenses

     173,619       175,697  

Accrued trade discounts and rebates

     449,683       501,753  

Accrued royalties—current portion

     65,604       65,328  

Deferred revenues—current portion

     5,629       6,885  
  

 

 

   

 

 

 

Total current liabilities

     725,645       794,969  
  

 

 

   

 

 

 

LONG-TERM LIABILITIES:

    

Exchangeable notes, net

     323,105       314,384  

Long-term debt, net of current

     1,562,013       1,576,646  

Accrued royalties, net of current

     293,626       291,185  

Deferred revenues, net of current

     —         9,713  

Deferred tax liabilities, net

     157,404       157,945  

Other long-term liabilities

     67,782       68,015  
  

 

 

   

 

 

 

Total long-term liabilities

     2,403,930       2,417,888  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

    

SHAREHOLDERS’ EQUITY:

    

Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized; 166,974,870 and 164,785,083 shares issued at June 30, 2018 and December 31, 2017, respectively, and 166,590,504 and 164,400,717 shares outstanding at June 30, 2018 and December 31, 2017, respectively

     17       16  

Treasury stock, 384,366 ordinary shares at June 30, 2018 and December 31, 2017

     (4,585     (4,585

Additional paid-in capital

     2,306,754       2,248,979  

Accumulated other comprehensive loss

     (1,128     (983

Accumulated deficit

     (1,440,908     (1,252,329
  

 

 

   

 

 

 

Total shareholders’ equity

     860,150       991,098  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 3,989,725     $ 4,203,955  
  

 

 

   

 

 

 

 

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Horizon Pharma plc

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2018     2017     2018     2017  

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net loss

   $ (32,836   $ (209,536   $ (190,164   $ (300,106

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

 

     

Depreciation and amortization expense

     68,540       71,531       137,447       143,014  

Equity-settled share-based compensation

     30,721       29,123       58,554       57,960  

Royalty accretion

     14,758       12,735       29,475       25,694  

Royalty liability remeasurement

     —         —         (2,151     (2,944

Impairment of long-lived assets

     —         22,270       37,853       22,270  

Amortization of debt discount and deferred financing costs

     5,690       5,206       11,185       10,629  

Deferred income taxes

     (3,433     (31,791     (1,753     (79,486

Acquired in-process research & development expense

     —         148,609       —         148,609  

Gain on divestiture

     —         (2,635     —         (2,635

Loss on debt extinguishment

     —         —         —         533  

Foreign exchange and other adjustments

     580       (174     459       613  

Changes in operating assets and liabilities:

        

Accounts receivable

     678       (6,209     1,742       (97,267

Inventories

     (2,741     30,686       11,549       67,736  

Prepaid expenses and other current assets

     (11,934     4,879       (21,738     2,434  

Accounts payable

     (10,120     (6,255     (3,592     29,823  

Accrued trade discounts and rebates

     19,982       871       (52,138     116,950  

Accrued expenses and accrued royalties

     (18,553     (36,876     (14,099     (86,235

Deferred revenues

     1,817       1,002       333       384  

Other non-current assets and liabilities

     (1,361     14,489       (1,988     14,755  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     61,788       47,925       974       72,731  
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Payments for acquisitions, net of cash acquired

     —         (167,850     —         (167,850

Proceeds from divestiture, net of cash divested

     —         69,072       —         69,072  

Payment related to license agreement

     —         —         (12,000     —    

Purchases of property and equipment

     (96     (1,207     (762     (2,627
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (96     (99,985     (12,762     (101,405
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Repayment of term loans

     (25,598     (2,125     (27,722     (774,875

Net proceeds from term loans

     —         —         —         847,768  

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

     —         11       —         11  

Proceeds from the issuance of ordinary shares through ESPP programs

     4,720       4,029       4,734       3,856  

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

     2,727       753       3,672       1,297  

Payment of employee withholding taxes relating to share-based awards

     (5,668     (925     (9,185     (5,202

Repurchase of ordinary shares

     —         (992     —         (992
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (23,819     751       (28,501     71,863  
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash

     (1,988     2,494       (1,003     2,196  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     35,885       (48,815     (41,292     45,385  

Cash, cash equivalents and restricted cash, beginning of the period(1)

     680,720       610,350       757,897       516,150  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash, end of the period(1)

   $ 716,605     $ 561,535     $ 716,605     $ 561,535  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Amounts include restricted cash balance in accordance with ASU No. 2016-18. Cash and cash equivalents excluding restricted cash are shown on the balance sheet.

 

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Horizon Pharma plc

Segment Operating Income – 2017 Historical Information (Unaudited)

(in millions)

 

     Q1 17      Q2 17      Q3 17      Q4 17      FY17  

Segment Net Sales

              

Orphan & Rheumatology

   $ 155.2      $ 172.1      $ 175.6      $ 178.0      $ 680.9  

Primary Care

     65.6        117.4        96.1        96.2        375.3  

Segment Operating Income

              

Orphan & Rheumatology

   $ 49.7      $ 64.7      $ 65.5      $ 61.2      $ 241.1  

Primary Care

     2.6        62.4        42.2        41.9        149.1  

 

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Horizon Pharma plc

Net Debt Reconciliation (Unaudited)

(in thousands)

 

     As of  
     June 30,
2018
     December 31,
2017
 

Long-term debt-current portion

   $ —        $ 10,625  

Long-term debt, net of current

     1,562,013        1,576,646  

Exchangeable notes, net

     323,105        314,384  
  

 

 

    

 

 

 

Total Debt

     1,885,118        1,901,655  

Debt discount

     97,737        108,054  

Deferred financing fees

     10,171        11,041  
  

 

 

    

 

 

 

Total Principal Amount Debt

     1,993,026        2,020,750  

Less: cash and cash equivalents

     710,211        751,368  
  

 

 

    

 

 

 

Net Debt

   $ 1,282,815      $ 1,269,382  
  

 

 

    

 

 

 

 

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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 June 30,     Six Months Ended June 30,  
     2018     2017     2018     2017  

GAAP net loss

   $ (32,836   $ (209,536   $ (190,164   $ (300,106

Non-GAAP adjustments:

        

Acquisition/divestiture-related costs

     1,775       153,385       5,686       163,424  

Restructuring and realignment costs

     7,039       5,193       10,381       5,193  

Litigation settlements

     4,250       —         4,250       —    

Amortization, accretion and step-up:

        

Intangible amortization expense

     66,989       69,776       134,344       139,453  

Accretion of royalty liabilities

     14,797       12,735       29,515       25,694  

Amortization of debt discount and deferred financing costs

     5,691       5,206       11,187       10,629  

Inventory step-up expense

     53       33,895       17,129       74,490  

Impairment of long-lived assets

     —         22,270       37,853       22,270  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Share-based compensation

     30,721       27,768       58,554       56,237  

Depreciation

     1,551       1,755       3,104       3,561  

Gain on divestiture

     —         (5,856     —         (5,856

Charges relating to discontinuation of Friedreich’s ataxia program

     272       (3,103     1,222       (3,103

Drug substance harmonization costs

     475       745       1,279       5,044  

Upfront and milestone payments related to license agreements

     —         —         90       —    

Fees related to term loan refinancings

     15       (45     42       4,098  

Loss on debt extinguishment

     —         —         —         533  

Royalties for medicines acquired through business combinations

     (13,259     (11,622     (25,780     (22,939
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of pre-tax non-GAAP adjustments

     120,369       312,102       286,705       475,784  

Income tax effect of pre-tax non-GAAP adjustments

     (7,015     (34,272     24,668       (72,375

Other non-GAAP income tax adjustments

     —         —         (35,893     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     113,354       277,830       275,480       403,409  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net Income

   $ 80,518     $ 68,294     $ 85,316     $ 103,303  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share:

        

Weighted average ordinary shares—Basic

     165,536,826       162,931,930       164,921,722       162,486,946  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share—Basic:

        

GAAP loss per share—Basic

   $ (0.20   $ (1.29   $ (1.15   $ (1.85

Non-GAAP adjustments

     0.69       1.71       1.67       2.49  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share—Basic

   $ 0.49     $ 0.42     $ 0.52     $ 0.64  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares—Diluted

        

Weighted average ordinary shares—Basic

     165,536,826       162,931,930       164,921,722       162,486,946  

Ordinary share equivalents

     3,820,913       2,033,141       3,678,249       2,499,409  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares—Diluted

     169,357,739       164,965,071       168,599,971       164,986,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share—Diluted

        

GAAP loss per share—Diluted

   $ (0.20   $ (1.29   $ (1.15   $ (1.85

Non-GAAP adjustments

     0.69       1.71       1.67       2.49  

Diluted earnings per share effect of ordinary share equivalents

     (0.01     (0.01     (0.01     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share—Diluted

   $ 0.48     $ 0.41     $ 0.51     $ 0.63  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

EBITDA (Unaudited)

(in thousands, except percentages)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2018     2017     2018     2017  

GAAP net loss

   $ (32,836   $ (209,536   $ (190,164   $ (300,106

Depreciation

     1,551       1,755       3,104       3,561  

Amortization, accretion and step-up:

        

Intangible amortization expense

     66,989       69,776       134,344       139,453  

Accretion of royalty liabilities

     14,797       12,735       29,515       25,694  

Amortization of deferred revenue

     —         (207     —         (411

Inventory step-up expense

     53       33,895       17,129       74,490  

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

     31,030       31,608       61,484       63,591  

Expense (benefit) for income taxes

     3,962       (1,767     3,596       (49,320
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 85,546     $ (61,741   $ 59,008     $ (43,048
  

 

 

   

 

 

   

 

 

   

 

 

 

Other non-GAAP adjustments:

        

Acquisition/divestiture-related costs

     1,775       153,385       5,686       163,424  

Restructuring and realignment costs

     7,039       5,193       10,381       5,193  

Litigation settlements

     4,250       —         4,250       —    

Impairment of long-lived assets

     —         22,270       37,853       22,270  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Share-based compensation

     30,721       27,768       58,554       56,237  

Charges relating to discontinuation of Friedreich’s ataxia program

     272       (3,103     1,222       (3,103

Drug substance harmonization costs

     475       745       1,279       5,044  

Upfront and milestone payments related to license agreements

     —         —         90       —    

Fees related to term loan refinancings

     15       (45     42       4,098  

Loss on debt extinguishment

     —         —         —         533  

Gain on divestiture

     —         (5,856     —         (5,856

Royalties for medicines acquired through business combinations

     (13,259     (11,622     (25,780     (22,939
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of other non-GAAP adjustments

     31,288       188,735       91,426       221,957  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 116,834     $ 126,994     $ 150,434     $ 178,909  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

Operating Income (Unaudited)

(in thousands, except percentages)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2018     2017     2018     2017  

GAAP Operating Income (Loss)

   $ 1,814     $ (185,667   $ (125,494   $ (291,050

Non-GAAP adjustments:

        

Acquisition/divestiture-related costs

     1,775       153,385       5,686       163,424  

Restructuring and realignment costs

     7,039       5,193       10,381       5,193  

Litigation settlements

     4,250       —         4,250       —    

Amortization, accretion and step-up:

        

Intangible amortization expense

     66,989       69,776       134,344       139,453  

Accretion of royalty liabilities

     14,797       12,735       29,515       25,694  

Inventory step-up expense

     53       33,895       17,129       74,490  

Impairment of long-lived assets

     —         22,270       37,853       22,270  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Share-based compensation

     30,721       27,768       58,554       56,237  

Depreciation

     1,551       1,755       3,104       3,561  

Charges relating to discontinuation of Friedreich’s ataxia program

     272       (3,103     1,222       (3,103

Drug substance harmonization costs

     475       745       1,279       5,044  

Upfront and milestone payments related to license agreements

     —         —         90       —    

Fees related to term loan refinancings

     15       (45     42       4,098  

Royalties for medicines acquired through business combinations

     (13,259     (11,622     (25,780     (22,939
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     114,678       312,752       275,518       470,478  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Operating Income

   $ 116,492     $ 127,085     $ 150,024     $ 179,428  
  

 

 

   

 

 

   

 

 

   

 

 

 

Orphan and Rheumatology Segment Operating Income

     70,609       64,662       113,713       114,386  

Primary Care Segment Operating Income

     45,883       62,423       36,311       65,042  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Segment Operating Income

   $ 116,492     $ 127,085     $ 150,024     $ 179,428  

Amortization of deferred revenue

     —         (207     —         (411

Foreign exchange (loss) gain

     (5     151       (115     (108

Other income, net

     347       (35     525       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 116,834     $ 126,994     $ 150,434     $ 178,909  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

Gross Profit and Operating Cash Flow (Unaudited)

(in thousands, except percentages)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2018     2017     2018     2017  

Non-GAAP Gross Profit:

        

GAAP gross profit

   $ 202,753     $ 159,357     $ 310,542     $ 241,100  

Non-GAAP gross profit adjustments:

        

Acquisition/divestiture-related costs

     33       (48     52       32  

Share-based compensation

     1,110       573       1,893       1,001  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Intangible amortization expense

     66,787       69,574       133,942       139,048  

Accretion of royalty liabilities

     14,797       12,735       29,515       25,694  

Inventory step-up expense

     53       33,895       17,129       74,490  

Depreciation

     176       183       353       366  

Charges relating to discontinuation of Friedreich’s ataxia program

     185       (3,103     1,135       (3,103

Drug substance harmonization costs

     475       745       1,279       5,044  

Royalties for medicines acquired through business combinations

     (13,259     (11,622     (25,780     (22,939
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of Non-GAAP adjustments

     70,357       102,932       157,367       216,689  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 273,110     $ 262,289     $ 467,909     $ 457,789  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP gross profit %

     67.0     55.0     59.0     47.2

Non-GAAP gross profit %

     90.2     90.6     88.8     89.7

GAAP cash provided by operating activities

   $ 61,788     $ 47,925     $ 974     $ 72,731  

Cash payments for acquisition/divestiture-related costs

     1,597       12,620       5,555       33,012  

Cash payments for restructuring and realignment costs

     4,230       1,664       4,677       1,664  

Cash payments for litigation settlements

     1,500       16,250       1,500       32,500  

Cash payments for upfront and milestone payments related to license agreement

     —         —         275       —    

Cash payments drug substance harmonization costs

     5,960       5,006       5,960       5,006  

Cash payments for discontinuation of Friedreich’s ataxia program

     108       2,519       3,507       3,001  

Cash payments relating to term loan refinancings

     13       455       31       3,767  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating cash flow

   $ 75,196     $ 86,439     $ 22,479     $ 151,681  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)

(in millions, except percentages)

 

     Q2 2018  
     Pre-tax Net
(Loss) Income
    Income Tax
(Benefit) Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported—GAAP

   $ (28.9   $ 3.9       (13.7 )%    $ (32.8   $ (0.20

Non-GAAP adjustments

     120.4       7.1         113.3    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 91.5     $ 11.0       12.0   $ 80.5     $ 0.48  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Q2 2017  
     Pre-tax Net
(Loss) Income
    Income Tax
(Benefit) Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported—GAAP

   $ (211.3   $ (1.8     0.8   $ (209.5   $ (1.29

Non-GAAP adjustments

     312.1       34.3         277.8    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 100.8     $ 32.5       32.2   $ 68.3     $ 0.41  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     YTD 2018  
     Pre-tax Net
(Loss) Income
    Income Tax
(Benefit) Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported—GAAP

   $ (186.6   $ 3.6       (1.9 )%    $ (190.2   $ (1.15

Non-GAAP adjustments

     286.7       11.2         275.5    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 100.1     $ 14.8       14.8   $ 85.3     $ 0.51  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

As reported—GAAP

   $ (349.4   $ (49.3     14.1   $ (300.1   $ (1.85

Non-GAAP adjustments

     475.8       72.4         403.4    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 126.4     $ 23.1       18.2   $ 103.3     $ 0.63  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended June 30, 2018

(Unaudited)

 

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

GAAP as reported

   $ (100,082   $ (24,265   $ (176,674   $ (31,030   $ (3,962

Non-GAAP Adjustments (in thousands):

          

Acquisition/divestiture-related costs(1)

     33       18       1,724       —         —    

Restructuring and realignment costs(2)

     —         1,733       5,306       —         —    

Litigation settlements(3)

     —         —         4,250       —         —    

Amortization, accretion and step-up:

          

Intangible amortization expense(4)

     66,787       —         202       —         —    

Accretion of royalty liability(5)

     14,797       —         —         —         —    

Amortization of debt discount and deferred financing costs(6)

     —         —         —         5,691       —    

Inventory step-up expense(7)

     53       —         —         —         —    

Share-based compensation(10)

     1,110       2,209       27,402       —         —    

Depreciation(11)

     176       —         1,375       —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(12)

     185       87       —         —         —    

Drug substance harmonization costs(13)

     475       —         —         —         —    

Fees related to term loan refinancings(15)

     —         —         15       —         —    

Royalties for medicines acquired through business combinations(16)

     (13,259     —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(17)

     —         —         —         —         (7,015
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     70,357       4,047       40,274       5,691       (7,015
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ (29,725   $ (20,218   $ (136,400   $ (25,339   $ (10,977
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended June 30, 2017

(Unaudited)

 

     COGS     Research &
Development
    Selling, General
& Administrative
    Impairment of
Long-Lived Assets
    Interest
Expense
    Gain on
Divestiture
    Income Tax Benefit
(Expense)
 

GAAP as reported

   $ (130,150   $ (163,101   $ (159,653   $ (22,270   $ (31,608   $ 5,856     $ 1,767  

Non-GAAP Adjustments (in thousands):

              

Acquisition/divestiture-related costs(1)

     (48     148,080       5,353       —         —         —         —    

Restructuring and realignment costs(2)

     —         —         5,193       —         —         —         —    

Amortization, accretion and step-up:

              

Intangible amortization
expense(4)

     69,574       —         202       —         —         —         —    

Accretion of royalty liability(5)

     12,735       —         —         —         —         —         —    

Amortization of debt discount and deferred financing costs(6)

     —         —         —         —         5,206       —         —    

Inventory step-up expense(7)

     33,895       —         —         —         —         —         —    

Impairment of long-lived assets(8)

     —         —         —         22,270       —         —         —    

Share-based compensation(10)

     573       2,313       24,882       —         —         —         —    

Depreciation(11)

     183       —         1,572       —         —         —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(12)

     (3,103     —         —         —         —         —         —    

Drug substance harmonization
costs(13)

     745       —         —         —         —         —         —    

Fees related to term loan
refinancings(15)

     —         —         (45     —         —         —         —    

Royalties for medicines acquired through business combinations(16)

     (11,622     —         —         —         —         —         —    

Gain on divestiture(20)

     —         —         —         —         —         (5,856     —    

Income tax effect on pre-tax non-GAAP adjustments(17)

     —         —         —         —         —         —         (34,272
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     102,932       150,393       37,157       22,270       5,206       (5,856     (34,272
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ (27,218   $ (12,708   $ (122,496   $ —       $ (26,402   $ —       $ (32,505
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

Certain Income Statement Line Items-Non - GAAP Adjusted

For the Six Months Ended June 30, 2018

(Unaudited)

 

                                  Income Tax  
          Research &     Selling, General     Impairment of     Interest     Benefit  
    COGS     Development     & Administrative     Long-Lived Assets     Expense     (Expense)  

GAAP as reported

  $ (216,174   $ (41,910   $ (356,273   $ (37,853   $ (61,484   $ (3,596

Non-GAAP Adjustments (in thousands):

           

Acquisition/divestiture-related costs(1)

    52       (67     5,701       —         —         —    

Restructuring and realignment costs(2)

    —         1,733       8,648       —         —         —    

Litigation settlements(3)

    —         —         4,250       —         —         —    

Amortization, accretion and step-up:

           

Intangible amortization expense(4)

    133,942       —         402       —         —         —    

Accretion of royalty liability(5)

    29,515       —         —         —         —         —    

Amortization of debt discount and deferred financing
costs(6)

    —         —         —         —         11,187       —    

Inventory step-up expense(7)

    17,129       —         —         —         —         —    

Impairment of long-lived assets(8)

    —         —         —         37,853       —         —    

Remeasurement of royalties for medicines acquired through business combinations(9)

    (2,151     —         —         —         —         —    

Share-based compensation(10)

    1,893       4,649       52,012       —         —         —    

Depreciation(11)

    353       —         2,751       —         —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(12)

    1,135       87       —         —         —         —    

Drug substance harmonization costs(13)

    1,279       —         —         —         —         —    

Upfront and milestone payments related to license agreements(14)

    —         90       —         —         —         —    

Fees related to term loan refinancings(15)

    —         —         42       —         —         —    

Royalties for medicines acquired through business combinations(16)

    (25,780     —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(17)

    —         —         —         —         —         24,668  

Other non-GAAP income tax adjustments(18)

    —         —         —         —         —         (35,893
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    157,367       6,492       73,806       37,853       11,187       (11,225
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ (58,807   $ (35,418   $ (282,467   $ —       $ (50,297   $ (14,821
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Six Months Ended June 30, 2017

(Unaudited)

 

                                              Income Tax  
          Research &     Selling, General     Impairment of     Interest     Gain on     Loss on Debt     Benefit  
    COGS     Development     & Administrative     Long-Lived Assets     Expense     Divestiture     Extinguishment     (Expense)  

GAAP as reported

  $ (269,266   $ (176,162   $ (333,718   $ (22,270   $ (63,591   $ 5,856     $ (533   $ 49,320  

Non-GAAP Adjustments (in thousands):

               

Acquisition/divestiture-related costs(1)

    32       148,257       15,135       —         —         —         —         —    

Restructuring and realignment costs(2)

    —         —         5,193       —         —         —         —         —    

Amortization, accretion and step-up:

               

Intangible amortization expense(4)

    139,048       —         405       —         —         —         —         —    

Accretion of royalty liability(5)

    25,694       —         —         —         —         —         —         —    

Amortization of debt discount and deferred financing costs(6)

    —         —         —         —         10,629       —         —         —    

Inventory step-up expense(7)

    74,490       —         —         —         —         —         —         —    

Impairment of long lived assets(8)

    —         —         —         22,270       —         —         —         —    

Remeasurement of royalties for medicines acquired through business combinations(9)

    (2,944     —         —         —         —         —         —         —    

Share-based compensation(10)

    1,001       4,362       50,874       —         —         —         —         —    

Depreciation(11)

    366       —         3,195       —         —         —         —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(12)

    (3,103     —         —         —         —         —         —         —    

Drug substance harmonization costs(13)

    5,044       —         —         —         —         —         —         —    

Fees related to term loan refinancing(15)

    —         —         4,098       —         —         —         —         —    

Royalties for medicines acquired through business combinations(16)

    (22,939     —         —         —         —         —         —         —    

Loss on debt extinguishment(19)

    —         —         —         —         —         —         533       —    

Gain on divestiture(20)

    —         —         —         —         —         (5,856     —         —    

Income tax effect on pre-tax non-GAAP adjustments(17)

    —         —         —         —         —         —         —         (72,375
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    216,689       152,619       78,900       22,270       10,629       (5,856     533       (72,375
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ (52,577   $ (23,543   $ (254,818   $ —       $ (52,962   $ —       $ —       $ (23,055
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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.

 

(2)

Represents expenses, including severance costs and consulting fees, related to the restructuring and realignment activities.

 

(3)

During the three and six months ended June 30, 2018, the Company recorded $4.3 million of expense for litigation settlements related to RAVICTI and PENNSAID 2%.

 

(4)

Intangible amortization expenses are associated with the Company’s intellectual property rights, developed technology and customer relationships related to ACTIMMUNE, BUPHENYL, KRYSTEXXA, LODOTRA, MIGERGOT, PENNSAID 2%, PROCYSBI, RAVICTI, RAYOS and VIMOVO.

 

(5)

Represents accretion expense associated with ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO contingent royalty liabilities.

 

(6)

Represents amortization of debt discount and deferred financing costs associated with the Company’s debt.

 

(7)

During the three and six months ended June 30, 2018, the Company recognized in cost of goods sold nil and $17.1 million, respectively, for inventory step-up expense primarily related to KRYSTEXXA inventory sold.

During the three and six months ended June 30, 2017, the Company recognized in cost of goods sold $19.3 million and $33.7 million, respectively, for inventory step-up expense related to KRYSTEXXA inventory sold and $14.6 million and $40.8 million, respectively, for inventory step-up expense related to PROCYSBI and QUINSAIR inventory sold.

 

(8)

During the six months ended June 30, 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.

Impairment of long-lived assets during the three and six months ended June 30, 2017 of $22.3 million relates to an impairment recorded following payment to Boehringer Ingelheim International for the acquisition of certain rights to interferon gamma-1b. This was presented in the “charges relating to the discontinuation of the Friedreich’s ataxia program” line item in the reconciliation of GAAP to non-GAAP measures during the year ended December 31, 2017.

 

(9)

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.

 

(10)

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 previous cash-settled long-term incentive plan and its employee stock purchase plan.

 

(11)

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

 

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(12)

Charges relating to discontinuation of the Friedreich’s ataxia program include a $1.1 million increase and $3.1 million reduction during the six months ended June 30, 2018 and 2017, respectively, in cost of goods sold relating to the purchase of additional units of ACTIMMUNE.

 

(13)

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 and six months ended June 30, 2018, the Company incurred costs of $0.5 million and $1.3 million, respectively, related to these activities that qualify for exclusion in the Company’s non-GAAP financial measures under its non-GAAP cost policy.

 

(14)

Represents upfront and milestone payments related to license agreements.

 

(15)

Represents arrangement and other fees relating to the refinancing of the Company’s term loans.

 

(16)

Royalties of $13.3 million and $25.8 million were incurred during the three and six months ended June 30, 2018, respectively, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO.

 

(17)

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.

 

(18)

Other non-GAAP income tax adjustments during the six months ended June 30, 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 carry forwards 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.

 

(19)

During the six months ended June 30, 2017, the Company recorded a loss on debt extinguishment of $0.5 million which comprised a write-off of $0.4 million in debt discount and deferred financing costs and an early redemption payment of $0.1 million.

 

(20)

On June 23, 2017, the Company completed the divestiture of a European subsidiary that owns the marketing rights to PROCYSBI 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 $5.9 million in the three and six months ended June 30, 2017.

 

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