After a lengthy period of rather bearish trading for pharmaceutical company Halozyme Therapeutics (NASDAQ: HALO), shares of the company moved up quite violently last week after it was announced the European Medicines Agency's Committee for Medicianal Products for Human Use (EMA CHMP) finally granted a positive opinion to partner company Baxter International's (NYSE: BAX) drug HyQvia (HyQ) - a combination of human immunoglobulin and Halozyme's recombinant human hyaluronidase. The immunoglobulin produces the therapeutic effect in patients with immunodeficiency while the recombinant hyaluronidase facilitates dispersion and absorption of the active ingredient.
According to the company, HyQ has a few advantages over its competitors which are quite compelling. Due to the combination with Halozyme's proprietary deliver platform, HyQ only needs to be administered monthly while other subcutaneous formulations require weekly infusions in multiple sites. This actually represents a very significant improvement in the treatment of immunodeficiency with immunoglobulin, and gives HyQ potential for very deep market penetration in a market worth over $5 billion in annual revenues.
I think the positive CHMP opinion of Baxter and Halozyme's HyQ indicates that the drug could be quite successful in Europe when it hits the market later this year, which provides Halozyme with appreciable revenue potential in 2014.
I also believe that the CRL that Baxter received in 2012 regarding HyQ's BLA was more of a nitpick over the data presentation than a true rejection of the drug's risk/benefit profile, which implies that it has very favorable chances at approval the second time around. Although the FDA and the EMA are not the same entity, I also believe that the positive CHMP vote will help to instill confidence in HyQ's BLA resubmission for both the FDA and for Halozyme (and Baxter's) investor base.
The CHMP vote seemed to fairly account for the fact that the phase III trial conducted for HyQ revealed no real safety concerns around the drug, which presented a much more efficient and convenient product for immunoglobulin delivery to patients. Although adverse events were quite common in the phase III trial conducted by Baxter, one has to consider that the bulk of them were just the infusion site reactions that 20% of patients experienced. Basically, there is no sign that Halozyme's hyaluronidase facilitator does any serious harm to anyone.
If you consider that HALO almost rallied to $13/share prior to the PDUFA goal date on the original BLA submission for HyQ, it's not hard to say that the stock could have a lot more upside after rallying to $6.90/share last Friday. While investors will want to see clarity regarding Baxter's resubmission, along with a new PDUFA goal date to look forward to, the good news out of Europe should lead more investors to bet in favor of the BLA submission as mentioned earlier.
Halozyme should probably regain and hold at least $7/share for quite some time, with much greater upside potential following clarity on HyQ's approval status in the United States. While it may be a tight squeeze, we might see Halozyme in earnings positive territory as early as next year if HyQ sees clean approval and market launches in Europe and America. We should also see additional revenue from milestone payments after HyQ receives approval.
Investors should also note that Halozyme has seen great success with its delivery platform, which has resulted in a few big pharma partnerships with the possibility of more later this year. Perhaps the most notable, and relevant in the next year or so, is the deal with Roche for Herceptin & MabThera. These tap very nicely into the oncologic drug market, and provide Halozyme with potential milestone payments in the near future given their approval.
HyQ, Herceptin SC, & MabThera SC are the three development programs that Halozyme investors want to watch most closely for the rest of this year as implied with earlier statements. These will bring HALO the potential milestone payments and royalty revenues needed to not only bring the company into profitability, but to fund the company's other projects in earlier stages of development.
While I believe hyaluronidase has proven to be a safe and useful improvement for drug delivery based on existing data, it's possible that we may see the FDA reject the BLA/NDAs submitted for these development programs for various reasons. If this happens, naturally we'd expect HALO to take damage from the disappointment. Having said this, I think the odds are in favor for HALO shareholders - particularly for HyQ.