Halozyme's Strategic Partnerships Fueling Next-Gen Therapeutics

seekingalpha04-10

Halozyme's ENHANZE technology drives growth, with Q4 2023 revenue up 27% YoY, projecting $915-$985 million in 2024.Key revenue from royalties, notably Darzalex Faspro, with a healthy financial state ...

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18:50 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4683062-halozyme-strategic-partnerships-fueling-next-gen-therapeutics><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Halozyme's ENHANZE technology drives growth, with Q4 2023 revenue up 27% YoY, projecting $915-$985 million in 2024.Key revenue from royalties, notably Darzalex Faspro, with a healthy financial state ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683062-halozyme-strategic-partnerships-fueling-next-gen-therapeutics\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0889565916.HKD","symbol_name":"FRANKLIN BIOTECHNOLOGY DISCOVERY \"A\" (HKD) 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significant expansion potential, balanced by a note on high leverage and operational risks.   Ivan-balvan/iStock via Getty ImagesIntroduction Halozyme's (NASDAQ:HALO) ENHANZE technology, which facilitates \"rapid high-dose, high-volume subcutaneous drug delivery,\" has transformed the company into a multibillion-dollar organization over the past decade. ENHANZE technology is utilized in popular drugs like Vyvgart Hytrulo and Tecentriq SC, providing Halozyme with meaningful revenue. In Q4 2023, the company reported $230 million in revenue, up 27% year-over-year. Halozyme projects between $915 million and $985 million in 2024, representing double-digit growth over 2023. Apparently, much of this has been baked into Halozyme's stock for some time. After rallying from $10/share in 2017 to $40 in 2021, HALO has traded within a range the last three years. The following article focuses on the future prospects that could support continued growth in Halozyme's stock. Q4 Earnings Let's first take a closer look at Halozyme's current state of affairs. The company derives the majority of its revenue from \"royalties.\" This figure made up $122 million of the $230 million in total revenue. After accounting for expenses like cost of sales ($52 million), R&D ($21 million), and SG&A ($37 million), Halozyme's operating income was $101 million. Net income totaled $85 million. The company attributed their 2023 royalty revenue growth (up 24% year-over-year) to Darzalex Faspro, which is administered subcutaneously via ENHANZE technology over 3 to 5 minutes for the treatment of multiple myeloma. Subcutaneous administration can be attractive to some patients due to its convenience (e.g., shorter treatment duration, doesn't require intravenous access). The same drug (daratumumab) is available as an intravenous solution. Financial Health As of December 31, Halozyme has $118.3 million in cash and cash equivalents. Marketable securities totaled $217.6 million. Current assets stand at $746 million. When juxtaposed against current liabilities (e.g., accounts payable and accrued expenses), Halozyme's current ratio is over 5. This indicates that the company can easily cover any short-term obligations. Halozyme's long-term debt measures nearly $1.5 billion. Net cash provided by operating activities has been positive the past three years. 2023 saw $388.5 million in operating cash flow. The company did not make any repayments on the term loan in 2023. Interestingly, Halozyme has engaged in common stock repurchasing. In 2023, Halozyme purchased a bit over $400 million in common stock. They recently announced a new $750 million share repurchase program. Stock repurchasing has its advantages (e.g., company confidence, EPS enhancements) and disadvantages (e.g., increased concentration of control). Overall, Halozyme appears financially healthy. Their willingness to buy back their stock signals financial flexibility despite being highly leveraged (the debt-to-asset ratio is 0.86). This increases their risk profile but enhances their short-term earnings potential. Halozyme's High-Dose Revolution: A Subcutaneous Surge In assessing future growth, I think it's readily apparent. argenx (ARGX) continues to make progress with Vyvgart Hytrulo, already approved for generalized myasthenia gravis (gMG). The company awaits a June PDUFA action date for the treatment of CIDP. However, there have been setbacks as well. Subcutaneous Vyvgart was not successful in ITP. Vyvgart is also approved in intravenous form for MG and other autoimmune conditions. However, the autoimmune market is shifting towards subcutaneous solutions, with a number of drug developers testing their waters (e.g., Biohaven (BHVN) and Immunovant (IMVT)). So, the ongoing transition from IV to SC Vyvgart could provide meaningful revenue for Halozyme. Here is their agreement with argenx, announced back in 2019. Under the terms of the agreement, argenx will pay an upfront payment of $30 million to Halozyme, $10 million per target for future target nominations and potential future payments of up to $160 million per selected target subject to achievement of specified development, regulatory and sales-based milestones. Halozyme will also receive mid-single digit royalties on sales of commercialized products. Partner Roche (OTCQX:RHHBY) is advancing the subcutaneous version of the MS drug, Ocrevus. Ocrevus is a blockbuster drug (>$5 billion in annual revenue) and, according to its website, the #1 prescribed disease-modifying drug for MS. A subcutaneous version of Ocrevus is bound to be popular. One current subcutaneous DMT on the MS market is Novartis' (NVS) Kesimpta, which generated $641 million in Q4 '23 revenue. A subcutaneous version of Ocrevus is expected to launch later this year, pending regulatory approval. Lastly, Bristol-Myers Squibb (BMY) is advancing a subcutaneous version of Opdivo, a popular immunotherapy for cancer treatment. Halozyme's management noted that Opdivo (nivolumab) generated $9 billion in sales last year and highlighted its potential as a subcutaneous formulation. Given in just five minutes, nivolumab subcutaneous has the potential to be practice-changing and to improve the patient's treatment experience. Bristol Myers Squibb commented that the subcutaneous could potentially extend the franchise through the end of this decade and into the early 2030s, with the subcutaneous approval projected to cover up to 75% of the IV indications. This push for SC Opdivo comes as Bristol and other large pharmaceutical companies fight to extend their product's life ahead of major \"patent cliffs\" later this decade. Above, I have just touched on three major opportunities for Halozyme in the coming years. The company has a number of other prospects looming, but these three strike me as the most notable. My Analysis and Recommendation In summary, Halozyme is poised for significant expansion in the upcoming years. Analysts' revenue projections for 2024 are $955 million, 2025 are $1.09 billion, and 2026 are $1.3 billion, according to Seeking Alpha. This figures to coincide with EPS improvements, especially as the company continues to repurchase its shares, reducing the number of outstanding shares. Subcutaneous versions of super-blockbuster potential drugs like Opdivo, Ocrevus, Vyvgart should provide meaningful upside to Halozyme's earnings potential for years to come. There are some risks to consider as well. While Halozyme's balance sheet is healthy, they are highly leveraged with $1.5 billion of debt. This increases their financial risk. Operational risks include the potential for intellectual property disputes, being overly-dependent on one or two partners for total revenues, and clinical/regulatory failure of any of their partnered drugs. Overall, I see the potential for low-to-moderate risk and moderate-to-high reward in Halozyme's stock in the coming years. Subsequently, I'd rate this as a Strong Buy. However, investors would benefit from mitigating some of the idiosyncratic risks discussed above by maintaining a diversified portfolio.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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