Good afternoon. My name is Rex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Halozyme Q2 2022 Earnings 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 Instructions] Thank you. At this time, I would like to introduce Tram Bui, Vice President, Investor Relations and Corporate Communication. You may begin your conference.

Thank you, operator. Good afternoon and welcome to Halozyme second quarter 2022 financial and operating results conference call. In addition to our 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 Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business; and Nicole LaBrosse, our Chief Financial Officer, who will review our financial results for the second quarter ended June 30th, 2022. On today's call, we will be making forward-looking statements. I refer you to our SEC filings for a risk and uncertainties. Also during the call, both GAAP and non-GAAP financial measures will be discussed. The non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation. I'll now turn the call over to Helen Torley.

Thank you, Tram and good afternoon everyone. I'll begin on slide three. Our accomplishments in the first half of the year are illustrative of the many opportunities Halozyme has to continue to enhance our growth. With the acquisition of Antares, which further expanded our growth opportunities, adding a best-in-class auto-injector vector platform and a specialty commercial business, thereby augmenting Halozyme's strategy. These additions further strengthened our position as a leading drug delivery company and expanded our strategy to include specialty products. And we continue to deliver operational excellence, achieving multiple drug delivery, commercial and corporate development milestones. I'm happy to report that integration activities are proceeding to plan as we approach the 90-day time point, and we're on track to achieve the goals we established. It is this combination of opportunity and execution that gives us confidence in our differentiated growth story. Focusing now on the financial performance highlights, we reported second quarter revenues, inclusive of Ontario's revenue post the May 24th acquisition close of $152.4 million, a 12% year-over-year increase. This resulted in GAAP earnings per share of $0.16, and non-GAAP adjusted earnings per share of $0.53. Our strong second quarter revenue results were driven by continued growth in royalty revenues from ENHANCE and the addition of the post-close royalty revenues from auto-injector devices and product sales as a result of the Antares acquisition. Based on the recent close of the Antares transaction and strong year-to-date results, together with the latest information from collaboration partners and planned expenditures for the year, we are raising our guidance for 2022. For full year 2022, we expect total revenues of $655 million to $685 million, an increase from our prior guidance range of $530 million to $560 million. This represents growth of 48% to 55% over 2021 total revenue. GAAP diluted earnings…

Thank you, Helen. Beginning on slide 12, total revenue for the second quarter was $152.4 million compared to $136.5 million in the prior year period. The year-over-year increase of 12% was primarily driven by an increase in royalty revenue and the addition of product sales as a result of Antares acquisition, partially offset by a decrease in revenues under collaboration agreements due to a $40 million upfront payment associated with entering into the beef collaboration in the prior year period. Royalty revenue for the second quarter was $85.3 million, an increase of 86% compared to $45.8 million in the prior year period. The year-over-year increase was primarily driven by continued strong uptake of Janssen's subcutaneous DARZALEX utilizing ENHANZE. Cost of sales for the second quarter were $33.9 million compared to $23 million in the prior year period. The year-over-year increase was primarily driven by an increase in product sales as a result of Antares acquisition. Operating income was $34.1 million compared to $93 million in the prior year period. The year-over-year decrease was primarily driven by onetime transaction costs related to the Antares acquisition, including amortization of intangible assets. On a GAAP basis, diluted earnings per share was $0.16 compared to $0.62 in the prior year period. On a non-GAAP basis, diluted earnings per share was $0.53 compared to $0.66 in the prior year period. When comparing to the prior year, it's important to note that 2022 was our first year recorded income tax expense, which impacted current period of non-GAAP diluted EPS by $0.14 per share. Moving now to slide 13. Based on the recent close of the Antares transaction and strong year-to-date results, as well as the latest information from our collaboration partners and planned expenditures for the year, we are raising guidance for 2022. For the full…

Thank you, Nicole. I would like to thank the entire Halozyme team for the hard work that resulted in our strong performance this quarter and for the excellent progress with integration. As you heard today, we are continuing to deliver growing revenues, growing operating income and to expand our pipeline, resulting in strong near-term and long-term growth. Thank you all for joining us today. And with that, we'll be delighted to take your questions. Operator, would you please open the call for the questions.

[Operator Instructions] Your first question comes from the line of Mike DiFiore. Your line is open.

Hi, guys. Congrats also in the quarter and thanks for taking my questions. Just two for me. beginning a lot of this from investors on the potential impact of drug pricing reform on HALO's top line, to the extent if you can, if you could offer any color on how that may affect your finances, that would be great. And along those lines, would co-formulated products be considered new products in their own right. And therefore, not tied to the parent brand launch date, or will they be considered one and the same? And separately, any color you can give on the TLANDO launch. The Rx data seems as if it may be restricted in ICFI [ph] and IMS. Thank you.

All right. Well, thanks for the questions, Mike. Let me just start just with a high-level comment on drug pricing reform. Obviously, the Senate Bill has been issued, but we're still awaiting a lot of the regulations to be published by CMS, so it's hard to give a specific answer. I do think one of the very important factors of a Halozyme though, is we do have a broad and diversified portfolio of products that are in different stages of development across multiple partners for selling their innovative products and medicines globally. And I do think that is a very picture they have, considering that there will only be certain drugs that are going to potentially be impacted in the future by these pricing performs. But it's a little bit too early to talk about this. We can say that for the biologic drugs any impact is expected in 13 years after their first launch. And certainly, as we look at our portfolio, those events that certainly would be well passed 2025, if that's helpful. But we'll be sharpening our pencils when more details are available, Mike, to be able to assess that. But certainly, we're feeling in a very good position because of our portfolio. Similar type of response to the co-formulation are new. I think until the regulations are written and published, it is not going to be possible to give an opinion on that or understand exactly how this is going to be operationalized. So we certainly are beginning our work on the Senate Bill and waiting for those CMS regulations to be able to come up with a full assessment. And obviously, we'll share our assessment at that time. TLANDO launch, as you know, just launched a few weeks ago in June. Our focus at the moment is really on market access. Our team is working to gain access and coverage within the key pharmacy benefit managers. While our representatives are out talking to the physicians, presenting to them our oral therapy, twice a day oral therapy that doesn't require dose titration. So early days yet. And certainly, key are going to be working to get that additional access in place and continuing to educate positions on what we think is an important new offering for patients looking for just a strong replacement.

Very helpful. Thank you.

Your next question comes from the line of Jacob Walter [ph]. Your line is open.

Operator, maybe we can move to the next question. I think we're not able to hear and maybe Jake could come back

Certainly. Your next question comes from the line of Corinne Jenkins. Your line is open.

Great. Good afternoon. Maybe a little more high level. Can you just provide an update on rate, then the integration of Antares and what you've learned, just in the initial two weeks post close of that deal? And anything particular with respect to the commercial infrastructure and where maybe you are going to be focused in that business?

All right. Thanks Corinne. Well, as you know, before, we completed the acquisition we had commented that we had detailed integration plans in place. And I can say from the point of the cultural integration, process integration and getting some of our performance and new ideas implemented, things are going very nicely on track, and I have to give a big thank you to everybody on both sides, Halozyme and Antares who were contributing to that. A couple of highlights, just to mention, now the teams really did hit the ground running with the concepts and ideas around how do we create a unique offering, we think, in the market of a high volume auto-injector that would be used with ENHANZE. And so, that's just an example that we were hoping to see and are indeed seeing with how the power of bringing the company together. You asked a specific question about commercial infrastructure. I think everybody is aware that at the beginning of this year, the Antares began an expansion of its field footprint from about 90 reps to 108 reps. And the goal of that was obviously to prepare for the addition of TLANDO and to increase share of voice and reach, in terms of being able to make sure that we were getting to at the right frequency all of the top volume prescribers. I'm very pleased to say that, that is virtually complete that expansion. And we now have almost all of the territories filled and reps obviously coming up to speed with the new reps coming up to speed with the new product. Now with that, obviously, any integration comes a bit of disruption, but I'm very proud to see and happy to that our teams are putting up some very good numbers and many representatives that are just doing a terrific job moving through that modest disruption that's happening in their physician call list to deliver and continue to perform. And so, very confident as a result of this that we are going to grow our -- both of our products, particularly as I have said in 2022 over 2021. And importantly, for 2023, we're going to be in a great position to grow both our brands for the future.

Thanks. And then maybe, is there any additional color that you can provide on the pull-forward of Ocrevus subcu, pulling it into the Wave 3 group of products? And potentially any color on what that suggests about relative importance of that product to your partner within the indication?

And so sorry, Corinne, I couldn't catch some parts of that. Would you mind repeating?

Sure. Sorry. What additional color can you provide on the Ocrevus subcu pull-forward that's now in Wave 3, it was previously Wave 4? And then any thoughts on what that suggests about the relative importance of that product to Roche in that space? Can you just give a little sense with like a notable update in the quarter?

That's great. With regard to Ocrevus, I don't necessarily think there's sort of a proof forward. It was just an update that Roche management happened to mention in their most recent earnings call that they did expect data in 2022. So, with that confirmation and certainty of them articulating that were able to more firmly move that into Wave 3 given the potential now for a launch between 2023 and 2025. So I would look at that more as a clarity provided by Roche that we could be a repeat and plan again. And with regard to where it fits in the portfolio, if you really look over the last, I think, 12 to 18 months, there's been several comments made by Roche management on its quarterly calls about Ocrevus being a terrific and important growth brand for them, but recognizing that the marketplace is also seeing more oral and subcutaneous therapy. And they commented at one point that being able to move over the subcu really was fitting with where therapy seems to be going in this marketplace. So those comments certainly a signal to me that they see subcu as an important part of their offerings for patients with myasthenia -- with multiple sclerosis.

Thank you.

[Operator Instructions] Your next question comes from David Risinger. Your line is open.

Yes. Thanks very much. So I have a couple of questions, please. First, could you talk about -- or tell us what the impact of Antares was on non-GAAP EPS in the second quarter? So what the figure was for the second quarter? And then what is the expected impact on a non-GAAP basis on your updated full year 2022 non-GAAP EPS projection? Second, could you remind us -- I can't recall. I apologize. But what has been said about pursuing a once-daily TLANDO and potential timing? And then third, could you please comment on business development prospects, so opportunities to sign new partnerships in the near to medium term? Thank you.

Thank you, David, for the question. And I'll ask Nicole to start, I will take these in order. Would you answer the questions on the non-GAAP EPS?

Yes, happy to do this. So, while we haven't provided that level of detail, we did provide that the Antares revenue streams did contribute $18.7 million for the quarter. And just a reminder on that contribution, that is from the time period of May 24th, the date of acquisition through to the end of the quarter. So, for that period, that is the period that we've included in our Q2 results. And then I can say for full year as well, you'll see that we did update our guidance for the full year, including updating our non-GAAP diluted EPS and we've adjusted that range, we've increased it by $0.05 per share, and that is reflective of the accretion that we project for the full year related to the Antares acquisition and the contribution from that part of the business.

All right. And I'll move to the once-daily TLANDO. We can provide an update that we don’t exercise the option to pursue at TLANDO XR, which is the fairly TLANDO, potential development with legacy. That was based on a comprehensive analysis looking at our expectations for outsized cost duration of the clinical study versus the return on that. So, we -- with our portfolio today, which as our terrific XYOSTED subcu that virtually came a weekly injection and the twice-daily oral, we believe was very differentiated offerings for the testosterone replacement therapy market. And then on business development, the test indeed has been very exciting. It has already been very busy with our current partners, presenting to them the new options, which include a one ml auto-injector, 2.25 ml auto-injector, and also talking about our plan to develop a 5 ml auto-injector that would be used with ENHANZE. And I can tell you the reception has been very positive with a lot of interest being expressed by several partners who are going back now to look at their portfolio to see if they would be a fit. I'm also excited to say incoming calls are increasing, the people inquiring is it possible to do X? Is it possible to do Y? And that always is very positive as well to be getting those incoming calls. And then I'll just say, as we have done in the past, we have done a systematic assessment, all of the products that we could find out there that might fit into a one million, 2.5 ml or 5 ml auto-injector, and we are now beginning a proactive out burned that call to present offerings to these companies, and potential new partners, and that's kicking off in August. So certainly, a very good reception, very nice response to how differentiated is the Antares auto-injector is. And I think what does seem to make it very different, and we're getting this feedback from potential partners is the ability to develop a customized device, working with the talented Halozyme engineers to make sure that whatever the design is, it's the desired patient population, disease, speed of injection, volume of injection. And so off to a very strong and encouraging start based on just the last several weeks of BD discussions.

Thank you.

Your next question comes from the line of Jessica Fye. Your line is open.

Hi, guys, thanks for taking my question. So with the Antares closed under your belt, I was wondering if you could update us on your capital allocation priorities, when you think about additional share repo versus debt pay down versus more acquisitions? Thank you.

Yes. Well, let me ask Nicole to address that.

Yeah. Thanks Jess. I would say we continue to be focused across the board on our capital allocation priorities, specifically in regards to share repurchases, our plans remain intact with our existing $750 million plan that we initiated late last year a three-year plan. We did in this quarter complete the first $150 million purchase of that, which was utilizing an accelerated share repurchase program. So that was completed this quarter, and we do plan to purchase up to an additional $100 million in the remaining months of the year. So that is still tracking nicely. Again, we do continue to monitor our access to capital markets, and we -- our access to debt, and we do have a low net leverage ratio of 3.3 times at the end of the quarter, which we expect to reduce to less than three times by the end of the year. So we're continuing to access that type of leverage as well. And then again, growing externally that also continues to be a focus for us as Helen mentioned, we're very focused on integration and the success of this acquisition and putting all the pieces in place here, but that will be an area of focus for us to continue to grow externally as well.

[Operator Instructions] There are no further questions at this time. Ms. Torley, I turn the call back over to you.

Well, thank you. We appreciate everybody joining us for this call. Obviously, an exciting quarter for us with strong operational performance, which is the key hallmark we believe, of Halozyme even as we integrated and carries. And so we look forward to providing additional updates in the next quarter, where we expect to continue this very strong momentum and success. Thank you all for your attention today. Bye-bye.