08. Halozyme Therapeutics, Inc. (NASDAQ:HALO)
Price Reaction after the Downgrade: +0.31(+0.61%)
On June 7, Piper Sandler made a significant adjustment to its assessment of Halozyme Therapeutics, Inc. (NASDAQ:HALO), downgrading the company from an optimistic Overweight to a more neutral Neutral rating. Despite this downgrade, Piper Sandler raised Halozyme’s price target from $48 to $51. The decision was prompted by a notable rally in Halozyme Therapeutics, Inc. (NASDAQ:HALO) stock, which had already reached the updated price target. Piper Sandler indicated that the current stock price adequately reflects the near-term outlook for Halozyme’s ENHANZE business, even after factoring in recent positive developments such as obtaining a new European patent for its ENHANZE technology and an increase in the EU Darzalex royalty rate.
Halozyme Therapeutics, Inc. (NASDAQ:HALO) stock opened at $50.85 on the day of the downgrade, demonstrating robust performance over the past year. With a market capitalization of $6.55 billion and a price-to-earnings (P/E) ratio of 21.26, Halozyme Therapeutics, Inc. (NASDAQ:HALO) has emerged as a significant player in the pharmaceutical industry. The company recently reported strong Q1 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $0.71 and revenues totaling $195.88 million. Analysts remain optimistic about Halozyme Therapeutics, Inc. (NASDAQ:HALO) financial health, forecasting a full-year EPS of $3.44, indicating continued confidence in the company’s prospects.
However, despite these positive financial indicators and recent developments, Piper Sandler opted to downgrade Halozyme’s rating. The firm emphasized that while the recent updates are indeed beneficial, the current stock price already reflects these improvements. Moreover, Piper Sandler noted that substantial contributions from new products are not anticipated until 2025, prompting the downgrade to a Neutral rating. Following the downgrade by Piper Sandler, the market reaction was somewhat subdued, with Halozyme Therapeutics, Inc. (NASDAQ:HALO) stock price experiencing a modest increase of 0.61%. Nevertheless, the stock closed at $51.16 on June 10, reflecting ongoing investor uncertainty regarding the company’s future trajectory amidst the recent rating adjustment.
Laughing Water Capital stated the following regarding Halozyme Therapeutics, Inc. (NASDAQ:HALO) in its first quarter 2024 investor letter:
“Starting with the recent positive industry developments, in early February it was announced that Novo Holdings would be purchasing Catalent Inc. (CTLT), a publicly traded CDMO, for $16.5B. Novo Holdings would then sell three fill-finish sites to Novo Nordisk for $11 billion. The fill-finish assets are the real prize here, as Novo Nordisk is the manufacturer of blockbuster weight loss drugs Ozempic and Wegovy, and there simply is not enough global fill-finish capacity to meet the demand for these drugs.
This transaction also has the potential to be hugely positive for Avid Bioservices, but in a different way. Avid’s largest customer is Halozyme Therapeutics, Inc. (NASDAQ:HALO), who has traditionally split their business between Avid and Catalent. While this business is not likely to be forced to leave the Novo-Catalent facilities as is the case with the fill-finish business, Novo Holdings and Novo Nordisk are both involved with products that are seen as competition for HALO’s products, and industry whispers are that HALO is not pleased with the idea of outsourcing the production of their drug substance to their competition. As such, HALO may seek to take their business away from Novo-Catalent. HALO is thus presented with a choice. They can either a) choose a new CDMO and go through an FDA review to move their production or b) they can move more production to Avid Bioservices, which would not require FDA approval. There are of course sole source risks to be considered, but it seems likely that Avid could pick up meaningful incremental business.”
