Halozyme Therapeutics, Inc.

Corporate Communications. Please go ahead.

Thank you, Operator. Good afternoon, and welcome to our third 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 Twirley, Hillizum's President and Chief Executive Officer, who will provide an update on our business. and Nicole Labrosse, our Chief Financial Officer, who will review our financial results for the third 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 filing 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'll now turn the call over to Dr. Helen Twirley.

Thank you, Tom, and good afternoon, everyone. We're very pleased with our third quarter and year-to-date 2023 financial and operating results, which reflect the continued strength and durability of our business. We remain focused on supporting our growth trajectory and are well positioned for another record year. We are on track to meet our recently updated revenue guidance and deliver greater than 25% revenue growth for the year, including greater than 23% royalty revenue growth. I am also pleased to announce that as a result of our operational performance and close attention to expenses, we are raising EBITDA and non-GAAP EPS guidance. EBITDA guidance has increased from $420 to $440 million to $430 to $445 million, and non-GAAP EPS guidance from $2.65 to $2.75 to $2.70 to $2.80. I'm pleased to forecast that strong performance on both top and bottom line growth this year. Moving to slide three. In addition, today we announced an acceleration of the $250 million share repurchase remaining under the approved $750 million share repurchase plan that we announced in 2021. This $250 million share repurchase will be executed through an accelerated share repurchase with a finance institution this week, subject to market conditions. We have a disciplined and balanced capital allocation strategy at Helizine, investing to grow the business, return capital to shareholders through share repurchases, and seek new growth opportunities through M&A. Our investments to grow the business in 2023 have resulted in substantial accomplishments, including our high volume auto injector. We plan to invest at similar levels to grow the business in 2024. Our balance sheet is strong with continued projected EBITDA growth and cash generation throughout 2023. We have reduced our net leverage substantially and consistently each quarter from 3.2 times at the end of 2022 to 2.4 times at the end of the third quarter of this year. Given our strong balance sheet, decreasing leverage, and continued EBITDA and cash generation, we decided to implement the announced $250 million ASR using cash on hand, as we believe Helizine is trading at a significant discount to our valuation, making share repurchase a high return on investment opportunity. We will continue to seek growth opportunities through MA and have increased our technical search and evaluation due diligence capabilities with the addition of Manuel Santos-Felix, who is a renowned leader in drug delivery technologies and a prior senior fellow of novel drug delivery technologies at the Novartis Institute for Biomedical Research. At this time, we do not project any near-term M&A transactions that would add to our leverage. I'll move now to highlights in the third quarter, which are shown on slide four. We reported total revenue of $216 million, which gives us confidence to achieve our full-year revenue guidance of $825 to $845 million, representing greater than 25% year-over-year growth. With operating expense management a strong focus in 2023, and with EBITDA and non-GAAP EPS trending to above the low end of our recently updated guidance, today we increase guidance on these key measures of profitability. Moving now to slide five, As an industry-leading drug delivery platform company, Halozyme has built a diversified and robust portfolio. Our enhanced technology, combined with an innovative high-volume auto-injector, provides new and potentially improved therapeutic solutions for patients, our partners, and healthcare providers. Throughout the year, our enhanced partners have made significant progress with their commercialization and development activities. which are expected to result in strong and durable long-term revenue growth for Halazan. Before I provide additional details on each product, let me summarize the strong performance and momentum in the quarter, which is delivering strong results today, while also advancing new waves of growth for Halazan in the coming years. Our Wave 2 products, Dorsalix, Faspro, and Fezgo, remain strong revenue drivers. The approval of Organics' 5GAR Hikulo in the United States and to Centric Subcontainers in Great Britain, increased the total number of commercial products to seven, and importantly signaled the start in 2023 of two new royalty revenue streams. The positive phase three data for Five Guard Hyatulo and CIDP will, upon approval, expand the commercial opportunity in a condition where there is significant high unmet need today. And the recent positive data announcements from two additional wave three products Nivolumab SubQ and Ocrelizumab SubQ support near-term regulatory filings and commercial launches in the 24 to 25 timeframe. I'll leave you with two key takeaways. Firstly, the multiple positive Phase III data readouts from our Wave 3 products in the last 19 months support a high success rate in the translation of Phase I-II enhanced subcutaneous pharmacokinetic data into positive Phase III results. The high success rate from early clinical data to positive phase three data to approval is not always fully appreciated. The likelihood of success for our partners utilizing enhanced technology when bridging from an ID approval to sub-Q is very high once early clinical data is generated. And secondly, as a result of the multiple positive phase three data readouts, we are confident to project nine royalty revenue generating products by 2025 a significant increase from five that we had as we entered 2023. And moving now to slide six, these approvals are the key drivers of our projection of the potential to achieve approximately $1 billion in royalty revenues in 2027. Let me now move to slide seven. We set the goal for 2023 to deliver a new enhanced deal, a new high volume auto-injector deal, and a new small volume auto-injector deal we've made strong progress against these goals. We were very pleased to announce a new enhanced partnership with Acumen Pharmaceuticals, which reinforces the growing recognition of the value of subcutaneous drug delivery. Acumen is focused on the development of targeted therapies for Alzheimer's disease and is leveraging their deep understanding of the amyloid beta oligomers to usher in a medical breakthrough. The Alzheimer's disease market is a key inflection point with recent and expected approvals paving a new path for treatment. We're delighted to work with Acumen with the goal of creating a best-in-class, subcutaneous delivery option that may ease the treatment burden for patients, caregivers, and the healthcare system. Under the terms of our non-exclusive agreement for their proprietary therapy, Kaleozyme received an upfront payment and will be entitled to milestones in addition to a single-digit royalty on net sales reflecting the non-exclusive nature of this agreement. For our high-volume autoinjector, we have also made strong progress. We presented the full data from our clinical study, which demonstrated that delivery of 10 mLs of a representative biologic in 30 seconds with our autoinjector was well tolerated by patients and one which the patients would have again. The companies we presented the data to have been impressed and viewed our high-volume AutoInjector Plus enhanced as a breakthrough in the area of rapid auto injection of a large volume biologic. With any breakthrough comes excitement and some inertia to something new. I am delighted that one of our current partners has agreed to test our current high-volume AutoInjector device in a clinical test in 2024. This is a step prior to the potential development of a customized high-volume autoinjector for the patient population this partner is considering. At least one other current partner is also considering proceeding with the development of a customized high-volume autoinjector for their patient population. We have not yet completed this agreement and remain focused to seek to get this completed in 2023, recognizing this may now occur in 2024. As an established leader in rapid, subcutaneous drug delivery within hands in our differentiated autoinjector technology, we remain the partner of choice across the industry. We're also seeing strong interest from pharma and biotech companies who are interested in understanding the potential implications of the final CMS guidance on drug price negotiations for Part D drugs. In these guidelines, CMS affirmed its guidance that a fixed combination which included two or more active ingredients will be distinct drugs for the purposes of applying the IRA price negotiation provisions. Notably, halosam's recombinant human hyaluronidase technology enhanced has been recognized as an active ingredient by the FDA. With those highlights, I'll now turn to slide eight for an overview of our royalty revenue and a more detailed review of the key products and drivers of growth. Royalty revenue for the third quarter of 2023 increased 15% year-over-year to approximately $114 million and continues to be the key driver of our revenue growth. For the full year, we're reiterating our royalty revenue guidance at $445-$455 million, representing greater than 23% growth over 2022. Our Wave 2 products, Darlix, Fastflow, and Fezgo, are the current royalty revenue growth drivers and will be illustrated on the next two slides. Darzalex FastPro is the globally established choice of physicians using Darzalex for multiple myeloma patients with 91% share in the United States and an estimated greater than 80% share outside the United States. With the overall brand performance driven by the use of subcutaneous formulation, total Darzalex brand growth is now the key metric we use to measure Darzalex subcutaneous growth and potential. In the third quarter of 2023, DARS lights continue to drive strong sales growth for Johnson & Johnson, with an increase of approximately 21% year-over-year on an operational basis to approximately $2.5 billion in the quarter. This increase was driven by share gains in all regions and continued growth in the first-line setting. Analysts predict annual DARS-like sales will continue to grow and will be $17 billion by 2028. Turning now to Roche's Fezgo, which is shown in slide 10. Fezgo is a combination of Progetta and Herceptin delivered in a single five to eight minute subcutaneous injection for patients with early and metastatic HER2-positive breast cancer. I'll focus firstly on Progetta to help dimensionalize the opportunity for Fezgo. For the nine months of 2023, Roche reported Progetta revenue of 3 billion Swiss francs. Moving now to Fezgo, Fesco sales grew an impressive 66% to more than 800 million Swiss francs, contributing positively to the continued growth of Roche's impressive breast cancer treatment franchise. The global conversion rate from Progetta to Fesco continues to increase, even as the number of launch countries increases. Fesco is now launched in 44 countries, up from 38 last quarter. and the conversion rate increased to 37% in the third quarter. Roche anticipates approximately 50% share over time, and they noted that the key drivers of uptake include limited nurse and chair capacity, even in the United States, and patient preference force of two. Turning now to our Wave 3 products, shown in slide 11, I'll touch on recent event highlights and also upcoming value-driving events to watch for. Always-free products are now highly de-risked with one major market approval and positive Phase III data announced for the remaining three products. Beginning with Ergenix's 5-GART or F-Cartesimod, this is Ergenix's flagship pipeline product and is being developed with Enhance in a total of six autoimmune disease indications today, with four of these indications being developed as subcutaneous-only deliveries. And let's project that F-crititumine will be a multi-billion dollar annual revenue brand in 2028. The launch of Ergenix's Vivecart and Vivecart Hytrulo with enhanced for patients with generalized myosinia gravis is progressing well, with growth of 22% quarter over quarter to $329 million in the third quarter of this year. With the FDA approval of the substantive version Vivecart Hytrulo in June of 2023, Argenix's goal is to expand the use of 5Guard by offering myosinographic patients a new treatment delivery option and to move into earlier lines of treatment, driving brand loyalty with their current prescribers. It is exciting that 5Guard Hedtrulo is helping Argenix achieve their goal. Argenix recently reported that initial feedback from doctors on 5Guard Hedtrulo is broadly positive and they recognize the benefit of this simple 30 to 90 second subcutaneous injection which is enabled by our enhanced technology. Hetrulo is contributing to Orgenic's expansion of the market with new prescribers, with the majority of patients for Hetrulo being VibeGuard-naive. Orgenic is also making progress reaching more Mycenae Gravis patients globally. In September, VibeGuard-Hetrulo received a positive opinion from the CHMP. signaling a path for European approval for generalized myasthenia gravis with a self-administration label later this quarter. Expanding the potential opportunity, Argenix announced positive hotline data from the ADHERE study, evaluating 5-part HETRULO with enhance for CIDP. With a 61% reduction in risk of relapse versus placebo, The safety and tolerability profile were reported to be consistent with the confirmed safety profile of VibeGuard when used in other indications. There is a significant unmet need in CIDP, and we're excited that Argenix will be filing with their Priority Review Voucher and are busy preparing for a 2024 launch. And further expanding the opportunity, Argenix recently confirmed two additional study readouts for VibeGuard and True with Enhanced. The first in idiopathic thrombocytopenic purpura, which is expected in the fourth quarter, and the second in pemphigus, which is expected around the end of the year. I'll move now to our additional products with Roche. The Great Britain approval of Roche's Ticentric Subcutaneous with Enhance in August marked our seventh Enhance commercial product approval. Based on the pivotal study conducted in non-small cell lung cancer, Tocentric subcutaneous was approved in Great Britain for all current IV indications, including certain types of lung, bladder, breast, and liver cancer. Kiloenzyme enhanced drug delivery technology allows for an approximate seven minutes of subcutaneous delivery, which compares with 30 to 60 minutes for the IV infusion. Roche commented on their recent quarterly call that they project the potential for T-centric sub-Q adoption in resource-constrained markets to mirror the rapid conversion and high share attainment of FedGov. With regard to upcoming regulatory actions, Roche projects the CHMP opinion in the fourth quarter of 2023 and U.S. approval decision in 2024. We're also pleased to note that as an IV treatment, T-centric continues to demonstrate strong growth Year to date, 2023, Roche reported IV to centric revenues of 2.8 billion Swiss francs, an increase of 11% year over year. I'll move now to Ocrevus. Roche's phase three Ocarina 2 trial, evaluating Ocrevus subcutaneous within hands, met its primary and secondary endpoints, opening up the potential for people living with multiple sclerosis to receive their treatment in just 10 minutes, twice a year. and creating the possibility to administer Ocrevus in additional multiple sclerosis centers that do not have IV infrastructure or that have IV capacity constraints, which adds a new growth opportunity. In October, Roche announced additional data showing subcutaneous injection was non-inferior to intravenous infusion based on Ocrevus levels in the blood over 12 weeks. Of note, Ocrevus subcutaneous injection was comparable to IV infusion and providing rapid and sustained depletion of B cells and near complete suppression of MRI lesion activity in the brain over 24 weeks. The safety profile of Ocrevus subcutaneous was reported to be consistent with the well-established safety profile of the Ocrevus ID infusion. The Ocarina 2 data will be submitted to health authorities around the world with US and European launches expected in 2024. The Ocrevus in the IV formulation continues its impressive growth trajectory. For the nine months year-to-date, Roche reported Ocrevus revenues of 4.8 billion Swiss francs, which represents an increase of 14% year-over-year. And moving to our fourth wave 3 product with positive phase 3 dates, that's Bristol-Myers Squibb subcutaneous nivolumab. BMS recently reported positive top-line data from the Phase III Technique 67T study, which was evaluating obdivo subcutaneous in advanced or metastatic renal cell carcinoma. The study net its co-primary pharmacokinetic endpoint and a key secondary endpoint, demonstrating non-inferiority of objective response rate versus IV nivolumab. The safety profile of subcutaneous subdivo was described by BMX as consistent with that of the ID of devo. On the recent quarterly call, BMX management indicated that a devo subcutaneous has the potential to open up a regulatory approval, an indication that constitutes 65 to 75% of the subdivo business today. Importantly, they further commented that subcutaneous has the potential to extend franchise durability into the 2030s. BMS reported IV sales of upheaval of $2.3 billion in the third quarter of 2023, an increase of 11% year-over-year. In total, these Wave 3 products represent substantial near-term new royalty revenue opportunity for Halazan, with analyst projections for total product sales of approximately $35 billion by 2028. What is exciting and something that is, I think, very important to highlight is that this $35 billion projected opportunity is significantly higher than the $20 billion opportunity which is projected for our Wave 2 products, those that are driving the strong royalty revenue growth we see today. I'll move now to slide 12, where I'll touch on some highlights from our Wave 4 partner product development pipeline within HAN. Our longer-term growth trajectory is supported by these Wave 4 products with potential launches in the 2025 to 2027 timeframe and the potential to add multiple sustainable new royalty revenue streams. Wave 4 is comprised of 10 partner products, two of which are progressing in Phase 3 studies and one recent advancement into a Phase 2B study. The remaining products are an ongoing Phase 1 clinical testing or a completed Phase 1 study. The two most advanced wave four products are approved as IV products and are in phase three subcutaneous studies. These are Johnson & Johnson's subcutaneous formulation of amibantamab and BMS's fixed dose combination of nivolumab plus relatinamab within hands. Notably, Johnson & Johnson presented strong data at ESMO from the Mariposa study, demonstrating that the regimen of amibantamab and lezetranib The same regimen that's being studied in the CEPQ versus IV study reduced the risk of progression and death by 30% compared to oedimetrinib or to Grissom. Overall survival data is now awaited. Continuing the program, we recently initiated enrollment of a Phase IIb study, which is comparing the efficacy, safety, peak intolerability, of N6LS with Enhance, which is given in combination with cabotegravir, and comparing that to the standard of care in adults with HIV. Turning now to slide 13, we recently presented the positive clinical data results of our high-volume autoinjector study at the 13th annual POD conference. There was strong interest in the data, which demonstrates the feasibility of administering a subcutaneous injection of 10 mLs of a representative biologic immune globulin 10% within hands in approximately 30 seconds using our high-volume autoinjectors. We're pleased by the acknowledgement by partners and potential partners that this is a breakthrough in terms of rapid, large-volume subcutaneous drug delivery via autoinjectors. And we're also delighted with the progress we've been making in advancing with two current partners.