hznp-10q_20190331.htm

leg

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-35238

 

HORIZON THERAPEUTICS PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

 

 

Ireland

 

Not Applicable

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

Connaught House, 1st Floor

1 Burlington Road, Dublin 4, D04 C5Y6, Ireland

 

Not Applicable

(Address of principal executive offices)

 

(Zip Code)

011 353 1 772 2100

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Ordinary shares, nominal value $0.0001 per share

HZNP

The Nasdaq Global Select Market

Number of registrant’s ordinary shares, nominal value $0.0001, outstanding as of May 1, 2019: 184,883,881. 

 

 

 

 


HORIZON THERAPEUTICS PLC

INDEX

 

 

 

 

 

Page

 

 

 

No.

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

1

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and as of December 31, 2018 (Unaudited)

 

1

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

2

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

3

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

45

Item 4.

Controls and Procedures

 

45

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

46

Item 1A.

Risk Factors

 

46

Item 6.

Exhibits

 

90

 

Signatures

 

93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share data)

 

 

As of

 

As of

 

 

March 31,

 

December 31,

 

 

2019

 

2018

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

$

1,032,808

 

$

958,712

 

Restricted cash

 

3,731

 

 

3,405

 

Accounts receivable, net

 

403,862

 

 

464,730

 

Inventories, net

 

51,598

 

 

50,751

 

Prepaid expenses and other current assets

 

67,741

 

 

68,218

 

Total current assets

 

1,559,740

 

 

1,545,816

 

Property and equipment, net

 

22,135

 

 

20,101

 

Developed technology, net

 

1,888,431

 

 

1,945,639

 

Other intangible assets, net

 

4,431

 

 

4,630

 

Goodwill

 

413,669

 

 

413,669

 

Deferred tax assets, net

 

2,546

 

 

3,148

 

Other assets

 

44,757

 

 

8,959

 

Total assets

$

3,935,709

 

$

3,941,962

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Long-term debt—current portion

$

250,000

 

$

 

Accounts payable

 

36,459

 

 

30,284

 

Accrued expenses

 

197,242

 

 

215,739

 

Accrued trade discounts and rebates

 

406,868

 

 

457,763

 

Deferred revenues—current portion

 

4,834

 

 

4,901

 

Total current liabilities

 

895,403

 

 

708,687

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

Exchangeable notes, net

 

336,858

 

 

332,199

 

Long-term debt, net of current

 

1,021,263

 

 

1,564,485

 

Deferred tax liabilities, net

 

108,668

 

 

107,768

 

Other long-term liabilities

 

69,429

 

 

38,717

 

Total long-term liabilities

 

1,536,218

 

 

2,043,169

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

Ordinary shares, $0.0001 nominal value; 300,000,000 shares authorized;

   185,130,348 and 169,244,520 shares issued at March 31, 2019 and December

   31, 2018, respectively, and 184,745,982 and 168,860,154 shares outstanding at

   March 31, 2019 and December 31, 2018, respectively

 

18

 

 

17

 

Treasury stock, 384,366 ordinary shares at March 31, 2019 and December 31, 2018

 

(4,585

)

 

(4,585

)

Additional paid-in capital

 

2,722,233

 

 

2,374,966

 

Accumulated other comprehensive loss

 

(2,010

)

 

(1,523

)

Accumulated deficit

 

(1,211,568

)

 

(1,178,769

)

Total shareholders’ equity

 

1,504,088

 

 

1,190,106

 

Total liabilities and shareholders' equity

$

3,935,709

 

$

3,941,962

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

 


HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

(In thousands, except share and per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

Net sales

$

280,371

 

 

$

223,881

 

 

Cost of goods sold

 

88,142

 

 

 

110,288

 

 

Gross profit

 

192,229

 

 

 

113,593

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Research and development

 

21,725

 

 

 

17,645

 

 

Selling, general and administrative

 

172,299

 

 

 

179,599

 

 

Impairment of long-lived assets

 

 

 

 

33,647

 

 

Total operating expenses

 

194,024

 

 

 

230,891

 

 

Operating loss

 

(1,795

)

 

 

(117,298

)

 

OTHER EXPENSE, NET:

 

 

 

 

 

 

 

 

Interest expense, net

 

(27,530

)

 

 

(30,454

)

 

Loss on debt extinguishment

 

(5,586

)

 

 

 

 

Foreign exchange loss

 

(61

)

 

 

(110

)

 

Other income, net

 

189

 

 

 

151

 

 

Total other expense, net

 

(32,988

)

 

 

(30,413

)

 

Loss before (benefit) expense for income taxes

 

(34,783

)

 

 

(147,711

)

 

(Benefit) expense for income taxes

 

(1,920

)

 

 

945

 

 

Net loss

$

(32,863

)

 

$

(148,656

)

 

Net loss per ordinary share—basic and diluted

$

(0.19

)

 

$

(0.90

)

 

Weighted average ordinary shares outstanding—basic and diluted

 

172,789,209

 

 

 

164,549,502

 

 

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

$

(487

)

 

$

463

 

 

Other comprehensive (loss) income

 

(487

)

 

 

463

 

 

Comprehensive loss

$

(33,350

)

 

$

(148,193

)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 


 

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Total

 

 

 

Ordinary Shares

 

 

Treasury Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2018

 

 

169,244,520

 

 

$

17

 

 

 

384,366

 

 

$

(4,585

)

 

$

2,374,966

 

 

$

(1,523

)

 

$

(1,178,769

)

 

$

1,190,106

 

Cumulative effect adjustments from adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

64

 

Issuance of ordinary shares - public offering

 

 

14,081,632

 

 

 

1

 

 

 

 

 

 

 

 

 

326,848

 

 

 

 

 

 

 

 

 

326,849

 

Issuance of ordinary shares in conjunction with vesting of restricted stock

   units and stock option exercises

 

 

1,804,196

 

 

 

 

 

 

 

 

 

 

 

 

10,042

 

 

 

 

 

 

 

 

 

10,042

 

Ordinary shares withheld for payment of employees’ withholding tax liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,171

)

 

 

 

 

 

 

 

 

(17,171

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,548

 

 

 

 

 

 

 

 

 

27,548

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(487

)

 

 

 

 

 

(487

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,863

)

 

 

(32,863

)

Balances at March 31, 2019

 

 

185,130,348

 

 

$

18

 

 

 

384,366

 

 

$

(4,585

)

 

$

2,722,233

 

 

$

(2,010

)

 

$

(1,211,568

)

 

$

1,504,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Total

 

 

 

Ordinary Shares

 

 

Treasury Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2017

 

 

164,785,083

 

 

$

16

 

 

 

384,366

 

 

$

(4,585

)

 

$

2,248,979

 

 

$

(983

)

 

$

(1,141,975

)

 

$

1,101,452

 

Cumulative effect adjustments from adoption of ASUs 2014-09 and 2016-16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,586

 

 

 

1,586

 

Issuance of ordinary shares in conjunction with vesting of restricted stock

   units and stock option exercises

 

 

574,810

 

 

 

1

 

 

 

 

 

 

 

 

 

945

 

 

 

 

 

 

 

 

 

946

 

Ordinary shares withheld for payment of employees’ withholding tax liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,517

)

 

 

 

 

 

 

 

 

(3,517

)

Issuance of ordinary shares in conjunction with ESPP purchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,833

 

 

 

 

 

 

 

 

 

27,833

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

463

 

 

 

 

 

 

463

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(148,656

)

 

 

(148,656

)

Balances at March 31, 2018

 

 

165,359,893

 

 

$

17

 

 

 

384,366

 

 

$

(4,585

)

 

$

2,274,254

 

 

$

(520

)

 

$

(1,289,045

)

 

$

980,121

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3

 


 

HORIZON THERAPEUTICS PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)  

 

For the Three Months Ended March 31,

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(32,863

)

 

$

(148,656

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization expense

 

58,891

 

 

 

62,435

 

Equity-settled share-based compensation

 

27,548

 

 

 

27,833

 

Amortization of debt discount and deferred financing costs

 

5,851

 

 

 

5,496

 

Loss on debt extinguishment

 

5,586

 

 

 

 

Deferred income taxes

 

1,502

 

 

 

1,680

 

Foreign exchange and other adjustments

 

404

 

 

 

(120

)

Impairment of long-lived assets

 

 

 

 

33,647

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

60,769

 

 

 

1,064

 

Inventories

 

(847

)

 

 

14,290

 

Prepaid expenses and other current assets

 

111

 

 

 

(9,805

)

Accounts payable

 

6,416

 

 

 

6,528

 

Accrued trade discounts and rebates

 

(50,904

)

 

 

(72,120

)

Accrued expenses

 

(21,336

)

 

 

19,028

 

Deferred revenues

 

(67

)

 

 

(1,484

)

Other non-current assets and liabilities

 

(4,893

)

 

 

(627

)

Net cash provided by (used in) operating activities

 

56,168

 

 

 

(60,811

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Payment related to license agreement

 

 

 

 

(12,000

)

Purchases of property and equipment

 

(1,849

)

 

 

(665

)

Net cash used in investing activities

 

(1,849

)

 

 

(12,665

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Net proceeds from the issuance of ordinary shares

 

327,750

 

 

 

 

Proceeds from the issuance of ordinary shares in connection with stock option exercises

 

10,042

 

 

 

945

 

Proceeds from the issuance of ordinary shares through ESPP programs

 

 

 

 

14

 

Payment of employee withholding taxes relating to share-based awards

 

(17,171

)

 

 

(3,517

)

Repayment of term loans

 

(300,000

)

 

 

(2,125

)

Net cash provided by (used in) financing activities

 

20,621

 

 

 

(4,683

)

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash

 

(518

)

 

 

982

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

74,422

 

 

 

(77,177

)

Cash, cash equivalents and restricted cash, beginning of the period

 

962,117

 

 

 

757,897

 

Cash, cash equivalents and restricted cash, end of the period

$

1,036,539

 

 

$

680,720

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest

$

15,842

 

 

$

15,376

 

Net cash paid for income taxes

 

856

 

 

 

(914

)

Cash paid for amounts included in the measurement of lease liabilities

 

1,611

 

 

 

 

SUPPLEMENTAL NON-CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued

   expenses

 

2,759

 

 

 

8

 

Transaction costs related to issuance of ordinary shares included in accrued expenses

 

902

 

 

 

 

      

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 


HORIZON THERAPEUTICS PLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 – BASIS OF PRESENTATION AND BUSINESS OVERVIEW

Basis of Presentation

The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included.  Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  The December 31, 2018 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

Unless otherwise indicated or the context otherwise requires, references to “Horizon”, the “Company”, “we”, “us” and “our” refer to Horizon Therapeutics plc (formerly known as Horizon Pharma plc) and its consolidated subsidiaries. The unaudited condensed consolidated financial statements presented herein include the accounts of the Company and its wholly owned subsidiaries.  All intra-company transactions and balances have been eliminated.

On May 2, 2019, the shareholders of the Company approved changing the name of the Company from “Horizon Pharma Public Limited Company” to “Horizon Therapeutics Public Limited Company” to better reflect the Company’s long-term strategy to develop and commercialize innovative new medicines to address rare diseases with very few effective options.

Business Overview

Horizon is focused on researching, developing and commercializing medicines that address critical needs for people impacted by rare and rheumatic diseases.  The Company’s pipeline is purposeful: it applies scientific expertise and courage to bring clinically meaningful therapies to patients.  Horizon believes science and compassion must work together to transform lives. The Company has two reportable segments, referred to as the “orphan and rheumatology segment” and the “primary care segment”, and currently markets eleven medicines in the areas of orphan diseases, rheumatology and primary care.  

The Company’s currently marketed medicines are:

 

Orphan and Rheumatology

KRYSTEXXA® (pegloticase injection), for intravenous infusion

RAVICTI® (glycerol phenylbutyrate) oral liquid

PROCYSBI® (cysteamine bitartrate) delayed-release capsules, for oral use

ACTIMMUNE® (interferon gamma-1b) injection, for subcutaneous use

RAYOS® (prednisone) delayed-release tablets

BUPHENYL® (sodium phenylbutyrate) Tablets and Powder

QUINSAIR™ (levofloxacin) solution for inhalation

 

Primary Care

PENNSAID® (diclofenac sodium topical solution) 2% w/w (“PENNSAID 2%”), for topical use

DUEXIS® (ibuprofen/famotidine) tablets, for oral use

VIMOVO® (naproxen/esomeprazole magnesium) delayed-release tablets, for oral use

MIGERGOT® (ergotamine tartrate & caffeine suppositories), for rectal use

 


5

 


Change in Accounting Method

 

When accounting for business combinations under ASC Topic 805, Business Combinations, the Company previously separately identified and recorded at fair value intangible assets acquired and their related third-party contingent royalties at the date of acquisition. Third-party contingent royalties are royalties payable to parties other than sellers of the businesses.  Effective January 1, 2019, the Company retrospectively changed its accounting for business combinations and will record acquired intangible assets and their related third-party contingent royalties on a net basis (“New Method”).  The Company changed its accounting principle on the basis that the use of the New Method is preferable primarily due to improved comparability with the Company’s peers.  The Company has adjusted the accompanying condensed consolidated balance sheet as at December 31, 2018, and the condensed consolidated statement of comprehensive loss and of cash flows for the three months ended March 31, 2018 to reflect this change in accounting.  Total shareholders’ equity at December 31, 2018 was adjusted by $135.9 million to reflect the cumulative impact of the change to the earliest year presented.  The impact on the condensed consolidated statement of cash flows consisted of adjustments to reconcile net loss to net cash provided by operating activities and changes in operating assets and liabilities for all periods presented.  There was no impact on total operating, investing or financing cash flows for any prior period.  The following are selected line items from the Company’s condensed consolidated financial statements illustrating the effect of the change in accounting method (in thousands, except per share data):

 

 

 

Consolidated Balance Sheet as of

 

 

 

December 31, 2018

 

 

 

As Previously Reported

 

 

Impact of Accounting Change (1)

 

 

As Adjusted

 

Prepaid expenses and other current assets

 

$

70,828

 

 

$

(2,610

)

 

$

68,218

 

Total current assets

 

 

1,548,426

 

 

 

(2,610

)

 

 

1,545,816

 

Developed technology, net

 

 

2,120,596

 

 

 

(174,957

)

 

 

1,945,639

 

Goodwill

 

 

426,441

 

 

 

(12,772

)

 

 

413,669

 

Other assets

 

 

23,029

 

 

 

(14,070

)

 

 

8,959

 

Total assets

 

 

4,146,371

 

 

 

(204,409

)

 

 

3,941,962

 

Accrued expenses

 

 

205,593

 

 

 

10,146

 

 

 

215,739

 

Accrued royalties - current portion

 

 

63,363

 

 

 

(63,363

)

 

 

 

Total current liabilities

 

 

761,904

 

 

 

(53,217

)

 

 

708,687

 

Deferred tax liabilities, net

 

 

93,630

 

 

 

14,138

 

 

 

107,768

 

Accrued royalties - net of current

 

 

285,374

 

 

 

(285,374

)

 

 

 

Other long-term liabilities

 

 

54,622

 

 

 

(15,905

)

 

 

38,717

 

Total long-term liabilities

 

 

2,330,310

 

 

 

(287,141

)

 

 

2,043,169

 

Accumulated deficit

 

 

(1,314,718

)

 

 

135,949

 

 

 

(1,178,769

)

Total shareholders' equity

 

 

1,054,157

 

 

 

135,949

 

 

 

1,190,106

 

Total liabilities and shareholders' equity

 

 

4,146,371

 

 

 

(204,409

)

 

 

3,941,962

 

(1)

The change in accounting principle resulted in the Company re-performing its purchase price allocations as of the respective acquisition dates for prior business combinations.  The adjustments to the purchase price allocations primarily resulted in a decrease in developed technology intangible assets and the elimination of liabilities for accrued contingent royalties due to recording these items on a net basis.  The re-performance of purchase price allocations also impacted goodwill and deferred tax liabilities.  In addition, the change in accounting principle resulted in the elimination of royalty reimbursement assets and accrued contingent royalty liabilities that were recorded in connection with divestitures, impacting prepaid expenses and other current assets, other assets, accrued expenses and other long-term liabilities captions as shown in the table above.  In addition, under the New Method of accounting, the Company is presenting accrued royalties based on each periods’ net sales as part of the accrued expenses line item on its condensed consolidated balance sheets.    

 

6

 


 

 

Consolidated Statement of Comprehensive Loss

 

 

 

March 31, 2018

 

 

 

As Previously Reported

 

 

Revision (1)

 

 

As Revised

 

 

Impact of Accounting Change (2)

 

 

As Adjusted

 

Cost of goods sold

 

$

116,092

 

 

$

(753

)

 

$

115,339

 

 

$

(5,051

)

 

$

110,288

 

Gross profit

 

 

107,789

 

 

 

753

 

 

 

108,542

 

 

 

5,051

 

 

 

113,593

 

Impairment of long-lived assets

 

 

37,853

 

 

 

 

 

 

37,853

 

 

 

(4,206

)

 

 

33,647

 

Total operating expenses

 

 

235,097

 

 

 

 

 

 

235,097

 

 

 

(4,206

)

 

 

230,891

 

Operating loss

 

 

(127,308

)

 

 

753

 

 

 

(126,555

)

 

 

9,257

 

 

 

(117,298

)

Other income, net

 

 

178

 

 

 

 

 

 

178

 

 

 

(27

)

 

 

151

 

Total other expenses, net

 

 

(30,386

)

 

 

 

 

 

(30,386

)

 

 

(27

)

 

 

(30,413

)

Loss before (benefit) expense for income taxes

 

 

(157,694

)

 

 

753

 

 

 

(156,941

)

 

 

9,230

 

 

 

(147,711

)

(Benefit) expense for income taxes

 

 

(367

)

 

 

 

 

 

(367

)

 

 

1,312

 

 

 

945

 

Net loss

 

 

(157,327

)

 

 

753

 

 

 

(156,574

)

 

 

7,918

 

 

 

(148,656

)

Net loss per ordinary share - basic and diluted

 

 

(0.96

)

 

 

0.01

 

 

 

(0.95

)

 

 

0.05

 

 

 

(0.90

)

Comprehensive loss

 

 

(156,864

)

 

 

753

 

 

 

(156,111

)

 

 

7,918

 

 

 

(148,193

)

(1)

During the course of preparing the Company’s consolidated financial statements for the year ended December 31, 2018, the Company identified an error in the measurement of the contingent royalty liability calculation pertaining to the royalty end date for one of its medicines.  The amounts in this column reflect the revisions to the Company’s previously reported consolidated statement of comprehensive loss on Form 10-Q for the quarterly period ended March 31, 2018.  The Company concluded that the amounts were not material to any of its previously issued consolidated financial statements.  Refer to Note 1 and Note 23 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for further detail of this revision.  The impact on the consolidated statements of cash flows consisted of adjustments to reconcile net (loss) income to net cash provided by operating activities and changes in operating assets and liabilities.  There was no impact on total operating, investing or financing cash flows for the quarterly period ended March 31, 2018.  

 

(2)

The change in accounting principle resulted in the Company re-performing its purchase price allocations as of the respective acquisition dates for prior business combinations.  The adjustments to the purchase price allocations primarily resulted in a net decrease in cost of goods sold reflecting lower intangible asset amortization and the elimination of royalty accretion and remeasurement expenses, partially offset by the royalty expense based on the periods’ net sales.  The re-performance of purchase price allocations also directly impacted impairments of long-lived assets, benefit/expense for income taxes, as shown in the table above.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

From time to time, the Company adopts new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies.

Effective January 1, 2019, the Company adopted Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”).  Under ASU No. 2016-02, an entity is required to recognize right-of-use lease assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.  The Company adopted this standard on January 1, 2019, using a modified retrospective approach at the adoption date through a cumulative-effect adjustment to retained earnings.  The Company elected the package of transition provisions available for expired or existing contracts, which allowed the Company to carry forward its historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs.  In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases.  The Company applied the new guidance to all operating leases within the scope of the standard that were in effect on January 1, 2019, or entered into after, the adoption date.  Comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods.  The adoption did not have a material impact on the Company’s condensed consolidated statement of comprehensive loss.  However, the new standard established $37.1 million of liabilities and corresponding right-of-use assets of $34.9 million on the Company’s condensed consolidated balance sheet for leases, primarily related to operating leases on rented office properties, that existed as of the January 1, 2019, adoption date. 

 


7

 


Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU No. 2018-07”).  ASU No. 2018-07 largely aligns the accounting for share-based payment awards issued to employees and non-employees.  The Company adopted ASU No. 2018-07 in the first quarter of 2019, and the adoption of ASU No. 2018-07 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

Effective January 1, 2019, the Company adopted ASU No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (“ASU No. 2018-08”).  The new guidance applies to all entities that receive or make contributions, including business entities.  The Company adopted the standard in the first quarter of 2019, using prospective application to any new agreements entered into after the effective date.  The adoption of ASU No. 2018-08 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification (“ASC”)), the American Institute of Certified Public Accountants and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Significant Accounting Policies

As described in Note 1, effective January 1, 2019, the Company modified its accounting policy related to intangible assets and contingent royalty liabilities acquired through business combinations following a change in accounting principle, and the Company’s updated policy in respect of all royalties is described below.

In addition, as described above, the Company adopted ASU No. 2016-02 effective January 1, 2019.  The Company modified its accounting policy related to leases following the adoption of ASU No. 2016-02, and the Company’s updated policy is described below.

Royalties

The Company records royalty expense based on each periods’ net sales as part of cost of goods sold.

Leases

The Company’s leases primarily relate to operating leases of rented office properties.  For contracts entered into on or after January 1, 2019, at the inception of a contract the Company assesses whether the contract is, or contains, a lease.  The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.  At inception of a lease, the Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term.  The right-of-use lease asset represents the right to use the leased asset for the lease term.  The lease liability represents the present value of the lease payments under the lease.

The right-of-use lease asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred.  All right-of-use lease assets are reviewed for impairment.  The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s secured incremental borrowing rate for the same term as the underlying lease.

The Company identified and assessed the following significant assumptions in recognizing the right-of-use lease assets and corresponding liabilities.

Expected lease term – The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods.  When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Incremental borrowing rate – As the Company’s leases do not provide an implicit rate, the Company obtained the incremental borrowing rate (“IBR”) based on the remaining term of each lease.  The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.  

The Company has elected not to recognize right-of-use lease assets and lease liabilities for short-term leases that have a term of 12 months or less.

The Company reports right-of-use lease assets within non-current “Other assets” in its condensed consolidated balance sheet.  The Company reports the current portion of lease liabilities within “Accrued expenses” and long-term lease liabilities within “Other long-term liabilities” in its condensed consolidated balance sheet.

8

 


NOTE 3 – NET LOSS PER SHARE

 

The following table presents basic and diluted net loss per share for the three months ended March 31, 2019 and 2018 (in thousands, except share and per share data):

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Basic and diluted net loss per share calculation:

 

 

 

 

 

 

 

 

Net loss

 

$

(32,863

)

 

$

(148,656

)

Weighted average ordinary shares outstanding

 

 

172,789,209

 

 

 

164,549,502

 

Basic and diluted net loss per share

 

$

(0.19

)

 

$

(0.90

)

 

Basic net loss per share is computed by dividing net loss by the weighted-average number of ordinary shares outstanding during the period.  Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised, converted into ordinary shares or resulted in the issuance of ordinary shares that would have shared in the Company’s earnings.

The computation of diluted net loss per share excluded 8.2 million shares subject to equity awards for the three months ended March 31, 2019, and 12.0 million shares subject to equity awards for the three months ended March 31, 2018, respectively, because their inclusion would have had an anti-dilutive effect on diluted net loss per share.

The potentially dilutive impact of the March 2015 private placement of $400.0 million aggregate principal amount of 2.50% Exchangeable Senior Notes due 2022 (the “Exchangeable Senior Notes”) by Horizon Pharma Investment Limited (“Horizon Investment”), a wholly owned subsidiary of the Company, is determined using a method similar to the treasury stock method.  Under this method, no numerator or denominator adjustments arise from the principal and interest components of the Exchangeable Senior Notes because the Company has the intent and ability to settle the Exchangeable Senior Notes’ principal and interest in cash.  Instead, the Company is required to increase the diluted net income (loss) per share denominator by the variable number of shares that would be issued upon conversion if it settled the conversion spread obligation with shares.  For diluted net income (loss) per share purposes, the conversion spread obligation is calculated based on whether the average market price of the Company’s ordinary shares over the reporting period is in excess of the exchange price of the Exchangeable Senior Notes.  There was no calculated spread added to the denominator for the three months ended March 31, 2019 and 2018.

 

 


9

 


NOTE 4 – ACQUISITIONS, DIVESTITURES AND OTHER ARRANGEMENTS

Sale of RAVICTI and AMMONAPS Rights outside of North America and Japan

On December 28, 2018, the Company sold its rights to RAVICTI and AMMONAPS (known as BUPHENYL in the United States) outside of North America and Japan to Medical Need Europe AB, part of the Immedica Group, for $35.0 million (the “Immedica transaction”).  The Company previously distributed RAVICTI and AMMONAPS through a commercial partner in Europe and other non-U.S. markets.  The Company has retained the rights to RAVICTI and BUPHENYL in North America and Japan.

Pursuant to ASC 805 (as amended by ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU No. 2017-01”)), the Company accounted for the Immedica transaction as a sale of assets, specifically a sale of intellectual property rights.

The gain on sale of assets recorded to the consolidated statement of comprehensive loss during the year ended December 31, 2018, was determined as follows (in thousands):

 

Cash proceeds

 

$

35,000

 

Less net assets sold:

 

 

 

 

Developed technology

 

 

(4,146

)

Transaction costs

 

 

(197

)

Gain on sale of assets

 

$

30,657

 

 

Acquisition and Subsequent Sale of Additional Rights to Interferon Gamma-1b

 

On June 30, 2017, the Company completed its acquisition of certain rights to interferon gamma-1b from Boehringer Ingelheim International GmbH (“Boehringer Ingelheim International”) in all territories outside of the United States, Canada and Japan and in connection therewith, paid Boehringer Ingelheim International €19.5 million ($22.3 million when converted using a Euro-to-Dollar exchange rate at date of payment of 1.1406).  Boehringer Ingelheim International commercialized interferon gamma-1b as IMUKIN in an estimated thirty countries, primarily in Europe and the Middle East.  Upon closing, during the year ended December 31, 2017, the Company accounted for the payment as the acquisition of an asset which was immediately impaired as projections for future net sales of IMUKIN in these territories did not exceed the related costs, and included the payment in the “impairment of long-lived assets” line item in its condensed consolidated statement of comprehensive loss.  

On July 24, 2018, the Company sold its rights to interferon gamma-1b in all territories outside the United States, Canada and Japan to Clinigen Group plc (“Clinigen”) for an upfront payment of €7.5 million ($8.8 million when converted using a Euro-to-Dollar exchange rate at date of payment of 1.1683) and a potential additional contingent consideration payment of €3.0 million ($3.5 million when converted using a Euro-to-Dollar exchange rate of 1.1673) (the “IMUKIN sale”).  The Company continues to market interferon gamma-1b as ACTIMMUNE in the United States.

Pursuant to ASC 805 (as amended by ASU No. 2017-01), the Company accounted for the IMUKIN sale as a sale of assets, specifically a sale of intellectual property rights, and a sale of inventory.  

 

The gain on sale of assets recorded to the condensed consolidated statement of comprehensive loss during the year ended December 31, 2018, was determined as follows (in thousands):

 

Cash proceeds including $715 for inventory

 

$

9,477

 

Contingent consideration receivable

 

 

3,502

 

Less net assets sold:

 

 

 

 

Inventory

 

 

(623

)

Transaction costs

 

 

(28

)

Gain on sale of assets

 

$

12,328

 

 


10

 


Other Arrangements

On January 3, 2019, the Company entered into a collaboration agreement with HemoShear Therapeutics, LLC (“HemoShear”), a biotechnology company, to discover and develop novel therapeutics for gout.  The collaboration provides the Company with an opportunity to address unmet treatment needs for people with gout by evaluating new targets for the control of serum uric acid levels as well as new targets to address the inflammation associated with acute flares of gout.  Under the terms of the agreement, the Company paid HemoShear an upfront cash payment of $2.0 million with additional potential future milestone payments upon commencement of new stages of development, contingent on the Company’s approval at each stage.

 

NOTE 5 – INVENTORIES

Inventories are stated at the lower of cost or net realizable value.  Inventories consist of raw materials, work-in-process and finished goods.  The Company has entered into manufacturing and supply agreements for the manufacture of finished goods and the purchase of raw materials and production supplies.  The Company’s inventories include the direct purchase cost of materials and supplies and manufacturing overhead costs.

The components of inventories as of March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Raw materials

 

$

6,709

 

 

$

5,092

 

Work-in-process

 

 

25,722

 

 

 

27,068

 

Finished goods

 

 

19,167

 

 

 

18,591

 

Inventories, net

 

$

51,598

 

 

$

50,751

 

 

 

 

NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Deferred charge for taxes on intra-company profit

 

$

23,188

 

 

$

21,734

 

Rabbi trust assets

 

 

10,738

 

 

 

8,203

 

Prepaid income taxes

 

 

6,080

 

 

 

5,899

 

Medicine samples inventory

 

 

2,515

 

 

 

4,539

 

Other prepaid expenses and other current assets

 

 

25,220

 

 

 

27,843

 

Prepaid expenses and other current assets

 

$

67,741

 

 

$

68,218

 

 

 

NOTE 7 – PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Software

 

$

14,843

 

 

$

14,843

 

Leasehold improvements

 

 

10,679