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Horizon (HZNP) Q4 Earnings: Stock Likely to Disappoint?

Zacks Equity Research

Horizon Pharma plc HZNP is scheduled to report fourth-quarter 2016 results on Feb 27, before the opening bell.

Horizon’s performance has been dismal with the company missing earnings estimates in the four trailing quarters. Overall, the company has an average negative earnings surprise of 15.6%.

Last quarter, the company recorded a negative earnings surprise of 11.11%. Let’s see how things are shaping up for this quarter.

Horizon’s share price movement in the last one year shows that the stock has underperformed the Zacks classified Medical-Biomedical/Genetics industry. Specifically, the stock has lost 7.5% so far this year, while the industry lost 3.0%.
 

Factors Likely to Impact This Quarter

Concurrent with the third-quarter results, Horizon reiterated its net sales and adjusted EBITDA expectations for 2016. The company continues to expect net sales around $980–$985 million, including the impact of the settlement and the Raptor acquisition.

Excluding the impact of the settlement, the company still anticipates net sales in the range of $1.045 billion to $1.050 billion, which includes contribution of $20–$25 million from Raptor medicines for the last two months of 2016. The company continues to expect adjusted EBITDA in the range of $450 million to $460 million, which includes the impact of Raptor for the last two months of 2016, as well as an expected increase in operating expenses.

We note that Horizon completed the acquisition of California-based biopharmaceutical company, Raptor Pharmaceutical Corp in Oct 2016. With this acquisition, Horizon will be able to strengthen its U.S. orphan business, and expand in European and other key international markets.

As far as the company’s business units are concerned, Orphan, Primary Care and Rheumatology should continue to perform well. In addition, the company is continuing discussions and negotiations with PBMs and payers aiming to augment the access of patients to Primary Care medicines. Horizon is also constantly expanding its sales and marketing efforts across its business units, which should keep driving prescription growth of existing and newly acquired medicines.

On the fourth-quarter call, focus will be on the performance of the business units, along with that of products like Actimmune and Krystexxa. In Dec 2016, the company announced disappointing top-line data from the phase III study, STEADFAST, on Actimmune (interferon gamma-1b) for the treatment of Friedreich's ataxia (FA), a degenerative neuro-muscular disorder.

The study was conducted in partnership with the Friedrich's Ataxia Research Alliance (FARA). Results showed that Actimmune failed to achieve the primary endpoint of a statistically significant change from baseline in neurological outcome as measured by the modified Friedreich's Ataxia Rating Scale, in comparison to placebo, at 26 weeks. The study did not meet the secondary endpoints of statistical significance either.

Based on the unfavorable study results, Horizon, in conjunction with an independent Data Safety Monitoring Board, the principal investigator and the FARA Collaborative Clinical Research Network, has decided to discontinue the FA development program, including the 26-week extension study and the long-term safety study. We expect the company to throw more light on the same. R&D expenses are projected to be higher in the fourth quarter.

Earnings Whispers

Our proven model does not conclusively show that Horizon is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to likely post an earnings beat. However, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.85%. This is because the Most Accurate estimate currently stands at $0.50 while the Zacks Consensus Estimate is pegged at $0.52. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Although Horizon’s Zacks Rank #3 increases the predictive power of the ESP, its negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Horizon Pharma PLC Price and EPS Surprise

 

Horizon Pharma PLC Price and EPS Surprise | Horizon Pharma PLC Quote

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Pacira Pharmaceuticals, Inc. PCRX is expected to release results on Mar 1. The company has an Earnings ESP of +20% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Exelixis, Inc. EXEL is +200% and it carries a Zacks Rank #2. The company is slated to release results on Feb 27.

Tesaro, Inc. TSRO has an Earnings ESP of +0.51% and a Zacks Rank #3. The company is scheduled to release results on Feb 28.

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