Chronic Disease Trends Will Ignite Subcutaneous Drug Delivery

Key Takeaways

• Surging partner launches and healthcare trends drive faster-than-expected royalty and product growth, with consensus underestimating Halozyme's market penetration and recurring revenues.
  
• Strategic pipeline shifts and expanding eligibility for biologic transformations position Halozyme to dominate drug delivery standards and extend high-margin revenue streams into future decades.
  
• Reliance on a narrow partner base, mounting legal challenges, industry shifts, and drug pricing reforms threaten ENHANZE exclusivity, long-term royalties, and sustained revenue growth.

Catalysts

A biopharmaceutical company, researches, develops, and commercializes of proprietary enzymes and devices in the United States and internationally.

• Analyst consensus anticipates robust royalty and revenue growth from ENHANZE's expansion, but current guidance may still materially understate the pace and magnitude of upward inflections, given that nearly every quarterly forecast in the past year has been raised and partner launches are consistently outperforming original expectations, signaling significant upside risk to royalty revenues, EBITDA, and earnings.
  
• Analysts broadly agree on the long-term value of at-home drug delivery via subcutaneous and auto-injector platforms, but this trend is likely to accelerate far faster and further than forecast as the healthcare system and payers globally embrace outpatient, patient-centric biologics administration-driving both royalty revenue and high-margin product segment growth at a pace consensus has yet to fully capture.
  
• Halozyme's pipeline development strategy is shifting toward the majority of new ENHANZE-enabled assets being launched as subcutaneous from the outset, rather than as IV-to-subcu conversions, greatly increasing "stickiness" of royalty streams and positioning the company to dominate the drug delivery standard for new biologics classes, which will significantly expand long-term recurring revenue and extend royalty duration into the 2040s.
  
• The company's leading platform is uniquely leveraged to capture outsized benefits from the unprecedented, global growth in chronic disease prevalence and biologic therapies; as more blockbuster drugs and new therapeutic categories (such as neurology, autoimmune, and potentially Alzheimer's) become eligible for subcutaneous transformation, Halozyme's total addressable market and partner pipeline should continue to expand, driving higher peak royalty and revenue potential than currently modeled.
  
• Resolution or favorable settlement of the high-stakes IP litigation against Merck could create a major, unmodeled windfall, unlocking material new royalty streams and validating Halozyme's foundational patent portfolio, with the potential for immediate positive impacts on both revenue and long-term earnings as new licensing arrangements are secured.

Halozyme Therapeutics Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Halozyme Therapeutics compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Halozyme Therapeutics's revenue will grow by 22.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 47.3% today to 52.0% in 3 years time.
• The bullish analysts expect earnings to reach $1.1 billion (and earnings per share of $9.55) by about August 2028, up from $557.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.4x on those 2028 earnings, down from 13.0x today. This future PE is lower than the current PE for the US Biotechs industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

Halozyme Therapeutics Future Earnings Per Share Growth

Risks

• Persistent legal risks, including ongoing patent litigation and multiple patent challenges by Merck at the PTAB, threaten the long-term exclusivity of ENHANZE technology and could ultimately erode future royalty revenue and compress long-term earnings should any key patents be invalidated or found unenforceable.
  
• Overdependence on a small number of major licensing partners such as Roche, Johnson & Johnson, and argenx makes Halozyme's revenue base vulnerable to changes in partner strategies, therapy displacement by biosimilars or generics, or loss of any single major license, risking substantial revenue declines and increased earnings volatility.
  
• Secular trends toward global drug pricing reform, cost containment measures, and policy changes such as the US Inflation Reduction Act (IRA)-especially with uncertainty over future CMS guidance-could reduce royalty rates, product reimbursement, and ultimately limit revenue growth and impact long-term net margins.
  
• The potential saturation of ENHANZE technology-already heavily adopted on blockbuster therapies-combined with the projected expiration of key ENHANZE patents in the 2030s, raises the risk of slower topline growth, increased competitive pressure, and shrinkage in high-margin royalty streams as biosimilars and alternative delivery platforms proliferate.
  
• Industry shifts toward alternative drug delivery routes, such as the growing pipeline for oral biologics and next-generation platforms, may reduce the clinical relevance of subcutaneous injection technologies over the next decade, leading to reduced adoption of ENHANZE and declining revenues from new deals and pipeline expansion.

Valuation

• The assumed bullish price target for Halozyme Therapeutics is $91.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Halozyme Therapeutics's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $91.0, and the most bearish reporting a price target of just $51.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $62.1, the bullish analyst price target of $91.0 is 31.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.