Halozyme Therapeutics Downgraded Amid Concerns Over Long-Term Value.

Halozyme Therapeutics' robust growth in revenues to $290.1 million, up 34% YoY, is masking potential long-term value issues. The company relies on its Enhanze platform for growth, and investors should consider whether this reliance is sustainable.

Halozyme Therapeutics, Inc. (NASDAQ:HALO) reported a significant increase in revenue during the third quarter of 2024, growing by 34% year-over-year (YoY) to $290.1 million. This robust growth is largely attributed to the company's Enhanze technology, which enables subcutaneous administration of drugs. However, this growth is masking potential long-term value issues that investors should consider.

Halozyme licenses out its Enhanze technology to earn milestone payments and royalties, with Vyvgart Hytrulo being a notable drug that utilizes this platform. Vyvgart Hytrulo is a blockbuster drug for generalized myasthenia gravis (gMG) marketed by Argenx (ARGX). However, Halozyme's reliance on Enhanze is a concern due to the expiration of its core patent in 2027. This patent expiration could significantly impact the company's ability to secure new partnerships and maintain long-term growth.

To mitigate this risk, Halozyme is shifting its focus to MDASE, a new technology that is allegedly distinct from Enhanze. The company has made investments in a "new high-yield rHuPH20 manufacturing process" and the development of a "new rHuPH20 with extended room-temperature stability." This next-generation Enhanze offering potentially provides patent protection until 2034 in the U.S. However, the company's focus on litigation rather than partnerships for MDASE raises questions about its long-term growth prospects.

Halozyme's first quarter 2025 earnings results showed revenue increasing by 35% YoY to $265 million, with EBITDA of $162 million. The company raised its full year 2025 guidance to $1.2 billion to $1.28 billion, implying year-over-year growth between 18%-26%. Despite this growth, the company's valuation appears to be priced for modest growth, with a forward P/E of 6.56 compared to a sector median of 26.72 [1].

The company's reliance on Enhanze for growth is a double-edged sword. While it has provided robust and high-margin growth, it also exposes Halozyme to significant risks related to patent expiration and the potential for generic competition. The company's focus on MDASE as a mitigation strategy is promising, but the lack of clarity on its long-term prospects and the ongoing legal spat with Merck (MRK) over its MDASE patents raise concerns.

In conclusion, while Halozyme's robust growth in revenues is impressive, investors should consider the potential long-term value issues associated with the company's reliance on Enhanze. The company's shift to MDASE is a positive step, but its success in this area will be crucial for Halozyme's long-term prospects. Until these long-term issues are sorted out, investors should approach Halozyme with caution.

References:
[1] https://seekingalpha.com/article/4801169-halozyme-is-robust-growth-masking-a-long-term-value-trap-rating-downgrade