Wednesday, September 9, 2020

An AIM International Equity holding: Horizon Therapeutics PLC (HZNP, $75.38): “Keeping Our Eyes on the Horizon” by: Mia Albian, AIM Student at Marquette University

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.


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