Halozyme

The top three investment angles for Halozyme are that, one, it is a small company with an approved product, two, its Enhanze platform is partnered with a number of large biotech and generates royalties, and three, it has a late stage pipeline with strong potential.

Halozyme (HALO) is a biotech company with a combination of pipeline drugs and approved products (Hylenex).  The company’s most interesting product candidate is PEGPH20 for pancreatic cancer.  Halozyme is expecting to announce mature response rate and progression free survival data from its phase 2 second stage study in the fourth quarter, while dosing in phase 3 has already started.  The company is already generating revenue and has guided $140 - $150 million in revenue for 2016.  This should reduce the need to raise money going forward.  Additionally, the company is partnered with Roche, Baxalta, Pfizer, Janssen, Abbvie, and Lilly.  Chart-wise, shares have sold off huge due to the biotech index being weak.  It’s high on my watch list here around $10.

Hylenex - the Product

Hylenex recombinant is a formulation of rHuPH20 that has received FDA approval to facilitate subcutaneous fluid administration for achieving hydration, to increase the dispersion and absorption of other injected drugs and, in subcutaneous urography, to improve resorption of radiopaque agents. Hylenex recombinant is currently the number one prescribed branded hyaluronidase. Hylenex and other products make about $45mn for the company.

Enhanze- the Platform

Enhanze platform’s core is rHuPH20, a patented recombinant human hyaluronidase enzyme, which can temporarily break down hyaluronan (or HA), allowing drugs to access tumor cells, improving subcutaneous delivery of injectable biologics, such as monoclonal antibodies and other large therapeutic molecules, as well as small molecules and fluids. For example, Roche’s Herceptin now takes 2 to 5 minutes to deliver using Halozyme’s technology, which earlier used to take 90 minutes in IV form.

The platform has 4 royalty-earning products and 6 global licensing arrangements with total potential sales of $30bn by 2025. Of these, Herceptin SC, MabThera SC and HyQvia, with sales of over $4bn, $3bn and $150mn respectively, are the leading products currently paying royalties with a 48% CAGR in 2015.

PEGPH20 - the Pipeline

PEGPH20 with an FT and ODD, is currently in late stage trial for pancreatic cancer. The drug targets Hyaluronan, which is a scaffold that limits therapeutic access to cells, from both drugs and tumor cells. PEGPH20 targets Hyaluronan, and in animal models it has shown better access to tumor killing immune cells.

PEGPH20 is currently in phase 3 trial. The trial, HALO-301, targets HA-high pancreatic cancer patients, with the first patient having been dosed in March this year. Interim data is expected later this year, or in early 2017, and will be a major catalyst for the stock.

Peak sales estimate is about $1.5bn by 2027.

Financials

The company has approximately $190mn in cash as of August 2016. It has a market cap of just above $1bn, and the stock was trading near its 52-week low, due to the downturn biotech market, at the beginning of this month, when I started tracking this stock. It has gone up by about 50% since, but in my opinion, still not attained full potential.

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Aralez Pharma

Aralez just received approval for Yosprala, it has a set of revenue-making products, and two important new acquisitions. It has a lot of debt, but it is using the money constructively. CEO Adrian Adams has a long history of M&A in smallcaps which he led.

Aralez just got Yosprala approved by the FDA. Yosprala is a fixed-dose combination of aspirin and omeprazole, a generic stomach remedy.

Aralez acquired Zontivity from Merck (MRK) for $25 million and Toprol-XL from AstraZeneca (AZN) for $175 million.

A syndicate of leading healthcare investors, led by Deerfield and including QLT Inc., Broadfin Capital LLC and JW Asset Management, LLC has confirmed their commitment of up to US$350 million in growth capital for the combined company, intended to support the anticipated commercial launches of YOSPRALA™ and Fibricor® as well as future potential product and company acquisitions.

Per my calculations, ARLZ needs to make around half a billion dollars in the next 10 years to break even. This is achievable easily, given its revenue potential.

Revenue potential

According to CEO Adams, Yosprala US revenue potential is $200 million per year. Toprol-XL, which was purchased for $175 million, has potential to make around $70mn a year net after royalties. Toprol-XL patent has expired, but unauthorized generics have had clinical trouble, and only the authorized one from Patheon Pharma actually seems to work.

Toprol-XL, or the extended release version of the widely used heart drug metoprolol succinate, has a large market share. If ARLZ gets lucky and competitors are not able to develop working generic for the drug, then this acquisition can continue to produce a decent cash flow for the company. Nearly 40 million prescriptions of metoprolol are dispensed each year in the U.S.

Zontivity’s aspirin-dependency ties in well with Yosprala, which is a combo of aspirin and omeprazole, a generic stomach remedy, on which aspirin is dependent. So there’s a chain of dependencies here; a patient that takes Zontivity needs to be co-prescribed with Yosprala. Zontivity has revenue of between $3 and $4 million in 2016.

As for other revenues, ARLZ has an existing revenue stream worth roughly $42 million 2016, given that for the 6 months ended June 30, 2016, it had total revenue from product sales, royalties etc of $21 million.

If you add these together, you get $318 million a year. Market cap is $314mn right now. Deeply undervalued.

The CEO’s deal-making history

CEO Adrian Adams formerly led companies like Auxilium, Inspire, Sepracor and Kos. Auxillium was acquired by Endo Pharma under his watch, for $2.6 billion, at a 55% premium. Inspire was bought by Merck at a 26% premium. Sepracor was acquired by Dainippon Sumitomo under Mr Adams’ watch, for $2.6 billion, at a 28% premium to Sepracor’s closing price at offer, and a 48% premium over its average price over the previous 6 months. Finally Abott acquired Kos Pharma for $3.7 billion, at a premium of 56% to the company’s then valuation.

Bottomline

Given the CEO’s expertise and history in great deal-making, and the revenue potential vis-a-vis debt, this is a highly interesting stock.

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Bellicum

BLCM’s technology makes its CART safer, and yet it is valued much below competition like Juno, who is having bad news recently. BLCM’s proprietary self-destructing switch technology is the most advanced safety mechanism in CART. It was developed at the Baylor College of Medicine. It is triggered by rimiducid, a small molecule originally developed to control gene therapy, in whose presence the CART cells are genetically programmed to self-destruct. The drug rimiducid has no other effect on the body apart from this protein to protein signalling.

Bellicum is the first of the CART companies to have developed a suicide switch for BPX-401, a CAR T cell for leukemias and lymphomas. BPX-401 targets CD19, a receptor protein found on the surface of blood cancer cells, and comes with the CaspaCIDe self-destruct safety switch. Baker Brothers are the largest holders.

Juno’s trials, one of which is in clinical hold following more treatment-related patient deaths, have seen up to 30% of patients undergoing severe cytokine release syndrome. BLCM’s trial is much, much safer. Juno is developing its own suicide switch using cetuximab, which has its own side effects and isn’t as good as BLCM’s.

There are other suicide methodologies but none as effective as BLCM, or as advanced in trials.
Cellectis has one using Rituxan, a chemo drug. However, compared to rimiducid, rituxan is a strong and also expensive drug with serious side effects. Moreover, Cellectis’ overall program is behind BLCM. In fact, switches like Cellectis and Juno’s, which kill via antibody- dependent cell-mediated cytotoxicity, cause inflammation, unlike BLCM’s cleaner method.

Ziopharm Ocology (ZIOP) has a suicide switch meant to work like a rheostat, which is theoretically better than BLCM’s with Veledimex as a control. However, this is not in advanced clinical stages yet. ZIOP is a stock to watch as well - see these results.

Kite, BLUE or Novartis do not have known switches at present.

BLCM’s BPX-401 reported excellent preliminary results from the phase I/II trial in September. “Interim data from 18 subjects in a Phase 1/2 clinical trial assessing BPX-501 in pediatric patients with primary immune deficiencies show all continue to be disease-free at a median of 13 months of follow-up with no treatment-related mortality after a T-depleted haploidentical hematopoietic stem cell transplant (HSCT) and infusion of BPX-501.”

”We are preparing for a comprehensive data update of this program at ASH 2016, and are working with regulators in the European Union and the U.S. to finalize registration pathways for BPX-501 and rimiducid,” said Tom Farrell, President and Chief Executive Officer of Bellicum.

ASH 2016 is to be held between December 3-6. The stock may go up at this time.

BLCM is also starting two phase 1 trials for BPX-601 and BPX-701.

“BPX-601 GoCAR-T contains Bellicum’s proprietary iMC activation switch and is designed to treat solid tumors expressing prostate stem cell antigen, with the initial clinical trial in non-resectable pancreatic cancer to be conducted at Baylor Sammons Cancer Center. BPX-701 incorporates the CaspaCIDe® safety switch and is designed to target malignant cells expressing the preferentially-expressed antigen in melanoma (PRAME), with the initial clinical trial in Refractory or Relapsed Acute Myeloid Leukemia and Myelodysplastic Syndromes, to be conducted at Oregon Health and Science University and Leiden University Medical Center.”

Finances

Cash and investments totaled $129.1 million until the last quarter. That means, some dilution up ahead before the company gets a drug into the market. No licensing deals foreseen because the suicide switch is its edge over its competitors - however, a buyout is not out of the question.

Safety issues surrounding CART make BLCM a high value proposition given how extremely good results CART is producing in cancer.