Halozyme Therapeutics (HALO 1.95%) underperformed the broader market in 2019 by 8%. The company cruised into 2020 with its stock up more than 10% year to date, but investors may be wondering if this stock can outperform the S&P 500 this year.
The 22-year-old biopharma technology platform company is focused on innovative and disruptive technology that converts intravenous medicines to be delivered subcutaneously (meaning injected into the skin, rather than into the veins) allowing for optimal dosage for patients and resulting in better outcomes.
In November, Halozyme repositioned itself from a novel oncology therapy developer to a biopharma technology platform company. This bold strategic move to cut ties with its oncology operations will provide long-term opportunities and guide it toward profitability. The company made an announcement of a leadership change at the Chief Financial Officer position last week and it has many catalysts this year that will offer strength in its goals toward long-term growth and profitability. These moves make Halozyme a great investment for years to come.
"Enhanze" for profitability
Halozyme's strategy to dedicate its resources to Enhanze, its key drug delivery technology platform, sets the company up for success.
Halozyme has established partnerships with leading pharmaceuticals and biotechnology companies including Roche (RHHBY 0.99%), Pfizer (PFE 0.50%), Johnson & Johnson's Janssen division (JNJ -0.89%), Baxalta (TAK 2.97%), and AbbVie (ABBV -0.47%). It supports its partners by speeding up clinical trial activity, and selling active pharmaceutical ingredients (APIs). This business model is highly profitable because it generates revenue from recurring royalty and milestones achieved by its partners and provides scalable operating expense models. In 2019, Halozyme received a $30 million upfront payment from argenx, with a $10 million milestone payment in Q2 2019, and potential future payments of up to $160 million if these milestones are achieved. The Enhanze technology platform have generated around 5% on net sales from royalties, upfront payments of $30 million to $40 million, 40% to 60% of $160 million from milestone payments and commercial payments, and 20% margin on bulk sales of API.
In order to maintain this success, Halozyme decided to restructure near the end of 2019. While these changes usually have some short-term consequences, it could lead to positive benefits for the company. Management expects the restructuring and cost-saving moves will save about $130 million to $140 million in 2020.
In the full year 2019, total revenues were $196 million, 29% higher year over year. In its Q4 earnings, the company reported a loss of $0.24 per share, missing EPS estimates by $0.06. Its Q4 revenue was $53.7 million, lower than analyst estimates by $1.5 million. In 2018, revenue was $60.2 million for the fourth quarter. Although total revenue was positive, the recent Q4 2019 earnings were lower than expected mainly from costs of restructuring and less revenue from royalties and upfront payments from a collaboration seen in 2018. The short-term effects of restructuring can actually benefit the company and its investors in the long run.
2020: Ambitious and promising
Halozyme's goals are quite ambitious this year and may show promise of growth for the company. The company expects total revenue of $230 million to $245 million, representing 17% to 25% growth for the company, as well as EPS on a generally accepted accounting principles (GAAP) basis of $0.60 to $0.75. Halozyme expects Q2 2020 to be its first sustainable profitable quarter this year. Although these goals are quite lofty, Halozyme can achieve these targets with the 19 products currently in clinical development or already commercialized by the end of the year.
Halozyme CEO Dr. Helen Torley expressed her confidence in the strategic move by noting, "As a result of our decisive actions, we expect to become sustainably profitable in the second quarter. In addition, we anticipate multiple events that will grow the value of our ENHANZE technology in 2020." She also said the 19 products in clinical development or already commercialized can allow Halozyme to achieve $1 billion by 2027. To achieve this ambitious goal of $1 billion in net sales by 2027, the company projects it will generate a royalty revenue at a compound annual growth rate of nearly 40% assuming that future products receive global approval and are successfully launched.
Strength in leadership
Halozyme announced a leadership change on Feb. 24. Beginning March 2, Elaine D. Sun will be senior vice president and CFO succeeding Laurie Stelzer, who was key in the 2019 restructuring.
Sun has an impressive background with tremendous experience in investment banking with key roles in strategy and financing transactions that were valued above $50 billion during her career. She was the former CFO and Chief Strategy Officer of SutroVax, a private biopharmaceutical company that focused on the development of vaccines to fight infectious disease. With $421.3 million cash at the end of 2019, her extensive knowledge and experience of corporate finance and merger and acquisition transactions will be quite valuable in leading Halozyme's goals for long-term growth and profitability.
Notable catalysts to watch
There are five catalysts of interest for investors:
- Q2 2020 is expected to be the company's first profitable quarter after the restructure.
- There are currently 10 clinical trials in phase 1 clinical trials, with five new products entering this phase from pre-clinical studies.
- Halozyme's partnerships will bring in one phase 2 and three phase 3 clinical trials.
- One potential regulatory approval for a partner's oncology treatment for multiple myeloma will be a catalyst in mid-2020 and expected to bring in revenue of $3.7 billion and forecasts $6.3 billion by 2024.
- One potential regulatory submission as well as a US approval of a partner's oncology treatment for breast cancer which analysts expect to generate $4.2 billion in sales this year and forecasts $5.4 billion by 2024.
Both of the potential regulatory approval and submission could offer Halozyme opportunities for long-term growth by boosting revenue streams through royalties, development and commercial milestone payments, and sales of API.
All five of these catalysts are key drivers of sustainable profitability and strong future revenue and EPS growth. Investors should continue monitoring this progress throughout the year. Halozyme's short-term declines from restructuring in 2019 and recent earnings are minor bumps in the road, but it is poised to provide investors long-term growth opportunities for several years to come.
Halozyme is strongly committed to allocating capital to its shareholders, and investors should expect continued developments such as platform expansions through M&A activity. Those considering Halozyme Therapeutics should add shares to their portfolio because the company's ambitious goals are achievable with the current plans set in place for 2020.