Exhibit 99.1

 

Horizon Pharma plc Announces Fourth-Quarter and Full-Year 2016 Financial Results and Provides Full-Year 2017 Net Sales and Adjusted EBITDA Guidance

— Fourth-Quarter 2016 Net Sales of $310.3 Million; Up 27 Percent —

— Fourth-Quarter 2016 Net Loss of $130.5 Million⁽¹⁾; Adjusted EBITDA of $136.4 Million —

— Fourth-Quarter 2016 Operating Cash Flow of $139.2 Million;

Fourth-Quarter 2016 Non-GAAP Operating Cash Flow of $193.1 Million —

— Full-Year 2016 Net Sales of $981.1 Million⁽²⁾;

Full-Year 2016 Non-GAAP Adjusted Net Sales of $1,046.1 Million⁽²⁾ —

— Full-Year 2016 Net Loss of $166.8 Million⁽¹⁾; Adjusted EBITDA of $470.7 Million –

— Full-Year 2016 Operating Cash Flow of $369.5 Million;

Full-Year 2016 Non-GAAP Operating Cash Flow of $452.9 Million;

Year-End 2016 Cash Balance of $509.1 Million —

— Full-Year 2017 Net Sales Guidance of $1.24 Billion to $1.29 Billion;

Full-Year 2017 Adjusted EBITDA Guidance of $525 Million to $575 Million —

DUBLIN, IRELAND – 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, announced its fourth-quarter and full-year 2016 financial results today and provided its full-year 2017 net sales and adjusted EBITDA guidance.

“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 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.

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: 57707260

 

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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: 57707260

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 Pharma as non-GAAP financial measures. Horizon Pharma provides certain other financial measures such as non-GAAP adjusted net sales and net income, non-GAAP diluted earnings per share, non-GAAP gross profit and gross profit ratio, non-GAAP operating expenses, non-GAAP tax rate, non-GAAP operating cash flow and PROCYSBI and QUINSAIR net sales on a combined and adjusted basis, 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-related expenses, charges related to the discontinuation of ACTIMMUNE development for Friedreich’s ataxia, 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, intangible and other non-current asset impairment charges, 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 2017 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.

 

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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 or quarterly 2017 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 Pharma’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 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 and quarterly 2017 net sales and adjusted EBITDA guidance, expected financial performance in future periods, expected timing of clinical, regulatory and commercial events, the expected launch of RAVICTI in Europe, anticipated additional clinical trials of ACTIMMUNE in cancer indications, potential market opportunity for Horizon Pharma’s medicines in approved and potential additional indications, potential growth of Horizon Pharma’s medicines 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’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 and risks relating to the success of Horizon Pharma’s business strategies; whether Horizon Pharma is unable to enter into additional business arrangements with pharmacy benefit managers and payers on favorable terms or at all or unable to realize the expected benefits from such arrangements; 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.

Contacts:

 

Investors:		U.S. Media:
Tina Ventura		Geoff Curtis
Senior Vice President,		Senior Vice President,
Investor Relations		Corporate Communications
investor-relations@horizonpharma.com		media@horizonpharma.com
		Ireland Media:
		Ray Gordon
		Gordon MRM
		ray@gordonmrm.ie

 

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Horizon Pharma plc

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

 

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2016				2015				2016				2015
		(Unaudited)
Net sales		$	310,349			$	244,538			$	981,120			$	757,044
Cost of goods sold			149,751				67,573				393,272				219,502
Gross profit			160,598				176,965				587,848				537,542
OPERATING EXPENSES:
Research and development			23,961				13,689				60,707				41,865
Sales and marketing			92,669				63,352				320,366				220,444
General and administrative			108,076				61,875				287,942				219,861
Impairment of in-process R&D			66,000				—				66,000				—
Total operating expenses			290,706				138,916				735,015				482,170
Operating (loss) income			(130,108	)			38,049				(147,167	)			55,372
OTHER INCOME (EXPENSE), NET:
Interest expense, net			(28,858	)			(20,120	)			(86,610	)			(69,900	)
Foreign exchange loss			(739	)			(227	)			(1,005	)			(1,237	)
Loss on induced conversion of debt and debt extinguishment			—				—				—				(77,624	)
Loss on sale of long-term investments			—				(29,032	)			—				(29,032	)
Other (expense) income, net			(142	)			(132	)			6,697				(10,291	)
Total other income (expense), net			(29,739	)			(49,511	)			(80,918	)			(188,084	)
Loss before benefit for income taxes			(159,847	)			(11,462	)			(228,085	)			(132,712	)
BENEFIT FOR INCOME TAXES			(29,305	)			(35,456	)			(61,251	)			(172,244	)
NET (LOSS) INCOME		$	(130,542	)		$	23,994			$	(166,834	)		$	39,532
Net (loss) income per ordinary share - basic		$	(0.81	)		$	0.15			$	(1.04	)		$	0.27
Weighted average ordinary shares outstanding - basic			161,375,647				159,410,594				160,699,543				148,788,020
Net (loss) income per ordinary share - diluted		$	(0.81	)		$	0.15			$	(1.04	)		$	0.25
Weighted average ordinary shares outstanding - diluted			161,375,647				163,834,135				160,699,543				155,923,251

 

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Horizon Pharma plc

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

		As of
		December 31, 2016				December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	509,055			$	859,616
Restricted cash			7,095				1,860
Accounts receivable, net			305,725				210,437
Inventories, net			174,788				18,376
Prepaid expenses and other current assets			49,619				15,858
Total current assets			1,046,282				1,106,147
Property and equipment, net			23,484				14,020
Developed technology, net			2,767,184				1,609,049
In-process research and development			—				66,000
Other intangible assets, net			6,251				7,061
Goodwill			445,579				253,811
Deferred tax assets, net			911				2,278
Other assets			2,368				222
TOTAL ASSETS		$	4,292,059			$	3,058,588
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Long-term debt—current portion		$	7,750			$	4,000
Accounts payable			52,479				16,590
Accrued expenses			182,765				100,046
Accrued trade discounts and rebates			297,556				183,769
Accrued royalties—current portion			61,981				51,700
Deferred revenues—current portion			3,321				1,447
Total current liabilities			605,852				357,552
LONG-TERM LIABILITIES:
Exchangeable notes, net			298,002				282,889
Long-term debt, net, net of current			1,501,741				849,867
Accrued royalties, net of current			272,293				123,519
Deferred revenues, net of current			7,763				8,785
Deferred tax liabilities, net			296,568				113,400
Other long-term liabilities			46,061				9,431
Total long-term liabilities			2,422,428				1,387,891
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized; 162,004,956 and 160,069,067 issued at December 31, 2016 and December 31, 2015, respectively, and 161,620,590 and 159,684,701 outstanding at December 31, 2016 and December 31, 2015, respectively.			16				16
Treasury stock, 384,366 ordinary shares at December 31, 2016 and December 31, 2015			(4,585	)			(4,585	)
Additional paid-in capital			2,119,455				2,001,552
Accumulated other comprehensive loss			(3,086	)			(2,651	)
Accumulated deficit			(848,021	)			(681,187	)
Total shareholders’ equity			1,263,779				1,313,145
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	4,292,059			$	3,058,588

 

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Horizon Pharma plc

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2016				2015				2016				2015
		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(130,542	)		$	23,994			$	(166,834	)		$	39,532
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation and amortization expense			67,372				44,318				221,837				138,343
Equity-settled share-based compensation			29,008				27,300				113,019				83,553
Royalty accretion			11,854				6,517				40,616				20,088
Royalty liability remeasurement			386				6,874				386				21,151
Impairment of in-process R&D			66,000				—				66,000				—
Impairment of non-current asset			5,260				—				5,260				—
Loss on induced conversions of debt and debt extinguishment			—				—				—				21,581
Amortization of debt discount and deferred financing costs			5,077				5,482				18,546				18,810
Loss on sale of long-term investments			—				29,032				—				29,032
Deferred income taxes			(30,402	)			(46,535	)			(65,561	)			(180,549	)
Foreign exchange loss and other adjustments			152				358				420				1,495
Changes in operating assets and liabilities:
Accounts receivable			74,952				10,604				(67,496	)			(124,766	)
Inventories			43,791				(603	)			67,633				12,216
Prepaid expenses and other current assets			(7,401	)			597				(28,239	)			1,014
Accounts payable			(17,630	)			(46,575	)			32,065				(8,362	)
Accrued trade discounts and rebates			29,372				58,910				112,381				94,046
Accrued expenses and accrued royalties			(15,728	)			9,117				13,854				20,169
Deferred revenues			1,557				(450	)			1,114				1,693
Payment of original issue discount upon repayment of 2014 Term Loan Facility			—				—				—				(3,000	)
Other non-current assets and liabilities			6,107				5,998				4,455				8,120
Net cash provided by operating activities			139,185				134,938				369,456				194,166
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired			(835,866	)			—				(1,356,271	)			(1,022,361	)
Proceeds from liquidation of available-for-sale investments			—				—				—				64,623
Purchases of long-term investments			—				—				—				(71,813	)
Procceds from sale of long-term investments			—				42,781				—				42,781
Change in restricted cash			(468	)			(1,000	)			(3,879	)			(1,122	)
Purchases of property and equipment			(1,115	)			(2,642	)			(15,731	)			(7,156	)
Net cash (used in) provided by investing activities			(837,449	)			39,139				(1,375,881	)			(995,048	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of Exchangable Senior Notes			—				—				—				387,181
Net Proceeds from the issuance of 2024 Senior Notes			291,893				—				291,893				—
Net proceeds from the 2016 Incremental Loan Facility			364,297				—				364,297				391,506
Net proceeds from the issuance of 2023 Senior Notes			—				—				—				462,340
Repayment of the 2015 Term Loan Facility			(1,000	)			(1,000	)			(4,000	)			(2,000	)
Repayment of the 2014 Term Loan Facility			—				—				—				(297,000	)
Net proceeds from the issuance of ordinary shares			—				58				—				475,685
Proceeds from the issuance of ordinary shares in connection with warrant exercises			8				—				8				18,124
Proceeds from the issuance of ordinary shares through ESPP programs			3,305				2,911				6,540				4,452
Proceeds from the issuance of ordinary shares in connection with stock option exercises			491				615				3,875				5,217
Payment of employee withholding taxes relating to share-based awards			(230	)			(690	)			(5,539	)			(3,024	)
Net cash provided by financing activities			658,764				1,894				657,074				1,442,481
Effect of foreign exchange rate changes on cash and cash equivalents			(748	)			(641	)			(1,210	)			(790	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(40,248	)			175,330				(350,561	)			640,809
CASH AND CASH EQUIVALENTS, beginning of the period			549,303				684,286				859,616				218,807
CASH AND CASH EQUIVALENTS, end of the period		$	509,055			$	859,616			$	509,055			$	859,616

 

11

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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 December 31,								Twelve Months Ended December 31,
		2016				2015				2016				2015
GAAP net (loss) income			(130,542	)			23,994				(166,834	)			39,532
Non-GAAP adjustments:
Remeasurement of royalties for medicines acquired through business combinations			386				6,874				386				21,151
Acquisition-related costs			36,418				7,380				52,874				72,221
Upfront fee for license of global patent			—				—				2,000				—
Loss on sale of long-term investments			—				29,032				—				29,032
Loss on induced conversion of debt and debt extinguishment			—				—				—				77,624
Amortization, accretion and step-up:
Intangible amortization expense			65,676				41,706				216,875				132,923
Amortization of debt discount and deferred financing costs			5,077				5,482				18,546				18,810
Accretion of royalty liabilities			11,854				6,517				40,616				20,088
Inventory step-up expense			43,284				860				71,137				11,495
Share-based compensation			29,223				27,990				114,144				85,786
Depreciation expense			1,696				2,612				4,962				5,420
Litigation settlement			—				—				65,000				—
Reversal of pre-acquisition reserve upon signing of contract			—				—				(6,900	)			—
Impairment of in-process R&D			66,000				—				66,000				—
Charges relating to discontinuation of Friedreich’s ataxia program			23,513				—				23,513				—
Royalties for medicines acquired through business combinations (1)			(10,434	)			(8,944	)			(37,593	)			(29,834	)
Total of pre-tax non-GAAP adjustments			272,693				119,509				631,560				444,716
Income tax effect of pre-tax non-GAAP adjustments			(35,772	)			(37,996	)			(110,290	)			(122,214	)
Other non-GAAP income tax adjustments			—				—				—				(105,133	)
Total of non-GAAP adjustments			236,921				81,513				521,270				217,369
Non-GAAP Net Income			106,379				105,507				354,436				256,901
Non-GAAP Earnings Per Share:
Weighted average shares - Basic			161,375,647				159,410,594				160,699,543				148,788,020
Non-GAAP Earnings Per Share - Basic:
GAAP (loss) earnings per share - Basic			(0.81	)			0.15				(1.04	)			0.27
Non-GAAP adjustments			1.47				0.51				3.25				1.46
Non-GAAP earnings per share - Basic			0.66				0.66				2.21				1.73
Weighted average shares - Diluted
Weighted average shares - Basic			161,375,647				159,410,594				160,699,543				148,788,020
Ordinary share equivalents			3,692,325				4,423,541				3,626,570				7,135,231
Weighted average shares - Diluted			165,067,972				163,834,135				164,326,113				155,923,251
Non-GAAP Earnings Per Share - Diluted
GAAP (loss) earnings per share - Diluted			(0.81	)			0.15				(1.04	)			0.25
Non-GAAP adjustments			1.47				0.49				3.25				1.40
Diluted earnings per share effect of ordinary share equivalents			(0.02	)			—				(0.05	)			—
Non-GAAP earnings per share - Diluted			0.64				0.64				2.16				1.65

 

(1)	Royalties for medicines acquired through business combinations relate to ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, RAVICTI and VIMOVO.

 

12

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Horizon Pharma plc

GAAP to Non-GAAP Reconciliations

EBITDA, Gross Profit and Operating Cash Flow (Unaudited)

(in thousands, except percentages)

 

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2016				2015				2016				2015
EBITDA and Non-GAAP EBITDA:
GAAP net (loss) income		$	(130,542	)		$	23,994			$	(166,834	)		$	39,532
Depreciation			1,696				2,612				4,962				5,420
Amortization, accretion and step-up:
Intangible amortization expense			65,676				41,706				216,875				132,923
Accretion of royalty liabilities			11,854				6,517				40,616				20,088
Amortization of deferred revenue			(205	)			(208	)			(836	)			(962	)
Inventory step-up expense			43,284				860				71,137				11,495
Interest expense, net (including amortization of debt discount and deferred financing costs)			28,858				20,120				86,610				69,900
(Benefit) expense for income taxes			(29,305	)			(35,456	)			(61,251	)			(172,244	)
EBITDA		$	(8,684	)		$	60,145			$	191,279			$	106,152
Non-GAAP adjustments:
Remeasurement of royalties for medicines acquired through business combinations			386				6,874				386				21,151
Acquisition-related costs			36,418				7,380				52,874				72,221
Upfront fee for license of global patent			—				—				2,000				—
Loss on sale of long-term investments			—				29,032				—				29,032
Loss on induced conversion of debt and debt extinguishment			—				—				—				77,624
Share-based compensation			29,223				27,990				114,144				85,786
Litigation settlement			—				—				65,000				—
Reversal of pre-acquisition reserve upon signing of contract			—				—				(6,900	)			—
Impairment of in-process R&D			66,000				—				66,000				—
Charges relating to discontinuation of Friedreich’s ataxia program			23,513				—				23,513				—
Royalties for medicines acquired through business combinations (1)			(10,434	)			(8,944	)			(37,593	)			(29,834	)
Total of Non-GAAP adjustments			145,106				62,332				279,424				255,980
Adjusted EBITDA		$	136,422			$	122,477			$	470,703			$	362,132
Non-GAAP Gross Profit:
GAAP net sales		$	310,349			$	244,538			$	981,120			$	757,044
Litigation settlement			—				—				65,000				—
Non-GAAP adjusted net sales		$	310,349			$	244,538			$	1,046,120			$	757,044
GAAP gross profit		$	160,598			$	176,965			$	587,848			$	537,542
Non-GAAP gross profit adjustments:
Acquisition-related costs			(464	)			—				(10	)			23
Share-based compensation			26				—				26				—
Remeasurement of royalties for medicines acquired through business combinations			386				6,874				386				21,151
Intangible amortization expense (COGS only)			65,473				41,504				216,065				132,113
Accretion of royalty liabilities			11,854				6,517				40,616				20,088
Inventory step-up expense			43,284				860				71,137				11,495
Depreciation (COGS only)			166				189				486				457
Litigation settlement			—				—				65,000				—
Charges relating to discontinuation of Friedreich’s ataxia program			14,287				—				14,287				—
Royalties for medicines acquired through business combinations (1)			(10,434	)			(8,944	)			(37,593	)			(29,834	)
Total of Non-GAAP adjustments			124,578				47,000				370,400				155,493
Non-GAAP gross profit		$	285,176			$	223,965			$	958,248			$	693,035
GAAP gross profit %			51.7	%			72.4	%			59.9	%			71.0	%
Non-GAAP gross profit %			91.9	%			91.6	%			91.6	%			91.5	%
Non-GAAP operating cash flow:
GAAP cash provided by operating activities		$	139,185			$	134,938			$	369,456			$	194,166
Cash payments for acquisition-related costs			21,372				19,033				48,915				68,185
Cash payment for litigation settlement			32,500				—				32,500				—
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		$	193,057			$	153,971			$	452,871			$	321,190

 

(1)	Royalties for medicines acquired through business combinations relate to ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, RAVICTI and VIMOVO.

 

13

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Horizon Pharma plc

PROCYSBI and QUINSAIR Net Revenue (Unaudited)

(in millions)

The Company acquired Raptor Pharmaceutical Corp. on October 25, 2016, including PROCYSBI and QUINSAIR. PROCYSBI and QUINSAIR net sales for the partial fourth quarter of 2016 were $25.3 million and $1.0 million, respectively. The following tables reflect sales for full-year 2015, first, second and third quarter under Raptor Pharmaceutical Corp. ownership and partial fourth-quarter 2016 net sales of Raptor and Horizon on a combined basis.

 

		Q1 16				Q2 16				Q3 16				Q4 16				FY 16
PROCYSBI			27.5				31.4				35.1				34.6				128.6
QUINSAIR			—				0.7				1.7				1.5				3.9
Total net sales		$	27.5			$	32.1			$	36.8			$	36.1			$	132.5
		Q1 15				Q2 15				Q3 15				Q4 15				FY 15
PROCYSBI			20.5				23.3				25.7				24.7				94.2
QUINSAIR			—				—				—				—				—
Total net sales		$	20.5			$	23.3			$	25.7			$	24.7			$	94.2

 

14

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Horizon Pharma plc

GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)

(in millions, except percentages)

 

		Q4 16
		Pre-tax Net (Loss) Income				Income Tax (Benefit) Expense				Tax Rate				Net (Loss) Income				Diluted (Loss) Earnings Per Share
As reported - GAAP		$	(159.8	)		$	(29.3	)			18.3	%		$	(130.5	)		$	(0.81	)
Non-GAAP adjustments			272.7				35.8								236.9
Non-GAAP		$	112.9			$	6.5				5.7	%		$	106.4			$	0.64
		FY 2016
		Pre-tax Net (Loss) Income				Income Tax (Benefit) Expense				Tax Rate				Net (Loss) Income				Diluted (Loss) Earnings Per Share
As reported - GAAP		$	(228.1	)		$	(61.3	)			26.9	%		$	(166.8	)		$	(1.04	)
Non-GAAP adjustments			631.6				110.4								521.2
Non-GAAP		$	403.5			$	49.1				12.2	%		$	354.4			$	2.16
		Q4 15
		Pre-tax Net (Loss) Income				Income Tax (Benefit) Expense				Tax Rate				Net Income				Diluted Earnings Per Share
As reported - GAAP		$	(11.4	)		$	(35.4	)			309.3	%		$	24.0			$	0.15
Non-GAAP adjustments			119.5				38.0								81.5
Non-GAAP		$	108.1			$	2.6				2.4	%		$	105.5			$	0.64
		FY 2015
		Pre-tax Net (Loss) Income				Income Tax (Benefit) Expense				Tax Rate				Net Income (Loss)				Diluted Earnings Per Share
As reported - GAAP		$	(132.7	)		$	(172.2	)			129.8	%		$	39.5			$	0.25
Non-GAAP adjustments			444.7				122.2								322.5
Other Non-GAAP tax adjustment			—				105.1								(105.1	)
Non-GAAP		$	312.0			$	55.1				17.7	%		$	256.9			$	1.65

 

15

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Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended December 31, 2016

(Unaudited)

 

		COGS				Research & Development				Sales & Marketing				General & Administrative				Impairment of In-Process R&D				Interest Expense				Income Tax Benefit (Expense)
GAAP as reported		$	(149,751	)		$	(23,961	)		$	(92,669	)		$	(108,076	)		$	(66,000	)		$	(28,858	)		$	29,305
Non-GAAP Adjustments (in thousands):
Acquisition-related costs(1)			(464	)			17				—				36,865				—				—				—
Amortization, accretion and step-up:
Intangible amortization expense(2)			65,473				—				203				—				—				—				—
Amortization of debt discount and deferred financing costs(3)			—				—				—				—				—				5,077				—
Accretion of royalty liability(4)			11,854				—				—				—				—				—				—
Inventory step-up expense(5)			43,284				—				—				—				—				—				—
Remeasurement of royalties for products acquired through business combinations(6)			386				—				—				—				—				—				—
Share-based compensation(7)			26				2,568				6,909				19,720				—				—				—
Depreciation expense(8)			166				—				14				1,516				—				—				—
Impairment of in-process R&D(9)			—				—				—				—				66,000				—				—
Charges relating to discontinuation of Friedreich’s ataxia program(10)			14,287				3,966				—				5,260				—				—				—
Royalties for medicines acquired through business combinations(11)			(10,434	)			—				—				—				—				—				—
Income tax effect on pre-tax non-GAAP adjustments(12)			—				—				—				—				—				—				(35,772	)
Total of non-GAAP adjustments			124,578				6,551				7,126				63,361				66,000				5,077				(35,772	)
Non-GAAP		$	(25,173	)		$	(17,410	)		$	(85,543	)		$	(44,715	)		$	—			$	(23,781	)		$	(6,467	)

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Three Months Ended December 31, 2015

(Unaudited)

 

		COGS				Research & Development				Sales & Marketing				General & Administrative				Interest Expense				Loss on sale of Long-Term Investments				Income Tax Benefit (Expense)
GAAP as reported		$	(67,573	)		$	(13,689	)		$	(63,352	)		$	(61,875	)		$	(20,120	)		$	(29,032	)		$	35,456
Non-GAAP Adjustments (in thousands):
Loss on sale of long-term investments(13)			—				—				—				—				—				29,032				—
Acquisition-related costs(1)			—				967				—				6,413				—				—				—
Amortization, accretion and step-up:
Intangible amortization expense(2)			41,504				—				202				—				—				—				—
Amortization of debt discount and deferred financing costs(3)			—				—				—				—				5,482				—				—
Accretion of royalty liability(4)			6,517				—				—				—				—				—				—
Inventory step-up expense(5)			860				—				—				—				—				—				—
Remeasurement of royalties for products acquired through business combinations(6)			6,874				—				—				—				—				—				—
Share-based compensation(7)			—				1,878				7,491				18,621				—				—				—
Depreciation expense(8)			189				—				—				2,423				—				—				—
Royalties for medicines acquired through business combinations(11)			(8,944	)			—				—				—				—				—				—
Income tax effect on pre-tax non-GAAP adjustments(12)			—				—				—				—				—				—				(37,996	)
Total of non-GAAP adjustments			47,000				2,845				7,693				27,457				5,482				29,032				(37,996	)
Non-GAAP		$	(20,573	)		$	(10,844	)		$	(55,659	)		$	(34,418	)		$	(14,638	)		$	—			$	(2,540	)

 

16

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Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Twelve Months Ended December 31, 2016

(Unaudited)

 

		Net Sales				COGS				Research & Development				Sales & Marketing				General & Administrative				Impairment of In-Process R&D				Interest Expense				Other				Income Tax Benefit (Expense)
GAAP as reported		$	981,120			$	(393,272	)		$	(60,707	)		$	(320,366	)		$	(287,942	)		$	(66,000	)		$	(86,610	)		$	6,697			$	61,251
Non-GAAP Adjustments (in thousands):
Acquisition-related costs(1)			—				(10	)			534				—				52,350				—				—				—				—
Upfront fee for license of global patent(14)			—				—				2,000				—				—				—				—				—				—
Amortization, accretion and step-up:
Intangible amortization expense(2)			—				216,065				—				810				—				—				—				—				—
Amortization of debt discount and deferred financing costs(3)			—				—				—				—				—				—				18,546				—				—
Accretion of royalty liability(4)			—				40,616				—				—				—				—				—				—				—
Inventory step-up expense(5)			—				71,137				—				—				—				—				—				—				—
Remeasurement of royalties for products acquired through business combinations(6)			—				386				—				—				—				—				—				—				—
Share-based compensation(7)			—				26				9,413				26,215				78,490				—				—				—				—
Depreciation expense(8)			—				486				—				54				4,422				—				—				—				—
Litigation settlement(15)			65,000				—				—				—				—				—				—				—				—
Reversal of pre-acquisition reserve upon signing of contract(16)			—				—				—				—				—				—				—				(6,900	)			—
Impairment of in-process R&D(9)			—				—				—				—				—				66,000				—				—				—
Charges relating to discontinuation of Friedreich’s ataxia program(10)			—				14,287				3,966				—				5,260				—				—				—				—
Royalties for medicines acquired through business combinations(11)			—				(37,593	)			—				—				—				—				—				—				—
Income tax effect on pre-tax non-GAAP adjustments(12)			—				—				—				—				—				—				—				—				(110,290	)
Total of non-GAAP adjustments			65,000				305,400				15,913				27,079				140,522				66,000				18,546				(6,900	)			(110,290	)
Non-GAAP		$	1,046,120			$	(87,872	)		$	(44,794	)		$	(293,287	)		$	(147,420	)		$	—			$	(68,064	)		$	(203	)		$	(49,039	)

Horizon Pharma plc

Certain Income Statement Line Items - Non-GAAP Adjusted

For the Twelve Months Ended December 31, 2015

(Unaudited)

 

		COGS				Research & Development				Sales & Marketing				General & Administrative				Interest Expense				Loss on sale of Long-Term Investments				Loss on Induced Debt Conversion & Debt Extinguishment				Other				Income Tax Benefit (Expense)
GAAP as reported		$	(219,502	)		$	(41,865	)		$	(220,444	)		$	(219,861	)		$	(69,900	)		$	(29,032	)		$	(77,624	)		$	(10,291	)		$	172,244
Non-GAAP Adjustments (in thousands):
Loss on induced conversion of debt and debt extinguishment(17)			—				—				—				—				—				—				77,624				—				—
Loss on sale of long-term investments(13)			—				—				—				—				—				29,032				—				—				—
Acquisition-related costs(1)			23				3,219				—				58,979				—				—				—				10,000				—
Amortization, accretion and step-up:
Intangible amortization expense(2)			132,113				—				810				—				—				—				—				—				—
Amortization of debt discount and deferred financing costs(3)			—				—				—				—				18,810				—				—				—				—
Accretion of royalty liability(4)			20,088				—				—				—				—				—				—				—				—
Inventory step-up expense(5)			11,495				—				—				—				—				—				—				—				—
Remeasurement of royalties for products acquired through business combinations(6)			21,151				—				—				—				—				—				—				—				—
Share-based compensation(7)			—				6,590				23,062				56,134				—				—				—				—				—
Depreciation expense(8)			457				—				—				4,963				—				—				—				—				—
Royalties for medicines acquired through business combinations(11)			(29,834	)			—				—				—				—				—				—				—				—
Income tax effect on pre-tax non-GAAP adjustments(12)			—				—				—				—				—				—				—				—				(122,214	)
Other non-GAAP income tax adjustments(18)			—				—				—				—				—				—				—				—				(105,133	)
Total of non-GAAP adjustments			155,493				9,809				23,872				120,076				18,810				29,032				77,624				10,000				(227,347	)
Non-GAAP		$	(64,009	)		$	(32,056	)		$	(196,572	)		$	(99,785	)		$	(51,090	)		$	—			$	—			$	(291	)		$	(55,103	)

 

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NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS - NON-GAAP

(in thousands)

 

(1)

Expenses, including legal and consulting fees, incurred in connection with the Company’s acquisitions of Vidara Therapeutics International Public Limited Company (“Vidara”), Hyperion Therapeutics, Inc. (“Hyperion”), Crealta Holdings LLC (“Crealta”), 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 ACTIMMUNE, BUPHENYL, KRYSTEXXA, LODOTRA, MIGERGOT, PENNSAID 2%, PROCYSBI, RAVICTI, RAYOS and VIMOVO.

 

(3)	Represents amortization of debt discount and deferred financing costs associated with the Company’s debt.

 

(4)

Represents accretion expense associated with the ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, RAVICTI and VIMOVO royalties for the three and twelve months ended December 31, 2016, and represents accretion expense associated with the ACTIMMUNE, BUPHENYL, RAVICTI and VIMOVO royalties for the three and twelve months ended December 31, 2015.

 

(5)

In connection with the Crealta acquisition, the KRYSTEXXA and MIGERGOT inventory was stepped up in value by $144,289 and during the three months ended December 31, 2016, the Company recognized in cost of goods sold, $20,889 for step-up inventory costs related to KRYSTEXXA and MIGERGOT inventory sold. During the twelve months ended December 31, 2016, the Company recognized in cost of goods sold, $48,758 for step-up inventory costs related to KRYSTEXXA and MIGERGOT inventory sold.

In connection with the Raptor acquisition, the PROCYSBI and QUINSAIR inventory was stepped up in value by $66,950 and during the three months ended December 31, 2016, the Company recognized in cost of goods sold $22,379 of step-up inventory costs related to PROCYSBI and QUINSAIR inventory sold.

In connection with the Hyperion acquisition, the BUPHENYL and RAVICTI inventory was stepped up in value by $8,682 and during the three months and twelve months ended December 31, 2015, the Company recognized in cost of goods sold $860 and $8,341, respectively, of step-up inventory costs related to BUPHENYL and RAVICTI inventory sold. In connection with the Vidara acquisition, the ACTIMMUNE inventory was stepped up in value by $14,218 and during the first quarter of 2015, the Company recognized in cost of goods sold the remaining $3,154 of step-up inventory costs related to ACTIMMUNE.

 

(6)

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 over-performs or underperforms against its original revenue projections or it becomes necessary to make changes to assumptions as a result of a triggering event, the Company is required to reassess the fair value of the contingent royalties payable. Any subsequent 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 three and twelve months ended December 31, 2016, the Company recorded a net charge of $386, to cost of goods sold to adjust the amount of the contingent royalty liabilities relating to ACTIMMUNE, KRYSTEXXA, RAVICTI and VIMOVO. During the three and twelve months ended December 31, 2015, the Company recorded a net charge of $6,874 and $21,151, respectively, to cost of goods sold to adjust the amount of the contingent royalty liabilities relating to ACTIMMUNE, RAVICTI and VIMOVO.

 

(7)	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.

 

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(8)	Represents depreciation expense related to the Company’s property, equipment, software and leasehold improvements.

 

(9)	Represents a charge for the impairment of in-process R&D related to the discontinuation of ACTIMMUNE development for Friedreich’s ataxia.

 

(10)	Represents charges for wind-down costs related to the discontinuation of ACTIMMUNE development for Friedreich’s ataxia.

 

(11)

Royalties of $10,434 and $37,593 were incurred during the three and twelve months ended December 31, 2016, respectively, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, KRYSTEXXA, MIGERGOT, PROCYSBI, RAVICTI and VIMOVO. Royalties of $8,944 and $29,834 were incurred during the three and twelve months ended December 31, 2015, respectively, based on the periods’ net sales for ACTIMMUNE, BUPHENYL, RAVICTI and VIMOVO.

 

(12)	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.

 

(13)

During the three months ended September 30, 2015, the Company purchased 2,250,000 shares of common stock of Depomed, Inc. (“Depomed”) representing 3.75 percent of Depomed’s then outstanding common stock. The shares were acquired at a cost of $71,813. During the three months ended December 31, 2015, following the Company’s decision to withdraw its offer to acquire Depomed, the Company sold all of its shares in Depomed, receiving sales proceeds of $42,781. Following this sale, the Company recognized a loss of $29,032 in the consolidated statement of comprehensive income (loss).

 

(14)	Represents an upfront fee paid for a license of a global patent.

 

(15)

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 twelve months ended December 31, 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 twelve months ended December 31, 2016.

 

(16)	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.

 

(17)

During the twelve months ended December 31, 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.

 

(18)	Other non-GAAP income tax adjustments in the twelve months ended December 31, 2015 of $105,133 related to the release of certain valuation allowances in connection with the Hyperion acquisition.

 

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