Logo of jester cap with thought bubble.

Image source: The Motley Fool.

DATE

Thursday, Aug. 6, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Vice President of Investor Relations - Tram Bui
  • President and Chief Executive Officer - Dr. Helen Torley
  • Chief Financial Officer - Darren Snellgrove

TAKEAWAYS

  • Total Revenue -- $481.0 million, representing 48% growth driven by record royalty revenue and increased product sales.
  • Royalty Revenue -- $307.7 million, reflecting 50% year-over-year growth due to sales uptake of products launched since 2020.
  • DARZALEX Royalty Revenue -- $152.2 million, driven by $4 billion in global sales and 11 percentage points of market share gain in the frontline setting.
  • VYVGART Hytrulo Royalty Revenue -- $72.6 million, increasing 143% year over year following strong demand for the pre-filled syringe format.
  • Upfront Collaboration Revenue -- $35.5 million, resulting from four new collaboration and licensing agreements signed during the second quarter.
  • 2026 Total Revenue Guidance -- $1.835 billion to $1.91 billion, raised from the previous range due to increased royalty projections and new collaboration milestones.
  • 2026 Royalty Revenue Guidance -- $1.22 billion to $1.245 billion, representing 41% to 43% growth over the prior year.
  • Adjusted EBITDA -- $328.8 million, representing a margin of more than 65% due to the operating leverage of the royalty business model.
  • Opdivo SC Conversion -- 15%, on track to meet the long-term conversion target of 30% to 40% as reported by partner Bristol Myers Squibb.
  • Ocrevus Zunovo Patient Count -- 44,000, up from 17,500 at the end of 2025 as the subcutaneous treatment expands to new multiple sclerosis patients.
  • Phesgo Conversion Rate -- 54%, achieved across 85 launch countries within the HER2 franchise.
  • Research and Development Expenses -- $27.7 million, an increase from $17.5 million in the prior year period due to investments in Hypercon and SurfBio technologies.
  • Selling, General and Administrative Expenses -- $57 million, reflecting higher litigation costs and professional fees associated with recent acquisitions.
  • Share Repurchases -- $332.8 million, representing the purchase of 4.8 million shares at an average price of $69.30 per share.
  • Cash and Marketable Securities -- $231.9 million as of June 30, 2026, compared to $145.4 million at the end of 2025.
  • Non-GAAP EPS Guidance -- $8.65 to $9.00, reflecting higher projected revenues and planned investments of $60 million in future growth platforms.
  • Hypercon Revenue Target -- $1 billion by the mid-2030s, based on the anticipated launch of five to seven products.
  • Development Pipeline -- 13 programs, representing the target number of ENHANZE partner products in development by year-end 2026.
  • New Indications -- Priority review granted for Rybrevant Faspro in head and neck cancer, potentially expanding the market beyond its current lung cancer indications.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

  • Torley stated, "We're going to be appealing the four initial written decisions that we received earlier this year," referring to ongoing legal challenges to the company's patents by Merck.
  • Snellgrove reported selling, general, and administrative expenses of $57 million, which included litigation costs associated with patent infringement cases.

SUMMARY

Management reported total revenue for Halozyme Therapeutics, Inc. (HALO -1.10%) of $481.0 million, representing a 48% increase year over year. This performance was driven by royalty revenue growth and the signing of five new collaboration and licensing agreements through July 2026. The company raised its full year 2026 guidance for revenue, royalties, and earnings per share while completing $332.8 million in share repurchases during the quarter. Management stated that the drug delivery business continues to expand into new therapeutic modalities including antibody-drug conjugates and nucleic acid therapeutics.

  • CEO Torley stated, "ENHANZE is a unique compounding platform engine," emphasizing the repeatability and durability of revenue streams from multiple partner products.
  • CFO Snellgrove described the "halo effect," noting that every successful product reinforces the commercial value of subcutaneous delivery and drives additional collaboration opportunities.
  • Management reported that 60% of Ocrevus Zunovo treatment starts in the United States occur in community practices, which enables access to the therapy at new sites of care.
  • CEO Torley projected that the Hypercon technology will achieve approximately $1 billion in royalty revenue by the mid-2030s, with five to seven product launches anticipated in that time frame.
  • The company reported that three of the five new collaboration agreements signed in 2026 utilize the ENHANZE technology for established and emerging therapeutic areas.
  • Management indicated that the FDA recently granted priority review for Rybrevant Faspro in head and neck cancer, potentially expanding the treatment beyond its current lung cancer indications.

INDUSTRY GLOSSARY

  • ENHANZE: A drug delivery platform using recombinant human hyaluronidase (rHuPH20) to enable subcutaneous administration of injectable medicines.
  • Hypercon: A high-concentration drug delivery technology designed to reduce injection volume and support at-home administration.
  • ADC: Antibody-drug conjugate, a class of biopharmaceutical drugs designed as a targeted therapy for treating cancer.
  • Nucleic acid therapeutics: Treatments that use genetic material, such as DNA or RNA, to treat or prevent disease.
  • gMG: Generalized myasthenia gravis, a chronic autoimmune neuromuscular disease.
  • PGR: Post-Grant Review, a legal proceeding to challenge the validity of a patent within nine months of its issuance.
  • PTAB: Patent Trial and Appeal Board, a quasi-judicial body in the U.S. Patent and Trademark Office that handles patent validity challenges.
  • J-code: A standardized code used by insurers to identify injectable drugs that cannot be self-administered.

Full Conference Call Transcript

Operator: Good afternoon. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to Halozyme's Second Quarter 2026 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. Please go ahead.

Tram Bui: Thank you, operator. Good afternoon, and welcome to our Second Quarter 2026 Financial and Operating Results Conference Call. In addition to the press release issued today after the market close, you could find a supplementary slide presentation that will be referenced during today's call in the Investor Relations section of our website. Leading the call will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business; and Darren Snellgrove, 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, and we will start on Slide 3.

Helen Torley: Thank you, Tram, and good afternoon, everyone. I am pleased to report our results from an exceptionally strong second quarter, led by ENHANZE royalty revenue growth and new deal momentum that resulted in meaningful upfront milestones. You've heard me say before that ENHANZE is a unique compounding platform engine. On this call, we will share multiple proof points demonstrating how ENHANZE is delivering on all of the attractive features of a compounding platform engine. I'm talking about the repeatability of success, the scalability and diversification and the durability of revenues that flow from this. The ENHANZE value proposition is attracting new partners and additional products from our current partners at a cracking pace.

On top of this, Hypercon is already off and running as a second future compounding platform engine for Halozyme, showing the same features and, in fact, doing so even earlier in the life cycle than ENHANZE, as we apply the knowledge and learnings of the last decade. Let's look now at what's new in the quarter. I will start with the broadening diversification and record growth of our royalty revenue streams. We are reporting increasing contributions of our newer launch products, Opdivo SC, Ocrevus SC and Rybrevant SC to our royalty revenues, with 80% growth quarter-on-quarter. This is repeating and building on top of the success and continued growth and performance of DARZALEX SC, VYVGART Hytrulo and Phesgo.

What I love about this is that over the last years, we have moved from all focus being on DARZALEX SC performance to then expanding to Phesgo and then to VYVGART Hytrulo as it was recognized just how much opportunity these products represented. Now we're expanding to six products to focus on. This is exactly what I meant by the compounding platform engine, multiple winners, creating revenue diversification and durability. This broadened launch portfolio resulted in record total royalty revenue growth of 50% year-over-year to $308 million, providing strong support to and conviction for the 2026 to 2028 financial guidance and for the revenues in 2029 and beyond.

Let me now move to the second highlight, the significant expansion in new partnerships for ENHANZE and Hypercon in the quarter. In the second quarter, we signed four new collaboration and licensing agreements, and we signed a fifth agreement in July. We have never had this pace of new collaboration agreements in the history of Halozyme. And for those of you who asked, can they sign great new deals for ENHANZE? The answer is a resounding, emphatic and demonstrated yes, with three of these five agreements being for ENHANZE. This year, we have added new ENHANZE agreements with GSK, Incyte and a third confidential partner. And we added two new Hypercon agreements with Vertex and with Oruka.

And I will add, not only did we broadly expand the number of partners, we also expand in use areas to beyond monoclonal antibodies into two new expanding and leading-edge modality areas, ADCs and nucleic acids. This means brand-new growth opportunity for ENHANZE. The new CLAs contributed $35.5 million in upfront collaboration revenue in the quarter, approximately evenly split across ENHANZE and Hypercon. This was also an important contributor to record total revenue in the quarter. This is how we said we would and how we are bending the curve in the 2029 plus period. The third area I want to highlight is development portfolio expansion and progress.

In the second quarter, we advanced our pipeline of future potential royalty streams with two new Phase I study starts. It is our goal to have 13 ENHANZE development programs in 2026, which is also bending the curve in the 2029 plus period. Moving now to Slide 4. I'll highlight the second quarter financial results. For the second quarter, total revenue increased 48% year-over-year to $481 million. This was largely driven by robust royalty revenues of $308 million, a strong 50% year-over-year growth.

The robust revenue performance resulted in adjusted EBITDA of $329 million, adjusted EBITDA margin of more than 65% and non-GAAP earnings per share of $2.28, highlighting the strength of our diversified royalty portfolio and the operating leverage that's inherent in our differentiated business model. Moving now to Slide 5. Based on the strong second quarter and, in particular, the robust royalty revenue growth, we are pleased to raise full year 2026 guidance. What I will highlight is the increase in total revenue guidance of $110 million (sic) [ $112.5 million ] at the midpoint.

This is driven by the increased projected royalty revenues from established products and the new launch products that I discussed earlier and also by the upfront milestones resulting from what has already been a record year for new collaboration and licensing agreements. Let me move now to Slide 6, and I'll provide additional detail on the key business drivers in the quarter, beginning with the current ENHANZE portfolio. In the second quarter, the contribution from the more recently launched subcutaneous products with ENHANZE including OCREVUS ZUNOVO, OPDIVO Qvantig and RYBREVANT subcutaneous increased by approximately 80% quarter-on-quarter. OCREVUS ZUNOVO is demonstrating how ENHANZE-enabled subcutaneous delivery can compound the value for our partners' products by expanding the accessible patient population.

On their second quarter call, Roche reported that the number of patients receiving the subcutaneous formulation increased to 44,000. Contrast that with the 17,500 patients at the end of the fourth quarter of 2025, and you can see just how many new patients have been added for this every 6-month subcutaneous treatment. ZUNOVO is now the fastest-growing anti-CD20 multiple sclerosis brand in the United States. Roche noted that approximately 60% of the U.S. OCREVUS ZUNOVO starts are coming from community practices, demonstrating how ENHANZE-enabled delivery can reach new sites of care, enabling access to Ocrevus for new patients.

Bristol's OPDIVO Qvantig continued its strong launch trajectory with subcutaneous conversion reported to have increased to 15%, well on track for BMS' targeted 30% to 40% conversion rate. Moving now to Bristol Myers Squibb. Bristol's OPDIVO Qvantige continued its strong launch trajectory with subcutaneous conversion reported to have increased to 15%, well on track for BMS' targeted 30% to 40% conversion rate. This resulted in global sales growth of more than 200% year-over-year to $261 million in the second quarter. Based on this, OPDIVO Qvantig is projected to exceed $1 billion in annualized revenue. Johnson & Johnson's RYBREVANT FASPRO is another strong example of how ENHANZE creates value for our partners and for Halozyme.

For the second quarter of 2026, J&J highlighted rapid uptake of RYBREVANT FASPRO, contributing to the strong 62% year-over-year growth. Supporting growth acceleration in the upcoming quarters, the permanent J-code was awarded on July 1. This has been a contributor to broadening adoption and growth in multiple prior subcutaneous launches. J&J also commented that they have submitted a filing to the FDA for head and neck cancer. We are pleased to note that the FDA recently granted priority review to the filing, meaning an FDA review time line of approximately 6 months. Upon approval, this new indication would expand the opportunity for RYBREVANT FASPRO beyond its existing lung cancer indications into this new area of high unmet need.

It is certainly very exciting to see the growth and contribution of these three newer launch brands, where for these three brands alone, the total IV and subcutaneous opportunity based on total sales is projected to be $25 billion in 2028. This is resulting in a diversified set of six products contributing royalty revenues where the total opportunity now exceeds $55 billion. I'll move now to DARZALEX subcutaneous, VYVGART Hytrulo and Phesgo, beginning with DARZALEX. DARZALEX continued to demonstrate robust revenue growth, increasing approximately 18% year-over-year to over $4 billion in the quarter, with virtually all global sales being for DARZALEX subcutaneous with ENHANZE.

J&J attributed the strong performance to continued market growth and share gains across all lines of therapy, including nearly 11 percentage points of share gain in the frontline setting. It's also worth noting that following the FDA approval in March, the all subcutaneous regimen of TECVAYLI plus DARZALEX FASPRO is bringing new hope to patients with relapsed and refractory multiple myeloma. I'll move now to argenx. Total VYVGART sales grew 60% year-over-year to $1.5 billion in the second quarter, driven by continued strong adoption of the ENHANZE-enabled VYVGART Hytrulo pre-filled syringe, which I will refer to as the PFS. The PFS is expanding the prescriber base and bringing more patients into therapy with approximately 80% of U.S.

PFS patients in the quarter reported to be new to VYVGART. This demonstrates how ENHANZE, by supporting continued innovation and administration, can meaningfully broaden patient reach and support long-term product growth. Driving continued growth, recent regulatory and clinical milestones continue to expand the long-term opportunity for VYVGART Hytrulo. VYVGART is now the first and only therapy approved across all gMG serotypes, including seronegative patients. The U.S. approval in seronegative gMG in May expands the addressable opportunity by approximately 11,000 patients. Positive Phase 3 data in ocular myasthenia gravis further highlights the opportunity to expand the franchise and drive future growth upon approval. Moving now to Phesgo. Phesgo continues to demonstrate the value of ENHANZE-enabled subcutaneous delivery within Roche's HER2 franchise.

During the first half of 2026, Phesgo delivered strong growth of 18%, with global conversion reaching 54% in the 85 launch countries. Roche reiterated its expectation for at least 60% conversion at peak and highlighted Phesgo is a key component of the franchise's long-term durability. I'll move now to Slide 7. Looking beyond the current decade, our future launch portfolio represents a significant source of long-term value with the potential to expand and further diversify our royalty revenue streams and deliver durable revenue for many years to come. Beginning in the 2029-plus time frame, we have three revenue engines. The first is our 10 currently approved ENHANZE products.

The second are the multiple launches that are arising from our growing and robust ENHANZE development portfolio. And the third is Hypercon partner products. We project that by year-end of 2026, we will have up to 13 ENHANZE partner products in development with potential approvals beginning in the 2029-plus time frame. These programs represent the next generation of royalty-producing assets and extend our future opportunity beyond the currently approved portfolio. During the second quarter, two new ENHANZE targets initiated Phase 1 testing. This is resulting in nine development products and keeps us well on track for the 13 development products by year-end.

This broad and growing portfolio of future potential launches clearly demonstrates why we're so confident that ENHANZE will be a significant long-term revenue driver for Halozyme. I will now move to Hypercon, which we intend to make into a second compounding platform engine and recreate the amazing success of ENHANZE. Hypercon is designed to address growing demand for lower volume subcutaneous administration, enabling highly concentrated formulations that can potentially support at-home and physician office administration. We made strong progress in the quarter, advancing preparations to provide clinical supply to support the first Hypercon clinical starts in the first half of 2027.

Our projected first launch timing for these two new products is in the 2030, 2031 time frame, and we continue to expect Hypercon to launch multiple products and achieve approximately $1 billion in royalty revenue in the mid-2030s. Let me now turn to the new collaboration and licensing agreements, which are summarized on Slide 8. I mentioned at the start that this has been our most successful year ever with record performance for ENHANZE and for Hypercon. The pace of recent collaboration activity reflects the growing importance of subcutaneous delivery across the biopharmaceutical industry. Pharma and biotech companies are increasingly focused on improving the patient treatment experience, reducing treatment burden, expanding access across sites of care and differentiating their products.

In the second quarter, we announced the new ENHANZE agreement with GSK, which included the opportunity to use ENHANZE in a new use area with antibody drug conjugates. In July, we announced a second agreement with Incyte, working with Incyte on a subcutaneous formulation of its first-in-class mutant calreticulin monoclonal antibody. Today, we are pleased to announce a third new agreement signed in the second quarter with an undisclosed partner to explore the use of ENHANZE with a nucleic acid therapeutic.

This is the first of what we hope will be several collaborations in this emerging area where ENHANZE brings the potential to enable subcutaneous delivery of large volume nucleic acid conjugate formulations and LNPs while mitigating the inflammatory and immune response that can be otherwise generated from subcutaneous administration. We are excited to expand into these two new areas of ADCs and nucleic acids that represent brand-new growth market segments for ENHANZE and where we estimate that there are at least 100 commercial and development products that may benefit. Also in the second quarter, we signed two new Hypercon collaboration agreements, one with Vertex and one with Oruka.

These agreements establish strategic platform relationships that have the potential to expand over time through additional targets and future development programs. When we combine the up to 13 ENHANZE development programs by year-end and this expanding opportunity that's created by the current and new ENHANZE, Hypercon agreements, we have created a substantial portfolio of new potential royalty opportunities extending well into the next decade. What you've heard me describe is the power of having an established compounding platform engine with ENHANZE, and we're creating just the same for Hypercon. We have demonstrated time and again the repeatability and diversification with now six separate and growing royalty streams delivering record revenue.

We've demonstrated scalability with multiple waves of new launches now extending well into the 2030s. The durability is clear with 50% royalty revenue growth more than 12 years after our first launch. And we're very proud that our partner products are clinical breakthroughs that we have helped create into multiple blockbuster subcutaneous products. Our priority in 2026 remains executing on these significant organic growth opportunities. We are also continuing to evaluate selective M&A opportunities that can expand our drug delivery technology offering and royalty duration. But any external opportunity must meet our criteria of a strong strategic fit, durable value creation and attractive returns. With that, I'm pleased to turn the call over to Darren.

Darren Snellgrove: Thank you, Helen. I am thrilled to be joining Halozyme at such an exciting point in the company's evolution. Over the past few months, I've had the opportunity to dive deeper into the business, and what has stood out to me is the strength of Halozyme's business model. It's rare to find a company that offers such outstanding current performance and future potential. Halozyme's combination of strong growth, exceptional profitability and robust free cash flow, coupled with disciplined capital allocation, positions the company well as we continue to accelerate innovation and provide significant returns to shareholders. Having spent nearly three decades in the industry, I was familiar with the value Halozyme creates for partners, patients and the health care system.

After joining the company, I have an even greater appreciation for the opportunities ahead. One of the unique characteristics of the business is what I would call the halo effect. Every successful ENHANZE-enabled product does more than generate high-margin, scalable royalty revenue. We enable our partners and improve products for patients. Our platforms reinforce the clinical and commercial value of subcutaneous delivery and create additional opportunities for target nominations, platform expansions and new collaborations. This cycle continues to broaden our opportunities and increase the durability of our long-term diversified model.

The strong second quarter results reinforce that view as the company delivered another record quarter, exceeding expectations for royalty revenue, driving strong EBITDA growth and, at the same time, investing in our future growth platforms. Let me start on Slide 9. Total revenue increased 48% to $481 million compared to $325.7 million in the prior year period. This performance was driven by robust royalty revenue growth and higher collaboration revenue, reflecting new deals signed during the quarter. Royalty revenue of $307.7 million increased 50% from $205.6 million in the prior year period and exceeded our expectations. These results reflect increasing contributions from more recently launched ENHANZE products as well as the continued commercial success of DARZALEX subcu and VYVGART Hytrulo.

DARZALEX generated $4 billion in global sales for J&J in the second quarter, representing close to 18% operational growth, further demonstrating the strength, durability and continued momentum of the franchise. These strong sales translated into $152.2 million of royalty revenue to Halozyme, representing an increase of 27% year-over-year. Halozyme's royalties from VYVGART Hytrulo increased 143% to $72.6 million in the second quarter. Total VYVGART brand sales for the second quarter reached $1.5 billion, up 60% versus prior year, reflecting strong demand for the ENHANZE-enabled pre-filled syringe, which continues to broaden the prescriber base and support adoption across gMG and CIDP.

Other royalty revenues grew 85% to $54.4 million, driven by increasing partner product sales of recently launched products, OCREVUS subcu, Opdivo Qvantig, RYBREVANT subcu and Tecentriq subcu. We are pleased with the early momentum and see a significant opportunity ahead given that estimates for the total brand growth of these four products is approximately $30 billion in 2028. Moving to Slide 10 for more detail on the quarterly results. Research and development expenses were $27.7 million compared to $17.5 million in the prior year period, reflecting the addition of Hypercon and SurfBio and our continued investment in advancing these technologies. Selling, general and administrative expenses were $57 million in the quarter compared to $41.6 million in the prior year period.

Net income increased 39% to $229.9 million from $165.2 million in the prior year period. Adjusted EBITDA increased 46% to $328.8 million from $225.5 million in the prior year period, driven by continued strong royalty growth. GAAP diluted earnings per share was $1.90 compared to $1.33 in the prior year period, and non-GAAP diluted earnings per share was $2.28 compared to $1.54 in the second quarter of 2025. Moving to Slide 11. We generate substantial free cash flow from our asset-light model, and our strong financial position gives us the flexibility to execute a disciplined capital allocation strategy.

Our priorities are straightforward: fund the highest return organic opportunities, maintain a strong balance sheet and return excess capital to shareholders through a disciplined buyback program. We view share repurchases as an attractive use of capital when we believe the stock does not fully reflect the durability and growth of our royalty streams. That is why we purchased $332.8 million worth of shares in the second quarter against our target of $400 million for the full year, while also investing in long-term growth and expanding the ENHANZE platform as more products launch and gain share. Turning now to Slide 12 and our updated 2026 outlook.

As Helen mentioned earlier, we are pleased to raise the guidance for the remainder of the year. We now expect total revenue of $1.835 billion to $1.91 billion, representing year-over-year growth of 31% to 37%, driven by an increase in royalty revenue projections and product sales from API. Royalty revenues of $1.22 billion to $1.245 billion, representing year-over-year growth of 41% to 43%. We expect growing contributions from the recently launched ENHANZE products, while DARZALEX subcu, VYVGART Hytrulo and Phesgo remain the largest revenue contributors. We expect adjusted EBITDA of between $1.225 billion and $1.28 billion, which includes approximately $60 million of planned investment in Hypercon and SurfBio, and non-GAAP diluted EPS of $8.65 to $9.

I will now turn the call back over to Helen.

Helen Torley: Thank you, Darren. In closing, let me highlight that our record second quarter results reinforce our confidence in both the strength of our business today and in the opportunities ahead. The growing contributions of our recently launched ENHANZE products and the continued strong performance of DARZALEX subcutaneous and VYVGART give us confidence in the 2026 to '28 financial guidance and beyond. In the quarter, we demonstrated meaningful progress to add to this and will bend the curve, including through multiple new ENHANZE and Hypercon collaboration and licensing agreements and multiple new clinical study starts. Thank you for your attention today. And operator, you can now open the line for questions.

Operator: Our first question is from Sean Laaman with Morgan Stanley.

Unknown Analyst: This is Natasha on for Sean. So you raised royalty guide of $1.22 billion to $1.245 billion against the $548 million in the first half royalties, implies around $336 million to $348 million per quarter in the back half, which is a step-up from 2Q's $308 million. I just wanted to ask what's driving that implied acceleration from here? Is it primarily the newer launch cohort or the established products?

Helen Torley: Thanks, Natasha. I'll turn that over to Darren.

Darren Snellgrove: Yes. Thanks for the question. And as you noted, royalties were an important component of the beat in the first half. And I would say that we do expect royalty revenue to grow sequentially through the second half, probably won't have quite the same amount of royalty step-ups that were part of the Q1 to Q2 growth. But we do expect that to continue to ramp up in the second half. And a lot of it is driven by some of the new product launches that you've seen. So things like RYBREVANT subcu, which has started to pick up a little bit, and some of the other new products.

Operator: Your next question is from Michael DiFiore with Evercore ISI.

Speaker 5: This is [ Jaya ] on for Mike. Congrats on the strong quarter. I'd like to ask a question on target exclusivity. So you've talked about partners who work with other providers and often approach Halozyme first, where target was already exclusively licensed. So as we look forward to 2029, how should we think about the way target exclusivity works as the base patents flow out? And then does that open up targets you couldn't take on before?

Helen Torley: Yes. Thanks for the question. In terms of the exclusivity, it's often very much driven by the partner company. And if they request exclusivity and they are willing to pay the enhanced economics that are associated with that, historically, in the past, we have agreed to that, and we also would still agree to that today. I will note, however, that as you've probably seen in the latest series of agreements that we've done, there are now a lot of companies who are very comfortable with gaining a nonexclusive license. And so you're going to see a mix of the two as you go forward.

And I will also say, if you think about exclusivity, exclusivity is also done in different ways. It can be exclusivity to an entire target, as an example, like we did with PD-1. But in other cases, there can be exclusivity to a specific molecule uses a target or perhaps a target that is part of a combination. And so we are being able to be a lot more, if you like, creative and broad in what we're able to license both on an exclusive and a nonexclusive basis as we go forward. And that really is reflected in the five recent deals across those and the additional deals we anticipate signing this year and next.

Operator: Your next question is from Brendan Smith with TD Cowen.

Brendan Smith: Congrats on the great quarter. Maybe first, actually on Hypercon. I know we'll get confirmation of the first two assets by early next year. Just wondering if you can give us a little bit more of a sense of timing for, kind of, subsequent assets in that pipeline and just roughly when the next wave might be, if there are others that could reach Phase 1 next year? Is that more of a '28 event? And I guess, kind of related, I wanted to ask actually about that $1 billion in incremental Hypercon royalties by 2035 you've spoken to. I guess, how many different assets are you assuming would contribute to that by 2035?

And I guess, are your assumptions largely just based on the current partnerships? Or are you assuming any additional ones?

Helen Torley: Yes. Thanks. With regard to Hypercon and timing, there absolutely could be additional study starts in the second half of 2027, Brendan, based on the progress we're seeing with companies advancing through the preparatory stages before they're ready to advance to the clinic. And if you recall, while we've got five agreements, those partners have taken up to 20 targets. And so some of the companies are advancing more than one target at this point in time, and that is already creating a very nice pipeline of future clinical studies for 2027 and for 2028. So that's the great thing about the model we have with this ability to access multiple targets in one agreement.

As we projected the $1 billion in the mid-2030s, we had assumed between five and seven launches by that time period. And I think a number of those will come from the already signed agreements, but it is also possible that agreements in the next 1 to 2 years could also be contributing to that based on what we estimate the development time line to be.

So I commented on the call about -- it's very exciting to see Hypercon turning into another compounding platform engine for us, but able to do so faster and quicker in part because the market is just more receptive to subcu delivery, but we're also able to bring a lot of our learnings from how we've been able to commercialize and grow ENHANZE.

Operator: Your next question is from Mitchell Kapoor with H.C. Wainwright.

Unknown Analyst: This is Amit on for Mitchell. Congrats on a strong quarter. I guess, for both or all platform cadence, I guess, how are you thinking about the mix of new partner wins and follow-on nominations from existing partners? And how would that shape the future deal cadence? And on the ADC and nucleic acid therapeutics, there's a lot of excitement about that. And I was just wondering how are you thinking about the broader opportunity? And how are you prioritizing these modalities as you pursue additional deals?

Helen Torley: Yes. Thank you. With regard to the -- I'll start with the ADCs and the nucleic acids, yes, very excited now to have signed a deal, one each for both of those, opening up a brand-new growth opportunity for ENHANZE. We have previously said that there's 50 ADCs we think could benefit from ENHANZE, and we said there are about 50 nucleic acid-based therapies that we think can benefit from ENHANZE. And so this really is an exciting opportunity. And I would say our business development team are agnostic to whether it's an monoclonal antibody, an ADC or a nucleic acid.

But what it has done is broaden the number of companies that we are speaking to and approaching with ideas as to how the ENHANZE technology can help improve their risk-benefit profile or their competitive profile. And so it just has dramatically increased the number of conversations we're having, and that's exciting in terms of what that can mean for long-term growth and expansion of the ENHANZE number of agreements. You make a good point, and it's something I think that's often underrecognized is that signing new deals is a source of growth for us. But the number of targets that we already have under license that has not yet been nominated is a second, separate source of growth.

And in the first half of this year, I will say we've had one current partner nominate a product, and I actually am expecting more in the second half. And so it's going to be a mix of both really in terms of what's going to cause the continued growth and expansion of our pipeline. We expect to have 13 development products in the clinic camp this year. That's going to continue both from these current deals we're signing, adding more nominations and moving into the clinic, but even our existing partners who've still got slots left.

Now falling into the same mindset, I think, as many of the companies today of recognizing that subcu delivery means competitive differentiation, and they are advancing new nominations at a pace also that we've not necessarily seen in a long, long time. So it's an exciting time with both of those avenues for growth as well as growth coming from the ADCs and the nucleic acid new opportunity.

Operator: Your next question is from Mohit Bansal with Wells Fargo.

Unknown Analyst: This is [ Will Zhang ] on for Mohit. Congrats on the recent deals in the quarter. But I guess, I just want to understand now that some of the smaller companies are also partnering with you on ENHANZE, like is the deal structure for these smaller companies any different from your prior deals? And I guess, like, what conversations are you currently having with new or smaller partners?

Helen Torley: Yes. We're excited to be continuing to be discussing ENHANZE with all size ranges of companies. If you think about just the last few months, we have GSK that certainly is a very large company. We've got Incyte that is a large company, and as you point out some smaller companies as well. I would say what is more a driver of exactly what the deal structure will be is based much more on exclusivity versus non-exclusivity. And so that is where there is some difference in the economics that's really driven by that the deal structure is shaped around exclusivity, not company size.

Operator: The next question is from Dave Risinger with Leerink Partners.

David Risinger: Thanks very much and congrats on the financial upside, and Darren, congrats on your new role. So I have a few questions, please. First, could you provide an update on the Merck litigation prospects? How -- that's the first question. Second, how you see Alteogen as a competitor today? And then third, your view on the acquisition landscape?

Helen Torley: All right. I'll take the first two, and I'll turn the acquisition landscape over to Darren. With regard to the Merck litigation, let me start outside the U.S. We are currently actively pursuing injunctions in approximately eight countries outside the U.S. with the goal of stopping the Merck infringing use of our MDASE technology. This includes the launch in countries as well as manufacturing, distribution and supply of Qlex for worldwide use. These cases are moving forward rapidly. You may have seen we did have a preliminary injunction in Germany in December. And we do expect important decisions broadly impacting Merck launches of sales in Qlex in Europe before the end of this year. So very active in Europe.

With regard to the United States, we're working through the U.S. patent office proceedings that were brought by Merck with regard to the PGRs. And we expect to have more clarity once that we're through all of those steps on when the U.S. District Court case is going to move forward once the final decisions are reached in those proceedings later this year. Now I will say that it's a very active on the PGRs as well. We're going to be appealing the four initial written decisions that we received earlier this year. And we expect to hear the PTAB's decision on the remaining 10 sometime this fall.

And so a lot still happening in the U.S. case as well, David, with some clarity with regard to the PGRs at the end of this year, clarity on the timing of the district case, but certainly, our conviction and our confidence is absolutely unwavering that we will prevail in this case, and we will be appealing certainly the first four PGRs that based on our very strong conviction that the Alteogen product is infringing. The Merck product using the Alteogen technology, as you probably see better, is infringing.

With regard to Alteogen, it still continues to be the case that from what is publicly available, it would appear that the people who are assigning deals at the moment with Alteogen are for targets that Halozyme has exclusively licensed, and I can say many of those companies have directly come to us, and we've had to unfortunately say we're unable to work with them. And so in light of that, obviously, while we're not finding that performance of Alteogen is directly competing with us.

And I will also share that when companies come to us, what they see is they want to work with Halozyme because of our track record of success because our product is being used and we've got a safety database and over 1.3 million patients with 15 years history of reliability of supply. And our team have got the expertise to support very rapidly getting the partners into the clinic, innovative trial designs and a faster path to approval.

And so the entire package that Halozyme brings is what has -- if you think about just in the last 7 or 8 months, six new ENHANZE deals, we are definitely performing incredibly well in the market, and it comes from that competitive moat that we've created from all of our years of expertise and performance. Let me turn it to Darren for acquisition landscape.

Darren Snellgrove: Yes. Thanks. David, with regards to M&A, we definitely continue to see M&A as an important part of our capital allocation strategy. I would say, particularly when we can add differentiated technologies, new capabilities or create future growth platforms. But at the same time, I think you've heard the company say this before, we're very disciplined. We indicated last quarter that for '26, we're going to really focus on organic growth and M&A is unlikely. But what I would say, the good news is given the strength of our portfolio, the growing cash flows that we have and our improving leverage profile, we really do have flexibility. But again, we remain focused on really on long-term shareholder value.

Operator: Your next question is from Mitchell Kapoor with H.C. Wainwright.

Unknown Analyst: This is Amit again. But I was wondering, as you build out Hypercon manufacturing, how should we think about potential revenue beyond royalties and any incremental investment within the 2026-'28 margins? And for -- you show that you -- or you guide to 13 ENHANZE programs in development by end of 2026 and 13 launches in 2029. I'm just wondering how are you thinking about any potential attrition? Or is that, kind of, built into your assumptions?

Helen Torley: Yes. Let me talk about the manufacturing first, and maybe I'll begin by sharing why we think it's such an exciting opportunity for us invest in the manufacturing. As you're already hearing, we've got five deals, multiple products are advancing. And we believe that Hypercon is going to become rapidly the same type of compounding platform engine that we have from ENHANZE. To speed that up, and to maximize the success of that, Halozyme investing to advance manufacturing is just the right thing to do. We'll be able to drive that, control that at our pace and with our expertise. We have not finalized the exact planning around that.

So I can't share any details on the investment required or the exact business model. But what I can say is that this is going to be very exciting as we contemplate just how much more quickly Hypercon is going to grow to be that $1 billion opportunity compared to ENHANZE. So more to come on that as we finalize our plans. With regard to the additional launches, just to just clarify one thing. We anticipate having 13 products in the clinic by the end of this year. In terms of the 2029 number, what we said was we will begin in the launches in 2029, and those will be occurring between '29 and 2033 as an example.

So there is a series of -- they're occurring over a period of time. Our development time lines generally are 4 to 5 years just to help with that. So not all 13 in 2029, but after that. In terms of the mix of products that we have in that 13 products and very exciting products in their mechanisms of action that some of the products are already commercial, which represent a very high probability of success based on our track record.

Other products are new mechanisms of action, but the majority are antibodies, and we have just got tremendous experience with antibodies, which again, from many aspects gives us confidence in the fact that ENHANZE is going to be very successful in making them into successful subcutaneous products. So a broad range of products in there. Hard to give you specifics on them. But as a body, this ability to have up to 13 additional launches beginning in 2029 is clearly a very exciting additional growth driver that will layer on top of the already launched products.

Operator: We have reached the end of the Q&A portion, which concludes today's call. Thank you so much for attending. You may now disconnect.