Hello everyone. My name is Mitchell Kapoor. I am a Senior Biotech Analyst at H.C. Wainwright. Thank you for joining us for our third day of the H.C. Wainwright Conference here in New York. Today, I have the pleasure of welcoming the Halozyme team, and I have the Chief Executive Officer and President, Helen Torley, and Chief Financial Officer, Darren Snellgrove. Nice to have you both here.
We appreciate the invite to be here. Thanks.
Thanks for joining us. Maybe, I like to start off every fireside chat by just level setting for those who either may not be familiar with the story or are not up to speed with the latest progress. Maybe you could just give an overview of Halozyme.
Yeah. Halozyme is transforming how biologics are delivered subcutaneously, and we are entering just a terrific period of value creation as a result of that. How do we do this? We today have four technologies that enable subcutaneous delivery. ENHANZE, which is our flagship product, but we acquired recently two hyperconcentration technologies that will be entering the clinic and will offer a brand new value proposition for patients of being able to deliver biologics in volumes as low as 2 mL via small volume autoinjectors. And we also have our own autoinjector line. ENHANZE has really been terrific. We describe it as a compounding platform engine for Halozyme because it is resulting in multiple royalty streams that are contributing meaningful revenue to Halozyme. We are just coming off a record second quarter. Our total revenue grew 48% year-over-year to $481 million.
This was really driven by our royalty revenues, which grew 50% year-over-year to $308 million. The top drivers of our royalties were our products that were launched in 2020 and 2023. That is DARZALEX subcutaneous and VYVGART Hytrulo. These are products that are going to continue to grow for many years to come because the companies are investing in new indications. There is deeper penetration into patient populations because of the great convenience that is being offered by the subQ, either as a push injection or as a prefilled syringe. What was very exciting in the quarter was also on top of this, to see products that we launched more recently and specifically RYBREVANT subcutaneous, OPDIVO subcutaneous, and OCREVUS subcutaneous grow 80% quarter-on-quarter.
That is a terrific growth to see, which means that we now have multiple diversified royalty streams that are contributing to the tremendous growth we see today, but that is going to continue for many years to come. That is not all because we expect by the end of the year to have 13 products with ENHANZE in clinical development, and again, we plan to continue to add more and more to that pipeline with products that can launch in the late 2020s and early 2030s, resulting from that particular pipeline of products, which will grow with additional new deals and current partners moving more products into the clinic. Then we have our new technology, Hypercon, which enables high concentration biologics. We expect our first two products there to enter the clinic in the first half of 2027.
You can see we have a very diversified, exciting, growing set of royalty revenues that is going to deliver very strong value for our shareholders.
Excellent overview. I think Halozyme is one of the most unique companies that I cover because of the value proposition that you offer the space and the uniqueness of your product. Maybe you can help us understand the ENHANZE business and how that is a driver for Halozyme's revenue. How do you create deals? Obviously, that has been a focus for investors of how that pace of deals has changed, and you have had a lot in the past year. Maybe you can start there with how do you structure these deals? Is it quite consistent across partner to partner? Just give us a flavor of how that variability is between those partners.
Yes. As you point out, in the last nine months or so, we have had six new ENHANZE deals. That comes after a period where we had not had as many deals and people are saying, "Is this true demand or is this a pull forward?" It really is true demand because of the secular trend that we are seeing with companies, particularly those in inflammation and immunology, nephrology, gastroenterology, CNS, recognizing that the standard of care and what patients are looking for is delivery at home as simply as possible, or in the doctor's office given in a simple subQ injection so the patient does not have to be in the infusion suites all the time. Our structure has really been pretty standard for the last 15 years.
We receive an upfront payment, we receive milestones as the partners are making progress and clinical progress as well as achieving certain sales thresholds. Then we receive royalties which today are at the on average mid-single digit royalty rate in terms of the royalties that we are delivering today. Importantly for Halozyme, the model we have is we do not invest in any of the clinical development. We do not invest in the commercialization. So it is a very high margin business as a result. We do provide advisory services, but you can see how this is a business we can scale rapidly and grow without us having to add a lot of operating expense to be able to run this business. We do expect to continue to sign more ENHANZE deals. Everybody is recognizing subQ is the way to go, so look for more announcements.
We have said we expect one additional deal this year, and I believe it will be an ENHANZE one. I also want to mention Hypercon where we signed two deals this year as well, taking the Hypercon business to five deals. It is terrific companies, Eli Lilly, argenx, J&J, Vertex, and Oruka. Same structure as the ENHANZE agreement, same mid-single-digit royalty, and same operating model where we are not investing in the high expense areas of getting these products developed and launched. So two compounding platform engines that are going to be driving durable long-term royalty revenues for Halozyme.
Wonderful. You touched on what is driving 2Q growth a bit. For a while it has been DARZALEX and VYVGART, but you mentioned something interesting, OPDIVO and the new launches, OCREVUS, are really contributing now. Can you help us understand what drove the guidance increase recently, but also, which of the newer launches are gaining the most momentum, and where do you see the future growth coming from?
Yep. Let me ask Darren to take that one.
Yeah, absolutely. 10 royalty-bearing products is meaningfully different than one or two.
That is what you are seeing in terms of our guidance beats and our raises. You think about DARZALEX is a $4 billion in the quarter growing at 18%, VYVGART $1.5 billion, 60% growth rate. As you mentioned, the newer indications collectively growing 80% quarter-over-quarter. That is driving meaningful growth for us going forward. Each one is performing incredibly well. RYBREVANT, for example, just got the J-code, so we are going to see a real ramp up with that product. Each of them contributing, getting new indications, and expanding in terms of conversion and also market growth as well. We expect that to continue. That is what is driving the results that you saw in the quarter. We are very proud of 48% revenue growth and a record-breaking quarter for us across the board. That is what drove the guidance raise that we had.
We took up guidance at the midpoint by $110 million. We are expecting to be in that $1.835 billion to $1.91 billion for the top line revenue, and EPS could be as high as $9 a share. The other thing I would point out is our margins. Adjusted EBIT margin 67% with really strong cash flow conversion. We are in a great position.
Yeah, absolutely. Another thing that we used to get questions about, so I think it's a good opportunity for education, is the royalty step downs and how you're expecting those to trend. Which ones should we be watching, and what's replacing that? I think the questions on our end have settled down a little bit because of the cadence of BD and replacing the growth engines, but maybe help us understand the step down, how you can directionally quantify that. I know you can't give us the exact numbers, but just set the stage for royalty step downs, please.
Yeah, I would say all of our contracts are negotiated separately, so we have different types of contracts. I would say in the majority of our contracts, we have a structure where we receive royalties for a minimum of 10 years, and that can be extended if we get co-formulation patents, which are generated by new inventions being found by co-formulating ENHANZE with the partner product. That's important because in most of those contracts, the effect of the co-formulation patent is to maintain the royalty rate at the original starting. So we will stay at the mid-single royalty for a period that's often 13- 17 years after launch. We do have some other contracts where there will be a step down, and that happens when the ENHANZE core IP expires, which is 2029. So we do have some products that will have a step down.
DARZALEX will have a step down in 2029 in Europe, as an example. VYVGART will have a step down in 2029 as well. As you said, the very important point, and this is something we have recognized and we have been working on for many years, is the importance of having additional products that are newer launches, where we're still in the high mid-single digit, and it's the revenue from those that are a backfill for that step down. So that's why it's so exciting to see the growth of OCREVUS, RYBREVANT, and also OPDIVO, in addition to the continued growth of DARZALEX and VYVGART, because it's probably not lost on the audience that as the product continues to grow, even if there's a step down, the revenues are increasing. So, we have a terrific dynamic, and that's exactly what we plan to do with that.
We work with every partner to get co-form patents. We've had six co-form patents issued. We expect to see more being issued, and a very important message that in most of our contracts maintains the royalty rate at the original starting mid-single digit rate.
Excellent. Another thing that has been topical is the CMS IRA news recently. I think it's behind us now, but maybe, for those who haven't caught up in the last couple of months, you can refresh us on where we stand with that.
Yes. IP 2029 is the first year some of our partner products might have been eligible. But we're very happy to say that based on the draft that was published earlier this year, we have assessed, by reading this very detailed document, as well as looking at each of our partnered products, that we expect no to minimal impact from the IRA all the way through 2035. This is because of how the document is drafted, but also other policies in place like the orphan drug exclusion, as well as the expected launch of biosimilar products. So as you say, Mitchell, we never had any positive upside from the IRA because people use our products for competitive differentiation. Nobody ever wanted it for a few extra years.
But the great news is there's no harm to it, and we're just continuing with the business, and hopefully when the final document comes out this fall, we can all just put it behind us and never discuss the IRA again for Halozyme.
Excellent. Okay. Another point of discussion that's ongoing for us is Alteogen and the emerging hyaluronidase out of Korea, and maybe you can help us understand how you see the competitive dynamics now, especially that Merck is using it. How you've had discussions with partners who may have opted for ENHANZE versus Alteogen's hyaluronidase, or what prevents some partners from licensing ENHANZE and they have to go with another partner, and then where the litigation stands. Just help us understand the field there. And then thinking about how that affects any new deals and is there competition that now your mid-single-digit rate is in flux because of that, partners are saying, "Hey, we've got an option." We can't see behind those doors, so maybe you can help us understand what-
A lot in there. I will maybe take the first part.
Sure.
With regard to Alteogen and ask Darren to talk about the status of the MDASE litigation. I think the first thing that is very important to us, we have multiple structural advantages versus any of the emerging hyaluronidases, and that comes from being the innovator in the past, having launched our first products in 2013, and launched 10 products in total. We have got the largest clinical safety database, and also over 1 million patients' post-marketing data. That is important because when a partner is thinking of taking a product subQ, they want to look at the technology, but as importantly, they want to know what development risk am I taking? What is my chance of success? Am I going to get a surprise immunologic event? Am I going to get a surprise safety signal?
We are in just the leading position, and frankly, an unassailable position, that we can answer those questions in a database manner. We have signed six deals, Mitchell, who we have talked about earlier. In each of those cases, the companies evaluated Alteogen specifically and said, "We want to come for Halozyme for your experience and because of your track record of success and safety." We know that is the case. I think the second thing that is a big structural advantage is we also have the broadest portfolio of subcutaneous delivery solutions now with the addition of Hypercon, Surf Bio, and the auto-injectors. ENHANZE is seen as a gold standard. We are seen as a leader in subcutaneous delivery. We are the one-stop shop for biopharma, and so we are very comfortable we are going to continue to be the leader in signing new deals.
Because of the structure of some of our earlier contracts where we signed exclusive contracts, Alteogen has had some deals. The majority of those where it is public, it is very clear we can say that the partners came to us first, and we had to say no because we are working with somebody else. Merck is a great example. That is a PD-1 target. We licensed that to Bristol in 2017 when Merck was not interested in subQ. They had no choice but to go to Alteogen, and that has been the case for multiple of the announcements. We are very comfortable in our leading position there. Darren, would you turn to the difference between ENHANZE and MDASE and then?
Absolutely. What I would start by saying is that the ENHANZE patent estate is completely distinct from the MDASE patent estate. The royalties that you see Halozyme getting today on all the products are based on the ENHANZE patent portfolio. We will get many more royalties going forward as we strike new deals and expand. That is the first thing to say. The second thing is just the MDASE litigation is all upside for us. We are suing Merck and pursuing cases in the U.S. and in a number of markets in Europe. To give you an update on the status there, we are in the PTAB process in the U.S., so that is delaying the district court case a little bit. That is likely to long go for a while now. But in Europe, they are blocked in Germany.
We are awaiting the results in the Netherlands, and that is actually the license holder for a number of markets in Europe, so that is going to be an important case that reads out early in October. Stay tuned for that. There are a number of other markets that we are looking at as well where we are taking action, so more to come there. Importantly, this is all upside, as I said, completely separate patent estates, and so anything that comes out of the MDASE litigation, there is no read-through to ENHANZE, and it is all upside for Halozyme.
Excellent. A lot of nominations recently from partners who have had slots that were kind of pending and they could opt for nominations. Can you help us understand how many remain to be determined if nominations occur, like what could we potentially see? Then you have 13 programs by year-end that you are expecting to be in development. Can you help us understand how many of those could be commercial within the next few years?
Yeah. With regard to the new partner nominations, Mitchell, I am glad you talked about that because that is sometimes under-recognized as another powerful driver of royalty revenue. Every time we sign a new deal, we are obviously getting one or two nominations, but many of the partners take extra slots. We need to track how many new deals there are, how quickly those partners are moving into the clinic, and then how quickly the additional signed nominations are moving forward. I would say today, on ENHANZE, there are at least 20, and on Hypercon, there are between 15 and 20. Each new deal usually is three to four deals, so there is 10 deals' value just sitting there waiting to be untapped. As you say, we are very excited to see products moving into the clinic.
And also what I am delighted to see is the new deals also moving rapidly into the clinic. GSK, we just signed with them in the second quarter. Their trial is already posted on clinicaltrials.gov, that they are going to be testing ENHANZE with belantamab. Now, that is a notable start for us because it is the first ADC, where the premise is that by reducing the Cmax, we can help reduce Cmax-related toxicity of ADCs, and that would be a new market opportunity for us we have not tapped into that we estimate is at least 50 ADCs. But it is the speed I also want you to know as to which partners are moving.
Pfizer, who is a longstanding partner, has also posted a clinical trial design to evaluate ENHANZE with its trispecific that is being used for atopic dermatitis and other dermatological diseases. We are working today with antibodies and bispecifics.
That is a trispecific, and we also have this new ADC, and I will just throw in that we have also got our first partner evaluating nucleic acids. Again, a brand new market opportunity for us. So remarkable after all this time with ENHANZE, through great science that our chief scientific officer invested in and created, we have opened up two new market segments that is going to allow us to continue to grow and sign more deals.
Wonderful. Okay, and then with Hypercon and Vertex and Oruka, maybe you can help us understand the path to revenue there, but also what steps will start to validate that more and more, like getting the ball rolling. How does that affect the split of different BD activities that you guys expect in terms of ENHANZE versus Hypercon versus MDASE? How do we expect BD deals to happen in the future?
Yeah. Let me start with that, because it has been very clear. Pharma is really focused on subcutaneous delivery, and so what we have seen is a step change in how they approach us now. They approach us more frequently than us reaching out to them, but they are also very clear they are a product that is going to be delivered in the physician's office, where volume is less important. That is in ENHANZE, and they will say, "We want you to talk to us about ENHANZE."
Even if something where they want to get to small volume and an auto-injector for the patient's home, they come and talk to us about Hypercon and sometimes the Surf Bio, which is an earlier asset for us. And so pharma knows what they want. They are very laser focused now on the competitive profile of their drug, and that really is how they are coming to us.
We can't talk specifically about Vertex and Oruka, but what we can say is that companies with Hypercon, it can take products that today can't be concentrated beyond 100 mg/mL- 150 mg/ ML, up to 500 mg/mL , and that's how it gets it into the smaller volume, easier to be delivered by the patient. You can assume that is the goal of all of our Hypercon partners. Our first two partner starts are going to occur in the first half of 2027. That's very exciting for us. I can say we've got multiple other products that are in feasibility testing that will move forward into, hopefully, CLAs soon. That's what we call our contracts, the Collaboration and Licensing Agreements, and those will be future launches as well. It really is already showing very nice progress and strong progress.
At this stage of development, Hypercon has signed more deals and has more progress than we had with ENHANZE, which shouldn't be surprising, because when we launched ENHANZE, we were creating subQ delivery of biologics. Now, the market, patients, doctors have absolutely embraced it, and things are going to move faster, which is why we're so confident in Hypercon.
It's wonderful, and one of the companies there, Oruka, is a key company for us. We cover Oruka as well, and so we're very familiar with that and how transformative that could be for psoriasis, but also for you guys. They're going after a $22 billion established market of SKYRIZI with their lead product. Every percentage point of mid-single digits that you guys get is huge. I guess with that backdrop, anything you want to say about that deal that would help investors, but more importantly, when it gives us a sense of what you're looking for in the next deals that you do, are you looking for those potential home runs, but they're not commercial yet? How do you think about the future of your hyaluronidases in the hands of different partners?
We look forward to Oruka saying more about their specific plans.
Yeah.
We're not in a position to say anything just yet, but I can say we're delighted to be working with them on what promises to be a transformative therapy for patients with very strong data. I think in terms of the second part to the question, we are very happy when partners come to us. I think you never know what product is going to turn into a blockbuster. I can say that in terms of the current partnerships, we're working on products that are already established blockbusters, and we're also working on earlier products. We always like to use argenx's VYVGART as a product that was totally under-recognized when we first signed the deal with them. We saw the potential, and obviously argenx did a marvelous job developing that drug, and it's not done yet because we've got so many new indications coming.
You will see a mix of marketed products. You will see companies wanting to introduce subQ from the start in the most competitive profile, because perhaps they're coming into an already established market where they need to transform early into the most convenient, longest dose duration, whatever is their goal, that is what Hypercon. Because we can deliver higher doses, if you can imagine, in that 2 mL volume if you need to do that. So it's a very exciting area for us, and pharma is absolutely, in a way that hasn't happened in the 12 years I've been at Halozyme, embracing subQ as the path forward.
Wonderful. We've talked about a lot today, so to close the discussion, I always like to just recap and give you a platform to touch on anything critical that we didn't get to say, and/or discuss maybe the next 12 months forward ahead for Halozyme.
Yeah. Darren, anything you want to add?
I think you did a really good job covering everything. We are very excited. I think the model is very strong. High margin, long duration of royalties. As I mentioned, the financials are really strong. To have a record quarter was great for me coming in as a new CFO, to have such a strong start. We are excited about the future. The layering effect and the compounding effect that Helen talked about with our royalties is something that I think is really compelling and exciting. We have ENHANZE. We have the 10 deals that we have, or 10 products in the market already. We have the 13 new ones coming. Then we have Hypercon coming. Then we have Surf Bio. So we have this layering effect. Each one has new targets, new nominations, and expansion opportunities. So we are very excited.
Excellent. Thank you, Helen. Thank you, Darren. Really appreciate it. Thank you to the Halozyme team, and thanks to all the investors that joined us for the fireside discussion.