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Yes, it is. Argx is up almost as much as the xbi so hopefully we won't get a negative surprise but it's odd that there is no news yet. Not sure how often it is released after hours.
The XBI bounced off $109 this morning on very high volume and is up over $4%. Perhaps the worst rout in biotech stocks I've ever experienced is over -- down almost 40% from the February high while the market is up about 25% YTD. Hard to believe it happened. And the xbi doesn't even tell the whole story since several covid related stocks have done well.
I wonder if Halo is already done with the first $150M of stock buybacks. I have to say they at least timed it right if they were able to buy under $35.
I hope you are wrong too but it's usually not a good sign. We really need efga to be approved tomorrow.
Fortunately, the XBI seems to have found its bottom today.
On its own, the stock buyback program is not a disaster but it shows a lack of confidence in their ability to use cash to grow their business. And I think to expect that it will make a big difference is wishful thinking. I guess it shows they think the stock is undervalued. Maybe. I would much rather see Helen or other insiders buy in the open market, which I believe they haven't done since the stock was at $14.
The stock has huge resistance starting at $35 and all the way to $55 and if they buy, say, 7 million shares in the next 12 months, isn't that only 5% of all outstanding shares? That can hopefully keep the stock from cratering but we'll need some significant and unexpected good news to even go back to $45. The problem I see is that we don't have major catalysts in the next 24 months. New deals will help but we are going to need one huge transformative deal or several small ones.
I don't know what all the rules are and I am not sure if they could have chosen to start buying before any kind of announcement. Hopefully, they are not as clueless as we sometimes think they are.
Next catalyst is the eftartigimod (not SC efga) PDUFA approval date on Dec 17. Hopefully, the decision is not delayed and it gets approved. It's not a huge catalyst but its approval on time would remove one of the many uncertainties and investors would start getting some visibility into what is likely to be the next Enhanze product to be approved.
They do mention they may have "private transactions" but for now it should be this:
https://www.investopedia.com/terms/a/accelerated-share-repurchase.asp
I assumed the financial institution would help them time the buying of shares in the open market. It may be wishful thinking. So you think they will be buying from an existing shareholder?
I hope we get to laugh... It's done now so let's hope the market likes it. Muted response in after hours on low volume. Two large trades at $31.82.
Agreed. The XBI seems to have bottomed and hopefully we have too. It's been gut-wrenching.
I also hope the board puts an end to the stock buybacks.
I have no idea what that means either.
But what kind of fair value do you come up with on a DCF basis? Just wondering how analysts are coming up with their pretty disparate PTs.
"We value HALO on a DCF basis. We assume risk adjusted credit of 60-80% for Halozyme’s potential ENHANZE royalties from development-stage products over time and some risk-adjusted credit for yet-identified targets/new partnerships. We use a 9% WACC and 0% terminal growth rate."
I am afraid you were right. Painfully weak stock action today with the XBI up almost 6%, IBB 4%, and QQQ almost 3%!
If SC Efgartigimod is approved (which I think is likely), Helen has good reasons to be bullish since Argenex has done some studies and expects conversion to SC to peak at 70%. But the SC formulation is expected to be approved at the end of 2023 for only one indication -- Myasthenia gravis. Eventually, it will probably be approved for six indications but initial ramp is expected to be slow:
"We moderate initial efga ramp, but model higher peak sales potential: We have revised our forecasts to reflect slower initial ramp, given a J-code for reimbursement isn’t expected until Q3’22. We now model efga achieving $100m sales in 2022, and $400m in 2023. Longer term the slower initial ramp is more than offset by our higher pricing assumptions, driving peak potential sales of $5.1bn across the six disclosed indications (prev. $4.3bn) in 2033."
Even Darzalex has taken more than a year to get to a 70% conversion in US (60% ROW) so I think a very bullish best case scenario would be 70% in 2027. Not sure about consensus but I've seen estimates of $2B for all indications in 2027. Will SC be approved for all indications by then? If so, royalties should be $56M in 2027, and assuming no step downs, they should grow significantly from there.
Opdivo is a pretty old drug that is struggling in a very crowded space (Tecentriq is one of its competitors) where Keytruda dominates (see chart below).
https://www.loncarblog.com/keytruda-vs-opdivo-sales
Also, time of infusion for both Opdivo and Tecentriq is between 30 and 60 minutes. The benefit of the SC formulation is not nearly as dramatic as with Darzalex and even less than with Herceptin and Mabthera so I think the market is pretty skeptical. Ramp for SC Herceptin and SC Mabthera was painfully slow (see chart below) so I'm not sure what makes sense to project for SC Opdivo and SC Tecentriq. And it's even hard to guess whether they will be approved in 2024 or 2025. And Opdivo's patents begin to expire in 2028 so biosimilars won't be too far behind.
https://www.loncarblog.com/halozyme-royalty-revenue
$10B in 2025 is what Helen said were consensus revenue estimates for Darzalex.
The projection in your article, which has no date I can see and appears to be an old article, is $3.6bn. The $17bn refers to "drug sales for this disease" and "Darzalex(daratumumab) will be the top drug at the end of that 10-year period with $3.6bn"
"Datamonitor Healthcare's latest multiple myeloma market forecast suggests that drug sales for this disease will grow from $11.9bn in 2017 to $20.9bn in 2022 then drop each year after settling at $17bn in 2026 in the US, five major EU markets (France, Germany, Italy, Spain and the UK) and Japan. Johnson & Johnson's Darzalex(daratumumab) will be the top drug at the end of that 10-year period with $3.6bn in annual sales – one-third of Revlimid's $10.9bn peak in those markets – and Revlimid generics will come in second with $3.1bn in 2026 sales (see table below).
I tried to do my own projection of Darzalex FasPro royalties based on Helen's latest comments.
SC conversion rate was 72% in US and 60% ROW at the end of September 2021. My best case scenario is that Darzalex FasPro will capture about 70% of total revenues at the beginning of 2022 (say, 76% in Us and 64% ROW) and 85% by EOY. In 2023 conversion rate would start at 85% and peak at 95%. I am going to average conversion rate at 78% for 2022, 90% for '23, and 95% for '24 and '25. These are aggressive estimates but Helen seemed very confident and bullish about this so hopefully they are realistic.
Helen also said 2021 total revenues for Darzalex are expected to be around $6B and consensus revenue estimates are $10B in 2025. In order to get from $6B in 2021 to $10B in 2025 I am projecting 20% growth in 2022, 15% in 2023, and 10% in '24 and '25. Assuming Halo's royalties are 4% and there is no step down in 2024, this is what I come up with:
2022 total revenues ($7.2B), 78% = $5.6B, 4% Royalties = $224M
2023 total revenues ($8.28B), 90% = $7.45B, 4% Royalties = $298M
2024 total revenues ($9.1B), 95% = $8.65B, 4% Royalties = $346M
2025 total revenues ($10.01B), 95% = $9.5B, 4% Royalties = $380 M
If we assume Darzalex revenues will continue to grow at 10%, Royalties to Halo would be $418M in 2026 and $456 in 2027.
Not sure what Wave 1 products and Phesgo will contribute. Efgartigimod is expected to start contributing to the royalties in 2024, hopefully Opdivo and Tecentriq in 2025.
Can we get to $1B in royalties in 2027?
Unfortunately, it could be the case with some of them.
I haven't read those reports and I am not sure. JPM has a $50 Dec 22 target. Perhaps the more bullish analysts expect the conversion rate for Darzalex FasPro to get to 95% and that would keep royalties growing hopefully at 30% in 2022 and 2023, then some royalties from Efgartigimod in 2024. They must think there will be some new deals with a decent amount of milestone payments and in some cases, hopefully Darzalex especially, there will be coformulation patents. Tecentriq and Opdivo should get approved in 2024, perhaps Ocrevus would be next. This is the best case scenario, I think.
But if we get no new deals in the next six months and Darzalex starts having more serious competition, I fear those price targets will get lowered.
I do think the lack of new deals is one of the big issues. The other one is what Helen pointed out in yesterday's cc: no new Enhanze products will be approved in the next 18 to 24 months. There will be some erosion from Wave 1 products, Phesgo won't be a huge driver, so probably 95% of the growth will have to come from Darzalex FasPro.
We have 11 partnerships but at least 80% of our royalties will come from one product for at least another two years. As Helen explained, SC Efgartigimod may get approved 24 months from now but just for one indication (MG), so significant royalties won't come until 2025. Of course by then we may have the first step down in royalties, etc. The step downs are not a sure thing but the uncertainty will disappear only if and when Halo's partners get coformulation patents.
Not sure if $10B in 2025 is consensus revenue estimate for Darzalex. That seems aggressive. I am actually concerned there will be positive news from competing drugs at ASH that could hurt us. We have a lot of eggs in the Darzalex basket.
In any case, unless the conversion rate for Darzalex FasPro gets close to 100%, royalties will not grow at 40% in the next couple of years. More new deals and unexpected progress of products in the clinic are the only drivers that can take us back to new highs in the next year or so imho.
Thank you for your thoughts. I agree with you on PBMs.
https://www.washingtonpost.com/politics/2021/11/29/big-pharma-isnt-only-powerful-player-prescription-drug-pricing-fight/
Dew, any thoughts on this? The selling in most biotechs has been relentless.
I guess WF and Goldman Sachs are not dissuading enough sellers. I think the issue is that revenue growth will slow down dramatically in 2022 and 2023 and then we have the potential step down in 2024. Competition for Darzalex and Phesgo is heating up. Using approximately $190M for stock buybacks @$43 makes you wonder about management. And of course sector weakness is not helping.
"consensus sales CAGR 2021-23 is 30%" but guidance for 2021 represents growth of 61%-66%.
Thanks. I am not sure how complete it is. They don't have JPM that I know did a model update on Nov 2. Yahoo Finance has 12 analysts in Sep/Oct and 10 in Nov.
But we also have about $800M in debt. It's just that using debt to do stock buybacks feels like an odd strategy for a company like Halo and more appropriate for a much more mature company. And I hope I'm wrong but I feel that it raises doubts about their confidence in finding a new technology platform.
I was having similar thoughts this morning. There is something nonchalant about their attitude on their patents' expiry. If they need to buy another technology platform they should be saving cash and it makes no sense to wait in the hope that their partners will get co-formulation patents. That is most likely to happen only for the older drugs.
Or do they really think they can buy something that will make a difference for a couple of hundred million? There is so much cash ready to invest in biotechs that there is no way that's going to happen.
We are a one trick company in more ways than one since probably 75% of the royalties come from Darzalex FasPro. It could become 80% next year and it will not come down until we have significant royalties from new products.
"This would be a ~$100 stock today with a current return of $2 per share if there was crystal clear clarity on future revenue streams."
Agreed.
And "BMO Capital analyst Do Kim lowered the price target on Halozyme Therapeutics (NASDAQ: HALO) to $62.00 (from $66.00) while maintaining..." presumably an outperform rating.
Interesting. By the way, have we lost some analyst coverage? I seem to remember we had 10 or 12 and I think only 6 or 7 participated in the cc.
Yes, she said "several partners recently filed..." and Halo will provide updates when that information becomes public. No idea what the timeline for this is. Also, we don't know which partners filed and for what products. I am still not clear if this is a contractual obligation (unlikely) Halo's partners have and whether they have an incentive to apply unless their product is threatened by biosimilars.
Oddly enough, JP Morgan lowered their $51 Dec 22 PT to $50. Apparently, cons royalties was $54M but their estimate was $58M.
Chart is starting to look a little better. Stock is slightly above the 50-day moving average right now. We need new deals to move significantly higher imo.
It was a good quarter and though I haven't listened to the whole cc it felt like it was better than most. What I especially liked was to hear they expect SC Efgartigimod to be approved in 2023. If that happens and perhaps either SC Tecentriq or SC Opdivo also gets approved in 2023, it may be realistic that royalties will keep growing at 30% or more. Helen sounded more optimistic about Halo's partners getting co-formulation patents but I think the uncertainty remains. Still, I wouldn't be surprised if we get an upgrade or two tomorrow.
All in all, I am a little more optimistic.
Yes, Q3 royalties for Darzalex and Phesgo should be about $46M and annual basis would be $184M. If we were getting 5%, royalties would be $57.8 but I doubt we are.
The question is, how high can phesgo sales eventually go and what kind of royalties are the other products bringing in? I don't know what peak sales estimates for Phesgo are. Growth is strong for now but from low numbers while Herceptin sales are declining and Perjeta's sales grew 4%, I believe.
I'm guessing royalties for the other products will be about $8M in Q3 so my estimate is $54M in total royalties. This may be higher than expectations, I'm not sure. It would be pretty strong growth from $45.8M in Q2 but I think investors are concerned about growth in 2022 and even more so in 2023, not 2021.
I believe phesgo sales in Q3 were CHF 117M = $127M, so at 4% Halo royalties would be around $5M.
We have good news from JNJ and GMAB this morning:
Copenhagen, Denmark; October 19, 2021 – Genmab A/S (Nasdaq: GMAB) announced today that worldwide net trade sales of DARZALEX® (daratumumab), including sales of the subcutaneous (SC) formulation (daratumumab and hyaluronidase-fihj, sold under the tradename DARZALEX FASPRO® in the U.S.), as reported by Johnson & Johnson were USD 1,580 million in the third quarter of 2021. Net trade sales were USD 841 million in the U.S. and USD 739 million in the rest of the world. Genmab receives royalties on the worldwide net sales of DARZALEX, both the intravenous and SC formulations, under the exclusive worldwide license to Janssen Biotech, Inc. (Janssen) to develop, manufacture and commercialize daratumumab. As previously announced, Janssen is reducing its royalty payments to Genmab by what it claims to be Genmab’s share of Janssen’s royalty payments to Halozyme, cf. company announcement No. 39 of September 22, 2020.
So Darzalex sales exceeded expectations going from $1,433M in Q2 to $1,580M in Q3. My guess is 70% conversion rate in US and 60% ROW so at 4% I come up with approximately $41.2 in royalties to Halo.
Tomorrow we'll find out about Phesgo.
We also seem to have a new phase 3 trial starting soon. Do you know anything about this?
https://clinicaltrials.gov/ct2/show/NCT05084053?term=NCT05084053&draw=2&rank=1
Very painful stock action. I thought the stock would not close below $38 and I was wrong too. A lot of biotech stocks making new lows today but unfortunately I think this is company specific too, as we've discussed over and over. I haven't sold any shares yet, which I have to say I am starting to feel foolish about. I just hope there aren't any issues that we don't know about.
And of course the drug pricing bills Congress is discussing create more uncertainty and could end up hurting the stock too.
Does the article claim this patent was just granted?
It appears this patent was granted in 2019 and presumably does not affect the "step down" in royalty rate in 2024 and 2027 Helen and the CFO discussed as recently as a couple of days ago.
2019-08-20
Publication of US10385135B2
2019-08-20
Application granted
Status
Active
2036-11-01 Anticipated expiration
https://patents.google.com/patent/US10385135B2/en
Agreed. What struck me the most were the "in some instances" remark and Duncan's cheerleading. I still hope he is right in being so bullish but I wished he had asked tougher questions. For instance, we know that patent exclusivity rolls off in 2024 in EU and 2027 in US, but what about the rest of the world? I realize EU and US are the biggest markets but ROW, especially because of China, will soon be a larger slice of the pie.
Also, what did she mean by "in some instances"? What percentage of products do they expect to get patent extensions for as a result of co-formulations? And most importantly, when are we going to find out if Darzalex FasPro is one of those "instances"?
Selling seems to dry out, for now, when stock gets around $38 but then picks up again when it hits $41-42. Sector weakness is of course not helping.
Let's hope we get to see some progress in the phase 3 trials. I just don't see how royalties can grow 40% in 2023 unless we get at least a new product approved at the beginning of 2023. I doubt Darzalex and Phesgo can do it by themselves. I am not even sure royalties can grow 40% in 2022.
Did you watch it?
The quote below is from a Morningstar analyst report on Genmab. $11.3B is the highest sales estimate I've seen for Darzalex but in any case you can see that even just for Darzalex any "step down" in 2024 and 2027 from "mid-single digits" would be significant, so it's not surprising that analysts keep asking about it.
"We think Darzalex will continue to be a widely used treatment for multiple myeloma due to its notable efficacy and safety profile. By 2030, we model over $11.3 billion in Darzalex sales, which corresponds to about DKK 13 billion in royalties to Genmab."
The problem is that for now the market thinks Helen's projection is not realistic or that in any case revenues will decline significantly after 2027, otherwise Halo's market cap would be a lot higher than $6B. Hopefully, the market is wrong. Time will tell. I think the next 6-9 months will be crucial.
My understanding is that the royalty rate will be half of "mid-single digits". There should not be a drop off in the overall sales, at least not because of the patent expiry.
In general, I think one can expect a drop off in the overall sales when biosimilars enter the market (i.e. Herceptin, Mabthera). And of course there can be other reasons for sales to decline.
"With no co-formulation patent extension, a biosimilar maker can introduce a biosimilar agent combined with generic Rhuph20 (generic Enhanze)."
Yes, but the question is whether Halo's partners have an incentive to seek co-formulation patent extensions earlier in the cycle.
For instance, there will not be a Darzalex biosimilar in 2024 in Europe and in 2027 in the US, therefore presumably a biosimilar maker cannot combine Darzalex with generic Rhuph20. Since as Helen said "there is a step down in 2024 in Europe and 2027 in the U.S. and make investment decisions based on that because we're unable to provide any details beyond that," what is the incentive for Janssen to seek a co-formulation patent extension in 2024 or even 2027?