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Horizon (HZNP) Stock Up Despite Q3 Earnings, Revenue Miss

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Horizon Pharma plc (HZNP - Free Report) reported third-quarter 2016 earnings of 56 cents per share (including the impact of share-based compensation expense and tax adjustments), which surged approximately 85% from the year-ago period. Reported earnings, however, missed the Zacks Consensus Estimate of 63 cents.

Including the impact of the $65 million settlement with pharmacy benefit manager (PBM) Express Scripts Holding Company (ESRX - Free Report) in late Sep 2016, total revenue in the reported quarter came in at $208.7 million, down 8%. Revenues also missed the Zacks Consensus Estimate of $273.1 million.

Excluding the impact of the settlement, revenues amounted to $273.7 million, up 21% from the year-ago period. This was mainly due to strong growth across all three of its business units – Primary Care, Orphan and Rheumatology.

Horizon’s shares gained 14% following the release of its third-quarter results.

Business Units Drive Top Line

Primary Care revenues increased approximately 10% year over year to $161.8 million, backed by robust performance of Pennsaid 2% (up 83% to $80.2 million). Both Duexis and Vimovo increased 4.6% and 4.5% sequentially to $47.6 million and $32.8 million, respectively.

Migergot recorded sales of $1.2 million in the reported quarter, up 9.1% sequentially.

The Orphan unit recorded revenues of $71.4 million, up 8% from the year-ago period. The unit comprises sales of Ravicti, Actimmune and Buphenyl.

Actimmune sales in the reported quarter were $24.9 million, down 13% year over year and 17% sequentially. The decline was due to lower prescription volume and lower net pricing as a result of higher co-pay and other patient assistance. Ravicti raked in sales of $42.2 million, up 26% from the year-ago period. Buphenyl contributed $4.3 million to the top line, up 10% from the year-ago quarter.

We note that both Ravicti and Buphenyl became part of company’s portfolio after the May 2015 Hyperion Therapeutics acquisition.

The Rheumatology unit, comprising Krystexxa and Rayos/Lodotra, generated sales of $40.5 million, up 217% year over year and 22% sequentially. Krystexxa sales in the third quarter came in at $25.6 million, up 29% sequentially. Rayos garnered revenues of $13.4 million, up 15% year over year driven by steady prescription volume growth.

We note that both Migergot and Krystexxa became part of the company’s portfolio after its Jan 2016 Crealta Holdings acquisition.

Adjusted research & development expenses declined 6.3% year over year to $10.3 million, while adjusted general and administrative expenses increased 6% to $39.4 million. Adjusted sales and marketing expenses were $66 million, up 46.6%.

In Oct 2016, Horizon completed the acquisition of California-based biopharmaceutical company, Raptor Pharmaceutical Corp. With this acquisition, Horizon will be able to strengthen its U.S. orphan business, and expand into Europe and other key international markets. The acquisition has also added two orphan drugs – Procysbi and Quinsair – to its portfolio.

2016 Guidance Reiterated

Horizon reiterated its net sales and adjusted EBITDA expectations for 2016. The company continues to expect net sales to be approximately $980–$985 million, including the impact of the settlement and the Raptor acquisition. Excluding the impact of the settlement, the company still anticipates net sales in the range of $1.045 billion to $1.050 billion, which includes contribution of $20–$25 million from Raptor medicines for the last two months of 2016. The Zacks Consensus Estimate for revenues currently stands at $1.04 billion.

The company continues to expect adjusted EBITDA in the range of $450 million to $460 million, which includes the impact of Raptor for the last two months of 2016, as well as an expected increase in operating expenses.

Other Updates

Horizon continues to expect top-line data from the phase III study (STEADFAST) evaluating Actimmune for the treatment of Friedreich's ataxia late next month. Positive results would allow the company to file a supplemental biologics license application by the end of the first quarter of 2017.

Actimmune is also being evaluated in combination with a PD-1 checkpoint inhibitor in a phase I dosing study for the treatment of kidney and bladder cancer.

Moreover, Horizon is working on expanding its managed care organization to support the broader contracting strategy with PBMs and payers. The company has secured formulary status with a couple of PBMs, representing about 35% of the covered lives in the U.S., and is currently in discussions and negotiations with other PBMs and payers to increase access to its medicines.

HORIZON PHARMA Price, Consensus and EPS Surprise


Zacks Rank & Stocks to Consider

Horizon is a Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the health care sector include Exelixis, Inc. (EXEL - Free Report) and Infinity Pharmaceuticals, Inc. (INFI - Free Report) . While Infinity sports a Zacks Rank #1 (Strong Buy), Exelixis has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Infinity’s loss estimates narrowed from $3.84 to $3.79 for 2016 and from 87 cents to 86 cents for 2017 over the last 60 days. The company has posted a positive surprise in all of the four trailing quarters with an average beat of 67.62%.

Exelixis’ loss estimates narrowed from 71 cents to 59 cents for 2016 and from a loss of 16 cents to earnings of a penny for 2017 over the last 60 days. The company has posted a positive surprise twice in the trailing four quarters with an average beat of 38.52%. Its share price has skyrocketed above 100% year to date.

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