Halozyme Therapeutics Inc (HALO) 2011 Q1 法說會逐字稿

Greetings and welcome to the first quarter 2011 financial results conference call. (Operator Instructions). It is now my pleasure to introduce your host, Robert Uhl, Senior Director, Investor Relations, for Halozyme Therapeutics. Thank you, Mr. Uhl, you may begin.

Thank you, [Roya], and 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 Gregory Frost, President and Chief Executive Officer, and Kurt Gustafson, Chief Financial Officer.

This morning Halozyme released first quarter 2011 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 send an e-mail to me at ruhl@halozyme.com. This call is also being webcast live over the 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 Greg Frost, Halozyme's President and CEO.

Thanks Robert. Good morning everyone and thank you for joining us on the call today. We will providing an update on our key proprietary development programs and our 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.

2011 is proceeding at a fast pace at Halozyme and we believe important progress lies ahead for the Company. We're maintaining our strategic focus of resources towards our two alliance partnerships with Roche and Baxter and our three most advanced proprietary programs, Ultrafast Insulin, PEGPH20 and HTI-051. We believe this action optimally positions the Company to capture these avenues of value creation. In addition we are working to wrap up the HYLENEX manufacturing issues so the product can be returned to the market.

During the next 12 months or so, we are driving our three distinct proprietary product programs through key clinical inflection points in parallel with studies that will establish the key clinical attributes of these exciting therapeutic opportunities with significant commercial potential. Importantly we have the financial resources necessary to fund the required clinical trials through these upcoming value inflection points.

So let me bring you up to date on Halozyme's Ultrafast Insulin program. Since our last conference call, Halozyme's Ultrafast Insulin program has continued to progress very well. On April 14, we presented preliminary data demonstrating that Aspart-PH20, a formulation of our rHuPH20 enzyme, with the active ingredient in NovoLog, accelerates the insulin absorption and shortens its duration of action when administered to Type I diabetes patients that receive their insulin treatment with pumps. This more physiologic, faster-in, faster-out profile that we've consistently demonstrated in previous studies with meal time subcutaneous injections is also observed in the continuous subcutaneous insulin infusion setting involving an insulin pump.

Halozyme presented the results at the American Association of Clinical Endocrinology meeting in San Diego. This double-blind, crossover (inaudible - background noise) clinical trial compared Aspart-PH20 to Aspart alone in Type I diabetes patients who administered their insulin over 72 hours with an insulin pump. The results obtained for the first 13 patients out of a total planned enrollment of 18 patients showed that the cumulative insulin exposure during the first hour after a bolus infusion was 64% greater for Aspart-PH20 combination compared to the Aspart alone. Insulin exposure beyond two hours after the bolus infusion also showed dramatic decrease of 42% for the combination compared to Aspart alone.

Now, one might ask what is the significant of an acceleration of insulin pharmacokinetics, and the implication of insulin being in plasma for a shorter period of time. To answer these questions in this trial designed we included a euglycemic clamp procedure, and during this type of procedure glucose is infused to maintain a constant concentration of glucose in the blood. When the insulin concentration in the blood rises, the glucose concentration declines, and the glucose infusion rate must be in increased to maintain a constant level of glucose. The faster absorption of insulin into the blood accelerates insulin action as measured by the earlier timing of glucose infused to maintain the fixed blood glucose concentration.

Results from our pump study demonstrated 20% greater insulin action for the combination treatment Aspart-PH20 during the first two hours after injection. In addition, insulin action beyond four hours showed a 37% reduction in insulin action for Aspart-PH20 combination relative to Aspart alone. Clearly the faster-in and faster-out PK profile had a significant effect on glucodynamics.

But in terms of patient benefit, more insulin action immediately following insulin administration should result in less postprandial hyperglycemia, while reduced insulin action beyond two hours after insulin administration should result in less hypoglycemia. If these results hold up and can be further demonstrated in future studies, the combination of mealtime insulin analog with rHuPH20 may be ideally suited with for insulin pumps.

The overall safety and adverse event profiles for Aspart-PH20 and Aspart alone were comparable and both treatments were well tolerated. Recall in this pump study the Aspart-PH20 infusion occurred at one site over an extended time period of 72 hours with nothing unusual in terms of local skin or site irritation observed. An extensive list of parameters for pump use, such as C max and T max infusion rates and response to standard meal challenge, an area under the curve at specific time intervals, are being tested, with further analysis of the full data set from this pump study to be available later this year.

Our Phase II treatment studies, one Type I diabetes patients and the other in patients with Type II diabetes, achieved full patient enrollment in January with just over 100 patients each and are proceeding on track towards completion in the third quarter of this year. Each study compares 12 week dosing regimens of Aspart-PH20 and Lispro-PH20, with a standard of care active comparator, Lispro. As a reminder, Lispro is the generic name for Lilly's Humalog. Endpoints for these trials include clinically and commercially relevant benefits such as improved glycemic control, A1C, reduced hypoglycemia and reduced weight gain. We expect results from these two trials will be available to us internally during the third quarter of this year.

Halozyme has received acceptance notification for two presentations of results from its Ultrafast Insulin studies at this year's American Diabetes Association meeting in San Diego, June 24 through the 28. The presentations will include additional results and new analyses from our trials. Collectively we will have a truly comprehensive data package, consisting of ten Ultrafast Insulin clinical trials as the pump study and the two analog PH20 studies are completed later this year. And we are confident that these results will answer the right questions and be sufficient for us to make the best portfolio and partnering decisions for this program.

The overarching goal of our Ultrafast Insulin program is to develop a best in class meal time insulin product compared to the currently prescribed analog products, to participate in the growing $4 million prandial, or meal time, insulin market. With Halozyme's more rapidly absorbed, faster acting insulin, we seek to demonstrate significant improvements relative to existing treatments such as improved glycemic control, less hypoglycemia, and less weight gain, to make it easier for patients to control their disease.

Now, let's switch to our PEGPH20 program and how it may be used in the treatment of solid tumors. PEGPH20 represents Halozyme's entirely new approach to the treatment of solid tumor malignancies. PEGPH20 is a PEGylated version of Halozyme's propriety rHuPH20 enzyme which has been engineered to allow systemic administration. It remodels the tumor stroma of hyaluronan, producing solid tumors, thus making the tumors more susceptible to anticancer treatment. Now approximately 20% to 30% of solid tumors including breast, prostate, pancreas, gastric and lung accumulate the extracellular matrix polysaccharide known as hyaluronan, which protects the tumor from anticancer therapies. In the case of pancreatic ductal adenocarcinoma, our research has found that the majority of these tumors accumulate HA which forms the basis of pursuing this particular cancer for a Phase II trial.

Our ongoing Phase I clinical trial with PEGPH20 is designed to identify the recommended dose and dosing frequency to favorably modify the tumor microenvironment. This data will enable trials with PEGPH20 as a single agent and in combination with other therapies. Based upon the data we have seen so far we are planning to conduct a randomized Phase II clinical trial in patients with pancreatic cancer that will compare the standard of care chemotherapy regimen with and without PEGPH20. We are planning to start this trial in the second half of the year.

The HTI-501 program is also making very good progress. This unique compound is our first conditionally active recombinant human cathepsin enzyme that degrades collagen. Numerous collagen-based conditions, such as keloids, hypertrophic scars, and cellulite, are inadequately served by existing treatments and a product such as HTI-501 may prove beneficial. Our regulatory submission has been filed, and we're moving forward to conduct a proof-of-concept clinical trial ex-US in cellulite, which should allow first patient dosing later this year. Initial readouts on safety and clinical activity of HTI-051 should be available to us internally by the end of the year and we will provide additional information about the program as we get closer to the start of the study.

Now, let's talk briefly about high HYLENEX. Halozyme and Baxter reached an agreement earlier this year that resulted in the return of worldwide rights for HYLENEX to Halozyme. We are moving towards completion of the transition agreements with Baxter, and will be providing more information on our overall strategy once those agreements are finalized.

Resolution of the manufacturing issue discovered in a small number of vials of HYLENEX during routine inspection is a high priority for us. Halozyme's currently generating durability data for glass vials with hydrospecifications and expects to be able to provide this information to FDA later this month. We will be working closely with the agency to ensure an efficient process. We continue to plan for resumption of HYLENEX manufacturing later this year that will allow for product reintroduction by end of year.

Now, let's move over to our partnership alliances with Baxter and Roche. HyQ, which consists of immunoglobulin, or IGG, and our rHuPH20 enzyme completed its Phase III registration study at the end of last year. Baxter stated on its earnings call a few weeks ago that it is moving forward to file the BLA for the product in the treatment of primary immunodeficiency during the third quarter of this year and is preparing for an introduction in 2012.

Preliminary results from the Phase III HyQ study presented at EASD and AAAAI meetings have shown that patients could receive their intravenous dose of immunoglobulin as a subcutaneous injection facilitated by rHuPH20 at the same frequency and volume as their previous IV dose using a single injection site. The implications are that ifpatients were being treated once monthly with IV immunoglobulin, they should be able to switch to subcutaneous HyQ that would also be dosed once monthly.

This may represent a distinct advantage compared to other currently available subcutaneous IGG products that must be dosed once a week through multiple needles at higher doses than the IV products. The ease of subcutaneous administration of HyQ may allow patients to benefit from the convenience of self-administration of their IGG treatment in the home setting. The annual global immunoglobulin market that HyQ will address is approaching nearly $6 billion.

The Halozyme Roche alliance has also advanced. Roche indicated that they've fully enrolled the Phase III registration trial for a subcutaneous formulation of Herceptin with rHuPH20 in the treatment of HER-2 positive breast cancer and should have top line available to announce by the end of the year. Subcutaneous MabThera, also known as rituximab, began patient dosing of its Phase III registration trials in February. MabThera is approved for the treatment of non-Hodgkin's lymphoma chronic lymphocytic leukemia.

As in the case with subcutaneous Herceptin, the formulation for this Phase III trial of MabThera SE contains our rHuPH20 enzyme combined together with a monoclonal antibody. Clinical studies have demonstrated that more rapid administration times can be achieved with a subcutaneous version of these Roche monoclonals than IV infusion. In the case of Herceptin the currently approved intravenous regimen takes approximately 30 to 90 minutes to administer but subcutaneous delivery with the rHuPH20 enzyme occurs in less than five minutes. IV administration of MabThera may require three to five hours for many patients, but data from the Phase I trial demonstrated an average administration time for the subcutaneous formulation of less than ten minutes.

On its recent investor call Roche stated that it plans to file for approval in the EU for both Herceptin SE and MabThera SE next year. In addition, Roche recently posted on clinicaltrials.gov a description of a study to compare Herceptin with rHuPH20 administered subcutaneously using its proprietary single use injection device versus a handheld syringe. Subcutaneous administration of Herceptin in rHuPH20 with a proprietary device holds the promise of a five minute administration which could be more convenient and a significant time saver for patients.

These are the latest updates on our proprietary product programs and our development partnerships. Now I will turn the call over to Kurt Gustafson for his financial commentary.

Thank you, Greg. And good morning to all of you on the call.

The net loss for the first quarter of 2011 was $9.6 million, or $0.10 per share compared with a net loss for the first quarter in 2010 of $11.8 million or $0.13 per share.

Revenue for the first quarter of 2011 was $7.5 million compared to $3.4 million for the first quarter of 2010. This increase is a result of the fact that we received a milestone payment from Roche in the first quarter of 2011 and we didn't have that same situation in the first quarter of 2010. The additional revenue beyond the milestone payment is mostly related to work that we do for Roche and Baxter that is reimbursed under the agreements.

Research and development expenses for the first quarter of 2011 were $13.8 million, compared to $11.5 million for the first quarter in 2010. The increase is primarily driven by an increase in clinical trial activities to support the Ultrafast Insulin development program.

SG&A costs for the first quarter of 2011 were $3.4 million, compared to $3.8 million last year. The decline is related to lower compensation and market research expenses during the quarter.

We ended the first quarter with a cash balance of approximately $74 million and our net cash burn for the first quarter of 2011 was $9.4 million.

Our financial guidance for 2011 is the same as what we laid out for you on the last conference call. We are still forecasting a net cash burn of $47 million to $52 million in 2011 and total operating expenses are still expected to be slightly higher year-over-year due to increased costs associated with additional manufacturing and clinical trial activity. As a reminder in 2010 our net cash burn was $44 million and operating expenses were $68 million.

And with that I will turn the call back over to Greg.

Thank you, Kurt. I'm pleased with the progress Halozyme continues to make in advancing both our proprietary programs and our partnerships.

Now, let's open it up for questions. Operator?

Thank you. (Operator Instructions). Thank you. Our first question comes from the line of Eun Yang with Jefferies. Please proceed with your question.

Thank you. In terms of Ultrafast Insulin program, you guys mentioned in the past that you would need a partner to move into Phase III and given the stage of development it seems to me that Phase III, you could be ready for Phase III by the end of this year or next year. Can you talk about your partnering strategy on there in terms of timing. And the second question is to Kurt. If I remember correctly, when Roche dosed the first patient in MabThera sub-cu study, you would get about $5 million in a milestone payment. If so, was it booked in the first quarter, and if it did, (inaudible) was it amortized?

Well Eun, this is Greg Frost. Let me see if I can answer the first question and the I will hand it over to Kurt for the finance question. Regarding insulin, as we mentioned previously w e will have the last patient out in the third quarter of this year. And so from an analysis standpoint, those data plus the insulin pump data, essentially they're critical ingredients for us to discuss our partnering discussions. So the majority of individuals, obviously, that are in this space, both of what we call incumbents and non incumbents -- Bill Daley and the rest of the business development group have essentially from a time frame where we have looked up to the beginning of next year to kind of go through and package materials and get those discussions through.

But as we look at the data sets, obviously from a CMC standpoint and an end of Phase II meeting it would be required. Essentially that is going be specific for the particular insulin analog each one would be bringing forward as well as some CMC related questions. And so those will be something that is really dove tailed in from a partnering standpoint.

And with regards to the Roche milestone, yes, Eun you are correct we received that $5 million milestone in the quarter and it was booked as revenue in the first quarter.

Okay. Thanks.

Sure.

(Operator Instructions). Thank you. Our next question comes from the line of Greg Wade with Wedbush. Please proceed with your question.

Thanks for taking my questions this morning.

Good morning.

Greg, what was the threshold you were looking for in the PEGPH20 study in order to move forward into a randomized study?

That is a great question. So there is actually -- while this is a dose escalation study and modulated frequency, there really were three different components that were being evaluated. So the first is based upon radiologic-based analysis and that really includes dynamic contrasts enhanced MRI. This is a form of profusion of the tumor with a contrast agent that allow us to establish if profusion has been increased. There is a secondary parameter of a DC MRI that is very exploratory, but it's supportive.

The second relates to catabolites of the substrate showing up in circulation. So we look at that from the standpoint of intravenous administration, that after the enzyme is put into circulation, we see a release of catabolites into plasma. And this is similar to what was reported at EORTC last year.

And finally the third is from a dosing frequency, we have a pre and then a post treatment biopsy when we get to what we believe is the recommended Phase II dose. And that is essentially looking at a post treatment biopsy that is then stained for the presence or absence of the substrate compared to the pre dose treatment to establish if we have effectively depleted the tumor of substrate. And those three components really define that we have that, combined in with tolerability, a recommended Phase II dose to proceed forward.

How well did it work?

Well, as you have seen, I think from the data set from EORTC, from a dosing standpoint one can see up to a thousand fold increase in catabolites in plasma. From the standpoint of the DC MRI there was an example, I think it was provided on the first patient in the 102 design from the standpoint of K(trans) and other profusion parameters. And the third, from the standpoint of the post treatment biopsy, that is something which we hope to be able to present later this year.

Great. Thanks for taking my questions.

Sure.

(Operator Instructions). Mr. Uhl, there are no further questions at this time. I would like to turn the floor back to you for closing comments.

Okay, well I'm going to hand it off to Greg Frost for his comments.

Thank you. The year ahead looks like it's going to be an important year of clinical advancement for Halozyme. Our Ultrafast Insulin will complete three clinical studies, including three times daily treatment in Type I and Type diabetes patients and an insulin pump study in Type I patients.

Halozyme's PEGPH20 oncology program currently in Phase I has plans underway to initiate a randomized Phase II trial in pancreatic cancer during the second half of this year.

Our HTI-051 program targeting cellulite is on track to enter proof of concept human dosing study during the second half of this year.

We are also moving forward with what we believe will be a resolution to the HYLENEX manufacturing issues and if additional data we're gathering provides the answers that are satisfactory to FDA we plan to have the product back on the market by the end of this year.

Baxter's Phase III registration study for subcutaneous HyQ immunoglobulin with rHuPH20 has been completed and Baxter has plans to file it's BLA during the third quarter.

Roche's Phase III registration trials for subcutaneous formulations of Herceptin and MabThera are underway and based upon Roche's statements what we see from the Phase III Herceptin subcutaneous trial we'll have data by the end of this year. Both products are expected to file for approval in the European Union during 2012. In addition, the proprietary administration device for subcutaneous Herceptin has also entered the clinic.

Halozyme's late-stage, clinical and regulatory activity is paving the way for our partners to introduce three potential block buster are products, HyQ, Herceptin SE and MabThera SE, during 2012 and 2013. We are fortunate to have a diversified pipeline of significant product opportunities in various stages of development. We look forward to updating you again on our progress. Next week we will be presenting at the Bank of America Merrill Lynch Healthcare Conference in Las Vegas on Thursday, May 12, and hope to see some of you there. Again, thank you for your interest in Halozyme and for your participation on today's call. Take care, everyone.

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