Awesome. Thank you very much for joining us for this afternoon's session today. My name is Mohit Bansal. I am one of the biotech and pharma analysts at Wells Fargo, and I am joined by, once again, with Helen Torley, the CEO of Halozyme, with us. Thank you very much for your continued support. I have been hosting you for five years in a row. Thank you very much for joining us today.
It is great. Very excited to be here in Boston.
Thank you. I was looking at the stock chart. Stock is up 40% in last one year, 50% year to date, and much of it is in last three months. You have done an amazing job in last one year doing all those deals and building the platform. Can you talk a little bit about the journeys with these deals and all, and how do you see the future of Halozyme beyond the ENHANZE platform at this point?
That is great. Well, for those less familiar with Halozyme, we focus on subcutaneous drug delivery, and we have four subcutaneous delivery technologies now. The first and the largest to date is ENHANZE, and we also have an auto-injector platform as well. At the end of last year, we acquired two hyperconcentration technologies, HyperCon and Surf Bio. What we are hoping to do is to create each of these into a compounding platform engine for Halozyme. As Mohit says, we are just coming off a record quarter in the second quarter. Revenues of $481 million, up 48%. Royalties, importantly, up 50% to over $300 million. The drivers of that to date is ENHANZE. We have got two key drivers within our ENHANZE platform, are products that launched in 2020 and 2023. That is DARZALEX subcutaneous and VYVGART HYTRULO. Even although those launched several years ago, they are showing phenomenal growth.
They're terrific products, where the companies have got new indications, they're expanding to new prescribers, and we're getting the benefit of longer duration of therapy in some of these indications as well. That is going to be a continued growth driver for Halozyme. But what we reported in the second quarter, Mohit, and I think what got people very excited, was that the next set of launches, which occurred more recently, which includes Ocrevus subcutaneous plus OPDIVO and RYBREVANT subcutaneous, those grew 80% sequentially. And those are becoming more important royalty revenue drivers for Halozyme, driving that record performance. And we're not done there. Talking about where we're going, we have 13 products that we project will be in the clinic with ENHANZE by the end of this year. We will have two HyperCon products in clinical testing at the beginning of next year.
As Mohit mentioned, this year we've signed five new deals to date, three ENHANZE, two with HyperCon, which are expanding us into new areas, including ADCs and nucleic acids. That is what is leading to this continuous engine of new products in the clinic that will be our future royalty revenue streams layering on top of the two drivers I already talked about. So, an incredibly exciting time, and our future will be multiple ones of these compounding platform engines just driving durable long-term royalty revenue growth for Halozyme.
Got it. Very helpful. Thank you for that. Then let's talk a little bit about these deals. These deals happen quite in a cluster where three of those ENHANZE deals and two HyperCon deals. Was there a trigger there, or this is always in the making and then it's just that it got executed in the last six months or so?
No, Mohit, we did five this year, but we actually signed three ENHANZE deals in December as well.
Right.
It has been an amazing month, and it is a record performance in the history of Halozyme.
Right.
What I think has happened, Mohit, is that this is the time for subQ therapy.
Mm-hmm.
There is a recognition that we find broadly across pharma and biotech that to be competitive, to deliver against the patient expectations, you need to have subQ delivery, ideally in the patient's home, ideally in some indications in a small volume auto-injector. When we look at the types of products that are in development to date, there is a high concentration of immunology and inflammation, nephrology, GI, neurology. These are disease areas where the goal of pharma companies, but also of the patients, is I want to be able to treat myself at home. I do not want to have to visit the doctor's office. I do not want to sit in an infusion suite. We happen to be at a marvelous time where subQ therapy is the expectation, and Halozyme has the leading technologies. With ENHANZE, we have the best proven, best validated subQ technology.
Our HyperCon and Surf Bio technologies are delivering against this desire to have small volume in an auto-injector at home. That is the value proposition, and that is what we have seen, just a total change in, before, Halozyme having to go out and talk to people about subQ delivery, "Have you considered it?" To companies calling us and saying, "We want ENHANZE because we want to do X. We want HyperCon because we want to do X." It is this recognition that subQ delivery is frankly a commercial mandate in these additional disease areas. There is still an interest in oncology, but what we have done is expand into multiple different areas and multiple different modalities. We are not just working with antibodies today. We are beginning to work with ADCs. We are working with nucleic acids.
All of this is beginning to expand our TAM, and that's all what's driving this flurry of deals, and it's going to continue. We've said we're going to sign at least one additional deal this year.
This is interesting. So basically, if I understand correctly, and correct me if I'm wrong, so basically what you're saying is that earlier, at least for the initial launches for pharma companies, it was more of a defensive strategy to launch a sub-Q, but it seems like now it is an offensive strategy or maybe expansion strategy that we are not just protecting the business, we are with a sub-Q delivery in those immunology or nephrology indication, the product could be much bigger than it would be without a sub-Q delivery.
You hit on great points.
Yeah.
I'll just use two examples that I think have opened up people's recognition that the sub-Q therapy grows the market. DARZALEX is a terrific example. When we started working with J&J, it was a four to six hour IV infusion. SARCLISA was being developed, and that was a two-hour IV infusion, J&J wanted to have a more convenient therapy for patients, and went with our delivery, which is a three-minute sub-Q versus these hours in the infusion suite. Massive difference for patients. But what that also did was allow them to penetrate more rapidly and more deeply into frontline patients. Now, why is that important? The frontline population is the biggest population in multiple myeloma, but it's also the population who stay on therapy for the longest. That's why we're seeing this amazing growth.
It's a large population, but it's also compounding because year after year, patients are repeating their prescriptions. VYVGART is another example. VYVGART HYTRULO, I'm sure many of you know, VYVGART launched in myasthenia gravis as an IV. It then launched a sub-Q in a vial that the patient had to pull up. It was a great advance for patients, but it took a lot of steps, and it took a number of minutes for the patients to do. In the middle of last year, they launched a prefilled syringe, 5 ml prefilled syringe that the patient self-administers at home in just 20 seconds. That has led to exponential growth. VYVGART delivering $1.5 billion in the quarter, 60% year-over-year growth, and that growth really driven by the prefilled syringe. What argenx has talked about is new prescribers are able to prescribe because not all immunologists or rheumatologists have IV-
Right.
infusion capacity. Patients are starting therapy much earlier in the disease because it's easier for the physician to do. Exactly to your point, Mohit, people recognize that, yes, it's the best offering for patients, but for the companies, that obviously gives them competitive mode. But the addition to grow the product into new treatment settings, such as the community hospitals or the physician office or home, as well as expand into new populations, is all what we're hearing from partners, what they want to capture. They want what J&J has with DARZALEX. They want what argenx has with VYVGART.
Completely makes sense. To that extent, the three ENHANZE deals this year and a couple of them last year, is this a mix of defensive plus offensive? How would you characterize it? Because you have not disclosed the assets, but again, can you talk a little bit about that?
I think a common theme is the best competitive profile-
Okay.
to get the best market share possible.
Mm-hmm.
and the best growth. That all kind of delivers for the company.
The patient is a winner in all of this by having
Right.
a more convenient therapy, but the companies are winning. If you want to launch into a market today like asthma or inflammatory skin disease, you want to have a less frequent auto-injector at home, as an example. That would be the HyperCon. But for the ENHANZE ones, one of the most exciting deals, I think, is with GSK.
Right.
It's interesting. That is where they're going to be using ENHANZE to see if with their ADCs, they can reduce the Cmax, so the peak concentration in the blood versus the IV. Why is that important? Well, there can be some toxicities associated with a high Cmax.
With ENHANZE sub-Q, because it's absorbed more slowly, you get the same exposure, so the same efficacy is the theory, but less of the peak, so less toxicity. So that could enhance the competitive profile of their ADCs so they can get greater market share. So that is the common theme here. It's a win-win, and that competitiveness can allow greater expansion into the new populations, et cetera. So we are not simply a convenience play. We are a market growth driver for these companies.
Clearly. VYVGART is probably the best example of that. The product wouldn't have been as big without this kind of offering there. Super helpful. To what extent clarity on IRA has played a role here?
Yeah, the IRA has been a little bit of a question for our investors. I will say pharma and biotech have paid no attention to the question as to whether a co-formulated product with ENHANZE would or would not be bundled with the lead product, because they're coming to us for competitive differentiation.
Right.
It was never an accelerator of business for us. We actually are just pleased that with the last guidance, it seems like it's still draft guidance, but it will be finalized. It's clarified for people to say, "All right. There's no upside," but we also can say because of the IRA and the One Big Beautiful Bill Act, there's also minimal to no impact.
Right.
of the IRA to Halozyme's revenues. It's in the rearview mirror. We're not talking about it anymore, and I'm really thrilled about that because it got undue prominence for its potential impact at any point in time, but I think that's clear now, and we seldom get questions on it.
No, definitely. It's a big.
From investors.
Right.
Never from pharma or biotech.
No, we are a nervous group of people. Super helpful. You have had many new launches in last couple of years. Ocrevus, RYBREVANT, OPDIVO, TECENTRIQ. How would you characterize how well your partners have performed on the execution of those products, especially Ocrevus? Roche was talking about this being like a defensive product, but they are doing really well, actually, there as well, trying to protect the market from the competition, but now they are actually growing this business. Talk a little bit about that. That has been the upside surprise for last couple of quarters. Can you talk a little bit about that?
Yeah. Obviously, our partners have all performed very well. Just the three products you were talking about there, Mohit, for OPDIVO, Ocrevus, and RYBREVANT sub-Q, that is the group that grew 80% quarter-over-quarter. Each product is a little bit different in terms of what drove that. If you will, I will just spend a moment on them.
Of course.
For Ocrevus sub-Q, the value proposition there is the patient can have a multi-hour IV infusion, or they can have a 10-minute sub-Q. enormously positive. Roche had said at the time of launch is that the availability of the sub-Q, because of the time and because you do not need IV infrastructure, it would expand access. It would allow more patients to be treated, because you could be treated in a community hospital as opposed to an academic hospital, the doctor's office, and there would be higher patient throughput. They put a number in that and said that the total potential of Ocrevus IV and sub-Q would increase to 9 billion, with 2 billion Swiss francs being just due to the sub-Q expansion. I think some people thought that meant that they were not going to expand and convert the IV, and that is not what has happened.
After the launch, about 50% of patients who are on the sub-Q Ocrevus are coming from IV switches, but 50% are new. They are getting the double benefit of expanding the market while giving the patient a better treatment experience. We believe that entire 9 billion Swiss francs is the addressable market for Ocrevus sub-Q. They grew from 17,500 patients in the fourth quarter to 44,000 patients on therapy in the second quarter, so phenomenal growth. We are going to continue to see that very nicely. Great launch, and I would just think differently about what the whole TAM is for Ocrevus sub-Q to include those IV patients as well. If we turn to RYBREVANT sub-Q, that is a product, the IV is six to seven hours. It has a high rate of infusion-related reactions that limited its uptake.
The conversion to sub-Q is a five-minute injection, and it has a fivefold lesser rate of infusion-related reactions. It is a game changer for the adoption of RYBREVANT sub-Q. J & J did talk in the quarter about the growth was up 60%, driven by the availability of RYBREVANT sub-Q. That is a product that just got its J-code on July 1st. We are going to see improved uptake in the U.S. in the next quarters now that the reimbursement is in place. They got priority review for head and neck cancer, so a new indication coming forward, and potentially data in the future in colorectal cancer. We are very excited about that launch. I think you are going to see with J & J , them doing exactly what they have done with DARZALEX, just keep investing in great new indications because it is fabulous science, and we are going to benefit from that.
A word on OPDIVO. OPDIVO is converting at, they are about 15% conversion. They feel they will get to 30%-40% conversion. I think they might beat that.
Mm-hmm.
just based on the pace that they're on. But very nice conversion there. It speaks to our partners, the sub-Q is a part of their future.
Right.
It's part of how they're driving revenue for the company. We're integral, not just an afterthought. We're finding the execution is aligning to their strategic intent, which is to drive more revenues for their company.
Very helpful. Thank you for that. I think the other aspect is that, you have talked about 13 additional ENHANZE launches starting 2029. That's a lot. Are the economics with the newer deals any different from the previous one? Because at least the mechanism always had built-in mechanism for if there's no patent, there's a lower royalty. Probably not, but would love to understand that.
Yeah, happy to talk about that. What we have talked about is based on the number of products we expect to be in development for ENHANZE by the end of this year. It would be up to 13.
Up to 13.
Up to 13 launches, beginning in 2029 and running through
Yeah.
about 2032, 2033. I will just highlight that in addition to that, we are going to have HyperCon
Right.
launches with the first two HyperCon launches potentially in the early 2030s as well. We are going to keep adding to that with the new deals that we are signing. We have new partners moving into the clinic this year and next year that is going to further expand that. In signing the new deals, historically, we have signed a lot of exclusive deals.
Mm-hmm.
We now have more of a mix on ENHANZE of exclusive and non-exclusive deals. What is very exciting is that we have continued to be able to get included in those deals very attractive long-term durable royalties. Minimum of 10 years, potentially longer with co-formed patents. In almost every case, there is the potential in these contracts to earn the mid-single-digit royalties towards the lower end of our range, but still mid-single-digit royalties. We have been changing the structure of these, Mohit, that there is not necessarily always a 50% step-down. It can be a smaller step-down because we are starting lower and going up. Very attractive economics on ENHANZE. If I turn to HyperCon, that is where we are very excited to have signed five HyperCon deals so far. You will recognize the companies we are working with. They are terrific companies, J&J, Lilly, argenx, Vertex, and AurKa.
Mm-hmm.
In that instance, it is the same structure overall where we get milestones, and in that instance, all of these are mid-single-digit royalty deals. They start and stay in the mid-single digits, and so very attractive royalties in that as well. Each of these is going to expand. Each of these will be separate royalty streams, and this is why we love the phrase of the compounding out platform engine. A few years ago, we were very focused on DARZALEX, what is happening. This growth that we are seeing now is really driven by the fact that on ENHANZE, we have six royalty streams that have got significant growth already and will continue to grow. Same is going to happen on HyperCon.
Diversification. Perfect. I have to ask one DARZALEX question, though, sorry. I want to talk about everything else as well. Is there any update on the U.S. patent reissue for DARZALEX here? I think the question we get a lot is that 2029 - 2032, and then beyond that, how should we think about DARZALEX royalties at this point?
For the specific DARZALEX, just to say, this is a reissue patent of a manufacturing patent that would have the effect of maintaining our royalty rate on DARZALEX at the mid-single-digit royalty rate between September 2027, which is when in our projections we currently step down, and it would move it out to step down in March of 2029.
Right.
We applied for that several years ago. It is still undergoing the prosecution and appeal process. It did take a while for it to get assigned an examiner.
But we are confident that it will complete before the September 2027 date and result in a patent for Halozyme that we believe as we go and talk to J&J, they will agree will have the effect of stopping that step down. We have done this once before with a European reissue patent, so the strategy has proven successful. But we still have to wait to get that answer. Mohit, you asked the question of 2029. You have heard about the great growth that we are seeing with our current portfolio. You have heard about all of these products that we have in development as well. We are very comfortable to have put out multi-year guidance to 2028.
Right.
That is all based on de-risked royalty streams. And we will continue as we get concrete data and can model any additional royalty streams providing updates on that. But we feel very strongly that we want you to have confidence in the projections we put out, and so we do have a bar that is. We want it to be very clear to you that you can model it confidently because it is de-risked and the assumptions are clear. So we are working on that, but we cannot give any confidence yet that when we will be in a position to provide more details.
Awesome. So let us just talk about HyperCon for a little bit. Again, in terms of economics for the deals that you have done with HyperCon or done by the previous management team, is ENHANZE a reasonable framework or there are different economic models at this point?
No, very similar economic models, and they will be very similar development paths as well. Each of them is structured with an upfront payment, milestones for progress through development and commercial accomplishments. In the case of HyperCon, very similar to our very early ENHANZE agreements for exclusive deals and all of the HyperCon ones today just about are exclusive in that mid-single-digit royalty space. We can expect to earn milestones as the partners progress into the clinic and through commercial, as well as receiving that mid-single-digit royalty. Our estimates of development timeline is in the three to five year timeframe, depending on what kind of product we are talking about. That would be very similar to ENHANZE as well.
Very helpful. Where are you in terms of starting those two trials in first half of 2027? Some people argue that is probably the manufacturing part that you have to figure out before you move in. What is the bottleneck right now for you two?
The HyperCon technology is a novel technology. That is one of the reasons we were so excited about it. It uses a patented dehydration process to be able to create antibodies instead of having a maximal concentration, if you like, of 150 milligrams per ml. It allows up to 500 milligrams per ml while still preserving easy injectability for the product. It does not get so thick you cannot inject it. The benefit of that is obviously that the volume reduces by whatever the factor of concentration is for the product. We partnered with Thermo Fisher Patheon on the manufacturing process for clinical studies, and that is now very well underway. I visited there recently, and it is a very impressive site and a very impressive process. We expect to move into the clinical study manufacture of two partner products in the fourth quarter and the beginning of next year. That is one of the last steps that we need to do.
Right.
to be ready to enable the phase I study starts for two products in the first half of 2027. Everything going very much according to that plan, and partners getting ready for these phase I starts for two very exciting products.
Got it. Can you comment on? There are some questions around HyperCon scalability for the commercial supply eventually. Can you talk a little bit about the complexity level of this manufacturing? How comfortable do you feel within your due diligence about the scalability eventually for the commercial supply?
Yeah, we feel very comfortable in the scalability. There's a great team at HyperCon who have invented and scaled this up, initially in a lab here in Boston, but has now done it successfully in the Thermo Fisher site in Italy. This is clinical scale. Because we've seen such interest with five deals signed, we actually believe to maximize the value of this opportunity, we want to provide partners with a comprehensive solution. Our thinking at the moment is that we're going to invest in manufacturing scale-up to be able to go from drug substance all the way through fill finish, and make it really turnkey for our partners in terms of them being able to access and use the HyperCon technology. That will take some investment.
We haven't finalized yet the timing of that investment and where it is, but we do believe to truly reap the benefits of the demand we're seeing for this technology, that's going to be an accelerator. I will say an additional benefit of Halozyme doing it is we continue to innovate, we continue to get new ideas or novel findings that we're able to patent. We're increasing the competitive moat, both from a new IP, but also from a know-how. It's a very important part of our strategy as to how we're going to create HyperCon into this compounding platform engine that delivers for 20 years, just as ENHANZE has done.
Got it. Very helpful. In terms of partnership, the partnerships for HyperCon, the framework is pretty much similar to ENHANZE. Talk about the timelines it takes for concept to clinic. Is it any different from ENHANZE?
Still an early technology.
Right.
Different paths.
That was the first time that you did the ENHANZE-
Yeah, exactly.
for our first partner.
Yeah, exactly. That took a very long time on ENHANZE.
Yeah.
So it is very partner dependent.
Yeah.
There are partners who want to do the feasibility testing to show that their molecule can be concentrated and can be stable before they will move forward to a clinical agreement.
Right.
That takes a period of months to be able to do that. There are other partners who are very comfortable signing the deal and then going straight into development. That is where we work with them very closely to develop the HyperCon concentrated formula, put it on stability, and then be ready to take it through and make the actual clinical supplies of it. It is initially definitely going to be a bit slower than ENHANZE today.
For ENHANZE today, we can determine if a product is compatible with ENHANZE in four weeks, and we have lots of data. There is still a little bit because we have to develop the new formulation, then we need to scale it up. That is going to reduce, I think, very nicely over time as we get more and more experience with it. We are starting off with these two new phase I's. We expect actually additional phase I's in the second half
Mm-hmm.
of 2027 already based on what is ongoing in the clinic, and we have a very nice pipeline of feasibility ongoing at the moment that can be our future agreement. Interest in HyperCon is incredibly high, Mohit, so we have already started a very exciting pipeline there.
We are also interested in learning which products are going in. When do we learn that? When they enter in the clinic? Contractually you cannot disclose, right?
Yeah. Well, the two first products that will enter the clinic, if they are in patient populations will be posted on clinicaltrials.gov. Obviously, if they are in non-patient populations like human volunteers, they do not get posted.
Right.
We cannot say at the moment exactly what is going to happen, but I would keep your eyes on clinicaltrials.gov in the first half of next year to be able to see what these products are. But as I mentioned, there are more products coming.
Right.
It is a very nice already early pipeline.
Got it. No, AI can help us there. Talking about Merck litigation a little bit here. Where do you stand now? You have talked about PGR is not be all, end all. It will be a little bit longer process than just PGR. Talk a little bit about that. You have a lot of patents. You have a good patent estate, so talk a little bit about where you are.
Yeah. Let me start by just contextualizing. Where the Merck litigation is focused is on a patent portfolio we have that is called the MDASE, the modified hyaluronidase portfolio. That is entirely separate and independent from ENHANZE. We do not actually license MDASE to anyone. All that we have licensed to partners is ENHANZE. Really importantly, anything that happens on MDASE can have no read-through to ENHANZE because they are so-
Separate
separate. I would also say this MDASE litigation, it is all upside as a result of that. Think about, it is a little bit of an option for a license with Merck should we prevail in the ultimate litigation.
For the small product.
Exactly. We look at this as a very positive potential upside with no downside.
Yeah.
That is my most important message. There is no downside there. We approached Merck when they had started to make progress with using the Alteogen and modified hyaluronidase to take a license. We believe they are infringing. They did not take a license then, and so we moved to sue them in district court for trying to get damages as well as a permanent injunction, ultimately. What has happened is that Merck has challenged some of our patents in the PTAB. That process has been ongoing throughout this year. The timing of the start of the district court is going to be tied to the final resolution now of all of those actions that are happening in the PTAB.
Right.
The whole infringement and settlement can only happen with the district court, but we have got to get through this process that is happening in PTAB. I would say no matter what happens this year, I think Merck will probably appeal some of it. We will probably appeal some of it. So that is going to go on for a period of time. So resolution in the U.S. is going to take a number of years because we need to get the start of the district court case, and then we need to get to the end of it. So we will keep you updated on that, but that is still a very active area. Where I want to point your attention is outside the U.S.
Sure.
where we have gained a preliminary injunction that has prevented Merck from launching QLEX in Germany.
In October, we will get the readout from the Netherlands, where we had a similar request to prevent Merck from being able to launch in the Netherlands. Importantly, because that is the license holder for Merck in Europe, it will affect multiple European countries. Now, what we hope is, if we are successful with that will bring Merck to the negotiation table. We will see if they are willing and open to do that. There are other measures going on in Europe that I think will be very interesting for investors to watch. Again, all upside, no read through on ENHANZE.
Got it. Very helpful. The last question is for your CFO. Again, let us see if you can imitate him. The question is, ENHANZE platform has been producing a lot of cash here. For capital allocation between share repurchases, BD, what is your priority right now at this point?
Yeah. We are going to continue with the disciplined approach that we have traditionally used with our capital allocation, Mohit. We are in the great position because we have very strong free cash flow. We are able to do multiple things in parallel.
Right.
First and foremost, you heard me talk for the last 30 minutes about how excited we are about the growth of our platforms. We are going to continue to invest to maximize those platforms. That is the most important thing that we can do. The second one is returning excess capital to our shareholders. We have demonstrated that consistently since 2009, and this year we announced another $1 billion share buyback and committed to $400 million of share buyback this year, of which we have completed more than $300 million. You will see us continue to do that and continue to buy when we think that is the right thing to do because the stock price is making it make sense for us.
The third area is to continue to decrease leverage, and that will include the 2027 and 2028 convertible notes and taking care of those at maturity or at an appropriate time. The fourth one is continuing to look for M&A. Now, we will continue to look for assets that are a fit for our capabilities. Ideally, are a high margin royalty-type business
Right.
but are a technology in some form of drug delivery that benefits patients, but also that pharma needs. It is a very careful matrix we look at. The bar is high. We feel very good about the growth potential of our current products, so we are not rushing into anything. We will continue to take a very thoughtful and disciplined approach to that. But we have the possibility and the flexibility to do all of that in parallel because of the strength of the business.
Awesome. On that high note, thank you very much, and all the best, Helen. Thank you.
Thank you. Appreciate it. Thank you, everyone.