Hello, everyone. My name is Mitchell Kapoor. I'm a Senior Biotech Analyst here at H.C. Wainwright. I'm a covering analyst for Halozyme, and gonna have a fireside chat with Tram Bui, who is the Head of IR. Tram, thank you for joining us today.
Great. Thanks, Mitchell.
We'll just jump right into it. For those who may not be familiar with Halozyme, could you just give an overview of the company and what kind of the core initiatives are today?
Great. Well, first and foremost, thank you for having me here today. I always like to start off by saying that Halozyme is a very profitable biopharma company. We have two drug delivery technology platforms, as well as a commercial portfolio. ENHANZE is our leading asset, and we also have an auto-injector technology. ENHANZE is basically an enzyme that allows for rapid sub-Q delivery of high-volume biologics. Our business model is very simple. We license our technologies to leading pharma and biotech companies such as argenx, Janssen, Roche, BMS, Takeda, just to name a few. ENHANZE is also a very de-risked technology, that's had a lot of commercial success. We have eight approved partner products on the market today in at least one major region, and we expect that to reach 10 by 2025 .
So with that said, we have a very clear line of sight to some significant revenue growth ahead of us. We have been able to put out five-year projections, and we expect a 20% five-year CAGR of our royalty revenue and 25% adjusted EBITDA. We're also generating a lot of cash, and with that cash, we are continuing to invest in the business. We have returned $1.3 billion to shareholders over the last five years, and we will continue to look for M&A to support to further accelerate our growth. So I think that sets Halozyme up for a very exciting growth story, and I look forward to digging in with you.
Yeah, absolutely. Great overview, and I wanted to re-emphasize one of those core pieces of our thesis of taking IV drugs and making them sub-Q. It's a huge opportunity, as you know, how many biologics are given IV and how many you could take and transform the standard of care for folks. So Halozyme has a bunch of different waves. Could you tell us kind of what waves mean for Halozyme and where you are today in the current waves of development?
Great. So we introduced the waves to delineate the launch timing of our ENHANZE product pipeline. Wave One is our legacy portfolio, and those products are contributing to our revenue today. We have two products in Wave Two that launched in 2020, and that is Janssen's DARZALEX FASPRO and Roche's PHESGO. And those two products are driving our royalty revenue growth today and beyond. What's exciting is that we have five products in our Wave Three pipeline that started to launch last year, and we expect launches throughout 2024 and into 2025. But what's even more exciting is that these Wave Three products represent total brand opportunity of almost $35 billion for the IV and sub-Q sales by 2028, and that basically only compares to $20 billion for our Wave Two products.
Our Wave Two products that I mentioned are driving our royalty revenue expectations for this year of $520 million-$555 million, and then you layer on the Wave Three products, and that is gonna get us to our $1 billion royalty revenue projection in 2027. Some highlights there include argenx's VYVGART Hytrulo for generalized myasthenia gravis and CIDP, which I think the Street is very excited about. We actually have three PDUFAs coming up, two just any day now, and that is Roche's ocrelizumab sub-Q and TECENTRIQ sub-Q, and then at the end of the year, we expect BMS' nivolumab sub-Q with a PDUFA date of late December.
Great. Yeah, and so all of that through 2028 kind of encompasses Wave Three, but you have more waves to come.
We, we do. We do. We have six products in Wave Four that hasn't gotten much attention yet because if you think about our royalty revenue projections, it's fairly de-risked, and it only includes waves one through three.
So really anything... There could be additional catalysts for Wave Four between that timeframe that's not included in guidance?
It could be, but the Wave Four products, we are not expecting those to launch until probably 2026-2027.
Great. Okay, and could you remind us what kind of royalty rates you have for some of these products?
On average, across our contracts, we receive mid-single-digit royalties. Again, to put that into context, our Wave Two products estimated $20 billion in total sales for the brands, and then Wave Three of over almost $35 billion in total brand sales. If you put that average mid-single-digit rate on the sub-Q sales of those products, we expect, again, to reach $1 billion in royalty revenue projections in just a few years out now in 2027.
Right. Yeah, and, obviously, ENHANZE is a big core component of that. And recently there was positive news that you received an extension to your IP in the EU for ENHANZE, which helps some of the royalty streams. So could you talk a little bit about what that means for Halozyme?
Great. Yes, so in June, we were granted a new patent in Europe by the European Patent Office that extends our, our patent coverage out till March 6th of 2029 . So this, in fact, allowed us to, maintain the original royalty rate for, J&J's products, DARZALEX FASPRO and amivantamab sub-Q, out until March 6th, 2029 . So this is essentially five years longer than we had previously projected. So we did update our guidance, and that's where we were able to, you know, increase our, our projections to reach that 20% five-year CAGR for royalty revenue of 20%.
Great. And, that was in the EU, and wondering about if a similar extension could happen in the U.S., and if so, what would that look like, if it was implemented, and how soon could we potentially hear more about that?
We do have a U.S. patent reissue pending in the U.S. as well. We haven't adjusted our estimates for this, but if it was granted with similar claims to the European patent, it would have the same effect of maintaining the original royalty rate for the Janssen products out until 2029 . You know, we do think that the U.S. Patent Office will act on that application this year, but I would just remind folks that there is no set timeline. There's plenty of time for them to act because if you think about it, our U.S. patent for ENHANZE extends to 2027 . If we get this new patent, the impact would be, it would add 18 months to our original royalty rate for DARZALEX FASPRO and amivantamab sub-Q.
Great. Okay, and, switching gears a little bit to a separate part of the business, the API business, could you tell us a little bit about that? And, there's some quarterly fluctuations that happen there, and so sometimes we get questions on what that means.
Yep.
Could you just tell us, give us a little context on what that is?
So beyond the royalties that we are able to garner from our partners, we also sell API to them, so our partners can manufacture the co-formulated, their products co-formulated with ENHANZE. So the API sales do depend on our partners' forward, like, manufacturing needs and plans, which can vary. These orders are also based on our partners' requirements for material and on hand and forward build. So as you noted, you know, these can vary, and it does create the lumpiness that we do get. But we do try to give as much line of sight as possible. For example, we have noted that our third quarter product sales will essentially be flat to second quarter.
Great, okay. That's helpful. Again, moving through the business and the business development opportunities, you touched briefly on it in the overview. Could you just tell us a little bit about that strategy at Halozyme, how it has been, and kind of how it's evolving today?
In reference to new deals?
Yeah.
It is a topic of discussion that we always get, so you know, we remain in discussions with potential partners that will support a new deal this year. In terms of ENHANZE, we are actually in terms of discussions with companies, and this is typically the stage before negotiating and signing a collaboration and licensing agreement. For ENHANZE and our high-volume auto-injector, we remain in technical discussions with companies. You know, what we always note in regards to the high-volume auto-injector is that it really is truly groundbreaking, and companies are wanting to, you know, test it, assess it, and that remains ongoing.
We always also note that, you know, every company is very unique in regards to their, you know, technical processes, and budget procedures, so the timing for a new deal is always very difficult to predict. But again, we are... You know, our discussions are supporting a new deal.
Great. Yeah, we're definitely looking forward to hearing more on that front. Are there themes, you know, points of interest, that are coming out of these discussions? And can you just talk about, like, if some of the focal points are on early stage, mid- stage development or commercial, and what that kind of means for the business?
So, maybe I'll just answer that last piece first. So we are in discussions with, you know, small cap, mid- cap biotechs, all the way to large pharma. So if you think about the assets in discussions, they would, you know, represent a wide range as well, from phase I to commercial. If you think about themes, I would say that, you know, a highlight that folks are maintaining focus on is the significant benefit that ENHANZE can provide to patients and the healthcare system. So there are areas that recognize this more than others, such as oncology, neurology, inflammation, and immunology.
As for targets, I think, you know, companies are talking about with ENHANZE for nucleic acids, bispecifics, ADCs, as well as monoclonal antibodies, which is typically where we play. There's interest. You know, right now we have mainly focused on IV to sub-Q conversion, but there is growing interest for potentially extending the dosing, where ENHANZE could potentially help there, and there are areas, you know, in autoimmune and other chronic diseases, that it would fit.
Okay, great. Yeah, so you mentioned, you know, you're looking at deals with small, mid, and other biotech companies. Could you talk about the risk mitigation of these assets in terms of how they fit into the pipeline?
Again, the risk mitigation, I would just note that, you know, for development assets, the risk is always dependent on where they are in their development. But if you think about sub-Q delivery for antibody products, we actually have very high confidence because, again, we have eight approved products on the market today, expected to reach 10, so.
Okay, great. In these discussions, can you talk about how often ENHANZE is coming out versus the high-volume auto-injector? Is there, like, a shift of, you know, discussions towards one or the other of these?
I would say that currently most of our discussions are around ENHANZE, less so regarding the high-volume auto-injector. You know, again, what I noted is what we're trying to do with the high-volume auto-injector is truly groundbreaking. The high-volume auto-injector uses our auto-injector technology when co-formulated with ENHANZE will allow for 3 ml- 10 ml of drug to be subcutaneously injected in 30 seconds. This has never been done before, and a lot of companies didn't believe it could be done, so they are wanting to test it and assess it. We did have one partner do a human factors test, and it was successful, so those discussions remain ongoing.
Great. And when we think about how deals have looked historically in terms of terms, royalty rates, et cetera, could you talk about how Halozyme is planning, conducting those discussions going forward in terms of, you know, could we see mid-single-digit royalty rates, et cetera?
Our goal with any contract is to maintain the durable royalties that we get. For non-exclusive deals, obviously, the royalty rate will be a little bit lower. But if you think about, we've always offered exclusive and non-exclusive deals to our partners, and again, historically, they have been exclusive because companies want the competitive differentiation. We were also pleased to announce Acumen at the end of last year, and that was a non-exclusive license for their amyloid beta target. That is a single-digit royalty, but we expect that to be durable. Again, if it's not exclusive, that gives us the opportunity to partner with other companies, and it could be we could be in a stronger position for a target as interesting as amyloid beta.
Great. That's, that's very helpful. As we're moving towards the end of the discussion, I did want to touch on something else we get questions on, which is other hyaluronidases from different companies, smaller companies, and you and I have had a lot of discussions-
Yeah
... about where Halozyme sits in that whole space, but maybe you could help educate the audience about that.
ENHANZE is the only approved enzyme for rapid sub-Q delivery of high-volume biologics. Again, with eight approved products on the market, expected to reach 10, we are the most validated from a regulatory and clinical commercial perspective. ENHANZE and Halozyme can offer our partners a lot by partnering with us. ENHANZE is the most, the safest product out there. It's been used in over 800,000 patients to date, and then we can also assist in, you know, development and CMC strategy, and then we have a very strong track record of high-quality supply.
Makes a lot of sense, and definitely the leading player in that space. Okay, great. So last, I would love to just have you touch on anything that maybe we didn't discuss, and if maybe you could highlight kind of the 12 months ahead for Halozyme.
We have a lot going on. So again, I keep on mentioning these eight products. There are eight products approved in at least one major region and expected to get 10. But if we look at the next four months, we actually have three FDA approvals, potential approvals coming up, and they're for some exciting drugs. Again, Roche's ocrelizumab sub-Q for multiple sclerosis. They've got TECENTRIQ sub-Q, and then, BMS' nivolumab sub-Q, and then again, J&J's amivantamab launching in 2025. But even before that, we expect continued advancement of our development pipeline that you talked about, and then new deals. So I think that's a lot to look forward to.
Absolutely. Great. Well, thank you so much for joining us, Tram. We really appreciate it, and this was a very productive discussion.
I appreciate it, Mitchell.
Thanks.