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Should You Buy the Dip in Horizon Therapeutics?

Horizon Therapeutics (HZNP) is a specialty and generic drug manufacturing company that relies on RGEN to build out its pipeline of drugs. The stock has taken off this year as two of its blockbuster drugs got approved by the FDA. However, the stock recently slumped despite reporting strong third-quarter earnings results. Find out if you should buy the dip in HZNP.

Horizon Therapeutics (HZNP) is a biopharmaceutical company that engages in identifying, developing, acquiring or in-licensing, and commercializing medicines for the treatment of arthritis, pain, inflammatory, and/or orphan diseases in the United States. The company aims to address unmet treatment needs for rare and rheumatic diseases and operates through two segments – Orphan and Inflammation.

HZNP is one of the best performing pharmaceutical stocks so far this year with record revenue and income growth. In the third quarter, HZNP posted a record top-line of $636.4 million, rising 90% year-over-year, contributed by the 131% year-over-year growth in the Orphan segment net sales. The segment represented 84% of the total revenues, primarily driven by the $287 million revenue generated from the commercial launch of Tepezza, the first and only FDA-approved medicine for Thyroid Eye Disease, a serious, progressive, vision-threatening rare disease. Non-GAAP EPS for the quarter came in at $1.74, rising 172% from the year-ago value of $0.64 per share.

With an increasing focus on the healthcare industry, HZNP has benefitted from the higher capital injections in the industry and the stock gained 93.8% year-to-date. However, the new pharma policy by President Trump and the uncertainty related to the stock’s continued momentum based on several factors has made our proprietary rating system rate HZNP as “Neutral.”

Here is how our proprietary POWR Ratings system evaluates HZNP:

Trade Grade: C

HZNP is currently trading lower than its 50-day moving average of $77.12 but above its 200-day moving average of $55.44, indicating that the stock is neither in an uptrend nor in a downtrend. However, the stock’s 9.4% loss over the past month reflects a short-term bearishness.

HZNP has recently expanded its partnership with AGC Biologics, a leading global biopharmaceutical Contract Development, and Manufacturing Organization, to produce Tepezza, at AGC's new facility in Boulder. HZNP is now pursuing a global strategy to sell the drug internationally, to markets such as Japan. It also raised its 2020 sales estimate for Tepezza to more than $800 million from $650 million.

Despite posting a strong quarter, HZNP witnessed a dip as some investors expected even bigger sales from Tepezza in the quarter. Stifel analyst believes that the stock drop is "a bit irrational." Similarly, a Jefferies analyst told that some investors might have expected even higher numbers.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, HZNP is fairly positioned. The stock is currently trading 19% below its 52-week high of $86.67.

Looking at the past three years, the stock has grown nearly 410% while its top-line has increased at a CAGR of only 18.5% in the same period. Moreover, the company has recorded merely $140 million in research and development expenses so far this year, when the company’s present pipeline consists of 12 medicines/candidates that tackles marginalized or overlooked diseases, with 5 of them either in Phase 3 or Phase 3b/4 trails.

However, the company has achieved clinical milestones by receiving FDA approval for two drugs earlier this year. HZNP got the approval for Tepezza in January, and Procysbi, an oral granule for nephropathic cystinosis, in February.

Peer Grade: B

HZNP is currently rated #21 out of 240 stocks in the Medical – Pharmaceuticals industry. Other popular stocks in the group are Abbott Laboratories (ABT), AbbVie Inc. (ABBV), and Pfizer, Inc. (PFE). HZNP comfortably beat the year-to-date gains of the three industry participants. While PFE has lost 2.5% so far this year, ABT and ABBV have returned 29.7% and 20.2%, respectively, over this period.

Industry Rank: B

HZNP is part of the Medical – Pharmaceuticals industry, which is ranked #6 out of the 123 industries. The companies in this industry manufacture and process pharmaceutical products in the treatment of health disorders and illnesses. The profitability of individual companies depends on their ability to discover and market new drugs. Moreover, the industry is considered one of the riskiest for investors as drug development success is a difficult and costly process.

Overall POWR Rating: C (Neutral)

Despite an impressive quarterly performance and strategic international expansion, HZNP is rated a “Neutral” due to its short-term bearishness and weak biopharma industry, as determined by the four components of our overall POWR Rating.

Bottom Line

HZNP’s price drop is in line with the overall biopharma market being affected by the pharma policy. President Donald Trump unveiled two controversial rules on Friday aimed at reducing drug prices as a last-ditch effort to fulfill a key 2016 promise that immediately sparked legal threats from the pharmaceutical industry and condemnation from Democrats. Consequently, the stock could move either direction in the near-term as the administration's war to rein in drug prices is just heating up.

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HZNP shares were trading at $70.72 per share on Monday morning, up $0.57 (+0.81%). Year-to-date, HZNP has gained 95.36%, versus a 12.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.


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