Halozyme Therapeutics, Inc. (HALO) Q2 2023 Earnings Report, Transcript and Summary

Good 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 speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Please note this event is being recorded. I'll now turn the call over to Tram Bui, Halozyme's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator. Good afternoon and welcome to our second quarter 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 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 will review our financial results for the second quarter 2023. On today's call, we will be making forward-looking statements as outlined on slide two. I would also refer you to our SEC filings for a full list of risks and uncertainties. During the call, both GAAP and non-GAAP financial measures will be discussed. Certain non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation. I will now turn the call over to Dr. Helen Torley.

Thank you, Tram. Good afternoon, everyone. I will begin on Slide three. We're very pleased with our second quarter 2023 results where we delivered strong year-over-year top line and bottom line growth. With our partners we annex multiple milestone bearing Valley increasing events for the next wave of subcutaneous products that we project will deliver meaningful royalty revenues of Wave 3 products, most notably argenx's VYVGART Hytrulo that is coformulated with ENHANZE received FDA approval for generalized Myasthenia Gravis in June, making this the sixth approved product utilizing ENHANZE. We're excited that co-formulated products using Halozyme’s ENHANZE technology continue to deliver substantial potential benefits for patients and for the healthcare system. In 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 includes two or more active ingredients are monitored as distinct drugs, for the purposes of applying the Negotiation provision. A combination product will be treated as different from a product that contains only one of the combination product active ingredients. We believe that if a single ingredient product becomes subject to negotiation at a capped price, the fixed combination product will be subject to its own separate negotiation eligibility timeline. Today our fixed combination products, our healthcare practitioner 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 D drugs become eligible for negotiation, our partner subcutaneous drugs, which are co-formulated with ENHANZE will be treated as separate from the IV versions of these drugs. We believe a kept price imposed [ph] on maybe IV version of the drugs would then not apply to the ENHANZE combination product. And then the ENHANZE combination product would be subject to its own negotiation eligibility timeline. We believe this outcome is appropriate because of the added patient benefit that is represented by the ENHANZE combination product. Our ENHANZE enzyme rHuPH20 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 tests of a high volume auto-injector was a success, confirming both the feasibility and tolerability of rapid injection of 10 milliliters 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 increase 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 that are driving revenue in 2023 and beyond. Turning to Slide four. Halozyme is a leading drug delivery platform company with a diversified and robust portfolio, which includes our ENHANZE royalty business, our auto-injector technology business and our specialty commercial products. As an established leader and rapid subcutaneous drug delivery with ENHANZE and their differentiated auto-injector technology, we remain the partner of choice across the industry. Moving now to Slide five. In the second quarter, our partners make significant progress with their commercialization and development activities related to our Wave 3 product. Wave 3 is comprised of four products that are projected to launch between 2023 and 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 VYVGART Hytrulo with ENHANZE for generalized Myasthenia Gravis received FDA approval and launched shortly thereafter. The approval and launch resulted in milestone revenue to Halozyme in the quarter. Halozyme will also receive royalties on net product sales. Shortly thereafter, on July 17, argenx it's positive data update ADHERE study, which evaluated VYVGART Hytrulo, with ENHANZE in patients with chronic inflammatory demyelinating polyneuropathy, or CIDP. With the 61% reduction in risk of relapse versus placebo, this marks the second positive readout of the six indications for VYVGART Hytrulo that are currently being evaluated. Moving now to the second of our Wave 3 products that had positive clinical study results in the quarter. On July 13, Roche reported that their Phase III OCARINA II study of OCREVUS, subcutaneous co-formulated with ENHANZE will met the primary and secondary endpoints in patients with relapsing forms of multiple sclerosis, or with primary progressive multiple sclerosis. This study evaluated subcutaneous OCREVUS total treatment time in 10 minutes, which compares with multiple hours of treatment time with CID. We are excited by all of this progress and what it can mean for patients, as you will see summarized on Slide six. ENHANZE which is an active ingredient with independent actions, when co-formulated with our partner product allows for rapid subcutaneous delivery of large volume drugs. In multiple publish studies, subcutaneous delivery decreases treatment time and treatment burden for patients resulting in an improved patient experience. And as we saw with DARZALEX subcutaneous than we also be in the rate of potentially life threatening infusion related reactions, 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 clinic capacity constraints become more acute subcutaneous 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 million representing a 45% year-over-year increase. The key driver of revenue and revenue growth is our royalty revenues which are shown on Slide seven. Second quarter 2023 royalty revenue increased 31% year-over-year to a record $111.7 million. We project continued quarter on quarter growth of royalty revenues throughout the years. For the full year, we're maintaining our projection of $445 million to $455 million in royalty revenue, representing 23% to 26% growth over 2022. DARZALEX FASPRO and Phesgo our Wave 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. I will note that for 2023, we are assuming nominal royalty revenues for VYVGART Hytrulo and no Tecentriq subcutaneous royalty revenue. 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 eight. Cancers DARZALEX growth remains impressive with combined IV and subcutaneous revenue increasing approximately 23% year-over-year on an operational basis in the second quarter of 2023 to approximately $2.4 billion. This increase was driven by shared gains in all regions and continued growth of the market, which was previously reported with the result of increased penetration into the front line treatment setting. Analysts project annual DARZALEX sales of $16.7 billion in 2028. 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 Phesgo, which is shown on Slide nine. Phesgo is the combination of Perjeta and Herceptin for subcutaneous injections for patients with early and metastatic HER-2 positive breast cancer. This allows for a single five to eight minutes’ subcutaneous treatment compared with a much lengthier IV treatment schedule. Of note, 85% of patients preferred Phesgo’s subcutaneous administration over the IV formulation of Perjeta and Herceptin. For the first half of 2023, Roche reported Phesgo’s sales of CHF517 million. An increase of 69% year-over-year. Phesgo is no longer than 38 countries, of recent increase of eight countries and represents 35% share, which Roche recently commented that they're expecting to grow to 50% share over time. Roche also reasonably highlighted that [indiscernible] is 92% and the U.S. share continues to grow. We're also anticipating a potential path for patient self-administration of Phesgo with an on-body injector with Pivotal Phase 1 data from Roche’s study expected in the second half of the year. I'll turn now to our Wave 3 products which is shown on Slide 10. As noted earlier, these products represent the next group of royalty revenue opportunities for Halozyme with four potential launches projected between this year and 2025. Let me start with Efgartigimod, the launch of organics is lifeguard intravenous formulation in patients with Generalized Myasthenia Gravis is progressing well, with growth of 24% quarter-over-quarter to $269 million in the second quarter of this year. Analysts predict that Efgartigimod will be a multi-billion-dollar annual revenue brand in 2028. The recent FDA approval on launch of VYVGART Hytrulo with ENHANZE provides the new 30 to 90 second healthcare practitioner administered subcutaneous injection option with a shorter monitoring time for patients with Generalized Myasthenia Gravis. Efgartigimod is argenx’s flagship pipeline product and is being developed with ENHANZE on a total of six autoimmune disease indications to-date, and four 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 immense positive top line data from the ADHERE study, evaluating VYVGART Hytrulo with ENHANZE for chronic inflammatory demyelinating polyneuropathy. This study met its primary endpoint with a statistically significant P value of 0.000039 and demonstrated a 61% reduction in the risk of relapse with VYVGART Hytrulo compared to placebo. The safety and tolerability profile were consistent with the confirm safety profile of VYVGART. And we look forward to argenx presenting detailed data from the study at an upcoming medical meeting and for preparing for global regulatory submissions. Argenx I commented that work is now underway to evaluate the size of the addressable CIDP population and the opportunity which is informed by the positive ADHERE study data. We continue to project two additional study readouts for VYVGART Hytrulo with ENHANZE this year, with beta idiopathic thrombocytopenic, purpura, and pemphigus expected in the fourth quarter. Moving now to Roche, we're looking forward to the potential approval of Tecentriq subcutaneous with ENHANZE in the third quarter with Roche's U.S. PDUFA date of September 15 2023. Subcutaneous atezolizumab has the potential to offer greater convenience for patients and physicians within approximately seven minutes that became its 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 prepares. For the first half of 2023, Roche reported IV Tecentriq revenues of CHF1.9 billion, an increase of 12% year-over-year, which is driven by growth in the accident, non-small cell lung cancer and frontline hepatocellular cancer. Moving now to OCREVUS. This is the third of the four Wave 3 opportunities that have no events positive Phase III data with ENHANZE. The OCARINA II study met the primary and secondary endpoints supporting proceeding with regulatory findings for OCREVUS subcutaneous injection, co-formulated with ENHANZE, 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 management meeting and submitting data for regulatory approvals to help authorities globally. OCREVUS as an ID continues its impressive growth trajectory. In the first half of the year, Roche reported OCREVUS revenues of CHF3.2 billion, which represents an increase of 15% year-over-year, and annualizes now to greater than $7 billion. 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 EU 5. Roche expects further market share gains with the approval of subcutaneous administration of OCREVUS, creating the possibility for patients to receive treatment in additional multiple sclerosis centers, doses that don't have IV infusion infrastructure over their ID capacity constraints, potentially adding new growth opportunity for the brand. The fourth Wave 3 product, is subcutaneous Nivolumab. Bristol Myers Squibb is also progressing with their Phase III registration study of subcutaneous Nivolumab utilizing ENHANZE in patients with renal cell carcinoma. BMS reported Opdivo IV sales of $2.1 billion in the second quarter of 2023, an increase of 5% year-over-year excluding FX. We are delighted with the advancements and pending regulatory approval for our Wave 3 pipeline. In total, these products represent substantial near term new royalty revenue opportunity for Halozyme. Analyst projections for the total product sales for these products is approximately $35 billion in 2028, including the IV in subcu formulation. I will note that this is significantly higher than the opportunity for our Wave 2 products, which are driving our strong royalty revenue growth today. Moving to Slide 11, I'll touch on some highlights from our Wave 4 partner product development and pipeline with ENHANZE. Our longer term growth to get through is supported by these Wave 4 products with its development continues potential for launches in the 2025 to 2027 timeframe. Wave 4 is comprised of 10 partner products, two of which are in Phase III, and the remaining eight 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 two most advanced products are Janssen subcutaneous formulation of amivantamab and Bristol Myers Squibb excellent combination of nivolumab plus relatlimab with ENHANZE. Both are already approved with IV designing treatments. And the subcutaneous tuff formulations are in Phase III clinical testing. Notably, Janssen presented data at ASCO this year from their Phase 1 PALOMA study. For subcutaneous amivantamab in solid malignancies. The study was designed to identify the Phase II dose. Also reported, the data that showed a reduction in all grade infusion related reactions from 67% with the IV regimen to just 16% with subcutaneous amivantamab with ENHANZE. This data point reinforces the opportunity to drive clinical benefit for patients with our ENHANZE technology. Let me comment now on new deal. We remain highly engaged in new partnerships 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 and the recent results of our HVI clinical study will serve to further enhance 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. The results demonstrated the feasibility of administering a subcutaneous injection of 10ml of a representative biologic, which is immune globulin, 10% with ENHANZE in approximately 30 seconds using our high volume auto-injector. The injector was delivered successfully was well tolerated and all 23 subjects, they said that they would be willing to have the injection via the auto-injector again. No one today to our knowledge had been able to effectively inject 10ml of a biologic subcutaneously in approximately 30 seconds. With a combination of our two proprietary and differentiated technologies, ENHANZE and 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 interests that we have already garnered. The high volume auto-injector will offer a truly differentiated solution for patient friendly high volume, subcutaneous for delivery that can be utilized across the 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 auto-injector. Our strategy is to convert patients who are not achieving their treatment goals with intramuscular injections of their testosterone replacement treatment. In the second quarter, we saw strong sequential demand growth, with 38% demand growth in the first half of 2023, compared to the first half of 2022. Our goal remains to keep approximately $100 million 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 TLANDO, 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 TLANDO in 2023. I’ll move now to our capital allocation priorities which are shown on slide 13 and our focus on our approach to growth through M&A. Investing in M&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 extend our leadership and drug delivery with 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 expertise in partnering with biopharma companies. Now with that, I'm going to turn the call over to Nicole, who will discuss the financial results for the second quarter of 2023. Nicole?

Thank you, Helen. Our strong financial performance in the second quarter sets us up well for another record year. We achieved record revenues of $221 million for a total of $383.2 million year-to-date, in line with our plans in supporting our updated financial performance expectations for the full year. Our cash, cash equivalents and marketable securities are $348.3 million as of June 30 2023, compared to $275.6 million as of March 31 2023. Our balance sheet remains strong with continued projected cash generation in EBITDA growth in 2023 and beyond. 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 million in share buybacks planned for the year in the first quarter. We will continue to evaluate our future use of capital and monitor market conditions and other factors, while also preserving capital to fund revenue growth and durability through M&A. Turning now to Slide 14, for our detailed financial results for the second quarter of 2023. Recall that we closed the Antares acquisition last year, partway through the second quarter on May 24 2022. And therefore the year-over-year comparison is impacted by the full quarter versus the partial quarter of contribution from the Antares business. Revenue for the second quarter was $221 million, compared to $152.4 million for the second quarter of 2022. The 45% year-over-year increase was largely driven by the strength and growth and enhanced revenue streams related to royalties and an increase in milestones due to the approval and launch of VYVGART Hytrulo, as well as the addition of product sales as a result of the Antares Pharma acquisition. Royalty revenue for the quarter was $111.7 million, an increase of 31% compared to $85.3 million in the prior year period. Driven by continued strong uptake of Janssen DARZALEX as well as Roche’s Phesgo. Research and development expenses for the second quarter were $19.7 million, compared to $15.5 million in the second quarter of 2022. Primarily due to an increase in compensation expense related to ongoing combined larger workforce to support the device platform and regulatory quality and manufacturing, as well as planned investments in ENHANZE. SG&A expenses were $38.9 million, compared to $57.5 million for the second quarter of 2022. The decrease year-over-year is primarily due to one-time transaction costs that occurred in the second quarter of last year of approximately $38 million 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. EBITDA in the second quarter was $115.1 million, compared to $46.6 million in the second quarter of 2022. Reflecting the strong year-over-year revenue performance. When adjusting for one-time transaction costs in the second quarter of 2022 adjusted EBITDA increased from $87.8 million or 31%. GAAP diluted earnings per share was $0.56 in the second 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 million to $845 million, an increase from $815 million to $845 million, representing growth between 25% and 28% over 2022 total revenue. We expect total revenue growth to be primarily driven by continued strength in our ENHANZE Wave 2 product, DARZALEX SC and Phesgo as well as a full year of Antares product sales and auto-injector royalty contribution. We are maintaining a royalty revenue expectation of $445 million to $455 million, an increase of 23% to 26% year over year. We are increasing the lower end of EBITDA guidance and now expect EBITDA of $420 million to $440 million an increased from $415 million to $440 million, 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 $2.75. With an increase from our prior guidance range of $2.50 to $2.65. With that, I'll now turn the call back over to Helen.

Thank you, Nicole. Let me conclude by expressing my sincere appreciation for the Halozyme team and our partners and collaborators for the strong progress throughout the first half of 2023. 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 predict another product approval with a Tecentriq subcutaneous PDUFA date in September. There's also the potential for additional breakups resubmission based on the two recent positive Phase III data readout from VYVGART Hytrulo in CIDP. And for OCREVUS subcutaneous with ENHANZE. We're expecting several additional late stage study data readouts and enhancements related to progress and expanding our ENHANZE and our auto-injector partner agreement. With that, we would now be delighted to take your question, operator, could you please open the call for the Q&A.

[Operator Instructions] Our first question is from Mohit Bansal with Wells Fargo. Your line is open.

Great. Thank you for taking my question. And congrats on all the progress here. Easy question. So when you talk to your potential partners regarding parting opportunities, how much does IRA come into discussions? Also, how do partners think about a lack of patent protection for ENHANZE standalone technology after 2027?

Thanks, Mohit. With regard to conversations with partners, I'll divide it into potential partners for I will say the IRA does not come up and 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 or auto-injector can bring. And so I would say conversation is still very focused on that differentiation and clinical benefit. For our current partners. After the issuance of the final Part D guidance, we have been reaching out to a few of those partners and we have some conversations. And I will say that they are generally aligned with us in terms of what we believe this can mean. And so that has become a bit of a conversation, Mohit. And let me turn that to the patterns. 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 talked 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 matter patents have expired, we would play the lower royalty rate and we think it'd be very comfortable with that. And so far as you know, the majority of our partners are full steam ahead to identify novelty that can result in co-formulation patents because they also want to protect their invention. So it really has not held us back you can see a lot of our products are in wait for 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.

Super helpful. Thank you.

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

Hi everyone. This was [indiscernible] for Vikram, we have one question. Could you provide some color on what your pipeline of backlog of new potential partners look like and which types of products they are looking to leverage ENHANZE for? Thank you.

Yes, as we've mentioned, we are working for signing new deal for ENHANZE on its own, ENHANZE with the high volume auto-injector, and also the small volume auto-injector. And I would say that for ENHANZE and high volume auto-injector, not surprisingly, these really focus on two types of products either large volume IV drugs that have the potential to go subcu, or subcutaneous drugs to-date 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've played before that is still where people are interested in obviously, high volume auto injector volume would be sticking there is anything between three and 10 ml. For the larger volumes, obviously, that would be by a syringe and a push, small volume auto injectors that 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 Antares auto-injector, it's been tested in many cases to 99.999% reliability. So people are looking for emergency use, want that people who've got expensive drugs want that too, because you don't want to have the patient by the drug and be unable to administer it because of failure. So I say high reliability drugs, high expense drugs. And then finally, there's interest also from companies who've got viscous fluids. We with them, as I have said and [indiscernible] have demonstrated the ability to inject some pretty viscous fluid that remains an unmet need with the off the shelf small volume auto-injector, and that's an area where we certainly have interest as well.

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

Hi, guys, thanks for taking my questions and congrats on all the progress. Two for me. One, prior to Argenx’s CIDP top line and subcu OCREVUS 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. 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? And then I have a follow up?

All right, thanks for that, Mike. And 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 include two or more active ingredients as distinct drugs with purposes that found that these are going to be treated differently in terms of the negotiation timeline, from a separate product of just one of the ingredients. That is what we have interpreted in March when the draft guidance came out. And despite comments and questions coming in, it was -- 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 active ingredient. And so we feel that this was a great recognition or the clinical benefit, that are combinations for those two active ingredients and obviously ENHANZE just bringing the clinical benefit of being able to give it in a rapid subcu injection. In some cases, we can also reduce infusion related reactions. 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 see doesn't hands fit in. We're basing our confidence on the fact we are an active ingredient. And the Part D guidance is very clear on two active ingredients being treated separately. Our experts believe given this was a specific question that was asked 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.

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, Phesgo conversion in Germany seems to be uniquely low compared to other actual geographies 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 Phesgo conversion there?

Yes, we've seen and I can't speak specific to Phesgo, because I don't have information. But if I go back to the launch of Herceptin Mike, the German healthcare system is a little bit like the U.S. where physicians receive an administration fee for IV administration. And what we saw with Herceptin was that the uptake lag the other countries were the -- 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. And so I don't believe I ever saw it catch up. But it is certainly it has been a dynamic we've seen because of the reimbursement. And Michael, I realized I didn't answer another question, you're asking whether any of our partners had a similar interpretation as to the Part D guidance and potential for read through to ENHANZE and we'll see we're just beginning those conversations. But to date, we have found our large pharma partners, or in a similar interpretation.

Very helpful. Thank you.

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

Yes, thanks very much, and congrats on the updates. I have two questions, please. So first, Halozyme previously included a quarterly side and expected new partnership deals in ‘23. 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 out 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 enhances EU LOE in ‘24 and the U.S. LOE in ’27? Thanks very much.

Yes. Thanks David. In the prepared remarks, we did comment that we continue to be confident in signing a new ENHANZE deal, and new deal for the HCI, which of course would include it in the hands as well, and the new small volume auto-injector deal. And you 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's treatment experience. So hopefully, that is clear. With regard to the European LOE, just to say we continue to receive royalties, I just want to make sure everybody understands this. All our products for a period of 10 years after the first commercial sale. And so for all the products that launched from DARZALEX and Phesgo we expect royalty revenues for those to extend to at least 2030. And often it can extend beyond that, because of the impact on all 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 2027 in the United States. We all work hard with all of our partners to seek to get co-formulation patents. And we've previously commented that for all over -- for our products, and we'll just highlighted that for DARZALEX, while we're continuing to get some royalty revenues to at least 2030, there is a step down to half of the current royalty rate in 2024 when the European patent extent -- expires. And the same in the U.S. in 2027. Many of our other products have got co-formulation patents, we expected to have co-formulation patents that are going to continue to extend the time to step down. But the most important factor of just to be very clear is the duration of our royalties is unaffected by any of the composition of matter pass an expert

Right, thank you.

The next question is from Corinne Jenkins with GSC. Your line is open.

Good afternoon. This is Craig on for Corinne. 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?

Thanks, Craig. And I would say the HCI data specifically is just off the price. We completed that study just a few weeks ago. And so in terms all our job number one 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 is being done. And so we're just at the very start 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 and months, in that, Craig, know that we're in a position to safely start sharing the data, which, just to reiterate, we were delighted with to show the feasibility of that 10ml injection and 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. And I know that is exactly what the partners and potential partners we were talking about beforehand, we're looking to see. So what more in the next weeks and months.

Got it. Thank you very much.

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

Hi, thanks for taking the questions. I just had a couple of high volume injector study. Helen, I think you referred to IGG as a representative biologic, do you have preclinical data that support that? There's bridging value here, high success in this study has brought a predictive value to other molecules. And then just thoughts on how different viscosities would act in the 10ml auto injector? Thanks.

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, or the immune globulin, it mirrors in many ways the viscosity of many of our other biologics, such as Herceptin and [indiscernible] 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 picky 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. And so it was right in the sweet spot of viscosity, which is why our technical team recommended we select that, Jason.

Great. That's helpful. Helen, thanks. And then just one more, can you just give us your current thinking about capital return and how you evaluate, whether you would increase or renew a buyback versus looking at other mechanisms of returning shareholder capital versus wanting to keep dry powder for business development purposes?

Yes, I'll ask Nicole to address that. That's alright.

Yes, Thanks, Jason. So we have not seen our capital allocation plans for the year. We continued to -- and we did execute on the plan share repurchases for the year, we took the opportunity to fully execute for the amount we allocated this year $150 million in the first quarter when we saw a nice buying opportunity. So no change in plans at this time. We continue to also very much focused on the investments in our platforms, and also in growing our revenue durability via M&A. So we continue to focus on all avenues at this time.

Okay, great. Thank you.

Your next question is from Mitchell Kapoor with H.C. Wainwright, your line is open. Q – Mitchell Kapoor: Hi, everyone. Thanks for taking the question and congrats in the quarter. As we're seeing success with DARZALEX, FASPRO and Phesgo. Just wondering if you can kind of help us understand how future launches in the oncology space will go in terms of uptaking quicker and quicker, for instance, with the potential approval of atezolizumab and other oncology products? Thank you.

Yes, thanks for the question. I do think is 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 Herceptin is a good example, where we saw over time, approximately 60% share of sales in about three 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 that pace of uptake and the pace of uptake is going to be. So certainly, as we look at atezolizumab. What we're going to see is for there are plenty of settings for 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 an infusion, that's going to be wonderful. And so we would expect that 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 shorted by an hour is very important. So we also see a nice opportunity for uptake in that setting as well. And so I think we'll wait for and see if Roche makes that comment as to where they believe the uptake is going to go the on their earnings call. Just a couple of weeks ago, they did comment that they do expect to see strong uptake, at and above what we're seeing for Phesgo, specifically expressing their pleasure with the 92% conversion in the UK, and saying they thought levels like that, in some of the European countries are certainly possible for Tecentriq as well, because of 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 for the health care system. So more to come as we see that launch are underway. But we do expect this to be well received by patients and by the oncologist and healthcare system because of the clinical benefit.

Great. Thank you, Helen.

The next question is from Mack Chandler with Jefferies, your line is open.

Thanks for taking the questions. This is Mack on for Eun. Congratulations on the quarter. One question was just you know, for the Wave 4 products, you noted that eight are in or have completed Phase 1. Could 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? Thanks.

Yes, we were a little bit restricted in what we can communicate on that Mack, 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 two of the products are in Wave 3 clinical development, that amivantamab and relatlimab 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. 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 front run them by giving any specifics yet, but we are as interested as you all are in making announcements when as soon as we can.

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

Great. Thanks for taking the question. So just to follow up on cash on the balance sheet. On your 10-Q you mentioned that you have a runway for about 12 months. And I'm just wondering, which strategy are you prioritizing an M&A or cash raise? And what would that look like? Thanks.

Yes, thanks, Caroline. So we ended the quarter with $348.3 million 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 growth in EBITDA and growth in cash flows. Also note that we ended the quarter with a net debt to EBITDA ratio 2.9 times. Also very nicely within from a leverage perspective. From an M&A perspective and the capital allocation perspective in general, I mentioned our capital allocation plans remain unchanged. We'll continue to look to deploy our cash four our three year share repurchase plan, per our investments in our platform, and also in investing in M&A and the timing of that will really be when we find the right target to invest in that meets our growth criteria.

Great, thanks.

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