Horizon Therapeutics plc Reports Second-Quarter 2023 Financial Results

08 Aug 2023
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Phase 3Clinical ResultDrug ApprovalAcquisitionFinancial Statement
Second-Quarter 2023 Results: -- Net Sales of $945.0 Million, Representing Year-Over-Year Growth of 11% Excluding Inflammation Medicines -- -- GAAP Net Income of $127.1 Million; Adjusted EBITDA of $320.4 Million -- -- TEPEZZA® (teprotumumab-trbw) Net Sales of $445.5 Million -- -- KRYSTEXXA® (pegloticase injection) Net Sales of $244.3 Million -- -- UPLIZNA® (inebilizumab-cdon) Net Sales of $68.1 Million -- -- Cash Position of $2.5 Billion as of June 30, 2023 -- Second-Quarter and Recent Company Highlights: -- Announced Positive Topline Data from TEPEZZA Phase 4 Clinical Trial in Patients with Chronic/Low Clinical Activity Score (CAS) Thyroid Eye Disease (TED) -- -- Obtained U.S. FDA Approval for Updated TEPEZZA Indication to Specify Treatment of TED Patients Regardless of Disease Activity or Duration -- -- Announced Positive Topline Data from TEPEZZA Phase 3 Clinical Trial (OPTIC-J) in Japanese Patients -- -- Received Approval for TEPEZZA in Brazil for the Treatment of TED; First Country Outside the U.S. to Approve TEPEZZA -- -- Announced Initiation of TEPEZZA Phase 3 Clinical Trial in Chronic/Low CAS TED in Japan and Daxdilimab Phase 2 Clinical Trial in Lupus Nephritis -- -- Presented New Data from Dazodalibep Phase 2 Clinical Trial in Sjögren’s Syndrome and KRYSTEXXA MIRROR Randomized Controlled Trial at EULAR European Congress of Rheumatology -- -- Continue to Expect Amgen Transaction to Close by Mid-December, Assuming the Federal Trade Commission’s Request for a Preliminary Injunction Is Denied -- -- Named One of Fortune’s 100 Best Companies to Work For® and Ranked as Top Biotechnology/Pharmaceutical Company, Both for Third Consecutive Year -- -- Ranked First in Overall Corporate Reputation by U.S. Patient Advocacy Groups -- DUBLIN--(BUSINESS WIRE)--Horizon Therapeutics plc (Nasdaq: HZNP) today announced second-quarter 2023 financial results. “We delivered strong growth in the second quarter, with double-digit year-over-year growth in our core business and mid-teens growth sequentially,” said Tim Walbert, chairman, president and chief executive officer, Horizon. “This performance was driven by exceptional 46% year-over-year KRYSTEXXA sales growth as a result of strong commercial execution and the success of our immunomodulation strategy, in addition to positive and consistent trends we are generating for TEPEZZA, which reflects the success of our expansion efforts to further penetrate the TED market and reach new prescribers. We delivered impressive 76% year-over-year UPLIZNA sales growth and see a long runway ahead as we progress our two Phase 3 programs in IgG4-RD and MG. We also announced several important clinical milestones for TEPEZZA, including strong data in low CAS and long-duration TED and data from our Phase 3 clinical trial in Japan, both of which we expect to contribute to the future growth of this medicine.” Financial Highlights (in millions except for per share amounts and percentages) Q2 23 Q2 22 % Change YTD 23 YTD 22 % Change Net sales $ 945.0 $ 876.4 8 $ 1,777.0 $ 1,761.7 1 Net income 127.1 61.0 108 181.8 265.2 (31 ) Non-GAAP net income 280.1 253.8 10 474.4 569.6 (17 ) Adjusted EBITDA 320.4 306.6 4 553.3 677.8 (18 ) Earnings per share - diluted 0.54 0.26 108 0.78 1.12 (30 ) Non-GAAP earnings per share - diluted 1.20 1.07 12 2.03 2.41 (16 ) Second-Quarter and Year-to-Date 2023 Net Sales Results (in millions except for percentages) Q2 23 Q2 22 % Change YTD 23 YTD 22 % Change TEPEZZA® $ 445.5 $ 479.8 (7 ) $ 850.8 $ 981.3 (13 ) KRYSTEXXA® 244.3 167.8 46 431.3 308.5 40 RAVICTI® 88.4 75.7 17 178.7 154.1 16 UPLIZNA®(1) 68.1 38.6 76 121.9 69.1 76 PROCYSBI® 53.1 47.7 11 103.6 97.3 7 ACTIMMUNE® 29.0 30.0 (3 ) 58.2 61.3 (5 ) PENNSAID 2%®(2) 7.0 23.6 (70 ) 16.1 59.0 (72 ) RAYOS® 8.0 11.1 (28 ) 13.0 24.6 (47 ) BUPHENYL® 1.3 1.4 (10 ) 2.6 3.5 (25 ) QUINSAIRTM 0.3 0.3 3 0.6 0.6 1 DUEXIS® - 0.1 (100 ) 0.1 1.2 (91 ) VIMOVO® - 0.3 (100 ) 0.1 1.2 (91 ) Total Net Sales(3) $ 945.0 $ 876.4 8 $ 1,777.0 $ 1,761.7 1 (1) Second-quarter and year-to-date 2023 UPLIZNA net sales included $15.4 million and $22.0 million, respectively, in international net sales. Second-quarter and year-to-date 2022 UPLIZNA net sales included $8.6 million and $13.8 million, respectively, in international net sales. (2) On May 6, 2022, Apotex Inc. initiated an at-risk launch of generic PENNSAID 2% in the United States. (3) Excluding the Company’s inflammation business unit (RAYOS, PENNSAID 2%, DUEXIS and VIMOVO), which was wound down at the end of 2022 due to generic competition, second-quarter year-over-year net sales growth was 11%. Key Growth Drivers TEPEZZA: TEPEZZA net sales in the second quarter were $446 million, representing a 10% sequential increase compared to the first quarter of 2023 and a 7% year-over-year decline compared to the second quarter of 2022. The TEPEZZA field-force expansion initiated late in 2022 continues to drive consistent and positive momentum in the business, including increases in new prescribers, patient enrollment forms and patient starts. Through the first half of 2023, as a result of the field-force expansion, the Company expanded its reach to new physician targets, which led to a 50% year-over-year increase in the number of ophthalmologists and endocrinologists prescribing TEPEZZA. In line with the Company’s expansion strategy, prescriber growth has largely come from ophthalmologists, with continued strong referral volume from endocrinologists. In April 2023, the Company announced positive topline results from its TEPEZZA Phase 4 clinical trial in patients with low CAS and long-duration TED and received FDA approval for an update to the indication for TEPEZZA that supports its potential benefit in TED, regardless of disease activity or duration. The Company is executing on its payer strategy to educate key stakeholders and ease the access burden so all eligible patients can benefit from TEPEZZA. As a result of this process, large national and regional payers are beginning the process of updating their access requirements. To date, the Company has obtained favorable policy changes for greater than 20% of U.S. covered lives, which are expected to take effect in the second half of 2023. The Company expects these strategies and initiatives to further develop the TED market and impact net sales in 2024. In addition, the Company made significant advancements in its global expansion strategy by announcing the positive topline results from its TEPEZZA Phase 3 clinical trial in Japanese patients, as well as the approval of TEPEZZA in Brazil for patients with TED. There are no medicines approved for the treatment of TED in Brazil or Japan, representing a significant unmet need in both markets. These accomplishments, which are expected to impact net sales beginning in 2025, are important milestones in the Company’s global expansion strategy to bring TEPEZZA to more patients worldwide. KRYSTEXXA: KRYSTEXXA net sales in the second quarter were a record $244 million, representing a 31% sequential increase compared to the first quarter of 2023 and a 46% year-over-year increase compared to the second quarter of 2022. KRYSTEXXA net sales are now annualizing at a nearly one-billion-dollar run rate. The second-quarter results were driven by execution across all phases of the patient journey – demand generation, stakeholder education and adherence to treatment. The Company continued to see significant uptake from both its rheumatology and nephrology market segments in the quarter, with KRYSTEXXA with immunomodulation usage now at more than 70% of new patient starts. The Company’s efforts to educate physicians and key stakeholders continues to lead to strong patient growth from both new and existing prescribers across both market segments. UPLIZNA: UPLIZNA net sales in the second quarter were a record $68 million, representing a 27% sequential increase compared to the first quarter of 2023 and a 76% year-over-year increase compared to the second quarter of 2022. Net sales in the U.S. were $53 million, an increase of 76% year-over-year, driven by strong commercial execution. The second-quarter results were driven by robust demand generation and new patient starts, increased depth among the Company’s existing prescribers and strong adherence to maintenance treatment. The Company continues to drive uptake among both patients naïve to biologics as well as patients switching from competitive biologic therapies, establishing UPLIZNA as the fastest-growing biologic in neuromyelitis optica spectrum disorder (NMOSD) year-to-date by market share. The Company expects to advance its global expansion strategy, with multiple planned international launches in 2023. The Company also continues to make progress on its two Phase 3 programs in IgG4-related disease (IgG4-RD) and myasthenia gravis (MG). Conference Call In light of the announced agreement to be acquired by Amgen Inc. and applicable securities laws, the Company will not be hosting a conference call to discuss its financial results. This earnings press release, investor deck and the related Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 are publicly available in the Investor Relations section of the Company’s website at . About Horizon Horizon is a global biotechnology company focused on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases. Our pipeline is purposeful: we apply scientific expertise and courage to bring clinically meaningful therapies to patients. We believe science and compassion must work together to transform lives. For more information on how we go to incredible lengths to impact lives, visit and follow us on Twitter, LinkedIn, Instagram and Facebook. Note Regarding Use of Non-GAAP Financial Measures Horizon provides certain non-GAAP financial measures, including EBITDA, or earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross profit and gross profit ratio, non-GAAP operating expenses, non-GAAP operating income, non-GAAP tax benefit (expense) and tax rate, non-GAAP operating cash flow and certain other non-GAAP income statement line items, each of which include adjustments to GAAP figures. These non-GAAP measures are intended to provide additional information on Horizon’s performance, operations, expenses, profitability and cash flows. Adjustments to Horizon’s GAAP figures exclude, as applicable, acquisition and/or divestiture-related costs, costs associated with our pending transaction with Amgen Inc., including responding to a second request review of the transaction by the United States Federal Trade Commission (the “FTC”) and subsequent lawsuit seeking to enjoin the transaction, manufacturing facility start-up costs, restructuring and realignment costs and gain on sale of asset, as well as non-cash items such as share-based compensation, inventory step-up expense, depreciation and amortization, non-cash interest expense, goodwill and long-lived assets impairment charges, gain (loss) on equity security investments 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 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. 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. Forward-Looking Statements This press release contains forward-looking statements, including, but not limited to, statements related to the pending transaction with Amgen Inc., development, manufacturing and commercialization plans; expected timing of clinical trials and commercial launches; expected future milestones, pipeline expansions and regulatory approvals; potential market opportunities for, and benefits of, Horizon’s medicines and medicine candidates; expected impact of commercial strategies, clinical trial results and product label updates; and business and other statements that are not historical facts. These forward-looking statements are based on Horizon’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, whether the pending transaction with Amgen Inc. will be completed in a timely manner or at all, including whether the district court grants or denies the FTC’s request for a preliminary injunction; the parties’ ability to satisfy (or willingness to waive) the conditions to the consummation of the pending transaction with Amgen Inc., including with respect to the absence of orders preventing the consummation of the transaction; the effect of the pending transaction with Amgen Inc. on Horizon’s business relationships, operating results and business generally; risks that Horizon’s actual future financial and operating results may differ from its expectations or goals; Horizon’s ability to grow net sales from existing medicines; impacts of the on-going war between Russia and Ukraine; changes in inflation, interest rates and general economic conditions; the availability of coverage and adequate reimbursement and pricing from government and third-party payers; Horizon’s ability to successfully implement its business strategies, including the risks that its medicine growth and global expansion initiatives and strategies may not be successful and that new challenges to growth may arise in the future; risks inherent in developing novel medicine candidates and existing medicines for new indications; whether additional clinical trial results or data analyses will be consistent with preliminary results, results from other trials or Horizon’s expectations; risks associated with regulatory approvals; risks in the ability to recruit, train and retain qualified personnel; competition, including 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 operates and those risks detailed from time-to-time under the caption "Risk Factors" and elsewhere in Horizon’s filings and reports with the SEC. Horizon undertakes no duty or obligation to update any forward-looking statements contained in this press release as a result of new information. Horizon Therapeutics plc Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net sales $ 944,959 $ 876,411 $ 1,777,018 $ 1,761,656 Cost of goods sold 219,958 230,216 428,521 445,278 Gross profit 725,001 646,195 1,348,497 1,316,378 OPERATING EXPENSES: Research and development (1) 150,035 103,246 284,183 206,378 Selling, general and administrative 434,125 398,221 887,479 770,955 Impairment of goodwill - 56,171 - 56,171 Gain on sale of asset (2,000 ) - (2,000 ) - Total operating expenses 582,160 557,638 1,169,662 1,033,504 Operating income 142,841 88,557 178,835 282,874 OTHER EXPENSE, NET: Interest expense, net (12,098 ) (21,409 ) (27,638 ) (42,665 ) Foreign exchange gain 326 28 417 448 Other income (expense), net 4,183 (2,389 ) 2,840 (3,131 ) Total other expense, net (7,589 ) (23,770 ) (24,381 ) (45,348 ) Income before expense (benefit) for income taxes 135,252 64,787 154,454 237,526 Expense (benefit) for income taxes 8,181 3,813 (27,301 ) (27,709 ) Net income $ 127,071 $ 60,974 $ 181,755 $ 265,235 Net income per ordinary share - basic $ 0.56 $ 0.27 $ 0.80 $ 1.16 Weighted average ordinary shares outstanding - basic 228,743,143 230,020,004 228,571,356 229,559,715 Net income per ordinary share - diluted $ 0.54 $ 0.26 $ 0.78 $ 1.12 Weighted average ordinary shares outstanding - diluted 233,935,591 236,166,384 233,938,149 236,077,147 (1) Beginning with the third quarter of 2022, the Company is separately presenting upfront, milestone, and similar payments pursuant to collaborations, licenses of third-party technologies, and asset acquisitions as “Acquired in-process research and development and milestones” expenses in the condensed consolidated statement of comprehensive income. Amounts recorded in this line item would have historically been recorded to research and development (“R&D”) expenses. The Company believes the new classification assists users of the financial statements in better understanding the payments incurred to acquired in-process research and development, or IPR&D. Prior period consolidated statements of comprehensive income have been reclassified to conform with the new classification. There were no acquired IPR&D and milestones expenses during the three and six months ended June 30, 2023 and 2022. Horizon Therapeutics plc Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share data) As of June 30, 2023 December 31, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,464,623 $ 2,352,833 Restricted cash 4,791 4,755 Accounts receivable, net 717,417 676,347 Inventories, net 170,325 169,559 Prepaid expenses and other current assets 564,808 449,349 Total current assets 3,921,964 3,652,843 Property, plant and equipment, net 362,326 340,509 Developed technology and other intangible assets, net 2,486,565 2,664,777 In-process research and development 810,000 810,000 Goodwill 1,010,538 1,010,538 Deferred tax assets, net 444,306 431,814 Other long-term assets 263,042 204,135 Total assets $ 9,298,741 $ 9,114,616 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 85,543 $ 155,800 Accrued expenses and other current liabilities 496,669 457,557 Accrued trade discounts and rebates 319,469 319,780 Long-term debt—current portion 16,000 16,000 Total current liabilities 917,681 949,137 LONG-TERM LIABILITIES: Long-term debt, net 2,541,458 2,546,837 Deferred tax liabilities, net 264,815 342,017 Other long-term liabilities 263,828 204,451 Total long-term liabilities 3,070,101 3,093,305 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Ordinary shares, $0.0001 nominal value; 600,000,000 shares authorized at June 30, 2023 and December 31, 2022; 229,323,393 and 227,625,913 shares issued at June 30, 2023 and December 31, 2022, respectively; and 228,939,027 and 227,241,547 shares outstanding at June 30, 2023 and December 31, 2022, respectively 23 23 Treasury stock, 384,366 ordinary shares at June 30, 2023 and December 31, 2022 (4,585 ) (4,585 ) Additional paid-in capital 4,522,145 4,474,199 Accumulated other comprehensive income 21,612 12,528 Retained earnings 771,764 590,009 Total shareholders' equity 5,310,959 5,072,174 Total liabilities and shareholders' equity $ 9,298,741 $ 9,114,616 Horizon Therapeutics plc Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 127,071 $ 60,974 $ 181,755 $ 265,235 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 96,285 97,426 191,145 192,538 Equity-settled share-based compensation 60,271 45,149 118,391 92,449 Impairment of goodwill - 56,171 - 56,171 Amortization of debt discount and deferred financing costs 1,308 2,327 2,779 3,904 Gain on sale of asset (2,000 ) - (2,000 ) - Deferred income taxes (4,642 ) 30,864 (91,952 ) (3,032 ) Foreign exchange and other adjustments (5,708 ) 7,376 (6,143 ) 10,566 Changes in operating assets and liabilities: Accounts receivable (92,670 ) 11,152 (41,140 ) (40,513 ) Inventories (5,833 ) 22,818 (766 ) 22,033 Prepaid expenses and other current assets (60,191 ) (38,373 ) (108,816 ) (71,578 ) Accounts payable 7,807 (48,047 ) (70,233 ) (11,980 ) Accrued trade discounts and rebates 9,386 (27,047 ) (552 ) 20,232 Accrued expenses and other current liabilities 20,532 36,874 63,390 (76,901 ) Other non-current assets and liabilities 9,851 (8,468 ) 11,931 5,863 Net cash provided by operating activities 161,467 249,196 247,789 464,987 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for acquisitions, net of cash acquired - - - (3,122 ) Purchases of property, plant and equipment (18,466 ) (10,154 ) (42,594 ) (24,352 ) Payments for long-term investments (1,560 ) (6,443 ) (4,183 ) (4,847 ) Receipts from long-term investments - 4,416 - 4,416 Payments related to license and collaboration agreements - - (15,000 ) (25,000 ) Net cash used in investing activities (20,026 ) (12,181 ) (61,777 ) (52,905 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of term loans (4,000 ) (4,000 ) (8,000 ) (8,000 ) Proceeds from the issuance of ordinary shares in conjunction with ESPP program 14,912 13,884 14,912 13,884 Proceeds from the issuance of ordinary shares in connection with stock option exercises 2,628 12,951 6,049 22,022 Payment of employee withholding taxes relating to share-based awards (4,506 ) (5,419 ) (92,055 ) (120,527 ) Net cash provided by (used in) financing activities 9,034 17,416 (79,094 ) (92,621 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 2,539 (4,396 ) 4,908 (6,317 ) Net increase in cash, cash equivalents and restricted cash 153,014 250,035 111,826 313,144 Cash, cash equivalents and restricted cash, beginning of the period(1) 2,316,400 1,647,265 2,357,588 1,584,156 Cash, cash equivalents and restricted cash, end of the period(1) $ 2,469,414 $ 1,897,300 $ 2,469,414 $ 1,897,300 (1) Amounts include restricted cash balance in accordance with ASU No. 2016-18. Cash and cash equivalents excluding restricted cash are shown on the balance sheet. Horizon Therapeutics plc GAAP to Non-GAAP Reconciliations Net Income and Earnings Per Share (Unaudited) (in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 GAAP net income $ 127,071 $ 60,974 $ 181,755 $ 265,235 Non-GAAP adjustments: Acquisition/divestiture-related costs 52 1,023 733 2,612 Transaction-related costs 16,539 - 26,323 - (Gain) loss on equity security investments (2,437 ) 438 (2,789 ) 5,084 Restructuring and realignment costs 854 1,253 2,676 1,790 Manufacturing facility start-up costs 1,896 1,582 5,372 2,389 Amortization and step-up: Intangible amortization expense 89,598 91,335 178,212 180,595 Inventory step-up expense 1,572 17,362 31,315 44,563 Amortization of debt discount and deferred financing costs 1,308 2,327 2,779 3,904 Impairment of goodwill - 56,171 - 56,171 Gain on sale of asset (2,000 ) - (2,000 ) - Share-based compensation 60,271 45,149 118,391 92,449 Depreciation 6,687 6,091 12,933 11,943 Total of pre-tax non-GAAP adjustments 174,340 222,731 373,945 401,500 Income tax effect of pre-tax non-GAAP adjustments (21,354 ) (29,919 ) (81,297 ) (97,131 ) Total of non-GAAP adjustments 152,986 192,812 292,648 304,369 Non-GAAP net income $ 280,057 $ 253,786 $ 474,403 $ 569,604 Non-GAAP Earnings Per Share: Weighted average ordinary shares - Basic 228,743,143 230,020,004 228,571,356 229,559,715 Non-GAAP Earnings Per Share - Basic: GAAP earnings per share - Basic $ 0.56 $ 0.27 $ 0.80 $ 1.16 Non-GAAP adjustments 0.66 0.83 1.28 1.32 Non-GAAP earnings per share - Basic $ 1.22 $ 1.10 $ 2.08 $ 2.48 Weighted average ordinary shares - Diluted Weighted average ordinary shares - Basic 228,743,143 230,020,004 228,571,356 229,559,715 Ordinary share equivalents 5,192,448 6,146,380 5,366,793 6,517,432 Weighted average ordinary shares - Diluted 233,935,591 236,166,384 233,938,149 236,077,147 Non-GAAP Earnings Per Share - Diluted GAAP earnings per share - Diluted $ 0.54 $ 0.26 $ 0.78 $ 1.12 Non-GAAP adjustments 0.66 0.81 1.25 1.29 Non-GAAP earnings per share - Diluted $ 1.20 $ 1.07 $ 2.03 $ 2.41 Horizon Therapeutics plc GAAP to Non-GAAP Reconciliations EBITDA and Adjusted EBITDA (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 GAAP net income $ 127,071 $ 60,974 $ 181,755 $ 265,235 Depreciation 6,687 6,091 12,933 11,943 Amortization and step-up: Intangible amortization expense 89,598 91,335 178,212 180,595 Inventory step-up expense 1,572 17,362 31,315 44,563 Interest expense, net (including amortization of debt discount and deferred financing costs) 12,098 21,409 27,638 42,665 Expense (benefit) for income taxes 8,181 3,813 (27,301 ) (27,709 ) EBITDA $ 245,207 $ 200,984 $ 404,552 $ 517,292 Other non-GAAP adjustments: Share-based compensation 60,271 45,149 118,391 92,449 (Gain) loss on equity security investments (2,437 ) 438 (2,789 ) 5,084 Impairment of goodwill - 56,171 - 56,171 Gain on sale of asset (2,000 ) - (2,000 ) - Acquisition/divestiture-related costs 52 1,023 733 2,612 Transaction-related costs 16,539 - 26,323 - Manufacturing facility start-up costs 1,896 1,582 5,372 2,389 Restructuring and realignment costs 854 1,253 2,676 1,790 Total of other non-GAAP adjustments 75,175 105,616 148,706 160,495 Adjusted EBITDA $ 320,382 $ 306,600 $ 553,258 $ 677,787 Horizon Therapeutics plc GAAP to Non-GAAP Reconciliations Operating Income (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 GAAP operating income $ 142,841 $ 88,557 $ 178,835 $ 282,874 Non-GAAP adjustments: Acquisition/divestiture-related costs 52 1,023 733 2,612 Transaction-related costs 16,539 - 26,323 - Restructuring and realignment costs 854 1,253 2,676 1,790 Manufacturing facility start-up costs 1,896 1,582 5,372 2,389 Amortization and step-up: Intangible amortization expense 89,598 91,335 178,212 180,595 Inventory step-up expense 1,572 17,362 31,315 44,563 Impairment of goodwill - 56,171 - 56,171 Gain on sale of asset (2,000 ) - (2,000 ) - Share-based compensation 60,271 45,149 118,391 92,449 Depreciation 6,687 6,091 12,933 11,943 Total of non-GAAP adjustments 175,469 219,966 373,955 392,512 Non-GAAP operating income $ 318,310 $ 308,523 $ 552,790 $ 675,386 Foreign exchange gain 326 28 417 448 Other income (expense), net 1,746 (1,951 ) 51 1,953 Adjusted EBITDA $ 320,382 $ 306,600 $ 553,258 $ 677,787 Horizon Therapeutics plc GAAP to Non-GAAP Reconciliations Gross Profit and Operating Cash Flow (Unaudited) (in thousands, except percentages) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Non-GAAP Gross Profit: GAAP gross profit $ 725,001 $ 646,195 $ 1,348,497 $ 1,316,378 Non-GAAP gross profit adjustments: Acquisition/divestiture-related costs 52 (119 ) 20 (1,423 ) Intangible amortization expense 89,259 90,439 177,537 179,164 Inventory step-up expense 1,572 17,362 31,315 44,563 Share-based compensation 3,141 2,294 5,803 4,471 Depreciation 130 55 178 111 Total of Non-GAAP adjustments 94,154 110,031 214,853 226,886 Non-GAAP gross profit $ 819,155 $ 756,226 $ 1,563,350 $ 1,543,264 GAAP gross profit % 76.7 % 73.7 % 75.9 % 74.7 % Non-GAAP gross profit % 86.7 % 86.3 % 88.0 % 87.6 % GAAP cash provided by operating activities $ 161,467 $ 249,196 $ 247,789 $ 464,987 Cash payments for acquisition/divestiture-related costs 11 748 51 5,196 Cash payments for restructuring and realignment costs 931 570 5,572 1,144 Cash payments for manufacturing facility start-up costs 2,116 895 5,910 2,663 Cash payments for transaction-related costs 14,074 - 20,668 - Non-GAAP operating cash flow $ 178,599 $ 251,409 $ 279,990 $ 473,990 Horizon Therapeutics plc GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited) (in millions, except percentages and per share amounts) Q2 2023 Pre-tax Net Income Income Tax Expense Tax Rate Net Income Diluted Earnings Per Share As reported - GAAP $ 135.3 $ 8.2 6.0 % $ 127.1 $ 0.54 Non-GAAP adjustments 174.3 21.4 153.0 Non-GAAP $ 309.6 $ 29.5 9.5 % $ 280.1 $ 1.20 Q2 2022 Pre-tax Net Income Income Tax Expense Tax Rate Net Income Diluted Earnings Per Share As reported - GAAP $ 64.8 $ 3.8 5.9 % $ 61.0 $ 0.26 Non-GAAP adjustments 222.7 29.9 192.8 Non-GAAP $ 287.5 $ 33.7 11.7 % $ 253.8 $ 1.07 YTD 2023 Pre-tax Net Income Income Tax (Benefit) Expense Tax Rate Net Income Diluted Earnings Per Share As reported - GAAP $ 154.5 $ (27.3 ) (17.7 )% $ 181.8 $ 0.78 Non-GAAP adjustments 373.9 81.3 292.6 Non-GAAP $ 528.4 $ 54.0 10.2 % $ 474.4 $ 2.03 YTD 2022 Pre-tax Net Income Income Tax (Benefit) Expense Tax Rate Net Income Diluted Earnings Per Share As reported - GAAP $ 237.5 $ (27.7 ) (11.7 )% $ 265.2 $ 1.12 Non-GAAP adjustments 401.5 97.1 304.4 Non-GAAP $ 639.0 $ 69.4 10.9 % $ 569.6 $ 2.41 Horizon Therapeutics plc Certain Income Statement Line Items - Non-GAAP Adjusted For the Three Months Ended June 30, 2023 (Unaudited) (in thousands) Cost of Goods Research & Selling, General Gain on sale Interest Other Income Income Tax Sold Development & Administrative of asset Expense, net (Expense), net Expense GAAP as reported $ (219,958 ) $ (150,035 ) $ (434,125 ) $ 2,000 $ (12,098 ) $ 4,183 $ (8,181 ) Non-GAAP Adjustments: Acquisition/divestiture-related costs(1) 52 - - - - - - Transaction-related costs(2) - - 16,539 - - - - Gain on equity security investments(3) - - - - - (2,437 ) - Restructuring and realignment costs(4) - 253 601 - - - - Manufacturing facility start-up costs(5) - - 1,896 - - - - Amortization and step-up: Intangible amortization expense(6) 89,259 - 339 - - - - Inventory step-up expense(7) 1,572 - - - - - - Amortization of debt discount and deferred financing costs(8) - - - - 1,308 - - Gain on sale of asset(9) - - - (2,000 ) - - - Share-based compensation(10) 3,141 9,395 47,735 - - - - Depreciation(11) 130 588 5,969 - - - - Income tax effect on pre-tax non-GAAP adjustments(12) - - - - - - (21,354 ) Total of non-GAAP adjustments 94,154 10,236 73,079 (2,000 ) 1,308 (2,437 ) (21,354 ) Non-GAAP $ (125,804 ) $ (139,799 ) $ (361,046 ) $ - $ (10,790 ) $ 1,746 $ (29,535 ) Horizon Therapeutics plc Certain Income Statement Line Items - Non-GAAP Adjusted For the Three Months Ended June 30, 2022 (Unaudited) (in thousands) Cost of Goods Research & Selling, General Impairment of Interest Other (Expense) Income Tax Sold Development & Administrative goodwill Expense, net Income, net Expense GAAP as reported $ (230,216 ) $ (103,246 ) $ (398,221 ) $ (56,171 ) $ (21,409 ) $ (2,389 ) $ (3,813 ) Non-GAAP Adjustments: Acquisition/divestiture-related costs(1) (119 ) - 1,142 - - - - Loss on equity security investments(3) - - - - - 438 - Restructuring and realignment costs(4) - 804 449 - - - - Manufacturing facility start-up costs(5) - - 1,582 - - - - Amortization and step-up: Intangible amortization expense(6) 90,439 - 896 - - - - Inventory step-up expense(7) 17,362 - - - - - - Amortization of debt discount and deferred financing costs(8) - - - - 2,327 - - Share-based compensation(10) 2,294 6,742 36,113 - - - - Depreciation(11) 55 267 5,769 - - - - Impairment of goodwill(13) - - - 56,171 - - - Income tax effect on pre-tax non-GAAP adjustments(12) - - - - - - (29,919 ) Total of non-GAAP adjustments 110,031 7,813 45,951 56,171 2,327 438 (29,919 ) Non-GAAP $ (120,185 ) $ (95,433 ) $ (352,270 ) $ - $ (19,082 ) $ (1,951 ) $ (33,732 ) Horizon Therapeutics plc Certain Income Statement Line Items - Non-GAAP Adjusted For the Six Months Ended June 30, 2023 (Unaudited) (in thousands) Income Tax Cost of Goods Research & Selling, General Gain on sale Interest Other Income Benefit Sold Development & Administrative of asset Expense, net (Expense), net (Expense) GAAP as reported $ (428,521 ) $ (284,183 ) $ (887,479 ) $ 2,000 $ (27,638 ) $ 2,840 $ 27,301 Non-GAAP Adjustments: Acquisition/divestiture-related costs(1) 20 - 713 - - - - Transaction-related costs(2) - - 26,323 - - - - Gain on equity security investments(3) - - - - - (2,789 ) - Restructuring and realignment costs(4) - 50 2,626 - - - - Manufacturing facility start-up costs(5) - - 5,372 - - - - Amortization and step-up: Intangible amortization expense(6) 177,537 - 675 - - - - Inventory step-up expense(7) 31,315 - - - - - - Amortization of debt discount and deferred financing costs(8) - - - - 2,779 - - Gain on sale of asset(9) - - - (2,000 ) - - - Share-based compensation(10) 5,803 18,561 94,027 - - - - Depreciation(11) 178 971 11,784 - - - - Income tax effect on pre-tax non-GAAP adjustments(12) - - - - - - (81,297 ) Total of non-GAAP adjustments 214,853 19,582 141,520 (2,000 ) 2,779 (2,789 ) (81,297 ) Non-GAAP $ (213,668 ) $ (264,601 ) $ (745,959 ) $ - $ (24,859 ) $ 51 $ (53,996 ) Horizon Therapeutics plc Certain Income Statement Line Items - Non-GAAP Adjusted For the Six Months Ended June 30, 2022 (Unaudited) (in thousands) Income Tax Cost of Goods Research & Selling, General Impairment of Interest Other (Expense) Benefit Sold Development & Administrative goodwill Expense, net Income, net (Expense) GAAP as reported $ (445,278 ) $ (206,378 ) $ (770,955 ) $ (56,171 ) $ (42,665 ) (3,131 ) $ 27,709 Non-GAAP Adjustments: Acquisition/divestiture-related costs(1) (1,423 ) 2,000 2,035 - - - - Loss on equity security investments(3) - - - - - 5,084 - Restructuring and realignment costs(4) - 804 986 - - - - Manufacturing facility start-up costs(5) - - 2,389 - - - - Amortization and step-up: Intangible amortization expense(6) 179,164 - 1,431 - - - - Inventory step-up expense(7) 44,563 - - - - - - Amortization of debt discount and deferred financing costs(8) - - - - 3,904 - - Impairment of goodwill(13) - - - 56,171 - - - Share-based compensation(10) 4,471 15,720 72,258 - - - - Depreciation(11) 111 493 11,339 - - - - Income tax effect on pre-tax non-GAAP adjustments(12) - - - - - - (97,131 ) Total of non-GAAP adjustments 226,886 19,017 90,438 56,171 3,904 5,084 (97,131 ) Non-GAAP $ (218,392 ) $ (187,361 ) $ (680,517 ) $ - $ (38,761 ) $ 1,953 $ (69,422 ) NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS - NON-GAAP Primarily represents transaction and integration costs, including, advisory, legal, consulting and certain employee-related costs, incurred in connection with our acquisitions and divestitures. Primarily represents transaction-related costs, including, advisory, legal, consulting and field-based employee retention costs, incurred in connection with the transaction with Amgen. The legal costs include costs incurred in responding to the FTC’s second request and subsequent lawsuit seeking to enjoin the transaction. We held investments in equity securities with readily determinable fair values of $9.8 million and $8.1 million as of June 30, 2023 and 2022, respectively, which are included in other long-term assets in the condensed consolidated balance sheet. For the three and six months ended June 30, 2023, we recognized net unrealized gains of $2.4 million and $2.8 million, respectively, due to the change in fair value of these securities. Primarily represents severance and consulting costs related to the wind down of our former inflammation business during 2022 and rent and maintenance charges as a result of vacating the leased Lake Forest office in the first quarter of 2021. During the three months ended June 30, 2023 and 2022, we recorded $1.9 million and $1.6 million, respectively, and $5.4 million and $2.4 million for the six months ended June 30, 2023 and 2022, respectively, of manufacturing facility start-up costs related to our drug product biologics manufacturing facility in Waterford, Ireland. Intangible amortization expenses are primarily associated with our developed technology related to TEPEZZA, KRYSTEXXA, RAVICTI, UPLIZNA, PROCYSBI, ACTIMMUNE, RAYOS and BUPHENYL. During the three and six months ended June 30, 2023, we recognized in cost of goods sold $1.6 million and $31.3 million, respectively, for inventory step-up expense related to UPLIZNA inventory revalued in connection with the Viela Bio, Inc. acquisition. We recorded $17.4 million and $44.6 million of UPLIZNA inventory step-up expense in cost of goods sold during the three and six months ended June 30, 2022, respectively. Because inventory step-up expense is related to an acquisition, will not continue indefinitely and has a significant effect on our gross profit, gross margin percentage and net income for all affected periods, we exclude inventory step-up expense from our non-GAAP financial measures. Represents amortization of debt discount and deferred financing costs associated with our debt. During the six months ended June 30, 2023, gain on sale of asset represents a $2.0 million contingent consideration payment related to the sale of MIGERGOT in 2019. The contingent consideration payment was triggered during the second quarter of 2023 and it was received in July 2023. Represents share-based compensation expense associated with restricted stock unit and performance stock unit grants to our employees and non-employee directors, and our employee share purchase plan. Represents depreciation expense related to our property, plant, equipment, software and leasehold improvements. 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. Our interim goodwill impairment test in the second quarter of 2022 indicated an impairment which represented the difference between the estimated fair value of the former inflammation reporting unit and its carrying value. As a result, we recognized an impairment charge of $56.2 million in June 2022 representing the full amount of goodwill for the former inflammation reporting unit.
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