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Halozyme Therapeutics Inc (NASDAQ:HALO)
Q3 2019 Earnings Call
Nov 12, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

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 -- Vice President of Investor Relation and Corporate Communications

Good afternoon, and welcome to our Third 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 Stelzer, our Chief Financial Officer, who will review our financial results for the third quarter of 2019. 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, Chief Executive Officer and member of the Board of Directors

Thank you, Al. As we've announced on November 4, following the negative results of HALO-301. We have stopped development of PEGPH20 and are in the process of closing our oncology operations and are now focused solely on our enhanced drug delivery technology. With this change in focus, for those of you who are less familiar with it, I'm going to begin the call with a detailed overview of our ENHANZE business. Then I'll provide an update on the recent and upcoming events. I'll then transition over to Laurie who will provide more detail on our third quarter financial results, the restructuring, our capital return plan, and 2019 updated guidance.

Beginning on slide three, our strong expansion of partners and programs in development has been driven by our partner's recognition of and excitement for the value that ENHANZE can add to their business. Let me highlight four ways ENHANZE offers true differentiation and real value. It produces both treatment time and associated cost burden. This was a key part of the lifecycle strategy, Roche employed for Herceptin and MabThera in anticipation of biosimilars. At peak, Herceptin SC held 60% share of sales volume in the EU launch market, demonstrating the strong market acceptance for this delivery method.

Secondly, ENHANZE offers the potential for competitive differentiation. As an example, Janssen began development on an SC version of DARZALEX early in the IV product lifecycle, before the IV products approval. With the recognition that are shorter, simpler, subcutaneous delivery would not only reduce the burden on patients, but it would also provide DARZALEX with a more competitive profile in the face of potential future competition. And Bristol-Myers Squibb is an example of a company evaluating SC as their first go-to-market formulation for certain targets. For Halozyme, we're excited to see the strong focus on adding hands early in the life cycle. Thirdly, ENHANZE offers the potential for new intellectual property and exclusivity, providing up to 20 years of exclusivity from the filing date for the co-formulated products.

And finally, ENHANZE could be a strong fit for those currently experiencing challenges and delivering oncology care. In our recent primary market research with oncologist, we heard again and again of the staffing, share capacity, and time constraints facing many practices today as a result of therapies requiring long infusion times and supervision.

Turning now to slide four, let me say a few words on our operating model. From the very start of the process to access rights utilize ENHANZE technology through to BLA filing and approval, Halozyme technical experts are sitting side-by-side with our partners, providing input, advice and ideas. As demonstrated on slide four, different specialists are needed and engaged at different stages of the development process, a summary of which is illustrated across the top row. This is why our operating model is so scalable and efficient for the individuals, supporting multiple partners and programs at the same time.

Now moving to how we are paid for ENHANZE. In summary, and as shown in slide five, we receive royalties, milestone payments and payments for the sale of API to partners. In general, our partners license exclusive rights for use of ENHANZE associated with a specific target. Example of targets, the partners have gained exclusive rights for use to with ENHANZE include HER2 anti-CD38, PD1 and PDL1.

I'll begin with the royalties. Across all of our agreements, we receive on average, in mid single-digit royalty on net sales.

Milestones are also a key revenue contributor. We receive upfront payments for access to the technology and for the nomination of the initial selected target or targets. In our most recent agreements, this has been in this $30 million to $40 million range for one to two targets. We receive increasing development milestone payments as a partner makes progress to approval and first sale. In recent agreements, this has generally been 40% to 60% both of the 160 million total potential milestones per target and receive commercial milestone payments as sales thresholds are achieved.

This is also in the 40% to 60% range of total potential milestones for target in the recent agreements. And finally, Halozyme is accountable to oversee the production, release and quality control of the API or active pharmaceutical ingredients, which is manufactured at two contract manufacturing organizations. We receive a 20% margin on bulk sales partners.

As was demonstrated on Slide 6, to date, we have signed nine ENHANZE licensing and collaboration agreements with the marquee pharma and biotech companies that are listed here. As you will note, in recent years, we've substantially increased the potential value for each target being developed from initial milestones per target of $30 million to $50 million to now $160 million per target. Royalty rates have remained in the range that is remaining -- that is maintaining the average of the single-digit royalty across all contracts.

I'll now provide an update on the substantial progress that we will be making on the platform, beginning with the approved products that utilize ENHANZE. To date, three products have been approved in global markets utilizing ENHANZE and have demonstrated tangible commercial success. These are listed on Slide 7. Sales of these products have resulted in cumulative lifetime royalty payments to Halozyme from time of launch to today of approximately $305 million. After achieving strong market acceptance was reported peak gap share for Herceptin SC of 60% of the EU market total sales volume and 34% from MabThera, revenues for SC has since declined with the emergence of European biosimilars. The most recent impact is reflected in the updated guidance as Laurie will discuss in a moment.

Turning now to Slide 8, we're very excited for the next potential lunches utilizing ENHANZE, which will begin an important inflection in our royalty revenue growth. Based on the COLUMBA Phase 3 data, daratumumab SC can be given in three to five minutes subcutaneously. There may also be the potential for a lower rate of infusion related reactions. Janssen completed regulatory submissions in the U.S. and in Europe for the subcutaneous formulation for DARZALEX in July of 2019, supporting the potential for mid-2020 approvals, assuming standard regulatory review times.

With DARZALEX currently projected by analysts to exceed $3 billion in sales in 2020, Janssen has stated that SC is a core part of their future growth strategy, supporting their goals of expansion into frontline setting and treatment in the community setting. Moving now to the right column Perjeta/Herceptin fixed dose combination is the next potential launch. This is an important first combining two therapeutic antibodies in a single fixed dose formulation utilizing ENHANZE, enabling a five minute subcutaneous injection, compared with the up to two and a half hours for the sequential IV administration of Herceptin and Perjeta.

The HER2-positive early breast cancer population is estimated at 75,000 patients in the U.S. and EU. Perjeta have already reached more than 50% of patients who are at high risk of recurrence in the launched countries in the U.S. and Europe. According to Roche’s third quarter earnings report, Perjeta sales grew 33%, driven by the uptake of the affinity, Perjeta and Herceptin regimen and HER2 positive early breast cancer.

Moving now to the development pipeline, what has really been remarkable in the last couple of years has been the acceleration in the number of products entering the clinic utilizing ENHANZE. In 2019 we projected we would have 12 products in clinical development and I'm delighted to say that we're currently have 11 in development with DARZALEX, Perjeta/ Herceptin and nine products that are currently in Phase 1 testing.

Illustrated on slide nine are the nine programs that are in or have completed Phase 1 clinical testing. Excitingly, based on current partner plans, we see the potential for at least four Phase 2 or three clinical trial starts in 2020. And already have line of sight for the potential for at least five new Phase 1 starts also in 2020. We had expected to announce a Phase 3 study start in 2019. This program is now expected to start in mid 2020 as the Phase 1 study is taking longer to complete and had originally been planned.

Now let me turn to the revenue potential for the ENHANZE platform shown on slide 10. We continue to project the potential for $1 billion in royalty revenues in 2027.

Included in this projection are the three curve, the commercialized product, the development products we just discussed excluding Alexion and five products that are planning to start Phase 1 testing in 2020. We’ve temporarily removed Alexion, as we anticipate an update from Alexion in 2020 on their development plans forAlexion 1810, including the potential indication.

And just a brief reminder and the proof we used for this non-risk adjusted projection. Where available, we utilize analyst consensus sales estimates. We apply available information and our knowledge on the potential launch timing, and then apply our assumptions on peak conversion and time to peak conversion. We also assume global launches in all indications.

The impact of the new product approvals, including Daratumumab and Perjeta, Herceptin are illustrated with a clear revenue inflection occurring after a period of modest royalty decline with the current product. Our broad array of pipeline then adds its contribution.

And now I'd like to just briefly review our royalties term. The rHuPH20 patents expires in Europe in 2024 and in the US in 2027. In general, our royalty term continues until the latter of the last expiring rHuPH20 patent or 10 years post first commercial sale.

If rHuPH20 exclusivity expires during this 10 year term. There is a step down in the royalty rate of approximately 50% from expiry until the end of the 10-year term. And it's this design that allows us to project meaningful royalty revenues even beyond 2027. And there's also the potential to obtain additional co-formulation patents on certain novel at partner product, potentially extending the mid single-digit royalty term up to 20 years post patent filing date. While each agreement is negotiated separately, and terms and conditions vary across the agreements. In general, the core formulation patents have the favorable effect on the duration of the royalty term and potentially delay the timing of the royalty step down.

Now I’ll move on to the anticipated contribution from our milestones. Recall, we receive upfront payments when we sign new deals, and then development and commercial milestone payments from development programs progress to launch. Milestone payments play a key role in driving Halozyme revenue and our free cash flow.

Turning to slide 11. In 2018, we projected 2019 to 2022 milestone revenues of $225 million to $300 million. In 2019, from January to October, we have received $55 million and are tracking well to our three-year projection.

Today, I'm pleased to update our three-year milestone prediction based on the strong development momentum we're seeing across the entire ENHANZE portfolio. Based on current partner plans for the period of 2020 to 2022, we project strong milestone revenues in the range of $350 million to $450 million. Our revenue growth outlook driven by both royalty and milestone growth places Halozyme in a strong position to return capital to our shareholders. And we're committed to creating value for our shareholders and do capital return as a key component.

Turning now to slide 12. We now have in place a plan to repurchase up to $550 million in shares over the next three years. As announced today, we are offering a $400 million aggregate principal amount in convertible senior notes due in 2024. We plan to use up to $200 million of the net proceeds from the offering to repurchase shares of the company's common stock concurrently or shortly after the pricing of the offering.

And importantly, this is in addition to the November 4 announcement of the authorization by our Board of Directors of a share repurchase program of $350 million over the next three years. Issuing this convertible note to help fund share buybacks is an opportunity to immediately return capital to investors as we transition to a profitable ENHANZE-only company. And Laurie will be providing some additional color on this in her section in just a moment.

Before I move to the discussion of the third quarter and upcoming ENHANZE developments, let me just summarize the investment thesis for Halozyme on slide 13. ENHANZE is a commercially validated platform, with three globally approved products that have generated approximately $305 million in cumulative royalty payments since the first SC product launch. We're approaching a royalty revenue inflection point, with near term potential approvals for daratumumab SC and Perjeta/Herceptin fixed dose combination. Strong future growth potential is fueled by the deep pipeline of partner products that are in development. And all of the above are resulting in the potential royalty revenue CAGR of approximately 40% between now and 2027.

As I move now to the operating expenses, our lean scalable operations with annual opex excluding cost of goods sold of $65 million to $75 million by the fourth quarter of 2020 provide strong operating leverage for future years. This operating leverage is projected to generate strong free cash flow from operations which serve as a basis for the approval by the Board of Directors of a capital return plan for shareholders that we announced on November 4th, and also today.

Now with that summary of the enhanced value proposition and our business model, I'll turn to slide 14 and provide an update on the recent and upcoming partner activities. Beginning with Janssen, according to the most recent update provided by J&J, DARZALEX IV continued its strong growth trajectory in the third quarter, with 42% adjusted sales growth globally. With the regulatory submissions completed in July of 2019, we look forward with excitement to potential regulatory approvals in 2020.

Moving now to Roche. Following the announcement of positive results in September, data from the Phase 3 FeDeriCa study, evaluating the fixed-dose combination of Perjeta/ Herceptin will be presented at the San Antonio Breast Conference in December.

Roche has indicated plans to begin regulatory submissions for this product in early 2020. Roche's Phase 1 study evaluating Tecentriq with ENHANZE is ongoing. Roche is assessing the next steps with this program, including discussions with authorities.

And in addition, we're very pleased to announce that the first patient in a Phase 1 study evaluating Ocrevus with ENHANZE was dosed in August. And finally, Roche selected an additional target for development under our existing collaboration, triggering a $10 million milestone payment to Halozyme. The target selected is currently undisclosed.

I'll move now to Bristol-Myers Squibb. In addition to the ongoing Phase 1 study with nivolumab, BMS recently completed a Phase 1 study with their anti-CD73. And earlier this quarter, a Phase 1 trial was initiated for a third Bristol-Myers Squibb target being studied with ENHANZE, relatlimab and this is in combination with nivolumab.

And our newest partner argenx recently announced plans to share the results from its Phase 1 study of efgartigimod with ENHANZE in healthy volunteers before year end. And they also discussed the potential of a bridging study for myasthenia gravis. Recall that the results of their ADAPT trial in myasthenia gravis are expected in the second half of 2020.

And finally, argenx plans to initiate a first-in-human study with ENHANZE for its complement factor C2 candidates, ARGX-117 in the first quarter of 2020. As you just heard, our partners are making tremendous progress with their studies of their ENHANZE co-formulated products. Based on the plans our partners have shared with us, we expect a growing portfolio of development programs.

Now, let me just close our -- this update with the potential for new ENHANZE deals. We're in dialogue with multiple companies and continue to see potential for new partner agreements based on the ENHANZE value proposition.

With that, I'd now like to turn the call over to Laurie for a discussion of our third quarter financial results and the outlook.

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

Thank you, Helen, and good afternoon everyone. Turning to slide 15 for a discussion of our third quarter financial results. Total revenue for the third quarter was $46.2 million compared to $25.6 million in the prior year period. This 81% increase was primarily driven by higher API sales to partners as we discussed on our last call. Royalty revenue for the quarter was $16.6 million, a decrease of 11%, primarily driven by lower sales of Herceptin SC by Roche, reflecting the ongoing impact from biosimilars. Product sales of $29.2 million in the quarter compared to $6.3 million in the year ago period, mainly due to an increase in the sale of bulk rHuPH20 to Janssen. We expect that product sales of API will fluctuate in future periods based on the needs of our collaboration partners. Collaboration revenue in the quarter totaled $0.4 million, compared with $0.6 million a year ago.

Turning to slide 16 for a more detailed breakdown of our P&L, I'll now move on to total operating expenses, which were -- which were $70.8 million in the third quarter, up from $51 million in the prior year period. The increase in total operating expenses was driven by a higher cost of product sales which were $22.3 million, up from $0.60 million in the prior year period, again driven by the higher sales of API.

Research and development expenses of $30.5 million declined from $35.5 million in the prior year period, reflecting a planned reduction in clinical trial activity as we mirrored the top line result readout from HALO-301. SG&A of $18 million compared with $14.9 million in the prior year, primarily due to an increase in compensation expense including stock compensation related to initial support of our oncology operations. Net loss for the quarter was $25 million or $0.17 per share compared to a net loss of $27.9 million or $0.19 per share in the third quarter of 2018. Cash, cash equivalents and marketable securities were $238 million at September 30 compared to $354.5 million at December 31, 2018.

Now turning to slide 17 for an update on our 2019 financial guidance. We now expect total revenue to be in the range of $195 million to $205 million compared to our prior guidance of $205 million to $215 million, driven by the movement of the planned Phase III start from 2019 into 2020, offset in part by the new target nomination by Roche. Royalty revenue is expected to be in the range of $67 million to $69 million compared to prior guidance of $72 million to $74 million, a reflection of the projected ongoing impact of biosimilars. We continue to expect operating expenses of $255 million to $265 million and operating expenses excluding cost of goods sold of $215 million to $225 million. The restructuring costs of $25 million to $27 million will be booked in the fourth quarter.

And these costs are offset by lower operating expenses in Q3 and expense savings as a result of closing our oncology operations. As a result, operating cash burn is now expected to be $50 million to $60 million compared to prior guidance of $40 million to $50 million. Furthermore, we expect to continue to make quarterly payments on our royalty backed debt and expect to pay off the remainder of this debt by the second quarter of 2020. Finally, we continue to expect our year-end cash balance to be $220 million to $230 million. Now as you have just heard, Halozyme is in a strong financial position as a company focused solely on ENHANZE. With our current strong financial position and outlook for growth in cash flows, we are committed to maximizing value for shareholders and view returning capital as an important part of our strategy. As mentioned earlier in the call, we are offering a $400 million aggregate principal amount of convertible senior notes due in 2024. We plan to use up to $200 million of the net proceeds from the offering to repurchase shares of the company's common stock concurrently or shortly after the pricing of the offering.

This is in addition to the November 4 announcement of the authorization by our Board of Directors of a share repurchase program of $350 million over the next three years. The company intends to use the remainder of the net proceeds from the offering for general corporate purposes, including share repurchases subsequent to the offering, working capital and the retirement of the existing debt obligation under our loan agreement with Oxford Finance and Silicon Valley Bank, with interest expense savings of $1.4 million.

As we previously guided we expect to be cash flow positive in Q2 2020 as we transition to an ENHANZE-only company. Issuing this convertible note now will allow us to recapitalize the company, immediately return capital to shareholders and lower our overall cost of capital while ensuring that we can continue to opportunistically return capital as we transition to a positive cash flow.

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

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Thank you, Laurie. As you've heard, our transition to focus solely on ENHANZE comes at a time when we have a record number of products in the clinic, two upcoming potential launches and line of sight to multiple new Phase I and later-stage trial starts in 2020 with the potential for new agreements to be signed. None of this would be possible without the strong talented Halozyme team. And I'd like to end my prepared remarks by thanking everyone for the tremendous effort and the strong results.

With that, operator, would you please open up the call for questions? Thank you.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from Charles Duncan with Cantor Fitzgerald. Your line is open.

Charles Duncan -- Cantor Fitzgerald -- Analyst

Hi, guys, good afternoon. Thanks for taking my questions. So a quick question regarding the pipeline. I'm wondering about a clinical trial that was started, I believe by J&J in or listed by J&J in China. And I'm just kind of wondering if in your estimates as to the potential for daratumumab, are you including Asian revenues in that with regard to the ENHANZE version of daratumumab?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Thanks Chad. Yes, we do, as I mentioned in the prepared remarks. We do in our projections consider global launches and all indications. As you mentioned, J&J has got a very extensive program of DARZALEX SC, not just programs in China but also in Japan and studies in all lines of therapy. And so the -- with that extent of clinical program all of those sales are reflected in our projections as well.

Charles Duncan -- Cantor Fitzgerald -- Analyst

Okay. And then let's see second question is related to kind of the guidance. I'm wondering if you could provide a little bit more granularity on the top line in terms of kind of the contribution of different aspects of the top line.

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

Hi, Charles, this is Laurie. So as far as top line goes, the change in our top line was really due to the movement of a Phase III start that we had anticipated in 2019 moving to 2020. And it's partially offset by the new target nomination that Helen mentioned in the prepared remarks from Roche. The components -- we do guide on royalties. So we did give the $67 million to $69 million of royalties. We've also talked about the milestones and upfront. And if you recall from our Helen’s remark, to-date we've received $55 million. And again, we do anticipate some additional study -- I mean I'm sorry, additional nomination. And then API is considerably more this year than it has been in past years. If you notice in the quarter, we did book almost $30 million in API. And so that's a substantial part of the total revenue line as well.

Charles Duncan -- Cantor Fitzgerald -- Analyst

Okay. And sorry if I missed that Laurie and Helen, I'm running through your report. So my last question and I appreciate you taking them all is regarding business development activities. I think Helen you mentioned that you have active discussions ongoing. And I know that depends on timing with a potential partner. But would you anticipate or how would you think about success in that business development effort over the course of, say, the next 12 months? Could we anticipate another partnering to come to fruition in that time?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

We absolutely could Charles, just based on the conversations that we have going on today. Our challenge is always the timing is not in our control but definitely based on the asset side conversations it's possible.

Charles Duncan -- Cantor Fitzgerald -- Analyst

Okay. Very good. Thanks for taking my questions.

Operator

Your next question comes from Jim Birchenough with Wells Fargo. Your line is open.

Jim Birchenough -- Wells Fargo -- Analyst

Hi, guys, congrats on all the progress. A lot to digest. I guess the first question is just on your milestone guidance. Within the three-year period, based on what you know about the cadence of programs underlying that, should we evenly distribute it across years or does that get a little bit more back-end weighted, does it increase over the course of the three years?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Yes. Jim. Thanks for the question. It does increase a bit over the next three years. You can imagine that our milestones tend to increase those products move into later stages of development and then to approvals and launches and first sale. And so the amount increase which is for -- leads to -- it's always kind of being a little bit larger as you move out. But we do see very nice year-on-year growth that just will get larger with that progress in the pipeline.

Jim Birchenough -- Wells Fargo -- Analyst

And then maybe a question as we look ahead to the approvals and launches of DARZALEX subcu and that Perjeta/Herceptin subcu, we've had questions on the expectation for conversion rate. Could you maybe go through how you think about conversion rates of those two products, perhaps benchmarking against what you've seen in Europe or how do you think about the relative conversion rates for those two drugs? And in particular for Perjeta/Herceptin, I think a lot of people are trying to figure out how to think about that. Does that convert like Herceptin did in Europe or what's some guidance you can give us there?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Yes. Thanks. We do benchmark it exactly as you’re saying. And our best example we believe is the Herceptin uptake in Europe where it got to 60% share of sales volume. And we look at that and say well what was the value proposition there? That's about 10 minutes subcu versus what is often a 60- to 90-minute IV. And so we do our judgment based on the value proposition, the patient population and frankly the competitive environment to say what is it going to be -- is it going to be higher than that 60% or is it going to be lower than that 60%? And that's kind of where we use our judgment. I think for Perjeta/Herceptin that’s obviously a early breast cancer population. It is a fit and mobile population who definitely don't want to treat 2.5 hours getting sequential IV and that doesn't count additional monitoring that might have to be required. So we do look at that as being very similar to perhaps the Herceptin and maybe even a little bit higher than that potentially. But that's kind of the methodology that we consider as we look at this.

Jim Birchenough -- Wells Fargo -- Analyst

And then maybe a final question, Helen. Just in terms of the five new Phase Is next year, do we need to wait for those to post to clintrials.gov or do you expect those to be preidentified by partners? Any visibility on what they might be?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Yes. I think the partners generally like to keep it confidential until they're ready to start. So if it is a study in a patient population that will be posted on clinicaltrials.gov immediately beforehand. If they are, as some studies are, normal volunteers you won't find it being posted or if it's being conducted in Europe it may not be posted. But based on our knowledge today, the majority of them will be posted on clinicaltrials.gov.

Jim Birchenough -- Wells Fargo -- Analyst

Great. Well, thanks for taking the question.

Operator

Thank you. Your next question comes from Jason Butler with JMP Securities. Your line is open.

Jason Butler -- JMP Securities -- Analyst

Hey, thanks for taking the question. Thanks for all of the details around the ENHANZE platform. Just one on combination strategies. Are you able to comment on how other partners are looking at combinations similar to the Herceptin/Perjeta in a fixed-dose combination? I think you mentioned relatlimab and Opdivo as a combination. Is that a fixed-dose combination that could be a single administration? And are there others we might learn about? Thanks.

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Yes. Jason, as you know, often our partners' plans are confidential for various competitive reasons. So other than being able to update you that there is that study that started with relatlimab and nivolumab we're not really in a position to say anything more on that. I do think this idea of being able to combine two biologics together in a single injection has definitely got people's attention but unfortunately I can't provide any more update.

Jason Butler -- JMP Securities -- Analyst

Okay. Great, maybe a quick follow-up then. Could you maybe speak to the feasibility of these combinations? Are there any kind of product attributes that would limit the potential for certain products being used in a fixed-dose combination?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

No. The first thing we test is to make sure that the two biologics themselves don't have any interaction. So that is probably going to be one of the most important parts. We found an extensive clinical testing with rHuPH20. It pairs very well with most antibody and biologics. So I think the base to be sure of is that the two products are combining have no reasons to interact with each other. So that would be the key thing.

Jason Butler -- JMP Securities -- Analyst

Okay. Great, thanks for taking the questions.

Operator

Thank you. Your next question is from Jessica Fye with JPMorgan. Your line is open.

Jessica Fye -- JPMorgan -- Analyst

Hey there. Good afternoon. Thanks for taking my questions. At the risk of asking kind of an overly simplistic one, can you spend a little more time elaborating on the decision to use $200 million or up to $200 million of the convert proceeds for share repo?

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

Hi, Jessica this is Laurie. We are committed to returning value to shareholders. And we think that doing it through share repurchase is the appropriate structure for us. And so doing the convert with a concurrent share repurchase allowed us to do that today, while we are not cash flow positive but we've got that very near line of sight to cash flow positive growth. So that's the decision on the $200 million for today.

Jessica Fye -- JPMorgan -- Analyst

Okay. And how do you decide whether to go all the way up to $200 million of repurchase or not? And I think the release also mentions that this use of proceeds for repo could result in a higher effective conversion price. So how would that work?

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

Yes. It should -- this should not at all affect the conversion price. So it's a pretty -- it's a straightforward conversion with the ability to use the convertible and the delta hedge for the share repurchase.

Jessica Fye -- JPMorgan -- Analyst

Okay. Another question on the prior milestone projection of $225 million to $300 million from 2019 to 2021. It's sort of written in the past tense on the slides do you still expect milestone in that range for that time frame?

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

We do. We do. We just wanted to refresh it because obviously we're coming up to 2020 but we're very much in that range.

Jessica Fye -- JPMorgan -- Analyst

Okay. And I think Charles was trying to ask this at the beginning of the call, but is there any way you can help us think about the relative revenue contribution of ENHANZE royalties versus milestones over the next two to three years?

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

Yes. So -- I mean that's a terrific question. I think the milestones will be a significant part of the revenue story for us as we are hitting that inflection on the royalties. And so I think -- think about milestones as a very meaningful portion. We'll be approaching that inflection on royalties and starting up that curve for the $1 billion.

Jessica Fye -- JPMorgan -- Analyst

Okay. Got it, and maybe just the last one on the royalties, you mentioned this quarter I think some of the Roche contribution was under pressure a little bit. Do you expect your Roche royalties to be up or down in 2020 relative to 2019?

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

Yes. We're not giving detailed guidance for 2020. But based on the trends that Roche has discussed on their quarterly calls stating that they're continuing to see some biosimilar pressure in Europe although it's slowing, we do think we'll continue to see some pressure, although a more modest amount of pressure on the Roche royalties in 2020.

Jessica Fye -- JPMorgan -- Analyst

Okay, great. Thanks so much for answering all my questions.

Operator

Your next question is from Gena Wang with Barclays. Your line is open.

David -- Barclays -- Analyst

Hi, thank you for taking my questions. This is David [Phonetic] for Gena. First question is on your revenue driver for 2020? What was the revenue driver for 2020 before daratumumab approval?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

I'm sorry. Would you repeat your question? We're finding you very hard to hear.

David -- Barclays -- Analyst

I'm sorry. So the first question is on revenue driver for 2020. What would be the revenue driver for you for 2020 before daratumumab approval?

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

So in '20 -- so we aren't in a position to give guidance for 2020. Again, I think that you can think about our revenue in a very similar fashion, with royalties API and milestones kind of contributing to that growth. But more detail than that. We just haven't given any 2020 guidance.

David -- Barclays -- Analyst

Okay. Got it. Second question is can you guys just remind us on the IP expiration for the core ENHANZE technology?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Yes. And just to add to Laurie's comment there on the revenues, we are predicting that it will be higher than this year although we aren't giving specifics on the guidance as yet. So with the core technology for ENHANZE is the base a big composition of master patent will expire in 2024 in Europe and 2027 in the United States. As I mentioned in my prepared remarks that we will, even in the phase of patent expiry, we continue to receive royalties for 10 years after the first commercial sale but there will be a step down to approximately half at the time of the patent expiry until the 10 years. And there's also the potential to extend the term if we get co-formulating patents as well.

David -- Barclays -- Analyst

Got it. Great. Thank you so much.

Operator

Your next question is from Joel Beatty with Citi. Your line is open.

Joel Beatty -- Citi -- Analyst

Hi, thanks for taking the questions. The first one is a follow up to the most recent question on the IP exclusivity of the core ENHANZE technology. As we get closer to those dates, does that affect the attractiveness of -- to partners or potential partners to use your technology for certain of different uses of ENHANZE? Like for example, for life cycle management, if the core technology is expiring, does that affect the attractiveness?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Yes. I will say Joel that since Roche, we actually have seen most of our partners are much more focused on products much earlier in the development pipeline where their primary goal is competitive differentiation. So we actually more talk about to companies with some very early plans. And so the whole life cycle topic doesn't come up. We can use argenx as an example that was our latest deal signed this year. They're working obviously on efgartigimod, a product that hasn't been approved yet. And certainly they were very excited to license our technology and are moving rapidly as you've seen in the clinic with the multiple targets.

Joel Beatty -- Citi -- Analyst

Great. Appreciate that. And then a separate question on the $200 million in share repurchase that was announced today. Would that be the first share repurchase after the Phase III PEGPH20 results were announced or have there been additional share purchases going on since that time?

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Yes. Joel this will be the first share repurchase after that announcement. And just to repeat, it's up to $200 million as part of the concurrent with the convert or shortly after.

Joel Beatty -- Citi -- Analyst

Okay, got it.

Operator

[Operator Instructions] Ladies and gentlemen this does conclude the Q&A period. I will now turn it back over to Dr. Helen Torley Halozyme's President and CEO for any closing remarks.

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Well thank you everybody. Thank you for joining us for this call. This obviously has been an exciting period for Halozyme where our strategy has resulted in us focusing now to become an ENHANZE-only company. We are delighted to be in a position to be able to return value to shareholders with this comprehensive $550 million up to share repurchase plan, which is based on our projected free cash flow giving us the ability to do this at this time. So thank you for your ongoing support. And we look forward to providing further updates on the strong development plans we're seeing with our partners with ENHANZE. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Albert Kildani -- Vice President of Investor Relation and Corporate Communications

Helen Torley -- President, Chief Executive Officer and member of the Board of Directors

Laurie D. Stelzer -- Senior Vice President and Chief Financial Officer

Charles Duncan -- Cantor Fitzgerald -- Analyst

Jim Birchenough -- Wells Fargo -- Analyst

Jason Butler -- JMP Securities -- Analyst

Jessica Fye -- JPMorgan -- Analyst

David -- Barclays -- Analyst

Joel Beatty -- Citi -- Analyst

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