Halozyme Therapeutics Inc (HALO) 2018 Q4 法說會逐字稿

Good afternoon, everyone. We now have Halozyme in conference. (Operator Instructions)

I would now like to turn the conference over to Al Kildani, Vice President of Investor Relations and Corporate Communications for Halozyme Therapeutics. Mr. Kildani, please begin.

Good afternoon, and welcome to our Fourth Quarter and Full Year 2018 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 Laurie Seltzer, our Chief Financial Officer, who will review our financial results for the fourth quarter and full year 2018.

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 will now turn the call over to Helen.

Thank you, Al. Good afternoon, and thank you for joining us today. I'm pleased to provide an update on Halozyme's continuing progress and momentum in the fourth quarter as we look forward to an exciting 2019.

I'll begin with the key takeaways since we last reported.

Firstly, we finished 2018 in a strong financial position after posting 24% full year-on-year growth for ENHANZE royalties on a reported basis, or 14% adjusting for the change in accounting we implemented at the beginning of the year. We finished the year with $355 million in cash, cash equivalents and marketable securities.

Secondly, I'm very pleased with the continuing growth of ENHANZE potential. We most recently expanded this with the signing of a new ENHANZE collaboration with argenx. This agreement is for an initial target intended to treat severe autoimmune disease and brought with it an upfront payment of $30 million and the potential for up to 2 additional milestone bearing target nominations. This follows on the heels of the expansion of our ENHANZE collaboration agreement with Roche in late October. The expansion was for 1 additional undisclosed target and the potential for up to 2 more target nominations. These actions clearly demonstrate the growing momentum of our ENHANZE franchise.

Thirdly, we made significant progress in our HALO-301 registration study during the fourth quarter. We reached agreement with the FDA to change the primary endpoint to a single primary endpoint of overall survival and completed enrollment at the end of December with approximately 500 patients. We're excited to report top line results from this trial currently projected in the second half of 2019.

And finally, we're continuing to make strong progress towards realizing the ENHANZE $1 billion royalty revenue potential in 2027 that is first discussed in early 2018. This potential is based on the performance of our 3 currently marketed products and the successful development, approval and global launches of additional products. We have a broad ENHANZE pipeline with our partners. By the end of 2019, we project this will include 3 products in Phase III clinical testing and 9 products in Phase I clinical testing.

With those key takeaways, let me provide some additional details on our recent progress and results.

Earlier this month, we announced a new collaboration with argenx, a development stage biotechnology company with a focus on severe autoimmune diseases and other therapeutic areas. This collaboration marks our first with a biotechnology company, demonstrating a new potential avenue of growth for our ENHANZE franchise. Halozyme received an initial payment of $30 million and potential future payments of up to $160 million per target, subject to the achievement of specified development, regulatory and sales-based milestones. Halozyme will also receive mid-single digit royalties on sales of commercialized products.

The agreement grants argenx exclusive access to ENHANZE for any product targeting the human neonatal Fc receptor, FcRn, including argenx' lead asset, efgartigimod, or ARGX-113. FcRn is recognized as one of the most exciting new drug targets in development with multiple pharmaceutical and biotechnology companies pursuing this target.

In addition, argenx has the right to nominate up to 2 additional targets. Additional target nominations would each trigger $10 million payments to Halozyme and would each be associated with the potential future payments tied to milestones of $160 million. We're looking forward to working closely with argenx as it develops therapies with the potential for improved administration for patients suffering from severe autoimmune diseases.

Our argenx collaboration follows an expansion of our agreement with Roche in October, licensing our ENHANZE drug delivery technology for exclusive development by Roche of a new, undisclosed clinical stage therapeutic target with an option to select 2 additional targets within 4 years. This agreement resulted in an upfront payment of $25 million.

These 2 agreements illustrate the breadth of the ENHANZE value proposition.

Our collaboration partners now span from world-class pharmaceutical giants to emerging growth biotechnology companies. Our ENHANZE technology is demonstrating the value it brings not only to products already in the market, but also to those still in development with their gross prospects entirely ahead of them. The wide range of disease indications being targeted include oncology, autoimmune disease and rare diseases, and there is potential to expand even further into additional diseases and indications. The common thread for all of our collaborations centers around bringing the potential benefits of subcutaneous administration of medicines to patients, healthcare providers and healthcare systems.

Turning now to Slide 2, we continue to project the potential for $1 billion in royalty revenues in 2027. We have now licensed our rHuPH20 enzyme to 9 leading pharmaceutical and biotech companies, covering over 50 potential drug targets in total. The potential royalties from our 3 marketed products, plus the 9 products that we expect to be in clinical development in 2019 result in the potential for approximately $1 billion in royalty revenue in 2027. This is assumes approval in multiple indications, global launches, and on average a mid-single digit royalty on net sales of ENHANZE formulated products.

You'll see also illustrated in the slide in the yellow dotted line is the pro forma ENHANZE business operating expense estimate, which excludes cost of goods sold. As you will note, current royalty revenue exceeds and covers the operating expenses today. And with the projected revenue inflection associated with the next launch, we project this would drop to the bottom line in an ENHANZE-only business.

Moving now to Slide 3, I'll provide you an update on the status of the ENHANZE development pipeline, beginning with the currently marketed products. There are currently 3 marketed products based on our ENHANZE drug delivery technology, each demonstrating commercial success in its targeted market. While the subcutaneous formulation of our Herceptin is approved in much of the world, we're currently awaiting its potential approval in the United States later this quarter. This will mean that U.S. patients now have the option to receive their Herceptin as a 5 minute or less injection under the skin instead of the current 30 to 90 minute IV infusion. Roche recently confirmed its intention to bring this product to market in the U.S. as quickly as possible once it receives FDA approval.

And as discussed in January, we are projecting flat royalties in 2019 as continued price pressure on subcutaneous products in Europe offset the projected revenue growth from Rituxan Hycela and the anticipated launch of subcutaneous Herceptin in the United States.

While these 3 products form the backbone of their royalty revenues today, there are a number of new products in late-stage clinical development that we expect to be substantial growth drivers for our business in the coming years. By the end of 2019, we expect there to be 3 ENHANZE-based products in Phase III clinical testing. These include Janssen's Darzalex, Roche's fixed-dose combination of Perjeta and Herceptin and a third undisclosed product.

Let me now provide a few more details on these products. Darzalex is a blockbuster therapy transforming the lives of patients with multiple myeloma. In 2018, J&J reported worldwide sales of more than $2 billion for Darzalex. Since its introduction in 2016, Darzalex has proved to be one of the most successful products ever launched for the treatment of multiple myeloma, and analysts project it has the potential to reach $7 billion in worldwide sales by 2025.

Patients today receive Darzalex by IV infusion. For many patients, this can take 4 to 6 hours initially as a weekly infusion. The subcutaneous formulation of Darzalex that's being tested is being administered in just 3 to 5 minutes. When you think about what this could mean for patients who may be able to go from a 4 to 6 hour IV infusion to just a 3- to 5-minute subcutaneous injection, it really is quite remarkable.

Janssen is undertaking a broad clinical trial strategy for subcutaneous Darzalex with multiple studies initiated that are planned to include approximately 2,000 patients with multiple myeloma at hundreds of clinical sites. We were very gratified to hear recent comments from senior management at J&J at the JP Morgan Healthcare Conference communicating their excitement about the potential for a subcutaneous formulation of Darzalex to facilitate expansion into earlier lines of therapy and also into the community setting where the ability to do longer infusions may be limited today.

Janssen has indicated it plans to submit regulatory filings for subcutaneous Darzalex in the second half of 2019. The advancement of this blockbuster product to regulatory submissions will be an important event for future growth in our ENHANZE business.

The second ENHANZE-based product in Phase III studies is a fixed-dose coformulation of Roche's Herceptin and Perjeta. This product candidate is being developed to cover all of the currently approved Perjeta indications in HER2-positive advanced and early breast cancer patients, representing a total of 95,000 patients in the U.S. and EU5.

The early breast cancer indication of Perjeta and Herceptin is supported by Roche's APHINITY trial, which resulted in a label expansion in late 2017. Recall, the APHINITY-based indication represents a large and attractive opportunity, targeting an estimated population of 76,000 patients in the U.S. and EU5. And according to their last update, Roche has achieved 46% share in this population.

Today, patients receive Perjeta IV and Herceptin IV by sequential administration, which can take up to 2.5 hours for the loading dose and between 1 and 2.5 hours for subsequent doses. With the subcutaneous fixed-dose combination, the times are substantially shorter with the loading dose expected to take 7 to 8 minutes and subsequent doses 5 minutes.

Roche initiated a global Phase III study in this population for the subcutaneous fixed-dose combination of Perjeta and Herceptin in 2018 and recently reported that recruitment for the trial was completed during the fourth quarter. Roche recently reiterated that upon positive data, it expects to submit data from the Phase III study for approval in 2020.

And completing our Phase III development summary, we expect 1 additional currently undisclosed product to advance into Phase III clinical testing before the end of 2019.

I'll next turn to an update on the Phase I programs for our ENHANZE-based products.

We're seeing a remarkable expansion in the progress that our collaboration partners are making in the clinic. By the end of 2019, we project having 9 products in Phase I clinical testing. Of those 9, 5 are currently in clinical testing and 4 are anticipated to begin later this year.

Beginning with Bristol-Myers Squibb, they are in a Phase I trial underway for an anti-CD73 and for Opdivo. A third BMS Phase I trial that was planned to start in the first quarter of 2019 will be delayed pending further data availability for that molecule.

Eli Lilly continues with Phase I development of an undisclosed target.

And in December, Roche dosed their first patient in a Phase Ib/II study evaluating a subcutaneous formulation of Tecentriq in stage 4 non-small cell lung cancer patients, which triggered a $5 million milestone payment to Halozyme.

Alexion also continues with its Phase I study with a subcutaneous formulation of ALXN1210 and recently indicated it expects to announce results from this trial during the first quarter of 2019.

Our ENHANZE business has never been in a stronger position. We're approaching several key milestones over the next 3 years that are associated with potential cumulative milestone payments of $225 million to $300 million during that period. With a clinical development program for ENHANZE-based products expected to expand substantially this year alone, you can see why we have conviction that the ENHANZE platform has the potential to deliver $1 billion in royalty revenues in 2027.

We're delighted to have signed the argenx collaboration a few weeks ago. I'm pleased to report that we are continuing discussions with multiple potential new collaborators. We have many remaining targets and have now demonstrated the appeal of our ENHANZE technology to both pharma and biotech companies seeking competitive differentiation for their development portfolios. While the timing of new ENHANZE collaborations is inherently unpredictable, I am confident in our ability to secure additional partnerships, particularly as companies are seeing the growing evidence of the ENHANZE value proposition.

I'll turn now to a discussion of our oncology pillar on Slide 4. Oncology pillar is our second high revenue potential pillar as we continue development of PEGPH20. This is a targeted therapy that temporarily degrades hyaluronan, or HA, that can accumulate around certain tumors and constrict the tumor vasculature. We're studying PEGPH20 with a companion diagnostic developed with our partner Ventana to identify patients with high HA tumors. Our pivotal Phase III study, HALO-301, is evaluating PEGPH20 in combination with Abraxane and gemcitabine in first-line metastatic pancreas cancer patients.

In November, we announced that we have reached agreement with the FDA to change the primary endpoint for HALO-301 to a single primary endpoint of overall survival. We believe this change has incrementally derisked the trial. By moving to a single endpoint, primary endpoint, we will now be able to analyze a more mature data set in what is a well-powered trial with 93% powered for a hazard ratio of 0.67 and a minimal observable median overall survival difference of approximately 2.2 months.

We implemented the changes to the HALO-301 trial design in November based on FDA's feedback at that time that our proposed change appeared acceptable and that a final determination would be made upon completing review of the clinical study protocol amendment and the statistical analysis plan. We submitted the protocol and statistical analysis plan to the FDA in December, and I'm pleased to report that in January, the FDA completed their review of these documents with no additional questions or comments.

At the end of December, we completed enrollment in HALO-301 with approximately 500 patients. We currently project we will achieve the target number of 330 overall survival events between August and November of this year with a high probability of definitive finding data from HALO-301 sometime in the second half of 2019.

Let's turn now to Slide 5 and an update on our evaluation of PEGPH20 in other tumor types. Regarding our collaboration studies with Roche, we continue to make progress in the evaluation of PEGPH20 and Tecentriq in pancreas, cholangiocarcinoma and gallbladder cancer. In the Halozyme-led study in cholangiocarcinoma and gallbladder cancer, we recently completed enrollment in the expansion cohort. We're pleased to see continued strong interest in the study in a population with high unmet need. We anticipate initial data readout in the study will be available in 2019, and we will seek an appropriate scientific forum for communication once the data is available.

And Roche continues to make strong progress in their MORPHEUS pancreas cancer study, which includes an evaluation of PEGPH20 in combination with Tecentriq. Earlier this month, Genentech closed enrollment in the gastric arm of the study and results will be reported when the data is available.

In summary, we're also making strong progress in our oncology pillar and we're excited to be nearing the HALO-301 data readout later this year.

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

Thank you, and good afternoon, everyone. As Helen discussed, we are excited to have signed a new collaboration with argenx with an initial named target in the area of severe autoimmune disease. Under terms of the agreement, Halozyme received an initial payment of $30 million and may receive a $10 million payment per target for future target nominations and potential milestone payments of up to $160 million per selected target, subject to the achievement of specified development, regulatory and sales-based milestones. Halozyme will also receive mid-single digit royalties on sales of commercialized products. We will recognize the initial $30 million upfront payment in the current quarter.

Now let me turn to a discussion of our fourth quarter financial results beginning on Slide 6. Total revenue for the fourth quarter was $60.2 million compared to $189.6 million in the prior year period. This decrease was expected due to the $141.4 million in onetime collaboration revenue booked in the fourth quarter of 2017 as the result of the signing of 2 important new collaboration agreements in 2017: our collaboration with BMS signed in September 2017 and our collaboration with Alexion signed in December 2017. This compares to the $25 million booked in Q4 2018 for the expansion of the Roche agreement signed in October 2018.

The impact from these new agreements is reflected in our collaboration revenue of $30.2 million for the fourth quarter compared with $159.3 million in the prior year period, which also includes a $15 million milestone payment from Janssen.

Focusing on the key recurring element of our revenue, royalty revenue for the quarter totaled $19.3 million, an increase of 9% on an as-reported basis compared to the fourth quarter of 2017. With the exception of Herceptin SC in Europe, we saw growth in royalties from all 3 of our ENHANZE-based partner products with the largest driver of growth coming from Roche's Rituxan Hycela in the U.S., which was partially offset by the impact of biosimilars in Europe on Herceptin SC.

Product sales in the quarter, which are comprised of bulk rHuPH20 and ENHANZE drug product sales and Hylenex, totaled $10.7 million compared to $12.6 million in the prior year period.

Turning to Slide 7 for a more detailed breakdown of our P&L. Having covered total revenue, I'll begin with total operating expenses, which were $60.3 million in the fourth quarter, down from $63.6 million in the prior year period.

Cost of product sales was $5.6 million in the quarter compared to $7.5 million in the prior year period.

Research and development expenses for the quarter were $36.7 million compared to $41.4 million in the fourth quarter of 2017.

Selling, general and administrative expenses were $18.0 million compared to $14.8 million in the prior year period.

Net loss for the quarter was $2.1 million, or $0.01 per share, compared to net income of $123.9 million, or $0.85 per diluted share in the fourth quarter of 2017, which reflected the impact of receiving upfront license fee and milestone payments as mentioned previously.

And cash, cash equivalents and marketable securities were $354.5 million at December 31, 2018 compared to $469.2 million at December 31, 2017.

Turning now to Slide 8 for a snapshot of our full year 2018 revenue highlights. Total revenue for 2018 of $151.9 million compared with $316.6 million in 2017 with most of the difference attributable to upfront payments from the new collaborations signed with BMS, Alexion and the milestone from Janssen all received in 2017. Again, these are reflected in the full-year collaboration revenue of $44.6 million compared with $202.7 million in 2017.

Focusing again on the key recurring element of our revenue, royalty revenue for the year totaled $79.0 million, up 24% from the prior year on an as-reported basis with growth from Rituxan Hycela being the largest contributor.

Product sales for the year totaled $28.2 million as compared to $50.4 million in 2017. The decline was attributable to lower API sales due to 2 of our partners reducing inventory ahead of planned transitions to new manufacturing processes.

Moving to Slide 9, starting in Q1 2018, we implemented a new process related to FASB Topic 606 for how we record royalty revenue. As many of you are aware, prior to January 2018, we recognized royalty revenue 1 quarter in arrears due to the timing difference between our financial close and when we received royalty reports from our partners. Under the new guidance, we now estimate royalty revenue for the current reporting quarter and will true up this estimate to actuals in the subsequent period when the royalty reports are received.

To explain the impact this transition had on our full year 2018 royalty revenue, 2 comparisons are shown on the slide. The first table shows reported royalties for 2018 of $79.0 million, which included our estimate for Q4 royalties, an increase of 24% from the $63.5 million in royalty revenue we reported for the fourth quarter 2017. It is important to note that the full year 2000 (sic) [2018] guidance we provided initially in January 2018 for 25% to 30% royalty growth was based on an as-reported royalties to be consistent with GAAP year over year. The second table compares our reported royalties for 2018, $79.0 million, to the actual royalties for partner sales related to 2017 of $69.0 million. This adjusted view shows an increase of 14%.

As we turn to Slide 10 for a snapshot of our full year P&L for 2018 and having covered total revenue, I'll again begin with full year total operating expenses, which declined to $221.2 million from $235.6 million in the prior year period. The decline was primarily as a result of lower sales of API and the associated impact on cost of goods sold.

And finally, net loss for the year was $80.3 million, or $0.56 per share, compared with net income of $63.0 million, or $0.45 per share, in the prior year period. Overall, we were very pleased with our financial performance in 2018, highlighted by the strong growth in royalties and the strong financial position in which we were able to end the year.

And lastly, I would like to update our 2019 guidance ranges as shown on Slide 11 to reflect the recent signing of the argenx collaboration. For the full year 2019, we now expect net revenue increasing from the prior range of $175 million to $185 million to $205 million to $215 million, driven by the $30 million payments from the recent argenx agreement in the first quarter.

Within the revenue line, as disclosed last month, we are projecting a stable level of royalty revenue in comparison with 2018. In addition, we expect to see product sales increase in 2019 due to our higher demand for API as our partners continue their clinical programs and begin preparations for commercialization.

We continue to expect operating expenses of $265 million to $275 million. Due to the anticipated increase in API product orders and their related impact on cost of goods sold, we are also providing guidance for operating expenses excluding cost of goods sold of $225 million to $235 million.

Operating cash burn of $45 million to $55 million compared to the prior range of $75 million to $85 million for the year. Not included in operating cash burn, we expect debt repayment of approximately $90 million for 2019. Furthermore, we expect to pay off the remainder of our royalty-backed debt by the first quarter of 2020. And we are increasing our year-end cash balance to a range of $210 million to $220 million from the previous range of $180 million to $190 million. The increase is driven by the $30 million upfront payment from the recently announced argenx ENHANZE agreement.

And with that, let me turn the call back to Helen who will provide closing comments.

Thank you, Laurie. After a strong year of execution in 2018, I'm really delighted with how we started 2019 as we look ahead towards several near-term potential value-creating catalysts.

For our ENHANZE pillar, these include the anticipated FDA approval of Roche's Herceptin SC in the U.S. in the first quarter. Potential regulatory filings for a subcutaneous formulation of Janssen's blockbuster multiple myeloma drug, Darzalex, in the second half of 2019. A potential advancement of a new product candidate into Phase III. And of course, while we can never predict the timing, we are aggressively pursuing additional collaboration.

And for our oncology pillar, we're fast approaching a key event in the history of the company with top line results from our HALO-301 pivotal study currently projected in the second half of 2019.

I want to close by expressing my ongoing gratitude and appreciation for our talented Halozyme team for their continued hard work to advance our programs and in support of our patient and our partners.

And we're now ready to take your questions. Operator, would you please provide the instructions and open the call. Thank you.

(Operator Instructions) Our first question will come from Jim Birchenough with Wells Fargo Securities.

I guess the first question is, Helen, just on the delay in the one Bristol program, could you speak to the nature of the delay and perhaps provide some reassurance that that's not a -- something people need to worry about as a broader platform risk? And then I have a couple follow-ups.

Thanks, Jim, for the question. What BMS just said is that they are awaiting some additional data before finalizing how they want to proceed with that target. I can tell you, we remain in very active dialogue with BMS across multiple targets that they're contemplating moving into the clinic, so I can reassure you there is nothing to worry about in that collaboration. BMS is as committed as ever to its vision to change how oncology care is delivered by moving it sub-Q in the more community setting and even potentially in the home setting in the future. So this is just, let's get some more data and decide what the right steps forward for that particular target is.

And then Helen on Darzalex sub-Q, do you have any insights as to what forum we might see the data from Janssen? I know it's more of a question for Janssen, but just do you have any insights on that? And then maybe a reminder on what's around the primary endpoint and what defines success. And people will focus on response rate, so what's similar enough and perhaps referencing your experience with Rituxan and Herceptin.

Yes. Thanks for that question. We do not know what forum it will be presented in. You really would have to address that to Janssen. But we do know with the filing planned in the second half of the year, there is the possibility of all results coming out in the first half or even in second half, but I can't provide any more details on that. We also can't provide any specifics as to what the endpoint will be. What we do know is the COLUMBA study is going to be one of the key studies in the filing. This is in relapsed refractory patients and response rate would be the endpoint there. But there are also studies completing in earlier lines of therapy with different combinations, and in those, I would expect progression-free survival will be an endpoint that will looked at as well. So we're hoping obviously when Janssen provides the filing, we'll be able to discuss it in more detail. Their commitment, as you hear by the fact that they have 9 studies now ongoing and 2,000 patients suggest this is going to be a very important product for them, but also a very broad profile. And so we're very excited to start seeing the data later this year.

And maybe one more just on the guidance or the outlook for royalty revenues of $1 billion by 2027. Could you tell us what that might mean if you think about the assumptions underlying that royalty target, what does that mean for milestone payments over the same period of time and if there's an API sales number associated with that as well. Thanks.

Yes, let me ask Laurie to address that.

So as far as milestones that would be associated in that same time frame, I can point you to two things. The first, we have given some projection to the milestones that we would achieve between 2019 and 2021 of about $225 million to $230 million. We've also said that over the life of the products that are in the clinic, we would expect to see about $1 billion. And that would be in total lifetime milestones, assuming achievement of all events as our partners progress their programs through the clinic. So hopefully that helps frame up kind of the size and shape of the milestones expectation. And then on your question on API, we haven't given longer-term API guidance. I know that there's an expectation to tie API with potential royalties. It's just that we sell API in a bit more of a lumpy fashion, and so it's very hard to forecast exactly what would the API be as we look out into the future because our partners are holding different amounts of inventory at different times. But we would expect that to grow over time.

Our next question will come from Jason Butler with JMP Securities.

It's Roy in for Jason. Thanks for taking the questions. I had a really quick one on the 301 Phase III. Can you just remind us if you did or did not change the screening criteria for entry during the conduct of the trial?

Thank you, Roy, for that question. One of our principles in designing the Phase III study was to keep the entry criteria and the population as close as possible to the Phase II study. As I say that, there may have been some minor changes that would -- I'm just trying to think of them -- that would ease the performance for the investigators. For example, the screening window was extended from 3 weeks to 4 weeks so that all of the tests could be completed in time. That's a type of minor change we made. But anything that we've changed, the population that was being studied was something we did not do because that was one of our principles was to make sure the population was similar between the two studies.

Okay, great. And then in a prior slide, I think you guys mentioned the acceleration of the time to the Phase I starts with the ENHANZE programs to 6 months. What was the primary driver of that or drivers?

Yes, I have to give great kudos and compliments to our ENHANZE team. They really have in preparation for expanding the number of partners we have and also the number of targets entering the clinic refined our processes, set up multiple parallel teams to make sure that we are able to support the partners all asking for progress at the same time. In 2015, we introduced something called ENHANZE drug product, which our partners were able to mix with their own product to create a coformulation at the site instead of having to do all the manufacturing work to get to the coformulation, and that has enabled us to further speed up the start of the Phase I study. So, a mixture of that process improvement and a really strong team collaborating with them, our partners.

Our next question comes from Charles Duncan with Cantor Fitzgerald.

First of all, congrats on the progress in the year. Appreciate all the guidance, granularity on guidance. I had a couple of questions. One is PEGPH20 in pancreatic cancer. Helen, you mentioned August through November in terms of achieving a certain number of OS events. And I guess I'm wondering if based on today, what you see in that ongoing trial, is that August through November time period a function of what you've seen in the literature, or at least the type of patients that you're enrolling, or is it just an ongoing evaluation of at least on a blinded basis on how the trial's going?

Yes, thank you, Charles. It is the latter. Our statisticians track the number of overall survival events. As you mention, it's in a blinded manner, but they're able to track that and project it forward to say based on the number of overall survival events they see today, when will we hit the target number of 330 overall survival events. That continues to track to a window between August and November, and they will keep updating that on a periodic basis to see if there has been anything to narrow or change that projection.

Okay. I appreciate that. And then with regard to the statistical analysis plan and your -- what you've presented to the agency and gotten response back from them recently. I guess I'm wondering if you were surprised that they really didn't have any feedback. It kind of makes sense that you have reduced risk with the study because you went to OS versus PFS and/or OS, but can you provide any additional color on that discussion you had with the agency?

Yes. Yes. Based on the conversations that we had with the agency on the desire to change the primary endpoint, we actually didn't expect them to have any material comment on the protocol or statistical analysis plan because we had discussed very much in principle what we wanted to do. So I'm not surprised there weren't any changes. Charles, as you know, we'd worked on this with great people like Dr. Thomas Fleming to make sure that everything was done to a very high standard. And so no, I probably -- we are delighted, but did not expect to see any material changes to the protocol or SAP, but we needed to go through the process before we could tell you that everything had been reviewed fully by the FDA.

Yes. Appreciate that rigor. And then just moving over to the ENHANZE side of the business, I'm wondering -- and I'm going to ask Laurie a question because I think I missed something that was said earlier. But first of all, regarding the argenx collaboration that you recently signed, first of all, congrats on that. And I guess I'm wondering, that's a biotech company. And I've for a few years been thinking there's a bevy of opportunities in biotech land where you could apply the technology. But I'm wondering if the diligence was fundamentally different, more broad or more in-depth or less in depth relative to some of the diligence processes run recently, including with BMS and Roche, et cetera.

It's Laurie. We too are thrilled with the argenx deal, and we're thrilled with the ability to demonstrate that in fact the ENHANZE platform has benefits across large pharma players as well as midsize biotechs. The process, the negotiation, the diligence, all very similar. As you can imagine, it was very collaborative all along the way, but the diligence was as robust as their big pharma brethren, so we were very pleased with the process.

Okay. That makes sense to me. But it would seem to me their dollars are almost even more precious because they're not adding to them with the top line. So last question, Laurie. I guess I'm wondering, I think you said -- what did you say, $225 million to how much? $300 million in royalties in the next 3 years? Or not royalties, excuse me, milestone payments in or by 2021, end of 2021. I'm wondering if that's driven by any one product or if that's spread across several product candidates or programs?

Yes. It's spread across. And I think it's safe to say it's also more backloaded. Obviously we gave guidance for 2019, but as our partners progress their products into Phase III and into launch, those will carry wavier milestones. And so I'd say it's a little bit backloaded and it's weighted more heavily by the products that are moving farther along and into commercial.

That makes sense. Okay. Thanks for taking my questions. Congrats on a good year.

Our next question will come from Jessica Fye with JPMorgan.

This is Daniel for Jessica. We appreciate the guidance on the royalty revenue and the pressure of the older royalty essentially offsetting growth from the newer royalties in 2019. Can you help us understand what those headwinds and tailwinds are on an absolute basis?

I think I understood your question to be what are the headwinds. And you are right. We are expecting growth and very excited about the growth from the launch of Herceptin SC in the U.S., plus continued grow with Hycela in the U.S., but that is being offset by the headwinds that Roche is experiencing with biosimilars. And these are IV biosimilars launched in Europe. Roche has said that they have seen durable shares of the subcutaneous formulation of those programs, but they are seeing some price pressure. And so we are expecting to see those offset and lead to a flat year-over-year growth.

Got it. And then do you expect these anticipated headwinds to the royalty revenue to be less or greater than the growth of the newer royalty streams you could deliver?

That's a great question. We actually expect in our forecast, and if you see the chart where we've got the projection to $1 billion, we expect to see fairly flat royalties from our already commercial products with an inflection coming with our new ENHANZE products that are moving toward commercialization. So Darzalex is a great example. They intend to file they stated by the second half of 2019. We would expect that would translate into a launch in 2020. You'll start to see that inflection and growth with the launch of Darzalex. And then quickly on the heels, the Perjeta Herceptin fixed-dose combination, Roche had said that they expect to file in 2020. And so again, that will start to provide those new products entering commercial stage and provide that momentum and that inflection that we see in that projection to $1 billion.

Got it. And if I could add one more. In terms of the recent collaboration with argenx, maybe I missed it, but should we expect any ENHANZE Phase I studies with ARGX-113 to initiate in 2019? And is there potential to introduce ENHANZE in the late stage studies that argenx is initiating?

We're delighted to have recently signed the deal with argenx. We're in study kickoff or discussions with them at this point in time, and they haven't provided any details as to what exactly their development plans are. And so we're going to have to wait until they have finalized and communicating their plans before we can provide additional color on that. But I can say we're already enjoying a very good discussion and collaboration with them.

Our next question will come from Arlinda Lee with Canaccord.

I had a question on Alexion 1210 and when do you think we might see some data sets from that? And then also, can you give us an update on the royalty-backed debt and how much remains there?

I'll take the question on the Alexion 1210 data. Ludwig Hantson, the CEO, stated at JPMorgan and I believe he reported on his recent earnings call that the data will be presented in the first quarter. He did not provide any additional information as to where he plans to present or discuss that Phase I data, but we do know that it's expected in the first quarter. And I'll ask Laurie to answer the question on royalty-backed debt.

Yes. So our total debt balance as of the end of the year is about $126 million. We'll continue to pay on the royalty-backed debt and the SVB/Oxford loan. But the good news is by Q1 2020 that royalty-backed debt will be paid off.

And then maybe one more follow-up on the 301 study. Are you guys still, are you providing any update on -- you initially said that you were going to hit the 330 OS events in August and November. Is that still on track?

It is. That remains the projection at this time, Arlinda. And we will continue to evaluate that at a periodic basis, but we'll let you know obviously if there was a change to that. But August to November remains the window.

Our next question will come from Joel Beatty with Citi.

This is [Shawn] calling in for Joel. Congrats on the new partnership and on the year. Can you talk maybe -- on the argenx deal, can you talk a little bit about the type of profile argenx is hoping to generate with ENHANZE? Will it provide kind of a quicker administration or maybe a less frequent dosing than their current sub-Q form that's in the clinic for 113?

I believe that argenx has not really made any plans public in that. So as you know by the conditions of our agreements, we can't talk about that. But Laurie, do you have anything to add to that maybe in general terms about what ENHANZE might do?

Well, I think it's going to be likely a very typical program, and so they are looking to take an IV administration and make it a subcutaneous version of that drug. So we'll look forward to it. It's very early and they're working on I think their very early development plans now. So more to come on that.

Perfect. And then I just have two quick ones on PEGPH20. What forum can we expect the HA status from that investigator-sponsored frontline pancreatic study to come? And also, have you evaluated the blood-based assay as well for that?

I missed the second part of the question. Could you just repeat the second part?

Oh sure. Yes, just your blood-based HA assay, are you evaluating that as well in that study?

Thank you for the question. This is Dr. Yu's IST. The tissue samples have been collected and are being analyzed by Ventana, working with Dr. Yu as we speak. Dr. Yu has not informed us as to what forum he would plan to provide an update on that, but we can say that the data collection and analysis is now underway. And on the blood-based liquid biomarker, yes, we will take a look at that once we have completed the primary analysis based on the HA. So there may be a future scientific presentation on that.

Great. And then just my last question is in a previous slide deck you mentioned after you changed the endpoint that PFS could potentially still support a marketing application. Can you maybe expand a little bit on that point and maybe what threshold or details are discussed with the regulators?

Yes. In November, where we made the change for the study to have a single primary endpoint of overall survival, that took away the possibility that PFS could ever support a marketing application. So no, the single primary endpoint is overall survival. That will be the approval endpoint. The PFS will still be analyzed. It will be an important secondary endpoint. But it cannot form the basis of approval based on the recent changes we made to our statistical plan.

I see. Okay, perfect. Appreciate it.

Our next question comes from Gena Wang with Barclays.

This is Xiaobin calling in for Gena. Maybe a couple on PEGPH20. The first question is have you spent or plan to spend some money for commercial prep in 2019, even before the readout? And then the second question is about your Tecentriq combo trial in gallbladder cancer and another one. So you mentioned that we're going to see some data. So can you sort of frame what should we expect and what kind of data would encourage you to take forward?

Certainly. I'll tackle the Tecentriq one and I'll ask Laurie just to give an overview of our commercial preparations. For the Tecentriq that we first looked at the gastric study that Roche has recently closed enrollment on, they have just provided information that they will analyze the data and provide it in a scientific forum, so I don't have any specific information on that. For the Halozyme-led study, which is in cholangiocarcinoma and gallbladder, we just recently finished the expansion enrollment, which was 50 patients. What we will do now is follow those patients until we see what the response rate is in that. And so where we present it is really going to be very dependent on when we feel the data is complete enough for it to be a meaningful result. So we're really a little bit dependent on the ongoing follow up in those patients. But we'll look for a forum once we've got a clearer line of sight as to when we'll have sufficient patients to have a robust result. And then for Laurie, could you address the commercial spend in 2019 and what types of activities we're focused on?

Yes, absolutely. We are starting to spend in a very modest way out ahead of the data, as you might expect. And where we're placing that spend, it's really around market research, pricing and reimbursement research and some medical affairs. So all of the activities that one would do out ahead of the data and to make sure that we're ready for positive data when it -- and if it should come.

Our next question will come from Guyn Kim with BMO Capital Markets.

This is Keith Tapper on for Guyn Kim. Just had one quick question about the change of from co-primary to primary endpoint. What was your sense of what was gained by forgoing the interim analysis? Yes.

Thank you for that question. When we changed from having 2 primary endpoints, which was PFS and OS to just OS, one of the key reasons for that was the recognition that if we moved to a single analysis on overall survival, we would have a more mature data set on which to do the analysis. Having completed enrollment with the 500 patients at the end of December, and the projection of when we think we'll get to the target number of OS events, we predict that all patients will be followed up for at least 8.5 months, and almost every patient will be followed up for at least 13 months. What's important about that is based on our Phase II data, the longer we have seen patients followed out, the more chance and probability is they are responding to PEGPH20. And so the key thing is that this more mature data set gives us, we believe, the very best chance to show the impact and efficacy of PEGPH20.

Okay, that makes sense. And have you reached -- you said that you're still looking at PFS. Have you reached the previously targeted number of events and does it align with your expectation?

Yes. As you say, this is now a secondary endpoint. We predicted we would achieve the target number of PFS events between December and February and we did indeed hit the target number of PFS events between December and February. Obviously, we're no longer analyzing that, so it wasn't really relevant to us now. But yes, things did occur according to our projections.

Okay, terrific.

And there are no further questions in the queue at this time.

That is terrific. Well, I'd like to thank everybody for your attention and for your questions. We really are very pleased with the progress that we continue to show with our two-pillar strategy. Thank you very much and have a good evening.

Thank you, ladies and gentlemen. This concludes today's teleconference and you may now disconnect. Please enjoy the rest of your evening.