SOURCE: Horizon Pharma plc

Horizon Pharma plc

November 06, 2015 07:00 ET

Horizon Pharma plc Announces Exceptional Third-Quarter 2015 Financial Results and Significantly Raises Full-Year 2015 Sales and Adjusted EBITDA Guidance

Net Sales of $226.5 Million, Up 202 Percent; Adjusted EBITDA of $131.1 Million; GAAP Net Income of $3.3 Million; Adjusted Operating Cash Flow of $100.8 Million; GAAP Operating Cash Flow of $88.4 Million; $684.3 Million of Cash; Net Debt/LTM Adjusted EBITDA Leverage Ratio of 2.1x; Raises Full-Year 2015 Net Sales Guidance to $750 to $760 Million; Raises Full-Year Adjusted EBITDA Guidance to $350 to $360 Million

DUBLIN, IRELAND--(Marketwired - Nov 6, 2015) - Horizon Pharma plc (NASDAQ: HZNP), a biopharmaceutical company focused on improving patients' lives by identifying, developing, acquiring and commercializing differentiated and accessible medicines that address unmet medical needs, announced its third-quarter 2015 financial results today.

Quarterly Financial Highlights

                         
(in millions except for per share amounts and percentages) Q3 15   Q3 14   %
Change
  9M 15   9M 14     %
Change
                                 
Net sales $ 226.5   $ 75.1   202   $ 512.5   $ 193.1     165
Net income (loss)   3.3     2.1   57     15.5     (232.0 )   NM
Adjusted non-GAAP net income   117.0     19.4   503     203.4     46.2     340
Adjusted EBITDA   131.1     22.1   493     239.7     52.3     358
                                 
Earnings (loss) per share - basic $ 0.02   $ 0.03   -33   $ 0.11   $ (3.17 )   NM
Adjusted non-GAAP earnings per share - basic   0.74     0.25   196     1.40     0.63     122
Earnings (loss) per share - diluted   0.02     0.02   -     0.10     (3.17 )   NM
Adjusted non-GAAP earnings per share - diluted   0.70     0.19   268     1.32     0.48     175
                                 

"Our business fundamentals have never been better, we significantly exceeded expectations on net sales, adjusted EBITDA and adjusted diluted earnings per share and our cash flow generation continues to be very strong," said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. "As a result, we are significantly raising our full-year 2015 net sales and adjusted EBITDA guidance. Additionally, our Phase 3 trial for ACTIMMUNE in Friedreich's ataxia is more than 30 percent enrolled, on track to complete enrollment in the second quarter of 2016 and we continue to expect results by the end of 2016."

Horizon Pharma Increases 2015 Full-Year Guidance

         
    Prior Guidance   New Guidance
Net sales   $660 to $680 million   $750 to $760 million
Adjusted EBITDA   $265 to $280 million   $350 to $360 million
         

Third-Quarter and Nine-Month 2015 Net Sales Results

                       
(in millions except for percentages) Q3 15   Q3 14   %
Change
  9M 15   9M 14   %
Change
Primary Care $ 147.6   $ 66.0   124   $ 341.2   $ 174.1   96
  DUEXIS®   56.9     22.8   150     130.0     54.5   139
  VIMOVO®   46.8     43.2   8     119.6     119.6   -
  PENNSAID® 2% (1)   43.9     -   NM     91.6     -   NM
Orphan   66.1     2.7   2343     139.6     2.7   NM
  ACTIMMUNE® (2)   28.7     2.7   962     79.4     2.7   NM
  RAVICTI® (3)   33.4     -   NM     52.4     -   NM
  BUPHENYL® (3)   4.0     -   NM     7.8     -   NM
Specialty   12.8     6.4   98     31.7     16.3   94
  RAYOS®   11.7     5.7   106     29.2     12.9   126
  LODOTRA®   1.1     0.7   36     2.5     3.4   -27
Total net sales $ 226.5   $ 75.1   202   $ 512.5   $ 193.1   165
(1) PENNSAID 2% was acquired on October 17, 2014. (2) ACTIMMUNE was acquired on September 19, 2014. (3) RAVICTI and BUPHENYL were acquired on May 7, 2015.
   
  • Third-quarter 2015 net sales of $226.5 million increased 202 percent compared to the third quarter of 2014 and 31 percent sequentially compared to the second quarter of 2015. This was driven by strong growth in each of Horizon's business units: primary care, orphan and specialty, as well as the addition of new medicines to the orphan and primary care business units.

  • Orphan Business Unit: ACTIMMUNE sales of $28.7 million increased 11 percent sequentially compared to the second quarter of 2015. RAVICTI and BUPHENYL sales in the third quarter were $33.4 million and $4.0 million, respectively. The European Medicines Agency (EMA) adopted a positive opinion in September recommending a centralized marketing authorization for RAVICTI for use as an adjunctive therapy for Urea Cycle Disorders (UCDs). Horizon expects European approval for RAVICTI by the end of 2015 with the commercial launch expected in 2017. The orphan commercial organization continues to drive awareness of ACTIMMUNE and RAVICTI with both patients and physicians, and new patients continue to be steadily added to each medicine. In addition, enrollment in the STEADFAST Phase 3 trial for ACTIMMUNE in Friedreich's ataxia is more than 30 percent completed, and trial results are expected by the end of 2016.

  • Primary Care Business Unit: DUEXIS sales of $56.9 million increased 150 percent compared to the third quarter of 2014 and 29 percent sequentially compared to the second quarter of 2015. VIMOVO sales of $46.8 million increased 8 percent compared to the third quarter of 2014 and 18 percent sequentially compared to the second quarter of 2015. PENNSAID 2% sales of $43.9 million increased 49 percent sequentially compared to second quarter 2015. Total prescriptions for the primary care business unit increased double digits sequentially compared to the second quarter of 2015, driven by differentiated clinical benefits and strong sales and marketing execution.

  • Specialty Business Unit: RAYOS sales of $11.7 million increased 106 percent compared to the third quarter of 2014 and 13 percent sequentially compared to the second quarter of 2015, as total prescriptions continue to accelerate. LODOTRA sales of $1.1 million increased 36 percent compared to the third quarter of 2014. 

Third-Quarter 2015 Financial Results
Note: For additional detail and reconciliation of these non-GAAP amounts to the most directly comparable GAAP financial measures, please refer to the detailed tables at the end of this release.

         
  Q3 2015     Q3 2014
(in millions, except per share amounts) U.S. GAAP   Adjustments     Non-GAAP     U.S. GAAP     Adjustments     Non-GAAP
                                           
Net sales $ 226.5   $ -     $ 226.5     $ 75.1     $ -     $ 75.1
Gross profit   165.3     43.4       208.7       61.5       4.3       65.8
Research and development   13.1     (4.2 )     8.9       4.2       (0.4 )     3.8
Sales and marketing   52.0     (7.2 )     44.8       31.1       (1.7 )     29.4
General and administrative   54.5     (31.2 )     23.3       38.1       (30.6 )     7.5
Total operating expenses   119.6     (42.6 )     77.0       73.4       (32.7 )     40.7
Interest expense, net   20.3     (5.5 )     14.8       5.2       (2.4 )     2.8
Bargain purchase gain   -     -       -       22.2       (22.2 )     -
Other expense, net   0.1     -       0.1       3.2       (3.2 )     -
Expense (benefit) for income taxes   22.0     (22.2 )     (0.2 )     (3.0 )     3.0       -
Net income   3.3     113.7       117.0       2.1       17.3       19.4
EBITDA (1)   99.0     32.1       131.1       15.1       7.0       22.1
                                           
Earnings per share - basic $ 0.02   $ 0.72     $ 0.74     $ 0.03     $ 0.22     $ 0.25
Earnings per share - diluted $ 0.02   $ 0.68     $ 0.70     $ 0.02     $ 0.17     $ 0.19
                                           
(1) EBITDA is a non-GAAP measure.
   
  • Under U.S. generally accepted accounting principles (GAAP) in the third quarter of 2015, the gross profit ratio was 73.0 percent compared to 81.8 percent in the third quarter of 2014. The adjusted gross profit ratio in the third quarter of 2015 was 92.1 percent compared to 87.6 percent in the third quarter of 2014.

  • On a GAAP basis in the third quarter of 2015, total operating expenses were 52.8 percent of sales, research & development (R&D) expenses were 5.8 percent of sales, sales & marketing (S&M) expenses were 22.9 percent of sales and general & administration (G&A) expenses were 24.1 percent of sales. Adjusted total operating expenses in the third quarter of 2015 were 34.0 percent of sales, adjusted R&D expenses were 3.9 percent of sales, adjusted S&M expenses were 19.8 percent of sales and adjusted G&A expenses were 10.3 percent of sales. S&M expenses are expected to increase in the fourth quarter as the company further expands its sales and marketing efforts to support continued strong growth. 

  • On a GAAP basis in the third quarter of 2015, net income was $3.3 million compared to $2.1 million in the third quarter of 2014. Adjusted net income in the third quarter of 2015 was $117.0 million, or 51.7 percent of sales, compared to $19.4 million, or 25.8 percent of sales, in the third quarter of 2014.

  • On an unadjusted basis in the third quarter of 2015, EBITDA was $99.0 million. Adjusted EBITDA in the third quarter of 2015 was $131.1 million, or 57.9 percent of sales, compared to $22.1 million, or 29.4 percent of sales, in the third quarter of 2014.

  • On a GAAP basis in the third quarter of both 2015 and 2014, diluted earnings per share were $0.02. Adjusted diluted earnings per share in the third quarter of 2015 were $0.70, representing growth of 268 percent compared to the third quarter of 2014 diluted earnings per share of $0.19. Weighted average shares outstanding used for calculating earnings per share in the third quarter of 2015 were 159.0 million and 166.8 million for basic and diluted earnings per share, respectively.

Cash Flow Statement and Balance Sheet Highlights

  • On a GAAP basis in the third quarter of 2015, operating cash flow was $88.4 million. Adjusted operating cash flow in the third quarter of 2015 was $100.8 million, which excludes cash payments for transaction-related costs.

  • The company had cash and cash equivalents of $684.3 million as of September 30, 2015, an increase of $17.2 million from June 30, 2015. This increase in the cash balance is significantly less than the cash flow from operations during the third quarter primarily due to $71.8 million used to acquire shares of Depomed, Inc. during the quarter.

  • Total principal amount of debt outstanding was $1.274 billion as of September 30, 2015, which is comprised of $475 million in 6.625 percent senior notes due 2023, $399 million in senior secured term loans due 2021, and $400 million of 2.5 percent exchangeable senior notes due 2022.

  • As of September 30, 2015, the company had a total debt to last 12 months (LTM) adjusted EBITDA leverage ratio of 4.6x and a net debt to LTM adjusted EBITDA leverage ratio of 2.1x.

Conference Call

At 8 a.m. EST / 1 p.m. IST today, the Company will host a live conference call and webcast to review its financial and operating results and provide a general business update.

U.S. Dial-In Number: +1 888.338.8373
International Dial-In Number: +1 973.872.3000
Passcode: 62744788

The live webcast and a replay may be accessed by visiting Horizon's website 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 conference call will be available approximately two hours after the call and accessible through one of the following telephone numbers, using the passcode below:

Replay U.S. Dial-In Number: +1 855.859.2056
Replay International Dial-In Number: +1 404.537.3406
Passcode: 62744788

About Horizon Pharma plc
Horizon Pharma plc is a biopharmaceutical company focused on improving patients' lives by identifying, developing, acquiring and commercializing differentiated and accessible medicines that address unmet medical needs. The Company markets seven medicines through its orphan, primary care and specialty business units. Horizon's global headquarters are in Dublin, Ireland. For more information, please visit www.horizonpharma.com. Follow @HZNPplc on Twitter or view careers on our LinkedIn page.

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 as non-GAAP financial measures. Horizon provides certain other financial measures such as adjusted net income, adjusted net income per share, adjusted gross profit and gross profit ratio, adjusted operating and other expenses and adjusted cash from operations, each of which include adjustments to GAAP figures. Adjustments to Horizon's GAAP figures as well as EBITDA exclude acquisition transaction related expenses, loss on debt extinguishment, as well as non-cash items such as share-based compensation, depreciation and amortization, royalty accretion, non-cash interest expense, 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 believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Horizon's financial 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 2015 financial results and trends. In addition, these non-GAAP financial measures are among the indicators Horizon's management uses for planning and forecasting purposes and measuring the Company's performance. 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 has not provided reconciliation of an expected adjusted EBITDA outlook to an expected net income (loss) outlook because certain items that are a component of net income (loss) cannot be reasonably projected, either due to the significant impact of changes in Horizon's stock price on share-based compensation, the variability associated with acquisition-related expenses due to timing and other factors.

Forward-Looking Statements
This press release contains forward-looking statements, including, but not limited to, statements related to Horizon's expected full-year 2015 net sales and adjusted EBITDA guidance, the status of Horizon's business fundamentals, expected financial performance in future periods, expected timing of clinical and regulatory events, and other statements that are not historical facts. These forward-looking statements are based on Horizon'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's actual full-year 2015 financial and operating results may differ from its expectations; 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 payors and risks relating to the success of Horizon's patient support program; risks associated with clinical development and regulatory approvals; 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's filings and reports with the U.S. Securities and Exchange Commission ("SEC"). Horizon Pharma undertakes no duty or obligation to update any forward-looking statements contained in this presentation as a result of new information.

   
Horizon Pharma plc  
Consolidated Statements of Operations (Unaudited)  
(in thousands, except share and per share data)  
                       
                       
  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30,  
  2015     2014     2015     2014  
REVENUES:                              
Net sales $ 226,544     $ 75,126     $ 512,506     $ 193,114  
Cost of goods sold   61,250       13,644       151,929       46,073  
Gross profit   165,294       61,482       360,577       147,041  
                               
OPERATING EXPENSES:                              
  Research and development   13,073       4,223       28,176       10,601  
  Sales and marketing   51,973       31,111       157,092       86,932  
  General and administrative   54,516       38,109       157,986       66,982  
      Total operating expenses   119,562       73,443       343,254       164,515  
Operating income (loss)   45,732       (11,961 )     17,323       (17,474 )
                               
OTHER (EXPENSE) INCOME, NET:                              
  Interest expense, net   (20,300 )     (5,194 )     (49,780 )     (13,608 )
  Foreign exchange loss   (86 )     (2,754 )     (1,010 )     (3,076 )
  Bargain purchase gain   -       22,171       -       22,171  
  Loss on derivative fair value   -       -       -       (214,995 )
  Loss on induced conversion of debt and debt extinguishment   -       -       (77,624 )     -  
  Other expense, net   (90 )     (3,241 )     (10,159 )     (8,241 )
      Total other (expense) income, net   (20,476 )     10,982       (138,573 )     (217,749 )
                               
Profit (loss) before expense (benefit) for income taxes   25,256       (979 )     (121,250 )     (235,223 )
EXPENSE (BENEFIT) FOR INCOME TAXES   21,979       (3,042 )     (136,788 )     (3,267 )
NET INCOME (LOSS) $ 3,277     $ 2,063     $ 15,538     $ (231,956 )
                               
Earnings (loss) per share - basic $ 0.02     $ 0.03     $ 0.11     $ (3.17 )
                               
Weighted average shares outstanding - basic   159,035,580       78,392,971       145,208,252       73,109,603  
                               
Earnings (loss) per share - diluted $ 0.02     $ 0.02     $ 0.10     $ (3.17 )
                               
Weighted average shares outstanding - diluted   166,830,800       85,687,267       154,005,671       73,109,603  
                               
                               
                               
Horizon Pharma plc  
Consolidated Balance Sheets (Unaudited)  
(in thousands, except share data)  
           
           
  As of  
  Sept. 30, 2015     Dec. 31, 2014  
ASSETS              
CURRENT ASSETS:              
  Cash and cash equivalents $ 684,286     $ 218,807  
  Restricted cash   860       738  
  Accounts receivable, net   221,091       73,915  
  Inventories, net   17,729       16,865  
  Prepaid expenses and other current assets   16,466       14,370  
  Deferred tax assets, net   13,196       1,530  
      Total current assets   953,628       326,225  
  Property and equipment, net   10,380       7,241  
  Developed technology, net   1,650,553       696,963  
  In-process research and development   66,000       66,000  
  Other intangible assets, net   7,263       7,870  
  Goodwill   259,167       -  
  Long term investments   42,413       -  
  Deferred tax assets, net, non-current   -       18,761  
  Other assets   9,514       11,564  
TOTAL ASSETS $ 2,998,918     $ 1,134,624  
               
LIABILITIES AND SHAREHOLDERS' EQUITY              
CURRENT LIABILITIES:              
  Convertible debt, net $ -     $ 48,334  
  Long-term debt-current portion   4,000       -  
  Accounts payable   62,083       21,011  
  Accrued expenses   84,364       46,625  
  Accrued trade discounts and rebates   124,378       76,115  
  Accrued royalties-current portion   45,411       25,325  
  Deferred revenues-current portion   1,353       1,261  
  Deferred tax liabilities, net   -       721  
      Total current liabilities   321,589       219,392  
               
LONG-TERM LIABILITIES:              
  Exchangeable notes, net   278,990       -  
  Long-term debt, net, net of current   858,021       297,169  
  Accrued royalties, net of current   125,272       48,887  
  Deferred revenues, net of current   9,570       8,144  
  Deferred tax liabilities, net, non-current   142,702       19,570  
  Other-long term liabilities   4,436       1,258  
      Total long-term liabilities   1,418,991       375,028  
               
COMMITMENTS AND CONTINGENCIES              
               
SHAREHOLDERS' EQUITY:              
  Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized; 159,651,736 and 124,425,853 issued at September 30, 2015 and December 31, 2014 respectively, and 159,267,370 and 124,041,487 outstanding at September 30, 2015 and December 31, 2014, respectively.   16       13  
  Treasury stock, 384,366 ordinary shares at September 30, 2015 and December 31, 2014   (4,585 )     (4,585 )
  Additional paid-in capital   2,000,292       1,269,858  
  Accumulated other comprehensive loss   (32,204 )     (4,363 )
  Accumulated deficit   (705,181 )     (720,719 )
      Total shareholders' equity   1,258,338       540,204  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,998,918     $ 1,134,624  
               
               
               
Horizon Pharma plc
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30,  
  2015     2014     2015     2014  
                       
CASH FLOWS FROM OPERATING ACTIVITIES:                              
  Net income (loss) $ 3,277     $ 2,063     $ 15,538     $ (231,956 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                              
    Depreciation and intangible amortization expense   43,285       6,826       94,025       17,662  
    Share-based compensation   24,914       4,024       56,253       10,111  
    Royalty accretion   6,551       2,664       13,571       5,617  
    Royalty liability remeasurement   -       -       14,277       13,033  
    Bargain purchase gain   -       (22,171 )     -       (22,171 )
    Loss on derivative revaluation   -       -       -       214,995  
    Loss on induced conversions of debt and debt extinguishment   -       -       21,581       -  
    Amortization of debt discount and deferred financing costs   5,480       2,421       13,328       7,087  
    Foreign exchange loss   86       2,754       1,010       3,076  
    Other   44       11       127       11  
    Changes in operating assets and liabilities:                              
        Accounts receivable   (38,203 )     (16,198 )     (135,370 )     (52,033 )
        Inventories   2,264       639       12,819       129  
        Prepaid expenses and other current assets   (4,180 )     120       417       (2,091 )
        Accounts payable   36,609       4,575       38,213       10,555  
        Accrued trade discounts and rebates   (12,460 )     16,644       35,136       46,113  
        Accrued expenses and accrued royalties   (5,440 )     823       11,052       796  
        Deferred revenues   (635 )     (686 )     2,143       (324 )
        Deferred income taxes   24,859       (3,046 )     (134,014 )     (3,278 )
        Payment of original issue discount upon repayment of 2014 Term Loan Facility   -       -       (3,000 )     -  
        Other non-current assets and liabilities   1,932       3       2,122       138  
Net cash provided by operating activities   88,383       1,466       59,228       17,470  
                               
CASH FLOWS FROM INVESTING ACTIVITIES:                              
  Payments for acquisitions, net of cash acquired   -       (179,220 )     (1,022,361 )     (179,220 )
  Proceeds from liquidation of available-for-sale investments   -       -       64,623       -  
  Purchases of long-term investments   (71,813 )     -       (71,813 )     -  
  Purchases of property and equipment   (2,233 )     (800 )     (4,514 )     (1,837 )
  Change in restricted cash   (260 )     -       (122 )     -  
Net cash used in investing activities   (74,306 )     (180,020 )     (1,034,187 )     (181,057 )
                               
CASH FLOWS FROM FINANCING ACTIVITIES:                              
  Net proceeds from the issuance of Exchangable Senior Notes   -       -       387,181       -  
  Net proceeds from the issuance of 2023 Senior Notes   -       -       462,340       -  
  Net proceeds from the 2015 Term Loan Facility   (213 )     -       391,506       -  
  Net proceeds from the 2014 Term Loan Facility   -       286,966       -       286,966  
  Repayment of the 2015 Term Loan Facility   (1,000 )     -       (1,000 )     -  
  Repayment of the 2014 Term Loan Facility   -       -       (297,000 )     -  
  Net proceeds from the issuance of ordinary shares   -       -       475,627       -  
  Proceeds from the issuance of common stock in connection with warrant exercises   3,431       2,090       18,124       33,262  
  Proceeds from the issuance of common stock through ESPP programs   -       -       1,541       649  
  Proceeds from the issuance of common stock in connection with stock option exercises   714       107       4,602       1,704  
  Payment of employee withholding taxes relating to share-based awards   (378 )     -       (2,334 )     -  
  Proceeds from the settlement of capped call transactions   -       9,385       -       9,385  
Net cash provided by financing activities   2,554       298,548       1,440,587       331,966  
                               
Effect of foreign exchange rate changes on cash   598       (64 )     (149 )     (78 )
                               
NET INCREASE IN CASH AND CASH EQUIVALENTS   17,229       119,930       465,479       168,301  
CASH AND CASH EQUIVALENTS, beginning of the period   667,057       128,851       218,807       80,480  
CASH AND CASH EQUIVALENTS, end of the period $ 684,286     $ 248,781     $ 684,286     $ 248,781  
                               
                               
                               
Horizon Pharma plc
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Unaudited)
(in thousands, except share and per share data)
 
 
  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30,  
  2015     2014     2015     2014  
  (Unaudited)     (Unaudited)  
Adjusted Non-GAAP Net Income:                              
                               
GAAP Net Income (Loss) $ 3,277     $ 2,063     $ 15,538     $ (231,956 )
  Non-GAAP Adjustments:                              
    Remeasurement of royalties for products acquired through business combinations   -       -       14,277       13,033  
    Acquisition related costs   14,498       31,477       64,841       45,651  
    Loss on derivative revaluation   -       -       -       214,995  
    Loss on induced conversion of debt and debt extinguishment   -       -       77,624       -  
    Bargain purchase gain   -       (22,171 )     -       (22,171 )
    Amortization and accretion:                              
        Intangible amortization expense   41,707       6,413       91,217       16,469  
        Amortization of debt discount and deferred financing costs   5,480       2,421       13,328       7,087  
        Accretion of royalty liabilities   6,551       2,664       13,571       5,617  
        Amortizaton of inventory step-up adjustment   4,140       1,540       10,635       1,540  
    Share-based compensation   26,457       4,024       57,796       10,111  
    Depreciation expense   1,578       413       2,808       1,193  
    Royalties for products acquired through business combinations (1)   (8,854 )     (6,366 )     (20,890 )     (12,062 )
        Total of pre-tax non-GAAP adjustments   91,557       20,415       325,207       281,463  
    Income tax adjustments (2)   22,178       (3,042 )     (137,328 )     (3,267 )
        Total of non-GAAP adjustments   113,735       17,373       187,879       278,196  
  Adjusted Non-GAAP Net Income $ 117,012     $ 19,436     $ 203,417     $ 46,240  
                               
                               
Adjusted Non-GAAP Earnings Per Share:                              
                               
  Weighted average shares - Basic   159,035,580       78,392,971       145,208,252       73,109,603  
                               
  Adjusted Non-GAAP Earnings Per Share - Basic:                               
    GAAP earnings (loss) per share - Basic $ 0.02     $ 0.03     $ 0.11     $ (3.17 )
    Non-GAAP adjustments   0.72       0.22       1.29       3.80  
    Adjusted Non-GAAP earnings per share - Basic $ 0.74     $ 0.25     $ 1.40     $ 0.63  
                               
                               
  Weighted average shares - Diluted                              
    Weighted average shares - Basic   159,035,580       78,392,971       145,208,252       73,109,603  
    Ordinary share equivalents   7,795,220       35,258,496       8,797,419       35,577,854  
    Weighted average shares - Diluted   166,830,800       113,651,467       154,005,671       108,687,457  
                               
                               
  Adjusted Non-GAAP Net Income - Diluted                               
    Adjusted Non-GAAP Net Income $ 117,012     $ 19,436     $ 203,417     $ 46,240  
    Add: Convertible debt interest expense, net of taxes   -       1,875       -       5,625  
    Adjusted Non-GAAP Net Income - Diluted $ 117,012     $ 21,311     $ 203,417     $ 51,865  
                               
                               
    GAAP earnings (loss) per share - Diluted $ 0.02     $ 0.02     $ 0.10     $ (3.17 )
    Non-GAAP adjustments   0.68       0.20       1.22       3.81  
    Diluted earnings per share effect of ordinary share equivalents   -       (0.03 )     -       (0.16 )
    Adjusted Non-GAAP earnings per share - Diluted $ 0.70     $ 0.19     $ 1.32     $ 0.48  
                               
                               
(1) Royalties for products acquired through business combinations relate to VIMOVO, ACTIMMUNE, RAVICTI and BUPHENYL.  
(2) Adjustments to convert the income tax benefit/expense to the estimated amount of taxes that are payable in cash.  
   
   
   
Horizon Pharma plc
Additional GAAP to Non-GAAP Reconciliations
EBITDA, Gross Profit and Operating Cash Flow (Unaudited)
(in thousands, except percentages)
 
 
  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30,  
  2015     2014     2015     2014  
  (Unaudited)     (Unaudited)  
                               
EBITDA and Adjusted EBITDA:                              
                               
  GAAP Net Income (Loss) $ 3,277     $ 2,063     $ 15,538     $ (231,956 )
  Depreciation   1,578       413       2,808       1,193  
  Amortization and accretion:                              
    Intangible amortization expense   41,707       6,413       91,217       16,469  
    Accretion of royalty liabilities   6,551       2,664       13,571       5,617  
    Amortization of deferred revenue   (490 )     (156 )     (753 )     (478 )
    Amortizaton of inventory step-up adjustment   4,140       1,540       10,635       1,540  
  Interest expense, net (including amortization of debt discount and deferred financing costs)   20,300       5,194       49,780       13,608  
  Expense (benefit) for income taxes   21,979       (3,042 )     (136,788 )     (3,267 )
  EBITDA $ 99,042     $ 15,089     $ 46,008     $ (197,274 )
  Non-GAAP adjustments:                              
    Remeasurement of royalties for products acquired through business combinations   -       -       14,277       13,033  
    Acquisition related costs   14,498       31,477       64,841       45,651  
    Loss on derivative revaluation   -       -       -       214,995  
    Loss on induced conversion and debt extinguishment   -       -       77,624       -  
    Bargain purchase gain   -       (22,171 )     -       (22,171 )
    Share-based compensation   26,457       4,024       57,796       10,111  
    Royalties for products acquired through business combinations (1)   (8,854 )     (6,366 )     (20,890 )     (12,062 )
  Total of Non-GAAP adjustments $ 32,101     $ 6,964     $ 193,648     $ 249,557  
  Adjusted EBITDA $ 131,143     $ 22,053     $ 239,656     $ 52,283  
                               
Non-GAAP Gross Profit:                              
  GAAP net sales $ 226,544     $ 75,126     $ 512,506     $ 193,114  
  GAAP cost of goods sold   61,250       13,644       151,929       46,073  
  GAAP gross profit $ 165,294     $ 61,482     $ 360,577     $ 147,041  
                               
  GAAP gross profit %   73.0 %     81.8 %     70.4 %     76.1 %
                               
  Non-GAAP Gross Profit:                              
    GAAP gross profit $ 165,294     $ 61,482     $ 360,577     $ 147,041  
    Non-GAAP gross profit adjustments:                              
      Remeasurement of royalties for products acquired through business combinations   -       -       14,277       13,033  
      Intangible amortization expense (COGS only)   41,506       6,386       90,610       16,442  
      Accretion of royalty liabilities   6,551       2,664       13,571       5,617  
      Amortizaton of inventory step-up adjustment   4,140       1,540       10,635       1,540  
      Depreciation (COGS only)   65       90       268       264  
      Royalties for products acquired through business combinations (1)   (8,854 )     (6,366 )     (20,890 )     (12,062 )
    Total of Non-GAAP adjustments $ 43,408     $ 4,314     $ 108,471     $ 24,834  
    Non-GAAP gross profit $ 208,702     $ 65,796     $ 469,047     $ 171,875  
                               
                               
  Non-GAAP gross profit %   92.1 %     87.6 %     91.5 %     89.0 %
                               
Adjusted Operating Cash Flow:                              
                               
  GAAP cash provided by operating activities $ 88,383     $ 1,466     $ 59,228     $ 17,470  
    Cash payments of acquistion related costs   12,464       34,142       49,152       43,150  
    Cash payments for induced debt conversion   -       -       10,472       -  
    Cash payment for debt extinguishment   -       -       45,367       -  
    Payment of original issue discount on debt extinguishment   -       -       3,000       -  
  Adjusted operating cash flow $ 100,847     $ 35,608     $ 167,219     $ 60,620  
                               
(1) Royalties for products acquired through business combinations relate to VIMOVO, ACTIMMUNE, RAVICTI and BUPHENYL.  
   
   
   
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended September 30, 2015
(Unaudited)
                                             
    Sales   COGS     Research & Development   Sales & Marketing   General & Administrative   Interest Expense   Loss on Induced Debt Conversion & Debt Extinguishment   Other (Income) Expense   Income Tax (Benefit) Expense   Total  
                                             
Non-GAAP Adjustments (in thousands):                                            
  Acquisition related costs(1)   -   -     2,158   -   12,340   -   -   -   -   14,498  
  Amortization and accretion:                                            
    Intangible amortization expense(2)   -   41,505     -   202   -   -   -   -   -   41,707  
    Amortization of debt discount and deferred financing costs(3)   -   -     -   -   -   5,480   -   -   -   5,480  
    Accretion of royalty liability(4)   -   6,551     -   -   -   -   -   -   -   6,551  
    Amortization of inventory step-up adjustment(5)   -   4,140     -   -   -   -   -   -   -   4,140  
  Stock-based compensation(6)   -   -     2,042   7,035   17,380   -   -   -   -   26,457  
  Depreciation expense(7)   -   65     -   -   1,513   -   -   -   -   1,578  
  Royalties for products acquired through business combinations(8)   -   (8,854 )   -   -   -   -   -   -   -   (8,854 )
  Income tax adjustments(9)   -   -     -   -   -   -   -   -   22,178   22,178  
    Total of non-GAAP adjustments   -   43,407     4,200   7,237   31,233   5,480   -   -   22,178   113,735  
                                             
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended September 30, 2014
(Unaudited)
                                                 
    Sales   COGS     Research & Development   Sales & Marketing   General & Administrative   Interest Expense   Derivative Loss   Other (Income) Expense     Income Tax (Benefit) Expense     Total  
                                                 
Non-GAAP Adjustments (in thousands):                                                
  Bargain purchase gain(10)   -   -     -   -   -   -   -   (22,171 )   -     (22,171 )
  Acquisition related costs(1)   -   -     -   -   28,255   -   -   3,222     -     31,477  
  Amortization and accretion:                                                
    Intangible amortization expense(2)   -   6,386     -   27   -   -   -   -     -     6,413  
    Amortization of debt discount and deferred financing costs(3)   -   -     -   -   -   2,421   -   -     -     2,421  
    Accretion of royalty liability(4)   -   2,664     -   -   -   -   -   -     -     2,664  
    Amortization of inventory step-up adjustment(5)   -   1,540     -   -   -   -   -   -     -     1,540  
  Stock-based compensation(6)   -   -     354   1,654   2,016   -   -   -     -     4,024  
  Depreciation expense(7)   -   90     -   -   323   -   -   -     -     413  
  Royalties for products acquired through business combinations(8)   -   (6,366 )   -   -   -   -   -   -     -     (6,366 )
  Income tax adjustments(9)   -   -     -   -   -   -   -   -     (3,042 )   (3,042 )
    Total of non-GAAP adjustments   -   4,314     354   1,681   30,594   2,421   -   (18,949 )   (3,042 )   17,373  
                                                     
                                                     
                                                     
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Nine Months Ended September 30, 2015
(Unaudited)
                                           
    Sales   COGS     Research & Development   Sales & Marketing   General & Administrative   Interest Expense   Loss on Induced Debt Conversion & Debt Extinguishment   Other (Income) Expense   Income Tax (Benefit) Expense     Total  
                                               
Non-GAAP Adjustments (in thousands):                                              
  Loss on induced conversion and debt extinguistment(11)   -   -     -   -   -   -   77,624   -   -     77,624  
  Acquisition related costs(1)   -   23     2,252   -   52,566   -   -   10,000   -     64,841  
  Amortization and accretion:                                              
    Intangible amortization expense(2)   -   90,609     -   608   -   -   -   -   -     91,217  
    Amortization of debt discount and deferred financing costs(3)   -   -     -   -   -   13,328   -   -   -     13,328  
    Accretion of royalty liability(4)   -   13,571     -   -   -   -   -   -   -     13,571  
    Amortization of inventory step-up adjustment(5)   -   10,635     -   -   -   -   -   -   -     10,635  
  Remeasurement of royalties for products acquired through business combinations(12)   -   14,277     -   -   -   -   -   -   -     14,277  
  Stock-based compensation(6)   -   -     4,712   15,571   37,513   -   -   -   -     57,796  
  Depreciation expense(7)   -   268     -   -   2,540   -   -   -   -     2,808  
  Royalties for products acquired through business combinations(8)   -   (20,890 )   -   -   -   -   -   -   -     (20,890 )
  Income tax adjustments(9)   -   -     -   -   -   -   -   -   (137,328 )   (137,328 )
    Total of non-GAAP adjustments   -   108,493     6,964   16,179   92,619   13,328   77,624   10,000   (137,328 )   187,879  
                                               
                                               
                                               
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Nine Months Ended September 30, 2014
(Unaudited)
                                                 
    Sales   COGS     Research & Development   Sales & Marketing   General & Administrative   Interest Expense   Derivative Loss   Other (Income) Expense     Income Tax (Benefit) Expense     Total  
                                                 
Non-GAAP Adjustments (in thousands):                                                
  Bargain purchase gain(10)   -   -     -   -   -   -   -   (22,171 )   -     (22,171 )
  Loss on derivative revaluation(13)   -   -     -   -   -   -   214,995   -     -     214,995  
  Acquisition related costs(1)   -   -     -   -   37,429   -   -   8,222     -     45,651  
  Amortization and accretion:                                                
    Intangible amortization expense(2)   -   16,442     -   27   -   -   -   -     -     16,469  
    Amortization of debt discount and deferred financing costs(3)   -   -     -   -   -   7,087   -   -     -     7,087  
    Accretion of royalty liability(4)   -   5,617     -   -   -   -   -   -     -     5,617  
    Amortization of inventory step-up adjustment(5)   -   1,540     -   -   -   -   -   -     -     1,540  
  Remeasurement of royalties for products acquired through business combinations(12)   -   13,033     -   -   -   -   -   -     -     13,033  
  Stock-based compensation(6)   -   -     1,152   3,278   5,681   -   -   -     -     10,111  
  Depreciation expense(7)   -   270     -   -   923   -   -   -     -     1,193  
  Royalties for products acquired through business combinations(8)   -   (12,062 )   -   -   -   -   -   -     -     (12,062 )
  Income tax adjustments(9)   -   -     -   -   -   -   -   -     (3,267 )   (3,267 )
    Total of non-GAAP adjustments   -   24,840     1,152   3,305   44,033   7,087   214,995   (13,949 )   (3,267 )   278,196  
 
 
 
NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS - NON-GAAP ADJUSTED
(in thousands)
 
(1) Expenses, including legal and consulting fees, incurred in connection with the Company's acquisitions of Vidara Therapeutics International Public Limited Company ("Vidara") and Hyperion Therapeutics, Inc. ("Hyperion"), and its proposed acquisition of Depomed Inc. ("Depomed"), have been excluded as non-recurring items.
   
(2) Intangible amortization expenses are associated with the Company's intellectual property rights, developed technology and customer relationships of VIMOVO, LODOTRA, RAYOS, ACTIMMUNE, RAVICTI and BUPHENYL.
   
(3) Represents amortization of debt discount and deferred financing costs associated with the Company's debt.
   
(4) Represents accretion expense associated with the ACTIMMUNE, VIMOVO, RAVICTI and BUPHENYL royalties for the three and nine months ended September 30, 2015, and represents accretion expense associated with the ACTIMMUNE and VIMOVO royalties for the three and nine months ended September 30, 2014.
   
(5) In connection with the Hyperion acquisition, the RAVICTI and BUPHENYL inventory was stepped up in value to $8,682 and during the three and nine months ended September 30, 2015, the Company recognized in cost of goods sold $4,140 and $7,481, respectively, of step-up inventory costs related to RAVICTI and BUPHENYL inventory sold. In connection with the Vidara acquisition, the ACTIMMUNE inventory was stepped up in value to $14,218 and during the third quarter of 2014, the Company recognized in cost of goods sold $1,540 of step-up inventory costs related to ACTIMMUNE. During the first quarter of 2015, the Company recognized in cost of goods sold the remaining $3,154 of step-up inventory costs related to ACTIMMUNE.
   
(6) Represents share-based compensation expense associated with the Company's stock option, restricted stock unit, and performance stock unit grants to its employees and non-employees, its cash-settled long-term incentive program, and its employee stock purchase plan.
   
(7) Represents depreciation expense related to the Company's property, equipment and leasehold improvements.
   
(8) Royalties of $8,854 and $20,890 were incurred during the three and nine months ended September 30, 2015, respectively, based on each period's net sales for VIMOVO, ACTIMMUNE, RAVICTI and BUPHENYL. Royalties of $6,366 and $12,062 were incurred during the three and nine months ended September 30, 2014, respectively, based on each period's net sales for VIMOVO and ACTIMMUNE.
   
(9) Represents adjustments to convert the income tax expense (benefit) to the estimated amount of taxes that are payable in cash.
   
(10) The bargain purchase gain of $22,171 was the result of the Vidara acquisition. Identifiable assets and liabilities of Vidara, including identifiable intangible assets, were recorded based on their estimated fair values as of the date of the closing of the acquisition. The excess of the fair value of the net assets acquired over the value of consideration was recorded as a bargain purchase gain.
   
(11) During the six months ended June 30, 2015, the Company recorded a loss on induced debt conversions of $77,624, which represented an early redemption payment of $45,366, the write-down of $21,581 in debt discount and deferred financing costs, $10,005 in additional exchange consideration to debt holders and $672 in expenses incurred in connection with the induced debt conversions. Following these induced debt conversions in the six months ended June 30, 2015, there were no convertible senior notes remaining outstanding.
   
(12) At the time of the Company's acquisition of the rights to VIMOVO, ACTIMMUNE, RAVICTI and BUPHENYL, 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 over performs 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 adjustments 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.
   
  During the second quarter of 2015, the Company recorded a charge of $14,277 to cost of goods sold to increase the amount of the contingent royalty liabilities relating to VIMOVO and ACTIMMUNE. During the second quarter of 2014, the Company recorded a charge of $13,033 to cost of goods sold to increase the amount of the contingent royalty liability relating to VIMOVO.
   
(13) During the six months ended June 30, 2014, the Company recorded non-cash charges of $214,995 related to the increase in the fair value of the embedded derivative associated with its convertible senior notes. The loss on the derivative revaluation was primarily due to an increase in the market value of the Company's common stock. The loss on derivative revaluation was a permanent tax difference and was not deductible for income tax reporting purposes. On June 27, 2014, the derivative liability was re-measured to a final fair value and the entire fair value of the derivative liability of $324,405 was reclassified to additional paid-in capital. As such, there was no derivative revaluation subsequent to June 2014.
   

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