M&A activity and approvals in the biotech space seem to be on the uptrend. GlaxoSmithKline (GSK) went hostile with its bid for Human Genome Sciences (HGSI) this week. In addition, Arena Pharmaceuticals (ARNA) soared Friday as a panel of experts recommended approval of its obesity drug. The biotech space is one of the hardest sectors to analyze given all the complex variables involved. The best way to invest in my opinion is to make a lot of small bets on promising companies. One stock that looks interesting is Horizon Pharma (HZNP) due to its strong insider buying and expected rapid revenue increases
Recent highlights from Horizon Pharma:
- It just launched DUEXIS for the relief of signs and symptoms of rheumatoid arthritis and osteoarthritis at the end of 2011. Already 2,700 physicians have prescribed the drug. Stifel Nicolaus believes the drug could eventually rack up $200mm in annual sales.
- Stifel Nicolaus also believes it will receive approval to launch LODOTRA in the United states by the third quarter. This drug is for the treatment of moderate to severe active rheumatoid arthritis. It projects it could eventually have $80mm to $100mm in annual sales.
- It should double its sales force from 80 to 160 representatives by the end of the year.
- The company completed $60.0 million senior secured loan facility in February 2012, which provided the Company with net proceeds of approximately $34.0 million, after repaying outstanding amounts under previous debt facilities.
- It also completed $50.8 million private placement of common stock and warrants to purchase common stock in March 2012 raising net proceeds of approximately $47.6 million.
Horizon Pharma - "Horizon Pharma, Inc., a biopharmaceutical company, through its subsidiaries, develops and commercializes medicines for the treatment of arthritis, pain, and inflammatory diseases". (Business Description from Yahoo Finance)
4 additional reasons HZNP makes sense as a high risk/high reward biotech play at under $4 a share:
- Insiders have bought over 10mm shares over the last year, much of it at significantly higher prices.
- Revenues are set to explode. The company had under $7mm in sales in FY2011. Analysts expect over $30mm in revenue in FY2012 and over $90mm in FY2013.
- Only two firms cover the stock (Stifel Nicolaus and JMP Securities). However, they both have outperform or accumulate ratings on the stock. In addition, price targets are $10 and $16 a share on HZNP by these firms.
- The company has plenty of net cash on its balance sheet, seems to have no problem raising debt or equity and given its small market capitalization (under $100mm after net cash) and exponentially increasing revenues; it would be a logical acquisition target.
Disclosure: I am long GSK.
Additional disclosure: Might also initiate long position in HZNP in the next 72 hours