Replies to post #5335 on Halozyme Therapeutics Inc (HALO)

[maumar]

I don't have access to the latest report but here is the previous one in case you have not seen it:

Piper - Like ENHANZE, Two New Deals Break Down Barriers for Enhanced Revenue Visibility - Raise Target $20 to $26

Halozyme Therapeutics, Inc. (HALO) Overweight

Like ENHANZE, Two New Deals Break Down Barriers for Enhanced Revenue Visibility

PRICE: US$13.18

TARGET: US$26.00

Rating — Overweight
Price Tgt US$20.00 US$26.00
FY17E Rev (mil) US$128.1 US$258.1
FY18E Rev (mil) US$156.5 US$161.5
FY17E EPS US$(1.05) US$(0.07)
FY18E EPS US$(0.90) US$(0.86)
52-Week High / Low US$15.20 / US$8.18
Shares Out (mil) 141.5
Market Cap. (mil) US$1,865.0
Avg Daily Vol (000) 911
Book Value/Share US$0.43
Net Cash Per Share US$2.98
Debt to Total Capital NA
Div (ann) NA
Fiscal Year End Dec

CONCLUSION

Halozyme announced a new ENHANZE license agreement with BMS focused in immunooncology,

as well as an expansion of its current agreement with Roche. We see three
key positives take-aways. First, we had pointed to additional ENHANZE agreements as
a growth driver for HALO in 2017/2018. The size and focus of the BMS agreement is
notable and supports our thesis, as well as diversifies risk to this growth outlook for
the entire ENHANZE pipeline. Second, we see both agreements as further validating
the clinical/commercial value proposition from ENHANZE, which remains a key tenet
of our perspective on the sustainability of Halo’s hybrid business model. Finally, these
agreements strengthen the BS and should extend cash runway and reduce execution risk
on the expanding scope of the company’s clinical efforts in oncology. For these reasons,
we're adding in value for the first BMS target and taking our PT to $26 from $20.

• BMS Agreement. The BMS oncology agreement announced this morning is the seventh,
and we believe largest, ENHANZE agreement Halozyme has inked to date. In addition to
a $105M upfront, it will receive milestones of up to $160M per target, and up to 11 targets
may be named in the next 5 years. As with Halozyme’s other ENHANZE partnerships, we expect mid-single-digit royalties on sales of any approved partnered products. Halozyme
has announced that an initial target will be PD-L1, and we’d hope to see CTLA-4 to
follow. BMS also has a number of intriguing antibody targets currently in Phase II for
solid tumors and hematological malignancies, as mono or combo therapy with OPDIVO,
including anti-CD137, anti-KIR, and anti-LAG3. While we don’t expect detailed disclosure
on the other targets to be studied, at least initially, overall we are encouraged by the
number of potential targets and size of potential end markets that could be accessed
with the BMS partnership. Please see Exhibit 1 for an overview of its cancer pipeline
from this year’s ASCO.

• Expansion of Roche. In addition, Halozyme and Roche expanded their existing
ENHANZE collaboration to include a new undisclosed target. Given that Roche is
already marketing ENHANZE products in the EU and now US, we see this news as
offering a validation of value from ENHANZE technology which is informed by significant
commercial experience. In addition, we’re reassured to see the additional commitment
from this long-standing partner, whose experience may allow for an efficient clinical and
regulatory development path for the new target.

• Model Updates: PT to $26. We are updating our model to reflect the upfront milestones
associated with these updates ($105M from BMS, $30M from Roche), of which $130M
we expect to be recorded as revenue during 2017. In addition, our revenue projections
and YE17 cash now reflect the company’s updated guidance of $245-$260M and
$380-395M, respectively.

We believe the company’s cash now extends into 2020 given our current assumptions on R&D spending. Thinking about the valuation, we are adding in value for the first BMS oncology target at this time. This, together with the updated cash, brings our PT from $20 to $26 – Exhibit 2. In advance of further ENHANZE development and commercial updates, as well as progress on the Phase III in pancreatic cancer, we reiterate OW on HALO.

[maumar]

Here is the Piper Jaffray report from Oct. 16.

"We continue to believe investors are overlooking the

risk-reduced growth prospects in each two pillars of the business,..."

Piper Jaffray

C O M PA N Y N O T E

O c t o b e r 1 6 , 2 0 1 7

Halozyme Therapeutics, Inc. (HALO) Overweight

Enhanced Conviction on ENHANZE Clearly Becoming a Value Enhancing Platform

PRICE: US$17.47

TARGET: US$29.00


Charles C. Duncan, PhD

Sr. Research Analyst, Piper Jaffray & Co.

Sarah R. Weber

Research Analyst, Piper Jaffray & Co.

Changes Previous Current

Rating — Overweight

Price Tgt US$26.00 US$29.00


CONCLUSION

We recently hosted Halozyme for investor meetings and came away with enhanced

conviction in the company's long-term ENHANZE strategy, as well as the potential of

PEGPH20 inclusive of but even beyond pancreatic cancer. We are raising our PT from

$26 to $29 in anticipation of value creation from ENHANZE progress (within current

collaborations and potentially from 1-2 new ones), plus several Phase I/II PEGPH20 combo

studies in the next 12-18 months. We continue to believe investors are overlooking the

risk-reduced growth prospects in each two pillars of the business, as well as the synergies

between them, with more details on our outlook below. In advance of increasingly visible

clinical and commercial progress for Halozyme, we reiterate OW.

• ENHANZE Momentum Building. We believe investors may be underestimating the

long-term value from ENHANZE. Specifically, we see three factors as driving this value.

First, the Rituxan Hycela Ad Comm earlier this year clarified the regulatory path in

the eyes of current or potential ENHANZE partners. Second, we perceive growing

appreciation for ENHANZE products as not just supporting life cycle management, but

as driving true innovation in the form of meaningful patient/provider preferences and

potentially improved clinical outcomes. For example, the Phase I Darzalex SC study

demonstrated a significant improvement in administration times (multiple hour infusion

to minutes long injection) and a decrease in infusion reaction rates, all of which should

support compliance and outcomes, over time. Third, we believe the commercial value

proposition of an SC product is well suited for the EU, and more recently the US market,

in terms of cost savings for the increasingly cost-constrained system and, for individual

prescribers, a decreasing profit differential between IV and SC drugs in oncology. Please

see Exhibit 1 for a summary of ENHANZE products and progress we'll be tracking in

the next twelve months. Overall, we believe the above factors will lead to accelerated

progress within Halozyme's seven existing collaborations (Exhibit 2) and at least one

new high value collaboration in the next ~12-18 months.

• PEGPH20 - More than just PC. Following these recent meetings, we continue to believe

investors may be overlooking value creation from PEGPH20 in multiple solid tumor types.

On pancreatic cancer and relative to other recent attempts by other sponsors, we believe

this program is significantly risk reduced by the prospective, placebo controlled Phase II

dataset, mechanism which enhances SOC, and rationally selected patient group. Each of

these factors differentiates the PEGPH20 program from recent failures to translate Phase

II activity to positive Phase III results, in our view. We expect enrollment to complete in

1H18 to support a PFS interim in (if we had to hazard a timeline) 2019.


Beyond PC, also gleaned from the roadshow, we have a refreshed perspective on the potential

of PEGPH20 to enhance response rates to IO agents. Specifically, in animal models PEGPH20

increases the concentration of these drugs in the tumor by 40-80%, as well as increasing immune

cell infiltration of the tumor micro environment (TME). We also anticipate several updates from

one of the multiple combo trials (ongoing or about to start) approximately every six months for

the next two years - Exhibit 3. If demonstrated data is promising, these could support signing

further partnerships for capital efficient late-stage clinical development.

Model updates: Price Target to $29. Based on the above updates, today we are incrementally

reducing our discount rate on future ENHANZE royalty revenue streams from 12% to 10%.

In addition, we are adding in a $250M pipeline placeholder value for the IO combination

opportunities with PEGPH20. Finally, we are pushing first sales of PEGPH20 back to 2020 from

2019 to align with timelines for that study; enrollment is progressing as expected and our model

projection was likely somewhat aggressive on investigative site initiation timelines. Finally, we

believe the BMS up-front will hit the P+L during 4Q17 versus 3Q17, and are updating our model

accordingly. Overall, these changes result in a price target of $29 up from $26 - Exhibit 4.

Exhibit 1

Select ENHRANZE-Partnered Candidates We're Watching

Source: PJC Research

Exhibit 2

Progression of ENHANZE Collaborations

Roche Baxalta Pfizer Janssen AbbVie Lilly Bristol-Myers Roche

Source: Company Reports

Partner Target/Candidate Next Event Estimated Date

BMS Opdivo Phase I trial start 1H18

Janssen Darzalex Phase III trial start

4Q17 (Design posted on Clinicaltrials.gov

NCT03301220)

Lilly Anti IL-23 Update from recently initiated Phase I trial 2018

Roche

New, yet undisclosed target

announced Sept '17

Phase I start

1H18

Roche Perjeta Potential Phase III start 2018

Roche Rituxan Hycela (approved) US launch updates 2018 guidance 1Q18; 1H18 earnings


PEGPH20 Combo Study Catalysts

Source: PJC Research

Exhibit 4

Current $29 PT (Top) and Previous $26 PT (Bottom)

Source: PJC Research

Tumor Type Phase Combination Medication Next Event Our Estimated Date Sponsor

Pancreas III Abraxane + Gemcitabine Complete enrollment 1H18 Halozyme

PFS Interim 2019

Gastric Cancer I/II Keytruda

Initial dose-finding +

responder rates

4Q17/1Q18 Halozyme

NSCLC I/II Keytruda

Initial dose-finding +

responder rates

1H18 Halozyme

6 Tumor Basket including

pancreas + gastric

I/II Tecentriq Dose-finding updates 2H18/1H19 Roche

Gall bladder +

cholangiocarcinoma

Ib Tecentriq Open enrollment 4Q17 Halozyme

Breast Cancer I/II Halaven Updates on dose-finding 2H18/1H19 Eisai

Source: Company Reports, ClinTrials.gov

NPV NPV

(MM$) Per Share ($)

Roche royalties 999 6.66

PEGPH20 in PC 1,539 10.26

HyQ/HyQvia 195 1.30

1st PFE, JNJ, ABBV, & BMS 3,259 21.73

Other Income & Expenses (2,083) (13.89)

PEGPH20 Combo in Other Solid Tumors 250 1.7

Cash 380 2.5

Long-term debt (174) (1.2)

Total NPV 4,364 $29.09

NPV NPV

(MM$) Per Share ($)

Roche royalties 999 6.66

PEGPH20 (PC) 1,581 10.54

HyQ/HyQvia 195 1.30

1st PFE, JNJ, ABBV, & BMS 2,947 19.64

Other Income & Expenses (2,083) (13.89)

Cash 380 2.5

Long-term debt (174) (1.2)

Total NPV 3,844 $25.63

Halozyme Therapeutics, Inc. Page 4 of 7

Halozyme ($ in millions, except per share amounts) 2014 2015 1Q16A 2Q16A 3Q16A 4Q16A 2016A 1Q17A 2Q17A 3Q17E 4Q17E 2017E 1Q18E 2Q18E 3Q18E 4Q18E 2018E

Income Statement

Revenue

Product sales, net (Hylenex and bulk Roche and Baxter supply) 37.8 46.1 12.9 13.7 13.3 13.4 53.4 11.4 12.8 13.5 14.0 51.7 14.5 14.5 14.5 14.5 58.0

Royalties, PEGPH20 Revenues 9.4 31.0 11.4 12.3 13.0 14.3 51.0 14.0 14.7 17.0 20.3 66.0 20.8 23.1 25.9 28.8 98.5

Revenues under collaborative agreements 28.1 58.0 18.2 7.4 5.5 11.3 42.3 4.2 6.2 30.0 100.0 140.4 - - 5.0 - 5.0

Total Revenues 75.3 135.1 42.5 33.3 31.9 39.0 146.7 29.6 33.8 60.5 134.3 258.1 35.3 37.6 45.4 43.3 161.5

Costs & Expenses:

Cost of product revenue 22.7 29.2 7.8 8.3 9.1 8.0 33.2 7.5 7.8 8.8 9.1 33.2 8.7 8.7 8.7 8.7 34.8

R&D 79.7 93.2 40.1 35.5 33.9 41.3 150.8 36.9 38.3 42.0 44.0 161.2 44.0 44.0 40.0 40.0 168.0

SG&A 35.9 40.0 10.8 11.2 11.6 12.2 45.9 12.6 13.1 13.0 13.0 51.7 13.0 13.0 16.0 18.0 60.0

Total Operating Expenses 138.4 162.5 58.7 55.1 54.6 61.6 229.9 57.1 59.2 63.8 66.1 246.2 65.7 65.7 64.7 66.7 262.8

Operating Income (loss) (63.0) (27.5) (16.2) (21.7) (22.7) (22.6) (83.2) (27.5) (25.5) (3.3) 68.2 11.9 (30.4) (28.1) (19.3) (23.4) ( 101.3)

Investment, Interest, & Other Income 0.2 0.4 0.2 0.4 0.3 0.3 1.3 0.3 0.4 0.0 0.1 0.8 0.2 0.1 0.3 0.2 0.8

Interest expense (5.6) (5.2) (3.9) (5.2) (5.3) (5.6) (20.0) (5.4) (5.5) (5.4) (5.4) (21.8) (3.9) (3.9) (3.8) (3.7) (15.3)

Income tax expense 0.3 1.3 (0.4) 1.2 - - - - - - - - -

Net Income (68.4) (32.2) (19.8) (26.9) (28.9) (27.4) ( 103.1) (32.8) (30.6) (8.7) 62.8 (9.4) (34.1) (31.9) (22.8) (26.9) ( 115.8)

Diluted Earnings Per Share ($0.56) ($0.26) ($0.16) ($0.21) ($0.23) ($0.21) ($0.81) ($0.26) ($0.23) ($0.06) $0.47 ($0.07) ($0.25) ($0.24) ($0.17) ($0.20) ($0.86)

Diluted Shares Outstanding 122.7 126.7 127.6 128.0 128.2 128.3 128.0 128.6 134.0 134.2 134.4 132.8 134.6 134.8 135.0 135.1 134.9

Proprietary to Piper Jaffray & Co. October 15, 2017

HALO: Charles Duncan; 212.284.5025

Current disclosure information for this company can be found at:

http://www.piperjaffray.com/researchdisclosures