Horizon Therapeutics (HZNP) has seen explosive revenue growth this year, and with it, the company's stock has risen from $30.40 two years ago to more than $90 today. In the fourth quarter, the company reported revenue of $745.3 million, an increase of 105% year over year and a 17% increase over the $636.4 million of revenue reported in the third quarter. The company specializes in therapies for rare, autoimmune, and severe inflammatory diseases. Its lead drug, Tepezza, for thyroid eye disease (TED), earned $820 million in revenue last year, its first on the market.
Here are three reasons to add Horizon to your portfolio, and one not to.
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A pipeline that's about to pop
Horizon Therapeutics has 14 programs in its pipeline, led by expanded label usages for its biggest sellers: Tepezza and gout therapy Krystexxa. Both drugs enjoyed double-digit sales growth in the fourth quarter, with Krystexxa up 33% and Tepezza up 19.7% over the third quarter. That doesn't even include what Viela Bio (VIE) is bringing in, with four therapies in nine development programs. Horizon completed its $3.05 billion deal to purchase Viela in March.
Viela's lead drug, Uplinza, is approved to treat neuromyelitis optica spectrum disorder, a rare autoimmune disease that mainly affects the optic nerves and nerves of the spinal cord. Uplinza is also in phase 3 trials for neuromuscular disease myasthenia gravis and igG4-related disease, an inflammatory condition, and phase 2 trials for kidney transplant desensitization and Sjögren's Syndrome, a long-term autoimmune disorder.
Tepezza and Krystexxa will help the company fund the rest of its pipeline
The $820 million Tepezza brought in last year was just the start. The drug is delivered intravenously, but Horizon's is working with Halozyme (HALO 1.64%) on administering a version of the drug that could be dosed via subcutaneous injection. This would make it an easier, more accessible, sell.
Earlier this year, the company's production of the drug was halted as Horizon's manufacturer for the drug, Catalent (CTLT -0.06%), was forced, because of Operation Warp Speed, to focus on manufacturing COVID-19 vaccines. Production of Tepezza is back on track now, though. The company says the drug should bring in more than $1.275 billion this year and could eventually bring in as much as $3.5 billion a year as its label expands.
Tepezza is the only drug approved for TED, which affects 16 in 100,000 women and 2.9 in 100,000 men. Krystexxa brought in $406 million last year, and Horizon estimated the therapy's potential to be a $1 billion-a-year drug.
Horizon CEO Tim Walbert said the company not only likes Viela's biologics pipeline, but its staff's experience in research and clinical development. The revenue coming in from Tepezza and Krystexxa makes it easier to be patient while funding more research and development.
Strong adjusted EBITDA growth
Horizon reported that its adjusted EBITDA grew 107% last year, going from $482.8 million in 2019 to $998.7 million in 2020. That growth continued in the fourth quarter when the company posted a record $371 million in adjusted EBITDA, up 165% year over year and 12% sequentially. From 2015 to 2020, the company reported a compound annual growth rate of 20% for adjusted EBITDA.
Horizon had forecasted that adjusted EBITDA for 2021 would be between $1.14 billion and $1.18 billion, but added that that number would be reduced by $140 million by the Viela deal. Even with the expenses associated with the purchase, the company looks to grow adjusted EBITDA this year.
The lone sticking point
At its current price, the pharmaceutical stock trades for more than 56 times earnings (trailing 12 months). That's high, even compared to the pharmaceutical average price-to-earnings (P/E) ratio of 34.54. To be fair, the company is concentrating more on sinking its earnings back into research and development, which is what emerging pharmaceutical companies should be doing, but it's hard to make the argument that the stock is a steal at its current price.
However, if you look at Horizon's forward P/E of 25.74, it is lower than the industry average of 34.05. But those are based on estimated future earnings -- the company's current price could keep many investors away.
Horizon is profitable and has increased revenue 189.6% over the past five years. It's not too late to get in on future stock gains, but it makes sense to wait for a dip in the stock's price, particularly if it again falls below $85 a share.
