| Item 7.01 | Regulation FD Disclosure. |
Similar to changes at other peer companies and following consultation with the U.S. Securities and Exchange Commission, beginning in the fourth quarter of 2021, the Company will no longer exclude upfront and milestone payments related to collaboration and license agreements from its reported non-GAAP financial measures, including non-GAAP R&D and SG&A expenses, adjusted EBITDA and non-GAAP adjusted earnings per share. The Company will also reclassify any prior periods presented to conform with the new classification of upfront and milestone payments related to collaboration and license agreements.
As a result of these changes, fourth-quarter upfront and milestone payments of $36.0 million, primarily related to upfront payments for the collaboration with Alpine Immune Sciences (Alpine) announced today, will increase non-GAAP R&D expense and will reduce fourth-quarter 2021 adjusted EBITDA by $36.0 million. The Company expects the change in calculating its non-GAAP financial measures will increase full-year 2021 non-GAAP R&D expense and reduce full-year 2021 adjusted EBITDA by approximately $90.0 million primarily related to upfront and milestone payments under its collaboration and license agreements, including those with Arrowhead Pharmaceuticals and Alpine, as well as payments related to daxdilimab and HemoShear. These upfront and milestone payments were not included in Horizon’s prior full-year 2021 adjusted EBITDA guidance.
The Company provided full-year 2021 adjusted EBITDA guidance of $1.315 to $1.345 billion on Nov. 3, 2021. Incorporating the $90.0 million change in the calculation of adjusted EBITDA would result in our Nov. 3, 2021 adjusted EBITDA guidance range being $1.225 to $1.255 billion. The Company currently expects approximately $20 million in potential milestone payments in 2022 related to existing agreements and will include this amount in its 2022 adjusted EBITDA guidance when provided.
Note Regarding Use of Non-GAAP Financial Measures
EBITDA, or earnings before interest, taxes, depreciation and amortization, and adjusted EBITDA are used and provided by Horizon as non-GAAP financial measures. 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 as well as EBITDA exclude acquisition and/or divestiture-related expenses, gain or loss from divestiture, gain or loss from sale of assets, litigation settlements, loss on debt extinguishment, costs of debt refinancing, drug manufacturing harmonization costs, restructuring and realignment costs, the income tax effect on pre-tax non-GAAP adjustments and other non-GAAP income tax adjustments, as well as non-cash items such as share-based compensation, depreciation and amortization, non-cash interest expense, long-lived asset impairment charges and other non-cash adjustments. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. Horizon maintains an established non-GAAP cost policy that guides the determination of what costs will be excluded in non-GAAP measures. Horizon believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Horizon’s financial and operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of the Company’s historical and expected 2021 financial results and trends and to facilitate comparisons between periods and with respect to projected information. 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. Horizon has not provided a reconciliation of its full-year 2021 adjusted EBITDA outlook to an expected net income (loss) outlook because certain items such as acquisition/divestiture-related expenses and share-based compensation that are a component of net income (loss) cannot be reasonably projected due to the significant impact of changes in Horizon’s stock price, the variability associated with the size or timing of acquisitions/divestitures and other factors. These components of net income (loss) could significantly impact Horizon’s actual net income (loss).
Forward-Looking Statements
This report contains forward-looking statements, including, but not limited to, statements related to Horizon’s full-year 2021 adjusted EBITDA guidance; expected future milestone payments under exiting collaboration and licensing agreements and impact on future financial performance and operating results; and business and other statements that are not historical facts. These forward-looking statements are based on Horizon’s current
