Upside in HALO; Roche Filing, Milestone Payment, and Data

Halozyme Therapeutics (NASDAQ:HALO) announced on Saturday that its partner Roche (OTC: RHHBY) submitted its European application to market subcutaneous (SC) MabThera, also known as Rituxan. The submission triggered a $4M milestone payment to HALO, and indicates that the drug, which incorporates the company’s drug delivery technology to allow subcutaneous dosing, as opposed to IV infusion, could launch in late 2013. MabThera (also known as Rituxan) is one of Roche’s largest products, with over $6B in annual sales, and HALO is entitled to a mid-single digit royalty on sales of the new formulation. Roche has an interest in converting most of the product’s sales to the new formulation in order to protect against future generic competition. The advantages of SC MabThera should enable much of the sales base to convert from the old formulation.

To that end, Roche presented positive data from two clinical studies of SC MabThera over the weekend at the American Society of Hematology (ASH) meeting in Atlanta GA. Both trials showed that SC MabThera was able to be delivered in approximately five minutes (vs. several hours for the current MabThera IV infusion) without compromising efficacy and safety. The convenience benefit for patients is significant, in addition to the advantages for doctors and infusion clinics, which will be able to treat more patients throughout the day. Roche’s SC MabThera and SC Herceptin (EU approval expected in 1H 2013) alone are estimated to be worth $7 per share to HALO (see prior article here). Considering HALO’s current stock price and that the company has several other partnerships and pipeline products, including a potential blockbuster treatment for pancreatic cancer, the stock is undervalued. Expect HALO to strengthen on the SC MabThera filing, with further upside as the launches of both SC Herceptin and MabThera move closer.