All right, I think we're going to get started here. I know lunch is just off of this session, so we don't want to keep people waiting too long. But welcome back to the 45th Annual TD Cowen Healthcare Conference. I'm Brendan Smith, Senior Biotech and Life Science Tools and Diagnostics Analyst here at TD Cowen. And it is my distinct pleasure to introduce to you the CEO of Halozyme Therapeutics, Helen Torley, to my right. And to her right is the Chief Legal Officer for Halozyme, Mark Snyder. And obviously, there's a lot to discuss this morning, a lot of ground to cover in general for Halozyme. So maybe let's just jump right into it, Helen. So maybe we'll talk about MHA's portfolio.
But obviously, let's address The Wall Street Journal article this morning discussing how Halozyme does potentially believe that Merck may have infringed upon its patents. So maybe just give us a sense. What is the case here? What does MHA's look like relative to how you kind of view the Keytruda subQ opportunity? And just help us level set how you're thinking about this.
Yeah, maybe I'll give a high-level overview, and then we can get into more of the details, Brendan. So I think everybody in the room knows Halozyme is the pioneer, the inventor of the whole area of using hyaluronidases to be able to deliver large-volume drugs subcutaneously. This has been the work of decades and many, many thousands of experiments. It resulted in two patent portfolios, the ENHANZE portfolio, which you're very familiar with, that we licensed to leading companies today to allow them to make their IV drugs be able to be given subcutaneously in return for a royalty. We also have another patent portfolio that we unveiled last October, which is called the MHA portfolio, which is modified hyaluronidase. These were being worked on for many of the same years as the ENHANZE ones. It's for a different product, though, and a different structure.
And we unveiled these last October, wanting to make it clear that for any companies who are working on a modified hyaluronidase, who didn't want to work with us on ENHANZE or couldn't work with us on ENHANZE, perhaps because we were already working with somebody else on an exclusive basis, that these patents were available for a license. And what was reported today really relates to the question of Merck is using a modified hyaluronidase. We believe that the Alteogen product that they are using does infringe our intellectual property. And just consistent with what we've been saying in October, it is our goal for us to sign a licensing agreement with Merck for them to license our IP that is enabling their ability to be delivering subcutaneous Keytruda. That really is the sum and total of this.
I think as we get into conversations, hopefully, we can also discuss if Merck wasn't going to come to a license. I know there was some speculation. We want that to happen, but we also do stand ready and able to take appropriate steps to defend our intellectual property, including lawsuits. So we can talk about that.
Great. So let's now talk about next steps here. So what is the path forward? Maybe give us any sense or color that you have on potential timing to this. Kind of lay out the next few months now for this part of the conversation.
Yeah, well, I will say that I have reached out to Merck to offer them the opportunity for a license with MHA's. It's our hope that they will engage with us and we'll be able to progress with that. That really is our business model is these licensing agreements, and that's what we would like to happen. In the event that doesn't turn out as we would plan, maybe I'll ask Mark to comment on that.
Thanks, Helen. And yes, our preference, as Helen has said, is that we conclude discussions with a license agreement. So we're hoping to have productive discussions with Merck. But if we do not engage in productive discussions on a license that results in a license, the next step for us would be to legally enforce our intellectual property rights. And of course, what I'm talking about there is us bringing patent infringement litigation. One of the typical remedies you get if you have patent litigation and you prove that there's been infringement of your patents, you get what's called an injunction, which is essentially asking the court to enforce the intellectual property right and preclude the infringer from continuing to infringe. And here, that would be asking them to enjoin the ongoing sales of Keytruda subcutaneous.
Something that I want to make really clear, though, is that our rights would not extend to the Keytruda in its intravenous form, its current intravenous form. So that would still be available to patients. Even if we did engage in litigation and we ended up with an injunction, patients would still have access to Keytruda. But for the subcutaneous version where we do have intellectual property rights, it wouldn't be essentially fair to allow Merck to continue to get the benefits that are conferred by the use of that subcutaneous technology without paying us appropriate compensation for our innovations.
Can you just maybe remind us what we know in terms of timing for a potential SubQ Keytruda launch just to help us orient that within the context of the legal decisions ahead?
Yeah, I can say that based on comments that were made Monday at this conference, it was confirmed by Merck leadership that they have filed both in the U.S. and Europe for subcutaneous Keytruda, and they talked about a launch this year.
OK. So I guess this also then begs the question, if it does relate to the hyaluronidases from Alteogen, are there any other assets within the Alteogen portfolio that you kind of view as potentially falling under this purview?
So we've been very closely following the development and the commercialization activities of Merck with respect to Keytruda subcutaneous. And that is the product that infringes from our perspective. And that's the way we've historically licensed products, is that we license the combined product because that's where we feel where the value is conferred, is in the ability to make these medicines transition to subcutaneous administration. And so that's why we focused on that. And the focus really is not on Alteogen or their products.
OK. All right. And have you done any maybe back-of-the-envelope work yourself internally to think about the potential opportunity here for SubQ Keytruda? I know Merck has talked about it, of course. But just any thoughts on what this could actually long-term really mean for Halozyme?
Yeah, I think a couple of points. The MHA's patents extend to 2032 in Europe and 2034 in the United States. So any licensing agreement, we would expect to receive royalties for that period of time. In terms of what the contract structure we would, our license structure we would offer, very similar to ENHANZE's. MHA's is doing the same thing as ENHANZE. We would be talking with potential licensees about a milestone structure and a royalty structure. Our structure rate is mid-single digit, which we have in a range of 3% to 7%. We would expect that to be a very reasonable starting place, certainly, for conversations and an ending place for conversations with regard to a license.
I think it's always a question of when we do projections, you look at what the total addressable market is and then say how much you think is going to be a conversion. And as you say, Brendan, this is a very attractive opportunity. Merck themselves have talked about the fact that they see the 50% of patients who are receiving Keytruda either as monotherapy or with oral chemotherapy as being the immediate and attractive market for subQ conversion. But they also talk about there being an opportunity with patients who are getting Keytruda as part of IV regimens. They're targeting about a 30% to 40% conversion. So if you think about that times the very strong revenue of Keytruda, you can see this represents a very attractive royalty revenue stream to Halozyme when we succeed in getting a license or the litigation is complete.
Can you just remind us what you've said about milestone payments in regards to the ENHANZE deals in the past, just to remind us?
Yeah, the milestone payments for an exclusive license have historically been in the $130 million to $160 million. If it's a non-exclusive license, it can be anything in a range from perhaps $80 million-$120 million, just to give a sense of that.
Did you have a question?
Yeah. Can you talk about the interaction between the exclusive arrangement with Bristol on ENHANZE and how that's impacted by if you were to try to strike a license deal with Merck? Because obviously, that almost seems like a workaround around the Bristol agreement. How would that work?
Yeah, and I'll just repeat it for the audience. It was a question about how this relates to our exclusive agreement on ENHANZE with Bristol Myers Squibb. Mark, do you want to take that?
Yes. So I think the really important thing to remember here is that ENHANZE is an entirely separate body of intellectual property in technology, whereas that's a truncated version of a human-derived hyaluronidase. The MHA's technology is a modified human-derived hyaluronidase. So they're entirely separate technologies, separate portfolios, separate group of assets, if you will. And so the exclusivity with respect to our ENHANZE portfolio does not apply beyond the ENHANZE portfolio. And so we are free to the extent somebody is using our intellectual property in this other portfolio to address that.
Just maybe from a regulatory perspective, I know you've done over a decade of work with ENHANZE, right, and across a number of regulatory agencies. And given that MHA's is considered kind of separate from that, are there any important regulatory considerations we should keep in mind or additional steps that you would maybe have to go through with FDA, EMA to kind of take something that falls under technically separate from ENHANZE all the way to the market?
Yeah, I'll just say that obviously, the arrangements we will have with licensing MHAs are going to be very different from ENHANZE. Because ENHANZE, we are collaborating with the partner to provide advice on development and also supply the API. So the rHuPH20 is coming from us. For the MHAs licenses, this will just be a licensing agreement. It'll be permission to use it while they're using our IP. But we will have nothing to do with sitting and advising them or supplying the API. So that will be a totally separate agreement they have with whoever is providing the modified hyaluronidase.
What I would say is for anyone developing a new hyaluronidase, they'll go through the same things we had to do, which is obviously demonstrate the safety, demonstrate the lack of immunogenicity, demonstrate for each product a strong efficacy and safety profile, either equivalent or not inferior to the IV, or through just a large body of evidence that shows it is a safe and effective product. That is really at the beginning of a whole development program, frankly, where Halozyme was in 2014 in terms of getting the first products to market and approved. Still a lot of road to go for any new hyaluronidases being developed. ENHANZE has now been used in a million patients, which has given us just an extensive safety database that's been very reassuring to regulators.
Any new modified hyaluronidases has to go through all of that and just go through all of the proving itself time and time again to regulators that it is not having any unexpected rare safety events.
OK. So just to maybe drill into the timing here, because I know you've also reached out to the USPTO about this. So if Merck is thinking to launch that this year, is it fair to assume there might be some kind of answer from them in the coming months? Do you have any kind of sense what next step could be and maybe when?
Merck has taken some steps to seek review of the patentability of several of our MHA's patents. The initial threshold on whether or not the United States Patent and Trademark Office is going to take that up won't be until sometime in June, is our expectation. Then we'll learn whether or not that process moves forward. If it does, it will play out over the course of the year. We, of course, believe that the Patent and Trademark Office won't agree to move forward with them. We believe very strongly that our patents are valid and that they're not subject to challenge in the way that Merck has made this current challenge. I will say, too, bear in mind, we're only talking about seven patents that they've put into this request for review.
Our MHA's portfolio is much broader than that in the United States alone, much more significant, and our total portfolio of IP assets for MHA's worldwide is about on the order of 100 patents.
And I know you reminded us that it was 2030, 2032, U.S., E.U. And then you've also last year noted that the ENHANZE patent in the E.U. was extended to 2029, filed that for extension in the U.S., where it currently goes off patent, I think, 2027. Do you have any sense of when we might get an update as to whether that would be extended in the U.S. to 2029?
A lot of questions for me. The process in the Patent Office, it's not under any set timeline. It's a reissue patent application. We do know that it's been assigned to an examiner. And our expectation is that it will be taken up for this examination process shortly. Bear in mind, as you said, the other patent, the backstop, if you will, is valid until September of 2027. So we have plenty of time, given historically what we've seen in the past, for the time it takes for the Patent Office to do its review. And we expect that review will be completed before we reach that September 2027 issue. And any potential step down would be moot at that point in time. And we're only talking about two products.
Brendan, can I come back to the MHA's patents for a moment and just kind of make one point? It was in my opening remarks and just want to reemphasize it. Halozyme has been working on inventing the hyaluronidases for more than 20 years. That really does give us a very strong position as the group who were making claims and getting patents filed over the course of the last two decades, and I will just say, because of that wealth of experience and the breadth of patents, Mark mentioned 100 MHA's patents, that's what really gives us the confidence that we are going to prevail and that the other companies who are developing modified hyaluronidases are infringing. Nobody was working in this field for the many years we were getting these 100 patents issued, and so we can come at this from a very strong strength.
And you can look at the PGRs and say, why would a company want to try and invalidate a small portion of their portfolio? Why would they do that if they didn't think there was some risk of infringement? And so that's obviously certainly something that we expected and not something that surprised us. But for us, it's more confirmatory than ever that we have a very strong position here and that we will prevail because of this excellent bridge and pioneering work that didn't just happen. It's been evolving over two decades.
Great.
If you ask for the policy that given the technology that's used in this way, if you improve it, what will happen? Why not go after us too? I know you don't answer that, but in terms of the precedent as well, do you have license agreement precedents for non-collaborative non-development arrangements such as this?
Yeah, let me repeat the question. It was just a question to say, why wouldn't you go after the originator of the modified hyaluronidases in this case where we're talking Alteogen, and do we have any precedents for the non-collaboration licensing agreements at Halozyme? Mark will turn those to you.
The Keytruda subcutaneous product itself infringes with the combination with the hyaluronidase. And if you look at the way that we license ENHANZE, we license ENHANZE at the combined product level. That is the licensed product in our licenses. And the reason we do that is because the benefit that's conferred by the hyaluronidases is realized at that level. That's what's helping to convert an IV medicine to SubQ. And so we're just applying that same model to the way we would consider licensing this technology. And so that's the reason for it, because we feel that that's where the value is appreciated and there is an established sort of industry standard to license in that manner.
First case scenario, right? So seven patents are under review and they are considered broad and are invalid. How does that affect your ENHANZE business at all?
Yeah. So again, to repeat the question, if all seven of the MHA's patents are currently under review, were deemed to be invalid, would that affect our ENHANZE portfolio at all? And the answer is no. It does not impact ENHANZE at all because that's a totally separate group of patents. But importantly, it doesn't impact the strength of our case against infringers like Merck either. Mark, if you just want to comment on that.
Yes, we have many, many other patents other than the seven that are even eligible for this Post-Grant Review process. And even then, we don't think that these should be entitled to Post-Grant Review. But it's a small number overall. And we have many other patents that we believe are being infringed by the Keytruda subcutaneous product.
OK. And I know we talked a little bit about the ENHANZE patent extension, particularly, especially in the U.S., potentially an update later this year, moving it from 2027 to 2029. And just to remind people, that's not currently included in your existing financial guidance. So if we got an update from that this year, is it fair to expect that we would get an updated guidance following that kind of Patent Office update?
We would update the guidance to reflect that at the moment, we do take a step down on the royalties we receive on Darzalex and amivantamab in September of 2027. And so you can imagine that once that patent issues, the only one of our contracts it has an impact on is the J&J one. Because for all of our other products, there is no step down in 2027. That's very important. So this reads only on the positive upside for what's going to happen for Darzalex and amivantamab. And if I use the example of Darzalex, it's projected in 2027 to be about $9 billion in the U.S. And so instead of halving the rate, it would be at the full rate, the mid-single digit rate.
So if you do that math, you can see that percentage times the $9 billion opportunity is a very meaningful increase in our revenue, which will go from September 27 to March 29. So a very nice impact.
Yeah, so this is all tied directly also into kind of forward-looking BD strategy, right? We've talked a lot about potential for additional ENHANZE deals, potential for additional non-ENHANZE deals, so maybe give us a sense of where your head is at from a strategy perspective, any thoughts or color you can provide on potential timing in either case, and really what the primary criteria that you're using right now when you approach those opportunities.
Yeah. So for ENHANZE, we are absolutely expecting to sign an additional deal this year. We've historically been working with companies who want to take their already successful IV drugs and turn them subcutaneous. And we continue to talk to pharma about several very exciting opportunities that exist there. But we also see a lot of opportunity more and more in the area of taking SubQ drugs and turning them into more extended dosing. Today, SubQ drugs are limited by only being able to inject 2 mL at a single time. That sometimes doesn't optimize the profile.
And with ENHANZE, you can increase the volume from anything from 4 to 6 to 8 to 10 mLs, which could allow you, as an example for a drug used in inflammatory bowel disease, to be able to take your drug from being every two weeks to every four weeks or even from every two weeks to every eight weeks. That's where we're seeing just an incredible demand and a lot of interest coming into Halozyme, is about the subcutaneous extended dosing. Our overall approach to that would be the same. There can be exclusive terms. There can be non-exclusive terms, which tend to be overall lower. But we do have the opportunity to work with multiple partners when we do that type of deal. And so multiple conversations ongoing, confident that we're going to move one of them forward to announce a new deal this year on ENHANZE.
And then beyond ENHANZE, obviously, you have years of pretty clearly de-risked growth over the next couple of years ahead. But how are you thinking about what the Halozyme of 2030 looks like and how to kind of position yourself today to make sure that you're capitalizing on the momentum that you're establishing now in the best possible way then?
Yeah. And we have put out, as everybody knows, our long-term guidance to 2028. And what you see there is, as Brendan mentioned, a very strong revenue story. But we also have the benefit of having a very high free cash flow margin. And so we are in a great position to be able to use that free cash flow to be able to either grow and add additional revenue streams on top of our already very attractive revenue growth to be able to accelerate the growth of the company and/or do share buybacks to return capital to our shareholders, whichever approach appears to be able to deliver the best value to our shareholders.
And so I do see a world in which by 2030, we will have acquired additional, perhaps, drug delivery or other types of licensing platforms, which we can use our current model that we are very good at, which is building and growing those collaboration agreements to be able to add multiple additional platforms and additional royalty revenue streams while still having sufficient free cash flow to also be returning capital to our shareholders in an ongoing way. We've returned $155, sorry, $1.55 billion in share buybacks since 2019. That's about $250 million a year while we've been growing the company very nicely. And so we will balance and toggle between those two. But we're in a great position.
We're in a great position of strength because it is the strength of our current business that's giving us this opportunity to add new revenue streams by adding new platforms that we can maximize with our demonstrated competency at doing that.
Yeah. And I think, look, again, kind of getting back to even just the existing guidance for this year through 2028, right? And just to remind us, this is assuming the first 10 ENHANZE products, right? So this includes the recent Ocrevus Zunovo, Opdivo, Opdualag, VYVGART Hytrulo, and then Tecentriq Hybreza, I think, right? And we put out a sensitivity analysis not long ago that kind of looks at the potential launch dynamics for some of these. But maybe give us a sense of what just really kind of rapid-fire through those. What are your internal assumptions about each of these? And where are the real tangible opportunities just within those drugs that are already available for pretty meaningful upside over the next few years?
Yes. And we did take a look at your sensitivity analysis, Brendan. And I think there's two areas where we're pretty aligned with you. And there's two areas where I think you're undercalling the potential. And so I'll start with the two areas where I think there's even more potential than is perhaps thought about today. But it was a very good approach. And if you haven't looked at it, do. It's a very nice approach to see exactly where the upside can exist. I'll start with VYVGART Hytrulo. VYVGART Hytrulo, in the model, it says it's going to be about $6.9 billion in total revenue in 2030. That is largely, we know from today's consensus, built on the currently approved indications, which are generalized myasthenia Gravis and CIDP. But by 2027, 2028, we're going to see more approvals.
There's going to be approvals in seronegative myasthenia gravis, ocular myasthenia gravis, myositis, thyroid eye disease, and potentially even Sjögren's disease by then. So I do think that the TAM is going to be bigger than $6.9 billion by 2030. And then we look at the conversion rate. And I think you have about 45%. CIDP, which is a very attractive opportunity, analysts, I think, have about $2.5 to $3 billion in that $6.9 billion. That is only available as a SubQ. So think about that. That's a very large proportion of your $6+ billion that's already going to be SubQ. And then when we think about what's been happening with the myasthenia gravis launch, where we're seeing a very nice acceleration, what has happened is that the SubQ has been able to bring on more doctors and move the VYVGART Hytrulo earlier in therapy to immediately after orals.
That gives the promise of, I think, even greater growth that's going to happen. And we're going to see a transition in the next years that SubQ will become the predominant version, I predict, based on the value proposition and the ease of use. And so for both of those reasons, bigger TAM, bigger market, more than 45% of use being SubQ, I think there's a bigger opportunity with VYVGART Hytrulo. The other one I'll mention is Ocrevus Zunovo. Ocrevus, the projection is that it'll be a $10 billion brand. We're pretty much aligned with that. But when we think about the value proposition for patients, the difference is going to be from a 4.5 to 6.5- hour treatment, which includes the treatment but observation, to 10-minute injection with perhaps a 30-minute observation for the first few visits, but then no observation.
That is Darzalex-like in its reduced burden to the patient and the health care system. That, I think, will be a stimulator of very nice uptake there. And then your own survey did say from the KOLs, and we hear the same, that this Ocrevus Zunovo is going to be the biggest growth drug in the whole CD20 space and MS this year. Both of those, I think, are going to drive greater than the 40% share peak you have as well.
So I think that's a great way to kind of break down some of this too. And we'd be happy to see those launches progress accordingly. Again, so those are just the first 10 ENHANZE drugs. So just remind us now, beyond those 10 ENHANZE drugs, I mean, the existing partnerships you already have on paper have additional assets already baked in with the Roche deal with the J&J even. So just give us a sense, where is the, I think it's wave four now, beyond the first 10? What is the timing for some? What are those drugs? And what's the latest timing that we could see additional ENHANZE products into the clinic now or clinical updates, I should say?
Yeah, and I'll just mention that last year, it's a very nice opportunity for growth in our portfolio that is sometimes overlooked that we do have our current partners have open slots that they move products into the clinic. And last year, Argenx selected four more products and ViiV one more product. And so that is obviously a way we continue to grow and expand our portfolio. And we do expect three new study starts entering the clinic this year that will add to and expand our wave four and five portfolio. But if we talk about the wave four, the two most advanced products there would be Bristol's Opdualag, which is relatlimab and Opdivo, which is in Phase 3 development, as well as Takeda's TAK-881. So those have readouts expected in the next 12 to 18 months.
And so I think that we're very excited that those are going to be soon to be de-risked, soon to be adding royalty revenue streams. Behind that, there's a series of products that are in phase one and two development. I'll mention a couple of those. Argenx's is empasiprubart. We've got several assets from ViiV in there as examples. What we want to see is those progressing into that Phase 3 testing. Then the timeline for approval becomes more clear. And that can allow us to be able to understand what the de-risking profile for those are going to be as well. But a nice broad portfolio. It's in our presentation deck, if you ever want to see it, the last slide.
You'll see it's a growing and expanding portfolio of the next royalty streams that are going to layer over and above what is in our guidance, which only goes out, as you said, to 2028 based on the currently launched products.
OK. Sure. One last question.
Just on the follow-on Merck discussion, you mentioned the patents. You described them in October. But when were they an issue or have been obvious to Merck relative to when they started the development of this program?
I'll ask Mark to comment.
Thanks. The original disclosure was filed, I believe, back in 2012, and so the disclosure for which all these patents are based upon has been out there for quite some time. As Helen said, it's a significant body of work that's encapsulated in a very large disclosure that contains essentially a library of the different ways that you can modify human-derived hyaluronidases and the impacts that are conferred, and so given the very large number of entrants into that library, we're talking about close to 7,000. You can imagine there are a lot of innovations that are packed into that disclosure, and so we've had some patents that have issued early on, and then we've had some patents that have continued to be issued as we look at things that we still haven't claimed that we want to make sure that we encapsulate within our IP portfolio.
That's a very standard thing that companies do is they look at and make sure that they've taken advantage of the full benefit of their disclosure.
All right. I think with that, we're already a couple of minutes over. But I really appreciate everybody for joining us today. Always a pleasure to see you, Helen. Great to have you, Mark. Thanks, everybody. Stay tuned for the rest of the conference this afternoon.
Thank you.