What: Horizon Pharma (HZNP), a specialty pharmaceutical company, saw its shares briefly rise by almost 13% on heavy volume today after the company released a long-term outlook for its net sales and adjusted EBITDA ahead of a meeting for investors. One of the more noteworthy projections emanating from this long-term guidance is that management thinks net sales can top $2 billion by 2020, implying a CAGR in excess of 23%. Another key issue is that management noted that approximately 60% of net sales should come from orphan drug products by 2020.
So what: Horizon's earnings and revenues screamed higher in the third quarter mainly because of growing sales for its pain reliever Duexis. But the Street is concerned that this trend isn't sustainable for the long-haul, given the potential for push back from payers over costly combination drugs like Duexis that could theoretically be prescribed as generics.
So, this strategy of shifting toward orphan drugs appears to be aimed at assuaging the Street's fears over Horizon's long-term growth. In a nutshell, orphan drugs, or drugs for rare diseases, have largely escaped the calls from top pharmacy benefits managers like Express Scripts (ESRX) for pricing reforms, despite the fact that these drugs tend to command some of the highest prices of all.
Now what: Orphan drugmakers not only command a premium price for their products, but their share prices tend to do so as well. The reason is that the earnings of these companies are generally viewed as safer than other types of pharmaceutical companies that are presently in the crosshairs of Express Scripts, along with the other major pharmacy benefits managers at the moment. As such, Horizon's plan to push deeper in the orphan drug space appears like the right move to shore up its long-term earnings potential. Now, the question is whether or not management can successfully execute this plan.
