Halozyme Therapeutics Inc

NASDAQ:HALO

Earnings Call Transcript 2019-Q1

[Operator]

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

[Albert Kildani, VP, IR & Corporate Communications]

Good afternoon, and welcome to our First Quarter 2019 Financial Results Conference Call. In addition to our press release issued today after the close, you can find a supplementary slide presentation that will be referenced 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 first quarter 2019. Also on the call today for the Q&A portion of our call is Dr. Dimitrios Chondros, our Chief Medical Officer.

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, CEO & Director]

Good afternoon, and thank you for joining us today. I'm pleased to provide an update on the strong progress at Halozyme during the first quarter of 2019. Let me begin, though, by saying how we announced yesterday, how pleased I am to welcome Dr. Alison Armour who has joined Halozyme as our Senior Vice President, Research and Development. In this role, she will lead the research, product development, clinical development, regulatory and safety, as well as our pharmacovigilance efforts with a near-term focus on preparations for our potential BLA filing for PEGPH20. Longer term, she'll also play a key role in shaping the PEGPH20 new indication development strategy and expanding our oncology portfolio.

I'll now move to the key developments thus far in 2019. Firstly, Q1 total revenue was $56.9 million, and we finished the first quarter in a strong financial position with $328.7 million in cash, cash equivalents and marketable securities. Secondly, we continued to see successful execution of our ENHANZE strategy on multiple fronts. During the quarter, we signed a new collaboration agreement with argenx, resulting in a $30 million upfront payment and the potential for future milestones and royalties.

Positive Phase 3 trial results from the COLUMBA study evaluating a subcutaneous formulation of DARZALEX were announced. And Roche received FDA approval for and made Herceptin Hylecta, the U.S. name for subcu Herceptin with ENHANZE, available to U.S. physicians. This is the third product using our ENHANZE drug delivery technology to receive FDA approval. And thirdly, our HALO-301 pivotal Phase 3 trial evaluating PEGPH20 in pancreas cancer remains on track for announcing top line results in the second half of 2019. With those takeaways, let me now provide some additional details on our recent progress and results, beginning with ENHANZE.

Turning to Slide 2 and the potential for royalty revenues from our ENHANZE pillar. We have now licensed or rHuPH20 enzyme to 9 leading pharmaceutical and biotech companies, covering over 50 potential drug targets in total. The potential royalties for our 3 marketed products, less than 9 products that we expected in clinical development in 2019, result in the potential for approximately $1 billion in royalty revenue in 2027. The system's approval in multiple indications, global launches, and on average a mid-single digit royalty on net sales of ENHANZE formulated product. Also illustrated on the slide with a yellow dotted line is the pro forma ENHANZE business operating expense estimate, which excludes cost of goods sold. As you will note, projected royalty revenue covers the estimated operating expenses. 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. In addition, between now and the end of 2021, we continue to project potential cumulative milestone payments of $225 million to $300 million that will provide an important source of capital for the company.

And with regard to new collaborations, we remain in active dialogue with potential new ENHANZE partners, ranging from large pharmaceutical companies to development stage biotechnology. Our agreement with argenx demonstrates we have an attractive opportunity with that latter group. Although the time with new ENHANZE collaborations is always unpredictable, we are confident that we will sign additional partnerships.

Moving now to Slide 3, I'll provide you an update on the currently marketed products. As illustrated on the top row, there are currently 3 marketed products based on our ENHANZE drug delivery technology that are now available to patients in most major developed markets. These are HYQVIA, the subcutaneous formulation of rituximab, and the subcutaneous formulation of trastuzumab. On February 28, Roche announced the FDA approval of Herceptin Hylecta, a combination of trastuzumab and our ENHANZE drug delivery technology. Herceptin Hylecta can be administered in 2 to 5 minutes compared to 30 to 90 minutes for intravenous Herceptin. Herceptin Hylecta was made available by Roche in April, and we're delighted that patients now have the option for a much shorter administration time and the associated convenience that can come with it.

With Roche's U.S. launches occurring late in the lifecycle, and biosimliars already launched in Europe and anticipated in 2019 in the U.S., we initially projected flat royalty revenues in 2019. During the first quarter, royalty revenues experienced a decline of 14% year over year, mainly driven by lower sales of Herceptin SC in Europe. This was partially offset by higher sales of RITUXAN HYCELA versus the prior year quarter. Looking ahead, Roche has informed us that they expect lower subcu revenues in 2019 with the decrease primarily attributable to the ongoing impact of biosimliars in Europe and updated expectations on the U.S. launch products. As a result, Halozyme revenue from royalties are now expected to be in the range of $72 million to $74 million in 2019.

As Laurie will detail shortly, overall guidance for 2019 is unchanged as we have also received higher API orders from our collaboration partners. And it's important to note that while these three products form the base of today's royalty revenues, we're excited about the new products that are in late stage clinical development that we expect to be substantial growth drivers for our ENHANZE business beginning as early as next year. Moving now to the middle row of the slide, we continue to expect that by the end of 2019, there will be 3 ENHANZE-based products in Phase 3 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 the first quarter of 2019, J&J reported worldwide operational sales growth of 51% for DARZALEX. Analysts project sales this year of $2.7 billion with the potential to exceed $7 billion in worldwide sales by 2025.

As a reminder, patients today receive DARZALEX by intravenous 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 3 to 5 minutes. As you can imagine, such a saving in administration time may have substantial potential benefits for patients, caregivers and the healthcare system. Janssen leadership has also stated that the availability of subcu will allow expansion even further into earlier lines of therapy and into the community setting; an important potential benefit given the current oncology infusion center capacity constraints.

Janssen has initiated 6 Phase 3 studies evaluating subcutaneous version of DARZALEX. In February, Janssen's licensing partner, Genmab, announced positive top line results from the Phase 3 COLUMBA study evaluating subcutaneous DARZALEX in patients with relapsed or refractory multiple myeloma. The results showed that DARZALEX, co-formulated with ENHANZE drug delivery technology, is non-inferior to DARZALEX IV with regard to overall response rate and the maximum trough concentration on Day 1 of the third treatment cycle, which were the two primary endpoints in the study. Additionally, no new safety signals were observed. These results will be subject in oral presentation at the American Society of Clinical Oncology Annual Meeting on June 2 in Chicago.

Earlier this year, Janssen indicated it plans to submit regulatory filings for subcutaneous DARZALEX in the second half of 2019. Submission of regulatory filings for DARZALEX SC could represent an important event for future growth in our ENHANZE business, given both the size of the opportunity the market is anticipating for DARZALEX and the value proposition in terms of time savings. Moving now to the second ENHANZE-based product in Phase 3 study, it's the fixed dose combination of Roche's Herceptin and Perjeta. This product candidate is initially being studied in HER2-positive early breast cancer patients. As a reminder, patients currently 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 a subcutaneous fixed dose combination, these times are substantially shorter with a loading dose expected to take 78 minutes and subsequent doses just 5 minutes.

Roche's APHINITY trial evaluating Perjeta plus Herceptin chemotherapy compared to Herceptin and chemotherapy as adjuvant therapy in patients with operable HER2-positive early breast cancer. The trial resulted in approvals for this indication in the fourth quarter of 2017 for the U.S. and the second quarter of 2018 in the E.U. Roche is seeing strong demand for this combination. In its Q1 2019 update, Roche indicated that update of the APHINITY indication is driving local growth in Perjeta sales, helping the overall HER2 franchise to continue showing growth, despite the challenges to Herceptin from biosimliars. In the first quarter, Roche saw 41% growth in global Perjeta sales and 7% growth in its overall HER2 franchise. 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 the latest update provided in the fourth quarter of 2018, Roche has achieved 46% share of patients in this population in the United States.

Roche completed recruitment in the global Phase 3 study evaluating the subcutaneous fixed dose combination of Perjeta and Herceptin in HER2-positive early breast cancer patients in the fourth quarter of 2018. And this product candidate is currently targeted for regulatory submission in 2020. And lastly, with regard to our partners' Phase 3 development programs, as we stated before, we continue to expect 1 additional currently undisclosed product to advance into Phase 3 clinical testing before the end of 2019.

Turning now to the bottom row for an update on the Phase 1 programs for the ENHANZE-based products. We continue to expect that by the end of 2019, there'll be 9 products in Phase 1 clinical testing. We currently have 5 products in Phase 1 development with partners Alexion, Bristol-Myers Squibb, Lilly and Roche.

Alexion has completed a Phase 1 study of ALXN1210 co-administered with our ENHANZE drug delivery technology, which is now called ALXN1810, in a healthy volunteer population. The results of that study indicated that bioavailability was increased in comparison to prior studies with their own subcutaneous version of ALXN1210. ALXN1210 without ENHANZE had 60% bioavailability. With the ALXN1810 formulation with ENHANZE, bioavailability was increased to at least 73%. Alexion has indicated that this may allow them to be able to dose every two weeks, and that they are exploring the opportunity to dose even less frequently. Moving now to BMS. BMS continues with two Phase 1 trials for its anti-CD73 and Opdivo.

Eli Lilly continues with Phase 1 development for an undisclosed target. And as we announced last quarter, Roche is conducting a Phase 1b/2 study evaluating a subcutaneous formulation of TECENTRIQ in stage 4 non-small cell lung cancer patients. And in addition to these 5 ongoing Phase 1 trials, we anticipate 4 additional Phase 1 trial starts in 2019, which remain undisclosed at this time.

And finally, I could not be more pleased with the progress working with our newest partners at argenx. Shortly after signing the agreement, we had a very successful kickoff meeting. argenx has announced plans to initiate a Phase 1 study this year, evaluating efgartigimod in combination with our ENHANZE drug delivery technology and plans to move as quickly as it can. We look forward to working closely with argenx on their development program. As you've just heard, our ENHANZE business is continuing to build momentum in the clinic. We look forward to regulatory submissions for DARZALEX in the second half of 2019 and for the Perjeta/Herceptin fixed dose combination in 2020. With our partners' clinical development programs expanding and key regulatory submissions on the horizon, you can see why we have conviction that the ENHANZE platform has the potential to deliver approximately $1 billion in royalty revenues in 2027.

I'll now turn to our oncology pillar beginning on Slide 4. Our oncology pillar is our second high revenue potential pillar as we continue development of PEGPH20, a targeted therapy that temporarily degrades the hyaluronan, or HA, that can accumulate around certain tumors and constrict the tumor vasculature. We are studying PEGPH20 with a companion diagnostic developed with our partner, Ventana, to identify patients with high HA tumors. HALO-301 is a randomized, double-blind, global Phase 3 study evaluating PEGPH20 in combination with ABRAXANE and gemcitabine in first-line metastatic pancreas cancer patients with high HA tumors. We completed enrollment of HALO-301 in December of 2018 with approximately 500 patients.

As a reminder, HALO-301 is a single primary endpoint of overall survival, and is a well-powered study with 93% power for a hazard ratio of 0.67 and a minimal observable median overall survival difference of approximately 2.2 months. We currently expect that we will achieve 330 target OS events in the third quarter. And we plan to initiate the database lock process for final analysis after we have achieved the 330 events with mature data. As a result, we can expect that top line results will be available 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. Roche is evaluating PEGPH20 combined with Tecentriq in their MORPHEUS second-line pancreas cancer Phase 1b/2 study. Enrollment in the arm with PEGPH20 is complete, and we continue to expect results from that study will be available later in 2019.

And in the Halozyme-led Phase 1b study in cholangiocarcinoma and gallbladder cancer, we recently completed enrollment in the expansion cohort. The study enrolled 74 patients in total, and we anticipate results later in 2019. Without a doubt, this is an exciting time for our oncology pillar. I will look forward to HALO-301 trial results later this year.

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

[Laurie Stelzer, SVP & CFO]

Thank you, and good afternoon everyone. Turning to Slide 6 for a discussion of our first quarter financial results, total revenue for the first quarter was $56.9 million compared to $30.9 million in the prior year period. This increase was driven by the upfront license payment we received from argenx in the first quarter. Royalty revenue for the quarter totaled $18.0 million, a decrease of 14% compared to the first quarter of 2018. As Helen mentioned, the decrease was driven by lower sales of Herceptin SC by Roche in Europe, partially offset by higher sales of RITUXAN HYCELA in the U.S.

Product sales in the quarter, which are comprised mainly of bulk rHuPH20 and Hylenex, totaled $8.4 million, up 23% compared to $6.8 million in the prior year period. Collaboration revenue in the quarter totaled $30.6 million compared to $3.1 million in the prior year period, reflecting the signing of the argenx collaboration and the associated $30 million initial payment.

Turning to Slide 7 for a more detailed breakdown of our P&L, I'll now move on to total operating expenses, which were $54.0 million in the first quarter, down slightly from $54.6 million in the prior year period. Cost of product sales was $4.6 million in the quarter, compared to $3.1 million in the prior year period. Research and development expenses for the quarter were $31.3 million compared to $38.0 million in the first quarter of 2018, reflecting reduced clinical trial activity with the completion of enrollment in HALO-301.

Selling, general and administrative expenses were $18.0 million compared to $13.6 million in the prior year period. Net income for the quarter was $1.8 million, or $0.01 per share, compared to a net loss of $27.5 million, or $0.19 per share in the first quarter of 2018, which reflected the impact of receiving the argenx upfront license fee this year. And cash, cash equivalents and marketable securities were $328.7 million at March 31, 2019 compared to $354.5 million at December 31, 2018.

Now turning to Slide 8, I would like to review our 2019 guidance. While our overall guidance is not changing, there is some movement within the components of net revenue, which is unchanged overall. For the full year 2019, we continue to expect net revenue to be in the range of $205 million to $215 million. We now expect revenue from royalties to range from $72 million to $74 million, lower than our prior expectation of flat year-over-year royalties, with the decrease primarily attributable to the greater impact of biosimliars in Europe and updated expectations on Roche's U.S. launch products. Offsetting that, we expect to see higher product sales than anticipated at the outset of the year due to additional customer orders for API to support our partners' clinical programs and preparations for commercialization. Product sales related to API are expected to be inconsistent quarter to quarter with the highest level of sales anticipated in the second half of the year.

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 have also provided guidance for operating expenses excluding cost of goods sold of $225 million to $235 million. Operating cash burn of $45 million to $55 million. Not included in operating cash burn, we expect debt repayment of approximately $90 million in 2019. Furthermore, we expect to pay off the remainder of our royalty-backed debt by the first quarter of 2020. And we continue to expect our year-end cash balance to range from $210 million to $220 million, providing the company with great operational flexibility.

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

[Helen Torley, President, CEO & Director]

Thank you, Laurie. As I mentioned earlier, we're off to a strong start for 2019, having accomplished multiple key milestones in the first quarter. In the remainder of 2019, we expect multiple additional events and milestones. For our ENHANZE pillar, these include potential regulatory filings for the subcutaneous formulation of Janssen's blockbuster, multiple myeloma drug DARZALEX, in the second half of 2019; potential advancement of a new product candidate into Phase 3; and of course, while we can never predict the timing, we are aggressively pursuing additional collaborations. And for our oncology pillar, we continue to expect top line data for our HALO-301 pivotal Phase 3 study in the second half of 2019.

I want to close by expressing my ongoing gratitude and appreciation for the talented Halozyme team for their continued hard work to advance our programs and in support of our patients and our partners. With that, we are now ready to take your questions. Operator, please would you open the call.

[Operator]

[Operator Instructions]. Your first question comes from Jim Birchenough with Wells Fargo.

[James Birchenough, Wells Fargo Securities]

A few questions. I guess just first to start on the HALO-301 study. Does the guidance for hitting the target number of events in 3Q represent a refinement of what we'd heard previously? I thought previously that might extend it to 4Q, so just wanted to clarify that.

[Helen Torley, President, CEO & Director]

I'll ask Dimitrios just to address that.

[Dimitrios Chondros, Chief Medical Officer & SVP]

Yes, this is exactly true. It's a refinement now that we expected events to occur in the third quarter, and this will allow us to plan for the final analysis in the second half of this year.

[James Birchenough, Wells Fargo Securities]

And then an important question we get is just what Halozyme might look like under different scenarios around HALO-301. And in one scenario, I think you've discussed you could be an ENHANZE-only company if the HALO-301 study doesn't go the way you think it'll go. Is that still the thought, and just trying to reconcile that with perhaps more focus on R&D recently.

[Helen Torley, President, CEO & Director]

We believe we've developed PEGPH20 in pancreas cancer that is significantly derisked it versus other pancreas cancer programs. And we are planning for success, and that is obviously why we are continuing to evaluate for future new indications to develop for PEGPH20 and brought in Alison. In the event we are surprised and PEGPH20 is not successful and we do not see a path forward for PEGPH20, we have said the most likely scenario is we would become an ENHANZE-only company. But we are planning for success.

[James Birchenough, Wells Fargo Securities]

And then maybe just one final question on ENHANZE, and recognizing that the Roche products that have launched so far are late lifecycle products in the context of biosimliars. But what are you learning from the experience in Europe with biosimliars and how Herceptin subcu and Rituxan subcu or MabThera subcu are holding up? Is the impact on your royalties more related to price, or is there also loss of share? I just wanted to understand the dynamics that are leading perhaps to the lower royalties and whether it's more price or share.

[Helen Torley, President, CEO & Director]

What we are seeing in Europe has really been a very strong durability of the share of the subcu. Once patients are converted, they do not want to go back. But you're quite right that we have seen some impacts in the sales of price reductions, which are a mix of mandatory price reductions and probably competitive steps that Roche has needed to take. So that really has been the key driver. I'm glad you made the distinction of the U.S. launch products being late in the lifecycle, because that's a key distinction from the products that we know are developing and are expecting to launch in the next upcoming years or much earlier in their lifecycle. They're a key part of the growth story for these products, and I'll use DARZALEX as a very good example of that. And so we're very excited to be having a broader portfolio earlier in the lifecycle than the late lifecycle that we're seeing with Rituxan and Herceptin.

[James Birchenough, Wells Fargo Securities]

Great. Well, thanks for taking the questions and congrats again on the progress.

[Operator]

Your next question comes from Jason Butler with JMP Securities.

[Jason Butler, JMP Securities]

Just a follow-up on 301. Has there been any change in the event rate in recent months, or has that remained consistent throughout the trial?

[Helen Torley, President, CEO & Director]

Yes, I'll ask Dimitrios to address that.

[Dimitrios Chondros, Chief Medical Officer & SVP]

Yes. No, this is, as I said, this is a refinement. There is no inference to the rate of OS events. And there's a certain variability, and we have seen no change since enrollment has been completed at the end of last year.

[Jason Butler, JMP Securities]

Okay, great. And then just one question on subcutaneous daratumumab. Can you maybe give us any perspectives on how much of the addressable market, the initial label you'd expect subcu to get would be? And then in terms of the current commercial experience, any sense of how many patients take the longer end of the 4 to 6 hours to get the infusion? And is there any predictability if it takes -- if it needed to go slower at the start, whether that can be variable throughout? Whether you can actually speed up later in therapy, or whether you always need to stay at that longer rate?

[Helen Torley, President, CEO & Director]

Janssen has not discussed yet what they plan to submit as label, so we're not in a position to comment on that. We do know the COLUMBA data was in relapsed and refractory patients. We do know that they are nearing completion of a Phase 2 study that looks at earlier lines of therapy. And importantly, they have 6 other Phase 3 studies ongoing. So the initial label is unclear. The FDA at the RITUXAN HYCELA approval did say that over time, it may not be necessary to do separate clinical studies in every indication. So we're I think all going to be watching and seeing what Janssen submits for and then what the FDA is going to grant initially. But we certainly know over time with the more than 2,000 patients that will be enrolled in subcu studies that Janssen plans to have a very broad set of indications for subcu. With regard to the question on can patients get the drug quicker, if you read the label, it does seem to suggest that over time as patients show some tolerability, there is some possibility for that. But Jason, I'm not an expert in the area, and I think that question would be better addressed to Janssen.

[Jason Butler, JMP Securities]

Great. Fair enough. Thanks for taking the questions, and again, congrats on the progress.

[Operator]

Your next question comes from Jessica Fye with JP Morgan.

[Daniel Wolle, JPMorgan Chase & Co.]

This is Daniel for Jess. First question on 301. While acknowledging that OS is the primary endpoint, have you cleared the prior target number of PFS events at this point?

[Helen Torley, President, CEO & Director]

Yes, we have. We had intended to achieve the target PFS events in the December to February time frame and it did occur in that time frame. But we of course remain blinded to the data. We haven't done an analysis of it because it's a double-blind study, but we do know that we hit the number of events we had pre-stated.

[Daniel Wolle, JPMorgan Chase & Co.]

Got it. And then on the Roche one call, they made some comments about potential share for ebsi or subtenin [ph] Rituxan in the U.S. Can you help us think about the right conversion rate for those products?

[Helen Torley, President, CEO & Director]

Yes, I think you're referring to comments that Roche did make. I don't think they provided specifics, but they said they thought this was another option for patients for the United States. So I don't think Roche did provide any specifics on it, and we can't comment beyond that.

[Operator]

Your next question comes from Arlinda Lee with Canaccord.

[Arlinda Lee, Canaccord Genuity]

I was curious about on the subcu dara data set that we're seeing in at ASCO, how do you think that might affect -- does that affect anything about the way you're thinking about this? They've been talking about the first dose being -- taking longer, and I'm kind of curious if that's going to be translated over time as well with this subcu. And then also on 301, what -- I'm kind of curious what kind of forum you're going to be talking about the data set and what we might expect to see at that point. Thanks.

[Helen Torley, President, CEO & Director]

Arlinda, we don't have a lot of information about what will be presented at ASCO. None of the details -- we're aware of the same information that was made public that the study was successful in hitting its 2 primary endpoints. We do know that the study was designed to administer the therapy in a single -- in subcu injections that would take between 3 and 5 minutes, and so it's my expectation that we're going to see that the patients did manage to receive their daratumumab in a range around that 5 minute injection, whether it be the first or later therapy. That's what we are aware of. And with regard to the HALO-301, it would be our expectation that upon the top line results, we would provide an update to our investors. So obviously the timing of that -- exactly the forum will depend on the timing. It could range from a press release to a call to occurring on our regularly scheduled call depending on the timing at which we hit the target events. But we would expect to provide the top line results to the investor community in a rapid and timely manner.

[Operator]

Your next question comes from Joel Beatty with Citi.

[Joel Beatty, Citigroup]

The first one is about the new R&D Vice President hire. And looking at a press release, I think it shows that the big focus is on the PEGPH20 regulatory submissions, but it also it mentioned a focus on expanding your oncology portfolio. I was wondering if you could provide a little more details on expanding the oncology portfolio. Is that kind of early stage or late stage or commercial agents? And how does the results of the PEGPH20 trial affect that?

[Helen Torley, President, CEO & Director]

Yes, Joel, what we plan to do, and we've talked about this in the past, is upon positive PEGPH20 data, it would be our plan to grow and expand our oncology portfolio. Exactly how we'll do that we are working on. We have opportunities with PEGPH20 to add new indications, but we also could consider in-licensing other assets. And so Alison is coming in, joining other members of the team now and preparing for positive results of PEGPH20 to initiate a strategy that would allow us to do that. But there will be no additional investment or acquisitions before we know the results of the HALO-301 study.

[Joel Beatty, Citigroup]

Great. Got it. And then one other question just on, I believe the beginning of this year you guided toward 1.8 million orders, doses of API. And could you just talk about whether you're consistent with that or that seems to be changing as we go throughout the year?

[Helen Torley, President, CEO & Director]

Yes, let me ask Laurie to address that.

[Laurie Stelzer, SVP & CFO]

Yes. So that projection at the beginning of the year was really to demonstrate the size of the activities going on to support our partners. As I said in the prepared remarks, our API sales, we're expecting those to be a little higher than we had planned at the beginning of the year, and so you would expect that number of doses manufactured would be a little bit higher as well.

[Operator]

Your next question comes from Charles Duncan with Cantor Fitzgerald.

[Pete Stavropoulos, Cantor Fitzgerald & Co.]

This is Pete Stavropoulos on for Charles. I have just one quick question when it comes to BD. When it comes to ENHANZE and possibly bringing your own internal programs forward, what particular clinical areas does Halozyme find most attractive for developing these ENHANZE-based programs?

[Helen Torley, President, CEO & Director]

Thank you. If I understand the question, when we are thinking of ENHANZE-based programs, because we don't have any currently in-lice -- proprietary assets other than PEGPH20, it's most likely we will be partnering with other companies to advance their programs utilizing ENHANZE. With our desire to become a multi-product oncology company upon success of HALO-301, we would look to in-license assets. And it's a good point to say for some of them, there may be an attractive part could be combined with ENHANZE, or it may be that we acquire assets that don't need ENHANZE. So we're going to be pretty agnostic to that.

[Operator]

Your next question comes from Gena Wang with Barclays.

[Unidentified Analyst]

This is Peter for Gena. Just a quick question on subcu Herceptin. I think similar question was asked earlier, but previously you shared with us some of the conversion rates from IV to subcu in some countries. Could you remind us what the rates were and whether there has been any notable changes and trends since you last updated us? And also I guess on that note, any color on your expectations for conversion rates in the U.S. relative to OUS would also be very appreciated. Thank you.

[Helen Torley, President, CEO & Director]

Yes, I'll ask Laurie to address that.

[Laurie Stelzer, SVP & CFO]

Yes, so it's been quite a while since Roche has given a public statement regarding the conversion. In fact, I think the last statement they made may have even been as long ago as 2017. But at that time, they had mentioned that they had seen 60% conversion for Herceptin and on average in the markets that they had launched in. And around that same time, they had given I think 36% for MabThera. Now, obviously it's been a couple of years and they have continued to convert to subcutaneous version versus IV, and so -- but they haven't given new stats on that yet.

[Helen Torley, President, CEO & Director]

And just to add that we know from comments Roche have made in more recent calls, as well as some syndicated reports, that the share is staying stable over the last multiple quarters despite the launch of multiple biosimliars. And so it's a comment I made earlier to say share is durable, but there has been some price impact to the subcu that is causing a modest decline in our sales. And with the U.S., Roche -- neither Roche nor ourselves has given any specific guidance as to what we believe the conversion rate will be in the United States.

[Unidentified Analyst]

Great. Thank you. Well, I guess would you be able to give us not any specific number, but your expectation directionally in relative terms, or is that also too early to comment on?

[Helen Torley, President, CEO & Director]

Well certainly for Herceptin Hylecta, that just was made available in April, and so we really don't have any color yet as to how that one is going to go. Laurie, do you want to comment on the RITUXAN HYCELA and any comments that you can make about that?

[Laurie Stelzer, SVP & CFO]

Yes. For the U.S., our understanding is that they are having some reduced expectations in the U.S., and it's really around a couple of factors. The first is physicians are very comfortable with the IV formulation. And I think the second is there are some centers that have had some inertia. They're perhaps waiting for biosimliars to enter the market in the second half of the year, and so that's one of the factors for bringing down the forecast for this year.

[Unidentified Analyst]

Great. Thank you. Just to clarify, that's just for Rituxan, right, the comments you just made?

[Laurie Stelzer, SVP & CFO]

Correct.

[Operator]

[Operator Instructions]. Your next question comes from Joe Catanzaro with Piper Jaffray.

[Joseph Catanzaro, Piper Jaffray Companies]

I guess I just maybe just had one quick one following up on the Herceptin/Perjeta APHINITY combination. You guys mentioned that Roche had previously noted about a 46% share in the adjuvant setting. And I'm wondering if you guys, when you go out and model that, if you see any impact whatsoever, if any, from the Kadcyla KATHERINE data and if that steals any patients from the APHINITY regimen.

[Helen Torley, President, CEO & Director]

It's a great question. We certainly do consider that as one of the factors in it. So for our estimates, we are looking at the share that is expected for Perjeta in combination with Herceptin, and so that is a large opportunity, as we talked about. But certainly you're right. There are some potential for impact from the KATHERINE data, but our estimates certainly take into account what we believe is the opportunity separately for this APHINITY indication.

[Operator]

Your next question comes from Jim Birchenough with Wells Fargo.

[James Birchenough, Wells Fargo Securities]

Just one follow-up question just on API fails. I don't know that I heard you explicitly break out what the API sales guidance would be for 2019. And is there any way to give us any sense for modeling purposes what kind of margin that is to cost of goods? Or even better, if you think about $1 billion in royalties in 2027, what would be the level of API sales supporting that $1 billion in royalties? Thanks.

[Helen Torley, President, CEO & Director]

Yes, let me ask Laurie to address that.

[Laurie Stelzer, SVP & CFO]

So we actually haven't guided specifically API sales. We have said that they would increase substantially year over year, and in fact, kind of going back to even above the 2017 sort of levels. And again, that's being driven by partners as they're getting ready for more clinical studies and potential commercialization. As far as the how to think about the markup, we've typically said in the past that it's roughly about 20% markup between cost of goods sold to sales, and so you can think about that in that way. And then as far as the future, it -- over time, certainly API sales should approximate the volume in the market, but our partners are ordering in a not regular pattern. They're stocking up, they're running different runs, and so you can't necessarily equate API in any given year to the number -- the amount of sales in that year. But certainly over time -- or amount of royalties. But certainly over time, they will approximate each other.

[Operator]

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

[Helen Torley, President, CEO & Director]

Okay. Well, thank you everyone for joining us today. We're obviously very pleased with the progress that we're making in 2019, and we look forward to providing further updates on our next quarterly call. Thank you so much and have a good evening.

[Operator]

This concludes today's conference call. You may now disconnect.