HALO - NASDAQ

Hello and Welcome to the Halozyme Fourth Quarter and Fiscal Year 2023 Financial and Operating Results Conference Call. [Operator Instructions] I will now turn the conference over to Tram Bui. Please go ahead.

Thank you, operator. Good afternoon and welcome to our fourth quarter and full year 2023 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 would 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 hand the call over to Dr. Helen Torley.

Thank you, Tram, and good afternoon, everyone. Moving to Slide 3. We're very pleased to report our strong financial and operating results in the fourth quarter and for the full year of 2023. These results are driven by our two leading differentiated drug delivery technologies ENHAN

Thank you, Helen. The fourth quarter marked a strong end to 2023. We delivered double-digit revenue growth and achieved another record quarter of royalty revenue. Adjusted EBITDA and diluted earnings per share growth outpaced the top line, reflecting the significant leverage we generate as we grow royalty revenue. Let me start with capital allocation on Slide 13. We remain committed to our three capital allocation priorities of investing in the business to maximize revenue growth and durability, returning capital to shareholders through share repurchases and adding new growth opportunities through M&A. In November 2023, we initiated a $250 million Accelerated Share Repurchase, or ASR. This will operate to repurchase our shares for a number of months into 2024. This brings our total share buyback since the inception of the first program in 2019 to $1.3 billion. I am also pleased to announce that our Board authorized a new $750 million repurchase program, reflecting our continued commitment to balanced capital allocation and a focus on driving value for shareholders. Turning now to Slide 14 for our detailed financial results for the fourth quarter of 2023. Revenue for the fourth quarter grew 27% to $230 million, compared to $181.5 million in the prior year period. Royalty revenue for the quarter was $122.1 million, an increase of 15% compared to $106 million in the prior year period, driven by continued strong performance of Wave 2 products, subcutaneous DAR

Thank you, Nicole, and thank you to all of the Halozyme team, our partners and collaborators, on a strong 2023. I'm very excited for the opportunities that lie ahead for Halozyme. Our disruptive drug delivery technologies continue to demonstrate strong value to our partners and to patients. As the market leader, we are well-positioned to capitalize on the significant market opportunities ahead for subcutaneous delivery technologies and to deliver strong, durable revenue and EBITDA growth. And with that, operator, we're pleased to open the call for questions.

[Operator Instructions] Your first question comes from the line of Jessica Fye with JPMorgan. Your line is open.

Hi, guys. Good afternoon. Thanks for taking my question. Just a couple here, I guess: first, what are your goals for signing new partnerships this year? And second, how quickly can you deploy the $750 million share repurchase authorization? Thank you.

Thanks, Jess. I'll take the first one. We certainly are off to a great start in 2024 with a robust set of meetings and forward momentum across all of our opportunities, that's includes ENHAN

Yes. Thanks, Jess. So at the moment, we are actively repurchasing shares today. Recall the -- towards the end of 2023, we initiated a $250 million accelerated share repurchase program that operates for a number of months to buy -- number of months into 2024 to buy those shares. So that is active at the moment. And we were happy to announce the approval of the new program and that the purpose of that is to continue to execute on our capital allocation strategy and continue to utilize that to continue to look at share repurchases into '24 and beyond.

Thank you.

Our next question comes from the line of Michael DiFiore with Evercore ISI. Your line is open.

Hi, guys, thanks so much for taking my questions and congrats on all the progress in 2023. Just two questions for me. With regards to the amyloid beta target for ENHAN

Thanks, Mike. With regard to amyloid beta, obviously we were delighted last year to sign the deal with Acumen. We don't have any other partner agreements we can announce with regard to that, but it continues to be an area of focus for us, because we do believe there is a strong value proposition for Alzheimer's patients in being able to receive their therapy as infrequent as possible, simple subcu dose, even at home. So we remain an active dialogue with regard to that. The company that already had the non-exclusive license, that really is up to that partner, and I think, Mike, will depend on whether they are advancing in clinical development. That is not an active program at this point in time. So it really would be up to them if they did decide to disclose it at that period of time. But definitely an exciting area, and we're delighted to be working with Acumen. For the room temperature stable, just to remind everybody, this is a different version than ENHAN

Great, thanks so much.

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

Great, thank you very much for taking my question. Two questions, if I may. One, so -- in your 10-K, there is some comment around cancellation of TEPE

Yes, pleased to do that. With regard to the Amgen agreement now with TEPE

Got it. Super helpful. Thank you, Helen.

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

Hi, everyone. Thanks for taking the question. I wanted to ask a little bit about your expectations, for any kind of coverage barriers with the next launch of subcutaneous versions of products. I guess whenever I think about the centric, the impressive 18% conversion in the first quarter - of launch in the U.K. is great. But I'm wondering more broadly, do you see any kind of pushback from payers whenever you're thinking about the next products coming to launch?

Yes. Mitch, on that, we can look to the history as what's happened with all of the products that have been launched. And we always think about these things as outside the U.S. and then inside the U.S. I think outside the U.S., the payers in Europe in particular recognize the importance of subcu for reducing the cost of care. And there tends to be very robust adoption. Indeed, sometimes a mandated conversion to subcu, because of the very beneficial impact on patients and the health care system. So, we would not presume any barriers at all outside the U.S. In the U.S. as well, there is always a period, which we usually model as about six months, where you do need to get the reimbursement in place. There's automatic coverage and Medicare, but physicians like to wait for the J-code, which is now issued quarterly. So as an example, after six months, VYVGART Hytrulo got theirs. So, but once that J-code is in place, the confidence in reimbursement increases. And so I would say just think about it as a little bit of a slow uptake for the first six months and then no real barriers. Same is true with commercial coverage. In general, our partners have priced the IV and the subcu certainly on a WAC basis similarly. And as I imagine, there is also similar in-market prices to the payers. And while that continues to happen, we hear and see that access is very similar achieved for the IV and subcu. So no barriers there. You could believe that there is even an opportunity, with some thoughtful strategies to have subcu be preferred, given some of the healthcare costs. And that's certainly something we are thinking about. We are beginning to talk about with payers, and also talk about, with some of the government payers as well, because subcu offers so many benefits to the healthcare system. So equal playing field today, maybe can move to a more preferred playing field in the U.S. in the future.

Okay. Great. Thank you very much.

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

Hi, thanks for taking the questions. Just two from me. Just following on from the comments around Horizon, is there now an opportunity to see for IGF-1R in thyroid eye disease a new exclusive license with a new party, or is it only a non-exclusive license that becomes available with determination of the Horizon partnership? And then the second question is, can you speak to - partnership interest on ENHAN

All right. With the ending of the agreement with Horizon, we actually are in a position to license the IGF-1R target exclusively or non-exclusively, depending on partner need and interest. So we can do either, Jason. On the conversations we're having today, I would say there's an equal weighting of interest in ENHAN

Okay. Great. Thank you.

Your next question comes from the line of Joe Catanzaro with Piper Sandler. Your line is open.

Hi, everybody. Thanks for taking my question. Maybe just have one quick one on Takeda's IVIG portfolio. And I guess I was wondering how we should think about HYQVIA's historical royalty contribution. And then sort of the potential impact, it may or may not see with the CIDP label expansion. And I guess I'm asking that, because I recall seeing somewhere that CIDP is an indication, where IVIG sees the most use. So any comments there would be helpful? Thanks.

Yes, we continue to see growing royalty contribution to Halozyme from sales HYQVIA. So Takeda has certainly continued to execute and see growing adoption in the area of primary immune deficiency. I agree when we look at the market of use of IVIGs, 20% to 25% is reported to be in CIDP. So it certainly is a high use area. It's an area where patients stay on therapy for a prolonged period of time. And we certainly would expect that the addition of this indication, not just in Europe but also in the U.S., will offer new growth opportunity upon approval. Sorry, for the HYQVIA. For the, I think you also wanted to talk about the new 20% version that's obviously still in development. And we are very excited to be advancing that. It's in Phase 3 development with Takeda. And we're looking forward to working with Takeda, to get that to approval as well, and get it used in as many indications as possible.

Okay. Thank you. That's helpful. Thanks for taking my question.

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

Hi, this is [Jason Drunk] for Dave. Thank you for taking my questions. So regarding the long-term projections from your January presentation, could you please provide some perspective on the forecast of annual collaboration revenue of $130 million to $160 million, including key drivers and expected contributions?

Yes, I will ask Nicole to address that.

Yes, so looking at those projections, where we have an annual collaboration revenue of $130 million to $160 million, the drivers are coming from several contributions from our partnerships, one of them being development milestones. So as our partners move through clinical stages, we receive milestones as those targets are achieved. We also have regulatory, registrational, first commercial sales-based milestones, and then continuing sales-based milestones, post the launch of a product. We also included within that range $30 million to $60 million that is related to our expectation of achieving new collaborations and new study starts, new programs progressing, through the clinic. So that is the pieces that make up that collaboration revenue.

Okay. Thanks so much. Very helpful.

[Operator Instructions] Your next question comes from the line of Corinne Johnson with Goldman Sachs. Your line is open.

Yes, good afternoon, everyone. Maybe just a question for me on the nature of the auto-injector partnership conversations. What are some of the key questions that your potential partners are asking, and where do you think they're going to feel most comfortable versus where are there any sort of consistent sticking points that you can help them work through?

Yes, I would say, obviously, we always start, and so it's not a question, but one of the important things we always communicate is the long track record of success and the multiple approvals our platform has attained, Corinne. And Harry's now Halozyme has delivered over 40 million devices to partners and in use ourselves. So that long track record of success and the track record of approvals of drug device combinations is pretty much unmatched, we believe, in the industry. So, we always start by making sure they understand that, we just have an incredible experience base. We then go on to talk about the fact that our high volume injector, is based on an extrapolation, of this already approved and highly reliable base auto-injector. And again, that is a source of, I think that pleases them to hear that, that this is something that is tried and tested. Because what we understand is that there have been some, particularly on-body injectors that have been tried over the last several years that have not delivered with the reliability that was required. And so that is a question that they have really on reliability, wanting to be sure that this is going to be able to be delivering for the patient every time. And of course, that's another of the advantages of our Antares platform, is that it is tested to the highest levels of reliability for several of our products like the EpiPen. It's called the 5.9s reliability, but it's 99.999% fire on time and well. And so, the biggest thing is just helping them understand this is built on an incredible background platform with great experience from our engineers, track record of success with regulators. I think the team has done over 20 human factors studies very successfully also, to support regulatory filings. Getting them to understand that, I'd say that is a large focus of the conversation. Then I mentioned in December, and I think it's still true, these are scientists, these are engineers. They want to have a chance to hold and test the device themselves. And so that's what we're doing. We're delighted today, to announce that one of our partners, is advancing in this human factors test on usability. And I think we're going to continue to see that as we're talking to partners. So that, I think, Corinne, would be how I would address that question.

Great. That was really helpful and comprehensive. And then maybe one more from me. Just - it's been a couple of years since you did the Antares acquisition. How are you thinking about the fit for that commercial business within the broader portfolio? Is this still something you think makes sense strategically?

Yes. When we did the acquisition, we talked about the commercial business as bringing a diversification of our revenue. And as Nicole and I both talked about in the call, last year we achieved $100 million and turned EBITDA positive at the end of the year. So beginning this year, XYOSTED, the leading commercial product, is going to be contributing to EBITDA. And as we talked about in January, it's projected to exceed $150 million in EBITDA contribution by 2028. And so, it is a great fit from the point of view of adding to our revenue, diversifying our revenue, but also contributing meaningful EBITDA, even on our very large revenue base that we project in 2028. So that's how we view it in terms of the strategy fit. It is also a wonderful demonstration of the effectiveness, and reliability of our small volume auto-injectors. Because recall, XYOSTED is a once a week, 8-second subcutaneous testosterone replacement that is virtually painless. And so, it's a very good thing for us to demonstrate our effectiveness in managing and delivering auto-injectors, but also the high reliability of our device. So lots of strategic fit for it.

Okay. Great. Thank you.