Halozyme Therapeutics Inc (HALO) 2012 Q2 法說會逐字稿

Greetings and welcome to the Halozyme second quarter 2012 financial results conference call. (operator instructions).

It is 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 afternoon. Thank You for joining Halozyme's quarterly update conference call. With me on the call today are Gregory Frost, President and Chief Executive Officer, and Kurt Gustafson, Chief Financial Officer.

This afternoon Halozyme released second quarter 2012 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 e-mail me at aerickson@Halozyme.com. This call is also being webcast live over the internet at www.halozyme.comand 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 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 Gregory Frost, Halozyme's President and CEO.

Thank you, Anne. Good afternoon to everyone. We appreciate you participating in our second quarter call for 2012. Today I will be elaborating on the announcement we made last week as well as providing an update on the business. After that, Kurt Gustafson, Halozyme's CFO, will review the quarter's underlying financial results with you.

As you know, we confirmed last week that Baxter received a complete response letter from FDA's Blood Products Division for the HyQ BLA and at this point in time the subcutaneous plasma derivatives program for the recombinant human hyaluronidase, or rHuPH20, are not dosing patients. Upon receiving this information from Baxter and ViroPharma early last week we contacted FDA's Drug Division to ascertain whether this regulatory action would apply to other programs using rHuPH20.

According to our most recent communications with the drug divisions last Wednesday following submission of a data supplement to the Hylenex NDA, including detailed immunogenicity data from insulin and subcutaneous Herceptin programs we were informed by the Drug Division that concerns appear to be related to potential interactions with certain biologics that generate an antibody response that is different from what we have seen in other development programs using rHuPH20. Furthermore, the Drug Division confirmed there is no need for actions against Hylenex or clinical programs under the Hylenex IND.

As a reminder, the only open trial at this time under the Hylenex IND is the on-going Hylenex insulin pump study. For these reasons we believe that the regulatory concerns raised by FDA's Blood Products Division are specific to Baxter and ViroPharma's clinical programs. It is not abnormal to see some form of antibodies to recombinant proteins with sufficiently sensitive assays. In fact, approximately 7-10% of the general population test positive to anti-rHuPH20 antibodies prior to any exposure to the rHuPH20 enzyme. This is not uncommon for other proteins.

What was different here is the relative levels of antibodies or titers. Levels of these antibodies in both the insulin and Herceptin studies were within the same levels post-treatment as seen in the pre-treatment populations. Or in other words, no signals of treatment-boosting. In the HyQ registration study we observed antibody levels that were orders of magnitude higher than had previously been observed in any other repeat dose clinical trial which is suggestive of some form of immune response with this combination. So it is possible that there is some form of interaction between these plasma derivatives that is leading to these high antibody levels, but further investigation is required.

However, it is still important to note that the antibodies have not been associated with any adverse events, and again none of the samples were neutralizing against the rHuPH20 enzyme. The complete response letter for HyQ has requested additional pre-clinical data to support the BLA application and primarily focused on these elevated levels of non-neutralizing antibodies generated against rHuPH20 and any possible affects of these antibodies. So I want to reiterate that no adverse events related to these antibodies were seen in the Phase 3 HyQ registration trial. However, much like the standard battery of toxicology tests we have already completed in order to establish the safety profile of the rHuPH20 enzyme, the CRL has requested that we address any potential risk of exposure to the elevated enzyme antibody titers observed in the HyQ program through this similar battery of tests.

As far as the next steps with the HyQ CRL, Baxter plans to file an amendment to the HyQ BLA following additional discussions with the blood products division. The plan forward is still the proposed pre-clinical studies that will address the agency's questions so that we can move this program forward. Given we will need their agreement on the proposal, we can't speculate on the amount of time it will take to complete these studies. We expect to be able to provide you with an update after meeting with the blood products division on this matter.

Additionally, our partner Roche has been made fully aware of these regulatory actions. Due to the difference in profile and a number of other reasons, Roche has indicated that they do not believe these actions impact their programs at this time. Furthermore on their recent second quarter earnings call, Roche announced that the Phase one study investigating the subcutaneous formulation of MabThera met the primary end point of non-inferior MabThera serum concentrations after subcutaneous injection compared with a MabThera IV infusion in patients with Follicular Lymphoma.

Additionally Roche confirmed that they remain on track to file the line extension application of subcutaneous MabThera to the European Medicines Agency this year, and they have also indicated that the Herceptin SC EMA filing is progressing as planned. Now switching over to our proprietary programs, June was an exceptionally busy month. Halozyme presented both at the American Society of Clinical Oncology meeting and the annual meeting of the American Diabetes Association. At ASCO we presented data on our single agent Phase 1 study of PEGPH20 in patients with advanced solid tumors.

As a reminder PEGPH20 is our proprietary program evaluating a PEGylated form of rHuPH20 for potential use in oncology. The study presented at ASCO assessed PEGPH20 over a range of frequencies evaluating the safety and tolerability of the treatment in patients with solid tumor malignancies including pancreatic cancer. PEGPH20 was generally well tolerated at the recommended Phase 2 dose. Pharmacodynamic markers also support the proposed mechanism of action with normalized tumor profusion and reduction of tumor metabolic activity consistent with changes in tumor HA observed in biopsies.

Separately our PEGPH20 study in patients with stage 4 previously untreated pancreatic cancer in combination with chemotherapy continues to progress steadily with an expanded number of patients enrolling in the open label run-in portion of the trial, allowing us to gain more experience with the drug before moving into the randomized placebo control phase. We expect to complete this run-in phase before year-end while gathering additional important information on safety, pharmacodynamics and clinical response rates. We are very excited about the PEGPH20 program as we believe it has the potential to tackle some very challenging malignancies by changing the tumor architecture and rendering tumors more sensitive to therapy. This is especially important in pancreatic cancer where typical survival rates after diagnosis are still less than six months.

Now turning to another one of our proprietary programs let's talk about Halozyme's research in the area of diabetes. This year's American Diabetes Association meeting was a significant meeting for us as we presented four late stage clinical studies on our Ultrafast Insulin programs. Two for multiple daily injection markets and two for subcutaneous insulin infusions.

As many of you know, one of the biggest challenges that people living with diabetes face is managing blood glucose fluctuations after a meal. In fact, the majority of people living with diabetes today don't currently meet the recommended post-meal blood glucose goals. Blood sugars must be kept at a steady level to maintain good health. These glucose swings after meals which are common can leave people feeling like they are on a rollercoaster ride of highs and lows.

Halozyme's research in diabetes uses rHuPH20 with mealtime analog insulins to generate a more physiologic insulin profile. This action more closely mimics the effects of the healthy pancreas and may result in better control of the disease.

So let's talk about what this means for the different markets we are pursuing. For the multiple daily injection market we presented data from two large treatment studies with over 200 patients at ADA. One in type one patients and one in type two patients. Both studies evaluated our PH20 insulin formulations which comprised the hyaluronidase enzyme combined with either insulin lispro, or insulin aspart, or as we refer to them Analog-PH20, compared to the analog insulins alone.

Data from the studies demonstrated that Analog-PH20 accelerated the absorption and action of mealtime insulins in these take home studies and significantly reduced glucose swings. Both studies met their primary endpoint of A1c non-inferiority and demonstrated superior post meal glucose control. For example, in the type 2 treatment study there was a 61% increase in the proportion of patients who consistently achieved the American Association of Clinical Endocrinologists recommended postprandial glucose target of 140 mgs per deciliter compared with a patient group treated with lispro alone.

Additionally data from the type 1 treatment study show patients treated with our Ultrafast Insulin formulations experienced significantly reduced hypoglycemia compared to patients treated with analog insulin alone. For the continuous subcutaneous infusion market we believe pre-administration of rHuPH20 could offer the best treatment option for patients on insulin pumps. We presented data from two clinical studies using pre-administration of rHuPH20 at ADA that demonstrated the same physiologic profile and additionally a more consistent insulin exposure over the three days of infusion set life. Interim data from an ongoing study evaluating Hylenex with analog insulin pump therapy confirmed that pre-administration of Hylenex at the time of infusion set change provided an accelerated and more consistent insulin action profile which resulted in meaningful statistically significant improved postprandial glucose control.

In fact at one hour post meal patients treated with Hylenex experienced a reduction in postprandial glucose excursions by more than 40 points in the study. Again improved management of blood sugar swings and predictability is an important aspect of managing this chronic disease, and the preliminary data from this study are very encouraging, and indicated that Hylenex might help people living with type 1 diabetes reduce meal time glucose fluctuations. We continue to assess the opportunities for both multiple daily injection and continuous subcutaneous insulin infusion markets.

We will be in a position to provide you with more clarity on our strategy at the Analyst/Investor Day on October 2nd in New York. Invitations for that event have been sent out, so if you are planning on attending we encourage you to register. If you did not receive one and would like to, please get in touch with Anne Erickson in IR and she will make sure to get you the information you need. We look forward to seeing everyone in the fall.

With regard to our other proprietary programs, we are making steady progress and remain on track to achieve key milestones. For example, with HTI-501 our recombinant human cathepsin, we are currently in the Phase 2 double blind randomized portion of clinical trial evaluating potential use in aesthetics. This program is advancing nicely and we anticipate sharing the results of this study with you by year's end.

Before Kurt Gustafson comes on-line to provide more detail on our financial results for the second quarter of 2012, I just want to reiterate our enthusiasm toward the remaining quarters of 2012. Although we clearly have got more work to do on the HyQ and Cinryze programs the coming months are filled with significant near and mid-term development catalysts as we continue to advance our pipeline with products that have the potential to improve the lives of the patients we serve. I will now turn the call over to Kurt.

Thanks, Greg, and hello to everyone. Earlier today we announced our financial results for the second quarter of 2012. The net loss for the second quarter of 2012 was $14 million or $0.13 per share, compared with a net income of the second quarter of 2011 of $3.1 Million or $0.03 per share.

The net loss for the six months ended June 30th, 2012 was $29.1 Million or $0.27 per share compared to a net loss of $6.5 Million or $0.06 per share for the same period last year.

Revenues for the second quarter of 2012 were $7.8 million compared to $23.2 million for the second quarter of 2011. Revenue was higher last year as we signed two partnerships where we recorded $18 million of upfront licensing revenue.

Research and development expenses for the second quarter of 2012 were $16.1 million compared with $15.3 million for the second quarter of 2011.

SG&A expenses for the second quarter of 2012 were $5.6 million compared with $4.6 million last year.

Cash and cash equivalents were $102 million as of June 30th, 2012 and net cash used in the second quarter of 2012 was $14.6 million.

Lastly, we are leaving our 2012 cash burn guidance unchanged at $55 million to $60 million. I will now turn the call back over to Greg.

Thanks, Kurt. While we received some disappointing news last week, I want to assure you that everyone at Halozyme is dedicated to doing what it takes to advance all of the programs in our pipeline. On behalf of you, our shareholders, and the patients we serve. Operator?

Thank you. (Operator Instructions)Our first question comes from the line of John Sonnier with William Blair. Please proceed with your question.

Thanks for taking the questions. I just want to clarify on some of the commentary around the antibodies. It sounds like you highlighted, Greg, both differences in type as well as in magnitude. If you could confirm that? And then on the magnitude, are you talking about just the absolute number comparing what the incidents of antibodies was trial to trial, or are you talking about changes from baseline?

Sure, John. To be very specific, this is not related to the type of antibodies observed. As we mentioned, all of these are non-neutralizing antibodies, and no signs of any allergic-type reactions in any case. Specifically this relates simply to the magnitude. And so as I mentioned last week, we use an analytical method for all of our programs that's common. You get an apples-to-apples comparison.

And simply what has been observed is the titers or absolute levels of these antibodies, not the incidents, per se but the actual titers which haven't been presented which are orders of magnitude different than what you see in the general population. In contrast, what we have seen in the diabetes studies and also in the Herceptin studies they actually look similar to each other, and that is essentially that the antibody levels in titers that you see after exposure to the enzyme are in the same general range of what you see in the population before exposure. In other words no signs or signals of what we would call boosting from that standpoint or mounting an immune response to the protein.

I think we see 5% or 10% as a baseline in a lot of the studies in the general population, so I guess what I am trying to get at is whether or not there has been a disclosure around the order of magnitude change from baseline and the HyQvia study versus that that was observed in the Roche studies.

No, no. What we have disclosed is the titer values, for example, what has been seen in the diabetes trials. So what you have is a titer value. So of that 5% to 10%, how much antibody is present in the blood of those individuals, and what is the change after exposure to enzyme. So the change you see after exposure is essentially in the same range of what you see prior to exposure.

I see.

If a patient is positive before and has a titer of, say, 1 to 500 is it 1 to 500 afterwards or is it higher? And that's what we are looking at the general range of these types of things which is similar between the Herceptin and diabetes study.

That's a helpful clarification. Just a quick one for Kurt. You had previously talked about a 2014 profitability goal. Is that maintained today? Is that still feasible without HyQvia?

I think the major drivers for us to achieve profitability have always been the Roche programs given the size of those programs, and so, yes, I think the Roche programs alone can certainly drive us to that. We will provide more specific guidance on that when we re-do our numbers in the fall and talk with you at Analyst Day. If your question is is it still feasible, clearly the Roche programs can drive it by themselves.

Thanks.

Sure.

Thank you. Our next question comes from the line of Jason Butler with JMP Securities. Please proceed with your question.

Hi, thanks. Just a follow-up question on the titers. We did see an increase in frequency of patients positive for antibodies in the Herceptin study. Can we read from that that FDA is more concerned with magnitude than incidence?

Yes, that's essentially what we are getting at here, Jason, which is that if you find for example with these very sensitive assays, you essentially want to go through a measure if someone is mounting a response to the protein. So essentially what you do is you are measuring their titers under what is called a longitudinal analysis. Before exposure, during and after exposure. And so what you have seen is the types of antibody responses is what you get after exposure in these populations are within the same sort of range you see in the general population before.

Great. Acknowledging that we have only just had the top line data released, can you make any statements about what the antibody profiles were in the MabThera Phase 3 trial?

No, can't comment on that only to say obviously we've been in very active communication with Roche and have not been informed of any red flags from this standpoint at this point.

Thanks.

Sure.

Thank you. Our next question comes from the line of Chris Holterhoff with Oppenheimer. Please proceed with your question.

Thanks just another question on the HyQvia program. If you can speak generally about what type of pre-clinical data you already have on hand versus new data you might have to generate that could address some of the agency's concerns on reproduction and development infertility?

Sure, just to be clear as we start on this, there is no adverse events that have been seen to date associated with anti-PH20 antibodies. The questions of the Blood Products Division aren't based on any animal finding. For example, that we have with the enzyme which includes the full battery of tests which includes fertility, development as well as chronic administration. However, due to the magnitude of the titers that were observed, they are essentially asking for pre-clinical safety studies to evaluate the potential risk of exposure to these antibodies in a similar battery of tests and relevant models.

What we are doing right now is a gap analysis of the studies that have been performed, how many of them develop antibodies that are relevant and not relevant and as far as the specific animal model whether or not the ones that have been performed address the concerns or not. And so some of the animal models that we have performed to date we have a pretty good evaluation of that, and in others it is going to require discussion with the agency and proposals based upon that gap analysis as far as how you fill those.

That's helpful. Thanks. And then maybe just one for Kurt. On cash burn guidance for this year I know it is unchanged, but just wondering what that implies. Should we take that to mean you don't plan on starting any new significant pre-clinical or clinical studies to address some of these HyQvia concerns maybe before the end of this year?

Yes, Chris, I know we don't know what those studies will be until we sit down with FDA. We have a sense of what they might be. We have to have a conversation with Baxter about the reimbursement of those. Until we can get a little more data, we don't have an ability to raise the forecast, if you will. And I think, Chris, by the time we meet with the FDA and design those things, the impact, especially for thinking about pre-clinical studies, I don't think we will see a large impact from that.

Thanks. And then lastly can you just break down the product revenues between Hylenex and Cumulase this quarter?

I think as we said earlier, Chris, in the year, we're not going to provide any specific revenue guidance on Hylenex and break this out until it becomes a meaningful number. These numbers are still real small, and I think we will talk more about it as the quarters progress and this becomes a more meaningful number.

Fair enough. Thanks a lot.

Thanks, Chris.

Thank you. (Operator Instructions) Our next question comes from the line of Dan Chung with Jefferies. Please proceed with your question.

This is actually a question for Kurt. Do you have a forecast on stock option expenses for 2012?

Yes, we do. But it is not a number that we provide. I think the best guidance I can give you is to look at where we have been historically. We have a few more staff than we had probably in previous years, and so one would expect that goes up slightly based on that number, but I can't provide you any specific guidance on that.

Okay. That's helpful. Thank You.

Thank you. Our next question comes from the line of Ying Huang with Barclays. Please proceed with your question.

Thank you for taking my questions. One, can you elaborate a little bit on what FDA's concern was specifically around reproductive and development issues even though they didn't see anything in human patients? And number two, I understand that Roche subcu MabThera and subcu Herceptin are using so-called second generation technology which does not have any albumin in that formulation. Beyond that, can you tell us what is the difference between the two formulations used by HyQ versus the Roche programs? Thank you.

Sure. Let me see if I can tackle those questions specifically. The first one as far as the FDA's concerns, so just to start with that, as a reminder we didn't see any adverse events in patients that had anti-PH20 antibodies that gave rise to these concerns or any pre clinical toxicology animal findings. The questions raised are about understanding the effect of exposure of these antibodies in a standard safety assessment setting. So the studies on fertility, reproduction in early development are much like the standard battery of tox tests we already completed.

And this is essentially your standard battery that one performs. So the CRL requested that we address any potential risk of exposure to elevated enzyme patterns in the HyQ program through a similar battery of tests.

Now, your second question which is regarding Roche, so we have multiple scales and processes for bulk enzyme production. And these are provided to our partners for formulation into distinct drug products. While these differences could in theory have an impact in immunogenicity, our analysis which has been reviewed with regulatory agencies last week suggest the difference in immunogenicity profile that has been observed isn't related to these manufacturing differences.

Great, thanks.

Sure.

Thank you. Our next question comes from the line of Jesse Grossman with Jesse Grossman. Please proceed with your question.

Good afternoon, guys. I think this is for Kurt, and the sales from the Roche six months indicated approximately $2 billion for Herceptin which is ex-Japan and ex-United States, and those $2 billion were made up about 50% Western Europe and 50% rest of the world. And MabThera was about $1.6 Billion with the same 50/50 break down. For purposes of modeling, what would you consider for the rest of the world sales?

From the standpoint of what the license that Roche signed with us, it was a worldwide license, and so as we think about where Roche is studying, both Herceptin as well as MabThera, these studies are going on -- basically it's everywhere but the U.S. at this point. In one of the recent studies that they are doing for Herceptin it is in over 60 countries around the world. I guess the answer is the way we would look at this from the modeling standpoint would include Western Europe as well as other places in the rest of the world.

Thank you.

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.

Thanks. This concludes today's conference call. Thank you again for joining us.

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