Stock Update (NASDAQ:HZNP): Horizon Pharma PLC Announces Second-Quarter 2016 Financial Results


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 second-quarter 2016 financial results today and confirmed its full-year 2016 net sales and adjusted EBITDA guidance.

“We exceeded our expectations for the second quarter with another quarter of record net sales and remain on track to meet our objectives for the full year,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc.  “We continued to execute across all levels of the organization, generating new patient and prescription growth and advancing our pipeline of orphan medicines, including the completion of enrollment in our Phase 3 clinical trial for ACTIMMUNE in Friedreich’s ataxia and the submission of our supplemental new drug application for RAVICTI.”

Company Highlights

  • Second-quarter 2016 year-over-year sales growth of 49 percent was driven by strong execution across each of the Company’s business units:  Orphan, Rheumatology and Primary Care.  Medicines for rare diseases, which include RAVICTI®, ACTIMMUNE®, KRYSTEXXA® and BUPHENYL®, represented 36 percent of total net sales in the second quarter of 2016, an increase from 28 percent of total net sales in the second quarter of 2015.
  • Second-quarter 2016 net income was $15.0 million.  Second-quarter 2016 adjusted EBITDA was $121.1 million.
  • On August 2, 2016, the Company announced it had secured covered status for DUEXIS® and VIMOVO® with CVS/Caremark.  The Company was informed that beginning January 1, 2017, DUEXIS and VIMOVO will be removed from the CVS/Caremark exclusion list.  In addition, Horizon continues discussions and negotiations with other pharmacy benefit managers and payers with the goal of further increasing patient access to its clinically relevant primary care medicines in 2017.
  • On June 29, 2016, the Company submitted a supplemental New Drug Application (sNDA) to the U.S. Food and Drug Administration (FDA) for RAVICTI to expand its age range of use for chronic management of urea cycle disorders (UCDs) in adult and pediatric patients from two years of age and older to two months of age and older.
  • On May 18, 2016, the Company entered into an agreement to acquire the worldwide rights to interferon gamma-1b, known as ACTIMMUNE in the United States, and expects to close the transaction by year-end 2016, subject to the satisfaction of closing conditions.
  • Orphan Business Unit:  The orphan commercial organization continues to add new patients to treatment with RAVICTI and ACTIMMUNE.  RAVICTI sales in the second quarter of 2016 were $39.4 million, an increase of 107 percent compared to the second quarter of 2015 and 6 percent sequentially compared to the first quarter of 2016.  ACTIMMUNE sales in the second quarter of 2016 were $30.0 million, an increase of 16 percent compared to the second quarter of 2015 and 18 percent sequentially compared to the first quarter of 2016.Regarding its clinical development pipeline for orphan diseases, the Company submitted a sNDA to the U.S. FDA for RAVICTI to expand its age range of use for chronic management of UCDs from two years of age and older to two months of age and older.  If approved, physicians could use RAVICTI instead of BUPHENYL in patients two months to two years of age. The Company completed enrollment in the Safety, Tolerability and Efficacy of ACTIMMUNE Dose Escalation in FA (STEADFAST) Phase 3 clinical trial for ACTIMMUNE on May 5, 2016.  With an estimated 3,700 patients in the United States with FA, the Company believes an indication for ACTIMMUNE in FA, if approved, could represent a $500 million to $1 billion peak annual net sales opportunity.  In the Phase 1 dosing trial evaluating ACTIMMUNE as a combination therapy for certain cancers, the first six-patient cohort was completed in May and the second six-patient cohort is now enrolling.

    On May 18, 2016, the Company entered into an agreement to acquire the worldwide rights to interferon gamma-1b, known as ACTIMMUNE in the United States.  The transaction is expected to close by year-end 2016.  Horizon Pharma currently owns the rights to interferon gamma-1b in the United States, Canada and Japan and the acquisition will expand rights worldwide.  Interferon gamma-1b is currently sold in an estimated 30 countries outside the U.S.  Obtaining worldwide rights for interferon gamma-1b will solidify continued investment in the medicine, and pending the outcome of clinical studies investigating it in FA and advanced solid tumors such as kidney and bladder cancer, strengthens the Company’s ability to expand its potential global use.

  • Rheumatology Business Unit:  KRYSTEXXA sales in the second quarter of 2016 were $19.9 million, following the expansion of its commercial organization after the acquisition of Crealta in January 2016.  The Company is continuing to capitalize on this expansion effort as well as invest in education and outreach with practicing physicians to share the robust safety and efficacy data from the KRYSTEXXA pivotal trials.  RAYOS® sales in the second quarter of 2016 were $12.1 million , an increase of 18 percent compared to the second quarter of 2015.The Company has submitted several abstracts of KRYSTEXXA Phase 3 trial data analyses to the American College of Rheumatology (ACR) annual meeting in November.  In addition, data from the Tolerization Reduces Intolerance to Pegloticase and Prolongs the Urate Lowering Effect (TRIPLE) trial will also be submitted to the ACR meeting.  The TRIPLE trial is evaluating safety and efficacy related to KRYSTEXXA immunogenicity.
  • Primary Care Business Unit:  PENNSAID® 2% sales in the second quarter of 2016 were $72.7 million, an increase of 147 percent compared to the second quarter of 2015.  DUEXIS and VIMOVO sales in the second quarter of 2016 were $45.5 million and $31.4 million, respectively.  Total prescriptions for the primary care business unit increased approximately 22 percent compared to the second quarter of 2015, driven primarily by strong performance of PENNSAID 2%.

Second-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. generally accepted accounting principles (GAAP) in the second quarter of 2016, the gross profit ratio was 68.5 percent compared to 64.2 percent in the second quarter of 2015.  The non-GAAP gross profit ratio in the second quarter of 2016 was 92.0 percent compared to 91.1 percent in the second quarter of 2015.
  • Operating Expenses:  On a GAAP basis in the second quarter of 2016, total operating expenses were 56.3 percent of sales.  Research & development (R&D) expenses were 4.4 percent of sales, sales & marketing (S&M) expenses were 30.9 percent of sales and general & administrative (G&A) expenses were 21.0 percent of sales.  Non-GAAP total operating expenses in the second quarter of 2016 were 44.9 percent of sales.  Non-GAAP R&D expenses were 3.3 percent of sales, non-GAAP S&M expenses were 28.1 percent of sales and non-GAAP G&A expenses were 13.5 percent of sales.
  • Income Tax Rate:  Horizon Pharma is modifying the method of calculating its non-GAAP income tax expense to align with guidance issued by the SEC on May 17, 2016.  The new methodology, which the Company will begin using exclusively in the third quarter, calculates the income tax component of non-GAAP net income for each period by adjusting the GAAP income tax expense (benefit) for the estimated tax impact of each non-GAAP adjustment based on the statutory tax rate of the applicable jurisdiction for each non-GAAP adjustment.  This new methodology does not reflect any use of net operating loss carryforwards that the Company potentially may have been able to use if its actual earnings for these periods had been the non-GAAP net income.  Importantly, this change has no impact on the amount of cash taxes paid, operating cash flows or full-year guidance for net sales or adjusted EBITDA.  Previously, the Company had calculated the income tax component of non-GAAP net income by using the estimated cash taxes that it expected to pay for the period.  The tables below provide the GAAP to non-GAAP income tax rate reconciliation using both the new and prior methodology along with the resulting non-GAAP net income and non-GAAP diluted earnings per share under each method.  A full reconciliation for the first and second quarters of 2016 and all of 2015 are at the end of this release and posted to the investor relations section of the Horizon Pharma website.
  • Net Income: On a GAAP basis in the second quarter of 2016, net income was $15.0 million and non-GAAP net income using the tax rate of 14.4 percent was $91.3 million.  For comparison purposes only during this transition period, non-GAAP net income using the cash tax rate of 5.1 percent was $101.1 million.  On a GAAP basis in the second quarter of 2015, net income was $31.8 million and non-GAAP net income using the non-GAAP tax rate of 5.6 percent was $58.9 million.  For comparison purposes only during this transition period, non-GAAP net income using the cash tax rate of 0.7 percent was $61.9 million.  (Please refer to tax rate reconciliation tables in this release and on the Horizon Pharma website).
  • EBITDA: On an unadjusted basis in the second quarter of 2016, EBITDA was $101.9 million, or 39.6 percent of sales.  Adjusted EBITDA in the second quarter of 2016 was $121.1 million, or 47.0 percent of sales, compared to $76.1 million, or 44.0 percent of sales in the second quarter of 2015.
  • Earnings per Share: On a GAAP basis in the second quarter of 2016, diluted earnings per share was $0.09 and non-GAAP diluted earnings per share using the non-GAAP tax rate of 14.4 percent was $0.56.  For comparison purposes only during this transition period, non-GAAP diluted earnings per share using the cash tax rate of 5.1 percent was $0.62.  Weighted average shares outstanding used for calculating diluted earnings per share in the second quarter of 2016 were 163.9 million.  On a GAAP basis in the second quarter of 2015, diluted earnings per share was $0.20 and non-GAAP diluted earnings per share using the non-GAAP tax rate of 5.6 percent was $0.37.  For comparison purposes only during this transition period, non-GAAP diluted earnings per share using the cash tax rate of 0.7 percent was $0.39 as previously reported.  (Please refer to tax rate reconciliation tables in this release and on the Horizon Pharma website).

Cash Flow Statement and Balance Sheet Highlights

  • On a GAAP basis in the second quarter of 2016, operating cash flow was $47.3 million.  Non-GAAP operating cash flow was $58.2 million in the second quarter of 2016.  On a GAAP basis, the first half of 2016 operating cash flow was $101.5 million compared to the first half of 2015 operating cash flow of ($29.2) million.  On a non-GAAP basis, the first half of 2016 operating cash flow was $126.1 million compared to the first half of 2015 operating cash flow of $66.4 million.
  • The Company had cash and cash equivalents of $424.5 million as of June 30, 2016.
  • Total principal amount of debt outstanding was $1.271 billion as of June 30, 2016, which was composed of $396 million in senior secured term loans due 2021, $475 million in 6.625 percent senior notes due 2023 and $400 million of 2.5 percent exchangeable senior notes due 2022. Net debt in the second quarter was $846.5 million.
  • As of June 30, 2016, the Company had a total debt to last 12 months (LTM) adjusted EBITDA leverage ratio of 2.8 and a net debt to LTM adjusted EBITDA leverage ratio of 1.9. (Original Source)

Shares of Horizon Pharma closed last Friday at $20.10, up $0.64 or 3.29%. HZNP has a 1-year high of $34.46 and a 1-year low of $12.86. The stock’s 50-day moving average is $18.21 and its 200-day moving average is $16.98.

On the ratings front, Horizon has been the subject of a number of recent research reports. In a report issued on August 3, Jefferies Co. analyst David Steinberg reiterated a Buy rating on HZNP. Separately, on the same day, Brean Murray Carret’s Difei Yang reiterated a Buy rating on the stock and has a price target of $30.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, David Steinberg and Difei Yang have a total average return of 1.6% and -10.0% respectively. Steinberg has a success rate of 56.6% and is ranked #1495 out of 4102 analysts, while Yang has a success rate of 36.5% and is ranked #3973.

Overall, one research analyst has assigned a Hold rating and 8 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $32.80 which is 63.2% above where the stock closed last Friday.

Horizon Pharma Plc is a specialty biopharmaceutical company, which engages in the business of identifying, developing, acquiring and commercializing differentiated products that address unmet medical needs. It markets a portfolio of products in arthritis, inflammation and orphan diseases.