On February 27, 2017 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, reported its fourth-quarter and full-year 2016 financial results today and provided its full-year 2017 net sales and adjusted EBITDA guidance (Press release, Horizon Pharma, FEB 27, 2017, View Source [SID1234517887]).

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"We delivered a strong fourth quarter and another exceptional year of performance driven by continued commercial execution and the completion of two transformative acquisitions that bolster our rapidly expanding rare disease business," said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. "Our performance and continued strategic acquisitions have strengthened and diversified the Company and positioned us well to deliver on our growth objectives over the long term."
Financial Highlights

(in millions except for per share amounts and percentages) Q4 16 Q4 15 %
Change FY 16 FY 15 %
Change
Net sales (2)
$ 310.3 $ 244.5 27 $ 981.1 $ 757.0 30
Non-GAAP adjusted net sales (2)
310.3 244.5 27 1,046.1 757.0 38
Net (loss) income (1)
(130.5 ) 24.0 NM (166.8 ) 39.5 NM
Non-GAAP net income
106.4 105.5 1 354.4 256.9 38
Adjusted EBITDA
136.4 122.5 11 470.7 362.1 30
Net (loss) earnings per share – diluted
(0.81 ) 0.15 NM (1.04 ) 0.25 NM
Non-GAAP earnings per share – diluted
0.64 0.64 — 2.16 1.65 31

(1) The fourth-quarter and full-year 2016 net losses were primarily impacted by the impairment of in-process research and development and other wind-down costs and charges related to the discontinuation of ACTIMMUNE development for Friedreich’s ataxia and acquisition-related costs primarily related to the acquisition of Raptor Pharmaceutical Corp.
(2) 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 three months ended Sept. 30, 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 year-to-date 2016 non-GAAP adjusted net sales.

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Company Highlights

• Fourth-quarter 2016 net sales were $310.3 million, an increase of 27 percent compared to the fourth-quarter of 2015, driven by growth across each of the Company’s business units: orphan, rheumatology and primary care.

• Medicines for rare diseases, which include RAVICTI , PROCYSBI , ACTIMMUNE , KRYSTEXXA , BUPHENYL and QUINSAIR represented 43 percent of combined adjusted non-GAAP net sales for the full-year 2016. This includes full-year 2016 PROCYSBI net sales of $128.6 million and QUINSAIR net sales of $3.9 million on a combined and adjusted basis.

• In December 2016, the Company secured formulary status with an additional pharmacy benefit manager (PBM) resulting in contracts with three leading pharmacy benefit managers to improve patient access and long-term durability for the Company’s clinically differentiated primary care medicines.

• In November 2016, the Company presented data on both KRYSTEXXA and RAYOS at the American College of Rheumatology meeting. The Company expects to continue to expand the awareness of KRYSTEXXA as an important treatment option for refractory chronic gout patients.

• On October 25, 2016, Horizon Pharma completed the acquisition of Raptor Pharmaceutical Corp., which was a significant step in advancing the Company’s strategy to expand its rare disease business with the addition of two orphan medicines, PROCYSBI and QUINSAIR.

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Fourth-Quarter and Full-Year 2016 Business Unit Net Sales Results

(in millions except for percentages) Q4 16 Q4 15 %
Change FY 16 FY 15 %
Change
Orphan
$ 88.1 $ 68.2 29 $ 299.3 $ 207.8 44
RAVICTI (1)
32.9 34.5 (4 ) 151.5 86.9 74
ACTIMMUNE
24.2 28.1 (14 ) 104.6 107.4 (3 )
BUPHENYL (1)
4.7 5.6 (16 ) 16.9 13.5 25
PROCYSBI (3)
25.3 — NM 25.3 — NM
QUINSAIR (3)
1.0 — NM 1.0 — NM
Rheumatology
41.6 13.5 208 142.7 45.2 215
KRYSTEXXA (2)
29.5 — NM 91.1 — NM
RAYOS
11.3 11.1 1 47.4 40.3 17
LODOTRA
0.8 2.4 (67 ) 4.2 4.9 (14 )
Primary Care
180.6 162.8 11 604.1 504.0 20
PENNSAID 2%
96.6 55.4 74 304.4 147.0 107
DUEXIS
50.9 60.4 (16 ) 173.7 190.4 (9 )
VIMOVO
31.6 47.0 (33 ) 121.3 166.6 (27 )
MIGERGOT (2)
1.5 — NM 4.7 — NM
Litigation settlement (4)
— — NM (65.0 ) — NM



















Total GAAP net sales (4)
$ 310.3 $ 244.5 27 $ 981.1 $ 757.0 30













Total non-GAAP adjusted net sales (4)
$ 310.3 $ 244.5 27 $ 1,046.1 $ 757.0 38














(1) RAVICTI and BUPHENYL were acquired on May 7, 2015.
(2) KRYSTEXXA and MIGERGOT were acquired on January 13, 2016.
(3) PROCYSBI and QUINSAIR were acquired on October 25, 2016.
(4) 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 twelve months ended December 31, 2016, in accordance with U.S. GAAP. The exclusion of the $65 million settlement from GAAP net sales is the only adjustment reflected in year-to-date non-GAAP adjusted net sales.

• Orphan Business Unit: Fourth-quarter orphan business unit net sales increased 29 percent compared to the fourth quarter of 2015, and full-year 2016 net sales increased 44 percent compared to the full year of 2015.
RAVICTI net sales in the fourth quarter of 2016 were $32.9 million. RAVICTI net sales for the second half of 2016 were $75.1 million, representing an increase of 11 percent over the same period in 2015. The Company is awaiting approval for its supplemental New Drug Application (sNDA) submitted on June 29, 2016, with the U.S. Food and Drug Administration (FDA) for RAVICTI to expand the age range for chronic management of urea cycle disorders (UCDs) in patients to two months of age and older from two years of age and older. RAVICTI is also expected to launch in Europe in 2017 in partnership with Swedish Orphan Biovitrum AB (SOBI).
ACTIMMUNE net sales in the fourth quarter of 2016 were $24.2 million, relatively flat sequentially versus the third quarter of 2016. The Company has evolved its strategy to establish the role of ACTIMMUNE in a broader range of chronic granulomatous disease (CGD) patients and anticipates ACTIMMUNE returning to growth in 2017.

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On February 23, 2017, at the American Society for Clinical Oncology – Society for Immunotherapy of Cancer (SITC) (Free SITC Whitepaper) meeting, investigators from Fox Chase Cancer Center presented safety data from the first two cohorts of the Phase 1 dose escalation trial evaluating ACTIMMUNE as part of a combination therapy in solid tumors for certain cancers. The preliminary data showed that combination therapy of ACTIMMUNE with nivolumab, a PD-1 inhibitor, was safe and well-tolerated in the first two cohorts. The data also showed statistically significant activation of certain monocytes, or white blood cells in peripheral blood, which demonstrates that ACTIMMUNE is having the desired effect of stimulating immune cells. These are early results, and the third cohort of patients is still under study. Additionally, the Company has received interest in studying ACTIMMUNE in oncology from a number of academic and oncologic institutions and is evaluating additional investigator-initiated trials that could begin in 2017.
On October 25, 2016, the Company completed the acquisition of Raptor Pharmaceutical Corp., adding two orphan medicines to its orphan business unit, PROCYSBI for the treatment of nephropathic cystinosis, a rare metabolic disorder, and QUINSAIR for the management of chronic pulmonary infections for patients with cystic fibrosis. PROCYSBI net sales for the partial fourth quarter of 2016 were $25.3 million. For the full-year 2016, PROCYSBI total sales were $128.6 million on a combined and adjusted basis, which represented growth of 36 percent, compared to Raptor’s sales of PROCYSBI during the full-year 2015.

• Rheumatology Business Unit: KRYSTEXXA sales in the fourth quarter of 2016 were $29.5 million, an increase of 16 percent sequentially compared to the third quarter of 2016. The Company has invested in additional commercial support, education and outreach efforts to continue to drive long-term growth of this medicine. This additional investment and improved commercial strategy has driven a steady increase in average monthly KRYSTEXXA vials and net sales since acquiring the medicine in January of 2016. RAYOS sales in the fourth quarter of 2016 were $11.3 million, an increase of 1 percent compared to the fourth quarter of 2015.

• Primary Care Business Unit: Total sales for the primary care business unit increased 11 percent compared to the fourth quarter of 2015, driven by strong performance of PENNSAID 2% . Sales of PENNSAID 2%, DUEXIS and VIMOVO in the fourth quarter of 2016 were $96.6 million, $50.9 million and $31.6 million, respectively.
Fourth-Quarter 2016 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 in the fourth quarter of 2016, the gross profit ratio was 51.7 percent compared to 72.4 percent in the fourth quarter of 2015. The non-GAAP gross profit ratio in the fourth quarter of 2016 was 91.9 percent compared to 91.6 percent in the fourth quarter of 2015.

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• Operating Expenses: On a GAAP basis in the fourth quarter of 2016, total operating expenses were 93.7 percent of sales which includes $66 million for the impairment of in-process research and development and other wind-down costs related to the discontinuation of ACTIMMUNE for Friedreich’s ataxia and acquisition-related costs primarily related to the acquisition of Raptor Pharmaceutical Corp. Non-GAAP total operating expenses in the fourth quarter of 2016 were 47.6 percent of net sales. Research & development (R&D) expenses were 7.7 percent of net sales, sales & marketing (S&M) expenses were 29.9 percent of net sales and general & administrative (G&A) expenses were 34.8 percent of net sales. Non-GAAP R&D expenses were 5.6 percent of net sales, non-GAAP S&M expenses were 27.6 percent of net sales, and non-GAAP G&A expenses were 14.4 percent of net sales.

• Income Tax Rate: The income tax rate in the fourth quarter of 2016 on a GAAP basis was 18.3 percent and on a non-GAAP basis was 5.7 percent. The income tax rate for the full-year 2016 on a GAAP basis was 26.9 percent and on a non-GAAP basis was 12.2 percent.

• Net (Loss) Income: On a GAAP basis in the fourth quarter of 2016, net loss was $130.5 million and was impacted by the impairment of in-process research and development and other wind-down costs and charges related to the discontinuation of development of ACTIMMUNE in Friedreich’s ataxia and acquisition-related costs primarily related to the acquisition of Raptor Pharmaceutical Corp. Non-GAAP adjusted net income was $106.4 million.

• EBITDA: In the fourth quarter of 2016, EBITDA was ($8.7) million and was impacted by the impairment of in-process research and development and other wind-down costs and charges related to the discontinuation of development of ACTIMMUNE in Friedreich’s ataxia and acquisition-related costs primarily related to the acquisition of Raptor Pharmaceutical Corp. Adjusted EBITDA in the fourth quarter of 2016 was $136.4 million.

• Earnings (Loss) per Share: On a GAAP basis in the fourth quarter of 2016, diluted loss per share was $0.81 and in the fourth quarter of 2015, diluted earnings per share was $0.15. Non-GAAP diluted earnings per share in the fourth quarter of 2016 and 2015 were $0.64 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 2016 were 161.4 million and 165.1 million, respectively.
Cash Flow Statement and Balance Sheet Highlights

• On a GAAP basis in the fourth quarter of 2016, operating cash flow was $139.2 million. Non-GAAP operating cash flow was $193.1 million in the fourth quarter of 2016.

• On a GAAP basis for the full-year 2016, operating cash flow was $369.5 million. Non-GAAP operating cash flow was $452.9 million for the full-year 2016.

• The Company had cash and cash equivalents of $509.1 million as of December 31, 2016.

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• Total principal amount of debt outstanding was $1.944 billion as of December 31, 2016, which was composed of $769 million in senior secured term loans due 2021, $475 million senior notes due 2023, $300 million senior notes due 2024 and $400 million exchangeable senior notes due 2022. Net debt at December 31, 2016, was $1.435 billion.
Horizon Pharma Provides Full-Year and First-Half 2017 Guidance

• Full-year 2017 net sales guidance of $1.24 billion to $1.29 billion, representing year-over-year growth of 19 to 23 percent.

• Full-year 2017 adjusted EBITDA guidance of $525 million to $575 million, representing year-over-year growth of 12 to 22 percent and approximately 43.5 percent of sales.

• The Company is providing guidance on the expected pacing of 2017 net sales and adjusted EBITDA in the tables below. They include first-quarter and second-quarter net sales guidance as a percent of full-year 2017 net sales guidance, first-quarter and second-quarter adjusted EBITDA guidance as a percent of full-year 2017 adjusted EBITDA guidance, as well as the quarterly cadence for historical net sales or non-GAAP adjusted net sales and adjusted EBITDA.

Percent of Full-Year Net Sales Contribution

Q1 Q2 2H
2014
17.5 % 22.2 % 60.3 %
2015
14.9 % 22.8 % 62.2 %
2016
19.6 % 24.6 % 55.8 %
2017 estimate*
18-20 % 22-24 % 56-60 %
Percent of Full-Year Adjusted EBITDA Contribution

Q1 Q2 2H
2014
10.0 % 24.7 % 65.2 %
2015
9.0 % 21.0 % 70.0 %
2016
15.3 % 25.7 % 59.0 %
2017 estimate*
12-14 % 22-24 % 62-66 %

* 2017 percentages based on midpoint of full-year 2017 guidance range.