Just remind you that POZN investor/traders are looking for a short term gain thru dividend payment. Some traders are riding POZN and probably exit before or on day of the payment.
A low volume stock like POZN may drop significantly when traders hit the exit door.
After all, POZN is a low key stock that is happy with one or two royalties in contrast to HZNP that has expansion goal and strategy.
After all, over 50% of POZN 2014 revenue will come from HZNP. On the other hand, HZNP has to perform for POZN to succeed.
However, HZNP is not relaying on one product. Vimovo will be one of many products that HZNP will commercialize.
That is right.
Although HZNP will be profitable and cash positive in 2014 in contrast to most small pharma companies that have to sell shares for years and burn them to survive, HZNP is up to somthing new, a trend that is going much farther than being just positive cash flow. It is building a business that will progress and expand much faster that many companies in its sector.
In less than 3 years after going public, HZNP has put itself to a position that it will generate cash. Now it is time for HZNP to go to next step and expand thru smart acquisition and addition of other products to utilize its unique system. HZNP shareholder will benefit the most if they ignore current PPS volatilities. As a friend of mine is saying, lets close our eyes and lets forget this dream of volatility. When we open our eyes next year this time, HZNP PPS will be much much higher that what it is traded now.
Sorry to mention that numbers are for year 2014.
The estimates are very close to current analysts prediction.
Sentiment: Strong Buy
Update HZNP net income after adjusting SG&A for new addition of new sales force.
Item ********** Q1 ******* Q2 ******* Q3 ****** Q4 ***
Revenue * * * $44 * * ** $50 * * * * $55 * * * * $60
Cost of good* $8.8 * * * $10.0 * * * $11.0 * * $12.0
SG&A * * * * * $32.0 * * $32.5 * * * $33.0 * * $33.0
R&D * * * * * * $2.1 * * * $2.1 * * * * $2.2 * * * $2.2
Interest * * * * $1.9 * * * $1.9 * * * * $1.9 * * * $1.9
Royalty * * * * $1.2 * * * $1.3 * * * * $1.4 * * * $1.5
Others * * * * $1.2 * * * $1.5 * * ** $1.8 * ** * $1.9
Tax * * * * * * $0.1 * * * $0.1 * * * * $1.2 * * * $1.5
Net * * * * * * ($3.3) * * * $0.1 * * ** $2.5 * * * $6.0
Net Income* ($.05) * * * $0.0 * * ** $.04 * * * $.09
HZ goal is to acquire 1 or 2 more products in 2014 after integration of Vimovo. The company sale strategy is working well and it may attract other small companies for cooperation.
After all, Hz is not done with Pozen and they may do more business if Vimovo launch by Hz is successful.
All above require money and Hz can replace $150 note with another higher one and of course better pricing and terms.
No, price increase and Vimovo rev were not included in Q4 calculations, in addition, individual drug rev increase was not calculated even though it can be done with same formula. However, these are estimates and we better go with average numbers.
One time charges for Q4 may be high but investors should look at Q4 rev and outlook for Q1 2014 since those are the ones that count.
What is pb taking about, some investors may ask.
So Q3 rev was $26.22 m but it included 17% one time benefit. That means actual rev was
$26.22 * 83% = $21.76 m
I have developed an algorithm that can calculate rev based on average month to month increase in rev.
3x + 6xp + 4xp^2
X is last month of a quarter rev, p is percent increment of month to month.
If last month of Q2 was $5.5 m and month to month increment was 15% on average then Q3 rev is calculated as : 3(5.5) + 6(5.5)(.15) + 4(5.5) (.15)(.15) = $21.95 m very close to above number.
I also came up a formula to calculate Q3 last month rev which is $8m.
Now let's calculate rev for Q4:
If month to month increment is 10% and last month of Q3 was $8 m then Q4 rev will be
3(8) + 6(8)(.10) + 4(8)(.10)(.10) = $29.12 m
With 13%, the rev will be $30.78
Vimovo Q4 rev is not included in above calculations.
Trust above formulas since I make my living by writing algorithm for medical equipments.
************** Q1 ******* Q2 ******* Q3 ******* Q4 ***
Revenue * * $43 * * * * $48 * * * * $52 * * * * $57
Cost of rev * $09.0 * * $10.5 * * * $11.5 * * * $12.0
SG&A * * * * $25.5 * * $26.0 * * * $26.5 * * * $27.5
R&D * * * * * $2.3 * * * $2.4 * * * * $2.5 * * * * $2.6
Interest * * * $1.9 * * * $1.9 * * * * $1.9 * * * * $1.9
Royalty * * * $1.2 * * * $1.3 * * * * $1.4 * * * * $1.5
Others * * * $1.5 * * * * $1.7 * * * $1.8 * * * * $2.0
Tax * * * * * 0.30 * * * * $0.90 * * $1.40 * * * $2.4
Net * * * * * $1.3 * * * * $3.30 * * * $5.0 * * * $7.10
Income * * $.02 * * * * $.05 * * * * $.08 * * * * $.11
EPS is based on 66 M shr. share numbers may change and also other events may happen in 2014 like refinancing or another acquisition. After all, TW is a very experienced in this field and he is the one who sold Humira, the drug that has been #1 in the whole world for its revenue.
Total Revenue 26,218 12,254 9,171 6,747
Cost of Revenue 5,313 3,517 4,247 3,931
Gross Profit 20,905 8,737 4,924 2,816
Research Development 2,154 2,833 2,198 4,739
Selling General and Administrative 21,495 21,708 21,270 20,103
Non Recurring - - - -
Others - - - -
Total Operating Expenses - - - -
Operating Income or Loss (2,744) (15,804) (18,544) (22,026)
Income from Continuing Operations
Total Other Income/Expenses Net 1,118 454 (905) 801
Earnings Before Interest And Taxes (1,626) (15,350) (19,449) (21,225)
Interest Expense 3,601 3,442 3,603 3,444
Income Before Tax (5,227) (18,792) (23,052) (24,669)
Income Tax Expense 265 (351) (881) (336)
Minority Interest - - - -
Net Income From Continuing Ops (5,492) (18,441) (22,171) (24,333)
Discontinued Operations - - - -
Extraordinary Items - - - -
Effect Of Accounting Changes - - - -
Other Items - - - -
Net Income (5,492) (18,441) (22,171) (24,333)
Preferred Stock And Other Adjustments - - - -
Net Income Applicable To Common Shares (5,492) (18,441) (22,171) (24,333)
I did some research regarding Horizon rev and income for 2014 and I believe Tim guided very conservatively. I don' t blame him since this is the first time Horizon is guiding for a year and a wise man never wants to guide something that cannot deliver.
Vimovo generated $23 M revenue in Q3 2013 and Pozen received $1.6 M royalty from this amount.
$23 M is 72% higher than its revenue in Q3 2012.
It is not expected same surge in 2014 and even keeping the same level per quarter in 2014 will add significantly to HZ revenue.
I skip Q4 since there will be a few one time charges and based on Hz, the transition SG&A will be between $30 to $40 M. So, the charges (interest and fees for old loan + fees for new note + cap call charge) can run to $37 M. Non-gap loss may be in a single digit since Hz may get up to $5 M net from Vimovo.
I go with predicted of $200 M rev for 2014 while all indications say $220 to $230 M.
SG&A will be higher by $3 to $5 M per quarter.
115 new rep sale will be hired. Basic salary of a rep sale is $50k to $100k and $10k to $40k for commission and bonus. For simplicity, each rep cost is calculated as $104k per year or about $3 M per Q for 115 reps.
SG&A will increase by $3 M originally ($25 M) and can go to $30 as company progresses.
The rev for 2014 will be as follow:
Q1: rev =$14 M from Vimovo, $29 from other drugs, total = $43 M.
SG&A = $25.5 M, cost of sale = $9 M, R&D = $2.3 M, interest = $1.9 M, Royalty = $1.5 M, others =$1.5 M, tax =$.3 M, net income = $0.02 per share.
Q2: rev = $49, income = $0.06
Q3: rev = $53, income = $0.09
Q4: rev = $57, income = $0.12
I did not put the details for all quarters but any one ask I will do. The sum of rev for 2014 ends up to be $200 M and vimovo rev were $14, $18, $20, $22 for 2014 quarters that are much lower than Q3 2013.
Suggestion is welcomed.
HZNP estimates have calculated wrongly by analysts in past few quarters. Last quarter was wrong by 68%.
They are wrong again for Q4 and also next year.
My calculations says HZNP will break even for Q4 and it will be profitable in Q1, 2014.
This situation will continue for a while until either enough volume is built or another big news is around.
The stock has doubled in past 2 months and some investors thinks it is time to cash in. That has been my biggest investing mistake in the past. When I doubled my money in PCYC or a few other stocks, I thought that was good enough. However, I could make over 10 fold if I stayed in PCYC and SLXP. All I needed to see main reason for them to go up in spite of a rough road. Although the market has pushed some stocks to high levels recently with or without any progress in their fundamentals, but this is not the case for HZNP since we are talking about significant fundamental change in the company. This is not a case of “A rising tide lifts all boats”. This is a trend that has been started a while ago but we have been seeing some of the results in past two months. This trend will not stop but continues even stronger in future. This is not the time for me to be satisfied with a single run but I want a home run since I missed so many other home runs.
Well, if some medical companies do not know how to commercialize and sell their drugs (most small ones don’t know how) then here is Horizon with experience and man power to do it in a much better way. So, there will be many deals with different flavors but bottom line is that Horizon will benefits and becomes much larger company with much better income in future. Well, if some medical companies do not know how to commercialize and sell their drugs (most small ones don’t know how) then here is Horizon with experience and man power to do it in a much better way. So, there will be many deals with different flavors but bottom line is that Horizon will benefits and becomes much larger company with much better income in future.
I bought SLXP at $5 and higher, SVNT under $5, PCYC around $12 ( it is around $125)...
Did I hold any of them to maturity? No I did not. Sold SLXP around $16, SVNT around $11, PCYC around $20....I had some losers too. ARNA was a loser for m. I invest in techs, financially, energy and other sectors too.
Anyway, you should not be worry about note conversion and dilution since there are many limitation and rules before note holders can convert.
However, Horizon CFO should have been started process of negotiation for next note to pay off this note and the rest for next acquisition. The next note will have higher money, higher strike and cap prices and better terms. Of course, all above are possible when the company execute well and PPS rises.
Let me give you one example. SLXP issued a convertible note in 2008 for $60 M. In mid 2010, SLXP issued anther convertible note for $345 M to pay off 2008 note and the rest for other uses. SLXP paid dearly for 2008 note with cash but it did not convert it to shares except for a very small number number. SLXP paid $137 M just for 42% of 2008 note.
It is very important to have an experienced CFO since down the road it may strangle the company with a bad deal or unnecessary deals that make the company cash rich but no income or products. This cash will be used eventually to pay management fat salaries where shareholders become poor.
SLXP share outstanding is still low and almost unchanged since years ago in spite of several acquisitions. I am hoping HZNP will do the same good job as SLXP since it is following almost the same modal of business.
As I said, note conversion has time, price and other limitations so I am not worry about this matter at this time.
Ok, I said hznp will get to $10 in hurry since
A) It knows how to sell drugs
B) It has 3 drugs to sell so far
C) It will generate income in 2014
D) It has a good CEO and management
Remember that most medical startups put years on one drug and they may make it or not.
That is why HZNP is interesting and reminds me of SLXP (I stepped in SLXP at $5).
HZNP has some weaknesses too. CFO and accounting should do better than this.
If it was me, I pay $35 M from existing cash for new drug and with strong Q3, I let the stock runs to $10 before starting to get in convertible note. HZNP could get $250 M at strike price of $14 and cap price of $18 at 2.5% interest rate.
This is another try for capped call transition, the one that THRX did in Jan 2013.
THRX got $250 M @ 2.125%, strike price of $27.79, cap price of $38 where its price was $20.97.
The following is from THRX filing:
"The capped call options are expected generally to reduce the potential dilution upon conversion of the notes in the event that the market price of the Company's common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions, which initially corresponds to the conversion price of the notes, and is expected to be subject to customary anti-dilution adjustments. However, if the market price of the Company's common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions, the anti-dilutive effect of the capped call transactions will be limited."
As above is confirming again, the anti-dilution works only from strike price to cap price. That is the reason the spread between strike price and cap price should be large enough to benefit most. Unfortunately, HZNP did not get a good deal from bankers and CFO should have done a better job than this deal.
First, I do not know why hand is not trading at $10 right away since it is in much better position than many stocks in its sector.
Second, you keep talking about 14 M shares. If it was 50% hedge then the filing was saying it. It is 100% or 28 M shares.
Third, there are many examples from other companies and you better read some of them to understand it.
This is the first time I am doing research in convertible notes with capped call transactions and I am updating myself as I do more or if I make a mistake.
It looks funny and that what I did not believe originally until I went thru other companies that issued note similar to Horizon. Here is one from AMD:
"If, however, the market value per share of the Company’s common stock, as measured under the terms of the capped call, exceeds the cap price of the capped call, there would be dilution to the extent that the then market value per share of the common stock exceeds the cap price."
The problem is that Horizon set low strike price and worse is that the cap price is very close to strike price. I think somebody fooled them by percentages.
VVUS issued note in last May, set the strike price over $14 and cap price at $20. While the stock was around $10.
The second mistake is high interest rate of 5%. Most companies get it around 0 to 3% these days.
My guess is that Horizon may do anther note with something around $250 M, pay off this note and gets much better terms and interest rate. May be it wants to purchase another drug and utilize its commercial settings.