BST Trade Alert: March 7, 2013
March 7, 2013
Recommendation:
Buy Halozyme Therapeutics (NASDAQ: HALO) up to $6.00 per share.
About the Company:
Many of you will probably have fond memories of Halozyme Therapeutics. After all, we more than doubled our money the last time we traded this exciting biotech.
It was certainly one of the biggest winners we’ve had in the portfolio.
But if you missed out on HALO the first time around, there’s no need to kick yourself. You’re going to get a chance to make big money on this stock right now.
You see, fate has offered us another opportunity to profit on HALO.
The biotech’s shares have fallen dramatically from their 52-week high, and the company has a potentially huge catalyst on the horizon. A catalyst that could send the stock soaring into the stratosphere.
We’ll tell you all about it in just a moment.
But first, we’d like to introduce you to the company…
Halozyme is not your typical biotech. It’s a science-driven company with a broad mission statement… “make molecules into medicines for patients in need.”
The key to the company’s success is its technology.
HALO’s research focuses primarily on human enzymes that alter the extracellular matrix, a complex matrix of proteins and carbohydrates surrounding a cell. The matrix provides structural support in tissues and orchestrates many important biological activities, including cell migration, signaling, and survival.
Based on this research, HALO develops enzymes that can be used to facilitate the delivery of injected drugs and fluids. This drug delivery technology can enhance the efficacy of existing drugs or alter abnormal tissue structures for clinical benefit.
As such, the company’s pursuing a two-pronged development strategy.
They’re developing proprietary drugs for major diseases like diabetes, cancer, and skin disorders. And they’re collaborating with industry-leading drug companies to develop new versions of existing drugs that incorporate HALO’s drug delivery technology.
In fact, HALO currently has co-development partnerships with drug industry heavyweights Hoffman La-Roche, Pfizer, Baxter Healthcare, and ViroPharma. These partnerships could be worth billions to HALO if they’re successful.
And what’s more, HALO is in a solid financial position.
The company has $100 million in cash on the books with a projected net cash burn rate of $45 to $50 million for all of 2013. In other words, HALO has twice the amount of cash needed to fund its operations and clinical programs this year.
That’s perfect for our trade.
Halozyme is clearly a biotech with the technology and resources to be a huge success. Let’s take a closer look now at one of their leading drug candidates that has a major upcoming catalyst.
About the Product:
The drug we’re focusing on for our trade is PEGPH20. It’s a new molecular entity being developed for the systemic treatment of solid tumors that accumulate hyaluronic acid (HA).
PEGPH20 is based on rHuPH20, Halozyme’s patented and FDA approved human recombinant hyaluronidase enzyme. rHuPH20 temporarily breaks down HA, a naturally occurring substance in the extracellular matrix found in skin and cartilage.
This temporary degradation of HA is key.
It creates an opportunistic window for the improved subcutaneous delivery of injectable drugs. In fact, HALO believes rHuPH20 can be used as a drug delivery platform to increase dispersion and absorption of other drugs and fluids that are injected under the skin or into a patient’s muscle.
PEGPH20 is created from rHuPH20 by simply attaching polyethelene glycol.
This small change, however, has a major effect.
One novel property of PEGPH20 is that it lasts for an extended time in the bloodstream. This makes it useful for maintaining the therapeutic effect needed to treat systemic disease.
In fact, HALO believes PEGPH20 has potential to help patients with various types of cancer, including pancreatic, lung, breast, colon, and prostate cancers.
These types of cancers tend to produce tumors with high levels of HA. By depleting HA from these tumors, PEGPH20 helps open constricted blood vessels to allow anticancer therapies to have greater access to the tumor.
In this way, PEGPH20 should enhance chemotherapy’s treatment effect.
But that’s not all…
HALO believes the increased blood flow to a tumor produced by PEGPH20 can also enhance radiotherapy’s treatment effect. And the biotech has generated data showing that disrupting the environment around a tumor with PEGPH20 alone may also directly inhibit tumor growth.
As you can see, PEGPH20 is a versatile molecular entity with several paths to potential FDA approval. And it has potential to treat a variety of different cancers.
These characteristics greatly increase PEGPH20’s potential market value.
So, what’s happening with PEGPH20 right now?
The drug is currently being tested in a phase 2 clinical trial in combination with gemcitabine and abraxane (chemotherapy agents) as a treatment for advanced pancreatic cancer. Initial data from the trial is expected during the first half of 2013, with final results expected by year’s end.
About the Market for This Drug:
The US has the largest population of pancreatic cancer patients in the world. There are approximately 43,000 such patients in the US currently.
According to the American Cancer Society, about 45,000 new cases of pancreatic cancer are diagnosed each year, and roughly 38,000 patients die from the disease annually. They also report that the rate of pancreatic cancer has been slowly increasing over the past 10 years.
Gemcitabine is the primary treatment for pancreatic cancer. However, Celgene recently won FDA approval of its new treatment, Abraxane. Prior to the entry of generic drugs, gemcitabine generated sales of over $1 billion a year.
Clearly, PEGPH20 has blockbuster potential for the treatment of pancreatic cancer. But don’t forget, it also has potential to treat several other forms of cancer.
That means PEGPH20 could have multi-blockbuster potential.
About the Potential Catalyst:
Initial data from the phase 2 trial of PEGPH20 in combination with gemcitabine and abraxane are expected during the first half of 2013. Final results from the trial are projected to be available by the end of this year.
About the Shares:
After hitting a 52-week high of $13.50 in March 2012, HALO fell off a cliff and tumbled sharply. The shares declined for several months before bottoming out at $3.86 in July.
But since hitting that low, the stock has been moving higher in an uptrend. In fact, it’s gained 42% off the 52-week low.
That’s a nice move for sure, but we think HALO still has a ton of upside potential from here. And we’re not the only ones. A BMO Capital market analyst recently upgraded the stock to outperform and tripled his price target to $12 per share.
In other words, the analyst expects HALO to rise by 119% from current levels.
We believe HALO offers a great opportunity at the current price for huge gains this year. Go ahead and grab your shares now. This is one potential biotech rally you don’t want to miss.
Key Facts:
| Company: | Halozyme Therapeutics |
| Ticker: | HALO |
| Recent Price: | $5.46 |
| Market Cap: | $613 million |
| Avg. Daily Volume: | 678,170 shares |
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Category: BST Trade Alert
