My name is Frank, and I'll be your conference operator today. At this time, I would like to welcome every to the Halozyme Third Quarter 2021 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After speakers' remarks there will be a question and answer session. [Operator Instructions]. Thank you. Mr. Al Kildani. Vice President of Investor Relations and Corporate Communications, please begin your call.

Thank you. Good afternoon and welcome to our third quarter 2021 financial results conference call. In addition to our press release issued today after the close, you can find a supplementary slide presentation that will be reference 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 Elaine Sun, our Chief Financial Officer, who will review our financial results for the third quarter. On today’s call, both GAAP and non-GAAP financial measures will be discussed. The non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation. During the call, we will be making forward-looking statements. I refer you to our SEC filings for a full listing of the risks and uncertainties. I’ll now turn the call over to CEO, Dr. Helen Torley.

Thank you, Al. I'm pleased to report on our strong third quarter financial results which reflect the continued momentum and growth of our ENHANZE business. We reported third quarter revenues of $115.8 million. This revenue was driven by record quarterly royalties of $58.6 million, which represents 145% year-over-year growth and by collaboration revenue of $32.2 million, which included a $30 million commercial milestone from Janssen resulting from the continued strong growth and performance of DARZALEX subcutaneous. Third quarter GAAP diluted earnings per share was at $1.48, including an income tax benefit related to the release of our tax valuation allowance and non-GAAP saluted earnings per share was $0.55. As a result of the strong year-to-date performance we are increasing the lower end of our revenue and operating income guidance for 2021. Revenue guidance is increased to $430 million to 445 million, which represents growth of 61% to 66% over prior year. Operating income guidance is now $265 million to $280 million representing 84% to 94% growth over prior year. In addition, we have one tax related adjustment to our GAAP earnings for share guidance now that we have demonstrated a pattern of durable profitability. This results in an increase to a GAAP earnings per share guidance to a range of $2.60 to $2.70. We're also raising the lower end of our non-GAAP earnings for share guidance to a range of $1.90 to $2. Elaine will discuss our updated guidance in detail along with the rest of our financial results later in the call. Let me turn now to slide three and provide some details on key third quarter progress and events, and I'll begin with royalty revenues. Royalties during the third quarter were $58.6 million. This represents 145% growth year-over-year and 28% sequential growth following what had previously been a…

Thank you Helen. Before I begin I'd like to again note that we now report key measures on a non-GAAP adjusted in addition to a GAAP basis and also provide financial guidance on a non-GAAP basis. We consider these non-GAAP financial measures to be important because they provide useful measures of our operating performance excluding factors that do not directly affect what we consider to be our core operating performance such as stock based compensation and amortization as well as unusual events and their related tax effects. And I'd ask you to refer to our press release and filings for a reconciliation of GAAP to non-GAAP net income and earnings per share. With that, let me turn to slide eight for a review of our third quarter revenues. Total revenue for the third quarter was $115.8 million, up 77% from revenue from the prior year period of $65.3 million. The biggest driver of our overall revenue growth was from royalties. Recurring revenue which accounted for over 50% of total revenue in the third quarter. Royalty revenue for the quarter was $58.6 million, a 145% increase over the prior year period, royalty revenue of $23.9 million. And this was driven primarily by the continued strong uptake of subcutaneous DARZALEX utilizing ENHANZE by our partner Janssen and to a lesser extent by Roche's ongoing global launches of PHESGO. We also saw strong growth in product sales, which accounted for 22% of total revenues in the third quarter. Product sales which can fluctuate period-to-period based on partner supply requirements and safety stock levels were $25 million in the quarter, significantly higher than the prior year period product sales of $9 million. Growth in product sales was primarily driven by higher API sales to our partners Janssen and Roche in support of their ongoing…

Thank you Elaine. I I'd like to begin by thanking the terrific Halozyme team, our partners and collaborators for all of the hard work that resulted in this very strong performance with growing revenues, growing operating income and an expanding pipeline that's going to fuel our near and long-term growth. As summer arrives on slide 12 we continue to expect multiple important value driving events in 2021. We expect launch momentum will continue for DARZALEX SC and PHESGO with broadening adoption and use in the already launched markets and through additional global launches. We predict three additional new Phase 1 study starts resulting in 16 products in development by the end of this year including three products in Phase 3. In addition, we'll continue to work to create new revenue growth opportunities seeking to sign new collaboration agreements, advance new targets into development and seek new co-formulation patent submissions. And finally, we'll continue to seek to identify our platform technology that can add to our long-term revenue growth. And with that I would like to thank you for joining us today and we'd now be delighted to take your questions. Operator, would you please open the call for questions.

[Operator Instructions] Your first question comes from the line of Charles Duncan with Cantor Fitzgerald. Your line is open.

Yes. Good afternoon. Thanks for taking the question. Helen and Elaine, really a great quarter. Congratulations.

Yes. Thank you Charles.

So quick question on DARZALEX. I guess I'm going to ask you to wax I guess poetic here regarding DARZALEX conversion rate. In your in your mind is there any credible reason that conversion rate couldn't be a 100%. And then maybe a little bit more practical. You mentioned commercial milestone, the second one met this year about $50 million in revenue to you. Would you anticipate any additional commercial milestones beyond the royalties that you're earning in the next say 12 months from this program?

Yes. Thanks Charles. Thanks for the question and DARZALEX. We're obviously delighted to see the 72% conversion rate or share of sales in the United States and we know the rest of world is seeing some very strong performance as well. I think there's a lot of growth there. Charles, its going to get a lot higher than 72%. There may be the occasional patient who does not want to receive subcu. There may be some patients who like going to the infusion suites and spending time there, but that is a tiny minority and so we do see the opportunity for continued growth well beyond the current share. And I would also just point out that the overall pie is also getting bigger if you've seen the DARZALEX overall as a product is exceeding analyst expectations due to increased penetration into some of the earlier lines of therapy with I think some pretty remarkable share growth reported by J&J. So not only is the conversion rate continuing, the pie is getting bigger. So this is why we're so excited about that continued growth. We are delighted with the $50 million in milestones that Charles. I think in the next period you're going to see more growth coming from predominantly from the royalty revenue growth.

Okay. And one last question [Indiscernible] related to Wave 3 launches. What would you like to see out of the upcoming data read in subcu data read mid next year that could provide you conviction that efgart could be another really a value added, value creating a formula relative to the IV form much like DARZA SC is relative to DARZA IV?

Yes. I think obviously we are - well, the trial is designed to show non-inferiority with regard to lowering IGP [ph] levels. So, clearly that's the first thing. But I think what we want to see is a short, simple subcutaneous injection test, so that some patients or their caregivers or healthcare professionals are able to administer this without it interrupting the patient's life and giving the patient the opportunity to go about their life without having to worry about longer IV infusions. So those are the two things I'd be looking for from the data.

Okay. We'll be looking forward too. Thanks for taking the question. Great quarter.

Thank you.

Your next question comes from the line of Matthew Luchini with BMO. Your line is open.

Hi. Good afternoon. Thank you so much for taking the questions and congrats on the quarter. I guess maybe on guidance first. So raise the bottom end but maintaining the top end. Just would like to get a little bit more perspective on, a little bit more color in your perspective on the business into year-end. And maybe where you see areas of potential conservatism within your outlook? And then secondarily it sounds like, I think this is the first time you've mentioned cell therapy as a potential opportunity for ENHANZE. And we'd love to just get a little bit more color on how you see that particular type of product fitting into the broader portfolio? And how much a priority is relative to say antibodies or even small molecules? Thank you.

All right. Well, let me take the second part first and then I'll ask Elaine to comment some on the guidance. With regard to cell therapy, yes, I think it's fair to say it's a minority of the conversations. We're having definitely the conversations with bispecifics and monoclonal antibodies probably the largest followed by small molecules and then cellular therapy. But I do think that cellular therapies are advancing more and more in the clinic. Matt, we're going to have companies come and want to discuss with us what potential benefits could be with ENHANZE. And so, we're delighted with the versatility of the platform. I think that was what I think we're demonstrating more and more is the bridge of types of molecules that ENHANZE can work with. And I would say that these deal certainly spurred people's imagination on with people thinking about small molecules and in particular thinking about longer duration of therapy and how that could improve the patient experience potentially even improve compliance. And so, we're in a very exciting phase for ENHANZE with a broader type of opportunities being discussed with us and look forward to hopefully translating some of those into new deals as we go forward. With that, I'll turn it over to Elaine to comment on the guidance.

Thanks Helen. So with respect to our guidance I think we try to be very thoughtful as we formulate that guidance. And we -- it also reflects our confidence in the growth prospects of our business model as well as the strong year-to-date results. What I would remind folks is that we did raise guidance by $50 million in the second quarter and we're pleased that given the strong results in the third quarter we were able to again raise guidance by increasing that lower end of the range. In terms of total revenues recall that's an amalgamation of a number of components, some of which can fluctuate period-to-period, a product sales as you may have noted in my comments can fluctuate based on sort of orders from partners as well as safety stocking of our partners. And we certainly saw very strong performance in the last couple quarters in terms of increase in product sales. Milestones also can fluctuate period-to-period. As Helen noted, we're very pleased to see the continued strong growth and momentum of DARZALEX Faspro, which allowed us to achieve two additional commercial milestone in the second and the third quarter. But those can be obviously -- those fluctuate. So given everything in that full picture, we feel very confident in the revenue guidance. And I know in particular royalties which are the recurring component of our revenues are have a strong growth potential and is reflected in our guidance.

All right. Thank you for taking the questions.

Your next question comes from the line of Roy Buchanan with JMP Securities. Your line is open.

Hey, guys. It's actually Jason. So just a couple questions that are kind of interconnected here. As you wrapped up the share repurchase program can you talk about your priorities for shareholder capital return. Is it another repurchase? Obviously M&A comes into play here. So, that's a one priority. But we'll stack about another. And as you think about M&A, to what extent are you willing to do R&D work. And thinking about this both from the spend and the tax efficiencies, but also your operating efficiencies, is there any scenario where you grow the organization or are they -- on the flip side are there any opportunities for further operating efficiencies?

Yes. I'll start with the second part of the question then I'll ask Elaine to talk about the capital return. When we made the transition of the company in 2019 Jason, we said we were moving away from being a high-risk R&D organization where we're waiting for a card turnover for the results of a clinical study for example. And so that is not the type of M&A opportunity we're looking at. We're looking at platforms that somewhat or largely derisk where we can take our skills and license it other types of companies. And so, it might there'll be a smaller amount or additional research we do with regards that platform. And just like the ENHANZE there is a smaller knife, but we definitely do not want to go back into the clinical development high R&D risk business that is not what we plan to do. We are always very focused on assuring. We're running the business as profitably as possible. But again ENHANZE such a an attractive large business, there are certain investments we make, because we see a long and durable revenue stream. And if those investments support that then that's going to make sense. So it's always a balance of being prudent and making sure we are investing for future growth, but making sure every dollar is spent wisely. I'm sure you expect that from a scalp. So there you are in. I'll turn it over to Elaine just to talk about the priorities for capital return.

Thanks. So, as you noted we completed our $550 million per year buyback program. We did that one year early and really that's as part of our commitment to capital return and our confidence in the long term value potential of Halozyme. We do -- what I would emphasize is that, we think our ENHANZE business model, because it is capital efficient or are and early in its growth cycle really is able to be supportive of a balanced capital allocation strategy that can fund both capital return, as well as funding internal and external growth. With respect to our future plans, it's a little premature to comment, but we would anticipate providing additional perspective when we provide guidance early next year.

Got it. Great. Thanks for taking the questions.

Thanks Jason.

Your next question comes from the line of Michael DiFiore with Desjardins. Your line is open.

Hi, guys. Congrats on the on a great quarter and thanks so much for taking my question. Just got two from me. Number one, just on slide number six I was hoping you could elaborate more on the pre-phase one starts that are to be expected in Q4. So obviously, Alzheimer's is top of mind these days. Is there any updates or has there been any updated conversations on the possibility of a subcutaneous Alzheimer's partnering opportunity? And similarly not too long ago on Argenx’s phase recall they mentioned that the bullous pemphigoid of PHESGO dedication, that Phase 1 trial is going to start before the end of the year. I was wondering if that also could be part of the three phase 1s. Separately regarding PHESGO, I realize it's still early days. And any thoughts on the uptake of PHESGO? And any incremental insight into its launch compared to DARZALEX at the same point in time? Thank you.

Right. So, Michael, I'll start with the three-phase 3s out until several of them are announced. We're not in a position to talk about them, but we can say that as deed had mentioned at the start of the year it was a goal to start one of their clinical studies with cabategrapher [ph] this year cabatographer is one of those studies. But the other two, the partners have not made those public, so we cannot announce them. And it's likely we'll be able to talk about those sometime early in the first quarter of next year. So you'll learn what they are at that point in time. Bullous pemphigoid is not one of the current indications that we are studying with Argenx’s, I can answer that question. And with regard to Alzheimer's, I've mentioned on the last call, I believe that the amyloid-based target is still available. And so we will be excited to talk with people with regard to that target. But at this point in time it remains available. Did I address all your questions on the studies?

Yes. Thanks so much.

All right. Now PHESGO, it's clear and that DARZALEX got off to a stronger -- it got off to an explosive start. Frankly, we did not expect even that DARZALEX would get such an explosive start particularly in the U.S. and in advance of the permanent J-code. What we've seen with PHESGO is a lot more of a traditional new monoclonal antibody drug where there is just a period of time where all of the logistics needed to get in place in the United States and it's continuing with that trend. Outside the U.S. where we're delighted with the progress we're seeing still early in the launch rollout with only a few countries having got reimbursement and launch. But we're already seeing some very nice contribution outside the United States. And we do predict that over time we're going to see continued growth by more countries in Europe and rest of world in particular, but continued adoption and broadened adoption in the other launch markets as well. So I'd say DARZALEX explosive from PHESGO more of a slower growth story, but we will see continued growth over the long term as it expands in terms of countries and accounts.

Thanks so much.

Thank you.

Your next question comes from the line of Anita Dushyanth with Berenberg. Your line is open.

Hi, good afternoon. Congrats on the quarter and thanks for taking my questions. I just have a couple here. Helen, you spoke about the 10 candidates in Phase 1 potentially 13 by end of the year. Of these how many do you think will kind of move into the Phase 3 by 2022 - I'm sorry 2023? And then also we know that DARZALEX has been come a franchise quite a wide profile off the candidates that are in Phase 3 now. Do you have any idea of any of those have the potential to have a broad labeling like DARZALEX?

Okay. Let me begin by saying with regard to the current Phase 1 study. There's actually a very active discussion at the moment with our partners to look first of all to see how many are going to be moving into Phase 3 in 2022 and then to estimate for 2023. So I can't give you an exact number for that Anita, but I would say that by 2023 my projection would be the majority of these products, if the company does decide to move forward with them we'll be in Phase 3 development. That would be the traditional timeline. And the ones that would be more likely to start in 2023 are the ones that have more recently started them Phase 1. So that would be the pattern we generally see. So expect the majority by 2023. With regard to Phase 3 candid -- sorry the current Phase 3 candidates and which ones we're excited about, would getting a broad label. I think for both Optivo and for to centric what the VFD said at the RITUXAN HYCELA ODAC was, you don't necessarily need to do a separate study for each and every indication. Now each of our partners goes to have a separate conversation with the FDA and their clinical development program is designed based on the agreement they reach with the FDA. That remains partner confidential. But I would say, there's definitely a good possibility that while our current partners are each studying one indication for the solid tumors, they will get a broader set of solid tumor indications should there be no FDA questions related to safety, because that is always the question that's going to be there. So we'll have to wait and see the data and it will depend on the conversations the partners are having. But certainly that is the path and the direction the FDA giving at the RITUXAN HYCELA ODAC. So look forward to that. Efgartigimod mode is a different circumstance, because it's still a development product. They are doing subcu studies in four separate indications in part because they don't have already approved IVs to bridge to. But what's very exciting about efgartigimod is the strong potential obviously here in terms of the market opportunity. And that argenx has integrated subcu really right from the start with some indications like CIDP only being developed as a subcu, not as an IV. And so, this is really the model that we're excited about. we're talking to more partners about is potentially moving subcu earlier even in their pipeline and applying it more broadly and argenx is a super example of a company that has really embraced the enhance into their portfolio.

Great. That is very helpful. I just have one more clarification. I know you mentioned the FCOR [ph] for CIDP is the only being developed as FC. Is there more possibility of other candidates to like especially the ones that are being newly developed to just be sort of be developed as they see itself and not the IV root at all?

Yes. Other partners are certainly contemplating that. The development path is just a little bit different when you do subcu right from the start where you -- we're seeing our partners do a Phase 1 study to pick the dose. And then they do a seamless Phase 2 into Phase 3 as opposed to going straight into Phase 3, because they need to generate generally a broader set of data for safety. But it's similar a just a slightly larger clinical development program if you're doing SC right from the start. But definitely a conversation that's very active with a number of partners today and potential partners.

That's very helpful. Thanks Helen.

Thanks Anita.

Your next question comes from the line of Geoffrey Porges with SVB. Your line is open.

Hello. This is Dantargen [ph] on for Geoff. Two questions for us please. First, can you provide an update on whether any new options were exercised during the quarter besides what you mentioned for Janssen and were any additional new contracts signed? And then second, were there any targets for which options expired and the associated rights were returned to you? Thank you.

Yes. In terms of new options exercise and by that I think that you mean new nominations being announced by partners or -- and I'd say no. I would generally do announced for you when new nominations. So, to my recollection there was just the Janssen won this quarter. There were no new collaboration agreements in the third quarter. Again, we generally announced those. And we did have the return of one option. I'm trying to remember if it was exactly in the quarter, but there has been one option returned by a partner. And that's great news because if the partner isn't moving forward with it per our contract we are often able to license that to another partner who may have interest in that. So hopefully that gives you a sense of the flow we've seen in the last quarter.

That's helpful. Thank you very much.

Your next question comes from the line of Daniel Wolle with JPMorgan. Your line is open.

Hi. This is Daniel for Jessica Fye. Thanks for taking our question. At a high level Helen how should we think about the push and pulls affecting the royalty revenue as we look ahead into 2022? And then as you move the small molecules into the Phase 3 programs, do you expect endpoints to revolve around PK or do you expect a need to demonstrate benefit on clinical end points?

Yes. Well, I'll let ask Elaine just to talk about 2022. I'm afraid, I'll just say in advance. She's not going to be able to say terribly much, because we're doing our guidance. But Elaine any comments on the push and pulls on royalty revenue?

I would just say, we'll be providing more guidance when we provide our guidance at the beginning of next year. What I can say is as I noted in my earlier comments there are some components of revenue that can fluctuate period to period product sales and milestones and then royalties are obviously the recurring component of our revenues and there's the growth drivers really from our Wave 2 launch products notably DARZALEX and increasingly from PHESGO as well as you noted in the third quarter of this year. And those growth in our Wave 2 launch products are offsetting some of the downward pressure from the legacy products of our Wave 1 launches, a notably subcu herceptin and and subcu rituxin which faced by a similar competition. But clearly the big drivers of royalties are our Wave 2 launches and we continue to have evidence of strong growth notably in DARZALEX and increasingly in PHESGO. But more to come in early 2022.

Thanks Elaine. And Daniel, we still are pretty early. We've only developed in the past a few small molecules. But I would say from our expectations we do expect the FDA will focus on PK absolutely or to show non-inferiority if the goal is a bridging study to an already approved drug. With regard to efficacy, in the majority of our approvals to date there has been some form of efficacy endpoints such as response rate for multiple myeloma, but we did see as an example for PHESGO, there was no efficacy primary endpoint, efficacy was secondary. And so, I think this is a case-by-case discussion with the FDA. It'll depend on the overall profile of the drug, it's a risk benefit. And so I think it's more likely than not would be some form of demonstration of efficacy, but it's not necessarily a given. It'll depend on the profile of the drug.

Great. Thank you very much.

[Operator Instructions] Your next question comes from Charles Duncan with Cantor Fitzgerald. Your line is open.

Yes. Hi. Thanks Helen and Elaine for taking the follow-up. A quick question regarding the continuation of royalty growth as a function of co-formulation patents. You mentioned that some had been filed. Do you anticipate being able to say that any of those are public or granted say that publicly over the course the next say two years?

Yes. The timing says it is not in our control. Obviously, we're thrilled that the partners did file them. It'll be down to the patent office and in part due to the partner strategy. So we can't give you a time for it. But as we're thrilled to see this progress because of the benefit this has both in terms of the opportunities to extend the duration of time look at royalties, but also push the times of the step down. But I can't give you a time window. It'll be on a product by product basis.

I know you probably can't disclose identities, but can you say whether or not any of them are on Wave 2 products.

Yes. I can't say that. We have a relatively small pool of opportunities in terms of that. But just to say, that we are excited that our partners are working very hard with us to find that moment of innovation and novelty that we all feel very strongly about has got a very good chance of getting these cool formulation patterns. And we're not done yet. I think that's another core thing to hear. While these several partners have moved forward we continue to be very active with several others. And so you're going to see more and more of these co-formulation patterns being submitted over time based on the novelty that can be found when they're co-formulated with ENHANZE.

Okay. Last quick question on a follow-up to a previous question someone asked about the a beta target and Alzheimer's. First of all I'm wondering if alpha-synuclein is available for Parkinson's disease? And then secondarily, when you think about administering antibodies subcutaneously for that have to be absorbed, have to be CNS penetrant, do you think that you're able to I guess use enough enhance to be able to enable that formulation with one of those two antibody cards?

Yes. I don't think we've tested enough of these molecules to answer your question, but I will say if the goal is to take a product that's already IV subcutaneously. We are very confident that and ENHANZE will be able to do that. I don't know if you were kind of wondering more about higher concentrations getting into the CNS fluid. We haven't really done that, because more of our programs are focused on non-inferiority and the ability to deliver them subcu. So I have strong confidence, very strong confidence we can take a product and deliver the therapeutic dose subcutaneously. With regard to alpha synuclein, I am I'm blanking on if that the one is available I have to say, Charles, obviously there are a lot of targets out there and we are in dialogue with a number of companies on CNS and and neurology/psychiatry type targets. I cannot recall exactly has that one been taken by a partner.

Okay. Very good thanks for taking the follow-up.

Thank you.

There are no further questions at this time. Dr. Helen Torley, I will turn the call back over to you.

Thank you everybody. We really do appreciate your attention and your continued support. Clearly another strong quarter of execution by the terrific team at that at Halozyme and our partners and we look forward to this continuing with a very exciting fourth quarter ahead of us as well. Thank you very much. Look forward to speaking to you next quarter.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.