Halozyme Therapeutics, Inc. Q4 FY2025 Earnings Call

Good afternoon. My name is Alexandra, and I will be your conference operator today. At this time, I would like to welcome everyone to Halozyme's Fourth Quarter and Full Year 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.

Thank you, operator. Good afternoon, and welcome to our fourth quarter and full year 2025 financial and operating results conference call. In addition to the press release issued today after the market close, 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. 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.

Thank you, Tram, and good afternoon, everyone. As I look back on the past year, it is clear that 2025 was one of the most significant and value-creating years in Halozyme's history. We showcased our ability to execute across every dimension, strategically, operationally and financially. This level of execution has created a clear value inflection for Halozyme, unlocking multiple drivers of long-term durable and profitable revenue. I'm incredibly energized by the pace of progress and excited about the opportunities that are ahead of us. Today, I'm pleased to welcome Chris Wahl, our Chief Scientific Officer, to the call. Chris will be reviewing the new potential opportunity that is emerging on the uses of ENHANZE with antibody drug conjugates. Let me begin with the corporate highlights from the fourth quarter, beginning on Slide 3. As you can see, it was a busy and successful fourth quarter. We expanded our portfolio from 2 to 4 subcutaneous drug delivery technologies with 2 acquisitions. The first being Elektrofi's Hypercon technology and the second being Surf Bio's hyperconcentration technology, both with long-duration IP into the mid-2040s. These acquisitions significantly broaden our drug delivery capabilities and meaningfully expand our opportunities to collaborate across a wide range of targets, modalities and therapeutic areas, both exclusively and nonexclusively. Together, ENHANZE, our auto-injectors, Hypercon and Surf Bio position Halozyme as the one-stop shop for the biopharma industry for subcutaneous drug delivery. In the fourth quarter and more recently, our partners continue to add and advance their ENHANZE subcutaneous new approvals, expanding our near- and long-term royalty opportunity. DARZALEX FASPRO was approved in the United States for smoldering multiple myeloma. In addition, Johnson & Johnson recently announced another approval for newly diagnosed multiple myeloma patients, marking the fifth indication for newly diagnosed patients and the 12th indication overall. Johnson & Johnson's RYBREVANT subcutaneous with ENHANZE achieved regulatory approvals in the U.S., Japan and China. This resulted in there now being 10 ENHANZE-enabled global blockbuster opportunities. Roche nominated 1 new ENHANZE target, which sustains a steady cadence of target additions from our current partners. Argenx expanded its ARGX-121 Phase I study with ENHANZE, representing another example of partners moving earlier-stage assets into subcutaneous development. And importantly, in the final month of the year, we signed 3 new ENHANZE collaboration and licensing agreements, further expanding our reach beyond oncology into obesity and inflammatory bowel disease with clinical planning already underway for all 3 products. We were also pleased to have signed a commercial licensing and supply agreement with Viatris for our small volume auto-injector. We continue to make progress with the 2 auto-injector development agreements we signed in 2025 with current partners. Our achievements throughout 2025 supported another year of strong financial performance as we delivered total revenue growth of 38%, reaching a record $1.4 billion, including royalty revenue increasing 52% to $868 million for the full year 2025. Moving to Slide 4, I'll provide some performance details for these products. Let me begin with DARZALEX subcutaneous, which continues to be a standout example of how ENHANZE enables sustained blockbuster performance. Johnson & Johnson reported total DARZALEX sales grew 22% operationally in 2025, reaching $14.4 billion for the year. This makes DARZALEX not only the largest medicine in their pharmaceutical portfolio but also reinforces its role as a foundational gold standard therapy in multiple myeloma. This performance resulted in $483 million in royalty revenues to Halozyme, representing 29% year-over-year growth. Looking ahead, DARZALEX is expected to continue this strong trajectory with sales projected to exceed $18 billion in 2028, driven by DARZALEX subcutaneous with ENHANZE, which today represents 97% share of sales in the United States. I'll move now to PHESGO. PHESGO delivered meaningful growth for Roche in 2025, increasing 48% year-over-year to CHF 2.4 billion or approximately USD 3 billion, reflecting its position as a durable global blockbuster. This resulted in $105.6 million in royalty revenue to Halozyme, representing 51% year-over-year growth. Analysts project that PHESGO will reach $3.6 billion in 2028. As Roche's #1 growth driver for the fourth quarter in a row, PHESGO conversion from IV Perjeta increased to 54% in the quarter, and Roche increased its global conversion goal to 60% after surpassing their initial 50% target. Key milestones in 2025 included continued geographic expansion and significant reimbursement progress, most notably in large international markets, driving further conversion to subcutaneous PHESGO with ENHANZE. Moving now to VYVGART. VYVGART and VYVGART Hytrulo with ENHANZE grew 90% year-over-year to $4.15 billion. This performance resulted in royalty revenues of $157.2 million for Halozyme, representing 444% year-over-year growth. Throughout the year, adoption and use of VYVGART Hytrulo with ENHANZE for gMG and CIDP patients continued to expand. The launch and uptake of the prefilled syringe for both indications with ENHANZE represented a major milestone, enabling both at-home and in-clinic administration. Argenx has commented that the prefilled syringe has expanded the prescriber base, increased patient reach and accelerated adoption earlier in the treatment paradigm. This is just the beginning for VYVGART Hytrulo with multiple studies exploring expanded and new indications supporting the long-term growth of this important blockbuster product. Let me now move to our most recently launched products, which include subcutaneous formulations of OCREVUS, OPDIVO, RYBREVANT and TECENTRIQ with ENHANZE. Each of these products represents a blockbuster opportunity for subcutaneous use, collectively representing an approximately $30 billion total IV and subcu opportunity in 2028 based on analyst estimates. Some recent exciting highlights reported by our partners include Roche reporting that there are now 17,500 patients on OCREVUS ZUNOVO, the subcutaneous formulation with ENHANZE, a 5,000 patient increase from the third quarter. Importantly, 50% of patients in the U.S. and many other early launch countries are naive to OCREVUS, emphasizing that ZUNOVO is expanding the addressable market through enabling use in community practices. This is demonstrating that ZUNOVO can help overcome intravenous infusion capacity constraints, allowing more access to treatment. Roche recently increased sales expectations for the OCREVUS franchise to CHF 9 billion or approximately USD 11.5 billion. Moving now to OPDIVO Qvantig. BMS reported $133 million in sales of the subcutaneous product with ENHANZE in the fourth quarter, noting continued growth and accounts adopting Qvantig following the issuance of the permanent J-code in July of 2025. BMS noted uses across tumor types and in both monotherapy and combination settings, further adding that they are on track to achieve their target 30% to 40% conversion by their loss of exclusivity, which many project will be in 2028. During the fourth quarter of 2025, Johnson & Johnson's RYBREVANT subcutaneous with ENHANZE achieved regulatory approvals in the U.S., Japan and China. RYBREVANT subcutaneous offers a strong value proposition with meaningfully shorter administration time and a significantly lower rate of infusion-related reactions. Johnson & Johnson has indicated that this subcutaneous version is key to achieving their multibillion-dollar opportunity that they project RYBREVANT will become. All of these products benefit from the same ENHANZE-driven advantages that patients, healthcare providers, and our partners have come to expect from our pioneering technology. This includes shorter administration times, reduced treatment burden and improved site of care flexibility. These 2025 operational highlights have given me confidence that we can deliver long-term growth. Let me now hand the call over to Nicole, who will review our strong 2025 financial performance, after which we will discuss the key drivers of 2026 and beyond revenue and our 2026 guidance.

Thank you, Helen. Let me start on Slide 5. 2025 was a year of disciplined execution and financial strength for Halozyme, characterized by strong top-line growth, solid profitability, and a stronger balance sheet that positions us well to advance our long-term strategy. I'll begin with the full year 2025 results. Total revenue grew 38% to $1.4 billion, reflecting sustained momentum from ENHANZE. The main growth drivers continue to be our royalty revenue. Total royalty revenue increased 52% to $867.8 million, driven by the continued uptake of ENHANZE-enabled products, particularly DARZALEX SC, VYVGART Hytrulo, and PHESGO. Product sales also contributed to the year-over-year revenue growth. Cost of sales was $228.8 million compared to $159.4 million in 2024, mainly reflecting higher product volumes. Amortization of intangibles was $76.7 million, up from $71 million in 2024, due to the Elektrofi acquisition completed in November. R&D expense was $81.5 million compared to $79 million in 2024, reflecting the stub portion related to the Elektrofi acquisition, partially offset by lower compensation from resource optimization and the timing of planned enhanced investments, especially as we advanced our high-yield rHuPH20 manufacturing process. SG&A was $207.1 million compared to $154.3 million in 2024, with the increase driven by litigation expenses, consulting and professional services, and transaction-related costs for Elektrofi and Surf Bio, as well as higher compensation due to annual merit increases. Net income for the full year was $316.9 million, which includes $285 million of acquired IPR&D expense related to the Surf Bio acquisition recognized in the fourth quarter. This compares with $444.1 million reported in 2024. Adjusted EBITDA was $657.6 million, also including the impact of $285 million for acquired IPR&D expense. This compares with $632.2 million in 2024. GAAP diluted EPS was $2.50 compared with $3.43 in 2024, and non-GAAP diluted EPS was $4.15 compared with $4.23 in 2024. Both 2025 GAAP and non-GAAP diluted EPS included the negative impact of approximately $2.30 per share from the Surf Bio acquired IPR&D expense. Without the IPR&D charge, our business continued to strengthen in the year, yielding a $2.22 non-GAAP EPS improvement over 2024, representing 52% growth, which exceeded our revenue growth of 38%. Let me briefly highlight our strong fourth quarter results. Total revenue increased 52% to $451.8 million, with royalty revenue contributing $258 million, reflecting a 51% year-over-year increase. The fourth quarter bottom line results were also affected by the acquired IPR&D charge of $285 million. Now regarding our balance sheet. In 2025, we made significant improvements to our capital structure. We issued $750 million of 2031 and $750 million of 2032 convertible notes and used some of the proceeds to repurchase portions of our 2027 and 2028 notes and expanded our revolving credit facility to $750 million. These actions extended maturities, reduced near-term refinancing risk, increased liquidity, and improved strategic flexibility. Our asset-light model continues to generate significant cash, and we ended the year at 2.1x net debt to EBITDA as calculated per our credit agreement, which excludes acquired IPR&D, even after acquiring two long-duration IP subcutaneous delivery technologies. We expect to reduce our leverage to below 1x by the end of 2026. I'll now turn the call back over to Helen to discuss how we are converting this financial strength into sustainable long-term revenue.

Thank you, Nicole. Let's move now to Slide 6. As we look ahead, I could not be more energized by the momentum we have built and more confident in the long-term trajectory of the company. We have multiple levers and drivers of revenue that will position Halozyme for royalty revenue durability and exceptional value creation well into the 2040s. At the foundation of this growth engine is ENHANZE with now 10 global approvals. Our 3 blockbuster franchises, DARZALEX subcutaneous, PHESGO, and VYVGART Hytrulo, all launched between 2020 and 2023 are delivering extraordinary performance today and for years to come. Building upon these 3 blockbusters are 4 additional blockbuster products that were launched in 2024 and 2025 as subcutaneous products with ENHANZE. The subcutaneous versions of OCREVUS, OPDIVO, RYBREVANT, and TECENTRIQ are still early in their SC growth trajectories with a lot of revenue growth and contributions to come. On top of this, we have an exciting and expanding ENHANZE pipeline. In 2026, we project 6 new ENHANZE programs will enter Phase I, bringing our development portfolio to 15 products, 13 of which are with ENHANZE. With development timelines that could shorten to 3 to 4 years in select cases, we have line of sight to accelerating royalty contributions from this pipeline portfolio beginning in 2029. Now let me answer a question I get occasionally, what is next for ENHANZE? After signing 3 new licensing agreements last year, we expect to add between 1 and 3 more ENHANZE agreements in 2026. Interest for ENHANZE has never been higher from pharma and biotech for the use of ENHANZE with monoclonal antibodies where ENHANZE is clearly recognized as the gold standard. Additionally, a potential new growth opportunity, in response to data we've generated to demonstrate the potential value SC delivery with ENHANZE can bring for companies developing antibody drug conjugates and nucleic acids, we are also engaged in multiple discussions on the use of ENHANZE with these 2 modalities. Chris Wahl, our Chief Scientific Officer, will provide more details on this in just a moment. Let me move now to our second powerful growth engine, Hypercon. Hypercon is a natural evolution of our strategy designed to meet the growing demand for lower volume auto-injector-ready at-home or in HCP office therapies. With 3 partnerships with leading biopharma companies today, we expect to advance 2 exciting programs into Phase I testing by the end of 2026, with first approvals projected in the 2030-to-2031 time frame. Recall that these 2 assets are mechanisms of action that are already blockbusters today. Furthermore, we project that as a result of current agreements and the potential of between 1 and 2 new agreements in 2026 that there will be 3 to 5 additional Hypercon launches by the mid-2030s. We project that taken together, these launches will result in approximately $1 billion in Hypercon royalty revenue within 5 years of the first launches for this new technology in the mid-2030s. Hypercon also creates a compelling strategic path for our ENHANZE partners, offering them the ability to evolve towards smaller volume injections, which is another way that will extend our royalty streams into the 2040s. We were also excited in the fourth quarter to complete the acquisition of Surf Bio, obtaining a second differentiated hyperconcentration technology with long IP to the mid-2040s. Our focus here is to advance the development and enable clinical readiness in late 2027 or 2028. Importantly, by 2028, we expect our combined commercial and development portfolio with ENHANZE, Hypercon, and Surf Bio to nearly double from 19 products today to 36, unlocking a powerful new wave of royalty revenue. And we're not stopping there. We will continue to deploy our strong cash flow towards strategic M&A. We're continuing to evaluate additional drug delivery technologies that can expand our offering and opportunity. We're also evaluating assets with strong revenue and margin opportunities that will drive near-term and long-term growth. As we continue to make acquisitions, we will maintain financial discipline while investing in long-term value creation. With that, let me now turn the call over to Chris to highlight the exciting new expanded opportunity that we have with ENHANZE.

Thank you, Helen. I will begin on Slide 7. We recognize the potential for ENHANZE to improve the clinical profile and deliver convenience of 2 emerging and rapidly growing classes of drugs, antibody drug conjugates and nucleic acids. We initiated a series of internal experiments and collaborations with leading companies to generate data to evaluate and demonstrate the benefits of ENHANZE. Today, I will focus on the use of ENHANZE with antibody drug conjugates and share some of the data that is creating strong interest from potential partners. As you may know, ADCs comprise an antibody, a linker, and a cytotoxic payload. As demonstrated with our ENHANZE-enabled products, subcutaneous delivery can improve the patient experience, but conversion of ADCs to subcu has been limited by concerns over injection site toxicity. Additionally, given the toxic nature of delivered payloads, there are also significant adverse events that can be dose-limiting, some of which are associated with peak blood concentration or Cmax, such as interstitial lung disease and cardiac toxicities. Hypotheses we tested in our experiments were: firstly, would subcutaneous delivery of ADCs with ENHANZE result in good local injection site tolerability? Secondly, as we have demonstrated with monoclonal antibodies, would subcutaneous delivery of ADCs with ENHANZE result in a lower Cmax or peak concentration than IV? And thirdly, could subcutaneous delivery of ADCs with ENHANZE result in a similar or higher overall exposure compared to IV? Achievement of all 3 would suggest the potential for improved benefit-risk profile with subcutaneous delivery with ENHANZE. To answer these questions, we tested 2 approved ADCs in separate preclinical studies. We compared equivalent doses of the ADC, either IV subcu with ENHANZE or subcu without ENHANZE, measuring key PK parameters at the injection site and in serum. On Slide 8, I'm showing the injection site data for each of the 2 ADCs comparing subcu delivery with ENHANZE to subcu delivery without. Our data supports that subcutaneous delivery with ENHANZE can result in more rapid absorption and uptake, resulting in low levels of ADC and payload at the injection site within hours. This is a situation where lower is better. In fact, at 24 hours, the reduction was 87% for ADC1 and over 50% for ADC2 with ENHANZE compared to subcu alone. I will add that in these and additional experiments, skin biopsies reviewed by experienced pathologists were reported to be normal, supporting strong subcutaneous tolerability of the ADCs we tested. Let me now move on to the serum PK data on Slide 9. I'm showing the data for each of the 2 ADCs comparing IV to subcu delivery with ENHANZE and subcu delivery without. Our data shows that as we see with antibodies, Cmax or peak blood concentration has significantly decreased with subcutaneous administration compared to IV. Cmax was 75% lower for ADC1 and 61% lower for ADC2. Moving now to Slide 10. Using PK modeling, we can predict that a higher dose of the ADCs we tested could be administered subcutaneously with ENHANZE, and that would result in equivalent or higher overall exposure with a still lower peak concentration than IV. Moving to Slide 11. In summary, the preclinical data supports that subcutaneous delivery with ENHANZE could improve the benefit-risk profile for ADCs. Good local injection site tolerability was demonstrated for the ADCs tested, and the same or higher overall exposure could be achieved, supporting efficacy with lower peak blood concentration supporting the potential for fewer related adverse events. Throughout the second half of 2025 and into this year, I've had the opportunity to present and discuss this data with multiple pharma and biotech companies advancing antibody drug conjugates. The feedback I get consistently is the data supports not only the ability to deliver ADC subcutaneously, but the potential for improvements in the benefit-risk profile. With that, let me now hand the call back over to Helen.

Thank you, Chris. Let's move now to Slide 12 and review our goals for 2026. We project supporting 6 new ENHANZE programs and 2 new Hypercon programs entering Phase I clinical studies, bringing our total development portfolio to 15 products. Building on this momentum, our existing partners expect to deliver multiple Phase II and Phase III data readouts, further expanding the commercial opportunity for ENHANZE. In 2026, we plan to deliver at least 3 new licensing agreements, including between 1 and 3 new ENHANZE collaborations and between 1 and 2 new Hypercon collaborations. We will pursue strategic acquisitions that further strengthen our drug delivery portfolio and focus on adding assets with strong revenue and margin opportunity that will drive near-term and long-term growth. Let me now turn the call back to Nicole.

As we look ahead, we are pleased to reiterate our 2026 financial guidance shown here on Slide 13. We continue to expect total revenue of $1.71 billion to $1.81 billion, representing year-over-year growth of 22% to 30%, driven by royalty revenue and product sales from API. Royalty revenues of $1.13 billion to $1.17 billion, representing year-over-year growth of 30% to 35%. We continue to expect DARZALEX SC, PHESGO, and VYVGART Hytrulo to drive the strong expectations. We expect adjusted EBITDA of between $1.125 billion and $1.205 billion, including new Hypercon and Surf Bio investment of approximately $60 million and non-GAAP diluted EPS of $7.75 to $8.25, which also reflects the new Hypercon and Surf Bio investment and does not consider the impact of potential future share repurchases. Let me also take the opportunity to highlight how to think about the quarterly cadence for your modeling. We expect first quarter royalty revenues to be less than the fourth quarter of 2025 by approximately 5% to 10% due to annual contractual rate resets with quarterly sequential growth thereafter. We project total revenue to decrease sequentially from the fourth quarter of 2025 to the first quarter of 2026 as no milestones are planned in the first quarter, with milestones expected to be weighted in the second half of the year.

Thank you, Nicole. Let me conclude with these final remarks. Across ENHANZE, our auto-injectors, Hypercon, and now Surf Bio, our strategy is clear, our priorities are aligned, and our execution is disciplined. We are building a future that's defined by innovation, durability and high-margin royalty that extends throughout the next 2 decades. These priorities position Halozyme not just for another strong year, but for a new era of durable long-term revenue. We have the portfolio, we have the technologies, and we have the strong cash generation. And most importantly, we have a clear, confident and compelling path forward. Operator, you can now open the call for questions.

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

I appreciate the royalties for the first time. I have a question about the mechanics of the DARZALEX collaboration with J&J. In late January, you mentioned the potential to expand the deal with J&J regarding DARZALEX. Could you elaborate on this? Is it connected to ENHANZE? Or do you see a potential expansion with Hypercon? Additionally, what happens after the ENHANZE collaboration with J&J expires? Would J&J need to manufacture hyaluronidase independently and then sell DARZALEX FASPRO themselves? How do the mechanics work?

Thanks, Mohit. Yes, we're very proud to partner with Johnson & Johnson on creating such an important brand for patients with multiple myeloma with $14.4 billion, with the majority of that being powered by subcutaneous with ENHANZE because it really is enabling a lot of that early frontline durable patient treatment. Our terms of our licensing agreement end with J&J in 2032. Given the importance of this brand to J&J, and how we are core to helping them achieve this frontline session, we absolutely expect to enter into discussions with Johnson & Johnson closer to the time because we're obviously many years out from that today to extend our agreement and our supply of API. We do not expect J&J to take the risk of seeking another source of API. We expect them to want to continue to work with us with the strong reliability and the great safety track record that we have generated together on the use of DARZALEX as subcu. So Mohit, my comments were specifically about continuing to work with J&J on ENHANZE when we made them on the last call.

Your next question comes from the line of Jason Butler with Citizens.

I have two questions regarding the ADC strategy. First, the regulatory path for ENHANZE seems to be increasing clarity and confidence. Could you share your thoughts on whether you will be enhancing the product profiles of approved therapies, and how that regulatory path compares to that of not yet approved molecules? Secondly, could you provide some context on the current treatment paradigms for approved ADCs? I understand there's a preference for non-IV infusion, but what are patients currently doing? Are they still visiting the IV center, or does the new approach genuinely allow them to save time by avoiding those visits?

Yes. Let me ask Chris to address both of those. And Chris, the first one was what we believe the regulatory pathway would be. Obviously, today, we are basing it on PK non-inferiority. Will that be the path? The second one was with regard to the treatment paradigm. Is this going to be one where it might be a short injection in the infusion suite as opposed to subcutaneous? Or can it be given at home?

Thank you for the question, Jason. Regarding the regulatory path, as per those companies that wish to convert from IV to subcutaneous, as we've seen with our traditional monoclonal antibody products, we'd expect a traditional approach that we've seen with PK non-inferiority studies. To your point, to the extent that those partners are developing products that aren't approved and are seeking additional benefits related to efficacy and safety, those benefits would need to be proven through appropriate phase trials beyond PK non-inferiority that include both efficacy and safety endpoints. In terms of the approved ADCs and the benefits we can provide, many ADCs were developed not as monotherapy but as combo therapy, which reduces the infusion time that patients spend in infusion centers. We are seeing a movement of ADCs to first-line therapy, allowing for IV-free regimens if they aren’t administered in combination therapy. Additionally, many ADCs are being used in combination with products that are subcutaneous or transitioning to subcutaneous, largely enabled by ENHANZE in Halozyme. You will see a spectrum of treatment modalities, but as more drugs go subcutaneous, you will observe a significant reduction in the number of patients needing to go to infusion centers.

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

Congrats on all the continued progress. Two questions for me. One regarding the IPR filed against Alteogen back in December. How might the outcome of this influence the outcome of the Merck District Court litigation? And then separately, with regards to Merus' petosemtamab, a new trial was listed on ct.gov back in January. It was a first-line non-small cell lung cancer study. I guess my question is, as development extends beyond head and neck, how should we think about the potential incremental ENHANZE royalty opportunity from additional indications here? Does the long-term commercial strategy for petosemtamab hinge primarily on the IV or the subcu ENHANZE formulation?

Thank you, Mike. With regard to the IPR filed against Alteogen, I would think about it very separately from our infringement case against Merck, where we have identified that Merck is infringing multiple of Halozyme's already filed patents. So it's a very different part of our IP strategy. Now with regard to the district court case, we're still awaiting a scheduling order from the judge for that. The judge has allowed for certain discovery for Halozyme, including access to the Merck Alteogen agreement and also access to KEYTRUDA subcutaneous to continue testing. We expect that both parties will appear before the District Court in June following the output of the PTAB to receive further information and instructions. The PGR and Alteogen are very separate and distinct from the District Court case. As for Merus' drug, we believe that it has considerable potential based on its mechanism of action. It is currently used in regimens including KEYTRUDA. We believe that there are a range of indications being explored where this mechanism is relevant, and we enjoy working with the Merus team, recognizing that since PD-1s are subcutaneous, the benefit of having an all subcutaneous regimen will be significant for patients. We're excited to see further work being done to expand the indications over time for the subcutaneous version.

Your next question comes from the line of Corinne Johnson with Goldman Sachs.

Maybe you could provide just a quick update on the progress you're making towards the clinic with the Hypercon products and what remains to be done before you can start testing that technology in patients? On a related note, what should we anticipate with respect to any update on the products and the progress they're making in terms of Phase I study, etc.?

I'm sorry, Corinne, I caught most of that, but towards the end, I just couldn't hear you. I got the progress for the Hypercon clinical testing and the second part to the question?

Is that better?

That's much better.

The second part was just what should we anticipate with respect to updates throughout the year as you kind of get those drugs into the clinic? And should we anticipate getting a better understanding of what the products are and the development strategy once they're in Phase I?

We are continuing with the Hypercon team to support 2 partners in advancing to Phase I clinical testing in 2026. As a reminder, these products are already approved blockbuster mechanisms of action. The additional steps underway include completing the clinical scale-up batches as an example. The companies will also be moving to file their IND packages or protocols with the regulatory authorities, etc. Everything is on track for these 2 clinical starts in the fourth quarter. This is partner confidential information, Corinne, regarding what updates will be available, so it will be very much driven by the partners. I will say that if these clinical studies are being done in patient populations, it is likely that they will be posted on clinicaltrials.gov as the studies are about to start. That might provide the first public indication of what the partners are and certainly a visibility into the design of the Phase I studies. I don't believe there will be a lot of information available at that time regarding the full development pathway. But I will say from our perspective, the development pathway will be very familiar if you're acquainted with ENHANZE. We anticipate Phase I studies to identify a dose and then Phase III studies on non-inferiority in this instance.

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

Helen, just to double-click on the last question, just to clarify, the 2 Phase I starts with Hypercon, are they existing ENHANZE products? That's the first question. The second is how many of the ENHANZE products do you envision could be transitioned across to Hypercon over time? And while we understand the move from IV to subcutaneous and the clinical benefits there, what are you hoping to show in the clinical benefits when you can compare existing products on Hypercon compared to existing products with ENHANZE?

Because the targets are confidential for the partners, we can't make any further comments other than to say that these are established blockbuster drugs with approved mechanisms of action. If we think about our ENHANZE portfolio, we are observing considerable interest from both biotech and pharma partners, who are keen to move treatment to simpler, short, small injections in medical offices or in patients' homes for certain conditions, including autoimmune diseases, neurology, and nephrology. As you consider our ENHANZE portfolio, think about anything that has the potential to be moved into a smaller volume; drugs that today are given in medical offices could be moved to at-home administration to allow for higher patient throughput. The potential for a 3 to 4x increase in concentration in most of our drugs, a 3 to 4x reduction in volume, is part of this opportunity. The patient benefits significantly, gaining more control over their disease and choosing when, how, and where they receive their treatment. This is an exciting evolution for subcutaneous treatment centered around patient needs.

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

Congrats on all the great progress. I actually wanted to ask about the auto-injector part of the business a bit. I'm wondering what your expectations for new partnerships there look like and if we should expect any overlap in the new ENHANZE and Hypercon deals you plan to announce this year with some of those auto-injectors? And maybe on a related note, can you just remind us how you plan to report sales on auto-injectors? Should we think about it similarly to ENHANZE, like with product sales to partners during development and then adding royalties on top for commercial sales? Or are there any notable differences there?

For everybody, we have continued to advance our high-volume auto-injector, which can administer between 3 and 10 mL with a 10 mL injection taking just 30 seconds. We are witnessing interest in this from both current and new partners exploring the opportunities of ENHANZE and Hypercon, and even to some degree, Surf Bio, although that is in earlier stages. I anticipate that we will see progress with the high-volume auto-injector this year. This offers patients the ability to self-deliver larger volumes of medication, empowering them with more control over their treatments. Look for updates on this as the year progresses. I'll have Nicole discuss how we will report sales.

From a revenue perspective, we do recognize product sales from selling the devices. You can think about that as similar to how we recognize revenue from the sale of API. Associated royalties would then be recognized as royalty revenues. So, in a situation where we have a high-volume auto-injector licensed with our ENHANZE technology, our expectation is that it would drive royalties, and you would see royalties recognized with that product.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.