Which Billionaire Fund Manager Likes Horizon Pharma?

FARALLON CAPITALIn a 13G filing last week, billionaire fund manager Thomas Steyer of Farallon Capital Management announced that his firm now had a 5.4% ownership stake in Horizon Pharma Inc. (NASDAQ:HZNP)—buying almost 1.9 million shares. Steyer founded Farallon in 1986 and previously worked for Goldman Sachs and Morgan Stanley.

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.

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