Q4 2019 Earnings Call

Thanks for sure guidance is 6 to 7.

Operator: If you have a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. 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. Thank you.

I sent and I'm pleased to announce that we've completed the first two hundred million dollars of this year. We purchased over announced 3-year plan to repurchase a total of five hundred and fifty million dollars worth of stock by the end of 2022 with this initial repurchase completed where no planning an additional share repurchase of up to $150 worth of shares by the end of 2018 pending market conditions and other factors. Let me now provide a brief overview of our enhanced platform and our business model before providing specifics on our progress month. We license our enhanced technology to Leading Global pharmaceutical and biotechnology companies for exclusive cool formulation with their proprietary product on a Target by Target basis. We receive upfront payments development milestones and on average and mixing the digit royalty on net sales to date with licensed our our page twenty enzyme to 9 leading pharmaceutical and biotech companies covering over dead.

Unknown Executive: Good afternoon, and welcome to our fourth quarter and full year 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 today will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business and review our financial results for the fourth quarter and full year 2019. 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.

potential drug targets and total

The growth in the number of Partners and the expansion of our products in development with enhanced has resulted in the generation of data that illustrates the exciting range of competitive differentiation opportunity, but enhance me bring to our partners.

Helen I. Torley: I'm very excited to announce that Elaine Sun has been appointed our new Senior Vice President and Chief Financial Officer, effective March 2nd. Elaine joined Halozyme with a tremendous background in investment banking, having played key roles in strategic and financing transactions valued in excess of $50 billion during her career. Most recently, Elaine has served as Chief Financial Officer and Chief Strategy Officer of Sutravax, which is a private biopharmaceutical company developing vaccines to fight infectious diseases. Elaine's deep knowledge and experience of corporate finance and also in M&A transactions will be of great value as we focus on driving the long-term growth and profitability of Halozyme. I look forward very much to working closely with Elaine and to introducing her to you on our next quarterly call. And I'd also like to just take a moment to thank Laurie for her contributions to Halozyme and, particularly, for the key roles she's played in helping the company through the restructuring over the last few months. We wish Laurie all the best in her next role.

Among these new potential benefits are the potential for a lower rate of infusion religious reactions as well as observed with ours Alex s c and the columbus-based restudy when compared to the rate observe who stars in the potential for new pricing approaches, for example for those combining to biologics with enhanced as as previously stated. This may be an opportunity for the Jetta her off those combinations the ability to facilitate the administration of treatment and lower-cost settings such as The Physician Office or the community Jansen as an example has stated darsalam SC supports their strategy to seek to expand treatment into the community setting and as a last example the ability to simplify Administration by moving from a fixed-dose versus wage. They still think this has been demonstrated with rituxan and has been observed with darzalex to we look forward to these differentiating element server enhanced technology being further demonstrated as a month.

Helen I. Torley: I'm now pleased to provide an update on our recent progress and 2020 plan. We've completed virtually all of the closeout actions related to our former oncology operations and are now focused solely on our enhanced business. The swift repositioning of the company and the decisive cost-reduction measures taken have placed Halozyme on a path to sustainable near-term profitability with anticipated high growth in revenues, earnings, and cash flows expected for the next several years. This makes Halozyme a unique biotechnology company as one of the few combining high growth potential with the ability to provide a meaningful return of capital. As we announced in January, for 2020, our revenue guidance is $230-245 million, which would represent 17-25% growth over 2019. The key driver of this revenue growth is milestone revenue, resulting from the strong projected partner development progress and new product commercialization.

No products are commercialized. Let me know move to an update on our most advanced program. We're very excited for the next two anticipated launches of products, utilizing enhanced wage expected to represent an important inflection point for a royalty Revenue growth. I'll begin with like three or

There are two months or darzalex Stars Lakes represents an exciting group opportunity and its current ID form darville experience approximately 45% globally in the fourth quarter of 2019. And it's currently projected by analysts to reach three point nine billion dollars in sales and twenty twenty and over six billion dollars in sales and 2024 Jensen has stated that stage changes formulation of darzalex is a core part of their future growth strategy supporting their goals of expansion into the front line setting in addition to treatment in the community setting Jensen completed rep submissions in the EU for the 17 is formulation of darzalex in July of 2019 setting up the potential for approval in the mid twenty twenty time frame assuming it's just a regular to review time.

Helen I. Torley: Earnings per share guidance is $0.60 to $0.75, and I'm pleased to announce that we've completed the first $200 million of the share repurchase of our announced three-year plan to repurchase a total of $550 million worth of stock by the end of 2022. With this initial repurchase completed, we're now planning an additional share repurchase of up to $150 million worth of shares by the end of 2020, pending market conditions and other factors.

The potential value proposition of dirt. Remember Bessie is strong based on the Columbus pastry data can be given in a three to five minutes subcutaneously versus Thursday hours for The Ivy and in this study. There was also in lower rate of infusion related reactions reported with the SC at approximately 13% compared with approx 35% off or the ivy

Helen I. Torley: Let me now provide a brief overview of our Enhanced Platform and our business model before providing specifics on our progress. We license our enhanced technology to leading global pharmaceutical and biotechnology companies for exclusive co-formulation with their proprietary products on a target-by-target basis. We receive upfront payments, development and commercial milestones, and, on average, a mid-single-digit royalty on net sales.

Attorney know just like for the fix those combinations are projected intercept them is the next potential launch of a product utilizing enhanced according to roaches fourth quarter Financial results for jet pack sales experience 16% Global growth driven by continued update of the Affinity indication and early breast cancer analyst currently project four point two billion dollars on global sales in 2024 Jetta going to more than 5 billion dollars in 2024 rouges completed regulatory filings in the US and EU and it's barely sufficient was recently suggested by the FDA.

Helen I. Torley: To date, we've licensed our REPH20 enzyme to nine leading pharmaceutical and biotech companies, covering over 50 potential drug targets in total. The growth in the number of partners and the expansion and progress of products and development within Hands have resulted in the generation of data that illustrates the exciting range of competitive differentiation opportunities that Enhance may bring to our partners. Among these new potential benefits are the potential for a lower rate of infusion-related reactions, as was observed with Darzalex SC in the Columba Phase 3 study when compared to the rate observed with Darzalex IV. The potential for new pricing approaches, for example, for those combining two biologics within the hands. As Royce has previously stated, this may be an opportunity for Progetta Herceptin to fix those combinations. Additionally, the ability to facilitate the administration of treatment in lower-cost settings, such as the physician office or the community.

Rocha stated they expect to launch in the twenty-twenty and we would anticipate lunch in the EU and twenty Twenty-One following the approval. The subject and is fixed those combination wage earners. That is an important first combining to therapeutic antibodies in a single pixels formulation, utilizing enhanced enabling a five to eight minutes up to a lease injection comparable and 1/2 to 2 and 1/2 hours for the sequential the administration of her sex and and perjeta.

During the recent fourth-quarter update.

Indicated that optic of self-esteem is reception has an impact is in part because the preferred regiment for her system is now with a Jetta IV weather in the metastatic disease setting or an earlier answer with the availability of both drugs in a pixel subcutaneous formulation. The further stated that the savings and treatment time could prove to be a big Advantage for patients.

Helen I. Torley: Janssen, as an example, has stated Darzalex SC supports their strategy to seek to expand treatment into the community setting. And as a last example, the ability to simplify administration by moving from a fixed-dose versus weight-based dosing. This has been demonstrated with Rituxan and has been observed with Darzalex 2.

Helen I. Torley: We look forward to these differentiating elements of our enhanced technology being further demonstrated as additional products are commercialized. Let me now move to an update on our most advanced program. We're very excited for the next two anticipated launches of products utilizing in-hands, as they are expected to represent an important inflection point for our royalty revenue growth. I'll begin with slide 3, or with Daratum Lab or Darzalex.

These next two launches are for drugs that are very different time point in their growth cycle compared with the drugs currently commercialized utilizing and hands Darth lights in projector are both multi-billion-dollar project where the IV form of the drug still enjoys high double-digit growth and has a long runway on its intellectual property.

Movie Nights. It's like five line here is our pipeline of enhanced partner products that are in development. There are programs currently in or that have completed a testing. Let me begin with effort to jamaat from our newest partner or Jenny's so continues to make rapid progress advancing this program in combination with our enhanced technology package in December or Genex and the results from its phase one study evaluating a subcutaneous formulation of rtt. Mode using enhanced in healthy volunteers are genetic stated that based on faith results together with their internal analysis. It slams to explore the potential for a 1 minutes injection potentially given every two weeks.

Helen I. Torley: Darzalex represents an exciting growth opportunity. In its current IV form, Darzalex experienced approximately 45% growth globally in the fourth quarter of 2019, and it's currently projected by analysts to reach $3.9 billion in sales in 2020 and over $6 billion in sales in 2024. Janssen has stated that the subcontinuous formulation of Darzalex is a core part of their future growth strategy, supporting their goals of expansion into the frontline setting in addition to treatment in the community setting. Jensen completed regulatory submissions in the U.S. and the EU for the subgenus formulation of Darzalex in July of 2019, setting up the potential for approval in the mid-2020 timeframe, assuming standard regulatory review time. The potential value proposition of Daratumambo SC is strong. Based on the Columba Phase 3 data, daratumumab SC can be given in 3-5 minutes subcutaneously versus 3-4 hours for the IV. And in this study, there was also a lower rate of infusion-related reactions reported, with the SC at approximately 13% compared with approximately 35% for the IV.

Linux is moving rapidly with development and recently stated it initiated phase two study of f within hands in chronic inflammatory demyelinating polyneuropathy or cidp is a form of chronic. I mean Iraq with E the base to study has an Innovative design intended to result in a faster time to a go no-go decision for advancements of potential phase three studies in addition Organics is evaluating a bridging strategy within hands in myasthenia gravis.

With regard to Alexa 1810 alexion recently disclosed plans to start a face to you know, basket study with 1810 in the second half of 2012.

Helen I. Torley: Turning now to slide four, the six-dose combination of Progetta and Herceptin is the next potential launch of a product utilizing enhanced, According to Roche's fourth quarter financial results, Progetta IV cells experienced 16% global growth, driven by continued uptake of the affinity indication in early breast cancer. Analysts currently project $4.2 billion in global sales in 2020 for Progetta, going to more than $5 billion in 2024. Roche has completed regulatory filings in the US and EU, and its BLA submission was recently accepted by the FDA. Arusha stated they expect to launch in the U.S. in 2020, and we would anticipate launch in the EU in 2021 following approval. The subcutaneous fixed-dose combination of Progetta and Herceptin is an important first, combining two therapeutic antibodies in a single fixed-dose formulation using the hands, enabling a 5-8 minute subcutaneous injection, compared with 1.5-2.5 hours for the sequential IV administration of Herceptin and Progetta.

Maybe not to Bristol-Myers Squibb we are very pleased with their progress. Bristol-Myers is know in the clinic with three exclusive targets pd-1 or in the bowl a map and 73 and a faith study is underway evaluating a combination of Nicole amount plus relax and completing this overview of disclose targets rotors initiated phase one studies evaluating enhanced wage eccentric an octopus overall from this group of phase one programs. We project 3 phase 3 trial starts and one phase 2 trial starts in 2020.

In addition and as shown on the right-hand side of the slide we project at least five new Phase 1 start in 2020, which would result in ten ongoing phase one trials by the end of the year.

And I'm also delighted to lunch today in you target nomination by Jensen you have selected the targets egfr as part of a buy specific antibody being studied in solid tumors Thursday. We are obviously excited to work in another program with Jensen and to expand the success of our collaboration.

Helen I. Torley: During the recent fourth quarter update, Roche indicated that uptake of subcutaneous Herceptin has been impacted in part because the preferred regimen for Herceptin is now with Progeta IV, whether in the metastatic disease setting or in early breast cancer. With the availability of both drugs in a fixed dose subcutaneous formulation, they further stated that the savings in treatment time could prove to be a big advantage for patients. These next two launches are for drugs at a very different time point in their growth cycle compared with the drugs currently commercialized, utilizing, and hence. Darzalex and Progetter are both multi-billion dollar products where the IV form of the drug still enjoys high double-digit growth and has a long runway on its intellectual property.

With these anticipated developments 20/20 is expected to be a year of significant progress across our enhanced development program. And all of this progress is resulting in substantial opportunity movie Nights. It's like six we projected cumulative Milestone revenues for the 3 year. 2022 20:22 to be 352 $550 this growth and projected Milestones is being driven by the larger Milestone payment associated with new Target approvals and the increase in the number of products advancing age development manager of which are also associated with large amount on this near-term Milestone Revenue precedes the royalty revenues and is an important and strong indicator for Fifth Avenue potential.

Helen I. Torley: Moving now to slide 5, outlined here is our robust pipeline of enhanced partner products that are in development. There are nine partner programs currently in or that have completed phase one testing. Let me begin with F. Kartijamot from our newest partner, Argenix, who continues to make rapid progress advancing this program in combination with our enhanced technology. In December, Argenyx announced results from its Phase 1 study evaluating a subcutaneous formulation of erficartichumab used in the hands in healthy volunteers. Argenyx stated that based on these results, together with their internal analysis, it plans to explore the potential for a one-minute injection, potentially given every two weeks. Ardenyx is moving rapidly with development, and recently announced it initiated a Phase II study of F-cortigemide with enhanced and chronic inflammatory demyelinating polyneuropathy, or CIDP, which is a form of chronic autoimmune neuropathy. The Phase 2 study has an innovative design intended to result in a faster time to a go-and-a-go decision for advancement to a potential Phase 3 study. In addition, Ergenics is evaluating a bridging strategy for F-corticitomide within the hands in myosinia gravis.

I'm moving to the royalties which are showing us like seven. We protect the potential for approximately 1 billion dollars in router Revenue in 2027 based on the currently approved products those package regular to review and those anticipated being clinical development by the end of 2020. This is a known risk adjusted number and assumes approvals in multiple indications Global launches and on average in a single-digit wealthy and that sells them in the hands formulated product. And this number does not reflect any potential contribution from new collaborations or additional Target selections for additional partner have not yet to me. I can see we were made an active dialogue with potential new enhanced Partners ranging from large pharmaceutical companies to development stage by technology companies.

I'll turn Nexus light 8 off and hand business by maximizing the value for current collaborations and working to sign new collaboration choirs with the strong projected free cash. So our next priority is returning Capital investors be a share repurchases. We've completed two hundred million dollars worth of share repurchase leading $350 available under the $550 three-year package or repurchase program, which was authorized by our board of directors in November of 2019. We plan to repurchase up to an additional 150 million dollars worth of chairs during 2028 a pending market conditions and other factors.

Helen I. Torley: With regard to Alexion 1810, Alexion recently disclosed plans to start a Phase 2 renal basket study with 1810 in the second half of 2020. Now moving on to Bristol-Myers Squibb. We are very pleased with their progress. Bristol-Myers is now in the clinic with three exclusive targets, PD-1 or nivolumab, and anti-CD73, and a phase one study is underway evaluating a combination of nivolumab plus rilatilumab. And completing this overview of disclosed targets, Roche has initiated phase one studies evaluating in combination with Ticentric and OkraVis.

I can see where these strong commitments account for returned and we will also evaluate the potential to adding new technology platform to acquisition with the goal of accelerating or long-term Revenue growth and evaluating this we're taking an approach that has a high growth and high-margin a profile like our and business.

Electron to us like nine for a discussion of our fourth quarter Financial results total revenue for the quarter was 53.6 million dollars in this prior year. It's 11% decrease was primarily driven by at twenty-five million dollar offer of payment promotion in the fourth quarter of 2018, which is partially offset by higher product sales revenue for the quarter was 17.2 million dollars. If you increase of 11% primarily driven by lower sales of herceptin SC by Rose reflecting on going impact from 5 similars.

Helen I. Torley: Overall, from this group of Phase 1 programs, we project three Phase 3 trial starts and one Phase 2 trial start in 2020. In addition, and as shown on the right side of the slide, we project at least five new phase 1 starts in 2020, which would result in 10 ongoing phase 1 trials by the end of the year. And I'm also delighted to announce today a new target nomination by Janssen, who have selected the targets EGFR and CMET as part of a bispecific antibody being studied in solid tumors.

product sales

It's two point seven million dollars in the quarter compared to ten point seven million dollars in the prior-year. Mainly due to an increase in the sale of bulbs. Are you page? 22 Jensen we continue to expect product details.

Helen I. Torley: We are obviously excited to work on another program with Gamson and to expand the success of our collaboration. With these anticipated developments, 2020 is expected to be a year of significant progress across our enhanced development programs. And all of this progress is resulting in substantial revenue opportunities. Moving on to slide six, we project cumulative milestone revenues for the three-year period from 2020 to 2022 to be $350 to $450 million. This growth in projected milestones is being driven by the larger milestone payments associated with new target approvals and the increase in the number of products advancing to later stage development, many of which are also associated with larger milestones. This near-term milestone revenue precedes royalty revenues and is an important and strong indicator for future royalty revenue potential.

Helen I. Torley: Now moving to royalties, which are shown on slide 7. We predict the potential for approximately $1 billion in royalty revenue in 2027 based on the currently approved products, those pending regulatory review, and those anticipated to be in clinical development by the end of 2020. This is a non-risk-adjusted number and assumes approval in multiple indications, global launches, and on average, a mid-single-digit royalty on net sales of enhanced formulator products. Additionally, this number does not reflect any potential contribution from new collaborations or additional target selections from our additional partners that have not yet been made.

Helen I. Torley: I can say we remain in active dialogue with potential new enhanced partners, ranging from large pharmaceutical companies to development stage biotechnology companies. I'll turn now to slide 8, and our strong financial position and diversified revenue streams inform our capital allocation priorities. Our first priority is to drive growth in our enhanced business by maximizing the value of our current collaborations and working to sign new collaboration partners.

Helen I. Torley: With a strong projected free capital, our next priority is returning capital to investors via share repurchases. We've completed $200 million worth of share repurchases, leaving $350 million available under the $550 million three-year share repurchase program, which was authorized by our Board of Directors in November of 2019. We plan to repurchase up to an additional $150 million worth of shares during 2020, pending market conditions and other factors. As you can see, we have a strong commitment to capital return. And we will also evaluate the potential to add a new technology platform to the acquisition with the goal of accelerating our long-term revenue growth. In evaluating this, we are seeking an approach that has high growth and high margin at profiles like our enhanced business.

Helen I. Torley: I'm going to turn to slide 9 for a discussion of our fourth quarter financial results. Total revenue for the fourth quarter was $53.7 million compared with $60.2 million in the prior year period. This 11% decrease was primarily driven by a $25 million upfront payment for Moesh in the fourth quarter of 2018, which was partially offset by higher product sales. Royalty revenue for the quarter was $17.2 million, a decrease of 11% primarily driven by lower sales of Herceptin SC by Roche, reflecting the ongoing impact of biosimilars. Product sales of $22.7 million in the quarter compared to $10.7 million in the prior year period, up mainly due to an increase in the sale of bulk volume, page 20, to Janssen. We continue to expect that product sales of API will fluctuate in future periods based on the needs of our collaboration partners.

Helen I. Torley: Collaboration revenue in the quarter totaled $13.7 million, compared with $13.2 million a year ago, with the difference primarily attributable to the Roche upfront payment in the fourth quarter of 2018 that I referenced a moment ago. On slide 10, you will find a more detailed breakdown of our fourth quarter P&L. I'll begin with total operating expenses, which were $85.7 million in the fourth quarter, up from $60.3 million in the prior year period. I'll address the increase in total operating expenses by discussing each of the components.

Helen I. Torley: As a result of higher API shipments to enhanced partners, cost of product sales was $16.7 million, up from $5.6 million in the prior year period. Research and development expenses of $45.1 million increased from $36.7 million in the prior year period, reflecting $17.2 million in restructuring and one-time charges related to the safety and strategic focus of the company on the enhanced direct delivery technology. This was partially offset by $9.4 million in lower PEG-PH20 clinical trial related costs. SG&A expenses were $23.9 million, up from $18 million in the prior year, primarily due to restructuring and other one-time charges of $11.2 million, partially offset by lower personnel costs. The net loss for the quarter was $34.4 million, or $0.24 per share, compared to a net loss of $2.1 million, or $0.01 per share, in the fourth quarter of 2018. I'll turn now to slide 11, which is a snapshot of the school year 2019 results.

Helen I. Torley: Total revenue for 2019 was $196 million compared with $151.9 million in 2018, representing strong growth of 29%. The biggest contributor to this increase was higher product sales driven by API sales to our enhanced partner. Total product sales were $66 million in the year, up from $28.2 million in 2018. Net loss for the year was $72.2 million, down from $80.3 million in 2018. This translated to a loss per share for the year of $0.50, compared with $0.56 for 2018.

Helen I. Torley: Cash, cash equivalents, and marketable securities were $421.3 million at December 31, 2019 compared to $354.5 billion at December 31, 2018. The increase in cash balance year over year resulted from actions we took late in 2019 to recapitalize the company, which allowed us to lower our cost of capital, pay off the remaining balance of our outstanding loans from the Oxford and Silicon Valley banks, and initiate our capital return program with a front-loaded share repurchase. In November 2019, we completed the sale of $460 million in aggregate principal amount of 1.25% convertible senior notes, which are due in 2024, in a private placement to qualified investors, which resulted in net proceeds to the company of approximately $447 million. We used some of these proceeds to initiate our capital return program, repurchasing approximately $143 million worth of shares and privately negotiated transactions related to the convertible note offering.

Helen I. Torley: Following that, we repurchased $7 million worth of shares in the open market and implemented a $50 million accelerated share repurchase program, which was recently completed. In total, we've repurchased $200 million worth of shares, or 11.1 million shares, since first announcing our capital return program. We have $350 million remaining on our board-approved share repurchase program, and as a basis, we intend to repurchase up to $150 million worth of additional shares during 2020. The amount and the timing of the share repurchase during 2020 will be subject to a variety of factors including market conditions, other business considerations, and applicable legal requirements. Let me turn now to slide 12 for a more detailed discussion of the financial guidance. We first announced our financial guidance on January 14th, and it remains unchanged.

Helen I. Torley: We expect total revenues to be in the range of $230 million to $245 million, which would represent 17 to 25% growth over 2019. As discussed earlier, the key driver of revenue in 2020 will be milestones as a result of the projected number and size of the milestone payments related to new target approval and products advancing to late stage development in 2020. These clearly precede royalty revenues from these products and are certainly a strong indicator for future potential royalty revenues. In the near term, in 2020, we expect a modest decline in royalty revenues as a result of the ongoing biosimilar impact on Roche products. Earnings per share is expected to be in the range of $0.60 to $0.75 on a gap basis, and we continue to project that the first quarter of sustainable profitability will be the second quarter of 2020. And with regard to the expense structure, we expect to achieve annualized operating expenses, excluding cost of goods sold, of $65 to $75 million by the fourth quarter.

Helen I. Torley: As you've just heard, Halozyme is in a strong financial position as a company focused solely on Enhanced Today, with profitability on the horizon and a demonstrated commitment to maximize value for our shareholders through the return of capital to our investors. With the transition to an enhanced focused business virtually complete, we're in a strong position to deliver additional value to our shareholders as we anticipate a number of significant events to occur in 2020. And these are summarized on slide 13. They include potential regulatory approvals and launches of the Substantaneous Formulation of Darzalex in both the U.S. and the EU. The potential FDA approval and U.S. launch of the Substantaneous Fixed-Dose Combination of Progetta and Herceptin Three new Phase 3 trial starts, one new Phase 2 trial start, five new targets entering the Phase 1 study, and profitability beginning in the second quarter.

Helen I. Torley: With key milestones on the horizon and a clear path towards sustainable growth in revenues, earnings, and cash flow, Halozyme is in a strong position to deliver additional value to shareholders. Our unique financial model, powered by substantial anticipated milestone payments and the future growing royalty revenue stream, also allows us to return meaningful value to our shareholders while supporting our growth objectives. And I would say none of this would be possible without the strong and talented Halozyme team.

Operator: And I'd like to end the call just by thanking everyone at Halozyme for your tremendous efforts and for the strong results. With that, I'd be delighted now to take your questions. Operator, would you please open the call?

Charles Duncan: Yes. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A list. And your first question comes from the line of Charles Duncan with Cantor Fitzgerald.

Helen I. Torley: Hi Helen and Lori and team, congratulations on a great year of progress. I had a couple of questions regarding some of the, I guess, guidance, particularly the milestones looking out 20 to 22. I'm wondering if you could provide any granularity on what comprise those milestones. I know you probably won't be able to talk about specific numbers associated with certain milestones, but are you expecting both DERA and the fixed-dose combination Perjeta Herceptin to be approved here in the near term, as well as what number of the projected phase threes and the one phase two trial start would you anticipate to be approved by the end of 22?

Helen I. Torley: That says, with regard to the milestones, the way to think about it is this

Helen I. Torley: That's helpful. And related to that, would you anticipate that the base case assumption that you're making is that Darzada Lax SC would be approved just as a reflection of the current approval? Or could it be approved for a broader label? It would seem to me that ENHANCE could really enable that.

Helen I. Torley: Yes, I think that's a question that we don't know the answer to. We certainly know that Janssen submitted the file to include the Columbus study, which was in relapsed refractory patients, but also the Pleiades study, which included patients who were in the front and second line settings as well. At the Rituxan High Cell Oncology Drugs Advisory Committee meeting, the FDA suggested it may be possible, based on smaller studies, to be able to get a broader label, but we simply don't know the answer to that as yet, but I'm certainly hopeful that the FDA is going to allow for a broader label, but we'll have to await the FDA's decision on that.

Helen I. Torley: Okay, last question quickly. When you think about 27, or revenues beyond 27, specifically royalty revenues, could you help us think through that? And would it depend on being able to access a new platform, or do you think that there are some sustained royalty revenues from the existing Enhanced platform beyond 27? Thanks.

Helen I. Torley: Yeah, I mean, if I begin just with enhanced for 2027, that really is what the pattern is after 2027 is going to depend on a number of things, some of which we simply don't know today, such as how many new partners we will have by then, how many new products are in development, and how many new co-formulation patents have been signed, all of which will have the effect of adding additional revenue and extending the duration of time So it is very hard to project exactly what will happen after 2027 with enhanced, but I do think what is very clear is even after the expiry of the US patent in 2027, the structure of our contract, together with the potential for co-formulation patents, means that we do not anticipate a royalty cliff and a dramatic reduction in sales immediately.

Helen I. Torley: Now, you're asking about the platform. That indeed is our strategy to continue the growth in that 24, 27 to 30 time frame. That is exactly what we'll be looking to find something to add on that will continue to add to the exciting growth we have with enhanced. We obviously are just beginning to look at that; we don't feel in any rush to do that. It's important that we see the success of enhanced and the very rapid growth we expect from that in the next several years. But we will be looking to add something to do exactly what you say, add on to that growth in the next 24 and onward years.

Doe Kim: And your next question comes from a line from Doe Kim with BMO Capital Markets. Good afternoon, everyone.

Helen I. Torley: This is EK speaking for DOE. Congratulations on the continued progress. I just have a couple of quick questions. The first one is in relation to operating expenses. Do you view that growing in correlation with the increased number of partnerships? Is there some type of expected growth rate that we can apply in our models, or do you think it's going to be pretty flat moving forward, given that you've had this restructuring completed or near completion? And then my second question is in relation to the economics of royalties and milestones. Do you foresee that in the future increasing as in being able to attain higher milestone upfront payments as opposed to kind of what you've been averaging over the past few years? Thank you.

Helen I. Torley: If you recall a couple of calls ago, I did an illustration of that, and where the majority of our expenses come from are our internal experts, our teams who support the aligned partners. And because they support partners at different stages, they can move in and out of programs and across partners. And so this is what makes our business so leverageable. So we do anticipate that as we, in the near term, as we contemplate the expansion in the number of partners and the number of programs, we will not need to increase our expenses. If we do happen to have a large increase in the number of partners and programs, we would have to modestly need to add a few people.

Helen I. Torley: But you can think about that $65 to $75 million expense range I gave you as certainly being in place for the near term based on our current projections for growth. With regard to the structure of the upcoming agreements that we may sign, we do feel that with the current structure we have, where we receive, in general, as an example, $30 million as an upfront for a single target, $160 million in milestones, and then the mixed single-digit royalties is going to be the ongoing range. We saw a big step change in the value of our contracts in 2014 and 2015 after we demonstrated commercial and regulatory success, and we're very happy with the value we get with our current partners. That, obviously, is resulting in a very exciting financial picture for the company. So I would think about it as being in a similar range to what you've seen with the last several contracts, examples including Argenix and Alexion.

Jason Nicholas Butler: Your next question comes from the line of Jason Butler with JMP Securities. Hi, thanks for taking the questions. Just one on the J&J program. Can you just give us a little bit more background on where the candidate is in development and the path forward from here within the company? And then, more broadly speaking, any technical considerations when using the technology with a bispecific antibody versus a monoclonal?

Helen I. Torley: Thanks.

Jim Bertinoff: Yeah, thank you, Jason. Unfortunately, we're not in a position just based on Janssen that has really talked much about this program to be able to provide any details on its development or, or anything else at this point in time. Please look for us to provide updates as Janssen is making some progress with it and is providing updates to us.

Helen I. Torley: Your next question comes from the line of Jim Bertinoff with Wells Fargo. Hi guys, congrats on all the progress.

Helen I. Torley: I guess I have a couple of questions. The first is just on Elaine's hire. Could you maybe just comment? It seems like with her background, that might be indicative of more deal making going forward. And so could you maybe confirm that? And I guess the second part is when you talk about accessing other technologies to support growth longer term and high-margin technology platforms, what's your sensitivity to those deals being accretive or at least not dilutive? Because I think there's some concern that you might do a dilutive deal.

Helen I. Torley: with her strong investment banking experience, she has got real experience. Equally, what I found was that she is a highly strategic CFO with a great deal of insights into capital markets. And as we think about the future picture of Halozyme with our expectations for increasing free cash flow, it is as much the focus we have on identifying the right capital return and evolving our capital return plan that I hired Elaine for as the M&A deal experience. So, earlier, I mentioned that in your term, we are very focused and enhanced, and having someone of her deal experience will, of course, be very helpful. But I think about it being as much a focus on capital return as it is on the deal side of things. You know, good question, Jim.

Helen I. Torley: We focus on the new deal, wanting it to have a strong impact on top line growth. But we obviously are going to be very sensitive to the impact on earnings growth as well. So, we will be looking at both of those factors as we contemplate bringing in an additional platform to increase the value of Halozyme and the return for our shareholders.

Helen I. Torley: And then maybe just one more question sort of following on an earlier question about the tail beyond 2027. Can you say if you or your partners have filed for co-formulation patents? Are there any pending that we should be aware of? And what's the strategy there overall? When we think about the portfolio, do you have a potential strategy for each co-formulated asset?

Helen I. Torley: Yeah, we don't have any pending co-formulation patents at this point in time, Jim. We do have a team who work with each of our partners to discuss the potential points of novelty that are being identified either in the Phase 1 study or in the clinical studies and work with them for them to submit patent applications. And so, I think I may have mentioned maybe last year that we brought in an outside law firm to just brainstorm all of the different points of differentiation that could be considered novel, and there's a wide range of them that go from pharmacokinetic factors If there is any new insight and any of those that are unexpected, those are potentially fileable, so what I'm excited to see is there is a broad range of potential reasons, and what we are doing now, though, is working with our partners to see the data supporting those, and we will work closely with the partners to encourage them to get those patents filed, so I'm confident we will have more co-formulation patents and none filed at this point in Great, thanks for taking the time to answer the question.

Helen I. Torley: Thanks for taking the questions.

Jessica Macomber Fye: Your next question comes from the line of Jessica Fye with JP Morgan. Hey guys, good afternoon.

Helen I. Torley: Thanks for doing my questions. The first one is just on the up to $150 million share repo plan for 2020. I realize it's early in the year, but why not get started on that sooner? That's question number one. And then next one is just a simple modeling question. I know the RUPH20 supply sales can be sort of variable quarter to quarter. Is there anything we should be thinking about for Q1 and Q2? Or is it really just that quarterly cadence?

Helen I. Torley: All right, we are getting started with the 150 million repurchase shortly, Jeff. What we needed to do was finish the accelerated share repurchase program, which we just finished in mid-February.

Helen I. Torley: And so that was the gauge for us being able to start the next share repurchase. With regard to the API, it is, I know, quite hard to model because it does differ quarter to quarter. I think what we can see is it is going to be lower this year than it was last year, and you can see from our expenses what the range it was. And we will probably be a bit more towards the second half of the year than the first half of the year. But we do not, as you know, give quarter by quarter guidance, but hopefully that will be some helpful direction for remodeling. Great

Graig C. Suvannavejh: Great, thank you. Your next question comes from the line of Graig Suvannavejh with Goldman Sachs. Hey, good afternoon. Thanks for taking my questions. Congratulations on all the progress.

Helen I. Torley: I think I've got two questions, and maybe piggybacking on Jess's question, but maybe more on the expense side of things in terms of that quarterly flow. And this may have been asked before; I might have missed it.

Helen I. Torley: But will that be relatively stable throughout the four quarters? So that's kind of my first question. And then perhaps on my second question, which has to do with the communication of new trial starts by partners, is your current strategy really to provide those in these quarterly updates, or do you imagine that these might be separate standalone press releases? Thanks.

Helen I. Torley: So that will be an annualized run rate of $65 to $75 million in the fourth quarter. So you can triangulate from last year down to that as we've closed out our program. And with regard to the trial start It's an interesting thing with our partners, and this is an exciting change in how the partners are focused on hand. These are competitive areas. They want to start these studies for competitive differentiation, and they want to keep the information that they're doing the study quiet and secret for as long as possible. But I would say that, generally, you will get the first notice of a trial start if it's in a patient population on clinicaltrials.gov. It tends to be just before the study is started, and once that is public in that setting, we're able to talk about it.

Helen I. Torley: If it's a normal volunteer study, I would say that it does not have to be posted. For example, for a phase one study, we may not be able to talk about that. To answer your question specifically, Gray, if there's a milestone, we sometimes do a press release, but not always. We certainly will do a summary on our quarterly call to let you know the state of play for everything that's happened in that quarter that we're able to talk about.

Helen I. Torley: Okay, thank you very much. Again, congratulations on all the progress. Thanks, Graig.

Joseph Michael Catanzaro: Thanks, Graig.

Helen I. Torley: Your next question comes from the line of Joe Cantazaro with Piper Sandwich. Hey, thanks guys. Thanks for taking the questions. Just two quick ones from me.

Helen I. Torley: Maybe the first one on guidance as it relates to royalty revenues and your projections that they'll decline modestly in 2020. Does that consider any potential expected approvals in 2020, or does it just consider currently approved products? And then my second question, following up on the Buy Specific question asked earlier, more as it relates to the Enhanced Platform. Does the Enhanced Platform have utility just with Buy Specific formats that have IGG PK-like properties, or does it extend across the broad spectrum of Buy Specific formats? Thanks.

Helen I. Torley: Yeah, on the first question, Joe, we did. And with regard to BISpecific, I'll have to get back to you on that. I don't know if I have the complete answer to that question, Joe, and I'd prefer to check in with our Chief Technical Officer, and I'll get back to you with the answer to that question.

Joseph Michael Catanzaro: Okay, perfect. Thanks for taking my question.

Helen I. Torley: Thank you.

Joel Beebe: Your next question comes from the line of Joel Beebe with Citi. Hi, thanks for taking the questions. The first one is about the technology search. Can you help give a sense that it's limited to maybe more narrowly to a technology that would improve upon enhanced, you know, as it's approaching expiry, you know, still several years away in 2027? Or is the search kind of more broad about, you know, any type of technology that might be useful in, you know, for your pharma partners?

Helen I. Torley: Yeah, it is a broad search, Joel, where we're looking for a profile that, from a financial perspective, as we've discussed, is able to add to our revenue growth without having a strong impact on our overall picture. And, you know, as we started the search there, that could be technology platforms, or it could be new science that is also something we could license to companies. So, still early days for us; we are mostly focused on delivering on the enhanced promise near term, where we see a lot of near-term growth. But we are opportunistically beginning to look at finding the right type of platform to add.

Helen I. Torley: Great. Thanks.

Helen I. Torley: And then maybe one other question on Enhance. In the 10 ongoing Phase I trials that are expected by the end of the year, could you help give a sense of, you know, what a typical timeline for those trials might be? And also, you know, if those Phase I trials are successful, where could that leave the agents? Would they go on to maybe a smaller Phase II trial, or could some of them go straight into pivotal trials?

Helen I. Torley: Yeah, we're seeing an evolution in the development program for Enhance. And I'll answer your first question first.

Helen I. Torley: For phase one, the fastest we've seen a company do a phase one was actually Ergenics, who started their phase one study in July and reported out the data in December. But I would say it's a bit more normal for that to be about a year-long process for companies to complete their phase one studies, so 12 months for that. If the company is bridging to an already approved product, they will go straight into a phase three program and do a generally a non-inferiority study to demonstrate that the PK parameter and efficacy are non-inferior between the sub-Q and the ID. If this is more of a novel development approach, where there is no large database to bridge to, companies can do a phase two.

Helen I. Torley: And what we're seeing more and more is they're doing a seamless phase two to phase three, as Ergenics is talking about, where they have an initial part of the study, which is more phase two, generating more efficacy and safety data at a specific dose, and then expanding on a cohort to make that into a phase three study. All of this, obviously, shortening the timelines as there are causes between the different phases of the studies and also not causing them to have to go and visit with the FDA for an end of phase two meeting, as an example. So we've seen some very nice designs that are being thought about and discussed with the FDA that are resulting in a much shorter timeline than we've traditionally seen.

Helen I. Torley: To date, the products that have been approved have been five years from first in human to approval. That's quite a short period of time, but I think with the discussions that are happening today, we're going to be able to knock one or even two years off that in the future. So very exciting changes are happening, which I think are coming, obviously, from increased comfort with PH20 and the large safety databases we now have about the combination of our PH20 with a range of different products.

Helen I. Torley: Your next question comes from the line of Gina Wang with Barclays. Thank you for taking my questions.

Gina Wang: And two, regarding the 2020 guidance, the first one is royalty. I think according to the slides, Helen, you also mentioned the royalty would decline modestly. Does that mean the royalty would be lower than 70 million? And how much direct tumor map subcut contribution to this? Are we talking about 5, 10 million?

Helen I. Torley: Yeah, it will be, we think, modestly lower than the 70 million which was the royalty revenues in 2019. We haven't given any specifics for daratumumab in terms of how much is there, but we, you know, the factors to consider really are the timing of the approval. And importantly, for any US launch, there is always a period of time where you want to be sure you're getting your reimbursement in place, you're on the electronic medical records, and you're on the formularies. And so with the mid-2020 approval, we actually see there will be just a few months of full access and sales. And we really see 2021 as being the year where we expect to see the exciting inflection point based on daratumumab once all of that is in place. So we have a modest amount of sales in for 2020 in our projection.

Helen I. Torley: So for 2021 diuretumamab, you know, what would be the assumption for the conversion of IV to sub-Q?

Helen I. Torley: Yeah, we haven't given that detail any detail. You know, I know different people have provided that.

Helen I. Torley: I mean, when we think about the value proposition for patients, many patients require four to six hours for the IV. We're going to be able to deliver in five minutes sub-queue. I think that's a very strong value proposition. In addition, we know there are capacity constraints in the infusion suites, as well as nursing constraints. So we do think there will be an exciting uptake, but we're not giving any specific numbers. But this is a very strong value proposition.

Helen I. Torley: Your next question comes from the line of Arlinda Lee with Canaccord. Ms. Lee, your line is open. If you are on mute, please unmute your phone. Hi, can you hear me now?

Operator: [inaudible]

Arlinda Lee: Okay, sorry about that. This is Ben speaking on behalf of Arlinda. Just had a quick question on the second quarter sustainable profitability guidance. I'm sorry if this wasn't covered before. But just looking at your receivables, it looks like you have quite a bit of, I guess, receivables from product sales to collaborators as opposed to

Helen I. Torley: Um, you know, I'm going to get back to you on that. I don't have the details in front of me at this point in time, but let us get back to that question.

Arlinda Lee: Okay, that's pretty much all I have. Thank you.

Helen I. Torley: All right, thank you.

Helen I. Torley: And there are no other questions. I would like to turn the call back to Helen for any closing remarks. Yeah, thank you, everybody.

Helen I. Torley: Yeah, thank you, everybody. Thank you very much for joining us on the call today. As you can see, we have a terrific picture of events for 2020 for Halozyme, based on the strong momentum our partners are making towards future product approvals, as well as advancing in late-stage clinical development. We appreciate your time today. Thank you.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.