Update: Horizon Pharma's Duexis And Vimovo To Be Taken Off Formularies By Express Scripts And CVS Caremark In 2015

Jul.28.14 | About: Horizon Pharma (HZNP)

Summary

Horizon Pharma filed a 10-K today which states that Duexis and Vimovo will be taken off formularies by Express Scripts and CVS Caremark on January 1, 2015.

This affects the long thesis in a major way as the event will likely reduce long-term growth rates.

Additional health care plans might exclude Duexis or Vimovo from formularies which casts a shadow of doubt on Horizon’s future prospects.

Horizon Pharma (NASDAQ:HZNP) is down significantly in pre-market today after the company announced that Express Scripts (NASDAQ:ESRX) and CVS Caremark (NYSE:CVS) have verbally informed the company that they expect to announce that Duexis and Vimovo will no longer be on their formularies and will be placed on their exclusion lists effective January 1, 2015.

Horizon Pharma also stated that there will be no impact on 2014 results and the company reiterated revenue and EBITDA targets for the year. The effects are going to be seen in 2015, and the company estimates that approximately 20% to 30% of Duexis and Vimovo prescriptions could be impacted by the potential actions by CVS Caremark and Express Scripts. However, this is not the worst case scenario since other healthcare plans might adopt the exclusion lists of CVS Caremark and Express Scripts, so there might be additional downside to future revenue and earnings.

Given the current forward valuation, Horizon Pharma seems quite cheap with a forward 2015 P/E ratio around 8, but the forward estimates will most certainly go down significantly from here. The company faces a lot of uncertainty and its business model might be seriously affected if more pharmacy benefit managers take Duexis and Vimovo off formularies. I am still long Horizon Pharma, but I have reduced my position once the company went below its 50-day moving average line in mid-July. I do not believe that my potential price targets are reachable in the medium term and I will reevaluate the thesis in more detail when more information becomes available. A wait and see approach is warranted here as the news gets digested and as we get a more clear picture about the implications of the formularies removal.

Disclosure: The author is long HZNP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.