Horizon
Therapeutics PLC (HZNP, $75.38): “Keeping Our Eyes on the
Horizon”
By: Mia
Albian, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Horizon Therapeutics PLC (NYSE:HZNP) is an international
biopharmaceutical company that focuses on researching, developing, and
commercializing medicines for rare and rheumatic diseases. It operates through
the Orphan and Rheumatology (72%), and Inflammation segments (28%). The company
was founded in 2008 and is headquartered in Dublin, Ireland.
• HZNP’s main source of revenue stems
from the United States, accounting for 99.4% of FY2019 total revenues.
• Since the addition of HZNP to
the AIM International Equity Fund in January 2020, the stock price dipped in
March 2020 due to Covid-19 shutdowns. Despite this drop, the stock accelerated
and hit its price target of $49.96 in mid-June 2020. Since being added to the AIM
International Equity Fund on January 28, 2020 at $36.03, the stock has grown
and is currently trading at $75.38, representing a 109% increase from the initial
purchase price.
• The company beat both Q2 2020
earnings and revenue estimates by a substantial amount (actual EPS $0.40 versus
$0.36 estimate and actual sales $462.78 mil versus $333.70 mil estimate). In their
Q2 2020 earnings call, the company mentioned that sales jumped 44% YoY.
• Management stated that they
expect to see little disruptions from Covid-19 in their largest operating
segment, which includes pharmaceutical products for various rare diseases. 2020
net sales are expected to be between $1.40-$1.45 billion, instead of management’s
earlier projections in the $1.40-$1.42 billion range.
Key
points
Since HZNP was added to the AIM International
Equity Fund, the stock has been in line with all three investment drivers: (1) the
untapped Thyroid Eye Disease market, (2) the expansion of Krystexxa, its flagship
drug for uncontrolled gout, and (3) their growing R&D pipeline.
The FDA approved Tepezza for the
treatment of Thyroid Eye Disease (TED) in January 2020, making it the first and
only drug available for TED. Despite the closing of many physician’s offices
due to the pandemic, Tepezza’s impressive uptake in the market shows the unmet
need for this type of treatment. In fact, Tepezza has had substantially higher
revenues than expected so far this year. Management upgraded its first-year
sales estimate for this drug from $250 mil to $650 mil, and analysts believe
that this therapy for TED is extremely well positioned to exceed this upgrade.
The company’s flagship drug,
Krystexxa, has helped patients with uncontrolled gout for nearly a decade.
Given that this drug treats rheumatology patients, there was a slight decline
in patient volume due to these patients being immune compromised and not being
able to attend appointments. Despite this decline, Krystexxa’s sales still increased
23.5% Y/Y in July. Additionally, regarding R&D progress for Tepezza, the
company announced results from the Tepezza OPTIC-X extension trial and the
OPTIC 48-week off treatment follow-up period. Both these trials provided
further data regarding the strong efficacy of Tepezza in patients with severe
cases of TED. The pipeline is continuing to make significant advances that are
expected to continue throughout this year.
What
has the stock done lately?
For the month of August 2020, the
stock is up 19%, trading at $63.07 on August 3 and $75.12 on August 31.
Past
Year Performance
Over the course of HZNP’s most
recent fiscal year, the stock increased 107% YTD. The 52-week range includes a
low of $23.81 and a high of $78.93.
HZNP Past
Year Performance
Source: FactSet
My
Takeaway
Given that the investment thesis for
Horzion Therapeutics was accurate, we must contemplate if these same drivers
will continue to advance the growth of the company in the long run. Due to the exclusivity
of HZNP’s Krystexxa and Tepezza drugs in their respective markets and the
re-opening of many physician offices around the world, I believe that HZNP will
continue to see growth in their pharmaceutical products for rare diseases. The
fact that the pandemic did not drastically affect patient’s demands for these
products reassures the opportunity for further growth when the world is back to
normal. Even though the stock has surpassed its price target, I believe there
is still growth in Horizon Therapeutics. Due to these factors, the
recommendation for Horizon Therapeutics is Hold.
HZNP Past
Month (August) Performance
Source: FactSet
