Halozyme Therapeutics, Inc. Q1 FY2025 Earnings Call

Good afternoon. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to Halozyme's First Quarter 2025 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. 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 first quarter 2025 financial and operating results conference call. In addition to the press release issued today after the market closed, you can 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 will now turn the call over to Dr. Helen Torley.

Good afternoon, everyone, and thank you for joining us today. It really has been a tremendous start to 2025. Before I describe the many events and successes in the first quarter, let me begin by thanking the numerous shareholders and sell-side analysts who participated in our investor feedback interviews earlier this year. We truly appreciate your feedback, and it has been invaluable. Your feedback helped us understand more granularly the role that we play in different investor portfolios, and we're very pleased to be considered your consistent stock grower. Not surprisingly, each of you recognizes our leadership in drug delivery for biologics and how this foundation can be expanded to additional areas of drug delivery. All investors agreed on key themes about Halozyme. For example, no investor wants Halozyme to invest in drug development binary risk. We agree. All investors want to ensure that we maximize the organic growth represented by ENHANZE and our auto-injectors by fully investing where there are opportunities. Again, we agree. Later this year, we will schedule an update about potential new ENHANZE uses and the opportunity. All investors encourage us to seek growth inorganically through M&A. While opinions differ about the exact destination for our M&A, all investors want us to remain disciplined about our net leverage. We listen to your feedback. With this in mind, I am pleased to reiterate our strategy. Our goal, said simply, is to grow organically and through serial acquisitions, excelling in licensing disruptive drug delivery platform technologies that improve the patient treatment experience and result in better outcomes. With this strategy, we aim to deliver strong and durable revenue and EBITDA growth well into the next decade. We will achieve this performance by continuing to focus first and foremost on organic growth. We will continue to invest in and grow ENHANZE and our auto-injector businesses, for we are absolutely the best positioned company to capitalize on the growing pharma and patient priority for at-home patient-delivered treatment. We will also seek to grow inorganically through M&A. Our focus here is on identifying new drug delivery platforms where the business model results in long, durable revenue streams, such as through royalties, and where we see the opportunity to license to multiple pharma partners. We heard you regarding leverage, and we will be seeking deals that can be accomplished without the need for a significant increase in net debt to EBITDA leverage. We heard how much our share buybacks are appreciated by our investors, given the high IRR they have delivered. I am pleased to announce that we are planning to continue this in 2025, announcing today the plan to repurchase $250 million in shares. Let me now move to the Q1 performance beginning on Slide 3. Here’s how I'd like you to think about our business, our performance, and our future. Firstly, we have three blockbusters that are driving our current growth. We'll go into more detail on those in a moment. Secondly, we have 11 new growth catalysts that have either just happened or will happen in the next month. These catalysts will drive our growth for multiple years to come. And thirdly, we have several products in our development pipeline plus our auto-injector technology that will drive additional future growth. As an example, today, we are pleased to announce our very first high-volume auto-injector agreement. Turning now to Slide 4, let me briefly highlight the strong first quarter results. Total revenue increased 35% year-over-year to $265 million, with royalty revenue increasing by 39% to $168 million, primarily driven by the three blockbusters DARZALEX subcutaneous, Phesgo, and VYVGART Hytrulo. Adjusted EBITDA increased to $162 million, and non-GAAP EPS increased to $1.11, both representing approximately 40% year-over-year growth. Net income also grew an impressive 54% in the quarter to $118 million. Let me now expand on the three blockbusters that are key revenue drivers and that are projected to keep growing for years to come, DARZALEX FASPRO, Phesgo, and VYVGART Hytrulo. I'll begin with DARZALEX as shown on Slide 5. In the first quarter, Johnson & Johnson reported another strong quarter of growth for DARZALEX, which increased 22% year-over-year on an operational basis to $3.2 billion. The growth was primarily driven by continued share gains of approximately 3 points across all lines of therapy and approximately 5 points in the front-line setting, as well as through market growth. DARZALEX subcutaneous with ENHANZE, which is marketed as DARZALEX FASPRO in the United States, accounts for approximately 95% of all DARZALEX sales in the United States and commands a similarly high proportion of share in the major ex-US markets. And DARZALEX continues to set the standard in multiple myeloma treatment, with Johnson & Johnson's commitment to its clinical advancement continuing to solidify its role as the backbone of treatment across front- and second-line patients. Moving now to the first of the 11 new growth catalysts, which is the recent European approval of a DARZALEX-based quadruplet regimen for patients with newly diagnosed multiple myeloma, regardless of transplant eligibility, which further supports near-term growth, and analysts estimate for DARZALEX to reach $17 billion in sales in 2028, with the subcutaneous formulation driving this growth and the vast majority of the sales. We project royalties from DARZALEX subcutaneous through 2032. Let me move now to Slide 6 and Roche's Phesgo, which is the combined therapy of Perjeta, Herceptin, and ENHANZE. Phesgo continues to demonstrate strong adoption and commercial success. In the first quarter, Phesgo was the #1 growth driver in Roche's pharmaceutical portfolio, with sales increasing 52% to approximately $675 million, with strong performance in international regions. Our second new growth catalyst is Phesgo gaining national reimbursement drug listing in China, with Roche commenting on their Q1 call that the growth in China is accelerating noticeably following the listing, which happened earlier this year. Conversion from Perjeta to Phesgo is ongoing, reaching 47% in the 58 launch countries in the first quarter, with expectations for conversion to reach more than 50% across global markets in 2025. In April of 2025, the CHMP recommendation in Europe to expand the Phesgo label to allow administration outside of a clinical setting is our third growth catalyst. Availability of this option will deliver on patient preference for at-home administration. We see this also as an important step in freeing up cancer care capacity in the clinical settings. Sales of Phesgo are projected to reach approximately $3.3 billion by 2028, entirely from the ENHANZE-enabled subcutaneous formulation, where we earn a mid-single-digit royalty on net sales through 2030. The product's strong growth and broad geographic uptake underscore the commercial success possible with ENHANZE-enabled therapies. Let me now move to argenx's VYVGART and VYVGART Hytrulo, which is the subcutaneous version enabled by ENHANZE. These are shown in Slide 7. Today VYVGART Hytrulo is approved for two indications in the United States: generalized myasthenia gravis and chronic inflammatory demyelinating polyneuropathy, and for one indication, generalized myasthenia gravis in Europe. In the United States, VYVGART Hytrulo with ENHANZE has played a pivotal role in adding new prescribers and new patients in the first approved indication, generalized myasthenia gravis, reaching patients earlier in the treatment paradigm and accessing new-to-brand patients. Moving on to the second approved US indication, CIDP, VYVGART Hytrulo was approved as a subcutaneous-only treatment recently in September of 2024. argenx has reported initial strong demand from patients and physicians, highlighting the unmet need for safe and effective treatment alternatives. As reported in February of 2025, more than 1,000 CIDP patients were in therapy. For CIDP, argenx has stated that they have attained favorable or highly favorable coverage for 90% of US lives. They further commented that their recent sales force expansion has contributed to deeper community reach, noting that 25% of prescribers for CIDP are new to VYVGART. In Europe, VYVGART Hytrulo was approved for generalized myasthenia gravis in November of 2023. VYVGART total sales reached $2.2 billion in 2024, with continued strong growth, especially of VYVGART Hytrulo, projected in 2025. Turning now to Slide 8, I'll comment on the growth catalysts number five, six, and seven. In April of 2025, the FDA approved the new option for patients to self-inject argenx's VYVGART Hytrulo pre-filled syringe, which contains the same VYVGART that is co-formulated with ENHANZE as is in the vial, and where Halozyme receives the same mid-single-digit royalty on net sales. This FDA approval of the pre-filled syringe is our fifth new growth catalyst. The VYVGART Hytrulo pre-filled syringe is approved as a 20 to 30-second subcutaneous injection, which is administered by a patient, a caregiver, or a healthcare professional, and will contribute to VYVGART Hytrulo's strong growth trajectory for 2025 and beyond. The pre-filled syringe also received a positive recommendation in Europe for use in generalized myasthenia gravis patients in February of this year. This is projected to result in approval in the second quarter of 2025 and is our sixth growth catalyst. In April of 2025, argenx received a positive opinion for VYVGART Hytrulo from the CHMP in Europe for the indication of chronic inflammatory demyelinating polyneuropathy. With approval expected to occur mid-year 2025 following the CHMP opinion, this new indication, which we expect to be for the vial and for the pre-filled syringe, will significantly expand the opportunity and add new growth. And this is our seventh new growth catalyst in 2025. VYVGART is just starting its journey of innovation. As you will see on Slide 9, argenx has multiple active subcutaneous programs in development with ENHANZE, including for ocular myasthenia gravis and for thyroid eye disease, which will further fuel revenue growth. With Halozyme earning royalties through the early 2040s, VYVGART Hytrulo represents one of the most significant and durable contributors to our long-term financial performance. Continue to expand the new growth catalyst, I'll now move to Slide 10 and the four additional recently launched products that are just warming up and are at the start of what promises to be exciting launches. Let me begin with Ocrevus Zunovo with ENHANZE, which was approved last year for multiple sclerosis as an approximately 10-minute subcutaneous injection. This compares with multiple hours that is typically required for the intravenous administration. Importantly, as the eighth new growth catalyst, Roche recently reported that Ocrevus Zunovo received its permanent J-code in the US on April 1, which they stated will help accelerate uptake in the second half of 2025. Outside the United States, work continues to gain that all-important reimbursement in each country. Roche reported that 50% of patients who started on Ocrevus Zunovo were naive to the brand, providing Roche with confidence that Zunovo will open up new patient populations to Ocrevus and not simply cannibalize existing share. Roche believes that Ocrevus Zunovo could represent an incremental approximately $2 billion opportunity for the brand through this expansion, resulting in an approximately $10 billion analyst projection for IV and subcutaneous Ocrevus in 2028. Ocrevus Zunovo is projected to earn Halozyme royalties at its full mid-single-digit rate until 2030, and at a step-down rate until at least 2034. I'll move now to Roche's Tecentriq Hybreza with ENHANZE, which gained FDA and EMA approval in 2024. The approvals were for all intravenous indications, offering patients the convenience of an approximately seven-minute subcutaneous injection. With a permanent J-code in place and work continuing to gain reimbursement in all countries, the strategy is to convert IV Tecentriq patients to Tecentriq Hybreza. Halozyme will earn royalties on Tecentriq Hybreza at the full mid-single-digit rate until the 2040. Moving now to Bristol Myers Squibb Opdivo Qvantig, the subcutaneous formulation of nivolumab with ENHANZE, which was granted FDA approval at the end of 2024 in the United States. CMS is focused on continuing to increase Bristol prescribing in both the community and academic settings. The permanent J-code, our ninth new growth catalyst, is expected on July 1. The J-code is expected to drive adoption of the subcutaneous formulation in the second half of the year. BMS recently commented that they're receiving promising early feedback from practices and patients on the subcutaneous formulation, which is a three to five-minute subcutaneous injection. In April of 2025, BMS announced the positive CHMP opinion for Opdivo subcutaneous with ENHANZE, representing our 10th new growth catalyst. We anticipate European approval in mid-2025. I'll move now to subcutaneous Rybrevant, which is Johnson & Johnson's innovative EGFR-cMet inhibitor. Johnson & Johnson gained European approval of subcutaneous Rybrevant co-formulated with ENHANZE in April of 2025 for use in combination with lazertinib in the first-line treatment of adult patients with advanced EGFR mutated non-small cell lung cancer. Subcutaneous Rybrevant represents a more convenient patient-friendly formulation, reducing administration time from multiple hours required for the IV to just five minutes for the subcutaneous. Importantly, there is a five-fold reduction in infusion-related reactions compared to the IV formulation. Work is now underway to get reimbursement for subcutaneous Rybrevant in each country. Our eleventh new growth catalyst is a potential US approval of Rybrevant subcutaneous. J&J is continuing to work on gaining this approval in 2025. I wanted to also highlight recent data on Rybrevant. Very excitingly, the results of the Phase 3 MARIPOSA trial were presented at the European Lung Cancer Congress in March of 2025. The combination of Rybrevant and lazertinib significantly reduced the risk of death by 25% versus Tagrisso, which is considered by many to be the current standard of care in patients with newly diagnosed EGFR-mutated non-small cell lung cancer. With a projected improvement of more than 12-month survival benefit over this current standard of care, this is certainly a potentially important advance for patients with this type of cancer, where only 20% of patients survive beyond five years today. With our now 10 launched products, which are shown on Slide 11, we remain on track to deliver over $1 billion in royalty revenue in 2027, with all products continuing to generate royalties to at least 2030, and many expected to continue to the 2040s. I'll move now to Slide 12 and to some highlights on our pipeline that represent potential new growth drivers, the royalty revenues of which are not included in our multiyear guidance. During the first quarter, Acumen reported top-line results for sabirnetug subcutaneous with ENHANZE for Alzheimer's disease, which support further clinical development for the subcutaneous formulation with ENHANZE. ViiV also reported positive Phase 2 data for N6LS subcutaneous with ENHANZE in combination with cabotegravir. The study demonstrated the promise of an every-four-month treatment in combination with cabotegravir. This is another terrific example of how ENHANZE can support a more extended dosing interval, reducing the treatment burden for patients. We were also very hard at work during the quarter, continuing discussions with several companies and entering into discussions with multiple new companies with regard to new deals. I'm pleased to announce that we have signed our first development agreement with a current ENHANZE partner for development of our high-volume auto-injector. The majority of the ongoing discussions continue to focus on ENHANZE alone and ENHANZE with the high-volume auto-injector if the volume is between two to 10 ml. I can update that we are progressing through the multi-step review and decision-making committees in several of these discussions. Turning to our small volume auto-injector business, I'm pleased to say that one of our current partners is progressing now to test the small-volume auto-injector in a Phase 1 study. There has not been a time in Halozyme history when we have been in such a strong position in terms of having 10 de-risked, proven approved subcutaneous products with 11 recent or soon-to-happen events that are catalysts to expand opportunity, adoption, and growth. The underlying continued strength of DARZALEX subcutaneous, Phesgo, and VYVGART Hytrulo, plus these new growth catalysts have resulted in the increased 2025 guidance, which Nicole will review in a moment after she discusses our first quarter results in more detail.

Thank you, Helen. The first quarter of 2025 represented a strong start to the year, and we're excited to raise our full-year expectations based on these strong results. We grew revenue by 35%, with EBITDA growth of 40% as we continue to drive leverage on our high-margin royalty revenue, contributing $153 million in free cash flow in the quarter. Let me start on Slide 13. In the first quarter, we completed the $250 million ASR announced in December of 2024. Since 2019, we have repurchased $1.55 billion of shares, which is on average $250 million each year at an average price of $33.72. Due to the strong performance to date, we are announcing an additional $250 million of share repurchases to be executed during the remainder of the year. As Helen mentioned, we continue to evaluate M&A opportunities to complement our organic growth expectations. Let me now turn to our detailed first-quarter results on Slide 14. Revenue grew 35% to $264.9 million compared to $195.9 million in the prior-year period. This includes higher-than-expected revenue in all categories. Royalty revenue of $168.2 million increased by 39% from $120.6 million in the prior-year and was higher than our original expectations. The continued commercial success of subcutaneous DARZALEX and Phesgo and the robust growth of VYVGART Hytrulo exceeded our expectations for the quarter, driving an increase in our full-year guidance. Product sales of $78 million increased by 33% from $58.6 million in the prior-year period, mainly driven by higher API sales than originally estimated due to an increase in partner orders. We have an increase in partner orders in later quarters of 2025, which is also a driver of the increase in our full-year guidance. Collaboration revenue of $18.6 million, an increase of 12% from $16.7 million in the prior-year period was also higher-than-expected due to the achievement of the VYVGART Hytrulo sales milestone one quarter earlier than originally projected. Research and development expenses were $14.8 million compared to $19.1 million in the prior-year period. The decrease was primarily due to lower compensation expense driven by resource optimization and improved labor allocations to COGS and the timing of planned investments in ENHANZE related to the development of our new high-yield rHuPH20 manufacturing process. Selling, general, and administrative expenses were $42.4 million in the quarter, up from $35.1 million in the prior-year period, primarily due to increased compensation expense and consulting and professional service fees. Adjusted EBITDA increased 40% to $162 million from $115.7 million last year. GAAP diluted earnings per share was $0.93 and non-GAAP diluted earnings per share was $1.11. This is compared with GAAP diluted earnings per share of $0.60 and non-GAAP diluted earnings per share of $0.79 in the first quarter of 2024. We continue to maintain a strong balance sheet with cash, cash equivalents, and marketable securities of $747.9 million on March 31, 2025, compared to $596.1 million on December 31, 2024. The increase was primarily a result of cash generated from operations. Our net debt position was $777 million with a net leverage ratio of 1 time. As a result of our strong first-quarter performance, we are raising our guidance, as you can see on Slide 15. We now expect total revenues of $1.2 billion to $1.28 billion, representing year-over-year growth of 18% to 26%, driven by increased projections in all three revenue categories: royalties, product sales, and collaboration revenue. Royalty revenues of $750 million to $785 million, representing year-over-year growth of 31% to 37%. We continue to expect VYVGART Hytrulo with ENHANZE to be the largest royalty dollar growth driver. Product sales of $340 million to $365 million, driven by higher partner demand for rHuPH20 in the year. Collaboration revenue of $110 million to $130 million, driven by the EU approval of Rybrevant SC in April, for which a milestone will be recognized in the second quarter. Adjusted EBITDA of between $790 million to $840 million, representing year-over-year growth of 25% to 33%, reflecting high-margin royalty growth coupled with flat operating expenses from our continued focus on operational efficiency. Non-GAAP diluted EPS of $5.30 to $5.70, representing year-over-year growth of 25% to 35%, which does not include the impact of future share repurchases, including the $250 million announced today. As you refine your model, I'd like to reiterate the following. While we achieved the VYVGART Hytrulo milestone one quarter earlier than expected in the first quarter, we continue to expect collaboration revenue for the year to be more weighted in the second half of 2025. We continue to expect product sales to be weighted in the second half of the year with the second quarter flat with the first quarter. For royalties, we continue to expect quarterly sequential growth for the remaining quarters in the year.

Thank you, Nicole. Our strong first-quarter performance, particularly of DARZALEX subcutaneous, Phesgo, and VYVGART Hytrulo, plus our 11 new growth catalysts gave us the confidence to raise the full-year 2025 financial guidance ranges. With 10 products now approved and launched in at least one major region, we have durable revenue streams that will continue to support our conviction in the future success of Halozyme. Our robust pipeline, along with our ability to defend our intellectual property, further strengthens our confidence in delivering sustainable growth and profitability well into the future. This is an incredibly exciting time of growth for Halozyme, and this would not have been possible without our terrific partners and our dedicated and expert Halozyme team. I would like to sincerely thank everybody who has contributed. Operator, with that, we are now ready to open the call for questions. Thank you.

Your first question comes from the line of Mohit Bansal with Wells Fargo. Your line is open.

Hi. Sorry about that. I was on mute. Hi. This is Sadia Rahman on for Mohit. Thanks for taking the questions. So, on the IP case with Merck, had a question about that. Can you comment on the expected timelines for the PGR decisions and what action you could take if the PGR goes in Merck's favor?

Yeah. Thanks for that. With regard to the PGR, the first decision by the patent office on institution will be in early June. If there is an institution, that will mean that the case will be reviewed about 12 months from then. They also can decide not to take up the case, in which case it would not proceed.

Got it. And just related to that, is there a possibility that that PGR case and your patent infringement lawsuit could be tied together, or is that not possible due to logistical reasons?

Yeah. Not logistical, but two very different approaches that are going on there. Obviously, we consider the PGR to be, frankly, a little bit of a sideshow. PGRs tend to be filed when companies are concerned that they are infringing, and they seek to invalidate the patents. We feel very confident in our ability to prevail in those PGRs. Even if they were to win one or two of the PGRs because there are several in place, we do not believe that will have any impact at all on our infringement case where we have multiple additional claims that are not subject to the PGR that are the basis of that infringement case. So, two very separate things. The most important one is actually the actual lawsuit that we filed. I'd keep your attention on that one.

Got it. Thanks so much.

Your next question comes from the line of Sean Laaman with Morgan Stanley. Your line is open.

Thank you, operator. Hello, Helen. I hope you're doing well, and congratulations on a strong set of numbers. You surpassed expectations today and have raised guidance. Is there one specific area of strength that caught you by surprise during the quarter and is contributing to the upgrade, or is it more widespread?

Yeah. I will say it's our three blockbuster products that have been performing for us for the last several years and frankly are expected to continue to have this excellent performance. So, it's across the board with DARZALEX subcutaneous, Phesgo, and also VYVGART Hytrulo. One of the other things we mentioned, not just the royalties, but that we achieved a milestone on VYVGART Hytrulo one quarter earlier than we had anticipated, and that was a commercial sales attainment milestone. They are just continuing to perform very, very well, Sean. Behind them, we're obviously excited about the other four launch products that are really just at the very beginning. Based on the performance, comments from the partners, and our estimates, we're going to continue to see strong growth from all of those products for many years to come.

Great. Thank you. And on the small volume auto-injector, when might you be in a position to tell us who the partner is? And how do the economics of that deal compare to the high-volume auto-injector partnerships? And when do you ultimately see commercialization might be a reality?

Yeah. With regard to when that might become public, that really will be a partner who will be in control of that. I would take an estimate and guess that when it enters clinical studies, it might be made public that it's our small volume auto-injector, but for competitive reasons, we’re seeing again that our partners don't want to signal to their competition exactly what they're doing to continue to evolve their product offering and differentiate it for patients. The small volume and the high-volume auto-injector agreements are both development agreements, Sean. They really lay out exactly how we will work together to create an auto-injector for use in clinical development. We have yet to move forward to the commercial licensing, supply agreement, where the actual financial terms will be outlined. However, in both instances, you'll see a price per device that is based on the cost of manufacturing and the time it takes us to manufacture and some cost-plus benefit for Halozyme, but more to come in that later. We're just incredibly excited that we are now moving forward with two of our partners to be using and testing our auto-injectors in the future in their clinical studies.

Great. Thank you, Helen. That's all I have for now.

Thanks, Sean.

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

Thanks a lot. Hey, guys. Thanks for taking my question and congrats on all the continued progress. Two questions from me, centering on the Merck-Halozyme litigation. Number one, do you see AstraZeneca's Alteogen deal as evidence that large pharma companies are willing to accept patent litigation risk rather than sign ENHANZE deals? And if so, how do you counter that narrative? Second question is, have any ENHANZE partners paused new target add-ons or renegotiations while they watch this litigation play out? And if so, how material could that be to long-term growth? Thank you.

Yeah. I'll tackle the second one first, Mike. No, we have not heard from any partner, whether a current partner or even in conversations with potential future partners, where anything is being paused to evaluate the outcome of the Merck litigation. I don't expect that really to happen at all. I think it's very clear ENHANZE has seen as the market leader here, where it is the most de-risked and validated with a million patients treated. I can say that for all of the people who are looking at hyaluronidase, including all of those who have signed deals with Alteogen—all of them have come to Halozyme first and perhaps found that the target they were intending or wanting to use it for was not available. I think we're going to continue to see that pattern. With regard to your specific question on AstraZeneca, again, I don't want to speculate on what AstraZeneca is thinking with regard to the litigation, but I'll come back to the comment I made a moment ago. All of the people that have moved forward with a deal with Alteogen have actually discussed specific targets with Halozyme that were taken by our current partners. I believe that is the trend that we have seen to date.

Very helpful. Thank you.

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

Hello. This is Adam on for Jess. Thank you for taking our question. I just wanted to ask how you are thinking about the implications of the ENHERTU front-line breast cancer data for Phesgo sales and royalties? Thank you.

Obviously, we're keeping a close watch on that. What we are seeing with Phesgo is, with the great long-term data—and there's more long-term data that's going to be coming out on Phesgo this year as well—together with the very convenient patient administration in just five to seven minutes, we believe that Phesgo is going to continue to demonstrate this very strong market adoption and uptake where there is incredibly high patient satisfaction for it. So, we are not concerned regarding the ENHERTU data that will be emerging. Delighted to see the strong uptake continues for Phesgo. We mentioned on the call, 47% share now in the 58 launch markets, and we expect to get to more than 50% this year. We’ve seen with our products that when a patient has moved to the subcutaneous version, they tend to be very sticky. Therefore, we are projecting continued strong growth of Phesgo for multiple years to come.

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

Hey, everyone. Thanks for taking the question. Wanted to ask a little bit about your views on the future change in the proportion of the mix of royalty revenues as your pipeline evolves. Just trying to understand when we could get to more even proportions versus the three blockbusters serving as the heavyweights for the royalty revenues?

All right. It's—when you have such great products, Mitch, it's an embarrassment of riches. We do expect several of our products that are currently just starting their launch trajectories to also be meaningful contributors. There was a time when people were very focused on DARZALEX, and it was a very large proportion of our sales. It will continue to be a very important contributor to us for many years to come, but products like VYVGART Hytrulo, Phesgo, Ocrevus, and others are also going to be very important contributors as well. I think Nicole mentioned that this year the larger dollar growth is actually from VYVGART Hytrulo, which shows you how our portfolio is broadening. We will have multiple very high-impact blockbusters like DARZALEX by the end of this year, next year.

Yeah. We don't break out our royalties by products, but we have shared the buckets as we think about our royalty projections. We shared DARZALEX and Phesgo in total, the contribution that they're expected to have long-term. Then, the next wave of our products in total has a $35 billion market opportunity in 2028, which gives you a good sense for how over the next few years, those products will start contributing very meaningfully and taking up a good proportion of our royalty revenue.

Thank you. That's very helpful. And one more from me, just talking about the M&A activity and the expectations for future activity in that space. Could you talk a little bit about what you're looking for in your next BD deal there, and how that contrasts with your strategy with Evotec? If you could just talk about timing on when you would like to execute one of those transactions? Is there a kind of timeline for that and kind of the size, larger or smaller, multiple smaller ones? Any clarity around those particular aspects of the M&A strategy?

Yeah. Thanks, Mitch. Regarding M&A, we're very focused on seeking to find opportunities in the drug delivery space, where there are platform technologies that can result in long durable revenues, including particularly for royalties. Obviously, we like that model. But I will say we are not in a hurry to do it; we're going to be carefully evaluating and being thoughtful as we've always been to identify something that we believe would be needed and required by multiple pharma companies and will result in a very positive contribution to Halozyme's long-term growth. So, think drug delivery, think licensing business, that is where we are evaluating today. No specific timeline. And as we're still evaluating, it would be premature to comment on the size at this period of time. So that's where we're focused, and we're excited to try to create new platforms and businesses like ENHANZE that we've done so successfully.

Great. Thank you all very much for taking the questions.

Your next question comes from Brendan Smith with TD Cowen. Your line is open.

Great. Thanks for taking the questions, guys, and congrats on all the great updates. Maybe just another one regarding the litigation for Keytruda. Just kind of in blunt terms, can you confirm that whatever the outcome for your litigation against Merck, the decision will have no impact on your actual core ENHANZE business? And then, on the flip side, kind of the same question regarding the PGR suit from Merck, or is the one from them a little bit more targeted to ENHANZE itself? Just trying to understand the relative potential impact down the line.

That's great, Brendan. To be very clear, what is going on in the MDASE, which is a separate and distinct set of patents from ENHANZE, will have absolutely no impact whatsoever on our ENHANZE business, our guidance that we have provided or our future growth of ENHANZE. Think of the MDASE as future upside opportunity that has been identified as we are finding that companies are infringing upon our intellectual property and we're seeking to have those companies take licenses from us. So that's the bottom line regarding what would happen. Specifically, with the outcome of the PGRs, yes, absolutely no impact on our ENHANZE business. And same with the infringement case, no impact on the ENHANZE business. All potential upside if we were to win either a license with Merck or win compensatory damages as we're seeking in the litigation. Two very distinct things where MDASE is just a potential upside coming from great innovation and inventions that Halozyme has created over the years.

Got it. Okay, great. Thank you. And then maybe just a quick one on tariffs just because we do get a lot of questions about this. Can you just speak really quickly to how we should be thinking about the potential impact of pharma and maybe EU tariffs? And if you've had any conversations with any of your partners about them, I guess particularly relevant for DARZALEX in regard to given their global footprint? Thank you.

Yeah. I'll start with Halozyme's manufacturing, where we've been very deliberate in establishing our manufacturing in the United States. We have also been seeking to assure we can source all or virtually all of our components and materials needed in the United States too. I can confirm that from Halozyme’s point of view for the products we produce and our API, there is very, very limited exposure to the currently imposed tariffs, and any small impact is already contemplated in our guidance. Regarding the pharma tariffs, I can say that based on our agreements, if the pharma tariffs were implemented for products being imported into the US, Halozyme will not see or should not see any impact on our royalty revenues. This is based on our agreements and what we're aware of regarding the manufacturing of our partner products and importantly also US distribution and how that works. Therefore, we should not see any impact concerning tariffs.

All right, great. Thank you.

And your next question comes from the line of David Risinger with Leerink Partners. Your line is open.

Thanks very much, and congrats, Helen and team, on the very strong financial progress. I have two questions. The first is with respect to external acquisitions, are you also considering broadening your royalty streams by acquiring royalty companies? And then, with respect to potential new customer deals, could you just talk about the gating factors for new business announcements? For example, are some customers awaiting FDA guidance—sorry, CMS guidance for IRA negotiations in coming months for 2028 under the new administration? Thanks very much.

All right. With regard to external acquisitions, David, I mentioned that we really are focused on creating new platform businesses that can result in durable revenue streams such as we've created for ENHANZE. Therefore, think drug delivery platforms as being our primary focus in terms of where we evaluate opportunities today. For the new customer deals and specifically for ENHANZE, and I've talked about this before, what we do see in companies is there's a multi-step review process and then a multi-step decision process. Really, we’re currently working through that process in each company, where each company has a slightly different process. You do get to the end of it, as we've seen very nicely by announcing our small volume auto-injector deal last quarter, the high volume one. We are in several discussions going through that process on ENHANZE. I remain confident we will sign a deal on ENHANZE this year. It has been interesting on CMS, and people are awaiting the IRA. I would not say that is a gate at all. It is more a question of interest to see whether the CMS will continue to recognize that a product with two active ingredients is a separate drug from the single ingredients. If anything, that might bring us some additional new opportunities, David, but it hasn't held anyone back waiting to confirm that. It is much more focused on the strong differentiation that ENHANZE is able to bring for patients and their mission for improving the patient treatment experience.

Got it. Thank you.

Thanks very much.

And there are no further questions at this time. This does conclude today's conference call. You may now disconnect.