Halozyme Therapeutics Inc (HALO) 2010 Q2 法說會逐字稿

Greetings and welcome to the Halozyme Therapeutics second-quarter 2010 financial results.

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, the conference is being recorded.

It is now my pleasure to introduce your host, Ms. Robert Uhl, Senior Director of Investor Relations for Halozyme Therapeutics. You may begin.

Thank you Jackie. Thanks also to everyone for participating in today's call. I'm 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 second-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 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. 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.

So let me start off with Halozyme's Ultrafast insulin program. The second quarter was an incredibly active time for our insulin team. The main event was the presentation of the results from three of our Ultrafast insulin studies at the American Diabetes Association 70th Scientific Sessions in Orlando at the end of June, and we saw many of you there.

Our comprehensive analog study selected for oral presentation was the first head-to-head study of all three currently marketed insulin analogs. This is something that has never really been done before in comparing Novolog, Humalog and Apidra. This Phase I study compared the three approved prandial insulin analogs with and without PH20 in a six-way crossover design trial in healthy subjects. Our results showed that the addition of our rHuPH20 enzyme accelerates the absorption and action of all three insulin analogs to a similar extent. The acceleration produced significantly more pronounced insulin effects during the first one to two hours after injection, as well as a more rapid diminution of insulin affects two to four hours after administration compared to the analogs alone. The co-injection of PH20 with lispro, aspart and glulisine results in a more physiologic fast-in/fast-out profile and enhances the glucodynamic performance for each analog.

We also presented the results of a Phase II mealtime study, our first study in patients with Type II diabetes. This study compared three test drugs -- regular insulin plus PH20, analog insulin plus PH20, and analog insulin alone. The analog insulin we used in this study was lispro, the generic name for (inaudible) Humalog product. The primary endpoint of this trial was glycemic excursion over the first four hours following the meal challenge. The results demonstrated that the subcutaneous co-injection of rHuPH20 with lispro significantly improved post-prandial hyperglycemia, reduced hypoglycemia, and accelerated the absorption of mealtime insulin in patients with Type II diabetes. More patients receiving lispro plus PH20, or 71% versus 48%, achieved the ADA goal of maintaining glucose below 180 milligrams per deciliter compared to lispro treatment alone, an indication of reduced hyperglycemia. Lispro plus PH20 also improved hypoglycemic excursions while reducing insulin requirements. The results of this study exceeded our expectations and demonstrated everything we had hoped it would.

Our third study, a poster presentation, was a preclinical investigation to determine a suitable animal model for comparative pharmacokinetics of mealtime insulin with and without Halozyme's PH20. We determine that the Yucatán mini pig model was the most representative of insulin absorption in humans.

The primary goal for Halozyme's Ultrafast 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. Since the first insulin injection into a patient in 1922, physicians have wanted a faster-acting product that would more closely mimic the normal physiologic release of insulin in normal subjects.

With Halozyme's 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. And so far, the studies that we have done have supported this type of profile.

Let me bring you up-to-date on our other Ultrafast insulin activities. We've completed our Phase II treatment study that employs a two-way crossover design in patients with Type I diabetes. This clinical trial compares regular insulin with PH20 to insulin analogue 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 provides important safety information with respect to three times a day chronic dosing for our PH20 enzyme over a three-month period. So any given patient may have as many as 270 doses within that period. We expect to present the results from this three times per day treatment study during the fourth quarter at an appropriate diabetes meeting, so stay tuned on that.

Two additional treatment studies utilizing insulin analogs are on track and getting underway during the third quarter of this year, one in Type I diabetes patients and the other in patients with Type II diabetes. Each study will compare aspart PH20 and lispro PH20 with an active comparator, lispro alone.

As a reminder, aspart is the generic name for NovoLog. Endpoints in these trials will be medical benefits such as improved glycemic control, or A1c, reduced hypoglycemia, and reduced weight gain. The results from these studies should be available about a year after they begin patient enrollment and dosing, which would be during the second half of 2011. At that point, we will have data from at least nine Ultrafast insulin clinical trials.

We are 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. Our clinical development program, in fact, is designed to provide information regarding key product attributes that we, as well as a potential partner, would want to know.

Now, let's switch to our PEGPH20 program and its potential in the treatment of cancer. I am pleased to tell you that we have just recently expanded our PEGPH20 program for the treatment of solid tumors with the initiation of a second Phase I clinical trial, and first patient dosing is already underway. Patients with advanced cancer are being enrolled in this study, and they will receive intravenous PEGPH20 plus pretreatment with oral dexamethasone. Tests that Halozyme has conducted in animal models support the use of dexamethasone to achieve higher and more intensive dosing regimens of PEGPH20.

Our first Phase I study that began last year is ongoing and continuing to enroll patients. These two parallel Phase I clinical trials are collectively designed to identify recommended doses for Phase II trials from twice weekly, weekly and every third week dosing of PEGPH20 with and without concomitant dexamethasone administration. These data will be useful in future trials with PEGPH20 as a single agent and in combination with other chemotherapeutics. We expect to report interim results from these ongoing Phase I studies during the fourth quarter of 2010 at the regional scientific oncology meeting.

As you will recall, many solid tumors, including breast, prostate, pancreas, gastric and lung, accumulate the extracellular matrix polysaccharide, Hyaluronan, or HA, shielding the tumor from anticancer therapy. PEGPH20, a PEGylated version of Halozyme's proprietary rHuPH20 enzyme designed for systemic administration, remodels the tumor stroma of HA producing solid tumors, making the tumors more susceptible to anticancer treatment.

Roughly 20% to 30% of all solid tumors accumulate HA. In the case of pancreatic cancer, we found that approximately 87% of these tumors accumulate HA, potentially making this an attractive target for Phase II studies. PEGPH20 represents an entirely new therapeutic approach against cancer. So stay tuned for our fourth-quarter update on that program.

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

Let's move over to our partnership alliance activities with Baxter and Roche. I'm going to begin with HYLENEX. So Halozyme licensed marketing rights for HYLENEX to Baxter in 2005, and Baxter launched the product in October 2009 for use in pediatric rehydration. Halozyme initiated a voluntary recall of HYLENEX in May due to the presence of particles that were discovered during a routine stability inspection in a small number of vials of the product. Halozyme's top priority in approaching this issue was to ensure patient safety. We know that Baxter has the same priority. No related medical events have been reported, and Halozyme is working to identify the root cause and to begin executing the corrective action plan with the goal of returning HYLENEX to the marketplace. We are hoping to meet with FDA as soon as possible to get agreement on our proposed corrective action plan, after which we will have a better sense of the timing of potential product reintroduction.

Our other Baxter alliance, subcutaneous GAMMAGARD with their bioscience group, is moving forward based on the latest update provided by Baxter. The pivotal Phase III clinical trial for subcutaneous GAMMAGARD with rHuPH20 in the treatment of primary immunodeficiency disorder, or PID, will be completed during the fourth quarter this year. Topline results should be available after completion of the study, and Baxter expects to file its BLA during 2011, followed by introduction in early 2012 to the marketplace.

The goal of the GAMMAGARD with rHuPH20 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. GAMMAGARD with rHuPH20 will have advantages compared to currently available subcutaneous immunoglobulin products that must be dosed once a week through multiple needles and at higher doses to compensate for their lower bioavailability.

The Halozyme-Roche alliance is also making steady progress. The Phase III registration trial for a subcutaneous formulation of Herceptin with rHuPH20 in the treatment of HER2 positive breast cancer which began last October continues to enroll patients. Roche started a Phase I clinical trial last September with a subcutaneous formulation of MabThera that also incorporates our rHuPH20 enzyme. MabThera, or rituximab, is approved for the treatment of non-Hodgkin's lymphoma. The combined worldwide sales for these two products, Herceptin and MabThera, totaled approximately $11 billion in 2009.

Roche also announced early this year that it was developing 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 at the hospital or a specialized treatment facility. Sub-Q administration of Herceptin and rHuPH20 with a proprietary device holds the promise of a five-minute administration which could be a meaningful timesaver for patients. Instead of that half day or longer trip to the IV infusion center, patients will be able to choose the convenience of a prefilled device to deliver their Herceptin treatment subcutaneously. 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. Use of this proprietary Roche device could also be applied to other biologics covered by the Halozyme-Roche alliance.

We've seen numerous clinical advancement for the Halozyme-Roche alliance during the past 18 months, beginning with the Phase I Herceptin sub-Q trial in December 2008. We cannot predict the specific timing for future milestones covered in the Roche agreement, but we do anticipate additional clinical progress during 2010.

So, these are the latest updates on our proprietary product programs and our development partnerships. As you can see, our programs continue moving forward, and we are pleased by this steady progress.

So at this point, I'm going to turn the call over to Kurt Gustafson for his financial commentary.

Thank you Jonathan. Good morning everyone.

The net loss for the second quarter of 2010 was $12.2 million, or $0.13 per share, compared with a net loss for the second quarter of 2009 of $17.1 million or $0.21 a share.

Revenue for the second quarter of 2010 was $3.2 million compared with $1.4 million for the second quarter of 2009. Revenues under collaborative agreements for the second quarter of 2010 were $3 million compared to $1.2 million for the second quarter last year. The collaborative agreement revenue primarily consists of the amortization of upfront fees and R&D reimbursements with Baxter and Roche.

Research and development expenses for the second quarter of 2010 were $11.9 million compared with $14.6 million for the second quarter of 2009. This decrease is primarily due to lower manufacturing costs associated with the making of clinical trial material, along with some decreases in clinical trial expenses.

SG&A costs for the second quarter of 2010 were $3.4 million compared to $3.9 million last year and reflect lower salary and bonus expenses.

We ended the second quarter with a cash balance of $41 million, compared with $67 million as of December 31, 2009. Our net cash burn for the second quarter of 2010 was approximately $14 million.

For 2010, Halozyme continues to anticipate that total operating expenses will be in line with those reported for 2009, which were approximately $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 preclinical and clinical programs, as well as milestones and maintenance payments which, based on our estimates, have a high probability of occurring. The guidance does not assume any cash flows associated with new alliances or partnerships.

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

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

(Operator Instructions). Eun Yang, Jefferies & Company.

On the second-quarter conference call, Baxter said that the sub-Q GAMMAGARD data could be coming out by the end of this year, and they expect that the (inaudible) sub-Q GAMMAGARD could be on the market later next year or early 2012. So is there -- are there any milestone payments associated with data, and then regulatory filing and approval?

Yes, so the next milestone payment would be payable upon filing of the BLA, so it would be a regulatory milestone. So the timing is still TBD, but our timing estimates are consistent with Baxter's, naturally.

Then is there a milestone payment upon approval as well?

I believe it's on filing, and then there's commercial milestones after that.

Then in terms of Ultrafast insulin, positive data continues to come out from medical conferences. I am just wondering. In terms of partnership opportunity, what do you -- what additional data do you think you need in order to secure a partnership for the financial (inaudible) that are attractive to Halo?

Yes, so put it in these terms. I would say that, for certain prospective partners, we have all the data that we need, and so we are engaged in discussions regarding the data that we already have. For other prospective partners, there's some discussions about the data that will have a readout in 2011. So, we are looking at all possibilities right now in terms of discussions.

Okay. Thank you.

Andrew Vaino, Roth Capital Partners.

Thank you for taking my call. I just noted from the new PEGPH20 study that you guys are adding the dexamethasone. This is the drug that is sometimes used to counteract adverse events or allergic reactions. Have you seen any sign of that in the Phase I study that makes you want to add this?

It's Greg Frost here. So we have some animal models that support the use of dexamethasone to achieve higher and more dose -- more intensive dose regiments with PEGPH20. We have parallel trials right now with twice weekly, weekly and every three weeks underway with and without dexamethasone. As you know, dexamethasone is also used with a number of other chemotherapy agents, but these data will be useful in future trials in combination with those materials.

I'm trying to understand, from physiological point of view, what does the dexamethasone add to the PEGPH20?

We have data actually that we have gone through that we have submitted to a number of regional conferences, so I would actually go through it. I'm sure Robert will go through and be giving you a heads up to the date when those abstracts are accepted. But that will be in the fourth quarter of this year, so it would probably be a great time to go through it because we've got a lot of data that we will actually be able to go through I think -- from a scientific conference, be able to walk you through that.

Then secondly, on your insulin program, you guys are really generating some really quite nice data here. What I'm trying to get a handle on, though, is when do you think you'll be able to get to an NDA enabling study on this, or is this something that is just going to wait until you do secure a partnership?

Yes, so an NDA-enabling study, or pivotal Phase III, could start as early as the second half of 2011. Our intention is to start those with a partner.

So you wouldn't look to start this without a partner?

That's correct, not at this point.

Thank you.

John Sonnier, William Blair.

Thanks for taking the question. Congratulations on all of the progress there. A lot of my questions around the diabetes program have been answered, but I'm curious about PEGPH20. You get this visibility that hopefully you will share with us in Q4. It would really be the first time I guess we have seen much from that compound and that approach. Strategically, what are your plans? Do you want to take a similar path as you have with the diabetes program where you try to get to some proof of concept or Phase III-ready point in time and then partner it, or is this something theoretically that you might take all the way through?

Well, I think that from the standpoint of the readout that we are looking at, I think most of the decisions for the questions you raise will be data-driven. So I think from the context of -- we have obviously -- if an agent that has very broad reaching potential in -- for solid tumor malignancies. So effectively what we want to do I think, from a development standpoint, is that we can clearly bring this program through POC and essentially make some data-driven decisions as far as the attractiveness of that program for us, from the context of where we take it from there.

Okay. I guess I was hoping we might have heard more from Roche by now about the next compounds they are taking forward with the sub-Q program. Anything you can offer there in the way of visibility or timing as to when we might learn more?

I'll just refer you to my earlier remarks that more clinical activity could be anticipated later this year with Roche. So stay tuned on that.

Okay. Thanks much.

To close the loop on Eun's question earlier about the GAMMAGARD milestones, there is a milestone payable upon BLA filing, and then the next milestone would be payable on first commercial sale.

(Operator Instructions). David Moskowitz, Madison Williams.

Thanks. Good morning everyone. First question on the three-month product dosing for insulin PH20 -- I believe you were going to report that in the third quarter, but you missed the medical meeting for deadline. So is it fair to say that you guys have the data in-hand at this point?

Yes, that's fair to say, David.

Given -- this is pretty important from just an overall safety standpoint for PH20, so I would imagine that, if there was a safety issue, that would be a material event for the company to announce?

That's correct.

So likely good news there. In addition, back to the milestones that you're anticipating for this year, you talked about additional Roche progress and you just kind of reaffirmed that. Could I assume that some of those may be linked to milestones?

Yes, you can assume that.

Excellent. I guess the last question, there's a lot of people really looking out at the platform, an important platform arguably. Could you talk a little bit broadly about your business develop efforts? In particular, I don't think we've ever gotten sort of the applicability of PH20 to the number of compounds that are out there. Is there any way you can give us a good characterization of that?

Sure. So the platform itself is applicable to any molecule that is co-injected that is up to 200 nanometers in diameter. And so that includes all of the most common biologics in terms of antibodies, other enzymes, cytokines, even small molecules. And so Bob Little and team are still very active on the business development efforts. So one of our primary areas of focus is generating discussions with various parties that are interested in the platform, and so most of our efforts are on the Ultrafast insulin program as well as enhanced technology in terms of partnership efforts.

So are you saying that there aren't that many discussions on other compounds going on, or is it a pretty robust program? It sounds to me like you're just focused right on the insulin product at this point.

Well, when I say enhanced technology, that covers all of the various co-injected molecules that I just mentioned. So we are doing platform discussions as well as insulin discussions, so it's very broad.

In terms of sort of giving us as investors a sense of the critical mass of that effort, is there anything you can say about that?

What I can say is that it's a primary area of focus and that we have very active dialogue going on.

Great. Thanks for taking my questions, I appreciate it.

(Operator Instructions). Eun Yang, Jefferies & Co.

Thanks for taking the follow-up. On the insulin program, if I remember it correctly, there is a second phase (inaudible) repeat dosing study in Type I diabetic patients with the Humalog and PH20, which is expected to begin in third quarter. Is that on track?

Yes, and that's the study that I referenced in my opening remarks where we are taking -- we are actually doing two studies of repeat dosing with two different analogues. One of them is Humalog, or lispro, and the other is Novolog, or aspart. So we are taking each of those marketed products with PH20 and comparing them to Humalog alone.

Sorry about that, I got onto the call a little late.

That's okay. The structure is similar to the regular insulin study where each patient would get about 270 doses on a three month by three month crossover.

How about in Type II diabetic patients? Any new additional Phase II study planned before you kind of -- you are thinking about Phase III?

Yes, so that study with Humalog and NovoLog will be done in both Type I and Type II patients.

Oh, I see. Thank you.

So we've got all our bases covered there.

Thank you.

David Moskowitz, Madison Williams.

Thanks for the follow-up. One question on the HYLENEX situation. It sounds to me like you guys have to get a data package together with Baxter on the previous issue. I'm not sure if you did. Did you give us a sense of timing for when that would be prepared and when you might meet with the FDA to discuss this?

No, I didn't say when, but it's pretty much as soon as possible.

Should we think that is prior to year-end, or it's going to drag on from there?

Yes, no, I would be surprised if it wasn't prior to year-end. So once we meet with FDA and have some vetting of our corrective action plan, then I hope to give you guys a better sense of timing of resolution.

Excellent. Maybe just pushing that a little bit, end of third quarter possibly to get in front of the FDA?

You're pushing it, David.

That's my job! Thanks.

There are no further questions at this time. I would like to hand the floor back over to Dr. Jonathan Lim for closing comments.

Thank you.

So 2010 is shaping up to be a year of clinical advancement for Halozyme. Our Ultrafast insulin program reported the results for three studies at the ADA scientific sessions, and our Phase II analog treatment studies will be getting underway during the third quarter. Results of our first three times per day treatment study in Type I diabetes patients should be available for presentation at an appropriate diabetes meeting during the fourth quarter.

Halozyme has expanded the PEGPH20 cancer program with a second Phase I clinical trial, and dosing of the first patient is already underway. We plan to report interim results from both of our ongoing Phase I PEGPH20 trials during the fourth quarter at an upcoming scientific meeting.

Roche's Phase III registration trial for a sub-Q formulation of Herceptin with PH20, along with its Phase I clinical trial for sub-Q MabThera with PH20, should continue to move forward with patient enrollment. Baxter's Phase III 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. Resolution of the root cause and corrective action plan associated with HYLENEX is a top priority for Halozyme so that the product can return to the market.

We look forward to updating you again soon on our progress. We will be participating in several investor conferences in New York during the coming weeks, including Collins Stewart on August 11, and the UBS Global Life Sciences and the JMP Securities Healthcare conferences in September. In addition, Halozyme will also be hosting its own investor day in New York on October 14, so please remember to save the date, as invitations will be forthcoming shortly and we'll be able to provide you with more of a deep dive on our various programs.

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

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