Halozyme Therapeutics, Inc. Q2 FY2025 Earnings Call

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. 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 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, 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 the second quarter of the prior year. This robust growth was driven by continued strong royalty revenue performance from our three established blockbuster subcutaneous therapies, DARZALEX subcutaneous, subcutaneous Phesgo, and VYVGART Hytrulo. This quarter's royalty revenue grew impressively by 65% year-over-year to $206 million. Adjusted EBITDA increased significantly by 65% over the prior year’s second quarter to $226 million. This was driven by the accelerating growth of our high-margin royalty revenue streams due to increasing demand for products that incorporate our leading drug delivery technology. Based on this strong performance and 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 of $75 million after raising guidance by approximately $50 million in the first quarter. The full-year royalty revenue guidance for 2025 is increased to $825 million to $860 million, representing year-over-year growth 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 to announce we also initiated our third $250 million share repurchase program under the approved $750 million plan. Importantly, the strength of our revenue growth and our strong cash generation ability enabled us to add this additional $250 million in share repurchases while being able to pursue our M&A goals. With regard to M&A, we are continuing to focus on identifying new drug delivery platforms where their business model results in long-lived revenue streams, such as royalties, and where we see the opportunity to license the technology to multiple pharmaceutical partners. We heard your concerns, and we are seeking deals that can be accomplished without the need for significant increases in net debt to EBITDA leverage. I'll move now to Slide 4. On the first quarter call, I highlighted multiple catalysts for our current portfolio, which had just occurred, and we are expecting throughout the year that will drive incremental strong revenue and EBITDA growth for multiple years to come. There are now 14 catalysts, of which I'm pleased to note that 11 have already occurred. While I will highlight these exciting growth catalysts in more detail as we review each product, I want to emphasize how each catalyst represents a meaningful revenue growth inflection for our royalty revenue. Let me begin with a new product approval and a new royalty revenue stream, which was for RYBREVANT subcutaneous in Europe in April. Johnson & Johnson has commented on the critical role that subcutaneous RYBREVANT is playing in achieving their ambitions to grow RYBREVANT to become a $5 billion brand. There have been two recent first-time approvals in major regions, specifically for Opdivo subcutaneous in Europe and for VYVGART Hytrulo in CIDP, also in Europe, both of which occurred in the second quarter and represent additional revenue-inflation opportunities as adoption grows in Europe. There have been five new indication approvals. Let me highlight DARZALEX subcutaneous, which gained new indication approvals in smoldering multiple myeloma and a new frontline indication in Europe that expands their total addressable market in patients early in the disease and provides a meaningful new growth opportunity for Halozyme. Another new indication approval was the VYVGART Hytrulo prefilled syringe, which we know is already contributing and creating an inflection in the growth of VYVGART Hytrulo after just one quarter. I will close on three major reimbursement milestones that have recently occurred, including Phesgo's reimbursement in China, and permanent J-codes added for OCREVUS ZUNOVO and Opdivo Qvantig, all of which add to and will expand our opportunity, adoption, and create royalty revenue inflection. In our history as a company, we have never had such a broad and meaningful set of growth catalysts, creating new additional incremental royalty streams and revenue inflections across so many products. These catalysts extend beyond supporting our growing commercial success but also reflect the important role our ENHANZE technology is playing in significantly enhancing patient access, improving convenience for patients, and addressing unmet patient needs. I'll now focus on the three blockbuster products that are driving our remarkable current growth, starting with DARZALEX, which is shown on Slide 5. Johnson & Johnson reported strong second quarter results for DARZALEX, with revenue increasing almost 22% to $3.5 billion in the quarter. Growth was driven by share gains of approximately four points across all lines of therapy and almost eight points in the frontline setting in addition to market growth. I want to highlight two critical points here. Firstly, the subcutaneous delivery of DARZALEX with ENHANZE has reached 96% conversion in the United States, with a similarly high conversion rate outside the United States, meaning that it is a subcutaneous treatment version on which Halozyme receives a mid-single-digit royalty that is driving the strong growth I just mentioned. Secondly, quarter after quarter, Johnson & Johnson has commented on the robust share gains for DARZALEX subcutaneous in the frontline setting. This is important as frontline patients have a longer survival and often a longer duration of treatment compared to later-line patients. The increased penetration in frontline is driving today’s strong growth, and we project that it will continue for many years to come. Moving now to the recent catalysts that provide new opportunities and growth. DARZALEX subcutaneous recently received two new approvals in Europe. The first is for subcutaneous DARZALEX as part of a quadruplet regimen for newly diagnosed patients regardless of transplant eligibility. The second is for high-risk smoldering multiple myeloma. The approval in high-risk smoldering multiple myeloma was based on the Phase III AQUILA study, which showed a significantly reduced risk of progression to active multiple myeloma or death by 51% compared to the current standard of care, which is active monitoring. This new indication addresses a long-standing unmet clinical need and marks a critical advancement in the early intervention of the disease for those who are at high risk. To help you dimensionalize this opportunity, in Europe, in 2022, approximately 35,000 patients were diagnosed with multiple myeloma. Of them, 15% had smoldering multiple myeloma. For those with high-risk smoldering myeloma, half will progress to multiple myeloma within two years. For these patients, this approval for DARZALEX subcutaneous marks the first-ever approved therapeutic intervention and the hope that progression to full-blown multiple myeloma can be slowed. Turning to the U.S. regulatory approval status, in May, Johnson & Johnson announced the U.S. Food and Drug Administration Oncologic Drug Advisory Committee voted in favor of the benefit/risk profile of DARZALEX FASPRO for the treatment of adult patients with high-risk smoldering multiple myeloma. The projection from analysts for DARZALEX is approximately $18 billion in sales in 2028, and Halozyme will earn royalties on DARZALEX with ENHANZE through 2032. Turning to our second blockbuster, Roche's Phesgo, shown on Slide 6. Phesgo, which is the combination of Perjeta, Herceptin, and ENHANZE, represented the leading growth driver in Roche's pharma portfolio, with first half 2025 revenue of CHF 1.2 billion or approximately USD 1.5 billion, reflecting a 55% year-over-year growth. There was strong uptake across all regions, with the global conversion from Perjeta to Phesgo at 46% across 78 launch countries, which increased from 58 launch countries in the first quarter. The convenience of Phesgo was also reinforced in April, with a CHMP recommendation for European label expansion, allowing administration outside of clinical settings, such as at home by a healthcare professional once safety has been established. This label expansion represents another growth catalyst for Phesgo. Roche projects conversion from Perjeta will continue, bringing an improved treatment experience for patients and the potential to significantly reduce treatment administration costs. We are pleased with Phesgo's increasing reach and the impact of our ENHANZE technology platform, with royalties at the full mid-single-digit rate through 2030. Let me move now to Slide 7. Our partnership with argenx reflects our assured mission to provide innovative new treatment options for patients globally. The success of VYVGART and VYVGART Hytrulo, which is a subcutaneous formulation with ENHANZE, are great examples of how innovation can support patient outcomes. VYVGART Hytrulo continues to be a key driver of the exceptional growth of VYVGART total sales, which increased 97% year-over-year in the second quarter to $949 million. VYVGART Hytrulo is now approved in the United States and Europe in two indications: generalized myasthenia gravis and CIDP. The subcutaneous formulation with ENHANZE has been essential in broadening VYVGART's reach to gain new prescribers and new patients in both indications. The prefilled syringe for subcutaneous delivery, enabled by ENHANZE, is playing a key role in reaching even more patients earlier in the treatment paradigm. Let me begin with generalized myasthenia gravis and provide some more details. argenx reported a strong quarter in generalized myasthenia gravis, marking the 14th quarter of consistent growth. The launch of the prefilled syringe is helping argenx reach new GMG patient segments, particularly those who have previously been out of reach for the HCP administered option. argenx further commented that they see the myasthenia gravis total addressable market to be 60,000 patients in the United States, which is significantly higher than the initial estimates at launch of 17,000 patients. This increase is driven by the potential addition of seronegative myasthenia gravis and ocular myasthenia gravis indications, plus the availability of biologics adding 25,000 patients to the addressable population. The prefilled syringe is emerging as a key differentiator that will help increase penetration into this additional 25,000 patient opportunity. I'll turn now to CIDP. As of the end of June, argenx reported that over 2,500 CIDP patients had been treated globally with VYVGART Hytrulo. A majority of these patients are in the United States. argenx also noted that the launches in Japan and Germany are off to a fast start. This momentum was driven by the unmet need and meaningful outcomes driven by the safety and efficacy profile and the availability of the prefilled syringe. With an estimated 12,000 patient population, there is significant growth opportunity ahead in CIDP. Recall, only VYVGART Hytrulo with ENHANZE is approved to treat CIDP. So 100% of sales are subcutaneous, on which Halozyme receives a mid-single-digit royalty. Moving now to the prefilled syringe, which was approved in the United States and Europe in the second quarter. argenx, on their second quarter call, commented that the introduction of the prefilled syringe led to a notable increase in demand. In the United States, argenx reported that the prefilled syringe drove record patient adoption, with 50% of prefilled syringe users being entirely new to the brand and the rest switching from vial or IV. The prefilled syringe also broadened the prescriber base with over 1,000 physicians writing prescriptions in the first quarter of launch, 15% of whom were first-time prescribers of any VYVGART product presentation. This really is a testament to the innovative technology, convenience of treatment, and suggests that the prefilled syringe is a long-term growth enabler for all current and future indications for VYVGART Hytrulo. VYVGART Hytrulo is a prime example of a durable contributor to our long-term financial expectations, with analyst projections of $7 billion just in myasthenia gravis and CIDP and Halozyme earning royalties through the early 2040s. Now, in addition to these three blockbusters that are driving our growth to date, we have four recently launched products with ENHANZE: OCREVUS ZUNOVO, Tecentriq Hybreza, OPDIVO Qvantig, and RYBREVANT subcutaneous, which are still early in their launches and will become more meaningful contributors in 2026 and beyond. I'll now move to Slide 8 and begin with OCREVUS. Roche reported continued good momentum for OCREVUS, with total revenue increasing 8% to CHF 3.5 billion or approximately USD 4.4 billion in the first half of 2025. Roche recently affirmed that they are confident in their outlook for OCREVUS to grow high single digits in 2025. OCREVUS ZUNOVO with ENHANZE was approved in 2024 and allows for an approximately 10-minute subcutaneous injection, which compares with multiple hours that are typically required for intravenous administration and monitoring time. In the second quarter, Roche reported that almost 7,000 patients have already been treated with the subcutaneous formulation globally. With 50% of new OCREVUS ZUNOVO patients in the United States and Germany being reported as being naive to the brand, OCREVUS ZUNOVO is expected to increase access and reach more patients. Existing large academic centers are adopting OCREVUS ZUNOVO as a more convenient option for patients, while community neurologists with more limited IV capacity are seen as opening up the patient population they can treat. The ongoing launch of the subcutaneous formulation with ENHANZE is expected to accelerate in the United States following the permanent J-code, which was granted on April 1. We look forward to increasing adoption of subcutaneous coming from both switches from the IV formulation and from new-to-brand patients. The total brand opportunity for OCREVUS is projected by analysts to be $10 billion in 2028, and Halozyme will earn royalties on the subcutaneous formulation at its full mid-single-digit rate until 2030 and as a step-down rate until at least 2034. I'll move now to Roche's Tecentriq Hybreza with ENHANZE. Tecentriq Hybreza was approved in the United States and Europe in 2024 for all of the IV indications, and the ENHANZE-enabled formulation offers patients and providers a more convenient 7-minute subcutaneous injection. Roche has previously commented that it is their strategy to convert the IV to subcutaneous use. Tecentriq represented CHF 1.7 billion of revenue in the first half of 2025. Looking forward, analysts project revenue of approximately $4.5 billion in 2028. Halozyme will earn royalties on net sales of the subcutaneous formulation at its full mid-single-digit rate through the 2040s. Now moving to Bristol Myers Squibb Opdivo subcutaneous with ENHANZE, which was granted FDA approval at the end of 2024 and approval in Europe in May. BMS recently reported that the early feedback in the U.S. is encouraging with the 3-minute subcutaneous treatment saving patients, caregivers, and providers time while also improving clinic efficiency, increasing patient comfort, and reducing treatment complexity. Additionally, fewer port procedures streamline care, allowing physicians to treat more patients. In the second quarter, Opdivo global sales were approximately $2.6 billion, up 7%, driven primarily by demand. BMS reported that the U.S. launch of Qvantig is progressing well, with sales of approximately $30 million, with use across all indicated tumor types. The permanent J-Code received on July 1 will support additional conversion. The strong year-to-date performance of Opdivo plus Opdivo Qvantig is now projected to lead to mid- to high single-digit growth of global Opdivo sales for the full year. Analysts project total brand sales of $9.5 billion in 2028. I'll move now to Johnson & Johnson's RYBREVANT subcutaneous, which represents our 10th approved partner product. RYBREVANT subcutaneous, coformulated with ENHANZE, was approved in Europe in April 2025 for use in combination with lazertinib for the first-line treatment of adult patients with advanced EGFR-mutated non-small cell lung cancer. The subcutaneous delivery with ENHANZE reduces administration time from multiple hours to minutes and results in a fivefold reduction in the potentially serious adverse event of infusion-related reactions when compared to the IV formulation. Furthermore, in an exploratory analysis, the subcutaneous formulation improved overall survival compared to the IV formulation. In the second quarter, Johnson & Johnson reported RYBREVANT revenue of $179 million, representing an increase of over 100% year-over-year and growth of approximately 27% sequentially, which was driven by continued strong launch uptake. There were share gains in both first and second lines of treatment and consistent growth and intent to prescribe. RYBREVANT subcutaneous with ENHANZE is currently under FDA review in the United States. Our ten launch products are on track to deliver over $1 billion in royalty revenue, now possibly even before 2027. Recall that ten years ago, I made the projection that we would achieve $1 billion in royalty revenue in 2027. And we're delivering according to this guidance. Notably, we also predict all products will continue to generate royalties to at least 2030 and many are expected to continue into the 2040s. On Slide 9 is an overview of our pipeline, which includes a total of 9 product candidates and highlights multiple future potential new growth drivers and royalty streams that I will remind you are not included in our multiyear royalty guidance. Bristol's subcutaneous nivolumab plus relatlimab and Takeda's TAC-881 are the first potential new royalty revenue growth drivers with potential to launch in the next 2 years, both progressing in Phase III. In addition, we have one product in Phase II testing and six products that are in planning, are in, or have completed Phase I studies. This includes argenx 213, argenx's next-generation FcRn blocker, which recently started a Phase I study. We expect two additional new target Phase I trial starts, one this year and one that has now moved into 2026. Now also adding to our growth will be new nominations and new deals. Our new partner discussions with ENHANZE are progressing well, and we are on track for at least one new ENHANZE deal enhancement this year. Our conversations range from approved IV treatments where the partner wishes to move to subcutaneous, developmental IV assets where the partner wishes to move to subcutaneous for an improved patient experience, and products that are already subcutaneous where the goal is subcutaneous extended dosing, also for improved patient experience, but also improved adherence and compliance. Let me now turn to our auto-injector business, which consists of two partnered products, Teva's EpiPen and their version of teriparatide plus Viatris' selatogrel, which is in development with our small volume auto-injector for the prevention of myocardial infarction. As announced on our Q4 2024 call, we were pleased to have signed a development agreement for our small volume auto-injector with the current partner. We expect to enter clinical testing with this partner in 2026. We also announced the high-volume auto-injector development agreement, also with the current partner, on our first quarter 2025 call, and we are projecting to conduct a human factors study on usability by the end of this year. In parallel, we have been investing in advancing our high-volume devices for clinical readiness. We expect our 5 ml high-volume auto-injectors to be ready for use in clinical human studies in the fourth quarter. In addition, the updated design of our 10 ml high-volume auto-injector will be ready for partner testing in a nonclinical setting also in the fourth quarter. We are continuing to seek new partner agreements for both the small volume and high-volume auto-injectors, where I’m pleased to say we're hearing consistently from pharma that there is a clear goal to enable more at-home delivery of biologics by the patient. I'm now pleased to turn the call over to Nicole.

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 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, reflects the milestone recognition of the approval and EU launch of RYBREVANT SC in April and a milestone recognized for the EU approval of Opdivo SC. Research and development expenses were $17.5 million compared to $21 million in the prior year period. The decrease was primarily due to lower compensation expense driven by resource optimization and labor allocation initiatives, offset by 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 $41.6 million in the quarter, up from $35.7 million in the prior year period, primarily due to increased compensation expenses and consulting and professional service fees. Adjusted EBITDA increased by 65% to $225.5 million from $137 million last year. GAAP diluted earnings per share was $1.33, and non-GAAP diluted earnings per share was $1.54. This is compared with GAAP diluted earnings per share of $0.72 and non-GAAP diluted earnings per share of $0.91 in the second quarter of 2024. We continue to maintain a strong balance sheet, with cash, cash equivalents, and marketable securities of $548.2 million on June 30, 2025, compared to $596.1 million on December 31, 2024. The decrease was primarily a result of share repurchases, offset by an increase in cash generated from operations. Our net debt position was $977 million, with a net leverage ratio of 1.2x. Turning now to Slide 12 and our updated 2025 guidance. We are excited to be able to raise our guidance for the second time this year. We now expect total revenues of $1.275 billion to $1.355 billion, representing year-over-year growth of 26% to 33%, driven by an increase in projections for royalty revenues. Royalty revenue of $825 million to $860 million, representing year-over-year growth of 44% to 51%. As Helen touched on, we expect DARZALEX SC, Phesgo, and VYVGART Hytrulo to drive the strong expectations, with VYVGART Hytrulo being the largest royalty dollar growth driver. Product sales have not changed at $340 million to $365 million, representing year-over-year growth of 12% to 20%. Collaboration revenue is also maintained at $110 million to $130 million. We expect adjusted EBITDA of between $865 million and $915 million, representing year-over-year growth of 37% to 45%, reflecting high-margin royalty growth, coupled with flat operating expenses from our continued focus on operational efficiency. And non-GAAP diluted EPS of $6 to $6.40, representing year-over-year growth of 42% to 51%. As you refine your models, I'd also like to reiterate the following: We expect collaboration revenue for the rest of the year to be more weighted in the fourth quarter. We expect product sales for the rest of the year to also be more weighted in the fourth quarter, with quarterly sequential growth in each quarter. For royalties, we expect quarterly sequential growth for the remaining quarters in the year. With that, I'll now turn the call back over to Helen.

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 into 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.

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 timeline is there?

Yes. With regard to the PGRs, there have been four PGRs filed by Merck that have been instituted by the patent office. All of these have been given a hearing date that is set for March 2, 2026. We anticipate that the first decisions on the issues that are common to all of those four PGR petitions will occur on June 2, 2026. So in terms of the timeline, that's when the final adjudication on these first four invalidity challenges brought by Merck will be adjudicated. There remain several other PGR petitions that are still under review by the PTAB at this time, but you will start to get insights next year. I will just say we continue to be very confident 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 your strong results. Your predictions seem to be quite accurate. Regarding regulatory matters, there have been many developments recently and some speculation about your stock related to CMS draft guidance and other issues. Given the current situation, how confident are you that there will be no significant changes on the regulatory front?

Yes. So I'll start with the IRA, which, as you rightly see, did cause a bit of commentary a few weeks ago. I can say that on the IRA, and this is related to fixed combinations of two active ingredients where for the Part B guidance, there was some slightly different wording that was proposed. We've been very active and 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. Very importantly, we laid out all of the clinically meaningful benefits subcutaneous 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, making very similar arguments, and we've been very active meeting with the OMB, also with members of Senate Staff and Congress to articulate these arguments and why there really should be no change in the definition of fixed combination between the Part D guidance, which has been in play for the last two rounds of IP, and Part B. Now we believe it's in the fall when the final guidance will be presented, and we believe we have very compelling arguments, and that we will prevail in avoiding any changes regarding that. I think that's the only regulatory item we're discussing, Sean—anything else you wanted us to provide feedback on?

No. On a separate topic, if I may, just on the guidance setting 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. 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 we triangulate to use to give the updated view for the full year.

Awesome. And just a very quick one, Nicole, the $250 million buyback. Just remind us of 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 investing in the business and for M&A. We do see that we have room to increase our leverage, especially if we find the right opportunity for M&A. We really like around 3x leverage if we were in that type of situation. 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 that you're 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 the fourth quarter at a level well above 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 the drug? Is it new-to-brand patients versus switches? Or is there a weighting between the two?

Yes. What Roche has commented on is they indicated there are about 7,000 patients globally who have started OCREVUS subcutaneous, which I think is excellent, obviously, adoption as we expected, given the 10-minute subcutaneous injection versus 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 subcutaneous would expand the number of doctors and the number of patients who can access 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 the 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. We have others who are waiting to see and test 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, immunology, neurology, and nephrology, there has been a concerted effort by companies to get products 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 subcutaneous versus maybe a slightly older strategy of bridging from a commercial IV to subcutaneous 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. As we look towards our pipeline, the most advanced asset there is relatlimab with Opdivo. Now that was approved in IV just a couple of years ago. Even in that case, companies are moving pretty fast with the subcutaneous formulation. For the other products in that pipeline, you make a great point that the majority of those are either subcutaneous only or doing subcutaneous and IV in development together so that there will be not much spacing between an IV launch and a subcutaneous launch or there will only be a subcutaneous launch. The majority are definitely going in that direction. I think that's pretty in line with what I mentioned about companies recognizing that at-home delivery is the way to go—in conditions within that particular portfolio, we've got Alzheimer's, HIV, autoimmune diseases. These are all areas where we see that move towards patient self-delivery or at least in the home. So the majority are going to be subcutaneous at the start or subcutaneous 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 following the CMS draft clarification?

Yes. No, we have not discussed that specific topic with J&J. One thing I just want to highlight. 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 excluded from the IRA has the potential to impact DARZALEX IV inclusion for two indications that DARZALEX IV has, which are for multiple myeloma and for amyloidosis, both of which were designated by the FDA as orphan drugs. 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 Adam Ferrari with JPMorgan.

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

Yes. Thanks for that question. The key play is that this will be fully resolved. It could happen any time if Merck chose to settle and sign a license with us. Historically, this does happen as these types of infringement cases go on. But obviously, that's an uncertain timeline. The second would be at the end of the district court case and assuming success for Halozyme, which we believe we will win because we believe very strongly that Merck is infringing. We are awaiting a date for the district court case that hasn't been given yet. We expect that to be a process that will take a couple of years. So there's no clear timeline, but I would track two things: potentially Merck settling due to the strength of our case or 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. 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. With regard to the settlement, that obviously is in Merck's hands. We believe very strongly that Merck is infringing our patents. The only place that this infringement will be resolved is 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. It will ultimately come down to when Merck decides they want to settle if they're going to. 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 companies just want to wait this out and see what happens?

No, we haven't. The IRA discussions have never been a significant part of our sales pitch and have not been part of the conversations to date. The draft Part B guidance is not impacting it at all. Probably because we are, as I mentioned previously, talking with a lot of companies who are considering subcutaneous delivery even as they've initiated their initial testing with the IV or are planning subcutaneous from the start. So we definitely do have some conversations which are IV to subcutaneous switch, but the wealth of opportunities and conversations around early use and consideration for subcutaneous have basically disregarded the IRA discussion. 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 each quarter that what we're seeing is the new latest trend point, and that trend does identify for us what are the latest projections. What you see at each of those stages is us taking that data and using that to support what we see for the full year. Great examples of what we see this quarter are DARZALEX outperforming for the quarter, really driven by the frontline setting. We thought Phesgo, for example, has expanded into 20 new countries, and their growth remains robust. Additionally, the strong patient and physician adoption for VYVGART Hytrulo in their launch of the PFS really supported our updated outlook. The latest data point gives us conviction for what we've delivered for our full-year guidance for 2025.

Yes. And I’ll just add that when we put our guidance in January, it is highly informed by the guidance ranges that our partners provide us. So we do take our judgment within those ranges they give us. First quarter and Q4 reporting definitely reflects our partners' input. We are seeing some acceleration in momentum. I mentioned at the beginning of my prepared remarks that we achieved 11 of the 14 catalysts. Those catalysts can be hard to predict exactly. But, Nicole mentioned the prefilled syringe; we will see argenx itself said that was already impacting even after just one quarter. We're early in the launch in CIDP—that’s another example. For DARZALEX, they keep expanding into that frontline population, and as I mentioned, those patients stay on therapy longer. They have a compounding effect, and the longer we go, the more it's going to compound. These exciting dynamics I believe in terms of what our partners projected for the year are even more upside than anticipated. This is all good news. It's never our intent to be conservative. We aim to guide according to what we believe will happen, but when you're in such a dynamic circumstance with lots of new catalysts, it's difficult to get them all exactly right. We’re just getting the very nice benefit of partners overperforming in many of the catalysts versus their anticipated outcomes.

Definitely. That's super helpful. Just one more from us. 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, I don't want to speculate. The PGR process happens within nine months of a new patent being issued, so they’re looking at continued work that has been happening over the last ten years at Halozyme. There are more patents filed and issued, so they’re simply looking at the new issuances, and they have elected to challenge the validity of some of these. We believe strongly that these patents are valid, and we expect the ultimate settlement of the PTAB will show that. They're not having any impact on what is a very important aspect, which is our district court case, which is not a question of the validity of patents but about their infringement of our patents. No matter what happens in PTAB, we have patents that cannot be challenged, and we believe strongly demonstrate the infringement by Merck on our IP. So that's how to think about both of those. The district court case is the key one for us to keep our eyes on, and we expect Merck to continue to file and announce news on these PGRs, but we’re also very focused on the district court case.

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 subcutaneous 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 pre-work to be done more frequently with the auto-injector deals? And maybe help us understand 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. When you think about the value proposition for patients, just 10 minutes versus many hours for infusion and observation time for the IV, it definitely presents a very robust conversion driven by patient factors, but also infusion suite capacity constraints and the cost of care globally. That touches all the hallmarks for good uptake. CIDP, I would consider another neurology indication. The great news with VYVGART Hytrulo in CIDP is that there is no IV VYVGART approval for CIDP. So that’s 100% of the sales, and Halozyme receives a mid-single-digit royalty on those. We're going to see very nice uptake overall in neurology and those two specific indications. For the high-volume auto-injector, I think it's going to differ per partner. The human factors studies are straightforward to do—often it's on the usability of the device. It may involve a patient population where they want to understand how the patient uses the device, and if there's something that needs to be customized about the device, they want to test it before going into formal clinical studies. They're typically short-term studies focused on optimizing the design to suit their needs. I think sometimes some partners want the off-the-shelf version, and sometimes they want to conduct human factor tests. So there might be a mix.

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