Halozyme Therapeutics, Inc.

Thank you all for standing by, and welcome to the Hallo Zions second quarter 2021 financial results conference call. All lines will be in listen-only mode until the question and answer session of today's conference. To ask a question over the phone by that time, you may press the star key followed by the number one. Please also note that today's call is being recorded. I'll now turn the call over to your host, Al Khaldani. Sir, you may now begin.

Thank you. Good afternoon and welcome to our second quarter 2021 financial results conference call. In addition to our press release issued today after the close, you can 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, Halos Arms president and chief executive officer, who will provide an update on our business, and Elaine Sun, our chief financial officer, who will review our financial results for the second quarter. On today's call, both GAAP and non-GAAP financial measures will be discussed. The non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation. During the call, we'll be making forward-looking statements. I refer you to our SEC filings for a full listing of the risks and uncertainties. I'll now turn the call over to Dr. Helen Torley.

Thank you, Al. I'm pleased to report that our strong second quarter financial results and outlook have resulted in an increase to our 2021 financial guidance. We now expect to achieve $425 to $445 million in total revenue, an increase from our initial guidance of $375 to $395 million, with commensurate increases also in our GAAP and non-GAAP earnings per share guidance. This substantial increase in our outlook is supported by our recent new enhanced collaboration with Veve Healthcare and higher than previously anticipated revenues from royalties. We reported second quarter revenues of $136.5 million. This was driven by record quarterly royalties of $45.8 million and $60 million in collaboration revenues. Second quarter, GAAP diluted earnings per share was $0.62 and non-GAAP diluted earnings per share was $0.66. Once again, we achieved these strong results against the backdrop of the ongoing global COVID pandemic. These results have been accomplished through the strong performance and hard work of our partners, our contract manufacturers and suppliers, and the entire Halazan team. Beginning on slide three of our earnings presentation, I'm excited to discuss our 11th enhanced collaboration, which we entered into with Veve Healthcare in June. Veve is a global specialist HIV company that is majority owned by GlaxoSmithKline and is dedicated to delivering advances in therapies for HIV treatment and prevention. With our enhanced technology, Veve is seeking to enable development of ultra-long-acting medicines for HIV to meet the evolving needs of patients. Under the terms of the agreement, VEVE exclusively licensed four HIV small and large molecule targets, which resulted in a $40 million upfront payment to Halazine. In addition, VEVE is obligated to make potential future payments of up to $175 million in development and commercial milestones for each target and to pay a mid-single-digit royalty to Halazine on net sales of any commercialized medicines using Enhance. The first plan utilized the enhanced technology to evaluate an ultra-long acting form of cabotegravir with the potential for dosing every three to six months for the prevention of HIV. Cabotegravir is currently approved for the once-monthly treatment of HIV, and every two-month dosing regimen is currently under review by the FDA. During GSK's Investor Day in June, representatives of VEED commented that they would like to use Enhance to expand the opportunities for ultra-long-acting regimens, combining cabotegravir with the VEED pipeline products for treatment and for pre-exposure prophylaxis, with the goal of offering the first self-administered long-acting treatment regimen, which could potentially result in fewer clinic visits for patients. Our collaboration with Vive is significant as it highlights the versatility of Enhance and expands the Enhance technology opportunity in multiple ways. It's the first Enhance collaboration with a focus on infectious disease. It includes both small molecule and large molecule drugs, highlighting the often under-recognized versatility of Enhance. And it explores the potential to replace current daily oral therapies with long-acting injectable therapies. I'm pleased to say that collaborative work is already well underway, with the VEVE and Halozyme team working together on the first cabotegravir study, with a projected Phase I study start by the end of this year. Now, this is our second new enhanced collaboration signed within the last eight months, and we're working hard to continue this new deal memento and are actively engaged in discussions with a range of biotech and pharma companies. Let me turn now to slide four and we'll discuss our strong royalty revenue growth in the second quarter and the outlook for the year. Royalties during the second quarter were $45.8 million. This represents 189% growth year over year and 24% sequential growth, following what had previously been our record quarterly royalties. Strong royalty growth continues to be driven primarily by the successful ongoing global launches of Janssen's subcutaneous forms of Darzalex, which utilize our enhanced technology. Roche's Fezgo is also beginning to contribute in a more meaningful way as global launches continue. For the full year 2021, we now project a more than doubling in royalty revenues over 2020, based on the anticipation of continued growth primarily driven by Darzalex SC. We're delighted to see robust growth in this high margin recurring revenue stream. I'll now provide highlights of our key commercialized products. This is on slide five, and I'll begin with the discussion of Darzalex. During the second quarter, Janssen's parent, Johnson & Johnson, reported worldwide sales of Darzalex, including both the IV and SC forms, of $1.4 billion, up 53.8% year over year on an operational basis. During the call, J&J management stated that 60% of Darzalex sales worldwide are now the subcutaneous form, which utilizes our enhanced technology, and that the 60% share is in the U.S. and also outside the United States. According to data from Symphony Health, Darzalex FastPro reached 66% share of sales in June in the United States. On the right side of the slide is the percentage of total Darzalex sales that Darzalex-Faspro represented in the U.S., looking at the last month of the last four quarters. I think you will agree this is a very impressive trend. Based on J&J's comments about robust adoption of SC and expansion into additional patient populations, as well as the most recent shared data we have seen from Symphony in the U.S., we project that conversion will continue increasing from current levels. Supporting the future growth of Darzalex SC, Janssen announced a number of significant regulatory achievements during the second quarter. Last month, Janssen received FDA approval for Darzalex Faspro in combination with pomalidomide and dexamethasone for patients with multiple myeloma after first or subsequent relapse. This marked the sixth indication for Darzalex Faspro in the treatment of multiple myeloma in the United States. And in June, Janssen was granted two marketing authorizations in Europe for Darzlox SC in two new indications. The first authorization was for use in combination with flacoflossomide, bortezomib, and dexamethasone in newly diagnosed adult patients with systemic light chain amyloidosis, making Darzlox SC the first approved therapy for AL amyloidosis in Europe. The second authorization was for use in combination with pomalidomide and dexamethasone in adult patients with relapsed or refractory multiple myeloma. With strong sales and regulatory momentum, we continue to expect that Darzalex will be a driver of royalty revenue growth for Helizine for much time to come. Moving now to slide six, in addition to Darzalex, there are four other products now approved in most major global markets using our enhanced technology. Globally, more than 500,000 patients have received commercial products utilizing Enhance. I'll begin with Fezgo, which, like Darslex FastPro, is one of our recently launched Wave 2 products. Fezgo, which is a fixed-dose combination of two of Roche's therapeutic antibodies, Progetta and Herceptin. As a reminder, Fezgo is administered in five to eight minutes compared to an administration time of several hours for the IV. Fesgo was launched in the US in the third quarter of 2020 and in initial European launch markets during the first quarter of 2021. Now that Roche is several quarters into the launch, we're beginning to see a more noticeable increase in sales of Fesgo. In the second quarter, Roche reported Fesgo sales of 67 million Swiss francs, up from 29 million Swiss francs in the first quarter. This strong sequential growth is driven by continued US adoption and use and by uptaking Europe following reimbursement and launches in a growing number of countries. On its recent half-year results call, Roche noted that as we would anticipate, Fezgo is cannibalizing sales of the IV form of Progetta. Interestingly, Progetta is now Roche's largest oncology drug with sales of 2 billion Swiss francs in the first half of 2021. And notably, Fesco is continuing to launch in new markets, as evidenced by the recently announced approval in Canada. I'll move now to our Wave 1 launch products. Roche's Madthera SC, which is also called Rituxan Hycella, and Subcutaneous Herceptin and Herceptin Hylecta continue to experience modestly declining sales due to the ongoing impact of biosimilars. Meanwhile, Cakeda continues with its commercialization of the immunoglobulin therapy, Hycuvia. Let me now move to slide seven and a discussion of the enhanced development portfolio, and I'll begin with an overview and then move into a brief review by partner. Let's begin with the next wave of potential launches. These are called the wave three launch products. These are products that are today in phase three development, and they include Bristol's Novolumab, Roche's Ticentric, and Ogenix's F-Cartitimod. that based on historical development timelines, products that today are in phase three development represent potential launches in the 2023 to 2025 timeframe. We had expected a fourth product to initiate a phase three study this year. Recently, the partner for that program informed us that they now expect to initiate the phase three study in 2022. Moving to the earlier pipeline, we expect five new products will enter clinical development during 2021. We've made good progress here already with two new clinical development starts during the first quarter. With the ongoing programs and these projected starts, we project a total of 16 products will be in clinical development with Enhance by the end of 2021. The products that are today in phase one development represent our wave four potential launches in the 2025 to 2027 timeframe. This advancing pipeline of products utilizing Enhance is setting up, as you've heard, the potential for multiple waves of future product launches that we believe will deliver long-term growth in revenues, profitability, and cash flow. Let me now provide that brief discussion of select partners. Beginning with Bristol-Myers Squibb, After indicating the start was imminent on our first quarter results call, we're pleased to confirm Bristol does the first patient in the phase three study of nivolumab using enhanced technology for patients with advanced or metastatic clear cell renal cell carcinoma during the second quarter. In addition to nivolumab, Bristol has initiated three phase one studies with enhanced. These include studies of anti-CD73, TIM3, and the fixed dose combination of nivolumab and rilatilumab. Moving to Horizon Therapeutics now. Horizon continues to advance its subcutaneous form of tepeza with enhance. As we announced on last quarter's call, Horizon has completed dosing of their Phase 1 study. Horizon recently provided an update that it makes plans to have initial discussions with the FDA later this year about moving the subcutaneous version forward. If development is successful, Horizon hopes to potentially shorten drug administration time, reduce healthcare practitioner time, and offer patients suffering from thyroid eye disease additional flexibility and convenience. We look forward to further developments in this exciting program for a drug that, according to Horizon, has an anticipated peak sales potential of $3.5 billion. Moving next to Argenix, Argenix continues development of the subcutaneous form of F-partigimod within hands in four Phase III trials and four separate potential indications. The four indications being studied are chronic inflammatory demyelinating polyneuropathy, or CIDP, which is a neurological disease leading to impaired motor function. The second is immune thrombocytopenia, which is a chronic bruising and bleeding disease. Thirdly, there's pemphigus vulgaris, which is a chronic disease characterized by severe blistering of the skin. And finally, myasthenia gravis, or MG, a chronic disease that causes muscle weakness. On its recent half-year results call, Argenix indicated they expected complete enrollment in the ADAPT-SC trial, which is evaluating F-cortisimod SC in myasthenia gravis by the end of 2021 and to have top-line results in the first half of 2022. This is consistent with the potential for approval and launch in the 2023 to 2025 timeframe. And lastly, Orogenics, development continues with its second nominated target, ARJX117, which is being evaluated in a recently initiated Phase 1 study in healthy volunteers. I'll move now to Roche. Roche is continuing with two products in development utilizing PANS, Dicentric and Okravis. Ticentric, which is now Roche's second largest oncology drug, with sales of 1.6 billion Swiss francs in the first half of 2021, is being studied in an ongoing phase 3 trial with Enhance in stage 4 non-small cell lung cancer. And Roche also continues with its phase 1 study evaluating SC administration of Ocrevus with Enhance. Ocrevus is another approved blockbuster product and is indicated for patients with multiple sclerosis. We're pleased with this progress our partners are making in advancing therapies using the enhanced technology. This progress is setting up multiple ways of potential future approvals and launches that can drive long-term revenue growth for Halazine. And we see further growth opportunity even beyond this exciting pipeline I've just described. In addition to new development programs arising from new potential collaboration agreements, we also have the opportunity to expand the pipeline through current partners nominating new targets and advancing them into the clinic. With current partners having access to more than 20 open slots, we're excited for the growth opportunity that exists here. Products moving into development in the next 12 to 18 months as a result of new collaborations or new nominations by current partners have the potential to create our fifth wave of launches in the 2027 to 2029 time period. I'll move now to slide eight to discuss how pipeline progress drives revenues for Helizan. We're again reiterating our three-year outlook for projected revenues from milestones. You can see here that for 2021 through 2023, we continue to project $400 to $450 million in milestone revenues. This reflects our expectations for partner development and commercial milestones during that period and new deals. The blue bars represent our three-year outlook since 2019, and the green bars represent actual annual milestone revenues, demonstrating that we're performing well against these projections. Specifically, with six months still remaining of our 2019 to 2021 projection period, we have already achieved near the top of the projected range of $225 to $300 million with $274 million in milestone revenue through June of 2021. And at the halfway point for our 2020 to 2022 projection period, we're making strong progress with $214 million in milestone revenues against the projection of $350 to $450 million. This near-term milestone revenue progress is an important and strong indicator for future royalty revenues. We project royalty revenue potential of approximately $1 billion in 2027 based on non-risk-adjusted revenue projections for programs that we currently have line of sight to and assuming global launches in all indications. We're certainly excited by this ongoing momentum, growth, and the growth potential for an enhanced technology in the franchise. At the same time, we continue to evaluate the potential for new technology platform expansion through acquisition, with the goal of accelerating and extending our long-term revenue growth. We see the opportunity to create incremental value for other platform technologies, applying Helizine's proven partnering and commercialization capabilities. As we've said before, Enhance is still early in its growth cycle, so we have the opportunity here to be highly selective in what we choose. Now with that update, I'll turn the call over to Elaine for a discussion of the second quarter financial results.