Horizon Pharma plc Announces Third-Quarter 2016 Financial Results

-- Third-Quarter 2016 GAAP Net Sales of $208.7 Million(1);
Non-GAAP Adjusted Net Sales of $273.7 Million --
-- Third-Quarter 2016 GAAP Net Loss of $5.9 Million; Adjusted EBITDA of $141.2 Million --
-- Third-Quarter 2016 GAAP Operating Cash Flow of $128.8 Million;
Non-GAAP Operating Cash Flow of $133.8 Million --
-- Completed Acquisition of Raptor Pharmaceutical Corp., Adding Two Rare Disease Medicines and Further Diversifying Company Portfolio to 11 Medicines --
-- Secured Formulary Status with Two Major PBMs to Broaden Contracting Strategy and Provide Greater Durability to Primary Care Medicines --
-- Confirming Full-Year 2016 GAAP Net Sales, Non-GAAP Adjusted Net Sales and Adjusted EBITDA Guidance --

DUBLIN, Ireland, Nov. 07, 2016 (GLOBE NEWSWIRE) -- 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 2016 financial results today and confirmed its full-year 2016 GAAP net sales, non-GAAP adjusted net sales and adjusted EBITDA guidance, as updated on October 25, 2016, following the completion of the acquisition of Raptor Pharmaceutical Corp.

“We delivered strong results in the third quarter as we continued to execute on our long-term strategy of building a more-diversified, sustainable biopharmaceutical company anchored by a growing mix of orphan medicines,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. “We have made several strategic decisions this year to put Horizon Pharma on a strong path forward, including securing formulary status with two major PBMs for our primary care medicines and completing two significant acquisitions in rare diseases.”

Financial Highlights
(in millions except for per share amounts and percentages) Q3 16 Q3 15 %
Change
YTD 16 YTD 15 %
Change
Net sales (1) $208.7 $226.5 (8) $670.8 $512.5 31
Non-GAAP adjusted net sales (1) 273.7 226.5 21 735.8 512.5 44
Net (loss) income (5.9) 3.3 NM (36.3) 15.5 NM
Non-GAAP net income 115.5 69.8 65 248.1 151.4 64
Adjusted EBITDA 141.2 131.1 8 334.3 239.7 39
Loss (earnings) per share - diluted (0.04) 0.02 NM (0.23) 0.10 NM
Non-GAAP earnings per share - diluted 0.70 0.42 67 1.51 0.98 54
(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 three and nine 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 third-quarter and year-to-date
non-GAAP adjusted net sales.

Company Highlights

  • Third-quarter 2016 GAAP net sales, including the previously announced $65 million litigation settlement with Express Scripts as a one-time reduction, were $208.7 million, a decrease of 8 percent compared to the third quarter of 2015, primarily attributable to the settlement. Non-GAAP adjusted net sales excluding the $65 million settlement were $273.7 million, an increase of 21 percent compared to the third 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®, ACTIMMUNE®, KRYSTEXXA® and BUPHENYL®, represented 35 percent of total non-GAAP adjusted net sales in the third quarter of 2016, an increase from 29 percent of total net sales in the third quarter of 2015.
  • Third-quarter 2016 GAAP net loss was $5.9 million or a diluted loss per share of $0.04; and non-GAAP net income was $115.5 million or non-GAAP diluted earnings per share of $0.70.
  • 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® (cysteamine bitartrate) delayed-release capsules and QUINSAIR™ (aerosolized form of levofloxacin). More than half of the Company’s medicines now treat patients with rare diseases.
  • To provide long-term durability for its primary care medicines, the Company has secured formulary status with two leading Pharmacy Benefit Managers (PBMs) that represent approximately 35 percent of covered lives in the United States. The Company remains in active discussions and negotiations with other PBMs and payers with the goal of further increasing access to its medicines. The Company is investing in the expansion of its managed care organization to support its broader contracting strategy with PBMs and payers.
  • The Company will present data on both KRYSTEXXA and RAYOS at the upcoming American College of Rheumatology meeting November 11-16, 2016, in Washington D.C. This is the first medical meeting in three years where KRYSTEXXA will have a significant clinical and commercial presence, which will continue to expand the awareness of KRYSTEXXA as an important treatment option for refractory chronic gout patients.

Horizon Pharma Confirms 2016 Full-Year Guidance

  • Confirmed full-year 2016 net sales guidance on a GAAP basis of approximately $980 to $985 million, which includes the previously announced $65 million settlement with Express Scripts as a one-time reduction and includes the acquisition of Raptor Pharmaceutical Corp. Confirmed net sales guidance on a non-GAAP adjusted basis of approximately $1.045 to $1.050 billion, which excludes the $65 million settlement with Express Scripts.
  • Confirmed full-year 2016 adjusted EBITDA guidance of $450 to $460 million, which includes the acquisition of Raptor Pharmaceutical Corp.

Third-Quarter Business Unit Net Sales Results
(in millions except for percentages)Q3 16 Q3 15 %
Change
YTD 16 YTD 15 %
Change
Orphan$ 71.4 $ 66.1 8 $ 211.2 $ 139.6 51
RAVICTI®(1) 42.2 33.4 26 118.6 52.4 126
ACTIMMUNE® 24.9 28.7 (13) 80.5 79.4 1
BUPHENYL®(1) 4.3 4.0 10 12.1 7.8 55
Rheumatology 40.5 12.8 217 101.0 31.7 219
KRYSTEXXA®(2) 25.6 - NM 61.6 - NM
RAYOS® 13.4 11.7 15 36.0 29.2 24
LODOTRA® 1.5 1.1 37 3.4 2.5 35
Primary Care 161.8 147.6 10 423.6 341.2 24
PENNSAID® 2% 80.2 43.9 83 207.9 91.6 127
DUEXIS® 47.6 56.9 (16) 122.8 130.0 (6)
VIMOVO® 32.8 46.8 (30) 89.7 119.6 (25)
MIGERGOT®(2) 1.2 - NM 3.2 - NM
Litigation settlement(3) (65.0) - NM (65.0) - NM
Total GAAP net sales(3)$ 208.7 $ 226.5 (8) $ 670.8 $ 512.5 31
Total non-GAAP adjusted net sales(3)$ 273.7 $ 226.5 21 $ 735.8 $ 512.5 44
(1) RAVICTI and BUPHENYL were acquired on May 7, 2015.
(2) KRYSTEXXA and MIGERGOT were acquired on January 13, 2016.
(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 three and nine months ended Sept. 30, 2016, in accordance with U.S. GAAP. The exclusion of the $65 million settlement from GAAP net sales is the only adjustment reflected in third-quarter and year-to-date non-GAAP adjusted net sales.

  • Orphan Business Unit: RAVICTI sales in the third quarter of 2016 were $42.2 million, an increase of 26 percent compared to the third quarter of 2015. RAVICTI was launched in Canada in the fourth quarter of 2016. ACTIMMUNE sales in the third quarter of 2016 were $24.9 million. Following the acquisition of Raptor Pharmaceutical Corp. on October 25, 2016, the Company added 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. QUINSAIR is not approved in the United States.

    ACTIMMUNE Phase 3 Trial in Friedreich’s ataxia and Phase 1 Trial in Oncology
    In its pipeline, the Company continues to expect topline data in late December from the Safety, Tolerability and Efficacy of ACTIMMUNE Dose Escalation in FA (STEADFAST) Phase 3 clinical trial. There are an estimated 3,700 diagnosed patients in the United States with Friedreich’s ataxia (FA) and the Company believes an indication for ACTIMMUNE in FA, if approved, could represent a $500 million to $1 billion peak annual net sales opportunity. In the Phase 1 dosing trial evaluating ACTIMMUNE as a combination therapy for certain cancers, the first six-patient cohort was completed in May, the second six-patient cohort was completed in September, and the third six-patient cohort is now enrolling.
  • Rheumatology Business Unit: KRYSTEXXA sales in the third quarter of 2016 were $25.6 million, an increase of 29 percent sequentially compared to the second quarter of 2016. KRYSTEXXA patient infusions and benefit investigations, which are the leading indicator of new patient starts, continue to increase and the Company is investing in additional commercial support, education and outreach efforts to accelerate growth. RAYOS sales in the third quarter of 2016 were $13.4 million, an increase of 15 percent compared to the third quarter of 2015.

  • Primary Care Business Unit: Total sales growth for the primary care business unit increased approximately 10 percent compared to the third quarter of 2015, driven by strong performance of PENNSAID 2%. Sales of PENNSAID 2% in the third quarter of 2016 were $80.2 million, an increase of 83 percent compared to the third quarter of 2015. DUEXIS and VIMOVO sales in the third quarter of 2016 were $47.6 million and $32.8 million, respectively.

Third-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 third quarter of 2016, the gross profit ratio was 59.2 percent compared to 73.0 percent in the third quarter of 2015. The non-GAAP gross profit ratio in the third quarter of 2016 was 91.6 percent compared to 92.1 percent in the third quarter of 2015.
  • Operating Expenses: On a GAAP basis in the third quarter of 2016, total operating expenses were 69.4 percent of GAAP net sales. Research & development (R&D) expenses were 6.1 percent of GAAP net sales, sales & marketing (S&M) expenses were 34.8 percent of GAAP net sales and general & administrative (G&A) expenses were 28.5 percent of GAAP net sales. Non-GAAP total operating expenses in the third quarter of 2016 were 39.9 percent of non-GAAP adjusted net sales. Non-GAAP R&D expenses were 3.8 percent of non-GAAP adjusted net sales, non-GAAP S&M expenses were 24.0 percent of non-GAAP adjusted net sales, and non-GAAP G&A expenses were 12.1 percent of non-GAAP adjusted net sales.
  • Income Tax Rate: The income tax rate in the third quarter of 2016 on a GAAP basis was 82.5 percent and on a non-GAAP basis was 9.0 percent. The income tax rate for the first nine months of 2016 on a GAAP basis was 46.8 percent and on a non-GAAP basis was 14.6 percent.
  • Net (Loss) Income: On a GAAP basis in the third quarter of 2016, net loss was $5.9 million and non-GAAP adjusted net income was $115.5 million.
  • EBITDA: In the third quarter of 2016, EBITDA was $58.2 million, or 27.9 percent of GAAP net sales. Adjusted EBITDA in the third quarter of 2016 was $141.2 million, or 51.6 percent of non-GAAP adjusted net sales, compared to $131.1 million, or 57.9 percent of net sales in the third quarter of 2015.

  • (Loss) Earnings per Share: On a GAAP basis in the third quarter of 2016, diluted loss per share was $0.04 and in the third quarter of 2015, diluted earnings per share was $0.02. Non-GAAP diluted earnings per share in the third quarter of 2016 and 2015 were $0.70 and $0.42, respectively, representing growth of 66.7 percent. Weighted average shares outstanding used for calculating GAAP diluted loss per share and non-GAAP diluted earnings per share in the third quarter of 2016 were 161.0 million and 164.9 million, respectively.

Cash Flow Statement and Balance Sheet Highlights

  • On a GAAP basis in the third quarter of 2016, operating cash flow was $128.8 million. Non-GAAP operating cash flow was $133.8 million in the third quarter of 2016. On a GAAP basis, operating cash flow in the first nine months of 2016 was $230.3 million compared to operating cash flow in the first nine months of 2015 of $59.2 million. On a non-GAAP basis, operating cash flow in the first nine months of 2016 was $259.8 million compared to operating cash flow in the first nine months of 2015 of $167.2 million.

  • The Company had cash and cash equivalents of $549.3 million as of September 30, 2016. Cash and cash equivalents as of June 30, 2016 were $424.5 million.

  • Total principal amount of debt outstanding was $1.270 billion as of September 30, 2016, which was composed of $395 million in senior secured term loans due 2021, $475 million in 6.625 percent senior notes due 2023, and $400 million of 2.5 percent exchangeable senior notes due 2022. Net debt at September 30, 2016 was $721 million.

    On October 25, 2016, the Company completed a private offering of senior notes and borrowed incremental term loans under its existing senior secured credit facility to partially fund the acquisition of Raptor Pharmaceutical Corp., repay Raptor’s debt and pay related fees and expenses. Following the issuance of this new debt, the new total principal amount of debt outstanding is $1.945 billion, which is composed of $770 million in senior secured term loans due 2021; $475 million in 6.625 percent senior notes due 2023, $300 million in 8.75 percent senior notes due 2024, and $400 million of 2.5 percent exchangeable senior notes due 2022.

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: 98231038

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: 98231038

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 11 medicines through its orphan, rheumatology and primary care business units. 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 non-GAAP adjusted net sales, non-GAAP, non-GAAP gross profit and gross profit ratio, and non-GAAP operating cash flow, each of which include adjustments to GAAP figures. These non-GAAP measures are intended to provide additional information on Horizon’s performance, operations, profitability and cash flows. Adjustments to Horizon's GAAP figures as well as EBITDA exclude acquisition-related expenses, an upfront fee for a license of a patent, a litigation settlement, loss on debt extinguishment and loss on sale of long-term investments, 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 maintains an established non-GAAP cost policy that guides the determination of what costs will be excluded in non-GAAP measures. Horizon believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Horizon'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 2016 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's management uses for planning and forecasting purposes and measuring the Company's performance. For example, adjusted EBITDA is used by Horizon 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 has not provided a reconciliation of its full-year 2016 adjusted EBITDA outlook to an expected net income (loss) outlook because certain items such as acquisition-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's stock price, the variability associated with the size or timing of acquisitions and other factors. These components of net income (loss) could significantly impact Horizon’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 expected full-year 2016 net sales, non-GAAP adjusted net sales and adjusted EBITDA guidance, expected financial performance in future periods, expected timing of clinical, regulatory and commercial events, expected benefits of agreements with PBMs, potential market opportunity for Horizon Pharma’s medicines in approved and potential additional indications, potential growth of Horizon Pharma’s business, expected benefits from the acquisition of Raptor Pharmaceutical Corp. 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’s actual full-year 2016 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 payers and risks relating to the success and costs of Horizon’s patient support programs; whether Horizon Pharma is unable to enter into additional business arrangements with pharmacy benefit managers and payers on favorable terms or at all; risks related to acquisition integration and achieving projected cost savings and benefits; risks associated with clinical development and 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 presentation 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 September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Net sales $208,702 $226,544 $670,770 $512,506
Cost of goods sold 85,161 61,250 243,520 151,929
Gross profit 123,541 165,294 427,250 360,577
OPERATING EXPENSES:
Research and development 12,814 13,073 36,746 28,176
Sales and marketing 72,564 51,973 227,697 157,092
General and administrative 59,485 54,516 179,866 157,986
Total operating expenses 144,863 119,562 444,309 343,254
Operating (loss) income (21,322) 45,732 (17,059) 17,323
OTHER INCOME (EXPENSE), NET:
Interest expense, net (19,066) (20,300) (57,752) (49,780)
Foreign exchange loss (108) (86) (266) (1,010)
Loss on induced conversion of debt and debt extinguishment - - - (77,624)
Other income (expense), net 6,879 (90) 6,839 (10,159)
Total other income (expense), net (12,295) (20,476) (51,179) (138,573)
(Loss) income before (benefit) expense for income taxes (33,617) 25,256 (68,238) (121,250)
(BENEFIT) EXPENSE FOR INCOME TAXES (27,747) 21,979 (31,946) (136,788)
NET (LOSS) INCOME $(5,870) $3,277 $(36,292) $15,538
Net (loss) income per ordinary share - basic $(0.04) $0.02 $(0.23) $0.11
Weighted average ordinary shares outstanding - basic 161,038,827 159,035,580 160,472,530 145,208,252
Net (loss) income per ordinary share - diluted $(0.04) $0.02 $(0.23) $0.10
Weighted average ordinary shares outstanding - diluted 161,038,827 166,380,800 160,472,530 154,005,671

Horizon Pharma plc
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
As of
September 30,
2016
December 31,
2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $549,303 $859,616
Restricted cash 5,271 1,860
Accounts receivable, net 362,899 210,437
Inventories, net 162,155 18,376
Prepaid expenses and other current assets 38,078 15,858
Total current assets 1,117,706 1,106,147
Property and equipment, net 21,442 14,020
Developed technology, net 1,877,158 1,609,049
In-process research and development 66,000 66,000
Other intangible assets, net 6,453 7,061
Goodwill 248,736 253,811
Deferred tax assets, net 5,975 2,278
Other assets 6,201 222
TOTAL ASSETS
$3,349,671 $3,058,588
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt—current portion $4,000 $4,000
Accounts payable 65,684 16,590
Accrued expenses 157,534 100,046
Accrued trade discounts and rebates 268,202 183,769
Accrued royalties—current portion 59,176 51,700
Deferred revenues—current portion 1,635 1,447
Total current liabilities 556,231 357,552
LONG-TERM LIABILITIES:
Exchangeable notes, net 294,089 282,889
Long-term debt, net, net of current 849,135 849,867
Accrued royalties, net of current 169,618 123,519
Deferred revenues, net of current 8,154 8,785
Deferred tax liabilities, net 95,583 113,400
Other long-term liabilities 14,883 9,431
Total long-term liabilities 1,431,462 1,387,891
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized;
161,618,473 and 160,069,067 issued at September 30, 2016 and December 31, 2015,
respectively, and 161,234,107 and 159,684,701 outstanding at September 30, 2016 and
December 31, 2015, respectively. 16 16
Treasury stock, 384,366 ordinary shares at September 30, 2016 and December 31, 2015 (4,585) (4,585)
Additional paid-in capital 2,086,873 2,001,552
Accumulated other comprehensive loss (2,847) (2,651)
Accumulated deficit (717,479) (681,187)
Total shareholders' equity 1,361,978 1,313,145
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,349,671 $3,058,588

Horizon Pharma plc
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(5,870) $3,277 $(36,292) $15,538
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation and amortization expense 51,940 43,285 154,465 94,025
Equity-settled share-based compensation 28,593 24,914 84,011 56,253
Royalty accretion 9,734 6,551 28,762 13,571
Royalty liability remeasurement - - - 14,277
Loss on induced conversions of debt and debt extinguishment - - - 21,581
Amortization of debt discount and deferred financing costs 4,537 5,480 13,469 13,328
Deferred income taxes (29,796) 24,859 (35,158) (134,014)
Foreign exchange loss and other adjustments 109 130 268 1,137
Changes in operating assets and liabilities:
Accounts receivable (58,516) (38,203) (142,448) (135,370)
Inventories 10,065 2,264 23,842 12,819
Prepaid expenses and other current assets (4,212) (4,180) (20,838) 417
Accounts payable 7,417 36,609 49,695 38,213
Accrued trade discounts and rebates 47,529 (12,460) 83,009 35,136
Accrued expenses and accrued royalties 73,109 (5,440) 29,582 11,052
Deferred revenues (25) (635) (443) 2,143
Payment of original issue discount upon repayment of 2014 Term Loan Facility - - - (3,000)
Other non-current assets and liabilities (5,827) 1,932 (1,653) 2,122
Net cash provided by operating activities 128,787 88,383 230,271 59,228
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired - - (520,405) (1,022,361)
Proceeds from liquidation of available-for-sale investments - - - 64,623
Purchases of long-term investments - (71,813) - (71,813)
Change in restricted cash (2,102) (260) (3,411) (122)
Purchases of property and equipment (1,840) (2,233) (14,616) (4,514)
Net cash used in investing activities (3,942) (74,306) (538,432) (1,034,187)
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
Repayment of the 2015 Term Loan Facility (1,000) (1,000) (3,000) (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 ordinary shares in connection with warrant exercises - 3,431 - 18,124
Proceeds from the issuance of ordinary shares through ESPP programs - - 3,235 1,541
Proceeds from the issuance of ordinary shares in connection with stock option exercises 1,726 714 3,384 4,602
Payment of employee withholding taxes relating to share-based awards (575) (378) (5,309) (2,334)
Net cash provided by (used in) financing activities 151 2,554 (1,690) 1,440,587
Effect of foreign exchange rate changes on cash and cash equivalents (218) 598 (462) (149)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 124,778 17,229 (310,313) 465,479
CASH AND CASH EQUIVALENTS, beginning of the period 424,525 667,057 859,616 218,807
CASH AND CASH EQUIVALENTS, end of the period$549,303 $684,286 $549,303 $684,286

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 September 30, Nine Months Ended September 30,
2016 2015 2016 2015
GAAP Net (Loss) Income (5,870) 3,277 (36,292) 15,538
Non-GAAP Adjustments:
Remeasurement of royalties for medicines acquired through business combinations - - - 14,277
Acquisition-related costs 5,159 14,498 16,456 64,841
Upfront fee for license of global patent - - 2,000 -
Loss on induced conversion of debt and debt extinguishment - - - 77,624
Amortization and accretion:
Intangible amortization expense 50,757 41,707 151,199 91,217
Amortization of debt discount and deferred financing costs 4,537 5,480 13,469 13,328
Accretion of royalty liabilities 9,734 6,551 28,762 13,571
Amortizaton of inventory step-up adjustment 11,305 4,140 27,853 10,635
Share-based compensation 29,312 26,457 84,921 57,796
Depreciation expense 1,183 1,578 3,266 2,808
Litigation settlement 65,000 - 65,000 -
Reversal of pre-acquisition reserve upon signing of contract (6,900) - (6,900) -
Royalties for medicines acquired through business combinations (1) (9,564) (8,854) (27,159) (20,890)
Total of pre-tax non-GAAP adjustments 160,523 91,557 358,867 325,207
Income tax effect of pre-tax non-GAAP adjustments (39,180) (25,018) (74,518) (84,218)
Other non-GAAP income tax adjustments - - - (105,133)
Total of non-GAAP adjustments 121,343 66,539 284,349 135,856
Non-GAAP Net Income 115,473 69,816 248,057 151,394
Non-GAAP Earnings Per Share:
Weighted average shares - Basic 161,038,827 159,035,580 160,472,530 145,208,252
Non-GAAP Earnings Per Share - Basic:
GAAP (loss) earnings per share - Basic (0.04) 0.02 (0.23) 0.11
Non-GAAP adjustments 0.76 0.42 1.78 0.93
Non-GAAP earnings per share - Basic 0.72 0.44 1.55 1.04
Weighted average shares - Diluted
Weighted average shares - Basic 161,038,827 159,035,580 160,472,530 145,208,252
Ordinary share equivalents 3,868,212 7,795,220 3,763,984 8,797,419
Weighted average shares - Diluted 164,907,039 166,830,800 164,236,514 154,005,671
Non-GAAP Earnings Per Share - Diluted
GAAP (loss) earnings per share - Diluted (0.04) 0.02 (0.23) 0.10
Non-GAAP adjustments 0.75 0.40 1.77 0.88
Diluted earnings per share effect of ordinary share equivalents (0.01) - (0.03) -
Non-GAAP earnings per share - Diluted 0.70 0.42 1.51 0.98
(1) Royalties for medicines acquired through business combinations relate to ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, RAVICTI and VIMOVO.

Horizon Pharma plc
GAAP to Non-GAAP Reconciliations
EBITDA, Gross Profit and Operating Cash Flow (Unaudited)
(in thousands, except percentages)
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
EBITDA and Non-GAAP EBITDA:
GAAP Net (Loss) Income
$ (5,870) $ 3,277 $ (36,292) $ 15,538
Depreciation 1,183 1,578 3,266 2,808
Amortization and accretion:
Intangible amortization expense 50,757 41,707 151,199 91,217
Accretion of royalty liabilities 9,734 6,551 28,762 13,571
Amortization of deferred revenue (212) (490) (631) (753)
Amortizaton of inventory step-up adjustment 11,305 4,140 27,853 10,635
Interest expense, net (including amortization of
debt discount and deferred financing costs) 19,066 20,300 57,752 49,780
(Benefit) expense for income taxes (27,747) 21,979 (31,946) (136,788)
EBITDA $ 58,216 $ 99,042 $ 199,963 $ 46,008
Non-GAAP adjustments:
Remeasurement of royalties for medicines acquired through business combinations - - - 14,277
Acquisition-related costs 5,159 14,498 16,456 64,841
Upfront fee for license of global patent - - 2,000 -
Loss on induced conversion of debt and debt extinguishment - - - 77,624
Share-based compensation 29,312 26,457 84,921 57,796
Litigation settlement 65,000 - 65,000 -
Reversal of pre-acquisition reserve upon signing of contract (6,900) - (6,900) -
Royalties for medicines acquired through business combinations (1) (9,564) (8,854) (27,159) (20,890)
Total of Non-GAAP adjustments 83,007 32,101 134,318 193,648
Adjusted EBITDA $ 141,223 $ 131,143 $ 334,281 $ 239,656
Non-GAAP Gross Profit:
GAAP net sales $ 208,702 $ 226,544 $ 670,770 $ 512,506
Litigation settlement 65,000 - 65,000 -
Non-GAAP adjusted net sales
$ 273,702 $ 226,544 $ 735,770 $ 512,506
GAAP gross profit
$ 123,541 $ 165,294 $ 427,250 $ 360,577
Non-GAAP gross profit adjustments:
Acquisition-related costs 43 - 454 23
Remeasurement of royalties for medicines acquired through business combinations - - - 14,277
Intangible amortization expense (COGS only) 50,555 41,505 150,592 90,609
Accretion of royalty liabilities 9,734 6,551 28,762 13,571
Amortizaton of inventory step-up adjustment 11,305 4,140 27,853 10,635
Depreciation (COGS only) 100 65 320 268
Litigation settlement 65,000 - 65,000 -
Royalties for medicines acquired through business combinations (1) (9,564) (8,854) (27,159) (20,890)
Total of Non-GAAP adjustments 127,173 43,407 245,822 108,493
Non-GAAP gross profit
$ 250,714 $ 208,701 $ 673,072 $ 469,070
GAAP gross profit %
59.2% 73.0% 63.7% 70.4%
Non-GAAP gross profit %
91.6% 92.1% 91.5% 91.5%
Non-GAAP operating cash flow:
GAAP cash provided by operating activities $ 128,787 $ 88,383 $ 230,271 $ 59,228
Cash payments for acquisition-related costs 4,966 12,464 27,543 49,152
Cash payments for upfront fee for license of global patent - - 2,000 -
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
Non-GAAP operating cash flow $ 133,753 $ 100,847 $ 259,814 $ 167,219
(1) Royalties for medicines acquired through business combinations relate to ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, RAVICTI and VIMOVO.

Horizon Pharma plc
GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)
(in millions, except percentages)
Q3 2016
Pre-tax Net (Loss) Income Income Tax (Benefit) Expense Tax RateNet (Loss) IncomeDiluted (Loss) Earnings Per Share
As reported - GAAP$ (33.6)$ (27.7) 82.5%$ (5.9)$ (0.04)
Non-GAAP adjustments 160.5 39.1 121.4
Non-GAAP$ 126.9 $ 11.4 9.0%$ 115.5 $ 0.70
Q3 2016 YTD
Pre-tax Net (Loss) Income Income Tax (Benefit) Expense Tax RateNet (Loss) IncomeDiluted (Loss) Earnings Per Share
As reported - GAAP$ (68.2)$ (31.9) 46.8%$ (36.3)$ (0.23)
Non-GAAP adjustments 358.9 74.5 284.4
Non-GAAP$ 290.7 $ 42.6 14.6%$ 248.1 $ 1.51
Q3 2015
Pre-tax Net Income Income Tax Expense Tax RateNet IncomeDiluted Earnings Per Share
As reported - GAAP$ 25.3 $ 22.0 87.0%$ 3.3 $ 0.02
Non-GAAP adjustments 91.5 25.0 66.5
Non-GAAP$ 116.8 $ 47.0 40.2%$ 69.8 $ 0.42
Q3 2015 YTD
Pre-tax Net (Loss) Income Income Tax (Benefit) Expense Tax RateNet Income (Loss)Diluted Earnings Per Share
As reported - GAAP$ (121.3)$ (136.8) 112.8%$ 15.5 $ 0.10
Non-GAAP adjustments 325.2 84.2 241.0
Other Non-GAAP tax adjustment - 105.1 (105.1)
Non-GAAP$ 203.9 $ 52.5 25.8%$ 151.4 $ 0.98

Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended September 30, 2016
(Unaudited)
Income Tax
Net Research &Sales &General &Interest Benefit
SalesCOGSDevelopmentMarketingAdministrativeExpenseOther(Expense)
GAAP as reported$208,702 $(85,161)$(12,814)$(72,564)$(59,485)$(19,066)$6,879 $27,747
Non-GAAP Adjustments (in thousands):
Acquisition-related costs(1) - 43 (21) - 5,137 - - -
Amortization and accretion:
Intangible amortization expense(2) - 50,555 - 202 - - - -
Amortization of debt discount and deferred financing costs(3) - - - - - 4,537 - -
Accretion of royalty liability(4) - 9,734 - - - - - -
Amortization of inventory step-up adjustment(5) - 11,305 - - - - - -
Share-based compensation(6) - - 2,482 6,696 20,134 - - -
Depreciation expense(7) - 100 - 14 1,069 - - -
Litigation settlement(8) 65,000 - - - - - - -
Reversal of pre-acquisition reserve upon signing of contract(9) - - - - - - (6,900) -
Royalties for medicines acquired through business combinations(10) - (9,564) - - - - - -
Income tax effect on pre-tax non-GAAP adjustments(11) - - - - - - - (39,180)
Total of non-GAAP adjustments 65,000 62,173 2,461 6,912 26,340 4,537 (6,900) (39,180)
Non-GAAP$273,702 $(22,988)$(10,353)$(65,652)$(33,145)$(14,529)$(21)$(11,433)
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Three Months Ended September 30, 2015
(Unaudited)
Income Tax
Research &Sales &General &InterestBenefit
COGSDevelopmentMarketingAdministrativeExpense(Expense)
GAAP as reported$(61,250)$(13,073)$(51,973)$(54,516)$(20,300)$(21,979)
Non-GAAP Adjustments (in thousands):
Acquisition-related costs(1) - 2,158 - 12,340 - -
Amortization and accretion:
Intangible amortization expense(2) 41,505 - 202 - - -
Amortization of debt discount and deferred financing costs(3) - - - - 5,480 -
Accretion of royalty liability(4) 6,551 - - - - -
Amortization of inventory step-up adjustment(5) 4,140 - - - - -
Share-based compensation(6) - 2,042 7,035 17,380 - -
Depreciation expense(7) 65 - - 1,513 - -
Royalties for medicines acquired through business combinations(10) (8,854) - - - - -
Income tax effect on pre-tax non-GAAP adjustments(11) - - - - - (25,018)
Total of non-GAAP adjustments 43,407 4,200 7,237 31,233 5,480 (25,018)
Non-GAAP$(17,843)$(8,873)$(44,736)$(23,283)$(14,820)$(46,997)

Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Nine Months Ended September 30, 2016
(Unaudited)
Income Tax
Net Research &Sales &General &Interest Benefit
SalesCOGSDevelopmentMarketingAdministrativeExpenseOther(Expense)
GAAP as reported$670,770 $(243,520)$(36,746)$(227,697)$(179,866)$(57,752)$6,839 $31,946
Non-GAAP Adjustments (in thousands):
Acquisition-related costs(1) - 454 517 - 15,485 - - -
Upfront fee for license of global patent(12) - - 2,000 - - - - -
Amortization and accretion:
Intangible amortization expense(2) - 150,592 - 607 - - - -
Amortization of debt discount and deferred financing costs(3) - - - - - 13,469 - -
Accretion of royalty liability(4) - 28,762 - - - - - -
Amortization of inventory step-up adjustment(5) - 27,853 - - - - - -
Share-based compensation(6) - - 6,845 19,306 58,770 - - -
Depreciation expense(7) - 320 - 40 2,906 - - -
Litigation settlement(8) 65,000 - - - - - - -
Reversal of pre-acquisition reserve upon signing of contract(9) - - - - - - (6,900) -
Royalties for medicines acquired through business combinations(10) - (27,159) - - - - - -
Income tax effect on pre-tax non-GAAP adjustments(11) - - - - - - - (74,518)
Total of non-GAAP adjustments 65,000 180,822 9,362 19,953 77,161 13,469 (6,900) (74,518)
Non-GAAP$735,770 $(62,698)$(27,384)$(207,744)$(102,705)$(44,283)$(61)$(42,572)
Horizon Pharma plc
Certain Income Statement Line Items - Non-GAAP Adjusted
For the Nine Months Ended September 30, 2015
(Unaudited)
Loss on Induced
Debt Conversion Income Tax
Research &Sales &General &Interest& Debt Benefit
COGSDevelopmentMarketingAdministrativeExpenseExtinguishmentOther(Expense)
GAAP as reported$(151,929)$(28,176)$(157,092)$(157,986)$(49,780)$(77,624)$(10,159)$136,788
Non-GAAP Adjustments (in thousands):
Loss on induced conversion of debt and debt extinguishment(13) - - - - - 77,624 - -
Acquisition-related costs(1) 23 2,252 - 52,566 - - 10,000 -
Amortization and accretion:
Intangible amortization expense(2) 90,609 - 608 - - - - -
Amortization of debt discount and deferred financing costs(3) - - - - 13,328 - - -
Accretion of royalty liability(4) 13,571 - - - - - - -
Amortization of inventory step-up adjustment(5) 10,635 - - - - - - -
Remeasurement of royalties for products acquired through business combinations(14) 14,277 - - - - - - -
Share-based compensation(6) - 4,712 15,571 37,513 - - - -
Depreciation expense(7) 268 - - 2,540 - - - -
Royalties for medicines acquired through business combinations(10) (20,890) - - - - - - -
Income tax effect on pre-tax non-GAAP adjustments(11) - - - - - - - (84,218)
Other non-GAAP income tax adjustments(15) - - - - - - - (105,133)
Total of non-GAAP adjustments 108,493 6,964 16,179 92,619 13,328 77,624 10,000 (189,351)
Non-GAAP$(43,436)$(21,212)$(140,913)$(65,367)$(36,452)$- $(159)$(52,563)

  1. Expenses, including legal and consulting fees, incurred in connection with the Company’s acquisitions of Vidara Therapeutics International Public Limited Company (“Vidara”), Hyperion Therapeutics, Inc. (“Hyperion”), Crealta Holdings LLC (“Crealta”) and Raptor Pharmaceutical Corp. (“Raptor”), its agreement to acquire the worldwide rights to interferon gamma-1b and its withdrawn offer to acquire Depomed Inc. have been excluded.
  2. Intangible amortization expenses are associated with the Company’s intellectual property rights, developed technology and customer relationships of VIMOVO, LODOTRA, RAYOS, ACTIMMUNE, PENNSAID 2%, RAVICTI, BUPHENYL, KRYSTEXXA and MIGERGOT.
  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, BUPHENYL, KRYSTEXXA and MIGERGOT royalties for the three and nine months ended September 30, 2016 and represents accretion expense associated with the ACTIMMUNE, VIMOVO, RAVICTI and BUPHENYL royalties for the three and nine months ended September 30, 2015.
  5. In connection with the Crealta acquisition, the KRYSTEXXA and MIGERGOT inventory was stepped up in value by $161,901 and during the three months ended September 30, 2016, the Company recognized in cost of goods sold $11,305 of step-up inventory costs related to KRYSTEXXA and MIGERGOT inventory sold. During the nine months ended September 30, 2016, the Company recognized in cost of goods sold $27,853 of step-up inventory costs related to KRYSTEXXA and MIGERGOT inventory sold. In connection with the Hyperion acquisition, the RAVICTI and BUPHENYL inventory was stepped up in value by $8,682 and during the three months 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 by $14,218 and during the nine months ended September 30, 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, software and leasehold improvements.
  8. On September 26, 2016, the Company 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 and nine months ended September 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 the non-GAAP adjusted net sales for the three and nine months ended September 30, 2016.
  9. During the third quarter of 2016, the Company released a contingent liability of $6.9 million that was recorded as part of acquisition accounting for Crealta.
  10. Royalties of $9,564 and $27,159 were incurred during the three and nine months ended September 30, 2016, respectively, based on the periods’ net sales for ACTIMMUNE, VIMOVO, RAVICTI, BUPHENYL, KRYSTEXXA and MIGERGOT. Royalties of $8,854 and $20,890 were incurred during the three and nine months ended September 30, 2015, respectively, based on the periods’ net sales for VIMOVO, ACTIMMUNE, RAVICTI and BUPHENYL.
  11. 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.
  12. Represents an upfront fee paid for a license of a global patent.
  13. During the nine months ended September 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.
  14. At the time of the Company's acquisition of the rights to ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, 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. During the nine months ended September 30, 2015, the Company recorded a charge of $14,277 to cost of goods sold to adjust the amount of the contingent royalty liabilities relating to ACTIMMUNE and VIMOVO.
  15. Other non-GAAP income tax adjustments in the nine months ended September 30, 2015 of $105,133 related to the release of certain valuation allowances in connection with the Hyperion acquisition.
Contacts: Investors: Tina Ventura Senior Vice President, Investor Relations investor-relations@horizonpharma.com U.S. Media: Geoff Curtis Senior Vice President, Corporate Communications media@horizonpharma.com Ireland Media: Ray Gordon Gordon MRM ray@gordonmrm.ie

Source: Horizon Pharma plc