UBS
Halozyme Therapeutics "Pipeline Progress Highlights Strong Quarter" (Buy)
UBS
Halozyme Therapeutics
Pipeline Progress Highlights Strong Quarter
Conclusions: Strong quarter with focus on catalysts, pipeline progress
We maintain our Buy rating and $16 target on HALO following a strong 2Q14 which
saw continued read-through from the Herceptin-SC launch, as well as updates on the
wholly-owned pipeline. Notably, questions following the call focused on the diabetes
program, which we believe is underappreciated by the market. Management also
outlined progress on PEGPH20 with enrollment progressing in the ph2 pancreatic
cancer study and a new lung cancer trial expected to start by year-end. Importantly
management discussed the rationale for the selection of NSCLC as the next tumor-type,
including supportive pre-clinical data (which may be presented at upcoming scientific
conferences) as well as prevalence of high-HA tumor-types (especially those with
squamous cell histology). We look to potential clarity on the timing of the Hylenex
diabetes program as the next major catalyst, although we see upside from other nearterm
events such as approval of HyQvia and continued strength of partnered launches.
Key points from 2Q14
[1] Enrollment in the PEGPH20 pancreatic study has begun and all but 4 of the initial
sites (low-enrolling locations) plan to participate post-protocol adjustment. While timing
of data will be driven by enrollment, we expect 2H15 read-out. [2] The company
expects to start a lung cancer study by year-end, with management noting a strong
pre-clinical rationale for HA-targeting in lung cancer, and appear to be open to several
combinations, including with immuno-oncology agents. [3] Regulatory discussions
remain ongoing regarding the Hylenex program in diabetes. While timing of resolution
remains uncertain, we see clarity on the path forward as a key catalyst. [4] Royalty revs
imply 7-10% penetration of EU Herceptin, which appears in-line with our model.
Implications: Still see upside on pipeline value, support on partner revenues
We continue to view HALO shares as well positioned given an underappreciated
wholly-owned pipeline and lower-risk royalty revenue supporting current levels.
Valuation: Buy with $16 price target by DCF and SOTP analysis
Our price target assumes risk-adjusted revenue from both PEGPH20 and Hylenex.
