Halozyme Therapeutics, Inc. ($HALO)

All ready. So we can get started. So thank you, everybody, for joining us today. It's very much my pleasure to welcome Halozyme to Leerink's Global Healthcare Conference. My name is Dave Risinger. And I'll be having the conversation today with Helen Torley, the company's CEO. Congrats on all the progress in recent years. You've been quite active with executing in the business and also executing on M&A to bring in new long-term growth drivers. So I thought that we could just start off with asking you to provide some comments, including, in particular, on those 2 recent acquisitions of Elektrofi and Surf Bio, and then we'll take it from there.

Yes. Thank you, David. And 2025 was certainly a very exciting year for Halozyme, particularly towards the end of it, where, as David mentioned, we expanded the number of ENHANZE collaborations we had, and we consummated 2 acquisitions, further broadening and adding to and diversifying our offerings for subcutaneous drug delivery for our potential partners and current partners. This has been really a story that has evolved over time where we established ourselves as a leader in creating a market for large volume subcutaneous delivery of biologics. But as we work with partners, they frequently talk to us about the opportunity they saw in the future in certain diseases like autoimmune disease, neurology, cardiovascular disease even for at-home delivery by the patient and really wanted to be able to get the therapies down into 2 mLs or less, so they could be injected by an auto-injector and really allow the patient the freedom to treat themselves wherever they want it. I would say that in 2025, the success that argenx saw with the prefilled syringe for VYVGART Hytrulo that allows for the patient to treat themselves at-home in a 20-second injection really galvanized me to reach back out to Chase Coffman, who is the CEO of Elektrofi and continue a dialogue that had happened over 5 years. But we felt together, Chase and I, that it was time to bring together Halozyme's expertise with commercializing new technologies and broadening their adoption by pharma as well as their hyperconcentration expertise. And that really was why we did the Hypercon acquisition. Having done that, we took a step back and I included Chase in the conversation to say what if we had another hyperconcentration technology, if we bring your expertise in hyperconcentration and our commercialization expertise, we'd be able to advance a new offering and a different offering for partners as well. And that's what led to the Surf Bio acquisition. In both cases for Hypercon and Surf Bio, it allows biologics to be concentrated by a factor of 3 to 4x to approximately 500 milligrams per mL, reducing the volume by 3 to 4x. And that's why you can get to this vision of enabling volumes that are 2 mLs or less that could fit into a standard off-the-shelf auto-injector as an example. And so we're very excited to be now engaged in multiple conversations across all of our technologies, David, being able to satisfy the needs of people who are -- want high volume perhaps delivered in the doctor's office by a health care professional or by small volume at-home by the patient. And this allows us to meet the needs of a much broader range of partners. It allows us to work on the same targets, potentially with more partners as well. And you can see why this is a great fit strategically, but also significantly expands our opportunity because we were not playing in that small volume area at all.

Excellent. Excellent. So it'd be helpful for you to add a little bit more color on each of the 2 technologies and how they're distinct from one another. I know that they're complex technologies, but I think that would be helpful.

Yes. And again, I'll start with ENHANZE because there's always a base of what we have. So that's an enzyme that we co-formulate with partner products. And it acts to rapidly degrade the hyaluronan that's underneath the skin and allows you to inject a large volume, often up to 5, 15 mLs over just minutes and for that to be absorbed through the lymphatics. And that has resulted in 10 approved products so far with multiple products currently in development and expected to expand significantly this year with 6 new projected ENHANZE clinical study starts. For the Hypercon technology, that takes -- and most of the work to date has been done with monoclonal antibodies, a bit of work with antibody drug conjugates. That is a dehydration technology where it takes the partner's products, and it allows it to be dehydrated and concentrated down into particles. These particles are of different sizes. And then these particles are resuspended in an oil-based solution. And that solution, surprisingly, even though it's got this concentration of 500 milligrams per mL retains great stability, but also is highly syringable. And by syringeability, we mean it is easily injected without having to have a lot of force. So it feels like you're just injecting water. And it's because of the fluid dynamics that has been created because of the interaction of the particles and the different particle sizes. So that very simply, when you inject that oil-based substance or solution into the subcutaneous space, subcutaneous space is filled with water. And so it rehydrates the product and it simply acts like any other product would under the skin and be absorbed subcutaneously. So pretty straightforward. And again, antibodies, antibody drug conjugates, it's been tested within preclinical models and feasibility has been demonstrated with that. I'll move to Surf Bio now. It's a different approach. It's going to be a polymer-based approach, which is added to the product, the antibody, and they've actually done a little bit more work with small molecules in this instance. And then that is taken through a sterile spray dry process to dehydrate it also to great particles. These particles are then also put into an oil-based solution generally. And that is also injected subcutaneously, interacts with the water in the subcutaneous space and the products rehydrate the particles are released and it is absorbed. So that's a difference between the 2. Again, at this stage, Hypercon is expected to enter the clinic this year. So it's a bit more advanced than Surf Bio, where we're estimating end of 2027, possibly the first half of 2028. So one is a bit more advanced than the other. But by bringing the Hypercon team's expertise and our expertise together, we're going to do everything we can to even further accelerate that time line for Surf.

Excellent. Excellent. Yes, that has a lot of exciting potential long-term. So with respect to Hypercon, maybe you could just go into a little bit more detail on what to expect over the next year or 2 and also comment on the manufacturing scale-up as you look forward with that technology.

Yes. We're making excellent progress with the Hypercon readiness to get into the clinic. Key this year is the clinical scale batches, which we're expecting to occur this year. The partner in that case is Thermo Fisher Patheon, and we're working very closely with them to support partners entering the clinic this year. We expect 2 partners to be able to enter the clinic this year for the first Phase I testing of the Hypercon technology. Plans are already being discussed with regard to the commercial scale up, which would be the next stage. That is likely to be in collaboration with partners because this is going to be a situation where we're reformulating their products. And we're feeling very good about the conversations that are going on and the options that are available and the status of the plans to support the launches, which we predict could occur in 2030 and 2031 in that time frame. With Surf Bio, it's much earlier. And so we're leveraging all of the learnings Hypercon has had over the last 5 years as well as our expertise in putting in place a manufacturing plan and also the manufacturing network. So an earlier scale, but making some excellent progress since the acquisition closed in December.

Excellent. Very, very helpful. So then turning to ENHANZE. Could you talk about what gives you confidence in the ability to sign, I think you've targeted 1 to 3 new ENHANZE deals in 2026?

Yes. So ENHANZE is a ready now solution for partners. And I think that's a very important thing with the 10 products that are approved, 1.3 million patients treated, partners know they can be considering adopting it and adding it to their products with a great deal of history and experience around it. What we're seeing, and I think it's similar perhaps to what's been seeing in the financial markets is as of the end of last year, we are seeing pharma really and biotech really beginning to move forward with new energy. And we're seeing an absolutely new wave of interest in subcutaneous delivery. And why do I think that is? I think there's 3 core reasons. The first is there's a recognition that for competitive differentiation, subcutaneous delivery can offer an amazing competitive edge and competitive moat for a partner. The second one is with ENHANZE, we've demonstrated on multiple occasions now that it's an opportunity to broaden your opportunity and grow your market. I'm going to give 3 examples just to illustrate that, each of which is a little bit different. But in each case, subcutaneous has made the product larger for the partner. DARZALEX is the obvious one. That's one of our -- is our largest product today. The advent of the subcutaneous launch in 2020 allowed even greater expansion of DARZALEX into the frontline patient population, which, as you know, is the largest population, but it's also the population who lives the longest. And so by expanding into that, and that's because instead of a 4- to 6-hour infusion, which many patients do not like or they live too far away for an infusion suite. The ENHANZE is given in a 3-minute subcu injection. It just enabled that ease of treatment and for patients to stay on therapy longer. And that durability is one of the reasons DARZALEX is surprising people growing still more than 20% year-over-year after 5 years. So that's one. VYVGART Hytrulo, I talked about earlier. VYVGART prefilled syringe has accelerated the uptake of VYVGART, which delivered $4.2 billion this year. A lot of those sales and that growth this year is the prefilled syringe because the prefilled syringe has enabled more physicians to want to prescribe it because they might not have the IV infrastructure, more patients to adopt it because it's a simpler injection than either going to an IV suite or pulling it up from a vial. And equally as importantly, it is also moving the treatment paradigm -- the access to patients much earlier in the treatment paradigm. And so an amazing growth there. And then the final example is OCREVUS, which is Roche's drug for multiple sclerosis. 4 to 6 hours as an IV infusion, 10 minutes as a subcu. Roche predicts that their overall market is going to grow by $2 billion. So $8 billion plus $2 billion, so now becoming a $10 billion brand. And that's because not all doctors want to give long IV infusions. Not all patients can get access to infusion sites. So the second reason is that market growth, that is definitely attracting people. And the third reason is the recognition that the experience we have, we can help support and enable partners to get to the clinic faster, to get to approval faster with our track record of experience and success. That's just going to make it a less -- a more comfortable and less risky endeavor for them. So for all of those reasons, we're just in a new wave of interest, and that's what gives me the confidence in the 1 to 3. We obviously signed 3 at the end of last year. That momentum and breadth of conversations continues with pharma, with biotech, across monoclonal antibodies, antibody drug conjugates. It just is -- it's like a governor has been lifted in terms of people being interested in subcu delivery.

Excellent. So let's pivot to M&A. So obviously, you've executed M&A, but you still have a phenomenal balance sheet. So what should we watch for going forward?

Yes. So we're a growth company, and we would like to deploy our capital for additional M&A. Now we have been very disciplined. If you know the company, we do select very carefully. And we are looking for opportunities that are recurring, royalty-like or royalty revenues, which can result in high profitability. And so that's our business model. And so that's ideal in terms of where we're going to add additional M&A. And so today, we look in areas like drug delivery. Obviously, there are businesses there like that, but also other areas because it's that business model that we are looking to add. And I'll say we're going to continue with our discipline. If we lever up, we will be always sure there's a path to rapid delevering for whatever next acquisitions we do. As an example, at the moment, we -- using the traditional way of looking at it, the net debt-to-EBITDA is about 3x. We'll be back down to 1x by the end of this year if we don't do another acquisition.

Yes, that's a great position to be in. And what about that acquisition landscape? You're operating in fields that are very niche. There are no sizable companies to pursue. But how do you think about the landscape out there for potential future M&A? I mean you obviously just took out 2 compelling companies. So that subtracts 2, but would love to hear your thoughts.

Yes. I think as we worked and looked in this landscape, I think, Dave, since about 2019, it's been interesting to watch companies mature. So we're very patient like with Elektrofi. We talked to them for many years, but they weren't at the right stage of derisking as an example. And so there are companies we're watching who are going through that. There are other companies who have perhaps taken their first step into the broader stage of licensing, but we want to see how it's adopted. So there certainly are a number of opportunities out there that we are evaluating. But as I mentioned, we're going to be patient. We have a great growth story with ENHANZE, Hypercon and Surf Bio. We think it's a good use of capital if it's got the right growth story for us and it's got the right business model. So we'll watch the space. We'll -- if we find something, we'll transact. If not, we'll continue to be sure and we'll do this anyway, maximizing our current opportunities. There is a ton of growth we are still unlocking there.

Excellent. And just going back to Hypercon, it would be helpful for you to add some context on your long-term vision for how big that can be in 2035 and what gives you confidence in that. I think the target is $1 billion by 2035.

Yes. For people in the audience, you may remember in 2018, I put out a prediction that ENHANZE would grow to $1 billion by 2027 in terms of the royalty revenues. And that was based on the plan we had internally, not all of which we can share externally because some of it is partner confidential information. Where we sit today is we're going to achieve the $1 billion in royalty revenue this year, a full year earlier. And so as we finish the acquisition with Elektrofi, I did, as David said, state that I see a path and project that we will achieve $1 billion in royalty revenue for Hypercon by the mid-2035 -- in that area, mid-2030s. It's a similar story where we have a plan. I have certain assumptions. And we can see a very clear path to being able to achieve that $1 billion by that period of time. Once again, I'm not able to give you the play-by-play. But as we achieve events and partners permit disclosures on them, you'll see that story evolve just as it did for ENHANZE as to how we're going to be able to achieve that. And we're launching Hypercon into a market that is so much more accepting, understanding, demanding of subcu delivery because if you remember for ENHANZE where it probably took us twice as much time, we were creating the market. There was no subcu delivery of large volume biologics. And so there was a certain adoption curve. That is in part also what excites me about the Hypercon. We just have taught the market about this is a way you can deliver therapy. And we just see a great path to adoption and achieving that $1 billion in a shorter period of time.

Excellent. Excellent. So then just turning to IRA. There are a couple of questions outstanding. What might the draft guidance for IPAY '29 look like, which is likely to come in May? Will that differ from the final guidance that they issued last fall? And then also when Opdivo is negotiated, what are the potential implications? And really actually more importantly, what are the implications for IV adoption relative to subcu, which obviously, that's up to Bristol-Myers to manage and navigate. But would love to get your latest thoughts on those 2 topics.

Yes. A lot in there. So...

Yes.

So with regard to the IRA, what David is referring to is there's a section in there that refers to how combination products with 2 active ingredients will be treated. And there's been initial language and changed language. I'm just going to take a little bit of a step back and remind people what we've done in this space. So we studied this very carefully, both from a patient perspective, a payer perspective, but also from will there be any implications for Halozyme. We summarize our view all the latest draft guidance in a comment letter that is posted on our website that comprehensively reviews for CMS all of the clinical benefits that we've delivered for patients with ENHANZE-enabled products and importantly, the economic benefits that have accrued to the Medicare system, which are substantial in terms of the savings because it takes less time and it takes less physician care, et cetera. We also, in that physician paper, have a deck that outlines the one big, beautiful bill and how it interrelates to the IRA, particularly by bringing clarity to if you're a product that has all orphan drug indications, you will not be eligible for IPAY, which affects DARZALEX and VYVGART as an example today. Those are all orphan indications, so no inclusion in IPAY. And also talks about the impact of biosimilars on eligibility for IPAY. And this gets to a little bit of the Opdivo conversation because if there's a biosimilar that is launched or is soon to launch, you will be excluded from the IRA IPAY as well. So the bottom line before I get into any more detail is that for Halozyme, we expect no impact in the next years or any changes that could be made to the definition in the IRA guidance and very minimal to little exposure for all of the years up till -- until at least 2035. The reasons for are I just mentioned, DARZALEX and VYVGART are excluded. Opdivo could be our first drug that's eligible. However, its first indication is an orphan, which means it isn't eligible until IPAY 2029. Biosimilars, IV biosimilars to Opdivo are expected in 2028. So we do not expect it to be included in IPAY. The next thing is our next product could be eligible would be OCREVUS. OCREVUS is Roche's multiple sclerosis drug, and it actually skews to a much younger population. So it has very low sales in Medicare because it's a commercially covered product. So you can see how I'm taking out every product that we have that could be eligible is just not going to be impacted by IPAY or if it is, it's going to be extremely modest in terms of its impact. We have 20% of our total sales are Medicare, and I've just taken out all the drugs where that could be important. So we're staying engaged on that topic, Dave. However, we are very clear we're not seeing any impact to Halozyme because of all of this clarification that has come over the last couple of years on that. So it won't matter to us what that language is.

Okay. Excellent. Maybe we could just touch on the fourth quarter. There was some noise simply because the reported EPS were below consensus, but that was due to a onetime charge. If you could just clarify that.

Yes. We had a very strong 2025, as you're mentioning, including the fourth quarter, our revenue grew 38% to $1.4 billion. Royalties were 52% growth. But in the fourth quarter, we mentioned that we did the Surf Bio acquisition. If you do an acquisition that is at a certain earlier stage of development, the accounting standards are that you take a onetime expense for that in the quarter of the acquisition for all or the vast majority of that. And so what you saw in the fourth quarter was we took that charge, onetime event, that's behind us now. and we're moving on. So just -- it's one of those things that we think most people understood. It's clear or not everybody quite understood it, but we do have some very strong growth this year as a result of it in terms of the percent numbers, but that's behind us now.

Yes.

And the good thing is it's not being reflected in an amortization over the life of the product. So it's kind of clean. It's clean. It's behind us, and now we can go forward.

Excellent. If you could touch on the Merck litigation and just provide some comments on what we should be watching going forward, please?

Yes. Again, just making sure everybody is -- got the context here. We have sued Merck for infringing our MDASE's patents. And MDASE stands for modified hyaluronidase. These are different from our ENHANZE patents. ENHANZE is a truncated human hyaluronidase, but when we were inventing this whole space of using hyaluronidases for subcu delivery, we developed, if you like, 2 families. ENHANZE which is what we licensed to partners today and MDASE, which was another patent portfolio that is distinct. I make this comment because no matter what happens in the Merck litigation, there is no read-through or impact on ENHANZE for anything that happens to MDASE. MDASE is all upside to us. It's not in our current projections. And what we have done is we have sued Merck for infringing in the District Court. The next step there will be we expect to meet with the judge in mid-June to get a scheduling order as to when the court case is going to start. These court cases can take several years, just to say. But that's where we are asking the judge for 2 things. One is for damages for infringement, which can be up to triple damages as decided by the judge, but also we're asking for injunctive relief. And the injunctive relief means that Merck won't be able to continue to sell the subcu KEYTRUDA if they do not take a license from us. And so we expect that to play out over the next several years. We would be very open and happy to move into a licensing agreement with Merck at any time, just to say we do not need to go through this whole court case. It will really be up to Merck to decide the time is right to take a license. Separately from that outside the U.S. and Germany, we, in the fourth quarter, did get a preliminary injunction that prevented Merck from being able to launch KEYTRUDA subcutaneous in Germany. Now we expect them to appeal that, and we expect that to be a continued dialogue. But we also are pursuing similar preliminary injunctions in other European markets. And again, this is -- it's just a slightly different legal strategy than we took in the U.S. They have launched. We didn't try and stop them launching, but we do want to obviously get that injunctive relief decision. Outside the U.S., we will be, where appropriate, seeking to get them to not be able to launch in those markets, again, in the hopes that we can come to an agreement ultimately and a license.

Excellent. And when do you think you'll get clarity on the injunctive relief request?

It's going to be several years. Just looking historically at these cases, some of you may be aware there was a litigation between BMS and Merck over the PD-1 patents. That took several years. It's got to a settlement, which included a license several years into the actual court case.

Got it.

That's the benchmark that we have to just consider very reasonable for this circumstance as well.

Excellent. So we're almost out of time. Maybe just wrap up on the ramp over the course of this year, just to summarize for people how you see that playing out for the company in 2026.

Yes. That terrific fourth quarter momentum is continuing. It's translating into an expectation for, as an example, 6 new ENHANZE Phase I starts, 2 new Hypercon Phase I starts. And as we talked about earlier, we're expecting 3 new deals this year, which will be a mixture of ENHANZE and Hypercon, each of which could result in additional products coming into the clinic. And I just want you to think about that in terms of creating this pipeline. With this momentum, we actually are projecting between where we sit today and 2028 as an example, we will double the number of commercialized and development products from about 20 to about 40. And that's -- I'm talking about the great receptivity we're seeing at the moment to subcutaneous delivery. So that's in terms of the -- just expanding the pipeline. For our current products and projections, we put out our guidance. We have very strong guidance in place for this year, driven continually by our royalty revenues. DARZALEX is going to continue to grow, VYVGART, Phesgo. And now that the initial reimbursement is largely in place for the next 4 launches, you're going to see a bigger contribution from them. And we haven't talked about those, but those include blockbusters like Opdivo, which already was $133 million total sales of the subcu version in the fourth quarter. We've got TECENTRIQ in there. There's also OCREVUS, which is growing phenomenally, added another 5,000 patients in the fourth quarter, so up to 17,500 patients, and that is a very strong growth driver for us. And then finally, RYBREVANT. RYBREVANT is worth a pause just as a product that J&J has a vision that will be a $5 billion brand. Analysts haven't quite caught up to it. And part of the reason was because as an IV, it had 67% infusion-related reactions. That is when you're given an IV drug and you start to get shivers, low blood pressure, sweating, headache. It's like a minor allergic reaction to the drug. And it really does alarm the patients, and it alarms the health care practitioners. With the subcu version -- and that was a 5-hour infusion, I will say. With the subcu version, it's given in 1/5 of the time and the -- in about less than 1/5 of the time, it's given in just minutes and the infusion reactions are reduced by a factor of fivefold. That is transformative. The uptake of IV was quite slow. With subcu, we're already hearing that it is dramatically increasing the pace of uptake of that. So RYBREVANT is going to be a much bigger contribution as well. So all -- with so many drivers of opportunity, Dave, and also the potential for additional M&A, but only if it fits our business model.

Excellent. That's a great way to finish it up. Thank you again for being here with us. Really appreciate it.

Thanks for the opportunity. Thank you.