Wells Fargo initiated coverage with $65 price target | HALO Message Board Posts

Halozyme Therapeutics, Inc.

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Msg  809 of 809  at  11/29/2022 7:56:41 AM  by


 In response to msg 808 by  Biotech2050
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Re: Wells Fargo initiated coverage with $65 price target

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Halozyme Therapeutics, Inc. (HALO)
HALO: Own This Anti-Patent Cliff Company, as There Is Much Life Beyond 2027—Initiating at Overweight with $65/sh PT
Our Call
Seven Reasons to Own HALO : 1) Profitable, high-growth company with earnings power to grow at 21% CAGR through the end of the decade; 2) investors are overly focused
on 2027 IP concerns—our patent analysis suggests multiple products/pipelines having protection into mid-2030s; 3) five core products explain much of current value at $51/ share, while multiple others in development represent free call options; 4) incremental IP protection for combination products would be upside; 5) progress over 2023 on early-
to mid-stage pipeline would help create upside; 6) growth potential beyond 2030, as multiple products are expected to launch from now till the end of the decade, 7) HALO will likely remain Big Biopharma's partner of choice post-2027 as well due to its proven track record of safety and established regulatory pathway lowering development risk. Initiating coverage with an Overweight rating and $65/share price target (DCF-based).
Five Core Products Explain Much of the Valuation, and They Are All IP Protected Long Term: 2022 has been good for HALO, which is up 36% YTD (vs sector index BTK down 6% and S&P 500 down 15%). HALO's stock remains undervalued, as more than 100%
of current value can be explained by its marketed products and a de-risked late pipeline including Tecentriq, Opdivo, and Ocrevus. While investors worry about the 2027 IP cliff, all the currently marketed product and this pipeline, except for Efgartigimod, are patent- protected well beyond 2027. Combo IP for major products like Darzalex, Tecentriq, and Opdivo will likely last till 2035, and Phesgo till 2038. These 4 royalty streams combined could be worth $49/sh for HALO on an unadjusted basis and $44/sh on an adjusted basis. Ocrevus combo IP goes till 2030, which could add another $7-8/sh adjusted and $11/sh unadjusted. Overall, unadjusted, these 5 products could be worth $60/sh, a conservative estimate, as we model a 10% annual decline for subq products once IV patents expire, which we view as unlikely.
Differentiated Subq Safety and Established Regulatory Pathway Should Keep Partners Interested Well Beyond 2027: HALO has a proven track record, having helped partners launch multiple products on the market — Darzalex has been hugely successful, with 85% conversion thus far. All commercialized products have been able to gain extended
IP protection as well. HALO's value comes from its proven track record of safety and established regulatory pathway. This could help delay biosimilar uptake, even without incremental IP protection and is a reason partners are still working on many combo products, even beyond 2027. We conservatively model low 2.5% royalties for 10 years for all mid-to-early pipeline products, but note upside potential, as some of these products may have longer protection; Antares represents upside.
Please Ask for Our Model: Based on its attractive platform, HALO has drawn Big Biopharma partners, including Roche, JNJ, Pfizer, Lilly, BMS, and argenx, to name a few. The royalty structures vary, based on the IP protection of the individual product. Our model reflects both the IP protection and potential royalty streams for the mid- to late- stage products, and our HALO APP can leverage scenario analysis to dynamically respond to various assumptions like the length of royalty streams, royalty payouts, and biosim erosion when core IV patent expires, impacting the DCF. Currently, our FY22/23 revs and EPS are $679M/$905M and $2.19/$2.41, respectively.

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