Halozyme Therapeutics, Inc.

Good afternoon. Thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Halazim third quarter 2021 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the count key. Thank you. Mr. Al Khaldani, Vice President of Investor Relations and Corporate Communications, please begin your call.

Thank you. Good afternoon and welcome to our third 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 today will be Dr. Helen Torley, Alazime's 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 third 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 will 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 our CEO, Dr. Helen Torley.

Thank you, Al. I'm pleased to report on our strong third quarter financial results which reflect the continued momentum and growth of our enhanced business. We reported third quarter revenues of $115.8 million. This revenue was driven by record quarterly royalties of $58.6 million, which represents 145% year-over-year growth, and by collaboration revenue of $32.2 million, which included a $30 million commercial milestone from Janssen, resulting from the continued strong growth and performance of Darzelek's subcontinents. Third quarter GAAP diluted earnings per share was $1.48, including an income tax benefit related to the release of our tax valuation allowance, and non-GAAP diluted earnings per share was $0.55. As a result of the strong year-to-date performance, we are increasing the lower end of our revenue and operating income guidance for 2021. Revenue guidance is increased to $430 to $445 million, which represents growth of 61 to 66% over prior year. Operating income guidance is now $265 to $280 million, representing 84 to 94% growth over prior year. In addition, we have one tax-related adjustment to our GAAP earnings per share guidance, now that we have demonstrated a pattern of durable profitability. This results in an increase to our gap earnings per share guidance to a range of $2.60 to $2.70. We're also raising the lower end of our non-gap earnings per share guidance to a range of $1.90 to $2. Elaine will discuss our updated guidance in detail along with the rest of our financial results later in the call. Let me turn now to slide three and provide some details on key third quarter progress and events, and I'll begin with royalty revenues. Royalties during the third quarter were $58.6 million. This represents 145% growth year-over-year and 28% sequential growth, following what had previously been a record quarterly royalties. Strong royalty growth has been driven primarily by the successful ongoing global launches of Janssen's subcutaneous forms of Darzalex, which utilize our enhanced technology, and by increasing contributions from Roses Fezgo. For the full year 2021, we continue to project a more than doubling in our royalty revenues over 2020 based on the anticipation of continued growth primarily driven by Darzalex subcutaneous. We're delighted to see this continued robust growth in this high margin recurring revenue stream. I'll now provide some highlights on key commercialized products which are listed on slide four. There are five products now approved in most major global markets using our enhanced technology. The most recently launched products utilizing the enhanced technology, which we call our Wave 2 products, are Darzalex SC, which is also called Darzalex FastPro, and also Fezgo, which is a fixed-dose combination of Rocio's Progetta and Herceptin. In each case, the subcutaneous version can be administered in just minutes compared to the multi-hour treatment times for the IV versions. This can mean reduced burden of treatment for patients and reduced use of healthcare resources. Globally, more than 500,000 patients have received commercial products utilizing Enhance. Turning to slide five, I'll now provide some color on Darzalex and Darzalex subcutaneous. During the third quarter, Janssen's parent Johnson & Johnson reported worldwide sales of Darzalex, including both the IV and subcutaneous forms, of $1.58 billion, an increase of 42.9% year-over-year on an operational basis. On its third quarter conference call, J&J further stated this growth was driven by increased penetration of the subcutaneous formulation in the U.S. and Europe, continued launches globally, and share gains, with a reported nearly five points of share growth in the United States across all lines of therapy in the third quarter. Turning now to subcutaneous Darzalex, according to data from Symphony Health, in the United States, Darzalex FastPro achieved 72% share of sales in the month of September. This is an increase from 66% share at the end of June. The chart on the right illustrates a percentage of total Darzalex sales at Darzalex FastPro represented during the last month of each of the last four quarters in the United States. What you can clearly see is a strong growth trend, which we project will continue. Driving potential additional opportunity, Janssen recently announced several regulatory achievements that can support continued growth for subcutaneous Darzalex. Beginning with multiple myeloma, in July, Janssen received FDA approval for Darzalex Fastro in combination with pomalidomide and dexamethasone for patients with multiple myeloma after first or subsequent relapse. Moving now to light chain amyloidosis, in October, Janssen received approval from the China National Medical Products Administration for the use of Darzalex Faspro for the treatment of newly diagnosed primary light chain amyloidosis in combination with bortezomib, cyclophosphamide, and dexamethasone. This followed approval from regulatory authorities in Japan for subcutaneous Darzalex for systemic light chain amyloidosis in August. With the demonstrated sales and regulatory momentum, we continue to expect that Darzalex will be a driver of royalty growth for Helizine for much time to come. I'll now move to our second Wave 2 product, Fezgo, which was launched in the third quarter of 2020 in the United States and began launching in the first quarter of 2021 in Europe. In the third quarter, Fezgo built on the momentum we saw in the first and second quarters of the year, Roche reported third quarter Fesco sales of 117 million Swiss francs, up from 67 million Swiss francs in the second quarter, representing more than 70% sequential growth. We're still early in the rollout of the ex-US country launches, where reimbursement decisions can take a year or longer from the time of regulatory approval. And I'll just close with a brief comment on the Wave 1 launch products. Sales in Q3 were overall stable compared to Q2. Let me now move to slide six and a discussion of the enhanced development portfolio, including a few recent partner highlights. Excitingly, we project we will exit 2021 with 16 products in development, including three products in phase three. I'll begin my review with the potential next wave of launches, which are these Wave 3 launch products. Based on historical development timelines, products that are in Phase 3 represent potential launches in the 2023 to 2025 timeframe. Today, we have three products that are in Phase 3, and these include Bristol's Nabolimab, Roche's Ticentric, and Ergenix's F-Cartigimod. These three products alone have projected sales of greater than $18 billion in 2024 based on analyst consensus. For Halazan, where we receive on average a mid-single-digit royalty of net sales of the sub-Q product, this represents a very attractive new addressable market opportunity upon Etsy product approval potentially beginning in 2023. Moving to the earlier pipeline, which the products are currently in or which have completed Phase 1. These products, as they continue in development, based on historical timelines, have the potential to launch in the 2025 to 2027 timeframe, forming the Wave 4 launches. Today, we have 10 products in Phase 1, and we continue to project we will exit 2021 with 13 Phase 1 studies completed or ongoing, with three new studies starts expected during the remainder of the fourth quarter. This diversified and growing pipeline of products utilizing enhance is setting up the potential for multiple waves of future product launches, potentially starting in 2023, that we believe will deliver long-term revenue growth. With our partners making such strong progress advancing studies across the entire portfolio, let me share just a few highlights and updates. I'll begin with Ergenix's F-Cartigimod, which is currently leading the race to be our next potential launch within hands in 2023 and could be the first of the Wave 3 launches. In the United States, the PDUFA date for the IV form of F-Cartigimod in its first indication of Myasthenia gravis is December 17th of this year. Launches outside the United States are projected shortly thereafter, with Japan projected in Q1 2022 and Europe in the second half of 2022. the data readout of the ongoing Phase III trial for subcutaneous F-critiginide with enhanced in myasthenia gravis is expected by Argenix in mid-2022, supporting the potential for a 2023 launch. Myasthenia gravis is the first of four potential indications currently being evaluated in subcutaneous with enhanced. The additional indications are chronic inflammatory demyelinating polyneuropathy, idiopathic thrombocytopenic purpura, and panthegus. The