Halozyme Therapeutics, Inc.

Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Halozyme Fourth Quarter and Full Year 2022 Financial and Operating 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 during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Please note that this event is being recorded. I'll now turn the call over to Tram Bui, Halozyme's Vice President of Investor Relations and Corporate Communications. Please go ahead. Thank you, Operator.

Good afternoon and welcome to our fourth quarter and full year 2022 Financial and Operating Results Conference call. In addition to the press release issued today after the market closed, 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, Halazan's president and chief executive officer, who will provide an update on our business. And Nicole Labrosse, our chief financial officer, will review our financial results for the fourth quarter and four-year 2022, as well as guidance for 2023. On today's call, we will be making forward-looking statements I refer you to our SEC filings for a full list of risk 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 Helen Torley.

Thank you, Tram, and good afternoon, everyone. I'm very pleased with our fourth quarter and full year 2022 results, which continues to reflect strong financial and operational performance across the entire company, creating positive momentum and positioning Halazan for an exciting 2023. In 2022, we extended our leadership as a subcutaneous drug delivery platform company through the continued expansion and progress of our enhanced portfolio and through the acquisition of Antares Pharma and the small volume auto-injector platforms. The acquisition also resulted in a diversification of our revenues with the addition of the autoinjector and specialty testosterone products businesses. Moving to slide three, we achieved record revenue of $660 million in 2022, an increase of 49% year over year. This strong performance was primarily driven by the continued growth of our enhanced portfolio and includes revenues from our acquired autoinjector and specialty product businesses. First quarter 2022 revenue was $181 million, an increase of 78% over the same period in the prior year, resulting from continued growth of enhanced royalty revenues, incremental product sales and royalties from our small volume auto-injectors, and sales of Diacet, our commercial testosterone replacement therapy product. As we look ahead, we enter the new year with compelling growth opportunities. Our enhanced capabilities support our goal to expand the number of current and new partners utilizing Enhance, our high-volume auto-injectors plus Enhance, and our small-volume auto-injectors. As a result, Halozyme is well-positioned for continued growth. This growth is reflected in our guidance for 2023. We project record revenues of $815 to $845 million, growth of 23 to 28% over 2022. And we project EBITDA of $415 to $440 million, greater than 30% year-over-year growth. In 2023, we have multiple drivers of new opportunity contributing to near and long-term growth. These include two potential new commercial launches for enhanced for subcutaneous F-gratidumab and subcutaneous atezolizumab. Current partners advancing new targets into the clinic and advancing their development programs. And it is our goal to science. a new enhanced agreement, an enhanced plus high volume auto-injector agreement, and a small volume auto-injector agreement. Moving now to slide four, I'll provide an overview of the royalty revenue projections. For 2023, we project total royalty revenue, including enhanced and our auto-injector devices, of $445 to $455 million, growth of 23% to 26% from royalty revenue of $360 million in 2022. This guidance reflects continued projected growth from our strong fourth quarter performance, in which total royalty revenue was a record $106 million, which represented 69% growth over the fourth quarter of 2021. Our Wave 2 products, Darvilex Subcutaneous and Fezgo, continue to drive this strong royalty revenue growth. The robust and rapid adoption of Darzalex subcutaneous in the U.S. and Europe demonstrate that adoption faces no real barriers in either geography. Bezgo, growing rapidly in Europe, demonstrates the acceptance of our fifth product launch, utilizing Enhance. The strong adoption of our Enhance subcutaneous products by physicians and patients worldwide supports our excitement for the upcoming Wave 3, 4, and 5 product launches. I'll now move to slide five, which focuses on Darzalex, which is continuing on its remarkable growth trajectory. Darzalex Fast Probe, the subcutaneous version of Darzalex in the United States, continues to grow share of total sales, achieving 86% share of total sales of Darzalex by the end of the fourth quarter of 2022. Importantly, total Darzalex sales in 2022 also continue to demonstrate strong growth. Janssen's parent, Johnson & Johnson, reported full-year 2022 worldwide sales of Darvilex, including both the IV and subcutaneous forms, of $8 billion, an increase of almost 40% year-over-year on an operational basis. For the fourth quarter, worldwide sales of Darvilex were more than $2 billion, an increase of almost 34% year-over-year on an operational basis. Johnson & Johnson highlighted on their year-end results call that the increase in Darzalex sales was driven by share gains in all regions, continued strong market growth, and continued uptake of FASPRO. With the opportunity for more use in frontline therapy, analyst projections for Darzalex total revenue are estimated to achieve more than $16 billion in annual sales by 2028. We predict Darbolex FastPro will continue to grow for years to come as a result of this strong growth in Darbolex, where the vast majority of use is and will continue to be Darbolex Subcutaneous. Our second wave 2 commercial product is Rotus Fezgo, which is a combination of Progetta and Herceptin for subcutaneous injection for patients with early and metastatic HER2 positive breast cancer. In 2022, Fesco continues to show good uptake, with Roche reporting 740 million Swiss francs in sales for the full year 2022, well on the way to becoming a $1 billion brand. With 33% conversion in the early launch countries, Fesco offers a 5-8 minute subcutaneous administration time compared to ours with standard intravenous administration. On their recent fourth quarter call, Roche stated that they expect continued growth and significant conversion to sales growth to continue. On slide six is an overview of our waves of potential launches. Focusing on wave three, these products represent a mixed set of royalty revenue opportunities with potential launches projected between 2023 and 2025. The wave three products are subcutaneous escortizumab, atezolizumab, nivolumab, and ocralizumab. Our long-term growth trajectory is further supported by our Wave 4 products, with potential launches in the 2025 to 2027 timeframe. Wave 4 is comprised of 10 partner products, two of which are in or about to start Phase 3, and the remaining eight are in an ongoing Phase 1 clinical testing or have completed Phase 1 testing. I'll move now to Phase 7 and say a few words about why I am so excited about the potential that is represented by our Wave 3 launches. Firstly, all of the waste-free products are approved in at least one indication as an intravenous administration. This is an important de-risker in terms of development risk. Secondly, all of the potential salons soon between this year and 2025. Thirdly, further de-risking the opportunity, two of these products, SubQF Cartitimol from Organics and ROTUS SubQF Tesolizumab, have completed positive phase three studies and are currently under regular review with the potential for approval decision and launch in 2023. And the fourth key point is that the opportunity represented here in terms of analyst projections for total product sales is $30 billion in 2028. significantly higher than the opportunity for our Wave 2 products that are driving our strong wealthy revenue growth today. Let me now provide some more detail on each product. A summary of the ongoing indication-seeking studies for the Wave 3 products is provided on slide eight. Beginning with our GEMIs, in November of 2022, Argenix announced FDA acceptance of their biologics license application for subcutaneous F-cortisomide utilizing enhance for the treatment of adults with generalized myasthenia gravis, and also the submission of a marketing authorization application to the European Medical Agency. In January of 2023, Argenix provided an update that the PDUFA date had been extended to June 20th, 2023, to allow the FDA sufficient time for review of the data that had been submitted. We're excited that subcutaneous F-corticumab has the potential to be the first of our Wave 3 partner launches with U.S. approval and commercial launch projected in the second half of 2023. As our GenXIS flagship pipeline product, F-corticumab is being developed for the treatment of multiple autoimmune disease indications with subcutaneous development of six indications, of which four indications are only for subcute delivery. Multiple data readouts were projected in 2023, including data in chronic inflammatory demyelinating polyneuropathy in the second quarter of 2023, and for idiopathic thrombocytopenic purpura and pemphigus in the second half of the year. Analysts predict potential total at cortisomal annual revenue of approximately $5 billion in 2028. The launch of the intravenous version is certainly off to a strong start in the early launch countries. In its preliminary results for the fourth quarter, Argenix noted strong physician and patient demand for Vivecart and reported total quarterly net product revenues of $175 million and full year 2022 revenue of $402 million. Moving now to Roche. Roche is one of our longest-standing and experienced partners within HEM, and we're delighted to collaborate with them on two of our way-through opportunities, Subcutaneous atezolizumab and subcutaneous ocrelizumab. Beginning with the atezolizumab, in November of 2022, Roche announced the submission of a biologics license application to the FDA and a marketing authorization application to the EMA for subcutaneous atezolizumab with enhanced. Subcutaneous atezolizumab has the potential to be more convenient for patients and physicians within an approximate seven-minute subcutaneous administration time compared to 30 to 60 minutes for IV treatment. With a reduced date of September 15, 2023, Roche expects atezolizumab to be the only subcutaneous anti-PD-L1 on the market for a full year. We're excited to see the continued growth of Ticentric, In its recent earnings call, Roche reported IV-centric revenues increased 14% year-over-year to 3.7 billion Swiss francs for full year 2022. Transitioning now to Roche's Ocrevus for multiple sclerosis. Ocrevus achieved sales of more than 6 billion Swiss francs in 2022, representing an increase of 17% year-over-year for Roche. Currently, there are two IV regimens approved for use. When considering both the treatment and the observation schedule, the range of time for patients receiving IV Ocrevus is 3.5 hours at the fastest to six hours at the longest. The phase three trial for subcutaneous alcoholism is ongoing. For subcutaneous, the target total administration and observation time for the first and second dose is one hour, with the goal that for each subsequent dose, the data supports regulators approving a 10-minute administration and observation time. Data readout from this study is expected in mid-2023. Moving to our fourth wave 3 product, nivolumab, BMS continues to progress with its phase 3 study of subcutaneous nivolumab, utilizing enhanced in patients with renal cell carcinoma. And BMS also recently initiated a second phase 3 study of nivolumab, subcutaneous with enhanced, in patients with melanoma. On its recent fourth quarter call, BMS noted upheaval IV sales of $8.2 billion for full year 2022, an increase of 10% year-over-year, or 14%, excluding FX. In summary, Wave 3 represents substantial, more de-risked, near-term, new royalty revenue opportunity for Halazan. with that opportunity driven by the timing of approval of the subcutaneous versions of the drugs within the projected 2023 to 2025 time window, and also the speed and peak of conversion to subcutaneous. Let me now just make a brief comment on the enhanced pipeline progress in 2022. I'm very pleased to report that we continue to advance and expand our enhanced pipeline supporting 12 new partner study starts, meeting our 2022 goal to support initiation of at least 10 new studies. These starts included supporting partners advancing two new products within hands into the clinic and supporting initiation of three new phase three programs, the final step in development prior to regulatory submission. In addition, we supported initiation of an additional seven new studies designed to further explore and potentially expand the profile of ongoing partner subcutaneous programs. In 2022, this pipeline progress contributed strongly to recognition of the approximately $109 million in total collaboration revenue, with notable milestones recognized for Phase III study initiations for amivantamab subq and nivolumab plus rilatilamab subq. In 2023 and beyond, our goal is to continue to expand the number of products in development and to advance products through development to regulatory approval and launch, adding multiple new royalty revenue streams. I'll now move to our wave four product candidate pipeline, which is shown in slide nine. We have 10 product candidates in our wave four pipeline, which if they proceed in development and to approval and launch, represent potential revenue drivers between 2025 and 2027. The two most advanced products are Janssen's amibentamab and BMS's six-dose combination of nivolumab plus rilatilamab with Enhance, which are in, or soon to start, phase 3 development. Both of these products are already proved as IV treatment, an important subcutaneous development de-risker. In 2022, Janssen initiated a phase 3 study of leptinib plus amibentamab with Enhance, in patients with EGFR-mutated advanced or metastatic non-small-cell lung cancer. In 2022, Bristol-Morris Group also initiated the Phase III study called Relativity 127, which has the goal of demonstrating that drug exposure levels of nivolumab plus relatlumab six-dose combination of enhanced is not inferior to intravenous administration of the same combination. And this is being studied in patients with previously untreated metastatic or unrespectable melanoma. We're expecting the first patient to be dozed in this study in early 2023. Let me now transition to an update on our autoinjector and specialty product businesses, beginning on slide 10. Our acquisition of Antares last year further strengthened our leadership in direct delivery, creating the opportunity to develop a high-volume autoinjector by combining enhance with our autoinjector know-how. In the fourth quarter, we continued our discussions on the opportunity for our high and small volume autoinjectors with current and new potential partners. Our high volume autoinjector for rapid delivery of up to 10 ml enabled by Enhance offers a truly differentiated opportunity for patient-friendly, high volume, subcutaneous treatment delivery. They can be utilized across a spectrum of disease areas for both small molecule drugs and biologics. In 2022, the team made significant progress on the development of a working prototype. The prototype is ready for clinical testing and we expect to initiate and complete human feasibility studies by mid-year 2023. Our goal in 2023 is to gain an agreement with a current or a new partner to collaborate on the custom development of a high-volume auto-injector. I'll turn now to our commercial business, which includes Ziosted and Talando, shown on slide 11. Beginning with Ziosted, this is our weekly, virtually painless subcutaneous testosterone replacement treatment, which is patient-delivered by auto-injector. Our goal in 2023 is to grow Ziosted to over $100 million in revenue as a stepping stone to accelerate growth in 2024 and beyond. In 2022, In the seven months since the acquisition, we focused on increasing Zysted demand, identifying opportunities to reduce gross to net deductions, and identifying and developing plans to address points of prescription leakage that we have identified. While we have continued to achieve new weekly high prescription levels each month in 2022, Q4 Zysted revenue came in slightly lower than our expectations, driven by a mix of lower demand and lower net price than projected. As we start 2023, year to date, I am pleased to say that ZyFed demand is off to an excellent start, with the growth over Q4 exit on track with our plan to deliver $100 million in revenues in 2023. Our growth strategy focuses on converting patients from the most common treatment approach, which is intramuscular injections. IM testosterone injections can be associated with pain and can require physician or healthcare practitioner administration. Ziastead, with its weekly, virtually painless subcutaneous injection delivered by a patient-administered autoinjector, offers a new approach that may address these challenges. We also remain focused on gaining access for Tolando, our oral testosterone treatment. We have not yet reached agreement with pharmacy benefit managers on an appropriate rebate rate. Until access is established, we are projecting low revenue for Tolando in 2023. Closing in on tariffs, our total revenue since the acquisition was $113 million, which came in slightly below our projected range of $115 to $125 million, which we had provided at the time of the acquisition. Before I hand the call over to Nicole, let me reiterate our commitment to our strategic growth and capital allocation priorities shown on slide 12. Our goal continues to be to maximize revenue growth and durability. We're continuing to return capital to our shareholders with our share buyback plan. We've now completed $350 million of the $750 million three-year program that was approved by the Board of Directors in December of 2021. Our goal in 2023 is to repurchase up to an additional $150 million pending market conditions and other factors as part of this plan. And we're also continuing to evaluate M&A opportunities seeking additional platforms or companies with de-risk assets, platforms, or technologies where we see the opportunity for significant revenue growth and revenue durability. I will now turn the call over to Nicole, who will discuss our financial results for 2022 and the outlook for 2023. Nicole? Thank you, Helen. 2022 was a year marked by strong financial performance.