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Why Halozyme Therapeutics Inc Plunged 51% in January

By Brian Feroldi – Feb 6, 2016 at 7:06AM

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It was a rough month for the human-enzyme specialist.

What: Investors in human-enzyme specialist Halozyme Therapeutics (HALO -5.00%) had a month to forget, as its shares lost 51% of their value in January, according to data from S&P Capital IQ.

HALO Chart

So what: With a drop like that, you'd expect that the company had a clinical trial go horribly wrong; but the month actually contained a number of positive releases:

  • The company entered into a $150 million credit agreement with its partners Roche and Baxalta, backed by its future royalty payments that it's entitled to receive from sales of Herceptin SC, MabThera SC and Hyqvia.
  • Halozyme announced its first clinical dosing of AbbVie's (ABBV -1.98%) Humira using its Enhanze technology. The dose triggered a $5 million milestone payment from AbbVie to Halozyme. If this collaboration works out, it could be entitled to a total of $130 million in additional payments, plus tiered royalty payments based on net sales. 
  • The company presented at the JP Morgan Healthcare conference, where it shared its plans for the year, which included the initiation of a Phase 3 study using its PEGPH20 product candidate in conjunction with Abraxane as a potential treatment for metastatic pancreatic cancer patients. When added to its other clinical programs, the company expects to spend $240 million to $260 million, which will allow it to end 2016 with a cash balance of $140 million to $160 million.

Now what: While shares drifted lower all month long, they really took a tumble after the company provided its financial guidance for 2016, which suggests that the market was taken aback by the company's huge spending plans for the year ahead. For perspective, at its meeting last year, the company stated that it planned on spending roughly $150 million during the year, so you can see that this year's spending plan will add roughly $100 million to that number.

Only time will tell if the company's huge ramp in spending will pay off in the long run, but given that Halozyme has already made believers out of many of the giants in the space -- AbbVie, Roche, Baxalta, and many more have already signed on as partners -- I'm inclined to give them the benefit of the doubt for now.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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