Investing.com -- Halozyme Therapeutics (NASDAQ: HALO ) shares fell sharply by 16% after Leerink Partners analyst David Risinger downgraded the stock from Market Perform to Underperform, setting a new price target of $47. The downgrade was driven by concerns following the Centers for Medicare & Medicaid Services (CMS) issuing draft guidance related to the 2028 Inflation Reduction Act (IRA) drug price controls, which could impact Halozyme’s drug pricing protections.

Despite Halozyme reporting generally positive first-quarter results, the stock was negatively impacted by the potential risk that its hyaluronidase combination products may face earlier price negotiations than previously anticipated. The CMS draft guidance suggests that combination products, which do not enhance efficacy, could be subject to price negotiations 13 years after the approval of the original active ingredient, rather than 13 years following the combination approval.

Risinger noted, "We are downgrading HALO from MP to UP and lowering our DCF-derived PT from $63 to $47. We adjusted our discount rate from 8% to 12% and lowered our terminal growth rate from -15% to -25%." The analyst further explained the rationale behind the downgrade, stating, "The catalyst for our downgrades is that CMS issued draft guidance for 2028 IRA drug price controls that creates risk that hyaluronidase combination products may not be protected from IRA price negotiations for 13 years after combo approval."

The Leerink Partners analyst also highlighted that the CMS draft guidance language suggests a reinterpretation of the protection period for combination products, which could lead to earlier-than-expected price controls. This change poses a significant risk to Halozyme’s product portfolio and future revenue projections. However, Risinger clarified that no changes to revenue projections were made at this time, as the final guidance from CMS is expected in the second half of 2025.

Investors are now weighing the potential implications of the CMS draft guidance on Halozyme’s financial outlook, leading to the notable decline in the stock price. The company’s first-quarter performance, which was seen in a positive light, has been overshadowed by regulatory concerns that could affect its long-term profitability and market position.

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