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Roche Says No Safety Issues With Halozyme-Partnered Drug: PropThink Exclusive

August 2, 2012 -

Sources at Roche (OTCQX: RHHBY) told PropThink on Wednesday that products being jointly developed with Halozyme Therapeutics (NASDAQ: HALO) will not face issues seen with HyQ, an intravenous immunoglobulin (IVIg) candidate being jointly developed with Baxter International (NYSE:BAX), or ViroPharma's (NASDAQ:VPHM) Halozyme-enhanced formulation of Cinryze.
Roche said that its products were formulated using a newer generation of Halozyme's enzyme technology and that regulators had not communicated the concerns shared by Baxter and ViroPharma. The Swiss pharmaceuticals giant conducted thorough toxicology studies that prove these issues will not apply to its products since no albumen is contained in the Roche formulations.
Baxter's and ViroPharma's product-candidates are being evaluated by the same division of the FDA (The Blood Products Division), which suggests that the request for additional animal data may just be a quirk of the reviewers. Another division of the FDA (CDER) has conducted a separate analysis on the antibody issue, and has concluded that it will not be requiring additional data. The Roche/Halozyme product candidates are being developed for cancer indications where theoretical concerns over fertility and child development are less of an issue. 
Baxter's 'HyQ' is formulated with Halozyme's enzyme technology to create a potential best-in-class self-injected IVIg product, which could achieve billion-dollar sales, if approved. Baxter said that the FDA issued a complete response letter, or CRL, asking for additional pre-clinical data. ViroPharma received a similar request from the FDA, who halted clinical development in the interim. Notwithstanding, Baxter, who voluntarily withdrew patients from ongoing trials, said that the company will resubmit a new drug application (NDA) for HyQ following additional discussions with the FDA. Investors should view this as a strong indication that Baxter/Halozyme have the preclinical data necessary for a resubmission of their approval package. 
Shares of Halozyme were off by more than 54% in after-hours trading after investors translated the FDA's request for more transparency on the formation of antibodies underlying Halozyme's technology into complete platform decay. This interpretation was oversubscribed to, which implies a gross overreaction by the market and a potential opportunity to acquire Halozyme's shares at a discount to their intrinsic value.  
Wall Street analysts, who have an average $12 price target on Halozyme, attribute approximately $7 per share to products co-developed with Roche. Discounted cash flow estimates suggest that there is significant upside even if issues with HyQ or Cinryze persist and programs under Roche are the only remaining assets.
Insider buying furthers the idea that concerns over Halozyme's platform technology has been blown out of proportion - management and members of the board continued to acquire Halozyme shares on the open market even after Baxter was handed an initial rejection letter by the FDA for HyQ in April. At prices quoted in after-hours trading on Wednesday, investors are assigning virtually no value to Halozyme's pipeline of products. While the risk in Halozyme has inevitably increased, shares grossly overreacted to the FDA's request for additional data. Speculative investors might consider owning Halozyme at these depressed levels as a call option, on the premise that the Roche assets remain viable and the company's pipeline retains substantial value.
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