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Halozyme Therapeutics (NASDAQ:HALO)

Q1 2014 Earnings Call

May 12, 2014 4:30 pm ET

Executives

Schond Greenway -

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

David A. Ramsay - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

Joel Beatty

Charles C. Duncan - Piper Jaffray Companies, Research Division

Catherine Hu - Barclays Capital, Research Division

Andrew R. Peters - UBS Investment Bank, Research Division

John Ryan - Jefferies LLC, Research Division

Operator

Good afternoon, and welcome to Halozyme Therapeutics First Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Schond Greenway, Executive Director, Strategy and Investor Relations at Halozyme Therapeutics. Thank you. Mr. Greenway, you may begin your conference.

Schond Greenway

Thank you, operator. Good afternoon, everyone, and welcome to Halozyme's First 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 of 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 would now turn the call over to Helen.

Helen I. Torley

Thank you, Schond, and good afternoon, everyone, and thank you for joining us today. In summary, in the first quarter, we saw new data readout and progress across both our proprietary and our partner programs. In early April, the hold on PEGPH20 dosing in Study 202, our Phase II trial evaluating PEGPH20 in patients with metastatic pancreatic cancer, was an unexpected event that we are working to resolve as quickly as possible to allow the trial to restart. So let me begin with an update on the status of Study 202.

On April 4, 2014, we temporarily halted patient enrollment and dosing of PEGPH20 in Study 202 based on a recommendation received from the Data Monitoring Committee, and we subsequently notified the FDA of our actions. We announced the FDA clinical hold on April 9. The DMC had recommended the temporary halt in Study 202 in order to assess clinical data indicating a possible difference in the thromboembolic event rate between the group of patients treated with PEGPH20, nab-paclitaxel and gemcitabine versus the group of patients treated with nab-paclitaxel and gemcitabine without PEGPH20. We have since provided the information and data requested by the DMC, including a revised study protocol. In May, after reviewing the provided material, the DMC informed us the study may proceed with modifications to continue enrollment of patients and dosing of PEGPH20. However, before we can continue enrollment and dosing in the study, the clinical hold must be lifted by the FDA. We have provided information to the FDA in support of our request that the clinical hold be lifted.

From our early clinical studies with PEGPH20, we know we have an active agent. We are working to understand the potential causes of the difference in thromboembolic event rates reported in Study 202, and we'll take the necessary steps to allow us to reinitiate clinical testing.

Now I anticipate that in the question-and-answer session at the end of the prepared remarks, many of you are going to have detailed questions on Study 202 and the clinical data generated in the trial so far. We hope that you can appreciate that we cannot go into details regarding the data generated in the trial thus far, because the database remains open and because also, it's our goal to continue the trial. In addition, as our discussions with the FDA are not completed, we won't be in a position to provide details regarding the future plans for the trial. I just wanted to communicate that in advance and appreciate your understanding.

So now let me turn to Hylenex. Hylenex is indicated for the increased dispersion and absorption of other injected drugs. Our goal is to expand the indications for Hylenex and we have identified Hylenex pretreatment of 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 and onset of duration of their insulin. At the end of March, we announced top line 6 months results, where there's 456 patients CONSISTENT 1 clinical trial, our late-stage 24-month clinical trial designed to evaluate the effect of Hylenex pre-administration in conjunction with rapid acting insulin analog in type 1 diabetics using pumps. In accordance with the trial protocol prespecified analysis of the endpoints, data from the 2 patient groups treated with Hylenex formulations were pooled and then compared to the control group, which consisted of patients using rapid acting analog insulin alone. The top line results demonstrated that the primary endpoint of non-inferiority of A1C levels at 6 months was achieved in comparison to no pre-treatment. And with regard to the secondary endpoint, looking at the pre-treatment of Hylenex formulations in comparison to control, we saw a 23% reduction in the rate of hypoglycemic events for serum glucose with less than 56 milligrams per deciliter, and a 21% reduction in the rate of nocturnal hypoglycemic events for the serum glucose with less than 70 milligrams per deciliter. Both of these were statistically significant reductions.

The rate of hypoglycemic events for serum glucose with less than 70 milligrams per deciliter was reduced by 12%, and the rate of severe hypoglycemic events, defined as those requiring the assistance of a third party, was reduced by 61%. Neither of these reached statistical significance. Glycemic excursions after meals and glucose variability were not different between the treatment groups versus the control group. And the most common treatment-emergent adverse event in the Hylenex group was mild infusion site discomfort. With this exception, adverse events were similar across the treatment and control groups.

So what does this mean? Certainly, we are encouraged by these results in hypoglycemia, which endocrinologists tell us is an ongoing challenge in a sizable segment of type 1 pump users. And we look forward to discussing the full data from this trial at our poster presentation at the American Diabetes Association Annual Meeting in June. We're currently evaluating the commercial profile of Hylenex for use in type 1 diabetes patients using pumps based on our emerging clinical profile, including these recent results from CONSISTENT 1. And our dialogue with the FDA is ongoing regarding the requirements for updating the Hylenex label in a manner that would support future promotional activities.

Turning now to our third proprietary program, HTI-501. Our potential treatment for cellulite, HTI-501 is a conditionally active recombinant human protease that targets collagen. We recently completed a Phase I/II proof of concept clinical trial in Mexico in 36 healthy adult females with cellulite, and recently reported top line data at the 28th day, 3 months and 6 months endpoints. The primary endpoint of the clinical trial was met, showing a statistically significant improvement in the appearance of cellulite in the areas of the patient's skin treated with HTI-501. This was determined by physician assessment 28 days after treatment compared to the same skin areas prior to treatment and skin areas treated with vehicle control. The effect [indiscernible] by physician assessment was maintained at 3 months and at 6 months. HTI was well tolerated in this trial, with all doses and formulations tested, with no serious adverse event. The most common side effects were mild to moderate transient injection site discomfort and bruising that's resolved without intervention within about 2 weeks. With our goal just achieved of demonstrating the clinical efficacy proof of concept, our next step is executing the plan that will most rapidly advance HTI-501's development.

Now I'll move on to a review of our partner program. During the first quarter, MabThera SC received European Commission approval for the treatment of common forms of non-Hodgkin's lymphoma, which includes follicular lymphoma and diffused large B-cell lymphoma. Following the launch of Herceptin SC in September of 2013, this is the second European approval for a novel subcutaneous formulation of one of Roche's oncology products using Halozyme's patented recombinant human hyaluronidase technology. MabThera SC offers another treatment option for patients with common forms of NHL and represents another validating milestone for Halozyme's proprietary technology. With an administration time of approximately 5 minutes compared to the approximately 2.5-hour infusion time for intravenous MabThera, this innovative formulation could potentially save time for patients, for physicians and for other health care providers in Europe. Roche has stated that it expects to begin launching MabThera SC in a number of European markets over the next several months.

Now turning to the Herceptin SC. We're very pleased with the initial update, with Roche in recent comments confirming that Herceptin SC is now launched in 18 countries, with share up to around 30% to 40% in some countries. I just wanted to point out that today, due to the lagged time and royalty reporting, we are reporting results from the fourth quarter of 2013, at least a quarter earlier than these remarks. And at that time, only a handful of countries had launched. As you'll hear shortly from David, we saw strong progress in the fourth quarter royalties versus the third quarter. And based on the trend and the recent comments from Roche, we expect continued growth in market share through 2014, driven by recent launched countries.

Now moving to our HyQvia 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. The EMA approved HyQvia in May of 2013 and Baxter launched the product in the first EU market in July of 2013, and have communicated launches in Germany and some European countries. Pricing discussions for additional markets are underway for other countries. Baxter filed a new marketing authorization in the EU, and is seeking a price premium for HyQvia, relative to its IV formulation, and we expect it's going to take time to establish HyQvia pricing on a country-by-country basis. For the U.S., Baxter completed its FDA filing of an amended biologics license application in December of 2013, which reinitiated the review process for approval of HyQvia in the United States.

And so with that, overview, I'll now turn the call over to David Ramsay to discuss our financial results. David?

David A. Ramsay

Thanks, Helen, and welcome to the call everyone. Revenues for the first quarter of 2014 were $12 million compared to $11.8 million for the first quarter of 2013. Revenues in the first quarter of 2014 included $5.9 million in product sales of both rHuPH20 for use in partner product manufacturing, $2.6 million in collaboration revenues, $2.5 million in Hylenex product sales and $799,000 in royalties, up from $33,000 in the fourth quarter. The key driver of this increase of royalties has been the successful launch of Herceptin SC in the early launch markets. As a reminder, we booked partner royalties, which are in the mid-single-digit range, on a one quarter lag since we receive our royalty reports 60 days after the prior calendar quarter end. These results of $799,000 of royalties reflect October to December 2013 sales for Herceptin SC and for HyQvia, which was launched in Germany during the third quarter. Per the planned timing, we have not yet received the royalty report for either product for the first quarter of 2014.

Research and development expenses for the first quarter of 2014 were $21.4 million compared with $22 million for the first quarter of 2013. The decrease was driven by a reduction in manufacturing costs, which are now included in cost of goods sold, offset by an increase in clinical trial expense. As you may recall, prior to Herceptin SC approval, manufacturing costs associated with both rHuPH20 supplied to Roche was included in research and development expense. Subsequent to Herceptin SC approval, these costs are now included in cost of goods sold. The increase in clinical trial costs were driven by completion of enrollment in our CONSISTENT 1 study and the initiation and significant progress in patient enrollment in Study 202 in pancreatic cancer.

Selling, general and administrative expenses for the first quarter of 2014 were $10.3 million compared to $7.6 million in the first quarter of 2013. The increase was mainly due to an increase in compensation expense, including stock compensation expense. The net loss for the first quarter of 2014 was $26.5 million or $0.22 per share compared with a net loss of the first quarter of 2013 of $19.3 million or $0.17 per share. Cash, cash equivalents and marketable securities were $164.5 million at March 31, 2014, compared with $71.5 million at December 31, 2013. Net cash used in the first quarter of 2014 was approximately $15 million, not included in the proceeds of $107.7 million from our February public stock offering.

We're leaving our 2014 net cash burn guidance unchanged at $45 million to $55 million for the year. And finally, I want to give everyone a heads-up that a few of our directors are approaching the 10-year expiration date of stock options they were granted 10 years ago. This will be happening over the next few months. Thus, we expect there will be some transactions that will be reported in connection with these exercises, such as sales to cover the exercise price and related taxes. You'll likely be seeing these Form 4s being filed from time-to-time in the coming weeks and months. I will now turn the call back to Helen who will be providing some closing comments.

Helen I. Torley

Thank you, David. In summary, we achieved a number of key milestones, as you've heard in the first quarter, with new data from 2 of our proprietary programs, growth in Herceptin SC royalties and MabThera SC approval. With the support of the DMC to reinitiate Study 202, we're going to be taking all necessary steps to address the FDA questions in order for the clinical hold to be lifted, with the goal of reinitiating the study of PEGPH20 in pancreatic cancer. This concludes our prepared remarks 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 Jonathan Eckard with Citigroup.

Joel Beatty

This is actually Joel Beatty filling in for John. The first one is in regards to the investigation around the 202 trial in pancreatic cancer. Does what you found affect trials that are planned for PEGPH20 and other cancer types, or is this something that's more specific just to pancreatic cancer? And then I have a follow-up.

Helen I. Torley

Thanks, Joel. Yes, so, the clinical hold at this point in time applies to all uses of PEGPH20 in cancer. What we expect is that as we get the hold lifted on 202, we'll be able to initiate our planned studies in other solid tumors. And as we've been working to resolve the questions in Study 202, we've continued our preparation for our Phase I study, looking at PEGPH20 in several additional tumor types. So it's going to be SC dependent, but our planning has been proceeding in parallel.

Joel Beatty

Great. And then my second question is on Herceptin and MabThera subcu. The collaboration with Roche, what are some of the things we can be looking at as -- that could give us an indication as to how those drugs are doing?

Helen I. Torley

Well, I think the first thing to look at is the growth in royalties between the third quarter and the fourth quarter. We don't break it out, but I think it's fair to say the majority of the growth we saw between $33,000 in royalties and $800,000 -- sorry, $799,000 was the growth in Herceptin royalties. And we receive a mid-single-digit royalty from the sales of Herceptin. I do think also, just the progression of the number of markets launched, I think by December, there were less than 10 markets launched. Roche recently announced there were 18 markets already launched. So those are some of the core metrics that I think you're going to be able to see, to let you see the progress with the uptake of this. And finally, Roche did comment that in some markets where they're launched, where they've only been launched for 1 or 2 quarters, they are already achieving 30% to 40% market share conversion. I think that would be one of the other metrics I'd recommend you look at as well as to the conversion rate.

Operator

Our next question comes from Charles Duncan with Piper Jaffray and Company.

Charles C. Duncan - Piper Jaffray Companies, Research Division

You may not be able to answer this, Helen, but you've mentioned your goal is to restart the study. Can you give us a sense of if you have a goal in mind in terms of timing, not a date, but a sense of, are we thinking quarters or months?

Helen I. Torley

Thanks, Charles, for the question. At this point, it would be premature to speculate. The key thing for us is going to be getting off the FDA hold. As I mentioned in my prepared remarks, we have submitted information to the FDA in response to their questions and we are waiting the FDA response. We do not know how long the dialogue with the FDA is going to take, but we are going to take all necessary steps to get this study started just as quickly as possible. But it is dependent on the FDA, which is why I'd wouldn't hesitate to -- I wouldn't like to give an estimate at this point.

Charles C. Duncan - Piper Jaffray Companies, Research Division

Okay. And regarding the modifications that you're proposing, and again -- we'll await the full data or full details, but are you talking about dosing or titration modifications for PEGPH20? Or would it be the administration of another agent that could help with the thrombosis that you saw in the trial?

Helen I. Torley

Yes. We can keep this at a pretty high level and say that we did add some additional exclusion criteria to patients enrolling in the study. The original trial had excluded some patients, but in consultation with investigators, we are excluding some other patients who may be at higher risk of events. And we did add in the recommendation that low molecular weight heparin be used as prophylaxis for patients. So that is the amended protocol that the DMC saw, but which will also have to be reviewed by the FDA to see if they feel that will be sufficient for us to proceed.

Charles C. Duncan - Piper Jaffray Companies, Research Division

So I guess my conclusion from these comments is that the number of observed events and severity were not very large number and not very severe consequences at all?

Helen I. Torley

Charles, we're really at this stage because it's an open database. We don't want to get into any discussion or encourage any speculation with regard to that. Obviously, it was sufficient enough that the DMC recommended we halt the study, and we felt also that was a prudent thing to do. We really can't comment beyond that.

Charles C. Duncan - Piper Jaffray Companies, Research Division

Okay, I appreciate that. And last question is regarding the insulin programs. You had mentioned that you're in dialogue with the agency about label expansion. Do you have a sense as to when those discussions could end and we could get an update on that?

Helen I. Torley

Unfortunately, again, I can't really give an exact time line for that. The dialogue has started. We've received some feedback, the decision to move the primary endpoint from 4 months to 6 months was based on some initial feedback. We still do not have the clarity we need on the path of what it would take for a label update, so the dialogue is continuing and will continue until we are clear on that. And yes, as soon as we get the information, obviously, we're going to tell you, but I don't have a time line.

Operator

Our next question comes from Ying Huang with Barclays.

Catherine Hu - Barclays Capital, Research Division

It's actually Catherine for Ying. One, sorry to go back on this, but can you provide more details on what information you're submitting to the FDA? And then also, have you been able to go through to see if there were any signals than earlier preclinical data on the safety issues? And then also, and on CONSISTENT 1, what additional data points will be released at the ADA Conference.

Helen I. Torley

So the information that the FDA requested in their request to us was to provide an overview of the events that had been seen on our proposed written mitigation steps. So that is what's been submitted to the FDA at the moment as -- and the risk mitigation is in the form and all the protocol amendment updates to the FDA. We, of course, went back to look at all of our preclinical data again and did not see any signals in any of our preclinical data with regard to an excess of thromboembolic events. We also looked at our clinical studies. And as I'm sure you're aware, in pancreatic cancer, there's a very high and a very wide range of expected thromboembolic events. In our uncontrolled 201 study, where we didn't have a control arm, the rate of events was very consistent with what was reported in the literature. And also, investigators did not attribute any of the -- or many of the events to PEGPH20. So I would say that it's only now that we've got 202, which has got a control arm, are we in any position to be able to see and compare the rates of thromboembolic events. And then finally, for CONSISTENT 1, there'll be some additional data on the actual HbA1c level and perhaps some additional data on the continuous glucose monitoring. That type of information will be the incremental data at the ADA.

Operator

Our next question comes from Matt Roden with UBS.

Andrew R. Peters - UBS Investment Bank, Research Division

This is actually Andrew Peters, in for Matt. Just following up on the last question. I guess does that imply that there was, I guess, some sort of baseline imbalance in the characteristics of the patients, given that it seems more around inclusion-exclusion criteria, and not the data itself? Am I reading too much into that? And then just on the diabetes program. Once you have the label, what has your market research shown that would really kind of drive adoption in that pump setting? What's the marketing message that you think the CONSISTENT 1 data gives you that you think is going to resonate most with clinicians?

Helen I. Torley

Thank you. With regard to the first question on imbalance, I think I would say, I would avoid reading too much into it. Our goal with the suggesting additional exclusion criteria was really to reduce the risk, so it's part of a risk mitigation plan moving forward rather than seeking to address anything specific that we saw in the study. So hopefully, that addresses your question there. And with regard to the CONSISTENT 1 results, and what is relevant to physicians who are looking at the type 1 pump users. In our research consistently, what physicians find the greatest unmet need and the most important attribute of a new drug is the ability to reduce the rate of hypoglycemia. That is the thing that if severe, can be costly for peers and also very serious for patients. And obviously, we're pleased with the results of CONSISTENT 1, where we'll be able to reduce hypoglycemic events by 2 of the key criteria, with the glucose less than 56 milligrams per deciliter and also nocturnal hypoglycemia, which can be one of the most concerning times for patients to get hypoglycemia. So we do feel that, that does meet an unmet need that physicians are expressing to us in the market research.

Andrew R. Peters - UBS Investment Bank, Research Division

Great. And then a just quick follow-up for David. Does the cash burn guidance include a plan for another solid tumor study for PEGPH20 this year?

David A. Ramsay

It does, Andrew.

Operator

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

John Ryan - Jefferies LLC, Research Division

This is John Ryan in for Eun. First, is there a milestone on potential U.S. HyQ approval? And if so, how much?

David A. Ramsay

No. John, the milestone for Baxter was just for sales, so we received that last July when we launched -- when Baxter launched HyQvia in Europe.

John Ryan - Jefferies LLC, Research Division

Okay, great. And then can you provide any color on your commercial strategy for Hylenex insulin pump? And are you in any potential discussions for a partnership opportunity? And when might you expect meaningful commercial sales for this program to begin?

Helen I. Torley

So with CONSISTENT 1, we're, at this point in time, as I mentioned, testing the commercial profile of this product. We do believe that this is going to be a product that can be sold by a small targeted sales force who are targeting those clinics that are looking after the majority of type 1 pump users. And as such, we believe that's something that Halozyme would be able to do ourselves. I think with regards to the timing of that launch, it really, is going to be very dependent on the feedback we get from the FDA about what it's going to take to get a label update. And as I mentioned in my prepared remarks, we're still in dialogue with the FDA. We don't have clarity of what the path is going to be, so I'm not really able to comment on what the potential launch time line would be.

John Ryan - Jefferies LLC, Research Division

Okay, great. And then last question, are there any upcoming milestones from your Pfizer collaboration?

Helen I. Torley

I'll turn that one to David.

David A. Ramsay

Sure. John, we do get typically, with our collaboration agreements, we receive clinical development milestones and possibly, regulatory milestones and commercial-based milestones. So as these partnerships progress, we have, in the past, and expect to continue to achieve these types of milestones. Although we can't predict the timing, of course, related to Pfizer, but there are clinical development milestones associated with that partnership.

Operator

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

Helen I. Torley

All right. Well, thank you very much. Thank you, everyone, for joining us today. We really are very pleased with our performance in the first quarter and, obviously, delighted to get the support of the DMC to proceed with dosing again in Study 202. We'll now be working hard to gain the FDA support for the dosing and taking all necessary steps. So thank you for attending our call today. Goodbye.

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