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): February 27, 2019

 

 

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 February 27, 2019, Horizon Pharma plc issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2018. A copy of this press release is attached hereto as Exhibit 99.1.

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

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.

  

Description

99.1    Press Release of Horizon Pharma plc, dated February 27, 2019.


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: February 27, 2019     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 Fourth-Quarter and Full-Year 2018 Net Sales

Driven by Orphan and Rheumatology Segment;

Announces Full-Year 2019 Guidance

— Fourth-Quarter 2018 Net Sales Increased 30 Percent to $355.5 Million

Driven by 33 Percent Growth in Orphan and Rheumatology Segment;

Fourth-Quarter 2018 GAAP Net Income of $87.6 Million; Adjusted EBITDA of $151.1 Million —

— Full-Year 2018 Net Sales Increased 14 Percent to $1.21 Billion

Driven by 22 Percent Growth in Orphan and Rheumatology Segment;

Full-Year 2018 GAAP Net Loss of $74.2 Million; Adjusted EBITDA of $451.4 Million —

— Full-Year Orphan and Rheumatology Segment Net Sales of $831.5 Million Representing

Approximately 70 Percent of Total Company Full Year Net Sales;

Segment Operating Income of $290.0 Million —

— Full-Year 2018 KRYSTEXXA ® Net Sales Growth of 65 Percent;

Plan to Initiate KRYSTEXXA Trial in Kidney Transplant Patients in 2019 —

— Full-Year 2019 Net Sales Guidance of $1.23 Billion to $1.25 Billion;

Full-Year 2019 Adjusted EBITDA Guidance of $440 Million to $455 Million, Reflecting Investment

in Potential U.S. Launch of Teprotumumab and Continued R&D Pipeline Programs

to Drive Long-Term Growth —

— Teprotumumab Phase 3 Trial Data Read-Out Expected by End of Q1 2019; If Approved,

Teprotumumab Would Be First and Only Approved Treatment for Thyroid Eye Disease —

DUBLIN, IRELAND Feb. 27, 2019 – Horizon Pharma plc (Nasdaq: HZNP) today announced its fourth-quarter and full-year 2018 financial results and provided its full-year 2019 net sales and adjusted EBITDA guidance.

“2018 was a year of exceptional progress – in addition to generating total company net sales growth of 14 percent, we executed on our strategic objectives – advancing our pipeline and driving net sales growth of KRYSTEXXA, which increased 65 percent,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. “We enrolled the Phase 3 trial of our biologic candidate teprotumumab well ahead of schedule and are now expecting top-line data by the end of the first quarter.

“We are building on the momentum we established in 2018 and expect continued strong commercial execution across our operating segments,” continued Walbert. “We plan to submit our biologics license application for teprotumumab in mid-2019 if the clinical data is positive and expect to initiate two important clinical trials for KRYSTEXXA, with the MIRROR trial initiating in the second quarter and a new study in kidney transplant patients with uncontrolled gout beginning in the second half of 2019.”

 

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Financial Highlights

 

(in millions except for per share amounts and percentages)    Q4 18      Q4 17     %
Change
     FY 18     FY 17     %
Change
 

Net sales

   $  355.5      $  274.2       30      $  1,207.6     $  1,056.2       14  

Net income (loss)

     87.6        (38.2     NM        (74.2     (401.6     82  

Non-GAAP net income

     116.8        48.4       141        314.7       194.8       62  

Adjusted EBITDA

     151.1        102.7       47        451.4       389.7       16  

Earnings (loss) per share—diluted

   $ 0.50      $ (0.23     NM      $ (0.45   $ (2.46     82  

Non-GAAP earnings per share—diluted

     0.67        0.29       131        1.83       1.18       55  

Fourth-Quarter and Recent Company Highlights

 

   

Accelerated Teprotumumab Phase 3 Top-Line Data Read-Out Timeline: The Company announced in January that it expects top-line data results for its pivotal teprotumumab Phase 3 confirmatory trial, OPTIC (Treatment of Graves’ Orbitopathy (Thyroid Eye Disease) to Reduce Proptosis with Teprotumumab Infusions in a Randomized, Placebo-Controlled, Clinical Study), by the end of first quarter of 2019. This is accelerated from the initial second quarter of 2019 timeline, and the Company is tracking to a mid-2019 biologics license application (BLA) submission.

Teprotumumab is a fully human monoclonal antibody insulin-like growth factor-1 receptor (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 expand and become inflamed, which can lead to proptosis (eye bulging) and diplopia (double vision) as well as quality-of-life issues.

 

   

Phase 2 Teprotumumab Data Presented at American Thyroid Association (ATA) and American Academy of Ophthalmology (AAO) Meetings: Additional data for the pivotal Phase 2 teprotumumab trial presented at ATA and AAO demonstrated durability of the Phase 2 trial 48 weeks following the end of the treatment period (Week 24) and nearly a year off therapy. At Week 24, 71.4 percent (30 of 42) of patients responded with reductions of ³2mm in proptosis and 61.9 percent of patients (26 of 42) responded with improvement of at least one grade in diplopia, both of which are 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 the first and only disease-modifying therapy for thyroid eye disease.

 

   

New KRYSTEXXA Study in Kidney Transplant Patients with Uncontrolled Gout: The Company is announcing today that it plans to initiate a clinical trial in the second half of 2019 evaluating the effect of KRYSTEXXA, the Company’s medicine for uncontrolled gout, on serum uric acid levels in kidney transplant patients with uncontrolled gout (uncontrolled gout is chronic gout that is refractory to conventional therapies). Kidney transplant patients have more than a tenfold increase in the prevalence of gout when compared to the general population, and literature suggests that high serum uric acid levels are associated with organ rejection. Managing uncontrolled gout is one of the most common and significant unmet needs of kidney transplant patients.

 

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New KRYSTEXXA Immunomodulation Data Presented at American College of Rheumatology/Association of Rheumatology Health Professionals (ACR) Meeting: At the October 2018 ACR meeting, external investigators shared results from a case series of nine sequential patients with uncontrolled gout, evaluating the administration of KRYSTEXXA with the immunomodulator methotrexate to improve the durability of KRYSTEXXA response. The study stated 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.

 

   

Expanded Indication for RAVICTI®: The Company received U.S. Food and Drug Administration (FDA) approval in December to expand the age range for chronic management of urea cycle disorders to birth and older from the previous age range of two months of age and older.

 

   

Recent Business Development Initiatives: On Dec. 28, 2018, the Company sold the rights to RAVICTI and AMMONAPS® outside of North America and Japan to Medical Need Europe AB for $35 million. In addition, effective Jan. 1, 2019, the RAYOS® and LODOTRA® license and supply agreements were amended, including the transfer of LODOTRA to Vectura Group plc, the current third-party supplier. Beginning in 2019, the Company will no longer recognize revenue from RAVICTI and AMMONAPS sales outside of North America and Japan, or from sales of LODOTRA. AMMONAPS is known as BUPHENYL® and LODOTRA is known as RAYOS in the United States.

Research and Development Programs

Orphan Candidate and Program:

 

   

Teprotumumab: The pivotal Phase 3 confirmatory study, OPTIC, is evaluating teprotumumab for the treatment of TED, which has no FDA-approved treatments. OPTIC completed enrollment September of 2018, ahead of the year-end target, and top-line results are expected by the end of first-quarter 2019. OPTIC-X, a 48-week 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 as well as longer duration of treatment with teprotumumab.

Rheumatology Pipeline Candidates and Programs:

 

   

KRYSTEXXA Study in Kidney Transplant Patients: The Company plans to initiate a clinical trial in the second half of 2019 evaluating the effect of KRYSTEXXA on serum uric acid levels in kidney transplant patients with uncontrolled gout. Kidney transplant patients have more than a tenfold increase in the prevalence of gout when compared to the general population, and literature suggests that high serum uric acid levels are associated with organ rejection. Managing uncontrolled gout is one of the most common and significant unmet needs of kidney transplant patients.

 

   

KRYSTEXXA Immunomodulation Study: The Company is evaluating the use of methotrexate to enhance the response rate to KRYSTEXXA through its MIRROR (Methotrexate to Increase Response Rates in Patients with Uncontrolled GOut Receiving KRYSTEXXA) open-label study. Methotrexate, the immunomodulator most commonly used by rheumatologists, has been shown to reduce anti-drug antibodies when combined with other biologics. The Company is adapting MIRROR’s trial design to support the potential for registration, with enrollment expected to begin in the second quarter of 2019.

 

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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 coupled with optimized PEGylation or PASylation technology, to improve the molecule’s half-life, with the potential for subcutaneous dosing.

 

   

Augmented Rheumatology Pipeline with HemoShear Collaboration: The Company is collaborating with HemoShear Therapeutics, LLC, a privately held biotechnology company, to discover and develop novel therapeutics for gout.

Fourth-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: Fourth-quarter 2018 net sales were $355.5 million, an increase of 30 percent, driven by continued strong growth of the Company’s orphan and rheumatology segment.

 

   

Gross Profit: Under U.S. GAAP, the fourth-quarter 2018 gross profit ratio was 69.2 percent compared to 47.8 percent in the fourth quarter of 2017. The non-GAAP gross profit ratio in the fourth quarter of 2018 was 89.1 percent compared to 89.3 percent in the fourth quarter of 2017.

 

   

Operating Expenses: Research and development (R&D) expenses were 5.5 percent of net sales and selling, general and administrative (SG&A) expenses were 49.1 percent of net sales. Non-GAAP R&D expenses were 5.3 percent of net sales and non-GAAP SG&A expenses were 41.4 percent of net sales.

 

   

Income Tax Rate: In the fourth quarter of 2018, the income tax benefit rate on a GAAP basis was 114.7 percent and the income tax expense rate on a non-GAAP basis was 8.2 percent.

 

   

Net Income: On a GAAP basis in the fourth quarter of 2018, net income was $87.6 million. Fourth-quarter 2018 non-GAAP net income was $116.8 million.

 

   

Adjusted EBITDA: Fourth-quarter 2018 adjusted EBITDA was $151.1 million.

 

   

Earnings (Loss) per Share: On a GAAP basis in the fourth quarter of 2018, diluted earnings per share were $0.50 versus a diluted loss per share of $0.23 in the fourth quarter of 2017. Non-GAAP diluted earnings per share in the fourth quarter of 2018 and 2017 were $0.67 and $0.29, respectively. Weighted average shares outstanding used for calculating GAAP and non-GAAP diluted earnings per share in the fourth quarter of 2018 were 174.2 million.

 

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Fourth-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.

Orphan and Rheumatology Segment

 

(in millions except for percentages)    Q4 18      Q4 17      %
Change
    FY 18      FY 17      %
Change
 

RAVICTI®

     60.2        51.9        16       226.6        193.9        17  

PROCYSBI®(1)

     40.1        33.2        21       154.9        137.7        12  

ACTIMMUNE®

     27.5        26.8        3       105.6        111.0        (5

BUPHENYL®

     6.4        4.6        41       21.8        20.8        5  

QUINSAIRTM(1)

     0.2        0.1        17       0.5        3.4        (85

Orphan

   $  134.4      $  116.6        15     $  509.4      $  466.8        9  

KRYSTEXXA®

     83.3        43.8        90       258.9        156.5        65  

RAYOS®

     19.8        15.6        26       61.1        52.1        17  

LODOTRA®

     0.1        2.0        (97     2.1        5.4        (62

Rheumatology

   $ 103.2      $ 61.4        68     $ 322.1      $ 214.0        50  
  

 

 

    

 

 

      

 

 

    

 

 

    

Orphan and Rheumatology Net Sales

   $ 237.6      $ 178.0        33     $ 831.5      $ 680.8        22  
  

 

 

    

 

 

      

 

 

    

 

 

    

Orphan and Rheumatology Segment Operating Income

   $ 84.8      $ 61.2        39     $ 290.0      $ 241.1        20  

 

(1)

On Jun. 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. Horizon Pharma’s 2017 net sales of PROCYSBI and QUINSAIR in EMEA were $9.5 million.

 

   

Fourth-quarter 2018 net sales of the orphan and rheumatology segment were $237.6 million, an increase of 33 percent over the prior year’s quarter, driven by continued strong KRYSTEXXA growth as well as growth of RAVICTI, PROCYSBI® and RAYOS. Fourth-quarter 2018 orphan and rheumatology segment operating income was $84.8 million, an increase of 39 percent.

 

   

For the full-year 2018, KRYSTEXXA net sales of $258.9 million represented a 65 percent year-over-year increase, in line with the Company’s expectation.

 

   

On Dec. 28, 2018, the Company sold the rights to RAVICTI and AMMONAPS (AMMONAPS is known as BUPHENYL® and LODOTRA is known as RAYOS in the United States) outside of North America and Japan to Medical Need Europe AB for $35.0 million. In addition, effective Jan. 1, 2019, the RAYOS and LODOTRA license and supply agreements were amended, including the transfer of LODOTRA to Vectura Group plc, the current third-party supplier. Beginning in 2019, the Company will no longer recognize revenue from RAVICTI and AMMONAPS sales outside of North America and Japan, or from sales of LODOTRA.

 

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Primary Care Segment

 

(in millions except for percentages)    Q4 18      Q4 17      %
Change
    FY 18      FY 17      %
Change
 

PENNSAID® 2%

     64.3        50.0        29       190.2        191.0       
—  
 

DUEXIS®

     34.0        28.2        21       114.7        121.2        (5

VIMOVO®

     18.8        16.6        13       67.6        57.7        17  

MIGERGOT®

     0.8        1.4        (46     3.6        5.5        (35
  

 

 

    

 

 

      

 

 

    

 

 

    

Primary Care Net Sales

   $ 117.9      $ 96.2        23     $ 376.1      $ 375.4        —    
  

 

 

    

 

 

      

 

 

    

 

 

    

Primary Care Segment Operating Income

   $ 66.2      $ 41.9        58     $ 160.4      $ 149.1        8  

 

   

Fourth-quarter 2018 net sales of the primary care segment were $117.9 million and operating income was $66.2 million.

Cash Flow Statement and Balance Sheet Highlights

 

   

On a GAAP basis in the fourth quarter of 2018, operating cash flow was $108.7 million. Non-GAAP operating cash flow was $115.1 million.

 

   

The Company had cash and cash equivalents of $958.7 million as of Dec. 31, 2018.

 

   

As of Dec. 31, 2018, the total principal amount of debt outstanding was $1.993 billion, which consisted 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 Dec. 31, 2018, net debt was $1.034 billion and our net-debt-to-last-12-months adjusted EBITDA leverage ratio was 2.3 times.

2019 Guidance

The Company expects full-year 2019 net sales to range between $1.23 billion and $1.25 billion and full-year 2019 adjusted EBITDA is expected to range between $440 million and $455 million, reflecting investment in preparation for the potential U.S. launch of teprotumumab and continued R&D pipeline programs to drive long-term growth.

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, 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 2019 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 2019 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 2019 net sales and adjusted EBITDA guidance; expected financial performance and operating results in future periods; expected timing of clinical trials and regulatory submissions and decisions, including related to the Phase 3 clinical trial of and potential BLA submission for teprotumumab; expected expansion of Horizon Pharma’s rare disease medicine pipeline and the impact thereof; potential market opportunity for Horizon Pharma’s medicines and medicine candidates; 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

(in thousands, except share and per share data)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2018     2017     2018     2017  
     (Unaudited)        

Net sales

   $ 355,543     $ 274,219     $ 1,207,570     $ 1,056,231  

Cost of goods sold

     109,520       143,269       422,317       537,334  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     246,023       130,950       785,253       518,897  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Research and development

     19,683       30,872       82,762       224,962  

Selling, general and administrative

     174,628       167,423       692,485       655,093  

Impairment of long-lived assets

     10,847       —         50,302       22,270  

Gain on sale of assets

     (30,385     —         (42,688     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     174,773       198,295       782,861       902,325  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     71,250       (67,345     2,392       (383,428
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER EXPENSE, NET:

        

Interest expense, net

     (29,771     (31,226     (121,692     (126,523

Foreign exchange loss

     (111     (427     (192     (260

Gain on divestiture

     —         299       —         6,267  

Loss on debt extinguishment

     —         (446     —         (978

Other (expense) income, net

     (632     309       346       588  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (30,514     (31,491     (121,538     (120,906
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before benefit for income taxes

     40,736       (98,836     (119,146     (504,334

Benefit for income taxes

     (46,822     (60,611     (44,959     (102,749
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 87,558     $ (38,225   $ (74,187   $ (401,585
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per ordinary share—basic

   $ 0.52     $ (0.23   $ (0.45   $ (2.46
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding—basic

     168,126,924       164,048,823       166,155,405       163,122,663  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per ordinary share—diluted

   $ 0.50     $ (0.23   $ (0.45   $ (2.46
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding—diluted

     174,230,711       164,048,823       166,155,405       163,122,663  
  

 

 

   

 

 

   

 

 

   

 

 

 

Note: In the fourth quarter of 2018, we identified an error in the measurement of the contingent royalty liability calculation pertaining to the royalty end date for one of our medicines. The revision resulted in certain adjustments to the consolidated financial statements as of and for the year ended December 31, 2017, and the revised amounts are presented herein. Refer to our Annual Report on Form 10-K for the year ended December 31, 2018, for a detailed discussion of the revision.

 

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Horizon Pharma plc

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

     As of  
     December 31,
2018
    December 31,
2017
 

ASSETS

  

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 958,712     $ 751,368  

Restricted cash

     3,405       6,529  

Accounts receivable, net

     464,730       405,214  

Inventories, net

     50,751       61,655  

Prepaid expenses and other current assets

     70,828       43,402  
  

 

 

   

 

 

 

Total current assets

     1,548,426       1,268,168  
  

 

 

   

 

 

 

Property and equipment, net

     20,101       20,405  

Developed technology, net

     2,120,596       2,442,292  

Other intangible assets, net

     4,630       5,441  

Goodwill

     426,441       426,441  

Deferred tax assets, net

     3,148       3,470  

Other assets

     23,029       36,081  
  

 

 

   

 

 

 

Total assets

   $ 4,146,371     $ 4,202,298  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Long-term debt—current portion

   $ —       $ 10,625  

Accounts payable

     30,284       34,681  

Accrued expenses

     205,593       175,697  

Accrued trade discounts and rebates

     457,763       501,753  

Accrued royalties—current portion

     63,363       65,328  

Deferred revenues—current portion

     4,901       6,885  
  

 

 

   

 

 

 

Total current liabilities

     761,904       794,969  
  

 

 

   

 

 

 

LONG-TERM LIABILITIES:

    

Exchangeable notes, net

     332,199       314,384  

Long-term debt, net of current

     1,564,485       1,576,646  

Accrued royalties, net of current

     285,374       279,316  

Deferred revenues, net of current

     —         9,713  

Deferred tax liabilities, net

     93,630       157,945  

Other long-term liabilities

     54,622       68,015  
  

 

 

   

 

 

 

Total long-term liabilities

     2,330,310       2,406,019  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

    

SHAREHOLDERS’ EQUITY:

    

Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized; 169,244,520 and 164,785,083 shares issued at December 31, 2018 and December 31, 2017, respectively, and 168,860,154 and 164,400,717 shares outstanding at December 31, 2018 and December 31, 2017, respectively

     17       16  

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

     (4,585     (4,585

Additional paid-in capital

     2,374,966       2,248,979  

Accumulated other comprehensive loss

     (1,523     (983

Accumulated deficit

     (1,314,718     (1,242,117
  

 

 

   

 

 

 

Total shareholders’ equity

     1,054,157       1,001,310  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,146,371     $ 4,202,298  
  

 

 

   

 

 

 

 

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Horizon Pharma plc

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2018     2017     2018     2017  
     (Unaudited)              

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net income (loss)

   $ 87,558     $ (38,225   $ (74,187   $ (401,585

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

        

Depreciation and amortization expense

     69,161       70,217       275,729       283,244  

Equity-settled share-based compensation

     27,878       33,628       114,860       125,019  

Royalty accretion

     15,105       12,848       59,476       51,263  

Impairment of long-lived assets

     10,847       —         50,302       22,270  

Amortization of debt discount and deferred financing costs

     5,872       5,756       22,751       21,619  

Deferred income taxes

     (66,136     (69,242     (64,491     (132,231

Gain on sale of assets

     (30,385     —         (42,688     —    

Royalty liability remeasurement

     1,027       16,538       (3,383     13,004  

Gain on divestiture

     —         (299     —         (2,934

Acquired in-process research & development expense

     —         10,402       —         159,171  

Loss on debt extinguishment

     —         445       —         978  

Foreign exchange and other adjustments

     92       54       332       (1,466

Changes in operating assets and liabilities:

        

Accounts receivable

     (73,757     17,168       (59,697     (84,444

Inventories

     2,378       24,889       10,280       108,371  

Prepaid expenses and other current assets

     10,213       9,545       (25,313     5,110  

Accounts payable

     (34,712     1,893       (4,593     (16,521

Accrued trade discounts and rebates

     98,136       66,026       (44,028     205,487  

Accrued expenses and accrued royalties

     (3,674     (39,361     (9,972     (82,203

Deferred revenues

     (1,858     698       (395     4,468  

Other non-current assets and liabilities

     (9,038     20,279       (10,440     5,720  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     108,707       143,259       194,543       284,340  
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Proceeds from sale of assets

     35,000       —         44,424       —    

Payment related to license agreement

     —         —         (12,000     —    

Purchases of property and equipment

     (3,890     (303     (4,771     (4,336

Payments for acquisitions, net of cash acquired

     —         1,598       —         (167,220

Proceeds from divestiture, net of cash divested

     —         299       —         69,371  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     31,110       1,594       27,653       (102,185
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Repayment of term loans

     (818,026     (847,874     (845,749     (1,622,749

Net proceeds from term loans

     818,026       845,744       818,026       1,693,512  

Payment of contingent consideration

     —         (20,000     —         (20,000

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

     —         —         —         1,789  

Proceeds from the issuance of ordinary shares through ESPP programs

     3,900       3,226       8,610       7,082  

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

     7,219       405       16,972       2,167  

Payment of employee withholding taxes relating to share-based awards

     (1,573     (893     (14,455     (6,533

Repurchase of ordinary shares

     —         —         —         (992
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     9,546       (19,392     (16,596     54,276  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (692     946       (1,380     5,316  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

     148,671       126,407       204,220       241,747  

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

     813,446       631,490       757,897       516,150  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 962,117     $ 757,897     $ 962,117     $ 757,897  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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      $ 65.5      $ 61.2      $ 241.1  

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
December 31,
    Twelve Months Ended
December 31,
 
    2018     2017     2018     2017  

GAAP net income (loss)

  $ 87,558     $ (38,225   $ (74,187   $ (401,585

Non-GAAP adjustments:

       

Depreciation

    1,499       1,595       6,126       6,631  

Amortization, accretion and step-up:

       

Intangible amortization expense

    67,662       68,623       269,603       276,613  

Accretion of royalty liabilities

    15,105       12,848       59,565       51,263  

Inventory step-up expense

    99       23,492       17,312       119,151  

Amortization of debt discount and deferred financing costs

    5,872       5,756       22,752       21,619  

Acquisition/divestiture-related costs

    1,532       8,050       7,717       177,035  

Restructuring and realignment costs

    461       (20     15,350       4,883  

Share-based compensation

    27,878       33,618       114,860       121,553  

Impairment of long-lived assets

    10,847       —         50,302       22,270  

Litigation settlements

    —         —         5,750       —    

Drug substance harmonization costs

    1,275       (47     2,855       10,651  

Fees related to term loan refinancings

    854       1,106       937       5,220  

Upfront and milestone payments related to license agreements

    —         12,186       (10     12,186  

Charges relating to discontinuation of Friedreich’s ataxia program

    (2,940     4,458       (1,464     239  

Remeasurement of royalties for medicines acquired through business combinations

    1,027       16,538       (3,383     13,004  

Gain on sale of assets

    (30,385     —         (42,688     —    

Royalties for medicines acquired through business combinations

    (14,349     (12,033     (53,961     (47,003

Gain on divestiture

    —         (299     —         (6,267

Loss on debt extinguishment

    —         446       —         978  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total of pre-tax non-GAAP adjustments

    86,437       176,317       471,623       790,026  

Income tax effect of pre-tax non-GAAP adjustments

    (55,729     (14,781     (45,393     (118,704

Other non-GAAP income tax adjustments

    (1,499     (74,939     (37,392     (74,939
 

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    29,209       86,597       388,838       596,383  
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net Income

  $ 116,767     $ 48,372     $ 314,651     $ 194,798  
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share:

       

Weighted average ordinary shares—Basic

    168,126,924       164,048,823       166,155,405       163,122,663  
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share—Basic:

       

GAAP earnings (loss) per share—Basic

  $ 0.52     $ (0.23   $ (0.45   $ (2.46

Non-GAAP adjustments

    0.17       0.52       2.34       3.65  
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share—Basic

  $ 0.69     $ 0.29     $ 1.89     $ 1.19  
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares—Diluted

       

Weighted average ordinary shares—Basic

    168,126,924       164,048,823       166,155,405       163,122,663  

Ordinary share equivalents

    6,103,787       2,807,459       5,393,514       2,582,576  
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares—Diluted

    174,230,711       166,856,282       171,548,919       165,705,239  
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Earnings Per Share—Diluted

       

GAAP earnings (loss) per share—Diluted

  $ 0.50     $ (0.23   $ (0.45   $ (2.46

Non-GAAP adjustments

    0.17       0.52       2.34       3.65  

Diluted earnings per share effect of ordinary share equivalents

    —         —         (0.06     (0.01
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP earnings per share—Diluted

  $ 0.67     $ 0.29     $ 1.83     $ 1.18  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

EBITDA (Unaudited)

(in thousands)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2018     2017     2018     2017  

GAAP net income (loss)

   $ 87,558     $ (38,225   $ (74,187   $ (401,585

Depreciation

     1,499       1,595       6,126       6,631  

Amortization, accretion and step-up:

        

Intangible amortization expense

     67,662       68,623       269,603       276,613  

Accretion of royalty liabilities

     15,105       12,848       59,565       51,263  

Amortization of deferred revenue

     —         (224     —         (860

Inventory step-up expense

     99       23,492       17,312       119,151  

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

     29,771       31,226       121,692       126,523  

Benefit for income taxes

     (46,822     (60,611     (44,959     (102,749
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $  154,872     $ 38,724     $  355,152     $ 74,987  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other non-GAAP adjustments:

        

Acquisition/divestiture-related costs

     1,532       8,050       7,717       177,035  

Restructuring and realignment costs

     461       (20     15,350       4,883  

Share-based compensation

     27,878       33,618       114,860       121,553  

Impairment of long-lived assets

     10,847       —         50,302       22,270  

Litigation settlements

     —         —         5,750       —    

Drug substance harmonization costs

     1,275       (47     2,855       10,651  

Fees related to term loan refinancings

     854       1,106       937       5,220  

Upfront and milestone payments related to license agreements

     —         12,186       (10     12,186  

Charges relating to discontinuation of Friedreich’s ataxia program

     (2,940     4,458       (1,464     239  

Remeasurement of royalties for medicines acquired through business combinations

     1,027       16,538       (3,383     13,004  

Gain on sale of assets

     (30,385     —         (42,688     —    

Royalties for medicines acquired through business combinations

     (14,349     (12,033     (53,961     (47,003

Gain on divestiture

     —         (299     —         (6,267

Loss on debt extinguishment

     —         446       —         978  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of other non-GAAP adjustments

     (3,800     64,003       96,265       314,749  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 151,072     $  102,727     $ 451,417     $ 389,736  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

Operating Income (Unaudited)

(in thousands)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2018     2017     2018     2017  

GAAP operating income (loss)

   $ 71,250     $ (67,345   $ 2,392     $ (383,428

Non-GAAP adjustments:

        

Depreciation

     1,499       1,595       6,126       6,631  

Amortization, accretion and step-up:

        

Intangible amortization expense

     67,662       68,623       269,603       276,613  

Accretion of royalty liabilities

     15,105       12,848       59,565       51,263  

Inventory step-up expense

     99       23,492       17,312       119,151  

Acquisition/divestiture-related costs

     630       8,050       6,815       177,035  

Restructuring and realignment costs

     461       (20     15,350       4,883  

Share-based compensation

     27,878       33,618       114,860       121,553  

Impairment of long-lived assets

     10,847       —         50,302       22,270  

Litigation settlements

     —         —         5,750       —    

Drug substance harmonization costs

     1,275       (47     2,855       10,651  

Fees related to term loan refinancings

     854       1,106       937       5,220  

Upfront and milestone payments related to license agreements

     —         12,186       90       12,186  

Charges relating to discontinuation of Friedreich’s ataxia program

     (2,940     4,458       (1,464     239  

Remeasurement of royalties for medicines acquired through business combinations

     1,027       16,538       (3,383     13,004  

Gain on sale of assets

     (30,385     —         (42,688     —    

Royalties for medicines acquired through business combinations

     (14,349     (12,033     (53,961     (47,003
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

     79,663       170,414       448,069       773,696  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating income

   $  150,913     $  103,069     $  450,461     $ 390,268  
  

 

 

   

 

 

   

 

 

   

 

 

 

Orphan and Rheumatology segment operating income

     84,761       61,190       290,014       241,135  

Primary care segment operating income

     66,152       41,879       160,447       149,133  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating income

   $ 150,913     $ 103,069     $ 450,461     $ 390,268  

Amortization of deferred revenue

     —         (224     —         (860

Foreign exchange loss

     (111     (427     (192     (260

Other income, net

     270       309       1,148       588  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 151,072     $ 102,727     $ 451,417     $ 389,736  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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
December 31,
    Twelve Months Ended
December 31,
 
     2018     2017     2018     2017  

Non-GAAP Gross Profit:

        

GAAP gross profit

   $ 246,023     $ 130,950     $ 785,253     $ 518,897  

Non-GAAP gross profit adjustments:

        

Depreciation

     171       181       700       729  

Intangible amortization expense

     67,458       68,420       268,793       275,803  

Accretion of royalty liabilities

     15,105       12,848       59,565       51,263  

Inventory step-up expense

     99       23,492       17,312       119,151  

Acquisition/divestiture-related costs

     —         19       52       147  

Share-based compensation

     932       773       3,699       2,469  

Drug substance harmonization costs

     1,275       (47     2,855       10,651  

Charges relating to discontinuation of Friedreich’s ataxia program

     (2,940     4,458       (1,551     1,744  

Remeasurement of royalties for medicines acquired through business combinations

     2,900       15,859       (1,510     12,325  

Royalties for medicines acquired through business combinations

     (14,349     (12,033     (53,961     (47,003
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of Non-GAAP adjustments

     70,651       113,970       295,954       427,279  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 316,674     $ 244,920     $ 1,081,207     $ 946,176  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP gross profit %

     69.2     47.8     65.0     49.1

Non-GAAP gross profit %

     89.1     89.3     89.5     89.6

GAAP cash provided by operating activities

   $ 108,707     $ 143,259     $ 194,543     $ 284,340  

Cash payments for acquisition/divestiture-related costs

     1,065       9,898       8,815       54,019  

Cash payments for restructuring and realignment costs

     2,767       508       11,904       4,665  

Cash payments for litigation settlements

     —         —         5,750       32,500  

Cash payments for upfront and milestone payments related to license agreement

     —         —         175       —    

Cash payments drug substance harmonization costs

     1,718       205       7,661       5,249  

Cash payments for discontinuation of Friedreich’s ataxia program

     —         3,038       3,399       7,208  

Cash payment for debt extinguishment

     —         —         —         145  

Cash payments relating to term loan refinancings

     883       1,065       941       9,079  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating cash flow

   $ 115,140     $ 157,973     $ 233,188     $ 397,205  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

16


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Horizon Pharma plc

Net Debt Reconciliation (Unaudited)

(in thousands)

 

     As of  
     December 31,
2018
     December 31,
2017
 

Long-term debt-current portion

   $ —        $ 10,625  

Long-term debt, net of current

     1,564,485        1,576,646  

Exchangeable notes, net

     332,199        314,384  
  

 

 

    

 

 

 

Total Debt

     1,896,684        1,901,655  

Debt discount

     87,038        108,054  

Deferred financing fees

     9,304        11,041  
  

 

 

    

 

 

 

Total Principal Amount Debt

     1,993,026        2,020,750  

Less: cash and cash equivalents

     958,712        751,368  
  

 

 

    

 

 

 

Net Debt

   $ 1,034,314      $ 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)

 

     Q4 2018  
     Pre-tax Net
(Loss) Income
    Income Tax
(Benefit) Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported - GAAP

   $ 40.8     $ (46.8     (114.9 )%    $ 87.6     $ 0.50  

Non-GAAP adjustments

     86.4       57.2         29.2    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 127.2     $ 10.4       8.2   $ 116.8     $ 0.67  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Q4 2017  
     Pre-tax Net
(Loss) Income
    Income Tax
(Benefit) Expense
    Tax Rate     Net (Loss)
Income
    Diluted (Loss)
Earnings Per Share
 

As reported - GAAP

   $ (98.8   $ (60.6     61.3   $ (38.2   $ (0.23

Non-GAAP adjustments

     176.3       89.7         86.6    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 77.5     $ 29.1       37.7   $ 48.4     $ 0.29  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

As reported - GAAP

   $ (119.1   $ (45.0     37.7   $ (74.1   $ (0.45

Non-GAAP adjustments

     471.6       82.8         388.8    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 352.5     $ 37.8       10.7   $ 314.7     $ 1.83  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

As reported - GAAP

   $ (504.3   $ (102.7     20.4   $ (401.6   $ (2.46

Non-GAAP adjustments

     790.0       193.6         596.4    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 285.7     $ 90.9       31.8   $ 194.8     $ 1.18  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


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Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended December 31, 2018

(Unaudited)

 

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

GAAP as reported

  $ (109,520   $ (19,683   $ (174,628   $ (10,847   $ 30,385     $ (29,771   $ (632   $ 46,822  

Non-GAAP Adjustments (in thousands):

               

Depreciation(1)

    171       —         1,328       —         —         —         —         —    

Amortization, accretion and step-up:

               

Intangible amortization expense(2)

    67,458       —         204       —         —         —         —         —    

Accretion of royalty liabilities(3)

    15,105       —         —         —         —         —         —         —    

Inventory step-up expense(4)

    99       —         —         —         —         —         —         —    

Amortization of debt discount and deferred financing
costs(5)

    —         —         —         —         —         5,872       —         —    

Acquisition/divestiture-related costs(6)

    —         (171     801       —         —         —         902       —    

Restructuring and realignment costs(7)

    —         (1,036     1,497       —         —         —         —         —    

Share-based compensation(8)

    932       2,183       24,763       —         —         —         —         —    

Impairment of long-lived assets(9)

    —         —         —         10,847       —         —         —         —    

Drug substance harmonization costs(11)

    1,275       —         —         —         —         —         —         —    

Fees related to term loan refinancings(12)

    —         —         854       —         —         —         —         —    

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

    (2,940     —         —         —         —         —         —         —    

Remeasurement of royalties for products acquired through business combinations(3)

    2,900       —         (1,873     —         —         —         —         —    

Gain on sale of assets(15)

    —         —         —         —         (30,385     —         —         —    

Royalties for medicines acquired through business
combinations(3)

    (14,349     —         —         —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(18)

    —         —         —         —         —         —         —         (55,729

Other non-GAAP income tax adjustments(19)

    —         —         —         —         —         —         —         (1,499
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    70,651       976       27,574       10,847       (30,385     5,872       902       (57,228
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ (38,869   $ (18,707   $ (147,054   $ —       $ —       $ (23,899   $ 270     $ (10,406
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended December 31, 2017

(Unaudited)

 

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

GAAP as reported

  $ (143,269   $ (30,872   $ (167,423   $ (31,226   $ 299     $ (446   $ 60,611  

Depreciation(1)

    181       —         1,414       —         —         —         —    

Amortization, accretion and step-up:

              —      

Intangible amortization expense(2)

    68,420       —         203       —         —         —         —    

Accretion of royalty liabilities(3)

    12,848       —         —         —         —         —         —    

Inventory step-up expense(4)

    23,492       —         —         —         —         —         —    

Amortization of debt discount and deferred financing costs(5)

    —         —         —         5,756       —         —         —    

Acquisition/divestiture-related costs(6)

    19       687       7,344       —         —         —         —    

Restructuring and realignment costs(7)

    —         —         (20     —         —         —         —    

Share-based compensation(8)

    773       2,650       30,195       —         —         —         —    

Drug substance harmonization costs(11)

    (47     —         —         —         —         —         —    

Fees related to term loan refinancings(12)

    —         —         1,106       —         —         —         —    

Upfront and milestone payments related to license agreements(13)

    —         12,186       —         —         —         —         —    

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

    4,458       —         —         —         —         —         —    

Remeasurement of royalties for products acquired through business combinations(3)

    15,859       —         679       —         —         —         —    

Royalties for medicines acquired through business combinations(3)

    (12,033     —         —         —         —         —         —    

Gain on divestiture(16)

    —         —         —         —         (299     —         —    

Loss on debt extinguishment(17)

    —         —         —         —         —         446       —    

Income tax effect on pre-tax non-GAAP adjustments(18)

    —         —         —         —         —         —         (14,781

Other non-GAAP income tax adjustments(19)

    —         —         —         —         —         —         (74,939
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    113,970       15,523       40,921       5,756       (299     446       (89,720
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ (29,299   $ (15,349   $ (126,502   $ (25,470   $ —       $ —       $ (29,109
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


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Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Twelve Months Ended December 31, 2018

(Unaudited)

 

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

GAAP as reported

  $ (422,317   $ (82,762   $ (692,485   $ (50,302   $ 42,688     $ (121,692   $ 346     $ 44,959  

Non-GAAP Adjustments (in thousands):

               

Depreciation(1)

    700       —         5,426       —         —         —         —         —    

Amortization, accretion and step-up:

               

Intangible amortization expense(2)

    268,793       —         810       —         —         —         —         —    

Accretion of royalty liabilities(3)

    59,565       —         —         —         —         —         —         —    

Inventory step-up expense(4)

    17,312       —         —         —         —         —         —         —    

Amortization of debt discount and deferred financing costs(5)

    —         —         —         —         —         22,752       —         —    

Acquisition/divestiture-related costs(6)

    52       (237     7,000       —         —         —         902       —    

Restructuring and realignment costs(7)

    —         696       14,654       —         —         —         —         —    

Share-based compensation(8)

    3,699       8,880       102,281       —         —         —         —         —    

Impairment of long-lived assets(9)

    —         —         —         50,302       —         —         —         —    

Litigation settlements(10)

    —         —         5,750       —         —         —         —         —    

Drug substance harmonization costs(11)

    2,855       —         —         —         —         —         —         —    

Fees related to term loan refinancings(12)

    —         —         937       —         —         —         —         —    

Upfront and milestone payments related to license agreements(13)

    —         90       —         —         —         —         (100     —    

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

    (1,551     87       —         —         —         —         —         —    

Remeasurement of royalties for products acquired through business combinations (3)

    (1,510     —         (1,873     —         —         —         —         —    

Gain on sale of assets(15)

    —         —         —         —         (42,688     —         —         —    

Royalties for medicines acquired through business combinations(3)

    (53,961     —         —         —         —         —         —         —    

Income tax effect on pre-tax non-GAAP adjustments(18)

    —         —         —         —         —         —         —         (45,393

Other non-GAAP income tax adjustments(19)

    —         —         —         —         —         —         —         (37,392
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    295,954       9,516       134,985       50,302       (42,688     22,752       802       (82,785
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ (126,363   $ (73,246   $ (557,500   $ —       $ —       $ (98,940   $ 1,148     $ (37,826
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Twelve Months Ended December 31, 2017

(Unaudited)

 

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

GAAP as reported

  $ (537,334   $ (224,962   $ (655,093   $ (22,270   $ (126,523   $ 6,267     $ (978   $ 102,749  

Non-GAAP Adjustments (in thousands):

               

Depreciation(1)

    729       —         5,902       —         —         —         —         —    

Amortization, accretion and step-up:

               

Intangible amortization expense(2)

    275,803       —         810       —         —         —         —         —    

Accretion of royalty liabilities(3)

    51,263       —         —         —         —         —         —         —    

Inventory step-up expense(4)

    119,151       —         —         —         —         —         —         —    

Amortization of debt discount and deferred financing
costs(5)

    —         —         —         —         21,619       —         —         —    

Acquisition/divestiture-related costs(6)

    147       149,112       27,776       —         —         —         —         —    

Restructuring and realignment costs(7)

    —         —         4,883       —         —         —         —         —    

Share-based compensation(8)

    2,469       9,263       109,821       —         —         —         —         —    

Impairment of long-lived assets(9)

    —         —         —         22,270       —         —         —         —    

Drug substance harmonization costs(11)

    10,651       —         —         —         —         —         —         —    

Fees related to term loan refinancings(12)

    —         —         5,220       —         —         —         —         —    

Upfront and milestone payments related to license agreements(13)

    —         12,186       —         —         —         —         —         —    

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

    1,744       (1,505     —         —         —         —         —         —    

Remeasurement of royalties for products acquired through business combinations (3)

    12,325       —         679       —         —         —         —         —    

Royalties for medicines acquired through business combinations(3)

    (47,003     —         —         —         —         —         —         —    

Gain on divestiture(16)

    —         —         —         —         —         (6,267     —         —    

Loss on debt extinguishment(17)

    —         —         —         —         —         —         978       —    

Income tax effect on pre-tax non-GAAP adjustments(18)

    —         —         —         —         —         —         —         (118,704

Other non-GAAP income tax adjustments(19)

    —         —         —         —         —         —         —         (74,939
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of non-GAAP adjustments

    427,279       169,056       155,091       22,270       21,619       (6,267     978       (193,643
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

  $ (110,055   $ (55,906   $ (500,002   $ —       $ (104,904   $ —       $ —       $ (90,894
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS—NON-GAAP

 

(1)

Represents depreciation expense related to our property, equipment, software and leasehold improvements.

 

(2)

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

 

(3)

Our accrued contingent royalty liabilities consist of contingent third-party royalty obligations that we assume when we acquire the rights to medicines. At the time of each acquisition, we assign a fair value to the contingent liability for royalties. On a quarterly basis, we evaluate the carrying amount of the liability and we remeasure, or adjust, the liability when anticipated royalty payments materially change. Any remeasurements of the contingent royalty liabilities are recorded as an increase in or reduction to cost of goods sold during the period. In addition, accretion expense on the contingent royalty liability is recorded in cost of goods sold. When we prepare our non-GAAP financial measures, we exclude the ongoing impacts of acquisition-related contingent royalty liabilities. We do this by excluding the impact of any remeasurement of contingent royalty liabilities and the royalty accretion expense. However, since we recorded a liability for contingent royalties in purchase accounting, when we exclude the remeasurement and royalty accretion expense, our non-GAAP financial measures would not include any impact of the royalties we are obligated to pay based on our current period net sales. Therefore, we also add back in our non-GAAP financial measures the actual royalty amount incurred based on the periods’ net sales for each of our medicines acquired through business combinations.

 

(4)

During the year ended Dec. 31, 2018, we recognized in cost of goods sold $17.3 million for inventory step-up expense primarily related to KRYSTEXXA inventory sold.

During the year ended Dec. 31, 2017, we recognized in cost of goods sold $78.3 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.

 

(5)

Represents amortization of debt discount and deferred financing costs associated with our debt.

 

(6)

Represents expenses, including legal and consulting fees, incurred in connection with our acquisitions and divestitures.

 

(7)

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

 

(8)

Represents share-based compensation expense associated with our stock option, restricted stock unit and performance stock unit grants to our employees and non-employees, our previous cash-settled long-term incentive plan and our employee stock purchase plan.

 

(9)

Impairment of long-lived assets during the year ended Dec. 31, 2018, primarily relates to the write-off of the book value of developed technology related to PROCYSBI in Canada and Latin America and LODOTRA.

Impairment of long-lived assets during the year ended Dec. 31, 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 Dec. 31, 2017.

 

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(10)

We recorded $5.8 million of expense during the year ended Dec. 31, 2018, for litigation settlements related to PENNSAID 2% and RAVICTI.

 

(11)

During the year ended Dec. 31, 2016, we entered into a definitive agreement to acquire certain rights to interferon gamma-1b, marketed as IMUKIN in an estimated thirty countries, primarily in Europe and the Middle East, or the IMUKIN purchase agreement. We already owned the rights to interferon gamma-1b marketed as ACTIMMUNE in the United States, Canada and Japan. In connection with the IMUKIN purchase agreement, we also committed to pay our contract manufacturer certain amounts related to the harmonization of the manufacturing processes for ACTIMMUNE and IMUKIN drug substance, or the harmonization program. At the time we entered into the IMUKIN purchase agreement and the harmonization program commitment was made, we had anticipated achieving certain benefits should the Phase 3 clinical trial evaluating ACTIMMUNE for the treatment of Friedreich’s ataxia, or FA, be successful. If the study had been successful and if U.S. marketing approval had subsequently been obtained, we had forecasted significant increases in demand for the medicine and the harmonization program would have resulted in significant benefits for us. Following the FA discontinuation, we determined that certain assets, including an upfront payment related to the IMUKIN purchase agreement, were impaired, and the costs under the harmonization program would no longer have benefit to us and should be expensed as incurred.

 

(12)

Represents arrangement and other fees relating to the refinancing of our term loans.

 

(13)

During the year ended Dec. 31, 2017, we incurred $12.2 million of upfront and milestone payments related to license agreements, primarily related to our agreement to license HZN-003, a rheumatology pipeline program with the objective of enhancing our leadership position in the uncontrolled gout market, from MedImmune for an upfront cash payment of $12.0 million.

 

(14)

During the year ended Dec. 31, 2018, we recorded a reduction to previously incurred charges relating to the FA discontinuation of $1.5 million.

During the year ended Dec. 31, 2017, we recorded charges relating to the FA discontinuation of $0.2 million.

 

(15)

During the year ended Dec. 31, 2018, we sold our rights to interferon gamma-1b in all territories outside the United States, Canada and Japan to Clinigen for cash proceeds of $9.5 million, with a potential additional contingent consideration payment, and we recorded a gain of $12.3 million. Additionally, during the year ended Dec. 31, 2018, we sold our rights to RAVICTI and AMMONAPS outside of North America and Japan to Medical Need Europe AB, and we recorded a gain of $30.4 million.

 

(16)

During the year ended Dec. 31, 2017, we completed the divestiture of a European subsidiary that owns the marketing rights to PROCYSBI and QUINSAIR in EMEA to Chiesi and in connection with this divestiture we recorded a gain of $6.3 million.

 

(17)

During the year ended Dec. 31, 2017, we entered into two refinancing amendments for our term loans. We accounted for a portion of the repayments under these refinancing amendments as a debt extinguishment and recorded a loss on debt extinguishment of $1.0 million in the consolidated statements of comprehensive loss, which reflected the write-off of the unamortized portion of debt discount and deferred financing costs previously incurred and a one percent prepayment penalty fee.

 

(18)

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.

 

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(19)

Other non-GAAP income tax adjustments during the year ended Dec. 31, 2017, reflect the provisional $74.9 million net benefit recorded following the enactment of the Tax Act, which net benefit included a $134.2 million tax benefit from the revaluation of our U.S. net deferred tax liability based on the revised U.S. federal tax rate of 21 percent, partially offset by the write-off of the $59.2 million deferred tax asset related to our U.S. interest expense carryforwards under Section 163(j) of the Code.

Following the issuance of Notice 2018-28 by the U.S. Treasury Department and the U.S. Internal Revenue Service during the year ended Dec. 31, 2018, and in accordance with the measurement period provisions under SAB 118, we reinstated the deferred tax asset related to our U.S. interest expense carry forwards under Section 163(j) based on the revised U.S. federal tax rate of 21 percent. The impact of the deferred tax asset reinstatement in accordance with SAB 118 was a $37.4 million increase to our benefit for income taxes and a corresponding decrease to the U.S. group net deferred tax liability position.

 

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