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The following Q&A (see below) between an analyst and Helen during the earnings call puts the concerns re IRA and patent issues to rest for good. No wonder Goldman Sachs reaffirmed their buy rating yesterday. (https://www.tipranks.com/news/blurbs/goldman-sachs-reaffirms-their-buy-rating-on-halozyme-halo)
“Analyst
Hi, guys. Thanks for taking my question. Two more ones on the IRA, but different versions. So just regarding CMS's Part D guidance document, I think for now everyone is operating under the assumption that Part B will look like very much like Part D. So assuming that's true, now that HALO's lawyers and policy teams have had some time to fully digest the guidance document, are there any nuances contained therein that perhaps make you incrementally more or less confident on how enhanced formulated products may qualify as single source drug? That's my first question. My other question is just to remind us how the EU, the EPO, DARZALEX/FASPRO patent revocation is specific to just DARZALEX/FASPRO? And why there wouldn't be any read across to your other EU co-formulation patents? Thank you.
Helen Torley
All right. Thanks, Mike, for those questions. Yes, a lot of interest obviously in the IRA, so we talked about this a lot when the guidance came out. And if we -- if there is an interpretation or the Part B guidance comes back similar to the Part D, our interpretation based on experts in Washington DC is if you focus on the part of the guidance that describes the fixed-dose combination.
And, yes, we use an example of two corticosteroid drugs and talks about the both active ingredients not being considered the same as a single agent use alone. I think that is what we see as a perfect description of ENHANZE because the rHuPH20 is designated in multiple documents from the SC as an active ingredient.
Now why is that? It's because -- as I mentioned earlier, it does make the whole subcutaneous delivery possible, that allows for a shorter injection, it allows for a reduced infusion related reactions on occasion. And frankly patients would not be able to receive their therapy in such a simple short way, nor with the healthcare system be able to accrue the benefit of the shorter time.
So certainly our reading at this point in time, if it's identical, is that the subcu will be treated as a separate single source agent than the IV drugs. But with all the appropriate caveats with CMS has to issue the specific guidance for Part B.
Moving to the EU patent, yes, I think for people -- few weeks ago Janssen had one of their two approved European co-formulation patents for DARZALEX revoked. And we still have, I will note, another one that's under review.
This was a single revocation of the third patent, so they have a second patent that remains as well as another patent pending. This was a specific instance where the judgment of the courts that because Janssen had published a clinical trial protocol that mentioned the invention that they relied on in the patent before they filed the patent, that that meant that they were not able to use that invention, which was reduced infusion related reaction, to support that particular patent.
Now the reason this is only applying for this single patent from DARZALEX is that other of our partners relied on other inventions to support their patents. So one of the core things about co-formulation patents is it has to be novel, not described before an invention. And so by definition, all of our partners are looking at their data to look for something different. And so that's why there is no read through to any of the other patents that have filed and/or any of our other European partners. And companies are careful to make sure that they do get the filings first to the patent office before they make the data public.
I'll also just comment that, just in case anyone has a question in US, the US does not have the same exact approach as Europe with regard to this pre-publication and a clinical protocol. And so we -- there is no read through to the United States either. I'll just also comment the next step in Europe could be for Janssen to file an appeal. If Janssen did file an appeal, the patent would be unrevoked and usually the appeal process can take three to four years.
But again I'll also mention that Janssen continues to have other patents. And for Halozyme, we're very confident in our revenues in '23 and to continue to receive royalties from Janssen until at least 2030. So there was attention to this that we certainly are feeling very well about our Janssen royalties and the very strong growth that we're seeing there.
Berenberg Bank analyst Caroline Palomeque maintained a Buy rating on Halozyme (HALO – Research Report) today and set a price target of $58.00. https://www.tipranks.com/news/blurbs/berenberg-bank-remains-a-buy-on-halozyme-halo
You are incorrect.
First one is false and if you paid attention you would know it too. Helen said there was always going to be a step down with Darzalax because in the coformulation patent was NEVER a protection against royalty step down to begin with (for Darzalex). Halo’s royalty projections had already baked in the step down for this particular product. You can read this for yourself here:
https://seekingalpha.com/article/4589402-halozyme-therapeutics-halo-investor-presentation-slideshow
The second one is also false if you have read the releases and listened to the conference calls. I don’t have the time nor the inclination to cite all the sources for this.
For your 5th and six reasons, there will always be some attempt at competition. The south Korean company is far behind and not a real threat to earnings for a long time to come. By then Halo will have the new and better version of Enhanze (plus the auto injector). As for the pace of new deals, it’s been slow for the past several months but they projected 3 this year and we still have plenty of time left in the year. They have not missed a single partnership projection in the past 12 years I have been an investor.
The reasons for the declines are 4 fold:
1) false perception that the EU patent opinion might affect earnings. Read the last corporate release on this matter and you will see that Helen indicates that the billion dollar revenue is intact and will continue to grow past 2027 for multiple reasons CEO gave
2) false perception that this patent issue will affect likelihood of future partnerships. Most don’t think this is the case but even if it is, at worst it will reduce the number of new partners and not eliminate them entirely. BTW the $ billion enhanze revenue projection by 2027 is based on existing partnerships.
3) CMS negations. This will not effect halozyme in any meaningful way.
4) delay in FDA’s decision on Argnx sc product with enhanze. It was delayed from March to June. We are almost there.
As you can see these are mostly temporary issues and the growth fundamentals are still very much intact.
PEG is a metric of “price paid for growth.” Anything less than 0.9 to 1.0 is considered growth at reasonable price.
Nothing goes up in a straight line. When Mr. Market gives you bargains like this, you take advantage.
Halozyme in a nutshell
Price/Earnings Ratio:
2023 Estimates 13.44
2024 Estimates 9.08
2025 Estimates 7.73
PEG Ratio:
Forecast 12 Month Forward PEG Ratio 0.46
Source: https://www.nasdaq.com/market-activity/stocks/halo/price-earnings-peg-ratios
Page 29 on the March Corporate presentation:
“One ENHANZE®
One ENHANZE®/HVAI
One SVAI”
That’s 3 new deals
Helen has delivered on all previous guidances she has provided regarding the number of new partnerships to expect in a given year. For 2023, she has guided 3 new partnerships. We are almost one third of the way through the year. Don’t be surprised if we get an announcement any day now.
Halozyme is truly a special gem for a savvy long term investor. Look at its all time chart going back to 2004 (I have been a shareholder since 2009). Not only it has a terrific long term performance, it provides us with fabulous dips to load up more. I’m grateful for every dip, big or small. Thank you Mr. Market.
Thanks!
No, it must be someone else. I’m not familiar with NWBO
I hope it doesn’t happen but at such bargain fundamentals, Halzoyme might get bought out.
Keeps getting juicier ??
2023 PE 12.9
2024 PE 9.51
2025 PE 7.77
Forecast P/E Growth Rates
Growth 2023 23%
Growth 2024 35.96%
Forecast 12 Month Forward PEG Ratio 0.43
https://www.nasdaq.com/market-activity/stocks/halo/price-earnings-peg-ratios
A few months ago if you had told me that due to perception/confusion/misunderstandings, I would have a chance to buy halozyme at a 2023 PE ration of 9, PEG ratio of 0.83, all with the projected 47% earnings growth over one year and average annual growth rate of 30% over the next 5 years, I would have been ecstatic to buy.
https://finviz.com/quote.ashx?t=HALO&p=d
That is exactly how I feel now. None of the earnings fundamentals or growth projections have changed with this week’s news. The projected growth has been based on existing partnerships as Helen has reiterated over and over again in conference calls (and again this week reaffirmed 2027 $1b royalty projection). Even if we assume that this weeks news might negatively affect future new partnerships (I don’t), Halo and MS have told us that their published royalty projections are not affected. Enhanze offers so much more than patent extension. There will be many more partnerships. But we don’t even need them for halo to be bargain. The folks who are shorting halozyme are the same short-term trend followers who chased AMC and gamestop to ridiculous extreme highs that have nothing to do with fundamentals.
They have repeatedly said there is no economic impact. This sell off is way overdone (not that I’m complaining). Today, I think was the high volume capitulation point with the analysts (who are usually last to the party) making downgrades or lowering targets. None of this stuff will affect 2024 PE ratio of 10 or PEG of 0.5 which are screaming buys. Worst case scenario, the patent or the CMS news (today) might marginally reduce the Enhanze appeal to future new partners. However, coformulation patent extension is only one of many reasons (and in fact the weakest one) for why pharma partners up with Halozyme. Plus, all of the royalty projections have been based on the existing partnerships (take a look at any CC transcripts). So none of this news changes the projected earnings growth until at least 2027 (and very likely beyond)
… one more reason you are incorrect:
From JNJ IR email I emailed you earlier this week:
“Janssen’s composition of matter patent protection covers DARZALEX and DARZALEX FASPRO through May of 2029 in the US (patent term extension granted from 2026) and through March of 2031 in most countries in the EU (5 year supplemental protection certificate from 2026). “
Correction: 2031.
From Morgan Stanely’s update yesterday regarding the patent matter:
“In Europe, the composition-of-matter patent for daratumumab expires in March 2031”
I don’t believe so. Read the PR from halozyme again. The COM matter for Faspro coformulation expire after 20230 Plus we all have known for years that EU patent for enhanze alone expires in 2024.
I’m not sure if that’s true. There are multiple types/categories of patents. As long as the co-formulation with any new partner can be protected by a composition of matter patent (as is the case with Faspro), Enhanze is a great proposition. Again only one type of patent was revoked yesterday. The COM patent for the Faspro coformulation remains intact (per Halozyme, JNJ and Morgan Stanley).
COM patent for Faspro was issued in 2020. It’s good until 2030. 10 years is plenty good for many potential partners.
Agreed. I also would like to see insider buying (with their own cash)
I stand corrected. The MS article was co-authored by multiple PhD’s. I was remembering something else.
The “truth” you seek is in the sentence immediately before and immediately after the one you highlighted.
“today's decision has no impact on the composition of matter patents in the U.S. and Europe for ENHANZE®," said Dr. Helen Torley, president and chief executive officer of Halozyme.”
“Jansen will continue to pay royalties to Halozyme on U.S. and European sales of DARZALEX FASPRO (R) and SC, in line with our total royalty revenue projection of approximately $1 billion by 2027, and thereafter to at least 2030.”
There are different types of patents that back full royalties to Halo. One was defeated today but the composition of matter for Faspro is still intact. This is why she said the royalty from JNJ will remain the same until 2030 (when the composition of matter patent for Faspro expires)
This is also exactly what Morgan Stanely said in their detailed article co-authored by multiple patent attorneys.
As far all other coformulations can obtain a COM patent, they will have the same protection Faspro enjoys. And the decision today does nothing to weaken any ENHANZE COM patent.
The only thing lost today was the extra protection Faspro would have had in EU after 2030. You don’t have to take my word for it; read the email I posted from JNJ IR earlier.
This loss is minor (2% royalty instead if 4% after 2030 and only in EU) and not happening until 7 years later. The market participant did not fully get this and have given us a beautiful bargain.
halo will turn green once people recognize this was a case of “sell the rumor, buy the news” for last couple of months.
Halozyme has lost a third of its value (since the high of $59.46) over something has no bearings on its earnings until after 2030. Great time to add more shares. Buying
The following emails (read all 3) should allay any concerns regarding Faspro EU patent. EU Faspro is protected until 2031 regardless of the decision tomorrow.
“On Mar 14, 2023, at 5:53 PM, Moore, Jessica [JJCUS] wrote:
Hi Sean,
The SubQ formulation has the potential to extend the patent beyond the composition of matter dates.
Thanks
Jess
Jessica Moore
VP Investor Relations
JOHNSON & JOHNSON
-----Original Message-----
Sent: Tuesday, March 14, 2023 8:40 PM
Thank you for your response, Jessica. If Faspro is protected via composition of matter until 2031 in Europe, then what is the point of the opposition this week? What is it that the opposition is trying to gain?
On Mar 14, 2023, at 4:48 PM, Moore, Jessica [JJCUS] wrote:
?Hi Sean,
The hearing on March 14-15, 2023, at the European Patent Office (EPO) Opposition Division in Munich is concerning an opposition to the daratumumab subcutaneous formulation patent (EP3370770B1).
Janssen’s composition of matter patent protection covers DARZALEX and DARZALEX FASPRO through May of 2029 in the US (patent term extension granted from 2026) and through March of 2031 in most countries in the EU (5 year supplemental protection certificate from 2026).
Thanks
Jess
Jessica Moore
VP Investor Relations
JOHNSON & JOHNSON”
is anyone logged in and listening to the EU Patent Office opposition oral hearing today? If you are, updates are appreciated.
Halozyme Therapeutics maintains a small amount of cash in a deposit account at SIVB which as of March 10, 2023 does not exceed the $250,000 FDIC insured limit
SIVB also acts as an agent or asset manager for a majority of the Company''s cash, cash equivalents and investments which funds reside in custodial accounts held at independent financial institutions.
As previously disclosed, the Company entered into a Credit Agreement, dated as of May 24, 2022, as amended on August 18, 2022, with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders and L/C Issuers party thereto, that provides for a $575 million revolving credit facility (the "Facility"). SVB is a lender under the Facility with a commitment amount of approximately $39 million. There are no current withdrawals on the Facility and the Company has no immediate intentions of drawing on the Facility at this time.
Agreed.
I see a rebound coming (although I don’t mind low prices for longer so I can buy more). Even if the EU patent challenge is successful, 1) it should not have much material effect on halozyme per MS article and 2) even if MS is wrong, the effect is already priced in with a 30% haircut.
The following exceptional metrics won’t be offered for too long at these low bargain prices:
Halozyme (from Nasdaq.com):
Price/Earnings Ratios
2023 16.2
2024 11.89
2025 9.53
Forecast P/E Growth Rates
Growth 2023 23.48%
Growth 2024 36.4%
PEG Ratio
Forecast 12 Month Forward PEG Ratio 0.54
From Finviz:
Gross Profit Margin 78.90%
ROE 98.60%
Halozyme in a nutshell:
EPS growth next Y 49.86%
EPS growth next 5Y 30.00%
ROE 98.60%
Gross Margin 78.90%
All offered at a Forward P/E of 11.07 and PEG of 0.98
If you read MS article carefully, you know that even if the EU decision “on obviousness” goes against Halozyme next week, halo’s royalty revenue is protected because the “composition of matter” coformulation patent is still in effect for darzalex Faspro until 2029:
Morgan Stanley wrote:
“Despite these potential challenges, we believe Halozyme’s royalties are durable, because the co-formulations are also protected by the composition-of-matter (COM) patents of the API, whose expiration dates are in the out years and are staggered. For example, the COM patents for daratumumab and efgartigimod expire in 2029 and 2036, respectively.”
People who don’t pay attention to details think that the decision next week would affect royalties in 2024. The decision next week determines loyalties for Faspro after 2029.
This is another reason why this price drop is a juicy bargain.
Halo is trading at forward PE of 11 and Peg of 1 (see finviz). It has a gross profit margin of 78%. It is an amazing bargain. Plus, we are getting a 25% discount from an all time high of $59.40. Love the bargain shopping. Helen has guided for 3 new deals this year and we are about to end the first quarter so you know we are getting closer and closer to an announcement. Even if the EU patent decision which is due next week doesn’t go our way, the recent slide in price has already factored that in. “Sell the rumor, buy the news”
This is what I care about:
“SVB Leerink Sets Halozyme Therapeutics
FY2027 Earnings Estimates at $7.51 EPS.”
It means that Halozyme’s earnings will grow 3 folds in the next 4 years. If you put a conservative PE ratio of 20 (very conservative for a fast growing company like Halo), you will have a $140 share price for 2027.
This is why all the dips are a blessing. Fundamentals dictate that over the next 4 years, we are headed to $140. I have and will load more every time the train has a stop. Been doing it since halo was in low teens (go back and see my posts)
You are correct
Consider yourself lucky to be able to pick up more shares at a significant dicount as I hope you did when we dipped into teens, 20’s and 30’s…. Nothing goes up in a straightline. Halozyme has some of the best derisked fundamentals in the industry. Highly profitable with continued earnings growth for many years to come offered at a low PEG and 2023 PE in the teens.
The convertible bonds is really old news. It was always known that they would have to be converted or paid back at some point. Halo’s SP was already punished for this once. It does not count against you twice. Once the market recognizes this, the stock will settle higher.
Regarding the 2023 guidance vs the market concensus, listen to the first Q&A at the end of Helen’s presention at JPM last night (it’s on Halo’s website). Helen said it’s not due to lower royalties but rather due to DELAYED milestone payments. She reitrated that the payments are only DELAYED and not lost. Total milestone payments over the next 2 years remains in line with market consensus.
Ripe for Halozyme and Enhanze: FDA Approves LEQEMBI™ (lecanemab-irmb from Biogen) Under the Accelerated Approval Pathway for the Treatment of Alzheimer's Disease
JANUARY 6, 2023
Route of administration for LEQEMBI:
“10 mg/kg administered intravenously once every two weeks”
Source: https://investors.biogen.com/news-releases/news-release-details/fda-approves-leqembitm-lecanemab-irmb-under-accelerated-approval
Halozyme has a partnership with Amgen now. Amgen is buying Horizon at a purchase price equivalent to a PE ratio of around 45.
Don’t get all too excited, shorts. Read the MS article Maumer cited in his post. It reads:
“…the potential to extend
the exclusivity period from the composition of matter patent from 2031 to
2036.”
The combination of matter patent is well and good at least until 2031. What’s at steak is between 2031 and 2036.
All dips are fantastic buying opportunities as they have been for years purely based on superb fundamentals and valuation.
I found it. Thank you
I get Morgan Stanley’s reports through Etrade and reviewed all their reports since they started covering Halozyme since your post. I did not see the exhibit you referred to or any mention of “Tracked European oppositions” or “Straw Man” in any of their publications.
Would you please provide the date of the MS report and the number of the page that contains this matter?
Thanks
Please provide a link/reference