Horizon Pharma An Attractive Sum-Of-The-Parts Story, Says Goldman

Goldman Sachs maintained its Buy rating on Horizon Pharma PLC HZNP as it sees an attractive second setup based on stabilizing Primary Care business, data for Actimmune/Friedreich's Ataxia opportunity and potential business development activity.

"HZNP is an attractive SOTP story in transformation, with management using the strong cash flows from the underlying primary care business to strategically acquire long-dated and high-barrier-to-entry orphan drugs," analyst Stephen Stewart wrote in a note.

Stewart still views the December 2016 Phase 3 data for Actimmune in FA as a potentially transformational catalyst for the company. The analyst expects un-risk adjusted FA sales of $504 million in 2020, versus 2016 total company sales of about $1 billion.

"Given the size of this potential opportunity, we believe this late year catalyst could solidify HZNP as an orphan story if successful, and transform how investors view the company," Stewart highlighted.

Meanwhile, Stewart sees potential for further coverage expansion announcements through 2H16 following expanded primary care coverage at CVS Health. The company is in talks with Express Scripts Holding Company ESRX and other PBMs/payers covering the majority of the market.

"Similar to its CVS agreement, we expect future deals to be neutral to gross-to-net, and we see greater coverage as a catalyst for further multiple expansion," the analyst continued.

In addition, Stewart says the company's balance sheet flexibility allows it to focus on M&A, particularly in the orphan space.

Stewart's price target of $27 is based on a SOTP analysis, applying a 5.5x sales to Orphan and 2.5x sales to HZNP's Primary Care/Specialty business.