News

Investors Set Their Sights on Horizon Pharma

May 22 2014

Deerfield, IL—Horizon Pharma has emerged out of two transformative deals as a high-growth specialty pharma with four commercially available drugs. Now it is on track to achieve profitability in 2014, and investors are perking up to hear more about the company’s acquisitive strategy, which includes more aggressive deal-making.

By acquiring the US rights to the pain reliever Vimovo from AstraZeneca in November, then turning around and buying the Irish rare disease company Vidara Therapeutics four months later, Horizon has doubled the size of its commercial portfolio and put itself on track to achieve profitability in 2014.

  *  Horizon’s $660 million acquisition of Vidara gives the company an Irish domicile from which it can take advantage of the country’s corporate-friendly tax breaks, particularly as it looks ahead to future dealmaking. It also gains another commercial product, Actimmune, approved for two rare diseases.

  *  Vimovo fits hand-in-glove with Horizon’s Duexis. Both products are fixed-dose combinations including common pain relievers combined with a gastrointestinal protective agent to reduce serious GI side effects. The company has increased the size of its sales force marketing the drugs to primary care docs.

  *  Fixed-dose combinations can be a challenging pharmaco-economic proposition in the cost-conscious market, but Horizon is relying on clear physician messaging and patient-centric co-pay programs to drive growth.

Horizon Pharma Inc.has emerged from its recent spate of dealmaking as a high-growth specialty pharma – one with four commercially available drugs and on track to achieve profitability for the first time in 2014. Investors are paying attention to the way Horizon’s strategy is playing out. The company’s stock, priced at $14.49 as of May 5, is trading at close to the highest levels in the company’s history since it went public in July 2011.

Horizon’s stock is up 85.7% since the start of the year and up 152.4% since the company announced the first of two transformative deals November 19. Those deals, completed within a four-month window, have been the big driver behind Horizon’s momentum on Wall Street.

The first, a licensing deal with AstraZeneca PLC signed in November 2013, gave Horizon US rights to a new commercial product, the pain reliever Vimovo (naproxen/esomeprazole), for $35 million up front.  In the second deal, announced in March, Horizon will acquire privately held Irish rare disease company Vidara Therapeutics International Ltd. in a cash-and-stock deal valued at $660 million.

With Vidara, which employs just 24 people, including about 10 sales reps, Horizon gains an Irish domicile from which it can take advantage of the country’s corporate tax breaks – a platform the company expects to leverage in the future with more aggressive dealmaking. Vidara also adds another commercial-stage drug to the company’s portfolio, and one that expands its platform into rare diseases.

Actimmune (interferon gamma-1b) is approved in the US for the rare congenital immune disorders chronic granulomatous disease (CGD) and severe malignant osteopetrosis (SMO). The niche product generated sales of $58.9 million in 2013, and is highly profitable. Horizon’s management sees room to grow the brand through deeper penetration in existing indications and by expansion into new ones.

After announcing the Vidara acquisition, Horizon updated sales and earnings guidance for 2014; the company is on track to generate revenues of $250 million to $265 million in 2014 and adjusted EBITDA of $65 million to $75 million, net of one-time transaction expenses. That is significant growth for a company that three years ago did not have a single commercial product. Horizon generated sales of $77.9 million in 2013 and $19.6 million in 2012.

A Fixed-Dose Combo Foundation

Interestingly, the two pillars in Horizon’s portfolio are fixed-dose combination drugs that compete in mature therapeutic categories. Its top sellers are Vimovo and Duexis (ibuprofen/famotidine), combinations of older well-known active ingredients.

The two drugs work similarly in that they combine a common pain reliever with a gastrointestinal protective agent to combat the common GI side effects associated with NSAIDs and ibuprofen when they are used chronically.

Vimovo combines the non-steroidal anti-inflammatory naproxen with the proton pump inhibitor esomeprazole (AstraZeneca’s Nexium). It is approved for osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis and to reduce the risk of ulcers in patients being treated with NSAIDs. Duexis contains the common pain reliever ibuprofen with famotidine, the active ingredient in Pepcid, and is approved to relieve signs and symptoms of rheumatoid arthritis and osteoarthritis and to decrease risk of developing upper gastrointestinal ulcers in patients taking ibuprofen for those indications.

Rounding out the company’s portfolio is the corticosteroid Rayos, a delayed-release version of prednisone approved for rheumatoid arthritis and other autoimmune indications.

“We approached AstraZeneca. We saw the inefficiency where [Vimovo] was no longer being promoted by them. They had a contract sales force. We saw the prescriptions drop from about 600,000 to about 300,000, and saw the opportunity in our business model to drive prescriptions and optimize the value.” – Timothy Walbert

Horizon is relying on clear messaging to physicians to carve out a niche for Vimovo and Duexis despite the fact that the drugs compete in a crowded market that includes generic famotidine and will soon include generic esomeprazole. Generic versions of Nexium are expected to reach the market in May.

But despite the availability of cheaper single agents dosed separately, the need for fixed-dose combinations in these categories is very real, according to Horizon CEO Timothy Walbert.

Up to 46% of patients who take these non-steroidals get serious stomach ulcers, resulting in hospitalizations and even death, according to Horizon. “Physicians co-prescribe a pain reliever and a GI protective agent less than 25% of the time, leaving the majority of patients at risk of developing stomach ulcers and their complications,” Walbert says.

Even when patients are prescribed a GI protective agent with their NSAID or ibuprofen, they stop taking it more often than not; about 61% of these patients who are prescribed a GI protective agent stop taking it, Horizon’s research shows. “On that basis, 85% to 95% of patients are unprotected,” says Walbert.

No Pay Day If There’s A Co-Pay

But even when there is a compelling efficacy benefit, selling fixed-dose combinations over cheaper or generic single agents is not without its challenges given the higher costs. There is significant pushback from payors, which often regulate combinations to lower tiers on formularies resulting in higher out-of-pocket expenses for patients who use those medicines. And branded combinations are often switched out automatically at the pharmacy for the cheaper products.

The wholesale acquisition cost for a 30-day supply of both Duexis and Vimovo is $799. Horizon raised the price of Vimovo from a monthly cost of $115 when it took over the brand in the US in January. As a result of the price hike, it lost Vimovo’s Medicare, Medicaid, and cash business, but it expects to make up the loss with higher revenues in its commercial business. About 78% of the Vimovo business is reimbursed through commercial insurance.

Despite the loss of the Medicare/Medicaid business, new scripts of Vimovo increased 10% in January and 18% in February, the first month the drug was actively promoted by Horizon’s sales reps, according to the company. Total prescriptions were flat, which the company says signals that it successfully moved through the loss of a substantial piece of its business.

An important component of Horizon’s marketing strategy for Vimovo and Duexis is helping patients navigate the challenging reimbursement environment and making sure they obtain the medicines at a reasonable cost. The company is investing heavily in a co-pay assistance program to offset the higher cost of the treatments for patients. For example, 97% of patients taking Vimovo pay zero out of pocket and the company is moving Duexis and Rayos toward zero out of pocket as well.

“The thing for us is focusing on ensuring that the patient gets the product for the lowest available cost,” said Walbert. “We will buy the co-pay down as much as $450.”

“The two questions we got asked most coming out of the Vimovo transaction were: what is your tax strategy and when are you going to get more new products?” – Timothy Walbert

Co-pay assistance programs have grown increasingly controversial within the industry, however, with some insurers complaining they thwart payors’ tiered payment systems designed, in part, to incentivize patients to take more affordable medicines when they are available. Others argue that co-pay assistance helps patients subsidize expensive out-of-pocket costs, particularly for high-cost specialty drugs. Some insurers have begun excluding co-pay cards for certain drugs

To make sure patients get their medicine as prescribed, Horizon also runs an automated distribution system called Prescriptions-Made-Easy. The program is in place for Duexis and is being rolled out now for Vimovo and Rayos. Under the program, physicians can send their prescription directly to a specialty pharmacy partnered with Horizon using an electronic mobile device, e-prescribing system, or fax and the medicine will be shipped directly to the patient the next day. If a patient’s prescription is rejected by a managed care provider, Horizon agrees to provide the product and subsidize the cost.

“What we do is we tell physicians if you have commercial patients, we will ensure that 100% of your patients are covered. You are not going to get call backs, you are not going to have to work through managed care challenges,” Walbert says. About 27% of Duexis prescriptions are going through the Prescriptions-Made-Easy program as of the fourth quarter.

“What we found is that through the national retail chain about 62% of prescriptions that are written are going through, and through this program, 85% of prescriptions are now going through, so a 23% improvement,” Walbert says. “What we also found is that physicians who use this program also increase their overall prescribing.”

Horizon’s apparent success, at least early on with Vimovo and Duexis, suggests the commercial opportunity for fixed-dose combinations might be more right-sized for a lean specialty pharma like Horizon than for a Big Pharma.

AstraZeneca developed Vimovo with Pozen Inc under a partnership dating to 2006. Pozen stands to receive a 10% royalty on sales of Vimovo under Horizon’s licensing deal with AstraZeneca. The product was part of AstraZeneca’s lifecycle management strategy for Nexium, and the Big Pharma went on to market the drug after it was approved in 2010. But Vimovo languished at AstraZenca, especially more recently as the company reduced marketing support for Nexium ahead of expected generics and turned its investment to newer products.

“We approached AstraZeneca,” Walbert explains. “We saw the inefficiency where [Vimovo] was no longer being promoted by them. They had a contract sales force. We saw the prescriptions drop from about 600,000 to about 300,000, and saw the opportunity in our business model to drive prescriptions and optimize the value.”

Preparing For The Future Through Dealmaking

Despite Vimovo’s declining growth, Horizon’s move to acquire US rights to the drug was welcomed by the company’s investors. Vimovo fits hand-in-glove with Duexis, and by bringing the two products together, Horizon can better leverage its commercial team across the two products. With the addition of Vimovo, the company significantly expanded its commercial organization, building its primary care sales force from 150 reps to 250 and its specialty sales force targeting rheumatologists from 25 reps to 40. The specialty force primarily markets Rayos.

Just three years ago Horizon didn’t have a single commercial product. The company developed both Duexis and Rayos through late-stage clinical trials. Its first drug, Duexis, was approved in April 2011 and launched late that year. In between, the company went public in July 2011, raising $49.5 million in an IPO. The approval of Rayos followed in 2012 and it launched in December of that year.

Horizon Pharma

The year 2012 was a pivotal one for the company, marking a momentum shift and a transition to its current expansion strategy. Horizon was in the midst of launching its first two commercial drugs, it settled patents for Duexis with the US Patent and Trademark Office covering the product until 2028, and it significantly improved the company’s balance sheet to fund its commercial ramp. The firm secured a $60 million loan, raised $50.8 million in a private placement, and raised another $75 million in a public offering all in 2012. [See Deal

]

Those financings set the company up to execute on the launches of Duexis and Rayos and eventually expand the portfolio through dealmaking, first with the addition of Vimovo in 2013 and then with Vidara in 2014.

“The two questions we got asked most coming out of the Vimovo transaction were: what is your tax strategy and when are you going to get more new products?” Walbert says.

Vidara addresses both of those questions. Under the deal, Horizon will pay Vidara shareholders $200 million in cash, as well as stock. After the deal closes, Vidara shareholders will retain approximately 26% of the new company, Horizon Pharma PLC, while Horizon shareholders will own 74%. Horizon has obtained a $250 million bridge loan commitment to finance the acquisition.

With Vidara, Horizon follows in the footsteps of other pharmas that have relocated to Ireland to take advantage of the friendlier corporate tax environment. Perrigo Co., Actavis PLC, Endo Health Solutions Inc., and Alkermes are among those that have immigrated.  Horizon will relocate its corporate headquarters to Vidara’s base in Dublin.

The company also gains a new drug, though not one that fits as snugly into its existing portfolio as Vimovo did. Actimmune is a biologic and immunostimulator approved for the rare diseases CGD and SMO. But Horizon views Actimmune as a chance to expand its commercial platform into a new area while still keeping within the company’s strategic vision of marketing “targeted” drugs.

Vidara acquired Actimmune from InterMune Inc just two years ago, in May 2012, for $55 million up front plus a two-year royalty stream. The drug generated $20 million in sales in 2011. InterMune was spun out of Connetics Corp in 1999 to develop Actimmune, but InterMune sold the product to focus its resources on Esbriet (pirfenidone) for idiopathic pulmonary fibrosis.

Beyond the current approved indications for Actimmune, other indications for the drug have been studied, including through investigator-initiated trials that have not been supported by Vidara or its previous owner. Two diseases Horizon plans to explore first for Actimmune are Friedreich’s ataxia, an inherited disease that causes nerve system damage, and eczema herpeticum, a severe and sometimes fatal skin infection.

Horizon expects to expand its portfolio even further through continued “aggressive” dealmaking. In March, the company brought on board Robert Carey, a former managing director at the investment banking firm JMP Securities, as executive VP and chief business officer. Carey assisted Horizon on the Vimovo and Vidara transactions and will continue to help the company execute on business development opportunities.

The company is interested in commercial products in three areas: opportunities that leverage the existing primary care infrastructure, targeted specialist products, and products for rare diseases that would leverage the Vidara team marketing Actimmune. The company is targeting, ideally, products between $20 million and $200 million in revenues.

If Horizon continues its buying spree and executes effectively on the businesses it brings in house, the company that has been stealthily growing won’t be flying under the radar for long.

by Jessica Merrill, In Vivo magazine
posted May 22nd, 2014