HALO - NASDAQ

Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to Halozyme's Third Quarter 2025 Financial and Operating Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I will 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 2025 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, 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.

Good afternoon, everyone, and thank you for joining us today. I will begin on Slide 3. I am very pleased to report another quarter of record royalty revenue of $236 million, representing a remarkable 52% increase year-over-year and resulting in total revenue of $354 million, representing 22% growth year-over-year. These results were driven by the continued momentum of our 3 established blockbuster subcutaneous therapies, DAR

Thank you, Helen. Our strong third quarter performance continues to reflect the momentum of our core ENHAN

Thank you, Nicole. In closing, our third quarter results reflect the continued strength of our core ENHAN

[Operator Instructions] Your first question comes from the line of Sean Laaman with Morgan Stanley.

Yes, on capital allocation, you're 2x levered now. How do you think about paying down debt, getting even more conservative balance sheet and weighing that up against potential buybacks for next year and what opportunities -- the Elektrofi-like opportunities there might be out there? That's the second -- first question. And then the second part would be, how are investors going to be able to monitor the performance of Elektrofi going forward?

Yes. So I'll start by just saying with regard to opportunities like Elektrofi, we are continuing to look for those opportunities, Sean, because we do believe that we're in a great position to be the partner of choice for our pharma and biotech partners as they're looking to optimize the patient treatment experience. So keeping looking. And obviously, we will transact when we do find appropriate things. Let me ask though Nicole to comment on the capital allocation and the plan to delever.

Yes. Thanks, Sean. So we do have robust cash flows and cash growth in the coming quarters. And so while we will have a modest draw on our credit facility to fund the Elektrofi acquisition, we do expect to pay that down in the coming quarters and to delever very quickly. And so what you've seen us be able to do this year is have capital to fund share repurchases. We've done $342 million within the year and be able to fund the Elektrofi acquisition, and you'll see us continue to have that balanced approach going forward.

All right. And Sean, the last part of it, how to monitor the success of Elektrofi. I'm going to give you 3 metrics there. One is we are anticipating the potential for 2 partner first-in-human starts, both with already blockbuster products in their current formulation. That will happen by the end of 2026 or before. So that will be the first metric. I do think as we work through working with Elektrofi closely, we'll be finding opportunities to develop and be able to communicate a streamlined development plan approach, which we see as another benefit of bringing our 2 expertise together. And then the third one, we will continue to look for Elektrofi and support the advancement of Hypercon with the current partners potentially agreeing to move more products into the clinic from their open nomination slots or indeed signing new deals. And so we're very excited about the Elektrofi acquisition, still in the planning phase, obviously, at this point in time, but we see great opportunity for the business synergies that are going to come from being able to bring our 2 companies together.

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

Congrats on the quarter. Let me pass my congratulations on Nicole as well, been great work. So let me start on Elektrofi. Understanding that the deal hasn't closed yet, can you talk about what you think the awareness level of the company and the technology is with your current ENHAN

Yes, thanks. With regard to the knowledge level of our current partners for Elektrofi, I can say we're only aware of that really by the diligence we've done because we're still at a stage of -- we're not talking about Elektrofi and they're not talking about us, obviously, given that the HSR review hasn't closed. But I would say just based on our diligence and market research we did prior to the acquisition, there is a good awareness of the Hypercon technology. But obviously, one of the benefits of bringing our companies together is to elevate that awareness and broaden that awareness within each of the companies based on who we're each talking with. We've received small amounts of spontaneous feedback. Again, I think people are being thoughtful and cautious that the deal hasn't closed, but a number of our partners, particularly the ones who are working with both companies have provided feedback that I would say signals strong support for the additional opportunities that might exist of being able to work across both of our platforms. So definitely a resounding support from everything that we are hearing with regard to that. On OCREVUS, yes, based on the comments that Roche made on the last call, obviously, delighted to see that they grew 5,000 patients from the 7,500 patients on therapy that was the number in the second quarter. They are saying that in U.S. and Germany, in particular, 50% of the patients are new to brand. Jason, I didn't hear them say exactly where the -- those patients were coming from. So I don't know if it is brand new to treatment patients or it is switched from other therapies. We haven't been provided that level of granularity. But what I do obviously think is terrific to know is that this is expanding the market footprint for OCREVUS exactly as Roche had anticipated, now allowing patients to be treated in physician offices, community hospitals and opening up access that was a bit restricted before because of the capacity constraints in infusion suites. So sorry, I can't answer that specifically. If we do find out about that, we will make sure to update on the next call.

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

Congrats on the continued progress. Two for me. The first, I want to expand upon the M&A question that was asked before. Obviously, your press release said in no uncertain terms that the next chapter of growth will include M&A. And I guess my question is, how high are you willing to lever up for this transaction? I know you said that we could expect for you to delever in the next few quarters. And so I guess the ultimate question is, could we possibly expect another transaction towards the end of the year? And I have a follow-up.

Yes. Thanks for that. Mike, obviously, our focus at the moment is completing the Elektrofi acquisition. And so I think I can say that it's unlikely that there will be another acquisition this year. But we are actively looking because we do want to be able to continue to add to our growth and our momentum that is so strong at this point in time. Nicole, will you comment on the approach we're taking to leverage?

Yes. As Helen noted, while we will evaluate targets, I can say from a firepower perspective, we do have the capacity. We're willing to go up to 3x net leverage. We mentioned with this transaction at close, we expect to be at about 2x, but that will quickly come down. And so there will be capacity. And again, we'll just be patient and find the right next opportunity.

Yes. And I think just to kind of emphasize what Nicole said, you've seen us demonstrate a lot of patience in terms of finding the right asset, doing the appropriate diligence and seeking to only transact and make a formal offer to the company once we have completed all of that. So we will take that same very thoughtful approach. We are in a great growth position. We're excited about the growth that's going to come from Elektrofi. So don't think of this as something we're rushing into. We're just going to continue to execute the strategy we've had in place for the last several years. And because of our strong cash flow, we're in a position to contemplate that in 2026, but only if we find it meets our criteria and is the right next move for Halozyme.

Excellent. And my follow-up question is, again, I know it's super early regarding Elektrofi and -- but on the prior call, I think I asked about the potential to combine ENHAN

Yes. Thanks, Mike. Yes, it is something, obviously, that we are interested in, and it is one of the work streams that will be one of the early conversations that we're going to have between the technical experts on both -- from both companies to determine what the path would be for that. But I think my more important message each company has its own pipeline of ongoing conversations for a great fit for each of our technologies to different partner products. And so that is where the initial focus is going to be just based on the fact that for those people who are seeking a more high-volume rapid delivery, ENHAN

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

This is Adam on for Jess. I really just had 2. Can you share your latest thoughts on potential for new ENHAN

Yes. Let me take the first one, and then Nicole will talk about the guidance. Adam, with regard to new deals, I did say in my prepared remarks, we're very confident to have a new deal this year. That confidence comes from proximity to completion of discussions. We have several discussions that are ongoing. And so it isn't our practice to preannounce anything, but all I can say is that we are excited with the continued interest in ENHAN

Yes. So our guidance is driven by the strength of our royalties, and we continue to see royalties being very strong in our main royalty drivers, which are VYVGART Hytrulo, Phesgo and DAR

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

I wanted to ask about forward guidance, of course, recognizing that you only formally update the 5-year guidance once a year, we're getting close to 2026. So wondering with the strong momentum that we have been seeing quarter-to-quarter and the subsequent guidance raises for this year, how you're thinking about maintaining that growth into the next few quarters in 2026? Does the current trajectory suggest that the previous 2026 ranges might already be tracking towards the upper end of what was outlined earlier this year?

Yes. Thanks, Mitchell. So we will be able to provide more details on that in early in 2026 when we are able to really collect all of our trends and input from our partners comes in towards the end of the year. So more details to come, but we are tracking, as you can see, to exceed 2025 original expectations, but we will be able to reflect the latest information when we give full year guidance and update in the new year.

Okay. Great. And then the second one is just on how you're doing -- conducting outreach for prospective partners between ENHAN

Yes. Thanks, Mitch. At the moment, until the HSR view period is completed, our 2 businesses are operating separately. We can have conversations about planning as to how we're going to operate together, but we do not share any information with regard to partners each of us is talking to or anything like that. So I would expect upon completion and the close, which we do expect to happen in the fourth quarter, will be in a position to have conversations and identify who's talking to them. But at this point in time, that's not something we are aware of or want to share. We're each pursuing our own separate conversations and targeted outreach. Again, each of the products works in a slightly different space. All of them are for subcu delivery. ENHAN

Congrats on an impressive quarter.

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

Congrats on the quarter as well. Maybe just a couple of quick ones from us. First, actually on the auto-injector business. Can you maybe just remind us what the development path there is looking like and how we should think about the economics and timing of that over the next couple of years? If you think that would be compatible with Hypercon or that would require something different with separate validation? And then just maybe quickly on the earlier pipeline. Can you remind us when we can expect updates from the ViiV and Acumen products? And if you disclosed anything about those economics that we should make sure that we flag as we try to think about royalties for the next wave of the [indiscernible] drugs?

Yes. Thanks, Brandan. With regard to the auto-injector business, so the small volume auto-injectors are obviously for products that are 2.25 mls or less. And there is an immediate applicability and use with the Hypercon products if a partner is developing that. So those are basically -- there's some customization that's possible. But for a partner who wants to integrate it into their development, that's pretty straightforward. With the high-volume auto-injector, we have progressed to having very strong clinic-ready prototypes that are able to be integrated into development plans now. And so for a company who is wanting to use those, that is also going to be pretty straightforward for them to put into whatever clinical trial they're going to do to test it and start doing the development. The actual separate development you need for a device can all happen in parallel to the clinical development. You've got to do stability studies. It's usually human factor studies, but that is usually all happening in parallel to what's the traditional clinical pathway and integrated into a single filing. So I would say we're in a great position for partners who want to use Hypercon to be using either small volume or high-volume auto-injectors and integrating them immediately as soon as they want to be able to do them. On the economics, if you recall for the auto-injectors, this is much more of a business model where for the small volume auto-injector, it is generally a cost model where there's a certain charge per device. For the high-volume auto-injector, it will, because of the size of injection need to be used with ENHAN

It is. Yes, that would be great.

Okay. So with regards to the earlier pipeline, there haven't been any public updates from ViiV or from Acumen in the last couple of quarters. And so we're not in a position of being able to share any additional information. The last update from Acumen, as you probably are aware, was that they had finished their Phase I testing. And so that was great to see, and they reported the results actually publicly. But we're awaiting being able to provide any updates beyond that. On the economics, in the -- when the deals were announced in the press releases insofar as what was permitted to be made public, it does include some high-level description of the milestones and royalty structure of these agreements, Brandan. So I would recommend if you could maybe just go back and look at those, you'll get a bit of color, not granular, but a bit of color that might be helpful.

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

Maybe following up on some of the BD commentary earlier. I guess, how do you think about whether you currently have the partnerships you need to drive revenue growth kind of into the next decade, particularly as some of the key products like DAR

Yes. Thanks, Corinne. Let me start by saying for each of the products that are in our development, we kind of group them into 3 groups. Now we've got the current blockbusters. And I think what's the first thing to note about those is those products, and Nicole commented on it, VYVGART and DAR