Raymond James Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 13 speakers on the call.

Operator

Thank you for standing by. My name is Prilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Halozyme First Quarter 2024 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Please note this event is being recorded. Thank you. I would now like to turn the conference over to Cheran 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 Q1 2024 financial and operating results conference call. In addition to the press release issued today after the market close, 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 Doctor. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business and Nicole LaBrasse, our Chief Financial Officer, who will review our financial results as well as our outlook.

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 comparable GAAP financial measures in our earnings press release and slide presentation. I'll now turn the call over to Doctor.

Speaker 1

Helen Torley.

Speaker 2

Thank you, Tom, and good afternoon, everyone. Beginning on Slide 3, I'm very pleased to report that our Q1 2024 operational performance was in line with our expectations and reinforces our confidence in our full year financial guidance. There are 3 drivers of this confidence in our guidance: our royalties, the expected milestone payments and our EBITDA. Let me provide now some additional details on these three key drivers, which will help you appreciate the Halozyme business model even more. I'll begin with royalties.

Speaker 2

The Q1 of 2024 marks the 15th consecutive quarter of greater than 15% year over year royalty growth. This provides robust support for continued royalty revenue growth in 2024, driven predominantly by our Wave 2 products, DARZALEX Subcutaneous and FESGO, with growing contributions projected from more recently launched and launching products, Vibycar Hydrulo and Tecentriq Subcutaneous. The second driver is milestones. We have good visibility to our partner milestone revenues for the remainder of the year, where we project contributions from Wave 1, 2, 3 and 5 products. You may be surprised to see Wave 1 and 2 product milestones.

Speaker 2

This is a valuable feature of our agreements where we can have milestone payments for attainment of pre specified sales levels potentially extending to occur many years after the original launch. Moving now to the Wave 5 product milestone, we predict a new product will enter the clinic in 2024, resulting in a milestone payment. In the Q1, we recognized $14,000,000 in milestone payments related to the approval and launch of VIVE DURA, which is the brand name for 5 car Hytrullo in Japan. I'll move now to provide a little more color on the cadence, quality and probability of the milestone revenues in the upcoming quarters. In the Q2, we will recognize a $15,000,000 milestone related to the recently announced U.

Speaker 2

S. Regulatory file acceptance for nivolumab subcutaneous, a Wave 3 product. In the Q3, we project 2 additional milestone payments related to the Wave 3 product, including a regulatory filing and a first commercial sale. Also in the Q3, we project a milestone

Speaker 3

for the Wave 5 product Phase 1 study

Speaker 2

start I just mentioned. In the Q4, it is notable that we project several commercial sales attainment milestones related to Wave 1, 2 and 3 products. For all of the above, we have strong visibility, including to the information and trends that give us confidence in these milestone achievements. In addition, we project milestone revenues from new deals and new nominations in 2024. While these may occur at any time in the next three quarters, for planning purposes, we project these in the 4th quarter.

Speaker 2

We're currently in very active discussions with multiple pharma and biotech companies and have progressed to terms discussions with several. Our strong operating performance and the achievements described above, together with our continued focus on operational expense management, resulting confidence in delivering our full year EBITDA, and we project that we will deliver 26% to 37% growth. The EBITDA quarterly growth cadence is projected to track well to the quarterly milestone payments I outlined earlier. All of these factors provide us with the confidence to reiterate our 2024 financial guidance, with total revenue expected to increase 10% to 19% year over year to $915,000,000 to $985,000,000 Royalty revenue continues to be the main driver, which is projected to increase 12% to 17% to $500,000,000 to $525,000,000 We project adjusted EBITDA growth of 26% to 37% to $535,000,000 to $585,000,000 and non GAAP EPS growth of 28% to 41 percent to $3.55 to $3.90 With that overview, let me now move to the Q1 operational highlights, which are shown on Slide 4. The multiple advancements that our partners made in 2023 have paved a clear path for our strong outlook.

Speaker 2

We entered the year with 7 approved ENHANZE partner products, and there were multiple noteworthy partner product approvals in new regions and new indications already achieved in the Q1 of this year. Beginning with recent approvals, argenx's efgartigimod subcutaneous with ENHANZE, which is the brand name in Japan of 5Dura, was approved in Japan for generalized myasthenic gravis, including options for patient self administration. With the subsequent commercial launch of 5Dura, these events resulted in a combined $14,000,000 in milestone payments to Halozyme. It was also exciting that Takeda's Hycuvia, which is a Wave 1 product, received approval for an expanded indication in the United States and Europe during the Q1. The new indication is for maintenance treatment of patients with chronic inflammatory demyelinating polyneuropathy or CIDP.

Speaker 2

In addition, Roche received European approval for TESENTRI subcutaneous. As a reminder, the potential U. S. Approval is expected in September of this year. Also in the Q1 and more recently, multiple partners advanced regulatory progress towards potential approvals and additional milestones in royalty revenues.

Speaker 2

In February, argenx announced FDA acceptance of their SBLA with priority review for vibeparthydrutin in CIDP with a PDUFA target action date in June of 2024. And Roche announced the potential approval for ocrelizumab subcutaneous in Europe in mid-twenty 24 and FDA PDUFA target action dates in September of 2024 for both Tecentriq subcutaneous and ocralizumab subcutaneous. Janssen announced U. S. And European regulatory submissions for a new indication for DARZALEX subcutaneous as part of a regimen for transplant eligible newly diagnosed multiple myeloma patients.

Speaker 2

And BMS has announced the FDA acceptance of their BLA for nivolumab subcutaneous with the PDUFA target action date of February 2025. We're also pleased to report 2 pipeline advancements. Firstly, argenx initiated registrational studies of escretigimod subcutaneous with ENHANZE for immune indication thyroid eye disease. Excitingly, these studies will utilize escretigimod with ENHANZE delivered by prefilled syringe. And secondly, our partner, Vive, initiated another Phase 1 study for VH4524,184, which is an integrase inhibitor with ENHANZE.

Speaker 2

The performance of our Wave 2 product along with the start of the launches of our Wave 3 pipeline and strong regulatory progress I've just discussed give us high confidence in achieving our projections of $1,000,000,000 in royalty revenue in 2027. Let me now provide an update on each of our royalty revenue drivers starting with DARZALEX FASPRO on Slide 5. I'll begin each review by overviewing the potential opportunity size for subcutaneous and then cover recent progress and new opportunities.

Speaker 4

In the Q1 of 2024, J and

Speaker 2

J STARZALEX sales were $2,700,000,000 up 21% year over year on an operational basis. This strong growth was driven by share gains in all regions, resulting in share gain of 6 points across all lines of therapy and of 10 points in the frontline setting. Subcutaneous penetration in excess of 90% in the United States and it's estimated to exceed 80% outside the United States, subcutaneous DARZALEX is driving the strong demonstrated and projected total brand growth. Analysts continue to expect DARZALEX revenue to grow to exceed $17,000,000,000 in 2028. The potential approval in 2024 for the new indication of transplant eligible newly diagnosed patients based on recent U.

Speaker 2

S. And European regulatory submissions would provide an important new frontline opportunity for DARZALEX Subcutaneous. I'll move now to FESGO, which is shown on Slide 6. First quarter FESCO sales increased 70% to CHF 388,000,000, which represented the 2nd best performer in Roche's self ascribed young portfolio. Roche recently highlighted that U.

Speaker 2

S. Conversion is reaching 25% and global conversion was 41% in the quarter. With the strong launch update and ongoing geographic expansion, Roche has commented that it projects overall conversion will increase to approximately 50% over time as patients continue to convert from IV PERJETA. There remains a substantial conversion opportunity from PERJETA to PHESSCO, with Perjeta generating almost CHF1 1,000,000,000 in sales in the quarter. I'll turn now to our Wave 3 products and product candidates, which are shown on the right hand side of slide 7.

Speaker 2

The opportunity for Wave 3 is meaningful with 5 products that analysts project will generate total sales of $35,000,000,000 in 2028. This compares to $20,000,000,000 for our Wave 2 products, which are driving the robust royalty revenue growth we see today. Importantly, Wave 3 is largely derisked with positive Phase 3 data and regulatory submission plans already reported by our partners for all products, with the exception of Johnson and Johnson's and evantamab, where Phase 3 data and regulatory submissions are expected this year. Let me begin with 5Gart Hytroul, the subcutaneous version of the Phase 3 data and regulatory submissions are expected

Operator

this year. Let me begin

Speaker 2

with 5Gart Hytroul, the subcutaneous version of the Phase 3 data

Speaker 4

and regulatory approval.

Speaker 2

5Gart Hytroul is currently approved for generalized myasthena gravis in the U. S. And Europe and also in Japan, where it has the brand name 5Dura. Notably, the European and Japanese approvals also allow for patient self administration subcutaneously. In 2023, VIBGART generated $1,200,000,000 in sales and Ergenics continues to broaden ease of access and coverage for generalized myasthenia gravis securing the J code for the subcutaneous formulation in January of this year.

Speaker 2

With SYMPHONY data showing positive quarter over quarter growth for the brand, we look forward to growing adoption and use of subcutaneous VIVGAR HYTRULO as the number of physicians prescribing VIVGAR HYTRULO expands and use increases in the earlier lines of treatment. The potential approval of a new indication of CIDP in June in the United States represents another exciting near term growth opportunity for VIBAR HETRILO. This is the indication that will be a subcutaneous delivery only launch. Based on argenx's research and comments, approximately 42,000 patients are receiving treatment for CIDP today. Only 20% of those patients are getting to remission on the current standard of care and 50% of patients remain dissatisfied with the current burden of symptoms, signaling a real unmet need in this challenging condition.

Speaker 2

We appreciate the strong partnership with argenx and share their patient centric vision as they also grow and expand their pipeline. The recent initiation of 2 registrational studies evaluating efgartitimod with ENHANZE administered by prefilled syringe for thyroid eye disease represents another future opportunity with Efgartigimod. Moving now to Tecentriq subcutaneous, which is approved for subcutaneous delivery in the U. K. And Europe, with both approvals covering all of the approved indications for TECENTRIQ IV.

Speaker 2

Total revenue for TECENTRIQ was almost CHF900,000,000 in the quarter of 2024. With potential U. S. Approval in September of 2024, Roche has commented that they believe subcutaneous Tecentriq will be largely protective of their IV formulation with a very modest potential to add to brand growth, meaning the expectation is that the majority of subcutaneous use will be from patients currently on Tecentriq IV switching to Tecentriq subcutaneous with ENHANZE. I'll move now to OCREVUS.

Speaker 2

In the Q1 of 2024, OCREVUS IV generated approximately CHF1.7 billion in revenue for Roche, increasing 8% year over year. OCREVUS remains the market leader in the U. S. And EU5 with approximately 24% global market share. The approval of subcutaneous ocralizumab will dramatically change the patient treatment experience.

Speaker 2

Today's treatment and observation time can be from 3.5 to 6.5 hours for the IV given every 6 months. The target for total time for subcutaneous treatment and observation is 10 minutes, also every 6 months. Importantly, Roche has commented that they see ocrelizumab subcutaneous being a standalone blockbuster opportunity, expanding use of ocrelizumab to treatment centers without IV infrastructure or with IV capacity limitations, supporting even stronger brand growth in the future. Roche recently announced that the European Medicines Agency's Committee for Medicinal Products for Human Use has recommended the approval of ocrelizumab subcutaneous for its multiple sclerosis indications. The European Commission is expected to give a final decision on the approval in mid-twenty 24.

Speaker 2

Roche also announced that the ocralizumab subcutaneous has a PDUFA action date in the United States of September of 2024. The key data supporting these approvals is from the Ocarina 2 study. Roche recently presented updated longer term results from the Ocarina 2 study at the 76 American Academy of Neurology Annual Meeting. The results highlighted the significant potential benefits of subcutaneous ocralizumab for patients with both relapsing and progressive forms of multiple sclerosis. The data showed that patients receiving ocrelizumab subcutaneous experienced near complete suppression of relapse activity with 97.2% of patients experiencing no relapse during the treatment phase.

Speaker 2

In addition, it was reported that patients treated with subcutaneous Ocrevus experienced appropriate B cell suppression and impressive near complete suppression of new inflammatory disease activity. Notably, patients reported a very high 92% satisfaction level and 90% of patients felt that it was very convenient to receive the ocrelizumab subcutaneous injection. These results demonstrate the potential of subcutaneous ocrelizumab as a treatment option that can be matched to the individual needs of patients with MS and also health care professionals. Approval of ocrelizumab subcutaneous will represent our 8th approved subcutaneous product within HANDS. I'll turn now to Bristol Myers Squibb Nivolumab subcutaneous with ENHANZE.

Speaker 2

Bristol Myers Squibb recently announced the FDA acceptance of its biologic license application for nivolumab subcutaneous co formulated with ENHANZE and assigned a PDUFA action date of February 2025. BMS reported that OPDIVO, which is nivolumab, which is delivered intravenously, generated approximately $2,100,000,000 in sales in the Q1 of 2024. With subcutaneous nivolumab projected to cover up to 75% of the IV indications over time, BMS has commented that nivolumab subcutaneous will help them extend their immuno oncology franchise well into the next decade. Approval of nivolumab subcutaneous will represent our 9th ENHANCE approved partner product. Allude now to Johnson and Johnson's amivantamab subcutaneous with ENHANZE.

Speaker 2

Amivantamab subcutaneous remains on track with the potential for launch in 2025. Amivantamab is already approved as an IV treatment under the brand name Rybovant with Johnson and Johnson projecting that Rybovant will become a multibillion dollar brand. We look forward to Johnson and Johnson presenting the Phase 3 amivantamab with ENHANZE subcutaneous data at an upcoming medical meeting. Approval will represent our 10th ENHANZE partner product. I'll now move to Slide 8 for an update on our Wave 4 pipeline, which is expected to support our future growth trajectory with potential launches in the 2025 to 2027 timeframe.

Speaker 2

We have 6 products currently in development, reflecting a range of therapeutic areas including oncology, neurology, immune disease and HIV. Our 2 most advanced programs that are in Phase 3 development are Takeda's immune globulin 20%, which is TAK-eight eighty one with ENHANZE and Bristol Myers Squibb nivolumab raletimab fixed dose combinations subcutaneous with ENHANZE. The Phase III studies of TAK-eight eighty one and nivolumab plus raletlumab continue to progress. Also advanced into later stage development is these broadly neutralizing antibody N6LS, which is progressing in an ongoing Phase 2 study. As I close out the section on our upcoming launches and pipeline, let me now highlight the actions and progress we are making as we seek to expand and add additional partners and development products that will further add to and extend our revenues in the post-twenty 27 timeframe.

Speaker 2

These continue with its mission to transform the treatment experience for HIV patients and recently initiated a new Phase 1 study for an integrase inhibitor, VH4524184 given subcutaneously with ENHANZE. And we're also excited that Acumen announced they plan to initiate a Phase 1 study of a subcutaneous version of ACU-one hundred and ninety three for the treatment of Alzheimer's disease in mid-twenty 24. We've also continued to be in very active discussions with multiple pharma and biotech companies regarding ENHANZE and also our high volume auto injector. We've progressed several companies to the stage of discussing terms for ENHANZE. This is the final stage prior to negotiation of the collaboration and licensing agreement.

Speaker 2

With regard to our high volume auto injector, in the Q1, a current partner completed a human factor study of the high volume auto injector to evaluate device usability. Based on the results that were shared confidentially with Halozyme, the test was a success. We continue in discussions with that partner and several additional companies who are expressing interest in our high volume auto injector. With that overview, I'm pleased to now turn the call over to Nicole, who will discuss our financial results in more detail.

Speaker 4

Thank you, Helen. The Q1 of 2024 is on track with our plans and supports our strong financial performance expectations for the full year from the continued momentum of our business. Let me now briefly touch on our capital allocation priorities on Slide 9. We remain consistently focused on a balanced 3 pillar strategy, which is to invest in our current business, deploy capital through share repurchases and seek new growth opportunities through M and A. As we continue to execute on the $250,000,000 ASR that was announced in the Q4 of 2023, The new $750,000,000 share repurchase program that was recently approved by the Board in February is a reflection of the confidence in our long term projections and durability of our business.

Speaker 4

We maintain a strong balance sheet with cash, cash equivalents and marketable securities of $463,500,000 as of March 31, 2024, compared to $336,000,000 on December 31, 2023. Our net leverage ratio was 2 times at the end of the quarter and we expect to reduce our net leverage ratio as we continue to grow EBITDA throughout the year. Turning now to Slide 10 for our detailed financial results for the Q1. Revenue grew 21 percent to $195,900,000 compared to $162,100,000 in the prior year period. Royalty revenue for the quarter was $120,600,000 an increase of 21% compared to $99,600,000 in the prior year period, primarily attributable to continued momentum of our Wave 2 products, DARZALEX FASTPRO and FESGO.

Speaker 4

Research and development expenses were $19,100,000 compared to $18,000,000 in the Q1 of 2023. The increase was primarily due to planned investments in Enhance. Selling, general and administrative expenses were $35,100,000 in the quarter, down from $37,400,000 in the prior year period, primarily due to reductions in commercial marketing expense, offset slightly by increased compensation expense. Growing revenues and relatively flat operating expenses resulted in EBITDA growth of 56 percent to $115,700,000 from $74,300,000 in the prior year period. GAAP diluted earnings per share was $0.60 and non GAAP diluted earnings per share was $0.79 This is compared with GAAP diluted earnings per share of $0.29 and non GAAP diluted earnings per share of $0.47 in the Q1 of 2023.

Speaker 4

Turning now to Slide 11 and our 2024 guidance. We continue to see robust growth in our business. And as Helen mentioned, we are reiterating our full year 2024 guidance of revenues of $915,000,000 to $985,000,000 representing growth of 10% to 19 percent adjusted EBITDA of $535,000,000 to $585,000,000 representing growth of 26% to 37% and non GAAP diluted EPS of $3.55 to $3.90 which is growth of 28% to 41% year over year. As you refine your models, I'd also like to reiterate the following. We continue to expect milestones and API sales to be substantially weighted in the second half of the year, with the second quarter flat to the Q1.

Speaker 4

For royalties, we expect continued expansion of Wave 2 products and launched Wave 3 products, partially offset by a royalty rate step down for DARZALEX SC outside the U. S. Q2 royalties will be similar to Q1 with sequential growth in Q3 and Q4 to achieve the $500,000,000 to $525,000,000 guidance. Non GAAP diluted EPS growth of 28% to 41% reflects adjusted EBITDA growth of 26% to 37% as well as the impact of our 2023 share repurchases. I will now turn the call back to Helen.

Speaker 2

Thank you, Nicole. 2024 is off to a strong start, as you've just heard, with excellent momentum in the current business and major progress made in advancing new approvals and growth opportunities. These opportunities include the FDA acceptance of Bristol's submission for their BLA for nivolumab subcutaneous with a PDUFA action date of February 2025 the potential new indication approval and launch for argenx's VIVE GAR HETTRULO in CIDP in the United States in June potential approval and launch of OCREVUS subcutaneous in Europe mid year potential U. S. Approvals and launches for Roche's Tecentriq subcutaneous and OCREVUS subcutaneous in September and a Phase III data readout for J and J's amazantumab subcutaneous.

Speaker 2

I want to close by thanking our terrific Halozyme team, our partners and collaborators for all of the hard work that resulted in such strong Q1 progress. Operator, we are now ready to open the call for questions.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from the line of Vikram Parujit from Morgan Stanley. Your line is open.

Speaker 5

Hi. Thank you for taking our questions. We had one on the pace of business development. Helen, you mentioned that there were some discussions ongoing with potential new partners for ENHANZE. Just wanted to see if you could provide some more color on kind of what the cadence of those discussions could be throughout the rest of the year and kind of the different stages that they're at and how you might expect those to turn into new agreements throughout the course of the year and 2025?

Speaker 5

And then on the high volume auto injector, just also wanted to see if you could provide some more detail on how those discussions are progressing and what it would take given where some of those discussions are now to move towards closed agreements? Thank you.

Speaker 2

Yes. Thank you, Vikram. Yes, delighted to give an update on both of those areas. That obviously is a strong focus for us. As we mentioned in the prepared remarks, in the quarter, we were delighted to see several companies progressing from technical discussions to terms discussions.

Speaker 2

And importantly, this is a stage that happens prior to negotiating and signing the CLA. So that is a very strong sign of progress. And this is really a result of conversations in the Q1 with more than 10 pharma and biotech companies where at least one conversation has happened. In several occasions, we've had multiple conversations. In terms of the feedback, let me give you the very consistent feedback, which is I think a very strong sign for the value proposition that ENHANZE provides and how companies are thinking more and more about subcutaneous.

Speaker 2

The first bit is companies definitely are thinking more and more about subcutaneous delivery right from the start, particularly in diseases like autoimmune disease, CNS disease and oncology. Moving to ENHANZE, it's very clear they see ENHANZE as a gold standard for rapid subcutaneous delivery for patients, particularly in the autoimmune CNS and oncology areas, but in all areas as well. And why we think that is because of what they see in hand as a highly de risked product with a strong safety track record and great history of global regulatory approvals and commercial success. And we've always talked about that, that the companies are very focused on the safety profile. They don't want something experimental that could delay their progress with development or do something to their commercial product.

Speaker 2

So that's a very important fact and it's great to see that our messaging on that and our data on that is well received. While IV to subcu conversion is the main focus of discussions, we are seeing more and more companies wanting to get to extended dosing for subcu delivery, 2 weeks to a month, 1 month to 3 months, that type of thing. And again, particularly in autoimmune and chronic diseases. And we are seeing focus expand from the traditional monoclonal antibody space to companies inquiring about use of ENHANZE with bispecifics, nucleic acid therapies and also antibody drug conjugates. And so great, very consistent feedback in all of those areas.

Speaker 2

In terms of the evaluation and decision making process, as we've described before, each company is unique. They have their own process for technology approval and then for budget approval, each of which moves at a different pace. And so it's an end of 1 with each company, which makes it always hard to project the exact timeline for signing each deal. But what we can say in the quarter was we had multiple technical discussions advancing to the decision makers and separately, several of those then advancing to terms discussion, the last decision point prior to negotiation of the CLA. So excellent progress, Vikram, where based on the breadth and depth of discussion and the progress, I'm confident in signing ENHANZE deals based on all of this strong progress.

Speaker 2

I'll move to the high volume motion injector where we are delighted with the interest we're seeing since we communicated our Phase I clinical study data and we're in discussions with current partners, but also potential new partners as it relates to HVI. We talked in the past, HVI really is truly groundbreaking. We hear that often in conversations. It's not something that's been done before and many believed it could not actually be done. Within this space, there's been a bit of a history of some of the prior types of on body injectors and other technologies not meeting biotech and pharma expectations.

Speaker 2

And so what we experienced are 2 things. 1, as we've talked about, companies want to try it, they want to test it. And that was obviously an example of our one of our current partners who completed a human factor study to evaluate device usability in the Q1. We were delighted that was a success and we continue in discussions with that partner and also with other potential partners. And the second area is as companies start thinking about getting into development agreement and commercialization, they want to understand and have confidence in the device development plan and specifically key aspects like availability of the primary container they want to use, the manufacturing plan, including the sites, the capacity, the equipment, the slots to meet their demand projections.

Speaker 2

And so, I think all of these are very good signs of progress in terms of the depth of questions people are getting into, really wanting to understand when this can be commercialized for them and how it will fit. And so the great news is the Halozyme team has deep experience in developing and commercializing devices, having done it many times with the small volume auto injectors. And so all of this work on the manufacturing plan is also well underway at this time. So we continue in discussions and we expect those to also advance to development agreements. Again, hard to pin the exact time, but the progress has been very strong.

Speaker 5

Appreciate it. Thank you.

Operator

And your next question comes from the line of Jessica Fye with JPMorgan. Please go ahead.

Speaker 4

Great. Thanks for taking my question. Sort of sticking with the similar theme here on kind of potential new deals. 1st, when you say that you're in terms of discussions with several companies, should we think of those potential deals as being both pure ENHANZE deals and auto injector deals as well? 2nd, should we think of the terms of these new potential deals at similar economics to HALO as the existing portfolio deals?

Speaker 4

And lastly, I think in the past you had talked about a partner who is interested in a customized high volume auto injector for their patient population. Is that one among the several companies with whom you're in these terms discussions?

Speaker 2

Yes. Thanks, Jess. With regard to the types of discussions, I can say we're having discussions on ENHANZE alone, and I would say that is the most frequent discussion we're having. We are also having discussions on ENHANZE with a high volume auto injector as well as small volume auto injector as well, so across the portfolio. But definitely, the ENHANZE is the highest volume of the conversations and particularly the ones that we're seeing advancing at this point in time.

Speaker 2

With regard to terms, in the past, we have mostly done terms for products and companies are looking for exclusive agreements and exclusive rights. I will say that as ever we are talking to companies also about non exclusive rights. And so there is a difference in our terms between exclusive rights and non exclusive rights. So I would say you could see some differences in that. But in some of the areas we're talking about, these certainly are areas of strong interest for multiple companies.

Speaker 2

And so it would be our goal if we did non exclusive deals to seek to get multiple agreements. And obviously, we'll find ourselves in potentially even a stronger position if we were to be successful with that. And then the customized HVI, all of the discussions on HVI, frankly are an element of some customization. Depending on the volume the partner wants to inject, they have to identify what the primary container is going to be and they may have a preference and a thought for that. They may also, depending on the patient population, have a preference for needle depth.

Speaker 2

And the viscosity of the drug may dictate a certain difference in the needle girth. And so there is always an element of customization in the discussions of the HVI, Jess, nothing major, but all kind of appropriate for really having an offering that is the right thing for that partner's patient population and drug.

Speaker 4

Thank you.

Operator

And your next question comes from the line of Michael DiFiori from Evercore ISI. Your line is open.

Speaker 6

Hi, guys. Thanks for taking my question. Congrats on all the progress. 2 for me. Thoughts on obviously, FESGO is becoming a huge product for you guys.

Speaker 6

Thoughts on how a PERJETA biosimilar may affect the uptake of and I ask because there's one that seems to be completing Phase III trials late this year. And separate question is, I think you mentioned for subcu nivo, you said that if it's approved, it would cover 75% of the IV indications. And my question is, why not 100% and could we expect the same 75% of the indications for subcu atezo? Thank you.

Speaker 2

All right. Thanks so much, Mike. With regard to fasco, obviously, you're right, it's showing very strong progress with 70% growth year over year in the Q1. And that has resulted in 41% global conversion with U. S.

Speaker 2

Approaching 25%. And I do think what's going to be important for Roche is that they continue to support the conversion. They've talked about it reaching and exceeding 50%. And I certainly think the progress we're seeing, it might even do better. That's going to be important for the conversation we have about Dump biosimilars, because what we have seen and I like to use Herceptin as I think a very relevant example for that, that Herceptin got to 60% share of sales were subcu after about 3 years.

Speaker 2

We meet with Roche Chevrier twice a year and hear that the share of the Hercepts and subcu has remained sticky. And by that, they mean clinics that move to giving their patients and themselves as staff experience the convenience of subcu did not move to IV biosimilars. And it's because the value proposition is so strong in terms of convenience for patients, much shorter treatment time. Obviously, for fesco, the difference is between 5 to 8 minutes versus what can often be 2 to 2 and a half hours for the sequential administration. And for a clinic that means a lot less need for nursing time oversight, etcetera, not to mention the pharmacy having to be involved in making up the IV.

Speaker 2

I think what's going to be important is we continue to see this very strong progress to subcutaneous. And then I think the IV Projeta will not, if we can look at that example with Herceptin, be an issue.

Speaker 6

Got it. Very helpful. And my other question regarding the subcu nivo and

Speaker 2

if approved. Yes, sorry, subcu nivo. Yes, this is a comment that Bristol has made with regard to the 75% of the IV indications. And I'm not recalling off the top of my head, Mike, exactly what it is and the reason for it. But we do know that for Tecentriq outside the U.

Speaker 2

S, U. K. And Europe, it got 100% of the indications and that certainly would be the goal in United States. So there is I think a couple of the patient indications, which I believe actually as I'm recalling this, I think it's where it's combined with the indications for CTLA-four IG. So when it's a Yervoy combined indication, those are the ones that are being excluded when they give the 75% because that combination was not studied.

Speaker 6

Got it. Very helpful. Thanks again.

Operator

Thank you. And your next question comes from the line of Mohit Bansal with Wells Fargo. Please go ahead.

Speaker 3

Great. Thank you very much for taking my question and congrats on the progress. I have two questions. I'll ask first. So in terms of the partnership terms discussions, in general, do you expect the newer deals to have some kind of different kind of terms or you think they could be generally the same and no meaningful change there?

Speaker 2

Yes. I think, Mohit, the way to think about it is, there'll be a difference if the partner is asking for exclusive rights to target versus non exclusive. Obviously, with the economics for non exclusive being lower as we have the opportunity to license that to multiple companies. Also, if it is a partner who has a product that is in earlier stages of development, there may be an opportunity for you to see a different distribution between less payments while the product is in development, while it's getting derisked and more of a waiting of the payments and a different balance of the royalties based on once the product has achieved regulatory approval and is derisked. So there could be a few of those nuances across these, our agreements, but obviously each of these will offer a new royalty revenue stream for Halozyme for the mid single digit for an exclusive deal and probably be lower than the mid single digit if it's a non exclusive deal.

Speaker 3

Got it. That's super helpful. And then one clarifying question. So I mean the press release mentioned that there was a little bit lower bulk RHU PH20 sales. Should we read anything into it or it was just like a one off thing?

Speaker 2

Yes. I'll ask Nicole to address that.

Speaker 4

Yes. Thanks for the question. So we were expecting that for the Q1. You might recall going into the year, we had indicated that our API sales, just based on our partners' ordering patterns and as we enter into firm the firm periods for our orders, we did have line of sight to the fact that those orders would be more weighted to the second half of the year. So this is all in line with our expectations.

Speaker 3

Got it. Super helpful. Thank you very much.

Operator

Thank you. And your next question comes from the line of Corinne Johnson with Goldman Sachs. Please go ahead.

Speaker 7

Hi. I wanted to clarify one of the comments you made on the term discussions you're having being a mix across ENHANZE only auto injector and auto injector only and just kind of get a sense for the breakdown there? And then on the auto injector with ENHANZE partnership, I guess, are these companies that have already gone through or fine without doing the human factor studies you've highlighted as being a key focus for 1 of the potential partners? Or will that be another item that you need to check off before announcing a deal? Thanks.

Speaker 2

Yes. Thanks, Corinne. In terms of the discussions, definitely more conversations happening around ENHANZE only. That is and again, that is based on the volume of the drugs that we're discussing predominantly. For those where there is a product that is falling into the, for example, 3 ml to 10 ml.

Speaker 2

We are having discussions with several companies with regard to high volume auto injector and its applicability really to give state of the art delivery for that company. And then there are a few conversations on small volume. That really is a lesser focus for us, as we have a unique set of circumstances where our SVI is the best. It's in areas where somebody is looking for high reliability or there is a high viscosity drug. So that really is how to think about the number of conversations we're having.

Speaker 2

I would say in the conversations on the HVI, as I mentioned, all companies will want to hold it and test it. That definitely is something that we're seeing. Again, it's something that hasn't been done before. This is a breakthrough. And so they want to test it whether they'll want to do human factor studies.

Speaker 2

I don't think we know that yet, but certainly companies are wanting evaluate it themselves in terms of understanding how it delivers, etcetera. So have to stay tuned for any more information as to whether there will be more human factor studies. But definitely, there is an evaluation period where they want to play with it themselves.

Speaker 7

Okay. Thanks.

Operator

Your next question comes from the line of Jason Butler with Citizens JMP. Please go ahead.

Speaker 8

Hi, thanks for taking the question. Helen, wondering if you're able to comment yet on the sales potential for the Wave 4 pipeline or give us some context about how that magnitude might compare to Wave 1 or Wave 2 or wave 1, 2 or 3? And then secondly, can you just give us an update on XYOSTED? And specifically, what are you seeing in the market in terms of promotion sensitivity, just in the context of your measured spend on that product? Thanks.

Speaker 4

Yes, happy to

Speaker 2

do that. So for the Wave 4, as we talked about, between Wave 4 and Wave 5, we have 9 products that are in development now, which we're obviously very excited about. We aren't giving projections wave 4, but I certainly can say that we're excited about some of the products that I mentioned earlier, including nivolumab rilatumab, which Bristol Myers Squibb talks about being a blockbuster brand and also TAC 20%, which has a very high potential as well. And then behind that is Vive's N6 LS. So some of the other products are a little earlier in their development and there aren't good estimates as to their potential, but I think all of them we can say are meeting substantial patient unmet need, but a little premature for us to be giving projections on wave 4 and wave 5, but a very exciting set With regard to XYOSTED, we have a very focused and clear strategy for XYOSTED with our sales representatives really focusing on driving and identifying the patients that are not doing well on I'm therapy and having the conversion and assuring that the patient is connected to all of the great services that we provide to assure affordability.

Speaker 2

We feel we've got the right size of the sales force, the right amount of promotional spend, which actually is less than last year because we've been able to optimize that as we understood better. So we're at, I think, the right footprint and operating expense to be driving this very nice set growth that we saw last year to $100,000,000 and we're projecting as you know strong PAGR over the next 5 years with the current footprint that we have, which is less than 100 representatives.

Speaker 8

Great. Thank you.

Operator

Your next question comes from the line of Brandon Smith with TD Cowen. Please go ahead.

Speaker 9

Hi, thanks very much for taking the question. Maybe first on the latest repurchase program, actually just wondering if you can confirm over what period of time you expect to complete the $750,000,000 and how we should think about the cadence of buybacks, whether you're kind of planning for steady increments in each quarter or concentrated more in certain parts of the year? And then I just wanted to ask quickly about the VIVGAR HYTULO pipeline. Can you maybe remind us which indications are going directly into the ENHANZE subcu or if there are some where they either plan to use IV exclusively or IV first and then run confirmatory studies? Just trying to understand what part of that broader portfolio would be focused on the SC?

Speaker 9

Thanks.

Speaker 2

That's great. Thanks, Brandon, and welcome. I'll ask Nicole to address your share repurchase question.

Speaker 4

Yes. Thanks, Brandon. So for on the $750,000,000 authorized plan, we did not time bound that plan. But to give you a sense in how we performed historically, our prior two plans, and especially the prior plan, which was a similar size, we completed in less than 3 years. So you can think about that level of cadence of historically how much we have repurchased totaling to date $1,300,000,000 deployed to share repurchases.

Speaker 4

So it continues to be an important pillar of our capital return strategy. But the specific cadence is something that we continue to monitor as we deploy our cash amongst the pillars and really balance it between investments in our current business as well as investments in growing the business through M and A.

Speaker 2

That's great. And I'll take the question and then Vyvakar hit Trullo. So obviously, Tim Vanharemaren, the CEO of REGENX has talked about his vision that patients with autoimmune disease are going to be able to self administer VIVEKAR HYTULO over time where possible. And this really is, you're going to see reflected in his development portfolio where more and more indications are moving towards subcutaneous. What I can say based on what's being shared publicly is that obviously generalized myasthenia gravis started as an IV, but, with the subcu obviously launched beginning last year.

Speaker 2

CIBT this year CIDP this year, sorry, is a subcu indication only. And pemphigoid, I believe is a subcutaneous indication only. We're delighted this quarter to be announcing that with Argenx that they've started 2 subcu studies in TED that are Phase 3 registration studies. And as far as I'm aware, there are no IV studies that are listed on clinicaltrials.gov. So I think that's a strong opportunity to be another subcu only indication.

Speaker 2

And so I think this will roll out to more information on these over time as Argenx articulates how they're going to go towards all of the 15 indications. But I think to meet Tim's vision of this VIBEKAR really being transformative for patients with autoimmune disease, that's my expectation, the majority of indications will be subcu.

Speaker 9

All right, great. Thanks very much.

Operator

Your next question comes from the line of Mitchell Kapoor with H. C. Wainwright. Please go ahead.

Speaker 10

Hi, everyone. Thanks for taking the questions. I wanted to ask on DARZALEX, the ex U. S. Royalty step down in March.

Speaker 10

With that happening, how much volume growth in the coming quarters do you need to kind of stay on pace for the $500,000,000 royalty revenues? Or I guess what would be the necessary performance of some of these Wave 3 launches that you would need to see this year to be successful and kind of meet that threshold?

Speaker 2

Super. I'll ask Nicole to address that.

Speaker 4

Yes. Thanks for that. So we had included in our forecast the expected step down related to OUS sales for DARZALEX So that is part of our plans. It's the driver for our forecast, which demonstrates that we expect Q1 and Q2 royalties to be relatively flat with where we exited 2023. So that's why you see that phenomenon in our expectations for 2024 is that Q1 and Q2 will be flat.

Speaker 4

But because the brand is expected to grow, that will offset, that royalty rate reduction and as well as continued growth with Fezco, our other Wave 2 product. And as you mentioned, contribution from our Wave 3 launch products. And that's what gives us the confidence to project sequential growth in the Q3 and the Q4 of 2024, allowing us to achieve our total royalty projections for the full year of $500,000,000 to $525,000,000

Speaker 10

Okay, great. And separately, could you just provide any update on progress towards a next generation ENHANZE technology? Or is that something that's a little further away?

Speaker 2

Yes. We a couple of years ago had talked about having a more room temperature stable at ENHANZE that we have been talking to different current partners and potential partners about. It's a different structure than ENHANZE and it has slightly more extended into IP to 2,030 2 in Europe and 2,034 in the United States. Because the majority of products we continue to work on are products that need to be refrigerated, such as antibodies and bispecifics, we have found that there so far is limited interest to a new ENHANZE. Our current ENHANZE does everything people need it to do.

Speaker 2

And importantly, it's coming with this 800,000 patient database now establishing the safety and the very strong regulatory track record of success around the world with multiple approvals in up to 100 countries. And so I will say that because ENHANZE does everything people need and the products have to be refrigerated anyway. We haven't seen traction with it. I do think in the future if we had a small molecule where the goal was that the patient would be able to carry an auto injector around with them, that might be the type of product that the partners would want to use the additional ENHANZE for, but that's a very limited opportunity. And so far, while we're in discussions, we haven't advanced those discussions.

Speaker 10

Okay, great. That's super helpful. Thank you, Helen, and thank you, Nicole. Really appreciate it.

Speaker 2

Thanks, Mike.

Operator

Your next question comes from the line of David Risinger with Leerink Partners. Please go ahead.

Speaker 11

Yes. Thanks very much and thank you as well from my side on the updates. So my questions have been asked. I just have one more, which is the company spent $19,000,000 on R and D in the first quarter, is that basically the run rate that we should be expecting going forward, so maybe $75,000,000 plus a year? And could you just provide some more color?

Speaker 11

I think that is primarily on ENHANZE, but I'm not sure. Could you just help us understand that spending, whether it's for internal activities of innovation, whether it is spending to help partners develop their products, just any more color on that would be helpful.

Speaker 2

Yes. Nicole will address that.

Speaker 4

Yes. Happy to, David. So your first question on the run rate, I will say that the, you saw in the Q1 are expected to grow for the remainder quarters of the year as we make investments in our product development. And so that I would advise you to build that into your models as well, growth from the amounts that you saw in the Q1. And where we spend our R and D dollars is on the enhanced side as well as the HV AI development.

Speaker 4

We're making investments in the development of the high volume auto injector this year. And so that is another driver of the expenses that we see in this year.

Speaker 11

Thank you. And could you just add a little more color since ENHANZE is going off patent in 2027, what is the product development that you're doing in the R and D line?

Speaker 4

Yes. One example and we've talked about the higher yield API that we're making investments in that are expected to be available to our partners in 2026. That is a good example of the investments we're making that will benefit our partners and in particular their cost in buying the API from us.

Speaker 2

And David, I'll just mention while the U. S. Patent is expiring in 2027, that's basically the composition of matter patent. As we have shown, we expect based on co formulation patents that we're going to continue to receive royalties on all of our royalty streams until 2,030 for many of them, beyond 2,030 for a number of them and beyond 2,040 for another. And so we have got very durable revenues.

Speaker 2

And so it does make sense for us to invest to have the best and lowest cost API because we have got 20 years still ahead of us or plus that for our product, ENHANZE. And so it's a very wise investment given the durability and length and long stream of royalties we are expecting.

Speaker 11

Got it. Thank you.

Operator

And our next

Speaker 12

I had maybe a quick one that maybe goes back to the discussion around Tecentriq Opdivo subcu. As it relates to the early days of Tecentriq SubQ in the EU, wondering if you have any early data points there on conversion rates, where you're seeing where it's seeing use, I guess, within indications and settings? And then maybe stepping back more generally, is it fair to us to assume what we see around the Tecentriq subcu trajectory will be comparable to maybe what we will ultimately see for Opdivo subcu in the 2025 timeframe? Thanks.

Speaker 2

Yes. Roche has not provided a lot of details. They did on their Q4 call talk about the fact that after 1 quarter in the UK, they've seen 18% conversion, which I think is a very strong performance for such a short period of time. But since the European launch in January, they haven't talked about the conversion. And recall for Europe, we're going to see countries rolling out over the course of the year as reimbursement is obtained.

Speaker 2

So we look forward to Roche providing some updates on that. With regard to comparing the uptake for Opdivo, TECENTRIQ is going to have a different cadence of the timing of approvals that I think you'll have to factor in as you're thinking about that because TECENTRIQ obviously is going to have Europe going first, U. S. Coming 9 months later. I would have an expectation that and we still have to see based on what Bristol says about the Opdivo European file acceptance strong value proposition where patients get the opportunity for strong value proposition where patients get the opportunity for treatment in just 5 minutes approximately instead of up to 60 minutes and strong patient preference for Tecentriq that we can talk about where 71% of patients preferred subcutaneous to Centric really citing less time in clinic.

Speaker 2

The administration of the subcutaneous was much more comfortable for them and the treatment was less emotionally distressing for them. And so all of those are good factors. But I think the launch cadence might be one of the

Operator

Thank you. And we have reached the end of our Q and A session. Thank you, presenters. And ladies and gentlemen, that concludes today's call. Thank you all for joining.

Operator

You may now disconnect.

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Earnings Conference Call
Raymond James Q1 2024
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