Investing in biotech companies with continued quarterly losses is always a risky endeavor, but the technical outlook and partnerships can play an important role in deciding when to get into a certain stock or option.
Halozyme Therapeutics, Inc. (NASDAQ:HALO) is still losing money and is expected to report a loss of 26 cents a share for the current quarter. However, the losses have come in below expectations during the past three quarters, with the company earning a profit of 3 cents a share during one of those quarters according to CNBC.
HALO Stock by the Numbers
While the quarterly losses have been disappointing, revenues have picked up the slack, as they have topped expectations by wide margins during the past two quarters. In May, revenues were $42.5 million versus expectations for a reading just under $30 million. In late February, revenues north of $52 million were $10 million higher than analysts had predicted.
The near-term chart shows that a “golden cross” has formed, with the 50-day moving average recently crossing above the 200-day moving average. This is usually a bullish signal for higher highs, providing near-term support levels hold.
Support is at $12.25-$12, while resistance is at $12.75-$13.
The longer-term two-year weekly chart shows that shares of been stuck in a trading range between $8-$12 following the tumble from $17 to below $12 during the first six trading days of 2016. The all-time high is north of $24, and a move to that level would represent a 100% return from current levels if blue-sky territory ever comes back into play.
Of course, I’m not looking for the stock to double overnight, but I am expecting a possible run to $14-$15 by mid-November if momentum can catch fire on continued closes above $13.50 and the 100-week moving average.
Aside from the technical setup, the fundamental outlook is a little bearish, although it is improving. The upcoming earnings report won’t be released until early November, so this is an event investors won’t have to worry about for over a month.
I’m excited about the company’s improving revenues going forward, and analysts have failed to keep up with the company’s partnerships with AbbVie Inc (NYSE:ABBV), Eli Lilly and Co (NYSE:LLY) and Pfizer Inc. (NYSE:PFE). Halozyme receives royalty payments from these companies for the use of an “Enhanze” formulation that’s used in the dosing of other drugs.
Shares of LLY were upgraded on Tuesday to “buy” from “neutral” by Goldman Sachs, and it raised its price target from $89 to $95. Earlier this month, JP Morgan also upgraded the stock from “neutral” to “overweight,” and it raised its price target from $92 to $95.
Perhaps this could have been responsible for some of the pop in HALO’s stock on Tuesday, but the company’s top two drugs and its collaborations also look promising. One is focused on breast cancer, with phase-1 trials possibly beginning this year or next. Halozyme’s second drug targets pancreatic cancer, and it is currently in a phase-3 trial.
Drug trials can last for an extended time period, so you also have to be patient while waiting for the news.
On that note, disappointing data can often wreck biotech stocks as much as 50% or more, so the downside can be nasty and cause bullish options to potentially expire worthless. This is all part of the risk/reward strategy, and it is a reality when trading stocks and options, but I like HALO going forward.
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