Halozyme Therapeutics Inc (HALO) 2017 Q2 法說會逐字稿

Good afternoon, and welcome to the Halozyme Therapeutics Second Quarter 2017 Financial Results Conference Call. (Operator Instructions) 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 begin your conference.

Thank you, and good afternoon, everyone. Welcome to Halozyme Second Quarter 2017 Financial Results Conference Call. Following market close today, we issued a news release with a summary of our results and posted a short slide presentation to accompany this call. You'll find both at the investors page at halozyme.com.

Leading our call today is Halozyme's President and Chief Executive Officer, Dr. Helen Torley, who'll provide an overview and update on our business; and then Laurie Stelzer, our Chief Financial Officer, who will review results for the June quarter, followed by a Q&A period.

Before we begin, let me remind you that during the 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.

Thank you, Jim. Good afternoon, and thank you for joining us today. I will begin the call with the key takeaways for the quarter. At firstly, I want to highlight the continued momentum of our ENHANZE technology, the recent significant developments in our partner programs include the FDA approval and U.S. launch of Genentech's RITUXAN HYCELA, Lilly initiating its first clinical study as part of our collaboration agreement, and Janssen progressing towards their Phase III study of a (inaudible) 5-minute subcutaneous delivery of DARZALEX, enabled by our ENHANZE technology.

Secondly, we continue to execute well in our clinical studies of PEGPH20, including HALO-301, our global Phase III study in pancreas cancer patients. And thirdly, our second quarter financial results continue to demonstrate the strength of our business model. Key highlights include a 20% increase in year-over-year royalty revenue and entering the third quarter well financed with nearly $300 million in cash.

With all the progress we've made since our last call in the ENHANZE business, I will begin with an update of this strategic pillar, where we license our rHuPH20 enzyme to leading companies, including Roche, Baxalta, Pfizer, Janssen, AbbVie and Eli Lilly.

Slide 2 provides an overview of our current portfolio. The potential market opportunity is shown on the left side of this slide with innovator products today that use our ENHANZE technology reporting 2016 sales and approved geographies in access of $10 billion. The subcutaneous portion of these sales will depend on the number of indications approved and the degree of market penetration over time, and is based on an average mid-single-digit royalty on net sales. We and Genentech were pleased to announce the approval of RITUXAN HYCELA in June for the indication of diffused large B-cell lymphoma, follicular lymphoma and chronic lymphocytic leukemia. This approval will provide U.S. patients the option to receive a 5 to 7-minute subcutaneous injection as compared to a multiarm intravenous infusion.

In addition, the U.S. healthcare system has the potential to realize time and costs saving using the coformulation, as has been demonstrated in other global markets. This approval represents a significant new royalty of revenue opportunity for Halozyme, with oncology sales of rituximab in the United States estimated to have exceeded $3 billion in 2016.

With the U.S. launch, subcutaneous rituxim is now approved in more than 60 countries and Herceptin AC in nearly 80 countries. On its most recent earnings call, Roche reported Herceptin SC conversion rates are near 50% of the total Herceptin sales unit volume in launched countries in Europe, with further conversion expected in 2017.

On the right side of this slide, we've outlined the opportunity with our partnered pipeline, which includes subcutaneous formulation of Janssen's DARZALEX and Roche's Perjeta. In December of 2016, Janssen presented data at ASH, indicating its subcutaneous formulation of daratumumab using our ENHANZE technology was well tolerated and had an efficacy and pharmacokinetic profile consistent with the IV formulation in patients with relapsed and refractory multiple myeloma.

Since our last update, Johnson and Johnson hosted their annual pharmaceutical business review, during which they highlighted the subcutaneous formulation of DARZALEX as a key competent of their expansion strategy.

A Phase I trial is underway to examine a coformulation of daratumumab and our ENHANZE technology that is expected to send fusion times of hours than to potentially 5 minutes. This trial will determine the safety, pharmacokinetics and dose confirmation for our Phase III study planned to begin later this year.

A market reception to the IV formulation of DARZALEX remained strong with J&J recently reporting second quarter sales growth of 17% over the first quarter, now approaching $300 million per quarter. And we remain very excited about the potential for DARZALEX SC.

Continuing on the right side of the Slide 2, Roche also has an ongoing Phase I study to examine the combination of Herceptin SC and the subcutaneous formulation of Perjeta using ENHANZE. We continue to support Roche in the ongoing study and look forward to the potential of a subcutaneous formulation of Perjeta or a single subcutaneous injection of Herceptin and Perjeta.

With analysts and other sources projecting future sales of DARZALEX and Perjeta totaling greater than $10 billion, we're excited to be working with Roche and Janssen to evaluate the potential of our combined technologies and to develop additional product offering.

And finally, we're pleased to announce that Lilly recently initiated a Phase I study of a new investigational therapy with ENHANZE. This is the first of Lilly's 3 selected targets to enter the clinic. And we look forward to continuing our support as they prepare additional targets to enter the clinic.

And we continue to affect new collaborative agreements to expand the value of the ENHANZE portfolio, and believe many targets are still available that may benefit from our technology. In addition to the progress of our already marketed product and mills in clinical development, our pipeline of active partner discussion is robust, and as a result our outlook for ENHANZE has never been stronger. I remain confident we will achieve our goal to signing new agreement in 2017.

I'll now turn to our oncology pillar and our investigational drug PEGPH20. PEGPH20 temporarily degrades hyaluronan or HA, a glycosaminoglycan or chain of natural sugars in the body that can accumulate around certain tumors and constrict the tumor vasculature. This is a bio-marker-driven approach, and we're studying PEGPH20 with a companion diagnostic developed with our partner Ventana, to identify patients with HA-High tumors. We are most advanced in evaluating PEGPH20 in pancreas cancer. For each year more than 100,000 patients in the U.S. and EU5 are diagnosed of whom an estimated 65,000 have metastatic disease.

In the U.S. and EU5, it is estimated that there are approximately 25,000 HA-High metastatic pancreatic cancer patients diagnosed annually. And with 5-year survival for patients with metastatic disease at just 3%, there remains a major unmet need and we would expect a high degree of market penetration upon the approval of PEGPH20.

On Slide 3 is an overview of our Phase III study, evaluating PEGPH20 in combination with ABRAXANE and gemcitabine in first-line pancreas cancer patients. HALO-301 is a global, double-blind placebo-controlled, randomized trial of patients with stage 4 pancreatic ductal adenocarcinoma were prospectively identified and randomized based on high levels of HA. The first call includes 1 interim analysis when the target number of progression-free survival events is reached. I'm pleased to report that since our last call, screening and enrollment has continued to perceive in line with our expectations.

Recall this as an event-driven study, and it remains too early to project when we will achieve the target number of PFS events for the interim analysis. Now at the time of the interim analysis, which is also the final read for our PFS endpoint, is the progression-free survival data show a significant benefit in the PEGPH20 treatment arm and both the overall survival and the overall this benefit are supportive, these data may form the basis for a marketing application in the United States, and a conditioning marketing authorization in Europe.

Our team is executing well and global investigators remain highly engaged in this study, encouraged by the potential for their patients of a biomarker-driven therapy in pancreas cancer.

Turning now to Slide 4. I'll provide an update on our clinical development progress to assess the potential of PEGPH20 in other tumor types. Beginning with our trials in combination with checkpoint inhibitors, the PEGPH20 plus KEYTRUDA or pembrolizumab trial, is enrolling stage 3B and stage 4 non-small lung cancer patients and metastatic gastric adenocarcinoma patients.

At the end of 2016, we moved into the dose expansion phase of the study, where we now selecting for patients with higher HA levels with a target enrollment of approximately 50 patients at 30 U.S. sites. We continue to see strong interest and screening activity in the study, and depending on the pace of enrollment and time to responses, believe we may be in a position to share a snapshot of response rate data in the initially enrolled patients at year-end.

We're well underway in our collaboration with Genentech to study PEGPH20 with their cancer-immunotherapy centric or atezolizumab, an Anti-PD-L1 monoclonal antibody, in up to 8 different tumor types. As we announced last month, our Phase IB2 open-label, multiarm, randomized global trial funded and operated by Genentech was initiated in patients with previously treated metastatic pancreatic ductal adenocarcinoma. And we look forward to providing an update as the trial advances. This study, as part of Genentech's MORPHEUS immunotherapy clinical platform, in which we will evaluate PEGPH20 and TECENTRIQ in up to 5 additional tumor types. And Genentech remains on track to begin their study in gastric cancer later this year.

Halozyme plans to conduct the Phase IB open-label, randomized study of TECENTRIQ in combination with PEGPH20 and chemotherapy in advanced or metastatic biliary and gallbladder cancers in the second half of this year. Our first call is finalized and we have received initial investigational review board approvals. Details on the design will be posted to clinicaltrials.gov in the coming weeks.

And finally, enrollment is ongoing in the Phase IB dose-finding portion of e-sized clinical trials to evaluate Halaven in combination with PEGPH20 in patients with HER2 negative metastatic breast cancer.

In summary, this was a quarter of strong execution against 2 -- our 2-pillar strategy. The progress we have made delivered value during the quarter and sets us on a new growth trajectory for the future, particularly as our partnered ENHANZE program reach the market and expand commercially.

And with that, I may turn the call over to Laurie to discuss our financial results in greater detail. Laurie?

Thank you, Helen. I will begin on Slide 5, where you will see that revenues for the second quarter was $33.8 million compared to $33.3 million in the prior-year period. Royalty revenues totaled $14.7 million, an increase of 20% from the second quarter of 2016.

Bulk sales of rHuPH20 totaled $8.9 million, a decline of 7% from the prior year as our new Roche manufacturing site comes online. Hylenex product sales totaled $3.9 million and other collaboration revenue totaled $6.2 million.

Turning to Slide 6 for a more detailed breakdown of our P&L. Cost of product sales was $7.8 million in the quarter compared to $8.3 million in the prior-year period. Research and development expenses for the quarter were $38.3 million, an increase of 8% from $35.5 million in the second quarter of 2016, driven by costs for our Phase III study HALO-301.

Selling, general and administrative expenses were $13.1 million compared to $11.2 million for the second quarter of 2016. The increase was primarily due to personnel expenses, including stock-based compensation for the period. Net loss for the quarter was $30.8 million or $0.23 per share, compared to a net loss of $26.9 million or $0.21 per share in the second quarter of 2016.

Cash, cash equivalents and marketable securities were $297.5 million at June 30, 2017 compared to $179 million at March 31, 2017. This includes net proceeds of $134.9 million from the secondary stock offering completed on May 24.

Finally, I would like to update our year-end cash guidance and reiterate our other 2017 guidance ranges as shown on Slide 7.

For the full year 2017, we continue to expect net revenue of $115 million to $130 million, which does not include potential revenue from new ENHANZE partnerships; operating expenses of $240 million to $250 million; and operating cash burn of $75 million to $85 million. We are increasing our year-end cash balance to $245 million to $260 million, an increase from the prior range of $110 million to $125 million to reflect the net proceeds from our recent secondary offering.

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

Thank you, Laurie. In summary, we continue to make great strides across both pillars of our strategy during the second quarter. Our ENHANZE portfolio continued to deliver value, as currently marketed products advanced into new geographies and new therapies progressed into clinical development. Momentum for ENHANZE continued to build with the RITUXAN HYCELA now available at TUS patients, Lilly entering the clinic and our pipeline of new opportunities remaining very active.

Our pending milestones include Janssen advancing development of subcutaneous DARZALEX with the start of their Phase III trial by year-end and the potential of a new ENHANZE deal.

In the encology pillar, conviction and support from opinion leaders and investigators remains high, as we continue with strong execution of the HALO-301 study and our others studies examining the pension and potential of PEGPH20. A key potential upcoming milestone is the initial response rate data from our study with KEYTRUDA by year-end. And above all, we remain confident that the investments we are making in both pillars of our strategy will generate near and long-term value for our shareholders and partners.

I want to close by expressing my ongoing gratitude and appreciation for our talented Halozyme team for their continued hard work to advance our programs and in support of partners and patients.

We're now ready to take your questions. Operator, please would you open the call?

(Operator Instructions) And our first question will come from Jim Birchenough with Wells Fargo Securities.

It's Chuck Whitesell in for James Birchenough. Just a couple of questions. On the cash flows that you get from the ENHANZE product royalties, how do you see those cash flows beyond the investment in PEGPH20?

Well I'm going to ask Laurie to address that question.

Yes, so -- you know -- so we see this as just kind of the beauty of our business model with the 2-pillar strategy. So the cash flow is coming in from the ENHANZE business. There's really 2 uses -- 2 immediate uses: one is we are funding our PEGPH20 program with that cash inflow, and the second is just a reminder that we're starting to pay down our royalty-backed debt with 50% of the royalties that we've received in '17 and then that will go to 100% in 2018, and of course that's subject to quarterly cash. I don't know if that answered your question.

No, that does. And the second question I had was, do you see pursuing other assets to invest in? Or would be getting to profitability be your goal?

So at this point in time, Chuck, it's very clear we have a 2-pillar strategy. Our focus is PEGPH20 and really getting the pancreas cancer program to, as fast as possible, to read out. But for that, while we continue to as you've heard, focus on delivering more growth and more value from ENHANZE platform. So that is our focus at this time.

Our next question will come from Jo Kim with BMO Capital Markets.

For the KEYTRUDA and PEGPH20 in non-small cell lung cancer, how do you see that combination fitting into the treatment landscape that can potentially change pretty quickly with all the other different combinations with PD-1 and PD-L1 inhibitors. Do you think you'll -- you might have to move up to a triple combo to keep up with all these changes?

I think it's a great question. I mean our focus at the moment is obviously evaluating the right dose and the potential for PEGPH20 to add on to the efficacy all of KEYTRUDA in -- actually first in and second and third line patients. So I think once we've got some initial data, which we hope to have by year-end, we will be in a great position then to identify what is the standard of care and what the next steps would that would be. Because this is obviously, we're in our Phase IB/2 portion and have the opportunity to identify what the strategy would be next if dual therapy is not the standard. But what we're very hopeful for is that the approach we're taking is that with that the addition of PEGPH20, we can expand the population who will respond to KEYTRUDA irrespective of their PD-L1 status. So lots of good insights from this study to inform where we might go with it, and the potential that we can expand the number of patients who respond to KEYTRUDA.

Okay, great. And for that data that we may see at year-end, how do you avoid any bias in that readout, since it is an open-label study? And you're looking for KEYTRUDA -- I mean, PEGPH20 benefit over KEYTRUDA. Wouldn't it be too easy to just take the interim look when you start seeing a response better than KEYTRUDA alone?

Like with standard studies that will be having the response to patients measured using the resist criteria, which are often used. It is a single-arm study and so what we will be doing is comparing this to historical rates that are found. But I think most people agree that when used with something like (inaudible) and has an independent radiologist reading it, that will give you, certainly at this stage of a study, a good solid signal as to what your efficacy is.

Okay. And one last question on the ENHANZE platform. How do you think about the opportunity for the coformulation of Herceptin and Perjeta versus a separate formulation for the 2? Do you think that one would have better returns than the other?

Well certainly Roche has evaluated both options, having Governor approval already in Europe for the Herceptin SC and in the Phase I study looking at Herceptin and Perjeta. So we actually believe there is a value to pursuing both of those approaches and I think we will have to leave it for Roche to provide updates as to which one or both that they plan to pursue. But when we think about the value -- potential value to patients is the ability to instead of having a 1.5 to 4-hour infusion to get a 5 to 7-minute injection subcutaneously. So from a healthcare system perspective, from a patient perspective, and just for a health flow in the clinics perspective, our technology would bring significant value to either approached, the combination or single therapy.

Our next question will come from Andrew Peters with Deutsche Bank.

So I guess the first one from me coming back to the KEYTRUDA data expected around year-end. How do you -- do you have a clear sense of kind of internally, in terms of what you would need to see for kind of a go, no-go decision in moving forward with that program more? You mentioned kind of some cross trial comparisons. How important is it going to be to kind of matchup on a baseline characteristics basis to really understand that data? Or do you just -- is kind of the go-forward decision more related to seeing substantial separation between prior data sets and what you would expect? Maybe could you just describe that thought process a bit more?

Thanks Andrew. So recall our population are going to be HA-High and rich, but we are enrolling people irrespective of their PD-L1 status. And what we propose to do is we will take a look retrospectively at the data with different cuts based on their PD-L1 level. And if we look at what Merck has reported out, as an example, in an all comer based on the PD-L1 status for gastric cancer, the response rate reported out of (inaudible) this year was about 11%. So what we would be looking for is -- and you're absolutely right, we're trying to find as matched studies as possible, I'd be looking for a substantially higher number of responders than that. So that gives you a sense as it being as low as 11%, as to how we might be able to see a broader response than that, and if we look at non-small cell lung cancer again, irrespective of their PD-L1 status is about 18%. So we'll look for clinically meaningful, recognizing cross-trial comparisons are always a bit challenging, which is why we will look for something quite meaningful in terms of a difference.

Okay, great. And then just I guess a related question to that. Now that the Roche collaboration with TECENTRIQ is kind of up and running, have you or Roche looked at tissue samples of patients treated with TECENTRIQ and seen if there's any sort of relationship between HA status at all? Is that something that you've gone back and looked at kind of on a prospective basis?

Not for, at this time, in the ongoing TECENTRIQ studies, which obviously are just starting. We certainly from the point of view of preclinical work and on tissue samples that we have acquired, have worked on going to look at the overlap between high HA expression and high PD-L1 expression. But we haven't done it in the clinical setting as yet. But that will be evaluated over time.

Okay. So there are tissue samples that you can look at to determine response relative to HA status for prior PD-1 patients?

I'm certainly from the point of view of samples that we have been able to acquire and the team is looking at, yes.

Our next question will come from Charles Duncan with Piper Jaffray.

Hi, this is Sarah on for Charles. I had 2 questions today. First on RITUXAN HYCELA. Anything you can say about the early feedback you and Genentech are getting on this formulation from prescribers or payers? I know you are expecting conversion to track in a similar way in the U.S. market that it has in some of the European ones.

Yes, thanks Sarah. we don't have any feedback as yet. Roche had indicated that we're going to launch promptly and we do expect that update soon, but I don't have any update I can provide you today on how the launch is going. I do know that based on the expectations before the launch and the reception that was being given to the concept by patients and by infusion centers of the ability to be able to give it in just 5 to 7 minutes, there was a lot of excitement and anticipation for the approval and for the launch. And because of that, I certainly do anticipate we'll see a robust uptake just as we saw in Europe, as the benefits of reduced time and the potential for cost savings are seen by the U.S. marketplace as well.

Great. And then just one more. It sounds like enrollment in the pancreatic cancer trial is going well. Anything you can say about the group of patients enrolled on a blinded basis compared to the Phase II in terms of age or performance status or primary tumor location?

Can't say anything specifically about the study Sarah. What I can say is that one of the things we thought to do was to limit any changes between the inclusion exclusion criteria in study 202 and 301 for the goal of seeking to get as similar population as possible. So that was our intent, but we do not look at the data while the study is ongoing to know if that is the case. But it would be my expectation we will have a similar population to 202.

Our next question will come from Joel Beatty with Citigroup.

I think you mentioned earlier in the call that enrollment of the Phase III PEGPH20 trial remains in line with expectations. Would you be able to provide any information on the timing of those expectations?

Thanks Joel. What we are obviously, because this is an event-driven study, what we're really focused on is getting to the target number of progression-free survival events. So while enrollment is an important part of that, what is very important is the event numbers. And it's really too early at this point in time for us to be able to comment or project off of that.

(Operator Instructions) And our next question will come from Jason Butler with JMP Securities.

Hi, it's Roy in for Jason. I just had a quick one on the TECENTRIQ combos, studies being conducted by Roche. For the 4 additional indications beyond pancreatic and gastric cancers, are those already been selected? And is there any gating info from the first 2 studies to conducting those trials?

Yes, when we announced the collaboration, there were some additional tumors listed there. They include, I believe, non-small cell lung cancer and colon cancer. And I am not aware of any specific gating on it. What Roche indicated was they wanted to start with the second-line pancreas cancer, which is now underway. The next study will start later this year, which is gastric. And I know Roche is evaluating after that what the next order of tumors would be. But they had a firm idea when we signed the collaboration as to which tumors they would focus on.

Okay. At this time there are no further questions in the queue. So Dr. Torley, I would like to turn the call back to you for closing remarks.

That's terrific. Well thank you, everybody for joining us today. As you heard, we're making strong progress across both of our pillars, and we look forward to speaking with you on our next call as to provide the next update. Have a good evening, thank you.

Thank you, ladies and gentlemen. This concludes today's teleconference. And you may now disconnect.