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Why Horizon Pharma plc Stock Slumped in October

By George Budwell – Nov 9, 2016 at 4:48PM

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Political controversy aside, the drugmaker's shares are a compelling buy now after sinking in October. Here's why.


Image source: Getty Images.

What happened

Shares of the global biopharmaceutical company Horizon Pharma plc (HZNP 0.32%) buckled under the pressure of the moody market last month. Specifically, the biopharma's stock fell by more than 14% in October, according to data from S&P Global Market Intelligence.

HZNP Chart

HZNP data by YCharts.

So what

Like most of its specialty pharma peers, Horizon has struggled this year to shake off the political attacks targeting high-priced drugs -- and for good reason. After all, one of the main reasons Horizon's revenue is expected to jump by an impressive 35.6% this year is because the company has a penchant for hefty price increases. For instance, the price of Actimmune, a treatment for hereditary diseases that was originally approved in 1990, has risen by a staggering 81% since the drug joined Horizon's product portfolio in 2014. 

Now what

Ginormous price increases for aging pharmaceuticals is undoubtedly a political hot potato, so to speak. But the real question is: Will this controversy translate into legislative action once the presidential election wraps up? My pessimistic, or perhaps realistic, outlook is that the answer to this question is a solid "no."

The core issue is that the pharma industry has a ton of influence in Washington, D.C., meaning that game-changing reforms are probably out of the question. And if you want solid proof of this assertion, you only have to look at how a number of major pharmas raised prices by 9% to 10% across the board earlier this year -- blatantly ignoring the potential for political blowback during the midst of a presidential election.

That's why I think Horizon is a screaming buy, especially in light of its stellar top-line growth and dirt-cheap forward price-to-earnings ratio of 5.9.

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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