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Nov. 3, 2021, 7:24 a.m. EDT

10-Q: HORIZON THERAPEUTICS PUBLIC LTD CO

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties which are subject to safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements include, but are not limited to, statements concerning our strategy and other aspects of our future operations, future financial position, future revenues, projected costs, expectations regarding demand and acceptance for our medicines, growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "projects", "will", "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this report and in our other filings with the Securities and Exchange Commission, or SEC. We do not assume any obligation to update any forward-looking statements.

Unless otherwise indicated or the context otherwise requires, references to "Horizon", "we", "us" and "our" refer to Horizon Therapeutics plc and its consolidated subsidiaries.

OUR BUSINESS

We are 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. We have two reportable segments, the orphan segment and the inflammation segment, and our commercial portfolio is currently composed of 12 medicines in the areas of rare diseases, gout, ophthalmology and inflammation.

In July 2021, we completed the purchase of a drug product manufacturing facility from EirGen Pharma Limited, or EirGen, a subsidiary of OPKO Health, Inc., in Waterford, Ireland for $67.9 million. Refer to Note 4, Acquisitions, Divestitures and other Arrangements, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1 of this Quarterly Report on Form 10-Q for further details.

On March 15, 2021, we completed the acquisition of Viela Bio, Inc., or Viela. The acquisition expanded our commercial medicine portfolio by adding an additional rare disease medicine, UPLIZNA(R) to our orphan segment. The Viela acquisition provides multiple opportunities to drive long-term growth and solidify our future as an innovation-driven biotech company. Viela's mid-stage biologics pipeline, research and development team and on-market medicine UPLIZNA, made it a complementary strategic fit with our pipeline, commercial portfolio and therapeutic areas of focus.

As of September 30, 2021, our commercial portfolio consisted of the following medicines:

Orphan

Acquisitions and Divestitures

Since January 1, 2020, we completed the following acquisitions and divestitures:

In July 2021, we completed the purchase of a drug product manufacturing facility from EirGen in Waterford, Ireland for $67.9 million.

On March 15, 2021, we completed the acquisition of Viela, in which we acquired all of the issued and outstanding shares of Viela's common stock for $53.00 per share in cash. The total consideration for the acquisition was approximately $3.0 billion, including cash acquired of $342.3 million.

On October 27, 2020, we sold our rights to develop and commercialize RAVICTI and BUPHENYL in Japan to Medical Need Europe AB, part of the Immedica Group. We have retained the rights to RAVICTI and BUPHENYL in North America.

On April 1, 2020, we acquired Curzion Pharmaceuticals, Inc., or Curzion, a privately held development-stage biopharma company, and its development-stage oral selective lysophosphatidic acid 1 receptor (LPAR1) antagonist, CZN001 (renamed HZN-825), for an upfront cash payment of $45.0 million with additional payments contingent on the achievement of development and regulatory milestones.

Impact of COVID-19

Beginning in March 2020, many states and municipalities in the United States took aggressive actions to reduce the spread of the COVID-19 pandemic, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing "shelter-in-place" orders which direct individuals to shelter at their places of residence (subject to limited exceptions). Similarly, the Irish government limited gatherings of people and encouraged employees to work from their homes. In recent months, vaccines and treatments have enabled a resumption of more normal business practices and initiatives in many countries, including the United States and Ireland. While our financial results during the nine months ended September 30, 2021 were strong and we continue to have a significant amount of available liquidity, the COVID-19 pandemic may have a negative impact on net sales during the remainder of 2021, including due to the emergence of new variants of the virus and potential actions to combat their transmission. In addition, our clinical trials have been and may in the future be affected by the COVID-19 pandemic as referred to below.

Economic and health conditions in the United States and across most of the world are continuing to change rapidly because of the COVID-19 pandemic. Although COVID-19 is a global issue that is altering business and consumer activity, the pharmaceutical industry is considered a critical and essential industry in the United States and many other countries and, therefore, we do not currently expect any significant extended shut downs of suppliers or distribution channels. In respect of our medicines, we believe we have sufficient inventory of raw materials and finished goods and we expect patients to be able to continue to receive their medicines at a site of care, for our infused medicines, and from their current pharmacies, alternative pharmacies or, if necessary, by direct shipment from our third-party providers that have such capability, for our other medicines.

TEPEZZA

The launch of our infused medicine for thyroid eye disease, or TED, TEPEZZA, which was approved by the U.S. Food and Drug Administration, or FDA, on January 21, 2020, significantly exceeded our expectations. In early 2019, we initiated our pre-launch disease awareness, market development and market access efforts with multi-functional field-based teams beginning to engage with key stakeholders in July 2019. We believe these pre-launch efforts, the severity and acute nature of TED, and a highly motivated patient population have generated significant demand for the medicine. For the year ended December 31, 2020, we recorded TEPEZZA net sales of $820.0 million, which was more than 20 times greater than our February 2020 estimate of TEPEZZA full year 2020 net sales of $30.0 million to $40.0 million. While we experienced a much higher number of new patients in 2020 than our initial estimates, the impact from COVID-19 slowed the generation of patient enrollment forms for TEPEZZA, which drive new patient starts.

On December 17, 2020, we announced that we expected a short-term disruption in TEPEZZA supply as a result of U.S. government-mandated COVID-19 vaccine production orders pursuant to the Defense Production Act of 1950, or DPA, that dramatically restricted capacity available for the production of TEPEZZA at our drug product contract manufacturer, Catalent Indiana, LLC, or Catalent. Pursuant to the DPA, Catalent was ordered to prioritize certain COVID-19 vaccine manufacturing at Catalent, resulting in the cancellation of previously guaranteed and contracted TEPEZZA drug product manufacturing slots in December 2020, which were required to maintain TEPEZZA supply. To offset the reduced slots, we accelerated plans to increase the production scale of TEPEZZA drug product at Catalent.

In March 2021, the FDA approved a prior approval supplement to the TEPEZZA Biologics License Application, or BLA (which was previously approved in January 2020), giving us authorization to manufacture more TEPEZZA drug product resulting in an increased number of vials with each manufacturing slot. We commenced resupply of TEPEZZA to the market in April 2021. In addition, we are making progress with our second drug product manufacturer and estimate that TEPEZZA commercial supply from this manufacturer, assuming FDA approval, will begin shipping by the end of 2021. During the third quarter of 2021, we were informed that one of our contract manufacturers is manufacturing an adjuvant for a COVID-19 vaccine. The adjuvant is being manufactured on a different line to the line used to manufacture our medicine. We do not expect the manufacturing of this adjuvant to impact the supply of our medicine. Other than Catalent and the other previously mentioned contract manufacturer, we are not aware of any manufacturing facilities that are part of the supply chain for our medicines that are being utilized for the manufacture of vaccines for COVID-19. At this time, we consider the inventories on hand of our medicines to be sufficient to meet our commercial requirements.

As a result of the prior supply disruption, we delayed the start of an FDA-required post-marketing study to evaluate safety of TEPEZZA in a larger patient population and retreatment rates relative to how long patients receive the medicine given the supply disruption. The FDA-required post-marketing study was initiated in October 2021. We also delayed the start of our planned TEPEZZA clinical trial in chronic TED and an exploratory trial of TEPEZZA in diffuse cutaneous systemic sclerosis. The TEPEZZA clinical trial in chronic TED was initiated in the third quarter of 2021, and we expect to initiate an exploratory trial of TEPEZZA in diffuse cutaneous systemic sclerosis in the fourth quarter of 2021.

KRYSTEXXA and UPLIZNA

KRYSTEXXA is an infused medicine for uncontrolled gout and was also achieving rapid growth prior to the COVID-19 pandemic. While the vast majority of patients on therapy have maintained therapy, many new patients delayed infusions due to shelter-in-place guidelines and patients voluntarily delaying visits to healthcare providers and infusion centers. Patient visits to physicians substantially declined during 2020, which resulted in a reduction of new patients. While there continues to be some impact on demand for KRYSTEXXA, we have seen improvements as healthcare systems have adapted to cope with the pandemic and vaccines have been widely administered in the United States.

UPLIZNA is an infused medicine for neuromyelitis optica spectrum disorder and we acquired through the Viela acquisition in March 2021. While there continues to be some impact on demand for UPLIZNA primarily due to limited patient access to healthcare providers and infusion centers, we have also seen improvements as healthcare systems have adapted to cope with the pandemic and vaccines have been widely administered in the United States.

Our other medicines

Our other orphan segment medicines, RAVICTI, PROCYSBI and ACTIMMUNE, treat serious, chronic diseases with serious consequences if left untreated. It is therefore critical for patients to maintain therapy. Patient motivation to continue treatment is high, and therefore net sales for these three medicines were stable during 2020 and the nine months ended September 30, 2021, with less impact from COVID-19 compared to our other medicines.

In regard to the inflammation segment, the impact of COVID-19 has significantly reduced as healthcare systems have adapted to cope with the pandemic and vaccines have been widely administered in the United States, thereby facilitating the return to mainly in-person engagement by our sales representatives with healthcare providers. In addition, with our HorizonCares program, most patients do not need to physically visit a pharmacy to obtain a prescription because the vast majority of these medicines are delivered to a patient's home through mail or local courier, depending on the participating pharmacy.

Clinical trials

Our clinical trials have been and may in the future be affected by COVID-19 or its variants. As referred to above, our clinical trials for TEPEZZA have been delayed due to the impact of the TEPEZZA supply disruption at Catalent. In addition, clinical site initiation and patient enrollment may be delayed due to prioritization of hospital and healthcare resources toward COVID-19. Current or potential patients in our ongoing or planned clinical trials may also choose to not enroll, not participate in follow-up clinical visits or drop out of the trial as a result of, or a precaution against, contracting COVID-19. Further, some patients may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Some clinical sites in the United States have slowed or stopped further enrollment of new patients in clinical trials, denied access to site monitors or otherwise curtailed certain operations. Similarly, our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may be adversely impacted. These events could delay our clinical trials, increase the cost of completing our clinical trials and negatively impact the integrity, reliability or robustness of the data from our clinical trials.

We are continuing to actively monitor the possible impacts from the COVID-19 pandemic and may take further actions to alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of patients. There is significant uncertainty about the duration and potential impact of the COVID-19 pandemic. This means that our results could change at any time and the contemplated impact of the COVID-19 pandemic on our business results and outlook represents our estimate based on the information available as of the date of this Quarterly Report on Form 10-Q.

Strategy

Horizon is a leading, high-growth, innovation-driven, profitable biotech company. We are focused on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases. Our strategy is to expand our development-stage pipeline for long-term sustainable growth; to maximize the benefit and value of our on-market medicines, with particular focus on our current key rare disease growth driver medicines, TEPEZZA and KRYSTEXXA; and to build a global presence. Our vision is to build healthier communities, urgently and responsibly, which we believe generates value for our many stakeholders, including our shareholders.

Our research and development strategy is to expand our pipeline with early-to late-stage programs for sustainable growth. We are pursuing this strategy by (i) acquiring and developing medicines for indications that address unmet needs in rare, autoimmune and severe inflammatory diseases, particularly those in our therapeutic areas of focus; (ii) leveraging our internal research as well as research-based partnerships and collaborations to drive earlier-stage innovation; and (iii) maximizing the range of potential diseases our pipeline medicine candidates can impact. The March 2021 acquisition of Viela and the addition of its mid-stage biologics pipeline significantly expanded our pipeline. Furthermore, after evaluating the acquired medicine candidates, we announced the addition of five additional Phase 2 programs in new disease states for two of the candidates. These new programs expanded our therapeutic areas of focus, which now include neuroimmunology, dermatology and respiratory, in addition to rheumatology, ophthalmology, nephrology and endocrinology. We continue to expect to initiate a total of eight clinical trials in 2021, five of which have already been initiated. For our on-market rare disease medicines, including our current key growth driver medicines, TEPEZZA and KRYSTEXXA, our commercialization strategy includes efforts to increase awareness of the conditions each medicine is designed to treat, enhancing efforts to identify target patients and to maximize the value of the medicines through investment in clinical trials. In addition, we are pursuing a global expansion strategy, which includes bringing TEPEZZA to patients with TED outside of the United States, including Japan, where we are engaging with the Pharmaceuticals and Medical Devices Agency and the Japanese medical community. Furthermore, we are investing in our European infrastructure to support the potential first-quarter 2022 approval of UPLIZNA by the European Medicines Agency for neuromyelitis optica spectrum disorder, which has been granted orphan designation by the European Commission. In addition, to support the global growth of our on-market medicines, including TEPEZZA, KRYSTEXXA and UPLIZNA, and our pipeline biologic medicines, in the second quarter of 2021 we acquired a biologic drug product manufacturing facility in Waterford, Ireland. Subject to completing the build-out, validation and regulatory approval processes, we expect that the first medicine manufactured at the facility to be approved for release in 2023.







        RESULTS OF OPERATIONS
        Comparison of Three Months Ended September 30, 2021 and 2020
        Consolidated Results
        The table below should be referenced in connection with a review of the
        following discussion of our results of operations for the three months ended
        September 30, 2021, compared to the three months ended September 30, 2020.
                                                   For the Three Months Ended
                                                          September 30,
                                                      2021               2020         Change
                                                                (in thousands)
        Net sales                                $     1,036,992       $ 636,427     $ 400,565
        Cost of goods sold                               251,640         151,475       100,165
        Gross profit                                     785,352         484,952       300,400
        Operating expenses:
        Research and development                          93,549          30,206        63,343
        Selling, general and administrative              360,260         226,164       134,096
        Total operating expenses                         453,809         256,370       197,439
        Operating income                                 331,543         228,582       102,961
        Other expense, net:
        Interest expense, net                            (22,977 )       (12,185 )     (10,792 )
        Foreign exchange loss                               (476 )          (753 )         277
        Loss on debt extinguishment                            -         (14,602 )      14,602
        Other (expense) income, net                         (849 )           717        (1,566 )
        Total other expense, net                         (24,302 )       (26,823 )       2,521
        Income before benefit for income taxes           307,241         201,759       105,482
        Benefit for income taxes                         (19,302 )       (91,081 )      71,779
        Net income                               $       326,543       $ 292,840     $  33,703
        


Net sales. Net sales increased $400.6 million, or 63%, to $1,037.0 million during the three months ended September 30, 2021, from $636.4 million during the three months ended September 30, 2020. The increase in net sales during the three months ended September 30, 2021 was primarily due to an increase in net sales in our orphan segment of $416.2 million, primarily due to an increase in TEPEZZA net sales of $329.5 million, an increase in KRYSTEXXA net sales of $49.6 million and net sales generated for UPLIZNA of $18.7 million when compared to the three months ended September 30, 2020.

The following table reflects net sales by medicine for the three months ended September 30, 2021 and 2020 (in thousands, except percentages):







                                            Three Months Ended
                                               September 30,            Change        Change
                                            2021           2020            $            %
        TEPEZZA                          $   616,361     $ 286,870     $ 329,491          115 %
        KRYSTEXXA                            158,097       108,470        49,627           46 %
        RAVICTI                               76,323        64,648        11,675           18 %
        PROCYSBI                              49,346        43,112         6,234           14 %
        ACTIMMUNE                             30,063        28,312         1,751            6 %
        UPLIZNA                               18,677             -        18,677          100 %
        BUPHENYL                               1,868         3,229        (1,361 )        (42 )%
        QUINSAIR                                 302           163           139           85 %
        Orphan segment net sales         $   951,037     $ 534,804     $ 416,233           78 %
        PENNSAID 2%                           47,963        50,314        (2,351 )         (5 )%
        DUEXIS                                20,915        27,899        (6,984 )        (25 )%
        RAYOS                                 14,873        18,132        (3,259 )        (18 )%
        VIMOVO                                 2,204         5,278        (3,074 )        (58 )%
        Inflammation segment net sales   $    85,955     $ 101,623     $ (15,668 )        (15 )%
        Total net sales                  $ 1,036,992     $ 636,427     $ 400,565           63 %
        


Orphan Segment

TEPEZZA. Net sales increased $329.5 million, or 115%, to $616.4 million during the three months ended September 30, 2021, from $286.9 million during the three months ended September 30, 2020. Net sales increased by approximately $337.9 million due to volume growth, partially offset by a decrease of approximately $8.4 million resulting from lower net pricing.

KRYSTEXXA. Net sales increased $49.6 million, or 46%, to $158.1 million during the three months ended September 30, 2021 from $108.5 million during the three months ended September 30, 2020. Net sales increased by approximately $35.3 million due to volume growth and $14.3 million due to higher net pricing, despite the ongoing challenges associated with the COVID-19 pandemic.

RAVICTI. Net sales increased $11.6 million, or 18%, to $76.3 million during the three months ended September 30, 2021, from $64.7 million during the three months ended September 30, 2020. Net sales increased by approximately $9.8 million due to volume growth and $1.8 million due to higher net pricing.

PROCYSBI. Net sales increased $6.2 million, or 14%, to $49.3 million during the three months ended September 30, 2021, from $43.1 million during the three months ended September 30, 2020. Net sales increased by approximately $4.1 million due to higher net pricing and $2.1 million due to volume growth.

ACTIMMUNE. Net sales increased $1.8 million, or 6%, to $30.1 million during the three months ended September 30, 2021, from $28.3 million during the three months ended September 30, 2020. Net sales increased by approximately $1.9 million due to higher net pricing, partially offset by a decrease of approximately $0.1 million resulting from lower sales volume.

UPLIZNA. Net sales generated for UPLIZNA during the three months ended September 30, 2021 were $18.7 million. We began recognizing UPLIZNA sales following our acquisition of Viela on March 15, 2021.

Inflammation Segment

At September 30, 2021, we determined that there was an indicator to trigger an interim impairment analysis of the inflammation reporting unit's $56.2 million goodwill balance. The fair value of the inflammation reporting unit exceeds its carrying value by more than 30% as of September 30, 2021, the interim testing date, resulting in no impairment. In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we applied a hypothetical 10 percent decrease to the fair values of the reporting unit. A 10% decrease in fair value would reduce the headroom between the reporting unit's fair value and its carrying value to approximately 19%.

We anticipate that an impairment of the inflammation reporting unit's goodwill could occur in the next 12 to 18 months if the reporting unit does not achieve currently forecasted nets sales and profitability estimates.

PENNSAID 2%. Net sales decreased $2.3 million, or 5%, to $48.0 million during the three months ended September 30, 2021, from $50.3 million during the three months ended September 30, 2020. Net sales decreased by approximately $5.9 million due to lower sales volume, partially offset by an increase of approximately $3.6 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs.

DUEXIS. Net sales decreased $7.0 million, or 25%, to $20.9 million during the three months ended September 30, 2021, from $27.9 million during the three months ended September 30, 2020. The decrease in net sales was primarily due to the impact of generic competition on DUEXIS.

On August 3, 2021, the FDA granted final approval for Alkem Laboratories, Inc.'s, or Alkem, generic version of DUEXIS and on August 4, 2021, Alkem launched its generic version of DUEXIS in the United States. While patent litigation against Alkem continues in the Federal Circuit Court of Appeals, we now face generic competition for DUEXIS, which has negatively impacted net sales of DUEXIS. As a result, we have repositioned our promotional efforts previously directed to DUEXIS to the other inflammation segment medicines and expect that our DUEXIS net sales will continue to decrease in future periods.

RAYOS. Net sales decreased $3.2 million, or 18%, to $14.9 million during the three months ended September 30, 2021, from $18.1 million during the three months ended September 30, 2020. Net sales decreased by approximately $3.8 million due to lower sales volume, partially offset by an increase of $0.6 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs.

VIMOVO. Net sales decreased $3.1 million, or 58%, to $2.2 million during the . . .

Nov 03, 2021

COMTEX_396283570/2041/2021-11-03T07:24:29

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