Halozyme Therapeutics Inc (HALO) 2015 Q1 法說會逐字稿

Good afternoon, and welcome to the Halozyme Therapeutics first-quarter 2015 financial results conference call.

(Operator Instructions)

As a reminder, this call is being recorded.

It is now my pleasure to introduce your host, Schond Greenway, Executive Director Investor Relations and Strategy at Halozyme Therapeutics.

Mr. Greenway, you may now begin.

Thank you, operator. Good afternoon, everyone, and welcome to Halozyme's first-quarter 2015 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.

Also participating on today's call is Dr. Athena Countouriotis, our Chief Medical Officer, and Jim Mazzola, our Vice President of Corporate Communications and Investor relations. We also posted slides to accompany today's webcast, which may be found on the Investors section of our website along with our earnings materials.

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. It really is a pleasure to update you on our recent progress.

I will begin with a review of our strategy and the progress we made against it during the quarter. Then David will cover our financial results in greater detail before we take your questions.

The first quarter was marked by strong execution on both sides of our two-pillar strategy. The first pillar is our oncology business, with our investigational drug PEGPH20 at its core.

We're currently studying PEGPH20 in pancreatic and non-small cell lung cancer, but see broader potential applicability in its use in multiple tumor types in combination with chemotherapy and monoclonal antibodies. And we're also excited to begin exploring the potential to improve the effectiveness of immuno-oncology agents.

Our work in oncology is in part funded by the second pillar of our strategy, which is centered on our licensing agreements with marquee partners including Roche, Baxter, Pfizer and Janssen. These partners co-formulate or co-administer their therapies with our ENHANZE platform to introduce subcutaneous dosage forms as is the case with Herceptin SC and MabThera SC, or change the frequency or number of injections required, an example of which is HyQvia.

Our financial results are driven by the second pillar, and we're pleased to report $18.7 million in revenue in the first quarter, a year-over-year increase of approximately 56%. Royalty revenue grew over the prior quarter by nearly 70% to $6.8 million, reflecting predominantly Herceptin SC sales in October, November and December of 2014. We expect the ramp in partner product sales to continue in 2015, which keeps us on track with the full-year guidance we provided last quarter.

With that summary of our strategy, let me now provide a more comprehensive update on our progress in the oncology pillar. Our vision at Halozyme is to establish PEGPH20 as a foundation of therapy for solid tumor malignancies in combination with a broad range of today's cancer therapies, including immuno-oncology agents.

Our current and future clinical programs target a range of solid tumors, where there is a high accumulation of hyaluronan. Hyaluronan or HA is a glycosaminoglycan which is a chain of natural sugars that can accumulate around cancer cells and block access to the tumor.

PEGPH20 works by degrading HA to improve access for chemotherapy and immuno-oncology agents with the potential benefit of increasing the effectiveness and bringing new hope to the many patients who are underserved by current therapies. We believe that if we are successfully in showing PEGPH20 to be effective in pancreatic and non-small cell lung cancer populations, a cheaper product profile in terms of efficacy and safety and getting marketing authorizations, PEGPH20 has the potential to become a blockbuster oncology brand.

Let me provide an update on our pancreatic cancer program. Study 202 is our ongoing phase 2 trial in metastatic pancreatic ductal adenocarcinoma patients and has two stages.

At our analyst day in January, we presented interim results from 146 randomized patients enrolled in stage 1of study 202 evaluating PEGPH20 with ABRAXANE and gemcitabine versus ABRAXANE and gemcitabine alone. These data are summarized in slides 4 and 5 of the presentation, and the full data set as presented is available in our January 7, 2015 SEC filing.

Shown in slide 5 in a retrospectively defined select population, there was a statistically significant doubling in median progression-free survival in patients with high levels of HA treated with PEGPH20 plus ABRAXANE and gemcitabine compared with ABRAXANE and gemcitabine alone. The potential risk profile was also evaluated and is highlighted in slide 5.

The combination therapy including PEGPH20 was generally well tolerated with peripheral edema, muscle spasms and neutropenia, the most frequent treatment-related adverse events reported at a higher rate in the PEGPH treatment arm. Treatment emergent thromboembolic events occurred in the PEGPH20 treatment arm at a rate of 42% compared with 25% in the ABRAXANE and gemcitabine alone arm.

Phase 2 of Study 202 refers to the stage post implementation of a protocol amendment, which excluded patients at higher risk of TE events and at which low molecular weight heparin prophylaxis was added for all patients. Efficacy, safety and the rate of thromboembolic events compared to the Stage 1 portion are being evaluated. Enrollment of the additional 114 patients is on track to complete by the end of the year, and I can say that we are seeing an encouraging reduction in the rate of TE events compared to stage 1.

Turning now to slide 6, one of our goals in 2015 was to discuss the benefit risk profile of PEGPH20 with the US Food and Drug Administration and the potential to move forward with a phase 3 study in pancreatic cancer patients with high HA.

During the quarter, we discussed the study as part of a type B meeting with the Agency. Athena led the Halozyme group at the meeting which also included two key opinion leaders in the pancreatic cancer field. The tone and the sentiment of the meeting was positive and certainly very helpful as we plan for our phase 3 study, which will be a global trial and will focus on metastatic pancreatic ductal adenocarcinoma patients whose tumors accumulate high levels of HA.

As we're doing in Study 202, we will evaluate PEGPH20 plus ABRAXANE and gemcitabine compared to ABRAXANE and gemcitabine alone. We discussed the trial design with the FDA, where we proposed progression-free survival or PFS and overall survival as two separate primary end points. As we communicated in our April 8 announcement, the FDA supported PFS as a primary end point and noted that its potential use for marketing application will be subject to the magnitude of the PFS treatment effect observed, the toxicity profile and the interim overall survival data.

While there was general agreement on the design and key elements of our global phase 3 clinical trial, the specific details including the proposed number of patients are currently being finalized. And we also expect to receive feedback from the European Medicines Agency in the second half of 2015 and will seek to incorporate their feedback into the final protocol. As the trail design is finalized, more details will be provided at the time of the study's start.

Now let me say a few words about our companion diagnostic. We plan to use a proprietary diagnostic to prospectively identify and select patients with high levels of HA for a phase 3 trial with the goal of seeking to increase a probability of clinical trial success by identifying the patients whom we believe are most likely to benefit from PEGPH20 treatment.

As we anticipated, the FDA provided feedback supporting the selection of high HA patients and confirmed that an investigational device exemption or IDE will be required prior to initiating the phase 3 study. The IDE is a regulatory application that we will use to summarize the methodology, validation and proposed high HA cap point for patient selection.

Our proprietary HA binding protein will be the foundation for the companion diagnostic given its high degree of specificity and sensitivity. And as we mentioned in January, it's our goal to enter into a partnership for the final stages of companion diagnostic development and commercialization. We're in late stage discussions with potential partners whom we believe will provide additional expertise, including support of the IDE submission.

To summarize the upcoming milestones for our pancreatic program, it's our goal to complete enrollment in stage 2 of Study 202 by the end of year, and if you recall, this is an event-driven study with PFS as the primary end point. And it will be our goal to present the data at an appropriate scientific forum in 2016.

Secondly, we plan to finalize the specifications of our companion diagnostic and submit an IDE to support initiation of patient screening in the planned phase 3 study by the end of 2013. Thirdly, and in parallel, we will finalize the design of the phase 3 study with input from the EMA to remain on track for the Q1 2016 initiation and patient enrollment.

I will turn to our non-small cell lung cancer program. Our preclinical models support the potential of PEGPH20 for a broad range of solid tumors, and we selected non-small cell lung cancer as the next tumor setting to explore.

The PRIMAL study is 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. The study will enroll previously treated patients who did not respond adequately or lost their response to a platinum-based regimen.

The initial phase 1b portion is designed to evaluate and identify the dose, schedule and safety of PEGPH20, plus docetaxel. Enrollment and dosing are ongoing, and we expect to complete this phase in the third quarter 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 study will follow the evaluation of the phase 1b data.

Now while we're studying PEGPH20 in combination with chemotherapy today, the standard of care in non-small cell lung cancer is expected to evolve to include immuno-oncology agents in the future. Today we are announcing our goal to initiate a phase 1b study of PEGPH20 with Keytruda, pembrolizumab, in non-small cell lung cancer patients who have failed to respond to a platinum-based regimen.

With this study, which will start in the second half of 2015, we plan to initially evaluate the dose, safety and tolerability before expanding into a phase 2 study of patients at the selective dose. This trial is a Halozyme sponsored trial, and the phase 1b portion is being conducted at a leading oncology center with Keytruda experience.

Now let me switch gears and provide you with a deeper look at progress in the other pillar of our strategy, and that's our ENHANZE drug delivery platform. Our ENHANZE technology can be used in combination with a variety of other drugs and is applicable across many therapeutic categories. The value proposition we may offer partners and patients includes life cycle management with the opportunity to prolong the exclusivity period for the combined product and the ability to reduce dosing frequency and duration by taking drugs from an IV to a subcutaneous formulation.

Turning to slide 7, and an update on our product develop programs with Roche, we continue to be pleased with the uptake of Herceptin SC. Recent comments from Roche confirmed that Herceptin SS is now launched in 44 markets with a patient share that exceeds 30%. Roche has additionally indicated that in at least five markets, the conversion rate is more than 60%. Based on recent comments from Roche, we expect continued growth in SC market share versus the IV products through 2015 as Herceptin SC continues to gain share and is launched in additional countries.

Turning to MabThera SC, while the product continues to be in its early launch phase, having launched in June of 2014, recent comments from Roche indicate that MabThera SC has received a positive reception in a number of countries, as well as experienced good uptake particularly in the maintenance setting of the hematologic indications. Roche also disclosed that in the fourth quarter of 2014, MabThera SC was filed in Europe for previously untreated chronic lymphositic leukemia.

Let's turn to review the progress we've been making with our collaboration with Baxter, which is shown on slide 8. On its first-quarter conference call, Baxter described HyQvia, which was launched in the US in October of 2014 as a transformational therapy with an attractive value proposition for patients, physicians and payers.

Baxter estimates that the global market for a primary immunodeficiency, PID, is approximately $2 billion with only approximately 35% of patients receiving subcutaneous therapy to date. As reported by Baxter, HyQvia continues to experience a favorable reception in the US marketplace, based on its differentiation.

Of the 15,000 adult PID subcutaneous patients, approximately 1500 of these patients are on HyQvia, with the majority converting from competitive subcutaneous therapies. And with the launch now well underway, Baxter is also evaluating additional potential indications for HyQvia including CIDP.

With that, I will turn the call over to David Ramsay to discuss our financial results for the quarter in greater detail. David?

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

If you turn to slide 10, you will see the revenues for the first quarter of 2015 were $18.7 million, compared to $12 million for the first quarter of 2014. Revenues in the first quarter included $6.8 million in royalty revenue from sales of products under collaboration agreements, $6.1 million in product sales of bulk rHuPH20 for use in manufacturing collaboration products for Roche, $3.8 million in Hylenex product sales and $2 million in collaboration revenues.

Royalty revenue grew approximately 70% sequentially to $6.8 million in the first quarter, reflecting sales in the October to December 2014 period. This is up from $4 million in the prior quarter.

The key driver of this increase in royalties has been the increasing sales of Herceptin SC. As we continue to see new countries launching Herceptin SC and MabThera SC and increased conversion, coupled with the recent launch of HyQvia in the US, we expect over the next several quarters to see continued uptake and sales of these partner products.

Turning to slide 11 for a more detailed breakdown of our P&L now, research and development expenses for the first quarter of 2015 were $16.7 million compared to $21.4 million for the first quarter of 2014. The decrease was primarily due to a planned reduction in expenses associated with the diabetes program.

Selling, general and administrative expenses for the first quarter of 2015 were $9.4 million compared to $10.3 million for the first quarter of 2014. The decrease was primarily due to the decline in compensation-related expenses. The net loss for the first quarter of 2015 was $15.1 million, or $0.12 per share, compared to a net loss in the first quarter of 2014 of $26.5 million, or $0.22 per share.

Cash, cash equivalents and marketable securities were $128.5 million at March 31, 2015, compared to $135.6 million at December 31, 2014. Net cash used in the first quarter of 2015 was approximately $7.1 million.

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

Thank you, David.

In closing, as you have just heard, we made excellent strategic and operational progress during the quarter, and we're moving forward with our plans for a phase 3 study following a key end of phase 2 meeting with the FDA. We're making additional investments in our oncology franchise based on the encouraging data we have seen in preclinical models about how PEGPH20 could benefit patients with a range of different tumor types, and we continue to see the value of our ENHANZE technology demonstrated through the positive results of our partners.

As I stated in our year-end call, 2015 promises to be a very exciting year for Halozyme. We continue to work diligently to execute our strategy, drive value in our programs and build on the momentum we have gained -- generated since the beginning of the year. Some of our key upcoming events are detailed on slide 13, and these include presenting interim results from our 202 study at the annual meeting of the American Society of Clinical Oncology, which will be at the end of this month; completion of enrollment in Study 202 by the end of 2015, continuing phase 1b enrollment and dosing for our phase 1b2 PRIMAL study in non-small cell lung cancer; discussing the phase 3 study designed with the European Medicines Agency; signing a partnership for a companion diagnostic for PEGPH20; initiating our immuno-oncology study evaluating PEGPH20 with Keytruda; and finally, it remains our goal to support progress in our current partners advancing products into the clinic and to sign new ENHANZE partnerships.

I want to close by thanking the Halozyme team for another quarter of strong execution and focus on driving those programs that benefit patients, supporting the work of our partners and driving value for our shareholders.

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

Thank you.

(Operator Instructions) The first question will come from Jessica Fye with JPMorgan.

Hey guys. Thanks for taking the questions.

Hello, Jessica.

Hello.

I guess I have a couple. But first, Helen, in your prepared remarks, you said you are seeing an encouraging reduction in the rate of TE events compared to stage 1. What's that data point based on? Is that overall, or is that comment specific to the PEGPH20 arm?

Jessica, it's actually specific to both treatment arms actually. We believe the low molecular weight Heparin in particular is probably having an effect in both arms. So it would be both arms.

Okay, great. Maybe on the FDA's decision to allow you to file on PFS data from phase 3, I would assume that's predicated on a magnitude of benefit that they felt was possible based on the phase 2 data, or at least the interim phase 2 data? How should we think about what the hurdle is to be able to file on PFS from an efficacy standpoint?

We have a general discussion with regard to PFS as an end point and obviously the FDA saw the data that we showed in January that showed the doubling in PFS in the high HA population, the FDA did not give specific guidance on the magnitude of the benefit. That is something Athena and the team are working through as we finalize our protocol. I can't give you any more specifics on that at this time.

Okay. Got it. And then on the PD-1 combo study, I think you mentioned your goal is to initiate the phase 1b using Keytruda in a Halozyme sponsored study. Can you tell us what factored into selecting that product as opposed to OPDIVO, and were there conversations previously with Merck about a co-sponsored trial that didn't advance for some reason?

We did, in consultation with our global advisers, look at all of the available data to say which PD-1 inhibitor we might want to the study. And we obviously also looked at the data ourselves. Based on that assessment, that's what led us to decide we would study with Keytruda. We certainly do intend to do clinical collaborations later this year, but for this particular study, it was our decision to move forward in a Halozyme sponsored study with the goal of starting it in the third quarter.

Understood. And then maybe just one last one. Forgive me if I misheard you, but at the very end of your prepared remarks, did you say you were looking forward to moving into phase 3 after an end of phase 2 meeting? And does that mean that phase 2 or some element of phase 2 has to be complete before you start phase 3?

No, Jessica. Sorry if I may have misstated something. The end of phase 2 meeting has happened. That's the one that we had in March of this year.

What we intend to do is to start phase 3 at the end of the first quarter of 2016. We will file an IDE for the companion diagnostic to support that, but at this time we don't expect any additional need for any end of phase 2 meetings with the FDA.

So we don't have to wait for the completion of 202?

No. We do not have to wait for the completion of 202, although we will be continuing to report the results of that and monitor the results of that data, but we're not waiting for that data.

Got it. Thank you.

Our next question comes from Kennen MacKay from Citi.

Hi. Thanks for taking my questions. A quick question on the Singha study that came out this quarter, there is a lot of evidence suggesting PEGPH20 really contributes to [creatile] access to solid tumors. Given that [carti] therapies have had some issues with solid tumor access, have you been in discussion with carti companies about the potential to combine with PEGPH20 to increase [need] cell invasion, and is this something you are considering?

Thanks for that question. We certainly are excited by the data presented to AACR and the potential to be able to be combined also with carti therapies.

As you know, they're quite early in their development in terms of solid tumors, but based on the mechanisms we understand to date, we certainly see that as potential. And it's something we're going to be continuing to follow up on and potentially explore in the future.

Got it. That's terrifically exciting. And then just on the continuing stage 2 202 study, I'm wondering what you are hoping to get out of that, and if the FDA required you to keep that going and if that's still being used to refine the elements of the companion diagnostic and any other color you can provide as to why you are continuing that study.

Thanks. I'm going to ask Athena to address that question.

Hello. Thank you for the question. The first thing I would say is in regards to the phase 3 study, we do believe the stage 1 component is a robust data set, and clearly the discussion with the FDA revolved around not only the overall benefit risk that focused predominantly on stage 1's PFS, but also overall survival and as Helen mentioned the encouraging reduction we're seeing in the rate of TEs in stage 2. We are continuing to follow stage 2 clearly to increase our safety data base, but as Helen said, it's not rate limiting the start of the phase 3.

Got it. That's very helpful.

Thank you. Our next question comes from Charles Duncan from Piper Jaffray.

Hi, it's Roy in for Charles. Thanks for taking the question. Congrats on the Keytruda combo plan, it's pretty exciting.

Just a couple quick ones, I guess no general order, but has Roche indicated what they expect for a peak conversion rate? Is there any reason it won't be 100% or shouldn't be 100%?

Roche has not provided any guidance as to what they think the peak conversion will be. I certainly think they, like we, are delighted with the over 30% conversion in the 44 markets to date and some markets already over 60%. But, no, no specific thoughts from them as to the peak.

There's no technical reasons for every patient to not convert, is that accurate?

I think if you recall some of our previous investor slides, we did lay out -- just to give a sense of the size of the markets for the ex-US, ex-Japan markets, the size of the addressable population, not absolutely every use of Herceptin or Mabthera is indicated for the SC portion that is indicated for the IV. The vast majority is, but if you refer to those slides, that will give you a picture of that. The vast majority is accessible and addressable to Herceptin and Mabthera SC.

What's the general time frame on IDE approval?

With an IDE, what the FDA, about a 30-day period where they can review it, and if there's no comments, the company proceeds.

Okay. Great. I'm not sure this is a good question, but you guys are planning to report the OS data from stage 1, right, at some point in the future? And would you report -- let's say you had one arm within a valuable median and another that is undetermined, do you think you would still report at that time or would you wait for the data to be mature?

We do plan to present the data when it's mature, and we do expect to report that in an upcoming scientific meeting.

Great. Thank you.

(Operator Instructions)

Our next question comes from Andrew Peters with UBS.

Thank you. Thanks for taking my question and congratulations on all the progress. A couple of quick questions. I guess the first on the second part of the 202 study.

With the late 1Q start of the phase 3, it seems possible that you could have that data prior to the start of the phase 3. Was just curious what the FDA has said around possible follow-up meetings, if necessary, or are you going to provide that data to the agency if it's available before starting the phase 3? And then just secondly, while I think it makes sense to start the combination study with Keytruda, do you have plans to start maybe a second study with [OPDIVO] in the future to provide a broader data set around different immuno-oncology agents?

Thanks Andrew. With regard to 202, we do expect to complete enrollment by the end of this year. It's an event-driven study, and so when we can report the PFS data, obviously it's going to be dependent on the rate of events we see. But for us to start the phase 3 trials, we do not need to report to the FDA this data from Study 202. We obviously will do so when that data is available, as just part of the our ongoing safety reporting to the FDA.

And with regard to the broader program of PEGPH20 and immuno-oncology, we do see PEGPH20 based on the data we have generated to date as having potential to increase the efficacy of these immuno-oncology agents. I think I could agree with you the Keytruda is an exciting start, we do plan to expand beyond that over time, and as I mentioned, we expect to find clinical collaboration through the course of this year and next year to help us expand our immuno-oncology program.

Great. Thanks.

Thank you. Our next question is from Arlinda Lee with MLV & Company.

Hello. Thanks for taking my question. Could you maybe provide an update on what the follow-up is for the 202 patients that are still on trial from the data that you presented in January?

And then a separate question on the immuno-oncology front. Can you maybe help us understand what data you have seen in the past and why are you encouraged about this particular combination as a first starting point?

I'm going to ask Athena to address the question on 202 follow-up.

Hello, Arlinda. You may remember in January at our analyst day presentation, we had two different data cuts as a reminder. The April data cut predominantly driving the overall response rate, which was a median of approximately three months of follow-up, and the progression free survival analysis that was a data cut of December of last year with approximately a seven-month follow-up. I can't provide more guidance, obviously the ASCO abstracts will come live on Wednesday, and there will be more details to follow.

Great.

With regard to the immuno-oncology data, if you recall from the data we presented on January 7, we are excited to have been able to see certainly in in vitro studies the ability of PEGPH20 to increase the access of both PD1 and PDL1 inhibitors, as well as immune cells into tumor cells. And it really is that data that has encouraged us to be able to move forward in a clinical study to identify, can we do the same in the clinical setting, Arlinda.

Okay. And then maybe as a follow-up, on your discussion. I know that you haven't had discussions with the European agencies yet, but could you maybe help us walk through if you are planning on trying to do one registration on trial for both the US and Europe how that might work if they have different time frames or what the timeline is for that.

Certainly. It's our goal to do a single study to satisfy both agencies. We expect to have feedback from the EMA in the second half of this year, and we do expect to receive input that will allow us to do a single study, and that's our plan at this point in time.

Okay. Great. Thank you very much.

Thank you.

(Operator Instructions)

There's no further questions at this time. I would now like to turn the call back over for closing remarks.

Thank you so much to everybody for joining us today. As you heard, great progress by the team here at Halozyme through the first quarter, and we look forward to continuing this momentum in 2015 and look forward to updating you next quarter.

Thank you. That concludes today's conference. You may now disconnect.