Q3 2019 Earnings Call
Good afternoon, everyone I would now like to turn the conference over to build any vice President Investor Relations and corporate communications for Halozyme Therapeutics mystical Danny please begin.
Al Kildani: I would now like to turn the conference over to Al Kildani, Vice President of Investor Relations and Corporate Communications for Halozyme Therapeutics. Mr. Kildani, please begin.
Good afternoon, and welcome to our third quarter 2019 financial results Conference call.
Unknown Executive: Good afternoon, and welcome to our third quarter 2019 financial results conference call. In addition to our press release issued today after the 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. We'll provide an update on our business, and Lori Stelzer, our Chief Financial Officer, will review our financial results for the third quarter of 2019. During the call, we will be making forward-looking statements. I refer you to our SEC filings for a full listing of the risks and uncertainties. I'll now turn the call over to Helen.
In addition to our press release issued today. After the close you can find a supplementary slide presentation that will be referenced on todays call me Investor Relations section of our website.
Leading the call will be Dr., Helen Torley, Halozymes, President and Chief Executive Officer.
Provide an update on our business and Lori Seltzer Upsells are our Chief Financial Officer, who will review our financial results for the third quarter of 2019.
During the call, we we making forward looking statements I refer you to our SEC filings for a full listing of the risks and uncertainties.
I'll now turn the call over to Helen.
Thank you al.
We announced on November 4th following the negative results of Halo 301, we've still developing opaque page 20 and are in the process of closing oncology operation I don't know focused solely on our enhanced drug delivery technology.
Helen I. Torley: With this change in focus, for those of you who are less familiar with it, I'm going to begin the call with a detailed overview of our enhanced business. Then I'll provide an update on recent and upcoming events. I'll then transition over to Lori, who will provide more detail on our third quarter financial results, the restructuring, our capital return plan, and 2019 updated guidance. Beginning on slide three, our strong expansion of partners and programs in development has been driven by our partners' recognition of and excitement for the value that Enhance can add to their business. Let me highlight four ways Enhanced offers true differentiation and real value. It reduces both...
With this change in focus for those of you who are less familiar with it I'm going to begin the call with the detailed overview of our enhanced business.
I'll provide an update on the recent and upcoming events then transition over to lower Eagle provide more detail on our third quarter financial results. The restructuring our accounts, we termed fun and 2019 updated guidance.
Beginning on slide three our strong expansion of partners and program in development has been driven by apartments recognition old and excitement for the value that enhance can add to their business.
Let me highlight four ways and handle first true differentiation I'm real value.
It produces books treatment time and associated cost burden.
Helen I. Torley: Treatment Time and Associated Courses
Helen I. Torley: This was a key part of the lifecycle strategy Roche employed for Herceptin and Mapthera in anticipation of biosimilars. At peak, Herceptin SC held 60% of sales volume in the EU launch markets, demonstrating the strong market acceptance for this delivery method. Secondly, Enhance offers the potential for competitive differentiation.
This was a key part of the lifecycle started you broke employed herceptin and mabthera in anticipation of bio similars.
Pete Herceptin SC held 60% sure sales volume in the launch markets demonstrating the strong market acceptance for this delivery method.
Secondly, and handle for some potential for competitive differentiation.
Helen I. Torley: As an example, Janssen began developing an SC version of Darzalex early in the IV product lifecycle, before their IV product's approval, with the recognition that a shorter, simpler, subcutaneous delivery would not only reduce the burden on patients, but it would also provide Darzalex with a more competitive profile in the face of potential future competition. Bristol-Mars Squibb is an example of a company evaluating SE as their first go-to market formulation for certain targets. For Halozyme, we're excited to see the strong focus on adding hands early in the life cycle.
As an example, Janssen began development.
Version of Darzalex early in the IB product life cycle before the I'd products approval with the recognition that a shorter simpler subcutaneous delivery would not only to reduce the burden of patients, but he will also provide darzalex would be more competitive profile in the face of potential future competition.
Bristol Myers Squibb as an example of a company evaluating SC or their first go to market formulation for certain targets.
For Halozyme, we're excited to see the strong focus on adding inherent early in the lifecycle.
Helen I. Torley: Thirdly, Enhance Office's potential for new intellectual property and exclusivity, providing up to 20 years of exclusivity from the filing date for the co-formulated product. And finally, Enhance could be a strong fit for those currently experiencing challenges in delivering oncology care. In our recent primary market research with oncologists, we heard again and again of the staffing, care capacity, and time constraints facing many practices today as a result of therapies requiring long infusion times and supervision.
Thirdly, and handle for the potential for new intellectual property and exclusivity providing up to 20 years of exclusivity from the filing date for the co formulated products.
And finally enhance can be a strong fit but those currently experiencing challenges in delivering oncology care.
And our recent primary market research Willdan colleges, we heard again and again of the staffing sure capacity and time constraints facing many practice today as a result of therapies, requiring long infusion time and supervision.
Turning now to slide four let me see a few words on our operating model.
Helen I. Torley: Turning now to slide four, let me say a few words about our operating model. From the very start of the process to access rights to utilize enhanced technology, through to BLA filing and approval, Halozyme technical experts are sitting side by side with our partners, providing input, advice, and ideas. As illustrated in slide 4, different specialists are needed and engaged at different stages of the development process, a summary of which is illustrated across the top row. This is why our operating model is so scalable and efficient, with individuals supporting multiple partners and programs at the same time. And now, moving on to how we are paid for in HEN.
From the very started the process access rights to utilize ENHANZE technology to to be only filing an approval Amazon technical experts are sitting side by side with our partners, providing input advice and ideas.
I said the street it on slide four different specialists are needed engaged at different stages of the development process, a summary of which is illustrated across the top row.
This is why our operating model, so scalable and efficient with individual supporting multiple partners and program at the same time.
Now moving to how we are paid for enhanced.
Helen I. Torley: In summary, and as shown in slide 5, we receive royalties, milestone payments, and payments for the sale of API to partners. In general, our partners license exclusive rights for the use of enhanced data associated with a specific target. Examples of targets that partners have gained exclusive rights for use within HANDS include HER2, Anti-CD38, PD-1, and PD-L1. I'll begin with the royalties. Across all of our agreements, we receive, on average, a mid-single-digit royalty on net sales. Milestones are also a key revenue contributor. We receive upfront payments for access to the technology and for the nomination of the initial selected target or targets. In our most recent agreements, this has been in the 30 to 40 million dollar range for one to two targets.
In summary, and as shown in slide side, we receive royalties milestone payments and payments for the sale of <unk> partners.
In General our partners license exclusive rights frees up in hand associated with the specific target.
Example of targets the apartments have gained exclusive rights for used to with enhance include her too.
I think CD 38, PD, one PDL one.
I'll begin the royalties across all of our agreement we receive on average in mid single digit wealthy on net sales.
Milestones are also a key revenue contributor.
We see upfront payments for access to that acknowledging the nomination of the initial selected target or targets.
And our most recent agreement this has been in this 30 to 40 million dollar range for one to two targets.
Helen I. Torley: We receive increasing development milestone payments as the partner makes progress to approval and first sale. In recent agreements, this has generally been 40 to 60% of the 160 million total potential milestones per target. We also receive commercial milestone payments as sales thresholds are achieved. This is also in the 40% to 60% range of total potential milestones per target in the recent agreement. And finally, Gillizan is accountable for overseeing the production, release, and quality control of the API, or Active Pharmaceutical Ingredient, which is manufactured at two contract manufacturing organizations. We receive a 20% margin on bulk sales to Partners.
We receive increasing development milestone payments at the partner makes progress to approval and for sale.
In recent agreement this is generally being 40% to 60% off the 160 million total potential milestones for target.
And well see commercial milestone payments sales thresholds are cheap.
This is also in the 40% to 60% range of total potential milestones for targets in the recent agreements.
And finally get was I never comfortable to oversee the production release and quality control <unk> active pharmaceutical ingredient, which is manufactured at two contract manufacturing organizations.
We received 20% margin on bulk sales partners.
Helen I. Torley: As illustrated on slide 6, to date, we have signed 9 enhanced licensing and collaboration agreements with the marquee pharma and biotech companies that are listed here. As you will note, in recent years, we have substantially increased the potential value for each target being developed, going from initial milestones per target of $30-$50 million to now $160 million per target. Royalty rates have remained in the range that is maintaining the average of the single-visit royalty across all contracts.
[noise] as illustrated on slide six today, we have signed nine ENHANZE licensing collaboration agreements, but the marquee pharma and biotech companies that are this listed here.
As you will note in recent years, we've substantially increase the potential value for each target being developed scoring from initial milestones for target on $30 million to $50 million to not $160 million per target.
Royalty rates have remained in the range that is remaining that is maintaining the average single digit royalty across the whole contracts.
I'll now provide an update on the substantial progress that would be making on the platform beginning with the approved products that utilize enhance.
Helen I. Torley: I'll now provide an update on the substantial progress that we've been making on the platform, beginning with the approved products that utilize Enhance. To date, three products have been approved in global markets utilizing Enhance and have demonstrated tangible commercial success. These are listed on slide seven.
To date three products have been approved in global markets utilizing enhanced and have demonstrated tangible commercial success.
These are listed on slide seven.
Helen I. Torley: Sales of these products have resulted in cumulative lifetime royalty payments to Halozyme from time of launch to today of approximately $305 million. After achieving strong market acceptance with a reported peak share for Hersetzen SC of 60% of the EU market total sales volume and 34% for MAPSERA, revenues for Hersetzen have since declined with the emergence of European biosimilars. The most recent impact is reflected in the updated guidance that Laurie will discuss in a moment. Turning now to slide 8, we are very excited for the next potential launches of Utilizing in Hands, which will begin an important inflection in our royalty revenue growth. Regarding the Columba Phase 3 data, daratumumab SC can be given in three to five minutes subcutaneously, and there may also be the potential for a lower rate of infusion-related reactions.
Sales of these products have resulted in cumulative lifetime royalty payments to halozyme from time of lunch today approximately $305 million.
[noise] after achieving strong market acceptance with reporting peak share for Herceptin SC of 60% of the market total sales volume.
The 4% for men era, where it needs for I see have since declined with the emergence of European bio Similars.
The most recent impact is reflected in the updated guidance Lori will discuss in a moment.
Turning now to slide eight we're very excited for the next potential lunches utilizing enhanced which will begin an important inflection in a royalty revenue growth.
Based on the Columbus Phase three data or to my mother S. C can be given in three to five minutes subcutaneously.
There may also be the potential for lower rate of infusion related reactions.
Helen I. Torley: Janssen completed regulatory submissions in the U.S. and in Europe for the subcutaneous formulation of Darzalex in July of 2019, supporting the potential for mid-2020 approvals, assuming standard regulatory review time. With SARS-CoV-2 currently projected by analysts to exceed $3 billion in sales in 2020, Janssen has stated that SE is a core part of their future growth strategy, supporting their goals of expansion into frontline settings and treatment in the community setting. Moving that to the right column, Progeta, Herceptin, and Fixed Dose Combination is the next potential launch. This is an important first, combining two therapeutic antibodies in a single fixed-dose formulation utilizing enhanced, enabling a five-minute subcutaneous injection compared with the up to two and a half hours for the sequential IV administration of Herceptin and Progetta. The HER2-positive early breast cancer population is estimated at 75,000 patients in the U.S. and EU.
Yes, and completed regulatory submissions in the U.S. and in Europe for the subcutaneous formulation for Darzalex in July of 2019 supporting the potential for mid 2020 approvals, assuming standard regulatory review times.
With Darzalex currently projected by analysts to exceed $3 billion and sales in 2020 Janssen has stated that I see as a core part of their future growth strategy supporting their goals of expansion into frontline setting a treatment in the community setting.
Moving now to the white collar forget herceptin fixed dose combination is the next potential launch.
This is an important first I'm, writing to therapeutic antibodies any single fixed dose formulation utilizing enhanced enabling a five minute subcutaneous injection compared with two it on earth, but the sequential I'd be administration herceptin and projector.
Her two positive early breast cancer population is estimated at 75000 patients in the U.S. any you.
Helen I. Torley: The project has already reached more than 50% of patients who are at high risk of recurrence in the early launch countries in the US and Europe. According to Roche's third quarter earnings report, Progetta sales grew 33%, driven by the uptake of the Affinity, Progetta, and Herceptin regimen in HER2-positive early breast cancer. Moving now to the development pipeline, what has really been remarkable in the last couple of years has been the acceleration in the number of products entering the clinic with in-hand. In 2019, we projected we would have 12 products in clinical development, and I'm delighted to say that we currently have 11 in development, with Darzalex, Progetto Herceptin, and 9 products that are currently in Phase 1 testing. Illustrated on slide nine are the nine programs that are in or have completed phase one clinical testing.
For data has already reached more than 50% of patients who are at high risk of recurrence and early launch countries in the U.S. in Europe .
According to Roche's third quarter earnings report forget to sales grew 33% driven by the uptake of the affinity Perjeta and herceptin regimen and her two positive early breast cancer.
Moving now to the development pipeline what is really been remarkable in the last couple of years I've been acceleration and the number of products entering the clinic utilizing enhanced.
2019 be projected we would have 12 products in clinical development and I'm delighted to say that we're currently have 11 in development with Darzalex projector Herceptin and nine products that are currently in phase one testing.
[noise] illustrated on slide nine or the nine programs that are in or has completed phase one clinical testing.
Helen I. Torley: Excitingly, based on current partner plans, we see the potential for at least four phase two or three clinical trial starts in 2020 and already have line of sight for the potential for at least five new phase one starts in the same year. We had expected to announce a Phase 3 study start in 2019. This program is now expected to start in mid-2020, as the Phase 1 study is taking longer to complete than had originally been planned.
Excitingly based on current partner plans, we see the potential for at least for phase two or three clinical trial starts and 2020 and already have line of sight, but the potential for at least five new phase one start also in 2020 .
We had expected to announce a phase three study start in 2019.
This program is now expected to start in mid 2020 at the Phase one study is taking longer to complete and had originally planned.
That would be what turned to the revenue potential for the enhanced platform shown on slide 10.
Helen I. Torley: Now, let me return to the revenue potential for the enhanced platform shown on slide 10. We continue to project the potential for $1 billion in royalty revenues in 2027. Included in this projection are the three currently commercialized products, the development products we just discussed excluding Alexion, and five products that are planned to start Phase 1 testing in 2020. We've temporarily removed Alexion as we anticipate an update from Eli Lilly in 2020 on their development plans for Alexion 1810, including the potential indication. And just a brief reminder on the approach we use for this non-risk-adjusted projection. Where available, we utilize analyst consensus sales estimates. We apply available information and our knowledge of the potential launch timing and then apply our assumptions on peak conversion and time to peak conversion.
We continue to project the potential for $1 billion in royalty revenues in 2027.
Included in this projection of the three currently commercialized products. The development products. We just discussed excluding Alexia and five products that are planned to start phase one testing in 2020.
Was temporarily removed Alexei on as we anticipate update from election in 2020 on their development plans for elect count 18, 10, including potential indications.
I just a brief reminder, an approach we use for this knowing up risk adjusted projection.
Where available we utilized analyst consensus sales estimates.
We fly available information in our knowledge on the potential launch timing and then up like our assumptions on peak conversion and time see conversion.
Helen I. Torley: We also assume global launches in all indications. The impact of new product approvals, including Daratumumab and Progetto Receptin, is illustrated with a clear revenue inflection occurring after a period of modest royalty decline with the current product. Our Broad Earlier Pipeline then adds its contribution. Now I'd like to just briefly review our Royalty Charms.
We also seemed a little launches in all indications.
The impact of the new product approvals, including Daratumumab and project Herceptin or illustrated with a clear revenue inflection occurring after a period of modest royalty decline with the current product.
Our broad earlier pipeline than at its contribution.
And now I'd like to just briefly review our royalty term.
Helen I. Torley: The RUPH20 patent expires in Europe in 2024 and in the U.S. in 2027. In general, a royalty term continues until the latter of the last expiring RUPH20 patent, or 10 years after the first commercial sale. If RUT PH 20 exclusivity expires during this 10-year term, there is a step down in the royalty rate of approximately 50% from expiry until the end of the 10-year term.
They are you page 20 patent expires in Europe in 2020 for any new U.S. and 2020 seven.
In general our royalty term continues until the latter elastic are are you page 20 patent or 10 years post first commercial sale.
[noise] aren't cheap ph 20 exclusivity expires. During this 10 year term there was a step down in the royalty rate approximately 50% from expiry until the end of the tenure term.
Helen I. Torley: And it's this design that allows us to project meaningful royalty revenues even beyond 2027. And there is also the potential to obtain additional co-formulation patents on certain novel and partner products, potentially extending the mid-single-digit royalty term up to 20 years post-patent filing date. While each agreement is negotiated separately, and terms and conditions vary across the agreements, in general, the core formulation patents have a favorable effect on the duration of the royalty term and potentially delay the timing of the royalty step-down.
And it's this design that allows us to protect meaningful royalty revenues even beyond 2027.
That was also the potential to obtain additional co formulation that on certain novel and Parker chronic occasionally extending the mid single digit rocky true up to 20 years post patent filing date.
Well each agreement is negotiated separately and terms and conditions vary across agreements in general the co formulation patents have the favorable effect on the duration of the royalty term potentially delay the timing of the wealthy step down.
Now I'll move on to the anticipated contribution from our milestones we call. We received upfront payments when we sign new deals and then development and commercial milestone payments when development programs progress to launch.
Helen I. Torley: Now I'll move on to the anticipated contribution from our milestones. We call them, we receive upfront payments when we sign new deals, and then development and commercial milestone payments when development programs progress to launch. Milestone payments play a key role in driving Halozyme revenue and our free cash flow. Turning to slide 11.
Milestone payments play a key role in driving keyless, I'm revenue and our free cash flow.
Turning to slide 11 in 2018, we projected 2019 to 2022 milestone revenues of $225 million to $300 million.
Helen I. Torley: In 2018, we projected 2019 to 2022 milestone revenues of $225 to $300 million. In 2019, from January to October, we have received $55 million and are tracking well to our three-year project. Today I'm pleased to update our three-year milestone projections based on the strong development momentum we're seeing across the ENHANZ portfolio. Based on current partner plans for the period of 2020-2022, we project strong milestone revenues in the range of $350 million to $450 million. Our revenue growth outlook, driven by both royalty and milestone growth, places Halozyme in a strong position to return capital to our shareholders. And we're committed to creating value for our shareholders and view capital return as a key component. Turning now to slide 12, we now have in place a plan to repurchase up to $550 million in shares over the next three years.
In 2019 from January to it to over we have received $55 million and are tracking well to our three year projection.
[noise] today I'm pleased to update our three year milestone predictions based on the strong develop a minute momentum were seeing across the entire enhance portfolio.
Based on current partner plans for the period of 2020 to 2022, we project strong milestone revenue in the range of 350 to 300, and sorry to $450 million.
Our revenue growth.
Driven by both royalty and milestone broke places halozyme any strong position to return capital to our shareholders.
We're committed to creating value for shareholders and do capital returns as a key component.
Turning now to slide 12, we now have in place they plan to repurchase up to $550 million in shares over the next three years.
Helen I. Torley: As announced today, we are offering a $400 million aggregate principal amount of convertible single notes due in 2024. We plan to use up to $200 million of the net proceeds from the offering to repurchase shares of the company's common stock concurrently or shortly after the pricing of the offering. Now, importantly, this is in addition to the November 4th announcement by our board of directors of a share repurchase program of $350 million over the next three years. Issuing this convertible note to help fund share buybacks is an opportunity to immediately return capital to investors as we transition to a profitable and hands-only company. And Lori will be providing some additional color on this in her section in just a moment.
And then ends today, we're offering a 400 million dollar aggregate principal amount and convertible senior notes due in 2024.
We plan to use up to 200 million up and net proceeds from the offering to repurchase shares up the company's common stock concurrently or shortly after the pricing the offering.
And importantly, this is in addition to the November 4th announcement of the authorization by our board of directors all the share repurchase program $350 million over the next three years.
They shouldn't just convertible note to help fund share buybacks is an opportunity to immediately return capital to investors as we transition for profitable in hand only company.
Lori will be providing some additional color on this in her section in just a moment.
Helen I. Torley: Before I move to the discussion of the third quarter and upcoming enhanced developments, let me just summarize the investment thesis for Halozyme on slide 13. Enhance is a commercially validated platform with 3 globally approved products that have generated approximately $305 million in cumulative royalty payments since the first SV product launch. We're approaching a royalty revenue inflection point with near-term potential approvals for Daratumumab SC and Progeta Herceptin six-dose combinations. Strong future growth potential is fueled by the deep pipeline of partner products that are in development, and all of the above are resulting in a potential royalty revenue career of approximately 40% between now and 2027. As I move now to operating expenses, our lean, scalable operations with annual off eggs, excluding cost of goods sold, up $65 to $75 million by the fourth quarter of 2020, provide strong operating leverage for future years.
Before I move to the discussion of the third quarter, an upcoming enhanced development. Let me just summarize the investment thesis for Halozyme on slide 13.
In hand, easy commercially validated platform with Threed globally approved products that have generated approximately $305 million in cumulative royalty payments since the first FC product launch.
We're approaching a royalty revenue inflection point with near term potential approval for Daratumumab, I see I forget or herceptin fixed dose combination.
Strong future growth potential is fueled by the deep pipeline a partner products that are in development.
All of the above our resulting in a potential royalty revenue cagar approximately 40% between now and 2027.
If I move now to the operating expenses are lean scalable operations, but I know opex, excluding cost of goods sold up $65 million to $75 million by the fourth quarter of 2020 provide strong operating leverage for future years.
Helen I. Torley: This operating leverage is projected to generate strong free cash flow from operations, which serves as the basis for the approval by the Board of Directors of the Capital Return Plan for Shareholders that we announced on November 4th and also today. Now that this is a summary of the enhanced value proposition and our business model, I'll turn to slide 14 and provide an update on the recent and upcoming partner activities. Beginning with Janssen, according to the most recent update provided by J&J, Darzalex IV continued its strong growth trajectory in the third quarter, with 42% adjusted sales growth globally. With the regulatory submissions completed in July of 2019, we look forward with excitement to potential regulatory approvals in 2020. I am moving now to Roche.
It's operating leverage is projected to generate strong free cash flow from operations, which served as a basis for the approval by the board of directors. The Council term <unk> plan for shareholders that we announced on November 4th and also today.
No that summary of the enhanced value proposition and our business model I'll turn to slide 14, and provide an update on the recent and upcoming partner activities.
Beginning with Janssen. According to the most recent update provided by JNJ Darzalex IB continued its strong growth trajectory in the third quarter with 42% adjusted sales growth globally.
With the regulatory submissions completed in July 2019, we look forward with excitement to potential regulatory approvals in 2020 .
Moving now to Roche following the announcement positive results in September data from the phase three Federica study evaluating the fixed dose combination of forget or herceptin will be presented at the San Antonio Breast conference in December .
Helen I. Torley: Following the announcement of positive results in September, data from the Phase III Federica study, evaluating the fixed-dose combination of progenitor-herceptin, will be presented at the San Antonio Breast Conference in December. Roche has indicated plans to begin regulatory submissions for this product in early 2020. A phase one study evaluating concentric with enhancers is ongoing. Roche is assessing the next steps with this program, including discussions with authorities.
She has indicated plans to begin regulatory submissions for this product in early 2020 .
[noise] Roche's phase one study evaluating interest with enhances ongoing roche's assessing the next steps with this program, including discussions with authorities.
Helen I. Torley: And in addition, we're very pleased to announce that the first patient in a Phase 1 study evaluating OkraVis was enhanced with those in August. And finally... Roche selected an additional target for development under our existing collaboration, triggering a $10 million milestone payment to Halozyme. The target selected is currently undisclosed. I'll move now to Brista Marks-Quibb.
And in addition, we're very pleased to answer the first patient phase one study evaluating oak service within hands was dosed in August .
Finally.
So let's get on additional targets for development under our existing collaboration triggering a 10 million dollar milestone payment to halozyme.
The target selected it's currently undisclosed.
I would not to Bristol Myers Squibb.
Helen I. Torley: In addition to the ongoing Phase 1 study with nivolumab, BMS recently completed a Phase 1 study with their anti-CD73 antibody. And earlier this quarter, a Phase 1 trial was initiated for a third Bristol-Myers Squibb target being studied with enhanced rilatilamab, and this is in combination with nivolumab. And our newest partner, Organics, recently announced plans to share the results from its phase one study of escartegemab with enhanced and healthy volunteers before year-end. And they also discussed the potential of a bridging study for myasthenia gravis. Recall that the results of their ADAPT trial in Myasthenia gravis are expected in the second half of 2020. And finally, Organics plans to initiate a first in human study in the hands for its complement factor C2 candidate, Organics 117, in the first quarter of 2020.
In addition to the ongoing phase one study with Nivolumab.
The amassed recently completed a phase one study, but they're anti cdseventy three.
Earlier this quarter a phase one trial was initiated for a third Bristol Myers Squibb target being studied with enhanced well Atlanta and this is in combination with Nivolumab.
And our newest partner Organics recently announced plans to share the results from phase one study of Xcar teach them up with enhanced in healthy volunteers before year end I may also discuss the potential for bridging study for my senior Gratis.
Recall that the results of their adapt trial in my senior rabbits are expected in the second half of 2020 .
And finally organics plans to initiate a first in human study within hands for its complement factor see two candidate organics 117 in the first quarter of 2020.
Helen I. Torley: As you just heard, our partners are making tremendous progress with their studies of their enhanced co-formulated products. Based on the plans our partners have shared with us, we expect a growing portfolio of development programs. Now, let me just close this update on the potential for new enhanced seals. We're in dialogue with multiple companies and continue to see potential for new partner agreements based on the enhanced value proposition. With that, I'd now like to turn the call over to Laurie for a discussion of our third quarter financial results and outlook.
As you just heard our partners are making tremendous progress with their studies other enhance co formulated products.
Based on the plans are far some shared with US we expect a growing portfolio of development programs.
Not just close our this update with the potential for new enhance deals.
We're in dialogue with multiple companies and continue to see potential for Newport under agreement based on the enhanced value proposition.
With that and I like to turn the call over to Laurie for a discussion of our third first quarter financial results and beyond that.
Lori Stelzer: Thank you, Helen, and good afternoon, everyone. Turning to slide 15, total revenue for the third quarter was $46.2 million, compared to $25.6 million in the prior year period. This 81% increase was primarily driven by higher API sales to partners, as we discussed on our last call.
Thank you Helen and good afternoon, everyone.
Turning to slide 15 for a discussion of our third quarter financial results.
Total revenue for the third quarter was $46.2 million compared to $25.6 million in the prior year period.
This 81% increase was primarily driven by higher Apiay sales to partners as we discussed on our last call.
Lori Stelzer: Royalty revenue for the quarter was $16.6 million, a decrease of 11%, primarily driven by lower sales of Perceptin SC by Roche, reflecting the ongoing impact from biosimilars. Product sales were $29.2 million in the quarter compared to $6.3 million in the year-ago period, mainly due to an increase in the sale of bulk RQPH20 to Janssen. We expect that product sales of API will fluctuate in future periods based on the needs of our collaboration partners.
We're able to revenue for the quarter was $16.6 million a decrease of 11% primarily driven by lower sales up Herceptin SC by Roche, reflecting the ongoing impact from buyers sellers.
Product sales up $29.2 million in the quarter compared to $6.3 million in the year ago period, mainly due to an increase in the sale bulk RQ ph 20 to Janssen.
We expect net product sales the baby I will fluctuate in future periods based on the needs of our collaboration partners.
Lori Stelzer: Collaboration revenue in the quarter totaled $0.4 million, compared with $0.6 million a year ago. Turning to slide 16 for a more detailed breakdown of our P&L, I'll now move on to total operating expenses, which were $70.8 million in the third quarter, up from $51 million in the prior year period. The increase in total operating expenses was driven by a higher cost of product sales, which was $22.3 million, up from $0.6 million in the prior year period, again driven by higher sales of API. Research and development expenses of $30.5 million declined from $35.5 million in the prior year period, reflecting a planned reduction in clinical trial activity as we neared the top line result readout from Halo 301.
Collaboration revenue in the quarter total point $4 million compared with point $6 million a year ago.
Turning to slide 16 for a more detailed breakdown of our key and now ill now move on to total operating expenses, which for which were $70.8 million in the third quarter up from $51 million in the prior year period.
The increase in total operating expenses was driven by higher cost of product sales, which were $22.3 million at some point $6 million in the prior year period again, driven by the higher sales of eight.
Research and development expenses of $30.5 million declined from $35.5 million in the prior year period, reflecting a planned reduction in clinical trial activity as we near the top line result read out from Halo 301.
Lori Stelzer: SG&A of $18 million compared with $14.9 million in the prior year, primarily due to an increase in compensation expense, including stock compensation related to initial support of our oncology operations. Net loss for the quarter was $25 million, or $0.17 per share, compared to a net loss of $27.9 million, or $0.19 per share, in the third quarter of 2018. Cash equivalents and marketable securities were $238 million at September 30th compared to $354.5 million at December 31st, 2018.
S DNA of $18 million compared with $14.9 million in the prior year, primarily due to an increase in compensation expense, including stock compensation related to initial support of our oncology operation.
Net loss for the corner with $25 million or 17 cents per share compared to a net loss of $27.9 billion or 19 cents per share in the third quarter of 2018.
Cash cash equivalents marketable securities were $238 million at September thirtyth compared to $354.5 million at December 31st 2018.
Now now turning to slide 17 for an update on our 2019 financial guidance.
Lori Stelzer: Now turning to slide 17 for an update on our 2019 financial guidance. We now expect total revenue to be in the range of $195 to $205 million, compared to our prior guidance of $205 to $215 million, driven by the movement of the plan phase three start from 2019 into 2020, although offset in part by the new target nomination by Roche.
We now expect total revenue to be in the range of $195 million to $205 million compared to our prior guidance of $205 million to $215 million driven by the movement of the plan faced restart from 2019 into 2020.
Offset impart by the new target nomination by Roche.
Royalty revenue is expected to be in the range of $67 million to $69 million compared to prior guidance $70 million to $74 million a reflection of the projected ongoing impact the bio similars.
Lori Stelzer: Royalty revenue is expected to be in the range of $67 to $69 million, compared to prior guidance of $72 to $74 million, a reflection of the projected ongoing impact of biosimilars. We continue to expect operating expenses of $255 to $265 million and operating expenses excluding cost of goods sold of $215 to $225 million. A restructuring cost of $25 to $27 million will be booked in the fourth quarter, and these costs will be offset by lower operating expenses in Q3 and expense savings as a result of closing our oncology operation. As a result, operating cash burn is now expected to be $50 to $60 million, compared to prior guidance of $40 to $50 million. Furthermore, we expect to continue to make quarterly payments on our royalty-backed debt and expect to pay off the remainder of this debt by the second quarter of 2020. Finally, we continue to expect our year-end cash balance to be $220 to $230 million. Now, as you have just heard, Halozyme is in a strong financial position as a company focused solely on Enhance.
We continue to expect operating expenses of $255 million to $265 million, an operating expenses, excluding cost of goods sold a $215 million to $225 million.
Restructuring costs of $25 million to $27 million well, we booked in the fourth quarter and these costs are offset by lower operating expenses in Q3 and expense savings as a result of closing our oncology operation.
As a result operating cash burn is now expected to be $50 million to $60 million compared to prior guidance of $40 million to $50 million.
Furthermore, we expect to continue to make quarterly payments on our royalty back at and expect to pay off the remainder of this debt by the second quarter of 2020.
Finally, we continue to expect our yearend cash balance to be $220 million to $230 million.
Now as you have just heard Halozyme isn't a strong financial position as a company focused solely on enhanced.
With our current strong financial position and outlook for growth in cash flows we are committed to maximizing value for shareholders and be returning capital as an important part of our strategy.
As mentioned earlier in the call. We are offering a 400 million dollar aggregate principal amounts of convertible senior notes due in 2024.
Lori Stelzer: With our current strong financial position and outlook for growth in cash flows, we are committed to maximizing value for shareholders and view returning capital as an important part of our strategy. As mentioned earlier in the call, we are offering a $400 million aggregate principal amount of convertible senior notes due in 2024. We plan to use up to $200 million of the net proceeds from the offering to repurchase shares of the company's common stock concurrently or shortly after the pricing of the offering. This is in addition to the November 4th announcement by our Board of Directors of a share repurchase program of $350 million over the next three years. The company intends to use the remainder of the net proceeds from the offering for general corporate purposes, including share repurchases subsequent to the offering, working capital, and the retirement of the existing debt obligation under a loan agreement with Oxford Finance and Silicon Valley Bank, with interest expense savings of $1.4 million.
We plan to use up to $200 million of the net proceeds from the offering to repurchase shares at the company's common stock concurrently or shortly after the pricing of the offering.
This is in addition to the November 4th announcement of the authorization by our board of directors of a share repurchase program at $350 million over the next three years.
The company intends to use the remainder of the net proceeds from the offering for general corporate purposes, including share repurchases subsequent to the offering working capital and the retirement of existing debt obligation under our loan agreement with Oxford Finance in Silicon Valley Bank with interest expense savings of one point.
$4 million.
As we previously guided we expect to be cash flow positive in Q2, 2020, as we transition to an hands only company.
Assuming this convertible note now will allow us to recapitalize the company immediately return capital to shareholders and lower our overall cost of capital while ensuring that we can continue to opportunistically return capital as we transition to a positive cash flow.
And with that let me turn the call back to Helen who will provide closing comments.
Lori Stelzer: As we previously guided, we expect to be cash flow positive in Q2 2020, as we transition to an enhanced only company. Issuing this convertible note now will allow us to recapitalize the company, immediately return capital to shareholders, and lower our overall cost of capital, while ensuring that we can continue to opportunistically return capital as we transition to a positive cash flow. And with that, I will turn the call back to Helen, who will provide closing comments. Thank you.
Thank you Laurie.
As you've heard our transition to focused solely on enhance comes at a time when we have a record number of products in the clinic two upcoming potential launches and line of sight to multiple new phase one and later stage trials that are in 2020 with potential for you agreements to be signed.
None of this would be possible without the strong talented halozyme team and I'd like to end my prepared remarks by thanking everyone for the tremendous effort and the strong results.
With that operator would you. Please open the call for questions. Thank you.
Helen I. Torley: Thank you, Laurie. As you know, our transition to focus solely on Enhance comes at a time when we have a record number of products in the clinic, two upcoming potential launches, and line of sight to multiple new Phase 1 and later stage trial starts in 2020, with the potential for new agreements to be signed. None of this would be possible without the strong, talented Halozyme team.
Certainly in order to ask a question you will need to press star one on your telephone to withdraw your question press the pound or how should we stand Bible compiled acuity roster.
And your first question comes from Charles Duncan with Cantor Fitzgerald. Your line is open.
[noise] guys or a good afternoon, thanks for taking my questions.
Unknown Executive: And I'd like to end my prepared remarks by thanking everyone for the tremendous effort and the strong results. With that, Operator, would you please open up the call for questions? Thank you.
So quick question regarding the pipeline up I'm wondering about.
A clinical trial that was started I believe by JJ, yeah or listed by changing in China, and just kind of wondering.
Unknown Executive: Certainly, in order to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. And your first question comes from Charles Duncan on Cantor Fifth Girl. Your line is open. Hi guys, or good afternoon.
If in your estimates as to the potential for Gary Superman are you, including Asian.
Revenues in in that.
Regard to you know they enhance version of there too.
Charles Duncan: Thanks for taking my questions. So, quick question regarding the pipeline. I'm wondering about a clinical trial that was started, I believe, by J&J and or listed by J&J in China. And I'm just kind of wondering if in your estimates as to the potential for Daratubamab, are you including Asian revenues in that with regard to, you know, the enhanced version of Daratubamab?
Hey, Thanks, Chad, Yes, we do it then I mentioned the prepared remarks, we can weigh in our projections consider global launches and all indications and as you mentioned dance very extensive program of dorsal FSC not just broke ground in China, but also in Japan and studies.
All lines of therapy, and so be it with that extensive clinical program.
Helen I. Torley: Hey, thanks, Chas. Yes, we do, as I mentioned in the prepared remarks, we do, in our projections, consider global launches and all indications. As you mentioned, J&J has got a very extensive program of dorsal XFC, not just programs in China, but also in Japan and studies in Ireland.
The all of those sales are reflected in our projections as well.
Okay, and then seats.
Question is related to kinda. The guide so I'm wondering if you could provide a little bit more granularity on the topline in terms of kind of the contribution so.
Charles Duncan: Okay, and then let's see, the second question is related to kind of the guidance. I'm wondering if you could provide a little bit more granularity on the top line in terms of the kind of contributions of different aspects of the top line.
Different aspects of of of the topline.
Hi, Charles this is Laurie I. So you know as far as topline goes the change in our topline was really due to the movement of the phase three I start that we had anticipated in 2019 moving to 2020, I and its partially offset by the new target nomination.
Lori Stelzer: Hi Charles, this is Lori. So, you know, as far as the top line goes, the change in our top line was really due to the movement of a phase three start that we had anticipated in 2019 moving to 2020. And it's partially offset by the new target nomination that Helen mentioned in the prepared remarks from Roche. The components, you know, we do guide on royalties. So we did give the sixty seven to sixty nine million royalties. We've also talked about the milestones and up front, and if you recall from Helen's remark to date, we've received fifty five million dollars. And again, we do anticipate, you know, some additional study, or, I'm sorry, additional nomination.
Alan mentioned in the aftermarket much the compound and Oh, we do guide on royalties. So we did give the 67 to 69 million.
Royalties.
We've also talked about the.
The milestones and upfront San if you recall from Alan Helen's remark on to date, we've received a $55 million and again, we do anticipate a you know some additional study I mean I'm sorry at additional nomination and then Apiay considerably more.
Lori Stelzer: And then API is considerably higher this year than it has been in previous years. If you notice, in the quarter, we did book almost thirty million dollars in API. And so that's a substantial part of the total revenue line as well.
For this year than it has been in past years on if you notice in the quarter, we did book.
Almost $30 million in AG I and so that's a substantial part of the of the total revenue line as well.
Charles Duncan: Okay, and sorry if I missed that. Lori and Helen, I'm running through an airport.
Okay, and sorry, if I Miss that Orient Helena run it through an error airports. So my last question and I. Appreciate you taking a mall is regarding business development activities I think Helen you mention that.
Helen I. Torley: So my last question, and I appreciate you taking them all, is regarding business development activities. I think, Helen, you mentioned that you had active discussions ongoing, and I know that depends on timing with a potential partner, but would you anticipate or how would you think about success in that business development effort over the course of, say, the next 12 months? Could we anticipate another partnership to come to fruition in that?
You had active discussions ongoing Tonight I know that.
Depends on timing with a potential partner, but would you anticipate or how would you think about success is that business development effort over the course of say the next 12 months could could we anticipate another partnering to come to fruition in that time.
Helen I. Torley: We absolutely could, Charles, just based on the conversations that we have going on today. Our challenge is always that the timing is not in our control, but definitely, based on the active conversations, it's possible.
We absolutely Charles I'm, just based on the cat. So conversations that we have going on today. Our challenge is always the timing is not in our control, but that's like based on the asset backed conversations it's Paul.
Charles Duncan: Okay, very good. Thanks for taking my questions. Your next question comes from Jim Bertineau with Wells Fargo. Your line is open.
Okay very good thanks for taking my questions.
Access.
Your next question comes from Jim Merchant with Wells Fargo. Your line is open.
Hi, guys. Congrats on all the progress I want to digest.
Jim Bertineau: Hi guys, congrats on all the progress. A lot to digest. I guess the first question is just on your milestone guidance within the three-year period based on what you know about the cadence of programs underlying that. Should we evenly distribute it across years, or does that get a little bit more back-end weighted as it increases over the course of the three years?
I guess the first question is just on your milestone guidance within the three year period based on what you know, but the cadence.
Well I'm not sure we evenly distributed across years or does that give a little bit more backend weighted as an increase over the course the three years.
Yes, Yes did Mike Thanks for the question it does increase a bit over the next three years you can imagine that are milestones and to increase the products move into later stages of development and then two approvals and launches and for sale and so there must increase which is for the 280, we kind of.
Lori Stelzer: Yes, thanks for the question. It does increase a bit over the next three years. You can imagine that our milestones tend to increase as products move into later stages of development and then to approvals, launches, and first sales. And so the amount increases, which is what leads to it always kind of being a little bit larger as you move out. But we do see very nice year-on-year growth; it just will get larger with that progress in the pipeline.
Being a little bit larger as you move out, but we do see very nice year on year growth. They just we'll get larger with that progress in the pipeline.
Helen I. Torley: And then maybe, you know, a question as we look ahead to the approvals and launches of Darzalex SubQ and Pergeta Herceptin SubQ. We've had questions on, you know, the expectation for conversion rates. Could you maybe go through how you think about the conversion rates for those two products? You know, perhaps benchmarking against what you've seen in Europe or, you know, how do you think about the relative conversion rates for those two drugs and, in particular, Pergeta Herceptin? I think a lot of people are trying to figure out how to think about that. Does that convert like Herceptin did in Europe or, you know, what's some guidance you can give us there?
And then maybe you know question as we look ahead to the approvals and launches.
Darzalex Subcu and Matt.
Yeah, that's herceptin Subcu, we got questions on you know the expectation for conversion rate could you maybe go through how you think about conversion rate.
Those two products.
Wrapping benchmarking against what you've seen in Europe .
How do you think about the relative conversion rates for those two drugs and in particular Prijedor Herceptin I think a lot of people are trying to figure out how to think about that does not convert like or something that and in Europe or you know what's what's some guidance you can give up there.
Helen I. Torley: Yeah, thanks.
Yes, thank them, what we do benchmark exactly as you see him and our Best example, we believe is they offer set then I'll get you report got to 60%. Your sales volume we look at best stable what was the value proposition there that's about 10 minutes that Q.
Helen I. Torley: We do benchmark it exactly, as you see in our best example, which we believe is the Herceptin uptake in Europe, where it got to 60% of sales volume. And we look at that and say, well, what was the value proposition there? That's about 10 minutes sub Q versus what is often a 60 to 90 minute IV. And so we make our judgment based on the value proposition, the patient population, and, frankly, the competitive environment to say, what is it going to be? Is it going to be higher than that 60%, or is it going to be lower than that 60%? And that's kind of where we use our judgment. I think for Progetta Herceptin, that's obviously an early breast cancer population.
This is Paul it's often 60 to 90 minute Ivy and so we do our judgment based on the value proposition the patient population and frankly, the competitive environment to say what is it going to be isn't but higher than that 60% or is it going to be lower that 60% and that's kind of where we use our judgment I think forget to her.
And that's obviously a up early breast cancer population that gets up and down mobile populations you definitely don't want.
Helen I. Torley: It's a mobile population who definitely don't want to be two and a half hours getting sequential IV, and that doesn't count additional monitoring that might have to be required. So we do look at that as being very similar to perhaps Herceptin and maybe even a little bit higher of that, potentially. But that's kind of the methodology that we consider as we look at this.
Half hours getting sequential I'd and that doesn't have additional monitoring that might not be required. So we do look at that at the very similar to perhaps they herceptin and maybe even a little bit higher that potentially but.
Kind of the methodology that we consider as we look at that.
And then maybe a final question Howard just in terms of by new Phase ones next year, we need to wait for those the post the Clin trials Dot Gov or do you expect those to be pretty identified by partners any visibility on what they might be.
Helen I. Torley: And then maybe a final question, Helen, just in terms of the five new Phase Is next year, do we need to wait for those to post to ClinTrials.gov, or do you expect those to be pre-identified by partners? Any visibility on what they might be?
Yeah, I think the partners generally like to keep it confidential until they're ready to start. So if it is a study in a patient population. It will be posted on clinical trials talk about immediately before and if they are at some studies are normal volunteers you won't find it being hosted arc is being conducted in Europe . It may not be posted a base.
Helen I. Torley: Yeah, I think the partners generally like to keep it confidential until they're ready to start. So if it is a study in a patient population, it will be posted on clinicaltrials.gov immediately beforehand. If they are, some studies are normal volunteers, you won't find it being posted, or if it's being conducted in Europe, it may not be posted. But based on our knowledge today, the majority of them will be posted on
Our knowledge today, the majority of them will be posted on clinical trials outcome.
Great well, thanks for taking the question.
Thank you.
Your next question comes from a Jason Butler with JMP Securities. Your line is open.
Hi, Thanks for taking the question and thanks for all of the details around ENHANZE platform I'm just one on combination strategies you were able to to comment on how other partners are looking at you know combination similar to the herceptin projet or in a fixed dose combination I think you mentioned.
Jim Bertineau: Great, well, thanks for taking the questions.
Jason Nicholas Butler: Your next question comes from Jason Butler with JMP Securities. Your line is open.
A lot Maben Opdivo is a combination is that that's fixed dose combination but could be.
Jason Nicholas Butler: Hi, thanks for taking the question and thanks for all of the details around the Enhanced Platform. Just one on combination strategies; are you able to comment on how other partners are looking at, you know, combinations similar to Herceptin-Progetter and a fixed-dose combination? I think you mentioned Rilat-Mamab and Opdivo as a combination. Is that a fixed-dose combination that could be, you know, a single administration, and are there others we might learn about?
A single administration and all their others, we we might learn about thanks.
Yes, Jason as you know often our partners plans are confidential for beer is competitive reasons. So other than being able to update you that there is that study that started with that or lack thereof, and dem nibbling that we're not really in a position to see anything more on that I do think this idea of being able to come.
A bite to biologics together in a single injection has definitely got people's attention, but unfortunately, I can't provide any more updates.
Helen I. Torley: Yeah, Jason, as you know, often our partners' plans are confidential for various competitive reasons. So other than being able to update you on that study that started with relatinib and nivolumab, we're not really in a position to say anything more on that. I do think this idea of being able to combine two biologics together in a single injection has definitely got people's attention, but unfortunately, I can't provide any more updates.
Okay, Great maybe two quick follow up and it could you maybe speak just these ability of these combinations or the or are there. Any you know are there any kind of product attributes that that that would limit the potential for for certain products being used and a fixed dose combination.
No. The first thing we task is to make sure that the two biologics themselves don't have any interaction. So that is probably going to be one of the most important art. We found an extensive clinical testing with on page 20 peers very well with most them antibody biologics. So I'd say, there that that base to be.
Helen I. Torley: Okay, great. Maybe a quick follow-up. Could you maybe speak to the feasibility of these combinations? Are there any, you know, any kind of product attributes that would limit the potential for certain products being used in a fixed dose combination?
Sure I'll be the coupons are combining have no reason to interact with each other so that would be the key thing.
Helen I. Torley: Now, the first thing we test is to make sure that the two biologicals themselves don't have any interactions. So that is probably going to be one of the most important parts. We found in extensive clinical testing with RUPH20 that it pairs very well with most antibody and biologics. So I think the big thing to be sure of is that the two products are not combining, and have no reason to interact with each other. So that would be the key thing.
Yes.
Great. Thanks for taking the questions.
Thank you. Your next question is from just go five with JP Morgan Your line is open.
Hey, there good afternoon, thanks for taking my questions.
At the risk of asking kind of an overly simplistic one can you spend a little more time elaborating on the decision to used 200 million or up to 200 million of the convert proceeds for share repo.
[noise] Hi, Jessica this is Laurie.
Jason Nicholas Butler: Okay, great. Thanks for taking the questions.
We are committed to returning on returning value to shareholders and we think that said doing it through share repurchase is the appropriate structure for us instead of doing that come Burke with a concurrent share repurchase allowed us to do that today, while we are not cash flow positive.
Jason Nicholas Butler: Thank you.
Jessica Macomber Fye: Your next question is from Jessica Fye with J.P. Morgan. Your line is open. Hey there, good afternoon. Thanks for taking my questions. At the risk of asking kind of an overly simplistic one, can you spend a little more time elaborating on the decision to use $200 million or up to $200 million of the converted proceeds for ShareRepo?
But we got that very near line of sight to cash flow positive growth. So I'm. So that's a decision and the on the 204 today.
Okay, and how do you decide whether to go all the way up to 200 million of repurchase or not and I think the release also mentioned the this use of proceeds for repo could result in a higher effective conversion price. So how is how would that work.
Lori Stelzer: Hi Jessica, this is Lori. We are committed to returning value to shareholders, and we think that doing it through share repurchase is the appropriate structure for us. And so doing the convert with a concurrent share repurchase allowed us to do that today while we are not cash flow positive, but we've got that very near line of sight to cash flow positive growth. So that's the decision on the 200 for today.
Yeah. It sure does this should not at all affect the conversion price. So it's a pretty you know it says that's a straightforward conversion with the ability to use the that convertible and the delta hedge for the share repurchase.
Jessica Macomber Fye: Okay, and how do you decide whether to go all the way up to $200 million in repurchase or not? And I think the release also mentions that this use of proceeds for a repo could result in a higher effective conversion price. So how would that work?
Okay.
Another question on the.
Prior milestone production of 225 to 300 million from 2018 to 2021, it's sort of written in the past tense on the slides do you still expect milestone in that range for that time frame.
Lori Stelzer: Yeah, it should, this should not at all affect the conversion price. So it's pretty, you know, it's a straightforward conversion with the ability to use the convertible and the Delta hedge for the share repurchase.
We do we just we do we just wanted to refresh it because obviously, we're coming out 2020 , but we're very much in that range.
Jessica Macomber Fye: Another question on the... Prior milestone projection of $225 to $300 million from 2019 to 2021. It's sort of written in the past tense on the slides. Do you still expect milestones in that range for that time frame?
Okay, and I think Charles was trying to ask this at the beginning of the call but is there anyway. You can help us think about the relative revenue contribution of enhance royalties versus milestones over the next two to three years.
Oh, yes, so I mean, that's a terrific question I think the milestones will be a significant part of the revenue story for us as we are hitting that inflection on the royalties. So I think you don't think about milestones is a very meaningful portion will.
Lori Stelzer: We do, we just we do, we just wanted to refresh it because, obviously, we're coming up to 2020, but we're very much in that range.
He will be approaching that inflection on royalties and starting up that her toward the billion dollars.
Jessica Macomber Fye: Okay, and I think Charles was trying to ask this at the beginning of the call, but is there any way you can help us think about the relative revenue contribution of enhanced royalties versus milestones over the next two to three years?
Okay got it and maybe just the last one on the royalties you mentioned this quarter I think some of the rough contribution was under pressure a little but do you expect your roes royalties to be up or down in 2020 relative to 2019.
Lori Stelzer: Oh, yeah. So that's a terrific question. I think the milestones will, you know, be a significant part of the revenue story for us, as we are hitting that inflection on royalties. And so I think, you know, think about milestones as a very meaningful portion. We'll be approaching that inflection on royalties and starting up that curve toward the billion dollars.
Yeah, what we're not giving detailed guidance for 2020 , but based on the trends that dahlman rose just discussed them on their quarterly calls, stating that there continued to see some biosimilar crash or in Europe , Although it's flowing out we do think we'll continue to see compressor, although more modest at night.
Jessica Macomber Fye: Okay, got it. And maybe just the last one on royalties. You mentioned this quarter, I think some of the Roche contribution was under pressure a little bit. Do you expect your Roche royalties to be up or down in 2020 relative to 2019?
Pressure on the Roche royalties in.
Okay, great. Thanks, so much for answering all my questions.
Thank you.
Your next question is from Gena Wang with Barclays. Your line is open.
Hi.
Lori Stelzer: Now, we're not giving detailed guidance for 2020, but based on the trends that Roche has discussed on their quarterly calls stating that they're continuing to see some isomer pressure in Europe, although it's slowing, we do think we'll continue to see some pressure, although a more modest amount of pressure on Roche royalties in 2020.
Yes.
This question.
Driver.
Yeah.
Or.
I'm sorry, we would you repeat your question or we're fighting through figure.
Oh, I'm, sorry, I'm so for questions on revenue driver between 20, a won't be the revenue driver for all four for you for you for 20 odd before there are two of them out approval.
Jessica Macomber Fye: Okay, great. Thanks so much for answering all my questions.
Ah so in 2000, so we have we aren't in a position to give guidance for 2020 again I think that you can think about our revenue in a very similar fashion.
Jessica Macomber Fye: Thank you.
Jenna Wang: Your next question is from Jenna Wang with Barclays. Your line is open. Any questions on integrating a driver for 2020?
With that royalties AG, I and milestone kind of contributing to that growth, but more detail than that we just haven't given any 20 Twond guide.
Unknown Executive: I'm sorry; would you repeat your question, or we're finding it very hard to hear?
Okay got it some questions or just remind us on the the IP expiration or for the core ENHANZE technology.
Jenna Wang: I'm sorry. So, the first question is on revenue driver for 2020. What would be your revenue driver for you for 2020 before their Tumamab approval?
Yes, [laughter] to lorries that call myself on the their revenues we are predicting that they will be higher than this year, although we are giving specifics on the guidance as yet so.
Lori Stelzer: So, we aren't in the position to give guidance for 2020. Again, I think that you can think about our revenue in a very similar fashion, you know, with the royalties, API, and milestones kind of contributing to that growth. But more detail than that, we just haven't given any 2020 guidance.
We see how much the core technology for enhanced.
Based composition of matter Pat will expire in 2024 in Europe , and 2020 seven in the United States as I mentioned in my prepared remarks that we will even in the face off patent expiry. We continue to receive royalties for 10 years. After the first commercial fail, but there will be that said I'm too.
Helen I. Torley: Yes, and just to add to Lori's comments there on the revenues, we are predicting that they will be higher than this year, although we aren't giving specifics on the guidance yet.
We have at the time of the patent expiry until the 10 years and there's also with the potential to extend the term Ah if we get co formulation patents as well.
Joel Beattie: All right. Your next question is from Joel Beattie with Citi. Your line is open. Hi, thanks for taking the questions. The first one is a follow-up to that most recent question on the IP exclusivity of the Core Enhanced Technology. As we get closer to those dates, does that affect the attractiveness of, you know, the partners or potential partners that use your technology for certain different uses of Enhanced? For example, for life cycle management, if the core technology is expiring, you know, does that affect the attractiveness?
Got it great. Thanks, so much.
Your next question is from Joel Beatty with Citi. Your line is open.
Hi, Thanks for taking my questions. The first one is a follow up for the most recent question on the IP.
Exclusivity of the current have technology.
Yes, as we get closer to those those states.
That does that affect the attractiveness of the partners or potential partners to use your technology for you know certain of the different uses of enhancing like for example for lifecycle management. That's the core technology is expiring.
That affects the attractiveness.
Helen I. Torley: Yeah, I will say, Joel, that since Roche, we actually see most of our partners are much more focused on products much earlier in the development pipeline, where their primary goal is competitive differentiation. So we actually talk to companies with some very early life cycle, very early plans. And so the whole life cycle topic doesn't come up.
Yeah, I won't say Joel that and since Roche, we actually see most of our partners are much more focused on products much earlier in the development I like where their primary goal is competitive differentiation. So we actually more talk about companies with some very early lifecycle.
But very early up class I, so the whole lifecycle.
Helen I. Torley: We can use Argenix as an example; that was our latest deal signed this year. They're obviously working on PartigiMod, a product that hasn't been approved yet. And certainly, they were very excited to license our technology and are moving rapidly, as you've seen, into the clinic with multiple targets.
Topic doesn't come up we can use organics as an example that with our latest deal signed this year, they're working obviously on export 50, multipronged haven't been approved yet and that certainly they were very excited to license our technology and are moving rapidly.
You see in the clinic with that multiple targets.
Joel Beattie: Great, I appreciate that. And then a separate question on the $200 million in share repurchase that was announced today. Would that be the first share repurchase after the Phase 3 PIG-VH20 results were announced? Or have there been additional share purchases going on since that time?
Great appreciate that.
So quick question on the 200 million and share repurchase that was announced today what would that be the first share repurchase after the phase three appears 20 results run off or have there been additional share purchases going on since that time.
Yes. So this will be the first share repurchase after that announcement.
Lori Stelzer: Yes, Joel, this will be the first share repurchase after that announcement.
Joel Beattie: Great, thanks so much.
Great. Thanks go ahead.
Unknown Executive: And just to repeat, it's up to $200 million as part of the concurrent with the convert or shortly after. Okay, I got it.
And just to repeat it up at 200 million as part of that Ah concurrent with that convert or shortly after.
Helen I. Torley: Once again, ladies and gentlemen, to queue yourself for a question, please press the star followed by 1. Ladies and gentlemen, this does conclude the Q&A period. I will now turn it back over to Dr. Helen Torley, Halozyme's President and CEO, for any closing remarks.
Okay got it.
Well again, ladies and gentlemen, cure so for your question. Please press star followed by one.
Ladies and gentlemen, this does conclude the came in a period I will now turn it back over to Dr., Helen Torley. It was I'm supposed and CEO for any closing remarks.
Helen I. Torley: Well, thank you, everybody. Thank you for joining us on this call. This obviously has been an exciting period for Halozyme, where our strategy has resulted in us focusing now on becoming an enhanced-only company. We are delighted to be in a position to be able to return value to shareholders with this comprehensive $550 million up-to-share repurchase plan, which is based on our projected free cash flow, giving us the ability to do this at this time. So, thank you for your ongoing support, and we look forward to providing further updates on the strong development plans we're seeing with our partners within HAN. Thank you very much.
Well. Thank you everybody I. Thank you for joining us for this call. This obviously has been an exciting period down for Halozyme Oh, We're our strategy has that resulted in oh signifies the becoming in hands only company.
We are delighted to be in a position to be able to return value to shareholders with this comprehensive 550 million dollar off to at share repurchase plan, which is based on our projected free cash flow, giving us the ability to do this at this time. So thank you for your ongoing.
Certainly forward to providing further updates on a strong development plans were seeing with apartments with it.
Thank you very much.
This does conclude todays conference call. Thank you for your participation you may now disconnect.
Unknown Executive: This does conclude today's conference call. Thank you for your participation, and you may now disconnect.