Q2 2019 Earnings Call

Operator: For Halozyme Therapeutics, Mr. Kildani, please begin. Good afternoon, and welcome to our second 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 on today's call in the investor relations section of our website. Leading the call will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business, and Lori Stelzer, our Chief Financial Officer, who will review our financial results for the second quarter of 2019. During the call, we will be making forward-looking statements. I refer you to our ICC filings for a full listing of the risks and uncertainties. I'll now turn the call over to Helen.

Good afternoon, and welcome to our second 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 on today's call in the Investor Relations section of our website.

Leading the call will be Dr., Helen Torley, Halozymes, President and Chief Executive Officer, who will provide an update on our business and Laurie Stelzer, Our Chief Financial Officer, who will review our financial results for the second quarter 2019.

During the call we will be making forward looking statements I refer you to where I see SEC filings for a full listing of the risks and uncertainties.

I'll now turn the call over to Helen.

Helen I. Torley: Good afternoon, everyone, and thank you for joining us today. I'm pleased to provide an update on the strong progress at Halozyme during the second quarter of 2019. For today's call, we also welcome Dr. Alison Armour, our Senior Vice President of Research and Development, who will join us for the Q&A portion of the call. Alison joined us in May and has over 15 years of experience in practice as a clinical oncologist, along with significant experience in leading all stages of oncology, drug development, and overseeing regulatory submissions. Let me begin with a summary of all of the key recent developments. Firstly, our second quarter total revenue was $39.1 million, up 11% year-over-year. And we finished the quarter in a strong financial position with $287.5 million in cash, cash equivalents, and marketable securities.

Good afternoon, everyone and thank you for joining us today I'm pleased to provide an update on the strong progress at Halozyme during the second quarter of 2019.

For today's call. We also welcome welcome Dr. Alison armour, our senior Vice President of research and development will join us for the Q any portion of the call.

Allison joined US in May and has over 15 years and practice as a clinical oncologist along with significant experience in leading all stages oncology drug development and overseeing regulatory submissions.

Let me begin with a summary of the key recent developments firstly, our second quarter total revenue was $39.1 billion up 11% year over year. We finished the quarter in a strong financial position with $287.5 million in cash cash equivalents and marketable securities.

Helen I. Torley: Secondly, we continue to make tremendous progress in executing our enhanced strategy, highlighted by the recent regulatory submissions by Janssen for the subcutaneous formulation of Darzalex in the U.S. and in the EU. Additionally, our partners continue to make progress in the clinic with Argenix, recently announcing first-patient dosing and a Phase I study of F-cartidumon, or ARGX113. And thirdly, our Halo301 Pivotal Phase III trial evaluating PEG-PH20 in metastatic pancreas cancer is on track for the announcement of top-line results by this December. With those key highlights, I'll now provide a more detailed review of our recent progress and results, beginning with Enhance.

Secondly, we continue to make tremendous progress in executing our enhanced strategy highlighted by the recent regulatory submissions by Janssen the subcutaneous formulation of Darzalex in the U.S. and in the E U.

Our partners continue to make progress in the clinic with our Gen X recently announcing first patient dosing in a phase one study of a car T tomorrow or E. R. T X 113.

And thirdly, our Haim Israel, one pivotal phase three trial evaluating Peck page 20 in metastatic pancreas cancer. She is on track for the announcement of top line results by this December .

With those key highlights I'll now provide a more detailed review of our recent progress and results beginning with enhanced.

Helen I. Torley: Turning to slide 2 for a review of the long-term potential for royalty revenues from our Enhanced Business, we have licensed our RUPH20 enzyme to 9 leading pharmaceutical and biotech companies, covering over 50 potential drug targets in total. The potential royalty revenues from our three marketed products, plus the 12 products that we expect to be in clinical development in 2019, result in the potential for approximately $1 billion in royalty revenues in 2027. This has been approval in multiple indications, global launches, and on average, amidst single-digit royalty on net sales of enhanced formulated products. Also illustrated on the slide with a yellow dotted line is the Proforma Enhanced Business Operating Expense Estimate, which includes cost of goods sold. As you will note, the estimated operating expenses are similar to the projected royalty revenues.

Turning to slide two for a review of the long term potential for royalty revenues from our enhanced business. We have licensed the are you page 20, the enzyme to nine leading pharmaceutical and biotech companies covering over 50 potential drug targets until April .

The potential royalty revenues from our three marketed products lots of 12 products that we expect to be in clinical development in 2019, we sell and the potential for approximately $1 billion and royalty revenue in 2027.

This assumes approval in multiple indications global launches and on average a mid single digit royalty on net sales of enhanced formulated products.

Also illustrated on the slide with the yellow belt at line, it's a pro forma enhance business operating expense estimate which includes cost of goods sold.

As you will note the estimated operating expenses are similar to the projected royalty revenues and with the projected royalty revenue inflection associated with the next launch we predict incremental revenues would drop to the bottom line in an enhanced only business.

Helen I. Torley: And with the projected royalty revenue inflection associated with the next launch, we project incremental revenues would drop to the bottom line in an enhanced-only business. In addition, between now and the end of 2021, we continue to project potential cumulative milestone payments of $225 to $300 million that will provide an important source of capital for the company. And I'd like to just add that this illustration does not reflect any potential contribution from new collaborations.

In addition between now and the end of 2020 . One we continued to predict potential cumulative just milestone payment of $225 million to $300 million that will provide an important source of capital for the company.

And I'd like to just add that this illustration does not reflect any potential contribution from new collaborations.

Helen I. Torley: As always, we remain in active dialogue with potential new enhanced partners, ranging from large pharmaceutical companies to development-stage biotechnology companies. I'll move now to slide three and provide an update on the currently marketed products utilizing our enhanced drug delivery technologies. As you can see on the top row, there are three currently marketed products utilizing Enhance that are available to patients in most of the major developed markets. These are Hycuvia, the subcutaneous formulation of Rituximab, and the subcutaneous formulation of Trastuzumab.

As always we remain in active dialogue with potential new enhanced partners ranging from large pharmaceutical companies to development stage biotechnology companies.

I'll move now to slide three and to provide an update on the currently marketed products, Egypt, utilizing our enhanced drug delivery technologies.

As you can note on the top row that are three currently marketed products utilizing enhanced that are available to patients in most of the major developed markets.

These are high Q via the subcutaneous formulation of retirement and subcutaneous formulation of friends to the man.

Helen I. Torley: These three initial launches have provided important validation of our enhanced drug delivery technology across the globe while providing a strong foundation of revenues for Halozyme. Looking ahead, we're very excited about the Blockbuster products in our Partners Development Pipeline. Moving to the middle row of the slide, you can see some of these exciting pipeline products.

These three missile launches have provided important validation of our enhanced drug delivery technology across the globe, while providing a strong foundation of revenues for Halozyme.

Looking ahead, we're very excited about the blockbuster products and support our development pipeline.

Moving to the middle of the slide you can see some of these exciting pipeline products.

Helen I. Torley: We continue to expect that by the end of 2019, there will be three enhanced cell products in phase three clinical testing or undergoing regulatory review. These include Janssen's Darzalex, Roche's fixed-cell combination of Progetta and Herceptin, and its third product, which is currently in Phase I testing. Let me now provide a few more details on these products.

We continue to expect that by the end of 2019, it will be three enhance based product based preclinical testing or undergoing Blanco true view.

These include Janssens, Darzalex roche's fixed dose combination of forget and Herceptin and third product, which is currently in phase one testing.

Let me now provide a few more details on these products.

Helen I. Torley: Dargalex is a blockbuster therapy transforming the lives of patients with multiple myeloma. We're delighted that Janssen submitted regulatory applications in the U.S. and EU last month based on data from its Columbus study and data from its Phase II Pleiades study. Data from the Columbus study was the subject of an oral presentation at the 2019 American Society of Clinical Oncology annual meeting held in early June. The co-primary endpoints of the Colombo study were overall response rate and maximum trough concentration on day one of the third treatment cycle. The reported results showed non-inferior efficacy and pharmacokinetics for the subcutaneous formulation of Darzalex compared to the intravenous administration in these two endpoints. The median duration for each subcutaneous injection was five minutes, which compared to more than three hours for the IV administration.

[noise] Darzalex is a blockbuster therapy transforming the lives of patients with multiple myeloma, we're delighted that Janssen submitted reppert regulatory applications in the U.S. and you last month based on data from its Columbus study and data from its base to play the study.

[noise] based upon the Columbus study was the subject of an oral presentation at the 2019 American Society of clinical oncology annual meeting held in early June .

The co primary endpoints of the Columbus study for overall response rate and maximum trough concentration on day one of this their treatment cycle.

The reported results certain non inferior efficacy and pharmacokinetics for the subcutaneous formulation of Darzalex compared to the intravenous administration on these two endpoints.

The median duration for each subcutaneous injection was five minutes, which compared to more than three hours for the IB administration, and we know that for many patients administration can take four to six hours or sometimes even longer.

Helen I. Torley: And we know that for many patients, administration can take four to six hours or sometimes even longer. The results of the Columbia trial demonstrate the value proposition that may be offered by the substance formulation of Darzalex. The substantial savings in administration time may have potential benefits for patients, caregivers, and the health care system.

The results of the Columbus trial demonstrate the value proposition that may be offered by the sept students formulation of Darzalex.

The substantial savings in administration time may have potential benefits for patients caregivers and the health care system.

Helen I. Torley: Jensen has also stated that the availability of the subcutaneous form of Darzalex will allow expansion even further into earlier lines of therapy and into the community setting, an important potential benefit given the current Oncology Infusion Centre capacity constraints. Johnson is equipped with a broad clinical development program to support the potential commercialization of the subcutaneous form of Darzalex, including seven already-initiated Phase III studies. Importantly, the subcutaneous formulation of Darzalex could be the first product utilizing in hands to launch why the IV version of the drug is still in the early stages of growth. For the second quarter of 2019, J&J reported 41% growth in Darzalex sales globally. An analyst currently projects $2.8 billion in sales for 2019, with the potential to exceed $7 billion in worldwide sales by 2025.

Jensen is also stated that the availability of the subsidiaries form of Darzalex, well, let expansion even further into earlier lines of therapy and into the community setting an important potential benefit given the current oncology infusion center capacity constraints.

[noise] Jensen is contained with a broad clinical development program to support the potential commercialization all the subcutaneous form of Darzalex, including seven already initiated phase three studies.

Importantly, the subcutaneous formulation of Darzalex could be the first product utilizing enhanced to launch why the IB version of the drug is still in the early stages of growth.

For the second quarter 2019, JNJ reported 41% growth of Darzalex sales globally and analysts currently predict $2.8 billion in sales for 2019 with the potential to exceed $7 billion a worldwide sales by 2025.

I'll move now to the Knicks enhance based product in late stage clinical development, which is roche's fixed dose combination of Virginia and perception.

Helen I. Torley: I'll move now to the next enhanced-based product in late-stage clinical development, which is Roche's fixed-dose combination of Progetta and Receptin. This product candidate is currently being studied in HER2-positive early breast cancer. As a reminder, patients currently receive Progetta and Herceptin by sequential intravenous administration, which can take up to 2.5 hours for the loading dose and between 1 and 2.5 hours for subsequent doses. With the subcutaneous fixed-dose combination, the times are substantially shorter, with the loading dose expected to take 7-8 minutes and the subsequent doses 5 minutes.

This product candidate is currently being studied in her two positive early breast cancer.

As a reminder, patients currently receive perjeta intercepted by sequential intravenous administration.

Which can take up to two and a half hours for the loading dose and between one and two and a half hours for subsequent doses.

With the subcutaneous fixed dose combination that times are substantially shorter, but the loading dose expected to take seven to eight minutes and the subsequent dose is five minutes.

Helen I. Torley: Roche completed enrollment in a Phase 3 study evaluating the fixed-dose combination of Progetta and Herceptin in comparison to the IV form in the fourth quarter of 2018. They recently indicated they expect results from this trial in the second half of this year and hope to file regulatory submissions in the first half of 2020. According to Roche, the market addressed by this combined therapy is approximately 75,000 patients in the U.S. and EU5. Roche, on their most recent quarterly call, commented that a fixed-dose combination may provide an immediate benefit to patients in terms of convenience. And that it also provides an opportunity to consider the value proposition of the two drugs combined and what the right price is for that combination.

Most completed enrollment in a phase three study evaluating the fixed dose combination of Perjeta and herceptin in comparison to the IB form in the fourth quarter of 2018.

He recently indicated they expect results from this trial in the second half of this year and hope to file regulatory submission in the first half of 2020 .

[noise] According to Roche the market addressed by this combined therapy is approximately 75000 patients in the U.S. any you five.

Roche on their most recent quarterly coal commented that's fixed dose combination may provide an immediate benefit to patients in terms of convenience.

And then it also provides an opportunity to consider the value proposition for the two drugs combined.

The right price is for that combination.

Helen I. Torley: We look forward to further developments with this program in the coming quarters. And lastly, with regard to our partner's Phase 3 development programs, we continue to expect one additional product that is currently in Phase 1 to advance into Phase 3 clinical testing before the end of 2019. Turning next to the bottom row of slide 3, I'll now give an update on the Phase 1 programs utilizing Enhance.

We look forward to further development with this program in the coming quarters.

And lastly, with regard to our partners Phase three development program. We continue to expect one additional product that is currently in phase one study into phase three clinical testing before the end of 2019.

Turning next to the bottom row slide three I'll now give an update on the phase one program utilizing enhanced.

Helen I. Torley: We continue to expect that by the end of 2019, there will be nine products in phase one clinical testing. We currently have six products in phase one development by our partners Argenix, Alexion, Grisomar Squibb, Lily, and Roche. We were pleased to announce last month that Ergenics had dosed the first patient in a Phase 1 trial evaluating the safety, pharmacokinetics, and pharmacodynamics of F-carotidemod, or ARGX113, using in-hand.

We continue to expect that by the end of 2019 that will be nine products in phase one clinical testing.

We currently have six products in phase one development by our partners, our genomics Alexia, Bristol Myers Squibb, Lilly and rose.

We were pleased to announce last month that are genomics had dosed the first patient in a phase one trial evaluating the safety pharmacokinetics and pharmacodynamics of at particular month or E. R. T X 113 utilizing enhanced.

Helen I. Torley: This achievement marked the fastest time from the signing of an enhanced collaboration agreement to first patient dosing in a phase one study at just over five months, has triggered a $5 million payment to Halozyme, and Ardgenics stated on their quarterly call that they expect results from this study by year-end 2019. During the second quarter, Argenix also selected a second target under our Collaboration and License Agreement, Human Complement Factor C2, which is associated with the product candidate ARGX117. Selection of a second target triggered a $10 million milestone payment to Halozyme. The CTA filing for the first patient testing is expected by year-end 2019. We could not be more delighted with the progress of our collaboration with Ergenics and look forward to continuing to work closely together. Alexion has now completed their Phase 1 study of subcutaneous ALXN-1210, co-administered with our enhanced drug delivery technology and next generation subcutaneous formulation called ALXN-1810. Alexan's strategic planning around its C5 portfolio is ongoing, including its plans for late stage development for ALXN 1810.

This achievement Mark the fastest time from the signing of an enhanced collaboration agreement the first patient dosing in a phase one study at just over five months.

This triggered a 5 million dollar payment the halozyme.

And art Janet stated on their quarterly call that we expect results from this study by year end 2019.

During the second quarter, our Genic also selected a second target under our collaboration and license agreements human complement factor C, which is associated with the product candidate RG X 117.

Selection of a second target triggered a $10 million milestone payment to halozyme.

The CP filing for the first patient testing is expected by year end 2019.

We could not be more delighted with the progress of our collaboration with our Gen. X. I look forward to continue to work closely together.

[noise] [noise] Aleksey I'm no has completed their phase one study of subcutaneous annex and 12 10 code Minister with our enhanced drug delivery technology and next generation subcutaneous formulation called Ilecs and 18 and.

[noise] annex and strategic planning around B C portfolio is ongoing including its plans for late stage development for Ilecs and 18 10.

In addition, Alex and submitted the initial siti application to the medicines and healthcare products regulatory agency in the UK for the initiation of a phase one study of Ilecs and 17, 20, which is a novel anti Cfive albumin binding I specific mini body, the fines and prevents activation of human C. Five.

Helen I. Torley: In addition, Alexion submitted the initial CTA application to the Medicines and Healthcare Products Regulatory Agency in the UK for the initiation of a Phase 1 study of ALXN 1720, which is a novel anti-C5 albumin binding, bispecific minibody that binds and prevents the activation of human C5. The planned study is expected to start in late 2019 and will evaluate ALXM1720 with ENHANCE. Bristol-Mars Squibb is continuing with two Phase I studies for anti-CD73 and Updevo, and Eli Lilly is continuing with its Phase 1 development of an undisclosed target. And Roche continues with a Phase 1B2 study evaluating a subcutaneous formulation of Ticentric in Stage 4 non-small cell lung cancer patients. Now, in addition to these six ongoing Phase 1 trials, we anticipate three additional Phase 1 trial starts in 2019, including ALXN 1720, which we just discussed. And there will be two additional starts that remain undisclosed at this time.

The planned study is expected to start in late 2019, and we'll evaluate ilecs and 17 20 with enhanced.

[noise] [noise] Bristol Myers Squibb is continuing with two phase one studies anti cdseventy three and a beagle.

[noise] Eli Lilly is continuing with its phase one development of an undisclosed target I'm Roche continues with the phase one b two study evaluating subcutaneous formulation to centric and stage four non small cell lung cancer patients.

And in addition to these six ongoing phase one trial, we anticipate three additional phase one trial starts in 2019, including Amex and 17, 20, which we just discussed.

It'll be two additional stores that remain undisclosed at this time.

As you just heard our enhanced business continues to build momentum in the clinic.

Helen I. Torley: As you just heard, our enhanced business continues to build memento in the clinic. And one of our most exciting partner programs in the pipeline, Subcutaneous Darvalex, has now entered the regulatory review process. We look forward to this being followed by regulatory submissions for the Progetta and Herceptin-Fixos combination in the first half of 2020. With our partners' clinical development programs expanding and key regulatory submissions in process and on the horizon, you can see why we have conviction that the Enhanced platform has the potential to deliver approximately $1 billion in royalty revenue in 2027. And I'll mention again that, in addition, we remain in active discussions with potential new enhanced partners that could further add to this potential.

And one of our most exciting partner programs in the pipeline subcutaneous Darzalex as I entered the regulatory review process.

We look forward to this being folded by regulatory submissions for the projector and her second fixed dose combination in the first half of 2020 .

With a partner clinical development programs, expanding and key regulatory submissions and process and on the horizon. You can see why we have conviction that the enhanced platform has the potential to deliver approximately $1 billion in royalty revenue in 2027.

And I mentioned again that in addition, we remain in active discussions with potential new ENHANZE partners that could further add to this potential.

Now turning to our oncology pillar, which is shown in slide four.

Helen I. Torley: Now turning to our oncology pillar, which is shown in slide four. This is a very exciting time for our oncology pillar, as we near the announcement of top-line results for our pivotal Phase III study in metastatic pancreatic cancer, HALO 301. The oncology pillar represents Halozyme's second high-revenue potential business currently centered around the development of PEG-PH20, which is a targeted therapy that temporarily degrades hyaluronan, or HA, that can accumulate around certain tumors and increase intertumor pressure and, as a result, constrict the tumor vasculature and reduce access to cancer therapies. We're studying PEG- As a reminder, Halozyme 301 is a randomized, double-blind, global, phase 3 study evaluating PEG-PH20 in combination with abraxin and gemcitabine in first-line metastatic pancreas cancer patients with high HA tumors.

This is a very exciting time for oncology pillar as we near the announcement of top line results for our pivotal phase three study in metastatic pancreas cancer Halo 301.

In college, the pillar represents Halozyme second high revenue potential business currently centered around the development of Pegphtwenty, which is a targeted therapy that temporarily degrades the highly rowan or eightxeight that can accumulate around certain tumors, an increase intra tumor pressure as a result, constrict the tumor vasculature and we choose access of cancer therapies.

We're studying pegphtwenty with a companion diagnostic developed with our partner Roche tissue diagnostics formally ventana out to identify patients with high levels of ha in their tumors.

As a reminder, halozyme three a one is a randomized double blind global phase three study evaluating pegphtwenty in combination with Abraxane and Jim side.

In first line metastatic pancreas cancer patients with high Tech tumors.

Helen I. Torley: Halo 301 has a single primary endpoint, all overall survival. We completed enrollment in Halo 301 in December of 2018, with approximately 500 patients. In mid-June this year, we announced that Halo 301 reached the target number of 330 overall survival events and that we plan to conduct the final overall survival analysis upon data maturity, which would occur when all patients enrolled have been followed for at least 8.5 months. Based on the timing of data maturity, we expect to announce top-line results for Halo 301 by December of this year. Let's now turn to slide 5 and an update on our evaluation of PEG-PH20 in other tumor types. Roche is evaluating PEG-PH20 combined with DECENTRIC in their MORPHEUS second-line pancreas cancer phase 1b2 study.

[noise] Halo 301 has single primary endpoint of overall survival.

We completed enrollment of Haim Israel, one in December of 2018, but approximately 500 patients.

[noise] in mid June this year, we announced the Halo 301 reached the target number of 330 overall survival events and that we plan to conduct the final overall survival analysis on beacon maturity, which would occur when all patients enrolled I think bodes for at least 8.5 months.

Based on the timing of data maturity, we expect Enetts top line results for Halo 301 by December of this year.

[noise], let's now turn to slide five and an update on our evaluation of Pegphtwenty in other tumor types.

Roche's evaluating pegphtwenty combined with the centric in their Morphosys, secondly, pancreas cancer phase one b two study enrollment in the arm with bank page 20 is completed.

And in the Halozyme led phase one b to studying call lending carcinoma gall bladder cancer enrollment for the initial cohorts was completed with a total of 74 patients.

Helen I. Torley: Enrollment in the ARM with PEG-PH20 is completed, and in the Halozyme-led Phase 1B2 study in cholangiocarcinoma and gallbladder cancer, enrollment for the initial cohorts was completed with a total of 74 patients. The study is ongoing, following patients still on therapy and those who have discontinued, and we're enrolling another cohort of approximately 15 patients to assess a different dosing schedule. We expect to be able to announce initial data from the first cohorts of these two trials before the end of this year. Without a doubt, this is an exciting time for our oncology pillar, and we look forward to the Halo 301 trial results later this year. With that, I'll now turn the call over to Lori, who will discuss our financial results in greater detail. Lori?

The studies ongoing following patients still on therapy, and those who have discontinued.

And we're building another cohort for approximately 15 patients to assess a different dosing schedule.

We expect to be able to enhance initial data from the first cohorts of these two trials before the end of this year.

With.

This is an exciting time for our oncology pillar and we look forward to Haim Israel. One trial results later this year.

With that I'll now turn the call over to Lori, who will discuss our financial results in greater detail Laurie.

Thank you and good afternoon, everyone turning to slide six for a discussion of our second quarter financial results.

Total revenue for the second quarter was $39.1 million compared to $35.2 million in the prior year period.

This 11% increase was driven primarily by higher collaboration revenue from our ENHANZE partner our genomics.

Royalty revenue for the quarter totaled $18.1 million, a decrease of 10% compared to the second quarter of 2018 with the decrease driven by lower sales of Herceptin SC by Roche due to the continuing impact of bio Similars in Europe , which was partially offset by higher sales at vertex and high sell it by Roche and high Q via by Takeda.

Lori Stelzer: Thank you, and good afternoon, everyone. Turning to slide 6, for a discussion of our second quarter financial results, total revenue for the second quarter was $39.1 million compared to $35.2 million in the prior year period. This 11% increase was driven primarily by higher collaboration revenue from our enhanced partner, Argenix. Royalty revenue for the quarter totaled $18.1 million, a decrease of 10% compared to the second quarter of 2018, with the decrease driven by lower sales of Herceptin-FC by Roche due to the continuing impact of biosimilars in Europe, which was partially offset by higher sales of Rituxan-Hycella by Roche and Hycuvia by Taked Product sales in the quarter, which are comprised mainly of bulk RQPH20 and Hilinx, totaled $5.8 million, up 28% compared to $4.5 million in the prior year period.

Product sales in the quarter, which are comprised mainly of bulk RQ ph 20, and Highland ex totaled $5.8 million up 28% compared to $4.5 million in the prior year period.

Collaboration revenue in the quarter totaled $15.3 million compared to $10.7 million in the prior year period, reflecting licensing fees from our Gen X of $10 million for the selection of a second target and $5 million for the first patient dosed in a phase one study.

Turning to slide seven for a more detailed breakdown of our piano I'll now move on to total operating expenses, which were $53.1 million in the second quarter down slightly from $55.3 million in the prior year period.

Cost of product sales was $1.9 million in the quarter compared to $2.8 million in the prior year period.

Lori Stelzer: Collaboration revenue in the quarter totaled $15.3 million compared to $10.7 million in the prior year period, reflecting licensing fees for Margenix of $10 million for the selection of a second target and $5 million for the first patient dosed in a Phase I study. Turning to slide 7 for a more detailed breakdown of our P&L, I'll now move on to total operating expenses, which were $53.1 million in the second quarter, down slightly from $55.3 million in the prior year period. Cost of product sales was $1.9 million in the quarter, compared to $0.8 million in the prior year period. Research and development expenses for the quarter were $33.9 million compared to $40.1 million in the second quarter of 2018, reflecting reduced clinical trial activity with the completion of enrollment in Halo 301. Selling general and administrative expenses were $17.3 million, compared to $14.4 million in the prior year period.

Research and development expenses for the quarter were $33.9 million compared to $40.1 million in the second quarter of 2018, reflecting reduced clinical trial activity with the completion of enrollment in Halo 301.

Selling general and administrative expenses were $17.3 million compared to $14.4 million in the prior year period.

Net loss for the quarter was $14.6 million or 10 cents per share compared to a net loss of $22.9 million or 16 cents per share in the second quarter of 2018, which reflected the impact of higher collaboration revenues.

And cash cash equivalents and marketable securities were $287.5 million at June Thirtyth 2019, compared to $354.5 million at December 31, 2018.

Now turning to slide eight I would like to update our 2019 guidance.

We continue to expect total revenues to be in the range of $205 million to $215 million, including revenue from royalties of $72 million to $74 million.

As discussed last quarter product sales related to Apiay are expected to fluctuate quarter to quarter and be higher in the second half of the year.

Lori Stelzer: The net loss for the quarter was $14.6 million, or $0.10 per share, compared to a net loss of $22.9 million, or $0.16 per share, in the second quarter of 2018, which reflected the impact of higher collaboration revenues. Cash Equivalents and Marketable Securities were $287.5 million at June 30, 2019, compared to $354.5 million at December 31, 2018. Now turning to slide eight, I would like to update our 2019 guidance. We continue to expect total revenues to be in the range of $205 to $215 million, including revenue from royalties of $72 to $74 million. As discussed last quarter, product sales related to API are expected to fluctuate from quarter to quarter and be higher in the second half of the year.

For the third quarter, specifically, we expect sales in excess of $20 million followed by sales in the fourth quarter similar to the level, we reported in the first quarter of this year.

We now expect operating expenses of $255 million to $265 million, which is down from our prior guidance of $265 million to $275 million due to lower spending related to a modest reduction in clinical commercial and people related expenses as the projected date for our data readout based on events attainment and data maturity became clear.

Accordingly, we now expect operating expenses, excluding cost of goods sold of $215 million to $225 million down from our prior guidance of $225 million to $235 million.

As a result operating cash burn is now expected to be $40 million to $50 million down from $45 million to $55 million.

Lori Stelzer: For the third quarter, specifically, we expect API sales in excess of $20 million, followed by API sales in the fourth quarter, similar to the level we recorded in the first quarter of this year. We now expect operating expenses of $255 to $265 million, which is down from our prior guidance of $265 to $275 million due to lower spending related to a modest reduction in clinical, commercial, and people-related expenses as the projected date for our data readout, based on event attainment and data maturity, became clear. Accordingly, we now expect operating expenses excluding cost of goods sold of $215 to $225 million, down from our prior guidance of $225 to $235 million. As a result, operating cash burn is now expected to be $40-$50 million, down from $45-$55 million.

Not included in operating cash burn, we expect debt repayment of approximately $90 million in 2019.

Furthermore, we expect to pay off the remainder of our royalty back debt by the second quarter of 2020.

And we now expect our year end cash balance to range from $220 million to $230 million up from our prior expectation of $210 million to $220 million as our balance sheet continues to provide the company with great operational flexibility and with that let me turn the call back to Helen who will provide closing comments.

Thank you Laurie.

Weve made strong progress in 2019, having accomplished multiple key milestones already and in the remainder of the year, we expect multiple additional events and milestones.

For enhanced filler. These include potential announcement of phase three results for roche's fixed dose combination I'll predict and herceptin.

Potential advancement of a new product candidate into phase three.

Lori Stelzer: Not included in operating cash burn, we expect debt repayment of approximately $90 million in 2019. Furthermore, we expect to pay off the remainder of our royalty-backed debt by the second quarter of 2020. And we now expect our year-in-cash balance to range from $220 million to $230 million, up from our prior expectation of $210 million to $220 million, as our balance sheet continues to provide the company with great operational flexibility.

Potential initiation of three additional phase one studies and of course, while we can never predict the timing we are continuing to pursue additional collaborations.

And for oncology pillar, we expect expects top line data from our Halo 301 pivotal phase three study by December of this year.

[noise] I would close by expressing my ongoing gratitude and appreciation to the talented halozyme team for their continued hard work in advancing our programs in support of patients and our partners and with that were now ready to take your questions. Operator would you. Please open up the call.

Thank you in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q and a roster.

Helen I. Torley: And with that, I will turn the call back to Helen, who will provide closing comments. Thank you, Lori. We've made strong progress in 2019, having accomplished multiple key milestones already. And for the remainder of the year, we expect multiple additional events and milestones. For our enhanced filler, these include the potential announcement of phase three results for Roche's fixed-dose combination of Progetta and Herceptin, potential advancement of a new product candidate into phase three, potential initiation of three additional phase one studies, and, of course, while we can never predict the timing, we are continuing to pursue additional collaboration. And for our oncology pillar, we expect top-line data from our Halo 301 Pivotal Phase I want to close by expressing my ongoing gratitude and appreciation to the talented Halozyme team for their continued hard work in advancing our programs in support of patients and our partners. And with that, we're now ready to take your questions. Operator, would you please open up the call? Thank you. In order to ask a question, please press star 1.

Your first question comes from the line of Charles Duncan from Cantor Fitzgerald. Your line is open.

Hey, good afternoon, Ellen and Lori Congrats on a nice quarter. Thanks for taking our questions had a quick question for you. It seems like your express so machine is really kicks up.

Afternoon, 'cause Helen you're speaking so fast I missed I think you said something about estimated milestone payment of a certain amount and over certain period of time can you can you just state that again and and your thoughts behind that.

Hi, Thank you Charles.

It's a call out on the slide we have that shows our projection on the royalty revenue potential for enhanced which as you know is estimated at $10 billion to $11 billion by 2020 seven people often underestimate our forget we also have a substantial revenue potential coming in for milestones and in the period between 2019 2021, we have a projection or milestones of $225 million to $300 million. In addition to the royalty revenue projections that are on that slide and so it really does reflect the benefit of having multiple partners in development and as well as the partners getting into the market and generating those royalty revenues as well.

Operator: Star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Charles Duncan from Cantor Fitzgerald. Your line is open. Hey, good afternoon, Helen and Lori. Congratulations on a nice quarter. Thanks for taking our questions. I had a quick question for you. It seems like your espresso machine has really kicked in this afternoon because, Helen, you're speaking so fast. I missed, I think you said something about estimated milestone payments of a certain amount and over a certain period of time. Can you just state that again and your thoughts behind that?

Yes. That's helpful. We made left it may have left that off our recent kelty calculations should should leverage your balance sheet.

With regard to count and collaborations.

In terms of new collaborations I guess, you know how do you how do you see large versus small or very broad versus smaller ones. How do you see earlier stage use of the technology versus later stage Hughes Where's the interest where does it seem to come from obviously, you've got enough going on but I'm wondering kind of get some insights on the future.

Helen I. Torley: Happy to, Charles. It's a call out on the slide we have that shows our projection of the royalty revenue potential for Enhance, which, as you know, is estimated at a potential of a billion dollars by 2027. And so it really does reflect the benefit of having multiple partners in development, as well as the partners getting into the market and generating those royalty revenues as well.

It's no secret to Lori just to comment on the phase of the rain just conversations were involved in.

Helen I. Torley: Yeah, that's helpful. We may have left that off.

Yes, Hi, Charles how are you doing on AI, we continue to be in conversations with multiple potential partners and the beauty of our genic steel is a great example of a more of a biotech versus the larger pharma type of partners that we had we contracted with in the past and we are seeing our partners not only be interested in already marketed products like Opdivo for instance, with BMS, but also earlier stage part products like Cdseventy three so we're really starting to see a wide range of type of partners a size of partners as therapeutic areas as we've seen with the recent aleksey on and our Gen X.

Helen I. Torley: Our recent calculations should leverage a balance sheet. With regard to collaborations, you know, in terms of new collaborations, I guess, you know, how do you see large versus small or very broad versus smaller ones? How do you see earlier stage use of the technology versus later stage use? Where is the interest? Where does that seem to come from? Obviously, you've got enough going on, but I'm wondering, kind of, to get some insights on the future.

Lori Stelzer: Charles, I'll turn it over to Lori just to comment on the range of conversations we're involved in. Hi Charles, how are you doing?

Lori Stelzer: I, you know, we continue to be in conversations with multiple potential partners, and the beauty of the Ardenyx deal is a great example of a more biotech type of partner versus the larger pharma type of partners that we have had, and we've contracted with in the past. And we are seeing our partners not only be interested in already-marketed products, like Obsevo, for instance, with BMS, but also earlier stage parts, like CD73. So we're really starting to see a wide range of types of partners, size of partners, as therapeutic areas, as we've seen with the recent Alexion and Argenyx molecules, as well as different stages in the life cycle. And so we, we, we, there are targets that in our hands will benefit across the gamut of those things.

Molecules I as well as different stages in the lifecycle. So we there are there are targets that enhance will benefit across the gamut of those things.

Okay. That's helpful and last question is regarding.

The timing on three a one data I know its an imprecise science because it depends on events, but I'm wondering if your current thoughts with regard to I think by the end of December is is that different is that is it new it seems like that's what you've been saying, but then perhaps there was some thought that it could be earlier in the second path is there any new information in that then we should maybe read into.

Helen I. Torley: Okay, that's helpful. The last question is regarding the timing of 301 data. I know it's an imprecise science because it depends on events, but I'm wondering if your current thoughts with regard to, I think by the end of December, are that different? Is that new? It seems like that's what you've been saying, but then perhaps there was some thought that it could be earlier in the second half. Is there any new information in that that we should maybe look into?

No new information Charles since our last update them, we have attained to 330 events and now we're waiting for data maturity that is all patients followed for 8.5 months. So we do have a very good line of sight that we will have the data by December .

Helen I. Torley: No new information, Charles, since our last update. We have attained the 330 events, and now we're waiting for data maturity. That is, all patients followed for 8.5 months. So we do have a very good line of sight that we will have the data by December.

Okay. That's helpful. Thanks for the good good.

Your next question comes from the line of Jim or turn off from Wells Fargo. Your line is open.

Hi, guys. Congrats on all the progress a few questions I guess just first one on.

Billion target royalties Ahmed fees, but that target that available where we have much visibility on our genomics progress and so I'm just wondering is organic.

Operator: Okay, that's helpful. Thanks for the reminder. Good, good. Your next question comes from the line of Jim Bertranoff from Wells Fargo. Your line is open. Hi guys, congrats on all the progress. A few questions. I guess just first, Helen, on the billion and target royalties. It seems that that target was available before we had much visibility on our GenX progress. And so, I'm just wondering, are our GenX royalties part of the billion target royalties, or is that above and beyond?

Well part of the billion target royalties or is that.

Above and beyond.

Yes, let me ask Laurie to just comment on that Jim Hi, Jim.

So when we set that projection for $1 billion by 2027. It was looking at a portfolio of products and as we had new partnerships or programs move into the clinic. It's just increased our conviction around that billion dollar. So you know we're still projecting a billion dollars by 2020.

Helen I. Torley: Yeah, let me ask Lori to just comment on that, Jim. Hi Jim.

Lori Stelzer: So when we set that projection for a billion dollars by 2027, it was looking at a portfolio of products. And as we've had new partnerships or programs move into the clinic, it's just increased our conviction around that billion dollars. So you know, we're still projecting a billion dollars by 2027.

So Jay Leno.

Well I was just going to say it includes all of the 15 products. We're talking about three marketed and the 12 that we project to be in the clinic by the end of this year.

Got it and then a question we get is.

We know you're planning for success of three a one.

Lori Stelzer: And then I'm going to say it includes all of the 15 products we're talking about, three already in the market, and the 12 that we project will be in the clinic by the end of this year.

But you've alluded to the contingency where it doesn't work and becoming human hands only company and so.

How Chris Lee.

And finally, we'll be the guidance on what in ENHANZE only company looks like in the event that three a one doesn't work out what.

Helen I. Torley: Got it. And then, um, you know, a question we get is, we know you're planning for the success of 301. But you've alluded to the contingency where it doesn't work and becomes an enhanced only company. And so how crisp and timely will be the guidance on what an enhanced-only company looks like in the event that 301 doesn't work out?

Starting off too.

Studying this further or is your thinking along the lines of that contingency pretty far along as well.

I can say that contingency as far prudent business planning it will be ready to be talked about in the event that we do have negative Halo 301 data I will stress that is not our base planning assumption for the company, but we do recognize we need to be ready with that and we will have information as to what the size of the company is and what the path to profitability is for that enhance the only company.

Helen I. Torley: I can say that, as part of prudent business planning, it will be ready to be talked about in the event that we do have negative Halo 301 data. I will stress that is not our base planning assumption for the company, but we do recognize we need to be ready with that, and we will have information as to what the size of the company is and what the path to profitability is for that enhanced only company.

And then just maybe one final question Howard just on on radio one.

Overall would you say your level of conviction.

Has remained high as some higher how are you feeling just.

Helen I. Torley: And then maybe one final question, Helen, just on, um, 301, just overall, would you say your level of conviction has remained high, or has become higher? How are you feeling, just confidence-wise, heading into that data, and if there's anything that's either biologically or preclinical or anything that's making you more or less confident going into the 301 data?

But its wise heading into that data and if there's anything that's.

These are biologically or preclinically or anything that would make you more or less confident going into the three on one data.

In my conviction is unchanged from the set of facts, we had when we got the speech to two results, which were reported in December of 2016. If you recall that was based on a mature data set and when we looked at the high population. We had a very good estimate of the treatment effect in the 80 high population and the bit that we could define 80 high with a patient console or the off 50% and so.

Helen I. Torley: My conviction is unchanged from the set of facts we had when we got the stage 2, 202 results, which were reported in December of 2016. If you recall, that was based on a mature data set, and when we looked at the HAI population, we had a very good estimate of the treatment effect in the HAI population. And that we could define HAI with a patient cutoff of 50%. And so, you know, the true test, though, to answer that question is Halo 301, which is the only study we've done sufficiently sized and powered to address that question. But, you know, we do believe strongly in the science. We believe that by having the control stage 2 data, we have a much better line of sight into the potential treatment effect than many other products that haven't succeeded in pancreatic cancer. So those were the facts that gave us our conviction, and my conviction is unchanged based on those facts.

The true test, though to answer that question is Halo 301, which is the only study weve done sufficiently sized empowered to address that question.

But you know we do believe strongly in the science, we believe that by having the controlled phase two data, we got a much better line of sight into the potential treatment effect and many other products that haven't 60, Didnt pancreas cancer. So those were the fact that gave us our conviction to my conviction is unchanged based on those facts.

Thanks, Jim.

Your next question comes from line of Jason Butler from JMP Securities. Your line is open.

Hi, Thanks for taking my questions first one just on the took centric via the additional cohort that's being at its the goal bladder trial can you just speak to the rationale there and specifically what you're looking for with the different dosing schedule and then a second question on tech centric for both the goal that are in the pancreatic cancer trial. I think you said data for both later this year just any any details you can give us around patient numbers or expected maturity of data I would go with that update thanks, yes.

Helen I. Torley: Well, thanks for taking the question. Thank you. Your next question comes from the line of Jason Butler from JMP Securities. Your line is open.

Alison Armour: Hi, thanks for taking the questions. First one, just on TxENTRIC, the additional cohort that's being added to the gallbladder trial, can you speak to the rationale there and specifically what you're looking for with the different dosing schedule? And then a second question on TxENTRIC for both the gallbladder and the pancreatic cancer trial. I think you said data for both later this year. Just any details you can give us around patient numbers or expected maturity of data with that update. Thanks. Thanks. I'd like to take this if I can, Jason.

Thanks, Jim.

I'd like to take this as I can Jason.

All former the new head of R&D and.

It's not unusual to explore an alternative regimen in phase one development and with the colonial carcinoma study we have.

Additional PK information that came from the pieces to two study during the conduct of the study no you will remember that in Colombia are small mall.

Alison Armour: Hi, I'm Alison Armour, the new head of R&D. It's not unusual to explore an alternative regimen in phase one development. And with the cholangiocarcinoma study, we had additional PK information that came from the 202 study during the conduct of the study. Now, you will remember that in cholangiocarcinoma, the regimen is slightly different. It's gem cisplatinum, given every three weeks. In pancreas, it's gem abraxane, which is given every four weeks. So the regimens were slightly different. So when we got additional data from the 202 trial, and it showed us that the CTROF level might be important, then we decided to make the dosing in the cholangiocarcinoma study more similar, in fact, to the pancreas. So we're just using our information and, you know, doing good science here.

Good when the slate as Jim says Putnam given every three weeks and paying today is Jim Abraxane, which has given every four weeks so that regimens for slightly different so when we got additional data from the two two trial and it sure does and the the sequel will might be important then we decided to make the dosing in the cloud to study more similar.

So we are just using that information and then doing good signs yeah.

And then Jason I can to pick up on what we might expect to see the data is still maturing as we think about what the initial data to be it would be a response rate and if the data is that mature enough, perhaps even PFS in these populations, but it would be a a first flew get the initial cohorts that by the end of this year.

Helen I. Torley: And then, Jason, I can pick up on what we might expect to see. The data is still maturing. As we think about what the initial data could be, it would be a response rate. And if the data is mature enough, perhaps even PFS in these populations. But it would be a first look at the initial cohorts by the end of this year.

Great. Thanks, a lot and then just maybe a quick one on Herceptin you know there there was a pretty significant impact to biosimilars in Europe . This quarter any thoughts going forward about where were you know how that franchise looks and how you'd expect biosimilars to to impact the market in the us as well.

Helen I. Torley: Great, thanks Helen. And then maybe a quick one on Herceptin. There was a pretty significant impact of biosimilars in Europe this quarter. Any thoughts going forward about how that franchise looks and how you'd expect biosimilars to impact the market in the U.S. as well?

Lori Stelzer: Thanks. Let me ask Lori to address that. Hi Jason.

Thanks, Yes, let me ask Laurie to address that.

Hi, Nathan pay so we continue to watch this closely we're very confident still in our forecast of $72 million to $74 million for royalties this year.

Lori Stelzer: So, you know, we continue to watch this closely. We're still very confident in our forecast of $72 to $74 million for royalties this year. We are continuing to see the impact of biosimilars, you are correct, in Europe, on Herceptin, but we still feel confident in the $72 to $74 million. As far as biosimilars in the U.S., we did project that there would be biosimilars coming to the U.S. in the second half, and that was part of our plan this year. Now, you know, to the extent there are multiple entrants into the market, or there are aggressive price actions, we may need to look at that. It may have a greater than anticipated impact on our projections, but we did anticipate biosimilars in the second half, so we're still within that range.

We are continuing to see the impact of bio Similars you are correct in Europe on her staff and but but we still feel confident in the $72 million to $74 million as far as bio similars in the U.S.

We did project that.

That there would be bio similars coming to the U.S. in the second half and that was a part of our plan. This year now you know to the extent there are multiple and entrance into the market or there are aggressive price actions.

We may need to look at that and they have a greater than anticipated impact on our projections that we did anticipate bio similars in the second half so we're still within that range.

Operator: Okay, great. Thanks for taking the questions. Thank you.

Okay, great. Thanks for taking the questions.

Operator: Again, if you would like to ask a question, please press

Oh, thank you.

Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Joel Beatty from Citi. Your line is open.

Operator: Press star, then the number one on your telephone keypad. Your next question comes from the line to Joel Beatty.

Operator: Joel Beattie, from Citi, your line is open. Hi, thanks for taking the question. The question is about the kind of market dynamics of the sub-queue formulations of Enhance IV and sub-queue. And some of the products decrease the delivery time by quite a bit, you know, hours, and then some things a little bit shorter. Have you identified, you know, kind of a threshold where that seems to make a big difference in terms of

Hi, Thanks for taking the question question on the kind of market dynamics of the Subcu formulation of enhanced.

Ivy and sort of Q1.

Some some of the products decreased delivery time by quite a bit you know on hours and then sometimes a little bit shorter.

Have you identified kind of kind of maybe a threshold where.

That seems to make a big difference in terms of.

Given the attached to the inherent partnered products.

Oh, Thanks, Joel you know I as you as you point out we've seen a difference in the products that we've launched to date Herceptin is a very good example of where the Ivy is anything from usually 60 to 90 minutes and the steps you was five to 10 now with that difference what we did see in Europe was 60% share of sales volume for the steps you. So that was the certainly in Europe very attractive value proposition because all of the potential benefits for patients, but also as roshe demonstrated.

Helen I. Torley: Herceptin is a very good example, where the IV is usually 60 to 90 minutes, and the sub-Q was 5 to 10. Now, with that difference, what we did see in Europe was a 60% share of sales volume for the sub-Q. So that was, certainly in Europe, a very attractive value proposition because of the potential benefits for patients, but also, as Rose demonstrated, reduced costs for the healthcare system. You're quite right in pointing out that with Darzalex, as an example, the value proposition appears even stronger, being able to go from what, for many patients, is 4 to 6 hours down to just 5 minutes. And so I think we are still, we've got three products approved so far, Darzalex with the 5-minute injection. I still think we need to find what the minimal difference is that would make a difference, but certainly, the Rose product value propositions, which are our lowest ones to date, certainly seem to be very attractive for healthcare professionals and patients based on the share adoption.

But reduced cost for the health care system.

Quite right in pointing out with Darzalex as an example, the value proposition appears even stronger being able to go for from what for many patients is four to six hours down to just five minutes.

And so I think we are still would get some three products approved so for darzalex with the five minute injection I still think we need to find what is the minimal difference it would make a difference but that certainly the roes product that value propositions, which are our lowest ones today, certainly seems to be a very attractive for healthcare professionals and patients based on the share adoption.

That's great.

Operator: That's great. Maybe a question on the milestone payments coming up of $225 to $300 million. Are you able to provide a breakdown of those or just give a sense of, you know, if they're mostly development milestones or such?

Maybe a question on the milestone payments coming off of 225 to 300 million are you able to provide a breakdown of those or just give a sense to.

If they're mostly development milestones or a substantial portion of commercial milestones.

Lori Stelzer: Lori will address that. Hi Joel.

Lori Stelzer: Well, we haven't provided a breakdown of that $225 to $300 million. What I can say is that it is primarily development milestones as our partners are moving those, you know, by the end of the year, the nine products in Phase 1 and the three products in Phase 3. And as those programs continue to move through the development cycle, you know, I think the majority of those milestones will be associated with development programs.

Or.

A large amount coming from any particular product.

More able to death.

Hi, Joel.

Well, we haven't provided a breakdown of that $225 million to $300 million. What I can say is that it is primarily development milestones as our partners are moving those.

We ended the year the nine products in phase, one and the three products in phase three and as those programs continue to move through the development cycle.

I think the majority of those milestones will be associated with development.

Operator: There are no further questions at this time. Dr. Helen Torley, President and CEO, I turn the call back over to you.

Great. Thank you.

There are no further questions at this time Dr., Helen Torley, President and CEO I turn the call back over to you.

Helen I. Torley: Thank you, Operator, and thanks to everyone for joining us today. As you've heard, we're continuing to make very nice progress here at Halozyme, and we look forward to providing you with an update next quarter. Have a great evening.

Thank you operator, and thanks to everyone for joining us today as you've heard we're continuing to make very nice progress here at Halozyme and we look forward to providing you with an update next quarter have a great evening.

Operator: This concludes today's conference call. You may now disconnect.

This concludes today's conference call you may now disconnect.

Operator: conference call; you may now disconnect.

Operator: BF-WATCH TV 2021

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