Horizon Pharma PLC (NASDAQ:HZNP) is up circa 15% on its Q3 2016 earnings report, and the company looks set to continue picking up strength even against a backdrop of politically muted volume on Tuesday. We think there’s potential way beyond these numbers, however, with a near term catalyst set to hit press before the end of the year that could dictate sentiment for the next twelve months and beyond, and, if it comes in as favorable for the company, could open up the potential for up to $1 billion in peak sales going forward.
Here’s what you need to know about the drug, the company and the potential for growth.
So, the drug is ACTIMMUNE, and it’s an already approved drug that generated just shy of $25 million revenues for Horizon during third quarter. It’s a synthetic (well, sort of, it’s biologically manufactured) protein called inteferon gamma-1b, and its current approved targets are Chronic Granulomatous Disease, or CGD, which is a genetic disorder that affects the functioning of some cells of the immune system; and the slowing the worsening of severe, malignant osteopetrosis, or SMO, which is also a genetic disorder, but in this instance a disorder that affects normal bone formation.
The drug is well established, and succesfull in its target indications (although it has a number of side effects associated with it that have limited administration a bit) but the indication that the company is currently targeting (which will culminate in an sNDA submission for the drug) has the potential to vastly outweigh these indications from a revenues perspective.
The condition is called Friedreich’s ataxia (FA), and the drug is currently under investigation as part of a phase III investigating efficacy in the disease. It’s also under investigation in a variety of oncology indications, but right now these are just about clinical, so we will save a discussion on these for another day. For now, let’s stick with FA. It’s autosomal recessive inherited disease that causes progressive damage to the nervous system. The symptoms start off pretty unnoticeable, things like coordination issues and gait problems, but longer term it can be serious, with heart disease and diabetes affecting a large portion of sufferers.
There’s no currently approved cure, or even treatment, for FA, and this is where the opportunity lies for Horizon. There are a little over 3,200 known sufferers in the US. It’s a rare disease and so the company is aiming to command premium pricing (which will – hopefully – get underwritten by the insurance companies on the back of the fact that these patients have no other options). Management puts a target peak sales estimate for the drug at between $500 million and $1 billion annually. That would out the annual price of the drug at anywhere between $160,000 and $300,000 – a hefty tag, and one that will no doubt draw some negative press if the media gets a hold of the receipts, especially in the wake of the ongoing political situation, but from an investor standpoint, a price that justifies the development costs and that would be very rewarding from a market capitalization perspective.
So we’ve got a phase III pretty much complete in a potential blockbuster, for a company that already generates considerable revenues (full year 2016 sales expected at $1.045 billion to $1.050 billion) and that is only valued at $2.77 billion.
That’s a market cap at less than a three times multiple of annual sales, and a near term catalyst that could add close to 100% of these sales on top of the current figure at peak.
What are we looking out for, then, as supportive of our thesis?
The company has said it will put out topline from the study at some point in late December, 2016. This gives us a target period to go at, and we expect any real market impact will come early January on the back of the release likely falling in or around (and as such, being muted by) the peak of the holiday period.
When it does hit, we’re looking for an efficacy readout to reinforce the drug’s early data, and a target submission for the sNDA early first quarter 2017, demonstrating the company’s ability to move quickly as and when the market opens up.