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

All right. I think we'll get started. So let me take this opportunity to thank you again, I'm sure you've heard it once or twice, but for coming to TD Cowen's 44th Annual Healthcare Conference. It's my pleasure to be joined here today by someone who I'm sure needs no introduction, but the President and CEO of Halozyme Therapeutics, Helen Torley. Thanks for coming up.

We appreciate the opportunity. Thank you.

Great. So I'm sure a lot of you know, it's a pretty exciting time. I think at Halozyme. There's a lot going on. We got pivotal data in CIDP from VYVGART Hytrulo last year. We've recently got Ocrevus subcu data, pivotal data, in MS last year. We had Optiva subcu data earlier this year. So I think there's kind of a lot coming up, not to mention the 7 commercial products that are already on the market. So I think maybe kind of we'll walk through, first, platform in general, but really quickly just dive right into, I think, some of the commercial opportunities here and what we can expect moving forward. So I guess, to give people a bit of a sense when you're kind of looking at a new subcu launch from the time that it's approved and let's say, it's into an existing IV franchise. What are kind of some of the metrics that you watch for an early stages of the launch to help you think about what the actual uptake will be, opportunity will be? And I guess what I'm really trying to get at here is we've seen fantastic conversion with DARZALEX, right? And I think we all want to try to understand to what extent does each subsequent launch going to mirror that and really where along each sliding bar we can think and how do you think of it each time you launch a new one?

Yes. Thank you. We've seen great success all of our launches. We describe our launches in waves. And so in Wave 1, we saw great uptake, for example, for Herceptin subcutaneous in Europe that got to 60% share of sales volume by the third year. And as you mentioned, and I'll talk about it in a moment for FASPRO and for Phesgo. Those are more recent launches in 2020, and each of them has a slightly different pattern, I'd say. From looking at all the launches we've had so far, the 3 main factors that we see driving the uptake. The first is the company's launch strategy because you're seeing conversion. Sometimes the company has a market growth strategy in addition to conversion. So that can be a factor you've got to think about. The second one is the value proposition. Obviously, we're always shortening the time for treatment. But as was the case for DARZALEX, that actually reduced the side effect called infusion-related reactions. And in our market research, we did before the launch, that actually came up as the #1 driver that was having physicians want to move from IV to subcu. So you've got to consider the whole profile that you see there. And then the third one is the health care system. And are there any accelerators or decelerators related to that? In general, Europe is an accelerated market for subcu conversion. It saves money. They care about the cost of care. And so we see health care systems diving in and saying, convert, convert, and so you get rapidly to 80%, 90% in those markets. U.S. is much more of a center at the time approach so you see a slower cadence. And let me just give the DARZALEX example, you talked about that. Two and a half years into the launch, it's at 9 out of 10 patients in the U.S. are receiving DARZALEX subcu. So really, the growth of DARZALEX today is driven by that adoption. It went very fast because of the infusion-related reactions, the drive of the company to switch and those dynamics I talked about both in Europe and in the United States as well. I will say one thing other that subcu has helped to do is to grow the market. So that's not just a conversion. It's growing into the frontline population, as I'm sure we'll talk about Phesgo, which is [indiscernible] for DARZALEX, that was a change from 3.5 to 6 hours as an IV down to just 3 to 5 minutes for a subcu. So dramatic savings and benefits in addition to the IRRs. For Phesgo, that is 2 IVs if you get that therapy, Herceptin then Perjeta, but as a subcu, a simple 5-minute injection. That is now at 39% and share of sales in the 30 -- the 46 launch markets. Europe went fast, as I talked about before, and for the U.S., it's 1 clinic at a time. But we're sitting today with 40% of the sales coming from the U.S., that grew 50% year-over-year. And so we see strong conversion over time, both in U.S. and in Europe. And so those are just some of the metrics, and we look at the profile of each product and say, is it like a Phesgo? Is it like a Herceptin? Is it like a DARZALEX? And we do our modeling based on just trying to find the best analog if there is one. With market growth being an exciting new dynamic, there's a little harder to model, but an important component.

Got it. Okay. So I mean that's, I think, a really important point talking about the European model versus the U.S. Do you see in other non-European ex-U.S. regions, what's kind of your experience whether it's in Asia or even other parts of not -- within the EU? I mean do you see closer to the EU model of like rapid prioritization of subcu? Or do you see it kind of somewhere in between U.S. and EU?

I will say we don't have great visibility outside the main EU markets, but if I'm extrapolating the data, I do see. It's more of a trend to a rapid conversion because of the benefits for patients, these savings.

Okay. All right. So I guess maybe even stepping a little bit earlier in the development time line. When you're trying to -- like when we're trying to understand -- maybe we'll just try to look at the time line, right? So when Bristol or Roche comes here and says, "Okay, let's how about -- how about Ocrevus subcu? How about Opdivo subcu?" From the time that they have that first drug and they've enrolled the first patient, first patient is getting that in a Phase I, average time line, of course, because every indication [indiscernible] going to be a little bit different. But I mean, this really does seem a pretty expedited path to market here. So what is, in your experience, kind of the average time line from that first Phase I patient until it's on the market?

Yes. Historically, it's been 4.5 to 5 years from first in-human to approval. We are in a singular position now. However, having seen 7 approvals, 10 by 2025, but also regulators now seeing tons of data with rHuPH20, that we've taken steps and regulators have taken steps to expedite and speed up the development. So in the future, I do expect it to be shorter than the 4.5 to 5 years. As an example, through our knowledge and our experience, we're able to support partners being in the clinic just 3 months after they sign the deal. That's for Phase I testing through IND, et cetera. And that sets some proprietary activities we have taken, which global regulators have accepted that allow someone not to have to have formal manufacturing before they get into the clinic. So that was a big innovation that's helped. Secondly, the regulators. They started off wanting PK endpoints and efficacy endpoints to show the noninferiority between the IV and the subcu. Now more recently, just PK endpoints, results in smaller studies, more streamlined studies. So that's a sign of their growing comfort because of the great safety database we have now with over 800,000 patients. And the third one is that our regulators are extrapolating from single Phase III studies in 1 indication for a broad set of indications. Three recent great examples of that. DARZALEX had 1 Phase III study that was in a relapsed/refractory population for the FC. They got 9 indications that were in the label at that time. And very recently, Europe's just demonstrated the same with Tecentriq, gaining approval in all of the indications across triple-negative breast, HCC based on renal carcinoma study. So all of that, I think, speaks to the value of there being such a broad safety database and growing comfort down by the regulators with the great profile rHuPH20 has.

Right. And this brings up a great point, right? Because I think when you look at something like Opdivo, for example, and just because as a model in our head, right? We know this drug is approved and used in a dozen indications, right? But just so we kind of understand, let's say that one of your partners looks to commercialize the subcu, let's say, a little earlier on in that particular drug like maybe they've only got 2 or 3 under their belt but they're continuing to pursue additional indications. Maybe Argenx is a great example of this, right? They're just at the beginning of the VYVGART story. I mean to what extent moving forward, is it kind of incumbent upon the partner to focus on the subcu and get that approved in each subsequent indication? Or could they actually do IV or subcu and then the label will more or less retroactively incorporate the subcu?

I think it's going to depend on is there evidence that they can bridge to? And so I think in oncology, where there's a broad set of indications and a profile is known for the IV that ability to bridge has been demonstrated and when we expect to see the same with Opdivo actually with them getting a broad label be on the non-small cell lung cancer. If it's like with VYVGART where there is no IV data to bridge to in CIDP. And so what Argenx did was a full development program, which was a Phase I. They ended a seamless Phase II/III to get to approval, and they had to generate data in a certain number of patients. Remarkably though, based on the expected PDUFA date in July, that would have been 4 years for full development. And so that really speaks to, again, regulators growing comfort with our technology, our knowledge in supporting our partners in the trial design, which we're the only company that really has all these insights because we've been to global regulators with 20 different programs so far, and we bring that experience and our safety database and apply it, and that helps streamline development.

Got it. Okay. All right. So maybe we can dive into some of the individual commercial programs first and then into the pipeline here. So obviously, DARZALEX is huge, right? It continues to be -- continue to crush numbers and it really seems to have no sign of letting up, right? So I guess, from where you stand right now, I mean, when you look at consensus numbers, it's just pretty consistent across the board for DARZALEX. But I mean to what extent are you expecting continued growth? And what do you think some of the primary growth drivers of FASPRO are going to be in the coming years?

Yes, we do expect continued growth, and it's going to be all driven by DARZALEX subcu, as we talked about. $9.7 billion in revenues last year at 26% year-over-year growth. Now that's the product that's launched in 2015. That's remarkable. All of that is being driven by the subcu with 9 out of 10 patients globally literally being on the subcu version. It is projected by analysts to grow to $17 billion by 2028. That is going to be driven primarily by penetration into the front line. And this is, I think, a bit of an underrecognized area where the frontline population in multiple myeloma is the largest population, and it's also the population who live well and long. And so patient duration of therapy is in the years. I think, Brendan, in your initiation report, you comment on 35 to 45 months. I think that's going to be perfectly feasible in frontline population. So DARZALEX has got several indications in the frontline population. There's different regimens there and the stem cell patient eligible and non stem cell patient eligible populations. But in addition to getting more penetration in the already approved frontline and long duration of therapy, you may have seen that they just had a recent submission based on the Perseus data, where for transplant eligible patients who are stem cell transplant eligible. They are -- they demonstrated amazing data over today's best standard of care with an even more prolonged progressive increase survival, which will mean more duration of therapy. So this continued opportunity that exists is going to take us from $10 billion to $17 billion, and that is virtually all subdued. So lots of growth.

Right. And this is just 1 of 7 drugs now on the market, as of enhanced drugs, I should say, on the market right now. So I guess another thing that we get a lot of questions on so far, really trying to understand, and we'll get maybe a little bit more into kind of the patent strategy later on in the session. But maybe specifically for the DARZALEX FASPRO, near-term step down, what some of the drivers of that -- and just maybe help us understand what we can and to what extent there is or isn't any read due to some of the other partner programs?

Yes, we do, but we are currently projecting that there will be a step down in the royalty rate in March of 2024 for outside the U.S. and in September of '27 for the U.S. Our current royalty rate across our -- all of our contracts as a mid-single digit. So in the case of DARZALEX, that will be a 50% step down that we are currently projecting. That is related to the expiry of our composition of matter patent or the patent that really covers the product structure. We do not have that same situation with any other contract. So this is a unique situation to DARZALEX. And the reason that is for our other partners, the effect of the co-formulation patents that are pending or granted, have the effect of stopping there being a step down as well as extending the duration of the royalties for the Janssen contracted just extends the duration of royalties by several years. So it's unique to the Janssen contract for this step down, nobody else stepping down based on the co-formulation patents.

Okay. So maybe this is a good opportunity then to help us understand exactly where we just arrived to, right? So I think, correct me if I'm wrong, but I think for each individual partnership, obviously, the specific terms will vary, but it seems like from the time of first commercial sale, you're covered with royalties for at least 10 years, potentially a little bit more just from a royalty perspective alone, but that can be extended based on the potential for corporation patents, right? So I guess to what extent is kind of the patenting situation with J&J in any way kind of translatable to the other co-formulation patents? And maybe what is kind of the timing for each new drug like each time you start a new subcu, in development, at what point do you initiate the coformulation? And how long would you expect on average that to last?

Yes. So the co-formulation patents can be granted when there is an innovation, something that was unexpected. That's identified when the drug is co-formulated with ENHANZE. So each partner has an opportunity to explore that. Generally, brand that happens when they've got clinical data because they're exploring it in the Phase I, the formulation work, et cetera. It can be -- the innovation can be found related to formulation, PK, PD, efficacy, safety. And so partners tend to wait until they're completed Phase I, sometimes when they're in their early Phase III before they file these patents. These patents last for 20 years from when they are filed. And so obviously, we have found that every partner is moving forward with it or we've got 5 issued partner co-formulation patents and there are pending patents for all of the other products that are in our Wave 3 pipeline. Different innovations, different circumstances, and we believe a very high probability, all of these will be granted. Now the co-formulation patents with the exception of the Janssen contract, which I'll talk about in a moment, have the effect of maintaining the royalty rate at the mid-single digit until the end of the co-formulation patent term. So that's that whatever is left at that 20 years from the time -- the product launches. And so an extension of the royalties and the maintenance of the royalty rate. For the Janssen contract that the co-formulation patents up a slightly different effect. They do extend the duration from 10 to 12 years, but the co-formulation patents do not prevent the steps.

Okay. All right. So I guess then, to what extent are you able to continue to issue these co-formulation patents potentially after the high [indiscernible] enzyme itself goes off patent? Is there any kind of limitation on your ability to engage in those moving forward?

No. There's no limitation. These innovations will continue to be found and identified and there are limitless combinations because in addition to the innovation funding, what's important is the patient population. And as an example, the drug modality that's being used, let me use infusion-related reactions as an example. That was the basis of the European patent for DARZALEX co-formulation patent. [indiscernible], should Janssen go forward to choose it, we think with -- we're in the Phase I data, we saw a dramatic reduction in infusion-related reactions. That is still a potential path because it's a different cancer population, multiple myeloma versus non-small cell lung cancer. It is a monoclonal antibody versus a bispecific. There could be multiple differences as to what innovation is and why it's innovative, and that's why we see lots of combinations for different patents, efficacy safety, PK, PD, all of these are numerous iterations and there are patents having -- the patents related to the structure of the composition of better ones, it's irrelevant that timing. Our patents are continuing to explore and will continue to explore very actively because they want to protect their invention. They are as motivated as we are to protect their invention.

Okay. That's great. So I think at this point, look, you have 7 now approved drugs. We're expecting upwards of 10 by next year, and it's a pretty steady cadence. If you look at the pipeline, be even beyond Wave 3 into Wave 4 and Wave 5. I mean, maybe give us a sense, I think we're familiar with the 7, up to 10 now, but the existing portfolio of your partnerships, I mean, how many potential targets just from what is already on paper and the income paper, I mean how many potential drugs are we talking that could emerge from just the already existing partnerships?

About 30. I would say we've got 7 additional products that are in the clinic beyond the Wave 1, 2 and 3. So we still have some upcoming launches to come. I didn't count those. We've got 7 products that are currently in Wave 4 and our current partners have in excess of 20 open slots that they could move product forward with as well. And we're constantly talking with them, working with them to identify additional opportunities just based on those open slots.

Okay. All right. Great. So maybe shift gears a little bit Tecentriq subcu. Got first approval, I think, in Q3, Q4 of last year, another one already this year, expecting a couple of more approvals coming up. I mean what -- again, getting back to kind of an earlier question about early indicators of the conversion from IV to subcu, obviously, it's already available as an IV. What are you kind of expecting in terms of subcu cadence? I mean you mentioned that European is pretty quick to go. I mean, is there any kind of indication on what you might be able to expect in the U.S.? And then how extrapolated about that would be globally?

Yes. I think for Tecentriq, so the value proposition here is 30- to 60-minute IV versus a 5-minute or 7-minute on subcu. And so clearly a big benefit for patients. And I think we're excited about, if we think about all the indications in how Tecentriq is used, the availability of a subcu Tecentriq in certain non-small cell lung cancer and other indications is going to allow for an all non-IV regimen. The patient might be receiving Tecentriq alone or Tecentriq with oral chemotherapy. So no need to be an infusion suite. Imagine that for a patient with cancer. That's just going to be wonderful. And even for the patients who are receiving Tecentriq with other IV therapies, if you can shorten that time and the chair by an hour, patients will very much appreciate it. The centers can use that chair for another patient who's perhaps on a different type of therapy that's a short duration. It's a win-win for everybody. And so we -- outside the U.S., I gave the Herceptin example to say, got 60% of that share of sales volume. I think that's a reasonable kind of one to think about because the value proposition is in the same lines. For the U.S., we see a strong uptick based on that value proposition. The infusion chair capacity constraints are not only present in Europe, but I haven't talked about those, but that's a lot of what's driving the use of subcu as well, reduce costs as well as constraints. U.S. has constraints. Patients don't want to be sitting in infusion chairs. There are other patients and waiting lists. So this ability to treat more patients is very attractive in the U.S. and we're hearing more and more about it from infusion centers as well. So lots of very good dynamics for a good uptake in the U.S. as well. recognizing there'll always be that initial period where physicians want to be comfortable in reimbursement. So always at first 6 months, a little slower, then we'll see a nice quarter-on-quarter growth just as we did with them with ASCO.

Got it. Okay. So I mean, it seems at a very high level, if you ask an average person, would you rather sit in a chair for an hour or even up to 3, right, you get an IV infusion for a minute or 5-minute subcu injection, it seems a little bit of a no-brainer. But maybe in the context of oncology, that seems to be more or less the case. Obviously, in some indications, maybe like myasthenia gravis, where they have fine motor control issues, at least early on in their treatment, it might take a little bit of time for them to get a little bit more comfortable with that, especially if they're elderly. But is it kind of fair to say, at least in the oncology indications, it's more or less straightforward? Is there any like real kind of drawbacks at this point like that you've kind of encountered from patients like what are the major things that would hesitate -- cause somebody to hesitate, when they're considering switching to a subcu?

Our partners have done lots of studies and patient preference in the subcu versus IV oncology predominantly, 85%, 90%, 93% patients prefer the subcu. It's very clear. And you bring up a good point. The time in the chair, I've been giving treatment times, but if you add waiting for the drug -- the IV to come up from the pharmacy. And if you add the monitoring afterwards and the disconnecting from the line, et cetera, the actual time the patient is in the chair for a 30- to 60-minute IV infusion. It's actually usually double or even triple that. So I should say that the savings are probably even greater for the patient.

Okay. And actually, 1 question we've gotten a bit more recently, maybe with a lot of the IRA conversations, and there's always talk of new biosimilars. Is there any current partnerships focused on biosimilars? Do you have any intention on moving in that direction, is that something -- I guess and maybe more to the point, how would that potentially factor into any of your regulatory pathways in development?

We have, over the years, talked to biosimilar companies to see if there's an opportunity there. We get a universal answer from 5 companies say because we are creating a biobetter because the PK profile is not the same, that would require a clinical study. And investing in clinical development is not something Biosimilar companies want to do because of -- it just doesn't work for how store their revenue runway is after the product launches. And so that was prohibitive for working. I think for any company developing a biosimilar and I'll say we haven't heard of anyone doing that. But if anyone is doing that, we do think it will be a requirement for clinical study. You're putting 2 biologics together. There's a risk of immunogenicity. The FDA will want to see clinical data on that. It just all of our partners have to do a clinical study. So again, I think that's going to be prohibitive.

Got it. Okay. I mean that makes perfect sense. So I guess maybe shifting now to some upcoming catalysts. So when you look at what's ahead, right? I mean I think we got Ocrevus subcu filed before the end of last year, Opdivo subcu would potentially be filed this year, [indiscernible] subcu data sometime this year. I mean when you look at the catalyst calendar moving forward, you've got the Hytrulo, CIDP, PDUFA. I mean where do you see as like -- what do you see as kind of the most important value inflection point? And what I think we want to try to understand is like what makes you say that about each individual catalyst, right?

Yes. Well, first of all, I usually start with our Wave 3 products as a group. And so the Wave 3 products are nivolumab, Tecentriq, Ocrevus, Amivantamab and VYVGART. Those 5 products analysts project will have revenues of $35 billion in 2028. Now that is obviously a large number. And it is large even in contrast to our current opportunity that's driving our royalty revenues that are predicted to be over $500 million this year, which are based on DARZALEX and FASPRO -- DARZALEX, FASPRO sorry, and Phesgo. Those 2 products are $20 billion. And so when you think about that, what's driving the great growth we're seeing today is $20 billion. The next set of launches, '23 to '25, is $35 billion. So that's the way to think about this. This is a much bigger opportunity than we've ever had at Halozyme. I mean, that's why we put out such robust projections and have confidence to get to the $1 billion in 2027. Within that, each of those is already a blockbuster or going to be a blockbuster drug. We have a great value proposition in each of them. And maybe I'll just highlight Ocrevus where patients will get a 10-minute subcu instead of being in the infusion share at 3.5 to 6.5 hours for the IV. That is dramatic. And so that's going to be a situation where, as Roche has said, they're going to be able to use that to open up -- help people open up new treatment centers. there'll be higher throughput, so we're going to see some very strong market growth as well as conversion. In each of the cases that I've talked about of that $35 billion, there's a strong value proposition and a driver for conversion and market growth. And so we're very excited that, that as a group, is an amazing opportunity.

Right. Okay. I'm glad you mentioned Ocrevus, because we potentially get approval, U.S., UK, EU in Q4 of this year or is this September, later this year already. And given the kind of 6-month window that you mentioned earlier, it seems like given that pretty dramatic difference from the IV to the subcu that again would be one of these kind of no-brainers. But kind of given the pathology of MS, is this something -- obviously, as we're getting back to like the conversation versus oncology, right? Is this something maybe closer to like a myasthenia gravis or CIDP, where it might just take a little bit more time to kind of see that initial, I won't even necessarily say conversion, but growth of the subcu itself? Or do you kind of see it as closer to oncology? I guess, really, I'm kind of benchmarking subcu penetration in oncology versus something like that. I mean, where do you kind of see that opportunity falling there?

We're still early in launches outside of oncology, I would say. But the reimbursement dynamics, I'd say, are the most important. I think that's going to be the driver more than the disease state. And so outside the U.S., you've got the cadence of the different timing of reimbursement being granted, generating what your cadence of launches is going to be, where often it's about a year, if not a little longer for the majority of the European launches. So we'd expect that uptick, which would be similar for oncology. U.S. This is Part B reimbursed J code, confidence in reimbursement 6 months, then we start to see the uptake. I think that is more the driver. The value proposition and physician excitement is clear. You just need to get that confidence in reimbursement.

Got it. Okay. And then I guess I also wanted to make sure I touched on timing for Opdivo subcu. Obviously, it's another huge opportunity. I mean between the upcoming launches, when you're really thinking about what's kind of going to be a main growth driver over the next 3, 5, 10 years for Halozyme, I mean it really seems Tecentriq, you have Opdivo, you have Ocrevus. I mean, these are really the main value drivers here. So in terms of timing to filing with the subcu, do you have any additional clarity from Bristol at this point? Do we know for sure it's going to be this year?

Bristol has not publicly said when they're filing, but they did say they're going to launch in 2025, which we could surmise something from that. But that's the only public statement they've made.

Okay. All right. Got it. And I guess in the last minute here, I do want to ask maybe just a little bit kind of step back from the nitty gritty here. I just kind of think about kind of cash return to shareholders really. You've had a few different tranches of stock buybacks over the past few years. I think the Board just approved another I think $750 million earlier this year that presumably will get going this year. I mean when you kind of just think about the opportunities ahead, the revenue growth you're already seeing will really continue to see over the next few years. I mean, what's just kind of your strategy over the next 3, 5 and then maybe even longer term, how are you prioritizing the different opportunities to return value?

Yes. We're in a unique situation with our licensing business model that is very high gross margin and that is why we're able to grow our top line at a very attractive rate, but we're growing our bottom line even faster than our top line. And obviously, that's giving us very strong cash generation. With 3 pillars, we invest in our business. First, there is a lot of growth from ENHANZE, our new high-volume auto injector -- small volume auto injector, that is the first pillar. Second one is return to shareholders through share buyback, which we just, as you say, got a new authorized $750 million plan. That we will be opportunistic in -- when we finish our current plan in moving forward with. But M&A finding additional drug delivery platforms ideally that can add to and accelerate that top line growth that are derisked platforms that are broadly licensable to our partners. That's where we think we've been the greatest value and best use of this cash, if we can find the right platform.

Fair enough. All right. Great. I think we're right at time. I just want to thank everybody for joining us. I think it's a great session. I appreciate you joining. Thanks, guys.

Thank you.