Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons to Buy Horizon Therapeutics Stock and 1 Not To

By Jim Halley - Apr 17, 2021 at 6:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Horizon Therapeutics's shares are up almost 200% over the past 12 months, buoyed by mind-boggling sales of its new blockbuster drug.

Horizon Therapeutics (HZNP 1.35%) 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.

Two pharmaceutical manufacturing plant employees wearing gloves, goggles, and white jackets look at a computer screen together.

Image source: Getty Images

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 1.09%) 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 -0.25%), 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Horizon Therapeutics Public Limited Company Stock Quote
Horizon Therapeutics Public Limited Company
HZNP
$80.84 (1.35%) $1.08
Halozyme Therapeutics, Inc. Stock Quote
Halozyme Therapeutics, Inc.
HALO
$44.48 (1.09%) $0.48
Catalent, Inc. Stock Quote
Catalent, Inc.
CTLT
$107.02 (-0.25%) $0.27
Viela Bio, Inc. Stock Quote
Viela Bio, Inc.
VIE

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.