Horizon buying Vidara for Actimmune, Irish HQ
This article was originally published in Scrip
Horizon Pharma believes that it will become even more profitable than expected this year after the company closes its $600m acquisition of Vidara Therapeutics in mid-2014 and adds Vidara's roughly $60m in annual Actimmune (interferon gamma-1b) revenue to its balance sheet.
Deerfield, Illinois-based Horizon also will benefit from a lower tax rate starting in 2016 by moving its corporate address to Vidara's Dublin headquarters. Horizon closed up 9.1% at $16.02 per share on 19 March after it announced the acquisition, but the company's stock has been on the rise since November when it bought the US rights for Pozen's arthritis pain drug Vimovo (naproxen/esomeprazole magnesium) from AstraZeneca (scripintelligence.com, 20 November 2013). Horizon shares have gained 258.4% in value since the company said Vimovo revenue would make it profitable this year.
Back in November, Horizon forecast $190m to $205m in revenue, including Vimovo sales, and become profitable on a non-GAAP basis. Now, the company says it will generate $260m to $265m in full-year revenue, including Actimmune sales, with $65m to $75m in earnings before interest, taxes, depreciation and amortization (EBITDA).
And when Horizon becomes profitable enough to pay taxes starting in 2016, the company's projected tax rate will be in the low 20% range, or even less, rather than in the high 30% range thanks to its new Irish headquarters address.
Horizon Pharma chairman, president and CEO Timothy Walbert said in a 19 March conference call with investors and analysts that the company still plans to grow by acquiring drugs and companies, and its Dublin home base will boost the value of those transactions.
"We'll continue to explore new business development opportunities looking for products with targeted approaches regardless of therapeutic area and leveraging our tax-efficient corporate structure," Mr Walbert said.
Privately-held Vidara's shareholders will be paid with $200m in cash plus Horizon shares. They will own 26% of outstanding Horizon stock after the deal closes.
Horizon had just $80.5m in cash on its balance sheet at the end of December, which was sufficient to fund the company's cash flow-positive operations in 2014, according to its year-end 2013 financial report. The same appears to be true despite the Vidara deal and Horizon's plans for additional acquisitions.
Horizon will finance its cash obligation to Vidara shareholders with a loan for up to $250m from Deerfield Management Co, but the capital comes at a high price – a 12.25% annual interest rate on top of debt associated with the Vimovo acquisition.
To finance the deal in November, Horizon sold $150m worth of convertible senior notes with a 5% interest rate. The debt attached to the convertible notes is due in 2018 and the Deerfield loan must be repaid by 2019.
Horizon's Vidara acquisition will close in the middle of 2014 subject to approvals from regulators and both companies' shareholders. Horizon has commitments to support the transaction from shareholders representing about 20% of the company's outstanding stock. More than 95% of Vidara shareholders have voted in favor of the deal.
Actimmune is approved in the US to treat children and adults with chronic granulomatous disease (CGD) and severe, malignant osteopetrosis (SMO). The biologic, which is marketed by fewer than 10 of Vidara's 24 employees, generated $58.9m in net sales last year with a drug price of about $280,000 per year.
There are no immediate plans to expand the Actimmune sales team, but Horizon believes that it can increase sales revenue by adding patients with CGD, which the company says is underdiagnosed, and seeking approval for new indications.
Data are expected soon from a 12-patient investigator-sponsored clinical trial in Friedreich's ataxia. Other investigators are studying Actimmune in eczema herpeticum and other rare diseases.
Vidara acquired Actimmune from InterMune in 2012 for $55m (scripintelligence.com, 22 May 2012). The biological therapy has a checkered past that includes former InterMune CEO Scott Harkonen facing ongoing charges of off-label marketing for promoting the drug's potential to treat idiopathic pulmonary fibrosis (IPF), an unapproved indication.
The US Supreme Court denied Dr Harkonen's appeal to overturn his conviction of wire fraud related to off-label marketing in December (scripintelligence.com, 17 December 2013).
With Actimmune and Vimovo, Horizon will have four US FDA-approved products in its portfolio. The other two are Duexis (ibuprophen and famotidine) for osteoarthritis and rheumatoid arthritis, and Rayos (prednisone) for rheumatoid arthritis, polymyalgia rheumatica, asthma and chronic obstructive pulmonary disease (COPD).
The company sells Duexis in Latin America through partner Grunenthal and Lodotra (prednisone) in the EU via Mundipharma. Lodotra is in Phase III development for polymyalgia rheumatica.