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Halozyme Therapeutics (NASDAQ:HALO)

Q2 2012 Earnings Call

August 06, 2012 4:30 pm ET

Executives

Anne Erickson

Gregory I. Frost - Co-Founder, Chief Executive Officer, President and Director

Kurt A. Gustafson - Chief Financial Officer, Principal Accounting Officer, Vice President and Secretary

Analysts

John S. Sonnier - William Blair & Company L.L.C., Research Division

Jason N. Butler - JMP Securities LLC, Research Division

Christopher Holterhoff - Oppenheimer & Co. Inc., Research Division

Daniel Chung - Jefferies & Company, Inc., Research Division

Ying Huang - Barclays Capital, Research Division

Operator

Greetings, and welcome to the Halozyme Therapeutics Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Anne Erickson, Executive Director of Investor Relations at Halozyme Therapeutics. Thank you, Ms. Erickson. You may begin your conference.

Anne Erickson

Good afternoon. Thank you for joining Halozyme's quarterly update conference call. With me on the call today are Gregory Frost, President and Chief Executive Officer; and Kurt Gustafson, Chief Financial Officer.

This afternoon, Halozyme released second quarter 2012 financial results. If you've not received this news release or if you'd like to be added to the company's distribution list, please e-mail me at aerickson@halozyme.com.

This call is also being webcast live over the Internet at www.halozyme.com, and a replay will be available on the company's website for the next 14 days.

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 the 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 in our news releases. The company's actual results may differ materially from those expressed in or indicated by such forward-looking statements.

With that, I'd like to turn the call over to Gregory Frost, Halozyme's President and CEO.

Gregory I. Frost

Thank you, Anne, and good afternoon to everyone. We appreciate you participating in our second quarter call for 2012.

Today, I'll be elaborating on the announcement we made last week, as well as providing an update on the business. After that, Kurt Gustafson, Halozyme's CFO, will review the quarter's underlying financial results with you.

As you know, we confirmed last week that Baxter received the Complete Response Letter from FDA's Blood Products division for the HyQ BLA. And at this point in time, the subcutaneous plasma derivatives programs for the recombinant human hyaluronidase, or rHuPH20, are not dosing patients.

Upon receiving this information from Baxter and ViroPharma early last week, we contacted FDA's Drug division to ascertain whether this regulatory action would apply to other programs using rHuPH20. According to our most recent communications with the drug divisions last Wednesday, following submission of a data supplement to the Hylenex NDA, including detailed immunogenicity data from insulin and subcutaneous Herceptin programs, we were informed by the drug division that concerns appear to be related to potential interactions with certain biologics that generate an antibody response that is different from what we've seen in other development programs using rHuPH20.

Furthermore, the drug division confirmed that there is no need for actions against Hylenex or clinical programs under the Hylenex IND. As a reminder, the only open trial at this time under the Hylenex IND is the ongoing Hylenex insulin pump study.

For these reasons, we believe that the regulatory concerns raised by FDA's Blood Products division are specific to Baxter and ViroPharma's clinical programs.

It's not abnormal to see some form of antibodies to recombinant proteins with sufficient assays. In fact, approximately 10% of the general population test positive to anti-rHuPH20 antibodies prior to any exposure to the rHuPH20 enzyme. This is also not uncommon for other proteins.

What was different here is the relative levels of antibodies or titers. Levels of these antibodies in both the insulin and Herceptin studies were within the same levels posttreatment as seen in the pretreatment populations, or in other words, no signals of treatment boosting.

In the HyQ registration study, we observed antibody levels that were orders of magnitude higher than have previously been observed in any other repeat dose clinical trial, which is suggestive of some form of immune response with this combination. So it is possible that there is some form of interaction between these plasma derivatives that's leading to these high antibody levels, but further investigation is required.

However, it's still important to note that the antibodies have not been associated with any adverse events, and again, none of the samples were neutralizing against the rHuPH20 enzyme.

The Complete Response Letter for HyQ has requested additional preclinical data to support the BLA application and primarily focused on these elevated levels of non-neutralizing antibodies generated against rHuPH20 and any possible effects of these antibodies.

So I want to reiterate that no adverse events related to these antibodies were seen in the Phase III HyQ registration trial. However, much like the standard battery of toxicology tests we've already completed in order to establish the safety profile of the rHuPH20 enzyme, the CRL has requested that we address any potential risk of exposure to the elevated enzyme antibody titers observed in the HyQ program through this similar battery of tests.

As far as the next steps with the HyQ CRL, Baxter plans to file an amendment to the HyQ BLA following additional discussions with the Blood Products division. The plan forward is still to propose preclinical studies that will address the agency's questions so that we can move this program forward. Given that we'll need their agreement on the proposal, we can't speculate on the amount of time it will take to complete these studies. We expect to be able to provide you with an update after meeting with the Blood Products division on this matter.

Additionally, our partner Roche has been made fully aware of these regulatory actions. Due to the difference in profile and number of other reasons, Roche has indicated that they do not believe these actions impact their programs at this time. Furthermore, on their recent second quarter earnings call, Roche announced that the Stage I study investigating the subcutaneous formulation of MabThera met the primary endpoint of non-inferior MabThera serum concentrations after subcutaneous injection, compared with the MabThera IV infusion in patients with follicular lymphoma.

Additionally, Roche confirmed that they remain on track to file the Line Extension Application of subcutaneous MabThera to the European Medicines Agency this year, and they've also indicated that their Herceptin SC EMA filing is progressing as planned.

Now switching over to our proprietary programs. June was an exceptionally busy month. Halozyme presented data both at the American Society of Clinical Oncology meeting and the annual meeting of the American Diabetes Association.

At ASCO, we presented data on our single-agent Phase I study of PEGPH20 in patients with advanced solid tumors. As a reminder, PEGPH20 is our proprietary program evaluating a PEGylated form of rHuPH20 for potential use in oncology. The study presented at ASCO assessed PEGPH20 over a range of doses and frequencies, evaluating the safety and tolerability of the treatment in patients with solid tumor malignancies, including pancreatic cancer. PEGPH20 was generally well tolerated at the recommended Phase II dose.

Pharmacodynamic markers also support the proposed mechanism of action with normalized tumor perfusion and a reduction of tumor metabolic activity consistent with changes in tumor HA observed in biopsies.

Separately, our PEGPH20 study in patients with Stage 4 previously untreated pancreatic cancer, in combination with chemotherapy, continues to progress steadily, with an expanded number of patients enrolling in the open label run-in portion of the trial, allowing us to gain more experience with the drug before moving into the randomized placebo-controlled phase. We expect to complete this run-in phase before year end, while gathering additional important information on safety, pharmacodynamics and clinical response rates.

We're very excited about the PEGPH20 program as we believe it has the potential to tackle some very challenging malignancies by changing the tumor architecture and rendering tumors more sensitive to therapy. This is especially important in pancreatic cancer, where typical survival rates after diagnosis are still less than 6 months.

Now turning to another one of our proprietary programs. Let's talk about Halozyme's research in the area of diabetes. This year's American Diabetes Association meeting was a significant meeting for us as we presented 4 late-stage clinical studies on our Ultrafast Insulin programs, 2 for multiple daily injection markets and 2 for subcutaneous insulin infusions. As many of you know, one of the biggest challenges that people living with diabetes face is managing blood glucose fluctuations after a meal. In fact, the majority of people living with diabetes today don't currently meet the recommended post-meal blood glucose goals.

Blood sugars must be kept at a steady level to maintain good health. These glucose swings after meals, which are common, can leave people feeling like they're on a roller coaster ride of highs and lows. Halozyme's research in diabetes uses rHuPH20 with mealtime analog insulins to generate a more physiologic insulin profile. This action more closely mimics the effects of the healthy pancreas and may better result in control of the disease.

So let's talk about what this means for the different markets we're pursuing. For the multiple daily injection market, we presented data from 2 large treatment studies with over 200 patients at ADA, one in Type 1 patients and one in Type 2 patients. Both studies evaluated rHuPH20 insulin formulations, which comprised the hyaluronidase enzyme combined with either insulin lispro or insulin aspart, or as we refer to them, Analog-PH20, compared to the analog insulins alone.

Data from the studies demonstrated that Analog-PH20 accelerated the absorption and inaction of mealtime insulins in these take-home studies and significantly reduced glucose swings. Both studies met their primary endpoint of A1C non-inferiority and demonstrated superior glucose post-meal glucose control.

For example, in the Type 2 treatment study, there was a 61% increase in the proportion of patients who consistently achieved the American Association of Clinical Endocrinologists' recommended postprandial glucose target of 140 mg per deciliter, compared with a patient group treated with lispro alone.

Additionally, data from the Type 1 treatment study showed that patients treated with our Ultrafast Insulin formulations experienced significantly reduced hypoglycemia compared to patients treated with analog insulin alone.

For the continuous subcutaneous insulin infusion market, we believe that pre-administration of rHuPH20 could offer the best treatment option for patients on insulin pumps. We presented data from 2 clinical studies using pre-administration of rHuPH20 at ADA, that demonstrated the same physiologic profile and, additionally, a more consistent insulin exposure over the 3 days of infusion set life.

Interim data from an ongoing study evaluating Hylenex with analog insulin pump therapy confirmed that pre-administration of Hylenex at the time of infusion set change provided an accelerated and more consistent insulin action profile, which resulted in meaningful, statistically significant improved, postprandial glucose control. In fact, at 1-hour post-meal, patients treated with Hylenex experienced a reduction in postprandial glucose excursions by more than 40 points in this study.

Again, improved management of blood sugar swings and predictability is an important aspect of managing this chronic disease, and the preliminary data from this study are very encouraging and indicated that Hylenex might help people living with Type 1 diabetes reduce mealtime glucose fluctuations.

We continue to assess the opportunities for both multiple daily injection and continuous subcutaneous insulin infusion markets, and we'll be in a position to provide you with more clarity on our strategy at the Analyst Investor Day on October 2 in New York. Invitations to that event have been sent out, so if you're planning on attending, we encourage you to register. If you did not receive one and would like to, please get in touch with Anne Erickson at IR, and she'll make sure to get you the information you need. And we look forward to seeing everyone at the fall.

With regard to our other proprietary programs, we're making steady progress and remain on track to achieve key milestones. For example, with HTI-501, our recombinant human cathepsin, we're currently in the Phase II double-blind randomized portion of a clinical trial evaluating potential use and aesthetics. This program is advancing nicely, and we anticipate sharing the results of this study to you by year's end.

Before Kurt Gustafson comes online to provide more detail on our financial results for the second quarter of the 2012, I just want to reiterate our enthusiasm towards the remaining quarters of 2012. Although we've clearly got more work to do of the HyQ and Cinryze programs, the coming months are filled with significant near and midterm development catalysts as we continue to advance our pipeline with the products that have the potential to improve the lives of the patients we serve.

I'll now turn the call over to Kurt.

Kurt A. Gustafson

Thanks, Greg and hello to everyone. Earlier today, we announced our financial results for the second quarter of 2012. The net loss for the second quarter of 2012 was $14 million, or $0.13 per share, compared with the net income for the second quarter of 2011 of $3.1 million, or $0.03 per share. The net loss for the 6 months ended June 30, 2012 was $29.1 million or, $0.27 per share, compared to a net loss of $6.5 million, or $0.06 per share, for the same period last year.

Revenues for the second quarter of 2012 were $7.8 million compared to $23.2 million for the second quarter of 2011. Revenue was higher last year as we signed 2 partnerships, where we recorded $18 million of upfront licensing revenue. Research and development expenses for the second quarter of 2012 were $16.1 million, compared with $15.3 million for the second quarter of 2011. SG&A expenses for the second quarter of 2012 were $5.6 million compared to $4.6 million last year.

Cash and cash equivalents were $102 million as of June 30, 2012, and net cash used in the second quarter of 2012 was $14.6 million.

Lastly, we are leaving our 2012 cash burn guidance unchanged at $55 million to $60 million.

And I'll now turn the call back over to Greg.

Gregory I. Frost

Thanks, Kurt. While we received some disappointing news last week, I want to assure you that everyone at Halozyme is dedicated to doing what it takes to advance all the programs in our pipeline, on behalf of you, our shareholders and the patients we serve.

[Audio Gap]

Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of John Sonnier with William Blair.

John S. Sonnier - William Blair & Company L.L.C., Research Division

I just want to clarify on some of the commentary around the antibodies. It sounds like you've highlighted, Greg, both differences in type, as well as in magnitude. So if you could confirm that. And then on the magnitude, you're talking about just the absolute number comparing what the incidence of antibodies was trial to trial. Or are you talking about changes from baseline?

Gregory I. Frost

Sure, John. No, to be very specific, so this is not related to the type of antibodies observed. And as we mentioned, all of these were non-neutralizing antibodies and no signs of any allergic type reactions in any case. Specifically, this relates simply to the magnitude. And so as I mentioned last week, we use an analytical method for all of our programs. That's common, so you get an apples-to-apples comparison. And simply what's been observed is that titers or absolute levels of these antibodies, not the incidence per se, but the actual titers, which haven't been presented, which are orders of magnitude different than what you see in the general population. In contrast, what we've seen in the diabetes studies and also in the Herceptin studies, they actually look very similar to each other and that's essentially that the antibody levels in titer that you see after exposure to the enzyme are in the same general range of what you see in the population before exposure. In other words, no signs or signals about what we would call boosting, from that standpoint, or mounting an immune response to the protein.

John S. Sonnier - William Blair & Company L.L.C., Research Division

Well, I think you've seen like 5% to 10% as the baseline in a lot of the studies in the general population. So I guess what I'm trying to get at is whether or not there's been a disclosure around the order of magnitude change from baseline and the HyQvia study versus that, that was observed in the Roche studies?

Gregory I. Frost

No, no. What we have disclosed is the titer values, for example,what's been seen in the diabetes trials. And so what you have is the titer values. So of that 5% to 10%, how much antibody is present in the blood of those individuals? And then what is the change after exposure to enzyme? And so the change that you see after exposure is essentially in the same range of what you see prior to exposure. So if a patient is positive before and has a titer of, say, 1 to 500, is it 1 to 500 afterwards or is it higher? And that's what we're looking at on the basis of the general range on these types of things, which is similar between the Herceptin and diabetes studies.

John S. Sonnier - William Blair & Company L.L.C., Research Division

That's a helpful clarification. Just a quick one for Kurt. You had previously talked about a 24-team profitability goal. Is that maintained today? Is that still feasible without HyQvia?

Kurt A. Gustafson

Yes, John. I think the major drivers for us to achieve profitability have always been the Roche programs, given the size of those programs. And so yes, I think the Roche programs alone can certainly drive us to that. We'll probably provide some more specific guidance on that when we redo our numbers here in the fall and talk with you at Analyst Day. But if your question is if it's still feasible, clearly, the Roche programs can drive it by themselves.

Operator

Our next question comes from the line of Jason Butler with JMP Securities.

Jason N. Butler - JMP Securities LLC, Research Division

Just a follow-up question now on the titers. We did see an increase in frequency of patients positive for antibodies in the Herceptin study. Can we read from that, that FDA is more concerned with magnitude than incidents?

Gregory I. Frost

Yes, that's essentially what we're getting at here, Jason, which is that if you find, for example, with these very sensitive assays, you essentially want to go through a measure of someone who's mounting a response to the protein, and so essentially what you do is you're measuring their titers under what's called the longitudinal analysis, or before exposure at, during and after exposure. And so what you're seeing is that the types of antibody responses that you'd get after exposure in these populations are within the same sort of range that you see in the general population before.

Jason N. Butler - JMP Securities LLC, Research Division

Okay, great. And then acknowledging that we've only just had the top line data released, can you guys make any statements about what the antibiotic -- sorry, antibody profiles were in the MabThera Phase III trial?

Gregory I. Frost

No, I can't comment on that, only to say obviously, we've been in very active communication with Roche and have not been informed of any red flags from their standpoint at this point.

Operator

Our next question comes from the line of Chris Holterhoff with Oppenheimer.

Christopher Holterhoff - Oppenheimer & Co. Inc., Research Division

Just another question on the HyQvia program. Just wondering if you can kind of remind us and maybe speak generally about what type of preclinical data you already have on end versus new data you might need to generate that you think could address some of the agency's concerns on reproduction and development and fertility?

Gregory I. Frost

Sure. So just to be clear, kind of when we started on this is that there's no adverse events that have been seen to data associated with anti-PH20 antibodies. The questions of the Blood Products division aren't based on any animal finding, for example, that we have with the enzyme, which includes the full battery of tests, which includes fertility, development, as well as chronic administration. However, due to the magnitude of the titers that were observed, they're essentially asking for preclinical safety studies to evaluate the potential risk of exposure to these antibodies in a similar battery of tests in relevant models. So what we're doing right now is we've kind of mentioned is a gap analysis of the studies that have been performed, how many of them developed antibodies that are relevant or not relevant, and then as for as the specific animal model, whether or not the ones that have been performed address the concerns or not. And so some of the animal models that we performed to date, we have a pretty good evaluation of that. And then in others, it's going to require, I think, discussion with the agency and proposals based upon that gap analysis, as far as how you do fill those.

Christopher Holterhoff - Oppenheimer & Co. Inc., Research Division

Okay. That's helpful. And then maybe just one for Kurt. On the cash burn guidance for this year. I know it's unchanged, so I'm just kind of wondering what that implies. Should we read into that, that you don't plan on starting any new significant preclinical or clinical studies to address some of these HyQvia concerns maybe before the end of this year?

Kurt A. Gustafson

Yes, Chris. I think we don't really know what those studies will be until we sit down with FDA. I guess, we have a sense of what they might be. There's also -- we have to have a conversation with Baxter about the reimbursement of those. So yes, until we can get a little bit more data, we don't have a -- we didn't have an ability to raise the forecast, if you will. And I think Chris, by the time we meet with the FDA and design those things, the impact, especially if we're thinking about preclinical studies, I don't think we're going to see a large impact from that.

Christopher Holterhoff - Oppenheimer & Co. Inc., Research Division

Okay. That's great. And then just lastly, can you just break down your -- the product revenues between Hylenex and [indiscernible] this quarter?

Kurt A. Gustafson

I think as we've said earlier, Chris, in the year that we're not going to provide any specific revenue guidance on Hylenex and break this out until it becomes a meaningful number. These numbers are still real small. And I think that we'll probably talk more about it as the quarters progress and this becomes a more meaningful number.

Operator

[Operator Instructions] Our next question comes from the line of Dan Chung with Jefferies.

Daniel Chung - Jefferies & Company, Inc., Research Division

This is actually a question for Kurt. Do you have a forecast on the stock option expenses for 2012?

Kurt A. Gustafson

Yes, we do. But I don't -- it's not a number that we provide. I think the best guidance that I could give you there is to take a look at where we've been historically. We have a few more staff than we had probably in previous years. And so you -- one would expect that that goes up slightly based on that number. But I can't provide you any specific guidance on that.

Operator

Our next question comes from the line of Ying Huang with Barclays.

Ying Huang - Barclays Capital, Research Division

Number one, Greg, can you elaborate a little bit about why FDA is concerned with specifically around reproductive and development issues even though they do not see anything in human patients. And then, number two, I understand that Roche subcu -- subcu Herceptin are using the so-called second-generation technology, which does not have any [indiscernible] in that formulation. Beyond that, can you tell us what's the difference between the 2 formulations used by HyQ versus the Roche programs?

Gregory I. Frost

Sure, Ying. Well, so let's see if I can tackle those 2 questions specifically. So the first one, as far as the FDA's concerns, so just to start with that. As a reminder, we didn't see any adverse events in patients that had anti-PH20 antibodies that gave rise to these concerns or any preclinical toxicology animal findings. The questions are raised about understanding the effect of exposure of these antibodies in a standard safety assessment settings. So the studies on fertility, reproduction and early development, they're much like the standard battery of tox tests that we've already completed, and this is essentially your standard battery that one performs. So the CRLs requested that we address any potential risk of exposure to elevated enzyme titers in the HyQ program through a similar battery of test. Now your second question, which is regarding Roche. So we have multiple scales and processes for bulk enzyme production, and these are provided to our partners for formulation into distinct drug products. While these differences, I think, could in theory have an impact in immunogenicity, our analysis, which has been reviewed with the regulatory agencies last week, suggests that the difference in immunogenicity profile that's been observed is unrelated to these manufacturing differences.

Operator

Our next question comes from the line of Jesse Grossman [ph] with Jesse Grossman.

Unknown Analyst

I think this is for Kurt. The sales from the Roche 6 months indicated approximately $2 billion for Herceptin, which is x Japan and x United States. And those $2 billion were made up about 50% Western Europe and 50% rest of the world. And MabThera was about $1.6 billion with the same 50-50 breakdown. For purposes of modeling, would you consider the rest of the world sales?

Kurt A. Gustafson

Well, yes, from the standpoint of what the license that Roche signed with us, it was a worldwide license. And so as we think about where Roche is studying both Herceptin, as well as MabThera, these studies are going on. I mean, basically, it's everywhere but the U.S. at this point. And I think one of the recent studies that they're doing for Herceptin was in over 60 different countries around the world. So yes, I guess, the answer is the way we would look at this from a modeling standpoint would be to include Western Europe, as well as other places in the rest of the world.

Operator

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

Gregory I. Frost

Thanks. This concludes today's conference call. And thanks again for joining us.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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