Halozyme Therapeutics - Earnings Call - Q4 2020
February 23, 2021
Transcript
Operator (participant)
Ladies and gentlemen, thank you for stopping by, and welcome to the Halozyme Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Thank you. 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.
Al Kildani (VP of Investor Relations and Corporate Communications)
Thank you. Good afternoon, and welcome to our Fourth Quarter and Full Year 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 Fourth Quarter and Full Year 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. 2020 marked a year of tremendous growth for Halozyme, which has created strong momentum as we enter 2021. Let me begin with a brief review of the 2020 performance. Total revenues in 2020 were $267.6 million, up 37% from 2019, and our earnings per share were $0.91. Both revenue and earnings per share were within our most recent financial guidance range. Our strong financial results capped a transformational year for Halozyme that saw a number of significant accomplishments. These included the two FDA approvals and two European Commission approvals for ENHANZE-based products, including Janssen's subcutaneous form of Darzalex and Roche's Phesgo. A return to royalty revenue growth driven by the strong uptake of subcutaneous Darzalex, which is known as Darzalex Faspro in the U.S. and Darzalex SC in Europe. The expansion of our development pipeline, including two products moving into Phase III development.
The signing of a new ENHANZE partnership with Horizon Therapeutics to develop a subcutaneous version of Tepezza, and continued execution of our capital return program, resulting in $150 million in share repurchases during 2020 for a total of $350 million share repurchases since the board authorized the three-year $550 million plan in November of 2019. This remarkable progress in 2020 was achieved against the backdrop of the global COVID pandemic, a challenge we were able to navigate thanks to the hard work and dedication of our partners, suppliers, and employees. The progress and expansion of our ENHANZE partner pipeline provides confidence in the potential of our long-term growth prospects as we anticipate the potential for multiple waves of product launches in the upcoming years.
Moving now to 2021, we expect revenues of $375 million-$395 million, which would represent growth of 40%-48%, driven primarily by an expected doubling in royalty revenue. The expected GAAP earnings per share of $1.40-$1.55 would represent growth of 54%-70%. Recall that our guidance does not include any contribution from potential new ENHANZE deals. Let me now turn to Slide 3 for a discussion of our royalty revenue growth. In 2021, we projected doubling in royalty revenues. This strong growth is driven by both subcutaneous Darzalex and Phesgo. As illustrated in the left-hand chart, in the Fourth Quarter, we saw revenue from royalties grow 86% year-over-year and 34% sequentially. This growth was propelled by the launch of Darzalex Faspro in the U.S. and Darzalex SC outside the U.S., and resulted in full year 2020 royalty revenue of $88.6 million.
For 2021, we project Darzalex Faspro and Darzalex SC growth will continue, driven by ongoing adoption and penetration in the already launched markets and by additional launches around the world. For Phesgo, we project robust growth in 2021, driven by increased adoption and penetration in the U.S., and also by the start of the European launches following the European Commission approval in December of 2020. For full year 2021, with the strong 2020 launch, we project that subcutaneous Darzalex will remain the key driver of royalty revenue at a level that is substantially higher than Phesgo. We're now in a position where the high-margin recurring portion of our revenues is also the fastest-growing segment. Let me turn now to Slide 4, and I'll highlight our key commercialized products. We have five products now approved in both the U.S. and Europe utilizing our ENHANZE technology.
Let me now provide some color on the most recent product launches, representing our wave two launches, beginning with subcutaneous Darzalex. During the Fourth Quarter, Janssen's parent, Johnson & Johnson, reported worldwide sales of Darzalex, including the IV and SC forms, of $1.25 billion, up 49% year-over-year on an operational 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 data from Symphony Health, that by October of 2020, just five months after the May approval, a 40% share of sales of overall Darzalex in the United States was the subcutaneous version. I think you'll agree this is a remarkably fast uptake and really speaks to the value proposition that the subcutaneous version can bring for patients.
Supporting the impressive growth expectations are also potential additional approvals and launches in new countries and indication expansion for subcutaneous Darzalex. These opportunities include the potential approval of the subcutaneous form of Darzalex in Japan for multiple myeloma patients, potential growth from sales in the newly approved indication of newly diagnosed adults with light chain amyloidosis following U.S. FDA accelerated approval in January of 2021 for the use of Darzalex Faspro in this indication. In this indication, it's used with bortezomib, cyclophosphamide, and dexamethasone. Consistent with this being an accelerated approval, Janssen will conduct confirmatory trials while the therapy is made available in the U.S. to the indicated patients, and there's also the potential for approval and launch in light chain amyloidosis in Europe.
Additionally, there's the potential for U.S. and European approval for subcutaneous Darzalex utilizing ENHANZE in combination with pomalidomide and dexamethasone for the treatment of patients with relapsed or refractory multiple myeloma who have received at least one prior line of therapy. With the launch of subcutaneous Darzalex off such a strong start, high growth in the overall Darzalex franchise, and the anticipation for expanding indications and geographies, you can see why we expect subcutaneous Darzalex to be a strong driver of revenue growth for Halozyme. Let me move now to Phesgo. This is a fixed-dose combination of two of Roche's antibodies, Perjeta and Herceptin, which is administered in five to eight minutes compared to several hours needed for the IV version.
Phesgo was launched in the United States in the third quarter of 2020 and was approved in Europe in late December, with launch expected to begin during the first quarter of 2021. For the fourth quarter, Roche reported Phesgo sales of approximately CHF 16 million. With the European launch beginning in Q1 and the expectation of increased adoption and use in the United States, we anticipate strong growth in Phesgo sales and contribution to Halozyme royalties in 2021. Let me now move to Slide 5 and a discussion of the ENHANZE development portfolio. Building on our portfolio of five commercialized partner products, we project the expansion of our development pipeline to now 16 products by the end of 2021, with an expected five new Phase I study starts.
In June of 2020, Bristol Myers Squibb initiated a Phase I-II study of ipilimumab in combination with nivolumab utilizing the ENHANZE technology. BMS recently informed us that they've made a portfolio prioritization decision to not continue the study. BMS will retain the CTLA-4 target for potential future study. In addition, we anticipate two products that are currently in Phase I will progress into Phase III. This would result in a total of four products being evaluated in seven separate indication Phase III studies utilizing the ENHANZE technology by the end of 2021. Based on Halozyme's historical development timeline, these four Phase III products form our potential wave three launches, with potential launches occurring in the time window of 2023-2025. In addition, we project 12 products will begin or will have completed Phase I development in 2021.
Based on historical development timeline, if these development programs progress, these 12 products would form the potential wave four launches, with launch in the time window of 2025-2027. We believe this advancing pipeline of products utilizing ENHANZE is setting up the potential for multiple waves of future product launches that will deliver long-term growth in revenues, cash flow, and profitability. Let me now just give a brief partner-by-partner discussion of key programs. Begin with Argenx, which is now conducting four Phase III trials for four indications of efgartigimod. This really is a remarkable feat achieved in less than two years from deal signing. Earlier this month, Argenx announced that it reached the go-decision for its ADHERE trial evaluating subcutaneous efgartigimod with ENHANZE in chronic inflammatory demyelinating polyneuropathy, or CIDP.
Argenx plans to now continue enrollment after their planned efficacy and safety assessment and will include approximately 130 patients to support potential registration of SC efgartigimod for the treatment of CIDP. During the fourth quarter of 2020, Argenx met with the FDA to discuss the potential for a bridging study for SC efgartigimod in myasthenia gravis, or MG. Recall that earlier in 2020, Argenx announced positive results from its ADAPT trial evaluating the IV form of efgartigimod in MG. Following FDA feedback, Argenx is moving forward with a small focused trial designed to enable a fast path to registration for SC efgartigimod. Argenx also recently initiated its Phase III ADDRESS trial in pemphigus vulgaris and foliaceus, which are two serious skin barrier diseases associated with painful blistering. Argenx also continues with its fourth potential indication with a Phase III trial evaluating SC efgartigimod with ENHANZE in immune thrombocytopenic purpura.
We are delighted to be working with Argenx on this exciting product, which is one of our potential wave three launches in the 2023-2025 timeframe, and which analysts project could have multi-billion dollar potential. Moving to Argenx's second nominated target, which is ARGX-117. This is being evaluated in a recently initiated Phase I study in healthy volunteers with data expected in mid-2021. ARGX-117 targets C2 and is going to be evaluated for the treatment of multifocal motor neuropathy. We expect to receive a milestone payment in the near term related to the subcutaneous component of this study.
As you've just heard, Argenx is making rapid progress in the clinic with subcutaneous forms of its drugs utilizing ENHANZE, evaluating a broad range of potential indications with the goal of accommodating patient preference and to adjust to the new normal for patients who may not always have easy access to all sites of care. During the Fourth Quarter, we were delighted to expand our collaboration and licensing agreement with Argenx to now include a total of up to six targets. I'll move now to Roche. During the Fourth Quarter, Roche fulfilled the first payment in its Phase III trial evaluating Tecentriq in previously treated locally advanced or metastatic non-small cell lung cancer patients. This is also one of our wave three potential launch products. In addition, Roche continues with its Phase I study evaluating SC administration of ocrelizumab, or Ocrevus, with ENHANZE. Moving to Janssen.
In addition to the successful launch of subcutaneous form of Darzalex in November 2020, Janssen initiated a Phase I study of amivantamab, the EGFR-MET bispecific antibody with ENHANZE in advanced solid tumors. Moving now to Bristol Myers Squibb. Bristol is continuing with an exciting set of immuno-oncology target clinical studies, having publicly announced a selection of five of the available 11 targets. BMS has four Phase I studies with ENHANZE. These include nivolumab SC in two studies, one as a monotherapy and one in combination with SC relatlimab, as well as studies of subcutaneous anti-CD73 and subcutaneous TIM-3. I'll move now to our newest partner, Horizon Therapeutics. In November, we signed a collaboration and licensing agreement with Horizon, providing exclusive access of ENHANZE for SC formulations of medicines targeting IGF-1R. We received an upfront milestone payment of $30 million.
Horizon intends to use ENHANZE to develop an SC formulation of Tepezza, which is indicated for the treatment of thyroid eye disease, a serious progressive and vision-threatening rare autoimmune disease. The Tepezza franchise has an anticipated peak sales potential of $3.5 billion, according to Horizon. We're pleased with our collaboration with Horizon and look forward to future clinical milestones. Our expanding and maturing pipeline is setting up multiple waves of potential future approvals and launches that can drive long-term revenue growth. Furthermore, we continue to see additional future potential growth from two sources. The first is new ENHANZE sales, where we continue to have a broad slate of discussions with both biotech and pharma companies. As to timing, while I'm confident we will find additional deals as ever, the timing is difficult to predict.
And the second source of growth is through our current partners nominating new targets and advancing them into the clinic. With more than 20 open slots available, we're excited for the growth opportunity that exists here too. Now, the growth and the progress of our ENHANZE portfolio is projected to drive strong growth in milestone revenues in the coming years. Illustrated on Slide 6 in the blue bars is our projected milestone outlook over the next three years from 2021-2023, as well as comparable three-year outlook that we presented in each of the prior two years. As shown in the green bars, we're performing well against these projections. For 2021 through 2023, we project $400 million-$450 million in milestones, showing a continued progression in the growth of our milestone revenue. Now, this near-term milestone revenue is an important and strong indicator for future royalty revenues.
We project royalty revenue potential of approximately $1 billion in 2027, based on our non-risk-adjusted revenue projections for programs we currently have a line of sight to and assuming global sales in all indications. I'll turn now to Slide 7 to discuss our approach to value creation and capital return. We have three capital allocation priorities: maintaining a strong cash balance, share repurchases, and internal and external growth. We anticipate the strong projected free cash flow driven by ENHANZE will support both our ongoing commitment to capital return as well as our longer-term M&A strategy. As mentioned earlier, we have made strong progress with our three-year $550 million share repurchase program, with $350 million completed to date. We will target repurchasing up to $125 million worth of common shares in 2021, pending market conditions and other factors.
In addition, we continue to evaluate the potential for new technology platform expansion through acquisition, with the goal of accelerating and extending long-term revenue growth. We see opportunity to create incremental value for other platform technologies, applying Halozyme's proven partnering and commercialization capability. With ENHANZE still early in its growth cycle, we have the opportunity to be highly selective. And with that update, I'll now turn the call over to Elaine for a discussion of the fourth quarter and full year 2020 financial results.
Elaine Sun (CFO)
Thanks very much, Helen. Let me turn to Slide 8 for a review of our fourth quarter revenues. As Helen indicated, we again saw strong growth in the quarter as our partners continued to execute on their commercial and development plans to establish subcutaneously delivered biologics in the U.S. and globally.
Total revenue for the Fourth Quarter was $121.7 million, an increase of 127% compared to $53.7 million in the prior year period. Let me now take a moment to discuss some of the key drivers of growth. Revenue from royalties for the quarter was $32 million, an 86% increase over the prior year period. This was driven primarily by the continued strong uptake of subcutaneous Darzalex utilizing ENHANZE by our partner Janssen. Growth in royalties from newly launched partner products, subcutaneous Darzalex and Roche's Phesgo drove overall royalty revenue growth, offsetting the impact of the more mature legacy partner products. Product sales were $32.5 million in the quarter, up 43% from the prior year period product sales of $22.7 million. Growth in product sales was driven by additional manufacturing releases of API in support of our partners' products and programs in the fourth quarter.
And collaboration revenue in the quarter totaled $57.3 million, up from $13.7 million in the prior year period, primarily as a result of the $30 million upfront payment for the signing of our collaboration and license agreement with our newest partner, Horizon Therapeutics, in November to develop a subcutaneous Tepezza. Let me turn to Slide 9 for a more detailed breakdown of our Fourth Quarter P&L. So I'll start with total operating expenses, which were $44.1 million in the Fourth Quarter, down 49% from $85.7 million in the prior year period. That overall decrease in total operating expenses resulted from our shift in strategic focus to an ENHANZE-only business model in November of 2019 and related restructuring, which has now been completed.
Cost of product sales were $26.3 million compared with $16.7 million in the prior year period, with the increase attributable to the markedly higher level of API sales versus the prior year in support of our partners' products and programs in the fourth quarter. Research and development expenses of $7.4 million decreased 84% from $45.1 million in the prior year period as a result of halting our PEGPH20 oncology drug development activities in November of 2019. SG&A expenses were $10.4 million, down 56% from $23.9 million in the prior year, primarily due to the reduction in force and discontinuation of PEGPH20 related launch readiness expenses following our restructuring. Total operating expenses excluding costs were $17.8 million for the fourth quarter, compared with $69 million in the prior year period.
With our leverageable business model, fourth quarter operating expenses excluding costs were just below the estimated range of $18 million-$19 million. That led to operating income for the quarter of $77.6 million compared to an operating loss of $32.1 million in the prior year period. Net income for the quarter was $73.2 million or $0.50 per share, compared to a net loss of $34.4 million or a loss of $0.24 per share in the fourth quarter of 2019. With that, let me turn to Slide 10 for a snapshot of the full year 2020 results. Total revenues grew 37% to $267.6 million in 2020, off of an already substantial revenue base. The biggest contributor to this increase was higher collaborative revenues driven by our partners' pipeline progress and the collaboration with Horizon, which drove a 105% increase in collaboration revenues for the year.
As Helen described, our royalties grew significantly to $88.6 million for the year, 27% over and above 2019. Product sales of $56 million declined slightly, given significant API sales in 2019 in support of upcoming partner product launches. With our highly leverageable business model, we generated $144.3 million in operating income for the year, compared with an operating loss of $67.6 million in 2019. Furthermore, net income for the year was a record for Halozyme at $129.1 million, compared with a net loss of $72.2 million in 2019. EPS for the year was $0.91 within our most recent guidance range and compared with a loss of $0.50 per share in 2019. With respect to our cash position, cash, cash equivalents, and marketable securities were $368 million at the end of the year, compared to $421.3 million at December 31st, 2019.
This decrease reflects the substantial share repurchases that we have completed to date. Now, I'll turn to Slide 11 for a discussion of our 2021 financial guidance, which is based on GAAP financials. We plan in future quarters to report both GAAP and non-GAAP financial results. Our guidance is based on the latest information from our partners and our planned expenditures for the year. We expect total revenues of $375 million-$395 million, which would represent year-over-year growth of 40%-48%. Let me speak to the components of revenues. We expect revenues from royalties to double from 2020 levels. We expect product sales to increase between 50% and 60% from 2020 levels, driven primarily by bulk API sales to our partners. We further expect revenue under collaborations to be in a similar range as the 2020 total, driven by new clinical trial starts and commercial milestones.
With regard to operating expenses, I would just note for modeling purposes that the substantially higher product sales we expect will result in a commensurately higher cost of goods, which will be an important factor in your EPS calculation. Total OpEx, excluding COGS, is expected in the range of $80 million-$83 million. This modest increase from 2020 levels illustrates that strong leverage of our business model. We expect operating income for 2021 to be in the range of $215 million-$235 million, which would represent 49%-63% growth over 2020. Moving to earnings per share, we are projecting GAAP EPS of between $1.40 and $1.55, which would represent 54%-70% growth over 2020. As Helen reviewed, we remain committed to returning capital to shareholders.
We continue to expect that we will repurchase up to $125 million in our common stock this year, pending market conditions and other factors, which would leave $75 million worth of shares available for share repurchases remaining under our current authorization. Before closing, I would like to note that we also announced today that we have launched subject to market conditions an offering of $500 million of aggregate principal amount of convertible senior notes due 2027. Our intended use of proceeds is to repurchase a portion of our outstanding 1.25% convertible notes due 2024 and the remainder of the proceeds for share buybacks and general corporate purposes, and I would encourage everyone to review the press release that we put out this afternoon. Please note that the current guidance from this earnings call does not contemplate the offering or exchange in the press release I just referenced.
And with that, let me now turn the call back to Helen.
Helen Torley (President and CEO)
Thank you, Elaine. As you just heard, our developing pipeline coupled with the financial outlook places Halozyme in the strongest position ever as a company. We look forward to strong growth in 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 12. While 2020 was clearly a transformative year for Halozyme, 2021 is expected to be similarly impactful with several important and value-creating events that are listed on Slide 12. We expect the wave two launch momentum to continue with Darzalex SC and Darzalex SC continuing to grow in the U.S. and Europe and potentially also in Japan based on the potential for the approval there in 2021.
We also expect Phesgo momentum to accelerate following the European Commission approval in December of 2020. We expect two new products to enter Phase III, resulting in four ongoing Phase III programs across seven separate indications. Recall, these will form the next potential launches in Wave 3. We project five new Phase I starts resulting in 12 Phase I products. We will continue to work to sign new collaboration agreements and advance new targets into development. As a result of all of this strong progress, we're in a position to return capital to our shareholders through the $125 million share repurchase program. We will continue to seek to acquire a platform that can add to our long-term revenue growth. None of this progress to date and the future would be possible without the amazing team at Halozyme.
And I'd just like to send my sincere thanks to everyone for these terrific results. I thank you, everybody, for your attention today. And we'd now be delighted to take your questions. Operator, please would you open the call?
Operator (participant)
As a reminder to ask a question, you will need to press star one on your telephone keypad. To withdraw your question, press the pound key. Once again, that's star one to ask a question. Your first question comes from the line of Charles Duncan from Cantor Fitzgerald. Sir, your line is open.
Charles Duncan (Analyst)
Hi, Helen and Elaine and team. Congratulations on a very good quarter, and thank you for taking our questions.
Helen Torley (President and CEO)
Thank you.
Charles Duncan (Analyst)
So first question is not on Darzalex. It's on Argenx and efgartigimod. I'm just kind of wondering, it seems like this is going to become an increasingly large part of the story, at least for Wave 3, Helen. And I'm wondering if you could remind us of, call it the IP strategy on SubQ efgartigimod and how long that may last. And I also wanted to ask about the new targets that were selected by Argenx.
Helen Torley (President and CEO)
Yes, thanks for that question, Charles. And we agree efgartigimod is definitely one of the most exciting products in our portfolio, certainly based on the range of indications they're working in today. With regard to the IP related to the royalty revenues for Halozyme, we will continue to receive royalties for 10 years after the first commercial sale. Or if there is a co-formulation patent that ever issued for it, that could have the effect of pushing out the royalty duration even longer than that.
So it's too soon to talk about co-formulation patents for efgartigimod sales. But just as a reminder, based on our contract, it's 10 years after the first commercial sale. And if there are no remaining patents in place, we would get a step down in the royalty to half of the original rate for the timeframe from the last remaining patent to the end of that 10-year term. But certainly a very exciting story ahead for efgartigimod.
Charles Duncan (Analyst)
That's helpful. And I guess it's too early to talk about co-formulation patents. And so we'll come back to you. The second question I had regarding Argenx collaboration is the six new targets or up to six targets. And I guess I'm wondering if those have been disclosed or if you could provide us any color to point us to where that might be.
Helen Torley (President and CEO)
Yeah, so far they've just selected two of the targets. So the FcRn target and the C2 target. So we look forward to continuing to work with Argenx and identify additional targets. And obviously, we are very gratified that they already signaled strong interest in expanding the collaboration to up to six targets. But no additional nominations as yet to announce beyond the first two, FcRn and C2.
Charles Duncan (Analyst)
Okay, last question then I'll hop back in the queue. And that is on new collaborations. You've been very productive there with the November Horizon deal. Would you imagine increased visibility on that Tepezza SC version progress this year? And then do you have the capacity to bring on new collaborations with the current team? And perhaps that being one or two per year.
Helen Torley (President and CEO)
Yeah, so with regard to Horizon and Tepezza, if we think back to what the CEO commented on at JPMorgan, they certainly did indicate they're working hard to get into the clinic with that collaboration. We've certainly done our kickoff meeting. And we can expect, I believe, a steady start for that in 2021. With regard to our ability to add new collaboration partners, I think Elaine mentioned this in her prepared remarks. We do have a lean and leverageable business model where individuals at Halozyme can support multiple partners at different stages of development. And so we've said that we only need a modest expansion in people if we were to see significant expansion of the number of products in the clinic or a significant expansion in the number of partners.
So the current operating expense is a good estimate for the next several years unless we see a big expansion in the number of partners and targets.
Charles Duncan (Analyst)
Very good. Thanks for the color. Great quarter. Congrats.
Helen Torley (President and CEO)
Thanks, Charles. Appreciate that.
Operator (participant)
Your next question comes from the line of Do Kim from BMO. Your line is open.
Do Kim (Senior U.S. Real Estate Analyst)
Hi, thank you. Good afternoon and congrats on the quarter. I first wanted to ask about the metric you provided for Darzalex Faspro, the 40% U.S. share according to Symphony Health. Just want to understand how reliable that data is in your mind. And I assume it aligns with what you're receiving in royalties for Faspro?
Helen Torley (President and CEO)
Yeah, I can talk in general terms about that. Yes, it does triangulate for us well with the overall numbers that we are seeing. I do think there's always an adjustment from any of these reported syndicate numbers. But the good news is, and this is why we reported it, we see a correlation with the performance we're seeing in the royalty revenues we're receiving.
Do Kim (Senior U.S. Real Estate Analyst)
And can you comment on the launch dynamics for Phesgo and how that compares to Darzalex or Faspro in the U.S.? Are you seeing similar uptake and conversion? Or are there differences that we should think about between those two therapies?
Helen Torley (President and CEO)
Yeah, I think based on what Roche has reported as to the overall revenues for Phesgo, they're not getting out as fast as Darzalex Faspro. And I will say that Darzalex Faspro has exceeded our expectations with the speed of adoption in the United States. So we always expected for Phesgo focusing there that 2020 would be the initial couple of quarters while they get all of the key logistics in place.
So things like working on reimbursement, getting on formularies, getting uploaded to the electronic medical records. And it was always our expectation that 2021 would be where we see Phesgo really starting that robust uptake. And so we're standing, I think, very nicely poised for that to see greater penetration in the U.S. as well as more revenues coming from Europe, which is now only beginning to launch. So Phesgo, this will be a good year, we believe, for strong growth there. Darzalex Faspro got out of the gate faster than I think any launch I've personally seen. So they are going to continue that momentum as well and will be the dominant driver of our royalty revenues. But we're going to see a very nice contribution from Phesgo from the two dynamics I just mentioned though.
Do Kim (Senior U.S. Real Estate Analyst)
Okay, thank you. That makes sense. Last question on the financials. Just based on your guidance, back into the operating expenses for 2021, it seems that we should see an increase in spending for the year. When you look at fourth quarter of 2020, maybe a bottom of the reductions in operating expenses. Where should we expect to see the growth in spending in R&D or SG&A?
Helen Torley (President and CEO)
Yeah, let me turn that one over to Elaine to answer.
Elaine Sun (CFO)
So we don't provide sort of the breakdown between OpEx in terms of the breakdown within OpEx. But what I can say is total OpEx, excluding COGS, we've talked about for 2021 being in the $80 million-$83 million range. That's generally consistent with sort of the OpEx for 2020. And again, reflects our ability to support multiple products and programs of our partners. And it's obviously down significantly following the restructuring and focus on an ENHANZE-only business.
So we'll continue to see good leverage out of our ENHANZE-only business model. And that should be able to support, again, multiple products and programs. Of course, as Helen indicated, should there be significant expansion in the number of new partners or programs, that could be some expansion over time and some growth with inflation over time. But that's a good number for 2021.
Do Kim (Senior U.S. Real Estate Analyst)
Great. Thanks for taking my questions.
Elaine Sun (CFO)
Absolutely.
Operator (participant)
Your next question comes from the line of Jim Birchenough from Wells Fargo. Your line is open.
Jim Birchenough (Chairman of Global Healthcare Investment Banking)
Hey, hi guys. I wanted to add my congratulations on the quarter and the year. I guess a few questions for me. First, on the convertible note offering, just maybe you could comment on the timing. And there's the suggestion that you'll exchange some portion of the 1.25% notes. And do you expect that to be completely replaced?
And also just in terms of the mix of shares and cash in that exchange? And then I've got some follow-up questions.
Helen Torley (President and CEO)
Yep, let me ask Elaine to address what she can in that answer, Jim.
Elaine Sun (CFO)
Sure. So unfortunately, Jim, I can't speak too much specifically about the offering. I would refer you to our press release. But you're right, we did discuss an offering of $500 million in new convertible notes. We've talked about use of proceeds being to repurchase a portion of the outstanding convertible notes, as well as for share buybacks under our existing board authorization and strengthening our balance sheet for general corporate purposes. So unfortunately, I can't speak to more specifics than that. I'm just referring you to our press release.
Jim Birchenough (Chairman of Global Healthcare Investment Banking)
Okay, thanks. And then just in terms of the guidance for royalties doubling in 2021, if you could maybe speak, Helen or Elaine, to just the assumptions underlying that and what guides that guidance. Is it feedback you've got from your partners? And do you look at a range and take the lower end of that range or the midpoint? Is it based on consensus estimates? Is it based on prior experience with launches in Europe? Just trying to understand what guides that doubling of royalties and how conservative or not that may be.
Helen Torley (President and CEO)
All right. Elaine, do you want to address that?
Elaine Sun (CFO)
Sure. So we take all of those factors into account, Jim, as you mentioned. We have a very close relationship with our partners, our alliance management team.
And frankly, sort of across the organization, we meet regularly and discuss regularly with our partners to get alignment around the potential outlook for the royalty and potential timing of programs and products. So we take both the royalty outlook from our partners. We look at market research as well. We look at sales statistics from groups like Symphony, etc. And we'll look at also analyst estimates. So taking all those factors into consideration, but notably, obviously, our close interactions with our partners gives us confidence that we would anticipate very substantial growth in 2021. And I think we've mentioned, obviously, some of the recently launched partner products, including Janssen, Darzalex, and Roche's Phesgo, are clearly drivers of that growth.
Jim Birchenough (Chairman of Global Healthcare Investment Banking)
Terrific. Maybe just one final question. I'll jump back in the queue.
Just in terms of thinking about the different waves of launch coming up, how do we think about Wave 3 versus Wave 2? If you could say anything about, as you look at that wave of four products across seven indications, do you think it's comparable to Wave 2 or bigger? Maybe just qualitatively, if you can comment on that.
Helen Torley (President and CEO)
Yeah, the first two potential launches obviously are ones we know about and we're very excited about. That includes that efgartigimod we mentioned earlier, as well as Tecentriq. Each of those, clearly, as their analyst projections, are multi-billion dollars. So very attractive large markets. And I can just say qualitatively, the additional two products that we believe will enter Phase III this year as well are also exciting, established blockbuster products, Jim. So it's a very exciting group that's in Wave 3.
And obviously, strong focus on Wave 2 and the execution there. But Wave 3 is a very exciting wave of portfolio of potential launches as well.
Jim Birchenough (Chairman of Global Healthcare Investment Banking)
Okay, terrific. Thanks for taking the questions.
Helen Torley (President and CEO)
Thank you.
Your next question comes from the line of Jessica Fye from JPMorgan. Your line is open.
Hey guys, this is Luke on for Jess. Thanks for taking my call or questions today. So just to start, you noted that you expect 2021 royalty revs for Faspro to be substantially higher than Phesgo. Is that driven more as the EU launch for Phesgo is just getting underway? Or would you say that's sort of the same dynamic when you look at just the U.S.? And then looking long-term, do you expect that dynamic to sort of persist? Or would you expect them to be at more of an equal level over the long-term?
Just given your comments on confirming how fast Faspro has gotten out of the gate.
Yeah, Elaine, would you like to address that question?
Elaine Sun (CFO)
I would say, sure. So we see very meaningful growth in Darzalex Faspro, as we've talked about, and SubQ Darzalex, as we've seen in 2020. And we expect continued growth in 2021. I think Phesgo, as we've talked about, 2020 was sort of a year of staging with getting reimbursement, formulary access, and EMR. And so with those now in place, we do anticipate meaningful growth in 2021. In addition to, as you rightly point out, they received the approval at the end of 2020 in Europe. And so we see Europe also being a driver of increasing sales and royalty growth from Phesgo.
Okay. And then just another one. Can you give any more granularity on timing for the ongoing Phase III trials?
Pretend it's like Tecentriq and Tepezza beyond just them potentially launching between 2023 and 2025. Maybe the earliest that they could file for these SC formulations. And then is there any potential for efgartigimod to come earlier than that, given the pursuit of rapid path to registration in MG that you guys noted today?
Helen Torley (President and CEO)
Yeah, I will say when we come up with the estimate of them being in the 2023-2025 timeframe for the Wave 3 launches, it really is based on our standard timelines, which has been four and a half to five years from first in human. And so the point you made with regard to efgartigimod, if they were for some reason able to have a much faster, smaller, as an example, Phase III, that could potentially mean a shorter timeline. And it could potentially mean a launch earlier. I still think those are unknown.
And so we plan conservatively and just link it to our benchmark. But obviously, there is a potential dynamic there. We can't provide any more granularity on the Phase III data readouts. Our partners haven't provided that. So we're not in a position to share it. If you take a look at clinicaltrials.gov, you get some estimates there of primary completion dates. But as you know, those aren't always as specific as we would like. But unfortunately, can't provide any granularity until the partners we talk about their estimated completion dates.
All right, thanks. Those are my questions.
Thank you.
Operator (participant)
Our next question comes from the line of Jason Butler from JMP Securities. Your line is open.
Roy Buchanan (Equity Research Analyst)
Hi, it's Roy for Jason. Thanks for taking our questions. I guess a couple that tie in maybe the convertible offering and the buybacks.
Do you guys have any thoughts on a potential dividend? And then how are you kind of seeing the M&A environment right now? Are you seeing a lot of assets out there? What do you think about valuations? Maybe the last five days notwithstanding. But what do you think in there? And I had a follow-up on Alexion. Have you guys had any conversations with AstraZeneca? Or do you expect that maybe post-closing in 3Q? Thanks.
Helen Torley (President and CEO)
Yeah, let me take two of those. And then I'll ask Elaine to talk about the dividend. Alexion and AZ, absolutely. I think that's post-close. So we are just waiting to close before we would have a conversation there, Roy. For M&A, we're still in the assessment phase, looking to see what's out there. There are some interesting things out there.
But I think we're still evaluating the right type of platform, where we want to play, and where we can see Halo's unique talents being able to deliver over and above what the company is able to do today. So definitely an area of active interest for us. But yeah, we don't feel in any hurry to do that, given the strong growth we see ahead for ENHANZE. But we're actively analyzing and assessing and looking. And Elaine, would you address the dividend question?
Elaine Sun (CFO)
Sure, happy to. So Roy, I would just say, with our diversified portfolio, strong growth, and profitability, and cash flow generation, we remain committed to capital return. I think with respect to form of capital return, we have focused on share buybacks. And as you know, we're very much in the midst of a three-year buyback plan.
We're about a little under 2/3 of the way through that $550 million buyback plan, and we've talked about buying up to $125 million of our common stock this year, which would be $75 million for 2022. While we have made no decisions with respect to going forward beyond that, again, I would say we remain committed to capital return. With respect to dividend versus share buyback, I would say the company is a company with strong growth potential. I would say with ENHANZE, frankly, still being early in its growth cycle, I would say share buyback tends to be the sort of mode or method of capital return of companies with that kind of strong growth.
And so while we've made, again, no decisions about kind of beyond sort of the current authorization, I think we continue to believe that share buyback is the appropriate method of capital return for a company with not only strong cash flow generation, but also strong growth prospects.
Roy Buchanan (Equity Research Analyst)
Okay, thank you.
Operator (participant)
Your next question comes from the line of Anita Dushyanth from Berenberg Capital Markets. Your line is open.
Anita Dushyanth (Equity Research Analyst)
Hi, good afternoon, Helen and team. Thank you for taking my questions. Just a couple more here. Considering the better than expected uptake of Darzalex Faspro despite the COVID environment, could you talk about the potential of these reformulated therapies eventually moving to an in-home setting? And also regarding the conversion rate of going from IV to SC, is there a rate-limiting step in this process, if there is any?
Helen Torley (President and CEO)
All right. With regard to the in-home setting, we actually have two products that are approved today for in-home setting. That would be HyQvia, which is Takeda's product. Also the Phesgo was approved for at-home. I think the way to think about that is if there is a product that has got a good safety profile, perhaps no risk of infusion-related reactions or no hypersensitivity reactions, there is a possibility those products could be given at home. Now, HyQvia is given at-home by the patient themselves without supervision. Phesgo actually needs to be given with a healthcare professional. I think moving forward, you're onto something. I think we're definitely going to see more products being developed to be given at home. Argenx has actually talked about that with efgartigimod.
It will really depend on the safety profile, whether the patient is able to administer it themselves or perhaps with the aid of a healthcare professional, but in the home. I think it's a trend we're seeing around the world where people want to move care to the least expensive setting. We're very excited to be part of that wave. I think ENHANZE is going to be a key enabler of that wave. For the conversion rate from IV to SubQ, there's a number of factors that we've seen over the years with that. There's always a small proportion of patients who prefer and like the community of going into an infusion suite. There's been data shown in that to show that's perhaps 5%-10% of patients.
Other than that, it can sometimes just be physician inertia, frankly, that sometimes can slow down the conversion from IV to SubQ. But hopefully, those are helpful. Anita just has a couple of dynamics we've seen that can impact the rate at which and the ultimate amount of which IV goes to SubQ.
Anita Dushyanth (Equity Research Analyst)
Yes, that's helpful. Thank you. And just two more for me. Regarding the Phesgo launch in the European region, should we think about the time for the logistics to set up to be about a month or possibly most of Q1, and then we'd see the uptake of Phesgo?
Helen Torley (President and CEO)
So we don't have any specifics on Phesgo. But I can say based on experience with European launches over the years in different companies, it actually can take between 9-12 months for all of the major European markets to launch.
That's because each of them has a different process for the drug to get reimbursed. As an example, U.K. and Germany can happen quickly within the first quarter of following approval. But countries like France can sometimes take 9-12 months depending on the reimbursement process. So it is a bit more of a staggered launch pattern we expect to see in Europe, with a couple of the countries going early, but France, Spain being much more towards closer to the end of the year. But just a gradual rollout of countries all through the course of the year, with some of the large countries like France being in that 9-12-month period.
Anita Dushyanth (Equity Research Analyst)
Okay, and thank you. And just one more. Regarding acquisition of a complementary technology, would it likely be in the oncology, autoimmune, neurology space to leverage existing relationships with current partners?
Helen Torley (President and CEO)
We are looking for a platform that we are going to be able to license to different companies. And because we're looking for a platform, it's a little early to say. Ideally, that platform would actually have utility across multiple different disease states and indications because it would be some form of technology that leading companies can add and integrate into their portfolios. And so we're certainly not setting out with any goal to restrict ourselves to work in oncology or autoimmune disease or neurology. Think of it more like ENHANZE, a technology that can be applied to all sorts of different drugs and disease areas because it brings a special enabling capability, but it hasn't got anything specific to do with a disease or a disease area.
Anita Dushyanth (Equity Research Analyst)
Okay, that's helpful. Thank you. That'll be all for me.
Helen Torley (President and CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Joel Beatty from Citigroup. Your line is open.
Benjamin Paluch (Equity Research Senior Associate)
Hello, my name is Benjamin Paluch on for Joel. Quick question for you. It looks like greater than 20 targets of the 60 are still to be selected. I'm curious, is there a clock or a point at which a partner must select a target? And then how does this impact the deal terms if a target is not eventually selected?
Helen Torley (President and CEO)
Actually, in general terms, all of our contracts are a little different. But overall, there is a pretty long period of time for partners to select all of their targets within the agreement. And so we're actively working, as we mentioned in the prepared remarks, with each of our current partners to look at their portfolios and identify new targets to move forward into the clinic.
Benjamin Paluch (Equity Research Senior Associate)
Great, thank you. Then one last question. So this pertains to Argenx. So with Argenx moving forward with the bridging study, how important is that for a precedent for other ENHANZE programs? Thank you.
Helen Torley (President and CEO)
I would say all of our partners to date who have got commercialized products on the market, so we can look at it with Roche and with Janssen, have used a form of bridging. I think what is different a little bit about the Argenx approach is they're using a pharmacodynamic endpoint, whereas our previous partners have used a pharmacokinetic and an efficacy endpoint. And so it is setting up a precedent insofar as it is the reduction in IgG level, which is a surrogate for the efficacy. So it is precedent-setting from that standpoint. The bridging approach in and of itself is what all of our partners have done.
And frankly, that's what allows this very rapid development time of four and a half to five years to approval, is because they're using bridging. But it's the first one to be using a pharmacodynamic parameter.
Operator (participant)
Your last question comes from the line of Ben Shim from Canaccord Genuity. Your line is open.
Ben Shim (Managing Director and Senior Equity Analyst)
Hi everybody. Thanks for taking my question. And congratulations on the very strong results. Apologies if I've missed this. Can you give us a little more color on guidance for collaboration revenue in 2021? What are your assumptions for milestones and what has been earned so far?
Helen Torley (President and CEO)
All right, I'll turn that one over to Elaine.
Elaine Sun (CFO)
Sure. So we haven't provided further breakdown of the milestone payments, but what we have indicated is that we're anticipating a comparable level of milestones from collaborations as we had in 2020. And so I would just note that our guidance excludes the potential for any new ENHANZE deals. So it would exclude any potential upfront payments from a new ENHANZE partnership.
Ben Shim (Managing Director and Senior Equity Analyst)
Okay, a couple more for you, Elaine. I think you previously communicated your intentions for the outstanding convertible note issue. Do you have any similar guidance for the 2027 notes? And maybe can you remind us what the accounting treatment will be for EPS going forward?
Helen Torley (President and CEO)
Yes, Elaine, would you like to address that?
Elaine Sun (CFO)
Sure. So I cannot speak to the current, to the proposed offering. I just refer you back to our press release. As you may have noted in our 10-K, we are expecting to early adopt ASU 2020-06 for convertible accounting, which is associated with an add-back of non-cash interest expense.
And you may recall that of the roughly $20 million of annual interest expense that we have on our P&L, about $12 million of that is non-cash. And I think that's what I can say there. And I think with respect to diluted shares, I think the diluted shares underlying our existing converts, I would say the analyst estimates on that, I think, have varied. That has probably resulted in a little bit of variance also in terms of consensus estimates on EPS. And I think what you can assume is that the diluted nature of our existing converts is one of the things we're addressing with the proposed transaction. And with that, I'd just say I'd have to refer any other specifics to the outstanding press release.
Ben Shim (Managing Director and Senior Equity Analyst)
Thank you very much. That's very helpful. And congrats on the quarter.
Helen Torley (President and CEO)
Thank you.
Elaine Sun (CFO)
Thank you. Thanks, Ben.
Helen Torley (President and CEO)
All right. Well, I see that we're at time. I just want to really thank everybody for your attention today. You've heard a story of Halozyme, which was tremendous progress and performance in 2020, which has set us up for a similarly impactful 2021. So thanks very much for your attention, and we look forward to speaking next quarter. Thank you. Bye-bye.
Operator (participant)
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.