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

Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to the Halozyme Financial Update Call. Please note, this event is being recorded. I will now turn the call over to Tram Bui, Halozyme's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Welcome to the Halozyme financial update call. Let me begin by briefly reviewing today's format. We will have a presentation followed by a Q&A session. During the presentation, we will be displaying a slide deck that will advance with each speaker's comments. On today's call, we will be making forward-looking statements as outlined on Slide 2. I would also refer you to our SEC filings for a full list of risks and uncertainties. During the call, both GAAP and non-GAAP financial measures will be discussed. Certain non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in the slide presentation. I will now turn the call over to Dr. Helen Torley, President and CEO.

Good morning and happy 2024. Here we are in January 2024, a key milestone year for Halozyme. Over the last month, many investors have been asking about our confidence in the durability of our revenue, specifically in the revenue durability and growth we forecast in 2024 and in 2027. Each time I answer being that we are confident that we will continue to demonstrate strong royalty revenue growth and total revenue growth in every year from 2024 to 2027. Each time I answer this question, I also reminded everybody that we project to achieve $1 billion in annual rate revenue in 2027. Each than you asked for more granular revenue information, including about the relationship between royalty revenue and patents related to rHuPH20, our proprietary enzyme in ENHANZE. Today, we are dedicating this call to our presentation of the rHuPH20 patent dynamics that are expected to drive revenue durability and to a presentation of our revenue guidance for 2024 and our revenue guidance until 2028. Yes, we have confidence in the visibility of our revenue and are delighted to share our 5-year view with you. For the presentation today, I'm joined by Mark Snyder, our Chief Legal Officer; and Nicole LaBrosse, our Chief Financial Officer. Our presentation of the patent dynamics moving [indiscernible] so listen well. I'm very glad that Mark, he's an expert in the area of patent dynamics and intellectual property licensing, will be leading this discussion. Nicole and I will then present our financial guidance. Today, we will not make any comments about pipeline progress. We will update pipeline progress as a regularly scheduled February earnings call instead. And let me start with some key strategy highlights to best situate the discussion. Over the last decade, we have built a compelling derisked and proven business with multiple competitive advantages that is positioned for durable revenue growth. We were leading companies and with breakthrough products that are often approved or completed Phase III testing. This results in our lower risk model. We have a high success rate in IV to subcutaneous conversion. This has resulted in 7 approved products to date, driving our royalty revenues, and this is projected to increase the 8 approved products in 2024 and 10 products in 2025. Having said on regulatory approvals demonstrate how derisked the ENHANZE platform is, and this is a real competitive advantage. Our contract structure and innovation resulting in multiple co-formulation patents creates extended durable realty revenue stream for many years to come. Our broad compatibility brings the confidence of our ability to continue to expand the number of partners and subcutaneous products. And finally, our commercial products, including XYOSTED, which is delivered subcutaneously with our small volume Auto-Injector, add an additional did. As the leader in rapid subcutaneous large-volume break deliveries, our vision is to transform patient treatment. Today, many breakthrough therapies require the patient's life to fit the treatment. Often, it requires frequent the lengthy visits to a hospital. Our vision and our passion is to enable a world for breakthrough therapies that the patient's life. Today, receiving an IV treatment is not possible over a patient's lunch time as an example. With subcutaneous treatment with ENHANZE. We have 2 commercially validated subcutaneous delivery technology that we license the partners and generate revenue through royalties, milestones and product sales. 7 ENHANZE-enabled products have been approved in at least one region with many of the products approved in approximately 100 countries. Importantly, approximately 800,000 patients have received treatments that include ENHANZE, creating a large, well-characterized database that has helped establish a positive benefit risk profile. This large safety database is unmatched by competing technology and representing another substantial competitive advantage. Our second platform is our small volume auto-inject business, which comprises to date of one approved proprietary small volume auto-injector plus drug product, XYOSTED and to approve partners small auto-injector plus drug products. We have deep experience with auto-injectors with more than 40 million devices supplied. It is auto-injector experience plus the ENHANZE technology that allowed us to create the first ever high-volume auto-injector demonstrated to enable delivery of 10 mL biologics in just 30 seconds. We also have 2 commercial products, which add to our revenue diversification and growth. Diastat is our proprietary to soon replacement treatment delivered in just second subcutaneously using our small volume auto-injector. And Hylenex is our proprietary recombinant human hyaluronidase that's predominantly used in ophthalmic surgery. Importantly, these products are projected to contribute meaningfully to EBITDA growing from approximately $15 million in 2023 to a projected greater than $150 million in 2028. Let me move to why we are focused on subcutaneous drug delivery, shorter and simpler that total seg delivery cannot many advantages. With shorter treatment times that subcutaneous delivery reduces the burden of treatment for patients and their caregivers. Subcutaneous drug delivery with ENHANZE can result in reduced infusion-related reactions as you've seen with DARZALEX. Now why does this matter? There can be a range of infusion-related reactions, which can range from mild symptoms, such as a slight fever, fear with some technically low blood pressure, nausea, vomiting and breathlessness. These side effects have a negative impact on the patient's experience and can even impact future adherence. The ability of ENHANZE to enabling subcutaneous injections to reduced infusion-related reaction is a real innovation. It is an innovation that benefits the patient and can also impact treatment outcomes. Subcutaneous drug delivery with ENHANZE can also enable treatment close to the patient's home. For example, in a community hospital, doctor's office or even the patient's home itself. This can help reduce inequalities to access by reducing the barriers for the elderly, frail, rural and poor patients. It really is no wonder that 85% of FASPRO patients and 90% of our sabcu patients preferred subcutaneous delivery of those treatment over IV. And nothing speaks better for this than the fact that 92% of total DARZALEX sales or for the subsites version, DARZALEX FASPRO in the United States today. And there is no doubt that the time is right for Subcutaneous delivery of important essence. In the U.S. and outside the U.S. as a result of advances in medicine, many centers are experiencing and reporting capacity constraints. There simply are not enough shares available to deliver all of the lengthy intravenous treatment that are being prescribed. As shown here, we move to subsidies delivery, can reduce chair time opening up the opportunity for more patients to get treatment and reduce cost for the health care system and to patients due to the lower resources line data needed to deliver treatment subcutaneously. And here is a summary of our Wave 1, 2 and 3 products. Each wave is being designated by axle or estimated launch time. These products are wholly or largely tubes from a regulatory approval standpoint. And it is for this reason that we are focusing on them for today's update and for inclusion in our royalty revenue guidance. Wave 1 and 2 products are launched and established with the Wave 2 products, DARZALEX Subcutaneous and FASPRO, the key driver of royalty revenue growth that is resulting in the royalty revenues of $445 million to $450 million in 2023, in line with our guidance. Week 3 is comprised of launches that are projected to occur between 2023 and 2025. And this has now expanded to 5 products and includes VYVGART Hytrulo, Tecentriq Subcutaneous, ocrelizumab subcutaneous, nivolumab subcutaneous, and we have recently added Amivantamab subcutaneous into Wave 3 based on the projected faster development progress from this exciting product. And we are just at the beginning. Importantly, Wave we 3 is a key driver on top of Wave 2 to achieve the projected $1 billion in royalty revenues in 2027. I will note that we have future Waves 4 and 5 that will add to and build on top of this. These are not included in our royalty projections as we are focusing on products that are holding or largely derisked from a regulatory standpoint. I'm very pleased now to move to the next agenda topic, which is Halozyme's innovation, past presence and future. This is a section where we're providing granular information on the relationship between our rHuPH20 patent and revenue. I can think of no one better to lead this discussion, then Mark Snyder, our Chief Legal Officer. Mark joined Halozyme 2 years ago, joining from Qualcomm, where he was Deputy General Counsel. At Qualcomm, Mark led the global litigation, regulatory and intellectual property policy groups for more than 10 years. We successfully enforced and defended Qualcomm's patent licensing business talking a countless value-creating litigation and regulatory wins. Mark, I'll turn it over to you.

Thank you, Helen. You have heard from Helen about a number of ways that we work with our collaboration partners to innovate exciting new products to improve patients' lives. I will now discuss how those innovations lead to durable royalty revenues in our licensing platforms today and in several cases, extending out beyond 2040. At the end of my remarks, I will address our current efforts to protect our exciting new high-volume auto injector innovations that will continue to contribute to our licensable patent estate. I will start by giving you an overview of the patent rights that are important to our enhanced licensing platform and collaborations. Halozyme is the recognized in year in developing human-derived hyaluronidases for subcutaneous administration of medicines. Our patents, which we refer to as a patent portfolio because of the large number of patents that we have obtained worldwide, protects our innovations in a number of ways. Halozyme has patented the recombinant human hyaluronidase we call ENHANZE. Through composition of matter patents and through patents covering our methods and products and manufacturing and the use of ENHANZE. We also protect our technology resulting from our collaborations with licensees through collaboration patents which you might hear us refer to from time to time as co-formulation or co-form patents. Collaboration patents typically cover the combination of our ENHANZE technology with a licensees drug therapy including the composition and methods of administration or methods of treatment of disease. While our ENHANZE patents are owned solely by Halozyme, our collaboration patents are typically jointly owned with our licensees. All of the collaboration products that we will discuss today have at least one granted or pending collaboration patent and some have several. Most importantly, Halozyme is continuing to innovate, continuing to file new patent applications to cover its new innovations, and we are receiving newly granted patents for those innovations. Let me now turn to a brief overview of key terms and our licenses relating to the royalties we are paid in our collaborations and how our patent rights relate to our royalty revenues. What I'm going to describe are typical terms in our licenses and what we strive for in our negotiations with potential license fees. Bear in mind that our licenses are the result of negotiations. So in some licenses, these terms may be modified. But in general, what I will discuss today holds true for nearly all of our licenses. In general, our licensees pay out royalties and milestones during the term of our licenses, and that term is typically the longer of a fixed period of at least 10 years, and extends out to the expiration of any Halozyme ENHANZE patent or collaboration patent covering the subcu product. The royalty rates we are paid are set at the time we signed a license and the royalty rate that applies typically increases with sales volumes. The rate can also be reduced, in some cases, up to 50% when our patents covering ENHANZE expire, and there is no collaboration patents covering the licensees subcutaneous product. As previously noted, our license with Janssen is a bit different. And the collaboration patents do not extend the term for paying royalties fully through the expiration of the collaboration patents or prevent reduction in royalties once Halozyme's ENHANZE patents expire. Having discussed Halozyme in hand patent, I will now provide more color on our collaborations and innovations from our collaborations and discuss how those innovations lead to durable royalty revenues in our licensing platforms today and extending out beyond 2014. There are 3 main points that I will make. First, we expect our collaborations to continue to result in innovations that can be protected in the United States and around the world with patents. Second, that these collaboration patents do and will continue to extend the period for which we expect to receive royalty revenues under our ENHANZE platform. And third, that the royalty rate we receive generally remains at the original mid-single-digit starting rate for the entire royalty period when a collaboration patent covers a licensed product. When we work with our collaboration partners to develop new products in the past, that has always resulted in innovation that we tried to protect with patents. These innovations include co-formulations within an and administration of partners therapies using ENHANZE, which we refer to collectively as co-formulation patents. Our collaboration partners are also incentivized to obtain these patents to protect their investments and innovations. We expect that dynamic to continue due to the extensive ways in which we can demonstrate to patent offices around the world that the innovations and results from those innovations are surprising and not obvious to support patentability. Those surprising results typically identified during clinical trial work can include improving the pharmacokinetic profile of the Partners therapy, improved therapeutic results, improved drug stability or potency and alter duration of effects and reduced adverse events, just to name a few. All of our collaborations have generated data and results as I will share with you momentarily in more detail for issued collaboration patents or are anticipated to generate data and results that can be used as the basis to apply for and obtain co-formulation patents. Since pending patent applications are confidential for 18 months from the filing date, we cannot share any additional details of unpublished co-formulation patent applications. We have provided examples of the nonobvious innovations and results that have been used to demonstrate patentability in the United States and around the world for the launched Wave 1 and 2 partner products. Due to the unique characteristics of every therapy or drug, the differentiated modalities of action and methods of treatment we do not expect prior nonobvious results to block patentability for future innovations that utilize ENHANZE. What is not obvious is highly dependent upon the unique circumstances and known state-of-the-art for each product and therapy. I am now going to address in more detail the impact of co-formulation patents on our licenses with graphical illustrations. To make our licensing program easier to understand, we have graphically represented the typical royalty payment period terms I mentioned previously in our license agreements. Across the top of the slide is a gray banner that represents the time line of a typical collaboration with a partner from clinical trials through commercial product sales. In general, our ENHANZE licensees pays royalties for a minimum of a fixed period of at least 10 years, from when we can really appreciate the help from you and extend out to the expiration of any Halozyme ENHANZE patent or collaboration patent covering the subcu product. The royalty rates we are paid are set at the time we signed a life and the royalty rate that applies typically increases with sales volumes. The rate can also be reduced, in some cases, up to 50% when our patents covering ENHANZE expire, and there is no collaboration patents covering the licensees subcutaneous product. As previously noted, our license with Janssen is a bit different, and the collaboration patents do not extend the term for paying royalties fully through the expiration of the collaboration patents or prevent reduction in royalties once Halozyme's ENHANZE patents expire. Having discussed Halozyme and hand patent. I will now provide more color on our collaborations and innovations from our collaborations and discuss how those innovations lead to durable royalty revenues in our licensing platforms today and extending out beyond 2014. There are 3 main points that I will make. First, we expect our collaborations to continue to result in innovation that can be protected in the United States and around the world with patents. Second, that these collaboration patents do and will continue to extend the period for which we expect to receive royalty revenues under our ENHANZE platform. And third, that the royalty rate we receive generally remains at the original mid-single-digit starting rate for the entire royalty period when a collaboration patent covers a licensed product. When we work with our collaboration partners to develop new products in the past, that has always resulted in innovations that we tried to protect with patents. These innovations include co-formulations within an and administration of partners therapies using ENHANZE, which we refer to collectively as co-formulation patents. Our collaboration partners are also incentivized to obtain these patents to protect their investments and innovations. We expect that dynamic to continue due to the extensive ways in which we can demonstrate to patent offices around the world that the innovations and results from those innovations are surprising and not obvious to support patentability. Those surprising results typically identified during clinical trial work can include improving the pharmacokinetic profile of the Partners therapy, improved therapeutic results, improved drug stability or potency and alter duration of effects and reduced adverse events, just to name a few. All of our collaborations have generated data and results as I will share with you momentarily in more detail for issued collaboration patents or are anticipated to generate data and results that can be used as the basis to apply for and obtain co-formulation patents. Since pending patent applications are confidential for 18 months from the filing date, we cannot share any additional details of unpublished co-formulation patent applications. We have provided examples of the nonobvious innovations and results that have been used to demonstrate patentability in the United States and around the world for the launched Wave 1 and 2 partner products. Due to the unique characteristics of every therapy or drug, the differentiated modalities of action and methods of treatment we do not expect prior nonobvious results to block patentability for future innovations that utilize ENHANZE. What is not obvious is highly dependent upon the unique circumstances and known state-of-the-art for each product and therapy. I am now going to address in more detail the impact of co-formulation patents on our licenses with graphical illustrations. To make our licensing program easier to understand, we have graphically represented the typical royalty payment period terms I mentioned previously in our license agreements. Across the top of the slide is a gray banner that represents the time line of a typical collaboration with a partner from clinical trials through commercial product sales. In general, our ENHANZE licensees pay us royalties for a minimum of a fixed period of at least 10 years from when commercial sales begin represented in the slide as the purple bar at the middle of the page. More typically, our ENHANZE licensees are expected to pay us for a longer period that is for the life of a co-formulation patent that covers the licensed product represented here as the green bar at the bottom of the page. You may have noticed from a previous slide that once the patent is filed, we expect a patent to remain valid for at least 20 years from the filing date. In most of our collaborations to date, we discovered innovation and obtained unexpected results during clinical trials that lead to the filing of patent applications for co-formulation innovations. That starts the 20-year clock to exploration of the patents shown on the left bottom of the slide. The minimum fixed royalty payment period is usually shorter than the life of the co-formulation patents. So the extended period for paying royalties as a result of co-formulation patent is demonstrated in the green box at the end of the purple bar, representing the time period for which the patent life remains beyond the fixed period. We will show the expected impacts on royalty payments for most of our Wave 1, 2 and 3 products in just a moment. We have graphically represented how co-formulation patents can also operate to maintain the royalty rate implied to licensed product sales, which is typically in the mid-single digits. The same gray banner representing commercial sales is also across the top of this slide. In this case, and for ease of presentation, we are illustrating just in the United States royalties. Royalties on sales outside the United States would follow a similar pattern. The y-axis of the chart represents relative royalty rate and the X-axis represents time. We show graphically that royalties for the fixed term are paid at the original starting royalty rate represented by the purple shaded area in the chart and a reduced once the Halo ENHANZE patent in the United States expire in September 2027 and remain at that level until the end of the fixed term. However, when a co-formulation patent covers a licensed product as represented by the green shaded area, both the time period for paying royalties is extended as we discussed in the previous slide and the royalty rate is preserved for the remaining royalty period to prevent reduction when Halozyme's enhanced patents expire. The combined effect is meaningful and demonstrate how impactful co-formulation patent an to maintain the durability of Halozyme's royalty revenues even well beyond the expiration of Halozyme's in hand patents. I want to now focus on how this translates into durability of our royalties for many of our Wave 1, 2 and 3 licensed products. This is the first time that we have shared information at this level of granularity for our existing licenses. But we think this information is important for you to better understand the durability of our expected royalty revenues. On the left side, we lift the licensed products and summarize the expected durability impact of the issued or pending formulation pattern unless the pending patent has not yet been published. The bar chart shows how far out into the future, we expect to obtain royalties under our ENHANZE licenses for each product. You can see that royalties are expected to at least 2030 for all products beyond 2030 for most products and out to 2040 and longer for several Wave 3 products. And indeed, royalties are expected to be paid at the original starting rate for nearly all products for the life of the applicable co-formulation patents. This demonstrates visually the extraordinary durability of our royalty revenues and impact of co-formulation patents. I'm going to conclude with some remarks of our high-volume auto-injector innovations. You have heard from Helen on the great pioneering work being done in groundbreaking results from our high-volume auto injector innovation and clinical trials. We have already filed and will continue to file for patent protection on those breakthroughs that we discover as we generate even greater volumes of data. Some of these innovations relate to the product designs and form factors, the design criteria for the auto-injectors based on various drug characteristics, and the injector mechanism designs and how we deliver the drug quickly to patients while attempting to minimize patient discomfort. We are rapidly adding to our patent estate with the new patent filings that we are making, and we expect to create long-term value for Halozyme and a competitive advantage for our high-volume auto-injector licenses. I will now turn it back over to Helen.

Thank you, Mark. Nicole will now present our 5-year guidance. We developed these projections based on latest partner updates on their program, their publicly stated product strategies and publicly available information on yearly sales projections for each of the Wave 1, 2 and 3 partner products. For the subcutaneous conversion rate, we applied the uptake seen for the most comparable of the ENHANZE launch products is available. And I will also note that the 2024 royalty revenue is anchored by each partner's input. Nicole?

Thank you, Helen. Seeing here our estimated results for 2023. These are narrowed and refined estimated ranges all within our previous guidance ranges. These are preliminary estimates and final results for 2023 will be reported on our February earnings call. Growth rates on this page are calculated from the midpoint of 2023 ranges to the low end of 2024 ranges and to the midpoint of 2024 ranges. I will begin with our guidance for 2024. And then for the first time, we will share 5-year guidance. In 2024, we project another record year reaching new heights with a projected $915 million to $985 million in total revenue, growing 10% to 15% year-over-year. This continued revenue growth is driven by royalty uptake, which represents greater than 50% of total revenue in 2024. The drivers of royalty growth in 2024 and continue to be our Wave 2 products, DARZALEX SC and FASPRO. Even with factoring in the expected step down of 50% of DARZALEX SC royalties in Europe in March 2024, the year-over-year growth continues to be projected due to strong underlying brand growth. While royalties are the main driver of total revenue growth. We have diverse revenue stream and also see continued contribution from product sales and milestones, which I'll review in more detail in a moment. Our high-margin revenue mix translates to EBITDA expansion growing year-over-year by greater than 25%. Strong EBITDA growth when coupled with our prior year share repurchase activity, results in accelerated EPS growth of greater than 27%. This strong growth trajectory driven by royalty revenue, sets us on a clear growth path for many years to come, and it provides us the conviction to share guidance for each of the next 5 years. Growth rates for our long-term view are calculated from midpoint to midpoint of the ranges. Beginning with total revenue, which includes royalty revenue, product revenue and collaboration revenue. We project year-over-year growth greater than 10% in the next 2 years and 20% in greater growth in '26 and '27, achieving $1 billion in total revenue by 2025. This growth is largely driven by royalty growth, continuing to project achievement of $1 billion in royalty revenue by 2027. The increase in royalties and importantly, increasing growth of royalties over the next 5 years is driven by the growing contribution of the Wave 2 and Wave 3 product launches. By the end of 2025, we project that our Wave 3 products will be launched in virtually all geographies resulting in a projected 27% annual growth in royalties in 2026 and 30% annual growth in 2027. We are excited to share details on 2028 revenue, which projects the preservation of royalty revenue and total revenue. Even while accounting for the expected step-down in DARZALEX FASPRO U.S. royalties beginning in September 2027. This is a result of the continued revenue growth of Wave 3 offsetting the impact of the U.S. DARZALEX SC step down. Furthermore, these royalty projections exclude any impact from potential Wave 4 or we sized product launches, which would be additive to the growth seen here. What's most exciting about our royalty projections is that these projections only include all the products that are currently approved across our 2 technology platforms and 3 additional products projected to be approved by 2025. Beginning at the bottom, included are our approved auto-injector products and 7 currently approved enhanced products. These include our 3 Wave 1 products and our 2 Wave 2 products, which are drivers of the royalty revenues today to achieve $445 million to $450 million in 2023 and $500 million to $525 million in 2024. We showed you that due to the patents in place, these products will pay royalties until at least 2030. The first of our Wave 3 products were approved last year, these are Hytrulo and gMG in both the U.S. and EU into centric SC in great Britain. We showed you that Wave 3 products have the potential to pay royalties out to at least 2040. Therefore, these already launched products are expected to drive substantial growth for years to come. Then we add on the expected approvals in 2024 and 2025. These are derisked approvals, all approved FIDs and have positive SD data, with only one awaiting Phase III data with the announcement yesterday of the approval of Decent SD in Europe and HYQVIA in CIDP in the U.S. and the expected addition of decentered SC in the U.S., ocrelizumab SC nivolumab SC and amivantamab SC as well as projected expansion of indication for VYVGART Hytrulo in CIDP. You can see the clear line of sight to royalty revenue growth and durability with just these 10 enhanced products and imagine the potential for additional growth with additional Wave 4 and Wave 5 products are added to the portfolio. The impact to the bottom line is meaningful. We project growth in adjusted EBITDA in the 20% and 30% year-on-year. We expect to achieve $1 billion in adjusted EBITDA in 2027. Similar growth rates are seen in non-GAAP EPS, which only includes the impact of share repurchases through 2023 and the potential benefit of additional share repurchases are not reflected. Here, we have provided more detail on the growth year-over-year, and I will highlight what I find most impressive about our 5-year projection. The first is that we are continuing to project $1 billion in royalty revenue in 2027 and into 2028 from Wave 1, 2 and 3 products for me, growing from $445 million to $450 million in 2023, a CAGR of 14%. The second is that the total product sales are growing throughout the period, while achieving our goal of being the cost leader for API. RPH20API sales are projected to grow only modestly over this horizon, reflecting the impact of efficiency improvements to reduce costs that we pass on to our payers as a source of competitive advantage. The growth we see in product sales is achieved, thanks to the high growth rate for XYOSTED. We continue to see contribution from collaboration revenue, driven by our partners achieving development and commercial milestones. The third is that the total revenue is projected to achieve $1 billion a year in 2025 and grow to greater than $1.5 billion in 2027 and 2028, a CAGR of 14%. Last and importantly, I'll focus you on EBITDA. You will note that EBITDA is growing faster than revenue in every year of the 5-year outlook with a CAGR of 23%. This is due to expansion of the contribution of our revenue mix, largely driven by increasing royalty. Each dollar of royalty revenue drops almost entirely to the bottom line, resulting in adjusted EBITDA margin expansion from approximately 50% in 2023 to approximately 70% in 2028. This, coupled with our business model and ability to keep our expenses relatively flat creates a higher rate of growth for EBITDA. I think you will all agree that the EBITDA now are impressive, and this is what will allow us to allocate capital to actions such as future share repurchases and M&A. With that, I'll now turn the call back over to Helen.

Thank you, Nicole. There has been a lot of talk about Halozyme in 2024. As you've just heard, 2024 is yet another year of strong royalty and total revenue growth in a trend that started several years ago and one which is projected to continue for many years. There is no cliff. Today, we showed our royalty revenue projections. They're based on Wave 1, 2 and 3, now including amivantamab. This results in robust royalty and total revenues each year, and that includes 2027 and 2028. I hope you leave today's call with a deeper understanding of the design and impact of our co-formulation patents that maintain the mid-single-digit royalty rate unchanged for all products in wave 1, 2 and 3, except DARZALEX and which can extend our royalty duration through the lease at the 2040. With that, we are now pleased to open the call to take your questions. Operator?

[Operator Instructions] Again, our first question will come from Mohit Bansal with Wells Fargo.

All this. Really appreciate it. I have one question, one clarification. So one notable miss in the packet slide, if I missed it, was talk about Opdivo or your checkpoint plus a co-formulation. So can you please -- you don't -- do you have an issued patent there and I know one player is trying to develop a different version of hyaluronidase. So could you talk a little bit about your IPS state and potential where this could be the only combo day that could be out on the market.

Yes, Mike. I'm going to ask Mark to address the -- why we weren't in a position to talk about nivolumab and the co-formulation patent today. And then I'll say a few comments about the other hyaluronidase in development.

Thank you, Helen. So we did not receive permission from our licensee partner to be able to present information for Opdivo SC as we did for the other products that we listed in that chart in the presentation. Got it.

All right. And Mohit, with regard to other hyaluronidase in development, we're aware of [indiscernible] company called Alteogen that is preferred to be developing an alternate hyaluronidase. There is speculation that, that may be the one that's being used by Merck Limited information is available on that to date, but it's certainly a space we're watching carefully. As you heard from Mark, have a robust patent portfolio, and we watch carefully and assure that we are protecting our inventions and we stand ready to take appropriate actions as soever, to see any infringement on that portfolio.

Our next question will come from Jessica Fye with JPMorgan.

I have a few, so bear with me. First, I just wanted to confirm the guidance reflects only approved products or just what's in there and what's upside? Second, on the slide with the green and purple boxes illustrating the step-downs and kind of what core formulation IP can do to prevent step-downs and extend the royalty term? It looks like the reduced royalty rate is greater than half of the original rate in those boxes. Is that the right way to think about it? Or should we think the royalty rate is being reduced by half in all of these agreements? For Ocrevus, can you clarify if there's potential for co-formulation IP there to take your full royalty rate beyond the 2030 shown on the slide? And lastly, while you're giving more disclosure on the royalties, can you characterize broadly speaking, if the mid-single-digit royalties, you've talked about sort of across the board those are sort of higher for some partners, lower for others. And if possible, provide a little context on like what you're kind of at the higher end or the lower end?

All right. Thanks, Jeff. I'm glad I was raising those down. I will ask them in the call to go through what's included in the guidance. And slightly different for what's included, obviously, in the royalty guidance and the milestone guidance. So she will start with that, and then I'll move to Mark on being ready to talk about the degree of step-downs we may see.

Yes. So when we look at -- I'll start with royalty guidance, and you'll see there did only include wave 1, 2 and 3 products there. That was just really because we wanted to show the contribution from those already launched or nearing launch products. And as you mentioned, anything in Wave 4 or 5 will just be additive to what you see there. On the collaboration side, you will see we have included an range.

Now I address the question on the green and purple boxes and how much debt be in market if you'd also talk about the possibility for extending the ocrelizumab at the store royalty rate.

Thank you, Helen. Yes. So the slide with the green step down that you've mentioned, yes, that shows just relative step down. And I'll just point out that our licenses are the product of negotiations. And the step down will vary from license to license. The 50% that you mentioned, I think, refers to -- there's only one license where we've addressed that and test I think that's the Janssen license. But think of that as just a relative, and it does vary among our license. With respect to the OCREVUS question, you the charge of ocrelizumab subcu and it shows a fixed royalty payment period. And the bar is a darker green, which reflects a pending patent application that dates back to 2010. And so that patent, if granted, will extend until 2030. And of course, we have conviction that, that patent will in fact be issued. In terms of future extension of the royalty rate or extension of the period of time for which royalties can be paid. I think I've mentioned earlier that we cannot mention any details with respect to any pending unpublished patent applications.

All right. And with regard to the ranges of royalties, you're right, yes, there is a range around that mid-single digit. And as Mark mentioned in his prepared remarks, there also can be increasing royalties, depending on sales tiers. They still maintains around that mid-single-digit royalty, but also that's why we stay in the mid-single-digit royalty rate even after we experienced the some step down, for example, for DARZALEX. And so -- and we can't go into any more specific detail on the specific rates. But as you're thinking about it, yes, I definitely think of given there and increasing in some products as sales increase Nicole just wanted to add a little bit to her answer with regard to what included in the collaboration milestones, specific to Wave 4 and 5.

Yes, Jess, I did just want to add that when we looked at the collaboration milestones for these projections, we did apply a risk adjustment to the programs that are currently in the clinic and in development with ENHANZE. So in our Wave 4 pipeline, really just in recognition of the fact that there is risk when we are dependent on those partners programs and their plans. So one example would be that we excluded programs where the target has not yet demonstrated Phase III success in any administration setting.

All right. So just to clarify, some way for risk-adjusted contribution is in the guidance?

Only in collaboration revenue and not in royalty revenue.

Okay. Okay. Our next question will come from Mike DiFiore with Evercore ISI.

Is -- has there been any developments on the OUS IP front?

Right. I will address the first question there, Mike, and I'll ask Mark to talk about the duration rate royalties, both U.S. and outside the U.S. I will say and just to specifically talk about our relationships with our partners, Janssen being, I think, one of the companies you were talking about, obviously, we're delighted with our long-term relationship with Janssen. We're working with them on a $9-plus billion brand that actually has been more [indiscernible] than Halozyme to be able to be a multi-hundred million dollar company. So that has been a great demonstration of our ENHANZE technology. And as we mentioned, we're also delighted to be working the amivantamab for Phase III data is expected soon. So our relationship continues to be incredibly strong with Janssen, we continue to have an open research collaboration with them, where they can test in hands with additional and other products. So any new technologies and companies are doing that all the time they may be working with, we do not expect to impact our relationship because all of the value that we've been able to demonstrate through the product helping DARZALEX FASPRO become, if it's not already seem to be the #1 drug for J&J. Let me have Mark talk about the length of the life.

Thank you. Yes. So the chart that we provided shows today what we expect with respect to the royalties for DARZALEX FASPRO, both outside the United States and in the United States. I will point out that we are constantly reviewing our pad portfolio, looking at our innovations and how best to protect our innovations. And if there are any changes, we'll communicate updates with any further developments.

Our next question will come from Joseph Catanzaro with Piper Sandler.

I actually wanted to follow up, I guess, on the FASPRO dynamic. I guess if I'm understanding correctly, the FASPRO formulation patents will also have no impact on the duration of that royalty. That chart seems to show that it will go beyond 2030. But could you just say exactly when your expectations are that the DARZALEX royalty will go away, both U.S. and ex U.S.? And then my second question, I guess, are your expectations around potential future deals for ENHANZE. And whether you think you could command the same deal terms that you currently have as it relates to royalty rates and royalty duration even with the ENHANZE patent expiries approaching?