Halozyme Therapeutics Inc

NASDAQ:HALO

Earnings Call Transcript 2018-Q4

[Operator]

Good afternoon everyone. We now have Halozyme Conference. Please be aware that each of your line is a listen-only mode. At the conclusion of today’s presentation, we will open the floor for question. At that time, instructions will be given at procedure to follow, if you would like to ask a question.

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

[Al Kildani, VP of IR and Corporate Communications]

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 the supplementary slide presentation that we’ll be referenced on today’s call in the Investor Relations section of our website.

Be in the call will be Dr. Helen Torley, Halozymes President and Chief Executive Officer, who will provide an update on our business and Laurie Stelzer 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’ll now turn the call over to Helen.

[Dr. Helen Torley, President, CEO & Director]

Thank you, Al. Good afternoon and thank you for joining us today. I am pleased to provide an update on Halozymes 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% year-on-year growth for ENHANZE's royalties on a reported basis or 14% adjusting for the change in accounting we implemented at the beginning of the year. We've finished the year with $355 million in cash, cash equivalents and marketable securities.

Secondly, I am very pleased with the continuing growth of ENHANZE potential. We most recently expanded this with the signing of new ENHANZE collaboration with argenx. Basically it's 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 two 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 one additional undisclosed target and the potential were up to two more target nominations. These actions clearly demonstrate the growing momentum of our ENHANZE franchise.

Thirdly, we've made significant progress in our HALO-301 registration study during the fourth quarter. We've reached agreement with the FDA to change the primary endpoint to a single primary endpoint of oral 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'll continue to make strong progress towards realizing the ENHANZE $1 billion relative revenue potential in 2027 that I first discussed in early 2018. This potential is based on the performance of our three currently marketed products and the successful development approval and global launches all additional products. We have a broad ENHANZE pipeline with our partners. By the end of 2019, we project this will include three products in Phase 3 clinical testing and nine products in Phase 1 clinical testing.

With those key takeaways, let me provide some additional details on our recent progress and results. Earlier this month, we have announced a new collaboration with argenx, a development stage biotechnology company with a focus on severe autoimmune diseases and other therapeutic areas. The collaboration marks us first with biotechnology company demonstrating a new potential avenue of growth for our ENHANZE franchise.

Halozyme received an initial payment or $30 million and potential future payments up to 160 million dollars per target, subject to the achievement of specified development, regulatory and feel these milestones. Halozyme will also receive mid-single digit royalties and sales of commercialized product. The agreement grants argenx exclusive access to ENHANZE for any product targeting the human neonatal Fc receptor, FcRn, including argenx's lead asset efgartigimod or ARGX-113. FcRn has recognized 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 two additional targets. Additional target nominations would each trigger $10 million payments to Halozyme and would each be associated with the potential future payments tied the milestones of 160 million dollars. 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's collaboration followed an expansion of our agreement with Roche in October, licensing our ENHANZE drug delivery technology were exclusive develop by ROCHE of a new undisclosed clinical states therapeutic target with an option to select two additional targets within four years. This agreement resulted in upfront payment of $25 million. These two agreements illustrate the bridge of the ENHANZE value proposition.

Our collaboration partners now spend from world-class pharmaceutical giant 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 growth prospects entirely ahead of them.

The wide range of disease indications has been targeted include oncology, autoimmune disease and rare diseases, and there is potential to expand even further into additional diseases and indications. The common threat for all of our collaboration 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 ENHANZE to nine leading pharmaceutical and biotech companies covering over 50 potential drug targets in total. The potential royalties from our three marketed products plus the nine products that we expect to be clinical development in 2019 resulted in the potential for approximately $1 billion in royalty revenues in 2027. This assumes approval in multiple indications, global launches and on average in mid-single digit royalty on net sales of ENHANZE formulated products.

You see also illustrated in the slide in the yellow dotted line is the pro forma ENHANZE business operating expense estimates, 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 product. There are currently three marketed products based on our ENHANZE drug delivery technology, each demonstrating commercial success in its targeted market. While the subcutaneous formulation of our RITUXAN 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 the Herceptin as a five minute or less injection under the skin instead of current 30 to 90 minute IV infusion. Roche recently confirmed its intension 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 at continued price pressure in subcutaneous products in Europe, offsets the projected revenue growth from RITUXIN HYCELA and the anticipated launch of subcutaneous Herceptin in the United States.

While these three products formed the backbone of their royalty revenues today, there are 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 three 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 life the patients with multiple myeloma. In 2018, J&J reported worldwide sales of more than $2 billion for DARZALEX, since its introduction in 2016, DARZALEX is proved to be one of the most successful product ever launched for the treatment of multiple myeloma and analysts project it has the potential to reach $7 billion in worldwide sales by 2025.

Patient today received DARZALEX by IV infusion. For many patients, this can take 4 to 6 hours initially at a weekly infusion. The subcutaneous formulation of DARZALEX has been tested, is being administered in just 3 to 5 minutes. When we think about what this could mean for patients, you may be able to go from 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, but multiple studies initiated that our plan to include approximately 2,000 patients with multiple myeloma at 100s of clinical sites. We are very gratifying 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 for the ability to do longer infusions maybe limited today.

Janssen has indicated a plan to submit regulatory filings for a subcutaneous DARZALEX in the second half of 2019. The advancement of this blockbuster product to regulatory submission will be an important event for future growth in our ENHANZE business. The second ENHANZE based product in Phase 3 studies is a fixed-dose co-formulation 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 U.S. and EU-5.

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 syndication represents a large and attractive opportunity targeting an estimated population of 76,000 patients in the U.S. and EU-5. And according to their last update, Roche has achieved 46% share in this population.

Today, patients received 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 have substantially shorter but the lower thing dose expected to take 7 to 8 minutes and subsequent dose is 5 minute.

Roche initiated a global Phase 2 study in this population for the subcutaneous fixed-dose combination of Perjeta and Herceptin in 2018 and recently reported the 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 3 study for approval in 2020. And completed our Phase 3 development summary, we expect one additional currently undisclosed product to advance into Phase 3 clinical testing before the end of 2019.

I’ll next turn to an update on the Phase 1 programs for our ENHANZE based product. 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 nine products in Phase 1 clinical testing. All those nine, five are currently in clinical testing and four are anticipated to begin later this year.

Beginning with Bristol-Myers Squibb, they are now Phase 1 trial underway for an anti-CD-73 and for OPDIVO. A third BMS Phase 1 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 1 development of an undisclosed target; and in December, Roche dosed their first patient in our Phase 1b/2 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 1 study with the subcutaneous formulation of ALXN1210 and recently indicated, it expect 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 three years that are associated with potential cumulative milestone payments of $225 million to $300 million during that period.

With the clinical development program for ENHANZE based products expect to expand substantially this year alone, you can see why we have conviction that the ENHANZE platform has the potential to deliver a $1 billion in royalty revenues in 2027. We're delighted to sign the argenx collaboration few weeks ago. I'm pleased to report that we are in continuing discussions with multiple potential new collaborators.

We have many remaining targets and have now demonstrated the appeal for ENHANZE technology to both pharma and biotech companies, seeking competitive differentiation for the development portfolios. While the timing of new ENHANZE collaboration is inherently unpredictable, I'm confident in our ability to secure additional partnerships particularly U.S. companies are seeing the growing evidence of the ENHANZE value proposition.

I'll turn now to our discussion of our oncology pillar on Slide 4. Our oncology pillar is our second high revenue potential pillar as we continue to develop all PEGPH20. This is a targeted therapy that temporarily degrades hyaluronan or HA, that can accumulate our certain tumors and constrict the tumor vasculature. We are studying PEGPH20 with the companion diagnostics developed with our partner, Ventana, to identify patients with high HA tumors.

Our pivotal Phase 3 study, HALO-301 is evaluating PEGPH20 in combination with ABRAXANE and gemcitabine in first line metastatic pancreatic cancer patients. In November, we announced that we've 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 would incrementally de-risk the trial.

By moving to a single endpoint, a primary endpoint, we will now be able to analyze a more mature dataset and what is a well for our trial with 93% power for 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 at that time that are proposed change appeared to acceptance under the final termination we've may upon completing review of the clinical study protocol amendment and the statistical analysis plan.

We've 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 the high probability of definitive final data from HALO-301 sometime in the second half of 2019.

Let's now turn to Slide 5, as 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 life study in cholangiocarcinoma and gall bladder cancer, we recently completed enrollment in the expansion cohort.

We're pleased to see continued strong interest in the study in our 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 those continue to make strong progress in their more phase pancreas cancer study, which includes an evaluation of PEGPH20 in combination with TECENTRIQ.

Earlier this month, Genetics 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 will now turn the call over to Laurie, to discuss her financial results in greater detail. Laurie?

[Laurie Stelzer, SVP & CFO]

Thank you and good afternoon everyone. As Helen discussed, we are excited to have filed a new collaboration with argenx with an initial name 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 nomination and potential milestone payments of up to $160 million per selected target, subject to the achievement a specified development regulatory and sales base milestone. 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 one-time collaboration revenue booked in the fourth quarter of 2017 as a result of the signing of two 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 and 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 three of our ENHANZE based partner products with the largest driver of growth coming from Roche's RITUXIN 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 total of $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 $0.85per diluted share in the fourth quarter of 2017, which reflected the impact of receiving of upfront license fee and milestone payments as mentioned previously. And cash and cash equivalents and marketable securities were $354.5 million at December 31, 2018 compared to $469.2 million at December 31, 2017.

Turning now Slide 8 for a snapshot of our full year 2018 revenue highlights. Total revenues 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 collaboration signed with the 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 revenues for the year totaled $79 million, up 24% from the prior year on an as reported basis, with growth from the RITUXIN HYCELA being the largest contributor. Product sales for the year totaled $28.2 million as compared to $60.4 million in 2017. The decline was attributable to lower API sales due to two 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 one quarter in a year 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 revenues for the current reporting quarter and will true up this estimate to actual in the subsequent period when the royalty reports are received.

To exploring the impact of this transition had on our full year 2018 royalty revenue two comparisons are shown on the slide. The first table shows reported royalties for 2018 of $79 million which included our estimates for Q4 royalties, an increase of 24% from the $63.5 million in royalty revenue we've reported for the fourth quarter of 2017.

It is important to note that the full year guidance we provided initially in January 2018 for 25% to 30% royalty growth which based on an as reported royalties to be consistent with GAAP year-over-year. The second table compares our reported royalties for 2018 of $79 million to the actual royalties for partnered sales related to 2017 of $69 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 all again began 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 the 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 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 reason signing of the argenx's collaboration. For the full year 2019, we now expect net revenue increasing from the prior range of $175 to $185 million to $205 million to $215 million driven by the $30 million payment 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 ACI product orders and their related impacts 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 payments from the recently announced argenx ENHANZE agreement.

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

[Dr. Helen Torley, President, CEO & Director]

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

For 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 subcutaneous formulation of Janssen’s blockbuster multiple myeloma drug DARZALEX in the second half of 2019. Our potential advancements of a new product candidate interface three and of course, while we can never predict the timing, we are aggressively pursuing additional collaboration.

And for our own quality product, 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 appreciation for our talented Halozyme team for their continued hard work to advance our program and in support of our patients and our partners. We are now ready to take your questions.

Operator, would you please provide the instructions and open the call. Thank you.

[Operator]

Thank you. At this time, we will open the floor for question. [Operator instructions] Alright, our first question will come from Jim Birchenough with Wells Fargo Securities.

[Jim Birchenough, Wells Fargo Securities]

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

[Dr. Helen Torley, President, CEO & Director]

Thanks Jim for the question. What BMS said is that, they are awaiting some additional data before finalizing how we want to proceed with that target. I can tell you we remain in very active dialogue with BMS across multiple targets that are contemplating moving into the clinic. So I can reassure you there is nothing to worry by that collaboration. BMS is as committed as ever to its vision to change how oncology care is delivered by moving a step 2 in more communicated setting and even potentially in the home setting in the future. So, this is just, let get some more data and decide what the right steps forward to that particular target is.

[Jim Birchenough, Wells Fargo Securities]

And then, Helen, on DARZALEX subcu, do you have any insights as to what forum we might see the data from the 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 the around the primary endpoint and what define success and people will focus on response rates. So what's similar enough in perhaps referencing your experience with the RITUXAN and Herceptin?

[Dr. Helen Torley, President, CEO & Director]

Thanks for that question. We do not know what forum it will be presented in and we really would have to address that again. But we do know with the filing plan in the second half of the year, there is a possibility of results coming out in the first half or even in the 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 what going to be one of the key studies in the filing. This is a relapse refractory patient and the response rate would be the endpoint there. But also there are also studies completing in earlier lines of therapy with different combinations that it knows I would expect the progression free survival will be an endpoint or will be looked that as well.

So, we're hoping obviously when Janssen provides a filing, we'll be able to discuss it in more detail. Their commitment as you hear by the fact that they have nine studies that will ongoing and that 2,000 patient suggests this is going to be various certain product for them, but also a very broad profile. And so, we're very excited to start seeing the data later this year.

[Jim Birchenough, Wells Fargo Securities]

And maybe one more just on the guidance or the outlook for royalty revenues of a $1 billion by 2027, could you tell us what might mean, if you think about the assumptions underlying that royalty target? What is that mean for milestone payments over the same period of time, and if there is an API sales numbers associated with that as well?

[Dr. Helen Torley, President, CEO & Director]

Yes, let me ask Laurie to address that.

[Laurie Stelzer, SVP & CFO]

Hi there. So as far as milestones that would be associated in that same timeframe, I can point it to two things. The first, we have given some projection to the milestones that we would achieve between 2019 and '21 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 to the clinic. So hopefully that helps frame that kind of the size and shape of the milestones expectation.

And then on your question API, we haven't given longer term API guidance. I know that there is an expectation to tie API with potential royalties, it's just that we sale API in a bit more of a lumpy fashion. And so, it's very hard to forecast exactly what would the API 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.

[Operator]

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

[Unidentified Analyst]

It's Roy in for Jason. Thanks for taking the questions. I had a really quick one on the 301 Phase 3. Can you just remind us, if you did or did not change the screening criteria for entry during the conduct of the trial?

[Dr. Helen Torley, President, CEO & Director]

Thank you, Roy, for that question. One of our principles in designing the Phase 3 study was to keep the entry criteria and the population as close as possible to the Phase 2 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 three weeks to four weeks. So the all of the test could be completed it in time. That's the type of minor change we made. But anything that would change 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.

[Unidentified Analyst]

And then in your prior slide deck, you guys mentioned the acceleration of the time to the Phase 1 starts with ENHANZE programs to six months. What was the primary driver of that or drivers?

[Dr. Helen Torley, President, CEO & Director]

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 at all asking for progress at the same time. In 2016, we introduced something called ENHANZE drug product, which our partners are able to mix with their own product to create co-formulation at the site instead of having to do all the manufacturing work to get the co-formulation and that has enabled us to further speed up the start of the Phase 1 study. So, a mixture of that process improvement and a really strong team collaborating with them are partners.

[Operator]

Thank you. Our next question comes from Charles Duncan with Cantor Fitzgerald.

[Charles Duncan, Cantor Fitzgerald]

First of all, congrats on the progress in the year, appreciate all the guidance granularity on guidance and thanks for taking my question. I have a couple of questions. One is on PEGPH20 and 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 you know, what you see in that ongoing trial? Is it -- 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 rolling? Or is it just an ongoing evaluation of at least on a blinded basis and how the trials coming?

[Dr. Helen Torley, President, CEO & Director]

Thank you, Charles. It is the latter. Our statisticians track the number of overall survival events, as you mentioned, 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 we hit the target number of 330 overall survival events. As that continues to track, so window between August and November and they will keep updating that on periodic basis to see, if there has been anything to narrow or change that some projections.

[Charles Duncan, Cantor Fitzgerald]

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

[Dr. Helen Torley, President, CEO & Director]

Yes, based on the conversations that we had with the agency on the desire to change the primary endpoint, we actually didn't expect then to have any material comments 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 to we're in any changes Charles as you know. We've worked on this with great people like Dr. Thomas Fleming to make sure that everything was done through a very high standard. And so, 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 can tell you that everything has been reduced as fully by the FDA.

[Charles Duncan, Cantor Fitzgerald]

And then just moving over 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 few years been thinking there is a bevy of opportunities in biotech plan 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 diligent processes run recently including with BMS and Roche, et cetera.

[Laurie Stelzer, SVP & CFO]

Hi, Charles, it's Laurie. We too are thrilled with the argenx deal, and we're thrilled with the ability to demonstrate that impact the ENHANZE platform has benefits across large pharma players as well as mid-sized biotech, 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.

[Charles Duncan, Cantor Fitzgerald]

Okay, that makes sense to me, but it would seem to be 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, $225 million to how much $300 million in royalties in the next three years or not royalties excuse me, milestone payments in or by '21 end of '21. I'm wondering if that's driven by any one product, or if that spread across several product candidates programs?

[Laurie Stelzer, SVP & CFO]

Yes, thanks, Charles. It spread across and I think it's safe to say, it's also more back loaded. Obviously, we gave guidance for 2019 but as our partners' progress their products into Phase 3 and into launch those will carry radio milestones. And so, I'd say it's a little bit back loaded and it's weighted more heavily by the products that are moving farther along into commercial.

[Operator]

Thank you. Our next question will come from Jessica Fye with JP Morgan.

[Unidentified Analyst]

Hi, this is Daniel for Jessica. Thanks for taking our question. 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 drove headwinds and tailwinds are on an absolute basis?

[Dr. Helen Torley, President, CEO & Director]

I think I understood your question to be, what are the headwinds and you’re right, we are expecting growth and very excited about the growth from the launch of Herceptin SC in the U.S. plus continued growth with HYCELA in the U.S., but that is being offset by the headwinds that Roche's experiencing with biosimilars and either 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 leave through a flat year over year growth.

[Unidentified Analyst]

And then do you expect this anticipated headwinds to the royalty revenue to be less or better than the growth of the newer royalty screens you could deliver?

[Dr. Helen Torley, President, CEO & Director]

That's a great question. We actually expect in our forecasts and if you see the chart where we've got the projection to a billion dollars. We expect to see fairly flat royalty 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 to translate into a launch in 2020. You'll start to see that inflection and growth with the launch of DARZALEX and then. 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, you know, commercial stage and provide that momentum and that inflection that we see in that projection to a $1 billion.

[Unidentified Analyst]

And if I could ask one more. In terms of the recent collaboration with argenx, maybe I missed it, but should we expect any ENHANZE Phase 1 studies with argenx 113 to initiate in 2019? And is there a potential to introduce argenx in the late stage studies that argenx is initiating?

[Dr. Helen Torley, President, CEO & Director]

Yes, we're delighted to have that 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 detail as to what exactly their development plans are. And so, we're going to have to wait till they have finalized and communicating their plans before we can provide additional color on that. But I can say, you know, we're already enjoying a very good discussion and collaboration with them.

[Operator]

Thank you. Our next question will come from Arlinda Lee with Canaccord.

[Arlinda Lee, Canaccord]

I had a question on ALXN1210 and when do you think we might see some datasets for that? And then also, can you give us an update on the royalty back debt and how much remained there?

[Dr. Helen Torley, President, CEO & Director]

I'll take the question on the ALXN1210 data. Ludwig Hantson, the CEO stated at JP Morgan 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 1 data, but we do know that it expected in the first quarter. And I'll ask Laurie to answer the question on royalty back debt.

[Laurie Stelzer, SVP & CFO]

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 back debt and as [CD] Oxford loan, but the good news is by Q1 2020 that royalty back debt will be paid off.

[Arlinda Lee, Canaccord]

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 are going to hit the 330 OS events in August and November is that still on track?

[Dr. Helen Torley, President, CEO & Director]

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

[Operator]

Thank you. Our next question will come from Joel Beatty with Citi.

[Unidentified Analyst]

This is Sean calling in for Joel. Thanks for taking my questions, 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? Maybe provide kind of a quicker administration or maybe a less frequent dosing on their current subcu form within the clinic [indiscernible].

[Dr. Helen Torley, President, CEO & Director]

I believe that argenx does not really need any plans public in that. So as you know by the conditions of our agreement, 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?

[Laurie Stelzer, SVP & CFO]

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

[Unidentified Analyst]

Perfect. And then I have two quick ones on PEGPH20. What form 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 them?

[Dr. Helen Torley, President, CEO & Director]

I missed the second part of the question, could you just repeat the second part?

[Unidentified Analyst]

Sure. Yes, just your blood-based [indiscernible]. Are you evaluating that as well in the study?

[Dr. Helen Torley, President, CEO & Director]

Yes, thank you for the question. This is Dr. Yu's ISP. The tissue samples have been collected and are being analyzed by the panel working with Dr. Yu as we speak. So Dr. Yu has not informed us at what forum. He would plan to provide an update on that, but we can't say that the data collection and analysis is now underway. And on the blood test 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.

[Unidentified Analyst]

And then my last question is. In the previous slide deck, you've mentioned after you changed the endpoint that PFS could potentially still support marketing application. Maybe expand a little bit on that point? And maybe what threshold they'd be held to discuss with the regulators?

[Dr. Helen Torley, President, CEO & Director]

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 our marketing application. So now 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 end points, but it cannot form the basis of approval based on the recent changes we made to our statistical plan.

[Operator]

Thank you. Our next question comes from Gena Wang with Barclays.

[Unidentified Analyst]

Hi, this is Sherwin calling for Gena. Thank you so much for taking all the questions. Maybe a couple on PEGPH20, the first question is like how do you spend or plan to spend like some money for commercial perhaps in 2019, before the readout? And then the second question is about your TECENTRIQ combo trialing gallbladder cancer and another one. So you've 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?

[Dr. Helen Torley, President, CEO & Director]

Yes, certainly. I’ll tackle the TECENTRIQ and then I’ll ask Laurie just give an overview of our commercial preparations. For the TECENTRIQ that we first look 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 the scientific forums, 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, what's -- where we presented and it's really going to be very dependent on when we feel the data is complete enough for it to be a meaningful results.

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 got a clear 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 '19 and what types of activities were focused on.

[Laurie Stelzer, SVP & CFO]

Yes, absolutely. We are starting to spend in a very modest way out ahead of the data as you might expect, and we're replacing 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 should come.

[Operator]

Okay, thank you. Our next question will come from Joe Kim with BMO Capital Markets.

[Unidentified Analyst]

Hi, this is Keith on for Joe Kim. Just had a quick one quick question about the change of from co-primary to primary endpoint. What was your sense of what was gained by foregoing the interim analysis?

[Dr. Helen Torley, President, CEO & Director]

Thank you for that question. When we changed from the having two primary endpoints, which was PFS and OS2 -- just OS, one of the key reasons for that was the recognition that, if we move to a single analysis on overall survival, we would have a more mature dataset 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 the all patients will be followed up for at least 8.5 months and almost every patient will be follow-up for at least 13 months. What's important about that is based on our Phase 2 data, the longer we've seen patient followed up, the more chance and probability is they are responding to PEGPH20. And so, the key thing is that this mature dataset gives us we believe the very best chance to show the impact and efficacy of PEGPH20.

[Unidentified Analyst]

And have you reached something you're still looking at PFS? Have you reached the previously targeted number of events? And does it in line with your expectation?

[Dr. Helen Torley, President, CEO & Director]

Yes. As we say, this is now the 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.

[Operator]

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

[Dr. Helen Torley, President, CEO & Director]

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.

[Operator]

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