8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 7, 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 November 7, 2018, Horizon Pharma plc issued a press release announcing its financial results for the third quarter ended September 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 November 7, 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: November 7, 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

 

LOGO

Horizon Pharma plc Reports Third-Quarter Net Sales Growth of 20 Percent

Driven by Orphan and Rheumatology Net Sales Growth of 25 Percent;

Increases Full-Year 2018 Adjusted EBITDA Guidance

— Quarterly Net Sales Increased 20 Percent to $325.3 Million, a Record for the Company;

Third-Quarter 2018 GAAP Net Income of $26.0 Million; Adjusted EBITDA of $149.9 Million —

— Quarterly Orphan and Rheumatology Segment Net Sales Increased 25 Percent to $219.9 Million;

Represented 68 Percent of Total Company Net Sales —

— Third-Quarter 2018 KRYSTEXXA® Net Sales Growth of 64 Percent; Continue to Expect Full-Year 2018

Net Sales Growth of More Than 65 Percent —

— Adapting KRYSTEXXA MIRROR Clinical Trial to Support Potential for Registration;

Decision Follows Encouraging External Case Series Showing Markedly Improved Patient Response by

Adding Methotrexate to KRYSTEXXA Treatment —

— Strong Cash Position of $807.0 Million; Net Debt to Last Twelve Months Adjusted EBITDA

Leverage Ratio of 2.9 Times —

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

Increasing Full-Year Adjusted EBITDA Guidance Range to $420 Million to $430 Million —

DUBLIN, IRELAND Nov. 7, 2018 – Horizon Pharma plc (NASDAQ: HZNP) today announced its third-quarter 2018 financial results, confirmed its full-year 2018 net sales guidance range and increased its adjusted EBITDA guidance range.

“We generated record quarterly net sales for the Company and for our orphan and rheumatology segment, driven by accelerating KRYSTEXXA growth and continued strong performance from our rare disease medicines,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc.

“Our clinical programs continue to advance, with the recent presentation of new teprotumumab Phase 2 data that underscore the durable efficacy observed in thyroid eye disease,” continued Walbert. “We are also working to maximize the role of KRYSTEXXA to help more patients, including adapting our MIRROR immunomodulation clinical trial based on promising recent data to support the potential for registration. These advancements, in addition to potential asset acquisition opportunities, support our strategy to build a robust pipeline enabling sustainable long-term growth.”

 

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Financial Highlights

 

(in millions except for per share amounts and percentages)    Q3 18      Q3 17     %
Change
     YTD 18     YTD 17     %
Change
 

Net sales

   $  325.3      $  271.6       20      $ 852.0     $ 782.0       9  

Net income (loss)

     26.0        (64.0     NM        (164.1     (364.1     55  

Non-GAAP net income

     112.6        43.1       161        197.9       146.4       35  

Adjusted EBITDA

     149.9        108.1       39        300.3       287.0       5  

Earnings (loss) per share - diluted

   $ 0.15      $  (0.39     NM      $  (0.99   $  (2.24     56  

Non-GAAP earnings per share - diluted

     0.65        0.26       150        1.16       0.89       30  

Third-Quarter and Recent Company Highlights

 

   

New Phase 2 Teprotumumab Data Presented at American Thyroid Association and American Academy of Ophthalmology: At Week 24, 71.4 percent (30 of 42) of patients responded with reductions in proptosis (eye bulging) of 2mm or more and 61.9 percent of patients (26 of 42) responded with improvement of at least one grade in diplopia (double vision), which is considered a clinically meaningful change. At Week 72, 48 weeks following the study completion and nearly a year off therapy, 53.3 percent of the Week 24 proptosis responders maintained the reductions and 69.2 percent of patients with diplopia improvement maintained the benefit. These results demonstrate that teprotumumab has the potential to be a disease-modifying therapy.

Teprotumumab is a fully human monoclonal antibody IGF-1R inhibitor in Phase 3 development 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 and diplopia as well as quality-of-life issues.

 

   

New KRYSTEXXA Immunomodulation Data Presented at American College of Rheumatology/Association of Rheumatology Health Professionals (ACR): At the 2018 ACR meeting in October, investigators shared results from a case series of nine sequential patients with uncontrolled gout (chronic gout that is refractory to conventional therapies), evaluating the administration of KRYSTEXXA with the immunomodulator methotrexate to improve the durability of KRYSTEXXA response. The study states that of the nine patients followed out to five months, all nine were responders as defined by >80 percent of serum uric acid levels being maintained at goal <6.0 mg/dL during the observation period.

In its clinical trial MIRROR (Methotrexate to Increase Response Rates in Patients with Uncontrolled GOut Receiving KRYSTEXXA), the Company is evaluating the administration of KRYSTEXXA with methotrexate to potentially improve the durability of response rate. Following the external case series data, the Company is adapting its MIRROR trial to support the potential for registration. Methotrexate has been shown to reduce anti-drug antibodies when combined with biologics and is the immunomodulator most commonly used by rheumatologists.

 

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Uncontrolled Gout and KRYSTEXXA Data Presented at ACR and American Society of Nephrology (ASN): The Company participated in both the ACR and ASN medical meetings, all in October. At ACR, multiple studies were shared demonstrating the extensive burden of uncontrolled gout and its impact on patients. At ASN, multiple studies were shared demonstrating that people who have undergone a kidney transplant experience higher rates of uncontrolled gout compared to other renal disease patients and mortality rates were higher in kidney transplant recipients diagnosed with gout.

 

   

Intellectual Property Update: The Company settled litigation with Par Pharmaceutical (part of Endo International), the first generic filer on RAVICTI®. Par’s license to enter the market with a generic version of RAVICTI would begin on July 1, 2025.

Research and Development Programs

Orphan Candidates and Programs:

 

   

Teprotumumab: The pivotal Phase 3 confirmatory study, OPTIC, is evaluating teprotumumab for the treatment of moderate-to-severe active TED, which has no FDA-approved treatments. OPTIC completed enrollment on Sept. 4, 2018, and topline results are expected in the second quarter of 2019. OPTIC-X, a 48-week open-label extension study in which participants may receive up to eight additional infusions of teprotumumab, continues to enroll patients. The objective of OPTIC-X is to evaluate the potential for retreatment and longer treatment with teprotumumab.

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 MIRROR, as well as two investigator-initiated trials. The three trials are evaluating different immunomodulators, each of which are used by rheumatologists.

 

   

MIRROR: a Horizon Pharma-sponsored multicenter, efficacy and safety study for KRYSTEXXA co-administered with methotrexate to evaluate the impact of methotrexate on response rate. Enrollment began in the fourth quarter of 2018. The Company is currently adapting the MIRROR clinical trial design to support the potential for registration and expects to begin enrolling patients into the adapted protocol in the second quarter of 2019.

 

   

Two additional investigator-initiated trials co-administer KRYSTEXXA with mycophenolate mofetil (MMF) and with azathioprine.

 

   

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.

 

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Third-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: Third-quarter 2018 net sales were $325.3 million, an increase of 20 percent, driven by continued strong growth of the Company’s orphan and rheumatology medicines.

 

   

Gross Profit: Under U.S. GAAP in the third quarter of 2018, the gross profit ratio was 69.6 percent compared to 53.8 percent in the third quarter of 2017. The non-GAAP gross profit ratio in the third quarter of 2018 was 91.2 percent compared to 89.6 percent in the third quarter of 2017.

 

   

Operating Expenses: R&D expenses were 6.5 percent of net sales and selling, general and administrative (SG&A) expenses were 49.7 percent of net sales. Non-GAAP R&D expenses were 5.9 percent of net sales and non-GAAP SG&A expenses were 39.3 percent of net sales.

 

   

Income Tax Rate: In the third quarter of 2018, the income tax benefit rate on a GAAP basis was 7.0 percent and the income tax expense rate on a non-GAAP basis was 10.1 percent.

 

   

Net Income: On a GAAP basis in the third quarter of 2018, net income was $26.0 million. Third-quarter 2018 non-GAAP net income was $112.6 million.

 

   

Adjusted EBITDA: Third-quarter 2018 adjusted EBITDA was $149.9 million.

 

   

Earnings (Loss) per Share: On a GAAP basis in the third quarter of 2018, diluted earnings per share was $0.15; in the third quarter of 2017, diluted loss per share was $0.39. Non-GAAP diluted earnings per share in the third quarter of 2018 and 2017 were $0.65 and $0.26, respectively. Weighted average shares outstanding used for calculating GAAP diluted earnings per share and non-GAAP diluted earnings per share in the third quarter of 2018 were 167.0 million and 172.5 million, respectively.

Third-Quarter Segment Results

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.

 

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Orphan and Rheumatology Segment

 

(in millions except for percentages)    Q3 18      Q3 17      %
Change
    YTD 18      YTD 17      %
Change
 

RAVICTI®(1)

     60.4        50.9        19       166.5        142.1        17  

PROCYSBI®

     41.4        33.5        23       114.7        104.5        10  

ACTIMMUNE®

     25.8        29.2        (11     78.1        84.2        (7

BUPHENYL®

     4.4        3.7        19       15.3        16.2        (5

QUINSAIRTM(1)

     0.1        0.1        0       0.3        3.3        (90

Orphan

   $ 132.1      $ 117.4        12     $ 374.9      $ 350.3        7  

KRYSTEXXA®

     70.2        42.8        64       175.6        112.7        56  

RAYOS®

     17.2        14.6        18       41.3        36.5        13  

LODOTRA®

     0.4        0.7        (52     2.0        3.4        (41

Rheumatology

   $ 87.8      $ 58.1        51     $ 218.9      $ 152.6        43  
  

 

 

    

 

 

      

 

 

    

 

 

    

Orphan and Rheumatology Net Sales

   $ 219.9      $ 175.5        25     $ 593.8      $ 502.9        18  
  

 

 

    

 

 

      

 

 

    

 

 

    

Orphan and Rheumatology Segment Operating Income

   $ 91.5      $ 65.6        40     $ 205.3      $ 179.9        14  

 

(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. Year-to-date 2017 net sales of PROCYSBI and QUINSAIR in EMEA were $9.5 million.

 

   

Third-quarter 2018 net sales of the orphan and rheumatology segment were $219.9 million, an increase of 25.3 percent over the prior year’s quarter, driven by continued strong KRYSTEXXA growth as well as growth of RAVICTI and PROCYSBI. Third-quarter 2018 orphan and rheumatology segment operating income was $91.5 million, an increase of 39.5 percent.

Primary Care Segment

 

(in millions except for percentages)    Q3 18      Q3 17      %
Change
    YTD 18      YTD 17      %
Change
 

PENNSAID® 2%

     51.5        48.3        7       125.9        141.1        (11

DUEXIS®

     34.2        31.6        8       80.6        92.9        (13

VIMOVO®

     18.6        15.1        24       48.9        41.1        19  

MIGERGOT®

     1.1        1.1        (4     2.8        4.0        (31
  

 

 

    

 

 

      

 

 

    

 

 

    

Primary Care Net Sales

   $ 105.4      $ 96.1        10     $ 258.2      $ 279.1        (8
  

 

 

    

 

 

      

 

 

    

 

 

    

Primary Care Segment Operating Income

   $ 58.0      $ 42.2        37     $ 94.3      $ 107.3        (12

 

   

Third-quarter 2018 net sales of the primary care segment were $105.4 million and operating income was $58.0 million.

Cash Flow Statement and Balance Sheet Highlights

 

   

On a GAAP basis in the third quarter of 2018, operating cash flow was $84.9 million. Non-GAAP operating cash flow was $95.6 million.

 

   

The Company had cash and cash equivalents of $807.0 million as of Sept. 30, 2018.

 

   

As of Sept. 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 Sept. 30, 2018, net debt was $1.186 billion.

 

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Full-Year 2018 Guidance

The Company confirmed its full-year 2018 net sales guidance of $1.170 billion to $1.200 billion and continues to project full-year 2018 net sales growth for KRYSTEXXA of more than 65 percent. The Company increased its full-year 2018 adjusted EBITDA guidance range to $420 million to $430 million, from $400 million to $420 million.

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.

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, like us on Facebook or explore career opportunities on LinkedIn.

Note Regarding Use of Non-GAAP Financial Measures

EBITDA, or earnings before interest, taxes, depreciation and amortization, and adjusted EBITDA are used and provided by Horizon Pharma as non-GAAP financial measures. Horizon Pharma provides certain other financial measures such as non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross profit and gross profit ratio, non-GAAP operating expenses, non-GAAP 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, gain from sale of assets, 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

 

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between periods and with respect to projected information. In addition, these non-GAAP financial measures are among the indicators Horizon Pharma’s management uses for planning and forecasting purposes and measuring the Company’s performance. For example, adjusted EBITDA is used by Horizon Pharma as one measure of management performance under certain incentive compensation arrangements. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies. Horizon Pharma has not provided a reconciliation of its full-year 2018 adjusted EBITDA outlook to an expected net income (loss) outlook because certain items such as acquisition/divestiture-related expenses and share-based compensation that are a component of net income (loss) cannot be reasonably projected due to the significant impact of changes in Horizon Pharma’s stock price, the variability associated with the size or timing of acquisitions/divestitures and other factors. These components of net income (loss) could significantly impact Horizon Pharma’s actual net income (loss).

Forward-Looking Statements

This press release contains forward-looking statements, including, but not limited to, statements related to Horizon Pharma’s full-year 2018 net sales and adjusted EBITDA guidance, expected growth in net sales of certain medicines, estimated peak annual net sales of certain medicine and medicine candidates; expected financial performance in future periods; expected timing of clinical trials and regulatory submissions and decisions, including the Phase 3 clinical trial of teprotumumab; expected expansion of investment in Horizon Pharma’s rare disease medicine pipeline and marketing of KRYSTEXXA 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.

 

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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 September 30,     Nine Months Ended September 30,  
     2018     2017     2018     2017  

Net sales

   $ 325,311     $ 271,646     $ 852,027     $ 782,012  

Cost of goods sold

     99,011       125,517       315,185       394,783  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     226,300       146,129       536,842       387,229  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Research and development

     21,169       17,928       63,079       194,090  

Selling, general and administrative

     161,585       153,952       517,858       487,670  

Impairment of long-lived assets

     1,603       —         39,455       22,270  

Gain on sale of assets

     (12,303     —         (12,303     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     172,054       171,880       608,089       704,030  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     54,246       (25,751     (71,247     (316,801
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER EXPENSE, NET:

        

Interest expense, net

     (30,437     (31,706     (91,921     (95,297

Foreign exchange gain (loss)

     35       275       (81     167  

Gain on divestiture

     —         112       —         5,968  

Loss on debt extinguishment

     —         —         —         (533

Other income, net

     453       280       978       280  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (29,949     (31,039     (91,024     (89,415
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before (benefit) expense for income taxes

     24,297       (56,790     (162,271     (406,216

(Benefit) expense for income taxes

     (1,733     7,181       1,863       (42,138
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 26,030     $ (63,971   $ (164,134   $ (364,078
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per ordinary share - basic

   $ 0.16     $ (0.39   $ (0.99   $ (2.24
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding - basic

     167,047,104       163,447,208       166,018,603       162,810,551  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per ordinary share - diluted

   $ 0.15     $ (0.39   $ (0.99   $ (2.24
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding - diluted

     172,485,757       163,447,208       166,018,603       162,810,551  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

 

     As of  
     September 30,
2018
    December 31,
2017
 

ASSETS

  

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 807,047     $ 751,368  

Restricted cash

     6,399       6,529  

Accounts receivable, net

     391,117       405,214  

Inventories, net

     53,130       61,655  

Prepaid expenses and other current assets

     81,492       43,402  
  

 

 

   

 

 

 

Total current assets

     1,339,185       1,268,168  
  

 

 

   

 

 

 

Property and equipment, net

     16,592       20,405  

Developed technology, net

     2,204,633       2,443,949  

Other intangible assets, net

     4,835       5,441  

Goodwill

     426,441       426,441  

Deferred tax assets, net

     231       3,470  

Other assets

     27,469       36,081  
  

 

 

   

 

 

 

Total assets

   $ 4,019,386     $ 4,203,955  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

    

Long-term debt—current portion

   $ —       $ 10,625  

Accounts payable

     64,794       34,681  

Accrued expenses

     194,855       175,697  

Accrued trade discounts and rebates

     359,660       501,753  

Accrued royalties—current portion

     65,501       65,328  

Deferred revenues—current portion

     6,759       6,885  
  

 

 

   

 

 

 

Total current liabilities

     691,569       794,969  
  

 

 

   

 

 

 

LONG-TERM LIABILITIES:

    

Exchangeable notes, net

     327,573       314,384  

Long-term debt, net of current

     1,563,239       1,576,646  

Accrued royalties, net of current

     295,122       291,185  

Deferred revenues, net of current

           9,713  

Deferred tax liabilities, net

     156,848       157,945  

Other long-term liabilities

     68,174       68,015  
  

 

 

   

 

 

 

Total long-term liabilities

     2,410,956       2,417,888  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:

    

Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized; 167,907,117 and 164,785,083 shares issued at September 30, 2018 and December 31, 2017, respectively, and 167,522,751 and 164,400,717 shares outstanding at September 30, 2018 and December 31, 2017, respectively

     17       16  

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

     (4,585     (4,585

Additional paid-in capital

     2,337,565       2,248,979  

Accumulated other comprehensive loss

     (1,261     (983

Accumulated deficit

     (1,414,875     (1,252,329
  

 

 

   

 

 

 

Total shareholders’ equity

     916,861       991,098  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,019,386     $ 4,203,955  
  

 

 

   

 

 

 

 

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Horizon Pharma plc

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2018     2017     2018     2017  

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net income (loss)

   $ 26,030     $ (63,971   $ (164,134   $ (364,078

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        

Depreciation and amortization expense

     69,249       70,142       206,696       213,155  

Equity-settled share-based compensation

     28,428       33,431       86,981       91,391  

Royalty accretion

     14,896       12,720       44,371       38,415  

Royalty liability remeasurement

     —         —         (2,151     (2,944

Impairment of long-lived assets

     1,603       —         39,455       22,270  

Amortization of debt discount and deferred financing costs

     5,694       5,234       16,879       15,863  

Deferred income taxes

     3,398       16,497       1,645       (62,989

Gain on sale of assets

     (12,303     —         (12,303     —    

Gain on divestiture

     —         —         —         (2,635

Acquired in-process research & development expense

     —         160       —         148,769  

Loss on debt extinguishment

     —         —         —         533  

Foreign exchange and other adjustments

     (219     (2,134     243       (1,521

Changes in operating assets and liabilities:

        

Accounts receivable

     12,318       (4,345     14,060       (101,612

Inventories

     (3,647     15,746       7,902       83,482  

Prepaid expenses and other current assets

     (13,788     (6,869     (35,526     (4,435

Accounts payable

     33,711       (48,237     30,119       (18,414

Accrued trade discounts and rebates

     (90,026     22,511       (142,164     139,461  

Accrued expenses and accrued royalties

     7,800       43,393       (6,299     (42,842

Deferred revenues

     1,130       3,386       1,462       3,770  

Other non-current assets and liabilities

     586       (29,315     (1,401     (14,559
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     84,860       68,349       85,835       141,080  
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Payment related to license agreement

     —         —         (12,000     —    

Proceeds from sale of assets

     9,424       —         9,424       —    

Proceeds from divestiture, net of cash divested

     —         —         —         69,072  

Payments for acquisitions, net of cash acquired

     —         (968     —         (168,818

Purchases of property and equipment

     (120     (1,400     (881     (4,028
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     9,304       (2,368     (3,457     (103,774
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Repayment of term loans

     —         —         (27,723     (774,875

Net proceeds from term loans

     —         —         —         847,768  

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

     —         1,778       —         1,789  

Proceeds from the issuance of ordinary shares through ESPP programs

     (23     —         4,711       3,856  

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

     6,081       465       9,753       1,762  

Payment of employee withholding taxes relating to share-based awards

     (3,697     (438     (12,882     (5,640

Repurchase of ordinary shares

     —         —         —         (992
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     2,361       1,805       (26,141     73,668  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     316       2,169       (688     4,366  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

     96,841       69,955       55,549       115,340  

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

     716,605       561,535       757,897       516,150  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 813,446     $ 631,490     $ 813,446     $ 631,490  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 Net Sales and Operating Income – 2017 Historical Information (Unaudited)

(in millions)

 

     Q1 17      Q2 17      Q3 17      Q4 17      FY17  

Segment Net Sales

              

Orphan and Rheumatology

   $ 155.2      $ 172.1      $ 175.5      $ 178.0      $ 680.8  

Primary Care

     65.6        117.4        96.1        96.2        375.3  

Segment Operating Income

              

Orphan and Rheumatology

   $ 49.7      $ 64.7      $ 65.6      $ 61.2      $ 241.2  

Primary Care

     2.6        62.4        42.2        41.9        149.1  

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

Net Income and Earnings Per Share (Unaudited)

(in thousands, except share and per share data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2018     2017     2018     2017  

GAAP net income (loss)

   $ 26,030     $ (63,971   $ (164,134   $ (364,078

Non-GAAP adjustments:

        

Acquisition/divestiture-related costs

     425       5,561       6,185       168,985  

Restructuring and realignment costs

     4,582       (290     14,889       4,903  

Litigation settlements

     1,500       —         5,750       —    

Amortization, accretion and step-up:

        

Intangible amortization expense

     67,725       68,666       202,069       208,118  

Accretion of royalty liabilities

     14,945       12,720       44,460       38,415  

Amortization of debt discount and deferred financing costs

     5,694       5,234       16,880       15,863  

Inventory step-up expense

     83       21,170       17,212       95,659  

Impairment of long-lived assets

     1,603       —         39,455       22,270  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Share-based compensation

     28,428       31,698       86,981       87,935  

Depreciation

     1,523       1,476       4,627       5,037  

Gain on sale of assets

     (12,303     —         (12,303     —    

Gain on divestiture

     —         (112     —         (5,968

Charges relating to discontinuation of Friedreich’s ataxia program

     254       (1,116     1,476       (4,219

Drug substance harmonization costs

     301       5,654       1,579       10,698  

Upfront and milestone payments related to license agreements

     (100     —         (10     —    

Fees related to term loan refinancings

     40       16       82       4,114  

Loss on debt extinguishment

     —         —         —         533  

Royalties for medicines acquired through business combinations

     (13,831     (12,031     (39,611     (34,970
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of pre-tax non-GAAP adjustments

     100,869       138,646       387,570       614,429  

Income tax effect of pre-tax non-GAAP adjustments

     (14,332     (31,548     10,336       (103,923

Other non-GAAP income tax adjustments

     —         —         (35,893     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     86,537       107,098       362,013       510,506  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net Income

   $ 112,567     $ 43,127     $ 197,879     $ 146,428  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share:

        

Weighted average ordinary shares - Basic

     167,047,104       163,447,208       166,018,603       162,810,551  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share - Basic:

        

GAAP earnings (loss) per share - Basic

   $ 0.16     $ (0.39   $ (0.99   $ (2.24

Non-GAAP adjustments

     0.51       0.65       2.18       3.14  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share - Basic

   $ 0.67     $ 0.26     $ 1.19     $ 0.90  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares - Diluted

        

Weighted average ordinary shares - Basic

     167,047,104       163,447,208       166,018,603       162,810,551  

Ordinary share equivalents

     5,438,653       2,346,684       4,621,407       2,510,909  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares - Diluted

     172,485,757       165,793,892       170,640,010       165,321,460  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share - Diluted

        

GAAP earnings (loss) per share - Diluted

   $ 0.15     $ (0.39   $ (0.99   $ (2.24

Non-GAAP adjustments

     0.50       0.65       2.18       3.14  

Diluted earnings per share effect of ordinary share equivalents

     —         —         (0.03     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share - Diluted

   $ 0.65     $ 0.26     $ 1.16     $ 0.89  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

EBITDA (Unaudited)

(in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2018     2017     2018     2017  

GAAP net income (loss)

   $ 26,030     $ (63,971   $ (164,134   $ (364,078

Depreciation

     1,523       1,476       4,627       5,037  

Amortization, accretion and step-up:

        

Intangible amortization expense

     67,725       68,666       202,069       208,118  

Accretion of royalty liabilities

     14,945       12,720       44,460       38,415  

Amortization of deferred revenue

     —         (225     —         (636

Inventory step-up expense

     83       21,170       17,212       95,659  

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

     30,437       31,706       91,921       95,297  

(Benefit) expense for income taxes

     (1,733     7,181       1,863       (42,138
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $     139,010     $ 78,723     $ 198,018     $ 35,674  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other non-GAAP adjustments:

        

Acquisition/divestiture-related costs

     425       5,561       6,185       168,985  

Restructuring and realignment costs

     4,582       (290     14,889       4,903  

Litigation settlements

     1,500       —         5,750       —    

Impairment of long-lived assets

     1,603       —         39,455       22,270  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Share-based compensation

     28,428       31,698       86,981       87,935  

Charges relating to discontinuation of Friedreich’s ataxia program

     254       (1,116     1,476       (4,219

Drug substance harmonization costs

     301       5,654       1,579       10,698  

Upfront and milestone payments related to license agreements

     (100     —         (10     —    

Fees related to term loan refinancings

     40       16       82       4,114  

Loss on debt extinguishment

     —         —         —         533  

Gain on sale of assets

     (12,303     —         (12,303     —    

Gain on divestiture

     —         (112     —         (5,968

Royalties for medicines acquired through business combinations

     (13,831     (12,031     (39,611     (34,970
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of other non-GAAP adjustments

     10,899       29,380       102,322       251,337  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 149,909     $     108,103     $     300,340     $     287,011  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

Operating Income (Unaudited)

(in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2018     2017     2018     2017  

GAAP operating income (loss)

   $ 54,246     $ (25,751   $ (71,247   $ (316,801

Non-GAAP adjustments:

        

Acquisition/divestiture-related costs

     425       5,561       6,185       168,985  

Restructuring and realignment costs

     4,582       (290     14,889       4,903  

Litigation settlements

     1,500       —         5,750       —    

Amortization, accretion and step-up:

        

Intangible amortization expense

     67,725       68,666       202,069       208,118  

Accretion of royalty liabilities

     14,945       12,720       44,460       38,415  

Inventory step-up expense

     83       21,170       17,212       95,659  

Impairment of long-lived assets

     1,603       —         39,455       22,270  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Share-based compensation

     28,428       31,698       86,981       87,935  

Depreciation

     1,523       1,476       4,627       5,037  

Charges relating to discontinuation of Friedreich’s ataxia program

     254       (1,116     1,476       (4,219

Drug substance harmonization costs

     301       5,654       1,579       10,698  

Gain on sale of assets

     (12,303     —         (12,303     —    

Upfront and milestone payments related to license agreements

     —         —         90       —    

Fees related to term loan refinancings

     40       16       82       4,114  

Royalties for medicines acquired through business combinations

     (13,831     (12,031     (39,611     (34,970
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     95,275       133,524       370,790       604,001  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating income

   $ 149,521     $ 107,773     $ 299,543     $ 287,200  
  

 

 

   

 

 

   

 

 

   

 

 

 

Orphan and Rheumatology segment operating income

     91,537       65,561       205,249       179,947  

Primary care segment operating income

     57,984       42,212       94,294       107,253  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating income

   $ 149,521     $ 107,773     $ 299,543     $ 287,200  

Amortization of deferred revenue

     —         (225     —         (636

Foreign exchange gain (loss)

     35       275       (81     167  

Other income, net

     353       280       878       280  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $     149,909     $     108,103     $     300,340     $     287,011  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 September 30,     Nine Months Ended September 30,  
     2018     2017     2018     2017  

Non-GAAP Gross Profit:

        

GAAP gross profit

   $ 226,300     $ 146,129     $ 536,842     $ 387,229  

Non-GAAP gross profit adjustments:

        

Acquisition/divestiture-related costs

     —         96       52       128  

Share-based compensation

     874       695       2,767       1,696  

Remeasurement of royalties for medicines acquired through business combinations

     —         —         (2,151     (2,944

Intangible amortization expense

     67,521       68,464       201,463       207,511  

Accretion of royalty liabilities

     14,945       12,653       44,460       38,348  

Inventory step-up expense

     83       21,170       17,212       95,659  

Depreciation

     176       182       529       548  

Charges relating to discontinuation of Friedreich’s ataxia program

     254       389       1,389       (2,714

Drug substance harmonization costs

     301       5,654       1,579       10,698  

Royalties for medicines acquired through business combinations

     (13,831     (12,031     (39,611     (34,970
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of Non-GAAP adjustments

     70,323       97,272       227,689       313,960  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $     296,623     $     243,401     $     764,531     $     701,189  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP gross profit %

     69.6     53.8     63.0     49.5

Non-GAAP gross profit %

     91.2     89.6     89.7     89.7

GAAP cash provided by operating activities

   $ 84,860     $ 68,349     $ 85,835     $ 141,080  

Cash payments for acquisition/divestiture-related costs

     2,195       11,109       7,750       44,121  

Cash payments for restructuring and realignment costs

     4,460       2,493       9,137       4,157  

Cash payments for litigation settlements

     4,250       —         5,750       32,500  

Cash payments for upfront and milestone payments related to license agreement

     (100     —         175       —    

Cash payments drug substance harmonization costs

     (16     38       5,943       5,044  

Cash payments for discontinuation of Friedreich’s ataxia program

     (108     1,169       3,399       4,170  

Cash payment for debt extinguishment

     —         —         —         145  

Cash payments relating to term loan refinancings

     26       307       57       8,014  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating cash flow

   $ 95,567     $ 83,465     $ 118,046     $ 239,231  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

Net Debt Reconciliation (Unaudited)

(in thousands)

 

     As of  
     September 30,
2018
     December 31,
2017
 

Long-term debt-current portion

   $ —        $ 10,625  

Long-term debt, net of current

     1,563,239        1,576,646  

Exchangeable notes, net

     327,573        314,384  
  

 

 

    

 

 

 

Total Debt

     1,890,812        1,901,655  

Debt discount

     92,473        108,054  

Deferred financing fees

     9,741        11,041  
  

 

 

    

 

 

 

Total Principal Amount Debt

     1,993,026        2,020,750  

Less: cash and cash equivalents

     807,047        751,368  
  

 

 

    

 

 

 

Net Debt

   $     1,185,979      $     1,269,382  
  

 

 

    

 

 

 

 

17


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Horizon Pharma plc

GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)

(in millions, except percentages and per share amounts)

 

     Q3 2018  
     Pre-tax Net
(Loss) Income
    Income Tax
(Benefit) Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported - GAAP

   $ 24.3     $ (1.7     (7.0 )%    $ 26.0     $ 0.15  

Non-GAAP adjustments

     100.9       14.3         86.5    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 125.2     $ 12.6       10.1   $ 112.5     $ 0.65  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

As reported - GAAP

   $ (56.8   $ 7.2       (12.6 )%    $ (64.0   $  (0.39

Non-GAAP adjustments

     138.6       31.5         107.1    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 81.8     $ 38.7       47.3   $ 43.1     $ 0.26  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

As reported - GAAP

   $  (162.3   $ 1.9       (1.1 )%    $  (164.1   $ (0.99

Non-GAAP adjustments

     387.6       25.6         362.0    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 225.3     $ 27.5       12.2   $ 197.9     $ 1.16  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

As reported - GAAP

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

Non-GAAP adjustments

     614.4       103.9         510.5    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 208.2     $ 61.8       29.7   $ 146.4     $ 0.89  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


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Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended September 30, 2018

(Unaudited)

 

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

GAAP as reported

  $  (99,011   $  (21,169   $  (161,585   $  (1,603   $ 12,303     $  (30,437   $ 453     $ 1,733  

Non-GAAP Adjustments (in thousands):

               

Acquisition/divestiture-related costs(1)

    —         —         425       —         —         —         —         —    

Restructuring and realignment costs(2)

    —         —         4,582       —         —         —         —         —    

Litigation settlements(3)

    —         —         1,500       —         —         —         —         —    

Amortization, accretion and step-up:

               

Intangible amortization expense(4)

    67,521       —         204       —         —         —         —         —    

Accretion of royalty liabilities(5)

    14,945       —         —         —         —         —         —         —    

Amortization of debt discount and deferred financing costs(6)

    —         —         —         —         —         5,694       —         —    

Inventory step-up expense(7)

    83       —         —         —         —         —         —         —    

Impairment of long-lived assets(8)

    —         —         —         1,603       —         —         —         —    

Share-based compensation(10)

    874       2,049       25,505       —         —         —         —         —    

Depreciation(11)

    176       —         1,347       —         —         —         —         —    

Gain on sale of assets(12)

    —         —         —         —         (12,303     —         —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(14)

    254       —         —         —         —         —         —         —    

Drug substance harmonization costs(15)

    301       —         —         —         —         —         —         —    

Upfront and milestone payments related to license agreements(16)

    —         —         —         —         —         —         (100     —    

Fees related to term loan refinancings(17)

    —         —         40       —         —         —         —         —    

Royalties for medicines acquired through business combinations(19)

    (13,831     —         —         —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(20)

    —         —         —         —         —         —         —         (14,332
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    70,323       2,049       33,603       1,603       (12,303     5,694       (100     (14,332
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $  (28,688   $  (19,120   $  (127,982   $ —       $ —       $  (24,743   $ 353     $  (12,599
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended September 30, 2017

(Unaudited)

 

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

GAAP as reported

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

Non-GAAP Adjustments (in thousands):

            

Acquisition/divestiture-related costs(1)

     96       168       5,297       —         —         —    

Restructuring and realignment costs(2)

     —         —         (290)       —         —         —    

Amortization, accretion and step-up:

            

Intangible amortization expense(4)

     68,464       —         202       —         —         —    

Accretion of royalty liabilities(5)

     12,653       —         67       —         —         —    

Amortization of debt discount and deferred financing costs(6)

     —         —         —         5,234       —         —    

Inventory step-up expense(7)

     21,170       —         —         —         —         —    

Share-based compensation(10)

     695       2,251       28,752       —         —         —    

Depreciation(11)

     182       —         1,294       —         —         —    

Gain on divestiture(13)

     —         —         —         —         (112)       —    

Charges relating to discontinuation of Friedreich’s ataxia program(14)

     389       (1,505     —         —         —         —    

Drug substance harmonization costs(15)

     5,654       —         —         —         —         —    

Fees related to term loan refinancings(17)

     —         —         16       —         —         —    

Royalties for medicines acquired through business combinations(19)

     (12,031     —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(20)

     —         —         —         —         —         (31,548
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


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Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Nine Months Ended Sept. 30, 2018

(in thousands)

 

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

GAAP as reported

   $ (315,185   $ (63,079   $ (517,858   $ (39,455   $     12,303     $ (91,921   $     978     $ (1,863

Non-GAAP Adjustments (in thousands):

                

Acquisition/divestiture-related costs(1)

     52       (67     6,200       —         —         —         —         —    

Restructuring and realignment costs(2)

     —         1,733       13,156       —         —         —         —         —    

Litigation settlements(3)

     —         —         5,750       —         —         —         —         —    

Amortization, accretion and step-up:

                

Intangible amortization expense(4)

         201,463       —         606       —         —         —         —         —    

Accretion of royalty liabilities(5)

     44,460       —         —         —         —         —         —         —    

Amortization of debt discount and deferred financing costs(6)

     —         —         —         —         —             16,880       —         —    

Inventory step-up expense(7)

     17,212       —         —         —         —         —         —         —    

Impairment of long-lived assets(8)

     —         —         —         39,455       —         —         —         —    

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

     (2,151     —         —         —         —         —         —         —    

Share-based compensation(10)

     2,767       6,697       77,517       —         —         —         —         —    

Depreciation(11)

     529       —         4,098       —         —         —         —         —    

Gain on sale of assets(12)

     —         —         —         —         (12,303     —         —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(14)

     1,389       87       —         —         —         —         —         —    

Drug substance harmonization costs(15)

     1,579       —         —         —         —         —         —         —    

Upfront and milestone payments related to license agreements(16)

     —         90       —         —         —         —         (100     —    

Fees related to term loan refinancings(17)

     —         —         82       —         —         —         —         —    

Royalties for medicines acquired through business combinations(19)

     (39,611     —         —         —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(20)

     —         —         —         —         —         —         —             10,336  

Other non-GAAP income tax adjustments(21)

     —         —         —         —         —         —         —         (35,893
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     227,689               8,540           107,409           39,455       (12,303     16,880       (100     (25,557
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ (87,496   $ (54,539   $ (410,449   $ —         $ —         $ (75,041   $ 878     $ (27,420
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Nine Months Ended September 30, 2017

(Unaudited)

 

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

GAAP as reported

   $ (394,783   $ (194,090   $ (487,670   $ (22,270   $ (95,297   $     5,968     $ (533   $     42,138  

Non-GAAP Adjustments (in thousands):

                

Acquisition/divestiture-related costs(1)

     128       148,425       20,432       —         —         —         —         —    

Restructuring and realignment costs(2)

     —         —         4,903       —         —         —         —         —    

Amortization, accretion and step-up:

                

Intangible amortization expense(4)

     207,511       —         607       —         —         —         —         —    

Accretion of royalty liabilities(5)

     38,348       —         67       —         —         —         —         —    

Amortization of debt discount and deferred financing costs(6)

     —         —         —         —         15,863       —         —         —    

Inventory step-up expense(7)

     95,659       —         —         —         —         —         —         —    

Impairment of long lived assets(8)

     —         —         —         22,270       —         —         —         —    

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

     (2,944     —         —         —         —         —         —         —    

Share-based compensation(10)

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

Depreciation(11)

     548       —         4,489       —         —         —         —         —    

Gain on divestiture(13)

     —         —         —         —         —         (5,968     —         —    

Charges relating to discontinuation of Friedreich’s ataxia program(14)

     (2,714     (1,505     —         —         —         —         —         —    

Drug substance harmonization costs(15)

     10,698       —         —         —         —         —         —         —    

Fees related to term loan refinancings(17)

     —         —         4,114       —         —         —         —         —    

Loss on debt extinguishment(18)

     —         —         —         —         —         —             533       —    

Royalties for medicines acquired through business combinations(19)

     (34,970     —         —         —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(20)

     —         —         —         —         —         —         —         (103,923
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

         313,960           153,533           114,238           22,270           15,863       (5,968     533       (103,923
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


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NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS - NON-GAAP

 

(1)

Represents 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)

The Company recorded $1.5 million of expense during the three months ended Sept. 30, 2018, and $5.8 million of expense during the nine months ended Sept. 30, 2018, for litigation settlements related to PENNSAID 2% and RAVICTI.

 

(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 nine months ended Sept. 30, 2018, the Company recognized in cost of goods sold $17.2 million for inventory step-up expense primarily related to KRYSTEXXA inventory sold.

During the nine months ended Sept. 30, 2017, the Company recognized in cost of goods sold $54.9 million for inventory step-up expense related to KRYSTEXXA and MIGERGOT inventory sold and $40.8 million for inventory step-up expense related to PROCYSBI and QUINSAIR inventory sold.

 

(8)

Impairments of long-lived assets during the nine months ended Sept. 30, 2018, primarily relates to the write-off of 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 nine months ended Sept. 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 outperforms 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)

During the three months ended Sept. 30, 2018, the Company sold its rights to interferon gamma-1b in all territories outside the United States, Canada and Japan to Clinigen Group plc for cash proceeds of $9.5 million, with a potential additional contingent consideration payment. In connection with this sale, the Company recorded a gain of $12.3 million during the three and nine months ended Sept. 30, 2018.

 

(13)

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 $6.0 million during the nine months ended Sept. 30, 2017.

 

(14)

During the nine months ended Sept. 30, 2018, the Company recorded charges related to the discontinuation of the Friedreich’s ataxia program of $1.5 million. During the nine months ended Sept. 30, 2017, the Company recorded a $4.2 million reduction to previously incurred charges relating to the discontinuation of the Friedreich’s ataxia program.

 

(15)

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 nine months ended Sept. 30, 2018, the Company incurred costs of $0.3 million and $1.6 million, respectively, related to these activities that qualify for exclusion from the Company’s non-GAAP financial measures under its non-GAAP cost policy.

 

(16)

Represents upfront and milestone payments related to license agreements.

 

(17)

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

 

(18)

During the nine months ended Sept. 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.

 

(19)

Royalties of $13.8 million and $39.6 million were incurred during the three and nine months ended Sept. 30, 2018, respectively, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO.

 

(20)

Income tax adjustments on pre-tax non-GAAP adjustments represent the estimated income tax impact of each pre-taxnon-GAAP adjustment based on the statutory income tax rate of the applicable jurisdictions for each non-GAAP adjustment.

 

(21)

Other non-GAAP income tax adjustments during the nine months ended Sept. 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.

 

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