Horizon Therapeutics (NASDAQ: HZNP) has seen its share price soar on the news that the business could be nearing a buyout.
A press release from Horizon stated that the company is in “highly preliminary discussions” with Amgen (NASDAQ: AMGN), Johnson and Johnson (NYSE: JNJ) and Sanofi (NASDAQ: SNY).
Analysts have speculated that any deal could run as high as $140 per share, a significant premium on the company’s current share price of $100.14 at the time of writing.
What is Horizon Therapeutics?
Horizon Therapeutics is a biotechnology company which focuses on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases.
The company operates in two segments, Orphan and Inflammation. Its portfolio comprises 12 medicines in the areas of rare diseases, gout, ophthalmology and inflammation.
The company was formerly known as Horizon Pharma Public Limited Company and changed its name to Horizon Therapeutics Public Limited Company in May 2019.
The company was founded in 2005 and is headquartered in Dublin, Ireland with additional offices in Illinois, California, Washington DC, Maryland and Mannheim, Germany.
HZNP Stock Financials
The company’s most recent update, which covered its third quarter, showed net sales of $925.4m. This represents a decrease of 11% compared to the same period one year prior.
This downturn was due to a 20% reduction in sales of TEPEZZA, the company’s primary treatment.
However, the quarterly earnings exceeded consensus estimates and the year to date has still seen net sales growth of 21% to $2.69bn. The business also increased full year net sales guidance to $3.59bn amidst strong performances from both TEPEZZA and gout treatment KRYSTEXXA across the year to date.
Even with the latest uptick in share price, the company’s stock price is down by more than 7% across the year to date. However, between its strong third quarter earnings and acquisition speculation, HZNP stock has recovered significantly from a low of $57.84. At the time of writing, the stock price sits at $100.14.
The company’s price to sales ratio is 4.98 and its price to book value is 3.51. These compare with respective biotech industry averages of 9.1 and 8.32 according to CSIMarket. This could indicate that the stock is undervalued.
HZNP Growth Potential
Even if the business does not end up being acquired, it looks like it has a solid growth trajectory. The business has a number of projects and agreements which can significantly enhance its growth.
For example, Horizon is expanding its manufacturing facility in Waterford, Ireland, adding approximately 320,000 square feet to its current 44,000 square foot drug product biologics facility.
Additionally, the business has further treatment candidates under trial and development. These include UPLIZNA, which is currently undergoing phase 3 trials for the treatment of several autoimmune diseases which affect the facial muscles.
HZNP Investment Risks
Of course, the primary risk at the moment is that the buyout speculation fuelling Horizon’s current share price upswing comes to nothing. Sometimes M&A deals fail to materialize or fall through for a variety of reasons, including regulatory and political issues.
M&A activity has been in slowdown this year amid high market volatility and economic trouble. According to Bloomberg, roughly $212bn of M&A deals were announced in the third quarter. While this sounds enormous, its actually the quietest period since the second quarter of 2020.
Businesses are struggling to obtain the necessary finances for deals, leading to more haggling than has been seen in previous years. This means some rumoured acquisitions that have generated a lot of investor excitement have failed to go ahead.
For example, Merck was slated to snap up Seagen (NASDAQ: SGEN) over the summer but talk surrounding any deal has cooled.
Is HZNP Stock a Good Investment?
Horizon looks like a business in the ascendancy – and that’s why it is attracting so many suitors.
However, there is significant cause for caution. The current environment is not friendly for M&A action, so any proceedings could encounter pitfalls. At that point, new investors who were swept up by the excitement might find themselves holding on to HZNP stock that now looks overvalued.
It appears that Horizon is being courted by a trio of major healthcare players. This should work to investors’ advantage and could even lead to a bidding war for the business. Even so, investors should be aware that no deal is nailed on at this point.
Even so, the business appears to be a healthy and growing operation. It’s a view shared by analysts as the 12 covered by the Wall Street Journal have a consensus rating of Buy for the stock, with an average price target of $104.33.