Has Horizon Pharma's Share Price Bottomed Out?

| About: Horizon Pharma (HZNP)

In 2012, Horizon Pharma (NASDAQ:HZNP) evolved from a developmental drug company to an integrated commercial pharmaceutical company as the result of receiving US Food and Drug Administration (FDA) approval for two of its drugs.

This $157M market cap company is focused on drugs to treat arthritis, pain, and inflammatory diseases. The company has developed and is commercializing Duexis (ibuprofen and famotidine) and Rayos/Lodotra (prednisone).


Chronic pain affects over 116 million people in the United States and about one-third of adults in the world. Nonsteroidal anti-inflammatory drugs (NSAIDs) are often prescribed to treat conditions associated with chronic pain. Globally, over 73 million prescriptions for NSAIDS are written annually.

Although these drugs are often effective, NSAID use frequently results in gastrointestinal (NYSE:GI) conditions. One study found that up to 30% of those patients who use NSAID regularly develop ulcers.

Horizon's lead product, Duexis, combines the popular NSAID, ibuprofen, with famotifine, a histamine H2 receptor antagonist in a single pill. While ibuprofen has anti-inflammatory and analgesic properties, famotidine reduces stomach acid secretions that can cause ulcers.

NSAIDs, including ibuprofen, increase the risk of serious gastrointestinal adverse reactions including bleeding, ulceration, and perforation of the stomach or intestines, which can be fatal. Reactions can also occur at any time without warning symptoms.

By combining ibuprofen and famotidine, Duexis decreases the risk of upper gastrointestinal ulcers while reducing the pain and inflammation associated with osteoarthritis and rheumatoid arthritis.

Duexis has been studied in more than 1,500 patients with mild to moderate pain or arthritis. In the REDUCE-1 clinical trial, Duexis was found to significantly reduce the risk of NSAID-induced gastric ulcers when compared with ibuprofen alone. In the REDUCE-2 trial, researchers noted that Duexis significantly reduced the risk of upper gastrointestinal ulcers when compared with ibuprofen alone.

Duexis was approved by the FDA on April 25, 2011. In December 2012, the United Kingdom (NASDAQ:UK) Medicines and Healthcare products Regulatory Agency (MHRA) granted marketing authorization for Duexis for the symptomatic treatment of osteoarthritis, rheumatoid arthritis and ankylosing spondylitis in patients who require regular treatment with high dose ibuprofen administered three times a day and who are at risk of developing NSAID-associated gastric or duodenal ulcers. The positive decision from the MHRA is the final regulatory step for Duexis to be marketed in the UK.

Horizon anticipates that granting of the UK marketing authorization for Duexis will help facilitate the approval of the drug in European Union (NYSEARCA:EU) member states through the Mutual Recognition Procedure under EU pharmaceutical law. Under this procedure, the UK will act as the Reference Member State.

Horizon is seeking a potential commercial partner in the UK and other EU member states where Duexis may be approved. However, the country's primary focus remains in the United States, where the company believes the vast majority of the global NSAID market opportunity exists.

New prescriptions for Duexis increased 57% in the fourth quarter of 2012 to 31,130 versus 19,874 in the third quarter of 2012. Total prescriptions for Duexis increased 56% in the fourth quarter of 2012 to 39,060 versus 25,054 in the third quarter of 2012.

Duexis had gross sales of $13.2 million and net sales of $11.0 million, respectively, in 2012, which was the first full year of sales following the launch of Duexis in December 2011.

Duexis fourth quarter 2012 gross and net sales were $7.1 million and $6.0 million, respectively; increases of 138% and 132%, respectively, over third quarter 2012 Duexis gross and net sales.


Rayos is Horizon's proprietary delayed-release formulation of low-dose prednisone. The drug was approved by the FDA on July 26, 2012 for the treatment of rheumatoid arthritis, polymyagia rheumatica, psoriatic arthritis, and ankylosing spondylitis.

Rayos is unique because the drug offers prednisone with a four hour lag time instead of an immediate release formulation.

The FDA's decision was based on data from the Circadian Administration of Prednisone in Rheumatoid Arthritis (CAPRA-1 and -2) studies. The CAPRA-1 clinical trial supported the overall safety profile of Rayos. In the CAPRA-2 study, researchers found that patients with moderate to severe rheumatoid arthritis treated with Rayos showed a significant improvement in many symptoms associated with rheumatoid arthritis, including morning stiffness. In clinical studies, Rayos was taken at about 10 pm.

Diseases like rheumatoid arthritis and polymyagia rheumatica are often most active in the early morning hours, which can result in morning stiffness and other symptoms. When taken the night before (~10 pm in clinical trials) the delayed release of prednisone in Rayos helped reduce morning stiffness.

While the pharmacokinetic profile of Rayos differs in terms of lag time from immediate-release prednisone, its absorption, distribution and elimination processes are comparable.

Horizon initiated the full commercial launch of Rayos to rheumatologists and key primary care physicians through the company's 150-person sales force in February 2013.

Since the launch of Rayos, approximately 275 rheumatologists have written over 1,000 Rayos prescriptions.

Outside the United States, Rayos is known as Lodotra. The drug is approved in 20 countries. In Europe, Lodotra is marketed through Horizon's distribution partner Mundipharma, which also has commercial rights in certain Asian and Latin American countries. In March 2012, Horizon announced that its Swiss subsidiary and Mundipharma International Corporation Limited and Mundipharma Medical Company have amended their exclusive distribution and supply agreements for commercialization of Lodotra in Asia to also include Mexico, Brazil, Argentina, Colombia, Venezuela, Peru, Chile, Ecuador, Dominican Republic, Guatemala, Costa Rica, Uruguay, Bolivia, Panama, Nicaragua, El Salvador and Honduras.

Rayos gross sales following its U.S. launch in December 2012 were $0.8 million and net sales were $0.4 million after deductions for discounts and allowances, and for co-pay assistance costs. Lodotra gross sales were $9.0 million and net sales were $8.2 million after deducting trade discounts and allowances of $0.8 million during the year ended December 31, 2012, compared to gross and net sales of $6.8 million during the year ended December 31, 2011. The increase in Lodotra sales was attributable to higher product shipments during 2012 in addition to the recognition of deferred revenues from the company's distribution partner, Mundipharma.

TruNoc and HZN-602

In addition to Duexis and Rayos, Horizon also has a pipeline of clinically enabled product candidates for the treatment of pain-related diseases and chronic inflammation. The company is evaluating the development pathway product candidates, TruNoc and HZN-602.

Horizon believes TruNoc (tarenflurbil) may be a promising treatment for pain-related diseases. Tarenflurbil is a focused inhibitor of certain well-characterized genes (NF-κB and AP-1), whose expression is known to lead to pain and inflammation. The compound is one of two enantiomers (chemically mirror-imaged compounds) that constitute flurbiprofen, an analgesic and anti-inflammatory pharmaceutical, which gained marketing approval in the 1970s.

HZN-602 is a novel fixed-dose combination product containing immediate release naproxen, with famotidine. Naproxen is one of the most widely prescribed NSAIDs in the United States. Horizon plans to investigate HZN-602 for the reduction of the risk of NSAID-induced upper GI ulcers in patients with mild to moderate pain and arthritis. HZN-602 may potentially improve naproxen's GI safety profile without altering its ability to reduce pain and inflammation.

At the present time, Horizon has no plans to further develop TruNoc or HZN-602 independently.


Horizon's full year 2012 gross sales were $23.0 million, representing a 231% increase over 2011 gross sales. Net sales were $19.6 million, a 183%, over the previous year's net sales.

Fourth quarter 2012 gross and net sales were $8.2 million and $6.7 million, respectively; increases of 130% and 91%, respectively, over fourth quarter 2011 gross and net sales.

The company's net loss for 2012 was $87.8 million, or $2.26 per share, compared to a net loss of $113.3 million, or $12.56 per share, in 2011.

Cash and cash equivalents balance at the end of 2012 was $104.1 million, which the Company believes will be sufficient to fund its operations through 2013.

Conclusion: Buy

Horizon's strategy is to "develop, acquire, in-license and/or co-promote additional innovative medicines where it can execute a targeted commercial approach in specific therapeutic areas while taking advantage of its commercial strengths and the infrastructure the Company has put in place."

It is not uncommon for some pharmaceutical companies to make costly missteps when transitioning from a developmental to a commercial drug company. Horizon appears to be making the transition smoothly so far.

In the third quarter of 2012, Horizon expanded its sales force from 80 sales representatives to approximately 150 salespeople. The company also completed a co-promotion agreement with Mallinckrodt/Covidien (COV), which began promoting Duexis in the third quarter of 2012. Horizon estimates that the two companies are now covering 50% of the NSAID prescription market.

In June 2012, Horizon announced the company's first out-license of Duexis outside the United States with Grunenthal for the commercialization of the drug in Latin America. Based in Germany, Grunenthal is an independent, family-owned pharmaceutical company specializing in pain management.

Horizon claims the company has recent market research that shows that approximately 85% of the company's commercial claims are being approved for Duexis with the company providing cost-effective access to patients through Horizon's co-pay assistance program.

Horizon is also continuing a program with local and regional specialty pharmacies that allows Duexis to be shipped directly to the patient since some U.S. pharmacies have switched patients' prescriptions to generic or over-the-counter brands.

Horizon has developed a pilot program where company representatives are "work(ing) closely with physicians and their staff to make them aware of this practice and ensure that patients receive the prescribed medication." Abating the substitution of generic or over-the-counter ibuprofen and famotidine for Duexis may be a challenge for the company since the cost savings is substantial.

Several generic drug companies are also anxious to produce Duexis and Rayos before the expiration of their U.S. patents.

In April 2012, Horizon sued Par Pharmaceutical Co. (NYSE:PRX) for patent infringement. Par would like to produce a generic version of the Duexis before Horizon's two U.S. patents expire in 2026.

On March 13, 2013, Horizon received a Paragraph IV Patent Certification from Alvogen, a private, generic pharmaceutical company based in Pine Brook, New Jersey advising that Alvogen had filed an amended new drug application (NASDAQ:ANDA) with the FDA for generic version of Rayos. Horizon said the company was "prepared to vigorously defend our intellectual property both on Rayos and Duexis." In January 2013, Novartis AG (NYSE:NVS) filed a suit against Alvogen, alleging the firm was infringing two patents by seeking U.S. regulatory approval to manufacture and sell generic versions of the Exelon (rivastigmine) patch, a dementia treatment.

Horizon has enough cash to get them through 2013 and into 2014. There has been talk that Horizon could be an acquisition target for a larger pharmaceutical company. Takeda Pharmaceutical Company and Covidien Plc have been mentioned.

Despite no significant bad news, Horizon shares have fallen significantly since reaching a 52 Week High of $8.72 per share on July 3, 2012. On March 1, 2013 and March 4, 2013, the company's stock price plummeted to a 52 Week Low of $1.97 per share. The value of Horizon stock has been steadily increasing in March. By mid-March, the stock price was in the $2.50 per share range. When priced under $3 a share, I think Horizon is a real bargain.

Disclosure: I am long HZNP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.