HALO – Halozyme Therapeutics Inc – May 26, 2022

As if life would not be challenging enough when coping with conditions like tumors, HIV, or multiple sclerosis. Imagine your only option for treatment is to spend hours in a hospital hooked up to intravenous drugs. From the impacts on patients to families and healthcare workers to the actual cost and effectiveness of treatment, one biopharmaceutical company is looking to change things for the better, with its innovative drug delivery solutions.

Halozyme Therapeutics has created a revolutionary drug delivery platform based on a proprietary enzyme called rHuPH20. The technology known as Enhanze, uses a natural sugar chain that forms a gel in the innermost layer of the skin. This allows drugs to be injected just under the skin, saving patients from hours-long intravenous infusions, as it reduces the time to inject a drug or fluids from a few hours to only 5-8 minutes.

To achieve this, Enhanze is used to convert medicines that must be delivered intravenously into subcutaneous injections, or in some cases, it has reduced the number of injections needed for effective therapy. Most exciting is that the technology makes it possible to increase the effectiveness of the drugs administered. Enhanze can also provide more flexible treatment options, such as at-home administration by a healthcare professional or even potentially the patient.

Halozyme currently has five partner products that are using Enhanze commercialized in approximately 100 global markets. While it’s estimated these products have already been used to treat more than 600,000 patients globally, the company has an enormous potential market for collaborative products, with scores of already FDA-approved drugs, and hundreds more in early and late-stage clinical trials within in pipeline.

While Halozyme was originally founded in 1998 and subsequently went public in 2004, the dramatic catalyst that transformed the company occurred in 2019, following a major restructuring off the back of a spectacular failure of its pancreatic cancer candidate, PEGPH20. Before November 2019, most of Halozyme’s research and development activities were primarily focused on the development of the hopeful drug. Yet when Halozyme announced that the product failed to achieve statistical significance in a phase 3 study, it chose to discontinue clinical development and its entire oncology operation. As a result, it initiated the reorganization of the company to solely focus its operations on the Enhanze drug-delivery technology.

Consequently, Halozyme terminated over half of its headcount, in a bid to deliver savings of over $100 million. After years of burning development costs, the decision also allowed the company to become a sustainably profitable company by the second quarter of 2020, thanks to the simultaneous timing of a breakthrough approval in its collaboration with Janssen Biotech.

In the first quarter of 2020, Janssen received US FDA approval for its myeloma candidate, Darzalex Fasbro, which would subsequently be launched for commercial sale. Now that Darzalex is a blockbuster drug used in the treatment of multiple myeloma, Halo has benefited immensely from its high-margin, growing sales. Several label expansions of the drug have been approved since its first approval and more are likely to happen going forward. As a result, the drug is likely to continue its strong growth momentum, bringing more royalties for Halozyme.

Since January 2014, Dr. Helen Torley has been the chief executive officer and president of Halozyme. The long-time leader was instrumental in pivoting the previously two-pillar company to remove its internal drug development pipeline and focus solely on providing its drug delivery technology to pharmaceutical partners. Now, almost two years after its pancreatic cancer program floundered in its phase 3 clinical testing, that evolution has proved to be key in keeping the company alive and profitable.

Halozyme licenses its technology to biopharmaceutical companies to collaboratively develop products that combine the Enhanze technology with their proprietary compounds. It is being employed by some of the biggest and best healthcare companies including Bristol Myers Squibb, Pfizer, Johnson & Johnson’s “Janssen”, and AbbVie, amongst many others. Enhanze technology not only offers collaborators the potential to create drugs with a reduced treatment burden and cost, but also the ability to combine multiple therapeutic antibodies in a single injection, as well as higher injection volumes that can extend dosing intervals. All factors that can offer competitive differentiation.

In addition to milestone payments, Halozyme already receives royalties from some of its collaborations. Along with Janssen’s blockbuster, Darzalex, these currently include the sales of Hyqvia by Baxalta for the treatment of disorders associated with defects in the immune system. They also receive royalties from Roche for Rituxan Hycela, Phesgo, and Herceptin, which are used for the treatment of various forms of breast cancer and non-Hodgkin lymphoma.

Most recently in March 2022, Halozyme and Chugai Pharmaceutical entered into a global collaboration and license agreement. The company received upfront payments of $25 million from Chugai and is eligible to receive additional future payments of up to $160 million, subject to achieving specified development, regulatory, and sales-based milestones. Halozyme will also be entitled to receive royalties on sales of commercialized medicines using the Enhanze technology.

Since Halozyme’s pivot from drug development to helping reformulate blockbuster drugs in partnership with global leaders, it has benefitted from a unique and vastly more profitable business model. In addition, the significant change also means that the company’s risk is dramatically reduced since they are no longer required to fund the material cost of developing their own drugs. Furthermore, with an impressive number of partners and candidates Halozyme’s potential sources of clinical success and subsequent revenue, are appealingly diversified.

Halozyme is looking to significantly expand the number of products that are in development and to launch as many products as possible to increase milestone and royalty revenue payments. The company currently has fifteen candidates in various stages of clinical trials across a broad range of indications and is expected to commence at least a further four products to start phase 1 trials and another five to enter phase 2 and 3 trials in 2022. Even more appealing is that the company’s partnerships with Roche for Atezolizumab and Bristol Myers Squibb’s for Nivolumab, being treatments for NSCLC and solid tumors respectively, are in their Phase 3 studies, with the potential to launch commercialized products between 2023 and 2025.

Furthermore, whilst still in initial research phases, Halozyme outlined plans in its latest quarterly results call to expand the use of Enhanze to branch out beyond antibodies to cover small molecules and cell therapies. Such a development could have implications for the long durations of cell therapies that could improve the patient experience, and potentially even improve compliance, while opening up a broader set of opportunities for the company.

In another unique factor to its business model, Halozyme notes that the traditional patent cliff dynamic does not apply to Enhanze as co-formulation patents help extend the duration of the royalties. While the Enhanze IP extends to 2024 in the EU and 2027 in the US, more than 20 products driving close to $1 billion in potential revenue are protected by co-formulation patents post 2030. Another potential boost could come from the Halozyme’s new more extended room temperature stable, rHuPH20, which could launch after 2027 and has IP to 2032 in Europe and 2034 in the United States.

On top of its expanding portfolio, Halozyme further boosted its capabilities with the announcement of an almost $1 billion deal to acquire Antares Pharma Inc in April. The transaction is expected to be immediately accretive to Halozyme’s 2022 revenue and earnings and to accelerate the company’s growth through to 2027, along with further growth drivers beyond. The Antares business consists of a best-in-class, differentiated, royalty revenue generating auto-injector platform business that offers a broad licensing opportunity, and a commercial business with three proprietary products. The combination of the two companies augments Halozyme’s strategy, further strengthening its position as a leading drug delivery company, whilst extending its reach to include specialty products. With disruptive solutions to significantly improve patient experiences and outcomes for emerging and established therapies, it is expected to provide substantial financial growth potential.

Halozyme just reported its first-quarter earnings for 2022 which revealed that the company has continued its growth trajectory with a strong start to the year. Revenues of $117.3 million represented a 32% year-over-year increase and were driven by strong Enhanze royalty growth and the booking of a milestone payment associated with the signing of what is the company’s 12th Enhanze collaboration agreement with Chugai Pharmaceutical.

Royalties of $69.6 million were a record for the company, surging 89% year-on-year and 11% versus the prior quarter. This growth continues to be driven primarily by the successful, ongoing global launch of Janssen’s subcutaneous forms of Darzalex and also by Roche’s Phesgo. Johnson & Johnson reported Darzalex sales hitting $1.9 billion, which was up 40% year-over-year. In addition, Darzalex Faspro’s share of both intravenous and subcutaneous variants of the drug grew to 80% in the U.S., which was up from 76% in the fourth quarter of 2021.

The strong revenue performance was further supported by a year-over-year decrease in the cost of product sales and minimal escalation in operating expenses. As a result, Halozyme’s operating income increased 49% year-on-year to $75.7 million.

Looking ahead, based on the current strong momentum, Halozyme is projecting further royalty revenue growth in 2022 of approximately 50%, taking full-year royalty revenue to almost $300 million. This will contribute to total revenue of $530 million to $560 million in line with consensus estimates and representing growth of 20% to 26% over 2021.

Earnings per share are expected to be in the range of $2.05 to $2.20, also in line with consensus estimates for growth just shy of 10%. The estimate tempers the 120% increase from 2020 to 2021, as it reflects the first full year in which the company will record income tax expense, projected to be $0.55 to $0.60 per share.

Despite the company’s prospects for expected growth, like all biopharmaceuticals, Halozyme still faces risks that its development pipeline may be subject to failures, whether due to efficacy or subsequent regulatory approvals. Fortunately, with the funding for drug development supplied by partners, the company’s risk is mitigated substantially compared to others in the industry.

Whilst the pharmaceutical industry is characterized by rapidly advancing technologies and intense competition, Halozyme may always have some degree of risk from companies that could target the same indications as its product candidates. However, Halozyme’s unique business model of co-collaboration coupled with its expertise in IP protection, represents a solid barrier to entry for potential competitors.

With the failures of its past drug development efforts well behind them, Halozyme has certainly reached an inflection point that appears to be supported by compelling opportunities for future growth. The company’s expansive pipeline is providing a diverse range of high-margin revenue opportunities, while further advancements in the core technology open up even greater potential for an enormous addressable market.