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Why Horizon Pharma PLC Shares Are Crashing Today

By Todd Campbell – Feb 29, 2016 at 12:32PM

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Regulatory risk continues to trump otherwise solid financial results.

Image source: Horizon Pharma Plc.

What: After the company reported fourth-quarter financials, shares in Horizon Pharma plc (HZNP 0.54%) were tumbling 16.8% at 11:20 a.m. ET today.

So what: Its "acquire and rebrand" business model has been under scrutiny since competitor Turing Pharmaceuticals bought a decades-old drug, jacked up its price by 5,000%, and sparked a media firestorm last year.

The scrutiny has led to worry that pushback from payers could eventually hamper Horizon Pharma, but that risk had little impact on the company's financial performance last year.

Horizon Pharma's revenue jumped 135.5% to $244.5 million last quarter and its full-year sales grew 154.9% to $757 million. That growth came largely from a 129% increase in sales of Duexis to $190.4 million and the inclusion of $86.9 million in sales resulting from the acquisition of Ravicti last May.

Management also delivered robust bottom-line growth as Q4 and full-year non-GAAP EPS grew 215% to $0.63 and 157.9% to $1.96, respectively.

Now what: A 15% increase in its sales force last quarter could help sales climb again this year, and uncertainty tied to the political picture has arguably made Horizon Pharma's shares inexpensive, but political risk is likely to remain throughout the presidential election season.

After the drop in its shares, the company's forward P/E ratio is only 6.8. That's arguably cheap, but bargain hunters should know that Horizon Pharma's acquisition strategy has saddled it with $1.27 billion in debt. Given that the company has about $350 million in cash after acquiring Crealta LLC for $510 million in January, that debt load could prove onerous if its pricing strategy gets crimped. For that reason, Horizon Pharma may be a bargain best suited for risk-tolerant investors. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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