Halozyme Therapeutics Inc (HALO) 2009 Q1 法說會逐字稿

Good afternoon. Welcome to the Halozyme 2009 first-quarter financial results and pipeline update conference call. At this time all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded today, May 8 of 2009.

I would now like to turn the call over to Mr. Robert Uhl. Please go ahead.

Thank you, Natalia, and thanks also to everyone for participating in today's call. I am Robert Uhl, Senior Director Investor Relations at Halozyme Therapeutics. Joining me on the call today from Halozyme are Jonathan Lim, President and Chief Executive Officer, in David Ramsay, Chief Financial Officer. Additional members of the Halozyme management team will also be available to address your questions during the Q&A portion of the call.

This morning, Halozyme released 2009 first-quarter financial results. If you have not received this news release or if you would like to be added to the Company's distribution list, please call [Alex Schlom] at 858-704-8288.

This call is also being webcast live over the Internet at www.Halozyme.com, and a replay will be available on the Company's website for the next 30 days.

Before we begin, let me remind you that during this conference call we will be making forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. All statements made during this conference call that are not statements of historical fact constitute forward-looking statements. The matters referred to in forward-looking statements could be affected by the risks and uncertainties of Halozyme's business, both known and unknown. Such risks inherent in the Company's business are described in our filings with the Securities and Exchange Commission as well as in our news releases. The Company's actual results may differ materially from those expressed in or indicated by such forward-looking statements.

With that, I would like to turn the call over to Jonathan Lim, President and CEO.

Thank you, Robert. Good morning, everyone, and thank you for joining us on the call today. I'll review our accomplishments so far in 2009 and update the status of our key product development programs, with a particular emphasis on Insulin-PH20, where much of our clinical development activity is focused.

Also on the call today David Ramsay, our CFO, will provide the highlights of our financial results during the quarter.

At this point, I'm pleased to introduce the newest member of the Halozyme executive management team, Kurt Gustafson, who will assume the role of CFO on May 15. Kurt joined Halozyme at the beginning of April from Amgen, where he held various financial management positions during the past 18 years. His most recent position was vice president, manufacturing finance, where he was responsible for financial planning and cost accounting for all of Amgen's worldwide manufacturing sites.

Some of Kurt's other positions at Amgen included CFO of Amgen's European operations, head of corporate financial planning and analysis, and treasurer. Kurt, welcome aboard.

Thank you, Jonathan, and good morning, everyone. It's good to be here. It's been four weeks since my arrival, and I can tell you that my excitement for the technology and prospects for the Company grow on a daily basis.

I've been impressed with the caliber of people that I've met here within Halozyme, and I look forward to getting to know each of Halozyme's stockholders and other members of the investment community. It's a privilege to have the opportunity to join this Company at such an exciting point in its development. So thank you very much, Jonathan.

Thanks, Kurt. It is I'm pleased with the forward momentum and the progress Halozyme has made so far in 2009. During the first quarter, two important Phase 1 clinical trials began.

In January, Roche began its second Phase 1 clinical trial with a biologic directed at an exclusive target covered in our alliance. This second Roche biologic in the clinic joins the first Roche biologic, which entered the clinic in the fourth quarter of last year.

In March, Halozyme's proprietary PEGPH20 began its first Phase 1 clinical trial in refractory cancer patients with solid tumors. We anticipate additional clinical activity for several of our development programs as we move through 2009.

So let me take a minute to review with you some important aspects of our business strategy. HALO continues to pursue in parallel four multi-billion-dollar franchise opportunities in the areas of endocrinology, oncology, dermatology, and drug delivery. Within these four categories, we have proprietary product development programs where our goal is to identify innovative new drugs with differentiable value-added characteristics that will allow them to be either best-in-class or first-in-class products with large commercial sales potential.

Halozyme maintains all commercial rights on a worldwide basis to all of its proprietary programs. We also have partnered programs with Roche and Baxter where we outlicensed an approved product or our technology for specific applications. As our partnerships advance in development and reach commercialization, Halozyme expects to receive milestones and royalty payments which we may use to help fund the development of the proprietary opportunities.

We firmly believe that the advancement of development activities and the achievement of milestones related to our proprietary as well as our partnered product candidates are raising the intrinsic value of Halozyme.

All of our programs utilize our unique enzyme technologies that permit a temporary alteration of what's called the extracellular matrix, which is the area outside of the cell. This alteration allows for the delivery of a pharmaceutical small-molecule drug or a large-molecule biologic in a unique way.

For example, application of our technology to an intravenously administered therapeutic such as a biologic can allow it to be formulated for subcutaneous delivery. We know of no other company besides Halozyme that utilizes this unique strategy focused on the extracellular matrix.

So now I am going to review for you some of our individual programs. I will begin with Insulin-PH20. On Saturday, June 6, at the American Diabetes Association, or ADA, meeting in New Orleans HALO will present preliminary results for our Phase 2 insulin study. For this Phase 2 clinical trial, we enrolled type 1 diabetic patients with the objective of demonstrating that regular insulin and a gold standard insulin analog treatment administered at a therapeutic dose along with our enzyme would show a superior profile relative to dosing the insulins alone.

We designed this Phase 2 study to compare both the insulin pharmacokinetics, or PK, and the glycemic response to a standardized liquid meal challenge after administration of each of four dosage regimens -- Humulin R, with and without PH20; and Humalog, which is the analog insulin, with and without PH20. The combination doses of insulin plus enzyme are co mixed and administered to the patients as a single injection.

This crossover design, single blind, open label, liquid meal study collected data on roughly 20 patients who completed the trial. Each study drug was injected subcutaneously into the abdomen immediately prior to ingestion of the liquid meal.

The primary endpoint in the study was area under the insulin time concentration curve, or AUC, during the first 60 minutes after test drug injection. We designed the study to determine if the insulin -- either regular or analog --plus PH20 enzyme combination will result in significantly greater AUC during this early time period relative to the insulin alone. A faster absorption of insulin when administered with our PH20 enzyme means that insulin should produce its therapeutic effects more rapidly.

Along with faster absorption and onset of effect which more closely resembles prandial or mealtime insulin release in a healthy person, we should also observe a faster offset. So a faster onset and more rapid offset should translate into patient benefits that we hope to demonstrate in future clinical studies such as less hypo or low blood sugar, hypoglycemia; better glycemic control; and possibly less weight gain.

Two additional Insulin-PH20 clinical studies are also under way. A Phase 1 dose-ranging PK glucodynamic safety and tolerability study began during the fourth quarter of last year, and the enrollment of 40 subjects is proceeding according to plan. This study will identify the optimum concentration of PH20 to carry forward during future developments.

The second study, which is an intra-patient variability study, began patient dosing in March with a goal of 18 evaluable patients. This trial will compare insulin PK measures in each subject for two doses of each test drug -- insulin analog alone; analog with PH20; and regular insulin with PH20. The variability study will evaluate and quantify whether or not the presence of PH20 produces a more consistent PK profile relative to the PK variance produced by the insulin analog alone.

Both of these studies should be completed by the end of the year.

In addition to the ongoing insulin clinical trials, a scientific paper describing the results of our initial Phase 1 study in healthy volunteers that we presented at the ADA last June was accepted for publication by a peer-reviewed journal. We anticipate publication of the article this summer.

Another study in the planning stage with a start time that we anticipate in the fourth quarter is a repeat dose insulin study. In this study, patients will self-administer insulin with and without PH20 three times a day on an outpatient basis for an extended period of time. We believe the results will provide important insight for both efficacy as well as safety.

As you can tell, our insulin program is moving forward at full speed with a broad array of clinical investigations as well as potential for value inflection points under way.

The other program in our endocrinology franchise, Bisphosphonate-PH20, continues its Phase 1 dose-ranging safety and tolerability study which began in the fourth quarter of last year. We anticipate announcing the results for this trial by the end of the year.

Now I am going to shift over to our PEGPH20 oncology program. As you will recall, PEGPH20 is the PEGylated version of our hyaluronidase enzyme, which is the long-acting version of the enzyme. It began its first Phase 1 clinical study at the end of the first quarter.

This trial is a range-finding repeat-dose PK and pharmacodynamic safety trial of PEgPH20 administered IV as a single agent in cancer patients with refractory solid tumors. The primary outcome will be to determine the recommended dose for Phase 2 and to evaluate the safety and tolerability of PEGPH20. Results from the first Phase 1 study should be available by the middle of next year.

Hyaluronan or HA is a dominant component of the tumor micro-environment for many subsets of solid tumors. This is why we believe that our hyaluronidase enzyme could eventually play an important role in solid tumor treatment. Solid tumor types known to produce HA include prostate, ovarian, breast, colon, pancreas, and gastric.

Based on our test in mouse tumor models that produce HA, the removal of HA with our novel PEGPH20 enzyme occurs in a dose-dependent manner which results in a meaningful reduction in tumor size and prolonged time-to-progression compared to controls. HA removal also leads to significant reductions in tumor interstitial fluid pressure, or IFP, and tumor diffusion-weighted MRI.

Now I am going to speak briefly about our dermatology program. Our preclinical dermatology program remains active, and investigations are continuing with HTI-501, a human lysosomal enzyme that degrades collagen. We've been conducting numerous studies in various animal models to learn more about the dosing, formulation, and characterization of this enzyme. Our preclinical investigations will continue through 2009. We believe that HTI-501 may play a role in both medical and aesthetic dermatology applications such as cellulite, Dupuytren's contracture, or scarring.

So those are the latest updates on our proprietary product programs. Now let's turn to our development partnerships.

As you will recall, Halozyme has three product development partnerships. Two of these involve our Enhanze Technology with Roche and Baxter BioScience, while the third partnership is with Baxter Medication Delivery for Hylenex, our FDA-approved drug. Let me first give you an update on our Roche activities.

As I mentioned, Roche entered the clinic this past December with its first biologic agent combined with PH20 directed against one of the four exclusive targets covered in our partnership. Soon after, a second clinical study began in January with another Roche biologic combined with PH20, directed against a second exclusive target. We anticipate that both of these Phase 1 studies should be completed by this summer.

Although we are not permitted to disclose which biologics in the partnership have entered the clinic, we are excited by these initial steps of clinical advancement and believe eave the progress by Roche exemplifies its commitment to our technology. We cannot predict the specific timing for future milestones covered in the Roche agreement; but we do expect additional milestone activity to occur in 2009.

Switching gears, our other Enhanze Technology partnership is with Baxter BioScience. Halozyme is pleased with the progress the two companies have made since the partnership began in September 2007. Baxter completed its initial proof-of-concept Phase 1/2 study for Gammagard with PH20 during the first quarter of 2008. At the end of last year, the pivotal Phase 3 clinical trial with Gammagard Liquid plus Enhanze Technology as a monthly injection under the skin via a single site for the treatment of primary immunodeficiency, or PID, was underway.

This clinical study is a prospective, open label, noncontrolled design that will be conducted in 10 to 20 centers in the US and Canada and will enroll approximately 80 patients. It will assess the prevention of acute serious bacterial infections and the pharmacokinetic parameters of subcu administration of Gammagard Liquid and PH20. Patients in the study will be treated for approximately one year. And depending on the rate of patient enrollment, the study may be completed by the end of 2010 or early 2011.

Our remaining partnership is with Baxter Medication Delivery for Hylenex. Hylenex is approved by the FDA to increase the absorption and dispersion of other drugs and for subcutaneous fluid administration. Baxter Med Delivery remains on track with its plans to launch Hylenex -- it's in the pediatric hydration market -- during the fourth quarter of this year and continues to prepare its marketing capabilities to support the product. Baxter completed a pediatric hydration clinical trial last year, and a second pediatric hydration study is currently underway.

So based on my brief comments I'm sure that you can see that each of our partnered programs is moving forward and continuing to make steady progress. Now I'll turn the call over to David Ramsay for his financial commentary.

Thank you, Jonathan, and good morning, everyone. The net loss for the first quarter of 2009 was $14.7 million or $0.18 per share, compared with a net loss for the first quarter of 2008 of $10 million or $0.13 per share.

Revenue for the first quarter of 2009 was $2.8 million compared to $1.8 million for the first quarter of 2008. Revenues under collaborative agreements for the first quarter of 2009 were $2.7 million compared to $1.7 million for the first quarter of 2008.

Revenues under collaborative agreements for the first quarter of 2009 primarily consisted of the amortization of license fees and milestone payments received from Baxter and Roche of $1.7 million, and research and development reimbursements from Baxter and Roche of $1 million.

R&D expenses for the first quarter of 2009 were $14 million, compared with $8.4 million for the first quarter of 2008. This is primarily due to an increase in outsourced research and development expense due to spending on our PEG and Insulin-PH20 programs, as well as an increase in research and development headcount and an increase in production costs associated with the manufacturing scale-up of our PH20 and PEGPH20 enzymes.

SG&A expenses for the first quarter of 2009 declined to $3.5 million compared to $4.2 million for the comparable period in 2008, primarily reflecting decreases in legal expenses.

Our financial position remains strong with cash and cash equivalents of $62.1 million as of March 31, 2009, compared with $63.7 million as of December 31, 2008. During the first quarter of 2009, Halozyme received cash payments of $7 million from Roche, $5.5 million from Baxter, and $2.2 million related to the exercise of warrants. Thus our net cash burn for the first quarter of 2009 was approximately $1.7 million.

I want to conclude by saying that the past six years as CFO of Halozyme have been the most rewarding in my professional experience. I'm excited to be transitioning to the new position of Vice President, Corporate Development, and that I will now be part of our commercial team.

I will of course miss my frequent interactions with you, the investment community; but you're in very good hands with Kurt Gustafson. He is a fantastic addition to our team.

That concludes my remarks and now I'll turn the call back over to Jonathan.

Thank you, David. Some of you are probably not aware that David joined Halozyme as Chief Financial Officer in 2003. He was the 10th employee at our Company. We greatly appreciate David's many years of service as CFO and look forward to working with him in his new role.

Now let me review with you a summary of the important Halozyme milestones that we expect to occur during the remainder of 2009. For the insulin program we will have multiple events this year including presentation of interim Phase 2 data for Insulin-PH20 at the ADA meeting in June; followed by presentation of the full dataset for Phase 2 Insulin-PH20 at a medical meeting in fourth quarter of '09; initiation of the Insulin-PH20 with three times per day dosing study in the fourth quarter of '09; and top-line data from the Bisphosphonate-PH20 Phase 1 clinical trial in the fourth quarter of '09.

We are also anticipating Hylenex launch by Baxter in the pediatric hydration market also in the fourth quarter; and completion of enrollment by Baxter for the Phase 3 Gammagard PH20 trial in the treatment of primary immunodeficiency disorder also during the fourth quarter.

Additional progress that we expect to occur this year but where I can't give you precise timing is the initiation of an additional clinical trial or trials under our Roche partnership, plus the accompanying milestones that could be triggered by such trial initiations.

At Halozyme, I believe we're making tremendous progress in advancing both our proprietary and our partnered programs as rapidly as we can. With that overview, let's open it up for questions. Operator?

(Operator Instructions) John Newman.

Hi, guys. Thanks for taking the question. On the partnership that you have with Roche, would you be able to talk in any sort of detail about whether you receive or would receive any type of milestone payment if any of the early-stage studies were positive? And also if you would receive an additional payment if any of -- if that product was taken into a later-stage trial? Thanks.

Yes, the way the milestones work is that they are pegged to the initiation of clinical trials at various stages. So for instance, when you initiate a Phase 1 clinical study, then we get a milestone for that. We also get milestones for Phase 2 initiation, Phase 3 initiation.

So given the fact that it's likely that if a product is looking like the Phase 1 data justify proceeding to the next stage, then we'd get a Phase 1 milestone; and then once it starts the Phase 3 we get the milestone based on the Phase 3.

So if the study in Phase 1 is successful, then the way we receive the milestone is that program advancing to the next phase of clinical testing. If it's unsuccessful and doesn't proceed, then we don't get the milestone.

Okay. Should we expect to see any type of data from Roche's Phase 1 study that they have going on right now come out at ASCO? I know that that meeting is coming up; but I was just curious if a poster might pop up somewhere.

Yes, based on our understanding, the data from the Phase 1 will be used to instruct the go/no-go for the subsequent Phase 3 study. So it is unlikely that there will be any public disclosures of the Phase 1 data themselves.

So if you see a subsequent trial with a given biologic, then that means that the data from the Phase 1 justified that go decision.

On the Gammagard program, some of the earlier data that I believe was released publicly suggested that the bioavailability of the injected product was similar to the IV. Do you expect to see any additional details around that data before we would get subsequent data on the Phase 3 trial?

John, can you repeat that last part again?

Just wondering if we would expect to see any further details on that previous bioavailability data before results of the Phase 3 trials that are currently ongoing.

Yes, John, the full dataset were presented at the AAAAI conference last year.

There is actually a pretty extensive poster of that data we can get to you as well, if you don't have a copy of it.

Okay, great.

I think it's on our website.

Thank you.

Andrew Vaino.

Thanks for taking my call. I had a quick scientific-y question if I may. So the PEGylated hyaluronidase for cancer, what kind of adverse event profile would you expect?

I will let Greg Frost, our CSO, answer that question.

The scientific-y question?

Yes.

So from the standpoint of administration of the compound, it's been tested from a perspective of looking at repeat dose administration in a two-species toxicology model. So from the standpoint of the NOAEL that was identified, the only parameter that came up that we had monitored early on was actually a mild prolongation of aPTT, which was only seen actually in rodents. That actually was the determination of the No Adverse Effect Level between 0.5 and I think 5 milligrams per kilogram.

Can you say what those letters mean?

The NOAEL is the No Observed Adverse Effect Level. So obviously that is a key parameter that we will be looking at in this program.

There were other elements regarding -- that we will be monitoring very carefully that include things like transient weight loss and things of that nature. So from the context of monitoring the process of a dose escalation, obviously we have a two-species robust model in that context which doesn't identify anything that will be a large red flag going forward.

However, obviously recognizing that we will be starting in a terminal cancer population one want to go through and obviously proceed cautiously, going through on a dose escalation.

But overall from the standpoint of a profiling set, we have repeat dosing data in rodents for example over very long periods of time.

Okay. I assume you didn't do any monitoring of, for example, the viability of the joints of the rodents at any point?

Histologic analysis was done, for example, both in rodents as well as in the nonhuman primates. That was a primary endpoint to go through and examine articular cartilage surfaces, which were histologically unremarkable.

Okay, excellent. Thank you.

(Operator Instructions) [Wunan Ji].

Hi, thanks for taking my questions. Wunan in for Eun. I was wondering if you guys can give an update on how you see -- for the insulin program, how that will move forward regulatory-wise. In terms of what you guys are thinking in terms of pivotal trials; what additional studies you could run and what stage with a potential partner.

Would you guys maybe be looking to partner this, or would the potential partner be willing to look at this? And what type of data do you guys need to show?

Right, so there's a number of different options with our insulin program, and we're exploring the value of both the regular with PH20 insulin program, as well as the analog insulin with PH20 program. We are open to really just driving the value and optimizing the value of each of those programs as much as we can with these fairly low-cost clinical pharmacology and Phase 1 and Phase 2 studies.

To take one of these programs all the way through to registration would require what we believe would be 505(b)(2) pathway. So that would basically be a filing for either the insulin plus PH20 or the analog plus PH20 program, which means that the bar for the number of patients that would be required for the pivotal studies would be lower than if it were a full 505(b)(1) pathway.

So we are currently open to all options. We've mentioned that we've been in discussions with various pharmaceutical companies that are interested in this space. We're basically seeking to maximize the value of the overall franchise.

Thanks very much.

(Operator Instructions) There are no further questions.

Okay. Thank you, everyone. So Halozyme's business strategy strikes a balance between proprietary product development programs and partnerships with other companies that aim to leverage our core technology and knowledge base.

We're applying our core technology and expertise across several therapeutic categories that represent large established markets and substantial multi-billion-dollar commercial opportunities. In contrast to the business plans of many biotechnology companies, we're not just developing one or two products. We continue to operate in a capital-efficient manner, as demonstrated by our use of $34 million of net cash for the year 2008, followed by net cash burn of less than $2 million during the first quarter of 2009.

We believe this strategy will provide multiple opportunities for success that can drive significant value for our shareholders. We look forward to updating you again soon on our progress.

Remember, we'll be presenting Insulin-PH20 data at the ADA meeting on Saturday, June 6, in New Orleans. We will also be participating in the Jefferies Healthcare Conference in New York on June 17 and 18. Again, thank you for your support, for your interest in Halozyme, and for your participation in today's call. Take care, everyone.

This concludes today's conference call. You may now disconnect.