Halozyme Therapeutics shares tumbled Tuesday on a new Medicare approach to price negotiations for drugs that use additive products, like its hyaluronidase.
Under the Inflation Reduction Act, the Centers for Medicare and Medicaid Services will negotiate the prices of several high-cost drugs each year. Biologic drugs have 13 years on the market before CMS will consider them for price negotiations.
But drugs that contain hyaluronidase might have a much smaller timeline.
Hyaluronidase is an enzyme that degrades a key component of the body's connective tissues. This creates more space for the body to absorb medicine. Companies often use hyaluronidase to convert their intravenously infused drugs into under-the-skin shots.
The CMS draft suggests combination products that don't enhance the effectiveness of a drug will be up for price negotiation 13 years after the original medicine won approval — rather than 13 years after the combined product launched. This creates a risk that combos using hyaluronidase will face negotiations much sooner than analysts anticipated.
Halozyme stock plummeted 24.6% to 50.23, dropping below a buy point at 66 out of a consolidation. Shares broke out on May 7 and yo-yoed before closing again above the entry on Monday.
Halozyme Therapeutics Stock Downgraded
Leerink Partners analyst David Risinger downgraded Halozyme stock to an underperform on the news. He also cut his price target to 47 from 63.
The CMS guidance represents a "curveball," Evercore ISI analyst Michael DiFiore said in a client note.
Drugs covered by Medicare Part D began facing price negotiations in 2024. For those products, combo drugs have a new IRA clock. The guidance for Part B drugs — facing their first negotiations in 2026 — considers combination products from the first drug's approval date, unless the added product increases the drug's effectiveness.
"Many people, including myself and executives from HALO, MRK, and JNJ were expecting the Part B draft guidance documents to be similar – if not outrightly the same – as the final Part D documents (published 6/2023) which considered fixed-dose combination drugs having 2 distinct active moieties as separate single-source products," DiFiore said in a report.
Halozyme's hyaluronidase is a "bioavailability enhancer," he said. But it generally doesn't increase the effectiveness of the drug. Drugs that win approval as an intravenous infusion can later become under-the-skin shots using hyaluronidase. Proponents argue combinations can drastically reduce IV "chair time" and the risk of infusion reactions, Leerink's Risinger said in his report.
"Our new investment thesis on HALO is that we expect shares to underperform because it will be difficult for investors to assign value to the company's major growth drivers since they could start to roll over in 3-5 years," Risinger said.
One hyaluronidase-containing product, Johnson & Johnson's amivantamab, outperformed the IV product in Phase 3 testing. The company sells it as Rybrevant, a treatment for non-small cell lung cancer.
"And CMS could treat amivantamab (under-the-skin shot) differently and negotiate that combo 13 years after approval," Risinger said.
Johnson & Johnson Also Takes A Hit
Risinger also downgraded Johnson & Johnson. J&J uses hyaluronidase in its Darzalex Faspro, a blood cancer treatment. The CMS move means Darzalex Faspro could be price controlled in 2029 as opposed to initial expectations for 2034.
He had modeled $10.7 billion in U.S. sales of Darzalex Faspro in 2028 — or 16% of J&J's worldwide pharmaceutical sales. That same year, Risinger called for the drug to contribute 22% to Johnson & Johnson's operating profit of $39.1 billion.
"If it is price controlled in 2029, the drug's U.S. profit contribution could take a meaningful hit," he said.
In fact, multiple products using Halozyme Therapeutics' hyaluronidase are at risk. Bristol Myers Squibb used hyaluronidase to make an under-the-skin version of its multiple sclerosis infusion, Ocrevus. It could now be up for price negotiations in 2031.
"In addition, CMS action may reduce new business opportunities to license ENHANZE," Risinger said. ENHANZE is Halozyme's hyaluronidase product.
Follow Allison Gatlin on X/Twitter at @AGatlin_IBD.
