Behind Horizon’s EV-to-EBITDA Performance
Horizon Pharma in 2016: Can It Weather the Biotech Storm?
Is Horizon trading at a discount or not?
On March 24, 2016, Horizon Pharma (HZNP) was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 4.61x. The company has been trading at a discount compared to Mallinckrodt (MNK) and Endo International (ENDP), which were trading at a forward EV-to-EBITDA multiple of 6.18x and 5.51x, respectively. Valeant Pharmaceuticals (VRX) was trading at a discounted forward EV-to-EBITDA multiple of 3.36x. The reason for this discount for Valeant appears to be the recent turmoil stemming from the threat of debt default.
Since September 2015, Valeant, a Wall Street favorite, caused a tumble for the big pharma and biotech industry, and many companies were punished with falling multiples and share prices.
On a yearly performance comparison basis, Valeant’s share price plunged by 69.7%, whereas Mallinckrodt’s fell by 21.9%. Endo International plummetted by 52.9%, and so it’s notable that Horizon has outperformed its peers, having witnessed a 24.5% jump in its share price. Perhaps investors are more optimistic about Horizon’s growth prospects.
The company presents significant potential for adjusted EBITDA numbers. With the change in the product mix, wherein orphan drugs would form 60% of total net sales, adjusted EBITDA could rise to 60% of net sales by 2020.
EV-to-EBITDA multiple
Horizon’s average forward EV-to-EBITDA multiple was ~9.5x for the past two years. The enterprise value of the company has ranged from 4x–16x of its forward EBITDA, and its current forward multiple of 4.61x seems to be at the lower end of this range. The company’s focus on orphan drugs, its recent acquisitions, and its primary care sales force expansion could continue to drive sales growth.
As the share prices of pharmaceutical and biotechnology companies can be volatile, it’s often safer to avoid direct exposure and choose ETFs like the iShares US Pharmaceuticals ETF (IHE), which has about 1.7% of its total portfolio in Horizon.
In the next part, we’ll discuss the analyst recommendations obtained by Bloomberg for Horizon and its peers.
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