Halozyme Therapeutics Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 10 speakers on the call.

Operator

Afternoon. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Halozyme Second Quarter 2023 Financial and Operating Results Conference Call. After the speakers' remarks, there will be a question and answer session. Then the number 1 on your telephone keypad.

Operator

Please note this event is being recorded. I'll now turn the call over to Tran Bui, Halozyme's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and welcome to our Q2 2023 financial and operating results conference call. In addition to the press release issued today after the market close, 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 Doctor. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business And Nicole Labross, our Chief Financial Officer, will review our financial results for the Q2 2023.

Speaker 1

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 and our earnings press release and slide presentation. I'll now turn the call over to Doctor.

Speaker 1

Helen Torley.

Speaker 2

Thank you, Trung. Good afternoon, everyone. I'll begin on Slide 3. We are very pleased with our Q2 2023 results, where we delivered strong year over year Top line and bottom line growth. With our partners, we announced multiple milestone bearing value creating events for the next wave of Subcutaneous products that we project will deliver meaningful royalty revenues are Wave 3 products.

Speaker 2

Most notably, our GenetGood Vygard Hytrullo that is co formulated with ENHANZE received FDA approval for generalized myosinum gravis in June, making this the 6th approved product utilizing ENHANZE. We are excited that co formulated products using Halozyme's ENHANZE technology continue to deliver substantial potential benefits for patients and for the healthcare system. Another notable event in the quarter was the publication on June 30 of the final CMS guidance for the Medicare Drug Price Negotiation Program, which was created under the Inflation Reduction Act. The final guidance applies to 2026 and to Medicare Part D drugs. The final guidance treats fixed combination products, which include 2 or more active ingredients or moieties as distinct drugs for the purposes of applying the negotiation provision.

Speaker 2

A combination product will be treated as distinct from a product that contains only 1 of the combination Products at Quick Ingredients. We believe that if this single ingredient product becomes subject to negotiation and a capped price, The fixed combination product will be subject to its own separate negotiation eligibility timeline. Today, our fixed combination products are healthcare practitioners administered and covered under Medicare Part B. In light of the Part D final guidance, our assessment remains that if CMS continues this approach regarding combination products when the Part B drugs We believe a capped price imposed on any IV version of the drug would then not apply to the ENHANZE combination product. Instead, the ENHANZE combination product would be subject to its own negotiation eligibility timeline.

Speaker 2

We believe this outcome is appropriate Because of the added patient benefit, this is represented by the ENHANZE combination product. Our ENHANZE enzyme, rupage20, is listed by the FDA as an active ingredient in various combination products. Closing out these highlights, I'm also delighted to announce that our clinical test of our high volume auto injector was a success, confirming both the feasibility and tolerability of rapid injection of 10,000,000 acres of a biologic with our high volume auto injector. All of this progress strengthens our confidence in achieving our updated Full year 2023 financial guidance, where we have raised our non GAAP EPS range and increased the lower end of the range for total revenue and for EBITDA. With that summary, let me provide some details on the events during the quarter company with a diversified and robust portfolio, which includes our enhanced royalty business, our auto injector technology business and our specialty commercial products.

Speaker 2

As an established leader in rapid subcutaneous drug delivery with ENHANZE and our differentiated OptiNGETRA technology, We remain the partner of choice across the industry. Moving now to Slide 5. In the Q2, our partners made significant progress with our commercialization and development activities related to our Wave 3 product. Wave 3 is comprised of 4 products that are projected to launch between 2023 2025 and which are expected to result in strong and durable long term growth for Halozyme. On June 20, the first of our Wave 3 product, vibegar hytrulos with enhan for generalized myasthena gravis Received FDA approval and launched shortly thereafter.

Speaker 2

The approval and launch resulted in milestone revenue to Hillobank in the quarter. Halozyme will also receive royalties on net product sales. Shortly thereafter, on July 17, argenx announced positive data of the ATHERE study, which evaluated by CAR Tetrulo with ENHANZE in patients with chronic inflammatory demyelinating polyneuropathy or CIDP. With a 61% reduction in risk of relapse versus placebo, this marks the 2nd positive readout of the 6 indications for Vipar Hytrullo that are currently being evaluated. Moving now to the second of our Wave 3 products that had positive clinical study results in the quarter.

Speaker 2

On July 13, Roche reported that their Phase 3 Ocarina 2 study of OCREVUS subcutaneous co formulated with ENHANZE We met the primary and secondary endpoints in patients with relapsing forms of multiple sclerosis or with primary progressive multiple sclerosis. The study evaluated subcutaneous Ocrevus total treatment time in 10 minutes, which compares with multiple hours of treatment time with CIV. We are excited by all of this progress and what it can mean for patients as you will see summarized on Slide 6. ENHANZE, which is an actively ready but independent action when co formulated with our partner product allows for rapid subcutaneous delivery of large volume drugs. In multiple published studies, subcutaneous delivery decreases treatment time and treatment burden for patients, resulting in an improved patient experience.

Speaker 2

And as we saw with DARZALEX subcutaneous, there may also be a lower rate of potentially life threatening infusion related reactants, which is a clear clinical benefit for patients. Subcutaneous delivery of drugs co formulated with ENHANZE have also been demonstrated To translate into meaningful cost savings and advantages to the healthcare system, including decreased healthcare practitioner time and resource utilization, Greater patient throughput and decreased drug wastage. As global infusion effect capacity constraints become more acute, SUPYDNA's delivery can play a vital role in allowing more patients to be able to access therapy and to receive their planned treatment on time. I'll now provide an overview of our financial performance. For the quarter, we reported total revenues of $221,000,000 representing a 45% year over year increase.

Speaker 2

The key driver of revenue and revenue growth is our royalty revenues, which are shown on Slide 7. 2nd quarter 2023 royalty revenue increased 31% year over year to a record $111,700,000 We project continued quarter on quarter growth of royalty revenues throughout the year. For the full year, we are maintaining our projection $445,000,000 to $455,000,000 in royalty revenue, representing 23% to 26% growth over 2022. DARZALEX FastCo and Bezco, our Waste 2 products are the 2023 royalty revenue growth drivers. And also included in the royalty revenues is the contribution from our small volume auto injector business, which remains stable and largely driven by Teva's generic EpiPen.

Speaker 2

I will note that for 2023, we are assuming nominal royalty revenues for Vipart Hytroulop and no Tecentriq subcutaneous royalty revenues. And this is based on the timing of approvals and the timeline it takes for physicians to be confident regarding reimbursement. Moving on to DARZALEX on Slide 8. Janssen Star Select growth remains impressive with combined IV and subcutaneous revenue increasing approximately 23% year over year on an operational basis In the Q2 of 2023 to approximately $2,400,000,000 This increase was driven by share gains in all regions and continued growth of the market, which was previously reported to be the result of increased penetration into the frontline treatment setting. Analysts project annual DARZALEX sales of $16,700,000,000 in 2028.

Speaker 2

DARZALEX subcutaneous is a globally established Choice for physicians who are using DARZALEX for the treatment of multiple myeloma patients with 90% share in the United States and an estimated 80% share outside the United States. With the overall brand performance now driven by the use of the subcutaneous formulation, Total DARZALEX brand growth, which was 23% year over year, is also the key metric to measure DARZALEX subcutaneous growth and performance. Turning now to Roche's Fezco, which is shown on Slide 9. Fezco is a combination of Perjeta and Herceptin for subcutaneous injections for patients with early and metastatic HER2 positive breast cancer. This allows for a single 5 to 8 minute subcutaneous treatment compared with a much lengthier IV treatment schedule.

Speaker 2

Of note, 85 percent of patients preferred FELZCO's subcutaneous administration over the IV formulation of Perjeta and Herceptin. For the first half of twenty twenty three, Roche reported pesco sales of CHF517 1,000,000, an increase of 69% year over year. Fezco is now launched in 38 countries, a recent increase of 8 countries and represents 35% share, which Roche recently commented that they are expecting to grow to 50% share over time. Roche also recently highlighted that share in the Great Britain is 92% and the U. S.

Speaker 2

Share continues to grow. We're also anticipating a potential path for patient self administration of pethoscope with an on body injector with pivotal Phase 1 data from Roche's I'll turn now to our Wave 3 products, which are shown on Slide 10. As noted earlier, these products represent the next group of royalty revenue opportunities for Halozyme with 4 potential launches projected between this year in 2025. Let me start with efgartigimod. The launch of REGENX's VIVEGAR intravenous formulation in patients with generalized myasthenia gravis is progressing well with growth of 24% quarter over quarter to $269,000,000 in the Q2 of this year.

Speaker 2

Analysts project that escritidimod will be a Multi $1,000,000,000 annual revenue brand in 2028. The recent FDA approval and launch of Biparthektrulo with ENHANZE provides a new 30 to 90 second healthcare practitioner administered subcutaneous injection option with a shorter monitoring time for patients with generalized myasthenia gravis. Ecretigimod is Organix's flagship pipeline product and is being developed with ENHANZE in a total of 6 autoimmune disease indications today, And 4 of these indications are being developed as a subcutaneous only delivery. Data in the first of these subcutaneous only indications was recently reported by argenx. On July 17, argenx announced positive top line data from the ADHEAR study, evaluating Vipart Hytruvula with ENHANCE for chronic inflammatory to myelination cholineuropathy.

Speaker 2

The study met its primary endpoint With a statistically significant P value of 0.00039 and demonstrated a 61% reduction in the risk of relapse with 5GAR HYTRULOPE compared to placebo. The safety and tolerability profile were consistent with the confirmed safety profile of 5GAR. And we look forward to argenx presenting detailed data from the study at an upcoming medical meeting and to preparing for global Regulatory submissions. Argenx said hominids that work is now underway to evaluate the size of the addressable CIDP population and the opportunity, which is informed by the positive ATIR study data. We continue to project 2 additional study readouts for Vipar Hetruto with ENHANZE this year with data in idiopathic thrombocytopenic purpura approval of TECENTRI subcutaneous with ENHANZE in the Q3 with Roche's U.

Speaker 2

S. PDUFA date of September 15, 2023. Subcutaneous atezolizumab has the potential to offer greater convenience for patients and physicians within approximately 7 minutes of subcutaneous administration time, which compares to 30 to 60 minutes for the IV treatment. We believe this represents a significant advancement for patients, healthcare providers and preparers. For the first half of twenty twenty three, Roche reported adiocentric revenues of CHF1.9 billion, an increase of 12% year over year, which is driven by growth in the adjuvant non small cell lung cancer and frontline hepatocilother cancer.

Speaker 2

Moving now to OCREVUS. This is the 3rd of the 4 Wave 3 opportunities that have now announced positive Phase 3 data with ENHANZE. The OCARENA-two study met the primary and secondary endpoints supporting proceeding with regulatory findings for OCARBIS subcutaneous injection Co formulated with ENHAN demonstrating the potential for treatment in just 10 minutes, which compares to hours for the intravenous formulation. We look forward to Roche sharing detailed results of the trial at an upcoming medical meeting and to submitting data for regulatory approvals to health authorities globally. OCREVUS as an IB continues its impressive growth trajectory.

Speaker 2

In the first half of the year, Roche reported OCREVUS revenues of CHF2.2 billion, which represents an increase of 15% year over year And annualizes now to greater than $7,000,000,000 With a 22% share of patients globally and with more than 300,000 patients treated, OCREVUS remains the market leader in the U. S. And EU5. Roche expects further market share gains with the approval of administration of OCREVUS creating the possibility for patients to receive treatment in additional multiple sclerosis centers, Those that don't have IV infusion infrastructure or where there are IV capacity constraints, potentially adding new growth opportunity for the brand. The 4th Wave 3 product is subcutaneous nivolumab.

Speaker 2

Bristol Myers Squibb is also progressing with their Phase 3 registration study of subcutaneous nimbolumab utilizing ENHANZE in patients with renal cell carcinoma. BMS reported Opdivo ID sales of We are delighted with the advancement and pending regulatory approval for our Wave 3 pipeline. In total, these products represent near term new royalty revenue opportunity for Halozyme. Analyst projections for the total product sales for these products It's approximately $35,000,000,000 in 2028, including the IV and subcu formulations. I will note that this is significantly higher than I'll touch on some highlights from our Wave 4 partner product development pipeline with ENHANZE.

Speaker 2

Our longer term growth trajectory is supported by these Wave 4 products With its development continued potential for launches in the 2025 to 2027 timeframe. Wave 4 is comprised of 10 partner products, 2 of which are in Phase 3 and the remaining 8 are in ongoing Phase 1 clinical testing or have completed Phase 1 study. Our goal is to continuously expand the number of products in development and to advance products through development to regulatory approval and launch, adding multiple sustainable new royalty revenue streams. The 2 most advanced products are Janssen's subcutaneous formulation of amibantamab And Bristol Myers Squibb takes on a combination of nivolumab plus rilatimab with ENHANCE. Both are already approved as ID treatment And the subcutaneous formulations are in Phase 3 clinical testing.

Speaker 2

Notably, Janssen presented data at ASCO this year from their Phase 1 COLOMA study for subcutaneous amavantumab in solid malignancy. The study was designed to identify the Phase 2 dose. Also reported was data that showed a reduction in all grade infusion related reactions from 67% with the IV regimen to just 16% with subcutaneous amibansumab with ENHANZE. This data point reinforces the opportunity to drive clinical benefit for patients with our ENHANZE technology. Let me comment now when you do.

Speaker 2

We remain highly engaged in new partnership discussions for ENHANZE and for our auto injector technology. It remains our goal to sign a new ENHANZE deal, a new High volume auto injector deal and a new small volume auto injector deal this year. We believe that clarity on the IRA The recent positive results of our HAI clinical study will start to further expand and expand these discussions. Turning now to Slide 12, I'll provide a review of the high level results of the HVI clinical study. We were delighted that it was such a success.

Speaker 2

The results demonstrated the feasibility of administering a subcutaneous injection of 10 ml of a representative biologic, which is immunoglobulin 10% within hand in approximately 30 seconds using our high volume auto injector. The injection was delivered successfully, was well tolerated and all 23 subjects stated that they would be willing to have the injection by the auto injector again. No one today to our knowledge has been able to effectively inject 10 ml of a biologic subcutaneously in approximately 30 seconds. With the combination of our 2 proprietary and differentiated technologies in hands on our auto injector technology, we're in a unique position to demonstrate that this could be done. With these positive results, we expect to advance the strong interest

Speaker 3

that we have already garnered.

Speaker 2

The high volume auto injector will offer a Truly differentiated solution for patient friendly, high volume, subcutaneous drug delivery that can be utilized across a spectrum of disease areas for both small molecule drugs and for biologics. Let me turn now to our commercial portfolio. XYOSTED is our weekly virtually painless subcutaneous testosterone replacement treatment, which is delivered by Och Injector. Our strategy is to convert patients who are not achieving their treatment goals with intramuscular injections of their testosterone replacement treatment. In the Q2, we saw strong sequential demand growth with 38% demand growth in the first half of twenty twenty three compared to the first half of twenty twenty two.

Speaker 2

Our goal remains to achieve approximately $100,000,000 in XYOSTED revenue in 2023, representing a 20% increase from the run rate following the acquisition. And we also remain focused On gaining access for TALANDA, our oral testosterone treatment. At this time, we have not yet reached agreement with pharmacy benefit managers on an appropriate rebate rate. And until this access is established, we're continuing to project low revenues for TILANDO in 2023. I'll move now to our capital allocation priorities, which are shown on Slide 13, and I'll focus on our approach to growth through M and A.

Speaker 2

Investing in M and A is a key strategy to maximize our revenue growth and durability, which we believe will create long term value for all of our stakeholders. We're continuing to focus on evaluating platforms and technologies that can expand our leadership in drug delivery with a clear line of sight to increasing and expanding the durability of our revenues. We're focused on technologies that can be broadly licensed, leverage our demonstrated

Speaker 3

Now with that, I'm

Speaker 2

going to turn the call over to Nicole, who will discuss the financial results for the Q2 of 2023. Nicole?

Speaker 3

Thank you, Helen. Our strong financial performance in the 2nd quarter sets us up well for another record year. We achieved record revenues of $221,000,000 for a total of $383,200,000 year to date, in line with our plans and supporting our updated financial performance expectations for the full year. Our cash, cash equivalents and marketable securities were $348,300,000 as of June 30, 2023, compared to $275,600,000 as of March 31, 2023. Our balance sheet remains strong with continued projected Cash generation and EBITDA growth in 2023 and beyond.

Speaker 3

Our net debt to EBITDA ratio is 2.9 times as of June 30, 2023, which is expected to continue to decrease each quarter with EBITDA growth. We completed the full $150,000,000 in share buybacks planned for the year in the Q1. We will continue to evaluate our future use of capital and monitor market conditions and other factors, while also preserving Turning now to Slide 14 for our detailed financial results for the Q2 of 2023. Recall that we closed the Antares acquisition last year, partway through the Q2 on May 24, 2022, and therefore, the year over year comparison is impacted by a full quarter versus a partial quarter of Contribution from the Antares business. Revenue for the 2nd quarter was $221,000,000 compared to $152,400,000 for the Q2 of 2022.

Speaker 3

The 45% year over year increase was largely driven by the strength in growth in enhanced revenue streams related to royalties and an increase in milestones due to the approval and launch of VIBEART HYTULO, as well as the addition of product sales as a result of the Antares Pharma acquisition. Loyalty revenue for the quarter was $111,700,000 an increase of 31% compared to $85,300,000 in the prior year period, driven by continued strong uptake of Janssen Subcutaneous DARZALEX as well as Roche's FES GO. Research and development expenses for the Q2 were $19,700,000 compared to $15,500,000 in the Q2 of 2022, primarily due to an increase in compensation expense related to the ongoing combined larger workforce to support the device platform in regulatory, quality and manufacturing, as well as planned investments in Enhance. SG and A expenses were $38,900,000 compared to $57,500,000 For the Q2 of 2022, the decrease year over year is primarily due to one time transaction costs that occurred in the Q2 of last year of approximately $38,000,000 offset by an increase in compensation expenses related to the ongoing combined larger workforce, including the addition of commercial resources in sales and marketing for our testosterone replacement therapy products.

Speaker 3

EBITDA in the Q2 was $115,100,000 compared to $46,600,000 in the Q2 of 2022, Reflecting the strong year over year revenue performance, when adjusting for one time transaction costs in the Q2 of 2022, Adjusted EBITDA increased from $87,800,000 or 31%. GAAP Diluted earnings per share was $0.56 in the 2nd quarter and non GAAP diluted earnings per share was $0.74 Turning now to Slide 15, where we are updating our full year 2023 guidance to reflect our strong results to date. We are increasing the lower end of total revenues and now expect total revenues of $825,000,000 to $845,000,000 an increase from $815,000,000 to $845,000,000 representing growth between 25% 28% Over 2022 total revenue. We expect total revenue growth to be primarily driven by continued strength in our ENHANZE Wave 2 products, Darzalex, SC and Fezco, as well as a full year of Antares product sales and auto injector royalty contribution. We are maintaining our royalty revenue expectation of $445,000,000 to $455,000,000 an increase of 23% to 26% year over year.

Speaker 3

We are increasing the lower end of EBITDA guidance and now expect EBITDA of $420,000,000 to $440,000,000 an increase from $415,000,000 to $440,000,000 representing growth of more than 30% over 2022 EBITDA, which excludes the impact of amortization costs related to the Antares acquisition. And lastly, we are increasing our non GAAP diluted earnings per share guidance to reflect both the strong results and the impact of our share repurchases that occurred earlier in the year and now expect non GAAP diluted earnings per share of $2.65 to With that, I'll now turn the call back over to Helen.

Speaker 2

Thank you, Nicole. Let me conclude by expressing my sincere appreciation to the Halozyme team and our partners and collaborators for the strong progress throughout the first half of twenty twenty three. This is establishing a strong growth trajectory for 2023 and beyond. We remain focused on advancing and expanding our diverse and robust portfolio of products that are enabled by our leading drug delivery platform, ENHANZE and our differentiated auto injectors. In the second half, we project another product approval with the Tecentriq subcutaneous PDUFA date in September.

Speaker 2

There is also the potential for additional Reco-three submissions based on the 2 recent positive Phase 3 data readouts for Vibegard Herculo in CIDP And for OCREVUS subcutaneous with ENHANZE. We're expecting several additional late stage study data readouts and announcements related to progress in expanding our ENHAN and our auto injector partner agreement. With that, we would now be delighted to take your questions. Operator, would you please open the call for the Q and A?

Operator

Thank you. Our first question is from Mohit Bansal with Wells Fargo. Your line is open.

Speaker 4

Great. Thank you for Congrats on all the progress here. PPA question, so when you talk to your potential partners Regarding partnering opportunities, how much does IRA come into discussions? Also, how do partners think about A lack of patent protection for ENHANZE stand alone technology after 2027.

Speaker 2

Thanks, Mohit. With regard to conversations with partners, I'll divide it into potential partners, where I will say The IRA does not come up. It may come up more now that there's clarity following the Part D guidance being issued, but It really isn't a focus of conversation. What we really are focused on is the clinical benefit and the differentiation that ENHANZE can bring or that our auto Jack, you can bring in. So I would say conversation is still very focused on that differentiation and clinical benefit.

Speaker 2

For our current partners, After the issuance of all of the final Part D guidance, let me turn now to the patents. If you recall the way our contracts are structured, We received royalties for a period of 10 years after the first commercial sale. And again, as we talk to potential partners, they're really focused on that recognizing if there is patent protection, Which would be granted if a co formulation patent was granted, there would be a higher royalty rate. And in the event that there would not be Any co formulation patent and our composition of master patents had expired, we would place a lower royalty rate. And They seem to be very comfortable with that.

Speaker 2

And so far, as you know, the majority of our partners are full steam ahead to identifying novelty That can result in co formulation patents because they also want to protect their inventions. So it really not has not held us back. You can see a lot of our products are in Wave 4, will not launch till after 2027. So I think that gives you a nice bit of evidence that They really are focused on this is the only way that you can deliver high volume rapidly and the opportunity for co formulation patents Gives them that protection on their inventions.

Speaker 4

Super helpful. Thank you.

Operator

The next question is from Vikram Parulhjit with Morgan Stanley. Your line is open.

Speaker 4

Hi, everyone. This is Gaspar on for Vikram. We have one question. Could you provide some color on the

Speaker 2

products either large volume IV drugs that have the potential to go subcu Or subcutaneous drugs today that perhaps have the opportunity to be extending the dosing interval. The majority are Focused around antibodies rather than small molecules as well. So really where we played before that is still where people are interested. Now obviously, High volume water injector volume we'd be sticking there is anything between 3 10 ml. For the larger volumes, Obviously, that would be by a syringe and a push.

Speaker 2

Small volume auto injectors, obviously, there are other choices out there. Where we are seeing a lot of interest in our small volume auto injector is for people who are looking for that reliability. That is what differentiates Anantari's auto injector. It's Being tested in many cases to 99.999 percent reliability. So people who are looking for emergency use want that.

Speaker 2

People who've got expensive drugs want that too because you don't want to have the patient buy the drug and be unable to administer it because of failure. So I see high reliability drugs, high expense drugs. And then finally, there's interest also from companies who've got viscous fluids. We with XYOSTED and Makena have demonstrated the ability to inject some pretty viscous fluid. That remains an unmet need with the off the shelf small volume OS injectors, and that's an area where we certainly have interest as well.

Speaker 4

All right. Thank you.

Operator

The next question is from Michael DiFiore with Evercore ISI. Your line is open.

Speaker 5

Hi, guys. Thanks so much for taking my questions and congrats on all the progress. 2 for me. 1, prior to argenx's CIDP top line and subcu Ochre versus trial success, the stock did get a nice boost after the final CMS Part D guidance documents came out on June 30. And from your prepared remarks, it sounds like you are more optimistic about the future.

Speaker 5

Could you perhaps offer any Further color on whether or not CMS does in fact considers HALO's products to be fixed dose combination products and What your potential partners are saying about this? Is there any reason to believe that the future Part B guidance documents will not resemble Part D? Then I have a follow-up.

Speaker 2

All right. Thanks for that, Mike. And yes, I would say we were pleased when we did See the final guidance that was consistent with the earlier guidance noting as you say this is the Part D guidance And most of our drugs are Part B. But what the Part D guidance really, I think, very nicely reaffirmed that for fixed combination products, Which includes 2 or more active ingredients, as distinct drugs with purposes, that these are going to be treated Differently in terms of negotiation timeline from a separate product of just one of the ingredients. That is what we had interpreted in March when the draft guidance came out.

Speaker 2

And Despite comments and questions coming in, it was or in response to questions coming in, CMS reaffirmed that for the Part D drugs. Now as you know, ENHANZE is designated by the FDA as an And so we feel that this was a great recognition of the clinical benefit That are combinations where there's 2 active ingredients and obviously ENHANZE is bringing the clinical benefit of being able to give it in a rapid subcu injection. In some cases, we can also reduce infusion related reaction. So clearly fitting into this intent of CMS with the IRA. We have not received any specific feedback from CMS as to whether they have provided a comment to say does ENHANZE We're basing our confidence on the fact we are an active ingredient, and the Part D guidance is very clear On 2 active ingredients being treated separately.

Speaker 2

Our experts believe, given this was a specific question that was As in the Part D final guidance that there is a good probability that there won't be a change between Part B and Part D. But obviously, we can't say that with absolute confidence until we see the Part B guidance.

Speaker 5

Got it. That's very helpful. And my follow-up question is this, and I may have missed this in the opening comments, but at least Back on your Q1 call, the FedGo conversion in Germany seems to be uniquely low compared to other ex U. S. Geographies.

Speaker 5

And My question is, is there anything unique in Germany in terms of how physicians practice relative to the rest of the EU that would explain the Comparatively low FESGO conversion there?

Speaker 2

Yes. We've seen and I can't speak specific to FESGO because I don't have information. But if I go back to the launch of Herceptin, Mike, the German health care system is a little bit like the U. S. Where physicians receive an administration fee for IV administration.

Speaker 2

And what we saw with Herceptin was that the up Take lagged the other countries where there wasn't that reimbursement dynamic. So perhaps a little bit more like the U. S. Where you get a lag in terms of the uptake. Over time, we did see Germany grow with Herceptin.

Speaker 2

And so I don't believe I ever saw a catch up, but It certainly has been a dynamic we've seen because of the reimbursement. And I realize I didn't answer another of your questions. You're asking whether any of our partners Had had a similar interpretation as to the Part D guidance and potential for ReTRU to enhance. And I'll say we're just beginning those But to date, we have found our large pharma partners are in a similar interpretation.

Speaker 5

Very helpful. Thank you.

Operator

The next question is from David Risinger with Leerink Partners. Your line is open.

Speaker 6

Yes. Thanks very much and congrats on the updates. I have Two questions, please. So,

Speaker 2

first,

Speaker 6

Halozyme previously included a quarterly side and expected new partner Ship deals in 'twenty three. Could you please provide an update on your expectations, Helen? I heard you Comment verbally in response to a question, sounded like your dialogue is on track and Just wanted to hear you add a little more color since that slide isn't in the deck. And then second, Could you remind us about any specific products that will be impacted by Enhance's EU LOE in 'twenty four and the U. S.

Speaker 6

LOE in 'twenty seven? Thanks very much.

Speaker 2

Yes. Thanks for that, David. And in the prepared remarks, we did comment that we continue to Be confident in signing a new ENHANZE deal, a new deal for the HCEI, which of course would include it in the hands as well, And the new small volume auto injector deal. And it remain in active dialogue across a range of different companies and types of Assets that we believe would clinically benefit from the addition of ENHANZE to improve the patient treatment experience. So Hopefully, that is clear.

Speaker 2

With regard to the European LOE, just to say, we Continue to receive royalties, I just want to make sure everybody understands this, own our products for a period of 10 years after the first commercial sale. And so for all the products that launched from DARZALEX and SESGO, we expect royalty revenues for those to extend to at least 2030. And often, it can extend beyond that because of the impact of the co formulation patent. And so In terms of the durability of our revenues, the LOE does not have an impact on that. There as we've previously commented, in general, there could be a step down if there is no valid patents in 2024 in Europe and 2020 In the United States, we work hard with all of our partners to seek to get co formulation patents.

Speaker 2

And we've previously commented that For all of our for our products, and I will just highlight that for DARVOX, while we'll continue to get some royalty revenues to at least 2,030, 30, there is a step down to half of the current royalty rate in 2024 when the European patent expires And the same in the U. S. In 2027. Many of our other products have got co formulation patents are expected to have co formulation So we're going to continue to extend the time to step down. But the most important factor just to be very clear is the duration of our royalties is unaffected By any of the composition of matter of patent expiries.

Speaker 7

Great. Thank you.

Operator

The next question is from Corrine Jenkins with GSE. Your line is open.

Speaker 7

Good afternoon. This is Craig on for Corrine. I had one in regards to your recent positive data of your high volume auto injector. Can you describe how this data has helped foster partnerships and what partners or potential partners Are seeing as most exciting or differentiating about it?

Speaker 2

Yes. Thanks, Craig. And I would say the HCI data specifically is just Off the press, we completed that study just a few weeks ago. And so in terms of our job number 1 was to file Intellectual property filings based on all of the innovations that we found with regard to this novel approach that we don't believe has been done. And so

Speaker 3

we're just at the very start

Speaker 2

of actually sharing this data with partners now that all of that IP filing has been done. I will say prior to that, We were sharing with partners the prototype that we had, the intent of the study, and I can tell you, interest was very strong In learning more about it once we had the clinical data. So more to come over the next weeks months than that, Craig. I know that we're in a position to safely start sharing the data, which just to reiterate, we were delighted with show the feasibility of 10 ml injection in approximately 30 seconds, well tolerated by all of the subjects and everybody Indicating they would be willing to have the injection again. We couldn't have had a better outcome with this.

Speaker 2

And I know that is exactly what the Partners and potential partners we were talking about beforehand, we're looking to see. So more in the next weeks months.

Speaker 7

Got it. Thank you very much.

Operator

The next question is from Jason Butler with JMP Securities. Your line is open.

Speaker 7

Hi, thanks for taking the questions. I just had a couple of follow ups from the high volume injector study. Helen, I think you referred to IgG as a representative of biologic. Do you have preclinical data that support that There's bridging value here, I. E.

Speaker 7

Success in this study has broader predictive value to other molecules. And then just thoughts on how different viscosities would act in the 10 millimeters auto injector? Thanks.

Speaker 2

Thanks, Jason. With regard to bridging value, I will say we do expect that each Partner is going to be able to do this themselves. But what we do know that with the viscosity All of the immunoglobulin, it mirrors in many ways the viscosity of many of our other biologics such as And that's why it was selected. And so in terms of being able to understand and use this To model based on a lot of great PK data we have across lots of different products with a similar viscosity, I do believe there's going to be some value. But the ultimate requirement from the FDA is going to be that partners do their own clinical studies.

Speaker 2

And so it was right in the sweet spot of vivacity, which is why our technical team recommended we select that, Jason.

Speaker 7

Great. That's helpful, Helen. Thanks. And then just one more. Can you just give us your kind of thinking about capital Return and how you evaluate whether you would increase or renew a buyback versus look at other Mechanisms of returning shareholder capital versus wanting to keep dry powder for business development purposes?

Speaker 2

Yes. I'll ask Nicole to address that, if that's all right.

Speaker 3

Yes. Thanks, Jason. So we have not changed our capital allocation plans for the year. We continued to and we did execute on the planned share repurchases for the year. We took the opportunity to fully execute for the amount we allocated this $150,000,000 in the Q1 when we saw a nice buying opportunity.

Speaker 3

So no change in plans at this We continue to also very much focus on the investments in our platform and also in growing Our revenue durability via M and A. So we continue to focus on all avenues at this time.

Speaker 7

Okay, great. Thank you.

Operator

The next question is from Mitchell Kapoor with H. C. Wainwright. Your line is open.

Speaker 6

Hi, everyone. Thanks for taking the question and congrats on the quarter. As we're seeing success with DARZALEX FASTPRO and FESGO, I'm just wondering if you can kind of help us understand how future launches in the oncology space will go in terms of uptake being quicker and quicker, for instance, with the potential approval of atezolizumab and other oncology products? Thank you.

Speaker 2

Yes. Thanks for the question. I do think that DARZALEX sets the high bar In terms of speed and pace of uptake, just in terms of having been in the launching during COVID, Nursing shortage and all sorts of challenges like that. And so how we more think about it is that we look to perhaps is a good example where we saw over time approximately 60% share of sales in about 3 years. And what we do is we just take a look at the different products and we identify a range around that as to what we think The pace of uptake and the peak of uptake is going to be.

Speaker 2

So certainly, as we look at atezolizumab, what we're going to see is There's plenty of settings where atezolizumab is used either on its own or with an oral therapy. In that setting, you can imagine that for patients to be able to avoid being in infusion suite, that's going to be wonderful. And so we would expect a Strong uptake there. For patients who are in for IV therapy, still a strong value proposition being able to reduce the overall treatment time Possibly by almost an hour, which if you've been in an infusion suite and you're getting sequential chemotherapy, being shorter by an hour is very important. So we also see a nice opportunity For uptake in that setting as well.

Speaker 2

And so I think we'll wait for and see if Roche makes a comment as to where they Believe the uptake is going to go on their earnings call. Just a couple of weeks ago, they did comment that they do expect to see Strong uptake at Sennebogen in the U. K. And saying they thought levels like that in some of the European countries are certainly plausible for Tecentriq as well because of the The benefit we're bringing to patients here, that reduction in treatment time, that reduction in burden, really very important, and then the attendant savings So more to come as we see that launch underway, but we do expect this Well received by patients and by the oncologists and healthcare system because of the clinical benefit.

Speaker 7

Great. Thank you, Alan.

Operator

The next question is from Mac Chandler with Jefferies. Your line is open.

Speaker 8

Hi. Thanks for taking the questions. This is Mac on for Eun. Congratulations on the quarter. One question was just for the Wave 4 products, you noted that 8 are in or have completed Phase 1.

Speaker 8

Can you give any color on which ones have Completed Phase 1 and which Wave 4 products do you expect to be able to progress into Phase 3 next?

Speaker 3

Thanks. Yes. We're a little bit restricted

Speaker 2

in what we can communicate on that, Max, because that would be partner confidential information and the partners Are in the process of analyzing their data, making any development decisions. And so they certainly don't like us to get ahead of them. So we have to wait until they make announcements on their next steps and plans. Obviously, we're delighted that 2 of the products are in Wave 3 Clinical development, that's amivantanab and rilatinumab and nivolumab. And we have a very nice array of other products that are in that, Including products for thyroid eye disease, for HIV, for other neurological disorders.

Speaker 2

But we're going to have to just wait until our Partners are ready to talk about their clinical development programs and recall often they choose not to do that for competitive reasons. And so we can't upfront run them by giving any specifics yet. But we are as interested as you all are in making announcements when and as soon as we can.

Speaker 7

Thank you.

Operator

The next question is from Caroline Palomeque with Berenberg Capital Markets. Your line is open.

Speaker 3

Hi. Thanks for taking the question. So just a follow-up on cash on the balance sheet. On your 10 Q, you mentioned that you

Speaker 9

have a runway for about 12 months. I'm just wondering which strategy are you prioritizing, an M and A or a cash raise and what would that look like? Thanks.

Speaker 3

Yes. Thanks, Caroline. So we ended the quarter with $348,300,000 of cash and cash equivalents and marketable securities on the balance sheet. So at this time, we feel very well capitalized and continue to project a growth in EBITDA and growth in cash flows. I'll also note that we ended the quarter with an allocation perspective in general.

Speaker 3

I mentioned our capital allocation plans remain unchanged. We'll continue to look to deploy our cash Per our 3 year share repurchase plan, per our investments in our platform and also Seeing an M and A and the timing of that will really be when we find the right target to invest in that meets our growth criteria.

Speaker 9

Great. Thanks.

Operator

We have no further questions at this time and this will conclude today's conference call. Thank you for

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Earnings Conference Call
Halozyme Therapeutics Q2 2023
00:00 / 00:00