Halozyme Therapeutics Inc (HALO) 2014 Q4 法說會逐字稿

Good afternoon, and welcome to Halozyme Therapeutics fourth-quarter and full-year 2014 financial results conference call

(Operator Instructions)

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

Thanks, operator. Good afternoon, everyone, and welcome to Halozyme's fourth-quarter and full-year 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.

Following on, David Ramsey, our Chief Financial Officer, will review our financial results. Helen will then issue some closing remarks, after which, we will 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 risk 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. Our 2014 has certainly been a year of tremendous progress and strong execution across both our partner programs, with two approvals and launches, and also our proprietary PEGPH20 program, with encouraging new data informing the benefit risk and program expansion and acceleration.

In 2015, our goal is to continue this momentum by executing our strategy to drive value through continued expansion of enhanced partnerships and through advancing the PEGPH20 program in both pancreas and non-small cell lung cancers. With this clear focus on the two value driving businesses, the next chapter of our story begins with a more focused Halozyme that is positioned for growth.

Let me begin by briefly providing a high-level overview of our financial achievements in the fourth-quarter and full-year 2014. We're pleased to report $30 million in revenue for the fourth quarter and $75 million for the year, a year-over-year increase of approximately 37%.

These are both record revenues for Halozyme, driven by growth in royalties and by the signing of the Janssen collaboration. These revenues contributed to our 2014 net cash burn of $44 million, which is slightly below the lower end of the $45 million to $55 million guidance. Royalty revenue grew approximately 40% to $4 million in the fourth quarter, reflecting predominantly Herceptin SC summer month sales in July, August, and September of 2014.

We expect the ramp in partner-product sales to continue in 2015 and anticipate our total first-quarter royalty revenues, which reflect sales in October to December of 2014 and include HyQvia, to be in the range of $6 million to $7 million. Turning now to the PEGPH20 program accomplishments.

Study 202 is the ongoing Phase 2 study of our investigational drug PEGPH20. In combination with gemcitabine and ABRAXANE in patients with previously untreated metastatic pancreatic ductile adenocarcinoma. A key objective of this study is to evaluate whether the addition of PEGPH20 to ABRAXANE and gemcitabine will increase progression free survival in patients whose tumors accumulate high levels of hyaluronan, or HA, which is the sugar that PEGPH20 targets and which has been associated with the worst prognosis in patients with pancreatic cancer.

In July of 2015 at the PEGPH20 analyst day, we presented interim efficacy and safety data from Stage 1 of Study 202. Today I'll be highlighting select data, but a full data set is available on our website. Response rate by hyaluronan level was assessed in patients who had at least one efficacy assessment, which, per protocol, was to occur after every two treatment cycles or upon progression by the time of our April 2014 clinical hold and also had a tumor sample that was analyzable for hyaluronan levels.

In patients whose tumors accumulated high levels of hyaluronan, they demonstrated a higher response rate when PEGPH20 was used with the ABRAXANE and gemcitabine, with a 71% overall response rate compared to just 29% for patients with high hyaluronan levels who received a ABRAXANE and gemcitabine alone. This result was statistically significant.

Progression-free survival was effect in all treated patients who had a tumor sample that was analyzable for HA levels and was (technical difficulty) up through December of 2014. The median progression-free survival was increased in patients with high HA tumors receiving PEGPH20 plus ABRAXANE and gemcitabine with a more than doubling of the median progression-free survival to 9.2 months in the PEGPH20 treatment arm versus just 4.3 months in the ABRAXANE- and gemcitabine-alone arm. This result was also statistically significant.

Data to evaluate overall survival is still maturing, and it's our goal to present this at an appropriate scientific forum in 2015. PEGPH20 in combination with ABRAXANE and gemcitabine was generally well tolerated with peripheral edema, muscle spasms, and neutropenia the most frequent treatment-related adverse events reported to be occurring at a higher rate in the PEGPH20 treatment arm. Thromboembolic events also occurred more frequently in the PEGPH20 treatment arm at a rate of 42% compared to 25% in the AG-alone arm.

We're certainly encouraged by this Stage 1 data especially in the patients with high HA accumulation in their tumors. And we plan to discuss the PEGPH20 benefit risk and our plan for a potential registration enabling study in high HA patients with the FDA in the next weeks. Pending positive FDA feedback, it would be our goal to initiate the planned registration trial in the fourth quarter of 2015 or the first quarter of 2016 timeframe.

Study 202 Stage 2 is continuing, and our goal is to complete enrollment of the target 114 patients in Stage 2 by the end of 2015. Patients are being randomized at a ratio of 2 to 1 to PEGPH20 ABRAXANE gemcitabine versus ABRAXANE and gemcitabine alone to allow us to achieve a robust number of patients with uninterrupted treatment in both treatment arms for the full efficacy and safety assessments.

Now at the analyst day, we also presented a comprehensive set of preclinical data further elucidating the mechanism of action and the potential for PEGPH20 across a broad range of solid tumors which accumulate high HA levels. With this promising early clinical data now in hand from two clinical studies in the pancreatic cancer setting that shows that PEGPH20 has a potential to improve the targeting of co-administered drugs, we've begun exploring PEGPH20 in additional tumor settings beginning with the non-small cell lung cancer.

Primal is an international Phase 1b/2 randomized clinical study designed to evaluate PEGPH20 in combination with docetaxel as a second-line therapy for patients with locally advanced and metastatic non-small cell lung cancer. This study will enroll previously treated patients who fail to respond adequately or lost a response to a platinum-based regimen and is designed to evaluate and identify the dose schedule and safety of PEGPH20 plus docetaxel.

Outpatient who fail the platinum-based regimen and have been exposed to Avastin and anti-EGFR or an [alc] inhibitor as part of their first-line therapy are also eligible for this study. Patient enrollment and dosing is currently underway and IRB approvals for new clinical sites are ongoing. We expect to complete the Phase 1b portion of the trial in the second half of 2015, the timing of which will depend on the number of dose-escalation cohorts required.

The start of the Phase 2 portion of the primal study will follow the evaluation of the Phase 1b data. To explore the full potential of PEGPH20 in non-small cell lung cancer, we're also planning to evaluate PEGPH20 in combination with a PD-1 inhibitor in previously treated patients. Our goal is to initiate this study in the second half of 2015.

PEGPH20 is a novel approach that we certainly believe has the potential to improve the targeting of co-administered drugs ranging from small molecule chemotherapy agents to monoclonal antibodies and immunotherapy agents in multiple-tumor settings. Expanding and accelerating the program is the top priority in 2015.

Now let's turn to review the programs we've been making with ENHANZE. Less than 100 days after receiving the first US approval of a biologics license application for our enhanced technology with the approval of Baxter's HyQvia, our platform gained further validation and expansion with the December announcement of a global collaboration with Janssen. We granted Janssen a worldwide license to develop and commercialize products for up to five targets combining our rHuPH20 enzyme with Janssen's proprietary compounds.

The agreement provides for milestone payments totaling up to $566 million in addition to the $15 million upfront payment and future royalty payments based on net sales of products using the ENHANZE technology. Janssen joins Roche, Pfizer, and Baxter as a partner in our ENHANZE franchise, and it is our goal to further increase the number of ENHANZE partnerships in 2015. We continue to garner interest from Marquis pharmaceutical and biotechnology companies to license our technology, and we look forward to providing you with an update on these initiatives in the future.

Now let's review our existing partner programs beginning with the most recent launch in Baxter's HyQvia. On its fourth-quarter conference call, Baxter described HyQvia, which was launched in the US in October of 2014 as a transformational subcutaneous treatment for adult patients with primary immunodeficiency. Baxter estimates that the global market for primary immunodeficiency is approximately $2 billion with only approximately 35% of patients receiving subcutaneous therapy to date.

As reported by Baxter in January, the US launch is progressing well with more than 400 physicians prescribing HyQvia at that time. Baxter reported US HyQvia sales in the fourth quarter of approximately $35 million, which reflects the impact of initial stocking orders by customers and also a favorable reception of the product in the marketplace.

Baxter also provided 2015 HyQvia sales guidance of $100 million and sees ongoing growth in its immunoglobulin therapies division of between 6% to 8%, driven by strong market demand for HyQvia. With the launch now well underway, Baxter is evaluating additional potential indications for HyQvia.

Now turning to our product development programs with Roche, as I mentioned earlier in the call, Herceptin SC, the first product approved from our Roche partnership, continues to gain market adoption throughout the second half of 2014. With the country-by-country rollout of MabThera SC now underway beginning in June of 2014, we look forward to reporting launch progress over the next quarters, as the market introductions occur following reimbursement approval.

With that, I'll now turn the call over to David Ramsey to discuss our financial results for the quarter in greater detail. David?

Thank you, Helen, and welcome to the call, everyone. 2014 was a record year for Halozyme in terms of revenues, and this success, driven in large part by the growth in value derived from our enhanced partnerships, allows us to enter 2015 with strong momentum. Let me begin my remarks with our 2015 financial guidance.

Our revenue forecast for 2015 is $85 million to $95 million. This reflects an increase over 2014 that is primarily driven by the increase in royalty revenues. For operating expense, we are forecasting $145 million to $155 million for the year, a slight increase over 2014 despite a significant expansion in our clinical development program.

We expect to see the additional expenditure on advancing and accelerating PEGPH20 to be partially offset by reductions in spending on our diabetes program. And finally, we are forecasting a cash burn of between $35 million to $45 million for 2015, and we do not anticipate any need for dilutive financing to fund operations this year.

Now, turning to the fourth-quarter and full-year 2014 results, revenues for the fourth quarter of 2014 were $30.4 million compared to $12.5 million for the fourth quarter of 2013. Contributing to this significant increase in our revenues was $5.9 million in product sales of bulk rHuPH20 for use in manufacturing Roche's collaboration products, $4.1 million in Hylenex product sales, $4 million in royalty revenue from sales of products under our collaborations, and $16.2 million in collaboration revenues, which includes the $15 million licensing fee from Janssen.

As Helen previously mentioned, royalty revenue grew approximately 40% to $4 million in the fourth quarter, reflecting sales in the July to September 2014 period. This is up from $2.9 million in the prior quarter. The key driver of this increase in royalties has been the increasing sales of Herceptin [subcu].

We anticipate first-quarter 2015 royalty revenue, which reflects October through December 2014 sales, to be in the range of $6 million to $7 million. With new-country launches and growth and adoption of MabThera SC and Herceptin SC and the recent launch of HyQvia in the US, we expect continued uptick in sales growth of these partnered products.

Research and development expenses for the fourth quarter of 2014 were $19.7 million compared with $20.9 million for the fourth quarter of 2013. The decrease was primarily due to a decrease in clinical trial expenses due to the winding down of our insulin study.

Selling, general, and administrative expenses for the fourth quarter of 2014 were $8.4 million compared to $9.4 million for the fourth quarter of 2013. This decrease was primarily due to a decrease in expenses related to our diabetes program.

Net loss for the fourth quarter of 2014 was $5.3 million, or $0.04 per share, compared with a net loss for the fourth quarter of 2013 of $22 million, or $0.19 per share. Cash, cash equivalents, and marketable securities were $135.6 million at December 31, 2014 compared with $134.5 million at September 30, 2014.

Net cash used for the year was approximately $44 million. I will now turn the call back to Helen who will provide some closing comments.

Thank you, David. And as you just heard, building on a strong 2014, 2015 promises to be a very exciting year with multiple milestones that are going to drive our continued momentum and growth. With the encouraging interim data from study 202, we're focused on executing our development plans for PEGPH20 in both pancreatic cancer and non-small cell lung cancer.

And we're excited by the commercial potential of our enhanced franchise which continues to gain recognition from patients, peers, and potential partners. We intend to continue exploring potential partnerships and helping our current partners expand the markets for their products and potentially create new market opportunities.

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

Thank you, ma'am.

(Operator Instructions)

Jessica Fye, JPMorgan

Thanks for taking the question. Just on the potential to combine PEGPH20 with a PD-1 in lung cancer, are you having those discussions now with those companies?

And when can we expect to hear what asset you'll study in combination with PEGPH20? And then, also, do you have any data around overall survival, or PFS, in high HA, non-small cell lung cancer patients relative to low HA or the overall patient population? Thanks.

Thanks, Jessica. We are in discussions with companies and, importantly, also investigators with regard to the potential design of a study of PEGPH20 in combination with a PD-1 inhibitor. We are making the decision as to whether we will partner this, or, as you're aware, we also could purchase a drug with a number of products being available.

So I can't give you a specific date on when we plan to announce exactly what the trial design and which drug we'll combine with; however, we do plan to initiate that study in the second half of this year. With regard to survival rates in high versus low HA in non-small cell lung cancer, I'm aware of data in a range of solid tumors, Jessica. Obviously, we would talk mostly about pancreas cancer.

There is small data sets available in, I believe, non-small cell lung cancer and colon cancer. And we'll get back to you with that, but it's been replicated in a number of solid tumors, this finding that HA is associated with a worse prognosis.

And then, could I just ask one follow-up on that? If you're going to be studying in combination with PD-1, which I think some people think is going to rapidly become part of the standard of care in second-line lung cancer, do you still need to do the Phase 2 just in combination? Or sorry the Phase 2 without the PD-1? Or is combo with the PD-1 a priority?

When we were talking with [thought] leaders in this area, people who are following the course, I think the belief is that PD-1 inhibitors will establish a place in front-line therapy. Therefore, our patients who are in second line will probably have the opportunity to receive some other form of therapy, and it was their opinion that chemotherapy, and a particularly docetaxel, would remain a mainstay of care.

This is something, obviously, that we will continue to monitor, how the competitive environment is evolving. And we, obviously, will take where the practice patterns are at the time we would initiate that study, Jessica.

Got it, thanks.

Andrew Peters, UBS

Hi, guys. Congrats on the progress and thanks for taking my question. I guess the first one is as you're getting ready for the meeting with the FDA later this month, how are you thinking about treatment duration for the potential Phase 3 study given that the impressive data for what was essentially a treatment interruption? And is that something you're considering as a variable for a different cohort in the Phase 3 study?

And then a question for David, just wanted to understand any impact on FX in terms of royalty revenue or guidance. And is that built into the 1Q guidance number?

Yes, hi, Andrew. This is David. I'll take your financial question first. We did see a negative impact in the fourth quarter number we reported of $4 million of about 3% to 4%.

The conversion is done according to the terms of our collaboration at the end of each calendar quarter. So it would be the last day of September, last day of December, and so that negative impact was about 3% to 4%. The number, the first-quarter number that we gave already reflects the impact of any currency impact in Q1 as well.

All right, and on the approach to the FDA. Our goal in talking to the FDA is, obviously, to review with them the latest data we have based on the study 202 on the benefit risk and seek their feedback on potential clinical endpoints and a trial design for registration enabling studies.

Clearly, the progression-free survival data that we have in hand is something we will be discussing with the FDA and discussing whether that would be acceptable endpoint in this higher risk population who have high HA. Our overall survival data is still maturing as I mentioned on the call, Andrew. We, certainly -- all of the bits of data we have will go into our discussion with the FDA and our ongoing assessment as to the design and powering all the clinical study.

Great, thanks. And just one final one, in terms of the HA assay, can you just remind me of the status or the turnaround for getting patients HA status? Just trying to understand the feasibility of a prospective study versus retrospective analysis like in study 202, just in terms of screening time and things like that. Thanks.

Yes. So for study 202 as you recall, we looked at the samples retrospectively. So we don't have any data we've generated ourselves on what the timeframe would be to be able to have a sample analyzed. I certainly know this is something we're very focused on and we're targeting in the range of a week, which is what is available in the marketplace today and certainly deemed acceptable.

But this is something that we're continuing to work on as we select a partner to work with to make sure we can achieve exactly what you're talking about, something that fits in to the current standard of care. That's our goal.

Great, thanks, and congrats again.

Jim Birchenough, BMO Capital.

Hi, guys. Congratulations on all the progress. A couple questions, first on just the thought around a PD-1 combination with PEGPH20. Are any prospective partners doing work on the effect of PD-1 in patients with high versus low HA status?

I guess one would assume you'd get less immune-cell infiltration in a patient with high HA status, and that might blunt the effect of a PD-1. But has there been any data to suggest a limitation of the effect of PD-1s, according to HA status?

Jim, I'm not aware of any data on that. I haven't seen anyone publish on that at this time.

Is that something that prospective partners are looking at do you think?

I certainly can say that in scientific forums, they're have been discussions with different companies on topics like that. But I can't confirm if any company is actually studying it. It's certainly an area of interest and question to us.

And just in terms of maybe a broader question on business development activities. Any insight as to whether Roche may move forward with a Herceptin subcu strategy in the US?

Do you have any sense of when they might approach FDA? If that's something we might expect to see? And then separately, just in terms of broadly doing more deals with the platform, should we expect a certain number of deals over the next 12 to 18 months?

Let me begin with our Herceptin SC in the US. And that really is going to be -- for Roche to announce if that's their intent, they've made no public comments about that. And we as their partner are really not in a position to ever announce anything in advance of them. So I can't provide any update there.

In terms of deals, obviously, it's always hard to know exactly how many one can sign. But I can tell you it's a priority within the company to continue the momentum we've created with the Pfizer deal and now the Janssen deal.

There are many more targets out there that we believe could benefit from ENHANZE to allow them to be taken from IV to subcu, And we're actively pursuing, certainly, seeking to sign multiple deals in the time frame you're talking about.

Thanks for taking the questions.

Arlinda Lee, MLV & Company.

Hey, guys. Thanks for taking my question. On the 202 data and what you've presented to FDA on the survival front, can you give us an update of if you've provide that information to FDA? And update us on what from the 202 data that you presented at your analyst day, how far along are we tracking on overall survival right now? Thanks.

Thanks Arlinda. So yes, we are still waiting for the overall survival data to mature, as I mentioned in my call. The median follow-up for patients at the moment is about 7.5 months.

And if you recall from the gem/ABRAXANE registration study, the median overall survival there was 8.5 months. So we are still following that data and waiting for it to mature. And when we do have that data, it would be our goal to present it at a scientific forum in 2015.

Great, thank you very much.

Charles Duncan, Piper Jaffray

Hey, guys. It's Roy in for Charles. Thanks for taking my question. Quick follow-up on the FX. Is it purely a function of the Swiss Franc? Or is that derived from the country of sale?

So both, Roy. What we have visibility into is the Swiss Franc. So per our collaboration agreement, the conversion to US dollars happens at quarter end.

And so, certainly, in our calendar Q3, calendar Q4, we saw a negative impact of both of those items. But that's reflected in the $4 million royalty we reported and, also, in the $6 million to $7 million guidance we gave for Q1

Okay, and I appreciate the guidance on the royalties for 1Q. Just wondered if you could give us a sense of maybe for the rest of the year if you expect a steady ramp or more of an acceleration with countries coming online?

I can't give you a royalty number for the year at this point. But we are comfortable with the Q1 guidance that we gave.

Okay, good enough. Thank you.

Eun Yang, Jefferies & Company.

Hi, guys. This is John in for Eun. Thanks for taking my question. Regarding the Pfizer partnership, can you provide us with an update on the status of Pfizer's clinical trial for PCSK9 inhibitor using Halozyme's ENHANZE technology? Thanks.

So Pfizer is continuing to work with us with those with regard to their PCSK9 program. They have not provided any public comments about when they plan to start the clinical program, so, John, I'm not in a position to comment on that. But I can say that we're continuing to work with and collaborate with them on that program.

You may also be aware Pfizer has declared rivipansel is a second target using the ENHANZE technology that's being studied in veno-occlusive crisis in sickle cell patients. And again, they've posted a clinical trial design for a Phase 1 study in clinicaltrials.gov, but have not announced exactly when that study will start.

Thank you. (Operator Instructions)

Dr. Torley, there are no further questions at this time. I'd now like to turn the floor back over for closing remarks.

That's great, and I would like to thank everyone for joining us and listening in today. I think you can agree we had a strong 2014 and have started 2015 with a lot of momentum.

Our priorities are clear. Our focus is crystal clear. And we look forward to continuing to update you and demonstrate strong progress against our strategy. Thank you so much.

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