Halozyme: A "Better Mousetrap" in Drug Delivery

11/24/2020 5:00 am EST

Focus: HEALTHCARE

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

We’re really intrigued by is Halozyme (HALO), which has a better mousetrap when it comes to drug delivery, asserts Mike Cintolo, editor of Cabot Growth Investor.

Thanks to its Enhaze technology, the firm’s platform uses a proprietary enzyme that breaks down some barriers to bulk fluid flow just below the skin, allowing for increased absorption and dispersion of relatively large amounts of therapeutics in subcutaneous injections.

There are many benefits, especially quicker treatment time (three to five minutes instead of many hours), potential to combine two therapeutics into a single injection and potentially extending dosing intervals.

It looks like a hit, and Halozyme has partnered with a ton of big names (Roche, Pfizer, AbbVie, Alexion, J&J, Eli Lilly, and others) that are using Enhaze in concert with specific drugs. All in, nine trials should begin this year and others are moving along nicely.

Halozyme gets upfront and future milestone payments from these partnerships, and that makes up most of the top line today; it believes it will collect $280 million or more of one-time payments during the next two years.

And, of course, once products hit the market, Halozyme earns mid-single-digit royalties. In Q3, royalty revenue was $24 million (up 44% from a year ago), but if all goes well, management thinks it could earn $1 billion annually just from royalties!

Of course, we would never invest based on seven-year projections, but the fact is Halozyme is growing fast today (revenues up 30% this year, with a 57% expected rise in 2021) and is very profitable already (84 cents per share this year and $1.74 expected next) as milestone payments gush in near-term with royalties accelerating down the road.

The stock is also growing up, lifting out of a multi-year base this year and really getting going this month as big investors (477 funds own shares, up from 356 a year ago) jump onboard. It’s a bit thinly traded, but we’d be tempted to start a position on any shakeout. For now, we consider this a stock to watch.

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