Halozyme Therapeutics, Inc. (HALO) Earnings Call Transcript & Summary

Hello, everyone. Welcome to the afternoon session of Day 3 of the Bank of America Virtual Vegas Healthcare Conference. I'm Greg Harrison, U.S. biopharma analyst here at BofA, and I'm very excited that we have Halozyme with us here today. And here to speak on behalf of Halozyme is CEO, Helen Torley. The format is going to be a fireside chat. So feel free to send in questions, and I can ask them anonymously.

So Helen, let's just move right on to the Q&A. And maybe you could give the listeners, who maybe aren't as familiar, just an overview of as what is the ENHANZE technology? And how does the business model around that work?

Yes. Thanks, Greg. I appreciate being here. So ENHANZE is Halozyme's proprietary enzyme, which is called rHuPH20. It is hyaluronidase, and it -- specifically, when it's injected underneath the skin into the subcutaneous space temporarily degrades the hyaluronan that is underneath the skin. And as it does that, it creates channels under the skin such that you're able to then inject larger volumes of liquids and fluids and drugs where they can be exposed to the lymphatics and to the bloodstream and be absorbed. We've got proof of principle of this being an approved product called HYQVIA, where with our enhanced technology, you can inject up to 500 milliliters at 1 time. But most of the products we have approved are more in the 15 milliliters. And what we've been able to do with this technology then is to transform the ability to give important drugs like Herceptin, MabThera and now daratumumab, which up to this time were given in lengthy IV infusions in the hospital setting. These drugs can all now be given with our technology in minutes as a simple subcutaneous injection. And when I say a simple subcutaneous injection, daratumumab is a terrific example. Usually, the IV infusion for patients can take between 4 to 6 hours. With it, just approved on May 1, daratumumab subcu, which is called DARZALEX FASPRO, patients can receive their daratumumab now in a 5-minute subcutaneous injection, which I think you'll agree is pretty remarkable. So we transform IV drugs into subcu, and we can also lengthen the treatment interval for subcu drugs. Our business model is to license the exclusive rights to use ENHANZE with a specific target to leading companies. Targets are, for example, CD38, PD-1, PD-L1. So these companies are pharma and biotech partners, who want to exclusively use ENHANZE to transform their drugs into this subcu. And for that right, they pay us money as an upfront, which tends to be in the $30 million range for a single target. They play as milestones as they make progress, both in the clinic and with commercial sales, that's up to $160 million for each target we get. And we also make a 20% margin -- sorry, a markup on the API that we sell. So we make money in those 3 ways. And that to date, we have got 9 leading companies as partners for us, that's resulted in 4 approvals.

Great. That's a great overview. Maybe we can talk about some of the specific programs. You mentioned DARZALEX FASPRO, and you received a milestone payment on that today. Maybe if you could go through the value proposition, how you look at the market and the launch and reimbursement in those key considerations?

Yes. So if anyone isn't familiar with daratumumab, it's a drug that is commercialized by Janssen for patients with multiple myeloma. And it really has transformed the lives of many patients as one of the most successful launches in the space of multiple myeloma ever. Last year, the revenues were $3 billion, and analysts project it's going to get up to between $8 billion and $10 billion over time. So clearly a very successful drug for this specific type of blood cancer, multiple myeloma. Now the drug today is given as an intravenous drug. Because of the risk of hypersensitivity reactions, it has to be given slowly and be slowly titrated in depending on how the patient reacts to it. And we know that for many patients, each injection that the patient gets every 2 or 3 weeks, the actual injection time itself can be 4 to 6 hours or even longer because of that need to titrate in the IV drug slowly to avoid what are called these hypersensitivity or infusion-related reactions. So Janssen approached us actually in 2014 to start working on a subcutaneous formulation. Two goals; one was clearly to improve the treatment experience for patients, shorten that time. But also, Janssen, I think, had a very strong eye to future competition, and they knew that a couple of companies were developing anti-CD38 that had a shorter treatment time and very smart strategic reasons for wanting to use ENHANZE, which we see with the majority of our partners who're looking for that competitive differentiation I just mentioned. And so what we've been able to do between 2014 resulting in the recent approval, is to develop a subcutaneous version that is given in just 3 to 5 minutes. And really importantly, and this, I think, was a novel finding instead of what is often reported of between 35% to plus percent incidence of these infusion-related reactions with the subcu, the actual rate was just 13%, so a remarkably lower level, and the drug being given in 3 to 5 minutes as opposed to the longer IV infusions, the remarkably longer IV infusions. Now what we were really pleased about with this approval is based on a pretty narrow, but very smart development program. Janssen has gained almost all of the addressable population in terms of the number of indications that were approved. So the subcu is approved for 5 of the 7 indications that are already approved for the IV. And they actually have studies ongoing that will address the other 2 indications that were not approved at this point in time because no extrapolatable data was there. And so we're so excited to hear, as you mentioned, we just got the milestone for the first commercial sale. Janssen has now launched the subcu, being able to have subcu used in almost all of the patients who are treated today with the IV with this value proposition that is a 3- to 5-minute injection, lower rate of infusion-related reactions. And so it's incredibly exciting for us. We expect that after the next weeks, as Janssen goes through confirming reimbursement, the electronic medical records, et cetera, we're going to see particularly in 2021 a very nice inflection in our royalty revenues from the success of the launch. And I think I may have omitted mentioning the specifics that we receive a royalty on net sales as well as all those milestones I mentioned earlier, which is, on average, mid-single-digit royalty across all of our partner programs. And so with this high-potential drug, very strong value proposition, you can tell why this is so important for Halozyme in terms of its impact we're anticipating on our royalty revenue growth in 2021 and beyond.

Great. And then, what about potential European approval and how does that play into it? And any other ongoing studies that could expand the opportunity?

[ Now ], great. European approval, we've got a good eye to the time line for that as well. Janssen filed a European filing actually at the same time as the U.S. in July of last year. On April 30, the CHMP gave a positive opinion for DARZALEX subcu using ENHANZE. Specifically, they're indicating -- they're recommending approval for all of the indications that are approved in Europe. And just the time line can be expected to be by -- within 67 days of that April 30 time line, we can expect approval -- in almost every case it's happened -- based on the positive opinion for daratumumab SC in Europe. So that would take us to the -- sometime end of June, early July, will be the expected time line for the potential European approval as well. This drug, daratumumab is very successful in Europe and I think, particularly with some of the constraints that exist in the European medical system, we find that subcu is very well adopted and recognized as being a way to deliver care that not only creates convenience for patients, but with some other drugs has been shown to significantly reduce the cost of delivering care. And so we're very excited to be watching that uptake in Europe as well with once again this very broad label. And then for ongoing studies, Janssen has said the subcu for them is very important to their strategy for daratumumab franchise. In particular, they see the subcu as being a core part of their growth strategy in the frontline setting. So the patients with newly diagnosed disease in multiple myeloma, patients can remain on therapy in the first-line for years. And so you can imagine why that is so important to be able to have a shorter, simpler subcu as opposed to IV to help compete in that particular space. So we're excited to see their commitment to that growth and also use in the community setting being supported by, I believe, it's 8 Phase III studies that are ongoing in addition to the studies that have already been completed evaluating subcutaneous DARZALEX in a whole range of settings. And so, over time, it is very possible we'll see even more indications being added based on the subcu studies that I just mentioned. So very strong commitment for Janssen. This is a core drug for them, and the subcu is core for the future growth to get from that $3 billion I talked about up to this $8 billion or $10 billion. So incredibly exciting.

Great. That's really helpful detail. So maybe we can move on to the next anticipated product that could receive FDA approval, which is the Perjeta/Herceptin fixed-dose combination. Maybe you could go through a similar explanation of the value proposition there, the data, maybe how the dosing regimen is -- will change based on this and timing in the EU.

Yes. So Perjeta/Herceptin fixed-dose combination with ENHANZE. This is the first time to our knowledge that someone has been able to combine 2 therapeutic antibodies and deliver them in a single injection subcutaneously. And it's the ENHANZE obviously that is enabling that. For Roche, this is targeted to patients with HER2-positive early breast cancer. They're already approved today with IV Perjeta, followed sequentially by IV Herceptin, which for patients can take up to 2.5 hours in terms of the duration of therapy. With the subcu version, which is both drugs combined in a single injection with ENHANZE is given between 5 and 7 minutes. So once again, a significant reduction in the time it's taking for patients to receive their therapy. And this is based on a study that is called the FeDeriCa that was the basis for the filing that was made with the FDA. We know for the U.S., the PDUFA date is October 18. And in Europe, we anticipate approval if a positive opinion is granted in early 2021. So this launch will follow shortly on the heels of the daratumumab launch and obviously contribute to the strong trajectory we're anticipating for our royalty revenues. Strategically, this is an important first. I mentioned the ability to combine 2 biologics in a single injection. Really, Roche is the pioneer here. But as we'll talk about in a moment, we have other partners who are looking to do the same. This Perjeta is 1 of the 4 key drugs that Roche always focuses on in the quarterly earnings call, and Perjeta $4 billion in revenues to date, most of its use is with Herceptin. And it's expected to grow to between $5 billion and $6 billion by 2024. So a strong growth opportunity here as well, that with the patients able to receive the therapy upon approval in just 5 to 7 minutes, we think this is an incredibly strong value proposition as well. One interesting thing that Roche has referred to in a few of their quarterly calls is that the fixed-dose combination also gives them pricing optionality. And I think what they're referring to here is, as you're aware, this early breast cancer space is quite competitive. The ability to have 2 biologics and have some price flexibility to determine just how you want to price that versus some of the other agents that are in that space today, obviously, is an important strategic lever for Roche in this circumstance to contemplate as they're thinking of seeking to increase penetration, as an example, in the European market as well as grow in the United States. So that's another point of differentiation, I think, ENHANZE can bring this possibility on occasion for pricing optionality. So we do see this as another very exciting launch for Halozyme happening in the U.S. just a few months after this very recent daratumumab launch. So 2 launches in 1 year is a great position to be in with our ENHANZE technology.

Yes, definitely. That, that's a great update. Now maybe we can go into some updates on your other partners. And I've actually received a couple of questions related to argenx in your program that you're working with them on. The question is for the MG program, there it's normally an IV every other week. And so for the subcu, is that the same? Would it be every week dosing or every other week? And for CIPD (sic) [ CIDP ] in C2, what is the shorter time in dosing?

Right. And so let me address the MG study, first of all. So what -- argenx had a quarterly call this morning, as many of you may have listened, what Tim, the CEO, talked about was the fact that they're obviously waiting for the ADAPT data and what they will be considering if that data is supportive is approaching the FDA to talk about a bridging study. And by that, the development of product for ENHANZE, if you have already got large studies, which are either Phase III database or an approved study is, you can do a pharmacokinetic bridging study, which looks at showing noninferiority of a key PK parameter as well as demonstrating noninferiority of an efficacy parameter and bridge to that broader safety database. Based on the comments Tim made that's a conversation with the FDA has still to happen. And so all of the elements of design, all of this study have not been shared. So I can't comment on exactly what the target dosing is. Most of our partners to date have gone with the same dosing interval as their IV when they're doing these bridging strategies, but I don't have any specific information on the strategy that argenx is pursuing. So we will definitely will hear more in the second half of this year with regard to the specific plans in myasthenia gravis. Now with CIDP, Tim mentioned this morning that they have dosed the first patient in that study. As I'm sitting here at this second in time, I'm actually blanking on what the dosing interval was. So I do apologize for that, and we can revert and get back to you with that answer. But I'm not recollecting exactly what the dosing interval was.

Okay. And then one more on the efgartigimod subcu. Given that it could be a home infusion, how would that work if doctors need to do monitoring if the patient is doing the infusion at home?

Yes. So most of our drugs today are given in the hospital setting. But we do know, as an example for DARZALEX FASPRO, it's specific to say it needs to be given under the care of a health care professional, which could be in the home setting. So for efgartigimod, again, without having gone through all of the testing, if it's labeled to say it can be given under the care of a health care professional that that could be an at-home nurse or practitioner, who is able to conduct the similar observations that the doctor in the hospital or a nurse in the hospital would do. But it all depends on the labeling that will -- ultimately given to the product and any specific oversight requirements that are put in place. For DARZALEX, just to bridge back to that, there are no specific monitoring requirements in the U.S. label for DARZALEX FASPRO, but it does say to be given by a health care professional. And there are, as with the IV some premedications that you want to be given. So I can't answer your question on efgartigimod until we see the design of the study and exactly what the label is with regard to who -- any monitoring requirements and doesn't need to be given under the care of a health care professional.

Okay. That makes sense. Maybe we can move on now. If you could just give us some updates on your other key partners like Bristol-Myers and Alexion?

Yes. For Bristol-Myers Squibb, we signed our agreement with them in 2017. And I think what has been most remarkable there was that Bristol really had a big vision for where it saw the future use of subcu products in oncology. And they licensed exclusive access for up to 11 immuno-oncology products in their portfolio. They announced at the beginning, which a couple of them they had. They reserved lots -- they've kept -- or slots, sorry, that they've kept confidential. And what I can say that is, to date, they've moved forward with 3 clinical programs, all of which are in or completed Phase I clinical testing. So we've got Opdivo, obviously, their PD-1 inhibitor; CD73, which is another checkpoint inhibitor. And they actually are underway now with a Phase I study with Opdivo in combination with relatlimab, which is a LAG-3 inhibitor. So I was mentioning that the companies are beginning to explore more and more combining antibody treatments and putting them in a single injection. So BMS is going forward with that. And where that can take them, and they stated this when they signed the agreement, is the potential to be able to move out of the infusion centers for treatment, more into the community and make it just a simpler administration of these oncology treatment regimens. And so we're very excited with the progress that Bristol has made, and we continue to be engaged in conversations with them on multiple additional targets. So we see their continued commitment to the important role subcu in the future will play in multiple different types of oncology tumors. I'll move to Alexion. We signed the agreement with them a number of years ago as well. And Alexion has been able to demonstrate that with our subcu therapy, they were able to take their own subcu version of Ultomiris, which is given once a week and be able to extend the dosing interval to every 2 weeks. So that was a great proof-of-concept to say that we could extend the dosing interval with Ultomiris. So after that Phase I study, Alexion has been working for some period of time to identify what its strategy is overall with the C5 portfolio. They had announced in January that they were planning to move forward with our product, which is called 1810. So that's Ultomiris with ENHANZE is called 1810. The plan to move forward is in a renal basket study. They just recently announced, and we provided this update on our quarterly call that they are now going to do that study with Ultomiris, not with 1810. And we have upcoming conversations with Alexion on how they plan to move forward now with the use of ENHANZE in their portfolio. So we'll look forward to that update and providing appropriate updates as we're permitted to based on the confidentiality of our agreement. So that's where we stand with them as well.

Okay. And then...

And I will just say actually -- if I could mention, we also have a lot of exciting programs going on with Roche. They were our first partner. They've seen a lot of commercial success, particularly in Europe, obviously with their versions of subcu Herceptin and MabThera or rituximab using ENHANZE. We're excited about the upcoming launch of Perjeta/Herceptin. We also have Phase I studies ongoing with TECENTRIQ, their PD-L1 inhibitor with ENHANZE and also Ocrevus, which is their anti-CD20, that is already a very successful drug in multiple sclerosis. And so we've been excited to see the ongoing commitment and progress that Roche has been making to bringing more of their terrific therapies to patients with the subcu formulation. So exciting progress with Roche as well.

Okay, great. And then I have to ask this one. We ask everybody this, but what is -- has been the impact of COVID-19 on the company so far? What measures have you taken? And how is the outlook as far as clinical trials and things of that nature throughout the rest of the year?

Yes. One thing I didn't mention in our business model is the execution of the actual clinical programs and regulatory filings is done by our partners. We are responsible for providing advice all along the way and for oversight of the production of the API. And so I'd say, overall, our partners are doing a terrific job as our CDMOs in maintaining productivity, focus and progress even in the face of COVID-19. So overall, for the clinical trials, we've seen some change in clinical trial time lines by 1 or 2 quarters. But I'm very pleased to say that we, just this week, reiterated and maintained our guidance for 9 clinical study starts in 2020, which is resulting in supporting the fact that we did not change our financial guidance for the year, which is total revenues of $230 million to $240 million and an expected [ return ] to profitability in Q2, so this quarter, with a full-year diluted GAAP EPS guidance of $0.60 to $0.75. And so overall, a little bit of a slippage in time line of delay. A couple of our ongoing studies with our partners had enrollment delayed, but really remarkable focus and execution by all of the partners even in the face of COVID-19. And our CDMOs have seen no interruption in their supply as a result of COVID-19 either. That's talking about the partners, I will say that the terrific Halozyme team adapted very quickly and well to the work-from-home policy with a small group of employees have to come into the office to do lab work. They are just maintaining amazing productivity. And so overall, we're doing well and delighted we could maintain our guidance based on the information we have to date from our partners.

Okay. Great. And let me wrap up with one last question. We're coming up towards the end of our time here. But wanted to just kind of look forward and see what your thoughts are on new deals for ENHANZE and kind of what is the future hold for this program?

Yes. We do see the potential for additional growth, even more so than ever where people don't want to be in infusion suites or stuck in hospitals. We're seeing a lot of interest and questions in access to subcu. Now, we did see a little bit of a slowing down in discussions in March, April, but that is picking up again. So I do see the potential for new deals. We never put time line on that because that's hard to predict. But between that expectation of new deals, that 9 clinical study starts that we will add this year, we are able to project growth in our milestone revenues with a guidance of between $350 million and $450 million in milestone revenues between 2020 and 2022 based on this amazing clinical progress and approval progress that we are now beginning to see the beginning of. As well as the potential for $1 billion in royalty revenues based on the exciting portfolio of products that if approved, and that's a non-risk-adjusted number, but if all of the products we have a line-of-sight to being in the clinic have the success we anticipate, it does because there are so many products, and they are such important products, lead to the potential for $1 billion in royalty revenues. So we predict strong growth in our EPS that is going to result in increased free cash flow. And as you know, we've been using that to return value to our shareholders through a share repurchase program, which we remain committed to.

Great. Well, with that, we're at the end of our time here, but I'd like to thank you, Helen, for the great discussion. It's very interesting. And I'd like to thank everyone on the line for joining us. And please stay safe, everybody, and we'll talk to you soon.

Thanks so much, Greg. Thank you. Bye.