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

It's Ashwin Pai here from Morgan Stanley. Thank you for joining us today. It's the fourth day of the 2020 Global Morgan Stanley Healthcare Research Conference. A quick disclaimer on the webcast disclaimer. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you're a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. For any questions, please reach out to your Morgan Stanley sales representative. And we're joined today by Halozyme, represented by the CEO, Helen Torley. And so Helen, thank you so much for joining us today. And as we all know the format for this is a moderated fireside chat. So why don't we dive right in?

And for those that are newer to the company, could you just provide a quick recap of where the company is now versus where it was perhaps a year or 18 months ago. Maybe if you could place to start to get people out of orientation around the company?

Yes. It's a pleasure to be here. A year ago, we were a company executing what we called our 2 pillar strategy. We had our enhanced drug delivery platform, but we also had a proprietary drug called PEGPH20, which we were in Phase III clinical development with -- to test it in advanced pancreatic cancer. We had always said that in the event that we were not successful in oncology, we would pivot the company to focus only on enhanced. And very disappointingly in November of last year, we did get the data to say that PEGPH20 did not work. We moved immediately to restructure the company, significantly downsizing and cutting our expenses and moving to a smaller company of about 120 people focused on ENHANZE with the goal of maximizing the ENHANZE platform and delivering profitability this year. And I'm delighted to say that in the second quarter of this year, we achieved our first quarter of what we project will be sustainable profitability. Driven by our enhanced platform, which I'm sure we'll talk about in a moment, brings us revenues from both milestones and from royalties from our partners who have commercialized products. But I would also emphasize, we have a lean and leverageable expense base, which obviously is a key part of our story as we go forward with our low expense rate and -- our expense base and this ability to generate increasing revenues as a result of the ENHANZE growth we predict.

That's a great overview. And maybe as you were mentioning, it might be worth spending a second on ENHANZE, what is the technology? Perhaps why is it differentiated? Why is it being used so broadly throughout the industry?

Yes. So ENHANZE is based on our proprietary enzyme that's called rHuPH20. This is a hyaluronidase and it basically targets and degrades sugar that you have under your skin that's called hyaluronan. And just to kind of say what hyaluronan does, it's a little bit of what gives you a skin the structure it has today. It's also why if you try to inject more than 1 milliliter underneath the skin into the subcu space, it ends up causing swelling and distinction because basically there's nowhere for that fluid to go. What we do is we combine our rHuPH20 enzyme with certain leading proprietary products. I'll use Darzalex, Herceptin, rituximab, have all been co-formulated with ENHANZE. And when we do that and somebody gets an injection underneath the skin, the ENHANZE or rHuPH20 works to temporarily degrade the hyaluronan. It creates channels underneath the skin so that you can inject a much higher volume of liquid and fluid underneath the skin. Most of our drugs, it's about 15, 1-5 ML injection, but we actually have one drug, which is called HYQVIA that allows for up to 600 milliliters of fluid to be injected under the skin in a single setting. Now why is that important? Our partners want to use ENHANZE for a number of reasons. You can imagine for patients if they can go from a multi-hour IV infusion, just to a 5-minute subcu injection, that reduces the treatment burden and has a lot of other potential benefits. But where we see the most of our partners coming to talk to us today is really for competitive differentiation. And I think daratumumab is a great example where Janssen signed the deal with us in 2014, just as they were getting their Phase III data with the IV, fantastic product, but 4 to 6 hours for many patients. The recognized competition was coming in the form of Sanofi's isatuximab, which was going to be a 2- to 3-hour injection. And so they very smartly started working with us. And just in May, received approval for a subcutaneous form of DARZALEX that's given in just 3 to 5 minutes. And that's the story with many of our partners. We have 9 partnerships with leading pharma and biotech companies. They are looking to help patients. They are looking to reduce the treatment burden and increase their competitiveness. And importantly, they can also have the opportunity to get intellectual property and additional 20 years of exclusivity on the co-formulation as well. So there are many reasons why partners that come to us wanting to use ENHANZE.

That's great. And maybe you could talk for a second about some of your collaborations, I know you mentioned DARZALEX, but maybe some of the other key partners, how -- what the philosophy is when you strike these partnerships in terms of number of assets for a partnership, maybe just given the audience and orientation around what might be helpful?

Yes. Well, each partner really has a slightly different philosophy, but to mention some of our partners, we talked about Denton, as you see, we have a deal with Roche, which they have actually extended a couple of times. So they are very interested in integrating ENHANZE into their portfolio. We signed a deal with Bristol-Myers Squibb for them to use up to -- ENHANZE with up to 11 total targets, really with a focus on their immune checkpoint portfolio. Our most recent deal was with argenx, a very exciting biotech company who took a deal for 3 targets to be developed. And so what the partner does is really look at their own portfolio and look to see what are the areas where for competitive differentiation a move to subcu makes sense. Depending on the number of targets, a partner will elect to go for, the structure is pretty much the same in the recent years. Generally, partners will pay about $30 million for access to ENHANZE for a single target and this is exclusive access. And just to say what a target is anti-CD38 would be a target, PD-1 would be a target. So they go after a mechanism of action. And we will only allow the use of ENHANZE with that particular target. So $30 million upfront. We earn up to $160 million based on commercial and development progress, so certain milestone payments along the way. And then on average, across our portfolio, we received a mid-single-digit royalty on net sales. And so for us, obviously, we are delighted with the number of targets actually across the 9 partners that we have, they've taken access to 56 targets. Many of these are already in development or have been developed. But we do with our current partners still have a large opportunity with 20 slots open. And we work with our partners all the time to talk about, is there anything in your portfolio that would benefit from a move to a subcu delivery. And so we're very excited to say that we have 5 approved products today, as I'm sure we'll talk about by the end of this year with our current partners, we expect to have 13 products in total in clinical development. So broad use now and broad commercial experience with ENHANZE.

That's wonderful. And maybe actually, that's a good segue into maybe just going through the commercial portfolio versus the pipeline and how the numbers stack up, but also the timely investment in some of that [indiscernible].

Yes. So let me just talk on the time and investment. Just to say, in general, for a partner from the time they start their first in-human study to approval, it has been in the range of 4 years. Now more recently, it's gotten to be a little bit faster than that. And I can talk about why that is. But -- and this is because most of our partners are bridging to an already approved IV product. And so they're able to leverage the large safety database and the clinical development program consists of a Phase I study and then a Phase III study. And the Phase III study will either focus on demonstrating noninferiority between the IV and the subcu based on efficacy and the PK parameter, or in the case of Phesgo, actually it was just a PK parameter. So it's a simple streamlined clinical development program. Now we have, as I mentioned, 5 approvals to date. The first one was for HYQVIA, which is now Takeda's immune globulin. The next 2 were Roche with Herceptin and Rituxan, which have now been approved in a 100 markets around the world, so a broad approval there. And we're obviously very excited about the 2 most recent approvals, which happened just in the last months: DARZALEX FASPRO, which is a subcu version in the U.S., but it's also approved in Europe; and Phesgo, which is a novel thing as well. It's a fixed-dose combination of 2 biologics, both Perjeta and Herceptin in a single 5-minute injection. And so we've seen demonstrable commercial success with the earlier launch products. We're early now in the launch of FASPRO and Phesgo. But based on comments from the companies, they are commenting, they're pleased with the initial uptake of those products as well. So that's the very exciting commercial portfolio. If I focus on a few products that are in Phase I clinical testing at the moment, it's a who's who of important blockbuster products, frankly. I'll start with Bristol-Myers Squibb. Phase I with Opdivo, they've got anti-CD73 Phase I. And more recently, they've started 2 combination studies. Again, this trend to be able to deliver 2 biologics in a simple short injection is one that we're seeing more and more interest in. So the study ongoing with nivolumab or Opdivo with relatlimab, which is the LAG-3. And very recently, with nivolumab plus ipilimumab, which I think everybody has been waiting for, given the emphasis Bristol has on that particular combination. And so a lot of momentum with Bristol. I'll move to Roche now. They actually just announced today that they're planning to move forward to Phase III now with a subcu version of Tecentriq or atezolizumab using our technology based on the data that's presented at ESMO on the positive Phase I study. And they also are in Phase I testing with OCREVUS, their anti-CD20 for myasthenia gravis, which is already a very successful commercial product with the hope of moving that to subcu. And I'll just close on our newest partner, argenx. They have got 2 targets they've already started work on, efgartigimod. They're in a Phase II study in chronic inflammatory demyelinating polyneuropathy. And they plan to talk to the FDA at the end of this year on a bridging study to develop a subcu version of efgartigimod in myasthenia gravis, following the positive ADAPT data that came out earlier this year. And excitingly, they've moved a second target into the clinic showing their commitment to ENHANZE their anti-CD2 -- sorry, anti-complement 2 ARGX-117 has moved into the clinic as well. So just as you hear, terrific products, committed companies, who are seeing the differentiation that ENHANZE is able to bring to their portfolio.

Wonderful. That's great. And I think you talked a little bit earlier about DARZALEX in subcu versus IV and that was a great contract set of profiles. How is the launch going? What are the expectations in for people converting from -- to the subcu form? How should one think about that with the investors?

Yes. So very recent launches mid-May in the U.S. and a little later in Europe. So early long term, we can comment on what the partners have said about it. So Janssen, on their call, said they were pleased with the early uptake as did Genmab. And so I think the dynamics are very favorable for the uptake of DARZALEX. I talked about the shorter infusion time, 4 to 6 hours down to 3 to 5 minutes. There's also the potential for a reduction infusion-related reactions. It was 35% with the IV, and it was 13% with the subcu. So a very strong value proposition, but I'd also point out launching into a market impacted by COVID has turned out to, I think, be a very important factor as well. We know many patients don't want to be sitting in infusion suites for many hours just because of the risk they perceive with that. But the nursing shortage, and this was something that came across in some market research we did at the end of last year. Capacity constraints and nursing shortages in the infusion centers is an issue not just in the U.S., around the world. We're hearing from physicians because the nurses have to be on different rotors now, a blue team and a green team. It's further compounded. And so I'm feeling very excited about the dynamics. I'm further supporting the benefits of the simple shorter subcu. And I'll say for Phesgo, that is a terrific drug, able to be delivered in 5 to 8 minutes instead of the 1.5 to 2.5 hours. And importantly, the FDA gave that label also for home administration. And again, for those patients who do not or cannot get to the hospitals for treatment, that's just, I think, an additional benefit. So as we think about uptake, we've got some great dynamics. The benchmark I would give you is Herceptin, which launched in Europe in 2014, achieved a peak 60% share of sales volume in the European launch markets. That was a value proposition going from 60 to 90 minutes down to 5 to 10 minutes. I think the dynamics, I think everything is even more favorable today. So I certainly would be disappointed if we didn't see shares at peak exceeding that performance.

That's great. And I know you mentioned you have a recent U.S. approval here for Phesgo. In terms of Europe or other geographies, how should one think about what the timing for that might be?

Yes. We do anticipate, if we see standard review times in Europe that the approval would happen in the first quarter of 2021. This was filed in about April of this year. Now the U.S. did approve Phesgo 4 months ahead of time and citing the -- wishing to bring oncology drugs forward with speed. So we don't know. But certainly, by the first quarter of next year, we would expect a decision from the EMA as well. And we know Roche's plans to do regulatory filings around the world, and that's ongoing at this time.

And maybe now -- and you covered, I think, given everyone agreed with you both in marketing products and also some of the pipeline products in terms of BMS argenx. Are there other pipeline products that people should think about at this point as well, just to make sure they think that is all set?

I think we have covered the majority of them. Let me just scan my brain at this point in time. I mean, those are the key ones. We do -- for our portfolio this year, our expectation was to have 13 products in the clinic with 9 new starts. We've achieved 3 of those new starts so far. That includes the argenx CIDP study, I mentioned, the ARGX-117 study, their new target and also the nivolumab ipi. So beyond that, we have 3 additional Phase I starts that have not been disclosed. And 3 of our current Phase I products are expected to move into Phase III clinical testing by the end of this year. So there's a lot of excitement about that because one of the things that's notable in the way our milestone structure is, the more advanced the product is in clinical development, the larger the milestones for Halozyme. And so this momentum of the maturing of the portfolio by having more products in Phase III, more products approved and more products come in, in Phase 1, is leading to a very nice picture of milestone growth, which precedes the royalty revenue growth. And as a reminder, receive, on average, a mid-single-digit royalty. So we are very excited about this dynamic of momentum with our current partners moving more products into and through the clinic. And the expectation, I'll just say for additional new deals, it's always a question people have, I've have been talking with many investors this morning. I'm very confident we're going to sign additional deals. But we can never determine because we don't control the timing as the exact timing of it. But there is a lot of interest in the ENHANZE, mostly driven by competitive differentiation. There is some interest in a COVID-related dynamic, but the majority of it is competitive differentiation. And so if you think about all the products out there that are given in longer IV infusions, ENHANZE has been compatible with almost everything we've tested, we look at all of those as opportunities for future deals.