2 Under-the-Radar Biotech Stocks Set to Boom in 2026

Halozyme and Catalyst reported robust fundamentals that position them well for 2026: Halozyme posted Q3 revenue of $354M (up 22% YoY) with royalty revenue of $236M (up 52%) and EPS of $1.43 (up 36%), cut net long-term debt from $1.5B to $800M, is acquiring Elektrofi, and guides 2026 revenue of $1.30–1.375B (+28–35%) and EPS $6.10–6.50 (+44%+); risks include potential margin pressure from the Inflation Reduction Act and a patent suit with Merck (German preliminary injunction issued). Catalyst delivered nine‑month revenue of $436.3M (up 24%) and EPS $1.27 (up 45.9%), forecasts 2026 revenue $565–585M, holds ~$700M cash and no debt, but faces a 26% decline in Fycompa sales due to generics while Agamree expansion and SUMMIT follow‑up data offer upside; both names trade at modest P/Es (~15x HALO, <14x CPRX) versus the sector average >26x.

Analysis

Market structure: Halozyme (HALO) and Catalyst (CPRX) win as durable, profit-generating midsize biotechs—HALO’s Enhanze drives recurring royalties (Q3 royalty rev $236M, +52% y/y) and HALO guides to $1.3–1.375B revenue (28–35% growth), while CPRX’s Agamree lifts revenue and margins with $700M cash/no debt. Losers include generic antiseizure makers (pressuring Fycompa) and, if litigation skews, Merck (MRK) on subcutaneous Keytruda exposure; large pharma licensors benefit from reduced development cost via delivery platforms. Lower rates and active M&A demand increase acquisition tailwinds for both companies over 6–24 months, supporting higher takeover valuations for profitable biotechs.

Risk assessment: Key tail risks are an adverse patent ruling vs. Merck (binary, high-impact within 3–9 months), Inflation Reduction Act (IRA) margin compression (medium probability, 12–36 months), and continued generic erosion of Fycompa (already -26% y/y). Hidden dependency: royalty concentration—HALO’s upside hinges on a small set of partner drugs (Herceptin, Darzalex, Opdivo); CPRX depends on Agamree approvals (Canada) and SUMMIT data over years. Catalysts to watch: German injunction enforcement, Canadian Agamree decision, quarterly guide revisions—events likely to move prices by ±15–30%.

Trade implications: Favor idiosyncratic longs over broad biotech longs—establish modest HALO conviction (2–3% portfolio) and smaller CPRX stake (1–2%), using defined-risk option structures (12-month call spreads on HALO, cash-secured puts on CPRX). Consider a dollar-neutral pair: long HALO vs short IBB (size 1:1) to isolate royalty/ litigation alpha while hedging sector beta; reassess after 3–6 months or on court/FDA outcomes. Time entries within 30 days but size in tranches; target 20–30% upside for HALO and 20–25% for CPRX over 6–12 months, trim on negative catalyst realizations.

Contrarian angles: The market underestimates downside from IRA and legal concentration—HALO’s 15x P/E and CPRX’s <14x P/E look cheap only if royalty streams and pipeline/dataset risks are binary wins. Historical parallels: royalty-platform firms rerate quickly on clean legal wins or M&A but collapse on single-partner failures; expect high volatility. Unintended consequence: Elektrofi acquisition integration could temporarily dilute margins and increase capex, delaying M&A premium; therefore patience and event-linked sizing are critical.

Key Decisions for Investors

• Establish a 2–3% long position in HALO within 30 days; implement a 12‑month call spread (buy ATM call, sell 25% OTM) sized to that exposure. Target 20–30% gain in 6–12 months if HALO meets guidance; set a hard stop-loss at -18% from entry or sell call spread if net long-term debt rises >$200M sequentially.
• Initiate a 1–2% long position in CPRX funded by selling 10% OTM cash-secured puts (30–60 day expiries) to lower basis. Trim or exit if Fycompa quarterly revenues decline >30% y/y or if Canadian Agamree approval is delayed >6 months; target 20–25% upside in 12 months.
• Execute a dollar‑neutral pair: long HALO vs short IBB equal-dollar (0.5–1% net portfolio exposure) to capture idiosyncratic royalty and litigation upside while hedging sector risk. Rebalance or close after 3–6 months or upon a definitive court ruling on Keytruda.
• Buy protective 6–9 month 5–10% OTM puts equal to 0.5% portfolio risk on any held CPRX position ahead of SUMMIT interim readouts, and favor 12‑month 20% OTM calls on HALO for low-cost leveraged upside if you prefer asymmetric payoff instead of outright equity exposure.