Halozyme Therapeutics Inc (HALO) 2011 Q2 法說會逐字稿

Greetings and welcome to the Halozyme Therapeutics second quarter 2011 financial results conference call. (Operator Instructions). It is now my pleasure to introduce your host, Kurt Gustafson, the Chief Financial Officer at Halozyme Therapeutics. Thank you, Mr. Gustafson, you may begin your conference.

Thank you, operator, and thanks also to everyone for participating on today's call. Joining me on the call is Greg Frost, President and Chief Executive Officer. This morning Halozyme released second 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 jMcDonald@halozyme.com. 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 Greg Frost, Halozyme's President and CEO.

Thanks, Kurt. Good morning, everyone, and thanks for joining us on the call today. I will be providing an update on our key proprietary product development programs as well as our alliance programs with Roche and Baxter. And finally, Kurt Gustafson will provide the highlights of our financial results for the second quarter.

Halozyme continues to execute on our business strategy with strong progress this quarter and continued solid financial management. The new partnerships we have signed with ViroPharma and Intrexon provide additional validation to the technological benefits of recombinant human hyaluronidase for subcutaneous biologics. We presented positive results from our diabetes program in June, and today we will outline our thinking on an additional novel potential use for PH20 with insulin pump therapy.

Halozyme's other partnerships continue to make progress as well. Completion of Phase III Herceptin subcu registration studies are in sight for this year. Baxter filed the BLA in the US for HyQ recently and ViroPharma is moving forward towards clinical testing of Cinryze subcu this year. Finally, after completing asset transfer and transition service agreements with Baxter, the path is clear for Hylenex, to reintroduce Hylenex by year-end.

First with regard to our new partnerships. ViroPharma has recognized the value to HAE patients in being able to able deliver Cinryze subcutaneously. While they currently have a subcu program in development, they plan to commence clinical development of a rHuPH20 subcutaneous formulation of Cinryze later this year. Intrexon's A1AT deficiency target is applicable to several potential disease areas such as genetic emphysema, COPD and cystic fibrosis. So while very early stage, the opportunity could eventually be truly transformative as the first subcutaneous human recombinant offering for patients currently only served through plasma derived sources.

For the benefit of patients receiving chronic intravenous biologics today, securing additional partnerships remain a core focus for the Company. We continue to be pleased with the pace and the quality of partnering discussions that Bill Daly and the technical teams have been achieving. It is also nice to see that these new business partners have recognized the maturity of the PH20 program by rewarding us with double-digit royalties and higher mile stones than we'd seen in the past.

Now on to diabetes. By listening and learning from patients, payors and providers as well as those currently marketing insulin therapies, we are confident that our trials and development activities have advanced the intrinsic value of our proprietary diabetes programs.

Very recently we discovered a new potential attribute of our technology for patients using insulin pumps when combining insulin Aspart formulated with PH20. The studies presented at the American Diabetes Association demonstrated a reduction in the variability of insulin absorption over the life of an infusion set while reducing post meal glycemic excursions. The trial also demonstrated strong safety data, importantly through tissue biopsies and local tolerability between arms.

These studies lead us to hypothesize that if we primed the site, so to speak, with rHuPH20 as a single injection before starting three days of insulin pump infusion, we may be able to reduce the variability of insulin absorption over the three days in which a typical infusion set is used. Reducing the variability of insulin absorption over the three-day infusion set life, along with more responsive insulin action could potentially allow patients on pumps to get better control over their diabetes. We expect to have and present results from this study at a diabetes meeting in October.

From a strategic perspective, this potential use is attractive to us for the following reasons. This does not require for us to wait for the loss of exclusivity of the insulin analogues currently on the market and Hylenex is already FDA approved and will soon be marketed. We think some additional small Phase IV studies would help implement this strategy for patients.

With regard to our ongoing treatment studies, one each in patients with type 1 and type 2 diabetes, these remain on track for data readout later this year. In the treatment studies that compare 12-week dosing regimens of Aspart-PH20 and Lispro-PH20 with a standard of care active compare to Lispro we've enrolled 220 patients in aggregate. End points for these trials, include clinically and commercially relevant benefits such as improved glycemic control, A1c, reduced hypoglycemia and reduced weight gain.

So to summarize our diabetes strategy, we view insulin pens and pumps as distinct product opportunities. We believe that the new data we have on pumps has expanded the potential players who may want to partner with us as it introduces players who might be interested in a product specific to pumps as well as an opportunity to build clinical awareness prior to loss of exclusivity of the current insulin analog products.

With our other two proprietary programs, PEGPH20 and HTI-501, we are making clinical progress as well. We are on track to start this year a randomized Phase II trial in patients with pancreatic ductile adenocarcinoma. This trial will begin with a run in single arm phase that combines PEGPH20 with Gemcitabine. The scientific rationale for this program is based upon the observation that PEGylated-rHuPH20 remodels the tumor stroma of Hyaluronan producing solid tumors thus making these tumors more susceptible to anti-cancer treatment. We will have some additional translational clinical data from our 101 and 102 studies available to present in the fourth quarter that I think support this hypothesis.

With regard to HTI-501, our novel recombinant human [conception] enzyme, that [degrades] collagen we are well on track to start a ex-US proof of concept trial in patients to evaluate if HTI-501may be useful to lyse fibrous septae in certain aesthetic dermatologic conditions.

Switching gears to the commercial part of the business, I want to talk briefly about the reintroduction of Hylenex . We have extensive knowledge of this product in the areas in which the initial reintroduction is appropriate. Our approach will be thoughtful and targeted and, from a financial perspective, will be managed prudently. I believe this program can support itself and very quickly at that. We received final clearance from FDA that -- last month and expect to reinitiate to hospitals and ASCs later this year. We will have more specific information for you at that time.

And, finally, let's discuss our partner alliance with Baxter and with Roche. Baxter filed the HyQ BLA for the treatment of primary immunodeficiency that triggered a $3 million milestone to Halozyme. From a patient perspective, the ease of subcutaneous administration of HyQ may allow patients to benefit from the convenience of self-administration of their IGG in the home setting. Baxter is expected to file in the rest of the world later this year and has also indicated that they will be showing the full data set later this year.

From Roche we eagerly await the Herceptin subcu data. The currently approved intravenous formulation of Herceptin takes 30 to 90 minutes to administer, where subcutaneous delivery with rHuPH20 should take less than five minutes. We believe that patient benefit will come in the form of increased convenience and may also translate into better compliance. Last month, Roche posted a new trial on clinicaltrials.gov. This supplementary Phase IV trial involves a 200 patient crossover design between IV and the subcutaneous delivery configuration that will capture additional patient preference in health economic benefits.

Moving on to MabThera. There are two randomized repeat-dose trials, the BP22333 trial in follicular lymphoma in up to 157 patients, and the Sawyer trial in chronic lymphocytic leukemia in up to 230 patients. There is a randomized Phase III trial, the Sabrina trial, evaluating subcutaneous MabThera versus IV therapy in maintenance in up to 530 newly diagnosed patients. With the Baxter bioscience filing in the second quarter of this year and Roche on track to file both Herceptin and MabThera in 2012, we are ecstatic we could be looking at three blockbuster approvals with partners using Halozyme's technology in the next couple years.

These are the latest updates on our proprietary product programs in our development partnerships. With that, I will turn the call over for Kurt for his financial commentary on Halozyme's first ever quarterly

Thanks, Greg, and good morning to everyone on the call. Net income for the second quarter of 2011 was $3.1 million, or $0.03 cents per share, compared with a net loss for the second quarter in 2010 of $12.2 million or $0.13 cents per share. Revenue for the second quarter of 2011 was $23.2 million, compared to $3.2 million for the second quarter of 2010. This increase is primarily a result of the fact that we immediately recognized the revenue from the upfront payments of the two licensing deals that were signed in the second quarter.

For those of you who followed Halozyme for a while, you'll note this was different accounting treatment than we had in the past. This is a result of new revenue recognition guidance issued by the FASB from the beginning of the year. This accounting treatment was implemented on a go forward basis, so it will not change the way we will account for the Roche and Baxter deals. The implication here is that we will recognize the $9 million payments from both ViroPharma and Intrexon as revenue in the second quarter. I would guide you to our 10-Q if you would like additional information.

In addition to the partnerships that we signed, Baxter filed the BLA for HyQ, which triggered a $3 million milestone, which was also recognized in the second quarter. We also had the normal revenue from the reimbursement of R&D expenses from Baxter and Roche, as well as the amortization of the upfront payments received from Baxter and Roche.

I would also like to comment on one other revenue item that you are going to see in the third quarter. This relates back to the termination of the Hylenex agreement. Our balance sheet at the end of the second quarter includes $18 million in deferred revenue related to the upfront payment, the prepaid royalty and PH20 API sales under the Hylenex partnership with Baxter. The Hylenex partnership was terminated in January of this year, and with the signing of the transition agreement with Baxter in July, we will recognize the $18 million of deferred revenue in the third quarter of 2011. This does not impact cash, as it is just a shift from deferred revenue to revenue.

So going back to the second quarter, research and development expenses were $15.3 million, compared to $11.9 million for the second quarter in 2010. The increase is primarily driven by an increase in clinical trial activities and manufacturing costs, and partially offset by lower compensation costs.

SG&A costs for the second quarter of 2011 were $4.6 million, compared to $3.4 million last year. The increase is related to higher market research and legal expenses incurred during the quarter. We ended the second quarter with a cash balance of approximately $79 million, and we had a net increase in cash for the quarter of $5.3 million.

We are revising our financial guidance for 2011. We now expect operating expense to increase by 15% to 20% compared to the 2010 level, associated with increased costs in manufacturing clinical trials and reimbursed partner-related costs. Also, including the two deals we signed in the second quarter, we are now forecasting a net cash burn of $30 million to $35 million in 2011.

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

Thank you, Kurt. I am pleased with the progress Halozyme continues to make in advancing both our proprietary programs and our partnerships. Now let's open up to questions. Operator?

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

Thank you. In terms of subcu GAMMAGARD, recently Baxter got approval for their version of a subcu formulation, and I think it is once weekly. So my question is once the HyQ is approved, have you had a discussion with Baxter how they are going to position HyQ over their subcu formulation.

Sure. I think you can certainly talk to Baxter as far as their game plan there. However, the existing subcutaneous product they have is essentially very similar just to other subcutaneous products on of market, which is a weekly offering with multiple injection sites. So they see HyQ as a unique opportunity that truly differentiates the product and is a potentially revolutionary change of subcu to IGG administration relative to IV. So as we look at that, I think that the opportunity that you have of HyQ relative to the existing subcutaneous offerings makes it look open to both the intravenous products that are out there today as well as the subcutaneous offerings.

And another question on Hylenex . So you guys are reintroducing the product toward the end of this year, but really Baxter didn't do much, and the product really hasn't been sold much since it was approved. So can you comment on why this time it would be different? Thank

Sure. I wouldn't go through -- as far as Hylenex is concerned, there are specific markets where we think that product will be very useful, and also some other strategic areas that we want to look at the use of that product in some Phase IV studies. So I wouldn't keep it as an area of focus for the Company at this point in time. We will go through and highlight that for you if it becomes something of interest in the future.

Thank you. Our next question is from the line of Maged Shenouda with Stifel Nicolaus. Please state your question.

Thanks for taking my question. I have a few questions for you. You mentioned atropine trial with PH20 Herceptin. Can you talk more about that?

Sure. I think are you talking about the Hannah trial, which is the breast cancer subcutaneous program that completed enrollment last December. That particular program with design to enroll 552 patients with HER2 positive breast cancer. There are two primary end points that compare Herceptin to IV. Pathologic complete response measured between cycles eight and nine, and serum concentrations throughout cycles one to eight.

As we look at this, Roche expects to report out the top line data from that registration trial later this year, which would then have a filing in 2012. So for that specific product there is also a recent program that was put in that was specifically looking at patient preference, that just went on clinicaltrials.gov that will be used principally for used for health economic benefits and establishing patient and physician preference.

And when do you expect the data from that patient preference trial?

I do not believe Roche has publicly articulated that at this point. But I think this is something they are looking at in the peri-launch phase, but is not considered a registration enabling trial.

Okay. And could you update us on the current thinking of ex-US plans for Herceptin PH20 and Rituxin PH20?

Obviously, on both of those, that is a Roche strategy as far as how they are looking to develop those two programs, but as they are looking at both the early breast cancer indication with Herceptin subcu. We look at that as a mainstay of the existing Herceptin market.

And for MabThera, of course, there are two specific trials, and when you look at the Sabrina trial that we have right now for MabThera, that began dosing in February 11, and that is looking for up to 530 patients with follicular non-Hodgkins lymphoma. And the primary end point on that is comparing again subcu to IV for [crop] plasma concentrations of MabThera and overall response rate. And then in the additional trials, the 22333 and the Sawyer trial, which is chronic lymphocytic leukemia, the assumption that we have is that those will be a separate filing for CLL rather than follicular lymphoma, given the different dosing regimens and agents are used with in patient populations.

And -- sorry, just one other question. And how -- what is their thinking now about the US and how this translates to the US?

I think when we look at the general process for the US, we have not yet finalized our discussions with FDA regarding a potential US regulatory submission, and we are going to be following up on that at a later time with them. So in essence, when we look at the markets globally, the US strategy is slightly delayed relative to places such as Europe.

Okay. I will get back in the queue. Thank you.

Thanks.

Thank you. (Operator Instructions). Our next question is a follow-up from Maged Shenouda with Stifel Nicolaus. Please state your question.

Thanks for taking the follow-up. Regarding the new single dose PH20 insulin program, how does this potentially affect your other insulin programs?

I think what we tried to highlight, just from a discussion line, is there are really two distinct market segments when we look at this, and you can think of it as pens and pumps. Insulin pens, which is a formulation of the enzyme with an insulin analog, is designed to be used exactly the same by which any other pen offering would be used today. In essence, an injection that could be stored for a month at room temperature and have that ultra fast profile. And that I think -- that development is really driven by the data that we will be reading out this fall.

As far as the single dose components, we see that as being an opportunity that goes through the existing tube pump opportunities, which comprise about 80% of the market today. And I think from the standpoint of what that opportunity could mean, I think that's something that, once we have the clinical data from that, that we are looking I think to have a readout in October. That would be the right time to talk about how that might integrate with the other opportunities. But in essence, because it is an administration of enzyme first, followed by the insulin, it may have a much less complicated development pathway.

Thank you.

Sure.

Thank you. Our next question is coming from the line of Eun Yang with Jefferies & Company. Please state your question.

Thanks for taking my follow-ups. So, Greg, you mentioned that ViroPharma -- as you pointed out, the ViroPharma has its own subcutaneous formulation for Cinryze. Can you comment on what it would be PH20 -- what would be the advantage of a PH20 approach versus ViroPharma's own subcutaneous program?

Sure. Well, I think we have to go through and look at the comparative data. I think ViroPharma has gone through and -- their [generally sense] is they think by early next year they will be in a position of looking at them side by side. But, really, again this is very similar. The two attributes that we see with biologicals with PH21 is the bio-availability. So in all of these sorts of products we have a limited plasma supply of a product, getting good availability from subcutaneous administration is important.

The second one, of course, is number of injection sites. Trying to get those down to a single injection site. So I think when we look at the potential attributes, those are the two areas that I think the target product profile of the PH20 facilitated version are driving toward. But it is obviously, again, data driven as far as the magnitude and comparison.

That's great. And then Intrexon, you mentioned that it is only in development for any A1AT program. But do when it might go to clinics?

Well, I think the earliest time point, even under the most aggressive timelines, you would be look at would be toward the end of next year, but I would go through -- our internal models -- we are still mapping out the development time line. And because we are in the manufacturing scale-up stage, when they are this early on, I usually don't like to go through, because you have things that can go fast or slow by a couple of quarters. So I think a good time to get some additional precision would be the first half of next year. We will have a much better perspective of how that is tracking.

But as an opportunity, it is a specific area where manufacturing as a feat of getting high level production of A1AT in a recombinant system in a mammalian expression has been a challenge for many people, although it is something that there has been a desire for a long time. So i think the technological attributes that Intrexon brings there could give rise to a novel product offering for patients.

Great, thank you.

Sure.

Our next question is from the line Jason Butler with JMPS Management. Please state your question.

Hi, thank you for taking the question.

Hi, Jason.

Just thinking about use of PH20 with insulin pumps. What kind of data would you need to view the product as commercially viable?

When we look at the attributes and the market testing that we have done to date, there are attributes to insulin pumps are similar to insulin pens, which is an ultra fast profile. But there is additional area areas that we are investigating that relate to variability and consistency that I think are additive beyond that. So if we look at what the attributes are, in the end having tighter control, or more responsive insulin if you will, is important in insulin pumps even more so than it can be in pens, because of the fact that patients are often adjusting their dosages. So being able to get something consistent every time you ask for it is actually more valuable in a pump than a pen. But as far as the translation benefits, in the end this is about glycemic control and less hypoglycemia.

Okay, so then how much data and what kind of trials do you need to demonstrate that is actually a -- again a commercially viable approach, and it is worth you investing time on?

So I think when we take a look at the data sets we will have in October, that will I think principally direct what sort of Phase IV trial wold be necessary. I don't think at this point, as we scope things out, there would be anything necessary of large studies, but in essence I think we need to get the data and evaluate it first to get a sense of the magnitude of affect, and then obviously [powering]. There are certain models where people use continuous glucose models for example, where the translation of the benefit would be something very rapidly realized. And so those types of models are the sorts of things that I think we want to explore, but we need to get the data to give us better clarity on it.

Thanks for taking the question.

Thanks, Jason.

Thank you. Dr. Frost, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Thank you. Thanks for joining us on the second quarter conference call. I hope to see many of you at various financial conferences we will be attending later this fall.

This concludes the teleconference. You may disconnect your line at this time. Thank you for your participation.