Why Horizon Pharma Is Not Overpaying for Raptor Pharma

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Shares of Raptor Pharmaceuticals Corp. (NASDAQ: RPTP) made a sizable gain early on Monday, after the company was announced that Horizon Pharma PLC (NASDAQ: HZNP) would be acquiring it. Horizon is hoping to focus more on rare diseases and to foster its expansion into Europe and other international markets. If we look at what Horizon is paying, it doesn’t necessarily add up, using the numbers from this year, but if we look at more data the picture becomes clearer, and Horizon Pharma might not be overpaying after all.

The transaction, which has been unanimously approved by the boards of directors of both companies, is still subject to the satisfaction of customary closing conditions and regulatory approvals.

Under the terms of the agreement, Raptor shares will be acquired for $9 apiece in cash, valuing the entire transaction at approximately $800 million. That was a premium of about 20% from Friday’s closing price of $7.45. The deal is expected to close in the fourth quarter of 2016.

Among the benefits that Horizon is looking to add to its portfolio, the company will diversify its revenue with 11 medicines across three business units: orphan, rhematology and primary care. Perhaps the major portfolio additions are Procysbi and Quinsair, which treat nephropathic cystinosis and chronic pulmonary infections, respectively.

Raptor’s previously disclosed total net sales guidance for full-year 2016 is $125 million to $135 million, which includes both Procysbi and Quinsair. Horizon will provide additional detail regarding its guidance for full year 2017 as well as guidance for the first quarter of 2017.

Consensus estimates from Thomson Reuters call for total sales of $131.8 million for 2016 and $158.16 million for 2017.

In terms of the 50-day and 200-day moving averages, Raptor has $6.52 and $5.19 respectively. Each is well below the transaction price. However, if we look past the past 52 weeks, the stock was actually trading at or above the $9 mark since 2013, with both of the moving averages well above this level.

Timothy P. Walbert, chairman, president and CEO of Horizon Pharma, commented:

The proposed acquisition of Raptor furthers our commitment to helping people with rare diseases and is a significant step in advancing our strategy to expand our rare disease business. Along with the potential for accelerated revenue growth, the addition of Raptor strengthens our U.S. orphan business and provides a platform to expand our orphan business in Europe and other key international markets.  We look forward to working with new patient communities and building on the success of the Raptor team.

Shares of Raptor Pharma closed Friday down 2.2% at $7.45, with a consensus analyst price target of $8.33 and a 52-week trading range of $2.94 to $9.06. Following the announcement the stock was up about 20% at $8.92 in early trading indications Monday.

Horizon Pharma shares closed Friday down 3.3% at $17.26, with a consensus price target of $30.46 and a 52-week range of $12.86 to $32.34. After the announcement, the stock was down 1.6% at $16.99 in early trading indications Monday.