Halozyme Therapeutics Inc (HALO) 2013 Q4 法說會逐字稿

Greetings, and welcome to the Halozyme Therapeutics fourth quarter 2013 financial results call.

(Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Schond Greenway, Executive Director, Investor Relations and Strategy, at Halozyme Therapeutics. Thank you, Mr. Greenway. You may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Halozyme's year-end financial results conference call.

Leading our call today is Halozyme's President and Chief Executive Officer, Dr. Helen Torley, who joined the Company on January 6. Helen will provide an overview of our business as well as discuss the near-term priorities for the Company. Next, David Ramsay, our Chief Financial Officer, will review our financial results, followed by closing remarks from Helen. Afterwards we will then open the call to questions.

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 our news releases. The Company's actual results may differ materially from those expressed in or indicated by such forward-looking results.

I will now turn the call over to Helen.

Thank you, Schond, and good afternoon. It's a pleasure to lead this call for the first time as a member of the Halozyme team.

My early observations in my first weeks at Halozyme, during which I've conducted multiple program reviews, have confirmed for me the unique potential value proposition that Halozyme presents and the opportunity that exists to build a multi-product company with strong business fundamentals and attractive returns for shareholders.

2013 was a year of significant progress at Halozyme, with the full-year 2013 revenue growth to $54.8 million and net loss of $83.5 million, reflecting our increased product sales and our investment to advance and unlock the value of our proprietary programs. Let me begin by reviewing progress in our proprietary programs.

The program I am most excited about is PEGPH20. We are evaluating this agent in pancreatic cancer for two important reasons. The first is the significant unmet medical need that exists for a better treatment for pancreatic cancer. Despite recent advances for the approximately 100,000 patients in the US and Europe who are diagnosed each year, frequently with advanced disease, the five-year survival rate for this devastating disease is still very low.

The second reason is that PEGPH20 has been shown to deplete hyaluronan, or HA, high levels of which are present in the majority of pancreatic ductal adenocarcinomas and is associated with poor prognosis. The high hyaluronan levels create an environment that supports tumor growth and blocks access of therapy to the tumor. We have demonstrated that PEGPH20 works by depleting the hyaluronan, which in turn allows for increased access or delivery to the tumor of systemic anticancer treatments.

During 2013 we presented results from our PEGPH20 clinical development program. Data presented at the American Society of Clinical Oncology meeting this past June showed that PEGPH20 in combination with gemcitabine in patients with histologically confirmed stage IV metastatic pancreatic cancer demonstrated a 42% overall response rate for the 24 patients treated at therapeutic dose levels. Gemcitabine alone has historically demonstrated an overall response rate in the 5% to 10% range. Further supporting the proposed mechanism of action, we find that in subjects with tumors with high levels of HA the overall response rate was 64%.

Additional data from this study was presented at the European Society for Medical Oncology in September 2013, where in an exploratory analysis progression-free survival and overall survival were longer in patients with high HA levels when compared to patients with low HA levels, or the overall intent-to-treat population.

In April of 2013 we initiated our first Phase 2 study, a multicenter trial in previously untreated stage IV pancreatic ductal adenocarcinoma patients, who will be randomized to receive nab-paclitaxel, or Abraxane, and gemcitabine, with or without PEGPH20. The primary outcome measure will be progression-free survival. Secondary endpoints include progression-free survival by HA level and overall survival. Patient recruitment is proceeding as planned, and we expect to be fully enrolled in the second half of 2014.

In October of 2013 SWOG funded and initiated a Phase 1b/2 randomized clinical trial testing a modified FOLFIRINOX regimen with and without PEGPH20 in a planned 144 stage IV pancreatic cancer patient study. The primary endpoint of this study is overall survival. Secondary endpoints include progression-free survival, objective tumor response, as well as the frequency and severity of adverse events and overall tolerability. The first patient was enrolled in this trial in January of 2014.

Based on this encouraging preclinical and early clinical result we have observed with PEGPH20 so far, we are planning to evaluate PEGPH20 in at least one additional tumor type in a study planned to start in the fourth quarter of 2014. Work is underway to finalize the selection of the tumor type and trial design.

Turning now to Hylenex, Hylenex is indicated for the increased dispersion and absorption of other drugs. Our goal is to expand the indications for Hylenex, and we have identified Hylenex pretreatment in patients with type 1 diabetes using insulin pumps as an area where we may create and capture additional value, as these patients can face challenges maintaining good glycemic control as a result of the timing of onset and duration of action of their insulin.

In the first quarter of 2013 we initiated CONSISTENT 1, our large late-stage clinical study designed to evaluate the effect of Hylenex pre-administration in conjunction with rapid-acting analog insulins in patients with type 1 diabetes on insulin pump therapy. CONSISTENT 1 has completed enrollment of over 440 adult patients with type 1 diabetes. The primary endpoint is non-inferiority of A1c between the patient group pretreated with Hylenex prior to receiving their analog insulin and the patient group receiving analog insulin alone.

We recently changed the time point for assessment of the primary endpoint from four months to six months based on feedback we received from the FDA this quarter. Secondary endpoints for the study include comparison of hypoglycemia and hyperglycemia rates as well as safety outcomes. We plan to communicate top-line results from the CONSISTENT 1 study in the first quarter of 2014.

Additionally, we are currently in dialog with the FDA regarding the path for a labeling update, to include key safety and efficacy data, prior to initiation of any promotion of Hylenex in this use. Our dialog with the FDA is ongoing, and when we have more definitive information to share we will discuss this information at an appropriate time.

Turning now to our third proprietary program, HTI-501, we are exploring HTI-501, a conditionally active recombinant human protease that targets collagen, as a potential treatment for cellulite. We recently completed a Phase 1/2 proof-of-concept clinical trial outside the United States in 36 healthy adult females with cellulite and expect to report top-line data at the 28-day, 3-month and 6-month endpoints in the first quarter of 2014. Previously reported interim data for 12 patients at the 28-day observation point of the physician assessment of cellulite has been encouraging.

This study was designed to provide proof of concept. We will need additional chemistry, manufacturing and controls work prior to being able to file an IND in the US. We're undertaking a review of the strategic alternatives to advance this program, including partnering, with the goal of defining a path that maximizes shareholder value.

Now moving to our partnered programs, our most advanced partner program is with Roche and is Herceptin SC. Herceptin SC received European Commission approval in August of 2013 for the treatment of HER2-positive breast cancer. Herceptin SC is a simple, fixed-dose subcutaneous formulation that reduces dosing time to 2 to 5 minutes, compared to the 30 to 90 minutes required for IV. Herceptin SC use may allow patients to benefit by spending less time in the hospital and could also reduce time spent by physicians and other healthcare providers in treatment administration.

Roche indicated its plan of parity pricing to the IV formulation at launch and has now launched in multiple European markets, including Germany and the United Kingdom. In recent public comments, Roche has commented that the launch is progressing well.

In January of 2014 the European Committee for Medicinal Products for Human Use, or CHMP, recommended that European Commission approve Roche's subcutaneous formulation of MabThera, which uses Halozyme's rHuPH20 for the treatment of patients with common forms of non-Hodgkin's lymphoma, or NHL.

Currently MabThera is delivered by an intravenous infusion, which takes approximately two and a half hours. The new MabThera SC formulation comes as a ready-to-use, fixed-dose 1400 mg solution, which shortens pharmacy preparation time and potentially will reduce the overall impact on hospital resources. Roche expects a final decision from the European Commission in the coming months.

Moving over to our development program with Baxter, HyQvia is a combination of immunoglobulin 10% and Halozyme's rHuPH20 to facilitate the absorption and dispersion of the immunoglobulin subcutaneously. Following EMA approval in May of 2013, Baxter launched HyQvia in the first European country in July of 2013. Pricing discussions and subsequent launches in additional markets are continuing. Recall that Baxter filed a new marketing authorization and is seeking a price premium, and we expect it will take time to establish HyQvia pricing on a country-by-country basis.

In December of 2013 Baxter completed submission of an amended biologics license application, or BLA, to the FDA to reinitiate the review process for approval of HyQvia in the US. In 2012, in its complete response letter, the FDA requested additional preclinical data for the filing. Baxter and Halozyme worked together to generate the data, and we believe we have addressed the FDA questions. A six-month review period is expected.

In summary, our plans are to grow shareholder value by gaining approval and launching our own proprietary products, maximizing the royalty revenue from our existing collaborations and expanding and deepening our collaborations using our enhanced technology. We look forward to updating you on our progress throughout the year.

With that I'll now turn the call over to David Ramsay, who can provide more detail on our financial results released this afternoon. David?

Thanks, Helen, and welcome to the call, everyone.

Earlier today we announced our financial results for the fourth quarter and full year 2013. For the full year 2013 Halozyme reported revenues of $54.8 million, compared to $42.3 million in the prior year. R&D expenses for 2013 totaled $96.6 million, versus $70 million for 2012, and SG&A expenses for 2013 totaled $32.3 million, versus $24.8 million for 2012.

The net loss for the year 2013 was $83.5 million, or $0.74 per share, compared to a net loss of $53.6 million, or $0.48 per share, for 2012. These results are consistent with our expectations of increased revenues from Hylenex and partnered programs and our increased investment to advance the proprietary programs.

Revenues for the fourth quarter of 2013 were $12.5 million, compared to $21.8 million for the fourth quarter of 2012. Notably, the fourth quarter 2012 revenue numbers included upfront payments from Pfizer of $9.5 million.

Revenues in the fourth quarter of 2013 also included $5.8 million in product sales of bulk rHuPH20 for use in product -- partnered product manufacturing, $2.7 million in collaboration revenues, and $4 million in Hylenex product sales, which included a one-time adjustment of $1.1 million. This one-time adjustment includes $600,000 due to the change from sell-through to sell-in revenue recognition and $500,000 due to the reduction in the reserve for product returns.

As a reminder, we book partner royalties on a one-quarter lag since we receive our royalty reports 60 days after the prior calendar quarter end. Our Q4 2013 revenues included royalties from Roche and Baxter of $33,000. These results included the very early stages of launch in a few countries of Herceptin SC for portions of September and HyQvia, which was launched in Germany during the third quarter. Per the planned timing, we have not yet received the fourth quarter's royalty report for either product.

Research and development expenses for the fourth quarter of 2013 were $20.9 million, compared with $18.6 million for the fourth quarter of 2012. The increase is primarily due to increased clinical trial activities, offset in part by a decrease in manufacturing costs.

Selling, general and administrative expenses for the fourth quarter of 2013 were $9.4 million, compared to $7 million for the fourth quarter of 2012. The increase here was mainly due to an increase in commercial activities.

The net loss for the fourth quarter of 2013 was $22 million, or $0.19 per share, compared with a net loss for the fourth quarter of 2012 of $4.4 million, or $0.04 per share.

Cash, cash equivalents and marketable securities were $71.5 million at December 31, 2013, compared with $65.3 million at September 30, 2013, and $99.5 million at December 31, 2012. Cash, cash equivalents and marketable securities at December 31, 2013 included net proceeds of $19 million from the additional term loan with Oxford Finance and Silicon Valley Bank for working capital and other near-term growth initiatives.

Excluding the loan proceeds, net cash used in the fourth quarter of 2013 was approximately $12.8 million. Net cash burn for the year 2013 was $47 million. In February 2014 of this year we raised approximately $107.8 million from our recent public stock offering.

As we look out to 2014 we anticipate that our net cash burn will be in the range of $45 million to $50 million for the year. This range is a little higher than our 2013 actuals and reflects increased investment in our PEGPH20 program.

I will now turn the call back to Helen, who will provide some closing comments.

Thank you, David.

Before we take your questions I want to reiterate that I am excited by the progress we're making at Halozyme in our business strategy to advance development of our proprietary programs while accelerating revenue from our partnered programs. This is truly an important period in the Company, as I mentioned in my opening comments, with several near-term priorities for growth, and I want to leave you with the key milestones so you can utilize them to track our progress throughout 2014 as we work to enhance the value of our company and advance critical therapies for patients.

Important milestone expected this year for our PEGPH20 program include completion of patient enrollment in our Phase 2 clinical trial in pancreatic cancer and the initiation of a clinical trial in a second solid tumor setting in the fourth quarter.

We expect to release clinical results during the current quarter for CONSISTENT 1, our late-stage insulin pump study with Hylenex, and for HTI-501 in cellulite.

With HyQvia and Herceptin SC commercialization already underway in the EU, we await regulatory decisions for MabThera subQ in the EU and HyQvia in the US later this year.

We're very enthusiastic about our ability to make a difference for patients and their families, and in so doing create value for shareholders.

This concludes our formal presentation, and we'll now take your questions.

Operator, would you please open the call for questions?

Thank you.

(Operator Instructions)

Charles Duncan, Piper Jaffray.

Hi, guys. Thanks for taking my question, and congratulations on a good year of progress.

Thank you, Charles.

Thank you.

My first question is on CONSISTENT 1. Thanks for the update on that. You mentioned data coming up here soon but that you had recently changed from non-inferiority at four months to six months. Can you provide a little bit more color on the kind of feedback that you had gotten from KOLs and/or FDA?

Thanks, Charles. Before we answer your question, we just realized that in making the comments that Dave may have misspoken, and so Dave's just going to make a quick clarifying comment.

Yes. Sorry, Charles, but I believe when I was giving cash burn guidance for 2014 I said a range of $45 million to $50 million. What I meant to say was $45 million to $55 million. That's the range. So I apologize for that interruption.

All right, so, Charles, with regard to CONSISTENT 1, as we announced early in the first quarter we had determined that to maximize the times peak sales and the overall peak sales we believe are attainable for Hylenex in diabetic patients using pumps that getting safety and efficacy data into the label would be a key step, and we initiated a dialog with the FDA. We're just in the early stages of that dialog with the FDA with regard to how to get the label update, but in the course of our first discussion the FDA indicated that they have a preference to see the HbA1c measure at six-month time point rather than a four-month time point.

So even though our dialog with the FDA is ongoing, we felt it appropriate at this stage to update our statistical analysis plan to change the time when we would do the primary analysis. So we still are in dialog on the overall plan to get, and path to get a label update. But, so that was one change we've already made.

Okay. And I guess for all 440 patients you have that later time point as well as the earlier time point?

That is correct. It is -- we are still able to give the top-line data at the end of this quarter with all of the patients at six months.

Okay. Looking forward to that. Then with regard to the regulatory path, is it possible that you might be able to define and articulate that over the course of 2014?

We're early in our discussions with the FDA. I certainly hope and we will work hard to be able to do that. It's not obviously something I can project at this point we're so early in the discussions. But we will as soon as we are able to articulate that find an appropriate opportunity to discuss it.

Okay. And then last question is on PEGPH20 and specifically next indications. I know that you're still working on that, but what are some of the key considerations that you have? Are they primarily commercial or clinical, or are they call it mechanistic with regard to hyaluronan and some of the things that you were talking about that -- with that.

So, Charles, I think you described very well the matrix that we're looking at, because it is several factors going into it, obviously beginning with those tumors which have been shown to have high hyaluronan levels. So pancreatic cancer is probably the one where the highest majority of patients have high HA, but additional tumors such as breast cancer, lung cancer, prostate cancer also have patients with a high amount of HA. So we started there.

But we also are looking at the commercial potential, the types of drugs that we'd be being combined with, and looking to see will they be part of the future standard of care. So it's exactly that type of matrix so we get the good mix of our scientific expertise, the right clinical fit, but also taking into consideration the commercial potential.

Fabulous. Thanks for that added color.

All right. Thank you.

Next question, operator?

Eun Yang, Jefferies & Company.

Hi, guys. This is John on behalf of Eun. First just one question and one quick follow-up, if possible. When do you guys expect meaningful royalty revenue from your partnered programs with Roche and Baxter?

Yes, thanks, John. It'll probably -- since we're in the very early stages of launch for these programs, and, as I've been reminding folks, we do book the royalties on a one-quarter lag since we receive the royalty reports 60 days after the prior quarter end, it'll really take us about three or four quarters before we can really kind of gain some clarity as to what that ramp looks like.

Okay. And then, second question, when do you think Pfizer would unveil their drug candidate utilizing the HALO technology?

Thank you. I'll take that one. As you know, Pfizer has indicated that they are using the Halozyme technology as part of their PCSK9 program. Pfizer has the option of using the Halozyme technology in up to six targets, but the only one they have revealed publicly to date is PCSK9, and so that is all we are able to talk about. We do not know what the timing is going to be when they're going to be providing additional public details.

Thanks for taking my question.

Yes, thank you.

Jim Birchenough, BMO Capital.

Yes, hi, guys, and, Helen, congratulations on the new opportunity.

Thank you.

Just following the, I guess, the validation you've received with the partnered programs with Roche, Herceptin subQ and MabThera subQ, any thoughts on additional deals that you might do, maybe for enhanced economics, now that you've achieved that proof of concept?

Jim, that is certainly something that is work that we have underway as we look at the strategic drivers for growth. We do see three growth drivers in the Company. The first is the royalties from the current partnered programs, obviously the potential to in the future launch our proprietary programs, and absolutely expanding the number and depth of our current partnerships is another key part of our future growth strategy.

And then do you guys have any visibility on whether Roche might pursue a regulatory strategy in the US with Herceptin subQ and Rituxan subQ?

Roche has not spoken publicly about any plans to do that, so we really -- we are not aware of that.

And then just finally, just back on PEGPH20, as we think about potential indications to move forward in, what are some of the other cancers where high HA is seen and where it's associated with poorer prognosis?

So, certainly, as we look at the tumors which have high levels of HA expression I think breast cancer is probably one where the next highest percentage of patients in one of the studies that we frequently refer to have high HA. That's about 70% of patients. Areas like prostate and bladder cancer are more in the 50% range. Lung cancer, a very common cancer, is probably more in the 30% range overall, but perhaps patients with non-small cell squamous cancer have an even higher percentage.

So some of the very common solid tumors where there remain significant unmet needs today and challenges to therapy, so it's safe to say that's the initial pool we're starting with and considering which of those would be the right next tumor or tumors we'll go into.

And just final question, Helen, just on the timelines for the randomized Phase 2 in pancreatic cancer with Abraxane, so you guys will get through enrollment later this year. Any sense of when we might see final data? And is there any provision for an interim analysis of that study?

So we don't have a provision for an interim analysis, and as this is an event-driven study we're going to have to wait and see what rate the progression-free survival events are occurring at before we get a better sense of what the projection of timing would be. So we really aren't in a position to give a prediction on timing at this time.

Okay. Thanks for taking the questions.

Thanks, Jim.

Thank you.

Matt Roden, UBS.

Hi, guys. It's actually Andrew Peters in for Matt. Congratulations on all the progress, as well. A couple of questions, I guess the first on the new solid tumor indication. In terms of trial design, and I may have missed this, would you expect it to look similar to the 1b as a kind of a single-arm study, or would you -- do you plan to pursue a randomized study? And then just regarding HyQ in the US, would you expect a black box label given the kind of fertility concerns in the complete response letter?

I'll start with the question on the solid tumors. We have not finalized the trial design as yet, so our clinical team are still working on that. The considerations are obviously to do a traditional 1b going into 2. There's also an alternate design which is called the complete 1b trial where multiple different tumors are evaluated in parallel. And so we're working with experts in the area to help us decide on what is the optimal trial design, and we will obviously at the appropriate time be able to communicate that as well as posting the trial outline on clinicaltrials.gov.

With regard to the second question, we really can't speculate on what the FDA is going to do. They have all the information. We worked very well with Baxter to provide the additional data to address the questions. We believe we've addressed the questions. And we'll have to wait and see what we hear back from the FDA. So I can't speculate on what the label will look like at this time.

Okay, thanks. And then just one last question on the diabetes program. While the study is powered for non-inferiority, do you have kind of an internal bar for where clinicians need to see an A1c reduction in terms of driving adoption?

Speaking with experts in this area, I think the expectation is that based on the effect of Hylenex we will demonstrate the non-inferiority. I think what clinicians I've been speaking to are most interested in is understanding what the rate of hypoglycemia is going to be. That's one of the challenges these patients who are on the pumps use, the late postprandial hypoglycemia, as well as the rate of postprandial hyperglycemia. So those are some of the important secondary endpoints in the study, and I think that's the area that the most attention is being paid to by the clinical community.

Great. Thanks.

(Operator Instructions)

Ying Huang, Barclays.

Hi, guys. This is Dimiter Tassev in for Ying. Thanks for taking my questions. Also congrats on the progress. I just had a couple pretty much around PEGPH20. One, do you guys have any sense on when the Phase 1b data that we already have seen will be published in a journal at any time soon?

And also, two, obviously you guys have a study in combination with Abraxane in pancreatic cancer and starting one in another tumor, but have you ever considered partnering with another company that already has maybe some kind of investigational drug and then talking to them and seeing if they are interested in partnering with you and conducting a study with PEGPH20?

I'll take the second part of that. And as we have been evaluating the next tumors to go into, that clearly is a very important consideration as we are looking to be able to have the most meaningful impact on these tumors. So definitely part of the plan. That's all I can say at this stage, as we have not completed our planning.

With regards to the first question, I actually have forgotten what the first question was.

Sure. It's actually around the Phase 1b data with PEGPH20 in pancreatic cancer. Do you think it will come out in a journal at any point soon?

So we're in the stage at the moment of the final data cleaning for the final data analysis and report writing, and so once that is completed we will submit it for publication. I don't know the venue for that as yet. But you should expect that submission later this year.

Great. And then one more follow-up if I could. We know that Roche is going to price subQ Herceptin and is pricing subQ Herceptin pretty much comparably to regular Herceptin in the EU. Do you think that'll be the same case with MabThera, or do you think they'll try and get maybe some premium there?

We do not have any information on that, so that's something that Roche would be in a better position to talk with you about.

Okay. Thank you.

Thank you.

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

That's great. Well, we'd really like to thank everyone for attending this call. I think several people commented on the terrific progress that was made by the team in 2013. 2014 is another year of a number of important milestones, as I articulated, and we look forward to bringing you regular updates on our progress. Thanks very much.

This concludes the HALO conference. You may disconnect your lines at this time, and thank you for your participation.