Halozyme (HALO) has always had a story that’s easy to love, as its Enhanze drug delivery technology allows huge-selling treatments to be delivered intravenously in far less time than usual, saving tons of time, money and adding convenience, too, explains Mike Cintolo, editor of Cabot Growth Investor.
The firm makes money from milestone payments when a client signs up to integrate Enhanze with its treatment (the product still has to be taken through trials, and as it progresses earns more milestones), and those are solid money-wise ($48 million in Q3), but also lumpy.
The real attraction is Halozyme’s royalty stream, which currently is being driven by a couple of big sellers (including Darzalex from Janssen, a treatment for multiple myeloma).
Royalties totaled nearly $100 million in Q3, up 70% from a year ago — and with some new offerings likely to come online in the months ahead (an Enhanze version of a big-selling drug from Argenx was submitted for application in September), the top brass thinks royalties can surge 30% annually through at least 2027.
There have been some worries about patent expirations, but management continually brushes them aside for a few reasons (knowhow, a new enzyme that would extend protection, etc.), and big investors are thinking positively — shares put the finishing touches on a 21-month launching pad, breaking out on earnings and holding up so far.
Also, while we’re not valuation people, analysts see the bottom line up 26% to $2.75 per share, so the stock is at 19x those estimates (which we think will prove too low). We bought a half-sized stake and think it can do well if the market keeps improving. If you don’t own any, you can grab some here.