About Horizon Therapeutics
There’s a few opportunities here.
First and foremost, as has been done with previously public companies in the past, getting a clear picture of a company’s financials before it potentially goes private is sort of a treat, at least for investing nerds such as ourselves.
Lastly, sort of blending in the information from the first main point, Horizon Therapeutics is on the cusp of being wholly acquired by biotechnology leader, Thousand Oaks, California-headquartered Amgen for a staggering $28 billion ($116.50 per each share of Horizon, straight cash).
However, in the last few days the Federal Trade Commission (FTC) has sued to stop the proposed acquisition, sending shares down around 9% this past week.
Thus, the inherent opportunity.
Where there’s a share price dip in a quality company, there just might be an opportunity to get in at a lower price and score a strong long-term return as a result.
While some progress has already been made regarding Amgen being permitted to buy out Horizon, there’s always some natural risk that a deal can still fail to come into fruition and in this case, if that were to occur, Horizon would, certainly in the short run, remain publicly traded as its own entity.
Biopharmaceutical staple Horizon Therapeutics focuses primarily on, according to its website, rare inflammatory and autoimmune diseases that impact people on a daily basis.
Some of the company’s prized drug portfolio consists of the likes of Ravicti, Krystexxa, Tepezza and many other FDA approved medicines that Amgen is going after.
Of course, on the other hand Amgen and Horizon might jump through the necessary hoops and close a sizable deal within the next few months.
If this scenario were to occur, those who opted to invest in Horizon’s stock today (at the time of this writing) would attain a rather handsome short-term return of somewhere around 16% upon the deal closing and Amgen fully owning Horizon.
This my friends is merger arbitrage.
Buy shares of the target company’s stock (Horizon, in this case) and if the deal closes per the original terms, the narrowed then closed spread between the price at which you bought its shares at and the proposed acquisition price is your profit, excluding other fees and taxes associated with your brokerage account.
Given that either one of these outcomes are very real possibilities, it might be worth getting to know Horizon Therapeutics on its own through its core financials and other pertinent metrics so as to potentially determine whether or not this company’s stock is worth investing in on its own, which could prove to be especially helpful if the deal falls through.
Horizon’s stock financials
With a current share price of $100.10, a market capitalization of $22.89 billion, no annually distributed dividend and a price-to-earnings (P/E) ratio of 63.43, Horizon’s stock (NASDAQ: HZNP) is pretty much on track with what he had initially expected, for better or for worse.
Namely, we were far from surprised to find that the company’s share price was overvalued, both on the count of its current growth and prospects thereof as well as its stock trading at an elevated level, directly caused by the possibility of an Amgen buyout.
Additionally, as briefly mentioned in other stock analysis articles related to fellow pharmaceutical companies, dividends, especially for younger companies (i.e., not the Pfizers, Johnson & Johnsons and Mercks of the world) are a rarity, as most, if not all of these younger companies are focused on rapidly and heavily investing and reinvesting in their research and development (R&D) and currently approved treatments and related products and separating themselves from its fierce competitors, rather than draining cash each quarter in the form of a dividend.
We unequivocally understand.
Moving onto the company’s balance sheet, Horizon’s management team is in charge of approximately $9.1 billion in terms of total assets as well as around $4 billion in terms of total liabilities.
From our perspective, this is a very good balance sheet overall as its total assets outpace the amount of its total liabilities by a great margin, signaling that this company will be able to sufficiently weather the recessionary cold front that is to continue rolling in.
As it relates to Horizon Therapeutics’ income statement, the company’s total annual revenues since 2018 have grown at a brisk pace.
For instance, its total annual revenue, according to TD Ameritrade’s platform, stood at just north of $1.2 billion in 2018, $1.3 billion in 2019, $2.2 billion in 2020, all the way up to its latest reported figure (that is listed on TD Ameritrade’s platform) of around $3.6 billion in 2022.
This, to us, is an encouraging hint that Horizon has been consistently gaining FDA and other relevant regulatory approval with its medicines and has also been able to continue penetrating new markets and new patients in the process.
Of course, we take no issue with these scenarios, as this is likely another reason a larger company such as Amgen wants to own the entirety of Horizon.
From the perspective of the company’s cash flow statement, its net income has dug itself out of negative territory between 2018 and 2019, particularly as it stood at -$74 million and escalated to an impressive $573 million the next year and remained relatively consistent and absolutely positive the following years, just as its total cash from operations has as well.
This rather insignificant year of negative net income was likely the company turning an important positive cash flow corner which it will probably not visit anytime soon given its gradual rise in revenues and product expansion overall.
Horizon’s stock fundamentals
With a tight-knit, well concentrated and focused treatment portfolio usually follows admirable trailing twelve month (TTM) net profit margins.
At least, this just happens to be the case with Horizon Therapeutics.
Specifically, according to TD Ameritrade’s platform, the company’s TTM net profit margin stands tall at 10.4% to the industry’s listed average of -526.17%.
Obviously, a favorable difference for Horizon related to its peers (on average).
Regarding its TTM returns on assets and investment(s), the company’s, also according to the figures listed on TD Ameritrade’s platform, are both higher than that of the industry’s average by sizable margins
For example, the company’s TTM returns on assets are pegged at 4.19% to the industry’s average of -5.96%.
Should you buy Horizon Therapeutics stock?
Well, no wonder Amgen wants to fully own Horizon Therapeutics.
With a solidified, sought after drug portfolio, a comparably impressive TTM net profit margin, positive cash flow, excellent core TTM returns on both assets and investments, a naturally recession resistant business model and business landscape in which it presently operates that is quite literally the pharmaceutical sector.
Personally, we think it is more likely than not that Amgen will successfully wholly acquire Horizon Therapeutics during 2023 given some mild compromising on Amgen’s part in order to appeal to the FTC’s concerns.
However, even if we end up being off the mark and Horizon remains an individual, publicly traded entity, from an operational standpoint (among others), this company is fantastic but even incorporating its past, current and future growth achievements and aspirations, we must, in the interest of respecting objectivity in analyzing stocks, give this company’s stock a “hold” rating, especially since its revenues aren’t growing at a substantial enough rate to justify paying this large a premium and candidly, one would more than likely be able to get into its shares at a large relative discount if its getting acquired by Amgen is thwarted once and for all.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.