Good afternoon. My name is Jal [ph] and I'll be your conference operator today. At this time, I would like to welcome everyone to the Halozyme Third Quarter 2024 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. 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 third quarter 2024 financial and operating results conference call. In addition to the press release issued today after the market closed, 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, 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 will now turn the call over to Dr. Helen Torley.

Thank you, Tram, and good afternoon, everyone. Let me start on Slide 3. I am very pleased to report we delivered strong third quarter financial results with a 34% increase in total revenues to reach an all-time high of $290 million in the quarter. This was largely driven by royalty revenue, which increased 36% to another record amount of $155 million. This performance reflects the continued expansion and broadening of adoption of our ENHANZE drug delivery technology, with continued strong growth of DARZALEX Subcutaneous, Phesgo, and VYVGART Hytrulo. Based on our strong year-to-date performance, we are raising our total revenue, our royalty revenue, adjusted EBITDA, and non-GAAP earnings per share guidance ranges for the full year. Notably, this year we now expect to deliver high double-digit revenue growth of 17% to 23%, and an impressive adjusted EBITDA growth of 40% to 47%. Nicole will go into more detail on this in a moment. Operationally, it was also another strong quarter. Two current partners nominated new targets for ENHANZE under expanded licensing agreements, adding new revenue in terms of milestones and reinforcing the value of our leading drug delivery technology. We've also continued our focus on securing new ENHANZE deals and also new agreements for our small and our high volume auto-injector with discussions continuing and advancing. Roche, one of our most tenured partners, gained two significant regulatory approvals with the FDA approval for TECENTRIQ subcutaneous within ENHANZE and for OCREVUS subcutaneous within ENHANZE. And adding to this, multiple partners continue to expand their geographic approvals and advance their clinical development programs. These achievements are key drivers of our current and future growth trajectory. They reinforce our leading position in rapid large volume subcutaneous drug delivery and illustrate the well-proven success and predictability of our platform technology. I'll now move to…

Thank you, Helen. I'll begin with an overview of our third quarter performance and then review the increased guidance ranges for 2024 that are resulting from our strong progress. Our robust financial results for the third quarter exceeded expectations due to higher revenues from royalties and collaboration revenues in the quarter. The result is an impressive 34% increase in total revenue from prior year with adjusted EBITDA and non-GAAP earnings per share growth outpacing our top line growth at 60% and 69% respectively. A clear demonstration of the significant leverage we have our high margin business model. Let me now turn to slide 12 for our detailed financial results for the third quarter. Revenue grew 34% to $290.1 million compared to $216 million in the prior year period. Royalty revenues for the quarter were $155.1 million, an increase of 36% compared to $114.4 million in the prior year period. The continued growth of subcutaneous DARZALEX, Phesgo, and VYVGART Hytrulo were the main drivers of our royalty revenue growth in the quarter. The contribution from all three products exceeded our expectations for the quarter, resulting in an increase in guidance for the full year. Collaboration revenues for the quarter were $48.4 million compared to $15 million in the prior year period. The performance exceeded our expectations for the quarter due to the meaningful expansion of our Argenx collaboration. Research and development expenses were $18.5 million compared to $17.3 million in the prior year period. The increase was primarily due to increased compensation expense. Selling, general, and administrative expenses were $41.2 million in the quarter, up from $35.3 million in the prior year period, primarily due to increased compensation expense and consulting and professional service fees. Adjusted EBITDA increased 60% to $183.6 million from $114.9 last year. GAAP diluted earnings per share…

Thank you, Nicole. Our strong year-to-date performance is a reflection of the execution of our strategy and the power of our durable high-growth business model. This resulted in a meaningful raise in our expectations and our financial guidance for the year, resulting in impressive year-over-year growth and setting us up for a strong start to 2025. We have multiple drivers that will support our continued growth, including an exciting series of launches that are just beginning or are soon to commence. I'd like to close by recognizing and thanking the Halozyme team and all of our collaborators, whose continued dedication and performance has made this such a remarkable quarter and year. Operator, we are now ready to open the call for questions.

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

Hi, everyone. Thanks for taking our question. This is Morgan on for Vikram. So, one for us on the OCREVUS and TECENTRIQ recent launches. Although it's early, what's your current view on sub-Q conversion for these products and how that could ramp in the coming quarters, and what that may look like long-term on a steady state basis? Thank you.

Yes, thanks Morgan. We'll start with OCREVUS, and I think it's important to note there, and Roche reiterated this on their quarterly call just a week or so ago. Their goal with the sub-Q is not to immediately convert the IV to sub-Q. So, it's not a conversion strategy. It's very much a market growth strategy, where they see the availability of subcutaneous as allowing more treatment centers and more throughput of patients at infusion suites, community hospitals, because of the much shorter treatment time with subcutaneous and the easier approach to sub-Q, which doesn't require as much infrastructure. Indeed, they commented that they see the availability of sub-Q will expand the OCREVUS market by about $2 billion. So, initially for OCREVUS, the field force will be very much focused on getting new prescribers and helping those new prescribers set up and start using OCREVUS. If I moved to TECENTRIQ, obviously TECENTRIQ continuing to perform well in its key tumor indications as an IV given over 30 to 60 minutes. Within that, there are patients who are receiving TECENTRIQ as an example as monotherapy or for whom they are in a complex regimen where they want to have a shortened regimen. In that instance, there's going to very much be a field force focus to convert those patients from the IV to the sub-Q because of a much simpler regimen. So, we are going to see a conversion focus with TECENTRIQ, market growth for OCREVUS. Roche has not given out any numbers as to where they see the conversion. Our approach has generally been to look at the success they had with Herceptin sub-Q in Europe, which got to 60% share of volume and then to have a range around that depending on, is the company driving for that sub-Q conversion. So, particularly for TECENTRIQ, I'd think about it in those terms.

Thank you.

Your next question comes from the line of Brendan Smith of TD Cowan. Your line is open.

All right, great. Thanks so much for taking the questions. Congrats on a solid quarter. I wanted to first actually kind of piggyback on that last question about OCREVUS’S sub-Q. You called out the language from Roche about that $2 billion. Just to kind of better understand that or maybe contextualize it a bit, if consensus for peak sales is around $9 billion and $10 billion there, that might suggest only about 20% share of the sub-Q. Is that maybe the right way to think about that or is this $2 billion really kind of new to brand patients that would be in addition to IV to sub-Q switchers? And then maybe just really quickly on the Wave 4 pipeline, are you able to give us any sense of at what point we might learn about the additional Roche and Chugai drug, just whether target indication is like after a Phase 2 data or something like that. Just trying to understand where we might start focusing more on that wave. Thanks very much.

Yeah, thanks Brendan, and thanks for asking that question, because I do think the way Roche has been talking about it has led people to be a little bit confused. So there's going to be a market expansion which is on top of the IV opportunity. And so if it's at $9 billion, my view is this is going to take the total growth in the next several years to be $11 billion. So you do add on the additional $2 billion. But the original IV sales of the $9 billion will, we strongly believe, be converted. When you think about what the difference is going to be for a patient, instead of up to 3.5 hours to 5.5 hours in an infusion suite, it's going to be 30 minutes in an infusion suite. And so there is also going to be that conversion of the IV to sub-Q. I think what you're going to see is it's going to be phased. The initial launch focus is on expanding the market, and over time, we're going to see the conversion begin and grow as well. But when we're hearing from Roche, they very much want to highlight this is not just a cannibalization opportunity. So don't think about the pie staying the same size it is today. The pie is going to get bigger and then also going to be the opportunity to convert that bigger pie to be more sub-Q sales. Just on that, they also made a comment on their call that they are seeing already the strategy at work in the U.S. Obviously very recent launch in, but they are seeing that 80% of new starts on OCREVUS ZUNOVO are new to brand. So very much supporting that approach they have, where they don't want to cannibalize their IV sales. They want to further expand their opportunity, while they also will be able to over time get that sub-Q conversion too. With regard to the specific Roche and Chugai products that are listed on our Wave 4 portfolio, unfortunately until the partners want to discuss exactly what those indications are and announce their plans for them, we are unable to discuss it any further, so I can't give any updates at this time.

Right. Thanks very much. I appreciate it.

Your next question comes from the line of Mike DiFiore of Evercore ISI. Your line is open.

Hi guys. Thanks so much for taking the question and congrats on the solid quarter. Two for me. First question is, any status update regarding your expectations for new collaboration deals to be made before the end of the year? And I have a follow-up.

All right, thanks Mike for that. You saw probably that we have provided our guidance for the year on the collaboration, expecting $130 million to $150 million. I'm very pleased with the progress we've made here. Obviously, strong contributions from the – expanding the agreement with argenx, in particular in the quarter. I will say we're not letting our feet off the gas pedal and we're remaining very focused on gaining new deals and additional new nominations as we close out 2024. But if you do take a look at our guidance, you can see where the range we're predicting based on what we have line of sight on today is in that $130 million to $150 million range.

Got it, got it. And my follow-up question is regarding MDASE. Considering that the MDASE licensees are non-exclusive and won't involve Halozyme support services or API supply as you previously noted, how will licensees manage development and regulatory challenges that are typically supported in traditional ENHANZE partnerships, and how might this affect MDASE’s adoption and commercial success compared to ENHANZE?

Yeah, I will be clear and say, we do expect that the vast majority of companies are going to want to and be able to work with ENHANZE. And so as we think about where we're going to be focusing and our growth is going to come from, it's going to be new partners and expanded partnerships related to ENHANZE. But as we pointed out, there may be instances where somebody is unable to, or for some reason doesn't want to work with ENHANZE, but they are utilizing our modified Hyaluronidase IP. We are in that instance only going to grant them a license, as you point out. Now, we obviously don't have a modified Hyaluronidase VP product substance, so that company will have to do what we did for the last 10 years, which is identify how to develop a product, engage with the regulatory authorities, start developing that safety database we have to demonstrate the product is safe and effective. But we would not propose to help them, because we are going to be continuing to support our current ENHANZE partners. But we will license the IP, because they are going to be using their MDASE, the modified Hyaluronidase for the same purpose as ENHANZE. And obviously, that's where the value of our IP is being realized.

Got it. Very helpful. Thanks so much.

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

Hi, thanks for taking the question. Just one on VYVGART Hytrulo and the pre-filled syringe. Can you maybe just speak to the progress there with FDA and how your work with other collaborators or other products has input it into this regulatory process? Thanks.

Yeah, thanks Jason. If you listen to the call today, as we did, argenx provided the update and just summarized that they are expecting a PDUFA action date that is going to be in April. We don't have any other information that we can share with regard to that, but we are excited that they are obviously progressing with that in studies that are ongoing, both in thyroid eye disease and other indications now. Again, this really has been work that we have done obviously in providing the ENHANZE for that pre-filled syringe work, but I will say argenx has been lead with regard to the actual mechanical work in that. We obviously continue to advice on the formulation of ENHANZE, and so we don't have any information other than that I can share, Jason.

Okay, great. Thanks for taking the question.

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

Hi, good afternoon everybody. Mainly could you expand a little bit on the primary drivers? Is that increase in royalty revenues? You mentioned the products that are driving it, but I'm curious if it was additional indications within DARZALEX, etc., better conversion on the key products, or anything else that you could kind of point to? And then, could you also talk a little bit about where you stand on potential auto-injector partnership deals? We haven't really seen anything yet. I'm just curious if there's any additional work you are doing to kind of prove out that technology there.

Yeah. Small bits of colour we can bring based on what our partners have stated publicly. I think we can say for DARZALEX, they reported a very strong order, obviously with a great sequential and year-over-year growth. And what they are talking about is just continued expansion of four points of share gains across all indications and 7.7 points of share gain in the front line. And recall the front line is actually the largest population of multiple myeloma patients, and those are the patients who stay on therapy the longest. And so I really think the growth that we've seen over the last several years has been fully enabled by the availability of sub-Q to expand as we're getting new indications into that frontline setting. So that's really, I think, where it's very exciting. If we turn to VYVGART Hytrulo, based on the call this morning, what we heard was that the majority of the revenue is obviously still coming from the gMG indication, where they are continuing to see broadening adoption of VYVGART and also VYVGART Hytrulo, with VYVGART Hytrulo really helping move into that early line of therapy. So that is on a strong trajectory. What has begun to impact with VYVGART Hytrulo is the CIDP indication. Specific comments were made about the fact that 300 patients on therapy, many of whom who came on in September, really occurring after the peer policies were in place, and so that actually bodes very well for continued strong growth as those patients that will be reflected as a full quarter in the next quarter, and so those are some of the key drivers. I'd say for Phesgo, it's just continuing on that very nice trajectory that we've seen, as there's just growing recognition of what this means for patients to be able to have just the more simpler regimen, and allow them to get back to their life. So in summary, a mix of new indications, strong execution by the partners, and the availability of sub-Q to really penetrate into earlier lines of therapy, where patients tend to stay on therapy longer.

And then on the auto-injector side?

Oh sorry, on the auto-injector side, I mentioned on the call, Corinne, we are continuing discussions, both with the high-volume auto-injector and also small-volume auto-injector. Similarly, two comments I made on the ENHANZE discussions. There just always is a process we go through as the companies go through their technical evaluation process and then their decision process. So we're moving our way through those processes with those companies and so no updates on that today, but continuing to make progress and that still remain very confident we're going to be signing and announcing deals.

Thank you.

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

Hey everyone, thanks for taking the question. Just wanted to know a little bit more about the MDASE platform opportunity. Can you just give a little context to how big or narrow of an opportunity this might be based on how many types of opportunities might be out there for this, when you do have the ENHANZE platform, and the eligible partners that were likely focused on that side of the business for the B2B partnerships?

Yeah, thanks Mitchell. And what we've talked about is the fact that we do anticipate ENHANZE will continue to be what people will come and want to license. It's the gold standard. It's the most regulatorily and commercially de-risked. So that is where our primary focus is. But we are aware that there are companies who may be considering developing a modified hyaluronidase. And in that instance they may not want to work with ENHANZE or they may not be able to work with ENHANZE, but that's why they've chosen this modified hyaluronidase. But if they are using a modified hyaluronidase, we believe they will be using some of our modified hyaluronidase IP and that's why we have made these licenses available to them. So we don't think this is in terms of the number of deals going to be likely to do with ENHANZE, and we're talking about new partners, you know with the frequency of which we've done over the years Mitch. But for anyone who is developing or thinking about developing a drug with a modified hyaluronidase, that's going to be the opportunity for us. It's an emerging field and so we can't really comment on how many people we think will want to do that, but the great news is it's another growth driver for us if companies are developing modified hyaluronidase sub-Q drugs, copying what we have been doing with ENHANZE.

Great. Thank you for taking my question and congrats on the quarter.

Thank you.

Your next question comes from the line of Mohit Bansal of Wells Fargo. Your line is open.

Great. Thank you very much for taking my question. I have two questions. So one is, how should we think about your guidance update philosophy going forward, because I understand that you'll be providing guidance for ‘25 as next year rolls over, but should we be expecting updates for subsequent years as well as the expectations change? That's number one. And number two, for the MDASE platform, how differentiated it is from your ENHANZE platform? I'm asking from the point of view of your existing partners who have exclusive licensing with certain products, if it kind of infringes upon that. What gives you comfort that your existing partners would be fine with that?

Yep. I'll ask Nicole to comment on your question on the guidance and I'll talk about MDASE.

Yes, thanks for the question Mohit. So from a guidance perspective today we are focused on the third quarter results and the full year updated guidance, which we're really excited to raise for top line and bottom line for the full year. And you saw, we do republish our five-year projections. Those are unchanged at the moment, but we continue to evaluate those in the New Year. We'll give more line of sight and color into our updated expectations for 2025.

All right, and maybe I'll take a step back and just say, you know we talked about all of the experiments that we did, and the experiments that we did on the human hyaluronidase area, and we came up with ENHANZE that we patented and that's a truncated human hyaluronidase. But we also did lots of experiments, thousands and thousands of experiments on different structures of hyaluronidases, and we called those our modified hyaluronidase. So ENHANZE has got one structure, the modified hyaluronidases have different structure from ENHANZE. And when we have licensed ENHANZE, we are only licensing the IP to the structure and the activities that are related to that specific ENHANZE structure Mohit. So that's why our partners are not upset or surprised or anything, because they are totally different products and patent portfolios firstly. Now our ENHANZE partners do not need, unlikely to want the MDASE portfolio, because they have ENHANZE, which does what it needs to do, which is this delivery of drugs, high volume rapid sub-Q delivery. But there are some people and partners and makers of drugs and biologics who perhaps can't work in ENHANZE or don't want to work in ENHANZE, and have chosen or will choose to work in a modified hyaluronidase. And what we wanted everyone to recognize is because of our pioneering work in this area, we have actually got an extensive patent portfolio that covers many modified hyaluronidases. And so for those companies that they want to develop a modified hyaluronidase for doing the same thing as ENHANZE, which is the rapid large volume sub-delivery, we wanted to make them aware that we are open and willing to license our patents that relate to the modified hyaluronidase. So it's a different product, it's a different structure, but Halozyme was really the pioneer of making these new offerings that have enabled such an important advancement for patients. So let me just check in and see, did that clarify for you, the difference between these two?

Very helpful. Thank you very much Helen and Nicole. I really appreciate it.

Thank you.

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

Hey guys, this is Nasan [ph] on for Jessica Fai. Congratulations on a strong quarter. My question goes back to MDASE. I think, can you just give us examples of how – what case would a partner be unable to work with ENHANZE? And I think I've always thought about ENHANZE giving exclusive targets as a sort of defensive for how it's attractive for and defensive for its partners. So for MDASE, wouldn't it give sort of like a escape hatch, if you will, for competitors. And then secondly, I noticed that for the collaboration revenue guidance, the top range came down a little bit. Can you just talk about a little bit, like what is driving that? Thank you.

Yeah. So with regard to the situation where people couldn't work with ENHANZE, and I think it's a great question. And you're quite right, because we do the exclusive targets, if somebody was unable to work with us, because we had already licensed an exclusive target, they might choose to work with a modified hyaluronidase. What we are doing here however, is not enabling any partner to work and develop a modified hyaluronidase sub-Q enabled drug against that target. We are simply, because we're not supporting them from a clinical development perspective, and we're also not supplying the API. We are simply making them aware that if they want to go down that path, we have got strong IP in that area that is available for license. And this is why, as we have conversed and shared this approach with our current partners, we have really received no pushback or concerns that have been voiced on it, because we're not enabling and supporting the development of drugs that are doing anything against the exclusive license of ENHANZE. We are simply recognizing and seeking to create value for Halozyme from our inventions that were done all those years ago, related to the modified hyaluronidases. So I hope that clarified that. In terms of the guidance ranges, yes, where we sit today, we've got a line of sight to $130 million to $150 million. We are continuing, as I mentioned earlier, to work hard and to gain new deals and additional new nominations, but that was our best estimate based on where we are today, for how the year is going to end. We certainly are going to be nicely above $130 million in terms of collaborations, and so we're definitely fully in line with our original guidance. We just tightened the range a little.

Your last question comes from the line of David Risinger of Leerink Partners. Your line is open.

Thanks very much. So my key questions have been asked, so I just wanted to ask about product sales. So if you could just educate a little bit more, Helen, with respect to why product sales are flattish in 2024, and then why they are expected to grow by 50% over the next four years. So I see your 2028 target for revenue is up about 50% from $300 million this year to roughly $450 million in ‘28. Thanks so much.

That is a great question. I'm going to pass it over to Nicole.

Yeah, thanks David. So in product sales, what you see in product sales are, one, the products that we sell to our collaboration partners, to our API and our devices. That is where we have talked about historically those can be lumpy quarter-over-quarter. We are making investments to have lower cost API for our partners. So over the longer term, that revenue stream will actually decline for us, because as we make lower cost materials, that gets passed on to our partners in savings. So that is one of the drivers in product sales. And then also we have our proprietary product sales. Those are the sales that you see annually year-over-year are increasing, and also trending this year in line with our expectations for the full year. I will point out that our proprietary product sales, you saw a slight decrease in sequential quarters in the third quarter, and that's due to seasonality that we historically experience in the third quarter, where we do see a dip in demand in the summer months, and that is a part of our plans, and you'll see that in the results for the third quarter.

With no further questions, this concludes our Q&A session, and this also concludes today's conference call. You may now disconnect.