Halozyme Therapeutics, Inc. Q1 FY2024 Earnings Call

Thank you for standing by. My name is Brilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Halozyme First Quarter 2024 Financial and Operating Results Conference Call. Please note, this event is being recorded. Thank you. I would now like to turn the conference 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 First Quarter 2024 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, who 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'll now turn the call over to Dr. Helen Torley.

Thank you, Tram, and good afternoon, everyone. Beginning on Slide 3. I'm very pleased to report that our first quarter 2024 operational performance was in line with our expectations and reinforces our confidence in our full year financial guidance. There are three drivers of this confidence in our guidance: our royalties, the expected milestone payments, and our EBITDA. Let me provide now some additional details on these three key drivers, which will help you appreciate the Halozyme business model even more. I'll begin with royalties. The first quarter of 2024 marks the 15th consecutive quarter of greater than 15% year-over-year royalty growth. This provides robust support for continued royalty revenue growth in 2024, driven predominantly by our Wave 2 products, DARZALEX subcutaneous and Phesgo, with growing contributions projected from more recently launched and launching products, VYGART Hytrulo and Tecentriq subcutaneous. The second driver is milestones. We have good visibility to our partner milestone revenues for the remainder of the year, where we project contributions from Wave 1, 2, 3, and 5 products. You may be surprised to see Wave 1 and 2 product milestones. This is a valuable feature of our agreements where we can have milestone payments for attainment of pre-specified sales levels, potentially extending many years after the original launch. Moving now to the Wave 5 product milestone. We're predicting new products will enter the clinic in 2024, resulting in a milestone payment. In the first quarter, we recognized $4 million in milestone payments related to the approval and launch of VYVDURA, which is the brand name for VYGART Hytrulo in Japan. I'll move now to provide a little more color on the cadence, quality, and probability of the milestone revenues in the upcoming quarters. In the second quarter, we will recognize a $15 million milestone related to the recently announced U.S. regulatory file acceptance for nivolumab subcutaneous, a Wave 3 product. In the third quarter, we project two additional milestone payments related to the Wave 3 products, including a regulatory filing and a first commercial sale. Also in the third quarter, we project a milestone for the Wave 5 product Phase I study start I just mentioned. In the fourth quarter, it is notable that we project several commercial sales attainment milestones related to Wave 1, 2, and 3 products. For all of the above, we have strong visibility, including to the information and trends that give us confidence in these milestone achievements. In addition, we predict milestone revenues from new deals and new nominations in 2024. While these may occur at any time in the next three quarters, for planning purposes, we project these in the fourth quarter. We're currently in very active discussions with multiple pharma and biotech companies and have progressed to terms discussions with several. Our strong operating performance and the achievements described above, together with our continued focus on operational expense management, result in confidence in delivering our full year EBITDA. And we project that we will deliver 26% to 37% growth. The EBITDA quarterly growth cadence is projected to track well with the quarterly milestone payments I outlined earlier. All of these factors provide us with the confidence to reiterate our 2024 financial guidance, with total revenue expected to increase 10% to 19% year-over-year to $915 million to $985 million. Royalty revenue continues to be the main driver, which is projected to increase 12% to 17% to $500 million to $525 million. We project adjusted EBITDA growth of 26% to 37% to $535 million to $585 million and non-GAAP EPS growth of 28% to 41% to $3.55 to $3.90. With that overview, let me now move to the first quarter operational highlights, which are shown on Slide 4. The multiple advancements that our partners made in 2023 have paved a clear path for our strong outlook. We entered the year with seven approved ENHANZE partner products, and there were multiple noteworthy partner product approvals in new regions and new indications already achieved in the first quarter of this year. Beginning with recent approvals, argenx's efgartigimod subcutaneous with ENHANZE, which is the brand name in Japan of VYVDURA, was approved in Japan for generalized myasthenia gravis, including options for patient self-administration. With the subsequent commercial launch of VYVDURA, these events resulted in a combined $14 million in milestone payments to Halozyme. It was also exciting that Takeda's HYQVIA, which is a Wave 1 product, received approval for an expanded indication in the United States and Europe during the first quarter. The new indication is for maintenance treatment of patients with chronic inflammatory demyelinating polyneuropathy or CIDP. In addition, Roche received European approval for Tecentriq subcutaneous. As a reminder, the potential U.S. approval is expected in September of this year. Also in the first quarter, and more recently, multiple partners advanced regulatory progress towards potential approvals and additional milestones and royalty revenues. In February, argenx announced FDA acceptance of their sBLA with priority review for VYGART Hytrulo in CIDP with a PDUFA target action date in June of 2024. And Roche announced the potential approval for ocrelizumab subcutaneous in Europe in mid-2024 and FDA PDUFA target action date in September of 2024 for both Tecentriq subcutaneous and ocrelizumab subcutaneous. Janssen announced U.S. and European regulatory submissions for a new indication for DARZALEX subcutaneous as part of a regimen for transplant-eligible newly diagnosed multiple myeloma patients. And BMS has announced the FDA acceptance of their BLA for nivolumab subcutaneous with a PDUFA target action date of February 2025. We're also pleased to report two pipeline advancements. Firstly, argenx initiated registrational studies of efgartigimod subcutaneous with ENHANZE for a new indication thyroid eye disease. Excitingly, these studies will utilize efgartigimod with ENHANZE delivered by prefilled syringe. And secondly, our partner, ViiV initiated another Phase I study for VH4524184, which is an integrase inhibitor with ENHANZE. The performance of our Wave 2 products, along with the start of the launches of our Wave 3 pipeline and strong regulatory progress I've just discussed give us high confidence in achieving our projections of $1 billion in royalty revenue in 2027. Let me now provide an update on each of our royalty revenue drivers, starting with DARZALEX FASPRO on Slide 5. I'll begin each review by overviewing the potential opportunity size for subcutaneous and then cover recent progress and new opportunities. In the first quarter of 2024, J&J's DARZALEX sales were $2.7 billion, up 21% year-over-year on an operational basis. This strong growth was driven by share gains in all regions, resulting in a share gain of six points across all lines of therapy out of ten points in the frontline setting. With subcutaneous penetration in excess of 90% in the United States and estimated to exceed 80% outside the United States, subcutaneous DARZALEX is driving the strong demonstrated and projected total brand growth. Analysts continue to expect DARZALEX revenue to grow to exceed $17 billion in 2028. The potential approval in 2024 for the new indication of transplant-eligible, newly diagnosed patients based on recent U.S. and European regulatory submissions would provide an important new frontline opportunity for DARZALEX subcutaneous. I'll move now to Phesgo, which is shown on Slide 6. First-quarter Phesgo sales increased 70% to CHF 388 million, which represented the second-best performer in Roche's self-ascribed young portfolio. Roche recently highlighted that U.S. conversion is reaching 25%, and global conversion was 41% in the quarter. With the strong launch uptake and ongoing geographic expansion, Roche has commented that it projects overall conversion will increase to approximately 50% over time as patients continue to convert from IV Perjeta. There remains a substantial conversion opportunity from Perjeta to Phesgo, with Perjeta generating almost CHF 1 billion in sales in the quarter. I'll turn now to our Wave 3 products and product candidates, which are shown on the right-hand side of Slide 7. The opportunity for Wave 3 is meaningful with five products that analysts project will generate total sales of $35 billion in 2028. This compares to $20 billion for our Wave 2 products, which are driving the robust royalty revenue growth we see today. Importantly, Wave 3 is largely derisked with positive Phase III data and regulatory submission plans already reported by our partners for all products, with the exception of Johnson & Johnson's Amivantamab where Phase III data and regulatory submissions are expected this year. Let me begin with VYGART Hytrulo, the subcutaneous version. VYGART Hytrulo is currently approved for generalized myasthenia gravis in the U.S. and Europe and also in Japan, where it's the brand name VYVDURA. Notably, the European and Japanese approvals also allow for patient self-administration subcutaneously. In 2023, VYGART generated $1.2 billion in sales, argenx continues to broaden ease of access and coverage for generalized myasthenia gravis, securing the J code for the subcutaneous formulation in January of this year. With Symphony data showing positive quarter-over-quarter growth for the brand, we look forward to growing adoption and use of subcutaneous VYGART Hytrulo as the number of physicians prescribing VYGART Hytrulo expands and use increases in the earlier lines of treatment. The potential approval of a new indication of CIDP in June in the United States represents another exciting near-term growth opportunity for VYGART Hytrulo. This is the indication that will be a subcutaneous delivery-only launch. Based on argenx's research and comments, approximately 42,000 patients are receiving treatment for CIDP today. Only 20% of those patients are getting to remission on the current standard of care, and 50% of patients remain dissatisfied with the current burden of symptoms, signaling a real unmet need in this challenging condition. We appreciate the strong partnership with argenx and share their patient-centric vision as they also grow and expand their pipeline. The recent initiation of two registrational studies evaluating efgartigimod with ENHANZE administered by prefilled syringe for thyroid eye disease represents another future opportunity with efgartigimod. Moving now to Tecentriq subcutaneous, which is approved for subcutaneous delivery in the U.K. and Europe, with both approvals covering all of the approved indications for Tecentriq IV. Total revenue per Tecentriq was almost CHF 900 million in the first quarter of 2024. With potential U.S. approval in September of 2024, Roche has commented that they believe subcutaneous Tecentriq will be largely protective of their IV formulation with a very modest potential to add to brand growth, meaning the expectation is that the majority of subcutaneous use will be from patients currently on Tecentriq IV switching to Tecentriq subcutaneous with ENHANZE. I'll move now to Ocrevus. In the first quarter of 2024, Ocrevus IV generated approximately CHF 1.7 billion in revenue for Roche, increasing 8% year-over-year. Ocrevus remains the market leader in the U.S. and EU5 with approximately 24% global market share. The approval of subcutaneous ocrelizumab will dramatically change the patient treatment experience. Today's treatment and observation time can be from 3.5 to 6.5 hours of the IV given every six months. The target for total time for subcutaneous treatment and observation is 10 minutes also every six months. Importantly, Roche has commented that they see ocrelizumab subcutaneous being a standalone blockbuster opportunity, expanding use of ocrelizumab to treatment centers without IV infrastructure or with IV capacity limitations, supporting even stronger brand growth in the future. Roche recently announced that the European Medicines Agency's Committee for Medicinal Products for Human Use has recommended the approval of ocrelizumab subcutaneous for its multiple sclerosis indications. The European Commission is expected to give a final decision on the approval in mid-2024. Roche also announced that ocrelizumab subcutaneous has a PDUFA action date in the United States of September of 2024. The key data supporting these approvals is from the OCARINA II study. Roche recently presented updated longer-term results from the OCARINA II study at the 76th American Academy of Neurology Annual Meeting. The results highlighted the significant potential benefits of subcutaneous ocrelizumab for patients with both relapsing and progressive forms of multiple sclerosis. The data showed that patients receiving ocrelizumab subcutaneous experienced near-complete suppression of relapse activity, with 97.2% of patients experiencing no relapse during the treatment phase. In addition, it was reported that patients treated with subcutaneous Ocrevus experienced appropriate B-cell suppression and impressive near-complete suppression of new inflammatory disease activity. Notably, patients reported a very high 92% satisfaction level, and 90% of patients felt that it was very convenient to receive the ocrelizumab subcutaneous injection. These results demonstrate the potential of subcutaneous ocrelizumab as a treatment option that can be matched to the individual needs of patients with MS and also healthcare professionals. Approval of ocrelizumab subcutaneous will represent our eighth approved subcutaneous product with ENHANZE. I'll turn now to Bristol Myers Squibb's nivolumab subcutaneous with ENHANZE. Bristol Myers Squibb recently announced the FDA acceptance of its biologic license application for nivolumab subcutaneous co-formulated with ENHANZE and assigned a PDUFA action date of February 2025. BMS reported that Opdivo, which is nivolumab delivered intravenously, generated approximately $2.1 billion in sales in the first quarter of 2024. With subcutaneous nivolumab projected to cover up to 75% of the IV indications over time, BMS has commented that nivolumab subcutaneous will help them extend their immuno-oncology franchise well into the next decade. Approval of nivolumab subcutaneous will represent our ninth ENHANZE-approved partner product. I'll move now to Johnson & Johnson's Amivantamab subcutaneous with ENHANZE. Amivantamab subcutaneous remains on track with the potential for launch in 2025. Amivantamab is already approved as an IV treatment under the brand name Rybrevant, with Johnson & Johnson projecting that Rybrevant will become a multibillion-dollar brand. We look forward to Johnson & Johnson presenting the Phase III Amivantamab with ENHANZE subcutaneous data at an upcoming medical meeting. Approval will represent our tenth ENHANZE partner product. I'll now move to Slide 8 for an update on our Wave 4 pipeline, which is expected to support our future growth trajectory with potential launches in the 2025 to 2027 timeframe. We have six products currently in development, reflecting a range of therapeutic areas, including oncology, neurology, immune disease, and HIV. Our two most advanced programs that are in Phase III development are Takeda's immunoglobulin 20%, which is TAK-881 with ENHANZE, and Bristol Myers Squibb's nivolumab-relatlimab fixed-dose combination subcutaneous with ENHANZE. The Phase III studies of TAK-881 and nivolumab plus relatlimab continue to progress. Also advanced into later-stage development is ViiV's broadly neutralizing antibody N6LS, which is progressing in an ongoing Phase II study. As I close out the section on our upcoming launches and pipeline, let me now highlight the actions and progress we are making as we seek to expand and add additional partners and development products that will further add to and extend our revenues in the post-2027 timeframe. ViiV continues with its mission to transform the treatment experience for HIV patients and recently initiated a new Phase I study for an integrase inhibitor, VH4524184, given subcutaneously with ENHANZE. And we're also excited that Acumen announced they plan to initiate a Phase I study of a subcutaneous version of ACU193 for the treatment of Alzheimer's disease in mid-2024. We've also continued to be in very active discussions with multiple pharma and biotech companies regarding ENHANZE and also our high-volume auto-injector. We've progressed several companies to the stage of discussing terms for ENHANZE. This is the final stage prior to negotiation of the collaboration and licensing agreement. With regard to our high-volume auto-injector, in the first quarter, a current partner completed a human factors study of the high-volume auto-injector to evaluate device usability. Based on the results that were shared confidentially with Halozyme, the test was a success. We continue in discussions with that partner and several additional companies who are expressing interest in our high-volume auto-injector.

Thank you, Helen. The first quarter of 2024 is on track with our plans and supports our strong financial performance expectations for the full year from the continued momentum of our business. Let me now briefly touch on our capital allocation priorities on Slide 9. We remain consistently focused on a balanced three-pillar strategy, which is: to invest in our current business, deploy capital through share repurchases, and seek new growth opportunities through M&A. As we continue to execute on the $250 million ASR that was announced in the fourth quarter of 2023, the new $750 million share repurchase program that was recently approved by the Board in February is a reflection of the confidence in our long-term projections and durability of our business. We maintain a strong balance sheet with cash, cash equivalents, and marketable securities of $463.5 million as of March 31, 2024, compared to $336 million on December 31, 2023. Our net leverage ratio was 2x at the end of the quarter, and we expect to reduce our net leverage ratio as we continue to grow EBITDA throughout the year. Turning now to Slide 10 for our detailed financial results for the first quarter. Revenue grew 21% to $195.9 million compared to $162.1 million in the prior year period. Royalty revenue for the quarter was $120.6 million, an increase of 21% compared to $99.6 million in the prior year period, primarily attributable to continued momentum of our Wave 2 products, DARZALEX FASPRO and Phesgo. Research and development expenses were $19.1 million compared to $18 million in the first quarter of 2023. The increase was primarily due to planned investments in ENHANZE. Selling, general, and administrative expenses were $35.1 million in the quarter, down from $37.4 million in the prior year period, primarily due to reductions in commercial marketing expenses, offset slightly by increased compensation expenses. Growing revenues and relatively flat operating expenses resulted in EBITDA growth of 56% to $115.7 million from $74.3 million in the prior year period. GAAP diluted earnings per share was $0.60, and non-GAAP diluted earnings per share was $0.79. This is compared with GAAP diluted earnings per share of $0.29 and non-GAAP diluted earnings per share of $0.47 in the first quarter of 2023. Turning now to Slide 11 and our 2024 guidance. We continue to see robust growth in our business. And as Helen mentioned, we are reiterating our full year 2024 guidance of revenues of $915 million to $985 million, representing growth of 10% to 19%. And adjusted EBITDA of $535 million to $585 million, representing growth of 26% to 37% and non-GAAP diluted EPS of $3.55 to $3.90, which is growth of 28% to 41% year-over-year.

As you refine your models, I'd also like to reiterate the following: We continue to expect milestones and API sales to be substantially weighted in the second half of the year, with the second quarter flat to the first quarter. For royalties, we expect continued expansion of Wave 2 products and launched Wave 3 products, partially offset by a royalty rate step down for DARZALEX SC outside the U.S. Q2 royalties will be similar to Q1, with sequential growth in Q3 and Q4 to achieve the $500 million to $525 million guidance. Non-GAAP diluted EPS growth of 28% to 41% reflects adjusted EBITDA growth of 26% to 37% as well as the impact of our 2023 share repurchases. I will now turn the call back to Helen.

Thank you, Helen. 2024 is off to a strong start, as you've just heard, with excellent momentum in the current business and major progress made in advancing new approvals and growth opportunities. These opportunities include: the FDA acceptance of Bristol's submission for their BLA for nivolumab subcutaneous with a PDUFA action date of February 2025, the potential new indication approval and launch for argenx's VYGART Hytrulo in CIDP in the United States in June, potential approval and launch of Ocrevus subcutaneous in Europe midyear, potential U.S. approvals and launches for Roche's Tecentriq subcutaneous and Ocrevus subcutaneous in September; and a Phase III data readout for J&J's Amivantamab subcutaneous. I want to close by thanking our terrific Halozyme team, our partners, and collaborators for all of the hard work that resulted in such strong first quarter progress.

Your first question comes from Vikram Purohit from Morgan Stanley.

We had one on the pace of business development. Helen, you mentioned that there were some discussions ongoing with potential new partners for ENHANZE. Just wanted to see if you could provide some more color on kind of what the cadence of those discussions could be throughout the rest of the year and kind of the different stages that they're at? And how you might expect those to turn into new agreements throughout the course of the year and 2025? And then on the high-volume auto-injector, I just also wanted to see if you could provide some more detail on how those discussions are progressing. And what it would take, given where some of those discussions are now, to move towards closed agreements?

Thank you, Vikram. I'm pleased to provide an update on both areas that are a major focus for us. As mentioned earlier, during the quarter, we were glad to observe several companies moving from technical discussions to negotiations on terms. This transition is a promising indicator of progress, resulting from conversations in the first quarter with over 10 pharmaceutical and biotech companies, several of which had multiple discussions. The consistent feedback we received highlights the growing interest in subcutaneous delivery, particularly for autoimmune diseases, CNS conditions, and oncology. Companies increasingly view ENHANZE as the gold standard for rapid subcutaneous delivery, recognizing its strong safety track record and successful global regulatory history. Safety is a priority for these companies, as they prefer solutions that won’t hinder their development or commercial progress, which is reflected in their positive reception of our data and messaging. While the primary focus remains on converting IV to subcutaneous delivery, there’s a notable rise in interest for extended dosing options for subcutaneous delivery, ranging from two weeks to three months, especially in chronic and autoimmune diseases. The inquiries about ENHANZE are also expanding beyond monoclonal antibodies to encompass bispecifics, nucleic acid therapies, and antibody-drug conjugates. Every company has its own evaluation and decision-making process, making it challenging to predict the exact timelines for signing agreements. However, in this quarter, we advanced multiple technical discussions with key decision-makers and progressed many of these to terms discussions, creating strong confidence in finalizing ENHANZE deals. Regarding the high-volume auto-injector, we are thrilled by the interest following our Phase I clinical study results. We are in talks with both existing and potential new partners concerning HVAI. This innovation is unprecedented, and previous on-body injectors have not met biotech and pharma expectations. We have seen companies eager to test the device, as shown by one partner completing a successful human factors study. As firms look to enter development and commercialization agreements, they seek clarity on device development plans, including manufacturing logistics essential to meet their demand. These inquiries indicate significant progress as companies aim to understand the timelines for commercialization. The Halozyme team possesses extensive experience in device development and commercialization, which is advancing smoothly. We continue discussions and anticipate progress towards development agreements, although pinpointing exact timelines remains challenging.

Sort of sticking with a similar theme here on kind of potential new deals. First, when you say that you're in terms discussions with several companies, should we think of those potential deals as being both pure ENHANZE deals and auto-injector deals as well? Second, should we think of the terms of these new potential deals at similar economics to HALO as the existing kind of portfolio of deals? And lastly, I think in the past, you had talked about a partner who is interested in a customized high-volume auto-injector for their patient population. Is that one among the several companies with whom you're in these terms discussions?

Yes. Thanks, Jess. With regard to the types of discussions, I can say we're having discussions on ENHANZE alone, and I would say that is the most frequent discussion we're having. But we are also having discussions on ENHANZE with a high-volume auto-injector as well as small-volume auto-injector as well, so across the portfolio. But definitely, the ENHANZE is the highest volume of the conversations, particularly the ones that we're seeing advancing at this point in time. With regard to terms, in the past, we have mostly done terms for products and companies who are looking for exclusive agreements and rights. I will say that as ever, we are talking to companies also about nonexclusive rights. There's a difference in our terms between exclusive rights and nonexclusive rights. So I would say you could see some differences in that. But in some of the areas we're talking about, these are areas of strong interest for multiple companies. Our goal, if we did nonexclusive deals, would be to seek to get multiple agreements. We could find ourselves in potentially even a stronger position if we were to be successful with that. The customized HVAI. All of the discussions on HVAI, frankly, are an element of some customization. Depending on the volume the partner wants to inject, they need to identify what the primary container is going to be, and they may have a preference for that. They may also, depending on the patient population, have a preference for needle depth, and the viscosity of the drug may dictate a certain difference in the needle girth. There’s always an element of customization in the discussions of the HVAI, Jess. Nothing major, but all kind of appropriate for really having an offering that is the right thing for that partner's patient population and drug.

Congratulations on all the progress. I have two questions. First, what are your thoughts on how a Perjeta biosimilar might affect the uptake of Phesgo, especially considering there is one completing Phase III trials later this year? My second question is regarding subcutaneous nivo; you mentioned that if it's approved, it would cover 75% of the IV indications. Why not 100%, and can we expect the same 75% coverage for subcutaneous atezo?

All right. Thanks so much, Mike. With regard to Phesgo, obviously, you're right. It's showing very strong progress with 70% growth year-over-year in the first quarter. That has resulted in 41% global conversion with the U.S. approaching 25%. I do think what's going to be important for Roche is that they continue to support the conversion. They've talked about it reaching and exceeding 50%. I certainly think the progress we're seeing might even do better. That's going to be important for the conversation we have about biosimilars. We have seen Herceptin get to 60% share of sales with subcutaneous after about three years. We meet with Roche every twice a year and hear that the share of the Herceptin subcutaneous has remained sticky. That is clinics moving to giving their patients and themselves the staff experience and the convenience of subcutaneous did not move to IV biosimilars. The value proposition is strong in terms of convenience for patients and a much shorter treatment time. For Phesgo, the difference is between 5 to 8 minutes versus what can often be 2 to 2.5 hours for the sequential administration. For a clinic, that means a lot less need for nursing time, oversight, not to mention the pharmacy having to be involved in making up the IV. I think we will continue to see this strong progress with subcutaneous treatment. Regarding the subcutaneous nivo, yes, this is a comment that Bristol has made with regard to the 75% of the IV indications. I don't recall off the top of my head what the reason is for it. However, for Tecentriq outside the U.S., it received 100% of the indications. That will certainly be the goal in the United States.

Congrats on the progress. I have two questions. So I'll ask first, so in terms of the partnership terms discussions, in general, did you expect the newer deals to have some kind of different kind of terms? Or do you think they could be generally the same and no meaningful change there?

Yes. I think, Mohit, the way to think about it is there will be a difference if the partner is asking for exclusive rights. Obviously, with the economics for nonexclusive being lower, we have the opportunity to license that to multiple companies. Also, if it is a partner who has a product that is in earlier stages of development, there may be an opportunity for you to see a different distribution between less payments while the product is in development, while it's getting derisked, and more of the payments when the product achieves regulatory approval. So there could be a few of those nuances across these agreements. But obviously, each of these will offer a new royalty revenue stream for Halozyme.

Yes. And thank you as well from my side on the updates. So my questions have been asked. I just have one more, which is the company spent $19 million on R&D in the first quarter. Is that basically the run rate that we should be expecting going forward, so maybe $75 million plus a year? Could you just provide some more color? I think that is primarily on ENHANZE, but I'm not sure. Could you just help us understand that spending, whether it's for internal activities of innovation, whether it is spending to help partners develop their products?

Yes. Nicole will address that.

Yes, happy to, David. So your first question on the run rate. I will say that the amount you saw in the first quarter is expected to grow for the remainder quarters of the year as we make investments in our product development. I would advise you to build that into your models as well. Where we spend our R&D dollars is on the ENHANZE side as well as the HVAI development. We're making investments in the development of the high-volume auto-injector this year.

And David, I'll just mention, while the U.S. patent is expiring in 2027, that's basically the composition of matter patent. As we have shown, we expect, based on co-formulation patents, that we're going to continue to receive royalties on all of our royalty streams until 2030 for many of them, beyond 2030 for a number of them, and beyond 2040 for others. We've got very durable revenues. It makes sense for us to invest to have the best and lowest-cost API because we've got 20 years ahead of us for our product, ENHANZE. It's a wise investment given the durability and length and long stream of royalties we are expecting.

Yes. I had maybe a quick one that maybe goes back to the discussion around Tecentriq, Opdivo subcu. As it relates to the early days of Tecentriq subcu in the EU, wondering if you have any early data points there on conversion rates, where you were seeing use, I guess, within indications and settings. And then maybe stepping back more generally, is it fair to us to assume what we see around the Tecentriq subcu trajectory will be comparable to maybe what we will ultimately see for Opdivo subcu in the 2025 timeframe?

Yes. Roche has not provided a lot of detail. They did on their fourth quarter call talk about the fact that after one quarter in the U.K., they've seen 18% conversion, which I think is a very strong performance for such a short period of time. However, since the European launch in January, they haven't talked about the conversion. Recall for Europe, we're going to see countries rolling out over the course of the year as reimbursement is obtained. We look forward to Roche providing some updates on that. In terms of comparing the uptake for Opdivo, Tecentriq is going to have a different cadence of timing for approvals that we factor in as you're thinking about that. Tecentriq is going to have Europe going first, while the U.S. comes nine months later. I would expect that Bristol will say something about the Opdivo European file acceptance and launch timing that may get closer together. Apart from that, I think the factors are probably going to be pretty similar in terms of strong value propositions where patients get the opportunity for treatment in just 5 minutes approximately instead of up to 60 minutes.

Thank you. And we have reached the end of our Q&A session. Thank you, presenters. And ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.