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This News Explains Halozyme Therapeutics' Double-Digit Drop Today

Brian Feroldi, The Motley Fool

What happened

After an analyst lowered his price target on the company's stock, shares of Halozyme Therapeutics (NASDAQ: HALO), a biotech that is focused on helping cancer drugs work better, fell 10% as of 11:25 a.m. EST on Wednesday.

So what

Investors can blame Andrew Peters, an analyst at Deutsche Bank, for today's double-digit drop. Peters lowered his price target on Halozyme's stock to $19.00 (from $21.00) on Wednesday following the release of a troubling SWOG abstract. SWOG is an organization that conducts clinical trials in adult cancer patients and is supported by the National Cancer Institute.

The abstract in question hightailed a phase 1b/2 test of Halozyme's drug PEGPH20 in combination with a cancer drug called mFFOX as a treatment for pancreatic cancer. The authors of the study concluded that the "addition of PEGPH20 to mFFOX is not recommended for further study and appears to be detrimental" after noting that patients who used the combination experienced higher levels of diarrhea, fatigue, nausea, vomiting, and more than those who use mFFOX as a monotherapy. 

While Peters decided to maintain his buy rating on Halozyme's stock, he noted that the data from the SWOG abstract adds "incrementally higher-risk to the PEGPH20 program."

Given the data, it's hard to disagree with his assessment.

Business man holding a sign that says caution.

Image source: Getty Images.

Now what

There's no doubt that PEGPH20 is an important drug for Halozyme, so it is understandable why Wall Street is feeling nervous after reading the SWOG abstract. However, the real test for this compound is the company's ongoing HALO-301 trial. Management recently affirmed that the expected target number of progression-free survival events is expected to be reached in the fourth quarter of this year, so investors still have a lot of waiting to do before they can expect a full data readout.

On the plus side, management also recently forecasted at least 25% royalty revenue growth in 2018 from the company's ENHANZE platform. What's more, the company sees a clear pathway for this number to eventually reach "nearly $1 billion" by 2027 thanks to its recently signed agreements with Alexion Pharmaceuticals, Bristol-Myers Squibb, and Roche.

All in all, I continue to believe that there are ample reasons to be bullish on Halozyme, but I agree that the SWOG data does raise the company's risk profile. For that reason, I'd advocate for potential investors to wait for a bigger discount before they consider putting their capital at risk. 

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.