Halozyme Therapeutics, Inc.

Good afternoon. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to Halazime's first quarter 2026 Financial and Operating Results Conference Call. Please note, this event is being recorded. I will now turn the call over to Tram Bui, Halazime's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator. Good afternoon, and welcome to our first quarter 2026 financial and operating results conference call. In addition to the press release issued today after the market closed, you can find a supplementary slide presentation that will be referenced during today's call in the investor relations section of our website. Leading the call will be Dr. Helen Torley, Halazim's president and chief executive officer, who will provide an update on our business, and David Ramsey, our interim chief financial officer, will review our financial results as well as our outlook. On today's call, we will be making forward-looking statements as outlined on slide two. I would also refer you to our SEC filings for a full list of risks and uncertainties. During the call, both GAAP and non-GAAP financial measures will be discussed. Certain non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation. I will now turn the call over to Dr. Helen Torley, and we will start on slide three.

Thank you, Tram, and good afternoon, everyone. We started 2026 with exceptional momentum. The continued strong performance of our currently approved products gives us strong conviction in the 2026 to 2028 financial guidance. Our recent New Deal momentum and new nominations by partners, accompanied by the expanding number of new phase one starts, is bending the curve in the 2029 plus period. And the business momentum is resulting in strong free cash flow. We have clear priorities for capital allocation, reinvesting at compelling returns to create new value and returning value to our shareholders. Today, my presentation will address how our strategy will deliver durable value for investors during our current guidance period of 2026 to 2028, continue to combine value in the 2029 plus timeframe, and deploy robust free cash flow judiciously over the short and the long term. I'll begin with our 2026 to 2028 timeframe, which is shown on slide four. The key drivers of revenue in the 2026 to 2028 timeframe are our first 10 Enhanced Launch products, which includes Darzalex Subcutaneous, Weibgart Hytrulo and Fezgo. Our strong first quarter financial results reflect continued adoption of subcutaneous drug delivery enabled by Enhanced, with royalty revenues, driven by our commercial Enhanced portfolio, increasing 43% year-over-year to $241 million. Total revenue for the quarter increased 42% year-over-year to $377 million, reflecting the strength of our commercial royalty portfolio. This revenue growth translated into adjusted EBITDA of $230 million and non-GAAP earnings per share of $1.60, representing a greater than 40% increase year over year. I'll move now to slide five. Based on these results, I am pleased to reaffirm our full year 2026 financial guidance and the 2026 to 2028 financial guidance. Two highlights I'll point out. For 2026, we continue to project enhanced royalties to exceed $1 billion for the first time, representing 30 to 35% growth over 2025. And during the 2026 to 2028 timeframe, we project our adjusted EBITDA margin will be greater than 65%, growing to approximately 70%. Moving now to slide six, As you know, our business converts revenue to free cash flow very efficiently, which provides us with the capital to deliver durable, long-term value for our shareholders. During 2026 to 2028, we plan to deploy our capital predominantly in four key areas. Firstly, we will invest to maximize the value of our organic investments, predominantly to support partner success with investments in Enhance, HyperCon, and SurfBio. Secondly, we are pleased to announce the new $1 billion share buyback authorization with an expectation of buying back at least $400 million of our shares in 2026. Over the next years, we project we will achieve a 3% annual share buyback yield. Our own equity is an asset we know best, and we're comfortable reinvesting against a compelling return plan. Thirdly, we plan to deleverage further by retiring the 2027 and 2028 remaining notes at their maturity. And fourthly, we will continue to evaluate drug delivery M&A opportunities with a continued focus on identifying high demand, large-time drug delivery licensing technologies. I will say that based on our high bar and our assessment year to date, it is unlikely that we will identify a drug delivery opportunity that meets our criteria to transact on in 2026. And we do not foresee M&A outside of drug delivery. I'll move now to our second timeframe, which is 2029+. Let me be very clear. We intend to bend the trend far more favorably beginning in 2029 than our skeptics fear. Let me explain why I believe this to be the case on slide seven. Our revenue in and post-2029 will come from four key sources. The first driver is the continued performance and contribution from our 10 current enhanced launch products. The second driver is up to 13 new launches in the 2029 plus timeframe. arising from the current enhanced pipeline of 13 products that are projected to be in clinical development by the end of 2026. The third driver is the two HyperCon product launches in the 2030-31 timeframe. And the fourth driver is the next wave of launches that will result from partners progressing additional targets under already signed HyperCon enhanced agreements and from new HyperCon and enhanced collaboration and licensing agreements. Turning now to slide eight, I'll say a few words in each of these significant revenue opportunities, beginning with the first driver, the current 10 enhanced products. As a reminder, all of our signed contracts have long durations. What you may not know is that the majority of the royalty revenue from these 10 products is still to come. Yes, let me repeat that, the majority of the royalty revenue is still to come. Let me dimensionalize that comment By the end of 2025, we estimate that our 10 approved products generated about 25% of their projected potential royalties. We estimate that we have about 66% of the additional projected royalty revenue still to come in the next six years between 2026 and 2032. With the remaining 9% in the years beyond that. In some industries, they call our 66% royalty revenue still to come in the next six years, with more after that, our contracted revenue backlog, which I'm sure sounds familiar to many of our shareholders. I'll move now to the second driver, the current enhanced pipeline products with first launches projected in the 2029 plus timeframe. We project to have up to 13 additional enhanced partner products potentially approved in the 2029 plus timeframe. These have arisen from new collaboration and licensing agreements and from current partners nominating and adding additional targets. The new revenue from these projected launches will add to and buoy our revenues. In the first quarter, I'm pleased to report that two enhanced partners initiated phase one studies of new targets in alignment with our expectation for six new enhanced targets to initiate phase one testing in 2026. This adds to the seven products that are already in development. Ergenix initiated a phase one study with ARGX124, making this the fifth product in the Ergenix collaboration to advance to the clinic. And the second enhanced partner, who for competitive reasons does not wish us to provide detailed information, initiated and completed their phase one testing in the quarter. In parallel, we continue to build the enhanced pipeline by supporting our current partners to identify and advance new targets to be nominated. These actions also add to this new wave of launches in the 2029 plus period. I'm pleased that in the first quarter, Pfizer nominated a new undisclosed non-exclusive target to be studied with enhanced, which will add to the already impressive 13 enhanced product pipeline with the potential to launch in the 2029 plus timeframe. I will now move to the third driver, Hypercon. We intend to make Hypercon the next enhanced-like success story. To achieve this goal, we plan to invest in manufacturing capacity that will allow Halazine to offer end-to-end services to our Hypercon partners. We foresee offering manufacturing from drug substance to commercial fill finish for Hypercon products. As part of this plan, we are currently finalizing the clinical supply manufacturing as we ramp up our manufacturing efforts, and we now predict that the first two phase one clinical starts will occur in the first half of 2027. The launch timing for these two products continues to be 2030-2031. As I've said in the past, we continue to see the opportunity for Hypercon to be a very large, achieving approximately $1 billion in royalty revenues by the mid-2030s. Turning now to slide nine and our fourth 2029 plus driver, the next waves of launches that will result from partners progressing additional targets under already signed HyperCon and Enhance agreements and from new HyperCon and Enhance collaboration and licensing agreements. Under our current Enhance and HyperCon agreements, there remains opportunities for partners to nominate additional targets. As an example, there are up to another 15 HyperCon targets available in already signed CLAs and tens of targets for enhance. We're seeing heightened interest in expansion of targets consistent with the interest in new CLAs. Turning now to the new agreements, we are delighted to have signed three new collaboration and licensing agreements in 2026, already meeting our goal for 2026 to execute three new deals this year. And we are not stopping here. Let me say that we have line of sight to additional agreements in 2026 based on the status of our ongoing discussions. We are delighted that with these agreements, we receive upfront milestones and have the potential to earn milestones and up to mid single digit royalties, royalties being the most important recurring and the largest revenue stream for each product. Each of these deals includes one or more targets that represent multi-billion dollar total sales potential. In May, We entered a new enhanced collaboration agreement with GSK for multiple promising oncology targets, including with antibody drug conjugates. This collaboration with GSK expands our enhanced footprint with another global pharmaceutical leader and marks our first enhanced collaboration for antibody drug conjugates, extending our enhanced technology into one of the fastest growing and largest TAM areas of oncology. We believe enhances the potential to meaningfully improve the benefit risk profile of these therapies by enabling subcutaneous administration and reducing the treatment burden for patients. We look forward to the initiation of the first clinical trial under this agreement. In early April, we announced the new HyperCon collaboration with Vertex Pharmaceuticals, enabling the use of our hyperconcentration technology with up to three Vertex targets. Hypergon addresses real-world delivery challenges by reducing injection volume and enabling at-home or office-based low-volume administration. Vertix is a recognized leader in developing transformative medicines, and this agreement demonstrates growing demand for next-generation delivery solutions that extend beyond enhanced. In May, we announced the second HyperCon Collaboration and Licensing Agreement, this time with Aruka, for the use of HyperCon with ORK-A001 in development for psoriasis and related inflammatory diseases, and for up to one additional target. ORK-A001 recently presented Phase 2 data showing best-in-class efficacy, making this an exciting future potential entrant into what is already a $20-25 billion global moderate to severe psoriasis market. These collaborations further validate Hypergon as a differentiated, royalty-bearing, durable revenue duration technology that supports our expectation that Hypergon will drive a separate and additional royalty engine projected to achieve an estimated $1 billion in royalty revenue in the mid-2030s. To date, Hypergon has signed CLAs with five companies for a total of 17 potential targets. And we project to continue to add to this already impressive number of CLAs and potential targets for HyperCon, just as we are building for Enhance and soon for SurfBio to result in commercial product launches throughout the 2030s. I trust that you will agree that our four drivers of revenue strategy will deliver durable long-term value to our shareholders. Let me now provide some details on product progress, all reinforcing the durable growth story. Moving to slide 10. Our 10 launch products, including Darzalex subcutaneous, 5-Grat-Hertrulo, and Fezco, continue to demonstrate strong revenue growth, which will be further fueled by expanding indication approvals. Let me start with Darzalex, which is the gold standard in multiple myeloma and remains Johnson & Johnson's number one product. In the first quarter of 2026, Darzalex generated approximately $4 billion in global sales, representing nearly 18% operational growth. This sustained double digit growth is remarkable and a testament to the product and to J&J's development and commercial strategy. This strong performance translated into $129 million in royalty revenue for Halazan during the quarter, reflecting a 26% year-over-year increase and underscoring the strength and durability of this important product. As you notice from the higher royalty revenue growth rate achieved in the first quarter, the royalty rate step-up was achieved faster during the first quarter of 2026 than in prior years. For a patient with multiple myeloma, what the enhanced enabled subcutaneous delivery of Darzalex has meant is a treatment time which is reduced from multiple hours to just minutes and a three-fold lower chance of experiencing a potentially life-threatening side effect called infusion-related reactions. Think of what this time back can mean to a patient who is fighting cancer. Additional growth is projected to come from new indications. In the first quarter, the FDA approved Dorsalex-Faspro in its fifth frontline approval and also approved Tikvali plus Dorsalex-Faspro for as early as second line treatment for patients with relapsed or refractory multiple myeloma. I'll turn now to our GenX's Vive Got Heart Trulo with Enhance. In the first quarter of 2026, Fivegard generated approximately $1.3 billion in global sales, representing nearly 63% growth. Fivegard Hartullo continued to be a growing and meaningful contributor to the royalty revenue during the quarter, increasing 119% to $46.3 million, resulting from growing demand and uptake. The introduction of pre-filled syringe for Fivegard Hartullo with enhanced has driven an acceleration in subcutaneous uptake, reflected by the subcutaneous growth outstripping total growth through its strong profile to reduce the administration burden and increase flexibility for patients with generalized myasthenia gravis and CIDP, allowing work and travel where this may not have been possible before. In CIDP, which remains earlier in its launch, our genics continue to see steady progress supported by increasing prescriber familiarity, expanding payer coverage, and the convenience of the subcutaneous formulation. Looking ahead, in addition to continued penetration and adoption of the two currently approved subcutaneous indications, we see meaningful growth opportunities driven by label expansions in myasthenia gravis. Last Friday, Organics announced that Fivegard and Fivegard-Hartullo received FDA approval as the first and only treatment approved for all serotypes of adult patients with generalized myasthenia gravis. Ergenics has also reported positive Phase III data in ocular myasthenia gravis, estimated by Ergenics to affect approximately 7,000 patients in the US alone. These populations, when both approved, would double the potential addressable myasthenia gravis patient brace from launch, doubling the halosem opportunity too. Moving now to Fezgo. Roche reported that Fezgo continues to deliver strong growth, increasing 27% year-over-year to 686 million Swiss francs, or approximately 877 million US dollars. This performance generated 30.2 million dollars in royalty revenue for Halazan, representing 25% year-over-year growth. The small difference between reported sales and Halazan royalties was the result of currency. Roche reiterated its expectation to reach at least 60% conversion and emphasized that Fezgo is expected to maintain a strong and durable revenue tail. I'll move now to slide 11 and highlight how the growth of the more recently launched partner products with the continuous growth of Dorsalex, Faspro, Vivecart, Hydrilla and Fezgo will deliver strong revenues in 2029 plus We have four recently launched products, the subcutaneous formulations of Ocrevus, Avdevo, Ticentric, and Riborvant within hand. Each of these products represents a significant blockbuster opportunity for subcutaneous use, collectively addressing an estimated $30 billion total IV and subcu market opportunity in 2028, based on analyst estimates. I'll share two recent highlights, one for Ocrevus Xenopo and one for Riborvant subcu, which have been reported by our partners, which underscore the continued momentum across this portfolio. For Ocrevus Zenovo, Roche highlighted strong and accelerating uptake of the enhanced enabled subcutaneous formulation, which continues to meaningfully expand access to Ocrevus across multiple sclerosis care settings. Roche reported that there are now approximately 24,000 patients globally receiving subcutaneous Ocrevus, representing the increase of roughly 7,000 patients versus the prior quarter and acceleration relative to the fourth quarter trends. Of note, Roche emphasized that approximately 60% of U.S. Ocrevus-Denoble starts are now coming from community practices, and around half of the new subcutaneous Ocrevus patients are naive to brand. This underscores Zenova's ability to expand the addressable market by reducing infusion burden and enabling treatment outside of the traditional infusion centers. Roche reiterated its peak brand sales expectation of 9 billion Swiss francs by 2029, which includes a brand expansion of approximately 2 billion Swiss francs of sales as a result of additional new opportunity created by the easier to use subcutaneous formulation. Let me now highlight the new momentum with Ribervent, which has been driven by the launch of the Enhanced SC formulation. In the first quarter, Johnson & Johnson reported sales of $257 million for Ribervent plus Lecluse, representing an 80% year-over-year growth, which has been driven by launch uptake and share gains across regions. Increasing contribution from Ribervent FastPro, the subcutaneous formulation with Enhanced, is supporting adoption and helping reinforce Ribraman's positioning as a new standard of care in EGFR-mutated non-small cell lung cancer. Looking ahead, J&J has identified Ribraman as an important longer-term growth driver with their projections that this will be a $5 billion brand. I'll move now to slide 12. In closing my section, I want to make several important comments. Today, we announced a new $1 billion share repurchase program, signaling our confidence and conviction in our business. Secondly, we're pleased to reaffirm our full year 2026 guidance and reiterate our 2026 to 2028 financial guidance. And thirdly, we have four drivers of revenue growth in the 2029 plus time period. The continued performance of our 10 approved enhanced products, a pipeline by the end of 2026 of 13 additional enhanced products with potential for launches beginning in 2029, two HyperCon launches projected in the 2030-2031 timeframe, and multiple additional launches that will arise from new nominations that are currently signed to contracts and from new collaboration and licensing agreements. By owning a share of Halozyme, you're owning a broad swath of the biopharma industry. Let me now introduce you to David Ramsey and welcome him back as our interim chief financial officer. David's deep knowledge of Halozyme, strong capital markets and investor expertise has enabled a seamless transition and immediate impact. David.