Halozyme Therapeutics Inc (HALO) 2010 Q1 法說會逐字稿

Greetings and welcome to the Halozyme Therapeutics first quarter 2010 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.) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Robert Uhl, Senior Director of Investor Relations at Halozyme Therapeutics. Thank you, Mr. Uhl. You may begin your conference.

Thank you, Jacquie, and thanks also to everyone for participating in today's call. I am Robert Uhl, Senior Director of Investor Relations at Halozyme. 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 2010 first quarter financial results. If you have not received this 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 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. I'm going to review our accomplishments since our last conference call and provide an update on 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 quarter.

Today I'm pleased to inform you that the abstracts for three of our Ultra-Fast Insulin studies were accepted for poster or oral presentation at the American Diabetes Association's Seventieth Scientific Sessions to be held in Orlando this coming June 25 to 29. The first Halozyme abstract selected for oral presentation is the first head-to-head study of all three currently marketed insulin analogs--Novolog, Humalog, and Apidra. This Phase 1 study compares the three approved prandial insulin analogs with and without PH20 in a six-way crossover design trial in healthy subjects.

This euglycemic clamp study compared the postprandial pharmacokinetics and glucodynamics of the three analogs in a head-to-head comparison and the way our enzyme influences their absorption kinetics and subsequent effects.

Another abstract is a Phase 2 mealtime study in Type II diabetes patients. In contrast to last year's study that was performed in Type I patients, this study compares three test drugs--regular insulin plus PH20, analog insulin plus PH20, and analog insulin alone. The analog insulin we used in this study is lispro, the generic name for Lilly's Humalog. The primary endpoint of this trial is glycemic excursion over the first four hours following the meal challenge. This poster was selected to be one of the 100 posters showcased in the prestigious President's Poster Session at ADA.

Our final accepted study, which will be a poster presentation, is a preclinical investigation to determine a suitable animal model for comparative PK of mealtime insulin with and without Halozyme's PH20.

I want to congratulate the Ultra-Fast Insulin team at Halozyme for making this our Company's most significant presence at ADA since our program began. It should be a great conference for us, and I look forward to seeing many of you shareholders there.

As a reminder, the primary goal for Halozyme's Ultra-Fast Insulin program is to develop a best-in-class mealtime insulin product compared to the currently prescribed analog products that participate in the growing $3.8 billion prandial, or mealtime, insulin market.

With a more rapidly absorbed, faster-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.

To bring you up to date on our other Ultra-Fast Insulin activities, we're nearing completion of our Phase 2 treatment study that employs a two-way crossover design in patients with Type 1 diabetes. This clinical trial compares regular insulin with PH20 to insulin analog alone used as the mealtime insulin, so dosing is three times a day.

After a one-month dose stabilization period, patients were randomized to three months of treatment with their first study drug, after which they crossed over to the other study drug for an additional three months of treatment.

This study will provide insight into the ability of PH20 to improve regular insulin compared to treatment with analog insulin alone and, more importantly, will also provide safety information with respect to three-times-a-day chronic dosing for our PH20 enzyme over a three-month period. Results should be available in the fall, and we expect to present them at an appropriate diabetes meeting.

Two additional treatment studies should be getting underway during the third quarter of this year, one in Type 1 diabetes patients and the other in patients with Type 2 diabetes. Each study will compare an analog plus PH20 versus an active comparator of the analog alone.

As a reminder, aspart is the generic name for NovoLog, lispro is the generic name for Humalog, and glulisine is the generic name for Apidra.

Endpoints in these trials will be medical benefits, such as improved glycemic control, or A1C, reduced hypoglycemia, and reduced weight gain. We're still working out the specifics related to the trial design, but we plan to begin these trials in the third quarter of this year and have results about a year later. At that point, we'll have data from at least nine Ultra-Fast Insulin clinical trials.

Our Ultra-Fast Insulin partnering strategy and the timing for such a decision remains consistent with how we've described it in the past. 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.

We're driving the value of the program with the results from our clinical trials, and we continue to provide periodic updates to potential partners as new information becomes available.

So now let me update you on our PEGPH20 program and its potential in the treatment of solid tumors. The PEGPH20 program continues in a Phase 1 dose escalation repeat dose safety study in cancer patients with refractory solid tumors. Remember, pegylation of our hyaluronidase enzyme increases its half-life in the body from less than a minute to about 48 to 72 hours and allows the agent to be given systemically. The ongoing Phase 1 study is designed to determine the recommended dose for future trials and to evaluate the safety and tolerability of PEGPH20.

Roughly 20% to 30% of solid tumors accumulate HA. In the case of pancreatic cancer, we found that approximately 87% of these tumors accumulate HA, potentially making this a very attractive target for Phase 2 studies. Last month we presented the results of additional preclinical investigations with PEGPH20 at the AACR meeting in Washington, DC.

Our pharmacology investigations continue to demonstrate that tumors with high amounts of hyaluronan are the most likely to respond to treatment with PEGPH20, and those tumors where HA is low or absent show no response to PEGPH20 treatment.

Utilizing a mouse as xenograph model, we have found a strong response to the combination of PEGPH20 and gemcitabine in HA-positive human pancreatic models. Significant responses to the combination of gemcitabine and PEGPH20 were found, even with a large tumor burden. Given the stromal-rich nature of these tumors and poor prognosis for patients, we're very encouraged by these findings and have initiated additional pancreatic cancer models to address the potential utility of studying PEGPH20 with gemcitabine in pancreatic cancer.

We expect to provide high-level results from the PEGPH20 clinical program during the second half of this year, along with additional insight into a clinical development strategy for this exciting compound.

Our other proprietary programs have remained on track with the last update that we provided back in March.

Now let's move over to our partnership alliance activities. An important part of our business strategy has been to out-license an improved product or proprietary technology for specific applications. In fact, if you look back, since the end of 2006, we've received over $100 million from our three alliance partnerships. As the partnerships with Roche and Baxter advance in development and reach commercialization, Halozyme expects to receive milestones and royalty payments, which we may use to help fund development and commercialization of our proprietary programs.

The Halozyme-Roche alliance continues to make steady progress. The Phase 3 registration trial for a subcutaneous formulation of Herceptin with PH20 in the treatment of HER2-positive breast cancer, which began last October, continues to enroll patients. Roche started a Phase 1 clinical trial last September with a subcutaneous formulation of MabThera, rituximab, that also uses our PH20 enzyme. MabThera's approved for the treatment of non-Hogkin's lymphoma.

The combined sales for these two products of Herceptin and MabThera totaled approximately $11 billion in 2009. This past January, Roche announced an investment of $185 million to develop a ready-to-use device that would be capable of administering Herceptin subcutaneously in less than five minutes.

For most patients, treatment with Herceptin involves an inconvenient and time-consuming 30- to 90-minute IV infusion. Subcutaneous administration of Herceptin and PH20 with the proprietary device holds the promise of a five-minute administration, which could be a meaningful timesaver for patients and is much more convenient.

Use of the device would not require any mixing or reconstitution of the drug by a pharmacist, which represents a potential savings of healthcare resources.

I believe that if women have the choice between a half-day trip to the IV infusion center or less than five minutes of subcutaneous administration, many will choose the subcutaneous option. Use of this device could also be applied to other biologics covered by the Halozyme-Roche alliance.

We're excited by Roche's many clinical advancements that we've seen during the past 18 months. We cannot predict the specific timing for future milestones covered in the Roche agreement, but we do anticipate additional clinical progress and milestone activity to occur during 2010.

So now we're going to switch gears to our two alliance programs with Baxter--Gammagard with Baxter BioScience and Hylenex with Baxter Medication Delivery, which are also moving forward well. The pivotal Phase 3 clinical trial for subcutaneous Gammagard with PH20 in the treatment of primary immunodeficiency disorder, or PID, should be completed during the fourth quarter of this year. Top line results should be available after completion of this study, and Baxter expects to file its BLA during 2011.

The primary endpoint of this study assesses the rate of acute serious bacterial infections during 12 months of treatment with once-monthly subcutaneous administration of Gammagard and PH20. The goal of the Gammagard-PH20 development program is a once-monthly subcutaneous product offering to be administered through a single injection site. Such a product would allow patients the convenience of self-administration in the home setting and more freedom and flexibility in the decision of when to administer their treatment.

Switching gears to Baxter Medication Delivery, they launched Hylenex for pediatric rehydration last October, and a full-scale selling and marketing effort is currently 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. Sales continue to increase steadily for Hylenex, but it's still in the introductory phase of launch.

A second pediatric hydration study called PEDS 2 directly compares subcutaneous hydration with Hylenex to conventional IV administration. Final results of this study should be available later this year, and we believe this study will further validate the advantages of subcu hydration with Hylenex.

Under the terms of the licensing agreement with Baxter, Halozyme received $10 million of prepaid royalties for Hylenex, so additional cash payments to us will most likely not be received in 2010 for the product.

I'd now like to highlight some positive news regarding recent developments that have further strengthened the supply chain for the manufacture of our rHuPH20 active pharmaceutical ingredient. Early last month we announced the execution of three commercial supply agreements with our existing production partners for the manufacture of rHuPH20.

With Avid Bioservices, we entered a new contract and amended an existing supply agreement. With Cook Pharmica, we entered a new commercial supply agreement. And as a result of the agreements that are now in place with these two capable contract manufacturers, we believe we've strengthened our supply chain for the manufacture of both current as well as future products.

So these are the latest updates on our proprietary product programs and our development partnerships. Our programs continue moving forward, and we're very 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 first quarter of 2010 was $11.8 million, or $0.13 per share, compared with a net loss for the first quarter of 2009 of $14.7 million, or $0.18 per share.

Revenue for the first quarter of 2010 was $3.4 million compared with $2.8 million for the first quarter of 2009. Revenues under our collaborative agreements for the first quarter of 2010 were $3 million compared to $2.7 million for the first quarter last year. Revenues under the collaborative agreements for the first quarter of 2010 primarily consisted of the amortization of upfront fees and R&D reimbursements from both Baxter and Roche.

Research and development expenses for the first quarter of 2010 were $11.5 million compared to $14 million for the first quarter of 2009. This decrease is primarily due to lower manufacturing costs incurred in the quarter that are associated with the making of clinical trial material, along with the decrease in clinical trial expenses.

SG&A costs for the first quarter of 2010 were $3.8 million compared to $3.5 million last year and reflect an increase in market research activities.

We ended the first quarter with cash and cash equivalents of $55.2 million compared with $67.5 million as of December 31, 2009, and $62.1 million as of March 31, 2009. Our net cash burn for the first quarter of 2010 was approximately $12.3 million.

For 2010, Halozyme continues to anticipate total operating expenses will be in line with those reported for 2009, which was $72 million. We are also still comfortable with our full-year net cash burn guidance of $40 million to $45 million. Our guidance is based on estimates for various pre-clinical and clinical programs and the achievement of various milestones under our existing collaborative agreements. We've included milestones which, based on our estimates, have a high probability of occurring. Our guidance does not assume any cash flows associated with new alliances or partnerships.

And with that, I'll turn the call back to Jonathan.

Thanks, Kurt. I'm pleased with the progress Halozyme continues to make in advancing both our proprietary programs and our partnerships. And with that overview, let's open it up for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS.) Thank you. Our first question is coming from the line of David Moskowitz of Madison Williams.

Hi, thanks, and good morning. The first question is you had R&D that looked a little bit light in the first quarter. Can you explain why that was and give us an idea of what the R&D launch will look like as we progress through the year?

If you take a look at the timing of our expenses, as I mentioned, we're comfortable with the full-year guidance that we have. If you go take a look at last year's run rate expenses, both on the R&D and SG&A line, we don't anticipate any major differences this year.

This is really just due to the timing of when clinical trials start and timing of those expenses, as well as, as we make clinical trial material and that material is released, it causes some lumpiness in our expenses there. So this is a little bit of a timing aberration and you shouldn't probably use that as a run rate going forward, but stick with our full-year guidance that we have.

Great. And in the past, you guys, I just want to spend some time on the insulin PH20 product with a few questions here. In the past you guys have mentioned that the insulin PH20 formulations are appropriate for use in pump devices for delivering insulin. Could you elaborate on the advantages of that and why that's important?

Hi, good morning. This is Greg Frost here. So with regards to utility in pumps, as you know, pumps are often used for diabetics from the context of giving both basal as well as bolus insulin. So you take both products out of a single site rather than giving an injection of a basal, for example, in the morning and then giving prandial injections throughout the day.

One of the key advantages of the addition of PH20 into a pump system is that the same use that you need as far as a prandial bolus during meals, the same benefits that we would anticipate from the context of an injection of prandial insulin PH20 could potentially be achieved in a pump-based system.

So that is, in essence, no different than what it would be in the context of an injectable. Of course, there are forward-looking projections as well in the context of things like closed-looped systems where that faster onset could potentially allow continuous glucose monitoring, but to be integrated such that it could essentially have no need to go through and actually administer material from the individual, but actually be controlled by a sensor.

But principally, we're looking at this in the context of use in the existing pump systems.

And have you done any studies whereby you've used insulin PH20 within a pump?

Not yet, David, but those are in the works for potential future studies that we might explore.

Appreciate it. And in terms of comparing regular insulin plus PH20 versus analog insulin, can you talk about why you'd want to make that comparison? What is the commercial reason for that?

Yes, so from the initial proof-of-concept study that we did in the healthy volunteers, we showed that the regular insulin plus PH20 had a superior profile in terms of the pharmacokinetic profile to the analog alone. Now, the analog plus PH20 was even faster than the regular insulin plus PH20. But we're basically exploring both the regular insulin as well as analog insulin with PH20.

And in terms of the current TID study, or the three-times-daily study that's underway with regular insulin plus PH20, that trial is really helping us in terms of ascertaining the safety of repeat injection in Type 1 patients where they get as many as 270 exposures to the PH20 enzyme. And so that will really be informative from a safety perspective.

It also is a bit of a dry run for the analog TID study that we plan to do starting in Q3, and so we were able to work out a lot of the operational details with the pump and we've started the continuous monitoring and other aspects.

I guess my question is more targeted to the commercial side. If regular insulin plus PH20 equals analog insulin in terms of efficacy, are there certain advantages from the safety side, for example, or the cost side that you could talk about?

Yes, I think commercially what you want to do is explore the product with the best profile. And so if regular insulin plus PH20 has a similar profile to the analogs alone, but if you have a potential best-in-class product with the analog plus PH20 versus analog, you probably want to bet on the product with the best commercial profile.

And one last question. Just to clarify on the six-way crossover study, so you are actually running, I guess, the first head-to-head-to-head-to-head-to-head study of all three insulin analogs. So my first question is should we expect to see significant differences there? And then also, when it comes to comparing each analog to each analog plus PH20, you just mentioned there was some data that you had, so can you just talk about that and how that would look in this trial?

Yes, David, unfortunately, I won't comment much on the data ahead of ADA. So I'd just say stay tuned for ADA, and the good news is that we received an oral presentation, which is really a good sign.

Okay. Thanks very much.

Thank you. Our next question is coming from Terence Flynn of Lazard Capital Markets.

Hi. Thanks for taking the question. Just a follow-up on the insulin program, I was wondering which of the studies you guys have planned you believe are the gating factors to signing a potential partnership? That's the first one, thanks.

Yes, Terence, there aren't really gating factors for an insulin partnership. We're in the midst of discussions on an ongoing basis. And so there's some players that may want to see the analog TID study, which would have a readout by the middle of '11. And there's other players that are already intrigued by the data that they're seeing.

Okay, great. And then can you just remind us in terms of any potential work you might be doing or might have planned in terms of the delivery device for PH20 in its one program? I know Roche has invested that many for the subcu version of Herceptin. Would you anticipate a similar type device here, or maybe just give us your thoughts? Thanks.

Yes, I'll just remind you of the plan in terms of the target product profile of the Ultra-Fast Insulin product, which is to be no different from commercial products that are available today. And so whether they're delivered through a traditional pen or titratable vial, the plan is, commercially for this product, to be no different from Novolog and Humalog and Apidra.

Okay, thanks a lot.

Sure.

Thank you. Our next question is coming from Andrew Vaino of Roth Capital Partners.

Thank you for taking my call. Two quick questions. I'm just trying to think of the whole TPH20 thing similarly with Herceptin. Is there any easy test to do that would allow you to evaluate the amount of hyaluronan around a specific tumor in the individual patient?

Hi, Andrew, it's Greg Frost here. Obviously, I think we've highlighted this previously, but the trial that we're doing right now, we've developed some standardized routine path detections for the amount of hyaluronan surrounding the tumor. So this is very similar to what you do with Herceptin, where you stain for HerB2 if you have a plus-one to plus-three type response. And so in that context, while it is not clinically validated, of course, the method itself is being used when we have archived blocks of patients' tumors. So that's actually incorporated into the trial to allow us to obtain information about the status of hyaluronan in the actual primary tumor biopsy, or the most recent biopsy that is available.

Excellent. Thank you. And then what's the stability of the PH20 insulin analog mixtures and how are they stored?

So the properties of PH20 that we have, for example, in Hylenex, which is a refrigerated product which has approximately two years of shelf life, the preparations that we are working on with our insulin is that they will be similar to existing commercial formulations as liquid products that will have temperature excursions on them and be a liquid product.

Okay, and what's the stability of those?

Obviously, from the fact there's proteins going through, we can't do uremia-type projections. Real-time stability will determine the overall shelf life.

Okay, but do you have any of that real time, do you have any stability data yet?

Yes. For example, we have refrigerated the initial formulations that are out at nine months. But without any signs of decays in the refrigerated product. We don't expect there to be any shelf life challenges as a refrigerated product with these going through. But until you have the actual data from the standpoint of knowing what the overall shelf life will be, you just continue your monitoring.

Okay, great. Thank you.

Thank you. Our next question is coming from John Newman of Oppenheimer and Company.

Hi, guys. Thanks for taking the question. I just wondered if you could give us any estimate on when we may see some data for the subcu Phase 3 study for PH20 plus Herceptin? I think Roche has talked about early next year. I just wondered if you had any thoughts there.

Yes, we'll point you to Roche's guidance, which would be more appropriate than our guidance. But the plan is to submit the Herceptin data in a global regulatory filing in 2012. So it's likely that the data from that study would come out some time in 2011.

Okay. And do you have any sense as to what Roche might be thinking in terms of running trials in the United States, or would they just file for approval everywhere, based on the data that they're running now?

Yes, the plan is global regulatory filing in 2012.

Okay. And in terms of the safety for your enzyme, I know it's been on the market in various different forms for a long, long time, but what kind of safety data are you guys generating at the current time?

Yes, this is Greg Frost here. So our safety profile for PH20 for subcutaneous administration, all of our clinical studies go through and monitor for safety of the product. Typically, when we go through, we look, for example, in the case of Hylenex, you have spontaneous adverse event reporting that goes through in post-marketing information. And then in all of our clinical trials, of course, they're under more closely observed clinical monitoring.

But in essence, when you look from the most typical side effect profile that is observed from PH20 is the more rapid absorption of the other drug. So if you look in that context, if the enzyme in studies is administered with a drug that is anticipated to have, for example, very slow absorption, like a small molecule, the more rapid absorption is something that is anticipated. It's actually in the package insert. But those are the most typical sorts of events that are observed.

And what's the duration of data that you're looking to generate or, I guess, maybe your partners would be looking to generate?

Well, obviously, so the dataset from a safety profile, the three-times-daily TID study that Jonathan mentioned will be information that will be in a very good controlled setting from a crossover design. From the context of our other programs, typically for subcutaneous administration, they are a 12-month duration. But obviously, in some contexts, extension studies and other things are put into these to go through and gather additional data.

Okay, great. And what type of flow or what type of focus do you guys have right now on just going out and securing additional partnerships? I know that you have quite a lot of things going on with Roche. But just curious as to whether you see the partnerships potentially expanding over the course of 2010.

Yes, John, we're in active dialogue, and so that's something that could happen.

Great. Thank you.

Thank you. Our next question is coming from Eun Yang of Jefferies and Company.

Thanks. On the Baxter deal, subcu Gammagard, are there license associated with positive Phase 3 data, BLA filing and approval?

Yes. There's, the next milestone, Eun, would be on BLA filing, and then the rest of the milestones are commercially focused.

Okay. And then on the patent situation, I think at the last update or the last thing I knew was the pending patent for 2024 expiry. I think that it was PH20. So can you give us an update on the pending patent? And also, are there patents filed for each formulated product such as Ultra-Fast Insulin and subcu Herceptin, et cetera?

Hi, Eun, it's Greg Frost here. The IP strategy, of course, as we articulated, is based upon composition to the soluble glycoprotein enzyme. As we mentioned, those are in late stages of prosecution going through globally. We anticipate that, from the context of patent issuance of the initial sets of claims, that we would expect to have information, for example, in the US this year. So that would be an element where I would say, "Stay tuned." But from the context of the overall patent term on those, 2024 is the expiration date based upon the filing date. With patent term extension, that would be 2025, based upon the prior determinations for patent term adjustment that have been made.

If you use the widest interpretations, those could be as much as 1300-8, which would bring it out into 2028. But that is not something which has been officially adopted by the PTO.

Outside of that, we go through and we file very broadly on specific formulations and uses with specific products, as you mentioned, like insulin. So in those cases, we have genus applications, if you will, of hyaluronidase with specific formulations, for example, or uses with a specific compound. Those would have later expiry dates but slightly different claim sets within them.

Thanks. That's very helpful. And on (inaudible), I think the last update that we got was the product was under partnering discussion. Can you give us an update on the progress there?

Yes, it's still part of our business strategy, Eun, to seek to out-license that program. But at this point, there's no plans to undertake any additional clinical trial activities on our own.

Okay. And last one is 501. Are you still planning to begin Phase 1 some time this year?

That we are planning in the early part of 2011 in terms of clinical trial activity.

Okay, thank you.

Thank you. Our next question is coming from John Sonnier of William Blair.

Hey, thanks for taking the question, and congrats on a lot of good progress over there. Jonathan, as the partnership discussions for Ultra-Fast season, you'll come out of ADA with a lot of good data. And parallel to that, there's been some nice validations coming from the partner programs. I'm trying to get a sense of what you're looking for in a collaboration, if you can give us any insights into the type of developmental structure and economics we might look for.

Yes, for Ultra-Fast Insulin there's a number of different ways to structure that. And so we're exploring a number of creative options that are anywhere from front-loaded to back-loaded structures.

Anything more granular? It's obviously something that has the potential to be a meaningful catalyst for the stock. I could argue that given what's going on with Herceptin and Gammagard, maybe 5% is too low a royalty rate. Can you give us any granularity as to how you're thinking about--not necessarily the upfront payment, but the longer-term back end, so to speak, economics?

Yes. To your point, this is a product deal, and so it wouldn't be in the drug delivery category. And because it's an asset that we own and control at this point, it's something where we could expect, and we do expect, significantly larger economics on the back end if we were to do a back-end-loaded deal. And so we'd be looking mid-single-digit royalties would be unacceptable in that regard.

That's helpful. I appreciate it. Thank you.

Sure.

Thank you. Our next question is coming from Chris Geston of UBS.

Good morning, gentlemen.

Good morning, Chris.

A couple of quick questions on the PEG front. Can you provide any additional color at all on your strategy or strategies as you approach the clinical trials, how that might look? And secondly, as far as your, I would assume, partnering strategy, is it going to be somewhat similar? Can we expect the same approach and points of catalyst as you've been guiding us on the insulin front?

Yes, so for PEGPH20, we've been pointing investors to the second half of this year, where we'll be providing more guidance on that program, including reporting clinical data. In terms of the insulin strategy, consistent with my prior remarks, this is a very different type of program from the enhanced technology programs. And so this is something that we believe would be significantly greater value than a more traditional type of deal.

But you do, on the PEG front, you do expect to partner in a similar vein as with the insulin, down the road, after clinical trials and proof of concept, et cetera?

Well, we're committed to bringing PEGPH20 to proof of concept, and so that's the plans at this stage.

By the way, when I was asking about the strategy or strategies, what I was asking, it seems like you're maybe attacking or looking at different parts of the body, obviously, and there are lots that do have the HA around the tumors. So does that mean that you might run parallel studies to get a little broader range and shorten the timeframe? Is that a possibility?

From a technical perspective, this is essentially a platform from the context of looking at HA-positive malignancies. Right now we're very much in the learning phase from the context of finding out which tumors respond from the context of the level of production and the prevalence of being HA-positive.

But in addition to that, as you know, each type of malignancy has its unique cytotoxic or cytostatic or biologic regimen of agents that are given with it. So in that context, what one needs to study is both the dose, the frequency, as well as the combinatorial agents that would typically be used.

So from that perspective, we have a broad range of programs from the pharmacology front to identify where does the agent work best in combination with other compounds? And then, of course, lining that up with where is the target most prevalent as far as specific subclasses of malignancies, whether it be pancreatic, breast, prostate, et cetera.

And I'm sorry. I appreciate it, but is that a yes on the fact that, given what you know so far and where you think you're headed, and a decently optimistic view with the PEG program, that there could be some parallel programs run, there could be some reason for doing that?

Well, as we mentioned, we'll give an update on the overall development strategy later this year. So I think that would be the right time to get into that.

I gave it a shot, didn't I?

(Inaudible).

If I may, on the Baxter front with their recent IVIG problems and issues and all that's going on there, could you speak to, or is it safe to say that that points to the power, potentially, of the SC, the differentiator that could make for Baxter? Is that a safe statement? Or are there some negatives to what they're experiencing for your combined program?

No, Chris, that's a safe statement. And no matter how you look at it, it's still a massive market. So even if the growth rates in the future slow down, it's still, globally, a $6 billion market.

Okay. Thanks so much.

Sure.

Thank you. (OPERATOR INSTRUCTIONS.) Our next question is coming from David Moskowitz of Madison Williams.

Yes, thanks again. So I'm just looking at the cash balance, and I'm noticing that it looks like you've burned about one-third of the cash utilization that you guys are guiding for for the full year. So it looks like you had a pretty accelerated burn in the first quarter, and that means to me that you expect the burn to slow dramatically in the back three quarters, despite the fact that R&D was low and it's going to rise throughout the rest of the year.

So my calculations suggest about an additional $10 million to $15 million in milestone payments, and I'm not sure exactly what the qualitative movement is on the business related to those milestone payments. So is it possible you could shed some light on that number and what we might expect going forward?

I'm trying to think about what additional guidance I could give you, David, but I'm not sure I come to the same calculations that you do. If we burn $12.3 million, I'm not sure that's one-third of what we're going to burn this year. So if our guidance is $40 million to $45, we're fairly close to that number, and we're still comfortable with that $40 million to $45 million guidance number for the year. So there are other factors involved here other than just the operating expense line, and maybe we could spend some time walking through some more detail, look at the P&L at some point. But I can't provide you, probably, additional color than what we've done already.

Okay. Let me ask it a different way, then. I believe, wasn't there a milestone that you guys received or some sort of payment in the first quarter? Is that reflected in the $12.3 million burn, or was that over and above? Because I do see that your receivables went down by about $2 million, so maybe it was in there.

Yes, there was some payment that came in in the first quarter. It wasn't related to a milestone. The guidance that I can give you with regards to milestones, what's built into the $40 million to $45 million are milestones that we feel have a high probability of happening. And our bar there is about a 90% number.

Okay, that puts you--.

There we no milestones that occurred in the first quarter.

Okay. But again, so the $12.3 million does include the few million dollars that you might have gotten in from this other thing, whatever it was?

Yes. It's our cash flow.

Okay. Thanks.

Thank you. There are no further questions. At this time, I'd like to turn the call back over to Dr. Jonathan Lim for closing comments.

Thank you. I believe Halozyme is off to a strong start in 2010.

This June, we'll be presenting the results of three of our Ultra-Fast Insulin studies at the American Diabetes Association scientific sessions, and our Phase 2 analog treatment studies will be getting underway during the third quarter.

Results of our first three-times-per-day treatment study in Type 1 diabetes patients should be available for presentation at an appropriate diabetes meeting later this year.

Roche's Phase 3 registration trial for a subcutaneous formulation of Herceptin with PH20, along with its Phase 1 clinical trial for subcutaneous MabThera with PH20, should continue to move forward with patient enrollment.

Baxter's Phase 3 registration study for subcutaneous Gammagard with PH20 is expected to be completed during the fourth quarter of 2010, followed by a BLA filing in 2011.

The rollout for Hylenex for use in pediatric rehydration is underway, with a substantial marketing and promotional commitment by Baxter.

Some initial results from our PEGPH20 clinical program should be available during the second half of the year, along with additional insight into the clinical strategy for this program.

We expect the momentum for many of our activities will continue throughout 2010, resulting in the achievement of a number of important milestones. We look forward to updating you again soon on our progress.

We'll be participating in the Brean Murray Life Sciences Summit in New York on May 17 and the Jefferies Global Life Sciences Conference, also in New York, in early June. And remember, at the ADA in Orlando in late June, we'll be presenting the results from three of our Ultra-Fast Insulin studies.

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

That concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.