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Horizon Therapeutics Rally May Be Short-Lived As Investors Wait For Key Date In March

Shares of Horizon Therapeutics (NASDAQ: HZNP) closed more than 4% higher on Monday after an U.S. Food and Drug Administration advisory committee voted in support of the company's treatment for thyroid eye disease, and the stock extended gains by more than 2% over the next two trading sessions. The FDA's Dermatologic and Ophthalmic Drugs Advisory Committee concluded that potential benefits of teprotumumab outweighed possible treatment risks.

IMAGE SOURCE: GETTY IMAGES.

But a long-term rally may be limited, at least for now. The FDA has until March 8 to issue its decision on the treatment, leaving investors plenty of time to speculate, wonder, and buy or sell shares. Of course, the committee's vote for teprotumumab is a strong positive indicator, and the FDA does take such a recommendation into consideration. That said, the vote doesn't guarantee the drug's approval.

First FDA-approved treatment

At the moment, there are more reasons to be positive about Horizon than negative. Any sign of possible approval is good news, and what's particularly interesting here is the fact that if the FDA gives the green light, teprotumumab will become the first FDA-approved treatment for thyroid eye disease.

In its latest earnings call, the company said it estimated 15,000 to 20,000 patients per year are eligible for its treatment and said initial physician feedback supports those figures. As for how that translates into sales, Horizon forecasts peak annual net sales of more than $750 million. Analysts predict peak sales could reach $500 million to $1.5 billion.

Thyroid eye disease is an autoimmune disease resulting in eye bulging, double vision, and even blindness, and often affects those who suffer from Graves' disease. In Graves' disease, the body's immune system attacks the thyroid, causing it to make more thyroid hormone than needed, while in thyroid eye disease, the body's immune system attacks tissue surrounding the eye. Teprotumumab acts by inhibiting a key receptor involved in the development of thyroid eye disease. The global Graves' disease market totaled $306.3 million last year, according to a Research and Markets report, and about 25% of people suffering from that disease can also develop thyroid eye disease, data from Persistence Market Research showed.

Increased guidance

Even without teprotumumab on the market, Horizon's general financial picture is bright, with the company posting positive earnings surprises for the past four quarters. Third-quarter sales rose 3%, and Horizon increased its full-year 2019 adjusted EBITDA guidance to the range of $465 million to $475 million from the earlier forecast range of $460 million to $475 million. The company also took steps to improve its capital structure, issuing senior notes and, through proceeds and cash on hand, repaying $625 million of outstanding debt.

Now the question is: What's in store for the stock in the next few weeks? Let's have a look at the stock's performance this year. Horizon has climbed about 61% since the start of 2019, and now, trading at close to $35, its shares are approaching the average analyst price target of $38.10. By that measure, investors can expect an upside of more than 8%. The stock clearly has further to go if indeed the FDA approves teprotumumab, but considering the stock's gains so far this year and the fact that the FDA hasn't yet issued a decision, volatility may be ahead.

That doesn't mean it's too late for investors to bet on the Horizon story. In fact, any volatility that drives the shares down may make for the perfect buying opportunity. The FDA's March deadline to issue a decision on teprotumumab will be the next catalyst for the stock and should determine clear direction one way or the other.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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