Halozyme Therapeutics, Inc.

Good afternoon. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Halo-Zyme second quarter 2025 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 followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star and one. Please note this event is being recorded. I will now turn the call over to Tram Bui, HaloZyme's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Operator. Good afternoon and welcome to our second quarter 2025 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 Torley, HaloZone'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 as well as our outlook. 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 Dr. Helen Torley.

Good afternoon, everyone, and thank you for joining us today. Let me begin on slide three. I'm pleased to announce another record quarter, which highlights the significant growth and accelerating momentum we have across the business. Total revenue in the quarter was $326 million, representing a 41% increase over second quarter prior year. This robust growth was driven by continued strong royalty revenue performance, driven by our three established blockbuster subcutaneous therapies, Darzalex Subcutaneous, Subcutaneous Fezgo, and Five Car High Trullo. This quarter's royalty revenue grew an impressive 65% year-over-year to $206 million. An adjusted EBITDA increased an outstanding 65% over prior year second quarter to $226 million. This was driven by the accelerating growth of our high-margin royalty revenue streams as a result of increasing demand for products incorporating our leading drug delivery technology, Enhance. Based on this strong continued performance and the growth trends, I am pleased to announce that we are raising our 2025 financial guidance for the second time this year. We are now projecting total revenue of 1.275 to 1.355 billion dollars, representing 26 to 33% growth over 2024. This is a further increase to revenue guidance of $75 million after raising guidance by approximately $50 million in the first quarter reporting. 2025 full-year royalty revenue guidance is increased to $825 to $860 million, representing growth year-over-year of 44% to 51%. Adjusted EBITDA and non-GAAP EPS guidance have also been raised, and Nicole will go into more detail on this shortly. During the quarter, we completed the second $250 million share repurchase tranche of our authorized $750 million share repurchase plan. I'm pleased that we also initiated our third $250 million share repurchase program under the approved $750 million plan. Importantly, the strength of our revenue growth and the resulting strong cash generation enable us to be able to add this additional $250 million of share repurchases while being able to pursue our M&A goals. With regard to M&A, we are continuing to focus on identifying new drug delivery platforms where the business model results in long, durable revenue streams, such as through royalties, and where we see the opportunity to license the technology to multiple pharma partners. We heard your leverage and we're seeking deals that can be accomplished without the need for significant increases in net debt to EBITDA leverage. I'll move now to slide four. On the first quarter call, I highlighted multiple catalysts for our current portfolio which had just occurred or which we are expecting throughout the year that will drive incremental strong revenue and EBITDA growth for multiple years to come. There are now 14 catalysts of which I am pleased to note 11 have already occurred. While I will highlight these exciting growth catalysts in more detail as we review each product, I want to highlight and emphasize how each catalyst represents a meaningful revenue growth inflection for our royalty revenue. Let me begin with a new product approval and a new royalty revenue stream, which was for Ribravan Subcutaneous in Europe in April. Johnson & Johnson has commented on the critical role that subcutaneous Ribrovan is playing in achieving their ambitions to grow Ribrovan to become a $5 billion brand. There are two recent first-time approvals in a major region, specifically for Epdivo subcutaneous in Europe and for Vibgot-Hertullo in chronic inflammatory demyelinating polyneuropathy, or CIDP, also in Europe, both of which occurred in the second quarter. and which represents additional revenue inflecting opportunity as adoption grows in Europe. There have been five new indication approvals. Let me highlight Darzalex subcutaneous, which gained new indication approvals in smoldering multiple myeloma and in a new frontline indication in Europe, which expands their TAM in patients early in the disease and provides a meaningful new growth opportunity and revenue inflection opportunity to Helizam. Another new indication approval was the Weibgart-Hertullo prefilled syringe, which we know is already contributing and creating an inflection in the growth of Weibgart-Hertullo after just one quarter. And I will close on three major reimbursement milestones which have recently occurred, including Fesco's reimbursement in China and permanent J-codes added for Ocrevis-Sinuvo and Opdivo-Quantage, all of which add to and will expand our opportunity, adoption and create royalty revenue inflections. In our history as a company, we have never had such a broad and meaningful set of growth catalysts, creating new additional incremental royalty streams and revenue inflection across so many products. These catalysts extend beyond supporting our growing commercial success, but also reflect the important role our enhanced technology is playing in significantly enhancing patient access, improving convenience for patients, and addressing unmet patient needs. I'll now focus on the three blockbuster products that are driving our remarkable current growth, starting with Darzalex, which is shown on slide five. Johnson & Johnson reported strong second quarter results for Darzalex, with revenue increasing almost 22% to $3.5 billion in the quarter. Growth was driven by share gains of approximately four points across all lines of therapy and almost eight points in the frontline setting, in addition to market growth. I want to highlight two critical points here. Firstly, the subcutaneous delivery of Darzalex within hands has reached 96% conversion in the United States with a similarly high conversion rate outside the United States, meaning that it is the subcutaneous treatment version on which Halosam receives a mid-single-digit royalty that is driving and benefiting from the strong growth I just mentioned. And secondly, quarter after quarter, Johnson & Johnson has commented on the robust share gains for dorsal subcutaneous in the frontline setting. This is important as frontline patients as a whole have a longer survival and often a longer duration of treatment compared to the later line patients. The increased penetration of frontline is what is driving today's strong growth and we project that it will continue for many years to come. Moving now to the recent catalysts that provide new opportunity and growth. Starthalic subcutaneous recently received two new approvals in Europe. The first is for subcutaneous starthalics as part of a quadruplet regimen for newly diagnosed patients regardless of transplant eligibility. And the second is for high-risk smoldering multiple myeloma. The approval in high-risk smoldering multiple myeloma was based on the Phase III Aquila study. which showed a significantly reduced risk of progression to active multiple myeloma or death by 51% compared to the current standard of care, which is active monitoring. The new indication addresses a longstanding unmet clinical need and marks a critical advancement in the early intervention of the disease for those who are at high risk. To help you dimensionalize this opportunity, in Europe in 2022, approximately 35,000 patients were diagnosed with multiple myeloma of whom 15% had smoldering multiple myeloma. For those with high-risk smoldering multiple myeloma, half will progress to multiple myeloma within two years. For these patients, this approval for Darzalex subcutaneous marks the first ever approved therapeutic intervention and the hope that progression to full-blown multiple myeloma can be slowed. Turning to the U.S. regulatory approval status, In May, Johnson & Johnson announced the U.S. Food and Drug Administration Oncologic Drug Advisory Committee voted in favor of the benefit-risk profile of Darzalex Faspro for the treatment of adult patients with high-risk smoldering multiple myeloma. The projection from analysts for Darzalex is approximately $18 billion in sales in 2028, and Halazan will earn royalties in Darzalex with Enhance through 2032. Turning to our second blockbuster, Roche's Fezgo, which is shown on slide six. Fezgo, which is the combination of Progetta, Herceptin, and Enhance, represented the leading growth driver in Roche's pharma portfolio, with first half 2025 revenue of 1.2 billion Swiss francs, or approximately 1.5 billion US dollars, reflecting a 55% year-over-year growth. There was strong uptake across all regions, with the global conversion from Progetta to Fezgo at 46% across 78 launch countries, which increased from 58 launch countries in the first quarter. The convenience of Fezgo was also reinforced in April, with a CHMP recommendation for European label expansion, allowing administration outside of clinical settings, such as at home by a healthcare professional, once safety has been established. This label expansion represents another growth catalyst for Fezgo. Roche Project's conversion from Progetto will continue, bringing an improved treatment experience for patients and the potential to significantly reduce treatment administration costs. We're pleased with Fezgo's increasing reach and the impact of our enhanced technology platform with royalties at the full mid-single-digit rate through 2030. Let me move now to slide seven, Our partnership with Ergenix reflects a shared mission to provide innovative new treatment options for patients globally. The success of Vivegard and of Vivegard Hytrulo, which is a subcutaneous formulation within HANZ, are a great demonstration of how innovation can support patient outcomes. Vivegard Hytrulo continues to be a key driver of the exceptional growth of Vivegard total sales, which increased 97% year-over-year in the second quarter to $949 million. 5-Guard Hachulo is now approved in the United States and Europe in two indications, generalized myasthenia gravis and CIDP. The subcutaneous formulation with Enhance has been essential to broaden 5-Guard's reach to gain new prescribers and new patients in both indications. And the pre-filled syringe for subcutaneous delivery, which is also enabled by Enhance, is playing a key role in reaching even more patients earlier in the treatment paradigm. I'll begin with generalized myasthenia gravis and provide some more details. Argenix reported a strong quarter in generalized myasthenia gravis, marking the 14th quarter of consistent growth. The launch of the pre-filled syringe is helping Argenix reach new GMG patient segments, particularly those who have previously been out of reach for the HCP-administered option. Argenix further commented, that they see that myosinogravus total addressable market to be 60,000 patients in the United States, which is significantly higher than the initial estimates at launch, which were of 17,000 patients. This increase is driven by the potential addition of seronegative myosinogravus and ocular myosinogravus indications, plus the availability of biologics, adding 25,000 patients to the addressable population. The pre-filled syringes emerging is a key differentiator that will help increase penetration into this additional 25,000 patient opportunity. I'll turn now to CIDP. As of the end of June, Argenix reported over 2,500 CIDP patients had been treated globally with 5-GAR-Hetrulo. A majority of these patients are in the United States. Argenix also noted that the launches in Japan and Germany are off to a fast start. This momentum was driven by the unmet need, meaningful outcomes driven by the safety and efficacy profile, and the availability of the pre-filled syringe. With an estimated 12,000 patient population, there is significant growth opportunity ahead in CIDP. Recall, only Vivecart-Hertullo within hands is approved to treat CIDP, So 100% of sales are subcutaneous, on which Halosime receives a mid-single-digit royalty. Moving now to the pre-filled syringe, which was approved in the United States and Europe in the second quarter. Argenix, on their second quarter call, commented that the introduction of the pre-filled syringe led to a notable increase in demand in the United States. Argenix reported that pre-filled syringe drove record patient adoption, with 50% of pre-filled syringe users being entirely new to the brand and the rest switching from vial or IV. The pre-filled syringe also broadened the prescriber base, with over 1,000 physicians writing prescriptions in the first quarter of launch, 15% of whom were first-time prescribers of any Viagra product presentation. This really is a testament to the innovative technology, convenience of treatment, and suggests that the pre-filled syringe is a long-term growth enabler for all current and future indications for Vivegard-Hartullo. Vivegard-Hartullo is a prime example of a durable contributor to our long-term financial expectations, with analyst projections of $7 billion just in myasthenia gravis and CIDP, and Halazine earning royalties through the early 2040s. Now, in addition to these three blockbusters that are driving our growth today, we have four recently launched products with Enhance. Okravis Sunuvo, Tessandra Cabriza, Obdiva Quantage, and RibraVent Subtitanious, which are still early in their launches and will become more meaningful contributors in 2026 and beyond. I'll now move to slide eight and begin with Okravis. Roche reported continued good momentum for Ocrevus, with total revenue increasing 8% to 3.5 billion Swiss francs, or approximately 4.4 billion US dollars in the first half of 2025. Roche recently affirmed that they are confident in their outlook for Ocrevus to grow high single digits in 2025. Ocrevus Zenova with Enhance was approved in 2024 and allows for an approximately 10-minute subcutaneous injection which compares with multiple hours that is typically required for the intravenous administration and monitoring time. In the second quarter, Roche reported that almost 7,000 patients have already been treated with the subcutaneous formulation globally. With 50% of new Orcavis-Zenuvo patients in the United States and Germany being reported as being naive to the brand, Orcavis-Zenuvo is expected to continue to increase access and reach more patients. Existing large academic centers are adopting Zenuvo as a more convenient option for patients, while community neurologists with more limited IV capacity are seeing it open up the patient population they are able to treat. The ongoing launch of the subcutaneous formulation within hands is expected to continue to accelerate in the United States following the permanent J-code, which was granted on April 1st. We look forward to increasing adoption of subcutaneous coming from both switches, from the IV formulation, and from new-to-brand patients. The total brand opportunity for Ocrevus is projected by analysts to be $10 billion in 2028, and Halazine will earn royalties on the subcutaneous formulation at its full mid-single-digit rate until 2030, and at a step-down rate until at least 2034. I'll move now to Roses Ticenter Cow Breeza with Enhance. Ticentric Hybriso was approved in the United States and Europe in 2024 for all of the IV indications, and the enhanced enabled formulation offers patients and providers with a more convenient seven-minute subcutaneous injection. Roche has previously commented that it is their strategy to convert the IV to subcutaneous use. Ticentric represented 1.7 billion Swiss francs of revenue in the first half of 2025. Looking forward, analysts project revenue of approximately $4.5 billion in 2028. Halazan will earn royalties on net sales of the subcutaneous formulation at its full mid-single-digit rate until the 2040s. Now moving to Bristol-Mars Squibb Updevo subcutaneous with Enhance, which was granted FDA approval at the end of 2024 and approval in Europe in May. BMS recently reported that the early feedback in the U.S. is encouraging, with the three-minute subcutaneous treatment saving patients, caregivers, and providers time, while also improving clinic efficiency, increasing patient comfort, and reducing treatment complexity. Additionally, few report procedures streamline care, allowing physicians to treat more patients. In the second quarter, Avdeeva Global sales were approximately $2.6 billion, up 7%, driven primarily by demand. PMS reported that the US launch of Quantage is progressing well with sales of approximately $30 million with the use across all indicated tumor types. The permanent J-code that was received on July 1st will support additional conversion. The strong year-to-date performance of Opdivo plus Opdivo Quantage are now projected to result in mid to high single-digit growth of global Opdivo sales for the full year. Analysts predict total brand sales of $9.5 billion in 2028. I'll move now to Johnson & Johnson's Riborvant Subcutaneous, which represents our 10th approved partner product. Riborvant Subcutaneous, co-formulated with Enhance, was approved in Europe in April of 2025 for use in combination with Lasatranib for the first-line treatment of adult patients with advanced EGFR-mutated non-small cell lung cancer. The subcutaneous delivery with enhanced reduces administration time from multiple hours to minutes and results in a five-fold reduction in the potentially serious adverse event of infusion-related reactions when compared to the IV formulation. Furthermore, in an exploratory analysis, the subcutaneous formulation improved overall survival compared to the IV formulation. In the second quarter, Johnson & Johnson reported ribofan revenue of $179 million representing an increase of over 100% year-over-year and growth of approximately 27% sequentially, which was driven by continued strong launch uptake. There were share gains in both first and second lines of treatment and consistent growth in intent to prescribe. Riborvant subcutaneous lymph enhance is currently under FDA review in the United States. Our 10 launch products are on track to deliver over $1 billion in royalty revenue, now possibly even before 2027. Recall that 10 years ago I made the projection that we would achieve $1 billion in royalty revenue in 2027, and we are delivering according to this guidance. Notably, we also project all products will continue to generate royalties to at least 2030, and that many are expected to continue into the 2040s. On slide nine is an overview of our pipeline, which includes a total of nine product candidates and highlights multiple future potential new growth drivers and royalty streams that I will remind you are not included in our multi-year royalty guidance. Bristol's subcutaneous nivolumab plus rilatilumab and Takeda's TAC881 are the first potential new royalty revenue growth drivers with potential to launch in the next two years. Both are progressing in phase three. In addition, we have one product in phase two testing and six products that are in planning, are in, or have completed phase one studies. This includes Argenix 213, Argenix's next generation FCRM blocker, which recently started a phase one study. We expect two additional new target phase one trial starts, one this year and one that has now moved into 2026. Now also adding to our new growth will be new nominations and new deals. Our new partner discussions with Enhance are progressing well, and we're on track for at least one new Enhance deal announcement this year. Our conversations range from approved IV treatment, where the partner wishes to move to subcutaneous, developmental IV assets, where the partner wishes to move to sub-Q for an improved treatment patient experience, and products that are already subcutaneous, where the goal is subcutaneous extended dosing, also for improved patient experience, but also improved adherence and compliance. Let me now turn to our autoinjector business, which consists of two partner products, Teva's EpiPen and their version of teriparatide, plus the actresses Theatrogrel, which is in development with our small volume autoinjector for the prevention of myocardial infarction. As announced on our Q4 2024 call, we were pleased to have signed a development agreement for our small volume autoinjector with a current partner. We expect to enter clinical testing with this partner in 2026. We also announced a high-volume autoinjector development agreement, also with a current partner, on our first quarter 2025 call. And we are projecting to conduct a human factors study on usability by the end of this year. In parallel, we have been investing in advancing our high-volume devices for clinical readiness. We expect our 5mL high-volume autoinjectors to be ready for use in clinical human studies in the fourth quarter. In addition, the updated design of our 10 ml high volume autoinjector will be ready for partner testing in a non-clinical setting also in the fourth quarter. And we're continuing to seek new partner agreements for both the small volume and the high volume autoinjectors. Where I'm pleased to say we're hearing consistently from pharma that there is a clear goal to enable more and more at-home delivery of biologics by the patient. I'm now pleased to turn the call over to Nicole.

Thank you, Helen. Our outperformance in the second quarter reflects the growing momentum in the business, supporting another raise to our 2025 financial guidance. Total quarterly revenue increased by 41%, with $206 million in royalty revenue increasing 65%. Adjusted EBITDA growth of 65%, once again, outpaced top-line growth. with high margin royalty revenue contributing to the $98 million in free cash flow in the quarter. Moving to slide 10. In the second quarter, we completed the 250 million share repurchases announced in May of 2025. Given our expectation for continued strong cash generation, we have allocated an additional $250 million to share repurchases. Of this third and final tranche of our current $750 million approved plan, $53.5 million was deployed in the second quarter, bringing our total share repurchases in the second quarter to $303.5 million. This brings total share repurchases since 2019 to more than $1.85 billion, reflecting 117% of our cumulative free cash flow during that period. We continue to balance our use of capital with a focus on evaluating M&A opportunities to complement our strong organic growth profile while remaining disciplined about our net leverage. Let me now turn to our detailed second quarter results on slide 11. Revenue grew 41% to $325.7 million compared to $231.4 million in the prior year period. Royalty revenue of $205.6 million increased by 65% from $124.9 million in the prior year period. The continued commercial success of subcutaneous Darzalex and Fezgo and the robust growth of Vidpart Hytrulo contributed to the higher than expected royalty growth. Product sales of $81.5 million increased by 3% from $78.9 million in the prior year period, mainly driven by higher proprietary product sales. Collaboration revenue of $38.6 million, an increase of 40% from $27.5 million in the prior year period, reflect the milestone recognition of the approval and EU launch of Rybervant SC in April, and a milestone recognized for the EU approval of Opdivo SD. Research and development expenses were $17.5 million compared to $21 million in the prior year period. The decrease was primarily due to lower compensation expense, driven by resource optimization and labor allocation initiatives, offset by timing of planned investments in Enhance, related to the development of our new high yield RQPH 20 manufacturing process. Selling general and administrative expenses were $41.6 million in the quarter, up from $35.7 million in the prior year period, primarily due to increased compensation expense and consulting and professional service fees. Suggested EBITDA increased by 65% to $225.5 million, from $137 million last year. GAAP diluted earnings per share was $1.33 and non-GAAP diluted earnings per share was $1.54. This is compared with GAAP diluted earnings per share of 72 cents and non-GAAP diluted earnings per share of 91 cents in the second quarter of 2024. We continue to maintain a strong balance sheet with cash, cash equivalents, and marketable securities of $548.2 million on June 30th, 2025, compared to $596.1 million on December 31st, 2024. The decrease was primarily a result of share repurchases, offset by an increase in cash generated from operations. Our net debt position was $977 million, with a net leverage ratio of 1.2 times. Turning now to slide 12 and our updated 2025 guidance. We are excited to be able to raise our guidance for the second time this year. We now expect total revenues of 1.275 to 1.355 billion dollars representing year-over-year growth of 26 to 33 percent driven by an increase in projections for royalty revenues. Royalty revenue of 825 to 860 million dollars representing year-over-year growth of 44% to 51%. As Helen touched on, we expect Darzlex SC, Fezgo, and VivCart Hytrulo to drive the strong expectations, with VivCart Hytrulo being the largest royalty dollar growth driver. Product sales have not changed at $340 to $365 million, representing year-over-year growth of 12% to 20%. Collaboration revenue is also maintained at 110 to 130 million dollars. We expect adjusted EBITDA of between 865 and 915 million dollars, representing year-over-year growth of 37 to 45 percent, reflecting high margin royalty growth coupled with flat operating expense from our continued focus on operational efficiency. and non-GAAP diluted EPS of $6 to $6.40, representing year-over-year growth of 42% to 51%. As you refine your models, I'd also like to reiterate the following. We expect collaboration revenue for the rest of the year to be more weighted in the fourth quarter. We expect product sales for the rest of the year to also be more weighted in the fourth quarter, with quarterly sequential growth in each quarter. For royalties, we expect quarterly sequential growth for the remaining quarters in the year. With that, I'll now turn the call back over to Helen.

Thank you, Nicole. It is certainly an exciting time in HeloZem's history as we continue to achieve new record revenue and earnings growth. With 14 cash flows for growth now realized or on the near-term horizon, we have even greater conviction and line of sight in the durability of our revenue streams and the expanding opportunities ahead. Our success would not have been possible without the incredible dedication of our employees and the trust and collaboration of our valued partners. With that, operator, we are now ready to open the call for questions.

At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Karina Chin with Wells Fargo. Your line is open.

Hi, this is Serena on for Mohit Bansal. Thanks for taking our question and congrats on the quarter. Can you help us understand the status of the IP litigation with Merck? We saw that with the patent grant review being instituted, was just wondering like what are the next steps and potential outcomes of the next decision? Thank you.

Yes. So with regard to our litigation against Merck, This is the district court case that we have filed, and we're suing Merck for infringing 15 of our MDAS patents. We do not yet have a scheduling order from the court that would set up a schedule for the proceedings, but we do expect to receive that in the next couple of months.

Okay, and then just wondering, I think the PGR might be a separate process, but do you have an idea what the timeline is there?

Yes, with regard to the PGRs, there have been four PGRs filed by Merck that have been instituted by the Patent Office and all of these have been given a hearing date that is set for March 2nd in 2026. We anticipate that the first decisions on the issues that are common to all of those four PGR petitions will occur on June 2nd, 2026. So in terms of the timeline, that's when the final adjudication on these first four invalidity challenges that were brought by Merck will be adjudicated. There remain several other PGR petitions that are still under review by the PTAB at this time. But you'll start to get insights next year.

That's helpful. Thanks so much.

And I'll just say we continue to be very confident in the fact that we will prevail on these validity issues in all of the PGRs and that Merck will be found to be infringing, but we just have to go through this entire process.

And your next question comes from the line of Sean Lehman with Morgan Stanley. Your line is open.

Good afternoon, Helen. Congratulations on some very strong results. Your crystal ball seems to be working pretty well. You know, on the regulatory front, there's been quite a few moving pieces over the last few months, a lot of scuttlebutt on your stock a few months back, you know, with respect to certain issues, CMS draft guidance, etc. But as you sit today, you know, what's your confidence that we're going to see no change that will be impactful on the regulatory front?

Yeah, Sean, I'll start with the IRA, which, as you rightly say, is something that did cause a little bit of commentary a few weeks ago. I can say that on the IRA, and this is related to fixed combinations of two active ingredients, where for the Part B guidance, there was some slightly different wording that was proposed. We've been very active. and have submitted a common letter to CMS that lays out how the draft B policy as written is flawed in both a policy and a legal basis. And very importantly, we laid out all of the clinically meaningful benefits that sub-Q delivery within HANZ has brought to patients, which is one of the key areas that we know CMS was asking for feedback on. We know that many other groups have done the same, Sean, very similar arguments that they arrived at and we've been very active meeting with the OMB, also with members of Senate staff and Congress to articulate these arguments and why really there should be no change in the definition of fixed combination between the Part D guidance, which has been in play for the last two rounds of IPA, and Part B. Now, we believe it's the fall when the final guidance will be there, and we believe we have very compelling arguments and that we will prevail in there being no changes with regard to that. I think that's the only, with the regulatory one we were talking about. Sean, was there anything else you wanted to get our feedback on?

No, on a separate topic, if I may, just on the, that's great on the regulatory front, I appreciate it, but on the setting of guidance front, you know, congratulations on the upgrade, but how much do you use cell site as an input to setting guidance?

Yep, Nicole. Yeah, I can take that one, Sean. So when we look at our guidance, we're really using the trends. And at this time in the second quarter, we have a new data point that indicated new trends. And that's why we're so excited to share new full year projections for the full year. So we look at trends. We have inputs from our partners. We have our royalty reports that we get on a quarterly basis. So all of that is really the data points that we triangulate to use to now give the updated view for the full year.

Awesome. And just a very quick one, Nicole, you know, the $250 million buyback, just remind us on the comfort levels or targets for gearing ratios.

I'm sorry, what ratios?

Sorry, for gearing or leverage or, you know, how much, what's sort of the debt equity balance that you like to keep on the balance sheet?

Okay. So we do have a very nice leverage ratio at the moment. We're just at about 1%. You know, we are very committed to continuing to use our capital for share repurchases, as well as using it for investing in the business and for M&A. And so we do see that we have room. We can increase our leverage, especially if we found the right opportunity for M&A. We really like around three times leverage if we were in that type of situation. And so because of our robust cash flow, we really have all of those opportunities available to us to continue to use cash and keep a very nice net leverage ratio.

Wonderful. Thank you both. That's all I have for now.

And your next question comes in the line of Jason Butler with Citizens JMP. Your line is open.

Hi. Thanks for taking the questions and congrats on a strong quarter. I'm wondering if I could maybe ask you to expand a little bit on the the guidance and longer-term guidance, Helen, you pointed to, you know, reiterating, you know, on track to hit that billion dollars in royalty revenue. If you take Nicole's comments that, you know, you'll expect to see sequential increases in royalties in the second half of the year, it looks like you're going to end up annualizing in fourth quarter at a level well above your guide at the upper end of your guidance range for 2026. Just any comments there on the potential to update the longer-term guidance ranges?

Yeah, thanks, Jason. So we do see great trends into 2025. Our practice is during the calendar year, as we have these new data points, we do update the current calendar year. Subsequent years in those guidance updates, we do once a year and at the start of the year. So more to come next year on that.

Got it. And then maybe just, Helen, on the Crevice launch, Anything you can say about where patients are coming on to drug? Is it new to brand patients versus switches or is there a waiting between the two?

Yeah, what Roche has commented on is indicated there are about 7,000 patients globally who have started Ogrevis sub-Q, which I think is excellent. Obviously, adoption as we expected given the 10-minute sub-Q injection versus the many hours for the IV. They have commented that about 50% of patients in the U.S. are coming on NutraBrand. So doing exactly what they hoped, which the availability of SubQ would expand the number of doctors and patients who have access to the drug. And about 50% of patients are coming from IV switch. So exactly on track with what they had hoped to see with the launch with this very nice expansion in the total market and sales for Okravis over time.

Great. And then just last one for me, you mentioned that the high volume auto inject will be ready for partners to start working with later this year. What's the interest level right now? Or do you have people lined up waiting for that device?

Yeah, Jason, I can comment that we're in multiple discussions on this and they're all at different stages as you would imagine with any of these licensing conversations we talk about. We have the current partner who has signed the development agreement with us is continuing to advance with us towards that development and additional testing of the high-volume auto-injector. And we have other ones who are waiting to see and test themselves this new prototype that we'll have for the high-volume auto-injector. So definitely strong interest. And I did say in my remarks and comments, I just want to underscore it that in areas like inflammation and immunology, neurology, nephrology, there has been a concerted effort by companies to get products that can be delivered at home by the patient. It's recognized particularly for those indications that's just the way of the future. The government as an example in terms of the outpatient payment schedule commented that too many drugs are being delivered in hospitals and there's a real push for this so we're definitely seeing a very nice that response to our auto injectors as the companies are looking to get more and more drugs into the patient's home delivered by the patient themselves great thanks for taking questions and your next question comes in the line of Brendan Smith with TD Cohen your line is open

Great.

Thanks for taking the question, guys. Really, congrats on the quarter. It's great to see. I wanted to first ask, maybe actually related to the CMS conversation from earlier, can you speak just briefly to some of these next-gen assets that you have advancing through the clinic? I think you highlighted them on slide nine. And really, just how many of those are essentially leading more or less with sub-Q versus maybe this slightly older strategy of bridging from a commercial IV to a sub-Q, like J&J did with Darzalex? I'm just trying to get a sense of realistically how many of the next wave would or would not potentially be affected by whatever CMS decides.

Yeah, thanks for that, Brendan. And I will say that as we do look towards that, our pipeline, if you like, the most advanced asset there is Relatlamab with Abdevo. Now, that was approved in IV just a couple of years ago. So even in that case, companies are moving pretty fast with their sub-Q. But for the rest of the products in that, you know, you make a great point that the majority of those are either sub-Q only or or doing sub-Q and IV in development together. There will be not much space between an IV launch and a sub-Q launch, or there will only be a sub-Q launch. So the majority is definitely going in that direction. And I think that's pretty in line with what I mentioned about companies recognizing at-home delivery is the way to go in conditions. And in that particular portfolio, we've got conditions like Alzheimer's, HIV, autoimmune diseases. These are all areas where we're seeing that move towards patient self-delivery or at least in the home. So the majority are going to be sub-Q at the start or sub-Q very shortly after the IV launch.

Gotcha. Okay. Great. Thanks. And then just maybe quickly, have you heard from or coordinated with J&J at all just about what it would potentially mean to try and appeal to CMS for some of these biosimilar-related exemptions, maybe ala solara, next year if DARS-ALEC does wind up named in early next year after CMS draft clarification of that?

Yeah, no, we have not discussed that specific topic with J&J. One thing, Brandon, I just do want to bring up with the One Big Beautiful Bill Act, that expansion in the One Big Beautiful Bill to have drugs that have more than one orphan indication And have those drugs excluded from the IRA, we believe has the potential to be impacting Darzalex IV inclusion. Two indications that Darzalex IV has, which is for multiple myeloma and for amyloidosis, were both designated by the FDA as orphan drugs. And the way the One Big Beautiful Bill reads, that would mean that Darzalex would not be included as an IV in the IRA because it's only an orphan drug.

Okay. All right. Thank you very much.

And your next question comes from the line of Jessica Fi with JP Morgan. Your line is open.

Hello. This is Adam on for Jess. Thank you for taking our question. I do apologize if you mentioned this, but when could we expect more clarity on halo-deriving royalties associated with the MDACE patents? Thank you.

Yeah. Thanks for that question. The key place that that will be fully resolved, it could happen at any time if Merck chose to settle and sign a license with us, and historically that does happen as these types of infringement cases are going on, but obviously that's an uncertain timeline. The second would be at the end of the district court case and assuming success for Halazine, which obviously we believe we will win it because we do believe very strongly that Merck is infringing. Now, we are awaiting a date for the district court case. That has not been given yet, and we do expect that to be a process that will take a couple of years. So there's no clear timeline, Adam, but I would track two things, potentially Mark settling because of the strength of our case, or the second one would be upon our success going through the district court case, which would be several years from now.

And your next question comes from the line of Michael DeFior with Evacor ISI. Your line is open.

Hi, guys. Thanks for the questions and congrats on all the continued progress. Two for me, just one revisiting the Merck litigation. So with multiple PGRs now instituted and others potentially likely to file on similar grounds, how should we think about the likelihood or timing of a settlement? And do you believe that the expanding PTAB docket strengthens Merck's hand, and have a follow-up.

Yeah, so with regard to the... The settlement, that obviously is in Merck's hands, Mike. We believe very strongly that Merck is infringing our patents, and the only place that that infringement will be resolved is going to be in the district court case. And we have patents that are part of the district court case that are not subject to the PTAB process. And so it really, I think, will just come down to when Merck decides they want to settle it, they're going to do so. before we go through that whole district court case. But that is the ultimate arbiter of this infringement.

Got it. That's helpful. Separately, just curious if deal conversations have slowed down in light of the pending final part B guidance documents. Obviously, this could swing either way. Have you sensed that companies just want to wait this out and see what happens?

No, we haven't. You know, the IRA discussions have never been a big part of our sales pitch and never been a big part of the conversations to date. And so this draft Part B guidance is not impacting it at all, Mike. You know, and that's probably because we are, as I mentioned a moment ago, talking with a lot of companies who are considering sub-Q delivery, even as they've initiated their initial testing with the IVs. or they're planning sub-Q right from the start. And so we definitely do have some conversations which are IV to sub-Q switch, but the wealth of opportunities and conversations are early use and consideration for sub-Q taking the whole IRA discussion as an irrelevance. And so that is also why it's not coming up.

Got it. Thank you.

And your next question comes from the line of Mitchell Kapoor with HC Wainwright. Your line is open.

Hey, everyone. Thanks for taking the questions, and I'll add my congrats on the quarter. And on that note, I would like to ask, this seems like it's the third time raising guidance in 2025 when you include the increase during the multi-year guidance raise in January. It's a nice trend for us, but we're wondering how conservative or reasonable would you say the guidance is at this point?

Yep. I'll ask Nicole to address that, and then I'll add my comment.

Thanks, Mitchell. You know, we do see and we're excited to see that each quarter, really what we're seeing is a new latest trend point, and that trend point does identify for us what are the latest projections. And so what you see at each of those stages is us taking that data and using the latest data available to really support what we see for the full year ahead. Just great examples of what we saw this quarter is Darzalex outperformed for the quarter, really driven by the frontline setting. We saw Sezgo, for example, expanded in 20 new countries, and their growth remains really robust. And then again, the strong patient and physician adoption for Vivgar-Hitrulo. and their launch of the PFS really supported our updated outlook. And again, that latest data point that gives us the conviction that we now have put out there for full year guidance for 2025.

And I'll just add, when we put our guidance in January, that is highly informed by the guidance ranges that our partners all give us. And so we do take our judgment within those ranges they give us. And so I would say Q4 and Q1 reporting really does reflect that input we get from the partners They definitely were seeing some acceleration and momentum. Now, I talked at the beginning of my prepared remarks about having achieved 11 of the 14 catalysts. Those kind of catalysts can be hard to predict exactly, but Nicole mentioned the pre-filled syringe. We will say Argenix itself said that that was already impacting even after just one quarter. We are early in the launch in CIDP. That's another example. And for dorsalex, they just keep expanding into that frontline population. And as I mentioned, those patients stay on therapy longer, and so it has a compounding effect. And the longer we go, the more it's going to compound. And so those are just some very exciting dynamics that I think in terms of what our partners projected for the year are even more to the upside than they had indicated to us based on the information they provided. So it is all good news. It's never our intent to be conservative. We like to guide as to what we believe is going to happen. But when you're in this dynamic circumstance with lots of new catalysts you know, it's hard to get them all exactly right. And we're just getting a very nice benefit of the partners overperforming in many of the catalysts versus what they had anticipated.

Definitely. That's super helpful. Just one more from us. So it looks like Merck filed a couple of more PGRs since June. Can you provide your current outlook on this impact? And why do you think they're choosing these particular patents? and continuing to file more instead of filing them all at once.

Yeah, as to their motivation for that, Mitch, I don't want to speculate, but for the PGR process, that can happen within nine months of a new patent being issued. And so what they're looking at is the continued, and this is work that has been happening for the last 10 years at Halazan, there are more patents filed and issued. And so they simply are looking at the new issuances and they have elected to challenge the validity of some of these. Now, we believe very strongly that these patents are valid and that the ultimate settlement of the PTAB will show that. They're not having any impact on what is a very important thing, which is our district court case. which is not a question of the invalidity of patents, but their infringement of our patents. And no matter what happens in PTAB, we have patents that cannot be subject to challenge that we believe strongly demonstrate the infringement by Merck on our IP. So that's how to think about both of those. So the district court case is obviously the key one for us to have eyes on. And we expect Merck to continue, I believe, and news to continue on these PGRs. But we're also very focused on the district court case.

Great. Thank you, Helen and Nicole. Yeah.

I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Corinne Johnson with Goldman Sachs. Your line is open.

Good afternoon. A couple from us. Maybe one, now with a couple of neurology kind of launches underway and demonstrating pretty good uptake, I guess, what are your thoughts on the pace and peak potential for conversion to sub-Q in these markets? Perhaps just relative to the oncology business. And then maybe separately on the high volume autoinjector human factor study you're running with a partner by later this year, I guess, should we expect this kind of like pre-work to be done more frequently with the autoinjector deals? And maybe help us understand sort of whether human factor studies are going to be different from drug to drug or if that's kind of autoinjector specific.

Yeah, thanks, Corinne. With regard to neurology launches, obviously, Ocrevus is off to a very strong start. And when you think about the value proposition here for patients, just 10 minutes versus many hours for the infusion and observation time, for the IV, it definitely is one of the drugs where we think there will be a robust conversion. driven by the patient factors but also infusion suite capacity constraints and the cost of care globally. So, you know, that really does have all the hallmarks for being a very nice uptake. You know, CIDP I would consider another neurology indication, and the great news with 5-GAR-Hytrulu and CIDP, of course, is that that is all sub-Q. There is no IV 5-GAR approval for CIDP, so that's 100% of the sales, mid-single-digit royalty on those. So, yeah, I think we're going to see very nice uptake overall in neurology and those two specific indications. On the high-volume autoinjectors, so I think it's going to be different partner by partner. One of the things, and the human factor studies are very straightforward to do, often it is on the usability of the device. They may have a patient population where they're wanting to understand how the patient uses the device, understand is there a customization of something about the device that they want to test out before they would go into formal clinical studies. So they're pretty straightforward, short types of things, but think about it more in terms of just testing and optimizing exactly the design that they want. And so I think sometimes partners want that off the shelf. Sometimes they want to do a bit of human factor testing. It'll be a mix.

And this concludes today's conference call. You may now disconnect.