Halozyme Therapeutics Inc (HALO) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Halozyme Therapeutics fourth-quarter and year ended 2011 financial results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Anne Erickson, Executive Director of Investor Relations at Halozyme Therapeutics. Thank you, Ms. Erickson, you may begin your conference.

Good morning, and welcome to Halozyme's quarterly update conference call. Joining me on the call today are Gregory Frost, President and Chief Executive Officer; and Kurt Gustafson, Chief Financial Officer. This morning Halozyme released fourth-quarter and year-ended 2011 financial results. If you've not received this news release or if you'd like to be added to the Company's distribution list, please e-mail me at aerickson@halozyme.com. The 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 14 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 uncertainty 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 Gregory Frost, Halozyme's President and CEO.

Thanks, Anne, and good morning to everyone. We appreciate you joining us on our fourth-quarter and year-end call for 2011. This morning, we will elaborate on the press release issued earlier this morning. In a few minutes, Kurt Gustafson, Halozyme's CFO will provide additional details on the quarter and year-end underlying financial results and comment on our outlook for 2012. I'll provide an update on the status of our key clinical programs, including significant progress made with our wholly owned programs, as well as the clinical programs for our collaborators. Before I do that, I want to highlight some new information we announced this morning.

Roche's submission of a Line Extension Application for subcutaneous formulation of Herceptin to the European Medicines Agency for the treatment of patients with HER2-positive breast cancer. While this filing triggers a $4 million milestone payment to Halozyme from Roche, it most notably marks a major achievement for the overall subcutaneous Herceptin develop program and demonstrates significant progress from our long-standing collaboration.

This formulation of Herceptin uses Halozyme's enhanced technology to enable the subcutaneous injection, just under the skin, of a full intravenous dose of medication. If approved, this would result in faster administration times, versus IV administered Herceptin for both patients and their healthcare providers. Improving the efficiency and convenience of care with this patient population is very important.

Roche is also in clinical studies with a pre-filled auto injector device that could potentially allow some women to self-administer at home. With this device, dosing time could take approximately 5 minutes versus anywhere from 30 to 90 minutes with an IV administration. This may offer a significant advance over having to travel to infusion centers for treatment.

In October of last year, we announced positive top-line results from Roche's Phase 3 registration trial. The full data set from this trial will be presented by Roche at the European Breast Cancer Conference on March 23 in Vienna, Austria. We look forward to these data being presented. Everyone at Halozyme is committed to making subcutaneous Herceptin available to patients in Europe as soon as possible, and we will work and continue to work closely with Roche and the European Medicines Agency towards that goal.

While the subcutaneous Herceptin filing certainly got us off on the right foot for 2012, we are certainly just getting started. For those of you that have followed us throughout 2011, you are aware that we placed a good deal of emphasis on the near-term promise of our late-stage partnered programs with Baxter and Roche.

We have a PDUFA date nearing for subcutaneous immunoglobulin + rHuPH20 with Baxter. You may have seen at the recent American Academy of Allergy, Asthma and Immunology, or AAAAI, annual meeting in Orlando that Baxter announced the proposed brand name for this investigational product as HyQvia. At the conference, Baxter presented long-term clinical data from a Phase 3 extension study that continues to show favorable safety and activity for HyQvia. As the two regulatory filings from Roche expected this year, I mentioned in the first filing earlier with the subcutaneous formulation of Herceptin, and we anticipate that a Line Extension Application will also be filed in Europe this year for the subcutaneous formulation of MabThera, or rituximab.

Additionally, we look forward to progressing many of our own innovative programs in 2012. Through our proprietary pipeline that focuses on research with recombinant human enzymes that altered the extracellular matrix. We're working on truly unique set of programs in the therapeutic areas with significant market potential -- such as diabetes, oncology, and dermatology. This diversified structure to research and development, one that balances a partnered and proprietary approach across multiple therapeutic areas, will put us on a growth trajectory beyond what we could achieve if we only focused on proprietary or partnered programs alone.

This mix allows us to expand our reach, balance financial and technical risk, and reward sharing, and accelerate revenue. We believe this R&D model could result in a true win-win situation for all of our stakeholders. First for patients, it could mean novel medicines, as well as a more convenient administration of current therapies. Payers could see reductions in overall healthcare costs, and for investors, it has the potential to increase shareholder value. For Halozyme, it means improved sustainability for future growth.

Now, I would like to turn the conversation over to the progress we made in 2011, as well as touch on additional milestones that we look forward to achieving this year. Reflecting on last year, and particularly the last quarter, I am proud of the numerous accomplishments we were able to realize. Let's start with the highlights from our proprietary programs. In December of last year, we launched Hylenex. This wholly owned product of Halozyme's is a formulation of recombinant human hyaluronidase, does not contain animal-derived ingredients, and is FDA approved for the dispersion and absorption of other injected drugs and fluids. This year, our commercial focus is on hospitals and emergency departments for regional anesthesia, drug extravasation -- most commonly used in the NICU, and fluid administration or hydration in patients with difficult venous access. We have an appropriate and experienced commercial infrastructure in place to support this relatively small market, where we believe this product will be profitable.

Our next program, Ultrafast Insulin saw tremendous advancement over the last 12 months. We've completed and presented results from five clinical programs that continue to demonstrate the need for a faster acting mealtime insulin for people living with Type 1 and Type 2 diabetes. With nearly 26 million Americans living with this chronic disease and direct medical costs associated with the disease circling $115 billion, the need for improved therapies that can help people better control their diabetes has never been greater.

Our Ultrafast Insulin program combines our lead enzyme, rHuPH20, with mealtime analog insulins, with the goal of developing a best-in-class, rapid-acting insulin that surpasses the current standards of care. We are researching this approach for use with multiple daily injection therapies, or MDI, where the product is intended for use in conjunction with basal insulin therapy, as well as with continuous subcutaneous insulin infusion, or CSII, where both basal and bolus insulin are delivered at the same site through a pump.

All five of the clinical studies I mentioned demonstrate a faster in, faster out insulin profile, which led to better controls of blood glucose levels. In two insulin analog treatment trials, we demonstrated that the Ultrafast rHuPH20 insulin analog formulation achieved non-inferior A1C, a measure of average blood sugar over three months, compared to the insulin analog alone. With superior reductions in post-prandial glucose excursions in the rHuPH20 insulin analog arms.

Additionally, rHuPH20 insulin analog use also resulted in a greater than 50% increase in the proportion of patients able to consistently achieve the American Association of Clinical Endocrinologists guideline target for post-prandial glucose. Both at the one and two hours after meals in both Type 1 and Type 2 patients, compared to the insulin analog alone. This faster in, faster out profile allows the insulin to be absorbed faster, achieving a higher post-meal peak when your body needs it most, and is eliminated more quickly when your body doesn't need it. We believe this PK profile to better glucose control and could be an important step towards helping people who live with diabetes maintain good health.

With regard to CSII, we presented results from an insulin pump study at the Diabetes Technology Society meeting last year. The data indicated that a single pre-administration of 150 units of rHuPH20 prior to the start of three days of NovoLog insulin aspart pump infusion therapy, led to consistent Ultrafast insulin exposure over the infusion set life and superior glucose control following meals.

This is important because in previous studies conducted by Halozyme and others, it was observed that insulin absorption from a pump was quite variable over the three days. It is worn at a single infusion site. Providing a means to achieve more consistent insulin absorption over the infusion set life could provide people who use insulin-pump therapy with a more predictable way to control their disease and potentially reduce the risk of hypoglycemic events.

We're enthusiastic about the potential of this franchise and what it may mean for patients, healthcare providers, and Halozyme. We believe that both MDI and CSII programs have attracted commercial appeal. When we think about our strategic options for this franchise, we continue to view the two programs, Ultrafast insulin for MDI and for CSII, as distinct opportunities that do not have channel complex.

We have several options for commercializing this franchise that range from partnering the MDI program -- a market that will require commercialization by a large pharmaceutical company with global access to primary care physicians; to partnering both MDI and CSII programs; to launching Hylenex for use in pumps on our own. This represents a more focused, predominantly US market that does not require a large commercial infrastructure, and is a program for which we can continue to add value for patients. We are exploring the optimal pathway for both programs and anticipate that we will have determined the best approach by the second half of the year.

Now, let's switch gears to our internal program in oncology with pegylated rHuPTH20, or PEGPH20. On our last call, I mentioned that we initiated a Phase 2 study with PEGPH20 in patients with stage-4, previously untreated pancreatic cancer. The study design looked at the standard of care, gemcitabine plus PEGPH20, or placebo with a primary endpoint being overall survival. We are currently in the Phase 1b running portion of the trial, gemcitabine with PEGPH20, and expect to start the multi-center Phase 2 trial this year, with cites in Europe and the US.

With this program, we are investigating the ability of PEGPH20 to deplete hyaluronin that surrounds many solid tumors. While accumulation of hyaluronin is found in only 20% to 30% of the most prevalent solid tumors, it is found in the majority of pancreatic ductal adenocarcinomas, the target population for this trial. The hyaluronin forms halos that surround the tumor and create resistance to cytotoxic therapies. Through our translational Phase 1 clinical studies, it is our hypothesis that PEGPH20 reduces the metabolic activity of the tumor, depletes the hyaluronin, and normalizes the blood flow to these tumors. This may increase the effectiveness of chemotherapy.

Through additional Phase 2 trials, we are also very interested in exploring whether the subpopulations of patients with other cancers that accumulate this hyaluronin-rich matrix can benefit from PEGPH20. To test this hypothesis, we've been developing companion diagnostic tools that allow us to identify patients with tumors that accumulate hyaluronin. We'll have more details on this approach later this year, as we continue to develop and validate the diagnostic tools and acquire more knowledge on the hyaluronin expression in certain tumor types.

Turning to our last internal development program, we recently presented interim results from a Phase 1 proof-of-concept in tolerability study of HTI-501, our investigational conditionally active recombinant human cathepsin. This trial is in female patients with moderate to severe fibrosclerotic panniculopathy, more commonly known as cellulite, a condition that affects nearly 90% of women. Cellulite is believed to be a cause by collagen fibrils that anchor the epidermis against the swelling of subcutaneous fat, and create the dimpled appearance associated with the condition.

HTI-501 is Halozyme's first conditionally active biologic, meaning it's only active at the intended location, and for which we can control the duration of the enzyme's therapeutic activity. It's designed to degrade the collagenous fibers associated with cellulite. In the Phase 1 portion of the trial, no serious or severe adverse events have been reported, and the injection has been well tolerated. These data support commencement of the Phase 2 portion of the clinical trial, which we expect to begin soon, and anticipate its completion by the end of this year.

Now, I want to quickly touch on one last partnership program, and that's with ViroPharma. In May of last year, we entered into a worldwide exclusive licensing agreement with the ViroPharma for Cinryze + rHuPH20 to treat patients with hereditary angioedema, or HAE, a rare, debilitating, and potentially fatal genetic disease. Throughout the last few months, we've made significant progress with this program.

ViroPharma recently presented positive Phase 2 data at the annual meeting of the American Academy of Allergy, Asthma, and Immunology in Orlando. These data demonstrated that subcutaneous co-administration of Cinryze with rHuPH20 was well tolerated and resulted in sustained physiologically relevant C1-inhibitor functional concentrations. We're pleased with the results of this trial, and ViroPharma reiterated on their most recent earnings call that these data warrant further clinical development of the program. We anticipate working with our partner to initiate a Phase 2 dose ranging study this year.

Now that we've discussed major milestones from last year and highlighted key milestones for 2012, let's talk about the strategic direction of the Company over the coming year. 2011 was an exceptional in terms of execution and laid the groundwork for a transformative 2012. With a PDUFA date nearing, a marketing application filed, and another filing anticipated this year, we have true near-term upside. Balanced by an innovative pipeline that is evenly distributed across all stages of research and development and will enable sustainable growth for years to come.

To continue that momentum, our business is focused around four strategic drivers that will ensure we continually work on the highest-value opportunities for the business. Our path is clear. First, we will continue to secure revenue from existing channels. A regular stream of milestone and royalty payments from our established partnerships, and revenue from our wholly owned product Hylenex, will provide a constant source of cash.

Second, we will continue to pursue additional high-value partnerships by leveraging our validated technology to penetrate new markets. At the same time, we will advance our proprietary pipeline, investing in and progressing development programs that leverage our expertise and extracellular matrix science and position the Company for organic growth, by commercializing assets where we can continue to add value. Lastly, all of these activities, along with strong financial discipline, will allow us to drive towards positive cash flow by 2013. With that, I will turn the call over to Kurt Gustafson, who can provide more detail on our financial results released earlier this morning.

Thanks, Greg, and good morning to everyone. This morning, we announced our financial results for the fourth quarter and the year ended December 31, 2011. The net loss for the fourth quarter of 2011 was $18.4 million, or $0.18 per share, compared with a net loss for the fourth quarter of 2010 of $16.9 million, or $0.17 per share. For the year ended December 31, we reported a net loss of $19.8 million, or $0.19 per share, compared to a net loss of $53.2 million, or $0.56 per share for 2010.

Revenue for the fourth quarter of 2011 was $2.4 million, compared to $3.6 million for the fourth quarter of 2010. Research and development expenses for the fourth quarter of 2011 were $14.9 million, compared with $15.9 million for the fourth quarter of 2010. The decrease is primarily due to decreases in clinical trial activities, and partially offset by an increase in manufacturing activities. SG&A expenses for the fourth quarter of 2011 were $5.9 million, compared with $4.6 million for the fourth quarter of 2010. The increase is primarily from higher marketing and market research expenses during the quarter. We ended the fourth quarter with a cash balance of $53 million, and our net cash burn for the fourth quarter of 2011 was approximately $13.5 million, and for the full year of 2011, was $30 million.

So, let me switch gears now to our financial guidance for 2012. If we exclude the recent financing, approximately $82 million, we are forecasting that our net cash burn for 2012 will be between $50 million and $55 million. If you go back to 2011 and exclude the business development deals that we signed in 2011, this net cash burn guidance is in line with what we originally provided to start the year back in 2011. As for operating expense, we expect operating expense to grow at a mid teens growth rate relative to the $76 million we spent in 2011.

So, I would also like to provide some additional points of clarification. First, as we always have done, our net cash burn includes milestones that we feel have a high probability of occurring, but we do not include any new business development in our guidance. The other point I would like to make is that we have major increases in the amount of manufacturing-related work that we'll be doing in 2012. We expect to spend approximately $25 million in 2012 building commercial inventory and other manufacturing-related activities. The inventory is for our partners, as well as for our own proprietary compounds.

Second, I would like to spend a little time talking about how we intend to recognize revenue. For Hylenex, we will recognize sales when we see Hylenex pull through the chain to the end users. We will not record sales made to wholesalers, but rather wait until we see the wholesalers actually sell the product through to the hospitals or other end users. For our partners, for royalty income, we are going to be recording that royalty income on a one-quarter delay. So for example, if Baxter were to have launched in the first quarter and had sales of HyQvia in the first quarter, we wouldn't record that royalty income from these sales until the second quarter. As a reminder, this is consistent with when the cash will actually be paid to Halozyme. So with that, I'll turn the call back over to Greg, who can provide some parting thoughts.

Thanks, Kurt. Before the close of our prepared remarks, I want to take a moment to acknowledge and thank the employees of Halozyme, whose hard work and dedication enabled the numerous accomplishments of 2011. We've delivered on some several significant milestones that position us for even greater achievements this year, will help us build long-term shareholder value, and will enable us to advance patient care through truly innovative therapies. I'll now ask the operator to open up the lines for questions.

Thank you. (Operator Instructions) Our first question is coming from the line of [Ying Huang] with Barclays Capital. Please state your question.

My first question is -- first of all, should we expect any near-term news on the partnerships? And then, secondly, we know that in the pump users for insulin, sometimes they do -- the end users tend to wear the pump one to three days. So I was wondering if you have any plans to conduct a trial in this setting for more than three days?

Thanks, and good morning. First, with regards to the partnership question, obviously we are always actively involved in discussions with folks regarding partnerships, but we don't typically go through and talk about them usually until the 8-K is filed. So that's typically the way we look at that.

As far as pump use is concerned, obviously there is, from a use -- most of the applications where people have these are essentially registered and tested for use for changing infusion sites every 3 to 3.5 days. And so that's not something we have the ability to go through and change as far as changing the entire system of what they are approved for beyond that period of time. There are some -- most of the studies that we have looked, try to go through and ensure that we were covering that duration of currently approved use, however.

Our next question is coming from Eun Yang with Jefferies & Company. Please state your questions.

Thanks, when did exactly Roche file this Line Extension Application for subQ Herceptin?

Hi, Eun, it's Kurt. And the actual date they filed was on March 2.

So, you are going to be booking $4 million in the first quarter?

Yes. From a revenue standpoint, we would book the revenue in the first quarter.

Okay. And then, Kurt, in your $50 million to $55 million cash burn guidance for this year, what's your assumption for stock-option expenses?

For stock-option expenses?

Yes.

That number is going to be fairly similar to what it has been in past years, so I think if you go take a look at -- we don't have a major growth in the number of employees. So I think assuming that it is fairly similar to previous years, would be a good starting point.

So, was the previous year is in the --?

I think if you go back and look historically, we are in the [$5 million, $6 million] range.

Our next question is coming from the line of Jason Butler with JMP securities. Please state your question.

Congratulations on getting the Herceptin application filed. Looking forward to the Herceptin data presentation later this month, could you maybe walk us through -- obviously the data is positive, Roche have confidence in it; they have filed off it. What are the key points that you would be focusing on in that data set? And what should we be looking for that maybe we're not necessarily expecting?

Well, Jason, obviously as far as details, these presentations, as you know, are embargoed until presentation. But what I always would go through and direct folks to, first and foremost are the primary endpoints of the study. And those are really two co-primaries, one which focus is upon the exposure of the product relative to the intravenous administration. This was an innovative approach taken by Roche, obviously, with going to a fixed dose of trastuzumab for all patients versus a variable dose.

And the second component, which is the co-primary is the pathologic complete response rate, or the percentage of patients experiencing a histologic complete response to therapy. So those are the two key components I think that would be most valuable for people to think about this particular program. And of course, that data set is going to be on the 23rd in Vienna.

Okay, great. And then second, I just wanted to come back to your comment about achieving a cash flow positive state in 2013. I assume you don't mean for the full year of 2013 you would be cash flow positive. But could you maybe walk us through, obviously that's growing revenue and new royalty streams, but how do you think about expenses, and just broadly, strategically how you get to that state?

Great, I will let Kurt answer that one. He owns the LRP.

Thanks, Jason. I think that, obviously, as we look forward to Baxter launching and hitting the timelines they have articulated later this year, and as we move into 2013, Roche has articulated that they would be filing Herceptin this year, which we now have seen and mapped there later in the year. Those are assumptions that we will see product launches for those in 2013.

And as we see the revenues associated with those programs, along with certain milestones, those will drive -- that's what drives us to the cash flow positivity, if that's a word. It's not a function of us really bringing down our expenses, if you will, in 2013. So, assuming success of our clinical programs, we are going to continue to spend on these. And so the primary driver here, which dwarfs anything we are going to do on the OpEx side, is really that revenue growth.

Our next question is coming from the line of David Moskowitz, Roth Capital Partners. Please state your question.

So I'll just start with two questions. One, could you give us a little bit about the market opportunity you guys see for Hylenex. Greg, in your comments, you mentioned a relatively small market. We had an idea of what Baxter thought back when they had the product, so it would be good to get an update from you guys in terms of what you think that product could do. And also, would there be a potential to out-license the product?

I also want to ask another question with regard to inventory builds that you talked about, and your cash guidance. Is it possible, Kurt, for you to tease out the inventory build out of your cash guidance? I would love to hear it with respect to partnership inventory build, but if you could at least tell us what that cash number is for overall inventory build, that would be great. Thanks.

Sure, David. Well, I'll let Kurt handle the questions regarding inventory build. But with regards to Hylenex, first and foremost, the applications that we are looking at, there is really the first wave of this, which is something that actually Baxter hadn't really looked at. And it's a very simple component, and mainly the hospital and ambulatory surgical care markets, is simply the use of the enzyme specifically in areas for drug extravasation infiltration and for periocular use.

Those two applications are relatively small market, but that was really one of the key things that drove these enzymes through the drug shortage list initially. And so it's an important application, but it's a relatively straightforward conversion. And so for that particular application, it's quite small from that perspective; it's less than $20 million. So, we don't typically focus on that as far as what the impact would be to top-line revenue. But effectively, it's something where we have an infrastructure in place that we feel comfortable that will be profitable.

Secondly, with regards to the use in hydration, this is a use where, obviously, there is existing hospitals that run formulary, where we're going through and introducing that. From the standpoint of that particular use, we will be doing a tempered analysis of that, based upon our introduction into the hospitals and ASCs, specifically for the established uses. So effectively, the way that we look at that first piece is, the first piece we feel very comfortable about our ability to go through and be profitable from that. And the second piece on the creation market, if you will, that's something where we are spending the time to look at it. And so we will go through and we'll give more updates as we see the progress in those secondary tiers.

I heard a $20 million opportunity. Is that what I heard?

It's less than a $20 million opportunity if you look at the total application. So it's less than, I think, 600,000 to 800,000 doses or so that are used annually.

Thanks.

So, David, on the inventory side, I am not going to provide any specific breakouts between partnership and what we are building for our own use. But if you think about the message that Greg just gave you, you could imagine that a very significant portion of this is for the partnership, given the forecast that we, I guess, are not providing for Hylenex. But I think the other thing that I would want to just be clear, just so as you are following our financial statements and taking a look at building your models out.

From a standpoint of the accounting treatment on inventory, pre-approval, so anything that we are making for Baxter and for Roche, material that they have ordered, we will be expensing that as R&D expense up until the point at which that product is approved. That doesn't mean it's not going to be used for commercial purposes, but just from an accounting standpoint, it's going to run through the P&L as an R&D expense.

And then post-approval, you'll actually show it up, see it come up on the balance sheet as inventory. So I just don't want you taking a look at first in quarter balance sheet that we will have, and say -- wow, there is no inventory there. There is inventory there, it just was expensed as opposed to put on the balance sheet from an accounting standpoint.

Does that make sense?

Yes, absolutely. I'm just trying to get to the cost guidance, the 15% increase is, I think, a little bit more than we were expecting. So I'm just trying to understand, out of that percentage increase, how much of that is inventory build overall?

Yes, if you read into then what guidance I just provided you, a significant portion of the inventory that we will be building, obviously, is going to be going through R&D expense. And so part of that expense figure as opposed to just cash flow that is hitting the balance sheet.

So can you tell us what R&D might look like with and without the inventory? I'm just trying to understand how much of that factors into the overall increase in cash burn above what one might have been expecting?

I can't provide that, David.

Okay. And one last question for Greg. Greg, in your prepared comments, I heard you talk about the second half of the year. I believe you talked about recapping on where you stand with the PH20 insulin franchise. Does that mean that's when we might expect resolution partnership? It sounds to me like it means there is nothing on the table that is imminent at this point?

I wouldn't read anything into that from that nature in one of my first comment, but what I would say is -- there is two pieces here in the equation as far as CSII and MDI. And so from the CSII, or pump opportunity that we are looking at, we're focusing, number one, evaluating and sizing up that market, and essentially what that ROI might look like to us. And so, we are doing that in parallel with partnership discussions, such that we will be in a position of knowing essentially the value of this asset to someone else versus in our hands versus the combination or separating the two.

And so those really, as far as putting all of those together, I think we are running those in parallel. We like what we are seeing so far from the standpoint on the pump side, but we are not done. And from the discussion standpoint, we run those alongside, and so we can put all this together and make a decision. So this has been a big investment for what we've done as far as the overall insulin franchise, and we are thinking about this methodically.

Our next question is coming from the line of Chris Holterhoff with Oppenheimer & Company. Please state your question.

First on HyQvia, can you comment on whether or not you will receive a payment from Baxter upon the potential approval? I think, I know the terms of the agreement. Baxter is obligated to pay up to an additional $37 million or so, but just not sure if any of these are going to be for approval or not?

So, the next milestone per the contract is on first commercial sale. So, not specifically approval, it is when they actually launch the product. And I think, just to clarify that number, I believe there is actually only $34 million left of milestones from Baxter.

Okay, great. And then also on HyQvia, can you just comment on your expectation for when Baxter might launch, assuming we do get approval at the end of April?

I think Baxter has gone through from the perspective, and has articulated some of the things on their strategy on that. I would guide you back to taking a look at their statements on that.

Okay. Fair enough. And last, just on the accounting treatment for the $4 million milestone payment from Roche in the first quarter, are you likely to recognize that all in the first quarter, or could this be spread out over the year?

No, for milestone payments, we recognize those during the period in which we achieve them -- Q1 event.

(Operator Instructions) We do have a follow-up question coming from the line of Eun Yang with Jefferies & Company.

Hi. Kurt, you might have mentioned this, but the product sales in the fourth quarter, any part of it is coming from Hylenex?

There was some sales from Hylenex in Q4. We launched this in December, so you can imagine it's not a big number because of the way that we are booking it, since we are not booking it based on wholesaler -- you didn't get that first bolus based on the wholesaler loading.

Okay. And then, now that Roche filed a subQ Herceptin and they expect to file for (inaudible) is there any color you can give us when Roche might be moving a third product into the late stage of clinical development?

No. As you know, Eun, there is two different pieces here. One is, the way that this relationship is set up, there are both targets specifically for which we have provided exclusivity to Roche on, so for example, Herceptin covers the ErbB2 target, and so they have rights to that target with any therapeutic antibody for example hitting that target. Same thing holds true with CD20 as a target as well.

But we receive, as far as milestones and things of that nature, only for the first set. So from that perspective, if a follow-on or an adjunct were used in a setting of that nature, you would not hear about it until it became material for Roche, so wouldn't expect anything there. And as far as the new targets and other processes are concerned, that's one that I would go through and look to Roche to providing additional guidance on.

Our next question is coming from the line of Jonathan Aschoff with Brean Murray, Carret. Please state your question.

I was wondering -- any reason that you can give us as to why Baxter is so cautious when they talk about the launch pace of HyQ? Certainly a peer of Baxter didn't exactly have a slow launch of their subQ. And I'm just wondering, can you help us understand why, when they talk about it, they're quite conservative -- very, very conservative about the pace of that launch?

I'll let Kurt comment on that one.

Yes, I have seen the same stuff out there, Jonathan. I think [Parkinson] has been out there making a few comments about the same things like a controlled launch. But I think, at least based on what I've seen, is that they have a situation from a supply standpoint where they took down a fractionation facility. And they are trying to bring that volume back up.

And they want to make sure that -- I think they're excited about the subQ product, and they want to make sure they're not in a situation where if they went out aggressively, that they don't run out of product. So I think that they have limited supplies of IgG, and they just want to make sure that they dole this thing out in a thoughtful way. That is the way I read his comments.

The only other addition I could make to that is, as far as the infrastructure I think that you've seen in place for bioscience and HyQvia, I've been very pleased as far as the planning that's been put into it from a marketing perspective on their side. I think this is being very well planned out as far as market introduction is concerned, and I am certainly happy with it.

Okay, and one final was -- what was the timing that you gave earlier for the next cellulite data set?

So, the first stage of that we gave just some top-line data set that was reported, because it was at an International World Congress for Plastics. And so effectively, as you know, there's both two concentrations of activator, if you will, and then there is an escalation of concentration of enzyme. And so, we expect to have that trial wrapped up this year. And so effectively, as it blows out into a five-field injection, one side of placebo-control and one side with five injections of activator, and then monitoring on that. We'll have the primary reads going through, obviously, quite quickly on this, but then we will want to be catching a little bit of follow-up as well. But we will have that data wrapped up this year.

Our next question is coming from the line of John Sonnier with William Blair & Company. Please state your question.

Thanks for taking the question, and congrats on all the progress over there. Maybe a question for Greg -- you mentioned, and I agree, you guys have invested a substantial amount of capital over the last few years in the diabetes program. And I feel like this is when the rubber meets the road. You have the data, basically a Phase-3 ready data package. You have a great balance sheet now. I guess I haven't heard you guys comment in a while on what exactly you would expect, like structurally, what type of transaction do we look for. Historically, I think it was not going to be a clinical Roche-like deal, but what are reasonable expectations for partnering the diabetes program?

Well, John, I've always gone through, and when you look at the different potential partners that are out there, I would look at them both from the standpoint of what the value is that we provide from the perspective of the product opportunity, and what it can mean for them. And as far as looking at this on the basis of when you look at commercializing such an asset, in some cases you're looking on the basis of what is the value of the asset itself in a particular partner's hands. And in some cases, that value can be different based upon the established infrastructure that particular group has, based upon their current experience.

So, I try and look at this on the perspective saying -- I think the value is very big. I don't go on the basis of what do we see the NPV, because it actually does vary based upon in whose hands they have that. Needless to say, I think we've been very thoughtful about how we've modeled this out, and I think the value that we can provide on this is something people get a better look at as well, as they see the [dated EDA].

(Operator Instructions) Dr. Frost, there are no further questions at this time. I will turn the floor back over to you for closing comments.

This concludes today's conference call, and thanks for joining us. You can disconnect your lines at this time.