Horizon reworks financial forecast; investors not happy

Horizon has reworked its forecast.

There is more uncertainty on the horizon for investors in Horizon ($HZNP). Last month, it was the disclosure of a Department of Justice (DOJ) probe into pricing. Today, Horizon Pharma disclosed that it will be the second half of the year before the company will realize about 60% of its net sales and earnings.

The Dublin-based company said in a filing with the Securities and Exchange Commission that it still expects to hit its financial forecast for the year, which calls for $1.025 billion to $1.050 billion in sales and $505 million to $520 million in earnings. However, it said that it projects that 57% to 59% of net earnings and 64% to 66% of its adjusted earnings before interest, tax, depreciation and amortization will fall in H2.

The company did not give an explanation for why it was making the disclosure now, but according to The Wall Street Journal, Citi analyst Liav Abraham told clients in a note that the implication is the company will miss analyst forecasts for the first two quarters. And that, she said, leaves investors uncertain of what to expect for the rest of the year. Investors were not pleased, and Horizon's shares Tuesday closed down more than 26% to $13.42.

Investors in Horizon in the last two years also saw the small drug company backload its financial performance. In fact, last year it had 62% of net sales and 70% of EBITA in H2, but that was before the company came under scrutiny for its patient assistance programs and the specialty pharmacies that administer them. Horizon has been lumped in with Valeant Pharmaceuticals ($VRX) and others as having a marketing model that relies on acquiring or developing niche drugs and then pushing prices up drastically to realize profit growth. Pharmacy benefits managers have responded by cutting off some of the specialty pharmacies that in some cases appear to have been set up just to sell the drugs for these companies and avoid the discounting pressures that come through other channels.

That is what happened to Horizon in November when PBM Express Scripts ($ESRX) ejected Horizon's specialty pharmacy from its system, saying that it appeared its main purpose was to handle Horizon products and that it was not meeting Express Scripts' pharmacy network agreement.

Then last month, the company disclosed that the U.S. Attorney's Office for the Southern District of New York had asked for documents and information related to its patient assistance programs, which provide free drugs and copay coupons to help patients cover out-of-pocket costs.

The actions leave questions about whether Horizon can hit is financial projections.

"You have to sit around for them to make their guidance in Q3 and Q4," Abraham told WSJ. "That's not helpful given that this company is more exposed than others to pricing and reimbursement."

- here's the filing (PDF)
- read the WSJ story (sub. req.)