Image source: Getty Images.

What happened

Shares of biopharma Halozyme Therapeutics (HALO -0.24%) receded over 11% today after the company provided its full-year 2017 financial outlook.

So what

The company reported several financial metrics that made investors do a double take:


2017 Financial Metric


$115 million to $130 million

Operating expenses

$240 million to $250 million

Cash balance at end of year

$100 million to $110 million

Data source: Halozyme Therapeutics.

That's not all that bad in reality. But it does require some perspective. The revenue range provided will be lower than 2015 and, very likely, 2016 revenue totals. The decline stems from $20 million in reimbursed R&D payments from last year that will not recur in 2017. It's also worth noting that the revenue guidance excludes any new collaboration deals that could potentially be executed this year.

Expected operating expenses of at least $240 million could be roughly the same as 2016 totals, but will be 47% higher than two years ago. That's the price investors have to pay for developing a late-stage pipeline, including a phase 3 trial for a drug candidate treating metastatic pancreatic cancer and potentially lucrative drug candidates such as PEGPH20.

The guided year-end cash balance of at least $100 million is also a byproduct of expensive development programs. Halozyme Therapeutics ended 2015 with roughly the same amount of cash at its disposal, but then promptly raised a substantial amount of debt to pad its financial flexibility. It ended September with a respectable $221 million in cash.

The 2016 funding will run out by the end of this year, at which time things will get interesting. With a debt-to-assets ratio that has already ballooned as cash is burned and debt remains on the balance sheet, burning through another $110 million won't help. That means the company will need fantastic data, a big approval, or a de-risking partnership to stave off the worst-case scenarios of a heavily burdened balance sheet. It has a relatively long runway -- at least another 12 months -- before this will be a major concern for investors, though.

Now what

I think the market is largely overreacting. There are several potentially great catalysts for the company moving forward. However, even with at least $115 million in revenue in 2017, Halozyme Therapeutics remains a risky stock. All eyes will be on the development updates from its current phase 3 trial. A successful outcome will provide much-needed breathing room and the potential for amazing growth in the years ahead. Failure could have devastating consequences. Investors were just reminded of that today.