Good afternoon. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Halozyme Second 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 second quarter 2025 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. 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. Let me begin on Slide 3. I'm pleased to announce another record quarter, which highlights the significant growth and accelerating momentum we have across the business. Total revenue in the quarter was $326 million, representing a 41% increase over second quarter of prior year. This robust growth was driven by continued strong royalty revenue performance driven by our 3 established blockbuster subcutaneous therapies, DARZALEX subcutaneous, subcutaneous Phesgo and VYVGART Hytrulo. This quarter's royalty revenue grew an impressive 65% year-over-year to $206 million. And adjusted EBITDA increased an outstanding 65% over prior year second quarter to $226 million. This was driven by the accelerating growth of our high-margin royalty revenue streams as a result of increasing demand for products, incorporating our leading drug delivery technology in hand. Based on this strong continued performance and the growth trends, I am pleased to announce that we are raising our 2025 financial guidance for the second time this year. We are now projecting total revenue of $1.275 billion to $1.355 billion, representing 26% to 33% growth over 2024. This is a further increase to revenue guidance of $75 million after raising guidance by approximately $50 million in the first quarter reporting. 2025 full year royalty revenue guidance is increased to $825 million to $860 million, representing growth year-over-year of 44% to 51%. Adjusted EBITDA and non-GAAP EPS guidance have also been raised, and Nicole will go into more detail on this shortly. During the quarter, we completed the second $250 million share repurchase tranche of our authorized $750 million share repurchase plan. I'm pleased that we also initiated our third $250 million share repurchase program under the approved $750 million plan. Importantly, the strength of our revenue growth and the resulting strong cash generation…

Thank you, Helen. Our outperformance in the second quarter reflects the growing momentum in the business, supporting another raise to our 2025 financial guidance. Total quarterly revenue increased by 41%, with $206 million in royalty revenue increasing 65%. Adjusted EBITDA growth of 65% once again outpaced top line growth with high-margin royalty revenue contributing to the $98 million in free cash flow in the quarter. Moving to Slide 10. In the second quarter, we completed the $250 million share repurchases announced in May of 2025. Given our expectation for continued strong cash generation, we have allocated an additional $250 million to share repurchases. Of this third and final tranche of our current $750 million approved plan, $53.5 million was deployed in the second quarter, bringing our total share repurchases in the second quarter to $303.5 million. This brings total share repurchases since 2019 to more than $1.85 billion, reflecting 117% of our cumulative free cash flow during that period. We continue to balance our use of capital with a focus on evaluating M&A opportunities to complement our strong organic growth profile, while remaining disciplined about our net leverage. Let me now turn to our detailed second quarter results on Slide 11. Revenue grew 41% to $325.7 million compared to $231.4 million in the prior year period. Royalty revenue of $205.6 million increased by 65% from $124.9 million in the prior year period. The continued commercial success of subcutaneous DARZALEX and Phesgo and the robust growth of VYVGART Hytrulo contributed to the higher-than-expected royalty growth. Product sales of $81.5 million increased by 3% from $78.9 million in the prior year period, mainly driven by higher proprietary product sales. Collaboration revenue of $38.6 million, an increase of 40% from $27.5 million in the prior year period reflect the milestone recognition of the…

Thank you, Nicole. It is certainly an exciting time in Halozyme's history as we continue to achieve new record revenue and earnings growth. With 14 catalysts for growth now realized or on the near-term horizon, we have even greater conviction and line of sight in the durability of our revenue streams and the expanding opportunities ahead. Our success would not have been possible without the incredible dedication of our employees and the trust and collaboration of our valued partners. And with that, operator, we are now ready to open the call for questions.

[Operator Instructions] Your first question comes from the line of Cerena Chen with Wells Fargo.

This is Cerena on for Mohit Bansal. Congrats on the quarter. Can you help us understand the status of the IP litigation with Merck. We saw that with the patent grant review being instituted, but I was just wondering like what are the next steps and potential outcomes of the next decision.

Yes. So with regard to our litigation against Merck, this is the district court case that we have filed, and we're suing Merck for infringing 15 of our MDASE patents. We do not yet have a scheduling order from the court that would set up the schedule for the proceedings, but we do expect to receive that in the next couple of months.

Okay. And then just wondering, I think the PGR might be a separate process, but do you have an idea of what the time line is there?

Yes. With regard to the PGRs, there have been 4 PGRs filed by Merck that have been instituted by the patent office. And all of these have been given a hearing date that is set for March 2 in 2026. We anticipate that the first decisions on the issues that are common to all of those 4 PGR petitions will occur on June 2, 2026. So in terms of the time line, that's when the final adjudication on these first 4 invalidity challenges that were brought by Merck will be adjudicated. There remains several other PGR petitions that are still under review by the PTAB at this time, but you'll start to get insights next year. And I'll just say we continue to be very confident in the fact that we will prevail on these validity issues in all of the PGRs and that Merck will be found to be infringing, but we just have to go through this entire process.

And your next question comes from the line of Sean Laaman with Morgan Stanley.

Helen, congratulations on some very strong results. Your crystal ball seems to be working pretty well. On the regulatory front, you just -- there's been quite a few moving pieces over the last few months, a lot of scuttlebutt on your stock a few months back with respect to certain issues, CMS draft guidance, et cetera. But as you sit today, what's your confidence that we're going to see no change that will be impactful on the regulatory front?

Yes. So I'll start with the IRA which, as you rightly see, is something that is -- did cause a little bit of commentary a few weeks ago. I can say that on the IRA, and this is related to fixed combinations of 2 active ingredients where for the Part B guidance, there was some slightly different wording that was proposed. We've been very active and have submitted a comment letter to CMS that lays out how the draft B policy as written is flawed in both a policy and a legal basis. And very importantly, we laid out all of the clinically meaningful benefits subcu delivery with ENHANZE has brought to patients, which is one of the key areas that we know CMS was asking for feedback on. We know that many other groups have done the same, Sean, very similar arguments that they arrived at, and we've been very active meeting with the OMB, also with members of Senate Staff and Congress to articulate these arguments and why really there should be no change in the definition of fixed combination between the Part D guidance, which has been in play for the last 2 rounds of IP and the -- and Part B. Now we believe it's the fall when the final guidance will be there, and we believe we have very compelling arguments and that we will prevail and there being no changes with regard to that. I think that's the only with the regulatory one we're talking about. Sean, is there anything else you wanted to get our feedback on?

No. On a separate topic, if I may, just on the -- that's great on the regulatory front, I appreciate it. But on the setting of guidance front, congratulations on the upgrade, but when -- how much do you use sell side as an input to setting guidance?

Yes, Nicole?

Yes, I can take that one, Sean. So when we look at our guidance, we're really using the trends. And at this time in the second quarter, we have a new data point that indicated new trends, and that's why we're so excited to share new full year projections for the full year. So we look at trends. We have inputs from our partners. We have our royalty reports that we get on a quarterly basis. So all of that is really the data points that we triangulate to use to now give the updated view for the full year.

Awesome. And just a very quick one, Nicole, the $250 million buyback. Just remind us on the comfort levels or targets for gearing ratios.

I'm sorry, what ratios?

Sorry, for gearing or leverage or how much -- what's sort of the debt equity balance that you like to keep on the balance sheet?

Okay. So we do have a very nice leverage ratio at the moment. We're just at about 1x. We are very committed to continuing to use our capital for share repurchases as well as using it for investing in the business and for M&A. And so we do see that we have room. We can increase our leverage, especially if we found the right opportunity for M&A. We really like around 3x leverage if we were in that type of situation. And so because of our robust cash flow, we really have all of those opportunities available to us to continue to use cash and keep a very nice net leverage ratio.

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

Congrats on a strong quarter. I'm wondering if I could maybe ask you to expand a little bit on the guidance and longer-term guidance. Helen, you pointed to reiterating, on track to hit that $1 billion in royalty revenue. If you take Nicole's comments that you'll expect to see sequential increases in royalties in the second half of the year, it looks like you're going to end up annualizing in fourth quarter at a level well above your guide -- at the upper end of your guidance range for 2026. Just any comments there on the potential to update the longer-term guidance ranges?

Yes. Thanks, Jason. So we do see great trends into 2025. Our practice is during the calendar year, as we have these new data points, we do update the current calendar year. Subsequent years, in those guidance updates, we do once a year and at the start of the year. So more to come next year on that.

Got it. And then maybe just, Helen, on the OCREVUS launch. Anything you can say about where patients are coming on to drug? Is it new-to-brand patients versus switches? Or is there a weighting between the 2?

Yes. What Roche has commented on is, they indicated there are about 7,000 patients globally who have started OCREVUS subcu, which I think is excellent, obviously, adoption as we expected, given the 10-minute subcu injection versus the many hours for the IV. They have commented that about 50% of patients in the U.S. are coming on new to brand. So doing exactly what they hoped, which the availability of subcu would expand the number of doctors and patients who have access to the drug, and about 50% of patients are coming from IV switch. So exactly on track with what they had hoped to see with the launch, with this very nice expansion in the total market and sales for OCREVUS over time.

Great. And then just last one for me. You mentioned that the high-volume auto-injector will be ready for partners to start working with later this year. What's the interest level right now? Or -- do you have people lined up waiting for that device?

Yes, Jason, I can comment that we're in multiple discussions on this, and they're all at different stages, as you would imagine with any of these licensing conversations we talk about. We have the current partner who has signed a development agreement with us, is continuing to advance with us towards that development and additional testing of the high-volume auto-injector. And we have other ones who are waiting to see and test themselves this new prototype that we'll have for the high-volume auto-injector. So definitely strong interest. And I did say in my remarks, and I just want to underscore it that in areas like inflammation and immunology, neurology, nephrology, there has been a concerted effort by companies to get products that can be delivered at home by the patient. It's recognized particularly for those indications. That's just the way of the future. The government, as an example, in terms of the outpatient payment schedule, commented that too many drugs are being delivered in hospitals, and there's a real push for this. So we are definitely seeing a very nice response to our auto-injectors as companies are looking to get more and more drugs into the patient's home, delivered by the patient themselves.

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

Really congrats on the quarter, it's great to see. I wanted to first ask maybe actually related to the CMS conversation from earlier. Can you speak just briefly to some of these next-gen assets that you have advancing through the clinic, you think you highlighted them on Slide 9. And really just how many of those are essentially leading more or less with subcu versus maybe a slightly older strategy of bridging from a commercial IV to a subcu like J&J did with DARZALEX. Just trying to get a sense of relatively how many of the next wave of ENHANZE assets would or would not potentially be impacted by whatever CMS decides.

Yes. Thanks for that, Brendan. And I will say that, as we do look towards that -- our pipeline, if you like, we -- the most advanced asset there is relatlimab with Opdivo. Now that was approved in IV just a couple of years ago. So even in that case, companies are moving pretty fast with the subcu, but for the rest of the products in that, you make a great point that the majority of those are either subcu only or doing subcu and IV in development together such that there will be not much space between an IV launch and a subcu launch or there will only be a subcu launch. So the majority is definitely going in that direction. And I think that's pretty in line with what I mentioned about companies recognizing at home delivery is the way to go in conditions and in that particular portfolio, we've got conditions like Alzheimer's, HIV, autoimmune diseases. These are all areas where we're seeing that move towards patient self delivery or at least in the home. So the majority are going to be subcu at the start or subcu very shortly after the IV launch.

Got you. Okay. Great. And then just maybe quickly, have you heard from -- or coordinated with J&J at all just about what it would potentially mean to try and appeal to CMS for some of these biosimilar-related exemptions, maybe a STELARA next year, if DARZALEX does wind up named in early next year after CMS draft clarification comes out.

Yes. No, we have not discussed that specific topic with J&J. One thing, Brendan, I just do want to bring up. With the One Big Beautiful Bill Act, that expansion in the One Big Beautiful Bill to have drugs that have more than one orphan indication and have those drugs excluded from the IRA, we believe, has the potential to be impacting DARZALEX IV inclusion for 2 indications that DARZALEX IV has, which is for multiple myeloma and for amyloidosis, were both designated by the FDA as orphan drug. And the way the One Big Beautiful Bill reads, that would mean that DARZALEX would not be included as an IV in the IRA because it's only an orphan drug.

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

This is Adam on for Jess. I do apologize if you mentioned this, but when could we expect more clarity on Halo driving royalties associated with the MDASE patents.

Yes. Thanks for that question. So the key play is that, that will be fully resolved. It could happen at any time if Merck chose to settle and sign a license with us. And historically, that does happen as these types of infringement cases are going on. But obviously, that's an uncertain time line. The second would be at the end of the district court case and assuming success for Halozyme, which obviously we believe we will win it, because we do believe very strongly that Merck is infringing. Now we are awaiting a date for the district court case that has not been given yet. And we do expect that to be a process that will take a couple of years. So there's no clear time line, Adam, but I would track 2 things, potentially Merck settling because of the strength of our case, or the second one would be upon our success going through the district court case, which will be several years from now.

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

Congrats on all the continued progress. Two for me, just, one, revisiting the Merck litigation. So with multiple PGRs now instituted and others potentially likely to file on similar grounds, how should we think about the likelihood of or timing of a settlement? And do you believe that the expanding PTAB docket strengthens Merck's hand? And I have a follow-up.

Yes. So with regard to the settlement, that obviously is in Merck's hands, Mike. We believe very strongly that Merck is infringing our patents. And the only place that, that infringement will be resolved is going to be in the district court case, and we have patents that are part of the district court case that are not subject to the PTAB process. And so it really, I think, will just come down to when Merck decides they want to settle if they're going to do so before we go through that whole district court case. But that is the ultimate arbiter of this infringement.

Got it. That's helpful. Separately, just curious if deal conversations had slowed down in light of the pending final Part B guidance documents. Obviously, this could swing either way. Have you sensed that, that company just want to wait this out and see what happens?

No. We haven't. The IRA discussions have never been a big part of our sales pitch and never been a big part of the conversations to date. And so this draft Part B guidance is not impacting it at all, Mike. And that's probably because we are, as I mentioned a moment ago, talking with a lot of companies who are considering subcu delivery even as they've initiated their initial testing with the IV or they're planning subcu right from the start. And so we definitely do have some conversations which are IV to subcu switch, but the wealth of opportunities and conversations or early use and consideration for subcu taking the whole IRA discussion as an irrelevance. And so that is also why it's not coming up.

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

I'll add my congrats on the quarter. And on that note, I would like to ask that it seems like it's the third time raising guidance in 2025 when you include the increase during the multiyear guidance raise in January. It's a nice trend for us, but we're wondering how conservative or reasonable would you say the guidance is at this point?

Yes. I'll ask Nicole to address that, and then I'll add my comments.

Thanks, Mitchell. We do see, and we're excited to see that each quarter really what we're seeing is the new latest trend point, and that trend point does identify for us what are the latest projections. And so what you see at each of those stages is us taking that data and using the latest data available to really support what we see for the full year. Just great examples of what we saw this quarter is DARZALEX outperformed for the quarter, really driven by the frontline setting. We thought Phesgo, for example, expanded it in 20 new countries, and their growth remains really robust. And then, again, the strong patient and physician adoption for VYVGART Hytrulo in their launch of the PFS really supported our updated outlook. And again, that latest data point that gives us the conviction that we now have put out there for full year guidance for 2025.

Yes. And I'll just add. When we put our guidance in January, that is highly informed by the guidance ranges that our partners all give us. And so we do take our judgment within those ranges they give us. And so I would say first quarter -- Q4 and Q1 reporting really does reflect that input we get from the partners. They -- definitely, we're seeing some acceleration in momentum. Now I talked at the beginning of my prepared remarks about having achieved 11 of the 14 catalysts. Those kind of catalysts can be hard to predict exactly. But Nicole mentioned the prefilled syringe. We will see argenx itself said that, that was already impacting even after just one quarter. We are early in the launch in CIDP, that's another example. And for DARZALEX, they just keep expanding into that frontline population. And as I mentioned, those patients stay on therapy longer. And so it has a compounding effect, and the longer we go, the more it's going to compound. And so those are just some very exciting dynamics that I think in terms of what our partners projected for the year or even more to the upside than they had indicated to us based on the information they provided. So it is all good news. It's never our intent to be conservative. We like to guide us to what we believe is going to happen. But when you're in this dynamic circumstance with lots of new catalysts, it's hard to get them all exactly right, and we're just getting a very nice benefit of partners overperforming in many of the catalysts versus what they had anticipated.

Definitely. That's super helpful. Just one more from us. So it looks like Merck filed a couple of more PGRs since June. Can you provide your current outlook on this impact? And why do you think they're choosing these particular patents and continuing to file more instead of filing them all at once?

Yes. As to their motivation for that, Mitch, I don't want to speculate. For the PGR process, that can happen within 9 months of a new patent being issued and so what they're looking at is the continued and this is work that this happens -- has been happening for the last 10 years at Halozyme. There are more patents filed and issued. And so they simply are looking at the new issuances and they have elected to challenge the validity of some of these. Now we believe very strongly that these patents are valid and that the ultimate settlement of the PTAB will show that. They're not having any impact on what is a very important thing, which is our district court case, which is not a question of the invalidity of patents, but their infringement of our patents. And no matter what happens in PTAB, we have patents that cannot be subject to challenge that we believe strongly demonstrate the infringement by Merck on our IP. So that's how to think about both of those. So the district court case is obviously the key one for us to have eyes on, and we'd expect Merck to continue, I believe, and news to continue on these PGRs, but we're also very focused on the district court case.

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

A couple from us. Maybe, one, now with a couple of neurology kind of launches underway and demonstrating pretty good uptake, I guess what are your thoughts on the pace and peak potential for conversion to subcu in these markets, perhaps just relative to the oncology business? And then maybe separately, on the high-volume auto-injector on human factors that you're running with a partner by later this year, I guess, should we expect this kind of like pre-work to be done more frequently with the auto-injector deals? And maybe help us understand sort of whether human factor studies are going to be different from drug to drug or if that's kind of auto-injector specific.

Yes. Thanks, Corinne. With regard to neurology launches, obviously, OCREVUS is off to a very strong start. And when you think about the value proposition here for patients, just 10 minutes versus many hours for the infusion and observation time for the IV, it definitely is one of the drugs where we think there will be a robust conversion, driven by the patient factors, but also infusion suite capacity constraints and the cost of care globally. So that really [ does touch ] all the hallmarks for being a very nice uptake. CIDP, I would consider another neurology indication. And the great news with VYVGART Hytrulo in CIDP, of course, is that, that is all subdued. There is no IV VYVGART approval for CIDP. So that's 100% of the sales, mid-single-digit royalty on those. So yes, I think we're going to see very nice uptake overall in neurology and those 2 specific indications. On the high-volume auto-injector, so I think it's going to be different partner by partner. One of the things, and the human factor studies are very straightforward to do, often it is on the usability of the device. It may have a patient population where they are wanting to understand how the patient uses the device, understand is there a customization of something about the device that they want to test out before they would go into formal clinical studies. So they're pretty straightforward, short types of things, but think about it more in terms of just testing and optimizing exactly the design that they want. And so I think sometimes some partners want off the shelf, sometimes they want to do a bit of human factor testing. It will be a mix.

And this concludes today's conference call. You may now disconnect.