Halozyme Therapeutics Inc (HALO) 2016 Q3 法說會逐字稿

Good afternoon and welcome to Halozyme Therapeutics third quarter 2016 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

And as a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Jim Mazzola, Vice President of Investor Relations at Halozyme. Mr. Mazzola, you may now begin your conference.

Thank you, Carrie, and good afternoon, everyone. Welcome to Halozyme's third quarter 2016 financial results conference call. Following market close today, we issued a news release with the summary of our results and posted a short slide presentation to accompany this call. You will find both on the Investors page at halozyme.com.

Leading our call today is Halozyme's President and Chief Executive Officer, Dr. Helen Torley, who will provide an overview and update on our business. And then Laurie Stelzer, our Chief Financial Officer, will review our financial results for the September quarter followed by a Q&A period. Also with us for today's call is Dr. Athena Countouriotis, our Chief Medical Officer.

Before we begin, let me remind you that during this conference call, we will be making forward-looking statements. The Company's actual results may differ materially from those expressed in or indicated by such forward-looking statements. For a description of risks, please refer to our quarterly and annual filings with the Securities and Exchange Commission. Now, let me turn the call over to Helen.

Good afternoon and thank you for joining us today. I'd like to begin the call with the key takeaways for the quarter. Firstly, we continue to execute well across our clinical development program for PEGPH20, highlights include continuing to initiate sites in countries around the globe and our Phase 3 pancreatic cancer study, HALO-301 progressing towards a dose expansion portion of our trial starting PEGPH20 with KEYTRUDA. And enhancing the selection of PEGPH20 for inclusion in the Pancreatic Cancer Action Network's groundbreaking Precision Promise initiative.

Secondly, the value of our currently marketed product on our ENHANZE platform continues to grow through increased conversion rates in launched countries and expansion into new geographies, indications, and patient populations. We reported yet another quarter of record royalty revenues, as sales of Herceptin SC, MabThera SC and HYQVIA drove an increase of 6% sequentially and 58% from the third quarter of 2015. We also announced last week that the FDA has accepted Genentech's Biologics license application for a subcutaneous formulation of rituximab using our ENHANZE technology in multiple blood cancer indications. This development represents a meaningful step towards bringing rituximab SC to patients in the United States.

And thirdly, we continue to demonstrate our financial strength exiting the quarter with more than $200 million in cash and raising the lower end of our guidance ranges for both revenue and year-end cash. The ability to grow our topline as we invest for the future in oncology is a key differentiator in our business model and continues to distinguish the company in the third quarter. For additional details on our progress, I'll start with an overview of our strategy.

As a diversified oncology biotech company, we operate our business and make investment decisions in two strategic pillars. The first pillar is our oncology pipeline with investigational drug PEGPH20 at the core. PEGPH20 temporarily degrades hyaluronan, a glycosaminoglycan or chain of natural sugars in that body that can accumulate around certain tumors and constrict the tumor vasculature. In animal models, we have demonstrated that degrading hyaluronan or HA reduces tumor pressure, increasing blood flow and thereby the access of cancer treatments into the tumor. To give a sense for the high HA incidence rate, looking at the US and EU5, we estimate that there are approximately 25,000 high HA pancreatic cancer patients and an additional 50,000 non-small cell lung cancer, gastric cancer, and breast cancer patients are projected to be high HA.

Our work in oncology is funded in part by the second pillar of our strategy which is centered on our licensing agreements with the six marquee partners including Roche, Baxalta, Pfizer, Janssen, AbbVie and Eli Lilly. These partnerships deliver more than $100 million in annual revenues to the company and between our currently marketed products and products that are in development using our technology. Analyst project sales for these innovator products in excess of $25 billion in 2025.

Clearly the resulting royalty stream to Halozyme will depend on the number of indications developed and the degree of market penetration. But this provides a sense of the caliber of the products we are being studied with and the potential for our ENHANZE platform.

Now let me begin by providing some additional details on PEGPH20. We are furthest along in our study of PEGPH20 in pancreatic cancer and share data from stage 1 of the HALO-202 study during the American Society of Clinical Oncology Annual Conference in June. Stage 2 of the HALO-202 study enrolled a total of 133 patients and we estimate 35% to 40% of those patients will be determined retrospectively to have high levels of HA.

The key objective of stage 2 is to test the effectiveness of prophylactic enoxaparin to reduce thromboembolic events in the PEGPH20 treatment arm. It is also our plan to analyze efficacy in patients with high levels of HA based on the cutoff established with the Ventana companion diagnostic.

Recall the Company is blinded to the stage 2 efficacy data and we have a P&C or a Data Monitoring Committee in place who are advising us on both safety and when the efficacy data is mature for analysis. We were recently informed by the independent statistician for the Data Monitoring Committee that the stage 2 progression free survival data are not yet mature for analysis. As a result, we now expect the reporting of data may move to 2017, depending on when the data are mature. We look forward to analyzing and hearing the topline results of this study once we receive confirmation from our DMC that the data is mature.

Moving now to slide 2 for an overview of our Phase 3 study in pancreatic cancer in which the first patient was dosed in March of this year. HALO-301 is designed and powered to evaluate progression free survival and overall survival in [HA] high patients. This study is a 420 patient global double-blind placebo controlled randomized trial of patients with stage 4 pancreatic ductal adenocarcinoma prospectively identified and included, based on high levels of HA. We're proceeding in the study with two primary endpoints; progression free survival and overall survival and plan to conduct an interim analysis from the target number of progression free survival events is reached.

Based on the interim analysis, the Data Monitoring Committee will have the option to recommend we stop the study based on efficacy, continue it to the target norm of 420 patients, increase enrollment to up to 570 patients for the final overall survival assessment, or stop the study for futility. If the progression free survival data shows a significant benefit in the PEGPH20 treatment arm and both the overall survival and overall risk benefit are supportive, these data may form the basis for marketing application in the US and a conditional marketing authorization in Europe.

I'm pleased to say that we continue to see strong global interest in the study with approximately 200 sites in 20 countries participating. Multiple site initiations are taking place each week towards our goal of activating approximately 90% of our clinical sites by the end of this year.

During this quarter, we also announced our participation in the Pancreatic Cancer Action Network's Precision Promise Initiative. This clinical trial, the design of which is still being finalized, would be the first of its kind seeking to offer treatment options to patients based on the molecular profile of the pancreatic tumors. Using the companion diagnostic assay developed with our partner Ventana, patients with high levels of HA may receive PEGPH20 as part of their regimen. This trial will bring together clinicians, researchers, and drug developers with plans to begin enrolling patients at 12 initial US consortium sites in the spring of next year.

Turning to Slide 3, I'd now like to provide an update on our clinical development progress to assess pan-tumor potential of PEGPH20. The PEGPH20 plus KEYTRUDA or pembrolizumab trial is enrolling relapsed refractory stage 3b and stage 4 non-small cell lung cancer patients who have been treated with at least one platinum-based regimen or recurrent locally advanced/metastatic gastric adenocarcinoma patients who failed at least one chemotherapy regimen. Our goal in this study is to value PEGPH20's potential to improve the efficacy of immuno-oncology therapies as has been demonstrated in preclinical models. We recently entered the last patient in the current dose cohort and if this patient completes the treatment period without a dose limiting toxicity, it is our plan to move into dose expansion at the 2.1 micrograms per kilogram dose with the goal of enrolling approximately [40] patients. (sic - "50")

In preparation for the dose expansion, we are initiating additional sites in the US towards our target of approximately 30 sites. Technical cut-offs are now in place for prospects of selection of non-small cell lung cancer and gastric cancer patients based on HA.

And finally, we have our Phase 1b/2 clinical trial with our collaboration partner Eisai. As previously announced, the first metastatic breast cancer patient was dosed in June and this study is ongoing. I would now like to move to the second pillar of our strategy, our ENHANZE platform where we license rHuPH20 enzyme to leading companies.

Let me begin with the most substantial recent development which is the FDA's acceptance of Genentech's BLA for subcutaneous rituximab in multiple blood cancer indications. This co-formulation with the ENHANZE platform is approved and marketed under the MabThera SC brand in countries outside the United States. Including all approved indications, Roche reported total 2015 sales of rituximab in the United States of approximately $3.5 billion. It's estimated that the majority of these sales are blood cancer related making this one of the biggest potential opportunities in ENHANZE franchise history.

Moving to our Pfizer relationship, Pfizer announced last week the discontinuation of its bococizumab global clinical development program due to the totality of clinical information now available for bococizumab taken together with the evolving treatment and market landscape for lipid lowering agents. Development of a subcutaneous version with ENHANZE have also been discontinued. Pfizer separately made a portfolio decision to discontinue development of a subcutaneous version of rivipansel using ENHANZE after completing the in-life portion of a single and multiple dose Phase 1 assessment that successfully demonstrated feasibility of large volume subcutaneous administration. While disappointed with this portfolio decision, we are pleased that Pfizer continues to develop an additional program with the ENHANZE platform for an undisclosed target.

Sale of our partners' marketed products on the ENHANZE platform continue to grow reflected by the increase in our sequential and year-over-year royalty revenue. In particular, Roche indicated during their most recent quarterly call, that Herceptin SC now accounts for approximately 50% of total Herceptin sales volume in launched countries. We remain pleased by the continued progress of both Herceptin SC and MabThera SC in countries outside the United States.

Slide 4 provides an overview of our current ENHANZE portfolio and the potential future opportunity associated with the platform. The top of the pyramid shows the current marketed products that are projected by analysts to exceed $5 billion in annual total revenues across all of their indications in 2025. We'll receive a mid-single digit royalty on net sales with our royalty potential being based on the number of approved indications and market penetration.

Our partnered pipeline which is in the middle of the pyramid, includes Phase 1 trials for Janssen's anti-CD38 daratumumab in multiple myeloma patients, AbbVie's HUMIRA being tested to help reduce the number of induction injections at higher doses, and Roche's study of PERJETA in HER2-positive breast cancer patients. With analysts and other sources projecting future sales totaling greater than $20 billion, we're very excited to be working with these companies to evaluate the potential of our combined technologies and to develop additional product offerings for patients. Janssen and their development partner Genmab have indicated the daratumumab SC Phase 1 trial is progressing well and they are targeting the initiation of a Phase 3 trial in mid-2017. Janssen has recently informed us that they are very encouraged by the Phase 1 data and the opportunity to solidify their competitive position through the co-formulation with the ENHANZE technology. To this end, they recently have taken steps to file for patent protection for the co-formulation.

Finally, we have four other targets that have been selected but not disclosed by our partners and 23 additional targets that have been licensed. We also continue to assess new deals to expand the value of our ENHANZE platform and believe approximately 150 targets are still available that may benefit from ENHANZE. While it is always hard to predict if and when a new deal may come, I can say this is something our team continuously work towards and we continue in dialog with a number of companies.

In closing, I'm pleased with the commercial progress and see clear opportunities for continued growth through new collaborations and as we support our current partners in advancing their programs. With that, I'll now turn the call over to Laurie to discuss our financial results for the third quarter in greater detail. Laurie?

Thank you, Helen. I will begin on slide 5 where you will see that revenue for the third quarter was $31.9 million compared to $20.8 million in the prior year period exhibiting strong growth of 53% year on year. During the third quarter, royalty revenue total $13 million, an increase of 6% sequentially from last quarter and 58% from the third quarter of 2015. This increase came largely from higher sales of Roche's Herceptin SC during the second quarter of 2016. Bulk sales of rHuPH20 totaled $9.6 million. HYLENEX product sales totaled $3.7 million and other collaboration revenue totaled $5.5 million which included reimbursement from our partners for R&D services.

Turning to slide 6 for more detailed breakdown of our P&L, cost of products sales was $9.1 million in the quarter compared to $6.2 million in the prior year period primarily due to an increase in the manufacturing of our rHuPH20 enzyme for use by our partners. Research and development expenses for the third quarter were $33.9 million compared to $27.6 million for the third quarter of 2015. This planned increase was primarily due to a rampant spend associated with the HALO-301 study as well as manufacturing and clinical supply expenses that are reimbursed by our ENHANZE partners.

Selling, general, and administrative expenses were $11.6 million compared to $10.2 million for the third quarter of 2015. The increase was primarily due to personal expenses including stock-based compensation for the period. In total, our operating expenses increased by $10.6 million from the third quarter of 2015.

Net loss for the quarter was $28.9 million or $0.23 per share compared to a net loss of $24.5 million or $0.19 per share in the third quarter of 2015, driven by lower R&D spend in the prior year period. Cash, cash equivalents, and marketable securities were $221.1 million at September 30, 2016, compared to $230 million at June 30, 2016, and $123.7 million in the third quarter of last year.

Finally, I would like to provide an update on our financial guidance for 2016 as shown on slide 7. For the full-year 2016, we are updating our prior guidance and now expect net revenue of $145 million to $150 million, raising the lower end of our prior range of $140 million to $150 million. Operating expenses of $240 million to $245 million from the prior range of $245 million to $260 million, driven by changes in our clinical program, examples of which include: the early termination of the primal study, the temporary stoppage of enrollment in the KEYTRUDA study, and the timing of biomarker related activities. Cash flow of $75 million to $85 million, raising the lower end of prior range of $65 million to $85 million and year-end cash balance of $180 million to $190 million, raising the lower end of our prior range of $170 million to $190 million. With that, let me turn the call back to Helen, who will provide closing comments.

Thank you, Laurie. In summary, we continue to make progress across both pillars of our strategy during the third quarter. In the oncology pillar, we proceeded with global site initiations in our Phase 3 study towards our goal of having approximately 90% of sites ready to screen patients by year end. We made progress towards the dose expansion portion of our trial with KEYTRUDA and we announced our participation in the Precision Promise clinical trial initiative.

In the ENHANZE pillar, we continued to drive value through growing royalty revenues and are encouraged by the steps our partners are taking to expand the use of currently marketed products. We remain confident that the investments we're making in both pillars will generate near and longer term value for our shareholders and partners. And as ever, I'd like to close by expressing my gratitude and appreciation to our talented Halozyme team for their continued hard work in advancing our programs and in support of our partners. We're now ready to take your questions. Operator, please would you open the call?

(Operator Instructions)

And our first question will be from Charles Duncan with Piper Jaffray.

Good afternoon, folks. First of all, congratulations on a good quarter of progress and thanks for taking my questions. So not sure if this is a question for Helen or Athena, but love to get both of your perspectives on the timing of the second cohort in the Phase 2 study. I'm wondering if the timelines to beta read are perhaps, we could read that as possibly efficacy and progression taking longer than anticipated, or is it possible that there is maybe a fundamental shift in what we should expect out of the pancreatic cancer patient population? And if you could remind us of what you're expecting out of the control arm in the ongoing Phase 3?

Well, Charles, let me start and I'll just give you my perspective on it and really, I think the most important thing to remember is that we are blinded to the efficacy data for stage 2. So we really can't speculate on the timing or what the timing may mean for this. Athena, do you want to comment on the question on the control arm expectations, perhaps referencing the ABRAXANE approval arm, just as a -- ?

Yes. Thanks for the question, Charles. I think your question was in relation to the Phase 3, so I just wanted to be careful on the way I answer, in regards to what we said for the Phase 3 is the PFS hazard ratio of 0.59. It's not our standard practice to give more guidance than that in regards to our statistical plans. I think you can always look at the ABRAXANE Gemcitabine Phase 3 study and the median PFS and overall survival to potentially guide you, but we haven't given that specific level of detail.

Okay. And then the other question that I had is regarding that ongoing Phase 3, it looks like you're on track for site initiation, but do you anticipate being able to provide us any additional information in the near term or when you might be able to do that with regard to patient enrolment numbers?

Yes, thanks Charles. What we've said is 2016 was really a year where we were going to be very focused in getting the site up and operational and as I mentioned in my prepared remarks, we're very pleased with the enthusiasm for the study and the progress we're seeing, where we're seeing nice progress month-to-month in both screening and enrollment. We really do have to have more data under our belt to, I think, feel ready to make any comments with regard to the enrollment and the study because we really are still learning exactly how that enrollment trajectory is going to be. So when we have more information on that, we may be in a position to discuss it then.

Okay. That's helpful. Thanks for the added color and congrats on a great quarter of financial progress.

Thank you. Our next question will be from Jessica Fye with JPMorgan.

Thanks for taking my questions. I think you've previously said you completed enrolment for stage 2 in February. Just with this timing update, can you elaborate on when in February? Just thinking about the last patient now having been in the study for what seems like nine months, and that's north of the median progression-free survival we'd expect for at least the control arm. And so just trying to get a little more insight into the timing there. And I realize that you guys are blinded, but I'm sure you're flexing some numbers on your end. So curious if you have any view on whether this means that you're seeing something unusual in the control arm as opposed to dramatically better efficacy than you saw in stage 1 with PEGPH20?

Thanks, Jessica. We did enroll the last patient in February, as we mentioned, I think it was in the first half of February. And I think speculation would be exactly that. We're blinded to the efficacy and you're right, you can come up with different scenarios, but that would be pure speculation. And so we're relying on our Data Monitoring Committee statistician to give us guidance on when the data is mature and ready for analysis, and obviously when we get that information, we'll move rapidly to get the data out. But meanwhile, I think we just have to wait for the data to mature and it could be any number of things. So I don't want to speculate on that.

Okay. Fair enough. Maybe just to follow up and clarify what exactly you heard from the statistician, did they tell you recently that as of maybe some time last week or whenever it was, that the data was not mature. With or without giving you some insight into, but we're getting close and it could be in the next couple of months, i.e., was this just a call that you thought you would be conservative and say it could slip into 2017 or was that update to us based on something the statistician told you?

Thanks, Jessica. It was approximately a week ago when the statistician simply said, per the process we have in place, the data is not mature for analysis at this time and that's all the information we have. So with that, we use the language it may move into 2017 obviously, because we don't know now when the data is going to be mature. It still could be in 2016, but it may flip in to 2017. And the DMC statistician will continue to monitor and track the patients who are ongoing in the study, and when and if they should happen to be having an event, he will determine has the data matured appropriately?

Okay. And maybe last follow-up from me, are they giving you regular updates, say every other week, every several weeks, or is the next step that you hear from them on a need to know and they're going to tell you when it's mature?

It's fair to say with both mechanisms in place there are regularly scheduled meetings, but because we're at this stage of assessing the readiness of the data for analysis, that it's on a need to know where we get an update from the statistician more frequently as needed.

Thank you. Our next question will be from Andrew Peters with Deutsche Bank.

Great. Thanks for taking my questions. So maybe continuing along the lines of the stage 2 data, I just want to get a sense of, if you have an idea if the event rate has actually changed over time. And did you base your initial guidance on getting data by year end on a certain event rate and has that slowed and if slow or if it has slowed, can you remind us if there's anything different about the patients who were enrolled earlier in the trial versus later in the trial? Maybe in terms of the prophylaxis protocol or anything like that?

Great. I'll ask Athena to maybe address that. I think Athena I heard questions on the patient demographics early in the trial, and by that, Andrew, did you mean stage 1 to stage 2 or within stage 2?

Within stage 2, if the event rate has slowed based on your earlier data, do you have any idea as to what could be causing that?

All right. Thank you. Athena?

Hi, Andrew. Thanks for the question. I think I can answer it simply in that, by saying we are blinded to the efficacy data and that includes the PFS event number. So we have no sight into what the PFS event number was early versus towards the end. I wouldn't expect that there's been any difference and I think our estimate was based on, as Jessica mentioned earlier, we completed enrollment in February and we looked at potentially Q4 as a possible projection, just looking at how long that would be from February until the end of the year timeframe.

Great, thanks. And then just a quick one on the lung cancer program, can you just remind us as to what your internal guidelines were in terms of deciding to move forward with the 2.2 dose? On the dose expansion side, is it purely based on safety or is there any sort of minimal efficacy that you wanted to see first before deciding to move forward with the expansion cohort?

Thanks, Andrew. Again, first of all, we're excited to move into current expansion, that was our goal prior to the end of the year. We've made great strides with our partner, Ventana, to establish technical cutoffs for both the lung cancer population and the gastric cancer population. As Helen mentioned in her prepared remarks, we've just dosed the last patient in the 2.2 microgram per kilo dosing cohort and provided that patient doesn't have a dose limiting toxicity. We're comfortable with this dose level based on the data that we've seen in dose escalation and as you know, most of dose escalation really is to establish a safe dose, especially given that we're looking at the all comer population. So now as you move into cohort expansion, we really will be evaluating the efficacy of the combination because we'll be prospectively testing for HA.

Great, thank you, and congrats on all the progress.

Thank you. Our next question will be from Jim Birchenough with Wells Fargo Securities.

Hi. Thanks for taking our questions. This is Yanan in for Jim. First question, perhaps this has been answered. I'm wondering what is the assumption based on regarding the original, in the PFS event assumption for the 202 study? Have you talked about that?

I think Athena did answer that earlier, but let me get her to just give a little bit more color there.

Yes. I think if your question is in regards to what was our target number of events, that's not a level of detail we have provided. But what I can say is we enrolled the last patient in stage 2 in February of this year and we have projected, if you take about 9 months from there to get to the end of the year that would be a time frame where we might be able to report out the top line results. As Helen mentioned, we were just recently informed that the data is not yet mature. So we will wait until the PFS data is mature prior to doing the analysis and the reporting.

In terms of, what is the assumption that supports the nine months timeline, is there something that you can share?

That's based off of the median PFS from stage 1, which was 9.2 months in the PEGPH20 arm

Got it. And the second question is on the Daratumumab efficacy, we saw some interesting information regarding this molecule from an ASH abstract. We're wondering if you could talk about the differences between the DARZALEX SC, the site of the injection, the duration of infusion and whether it's used in a healthcare setting or for in home. In terms of the differentiation or difference between how these properties compared with the Herceptin and MabThera, and why is there a difference, is this molecule specific to the Daratumumab molecule? Thank you.

Yes. I think it's fair to say that we see each of our partners developing their programs a little bit differently. In this Phase 1 study which was, you're referencing which is in the ASH abstract, the goal was to identify the dose to go subcutaneous.

So this was basically a Phase 1 pharmacokinetic study and what the company Janssen did was, test a range of doses, looking at infusion times over approximately 20 to 30 minutes depending on the dose that they were testing. And so what the reports are in this abstract is the fact that they were able to see supportive pharmacokinetic, the fact that Dara was also well tolerated and that based on similar response rate data to what they saw with the IV. And so that sum is really a successful study in terms of what they are articulating in this abstract. For any more details on the clinical development program, we're going to have to wait for Janssen to provide more information.

So I guess the final format of the injection regimen, the format hasn't been determined and what we see in abstract is an intermediate format for PK studies only?

Yes. I think it's a Phase 1 PK study. The abstract does say that additional data from the Phase 1 study will be presented at the ASH meeting. And the only other comment I can make is that Janssen has said that they plan to move into Phase 3 in the middle of 2017, and I think then we'll learn a lot more about the dose, the planned infusion time and other information with regard to the patient population they plan to study.

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

Thanks for taking the questions. So for the Phase 2 pancreatic cancer study, can you tell us more about the directions to the DMC in assessing whether or not data is mature? For example, are they just looking at the number of events or are they also considering whether there's a separation in the curves?

Hi, Joel. It's Athena. What we've discussed with the DMC, obviously, we have a very good relationship with them. We have frequent meetings on the safety side and we have plans to evaluate the efficacy with them prior to us being unblinded. Specifically, we're working closely with the statistician and he is evaluating not only the number of PFS events, but the patients who remain on treatment and whether they impact the data in a larger way or a limited way. And that could be the median and/or the hazard ratio based on the fact, again, we estimate that this is going to be a relatively small sample size based on our initial estimates from stage 1 of 35% to 40% of patients being HA high.

Got it, thanks for the question.

Thank you. Our next question will be from [Laurence Machata] with Canaccord. Laurence your line is live.

Hey, operator, move onto the next question and put Laurence back in queue if he gets back on.

Sir, I'm showing no further questions in the queue.

All right. Thank you very much. If there are no further questions, I'd just like to thank everyone for joining us today. I think as we discussed, we're seeing strong progress across both of our pillars and we look forward to speaking with you on our next call and providing more details. Thank you so much.

Thank you. Ladies and gentleman, this concludes today's teleconference. You may now disconnect.