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spk13: Good afternoon. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Halo Design first quarter 2023 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'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Please note this event is being recorded. I'll now turn the call over to Tran Bui, Halo XAMPP's Vice President of Investor Relations and Corporate Communications. Please go ahead.
spk11: Thank you, Operator. Good afternoon and welcome to our first quarter 2023 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 Toiley, Helizyme'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 first quarter 2023. On today's call, we will be making forward-looking statements as outlined on slide two. I would also 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.
spk05: Thank you, Tom, and good afternoon, everyone. Let me begin on slide three. K-Lizam is a leading drug delivery platform company with a diversified and robust business, which includes our enhanced royalty business, our auto-injector technology business, and a specialty commercial portfolio. I'm pleased to report that we executed our plan for the first quarter of 2023, achieving total revenue of $162 million, a 38% increase year over year. This performance sets us up well for the year, and we expect strong quarter-over-quarter revenue growth throughout 2023 that will result in another record revenue year. Turning now to slide four, I'm delighted with the breadth and momentum of our drug delivery business. Kalexam has established our leadership in rapid, substance drug delivery of enhanced, and more recently, with our differentiated auto-injectors. Our partners are making strong progress with their commercialization and development activities, that are expected to result in strong and durable long-term growth. Drives of this growth include the potential approvals of F-Critizumab sub-Q and Atezolizumab sub-Q this year that will bring our approved products generating royalties from five products to seven products. Two additional blockbuster drugs, Ocrevus sub-Q and Ophevo sub-Q, continue in phase three development with the potential to launch by 2025. An additional two products, amivantamab sub-Q and relapnamab nivolumab sub-Q fixed dose combination also continue in phase three clinical testing, the final stage before potential launch and royalty generation with the potential to launch between 2025 and 2027. And it is our goal to add to our already robust pipeline by adding three new agreements this year for enhanced, enhanced plus or high volume autoinjector and also a small volume autoinjector agreement. Turning to slide five, let me spend a moment on why so many partners are focused on and are so excited about subcutaneous drug delivery with Enhance. Enhance, when co-formulated with our partner products, has demonstrated an ability to differentiate the subcutaneous product from IV. Sub-Q delivery decreases treatment time and treatment burden for patients. This in turn results in an improved patient experience with patients stating a strong preference for sub-Q in surveys. There may also be, as we saw in the case of Darzalex subcutaneous, a lower rate of infusion-related reactions. This can also translate into considerable advantages to the healthcare system. These advantages include less use of more costly hospitals and infusion centers and less use of healthcare practitioner time, a growing consideration in all regions of the world. Moving now to slide six, I'll provide an overview of our enhanced pipeline. We describe this in terms of waves, with waves 1 and 2, the already launched products, the wave 3 products, those that have the potential to launch between 2023 and 2025, and the wave 4 products are those with the potential to launch between 2025 and 2027. I'll go into more detail on waves 2, 3, and 4 in a moment, but before I do so, let me highlight an exciting event for one of our wave 1 products. Takeda received FDA approval for an expanded indication for Hycuvia to treat primary immunodeficiency in children. Hycuvia is now available to a broader community impacted by primary immunodeficiency who may prefer flexible treatment options in the management of these disorders. Enhancing the key value driver for our partners and our extensive development pipeline supports our expectations for royalty revenues to reach approximately $1 billion in 2027, with potential for growth beyond that This projected growth is driven by new launches and the projected impact of co-formulation patents. Let me now move to slide seven for an overview of our royalty revenues. We project $445 to $455 million in royalty revenue in 2023, 23 to 26% growth over 2022. Quarterly royalty revenue increased 43% year over year to $99.6 million, and we project strong quarter-on-quarter growth throughout 2023. Five partner products using the enhanced drug delivery technology and commercialized in approximately 100 global markets are contributing to royalty revenue growth today, with Darzalex SubQ and Fezgo, our Wave 2 products, the key growth drivers. While we project the approval of F-Critizumab SubQ and Decentric SubQ in the United States in 2023, We assume virtually no royalty revenues in 2023 from these products due to launch timing and the standard time it takes for physicians to be confident regarding reimbursement. Also included in our royalty revenue is revenue from our small volume auto-injector business. This remains stable and largely driven by Teva's generic EpiPen. Moving on to slide 8, I'll provide more details on Darzalex. Janssen's Darflex continues its amazing growth story, growing approximately 26% year-over-year on an operational basis in the first quarter of 2023 to approximately $2.3 billion. This increase was driven by share gains in all regions, continued growth of the market, and strong adoption of Darflex FastPro, the subcutaneous formulation within hands. J&J expects Darflex to continue to grow in the first-line setting. Analysts are now projecting annual Darzalex sales will reach $16.5 billion in 2028. Darzalex SubQ is the globally established choice of physicians using Darzalex for myeloma patients, with a share of 88% in the United States, and as last reported by Janssen, now exceeding 80% outside the United States. The key metric we now track is the overall brand performance, as this is driven by the SubQ. Darzalex subcutaneous is a key growth driver of our royalty revenues in 2023 and will continue to contribute meaningfully until at least 2030. Turning now to Rosas Fezgo on slide nine. Fezgo is a combination of Progetta and Herceptin for subcutaneous injection for patients with early and metastatic HER2-positive breast cancer. This allows for a single five to eight-minute subcutaneous treatment compared with a lengthier IV treatment schedule. Roche recently reported that 85% of patients preferred Fesco's subcutaneous administration over the intravenous formulation of Progetta and Herceptin. Over the first quarter of 2023, Roche reported Fesco sales of approximately 240 million Swiss francs, an increase of 72% year-over-year. In the initial 30-month countries, Fesco share is now 35%, exceeding 40% outside the United States, with the U.S. and Germany approaching 20%. Roche, with their focus on patients, is a pioneer who clearly recognizes the benefits of subcutaneous drug delivery for patients and for the healthcare system overall. We project continued growth from Fezgo in 2023 and beyond. Roche is also developing a path for patient self-administration of Fezgo with an on-body injector, and expect pivotal phase one data from this program in the second half of the year. Next up are our wave three products, which are shown on slide 10. These products represent the next set of royalty revenue opportunities for Halosamp with potential launches projected between 2023 and 2025. The wave three products are subcutaneous F-criticumab, atezolizumab, nivolumab, and ocrelizumab, all of which are approved in at least one indication as an ID formulation. This gives us confidence in the likelihood of approval for enhanced enabled subcutaneous versions of these products. I will summarize the key advancements and events occurring this year with this exciting portfolio, where analysts project total sales, including IV and sub-Q, to reach approximately $35 billion in 2028. Argenix's subcutaneous F-crititumod for generalized myasthenia gravis has an FDA PDUFA date of June 20th, 2023. Argenix has also submitted a marketing authorization application to the European Medical Agency. And let's predict potential total equity to mod annual revenue of approximately $7 billion in 2028. The launch of the ID formulation is certainly progressing well with a reported $401 million in 2022 and growth of 25% quarter over quarter to $218 million in the first quarter of this year. We are excited that subcutaneous F-criticumot has the potential to be the first of our Wave 3 partner launches, with U.S. approval and commercial launch projected mid-year 2023. On the recent quarterly call, Organics Management commented on the importance of gaining traction in early-line patients for the continued trajectory, and that the subcutaneous approval may help achieve this. As Ergenix's flagship pipeline product, Efcar Chitimod, is being developed for the treatment of multiple autoimmune disease indications, with subcutaneous development currently in six indications. I will note that four of these indications today are subcutaneous-only indications. Ergenix has announced plans to expand and add additional indications, including a new study plan for thyroid eye disease for later this year. And Ergenix projects multiple data readouts in 2023. This includes data in chronic inflammatory demyelinating polyneuropathy, now in July of 2023. Two additional phase three data readouts are projected for the fourth quarter of 2023 in two additional serious autoimmune conditions, idiopathic thrombocytopenic purpura and pemphigus. I'll move now to Roche. At the beginning of the year, Roche announced their BLA to the FDA for subcutaneous tezolizumab with enhance was accepted with a BDUFA date of September 15th, 2023. Subcutaneous tezolizumab has the potential to offer greater convenience for patients and physicians within approximately seven minutes subcutaneous administration time compared to 30 to 60 minutes for IV treatment. Roche believes this represents a significant advancement for patients the healthcare system where resources are constrained, as well as for payers. In the first quarter of 2023, Roche reported IV2-centric revenues of 920 million Swiss francs, an increase of 15% year-over-year, driven by higher demand in the U.S. and in Europe. Roche also reported first quarter 2023 revenues of 1.6 billion Swiss francs for Oprivis, which represents an increase of 14% year-over-year and annualizes at over $7 billion. Ocrevus is our third Wave 3 opportunity. With more than 300,000 patients treated globally, Ocrevus remains the number one treatment in the U.S. and the EU5, both in terms of total share and new-to-brand share, with a higher retention rate than other therapies for multiple sclerosis. The goal with subcutaneous ocrevis is to significantly shorten the treatment and observation time compared to the IV, where the IV is currently 3.5 to 6 hours. With the data read out for the phase 3 trial of subcutaneous ocrelizumab within hands expected later this year, subcutaneous delivery could lower the target total administration and observation time for the first and second dose to one hour and to just 10 minutes for administration and observation for each subsequent dose. Roche is excited that the substantive data will provide an opportunity to expand the market and provide access to patients for whom intravenous dosing is not viable. Moving now to our fourth wave three product, Nifolimab. EMS reported observable IV sales of $2.2 billion in the first quarter of 2023, an increase of 15% year over year, or 17% excluding FX. BMS believes that subcutaneous delivery of drugs pushes science forward, and they are progressing with their Phase 3 registration study of subcutaneous nivolumab utilizing enhanced in patients with renal cell carcinoma. Our Wave 3 product represents substantial B-risk near-term new royalty revenue opportunity for Halazan, driven by two potential approvals this year and the Phase 3 readout of subcutaneous opralizumab. The opportunity represented here in terms of analyst projections for total product sales is approximately $35 billion in 2028, which is significantly higher than the opportunity for our Wave 2 products, which are driving our strong, wealthy revenue growth today. Moving to slide 11, I'll review our Wave 4 partner product development pipeline within HAN. Our longer-term growth trajectory is further supported by these 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 Phase 3, and the remaining eight are in ongoing Phase 1 clinical testing or have completed Phase 1. 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. The two most advanced products are Janssen's subcutaneous amivantamab and BMS's fixed dose combination of nivolumab plus rilatilamab with Enhance. Both are already approved and showing strong rules as IV treatment and are in phase three clinical testing as sub-Q versions. Janssen initiated their phase three study of lezatinib plus amivantamab with Enhance in 2022. in patients with EGFR-mutated advanced or metastatic non-small cell lung cancer. And recently, BMS also initiated the phase three study, Relativity 127, with the goal of demonstrating that drug exposure level of nivolumab plus rilatinamab six-dose combination within hand is not inferior to IV administration of the same combination, with this study being done in patients with previously untreated metastatic or unresectable melanoma. Other notable programs in our wave four pipeline include a focus on innovation for HIV. These cabotegravir and janicetralpilverine, both already approved as IM and oral delivery, are in phase one development as subcutaneous drugs within hand. Beef has stated their goal with subcutaneous delivery is to further extend the dosing interval, thereby further freeing patients of the burden of treatment and the disease. Steve is also in Phase 1 development with N6LS, a development stage broadly neutralizing antibody for HIV. I'll move now to our new growth opportunities. We remain highly engaged in new partnership discussions for ENHANZ and our autoinjectors. I'm excited that the funnel of discussions is at an all-time high, driven by high interest in subcutaneous drug delivery. While the timing is always difficult to predict, we are confident that we will achieve our goals for 2023 for one new enhanced deal, one new enhanced plus high volume autoinjector deal, and one new small volume autoinjector deal. We're experiencing strong interest in learning more about our high volume autoinjector for rapid delivery of up to 10 ml, which is enabled by enhanced. This approach will offer a truly differentiated opportunity for patient-friendly, high-volume subcutaneous start delivery that can be utilized across a spectrum of disease areas for both small molecule drugs and biologics. We have a working prototype ready for clinical testing and expect to initiate and complete human feasibility studies by mid-year. We look forward to signing an agreement with a current or a new partner to collaborate on the custom development and are tracking nicely towards this goal. I'll turn now to our commercial portfolio, which includes Zysted and Calando, and are shown in slide 12. Zysted is our weekly, virtually painless subcutaneous testosterone replacement treatment, which is patient-delivered by autoinjector. Our growth strategy remains focused on converting patients from intramuscular injections, the most common treatment approach today. In the quarter, we saw strong growth of Zysted physician demand, achieving new weekly high average prescription performance every month. We successfully navigated the first quarter resetting of the high deductible for commercial patients through our co-pay card program, helping assure affordability was not a barrier for starting or staying on Ziastad. Sales to wholesalers slightly lagged demand in the quarter as a result of a change in our 3PL distribution channel. Our goal remains to achieve approximately $100 million in Ziastad revenue in 2023, representing a 20% increase from the run rate following the acquisition. And we're also still focused on gaining access for Talando, our oral testosterone treatment. To date, we have not yet reached agreement with pharmacy benefit managers on an appropriate rebate rate. And until access is established, we are projecting low revenues for Talando in 2023. Before I hand the call over to Nicole, let me reiterate our commitment to our strategic growth and capital allocation priorities, which are shown on slide 13. We are committed to maximizing our revenue growth and durability to create long-term value for all of our stakeholders. We're investing strategically in Enhance and our auto-injector technologies while continuing to return capital to shareholders with our share buyback plan. We've completed $500 million of the $750 million three-year share buyback program, which was approved by the Board of Directors in December of 2021. And this includes $150 million share buyback completed in the first quarter of 2023. We're also actively evaluating M&A opportunities, seeking additional platforms or companies with de-risk assets or platforms or technologies where we see the opportunity for significant revenue growth and durability. I'll now turn the call over to Nicole to discuss our financial results for the first quarter of 2023. Nicole. Thank you, Helen.
spk04: The first quarter of 2023 is on track with our plans and supports our strong financial performance expectations for the full year.
spk05: As Helen mentioned, we remain committed to our capital allocation strategy.
spk04: In regards to our share buyback program, we are pleased that within the first quarter, we maximized our repurchase opportunity and completed the full $150 million plan for the year, resulting in the repurchase of 4.2 million shares.
spk05: at an average price per share of $36.01. Our share buyback programs have resulted in the repurchase of 34.8 million shares since 2019, which contributed 9 cents to non-GAAP earnings per share in the first quarter. Our cash, cash equivalents, and marketable securities were $275.6 million as of March 31, 2023. compared to $362.8 million on December 31st of 2022 due to our Q1 share repurchases.
spk04: Our balance sheet remains strong with projected cash generation and EBITDA growth in 2023. Our net debt to EBITDA ratio is 3.2 as of March 31, 2023, which is expected to be less than 3 by the end of the year.
spk05: While we have completed our share repurchases allocated for the year, we will continuously evaluate our future use of capital and monitor market conditions and other factors, while also preserving capital to fund revenue growth and durability via M&A.
spk03: I'll now move to slide 14 for our detailed financial results for the first quarter of 2023. Revenue for the first quarter was $162 million, compared to $117.3 million for the first quarter of 2022.
spk05: The 38% year-over-year increase was driven by an increase in loyalty revenue, primarily attributable to subcutaneous Darzalex, and the addition of product sales as a result of the Interior's pharma acquisition. Loyalty revenue for the quarter was $99.6 million, an increase of 43% compared to $69.6 million in the prior year period. I'll mention that royalty revenue for the quarter saw a small sequential decline of 6% from $106 million in the fourth quarter of 2022. This is due to the expected impact of changes in FX rates, annual royalty rate tiers, and EpiPen seasonality. Some of our contracts include period royalties that escalate annually as volumes build over the course of the year. The threshold for increased rates was exceeded in Q1, and therefore, the increased rates will apply for the remainder of the year. Amortization of intangibles was $17.8 million in the first quarter.
spk04: due to the acquisition in which HaloZyme acquired intangible assets that are amortized over a useful life related to the auto-injector technology platform, Diastead and Talando.
spk05: We project amortization of intangibles to be similar for each quarter in 2023.
spk04: Research and development expenses for the first quarter was $18 million, compared to $11.9 million in the first quarter of 2022.
spk05: primarily due to an increase in compensation expense related to the ongoing combined larger workforce to support the device platform in regulatory, quality, and manufacturing, as well as planned investments in enhance. SG&A expenses were $37.4 million compared to $13.8 million for the first quarter of 2022. primarily due to an increase in compensation expenses related to the ongoing combined larger workforce, including the addition of commercial resources and sales and marketing for our testosterone replacement therapy products. EBITDA in the quarter, $74.3 million, compared to $76.4 million in the first quarter of 2022. The year-over-year comparison reflects a $25 million milestone payment in the first quarter of 2022, which did not repeat in the first quarter of 2023, as well as the impact of year-over-year increases in operating expenses. GAAP diluted earnings per share was 29 cents in the first quarter, and non-GAAP diluted earnings per share was 47 cents. Turning now to our 2023 guidance on slide 15. We are reaffirming our full-year 2023 guidance. We expect total revenues of $815 to $845 million, representing growth between 23% to 28% over 2022 total revenue.
spk04: We expect total revenue to be primarily driven by continued strength in enhanced Wave 2 products, such as LexSC and Fezgo. as well as a full year of Ontario's product sales and auto-injector royalty contribution.
spk05: We expect revenue from royalties to increase between 23 to 26% over revenue from royalties in 2022 to a range of $445 to $455 million. Please note again that our 2023 guidance includes milestone payments for the approval of SCF Cartesian Mod and Atizolizumab. but conservative royalty revenue contributions from these two products within this year. We expect EBITDA of $415 to $440 million, representing growth of more than 30% over 2022 EBITDA, which excludes the impact of amortization costs related to the Ontario's acquisition. Finally, we expect non-GAAP diluted earnings per share of $2.50 to $2.65. With that, I'll now turn the call back over to Helen. Thank you, Nicole. I'd like to thank the Halazan team and our partners and collaborators for the strong progress made in the first quarter of this year that's setting us up for such strong growth in 2023. We're continuing to look forward to our commercial product and royalty revenue growth, projecting we'll increase the number of enhanced commercial partner products from five to seven products with the approvals of subcutaneous F-cortisamide and ethylizumab. We also expect pipeline progress and expansion with Phase III data for subcutaneous ocrelizumab and for subcutaneous FCR Digimug, as well as two new targets entering the clinic from our current partners. Continued progress in the development of our high-volume autoinjectives and HANs is expected, as well as adding new collaboration partners with the goal of signing multiple new collaboration agreements across our platform. And we continue to expect revenue growth resulting from our commercial products. These events all support our strong full-year revenue and EBITDA growth guidance. With that, we would now be delighted to take your questions. Operator, would you please open the call?
spk13: If you'd like to ask a question, please press star then 1 on your telephone keypad. Our first question is from Jessica Fye with J.P. Morgan. Your line is open.
spk03: Hey, guys. This is Nasan on for Jessica Fye. I think Can you talk about, like, what have you seen with the IRA impact and, like, how has it impacted discussions with current partners and or potential new partners? And then another one is thinking about how we are anticipating a step down in royalty rate for PASPRO. Uh, in the EU, what does this mean for other targets set to launch after 2024 and 2027 such as and real thank you.
spk05: Thanks, Naf. With regard to what we've seen on IRA impact, I think we are making comments very similar to our partners and other people who are talking that there still is too little detail available yet to be able to do any assessment to understand if there is going to be impact because recall the guidance that came out initially really is focused on part D as in dog and the majority of our products are part B. I will say that this very rarely has come up from any of our current partners, just I think really based on the fact that they are waiting for more details to come out from CMS before really doing any analysis on it to understand any impact. So we continue to be excited about the growth of our products and the royalties as we look forward to the potential for a billion dollars in 2027 and project the potential to be higher than that in 2031. With regard to the step down on royalty rate, the specific details in all of our contracts, as you know, are confidential. So we obviously, in light of the European patent finding, did give some commentary on the Darzelek specifically. We're really not in a position to provide any additional detail beyond that at this time.
spk13: The next question is from Corinne Jenkins with Goldman Sachs. Your line is open.
spk01: Yeah, good afternoon, everyone. Maybe to one follow on from the last question, it sounds like your current partners aren't bringing it up to you, but how is like the IRA guidance factoring into any conversations that you're having with potential partners? And then the second one for me, you referenced business development. I'm curious how the integration of Ontaris and your target leverage goals factor into potential timing for any additional BD.
spk05: Yeah, I'm happy to take the first part and I'll ask Nicole to discuss the target leverage. You know, I would say since the guidance came out in March, Corinne, we have been in multiple conversations with potential new partners for Enhance and Enhance Plus HVI. And I do not believe I can remember IRA coming up even in those conversations. I really think it is because the majority of people who have got drugs that are the large volume injectable, they're in part B, and everybody recognizes that the guidance that's come out so far isn't related to that. So we're really not having conversations of any frequency with regard to that. Nicole, will you take the question on the target leverage and thinking about future M&A?
spk04: Yes, happy to. Thanks, Curran. When looking at our leverage for ending the quarter, we were at 3.2 times a net debt to EBITDA ratio, and we're tracking to be delivered to less than three times by the end of the year. So we are tracking nicely with our expectations and also provides ample opportunity for future growth via M&A, you know, looking at our leverage profile as well as our expected cash flow generation and expected EBITDA growth.
spk02: Okay, thanks.
spk13: The next question is from Mohit Banzal with Wells Fargo. Your line is open.
spk09: Great. Thank you for taking my question. I have a couple of questions. So one on IRA, just staying with the team here. Do you expect some more clarity over the period of the next six to 12 months from CMS? More about the Part B side of it? should we expect something like that in your conversations with your partners? And the other question is actually more technical in terms of, you know, you mentioned that sequential royalties, because they get reset, so the royalty revenues are not, despite the revenues are higher, royalty revenues are not higher. So that explains it. Is there anything else in terms of, the entire revenues or other product revenues in terms of seasonality we should be aware about in the first quarter as we go forward here. Thank you.
spk05: Yeah, I'll take the question on IRA and Nicole will talk about the sequential royalties. Mohit, probably and as you're probably seeing with many for large form of partners, there simply isn't the information available at the moment as to when CMS is going to talk with regard to the Part B guidance. And so, nobody is really talking or speculating with regard to that. As you know, Enhance is an active ingredient. The sub-Q injection would not be possible without Enhance. We also are seeing benefits, as an example of Darzalex, reduced infusion-related reactions. And so we look forward to, you know, learning more, but recognize that we are going to be communicating very strongly that Enhance brings a lot of active benefits to patients with regard to being part of the new combinations with the sub-Q Dardalex.
spk04: In regards to sequential royalty, quarter over quarter, we did mention a few factors driving that, one of them being the FX rates changing year over year, the other one being royalty tiers that escalate during the year. That is something that we see on both the enhanced and the interiors royalty side, to answer your question there. But importantly, those thresholds It's really only impactful to the first few months of the year, and those thresholds are exceeded within the first quarter. So it does not impact the remainder of the year. And then the also item we see in Q1 is epi royalties do have a seasonal pattern where a Q1 is the lowest of the year. So that's just a little bit more flavor on seasonality. But overall, our quarterly results for royalties are tracking very nicely to our plans and our expectations to meet the guidance we set out for the year, which is $445 to $455 million for the year. representing greater than 20% year-over-year growth for royalties.
spk09: Helpful. Thank you.
spk13: The next question is from Michael DeFiore with Evercore ISI. Your line is open.
spk10: Hi, guys. Thanks for taking my question. Yet two more ones on the IRA, but different versions. So just regarding CMS's Part D guidance document, I think for now everyone's operating under the assumption that Part B, will look very much like Part D. So assuming that's true, now that Halo's lawyers and policy teams have had some time to fully digest the guidance document, are there any nuances contained therein that perhaps make you incrementally more or less confident on how enhanced formulated products may qualify as single source drugs? That's my first question. My other question is that, just to remind us how the EPO DARSLEX FASPRO patent revocation is specific to just DARSLEX FASPRO and why there wouldn't be any read across to your other EU co-formulation patents. Thank you.
spk05: Alright, thanks Mike for those questions. Yes, a lot of interest obviously in the IRA. So, we talked about this a lot when the guidance came out and if there is an interpretation or The Part B guidance comes out similar to the Part D. Our interpretation, based on experts in Washington, D.C., is if you focus on the part of the guidance that describes the fixed dose combination, and yet we use an example of two corticosteroid drugs and talks about both active ingredients not being considered the same as a single agent used alone, I think that is what we see as a perfect description of enhanced because the RUPH20 is designated in multiple documents from the FDA as an active ingredient. Now, why is that? It's because, as I mentioned earlier, it does make the whole subcutaneous delivery possible. That allows for a shorter injection. It allows for reduced infusion-related reactions on occasion. And frankly, patients would not be able to receive their therapy in such a simple, short way, nor would the healthcare system be able to accrue the benefits of the shorter time. So certainly our reading at this point in time, if it's identical, is that the sub-Q will be treated as a separate single source agent than the IV drugs. But with all the appropriate caveats, CMS has to issue the specific guidance for Part B. Moving to the EU patent, yes, I think for people a few weeks ago, Janssen had one of their two approved European co-formulation patents for Darzalex revoked. And they still have, I'll note, another one that's under review. This was a single revocation of the first patent, so they have a second patent that remains as well as another patent pending. This was a specific instance where it was the judgment of the court that because Janssen had published a clinical trial protocol that mentioned the invention, that they relied on in the patent before they filed the patent, that meant that they were not able to use that invention, which was reduced infusion-related reactions, to support that particular patent. Now, the reason this is only applying for this single patent from Darzalex is that other of our partners relied on other inventions. to support their patents. So one of the core things about co-formulation patents is it has to be novel, not described before, an invention. And so by definition, all of our partners are looking at their data to look for something different. And so that's why there's no read-through to any of the other patents that are filed or any of our other European partners. And companies are careful to make sure that they do get the filings first to the Patent Office before they make the data public. I'll also just comment that, just in case anyone has the question, any U.S., the U.S. does not have the same exact approach as Europe with regard to this pre-publication and clinical protocol. And so there's no read-through to the United States either. I'll just also comment the next step in Europe could be for Janssen to file an appeal. If Janssen did file an appeal, the patent would be unrevoked and usually the appeal process can take three to four years. But again, I'll also mention that Janssen continues to have other patents and for Halazine, we're very confident in our revenues in 2023 and to continue to receive royalties from Janssen until at least 2030. So, there was a tension to this, but we certainly are feeling very well about our Janssen royalties and the very strong growth that we're seeing there.
spk14: Very helpful. Thank you.
spk13: The next question is from Jason Butler with JMP. Your line is open.
spk06: I throw it on for Jason. Thanks for taking our questions. Just a couple. I guess, Helen, you mentioned the funnel of partnering discussions are at an all-time high. Just assuming that those are mostly candidates seeking their first approval as enhanced formulations.
spk05: Sorry, Rory, you cut up a little bit. So you're saying are those companies looking for approvals of their first syndication? So development stage product or commercial product? Yes, development stage, correct. I would say it's a mixture. It's a mixture of both of those. Um, you know, we've traditionally worked with companies, um, where they're getting to their phase three approval or they're already approval, uh, or approved. And that's because enhance can really help enhance the competitiveness, um, of a product. Um, we are talking more and more and have some very interesting conversations ongoing with companies who are looking at the, uh, optimizing their PK profile. And so that's a different approach where you're not trying to bridge to the already approved, but you could do something if you have a C-max, for example, associated toxicity enhanced can help with that, or you want to get to a very extended dosing interval. So a very nice mix of discussions, Roy.
spk06: Okay, interesting. And then one on the, you mentioned that 10 ml autoinjector, a collaboration partner for further development. Just what are they going to bring to the table that you didn't get from Antares? Thanks.
spk05: Oh, so it actually is. One of the, I think, very intriguing things about the entire portfolio of auto injectors and the engineers that we have is that they've traditionally offered partners the option to customize a device for a specific patient population or disease. And so what we have is a working prototype. Each partner will have to determine what their primary container they want it to be. There'll be a little bit of customization. Some might be 5 mL, 7 mL, 10 mL. So that will take a little bit of work, but specifically the form factors and other factors like needle depth and other are things each partner generally will like to customize to be right for their particular drug and their populations and their target population. So it simply is that customization work for it to move from prototype to development stage autoinjector to a commercial autoinjector.
spk06: Okay, great. I'm going to throw in one more. The Darzalex injection site reaction results that you mentioned, is that achievable with a lower dose of Enhance than you use to achieve the SubQ injection itself? Does that make sense?
spk05: I understand your question. I don't think we ever tested that because in our clinical studies with SubQ Darzalex, Only one dose of the RUPH20 used in each injection, to my knowledge, Roy. So I think it's a very, very small dose. And so I don't think there was a dose ranging for RUPH20. We know the amount it takes. So it was probably never tested. But I will say it's a very small dose that's used in all of our products. Got it.
spk06: Thank you.
spk14: The next question is from David Reisinger with SVD Securities. Your line is open. Yes, sorry.
spk08: Thanks very much. So I have a couple questions, please. First, the press release mentions planned investments in Enhance. I was hoping that you could provide some more color on that, Helen, particularly since Enhance is set to lose U.S. exclusivity in 2027. And then just a couple of financial questions. What was the impact of Antares on the non-GAAP earnings or EPS in the quarter? And regarding share repurchases, did you mention that you have finished that up for the year? Thanks very much.
spk05: I'll take the first question and then I'll ask Nicole to take the next two questions. With regard to the planned investments, this really relates back to an announcement we made maybe 18 months ago with regard to starting the development of a high yield RUPH20, as well as a room temperature stable RUPH20. David, for our royalty term, I'll just highlight that we always receive, in the vast majority of cases, a minimum of 10 years. after the first commercial sale. And so 2027 might be patent expiry, but we are going to be selling API to our partners and generating royalties to well past 2030 based on our development portfolio. And so we thought it was important for us to continue to invest to get to a higher yield API, because that would be the expectation of our partners that we would continue to improve the processes. We also are, start the development of a more room temperature stable one. That might be more suitable for small molecules and circumstances where partners might want the patients to be able to carry, for example, an ultrainjector around with them. So that one continues in early development. We're making good progress with the high yield one and partners have expressed a lot of interest in that obviously as that it just helps us strengthen our ability to continue to supply a very high quality api for our partners with that
spk04: Yes, thanks David. With regards to Terry's contribution, it was accretive obviously to our revenue line and to our non-GAAP EPS in the quarter and continues to, our expectations is that it continues to be accretive for the full year results for 2023. And then in regards to share repurchases, we did complete the full amount that we had allocated for the year, which was $150 million. We took the opportunity in the first quarter to maximize our buying during low prices. And so we were able to accelerate that and buy at the low prices and fully complete the amount that we had allocated for the year.
spk15: Thank you.
spk14: The next question is from Yun Yang with Jefferies. Your line is open.
spk07: Hi, this is Mack on for Yun. Just continuing on the enhanced partnering conversations with the next-gen RHU-PH20, have you identified any partners who are specifically interested in these next-gen APIs? And if so, when will be improved products be ready for clinical investigation? Thank you.
spk05: Yeah, so different pathways for each of them. The higher yield one is the same cell line as our current one. And so it's much more likely that will be a simple comparability study that will be done and it will be then moved into the supply chain. And we've done that before. This will take several years, but it should be a pretty seamless transition. And we've got several of our partners who have expressed interest in moving to that, obviously, once it is approved and available. With regard to the more room temperature stable, and we continue in discussions on that, that was seen as being a bit more specific to small molecules and the specific setting where room temperature stability is needed. So nobody signed up at this point in time. never expected to be a large driver of revenue because our substitute products are much more focused on the large volume biologics where room temperature stability is not needed because the products have to be refrigerated. So, very pleased with the progress and the interest we've seen on the higher yield continuing to have this offering. for those partners who might want something that's more suitable for a small molecule and patient self-administration.
spk13: Again, that's star 1 if you'd like to ask a question. The next question is from Caroline Palomec with Barenburg Capital Markets. Your line is open.
spk12: Hi, thanks for taking the question. Can you discuss the current IV to sub-Q conversion rate trajectory for other products, aside from the ones in your slide, such as Mapthera and Hycubia? Thanks.
spk05: So, Carolyn, if I was understanding your question, what we saw with the Wave 1 products, and those were predominantly launched in Europe, Herceptin is a good example that got to about 50% share of sales after two years and it got to 60% share of sales after three years. Biosimilars entered the market at that period of time and I can say that we do hear from Roche that the share has remained sticky in those markets where it did convert, but it didn't continue to grow after that. We don't have specific data on Hycuvia for me to be able to share. My theory got to about 40% share of sales. And so, you know, we're seeing a range. We're obviously, we're very pleased to see Darzalex up there at 88% in the US, greater than 80% outside the US. And really, it's very clear now that the SEPQ is driving that amazing revenue growth of overall Darzalex that you're seeing. by aiding the penetration into the frontline and second line populations, which are the larger populations and patients stay on therapy longer. And so, you know, we usually think about a target of around 60% conversion at three years. And then we look at the products and we say, do we think it's going to be a bit higher than that? Is it going to be a bit lower than that? But overall, very pleased with the progress we're seeing. And I'll just point out Fezgo after a slow start, some very nice quarter and over quarter growth. And now 35% share with both Roche and us expecting continued conversion as physicians and patients really do see the benefit of this, particularly in the adjuvant setting.
spk15: That's helpful. Thanks.
spk13: We have no further questions at this time, and this will conclude today's conference call. Thank you, everyone, for participating. You may now
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