Halozyme Therapeutics Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.27.14 | About: Halozyme Therapeutics, (HALO)

Halozyme Therapeutics (NASDAQ:HALO)

Q4 2013 Earnings Call

February 27, 2014 4:30 pm ET

Executives

Schond Greenway

Helen I. Torley - Chief Executive Officer, President and Director

David A. Ramsay - Chief Financial Officer and Vice President

Analysts

Charles C. Duncan - Piper Jaffray Companies, Research Division

John Ryan - Jefferies LLC, Research Division

Jim Birchenough - BMO Capital Markets U.S.

Andrew R. Peters - UBS Investment Bank, Research Division

Dimiter V. Tassev - Barclays Capital, Research Division

Operator

Greetings and welcome to the Halozyme Therapeutics Fourth Quarter 2013 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded.

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

Schond Greenway

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

Before we begin, let me remind you that during this conference call, we will be making forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. All statements made during this conference call that are not statements of historical fact constitute forward-looking statements. The matters referred to in forward-looking statements could be affected by the risks and uncertainties of Halozyme's business, both known and unknown. Such risks inherent in the company's business are described in our filings with the Securities and Exchange Commission, as well as our news releases. The company's actual results may differ materially from those expressed and/or indicated by such forward-looking results.

I will now turn the call over to Helen.

Helen I. Torley

Thank you, Schond, and good afternoon. It's a pleasure to lead this call for the first time as a member of the Halozyme team. My early observations in my first weeks at Halozyme, during which I have conducted multiple program reviews, have confirmed for me the unique potential value proposition that Halozyme presents and the opportunity that exists to build a multiproduct company with strong business fundamentals and attractive returns for shareholders.

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

Let me begin by reviewing progress in our proprietary programs. The program I am most excited about is PEGPH20. We are evaluating this agent in pancreatic cancer for 2 important reasons: The first is a significant unmet medical need that exists for a better treatment for pancreatic cancer. Despite recent advances for the approximately 100,000 patients in the U.S. and Europe who are diagnosed each year, frequently with advanced disease, the 5-year survival rate for this devastating disease is still very low.

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

During 2013, we presented results from our PEGPH20 clinical development program. Data presented at the American Society of Clinical Oncology meeting this past June showed that PEGPH20, in combination with gemcitabine in patients with histologically confirmed stage 4 metastatic pancreatic cancer, demonstrated a 42% overall response rate for the 24 patients treated at therapeutic dose levels. Gemcitabine alone has historically demonstrated an overall response rate in the 5% to 10% range.

Further supporting the proposed mechanism of action, we find that in subjects with tumors with high levels of HA the overall response rate was 64%.

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

In April of 2013, we initiated our first Phase II study in multicenter trial in previously untreated stage 4 pancreatic ductal adenocarcinoma patients who will be randomized to receive nab-paclitaxel or Abraxane and gemcitabine with or without PEGPH20. The primary outcome measure will be progression-free survival. Secondary endpoints include progression-free survival by HA level and overall survival. Patient recruitment is proceeding as planned and we expect to be fully enrolled in the second half of 2014.

In October of 2013, SWOG funded and initiated a Phase 1b/2 randomized clinical trial, testing a modified FOLFIRINOX regimen with and without PEGPH20, and a planned 144 stage 4 pancreatic cancer patient study. The primary endpoint of this study is overall survival. Secondary endpoints include progression-free survival, objective tumor response, as well as the frequency and severity of adverse events and overall tolerability. The first patient was enrolled in this trial in January of 2014.

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

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

In the first quarter of 2013, we initiated CONSISTENT 1, our large late-stage clinical study designed to evaluate the effect of Hylenex pre-administration in conjunction with rapid-acting analog insulins in patients with type 1 diabetes on insulin pump therapy. CONSISTENT 1 has completed enrollment of over 440 adult patients with type 1 diabetes. The primary endpoint is non-inferiority of A1C between the patient group pretreated with Hylenex prior to receiving their analog insulin and the patient group receiving analog insulin alone. We recently changed the time point for assessment of the primary endpoint from 4 months to 6 months based on feedback we received from the FDA this quarter. Secondary endpoints for the study include comparison of hypoglycemia and hyperglycemia rates, as well as safety outcomes. We plan to communicate top line results from the CONSISTENT 1 study in the first quarter of 2014. Additionally, we are currently in dialogue with the FDA regarding the path for a labeling update to include key safety and efficacy data prior to initiation of any promotion of Hylenex in this use. Our dialogue with the FDA is ongoing and when we have more definitive information to share, we will discuss this information at an appropriate time.

Turning now to our third proprietary program, HTI-501. We're exploring HTI-501, a conditionally active recombinant human protease that targets collagen as a potential treatment for cellulite. We recently completed a Phase I/II proof of concept clinical trial outside the United States in 36 healthy adult females with cellulite and expect to report top line data at the 28-day, 3-month and 6-month end points in the first quarter of 2014. Previously reported interim data for 12 patients at the 28-day observation point, all physician assessment of cellulite has been encouraging. This study was designed to provide proof of concept. We will need additional chemistry, manufacturing and controls work prior to being able to file an IND in the U.S. We're undertaking a review of the strategic alternatives to advance this program, including partnering with the goal of defining a path that maximizes shareholder value.

Now moving to our partnered programs, our most advanced partnered program is with Roche and its Herceptin SC. Herceptin SC received European Commission approval in August of 2013 for the treatment of HER2-positive breast cancer. Herceptin SC is a simple fixed-dose subcutaneous formulation that reduces dosing time to 2 to 5 minutes, compared to the 30 to 90 minutes required for IV. Herceptin SC use may allow patients to benefit by spending less time in the hospital and could also reduce time spent by physicians and other health care providers in treatment administration. Roche indicated its plan of parity of pricing to the IV formulation at launch and has now launched in multiple European markets, including Germany and the United Kingdom. In recent public comments, Roche have commented that the launch is progressing well.

In January of 2014, the European Committee for Medicinal Products for Human Use, or CHMP, recommended that European Commission approve Roche's subcutaneous formulation of MabThera, which uses Halozyme's rHuPH20 for the treatment of patients with common forms of non-Hodgkin's lymphoma or NHL. Currently, MabThera is delivered by an intervenous infusion, which takes approximately 2.5 hours. The new MabThera's SC formulation comes as a ready-to-use fixed-dose 1,400-milligram solution, which shortens pharmacy preparation time and potentially will reduce the overall impact on hospital resources. Roche expects a final decision from the European Commission in the coming months.

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

In the December of 2013, Baxter completed submission of an amended Biologics License Application, or BLA, to the FDA to reinitiate the review process for approval of HyQvia in the U.S. In 2012, in its complete response letter, the FDA requested additional preclinical data for the filing. Baxter and Halozyme worked together to generate the data, and we believe we have addressed the FDA questions. A 6-month review period is expected.

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

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

David A. Ramsay

Thanks, Helen, and welcome to the call, everyone. Earlier today, we announced our financial results for the fourth quarter and full-year 2013. For the full-year 2013, Halozyme reported revenues of $54.8 million, compared to $42.3 million in the prior year. R&D expenses for 2013 totaled $96.6 million, versus $70 million for 2012, and SG&A expenses for 2013 totaled $32.3 million versus $24.8 million for 2012. The net loss for the year 2013 was $83.5 million or $0.74 per share, compared to a net loss of $53.6 million or $0.48 per share for 2012. These results are consistent with our expectations of increased revenues from Hylenex and partnered programs and our increased investment to advance the proprietary programs.

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

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

As a reminder, we booked partner royalties on a 1-quarter lag since we receive our royalty reports 60 days after the prior-calendar quarter end. Our Q4 2013 revenues included royalties from Roche and Baxter of $33,000. These results included the very early stages of launch in a few countries of Herceptin SC for portions of September and HyQvia, which was launched in Germany during the third quarter. Per the planned timing, we have not yet received the fourth quarter's royalty report for either product.

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

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

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

Cash, cash equivalents and marketable securities were $71.5 million at December 31, 2013, compared with $65.3 million at September 30, 2013 and $99.5 million at December 31, 2012. Cash, cash equivalents and marketable securities at December 31, 2013, included net proceeds of $19 million from the additional term loan with Oxford Finance and Silicon Valley Bank for working capital and other near-term growth initiatives. Excluding the loan proceeds, net cash used in the fourth quarter of 2013 was approximately $12.8 million. Net cash burn for the year 2013 was $47 million. In February 2014 of this year, we raised approximately $107.8 million from our recent public stock offering. As we look out to 2014, we anticipate that our net cash burn will be in the range of $45 million to $50 million for the year. This range is a little higher than our 2013 actuals and reflects increased investment in our PEGPH20 program.

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

Helen I. Torley

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

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

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

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

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

This concludes our formal presentation, and we'll now take your questions. Operator, would you please open the call for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Charles Duncan with Piper Jaffray.

Charles C. Duncan - Piper Jaffray Companies, Research Division

So my first question is on CONSISTENT 1. You mentioned data coming up here soon but that you had recently changed from non-inferiority at 4 months to 6 months. Can you provide a little bit more color on the kind of feedback that you had gotten from QOLs and/or the FDA?

Helen I. Torley

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

David A. Ramsay

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

Helen I. Torley

All right. So, Charles, with regard to CONSISTENT 1, as we announced early in the first quarter, we had determined that to maximize the times peak sales and the overall peak sales we believe are attainable for Hylenex in diabetic patients using pumps, that getting safety and efficacy data into the label would be a key step, and we initiated a dialogue with the FDA. We're just in the early stages of that dialogue with the FDA with regard to how to get the label update. But in the course of our first discussion, the FDA indicated that they have a preference to see the HbA1C measure at 6-month time point rather than a 4-month time point. So even though our dialogue with the FDA is ongoing, we felt it appropriate at this stage to update our statistical analysis plan to change the time when we would do the primary analysis. So we still are in dialogue on the overall plan to get, and pass, to get a label update. But that was one change we've already made.

Charles C. Duncan - Piper Jaffray Companies, Research Division

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

Helen I. Torley

That is correct. It is -- we're still able to give the top line data at the end of that -- this quarter, with all of the patients by 6 months.

Charles C. Duncan - Piper Jaffray Companies, Research Division

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

Helen I. Torley

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

Charles C. Duncan - Piper Jaffray Companies, Research Division

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

Helen I. Torley

So, Charles, I think you described very well the matrix that we're looking at, because there is several factors going into it, obviously, beginning with those tumors, which have been shown to have high hyaluronan levels. So pancreatic cancer is probably the one where the highest majority of patients have high HA, but additional tumors such as breast cancer or lung cancer, prostate cancer, also have patients with a high amount of HA. So we started there. But we also are looking at the commercial potential, the types of drugs that we're being combined with and looking to see will they be part of the future standard of care. So it's exactly that type of matrix. So we get the good mix of our scientific expertise, the right clinical fit, but also taking into consideration the commercial potential.

Operator

Our next question comes from Eun Yang with Jefferies and Company.

John Ryan - Jefferies LLC, Research Division

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

David A. Ramsay

Yes. Thanks, John. It will probably -- since we're in the very early stages of launch for these programs, and as I've been reminding folks, we do book the royalties on a 1-quarter lag since we receive the royalty report 60 days after the prior quarter end, it will really take us about 3 or 4 quarters before we can really kind of gain some clarity as to what that ramp looks like.

John Ryan - Jefferies LLC, Research Division

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

Helen I. Torley

Thank you. I'll take that one. As you know, Pfizer has indicated that they are using the Halozyme technology as part of their PCSK9 program. Pfizer has the option of using the Halozyme technology in up to 6 targets, but the only one they have revealed publicly to date is PCSK9, and so that is all we are able to talk about. We do not know what the timing is going to be when they're going to be providing additional public details.

Operator

Our next question comes from Jim Birchenough with BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

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

Helen I. Torley

Jim, that is certainly something that is work that we have underway as we look at the strategic end drivers for growth. We do see 3 growth drivers in the company, the first is the royalties from the current partnered programs. Obviously, the potential to, in the future, launch our proprietary program. And absolutely, expanding the number and depth of our current partnerships is another key part of our future growth strategy.

Jim Birchenough - BMO Capital Markets U.S.

And then do you guys have any visibility on whether Roche might pursue a regulatory strategy in the U.S. with Herceptin subcu and Rituxan subcu?

Helen I. Torley

Roche has not spoken publicly about any plans to do that. So we're really -- we are not aware of that.

Jim Birchenough - BMO Capital Markets U.S.

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

Helen I. Torley

So certainly, as we look at the tumors which have high levels of HA expression, I think breast cancer is probably along where the next highest percentage of patients in the one of the studies that we frequently refer to have high HA, that's about 70% of patients. Areas like prostate and bladder cancer are more in the 50% range. Lung cancer, a very common cancer, is probably more in the 30% range overall. But perhaps patients with non-small cell squamous cancer have an even higher percentage. So some of the very common solid tumors where there remain significant unmet needs today and challenges to therapy. So it's safe to say that the initial pool we're starting with and considering which of those will be the right mix that tumor or tumors we'll go into.

Jim Birchenough - BMO Capital Markets U.S.

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

Helen I. Torley

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

Operator

Our next question comes from Matt Roden with UBS.

Andrew R. Peters - UBS Investment Bank, Research Division

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

Helen I. Torley

I'll start with the question on the solid tumors. We have not finalized the trial design as yet. I am so -- our clinical teams are still working on that. The considerations are obviously to do a traditional Ib going into II. There's also an alternate design, which is called the complete Ib trial where multiple different tumors are evaluated in parallel. And so, we're working with some experts in the area to help us decide on what is the optimal trial design. And we will, obviously, at the appropriate time, be able to communicate that, as well as posting the trial outline on clinicaltrials.gov. With regard to the second question, we really can't speculate on what the FDA is going to do. They have all the information. We worked very well with Baxter to provide the additional data to address the questions, we believe we've addressed the questions, and we'll have to wait and see what we hear back from the FDA. So I can't speculate on what the label will look like at this time.

Andrew R. Peters - UBS Investment Bank, Research Division

Okay. And then just one last question on the diabetes program. While the study is powered or powered for non-inferiority, do you have any kind of an internal bar for where clinicians need to see a A1C reduction in terms of driving adoption?

Helen I. Torley

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

Operator

[Operator Instructions] Our next question comes from Ying Huang with Barclays.

Dimiter V. Tassev - Barclays Capital, Research Division

This is Dimiter Tassev in for Ying. I just had a couple, pretty much around PEGPH20. One, do you guys have any sense on when the Phase Ib data that we already have seen will be published in the journal at anytime soon? And also, two, obviously, you guys have a study in combination with Abraxane in pancreatic cancer and starting on another tumor. But have you ever considered partnering with another company that already has maybe some kind of an investigational drug and then talking to them and seeing if they're interested in partnering with you in conducting a study with PEGPH20?

Helen I. Torley

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

Dimiter V. Tassev - Barclays Capital, Research Division

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

Helen I. Torley

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

Dimiter V. Tassev - Barclays Capital, Research Division

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

Helen I. Torley

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

Operator

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

Helen I. Torley

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

Operator

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

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