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spk08: 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 Zyme second quarter 2023 financial and operating results conference call. 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. Please note this event is being recorded. I'll now turn the call over to Tram Bui, Halo Zyme's Vice President, Investor Relations and Corporate Communications. Please go ahead.
spk01: Thank you, operator. Good afternoon, and welcome to our second quarter 2023 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 second 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 risks 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'll now turn the call over to Dr. Helen Twirley.
spk03: Thank you, Tram. Good afternoon, everyone. I'll begin on slide three. We are very pleased with our second quarter 2023 results, where we delivered strong year-over-year top-line and bottom-line growth. With our partners, we announced multiple milestone-bearing value-creating events for the next wave of subsistence products that we project will deliver meaningful royalty revenues, our Wave 3 products. Most notably, Argenic's VibeGuard Hytrulil that is co-formulated with Enhanced received FDA approval for generalized myosinogravus in June, making this the sixth approved product utilizing Enhanced. We're excited that co-formulated products using Halazine's Enhanced technology continue to deliver substantial potential benefits for patients and for the healthcare system. Another notable event in the quarter was the publication on June 30th of the final CMS guidance for the Medicare drug price negotiation program, which was created under the Inflation Reduction Act. The final guidance applies to 2026 and to Medicare Part D drugs. The final guidance treats fixed combination products, which include two or more active ingredients or monocytes as distinct drugs for the purposes of applying the negotiation provisions. A combination product will be treated as distinct from a product that contains only one of the combination product active ingredients. We believe that if the single ingredient product becomes subject to negotiation and a capped price, the fixed combination product will be subject to its own separate negotiation eligibility timeline. Today, our fixed combination products are healthcare practitioner administered and covered under Medicare Part B. In light of the Part D final guidance, our assessment remains that if CMS continues this approach regarding combination products when the Part B drugs become eligible for negotiation, our partners, such as these drugs, which are co-formulated with Enhance, would be treated as separate from the IV versions of these drugs. We believe a capped price imposed on any IV version of the drug would then not apply to the Enhance combination products, Instead, the enhanced combination product would be subject to its own negotiation eligibility timeline. We believe this outcome is appropriate because of the added patient benefit that is represented by the enhanced combination product. Our enhanced enzyme, RePH20, is listed by the FDA as an active ingredient in various combination products. Closing out these highlights, I'm also delighted to announce that our clinical test of our high-volume autoinjector was a success. confirming both the feasibility and tolerability of rapid injection of 10 milliliters of a biologic with our high-volume auto-injector. All of this progress strengthens our confidence in achieving our updated full-year 2023 financial guidance, where we have raised our non-GAAP EPS range and increased the lower end of the range for total revenue and for EBITDA. With that summary, let me provide some details on the events during the quarter that are driving revenue in 2023 and beyond. Turning to slide four, Halozyme is a leading drug delivery platform company with a diversified and robust portfolio, which includes our enhanced royalty business, our auto-injector technology business, and our specialty commercial products. As an established leader in rapid subcutaneous drug delivery with enhanced and our differentiated auto-injector technology, We remain the partner of choice across the industry. Moving on to slide five. In the second quarter, our partners made significant progress with their commercialization and development activities related to our Wave 3 products. Wave 3 is comprised of four products that are projected to launch between 2023 and 2025, and which are expected to result in strong and durable long-term growth for HaloVans. On June 20th, the first of our Wave 3 products, LabCart Hytrulo with Enhancement for generalized myasthenia gravis, received FBA approval and launched shortly thereafter. The approval and launch resulted in milestone revenue to Helizine in the border. Helizine will also receive royalties on net product sales. Shortly thereafter, on July 17th, Argenix announced positive data of their HEAR study. which evaluated Vivecart Hytrulo within hands in patients with chronic inflammatory demyelinating polyneuropathy, or CIDP. With a 61% reduction in risk of relapse versus placebo, this marks the second positive readout of the six indications for Vivecart Hytrulo that are currently being evaluated. Moving now to the second of our wave three products that had positive clinical study results in the quarter. On July 13, Roche reported that their phase 3 Ocarina 2 study of Ocrevus subcutaneous co-formulated with enhanced met the primary and secondary endpoints in patients with relapsing forms of multiple sclerosis or with primary progressive multiple sclerosis. The study evaluated subcutaneous Ocrevus total treatment time in 10 minutes, which compares with multiple hours of treatment time with CID. We are excited by all of this progress and what it can mean for patients, as you will see summarized on slide six. Enhance, which is an active ingredient with independent actions when co-formulated with our partner product, allows for rapid subcutaneous delivery of large volume drugs. In multiple published studies, subcutaneous delivery decreases treatment time and treatment burden for patients, resulting in an improved patient experience. And as we saw with Darzalex subcutaneous, there may also be a lower rate of potentially life-threatening infusion-related reactions, which is a clear clinical benefit for patients. Subcutaneous delivery of drugs co-formulated with enhance have also been demonstrated to translate into meaningful cost savings and advantages for the healthcare system, including decreased healthcare practitioner time and resource utilization, greater patient throughput, and decreased drug wastage. As global infusion fat capacity constraints become more acute, subcutaneous delivery can play a vital role in allowing more patients to be able to access therapy and to receive their planned treatment on time. I'll now provide an overview of our financial performance. For the quarter, we reported total revenues of $221 million, representing a 45% year-over-year increase. The key driver of revenue and revenue growth is our royalty revenues, which are shown on slide seven. Second quarter 2023 royalty revenues increased 31% year-over-year to a record $111.7 million. We project continued quarter-and-quarter growth of royalty revenues throughout the year. For the full year, we're maintaining our projection of $445 million to $455 million in royalty revenues representing 23 to 26% growth over 2022. Dark White, Fast Goat, and Best Goat, our Wave 2 products, are the 2023 Royalty Revenue growth drivers. And also included in the Royalty Revenues is the contribution from our small volume auto-injector business, which remains stable and largely driven by TAVA's generic EpiPen. I will note that for 2023, we are assuming nominal Royalty Revenues for 5.0 Trullo and no geocentric subcutaneous royalty revenues. And this is based on the timing of approval and the timeline it takes for physicians to be confident regarding reimbursement. Moving on to Darzalex in slide eight. Janssen's Darzalex growth remains impressive with combined IV and subcutaneous revenue increasing approximately 23% year over year on an operational basis in the second quarter of 2023 to approximately $2.4 billion. This increase was driven by share gains in all regions and continued growth of the market, which was previously reported to be the result of increased penetration into the frontline treatment setting. Analysts project annual DARS-like sales of $16.7 billion in 2028. DARS-like subcutaneous is a globally established choice for physicians who are using DARS-like for the treatment of multiple myeloma patients. With 90% share in the United States, and an estimated 80% share outside the United States. With the overall brand performance now driven by the use of the subcutaneous formulation, total Darzalex brand growth, which was 23% year-over-year, is also the key metric to measure Darzalex subcutaneous growth and performance. Turning now to Roche's Fezgo, which is shown on slide 9. Fezgo is a combination of Progetta and Asbestin, for subcutaneous injections for patients with early and metastatic HER2-positive breast cancer. This allows for a single five to eight-minute subcutaneous treatment compared with a much lengthier IV treatment schedule. Of note, 85% of patients preferred Fezgo's subcutaneous administration over the IV formulation of Progetta and Herceptin. For the first half of 2023, Roche reported Fezgo sales of 517 million Swiss francs. an increase of 69% year-over-year. Fesco is now launched in 38 countries, a recent increase of eight countries, and represents 35% share, which Roche recently commented that they are expecting to grow to 50% share over time. Roche also recently highlighted that share in Great Britain is 92%, and that US share continues to grow. We're also anticipating a potential path for patient self-administration at Fesco, with an on-body injector, with pivotal Phase 1 data from Roche's study expected in the second half of the year. I'll turn now to our Wave 3 products, which are shown on slide 10. As noted earlier, these products represent the next group of royalty revenue opportunities for Halovent, with four potential launches projected between this year and 2025. Let me start with F-Cartigimont. The launch of Ergenix's Vivecart intravenous formulation in patients with generalized myasthenia gravis is progressing well, with growth of 24% quarter over quarter to $269 million in the second quarter of this year. Analysts project that Escritizumab will be a multi-billion dollar annual revenue brand in 2028. The recent SD approval and launch of Vivecart Hytrulo with Enhance provides a new 30 to 90 seconds A healthcare practitioner administered subcutaneous injection options with a shorter monitoring time for patients with generalized myasthenia gravis. F-criticimod is Argenix's flagship pipeline product and is being developed within hands in a total of six autoimmune disease indications today. And four of these indications are being developed as a subcutaneous-only delivery. Data in the first of these subcutaneous-only indications was recently reported by Argenix. On July 17th, Argenix amends positive top-line data from the ADHERES study, evaluating 5-part HyTRULO was enhanced for chronic inflammatory semi-aligned aging polyneuropathy. The study met its primary endpoint with a statistically significant p-value of 0.000039 and demonstrated a 61% reduction in the risk of relapse with 5-part HyTRULO compared to placebo. The safety and tolerability profile were consistent with the confirmed safety profile of five guards, and we look forward to Argenix presenting detailed data from the study at an upcoming medical meeting and to preparing for global regulatory submissions. Argenix has commented that work is now underway to evaluate the size of the addressable CIBB population and the opportunity, which is informed by the positive adhered study data. We continue to project two additional study readouts for vipar hetrulo within hands this year with data in idiopathic thrombocytopenic purpura and pemphigus expected in the fourth quarter. Moving now to Roche, we're looking forward to the potential approval of ticentric subcutaneous within hands in the third quarter with Roche's U.S. PDUFA Day of September 15, 2023. Subcutaneous atezolizumab has the potential to offer greater convenience for patients and physicians within approximately seven minutes of subcutaneous administration time, which compares to 30 to 60 minutes for the IV treatment. We believe this represents a significant advancement for patients, healthcare providers, and for payers. For the first half of 2023, Roche reported IV decentric revenues of 1.9 billion Swiss francs, an increase of 12% year over year, which is driven by growth in the adjuvant non-small cell lung cancer and frontline hepatocellular cancer. Moving now to Ocarbis. This is the third of the four wave 3 opportunities that have now announced positive phase 3 data with Enhance. The Ocarina 2 study met the primary and secondary endpoints, supporting proceeding with regulatory findings for Ocarbis subcutaneous injections co-formulated with Enhance, demonstrating the potential for treatment in just 10 minutes which compares to ours for the intravenous formulation. We look forward to Roche sharing detailed results of the trial at an upcoming medical meeting and to submitting data for regulatory approval to health authorities globally. Ocrevus as an IV continues its impressive growth trajectory. In the first half of the year, Roche reported Ocrevus revenues of 3.2 billion Swiss francs, which represents an increase of 15% year over year. and annualizes now to greater than $7 billion. With a 22% share of patients globally and with more than 300,000 patients treated, Ocrevus remains the market leader in the U.S. and EU5. Roche expects further market share gains with the approval of subtenues administration of Ocrevus, creating the possibility for patients to receive treatment in additional multiple sclerosis centers. Those that don't have IV infusion infrastructure or where there are ID capacity constraints, potentially adding new growth opportunity for the brand. The fourth wave three product is subcutaneous nivolumab. Bristol-Myers Squibb is also progressing with their phase three registration study of subcutaneous nivolumab utilizing enhanced in patients with renal cell carcinoma. BMS reported up to evil ID sales of $2.1 billion in the second quarter of 2023. an increase of 5% year-over-year, excluding FX. We are delighted with the advancement and pending regulatory approval for our Wave 3 pipeline. In total, these products represent substantial near-term new royalty revenue opportunity for HalosX. Analyst projections for the total product sales for these products is approximately $35 billion in 2028, including the ID and sub-Q formulations. I will note that this is significantly higher than the opportunity for our Wave 2 products, which are driving our strong duality revenue growth today. Moving to slide 11, I'll touch on some highlights from our Wave 4 partner product development pipeline within HAMS. Our longer-term growth trajectory is supported by these Wave 4 products, with its development continued potential for launches in the 2025 to 2027 time frame. 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 studies. Our goal is to continuously expand the number of products in development and to advance products through development to regulatory approval and launch, adding multiple sustainable new royalty revenue streams. The two most advanced products are Janssen's subcutaneous formulation of amivantamab and Bristol-Morris Group's fixed-zone combination of nivolumab plus rilatamab was enhanced. Both are already approved as IV treatments, and the subcutaneous formulations are in Phase III clinical testing. Notably, Janssen presented data at ASTHO this year from their Phase I Paloma study for subcutaneous amibenzimab in solid malignancies. The study was designed to identify the Phase II dose. Also reported was data that showed a reduction in all-grade infusion-related reactions, from 67% with the IV regimen to just 16% with subcutaneous amibanzumab with Enhance. This data point reinforces the opportunity to drive clinical benefit for patients with our Enhance technology. Let me comment now on new deals. We remain highly engaged in new partnership discussions for Enhance and for our autoinjector technology. It remains our goal to sign a new Enhance deal, a new high volume autoinjector deal and a new small volume autoinjector deal this year. We believe that clarity on the IRA and the recent positive results of our HVEI clinical study will serve to further advance and expand these discussions. Turning back to slide 12, I'll provide a review of the high-level results of the HVEI clinical study. We were delighted that it was such a success. The results demonstrated the feasibility of administering a subcutaneous injection 10 mLs of a representative biologic, which was immune globulin 10% within hands, in approximately 30 seconds using our high-volume autoinjectors. The injection was delivered successfully, was well-tolerated, and all 23 subjects stated that they would be willing to have the injection by the autoinjector again. No one to date to our knowledge has been able to effectively inject 10 mLs of a biologic subcutaneously in approximately 30 seconds. With a combination of our two proprietary and differentiated technologies in hand and our autoinjector technology, we're in a unique position to demonstrate that this could be done. With these positive results, we expect to advance the strong interest that we have already garnered. The high-volume autoinjector will offer a truly differentiated solution for patient-friendly, high-volume subcutaneous drug delivery that can be utilized across the spectrum of disease areas for both small molecule drugs and for biologics. Let me turn now to our commercial portfolio. Zyacet is our weekly, virtually painless subcutaneous testosterone replacement treatment, which is delivered by autoinjector. Our strategy is to convert patients who are not achieving their treatment goals with intramuscular injections of their testosterone replacement treatment. In the second quarter, we saw strong sequential demand growth with 38% demand growth in the first half of 2023 compared to the first half of 2022. Our goal remains to achieve approximately $100 million in Zyacin revenue in 2023, representing a 20% increase from the run rate following the acquisition. And we also remain focused on gaining access for Telando, our oral testosterone treatment. At this time, we have not yet reached agreement with pharmacy benefit managers on an appropriate rebate rate. And until this access is established, we're continuing to project low revenues for Telando in 2023. I'll move now to our capital allocation priorities, which are shown in slide 13, and I'll focus on our approach to growth through M&A. Investing in M&A is a key strategy to maximize our revenue growth and durability, which we believe will create long-term value for all of our stakeholders. We'll continue to focus on evaluating platforms and technologies that can extend our leadership in drug delivery with a clear line of sight to increasing and extending the durability of our revenues. We're focused on technologies that can be broadly licensed, leverage our demonstrated expertise, and partnering with biopharma companies. Now, with that, I'm going to turn the call over to Nicole, who will discuss the financial results for the second quarter of 2023. Nicole?
spk02: Thank you, Helen. Our strong financial performance in the second quarter sets us up well for another record year. We achieved record revenues of $221 million. for a total of $383.2 million year-to-date, in line with our plans in supporting our updated financial performance expectations for the full year. Our cash, cash equivalents, and marketable securities were $348.3 million as of June 30th, 2023, compared to $275.6 million as of March 31st, 2023. Our balance sheet remains strong with continued projected cash generation and EBITDA growth in 2023 and beyond. Our net debt to EBITDA ratio is 2.9 times as of June 30, 2023, which is expected to continue to decrease each quarter with EBITDA growth. We completed the full $150 million in share buybacks planned for the year in the first quarter. We will continue to evaluate our future use of capital and monitor market conditions and other factors, while also preserving capital to fund revenue growth and durability through M&A. Turning now to slide 14 for our detailed financial results for the second quarter of 2023. Recall that we closed the Ontario's acquisition last year, partway through the second quarter on May 24th, 2022. and therefore the year-over-year comparison is impacted by a full quarter versus a partial quarter of contribution from the Ontario business. Revenue for the second quarter was $221 million, compared to $152.4 million for the second quarter of 2022. The 45% year-over-year increase was largely driven by the strength in growth and enhanced revenue streams, related to royalties and an increase in milestones due to the approval and launch of Vivecart HyTRULO, as well as the addition of product sales as a result of the Antares Pharma acquisition. Royalty revenue for the quarter was $111.7 million, an increase of 31% compared to $85.3 million in the prior year period, driven by continued strong uptake of Janssen's subcutaneous as well as Roche's FezGo. Research and development expenses for the second quarter were $19.7 million, compared to $15.5 million in the second quarter of 2022, 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 enhanced. SG&A expenses were $38.9 million compared to $57.5 million for the second quarter of 2022. The decrease year-over-year is primarily due to one-time transaction costs that occurred in the second quarter of last year of approximately $38 million, offset by an increase in compensation expenses related to the ongoing combined larger workforce, including the addition of commercial resources in sales and marketing for our testosterone replacement therapy products. EBITDA in the second quarter was $115.1 million, compared to $46.6 million in the second quarter of 2022, reflecting the strong year-over-year revenue performance. When adjusting for one-time transaction costs in the second quarter of 2022, adjusted EBITDA increased from $87.8 million, or 31%. Gas diluted earnings per share was 56 cents in the second quarter, and non-gas diluted earnings per share was 74 cents. Turning now to slide 15, where we are updating our full-year 2023 guidance to reflect our strong results to date. We are increasing the lower end of total revenues and now expect total revenues of $825 to $845 million. an increase from $815 to $845 million, representing growth between 25% and 28% over 2022 total revenue. We expect total revenue growth to be primarily driven by continued strength in our enhanced Wave 2 products, Darzalex SC and Fezgo, as well as a full year of Ontario's product sales and auto-injector royalty contribution. we are maintaining our royalty revenue expectation of $445 to $455 million, an increase of 23 to 26% year-over-year. We are increasing the lower end of EBITDA guidance and now expect EBITDA of $420 to $440 million, an increase from $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. And lastly, we are increasing our non-GAAP diluted earnings per share guidance to reflect both the strong results and the impact of our share repurchases that occurred earlier in the year, and now expect non-GAAP diluted earnings per share of $2.65 to $2.75, with an increase from our prior guidance range of $2.50 to $2.65. With that, I'll now turn the call back over to Helen. Thank you, Nicole.
spk03: Let me conclude by expressing my sincere appreciation to the Halazan team and our partners and collaborators for the strong progress throughout the first half of 2023. This is establishing a strong course trajectory for 2023 and beyond. We remain focused on advancing and expanding our diverse and robust portfolio of products that are enabled by our leading drug delivery platform in hand and our differentiated auto-injectors In the second half, we project another product approval with a two-centric subcutaneous producer date in September. There is also the potential for additional RECOP3 submissions based on the two recent positive Phase III data readouts from Bodgart-Hartullo in CIDP and for Ocrifus subcutaneous with Enhanced. We're expecting several additional late-stage study data readouts and announcements related to progress in expanding our Enhanced and our autoinjector partner agreements. With that, we would now be delighted to take your questions. Operator, would you please open the call for the Q&A?
spk08: Thank you. And as a reminder, if you would like to ask a question, please press star then 1 on your telephone keypad. Our first question is from Mohit Bansal with Wells Fargo. Your line is open.
spk00: Great. Thank you for taking my question, and congrats on all the progress here. Here's a question. So when you talk to your potential partners regarding partnering opportunities, How much does IRA come into discussions? Also, how do partners think about a lack of patent protection for enhanced standalone technology after 2027?
spk03: Thanks, Mohit. With regard to conversations with partners, I'll divide it into potential partners, where I will say the IRA does not come up. It may come up more now that there's clarity following the Part D guidance being issued, but it really isn't a focus of conversation. What they really are focused on is the clinical benefit and the differentiation that Enhance can bring or that our auto injectors can bring. I would say conversation is still very focused on that differentiation and clinical benefit. For our current partners, after the issuance of all of the final Part D guidance, we have been reaching out to a few of those partners and initiated some conversations. And I will say that they are generally aligned with us in terms of what we believe this can mean. And so that has become a bit of a conversation, Mahit. Let me turn now to the patents. If you recall the way our contracts are structured, we receive royalties for a period of 10 years after the first commercial sale. And again, as we talk to potential partners, they're really focused on that, recognizing if there is patent protection, which would be granted if a co-formulation patent was granted, there would be a higher royalty rate. And in the event that there would not be any co-formulation patent and our composition of matter patents had expired, they would play the lower royalty rate. And they seem to be very comfortable with that. And so far as you know, The majority of our partners are full steam ahead to identify novelty that can result in co-formulation patents because they also want to protect their inventions. So it really has not held us back. You can see a lot of our products are in wave four, will not launch until after 2027. So I think that gives you a nice bit of evidence that they really are focused on This is the only way that you can deliver high volume rapidly, and the opportunity for co-formulation patents gives them that protection on their inventions.
spk00: Super helpful. Thank you.
spk08: The next question is from Vikram Parohit with Morgan Stanley. Your line is open.
spk12: Hi, everyone. This is Gospel on for Vikram. We have one question. Could you provide some color on what your pipeline or backlog of new potential partners look like and which types of products they are looking to leverage and enhance for? Thank you.
spk03: Yes, as we've mentioned, we are working for signing new deals for Enhance on its own, Enhance with the high-volume auto-injector, and also the small-volume auto-injector. And I would say that for Enhance and the high-volume auto-injector, not surprisingly, these really focus on two types of products, either large-volume IV drugs that have the potential to go sub-Q, or subcutaneous drugs today that perhaps have the opportunity to be extending the dosing interval. The majority are focused around antibodies rather than small molecules as well. So really, where we've played before, that is still where people are interested. Now, obviously, high-volume water injector, volume would be sticking there, is anything between 3 and 10 mLs. For the larger volumes, obviously, that would be by a syringe and a push. Small volume auto-injectors, obviously there are other choices out there. Where we are seeing a lot of interest in our small volume auto-injector is for people who are looking for that reliability. That is what differentiates an Antares auto-injector. It's been tested in many cases to 99.999% reliability. So people who are looking for emergency use want that. People who've got expensive drugs want that too because you don't want to have the patient buy the drug and be unable to administer it because of failure. So I'd say high reliability drugs, high expense drugs. And then finally, there's interest also from companies who've got viscous fluids. We, with Ziastead and McKenna, have demonstrated the ability to inject some pretty viscous fluid. That remains an unmet need with the off-the-shelf small volume mosin injectors, and that's an area where we certainly have interest as well.
spk08: All right, thank you. The next question is from Michael DeFiore with Evercore ISI. Your line is open.
spk09: Hi, guys. Thanks so much for taking my questions and congrats on all the progress. Two for me. One, prior to Argenix's CIDP top line and SubQ Okra for its trial success, the stock did get a nice boost after the final CMS Part D guidance documents came out on June 30th. And from your prepared remarks, it sounds like you are more optimistic about the future. Can you perhaps offer any further color on that? whether or not CMS does in fact consider Halo's products to be fixed-dose combination products and what your potential partners are saying about this. Is there any reason to believe that the future Part B guidance documents will not resemble Part D? Then I have a follow-up.
spk03: All right, thanks for that, Mike. I would say we were pleased when we did see the final guidance that was consistent with the earlier guidance, noting, as you say, this is the Part D guidance, and most of our drugs are Part B. But what the Part D guidance really, I think, very nicely reaffirmed, that for fixed combination products, which include two or more active ingredients, as distinct drugs with purposes, these are going to be treated differently in terms of the negotiation timeline from a separate product of just one of the ingredients. That is what we had interpreted in March when the draft guidance came out, and despite comments and questions coming in, it was, or in response to questions coming in, CMS reaffirmed that for the Part D drugs. Now, as you know, Enhance is designated by the FDA as an active ingredient, and so we feel that this was a great recognition of the clinical benefits that are combinations where there's two active ingredients and obviously enhances bringing the clinical benefit of being able to give it in a rapid sub-Q injection. In some cases, we can also reduce infusion-related reactions. So clearly fitting into this intent of CMS with the IRA. We have not received any specific feedback from CMS as to whether they have provided a comment to say it doesn't hands fit in. We're basing our confidence on the fact we are an active ingredient, and the Part D guidance is very clear on two active ingredients being treated separately. Our experts believe, given that this was a specific question that was asked in the Part D final guidance, that there is a good probability that there won't be a change between Part B and Part D. But obviously, we can't say that with absolute confidence until we see the Part B guidance.
spk09: Got it. That's very helpful. And my follow-up question is this, and I may have missed this in the opening comments, but at least back on your Q1 call, the Fed-Go conversion in Germany seems to be uniquely low compared to other XUS geographies. And My question is, is there anything unique in Germany in terms of how physicians practice relative to the rest of the EU that would explain the comparatively low Fesco conversion there?
spk03: Yeah, we've seen, and I can't speak specific to Fesco because I don't have information, but if I go back to the launch of Herceptin, Mike, the German healthcare system is a little bit like the U.S., where physicians receive an administration fee for IV administration. And what we saw with Herceptin was that the uptake lagged the other countries where there wasn't that reimbursement dynamic. So perhaps a little bit more like the U.S., where you get a lag in terms of the update. Over time, we did see Germany grow with Herceptin, and so I don't believe I ever saw it catch up, but it certainly has been a dynamic we've seen because of the reimbursement. And, Macarilla, I didn't answer another of your questions. You were asking whether any of our partners had had a similar interpretation as to the Part D guidance and potential for read-through to enhance. And we'll say we're just beginning those conversations, but to date, we have found our large pharma partners are in a similar interpretation.
spk08: Very helpful. Thank you. The next question is from David Reisinger with Lerink Partners. Your line is open.
spk07: David Reisinger Yes, thanks very much, and congrats on the updates. I have two questions, please. So, first, Paleozyme previously included a quarterly site and expected new partnership deals in 23. Could you please provide an update on your expectations, Helen? comment verbally in response to a question sounded like your dialogue is on track and just wanted to hear you add a little more color since that slide isn't in the deck. And then second, could you remind us about any specific products that will be impacted by Enhance's EU LOE in 24 and the US LOE in 27? Thanks very much.
spk03: Yeah, thanks for that, David. And in the prepared remarks, we did comment that we continue to be confident in signing a new enhanced deal, a new deal for the HCI, which of course would include it in the hands as well, and a new small volume auto-injector deal. you remain in active dialogue across a range of different companies and types of assets that we believe would clinically benefit from the addition of Enhance to improve the patient treatment experience. So hopefully that is clear. With regard to the European LOE, just to say we continue to receive royalties. I just want to make sure everybody understands this. own our products for a period of 10 years after the first commercial sale. And so for all the products that launched from Darzalex and Fezgo, we expect royalty revenues for those to extend to at least 2030. And often it can extend beyond that because of the impact of the co-formulation patent. In terms of the durability of our revenues, the LOE does not have an impact on that. As we've previously commented, in general, there could be a step down if there is no valid patents in 2024 in Europe and 2027 in the United States. We work hard with all of our partners to seek to get co-formulation patents, and we've previously commented that for all of our products, and I will just highlight that for Darbolex, while we'll continue to get royalty revenues to at least 2030, there is a set down to half of the current royalty rate in 2024 when the European patent expires, and the same in the US in 2027. Many of our other products have got co-formulation patents. They're expected to have co-formulating patents that are going to continue to extend the time to step down. But the most important factor, just to be very clear, is the duration of our royalties is unaffected by any of the composition of matter patent expiries.
spk07: Great. Thank you.
spk08: The next question is from Corinne Jenkins with GSC. Your line is open.
spk06: Good afternoon. This is Craig on for Corinne. I had one in regards to your recent positive data of your high-volume autoinjector. Can you describe how this data has helped foster partnerships and what partners or potential partners are seeing as most exciting or differentiating about it?
spk03: Thanks Craig. I would say the HDI data specifically is just hot off the press. We completed that study just a few weeks ago and so in terms of our job number one was to file intellectual property filings based on all of the innovations that we found with regard to this novel approach that we don't believe has been done. And so we're just at the very start of actually sharing this data with partners now that all of that IP filing has been done. I will say, prior to that, we were sharing with partners the prototype that we had, the intent of the study, and I can tell you interest was very strong in learning more about it once we had the clinical data. So more to come over the next weeks and months than that, Craig. Know that we're in a position to safely start sharing the data, which, just to reiterate, we were delighted with to show the feasibility of 10 ml injection in approximately 30 seconds, well tolerated by all of the subjects and everybody indicating they would be willing to have the injection again. We couldn't have had a better outcome with this, and I know that is exactly what the partners and potential partners we were talking about beforehand were looking to see. So more in the next weeks and months.
spk06: Got it. Thank you very much.
spk08: The next question is from Jason Butler with JMP Securities. Your line is open.
spk10: Hi. Thanks for taking the question. I just had a couple follow-ups from the high-volume injector study. Helen, I think you referred to IgG as a representative biologic. Do you have preclinical data that support that You know, there's bridging value here. Success in this study has brought a predictive value to other molecules. And then just thoughts on how different viscosities would act in the 10-mil autoangiologist. Thanks. Sounds good.
spk03: Thanks, Jason. With regard to bridging value, I will say we do expect that each partner is going to be able to do this themselves. But what we do know that with the viscosity of the immune globulin, it mirrors in many ways the viscosity of many of our other biologics, such as Herceptin and Mathura, and that's why it was selected. And so in terms of being able to understand and use this to model based on a lot of great PK data we have across lots of different products with a similar viscosity, I do believe there's going to be some value. But the ultimate requirement from the FDA is going to be that partners do do their own clinical studies. And so it was right in the sweet spot of viscosity, which is why our technical team recommended we select that, Jason.
spk10: Great. That's helpful, Helen. Thanks. And then just one more. Can you just give us your current thinking about capital return and how you evaluate, you know, whether you would increase or renew a buyback versus look at other mechanisms of returning shareholder capital versus wanting to keep dry powder for business development purposes.
spk03: Yeah, I'll ask Nicole to address that. That's all right.
spk02: Yeah, thanks, Jason. So we have not changed our capital allocation plans for the year. We continued to, and we did execute on the planned share repurchases for the year. We took the opportunity to fully execute for the amount we allocated this year of $150 million this year. in the first quarter when we saw a nice buying opportunity. So no change in plans at this time. We continue to also very much focus on the investments in our platforms and also in growing our revenue durability via M&A. So we continue to focus on all avenues at this time.
spk08: Okay, great. Thank you. The next question is from Mitchell Kapoor with HC Wainwright. Your line is open.
spk13: Hi, everyone. Thanks for taking the question, and congrats on the quarter. As we're seeing success with DARS-Lex FastPro and FezGo, I'm just wondering if you can kind of help us understand how future launches in the oncology space will go in terms of uptake being quicker and quicker, for instance, with the potential approval of atezolizumab and other oncology products. Thank you.
spk03: Yeah, thanks for the question. You know, I do think that Darzalex sets the high bar in terms of speed and pace of update, just in terms of having been in the launching during COVID, nursing shortage, and all sorts of challenges like that. And so how we more think about it is that... We look to perhaps Herceptin as a good example where we saw over time approximately 60% share of sales in about three years. And what we do is we just take a look at the different products and we identify a range around that as to what we think the pace of uptake and the peak of uptake is going to be. So certainly as we look at atezolizumab, what we're going to see is there are plenty of settings where atezolizumab is used either on its own or with an oral therapy. In that setting, you can imagine that for patients to be able to avoid being in an infusion suite, that's going to be wonderful. And so we would expect a strong uptake there. For patients who are in for IV therapy, still a strong value proposition, being able to reduce the overall treatment time, possibly by almost an hour, which if you've been in an infusion suite and you're getting sequential chemotherapy, being shorter by an hour is very important. So we also see a nice opportunity for uptake in that setting as well. And so I think we'll wait for and see if Roche makes a comment as to where they believe the uptake is going to go. On their earnings call just a couple of weeks ago, they did comment that they do expect to see strong uptake at and above what they're seeing with Fesco, specifically expressing their pleasure with the 92% conversion in the U.K., and saying they thought levels like that in some of the European countries are certainly possible for Ticentric as well because of the benefit we're bringing to patients here. That reduction in treatment time, that reduction in burden, really very important, and then the attendant savings for the healthcare system. So more to come as we see that launch underway, but we do expect this to be well received by patients and by the oncologists and healthcare system because of the clinical benefit.
spk08: Great. Thank you, Alan. The next question is from Mack Chandler with Jefferies. Your line is open.
spk11: Hi. Thanks for taking the questions. This is Mack on for you. Congratulations on the quarter. One question was just, you know, for the wave four products, you noted that eight are in or have completed phase one. Can you give any color on which ones have completed phase one? and which Wave 4 products do you expect to be able to progress into Phase 3 next? Thanks.
spk03: Yeah, we're a little bit restricted in what we can communicate on that, Mac, because that would be partner confidential information, and the partners are in the process of analyzing their data, making any development decisions, and so they certainly don't like us to get ahead of them. So we have to wait until they make announcements on their next steps and plans. Obviously, we're delighted that two of the products are in Wave 3 clinical development. That's amivantanab, rilatilamab, and nivolumab. And we have a very nice array of other products that are in that, including products for thyroid eye disease, for HIV, for other neurological disorders. But we're going to have to just wait until our partners are ready to talk about their clinical development programs. And recall, often they choose not to do that for competitive reasons. And so we can't run them by giving any specifics yet. But we are as interested as you all are in making announcements when and as soon as we can.
spk05: Thank you.
spk08: The next question is from Caroline in Palamec with Barenburg Capital Markets. Your line is open.
spk04: Hi, thanks for taking the question. So just to follow up on cash on the balance sheet, on your 10Q, you mentioned that you have a runway for about 12 months. And I'm just wondering, which strategy are you prioritizing, an M&A or cash raise? And what would that look like? Thanks.
spk02: Yeah, thanks, Caroline. So we ended the quarter with $348.3 million of cash and cash equivalents and marketable securities on the balance sheet. So at this time, we feel very well capitalized and continue to project growth in EBITDA and growth in cash flows. I'll also note that we ended the quarter with a net debt to EBITDA ratio of 2.9 times, so also very nicely from a leverage perspective. From an M&A perspective and in the capital allocation perspective in general, I mentioned our capital allocation plans remain unchanged. We'll continue to look to deploy our cash per our three-year share repurchase plan, per our investments in our platform, and also in investing in M&A. And the timing of that will really be when we find the right target to invest in that meets our growth criteria.
spk04: Great. Thanks.
spk08: We have no further questions at this time, and this will conclude today's conference call. Thank you for participating. You may now disconnect.
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