Horizon expects most sales to come later in the year, precipitating share's slide
- Shares of Horizon Pharma dropped sharply earlier this week after the company said roughly two-thirds of it earnings and over half of its revenue wouldn't be realized until the second half of the year. The company did maintain its 2016 sales guidance, however, forecasting $1.025 to $1.050 billion.
- Horizon saw a similar pattern in 2014, when the company also posted most of its sales and profits in Q3 and Q4. What has changed is the context: earlier this year, federal prosecutors subpoenaed Horizon requesting information about its patient assistance program (PAP). Pharmacy benefits managers (PBMs) have also been pushing back against the prices of specialty drugs—including drugs marketed by Horizon.
- Investors' reaction to the news was negative, with Horizon Stock falling 27% by Tuesday's close.
The last several months have not been easy for Horizon Pharma. In addition to the federal probe of Horizon's, both Express Scripts and CVS Health have recently stopped covering two of Horizon's main drugs, Vimovo and Duexis, because of the availability of cheaper alternatives.
Moreover, although overall guidance for 2016 has not changed, the large percentage of sales likely occurring in Q3/Q4 could mean Horizon misses market expectations earlier in the area, according to the Wall Street Journal.
The company expects to book roughly 20% of its 2016 sales in the first quarter and another 22% to 23% in the second quarter. Horizon says 13% to 14% of EBITDA, a measure of earnings, will be booked for Q1, with another 21% to 22% during Q2.
Part of what investors are responding to is not just concerns about when revenues are booked, but whether pushback from PBMs could represent a challenge to the company's business model.
In particular, the use of specialty pharmacies has come under greater scrutiny in the wake of the Philidor scandal. In fall 2015, Valeant severed its relationship with the specialty pharmacy Philidor Rx after allegations surfaced about phantom sales. Valeant later identified $58 million in sales which were improperly recognized.
Horizon has made a point to note in filings with regulators that all of its related pharmacies are fully independent, including those that participate in the company's patient access program, HorizonCares. But delayed sales appear to be adding to existing uncertainty over the federal investigation.