Halozyme Therapeutics, Inc.

Good morning. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to Halozyme's investor conference call. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Please note this event is being recorded. I'll now turn the call over to Tram Bui, HALO-ZIM's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Operator. Good morning and welcome to HALO-ZIM's Investor Conference Call. In addition to the press release issued earlier this morning, 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, HALO-ZIM's President and Chief Executive Officer, We will provide an update on our business and provide preliminary 2025 revenue estimates in addition to an update to our 2026 to 2028 financial guidance. On today's call, we will be making forward-looking statements as outlined on slide 2. 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 the press release and slide presentation. I will now turn the call over to Dr. Helen Torley.

Thank you, Tram, and thank you all for joining us this morning. The fourth quarter, and specifically the month of December, was a standout period for Halazem. Never before have we executed on such a broad series of value-creating events in such a brief time. This execution is creating a value inflection for Halazem. unlocking multiple drivers of long-term, durable, and profitable revenue growth. I'm incredibly energized by the pace of progress, and I'm very confident in the path ahead. Let me turn now to slide three. Here is our agenda for today. I will begin with the 2025 highlights, which are summarized on slide four. In 2025, we acquired two innovative long-duration IP subcutaneous delivery enabling technologies, In November of 2025, we closed on the acquisition of Electrify, acquiring Hypercon, a novel, clinic-ready in 2026, biologic hyperconcentration technology with IP to the mid-2040s. And I am pleased to announce that in late December 2025, we acquired SurfBio, adding a second innovative biologic and small molecule hyperconcentration technology, also with long-duration IP to the mid-2040s. These acquisitions broaden our opportunity to collaborate exclusively and non-exclusively across a full range of leading and emerging targets and mechanisms of action. We are creating the next waves of major SC innovation following Enhance, which will last over a very long-term time horizon. In parallel, in 2025, we continue to demonstrate strong Enhance momentum Highlights include the global regulatory approvals for Enhance co-formulated with Johnson & Johnson's Blockbuster product, Ribrovent. This resulted in 10 globally approved Blockbuster products now being commercialized with Enhance. And I am delighted to say that in late November and December, we signed three new Enhance collaboration agreements signaling the recognition by Biopharma that Enhance is the gold standard for large volume, rapid, subcutaneous drug delivery. These 3 new agreements are a strong representation of the broad range of enhanced opportunities in discussion today with participation by established large pharma and smaller biotechs and with target profiles, including IV to subcutaneous conversion and subcutaneous extended dosing. You will note the continued broadening of therapeutic areas to now, including obesity and inflammatory bowel disease in addition to oncology. and I'm delighted to say that clinical planning has already kicked off for all three new collaboration phase one study starts. Collectively, the 2025 events shown here create additional visibility and new revenue opportunity extending into the 2040s. Let me turn now to slide five. Our growth from one to three subcutaneous delivery technologies, each of which is royalty bearing, capitalizes on and will help fuel the growing demand and trend for more subcutaneous delivery of drugs administered in the physician clinic and also in the patient's home. Moving to slide six, let me review how our technologies address the challenges pharma faces today in creating biologics that can be given subcutaneously. This will allow you to appreciate how our broadened portfolio by providing tailored solutions to address each partner and product specific needs so dramatically increases our opportunity. Beginning on the left, many biologics require high volumes of injection to deliver the therapeutic dose due to the concentration and formulation limitations. As an example, the approved enhanced co-formulated partner products range from 5 milliliters to 23 milliliters volume of injection based on concentrations of 40 to 180 milligrams per ml. Now, it's important to just mention here that only about two milliliters can comfortably be injected subcutaneously in a single injection due to the structure of the subcutaneous space, which is filled with hyaluronan. Enhance is the perfect solution for this, enabling rapid, large-volume subcutaneous delivery by temporarily degrading the hyaluronan in the subcutaneous space, which results in volumes of 5 mL being able to be given in as little as 30 seconds as we see with 5-gart Hytrula with Enhance, or 15 milliliters in 3 minutes, as we see with Darzalex Faspro with Enhance. Enhance has demonstrated an unmatched track record of regulatory and commercial success when combined with antibodies and bispecifics, where it has enabled drugs previously given intravenously to be given subcutaneously and extended the dosing interval of an already approved subcutaneous drug, Hycuvia, by allowing larger single doses to be administered. And let me just take a moment to also highlight two new growth trends to watch for that are related to ENHANCE that I am very excited about and where we are very busy in conversations with potential partners. The first is for use with nucleic acids, where there is strong interest in whether ENHANCE can enable the subcutaneous delivery of lipid nanoparticle and large volume nucleic acid conjugate formulations while mitigating the inflammatory and immune responses usually seen with subcutaneous delivery. And the second is for use of enhanced with certain antibody drug conjugates, where there is interest in whether the change in the PK profile, and specifically the lower Cmax with an equivalent or greater AUC, can result in an improved risk benefit profile. Now, for some disease conditions, such as autoimmune, neurology, nephrology, and cardiovascular diseases, patients and their physicians are seeking more rapid delivery options, including options that the patient can deliver at home. And this is where HYPERCON and the CERF-Bio hyperconcentration technology come in. Each technology, through a different, novel, patented approach, can allow hyperconcentration of the biologic up to 500 milligrams per mL, or three to four times higher on average than is possible today. This can result in much smaller volumes for injection, potentially less than two mLs, or between two mLs and 10 mLs. Importantly, Feasibility of approximately 500 milligrams per mL has been demonstrated for both of the technologies, including with monoclonal antibodies, peptides, and even small molecules, supporting the broad opportunity. Volumes in the range of up to two mLs will fit into a small-volume autoinjector, or three to 10 mLs into Halosam's proprietary high-volume autoinjector, enabling quick, simple delivery in seconds, given by the patient or a healthcare practitioner. Halazime has become the one-stop shop for biopharma for subcutaneous delivery. Now, you may be asking, why do you need and why do you want two hyperconcentration technologies? Let me address that on slide seven. Strategically, two technologies that work differently to hyperconcentrate therapeutics expand our opportunity. And this is because we can offer partners tailored options to fit their needs and meet their target product profiles allowing them to select the approach that will be the best fit for their drug. It also allows us to work with more companies on leading and emerging top targets or mechanisms of action. As shown on the slide, the HyperCon technology achieves concentrations of approximately 500 milligrams per ml through a novel patented dehydration process. This is an advanced technology with feasibility demonstrated in tens of tests with different monoclonal antibodies and other treatment modalities. Based on the strong progress made in advancing manufacturing and clinical testing readiness, we are projecting that two current partners will initiate phase one studies with HYPERCON by the end of 2026 or before. The SURF BioHyperconcentration technology also achieves concentrations of approximately 500 milligrams per ml. It achieves this through a combination of the use of a novel proprietary excipient that enables stable, dense low friction particles and spray drying. Multiple experiments have demonstrated feasibility of achieving stable formulations at approximately 500 milligrams per ml, including with monofont antibodies and small molecules. With long duration intellectual property to the mid-2040s for each technology and opportunities for patent life extension based on novel findings, each technology excitingly adds to Halosan's long-term and durable royalty revenue opportunity. With those 2025 business highlights, Let me now review the 2025 projected financial results, which are shown on slide 8. I'm delighted to say that based on our preliminary revenue estimates, we expect to exceed our 2025 total revenue guidance and to achieve our 2025 royalty revenue guidance, compared with the guidance estimates that were last updated in November of 2025. We now expect total revenue of 1.385 billion to 1.4 billion dollars. 36 to 38% growth over 2024. This is an impressive increase of $370 to $385 million year over year. This strong projected performance is predominantly driven by royalty revenue, which is projected at $865 million to $870 million, a 51 to 52% increase and an almost $300 million higher than prior year. A truly outstanding performance, I think you will agree. And let me just mention that we are not providing the EBITDA and non-GAAP EPS update at this time, as we're still pending the accounting determination and conclusion of the impact of the recent M&A transactions that I just discussed. This information will be reported with the Q4 results. Let me move now to the 2026 guidance, which is shown on slide 9. I am very pleased to communicate that in 2026, A full 1 year earlier than the original projection, we project we will exceed 1Billion dollars in royalty revenues. Recall, I first provided this projection in January of 2018. Projecting achievement of the 1Billion dollars in royalty revenues in 2027. Many were skeptical at that time, wondering if we would navigate the then outsized concerns regarding patent cliffs in 2024 and 2027. You can see we came through this period very successfully, an important point to remember when I talk about our future growth drivers. I'm delighted to announce that based on the ongoing strength of our business, we are raising our 2026 guidance. We predict total revenue in 2026 of 1.71 to 1.81 billion dollars, a 23 to 30% increase over our 2025 estimate. reflecting a $318 to $418 million year-over-year increase. This strong performance is driven by increased expectations for royalty revenue and product sales. Royalty revenue guidance is increased to $1.13 billion to $1.17 billion, a 30% to 35% increase year-over-year, and reflecting an additional $263 to $303 million versus prior year. Adjusted EBITDA and non-GAAP diluted EPS guidance are also increased from prior guidance ranges. I will highlight that non-GAAP diluted earnings per share is projected to be $7.75 to $8.25, a meaningful increase of $1.25 above our prior guidance. And I'll just note that the twenty twenty six guidance does include approximately sixty million dollars of new operating expense for advancement of the two new hyper concentration technologies, Hypercon and Servbio, which were not included in our prior twenty twenty six guidance. Let me turn now to slide ten. We're also very pleased to provide our updated and raise longer term guidance for the period twenty twenty six to twenty twenty eight. I will focus you on total and royalty revenue, and then on non-GAAP diluted earnings per share. In 2028, we project total revenue to exceed $2 billion, a remarkable projected growth from the $1 billion in total revenue that was achieved in 2024. This is largely driven by continued robust royalty revenue growth, which is projected at $1.46 billion to $1.51 billion in 2028, a 26% to 28% CAGR for the period 2024 to 2028. I will note that the 2028 royalty revenue projection does not include the potential US manufacturing IP extension for Enhance, which would, we project, have the impact of maintaining the royalties for Dargelex FastPro and Riborrent FastPro at the original mid-single-digit royalty rate in the United States from September of 2027 to March of 2029. And non-GAAP earnings per share is projected to more than double from 2024 to 2028, projected at $10.50 to $11.10 in 2028, demonstrating the strength of our royalty business model and our strong fiscal discipline. I'll move now to slide 11 and just take a moment to highlight what truly differentiates our business. In two words, it is durability and profitability. We have expanded from one to three subcutaneous delivery licensing technologies, Enhance, HyperCon and SurfBio that each bring recurrent long duration royalties. Importantly, each of these businesses is also asset light with the partners responsible for development and commercialization costs. As a result of the asset light model and our strong operational efficiency and excellence, we project for the 2026 to 2028 period that our growth margin will exceed 80%, our free cash flow will exceed 70% of our EBITDA, and operating margin will be greater than 60%. I will now turn to what excites me the most and what gives me such confidence in our future, our growth roadmap, beginning on slide 13. This roadmap provides the multiple growth drivers in 2029 and beyond that give me incredible confidence, just as I had in 2018, that we have the strategy the levers, the opportunities, and the financial strength to create an incredible growth performance for Halazan for many years to come. I will begin with enhance. The updated revenue and royalty guidance for 2026 to 2028 is driven by our 10 approved products. Our approved products include Darzalex, which is in its 11th year post-initial launch and is still delivering a magnificent greater than 20% year-over-year revenue growth with sales of $14.3 billion in 2025. Darzalex Faspro with Enhanced Today commands more than 90% share of total Darzalex sales and has been the key to this robust growth, enabling and expanding use of Darzalex in the large front and second line multiple myeloma patient populations. Darzalex is a cornerstone to J&J's ambition to exceed $50 billion in oncology sales in 2030. and they have invested smartly in developing DORS-like FastPro to demonstrate its unassailable risk-benefit profile in so many multiple myeloma indications that I and many believe it will continue its remarkable growth trajectory, delivering robust royalty revenue to Halosan for multiple years to come. A second blockbuster SC product within hand that I will highlight is Ergenix's by Garth Hightrulo. Approved in two subcutaneous indications today, 2025 total sales were $4.15 billion, a 90% growth year-over-year. The mid-2025 launch of the pre-filled syringe, which includes enhanced formulated 5-car Hytrulo, and which enabled at-home and in-clinic subcutaneous delivery in as little as 30 seconds, was a key driver of this strong revenue performance and of the robust growth. With high opportunities still available in the Currently Approved Subcutaneous Indications and multiple future SE Indications in development, we are excited for the continued growth of 5Guard Hydrolo. There are eight additional Approved Subcutaneous Products with Enhance, including six more recently launched and growing SubQ with Enhance products. These launch products represent substantial new royalty revenue opportunity for many years to come. And adding on top of this will be our development portfolio. For enhanced, we anticipate 6 new products will enter into phase 1 clinical testing in 2026, resulting in a total of 13 enhanced development products. The development products have the potential to launch in the 2028 to 2031 timeframe based on a number of factors, including when they entered phase 1 testing, And considering our historical timeline of approximately five years now, I will note that excitingly, recent company innovations and FDA changes may support a three to four year development timeline in some cases, meaning an even shorter time to royalty revenues. And this is just a view from where we sit today. Following our strong 2025 performance with three new enhanced licensing agreements, interest from Biopharma has never been higher. As the gold standard for SC delivery of monoclonal antibodies, we continue to be approached by many companies. In addition to this, in response to data we have generated on the use of Enhance with nucleic acids and antibody drug conjugates, we are fielding multiple incoming calls and gaining multiple meetings through our outreach to discuss how Enhance can improve the profiles of these newer treatment modalities. Based on this interest, I expect to sign between one to three new licensing agreements on Enhance this year, including with pharma and biotech companies. Importantly, with these new agreements, the Enhance royalty durability will extend into the 2040s. Moving now to slide 14, let me now turn to HyperCon. We acquired HyperCon through the acquisition of Electrify in November of 2025. Electrify has three signed licensing agreements to date, With organics Johnson and Johnson and Lily, we expect 2 partners to initiate phase 1 clinical studies for already approved blockbuster drugs, incorporating the hyper technology by the end of 2026 or earlier. Based on development timeframes, we project potential approvals in the 2030, 2031 timeframe. Excitingly, additional feasibility testing with additional drugs is ongoing and planned. And based on this, we see the potential for an additional three to five launches by the mid 2030s. Strategically, I also want to highlight that Hypercon also provides helivine with the opportunity to transition current partners from Enhance to Hypercon. I mentioned earlier the increasing interest from patients and the healthcare practitioners for at-home, smaller volume, rapid sub-Q delivery. By applying a halosam hyperconcentration technology, current enhanced partners have the potential to significantly lower the volume of injection and enable delivery by autoinjector, further strengthening their competitive differentiation by meeting the patient and healthcare practitioner needs. For Halozyme, this could extend royalties at a mid-single-digit rate into the 2040s. With the opportunities I just outlined and Halozyme's subcutaneous development expertise, we see a path to HyperCon delivering approximately $1 billion in royalty revenues in the mid-2030s, or approximately five years after the first launches. As shown in slide 15, it's a summary of our expanded commercial and development portfolio. there will be an almost doubling of the number of commercial and development products, increasing from 19 total commercial and development products by the end of 2026 to 36 in 2028. Recalling my comments on a conservative approximately five-year development timeline, this crystallizes the multiple new royalty revenue streams projected over the upcoming years. Now, the final and a very important growth driver is additional M&A, as is shown on slide 16. It is our goal to continue to evaluate drug delivery technology opportunities where we can leverage our strong expertise. And we will also seek to utilize and deploy our strong cash flow to add growing revenue businesses, adding assets and companies where Halazan can add to and accelerate the value creation. We project that our future acquisitions will add revenue extending into the 2040s, and importantly, could begin to add growing revenue in the nearer term. Let me move to our 2026 goals. 2026 will be another incredible year of execution. We project supporting six new enhanced products and two new HyperCon products to begin phase one clinical studies, bringing our total products and development to 15. Further supporting momentum and success, current partners have multiple phase two and phase three data readouts, further expanding the commercial opportunity. And it is our plan to deliver three or more new licensing agreements in 2026 with a projection of between one and three new enhanced deals and one to two hypercon new deals. And we will also seek to complete additional acquisitions, targeting strong revenue and margin growth opportunities. Let me close with a few reflections. I've been the CEO at Halozyme now for 12 years. In this time, Halozyme has successfully navigated multiple challenges and define popular wisdom delivering strong, repeated year-over-year growth. We have created a unique end-of-one business. I know this can make it more challenging to model, but the results are very evident. We cannot, due to contract obligations, always tell you the play-by-play. But what I want to leave you with today is that I know the play-by-play. I have a team that's delivered and will deliver again. And finally, that I have never been as confident or more excited in Halazan's future. With that operator, we will open the call for questions, and I'll be joined by Nicole for the Q&A session.