Horizon and ANI Appeal in Pharma Selloff

Volatility continued to hit the biotech sector, yesterday. This risk-on high-beta sector has had a challenging time since late July. The infamous tweet from Hillary Clinton on drug-price gouging has not helped the sector, this week. As I noted in my column Tuesday, the effort to control drug prices is a popular primary topic for the Democratic Party, but unlikely to amount to much -- even if Hillary is eventually elected. The selloff in the sector triggered by this event is likely to be short-lived. Today, it appears that the market is ready for a significant rally based on the latest reassuring words from Federal Reserve chair Yellen. Hopefully, this supports the risk-on sectors in the market, like biotech. Most of the money I have been deploying into the recent decline in biotech has gone to adding to my core positions in the already attractive large-cap growth plays in the industry, such as Gilead Sciences (GILD). Outside of these large cap plays, I have mainly being adding to smaller names that have real earnings and revenue streams and look like good long-term values at current levels. I have mostly been very cautious with the early and mid-stage development names that are much more speculative, and have borne the brunt of the downturn. One of the smaller-earnings plays I like, and have added to recently, is Horizon Pharma (HZNP). The stock has fallen from recent highs of just under $40.00 a share, before this recent hiccup, to under $25.00 a share. The company is like a mini-Allergan (AGN): its growth is powered by strategic acquisitions. The company is currently locked in an epic battle to acquire DepoMed (DEPO), which would be its largest acquisition, to date. I believe Horizon will eventually prevail in this battle. The purchase likely will improve Horizon's earning growth rates, gross margins and return on equity. Even without the merger, Horizon is an attractive investment. The company is seeing good growth with its drugs, Pennsaid, Duexis, and Vimovo, as the company's Prescriptions-Made-Easy program is proving to be quite effective in expanding sales. Horizon also has a promising cancer drug, Actimmune, in development. This compound has received FDA fast-track designation with an indication for Friedreich's Ataxia (FA). The drug is in Phase-3 trials for the treatment of this disease, and Horizon believes the drug could do $500 million to $1 billion in peak sales. It expects commercialization in 2017 -- provided Phase 3 trial results are positive. Actimmune is also being studied to treat various other forms of cancer. Horizon has around a $4 billion market capitalization and the stock goes for approximately 12.5x forward earnings. I have also recently added a few shares of ANI Pharmaceuticals (ANIP), which is slightly cheaper than it was when I did a deeper dive on this promising biopharma a few months ago. The company continues its strategy of acquiring existing drugs being sold off by larger players. As an example, ANI announced plans to acquire two New Drug Applications (NDAs) from Merck & Co (MRK) this week. The NDAs -- for purified corticotropin gel and corticotropin-zinc hydroxide -- will be acquired for $75 million and a percentage of future net sales. The transaction should close in early 2016, and boost earnings and revenue growth. The company is growing rapidly, and is cheap -- at 13.5x forward earnings. Hopefully, we are near the end of the pullback in the biotech sector. If so, these recent pickups should look prescient in the near future.

Horizon and ANI Appeal in Pharma Selloff

Some smaller biotechs offer good value at current levels.

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