Horizon Pharma PLC (NASDAQ:HZNP) is fading in early trading today after the mid-cap biotech stock reported some disappointing numbers.
Click to Enlarge Horizon earnings just dropped in August, so the company is not due for its third-quarter report for several more weeks. However, in a special filing, Horizon Pharma PLC said Q3 sales will be in the range of just $207 million to $209 million and will include a previous announced $65 million settlement with Express Scripts (NASDAQ:ESRX) related to a lawsuit over drug rebates. That will make its full-year revenue forecast now around $960 million instead of just over $1 billion according to prior estimates.
The news comes even as HZNP stock rallied nicely on Monday, and has jumped by more than 35% in the past few months thanks to impressive August earnings and some great analyst coverage, including a “Buy” rating from Mizuho in mid-September with a price target of $33.
So why the sharp selloff today? Well, because this isn’t the first time investors have been confused by Horizon earnings guidance.
HZNP stock sold off sharply in spring after disappointing guidance, then rallied nicely in August after strong earnings and guidance, but now we’re back in negative mode? It’s just too much to take in, and many investors are sick of it.
Additional details will be provided during Horizon Pharma earnings call on Nov. 7, but at this point, investors shouldn’t depend on much more clarity then than they have now.
Besides, the big move to the downside is seriously testing support. Momentum matters in fast-moving biotech stocks like Horizon Pharma PLC, and after the 15-day moving average violated the 50-day to the downside a few weeks ago, HZNP stock has been struggling mightily.
Remember, biotech stocks are notoriously volatile — especially smaller players like HZNP that are barely operating at breakeven and are hoping on future drug approvals. Peers to Horizon — including Flexion Therapeutics Inc (NASDAQ:FLXN), Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) and Anika Therapeutics Inc (NASDAQ:ANIK) — have also seen their share of fireworks. Those who are faint of heart shouldn’t even bother with individual names like this and instead play the diversified biotech exchange-traded funds like the SPDR S&P Biotech (ETF) (NYSEARCA:XBI) or the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB).
Or better yet, if you don’t like volatility, just stick with the megacaps. Because while this kind of strange game with guidance is indeed unique to Horizon, the bottom line is that the bottom line is always uncertain for these high-growth and development-stage biotech stocks.
All that said — if you are a biotech investor, I wouldn’t touch HZNP here. The momentum is to the downside and guidance was poor as it approaches an important earnings report.
Avoid Horizon Pharma PLC until the dust settles after that report in November.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.