Happy employees can lead to happy companies. When an employer makes it to “the best workplace” list five years in a row, employees are probably quite content, and shareholders are likely handsomely rewarded in the process. Look at shareholders of rare, autoimmune and severe inflammatory disease fighting biopharma, Horizon Therapeutics (HZNP). Shares of Horizon are up over 450% in the last five years, compared to about a double for the S&P 500. Let’s look at what has led to Horizon’s tremendous growth, and if it can continue to make shareholders happy.
It started with one
Krystexxa was approved in 2010 for chronic gout, a rather unpleasant painful inflammatory condition that affects the joints, being approved in patients that did not respond to usual treatment. While there are an estimated 9.5 million patients with gout in the U.S. each year, an estimated 100,000 of them will be refractory to conventional treatment, making them a candidate for Krystexxa. The company has steadily grown Krystexxa sales ever since, with net sales for FY 2020 ending December 31, 2020 of $405.9 million, up nearly 20% from FY 2019, en route to what the company believes will be an eventual blockbuster.
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What makes the company believe it has a blockbuster on its hands? In Krystexxa’s phase 3 trials for refractory gout, the drug was 42% effective, while recent evidence in small trials demonstrates 70-100% effectiveness when combined with other immune system suppressing drugs (such as methotrexate). The company has a larger phase 3 trial looking at combination therapy with data due out in later 2021. If Krystexxa plus methotrexate shows significant improvement in gout versus Krystexxa monotherapy, it is likely that clinicians would be more likely to prescribe Krystexxa (as part of combination therapy) for refractory gout. In fact, the company has seen that combination therapy is now being initiated in more than 30% of patients newly prescribed Krystexxa. I expect that number to continue to rise with positive phase 3 data.
And then there were two
Horizon has really blown past expectations with their second drug, Tepezza, which treats bulging of the eyes caused by severe thyroid disease, of which there are about 90,000 patients in the U.S. that have had the disease for less than 5 years. The drug has crushed expectations, with sales of $820 million in FY 2020, its first year on the market -- coming in at an amazing 23 times the company's initial guidance. $820 million in year one. How amazing is that sales number? The best selling drug of 2019, AbbVie’s (ABBV 0.62%) Humira, sold $852 million in its first full year on the market (2004), and the second best selling drug of 2019, Bristol-Myer Squibbs’ (BMY -0.24%) and Pfizer’s (PFE 0.43%) Eliquis, sold $770 million in its first full year on the market (2014). To be mentioned in the same breath as Eliquis and Humira puts Tepezza in an elite class in my book.
Tepezza is currently only available by infusion, and the company is working on clinical trials looking at giving Tepezza via a subcutaneous injection, akin to how patients take their own insulin. While these are phase 1 trials, a subcutaneous injection would make it easier to administer to patients, and likely decreasing a barrier to receiving Tepezza, and thus increasing sales. The company already expects >50% sales growth in FY 2021 for Tepezza, guiding for over $1.2 billion in sales, en route to an estimated > $3.5 billion opportunity globally.
Cause for joy
Today, Horizon trades at a price:sales ratio of 9.2, and is guiding for a 25% increase in sales to $2.8 billion in FY 2021. Should the company reach $4 billion in sales, and between Krystexxa and Tepezza, based on current trends that may happen sooner rather than later, that would result in a P:S of below 5. For context, Vertex Pharmaceuticals (VRTX 0.55%) has not had a P:S ratio under 9 since 2013 and Seagen (SGEN), being a 26x gain since 2006 versus the triple for the S&P 500 during the same time frame, has never had a P:S under ten. Given the strong growth prospects for Tepezza and Krystexxa’s demonstrated ability to keep growing with future data readouts to fuel further growth, Horizon looks cheap. With its future growth, I suspect Horizon will continue to keep its shareholders and employees happy. Investors bargain hunting for healthcare stocks may want to look deeper into Horizon.
