Okay. All right, welcome, everyone. This is the Fireside Chat with Halozyme. Thanks for joining us. My name is Vikram Purohit. I'm one of the biotech analysts with the research team. Before we start, let me read a brief disclosure statement. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, happy to have with me, Helen Torley, CEO of Halozyme. Helen, thank you for joining us.
Yep, appreciate the opportunity.
So we have around 30 minutes, quite a bit in Halozyme's portfolio to unpack, but before we get into any specifics, Helen, if you could just frame out for us with some opening remarks what you think have been some of the key inflection points for the business throughout the year, that'd be a great place to start.
Yeah. So, for those not familiar with Halozyme, we're a profitable biotech company that focuses on two drug delivery technologies, our ENHANZE technology and also our auto-injector technology. It's been an incredibly exciting year in terms of events in both of these platforms. If I begin with the ENHANZE platform, this is an enzyme we license to companies to allow them to transform their IV drugs into subcutaneous delivery. So instead of the patient requiring treatment that takes hours, it can be given in just minutes. One example you may be familiar with is DARZALEX FASPRO, where instead of four-six hours on average for the IV, it's just three-five minutes for the sub-Q.
So this year, we're very pleased to see two additional approvals of products to add to the five we already had approved. Those approvals were argenx's VYVGART Hytrulo for the indication of generalized myasthenia gravis. Just as an example, that's a prevalence of about 65,000 patients in the U.S. and is just the first of multiple indications expected over the next several years expanding into multiple different autoimmune disease indications. And we also saw the first approval for Tecentriq subQ. Familiar with that? That's European approval expected later this year also for that, with U.S. approval to follow next year. We saw positive phase III data readouts including for argenx's VYVGART in CIDP.
Another autoimmune condition, probably prevalence in the U.S. of about 20,000 patients, so another very attractive opportunity. And interestingly for VYVGART, it's developed that one only as subQ. And so when you see that product launching, there's no IV. It's going to grow purely as a subQ, which is the same for several of the other indications we have. Additional positive data with Ocrevus subQ. That's Roche's drug for multiple sclerosis. It's a leading MS treatment in U.S. and EU5, already annualizing at over $7 billion. And so we're very excited to see the positive data that instead of a patient for the IV treatment at administration time, having to consider a 3.5-hour regimen or a six-hour regimen, the goal is to get to 10 minutes in total for treatment and for observation.
That obviously opens up access to many more patients and a great opportunity for market growth there. So that's just some highlights from ENHANZE. This is obviously more launches, more royalty revenues for Halozyme. If I move to our auto-injector platform, I think the great news that's got people so excited is we completed a clinical study testing the feasibility of a high-volume auto-injector that we've just developed. We believe this is the first time that a volume of 10 mL of a biologic has been demonstrated to be administered in just 30 seconds. We demonstrated the feasibility, we demonstrated the high patient acceptance for it, and so this is going to be a very exciting new growth driver for the company as it has to be used with ENHANZE.
You cannot inject 10 mL in 30 seconds if you don't have ENHANZE® with your auto-injector to allow you to create the somewhere for the fluid you're injecting to go. So each of those, Vikram, I think are just a incredible catalyst for strong future growth and continued interest in companies partnering with Halozyme's leading technologies.
Great. Definitely we want to unpack all of that, but before we go on to any sort of, product or pipeline-specific questions, I think there's two broad, macro considerations a lot of people have, especially this year, on the terminal value of Halozyme's business. So let's unpack both of those. The first one is the theoretical or potential impact of, CMS, IRA-based, pricing and, CMS drug price negotiations, and what impact that could have on the tail of the business. So just your commentary there, your latest thoughts on what the impact could be, if anything, that'd be great.
Yes, so the IRA, the area that we are interested in is where the IRA is looking at drugs that incorporate technologies like ours. So ENHANZE is an active ingredient that brings clinical benefit to patients. The clinical benefit, I've already given a higher level overview, but just to summarize, allows for subcutaneous injection, significantly shortens the infusion time, and also can reduce the rate of infusion-related reactions. And so the whole question when the draft guidance came out was, how will combination drugs be treated, if they are made up of two active ingredients? Are they going to be part of the being considered the same as the parent product, or will they have their own separate negotiation timeline and price that negotiation?
What we're very pleased to see when the final guidance came out in June for Part D. Now, most of our drugs are Part B, but we think there's a very strong read-through from Part D to Part B. It was very clear that when a drug is a fixed combination of two active ingredients, it's going to be treated as a separate drug... and it will have its own negotiation timeline, which for a Part B drug, as you know, is 13 years from the launch, and it will be subject to its own price discussions as well.
To put a fine point on that, in a recent comment to Reuters, the CFO of Janssen talked about DARZALEX, and when asked about when he thought DARZALEX FASPRO would be eligible for price negotiations, he said 2033. Now, that is 13 years after the subQ was approved in 2020. The IV was approved in 2015. And we believe this is because the IRA is designed to recognize clinical value and benefit for patients. And so this is with ENHANZE being an active ingredient that is conferring very clear, separate clinical benefits, it's going to be treated separately. And so we think this is actually a great recognition of what partners are wanting to do anyway. They want to work with ENHANZE to bring a new offering for patients.
They get the benefit of competitive differentiation. And so we think this is going to be continuing to have people focused on ENHANZE right from the start, but also ENHANZE for life cycle management, where they know they can have a number of years where they can bring benefits to patients separately from the IV product.
Got it, got it. Okay, that's . And then the second big picture question that comes up often is, with ENHANZE losing its IP protection in Europe in 2024, in the U.S. in 2027, what stops competition from coming rapidly on the heels of that, either from companies developing subQ formulations in-house or from a biosimilar ENHANZE coming quickly after IP expiration occurs?
Yeah. I just from the Halozyme business model, just to say we have a number of patents that are important. What Vikram mentioned were the composition of matter patents, which expire in 2024 and 2027. But when our partners do the co-formulation of their drug with ENHANZE, it creates the opportunity to get additional patents, which are issued for 20 years. Now, all of our commercial drugs so far, with the exception of VYVGART, have got co-formulation patents, which can have the benefit of extending the duration of time we get royalties. We always get a minimum of 10 years, can extend it beyond that, and it can also maintain the royalty rate at the mid-single-digit royalty level.
So those co-formulation patents are incredibly important to us, and we work very hard with our partners to be able to have them gain those co-formulation patents. And so I'd say, as we're thinking about the structure for Halozyme for any of the Wave 3 products, and just to mention, that's the next four launches we're going to see, VYVGART, Ocrevus, Tecentriq, and Opdivo. As an example, they'll launch from 2023-2025. We will get royalties till at least 2035, just based on the base contract. If those are issued co-form patents, the royalties will go to beyond 2040, and we will also, in each of those cases, expect to maintain the royalty rate at the mid-single-digit royalty level.
And so that's really how to think about the Halozyme portfolio. Are there co-form patents? Because in general, they have that effect. Now, Vikram asked about DARZALEX. DARZALEX is a case where while we will get the extended duration of our royalties, there will be a step down in the royalty to half of the mid-single-digit royalty rate in 2024 and 2027. And this is why it's so exciting that we have these additional waves of launches. We talked about Wave three, these exciting four products. We've got Wave four coming behind that, but also all of the products that are currently in phase three have filed for co-formulation patents, and we think there's a high probability many of them will be granted that. So we'll see that benefit.
Net-net for Halozyme, this is why we project the potential of $1 billion in royalty revenues in 2027, but continued growth to 2030. More launches, co-formulation patents, keeping that royalty rate at the mid-single-digit royalty rate.
Got it. Okay, that's helpful. Maybe we can touch on then the work you've been doing with the auto-injector. So that offering, I mean, what do you think it can drive in terms of kind of enhanced pace of business development, and what's a good use case for that, for that product offering? Like, a tangible example of where that would be uniquely situated.
Yeah, so high-volume auto-injector, just to say again, it takes a combination of the Antares auto-injector expertise, with assuming that the drug that we're going to deliver in it is co-formulated with ENHANZE. Now, that is the secret sauce here. There is no space in your subcutaneous area to inject more than 2 mL without you starting to get pain and back swelling, and the fluid actually starts to leak out. Because the ENHANZE, which is an enzyme, works virtually instantaneously to start degrading the hyaluronan that is present in the subcutaneous space and create channels for the fluid to spread out, and be absorbed by the lymphatics, that is the only reason we're able to inject 10 mL in that quick period of time, 30 seconds. It really is remarkable, and nobody else can do that.
Use cases and the way we're developing our auto-injector, it's going to be flexible to be able to inject anything from 3 mL- 10 mL. Just think about biologics that are in that volume, where it would be easy for the patient, a caregiver, or a healthcare professional to be able to deliver treatment for patients in under a minute. I'll name some biologics that are in our portfolio. They are not suggesting that these are products that are going into a high-volume auto-injector, but you'll be more familiar with them. Efgartigimod, as an example, is 5.5 mL.
We know that, that's a disease condition where it would be great for patients to be able to, over time, be able to do their own self-administration, and so that would be an example, a great use case. PHESGO is another example. That is 10 mL. As you may know, Roche is already putting PHESGO into an on-body pump. The patient has to deal with that. It goes in slowly. That might be another interesting area where being able to administer that in just 30 seconds would be attractive. That's just two instances that I think people are familiar with, and there are many other biologics out there that are sometimes split into two doses. You may know some where it's two times 2 mL.
Well, that might be an opportunity for the patient to be able to have it as a single injection. Other ones are anything from 5 mL -10 mL. I will say another interesting area is with ENHANZE®. We are able to sometimes extend the dosing interval for drugs that are approved perhaps as a weekly agent with ENHANZE®. That weekly delivery is because of the they've been limited by the volume. If you can double that volume, you can often extend the dosing interval.
So there are many interesting areas we're talking about with potential partners, current partners, for some of their drugs, also with new potential partners, to be able to deliver what they have on the market today, or frankly, and further improve what they're delivering for patients by giving that more extended dosing interval and the convenience of a simple, short injection.
Got it. Got it. So, once those new contracts, new deals are in place, what do you think the economics on those arrangements are gonna look like versus your current partnerships that are purely based on ENHANZE®?
So our goal with the high-volume auto-injector is to continue to grow our ENHANZE royalty revenues. Now, that is what is driving such strong growth in the company today, and we see the high-volume auto-injector as just being a facilitator of that for gaining new interest and new partnerships. So, think of these deals as being very royalty-based because it will be ENHANZE plus the high-volume auto-injector. And the most common model out there for things like the high-volume auto-injector is a cost-plus model based on product sales, and so, a combination of royalties, predominantly driven by ENHANZE, but also the additional revenues based on the actual devices that are sold.
Got it. Is there any initial feedback you could provide just based on any preliminary conversations you might be having on the auto-injector, and where people are interested, what potential areas of pushback might be so far?
So, so since we got the clinical data, which was just at the end of July, we've been in many conversations with companies. I would say that there is great interest and excitement because this is the first time this has been seen. I think conversations are focused on: What's the development path? How long will it take? If it's a drug that is already subcutaneous and there is the primary container is available, we estimate that timeline is about two years from starting to approval. You've got to do stability and then new device. You've got to do human factor studies, and then there's the approval timeline. But it's actually quite quick if it's already a subcutaneous drug, and you need to do a clinical study to show that the exposure is the same.
If it's a partner who is thinking of going from IV to subQ delivery with an auto-injector, that timeline is more like the timeline that would be for an ENHANZE development, where they've got to pick the dose, show in a phase III study non-inferiority, and in parallel to that, all of the traditional device approval steps need to be in place, including the conduct of human factor studies. So I'd say that's where the conversation is at the moment. What does the development path look like? What's the timeline?
Got it. Okay, that's helpful. Maybe let's pivot a little bit to IV to subQ conversion trends. It's a question that comes up as I know people think about what is the right way to model what future royalties could be for assets outside of DARZALEX FASPRO. We've all seen the conversion rates there, and I know you don't specifically guide to conversion rates for different kinds of products, but across the therapeutic areas where you're launching ENHANZE partnered products, what are some good bookends to think about for what conversion rates, excuse me, could be?
Yeah, we're entering some very interesting territory here, where in addition to conversion, we are seeing market growth driven solely by the subQ. So if we talk about DARZALEX, I think that's a great example, and then I'll transition to the upcoming launches. For DARZALEX, they were able to rapidly convert the market in two years, that eight-nine out of 10 patients were receiving DARZALEX as a subQ. That was driven by the strong value proposition, clearly, for the product. Then we started to see continued growth of the DARZALEX overall, but that was being driven by the fact the subQ was allowing penetration into the front-line population. In multiple myeloma, as is the case in many conditions, that front-line population is often the largest.
It is the patients who survive the longest, and so you get the longest duration of therapy. And so if anyone is looking at DARZALEX today, it's annualizing at about a $9 billion level in terms of sales. It's going to get to $16 billion by 2028. Now, already, nine out of 10 patients are DARZALEX subQ, and that growth is that penetration into the front-line population, which is because of the subQ. So that was a conversion plus market growth story. And if we look at VYVGART, that is just launching a year ago. It's just beginning its journey, annualizing to a $1 billion.
When Tim, the CEO of argenx, talks about the sub-Q, he sees it just like we illustrated there for DARZALEX, as a way to penetrate into the frontline population. The use of the IV to date has been after the traditional treatment, which is steroids and immune globulin. Now, with this, they are going to be focusing on growing into an expanding use in that frontline population. Four of the six indications we're developing with argenx are sub-Q only. And so this is, Vikram, an odd one to come up with a conversion rate because we're going to be the reason for DARZALEX to continue to grow, to achieve the approximately $6 billion that many analysts are projecting for it by 2028.
So, that's, I think, a growth story, a market growth story. Ocrevus is another one where I mentioned it's annualizing to $7 billion today. What Roche talks about on their calls is the availability of sub-Q is going to really make treatment more accessible. They had an R&D day yesterday, where they focused on the fact that most of the CD20 use today is in academic hospitals. With the availability of a short 10-minute sub-Q, they are seeing the ability to, in those hospitals, have higher patient throughput, so more market growth, the ability to move treatment into more community-based settings, as well as a physician office. And so democratizing access to the Ocrevus, their story, again, is very much focused on market growth.
Some conversion, some conversion from other sub-Q products, but this market growth is, again, a really, top, communication point from Roche about where they're going with that. The other two launches are the PD-1s, PD-L1s. What the sub-Q availability is doing there is in several of the indications, it is allowing for the first, non-IV regimen. Either the PD-1 or PD-L1 is used alone or with oral treatment. So that means for a large number of patients, they're not going to have to go to an infusion suite anymore. I think that's pretty remarkable for patients and super.
For those patients who are receiving PD-1s and PD-L1s, who are receiving it as part of multi-product, IV regimens, which are often given sequentially, the patient doesn't need to be there for an hour less than they were there before. You might think that's modest, but if you're a patient and you've been sitting in an infusion suite for four-five hours, and it becomes three-four hours, you are going to be delighted. And for the business of the oncology suite, there are patients they can fit in there whose treatment just takes an hour. It's so it's a win-win for everybody, very importantly for the patient. So that's where we're going to see use some.
It's hard to give percentages on conversion because there's a lot of growth, there's a lot of new market creation happening here with the sub-Q, and there will also be conversion.
Got it. Okay, fair enough. Maybe switching over to some recent developments. So your partner, Roche, recently mentioned that the U.S. regulatory process for Tecentriq is a bit delayed versus prior expectations. Could you just kind of walk us through what that situation is right now, what you know of what's going on, and what the impact could be to 2023 and 2024 to your top line?
Yes. For those who didn't see it last week, we announced that Roche had informed us that there was going to be a delay in the launch in the United States of Tecentriq sub-Q, so that they could update some CMC processes. They expect those processes to be updated this year, supporting a launch in the US next year. We don't have any additional details beyond that, other than its CMC. It's related to Tecentriq sub-Q, so not to rHuPH20, and it's not related to any of the other Roche products. This is a Tecentriq sub-Q situation. What is the good news is they also indicated it isn't impacting outside the US, so we've already seen the UK approval, as I mentioned.
They anticipate approval by the EMA, towards the end of this year. That will continue. In terms of impact to revenue, for 2023, we actually haven't put any royalties in our forecast related to the Tecentriq approval, and that really is just because of the general cadence, as to how long it takes for all of the reimbursement to be in place. We did have some milestone revenue in for the European launch, which was triggered by the U.K. approval, but the U.S. launch milestone will now be deferred until 2024. For our guidance for the year for revenue, that remains as is, even with that change.
Got it. Great. Let me take a pause and see if there's any questions from anyone in the audience at this point. Great. Hi, Dr. Torley. Great presentation so far. Just a quick question around a statement that was made earlier, that you cannot inject more than 2 mL without pain and leakage. That was a pretty strong statement. Can you elaborate on that?
Yeah. It, it's why auto-injectors max out at 2.25 mL. There simply isn't the space in the subcutaneous area to be able to force more fluid in. And what happens is you get amazing back pressure, that it just becomes physically impossible to put any fluid in. The fluid starts to expand your subcutaneous space, but also the dermis and the skin.
The little pin prick you leave is just filled with fluid. When you pull out your injection needle, you see the drug just leaking out.
Yeah.
So it just, you know, you create this bubble of drug on the skin.
Yeah.
So but that really is, It's been tested in multiple studies, and that's why you wouldn't get an auto-injector today-
Okay.
—that's higher than 2.25 mL.
You're talking specifically to auto-injectors around the volume?
It's all about speed. If you were to very slowly inject, say, at 0.5 mL an hour, and give time for it to be absorbed, you can inject much more slowly.
But our belief is for patients, rapid subQ delivery is our space, and nobody else can do that. So it was specific to auto-injectors I was talking.
If you're willing to do something a lot more slowly, you can go and get more drug in, but.
You've got to be very patient with that, or a patient has to be willing to put an on-body pump on for a prolonged period of time.
But if you're trying to push more fluid, you also have a larger needle, right? So, which could you elaborate on the needle gauge that's utilized for that 10 mL in 30 seconds? Is that like a 24, 25, like the other products? Fairly large.
It, it's the same size as is used when the patients are getting ENHANZE®, just by push. It's funny, it's come up a few times today, and I don't remember the gauge, but it's not a large needle. Because the whole point of this is to make the experience as positive for patients as possible. I'm not remembering the number.
Yeah.
But it's not the large bore. It's kind of more towards the small bore.
Yeah.
But I don't have the exact number.
Okay.
But I will, I will say for the patients who received the high-volume auto-injector, the majority reported very mild pain.
Just at the very start of the infusion. I think very much consistent with what we would expect with small needle, the fluid being dispersed, and very well tolerated with all but one patient feeling very ready to have the injection again.
Okay, great. And just the last part to just quick question: what do you consider, like, a comfortable needle gauge, like, for a patient, just in your opinion? Just be-
You know, every person has a different pain tolerance.
We usually go with a smaller gauge needle, but not the absolute smallest needle.
Okay.
I don't have the number off the top of my head.
Yeah.
But just any clinical study, you can see a huge range of people's pain tolerance. But in terms of that study I just mentioned, the needle that we were using was very well tolerated by the vast majority of patients.
Okay, great. Thank you. Anyone else? Okay, I can... Oh, okay, I can go ahead and close this out then. Helen, I think another topic that people often like to dig into is just understanding the sales cycle, the business development cycle, because I think that's obviously central to growing past Wave 3 and 4 and beyond. So just talk us through how leads are generated and how long it typically takes to source business, close business, structure the appropriate deal, and then get development work underway.
Yes. So you can imagine with already 12 agreements under our belt on ENHANZE, we have got a pretty standard format and agreement in place. We've also taken the time over the last several months to develop one for the high-volume auto-injector. So in terms of the terms and how that's structured, that is already in place. What we do in terms of sourcing business, I would say about 30% of the calls are incoming, but we are very proactive at looking at companies' portfolios and saying, Have you thought about ENHANZE? Have you thought about ENHANZE, plus the high-volume auto-injector? and getting them to the table to have our technical teams talk.
So, you know, it can be a very rapid cycle for a company who is interested and is ready to get down to negotiate the terms. If a company is just exploring different options, you can imagine that that takes a little bit longer. We're confident we're going to sign additional deals this year for ENHANZE and ENHANZE in the high-volume auto-injector, based on the volume of conversations we're having and the status of those discussions. Now, we usually go back and forth a few times. Everybody wants a little tweak to the contract.
But, I would say that in August, we spoke to tens of companies, to give them updates or to reach out to them anew, and that's just a constant process, which we're refreshing as we read the news in the morning, as you do, and say, Oh, here's an idea. Let's go and suggest that to the company. Once the deal is signed, we're down to, for ENHANZE, getting the studies started if the company is ready with their phase I within 10-12 weeks. And so it can be for a motivated company who is wanting to move forward, a matter of weeks to months to be able to go from first conversation to first patient dose. It really does depend on just what that negotiation process is.
Got it. Great. We have around 15 seconds left. Helen, just in closing, any big milestones, big inflection points coming up over the next six-12 months that we haven't touched on that you want to make sure to mention?
Now, I think at the start, I was able to talk about them, but think about Halozyme's next growth coming from our Wave three products. That's four products already established as blockbuster drugs. Total market assessment by analyst consensus, $35 billion, which is much higher than what's driving our royalty revenue today, which is $20 billion for DARZALEX and for PHESGO, and that's total molecule. What's going to matter to us is the rate and peak of conversion, but we're very excited to see that very large opportunity ahead of us, driving very strong next wave of growth and look for new deals, including HIV.
Great. All right. Thank you so much, Helen.
Thank you.
Appreciate your time. Thank you.
Thank you.
Thanks, everyone.