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On Tuesday, Leerink Partners issued a downgrade for Halozyme Therapeutics (NASDAQ:HALO) stock, changing its rating from Market Perform to Underperform. The firm also reduced its price target to $47.00 from the previous $63.00. According to InvestingPro data, Halozyme has demonstrated strong financial performance with a 76% gross margin and 25.65% revenue growth in the last twelve months, maintaining a perfect Piotroski Score of 9, indicating excellent financial strength. The adjustment followed a reassessment of the discounted cash flow (DCF) model used by the firm, which now includes a higher discount rate, up from 8% to 12%, and a lower terminal growth rate, dropping from -15% to -25%.
The revision in Halozyme’s stock outlook is primarily due to new draft guidance from the Centers for Medicare & Medicaid Services (CMS) regarding drug price controls set by the 2028 Inflation Reduction Act (IRA). The guidance suggests that combination products, which may include Halozyme’s hyaluronidase drug collaborations, could be subject to price negotiations 13 years after the approval of the original active ingredient rather than 13 years after the approval of the combination product.
Leerink Partners has also adjusted its stance on Johnson & Johnson (NYSE:JNJ), downgrading the stock from Outperform to Market Perform and lowering the price target from $169 to $153. This new target is based on a 14x multiple of the unchanged 2026 estimated earnings per share (EPS) of $10.89. The firm has not made any changes to its revenue projections at this time, as it awaits final guidance from CMS expected in the second half of 2025.
The CMS draft guidance has created uncertainty for the industry, indicating that certain combination products may not receive the expected 13-year protection from price negotiations under the IRA. This could potentially impact the profitability and market strategy for companies developing such products.
Despite the changes for Halozyme and Johnson & Johnson, Leerink Partners maintains its Outperform rating on Bristol-Myers Squibb (NYSE:BMY), citing the stock’s low price-to-earnings (P/E) valuation. The firm acknowledges that the CMS guidance implies potential price control for Bristol-Myers Squibb’s Opdivo SC in 2028 but has not altered its positive rating on the company’s stock.
In other recent news, Halozyme Therapeutics reported a strong first quarter for 2025, exceeding expectations with a revenue of $265 million, a 35% increase from the previous year. The company also reported non-GAAP earnings per share of $1.11, surpassing forecasts. Despite the positive financial performance, Leerink Partners downgraded Halozyme’s stock from Market Perform to Underperform due to concerns over potential impacts from the Centers for Medicare & Medicaid Services’ draft guidance on drug price controls. Benchmark analysts maintained a Hold rating with a $75 price target, noting the company’s robust sales of partnered products and an upward revision in financial guidance for 2025. Meanwhile, TD Cowen raised its price target for Halozyme to $79, citing strong quarterly results and promising drug performances. The company’s recent achievements, including a new share repurchase program, indicate confidence in its financial health and future prospects. However, ongoing litigation with Merck (NSE:PROR) and potential regulatory changes remain key considerations for investors.
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