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

Good afternoon. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to Halozyme's Second Quarter 2026 Financial and Operating Results Conference Call. [Operator Instructions] Please note this event is being recorded. I will now turn the call over to Tram Bui, Halozyme's Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to our second quarter 2026 financial and operating results conference call. In addition to the press release issued today after the market closed, you could find a supplementary slide presentation that will be referenced during today's call in the Investor Relations section of our website. Leading the call will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business; and Darren Snellgrove, our Chief Financial Officer, will review our financial results as well as our outlook. 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 our earnings press release and slide presentation. I will now turn the call over to Dr. Helen Torley, and we will start on Slide 3.

Thank you, Tram, and good afternoon, everyone. I am pleased to report our results from an exceptionally strong second quarter, led by ENHANZE royalty revenue growth and new deal momentum that resulted in meaningful upfront milestones. You've heard me say before that ENHANZE is a unique compounding platform engine. On this call, we will share multiple proof points demonstrating how ENHANZE is delivering on all of the attractive features of a compounding platform engine. I'm talking about the repeatability of success, the scalability and diversification and the durability of revenues that result from this. The ENHANZE value proposition is attracting new partners and additional products from our current partners at a cracking pace. On top of this, Hypercon is already off and running at a second future combining platform engine for Halozyme, showing the same features and, in fact, doing so even earlier in the life cycle than ENHANZE as we apply the knowledge and learnings of the last decade. Let's look now at what's new in the quarter. I will start with the broadening diversification and record growth of our royalty revenue streams. We are reporting increasing contributions of our new launch products, OPDIVO SC, OCREVUS SC and RYBREVANT SC to our royalty revenues with 80% growth quarter-on-quarter. This is repeating and building on top of the success and continued growth and performance of DARZALEX SC, VYVGART Hytrulo and PHESGO. What I love about this is that over the last years, we've moved from all focus being on DARZALEX SC performance to then expanding to PHESGO and then to VYVGART Hytrulo as it was recognized just how much opportunity these products represented. Now we're expanding to 6 products to focus on. This is exactly what I meant by the compounding platform engine, multiple winners, creating revenue diversification and durability. This broadened launch portfolio resulted in record total royalty revenue growth of 50% year-over-year to $308 million, providing strong support to and conviction for the 2026 to 2028 financial guidance and for the revenues in 2029 and beyond. Let me now move to the second highlight the significant expansion in new partnerships for ENHANZE and Hypercon in the quarter. In the second quarter, we signed 4 new collaboration and licensing agreements, and we signed a fifth agreement in July. We have never had this pace of new collaboration agreements in the history of Halozyme. And for those of you who asked, can they sign great new deals for ENHANZE, the answer is a resounding emphatic and demonstrated yes, with 3 of these 5 agreements being for ENHANZE. This year, we have added new ENHANZE agreements with GSK, Insight and the third confidential partner. And we added 2 new Hypercon agreements with Vertex and with Oruka, and I will add, not only did we broadly expand the number of partners, we also expanded use areas to beyond monoclonal antibodies into 2 new expanding and leading-edge modality areas, ADCs and nucleic acid. This means brand new growth opportunity for ENHANZE. The new CLAs contributed $35.5 million in upfront collaboration revenue in the quarter, approximately evenly split across ENHANZE and Hypercon. This was also an important contributor to record total revenue in the quarter. This is how we said we would and how we are bending the curve in the 2029 plus period. The third area I want to highlight is development portfolio expansion in progress. In the second quarter, we advanced our pipeline of future potential royalty streams with 2 new Phase I study starts. It is our goal to have 13 ENHANZE development programs in 2026, which has also bending the curve in the 2029 plus period. Moving now to Slide 4. I'll highlight the second quarter financial results. For the second quarter, total revenue increased 48% year-over-year to $481 million. This was largely driven by robust royalty revenues of $308 million, a strong 50% year-over-year growth. The robust revenue performance resulted in adjusted EBITDA of $329 million adjusted EBITDA margin of more than 65% and non-GAAP earnings per share of $2.28, highlighting the strength of our diversified royalty portfolio and the operating leverage that's inherent in our differentiated business model. Moving now to Slide 5. Based on the strong second quarter and in particular, the robust royalty revenue growth, we are pleased to raise full year 2026 guidance. What I will highlight is the increase in total revenue guidance of $110 million at the midpoint. This is driven by the increased projected royalty revenues from established products and the new launch products that I discussed earlier and also by the upfront milestones resulting from what has already been a record year for new collaboration and licensing agreements. Let me move now to Slide 6, and I'll provide additional detail on the key business drivers in the quarter, beginning with the current ENHANZE portfolio. In the second quarter, the contribution from the more recently launched subcutaneous products with ENHANZE, including OCREVUS ZUNOVO, OPDIVO Qvantig and RYBREVANT subcutaneous increased by approximately 80% quarter-on-quarter. OCREVUS ZUNOVO is demonstrating how ENHANZE-enabled subcutaneous delivery can compound the value for our partners' products by expanding the accessible patient population. On their second quarter call, Roche reported that the number of patients receiving the subcutaneous formulation increased to 44,000. Contrast that with the 17,500 patients at the end of the fourth quarter of 2025. And you can see just how many new patients have been added for this every 6 months subcutaneous treatment. ZUNOVO is now the fastest-growing anti-CD20 multiple sclerosis brand in the United States. Roche noted that approximately 60% of the U.S. OCREVUS ZUNOVO starts are coming from community practices, demonstrating how ENHANZE-enabled delivery can reach new sites of care, enabling access to OCREVUS for new patients. Reflecting this momentum, Roche reaffirmed its expectation for CHF 9 billion in peak OCREVUS IV and subcutaneous sales by 2029, including approximately CHF 2 billion of growth, resulting from the expanded accessibility created by OCREVUS ZUNOVO. Moving now to Bristol-Myers Squibb. Bristol's OPDIVO Qvantig continued its strong launch trajectory with subcutaneous conversion reported has increased to 15%, well on track for BMS' targeted 30% to 40% conversion rate. This resulted in global sales growth of more than 200% year-over-year to $261 million in the second quarter. Based on this, OPDIVO Qvantig is projected to exceed $1 billion in annualized revenue. Johnson & Johnson's RYBREVANT FASPRO is another strong example of how ENHANZE creates value for our partners and for Halozyme. For the second quarter of 2026, J&J highlighted rapid uptake of RYBREVANT, contributing to the strong 62% year-over-year growth. Supporting growth acceleration in the upcoming quarters, the permanent J code was awarded on July 1. This has been a contributor to broadening adoption and growth in multiple prior subcutaneous launches. J&J also commented that they have submitted a filing to the FDA for head and neck cancer. We are pleased to note that the FDA recently granted priority review to the filing, meaning at an FDA review time line of approximately 6 months. Upon approval, this new indication would expand the opportunity for RYBREVANT Faspro beyond its existing lung cancer indications into this new area of high unmet need. It is certainly very exciting to see the growth and contribution of these 3 newer launch brands, where for these 3 brands alone, the total IV and subcutaneous opportunity based on total sales is projected to be $25 billion in 2028. This is resulting in a diversified set of 6 products contributing royalty revenues where the total opportunity now exceeds $55 billion. I'll move now to DARZALEX subcutaneous and VYVGART Hytrulo. Beginning with DARZALEX. DARZALEX continued to demonstrate robust revenue growth, increasing approximately 18% year-over-year to over $4 billion in the quarter with virtually all global sales being for DARZALEX subcutaneous with ENHANZE. J&J attributed the strong performance to continued market growth and share gains across all lines of therapy, including nearly 11 percentage points of share gain in the frontline setting. It's also worth noting that following the FDA approval in March, the all subcutaneous regimen of tech value plus DARZALEX Faspro is bringing new hope to patients with relapsed and refractory multiple myeloma. I'll move now to argenx. Total bipart sales grew 60% year-over-year to $1.5 billion in the second quarter, driven by continued strong adoption of the ENHANZE-enabled prefilled syringe, which I will refer to as the PFS. The PFS is expanding the prescriber base and bringing more patients into therapy with approximately 80% of U.S. PFS patients in the quarter reported to be new to VYVGART. This demonstrates how ENHANZE by supporting continued innovation and administration can meaningfully broaden patient reach and support long-term product growth. Driving continued growth, recent regulatory and clinical milestones continue to expand the long-term opportunity for VYGART Hytrulo. VYGART is now the first and only therapy approved across all GMG serotypes, including seronegative patients. The U.S. approval in seronegative GMG in May expands the addressable opportunity by approximately 11,000 patients. Positive Phase III data in ocular myasthenia gravis further highlights the opportunity to expand the franchise and drive future growth upon approval. Moving now to PHESGO. PHESGO continues to demonstrate the value of ENHANZE-enabled subcutaneous delivery within Roche's HER2 franchise. During the first half of 2026, PHESGO delivered strong growth of 18% with global conversion reaching 54% in the 85 launch countries. Roche reiterated its expectation for at least 60% conversion of peak and highlighted PHESGO is a key component of the franchise's long-term durability. I'll move now to Slide 7. Looking beyond the current decade, our future launch portfolio represents a significant source of long-term value with the potential to expand and further diversify our royalty revenue streams and delivered durable revenue for many years to come. Beginning in the 2029 plus time frame, we have 3 revenue engines. The first is our 10 currently approved ENHANZE product. The second are the multiple launches that are arising from are growing and robust ENHANZE development portfolio; and the third is Hypercon partner product. We project that by year end of 2026, we will have up to 13 ENHANZE partner products in development with potential approvals beginning in the 2029 plus time frame. These programs represent the next generation of royalty producing assets and extend our future opportunity beyond the currently approved portfolio. During the second quarter, 2 new ENHANZE targets initiated Phase I testing. This is resulting in 9 development products and keeps us well on track for the 13 development products by year-end. This broad and growing portfolio of future potential launches clearly demonstrates why we're so confident that ENHANZE will be a significant long-term revenue driver for Halozyme. I will now move to Hypercon, which we intend to make into a second compounding platform in IM and recreate the amazing success of ENHANZE. Hypercon is designed to address growing demand for lower volume subcutaneous administration, enabling highly concentrated formulations that can potentially support at home and physician office administration. We made strong progress in the quarter, advancing preparations to provide clinical supply to support the first Hypercon clinical starts in the first half of 2027. Our projected first launch timing for these 2 new products is in the 2030-2031 time frame, and we continue to expect Hypercon to launch multiple products and achieve approximately $1 billion in royalty revenue in the mid-2030s. Let me now turn to the new collaboration and licensing agreements, which are summarized on Slide 8. I mentioned at the start that this has been our most successful year ever with record performance for ENHANZE and for Hypercon, the pace of recent collaboration activity reflects the growing importance of subcutaneous delivery across the biopharmaceutical industry. Pharma and biotech companies are increasingly focused on improving the patient treatment experience, reducing treatment burden, expanding access across sites of care and differentiating their products. In the second quarter, we announced a new ENHANZE agreement with GSK, which included the opportunity to use ENHANZE in a new use area with antibody drug conjugates. In July, we announced a second agreement with Incyte, working with Incyte on a subcutaneous formulation of its first-in-class mutant calorectulin targeted monoclonal antibody. Today, we are pleased to announce a third new agreement signed in the second quarter with an undisclosed partner to explore the use of ENHANZE within nucleic acid therapeutic. This is the first of what we hope will be several collaborations in this emerging area where ENHANZE brings the potential to enable subcutaneous delivery of large-volume nucleic acid conjugate formulations and LNPs while mitigating the inflammatory and immune response that can be otherwise generated from subcutaneous administration. We are excited to expand into these 2 new series of ADCs and the nucleic acids that represent brand-new growth market segments for ENHANZE and where we estimate that there are at least 100 commercial and development products that may benefit. Also in the second quarter, we signed 2 new Hypercon collaboration agreements, 1 with Vertex and 1 with Oruka. These agreements established strategic platform relationships that have the potential to expand over time through additional targets and future development programs. When we combine the up to 13 enhanced development programs by year-end and opportunities created by the current and new ENHANZE and Hypercon agreements, we have created a substantial portfolio of new potential royalty opportunities extending well into the next decade. What you've heard me describe is the power of having an established compounding platform engine with ENHANZE, and we're creating just the same for Hypercon. We have demonstrated time and again the repeatability and diversification with now 6 separate and growing royalty streams, delivering record revenue. We've demonstrated scalability with multiple waves of new launches now extending well into the 2030s. The durability is clear with 50% roughly revenue growth more than 12 years after our first launch. And we're very proud that our partner products are clinical breakthroughs that we have helped create into multiple blockbusters subcutaneous products. Our priority in 2026 remains executing on the significant organic growth opportunities. We're also continuing to evaluate selective M&A opportunities that can expand our drug delivery technology offering and royalty duration, but any external opportunity must meet our criteria of a strong strategic fit, durable value creation and attractive returns. With that, I'm pleased to turn the call over to Darren.

Thank you, Helen. I am thrilled to be joining Halozyme at such an exciting point in the company's evolution. Over the past few months, I've had the opportunity to dive deeper into the business, and what has stood out to me is the strength of Halozyme's business model. It's rare to find a company that offers such outstanding current performance and future potential. Halozyme's combination of strong growth exceptional profitability and robust free cash flow, coupled with disciplined capital allocation, positions the company well as we continue to accelerate innovation and provide significant returns to shareholders. Having spent nearly 3 decades in the industry, I was familiar with the value Halozyme creates for partners, patients and the health care system. After joining the company, I have an even greater appreciation for the opportunities ahead. One of the unique characteristics of the business is what I would call the halo effect. Every successful enhance enabled product does more than generate high-margin, scalable royalty revenue. We enable our partners and improve products for patients. Our platforms reinforce the clinical and commercial value of subcutaneous delivery and create additional opportunities for target nominations, platform expansions and new collaborations. This cycle continues to broaden our opportunities and increase the durability of our long-term diversified model. The strong second quarter results reinforce that view as the company delivered another record quarter, exceeding expectations for royalty revenue, driving strong EBITDA growth and at the same time, investing in our future growth platforms. Let me start on Slide 9. Total revenue increased 48% to $481 million compared to $325.7 million in the prior year period. This performance was driven by robust royalty revenue growth and higher collaboration revenue, reflecting new deals signed during the quarter. Royalty revenue of $307.7 million increased 50% from $205.6 million in the prior year period and exceeded our expectations. These results reflect increasing contributions from more recently launched in ENHANZE products as well as the continued commercial success of DARZALEX subcu and VYVGART Hytrulo. DARZALEX generated $4 billion in global sales for J&J in the second quarter, representing close to 18% operational growth, further demonstrating the strength, durability and continued momentum of the franchise. These strong sales translated into $152.2 million of royalty revenue to Halozyme, representing an increase of 27% year-over-year. Halozyme's royalties from VYVGART Hytrulo increased 143% to $72.6 million in the second quarter. Total VYVGART brand sales for the second quarter reached $1.5 billion, up 60% versus prior year, reflecting strong demand for the enhanced enabled prefilled syringe, which continues to broaden the prescriber base and support adoption across GMG and CIDP. Other royalty revenues grew 85% to $54.4 million driven by increasing partner product sales of recently launched products, OCREVUS subcu, OPDIVO Qvantig, RYBREVANT subcu and TECENTRIQ subcu. We are pleased with the early momentum and see a significant opportunity ahead given that estimates for the total brand growth of these 4 products is approximately $30 billion in 2028. Moving to Slide 10 for more detail on the quarterly results. Research and development expenses were $27.7 million compared to $17.5 million in the prior year period, reflecting the addition of Hypercon and Surf Bio and our continued investment in advancing these technologies. Selling, general and administrative expenses were $57 million in the quarter, compared to $41.6 million in the prior year period. Net income increased 39% to $229.9 million from $165.2 million in the prior year period. Adjusted EBITDA increased 46% to $328.8 million from $225.5 million in the prior year period, driven by continued strong royalty growth. GAAP diluted earnings per share was $1.90 compared to $1.33 and in the prior year period, and non-GAAP diluted earnings per share was $2.28 compared to $1.54 in the second quarter of 2025. Moving to Slide 11. We generate substantial free cash flow from our asset-light model and our strong financial position gives us the flexibility to execute a disciplined capital allocation strategy. Our priorities are straightforward: fund the highest return organic opportunities, maintain a strong balance sheet and return excess capital to shareholders through a disciplined buyback program. We view share repurchases as an attractive use of capital when we believe the stock does not fully reflect the durability and growth of our royalty streams. That is why we purchased $332.8 million worth of shares in the second quarter against our target of $400 million for the full year, while also investing in long-term growth and expanding the enhanced platform as more products launch and gain share. Turning now to Slide 12 and our updated 2026 outlook. As Helen mentioned earlier, we are pleased to raise the guidance for the remainder of the year. We now expect total revenue of $1.835 billion to $1.91 billion representing year-over-year growth of 31% to 37%, driven by an increase in royalty revenue projections and product sales from API. Royalty revenues of $1.22 billion to $1.245 billion, representing year-over-year growth of 41% to 43%. We expect growing contributions from the recently launched ENHANZE products, while DARZALEX subcu, VYVGART Hytrulo PHESGO remain the largest revenue contributors. We expect adjusted EBITDA of between $1.225 billion and $1.28 billion, which includes approximately $60 million of planned investment in Hypercon and Surf Bio, and non-GAAP diluted EPS of $8.65 to $9. I will now turn the call back over to Helen.

Thank you, Darren. In closing, let me highlight that our record second quarter results reinforce our confidence in both the strength of our business today and in the opportunities ahead. The growing contributions of our recently launched ENHANZE products and the continued strong performance of DARZALEX subcutaneous and 5 car gave us confidence in the 2026 to '28 financial guidance and beyond. In the quarter, we demonstrated meaningful progress to add to this and will bend the curve, including through multiple new ENHANZE and Hypercon collaboration and licensing agreements and multiple new clinical study starts. Thank you for your attention today. And operator, you can now open the line for questions.

[Operator Instructions] Your first question is from Sean Laaman with Morgan Stanley.

This is Natasha on for Sean. So your raised royalty guide of $1.22 billion to $1.245 billion against the $548 million in the first half royalties implies around $336 to $348 per quarter in the back half, which is a step-up from 2Q $308 million. Just wanted to ask what's driving that implied acceleration from here? Is it primarily the newer launch cohort or the established products?

Thanks, I'll turn that over to Darren.

Yes. Thanks for the question. And as you noted, royalties were an important component of the beat in the first half. And I would say that we do expect royalty revenue to grow sequentially through the second half. Probably won't have quite the same amount of royalty step-ups that were part of the Q1 to Q2 growth. But we do expect that to continue to ramp up in the second half. And a lot of it is driven by some of the new product launches that you've seen, so things like RYBREVANT subcu, which has started to pick up a little bit in some of the other new products.

Your next question is from Michael DiFiore with Evercore ISI.

This. This is [indiscernible] on for Mike. Congrats on the strong quarter. I'd like to ask a question on target exclusivity. So you've talked about partners who work with other providers after approach [indiscernible] where target was already exclusively licensed. As we look forward to 2029, how should we think about the way target exclusivity works as the base pattern flow out? And then does that open up targets you couldn't take on before?

Yes. Thanks for the question. In terms of the exclusivity, it's often very much driven by the partner company. And if they request exclusivity and they are willing to pay the enhanced economics that are associated with that, historically, in the past, we have agreed to that, and we also would still agree to that today. I will note, however, that as you've probably seen in the latest agreements we've done, there are now a lot of companies who are very comfortable with gaining a nonexclusive license. And so you're going to see a mix of the 2 as you go forward. And I will also say, if you think about exclusivity is also done in different ways. It can be exclusivity to an entire target as an example, like we did with PD-1. But in other cases, there can be exclusivity to a specific molecule, it uses a target or perhaps a target that is part of a combination. And so we are being able to be a lot more, if you like, creative and broad what we're able to license both on an exclusive and nonexclusive basis as we go forward, and that really is reflected in the 5 recent deals across those. And the additional deals we anticipate signing this year and next.

Your next question is from Brendan Smith with TD Cowen.

Congrats on the great quarter. Maybe first, actually, on Hypercon. I know we'll get confirmation in the first 2 assets by early next year. Just wondering if you can give us a little bit more of a sense of timing for kind of subsequent assets in that pipeline? And just roughly when the next wave might be, if there are others that could reach Phase 1 next year? Is that more of a '28 event? And I guess kind of related I wanted to ask actually about that $1 billion in incremental Hypercon royalties by 2035 you've spoken to. I guess how many different assets are you assuming would contribute to that by 2035 and I guess your assumption is largely just based on the current partnerships? Or are you assuming any additional ones?

Yes. Thanks. With regard to Hypercon and timing, there are absolutely be additional study starts in the second half of 2027, Brandan, based on the progress we're seeing with companies advancing through the preparatory before they're ready to advance to the clinic. And this -- if you recall, while we've got 5 agreements, those partners have taken up to 20 targets. And so some of the companies are advancing more than one target at this point in time, and that is already creating a very nice pipeline, all future clinical studies for 2027 and for 2028. So that's the great thing about the model we have with this ability to access multiple targets in one agreement. As we projected the $1 billion in the mid-2030s, we had assumed between 5 and 7 launches by that time period. And I think a number of those will come from the already signed agreements, but it is also possible that agreements in the next 1 to 2 years could also be contributing to that based on what we estimate the development time line to be. So I commented on the call about it's very exciting to see Hypercon turning into another compounding platform engine for us, but able to do so faster and quicker part because the market is just more receptive to subcu delivery, but we're also able to bring a lot of our learnings from how we've been able to commercialize and grow in hand.