Goldman Sachs Downgrades Halozyme Therapeutics (HALO) to Sell 'as we approach peak revenue'

Goldman Sachs analyst Corinne Jenkins downgraded Halozyme Therapeutics (NASDAQ: HALO) from Neutral to Sell with a price target of $56.00.

The analyst comments "We downgrade HALO to Sell from Neutral with a 12-month price target of $56 (14% downside vs. 7% average upside across our coverage). We view a key debate for HALO to be the terminal value of its Enhanze business model where despite attractive near-term royalty growth, we see a significant revenue cliff in 2030+ that is unlikely to be filled by additional business development from here (we note ~70% of modeled royalties will go off contract in 2030-2035). Within, we value the company’s base business of Enhanze royalties and explore potential sources of upside to our base estimates (higher product revenue/conversion on existing partnerships, new partnerships), finding upside to HALO shares from here only under select blue sky scenarios. Further, we view that the implied terminal value embedded in HALO shares today overestimates the company’s business model beyond current partnerships, where we estimate a 38% decline in revenue from 2030-2041E, which would require ~$34B in new partner product revenues by 2041E to support current valuation levels (in our view). This is a target that we believe is unlikely to be met via HALO's historical and guided ~1 deal/year cadence, even following the recently closed Elektrofi acquisition. Finally, we note that precedent patent cliffs reveal multiple compression on the pharmaceutical sector begins ~5 years prior to peak sales, which we estimate in 2031E for HALO (per existing royalty contracts), and we therefore anticipate a decline in HALO's current P/E multiple from 10.5x over the intermediate term."

For an analyst ratings summary and ratings history on Halozyme Therapeutics click here. For more ratings news on Halozyme Therapeutics click here.

Shares of Halozyme Therapeutics closed at $64.66 yesterday.

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