Halozyme Therapeutics Inc (HALO) 2009 Q3 法說會逐字稿

Welcome to the Halozyme 2009 third 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, November 6, 2009. I would now like to turn the call over to Robert Uhl. Please go ahead.

Thank you, Adrien, and thanks also to everyone for participating in today's call. I am Robert Uhl, Senior Director of Investor Relations at Halozyme Therapeutics. Joining me on the call today from Halozyme are Jonathan Lim, President and Chief Executive Officer, and Kurt Gustafson, 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 third 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 Schlam] 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 seven 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 to 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.

Thanks Robert. Good morning everyone and thank you for joining us on the call. Halozyme continues to make exception progress in 2009. Today I'll review our recent accomplishments and update the status of our key proprietary product development programs and our three alliance programs with Roche and Baxter.

Also on the call today Kurt Gustafson, our CFO, will provide the highlights of our financial results for the most recently completed quarter and for the nine months.

We had an opportunity to see many of you at our recent Analyst Day meeting in New York on October 15 where we provided an extensive discussion of our technology and our scientific understanding of the extracellular matrix. We also provided an update on our key programs and revealed some of the earlier stage preclinical activities at Halozyme, including enzymes that degrade collagen within certain temperate and pH ranges. A replay of the Analyst Day presentation can be found on Halozyme's website at www.halozyme.com.

Since our Analyst Day we were able to make a very exciting disclosure with the announcement of patient dosing in a phase III trial of subcutaneous Herceptin with our PH20 enzyme. What makes Halozyme an incredibly unique and attractive investment opportunity is the fact that our core technology is being applied to existing blockbuster products such as Herceptin, a product with almost $5 billion in worldwide sales in oncology, mealtime insulin, which is in a rapidly growing $3 billion market in endocrinology and GAMMAGARD, a product with approximately $1 billion in worldwide sales.

We continue to pursue large multibillion franchise opportunities in the areas of endocrinology, oncology, dermatology and drug delivery and we have a robust pipeline of therapeutic candidates within these therapeutic areas.

Within these categories we have proprietary product development programs where our goal is to identify innovative new drugs with highly differentiated value added characteristics that will allow them be either best-in-class or first-in-class products that make an impact on patients' lives and enjoy large commercial sales potential.

Halozyme maintains all commercial rights on a worldwide basis to all of our proprietary programs. Now in the case of our partnered programs, we outlicensed an approved product for our technology for specific applications. As the partnerships with Roche and Baxter advance in development and reach commercialization, Halozyme expects to receive milestone and royalty payments which we may use to help fund development of our exciting proprietary programs. In fact, we've received nearly $100 million from these two partners during the past two and half years.

To remind you, we have three product development alliances. Two of the alliances involve our enhanced technology or high-dose PH20 with Roche and Baxter Bioscience, while the third partnership is with Baxter Medication Delivery for Hylenex, our FDA approved drug.

Recently the Halozyme/Roche alliance reached a significant milestone with the first patient dosing in the phase III registration trial for subcutaneous formulation of Herceptin with PH20 in the treatment of HER2-positive breast cancer. The start of the trial triggered a milestone payment of $5 million to Halozyme. According to analysts' estimates, worldwide sales for Herceptin, which is approved for intravenous or IV administration, are approaching $5 billion a year, as I mentioned earlier.

Roche also began a phase I clinical trial in September with a subcutaneous formulation of another Roche biologic using Halozyme's PH20 enzyme. This biologic represents the third exclusive target covered by the Halozyme/Roche alliance to enter the clinic. The start of this phase I trial also triggered a milestone payment to Halozyme and we believe this progress by Roche and its commitment to multiple clinical studies further signifies and validates their belief in our PH20 technology.

The Halo/Roche alliance covers up to 13 potential biologic targets, five of which have already been selected on an exclusive basis by Roche. Under terms of the alliance, milestone payments are triggered by enrollment of the first patient in a clinical trial with enhanced technology. Historically we've announced when a milestone payment has been triggered following the dosing of the first patient in a clinical trial.

We are excited by the many clinical advancements that we've seen during the past year. And while we cannot predict the specific timing for future milestones covered in the Roche agreement, we expect additional clinical progress and milestone activity to occur under the alliance.

We also have two alliance programs with Baxter. One is GAMMAGARD with Baxter Bioscience and the other is Hylenex with Baxter Medication Delivery. Now we discussed both of these programs extensively at our Analyst meeting and they were also discussed extensively at Baxter's Analyst meeting in mid-September.

In July we announced that Baxter Bioscience completed enrollment in its pivotal phase III clinical trial for subcutaneous GAMMAGARD with PH20 in the treatment of primary immunodeficiency disorder or PID. The completion of enrollment occurred about five months earlier than we had originally expected. This clinical study is a prospective, open label, non-controlled design underway in the US and Canada and has enrolled approximately 80 patients.

The primary endpoint assesses the prevention of acute serious bacterial infections during 12 months of treatment with once monthly subcutaneous administration of GAMMAGARD and PH20.

Baxter has indicated that this trial should be completed during the fourth quarter of next year with results available during the first half of 2011. Now GAMMAGARD is currently approved for IV administration and has a meaningful share of the $5 billion worldwide market for immunoglobulin.

The goal of GAMMAGARD/PH20 development program, as I mentioned, is a once-monthly subcutaneous formulation to be administered through a single injection site. Such a product would allow patients the convenience of self administration in the home setting.

Switching gears to Baxter Med Delivery, they launched Hylenex for pediatric rehydration at the ACEP or American College of Emergency Physicians meeting in early October in Boston. And a full scale marketing effort is underway.

Hylenex allows fluid administration subcutaneously instead of IV, and therefore eliminates the need to find a vein and the multiple sticks that can significantly delay the start of hydration treatment. Publication of Baxter's first pediatric hydration clinical study in the peer reviewed journal "Pediatrics" occurred just as the launch began.

The second pediatric hydration study, or PEDS-2, is currently underway and directly compares subcutaneous hydration with Hylenex versus conventional IV administration.

Subcu fluid administration with Hylenex has received high satisfaction ratings from both physicians where 96% rated the procedure easy to perform as well as parents where nine of out ten surveyed were either satisfied or very satisfied with the procedure.

Over time we anticipate gradual market acceptance of Hylenex as physicians and ER staff gain experience with the product and become aware of its benefits relative to IV fluid hydration. Interim results from the PEDS2 study presented at the ACEP meeting last month were very encouraging showing that subcutaneous hydration with Hylenex resulted in faster times for numerous endpoints including catheter placement, the start of infusion and the first urine output after the start of infusion.

2009 has been a significant year for our partnered programs as two of our alliance product candidates, subcutaneous Herceptin and subcutaneous GAMMAGARD began pivotal phase III registration trials. In addition, we're hopeful that the resources allocated by Baxter to support the full scale launch of Hylenex will lead to the realization of this product's full potential.

I believe you can see that important progress has been made for our partner alliances.

Now I'm going to switch gears and review for you some of our individual proprietary programs, beginning with ultra-fast insulin. So the primary goal of our ultra-fast insulin program is to develop a best-in-class mealtime insulin product in comparison to the current gold standard analog products that participate in the growing $3 billion prandial or mealtime insulin market.

With the more rapidly absorbed, fast acting insulin product, we seek to demonstrate one or more significant improvements relative to existing treatment, such as improved glycemic control, less hypoglycemia and less weight gain.

Currently there are three ongoing insulin studies as part of our ultra-fast insulin program. And as I mentioned at the Analyst Day, we have -- we will have had about a dozen different studies prior to entering in the pivotals that really flesh out the full value proposition of this program.

I'm going to summarize each of the three ongoing studies for you. The first is a phase II treatment study that employs a two-way crossover design in type 1 diabetic patients that compares three times per day dosing of regular insulin with PH20 to insulin analog alone.

After a one-month dose stabilization period, patients were randomized to three months of treatment with each study drug. This study will provide insight into the ability of PH20 to improve regular insulin compared to treatment with analog insulin and will also provide important safety information with regard to chronic dosing for our PH20 enzyme.

This study is fully enrolled and results should be available by the third quarter of 2010.

Our first study in type 2 patients, a standard meal study, began in July. This is a three-way crossover study that compares insulin lispro with PH20 and regular insulin with PH20 to lispro alone. Lispro is the generic name for Humalog, a widely prescribed insulin analog.

The primary endpoint of this trial is glycemic excursion over the first four hours following the meal challenge. Type 2 diabetes patients typically must take higher doses of insulin and we believe our enzyme will produce more pronounced absorption effects as the insulin dosage increases. Results from this type 2 study are expected in the middle of next year.

In September we began a phase I study to compare the three approved prandial insulin analogs with and without PH20 in a six-way crossover designed trial in healthy subjects. This euglycemic clamp study will compare the post-prandial pharmacokinetics and glucodynamics of the insulin analogs.

It's a head to head comparison of all three analogs and the way our enzyme may influence their effects. Results should be available in the second quarter of 2010.

We have also been active in presenting the results from recently completed studies in our ultra-fast insulin program. On October 1 at the European Association for the Study of Diabetes in Vienna, Halo presented additional results from our first phase II trial for PH20 combined with regular insulin and with insulin lispro compared to each insulin alone.

The objective for this study was to demonstrate in type 1 diabetes patients that regular insulin and insulin lispro administered at therapeutic doses along with our enzyme would show a superior PK and glucodynamic profile relative to dosing either insulin alone.

This study confirmed our previous finding in healthy volunteers that PH20 accelerates insulin absorption to yield a more rapid mealtime insulin concentration profile. It also extended these findings to patients with type 1 diabetes at lower, more physiologically appropriate doses of insulin. This more rapid PK profile led to improvements in the blood glucose response to a meal challenge as demonstrated in this study by the significant reduction in both peak and total hyperglycemic or blood sugar excursion for the combination of lispro with PH20 and regular insulin with PH20 versus either insulin alone.

This is an important demonstration that the accelerated PK profile associated with co-administration with PH20 can result in a clinically meaningful reduction in post-meal glycemic excursion, an important component of diabetes management.

Results from a phase I, dose ranging, PK, glucodynamic safety and tolerability study were also recently presented at the IDF or International Diabetes Federation's Triannual World Diabetes Congress in Montreal in October. This study was conducted in order to determine the optimal ratio of enzyme to insulin concentration that should be utilized in our future clinical trials.

The results demonstrated that PH20 is a potent enhancer of insulin absorption over a wide range of concentrations, 0.3 to 80 mcg per mil, with an optimum effect at about 5 mcg per mil.

Observed adverse events were generally mild and PH20 was well tolerated when co-injected with either regular human insulin or insulin lispro.

An intrasubject variability study began dosing in March and the results will be presented tonight at the Diabetes Technology Society Meeting in San Francisco. A problem in diabetes management is that the amount of insulin absorbed by the patient can vary from dose to dose. This trial characterized the PK and GD response and associative variability in each subject for two doses of each test drug, insulin analog alone, insulin lispro with PH20 and regular insulin with PH20.

The study evaluated and quantified the ability of PH20 to produce a more consistent PK profile relative to both time related and exposure related PK variance produced by the insulin analog alone.

Some of you are probably curious about our partnering strategy and the timing for such a decision with regard to our ultra-fast insulin program. We're a data driven organization and our clinical development program is designed to provide information regarding key product attributes that we, as well as a potential partner, would want to know.

Results of our first two treatment studies, the one that compares regular insulin with PH20 to analog insulin alone will be available in mid-2010. Our second treatment study should be getting underway in mid-2010 and will compare analog insulin with and without PH20 and we'd have results about a year later in mid-2011. We believe the results for these two studies will be inflection points for a potential licensing decision and will likely provide key information that a potential partner would evaluate to make that decision.

In the meantime, we're prepared to move forward and fund these studies ourselves as we continue to generate data and build value for the program.

Critical patents for the insulin analogs, NovoLog and Humalog, expire in the US in 2014 and the improvement of these insulin products with our technology may serve as an important tool for life cycle management and franchise preservation. Our technology could also provide an opportunity for a company with an existing endocrinology franchise without a presence in the insulin market to extend and broaden its product offerings.

As you can tell, our insulin program is moving forward at full speed with a broad array of capital efficient clinical investigations underway with the potential for multiple value inflection points in the future.

So now let's shift over to our PEGPH20 oncology program. The pegylated version of our hyaluronidase enzyme began its first phase I clinical study earlier this year and is still in early stage development. Pegylation of the enzyme increases its half life from less than one minute to about 24 hours. This trial in cancer patients with refractory solid tumors is a range finding, repeat dose, pharmacokinetic and pharmacodynamic safety trial of PEGPH20 administered IV as a single agent.

The study is designed to determine the recommended dose for future trials and to evaluate the safety and tolerability of PEGPH20, a wide array of solid tumor types produce hyaluronan or HA including prostate, ovarian, breast, colon, pancreas and gastric. Based on this observation, we believe that our pegylated hyaluronidase enzyme may eventually play an important role in solid tumor treatment.

Halo has conducted tests in animal tumor models that product HA and found that 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.

So that's our oncology program. Now I'm going to briefly speak about our dermatology program. Preclinical activities are continuing in our dermatology program for HTI-501, a human, not bacterial, lysosomal enzyme, also known as recombinant human cathepsin that degrades collagen accumulations found in many medical conditions.

We've been conducting studies in animal models to learn more about the dosing formulation and characterization of this new enzyme. We expect preclinical investigations to continue through 2009 followed by CG&P Manufacturing in 2010 in preparation for clinical testing.

We believe HTI-501 may play a role in both medical and aesthetic dermatology applications such as cellulite Dupuytren's contracture and other orthopedic complications.

So those are the latest updates on our proprietary product programs as well as our development partnerships. Our programs continue moving forward and we're pleased by this steady progress. Now I'll turn the call over to Kurt Gustafson for his financial commentary.

Thank you Jonathan and good morning everyone. The net loss for the third quarter of 2009 was $13.9 million or $0.16 per share compared with a net loss for the third quarter of 2008 of $10.9 million or $0.14 per share.

For the nine months ended September 30, the net loss was $45.7 million or $0.54 per share compared with a net loss of $31.8 million or $0.40 per share for the comparable period last year.

Revenue for the third quarter of 2009 was $3 million compared with $2.5 million for the third quarter of 2008. Revenues under collaborative agreements for the third quarter of 2009 were $2.6 million compared to $2.2 million for the third quarter last year.

Revenues under collaborative agreements for the third quarter of 2009 consisted of the amortization of licensees and a milestone payment received from Baxter and Roche, as well as the reimbursement of research and development work for our partners.

Research and development expenses for the third quarter of 2009 were $13.2 million. That compares with $10.1 million for the third quarter in 2008. This is primarily due to an increase in the clinical trial expenses as a result of higher spending on the ultra-fast insulin program and an increase in our R&D head count.

SG&A expenses for the third quarter of 2009 were $3.7 million compared to $3.5 million for the comparable period in 2008.

Our financial position remains solid with cash and cash equivalents of $77.6 million as of the end of September, 2009. That compares with $63.7 million as of December 31, 2008.

Our net cash burn for the third quarter of 2009 was approximately $11.6 million. Excluding the proceeds of the $40 million from our equity financing in June, we're still comfortable with our net cash burn guidance of between $30 million and $35 million for the year.

We're in the midst of our budget planning process right now and so we would expect to provide financial guidance for 2010 when we report our results for the fourth quarter of 2009 and that should be in the first part of next year.

I'll now turn the call back to you, Jonathan.

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

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Eun Yang.

Thanks. Regarding the Baxter collaboration for subcu GAMMAGARD, CSL also has a subcutaneous immunoglobulin product that is currently under regulatory review. Could you, Jonathan, could you comment on the difference between the CSL product versus subcu GAMMAGARD from Baxter?

Yes, so the CSL product, which is called Vivaglobin is essentially a product that's given subcutaneously. The problem with IGG, when you take IGG without enzyme and you try and inject it subcutaneously is the fact that it has very low bioavailability or absorption in the bloodstream relative to the IV. So the bioavailability is on the order of roughly 63% or so.

And as a result of that, you have to give a super high dose so you have to give about 135% of what you would normally give. You have to do it through multiple injection sites, often four to six injection sites, because you've got to fractionate the doses. And then you also have to give it weekly instead of monthly.

So the benefit of subcutaneously GAMMAGARD with PH20 is the fact that the bioavailability in the phase I/II study showed that the BA goes up to 93% or 92% and therefore allowing you to give just the usual dose of GAMMAGARD subcu through just one injection site and through once-monthly frequency instead of once weekly.

So from a convenience perspective, the value to the patient is significant because they can continue to get the GAMMAGARD as an outpatient therapy through one injection site on a monthly basis.

Okay. That's helpful. And one question on the financials, OpEx for the third quarter was a little bit down sequentially. You said that third quarter raise, we should assume for the remainder of the year?

I think typically our third quarter is a light spending quarter just over the summer time periods so I think if you take a look at our nine month results and use that, that might be a better trending sort of number.

Okay. Thank you.

And your next question comes from the line of Terence Flynn.

Hi, thanks for taking the question. Just was wondering if you guys could comment on now that Roche has announced the start of the phase III Herceptin trial, which is the first one under that collaboration, if that's generated any interest among new potential partners. Maybe you could provide us some insight into any discussions there. Thanks.

Sure. Any -- what I can say Terence is that any validation that we display with our existing partnerships is good signals to ongoing discussions with prospective partners, so the simple answer is yes. That's a -- it's a major milestone for the collaboration with Roche and it's beneficial for business development activities which continue to be underway.

Okay, thanks a lot.

Sure.

(OPERATOR INSTRUCTIONS) And your next question comes from Chris Geston.

Good morning.

Good morning, Chris.

This may have been answered somewhat but along the lines of the partnership question, you'd given some additional color on all that goes into those discussions, the analysis both from the potential partner and your side. Could you give any more detail as far as what you are, the profile of what you all are looking for? How many serious candidates are in that process, given that it can take 12 to 18 months, I think is what you said, and what the tone of those are and just your idea of probability and optimism.

And Chris, is your question with respect to insulin or enhanced technology or both?

Partnership in all phases, all areas.

Okay.

Partnership discussions.

Well what I can say is that just laying out the process to answer your process question. Typically you give a non-confidential presentation to the prospective biopharmaceutical partner and then if there's further interest, then you -- both parties sign a CDA or a Confidentiality Agreement and then a confidential presentation is given. And then after that if there's further interest, then it can proceed to an MTA or a Material Transfer Agreement.

And from the MTA, that's a proof of concept animal study typically for the partner to run a study or two with the enzyme plus their candidates. And then from there if there's further interest, it goes to term sheet discussions and then to contract discussions.

So that basically is the process and that process can often times take a while with the prospective partners.

And so what we have said is that we continue to move folks along that process and there's multiple parties that are moving along in different phases.

And that includes term sheet phase, proof of concept phase, everything.

Yes, I'm not going to give you a detailed breakdown but what I can say is that we're advancing discussions and with every new milestone and validation of existing partnerships, all of that is very helpful.

Thank you.

And your next question comes from Andrew Vaino.

Just a quick question on the pegylated hyaluronidase, the phase I study, in terms of adverse events, are you guys going to be looking specifically at affects on the joint movement and the like?

Hi Andrew, it's Greg Frost here. Obviously the program has all of the standard criteria to look for any [A] profile going through in addition to the pharmacokinetics as well as pharmacodynamic markers it'll look at.

Obviously as you can imagine from the standpoint of patient populations going through, always going to be comorbidities and other elements going through but the groups that running this are very experienced as far a teasing through all of those sorts of things.

Okay, thanks. And on the program for the dermal sculpting, can I assume that since you guys are going to start the G&P Manufacturing next year that a phase I clinical or an IND filing won't be until the last half of next year, first half of 2011?

In essence what we like to do from the standpoint, I think it's a good idea, is to check in mid next year when we go through from a development standpoint. I think you're aware of the steps we go through as far as G&P Manufacturing and then IND enabling toxicology.

But because in each process there's different gates where there can be elements from timing, that we think it's probably best to go through and check in mid next year. We can give you probably some more granularity about specific timing, at least then is it going to be what quarter sort of thing you might be looking at.

But it's an element that's just better to give more granularity next year.

Great, thanks.

And your next question comes from Jonathan Aschoff.

Hi guys, good morning.

Hey Jonathan.

Hi Jonathan.

I was wondering if you could help me understand the GAMMAGARD population or is there any -- are there any subpopulations that would be extremely rapid adopters of a subcu version or are there any reasons that any populations would be particularly slow, geographical, whatever reason there is?

And afterwards, if this were to work, is there any reason Baxter would ever want to continue offering an IV version?

Yes, I can go through and speak a little bit to the prevalence element going through. There are certain indications -- so if you look today for example about 40% of all IGIV is administered from home infusion services going through, so those are obviously the first key targets you think that make sense.

As far as subpopulations, there are things for example like Kawasaki's disease, which are rare indications for IGIV products, but these are given in either acute settings or other areas where they're predominantly administered in a hospital setting and while they comprise a very small part of the overall market, those would be specific areas where we wouldn't see rapid adoption.

So obviously you could go through and say that people that are on subcu today, those are going to be your early adopters, and then probably the folks that are using the product at home.

Okay. And you were saying 40% at home.

That's -- if you go back, there's immunodeficiency surveys that go through and have some breakdowns of these products, a little dated but still quite relevant.

Okay. Thank you very much.

And there are no further questions at this time.

All right, well thank you everyone for joining us on this call. As I mentioned in our opening remarks, Halozyme has accomplished an impressive list of milestones in 2009. Our ultra-fast insulin program has advanced into phase II and additional studies continue to build value for the program.

Roche has started its first phase III registration trial for a subcutaneous formulation of Herceptin with PH20 resulting in a $5 million milestone payment to Halozyme.

Baxter's phase III registration study for subcutaneous GAMMAGARD with PH20 is fully enrolled and is expected to be completed by the end of 2010.

The launch of Hylenex is underway for pediatric rehydration with a substantial marketing resource commitment by Baxter.

In June Halozyme successfully completed a $40 million equity financing when the window for biotech first opened. We expect the momentum for many of our activities will continue into 2010 when we look forward to updating you on our future progress.

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 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 our net cash burn of approximately $25 million during the first nine months of 2009, excluding the effect of the June financing.

We believe our 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 and will be participating in the Lazard Capital Markets Healthcare Conference in New York on November 18 and we'll also be at the JPMorgan conference in San Francisco during the second week of January.

Again, thank you for your interest in Halozyme and for your participation in today's call. Take care everyone.

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