Helen Torley - President, Chief Executive Officer Al Kildani - Vice President of Investor Relations and Corporate Communications

Ladies and gentlemen, thank you for standing by and welcome to the Halozyme, Fourth Quarter 2019 Financial Results Webcast and Conference Call. At this time all participants’ lines are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]. 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. 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 on 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. During the call we will be making forward-looking statements. I refer you to our SEC filings for a full listing of the risks and uncertainties. I’ll now turn the call over to Helen.

Thank you, Al. Before providing an update on our recent progress and outlook, I’d like to first comment on the leadership change we’ve just announced. I’m very excited to announce that Elaine Sun has been appointed our new Senior Vice President and Chief Financial Officer, effective March 2. 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 SutroVax, 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 role she played in helping the company through the restructuring over the last few months. We wish Laurie all the best in her next role. 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 ENHANZE 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 and the ability to provide a meaningful return of capital. As we announced in January, for 2020 our revenue guidance is $230 million to $245 million, at which we’d represent 17% to 25% growth over 2019. The key driver for this revenue growth is milestone revenue, resulting from the strong projected partner development progress and new product commercialization. Earnings per share guidance is $0.60 to $0.75, and I’m pleased to announce that we have 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. Let me now provide a brief overview of our ENHANZE platform and our business model before providing specifics on our progress. We licensed our ENHANZE technology to leading global pharmaceutical and biotechnology companies for exclusive co-formulation with their proprietary products on a target-by-target basis. We received upfront payments, development and commercial milestones, and on average a mid-single digit royalty on net sales. To-date, we have licensed our rHuPH20 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 with ENHANZE has resulted in the generation of data that illustrate the exciting range of competitive differentiation opportunity that ENHANZE 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 and the COLUMBA Phase III study, when compared to the rate observed with DARZALEX IV; the potential for new pricing approaches, for example for those combining two biologics with ENHANZE. As Roche has previously stated, this may be an opportunity for the Perjeta-Herceptin fixed-dose combination; the ability to facilitate the administration of treatment in lower cost settings such as the physician office or the community.

Let me now move to an update on our most advanced programs. We’re very excited for the next few anticipated launches of products utilizing ENHANZE, as they are expected to represent an important inflection point for our royalty revenue growth. I’ll begin with slide three or with daratumumab or DARZALEX. DARZALEX represents an exciting growth opportunity. In its current IV form, DARZALEX experienced approximately 45% growth globally in the fourth quarter of 2019 and is 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 subcutaneous 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. Janssen completed regulatory submissions in the U.S. and in EU for the subcutaneous formulation of DARZALEX in July of 2019, setting up the potential for approval in the mid-2020 timeframe, assuming standard regulatory review times. The potential value proposition of daratumumab SC is strong. Based on the COLUMBA Phase III data, daratumumab SC can be given in a three to five minutes subcutaneously, versus three to four hours for the IV, and in the study there was also a lower rate of infusion-related reactions reported with the SC at approximately 13% compared with approximately 35% or the IV. Turning now to slide four, the fixed-dose combination of Perjeta and Herceptin is the next potential launch of a product utilizing ENHANZE. According to Roche’s fourth quarter financial results, Perjeta IV sales 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 Perjeta, going to more than $5 billion in 2024. Roche has completed regulatory filings in the U.S. and EU and its BLA submission was recently accepted by the FDA. Roche has stated they expect to launch in the U.S. in 2020 and we would anticipate launch in the EU in 2021, following the approval. The subcutaneous fixed-dose combination of Perjeta and Herceptin is an important first, combining two therapeutic antibodies in a single fixed-dose formulation, utilizing ENHANZE, enabling a five minute to eight minute subcutaneous injection, compared with 1.5 hours to 2.5 hours for the sequential IV administration of Herceptin and Perjeta. During the recent fourth quarter update, Roche indicated that uptake of subcutaneous Herceptin has been impacted in part because of preferred regimen for Herceptin is now with Perjeta 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 ENHANZE. DARZALEX and Perjeta 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. Moving now to slide five, outlined here is our robust pipeline of ENHANZE partnered products that are in development. There are nine partner programs currently in or that have completed Phase I testing. Let me begin with efgartigimod from our newest partner Argenx, who continues to make rapid progress advancing this program in combination with our ENHANZE technology. In December, Argenx announced results from its Phase I study, evaluating a subcutaneous formulation of efgartigimod using ENHANZE in healthy volunteers. Argenx stated the 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. Argenx is moving rapidly with development and recently stated it initiated a Phase II study of efgartigimod with ENHANZE in chronic inflammatory demyelinating polyneuropathy or CIDP; it is a form of chronic autoimmune neuropathy. The Phase II study has an innovative design intended to result in a faster time to a go/no-go decision for advancement of potential Phase III study. In addition, Argenx is evaluating a bridging strategy for efgartigimod with ENHANZE in myasthenia gravis. With regard to ALXN1810, Alexion recently disclosed plans to start a Phase II Renal Basket study with 1810 in the second half of 2020. Moving now to Bristol-Myers Squibb, we are very pleased with their progress, as Bristol-Myers is now in the clinic with three exclusive targets, PD1 or nivolumab, anti-CD73, and a Phase I study is under way, evaluating a combination of nivolumab plus relatlimab. And completing this overview of disclosed targets, Roche has initiated Phase I study evaluating ENHANZE with Tecentriq and OCREVUS. Overall, from this group of Phase I programs, we project three Phase III trial starts and one Phase II trial start in 2020. In addition, and as shown on the right hand side of the slide, we project at least five new Phase I starts in 2020, which would result in 10 ongoing Phase I trials by the end of the year. And I’m also delighted to announce today a new target nomination by Janssen, who has selected the targets EGFR and cMET as part of a bispecific antibody being studied in solid tumors. We are obviously excited to work in another program with Janssen and to expand the success of our collaboration. With these anticipated developments, 2020 is expected to be a year of significant progress across our ENHANZE development program, and all of this progress is resulting in substantial revenue opportunity. Moving now to slide six, we project cumulative milestone revenues for the three-year period, 2020 to 2022 to be $350 million to $450 million. This growth in projected milestones has been driven by the larger milestone payments associated with new target approvals and the increase in the number of products advancing to a later stage development, many of which are also associated with larger milestones. This near-term milestone revenue precedes the royalty revenues and is an important and strong indicator for future royalty revenue potential. Now moving to the royalties, which are shown on slide seven, we project 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 approvals in multiple indications, global launches, and on average in mid-single digit royalty on net sales of ENHANZE formulated products, and 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. I can say we remain in active dialog with potential new enhanced partners, ranging from large pharmaceutical companies to development stage by technology companies. I’ll turn now to slide eight, and our strong financial position and diversified revenue streams form our capital allocation priorities. Our first priority is to drive growth in our ENHANZE business, by maximizing the value of our current collaborations and working to sign new collaboration partners. With the strong projected free cash flow, our next priority is returning capital to investors via share repurchases. We’ve completed $200 million worth of share repurchase, leading $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 adding new technology platform through acquisition with the goal of accelerating our long-term revenue growth. In evaluating this, we are seeking an approach that is the high-growth and high-margin profiles like our ENHANZE business. I’d like to turn to slide nine 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 from Roche 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 from 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 rHuPH20 to Janssen. We continue to expect that product sales of API will fluctuate in future periods based on the needs of our collaboration partners. Collaboration revenue in the quarter totaled $13.7 million compared to $30.2 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 the 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. As a result of higher API shipments to ENHANZE partners, cost of product sales were $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 shift in strategic focus of the company to the ENHANZE delivery technology. This was partially offset by $9.4 million lower PEGPH20 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. 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, with a snapshot of the full-year 2019 results. 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 ENHANZE partners. 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 for 2018. This translated to a loss per share for the year of $0.50 compared with $0.56 for 2018. Cash, cash equivalents and marketable securities were $421.3 million at December 31, 2019, compared to $354.5 million 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 for our outstanding loans from the Oxford and Silicon Valley Banks, and initiate our capital return program with the front-loaded share repurchase. In November of 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. 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 have 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 stated, 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 our financial guidance. We first announced our financial guidance in January 14, and it remains unchanged. 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 is 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 proceeded royalty revenues from these products and are certainly a strong indicator for the future potential royalty revenue. Near term, in 2020 we expect a modest decline in royalty revenue as a result of ongoing biosimilar impact on Roche products. Earnings per share, is expected to be in the range of $0.60 to $0.75 on a GAAP 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 million to $75 million by the fourth quarter. As you have just heard, Halozyme is in a strong financial position as a company focused solely on ENHANZE today, with profitability on the horizon and a demonstrated commitment to maximize value for our shareholders by the return of capital to our investors. With the transition to an ENHANZE focused business virtually complete, we are 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 the potential, regulatory approvals and launches of the subcutaneous formulation of DARZALEX in both the U.S. and the EU; the potential FDA approval and U.S. launch of the subcutaneous fixed-dose combination of Perjeta and Herceptin; three new Phase III trial starts; one new Phase II trial start; five new targets entering Phase I study; and profitability beginning in the second quarter. With key milestones on the horizon and a clear path toward 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 in the future, growing royalty revenue stream also allows us to return meaningful value to our shareholders, while supporting our growth objectives, and I’d say none of this would be possible without the strong and talented Halozyme team, 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.

Yes. [Operator Instructions] And your first question comes from the line of Charles Duncan with Cantor Fitzgerald.

Hi! Helen and Laurie and team, congrats 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 comprises those milestones? I know you probably won’t be able to talk about specific numbers associated with certain milestones, but are you expecting both, dara and the fixed-dose combination for Perjeta-Herceptin to be approved here in the near term, as well as what number of the projected Phase 3’s and the one Phase 2 trial start would you anticipate to be approved by the end of ‘22?

Yeah, thanks Charles. With regard to the milestones, the way to think about it is it’s growing because of the increase in maturity of our portfolio and so it is being driven by anticipated product launches and Phase 3 starts as you mentioned, because those tend to be associated with higher milestones. We haven’t provided any specifics, other than we do anticipate the approval for daratumumab in the U.S. and the EU in 2020. For Perjeta-Herceptin, while we do anticipate a U.S. approval at the end of 2020 that is not associated with the milestone. Just as a reminder, we already received the milestone for the HER2 product. But then if we move to our expectations for the year, we are projecting a total of some three Phase 3 starts, one Phase 2 start, and five new Phase 1 starts, many, but not all of which are associated milestones. But it’s that very nice mix from the approvals through the late-stage products to the early stage products over the next several years and the progress we’re going to see with those products that are entering the clinic move into later stage that is driving the very robust projected milestone potential.

That’s helpful. And related to that, would you anticipate – is the base case assumption that you’re making is that DARZALEX 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 ENHANZE could really enable that.

Yeah Charles, I think that’s a question we don’t know the answer to. We certainly know that Janssen submitted the file to include the COLUMBA 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 HYCELA Oncology Drugs Advisory Committee, the FDA had 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 wait the FDA decision on that.

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 is some sustained royalty revenues from the existing enhanced platform beyond ‘27? Thanks.

Yeah. I mean, if I begin just with ENHANZE post-2027, that really is – what the pattern is after ‘27 is going to depend on a number of things, some of which we simply don’t know today. How many new partners we will have signed 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 to add additional revenue and extend the duration of time of which we would get revenue. So it is very hard to predict exactly what will happen after 2027 with ENHANZE, but I do think what is very clear is even after the expiry of the U.S. patent in 2027, the structure of our contracts together with the potential for co-formulation patents means that we do not anticipate a royalty cliff, and a dramatic reduction in sales immediately. Now, you’re asking about the platform, but indeed it is our strategy to continue to the growth in that ’24, ‘27 to ‘30 time frame. That is exactly what we’ll be looking to find with something to add on that will continue to add to the exciting growth we have with ENHANZE. We obviously are just beginning to look at that. We don’t feel any rush to do that Charles. It’s important that we see the success of ENHANZE 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 ‘24 and onwards years.

And your next question comes from the line of Do Kim with BMO Capital Markets.

Very good afternoon, everyone. This is T.J. [ph] speaking for Do. Congrats on the continued progress. I have a couple of quick questions. The first one is in relation to the operating expense. Do you view that growing in correlation with the increased number of partnerships? Is there some type of expected growth rate that we can imply 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 some of the economics of the 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.

Yeah, thanks for those questions. With regard to the ENHANZE business model, what is terrific about it is how leverageable it is. 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 alliance 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 expended 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. But you could think about that $65 billion 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 mid-single digit royalties, is going to be the ongoing range. We saw a big step change in the value of our contracts in 2014 into 2015 after we had demonstrated commercial and regulatory success and we’re very happy with the value we get with our current partners and obviously it’s resulting in the very exciting financial picture for the company. So I would think about it as being in a similar range to what we’ve seen with the last several contracts, examples including argenx and Alexion.

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

Hi, thanks for taking the question. Just one on the J&J program. Can you just give us a little bit more background on where the product – the candidate is in development and the path forward from here with ENHANZE? And then just more broadly speaking, any technical considerations when using the technology with the bispecific antibody versus a monoclonal? Thanks.

Yeah, thank you. Jason, unfortunately we’re not in a position just based on Janssen not really have talked much about this program to be able to provide any details on its development 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.

Your next question comes from the line of Jim Birchenough with Wells Fargo.

Yes, hi guys. Congrats on all the progress! I guess 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 related part is, when you talk about accessing other technologies to support growth longer term in 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?

Yeah, and thanks Jim for that. If I can talk about Elaine first, I mean obviously with her strong investment banking experience, she has got deal experience. Now equally what I found was that she is a highly strategic CFO, with a great deal of insights on capital markets. And as we think about the future picture of Halozyme with our expectations for increasing free cash flow, it is as much that a focus we have on identifying the right capital return and evolving our capital return plan that I hired Elaine for as an M&A deal experience. So earlier I mentioned that near term we’re very focused on ENHANZE, having someone of her deal experience will ofcourse be very helpful, but I think about it being as much a focus on the capital return as it is on the deal side of things. You know good question, Jim. We focused on the new deal wanting it to have a strong impact on the top line growth. We obviously are going to be very sensitive to the impact on the earnings growth as well. So we’ll be looking at both of those factors as we contemplate bringing in the digital platform to increase the value of Halozyme and the return for our shareholders.

And then maybe just one more question, sort of following on an earlier question about the tail beyond 2027. Can you say if you’ve filed or your partners have filed per 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?

Yeah, we don’t have any pending co-formulation patents at this point in time, Jim. We do have a team who works with each of our partners to discuss the potential points of novelty that are being identified either in the Phase I study or in the clinical studies, and work with them for them to submit the patent applications and so… I think I may have mentioned, maybe last year it was, 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 to pharmacodynamic factors to safety and to efficacy. If there is any new insight in any of those that is unexpected, those are potentially fileable. So what I’m excited to say is there are a broad range of potential reasons. What we are doing now is that we are working with our partners to see is 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 develop more co-formulation patents. We have none filed at this point in time.

Great! Thanks for taking the questions.

Thank you.

Your next question comes from the line of Jessica Fye with JP Morgan.

Hey guys, good afternoon. Thanks for taking my questions. First one is just on, up to $150 million of share repo plan for 2020. I realize it’s early in the year, but why not get started on that sooner is question number one. And then next one, just a simple modeling question. I know rHuPH20 supply sales can be sort of variable quarter-to-quarter. Anything we should be thinking about for Q1 and Q2 as it relates to just that quarterly cadence?

Alright, we are getting started with the $150 million repurchase shortly Jess. What we needed to do was finish the accelerated share repurchase program, which just finished in mid-February. And so that was the gate for us being able to start the next time 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 say is, it is going to be lower this year than it was last year and you can see from our expenses, the range it was, and will probably be a bit more toward the second half of the year than the first half of the year, but we don’t as you know give quarter-by-quarter guidance, but hopefully that will be some just helpful direction for your modeling.

Great! Thank you.

Next question comes from the line of Graig Suvannavejh with Goldman Sachs.

Hey, good afternoon. Thanks for taking my questions. Congrats on all the progress! 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, 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 envision that these might be separate stand-alone press releases? Thanks.

Hi! Thanks Graig. With regard to the expenses, you are going to see a decline quarter-on-quarter through the year until we hit that run rate that we’ve given of $65 million to $75 million by the fourth quarter. So that would be an annualized run rate of $65 million to $75 million in the fourth quarter. So you can triangulate from last year down to that as we’ve closed out our programs. And with regards to trial starts, it’s an interesting thing. With our partners, often we’re finding, and this is an exciting change in how the partners are [Inaudible], these are competitive areas. So wanting 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, that 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 has started and once that is public in that setting, we’re able to talk about it. If it’s normal volunteer study, I will say that does not have to be posted. For example, for a Phase I study, we may not be able to talk about that. So to answer your question specifically, Graig, if there’s a milestone, we sometimes do a press release, but not always. We certainly will do a summary on our quarterly calls to let you know the seats-of-play for everything that’s happened in that quarter that we’re able to talk about.

Okay, thank you very much again. Congrats on the progress!

Thanks Graig.

Your next question comes from the line of Joe Catanzaro with Piper Sandler.

Hey, thanks guys, thanks for taking the questions. Just two quick ones from me. 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 bispecific question asked earlier, more as it relates to the ENHANZE platform, does the ENHANZE platform have utility just with bispecific formats that have IGG, PK-like properties or does it extend across the broad spectrum of bispecific formats? Thanks.

Yeah. On the first question Joe, we did – for the royalty revenues we have a modest decline of the continued impact on the Roche product and we have the beginning of royalty revenues starting with daratumumab. At the time we did the projection, obviously we don’t know what the exact date of approval and we know that certain mechanical things happened in the first month after approval, but we do have a modest amount of sales in for daratumumab, but nothing for Perjeta-Herceptin. 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 Joe, and I prefer to check in with our Chief Technical Officer and I will get back to you with the answer to that question.

Okay, perfect! Thanks for taking my questions.

Okay, thank you.

Your next question comes from the line of Joel Beatty with Citi.

Hi, thanks for taking the questions. First one is about technology search. Can you help give a sense of, it’s limited to maybe more narrowly to the technology that would improve upon ENHANZE as its approaching expiry, you know still several years away in 2027 or is the search kind of more broad about any type of technology that might be useful for your pharma partners?

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 as we started the search there, that could be technology platform; it could be a new science that is also something we could license to companies. And so as we’ve begun looking, there is actually a wide array of things there. But what we’re most focused on is having something with a similar profile to ENHANZE, where we can have a high-margin and high growth business that will benefit both our top line without having a lot of impact on the EPS profile. So still early days for us. We are mostly focused on delivering on the ENHANZE 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.

Great! Thanks. And then maybe one other question on ENHANZE in the 10 ongoing Phase I trials that are expected by the end of the year. Can you help give a sense of what a typical time line for those trials might be? And then also you know if those Phase I trials are successful, where could that leave the agents? Would they go into maybe a smaller Phase II trial or could some of them go straight into pivotal trials?

Yeah, we’re seeing an evolution in the development program for ENHANZE and let me answer your first question first. For Phase I, the fastest we’ve seen a company do a Phase I was actually Argenx who started their Phase I study in July and reported the data in December. But I would say it’s a bit more normal for that to be about a year roughly long process for the companies to complete their Phase I study, so 12 months for that. If the company is bridging to an already approved product, they will go straight into Phase III program and do generally a non-inferiority study to demonstrate that PK parameter and efficacy are non-inferior between the subcu and the IV. If this is more of a novel development approach, where there is no large database to bridge to, the companies can do at Phase II. And what we’re seeing more and more is they’re doing a seamless Phase II to Phase III as Argenx is talking about, where they have an initial part of the study, which is more Phase II, generating more efficacy and safety data at a specific dose and then expanding on a cohort to make that into a Phase III study. All of this obviously shortening the time lines as there aren’t causes between the different phases of the studies and also not causing to have to go and visit with the FDA for an end of Phase II meeting as an example. So we’ve seen some very nice designs that are being sorted out and discussed with the FDA that are resulting in a much shorter timeline than we’ve traditionally seen. To-date, the products 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 happening, which I think is coming obviously from increased comfort with PH20 and the large safety databases we now have about the combination of our rHuPH20 with a range of different products.

Your next question comes from the line of Gena Wang with Barclays.

Thank you for taking my questions. 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 will be lowered than $70 million, and how much daratumumab subcu contribution to this? are we talking about $5 million to $10 million?

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 the factors to consider really are the timing of the approval and importantly for any U.S. 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 in sales, and we really see 2021 as being the year where we expect to see the exciting inflection point based on daratumumab uptake once all of that is in place. So, we have a modest amount of sales in for 2020 in our projections.

So for 2021, daratumumab, you know what will be the assumption for the conversion for IV to subcu?

Yeah, we haven’t given that in detail. I know different people have provided that. 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 subcu. I think that’s a very strong value proposition. In addition, we know there is 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.

Your next question comes from the line of Arlinda Lee with Canaccord. Ms. Lee, your line is open. If you’re on mute, please unmute your phone.

Hi. Can you hear me now?

Yes.

Okay, sorry about that. This is Ben for Arlinda. Just had a quick question on the second quarter sustainable profitability guidance. I’m sorry if this was 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, let’s say receivables from collaborative milestones. Is that something that we should look at in terms of flushing out the second quarter?

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 you on that question.

Okay, that’s pretty much all I have. Thank you.

Alright, thank you.

And there are no other questions. I would like to turn the call back to Helen for any closing remarks.

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

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