Conference. Excited to be joined now by Halozyme Therapeutics and CFO Nicole LaBrosse. Nicole, welcome. Maybe just ask you to start off by giving a quick intro and overview of Halozyme and the core focus for the year.
Yes, happy to. So at Halozyme, we are a profitable biotech company. We are focused on drug delivery technologies and platforms. We have two offerings today. We have our ENH drug delivery technology, which is we work with leading pharmaceutical and biotech companies, taking their IV therapies from IV to subcutaneous delivery for rapid, quick, short deliveries of simple injections. Today we have 7 approved products, and we're growing to expecting 10 approved products by the end of 2025. Our second platform technology is an autoinjector technology. We have a small volume autoinjector, which is highly customizable and offers high reliability. One good example is Teva's use of our autoinjector in their generic EpiPen. We also have a high volume autoinjector offering. This is the first clinically demonstrated ability to deliver up to 10 mL rapidly in 30 seconds.
And then we also have two proprietary products that use our drug delivery technologies. Those are XYOSTED and Hylenex.
Got it. So I know most of the time, almost all of the focus is on the royalty growth, the revenue growth, et cetera. But maybe just take a step back and remember why people value ENHANZE so much. So what is it about the technology that you think really drives the value proposition of a sub-Q product? Is it time of infusion? Is it freeing up IV facility space? All of the above.
All of the above. We see benefits to the health care system, driving efficiencies in the health care system with freeing up IV space, treating patients more rapidly, more quickly, more patient turnover. We see the ability to reach more patients. A sub-Q can be delivered in the home by a health care practitioner or self-administration. It can be delivered in your local hospital or doctor's office. So really the ability to treat more patients and improve that treatment burden for patients, being able to receive your treatment instead of hours-long IVs and quick minutes injections, has great benefits for the patient experience.
Got it. So we're going to go into more details on some of these products in a couple of minutes. But maybe if you could just start off by talking about the key revenue and royalty drivers today. What are the most important things in the portfolio?
So we derive revenues through three revenue streams. The majority, more than 50% of our revenues are derived from royalties that we receive from the products that are approved in licensing our technology. We also derive revenues from milestones. Those are as our partners progress through clinical development and sales attainment milestones. And then we have product sales, which include the sale of our API to our partners, as well as the sale of our devices to our partners.
Great. So very CFO question next. You obviously reported earnings last week. Can you just talk to us? You reiterated guidance. Can you just review for us what that guidance is, what it represents in terms of year-over-year growth, and how we think about growth over the next couple of years as well?
Yes. So we reiterated our 2024 guidance, which demonstrates total revenue achievement of $915 million-$985 million. That's greater than 10% year-over-year growth. And I mentioned a large driver of that is growth in royalties. Royalties are growing over 12% year-over-year. And all of this means we have a very high margin business. And all of this means high growth on the bottom line. We're projecting EBITDA to grow greater than 26% year-over-year.
Got it.
From a Q1 perspective, our Q1 results are really tracking in line with our expectations for full-year growth. We had shared that we expected Q1, especially on the milestone in the ordering of our partner's API, to be more loaded into the second half. That is still the line of sight we see today based on our partner's progress and expectations. Then from a royalty growth perspective, we saw an expected Q1 to be sequential, where we exited Q4. The same expectation is for the second quarter, with then growth in the third and fourth quarters of the year driving us to achieve $500 million-$525 million in royalty revenues.
Got it. And then when we think about the next couple of years, you earlier this year gave a lot of details about how you think about long-term revenue and royalty growth. Can you just maybe talk to us about the billion-dollar royalty guidance for 2027 and how we should think about long-term durability?
When we look at our royalty revenue and the long-term durability, we did share that we expect to achieve $1 billion in 2027 and growth from that in 2028, and actually total revenues in 2027 and 2028 exceeding $1.5 billion. The driver of our royalties is our current royalty portfolio. So I talked about the seven products that are already approved. We talk about our products in waves. So that is made up of our wave one and two products, which is our five first products that were launched, and then two of our wave three products launched last year. And two more I mentioned, or three more one more launching this year, two more launching next year. So those are the drivers of the strong royalty growth that we're expecting in that horizon.
Got it. So maybe now let's dig in a little bit more detail into a couple of those key royalty drivers today. Two products, J&J's DARZALEX and Roche's Phesgo. Maybe start with Phesgo. Can you give us a review of the recent growth trends and how you're thinking about the conversion rate from the prior IV products into Phesgo?
So for Phesgo, Roche just reported Q1 revenues that grew 70%. So that is a very strong growing product for Roche. And the conversion from PERJETA to Phesgo and just a little bit of background there. Phesgo is a fixed-dose combination of PERJETA and HERCEPTIN. So taking two sequential IVs into just one fast, simple, rapid subcutaneous injection. So very great value proposition for patients. 85% of patients prefer Phesgo to the IV therapies. Strong growth that they reported the first quarter. They've also reported that as of the first quarter, 41% for the entire world has converted from IV to the subcutaneous offering. And they're targeting 50% conversion to subcutaneous.
Maybe walk us through the dynamics in different international markets. The U.S. is a little bit behind that 40%. Why is it taking the U.S. longer? And do you think ultimately all countries get to 50%, or is that a blended average?
They're reporting it as a blended average. What we do see is Europe converts much faster than the U.S. So of that 41%, U.S. is tracking at 25% conversion. So Europe does have the dynamic of converting faster, but U.S. is slowly but surely also converting.
OK. So then moving over to DARZALEX, already a very high conversion rate there, over 90%. What's been the driver of that? Why has it been such a rapid and high rate of conversion?
DARZALEX had some unique rapid conversion dynamics, one of those being it launched during COVID. So very high constraints on nurses' capacity, IV chair capacity. Another is the strong value proposition for patients and the strong offering. That's a 4-6-hour IV that goes to just a 3-5-minute injection. And the third I'll say is that the subcutaneous formulation has lower infusion-related reactions for the patients.
Got it. OK. When we think about modeling DARZALEX, a key consideration is the royalty rate and the durability of that royalty. Maybe we'll take a step back and we'll talk about, in general, how you protect your royalties in the future in a second. Just for DARZALEX, walk us through what the dynamics we should be thinking about for the royalty rate and durability of the royalty stream.
So DARZALEX, as a brand, is projected to grow. Analysts have it growing to $17 billion in 2028. Last year it was off of $9.7 billion. So the brand overall is growing. And over 90% of that in the U.S. is the SC formulation. So that brand growth is driving our revenue growth and durability. We noted in our projections that DARZALEX, that contract is uniquely positioned, where we have our composition of matter patent expiration in March of this year in Europe and in the U.S. in 2027. And we did include in our projections a royalty rate step down at each of those times. For DARZALEX, that is the only product in our portfolio that has that dynamic.
But despite in the face of that royalty rate step down in our projections, because of the strong brand growth, we see continued royalty revenue growth to us in 2024 and beyond.
Got it. Maybe this is a good time to then jump back in and talk about the overall structure of your collaboration. An important piece of this has been co-formulation IP. Can you just walk us through, in general, how we should think about the average product and how you get royalties and how long you get royalties for?
Yes. So we are paid royalties at a mid-single digit on average over our products for the minimum of 10 years or the life of valid patents. In all of our contracts, that typically means patents are in place, whether that's our Composition of Matter patent and/or co-formulation patents, meaning our partners combine our biologic with their biologic, and they are able to file for new patent protections. All of our wave 1 and 2 products have these co-formulation protections. Our wave 3 products are filing and pending co-formulation patent protections. So we are uniquely differentiated in that regard, where typically a product loses exclusivity on Composition of Matter patent. But we are unique, where that's not the dynamic for us and for our business because of combining these biologics, our granted co-formulation patents. Those go into the 2030s for our earlier products.
The already launched wave three products are expected to go into the 2040s. So really keeps that revenue durability.
Great. So I think that's a great overview of today. So let's talk about the near-term future. So you've got products launching already, like argenx's VYVGART. There's also several launches you've talked about that are expected in the next year and into 2025. So let's just talk about a couple of those in more detail. One of them is the sub-Q product for OCREVUS. How should we think about that launch and what the potential for the IV to sub-Q switch would be?
Yes. We're very excited to have many near-term launches coming. I'll maybe just touch on a few of the others as well. We mentioned VYVGART Hytrulo. That's already launched for gMG. They're adding an indication for CIDP this year, which is only being offered with the SC formulation. Then OCREVUS approval coming up in Europe mid-year. In the US, in September, is expected for this year. That's treating MS patients. It has a very similar value proposition, where it's taking an hours-long IV to just a minutes injection for MS patients. Roche is very much expecting that to expand the reach of reaching patients, so being able to open up more treatment centers and reaching more patients than they can today.
I know they've made comments noting that they expect the SC formulation on its own to be a blockbuster, with targeting a $2 billion market for just the SC.
Got it. OK. I'll let you talk about. There's several launches here. One I just wanted to ask about was OPDIVO, the sub-Q formulation, just because we just very recently saw the regulatory application submitted to FDA. Same kind of question. What is the value proposition there? But when you think about those other, I think, total four launches that could happen over the next year or two, what's exciting you?
Yes. So many upcoming launches. So I talked about OCREVUS. That would be our eighth approved ENHANZE product. OPDIVO coming up would be our ninth ENHANZE product. And that has a U.S. approval date now in February of 2025. And Bristol has said that's really expected to grow their franchise into the next decade.
Got it. Last question here. This kind of ties back into the fact that the co-formulation piece and how long you have these royalty streams. But can you talk about the magnitude of what you think could be coming in those wave three products and how that compares to, for example, DARZALEX and the prior or the today products?
Yes. So when I think about the today products, that's really a market potential of $20 billion. So looking at analyst projections of the peak revenues for those products, total branded products is a $20 billion opportunity, converting that over to SC for our royalty opportunity. When I look at the wave three products, that's a total analyst projections around $35 billion products, $35 billion in sales at their peak in 2028. So think about the opportunity there for that to convert to SC and then convert to us for royalties. And that's really what's driving our long-term revenue projections that we shared, especially royalties growing to $1 billion in 2027. And growth beyond that is that potential. And that's just from the wave three products, not including the expectation that we'll continue to add products to our portfolio.
I think another important point here has been when you think about development risk, it's very different to the typical biotech company. Because most of these products that we're talking about have already been approved in the IV form. So the biology risk, the clinical risk is minimal. When we think about now your portfolio of partnered programs that are in development, how should we think about those clinical risks across that portfolio? I'm thinking about a couple, nivolumab and relatlimab and Takeda's TAK-881. So just are there different levels of clinical risk in any of these programs?
We have seen a great track record with already de-risked products that have already been proven in IV. It's really just showing that the similarity is with the SC offering. All of the products that we've included in our royalties and our 5-year projections are already approved with the IV and have positive phase 3 data with the SC. 1 remaining phase 3 data we're awaiting is for J&J's amivantamab, which is expected this year and then would launch in 2025. Then we have 6 products that are in what we call our wave four, which are products in the pipeline, 2 of those being in phase 3 at the moment. Those are continuing in development with phase 3. Those would be the first launching of our wave four pipeline.
Got it. OK. In addition to ENHANZE, you mentioned the autoinjector platform. Can you just start off by talking about what's approved today? What attracted you to acquire this platform in the first place?
Yeah. We were really attracted to the technology of the device and especially the technology where this device is highly customizable and highly reliable. And so what's approved today, just to give a few examples, is Teva's EpiPen. Like I mentioned, Teva's generic Forteo is also approved using our autoinjector. But what attracted us the most is our ability to innovate a high-volume autoinjector. So I mentioned that we are the first ones to demonstrate the ability to provide up to 10 mL in a short rapid injection under 30 seconds or within 30 seconds. And that's only possible because using our ENHANZE. And just a little bit about how the ENHANZE enzyme works is it creates channels in the subcutaneous space. So in your subcutaneous space, there's lots of fluids. And there's not a lot of room for a therapy to be delivered.
Typically the limit is about 2 mL. Anything higher than 2 mL, there's not space in the subcutaneous space for it to go. There's leakage or back pressure or pain, swelling. So really the max at the moment is 2 mL. So what we've demonstrated is the ability to provide up to 10 mL. That's because our ENHANZE works rapidly to temporarily degrade the subcutaneous space and allow channels for the fluid to disperse. So very rapidly those channels are created with our enzyme and allows the fluid to be delivered very rapidly.
Got it. And then when we think about the future, a key recent development has been the high-volume autoinjector. You showed some validation data last year. Can you just talk about how differentiated that platform is?
Yeah. And what's great about the high-volume autoinjector is and what we tested in our human factor study is patient tolerability and patient pain, which was very positively and well received, the majority of patients saying they would use the autoinjector again. We also have one of our current partners who has done their own human factor study as well, really wanting to make sure they test the device, see how patients can use it. It's a very simple device, a two-step. Twist the cap and hold it against your body and allow the therapy to be delivered. So that study also demonstrated very positive results from a human usability perspective.
Got it. OK. So what is ultimately the current level of interest from partners in the high-volume autoinjector? And then how should we think about, I guess, as a step back, for ENHANZE, we've come to expect certain aspects of the collaboration terms, like you said, a mid-single digit royalty rate, the terms, the co-formulation IP, all of that kind of stuff. So how do we think about how that could look for high-volume autoinjector?
So from an interest perspective, the interest is very high. We're having a lot of great dialogue and discussions with our current partners and with new partners interested in using the high-volume autoinjector. I would say we were a bit surprised by the fact that because it's never been done, it's a little bit hard for folks to believe this in our conversations. So we're doing a lot more demoing and demonstration. I mentioned one doing their own testing, really to just see this in action and believe that it can be done. But a lot of great potential and opportunity there. And then from an economics perspective, we do see this as an opportunity to grow our ENHANZE partnership. So it'll add to and grow the current licensing of our ENHANZE technology. I mentioned it requires ENHANZE to be used in this rapid delivery.
So we see it as an opportunity to grow that royalty stream, likely very similar economics to what you see today, and then added on the sale of the device that would accompany that.
Got it. OK. I think one of the most exciting takeaways from the earnings call was, I guess, what we perceive to be your enthusiasm about the potential for new deals this year. And you said that that's maybe more weighted to ENHANZE right now. But it does cover ENHANZE and the autoinjectors. But just talk about what's driving your confidence in the likelihood of more partnerships and more partnerships in a reasonable time frame.
Yes. We continue to be viewed as the leader in subcutaneous delivery. And we're having a lot of great and robust discussions with potential partners across our platform. And in particular, now as always, with ENHANZE and the value it can bring for patients and for products. So we continue to have robust discussions where we've had many of those. And we have a lot that are really progressing through the process. We gave a lot of details on our call on the process we go through with potential partners. And all of them are a bit unique depending on their own internal technical discussions and then budgetary discussions. But we've made a lot of progress getting through all of that and really in term sheet discussions, which is the final stage before we enter into a collaboration and license agreement.
Got it. Another very CFO question. You've talked a lot about your commitment to prioritizing and optimizing capital allocation. You've had several buybacks. You've recently announced a new buyback. Can you talk about, A, your overall thought process here and, B, the rationale for a buyback versus potentially other ways to return capital to shareholders?
Yeah. And so I mentioned our strong EBITDA growth. And that is also reflective of a strong EBITDA margin. We're at greater than 50% today, growing to greater than 70% in the next five years. So that's translating to some significant free cash flows for us. So we've put that capital to work. And you've seen us do that to date. And our pillars are reinvesting in our business, the current business today, through share repurchases. We've executed on $1.3 billion to date and have reauthorized a new plan this year for another $750 million. And we're also deploying our capital to grow via M&A. We did that with our first acquisition of the autoinjector technology in 2022 and continue to look for opportunities to grow our revenue growth and our revenue durability via M&A. And I would say we've demonstrated historically that we're very balanced amongst these pillars.
Even through our acquisition in 2022, we continue to execute on share repurchases in that before, during, and after. In that three-year time frame, we executed on $750 million of share repurchases.
Great. Let me just check with the last minute here if there's any questions in the audience before I ask my last question. So you talked about M&A. You completed the Antares' acquisition, bringing in the autoinjector technologies. What is the priority level to bring in new technologies today versus, for example, continuing to push for ENHANZE partnerships or reinvest in the business?
Both are very strong priorities for us. We are very much focused. We segregate internally the dedicated teams to both efforts. So those are different teams: business development and corporate development. So both are very important efforts for us that we continue to focus on. And maybe I'll just say on the M&A front, we're very diligent in our process in making sure it really fits our criteria. We're not going to rush into anything that doesn't make sense for our business and that doesn't make sense for our criteria. I think you saw us do that with the Antares acquisition. And we'll continue to do that as we seek our next M&A.
Maybe just to hit those criteria again, you're not looking to go and take significant clinical risk or build out a development infrastructure, correct?
That's exactly right. We are not looking for binary, traditional drug development risk. We have a great growth path for durable revenue. We're really looking to add to that revenue growth and durability.
Great. Well, Nicole, really appreciate you being here this morning. Thank you.
Thank you.