Baxter’s Earnings Call Reveals Good News For HALO

Baxter International (BAX) reported financial results for the fourth quarter and full-year 2012, and in a conference call following the press release, expressed confidence that HyQvia, a subcutaneous (SC) version of Baxter’s blockbuster Gammagard product, is up for European approval in the first half of this year. HyQvia leverages Halozyme Therapeutics’ (HALO) enzyme technology, and because the FDA wanted more information about the drug’s safety before approving it, HALO analysts have taken sales for HyQvia out of their short-term estimates. Essentially, most HALO investors and analysts have forgotten about the E.U. application for HyQvia, and as news of the Baxter conference call comments gets out, many will scramble to put sales back into their 2013 and 2014 estimates. The read through on the E.U. opportunity in the near-term could also spur analysts to gain confidence in the potential for U.S. approval. Halozyme is due mid single-digit royalties on sales of HyQ as well as milestone payments, which may include approval of the product in the EU. However, because of the FDA’s questions on the drug, some analysts have written off these milestone payments and royalties entirely. The FDA responded to Baxter’s New Drug Application (NDA) for HyQvia with a Complete Response Letter (CRL) in 2012, requesting answers to a number of long-term safety questions. But according to Baxter, the European Medicines Agency will make a decision on the treatment in the first half of 2013 based on the current data package. Halozyme has a number of catalysts in the next 12 months, namely the likelihood of EU approval for two Roche-partnered drugs, SC Herceptin and SC MabThera, which are also new versions of blockbuster drugs. HALO’s recent partnership with Pfizer (PFE) has reignited interest in the stock, and the company has indicated that more partnerships for its unique and valuable platform technology are anticipated later this year. In the first half of 2012, HALO hit a high of $13.50, and with the business firing on all cylinders now, essentially the same story as last year but more advanced, we would not be surprised to see the stock get back into the double-digit range.

HyQvia to be factored back into HALO; currently, it’s not in the stock. Since the FDA issued the CRL for HyQvia in 2012, investors and analysts have largely discounted the value of this potential blockbuster drug. This is because of the lack of clarity Baxter has given with regard to what really needs to be delivered to FDA for a U.S. approval of HyQvia (FDA requested pre-clinical studies, which Baxter will discuss with the agency in 2Q13). Because visibility on a potential U.S. approval has gone away, many have lost site of the EU opportunity for the product. As news of Baxter’s advancement of this asset in the EU becomes more well-known and visible, we expect analysts to take up numbers and begin to add back the potential for U.S. approval, hence a trade up for the stock. Right after the BAX earnings call, the shares traded higher but lost momentum. We believe that as analysts recognize this news and publish about HyQvia’s advancement in the E.U., HALO shares will at least go back to levels right after the BAX conference call, and could trade even higher. Analyst price targets for HALO have been moving up in recent weeks, with the current price target average at $10/share. It is likely that price targets for this company will continue to rise as key catalysts unfold throughout the year. Expect shares of HALO to remain strong on Baxter’s HyQvia update. And read more of PropThink's coverage of Halozyme by clicking here.

In connection with HALO, PropThink has taken a Long position.