Horizon Therapeutics Has 'Headroom For Value Creation,' BMO Says In Upgrade

Horizon Therapeutics PLC HZNP, an actively traded small-cap biotech, is poised for further upside in the near-term on its product strength, according to BMO Capital Markets.

The Analyst

Gary Nachman upgraded Horizon Therapeutics from Market Perform to Outperform and lifted the price target from $29 to $36. 

The Thesis

Horizon's Krystexxa, indicated to treat gout, catalyzed a strong second quarter for the company and is likely to be a bigger source of upside going forward, Nachman said in a Tuesday upgrade note. (See his track record here.) 

The drug fetched sales of $13 million by virtue of its more than 20% growth, significantly exceeding expectations, the analyst said. The strong showing came despite expectations that growth would slow, especially due to 340B, a federal government drug discount program, he said. 

Nachman expressed confidence in Krystexxa's increasing penetration in the chronic gout market.

Tepro, which is being evaluated for thyroid eye disease, or TED, is a significant product in development and makes the stock worth owning as the company approaches the approval and launch of the drug in the first half of 2020, the analyst said. 

"With HZNP's considerable commercial preparation for Tepro and history of executing well commercially, we see good risk/reward into that launch." 

Horizon represents a scarcity value in specialty pharma, Nachman said. 

"With successful evolution of business model to higher-value orphan drug opportunities while also substantially improving capital structure (leverage now 1.1x), we see a lot more headroom for value creation and believe a premium for the stock is warranted." 

The Price Action

Horizon shares were up 1.89% at $27.06 at the time of publication Wednesday. 

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Photo courtesy of Horizon Therapeutics.