Seeking Alpha
Special situations, micro-cap, biotech, healthcare
Profile| Send Message|
( followers)  

Shares of Halozyme Therapeutics (Nasdaq: HALO) have been significantly underperforming the market following the commercial launch of flagship product Hylenex® in 2012. Hylenex is a recombinant formulation of the enzyme hyaluronidase, which degrades hyaluronic acid. The product has shown to increase the dispersion and absorption of other agents introduced to the blood stream along with Hylenex for up to 1-2 days, which implies that the product may have broad applications.

This is another name for Halozyme's ENHANZE delivery platform, which revolves around rHuPH20 (recombinant human hyaluronidase). Investors may note that the commercial performance of Hylenex has been subpar at best, and has not brought in nearly enough in sales revenue to bring the company into profitability. It is also discouraging to see that the product has barely gained any traction, although investors are not expecting the company to justify its valuation of ~$740 M without commercial application of the ENHANZE platform into specific indications and products.

The real potential for Halozyme in the medium term (maybe 1-2 years) comes from the application of this delivery platform to drugs that have already been widely used. Although Halozyme may not be as successful with its proprietary drug development programs, its partnered programs use ENHANZE with some very prominent drugs (and companies) which could result in substantial royalty and milestone fees later on.

One partnership to look at is the ongoing agreement between Roche (OTCQX:RHHBY) and Halozyme, which may apply rHuPH20 to as many as eight target compounds that are administered intravenously. While some of these drugs are in pill form, conversion into an IV/biologic form is simple and introduces small risks relative to the enhanced efficacy that rHuPH20 may offer.

Another deal, which seems to be captivating HALO's investors more so than anything right now, is the agreement between Baxter International (NYSE: BAX) and Halozyme regarding the development of HyQvia (HyQ) - a combination of subcutaneous immune globulin (IG) and rHyPH20. Baxter has essentially taken over the development program (and also funds all related expenses), although Halozyme is still entitled to both milestone payments and royalty fees.

This drug development program will target the primary immunodeficiency indication, which is an enormous pool of patients - 250,000 in the United States according to the Immune Deficiency Foundation. Depending on the pricing of products offered, this is a market worth at least $1B that hasn't been fully tapped.

Halozyme and Baxter investors were disappointed in August of last year (2012) after the FDA responded to the BLA submitted for HyQ with a CRL, although the rejection seemed a bit unfair as discussed in my last note on Halozyme. Despite the FDA's opinion, HyQ received a positive opinion from the European Medicines Agency's Committee for Medicinal Products for Human Use (OTCQB:CHMP) and is on track for a launch into the EU market.

The timing of the BLA resubmission isn't certain at this point, although I think Baxter should be able to address the safety issues brought up with the original BLA without another study. As noted previously, I also believe that the favorable opinion on HyQ given by the CHMP may help their case for approval.

The initial reaction to the rejected HyQ CRL was understandably negative for both companies, and has suppressed interest in HALO shares for quite some time, although it seems that there is some renewed interest after the company announced the initiation of a Phase II trial for PEGPH20 for the Pancreatic Cancer indication. The press release noted that 124 patients have been enrolled, and will receive gemcitabine and nab-paclitaxel with (or without) PEGPH20. Note that PEGPH20 is just a modified version of rHuPH20 that has a much longer half-life, which extends its "lifeline" in patients' bloodstreams.

The Takeaway

The PEGPH20 program can build Halozyme's reach into oncology indications significantly in upcoming years, along with the Roche partnership which will combine "standard" rHuPH20 with Roche's best oncology (and other) drugs. Investors may remain very focused on HyQ for now, although the long-term potential of Halozyme (and the basis for its relatively high valuation) is on the potential for rHuPH20 to become a very prominent drug delivery "platform." Sales for Hylenex have been depressing, although commercial success should come if Halozyme sees the ENHANZE platform used with other compounds that target specific indications.

Source: Renewed Buying Interest In Halozyme After Phase II Initiation