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

All right. I think we're going to get started. Welcome back to another session within TD Cowen's 46th Annual Healthcare Conference. It's a pleasure to see you all here. Thank you for joining. I'm joined on stage today by the CEO of Halozyme, Helen Torley. I'm Brendan Smith, one of the Tools/Dx analysts here at Cowen. So I think we're going to dive right in, but just also kind of a note to everybody in the audience. If you have any questions by any means throughout, kind of just flag me or you can send me an e-mail at [email protected]. I'll be checking my phone to kind of keep an eye on anything that you guys want to pitch over to Helen as well. So maybe just to get us started, Helen. It's been a busy time at Halozyme in the past few months, 3 new ENHANZE deals, 2 acquisitions, long-term guidance update, Q4 earnings last week. So maybe just let's -- just to kind of start the conversation, take a minute to lay out the next couple of years of Halozyme, this is like next era of growth for you all. And what are some of the more important kind of benchmarks in the growth cycle of Halozyme, let's just say, between here and 2028? How we should think about the value inflection points for there?

No, that's great and pleasure to be here. I'm going to start by going a little bit back into the end of 2025, which you referenced there to say that we're able to, through a number of actions we took reinforce our leadership as the partner of choice for subcutaneous drug delivery, but the company with the most expansive and exciting platform and set of solutions for Pharma and for Biotech. And so we're very excited at the end of the year to sign 3 new deals for ENHANZE, just demonstrating across oncology, inflammatory bowel disease and obesity, the opportunities people see for more subcu convenient delivery for patients. And that's for large volume drugs. And what was very exciting, as Brendan mentioned, was we did 2 acquisitions. We acquired a company called Elektrofi for the HYPERCON technology, and we also acquired Surf Bio. Now both of those are hyperconcentration technologies. That means who can take biologics that are perhaps at a concentration of 100 milligrams per ml and through this technology, make them 500 milligrams per ml, reducing the injection volume by fivefold in that instance. And so where this expands dramatically Halozyme's opportunity is into areas where companies are wanting to have small-volume, patient-administered or in-office administered auto-injector therapies, which is really the way the marketplace and Pharma is going for Inflammation and Immunology, Cardiovascular, Nephrology, all these types of areas. And so we're very excited to do that, Brendan. So the future of Halozyme is going to be one where you're going to see innovation, you're going to see durability of revenues, particularly with the HYPERCON technologies having durable IP into the mid-2040s. And so growth and excitement with all of the subcu delivery where the market trends and the secular trend is definitely a world that's moving away from IV infusion suite therapy to at-home subcu or in-office subcu treatment.

All right. So a lot to unpack within here. So maybe before we get into kind of expectations for additional partnerships into this year, which you have spoken about across the different platforms, I do just want to kind of check the box on the conversation about the ENHANZE patent just kind of in the U.S. versus the EU, right? So you've mentioned in the past, you had kind of an extension of the EU patent through 2029. You filed for a similar extension in the U.S. Current guidance through 2028 does not assume any extension of the U.S. patent, which would effectively kind of move it from '27 to '29 as well if that does go through. But what's kind of the status of this now? And when high level do you think we could potentially see an update on that front?

Yes. Thanks for asking that question, Brendan, and for some of the details. Let me just reinforce a couple of them because it's important. We got the EU patent, which had the effect of maintaining the DARZALEX royalty for -- from 2024 to 2029 at the mid-single-digit royalty rate. So that was important. As you also point out, in our U.S. guidance, and we do -- in our current long-term guidance, we do not assume we're going to get a similar patent in the U.S. So that's very important. What I'm about to talk about is all upside to the current long-term guidance that we have. We have filed for a U.S. patent, and that is still progressing through the formal prosecution and appeal process. So hard to know when that final decision is going to be rendered, Brendan. But if it should be rendered positively, this will be upside and only upside to our forecast, it would have the effect for both DARZALEX and for RYBREVANT maintaining the royalty rate at the mid-single-digit rate between September of 2027 and March of 2029 before there would then be a step down in the royalty rate. So if you can imagine, DARZALEX obviously, is a large drug. Majority of the sales are in the U.S. that is a meaningful contribution for those extra 18 months. But again, not currently baked in, all potential upside.

So maybe now let's talk a little bit more about the combined platform with Elektrofi, Surf Bio and ENHANZE now all on board. So maybe walk us through kind of hypothetical conversation you have now with new customers and new potential partners moving forward with all 3 of these options, who gravitates towards one versus the other and what that calculus ultimately looks like now?

Yes. Since we've announced the deals, we've actually had a lot of companies come to us, which is great. So there's a lot of interest and a lot of recognition of the subcu technologies and what they can do. And what we tend to find is companies make their own selection. And their own selection as to what they want to talk to us about first tends to be based on do they want the product delivered in the physician office? Or is it going to be a target at home? Would they like it to be in an auto-injector? Or is a simple delivery via a prefilled syringe as an example, or from the patient pulling up our health care practitioner pulling up from a vial going to be enough. And so if they're still gravitating towards large volume delivery in the doctor's office, say, 5 to 23 ml like our current ENHANZE platform, they'll talk to us about ENHANZE. If they want the auto-injector at home to see, is it feasible, they can take their drug, as I talked about, to be able to increase the concentration fivefold to get it into that small-volume. They'll usually today come and talk to us about HYPERCON. HYPERCON is the more advanced of our hyperconcentration technologies. It is getting ready to get into the clinic this year. And so they will talk to us about that. And so it's actually quite simple, and it's working exactly as we predicted that the Target Product Profiles is what's going to drive the company to pick where they want to talk about with us. Now sometimes because I mentioned that we are the leader in subcu delivery, we can sometimes see opportunities that our partners can't. And so I was very recently in a conversation where we were able to go back to them and said, actually, here's another option for you. If you did this one, it would be a little bit faster. And so this is where we really bring value to the partners that they recognize as we can help them achieve their target profile and their timeline for patients.

So I know we've got now 10 approved ENHANZE products on the market, launches at various stages now. And you just mentioned 2 -- the first 2 HYPERCON assets are looking to start clinical development this year. What can you tell us about those first assets, what you're kind of watching for? And how we should think about the cadence potentially of HYPERCON kind of contributing over the next 3 to 5 years just from a royalty revenue stream?

Yes. HYPERCON, what excited us when we saw it, and we followed the Elektrofi development for 5, 6 years, and it reached a stage of maturity where we felt it was a great time to come in and own it and further accelerate it for the additional stages. We think of it as another ENHANZE. By the mid-2030s, we expect it to have a similar royalty profile to what ENHANZE has today. So literally doing it in half the time. But that's because of the pioneering work that ENHANZE has done in this market to have people recognize, embrace and adopt subcu therapy across multiple therapeutic areas. So it's going to be a great repeat ENHANZE in a very short period of time. 2 products expected to enter the clinic today. What we can say about that is that they are derisked mechanisms of action. We do have additional work going on with feasibility with other partners and see line of sight to another 3 to 5 launches between now and 2035. And it's that group of 5 to 7 products that we are projecting has the potential for this $1 billion in royalty revenue in 2035.

Great. And just to kind of confirm, so the 2 clinical trials starts within HYPERCON this year are essentially kind of a subcu formulation of existing IV drugs or -- and this is within -- sorry, just also to check the box here. HYPERCON Elektrofi does have partnerships with argenx, with Lilly and J&J that have been publicly confirmed. So presumably, it's within that kind of universe. And these should kind of be, you say derisked, so kind of subcu formulations of existing IV drugs.

Bio de-risked, we mean that they already have an approved product. We really can't say any more than that due to the confidential nature of the contracts.

And I know last night at the dinner and in recent conversations you've spoken that to this idea that 2 acquisitions doesn't mean that you're done, right? When it comes to M&A. So help us kind of unpack really what you mean by that and what kind of the -- when you look at the platform now and frankly, over the next few years and as it's kind of evolved into this kind of 3 options of subcutaneous drug delivery, where would your appetite kind of be in and around this universe? Is it kind of very similar to this kind of core competency? Is there like an additional add-on that maybe we're unaware of? Like what would additional M&A even look like?

Yes. Well, first and foremost, this year, we obviously are going to be working on maximizing the value of all of our current platforms. So we have never been busier with incoming calls across ENHANZE and HYPERCON. And so that remains the primary focus, and we just see tremendous opportunity there. So we will not take our eye off that. In parallel, however, as we continue to look for additional M&A, if we were to find an additional acquisition target that would add royalties and strong margin, that's certainly something we would contemplate. We're in no rush to do it. We're very pleased with our revenue growth profile. But we do believe with the strong cash flow we have that the best way to be able to increase value and return value to our shareholders is if we can find additional M&A that would complement the already strong growth story that we have. And so we will continue to look in drug delivery. That's our area of expertise. And so -- and we're looking for business models that are similar to ENHANZE where we have these high-margin royalty businesses or high-margin subscription models. Revenue models where there is strong margin and long royalty or long revenue tails is really where we are focused and primarily. So we do look a little bit outside of drug delivery to see if we can find those business models as well. But again, the message is we will transact only if we find something that meets our very high standards. And the focus this year is predominantly on maximizing the recently acquired assets.

And just to kind of re-up the commentary from the Q4 call. In terms of additional partnerships that you're expecting in 2026, can you just kind of walk us through the different platforms and what you've kind of guided to this year?

Yes. In 2026, based on the strong momentum we have with ENHANZE, we've continued conversations from last year and actually already started new conversations. We're projecting between 1 and 3 new ENHANZE agreements this year. Separate from that, we may have current partners move nominations in, so there could be more, but 1 to 3 new ENHANZE partnerships this year is the goal. For HYPERCON, we're projecting between 1 and 2 new partnerships. And so the goal is a total of 3. For Surf Bio, we're going to spend the first months of this year really working on generating additional data. So we're in a great position to answer potential partner questions. The Surf Bio platform is perhaps 2 years behind the HYPERCON platform. So we are at the stage of getting it into readiness for the clinic by the end of 2027, early 2028. So a bit more data generation, I think agreements more likely in '27. So focus on new agreements on ENHANZE and HYPERCON.

And so just when we think about monetization of the Surf Bio and the HYPERCON platforms moving forward relative to what we know about ENHANZE as it's kind of been on the commercial markets for years now. Is it fair to kind of assume that API-related revenues will continue to grow as some of these assets move through clinical development in addition to kind of once you have commercial revenues, from any of these assets moving forward, it would kind of be a similar structure to what we've seen with ENHANZE. Is that kind of fair to assume?

So ENHANZE with 3 ways we make money, right? The API, milestone payments and royalties. For Surf and for HYPERCON, it's going to be more the milestones and the royalties. It's not really us delivering the API because actually the -- with the HYPERCON and Surf Bio, it actually becomes the new formulation of the drug. And so the partners are doing that. So it's a technology that allows them to formulate their drug. So it's going to be different, but still a similar structure in terms of mid-single-digit royalties for exclusive deals and meaningful milestones as the partner makes progress in development and hits certain sales thresholds.

All right. So now maybe let's kind of pivot a bit to logistics of the Q4 earnings print, right? So we noticed, as I'm sure a few folks in the room also noticed that in the filings now you broke down specific royalties from VYVGART Hytrulo, DARZALEX and PHESGO. I think admittedly, royalties from VYVGART Hytrulo were even bigger contributor to quarterly revenues. And I think that at least we have been modeling, but from what we hear a lot of other folks. So naturally, I think that likely stems from either a higher royalty rate or proportion of total VYVGART sales coming from subcu are likely higher than what some of us have been projecting. But maybe what can you kind of tell us about kind of the ongoing launch dynamics of VYVGART Hytrulo and how we realistically should think of the ramp from here, just given the fact that it's approved in 2, maybe 3-ish indications today. Obviously, argenx has been speaking to a number of already ongoing pivotal studies. So from where kind of peak sales estimates for VYVGART are today, where do you think they can realistically go, let's say, over the next 3 to 5 years?

Yes. It's been a very exciting launch. If you've been watching it already, $4.2 billion in total revenues, which is the IV and the subcu. Just a few facts to set the stage before I talk about where subcu is going. The initial launch in gMG was with IV. And then about a year after that launch, subcu came in. Subcu came in initially as a format where the patient would be pulling it up from a vial and injecting it. And then in May of last year, they move towards a prefilled syringe that was approved for an injection in as little as 20 seconds. That was very fast innovation, and that was very important innovation because in gMG, argenx has commented specifically that the availability of the prefilled syringe has really spurred what was already good uptake of the subcu version. So instead of the patient spending an hour in the doctor's office getting the infusion and then having 30 minutes of observation with the different formats of prefilled syringe, we're now down to 20 seconds. And so the prefilled syringe is allowing new doctors to adopt the drug, the ones who couldn't do IV infusions. Patients who didn't want to go through the complexity of pulling it up from the vial are now able to do it. And importantly, it's allowing movement of the treatment into earlier treatment paradigms. So I think it's fair to say a lot of the growth you've seen with VYVGART in the second, third and fourth quarter last year is myasthenia gravis, subcu use of the prefilled syringe. Now that is also being supplemented by the CIDP indication, which was approved, is subcu only. So there's no IV indication. So every sale in subcu is with our technology. And it's a mid-single-digit royalty. So that has been a very attractive source of revenue as well. Importantly, for the patients in CIDP, there's been strong uptake there as well. And argenx said they're expanding now beyond the patients who have been failing or not doing well on immunoglobulin to earlier treatment lines as well. And this makes sense. We saw that with DARZALEX as well, having the easiest subcu treatment allows you to go earlier in the disease. We're very excited on the new indications that are coming up, expanding the myasthenia gravis. If you saw last week, positive data in ocular myasthenia gravis expands the opportunity significantly as does a PDUFA date, which is coming up in May for seronegative, where they also had positive data. And so to your question at the start, absolutely, the VYVGART numbers are going to more than double. It's going to be driven by subcu, where Tim has really integrated -- the argenx CEO has really integrated the subcu technology with ENHANZE into current and future indications, and we're very proud of this partnership and what it's doing for patients.

I mean it seems like on our side of the conversation, right? We're always trying to figure out how to model proportion of total drug sales to come from subcu, right? -- we're talking about DARZALEX, which is north of 95-plus percent of total sales relative to maybe some of the more recent launches that are kind of inching up into the double digits these days now. But when you kind of look longer term, I mean, it feels like VYVGART Hytrulo could -- or I should say VYVGART sales realistically could be closer to like a DARZALEX type proportion. Is that kind of fair to assume over the long-term.

I think it is. I mean you're quite right? DARZALEX is at the peak there with the over 95%. I'll mention PHESGO though, which is 2 breast cancer agents is now at 54%. And VYVGART Hytrulo, we can't give the number as the company hasn't talked about it. But if you extrapolate from what I'm saying and some of Brendan's math there, you can see that if a patient is given a choice between an hour-long infusion in the infusion suite or 20-second subcu at home, we are expecting the vast majority of patients to be selecting the simpler, I'm in charge of my care, I can do it at home option.

So then maybe kind of looking at some of the other maybe more recent launches within ENHANZE, right? So we've got OCREVUS ZUNOVO up and running now. We've got Opdivo Qvantig. When we kind of think about maybe the next couple of years, right? Because they've both been on the market for over a year at this point. But Roche has spoken to kind of the expansion of the MS opportunity with Opdivo subcu. So what -- maybe just give us kind of level set what your internal assumptions are for some of these more recent launches in the same context of total proportion of drug sales potentially coming from the subcu?

Yes. I think for OCREVUS, there's been a little bit of confusion. I can help clarify in terms of the opportunity there. What Roche said at the time of launch was the availability of the subcu is going to expand the market by $2 billion. Now that is because there are a lot of doctors' offices who don't want to give IV OCREVUS or can't or don't have the setup for it. A patient getting IV OCREVUS takes multiple hours and then there's supervision too. And so it simply isn't feasible. Number one, that all offices want to do that or the patients live close enough to an infusion center to be able to travel for that. And so what Roche was wanting to communicate, and I think happily, we're seeing it play out in the market is the subcu allows more doctors and patients to access it. So it's a market growth opportunity, not simply a conversion opportunity. So that was number one. So if we think about that $2 billion is going to be the growth in the market. But today, already about $8 billion is the revenue number for IV OCREVUS. Now what Roche has said is that for the new starts on OCREVUS subcu, 50% are coming from new patients who've never seen OCREVUS before and 50% is coming from conversion. And so that $8 billion opportunity is also available for patients to be moving from the IV to the subcu. And again, value proposition here is going from a 4-hour plus infusion plus sitting in the infusion suite all day to a 10-minute simple subcu injection. Again, majority of patients are going to choose that subcu option. And so it is a very large TAM as you're hearing there, $8 billion plus $2 billion, so $10 billion. And over time, I do believe the majority of patients will be moving towards that subcu option as well. Already it's 17,500 patients. So -- and it's growing at a clip of more than 5,000 patients a quarter. So it's having very strong adoption in the market.

And then maybe kind of similar contextualization for OPDIVO now how we should think about uptake of the OPDIVO subcu option relative to the IV?

Yes. So for OPDIVO, that's obviously the flagship product for Bristol-Myers Squibb, big milestone achieved just in July this year. So we're just a couple of quarters after them getting their J-code in the U.S., which is very important in U.S. oncology adoption. And what we're seeing from that and what the commentary has been from BMS is that, that has led to increased physicians adopting, particularly in the community and also use across all lines of therapy and all combinations. And so commentary from BMS is very pleased. They expect to convert 30% to 40% of the Opdivo opportunity, again, a $10-plus billion brand to subcu over time and feel they're nicely on track, spurred by that recent on J-code.

So I think that kind of level sets where some of the kind of existing ENHANZE drugs are likely to go over the next few years. But let me also kind of touch on, which I'm sure is everybody's favorite topic, but as we get closer and closer to May, CMS. So help us understand why CMS will put out draft guidance because they've got a lot of other things to address in general, whether that's April, May time frame, exact timing is still a little bit TBD. But why is whatever comes into that draft guidance this year materially just a different context than what we saw last year? And kind of help us understand what it could ultimately mean longer term for the royalty growth.

Yes. So for -- Brendan is talking about the IRA as it specifically relates to the guidance that came out on fixed combinations of 2 active ingredients. And would that fixed combination be considered a different drug from the innovator drug on its own. It's long been our contention, and we saw this in Part D guidance that they are 2 separate drugs. So why that is important is they get a separate clock for when they will be considered to be included in the IP scheme. Last year, IRA came out with a slight change to that guidance and brought in a concept that you need to also, in addition to being a fixed combination of 2 active ingredients, have a clinically-meaningful effect. They did not define what that was and left it very confusing enough for the industry and others to comment on that. We, as a company and many others wrote letters to say, particularly in defense of the ENHANZE product to say, look at all the clinically meaningful benefits we bring. We reduce infusion reaction rates, a serious adverse event. We reduce overall serious adverse events. We are able to improve overall survival with RYBREVANT. We reduced significantly the cost of care for patients, et cetera. So partly, we think in response to this letter and other, I think, recognition, CMS kick the can down the road for you saying, we understand the complexity of this topic now. And we're going to take another year to look at it, and we will let you know if such a policy is going to be put in place. We think nothing has changed on the complexity and difficulty of trying to make these adjudications. We think it's a very low probability that they will put it in place. But what's really, really important as you're thinking about it as affects Halozyme, the impact of the IRA has always been overestimated on Halozyme. We have had very limited exposure. Approximately 20% of our sales only are exposed to Medicare. And as we have projected forward, specifically understanding the sales of all of our products in Medicare versus Commercial, we see no impact in 2028, minimal to no impact in 2029 and similarly from 2030 to 2035. We simply don't have a lot of exposure to the IRA. And so we will watch as this IRA notice is published, but we will know it's not having an impact on Halozyme. And we hope that's better understood by the investor community now. And if we put a position paper, if you like, on our website, if you'd like to read our letter to the FDA, the assessment of our exposure and the impact of the one big beautiful bill, which excludes products like DARZALEX and VYVGART from even being included in IP 2028, it's on our website, and I think it's a great resource.

And I think just on that last point, right? I think part of what we got in the final guidance last year was really kind of confirmation that if you have an approval for an orphan label included in orphan designation, right? You're also effectively exempt from this. In addition to this conversation that if you have biosimilars coming, I think, within 18 months or something like that of the patent expiry, you are also exempt from this. So realistically, now when we actually look at the commercial pipeline, that takes DARZALEX off the table, that takes Opdivo off the table, that takes VYVGART Hytrulo off the table. So even through that lens of 20% potentially exposure to -- we're talking maybe 1, 2 drugs potentially through the lens of like OCREVUS and any others kind of worth flagging there?

So OCREVUS is predominantly a commercial drug because of the age of the patient. So it does depend when the selection criteria gets down to the very low sale products in Medicare. So it's an unknown at what time that might be included. But it's a low exposure to Medicare, too.

Yes. [Technical Difficulty].

It's a great question. And for those who maybe couldn't hear, just a question on the trends we're seeing in the market with more monoclonal antibodies, ADCs coming to the market because they're better managed in terms of the toxicity and a question as to how that impacts our business. We always have played predominantly in the area of monoclonal antibodies, where we know with our new technologies, are going to be able to hyperconcentrate them down into any volume for anything from the 2 ml people want for the small-volume auto-injector or maintain at the current volumes we have for ENHANZE, anything from 5 to 25 ml. So we're very excited that, that continues to be new innovations for patients that we can make much more accessible for the patients so they have a better treatment experience, potentially even staying on therapy longer. We're playing right into where the ADCs are going in terms of -- if you heard me talk on the earnings call, we talked about the fact subcu delivery with ENHANZE will lower the Cmax of an ADC versus the IV, allow you to increase the dose modestly while still maintaining the overall exposure. So we can, based on our animal models, predict an improved benefit risk profile for ADCs. Many of which have serious adverse events that are associated with the Cmax. So that is a new opportunity for us as well. And then finally, I would just say our new technologies for the hyperconcentration also just going exactly where the puck is going, where we're seeing more and more drugs in inflammation and immunology, hot therapeutic areas like that, they do not want patients in infusion suites. They want patients at home receiving their care there. So we're at a perfect time where the industry is recognizing how care needs to be delivered, and we have the technologies to partner with them.

Maybe just one last very, very quick question just because I know it is topical in the coming months. Just on the Merck conversation now, help us kind of just benchmark what we'll get and when and what kind of the status of those 2 updates that we should be watching for in the spring?

And this relates to our MDASE patent portfolio. And I'll just say from the start, totally different portfolio from ENHANZE. So everything I'm saying on MDASE is only upside. There is 0 downside to ENHANZE. We expect the District Court where we are suing Merck for infringement of our patents. We expect a scheduling order conversation with the judge that will happen in mid-June. So it will become clear what the timeline for that District Court case in the U.S. will be. Outside the U.S., we have gained a preliminary injunction to stop Merck launching in Germany specifically, and there's cases going on in several other European countries as well. Our goal here is to have Merck to take a license. That would be a great resolution for us in this, but we are going to go to the District Court case in pursuit of them taking a license. and where we've asked the judge if they will not do that to provide triple damages for infringement, but also a permanent injunction to stop them launching if they do -- or to stop the ongoing launch, I'm sorry, if they do not take a license and pay the appropriate royalties to us.

Got it. All right. And I think with that, we are out of time. I know there's always a lot to cover here. So thank you all for paying attention. Thanks for being here. Always great to see you, Helen.

That's great. Thank you.