Halozyme Therapeutics PEG-PH20 Status a Key Focus of First Quarter 2014 Management Call

After the markets closed on Monday, Halozyme released a first quarter 2014 loss of $0.22 per share, greater than our estimate for a loss of $0.17 per share and the Street consensus for a loss of $0.14 per share due to a mix of lower revenues and higher expenses. Please refer to exhibit 1 for a detailed variance analysis.

Halozyme halted all clinical trials with PEGPH20 in pancreatic cancer in early April following the announcement of a potential safety concern related to an imbalance in the thromboembolic event rate between the PEG-PH20 arm and the control arm of a Phase II trial in combination with gemcitabine and Abraxane. We believe that this clinical program has emerged as one of the drivers of investor interest in Halozyme shares, and we therefore expect Monday night’s update to have a favorable impact on the stock. Specifically, on Monday night’s management call, management provided an update on the status of PEG-PH20, which included the submission of an amended protocol with additional information, including an amended study protocol to the data monitoring committee (DMC). Based on this input, the DMC supports continuing enrollment of patients and dosing of PEG-PH20. The FDA has also been provided with this information, and Halozyme has requested that the agency lift the current clinical hold.

In diabetes, the next catalyst is further regulatory clarity with Hylenex in the diabetes insulin pump setting, which we expect later in 2014. We point out that the Street has in the past been rightly focused on the partnered programs as the primary drivers of the company’s value, but we note that the proprietary programs, such as this one, are also developing into meaningful drivers for the company. We expect more visibility from these programs over time.

Herceptin SC, MabThera SC, and HyQvia are all launched in Europe following regulatory approvals there. Because Halozyme receives royalties from these products one quarter in arrears, we believe it remains too early to tell how the launches are progressing, but we believe the convenience of subcutaneous dosing is an attractive option for patients who use these products. Management reported $800,000 in royalty revenue in the quarter.

Halozyme expects a 2014 cash burn rate of $45 million-$55 million; management ended the first quarter with $165 million in cash. Exhibit 3 highlights our updated financial estimates, which reflect operating trends and 2014 financial guidance.