Market Overview

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

Share:

-- 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 --

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.

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