Halozyme Therapeutics Inc (HALO) 2014 Q2 法說會逐字稿

Good afternoon, and welcome to the Halozyme Therapeutics second quarter 2014 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Schond Greenway, Executive Director, Strategy and Investor Relations at Halozyme Therapeutics. Thank you, Mr. Greenway. You may begin your conference.

Thank you, Operator. Good afternoon everyone, and welcome to Halozyme's second quarter 2014 financial results conference call. Leading our call today is Halozyme's President and Chief Executive Officer, Dr. Helen Torley. Helen will provide an overview and update on our business. 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 your questions.

Before we begin, let me remind you that during this conference call, we will be making forward-looking statements. All statements made during this conference call that are not statements of historical fact constitute forward-looking statements. The Company's actual results may differ materially from those expressed in or indicated by such forward-looking statements. For a description of the risks that may affect the outcome, please refer to the quarterly and annual filings with the Securities and Exchange Commission. I will now turn the call over to Helen.

Thank you, Schond. Good afternoon, everyone, and thank you for joining us today. Since our last call, Halozyme has made tremendous progress across our key product, development and partner programs. I'm particularly excited with our progress on our PEGPH20 program, and by the recent positive Blood Products Advisory Committee review of Baxter's HyQvia, which is a combination of immunoglobulin 10% and Halozyme's are ruPH20. Let me begin by providing an update on PEGPH20.

Our phase 2 trial Study 202, evaluating PEGPH20 in patients with pancreatic cancer, resumed patient enrollment and dosing in July. As you may recall, in April, we temporarily halted patient enrollment and dosing of PEGPH20, following the data monitoring committee observation of a possible difference in thromboembolic event rate in patients treated with PEGPH20, Abraxane and gemcitabine, compared to the group receiving Abraxane and gemcitabine alone. Following data assessment and development of protocol amendment in May, the Data Monitoring Committee indicated their support of a resumption of PEGPH20 dosing. And in June, the FDA agreed to remove the clinical hold.

We immediately initiated the process of gaining independent review board approvals for the protocol amendment, and I'm pleased to report that approximately 75% of the anticipated clinical sites have already received IRB approval, with additional approvals expected in the coming weeks. Patient enrollment and dosing resumed in the first sites a few weeks ago, and we expect more clinical sites to begin enrolling additional patients in the near term. The goal of Study 202 protocol amendment is to exclude patients who may be at higher risk for thromboembolic events, and to seek to reduce the risk of events through the addition of treatment with low molecular weight Heparin.

A secondary primary endpoint has been added to assess the thromboembolic event rate in the PEGPH20 treatment phase arm following the amendment, compared to the event rate prior to the protocol amendment. We plan to enroll approximately 100 more patients, adding to the over 100 patients already enrolled. These new patients will be randomized at a ratio of 2 to 1 to PEGPH20, Abraxane and gemcitabine, versus Abraxane and gemcitabine alone. And this approach to randomization is to assure we'll have similar number of patients, with no treatment interruption, in each of the treatment arms, who will then be eligible for the efficacy analysis.

Resumption of patient enrollment has been accomplished in a short period of time, and I'd like to thank and congratulate the team here at Halozyme, and also the investigators and study coordinators who worked so diligently to achieve this important outcome. The second PEGPH20 trial in pancreatic cancer, which is being conducted by SWOG, under an investigator IND, was also halted as a result of that observed thromboembolic event in Study 202. We understand that a proposed protocol amendment is currently under review by the FDA, and we look forward to re-initiation of this trial also.

Halozyme remains strongly committed to the full development of PEGPH20, our lead oncology product. Our non-clinical data support that PEGPH20 has potential for development in additional solid tumors that have high hyaluronan content. In selecting the next tumor for clinical testing, we evaluated a number of factors, including expected tumor HA content, evolution of the future standard of care, and commercial potential. Informed by encouraging non-clinical data, planning is now underway to initiate a trial evaluating PEGPH20 in non-small cell lung cancer patients, and we expect this trial to initiate by the end of 2014.

Details on the protocol are still being finalized, and I look forward to sharing more information with you on this trial at a later date. Turning now to HyQvia. HyQvia is a combination of immunoglobulin 10% and Halozyme's ruPH20 that facilitates the absorption and dispersion of the immunoglobulin subcutaneously. HyQvia was approved by the EMA in May of 2013, and was launched in the first European market in July of 2013. According to statements by Baxter, HyQvia has now been launched in seven European countries.

In the United States, on July 31, the Blood Products Advisory Committee of the US Food and Drug Administration convened to review the biologics license application for HyQvia, for the treatment of patients with primary immune deficiency disorders. Data presented at the advisory committee included a review of the pre-clinical and clinical data supporting the HyQvia application, specifically addressing the benefit risk profile as it relates to subcutaneous delivery of immunoglobulin and the development of ruPH20 antibodies in patients receiving HyQvia.

We are pleased that the advisory committee voted 15 to 1 that HyQvia has a favorable risk-benefit profile. The PDUFA date for the amended BLA is in the late third quarter of this year, and we look forward to the FDA's response. Although the FDA is not required to follow the recommendations of its advisory committees, if approved, HyQvia may offer patients with primary immunodeficiencies the ability to administer their treatment in a single subcutaneous site every three or four weeks. Let me now discuss Hylenex. Our goal is to seek a label expansion for Hylenex, which is currently approved for the increased dispersion and absorption of other injected drugs.

We have identified Hylenex pre-treatment in patients with Type I diabetes using insulin pumps, as an area where we may create and capture additional value. It is recognized that these patients can face challenges maintaining good glycemic control, as a result of the timing of onset and the duration of action of their insulin. In June, we presented data at the 74th annual scientific sessions of the American Diabetes Association meeting, from our CONSISTENT 1 clinical trial.

The trail is evaluating Hylenex recombinant, and a new formation of Hylenex that is currently under FDA review. When these are used as pre-treatment of the insulin infusion site, in patients with Type I diabetes receiving continuous subcutaneous insulin infusion, in comparison to patients receiving no pre-treatment. The (inaudible) duration of this trial is 24 months, and 455 patients have been enrolled. These were reported in the late breaker poster session showed that the study's primary endpoint of non-inferiortiy of A1C at six months, between the use of Hylenex and the new formulation of Hylenex, in comparison to no pre-treatment, was achieved.

The poster also highlighted data indicating that there was a potential reduction in the rate of hypoglycemic events associated with the use of the Hylenex formulation, in comparison to no pre-treatment. Glycemic excursions after meals and glucose variability were not different between the treatment groups versus the control group. The most commonly occurring treatment-related adverse event in the Hylenex groups was mild infusion site discomfort. And with this exception, adverse events were similar across the treatment and the control groups.

Our dialogue with the FDA regarding a label update for Hylenex, which we initiated earlier this year, is ongoing. We do not yet have a clear path for achieving this goal. While our dialogue with the agency continues, we are evaluating the commercial profile of Hylenex for use in Type I diabetes patients using pumps, based on the emerging clinical profile, including the recent results from CONSISTENT 1. And moving now to our product development programs with Roche.

Roche's MabThera SC received European approval during the first quarter of 2014, for the treatment of common forms of non-Hodgkin's lymphoma, which includes follicular lymphoma, and for diffuse large B-cell lymphoma. During the second quarter, Roche introduced the product in its first country market in EU, which triggered a $5 million milestone payment to Halozyme. Following Herceptin SC, this is the second European launch for a novel subcutaneous formulation of one of Roche's oncology products that uses Halozyme's patented recombinant human hyaluronidase technology.

With an administration time of approximately 5 minutes, compared to the approximately two and a half hour infusion time for intravenous MabThera, this innovative subcutaneous formulation offers another treatment option that could potentially save time for patients, physicians, and other healthcare providers in Europe. We are pleased with the initial launch with Roche and recent comments highlighting that they are seeing encouraging uptake in some of the early launched European countries.

Turning to Herceptin SC, we continue to be pleased with the uptake of this product. Recent comments from Roche confirm that Herceptin SC has already achieved 40% to 50% share in a number of key market in Europe and Latin America. Roche has additionally indicated that in some markets, they have observed entire systems or hospitals switching their Herceptin use to SC. This speaks volumes to the perceived benefit for patients, hospitals and healthcare systems, in the countries where these products are being commercialized.

Based on the recent comments from Roche, we expect continued growth in SC market share versus the IV products through 2014, driven by the recent launch countries. Now with that overview, I'll turn the call over to David Ramsay, who will discuss our financial results. David?

Thanks, Helen, and welcome to the call everyone. Earlier today, we announced our financial results for the second quarter of 2014. Revenues for the second quarter of 2014 were $18.4 million, compared to $14.5 million for the second quarter of 2013. Revenues in the second quarter of 2014 included $6 million in product sales of bulk ruPH20, for use in manufacturing products under the Roche collaboration. $7.2 million in collaboration revenues, $3 million in Hylenex product sales, and $1.7 million in royalties, up from $0.8 million in the first quarter.

The key driver of this increase in royalties has been the increasing sales of Herceptin SC in the early launch market. Collaboration revenues benefited from the recognition of $5 million in deferred revenue related to Roche manufacturing scale-up activities. Our Q2 2014 revenues included royalties from Roche and Baxter of $1.7 million, reflecting Q1 sales, as a result of the one quarter lag in royalty reports. Roche represented the majority of these royalties. As we continue to see new countries launching, we expect, over the next several quarters, to gain a fuller picture of the EU uptake and sales trajectory of these partnered products.

Research and development expenses for the second quarter of 2014 were $18.6 million, compared with $28 million for the second quarter of 2013. The decrease was largely driven by the shift in manufacturing costs into cost of goods sold. As you may recall, prior to Herceptin SC approval, manufacturing costs associated with bulk ruPH20 supplied to Roche was included in research and development expense. Subsequent to Herceptin SC approval, these costs are now included in cost of goods sold. The timing of various manufacturing scale-up activities also contributed to the reduction in research and development expenses.

Selling, general and administrative expenses for the second quarter of 2014 were $8.8 million, compared to $7.3 million for the second quarter of 2013. The increase was primarily due to an increase in compensation costs and patent expenses. The net loss for the second quarter of 2014 was $16.3 million, or $0.13 per share, compared with a net loss for the second quarter of 2013 of $22.9 million, or $0.20 per share. Cash, cash equivalents and marketable securities were $147.6 million at June 30, 2014, compared with $164.5 million at March 31, 2014.

Finally, I want to mention that a couple of our directors are approaching the 10-year expiration date of some stock options in the next two months. Thus, we expect there will be transactions that will be reported in connection with these exercises, such as sales to cover the exercise price and taxes. You will be seeing Form 4's related to these exercises. I will now turn the call back to Helen, who will provide some closing comments.

Thank you, David. As you've heard, this has really been an important and a strong quarter for Halozyme, with key highlights. Including the restart of Study 202, significant progress in our planning for the end of year initiation of our next PEGPH20 trial, which will be in non-small cell lung cancer, the launch of MabThera SC in Europe, and the acceleration of royalties, driven by the strong performance of Herceptin SC. We are now ready to take your calls. Operator, would you please open up the call for questions?

(Operator Instructions)

Cory Kasimov, JPMorgan.

Hi, guys. This is Brittany on for Cory. Thanks for taking the questions. Can you comment on your commercial strategy for Hylenex for insulin pump users? And how do you plan to position this product? And then secondly, what is the approximate percentage of pancreatic cancer patients that are at high risk of thromboembolic events? Thank you.

Thanks, Brittany. So with our Hylenex in pump -- I think you've heard that at this point in time, we are engaged in an active dialogue with the FDA to understand what the path is going to be for approval of that product. Our focus will be on Type 1 patients, and particularly those patients who are wanting to get that tighter glycemic control. And so our strategy is really going to be getting to agreement with the FDA of what it is going to take to give us a label update.

We are in process, as I mentioned, of assessing our commercial profile in market research with physicians, payers and with patients. And now we're going to be continuing to review that data and decide on our final commercial strategy at that point in time. Just turning now to your PEGPH20 question. The literature is very wide as to what the background rate of thromboembolic event rates is on pancreatic cancer patients. If you look at the literature, it goes anything from the teens up to 60%. But there's probably an emphasis of data that is in the 20% to 30% range, I would say, in terms of the background rate of all thromboembolic events. But there is a wide range.

Okay. Great. Thank you.

Thanks, Brittany.

Andrew Peters, UBS.

Hey, guys. Thanks for taking my questions, and congrats on the progress. I was wondering if you could get into some of the rationale, from a mechanism perspective, for why you chose non-small cell lung cancer as the next solid tumor indication? And then you mentioned looking at the treatment landscape going forward in lung cancer. If you could also get into any data, if you have it, or potential combinations, with some of the newer types of agents? Including the immuno-oncology, PD-1 type drugs?

Thanks, Andrew. And as we were deciding what our next tumor would be, certainly, the percentage of patients we estimate will have high HA expression was an important part of that. If we look at non-small cell lung cancer, probably about 40% of those patients do have high HA. If we look at squamous patients within that, there's probably an even higher percentage of patients, about 50%. So that was one of the factors that was very important for us in considering where we'd study. A second factor is looking at our pre-clinical data.

We have done experiments looking in models of non-small cell lung cancer being able to demonstrate that the addition of PEGPH20 on different therapy had an impact of doubling overall survival in that particular animal model. So those were important factors for us in determining, would we study it? Now we are in process; we've done some work in our animal experiments, with [damien] therapies, in particular. That is a program that we are very focused on, and we are planning to expand in our pre-clinical models. And so I can say, at this point in time, we don't have any clinical data with that immune therapies, or any animal modeling immune therapies in lung cancer specifically. But that is an area of focus moving forward.

Great. Thank you. And just a quick follow-up for David. The $5 million related to the MabThera, is that going to show up in 3Q?

Yes, it will, Andrew. Absolutely.

Great. Thank you.

Charles Duncan, Piper Jaffray.

Hi, guys. Thanks for taking my question, and congrats on a good quarter of progress. My question was related to PEGPH20 enrollment. On clintrials.gov, it looks like there were -- I'm not sure if this stayed -- I didn't generate it. Actually, it came from my associate. 237 or so patients enrolled, and we estimate 132 before the hold. Is that approximately correct, or is that data that is -- needs to be updated?

So our target for enrollment will be 237 patients, Charles. That number is correct. What we've said is that we exceeded 100 patients in -- before we went on temporary hold with the trial. So the 132 number is directionally correct.

Okay. That's helpful. And I think you mentioned approximately 75% of sites had received IRB approvals. Does that imply they've actually enrolled patients? Or is that jumping the gun a little bit?

That's jumping the gun a little bit. A number of centers have started enrolling. A number of centers -- I would say every week, we have additional centers who have been trained and are ready to start enrolling. So we're going to see these centers ready to start screening and enrolling their patient, just coming on every day and every week moving forward. But a handful at the moment are actively enrolling.

Okay. And I can -- I guess I can assume -- we've talked about this before. But is it still the case that those patients who were prior to the re-enrollment maybe going to be exposed to -- or there's going to be some subgroup analysis to break them out? And you'll be looking at different populations in the analysis of the response from the study?

Yes. The primary analysis will be based on patients who have had no treatment interruption. So the patients who had their events before the temporary hold, and the patients who are enrolled after the amendment has gone into place. But as you mentioned, there will be a core of patients who had a treatment interruption. We still think there will be things to learn from those patients, so they're part of a secondary efficacy analysis. But the primary efficacy analysis will be based on patients who have not had any treatment interruption.

Okay. And then Helen, last question. If we could go back to the questions on Hylenex that a previous person was asking. Regarding your commercial strategy, and maybe regulatory strategy, do you have a goal in mind, as to when you may be ready to update that plan?

So Charles, we continue in an active dialogue with the FDA. And I think, just to bring a little color as to why it's not as straightforward as we might -- or you might be hoping for. Really, when you think about Hylenex, it's a pre-treatment of patients who are receiving insulin. The metabolism division has got guidances for insulins, mixes of insulins, oral hypoglycemic agents. We are a little bit different and unique; there's not been anything quite like this. And so that's why we're having such an active and productive dialogue with the FDA.

It's just, what are the expectations for this type of approval? So just given that there is no clear precedent for it, it's hard to pin down an exact [time wall] of clarity. But what I can say is, we're working very hard, and are actively engaged with the FDA to get that clarity just as soon as possible.

Okay. Good deal. Thanks for the color.

Thank you.

Joel Beatty, Citigroup

Hi. This is Joel Beatty on for Jon Eckard. Thanks for taking our questions. The first question is, would it be reasonable to expect the launch of MabThera sub-cu to progress similarly to the Herceptin sub-cu launch? Or are there differences between those two products to keep in mind? And then I have a follow-up.

I think in their prepared remarks, Roche hasn't shared any reasons for any differences, nor have they exactly said they expect it to be the same as Herceptin. So I really -- I don't think I can comment with knowledge on that. I can say that Roche, in a similar with Herceptin, generated data that showed strong patient preference for MabThera SC. As well as similar time and motion studies that showed cost savings for the healthcare system, and time savings for patients. So a lot of the aspects of the Herceptin SC uptake, which are the savings for the healthcare system, are also going to be present for MabThera. Additionally, Roche similarly priced it at parity. So I can observe that Roche is taking a very similar strategy. They just haven't commented on their expectations for uptake

Thanks. That's helpful. And then, as a last question. Just with the collaboration with Roche appearing to go well, can we expect to see more sub-cu drugs from them, such as a sub-cu version of Gazyva?

Roche, the contract we have with Roche is for eight products. Roche is really in the lead with when they make it public. Are they working in a program or are they advancing a program? So I'm not really in a position to say anything at this time.

Thank you.

Thank you.

Jason Butler, JMP Securities.

Hi. Thanks for taking the question. Just another follow-up on the Hylenex diabetes opportunity. Could you maybe give us a little bit more color on what your target indication would be? Or what your label claims that you would view as necessary to make this commercial opportunity attractive? And conversely, is there a scenario here where you think that there is not an attractive label opportunity to make you move forward?

So Jason, thanks for that question. And in terms of the indication, we are wanting an indication that says that Hylenex can be used in pre-treatment of Type I diabetics using CSII. So it can be used with any of the commonly used prandial insulin. And what we'd really like to get is data into the package insert -- the Hylenex package insert, that allows our representatives to have a dialogue with the physicians about the efficacy data seen.

And also the safety data seen. Because clearly, it's important we are able to articulate the risk-benefit of our drug to physicians. And it's important that data is in the label to allow that type of dialogue that we need to happen. It's our goal to pursue the dialogue with the FDA, to understand what it's going to take to get the indication we want, and the data in the label. And at this point in time, we are continuing in a productive dialogue. So that really is where we are focused at this time.

Okay. Great. Just to follow-up on that. When you talk about the efficacy data, is that, in your mind, relative to standard of care? Or is that a placebo comparator?

So the clinical study -- the one clinical study we've done, CONSISTENT 1, which is 455 patients, we compared Hylenex on top of continuous infusion versus continuous infusion alone. So the data would be relative to no treatment. So just the standard of care, I guess, to answer your question.

Okay. That's helpful. Thanks a lot for taking the question.

Thanks, Jason.

Jason Zhang, Edison Investment Research.

Helen, this is Jason. Are you --

Hi, Jason.

Yes. Now that dosing has resumed, when do you think you'll be ready to give us an update about when the enrollment will complete for the PH20 program?

Thanks, Jason. So enrollment has just started. And what we are wanting to do is obviously see, with the restart of the study, what the new rate of enrollment is going to be.

We obviously had strong enrollment before we have the clinical hold. I'm pleased to report investigator enthusiasm for the trial remains high, but I want to see some data points, in terms of what the new enrollment rate is, before we project out when we think enrollment will be complete, as I'm sure you understand. There's been some changes to the enrollment criteria. So let's just wait for some data before we forecast that one out for you.

Okay. And then, are you still on track to initiate a clinical trial for the second indication of PH20?

Yes. Our goal is working hard to initiate a study in non-small cell lung cancer by the end of this year.

Okay.

We haven't provided any more details, as we are still finalizing the protocol on the line of therapy, or the combination we will be studying. But as we finalize that, at the appropriate time, we will, obviously, make that public to you.

Okay. Great. Thanks.

Eun Yang, Jefferies.

Hi guys. This is John in for Eun. Thanks for taking my questions. So assuming you guys get the label update that you want for Hylenex in insulin pump, how should we think about the number of reps needed for commercial launch? And then I have a quick follow-up.

So John, that's part of the work we're doing at the moment, is really seeking to understand the patient segment who we will be going after with the clinical profile that we have. And identify how many endocrinologists are going to be looking after this type of patient. As you realize, not every endocrinologist is looking after pump patients. We do think this is a small segment of endocrinologists, but that's work that we are still doing to refine that information. So it would be premature to comment. But I think in terms of rep field for size, it will be a relatively modest one, because it's a small specialist group of endocrinologists who would be looking after this indication.

Thanks. And then if you could provide any color on the HTI 501 program and Intrexon's A1-AT in pre-clinic, that would be great.

Okay. So with regard to HTI 501, we reported out, at the end of our March, our positive proof of concept data that showed, in a clinical setting, we were able to improve the appearance of cellulite by a number of measures. As we took a step back and looked at that program, we recognized that within Halozyme, we don't have expertise in the development of aesthetic products.

And we initiated a process to identify a strategic partner with whom we could advance the program. That assessment and dialogue is still ongoing, and I've nothing that I can update you on that at this point in time. With regard to the Intrexon program, Intrexon determined, for business reasons, to not proceed with that. And actually terminated their agreement with Halozyme. I think that was reported last quarter. And so we don't have any ongoing activities with Intrexon at this time.

Thank you.

(Operator Instructions)

(multiple speakers) There are no further questions at this time.

All right. Thank you, everyone, for joining us today. Obviously, strong progress, and we look forward to speaking with you on our next call. Have a good evening.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.