- Halozyme on Monday said a Phase 3 trial of its experimental treatment PEGPH20 combined with chemotherapy failed to keep patients with metastatic pancreatic cancer alive longer than patients taking only chemo. As a result, the company will halt development of the drug and cut 160 jobs, or 55% of its workforce.
- The company will focus on its drug-delivery technology, which has been applied to drugs like Herceptin to convert them from intravenous to subcutaneous administration. With a growing royalty stream and reduced expenses, Halozyme expects to reach sustainable profitability in the second quarter of 2020.
- Halozyme also announced it will launch a $350 million share buyback program over three years. Its shares rose 3% to $16.01 apiece in Monday morning trading.
Halozyme's announcement that it will focus on its money-making drug delivery technology ends, for now, its bid to launch a wholly-owned oncology treatment. The effort appears a cash-draining misstep that may have kept the company from achieving sustained profitability earlier.
The Phase 3 pancreatic cancer trial began in 2016, which coincided with a jump in annual R&D spending from $93 million in 2015 to $151 million in 2016, a level maintained through 2018. Revenues grew to $152 million over the same period, with a 2017 jump in licensing fees enabling the company to report a net profit that year.
The layoffs and other cost-saving measures will save Halozyme $130 million to $140 million from its cost base in 2020. Through the first half of 2019, revenues were $96 million and costs were $107 million, so a reduction of that magnitude should help it achieve profits next year.
Revenues come primarily from royalties and other licensing fees. The drug delivery technology of hyaluronidase is used in three products, Roche's Rituxan (rituximab) and Herceptin (trastuzumab) and Takeda's Hyqvia (immune globulin). Halozyme also markets hyaluronidase as an adjuvant under the name Hylenex, which has brought in $14 million so far this year.
Halozyme is hoping to extend the use of hyaluronidase into multiple other products through collaborations with eight other companies. Seven of these have been disclosed so far, with Johnson & Johnson's Darzalex (daratumumab) being the most advanced.
While success almost certainly will not be achieved with all of these collaborations, if just a few come through it could greatly expand Halozyme's revenue stream. On a call with analysts Monday, company executives said they are maintaining a target of $1 billion in royalties by 2027.
That is the year the key U.S. patent on hyaluronidase runs out, which means Halozyme will need to have a new strategy in place by then. Its executives now know that PEGPH20 (recombinant human hyaluronidase) as a standalone cancer drug now won't do the trick.
Offering investors a consolation prize of a $350 million, three-year share buyback program suggests they're going to use that time to think about what to do next to prepare for 2027.