Halozyme’s ENHANZE Technology Future Of Biologics Delivery (NASDAQ:HALO)

Background

Halozyme Therapeutics (NASDAQ:HALO) is an modern biopharmaceutical firm that has developed a novel platform know-how, ENHANZE, that permits for the subcutaneous supply of biologics, which has the potential to revolutionize the best way we ship and administer life-saving medication. With a number of main companions, together with Roche (OTCQX:RHHBY), AbbVie (ABBV), and Bristol-Myers Squibb (BMY), the corporate has the potential to generate vital income from royalty funds and milestone funds.

Why ENHANZE know-how is an actual deal

Halozyme’s drug supply know-how, known as Enhanze, permits the subcutaneous supply of organic medication. Biologics are massive, advanced molecules produced utilizing dwelling cells and used to deal with a spread of ailments, together with most cancers, autoimmune issues, and diabetes. Nevertheless, most biologics are presently administered by intravenous (IV) infusion, which will be time-consuming and inconvenient for sufferers. Subcutaneous injection is an alternate route of drug administration that entails injecting the drug beneath the pores and skin into the fatty layer between the pores and skin and muscle. This route of administration has a number of benefits over IV infusions. Firstly, it’s much less invasive and will be self-administered by sufferers, lowering the necessity for hospital visits and making therapy extra handy. Secondly, it will possibly result in extra constant drug ranges within the physique, because the drug is launched slowly from the injection web site over time. Thirdly, it will possibly scale back the danger of unintended effects related to IV infusions, comparable to infections and blood clots.

Halozyme’s Enhanze know-how works by briefly breaking down the hyaluronan matrix within the subcutaneous area, which creates a bigger and extra permeable area for the drug to diffuse into. This permits for extra speedy and environment friendly absorption of the drug, leading to increased bioavailability and quicker onset of motion. Enhanze has been efficiently used to allow subcutaneous supply of a spread of biologic medication, together with Roche’s Herceptin and Genentech’s Rituxan.

Along with the advantages for sufferers, Enhanze also can present vital business benefits for pharmaceutical firms. By enabling subcutaneous supply, Enhanze can prolong the life cycle of current organic medication and create new income streams. It may well additionally enhance affected person adherence to therapy, which may enhance drug efficacy and scale back healthcare prices related to hospitalizations and issues.

IRA overhang could also be overblown

The latest CMS guidance associated to Medicare drug worth negotiations beneath the Inflation Discount Act (IRA) has induced some uncertainty amongst traders relating to the long-term worth proposition of HALO’s applied sciences because it pertains to the Medicare portion of partner-product gross sales. Nevertheless, we consider that this concern is overblown and that the impression on HALO must be minimal, notably for the reason that massive majority of HALO’s medication (and pipeline) fall beneath Half B, except for HyQvia (which must be exempt anyway).

Zooming out, the long-term development outlook stays interesting

Regardless of this short-term concern, HALO has a considerable near-medium development outlook. The corporate is anticipated to obtain FDA approval for subcutaneous variations of efgartigimod and daratumumab within the coming months, which must be a constructive catalyst for the inventory. Though the FDA delayed the approval of SC efgartigimod, we consider it is going to get accredited finally within the quick future primarily based on the strong PK/PD equivalence knowledge.

Optimistic long-term development potential

One of many key drivers of HALO’s long-term development potential is the ENHANZE platform know-how. The know-how has already been licensed to a number of main companions, together with Roche, AbbVie, and Bristol-Myers Squibb, and has generated vital income within the type of royalty funds and milestone funds. As well as, HALO has a robust pipeline of potential new ENHANZE merchandise, which might generate extra income streams over the long run. Between 2019 and 2023, the royalty income grew from ~$70M to $450M, which is a better than 600% enhance. We anticipate the expansion in royalty income to extend repeatedly by partnerships and attain ~1Bn by 2027 with wave 1-4 ENHANZE merchandise.

Halozyme has a robust observe report of growing profitable partnerships. We consider the corporate’s robust pipeline of potential new merchandise will proceed attracting curiosity from main biopharmaceutical firms.

Dangers

1. Potential delays within the medical trial timelines for Wave 3+ subcutaneous merchandise, together with BLA choices from the FDA, slated for 2023, or an FDA submitting for Tecentriq in 2023 publish Ph3 leads to 1Q23.
2. Any unexpected partnership or authorized points which might impression collaboration and milestone revenues or potential royalties, notably associated to the ENHANZE platform when first-generation API turns into generic in 2024 and 2027.
3. Drug pricing headwinds: Decrease-than-expected gross sales coming from the corporate’s partnered merchandise, notably as a result of potential impression of CMS drug worth negotiation.
4. Rising competitors and potential erosion of long-term royalties, notably because the US Enhanze patent expires in 2027 and extra producers might develop Enhanze formulations in-house for future candidates. Moreover, novel formulation know-how opponents might emerge.

Conclusion

We provoke HALO inventory with a purchase score. We consider that HALO is a compelling funding alternative for long-term traders. Whereas there could also be some short-term uncertainty associated to the CMS steerage and the potential for generic competitors, we consider that the corporate’s robust near-medium development prospects and its distinctive platform know-how (IV to SC translation), and a number of potential new drug launches (efgartigimod and daratumumab) make it a lovely funding alternative. Moreover, the corporate’s robust observe report of growing profitable partnerships (Roche, AbbVie, and Bristol-Myers Squibb) and its potential to generate vital income from royalty funds and milestone funds make it a compelling funding alternative for long-term traders searching for publicity to the biopharmaceutical sector with a decrease diploma of binary medical threat.