The bounce was short-lived. Shares in Horizon Pharmaceuticals (NASDAQ:HZNP) bounced briefly today after the company announced its third-quarter results. Shares jumped more than 3% in intraday trading before falling below the opening level. What caused the uptick -- and the subsequent reversal?
The third-quarter numbers weren't enough to spur any momentum on their own. The single most important number from Horizon's quarterly results is its cash balance. Thanks to a share offering in September, the company's cash stockpile stood at a little over $121 million at the end of the quarter. That's enough cushion to take Horizon well down the road but nothing to get investors excited.
Revenue for the quarter totaled $7.3 million. Horizon's rheumatoid arthritis drug Duexis accounted for $3 million in gross sales and $2.6 million in net sales. This net sales number reflects a 63% increase over the second quarter.
Horizon lost $0.47 per share in the third quarter. However, with some revenue now coming in from Duexis, that figure looks much better than the $1.30 per share loss experienced in the third quarter last year. Again, though, none of these numbers are cause for great celebration.
Beyond the numbers
The most likely explanation for the temporary bounce stems from information provided in the company's earnings call. Comments from management about Duexis sales gave some hope about an improved outlook.
Earlier in the year, Horizon had only 80 sales staff calling on prescribers. However, in June, Horizon announced a partnership with Covidien's (NYSE:COV.DL) Mallinckrodt division to commercialize Duexis in the U.S. It also announced a partnership with Grunenthal for marketing the drug in Latin America. These partnerships, especially the one with Mallinckrodt, boost the company's reach.
Horizon recently expanded its internal sales force to 150. Combined with Mallinckrodt's sales efforts, that enables the company to call on 50,000 physicians compared to only 10,000 in the past.
This sales force growth should help Horizon increase Duexis sales. Management reported on the earnings conference call that they are already seeing significantly stronger sales growth due to the expansion.
Next on Horizon's to-do list is launching Rayos. The Food and Drug Administration approved the drug in July for use in treating several diseases including rheumatoid arthritis, polymyalgia rheumatica, psoriatic arthritis, ankylosing spondylitis, asthma, and chronic obstructive pulmonary disease. More indications were approved than expected, increasing Horizon's optimism for the drug.
Why didn't the bounce last very long? The market probably remembered the barriers that are still before Horizon.
One fly in the ointment comes from Par Pharmaceuticals (NYSE: PRX). Par wants to market a generic version of the Duexis. Legal skirmishes are under way.
A more significant issue is that Horizon competes against much larger rivals in the rheumatoid arthritis market. Abbott Labs' (NYSE:ABT) Humira generates revenue around $8 billion per year. Pfizer (NYSE:PFE) recently received FDA approval for its rheumatoid arthritis drug Xeljanz. Battling against these giants won't be easy for tiny Horizon.
The best opportunity for Horizon seems to be attracting acquisition interest. Duexis and Rayos appear to have decent potential and could be good pick-ups for a larger player. Horizon's market cap is less than $90 million. That's a rounding error for some big pharmaceutical companies. Horizon probably needs to catch the eye of one of these organizations for a really big bounce.