Summary
- Horizon beat the Q3 EPS and revenue consensus.
- Tepezza reported modest growth and investor fears of sales falling off a cliff have not materialized.
- The company increased the peak sales guidance for Tepezza and Krystexxa by $500 million each.
- Positive phase 2 results of dazodalibep in Sjogren’s syndrome highlight the potential of Horizon's expanded pipeline.
- I continue to see Horizon as one of the best investments in biotech today.
Horizon Therapeutics ( HZNP ) beat Q3 sales estimates and raised the full-year net sales and adjusted the EBITDA guidance. Tepezza performed better than feared as sales grew sequentially and with no changes to the full-year outlook or the mid-teens growth guidance for 2023. Krystexxa and Uplizna remain the key secondary growth drivers and have performed well, and management increased the global peak sales guidance for Tepezza by $500 million due to the expected addition of Europe. The peak sales guidance for Krystexxa was also raised by $500 million due to the growth opportunity of the combination with methotrexate.
The inflammation segment reported only $21 million in net sales and will wind down this quarter, and the pipeline is expanding and delivering some positive data - dazodalibep was successful in a phase 2 trial in Sjogren's syndrome patients (and it was successful in a phase 2 trial in rheumatoid arthritis patients earlier this year).
Overall, a very decent quarter after the very unpleasant surprise in August and a step in the right direction. My view remains the same - that Horizon is significantly undervalued at levels that are just modestly higher compared to my detailed August update .
Q3 beat, increased full-year net sales and adjusted EBITDA guidance, increased peak sales guidance for Tepezza and Krystexxa
Q3 net sales declined 11% year-over-year to $924.3 million, but that was $37.7 million above the analyst consensus. The beat has resulted in an increased full-year net sales guidance range, from $3.53-3.60 billion to $3.59-3.61 billion, and an increased full-year adjusted EBITDA guidance range, from $1.268-1.318 billion to $1.32-1.34 billion.
Tepezza net sales increased 2% sequentially to $491 million and management expects modest sequential growth in the fourth quarter followed by mid-teens growth in 2023. The fears of Tepezza sales falling off a cliff have not materialized, and I continue to see this product as well-positioned for long-term growth.
The increased spending behind the product has yet to pay off. The company added 60 reps to its existing field force of 80 reps, but they have just recently hit the ground and their contribution is not expected to be material in 2022 and should ramp gradually throughout 2023. The same goes for the expanded reimbursement support staff.
The results from the phase 4 chronic TED trial are expected in Q2 2023 and the impact of any positive data is not reflected in next year's guidance, but these results will likely drive more meaningful growth in 2024 rather than next year.
Krystexxa net sales grew 21% Y/Y and 14% sequentially to $191.6 million. This was a bit lighter than I expected given the recently expanded label to include combination use with methotrexate, but it was a good quarter. Management noted on the earnings call that approximately 50% of new prescriptions in the third quarter were by either new prescribers or those who have not written a prescription in more than a year. That is certainly a good sign.
Horizon has increased the global peak sales guidance for both Tepezza and Krystexxa by $500 million. The company now expects peak ex-U.S. sales of Tepezza to exceed $1 billion due to the inclusion of the opportunity in Europe, bringing the global peak sales guidance to more than $4 billion. Krystexxa is now expected to generate more than $1.5 billion in peak sales thanks to the improved efficacy and safety profile in combination with methotrexate.
Taking into consideration the August disappointment and expectations reset, this was a pretty good quarter for the product portfolio.
Dazodalibep in Sjögren's syndrome highlights pipeline potential
There were no new pipeline updates in the earnings report and the company highlighted the recently reported positive phase 2 results of dazodalibep in Sjogren's syndrome patients. There are two cohorts with two different populations in this trial, and we have seen the topline data from the first population - patients with moderate-to-high systemic disease activity.
The trial met the primary endpoint - patients receiving dazodalibep achieved a 6.3-point reduction in their ESSDAI score (Sjögren's Syndrome Disease Activity Index) compared to a 4.1-point reduction in the placebo arm (p=0.017). Dazodalibep also achieved numerical improvements in key secondary, exploratory, and post-hoc analyses - measures of dryness, fatigue and physical functioning, and the number of tender and swollen joints. In addition, a post-hoc responder analysis of patients achieving high levels of improvement on ESSDAI favored dazodalibep over placebo. The trial was only powered for the primary endpoint and dazodalibep was well-tolerated in the trial.
The second, separate patient population in the phase 2 trial is patients with moderate-to-severe subjective symptoms defined by the ESSPRI score of equal to or greater than 5. The results from this part of the trial are expected in 2023.
Based on the positive results, Horizon plans to start a phase 3 trial in 2023.
There are no FDA-approved disease-modifying therapies for Sjögren's syndrome, and current treatments include palliative care (artificial tears, medicines for dry mouth), topical cyclosporine, off-label steroids and immunosuppressants to manage systemic symptoms. Horizon estimates there are approximately 50,000 patients in the United States alone with moderate to severe systemic disease, and this could be a billion-dollar-plus indication for this candidate.
The positive results received no investor appreciation, but they highlight the potential of Horizon's recently acquired and significantly expanded pipeline.
Conclusion
Investors' fears have not materialized - Tepezza sales did not fall off a cliff in the third quarter and I believe Horizon's recent efforts and investments will start to pay off in 2023. The company now expects another $500 million in peak international sales with the addition of Europe to the peak sales guidance.
The increased peak sales guidance for Krystexxa reflects the improved prospects for this product after the recent approval for combination use with methotrexate and the associated improvements in efficacy and safety. I did not write about Uplizna, but it is also doing well and I expect it to become Horizon's third largest product by early 2024.
With $2.13 billion in cash and strong cash flow generation, Horizon is in excellent financial shape. Since the September buyback announcement, the company has spent $250 million to repurchase 3.9 million shares.
I continue to see Horizon as one of the best investments in biotech today in terms of the reward-risk ratio and believe that both the company's commercial portfolio and pipeline are underappreciated at current levels.
For further details see:
Horizon Therapeutics' Q3 Results Are A Step In The Right Direction