Horizon (HZNP) Falls On Q1 Earnings Miss, Guidance Trimmed

Horizon Pharma plc (NASDAQ:HZNP) reported first-quarter 2017 earnings of 21 cents per share, down from 25 cents in the year-ago quarter. Reported earnings also missed the Zacks Consensus Estimate of 25 cents.

Sales in the first quarter were up 8% year over year to $220.9 million backed by growth across its orphan and rheumatology business units, offset by lower sales in the primary care business unit. However, sales missed the Zacks Consensus Estimate of $253 million.

The company’s shares lost 35.04% following the release of its first-quarter results. In fact, Horizon’s share price movement year to date shows that the stock has underperformed the Zacks classified Medical-Biomedical/Genetics industry. The stock is down 37.5% compared with the industry’s gain of 2.0%.

Quarter in Detail

The Orphan unit recorded revenues of $113 million, up 70% from the year-ago period. The strong performance was backed by strong net sales of Ravicti, which generated sales of $43.9 million in the quarter, up 18% year over year. Additionally, Procysbi contributed to the performance with its net sales of $34.3 million. Actimmune sales in the reported quarter were $26.2 million, up 3% year over year.

The Rheumatology unit generated sales of $42.8 million, up 56% year over year. Also, Krystexxa sales in the first quarter were strong and came in at $31.6 million, up 96% year over year.

Primary Care posted revenues of $65.6 million. The decline in net sales was due to the implementation of a new contracting model, in order to secure broader inclusion of the company’s primary care medicines on formularies. Net sales of Pennsaid 2%, Duexix and Vimovo were $41.6 million, $17.7 million and $4.9 million, respectively, in the first quarter of 2017.

2017 Guidance

Horizon’s primary care business unit results were significantly below expectations due to the implementation of a new commercial model, where the company is contracting with pharmacy benefit managers and payers to help patients obtain access to its medicines. The company plans to overcome this underperformance by reducing certain costs in the primary care business unit in order to align its cost structure with the lower- than-expected sales. In this context, the company reduced its outlook for 2017.

Currently, it expects net sales in the range of $1.0 billion to $1.035 billion down from its prior expectation of $1.240 billion to $1.290 billion. The Zacks Consensus Estimate for revenues is currently pegged at $1.40 billion.

Furthermore, Horizon is significantly increasing investments in one its key growth drivers, Krystexxa. Thus, the company raised its estimate of net sales for Krystexxa to more than $400 million from $250 million for the full year.

Other Updates

The company inked a deal to acquire River Vision and its biologic teprotumumab in late stage development for Thyroid Eye Disease (TED). Horizon is acquiring all outstanding equity of River Vision for a $145 million up-front payment, plus potential future milestone and earn-out payments. The acquisition is expected to close immediately.

On Apr 28, 2017, the company received approval for its supplemental New Drug Application (sNDA) from the FDA for Ravicti. The approval allowed to expand the age range for chronic management of urea cycle disorders (UCDs) in patients to two months and older from two years and older.

Our Take

Horizon’s first-quarter results were disappointing with the company missing on both the top and bottom line estimates. Moreover, the guidance for 2017 also fell short of expectations due to a conservative view on its primary care business. However, the company is focused on rare disease medicines and is significantly increasing its investment in one of the key growth drivers, Krystexxa, which it expects to exceed $400 million in peak annual sales.

Zacks Rank & Stocks to Consider

Horizon currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the health care sector are Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) , Galena Biopharma, Inc. (NASDAQ:GALE) and BioTime, Inc. (NYSE:BTX) . While Infinity and Galena sport a Zacks Rank #1 (Strong Buy), BioTime holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Infinity’s loss per share estimates narrowed from $1.43 to $1.03 and from $1.75 to $1.52 for 2017 and 2016, respectively over the last 60 days. The company posted positive earnings surprises in three of the four trailing quarters, with an average beat of 36.64%.

Galena’s loss per share estimates narrowed from $2.03 to 58 cents for 2017 over the last 60 days. The company posted positive earnings surprises in two of the four trailing quarters, with an average beat of 53.83%.

BioTime’s loss per share estimates narrowed 60.9% to 18 cents for 2017 over the last 60 days. The company posted a positive earnings surprise in two of the four trailing quarters with an average beat of 12.32%. Its shares have increased 6.9% in the last one year.

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