Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue in the second quarter grew to $231 million, supporting full-year growth expectations of 13% to 22%.
- Royalty revenue increased by 12% from the prior year, marking the 16th consecutive quarter of double-digit year-on-year growth.
- High-margin royalty revenue and efficient operations drove EBITDA growth of 19% to $137 million.
- New patent granted by the European Patent Office extends patent coverage to March 2029, positively impacting growth projections.
- Multiple new product approvals and regulatory advancements, including approvals in neurology and autoimmune diseases, support robust royalty revenue growth.
Negative Points
- Temporary reduction in royalty rate for Darzalex SC in Europe impacted second-quarter royalty revenue.
- Product sales and collaboration revenue in the third quarter are expected to be flat due to the pull-forward of API sales and milestone achievements.
- Uncertainty around the exact timing of new partnership deals due to varying internal processes of potential partners.
- No immediate plans for at-home administration of Ocrevus subcutaneous, which may limit convenience for patients.
- The exclusion of maintenance usage in the recent Darzalex label expansion could impact the long-term outlook for the franchise.
Q & A Highlights
Q: Can you provide an overview of new partnership activities and the confidence level in signing deals this year?
A: We are confident in signing additional deals due to the breadth of conversations we're having. The deals are more weighted towards Enhanze alone, but there are also discussions involving auto-injectors. Conversations are happening with large pharmas and biotech companies, including those with products early in development. The increasing trend of subcutaneous delivery is recognized for its value to patients and the healthcare system.
Q: What drove the higher-than-expected API sales in Q2, and what gives you confidence in flat quarter-over-quarter expectations for Q3?
A: API sales can shift quarter to quarter based on partner needs and our ample supply. The higher sales in Q2 were due to a demand shift from Q3. We have line of sight to full-year expectations, which remain unchanged, leading to flat expectations for Q3.
Q: Are there potential partnerships in the myostatin pathway, given the high doses of drugs in this area?
A: We are interested in areas like obesity and muscle loss and target companies involved in these areas to see if their products are a good fit for Enhanze. We have already reached out to companies in these fields to initiate discussions.
Q: When might we hear more about the undisclosed Roche and Chugai products on your Wave four slide? Are these subcu versions of approved IV drugs?
A: Unfortunately, we cannot disclose details about these targets, including whether they are subcu versions of approved IV products. The partners have not indicated any near-term plans to disclose these targets.
Q: How has the prolonged three results impacted discussions with potential partners?
A: The exciting data from prolonged three, including reduced infusion-related reactions and shorter treatment times, has generated interest, especially in areas like nucleic acid and mRNA vaccines. This concept is attracting interest, and we are in early conversations with companies.
Q: Has the election uncertainty and potential rate cuts influenced the amount of incremental inbound partnership interest?
A: These factors have not come up in our conversations. We continue discussions with around 10 companies, with more coming from our active outreach than incoming inquiries. The internal reviews and budget cycles of companies influence the timing of deals.
Q: Can we expect a true-up of Darzalex royalties that were low in Q2 prior to the extension of the EU patent?
A: We do not expect a true-up related to Q2. The temporary reduction in royalties was due to a step-down to 50% from March to June, but the full rate has been reinstated. We expect royalty growth in the remaining quarters of the year.
Q: How should we think about the maintenance of full-year guidance and Q3 and Q4 sequential modeling considerations?
A: Our second-quarter performance is tracking with our full-year guidance. We expect Q3 to be flat in API sales and collaboration revenue, with sequential growth in royalties in Q3 and Q4 due to the reinstated full royalty rate for Darzalex.
Q: How does potential M&A factor into your thinking, and what profile of business would be a good fit for Halozyme?
A: We actively look for M&A opportunities, ideally in drug delivery with a licensing model and meaningful, durable revenue streams. We are patient and disciplined, seeking derisked assets with growth potential. Our leverage profile will focus on the pro forma delevering profile.
Q: Will the recent Darzalex label expansion into frontline transplant-eligible myeloma impact the longer-term outlook for the Darzalex franchise?
A: We do not forecast on a specific label-by-label basis but look at analyst consensus for sales. The recent label expansion is incremental to the already established trajectory with existing frontline indications.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
