Halozyme Therapeutics Inc (HALO) 2014 Q3 法說會逐字稿

Good afternoon and welcome to the Halozyme Therapeutics third-quarter 2014 financial results conference call.

(Operator Instructions)

As a reminder this conference is be recorded.

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 third-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 our 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 I'll begin my remarks with an update on our corporate strategy. During the course of 2014, I've taken a hard look at all of our assets, the R&D programs, our core capabilities, and also our overall business strategy. Based on this assessment, I've made the following decisions that will result in greater focus on the highest value opportunities for Halozyme.

I'm pleased to reaffirm that PEGPH20 and ENHANZE platform are our priority programs for investment, representing the two highest value drivers for Halozyme's direct efforts. While the dialogue with the FDA is still ongoing regarding the path and requirements for our label update for Hylenex in diabetes, we have made two decisions. Firstly, we are discontinuing the second year of the Consistent 1 study, as with all patients having completed 12 months on this trial, we have determined that we do not need the data contribution of the second year.

And secondly, we will be seeking to enter into collaborations with third parties and exploring other strategic alternatives to complete the development and commercialization of Hylenex in diabetes once clarity is gained on the regulatory pathway. And finally, we completed a corporate restructure to align to the new strategy, resulting in the elimination of a total of 22 positions, or 13% of the workforce. These decisions free up meaningful resources that we will be reallocated to our high value opportunities.

Let me now provide some other context and background for these decisions. PEGPH20, our investigational PEGylated form of our proprietary Recombinant Human Hyaluronidase, which is underdevelopment for the systemic treatment of tumors that accumulate Hyaluronan, was the key reason that I joined Halozyme. Our scientists have continued to generate compelling, preclinical data providing strengthening evidence of the pan-tumor potential for PEGPH20, demonstrating across multiple tumor models that PEGPH20 can increase the effectiveness of not just small molecules and monoclonal antibodies, but also immunotherapies.

Investigator enthusiasm for the science and participation on our expanding clinical trial program is strong as we plan for initiation of our non-small cell lung cancer trial in December adding to the two ongoing pancreatic cancer trials. I believe this is just beginning for PEGPH20 as we continue to learn from both our preclinical and clinical experience, and our goal now is to focus on generating the required clinical data that can result in regulatory approvals.

Turning out to ENHANZE, the long success of Roche's Herceptin SC in Europe since its second-half 2013 launch and the 2014 approvals of both Roche's MABTHERA SC in Europe and Baxter's Subcuvia in the US have served to provide strong validation of our ENHANZE platform. We have demonstrated that with rHuPH20 technology, we can facilitate the SC administration of both large molecule and large fluid volume and gain approvals in both Europe and the United States.

With these approvals, I can say that we are seeing increased interest from companies wanting to learn more about our technology. Revenue growth through expanding utilization of ENHANZE is, and remains, a key part of our strategy moving forward.

When I joined Halozyme in January of this year, efforts had been initiated to gain a label update for Hylenex use in Type I diabetes as potential opportunity to expand the indication and increase sales of Hylenex. We've been in discussions with the FDA throughout the year, and while these discussions are still ongoing, we've made a number of determinations that we included in the portfolio assessment, which then resulted in key decisions regarding this program.

We determined that we do not need the additional data contribution from the continuation of Consistent 1, and will be stopping the Consistent 1 study, as all patients will have completed 12 months. And also that additional clinical data is likely to going to be required for a label update translated to potentially higher projected costs and a longer time to market that had originally been anticipated.

In the ongoing weeks, we intend to seek clarity with FDA on what data will be required, if any. However, as we have completed the portfolio evaluation and our decisions regarding the strategy, we've made the decision that we will seek to enter into collaborations with third parties and explore other strategic alternatives to complete development and commercialization once clarity is gained on the regulatory pathway. These decisions result in a more focused Halozyme strategy and provide the opportunity to increase our attention and resources to advance our lead oncology asset PEGPH20 and also ENHANZE, the two top opportunities for value creation and growth.

Now let me provide the program updates. We have two studies currently exploring PEGPH20 in advanced pancreatic cancer. Study 202, sponsored by Halozyme, is examining the combination of PEGPH20 with gemcitabine and Abraxane and study S1313, which is sponsored by SWOG, is examining the combination of PEGPH20 with modified FOLFIRINOX. Study 202 resumed in July of this year, following an amendment to the protocol to exclude patients who may be at higher risk for thromboembolic events and with the addition of prophylactic use of low molecular weight heparin in both treatment arms to help mitigate the potential risk.

A second primary endpoint to assess the thromboembolic event rate in the PEGPH20 treatment arm has been added with the goal of evaluating the effectivenss of the intervention in reducing the event rate. The data monitoring committee will monitor occurrence of TE events, following the event rate rules established in the protocol. 42 of 44 clinical centers participating in this trial have now received IRB approval to resume the study and screening for eligible patients is underway at the majority of these sites.

I'm pleased to report that enrollment is progressing well with 25 of the target approximately 100 new patients enrolled to date, reflecting, I believe, good ongoing interest and enthusiasm for this trial. As a reminder, new patients are being randomized at a ratio of two to one to PEGPH20, Abraxane and gemcitabine versus Abraxane and gemcitabine to allow us to achieve a robust number of patients with uninterrupted treatment in both treatment arms for safety and efficacy assessments.

The significant need for new treatment options for pancreatic patients with advanced disease was further reinforced by the US Food and Drug Administration granting fast-track designation for PEGPH20 in combination with gemcitabine and nab-paclitaxle for the treatment of patients with metastatic pancreatic cancer. The fast-track program is designated to facilitate frequent interactions with the FDA review team to expedite clinical development and submission of a BLE for medicines with potential to treat serious or life-threatening conditions and address unmet medical need.

The agency also granted orphan drug designation for PEGPH20 for the treatment of pancreatic cancer. Receiving both of these designations allows us collaborate more closely with the FDA to facilitate development of PEGPH20 in this disease setting. Receipt of these designations is part of our core strategy to bring PEGPH20 to patients as rapidly as possible.

With respect to S1313, in September the FDA remove the clinical hold on patient enrollment and dosing in this Phase 1b2 swap trial. Patient screening is now ongoing and the first patient has already been enrolled. This study is designed to enroll approximately 140 patients and will evaluate PEGPH20 in combination with a modified FOLFIRINOX chemotherapy regimen in patients with metastatic pancreatic adenocarcinoma. Study S1313, along with our 202 study, will provide important data for evaluating the potential role of PEGPH20 in patients with stage IV metastatic pancreatic cancer.

We've continued to also make strong progress in our plans to initiate our phase 1b2 trial for PEGPH20 in patients with non-small cell lung cancer, with the goal of initiating the study in December. In determining the population and regimen to evaluate in the study, we relied on strong preclinical data and work with global leaders in lung cancer, carefully considering the potential evolution of care for this cancer to assure we evaluate a regimen that we remain a mainstay of treatment for a large population of patients, even with new entrants The outcome of this detailed assessment is that we will evaluate PEGPH20 in second line non-small cell lung cancer patients in combination with docetaxel.

In the United States alone, there are an estimated approximately 40,000 patients undergoing treatment for second line non-small cell lung cancer where the median life expectancy is just six to eight months. The study will enroll previously treated patients with locally advanced or metastatic non-small cell lung cancer who have failed a platinum-based regimen and it is designed to evaluate and identify the dose, the schedule, and the safety of PEGPH20 plus docetaxel. Patients that have failed a platinum-based regimen and have been exposed to Avastin, an EGFR or an alk inhibitor as part of their first-line therapy, are eligible for this study. Upon identification of the dosing schedule, the study will be expanded to evaluate safety and efficacy.

I want to also highlight some upcoming data presentations and publications for our PEGPH20 program. In December, we will present new preclinical data at the San Antonio Breast Cancer Symposium, which shows the use of PEGPH20 with monoclonal antibodies in breast cancer animal models, as well as providing additional supportive information around the use of HA as a biomarker. And in January of 2015, we will be presenting the final PSS and OS clinical data in high and low tumor HA patients from our Phase 1b trial, study 201, at the ASCO GI conference. As a reminder, study 201 examins the combination of PEGPH20 and gemcitabine in metastatic pancreatic cancer patients.

Now let me discuss HyQvia. In September, the FDA approved HyQvia, Baxter's subcutaneous treatment for adult patients with primary immune deficiency. HyQvia consists of Immune Globulin 10% with Halozyme's Recombinant Human Hyaluronidase and is the first subcutaneous immune globulin treatment approved with the dosing regimen requiring only one infusion, up to once per month, and at one injection site per infusion to deliver the full therapeutic dose. Today many patients received IV infusions in the doctors office, infusion centers, or hospital, and current subcutaneous treatments require weekly or biweekly treatment with multiple infusion sites per treatment.

Of the total sales of immune globulin, Baxter estimates that the global market for PI, or primary immune deficiency, is proximately $2 billion, with only approximately 35% of patients receiving subcutaneous administration today, providing a unique opportunity for HyQvia as a differentiated therapy. Baxter announced the shipment of first commercial orders for HyQvia on October 20. As we look forward to US launch by Baxter's commercial team, Baxter is currently evaluating regulatory requirements and initiation of additional clinical trials for new indications.

Moving now to our collaboration with Roche, Roche's MABTHERA SC received European approval during the first quarter of 2014 for the treatment of follicular lymphoma and diffuse large B cell lymphoma. In June, Roche introduced the product in its first country market in the EU and they continue to introduce MABTHERA SC into additional countries.

With an administration time of approximately 5 minutes compared to the approximately 2.5 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. It is important to note that with the first launch only occurring in June, this quarter's royalties, which reflect April through June 2014 sales, have very minimal contribution from MABTHERA, and we can expect our next report to reflect the first full quarter of launch any additional launched countries.

We continue to be pleased with the uptick we've seen for Herceptin SC, the first product approved from our Roche partnership. A notable recent milestone the reimbursement approval and launch in France, traditionally one of the largest EU oncology markets. The Herceptin SC launch is reported to be progressing very well, with Roche reporting approximately 20% overall share in the 29 launch markets, with many markets still at an early stage as new market are launching each month.

In some markets that have launched either earlier, or have healthcare systems that are reviewed and recognize the value of the SC administration, shares of 50% have already been achieved, even at this early stage of the launch. This continued expansion in the number of launch markets to 29, and in particular of France launching late in the third quarter, and the growth in share, signal continued future growth.

And finally, let me provide you with an update to our collaboration with Pfizer. We entered into a partnership program with Pfizer at the end of 2012. Under the terms of the agreement, Halozyme granted Pfizer a worldwide license to develop and commercialize products mining our enhanced technology with Pfizer proprietary Biologics, directed at up to six targets. These targets may be selected on an exclusive or non-exclusive basis. Pfizer disclosed PSCK9 as the first target in the third quarter of 2013.

The second target, and first product candidate, within the partnership to be ready to move into clinical testing was resulted posted on clinicaltrials.gov. This is a subcutaneous administration using our enhanced technology and rivipansel and investigates our compound under evaluation for the treatment of vaso-occlusive crisis in individuals with sickle cell disease. Rivipansel, which has received both fast-track and orphan drug designations from the FDA is currently under evaluation via intravenous dosing. The timing and start for this trial has not been disclosed.

Now with that overview I'll turn the call over to David Ramsay, who will discuss our financial results.

Thank you, Helen, and welcome to the call, everyone.

As Helen mentioned earlier, we recently completed a corporate reorganization to align with our strategic priorities. This resulted in a workforce reduction of about 13%, or 22 employees. We will incur a one-time charge in the fourth quarter of 2014 that will be largely offset by reduced compensation expenses during the quarter. In addition, we will be winding down our Consistent 1 study. The future savings from these two initiatives will be allocated to our PEGPH20 program and our ENHANZE programs, assets that we have determined to provide the greatest opportunity to enhance shareholder value.

Revenues for the third quarter 2013 were $14.6 million compared to $16 million for the third quarter of 2013. Revenues in the third quarter included $5.8 million in product sales of bulk rHuPH20 for use in manufacturing Roche's collaboration product; $3.6 million in Hylenex product sales; $2.9 million in royalty revenue from sales of products under our collaboration; and $2.1 million in collaboration revenues. In particular, royalty revenue grew 71% sequentially to $2.9 million in the third quarter from $1.7 million in the second quarter.

A key driver of this 71% sequential increase in royalties has been the increasing sales of Herceptin SC in the early launch market. As a reminder, the royalty revenue reflects April to June sales as a result of the one-quarter lag in royalty reports. As we continue to see new countries launching Herceptin SC and MABTHERA SC, coupled with the recent launch of HyQvia in the US and EU markets, we expect over the next several quarters to see continued uptick in sales of these partnered products.

Research and development expenses for the third quarter of 2014 were $19.9 million compared with $25.7 million for the third quarter of 2013. The decrease was primarily due to the inclusion in this quarter of manufacturing expenses in cost of product sales, instead of research and development expenses as in the prior period last year.

Selling, general, and administrative expenses for the third quarter of 2014 were $8.6 million compared to $8.1 million for the third quarter of 2013. This increase was mainly due to a decrease in patent expenses. Net loss for the third quarter of 2014 was $20.3 million, or $0.16 per share, compared with a net loss for the third quarter of 2013 of $19.3 million, or $0.17 per share.

Cash, cash equivalents, and marketable securities were $134.5 million at September 30, 2014, compared with $147.6 million at June 30, 2014. Net cash used in the third quarter of 2014 was approximately $13.1 million.

We are leaving our 2014 net cash burden guidance unchanged at $45 million to $55 million for the year. If we consummate an enhance deal prior to the end of the year, our cash burn will be at the low end, or just below this range, while if we did not close the transaction prior to the end of the year, our cash burn will be at the high end or just above this range.

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

Thank you, David.

As we've demonstrated, the third quarter was another strong quarter in terms of performance for Halozyme, but equally importantly, we made some key decisions on our corporate strategy that I believe will help drive increased success. We have a highly talented and committed team here at Halozyme who have already begun implementing the plan.

Our near-term priorities are clear, advancing PEGPH20, including continued strong enrollment in study 202, an initiation of our lung cancer trial, supporting and accelerating ENHANZE while continuing to pursue revelatory clarity for Hylenex in diabetes. Our balance business model continues generate a growing stream of revenues from royalties, milestones, and manufacturing activities from three approved products, and our balance sheet remains strong.

We're now ready to take your questions. Operator, could you please open the call for questions?

(Operator Instructions)

Charles Duncan, Piper Jaffray and Company.

It's Roy in for Charles. Question on the PEGPH20 program in pancreatic cancer. Do you guys have an estimate of the impact of the new trial requirements on patient recruitment so far, versus what you saw with the old protocol?

It's still quite early in the enrollment. As you know, we had said that because we have got different inclusion criteria, we do expect to see some kind of impact. So far it looks to be modest, but we're really quite early on in our ramp, but so far I'm very pleased with the 25 of the approximately 100 patients already being enrolled.

Then I guess onto the insulin programs. Can you indicate the level of partnering, I guess, interest to date that you guys have had for that? Or is that a process that's going to start once you get feedback from FDA?

As you know, we previously had communicated that we were proposing to commercialize the pump opportunity ourselves. So what our goal now is, is once we get regulatory clarity to really initiate assessing what the right partnering approach would be and who the potential partners would be.

And then on to rivipansel. Is there any reimbursement for R&D on that program in the Q3 revenues?

No. There's really not. Hi, Roy. This is David. There was really not. It was minimal.

Andrew Peters, UBS Investment Research.

Congrats on the progress. I guess the first question is on the ENHANZE partnerships and potential for a deal.

I just wanted to get your thoughts on how you think about economics for the program versus what you have signed with Roche. Now that you have kind of three approved products, it's more of a validated program, so how do you think about economics there?

And then on the Consistent 1 data, how do you characterize the biggest point of feedback or concern from the FDA that's causing you to kind of reassess? Any color there would be very helpful.

With regard to ENHANZE, certainly you point out the excellent point that we have a validated and approved platform now. And so while I don't want to foreshadow anything moving forward, that is certainly something we have taken into consideration in our ongoing dialogue.

With regard to Consistent 1, I think just to be clear, for diabetes, it really was the result of our portfolio assessment, which was to take a look and see across our entire portfolio were the biggest value opportunities were and answer PEGPH20 clearly emerged as the highest value driver for Halozyme. And so while we do continue in dialogue with the FDA, the decision is less based on feedback from the FDA about any issues on Consistent 1, more the value of PEGPH20 to us. But also the recognition that it is likely additional clinical data will be needed for diabetes and the fact that we want to ensure that all focus and resources that we need are on PEGPH20 that led us to the decision to say, let's seek a partner for future development and commercialization of diabetes.

Just so that I'm clear, part of the decision was indeed as a result of regulatory feedback in addition to just more of a priority review, I guess (multiple speakers).

The need for likely additional clinical data played a part into our decision as we were looking at our portfolio assessment. That is fair to say. The dialogue with the FDA is ongoing, and we do expect to continue that in the coming weeks.

And just a partnering standpoint, would you expected to kind of target more of the device makers or where do you think the value would be best monetized from a partnering standpoint?

As I mentioned, we really -- our first goal is to get the regulatory clarity and then we'll articulate at that part time at our parting strategy. As we have talked to opinion leaders with regard to the Consistent 1 data, continued to seek to understand the unmet needs that exist today in Type I diabetes, there definitely remains an unmet need in this marketplace. And so we believe there will be interest in our product from a number of parties and we will be seeking to exploit and explore all of those.

Eun Yang, Jefferies & Company.

It's actually Eileen Flowers in for Eun tonight. The first one on PEGPH20, based on the enrollment update that you just gave, what's your most updated timeline for enrollment completion and Phase II data readout?

We still are in the early part of our enrollment ramp, and obviously those two elements are going to go when we can have data. First is completion of enrollment and the second, because this is an event they study, is the event rate. Because we're still early in the ramp and early in looking at the event rate in the newly accrued patient, it really is premature for me to give that specificity. But all work is going to get to this data, obviously, as quickly as possible.

And for the non-small lung cell study you mentioned, how many patients do you plan on enrolling in that one?

The first part of the study is going to be focused on dose and dose schedule. That will be a classic 3-plus-3 regimen, and so we believe that will be between 20 and 30 patients just for the I-b portion. We will then expand into the Phase II portion. Still working out some final assumptions for that, so not prepared to comment on the size of that expansion, but it will be large enough for us to assess the comparative efficacy between PEG plus docetaxel and docetaxel alone.

And on the Hylenex, just to be clear, is your plan for potential for a potential partner to fund and conduct the potential clinical trials for the clinical data that FDA is requesting?

That is our goal. Yes. And commercialize the product. Ideally somebody with a commercial infrastructure for whom this makes a lot of sense and is a very attractive opportunity.

On the cellulite program, can you give an update on your partnership discussions there? Thank you.

We are still in dialogue with regard to partnering HTI-501. I don't have any updates to that program I can give you.

(Operator Instructions)

Joel Beatty, Citigroup.

Hi, this is Joel [Ansary] My first question is regarding HyQvia. Where some of the additional indications that this drug may be used in?

It really will be for Baxter, I think, to provide the full list of that. What they did mention on their analyst call was an interest in exploring some CNS indications and so that's what we're aware of so far.

Thanks. Another question on the ENHANZE platform.

With Pfizer previously making comments about using your technology with the PSCK9 product, and then Roche also accommodating about using your product with Godiva, could 2015 be set up for a busy year on news flow with partnering with these programs and others for the ENHANZE platform?

That really is, we looked at the portfolio assessment of where the opportunities lie. We landed on PEGPH20, but also ENHANZE for exactly the reasons you talk about. Since we have seen the approval of HyQvia in the US and since the launch success of Herceptin has been noted, we definitely have seen a lot of increased interest in ENHANZE. So not just with our current partners, but in new partners. So, yes, that certainly is our goal to have a lot of news flow in ENHANZE in 2015.

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

Thank you everybody. We appreciate you joining us for the call today. This is an important quarter for Halozyme. As we mentioned, great progress, but also making some important strategic decisions that we believe are going to increase our focus and our resources. And our chances of success with our highest value assets. Thank you very much.