Halozyme Therapeutics, Inc. (HALO) Q1 2024 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Brilla, 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. [Operator Instructions] Please note, this event is being recorded. Thank you. I would now like to turn the conference 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 First Quarter 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 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 as well as our outlook. On today's call, we will be making forward-looking statements as outlined on Slide 2. I would also refer you to our SEC filings for a full list of risks and uncertainties. During the call, both GAAP and non-GAAP financial measures will be discussed. Certain non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation. I'll now turn the call over to Dr. Helen Torley.

Thank you, Tram, and good afternoon, everyone. Beginning on Slide 3. I'm very pleased to report that our first quarter 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 3 key drivers, which will help you appreciate the Halozyme business model even more. I'll begin with royalties. The first quarter 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 Phesgo, with growing contributions projected from more recently launched and launching products, VYGART Hytrulo 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. This is a valuable feature of our agreements where we can have milestone payments for attainment of prespecified sales levels, potentially extending to occur many years after the original launch. Moving now to the Wave 5 product milestone. We're predicting new products will enter the clinic in 2024, resulting in a milestone payment. In the first quarter, we recognized $4 million in milestone payments related to the approval and launch of VYVDURA, which is the brand name for VYGART Hytrulo 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 second quarter, we will recognize a $15 million milestone related to the recently announced U.S. regulatory file acceptance for nivolumab subcutaneous, a Wave 3 product. In the third quarter, we project 2 additional milestone payments related to the Wave 3 products, including a regulatory filing and a first commercial sale. Also in the third quarter, we project a milestone for the Wave 5 product Phase I study start I just mentioned. In the fourth quarter, 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 predict milestone revenues from new deals and new nominations in 2024. While these may occur at any time in the next 3 quarters, for planning purposes, we project these in the fourth quarter. 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, result in 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 million to $985 million. Royalty revenue continues to be the main driver, which is projected to increase 12% to 17% to $500 million to $525 million. We project adjusted EBITDA growth of 26% to 37% to $535 million to $585 million and non-GAAP EPS growth of 28% to 41% to $3.55 to $3.90. With that overview, let me now move to the first quarter 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. 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 first quarter of this year. Beginning with recent approvals, argenx's efgartigimod subcutaneous with ENHANZE, which is the brand name in Japan of VYVDURA, was approved in Japan for generalized myasthenia gravis, including options for patient self-administration. With the subsequent commercial launch of VYVDURA, these events resulted in a combined $14 million in milestone payments to Halozyme. It was also exciting that Takeda's HYQVIA, which is a Wave 1 product, received approval for an expanded indication in the United States and Europe during the first quarter. The new indication is for maintenance treatment of patients with chronic inflammatory demyelinating polyneuropathy or CIDP. In addition, Roche received European approval for Tecentriq subcutaneous. As a reminder, the potential U.S. approval is expected in September of this year. Also in the first quarter, and more recently, multiple partners advanced regulatory progress towards potential approvals and additional milestones and royalty revenues. In February, argenx announced FDA acceptance of their sBLA with priority review for VYGART Hytrulo 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-2024 and FDA PDUFA target action date in September of 2024 for both Tecentriq subcutaneous and ocrelizumab 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. And BMS has announced the FDA acceptance of their BLA for nivolumab subcutaneous with a PDUFA target action date of February 2025. We're also pleased to report 2 pipeline advancements. Firstly, argenx initiated registrational studies of efgartigimod subcutaneous with ENHANZE for a new indication thyroid eye disease. Excitingly, these studies will utilize efgartigimod with ENHANZE delivered by prefilled syringe. And secondly, our partner, ViiV initiated another Phase I study for VH4524184, which is an integrase inhibitor with ENHANZE. The performance of our Wave 2 products, 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 billion 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. In the first quarter of 2024, J&J's DARZALEX sales were $2.7 billion, up 21% year-over-year on an operational basis. This strong growth was driven by share gains in all regions, resulting in a share gain of 6 points across all lines of therapy out of 10 points in the frontline setting. With subcutaneous penetration in excess of 90% in the United States and 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 billion in 2028. The potential approval in 2024 for the new indication of transplant-eligible, newly diagnosed patients based on recent U.S. and European regulatory submissions would provide an important new frontline opportunity for DARZALEX subcutaneous. I'll move now to Phesgo, which is shown on Slide 6. First quarter, Phesgo sales increased 70% to CHF 388 million, which represented the second-best performer in Roche's self-ascribed young portfolio. Roche recently highlighted that U.S. conversion is reaching 25%, and global conversion was 41% in the quarter. With the strong launch uptake 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 Phesgo, with Perjeta generating almost CHF 1 billion 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. The opportunity for Wave 3 is meaningful with 5 products that analysts project will generate total sales of $35 billion in 2028. This compares to $20 billion 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 III data and regulatory submission plans already reported by our partners for all products, with the exception of Johnson & Johnson's Amivantamab where Phase III data and regulatory submissions are expected this year. Let me begin with VYGART Hytrulo, the subcutaneous version [Audio Gap] VYGART Hytrulo is currently approved for generalized myasthenia gravis in the U.S. and Europe and also in Japan, where it the brand name VYVDURA. Notably, the European and Japanese approvals also allow for patient self-administration subcutaneously. In 2023, VYGART generated $1.2 billion in sales, argenx 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. With Symphony data showing positive quarter-over-quarter growth for the brand, we look forward to growing adoption and use of subcutaneous VYGART Hytrulo as the number of physicians prescribing VYGART 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 VYGART Hytrulo. 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. 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 efgartigimod 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. Total revenue per Tecentriq was almost CHF 900 million in the first 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. In the first quarter of 2024, Ocrevus IV generated approximately CHF 1.7 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 ocrelizumab will dramatically change the patient treatment experience. Today's treatment and observation time can be from 3.5 to 6.5 hours of 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 stand-alone 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 Agencies 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-2024. Roche also announced that ocrelizumab subcutaneous has a PDUFA action date in the United States of September of 2024. The key data supporting these approvals is from the OCARINA II study. Roche recently presented updated longer-term results from the OCARINA II study at the 76th American Academy of Neurology Annual Meeting. The results highlighted the significant potential benefits of subcutaneous ocrelizumab 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. 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 eighth approved subcutaneous product with ENHANZE. I'll turn now to Bristol Myers Squibb's nivolumab subcutaneous with ENHANZE. 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 $2.1 billion in sales in the first quarter 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 ninth ENHANZE-approved partner product. I'll move now to Johnson & Johnson's Amivantamab subcutaneous with ENHANZE. Amivantamab subcutaneous remains on track with the potential for launch in 2025. Amivantamab is already approved as an IV treatment under the brand name Rybrevant, with Johnson & Johnson projecting that Rybrevant will become a multibillion-dollar brand. We look forward to Johnson & Johnson presenting the Phase III 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 time frame. 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 III development are Takeda's immunoglobulin 20%, which is TAK-881 with ENHANZE, and Bristol Myers Squibb's nivolumab-relatlimab fixed-dose combination subcutaneous with ENHANZE. The Phase III studies of TAK-881 and nivolumab plus relatlimab continue to progress. Also advanced into later-stage development is ViiV's broadly neutralizing antibody N6LS, which is progressing in an ongoing Phase II 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-2027 time frame. ViiV continues with its mission to transform the treatment experience for HIV patients and recently initiated a new Phase I study for an integrase inhibitor, VH4524184, given subcutaneously with ENHANZE. And we're also excited that Acumen announced they plan to initiate a Phase I study of a subcutaneous version of ACU193 for the treatment of Alzheimer's disease in mid-2024. 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. With regard to our high-volume auto-injector, in the first quarter, 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.

Thank you, Helen. The first quarter 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&A. As we continue to execute on the $250 million ASR that was announced in the fourth quarter of 2023, the new $750 million 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. We maintain a strong balance sheet with cash, cash equivalents and marketable securities of $463.5 million as of March 31, 2024, compared to $336 million on December 31, 2023. Our net leverage ratio was 2x 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 first quarter. Revenue grew 21% to $195.9 million compared to $162.1 million in the prior year period. Royalty revenue for the quarter was $120.6 million, an increase of 21% compared to $99.6 million in the prior year period, primarily attributable to continued momentum of our Wave 2 products, DARZALEX FASPRO and Phesgo. Research and development expenses were $19.1 million compared to $18 million in the first quarter of 2023. The increase was primarily due to planned investments in ENHANZE. Selling, general and administrative expenses were $35.1 million in the quarter, down from $37.4 million 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% to $115.7 million from $74.3 million 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 first quarter of 2023. 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 million to $985 million, representing growth of 10% to 19%. And adjusted EBITDA of $535 million to $585 million, 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 first quarter. 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 million to $525 million 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.

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 VYGART Hytrulo in CIDP in the United States in June, potential approval and launch of Ocrevus subcutaneous in Europe midyear, potential U.S. approvals and launches for Roche's Tecentriq subcutaneous and Ocrevus subcutaneous in September; and a Phase III data readout for J&J's Amivantamab subcutaneous. 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 first quarter progress. Operator, we are now ready to open the call for questions.

[Operator Instructions] Your first question comes from the line of Vikram Purohit from Morgan Stanley.

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? And then on the high-volume auto-injector, I 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?

Yes. Thank you, Vikram. Yes, I'm 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. 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 first quarter 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. 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 do you think that is? Because of -- or they see ENHANZE as a highly derisked product with a strong safety track record and a 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. 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. 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 n of 1 with each company, which makes it always hard to project the exact time line 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. I'll move to the high-volume auto-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 HVAI. We talked in past this -- HVAI 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. And so what we experienced are 2 things: One, 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 first quarter. We were delighted that, 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 a development agreement and commercialization, we 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. 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.

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

Sort of sticking with a similar theme here on kind of potential new deals. First, when you say that you're in terms discussions with several companies, should we think of those potential deals as being both pure ENHANZE deals and auto-injector deals as well? Second, should we think of the terms of these new potential deals at similar economics to HALO as the existing kind of portfolio of deals? 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?

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. But 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. With regard to terms, in the past, we have mostly done terms for products and companies who are looking for exclusive agreements and exclusive rights. I will say that as ever, we are talking to companies also about nonexclusive rights. And so there is a difference in our terms between exclusive rights and nonexclusive 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. And so it would be our goal, if we did nonexclusive 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 HVAI. All of the discussions on HVAI, 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. And the viscosity of the drug may dictate a certain difference in the needle girth. And so there's always an element of customization in the discussions of the HVAI, 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.

And your next question comes from the line of Michael DiFiore from Evercore ISI.

Congrats on all the progress. Two for me. Thoughts on -- obviously, Phesgo is becoming a huge product for you guys. Thoughts on how a Perjeta biosimilar may uptake -- may affect the uptake of Phesgo. 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?

All right. Thanks so much, Mike. Well, with regard to Phesgo, obviously, you're right. It's showing very strong progress with 70% growth year-over-year in the first quarter. And that has resulted in 41% global conversion with the U.S. 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 biosimilars. Because what we have seen, and I'd 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. We meet with Roche every -- twice a year and hear that the share of the Herceptin subcu has remained sticky. And by that, we mean clinics that move to giving their patients and themselves, the 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 Phesgo, the difference is between 5 to 8 minutes versus what can often be 2 to 2.5 hours for the sequential administration. And for a clinic, that means a lot less need for nursing time, oversight, et cetera, not to mention the pharmacy having to be involved in making up the IV. So 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 Perjeta will not, if we can look at that example with Herceptin, be an issue.

Got it. Very helpful. And yes, my other question regarding the subcu nivo and 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.S., in U.K. and Europe, it got 100% of the indications. And that certainly would be the goal in the 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 is combined with the indications for CTLA4-Ig. So when it's a Yervoy IM combined indication, those are the ones that are being excluded when they give the 75%, because that combination was not studied.

And your next question comes from the line of Mohit Bansal with Wells Fargo.

Congrats on the progress. I have 2 questions. So I'll ask first, so in terms of the partnership terms discussions, in general, did you expect the newer deals to have some kind of different kind of terms? Or do you think they could be generally the same and no meaningful change there?

Yes. I think, Mohit, the way to think about it is there will be a difference if the partner is asking for exclusive rights to target versus nonexclusive. Obviously, with the economics for nonexclusive 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 weighting of the payments and a different balance of the royalties based on ones that 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 in -- for the mid-single digit for an exclusive deal and probably be lower than the mid-single digit if it's a nonexclusive deal.

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 rHuPH20 sales. Should we read anything into it? Or it was just like a one-off thing?

Yes. I'll ask Nicole to address that.

Yes. Thanks for the question. So we were expecting that for the first quarter. 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.

And your next question comes from the line of Corinne Johnson with Goldman Sachs.

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 some sort of -- the breakdown there. And then on the auto-injector with ENHANZE partnerships, 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 one of the potential partners? Or will that be another item that you need to check off before announcing a deal?

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 to 10 ml, 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 SVAI 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. I would say in the conversations on the HVAI, 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, I don't think we know that yet. But certainly, companies are wanting to evaluate it themselves now in terms of understanding how it delivers, et cetera. So we 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.

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

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 the 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.

Yes, happy to do that. So for the Wave 4s, 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 for Wave 4, but I certainly can say that we're excited about some of the products that I mentioned earlier, including nivolumab-relatlimab, which Bristol Myers Squibb talks about being a blockbuster brand, and also TAK 20%, which has a very high potential as well. And then behind that is ViiV's N6LS. 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 of products across multiple therapeutic areas. 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 IM therapy and having the conversion and assuring that the patient is connected to all of the great services that we provide to assure affordability. 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 growth that we saw last year to $100 million. And we're projecting, as you know, strong CAGR over the next 5 years with the current footprint that we have, which is less than 100 representatives.

Your next question comes from the line of Brendan Smith with TD Cowen.

Maybe first on the latest repurchase program. Actually just wondering if you can confirm over what period of time you expect to complete the $400 -- $750 million, excuse me, and how we should think about the cadence of buybacks, whether you're kind of planning for steady increments in each quarter or you'll concentrate it more in certain parts of the year. And then I just wanted to ask quickly about the VYGART Hytrulo 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 will be focused on the SC.

Thanks, Brendan, and welcome. I'll ask Nicole to address your share repurchase question.

Yes. Thanks, Brendan. So for the $750 million authorized plan, we did not time bound that plan. But to give you a sense in how we've performed historically our prior 2 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 $1.3 billion deployed to share repurchases. 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&A.

And I'll take the question on VYGART Hytrulo. So obviously, Tim Van Hauwermeiren, the CEO of argenx, has talked about his vision. That patients with autoimmune disease are going to be able to self-administer VYGART Hytrulo 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 been shared publicly is that obviously, generalized myasthenia gravis started as an IV, but the subcu obviously launched beginning last 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 III registration studies. And as far as I'm aware, there are no IV studies that are listed on clinicaltrials.gov, so think that's a strong opportunity to be another subcu-only indication. 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 -- or VYGART really being transformative for patients with autoimmune disease, I -- it's my expectation, the majority of indications will be subcu.

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

Wanted to ask on DARZALEX, the ex U.S. royalty step-down in March. With that happening, how much volume growth in the coming quarters do you need to kind of stay on pace for the $500 million 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?

Super. I'll ask Nicole to address that.

Yes. Thanks for that. So we had included in our forecast, the expected step-down related to OUS sales for DARZALEX SC. 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. And our expectations for 2024 is that Q1 and Q2 will be flat. But because the brand is expected to grow, that will offset that royalty rate reduction and as well as continued growth with Phesgo, our other Wave 2 product and, as you mentioned, contribution from our Wave 3 launched products. And that's what gives us the confidence to project sequential growth in the third quarter and the fourth quarter of 2024, allowing us to achieve our total royalty projections for the full year of $500 million to $525 million.

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?

Yes. We, a couple of years ago, had talked about having a more room-temperature stable 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 2032 in Europe and 2034 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. 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.

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

Yes. 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 million on R&D in the first quarter. Is that basically the run rate that we should be expecting going forward, so maybe $75 million plus a year? And could you just provide some more color? 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.

Yes. Nicole will address that.

Yes, happy to, David. So your first question on the run rate. I will say that the amount you saw in the first quarter 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 first quarter. And where we spend our R&D dollars is on the ENHANZE side as well as the HVAI development. 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.

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&D line?

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, in particular, their cost in buying the API from us.

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 2030 for many of them, beyond 2030 for a number of them, and beyond 2040 for another. And so we have got very durable revenues. 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.

And our next question comes from the line of Joe Catanzaro with Piper Sandler.

Yes. 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 subcu in the EU, wondering if you have any early data points there on conversion rates, where you were 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 time frame?

Yes. Roche has not provided a lot of detail. They did on their fourth quarter call talk about the fact that after 1 quarter in the U.K., 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. 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 and launch timing, that, that will be closer together. Apart from that, I think the factors are probably going to be pretty similar in terms of 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 Tecentriq, really citing less time in clinic. 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 factors that would make of these launches not identical, but strong value proposition for both.

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