From Artisan (the largest, non-index investor in Halozyme) December 2023 letter:
“Halozyme provides a unique technology platform that allows for the conversion of biologics and small molecule drugs administered intravenously into a subcutaneous formulation. The company generates predictable and durable royalties from licensing its technology to pharmaceutical companies looking to optimize their therapies. Underperformance was partially related to Argenx, along with headwinds due to Inflation Reduction Act-related US drug price regulation and a lack of new partnership announcements. Regarding Argenx, Halozyme scored an important long-term growth opportunity in Q3 when the FDA approved Argenx's subcutaneous version of Vyvgart, called Vyvgart Hytrulo. However, its shares declined following Vyvgart's two failed indications in Q4 (discussed earlier). Despite this setback, we continue to expect expanding commercial opportunities for Vyvgart and Vyvgart Hytrulo, along with a solid pipeline of other new products in the coming years. Halozyme recently released updated guidance and forecasted 2023 royalty revenue of $445 million-$450 million and $1 billion in royalty revenue by 2027.
While Halozyme was the top detractor in 2023, it was the top contributor in 2022, has been one of our most successful campaigns since its early 2017 purchase and remains the second-largest position in our portfolio.
Any time we experience noticeable underperformance in an economic sector, we work hard to retest our assumptions and challenge ourselves to be open-minded to the possibility that our investment thesis is off target. In some cases, this has led us to reduce positions where new evidence suggested the profit cycle dynamics had deteriorated. But, in most cases, we remain very optimistic about the mid- and long-term profit growth potential of our key health care holdings. For example, we opportunistically added to Exact Sciences after an earnings-related selloff in Q4, maintained our position in Ascendis following the FDA's request for additional manufacturing data in Q2 and added to our position in Repligen in Q3 on the belief that the COVID-19 vaccine overhang would fade. These actions began to bear fruit as the year went on, and we believe our patience with these stocks, along with Halozyme, Shockwave, Argenx and iRhythm, leave our portfolio's health care exposure well positioned entering 2024.
