The Farallon news come in conjunction with other recent reports that notable pharmaceutical investors Tang Capital and Sutter Hill Ventures took a 9.9% and 6.1% stake, respectively, in Horizon Pharma. Tang Capital is also a large shareholder in Penwest Pharmaceuticals and A.P. Pharma, and Sutter Hill is a notable investor in Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), which is up almost 500% year to date.
The company announced an agreement with Merck earlier this year to co-develop and commercialize TH-302—a hypoxia-targeted drug. Threshold is set to receive an upfront payment of $25 million and could receive up to $35 million in additional development milestones during 2012. Next year EPS for the company is still in the red, with estimated 2013 EPS of negative $0.21, but this would still mean a 87% gain from the previous year.
The Horizon stake represents a new position for Farallon, which took positions in other biopharmaceutical companies during 2Q, Amylin Pharmaceuticals and Merrimack Pharmaceuticals Inc (NASDAQ:MACK) among them. Merrimack has a focus on developing medicines to treat serious diseases, with a particular focus on cancer. Up 50% year to date, the company is also like the other pharma companies mentioned, operating at a negative EPS. Next year EPS is expected to be negative $0.91, but up 50% year over year.
Horizon is a biopharmaceutical company, developing medicines targeting arthritis, but is flat year to date. Horizon’s 2Q results put the company’s revenues up to $3.8 million, compared to the same quarter in 2011 at $1.3 million. As well, the company continued its string of net losses, posting a net loss of $22.8 million, or negative EPS of $0.68.
In July, Horizon announced FDA approval for RAYOS, a drug used to treat a broad range of diseases including rheumatoid arthritis and polymyalgia rheumatic, among others. The company still has a long way to go before offering the drug, and is still very speculative. Running tight on liquidity, Horizon recently announced a move to raise more capital that will allow it to offer as many as 36.9 million new shares, compared to the near 34 million shares that are currently outstanding.
A couple key competitors for Horizon include Par Pharmaceutical Companies, Inc. (NYSE:PRX) and Perrigo Company (NASDAQ:PRGO). Both of these companies are a bit bigger than Horizon. Perrigo has beat EPS estimates the last four quarters and is expected to grow next quarter EPS by 18% from the same quarter last year. Perrigo has also decided to try its hand in the animal care market, purchasing Sergeant’s Pet Care Products for $285 million last week. This could be a key move for Perrigo to enter the $8 billion pet care industry, as it is already expected to add $0.12 to EPS next quarter.
Par missed last quarter estimates by 250%, but in July, the private equity firm TPG announced plans to purchase Par for $1.9 billion. The deal, valued at $50 per share, pushed Par’s stock up 50% year to date. Even with the share price spike, the company trades at a forward P/E of 14, much less than its trailing P/E of 22.
As far as Horizon, the company should be considered a speculative play, but has attracted some large interest from other notable pharma investors, with Farallon, Tang and Sutter now collectively owning over 20% of its outstanding shares. Also worth noting is the string of insider purchases between $3.49-$3.59 by a company director, where the company currently trades around $3.50. For a complete look at the insider and hedge fund sentiment surrounding Horizon Pharma, continue reading here.
