Premium No Longer Deserved? Why Brean's Difei Yang Is Downgrading Horizon Pharma

• Although Horizon Pharma PLC HZNP shares have declined since September 21, they are up 128 percent since September 15.
• Brean's Difei Yang downgraded the rating on the company from Buy to Hold, while removing the price target.
• Recent negative developments for the sector as well as at Horizon Pharma could exert pressure on the company’s shares, Yang mentioned.

Analyst Difei Yang said that although Horizon Pharma has been “a good growth story” in the specialty pharma segment for the past couple of years, there have recently been several “unsettling” developments.

Yang enumerated these developments as:

1. Public discussion on drug prices is expected to heat up – “While we do not believe the current pricing practices in the industry can be changed by 2017, we believe public debate and discussion on the issue will bring uncertainty to Horizon Pharma's business model,” the Brean report stated.
2. Depomed deal is not likely to close – Since Depomed has turned down Horizon Pharma's offers several times, there is less likelihood of a deal being reached. In the absence of the deal closing, investors may get concerned about revenue growth in the future.
3. Weakness in product prescription trend – Recent checks reveal that Horizon Pharma’s key products are showing “signs of fatigue in demand growth.” The DEPO deal may have caused a distraction to management, causing day-to-day operations losing traction.
4. Sector likely to witness multiple contraction – While there could be multiple contraction in the biotech and pharma sectors, given weak market conditions, Horizon Pharma’s shares are already trading at a premium.

Yang commented, “These headwinds are likely to make investing in Horizon Pharma more risky than in the past. Thus, we downgrade HZNP from BUY to HOLD and will move to the sidelines.”