Seeking Alpha
IPOdesktop, IPOpremium (432 clicks)
Value, IPOs, long only
Profile| Send Message| ()  

Based in Northbrook, Illinois, Horizon Pharma [proposed symbol (HZNP)] scheduled a $61 million IPO with a market capitalization of $210 million at a price range mid-point of $11 for Wednesday, July 27, 2011. The full IPO calendar for the week of July 25th includes 12 IPOs scheduled to raise $2 billion.

SUMMARY -- HZNP is a money losing biopharmaceutical that has considerable upside if and when breakeven is in visible sight -- which it is not now but this stock should be watched. HZNP’s future is based on two drugs: delayed release prednisone drug and an ibuprofen/famotidine combination drug in development.

HZNP is not currently aware of any other delayed release prednisone drug or ibuprofen/famotidine combination drug in development.

One drug, DUEXIS, is a novel tablet formulation containing a fixed-dose combination of ibuprofen and famotidine in a single pill. HZNP plans to launch DUEXIS in the U.S. in the fourth quarter of 2011.

The other product, LODOTRA (NP-01), is a proprietary programmed release formulation of low-dose prednisone that is currently marketed in Europe by a distribution partner, Mundipharma International Corporation Limited. HZNP has successfully completed multiple Phase 3 clinical trials of LODOTRA and intends to submit a new drug application, or NDA, for LODOTRA to the FDA in the third quarter of 2011.

VALUATION -- HZNP’s paid in capital is $278 million and HZNP expects to IPO at a price-to-book ratio of 1.3, with a price-to-tangible book ratio of 25.6 (at least it’s not negative).

HZNP Valuation Metrics

BUSINESS -- HZNP is a biopharmaceutical company that is developing and commercializing innovative medicines to target unmet therapeutic needs in arthritis, pain and inflammatory diseases. HZNP has a delayed release prednisone drug and an ibuprofen/famotidine combination drug in development.

DUEXIS -- On April 23, 2011, the U.S. Food and Drug Administration approved DUEXIS® (formerly HZT-501), a novel tablet formulation containing a fixed-dose combination of ibuprofen and famotidine in a single pill. HZNP plans to launch DUEXIS in the U.S. in the fourth quarter of 2011.

HZNP submitted a Marketing Authorization Application for DUEXIS in the United Kingdom, the Reference Member State, through the Decentralized Procedure in October 2010 and anticipates a decision on the MAA in the first half of 2012.

HZNP has worldwide marketing rights for DUEXIS and has retained exclusive marketing rights in the U.S. for all of HZNP products. HZNP’s strategy is to commercialize products in the U.S., explore co-promotion opportunities for DUEXIS in the U.S., and to enter into licensing or additional distribution agreements for commercialization of our products outside the U.S.

LODOTRA -- HZNP’s other product, LODOTRA (NP-01), is a proprietary programmed release formulation of low-dose prednisone that is currently marketed in Europe by a distribution partner, Mundipharma International Corporation Limited, or Mundipharma.

HZNP has successfully completed multiple Phase 3 clinical trials of LODOTRA and intends to submit a new drug application for LODOTRA to the FDA in the third quarter of 2011.

COMPETITION -- Potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical companies and generic drug companies, although HZNP is not currently aware of any other delayed release prednisone drug or ibuprofen/famotidine combination drug in development.

DUEXIS is a a fixed-dose combination of ibuprofen and famotidine in a single pill.

DUEXIS will compete with other branded NSAIDs (non-steroidal anti-inflammatory drugs), including Celebrex, marketed by Pfizer Inc. (PFE), Vimovo, developed by Pozen Inc. (POZN) and marketed by AstraZeneca AB (AZN) and Arthrotec, marketed by Pfizer.

Celebrex is an NSAID (non-steroidal anti-inflammatory drug), that selectively inhibits the COX-2 enzyme and is an effective anti-arthritic agent that reduces the risk of ulceration compared to traditional NSAIDs such as ibuprofen. However, two other COX-2 inhibitors, Vioxx and Bextra, have been withdrawn from the market due to safety concerns.

Vimovo is a fixed-dose combination of enteric-coated naproxen plus esomeprazole, a PPI. Enteric-coated naproxen is an NSAID indicated for the treatment of OA and esomeprazole has been recently approved to reduce the risk of NSAID-induced gastric ulcers. HZNP believes DUEXIS may offer competitive advantages over Vimovo due to its delayed onset of pain relief related to the enteric-coated naproxen as well as several recent publications highlighting safety concerns with long-term PPI use.

Arthrotec is a fixed-dose combination of diclofenac sodium and misoprostol, a GI mucosal protective prostaglandin E1 analog. Diclofenac sodium is an NSAID prescribed for pain relief and misoprostol is used to reduce the risk of NSAID-induced upper GI ulcers. HZNP believes DUEXIS may offer competitive advantages over Arthrotec based on a significant increase in GI side effects, including abdominal pain and diarrhea, associated with Arthrotec.

In general, DUEXIS will also face competition from the separate use of NSAIDs (non-steroidal anti-inflammatory drugs), for pain relief and ulcer medications to address the risk of NSAID-induced ulcers. Use of these therapies separately in generic form may be cheaper than HZNP expect tos offer DUEXIS. In addition, physicians could begin to prescribe both an NSAID and a GI protectant to be taken together but in separate pills.

HZNP expects to compete with the separate use of NSAIDs and ulcer medications primarily through DUEXIS’ advantages in dosing convenience and patient compliance, and by educating physicians about such advantages, including through funding we have provided for the American Gastroenterology Association to help physicians and patients better understand and manage NSAID risks.

HZNP expects DUEXIS will be the only product containing a histamine-2 receptor antagonist with an indication to reduce the risk of NSAID-induced upper GI ulcers.

LODOTRA is a proprietary programmed release formulation of low-dose prednisone.

LODOTRA competes and will compete in the U.S., if approved, with a number of pharmaceuticals on the market to treat RA, including NSAIDs (including those described above), corticosteroids, such as prednisone, traditional DMARDs, such as methotrexate, and biologic agents, such as HUMIRA and Enbrel. The majority of RA patients, however, are treated with DMARDs. DMARDs, such as methotrexate, are typically used as initial therapy in patients with RA whereas biologic agents are typically added to DMARDs as combination therapy. It is common for an RA patient to take a combination of a DMARD, an oral glucocorticoid, an NSAID and/or a biologic agent

USE OF PROCEEDS -- HZNP expects to net $52 million from its IPO. Proceeds are allocated to the following:

  • $37.3 million to fund U.S. commercialization activities for DUEXIS and LODOTRA and
  • The remainder to fund regulatory approvals of LODOTRA and DUEXIS, to fund required post-marketing studies and development of DUEXIS, to fund development of LODOTRA for other indications and other product candidates and for working capital, capital expenditures and general corporate purposes.
Source: IPO Preview: Horizon Pharma