Halozyme Therapeutics - Earnings Call - Q1 2020

Transcript

Operator (participant)

Good afternoon, everyone. 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 go ahead.

Al Kildani (VP of Investor Relations and Corporate Communications)

Good afternoon, and welcome to our first 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 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 first 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.

Helen Torley (President and CEO)

Thank you, Al. It's really a delight to welcome Elaine to her first call as our Chief Financial Officer at Halozyme. I'd like to open this call by addressing two topics of greatest interest to the Halozyme investors today, one specific to our company and one affecting all companies. Those are, firstly, the recent FDA approval of Janssen's DARZALEX FASPRO, utilizing ENHANZE technology, and then the impact on our business from the COVID-19 pandemic.

This is our first call since receiving the very exciting news on the 1st of May that Janssen received U.S. FDA approval for the subcutaneous formulation of DARZALEX utilizing our ENHANZE technology, which will be commercialized with the brand name DARZALEX FASPRO. This represents one of the most significant events in the history of our company.

This approval is for a product utilizing ENHANZE that is both fast-growing and a blockbuster drug in its IV form, with many years of exclusivity remaining. The U.S. approval follows on the heels of Janssen's recent receipt of a positive CHMP opinion for subcutaneous DARZALEX utilizing ENHANZE from the European Medicines Agency, which also recommended approval. This event generally means that marketing clearance in Europe is also on the horizon, potentially arriving in mid-2020.

As you will note on slide three, DARZALEX FASPRO utilizing ENHANZE technology was granted a broad label covering five of the seven indications for which the IV form is currently approved. We estimate that this label allows DARZALEX FASPRO utilizing ENHANZE to address the majority of multiple myeloma patients based on our assessment of analyst estimates for how DARZALEX IV is used today.

Importantly, this is the first time the FDA has approved a product utilizing ENHANZE for indications based on single-arm studies. We view this as the first demonstration of an approach the FDA actually alluded to at the ODAC meeting for rituximab in 2017, during which it was stated that it might not be necessary to do large, complex comparative studies for each and every indication when evaluating ENHANZE in combination with an already approved drug. In this case, Janssen submitted for approval based on two studies.

The first is the COLUMBA phase III study, which examined subcutaneous daratumumab with ENHANZE compared to IV daratumumab in about 500 patients. And the second study is a phase II single-arm study called PLEIADES, which examined daratumumab SC in three earlier treatment lines in combination with different multiple myeloma treatments.

We believe this is a huge win and very encouraging for the clinical development plans for all of our other ENHANZE collaboration partners. Most importantly, we view this as a terrific advance for patients suffering from multiple myeloma who are currently receiving treatment with IV DARZALEX. We believe the ability to reduce the administration time from what is often four to six hours down to three to five minutes will offer tremendous convenience to patients and value to the healthcare system.

This applies every day, but obviously today the healthcare system is strained with the ongoing impact from the COVID-19 pandemic, and perhaps it's even more valuable at this time. This brings us to slide four and the second topic of great interest to investors, and that is the COVID-19 pandemic. This has obviously created enormous challenges for so many people around the globe.

Top of mind for everyone at Halozyme are those directly impacted by the disease as well as those on the front lines of treating patients. The Halozyme team is committed to doing our part to help in the community, and I could not be prouder of how our employees have joined in this effort. Now, despite the challenges posed by COVID-19, I'm pleased to see we are maintaining our overall progress in our mission of providing patients with disruptive solutions that can lead to better patient experiences and outcomes.

Let me now provide you with an update as to where the company stands today operationally and financially during the pandemic. Halozyme remains in a strong financial position today. With our nine partnerships, four products now approved, and multiple programs in development, we have a robust, diverse business model poised to generate solid growth and earnings.

We have a strong balance sheet, and we remain confident in our long-term growth outlook. We've taken many measures to protect the health and well-being of our workforce. During this pandemic, the health and safety of our employees, their families, and our local communities is at our highest priority. As we began to see the emerging pandemic in February, we assembled a COVID-19 preparedness team to develop a plan for maintaining business continuity should the situation worsen.

In mid-March, we successfully transitioned the majority of our staff to working from home and implemented a limited rotation for the small number of essential on-site employees in anticipation of a shelter-in-place mandate from the state of California. I'm pleased to report that we were able to quickly and successfully transition the majority of our staff to working from home, and we've been able to maintain a high level of productivity.

In addition to the proactive planning by our business continuity team and the hardworking commitment of our employees, we were able to do this because of the nature of our collaboration-driven business model, and as we think ahead to the time when our workforce returns to the office, our preparedness team has already developed a plan that we will continue to refine based on the national, state, and local guidelines. With regard to our business programs, I'll now describe what we know today, what we don't yet know as the global community works to fight COVID-19.

To date, based on latest partner feedback, we continue to project that the majority of our clinical study starts that we expected in 2020 will still occur in 2020, with delays of between one to two quarters from the original planned date.

We know of one non-milestone bearing clinical trial start that has been delayed as a result of COVID-19, where we do not yet have information on the new target start date, and also of two phase I trials where enrollment has been impacted, resulting in an expected longer time to study completion. Moving to the new ENHANZE deals, we have one of the broadest slates of ongoing discussions with both biotech and pharma companies that we've ever had. We did see some slowing in the pace of discussions in March and April.

Based on company feedback, we expect this will revert to the usual pace of conversations in the second quarter. Let me now move to an update on our supply chain. We're working closely with our contract manufacturers to ensure the safety and reliability of our supply.

We're in frequent contact with our CMOs to hear updates and to ensure the integrity of our API supply. Based on this feedback, we currently do not expect an interruption in our ability to supply our API or Hylenex as a result of COVID-19. Our contract manufacturers continue to operate as an essential business during the pandemic and have communicated that they have not identified any significant risk, delay, or concern resulting from COVID-19 that may have a substantial effect on delivery of any product.

We'll obviously continue to monitor the operations of our contract manufacturers and their ability to continue to provide us with our products. Turning now to regulatory, while regulators have curtailed some activities during the pandemic, we're pleased to report that our major initiatives with regulatory agencies around the globe appear to be proceeding at a normal pace.

As examples, earlier this month, Janssen received U.S. FDA approval for DARZALEX FASPRO utilizing ENHANZE after submission of its BLA in July of 2019. Janssen also received a positive CHMP opinion for DARZALEX SC utilizing ENHANZE in late April following their July 2019 submission in Europe, demonstrating things are on track. And we're also pleased to note that Janssen submitted their NDA in Japan for DARZALEX SC utilizing ENHANZE in late April.

And looking ahead after submitting the BLA with the FDA for the subcutaneous fixed dose combination of Perjeta and Herceptin utilizing ENHANZE in December of 2019, an action date of October 18th, 2020, was assigned. We're certainly encouraged that the FDA and the EMA remain highly engaged with our partners during the pandemic.

In summary, based on all of the latest updates from our partners and suppliers, as well as our planned expenditures, we feel confident maintaining our guidance for 2020 at this time. It's obviously difficult to predict how the pandemic recovery will unfold in the coming quarters. Therefore, we will continually monitor the situation and will provide updates if new information emerges. In summary, despite the challenges posed by the COVID-19 pandemic, we've continued to execute very well on our strategy and remain in a strong position to drive future growth for Halozyme.

I'll move now to a deeper update on our key partner programs, beginning on slide five with DARZALEX. In its current IV form, DARZALEX generated approximately $3 billion in sales in 2019 and grew approximately 50% globally in the first quarter of 2020 compared to the first quarter of 2019.

Analysts currently project sales for DARZALEX franchise of $3.9 billion in 2020 and $7.8 billion in 2024. Janssen has stated that the subcutaneous formulation of DARZALEX utilizing ENHANZE is a core part of this future growth strategy, supporting their goals of expansion into the frontline setting in addition to treatment in the community setting. The potential value proposition of daratumumab SC with ENHANZE is strong.

With the U.S. approval just granted and E.U. approval potentially in mid-2020, we're extremely excited about the launch of DARZALEX FASPRO utilizing ENHANZE and what this means for our ENHANZE franchise. We believe DARZALEX FASPRO will provide the strongest validation to date of the commercial potential of our ENHANZE drug delivery technology.

And after an initial period post-launch during which formulary approvals, EMR orders, and reimbursement are established, we expect the uptake of DARZALEX FASPRO with ENHANZE will be robust, resulting in strong growth in royalty revenues for Halozyme. Turning now to slide six and the next product we expect our partners to launch, the subcutaneous fixed dose combination of Perjeta and Herceptin utilizing ENHANZE technology, which is indicated for patients with early and metastatic HER2-positive breast cancer.

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- to eight-minute subcutaneous injection compared with a one-and-a-half- to two-and-a-half-hour IV for the sequential IV administration of Herceptin and then Perjeta.

According to Roche's first quarter financial results, Perjeta IV sales experienced 22% global growth driven by continued uptake in the early breast cancer space. Analysts currently project $4.1 billion in global sales in 2020 for Perjeta, growing to more than $5.4 billion in 2024. As we announced in February, Roche's BLA filing in the U.S. was accepted by the FDA and assigned an action date of October 18th, 2020. Roche expects to launch this drug in the U.S. this year.

Regulatory submissions have also been completed in the EU, and we expect that following a positive CHMP opinion, approval would occur in 2021. On its most recent quarterly call, Roche indicated that it sees the SC Perjeta-Herceptin combination utilizing ENHANZE technology as offering an advance and an advantage for the strained healthcare system.

Then the partners also alluded to the fact that the combined product may offer some interesting pricing flexibility in the very competitive breast cancer segment. I'll turn now to slide seven. Illustrated on this slide are the currently commercialized products that are approved or in development with ENHANZE. These are eight very successful products. We now have multiple examples to support that these carry a low risk of development with ENHANZE.

When a product is already approved, the pathway to approval with ENHANZE has been a non-inferiority PK study to identify the dose, and then usually a phase III study that focuses on demonstrating non-inferiority of the selected PK and efficacy endpoints. To date, all approved products that have had a successful phase I and moved to phase III have been approved.

Now, excitingly, based on FDA feedback, many of our current partners are discussing leaner development programs designed to gain a full set of labeled indications for the IV without the need to do a separate controlled clinical trial for each indication. This faster development time allows earlier access for more patients to an SC formulation potentially. And the breadth of label that was just granted to DARZALEX FASPRO utilizing ENHANZE certainly provides encouraging evidence of this development strategy. I'll move now to slide eight and to our currently commercialized products.

Roche continues with its global commercialization of products utilizing our ENHANZE technology, including MabThera, Rituxan Hycela, and subcutaneous Herceptin with ENHANZE.

Although royalty revenues from these products are anticipated to decline modestly this year as a result of the ongoing impact from biosimilars, Roche recently commented that it has seen an increased level of interest from physicians in subcutaneous Herceptin. While it's too early to call this a trend, it is certainly worth noting in the current environment where reducing the amount of time in the presence of others is desired. Moving now to our development products, on slide nine, you can see a summary of the pipeline products that are being developed utilizing ENHANZE.

Based on the most current information we have from our partners, our target for nine new trial starts in 2020 is unchanged. The phase two trial we projected has been accomplished, and I'll detail this in a moment, and we continue to project three phase III trial starts and five new phase one starts in 2020.

Let me just provide 2 program updates. With regard to the phase II start, as mentioned, argenx recently initiated their phase II study of efgartigimod utilizing our ENHANZE technology in CIDP patients that they had announced in December of 2019. This study has an innovative design intended to result in a faster time to a go/no-go decision for advancement to a potential phase III study. In addition, argenx is evaluating a bridging strategy for efgartigimod with ENHANZE in myasthenia gravis.

Moving now to Alexion, they recently informed us that they no longer plan to evaluate ALXN1810 in the renal basket study as they had announced in January of this year. There was no milestone associated with this study. Now, moving back to slide 10, the progress of our ENHANZE portfolio is projected to drive the strong growth in milestone revenues between now and the end of 2022.

Based on the latest information we have from partners, we continue to project cumulative milestone revenues in the next three years of $350-$450 million. This growth in projected milestone revenues has been driven by the larger milestone payments associated with new target approvals and the increase in the number of products advancing to later-stage development, many of which are also associated with larger milestones.

And this near-term milestone revenue precedes the royalty revenues and is an important and strong indicator of future royalty revenue potential, which we project to be approximately $1 billion in 2027, based on the non-risk-adjusted revenue projections for programs currently in or planning to be in development. Let me turn now to slide 11 and an overview of our approach to capital return.

As a reminder, our first priority is to drive the growth of our ENHANZE business by maximizing the value of our current collaborations and working to sign new collaboration partners. With a strong free cash flow, our next priority is returning capital to investors via share repurchases. Elaine will discuss the details of our recent share repurchase activities in just a moment. And in addition to our commitment to capital return, we will evaluate the potential for new technology platform expansion through acquisition with the goal of accelerating our long-term revenue growth.

In evaluating this, we are seeking an approach where there is high growth and high margin similar to our ENHANZE business. Now, with that update, I'm very pleased now to turn the call over to Elaine for a discussion of the first quarter financial results.

Elaine Sun (CFO)

Thank you, Helen. I could not be more excited to join Halozyme during such a thrilling time for the company. I'll start by turning to slide 12 for a review of our first quarter revenues. Total revenue for the first quarter was $25.4 million compared to $56.9 million in the prior year period. As a reminder, the first quarter of 2019 reflected the signing of a new collaboration agreement with argenx that resulted in a $30 million upfront payment.

Royalty revenue for the quarter was $16.8 million, a decrease of 6%, which is consistent with our stated expectations coming into the year, driven by ongoing pricing pressures in the face of biosimilars. Product sales of $8.1 million in the quarter compared to $8.4 million in the prior year period. 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 $0.4 million compared with $30.6 million a year ago, with the difference attributable to the signing of the argenx deal that I mentioned a moment ago. On slide 13, you'll find a more detailed breakdown of our first quarter P&L. I'll begin with total operating expenses, which were $28.6 million in the first quarter, down from $54 million in the prior year period.

The overall decrease in total operating expenses resulted from our shift in strategic focus to the company's ENHANZE drug delivery technology in November of last year and the related restructuring, which has largely been completed. Cost of product sales were $5.8 million, up from $4.6 million.

Research and development expenses of $10.2 million decreased from $31.3 million in the prior year period, decreasing 67% as a result of the fact that we halted our PEGPH20 oncology drug development activities in November of last year. SG&A expenses were $12.6 million, down from $18 million in the prior year, primarily due to the reduction in force and discontinuation of our PEGPH20 related launch expenses that were part of the restructuring initiated in November last year.

Net loss for the quarter was $6.1 million, or 4 cents per share, compared to net income of $1.8 million, or 1 cent per share in the first quarter of 2019. Cash equivalents and marketable securities were $368.2 million at March 31st, 2020, compared to $421.3 million at December 31st, 2019.

The decrease reflects the impact from our operating loss and share repurchase activities during the first quarter of 2020. Now, I'll turn to slide 14 for a discussion of our 2020 financial guidance. We continue to monitor the impact of the COVID-19 pandemic on our business and receive updates from our partners and suppliers as to their plans and timeline. Based on that latest information and our planned expenditures for the year, our guidance for 2020 remains unchanged from the guidance that we first provided for the year on January 14th.

We continue to expect total revenues to be in the range of $230-$245 million, and earnings per share is expected to be in the range of $0.60-$0.75. In addition, we continue to forecast our first quarter of sustainable profitability will occur in the second quarter of this year.

With respect to our expense structure, we'll continue to watch operating expenses closely, and we expect to achieve annualized operating expenses, excluding cost of goods sold, in the range of $65-$75 million by the fourth quarter, with the expectation that we'll be towards the higher end of the range. I'll now detail our recent share repurchase activity, so in summary, we've completed $251.6 million of share repurchases to date, leaving $298.4 million available under the $550 million three-year share repurchase program that was authorized by our board of directors in November 2019.

In January 2020, we announced our plan to repurchase up to $150 million worth of shares in the year, and of this, we repurchased 3.2 million shares during the first quarter at a weighted average price of $16.15 per share, worth approximately $51.6 million.

We plan to repurchase up to an additional $98 million worth of shares during 2020, pending market conditions and other factors. And with that, I'll turn the call back to Helen.

Helen Torley (President and CEO)

Thanks very much, Elaine. In these uncertain times, I'm very pleased to say Halozyme remains in a strong financial position as a company focused solely on ENHANZE, with profitability on the horizon, and a demonstrated commitment to maximize value for our shareholders by returning capital to our investors. The recent announcement of FDA approval for DARZALEX FASPRO was a momentous event for the company, and there are many additional exciting events anticipated in the remainder of 2020, as is shown on slide 15.

Firstly, of course, is the expected U.S. launch of DARZALEX FASPRO, which will result in a milestone payment to Halozyme.

This event is a key driver of our expectation that we will report our first quarter of sustainable profitability for the second quarter of 2020, the current quarter. With Janssen's receipt of a positive CHMP opinion, we anticipate marketing approval in Europe for subcutaneous DARZALEX utilizing ENHANZE around mid-year. And with an FDA action date of October 18th, 2020, we anticipate approval and launch of the fixed dose combination of Perjeta and Herceptin in the U.S. later this year.

And we can expect continued momentum in the clinic, as I detailed for our partner programs utilizing ENHANZE, leading to three new phase III trial starts and five new phase I trial starts. With key milestones on the horizon and a clear path towards sustainable growth in revenues, earnings, and cash flow, Halozyme is in a strong position to deliver additional value to our shareholders.

None of this would be possible without the strong, talented Halozyme team. As ever, I'd like to end by thanking everyone on the team for your tremendous efforts and the strong results for the first quarter. I would now be delighted to take your questions. Operator, please, would you open the call?

Operator (participant)

At this time, if you would like to ask a question over the phone lines, please press star then one on your telephone keypad. We will pause for a moment to compile the Q&A roster. Your first question comes from the line of Do Kim of BMO Capital Markets. Your line is open.

Do Kim (Senior Sell-Side Analyst)

Thank you. Good afternoon, and thanks for taking my question. My first question for the approval of DARZALEX FASPRO, do you know why Janssen did not pursue the combination with Pomalyst? Did they see that as not a big enough opportunity? According to the CHMP positive opinion, it says that it will include all current DARZALEX indications. Does that mean that we should expect seven out of seven indications for the EU approval?

Helen Torley (President and CEO)

All right. Thanks, Do. With regard to pomalidomide, the filing, which was based on the COLUMBA and PLEIADES study, did not include any data looking at SubQ daratumumab with pomalidomide. And so I think that is the key reason that the approval was not granted. Now, if you go on to clinicaltrials.gov, you will see there is a SubQ daratumumab study ongoing with pomalidomide that has a potential readout date of mid-2021. So I think it's not a question of it never getting approved.

It will await that data. With regard to the CHMP opinion, I think the key difference is that in Europe, they have a slightly different set of indications in Europe. They do have one transplant-eligible indication, which is different from the U.S., and they do not have the pomalidomide indication. So it is a full set, but it's not a matching set to the seven U.S. indications, but I believe it might be six. But if you compare the labeled indications, though, you'll see the key difference is Europe has transplant-eligible, but pomalidomide is not approved in Europe for use with daratumumab, from my recollection.

Do Kim (Senior Sell-Side Analyst)

Okay. Great. Thank you. And with the broad approval of DARZALEX to include all those indications, did you consider an opportunity to revise guidance upward? Would there be a possibility in upside to the royalties instead of being slightly down to being flat or even up?

Helen Torley (President and CEO)

Yeah. We always want to just see how the launch goes. There's always the mechanics that need to be in place, though, that will take several months, as you know, to get the J-code, the EMRs, etc. So we have not updated our guidance on it, but we will obviously watch the trend. And once those particular things are in place, including certainty of reimbursement and the ability to order, we do believe there will be a very robust uptake of daratumumab.

Do Kim (Senior Sell-Side Analyst)

Great. Thank you for taking my question.

Helen Torley (President and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Jessica Fye. Your line is open.

Jessica Fye (Managing Director and Senior Equity Research Analys)

Hey, guys. Good afternoon. Thanks for taking my questions. Just following up on the comments you made and prepared remarks about the slight shift in timelines as it relates to trial starts, I'm trying to think about your anticipated milestones this year and wondering if you can offer any color on the cadence of milestones over the course of 2020. I guess, at a minimum, should we have relatively low expectations for the milestones in the second quarter, given COVID-19's kind of pronounced impact this quarter?

Helen Torley (President and CEO)

Our milestones obviously are made up of the potential approvals as well as the clinical study starts. In the second quarter, with the expectation that Janssen is launching in the U.S., we already know we're going to have a nice milestone related to that.

But I would say that for the clinical study starts, they are spread over the second, third, and fourth quarter, but perhaps more in the third and fourth quarter. So you would see more of those clinical study starts then. For the European approval of daratumumab, we expect that mid-year falling into the third quarter. So hopefully, that gives you some cadence of between the two that are some commercial milestones more near term, with the clinical studies being a little bit more weighted towards the third and fourth quarter.

Jessica Fye (Managing Director and Senior Equity Research Analys)

Okay. That makes sense. And then just within the kind of maintenance of your overall revenue guidance, did the mix of milestones versus royalties shift at all? Are there any milestones that are kind of nudging into 2021, possibly being offset by royalties better than you previously modeled?

Helen Torley (President and CEO)

No, overall, it pretty much was in line with our original plan for the year, Jess.

Jessica Fye (Managing Director and Senior Equity Research Analys)

Great. Thank you.

Operator (participant)

Your next question comes from the line of Joe Catanzaro. Your line is open.

Joseph Catanzaro (Executive Director and Senior Biotech Equity Analyst)

Hey, guys. Thanks for taking my questions here. I just wanted to follow up on something you alluded to earlier. And I know you've previously spoken about the time it takes for underlying formularies to change. But for DARZALEX FASPRO, I wonder if there are any expectations of seeing formulary exceptions, especially in light of the current COVID environment. And I guess as a follow-up to that, maybe anything you've seen with your legacy products and their use in the current environment and any potential read-through they may provide to early DARZALEX FASPRO usage. Thanks.

Helen Torley (President and CEO)

Yeah. Thanks, Joe. I haven't seen Janssen make any comments about any expectations of different formulary expectations.

But I do know that we are hearing in general that there is a desire to not have patients in infusion rooms for a long period of time. I think the most pertinent comment comes from Roche's recent earnings call, where I think it was Bill Anderson commented on seeing an increase in demand of Herceptin SC for exactly that reason, people not wanting to be in the infusion suite. So while I have no specific information to support the hypothesis, Joe, I think the environment, as you point out, is one where SubQ fits a number of the needs: less time in hospital, less exposure to other patients.

And hopefully, the formularies and other groups are going to pay attention to that and operate in a way that supports a faster approval. But I have no data to support that at this point in time.

Joseph Catanzaro (Executive Director and Senior Biotech Equity Analyst)

Okay. Got it. Thanks. And just, I guess, as a quick follow-up, you mentioned you expect an update to DARZALEX, I guess, internal guidance and how you're thinking about that. Is that something we should expect on your 2Q earnings call?

Helen Torley (President and CEO)

Let me clarify the statement. What I said, Joe, is we will watch and see where it goes. I'm very comfortable with the current guidance. If we see a different uptake than we had modeled, that is worthy of note that we obviously will update at this point in time. But I intended with my remarks to say we are comfortable with our trajectory, and we'll monitor and see if there's a major deviation for that that would result in a need to change the guidance.

Joseph Catanzaro (Executive Director and Senior Biotech Equity Analyst)

Okay. Got it. That's very clear. Thanks so much for taking my questions.

Helen Torley (President and CEO)

Thank you.

Operator (participant)

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

Jason Butler (Managing Director and Senior Biotechnology Equity Research Analyst)

Hi. Thanks for taking the questions. Just one on the potential new partnerships. Just the FDA or regulatory environment now potentially being more expedited for ENHANZE approvals. Does that in any way impact your outlook for ongoing partnership activities, either in terms of level of interest or the value that you think you can generate out of new deals?

Helen Torley (President and CEO)

Yeah. Thanks, Jason. I would say that we had built a very strong slate of potential partners we were talking to even before the COVID-19 pandemic. But I do agree with you. There is definitely a number of incoming calls looking for SC and understanding, would it be another way to deliver care? So it has caused a modest increase. But overall, the dynamic we're seeing was already very nicely in place. So hopefully, that addresses your question.

Jason Butler (Managing Director and Senior Biotechnology Equity Research Analyst)

Yep. And then just one on the 2027 royalty guidance. Just based on the updates through the quarter, any notable changes in the different components of products that build to that number? Or is essentially everything largely in line with how you thought about it early in the year?

Helen Torley (President and CEO)

Yeah. It's largely in line, Jason. We are reflecting differences in clinical study timelines, probably more than changes in the products in or out of the portfolio. But pretty much a very similar picture to one we showed before, with that potential in 2027 really being driven by the number of products that we project having in the clinic at that point in time and approved and in that nice growth trajectory point. Okay.

Jason Butler (Managing Director and Senior Biotechnology Equity Research Analyst)

Great. Thanks for taking the questions.

Helen Torley (President and CEO)

Thank you.

Operator (participant)

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

Charles Duncan (Managing Director and Senior Biotechnology Analyst)

Hi, Helen and team. Thanks for taking my questions. I apologize if they have been asked. I'm juggling calls today. But I guess I'm wondering, first of all, when you think about the recent approval for subcutaneous DARZALEX, what were your assumptions about the use of the drug? It seems like it was a broader label than what we had anticipated. And I guess as you think about having the supply API, etc., what are the key levers here that you're looking to pull in the near term?

Helen Torley (President and CEO)

Yeah. Thanks, Charles. As we were getting ready for the potential approval, if you recall, we always talked about the expectation of approval and relapsed refractory.

But did highlight the PLEIADES study and the fact that Janssen had filed that and linked it to the comments that had been made of the rituximab and hyaluronidase ODAC to say perhaps a controlled study wouldn't be needed. And so in our scenario planning, we planned for both. We planned for this broad label based on PLEIADES being added to COLUMBA. And similarly for our API production. If you recall, 2019 was a year where we had a lot of API sales. And we highlighted that that was both Janssen and Roche buying their API in anticipation of successful regulatory pathways and launches in 2020.

So we're feeling very good about both of those and delighted, obviously, to get five of the seven indications in the U.S. and a CHMP opinion recommending approval of all of the indications in Europe. It really could not have turned out better in our view. So delighted with that.

Charles Duncan (Managing Director and Senior Biotechnology Analyst)

Very good. And regarding that API, where's it manufactured?

Helen Torley (President and CEO)

Our API is manufactured in the U.S. at two CDMOs that we have.

Charles Duncan (Managing Director and Senior Biotechnology Analyst)

Okay. Okay. 100%. And no disruption to the supply that you've experienced?

Helen Torley (President and CEO)

No. Both of our CDMOs were in regular contact with them, and they are considered essential businesses. They have got the materials, and they are operating without an interruption related to COVID-19.

Charles Duncan (Managing Director and Senior Biotechnology Analyst)

Super. And then I came in on the end of Jason's question. So I'm not sure if this is what he's asking. But I think he would perhaps he was asking about new collaborations. And I guess I'm wondering about existing collaborations and then the potential use of Herceptin SC relative to the biosimilars.

Is there any new or different feedback that you're getting from current collaborators or from the market that suggests that there's greater appreciation of subcutaneous versus IV delivery in this current environment?

Helen Torley (President and CEO)

Yeah. I would say with regard to Herceptin SC, Roche did say on their last quarterly call that they had seen an increased interest in demand for Herceptin SC, in particular, physicians wanting to order it for compassionate use but also commercially, so to support the point that SC fits today's environment, I think that is very true. All of our existing collaboration partners, we're in constant dialogue with them about the potential to select and move new targets into the clinic. I can't say I have noticed an increase in that. There is already such an active dialogue around that, Charles , that that hasn't really changed.

But I would expect if we just think about this, there already were challenges to receiving IV therapies in these infusion suites. We know capacity is constrained. We know there aren't enough nurses. And we know that the overtime required with some of the therapies to keep the infusion centers open in the evenings and weekends is a challenge. So I think COVID-19 just adds to what was already a market environment conducive to companies and physicians and patients considering SC very seriously as an alternate.

Charles Duncan (Managing Director and Senior Biotechnology Analyst)

Okay. Very good. Thank you for taking my questions.

Helen Torley (President and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Graig Suvannavejh of Goldman Sachs. Your line is open.

Graig Suvannavejh (VP and Executive Director)

Yeah. Thank you. Congrats on the progress. And thanks for taking my questions. Actually, let me send my congratulations to Elaine on joining and congrats on the role. And I want to wish you well. Maybe I can ask you a couple of questions if you don't mind. Maybe can you give us your perspective of what you've seen thus far since you've joined? And maybe if you can give us a sense of what your near-term and mid-term priorities are. And maybe another question for you if I could.

In terms of BD opportunities, it's something that companies talk to as something that they would look at and maybe prioritize on a go-forward basis. Can you maybe comment on what kind of opportunities you're seeing out there and the transactability and current valuations and your comfort with what you're seeing out there? And then maybe my last question, Helen, for you, just in terms of the label that we saw for DARZALEX FASPRO. And I think we've got a sense of what pricing is like.

But could you give us your sense of what you see as potential barriers or hurdles or challenges that might prevent a rapid adoption of DARZALEX FASPRO relative to the conversion from IV DARZALEX? Any color there in terms of how you're thinking about things based, at least, on the label and pricing would be helpful. Thanks so much.

Helen Torley (President and CEO)

Great. Elaine, I'll let you answer Graig's first two questions first.

Elaine Sun (CFO)

Great. Thanks, Graig, for that message. I think, first of all, what excites me the most about joining Halozyme is really the potential in ENHANZE. And I know that Helen's highlighted some of these. But what impresses me is that we've got a commercially validated platform technology utilized in blockbuster products for some of the leading pharma biotech companies around the world. And we're early in the growth cycle of revenue and earnings being driven by ENHANZE.

And with that strong cash flow generation that we expect from the ENHANZE business, one of our priorities is clearly prioritizing return of capital to shareholders, consistent with what we communicated to the market. With respect to BD opportunities or M&A opportunities, of course, if we find an attractive M&A opportunity that could give us the ability to add another platform technology with attractive growth and margin characteristics like ENHANZE, we could certainly think about that. And there are certainly opportunities we think out there.

But we're in no rush to do so given the strong growth profile that we expect with ENHANZE. Hopefully, that answers your question.

Graig Suvannavejh (VP and Executive Director)

Thank you.

Helen Torley (President and CEO)

That's great, Elaine. And Graig, with regard to the DARZALEX label, yes, I just mentioned to Charles that we're obviously delighted with how broad it is. Five of the seven indications for the U.S., which covers, we believe, the majority of use of daratumumab today. And the CHMP recommendation is actually all of the indications in Europe. So broad label, great place to start. With any launch, you always want to make sure reimbursement is going to be in place. And with the change in the U.S. now to get the J codes quarterly, we anticipate that will just take a short period of time to get in place.

And that, together with getting on the formularies, getting loaded in the EMR orders, is all just a logistical situation that takes a period of weeks to months to get in place. But then we anticipate robust uptake based on the value proposition of the daratumumab.

This three to five minutes and the lower reported rate of infusion-related reactions, when we talk to physicians, we get a very positive and strong response to that value proposition. So the only barriers are, I believe, the reimbursement and just getting these issues in place. There will be a differential in the amount of reimbursement between SubQ and IV. I don't know exactly how much that will be.

But again, you've got to think about the strength of the value proposition, the desire for doctors and patients to not be in infusion suites for multiple hours, the nursing shortage, and all those other factors. I really don't see many barriers to a very robust uptake for daratumumab in the U.S. and also in Europe upon approval.

Graig Suvannavejh (VP and Executive Director)

Great. Thank you so much, both.

Helen Torley (President and CEO)

Thanks, Graig.

Operator (participant)

Your next question comes from the line of Arlinda Lee of Canaccord. Your line is open.

Arlinda Lee (Managing Director and Biotechnology Analyst)

Hey, guys. Congrats on the progress. I had a few questions, maybe just to follow up on some of the points that you mentioned earlier. I'm wondering what is gating on SubQ Dara and Phesgo Herceptin uptake. You mentioned formulary J codes. And I'm more interested in if there is any logistical hindrances or things that might help by the current situation. And I'm also curious about whether visiting nurses can deliver these SubQ treatments at home so the patients don't even have to come in.

And then secondly, I'm also wondering if there's any difference in antibody versus small molecule delivery in combination and whether you guys are in discussions with Gilead, for example, for remdesivir and converting that to SubQ.

Helen Torley (President and CEO)

All right. Thank you. So with regard to the initial questions, hopefully, you heard my answer to Graig. Every injectable product launch has a certain sequence of things that need to happen for the doctors to be able to freely write. It will be no different for daratumumab, and I expect it will go over weeks to months. It will be very nicely in place and will not be a hindrance to uptake. The label for DARZALEX FASPRO says it must be administered by a healthcare professional.

Whether Janssen plans to have that done in the infusion suite or perhaps support clinics who want to have visiting nurses, I'm afraid I don't know. I don't see a preclusion for it in the label, Arlinda, but I don't know if that's going to be part of the plan of the launch. That'll be a question better asked of Janssen.

With regard to COVID-19, we actually have initiated discussion with a number of companies with regard to the potential of ENHANZE to allow their drugs to be given subcutaneously, particularly in settings of prophylaxis or early disease treatment. All of those discussions are at an early stage. And so I'm really not in a position to say anything more about any of them at this time. But we do see, particularly in those COVID-19 settings, the benefits of SC where you might want to have a large volume of people be able to be treated in a clinic or in a hospital in a shorter period of time.

It seems like SC would be the way to go. But early discussions and nothing I can really say more than that at this time.

Arlinda Lee (Managing Director and Biotechnology Analyst)

Thank you.

Operator (participant)

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

Hi, guys. It's Joe on for Jim. Congrats on the progress, and I appreciate you taking the questions. Two from us. Are there any updates you can provide on pending or planned IP filings for novel compositions around ENHANZE formulations for the pipeline? And maybe second, how you view the approval of DARZALEX FASPRO in the U.S. in terms of de-risking other filings in the U.S., like for Herceptin as an example?

Helen Torley (President and CEO)

All right. With regard to IP filings, it's an important part of our strategy, as you're aware, that when we can get co-formulation patents, it provides additional exclusivity and generally has the impact on our royalty term of extending the duration and also pushing out the times of a step down. So it's something we very actively are working on with our partners. I do see line of sight to additional IP filings.

I can't see any more than that at this point in time. Given the fact that these are possible based on a novelty that is identified when ENHANZE is combined with another proprietary drug, we know there are multiple pathways to this. It could be PK data. It could be clinical data. It could be pharmacodynamic data. And so, Joe, to answer your question, yes, there are definitely a clear line of sight to additional co-formulation patents being filed.

On the DARZALEX FASPRO de-risking, I think where we see the biggest excitement about what DARZALEX FASPRO granted was the ability to get a broad set of indications without doing large comparative clinical studies for each and every indication. As I mentioned, this was really something the FDA spoke about at the Rituxan Hycela ODAC, where for Hycela, Roche had done three separate 500-patient studies for the three indications.

What the FDA said was, in future, that might not be needed. So what the DARZALEX clearly demonstrates is the one large comparative study was done in the relapsed refractory population. But for all the other indications in the frontline and second-line, that was granted based on the PLEIADES study, which was a 250-patient study, single arm. So I think what the extrapolation is the ability, once you've demonstrated the non-inferiority of efficacy in PK, the FDA is going to allow for leaner development plans in circumstances where they feel as though the safety has been well demonstrated. And that is very exciting for us and obviously for our partners, meaning smaller need for the size of clinical programs to get the broad label.

Great. Thanks so much, Helen.

Okay. Thanks, Joe.

Operator (participant)

Again, if you'd like to ask a question over the phone lines, please press star, then 1 on your telephone keypad. Your next question comes from the line of Joel Beatty of Citi. Your line is open.

Joel Beatty (Director and Biotechnology Equity Research Analyst)

Hi. Thanks for taking the question. The question is about strategy for the company as you become cash flow positive this quarter. Does that put any type of timeline on making a decision on next steps regarding either some type of acquisition or returning additional cash to shareholders or some other choice?

Helen Torley (President and CEO)

Happy to have you on, Elaine.

Elaine Sun (CFO)

Sure. Thanks for the question, Joel. So we're very excited about the multiple catalysts in addition to the recent approval of DARZALEX FASPRO, the catalysts that we anticipate to drive our earnings and cash flow over the near and long term.

We're anticipating continuing to prioritize return of capital to shareholders, as you mentioned, and consistent with what we've communicated to the market. So we anticipate repurchasing up to the $150 million in share repurchases in 2020, pending market conditions and other factors. We'll continue to evaluate our capital structure to ensure that we're well positioned. But we continue to be very confident in our long-term growth prospects. And so we anticipate continuing to be in position to return capital to shareholders, again, pending market conditions and other factors.

Joel Beatty (Director and Biotechnology Equity Research Analyst)

Got it. And how much of those planned repurchases for 2020 have been done so far?

Elaine Sun (CFO)

So we were able to purchase nearly $52 million earlier this year at an average price of $16.15 per share. Purchases that we completed through the concurrent buyback in ASR prior to that.

Joel Beatty (Director and Biotechnology Equity Research Analyst)

Great. Thank you.

Elaine Sun (CFO)

Sure.

Operator (participant)

There are no further questions over the phone lines at this time. I turn the call back over to the presenters.

Helen Torley (President and CEO)

That's terrific. We really appreciate everybody joining us for today's call. As you heard, despite COVID-19, we're very proud of the progress our partners are making and especially of the continued strong work of the Halozyme team who transitioned so well to the different work environment that we have. Thank you so much for your attention. We'll look forward to updating you next quarter. Goodbye now.

Operator (participant)

You may now disconnect.