On February 28, 2018 Horizon Pharma plc (NASDAQ:HZNP) reported its fourth-quarter and full-year 2017 financial results today (Press release, Horizon Pharma, FEB 28, 2018, View Source [SID1234524238]). The Company also provided its full-year 2018 net sales and adjusted EBITDA guidance.
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"Our rare disease medicines generated better-than-expected fourth-quarter results, with net sales increasing 60 percent for the full year, underscoring the value of our diversification initiatives over the last several years," said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. "We made significant progress in 2017, doubling the KRYSTEXXA commercial organization and expanding our pipeline with the acquisition of teprotumumab, our late-stage fully human monoclonal antibody candidate for the treatment of thyroid eye disease."
Added Walbert, "In 2018, we expect continued strong performance of our rare disease medicines, and we are advancing our strategy to build a pipeline of clinically differentiated medicines and maximize the growth of KRYSTEXXA. We are increasing our investment in R&D to support our Phase 3 confirmatory teprotumumab trial and new rheumatology development programs, as well as investing further in KRYSTEXXA to support our significant growth expectations. These investments, combined with our focus on commercial execution, position us well for strong and sustainable long-term growth."
Financial Highlights
(in millions except for per share amounts and percentages) Q4 17 Q4 16 % Change FY 17 FY 16 % Change
Net sales (1) $ 274.2 $ 310.3 (12 ) $ 1,056.2 $ 981.1 8
Non-GAAP adjusted net sales (1) 274.2 310.3 (12 ) 1,056.2 1,046.1 1
Net loss (46.4 ) (130.5 ) 64 (410.5 ) (166.8 ) (146 )
Non-GAAP net income 48.4 106.4 (55 ) 194.8 354.4 (45 )
Adjusted EBITDA 102.7 136.4 (25 ) 389.7 470.7 (17 )
Net loss per share – diluted (0.28 ) (0.81 ) 65 (2.52 ) (1.04 ) (142 )
Non-GAAP earnings per share – diluted 0.29 0.64 (55 ) 1.18 2.16 (45 )
(1) On Sept. 26, 2016, Horizon Pharma agreed to pay Express Scripts $65 million as part of a litigation settlement, which was recorded as a one-time reduction to GAAP net sales for the full-year 2016 in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The exclusion of the $65 million settlement from GAAP net sales is the only adjustment reflected in full-year 2016 non-GAAP adjusted net sales.
Fourth-Quarter and Recent Company Highlights
Total Net Sales: Fourth-quarter net sales were $274.2 million, driven by continued strong growth from the Company’s orphan and rheumatology business units.
Rare Disease Medicines Net Sales: Fourth-quarter net sales of medicines for rare diseases, which include KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE, BUPHENYL and QUINSAIR, increased 36 percent year over year and represented 58 percent of fourth-quarter 2017 total net sales compared to 38 percent of fourth-quarter 2016 non-GAAP net sales. Net sales of KRYSTEXXA, one of the Company’s key growth drivers, increased 48 percent year over year.
New Head of R&D and Chief Scientific Officer:Shao-Lee Lin, M.D., Ph.D., joined Horizon Pharma in January 2018 as executive vice president, head of research and development (R&D) and chief scientific officer. Dr. Lin is an accomplished pharmaceutical executive, physician and scientist with more than 20 years of academic and clinical research experience and will accelerate the development of a robust pipeline to drive the Company’s next phase of growth.
Orphan Pipeline: In late 2017, the first patient was enrolled in the Phase 3 confirmatory clinical trial for teprotumumab, the Company’s fully human monoclonal antibody IGF-1R-inhibitor being studied for the treatment of thyroid eye disease (TED), a rare eye disease.
Rheumatology Pipeline: In January 2018, the Company announced two next-generation uncontrolled gout development programs to support and sustain the Company’s market leadership in uncontrolled gout (chronic gout that is refractory to conventional therapies). HZN-002, a novel dexamethasone conjugate, was also added to the pipeline.
RAVICTI: In late February 2018, the Company submitted a supplemental New Drug Application (sNDA) to expand the age range for chronic management of urea cycle disorders (UCDs) to birth and older from the current age range of two months of age and older.
PROCYSBI: In December 2017, the Company received U.S. Food and Drug Administration (FDA) approval to expand the age range to include children one year of age and older living with nephropathic cystinosis.
Clinical Development Update
Orphan Candidates and Programs:
Teprotumumab: In late 2017, the Company announced enrollment of the first patient in the teprotumumab Phase 3 confirmatory clinical trial. Titled OPTIC (Treatment of Graves’ Orbitopathy (Thyroid Eye Disease) to Reduce Proptosis with Teprotumumab Infusions in a Randomized, Placebo-Controlled, Clinical Study), the pivotal confirmatory study will evaluate teprotumumab for the treatment of moderate-to-severe active TED. The study is expected to enroll 76 patients across the United States, Germany and Italy.
In early January 2018, following additional analysis of the addressable TED patient population and market opportunity for teprotumumab in the United States, the Company increased its estimated peak annual net sales expectation to more than $750 million from more than $250 million, assuming U.S. FDA approval.
ACTIMMUNE: Three investigator-initiated cancer-combination trials with ACTIMMUNE continue to advance. These studies are evaluating cancer treatment therapies for advanced breast cancer patients, cutaneous T-Cell lymphoma and certain other cancerous solid tumors.
Rheumatology Pipeline Candidates and Programs:
In early January 2018, the Company announced several developments in its growing rheumatology pipeline, designed to enhance KRYSTEXXA and the Company’s market leadership in uncontrolled gout, as well as augment its rheumatology business unit.
HZN-003: A potential next-generation biologic for uncontrolled gout, HZN-003 is a pre-clinical, genetically engineered uricase derivative with optimized uricase and optimized PEGylation technology that has the potential to improve the response rate to the biologic as well as patient convenience through subcutaneous dosing.
PASylated Uricase Technology: The Company recently entered into a collaboration agreement with XL-protein GmbH to identify clinical-stage product candidates that could use PASylation technology to construct a next-generation gout biologic. The intention is to extend the half-life of uricase to improve the response rate of the biologic as well as patient convenience through subcutaneous dosing.
HZN-002: HZN-002 is a pre-clinical, novel dexamethasone conjugate and has potential to address inflammatory diseases through its targeted delivery technology.
In addition to the rheumatology development programs, two investigator-initiated trials will evaluate the use of immunomodulatory therapies to enhance the response rate for KRYSTEXXA. The studies will use two different immunomodulators that are commonly used by rheumatologists.
RECIPE Investigator-Initiated Trial: The REduCing Immunogenicity to PegloticasE (RECIPE) study will evaluate the use of the immunomodulator mycophenolate mofetil (MMF) with KRYSTEXXA to improve the response rate to the medicine. The study is a double-blind, placebo-controlled trial designed to evaluate if a 12-week course of immunomodulating therapy with daily MMF can safely and meaningfully prevent the incidence of an immune response to KRYSTEXXA.
TRIPLE Investigator-Initiated Trial: The Tolerization Reduces Intolerance to Pegloticase and Prolongs the Urate Lowering Effect (TRIPLE) study will evaluate the use of the immunomodulator azathioprine with KRYSTEXXA to improve the response rate to the medicine. An exploratory, open-label adaptive trial with multiple patient cohorts, TRIPLE will include a cohort to evaluate the impact of adding the immunomodulator azathioprine for a two-week run-in period, followed by daily azathioprine and KRYSTEXXA every 2 weeks for a total of 13 doses.
Fourth-Quarter and Full-Year 2017 Business Unit Net Sales Results
(in millions except for percentages) Q4 17 Q4 16 % Change FY 17 FY 16 % Change
Orphan $ 116.6 $ 88.1 32 $ 466.8 $ 299.3 56
RAVICTI 51.9 32.9 57 193.9 151.5 28
PROCYSBI(1)(2) 33.2 25.3 31 137.7 25.3 445
ACTIMMUNE 26.8 24.2 11 111.0 104.6 6
BUPHENYL 4.6 4.7 (3 ) 20.8 16.9 23
QUINSAIR(1)(2) 0.1 1.0 (87 ) 3.4 1.0 231
Rheumatology 61.4 41.6 48 214.0 142.7 50
KRYSTEXXA 43.8 29.5 48 156.5 91.1 72
RAYOS 15.6 11.3 38 52.1 47.4 10
LODOTRA 2.0 0.8 148 5.4 4.2 29
Primary Care 96.2 180.6 (47 ) 375.4 604.1 (38 )
PENNSAID 2% 50.0 96.6 (48 ) 191.0 304.4 (37 )
DUEXIS 28.2 50.9 (45 ) 121.2 173.7 (30 )
VIMOVO 16.6 31.6 (47 ) 57.7 121.3 (52 )
MIGERGOT 1.5 1.5 1 5.5 4.7 18
Litigation settlement(3) - - - - (65.0 ) (100 )
Total GAAP net sales(3) $ 274.2 $ 310.3 (12 ) $ 1,056.2 $ 981.1 8
Total non-GAAP adjusted net sales(3) $ 274.2 $ 310.3 (12 ) $ 1,056.2 $ 1,046.1 1
(1) PROCYSBI and QUINSAIR were acquired on Oct. 25, 2016.
(2) On June 23, 2017, Horizon Pharma completed the divestiture of a European subsidiary that owned the marketing rights to PROCSYBI and QUINSAIR in Europe, the Middle East and Africa to Chiesi Farmaceutici S.p.A. Horizon Pharma retains marketing rights for the two medicines in the United States, Canada, Latin America and Asia.
(3) On Sept. 26, 2016, Horizon Pharma agreed to pay Express Scripts $65 million as part of a litigation settlement, which was recorded as a one-time reduction to GAAP net sales for the full-year 2016 in accordance with U.S. GAAP. The exclusion of the $65 million settlement from GAAP net sales is the only adjustment reflected in full-year 2016 non-GAAP adjusted net sales.
Orphan Business Unit: Fourth-quarter net sales for the orphan business unit were $116.6 million, an increase of 32 percent compared to the fourth quarter of 2016.
RAVICTI net sales in the fourth quarter of 2017 were $51.9 million, an increase of 57 percent compared to the fourth quarter of 2016. The results were driven by continued conversion from older-generation nitrogen-scavenger therapies, as well as the addition of treatment-naïve patients, in part due to the April 2017 update of the RAVICTI label, which expanded the use of the medicine to patients older than two months of age, from two years of age and older.
PROCYSBI net sales in the fourth quarter of 2017 were $33.2 million. PROCYSBI net sales no longer include revenues from the Europe, Middle East and Africa regions following the sale of those geographic marketing rights to Chiesi Farmaceutici S.p.A. in June 2017. In October 2017, the Company launched PROCYSBI in Canada, and it is the only cystine-depleting agent approved in Canada for treatment of nephropathic cystinosis.
ACTIMMUNE net sales in the fourth quarter of 2017 were $26.8 million.
Rheumatology Business Unit: Fourth-quarter net sales for the rheumatology business unit were $61.4 million, an increase of 48 percent compared to the fourth quarter of 2016.
KRYSTEXXA net sales in the fourth quarter of 2017 were $43.8 million, an increase of 48 percent compared to the fourth quarter of 2016. The increase was driven by continued strong year-over-year vial demand and does not reflect any material benefit from the recently expanded commercial organization, described below.
During the fourth quarter, the Company completed the expansion of its rheumatology business unit to nearly 200 employees from more than 100 to increase awareness of uncontrolled gout among physicians and patients, given the clear unmet need that exists for thousands of people with uncontrolled gout. The objective of the expansion is to reach more physicians – both rheumatologists and now nephrologists, kidney specialists who also treat gout. Given the significant commercial expansion, and following additional analysis of the addressable patient population and market opportunities for KRYSTEXXA, in January 2018, the Company announced that it increased its estimated peak annual net sales expectations for KRYSTEXXA to more than $750 million from more than $400 million.
Primary Care Business Unit: Fourth-quarter net sales for the primary care business unit were $96.2 million, a decrease of 47 percent compared to the fourth quarter of 2016, in line with expectations and due to the impact of the Company’s new contracting model with pharmacy benefit managers that was implemented in 2017.
Fourth-Quarter 2017 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.
Gross Profit: Under U.S. GAAP, the fourth-quarter 2017 gross profit ratio was 44.8 percent compared to 51.7 percent in the fourth quarter of 2016. The non-GAAP gross profit ratio in the fourth quarter of 2017 was 89.3 percent compared to 91.9 percent in the fourth quarter of 2016.
Operating Expenses: In the fourth-quarter 2017, total operating expenses were 72.3 percent of net sales on a GAAP basis and 51.7 percent of net sales on a non-GAAP basis. R&D expenses were 11.3 percent of net sales on a GAAP basis and 5.6 percent of net sales on a non-GAAP basis. Selling, general and administrative (SG&A) expenses were 61.1 percent of net sales on a GAAP basis and 46.1 percent of net sales on a non-GAAP basis.
Income Tax Rate: The income tax rate in the fourth quarter of 2017 was 56.6 percent on a GAAP basis and 37.6 percent on a non-GAAP basis, including a one-time tax benefit associated with adjusting deferred tax balances as a result of U.S. tax legislation enacted in December 2017.
Net (Loss) Income: The Company generated a net loss of $46.4 million in the fourth quarter of 2017. Non-GAAP net income was $48.4 million in the fourth quarter of 2017.
Adjusted EBITDA: Adjusted EBITDA in the fourth quarter of 2017 was $102.7 million.
Earnings (Loss) per Share: On a GAAP basis, fourth-quarter 2017 diluted loss per share was $0.28, compared with diluted loss per share of $0.81 in the fourth quarter of 2016. Non-GAAP diluted earnings per share in the fourth quarter of 2017 and 2016 were $0.29 and $0.64, respectively. Weighted average shares outstanding used for calculating GAAP diluted loss per share and non-GAAP diluted earnings per share in the fourth quarter of 2017 were 164.0 million and 166.9 million, respectively.
Cash Flow Statement and Balance Sheet Highlights
Fourth-quarter 2017 operating cash flow was $143.2 million on a GAAP basis and $157.9 million on a non-GAAP basis.
As of Dec. 31, 2017, the Company had cash and cash equivalents of $751.4 million.
As of Dec. 31, 2017, total principal amount of debt outstanding was $2.021 billion, which was composed of $846 million in senior secured term loans due 2024; $475 million senior notes due 2023; $300 million senior notes due 2024; and $400 million exchangeable senior notes due 2022. As of Dec. 31, 2017, net debt was $1.269 billion, and the net debt to last-12-months adjusted EBITDA leverage ratio was 3.3 times.
Horizon Pharma Provides 2018 Guidance
The Company expects full-year 2018 net sales to range between $1.150 billion and $1.180 billion, driven by strong growth in its orphan and rheumatology business units. The Company continues to expect full-year 2018 net sales growth for KRYSTEXXA of more than 50 percent. This projection incorporates assumptions of strong vial growth, the positive impact of the recently expanded KRYSTEXXA commercial organization, as well as the potential impact of a July 1, 2018, implementation of a U.S. government rule related to 340B entity drug pricing.
Full-year 2018 adjusted EBITDA is expected to range between $370 million and $395 million, reflecting the Company’s increased level of investment in 2018 in its pipeline, including teprotumumab Phase 3 clinical trial and commercial manufacturing costs, as well as incremental promotional investment in KRYSTEXXA. A higher level of R&D and SG&A investment is anticipated in the first half of 2018.
Webcast
At 8 a.m. EST / 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 View Source 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.