Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares in Horizon Pharma Plc (HZNP +0.00%) are jumping by more than 10% on news that Horizon will acquire Hyperion Therapeutics, (NASDAQ: HPTX) for $1.1 billion.
So What: Horizon is paying $46 per share in cash to get its hands on Hyperion's drugs Raviciti and Buphenyl. Those drugs target urea cycle genetic disorders that affect 2,100 Americans, about half of whom are currently diagnosed.
Patients with urea cycle disorders fail to adequately remove nitrogen from their bodies, which can cause a life-threatening damage to the brain.
Last year, Raviciti and Buphenyl posted combined U.S. sales of $113.6 million; however, sales in Q4 reached $30.8 million, giving the two drugs an annualized sales run rate of $123.2 million heading into 2015.
Since urea cycle disorders affect a similar number of people in Europe, an approval in that market could increase the sales of these drugs significantly. An opinion from Europe's Committee for Medicinal Products for Human Use is expected in the third quarter of this year.
Now What: Last year, Horizon's sales totaled $297 million, so this deal will bump up revenue handsomely. Importantly, Horizon expects the acquisition will be immediately accretive to adjusted earnings, increasing EBITDA by $100 million in 2016.
However, results could prove to be better than that forecast if combining Horizon's existing genetic disease sales team with Hyperion's offers up cross-selling opportunities that increase prescription volume.
It remains to be seen if Horizon can succeed in doing that, but investors might want to give the company the benefit of the doubt. Since acquiring Vimovo in November 2013, Horizon has successfully increased Vimovo's prescriptions by a compounded average annual rate of 4.2%. For that reason, investors may want to consider picking up Horizon in portfolios if shares pullback in the coming year.
