Citi: Buy Horizon Pharma

Citi has resumed coverage of Horizon Pharma PLC HZNP with a Buy rating on favorable risk-reward profile and valuation support from orphan franchise.

The ratings action comes ahead of pivotal data by Actimmune in Friederich’s Ataxia (FA) in late December. The outcome of this trial is a near-term catalyst for the stock.

Near-Term Catalyst Explained

“While we maintain our view that HZNP is unlikely to constitute a meaningful player in the orphan drugs space, it has nonetheless succeeded in increasing its diversification away from its primary care franchise,” analyst Liav Abraham wrote in a note.

The analyst estimates that revenues and EBIT from the orphan drugs component of the business will constitute 45 percent and.60 percent of total revenues and EBIT, respectively, in 2017.

However, Abraham remains relatively cautious on the outlook for Horizon’s primary care franchise including Duexis, Vimovo and Pennsaid 2 percent, given potential downside risk to net price over time.

“Nonetheless, this franchise constitutes an important contributor to cash flows over the near to medium term, and the recent formulary additions of CVS/Caremark and Prime aid in providing greater durability to this revenue stream,” Abraham added.

Shares of Horizon Pharma closed Friday’s trading at 21.47. Abraham has a price target of $25, implying a potential upside of 17.3 percent.