Horizon Pharma plc Reports Record Quarterly Net Sales for Orphan and Rheumatology Segment; Increases Full-Year 2018 Adjusted EBITDA Guidance; Implements New Company Operating Structure to Enhance Focus on Rare Diseases

Published: Aug 08, 2018

Aug. 8, 2018 11:00 UTC

-- Record Quarterly Orphan and Rheumatology Segment Net Sales of $201.7 Million Increased 17 Percent; Represented 67 Percent of Total Company Net Sales --

-- Second-Quarter 2018 KRYSTEXXA® Net Sales Growth of 53 Percent; Continue to Expect Full-Year 2018 Net Sales Growth of More Than 65 Percent --

-- Target Enrollment Reached in Teprotumumab Phase 3 Clinical Trial, Significantly Ahead of Schedule --

-- Second-Quarter 2018 Net Sales of $302.8 Million; Second-Quarter 2018 GAAP Net Loss of $32.8 Million; Adjusted EBITDA of $116.8 Million --

-- Confirming Full-Year 2018 Net Sales Guidance Range of $1.170 Billion to $1.200 Billion; Increasing Full-Year Adjusted EBITDA Guidance Range to $400 Million to $420 Million --

DUBLIN--(BUSINESS WIRE)-- Horizon Pharma plc (NASDAQ: HZNP) announced its second-quarter 2018 financial results today. Effective with the second quarter of 2018, the Company has realigned its operating structure and is reporting financial results as two separate segments: the orphan and rheumatology segment, its strategic growth business, and the primary care segment. The new operating structure reflects the evolution of the Company’s strategy and vision of transitioning Horizon Pharma to a biopharmaceutical company focused on rare disease medicines.

“Our orphan and rheumatology segment generated record quarterly net sales, driven by accelerating KRYSTEXXA growth, reflecting the additional investments we are making this year,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. “Our clinical programs continue to advance, with target enrollment now complete in the teprotumumab Phase 3 trial, well ahead of schedule. Additionally, we plan on initiating a new study of KRYSTEXXA to continue exploring a broader clinical profile of this medicine, the only FDA-approved treatment for uncontrolled gout. These advancements support our transformation into a rare disease medicine focused company with a robust pipeline enabling sustainable growth.”

 

                                 
Financial Highlights
                                   
                %                 %
(in millions except for per share amounts and percentages)   Q2 18     Q2 17     Change     YTD 18     YTD 17     Change
                                   
Net sales   $ 302.8       $ 289.5       5       $ 526.7       $ 510.4       3  
Net loss     (32.8 )       (209.5 )     84         (190.2 )       (300.1 )     37  
Non-GAAP net income     80.5         68.3       18         85.3         103.3       (17 )
Adjusted EBITDA     116.8         127.0       (8 )       150.4         178.9       (16 )
                                   
Net loss per share - diluted   $ (0.20 )     $ (1.29 )     84       $ (1.15 )     $ (1.85 )     38  
Non-GAAP earnings per share - diluted     0.48         0.41       17         0.51         0.63       (19 )
                                                       

Second-Quarter and Recent Company Highlights

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

    Teprotumumab is a fully human monoclonal antibody IGF-1R inhibitor being developed for the treatment of thyroid eye disease (TED), in which the muscles and fatty tissue behind the eye become inflamed, which can lead to proptosis, or bulging of the eye, and diplopia, or double vision, as well as quality-of-life issues. In October, data will be presented at the 2018 American Thyroid Association (ATA) meeting from the follow-up period of the Phase 2 clinical trial, during which the Company continued to collect data on study patients off therapy out to 48 weeks to assess durability of response.
  • New KRYSTEXXA Immunomodulation Study: The Company is planning on initiating a new study of KRYSTEXXA to continue to explore a broader clinical profile of this medicine, the only FDA-approved treatment for uncontrolled gout (chronic gout that is refractory to conventional therapies). The study will evaluate the impact of adding methotrexate to KRYSTEXXA to enhance the patient response rate. Methotrexate is the most common immunomodulator used by rheumatologists. Enrollment is expected to begin in the fourth quarter of 2018.
  • New Uncontrolled Gout and KRYSTEXXA Data Presented at EULAR: In June, the Company participated in the 2018 Annual European Congress of Rheumatology (EULAR) in Amsterdam, where new insights on both gout and KRYSTEXXA were presented. One presentation highlighted a 27 percent increase in U.S. emergency department visits between 2006 and 2014 for people living with gout, suggesting a sizeable and growing population of gout patients who are uncontrolled and not well managed. Several KRYSTEXXA data analyses underscored the complex nature of uncontrolled gout, the potential systemic effects of elevated serum uric acid (sUA) levels and the need to manage uncontrolled gout aggressively. These presentations support the Company’s continued efforts to increase awareness and understanding of uncontrolled gout and the benefits of KRYSTEXXA.
  • R&D Leadership: The Company made several important leadership additions to its research and development (R&D) organization to expand its capabilities, partner with the business development team in identifying and evaluating development-stage opportunities and lead the orphan and rheumatology therapeutic areas’ clinical development strategies.
  • Intellectual Property Update: The Company received two new patents from the U.S. Patent and Trademark Office during the quarter that cover RAVICTI®, with two additional patents scheduled to be issued in August, resulting in five new patents in an 18-month period. In addition, the Company settled litigation in June with Lupin relating to RAVICTI. Lupin’s license to enter the market with a generic version of RAVICTI would begin on July 1, 2026.
  • Best Workplace Awards: Great Place to Work® and FORTUNE Magazine selected Horizon Pharma as the Number One place to work on FORTUNE’s "Best Workplaces in Health Care & Biopharma" list. The Company has also been awarded a 2018 “Best Places to Work in Chicago” designation by Crain’s Chicago Business, as well as named to its “10 Best Places to Work for Women” list. In addition, in July, the Company was recognized by PEOPLE and Great Place to Work® as one of the 2018 “50 Companies That Care,” a list that spotlights companies with 1,000 or more employees that have succeeded in business while also demonstrating respect, compassion and concern for their communities, their employees and the environment.

Research and Development Programs

Orphan Candidates and Programs:

  • Teprotumumab: Teprotumumab is the Company’s fully human monoclonal antibody IGF-1R inhibitor in development for the treatment of TED. The pivotal Phase 3 confirmatory study is evaluating teprotumumab for the treatment of moderate-to-severe active TED, which has no FDA-approved treatments. The Company estimates peak annual U.S. net sales of more than $750 million for teprotumumab, assuming FDA approval.

Rheumatology Pipeline Candidates and Programs:

  • KRYSTEXXA Immunomodulation Studies: The evaluation of the use of immunomodulation therapies to enhance the response rate to KRYSTEXXA is being studied in two investigator-initiated trials, as well as a new trial being initiated by the Company. The three trials are evaluating different immunomodulators, all of which are used by rheumatologists.
    • Methotrexate to Increase Response Rates in Patients with Uncontrolled GOut Receiving KRYSTEXXA (MIRROR): a Horizon Pharma-sponsored multicenter, efficacy and safety study for methotrexate co-administered with KRYSTEXXA to evaluate the impact of methotrexate weekly for one month prior to dosing with KRYSTEXXA and then throughout the 24 weeks of treatment with KRYSTEXXA. Enrollment is expected to begin in the fourth quarter of 2018.
    • REduCing Immunogenicity to PegloticasE (RECIPE): a double-blind, placebo-controlled trial for mycophenolate mofetil (MMF) co-administered with KRYSTEXXA to evaluate the impact of MMF daily for two weeks prior to dosing with KRYSTEXXA, followed by a 12-week course of KRYSTEXXA every two weeks along with daily doses of MMF, followed by dosing of KRYSTEXXA alone every two weeks for 12 weeks.
    • Tolerization Reduces Intolerance to Pegloticase and Prolongs the Urate Lowering Effect (TRIPLE) is an exploratory, open-label adaptive trial with multiple patient cohorts, including one evaluating the impact of adding daily doses of azathioprine for a two-week run-in period, followed by KRYSTEXXA every two weeks for a total of 13 doses, along with daily doses of azathioprine.
  • Next-generation Biologic Programs for Uncontrolled Gout: The Company is pursuing two development programs for next-generation biologics for uncontrolled gout, HZN-003 and PASylated uricase technology to support and sustain the Company’s market leadership in uncontrolled gout. The programs are exploring the use of optimized uricase technology as well as optimized PEGylation and PASylation technology.

Second-Quarter Financial Results

Note: For additional detail and reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, please refer to the tables at the end of this release.

  • Net Sales: Second-quarter 2018 net sales were $302.8 million, an increase of 4.6 percent, driven by continued strong growth of the Company’s orphan and rheumatology medicines. Year-over-year growth would have been 6.3 percent, excluding second-quarter 2017 net sales of $4.5 million for PROCYSBI® and QUINSAIR™ in the Europe, the Middle East and Africa (EMEA) regions, which were divested on June 23, 2017.
  • Gross Profit: Under U.S. GAAP in the second quarter of 2018, the gross profit ratio was 67.0 percent compared to 55.0 percent in the second quarter of 2017. The non-GAAP gross profit ratio in the second quarter of 2018 was 90.2 percent compared to 90.6 percent in the second quarter of 2017.
  • Operating Expenses: R&D expenses were 8.0 percent of net sales and selling, general and administrative (SG&A) expenses were 58.3 percent of net sales. Non-GAAP R&D expenses were 6.7 percent of net sales, and non-GAAP SG&A expenses were 45.0 percent of net sales.
  • Income Tax Rate: The income tax rate in the second quarter of 2018 on a GAAP basis was negative 13.7 percent and on a non-GAAP basis was 12.0 percent.
  • Net (Loss) Income: On a GAAP basis in the second quarter of 2018, net loss was $32.8 million. Second-quarter 2018 non-GAAP net income was $80.5 million.
  • Adjusted EBITDA: Second-quarter 2018 adjusted EBITDA was $116.8 million.
  • Earnings (Loss) per Share: On a GAAP basis in the second quarter of 2018, diluted loss per share was $0.20; in the second quarter of 2017, diluted loss per share was $1.29. Non-GAAP diluted earnings per share in the second quarter of 2018 and 2017 were $0.48 and $0.41, respectively. Weighted average shares outstanding used for calculating GAAP diluted loss per share and non-GAAP diluted earnings per share in the second quarter of 2018 were 165.5 million and 169.4 million, respectively.

Second-Quarter Segment Results

The Company has realigned its structure to operate its strategic growth business, orphan and rheumatology, separately from its primary care business. The new structure allows the Company to more efficiently allocate its resources to address unmet treatment needs for patients with rare diseases. As a result of the realignment, effective with the second-quarter of 2018, the Company is reporting its financial results as two separate segments: the orphan and rheumatology segment and the primary care segment, reporting net sales and operating income for each segment. Historical segment net sales and operating income for 2017 are provided in the accompanying financial schedules.

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

                           

Orphan and Rheumatology Segment

                           
            %           %
  (in millions except for percentages) Q2 18   Q2 17   Change   YTD 18   YTD 17   Change
                           
  RAVICTI®   57.0     47.2   21       106.1     91.1   16  
  PROCYSBI®(1)   38.4     36.7   5       73.4     71.0   3  
  ACTIMMUNE®   27.4     28.8   (5 )     52.2     55.0   (5 )
  BUPHENYL®   5.2     6.3   (16 )     11.0     12.6   (12 )
  QUINSAIRTM(1)   0.1     1.4   (93 )     0.2     3.2   (94 )
  Orphan $ 128.1   $ 120.4   6     $ 242.9   $ 232.9   4  
  KRYSTEXXA®   58.6     38.3   53       105.3     69.9   51  
  RAYOS®   13.5     11.6   16       24.1     21.9   10  
  LODOTRA®   1.5     1.8   (15 )     1.7     2.7   (38 )
  Rheumatology $ 73.6   $ 51.7   42     $ 131.1   $ 94.5   39  
  Orphan and Rheumatology Net Sales $ 201.7   $ 172.1   17     $ 374.0   $ 327.3   14  
                           
  Orphan and Rheumatology Segment Operating Income $ 70.6   $ 64.7   9     $ 113.7   $ 114.4   (1 )
                                     

(1)

On June 23, 2017, Horizon Pharma completed the divestiture of a European subsidiary that owned the marketing rights to PROCYSBI and QUINSAIR in Europe, the Middle East and Africa (EMEA) to Chiesi Farmaceutici S.p.A. Horizon Pharma retains marketing rights for the two medicines in the United States, Canada, Latin America and Asia. Second-quarter and year-to-date 2017 net sales of PROCYSBI and QUINSAIR in EMEA were $4.5 million and $9.5 million, respectively.

  • Second-quarter 2018 net sales of the orphan and rheumatology segment were $201.7 million, an increase of 17.2 percent over the prior year’s quarter, driven by continued strong KRYSTEXXA growth, as well as growth of RAVICTI and PROCYSBI. Excluding the second-quarter 2017 EMEA net sales of $4.5 million for PROCYSBI and QUINSAIR that were divested in June 2017, orphan and rheumatology segment year-over-year net sales growth would have been 20.4 percent.
  • In line with the Company’s expectations, second-quarter 2018 orphan and rheumatology segment operating income was $70.6 million, or 35 percent of orphan and rheumatology net sales. The Company is investing significantly in the commercial expansion of KRYSTEXXA in 2018, which is expected to continue to drive future net sales growth and margin expansion over time.
                                   

Primary Care Segment

                                   
                      %           %
(in millions except for percentages)             Q2 18   Q2 17   Change   YTD 18   YTD 17   Change
                                     
PENNSAID® 2%               47.6     51.2   (7 )     74.4     92.8   (20 )
DUEXIS®               30.7     43.6   (30 )     46.4     61.3   (24 )
VIMOVO®               21.9     21.1   3       30.2     26.0   16  
MIGERGOT®               0.9     1.5   (35 )     1.7     2.9   (41 )
Primary Care Net Sales             $ 101.1   $ 117.4   (14 )   $ 152.7   $ 183.0   (17 )
                                     
Primary Care Segment Operating Income             $ 45.9   $ 62.4   (26 )   $ 36.3   $ 65.0   (44 )
  • Second-quarter 2018 net sales of the primary care segment were $101.1 million.
  • In line with the Company’s expectations, second-quarter 2018 operating income for the primary care segment was $45.9 million, or 45 percent of primary care net sales.

Cash Flow Statement and Balance Sheet Highlights

  • On a GAAP basis in the second quarter of 2018, operating cash flow was $61.8 million. Non-GAAP operating cash flow was $75.2 million.
  • The Company had cash and cash equivalents of $710.2 million as of June 30, 2018.
  • As of June 30, 2018, the total principal amount of debt outstanding was $1.993 billion, which consists of $818 million in senior secured term loans due 2024; $300 million senior notes due 2024; $475 million senior notes due 2023; and $400 million exchangeable senior notes due 2022. As of June 30, 2018, net debt was $1.283 billion.

Full-Year 2018 Guidance

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

Webcast

At 8 a.m. EDT / 1 p.m. IST today, the Company will host a live webcast to review its financial and operating results and provide a general business update. The live webcast and a replay may be accessed at http://ir.horizon-pharma.com. Please connect to the Company's website at least 15 minutes prior to the live webcast to ensure adequate time for any software download that may be needed to access the webcast. A replay of the webcast will be available approximately two hours after the live webcast.

About Horizon Pharma plc

Horizon Pharma plc is focused on researching, developing and commercializing innovative medicines that address unmet treatment needs for rare and rheumatic diseases. By fostering a growing pipeline of medicines in development and exploring all potential uses for currently marketed medicines, we strive to make a powerful difference for patients, their caregivers and physicians. For us, it’s personal: by living up to our own potential, we are helping others live up to theirs. For more information, please visit www.horizonpharma.com, follow us @HZNPplc on Twitter or like us on Facebook.

Note Regarding Use of Non-GAAP Financial Measures

EBITDA, or earnings before interest, taxes, depreciation and amortization, and adjusted EBITDA are used and provided by Horizon Pharma as non-GAAP financial measures. Horizon Pharma provides certain other financial measures such as non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross profit and gross profit ratio, non-GAAP operating expenses, non-GAAP operating income, non-GAAP tax rate, non-GAAP operating cash flow and net debt, each of which include adjustments to GAAP figures. These non-GAAP measures are intended to provide additional information on Horizon Pharma’s performance, operations, expenses, profitability and cash flows. Adjustments to Horizon Pharma's GAAP figures as well as EBITDA exclude acquisition and/or divestiture-related expenses, charges related to the discontinuation of ACTIMMUNE development for Friedreich’s ataxia, gain from divestiture, an upfront fee for a license of a patent, litigation settlements, loss on debt extinguishment, costs of debt refinancing, drug manufacturing harmonization costs, restructuring and realignment costs, as well as non-cash items such as share-based compensation, depreciation and amortization, royalty accretion, non-cash interest expense, long-lived asset impairment charges, impacts of contingent royalty liability remeasurements and other non-cash adjustments. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. Horizon maintains an established non-GAAP cost policy that guides the determination of what costs will be excluded in non-GAAP measures. Horizon Pharma believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Horizon Pharma's financial and operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of the Company’s historical and expected 2018 financial results and trends and to facilitate comparisons between periods and with respect to projected information. In addition, these non-GAAP financial measures are among the indicators Horizon Pharma's management uses for planning and forecasting purposes and measuring the Company's performance. For example, adjusted EBITDA is used by Horizon Pharma as one measure of management performance under certain incentive compensation arrangements. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies. Horizon Pharma has not provided a reconciliation of its full-year 2018 adjusted EBITDA outlook to an expected net income (loss) outlook because certain items such as acquisition/divestiture-related expenses and share-based compensation that are a component of net income (loss) cannot be reasonably projected due to the significant impact of changes in Horizon Pharma's stock price, the variability associated with the size or timing of acquisitions/divestitures and other factors. These components of net income (loss) could significantly impact Horizon Pharma’s actual net income (loss).

Forward-Looking Statements

This press release contains forward-looking statements, including, but not limited to, statements related to Horizon Pharma's full-year 2018 net sales and adjusted EBITDA guidance, expected growth in net sales of certain medicines, estimated peak annual net sales of teprotumumab, if approved; expected financial performance in future periods; expected timing of clinical trials, including the Phase 3 clinical trial of teprotumumab; expected increases in investment in Horizon Pharma’s rare disease medicine pipeline and the impact thereof; potential market opportunity for Horizon Pharma’s medicines in approved and potential additional indications; and business and other statements that are not historical facts. These forward-looking statements are based on Horizon Pharma's current expectations and inherently involve significant risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks that Horizon Pharma’s actual future financial and operating results may differ from its expectations or goals; Horizon Pharma’s ability to grow net sales from existing products; the availability of coverage and adequate reimbursement and pricing from government and third-party payers; risks relating to Horizon Pharma’s ability to successfully implement its business strategies; risks inherent in developing novel medicine candidates, such as teprotumumab, and existing medicines for new indications; risks related to acquisition integration and achieving projected benefits; risks associated with regulatory approvals; risks in the ability to recruit, train and retain qualified personnel; competition, including potential generic competition; the ability to protect intellectual property and defend patents; regulatory obligations and oversight, including any changes in the legal and regulatory environment in which Horizon Pharma operates and those risks detailed from time-to-time under the caption "Risk Factors" and elsewhere in Horizon Pharma's filings and reports with the SEC. Horizon Pharma undertakes no duty or obligation to update any forward-looking statements contained in this press release as a result of new information.

                     
Horizon Pharma plc
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
                         
            Three Months Ended June 30,   Six Months Ended June 30,
            2018   2017   2018   2017
                         
  Net sales       $ 302,835     $ 289,507     $ 526,716     $ 510,366  
  Cost of goods sold         100,082       130,150       216,174       269,266  
  Gross profit         202,753       159,357       310,542       241,100  
                         
  OPERATING EXPENSES:                  
    Research and development       24,265       163,101       41,910       176,162  
    Selling, general and administrative     176,674       159,653       356,273       333,718  
    Impairment of long-lived assets       -       22,270       37,853       22,270  
      Total operating expenses     200,939       345,024       436,036       532,150  
  Operating income (loss)       1,814       (185,667 )     (125,494 )     (291,050 )
                         
  OTHER EXPENSE, NET:                  
    Interest expense, net       (31,030 )     (31,608 )     (61,484 )     (63,591 )
    Foreign exchange (loss) gain       (5 )     151       (115 )     (108 )
    Gain on divestiture       -       5,856       -       5,856  
    Loss on debt extinguishment       -       -       -       (533 )
    Other income (expense), net       347       (35 )     525       -  
      Total other expense, net     (30,688 )     (25,636 )     (61,074 )     (58,376 )
                         
  Loss before expense (benefit) for income taxes     (28,874 )     (211,303 )     (186,568 )     (349,426 )
  Expense (benefit) for income taxes       3,962       (1,767 )     3,596       (49,320 )
  Net loss       $ (32,836 )   $ (209,536 )   $ (190,164 )   $ (300,106 )
                         
  Net loss per ordinary share - basic and diluted   $ (0.20 )   $ (1.29 )   $ (1.15 )   $ (1.85 )
                         
  Weighted average ordinary shares outstanding - basic and diluted     165,536,826       162,931,930       164,921,722       162,486,946  
         
Horizon Pharma plc
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
                   
                   
              As of
              June 30,   December 31,
              2018   2017
  ASSETS            
  CURRENT ASSETS:        
    Cash and cash equivalents   $ 710,211     $ 751,368  
    Restricted cash     6,394       6,529  
    Accounts receivable, net     403,671       405,214  
    Inventories, net     50,105       61,655  
    Prepaid expenses and other current assets     64,231       43,402  
        Total current assets     1,234,612       1,268,168  
  Property and equipment, net     18,070       20,405  
  Developed technology, net     2,272,154       2,443,949  
  Other intangible assets, net     5,039       5,441  
  Goodwill       426,441       426,441  
  Deferred tax assets, net     4,185       3,470  
  Other assets     29,224       36,081  
  Total assets   $ 3,989,725     $ 4,203,955  
                   
  LIABILITIES AND SHAREHOLDERS' EQUITY        
  CURRENT LIABILITIES:        
    Long-term debt—current portion   $ -     $ 10,625  
    Accounts payable     31,110       34,681  
    Accrued expenses     173,619       175,697  
    Accrued trade discounts and rebates     449,683       501,753  
    Accrued royalties—current portion     65,604       65,328  
    Deferred revenues—current portion     5,629       6,885  
        Total current liabilities     725,645       794,969  
                   
  LONG-TERM LIABILITIES:        
    Exchangeable notes, net     323,105       314,384  
    Long-term debt, net of current     1,562,013       1,576,646  
    Accrued royalties, net of current     293,626       291,185  
    Deferred revenues, net of current     -       9,713  
    Deferred tax liabilities, net     157,404       157,945  
    Other long-term liabilities     67,782       68,015  
        Total long-term liabilities     2,403,930       2,417,888  
                   
  COMMITMENTS AND CONTINGENCIES        
  SHAREHOLDERS' EQUITY:        
    Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized;      
      166,974,870 and 164,785,083 shares issued at June 30, 2018 and        
      December 31, 2017, respectively, and 166,590,504 and 164,400,717 shares        
      outstanding at June 30, 2018 and December 31, 2017, respectively     17       16  
    Treasury stock, 384,366 ordinary shares at June 30, 2018 and December 31, 2017     (4,585 )     (4,585 )
    Additional paid-in capital     2,306,754       2,248,979  
    Accumulated other comprehensive loss     (1,128 )     (983 )
    Accumulated deficit     (1,440,908 )     (1,252,329 )
        Total shareholders' equity     860,150       991,098  
  Total liabilities and shareholders' equity   $ 3,989,725     $ 4,203,955  
                   
  Horizon Pharma plc
  Condensed Consolidated Statements of Cash Flows (Unaudited)
  (in thousands)
                         
                         
            Three Months Ended June 30,   Six Months Ended June 30,
            2018   2017   2018   2017
                         
  CASH FLOWS FROM OPERATING ACTIVITIES:                
  Net loss   $ (32,836 )   $ (209,536 )   $ (190,164 )   $ (300,106 )
  Adjustments to reconcile net loss to net cash provided by operating activities:                
    Depreciation and amortization expense     68,540       71,531       137,447       143,014  
    Equity-settled share-based compensation     30,721       29,123       58,554       57,960  
    Royalty accretion     14,758       12,735       29,475       25,694  
    Royalty liability remeasurement     -       -       (2,151 )     (2,944 )
    Impairment of long-lived assets     -       22,270       37,853       22,270  
    Amortization of debt discount and deferred financing costs     5,690       5,206       11,185       10,629  
    Deferred income taxes     (3,433 )     (31,791 )     (1,753 )     (79,486 )
    Acquired in-process research & development expense     -       148,609       -       148,609  
    Gain on divestiture     -       (2,635 )     -       (2,635 )
    Loss on debt extinguishment     -       -       -       533  
    Foreign exchange and other adjustments     580       (174 )     459       613  
    Changes in operating assets and liabilities:                
      Accounts receivable     678       (6,209 )     1,742       (97,267 )
      Inventories     (2,741 )     30,686       11,549       67,736  
      Prepaid expenses and other current assets     (11,934 )     4,879       (21,738 )     2,434  
      Accounts payable     (10,120 )     (6,255 )     (3,592 )     29,823  
      Accrued trade discounts and rebates     19,982       871       (52,138 )     116,950  
      Accrued expenses and accrued royalties     (18,553 )     (36,876 )     (14,099 )     (86,235 )
      Deferred revenues     1,817       1,002       333       384  
      Other non-current assets and liabilities     (1,361 )     14,489       (1,988 )     14,755  
        Net cash provided by operating activities     61,788       47,925       974       72,731  
  CASH FLOWS FROM INVESTING ACTIVITIES:                
  Payments for acquisitions, net of cash acquired     -       (167,850 )     -       (167,850 )
  Proceeds from divestiture, net of cash divested     -       69,072       -       69,072  
  Payment related to license agreement     -       -       (12,000 )     -  
  Purchases of property and equipment     (96 )     (1,207 )     (762 )     (2,627 )
        Net cash used in investing activities     (96 )     (99,985 )     (12,762 )     (101,405 )
  CASH FLOWS FROM FINANCING ACTIVITIES:                
  Repayment of term loans     (25,598 )     (2,125 )     (27,722 )     (774,875 )
  Net proceeds from term loans     -       -       -       847,768  
  Proceeds from the issuance of ordinary shares in connection with warrant exercises     -       11       -       11  
  Proceeds from the issuance of ordinary shares through ESPP programs     4,720       4,029       4,734       3,856  
  Proceeds from the issuance of ordinary shares in connection with stock option exercises     2,727       753       3,672       1,297  
  Payment of employee withholding taxes relating to share-based awards     (5,668 )     (925 )     (9,185 )     (5,202 )
  Repurchase of ordinary shares     -       (992 )     -       (992 )
        Net cash (used in) provided by financing activities     (23,819 )     751       (28,501 )     71,863  
                         
  Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash     (1,988 )     2,494       (1,003 )     2,196  
                         
  Net increase (decrease) in cash, cash equivalents and restricted cash     35,885       (48,815 )     (41,292 )     45,385  
  Cash, cash equivalents and restricted cash, beginning of the period(1)     680,720       610,350       757,897       516,150  
  Cash, cash equivalents and restricted cash, end of the period(1)   $ 716,605     $ 561,535     $ 716,605     $ 561,535  
                         

(1)

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

 
Horizon Pharma plc

Segment Operating Income – 2017 Historical Information (Unaudited)

(in millions)

 

           
                           
                           
          Q1 17   Q2 17   Q3 17   Q4 17   FY17
Segment Net Sales                          
Orphan & Rheumatology         $ 155.2   $ 172.1   $ 175.6   $ 178.0   $ 680.9
Primary Care           65.6     117.4     96.1     96.2     375.3
                           
Segment Operating Income                          
Orphan & Rheumatology         $ 49.7   $ 64.7   $ 65.5   $ 61.2   $ 241.1
Primary Care           2.6     62.4     42.2     41.9     149.1
                 
Horizon Pharma plc
Net Debt Reconciliation (Unaudited)
(in thousands)
                 
            As of
            June 30,   December 31,
            2018   2017
                 
Long-term debt-current portion           $ -   $ 10,625
Long-term debt, net of current             1,562,013     1,576,646
Exchangeable notes, net             323,105     314,384
Total Debt             1,885,118     1,901,655
Debt discount             97,737     108,054
Deferred financing fees             10,171     11,041
Total Principal Amount Debt             1,993,026     2,020,750
                 
Less: cash and cash equivalents             710,211     751,368
Net Debt           $ 1,282,815   $ 1,269,382
                 
Horizon Pharma plc
GAAP to Non-GAAP Reconciliations
Net Income and Earnings Per Share (Unaudited)
(in thousands, except share and per share data)
                       
                       
          Three Months Ended June 30,   Six Months Ended June 30,
          2018   2017   2018   2017
                       
                       
  GAAP net loss   $ (32,836 )   $ (209,536 )   $ (190,164 )   $ (300,106 )
  Non-GAAP adjustments:                
    Acquisition/divestiture-related costs     1,775       153,385       5,686       163,424  
    Restructuring and realignment costs     7,039       5,193       10,381       5,193  
    Litigation settlements     4,250       -       4,250       -  
    Amortization, accretion and step-up:                
      Intangible amortization expense     66,989       69,776       134,344       139,453  
      Accretion of royalty liabilities     14,797       12,735       29,515       25,694  
      Amortization of debt discount and deferred financing costs     5,691       5,206       11,187       10,629  
      Inventory step-up expense     53       33,895       17,129       74,490  
    Impairment of long-lived assets     -       22,270       37,853       22,270  
    Remeasurement of royalties for medicines acquired through business combinations     -       -       (2,151 )     (2,944 )
    Share-based compensation     30,721       27,768       58,554       56,237  
    Depreciation     1,551       1,755       3,104       3,561  
    Gain on divestiture     -       (5,856 )     -       (5,856 )
    Charges relating to discontinuation of Friedreich's ataxia program     272       (3,103 )     1,222       (3,103 )
    Drug substance harmonization costs     475       745       1,279       5,044  
    Upfront and milestone payments related to license agreements     -       -       90       -  
    Fees related to term loan refinancings     15       (45 )     42       4,098  
    Loss on debt extinguishment     -       -       -       533  
    Royalties for medicines acquired through business combinations     (13,259 )     (11,622 )     (25,780 )     (22,939 )
      Total of pre-tax non-GAAP adjustments     120,369       312,102       286,705       475,784  
    Income tax effect of pre-tax non-GAAP adjustments     (7,015 )     (34,272 )     24,668       (72,375 )
    Other non-GAAP income tax adjustments     -       -       (35,893 )     -  
      Total of non-GAAP adjustments     113,354       277,830       275,480       403,409  
  Non-GAAP Net Income   $ 80,518     $ 68,294     $ 85,316     $ 103,303  
                       
                       
Non-GAAP Earnings Per Share:                
                       
  Weighted average ordinary shares - Basic     165,536,826       162,931,930       164,921,722       162,486,946  
                       
  Non-GAAP Earnings Per Share - Basic:                
    GAAP loss per share - Basic   $ (0.20 )   $ (1.29 )   $ (1.15 )   $ (1.85 )
    Non-GAAP adjustments     0.69       1.71       1.67       2.49  
    Non-GAAP earnings per share - Basic   $ 0.49     $ 0.42     $ 0.52     $ 0.64  
                       
                       
  Weighted average ordinary shares - Diluted                
    Weighted average ordinary shares - Basic     165,536,826       162,931,930       164,921,722       162,486,946  
    Ordinary share equivalents     3,820,913       2,033,141       3,678,249       2,499,409  
    Weighted average shares - Diluted     169,357,739       164,965,071       168,599,971       164,986,355  
                       
                       
  Non-GAAP Earnings Per Share - Diluted                
    GAAP loss per share - Diluted   $ (0.20 )   $ (1.29 )   $ (1.15 )   $ (1.85 )
    Non-GAAP adjustments     0.69       1.71       1.67       2.49  
    Diluted earnings per share effect of ordinary share equivalents     (0.01 )     (0.01 )     (0.01 )     (0.01 )
    Non-GAAP earnings per share - Diluted   $ 0.48     $ 0.41     $ 0.51     $ 0.63  
                 
Horizon Pharma plc
GAAP to Non-GAAP Reconciliations

EBITDA (Unaudited)

(in thousands, except percentages)
                       
                       
          Three Months Ended June 30,   Six Months Ended June 30,
          2018   2017   2018   2017
                       
                       
                       
  GAAP net loss   $ (32,836 )   $ (209,536 )   $ (190,164 )   $ (300,106 )
  Depreciation     1,551       1,755       3,104       3,561  
  Amortization, accretion and step-up:                
    Intangible amortization expense     66,989       69,776       134,344       139,453  
    Accretion of royalty liabilities     14,797       12,735       29,515       25,694  
    Amortization of deferred revenue     -       (207 )     -       (411 )
    Inventory step-up expense     53       33,895       17,129       74,490  
  Interest expense, net (including amortization of                
    debt discount and deferred financing costs)     31,030       31,608       61,484       63,591  
  Expense (benefit) for income taxes     3,962       (1,767 )     3,596       (49,320 )
  EBITDA   $ 85,546     $ (61,741 )   $ 59,008     $ (43,048 )
  Other non-GAAP adjustments:                
    Acquisition/divestiture-related costs     1,775       153,385       5,686       163,424  
    Restructuring and realignment costs     7,039       5,193       10,381       5,193  
    Litigation settlements     4,250       -       4,250       -  
    Impairment of long-lived assets     -       22,270       37,853       22,270  
    Remeasurement of royalties for medicines acquired through business combinations     -       -       (2,151 )     (2,944 )
    Share-based compensation     30,721       27,768       58,554       56,237  
    Charges relating to discontinuation of Friedreich's ataxia program     272       (3,103 )     1,222       (3,103 )
    Drug substance harmonization costs     475       745       1,279       5,044  
    Upfront and milestone payments related to license agreements     -       -       90       -  
    Fees related to term loan refinancings     15       (45 )     42       4,098  
    Loss on debt extinguishment     -       -       -       533  
    Gain on divestiture     -       (5,856 )     -       (5,856 )
    Royalties for medicines acquired through business combinations     (13,259 )     (11,622 )     (25,780 )     (22,939 )
  Total of other non-GAAP adjustments     31,288       188,735       91,426       221,957  
  Adjusted EBITDA   $ 116,834     $ 126,994     $ 150,434     $ 178,909  
                 
Horizon Pharma plc
GAAP to Non-GAAP Reconciliations

Operating Income (Unaudited)

(in thousands, except percentages)
                       
                       
          Three Months Ended June 30,   Six Months Ended June 30,
          2018   2017   2018   2017
                       
                       
                       
  GAAP Operating Income (Loss)   $ 1,814     $ (185,667 )   $ (125,494 )   $ (291,050 )
  Non-GAAP adjustments:                
    Acquisition/divestiture-related costs     1,775       153,385       5,686       163,424  
    Restructuring and realignment costs     7,039       5,193       10,381       5,193  
    Litigation settlements     4,250       -       4,250       -  
    Amortization, accretion and step-up:                
      Intangible amortization expense     66,989       69,776       134,344  

 

  139,453  
      Accretion of royalty liabilities     14,797       12,735       29,515       25,694  
      Inventory step-up expense     53       33,895       17,129       74,490  
    Impairment of long-lived assets     -       22,270       37,853       22,270  
    Remeasurement of royalties for medicines acquired through business combinations     -       -       (2,151 )     (2,944 )
    Share-based compensation     30,721       27,768       58,554       56,237  
    Depreciation     1,551       1,755       3,104       3,561  
    Charges relating to discontinuation of Friedreich's ataxia program     272       (3,103 )     1,222       (3,103 )
    Drug substance harmonization costs     475       745       1,279       5,044  
    Upfront and milestone payments related to license agreements     -       -       90       -  
    Fees related to term loan refinancings     15       (45 )     42       4,098  
    Royalties for medicines acquired through business combinations     (13,259 )     (11,622 )     (25,780 )     (22,939 )
      Total of non-GAAP adjustments     114,678       312,752       275,518       470,478  
  Non-GAAP Operating Income   $ 116,492     $ 127,085     $ 150,024     $ 179,428  
                       
    Orphan and Rheumatology Segment Operating Income     70,609       64,662       113,713       114,386  
    Primary Care Segment Operating Income     45,883       62,423       36,311       65,042  
  Total Segment Operating Income   $ 116,492     $ 127,085     $ 150,024     $ 179,428  
                       
    Amortization of deferred revenue     -       (207 )     -       (411 )
    Foreign exchange (loss) gain     (5 )     151       (115 )     (108 )
    Other income, net     347       (35 )     525       -  
  Adjusted EBITDA   $ 116,834     $ 126,994     $ 150,434     $ 178,909  
                 
Horizon Pharma plc
GAAP to Non-GAAP Reconciliations
Gross Profit and Operating Cash Flow (Unaudited)
(in thousands, except percentages)
                       
                       
          Three Months Ended June 30,   Six Months Ended June 30,
          2018   2017   2018   2017
                       
Non-GAAP Gross Profit:                
                       
  GAAP gross profit   $ 202,753     $ 159,357     $ 310,542     $ 241,100  
  Non-GAAP gross profit adjustments:                
    Acquisition/divestiture-related costs     33       (48 )     52       32  
    Share-based compensation     1,110       573       1,893       1,001  
    Remeasurement of royalties for medicines acquired through business combinations     -       -       (2,151 )     (2,944 )
    Intangible amortization expense     66,787       69,574       133,942       139,048  
    Accretion of royalty liabilities     14,797       12,735       29,515       25,694  
    Inventory step-up expense     53       33,895       17,129       74,490  
    Depreciation     176       183       353       366  
    Charges relating to discontinuation of Friedreich's ataxia program     185       (3,103 )     1,135       (3,103 )
    Drug substance harmonization costs     475       745       1,279       5,044  
    Royalties for medicines acquired through business combinations     (13,259 )     (11,622 )     (25,780 )     (22,939 )
  Total of Non-GAAP adjustments     70,357       102,932       157,367       216,689  
  Non-GAAP gross profit   $ 273,110     $ 262,289     $ 467,909     $ 457,789  
                       
  GAAP gross profit %     67.0 %     55.0 %     59.0 %     47.2 %
  Non-GAAP gross profit %     90.2 %     90.6 %     88.8 %     89.7 %
                       
                       
                       
  GAAP cash provided by operating activities   $ 61,788     $ 47,925     $ 974     $ 72,731  
    Cash payments for acquisition/divestiture-related costs     1,597       12,620       5,555       33,012  
    Cash payments for restructuring and realignment costs     4,230       1,664       4,677       1,664  
    Cash payments for litigation settlements     1,500       16,250       1,500       32,500  
    Cash payments for upfront and milestone payments related to license agreement     -       -       275       -  
    Cash payments drug substance harmonization costs     5,960       5,006       5,960       5,006  
    Cash payments for discontinuation of Friedreich's ataxia program     108       2,519       3,507       3,001  
    Cash payments relating to term loan refinancings     13       455       31       3,767  
  Non-GAAP operating cash flow   $ 75,196     $ 86,439     $ 22,479     $ 151,681  
                     
Horizon Pharma plc
GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)
(in millions, except percentages)
                     
                     
    Q2 2018
    Pre-tax Net   Income Tax  

 

  Net (Loss)   Diluted (Loss)
    (Loss) Income   (Benefit) Expense  

Tax Rate

  Income   Earnings Per Share
As reported - GAAP   $ (28.9 )   $ 3.9     (13.7 )%   $

(32.8

)   $ (0.20 )
Non-GAAP adjustments     120.4       7.1           113.3      
Non-GAAP   $ 91.5     $ 11.0     12.0 %   $ 80.5     $ 0.48  
                     
                     
    Q2 2017
    Pre-tax Net  

Income Tax

      Net (Loss)   Diluted (Loss)
    (Loss) Income  

(Benefit) Expense

  Tax Rate   Income   Earnings Per Share
As reported - GAAP   $ (211.3 )   $ (1.8 )   0.8 %   $ (209.5 )   $ (1.29 )
Non-GAAP adjustments     312.1       34.3           277.8      
Non-GAAP   $ 100.8     $ 32.5     32.2 %   $ 68.3     $ 0.41  
                     
                     
    YTD 2018
    Pre-tax Net   Income Tax       Net (Loss)   Diluted (Loss)
    (Loss) Income   (Benefit) Expense   Tax Rate   Income   Earnings Per Share
As reported - GAAP   $ (186.6 )   $ 3.6     (1.9 )%   $ (190.2 )   $ (1.15 )
Non-GAAP adjustments     286.7       11.2           275.5      
Non-GAAP   $ 100.1     $ 14.8     14.8 %   $ 85.3     $ 0.51  
                     
                     
    YTD 2017
    Pre-tax Net   Income Tax       Net (Loss)   Diluted (Loss)
    (Loss) Income   (Benefit) Expense   Tax Rate   Income   Earnings Per Share
As reported - GAAP   $ (349.4 )   $ (49.3 )   14.1 %   $ (300.1 )   $ (1.85 )
Non-GAAP adjustments     475.8       72.4           403.4      
Non-GAAP   $ 126.4     $ 23.1     18.2 %   $ 103.3     $ 0.63  
                                 
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended June 30, 2018
(Unaudited)

(in thousands)

                                 
                                 
                        Income Tax        
            Research &   Selling, General   Interest   Benefit        
        COGS   Development   & Administrative   Expense   (Expense)        
                                 
GAAP as reported   $ (100,082 )   $ (24,265 )   $ (176,674 )   $ (31,030 )   $ (3,962 )        
                                 
Non-GAAP Adjustments (in thousands):                            
  Acquisition/divestiture-related costs(1)     33       18       1,724       -       -          
  Restructuring and realignment costs(2)     -       1,733       5,306       -       -          
  Litigation settlements(3)     -       -       4,250       -       -          
  Amortization, accretion and step-up:                            
    Intangible amortization expense(4)     66,787       -       202       -       -          
    Accretion of royalty liability(5)     14,797       -       -       -       -          
    Amortization of debt discount and deferred financing costs(6)     -       -       -       5,691       -          
    Inventory step-up expense(7)     53       -       -       -       -          
  Share-based compensation(10)     1,110       2,209       27,402       -       -          
  Depreciation(11)     176       -       1,375       -       -          
  Charges relating to discontinuation of Friedreich's ataxia program(12)     185       87       -       -       -          
  Drug substance harmonization costs(13)     475       -       -       -       -          
  Fees related to term loan refinancings(15)     -       -       15       -       -          
  Royalties for medicines acquired through business combinations(16)     (13,259 )     -       -       -       -          
  Income tax effect on pre-tax non-GAAP adjustments(17)     -       -       -       -       (7,015 )        
    Total of non-GAAP adjustments     70,357       4,047       40,274       5,691       (7,015 )        
                                 
Non-GAAP   $ (29,725 )   $ (20,218 )   $ (136,400 )   $ (25,339 )   $ (10,977 )        
                                 
                                 
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended June 30, 2017
(Unaudited)
(in thousands)
                                 
                                 
                                 
            Research &   Selling, General   Impairment of   Interest   Gain on   Income Tax Benefit
        COGS   Development   & Administrative  

Long-Lived Assets

  Expense   Divestiture   (Expense)
                                 
GAAP as reported   $ (130,150 )   $ (163,101 )   $ (159,653 )   $ (22,270 )   $ (31,608 )   $ 5,856     $ 1,767  
                                 
Non-GAAP Adjustments (in thousands):                            
  Acquisition/divestiture-related costs(1)     (48 )     148,080       5,353       -       -       -       -  
  Restructuring and realignment costs(2)     -       -       5,193       -       -       -       -  
  Amortization, accretion and step-up:                            
    Intangible amortization expense(4)     69,574       -       202       -       -       -       -  
    Accretion of royalty liability(5)     12,735       -       -       -       -       -       -  
    Amortization of debt discount and deferred financing costs(6)     -       -       -       -       5,206       -       -  
    Inventory step-up expense(7)     33,895       -       -       -       -       -       -  
  Impairment of long-lived assets(8)     -       -       -       22,270       -       -       -  
  Share-based compensation(10)     573       2,313       24,882       -       -       -       -  
  Depreciation(11)     183       -       1,572       -       -       -       -  
  Charges relating to discontinuation of Friedreich's ataxia program(12)     (3,103 )     -       -       -       -       -       -  
  Drug substance harmonization costs(13)     745       -       -       -       -       -       -  
  Fees related to term loan refinancings(15)     -       -       (45 )     -       -       -       -  
  Royalties for medicines acquired through business combinations(16)     (11,622 )     -       -       -       -       -       -  
  Gain on divestiture(20)     -       -       -       -       -       (5,856 )     -  
  Income tax effect on pre-tax non-GAAP adjustments(17)     -       -       -       -       -       -       (34,272 )
    Total of non-GAAP adjustments     102,932       150,393       37,157       22,270       5,206       (5,856 )     (34,272 )
                                 
Non-GAAP   $ (27,218 )   $ (12,708 )   $ (122,496 )   $ -     $ (26,402 )   $ -     $ (32,505 )
                             
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Six Months Ended June 30, 2018
(Unaudited)

(in thousands)

                                     
                                     
                            Income Tax        
            Research &   Selling, General   Impairment of   Interest   Benefit        
        COGS   Development   & Administrative  

Long-Lived Assets

  Expense   (Expense)        
                                     
GAAP as reported   $ (216,174 )   $ (41,910 )   $ (356,273 )   $ (37,853 )   $ (61,484 )   $ (3,596 )        
                                     
Non-GAAP Adjustments (in thousands):                                
  Acquisition/divestiture-related costs(1)     52       (67 )     5,701       -       -       -          
  Restructuring and realignment costs(2)     -       1,733       8,648       -       -       -          
  Litigation settlements(3)     -       -       4,250       -       -       -          
  Amortization, accretion and step-up:                                
    Intangible amortization expense(4)     133,942       -       402       -       -       -          
    Accretion of royalty liability(5)     29,515       -       -       -       -       -          
    Amortization of debt discount and deferred financing costs(6)     -       -       -       -       11,187       -          
    Inventory step-up expense(7)     17,129       -       -       -       -       -          
  Impairment of long-lived assets(8)     -       -       -       37,853       -       -          
  Remeasurement of royalties for medicines acquired through business combinations(9)     (2,151 )     -       -       -       -       -          
  Share-based compensation(10)     1,893       4,649       52,012       -       -       -          
  Depreciation(11)     353       -       2,751       -       -       -          
  Charges relating to discontinuation of Friedreich's ataxia program(12)     1,135       87       -       -       -       -          
  Drug substance harmonization costs(13)     1,279       -       -       -       -       -          
  Upfront and milestone payments related to license agreements(14)     -       90       -       -       -       -          
  Fees related to term loan refinancings(15)     -       -       42       -       -       -          
  Royalties for medicines acquired through business combinations(16)     (25,780 )     -       -       -       -       -          
  Income tax effect on pre-tax non-GAAP adjustments(17)     -       -       -       -       -       24,668          
  Other non-GAAP income tax adjustments(18)     -       -       -       -       -       (35,893 )        
    Total of non-GAAP adjustments     157,367       6,492       73,806       37,853       11,187       (11,225 )        
                                     
Non-GAAP   $ (58,807 )   $ (35,418 )   $ (282,467 )   $ -     $ (50,297 )   $ (14,821 )        
                                     
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Six Months Ended June 30, 2017
(Unaudited)

(in thousands)

                                     
                                     
                                    Income Tax
            Research &   Selling, General   Impairment of   Interest   Gain on   Loss on Debt   Benefit
        COGS   Development   & Administrative  

Long-Lived Assets

  Expense   Divestiture   Extinguishment   (Expense)
                                     
GAAP as reported   $ (269,266 )   $ (176,162 )   $ (333,718 )   $ (22,270 )   $ (63,591 )   $ 5,856     $ (533 )   $ 49,320  
                                     
Non-GAAP Adjustments (in thousands):                                
  Acquisition/divestiture-related costs(1)     32       148,257       15,135       -       -       -       -       -  
  Restructuring and realignment costs(2)     -       -       5,193       -       -       -       -       -  
  Amortization, accretion and step-up:                                
    Intangible amortization expense(4)     139,048       -       405       -       -       -       -       -  
    Accretion of royalty liability(5)     25,694       -       -       -       -       -       -       -  
    Amortization of debt discount and deferred financing costs(6)     -       -       -       -       10,629       -       -       -  
    Inventory step-up expense(7)     74,490       -       -       -       -       -       -       -  
  Impairment of long lived assets(8)     -       -       -       22,270       -       -       -       -  
  Remeasurement of royalties for medicines acquired through business combinations(9)     (2,944 )     -       -       -       -       -       -       -  
  Share-based compensation(10)     1,001       4,362       50,874       -       -       -       -       -  
  Depreciation(11)     366       -       3,195       -       -       -       -       -  
  Charges relating to discontinuation of Friedreich's ataxia program(12)     (3,103 )     -       -       -       -       -       -       -  
  Drug substance harmonization costs(13)     5,044       -       -       -       -       -       -       -  
  Fees related to term loan refinancing(15)     -       -       4,098       -       -       -       -       -  
  Royalties for medicines acquired through business combinations(16)     (22,939 )     -       -       -       -       -       -       -  
  Loss on debt extinguishment(19)     -       -       -       -       -       -       533       -  
  Gain on divestiture(20)     -       -       -       -       -       (5,856 )     -       -  
  Income tax effect on pre-tax non-GAAP adjustments(17)     -       -       -       -       -       -       -       (72,375 )
    Total of non-GAAP adjustments     216,689       152,619       78,900       22,270       10,629       (5,856 )     533       (72,375 )
                                     
Non-GAAP   $ (52,577 )   $ (23,543 )   $ (254,818 )   $ -     $ (52,962 )   $ -     $ -     $ (23,055 )
 

NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS - NON-GAAP

 
(1)   Expenses, including legal and consulting fees, incurred in connection with the Company’s acquisitions and divestitures.
     
(2)   Represents expenses, including severance costs and consulting fees, related to the restructuring and realignment activities.
     
(3)   During the three and six months ended June 30, 2018, the Company recorded $4.3 million of expense for litigation settlements related to RAVICTI and PENNSAID 2%.
     
(4)   Intangible amortization expenses are associated with the Company’s intellectual property rights, developed technology and customer relationships related to ACTIMMUNE, BUPHENYL, KRYSTEXXA, LODOTRA, MIGERGOT, PENNSAID 2%, PROCYSBI, RAVICTI, RAYOS and VIMOVO.
     
(5)   Represents accretion expense associated with ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO contingent royalty liabilities.
     
(6)   Represents amortization of debt discount and deferred financing costs associated with the Company's debt.
     
(7)   During the three and six months ended June 30, 2018, the Company recognized in cost of goods sold nil and $17.1 million, respectively, for inventory step-up expense primarily related to KRYSTEXXA inventory sold.
     
    During the three and six months ended June 30, 2017, the Company recognized in cost of goods sold $19.3 million and $33.7 million, respectively, for inventory step-up expense related to KRYSTEXXA inventory sold and $14.6 million and $40.8 million, respectively, for inventory step-up expense related to PROCYSBI and QUINSAIR inventory sold.
     
(8)   During the six months ended June 30, 2018, the Company recorded an impairment of $37.9 million to write off the book value of developed technology related to PROCYSBI in Canada and Latin America due to lower than anticipated future net sales.
     
    Impairment of long-lived assets during the three and six months ended June 30, 2017 of $22.3 million relates to an impairment recorded following payment to Boehringer Ingelheim International for the acquisition of certain rights to interferon gamma-1b. This was presented in the “charges relating to the discontinuation of the Friedreich’s ataxia program” line item in the reconciliation of GAAP to non-GAAP measures during the year ended December 31, 2017.
     
(9)   At the time of the Company's acquisition of the rights to ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, RAVICTI and VIMOVO, the Company estimated the fair value of contingent royalties payable to third parties using an income approach under the discounted cash flow method, which included revenue projections and other assumptions the Company made to determine the fair value. If the Company significantly overperforms or underperforms against its original revenue projections or it becomes necessary to make changes to assumptions as a result of a triggering event, the Company is required to reassess the fair value of the contingent royalties payable. Any subsequent adjustment to fair value is recorded in the period such adjustment is made as either an increase or decrease to royalties payable, with a corresponding increase or decrease in cost of goods sold, in accordance with established accounting policies. The Company recorded net decreases of $2.2 million and $2.9 million to cost of goods sold to adjust the amount of the contingent royalty liabilities relating to PROCYSBI during the first quarter of 2018, and to KRYSTEXXA and VIMOVO during the first quarter of 2017, respectively.
     
(10)   Represents share-based compensation expense associated with the Company's stock option, restricted stock unit and performance stock unit grants to its employees and non-employees, its previous cash-settled long-term incentive plan and its employee stock purchase plan.
     
(11)   Represents depreciation expense related to the Company’s property, equipment, software and leasehold improvements.
     
(12)   Charges relating to discontinuation of the Friedreich’s ataxia program include a $1.1 million increase and $3.1 million reduction during the six months ended June 30, 2018 and 2017, respectively, in cost of goods sold relating to the purchase of additional units of ACTIMMUNE.
     
(13)   During the year ended December 31, 2016, the Company committed to spend $14.9 million related to the harmonization of the manufacturing processes for ACTIMMUNE and IMUKIN drug substance. During the three and six months ended June 30, 2018, the Company incurred costs of $0.5 million and $1.3 million, respectively, related to these activities that qualify for exclusion in the Company’s non-GAAP financial measures under its non-GAAP cost policy.
     
(14)   Represents upfront and milestone payments related to license agreements.
     
(15)   Represents arrangement and other fees relating to the refinancing of the Company’s term loans.
     
(16)   Royalties of $13.3 million and $25.8 million were incurred during the three and six months ended June 30, 2018, respectively, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, QUINSAIR, RAVICTI and VIMOVO.
     
(17)   Income tax adjustments on pre-tax non-GAAP adjustments represent the estimated income tax impact of each pre-tax non-GAAP adjustment based on the statutory income tax rate of the applicable jurisdictions for each non-GAAP adjustment.
     
(18)   Other non-GAAP income tax adjustments during the six months ended June 30, 2018 reflect a measurement period adjustment relating to Notice 2018-28 that was issued by the U.S. Treasury Department and the U.S. Internal Revenue Service in April 2018 (“the notice”). In accordance with the measurement period provisions under SAB 118 and the guidance in the notice the Company reinstated the deferred tax asset related to its U.S. interest expense carry forwards under Section 163(j) based on the new U.S. federal tax rate of 21 percent. The impact of the deferred tax asset reinstatement in accordance with SAB 118 was a $35.9 million increase to the Company’s benefit for income taxes and a corresponding decrease to the U.S. group net deferred tax liability position.
     
(19)   During the six months ended June 30, 2017, the Company recorded a loss on debt extinguishment of $0.5 million which comprised a write-off of $0.4 million in debt discount and deferred financing costs and an early redemption payment of $0.1 million.
     
(20)   On June 23, 2017, the Company completed the divestiture of a European subsidiary that owns the marketing rights to PROCYSBI and QUINSAIR in Europe, the Middle East and Africa to Chiesi Farmaceutici S.p.A. In connection with this divestiture, the Company recorded a gain of $5.9 million in the three and six months ended June 30, 2017.

 

Contacts

Horizon Pharma plc
Investors:
Tina Ventura
Senior Vice President,
Investor Relations
investor-relations@horizonpharma.com
or
Ruth Venning
Executive Director,
Investor Relations
investor-relations@horizonpharma.com
or
U.S. Media:
Geoff Curtis
Executive Vice President,
Corporate Affairs & Chief Communications Officer
media@horizonpharma.com
or
Ireland Media:
Ray Gordon
Gordon MRM
ray@gordonmrm.ie

 

 
 

Source: Horizon Pharma plc

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