A Look Back at Halozyme's Volatile but Rewarding 2013

Halozyme Therapeutics (NASDAQ: HALO  ) has had an incredible year, rallying more than 100% since the beginning of 2013.

However, the ride up has been a very bumpy one, due to two major developments involving its top collaborators ViroPharma (NASDAQ: VPHM  ) (recently acquired by Shire (NASDAQ: SHPG  ) ) and Roche (NASDAQOTH: RHHBY  ) .

Let's take a look back at Halozyme's volatile but rewarding 2013, and see if we can expect the stock to continue climbing next year.

Turning IVs into regular shots
Halozyme produces human enzymes which help carry drugs into the bloodstream. Its top product, rHuPH20 (branded as Enhanze), is an enzyme that temporarily breaks down hyaluronic acid (HA), a natural substance in the extracellular matrix in the skin and cartilage.

With the help of rHuPH20, intravenous drugs can be converted into subcutaneous ones, which are much easier and faster to administer. That game-changing quality of Halozyme's technology has attracted some major collaborators, such as Roche, Pfizer (NYSE: PFE  ) , Baxter (NYSE: BAX  ) , ViroPharma, and Intrexon.

The majority of Halozyme's revenue has traditionally been generated by research services reimbursements and milestone payments from its collaborators. Over the past year, that top line growth has been very impressive, although it is still far from being profitable.

 

Revenue

Growth (YOY)

Net Loss

Change (YOY)

3Q 2013

$16.0 million

202%

($0.17)

+$0.01

2Q 2013

$14.5 million

86%

($0.20)

-$0.07

1Q 2013

$11.8 million

59%

($0.17)

-$0.03

4Q 2012

$21.8 million

808%

($0.04)

+$0.14

Source: Halozyme quarterly earnings reports.

Halozyme's consistent double and triple-digit sales growth throughout the year has fueled the stock's big rally throughout 2013. However, considering that Halozyme recently hit a lifetime high and is trading with a P/S ratio of 24, the stock could be due for a pullback.

HALO Chart

Source: YCharts.

Now that we've established where Halozyme stands fundamentally, let's take a look at the two companies that influenced Halozyme's price the most in 2013 -- ViroPharma and Roche.

ViroPharma casts doubts on Halozyme's future
Back in August, shares of Halozyme fell after ViroPharma, the manufacturer of the hereditary angioedema (HAE) drug Cinryze, cancelled its phase 2 trial for a subcutaneous version of the drug. HAE is a rare disease which causes uncontrollable, potentially fatal swelling of the extremities, respiratory system, and gastrointestinal system.

Out of the four available HAE treatments, ViroPharma's Cinryze was the top selling drug, with sales rising 25% year-over-year last quarter to $106.5 million. Cinryze is the only drug that can be taken as a preventative measure against HAE, whereas the other three treatments -- Shire's Firazyr, Dyax's Kalbitor, and CSL Behring's Berinert -- are only administered when an acute attack occurs.

Therefore, changing Cinryze from an intravenous drug into a subcutaneous one could have made huge differences in portability and ease of administration for HAE patients. Unfortunately, ViroPharma canceled the trial after antibodies targeting Halozyme's enzyme rHuPH20 emerged in several patients. The cancellation was particularly damaging to Halozyme, since it raised doubts regarding the company's long-term vision of turning intravenous drugs into subcutaneous ones.

In November, Shire acquired ViroPharma for $4.2 billion to become the dominant company in the HAE market. It's possible that Shire could revisit the idea of subcutaneous Cinryze in the future.

Roche to the rescue
However, things got better for Halozyme later that month, when Roche announced that a subcutaneous version of its breast cancer drug Herceptin, created with Halozyme's rHuPH20, had been approved in the EU. In September, Herceptin SC (subcutaneous) was commercially launched, triggering a $10 million milestone payment from Roche to Halozyme.

Herceptin SC was a huge leap forward in breast cancer treatments, cutting the dosage time of 60 to 90 minutes with an IV down to two to five minutes with a single shot.

Herceptin is already one of the top breast cancer drugs in the world, generating $6.6 billion in sales last year. Herceptin SC could be Roche's answer to the intravenous drug's patent expirations in Europe and the U.S. in 2014 and 2019, respectively.

Herceptin is a monoclonal antibody which targets HER2-positive breast cancer, a particularly aggressive form of breast cancer which occurs in approximately 20% of patients. Herceptin "seeks out" cancer cells by targeting the overexpression of HER2 (human epidermal growth factor receptor 2), which promotes cancer growth. When it locates a cancer cell, it binds to its surface, blocking out growth signals while making them visible for the immune system to attack.

Roche's success canceled out the ViroPharma drama, and investors became bullish on Halozyme's growth prospects again. In addition to Herceptin SC, Halozyme is also working on a subcutaneous version of Rituxan, Roche's blockbuster blood cancer and autoimmune disorder drug which generated $6.3 billion in 2012 sales. The drug, known as MabThera SC, is currently in phase 3 trials.

Other collaborations
Looking forward into 2014, Halozyme's revenue sources will shift due to the approval of Herceptin SC. In the third quarter, product revenue, consisting of sales of the rHuPH20 active ingredient to Roche, accounted for 49% of the company's top line. Only 23% came from research services reimbursements.

Meanwhile, Halozyme and Baxter are collaborating on a subcutaneous immune globulin (IG) product known as HyQ. HyQ is used to treat primary immunodeficiency, an umbrella term which includes 150 immune system diseases. Although HyQ was rejected by the FDA last year, Baxter recently submitted an amended biologics license application (BLA) to the FDA to restart the review process.

Last but not least, Pfizer's decision to develop up to six new subcutaneous biologic drugs with Halozyme last December was also a positive catalyst for the stock at the beginning of 2013, helping it bounce back from HyQ's rejection. Pfizer's initial deal included an $8 million upfront payment to Halozyme, future milestone payments up to $507 million, and potential royalties on approved products.

The Foolish bottom line
In closing, Halozyme is a stock defined by its collaborations. In 2012, the disappointing FDA rejection of Baxter's HyQ was offset by Pfizer's support. In 2013, ViroPharma's cancellation of subcutaneous Cinryze was offset by the approval of Roche's Herceptin SC.

As long as the supporters of Halozyme's potentially industry-altering technology outweigh the detractors, I believe that Halozyme will continue to climb and improve the quality of patient lives by turning intravenous drugs into subcutaneous ones.

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Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 11, 2013, at 10:31 AM, fezziwig2008 wrote:

    Leo- Please share with us your understanding of RhupH20 antibody titers? I'm sure you know this, but perhaps most don't know that pH20 is an enzyme naturally found in the body and that in both the Insulin and Mabthera trials, antipH20- which is the same as antiRhupH20, as momoclonal rhupH20 is identical- was found at the BEGINNING of the trials before any exposure to rhupH20- the titers didn't rise in either trial- and all antibodies were NONneutralizing in every trial they have been found- meaning they are markers of exposure but not active or harmful in any way. Sine the location pH20 is found id the acsosome of the spermatazoa, one might speculate why certain subjects had more exposure to foreign pH20 than did others. Please respond- thanks.

  • Report this Comment On December 11, 2013, at 10:50 AM, fezziwig2008 wrote:

    Leo Why publish on 12/10 noting Pfizer deal with HALO without mentioning that PFE announced the identity of their first shared target, and it's RN316- their candidate for the anti PCSK9 LDL Blockbuster? Is this piece meant to take down the price per share ahead of the CHMP MabThera decision next Friday-12/20? As you know the EMA's safety committee the PRAC already approved MabTheraSC- the subcut version of a drug bigger than Herceptin in terms of RHHBY revenues- so the approval on 12/20 is Widely expected. Even the HALO CEO and CFO have noted their expectations that Dec is the most likely month for this blockbuster. You wouldn't be allowing a client to get in cheaply, would you Leo?

  • Report this Comment On December 11, 2013, at 11:06 AM, cenk1a wrote:

    I think this is a very poorly written article... Terrible !

  • Report this Comment On December 11, 2013, at 11:50 AM, TMFSunLion wrote:

    @fezziwig2008: Seriously, you say on Twitter that my article is a "paid takedown" when the last sentence of the article cleary reads:

    "I believe that Halozyme will continue to climb and improve the quality of patient lives by turning intravenous drugs into subcutaneous ones."

    There was no need to mention Pfizer's RN-316 since it isn't an approved drug yet. If you want to read more about RN-316, read my article on the subject here:

    http://www.fool.com/investing/general/2013/11/23/3-new-chole...

    I mentioned MabThera SC, but of course I won't say that it has been approved when it hasn't, no matter how close it could be to an EU approval.

  • Report this Comment On December 11, 2013, at 1:40 PM, kpcapital wrote:

    I believe that he author conveniently omits several extremely-promising pipeline components, along with their progress. Moreover, no mention is made regarding the prospective partnerships for the pipeline candidates. Below are 2 of HALO's candidates. It should be noted that both address global markets exceeding $10B/year. (I apologize for the cut & paste):

    1. Halozyme’s “Ultrafast Insulin” programs are investigating the use of our rHuPH20 hyaluronidase enzyme in novel formulations with faster-acting insulin analogs for the treatment of diabetes and also for use with insulin pumps. The primary goal of our Ultrafast Insulin programs is to develop best-in-class mealtime insulin therapies.

    Our clinical studies demonstrate that combining the rHuPH20 enzyme results in more rapid absorption and a faster onset and shorter duration of insulin action than the currently marketed formulations of the same insulin analogs.

    In clinical studies, data indicate that this more responsive insulin leads to better glucose control. We believe that this ultrafast insulin profile may provide best-in-class mealtime insulin coverage for patients using intensive insulin therapy to manage their diabetes.

    2. A Phase I proof-of-concept study was conducted with HTI-501 in the treatment of edematous fibrosclerotic panniculopathy, also known as cellulite. This condition affects 80-90% of post-adolescent women and is prevalent in all races. The collagen fibers, or fibrous septae, anchor the epidermis against the swelling of subcutaneous fat, which creates the dimpled appearance associated with the condition.

    The study was designed to determine whether HTI-501 could smooth the dimpled appearance of the skin by severing the fibrous septae and releasing the tension caused by the fibrous septae. Interim results from the Phase 1 study were presented, with no serious or severe adverse events reported and the injection was well tolerated. Data from the study supported commencement of the Phase 2 portion of the trial.

    HTI-501 has the potential to treat other medical conditions involving collagen, such as frozen shoulder, Dupuytren’s contracture, Peyronie’s disease, keloids and hypertrophic scarring.

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