Roche reminds Halozyme investors where the money is

Yesterday’s US approval of Roche’s subcutaneous hyaluronidase-formulated Rituxan will serve as a reminder that Halozyme operates a revenue-generating business in addition to its higher-profile efforts to develop hyaluronidase as a pancreatic cancer treatment.

Indeed, signing non-exclusive licensing deals, along with royalties generated under existing tie-ups, amounted to a large part of Halozyme’s $147m sales last year. Still, investors must focus on binary R&D events, as the value of Halozyme’s profitable technology deals is unlikely to be reflected in its share price any time soon.

The idea behind the group’s non-exclusive deals, like the one on Rituxan, is to make an existing IV biological subcutaneous by combining it with Halozyme’s recombinant form of hyaluronidase, thus not only offering a more convenient formulation but also potentially allowing the originator to protect its franchise from the threat of biosimilars for longer.

The latter advantage might be the driver behind Roche’s desire to improve on IV Rituxan. This is because leukaemia/lymphoma patients will normally also be taking a cocktail of IV chemotherapies, so there is limited convenience benefit in making just the Rituxan element of their therapy subcutaneous.

Investment case

However, Halozyme’s investment case centres not on technology provision but on developing its own version of pegylated hyaluronan, PEGPH20, for combination anticancer use. The theory here is that some cancers accumulate hyaluronan, the elimination of which can help break down the immunosuppressive properties of the tumour microenvironment.

The most advanced application of this is in the roughly 30% of pancreatic cancer patients with high hyaluronan levels, in combination with Abraxane. Still, recent data failed to convince, with combined results of a two-part trial seeing the survival benefit seen in the first part vanish (Asco-GI – Pancreatic cancer field awaits sparse data, January 24, 2017).

On the tech licensing front two other Halozyme-partnered SC formulations are marketed: a version of Herceptin (Roche is Halozyme’s biggest single source of revenue) and one of Baxalta’s Hyqvia. Halozyme generates mid single-digit royalties on sales of these, and also has tie-ups covering Perjeta, Johnson & Johnson’s Darzalex, and on undisclosed Pfizer, Abbvie and Lilly assets.

Be that as it may, Halozyme’s R&D and administrative spending outstrips its revenues, and the company has in one instance traded the promise of future royalties for hard cash up front. This took the form of a $150m royalty-backed debt financing deal struck a year ago at an effective interest rate of around 10%, on royalties received from Roche and Shire.

Next year’s PEGPH20 catalysts include data from a phase II study in NSCLC and, crucially, a phase III pancreatic cancer trial. The hyaluronidase technology’s revenue-generating potential notwithstanding, Halozyme is by now fully geared towards biotech-type odds of R&D success.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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