Happy employees can create effective companies. So when a business makes it onto Fortune magazine's "Best Workplaces" list five years in a row, it suggests that employees are content, and shareholders are likely being handsomely rewarded in the process.
Consider Horizon Therapeutics (HZNP +0.00%), which topped the magazine's best workplaces list for 2021 in the healthcare and biopharma category. Shares of Horizon are up by more than 420% over the last five years, compared to the S&P 500, which has risen by just shy of 100%. That's a tremendous performance, but for new investors, the important questions are: What drove that growth, and where is the company headed from here?
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It started with one
Horizon Therapeutics specializes in the treatment of rare, autoimmune, and severe inflammatory diseases. Its first successful drug, Krystexxa, was approved in 2010 for chronic gout patients who did not respond to conventional treatments. While an estimated 9.5 million patients in the U.S. suffer from this painful inflammatory condition of the joints, only 100,000 or so will fail to respond to standard treatments, making them candidates for Krystexxa.
Still, sales of Krystexxa have grown steadily over the years, with net sales for 2020 up nearly 20% from 2019 to $405.9 million. The company believes that eventually, it will be a blockbuster, with annual sales topping $1 billion.
What makes the company believe it has a blockbuster on its hands? In Krystexxa's phase 3 trials for refractory gout, the drug was 42% effective, while in recent small trials, it demonstrated 70% to 100% efficacy when combined with other immune system suppressing drugs (such as methotrexate). The company has a larger phase 3 trial under way looking at a combination therapy; data from that study is due in late 2021. If Krystexxa plus methotrexate shows significant improvement in gout versus Krystexxa monotherapy, it is likely that clinicians would be more likely to prescribe Krystexxa (as part of combination therapy) for refractory gout. In fact, the company has seen that combination therapy is now being initiated in more than 30% of patients newly prescribed Krystexxa. I would expect that number to continue to rise if the phase 3 trial data is positive.
And then there were two
Horizon has blown past expectations with its second approved drug, Tepezza, which treats the inflammation and bulging of the eyes caused by severe thyroid disease. There are about 90,000 patients in the U.S. who have had this condition for less than five years. The drug's sales in 2020 -- its first year on the market -- hit $820 million, an amazing 23 times the company's initial guidance.
The best-selling drug of 2019, AbbVie's (ABBV 0.96%) Humira, sold $852 million in its first full year on the market (2004), and the second-best-selling drug of 2019, Bristol Myers Squibb's (BMY 0.86%) and Pfizer's (PFE +1.71%) Eliquis, sold $770 million in its first full year on the market (2014). To be mentioned in the same breath as Eliquis and Humira puts Tepezza in an elite class in my book.
Tepezza is currently only available by infusion, but the company is working on clinical trials of the biologic delivered via simple subcutaneous injection. That would make it easier to administer, which would likely lead to higher sales. The company already expects sales growth for the drug in excess of 50% for 2021, guiding for $1.275 billion in sales, en route to an estimated global market opportunity of more than $3.5 billion.
Cause for joy
Today, Horizon trades at a price-to-sales (P/S) ratio of 8.7, and the company is guiding for a 25% increase in revenue to $2.8 billion in 2021. Should the company reach $4 billion in sales -- and between Krystexxa and Tepezza, based on the trends, that may happen sooner rather than later -- that would give it a P/S ratio below 5 at current share prices. For context, Vertex Pharmaceuticals (VRTX 0.86%) has not had a P/S ratio under 9 since 2013, and Seagen (SGEN +0.00%) -- which is up by more than 2,900% since 2006, while the S&P 500 has gained about 230% -- has never had a P/S ratio under 10.
Given the strong growth prospects for Tepezza and Krystexxa, Horizon looks cheap. With its future growth, I suspect this biopharma will continue to keep its shareholders and employees happy. Bargain-hunting investors interested in the healthcare sector would do well to give it a closer look.
