Halozyme Therapeutics, Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Halozyme Third Quarter 2020 Financial Results Conference Call. At this time all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Al Kildani, Vice President of Investor Relations and Corporate Communications for Halozyme Therapeutics. Mr. Kildani, please begin.

Good afternoon everyone. And welcome to our third quarter 2020 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 today will be Dr. Helen Torley, Halozyme’s President and Chief Executive Officer, who will provide an update on our business; and Elaine Sun, our Chief Financial Officer, who will review our financial results for the third quarter 2020. 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. I’m pleased to report strong financial results for the third quarter of 2020, evidenced by revenue of $65.3 million, which is 18% growth over Q2, and earnings per share of $0.25, which is 32% over Q2. I will describe in detail the strong third quarter results driven by a combination of growth and royalties which grew 61% sequentially primarily as a result of the DARZALEX subcutaneous update, and also as a result of substantial progress by our partners with their drug development pipelines. Based on these results and our outlook for the fourth quarter, we are pleased to announce we are raising our full year revenue guidance to $250 million to $260 million from $230 million to $245 million, which is a 28% to 33% increase over prior year revenue. We are also increasing our earnings per share guidance to $0.80 to $0.85 from our prior guidance of $0.60 to $0.75. As these results demonstrate, the vision we described for the future of our company approximately one year ago when we transitioned our business to focus on ENHANZE is now truly bearing fruit in the form of growing revenues, earnings, and cash flow. This has also enabled us to deliver on our commitments to return capital to shareholders in a meaningful way. In the third quarter, we repurchased $58.9 million worth of shares or approximately 2.1 million shares resulting in $312.4 million in capital returned to investors via our share repurchases in less than one year as part of the authorized three-year $550 million share buyback program. All of this progress was made possible by our partners and the ENHANZE team adapting very effectively to the many changes imposed by COVID-19 on the business and our lives. As a result, we are in a strong position as we closed out 2020 and look forward into 2021. Turning now to slide three, I’ll discuss our growth in royalties. We are delighted by the strong growth in royalties, and I wanted to provide some context for this achievement. As illustrated on the left, in the third quarter revenue from royalties grew 44% year-over-year and 51% sequentially. We’re delighted to be back in the pharmacological space with projected strong growth in royalties propelled by the launches of DARZALEX FASPRO in the U.S. and DARZALEX SC outside the U.S. I am pleased to report that we now project full year royalty revenue growth of 14% to 22% compared to the prior year, resulting in projected 2020 royalty revenues of $80 million to $85 million. Let me now provide some additional context on the subcutaneous DARZALEX launch. Janssen received record phase approvals for the U.S. and the EU in May and June respectively, meaning that the third quarter was the first full quarter of sales. During the third quarter, Janssen’s parent Johnson & Johnson reported worldwide sales of DARZALEX, including the IV and SC forms of $1.1 billion, up 44% year-over-year on an as-reported basis. While J&J does not provide a breakdown of sales between the IV form of the drug and the subcutaneous form utilizing ENHANZE, we can share based on our evaluation of syndicated sales data that the launch is off to a strong start in the U.S. and in countries outside the United States. We project continued growth in royalties from DARZALEX FASPRO, and our DARZALEX SC adoption and conversion will increase in the already launched countries as new launches occur in additional countries following reimbursement confirmation. Turning now to the additional positive data readout and potential label expansion for DARZALEX FASPRO and DARZALEX SC. On October 21, Janssen’s development partner Genmab announced data from the second part of the Phase 3 Cassiopeia study, evaluating daratumumab as maintenance treatment in patients with newly diagnosed multiple myeloma eligible for autologous stem cell transplant, who had achieved a response during part one of this trial. This study met the primary endpoint of progression-free survival at a pre-planned interim analysis. Based on the data Janssen plans to discuss the potential for a regulatory submission with health authorities and the data are expected to be presented at an upcoming medical meeting. On September 10, we announced that Janssen submitted a supplemental biologics license application to the FDA seeking approval for DARZALEX FASPRO utilizing Halozyme’s enhanced technology for the treatment of patients with light-chain amyloidosis, which is a rare and potentially fatal disease for which there are currently no approved therapies. The supplemental BLA was based on positive Phase 3 data from the Andromeda study. There are an estimated 30,000 to 45,000 patients in the United States and European Union who have light chain amyloidosis. Notably, only the subcutaneous version of DARZALEX with ENHANZE was selected to be studied for this indication, and upon a positive regulatory opinion DARZALEX SC would be specifically approved for this indication. We look forward to a future decision on acceptance of this filing by the FDA. As I just highlighted, not only is the launch of subcutaneous DARZALEX off to a strong start, Janssen also has a robust development program with the potential to further expand the patient population that can be treated with DARZALEX SC and we look forward to providing further updates in this area. Let me move now to slide four for a discussion of the additional products that are commercialized in the U.S. and rest of the world utilizing our ENHANZE technology. Roche continues with its global commercialization of MabThera or Rituxan Hycela and subcutaneous Herceptin or Herceptin Hylecta. Royalties from these more mature products are projected to decline modestly this year, primarily as a result of the ongoing impact from biosimilars. We do expect to see future growth in the Roche portfolio of products driven by Phesgo, which was recently launched in the United States. Phesgo is a fixed-dose combination of two Roche drugs that are the backbone of treatment for early and metastatic HER2 positive breast cancer, specifically Perjeta and Herceptin, which are in the early launch stage, and as a result did not contribute meaningfully in the quarter with Roche reporting third quarter sales of CHF7 million. This is not unexpected, as Roche is working through all of the necessary steps to support full access in the United States, including gaining formulary approvals and inclusion into electronic medical records. Based on submission timing for Phesgo in Europe, and assuming standard review time, we see the potential for approval of Phesgo in Europe in the first quarter of 2021. In Europe, gaining reimbursement approval will be a key step for launch, and this can take up to six to nine months in several other key European markets. Rounding out our discussion of the current products, on September 15, Takeda Pharmaceutical announced that the European Medicines Agency approved a label update for HYQVIA, broadening its use and making it the first and only facilitated subcutaneous immunoglobulin replacement therapy in adults, adolescents, and children with an expanded range of secondary immunodeficiencies. Takeda will now be able to target this segment of the market, which according to Takeda is estimated to represent about 15% of immunoglobulin therapy use in the U.S. and EU. I’ll move now to slide five and a discussion of our partners’ development pipelines. I'm pleased to update the progress our partners are making in the clinic with drugs utilizing our ENHANZE technology. At the beginning of the year, we projected nine study starts in 2020. I'm pleased to say that based on the latest partner communications, this remains our expectation. To date, three studies have started, and we project an additional six studies will be ready to start in the fourth quarter. Let me recap the three trials that have already started. These are the Argenx phase 2 trial of efgartigimod in chronic inflammatory demyelinating polyneuropathy (CIDP), which began in the second quarter; BMS's belantamab plus nivolumab Phase 1 study, which also began in Q2; and what we call the CAPRISA study, which began in Q3. Let me just say a word about this CAPRISA study. This is a study that's been conducted by the Center for AIDS Program of South Africa or CAPRISA, in conjunction with the vaccine research center, a division of one of the institutes within the NIH. The study is evaluating the safety, tolerability, and pharmacokinetics of a subcutaneous human monoclonal antibody administered with ENHANZE in HIV negative and HIV positive women in South Africa. Turning now to the six remaining studies, we project that three Phase 3 or registration trials will start in the fourth quarter. These are the recently announced Argenx effort detachment study in pemphigus vulgaris and foliaceus. The Roche Phase 3 study with Tecentriq has reached $32 million in milestone payments in the third quarter, including $50 million for the Argenx project and $17 million for Tecentriq, related to progress to date towards these two study starts. A third phase 3 study is also projected to be ready to start in the fourth quarter, which is currently undisclosed at the request of the partner. We continue to expect our partners to be ready to start three additional phase 1 studies in the fourth quarter. Let me now provide a brief partner by partner discussion of these programs. I'll begin with Argenx, which has nominated two targets to date, the human neonatal Fc receptor, which efgartigimod is designed to block, and complement components C2 with AFGX-117. Argenx is progressing three separate studies at this time for SC efgartigimod with ENHANZE. Argenx recently provided an update that enrollment in its phase 2 adhere study, which is evaluating efgartigimod with ENHANZE in CIDP is progressing well. Argenx expects a go/no-go decision to expand the trial up to 130 patients will occur after the first 30 patients are treated in part A of the study, and expects the decision will occur in the first half of 2021. With regard to SC efgartigimod with ENHANZE and myasthenia gravis, Argenx plans to meet with the FDA during the current quarter to discuss the bridging strategy for subcutaneous delivery based on the positive results of its ADAPT trial, which evaluated the IV form of efgartigimod in myasthenia gravis. Argenx has stated it will communicate its plans as soon as it has written minutes from the FDA meeting. We look forward to learning of the next steps for this exciting program, which could result in the initiation of testing of SC efgartigimod with ENHANZE in a registration study in 2021. Argenx also recently announced that it plans to evaluate SC efgartigimod with ENHANZE in its phase 3 ADDRESS trial in pemphigus vulgaris and foliaceus, which they indicated is on track to start this quarter. Pemphigus is a serious skin barrier disease, which is associated with painful blistering. The Phase 3 ADDRESS trial will be a randomized double-blind placebo-controlled study where the objective is to assess the efficacy, safety, and tolerability in up to 150 newly diagnosed or relapsing patients with moderate to severe pemphigus. The primary endpoint will assess the proportion of patients who achieve complete remission on a minimal steroid dose at 30 weeks. As noted earlier, the advancement of this program for this stage triggered recognition of $15 million in revenue during the third quarter. Now turning to the second Argenx nominated target, ARGX-117. Argenx announced they recently initiated a phase 1 study evaluating ARGX-117 in healthy volunteers, with data expected in mid-2021. ARGX-117 is targeting C2 for the treatment of Multifocal Motor Neuropathy or MMN, a severe autoimmune disease. We expect to receive milestone payments in the near term related to the advancement of this study. As you have heard, Argenx is making rapid progress in the clinic with subcutaneous forms of its drugs utilizing ENHANZE, and are evaluating a broad range of potential indications with a goal of accommodating patient preference and adjusting to the new norm where patients may not always have easy access to all sites of care. Building on this progress and vision, we were delighted to expand our collaboration and licensing agreement with Argenx last month. As a result, Argenx will now have the ability to exclusively access our enhanced technology for three additional targets upon nomination for a total of up to six targets under the existing and newly expanded collaboration. Let me move now to Roche. In September, we announced that Roche presented a poster with data from part one of its phase 1b study evaluating Atezolizumab or Tecentriq for subcutaneous administration using ENHANZE in patients with locally advanced or metastatic non-small cell lung cancer. This data was presented at the European Society for Medical Oncology Virtual Congress. The poster concluded that Atezolizumab utilizing ENHANZE provided similar exposure to Atezolizumab IV, and that the results supported further development of subcutaneous Atezolizumab in a confirmatory phase 3 study. In October, Roche provided details of the planned phase 3 trial designs on clinicaltrials.gov. Significant progress towards the start of the Tecentriq phase 3 trial triggered recognition of $17 million in revenue during the third quarter. In addition, Roche continues with its Phase 1 study, which is evaluating subcutaneous administration of Ocrelizumab or Ocrevus with ENHANZE. I’ll move now to Bristol-Myers Squibb. BMS is progressing three separate targets utilizing ENHANZE across four distinct programs. Specifically, BMS continues with four phase 1 programs. These are with nivolumab, BMS’s anti-CD-73, and relatlimab in combination with nivolumab. Additionally, BMS initiated in the second quarter of 2020 a phase 1/2 study of ipilimumab in combination with nivolumab utilizing our ENHANZE technology. We are excited that our current partners continue to provide new growth opportunities for ENHANZE. I can say we already have line of sight to several additional potential new target selections by current partners and plans to progress from phase 1 to phase 3 developments in 2021. We look forward to providing more updates as additional programs are nominated and enter or advance in the clinic. Let me now just comment on new ENHANZE deals. It remains the case that we have a broad slate of ongoing discussions with both biotech and pharma companies. I continue to be pleased with the pace of these discussions and remain confident that we will sign additional deals as the timing is hard to predict. Turning now to slide six, we'll discuss our outlook for anticipated growth in milestone revenues. The growth and the progress of our ENHANZE portfolio is projected to drive strong growth and milestone revenues in the coming years. Based on the latest information from partners, we continue to project cumulative milestone revenues in the 2020 to 2022 three year period of between $350 million to $450 million. This near term milestone revenue precedes the royalty revenues and is an important and strong indicator for future royalty revenues, which we project to have the potential to be approximately $1 billion in 2027 based on our non-risk adjusted revenue projections for programs that are currently in or in planning for development. Turning now to slide seven, we'll discuss our approach to value creation and capital return. Our first priority is always to drive the growth in our ENHANZE business by maximizing the value of our current collaborations and working to sign and advance new collaboration partners. With strong projected free cash flow, our next goal is returning capital to investors via share repurchases through our three-year $550 million share repurchase program. We've demonstrated our commitment to this goal by already repurchasing more than $312 million worth of shares, or approximately 57% off the amount authorized in less than one year. We will continue pursuing share repurchases under this program for the remaining period of the authorization, pending market conditions and other factors. In addition, we continue to evaluate the potential for new technology platform expansions for acquisitions with the goal of accelerating our long-term revenue growth. In evaluating this, we are seeking an approach that has high growth potential and high margins like our ENHANZE business. As we look longer term, we are confident that Halozyme's strong financial position will enable us to continue delivering value to shareholders via capital return. And with that update, I'll now turn the call over to Elaine for a discussion of our third quarter financial results.

Thank you, Helen. Let me start by turning to slide eight for a review of our third quarter revenues. So as Helen indicated, we saw strong growth in the quarter as our partners continued to execute on their commercial and development plans. Total revenue for the third quarter was $65.3 million, an increase of 41% compared to $46.2 million in the prior year period. I'll now discuss the three components of our revenue. Revenue from royalties for the quarter was $23.9 million, a year-over-year increase of 44%. And as Helen discussed, our royalties returned to growth sooner than expected, primarily due to the successful launch of subcutaneous DARZALEX utilizing ENHANZE technology by our partner Janssen. Product sales were $9 million in the quarter compared with $29.2 million in the year ago period, during which there was a large sale of bulk rHuPH20 to Janssen in preparation for their launch of sub-q rHuPH20. Collaboration revenue in the quarter totaled $32.3 million, up from $0.4 million in the year ago period as a result of recognizing revenue for expected milestone payments from our partners Argenx and Roche related to their progress-to-date towards phase 3 study starts. Let me move to slide nine and you'll find a more detailed breakdown of our third quarter P&L. So beginning with total operating expenses, which were $25 million in the third quarter, down 65% from $70.8 million in the prior year period. The overall decrease in total operating expenses resulted from our shift in strategic focus to the company's enhanced drug delivery technology in November of 2019 and the related restructuring, which has now been completed. Cost of product sales were $5.6 million, compared with $22.3 million in the year ago period, with a decrease attributable to the same large sales of bulk rHuPH20 to Janssen that I mentioned a moment ago, related to their preparations for the launch of sub-q DARZALEX. Research and development expenses of $7.7 million decreased 75% from $30.5 million in the prior year period, as a result of halting our PEGPH20 oncology drug development activities in November of last year. And SG&A expenses were $11.7 million, down 35% from $18 million in the prior year, primarily due to the reduction in force and discontinuation of PEGPH20 related launch readiness expenses, following the company's restructuring. And I'm pleased to report that net income for the quarter was $36.2 million, or $0.25 per share, compared to a net loss of $25 million, or $0.17 per share in the third quarter of 2019. This marks our second consecutive quarter of what we expect will be sustainable profitability and cash flow generation going forward for Halozyme. With respect to our cash position, cash, cash equivalents, and marketable securities were $346.7 million at September 30, 2020, compared to $421.3 million at December 31, 2019. This decrease reflects the impact from our operating loss in the first quarter and share repurchase activities through the first three quarters of 2020. Now let me turn to slide 10 for a discussion of our 2020 financial guidance. Based on the latest information from our partners and our planned expenditures for the year, I'm pleased to share our increased guidance for 2020. We now expect total revenues of $250 million to $260 million from our prior guidance of $230 million to $245 million, which would represent year-over-year growth of 28% to 33%. Of that total, we expect revenue from royalties to comprise $80 million to $85 million. We had previously anticipated flat royalties year-over-year in 2020. However, we are now in a position to increase our expectations based on the early sales trends for sub-q DARZALEX utilizing ENHANZE. Looking at the other components of our projected 2020 revenue guidance range, we further expect revenue under collaboration of $115 million to $120 million driven by new clinical trial starts and commercial milestones. In addition, we expect a substantial increase in API revenue in the fourth quarter, resulting in projected full year product sales between $52 million and $57 million. Excluding non-recurring expenses related to the wind down of our former oncology operations in the first half of 2020, we continue to expect annualized operating expenses excluding costs, to be at the top end of our guidance of $65 million to $75 million in the fourth quarter of 2020, or between $18 million and $19 million for the quarter. Moving to earnings per share, we are increasing our guidance range to $0.80 to $0.85, up from our prior guidance range of $0.60 to $0.75. During the quarter, we continued our share repurchase activities under our three-year $550 million share repurchase program that was authorized by our board a year ago. In the third quarter, we repurchased $59 million worth of our common shares, or 2.1 million shares at a weighted average price of $27.57. Our commitment to capital return driven by a diversified portfolio of partnered products and programs to sustainable profitability and a strong growth and cash flow outlook has resulted in share repurchases through the end of the third quarter of $312.4 million at a weighted average price of $18.92. All this has been accomplished less than one year into our $550 million three-year buyback program. We continue to expect we will repurchase up to $150 million in our shares this year, which would mean up to an additional $37.6 million that could be repurchased in the fourth quarter, pending market conditions and other factors.

Thank you, Elaine. We believe we're still only at the beginning stages of delivering on both the clinical and financial promise of our ENHANZE drug delivery technology. Our technology delivers value for our partners, our patients, and their Halozyme shareholders. Halozyme is in the strongest financial position ever as a company. We look forward to strong growth in our revenues, profitability, and cash flow in the coming quarters and years, which will allow us to deliver on our commitment to return capital to shareholders, maintain long-term sustainable growth, and maximize shareholder value. I'll close on slide 11. Entering 2020, we established this ambitious set of goals to measure our performance as we completed the company restructuring. I could not be more pleased with the tremendous progress to date. As you've just heard, we project we will finish the fourth quarter as strongly as this one. I'd like to end as ever by thanking the amazing Halozyme team for your tremendous efforts and these strong results. With that, we'd now be delighted to take your questions. Operator, please open the poll for the question.

Your first question comes from Charles Duncan from Cantor Fitzgerald. Please go ahead.

Thank you. Hi, Helen and Elaine. Congratulations on some really impressive results in this quarter.

Thank you.

Yes, so also, thanks for taking my questions. I had two, one is kind of financial one and one is a pipeline one. Helen, with regard to the launch of FASPRO, I'm sure you won't be able to say too much on this, but maybe provide a little bit of color. When you think about the conversion rate thus far, how much of it was driven perhaps by, say, the COVID environment and how much of it is driven by a substantial difference in the clinical profile of the compound or of the drug? And where would you expect the conversion rate to end up over time?

Yes, thanks Charles. I don't have any data to support the impact of COVID on the uptake of DARZALEX and FASPRO in the U.S. And we also know that there has been successful launch outside the U.S. as well. What I can say is the performance has certainly exceeded our expectations. Whether COVID has played a role in that, it would seem possible it has, but I don't have any data to support that. We are absolutely delighted with the strong initial uptake. We don't provide specific guidance as to what we think that the conversion will be. But I would just say that when you think about a patient today facing what is often four to six hours of IV infusion, who could have the option of receiving the treatment in just three to five minutes in a subcutaneous injection, we certainly think this is a very strong value proposition. We think patients are definitely going to welcome this, both for new patients starting on treatment, but also for those patients currently receiving the IV.

Make sense. Appreciate that. And then, a quick question on the pipeline. If I look at, but for, I guess, HYQVIA, all of the drugs are primarily used in the oncology setting or hematology setting. Yet, you're moving into, with this diversification with Argenx and atezolizumab, into neurology. I'm wondering if you think neurological disorders, or neurology is really a growth opportunity, number one, and could you see more movement in that diversification direction? And number two, what do you think the agency is going to think about in terms of reviewing the product profile in the neurology division versus oncology? Do you think there'll be a different risk-benefit profile? Or do you think that's pretty well established across the agency?

Yes, I think, as it turns out, many of our initial approvals, as you point out, were in oncology. That just happens to be that many of the most successful brands in the world are in oncology. We're delighted to see that we are not just moving into neurology, as you mentioned, but also into autoimmune diseases. We see continued strong potential to expand outside of oncology into multiple additional indications where patients are receiving their therapies that are long IV infusions. In neurology, we also have OCREVUS if you recall that I mentioned Roche is developing. So lots of potential; any injectable drug with a long infusion, we certainly welcome discussing with companies to see whether a subcutaneous delivery would bring benefits like competitive differentiation. We now have five approvals given by the FDA and four so far outside the U.S. I do feel that with each subsequent review, there are fewer and fewer hurdles. I believe that the safety profile of rHuPH20 is now very well characterized in more than 400,000 patients treated commercially with the drugs. I would not expect a significant difference between a neurology division and an oncology division because of that long track record of safety data we can bring forward.

Okay, that’s helpful color. Thank you for taking my questions. Congrats.

Thanks, Charles.

Your next question comes from Jim Birchenough from Wells Fargo. Please go ahead.

Hi, guys, let me add my congratulations on the quarter. Couple of questions. I guess first, Helen just on DARZALEX FASPRO and subcutaneous, can you remind us if there’s anything in terms of the agreement where the royalties might tier up with increasing sales? Or is it fixed independent of the level of sales? And then I guess, second question is just as you look at the ramp of DARZALEX FASPRO and the early launch of Phesgo. Are there market dynamics that differ between those two products? If you can comment at all, then I have a follow-up?

Yes, we don't provide specific details on a contract by contract basis. We certainly in some of our contracts do have tiering, but I can't speak specifically to the Janssen one. With regard to the launch uptake of Phesgo versus FASPRO, it appears that FASPRO is out of the gate very fast. I recall it has been approved in the U.S. and Europe and was approved in May and June respectively, whereas Phesgo was only approved in the U.S. so far and at the very end of June, so really launched in July. I think timing is a factor and we would expect, as we had signaled, that the first few quarters would be heavily focused on laying down the groundwork for physicians to be able to freely write these drugs, getting EMRs, formularies, etc. We would expect the initial quarters to be slow; however, the exception to that is how FASPRO is performing as well as DARZALEX SC. But as we get all of that in place, we expect 2021 to be a year of robust uptake of Phesgo as well.

And Helen, just a second line of inquiry, just around IP. We often get the question on how to think about the 2027 patent claims for PH20. Just giving you an opportunity, how do you think about it both in terms of new deals, post those timelines, and products in the market? What do you see in terms of the risks of each of those layers of the business?

Yes, I think what's unique about ENHANZE, and the fact that yes, our U.S. patent does expire in 2027. Recall, the construct of our contract is that we will continue to receive royalties for a minimum of 10 years after the first commercial sale. So that's a very important factor as you're thinking about the products that are entering the clinic today that could get approved in 2024 or 2025, in 2027, they will be in a very robust part of their growth cycle. No, at the time of the patent expiration, there was no co-formulation patent in place, there is a step done to approximately 50%. Recall, these could be products that are in a very attractive growth period. You've got to layer that on and think about that dynamic as well. Our current predictions only include those products that we have line of sight for today. As I mentioned, in 2021, we expect additional partners to launch targets into the clinic; those are additional launches that will continue to drive overall revenue growth. Even if there is a step, there is still the potential that we can continue to grow beyond that. Finally, we have the wonderful option of applying for co-formulation patents, which are not all guaranteed to be granted. But if there's novelty, those can be granted. The general effect of those is that they prolong the time that we can receive royalties and can push out the times of the step-down. I will say that post-2027, Jim, the key takeaway is, we can see a very clear path to continued royalty growth after 2027. We know exactly what we need to do to achieve that: we need to launch more products and we need to obtain more co-formulation patents. That is what is unique about ENHANZE, and we’re excited about that as it underscores the ongoing substantial royalty revenues from our pipeline.

Helen, just quickly on that last point, have there been any new co-formulation patents filed this year or expected to be filed this year without naming any specific products?

Yes, we do have about one partner who intends to file a co-formulation patent this year.

Terrific. Thanks for taking the questions.

Thanks, Jim.

Your next question comes from Do Kim from BMO Capital Markets.

Good afternoon and congrats on the quarter from myself also. First on the performance of DARZALEX SC, do you have a sense of what the distribution of sales was between the U.S. and EU? And also do you think timing is a potential factor for the difference between FASPRO and Phesgo? Is it possible that we'll see a similar kind of strong quarter for Phesgo in Q4? And does your raised guidance include that possibility?

Yes, let me start with the second question. We expect that the European approval, the earliest that will occur is the first quarter of 2021. As we think about the total potential for Phesgo, approval in Europe in 2021, the timing it takes to get everything in place in the U.S. really does signal to us that robust growth for Phesgo is anticipated in 2021, with Q4 primarily being a setup period. We don’t have, and J&J did not provide, any specific breakdown between the U.S. and Europe. Based on our triangulation of syndicated sales data and reported sales, we estimate that the majority of sales are occurring in the U.S., but there has been good uptake in European markets as well. We'll look forward to perhaps Janssen providing some more insights at a later date.

Great, understood. Thank you. And a question on the pipeline. For Roche, when they start the phase 3 for atezolizumab in lung cancer, do you know what their potential registration path for expanding that therapy beyond its current approval in lung cancer and all the other cancers that it's already approved for?

I will say that some of the conversations that each individual partner has with the FDA include discussions about what the potential scope of indications might be possible from their proposed clinical development program. That is proprietary information that is the property of each of those companies, so while we are aware of these discussions, we aren’t able to comment further. What we do know is that the FDA, as noted during the Rituxan Hycela ODAC, has indicated that a separate study may not be necessary for every indication moving forward. All of our partners are engaged in discussions with the FDA to align on the appropriate size clinical program for all of the indications they want to pursue.

Great. That's very helpful. Thank you very much.

Your next question comes from Jessica Fye from JPMorgan. Please go ahead.

Hey, this is an analyst on for Jess. Thanks for taking our questions. So with how long the share repurchase has been active, can we get some color on how your team has approached those decisions? And is that sort of going to be your strategy moving forward?

Let me ask Elaine to address that.

Sure, thanks for the question. We've indicated that we have a total three-year share buyback program that was approved by the board in November of 2019. We're about 50% towards the way there with only one year into the program. To date, we've repurchased just over $312 million of our common shares, about 16.5 million shares at an average price of $18.92. This year, we purchased $112.4 million at an average price of $20.76. Our stock has traded up, reflecting the strong growth potential of our partners’ products and programs, and the strong growth trajectory for Halozyme. We continue to maintain a lot of confidence in the diversified portfolio that Halozyme represents, encompassing multiple blockbuster products and programs with our partners. Our share buyback program will continue to reflect that.

Okay, thanks. And then just looking at Phesgo, you mentioned a couple of times, you’re beginning to see robust growth, heading into 2021 here. Do you have any color or expectations you can give us for a timeline on getting EMA reimbursement contracts established?

Yes, we know if the EMA follows a standard review. Based on when Roche indicated they submitted the application, we would expect a positive outcome if there’s a positive opinion by the first quarter of 2021.

Okay. Thanks for taking the questions.

Your next question comes from Jason Butler from JMP Securities. Please go ahead.

Hi, thanks for taking the questions. Let me add my congratulations on the quarter. Helen, just wanted to follow up on a couple of comments you made about the FDA. You said the FDA had indicated that not all indications may need separate trials. Is there anything in your dialogue with partners and the FDA that suggests this perspective is shared broadly across the agency versus being specific to that review division or specific to oncology or hematology?

Yes, as I think you pointed out, the majority of our products have been in the oncology division, and I'd say that's where many of the conversations are happening. But there are also conversations occurring with some of the other divisions based on the stage of the programs, but those are fewer. I think if we triangulate what the FDA might have in their mind, we see that through DARZALEX that they are looking at whether there's any theoretical reason for the addition of rHuPH20 to introduce a new safety question. In the majority of cases, there won’t be. Therefore, we don’t see this as a broad issue. However, there will be circumstances where the FDA insists on additional data to outline any theoretical concerns. That’s the logic behind the FDA's thought process which likely applies across any division, not just oncology. Moreover, we have a robust safety database with over 400,000 patients treated commercially that significantly aids in reassuring the FDA.

Okay, great. And then in terms of the additional trial, the phase 3 study from the undisclosed program to start in Q4, is there a milestone payable on the start of that study? And also either of the other two undisclosed phase 1 studies that could start this quarter?

Yes, there are milestones associated with the phase 3 and the phase 1 studies.

Great. Okay, thanks for taking the questions.

Your next question comes from the line of Joe Catanzaro from Piper Sandler. Please go ahead.

Hey, guys, congrats on the nice quarter here. I’m wondering if you could comment a bit about how the legacy products performed sequentially in the quarter just to get a better sense of DARZALEX full contribution in the quarter. I know you mentioned you had visibility into revenues with regards to U.S. and ex-U.S. and DARZALEX FASPRO, but I'm wondering if you can speak to just the general conversion rates you're seeing in different territories and whether the U.S. is indeed seeing the highest early conversion rate, or are there other ex-U.S. territories that are seeing that?

Yes, I will take the DARZALEX one and then I'll turn the legacy products over to Elaine. We’re aware from triangulating on the syndicated sales data and the overall sales reported by J&J that there are sales in the U.S. and ex-U.S. for the subcutaneous form, with the U.S. being the larger one of the two. We do not have any insights into the specific conversion rates outside the U.S. There is some directional information in the syndicated data. However, this has not been confirmed by J&J, so we’re unable to discuss the uptake. However, it’s clear that with the significant increase that we saw quarter-on-quarter, primarily driven by DARZALEX, there has been very strong uptake, predominantly in the U.S., but also in markets outside the U.S., coming from both new and continuing patients. With that, I'll turn it over to Elaine to discuss the trends with the legacy products.

Sure. As you know, Joe, we don't break out our individual royalties. However, for quarter-on-quarter, overall royalties were relatively flat for all the subcutaneous products, excluding DARZALEX, Herceptin, MabThera, and HYQVIA. For 2020, we projected decline in Herceptin sub-cut and MabThera sub-cut as a result of ongoing biosimilar competition based on the information that Roche has provided.

Okay, got it. Thanks. That's helpful. And thanks for taking my questions.

Your next question comes from Anna from Goldman Sachs. Please go ahead.

Hi, this is Anna on for Graig Suvannavejh. Thank you for taking our questions and congratulations on the quarter. Just a few questions from us. When can we expect to see meaningful contributions from DARZALEX to hit the top line from the EU and also similarly for Phesgo? Any comments for updates on potential business development in the future?

We have already seen contributions from outside the U.S. There is already an uptake in markets outside the U.S. for DARZALEX. In terms of Phesgo, we anticipate European approval, following standard timelines, which would occur in the first quarter of 2021. Our focus is on setting up for the U.S. market and getting everything in place including formularies and EMRs with Phesgo. With regards to additional business development, we are actively engaged in multiple discussions surrounding ENHANZE. I am feeling optimistic about potential new deals for ENHANZE. We are also evaluating a variety of technologies to expand our portfolio, aligning with targets that enhance revenue growth with high margins like our ENHANZE business.

Great, thanks so much.

Your next question comes from Joel Beatty from Citi. Please go ahead.

Hi, congratulations on the quarter. My questions on FASPRO, are you able to provide any context on the trajectory of growth and royalties that you're seeing, as well as the trajectory of the conversion from IV to sub-q? Do you see any reason to think that the next few months could be any different than the trend observed over the last few months?

Yes, thanks, Joel. Looking at it, we mentioned that this is the first full quarter of sales for FASPRO. We will be evaluating the continued trend and additional data points over the next month. Growth could come from more physicians adopting and deeper penetration in individual clinics. I think that will continue to drive strong growth. We also have potential for new markets to launch once reimbursement is established, which will add to our growth moving forward. Given that we are only at the statistical front end with only one quarter of sales data, we are certainly watching carefully the trends through the next month.

That makes sense. And then maybe another question, and at a higher level regarding partnering. I see you have new targets that have not been selected by any partners thus far. How do discussions progress in terms of prioritization? Can a new company come in and grab it, or do existing partners get preference when it comes to new targets?

It is best to view it as a first come, first serve basis. If a new partner is in bona fide negotiations for a target with us, they will get that target. Similarly, if it is an existing partner and they nominate a target, they will get preferential access. Essentially, it really operates on a first come, first serve principle.

Thank you.

That was our last question. At this time, I will turn the call back over to the presenters.

Thank you very much. We are delighted with the very strong progress in the third quarter and what it signals for the importance of the enhanced portfolio. We're seeing robust uptake in the United States across all subcutaneous products. We should mark and recognize this milestone. Once again, the team has navigated through a lot of challenges in 2020, and we are very excited about the progress made to date and what that means for the company in 2021. Thank you for your attention.

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