Good afternoon. My name is Shantou, and I will be your conference operator today. At this time, I would like to welcome everyone to the Halozyme Third Quarter 2022 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please note, this event is being recorded. I will now turn the call over to Tram Bui, Halozyme's Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator. Good afternoon, and welcome to our third quarter 2022 financial and operating results conference call. In addition to our press release issued today after the market close, you could find a supplementary slide presentation that will be referenced during today's call in the Investor Relations section of our website. Leading the call will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business; and Nicole LaBrosse, our Chief Financial Officer, who will review our financial results for the third quarter ended September 30th, 2022. On today's call, we will be making forward-looking statements. I refer you to our SEC filings for a full list of risk and uncertainties. During the 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. I'll now turn the call over to Helen Torley.

Thank you, Tram, and good afternoon, everyone. I am pleased that our third quarter results continue to reflect both strong financial and operational performance across the business. I'll begin on slide 3 and what is excellent news. I'm delighted to announce that we achieved an all-time high quarterly royalty revenue of almost $100 million in the third quarter. This represents strong growth of 70% over prior year third quarter, and continues to demonstrate the strength of all of our ENHANZE business. Total quarterly revenue was $209 million, also a record, with strong growth of 80% over same period prior year. Our total revenue growth results from our diversified portfolio, which includes growing ENHANZE revenues resulting from royalty and milestone revenue, incremental product sales and incremental royalties resulting from the sales of Teva’s EpiPen, which utilizes our small volume auto-injector, and also from sales of XYOSTED, our specialty commercial testosterone replacement therapy. We're pleased with the strong momentum and the growing diversification of our revenues. Over the past several years and supported by the acquisition of Antares in May, we have built a leading subcutaneous drug delivery platform company with a specialty business that is compelling growth opportunity, diversified revenue stream, and extended revenue durability. We look forward to leveraging our enhanced capabilities to support current and new partners utilizing ENHANZE, our auto-injectors, and our auto-injector ENHANCE, with the goals of increasing their product competitiveness and reducing the burden of treatment for patients. With a dedicated focus on operational excellence for the combined business, our vision remains to deliver disruptive solutions that significantly improve patients experience and positively influence outcomes. Based on strong year-to-date results, our communication with partners and planned expenditures for the year, we're also reiterating our guidance for 2022. As previously disclosed, we expect total revenues of $655…

Thank you, Helen. I'll begin on slide 11. We are excited to report our first quarter reflecting a full quarter contribution from the Antares acquisition, which was accretive to Q3 revenue and non-GAAP EPS. We continue to project that the Antares acquisition will be accretive to revenue and non-GAAP EPS for the full year of 2022. Through this acquisition, we added a new platform technology in commercial products that adds to revenue, and can extend the durability of our revenue, while being accretive in the first seven months. Total revenue for the third quarter was $209 million, compared to $115.8 million in the prior year period. Year-over-year increase of 80% was primarily driven by an increase in royalty revenue and the addition of product sales as a result of the Antares acquisition, as well as an increase in revenue under collaborative agreement due to milestones recognized from BMS and Roche. Royalty revenue for the third quarter was $99.6 million, an increase of 70% compared to $58.6 million in the prior year period. The year-over-year increase was primarily driven by continued strength in uptake from Janssen's subcutaneous DARZALEX, utilizing ENHANZE. Cost of sales for the third quarter were $47.3 million compared to $18.6 million in the prior year period. Year-over-year increase was primarily driven by an increase in product sales as a result of the Antares acquisition, including adjustments to reflect the amortization of the inventory step-up at fair value. Research and development expenses for the third quarter were $16.7 million compared to $8.5 million in the prior year period. Selling, general and administrative expenses for the third quarter were $34.5 million, compared to $13.2 million in the prior year period. The year-over-year increase in R&D and SG&A expenses was primarily due to the Antares acquisition and an increase in compensation…

Thank you, Nicole. As you heard today, we are continuing to build on the momentum for ENHANZE and our auto injector and commercial business. We achieved a new all-time high for royalty revenue of nearly $100 million in the quarter. We achieved a record $209 million in total revenue in the quarter. And our acquisition is being validated by the progress being made in developing a differentiated large volume auto-injector plus ENHANZE, which is projected to expand our subcutaneous offerings to current and new partners, and to extend the durability of our royalty revenue. You'll hear more of this in 2023. The acquisition also accomplished our goal of diversifying our revenues with the product sales from our small volume auto-injector agreement and sized contributing to our third quarter revenues. I'll close by thanking our Halozyme team and our partners and collaborators for the strong progress made during the quarter. Thank you all for joining us today. And with that, we'd be delighted to take your questions. Operator, would you please open the call for questions?

[Operator Instructions] Our first question comes from Michael DiFiore with Evercore ISI. Your line is open.

Hi, guys. Thanks so much for taking my question and congrats on the quarter. Just three for me. Number one, on the last call, you mentioned that Halo was going to reach out to potential partners to promote your new suite of auto-injector offerings. Any color on the progress made or outcomes achieved on this front? My second question is just thinking through the subcutaneous Ocrevus commercial opportunity. Granted that Kesimpta from Novartis is administered subcu 1 is mostly doing about half the sales and volume of that of IV Ocrevus. And my question is, should we expect a similar trajectory for subcutaneous Ocrevus or would subcu Ocrevus has potential less frequent dosing really matter here and boost sales in that regard? And my last quick housekeeping question is that, beginning a lot of questions from investors on the potential impact to Halo assuming that Makena will be pulled from the market? Thank you.

Thanks, Mike. I'll begin with the update on the reach out to partners and potential new partners actually on the auto-injectors and the auto-injector plus ENHANZE. I can say that we are engaged in multiple calls, and there is a lot of interest, particularly on the higher volume approach, there is no way to deliver volumes of 5 mls and above today using an auto-injector. So I can just say the conversations are going well. There's interest, a good recognition. This is a differentiated approach. And stay tuned, as we continue to work on our prototype and hopefully, next year in a position to move forward into more in vivo testing of the effects of our new auto-injector. Moving to subcutaneous OCREVUS. I think if we think about the opportunity here, Mike, I mentioned on the call that IV OCREVUS globally is our $4.4 billion black brand. Patients are receiving that go in and get an infusion, which, although it fed up over the years, if you actually look at on slides those put together, the patients are required to be in the infusion suite for many hours. And I think the way Roche has positioned this as an option for those patients, perhaps because they don't want to spend time in the infusion suite or the infusion suites are busy for those patients instead to receive the subcutaneous portion of the drug. And so just going down to minutes instead of these hours, I think it's going to be very meaningful for patients with MS, which obviously is a lifelong condition. So we're very excited about that. And if you listen to those calls, we certainly are seeing some very positive things about it as well. On Makena, obviously, the -- we are aware that there was a negative vote. There's been no final position with regard to that. What I can say about Makena is it’s a very small contributor to the Halozyme revenues. And so it will not have any impact on our performance in 2022 or 2023, whatever the decision is.

Got it. Very helpful. Thanks so much.

Our next question comes from Jessica Fye with JPMorgan. Your line is open.

Hey, guys, good evening. Thanks for taking my questions. On the large bottom volume auto-injector, can you help us understand the time lines or next steps that need to happen between achieving a working prototype and bringing the product to market? And then -- with DARZALEX FASPRO US conversion now at 85%, how do you think about realistic peak conversion from here and the time frame it could take to get there? And then lastly, operating expenses now that we've had a full quarter with Antares in the mix, how should we think about the run rate for OpEx as we look ahead to 2023? Thank you.

Yes, I'll start with the first, and then I'll turn it over to Nicole for OpEx. So the last point auto-injector working prototypes for the end of this year. As we talk with different companies. Each of them will have a slightly different need as it relates to the auto-injector. So our goal is to start working with one or more companies to then move forward into getting into the clinic and testing the auto-injector having further developed it. So there'll be a period of further development Jess, just to get it right for what that partner needs and then moving to clinical development. And if this is a product that a partner in already subcu, and they want to move it into an auto-injector, perhaps today, they have a prefilled syringe and they want an auto-injector. That we estimate will be a pretty straightforward and rapid path because we'll just be seeking to demonstrate non-inferiority. If this was an intravenous drug that the partner wants to move to subcu with auto-injector, think of that being more like the pathway for ENHANZE Phase I study to find the dose and then a Phase III study to demonstrate non-inferiority. And just based on conversations we're having, we believe that both of those pathways are possible, certainly with the interest being expressed by companies, both subcu to auto inductor and IV to subcu with auto-injector conversion. Second question with regard to DARZALEX 55%, it is hard to estimate just how high it will go. But when you think about the value proposition here where our patients have the option to get three to five-minute subcu injection as opposed to an often four-plus IV infusion, we certainly think there is a lot of continued growth possible in here with only a few patients we think electing to remain on the IV perhaps, because they like the community of the infusion suite. And so, we do think, over time we're just going to continue to see the conversion rate increasing and can't put an estimate on it. But conversion will continue to grow beyond the 85% in the US and the estimated 80% outside the US. And I'll just also say, we're excited by the growth of the overall brand. I mentioned on the call that in the third quarter, revenue grew 38% on an operational basis to $2 billion. That really is remarkable. And it's in part because of this increased penetration into the frontline that the subcu version based on Janssen's comments is enabling, which is a large population, but importantly, these patients stay on therapy. So the growth is going to come from share penetration, but also by the fact the overall brand is growing. So we see future growth, absolutely. And I'll turn it to Nicole for the operating expenses.

Yes. Jessica, on the operating expense side, what I can say is you will have seen that Q3 is a bit more representative of our go-forward run rate now being the first quarter, the first full quarter with the combined entities. Looking at 2022, thinking about next quarter, it is a good representation. One thing that just comes to mind quarter-over-quarter looking into next quarter is, just a little bit of uptick as we built some headcount vacancies this quarter, so we'll see the full impact of that in next quarter. And with regards to 2023, more to come there, we have not provided our guidance yet for -- excuse me, for 2023, and we plan to do so early next year.

Our next question comes from David Risinger with SVB Securities. Your line is open.

Thanks very much. So, I have a couple of questions, please. I guess, first, I wanted to ask about slide 8, if that's okay. I was hoping that you could just explain that slide in some details so that I understand what you're trying to convey there and where things currently stand in early November.

And David, just to confirm, slide 8, just to make sure our number is working the same. This is the way for product some status.

So the title of slide 8 is expected in 2022, at least two new product candidates to enter clinic and over six new Phase 2/3 starts. So I was just wondering, in light of that heading, which of those have been disclosed to-date and completed to-date and what needs to happen over the next, I don't know, less than 60 days.

All right. Perfect. So we can say that, in terms of this new Phase 2/3 start, we're very pleased on this call to have noted that amivantamab has moved into Phase 3 clinical testing as you see listed there. We can also say that at the beginning of the year from a Phase 1 perspective on this slide, we saw N6LS as well as the Chugai drug, which are at the bottom of the slide moving to Phase 1 clinical testing. And then if we take a look at and maybe I'll the slide back so they are not in this deck, so I do apologize for that. The other studies actually are in the Wave 3 launches. So thank you for catching that, David. And when we posted we actually have four slides there, so I don’t actually know why we're missing our Wave 3. But that will just give you a sense of the products that have moved forward, and we need to make sure that we have the pool set in the deck that we will provide.

Okay. Thank you. And then just a couple of other questions. So congrats on the amivantamab advance into Phase 3 just so that I understand your disclosure, how is that Janssen program previously disclosed by the company? What was it named or was it just an unidentified J&J program? I just don't know how you handle that disclosure previously.

So -- and we work with our partners on their preference for how things are disclosed in our SEC filings, like as an example, our P&Q [ph], it was disclosed as amivantamab. In our presentation for earnings calls, it was undisclosed because, again, we work with our partners and their preference, but it's been disclosed since the beginning in our SEC filing documents.

Okay. That's very helpful. And then finally, what should we expect the company's normalized non-GAAP tax rate to be in 2023 and beyond?

So David, we haven't provided that level of guidance and out to 2023. What I can say about 2022 and you'll have seen in our results for this quarter, our effective tax rate is about 19%. We did have the ability to reduce that a little bit this quarter looking at the combined entities and specifically our state tax obligations. So that's the expectation for this year, and we're looking forward to sharing more on next year at a later.

Okay. Thank you very much. Congrats on the progress.

Thank you, David. Thank you.

Thank you.

Our next question comes from Jason Butler with JMP. Your line is open.

Hi. Thanks for taking the question. I just had two. Helen, you spoke about the fact that there is interest in both the auto-injector as well as combining the auto-injector with ENHANZE. Is there on balances there, to what extent is the interest in one bucket versus the other? And then secondly, just on the specialty business, can you talk about commercial integration and how you think about getting the specialty business to breakeven. Do you think you can do it with the current product portfolio alone, or are there strategic things you're thinking about, including bringing in additional products into that business? Thanks.

All right. Yes. I would say that on balance, there is more interest and I think excitement with regard to ENHANZE with a large-volume auto-injector, frankly, because that's not something that is available in any format for partners on the marketplace today. Small-volume auto-injectors, there are other versions. We do not think there is differentiated or as customizable as ours, but where the novelty and innovation is coming is the ability to deliver up to 10 ml rapidly via auto-injector, which is what we are seeking to develop with high-volume Jason. So definitely, the high volume with ENHANZE getting the greatest interest. And with regard to specialty, I commented on the call that the soft store market is a growing market and a large market. And every 1% share we can gain with our products is about $20 million. And so they're absolutely is a path and it's our goal to be able to break even on this just simply with the products that we have in the portfolio today. Definitely a lot of opportunity in liking the recent growth we're seeing in our XYOSTED. : Great. Thanks for taking the questions.

Our next question comes from Corinne Jenkins with Goldman Sachs. Your line is open.

Good afternoon, everyone. Maybe one for me. As you think about indications that may be most appropriate for an auto-injector delivery method versus maybe indications that are necessarily as appropriate for an auto-injector delivery method for whatever reason, how does that compare to kind of the existing partner portfolio that you have?

Yeah. Corinne, as I think about that, I think it's an indication where the patient is more likely to be administering it at home. That is the more obvious place for an auto-injector just off the top of my head. And so that can be both small molecules and biologics where the product label does not suggest there's any need for physician supervision. So perhaps areas more like autoimmune disease, neurology, psychiatry, those types of areas. However, I would also say there is nothing to preclude auto-injectors being delivered by healthcare professionals in the office setting as well, because that it really is a quick convenient weaker deliver drug as well. And so I think hopefully that is helpful. Just like anything can be delivered via auto-injector, we believe. But I would say that think about it both as an at home delivery, which is probably areas outside oncology, but even in office setting perhaps areas like oncology, it might be more suitable there.

Okay. Helpful. And then can you just frame for us some of the potential drivers for subcutaneous adoption in the context of what's a pretty competitive PD-1, PD-L1 landscape? And just any context that you can provide that would be helpful?

Yeah. We certainly are excited about the progress we're seeing with both Tecentriq making progress and HALO making progress to have subcu versions. The way I look at it, we start first with what the company's strategy is. And both Roche and Brazil have talked about the importance for patients in reducing the treatment burden, which is shorter subcu would do. The opportunity to combine drugs. BMS is doing that obviously with placebo and Relatlimab further reducing the burden and importantly, competitive differentiation. It is very clear that everybody is moving towards more convenient delivery in checkpoint inhibitors and obviously, our subcu is enabling that. I think the mix comes into the patient benefit. Is there any benefit that even goes beyond convenience like we've seen with some of our other products. And so we believe that the positioning of the subcu products with ENHANZE is going to place both Bristol and Roche in a very nice position against the competition in PD-1, PD-L1 and importantly, really do a lot to support patients by reducing the burden there going through as they're receiving the cancer therapy.

Okay. Thanks. And just a quick point of clarification. When you have the combinations like nivolumab and relatlimab, are those in a single co-formulation with ENHANZE, or are they two separate auto-injectors?

That one is the -- just like Phase 2, it's the two drugs with ENHANZE in a single index.

Great. Thank you.

[Operator Instructions] We have reached the end of our question-and-answer session. I'll now turn the call back over to Helen for closing remarks.

Thank you very much, everybody. As you've heard, we're very excited with the continued momentum of ENHANZE, also our auto-injector progress as well as our commercial business. We look forward to providing updates next quarter all of the continued success and growth at Halozyme. Thank you.

This concludes today's conference call. You may now disconnect.