An Overview of Horizon Pharma After Q3 Earnings Print E-mail
By Brian Wilson - Lead Contributor   
Tuesday, 12 November 2013 10:04
Recently, Horizon Pharma (HZNP) has been quite an interesting play in the biotech space. Speculation on the bullish side has been dominating (as demonstrated with the 95% rally the stock saw in the last three months), although bearish pressure seems to keep the $5 ceiling on the stock intact. After the company reported earnings yesterday (that’d be November 11th, 2013) the stock saw a huge slide after a giant rally in the premarket that put HZNP firmly above the $5 ceiling. The upswing seemed to be solely based on the surprisingly strong sales figures that the company put out for its two reformulated arthritis drugs DUEXIS and RAYOS, with DUEXIS being the more important of the two in terms of financial figures. DUEXIS reported gross and net sales of 28.5 and 23.5 M respectively.

Although sales seem to be growing quickly (~79% year over year for Q3 2013), the company is currently unprofitable. While the net loss was only $5.5 M for the third quarter, 

DUEXIS and RAYOS

DUEXIS is a formulation of ibuprofen and famotidine, and has comparable efficacy to painkillers. RAYOS is a delayed-release tablet of prednisone, and acts through another common pathway for reduction of pain related to arthritis. The two products are very similar to generic products, which limits their pricing power and steepens the difficulty for sales representatives.

HZNP: Valuation & Trading

Horizon does have FDA approved products and revenues, which limits risk and puts a general “floor” on the valuation of the company. However, the company is selling a product that has heavy competition from both generic products and big pharma reformulation products that target the same arthritis indications. This suggests that Horizon should stay within a general “trading range”, which may make it an ideal trading candidate for technical analysts.

Given these financials, I don’t see the stock reaching 6 before the end of the year unless there is a tremendous market rally of some sort - or even a rare biotech rally to stack YTD outperformance even higher. If investors are currently holding the stock, it might be a good idea to sell a covered call against the stock with a December 2013 expiration. The only strike price that seems to have a bid is the 6.00 option, and investors would want to try for .10 if they wanted to lower their cost basis.

The floor may be more difficult to determine, although the stock is very unlikely to break the $2.00 per share level as it almost did in August. The company is supported by a cash pile of $58.6 M and a net worth of around $70 M.

                                                          




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