Horizon Pharma: Speculative Small Cap Moving On News

Nov.19.13 | About: Horizon Pharma (HZNP)

It has been over a year since I penned anything focusing on a small pharma play called Horizon Pharma (NASDAQ:HZNP). The last time I profiled the stock it was due to some heavy insider buying when the stock was selling at $3.50 a share in October 2012. It seems appropriate to revisit this small cap's prospects as the stock approaches $6 a share and it has just announced a major acquisition.

Acquisition specifics:

  • Horizon has agreed to acquire the U.S. rights to arthritis-pain tablets "Vimovo" from AstraZeneca (NYSE:AZN).
  • Horizon will pay $35M up front and royalties to Pozen (NASDAQ:POZN) which owns patents that cover Vimovo.
  • The company recently announced it will raise $150mm in five percent notes, part of which will be used to finance this purchase.
  • Most importantly this upwardly impacted forward guidance. Horizon stated this acquisition will allow the company to record revenue in 2014 of $190-205M, well above Street predictions of 157.55M. The company also predicts that it will book a non GAAP profit next year versus consensus for a loss of $0.04 per share.

In addition, the company posted a surprise profit ten days ago during its quarterly results that beat on the top and bottom line expectations.

Company Overview:

Horizon Pharma is a specialty pharmaceutical company that develops and commercializes medicines for the treatment of arthritis, pain, and inflammatory diseases.

4 additional reasons HZNP can go higher from ~$5.75 a share:

  1. The company was already on an attractive earnings ramp before the recent announcement. The company lost $2.26 a share in FY2012 and the company is on the way to reduce those losses to ~85 cents a share this fiscal year. Consensus called for Horizon to nearly breakeven in FY2014 but based on acquisition those estimates will be revised up to show a profit in 2014.
  2. Consensus earnings estimates for this fiscal year and FY2014 had already moved substantially higher over the last two months. The Vimovo purchase will accelerate those upward revisions.
  3. The five analysts that cover the stock have a $7 a share price target on the shares prior to this announcement. Piper Jaffray raised its rating on the shares to "Outperform" from "Neutral" in late October. Look for several upgrades and price target upward revisions over the next week based on this latest news.
  4. Revenues were already tracking to post better than a 275% gain this fiscal year prior to this purchase. With new guidance, sales should add another ~175% in FY2014.

In summary, Horizon has come a long way since I wrote about it last year. However, with the new deal for Vimovo; its brightest days are ahead of it.

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.