Halozyme Therapeutics, Inc.

33% increase over prior year revenue. We're also increasing our earnings per share guidance to 80 to 85 cents from our prior guidance of 60 to 75 cents. As these results demonstrate, the vision we described for the future of our company approximately one year ago when we transitioned our business to focus on enhance is now truly bearing fruit in the form of growing revenues, earnings, and cash flow. This has also enabled us to deliver on our commitment to return capital to shareholders in a meaningful way. In the third quarter, we repurchased $58.9 million worth of shares, or approximately 2.1 million shares, resulting in $312.4 million in capital returned to investors via our share repurchases in less than one year as part of the authorized three-year $550 million share buyback program. All of this progress was made possible by our partners and the Hirazan team adapting very effectively to the many changes imposed by COVID-19 on the business and our life. As a result, we're in a strong position as we close out 2020 and look forward into 2021. Turning now to slide three, I'll discuss our growth in royalties. We are delighted by the strong growth in royalties and I wanted to provide some context for this achievement. As illustrated on the left, in the third quarter, revenue from royalties grew 44% year-over-year and 51% sequentially. We're delighted to be embarking upon a period of projected strong growth in royalties propelled by the launch of Darzalex FASBRO in the US and Darzalex SC outside the US. I'm pleased to report that we now project full-year royalty revenue growth of 14% to 22% compared to the prior year. resulted in projected 2020 royalty revenues of $80 to $85 million. Let me now provide some additional color on the subcutaneous Darzalex launch. Janssen received regulatory approvals for US and EU in May and June, respectively, meaning that the third quarter was the first full quarter of sales. During the third quarter, Janssen's parent, J&J, reported worldwide sales of Darzalex, including the IV and SC forms, of $1.1 billion, up 44% year-over-year on an as-reported basis. While J&J does not provide a breakdown of sales between the IV form of the drug and the sub-Q form utilizing hands, we can share, based on our evaluation of syndicated sales data, that the launch is off to a strong start in the U.S. and in countries outside the United States. We project continued growth in royalties of Darzalex FASPRO and Darzalex SC adoption and conversion increase in the already launched countries, and new launches occur in additional countries following reimbursement confirmation. Turning now to the additional positive data readout and potential label expansion for Darzalex FASPRO and Darzalex SC. On October 21st, Janssen development partner GenMap announced data from the second part of the phase three Cassiopeia study evaluating daratumumab as maintenance treatment in patients with newly diagnosed multiple myeloma eligible for autologous stem cell transplant who had achieved a response during part one of this trial. The study met the primary endpoint of progression-free survival at a pre-planned interim analysis. Based on the data, Janssen plans to discuss the potential for a regulatory submission with health authorities, and the data are expected to be presented at an upcoming medical meeting. On September 10th, we announced that Janssen submitted a supplemental biologic license application to the FDA seeking approval for Darzalex Faspro utilizing Halozymes enhanced technology for the treatment of patients with light chain amyloidosis, which is a rare and potentially fatal disease for which there are currently no approved therapies. The supplemental BLA was based on positive phase three data from the Andromeda study. There are an estimated 30 to 45,000 patients in the United States and European Union who have light chain amyloidosis. Notably, only the subcutaneous version of Darzalex within hands was selected to be studied for this indication, and upon positive regulatory opinion, Darzalex SC would be specifically approved for this indication. We look forward to a future decision on acceptance of this filing by the FDA. As I just highlighted, not only is the launch of subcutaneous Darzalex off to a strong start, Janssen also has a robust development program with the potential to further expand the patient population that can be treated with Darzalex SC. And we look forward to providing further updates in this area. Let me move now to slide four for a discussion of the additional products that are commercialized in the U.S. and rest of the world utilizing our enhanced technology. Roche continues with its global commercialization of Mapthera or Rituxan Hycella and subcutaneous Herceptin and Herceptin Hylecta. Royalties from these more mature products are projected to decline modestly this year, primarily as a result of the ongoing impact from biosimilars. We do expect to see future growth in the roast portfolio of products driven by Fezgo, which was recently launched in the United States. Fezgo is a fixed-dose combination of two roast drugs that are the backbone of treatment for early and metastatic HER2-positive breast cancer, specifically Progetta and Herceptin. Fesco was in the early launch stage and, as a result, did not contribute meaningfully in the quarter, with Roche reporting third quarter sales of 7 million Swiss francs. This is not unexpected, as Roche is working through all of the steps to support full access in the United States, including gaining formulary approvals and inclusion into electronic medical records. Based on submission timing for Fezgo in Europe and assuming standard review time, we see the potential for approval of Fezgo in Europe in the first quarter of 2021. In Europe, gaining reimbursement approval will be a key step for launch, and this can take up to six to nine months in several of the key European markets. Rounding out our discussion of the current products, on September 15, Takeda Pharmaceutical announced that the European Medicines Agency approved a label update for Hycuvia, broadening its use and making it the first and only facilitated subcutaneous immunoglobulin replacement therapy in adults, adolescents, and children with an expanded range of secondary immunodeficiencies. Takeda will now be able to target this segment of the market, which, according to Takeda, is estimated to represent about 15% of IgG use in the US and EU. I'll move now to slide five and a discussion of our partners' development pipelines. I'm pleased to update the progress our partners are making in the clinic with drugs utilizing our enhanced technology. At the beginning of the year, we projected nine study starts in 2020. I'm pleased to say that based on latest partner communications, this remains our expectation. To date, three studies have started, and we project an additional six studies will be ready to start in the fourth quarter. Let me recap the three trials that have already started. These are the Ergenix phase 2 trial of F-cartitumab in CIDP, which began in the second quarter. BMS's Relatlamab plus Nivolumab phase 1 study, which also began in Q2. And what we call the CAPRISA study, which began in Q3. Let me just say a word about this CAPRISA study. This is a study that's been conducted by the Center for AIDS Program of South Africa, or CAPRISA, in conjunction with the Vaccine Research Center, a division of one of the institutes within the NIH. The study is evaluating the safety, tolerability, and pharmacokinetics of a sub-Q human monoclonal antibody administered within hands in HIV-negative and HIV-positive women in South Africa. Turning now to the six remaining studies, we project that three phase three or registration trials will start in the fourth quarter. These are the recently announced Ergenics F. kardichmod study in Pemphigus vulgaris and foliaceus, the Roche Phase III study with Ticentric, and we recognize $32 million in milestone payments in the third quarter, including $15 million for the Ergenics and $17 million for Ticentric related to progress to date towards these two study starts. A third Phase III study is also projected to be ready to start in the fourth quarter. This is currently undisclosed at the request of the partner. And we continue to expect our partners to be ready to start three additional Phase I studies in the fourth quarter. Let me now provide a brief partner-by-partner discussion of these programs. I'll begin with Ergenix, which has nominated two targets to date, the human neonatal FC receptor, which F-critizumab is designed to block, and complement component C2 with ARGX117. Argenix is progressing three separate studies at this time for SCF Cartigimod within HANZ. Argenix recently provided an update that enrollment in its Phase II ADHER study, which is evaluating F-Cartigimod within HANZ in CIDP, is progressing well. Argenix expects a go-no-go decision to expand the trial up to 130 patients will occur after the first 30 patients are treated in Part A of the study, and expects the decision will occur to expand in the first half of 2021. With regard to SCF-Cortijamod with Enhanced Myasthenia Gravis, Argenix plans to meet with the FDA during the current quarter to discuss a bridging strategy for SC based on the positive results of its ADAPT trial which evaluated the IV form of F-cortisomide in myasthenia gravis. Ergenix has stated it will communicate its plans as soon as it has written minutes from the FDA meeting. We look forward to learning of the next steps for this exciting program, which could result in initiation of testing of SCF-cortisomide within hands in myasthenia gravis in a registration study in 2021. also recently announced that it plans to evaluate SCF kergingemod within hands in its Phase III address trial in pemphigus vulgaris and foliaceous, which they indicated is on track to start this quarter. Pemphigus is a serious skin barrier disease which is associated with painful blistering. The phase three ADDRESS trial will be a randomized, double-blind, placebo-controlled study where the objective is to assess the efficacy, safety, and tolerability in up to 150 newly diagnosed or relapsing patients with moderate to severe pemphigus. The primary endpoint will assess the proportion of patients who achieve complete remission on a minimal steroid dose at 30 weeks. As noted earlier, the advancement of this program to this stage triggered recognition of $15 million of revenue during the third quarter. Now turning to the second ARGENIX-nominated target, ARGX117. ARGENIX announced they recently initiated a phase one study evaluating ARGX117 in healthy volunteers with data expected in mid-2021. ARGX117 is targeting C2 for the treatment of multifocal motor neuropathy, or MN, a severe autoimmune disease. We expect to receive a milestone payment in the near term related to the subcutaneous component of this study. As you have heard, Ergenix is making rapid progress in the clinic with subcutaneous forms of its drugs utilizing enhance and are evaluating a broad range of potential indications with the goal of accommodating patient preference and to adjust to the new norm where patients may not always have easy access to all sites of care. And building on this progress and vision, we were delighted to expand our collaboration and licensing agreement with Argenix last month. As a result, Argenix will now have the ability to exclusively access our enhanced technology for three additional targets upon nomination, for a total of up to six targets under the existing and newly expanded collaboration. Let me move now to Roche. In September, we announced that Roche presented a poster with data from part one of its phase 1B study evaluating atezolizumab or Ticentric for subcutaneous administration using enhanced in patients with locally advanced or metastatic non-small cell lung cancer. This data was presented at the European Society for Medical Oncology virtual congress. The poster concluded that atezolizumab utilizing enhanced provided similar exposure as atezolizumab IV and that the results supported further development of subcutaneous atezolizumab in a confirmatory Phase III study. In October, Roche provided details of the planned Phase III trial design on clinicaltrials.gov. Significant progress towards the start of the Ticentric Phase III trial triggered recognition of $17 million in revenue during the third quarter. And in addition, Roche continues with its phase one study, which is evaluating sub-Q administration of ocrelizumab or Ocrevus with NHANES. I'll move now to Bristol-Myers Squibb. BMS is progressing three separate targets utilizing NHANES across four distinct programs. Specifically, BMS continues with four phase one programs. These are with nivolumab, BMS is anti-CD73, and rilatilamab in combination with nivolumab. Additionally, BMS initiated in the second quarter of 2020 a phase 1-2 study of ipilimumab in combination with nivolumab utilizing our enhanced technology. We are excited that our current partners continue to provide new growth opportunities for enhanced And I can say we already have line of sight to several potential additional new target selections by current partners and plans to progress from phase one to phase three development in 2021. We look forward to providing more updates as additional programs are nominated and enter or advance in the clinic. And let me now just comment on new enhanced deals. It remains the case that we have a broad slate of ongoing discussions with both biotech and pharma companies I continue to be pleased with the pace of these discussions and remain confident that we will sign additional deals. As ever, the timing is hard to predict. Turning now to slide six, we'll discuss our outlook for anticipated growth in milestone revenues. The growth and the progress of our enhanced portfolio is projected to drive strong growth in milestone revenues in the coming years. Based on the latest information from partners, we continue to project cumulative milestone revenues in the 2020 to 2022 three-year period of between $350 to $450 million. This near-term milestone revenue precedes the royalty revenues and is an important and strong indicator for future royalty revenues, which we project to have the potential to be approximately $1 billion in 2027, based on our non-risk adjusted revenue projections for programs that are currently in or in planning for development. Turning now to slide seven, we'll discuss our approach to value creation and capital return. Our first priority is always to drive the growth in our enhanced business by maximizing the value of our current collaborations and working to sign and advance new collaboration partners. With strong projected free cash flow, our next goal is returning capital to investors via share repurchases through our three-year $550 million share repurchase program. We've demonstrated our commitment to this goal by already repurchasing more than $312 million worth of shares or approximately 57% of the amount authorized in less than one year. We will continue pursuing share repurchases under this program for the remaining period of the authorization pending market conditions and other factors. In addition, we continue to evaluate the potential for new technology platform expansion through acquisition with the goal of accelerating our long-term revenue growth. In evaluating this, we are seeking an approach that has high growth potential and high margin like our enhanced business. As we look longer term, we are confident that Kalenzyme's strong financial position will enable us to continue delivering value to shareholders via capital return. And with that update, I'll now turn the call over to Elaine for a discussion of our third quarter financial results.

Thank you, Helen. Let me start by turning to slide eight for a review of our third quarter revenues. So as Helen indicated, we saw strong growth in the quarter as our partners continued to execute on their commercial and development plans. Total revenue for the third quarter was $65.3 million, an increase of 41% compared to $46.2 million in the prior year period. I'll now discuss the three components of our revenue. Revenue from royalties for the quarter was $23.9 million, a year-over-year increase of 44%. And as Helen discussed, our royalties returned to growth sooner than expected, primarily due to the successful launch of subcutaneous Darzalex, utilizing enhanced technology by our partner, Janssen. Product sales were $9 million in the quarter, compared with $29.2 million in the year-ago period, during which there was a large sale of bulk RUPH20 to Janssen in preparation for their launch of sub-Q Darzalex. Collaboration revenue in the quarter totaled $32.3 million, up from $0.4 million in the year-ago period as a result of recognizing revenue for expected milestone payments from our partners, Argenic and Roche, related to their progress to date toward phase three study starts. Let me move to slide nine, and you'll find a more detailed breakdown of our third quarter P&L. So beginning with total operating expenses, which were $25 million in the third quarter, down 65% from $70.8 million in the prior year period. The overall decrease in total operating expenses resulted from our shift in strategic focus to the company's enhanced drug delivery technology in November of 2019 and the related restructuring, which has now been completed. Cost of product sales were $5.6 million, compared with $22.3 million in the year-ago period, with a decrease attributable to the same large sale of bulk RUPH20 to Janssen that I mentioned a moment ago, related to their preparations for the launch of subsea Darzalex. Research and development expenses of $7.7 million decreased 75% from $30.5 million in the prior year period as a result of halting our PEG-PH20 oncology drug development activities in November of last year. And SG&A expenses were $11.7 million, down 35% from $18 million in the prior year primarily due to the reduction in force and discontinuation of PEG-PH20-related launch readiness expenses following the company's restructuring. And I'm pleased to report that net income for the quarter was $36.2 million, or 25 cents per share, compared to a net loss of $25 million, or 17 cents per share, in the third quarter of 2019. And this marks our second consecutive quarter of what we expect will be sustainable profitability and cash flow generation going forward for Halozyme. With respect to our cash position, cash, cash equivalents, and marketable securities were $346.7 million at September 30th, 2020, compared to $421.3 million at December 31st, 2019. This decrease reflects the impact from our operating loss in the first quarter and share repurchase activities through the first three quarters of 2020. Now let me turn to slide 10 for a discussion of our 2020 financial guidance. Based on the latest information from our partners and our planned expenditures for the year, I'm pleased to share our increased guidance for 2020. We now expect total revenues of $250 to $260 million from our prior guidance of $230 to $245 million, which would represent year-over-year growth of 28% to 33%. Of that total, we expect revenue from royalties to comprise $80 to $85 million. We had previously anticipated flat royalties year-over-year in 2020. However, we are now in a position to increase our expectations based on the early sales trends for Subtube Darzelex utilizing Enhance. Looking at the other components of our projected 2020 revenue guidance range, we further expect revenue under collaborations of $115 to $120 million, driven by new clinical trial starts and commercial milestones. In addition, we expect a substantial increase in API revenue in the fourth quarter, resulting in projected full-year product sales between $52 and $57 million. Excluding non-recurring expenses related to the wind down of our former oncology operations in the first half of 2020, we continue to expect annualized operating expenses, excluding COGS, to be at the top end of our guidance of $65 to $75 million in the fourth quarter of 2020, or between $18 and $19 million for the quarter. Moving to earnings per share, we are increasing our guidance range to 80 to 85 cents, up from our prior guidance range of 60 to 75 cents. During the quarter, we continued our share repurchase activities under our three-year $550 million share repurchase program that was authorized by our board a year ago. And in the third quarter, we repurchased $59 million worth of our common shares or 2.1 million shares at a weighted average price of $27.57. Our commitment to capital return driven by a diversified portfolio of partnered products and programs, sustainable profitability, and a strong growth and cash flow outlook has resulted in share purchases through end of the third quarter of $312.4 million at a weighted average price of $18.92. And all of this has been accomplished less than one year into our $550 million three-year buyback program. We continue to expect we'll repurchase up to $150 million in our shares this year, which would mean up to an additional $37.6 million that could be repurchased in the fourth quarter, pending market conditions and other factors. So with that, I'll now turn the call back to Helen.

Thank you, Elaine. We believe we are still only at the beginning stages of delivering on both the clinical and financial promise of our enhanced drug delivery technology. Our technology delivers value for our partners, our patients, and our Halazyme shareholders. Helizyme is in the strongest financial position ever as a company. And we look forward to strong growth in our revenues, profitability and cash flow in the coming quarters and years, which will allow us to deliver on our commitment to return capital to shareholders, maintain long-term sustainable growth and maximize shareholder value. I'll close on slide 11. Entering 2020, we established this ambitious set of goals to measure our performance as we completed the company restructuring. I could not be more pleased with the tremendous progress to date. And as you've just heard, we project we will finish the fourth quarter as strongly as this one. I'd like to end, as ever, by thanking the amazing Halozyme team for your tremendous effort and these strong results. And with that, we'd now be delighted to take your questions. Operator, please would you open up the call for the questions?