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

Awesome. Thank you very much for joining us for this afternoon session today. My name is Mohit Bansal. I'm one of the biotech and pharma analysts at Wells Fargo. And I'm joined by once again with Helen Torley, the CEO of Halozyme with us. Thank you very much for your continued support. I have been hosting you for 5 years in a row. Thank you very much for joining us today.

It's great. Very excited to be here in Boston.

Thank you. And I was looking at the stock chart. Stock is up 40% in last 1 year, 50% year-to-date, and much of it is in the last 3 months. So you have done an amazing job in last 1 year, doing all those deals and building the platform. Can you talk a little bit about the journey with these deals and all? And how do you see the future of Halozyme beyond the ENHANZE platform at this point?

That's great. Well, for those less familiar with Halozyme, we focus on subcutaneous drug delivery, and we have 4 subcutaneous delivery technologies now. The first and the largest to date is ENHANZE, and we also have an auto-injector platform as well. At the end of last year, we acquired 2 hyperconcentration technologies, Hypercon and Surf Bio. And what we are hoping to do is to create each of these into a compounding platform engine for Halozyme. As Mohit says, we're just coming off a record quarter in the second quarter. Revenues of $481 million, up 48%. Royalties important, up 50% to over $300 million. And the drivers of that today is ENHANZE. We've got 2 key drivers within our ENHANZE platform, our products that launched in 2020 and 2023. That's DARZALEX subcutaneous and VYVGART Hytrulo. Now even although those launched several years ago, they are showing phenomenal growth. They are terrific products, where the companies have got new indications. They're expanding to new prescribers, and we're getting the benefit of longer duration of therapy in some of these indications as well. So that is going to be a continued growth driver for Halozyme. But what we reported in the second quarter, and I think what got people very excited was that the next set of launches, which occurred more recently, which includes Ocrevus subcutaneous, plus Opdivo and Rybrevant subcutaneous, those grew 80% sequentially. And those are becoming more important royalty revenue drivers for Halozyme driving that record performance. And we're not done there. Talking about where we're going. We have 13 products that we project will be in the clinic with ENHANZE by the end of this year. We will have 2 Hypercon products in clinical testing at the beginning of next year. And as Mohit mentioned, this year, we've signed 5 new deals to date, 3 ENHANZE, 2 with Hypercon, which are expanding us into new areas, including ADCs and nucleic acids. That is what is leading to this continuous engine of new products in the clinic that will be our future royalty revenue streams layering on top of the 2 drivers I already talked about. So an incredibly exciting time, and our future will be multiple ones of these compounding platform engines just driving durable long-term royalty revenue growth for Halozyme.

Got it. Very helpful. And then talk a little bit about these deals. Like, I mean, these deals happen quite in a cluster where like 3 of those ENHANZE deals and 2 Hypercon deals -- was there a trigger there? Or this is always in the making and then it's just that it got executed during -- in the last 6 months or so?

Yes. And I'll add we did 5 this year, but we actually signed 3 ENHANZE deals in December as well. So it's been an amazing month. I mean it's a record performance in the history of Halozyme. What I think has happened, Mohit, is that this is the time for subcu therapy. There is a recognition that we find broadly across pharma and biotech that to be competitive to deliver against the patient expectations, you need to have subcu delivery ideally in the patient's home, ideally in some indications in a small volume auto-injector. And when we look at the types of products that are in development to date, there is a high concentration of immunology and inflammation -- nephrology, GI, neurology. And these are disease areas where the goal of pharma companies, but also of the patient is "I want to be able to treat myself at home. I don't want to have to visit the doctor's office. I don't want to sit in an infusion suite." And so we happen to be at a marvelous time where subcu therapy is the expectation, and Halozyme has the leading technologies. With ENHANZE, we have the best-proven, best-validated subcu technology. But our Hypercon and Surf Bio technologies are delivering against this desire to have small volume in an auto-injector at home. That's a value proposition, and that's what we've seen just a total change in before Halozyme having to go out and talk to people about subcu delivery, have you considered it to companies calling us and saying, we want ENHANZE because we want to do X. We want Hypercon because we want to do X. And so it is this recognition that subcu delivery is, frankly, a commercial mandate in these additional disease areas. There's still an interest in oncology, but what we've done is expand into multiple different areas and multiple different modalities. We're not just working with antibodies today. We're beginning to work with ADCs. We're working with nucleic acids. All of this is beginning to expand our TAM, and that's all what's driving this flurry of deals, and it's going to continue. We've said we're going to sign at least one additional deal this year.

This is interesting. So basically, if I understand correctly, and correct me if I'm wrong. So basically, what you're saying is that earlier, like at least for the initial launches for pharma companies, it was more of a defensive strategy to launch a subcu, but it seems like now it is an offensive strategy or maybe expansion strategy that we are not just protecting the business. We are like with a subcu delivery in those immunology or nephrology indication, the product could be much bigger than it would be without a -- without subcu delivery.

You hit on great points, and I'll just use 2 examples that I think have opened up people's recognition that the subcu therapy grows the market. So DARZALEX is a terrific example. When we started working with J&J, it was a 4- to 6-hour IV infusion. Sarclisa was being developed, and that was a 2-hour IV infusion. So J&J wanted to have a more convenient therapy for patients. and went with our delivery, which is a 3-minute subcu versus these hours in the infusion suite, a massive difference for patients. But what that also did was allow them to penetrate more rapidly and more deeply into frontline patients. Now why is that important? The frontline population is the biggest population in multiple myeloma, but it's also the population who stay on therapy for the longest. And so that's why we're seeing this amazing growth. It's a large population, but it's also compounding because year after year, patients are repeating their prescriptions. VYVGART is another example. So VYVGART Hytrulo, I'm sure many of you know VYVGART launched in myasthenia gravis as an IV. It then launched a subcu in a vial that the patient had to pull up. It was a great advance for patients, but it took a lot of steps, and it took a number of minutes for the patients to do. In the middle of last year, they launched the prefilled syringe, 5-mL prefilled syringe that the patient self-administer at home in just 20 seconds. That has led to exponential growth. VYVGART delivering $1.5 billion in the quarter, 60% year-over-year growth and that growth really driven by the prefilled syringe. What argenx has talked about is new prescribers are able to prescribers are able to prescribe because not all immunologists or rheumatologists have IV infusion capacity. Patients are starting therapy much earlier in the disease because it's easier for the physician to do. So exactly to your point, Mohit, this is just -- people recognize that, yes, it's the best offering for patients, but for the companies that obviously gives them competitive moat. But the addition to grow the product into new treatment settings out, such as the community hospitals or the physician office or home as well as expand into new populations is all what we're hearing from partners what they want to capture. They want what J&J has with DARZALEX. They want what argenx has with VYVGART.

Clearly makes sense. So to that extent, so the 3 ENHANZE deals this year and a couple of them last year, is this a mix of defensive plus offensive? Like how would you correct it? Because you cannot -- you have not disclosed the assets, but again, can you talk a little bit about that?

I think a common theme is the best competitive profile to get the best market share possible and the best growth. So that all kind of delivers for the company. The patient is a winner in all of this by having a more convenient therapy, but the companies are winning. So if you want to launch into a market today like asthma or inflammatory skin disease, you want to have a less frequent auto-injector at home as an example, that would be the Hypercon. But for the ENHANZE ones, one of the most exciting deals, I think, is with GSK. It's interesting. That is where they're going to be using ENHANZE to see if with their ADCs, they can reduce the Cmax, so the peak concentration in the blood versus the IV. Why is that important? Well, there can be some toxicities associated with a high Cmax. And so with ENHANZE subcu because it's absorbed more slowly, you get the same exposure. So the same efficacy is the theory, but less of the peaks, so less toxicity. So that could enhance the competitive profile of their ADCs so they can get greater market share. So that is the common theme here. It's a win-win, and that competitiveness can allow greater expansion into the new populations, et cetera. So we are not simply a convenience play, we are a market growth driver for these companies.

Clearly. Like VYVGART is probably the best example of that. I mean like the product wouldn't have been as big without this kind of offering there. Super helpful. And to what extent clarity on IRA has played a role here?

Yes, the IRA has been a little bit of a question for our investors. I will say pharma and biotech have paid no attention to the question as to whether a co-formulated product with ENHANZE would or would not be bundled with the lead product because they're coming to us for competitive differentiation. So it was never an accelerator of business for us. And so we actually are just pleased that with the last guidance, it seems like -- it's still draft guidance, but it will be finalized. It's clarify for people to say, all right, there's no upside, but we also can say because of the IRA and the One Big Beautiful Bill, there's also minimal to no impact of the IRA to Halozyme's revenue. So it's in the rearview mirror. We're not talking about it anymore. And I'm really thrilled about that because it just -- it got undue prominence for its potential impact at any point in time. But I think that's clear now, and we seldom get questions on it.

No, definitely.

Investors. Never from pharma or biotech.

No, we are a nervous group of people. Super helpful. So you have had many new launches in the last couple of years, Ocrevus, Rybrevant, Opdivo, Tecentriq. How would you characterize how well your partners have performed on the execution of those products, especially Ocrevus. I mean Roche was talking about this being like a defensive product, but they are doing really well actually there as well, trying to protect the market from the competition, but now they are actually growing this business. So talk a little bit about that. And I mean that has been the upside surprise for last couple of quarters. So can you talk a little bit about that?

Yes. I mean, obviously, our partners have all performed very well. And just the 3 products you were talking about there, Mohit, for Opdivo, Ocrevus and Rybrevant subcu, that's the group that grew 80% quarter-over-quarter. Each product is a little bit different in terms of what drove that. So if you will, I'll just spend a moment on them. So for Ocrevus, subcu, the value proposition there is the patient can have a multi-hour IV infusion or they can have a 10-minute subcu. So enormously positive. Now what Roche had said at the time of launch is that the availability of the subcu because of the time and because you don't need IV infrastructure, it would expand access. It would allow more patients to be treated because you could be treated in a community hospital as opposed to an academic hospital, the doctor's office and there'll be higher patient throughput. And so they put a number in that and said that the total potential of Ocrevus IV and subcu would increase to CHF 9 billion, with CHF 2 billion being just due to the subcu expansion. I think some people thought that meant that they weren't going to expand and convert the IV, and that's not what's happened. After the launch, about 50% of patients who are on the subcu Ocrevus are coming from IV switches, but 50% are new. And so they're getting the double benefit of expanding the market while giving the patient a better treatment experience. And so we believe that entire CHF 9 billion is the addressable market for Ocrevus subcu. They grew from 17,500 patients in the fourth quarter to 44,000 patients on therapy in the second quarter. So phenomenal growth. We're going to continue to see that very nicely. So great launch. And I would just think differently about what the whole TAM is for Ocrevus subcu to include those IV patients as well. If we turn to Rybrevant subcu, that is a product. The IV is 6 to 7 hours. It has a high rate of infusion-related reactions that limited its uptake. The conversion to subcu is a 5-minute injection and it has a fivefold lesser rate of infusion-related reactions. It is a game changer for the adoption of our Rybrevant subcu. And so J&J did talk in the quarter about the growth was up 60%, driven by the availability of Rybrevant subcu. That is a product that just got its J-code on July 1. So we're going to see improved uptake in the U.S. in the next quarters, now that the reimbursement is in place. They got priority review for head and neck cancer, so a new indication coming forward and potentially data in the future in colorectal cancer. So we're very excited about that launch. And I think you're going to see with J&J them doing exactly what they've done with DARZALEX, just keep investing in great new indications because it's fabulous science, and we're going to benefit from that. And a word on Opdivo. Opdivo is converting. They were about 15% conversion. They feel they'll get to 30% to 40% conversion. I think they might beat that just based on the pace that they're on, but very nice conversion there. So it speaks to our partners, the subcu is a part of their future. It's part of how they're driving revenue for the company. We're integral not just an afterthought. So we're finding the execution is aligning to their strategic intent, which is to drive more revenues for the company.

Very helpful. Thank you for that. I think the other aspect is that -- so you have talked about 13 additional ENHANZE launches starting 2029. That's a lot. So are the economics with the newer deals any different from the previous one? Because at least like the mechanism always had built-in mechanism for like if there's no patent, there's a lower royalty. So probably not, but would love to understand that.

Yes, happy to talk about that. And what we have talked about is based on the number of products we expect to be in development for ENHANZE by the end of this year. It would be up to 13...

Up to 13...

Up to 13 launches, beginning in '29 and running through about 2032, '33. I'll just highlight that in addition to that, we're going to have Hypercon launches with the first 2 Hypercon launches potentially in the early 2030s as well. So -- and we're going to keep adding to that with the new deals that we're signing. We've got new partners moving into the clinic this year and next year that is going to further expand that. In signing the new deals, historically, we signed a lot of exclusive deals. We now have more of a mix on ENHANZE of exclusive and nonexclusive deals. And what's very exciting is that we've continued to be able to get included in those deals, very attractive long-term durable royalties. A minimum of 10 years, potentially longer with co-form patents. And in almost every case, there is a potential in these contracts to earn the mid-single-digit royalties towards the lower end of our range, but still mid-single-digit royalties. And we've been changing the structure of these, Mohit, that there isn't necessarily always a 50% step down. It could be a smaller step-down because we're starting low and going up. So very attractive economics on ENHANZE. If I turn to Hypercon, that's where we are very excited to have signed 5 Hypercon deals so far. You'll recognize the companies we're working with. They're terrific companies, J&J, Lilly, argenx, Vertex and Oruka. In that instance, it's the same structure overall where we get milestones. And in that instance, all of these are mid-single-digit royalty deals. They start and stay in the mid-single digits and so very attractive royalties in that as well. And each of these is going to expand. Each of these will be separate royalty streams, and this is why we love the phrase of the compounding platform engine. Years ago, people -- a few years ago, we're very focused on DARZALEX, what's happening. This growth that we're seeing now is really driven by the fact that on ENHANZE, we have 6 royalty streams that are -- have got significant growth already and will continue to grow. Same is going to happen on Hypercon.

Diversification. Perfect. I had last one DARZALEX question, sorry. I won't to talk about everything else as well. So is there any update on the U.S. patent reissue for DARZALEX here? And I think the question we get a lot is that 2029 to '32 and then beyond that, how should we think about DARZALEX royalties at this point?

Yes. For the specific DARZALEX, just to say, this is a reissue pattern of a manufacturing patent that would have the effect of maintaining our royalty rate on DARZALEX at the mid-single-digit royalty rate between September 2027, which is when in our projections, we currently step down. And it would move out to a step down in March of 2029.