Horizon Pharma PLC (NASDAQ: HZNP)
A trifecta of positive news sent shares of Horizon Pharma spiking higher during the Tuesday trading session, with HZNP closing the regular trading session up 2.5% to $18.31 a share, retracing from its high of the day by about two percent. Volume was fairly brisk with the stock trading above its average daily volume by about twenty five percent.
Horizon was met with enthusiastic buyers after the company released news that they completed the previously announced acquisition of Raptor Pharmaceutical Corp. (RPTP). Additionally, Horizon raised its fiscal year 2016 net sales guidance while further confirming full year 2016 Adjusted EBIDTA guidance. To complete the trifecta, HZNP also announced the addition of two additional medicines, PROCYSBI and QUINSAIR to the growing stable of drugs intended to treat rare disease in the U.S., European and International markets.
Why This HZNP Trifecta May Pay Off Well
Typically, trifecta’s pay off very well for the investor, whether it be at a race track or in a specific stock. Being the recipient of three positive catalysts in simultaneous fashion can certainly make for a handsome payday. In some cases, though, when playing on a favorite, the payoff may not be as large upfront, however, that same win can continue to pay rewards for a lengthened period of time. Hence, rather than getting the once and done payoff, a winner of the sustainable trifecta can reap rewards for months to come. And, this is where I categorize the Horizon Pharma trifecta.
The first leg in the HZNP trifecta was the completion of the Raptor Pharmaceutical Corp acquisition. Without going through all of the technicals on the acquisition, I can simplify it by stating that through an original merger between Misneach and Raptor, Raptor ultimately became the surviving entity. From there, Raptor became a wholly owned subsidiary of Horizon with all shares of Raptor being canceled and will cease to trade on the NASDAQ Global market. Yes, far too simple an explanation to a complex deal, however, its history now and I want to discuss the emerging Horizon.
With that settled, the deal has several obvious benefits to Horizon,which they can leverage upon almost immediately. First, the acquisition provides HZNP an immediate footprint into the European and International markets. Utilizing the footprint established by Raptor, Horizon has the opportunity to develop quickly into targeted markets focusing on three independent business strategies: orphan, rheumatology and primary care indications.
The deal simultaneously strengthens Horizon Pharma’s ability to intensify its focus on rare disease indications by adding two additional drugs, PROCYSBI and QUINSAIR, with Horizon enjoying both global rights as well as long term patent protection that extends through 2034. With the addition of these two medicines, HZNP broadens and diversifies its pipeline and revenue stream by benefiting from eleven different medications that target the business strategies mentioned above.
The second leg of the HZNP trifecta is that the deal has tremendous synergies that bring together two complimentary visions to treat, develop and commercialize medications and treatments for undeserved and unmet medical needs. The increased efficiencies and elevated revenue stream can further allow the combined company to continue on its mission to acquire additional drugs and compounds that will compliment its strategy and long term vision. Timothy Walbert, CEO of Horizon, stated, “the added infrastructure in Europe and other key international markets will further benefit the access to both current and newly acquired medicines as well as position us for the potential introduction of ACTIMMUNE for Friedreich’s Ataxia in Europe…if the results of the phase III trial are positive”
Clearly, the Raptor acquisition provides immediate leverage into the European markets. This provides a huge advantage to Horizon as they continue to diversify the business plan to take advantage of revenue opportunities available through a targeted and strategic plan to exploit differentiated market segments with their current and newly acquired medications.
To set the final piece of the trifecta winning trade into place, Horizon will enjoy a positive and accretive financial impact from the acquisition. Subsequent to the finalization of the acquisition, Horizon has raised its full year 2016 net-sales guidance on a GAAP basis to between $980 to $985 million dollars. This number included the one time adjusted of $65 million dollars related to a settlement with Express Scripts. Excluding the settlement, the guidance was set at $1.045 to $1.050 billion dollars.
Additionally, the company will recognize accretive revenue from the net sales of Raptor medicines for the final two months of 2016, projected to add between $20 and $25 million dollars to total net sales. With the positive recognition from Raptor, HZNP has also reaffirmed its full year adjusted EBIDTA guidance of between $450 and $460 million dollars. Te company shared with investors that they will provide adjusted and updated revenue and net sales guidance during the first quarter of 2017.
Now That I See The Trifecta, Who Is Horizon?
Now that the winning trifecta trade is on its way to being realized by shareholders, some newbies might be wondering who the heck Horizon Pharma is and what do they do? Fair question.
For sure, Horizon is not a micro cap biotech stock that is searching for guys like Soulstring to place some affable remarks into a column to assist in getting its share price higher. First, Soulstring don’t do that and second, HZNP is doing fine on their own.
Horizon Pharma is a biopharmaceutical company that is headquartered in Dublin, Ireland. The mission at HZNP is to focus on improving patients lives, a novel statement indeed, and they intend to do this by identifying, developing, acquiring and commercializing differentiated medications to treat unmet medical needs and conditions.
Horizon has a broad and respectable line of medicinal offerings, treating medical conditions that range from treating urea cycle disorders to nephropathic cystinosis, diseases and conditions mostly associated to the arthritis and rare disease categories. . For a broad and detailed review of each product, click here to see the complete line of compounds and medicines currently being offered by HZNP.
Horizon has an aggressive plan to leverage their core competencies in the U.S. by focusing on primary care, rheumatology and orphan indications. The strategy intends to continue on its trend of acquisition and strategic alliances to create shareholder value. Currently, HZNP enjoys strategic relationships with AstraZeneca, Pozen, Grunenthal, Mundi Pharma and Skyepharma.
Horizon is a well managed and transparent company, employing a well rounded set of internal procedures to protect shareholder interests. They offer shareholders the ability to contact with the Board of Directors directly, offer a whistle blower protection plan and maintain independent layers of audit and regulatory committees to ensure compliance in a broad range of corporate governance.
Further, Horizon presents information via conference and road show events, providing live conference calls and offers an Investor Day, with the most current Investor Day scheduled in November of this year.
The stock has traded as low as $13.05 a share during the prior 52 weeks and has traded as high as $23.70 during that same period. Sitting at roughly $18.30 cents a share, despite a recent meltdown of the IBB is testament to the relative strength at the company.
On August 10, 2016, Horizon reported Q2 financial results that highlighted the following:
* net income of $2.5 million dollars, .22 cents per basis shareholder
* positive cash from recurring operations of $2.1 million dollars for the quarter
* total revenue for the quarter was $8.1 million dollars
* cash and cash equivalents totaled $16 million dollars
* no long term debt
Cashing In My Trifecta Ticket
Although I do not currently own shares in Horizon, it is a stock that I will keep a close watch on as they appear to be making the choices that can work to advance their strategy and increase shareholder value.. Since they did file for a shelf offering in October of this year, I am maintaining a wait and see attitude to see how the stock performs in the face of potential and anticipated dilution.
With that said, however, HZNP is a transparent and well run company that has the respect and partnership of key pharmaceutical players. They have adequate cash on hand and, by reading between the lines of the shelf offering, may be setting themselves up for further accretive acquisition opportunities.
The news today highlighted three key and important developments for HZNP and investors should be able to expect additional and like release in the future. Although investors won’t always be dealt a trifecta winning trade, a quinella isn’t bad, either, and I believe that Horizon is in a position to deliver events that have more than one spark in the lighter.
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Kenny Soulstring is the Chief Strategic Analyst here at CNA Finance. For a limited time, his analysis is available for free. Get in while you still can by subscribing to the mailing list below!
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