Okay, great. We'll go ahead and get started here. Thanks, everybody, for joining us here at our second day of Piper Sandler's annual healthcare conference. I'm Joe Catanzaro, one of the biotech analysts here at Piper. It's my pleasure to kick off this next session with Halozyme. Joining us is their CFO, Nicole LaBrosse. Nicole, thanks so much for joining us. Maybe before we jump into some Q&A, I can give you a minute or two. You could sort of introduce Halozyme, let everybody know what you've been up to and what we have to look forward to.
Sounds great, and thanks so much for having me here today. So at Halozyme, we are a profitable biopharma company. We have a vision of making medicines that fit the patient's life. We have two technology platforms and a commercial portfolio. And the foundation of our technology is based on our ENHANZE technology. This is an enzyme that allows for subcutaneous delivery of IV biologics underneath the skin. So think of large volumes rapidly being delivered under the skin. We license this technology to pharmaceutical and biotech companies, including Janssen, Roche, and Bristol, just to name a few. And we derive revenue streams from our licensing technologies in the form of product sales for the API, milestone payments, and revenues from their sales of commercialized products. This all leads to very nice and significant revenue streams that are durable and predictable and with long lead times.
A great example is we recently increased our guidance for the full year following really strong third-quarter results, and we've given five-year revenue projections and bottom-line projections showing a royalty five-year CAGR of 20% and an EBITDA five-year CAGR of 25%, so all of this is pointing to very nice growth opportunities for Halozyme.
Great, that's perfect. And of course, I do want to talk about ENHANZE and all the progress you guys have made there. But maybe we could start on the business development side and the recent news around your interest in Evotec and the non-binding offer that you subsequently rescinded. I guess I'm most interested, and I think many are most interested in what drew you to Evotec. What was the most attractive aspects of your business that you thought sort of fit well with the rest of Halozyme?
First of all, I mentioned Halozyme's vision was to make medicines that are better for patients that fit the patient's life. We do that today. We operationalize that by supporting our partners. So we supply and manufacture API. We really support them through their development regulatory process. So given that, when we think about M&A, we're looking for a fit for our operational capabilities and a fit and add to our vision. And so thinking about that through the lens of Evotec, one of the things that is key to our criteria is having a revenue stream, line of sight to revenue streams that are long and durable and predictable, just like our existing business. And when we dove into Evotec and spent a lot of time learning about the business and learning about the market, what we saw was a unique opportunity.
We saw an opportunity for us to expand our platform offerings into drug discovery, discovery of new medicines, and into lower-cost production of biologics, and then we saw the opportunity for very similar to our business from a potential for high margins and the potential for long lead-time revenue streams. For example, our projections that we shared was that we would expect it to achieve a combined EBITDA of 45%-50% in 2026 had there been a combined company.
I guess the other question I got as part of the Evotec offer was where the synergies were between ENHANZE and the rest of the Halozyme business and what Evotec was doing, and we'd love to hear your thoughts on where that lies and maybe where it might point us into sort of additional deal opportunities that you may be evaluating.
What we saw, the opportunity with Evotec from an operational standpoint, we didn't see overlap in the operations of the distinct platform technologies. But what we did see was that Halozyme's operational capabilities we thought could add value and have a nice fit for the Evotec business model. This is because we've demonstrated operational excellence. We've demonstrated the ability to take innovations to reality like we've done with ENHANZE. And we've demonstrated a very strong track record with financial discipline. We operate in a very financial discipline model. We have a very tight OpEx and, as you can see, very strong margins because of that. So that really led us to see our ability to add oversight of the operations of the company. But where the real synergy opportunity we saw was on the top line.
And so the ability to cross-sell amongst the two companies, very strong existing partnership base, and also the opportunity to attract new partnerships by offering a wider and broader technical platform skill set.
As we look at what Evotec did in terms of CRO, CDMO, is that the type of business where you're spending most of your time looking at potential strategic opportunities, or is the sort of net you're casting much broader than that?
What attracted us to Evotec wasn't necessarily the specific industry it was in, but it more was because it met our deal criteria. And we've set out our M&A deal criteria to be very focused on de-risked companies or assets, companies that partner with pharmas, similar to we do, companies that have a similar business in the sense I mentioned, high potential margins, and most importantly, as I said, the high potential for royalty or for revenue streams that are durable, predictable, that can add to the strong growth and base that we have today. So that was really the criteria we saw Evotec uniquely fit our criteria in that space and is going to continue to be the criteria that will measure potential M&A again.
I'm curious what kind of external feedback you received on the potential two-company combinations and whether that feedback informs sort of how you think about potential BD moving forward?
We did have a lot of feedback with our investors, and we stay very close and very engaged with our investors to make sure we do receive all the feedback from them. And what we learned, especially as this played out publicly the way that it did, was really just an initial reaction of unfamiliarity with Evotec. So there wasn't the familiarity or the appreciation for the value proposition that we saw based on our months and months of research in this space. And so that was really the gap we saw was helping to communicate clearly the value proposition that we saw starting from a point of really just being unfamiliar with the company.
So, I appreciate everything you just said. And I sort of asked this question from the standpoint of sort of how the stock reacted at deal announcement and today. How do you think about going about regaining investor confidence that moving forward any BD you will pursue will be something that will be positively well received?
It goes back to our M&A criteria, and I'll say when we looked at this opportunity and the fact that it brought a diversified and extended revenue stream to us, we did see and had confidence in the value it would bring to our shareholders, so we will continue to evaluate future deals in that same lens, really focusing on that financial profile and that operational profile that makes sense and is a fit for us. That being said, the deal did not come to fruition, we continue to engage and hear feedback from our investors, and we're moving on, we're putting that in the rearview mirror, and we're focused on our base business.
I can say the whole management team here is very excited about the years of growth to be obtained with our Halozyme-based business, really driven by the strong performance of our ENHANZE platform, our auto injector platforms, which have delivered and driven significant shareholder value to date.
I do want to get to that base business. I guess maybe last question on this front is whether there's any sense of urgency that you feel like you need to do some meaningful transactions, whether it be in the next six, 12, 18 months?
We have never had a sense of urgency. We view it as us coming from a position of strength in our ability to add and grow our business because of the current base business and the strong cash flow generation, and so we will take our time, and we have taken our time, and we'll continue to do so. We'll continue to evaluate potential opportunities under those metrics that I've mentioned, and we are in no rush or need to transact.
Great, so maybe with that, we could move to the base business and spend a lot of time on ENHANZE. I guess maybe first you could sort of lay out the ENHANZE business model and more so whether there should be any expectations that sort of business model evolved ever so slightly or if at all as we get closer toward patent expiry.
The ENHANZE business model, as I mentioned, is licensing our technology. We license to leading pharma and biotech. We have eight approved products on the market and two expected to be coming in the near term. We call those our wave one, two, and three products that are contributing very significantly to us, especially from a royalty perspective. We just increased our 2024 royalties to exceed $550 million. Great contribution on that front. Because of the success, we continue to have great discussions with potential partners. We continue to hear that SC is the delivery mechanism of choice. And we continue to hear and see a need for this delivery mechanism from the patient perspective and for the value it has on the healthcare system.
Because of that, we continue in dialogue with new potential partners as well as our own partners on continuing to find ways to expand our current relationships and new targets. And we're also in dialogue on the High-Volume Auto-Injector that we invented based on our technology and our auto injector technology, combining the two to create a novel device that has never been done before, delivering high volumes rapidly using our auto injector technology.
So I do want to maybe cover that High-Volume Auto-Injector a little bit later, but maybe going back to sort of potential future deal flow. I feel like this is a question I sort of constantly get around. How should we think about that cadence of potential deal flow again as we sort of get closer to patent expiry? It sounds like, as I'm hearing from you, the cadence of discussions that you're having and the breadth of discussions are as strong as they are now than they were maybe a few years back. Is there any evolution in how those conversations sort of proceed and evolve?
I'll say continue to evolve and expand and see a lot of great interest, and the evolution is probably more so that we're just continuing to expand in offerings and trying to find ways to come into programs earlier in the stage and also find opportunities to non-exclusively license our technology that allows us to broaden the breadth of licensing our technology, so we are continuing to look for more opportunities to get in with earlier stage programs and be included in the delivery, the development from the start, and also opportunities to non-exclusively license our technology.
Maybe that comment on sort of getting involved much earlier on was a contributing factor to my next question in terms of the organics expansion. I guess many sort of are curious in sort of what led to that deal expansion and why the willingness to expand it, but seemingly at some economic sacrifice to VYVGART downstream royalties.
We were really excited to expand our relationship with argenx. This was just the result of ongoing dialogue that we have with our partners and how can we work together more on more products, reaching more patients, the ability for more patients to receive their therapies through subcutaneous delivery. That was a nice expansion for us as well as the ability to really be argenx's partner of choice in subQ delivery. We're now going to be used across their portfolio and a great testament to what they've seen, the benefits they've seen with using our technology for subcutaneous delivery. On the VYVGART economics, we are maintaining our royalties at the stated rates through till our patent expiry in 2029. But even subsequent to that, we maintain in a mid-single-digit range, four at a minimum the first 10 years from launch, which was last year in 2023.
Subsequent to that, there are step-downs, but we maintain receiving royalties at a lower rate, but through to the duration of the co-formulation IP protection, which is into the early 2040s.
So if I understood you correctly, it sounds like there was some view of any maybe sacrifice of VYVGART will potentially fully be offset, if not more, than the expansion and new products that might come behind it.
We really looked at it as a transfer of value and where we saw the benefit and the opportunity for us to expand our value by expanding the relationship.
Great. Maybe with that, we could touch on sort of modified human hyaluronidase's platform and a newly sort of disclosed platform from you guys. Sort of maybe talk through how that fits relative to ENHANZE and why a potential partner would select modified human hyaluronidase over ENHANZE.
The vast majority of cases, partners will still select ENHANZE. That is the gold standard. It is the tried and true and de-risk technology. It has been in over 800,000 patients. That will be the number one choice. But what we wanted to do is share that we do have other patents out there. One of the reasons being that recently some of those patents were issued, and we did not want there to be confusion between our modified human hyaluronidase patents and our ENHANZE patents. The modified human hyaluronidase patents are related to other modified hyaluronidases that we, as the pioneers of human-derived hyaluronidase, in our inventions derived multiple other modified human hyaluronidases. That is almost 100 patents pending or issued that cover that portfolio. We are not manufacturing API to be used for that technology, nor would we support the development of anybody using that technology.
But that technology is out there, and it's available to be licensed.
Yeah. So maybe given the sort of stated non-exclusive nature of the platform and the deals you could potentially do and maybe less support you're providing to partners, how should we think about potential economics in terms of upfront mid-single-digit royalties like we've seen for ENHANZE? Is that sort of the framework we should have, or is there any reason to sort of think slightly different?
It is the right way to think about it because we do view that as being similar, and the similar recognition of the value of accessing the technology would be through milestones and through a royalty. And this is really for anybody who is utilizing a modified human hyaluronidase and is not utilizing ENHANZE and happens to be using another modified human hyaluronidase. This is an opportunity for them to license that technology from us.
Maybe last question in terms of offering going back to the High-Volume Auto-Injector. If I recall, maybe a few months back, you guys had mentioned an established partner was sort of doing some early groundwork on evaluating that platform. I guess where does that overall platform stand in potential near-term partnership opportunities?
Continuing a lot of great discussion on near-term opportunities there. This is also because there's a high unmet need. There's no other device out there that can rapidly deliver high volumes, and what we demonstrated in our study was that we can deliver up to 10 mL in as short as 30 seconds, and so nobody else can do that. And so in our discussions, what we are finding is there's actually a bit of a hurdle to believe that it can be done, and so we're spending that time letting them do their own studies, do their own feasibility studies, also demonstrating our ability to successfully manufacture and supply, so all of that is ongoing at the moment, and we see a lot of great potential for partnerships there.
How should we think about that in terms of potential partnerships and whether they come along early in a product's life cycle or late in a product's life cycle?
You know, I think the first uses will probably be existing ENHANZE users already. So somebody who's already co-formulated, developed their drug, that will be a very quick path to then putting it in an auto injector, but certainly opportunities as well to bring it in regardless of where they are in their development program.
So maybe with that, we could switch over to wave three products, a suite of potential ongoing and future launches. Maybe as we look at that wave three product, as you look at the potential products there, what do you see as the potential biggest contributor to the top line over the next 20 to 18 months? And I guess my question is, what product could most closely mimic what we saw with FasPro and its conversion and adoption?
Yes. So with our wave three products, it's comprised of five products. The first was VYVGART Hytrulo, argenx's efgartigimod product that launched last year. That being the first one to market is the one that is contributing today and in the next 12 to 18 months. But following that, quickly after, our two products from Roche, Tecentriq SC and OCREVUS SC, having just been recently approved by the FDA in September. And then our next two near-term launches are expected to be with Bristol's Opdivo, which has a PDUFA date later this month in December 29th. And Janssen's amivantamab expected for approval next year as well. So that is really our runway and our expectation of contribution from the wave three launches.
I want to ask about partners' sort of different approaches to launching their subQ products. I think we saw with FasPro was very much a conversion of the existing market, whereas I think Roche has spoken to OCREVUS as not so much a conversion of the existing market, but more so growing the market from where it is. Maybe you could sort of speak to the sort of benefits of either approach.
I think specifically with OCREVUS, and this is a treatment for MS patients, and the value proposition is really big for those patients, which is taking a three and a half to six hour IV and making that into a minutes-long injection. The total injection and observation time is down to 10 minutes. For MS patients who can't or can't easily access IV infusion centers, there's shared capacity issues. This is a great benefit for patients. I think that's why Roche is specifically first and foremost focused on the market growth because they're really seeking to access patients who can't get treatment today. They've noted that they expect the subQ version to drive $2 billion market growth for that brand alone.
But as you can see, the value proposition is very strong for patients and for the healthcare system. And so we very much think there will be good conversion from the existing IV base as well. That was a $7 billion brand last year. And we think ample opportunity for conversion to the simpler and easier injection as well.
Given their emphasis on new patient starts, they're appreciating there's going to be a conversion dynamic as well. Does that sort of change maybe how we should think about the trajectory of this product? Again, going back to FastPro and converting an $8 to $9 billion market very quickly, maybe a little slightly different than the approach Roche is taking.
Yes. That was our fastest conversion. What I will say is that they did generate data that demonstrated that 92% of the MS patients do prefer the subQ. So I think that also bodes well. It bodes nicely for conversion. But the speed of that is to be. We'll see how that plays out.
Maybe moving to VYVGART Hytrulo. There too, I'm sort of trying to think through the trajectory of that launch and whether it's more of a label expansion play, the CIDP. I think there's a couple other opportunities or more so switching over the MG market from IV to subQ, or maybe it's a little bit of both.
I think it's a little bit of both. They've also been focused on more of a market growth rather than a switch strategy. But what we're seeing is the first indication gMG, very nice trajectory, and it's driving the market growth for that indication. So it's driving use in the frontline setting. They recently indicated that their expectations have increased significantly for that indication by three and a half times since they initially launched the product. So that's contributing to the growth very nicely. And then, as you mentioned, expanding by indications. They refer to VYVGART as being a pipeline and a product, and they're doing that by adding the indications, CIDP having been approved in June of this year. And that's for the subQ version only. So that is only approved for that indication with our ENHANZE technology.
And then the thyroid eye disease, they're studying with two registrational studies.
I think argenx is also sort of guided towards a prefilled syringe come April of next year. What kind of benefits is that going to provide to patients relative to the current subQ offering?
Just another way for more convenient administration, the goal of self-administration with the prefilled syringe. The prefilled syringe utilizes VYVGART with the ENHANZE technology. I think also a great market opportunity.
In this last minute, maybe we could touch on the PD-1, PD-L1 subQ market. I think it's always been one, and I know I've said this to you guys over and over, tough to kind of figure out and model where the conversion happens and what settings and what indications and what combinations, monotherapy or not. How do you guys think about that? Maybe what your respective partners sort of told you?
Yeah. So when we're thinking about, and maybe I'll use the Tecentriq example, that is a switch strategy for Roche for Tecentriq. And I think the expectation is in an IV and non-IV regimen. So either with orals or monotherapies, that would make a lot of sense to just have a subQ delivery. But if you think about also in a combination and somebody who's already sitting in an IV chair for many hours, being able to not tack on another multiple hours and combine that into one IV and then a subQ following that also has the patient benefit of reducing that time.
My last question, so there's the subQ pembro trial that just read out. I wonder if there's anything curious within the dataset that maybe will inform how that platform performs relative to how ENHANZE performs that you might be curious to see?
You know, nothing that comes to mind. I think that doctors prescribe each of those based on the individual patient and their profile and their data. So I don't think that will change. But I think just more broadly having subQ availability of therapies is great for the healthcare system, and it's great for patients.
Perfect. With that, we're out of time. So, Nicole, I want to thank you for your time and thoughts. And thanks, everybody, for joining us. Take care and enjoy the rest of your day. Thank you.
Thank you.